-----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, MLKNCUPMxOmTVXE4yYs7x8CUBDuvaf5xQMrhL6xxYDq50/3zmZACW+sWdxV1ui+g RfxDsgBsdUg/mh+hsENcrQ== 0000950144-01-004459.txt : 20010409 0000950144-01-004459.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950144-01-004459 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELHAIZE AMERICA INC CENTRAL INDEX KEY: 0000037912 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 560660192 STATE OF INCORPORATION: NC FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-15275 FILM NUMBER: 1588553 BUSINESS ADDRESS: STREET 1: PO BOX 1330 CITY: SALISBURY STATE: NC ZIP: 28145 BUSINESS PHONE: 7046338250 MAIL ADDRESS: STREET 1: PO BOX 1330 CITY: SALISBURY STATE: NC ZIP: 28145 FORMER COMPANY: FORMER CONFORMED NAME: FOOD LION INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FOOD TOWN STORES INC DATE OF NAME CHANGE: 19830510 10-K405 1 g68126e10-k405.txt DELHAIZE AMERICA INC 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2000. Commission File No. 1-15275 DELHAIZE AMERICA, INC. (Exact name of registrant as specified in its charter) 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:
Name of each exchange Title of each class on which registered ------------------- ----------------------- Class A Common Stock, par value $.50 per share New York Stock Exchange Class B Common Stock, par value $.50 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 (ss. 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 23, 2001, was $634,576,434 and $1,282,770,905, 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 percent of the outstanding voting stock of the Registrant. Outstanding shares of common stock of the Registrant as of March 23, 2001. Class A Common Stock - 106,195,155 Class B Common Stock - 75,290,542 Exhibit index is located on sequential page 70 hereof. DOCUMENTS INCORPORATED BY REFERENCE NONE 2 PART I Item 1. Business. Delhaize America, Inc. (Delhaize America or the "Company") engages in one line of business, the operation of retail food supermarkets in the eastern United States. The Company was incorporated in North Carolina in 1957 and maintains its corporate headquarters in Salisbury, North Carolina and Scarborough, Maine. Delhaize America is a holding company having three subsidiaries that operate primarily under the banners Food Lion, Hannaford and Kash n' Karry. The Company's stores, which are operated under the banners "Food Lion," "Hannaford" 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 care, prescriptions, 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," "Hannaford" and "Kash n' Karry." Sales of private label products represented 16%, 20% and 15% of Food Lion's, Hannaford's and Kash n' Karry's respective sales in fiscal 2000. The products sold by the Company are purchased through buying departments in Salisbury, North Carolina and Portland, Maine. 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, super-centers, discount food stores, single unit stores, convenience stores, warehouse clubs and drug stores. 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 December 30, 2000, 1,420 supermarkets were in operation as follows:
Food Lion Hannaford Bros. Kash n' Karry Total --------- --------------- ------------- ----- Delaware 14 14 Florida 42 136 178 Georgia 61 61 Kentucky 13 13 Maine 46 46 Maryland 66 66 Massachusetts 6 6 New Hampshire 22 22 New York 26 26 North Carolina 446 446 Pennsylvania 9 9 South Carolina 120 120 Tennessee 89 89 Vermont 8 8 Virginia 298 298 West Virginia 18 18 ----- --- --- ----- 1,176 108 136 1,420 ===== === === =====
As of March 23, 2001, the Company had opened eight supermarkets since December 30, 2000, and relocated one supermarket and signed leases for nine supermarkets which are expected to open in either 2001 or 2002. 2 3 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; South Portland and Winthrop, Maine; Salisbury, Butner and Dunn, North Carolina; Schodack, New York; Greencastle, Pennsylvania; Elloree, South Carolina; Clinton, Tennessee; and Disputanta, Virginia. As of December 30, 2000, the Company employed 44,303 full-time and 76,137 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 fiscal years.
# Stores # Stores # Stores # Stores Opened Opened Closed Relocated Year-end -------- -------- --------- --------------- 2000 172 (a) (18) (b) (10) 1,420 1999 100 (10) (21) 1,276 1998 79 (12) (17) 1,207
(a) Includes 106 stores acquired from Hannaford Bros. (b) Includes 13 Save n' Pack store closings RECENT DEVELOPMENTS On November 16, 2000, the Company and Etablissements Delhaize Freres et Cie "Le Lion" S.A. ("Delhaize Group"), the owner of approximately 56% of the Company's vote stock as of March 15, 2001, entered into an agreement for a share exchange whereby each outstanding share of the Company's Class A and Class B common stock not already owned by Delhaize Group will be exchanged for 0.40 Delhaize Group American Depositary Shares, or ADSs, or, at the option of a Delhaize America shareholder, 0.40 Delhaize Group ordinary shares. Each Delhaize Group ADS will represent one ordinary share of Delhaize Group. Delhaize Group intends to apply for listing of the Delhaize Group ADSs on the New York Stock Exchange under the symbol "DEG" and Delhaize Group ordinary shares are traded on Euronext Brussels under the symbol "DELB". The Board of Directors of Delhaize America, acting upon the unanimous recommendation of a special committee of independent directors, has unanimously approved the share exchange. The share exchange cannot be completed unless the Delhaize America shareholders vote to approve the share exchange. Approval of the share exchange requires the affirmative vote of a majority of the outstanding Class A and Class B common stock of Delhaize America, each voting as a separate class. The Company has scheduled a special meeting on April 25, 2001 for the shareholders to vote on the share exchange and related matters. If the share exchange is consummated, the Company will become a wholly-owned subsidiary of Delhaize Group and 43% of Delhaize Group's ordinary shares will be held by former Delhaize America shareholders. The Company expects the transaction to be consummated during the second quarter of 2001. Item 2. Properties. The Company operated 1,176 supermarkets under the Food Lion banner in the mid-Atlantic and southeastern regions of the United States. Food Lion stores average approximately 34,500 square feet. The current Food Lion store prototype is approximately 38,000 square feet. At the end of fiscal 2000, the Company operated 108 Hannaford Bros. supermarkets, 72 of which are combination stores. Hannaford Bros. operates under the Hannaford and Shop`n Save banners in Maine, New Hampshire, Vermont, upstate New York and Massachusetts. Combination stores consist of traditional all-department supermarkets, together with pharmacies, other services and expanded general merchandise under one roof. Hannaford Bros. stores average approximately 49,000 square feet. The current Hannaford store prototypes are approximately 35,000 square feet and 55,000 square feet. At the end of fiscal 2000, the Company operated 136 Kash n' Karry supermarkets in central Florida. Kash n' Karry stores average approximately 40,500 square feet. The current Kash n' Karry store prototype is approximately 46,000 square feet. All of the Company's supermarkets are self-service stores which have off-street parking facilities. With the exception of operating 100 owned supermarkets, the Company occupies its various supermarket premises under lease agreements providing for initial terms of up to 30 years, with renewal options generally ranging from five to 20 years. At the end of 2000 the Company had $36.6 million (net book value) in property held for sale. The following table identifies the location and square footage of its 12 distribution centers and office space operated by the Company as of December 30, 2000. 3 4
Square Feet Location (in thousands) Salisbury, North Carolina 1,630 Greencastle, Pennsylvania 1,236 Dunn, North Carolina 1,225 Disputanta, Virginia 1,124 Elloree, South Carolina 1,099 Green Cove Springs, Florida 832 Clinton, Tennessee 833 Plant City, Florida 760 South Portland, Maine 520 Schodack, New York 425 Butner, North Carolina 370 Winthrop, Maine 198 ------ 10,252 ====== Corporate Headquarters, Salisbury, North Carolina 272 Corporate Headquarters, Scarborough, Maine 280
Item 3. Legal Proceedings. The Company is from time to time involved in legal actions in the ordinary course of its business. The Company is not aware of any pending or threatened litigation, arbitration or administrative proceedings involving claims or amounts that, individually or in the aggregate, the Company believes are likely to materially harm its business, financial condition or future results of operations. Any litigation, however, involves risk and potentially significant litigation costs, and therefore the Company cannot give any assurance that any litigation which may arise in the future will not materially harm the Company's business, financial condition or future results of operations. Item 4. Submission of Matters to a Vote of Security Holders. This item is not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. 4 5 Market Price of Common Stock
Year Ended December 30, 2000 Year Ended January 1, 2000 Class A Class B Class A Class B Quarter High Low High Low High Low High Low - ------------------------------------------------------------------------------------------------------------------ First 20.56 16.19 21.38 16.50 33.38 27.56 32.06 27.38 Second 19.00 17.00 19.88 16.75 36.00 25.88 36.00 25.50 Third 18.81 14.50 18.63 14.88 38.16 23.44 37.50 24.00 Fourth 18.31 16.00 18.31 15.94 24.19 17.38 25.06 18.75
The Company's Class A and Class B common stock trade on the New York Stock Exchange under the symbols DZA and DZB, respectively. Price quotations are reported on the New York Stock Exchange. The closing market prices per share for both Class A and Class B common stock at December 30, 2000 were $17.69 and $18.00, respectively compared with $20.31 and $20.88, respectively for both Class A and Class B common stock at January 1, 2000. On March 23, 2001, there were 23,175 holders of record of Class A common stock and 11,160 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 23, 2001 were $19.35 and $19.30, respectively. Dividends Declared Per Share of Common Stock
Year Ended December 30, 2000 Year Ended January 1, 2000 - ------------------------------------------------------------------------------------ Quarter Class A Class B Class A Class B First $.1443 $.1426 $.1260 $.1245 Second .1443 .1426 .1260 .1245 Third .1443 .1426 .1260 .1245 Fourth .1443 .1426 .1260 .1245 ------ ------ ------ ------ Total $.5772 $.5704 $.5040 $.4980 ====== ====== ====== ======
5 6 Item 6. Selected Financial Data.
Five Year Summary of Operations - ------------------------------- 2000 1999 1998 (Dollars in thousands (52 weeks) (52 weeks) (52 weeks) except per share amounts) (b) - -------------------------------------------------------------------------------------------------------------------- Financial Data: 1. Net sales and other revenues $ 12,669,932 10,891,231 10,230,840 2. Same store sales percent change % 0.84 1.82 2.57 3. Cost of goods sold $ 9,562,855 8,209,491 7,794,754 4. Selling and administrative expenses $ 2,522,094 2,077,781 1,894,989 5. Asset impairment provision $ 26,961 1,495 3,460 6. Store closing charge/(income) $ 42,834 12,605 14,321 7. Operating income $ 476,642 588,394 523,316 8. Depreciation and amortization $ 372,541 258,512 236,021 9. Interest expense $ 213,057 103,820 95,334 10. Income before income taxes $ 263,585 484,574 427,982 11. Net income $ 155,486 300,435 272,585 12. Current assets $ 1,782,751 1,672,923 1,533,028 13. Non-current assets $ 6,144,045 2,304,092 2,163,275 14. Total assets $ 7,926,796 3,977,015 3,696,303 15. Current liabilities $ 4,063,701 1,251,364 1,031,034 16. Long-term debt $ 455,240 426,930 429,763 17. Capital lease obligations, deferred taxes and other liabilities $ 966,696 619,855 636,584 18. Shareholders' equity $ 2,441,159 1,678,866 1,598,922 19. Cash dividends Class A $ 49,960 41,045 36,832 Class B $ 42,947 37,949 34,439 20. Weighted average shares outstanding (000) 166,176 157,109 159,361 21. Weighted average diluted shares outstanding (000) 168,665 157,297 159,707 22. Basic earnings per share (a) $ .94 1.91 1.71 23. Diluted earnings per share $ .92 1.91 1.71 24. Dividends per share (a) $ .559 .503 .447 25. Book value per share (a) $ 14.69 10.69 10.03 26. Asset turnover X 2.13 2.84 2.84 27. Return on sales % 1.23 2.76 2.66 28. Return on assets % 2.61 7.83 7.56 29. Total debt/ total capital % 61.82 42.38 39.59 30. Return on equity % 7.55 18.33 18.59 31. Return on investment % 14.74 19.56 18.64 32. Current ratio X .44 1.34 1.49 Other Data: 33. Store count 1,420 1,276 1,207 34. Stores opened/acquired 172 100 79 35. Stores relocated (10) (21) (17) 36. Stores closed (18) (10) (12) 37. Total retail square footage (000) 51,366 43,020 38,887 38. Capital expenditures $ 392,968 410,888 356,058 39. Number of employees 120,440 93,668 92,125 40. Recapitalization and stock splits -- 1 for 3 --
6 7
Five Year Summary of Operations - ------------------------------- 1997 1996 (Dollars in thousands (53 weeks) (52 weeks) except per share amounts) (c)(d) - ------------------------------------------------------------------------------------------------ Financial Data: 1. Net sales and other revenues $ 10,205,802 9,015,502 2. Same store sales percent change % 0.22 5.70 3. Cost of goods sold $ 7,857,106 6,972,239 4. Selling and administrative expenses $ 1,866,529 1,615,386 5. Asset impairment provision $ 0 22,187 6. Store closing charge/(income) $ 84,402 (27,600) 7. Operating income $ 397,765 433,290 8. Depreciation and amortization $ 219,833 165,286 9. Interest expense $ 115,389 80,520 10. Income before income taxes $ 282,376 352,770 11. Net income $ 172,250 215,220 12. Current assets $ 1,347,411 1,540,215 13. Non-current assets $ 2,167,995 2,052,884 14. Total assets $ 3,515,406 3,593,099 15. Current liabilities $ 939,242 1,207,155 16. Long-term debt $ 586,355 495,111 17. Capital lease obligations, deferred taxes and other liabilities $ 656,624 665,745 18. Shareholders' Equity $ 1,333,185 1,225,088 19. Cash dividends Class A $ 31,825 26,436 Class B $ 30,923 25,874 20. Weighted average shares outstanding (000) 156,305 156,739 21. Weighted average diluted shares outstanding (000) 161,364 161,743 22. Basic earnings per share (a) $ 1.10 1.37 23. Diluted earnings per share $ 1.09 1.35 24. Dividends per share (a) $ .401 .334 25. Book value per share (a) $ 8.53 7.82 26. Asset turnover X 2.87 2.87 27. Return on sales % 1.69 2.39 28. Return on assets % 4.85 6.84 29. Total debt/total capital % 46.94 50.24 30. Return on equity % 13.47 18.49 31. Return on investment % 15.81 18.61 32. Current ratio X 1.43 1.28 Other Data: 33. Store count 1,157 1,112 34. Stores opened/acquired 164 64 35. Stores relocated (25) (22) 36. Stores closed (94) (3) 37. Total retail square footage (000) 36,107 32,615 38. Capital expenditures $ 346,134 283,564 39. Number of employees 83,871 73,170 40. Recapitalization and stock splits -- --
7 8 Notes to Five Year Summary of Operations (a). Amounts are based upon the weighted average number of the Class A and Class B common shares outstanding. (b). Results of operations of Hannaford, acquired in July 2000, are included in results of operations beginning July 31, 2000. (c). Results of operations of Kash n' Karry, acquired in December 1996, are included in results of operations beginning in fiscal 1997. (d). In 1997, the Company recorded a charge of $84.4 million related to the divestiture of its Southwest Market. DEFINITIONS Line 20. WEIGHTED AVERAGE SHARES OUTSTANDING: Weighted average shares outstanding have been restated to reflect the reverse stock split in 1999. 21. WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING: Weighted average diluted shares outstanding have been restated to reflect the reverse stock split in 1999. 22. BASIC EARNINGS PER SHARE: Net income per common share (line 11 / line 20). 23. DILUTED EARNINGS PER SHARE: Net income per common and potential shares outstanding. 24. DIVIDENDS PER SHARE: Cash dividends per common share (line 19 / line 20). 25. BOOK VALUE PER SHARE: Book value of shareholders' equity per common share (line 18 / line 20). 26. ASSET TURNOVER: The ratio of sales per dollar of assets employed during the year. It is calculated by dividing sales by the average total assets (line 1 / average line 14). 27. RETURN ON SALES: The percentage of net income earned on each dollar of sales (line 11 / line 1). 28. RETURN ON ASSETS: The percentage of net income earned on average total assets (line 11 / average line 14). 29. TOTAL DEBT/ TOTAL CAPITAL: The percentage of debt to shareholders' equity. It is calculated by dividing debt (short-term debt, long-term debt and capital lease obligations) by the sum of debt and shareholders' equity. 30. RETURN ON EQUITY: The percentage of net income earned on average shareholders' equity (line 11 / average line 18). 31. RETURN ON INVESTMENT: The percentage of net income, excluding interest expense, to invested capital ([line 11 + line 9]/[average line 16 + average line 18]). 32. CURRENT RATIO: The ratio of current assets to current liabilities (line 12 / line 15). 33. STORE COUNT: Number of stores operating at year-end. 39. NUMBER OF EMPLOYEES: Number of full-time and part-time employees at year-end. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. OVERVIEW We reported net sales and other revenues of $12.7 billion in fiscal 2000, compared to $10.9 billion in fiscal 1999 and $10.2 billion in fiscal 1998. Net income was $155.5 million in 8 9 fiscal 2000 compared to $300.4 million in fiscal 1999 and $272.6 million in fiscal 1998. Earnings before costs associated with the Hannaford acquisition and store closing and asset impairment provisions were $222.7 million in fiscal 2000 compared to $310.1 million and $283.6 million in fiscal 1999 and fiscal 1998, respectively. On July 31, 2000, we completed our acquisition of Hannaford. The financial information discussed in this management's discussion and analysis includes the results of Hannaford's operations for the 22 weeks beginning July 31, 2000 and ending December 30, 2000. During fiscal 2000, we opened 66 new stores, closed 28 existing stores (including 10 relocations) and acquired 106 stores in the Hannaford acquisition, resulting in a net increase of 144 stores. At the end of fiscal 2000, we operated 1,420 stores, compared to 1,276 stores at the end of fiscal 1999 and 1,207 stores at the end of fiscal 1998. We remodeled 173 stores in fiscal 2000, compared to 145 stores in fiscal 1999 and 141 stores in fiscal 1998. Earnings before interest, taxes, depreciation, amortization, LIFO (income) expense, merger expense, store closing provision and asset impairment provision ("EBITDA") was $956.5 million in fiscal 2000, compared to $866.3 million in fiscal 1999 and $801.8 million in fiscal 1998, representing annual increases of 10.4% and 8.0%, respectively. Our management and industry analysts generally consider EBITDA to be a measurement of the financial performance of our company that provides a relevant basis for comparison among companies. EBITDA is not a measurement of financial performance under U.S. GAAP and should not be considered as a substitute for net income as a measure of performance, or for cash flow as a measure of liquidity. Investors should note that our calculation of EBITDA might differ from similarly titled measures for other companies. The following table sets forth, for the periods indicated, a calculation of our EBITDA:
Fiscal Year Ended Dec. 30, 2000 Jan. 1, 2000 Jan. 2, 1999 ------------- ------------ ------------ (dollars in millions) Net income.............................................. $155.5 $300.4 $272.6 Add..................................................... LIFO (income) expense ............................ (1.0) 3.8 24.7 Depreciation...................................... 327.6 249.0 226.0 Amortization of intangible assets................. 44.9 9.6 10.0 Store closing provision........................... 42.8 12.6 14.3 Asset impairment provision........................ 27.0 1.5 3.5 Merger expense.................................... 38.5 1.5 - Interest expense.................................. 213.1 103.8 95.3 Income taxes...................................... 108.1 184.1 155.4 ------ ------ ------ EBITDA.................................................. $956.5 $866.3 $801.8 ====== ====== ====== EBITDA as a percent of sales and other revenues......... 7.5% 8.0% 7.8%
RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage which the listed amounts bear to net sales and other revenues:
Fiscal Year Ended Dec. 30, 2000 Jan. 1, 2000 Jan. 2, 1999 ------------- ------------ ------------ Net sales and other revenues............................. 100.00% 100.00% 100.00% Cost of goods sold....................................... 75.48 75.38 76.19 Selling and administrative expenses...................... 19.91 19.08 18.52 Store closing provision.................................. 0.34 0.12 0.14 Asset impairment provision............................... 0.21 0.01 0.03 Merger expense........................................... 0.30 0.01 - ---- ---- ---- Operating income......................................... 3.76 5.40 5.12 Interest expense......................................... 1.68 0.95 0.93 ---- ---- ---- Income before income taxes............................... 2.08 4.45 4.19 Provision for income taxes............................... 0.85 1.69 1.52 ---- ---- ---- Net income .............................................. 1.23% 2.76% 2.67% ==== ==== ====
9 10 SALES We derive revenues primarily from the sales of products in our stores. Sales and other revenues were $12.7 billion in fiscal 2000, compared to $10.9 billion in fiscal 1999 and $10.2 billion in fiscal 1998, resulting in annual increases of 16.3%, 6.5% and 0.2%, respectively. Our increase in sales in fiscal 2000 primarily resulted from 106 stores acquired in our acquisition of Hannaford, the opening of 66 new stores, and the remodeling of 173 existing stores. Comparable store sales, which include results from expanded and relocated stores, increased 0.8% during fiscal 2000, compared to increases of 1.8% and 2.6% in fiscal 1999 and fiscal 1998, respectively. At the end of fiscal 2000, we operated 1,420 stores, which consisted of 1,176 stores operating under the Food Lion banner, 108 stores operating under the Hannaford and Shop n' Save banners and 136 Kash n' Karry stores. In fiscal 2000, we opened 55 Food Lion stores, two Hannaford stores and nine Kash n' Karry stores. In fiscal 2000, we remodeled 134 Food Lion stores, five Hannaford stores and 34 Kash n' Karry stores. Our remodeling efforts included the updating of equipment and properties, as well as increasing the square footage and adding deli/bakeries to select stores. At the end of fiscal 2000, we had 51.4 million square feet of space in our stores, representing an increase of 19.4% compared to 43.0 million square feet of space at the end of fiscal 1999. During fiscal 2000, we also relocated 10 Food Lion stores and closed five Food Lion stores and 13 Save `n Pack stores. We have discontinued the Save `n Pack banner in Florida and expect to convert the remaining five Save `n Pack stores to the Kash n' Karry banner in fiscal 2001. We continue to benefit from our MVP and the PCC customer loyalty card programs. These programs, which are primarily vendor-supported, provide our customers with additional discounts on a selection of featured items. In fiscal 2000, the MVP customer loyalty card program at our Food Lion stores accounted for approximately 70% of Food Lion's sales and 50% of all transactions at Food Lion stores. In addition, during the last 12 weeks of fiscal 2000, more than seven million households used an MVP card and their purchases were two and one half to three times the size of non-MVP transactions. In fiscal 2000, the PCC loyalty card program at our Kash n' Karry stores accounted for approximately 50% of Kash n' Karry's sales and 40% of all transactions at Kash n' Karry stores. Items promoted on the PCC card averaged more than 2,000 per week in fiscal 2000 and PCC card transactions were almost twice the size of non-PCC card transactions. Kash n' Karry has currently issued more than one million PCC cards. Working with our vendors, we have increased targeted promotions and direct mail programs to our MVP and PCC card customers. We expect both the MVP and PCC loyalty card programs to continue to grow. In fiscal 2001, we intend to open 44 new stores, including 37 Food Lion stores, two Hannaford stores and five Kash n' Karry stores. During fiscal 2001, we also intend to relocate seven stores, resulting in a net increase of 37 stores. Our fiscal 2001 plans also include remodeling 217 stores, including 187 Food Lion stores, 15 Hannaford stores and 15 Kash n' Karry stores. We believe that our growth plan for 2001 will enable us to maintain our competitive edge in a number of our current markets. Store remodeling, on average, adds approximately 10% to a store's sales. In addition, we will continue to evaluate our store base and may close stores to take advantage of relocation opportunities or eliminate operating losses in under-performing stores. However, our growth strategy is flexible and we intend to revise our strategy accordingly in order to meet current and future customer needs. GROSS PROFIT Gross profit as a percentage of sales was 24.52% in fiscal 2000, compared to 24.62% and 23.81% in fiscal 1999 and fiscal 1998, respectively. Gross profit in fiscal 2000 was adversely affected by the cost of markdowns, changes in the mix of products sold at our Food Lion stores as we responded to an intense competitive environment in the southeastern United States and inventory shrinkage. We plan to continue or implement strategies for expanding gross margins, such as enhancing merchandise offerings, pursuing procurement opportunities, managing retail prices and reducing inventory shrinkage. Private label sales, which varied by banner from 15% to 20% of total sales in fiscal 2000, continue to positively impact our gross profit percentage. The increase in gross profit in fiscal 1999 compared to fiscal 1998 was primarily due to category management initiatives and promotional activity through our MVP and PCC customer loyalty card programs. 10 11 SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses (which include depreciation and amortization) as a percentage of sales were 19.91% in fiscal 2000, 19.08% in fiscal 1999 and 18.52% in fiscal 1998. Excluding depreciation and amortization, selling and administrative expenses as a percentage of sales were 16.97%, 16.70% and 16.22% for fiscal 2000, fiscal 1999 and fiscal 1998, respectively. During fiscal 2000, selling and administrative expenses were negatively impacted as we continued to experience increasing labor costs due to the low unemployment rates in our operating markets, which, in turn, has created higher turnover as well as wage and benefit increases. Other increases in selling and administrative expenses in fiscal 2000 were store rent, utilities, and store operating expenses incurred primarily as a result of 64 new leased stores and expansions of existing stores. Depreciation and amortization as a percentage of sales was 2.94% in fiscal 2000 compared to 2.37% in fiscal 1999 and 2.31% in fiscal 1998. In fiscal 2000, we recorded $35.6 million (0.28% of fiscal 2000 sales) in goodwill and intangible asset amortization due to the Hannaford acquisition. We constructed and equipped 64 leased stores and two owned stores and remodeled 173 stores during fiscal 2000. In fiscal 1999, we constructed and equipped 92 leased stores and eight owned stores and remodeled 145 stores and in fiscal 1998, we constructed and equipped 72 leased stores and seven owned stores and remodeled 141 stores. STORE CLOSINGS The following table is presented to show the number of stores closed and planned to be closed at the end of each year, along with the number of stores committed for closure during the year, the number of stores closed, the number of closed stores acquired and the number of stores sold or for which the lease was terminated.
Closed Planned Total Closings As of January 3, 1998 179 24 203 Stores added -- 33 33 Stores acquired 6 -- 6 Planned closings completed 28 (28) -- Stores sold/lease terminated (82) -- (82) Stores not closed (Kash n' Karry) -- (3) (3) ---- --- ---- As of January 2, 1999 131 26 157 Stores added -- 16 16 Stores acquired 14 -- 14 Planned closings completed 35 (35) -- Stores sold/lease terminated (24) -- (24) ---- --- ---- As of January 1, 2000 156 7 163 Stores added -- 36 36 Stores acquired 25 1 26 Planned closings completed 30 (30) -- Stores sold/lease terminated (24) -- (24) ---- --- ---- As of December 30, 2000 187 14 201 ==== === ====
The following table reflects closed store liabilities at each year end and activity during the year including additions to closed store liabilities charged to operations, additions for closed stores acquired in purchase transactions, adjustments to liabilities based on changes in facts and circumstances and payments made.
(dollars in millions) 2000 1999 1998 ---- ---- ---- Balance, beginning of year $106.8 $113.5 $130.5 Additions charged to earnings: Store closings - lease obligations 33.5 13.7 12.2 Store closings - other exit costs 4.6 1.7 2.8 Adjustments to prior year estimates - lease obligations 0.8 (1.0) 1.1 Adjustments to prior year estimates - other exit costs 3.9 -- (1.0) Reserves reversed to income -- (1.8) (0.8) ----- ----- ----- Total charge to earnings 42.8 12.6 14.3 ----- ----- -----
11 12 Reductions: Lease payments made (11.0) (8.2) (7.2) Lease termination payments (3.4) (10.5) (15.5) Payments for other exit costs (6.0) (3.8) (4.8) ------ ------ ------ Total reductions (20.4) (22.5) (27.5) ------ ------ ------ Closed store liabilities associated with purchase transactions: Lease obligations 39.8 2.4 2.8 Other exit costs 19.9 0.8 0.6 Adjustment to goodwill (3.7) -- (7.2) ------ ------ ------ Total acquired liabilities 56.0 3.2 (3.8) ------ ------ ------ Balance, end of year $185.2 $106.8 $113.5 ====== ====== ======
The fiscal 2000 end of year balance of $185.2 million is comprised of lease liabilities and exit cost liabilities of $152.3 million and $32.9 million, respectively. The fiscal 1999 balance of $106.8 million is comprised of $96.9 million and $9.9 million, respectively, and the fiscal 1998 balance of $113.5 million consisted of $102.3 million and $11.2 million, respectively, and the fiscal 1998 opening balance is comprised of $116.9 million and $13.6 million, respectively. The Company provided for closed store liabilities in each of the fiscal years presented above relating to the estimated post-closing lease liabilities and related other exit costs associated with the store closing commitments reflected in the above table. These other exit costs include estimated real estate taxes, common area maintenance, insurance and utility costs to be incurred after the store closes. Adjustments to closed store liabilities and other exit costs primarily relate to changes in subtenants and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known. Any excess store closing liability remaining upon settlement of the obligation is reversed to income in the period that such settlement is determined. During fiscal 2000, the Company recorded additions to closed store liabilities of $59.7 million related to 26 store properties acquired, or for which the lease was assumed, in the Hannaford acquisition. All but one of the 26 stores included in the reserve had been closed prior to the acquisition date. The remaining activities associated with exiting these stores are to maintain the store under the leasehold requirements, to dispose of any owned property and equipment and to settle the remaining lease obligations. The acquired Hannaford liabilities for closed stores include $39.8 million related to the present value of future unrecoverable lease liabilities with remaining non-cancelable terms ranging from 3 to 22 years. Other accrued exit costs are approximately $19.9 million for activities that are directly related to the remaining lease obligations, comprised of $10.3 million for real estate taxes, $7.9 million for property maintenance and utilities and $1.7 million for property insurance. Accrued exit costs are paid over the remaining lease term. A non-cash reduction in the amount of approximately $3.7 million was made prior to December 30, 2000, with a corresponding reduction in goodwill, principally related to a lease liability that was canceled. In fiscal 1999 and 1998, the Company acquired 14 closed stores and 6 closed stores, respectively. The related lease obligations and other exit costs of $3.2 million and $3.4 million for 1999 and 1998, respectively, were recorded as an addition to goodwill. In conjunction with the Kash n' Karry acquisition in late fiscal 1996, the Company identified 23 Kash n' Karry locations for closing based on either unacceptable performance or anticipated relocation of the store. The Company closed 13 of these stores in 1998 and 4 additional stores in 1999. Based on improved operating performance in 1998, a decision was made to not close 3 of the 23 identified Kash n' Karry locations. The original estimated store-closing costs of $7.2 million related to these three stores were recognized as a reduction of goodwill in 1998. It has taken the Company an unusually longer than anticipated time to execute its Kash n' Karry store closing plan due to real estate constraints in relocating the stores. The revenues and operating results for stores closed are not material to the Company's total revenues and operating results for any of the fiscal years presented above. Future cash obligations for closed store liabilities are tied principally to the remaining non-cancelable lease payments less sublease payments to be received. See Note 9 for a summary of the gross future cash flows for closed store lease obligations. IMPAIRMENT OF LONG-LIVED ASSETS The Company periodically evaluates the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful 12 13 lives. The Company monitors the carrying value of its long-lived assets, including intangible assets, for potential impairment based on projected undiscounted cash flows. If impairment is identified for long-lived assets other than real property, the Company compares the asset's future discounted cash flows to its current carrying value and records provisions for impairment as appropriate. With respect to owned property and equipment associated with closed stores, the value of the property and equipment is adjusted to reflect recoverable values based on the Company's previous efforts to dispose of similar assets and current economic conditions. Impairment of real property is recognized for the excess of carrying value over estimated fair market value, reduced by estimated direct costs of disposal. The carrying value of assets to be disposed amounted to approximately $36.6 million, $18.6 million and $21.0 million at December 30, 2000, January 1, 2000 and January 2, 1999 respectively. The pre-tax charge included in the income statement for asset impairment amounts to $27.0 million, $1.5 million, and $3.5 million for the 2000, 1999, and 1998, respectively. The fiscal 2000 impairment loss included $15.7 million attributable to certain under performing store assets as reported in the Company's third quarter based on discounted future cash flows associated with those store assets. The other impairment charges in each of the three fiscal years related principally to write-down of leasehold improvements and idle equipment from closed stores. MERGER EXPENSES Merger expenses in fiscal 2000 included principally the amortization of costs incurred in connection with the borrowings related to the Hannaford Bros. acquisition. INTEREST EXPENSE During fiscal 2000, we incurred interest expense of $213.1 million, compared to $103.8 million in fiscal 1999 and $95.3 million in fiscal 1998. As a percentage of sales, interest expense was 1.68% in fiscal 2000, 0.95% in fiscal 1999 and 0.93% in fiscal 1998. Interest expense increased in fiscal 2000 primarily as a result of short term borrowings related to the Hannaford acquisition. In fiscal 1998, we reached an agreement with the U.S. Internal Revenue Service, or IRS, regarding its examination of our tax years 1991 through 1994. As a result of this agreement, we received a refund related to taxes paid in previous years. The refund included interest income of $7.6 million, which was recorded during fiscal 1998 as a reduction to interest expense. In addition, interest expense was reduced by the conversion in fiscal 1998 of our convertible subordinated debentures to common stock. LIFO Our inventories are stated at the lower of cost or market and we value approximately 83% of our inventory using the last-in, first-out, or LIFO, method. Our LIFO reserve decreased $1.0 million in fiscal 2000 compared to increases of $3.8 million in fiscal 1999 and $24.7 million in fiscal 1998. We experienced a slight deflationary impact in fiscal 2000 in categories such as grocery, pet food and alcoholic beverages, which were partially offset by inflation in categories such as paper products and cigarettes. In fiscal 1999 and fiscal 1998, LIFO increases were primarily due to an increase in cigarette costs. INCOME TAXES The provision for income taxes was $108.1 million in fiscal 2000, $184.1 million in fiscal 1999 and $155.4 million in fiscal 1998. Our effective tax rate was 41.0% in fiscal 2000, 38.0% in fiscal 1999 and 36.3% in fiscal 1998. Our effective tax rate increased in fiscal 2000 over fiscal 1999 primarily as a result of non-deductible goodwill related to the Hannaford acquisition. Our effective tax rate for fiscal 1998 was reduced by the effect of a $7.2 million tax refund that we received from the IRS. We expect that our underlying effective tax rate for fiscal 2001 will be 38%, adjusted for the effect of non-deductible amortization of goodwill. LIQUIDITY AND CAPITAL RESOURCES We have funded our operations and acquisitions from cash generated from our operations and borrowings. At the end of fiscal 2000, we had cash and cash equivalents of $135.6 million. We have historically generated positive cash flow from operations. Cash provided by operating activities was $646.2 million in fiscal 2000, compared to $505.9 million in fiscal 1999 and $441.1 million in fiscal 1998. Cash flows from operating activities increased in fiscal 2000 and fiscal 1999 primarily as a result of our net income before non-cash charges. In addition, in fiscal 2000, we were able to reduce our receivables and inventory, net of trade payables, by $100.7 million. Offsetting this cash inflow was an increase in fiscal 2000 in income tax receivable of $53.4 million. We initiated strategies in fiscal 2000 to decrease our receivables and inventory and expect to continue these strategies to generate additional cash 13 14 flow in fiscal 2001. In both fiscal 1999 and fiscal 1998, we experienced an increase in inventory levels, net of trade payables, of $47.2 million and $72.0 million, respectively. Cash flows used in investing activities increased to $2.96 billion in fiscal 2000 compared to $391.3 million in fiscal 1999 and $246.2 million in fiscal 1998. The increase in investing activities in fiscal 2000 was primarily due to approximately $2.6 billion of cash used in the Hannaford acquisition, partially offset by increased proceeds from the sale of assets, which was attributable to the disposition of divested store properties related to the Hannaford acquisition. The increase in investing activities in fiscal 1999 compared to fiscal 1998 was primarily the result of an increase in capital expenditures. In addition, the decrease in investing activities in fiscal 1998 included proceeds from the sale of properties associated with the divestiture of our stores in the southwestern United States. Capital expenditures were $393.0 million in fiscal 2000 compared to $410.9 million in fiscal 1999 and $356.1 million in fiscal 1998. During fiscal 2000, we opened 66 new stores and renovated 173 existing stores and continued to expand square footage and add deli/bakeries in some of these stores as we did in fiscal 1999. During fiscal 1999, we opened 100 new stores and renovated 145 existing stores. During fiscal 1998, we opened 79 new stores and renovated 141 existing stores. Total store square footage increased 19.4% from 43.0 million square feet at the end of fiscal 1999 to 51.4 million square feet at the end of fiscal 2000, primarily due to the acquisition of 106 Hannaford stores and the opening of 66 new stores. Total store square footage increased 10.6% from 38.9 million square feet in fiscal 1998 to 43.0 million square feet at the end of fiscal 1999. Our total distribution space was 10.3 million square feet at the end of fiscal 2000 and 8.7 million square feet at the end of each of fiscal 1999 and fiscal 1998. The increase in distribution space in fiscal 2000 was primarily due to our acquisition of Hannaford and its related distribution centers. In fiscal 2001, we plan to incur approximately $450.0 million in capital expenditures, including approximately $202.0 million to renovate over 200 stores, approximately $105.0 million for new stores and approximately $143 million primarily for information technology, logistics, and distribution. Specifically, we expect to open a total of 44 new stores and remodel and/or expand approximately 200 existing stores, increasing square footage by 4.0% to 53.4 million square feet. We plan to finance capital expenditures during fiscal 2001 through funds generated from operations and existing bank facilities. Cash provided by financing activities was $2.3 billion in fiscal 2000 compared to cash used in financing activities of $44.5 million in fiscal 1999 and $164.6 million in fiscal 1998. Cash provided by financing activities increased in fiscal 2000 primarily as a result of $2.4 billion in short-term borrowings for the Hannaford acquisition. In fiscal 2000, we paid merger related financing costs of $46.0 million, which primarily includes fees paid in connection with the financing for the Hannaford acquisition. The decrease in cash flows provided by financing activities in fiscal 1999 was primarily the result of proceeds received under short-term borrowings offset partially by funds used under our share repurchase plan, as described below, and principal payments on long-term debt. During the third quarter of fiscal 1999, we suspended our share repurchase program as a result of our announced plan to acquire Hannaford. We expended $142.7 million for the purchase of Class A and Class B shares during fiscal 1999 compared to $50.2 million in 1998. The table below sets forth information regarding our share repurchases during fiscal 1999 and fiscal 1998.
FISCAL CLASS A CLASS B - ------ ----------- ----------- 1999 Shares purchased 2,759,700 1,636,100 Average purchase price $32.37 $32.61 Total purchased $89,331,489 $53,353,221 =========== =========== 1998 Shares purchased 1,028,567 632,333 Average purchase price $31.11 $28.80 Total purchased $31,998,719 $18,211,190 =========== ===========
DEBT At the end of fiscal 2000, we had approximately $2.4 billion outstanding under a $2.5 billion 364-day term loan facility that matures in July 2001. The borrowings under this facility were used to fund the cash portion of the purchase price of the Hannaford acquisition. Our outstanding debt under this facility had an interest rate of 8.1875% at the end of fiscal 14 15 2000. We intend to refinance the $2.4 billion term loan through a long-term debt offering which we expect to close in the second quarter of 2001. We maintain two revolving credit facilities with a syndicate of commercial banks that provides us with $1.0 billion in committed lines of credit, of which $500.0 million will expire in November 2001 and the remaining $500.0 million will expire in July 2005. At the end of fiscal 2000, we had $285.0 million in outstanding borrowings under our credit facilities, compared to $205.0 million at the end of fiscal 1999. During fiscal 2000, we had average borrowings of $190.7 million at a daily weighted average interest rate of 7.95%. During fiscal 1999, we had average borrowings of $81.2 million at a daily weighted average interest rate of 7.53%. At the end of fiscal 2000, our company also had outstanding medium-term notes of $122.3 million due from 2001 to 2006 at interest rates of 8.40% to 8.73% and outstanding medium-term notes of $106.7 million due from 2001 to 2017 at interest rates of 6.16% to 14.15%. At the end of fiscal 2000, we also had long-term debt securities outstanding of $300.0 million, of which $150.0 million matures in 2007 at an interest rate of 7.55% and $150.0 million matures in 2027 at an interest rate of 8.05%. We also had mortgage notes payable of $42.9 million due from 2001 to 2011 at interest rates of 7.55% to 10.35% at the end of fiscal 2000. We also enter into significant leasing obligations related to our store properties. Capital lease obligations outstanding at the end of fiscal 2000 were $631.1 million compared to $502.8 million at the end of fiscal 1999. These leases generally have terms of up to 20 years. We also had significant operating lease commitments at the end of fiscal 2000. Total annual minimum operating lease commitments are approximately $225.0 million in fiscal 2001, including approximately $29.0 million related to closed store properties, decreasing gradually to approximately $209.6 million in 2005, including approximately $23.8 million related to closed store properties. As set forth in the table below, we also have periodic short-term borrowings under informal credit arrangements that are available to us at the lenders' discretion.
FISCAL YEAR ENDED DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999 ----------------- --------------- --------------- (in millions of U.S. dollars) Outstanding Borrowings at year end $ 40.0 $ 77.0 $ 41.0 Average borrowings 64.4 20.7 12.2 Maximum amount outstanding 125.0 105.0 100.0 Daily weighted average interest rate 7.36% 5.60% 5.47%
MARKET RISK Our company is exposed to changes in interest rates primarily as a result of our long-term debt requirements. Our interest rate risk management objectives are to limit the effect of interest rate changes on earnings and cash flows and to lower overall borrowing costs. We maintain certain fixed-rate debt to take advantage of lower relative interest rates currently available. We have not entered into any of our financial instruments for trading purposes. We entered into interest rate hedge agreements to hedge against potential increases in interest rates related to the Company's planned debt offering. At the end of fiscal 2000, the notional amount of these hedge agreements was $1.75 billion. These hedge agreements are structured to hedge against the risk of increasing market interest rates based on U.S. treasury rates, with the specified rates based on the expected maturities of the planned debt offering and the expected maturity of our new term loan. In October 2000, we entered into related agreements to limit the amount of any unrealized loss associated with future interest rate reductions to approximately $197.6 million before taxes. We paid $19.8 million as consideration for these agreements, which is being amortized to expense over the period of the contract through March 2001. The Company believes the issuance of the debt is probable, and the contractual interest rates in the agreements are highly correlated with the expected interest rates to be incurred on the debt. These agreements are expected to be settled upon issuance of the debt. Upon settlement of these agreements, the realized gain or loss that we will pay or receive will be deferred and will be amortized as interest expense over the life of the underlying debt. At the end of fiscal 2000, the unrealized loss related to these agreements was $197.6 million 15 16 before taxes. At the end of fiscal 1999, the unrealized gain related to these agreements was $7.2 million before taxes. We are subject to risk of nonperformance by the counterparties to these agreements. We regularly monitor the creditworthiness of these counterparties and do not anticipate nonperformance, as substantially all of the counterparties are large U.S. financial institutions. The table set forth below provides cash flows and related interest rates of our long-term debt by fiscal year of maturity.
FAIR 2001 2002 2003 2004 2005 THEREAFTER VALUE ------ ------ ------ ---- ----- ---------- ------ (dollar amounts in millions) Medium-term notes ............ $119.5 $ 10.9 $ 20.5 $ 8.0 $11.2 $ 58.9 $230.1 Average interest rate ........ 8.28% 7.13% 7.82% 7.06% 7.42% 7.15% Debt securities .............. -- -- -- -- -- $300.0 $272.4 Average interest rate ........ -- -- -- -- -- 7.80% Mortgage payables ............ $ 5.4 $ 6.0 $ 6.1 $ 5.4 $ 3.2 $ 21.5 $ 47.6 Average interest rate ........ 9.29% 9.22% 9.12% 8.98% 8.94% 8.94% Other note payable ........... $ 1.3 $ 1.6 $ 2.0 -- -- -- $ 4.9 Fixed interest rate .......... 11.25% 11.25% 11.25% -- -- --
SELF INSURANCE We are self-insured for our workers' compensation, general liability and vehicle accident claims. We establish reserves based on an actuarial valuation of open claims reported and an estimate of claims incurred but not yet reported. Maximum self-insured retention, including defense costs per occurrence, is $500,000 per individual claim for workers' compensation, automobile liability and general liability. We are insured to cover costs, including defense costs, in excess of these limits. It is possible that the final resolution of some of these claims may require us to make significant expenditures in excess of our existing reserves over an extended period of time, and in a range of amounts that cannot be reasonably estimated. IMPACT OF INFLATION During fiscal 2000, we experienced slight deflation on merchandise purchases. As in previous years, we experienced an increase in our labor costs during the year which was partially offset by increased productivity. RECENTLY ISSUED ACCOUNTING STANDARDS Statement of Financial Accounting Standards (SFAS) No. 133 as amended, requires entities to report all derivatives as assets or liabilities in their statements of financial position at fair value. Adoption of SFAS No. 133 is required beginning in the first quarter of fiscal 2001. If the Company had adopted SFAS No. 133 early, an unrealized loss associated with the interest rate hedge on the Company's anticipated debt offering in the amount of approximately $122.5 million, net of tax, would have been recognized as other comprehensive loss in the Company's Statement of Shareholders' Equity at December 30, 2000. 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. 16 17 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, changes in the availability of labor, adverse determinations with respect to litigation or other claims, inability to develop new stores or complete remodels as rapidly as planned, and stability of product costs, supply thereof or quality control problems with the Company's vendors, which may be detailed from time-to-time in the Company's filings with the Securities and Exchange Commission. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information set forth beneath the heading "Market Risk" under Item 7 hereof is hereby incorporated by reference. Item 8. Financial Statements and Supplementary Data. Presented below are the Registrant's Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Changes in Shareholders' Equity, Consolidated Statement of Cash Flows, Notes to Consolidated Financial Statements, Report of Independent Accountants and Results by Quarter. CONSOLIDATED STATEMENTS OF INCOME
Year Ended Year Ended Year Ended (Dollars in thousands except per share December 30, January 1, January 2, amounts) 2000 2000 1999 - ------------------------------------------------------------------------------------------------------- Net sales and other revenues $12,669,932 $10,891,231 $10,230,840 Cost of goods sold 9,562,855 8,209,491 7,794,754 Selling and administrative expenses 2,522,094 2,077,781 1,894,989 Store closing provision 42,834 12,605 14,321 Asset impairment provision 26,961 1,495 3,460 Merger expense 38,546 1,465 -- ----------- ----------- ----------- Operating income 476,642 588,394 523,316 Interest expense 213,057 103,820 95,334 ----------- ----------- ----------- Income before income taxes 263,585 484,574 427,982 Provision for income taxes 108,099 184,139 155,397 ----------- ----------- ----------- Net income $ 155,486 $ 300,435 $ 272,585 =========== =========== =========== Earnings per share: Basic $ 0.94 $ 1.91 $ 1.71 Diluted $ 0.92 $ 1.91 $ 1.71
The accompanying notes are an integral part of the consolidated financial statements. 17 18 CONSOLIDATED BALANCE SHEETS
(Dollars in thousands December 30, January 1, except per share amounts) 2000 2000 - --------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 135,636 $ 193,721 Receivables 204,695 210,106 Income tax receivable 82,483 29,056 Inventories 1,260,532 1,157,695 Prepaid expenses 49,409 26,734 Deferred tax assets 49,996 55,611 ---------- ---------- Total current assets 1,782,751 1,672,923 Property and equipment, net 2,825,241 2,039,569 Intangible assets, net 3,275,718 254,276 Other assets 43,086 10,247 ---------- ---------- Total assets $7,926,796 $3,977,015 ========== ========== Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings $2,740,000 $ 302,000 Accounts payable 762,552 572,940 Accrued expenses 339,837 304,462 Capital lease obligations - current 30,622 23,877 Long-term debt - current 126,196 2,834 Other liabilities - current 64,494 45,251 ---------- ---------- Total current liabilities 4,063,701 1,251,364 Long-term debt 455,240 426,930 Capital lease obligations 600,472 478,942 Deferred income taxes 153,018 7,421 Other liabilities 213,206 133,492 ---------- ---------- Total liabilities 5,485,637 2,298,149 ---------- ---------- Commitments and contingencies (see Note 16) -- -- Shareholders' equity: Class A non-voting common stock, $.50 par value; authorized 1,500,000,000 shares; 105,996,000 shares issued and outstanding at December 30, 2000 and 79,931,000 shares at January 1, 2000 52,998 39,965 Class B voting common stock, $.50 par value; authorized 1,500,000,000 shares; 75,290,000 shares issued and outstanding at December 30, 2000 and January 1, 2000 37,645 37,645 Additional paid-in capital 841,961 155,280 Retained earnings 1,508,555 1,445,976 ---------- ---------- Total shareholders' equity 2,441,159 1,678,866 ---------- ---------- Total liabilities and shareholders' equity $7,926,796 $3,977,015 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 18 19 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended December 30, January 1, (Dollars in thousands) 2000 2000 - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 155,486 $ 300,435 ----------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 372,541 258,512 Non-cash portion of merger expense 27,634 -- Loss (gain) on disposals of property 6,896 (3,835) Store closing provisions 42,834 12,605 Asset impairment provisions 26,961 1,495 Deferred income taxes 27,970 30,116 Other 3,525 -- Changes in operating assets and liabilities net of effect of acquisition: Receivables 30,807 (11,838) Income tax receivable (53,427) (19,038) Inventories 100,598 (54,060) Prepaid expenses (2,843) 5,384 Other assets (1,081) (6,400) Accounts payable (30,736) 6,822 Accrued expenses (35,117) 8,049 Income taxes payable 4,565 -- Other liabilities (30,408) (22,326) ----------- --------- Total adjustments 490,719 205,486 ----------- --------- Net cash provided by operating activities 646,205 505,921 ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (392,968) (410,888) Proceeds from sale of property 76,346 19,622 Investment in Hannaford, net of cash acquired (2,637,870) -- Other investment activity (9,508) -- ----------- --------- Net cash used in investing activities (2,964,000) (391,266) ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds under 364-day term loan facility 2,415,000 -- Net proceeds under short-term borrowings 23,000 241,000 Principal payments on long-term debt (21,441) (42,517) Proceeds from issuance of long-term debt 4,935 -- Principal payments under capital lease obligations (27,272) (22,518) Direct financing costs (45,998) -- Dividends paid (92,907) (78,994) Repurchase of common stock -- (142,694) Proceeds from issuance of common stock 4,393 1,197 ----------- --------- Net cash provided by (used in) financing activities 2,259,710 (44,526) ----------- --------- Net (decrease) increase in cash and cash equivalents (58,085) 70,129 Cash and cash equivalents at beginning of year 193,721 123,592 ----------- --------- Cash and cash equivalents at end of year $ 135,636 $ 193,721 =========== =========
The accompanying notes are an integral part of the consolidated financial statements. 19 20 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended January 2, (Dollars in thousands) 1999 - ------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 272,585 --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 236,021 (Gain)loss on disposals of property (8,192) Store closing provisions 14,321 Asset impairment provisions 3,460 Deferred income taxes 44,999 Changes in operating assets and liabilities: Receivables (31,096) Income tax receivable (3,146) Inventories (120,891) Prepaid expenses 2,042 Other assets 2,243 Accounts payable 48,941 Accrued expenses 19,451 Income taxes payable -- Other liabilities (39,659) --------- Total adjustments 168,494 --------- Net cash provided by operating activities 441,079 --------- Cash flows from investing activities Capital expenditures (356,058) Proceeds from sale of property 109,850 --------- Net cash used in investing activities (246,208) --------- Cash flows from financing activities Net (payments) proceeds under short-term borrowings (19,000) Principal payments on long-term debt (6,154) Proceeds from issuance of long-term debt -- Principal payments under capital lease obligations (22,172) Dividends paid (71,271) Repurchase of common stock (50,192) Proceeds from issuance of common stock 4,170 --------- Net cash (used in) provided by financing activities (164,619) --------- Net increase (decrease) in cash and cash equivalents 30,252 Cash and cash equivalents at beginning of year 93,340 --------- Cash and cash equivalents at end of year $ 123,592 =========
The accompanying notes are an integral part of the consolidated financial statements. 20 21 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Class A Class B Common Common (Dollars and shares in thousands except Stock Stock per share amounts) Shares Amount Shares Amount - --------------------------------------------------------------------------------------------------------- Balances January 3, 1998 78,741 $ 39,371 77,575 $ 38,788 Cash dividends declared: Class A - $.4500 per share Class B - $.4440 per share Sale of stock 249 124 Repurchase of common stock (1,029) (515) (632) (316) Restricted shares (See Note 13) 10 5 Converted debt 4,660 2,330 Net income - --------------------------------------------------------------------------------------------------------- Balances January 2, 1999 82,631 41,315 76,943 38,472 Cash dividends declared: Class A - $.5040 per share Class B - $.4980 per share Sale of stock 55 27 Repurchase of common stock (2,760) (1,380) (1,636) (819) Restricted shares (See Note 13) 28 14 Cash in lieu of fractional shares in connection with reverse stock split (23) (11) (17) (8) Net income - --------------------------------------------------------------------------------------------------------- Balances January 1, 2000 79,931 39,965 75,290 37,645 Cash dividends declared: Class A - $.5772 per share Class B - $.5704 per share Sale of stock 365 183 Restricted shares (See Note 13) 77 38 Stock consideration given in Hannaford acquisition including options, net of issuance costs 25,623 12,812 Shares issued under restricted plan Amortization of restricted stock Unrealized gain on securities Net income - --------------------------------------------------------------------------------------------------------- Balances December 30, 2000 105,996 $ 52,998 75,290 $ 37,645 - ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 21 22
Other Additional Comprehensive Unearned Retained Total Paid-in Income Compensation Earnings Capital - --------------------------------------------------------------------------------------------------------------------- Balances January 3, 1998 $ 157,111 -- -- $ 1,097,915 $ 1,333,185 Cash dividends declared: Class A - $.4500 per share (36,832) (36,832) Class B - $.4440 per share (34,439) (34,439) Sale of stock 3,834 3,958 Repurchase of common stock (49,361) (50,192) Restricted shares(See Note 13) 207 212 Converted debt 108,115 110,445 Net income 272,585 272,585 - --------------------------------------------------------------------------------------------------------------------- Balances January 2, 1999 219,906 -- -- 1,299,229 1,598,922 Cash dividends declared: Class A - $.5040 per share (41,045) (41,045) Class B - $.4980 per share (37,949) (37,949) Sale of stock 1,189 1,216 Repurchase of common stock (66,421) (74,074) (142,694) Restricted shares(See Note 13) 606 620 Cash in lieu of fractional shares in connection with reverse stock split (620) (639) Net income 300,435 300,435 - --------------------------------------------------------------------------------------------------------------------- Balances January 1, 2000 155,280 -- -- 1,445,976 1,678,866 Cash dividends declared: Class A - $.5772 per share (49,960) (49,960) Class B - $.5704 per share (42,947) (42,947) Sale of stock 2,429 2,612 Restricted shares(See Note 13) 1,048 1,086 Stock consideration given in Hannaford acquisition including options, net of issuance costs 681,509 694,321 Shares granted under restricted plan 9,818 (9,818) -- Amortization of restricted stock 1,611 1,611 Unrealized gain on securities 84 84 Net income 155,486 155,486 - --------------------------------------------------------------------------------------------------------------------- Balance December 30, 2000 $ 850,084 $ 84 $ (8,207) $ 1,508,555 $ 2,441,159 - ---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 22 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS As of December 30, 2000, Delhaize America, Inc. ("the Company") operated 1,420 retail food supermarkets and 12 distribution centers in 16 states in the eastern United States. The Company's stores, which are operated under the names of "Food Lion," "Hannaford," 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 care, prescriptions, and other household and personal products. PRINCIPLES OF CONSOLIDATION In August 1999, the Company changed its name from Food Lion, Inc. to Delhaize America, Inc., and in connection therewith substantially all of the assets and operations of the Company's Food Lion business were transferred to a newly-formed, wholly-owned, direct subsidiary of the Company. This transaction had no effect on the Company's consolidated financial statements since the transfers were among the Company's wholly-owned subsidiaries and were recorded at historical book values. As a result of this transaction, the Company is structured as a holding company with several wholly-owned operating subsidiaries. Delhaize America, Inc., the holding company, serves as the consolidating entity for all of the Company's supermarket chains. The consolidated financial statements include the accounts of Delhaize America, 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 located in the eastern United States. FISCAL YEAR The Company's fiscal year ends on the Saturday nearest to December 31. Fiscal years 2000, 1999 and 1998 ended on December 30, 2000, January 1, 2000, and January 2, 1999,respectively. Fiscal years 2000, 1999 and 1998 each included 52 weeks. USE OF ESTIMATES IN FINANCIAL STATEMENTS The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 investments purchased with an original maturity of three months or less to be cash equivalents. Negative cash balances of $32.9 million and $0.5 million at December 30, 2000 and January 1, 2000, respectively, have been reclassified to Accounts Payable on the Company's Consolidated Balance Sheet. ACCOUNTS RECEIVABLE Accounts receivable principally include amounts due from suppliers, coupon handling fees, customer returned checks, pharmacy insurance programs and sublease tenants. Amounts due from suppliers are recognized as earned. Amounts received related to contractual purchasing commitments are deferred and recognized as a reduction to cost of goods sold over the period of the purchasing commitment. INVENTORIES Inventories are stated at the lower of cost or market. Inventories valued using the last-in, first out (LIFO) method comprised approximately 83% of inventories, in both 2000 and 1999, respectively. Meat, produce, deli and bakery inventories are valued on the first-in, first-out (FIFO) method. If the FIFO method were used entirely, inventories would have been $141.9 million and $142.9 million greater in 2000 and 1999, respectively. Application of the LIFO method resulted in a decrease in the cost of goods sold of $1.0 million in 2000, with increases of $3.8 million and $24.7 million for 1999 and 1998, respectively. PROPERTY AND EQUIPMENT Property is stated at historical cost and depreciated on a straight-line basis over the estimated service lives of assets, generally as follows: 23 24 Buildings 40 years Furniture, fixtures and equipment 3 - 14 years Leasehold improvements 8 years Vehicles 7 - 10 years Property under capital leases Lease term
INTANGIBLE ASSETS Intangible assets primarily include goodwill, trademarks and favorable lease rights, all of which have been acquired in conjunction with acquisitions accounted for under the purchase method of accounting. Intangible assets are amortized on a straight-line basis over the estimated useful lives. The following table summarizes the useful lives: Goodwill 20 or 40 years Trademarks 40 years Distribution network 40 years Workforce 2-13 years Favorable lease rights Lease term Prescription files 15 years
IMPAIRMENT OF LONG-LIVED ASSETS The Company periodically evaluates the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. The Company monitors the carrying value of its long-lived assets, including intangible assets, for potential impairment based on projected undiscounted cash flows. If impairment is identified for long-lived assets other than real property, the Company compares the asset's future discounted cash flows to its current carrying value and records provisions for impairment as appropriate. With respect to owned property and equipment associated with closed stores, the value of the property and equipment is adjusted to reflect recoverable values based on the Company's previous efforts to dispose of similar assets and current economic conditions. Impairment of real property is recognized for the excess of carrying value over estimated fair market value, reduced by estimated direct costs of disposal. The carrying value of assets to be disposed amounted to approximately $36.6 million, $18.6 million and $21.0 million at December 30, 2000, January 1, 2000 and January 2, 1999 respectively. The pre-tax charge included in the income statement for asset impairment amounts to $27.0 million, $1.5 million, and $ 3.5 million for the 2000, 1999, and 1998, respectively. The fiscal 2000 impairment loss included $15.7 million attributable to certain under performing store assets as reported in the Company's third quarter based on discounted future cash flows associated with those store assets. The other impairment charges in each of the three fiscal years related principally to write-down of leasehold improvements and idle equipment from closed stores. 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. REVENUE RECOGNITION Revenues from the sale of products to the Company's customers are recognized at the point of sale. The Company offers loyalty cards to its Food Lion and Kash n' Karry customers. Merchandise price reductions from the regular retail price are given at the point of sale to customers presenting a loyalty card. The discounts given at the point of sale are recognized as a reduction in sales as products are sold. Funding from suppliers for these discounts, if available, is recognized at the time the related products are sold and is recorded as a reduction of cost of sales. COST OF GOODS SOLD Purchases are recorded net of cash discounts and other supplier discounts. Cost of goods sold includes warehousing, distribution, and advertising costs. ADVERTISING COSTS Advertising costs are expensed as incurred and included in cost of goods sold. The Company recognizes co-operative advertising income received from suppliers as a reduction of 24 25 advertising expense in the period in which the related expense occurs. The Company recorded advertising expense of $79.2 million in 2000, $67.3 million in 1999 and $67.0 million in 1998. CAPITALIZED INTEREST The Company capitalizes interest costs incurred to bring certain assets to their intended use. Capitalized interest was $3.4 million in 2000, $2.8 million in 1999 and $2.4 million in 1998. STORE OPENING COSTS Costs associated with the opening of new stores are expensed as incurred. STORE CLOSING COSTS Plans related to store closings are completed within one year of making the decision to close, and the Company generally intends to actually complete the closings within a one-year period following the business decision to close. As most of the Company's stores are located in leased facilities, a lease liability (recorded in Other Liabilities in the Consolidated Balance Sheet) is recorded for the present value of the estimated remaining non-cancelable lease payments after the closing date, net of estimated subtenant income. In addition, the Company records a liability for expenditures to be incurred after the store closing which are required under leases or local ordinances for site preservation during the period before lease termination or sale of the property. These other exit costs include estimated real estate taxes, common area maintenance, insurance and utility costs to be incurred after the store closes. The value of owned property and equipment related to a closed store is reduced to reflect recoverable values based on the Company's previous efforts to dispose of similar assets and current economic conditions. Any reductions in the recorded value of owned property and equipment for closed stores is reflected as an asset impairment charge. The Company discontinues depreciation on owned property and equipment for closed stores at the date of closing. Disposition efforts related to store leases and owned property begins immediately following the store closing. Inventory write-downs, if any, in connection with store closings, are classified in cost of sales. Costs to transfer inventory and equipment from closed stores are expensed as incurred. Severance costs are rarely incurred in connection with store closings. Store closing liabilities are reviewed quarterly to ensure that any accrued amount that is no longer needed for its originally intended purpose is reversed to income in a timely manner. Significant cash outflows associated with closed stores relate to ongoing lease payments. Because closed store leases are classified consistently with capital leases, the principal portion of lease payments reduces the lease liability, while the interest portion of the lease payment is recorded as interest expense in the current period. 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. Maximum self-insured retention, including defense costs per occurrence, is $500,000 per individual claim for workers' compensation, automobile liability and general liability. The Company is insured for covered costs, including defense costs, in excess of these limits. Self insurance expense related to the above totaled $43.8 million in 2000, $32.0 million in 1999, and $34.2 million in 1998. Total claim payments were $37.3 million in 2000, $32.9 million in 1999, and $31.2 million in 1998. STATEMENTS OF CASH FLOWS Selected cash payments and non-cash activities were as follows:
(Dollars in thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------- Cash payments for income taxes $ 129,582 $175,816 $127,352 Cash payments for interest, Net of amounts capitalized 199,072 103,717 103,820 Non-cash investing and financing activities: Capitalized lease obligations incurred for store properties and equipment 98,215 43,173 62,608 Capitalized lease obligations terminated for store properties and equipment 16,244 32,436 36,191 Conversion of long term debt to stock -- -- 110,445 Acquisition of Hannaford: Fair value of assets acquired 4,079,087 -- -- Cash paid 2,637,870 -- -- Stock consideration and options given in acquisition 698,230 -- -- Liabilities assumed 743,087 -- --
25 26 EARNINGS PER SHARE The following table represents a reconciliation of net income and weighted average common shares outstanding for purposes of calculating basic and diluted net income per share:
(Dollars in thousands except per share amounts) 2000 1999 1998 - --------------------------------------------------------------------------------------------- Earnings per basic share: Net income $155,486 $300,435 $272,585 Weighted average common shares outstanding 166,176 157,109 159,361 Basic earnings per share $ 0.94 $ 1.91 $ 1.71 Earnings per diluted share: Net income $155,486 $300,435 $272,585 Weighted average common Shares outstanding 166,176 157,109 159,361 Dilutive employee stock options and restricted stock grants 2,489 188 346 Weighted average common shares outstanding for purposes of computing diluted net income per share 168,665 157,297 159,707 Diluted earnings per share $ 0.92 $ 1.91 $ 1.71
The Company has 7,179,852 outstanding stock options (See Note 13) as of December 30, 2000 of which 1,217,215 shares were not included in the computation of the diluted earnings per share, since the option exercise price was greater than the average market price of the common shares and therefore, the effect would be anti-dilutive. Restricted shares are included in the diluted earnings per share when granted and in the basic earnings per share when earned. FAIR VALUE OF FINANCIAL INSTRUMENTS Accounting principles generally accepted in the United States require the disclosure of the fair value of certain financial instruments where estimates of fair value are practicable. Significant judgment is required to develop estimates of fair value. Estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange. Fair values stated are as of year-end and may differ significantly from current estimates. Cash and cash equivalents and short-term borrowings: The carrying amount of these items approximates fair value. Long-term debt: At December 30, 2000 and January 1, 2000, the Company estimated that the fair value of its long-term debt was approximately $555.0 million and $413.6 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 with the same remaining maturities. Off-balance sheet instruments: The fair value of interest rate hedging agreements (See Note 7) is estimated using the present value of the difference between the contracted rates and the applicable forward rates. At December 30, 2000, the net unrealized loss on such agreements was approximately $197.6 million before taxes. RECLASSIFICATION Certain financial statement items previously reported have been reclassified to conform to the current year's format. RECENTLY ISSUED ACCOUNTING STANDARDS Statement of Financial Accounting Standards (SFAS) No. 133 as amended, requires entities to report all derivatives as assets or liabilities in their statements of financial position at fair value. Adoption of SFAS No. 133 is required beginning in the first quarter of fiscal 2001. If the Company had adopted SFAS No. 133 early, an unrealized loss associated with the interest rate hedge on the Company's anticipated debt offering in the amount of approximately $122.5 million, net of 26 27 tax, would have been recognized as other comprehensive loss in the Company's Statement of Shareholders' Equity at December 30, 2000. 2. ACQUISITION On July 31, 2000, the Company completed its acquisition of Hannaford Bros. Co. ("Hannaford"), a Maine-based supermarket retailer, in a cash and stock transaction totaling $3.5 billion. The Company began including the results of operations of Hannaford prospectively from July 31, 2000. As consideration for the merger, the Company paid cash of approximately $2.772 billion, and issued 25.6 million shares of the Company's Class A Common Stock having an aggregate value of approximately $658.3 million. The Company also issued fully vested options with an estimated fair value of $39.9 million in exchange of options held for Hannaford employees. Additional direct costs incurred in connection with the acquisition, principally investment banking, legal, and other professional fees, in the amount of $22.1 million have been included in the purchase price allocation. The Hannaford acquisition was accounted for using the purchase method of accounting. The purchase price is allocated to acquired assets and liabilities based on their estimated fair values at the date of acquisition, and any excess is allocated to goodwill. Allocation of the purchase price is subject to revision, which is not expected to be material, based on the final determination of fair value of certain acquired assets and liabilities related principally to closed store properties. The acquisition resulted in goodwill of approximately $2.6 billion, which will be amortized over 40 years. The net purchase price was initially allocated as follows:
(Dollars in thousands) - ------------------------------------------------------- Current assets $ 401,776 Property and equipment 746,171 Goodwill 2,575,103 Identified intangible and other non-current assets 512,617 Current liabilities (324,197) Non-current liabilities (418,890) ------------ Purchase price $ 3,492,580 ============
The following table reflects the results of operations on a pro forma basis as if the acquisition had been completed as of the beginning of the fiscal years presented. This pro forma financial information is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as of the dates indicated, nor are they necessarily indicative of future operating results. These unaudited pro forma results do not include any anticipated cost savings or other effects of the merger on operations.
(Dollars in thousands except per share amounts) 2000 1999 - ------------------------------------------------------------------------- Net sales $ 14,303,066 $ 13,653,940 Net income 80,353 210,377 Basic earnings per share $ 0.44 $ 1.15 Diluted earnings per share $ 0.44 $ 1.13
27 28 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
(Dollars in thousands) 2000 1999 - ---------------------------------------------------------------------------- Land and improvements $ 267,000 $ 107,811 Buildings 599,276 395,168 Furniture, fixtures and equipment 1,817,342 1,484,898 Vehicles 126,679 98,863 Leasehold improvements 852,531 602,105 Construction in progress 47,146 57,307 ---------- ---------- 3,709,974 2,746,152 Less accumulated depreciation 1,401,300 1,149,260 ---------- ---------- 2,308,674 1,596,892 Property under capital leases 718,709 588,038 Less accumulated depreciation 202,142 145,361 ---------- ---------- 516,567 442,677 ---------- ---------- $2,825,241 $2,039,569 ========== ==========
Depreciation expense totaled $327.6 million, $248.9 million and $226.0 million for 2000, 1999 and 1998, respectively. At December 30, 2000 and January 1, 2000, the Company had $36.6 million and $18.6 million (net book value), respectively, in property held for sale. 4. INTANGIBLE ASSETS Intangible assets are comprised of the following:
(Dollars in thousands) 2000 1999 - ----------------------------------------------------------------------- Goodwill $2,794,964 $ 207,901 Trademarks 287,000 58,000 Distribution network 123,000 -- Workforce 61,000 -- Favorable lease rights 55,797 17,750 Prescription files 28,000 -- ---------- ---------- 3,349,761 283,651 Less accumulated amortization 74,043 29,375 ---------- ---------- $3,275,718 $ 254,276 ========== ==========
5. ACCRUED EXPENSES Accrued expenses consist of the following:
(Dollars in thousands) 2000 1999 - ------------------------------------------------------------------- Payroll and compensated absences $101,934 $ 75,061 Employee benefit plan 84,431 114,875 Accrued interest 33,205 15,080 Closed store liability current 32,898 9,900 Other 87,369 89,546 -------- -------- $339,837 $304,462 ======== ========
6. EMPLOYEE BENEFIT PLAN The Company has a non-contributory retirement plan covering all employees at Food Lion and Kash n' Karry with one or more years of service. Employees' benefits under the plan become vested after five years of consecutive service. Forfeitures of the plan are used to off-set plan expenses. 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 28 29 Company's Board of Directors. Expense related to the plan totaled $81.2 million in 2000, $108.8 million in 1999 and $94.9 million in 1998. Hannaford maintains a non-contributory, defined benefit pension plan covering approximately 50% of its employees. The plan provides for payment of retirement benefits on the basis of employees' length of service and earnings. The Company's policy is to fund the plan based upon legal requirements and tax regulations. Plan assets consist of common stocks, cash and cash equivalents and fixed income investments. Hannaford provides a defined contribution 401(k) plan to substantially all employees. The amount charged to expense for this plan in fiscal 2000 from the acquisition date through December 30, 2000 was approximately $2.3 million. The following table sets forth the change in plans' benefit obligations and assets as well as the plans' funded status reconciled with the amounts shown in the Company's financial statements for the Hannaford non-contributory and defined benefit pension plan.
(Dollars in thousands) 2000 - --------------------------------------------------------------- Change in benefit obligation: Benefit obligation at acquisition $ 94,574 Service cost 1,754 Interest cost 2,912 Actuarial loss (gain) (63) Benefits paid (6,008) ---------- Benefit obligation at end of year $ 93,169 ========== Change in plan assets: Fair value of plan assets at acquisition $ 106,286 Actual return on plan assets 1,463 Employer contribution 371 Benefits paid (6,008) ---------- Fair value of plan assets at end of year $ 102,112 ========== Funded status $ 8,943 Unrecognized transition obligation (asset) -- Unrecognized prior service cost -- Unrecognized net actuarial loss 3,014 ---------- Prepaid (accrued) benefit cost $ 11,957 ==========
The components of net periodic pension costs for the Hannaford plans from the acquisition date to December 30, 2000 were as follows:
(Dollars in thousands) 2000 - ------------------------------------------------------------- Components of net periodic pension cost: Service cost $ 1,754 Interest expense 2,912 Expected return on plan assets (4,568) -------- $ 98 ======== Weighted-average assumptions as of September 30 (the plan's measurement date): Discount rate 7.50% Expected return on plan assets 10.50% Rate of compensation increase 4.50%
29 30 7. LONG-TERM DEBT Long-term debt consists of the following:
(Dollars in thousands) 2000 1999 - --------------------------------------------------------------------------- Medium-term notes, due from 2001 to 2006. Interest ranges from 8.40% to 8.73% $122,300 $123,300 Debt securities, 7.55%, due 2007 150,000 150,000 Debt securities, 8.05%, due 2027 150,000 150,000 Medium-term notes, due from 2001 to 2017. Interest ranges from 6.16% to 14.15% 106,659 -- Mortgage payables due from 2001 to 2011. Interest ranges from 7.55% to 10.35% 42,912 -- Mortgage payables due from 2001 to 2011. Interest ranges from 7.50% to 9.30% 4,630 5,148 Other 4,935 1,316 -------- -------- 581,436 429,764 Less current portion 126,196 2,834 -------- -------- $455,240 $426,930 ======== ========
At December 30, 2000, $84.4 million (net book value) in property was pledged as collateral for mortgage payables. Approximate maturities of long-term debt in the years 2001 through 2005 are $126.2, $18.5, $28.6, $13.4, and $14.4 million, respectively. The Company entered into agreements to hedge against a potential increase in interest rates prior to the planned future bond issues related to the acquisition of Hannaford Bros. Co. (See Note 2). The agreements are structured to hedge against the risk of increasing market interest rates based on U.S. treasury rates, with the specified rates based on the expected maturities of the planned debt issue. The notional amount of the agreements totals $1.75 billion. The Company believes the issuance of the debt is probable, and the contractual interest rates in the agreements are highly correlated with the expected interest rates to be incurred on the debt. In October 2000, the Company entered into related agreements to limit the amount of any unrealized loss associated with future interest rate reduction to approximately $197.6 million before taxes. The Company paid $19.8 million as consideration for these agreements which is being amortized to expense over the period of the contract through March 2001. The agreements will be settled upon issuance of the debt. Upon settlement of the agreements, the realized gain or loss to be paid or received by the Company will be amortized as interest expense over the life of the underlying debt. At December 30, 2000, the unrealized loss related to these agreements was $197.6 million before taxes. At January 1, 2000, the unrealized gain related to these agreements was $7.2 million before taxes. The Company is subject to risk of nonperformance by the counterparties to the agreement. The Company regularly monitors the creditworthiness of the counterparties and does not anticipate nonperformance by the counterparties, who are major US financial institutions. 8. CREDIT ARRANGEMENTS The Company maintains two revolving credit facilities with a syndicate of commercial banks providing $1.0 billion in committed lines of credit, of which $500.0 million will expire in November 2001 and the remaining $500.0 million in July 2005. As of December 30, 2000, the Company had $285.0 million in outstanding borrowings. During 2000, the Company had average borrowings of $190.7 million at a daily weighted average interest rate of 7.95%. There were borrowings of $205.0 million outstanding at January 1, 2000. The Company obtained, in connection with the Hannaford acquisition, a 364-day term loan facility providing $2.5 billion that expires in July 2001. As of December 30, 2000, the Company had $2.4 billion in outstanding borrowings under this facility at an interest rate of 8.1875%. During 2000, the Company had average borrowings of $1.0 billion at a daily weighted average interest rate of 8.07%. The Company paid fees for this term loan facility of $29.5 million 30 31 which are being amortized to expense over the expected outstanding term. The related expense in 2000 is classified in Merger Expense in the Company's Consolidated Statements of Income. The Company plans to refinance this term loan through a long-term debt offering to occur in early 2001. In addition, the Company has periodic short-term borrowings under other informal arrangements. Outstanding borrowings under these arrangements were $40.0 million at December 30, 2000 at an average interest rate of 7.58% and $77.0 million at January 1, 2000 at an average interest rate of 6.37%. 9. LEASES The Company's stores operate principally in leased premises. Lease terms for open stores generally range from 10 to 25 years with renewal options ranging from five to 20 years. The average remaining lease term for closed stores is 8.9 years. The following schedule shows, as of December 30, 2000, the future minimum lease payments under capital and operating leases.
Operating Leases Capital Open Closed (Dollars in thousands) Leases Stores Stores - ------------------------------------------------------------------------------- 2001 $ 103,554 $ 196,277 $ 28,971 2002 103,652 197,856 25,712 2003 103,221 193,840 25,622 2004 102,088 189,677 24,800 2005 101,340 185,765 23,811 Thereafter 918,310 1,663,102 153,053 ---------- ---------- -------- Total minimum payments 1,432,165 $2,626,517 $281,969 Less estimated executory costs 42,954 ---------- Net minimum lease payments 1,389,211 Less amount representing interest 758,117 ---------- Present value of net minimum lease payments $ 631,094 ==========
Minimum payments have not been reduced by minimum sublease income of $53.2 million due over the term of non-cancelable subleases. The Company recognizes rent expense for operating leases with step rent provisions on a straight-line basis over the minimum lease term. Total rent payments (net of sublease income) under operating leases for open and closed stores are as follows:
(Dollars in thousands) 2000 1999 1998 - ---------------------------------------------------------------------- Minimum rents $195,584 $169,954 $172,481 Contingent rents, based on sales 251 101 255 -------- -------- -------- $195,835 $170,055 $172,736 ======== ======== ========
In addition, the Company has signed lease agreements for additional store facilities, the construction of which were not complete at December 30, 2000. The leases expire on various dates extending to 2025 with renewal options generally ranging from 10 to 20 years. Total future minimum rents under these agreements are approximately $374.5 million. 10. CLOSED STORE LIABILITIES The following table is presented to show the number of stores closed and planned to be closed at the end of each year, along with the number of stores committed for closure during the year, the number of stores closed, the number of closed stores acquired and the number of stores sold or for which the lease was terminated.
Closed Planned Total Closings As of January 3, 1998 179 24 203 Stores added -- 33 33 Stores acquired 6 -- 6 Planned closings completed 28 (28) -- Stores sold/lease terminated (82) -- (82) Stores not closed (Kash n' Karry) -- (3) (3) ---- --- ---- As of January 2, 1999 131 26 157 Stores added -- 16 16 Stores acquired 14 -- 14 Planned closings completed 35 (35) -- Stores sold/lease terminated (24) -- (24) ---- --- ---- As of January 1, 2000 156 7 163 Stores added -- 36 36 Stores acquired 25 1 26 Planned closings completed 30 (30) -- Stores sold/lease terminated (24) -- (24) ---- --- ---- As of December 30, 2000 187 14 201 ==== === ====
31 32 The following table reflects closed store liabilities at each year end and activity during the year including additions to closed store liabilities charged to operations, additions for closed stores acquired in purchase transactions, adjustments to liabilities based on changes in facts and circumstances and payments made. See Note 1 for further discussion of related asset impairment provisions.
2000 1999 1998 Balance at beginning of year $106.8 $113.5 $130.5 Additions charged to earnings: Store closings - lease obligations 33.5 13.7 12.2 Store closings - other exit costs 4.6 1.7 2.8 Adjustments to prior year estimates - lease obligations 0.8 (1.0) 1.1 Adjustments to prior year estimates - other exit costs 3.9 -- (1.0) Reserves reversed to income -- (1.8) (0.8) ------ ------ ------ Total charge to earnings 42.8 12.6 14.3 ------ ------ ------ Reductions: Lease payments made (11.0) (8.2) (7.2) Lease termination payments (3.4) (10.5) (15.5) Payments for other exit costs (6.0) (3.8) (4.8) ------ ------ ------ Total reductions (20.4) (22.5) (27.5) ------ ------ ------ Closed store liabilities associated with purchase transactions: Lease obligations 39.8 2.4 2.8 Other exit costs 19.9 0.8 0.6 Adjustment to goodwill (3.7) -- (7.2) ------ ------ ------ Total acquired liabilities 56.0 3.2 (3.8) ------ ------ ------ Balance at end of year $185.2 $106.8 $113.5 ====== ====== ======
The fiscal 2000 end of year balance of $185.2 million is comprised of lease liabilities and exit cost liabilities of $152.3 million and $32.9 million, respectively. The fiscal 1999 balance of $106.8 million is comprised of $96.9 million and $9.9 million, respectively, and the fiscal 1998 balance of $113.5 million consisted of $102.3 million and $11.2 million, respectively, and the fiscal 1998 opening balance is comprised of $116.9 million and $13.6 million, respectively. The Company provided for closed store liabilities in each of the fiscal years presented above relating to the estimated post-closing lease liabilities and related other exit costs associated with the store closing commitments reflected in the above table. These other exit costs include estimated real estate taxes, common area maintenance, insurance and utility costs to be incurred after the store closes. Adjustments to closed store liabilities and other exit costs primarily relate to changes in subtenants and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known. Any excess store closing liability remaining upon settlement of the obligation is reversed to income in the period that such settlement is determined. The Company uses a discount rate based on the current treasury note rates to calculate the present value of the remaining rent payments on closed stores. During fiscal 2000, the Company recorded additions to closed store liabilities of $59.7 million related to 26 store properties acquired, or for which the lease was assumed, in the Hannaford acquisition. All but one of the 26 stores included in the reserve had been closed prior to the acquisition date. The remaining activities associated with exiting these stores are to maintain the store under the leasehold requirements, to dispose of any owned property and equipment and to settle the remaining lease obligations. The acquired Hannaford liabilities 32 33 for closed stores include $39.8 million related to the present value of future unrecoverable lease liabilities with remaining non-cancelable terms ranging from 3 to 22 years. Other accrued exit costs are approximately $19.9 million for activities that are directly related to the remaining lease obligations, comprised of $10.3 million for real estate taxes, $7.9 million for property maintenance and utilities and $1.7 million for property insurance. Accrued exit costs are paid over the remaining lease term. A non-cash reduction in the amount of approximately $3.7 million was made prior to December 30, 2000, with a corresponding reduction in goodwill, principally related to a lease liability that was canceled. In fiscal 1999 and 1998, the Company acquired 14 closed stores and 6 closed stores, respectively. The related lease obligations and other exit costs of $3.2 million and $3.4 million for 1999 and 1998, respectively, were recorded as an addition to goodwill. In conjunction with the Kash n' Karry acquisition in late fiscal 1996, the Company identified 23 Kash n' Karry locations for closing based on either unacceptable performance or anticipated relocation of the store. The Company closed 13 of these stores in 1998 and 4 additional stores in 1999. Based on improved operating performance in 1998, a decision was made to not close 3 of the 23 identified Kash n' Karry locations. The original estimated store-closing costs of $7.2 million related to these three stores were recognized as a reduction of goodwill in 1998. It has taken the Company an unusually longer than anticipated time to execute its Kash n' Karry store closing plan due to real estate constraints in relocating the stores. The revenues and operating results for stores closed are not material to the Company's total revenues and operating results for any of the fiscal years presented above. Future cash obligations for closed store liabilities are tied principally to the remaining non-cancelable lease payments less sublease payments to be received. See Note 9 for a summary of the gross future cash flows for closed store lease obligations. 11. INCOME TAXES Provisions for income taxes for 2000, 1999 and 1998 consist of the following:
(Dollars in thousands) Current Deferred Total - ------------------------------------------------------------------ 2000 Federal $ 73,251 $ 21,215 $ 94,466 State 6,878 6,755 13,633 -------- -------- -------- $ 80,129 $ 27,970 $108,099 ======== ======== ======== 1999 Federal $134,195 $ 27,123 $161,318 State 19,828 2,993 22,821 -------- -------- -------- $154,023 $ 30,116 $184,139 ======== ======== ======== 1998 Federal $ 95,839 $ 40,199 $136,038 State 14,559 4,800 19,359 -------- -------- -------- $110,398 $ 44,999 $155,397 ======== ======== ========
The Company's effective tax rate varied from the federal statutory rate as follows:
2000 1999 1998 ---- ---- ---- Federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit 3.4 3.1 2.9 Federal refund 0.0 0.0 (1.7) Goodwill 4.2 0.4 0.4 Other (1.6) (0.5) (0.3) ---- ---- ---- 41.0% 38.0% 36.3% ==== ==== ====
The components of deferred income tax assets and liabilities at December 30, 2000 and January 1, 2000 are as follows:
(Dollars in thousands) 2000 1999 - --------------------------------------------------------------------------- Current assets: Inventories $ 5,520 $ 5,233 Accrued expenses 44,476 50,378 --------- --------- Total current assets 49,996 55,611 --------- --------- Non-current assets/(liability): Depreciation and amortization (293,813) (145,853) Leases 49,886 45,786 Provision for store closings 67,771 68,116 Tax loss carryforwards 42,100 18,358 Valuation allowance (27,938) 0 Other 8,976 6,172 --------- --------- Total non-current assets/(liability) (153,018) (7,421) --------- --------- Net deferred taxes $(103,022) $ 48,190 ========= =========
33 34 The valuation allowance relates to state net operating loss carryforwards generated by Hannaford in the Southeast for which realization is not considered likely. 12. OTHER LIABILITIES Other liabilities consist of the following:
(Dollars in thousands) 2000 1999 - --------------------------------------------------------- Closed store liabilities $152,342 $ 96,876 Self insurance reserves 108,311 72,424 Other 17,047 9,443 -------- -------- 277,700 178,743 Less current portion 64,494 45,251 -------- -------- $213,206 $133,492 ======== ========
13. STOCK OPTIONS AND RESTRICTED STOCK PLANS The Company has a stock option plan under which options to purchase up to 9.4 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. A summary of shares reserved for outstanding options for the last three fiscal years, activity during each year and related weighted average exercise price is presented below:
Weighted Average Shares Exercise Price - ---------------------------------------------------------------------------- 2000 Outstanding at beginning of year 1,345,595 $26.60 Granted 1,751,094 21.27 Conversion of Hannaford options 4,186,194 8.44 Exercised (367,326) 7.22 Forfeited/expired (252,246) 22.24 ---------- ------ Outstanding at end of year 6,663,311 13.83 ---------- ------ Options exercisable at end of year 4,085,490 9.58 ---------- ------ 1999 Outstanding at beginning of year 940,046 $24.63 Granted 588,353 29.12 Exercised (53,325) 22.50 Forfeited/expired (129,479) 25.53 ---------- ------ Outstanding at end of year 1,345,595 26.60 ---------- ------ Options exercisable at end of year 93,165 25.20 ---------- ------ 1998 Outstanding at beginning of year 1,001,863 $21.99 Granted 340,058 30.34 Exercised (247,442) 15.89 Forfeited/expired (154,433) 20.40 ---------- ------ Outstanding at end of year 940,046 24.63 ---------- ------ Options exercisable at end of year 45,535 26.31 ---------- ------
The following table summarizes options outstanding and options exercisable as of December 30, 2000, and the related weighted average remaining contractual life (years) and weighted average exercise price. 34 35
Options Outstanding - ------------------- Weighted Average Weighted - -------------------------------------------------------------------------------- Remaining Average Number Contractual Exercise Range of exercise prices Outstanding Life Price - ------------------------------------------------------------------------------- $ 4.31 - $10.00 2,568,263 5.5 $ 6.81 $10.01 - $20.00 2,914,958 8.3 14.82 $20.01 - $37.78 1,180,090 6.8 26.68 --------------- --------- --- ----- $ 4.31 - $37.78 6,663,311 6.9 $13.83 =============== ========= === ======
Options Exercisable - ------------------- Weighted Average Number Exercise Range of exercise prices Exercisable Price - ----------------------------------------------------------------- $ 4.31 - $10.00 2,568,263 $ 6.81 $10.01 - $20.00 1,255,715 12.30 $20.01 - $37.78 261,512 23.74 --------------- --------- ------ $ 4.31 - $37.78 4,085,490 $ 9.58 =============== ========= ======
The weighted average fair value at date of grant for options granted during 2000, 1999, and 1998 was $6.40, $10.57, and $7.86 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:
2000 1999 1998 - ----------------------------------------------------------------------- Expected dividend yield (%) 3.0 1.8 1.5 Expected volatility (%) 37.0 35.0 30.0 Risk-free interest rate (%) 6.3 5.4 5.6 Expected term (years) 9.0 7.5 5.0
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 2000, 1999 or 1998. 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:
(Dollars in thousands, except per share data) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------- Net earnings - as reported $155,486 $300,435 $272,585 Net earnings - pro forma 152,692 299,687 272,144 Basic earnings per share - as reported 0.94 1.91 1.71 Basic earnings per share - pro forma 0.92 1.91 1.71 Diluted earnings per share - as reported 0.92 1.91 1.71 Diluted earnings per share - pro forma 0.91 1.91 1.70
The Company has restricted stock plans for executive employees. These shares of stock will vest over five years from the grant dates. The weighted average grant date fair value for these shares is $18.91, $27.17 and $24.42 for 2000, 1999 and 1998, respectively. The Company recorded compensation expense related to restricted stock of $1.6 million, $0.3 million and $0.2 million in 2000, 1999 and 1998, respectively. A summary of shares reserved for outstanding restricted stock grants for the last three fiscal years and activity during each year is presented below:
2000 Shares - ------------------------------------------------------------- Outstanding at beginning of year 160,048 Granted 436,698 Exercised (76,686) Forfeited/expired (3,519) ------- Outstanding at end of year 516,541 =======
1999 Shares - ------------------------------------------------------------- Outstanding at beginning of year 141,059 Granted 62,317 Exercised (28,168) Forfeited/expired (15,160) ------- Outstanding at end of year 160,048 =======
1998 Shares - ------------------------------------------------------------- Outstanding at beginning of year 105,734 Granted 53,848 Exercised (9,603) Forfeited/expired (8,920) ------- Outstanding at end of year 141,059 =======
35 36 As of December 30, 2000, there were 7,243,944 shares of Class A common stock available for future grants. 14. COMMON STOCK On December 30, 2000, approximately 25.9% and 11.3% of the issued and outstanding Class A non-voting common stock and 28.3% and 28.0% of the issued and outstanding Class B voting common stock was held, respectively, by Etablissements Delhaize Freres et Cie "Le Lion" S.A. ("Delhaize Group") and Delhaize The Lion America, Inc. ("Detla"), a wholly owned subsidiary of Delhaize. In the aggregate, Delhaize Group and Detla owned approximately 56.3% of the Class B voting common stock and 37.2% of the Class A non-voting common stock. The Delhaize Group and Delhaize America have announced an agreement for a share exchange pursuant to which Delhaize Group, through its ownership interests held in Delhaize and Detla, will exchange each outstanding share of Delhaize America common stock not currently held by Delhaize Group for 0.4 shares of Delhaize Group. The transaction is expected to be consummated in the second quarter of 2001. 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 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. On September 9, 1999, the Company authorized a one-for-three reverse stock split of all outstanding shares of common stock. All share and per share data have been restated to give retroactive effect to the reverse stock split. The Company repurchased shares of its outstanding common stock in fiscal 1999 and 1998. In 1999, the Company repurchased 2,759,700 shares of Class A at a cost of $89.3 million and 1,636,100 shares of Class B at a cost of $53.4 million. In 1998, the Company repurchased 1,028,567 shares of Class A at a cost of $32.0 million and 632,333 shares of Class B at a cost of $18.2 million. During 1998, the Company's convertible subordinated debentures were redeemed, principally through the conversion into shares of the Company's Class A non-voting common stock. This transaction resulted in issuance of 4,660,000 shares of Class A non-voting common stock for an aggregate conversion value, approximating the carrying value of the debentures, of $110.4 million based on the original terms for such conversion. The debentures not converted were redeemed for cash in the amount of approximately $3.8 million representing the face value of the debentures and accrued interest. 15. INTEREST EXPENSE Interest expense consists of the following:
(Dollars in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------ Interest on Borrowings (net of $3.4, $2.8 and $2.4 million capitalized in 2000, 1999 and 1998, respectively) $150,423 $ 45,682 $36,560 Interest on capital leases 62,634 58,138 58,774 -------- -------- ------- $213,057 $103,820 $95,334 ======== ======== =======
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 Company's management believes that the resulting liability, if any, will not 36 37 have a material effect upon the Company's consolidated results of operations, financial position or liquidity. 17. RELATED PARTIES On March 27, 2000, the Delhaize Group and the Company entered into an agreement ("Shareholders Agreement") containing provisions regarding, among other things, the nomination of candidates for election to the Company's Board of Directors, the voting of securities beneficially owned by the parties to the Shareholders Agreement for the election of directors and the voting requirements applicable to specified actions by the Board of Directors. The Shareholders Agreement is effective until April 30, 2007, unless the Delhaize Group's aggregate ownership of voting shares of the Company is reduced below 10%, in which case the Shareholders Agreement would terminate at that time. The Company has entered into a joint venture with Delhaize Group regarding Bel-Thai Supermarket Co., Ltd. ("Bel-Thai"), a supermarket company based in Thailand. On January 18, 2000, the Company acquired, through a wholly-owned subsidiary, a 51% interest in Bel-Thai for approximately $3.9 million. Delhaize Group owns the remaining 49% interest in Bel-Thai. The Company subsequently contributed additional capital of approximately $5.6 million to Bel-Thai. The Company's share of Bel-Thai's operating loss for fiscal 2000 was not material to the Company's consolidated results of operations. 37 38 TO THE SHAREHOLDERS OF DELHAIZE AMERICA, INC.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity, and cash flows present fairly, in all material respects, the financial position of Delhaize America, Inc. and subsidiaries (the "Company") at December 30, 2000 and January 1, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP CHARLOTTE, NORTH CAROLINA FEBRUARY 6, 2001 38 39 RESULTS BY QUARTER (unaudited)
(Dollars in thousands except per share amounts) First Second Third Fourth Quarter Quarter Quarter Quarter 2000 (12 Weeks) (12 Weeks) (12 Weeks) (16 Weeks) - ------------------------------------------------------------------------------------------------ Net sales and other revenues $2,481,753 $2,649,802 $ 3,054,192 $4,484,185 Cost of goods sold 1,849,125 2,015,734 2,326,612 3,371,384 Selling and administrative expenses 495,650 503,665 610,200 912,579 Operating income 132,617 123,822 41,816 178,387 Net(loss)income $ 65,464 $ 59,193 $ (10,638) $ 41,467 Basic and diluted earnings per common share $ 0.42 $ 0.38 $ (0.06) $ 0.23
Note the weighted average shares were impacted by the issuance of 25.6 million shares of Delhaize America Class A common stock in Quarter 3, 2000 as the result of the Hannaford acquisition.
(Dollars in thousands except per share amounts) First Second Third Fourth Quarter Quarter Quarter Quarter 1999 (12 Weeks) (12 Weeks) (12 Weeks) (16 Weeks) - ---------------------------------------------------------------------------------------------- Net sales and other revenues $2,410,044 $2,512,022 $2,586,835 $3,382,330 Cost of goods sold 1,822,083 1,901,175 1,955,860 2,530,373 Selling and administrative expenses 465,568 471,710 485,658 654,845 Operating income 118,883 135,627 142,356 191,528 Net income $ 58,608 $ 68,351 $ 73,019 $ 100,457 Basic and diluted earnings per common share $ 0.36 $ 0.43 $ 0.47 $ 0.65
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. (a) DIRECTORS OF THE REGISTRANT Article 3, Section 2 of the bylaws of the Company provides for a minimum of eight and a maximum of fourteen directors, as such number is established from time to time by the shareholders or the Board of Directors of the Company. The Board of Directors has set the number of directors at ten, but only nine of the ten director positions are currently occupied. The name, principal occupation or employment for at least the past five years, year first elected a director, and age on March 2, 2001, of each of the current directors of the Company are set forth below. PIERRE-OLIVIER BECKERS (40) -- Mr. Beckers is a director of Delhaize and has been for more than six years a member of the Executive Committee of Delhaize. Since January 1, 1999, Mr. Beckers has served as Chief Executive Officer and President of 39 40 the Executive Committee of Delhaize. Mr. Beckers also serves as Chairman, Chief Executive Officer and President of Detla. From January 1, 1998 to December 31, 1998, Mr. Beckers served as Executive Vice President of the Executive Committee of Delhaize. He has been a manager of Delhaize since 1986. Mr. Beckers was first elected as a director of the Company in 1992 and is a member of the Executive, Nominating, Senior Management Compensation and Stock Option Committees. Mr. Beckers was elected Chairman of the Board of Directors of the Company on April 7, 1999. DR. JACQUELINE KELLY COLLAMORE (40) -- Dr. Collamore manages a corporate consulting practice in Chevy Chase, Maryland. Between 1993 and 1996, she held the positions, variously, of Associate with Credit Suisse, NA, Head of Strategic Planning of Credit Suisse, NA for North America, Vice President and Chief of Staff of Credit Suisse Asset Management, Inc., and Associate and Chief of Staff of Credit Suisse Private Banking. Dr. Collamore was a consultant with Arthur D. Little from 1991 to 1992, and was an independent business consultant from 1986 to 1991. She was a Lecturer of Marketing from 1989 to 1992 at various colleges and universities. Dr. Collamore was first elected as a director in 1994 and is Chairperson of the Audit Committee. JEAN-CLAUDE COPPIETERS 'T WALLANT (55) -- Mr. Coppieters is and has been for more than six years the Secretary of the Board of Directors and a member of the Executive Committee of Delhaize. Since January 1, 1998, he has been the Group Chief Financial Officer of Delhaize. He is also a director, Vice President, Treasurer and Assistant Secretary of Detla. Mr. Coppieters was first elected as a director of the Company in 1996. PIERRE DUMONT (62) -- Mr. Dumont has been the Secretary of the Executive Committee of Delhaize since 1995 and the Group Human Resources Development Officer of Delhaize since 1998. He was the Human Resources Manager of Delhaize from 1971 to 1997. Mr. Dumont was first elected as a director of the Company in 1999. HUGH G. FARRINGTON (56) - Mr. Farrington is the Vice-Chairman of the Company, and has held that position since July 31, 2000, the effective date of the Company's acquisition of Hannaford. Also, Mr. Farrington was elected President of Hannaford in 1984 and designated Chief Executive Officer of Hannaford in 1992. He held the position of Chief Operating Officer of Hannaford from 1984 to 1992. He was Executive Vice President of Hannaford from 1981 until his election as President of Hannaford. He has been employed with Hannaford in various operating, supervisory and executive capacities since 1968. Mr. Farrington is a member of the Executive Committee. WILLIAM G. FERGUSON (73) -- Mr. Ferguson has been a director of Snow Aviation International, Inc. since 1988 and the Executive Vice President since 1989. Mr. Ferguson is Chairman of the Board of Directors of Pyrocap International Corporation. Mr. Ferguson was Chairman and Chief Executive Officer of TTI Systems, Inc. from 1977 through the sale thereof to Transco Energy Company in 1986 and until he retired from Transco in 1989. Mr. Ferguson was first appointed to the Board of Directors in 1993. He is a member of the Audit and Stock Option Committees and is Chairperson of the Senior Management Compensation Committee. DR. BERNARD W. FRANKLIN (48) -- Dr. Franklin has been the President of Virginia Union University in Richmond, Virginia since July 1999. Dr. Franklin was the President of St. Augustine's College in Raleigh, North Carolina from March 1995 to June 1999. From July 1989 until March 1995, Dr. Franklin served as President of Livingstone College and Hood Theological Seminary in Salisbury, North Carolina. Dr. Franklin was first elected as a director in 1993 and is a member of the Audit Committee and Chairperson of the Stock Option Committee. Dr. Franklin also is a member of the board of directors of Centura Bank, Inc. MARGARET H. KLUTTZ (57) -- Mrs. Kluttz has been a member of the North Carolina Board of Transportation since 1993. She was appointed Chairperson of the North Carolina Rail Council in 1994 and served in such position until 1997. Mrs. Kluttz served as Mayor of the City of Salisbury, North Carolina from 1991 until 1997. She 40 41 was appointed to the Board of Directors of the North Carolina Railroad Company in 1999. Mrs. Kluttz is a member of the Board of Advisors of the National Trust for Historic Preservation. She was first appointed to the Board of Directors in 1994. Mrs. Kluttz is a member of the Audit Committee and is Chairperson of the Nominating Committee. BILL MCCANLESS (43) -- Mr. McCanless is the President and Chief Executive Officer of the Company, and has held those positions since April 7, 1999. On January 1, 2000, Mr. McCanless was appointed to the Executive Committee of Delhaize, the Company's parent, based in Brussels, Belgium. Mr. McCanless joined the Company in 1989 and was Senior Vice President of Administration and Chief Administrative Officer from 1995 to April 7, 1999, and Vice President of Legal Affairs from 1993 to 1995. Mr. McCanless also was Secretary from 1994 to April 7, 1999. Mr. McCanless was appointed to the Board of Directors on April 7, 1999, and is a member of the Executive and Nominating Committees. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Under Section 16(a) of the Securities and Exchange Act of 1934, certain persons associate with the Company (directors, executive officers, and beneficial owners of more than 10% of the outstanding Class A Common Stock or Class B Common Stock) are required to file with the Securities and Exchange Commission and the New York Stock Exchange various reports disclosing their ownership of Company securities and changes in such ownership. To the Company's knowledge, all requisite reports for 2000 were filed in a timely manner. (b) EXECUTIVE OFFICERS OF THE REGISTRANT The names and ages of the current executive officers of the Company and their positions as of March 2, 2001, are set forth below. 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. Bill McCanless, age 43, was named President and Chief Executive Officer of the Company on April 7, 1999, and at the same time, was elected to the Company's Board of Directors. Mr. McCanless' additional biographical information provided under Item 10(a) above is incorporated herein by reference. Richard A. Anicetti, age 43, was named Chief Operating Officer and Executive Vice President of Food Lion in August 2000. Prior to joining Food Lion, Mr. Anicetti served as Executive Vice President of Hannaford for 7 years. Robert J. Brunory, age 46, is a Senior Vice President of Food Lion. He previously served the Company as its Vice President of Category Management, a position he held since 1994. Michael D. Byars, age 42, has served as Chief Operating Officer of Kash n' Karry since September, 1997. Previously, Mr. Byars served as Director of Merchandising of Food Lion's Central Division for the Company's meat operations from 1995 to 1997. Robert E. Crosslin, age 45, was named Vice President of Distribution of Food Lion in 1998 and is responsible for all operational functions of distribution. His responsibilities include warehousing, transportation and in-bound logistics. Mr. Crosslin joined the Company in 1996 as director of distribution and regional transportation manager. Prior to joining the Company, Mr. Crosslin served as Director of Fleet Services of Ralphs from 1983 to 1986. Hugh G. Farrington, age 56, was named Chief Executive Officer of Hannaford in 1992 and Vice-Chairman of the Company effective July 31, 2000. Mr. Farrington's additional biographical information provided under Item 10(a) above is incorporated herein by reference. 41 42 Paul A. Fritzson, age 47, was elected Executive Vice President & Chief Financial Officer of Hannaford in June 1999. He had served previously in various staff and merchandising and retail operations capacities for Hannaford since 1978. Keith M. Gehl, age 42, serves the Company as Executive Vice President of Business Strategy and Store Development of Food Lion, a position he has held since January 2000. Mr. Gehl joined the Company as Director of Internal Audit in 1989. He became Director of Store Operations for Food Lion's Northern Division in 1996, and was named Vice-President of Real Estate before assuming his current position. Margaret M. Ham, age 34, serves the Company as a Senior Vice President of Food Lion. Prior to joining Food Lion, Ms. Ham has been employed by Hannaford in various retail management capacities since 1988. Ronald C. Hodge, age 53, was elected President and Chief Operating Officer of Hannaford in December 2000. Mr. Hodge has been employed by Hannaford in various retail management capacities since 1980. Richard A. James, age 41, was named Treasurer of the Company in September 1999 and has served as Director of Finance and Treasurer of Food Lion since 1997. Mr. James joined the Company as a financial analyst in 1993. L. Darrell Johnson, age 48, joined the Company in 1985. In October 1997, Mr. Johnson assumed the position of Vice President of Human Resources, overseeing benefits administration, compensation, recruiting and retention of employees. Previously, Mr. Johnson served as Director of Human Resources Compensation and Administration from 1996 to 1997. Laura C. Kendall, age 49, joined the Company in 1997 as Chief Financial Officer and was named Executive Vice President of Finance of Food Lion in 2000. In such positions, Ms. Kendall is responsible for the administration of the finance, accounting, audit and information technology departments. Ms. Kendall also served as Vice President of Finance of the Company from 1997 to 2000. Before coming to the Company, she served as chief financial officer at F & M Distributors, a discount health and beauty aids retailer in Michigan. Ms. Kendall is a certified public accountant. C. David Morgan, age 50, became Senior Vice President of Operations of Food Lion in January 2000. He joined the Company in 1990 as an area supervisor and served most recently as Vice President of Operations for the Southern Division, a position he held from December 1997 to December 1999. Elwyn G. Murray, III, age 34, was named Senior Vice President of the Company in 2001. Mr. Murray is responsible for overseeing all the buying functions for Food Lion and Kash n' Karry stores. Mr. Murray joined the Company in 1989, and served as Vice President of Marketing and Director of Category Management from 1995 to 1999 and Vice President of Procurement from 1999 to 2001. Michael J. Strout, age 46, was elected Executive Vice President-Human Resources & Information Technology of Hannaford in June 1999. From 1985 to 1990 Mr. Strout had been employed by Hannaford in various Human Resources management positions. Michael R. Waller, age 47, was named Executive Vice President, General Counsel and Secretary of the Company in July 2000. Prior to joining the Company, Mr. Waller served as Managing Partner in the Moscow and London offices of the law firm Akin, Gump, Strauss, Hauer & Feld, L.L.P. 42 43 Item 11. Executive Compensation. SUMMARY COMPENSATION TABLE The following table sets forth information concerning the annual and long-term compensation earned by the Chief Executive Officer, each of the four other most highly compensated executive officers of the Company during fiscal 2000, and one additional individual who was among the Company's most highly compensated executive officers, but was not serving as an executive officer of the Company at the end of fiscal 2000 (the "Named Executives"), for services rendered to the Company in all capacities for the fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999.
LONG-TERM COMPENSATION LONG-TERM OTHER RESTRICTED COMPENSATION ALL ANNUAL COMPENSATION ANNUAL STOCK OPTIONS/ OTHER ----------------------------------- COMP. AWARD(S) SARS COMP. NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS(1) ($)(2) ($)(3) (#) (4) - --------------------------- ---- ---------- -------- ------ ------------ ------------ ------- Bill McCanless 2000 694,186 300,814 12,202 429,250 99,650/0 94,195 1999 616,324 237,260 9,888 417,308 267,745/0 119,507 President and Chief 1998 425,132 166,845 7,239 151,195 24,710/0 85,586 Executive Officer Laura C. Kendall 2000 349,138 100,862 14,214 160,395 37,230/0 42,675 1999 322,388 77,612 8,003 136,684 22,187/0 57,963 Chief Financial 1998 261,045 50,649 7,734 78,913 12,897/0 -- Officer Hugh G. Farrington (5) 2000 282,817 127,268 4,700 -- 464,358/0 54,364 1999 -- -- -- -- -- -- Chief Executive 1998 -- -- -- -- -- -- Officer of Hannaford Keith M. Gehl 2000 260,676 70,442 7,244 79,730 18,510/0 30,505 1999 193,433 45,567 5,220 51,260 8,320/0 34,836 Executive Vice 1998 158,209 38,806 4,821 22,529 3,678/0 27,424 President of Business Strategy and Store Development of Food Lion Robert J. Brunory 2000 247,888 71,612 7,570 87,550 20,335/0 30,377 1999 232,120 55,880 6,171 82,011 13,312/0 42,967 Senior Vice President 1998 221,494 48,508 5,739 51,206 8,368/0 6,175 of sales and Marketing of Food Lion Joseph C. Hall, Jr (6) 2000 370,990 134,357 10,485 286,960 66,620/0 171,603 1999 494,519 190,481 9,035 262,052 42,541/0 102,617 President of 1998 446,389 175,187 7,705 158,765 25,945/0 94,063 Food Lion
- --------------- (1) These amounts are awarded under the Key Executive Annual Incentive Bonus Plan or the Incentive Bonus Plan, and are shown for the year earned. (2) Includes amounts reimbursed for medical expenses, amounts deemed compensation under the Company's Low Interest Loan Plan, amounts deemed compensation in connection with an automobile furnished by the Company to each of the Named Executives, amounts deemed compensation in connection with life insurance policies for the Named Executives, and the value of certain other personal benefits. (3) The dollar values of the restricted stock awards shown in this column are based on the closing market price of the Class A Common Stock on the date of grant multiplied by the number of shares awarded. The number and value of the 43 44 aggregate restricted stock holdings for each of the Named Executives at the end of the last completed fiscal year (December 30, 2000), representing shares of restricted stock that had been granted under the 1996 Plan and 2000 Plan, are as follows: for Mr. McCanless, 46,090 shares valued at $797,052; for Mr. Hall, 0; for Ms. Kendall, 17,464 shares valued at $308,895; for Mr. Brunory, 10,213 shares valued at $175,332; for Mr. Gehl, 7,085 shares valued at $124,210; and for Mr. Farrington, 0. The value of such shares, which were granted in 1996, 1997, 1998, 1999 and 2000 is based on the closing stock price of the Class A Common Stock on December 29, 2000, the last trading day in fiscal year 2000. The shares of restricted stock were granted on May 7, 1998, April 30, 1999 and May 3, 2000 in the following amounts: to Mr. McCanless, 4,993 shares in 1998, 13,571 shares in 1999 and 25,250 shares in 2000; to Mr. Hall, 5,243 shares in 1998, 8,522 shares in 1999 and 16,880 shares in 2000; to Ms. Kendall, 2,606 shares in 1998, 4,445 shares in 1999 and 9,435 shares in 2000; to Mr. Brunory, 1,691 shares in 1998,2,667 shares in 1999 and 5,150 shares in 2000; to Mr. Gehl, 744 shares in 1998, 1,667 shares in 1999 and 4,690 shares in 2000; and to Mr. Farrington, 0. The shares of restricted stock granted in 1998 will vest one-fourth on May 7, 2001, one-fourth on May 7, 2002, and one-fourth on May 7, 2003. The shares of restricted stock granted in 1999 will vest one-fourth on April 30, 2001, one-fourth on April 30, 2002, one-fourth on April 30, 2003, and one-fourth on April 30, 2004. The shares of restricted stock granted in 2000 will vest one-fourth on May 3, 2002, one-fourth on May 3, 2003, one-fourth on May 3, 2004, and one-fourth on May 3, 2005. No dividends will be paid on the restricted stock during the period in which the shares are subject to restrictions under the 1996 and 2000 Plans. (4) Includes $17,000 contributed by the Company on behalf of Mr. McCanless, Mr. Brunory, Mr. Gehl and Ms. Kendall under the Company's non-contributory qualified profit sharing plan (the "Profit Sharing Plan") during 2000. Amounts set forth in this column also include payments pursuant to the Company's Profit Sharing Restoration Plan on behalf of the Named Executives in lieu of additional contributions that would have been made under the Profit Sharing Plan but for certain limitations on such contributions in the Code. These payments were, for Mr. McCanless, $76,150 in 2000, $93,475 in 1999 and $60,625 in 1998; for Mr. Hall, $0 in 2000, $76,456 in 1999 and $67,985 in 1998; for Ms. Kendall, $25,675 in 2000, $33,963 in 1999 and $0 in 1998; for Mr. Brunory, $13,377 in 2000, $18,968 in 1999 and $14,989 in 1998; for Mr. Gehl, $13,505 in 2000, $10,836 in 1999 and $3,423 in 1998. On May 4, 1995, the Board of Directors adopted the Profit Sharing Restoration Plan, pursuant to which excess profit sharing payments are credited to an account on behalf of each participant. See "REPORT OF THE SENIOR MANAGEMENT COMPENSATION COMMITTEE, STOCK OPTION COMMITTEE AND BOARD OF DIRECTORS -- REPORT ON EXECUTIVE COMPENSATION -- Incentive Compensation" below. Amounts set forth in this column also include, for Messrs. McCanless and Hall, the economic value of premiums paid by the Company directly to maintain split dollar life insurance policies on behalf of the executives. The Company has secured split dollar life insurance policies for Messrs. McCanless and Hall in the face amount of three and one-half times such officer's base salary, if death occurs prior to retirement, and two times base salary if death occurs after retirement. The life insurance policies are assigned to the Company as security for the premiums paid by the Company and, upon the death of the executive (or earlier termination of the policies), the Company is entitled to receive directly from the insurance carrier an amount equal to the sums advanced. The amount set forth in this column for Mr. Hall also includes $170,455 that Mr. Hall received in 2000 pursuant to his retirement agreement with the Company. See "Employment Plans and Agreements - Retirement Agreement with Joseph C. Hall, Jr." For Mr. Farrington, amounts set forth in this column include $14,135 contributed to the Hannaford Cash Balance Plan, $25,689 contributed to the Hannaford Bros. Co. Supplemental Executive Retirement Plan, and $14,540 contributed to the Hannaford Nonqualified Savings and Investment Plan (including $3,347 of interest credited to such plan). (5) Hugh G. Farrington became an executive officer of the Company, effective July 31, 2000, upon the consummation of the Company's acquisition of Hannaford. (6) Effective August 31, 2000, Joseph C. Hall, Jr., retired as President of Food Lion. See "Employment Plans and Agreements - Retirement Agreement with Joseph C. Hall, Jr." 44 45 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES The following table shows information for the Named Executives, concerning (i) exercises of stock options during the year ended December 30, 2000 and (ii) the amount and value of unexercised "in-the-money" options for the Class A Common Stock, as of December 30, 2000. The value of stock options at December 30, 2000 was determined by the spread between the exercise price of such options and the closing price of shares of the Class A Common Stock, as reported by the New York Stock Exchange on December 29, 2000, the last trading day in fiscal year 2000.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS/SARS AT OPTIONS/SARS AT FY-END (#) FY-END ($) ---------------------- -------------------- SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE - ---- --------------- -------------- ------------- ------------- Bill McCanless 1,167 438 0/99,650 0/68,509 Laura C. Kendall -- -- 0/37,230 0/25,596 Hugh G. Farrington -- -- 471,748/0 1,434,634/0 Robert J. Brunory -- -- 0/20,335 0/13,980 Keith M. Gehl -- -- 0/18,510 0/12,726 Joseph C. Hall, Jr 1,667 208 0/0 0/0
OPTION/SAR GRANTS IN LAST FISCAL YEAR The following table sets forth the number of shares of the Class A Common Stock for which stock options were granted to each of the Named Executives who received options during the fiscal year ended December 30, 2000.
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE INDIVIDUAL GRANTS(1) APPRECIATION FOR OPTION TERM(3) - -------------------------------------------------------------------------------------------------------------------------------- (A) (B) (C) (D) (E) (F) (G) NUMBER OF % OF TOTAL SECURITIES OPTIONS/SARS EXERCISE UNDERLYING GRANTED TO OR BASE OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($) - ---- ------------ ------------ -------- ----------- --------- --------- Bill McCanless 99,650 4.33(2) $ 17.00 5/3/10 1,065,748 2,701,027 Laura C. Kendall 37,230 1.62(2) 17.00 5/3/10 398,172 1,009,124 Hugh G. Farrington 10,075 .44(3) 14.65 5/14/02 46,682 65,517 23,746 1.03(3) 14.65 5/19/03 133,242 205,369 6,821 .30(3) 14.65 5/14/02 31,605 44,356 50,759 2.21(3) 14.65 5/24/05 390,989 689,212 47,775 2.08(3) 14.65 5/14/06 419,901 779,686 57,669 2.51(3) 14.65 5/12/07 574,067 1,118,730 6,821 .30(3) 14.65 5/20/08 76,480 156,081 10,144 .44(3) 14.65 5/13/01 37,662 46,408 87,363 3.80(3) 14.65 5/19/09 1,092,201 2,326,028 6,821 .30(3) 14.65 5/19/09 85,275 181,608 67,743 2.95(3) 14.65 5/20/08 759,560 1,550,122 6,821 .30(3) 14.65 5/12/07 67,900 132,322 13,647 .59(3) 14.65 5/14/06 119,945 222,718 6,821 .30(3) 14.65 5/24/05 52,541 92,616 6,821 .30(3) 14.65 5/13/01 25,324 31,205 47,690 2.07(3) 14.65 5/19/04 315,908 523,562 6,821 .30(3) 14.65 5/19/04 45,184 74,884 Robert J. Brunory 20,335 .88(2) 17.00 5/3/10 217,481 551,183 Keith M. Gehl 18,510 .81(2) 17.00 5/3/10 197,962 501,716 Joseph C. Hall, Jr 66,620 2.90(2) 17.00 5/3/10 712,495 1,805,744
- --------------- (1) Options for the Named Executive Officers have been awarded pursuant to plans approved by the stockholders of either (i) Delhaize America or (ii) Hannaford and assumed by Delhaize America as of the date the Company acquired Hannaford. The terms are governed by the plans and the recipient's option agreement. (2) These options vest and become exercisable for shares of Class A Common Stock as follows: one-third on May 3, 2001, one-third on May 3, 2002 and the remaining one-third on May 3, 2003. 45 46 (3) Options were granted by Hannaford as reload options prior to the merger on July 31, 2000. All shares were exercisable as of the date of grant. (4) As required by the Securities and Exchange Commission, potential net gain from the exercise of stock options and SARs is based on the assumed annual rates of stock appreciation of 5% and 10% over the ten-year term of each option and SAR. Any actual net gains are dependent on the future performance of the Company's common stock and general market conditions. There is no assurance that the assumed rates of stock price appreciation utilized in these calculations will be achieved. In order for these options and SARs to have value for the executive, the stock price must increase above the exercise price. Increases in the stock price will benefit all shareholders commensurately. COMPENSATION OF DIRECTORS The Company has agreed to pay Dr. Jacqueline Kelly Collamore, Dr. Bernard W. Franklin, William G. Ferguson and Margaret H. Kluttz a quarterly fee of $6,500 and a fee of $1,000 per board meeting, and to reimburse them for all related travel expenses for their service on the Board of Directors. The $6,500 quarterly fee is paid in cash in each of the first three quarters of the year. The Board of Directors has approved the payment of the $6,500 fourth quarter fees in the form of Class A Common Stock, until such time as the aggregate number of shares of Class A Common Stock issued in payment of such director's fees is 8,333 shares. In connection with their service on the special committee of the Board of Directors to consider the share exchange with Delhaize Group (the "Special Committee"), Dr. Jacqueline Kelly Collamore, Dr. Bernard W. Franklin, William G. Ferguson and Margaret H. Kluttz were each paid a one-time fee by the Company of $50,000 ($75,000, in the case of Dr. Jacqueline Kelly Collamore who served as chairperson of the special committee). In addition, the Company paid each member of the Special Committee $1,000 for each Special Committee meeting attended and reimbursed Special Committee members for their expenses. PERFORMANCE GRAPH The graph set forth below compares, for the five-year period indicated, the "cumulative shareholder return" to shareholders of the Company as compared with the return of the Standard & Poor's 500 Stock Index and of a group of five retail food chain stores consisting of Albertson's, Inc., Great Atlantic & Pacific Tea Co., Kroger Co., Safeway, Inc., and Winn-Dixie Stores, Inc. (the "Peer Group Index"). "Cumulative shareholder return" has been computed assuming an investment of $100 at December 31, 1995 in the Class A Common Stock and the stock of the companies comprising the Standard & Poor's 500 Stock Index and the Peer Group Index, and assuming the reinvestment of dividends. FIVE YEAR PERFORMANCE
MEASUREMENT PERIOD DELHAIZE S&P 500 (FISCAL YEAR COVERED) AMERICA INDEX PEER GROUP - --------------------- -------- ------- ---------- 1995 100 100 100 1996 174 123 122 1997 152 164 174 1998 195 211 273 1999 126 255 156 2000 114 232 207
46 47 REPORT OF THE SENIOR MANAGEMENT COMPENSATION COMMITTEE, STOCK OPTION COMMITTEE AND BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION The Company's policy with respect to executive compensation has been designed to: - reward executive officers for the achievement of short-term operating goals and for the enhancement of the long-term shareholder value of the Company; - align the interests of executive officers with those of the Company's shareholders with respect to short-term operating results; and - adequately and fairly compensate executive officers in relation to their responsibilities, capabilities, and contributions to the Company and in a manner that is commensurate with compensation paid by companies of comparable size within the Company's industry to enable the Company to attract and retain highly skilled and qualified senior management. As in prior years, the Company worked with Towers Perrin, an independent compensation consulting firm, to establish estimated competitive compensation opportunities for the Company's senior executives to ensure that the Company's compensation structure is sufficiently competitive to attract and retain highly qualified executives in all of its senior management positions. Towers Perrin's competitive review and analysis of industry pay practices was based on a compilation of competitive compensation and benefit information from published surveys of the retail grocery industry, proxy statements for eight specific competitors in the grocery industry selected on the basis of their revenues and multi-store operational formats (Albertson's Inc.; Fleming Companies, Inc.; Great Atlantic & Pacific Tea Co.; Kroger Co.; Publix Super Markets, Inc.; Safeway, Inc.; Supervalu, Inc.; and Winn-Dixie Stores, Inc.), as well as Towers Perrin's own compensation and benefit data sources. This compilation of competitive information is referred to herein as the "Towers Perrin Competitive Data." According to the Towers Perrin Competitive Data, total direct compensation (which included stock options and restricted stock) for the Named Executives was below competitive, and Towers Perrin so advised the Senior Management Compensation Committee. The primary components of compensation paid by the Company to executive officers are base salary and incentive compensation, with incentive compensation broken down further into incentive bonus payments, stock options, restricted stock and profit sharing. The relationship of each principal component of compensation to the Company's performance is discussed below. BASE SALARY Each year, the Senior Management Compensation Committee reviews and approves the base salaries to be paid by the Company during the following year to members of senior management. Annual adjustments to base salaries are determined based on a number of factors, including the Company's business and financial performance and the executives' contributions to the Company's performance. At its December 2000 meeting, the Senior Management Compensation Committee reviewed the base salaries of the Named Executives taking into account their roles and performance contributions, as well as the Company's overall competitive pay positioning, to determine appropriate increases to base salaries for 2001. As a result of this review, such Committee increased the 2001 base salary for each of the Named Executives in amounts ranging from 2% to 25.89%. The Senior Management Compensation Committee believes that these increases and the resulting new base salaries are consistent with overall Company and individual performance and the Company's general strategy of paying base salaries competitive within the industry to allow it to retain valued executives. These salary actions are also consistent 47 48 with such committee's strategy over the past seven years to bring the Company's executive compensation program more in line with competitive industry practice. Bill McCanless' terms of employment, including the level of his base salary, are set forth in an April 7, 1999 Employment Agreement between Mr. McCanless and the Company (the "McCanless Agreement"). The McCanless Agreement provides that Mr. McCanless's base salary will be competitive within the Company's industry as determined annually, but that Mr. McCanless's base salary will not be reduced in connection with any annual review of industry practices. The McCanless Agreement further provides that Mr. McCanless annually shall be eligible to receive up to 45% of his base salary in the form of a bonus under the Company's Key Executive Annual Incentive Bonus Plan and that Mr. McCanless will be eligible to participate in the Company's stock option plans and other compensation plans of the Company. In addition, the McCanless Agreement provides that Mr. McCanless will be provided split dollar life insurance in specified amounts. The McCanless Agreement additionally provides for a one-time grant to Mr. McCanless of options to purchase 200,000 shares of Class A Common Stock. Such options are exercisable within the first three years after the date of grant only if the stock price of Class A Common Stock is $60 or greater for 45 consecutive trading days or, if not previously exercisable, on the seventh anniversary of the date of grant. Except for the base salary, bonus, split dollar life insurance and options, the McCanless Agreement does not address in detail any component of Mr. McCanless's compensation. See also "Employment Plans and Agreements" for discussion of employment agreements with Messrs. McCanless, Farrington, Brunory, Gehl and Hall and Ms. Kendall. INCENTIVE COMPENSATION Incentive Bonus. A substantial portion of each executive officer's compensation package is in the form of an incentive bonus designed to reward the achievement of short-term operating goals and long-term increases in shareholder value. The Company's Incentive Bonus Plan, which was adopted by the Company in 1982, is designed to offer an incentive to those employees whose performance most directly affects the Company's profitability, as determined by the Senior Management Compensation Committee. Under the terms of the Incentive Bonus Plan, each employee selected for participation in the plan is assigned a maximum potential bonus award, which is computed by multiplying a predetermined percentage rate ranging from 10% to 45%, depending on the participant's position in the Company (the "Potential Percentage Rate"), by each participant's salary (the "Potential Bonus"). Under the plan, the total bonus payable each year for all participants (the "Total Bonus") may not exceed the lesser of (i) 2.1% of the Company's net income before taxes and certain other adjustments in excess of a 15% return on average shareholder's equity (the "ROE Bonus Amount") and (ii) the aggregate of the Potential Bonus for all plan participants (the "Maximum Bonus Amount"). A portion of each participant's bonus is determined by multiplying one-half of such participant's Potential Percentage Rate by such participant's salary (the "Objective Bonus"). All or any of the remaining Total Bonus is determined and allocated among participants at the discretion of the Senior Management Compensation Committee (the "Discretionary Bonus"). In determining the Discretionary Bonus, the Senior Management Compensation Committee considers a number of factors, including contributions of each participant toward the accomplishment of business objectives during the year. For the year ended December 30, 2000, each of the participating Named Executives received his or her Potential Bonus, and the Total Bonus paid to participants under the plan equaled the Maximum Bonus Amount. In determining the Discretionary Bonus awarded to each participating executive, the Senior Management Compensation Committee considered the performance of the Company in a highly competitive industry and to what extent each participant met his or her personal goals established at the beginning of the fiscal year by such participant and his or her supervisor. 48 49 In December 1995, the Internal Revenue Service issued its final regulations for Section 162(m) of the Code covering the non-deductibility of compensation in excess of $1,000,000 for the Chief Executive Officer and the four highest-paid officers (other than the Chief Executive Officer) named in the proxy statements or annual reports on Form 10-K of public companies. Code Section 162(m) provides for deductibility of "performance-based" compensation in excess of $1,000,000 so long as it meets the requirements of Section 162(m), which include, among other things, that the compensation be paid through application of a shareholder approved plan. At the Annual Meeting of Shareholders in May 1996, shareholders approved the Key Executive Annual Incentive Bonus Plan (the "Key Executive Plan"), which was designed to provide annual incentive compensation opportunities that will qualify as performance-based under the terms of Code Section 162(m). Under the terms of the Key Executive Plan, the Senior Management Compensation Committee may designate certain executive officers who may be affected by the terms of Section 162(m) to participate in this plan. Executives who are designated for participation in this plan may not simultaneously participate in the Company's Incentive Bonus Plan. Participants in the Key Executive Plan are eligible to receive bonuses if and only to the extent that pre-established performance goals are met. The potential maximum bonus that each participant in the Key Executive Plan is eligible to receive will be set as a fixed percentage of profit in excess of a return on average equity threshold as pre-determined by the Senior Management Compensation Committee. The maximum bonus award that any participant may receive in any single year under this plan is $750,000. At the discretion of such Committee, actual bonuses paid may be lower than the amounts generated by the formula, but in no case may they be higher. In 2000, Messrs. McCanless and Farrington were the only executives designated to participate in the Key Executive Plan. Stock Options. At the May 4, 2000 Annual Meeting, shareholders approved the Delhaize America, Inc. 2000 Stock Incentive Plan (the "2000 Plan") to be effective as of March 27, 2000. Upon such approval, the Company's 1996 Employee Stock Incentive Plan (the "1996 Plan") was effectively frozen and now only governs those options and awards or restricted stock still outstanding under the 1996 Plan. Like the Company's earlier stock option plans, the 2000 Plan provides the Stock Option Committee full and final authority, in its discretion, to determine within the terms of the plan the individuals to receive awards pursuant to the plan, the times or effective dates when awards will be granted, the number of shares subject to each award, the exercise price for any stock options granted and the time(s) when, and the conditions, if any, under which each award may be vested and/or exercisable. The 2000 Plan provides for grants of stock options and restricted stock. Under the terms of this plan, options to purchase shares of the Company's Class A Common Stock, or awards of shares of Class A Common Stock subject to certain vesting and other restrictions determined by the Stock Option Committee, may be granted on an annual basis to key employees. Grants to the Named Executives of stock options and restricted stock under this plan are made with reference to competitive practice, the Company's overall goal of linking executive compensation to the enhancement of long-term shareholder value, and individual circumstances with respect to executive recruitment and retention. Towers Perrin's recommendations to the Stock Option Committee contemplated annual grants of stock options and restricted stock to the Named Executives in expected values slightly greater when compared comparable to the grants made in 1999, assuming satisfactory company and individual performance. During 2000, options for 2,171,459 shares of Class A Common Stock were granted under the 2000 Plan to 1,499 employees. Profit Sharing. The Company, and its subsidiary Food Lion, LLC, maintain the Profit Sharing and Retirement Plan of Food Lion, LLC (the "Profit Sharing Plan") for employees pursuant to which the Company contributes annually an amount of current or accumulated earnings as determined by the Board of Directors but not exceeding the maximum amount deductible for income tax purposes. Each employee of the Company is generally eligible to participate in the Profit Sharing Plan as of the first day of 49 50 the plan year in which he or she completes 1,000 or more hours of service. The annual contribution each year under the Profit Sharing Plan is determined by the Board of Directors but may not in any event exceed 15% of the compensation paid or otherwise accrued during the taxable year for each employee under the Profit Sharing Plan. The Board of Directors approved a contribution to the Profit Sharing Plan for 2000 equal to 10% of the 2000 wages of all eligible employees including forfeitures. Tax-deferred contributions by the Company for the benefit of highly compensated employees to the Profit Sharing Plan are subject to certain limits imposed by the Code. This limit was $30,000 during each of the last three fiscal years. Contributions on behalf of executive officers in excess of these limitations are credited to the executives' accounts under the Profit Sharing Restoration Plan of Food Lion, which includes a credit of interest at a variable rate equal to the 10-year Constant Maturity Treasury yield in effect on the last day of the previous calendar quarter. Each participant in the Profit Sharing Restoration Plan of Food Lion will receive a single lump sum cash distribution in the amount of his or her entire account balance on the first day of the month next succeeding termination of employment with the Company. Supplemental Executive Retirement Plan. The Company also sponsors a Supplemental Executive Retirement Plan ("SERP") for certain key employees including Named Executives (except for Mr. Farrington). This plan provides a supplemental benefit that, combined with benefits from the Profit Sharing Plan and the Profit Sharing Restoration Plan, deferred compensation agreements, and Social Security, will provide estimated annual benefits at normal retirement (age 65) of up to 60% of the participant's final average compensation. A participant's "final average compensation" means the annual average of the participant's annual cash compensation (to include base salary and incentive bonus) paid to the participant for the five completed calendar years that immediately precede the year in which payments of benefits under the plan are to begin. A participant who retires on or after his normal retirement date, and has completed 20 or more years of service to the Company, will receive an annual retirement benefit under the SERP payable as a single life annuity that is equal to the difference between 60% of his final average compensation and certain "benefit offsets." The benefit offsets are the sum of: (1) the participant's annuity under the Profit Sharing Plan; (2) the participant's annuity under the Profit Sharing Restoration Plan; (3) the participant's annuity under any deferred compensation agreement with the Company; and (4) the participant's Social Security benefit. Any participant who retires on or after his normal retirement date and has completed fewer than 20 years of service to the Company will receive a reduced benefit in proportion to the participant's years of service. A participant who retires prior to normal retirement age may be entitled to reduced benefits under the SERP, depending on the participant's age and years of service. Based on currently available information and assumptions, the estimated annual benefits under the SERP alone to the Named Executives are $255,998 for Ms. Kendall, $0 for Mr. Hall, $116,534 for Mr. Gehl, $524,969 for Mr. McCanless and $0 for Mr. Brunory. Mr. Farrington does not participate in the Company's SERP. Mr. Hall retired from the Company on July 31, 2000 prior to the attainment of age 55. Under the terms of the SERP he forfeited his benefits. These estimates may change from time to time depending on the projected final average compensation and the projected value of the benefit offsets for each of the Named Executives. This report is submitted by the Senior Management Compensation Committee, the Stock Option Committee and the Board of Directors of the Company. 50 51 SENIOR MANAGEMENT COMPENSATION COMMITTEE: STOCK OPTION COMMITTEE: Pierre-Olivier Beckers Pierre-Olivier Beckers William G. Ferguson, Chairperson William G. Ferguson Bernard W. Franklin, Chairperson BOARD OF DIRECTORS: Pierre-Olivier Beckers, Chairman of the Board Bernard W. Franklin Jacqueline K. Collamore Hugh G. Farrington Jean-Claude Coppieters 't Wallant Margaret H. Kluttz Pierre Dumont Bill McCanless William G. Ferguson
EMPLOYMENT PLANS AND AGREEMENTS Employment Agreement with Bill McCanless. Effective April 7, 1999, Bill McCanless entered into the McCanless Agreement with the Company providing for his employment as President and Chief Executive Officer of the Company. The McCanless Agreement expires on April 7, 2004, provides for Mr. McCanless to receive a base salary of not less than $650,000 per year, and authorizes the Board of Directors to increase such amount from time to time. Mr. McCanless is also eligible to receive a bonus of up to 45% of his salary in any year at the discretion of the Board of Directors. The McCanless Agreement also entitles Mr. McCanless to participate in other compensation and benefit plans of the Company and requires the Company to maintain split dollar life insurance for Mr. McCanless in the face amount of three and one-half times his base salary if his death occurs prior to retirement (subject to certain conditions), and two times his last base salary if death occurs after retirement. Mr. McCanless may elect to defer some or all of his bonus compensation and up to 50% of his base salary. The McCanless Agreement also provides for the grant of options to purchase 200,000 shares of Class A Common Stock to Mr. McCanless (the "Jump Start Options"). The Jump Start Options expire on April 7, 2009. If the closing price per share of the Class A Common Stock is $60 or greater for 45 consecutive trading days ending on or prior to April 7, 2002 and Mr. McCanless is still the President and Chief Executive Officer of the Company on such date, the Jump Start Options will vest on such date. Otherwise, the Jump Start Options will vest on April 7, 2006, provided that Mr. McCanless remains employed as the President and Chief Executive Officer of the Company on such date. The exercise price of the Jump Start Options is $26.625 per share. The Company may terminate Mr. McCanless' employment for Cause, as defined in the McCanless Agreement. The McCanless Agreement defines Cause as (i) willful failure (other than by reason of incapacity due to physical or mental illness) by Mr. McCanless to perform his material duties thereunder and his inability or unwillingness to correct such failure within 30 days after receipt of such written notice, (ii) conviction of Mr. McCanless of a felony or plea of guilty or 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 Mr. McCanless in good faith with respect to the Company's business. If the Company terminates Mr. McCanless' employment for Cause, or Mr. McCanless' employment terminates due to death, the Company will no longer be required to make payments to Mr. McCanless or his estate under the agreement, except for compensation earned prior to such termination and pursuant to plans, arrangements or agreements providing for payments after termination of employment, including, in the case of death, payments pursuant to a salary continuation agreement with the Company. See "-- Salary Continuation Agreements." The Company or Mr. McCanless may terminate his employment upon Mr. McCanless' disability as specified in the McCanless Agreement, in which case, the Company shall pay Mr. McCanless a lump sum payment equal to 50 percent of the present value of the future base salary payable to Mr. McCanless during the longer of the remainder of the term of employment under his employment agreement or for a period of two years. Mr. McCanless may terminate his employment without liability to the Company for Good Reason, as defined in the McCanless Agreement. Good Reason is defined as the 51 52 occurrence of any of the following circumstances: (i) a material diminution of the professional responsibilities of Mr. McCanless, (ii) assignment of inappropriate duties to Mr. McCanless, (iii) failure of the Company to provide compensation and benefits obligations to Mr. McCanless as set forth in the McCanless Agreement, (iv) transfer of Mr. McCanless more than 50 miles from Salisbury, North Carolina, (v) a purported termination of the McCanless Agreement by the Company other than in accordance with the terms thereof or (vi) failure of the Company to require any successor to the Company to assume and comply with the McCanless Agreement. If Mr. McCanless terminates his employment for Good Reason or if the Company terminates his employment (except for "Cause" as defined above, or by reason of death or disability), the Company shall pay Mr. McCanless the full amount of Mr. McCanless' base salary and other compensation earned prior to the Date of Termination (as defined in the McCanless Agreement). In addition, the Company shall pay Mr. McCanless an amount (the "Termination Payment") equal to the product of Mr. McCanless' current annual base salary multiplied by the greater of (i) three years, or (ii) the number of full years remaining in the term of the McCanless Agreement. If Mr. McCanless' employment is terminated by Mr. McCanless for Good Reason prior to a Change in Control or by the Company without Cause, the Company shall maintain in full force and effect for the continued benefit of Mr. McCanless and his eligible dependents for three years after the Date of Termination (or for the number of years remaining in the term of the agreement, whichever is greater), the employee fringe benefit plans and programs relating to medical, dental, health and life insurance in which Mr. McCanless was entitled to participate immediately prior to the Date of Termination, if Mr. McCanless' continued participation is permitted under the general terms and provisions of such plans and programs and applicable law, but not including the Annual Incentive Bonus Plan, the Profit Sharing Plan and the Profit Sharing Restoration Plan and any other bonus, retirement or similar compensation plans. If Mr. McCanless' employment is terminated by the Company without Cause in contemplation of a Change in Control of the Company within six months prior to such Change in Control or Mr. McCanless' employment is terminated by the Company without Cause or by Mr. McCanless with Good Reason within one year following a Change in Control of the Company, the Company shall pay Mr. McCanless the compensation and benefits set forth in the two paragraphs above, and in addition, for three years following the Date of Termination (or for the number of years remaining in the term of the McCanless Agreement, whichever is greater), Mr. McCanless shall be paid an annual amount equal to the amounts, if any, which would have been payable to Mr. McCanless under the Key Executive Annual Incentive Bonus Plan, the Profit Sharing Plan and the Profit Sharing Restoration Plan (or such other plans in which Mr. McCanless was entitled to participate as of the Date of Termination) assuming Mr. McCanless had remained employed for such three years (or greater) period and received an annual salary at the rate in effect on the Date of Termination. The McCanless Agreement defines a "Change in Control" of the Company as 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 a Change in Control of the Company shall be deemed to have occurred if: (i) an acquisition (other than directly from the Company) by a Person (as set forth in Sections 3(a)(2) and 13(d)(3) of the Exchange Act), excluding the Company or an employee benefit plan of the Company or an entity controlled by the shareholders of the Company results in the aggregate number of shares of the voting securities of the Company beneficially owned by any other Person to exceed the number of shares of the voting securities of the Company beneficially owned, in the aggregate, by Delhaize and Detla; (ii) at any time during the term of the McCanless 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 of the McCanless Agreement ("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 directors in office on 52 53 the date of such election (other than in connection with an actual or threatened proxy contest) shall be treated as Incumbent Company Directors; (iii) consummation of a complete liquidation or dissolution of the Company or a merger, consolidation or sale of all or substantially all of the assets of the Company (collectively, a "Business Combination") other than a Business Combination in which all or substantially all of the beneficial holders of voting securities of the Company receive or retain fifty percent or more of the voting securities of the Company or entity resulting from the Business Combination ("Resulting Company"), at least a majority of the board of directors of the Resulting Company were Incumbent Company Directors, and after which no person or entity owns twenty percent or more of the voting securities ("Beneficial Ownership Threshold") of the Resulting Company, who did not beneficially own such stock immediately before the Business Combination; or (iv) occurrence of any of the events described in (ii) or (iii) above to Delhaize, or the acquisition by any Person of more than thirty percent of the stock of Delhaize. Notwithstanding any other provision of this paragraph, for purposes of the definition of "Change in Control" of the Company a change in control of Delhaize shall not constitute a Change in Control of the Company unless it involves an event contemplated by (iv) above. With respect to (iii) above as it applies to Delhaize under (iv) above, the Beneficial Ownership Threshold shall be thirty percent. Upon a Change in Control, or if Mr. McCanless' employment terminates other than for Cause, all of the rights granted to Mr. McCanless by the Company to own or acquire stock of the Company (including stock options and restricted stock granted under the 1996 Plan or other plans but excluding the Jump Start Options) will automatically vest upon the date of such Change in Control or date of termination, provided however, that (assuming no occurrence of a Change in Control) such rights shall not vest if Mr. McCanless' employment is terminated for his failure adequately to perform his duties under the McCanless Agreement as determined by an affirmative vote of at least seventy percent of the Board of Directors of the Company. If the Jump Start Options have not vested by April 7, 2002, they will not vest for any reason, including a Change in Control, until April 7, 2006. The McCanless Agreement prohibits Mr. McCanless, without the written consent of the Board of Directors of the Company, from engaging in any retail or wholesale grocery business which is directly competitive with the business of the Company or its affiliates in any geographic area which the Company or its affiliates operates on the Date of Termination. This prohibition applies to Mr. McCanless during the term of the McCanless Agreement and for a period of two years after his termination. The McCanless Agreement also places restrictions, for a period of two years after termination of Mr. McCanless' employment, on the recruitment or solicitation of employees or independent contractors of the Company for the purpose of being employed by Mr. McCanless or an entity on behalf of which Mr. McCanless is acting as agent, representative or employee. If, however, Mr. McCanless' employment is terminated prior to the first anniversary of the date on which a Change in Control occurs, the foregoing restrictions on competition and solicitation by Mr. McCanless shall not apply. Under the McCanless Agreement, the Company agreed to indemnify Mr. McCanless to the fullest extent permitted under North Carolina law from and against any losses, claims, damages, costs and expenses suffered by Mr. McCanless as a result of the fact that he 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 McCanless Agreement also provides that in the event that any payments to which Mr. McCanless is entitled are subject to tax imposed by Section 4999 of the Code (the "Excise Tax"), the Company shall pay Mr. McCanless an additional amount such that the net amount retained by Mr. McCanless shall be equal to the amount to which Mr. McCanless is entitled prior to deduction of the Excise Tax. Senior Management Employment Agreements. The Company is party to employment agreements with each of the Named Executives (except for Messrs. Hall, Brunory and Gehl as discussed herein). Messrs. Brunory and Gehl are each a party to an employment agreement that was assigned by the Company to Food Lion, LLC ("Food 53 54 Lion"), a wholly owned subsidiary of the Company, and references to the Company below refer to Food Lion in the case of Messrs. Brunory and Gehl. These agreements are referred to herein as the "Employment Agreements," and the executives are referred to as the "Executives," except where referred to by name. The Employment Agreement with Mr. Brunory was entered into on January 20, 2000, the Employment Agreement with Mr. Gehl was entered into on January 10, 2000, the Employment Agreement with Ms. Kendall was entered into on March 14, 2000 and the Employment Agreement with Mr. Farrington was entered into on July 31, 2000. The Employment Agreement with Mr. Farrington has a five-year term, and the Employment Agreements with Messrs. Brunory and Gehl and Ms. Kendall have three-year terms. Each Employment Agreement will automatically be extended for additional periods of one year unless the Executive or the Company gives the other party at least 90 days' written notice (180 days' written notice, in the case of Mr. Farrington) prior to the expiration of the term. The Employment Agreement with Mr. Farrington provides for his employment as Vice Chairman of the Company and Chief Executive Officer of Hannaford, and for payment to Mr. Farrington of a base salary of not less than $668,476 per year. The Employment Agreement with Ms. Kendall provides for her employment as Vice President of Finance and Chief Financial Officer of the Company, and for payment to Ms. Kendall of a base salary of not less than $336,206 per year. The Employment Agreement with Mr. Brunory provides for his employment as Senior Vice President of Category Management/Procurement of Food Lion, and for the payment to Mr. Brunory of a base salary of not less than $238,708 per year. The Employment Agreement with Mr. Gehl provided for his employment as Vice President of Real Estate/Store Development of Food Lion, and for payment to Mr. Gehl of a base salary of not less than $217,313 per year. The Employment Agreements authorize the Board of Directors of the Company to increase such minimum amounts from time to time. The Employment Agreements also entitle the Executives to participate in other compensation and benefit plans of the Company. The Company may terminate an Executive's employment for Cause, as defined in the Employment Agreements. The Employment Agreements define Cause as (i) willful failure (other than by reason of incapacity due to physical or mental illness) by the Executive to perform his or her material duties thereunder and his or her inability or unwillingness to correct such failure within 30 days after receipt of such written notice, (ii) conviction of the Executive of a felony or plea of guilty or no contest to a felony, (iii) perpetration of a material dishonest act or fraud against the Company or any affiliate thereof or (iv) except in the case of Mr. Farrington's Employment Agreement, a material violation of any Company policy or any state, federal or other governmental statute or regulation. The Employment Agreements of Messrs. Brunory and Gehl and Ms. Kendall also define Cause to include (a) the termination of the Executive's employment by the Company in conjunction with an assignment of the Executive's Employment Agreement to a successor or subsidiary of the Company and (b) subsequent terminations of the Executive's employment in connection with subsequent assignments of the Executive's Employment Agreement to the Company or its successors or direct or indirect subsidiaries of the Company. Ms. Kendall's Employment Agreement further defines Cause to include the termination of Ms. Kendall's employment at either the Company or any direct or indirect subsidiary so long as Ms. Kendall is also then employed by any direct or indirect subsidiary of the Company or a successor to the Company. The definition of "Cause" expressly excludes any mistake of fact or judgment made by the Executive in good faith with respect to the Company's business. Mr. Farrington's Employment Agreement further provides that the written notice discussed in "(i)" above shall contain sufficient detail to permit Mr. Farrington to take corrective action, and such notice shall be given only after it has been determined by an affirmative vote of at least seventy (70%) of the board of directors of the Company that Mr. Farrington has willfully failed to perform his material duties under his Employment Agreement. If the Company terminates the Executive's employment for Cause, or the Executive's employment terminates due to death, the Company will no longer be required to make payments to the Executive or his or her estate under his or her Employment Agreement, except for compensation earned prior to such termination and pursuant to plans, arrangements or agreements providing for payments after termination of employment (including, in the 54 55 case of the Executive's death, payments pursuant to a salary continuation agreement with the Company. See "-- Salary Continuation Agreements." The Company may terminate the Executive's employment upon the Executive's disability as specified in the Employment Agreements, in which case, the Company shall pay the Executive a lump sum payment equal to 50 percent of the present value of the future base salary payable to the Executive during the longer of the remainder of the term of employment under his or her Employment Agreement or for a period of two years, in the case of Mr. Farrington, or one year, in the case of Messrs. Brunory and Gehl and Ms. Kendall. The Executive may terminate his or her employment without liability to the Company for Good Reason, as defined in the Employment Agreements. The Employment Agreements of Messrs. Brunory and Gehl and Ms. Kendall define Good Reason as the occurrence of any of the following circumstances without the Executive's consent, provided that the Executive has provided notice to the Company of the Executive's intention to terminate his or her employment for Good Reason within 30 days after the occurrence of such event and the Company has failed to cure such circumstance, if curable, within 30 days after receipt of notice thereof: (i) a material diminution of the professional responsibilities of the Executive as such responsibilities existed on the date of the Executive's Employment Agreement, (ii) assignment of duties to the Executive which are materially adverse to and inconsistent with the Executive's position, (iii) failure of the Company to provide compensation and benefits obligations to the Executive as set forth in the Executive's Employment Agreement, (iv) transfer of the Executive more than 50 miles from Salisbury, North Carolina, without good business reasons, as determined by the Board of Directors of the Company or (v) failure of the Company to require any successor to the Company to assume and comply with the Executive's Employment Agreement. Mr. Farrington's Employment Agreement defines Good Reason as: (i) a material diminution of the professional responsibilities of Mr. Farrington, (ii) assignment of inappropriate duties to Mr. Farrington, (iii) failure of the Company to comply with compensation and benefits obligations to Mr. Farrington, (iv) transfer of Mr. Farrington more than 50 miles from Scarborough, Maine, (v) a purported termination of his Employment Agreement by the Company other than in accordance with the terms of his Employment Agreement or (vi) failure of the Company to require any successor to the Company to assume and comply with this Employment Agreement. If Messrs. Brunory or Gehl or Ms. Kendall terminates his or her employment for Good Reason or if the Company terminates his or her employment (except for "Cause" as defined above, or by reason of the Executive's death or disability), the Company shall pay the Executive the full amount of the Executive's base salary and other compensation earned prior to the Date of Termination (as defined in the Employment Agreements). In addition, the Company shall pay the Executive an amount (the "Termination Payment") equal to the product of the Executive's current monthly base salary, in the case of Messrs. Brunory and Gehl and Ms. Kendall, and yearly base salary, in the case of Mr. Farrington, multiplied by the greater of (i) twelve months, in the case of Messrs. Brunory and Gehl and Ms. Kendall, and three years, in the case of Mr. Farrington, or (ii) the number of full months, in the case of Messrs. Brunory and Gehl and Ms. Kendall, and years, in the case of Mr. Farrington, remaining in the term of the Executive's Employment Agreement. If the employment of Messrs. Farrington, Brunory or Gehl or Ms. Kendall is terminated by the Executive for Good Reason prior to a Change in Control or by the Company without Cause within six months prior to a Change in Control, the Company shall maintain in full force and effect for the continued benefit of the Executive and the Executive's eligible dependents for one year, in the case of Messrs. Brunory and Gehl and Ms. Kendall, and three years, in the case of Mr. Farrington, after the Date of Termination (or for the number of years remaining in the term of the Executive's Employment Agreement, whichever is greater), the employee fringe benefit plans and programs relating to medical, dental, health and life insurance in which the Executive was entitled to participate immediately prior to the Date of Termination, if, in the case of Messrs. Brunory and Gehl and Ms. Kendall, the Executive's continued participation is permitted under the general terms and provisions of such plans and programs and applicable law, but not including the 55 56 Annual Incentive Bonus Plan (Key Executive Annual Incentive Bonus Plan, in the case of Mr. Farrington), the Profit Sharing Plan and the Profit Sharing Restoration Plan and any other bonus, retirement or similar compensation plans; provided, however, in the case of Mr. Farrington, if such participation in any such plan or program is not permitted under the terms thereof, the Company shall provide Mr. Farrington (and his eligible dependents) with benefits substantially similar to those which are being provided immediately prior to his termination of employment. If the employment of Messrs. Farrington, Brunory or Gehl or Ms. Kendall is terminated by the Company without Cause (and, in the case of Messrs. Brunory and Gehl and Ms. Kendall, in contemplation of a Change in Control of the Company) within six months prior to such Change in Control or the Executive's employment is terminated by the Company without Cause or by Employee with Good Reason within one year, in the case of Messrs. Brunory and Gehl and Ms. Kendall, and three years, in the case of Mr. Farrington, following a Change in Control of the Company, the Company shall pay Employee the compensation and benefits set forth in the two paragraphs above, and in addition, for one year following the Date of Termination (or for the number of years remaining in the term of the Executive's Employment Agreement, whichever is greater). The Executive shall be paid an annual amount equal to the amounts, if any, which would have been payable to the Executive under (i) in the case of Messrs. Brunory and Gehl and Ms. Kendall, the Annual Incentive Bonus Plan, the Profit Sharing Plan and the Profit Sharing Restoration Plan (or such other plans in which the Executive was entitled to participate as of the Date of Termination) assuming the Executive had remained employed for such one year (or greater) period and received an annual salary at the rate in effect on the Executive's Date of Termination, and (ii) in the case of Mr. Farrington, the Key Executive Annual Incentive Bonus Plan, and any plan of Hannaford in which Mr. Farrington was entitled to participate immediately prior to the Date of Termination (or such other plans in which Mr. Farrington was entitled to participate as of the Date of Termination) assuming Mr. Farrington had remained employed for such three year (or greater) period and received an annual salary at the rate in effect on his Date of Termination. The Employment Agreements define a "Change in Control" of the Company as 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 a Change in Control of the Company shall be deemed to have occurred if: (i) an acquisition (other than directly from the Company) by a Person (as set forth in Sections 3(a)(2) and 13(d)(3) of the Exchange Act) excluding the Company or an employee benefit plan of the Company or an entity controlled by the shareholders of the Company results in the aggregate number of shares of the voting securities of the Company beneficially owned by any other Person to exceed the number of shares of the voting securities of the Company beneficially owned, in the aggregate, by Delhaize and Detla; (ii) at any time during the term of the 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 of the Employment Agreement ("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 at least 70% (100%, in the case of Mr. Farrington) of the Incumbent Company 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; (iii) consummation of a complete liquidation or dissolution of the Company or a merger, consolidation or sale of all or substantially all of the assets of the Company (collectively, a "Business Combination") other than a Business Combination in which all or substantially all of the beneficial holders of voting securities of the Company (the shareholders, in the case of Mr. Farrington) receive or retain (receive, in the case of Mr. Farrington) fifty percent or more of the voting securities of the Company or entity resulting from the Business Combination ("Resulting Company"), at least a majority of the board of directors of the Resulting Company were Incumbent Company Directors, and after which no person or entity owns twenty percent or more of the voting securities ("Beneficial Ownership Threshold") of the Resulting Company, who 56 57 did not beneficially own such stock immediately before the Business Combination; or (iv) occurrence of any of the events described in (ii) or (iii) above to Delhaize, or the acquisition by any Person of more than thirty percent of the stock (voting securities, in the case of Mr. Farrington) of Delhaize. Notwithstanding any other provision of this paragraph, for purposes of the definition of "Change in Control" of the Company a change in control of Delhaize shall not constitute a Change in Control of the Company unless it involves an event contemplated by (iv) above. With respect to (iii) above as it applies to Delhaize under (iv) above, the Beneficial Ownership Threshold shall be thirty percent. Upon a Change in Control, or if the Executive's employment terminates other than for Cause, all of the rights granted to the Executive by the Company to own or acquire stock of the Company (including stock options and restricted stock granted under the 1996 Plan or other plans) will automatically vest upon the date of such Change in Control or date of termination, provided however, that (assuming no occurrence of a Change in Control) such rights shall not vest if the Executive's employment is terminated for his or her failure (in the case of Mr. Farrington, other than by reason of incapacity due to physical or mental illness) adequately to perform his or her duties under his or her Employment Agreement as determined by an affirmative vote of at least seventy percent of the Board of Directors of the Company, and further, in the case of Mr. Farrington, provided that Mr. Farrington is given written notice of such failure and is unable (other than by reason of incapacity due to physical or mental illness) or unwilling to correct such failure within thirty days after receipt of such written notice. The Employment Agreements of Messrs. Brunory and Gehl and Ms. Kendall prohibit the Executives, without the written consent of the Board of Directors of the Company, from owning, operating, controlling or being employed as an officer, director, manager or consultant, or as an employee with management or executive level duties or responsibilities, in any case, for or by any business engaged in, or any entity whose business or whose direct or indirect parent entity's or direct or indirect subsidiary entity's business is, any retail or wholesale grocery or supermarket business within 10 miles of any store operated by the Company or any subsidiary thereof on the date on which the Executive's employment with the Company ends; provided, however, that this restriction shall not apply if the Executive works, consults or accepts employment with a business that does not directly compete with the Company or any subsidiary thereof. Mr. Farrington's Employment Agreement prohibits Mr. Farrington, without the written consent of the board of directors of the Company, from engaging 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. These prohibitions apply to the Executives during the term of the Employment Agreements and for a period of two years after their termination. The Employment Agreements also place restrictions, for a period of two years after termination of an Executive's employment, on the recruitment or solicitation of employees or independent contractors of the Company (any affiliate thereof, in the case of Mr. Farrington) for the purpose of being employed by such Executive or an entity on behalf of which such Executive is acting as agent, representative or employee. If, however, an Executive's employment is terminated prior to the first anniversary of the date on which a Change in Control occurs, the foregoing restrictions on competition and solicitation by such Executive shall not apply. Under the Employment Agreements, the Company agrees to indemnify the Executives to the fullest extent permitted under North Carolina law from and against any losses, claims, damages, costs and expenses suffered by the Executives as a result of the fact that they are or were officers of the Company or are or were serving at the request of the Company as officers, employees or agents (of fiduciary, in the case of Mr. Farrington) of an affiliate of the Company, or, in the case of Mr. Farrington, a trust or employee benefit plan maintained by the Company or an affiliate of the Company. Each Employment Agreement also provides that in the event that any payments to which the Executive is entitled are subject to tax imposed by Section 4999 of the Code (the "Excise Tax"), the Company shall pay the Executive an additional amount such that the net amount retained by the Executive shall be equal to the amount to which the Executive is entitled prior to deduction of the Excise Tax. 57 58 Employment Agreement with Joseph C. Hall, Jr. Joseph C. Hall, Jr., the former President and Chief Operating Officer of Food Lion, retired on August 31, 2000. Mr. Hall's terms of employment, including the level of his base salary, for the period prior to his retirement on August 31, 2000, were set forth in a March 13, 2000 Employment Agreement between Mr. Hall and the Company (the "Hall Employment Agreement"). The Hall Employment Agreement provided that Mr. Hall's annual base salary would be $521,390; provided, however, such amount would be reviewed for increase from time to time by the Company's board of directors, but in no event would such review result in any reduction in base salary provided in the Hall Employment Agreement. The Hall Employment Agreement further provided that Mr. Hall would be eligible to participate in the Company's annual incentive bonus plan, stock option plans and other compensation plans of the Company and that he would 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. The Hall Employment Agreement further provided that the Company would provide Mr. Hall with split dollar life insurance in specified amounts. The retirement agreement dated August 31, 2000 between Mr. Hall and the Company, among other things, terminated the Hall Employment Agreement. Retirement Agreement with Joseph C. Hall, Jr. On August 31, 2000 (the "Retirement Date"), Joseph C. Hall, Jr. retired as President and Chief Operating Officer of Food Lion. In connection with his retirement, Mr. Hall entered into a Retirement Agreement dated August 31, 2000 with the Company (the "Hall Retirement Agreement"), which terminates the Hall Employment Agreement, and provides for Mr. Hall to receive his then current annual salary of $521,390 through August 31, 2003, plus an incentive and wellness bonus for 2,000 prorated to the Retirement Date. Under Mr. Hall's retirement agreement, (i) all vested stock options held by Mr. Hall on the Retirement Date remain exercisable for three months following the Retirement Date, and thereafter any of such stock options that remain unexercised shall terminate and cease to be exercisable, and (ii) all other stock options granted to Mr. Hall that remain unvested on the Retirement Date, remain outstanding and vest on the Retirement Date, and thereafter remain exercisable for three months after the Retirement Date. Additionally, the Hall Retirement Agreement provides that Mr. Hall is to remain vested in all restricted stock that has vested as of the Retirement Date, and all restricted stock under awards to Mr. Hall that had not vested prior to the Retirement Date shall remain outstanding following the Retirement Date and shall vest as of the Retirement Date. The Company transferred title to the vehicle used by Mr. Hall prior to the Retirement Date to Mr. Hall. The Company shall continue to pay the premiums on and shall maintain in effect the split-dollar life insurance policy currently in effect with respect to Mr. Hall through August 31, 2003. As of August 31, 2003, such insurance policy shall be transferred to Mr. Hall, and thereafter Mr. Hall will be responsible for all premiums under such policies, and the Company shall waive its right to receive reimbursement for premiums paid on such policies. Mr. Hall has agreed among other things that he shall not, directly or indirectly, own, manage, operate, control, be employed by, or perform services (i) for three years following the Retirement Date, for any business, howsoever organized and in whatsoever form, that engages in any retail grocery or supermarket business and which is located anywhere within the continental United States, and (ii) for two years following the Retirement Date, for any business, however organized and in whatever form, that engages in any non-retail grocery or supermarket business and which is located anywhere within the continental United States. In addition, for three years following the Retirement Date, Mr. Hall shall not solicit the customers, suppliers or employees of the Company and its affiliates to terminate their relationship with the Company or any of its affiliates (or to modify such relationship in a manner that is adverse to the interest of the Company or its affiliates), or to violate any valid contracts they may have with the Company or its affiliates. 58 59 Salary Continuation Agreements. The Company has entered into salary continuation agreements with certain of the Named Executives providing for payments to a named beneficiary in the event of such executive's death prior to attaining the age of 65 while employed by the Company. The agreements are intended to encourage participants to continue employment with the Company. Payments for the first 12 months following death are fixed. If death occurs prior to attaining the age of 55, payments after the first 12 months following death are made through the month the decedent would have attained the age of 65 or for a maximum period of 24 years, whichever is less. If death occurs at or after 55 but prior to attaining the age of 65, payments after the first 12 months following death are made for a period of 9 years. Except as provided above, all rights of the participant terminate upon his or her reaching age 65 or on the date he or she retires or, for reasons other than death, ceases to be an active employee of the Company. The following table sets forth the amounts payable to the Named Executives at December 30, 2000, pursuant to the arrangements described above:
MONTHLY SUBSEQUENT PAYMENT MONTHLY PAYMENT ------------- ------------------------------ FIRST 24-YEAR 9-YEAR NAME OF INDIVIDUAL TWELVE MONTHS PERIOD PERIOD ------------------ ------------- ------- OR -------- Bill McCanless ............... $40,494 $20,247 $16,198 Laura C. Kendall ............. 20,366 10,183 8,147 Hugh G. Farrington (1) ....... -- -- -- Robert J. Brunory ............ 14,460 7,230 5,784 Keith M. Gehl ................ 16,610 8,305 6,644 Joseph C. Hall, Jr (2) ....... -- -- --
- --------------- (1) Mr. Farrington does not participate in this plan. (2) Effective August 31, 2000, Mr. Hall retired as President and Chief Operating Officer of Food Lion. Based on such retirement, no payments will be made to Mr. Hall under his salary continuation agreement. Item 12. Security Ownership of Certain Beneficial Owners and Management. PRINCIPAL SHAREHOLDER The following information is furnished for each person known by management of the Company to be the beneficial owner of more than 5% of the outstanding shares of the Company's Class B Common Stock, the only voting security of the Company, as of March 2, 2001:
AMOUNT AND NATURE OF BENEFICIAL NAME AND ADDRESS OWNERSHIP PERCENT OF CLASS - ---------------- ----------------- ---------------- Etablissements Delhaize Freres et Cie ....... 42,405,686 56.3% "Le Lion" S.A rue Osseghem, 53 1080 Brussels, Belgium
- --------------- (1) Includes 21,117,593 shares held of record by Delhaize's wholly owned subsidiary, Detla. Detla's address is Suite 2160, Atlanta Plaza, 950 East Paces 59 60 Ferry Road, Atlanta, Georgia 30326. Delhaize, Detla and the Company are parties to a shareholders agreement, dated March 27, 2000 which governs the voting of the shares held by Delhaize and Detla in the election of directors and other matters. See "-- Shareholders Agreement" below. OWNERSHIP OF MANAGEMENT The following information with respect to beneficial ownership of shares of the Company's Class A Common Stock and Class B Common Stock as of March 2, 2001 is furnished for each director, the Chief Executive Officer, each of the four other most highly compensated executive officers of the Company during fiscal 2000, and one additional individual who was among the Company's most highly compensated executive officers, but was not serving as an executive officer of the Company at the end of fiscal 2000 and for all directors and executive officers of the Company as a group. The number of shares of Common Stock set forth in the table below includes shares that may be acquired within 60 days after March 2, 2001, but does not include shares of Common Stock beneficially owned by Delhaize, as to which Messrs. Beckers, Coppieters, Dumont and McCanless are associated as further described herein. As of March 2, 2001, Delhaize and Detla collectively owned 42,405,686 shares of Class A Common Stock. See "-- Principal Shareholder" above for more information relating to the ownership of Class B Common Stock by Delhaize and Detla. Unless otherwise noted, each person has sole voting and investment power of the shares beneficially owned by such person.
CLASS A CLASS B COMMON STOCK COMMON STOCK --------------------------- ------------------------- AMOUNT AND AMOUNT AND NAME OF INDIVIDUAL NATURE OF PERCENT NATURE OF PERCENT OR NUMBER OF BENEFICIAL OF BENEFICIAL OF PERSONS IN GROUP OWNERSHIP CLASS OWNERSHIP CLASS - ------------------ ------------ ------- ----------- ------- Pierre-Olivier Beckers ........................... -- -- -- -- Robert J. Brunory ................................ 35,359(1) * 4,000 * Jacqueline Kelly Collamore ....................... 1,122 * 333 * Jean-Claude Coppieters 't Wallant ................ -- -- -- -- Pierre Dumont .................................... -- -- -- -- Hugh G. Farrington ............................... 589,881(2) * -- -- William G. Ferguson .............................. 1,122 * -- -- Bernard W. Franklin .............................. 1,263 * -- -- Keith M. Gehl .................................... 20,595(3) * 150 * Joseph C. Hall, Jr ............................... 85,865(4) * 20,677 * Laura C. Kendall ................................. 40,460(5) * -- -- Margaret H. Kluttz ............................... 1,222 * 349 * Bill McCanless ................................... 115,923(6) * -- -- All directors, nominees for director, and executive officers as a group (36 persons) ..... 2,415,863(7) 2.3% 25,925 *
- --------------- * Indicates less than 1%. (1) Includes (a) 14,673 restricted shares of Class A Common Stock held pursuant to the 1996 Employee Stock Incentive Plan of Food Lion, Inc. (the "1996 Plan") and the Delhaize America, Inc. 2000 Stock Incentive Plan (the "2000 Plan"); (b) 9,293 shares of Class A Common Stock that may be acquired upon the exercise of options granted under the 1996 Plan; and (c) 6,303 shares of Class A Common Stock represented by 11,577 units in the Profit Sharing Retirement Plan of Food Lion, Inc. (2) Includes (a) 8,229 shares of Class A Common Stock held by Mr. Farrington's wife; and (b) 471,748 shares of Class A Common Stock that may be acquired upon the exercise of options granted by Hannaford and converted to Delhaize America upon the merger on July 31, 2000. 60 61 (3) Includes (a) 33 shares of Class A Common Stock held by Mr. Gehl as custodian for a minor; (b) 12,180 restricted shares of Class A Common Stock held pursuant to the 1996 Plan and 2000 Plan; (c) 1,506 shares of Class A Common Stock that may be acquired upon the exercise of options granted under the 1996 Plan; and (d) 5,185 shares of Class A Common Stock represented by 9,523 units in the Profit Sharing Retirement Plan of Food Lion, Inc. (4) Includes (a) 2,310 shares of Class A Common Stock and 360 shares of Class B Common Stock held by Mr. Hall as custodian for his children; (b) 99 shares of Class A Common Stock held by Mr. Hall's wife as custodian for their children; (c) 1,800 shares of Class A Common Stock and 1,800 shares of Class B Common Stock held by Mr. Hall's children; and (d) 28,716 shares of Class A Common Stock that may be acquired upon exercise of options granted under the 1996 Plan; (5) Includes (a) 26,833 restricted shares of Class A Common Stock held pursuant to the 1996 Plan and 2000 Plan; (b) 10,916 shares of Class A Common Stock that may be acquired upon the exercise of options granted under the 1996 Plan; and (c) 428 shares of Class A Common Stock represented by 787 units in the Profit Sharing Retirement Plan of Food Lion, Inc. (6) Includes (a) 599 shares of Class A Common Stock held by Mr. McCanless' wife; (b) 76,195 restricted shares of Class A Common Stock held pursuant to the 1996 Plan and 2000 Plan; (c) 29,580 shares of Class A Common Stock that may be acquired upon exercise of options granted under the 1996 Plan; and (d) 428 shares of Class A Common Stock represented by 787 units in the Profit Sharing Retirement Plan of Food Lion, Inc. (7) Includes (a) 393,085 restricted shares of Class A Common Stock held pursuant to the 1996 Plan and 2000 Plan; (b) 1,729,261 shares of Class A Common Stock that may be acquired upon exercise of options granted under the 1996 Plan; (c) 33,814 shares represented by 62,124 units in the Profit Sharing Retirement Plan of Food Lion, Inc. allocated to Class A Common Stock. The number of shares per unit in such plan fluctuates based in part on the allocation of cash to the fund; and (d) 5,253 shares in the Hannaford 401(k) Plan. SHAREHOLDERS AGREEMENT On March 27, 2000, Delhaize, Detla and the Company entered into an agreement (the "2000 Shareholders Agreement" or "Shareholders Agreement") containing provisions regarding, among other things, the nomination of candidates for election to the Board of Directors, the voting of securities beneficially owned by the parties to the Shareholders Agreement for the election of directors and the voting requirements applicable to specified actions by the Board of Directors. The 2000 Shareholders Agreement is effective until April 30, 2007, unless Delhaize and Detla's aggregate ownership of voting shares of the Company is reduced below 10%, in which case the Shareholders Agreement would terminate at that time. The 2000 Shareholders Agreement provides for, subject to the fiduciary duties of directors under North Carolina law or except as the Board of Directors by the affirmative vote of at least 70% of the directors may otherwise direct, a Nominating Committee of the Board of Directors to nominate the slate of directors to be submitted to the shareholders for election to the Board and persons to fill any vacancies on the Board of Directors that arise from time to time. See "THE BOARD OF DIRECTORS." The 2000 Shareholders Agreement provides that the Nominating Committee shall consist of three persons, one of whom will be designated by Delhaize and Detla, collectively, one of whom will be the Chief Executive Officer of the Company or his designee from among the members of the Board of Directors, and one of whom will have no affiliation (other than Board of Directors or Committee membership) with either Delhaize, Detla or the Company. The 2000 Shareholders Agreement specifies that, at all times after the closing of the acquisition of Hannaford Bros. Co. ("Hannaford") by the Company, the slate to be proposed for election to the Board of Directors shall consist of ten persons, four proposed by the Chief Executive 61 62 \ Officer of Delhaize, two proposed by the Chief Executive Officer of the Company, and four to have no affiliation (other than Board of Directors or Committee membership) with either Delhaize, Detla or the Company. The 2000 Shareholders Agreement requires persons nominated to fill vacancies on the Board to be selected in a corresponding manner. The 2000 Shareholders Agreement also contains a voting agreement between Delhaize and Detla to vote in favor of the slate of directors proposed by the Nominating Committee and approved by the Board of Directors, and not to participate directly or indirectly in any effort to cause cumulative voting to be in effect for any election of directors of the Company. Item 13. Certain Relationships and Related Transactions. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The following persons are members of the Senior Management Compensation Committee: William G. Ferguson (Chairperson) and Pierre-Olivier Beckers. Messrs. Hall and McCanless, who are executive officers of the Company, are members of the Company's Board of Directors and participate in decisions by the Board of Directors with respect to annual contributions made by the Company to or for the benefit of employees (including the Named Executives) under the Profit Sharing Plan. In addition, on January 1, 2000, Mr. McCanless was appointed to the Executive Committee of Delhaize. Mr. Beckers, who is a member of the Senior Management Compensation and Stock Option Committees, is affiliated with Delhaize. CERTAIN TRANSACTIONS On November 16, 2000, the Company and Delhaize entered into an agreement for a statutory share exchange pursuant to which Delhaize will exchange each outstanding share of Class A and B Common Stock of the Company not currently held directly or indirectly by Delhaize for 0.4 shares of Delhaize. The public shareholders of the Company will be offered the option to receive either Delhaize shares or American Depositary Shares in the form of American Depositary Receipts ("ADRs") listed on the New York Stock Exchange. The transaction is expected to close in Spring 2001. Public shareholders of the Company will continue to receive quarterly cash dividends on their shares of the Company payable on dates before the closing of the transaction. If the transaction closes prior to the Delhaize annual shareholders meeting in May 2001, the shareholders of the Company will receive a full dividend on their Delhaize shares for fiscal year 2000, to be distributed in May 2001. The share exchange has been structured so that it should be tax-free to shareholders of the Company for United States federal income tax purposes. The share exchange is the result of an agreement between Delhaize and a four-person Special Committee of independent Directors of the Company. The share exchange was unanimously approved by the Board of Directors of the Company and Delhaize. The share exchange was unanimously recommended to the Company's Board of Directors by the Special Committee. The Company has entered into a lease for the operation of Food Lion stores with a real estate venture in which an indirect subsidiary of Delhaize owns a one-half interest. On October 1, 1986, the Company entered into a 20-year lease for the operation of a 20,000 square foot store in Orange Park, Florida. An indirect subsidiary of Delhaize owns a one-half interest in Debarry Place Joint Venture, which is involved in the development of the Orange Park, Florida, shopping center. The store opened in September 1987. Under the terms of the lease, the provisions of which the Company believes are no more favorable than a lease with a third party lessor, the Company is expected to make annual payments of $206,500 in fixed rent and $6,249 in common area maintenance fees for the Food Lion store. In addition, the 62 63 lease provides for an annual payment to the lessor equal to the amount by which 1% of the annual gross receipts of the leased premises exceeds the fixed rent for the lease year. The lease includes an option to extend the lease for up to four five-year periods. The Company has entered into a joint venture with Delhaize regarding Bel-Thai Supermarket Co., Ltd. ("Bel-Thai"), a supermarket company based in Thailand. On January 18, 2000, the Company acquired, through a wholly-owned subsidiary, a 51% interest in Bel-Thai for approximately $3.9 million. Delhaize owns the remaining 49% interest in Bel-Thai. Subsequent to the Company's acquisition of its interest in Bel-Thai, the Company contributed additional capital of approximately $5.6 million to Bel-Thai for operations and acquisitions. The Company's investment in Bel-Thai was consummated pursuant to arms-length negotiations and was approved by the Board of Directors of the Company (by a vote of the directors unaffiliated with Delhaize). In addition, the Company obtained a fairness opinion from Salomon Smith Barney, an investment banking firm, as to the fairness of the transaction to the Company. 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:
PAGES Consolidated Statements of Income for the fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999 17 Consolidated Balance Sheets, as of December 30, 2000 and January 1, 2000 18 Consolidated Statements of Cash Flows for the fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999 19-20 Consolidated Statements of Shareholders' Equity for the fiscal years ended December 30, 2000, January 1, 2000 and January 2, 1999 21-22 Notes to Consolidated Financial Statements 23-37 Report of Independent Accountants 38 Results by Quarter (unaudited) 39
2. Other: 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. 63 64 3. Exhibits:
Exhibit No. 2 Agreement and Plan of Share Exchange dated as of November 16, 2000 between Delhaize Group and the Company, as amended (incorporated by reference to Exhibit 2.1 of Delhaize Group's Registration Statement on Form F-4 dated March 23, 2001) 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) (SEC File No. 0-6080) 3(b) Articles of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K dated September 7, 1999) (SEC File No. 1-15275) 3(c) Bylaws of the Company effective December 31, 2000 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) (SEC File No. 0-6080) 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) (SEC File No. 0-6080) 10(a) 2000 Stock Incentive Plan of Delhaize America, Inc. dated as of March 27, 2000 (incorporated by reference to Exhibit 10(b) of the Company's Quarterly Report on Form 10-Q dated August 1,2000) 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) (SEC File No. 0-6080) 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) (SEC File No. 0-6080) 10(d) 1994 Shareholders' Agreement dated as of September 15, 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) (SEC File No. 0-6080) 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) (SEC File No. 0-6080) 10(f) Retirement Agreement dated as of August 31, 2000, between the Company and Joseph C. Hall, Jr. 10(g) Hannaford Bros. Co. 1998 Stock Option Plan (incorporated by reference to Exhibit 10.25 of Hannaford's Annual Report on Form 10-K dated March 10, 1998) 10(h) Employment Agreement dated as of July 31, 2000 between Hugh G. Farrington and the Company
64 65 10(i) 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(j) 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(k) 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(l) 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(m) 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(n) 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(o) Hannaford Bros. Co. Supplemental Executive Retirement Plan, effective January 1, 1998 (incorporated by reference to Exhibit 10.8 of Hannaford's Annual Report on Form 10-K dated March 10, 2000). 10(p) Employment Agreement dated as of April 7, 1999, between R. William McCanless and the Company (incorporated by reference to Exhibit 10(b)of the Company's Quarterly Report on Form 10-Q dated July 29, 1999) 10(q) 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(r) 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(s) 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(t) 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(u) 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)
65 66 10(v) Agreement and Plan of Merger dated as of August 17, 1999, among the Company, Hannaford Bros. Co. and FL Acquisition Sub, Inc. (incorporated by reference to Exhibit 2 of the Company's Report on Form 8-K dated August 19, 1999) (SEC File No. 0-6080) 10(w) Agreement, dated as of January 4, 1998, between Etablissements Delhaize Freres et Cie "Le Lion" S.A. and the Company (incorporated by reference to 10(af) of the Company's Annual Report on Form 10-K dated April 8, 1998) (SEC File No. 0-6080) 10(x) Credit Agreement dated as of November 19, 1999, among the Company, the lenders party thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent (incorporated by reference to 10(x)of the Company's Annual Report on Form 10-K dated March 30, 2000) (SEC File No. 1-15275) 10(y) Credit Agreement dated as of January 26, 2000, among the Company, the lenders party thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent, relating to $2,500,000,000 364-Day Term Loan Facility (incorporated by reference to 10 (y) of the Company's Annual Report on Form 10-K dated March 30, 2000) (SEC File No. 1-15275) 10(z) Credit Agreement dated as of January 26, 2000, among the Company, the lenders party thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent, relating to $500,000,000 5-Year Revolving Credit Facility (incorporated by reference to 10 (z) of the Company's Annual Report on Form 10-K dated March 30, 2000) (SEC File No. 1-15275) 10(aa) Stock Exchange Agreement dated as of August 17, 1999, among the Company, Empire Company Limited and E.C.L. Investments Limited (incorporated by reference to Exhibit 99.2 of the Company's Current Report on Form 8-K dated August 19, 1999) (SEC File No. 0-6080) 10(ab) Voting Agreement dated as of August 17, 1999, among the Company, Empire Company Limited and E.C.L. Investments Limited (incorporated by reference to Exhibit 99.3 of the Company's Current Report on Form 8-K dated August 19, 1999) (SEC File No. 0-6080) 10(ac) Registration Rights Agreement dated as of August 17, 1999, among the Company, Empire Company Limited, E.C.L. Investments Limited, Pension Plan for Employees of Sobeys, Inc. and Sobeys Inc. Master Trust Investment Fund (incorporated by reference to Exhibit 99.4 of the Company's Current Report on Form 8-K dated August 19, 1999) (SEC File No. 0-6080) 10(ad) Employment Agreement dated as of January 20, 2000 between the Company and Robert J. Brunory 10(ae) Employment Agreement dated as of January 10, 2000 between the Company and Keith M. Gehl 10(af) Employment Agreement dated as of March 13, 2000, between Joseph C. Hall, Jr. and Food Lion, a division of Delhaize America, Inc. (incorporated by reference to Exhibit 10 (af) of the Company's Annual Report on Form 10-K dated March 30, 2000) (SEC File No. 1-15275) 10(ag) Employment Agreement dated as of March 14, 2000, between Laura C. Kendall and Delhaize America, Inc. (incorporated by reference to Exhibit 10 (ag) of the Company's Annual Report on Form 10-K dated March 30, 2000) (SEC File No. 1-15275) 10(ah) 2000 Shareholders' Agreement dated as of March 27, 2000 among Etablissements Delhaize Freres et cie "Le Lion", Delhaize the Lion America, Inc., and the Company (incorporated by reference to Exhibit 10(a) of the Company's Quarterly Report on Form 10-Q dated August 1, 2000) (SEC File No. 1-15275)
66 67 10(ai) Amendment No. 1 to the 2000 Shareholders Agreement dated as of September 14, 2000 among Delhaize Group, Delhaize America and Delhaize The Lion America, Inc. 10(aj) Amendment to Credit Agreement dated as of November 19, 1999, among the Company, the lenders party thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent 10(ak) Amended and Restated Hannaford Bros. Co. Deferred Compensation Plan for Officers (incorporated by reference to Exhibit 10.1 of Hannaford's Quarterly Report on Form 10-Q dated November 7, 1997) (SEC File No. 1-7603). 10(al) Hannaford Bros. Co. 1988 Stock Plan (incorporated by reference to Exhibit 4.5 of Hannaford's Registration Statement on Form S-8 dated June 27, 1995) (Registration No. 33-60655) 10(am) There are incorporated herein by reference (i) the Hannaford Cash Balance Plan, a copy of which was filed as Exhibit 10.3 to the Hannaford's Annual Report on Form 10-K for the fiscal year ended January 2, 1999 (SEC File N o. 1-7603) and (ii) the First Amendment to the Hannaford Cash Balance Plan, a copy of which was filed as Exhibit 10.1 to the Hannaford's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1998 (SEC File No. 1-7603), and the Proposed Amendment to the Hannaford Cash Balance Plan submitted to the Internal Revenue Service for approval (incorporated by reference to Exhibit 10.4 of Hannaford's Annual Report on Form 10-K dated March 10, 2000), the Second Amendment to The Hannaford Cash Balance Plan (incorporated by reference to Exhibit 10.5 of Hannaford's Annual Report on Form 10-K dated March 10, 2000), and the Third Amendment to the Hannaford Cash Balance Plan (incorporated by reference to Exhibit 10.6 of Hannaford's Annual Report on Form 10-K dated March 10, 2000). 21 Subsidiaries of Registrant 23 Consent of Independent Accountants 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: Current Report on Form 8-K filed November 29, 2000 Amendment No. 1 to Current Report on Form 8-K filed October 16, 2000 67 68 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. Delhaize America, Inc. Date: 3/30/2001 By /s/ Laura C. Kendall - -------------------------- ------------------------------------- Laura C. Kendall Chief Financial Officer Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Date: 3/30/2001 By /s/ Laura C. Kendall - -------------------------- ------------------------------------- Laura C. Kendall Chief Financial Officer Principal Accounting Officer Date: 3/30/2001 By /s/ Pierre-Olivier Beckers - --------------------------- ------------------------------------- Pierre-Olivier Beckers Director Date: 3/30/2001 By /s/ Jacqueline K. Collamore - ---------------------------- ------------------------------------- Dr. Jacqueline K. Collamore Director Date: 3/30/2001 By /s/ Jean-Claude Coppieters 't Wallant - ----------------------------- ------------------------------------- Jean-Claude Coppieters 't Wallant Director Date: 3/30/2001 By /s/ Pierre DuMont - ---------------------------- ------------------------------------- Pierre DuMont Director Date: 3/30/2001 By /s/ Hugh G. Farrington - ---------------------------- ------------------------------------- Hugh G. Farrington Chief Executive Officer of Hannaford Bros. Director Date: 3/30/2001 By /s/ William G. Ferguson - --------------------------- ------------------------------------- William G. Ferguson Director Date: 3/30/2001 By /s/ Bernard W. Franklin - --------------------------- ------------------------------------- Dr. Bernard W. Franklin Director Date: 3/30/2001 By /s/ Margaret H. Kluttz - --------------------------- ------------------------------------- Margaret H. Kluttz Director 68 69 Date: 3/30/2001 By /s/ Bill McCanless - --------------------------- -------------------------------------- Bill McCanless Chief Executive Officer, Delhaize America, Inc. Chief Executive Officer, Food Lion Division Director 69 70 EXHIBIT INDEX to ANNUAL REPORT ON FORM 10-K of Delhaize America, Inc. For the Fiscal Year Ended December 30, 2000 Exhibit No. Description 2 Agreement and Plan of Share Exchange dated as of November 16, 2000 between Delhaize Group and the Company, as amended (incorporated by reference to Exhibit 2 of the Company's Report on Form 8-K dated November 29, 2000) 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) Articles of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K dated September 7, 1999) 3(c) Bylaws of the Company effective December 31, 2000 4(a) Indenturedated 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) 2000 Stock Incentive Plan of Delhaize America, Inc. dated as of March 27, 2000 (incorporated by reference to Exhibit 10(b) of the Company's Quarterly Report on Form 10-Q dated August 1,2000) 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 September 15, 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) 70 71 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) Retirement Agreement dated as of August 31, 2000, between the Company and Joseph C. Hall, Jr. 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) 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(i) 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(j) 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(k) 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(l) 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(m) 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(n) 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(o) Hannaford Bros. Co. Supplemental Executive Retirement Plan, effective January 1, 1998. 10(p) Employment Agreement dated as of April 7, 1999, between R. William McCanless and the Company (incorporated by reference to Exhibit 10(b)of the Company's Quarterly Report on Form 10-Q dated July 29, 1999) 10(q) 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)
71 72 10(r) 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(s) 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(t) 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(u) 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(v) Agreement and Plan of Merger dated as of August 17, 1999, among the Company, Hannaford Bros. Co. and FL Acquisition Sub, Inc. (incorporated by reference to Exhibit 2 of the Company's Report on Form 8-K dated August 19, 1999) 10(w) Agreement, dated as of January 4, 1998, between Etablissements Delhaize Freres et Cie "Le Lion" S.A. and the Company (incorporated by reference to 10(af) of the Company's Annual Report on Form 10-K dated April 8, 1998) 10(x) Credit Agreement dated as of November 19, 1999, among the Company, the lenders party thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent (incorporated by reference to 10(x)of the Company's Annual Report on Form 10-K dated March 30, 2000) 10(y) Credit Agreement dated as of January 26, 2000, among the Company, the lenders party thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent, relating to $2,500,000,000 364-Day Term Loan Facility (incorporated by reference to 10 (y) of the Company's Annual Report on Form 10-K dated March 30, 2000) 10(z) Credit Agreement dated as of January 26, 2000, among the Company, the lenders party thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent, relating to $500,000,000 5-Year Revolving Credit Facility (incorporated by reference to 10 (z) of the Company's Annual Report on Form 10-K dated March 30, 2000)
72 73 10(aa) Stock Exchange Agreement dated as of August 17, 1999, among the Company, Empire Company Limited and E.C.L. Investments Limited (incorporated by reference to Exhibit 99.2 of the Company's Current Report on Form 8-K dated August 19, 1999) 10(ab) Voting Agreement dated as of August 17, 1999, among the Company, Empire Company Limited and E.C.L. Investments Limited (incorporated by reference to Exhibit 99.3 of the Company's Current Report on Form 8-K dated August 19, 1999) 10(ac) Registration Rights Agreement dated as of August 17, 1999, among the Company, Empire Company Limited, E.C.L. Investments Limited, Pension Plan for Employees of Sobeys, Inc. and Sobeys Inc. Master Trust Investment Fund (incorporated by reference to Exhibit 99.4 of the Company's Current Report on Form 8-K dated August 19, 1999) 10(ad) Employment Agreement dated as of January 20, 2000 between the Company and Robert J. Brunory 10(ae) Employment Agreement dated as of January 10, 2000 between the Company and Keith M. Gehl 10(af) Employment Agreement dated as of March 13, 2000, between Joseph C. Hall, Jr. and Food Lion, a division of Delhaize America, Inc. (incorporated by reference to Exhibit 10 (af) of the Company's Annual Report on Form 10-K dated March 30, 2000) 10(ag) Employment Agreement dated as of March 14, 2000, between Laura C. Kendall and Delhaize America, Inc. (incorporated by reference to Exhibit 10 (ag) of the Company's Annual Report on Form 10-K dated March 30, 2000) 10(ah) 2000 Shareholders' Agreement dated as of March 27, 2000 among Etablissements Delhaize Freres et cie "Le Lion", Delhaize the Lion America, Inc., and the Company (incorporated by reference to Exhibit 10(a) of the Company's Quarterly Report on Form 10-Q dated August 1, 2000) 10(ai) Amendment No. 1 to the 2000 Shareholders Agreement dated as of September 14, 2000 among Delhaize Group, Delhaize America and Delhaize The Lion America, Inc. 10(aj) Amendment to Credit Agreement dated as of November 19, 1999, among the Company, the lenders party thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent 21 Subsidiaries of Registrant 23 Consent of Independent Accountants 99 Undertaking of the Company to file exhibits pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K
73 EX-3.C 2 g68126ex3-c.txt BYLAWS 1 Exhibit 3(c) BYLAWS OF DELHAIZE AMERICA, INC. December 31, 2000 2 BYLAWS OF DELHAIZE AMERICA, INC. ARTICLE 1 Offices Section 1. Principal and Registered Office. The principal office of the corporation shall be located at 2110 Executive Drive, Salisbury, North Carolina, which shall also be the registered office of the corporation. Section 2. Other Offices. The corporation may have offices at such other places, either within or without the State of North Carolina, as the board of directors may from time to time determine. ARTICLE 2 Meetings of Shareholders Section 1. Place of Meeting. Meetings of shareholders shall be held at the principal office of the corporation, or at such other place, either within or without the State of North Carolina, as shall be designated in the notice of the meeting. Section 2. Annual Meeting. The annual meeting of shareholders shall be held on such date and at such time during the month of May of each year as shall be set by the board of directors, for the purpose of electing directors of the corporation and the transaction of such other business as may be properly brought before the meeting. Section 3. Substitute Annual Meeting. If the annual meeting is not held on the day designated by these bylaws, a substitute annual meeting may be called in accordance with Section 4 of this Article. A meeting so called shall be designated and treated for all purposes as the annual meeting. Section 4. Special Meetings. Special meetings of the shareholders may be called at any time by the president and chief executive officer or by any two members of the board of directors. Section 5. Notice of Meetings. At least 10 days and no more than 60 days prior to any annual or special meeting of the shareholders, the corporation shall notify shareholders of the date, time and place of the meeting and, in the case of a special or substitute annual meeting or where otherwise required by law, shall briefly describe the purpose or purposes of the meeting. Only business within the purpose or purposes described in the notice may be conducted at a special meeting. Unless otherwise required by the articles of incorporation or by law (for example, in the event of a meeting to consider the adoption of a plan of merger or share exchange, a sale of assets other than in the ordinary course of business or a voluntary dissolution), the corporation shall be required to give notice only to shareholders entitled to vote at the meeting. If an annual or special shareholder's meeting is adjourned to a different date, time or place, notice thereof need not be given if the new date, time or place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is fixed pursuant to Article 7, Section 5 hereof, notice of the adjourned meeting shall be given to persons who are shareholders as of the new record date. It shall be the primary responsibility of the secretary to give the notice, but notice may be given by or at the direction of the president and chief executive officer or other person or persons calling the meeting. If mailed, such notice shall be deemed to be effective when deposited in the United States mail with postage thereon prepaid, correctly addressed to the shareholder's address shown in the corporation's current record of shareholders. 1 3 Section 6. Advance Notice of Shareholder Proposals. No business shall be transacted at a meeting of shareholders, except such business as shall be (a) specified in the notice of meeting given as provided in Section 5 of this Article 2, (b) otherwise brought before the meeting by or at the direction of the board of directors, or (c) otherwise brought before the meeting by a shareholder of record entitled to vote at the meeting, in compliance with the procedure set forth in this Section 6. For business to be brought before a meeting by a shareholder pursuant to (c) above, the shareholder must have given timely notice in writing to the Secretary. To be timely, a shareholder's notice must be delivered to, or mailed to and received by, the Secretary of the corporation not less than 10 days nor more than 60 days prior to the meeting; provided, however, that if fewer than 21 days' notice of the meeting is given to shareholders, such written notice shall be received not later than the close of the tenth day following the date on which notice of the meeting was mailed to shareholders. Notwithstanding the foregoing, any shareholder who wishes the board of directors to consider taking a position with respect to the matter must deliver such notice to, or mail it so that it is received by, the Secretary of the corporation not less than 90 nor more than 150 days prior to the meeting. Nothing in this Section 6 shall require the board of directors to recommend for adoption by the shareholders, or give the shareholders notice of, any matter of which notice is provided to the corporation pursuant to this Section or otherwise. Notice of actions to be brought before the meeting pursuant to (c) above shall set forth as to each matter the shareholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting, (ii) the name and address, as they appear on the corporation's books, of each shareholder proposing such business, and (iii) the classes and number of shares of the corporation that are owned of record and beneficially by such shareholder of the corporation. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the provisions set forth in this Section 6, except as otherwise may be required by law. Nothing in this Section 6 shall be deemed to restrict, expand or otherwise affect any rights or obligations of any party under Rule 14a-8 of the Securities and Exchange Commission or any successor provision to such rule. If the chairman of the meeting determines that any business was not properly brought before the meeting in accordance with provisions prescribed by these bylaws, he shall so declare to the meeting, and to the extent permitted by law any such business not properly brought before the meeting shall not be transacted. Section 7. Quorum. A majority of the votes entitled to be cast by a voting group on a matter, represented in person or by proxy at a meeting of shareholders, shall constitute a quorum for that voting group for any action on that matter, unless quorum requirements are otherwise fixed by a court of competent jurisdiction acting pursuant to Section 55-7-03 of the General Statutes of North Carolina. Once a share is represented for any purpose at a meeting, it shall be deemed present for quorum purposes for the remainder of the meeting and any adjournment thereof, unless a new record date is or must be set for the adjournment. Action may be taken by a voting group at any meeting at which a quorum of that voting group is represented, regardless of whether action is taken at that meeting by any other voting group. In the absence of a quorum at the opening of any meeting of shareholders, such meeting may be adjourned from time to time by a vote of the majority of the shares voting on the motion to adjourn. Section 8. Shareholders' List. After a record date is fixed for a meeting, the secretary of the corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of the shareholders' meeting. Such list shall be arranged by voting group (and within each voting group by class or series of shares) and shall show the address of and number of shares held by each shareholder. The shareholder's list shall be made available for inspection by any shareholder, beginning two business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the corporation's principal office or at such other place identified in the meeting notice and the city where the meeting will be held. The corporation shall make the shareholders' list available at the meeting, and any shareholder or his agent or attorney is entitled to inspect the list at any time during the meeting or any adjournment thereof. Section 9. Voting of Shares. Except as otherwise provided by the articles of incorporation, each outstanding share of voting capital stock of the corporation shall be entitled to one vote on each matter submitted to a vote at a meeting of the shareholders. Action on a matter by a voting group for which a quorum is present is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the vote of a greater number is required by law or by the articles of incorporation. Voting on all matters shall be by voice vote or by a show of hands, unless the holders of one-tenth of the shares represented at the meeting shall demand a ballot vote on a particular matter. Absent special circumstances, the shares of the corporation are not entitled to vote if they are owned, directly or indirectly, by a second corporation, domestic or foreign, and the corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation, except that this provision shall not limit the power of the corporation to vote shares held by it in a fiduciary capacity. 2 4 Section 10. Proxies. Shares may be voted either in person or by a proxy who has been appointed by the shareholder by signing an appointment form, either personally or by his duly authorized attorney-in-fact. An appointment of proxy is effective when received by the secretary or other officer or agent authorized to tabulate votes. An appointment of proxy is valid for 11 months unless a different period is expressly provided in the appointment form. Section 11. Action Without Meeting. Any action which the shareholders could take at a meeting may be taken without a meeting if one or more written consents, setting forth the action taken, shall be signed, before or after such action, by all the shareholders who would be entitled to vote upon the action at a meeting. The consent shall be delivered to the corporation for inclusion in the minutes or filing with the corporate records. The corporation must give its nonvoting shareholders written notice of the proposed action at least 10 days before the action is taken, which notice must contain or be accompanied by the same material that would have been required by law to be sent to nonvoting shareholders in a notice of meeting at which the proposed action would have been submitted to the shareholders for action. ARTICLE 3 Board of Directors Section 1. General Powers. The business and affairs of the corporation shall be managed under the direction of the board of directors except as otherwise provided by the articles of incorporation or by a valid shareholders' agreement. Section 2. Number, Term and Qualification. The number of directors of the corporation shall be not less than eight persons nor more than 14 persons, with the exact number of directors within the minimum and maximum to be established from time to time by the shareholders or, unless the articles of incorporation or a valid shareholders' agreement provides otherwise, the board of directors; but, in the absence of such action, the number of directors elected at the annual meeting shall constitute the number of directors of the corporation until the next annual meeting of shareholders, unless the number is previously changed by action of the shareholders or the board of directors. Only shareholders may change the range for the size of the board of directors or change from a variable range to a fixed size board of directors. Each director shall hold office until the next annual meeting of the shareholders and until his successor is elected and qualifies, until there is a decrease in the number of directors or until his earlier death, resignation, removal or disqualification. Directors need not be residents of the State of North Carolina or shareholders of the corporation unless the articles of incorporation so provide. No person after having attained the age of 70 years shall be allowed to run for election, reelection or re-appointment to the board of directors, excepting, however, that such retirement age shall not apply to directors over the age of 65 years who were serving on such board on July 3, 1997. Section 3. Nomination of Directors. Only persons who are nominated in accordance with the provisions set forth in these bylaws shall be eligible to be elected as directors at the annual or special meeting of shareholders. Nomination for election to the board of directors shall be made or approved by the board of directors. In addition, nomination for election of any person to the board of directors may be made by a shareholder if written notice of the nomination of such person shall have been delivered to the Secretary of the corporation at the principal office of the corporation not less than 10 days nor more than 60 days prior to any meeting of the shareholders called for the election of directors; provided, however, that if fewer than 21 days' notice of the meeting is given to shareholders, such written notice shall be received not later than the close of the tenth day following the day on which notice of the meeting was mailed to shareholders. Notwithstanding the foregoing, any shareholder who wishes the board of directors or a duly authorized committee of the board of directors to consider nominating for election to the board of directors a person recommended by a shareholder must deliver such notice to, or mail it so that it is received by, the Secretary of the corporation not less than 90 nor more than 150 days prior to the meeting. Any notice provided pursuant to this Section shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of shares of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or 3 5 understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission if the nominee had been nominated by the board of directors; and (e) the written consent of each nominee to serve as a director of the corporation if so elected. Nothing in this Section shall require the board of directors to nominate or approve, as one of its nominees, any person recommended to be so nominated by a shareholder or to give the shareholders notice of any proposed nomination by a shareholder. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Section 4. Election. Except as provided in Section 6 of this Article 3 (Vacancies), the directors shall be elected at the annual meeting of shareholders. Those persons who receive the highest number of votes at a meeting at which a quorum is present shall be deemed to have been elected. Section 5. Removal. Directors may be removed from office with or without cause (unless the articles of incorporation provide that directors may be removed only for cause), provided the notice of the shareholders' meeting at which such action is to be taken states that a purpose of the meeting is removal of the director and the number of votes cast to remove the director exceeds the number of votes cast not to remove him. Section 6. Vacancies. Except as otherwise provided in the articles of incorporation, a vacancy occurring in the board of directors, including, without limitation, a vacancy resulting from an increase in the number of directors or from the failure by the shareholders to elect the full authorized number of directors, shall be filled by an affirmative vote of at least 70% of the remaining directors in favor of a nominee selected by the Nominating Committee of the board of directors, in accordance with the procedures set forth in Article 5, Section 2, below. The shareholders may elect a director at any time to fill a vacancy not filled by the directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Section 7. Compensation. The board of directors may compensate directors for their services as such and may provide for the payment of any or all expenses incurred by directors in attending regular and special meetings of the board of directors. ARTICLE 4 Meetings of Directors Section 1. Annual and Regular Meetings. The annual meeting of the board of directors shall be held immediately following the annual meeting of the shareholders. The board of directors may by resolution provide for the holding of regular meetings of the board on specified dates and at specified times. Notice of regular meetings held at the principal office of the corporation and at the usual scheduled time shall not be required. If any date for which a regular meeting is scheduled shall be a legal holiday, the meeting shall be held on a date designated in the notice of the meeting, if any, during either the same week in which the regularly scheduled date falls or during the preceding or following week. Regular meetings of the board shall be held at the principal office of the corporation or at such other place as may be designated in the notice of the meeting. Section 2. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the president and chief executive officer or any two directors. Such meetings may be held at the time and place designated in the notice of the meeting. Section 3. Notice of Meetings. Unless the articles of incorporation provide otherwise, the annual and regular meetings of the board of directors may be held without notice of the date, time or place. However, the president and chief executive officer or secretary shall provide each director with a written agenda of the items to be discussed at such meetings at least seven days prior thereto. Any person or persons calling a special meeting shall give notice by any usual means of communication to be sent at least seven days before the meeting if notice is sent by means of telephone, telecopy or personal delivery and at least ten days before the meeting if notice is sent by mail. A director's attendance at, or participation in, a meeting for which notice is required shall constitute a waiver of notice, 4 6 unless the director at the beginning of the meeting (or promptly upon arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote or assent to action taken at the meeting. Section 4. Quorum. Except as otherwise provided in the articles of incorporation, a majority of the directors in office shall constitute a quorum for the transaction of business at a meeting of the board of directors. Section 5. Manner of Acting. Except as otherwise provided in the articles of incorporation or these bylaws, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. Section 6. Special Vote. The board of directors may not, without an affirmative vote of at least 70% of the number of directors fixed pursuant to these bylaws ("Special Vote"), be empowered to authorize the corporation to: (a) Approve the nomination of any person or persons for election to the board of directors or elect a chief executive officer; (b) Authorize any contract involving payment by the corporation of cash or property valued in excess of $500,000, including, without limitation, the purchase, sale or leasing of property or the incurring of indebtedness, except transactions relating to the leasing or construction of stores, warehouses and related facilities or any other transaction in the ordinary course of business; (c) Approve or authorize capital expenditures of more than $500,000 in any one instance or $1,000,000 in the aggregate in any fiscal year, except expenditures relating to the leasing or construction of stores, warehouses and related facilities or any other transaction in the ordinary course of business; (d) Authorize the issuance or sale of stock or other securities of the corporation or any subsidiary of the corporation, or options or warrants or obligations convertible into such stock or securities, except the issuance of stock options or stock or both, as the case may be, pursuant to the corporation's 1996 Employee Stock Option Plan, Employee Stock Purchase Plan and Employee Stock Ownership Plan and other employee benefit plans approved by the board of directors; (e) Sell or otherwise dispose of a substantial part of the corporation's assets other than in the ordinary course of business; (f) Amend the charter or the bylaws of the corporation; or (g) Approve for submission to the shareholders of the corporation for their approval a proposal for the amendment of the corporation's charter or the merger or consolidation of the corporation with or into any other corporation or the reorganization, recapitalization or liquidation of the corporation; Any Special Vote approving any such action may specify other limitations which shall not be exceeded without a further Special Vote. Section 7. Presumption of Assent. A director of the corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken is deemed to have assented to the action taken unless he objects at the beginning of the meeting (or promptly upon arrival) to holding, or transacting business at, the meeting, or unless his dissent or abstention is entered in the minutes of the meeting or unless he shall file written notice of his dissent or abstention to such action with the presiding officer of the meeting before its adjournment or with the corporation immediately after adjournment of the meeting. The right of dissent or abstention shall not apply to a director who voted in favor of such action. Section 8. Action Without Meeting. Unless otherwise provided in the articles of incorporation, action required or permitted to be taken at a meeting of the board of directors may be taken without a meeting if the action is taken by all members of the board. The action must be evidenced by one or more written consents signed by 5 7 each director before or after such action, describing the action taken, and included in the minutes or filed with the corporate records. Action taken without a meeting is effective when the last director signs the consent, unless the consent specifies a different effective date. Section 9. Meeting by Communications Device. Unless otherwise provided in the articles of incorporation, the board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. Section 10. Minutes of Meeting of the Board of Directors. Minutes of all meetings of the board of directors shall be furnished to all directors promptly after such meeting. ARTICLE 5 Committees Section 1. General. The board of directors may create, by the affirmative vote of at least 70 % of the number of directors then serving, one or more committees not otherwise provided for by these bylaws. Such committees shall consist of two or more directors appointed and removable by the affirmative vote of at least 70% of the number of directors then serving. Such committees may meet at stated times, or on notice to all by any of their own number. The board of directors may by resolution provide that during intervals between meetings of the board of directors, the committees shall have and may exercise the powers of the board in the management of the business and affairs of the corporation, except that the committees shall not have authority to: (a) Authorize distributions; (b) Approve or propose to shareholders action required to be approved by shareholders; (c) Fill vacancies on the board of directors or on any of its committees; (d) Amend the articles of incorporation; (e) Adopt, amend or repeal the bylaws; (f) Approve a plan or merger not requiring shareholder approval; (g) Authorize or approve reacquisition of shares, except according to a formula or method prescribed by the board of directors; or (h) Authorize or approve the issuance, sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the board of directors may authorize a committee (or a senior executive officer of the corporation) to do so within limits specifically prescribed by the board of directors. Section 2. Nominating Committee. There shall be a Nominating Committee of the board of directors, which shall consist of three directors, one of whom shall be designated by Etablissements Delhaize Freres et Cie "Le Lion" S.A. ("Delhaize") and/or Delhaize the Lion America, Inc., one of whom shall be the Chief Executive Officer of the Company or his designee from among the members of the board of directors of the Company, and one of whom shall be an independent director. The Nominating Committee shall propose to the board of directors (a) the slate of directors to be submitted to the shareholders for election at the annual meeting of 6 8 shareholders or at any meeting of the shareholders at which a director or directors are to be elected, and (b) persons to fill any vacancies that may arise from time to time on the board of directors. The slate of directors proposed by the Nominating Committee shall consist of ten persons, four of whom shall be proposed by the Chief Executive Officer of Delhaize (the "Delhaize Designees"), two of whom shall be proposed by the Chief Executive Officer of the Company or his representative on the Nominating Committee (the "CEO Designees") and four of whom shall be independent directors. In the event of a vacancy on the board of directors, the Nominating Committee shall propose to the board of directors an appropriate person to fill such vacancy such that the foregoing ratio of Delhaize Designees, CEO Designees and independent directors is regained. Thus, if a Delhaize Designee ceases to be a director, the vacancy left thereby shall be filled by a new Delhaize Designee, if a CEO Designee ceases to be a director, the vacancy left thereby shall be filled by a new CEO Designee, and if an independent director ceases to be a director, the vacancy left thereby shall be filled by a new independent director. The Nominating Committee shall recommend its slate of directors or any individual nominee to the board of directors of the Company, which shall approve such nominations by Special Vote. If the board of directors does not approve a slate of directors or any individual nominee proposed by the Nominating Committee, the Nominating Committee shall meet to propose another slate of directors or nominee acceptable to the board of directors. The Nominating Committee shall meet at least (a) annually, prior to the annual meeting of shareholders, (b) prior to any special meeting of shareholders called for the purpose of electing one or more directors, (c) within thirty days' notice of any vacancy occurring on the board of directors, and (d) at any time that it is determined that the composition of the Company's board of directors does not comply with any laws or rules that apply to the Company, including the rules of the National Association of Securities Dealers or any national securities exchange on which the Company's securities are listed. Meetings of the Nominating Committee shall be held at such place as is fixed by the chairman thereof in the notice of the meeting. The provisions of Article 4 governing action without a meeting, notice, waiver of notice and quorum requirements shall apply to the Nominating Committee. All decisions of the Nominating Committee shall require the affirmative vote of at least two members. Section 3. Meetings. Except as otherwise provided in these bylaws, the provisions of Article 4 governing meetings of the board of directors, action without meeting, notice, waiver of notice, presumption of assent and quorum and voting requirements shall apply to the committees of the board and its members. Section 4. Minutes. The committees shall keep minutes of their proceedings and documentation of their decisions and shall transmit copies thereof and report thereon to the board of directors at or before the next meeting of the board. ARTICLE 6 Officers Section 1. Titles. The officers of the corporation shall be a chairman of the board, a president and chief executive officer, a secretary and a treasurer. The board of directors or the president and chief executive officer (if authorized by the board) may appoint one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers and such other officers as shall be deemed necessary. The additional officers shall have the authority and perform the duties as from time to time may be prescribed by the board of directors or by direction of the president and chief executive officer (if authorized by the board of directors to prescribe the authority and duties of other officers). Any two or more offices may be held by the same individual, but no officer may act in more than one capacity where action of two or more officers is required. Section 2. Election; Appointment. The officers of the corporation shall be elected from time to time by the board of directors or appointed from time to time by the president and chief executive officer (to the extent that the president and chief executive officer is authorized by the board to appoint officers). 7 9 Section 3. Removal. Any officer may be removed by the board at any time with or without cause whenever in its judgment the best interests of the corporation will be served, but removal shall not itself affect the officer's contract rights, if any, with the corporation. Section 4. Vacancies. Vacancies among the officers may be filled and new officers may be created and filled by the board of directors, or by the president and chief executive officer (to the extent authorized by the board). Section 5. Compensation. Except as otherwise provided in these bylaws, the compensation of the officers shall be fixed by the board of directors. Section 6. Chairman and Vice Chairman of the Board of Directors. The chairman of the board of directors shall preside at meetings of the shareholders and the board of directors and shall have such other authority and perform such other duties as the board of directors shall designate. The vice chairman, if elected, shall preside at meetings of the board in the absence of the chairman and shall have such other authority and perform such other duties as the board of directors shall designate. Section 7. President and Chief Executive Officer. In the absence of the chairman of the board, the president and chief executive officer shall preside at all meetings of the shareholders and the board of directors. Subject to the board of directors, he shall be the principal executive officer of the corporation and shall have general charge of the business of the corporation; he shall keep the board of directors fully informed of the business of the corporation; he may sign and execute all authorized bonds, contracts, or other obligations in the name of, and on behalf of, the corporation, and with the secretary or assistant secretary, if one be elected, may sign all certificates of stock, and without further authorization than these presents, may sign all checks or drafts upon funds of this corporation, in its name and on its behalf, and any bank or depository in which funds of the corporation shall be deposited shall be fully and conclusively protected in honoring any checks or drafts on behalf of this corporation, signed by the president and chief executive officer. Subject to the limitations of Section 6(e) of Article 4 of these bylaws, he shall have the power to fix the salaries of all other officers, agents and employees of the corporation, except the chairman and vice presidents (including senior vice presidents, if any); and shall have the power to employ and discharge all agents and employees of the corporation, subject to the control of the board of directors, except the chairman and vice presidents. He shall generally conduct the affairs of the corporation and shall do and perform such other duties as, from time to time, may be assigned to him by the board of directors or by these bylaws. Section 8. Vice Presidents. The vice presidents shall perform such duties as from time to time may be assigned to them by the chairman of the board or the president and chief executive officer, the board of directors or by these bylaws. Section 9. Secretary. The secretary shall keep accurate records of the acts and proceedings of all meetings of shareholders and of the board of directors and shall give all notices required by law and by these bylaws. The secretary shall have general charge of the corporate books and records and shall have the responsibility and authority to maintain and authenticate such books and records. The secretary shall have general charge of the corporate seal and shall affix the corporate seal to any lawfully executed instrument requiring it. The secretary shall have general charge of the stock transfer books of the corporation and shall keep at the principal office of the corporation a record of shareholders, showing the name and address of each shareholder and the number and class of shares held by each. The secretary shall sign such instruments as may require the signature of the secretary, and in general shall perform the duties incident to the office of secretary and such other duties as may be assigned from time to time by the board of directors or the president and chief executive officer (if authorized by the board of directors to prescribe the authority and duties of other officers). Section 10. Assistant Secretaries. Each assistant secretary shall have such powers and perform such duties as may be assigned by the board of directors or the president and chief executive officer (if authorized by the board of directors to prescribe the authority and duties of other officers), and the assistant secretaries shall exercise the powers of the secretary during that officer's absence or inability to act. 8 10 Section 11. Treasurer. The treasurer shall have custody of all funds and securities belonging to the corporation and shall receive, deposit or disburse the same under the direction of the board of directors. The treasurer shall keep full and accurate accounts of the finances of the corporation and shall cause a true statement of the assets and liabilities of the corporation as of the close of each fiscal year and of the results of its operations and of changes in surplus, all in reasonable detail, to be made and filed at the principal office of the corporation within four months after the end of the fiscal year. The statement shall be available for inspection by any shareholder for a period of ten years, and the treasurer shall mail or otherwise deliver a copy of the latest statement to any shareholder upon written request. The treasurer shall in general perform all duties incident to the office and such other duties as may be assigned from time to time by the board of directors or the president and chief executive officer (if authorized by the board of directors to prescribe the authority and duties of other officers). Section 12. Assistant Treasurers. Each assistant treasurer shall have such powers and perform such duties as may be assigned by the board of directors or the president and chief executive officer (if authorized by the board of directors to prescribe the authority and duties of other officers), and the assistant treasurers shall exercise the powers of the treasurer during that officer's absence or inability to act. Section 13. Voting Upon Stocks. Unless otherwise ordered by the board of directors, the president and chief executive officer shall have full power and authority in behalf of the corporation to attend, act and vote at meetings of the shareholders of any corporation in which this corporation may hold stock, and at such meetings shall possess and may exercise any and all rights and powers incident to the ownership of such stock and which, as the owner, the corporation might have possessed and exercised if present. The board of directors may by resolution from time to time confer such power and authority upon any other person or persons. ARTICLE 7 Capital Stock Section 1. Certificates. Shares of the capital stock of the corporation shall be represented by certificates. The name and address of the persons to whom shares of capital stock of the corporation are issued, with the number of shares and date of issue, shall be entered on the stock transfer records of the corporation. Certificates for shares of the capital stock of the corporation shall be in such form not inconsistent with the articles of incorporation of the corporation as shall be approved by the board of directors. Each certificate shall be signed (either manually or by facsimile) by (a) the president and chief executive officer or any vice president and by the secretary, assistant secretary, treasurer or assistant treasurer or (b) any two officers designated by the board of directors. Each certificate may be sealed with the seal of the corporation or a facsimile thereof. Section 2. Transfer of Shares. Transfer of shares shall be made on the stock transfer records of the corporation, and transfers shall be made only upon surrender of the certificate for the shares sought to be transferred by the recordholder or by a duly authorized agent, transferee or legal representative. All certificates surrendered for transfer or reissue shall be canceled before new certificates for the shares shall be issued. Section 3. Transfer Agent and Registrar. The board of directors may appoint one or more transfer agents and one or more registrars of transfers and may require all stock certificates to be signed or countersigned by the transfer agent and registered by the registrar of transfers. Section 4. Regulations. The board of directors may make rules and regulations as it deems expedient concerning the issue, transfer and registration of shares of capital stock of the corporation. Section 5. Fixing Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other purpose, the board of directors may fix in advance a date as the record date for the determination of shareholders. The record date shall not be more than 70 days before the meeting or action requiring a determination of shareholders. A determination of shareholders entitled to notice of or to vote at the shareholders' meeting shall be effective for any adjournment of the meeting unless the board of directors fixes a new 9 11 record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. If no record date is fixed for the determination of shareholders, the record date shall be the day the notice of the meeting is mailed or the day the action requiring a determination of shareholders is taken. If no record date is fixed for action without a meeting, the record date for determining shareholders entitled to take action without a meeting shall be the date the first shareholder signs a consent to the action taken. Section 6. Lost Certificates. The board of directors must authorize the issuance of a new certificate in place of a certificate claimed to have been lost, destroyed or wrongfully taken, upon receipt of (a) an affidavit from the person explaining the loss, destruction or wrongful taking, and (b) a bond from the claimant in a sum as the corporation may reasonably direct to indemnify the corporation against loss from any claim with respect to the certificate claimed to have been lost, destroyed or wrongfully taken. The board of directors may, in its discretion, waive the affidavit and bond and authorize the issuance of a new certificate in place of a certificate claimed to have been lost, destroyed or wrongfully taken. ARTICLE 8 Indemnification of Officers and Directors Section 1. Indemnification Provisions. Any person who at any time serves or has served as a director or officer of the corporation or of any wholly owned subsidiary of the corporation, or in such capacity at the request of the corporation for any other foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or as a trustee or administrator under any employee benefit plan of the corporation or of any wholly owned subsidiary thereof (a "Claimant"), shall have the right to be indemnified and held harmless by the corporation to the fullest extent from time to time permitted by law against all liabilities and litigation expenses (as hereinafter defined) in the event a claim shall be made or threatened against that person in, or that person is made or threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether or not brought by or on behalf of the corporation, including all appeals therefrom (a "proceeding"), arising out of that person's status as such or that person's activities in any such capacity; provided, that such indemnification shall not be effective with respect to (a) that portion of any liabilities or litigation expenses with respect to which the Claimant is entitled to receive payment under any insurance policy or (b) any liabilities or litigation expenses incurred on account of any of the Claimant's activities which were at the time taken known or believed by the Claimant to be clearly in conflict with the best interests of the corporation. Section 2. Definitions. As used in this Article, (a) "liabilities" shall include, without limitation, (1) payments in satisfaction of any judgment, money decree, excise tax, fine or penalty for which the Claimant had become liable in any proceeding and (2) payments in settlement of any such proceeding subject, however, to Section 3 of this Article 8; (b) "litigation expenses" shall include, without limitation, (1) reasonable costs and expenses and attorneys' fees and expenses actually incurred by the Claimant in connection with any proceeding and (2) reasonable costs and expenses and attorneys' fees and expenses in connection with the enforcement of rights to the indemnification granted hereby or by applicable law, if such enforcement is successful in whole or in part; and (c) "disinterested directors" shall mean directors who are not party to the proceeding in question. Section 3. Settlements. The corporation shall not be liable to indemnify the Claimant for any amounts paid in settlement of any proceeding effected without the corporation's written consent. The corporation will not unreasonably withhold its consent to any proposed settlement. Section 4. Litigation Expense Advances. (a) Except as provided in subsection (b) below, any litigation expenses shall be advanced to any Claimant within 30 days of receipt by the secretary of the corporation of a demand therefor, together with an undertaking by or on behalf of the Claimant to repay to the corporation such amount unless it is ultimately determined that Claimant is entitled to be indemnified by the corporation against such expenses. The secretary shall promptly forward notice of the demand and undertaking immediately to all directors of the corporation. (b) Within 10 days after mailing of notice to the directors pursuant to subsection (a) above, any disinterested director may, if desired, call a meeting of all disinterested directors to review the reasonableness of the 10 12 expenses so requested. No advance shall be made if a majority of the disinterested directors affirmatively determines that the item of expense is unreasonable in amount; but if the disinterested directors determine that a portion of the expense item is reasonable, the corporation shall advance such portion. Section 5. Approval of Indemnification Payments. Except as provided in Section 4 of this Article, the board of directors of the corporation shall take all such action as may be necessary and appropriate to authorize the corporation to pay the indemnification required by Section 1 of this Article, including, without limitation, making a good faith evaluation of the manner in which the Claimant acted and of the reasonable amount of indemnity due the Claimant. In taking any such action, any Claimant who is a director of the corporation shall not be entitled to vote on any matter concerning such Claimant's right to indemnification. Section 6. Suits by Claimant. No Claimant shall be entitled to bring suit against the corporation to enforce his rights under this Article until sixty days after a written claim has been received by the corporation, together with any undertaking to repay as required by Section 4 of this Article. It shall be a defense to any such action that the Claimant's liabilities or litigation expenses were incurred on account of activities described in clause (b) of Section 1, but the burden of proving this defense shall be on the corporation. Neither the failure of the corporation to have made a determination prior to the commencement of the action to the effect that indemnification of the Claimant is proper in the circumstances, nor an actual determination by the corporation that the Claimant had not met the standard of conduct described in clause (b) of Section 1, shall be a defense to the action or create a presumption that the Claimant has not met the applicable standard of conduct. Section 7. Consideration; Personal Representatives and Other Remedies. Any person who during such time as this Article or corresponding provisions of predecessor bylaws is or has been in effect serves or has served in any of the aforesaid capacities for or on behalf of the corporation, shall be deemed to be doing so or to have done so in reliance upon, and as consideration for, the right of indemnification provided herein or therein. The right of indemnification provided herein or therein shall inure to the benefit of the legal representatives of any person who qualifies or would qualify as a Claimant hereunder, and the right shall not be exclusive of any other rights to which the person or legal representative may be entitled apart from this Article. Section 8. Scope of Indemnification Rights. The rights granted herein shall not be limited by the provisions of Section 55-8-51 of the General Statutes of North Carolina or any successor statute. ARTICLE 9 General Provisions Section 1. Dividends and other Distributions. The board of directors may from time to time declare, and the corporation may pay or make, dividends and other distributions with respect to its outstanding shares in the manner and upon the terms and conditions provided by law. Section 2. Seal. The seal of the corporation shall consist of two concentric circles between which is the name of the corporation and in the center of which is inscribed SEAL; and such seal as is impressed in the margin hereof is hereby adopted as the corporate seal of the corporation. Section 3. Waiver of Notice. Whenever notice is required to be given to a shareholder, director or other person under the provisions of these bylaws, the articles of incorporation or by applicable law, a waiver in writing signed by the person or persons entitled to the notice, whether before or after the date and time stated in the notice and delivered to the corporation, shall be equivalent to giving the notice. Section 4. Checks. All checks, drafts or orders for the payment of money shall be signed by the officer or officers or other individuals that the board of directors may from time to time designate. 11 13 Section 5. Contracts. The board of directors may authorize any officer or officers, agent or agents to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be generally or confined to specific instances. Section 6. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such depositories as the board of directors may select. Section 7. Bond. The board of directors may by resolution require any or all officers, agents and employees of the corporation to give bond to the corporation, with sufficient sureties, conditioned on the faithful performance of the duties of their respective offices or positions, and to comply with such other conditions as may from time to time be required by the board. Section 8. Fiscal Year. The fiscal year of the corporation shall be fixed by the board of directors. Section 9. Amendments. Unless otherwise provided in the articles of incorporation or a bylaw adopted by the shareholders or by law, these bylaws may be amended or repealed by the board of directors in accordance with the special voting provisions contained in Article 4, Section 6, except that a bylaw adopted, amended or repealed by the shareholders may not be readopted, amended or repealed by the board of directors if neither the articles of incorporation nor a bylaw adopted by the shareholders authorizes the board of directors to adopt, amend or repeal that particular bylaw or the bylaws generally. These bylaws may also be amended or repealed by the board of directors. A bylaw that fixes a greater quorum or voting requirement for the board of directors may be amended or repealed (a) if originally adopted by the shareholders, only by the shareholders, unless such bylaw as originally adopted by the shareholders provides that such bylaw may be amended or repealed by the board of directors of (b) if originally adopted by the board of directors, either by the shareholders or by the board of directors. A bylaw that fixes a greater quorum or voting requirement may not be adopted by the board of directors by a vote less than a majority of the directors then in office and may not itself be amended by a quorum or vote of the directors less than a quorum or vote prescribed in such bylaw or prescribed by the shareholders. Section 10. Nonapplication of North Carolina Shareholder Protection Act. The provisions of Article 9 of the North Carolina Business Corporation Act entitled "The North Carolina Shareholder Protection Act" shall not be applicable to the corporation. Section 11. Nonapplication of North Carolina Control Share Acquisition Act. The provisions of Article 9A of the North Carolina Business Corporation Act entitled "The North Carolina Control Share Acquisition Act" shall not be applicable to the corporation. 12 14 THIS IS TO CERTIFY that the above bylaws of Delhaize America, Inc., were duly adopted by the board of directors of the corporation, effective May 4, 1995, and amended by the board of directors of the corporation effective July 3, 1997, and further amended by the shareholders of the corporation effective September 7, 1999 and May 4, 2000, and further amended by the board of directors of the corporation effective December 31, 2000, all by action taken at duly called meetings of the board of directors or shareholders as required by the General Statutes of North Carolina. This 31st day of December, 2000. /s/ G. Linn Evans ----------------------------- G. Linn Evans, Assistant Secretary [Corporate Seal] 13 EX-10.F 3 g68126ex10-f.txt RETIREMENT AGREEMENT 1 Exhibit 10(f) RETIREMENT AGREEMENT THIS AGREEMENT (this "Agreement"), made and entered into as of this 31st day of August, 2000, by and between Delhaize America, Inc., a North Carolina corporation (the "Company"), and Joseph C. Hall, Jr. (the "Executive"), W I T N E S S E T H: WHEREAS, the Executive is serving as a Director of the Company, President and Chief Operating Officer of Food Lion, LLC ("Food Lion"), as a Director and Executive Vice President of Kash n' Karry Food Stores, Inc. ("KNK"), as a Director of Super Discount Markets, Inc. ("SDM"), and as a Director of Bel-Thai Supermarket Co., Ltd. ("Bel-Thai") (herein referred to collectively as the " Delhaize Companies"); and WHEREAS, in recognition of the Executive's long and distinguished service with the Delhaize Companies; and WHEREAS, by mutual agreement between the Executive and the Company, the Executive shall retire from the Delhaize Companies as of the date hereof (the "Retirement Date") and the Executive's employment with the Company, Food Lion, and KNK, and his service as a Director of the Company, KNK, SDM, and Bel-Thai shall terminate as of such Retirement Date. NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, the Company and the Executive agree as follows: ARTICLE I: RETIREMENT AND CONSULTANCY Section 1.1 Retirement. The Executive hereby retires and resigns as an employee, officer and director, as applicable, of each of the Delhaize Companies effective as of the close of business on the Retirement Date. Notwithstanding any provision of the Employment Agreement between the Company and the Executive dated March 13, 2000 (the "Employment Agreement") to the contrary, such retirement and resignation shall not be deemed to be a breach by the Executive of the Employment Agreement, and the Employment Agreement shall terminate as of the Retirement Date. Section 1.2 Consulting Services. The Executive agrees to be available from time to time during the period beginning on the Retirement Date and ending August 31, 2003, for consulting with the Chief Executive Officer and the Chairman of the Company, as either the Chief Executive Officer or the Chairman may reasonably request. Reasonable unavailability of the Executive for such consulting at any time shall not be deemed a breach of this Agreement. ARTICLE II: RETIREMENT PAYMENTS AND BENEFITS 2 Section 2.1 Retirement Payments. The Executive shall continue to receive the annual salary he currently receives through August 31, 2003. The Executive shall receive an incentive and wellness bonus for 2000 prorated to the Retirement Date. Such salary and bonus payments shall be made on the same schedule as currently made for the Executive. Section 2.2 Options. As provided in the stock option agreements governing such stock options, all vested stock options held by the Executive as of the Retirement Date shall remain exercisable for three months following the Retirement Date, and thereafter any of such stock options that remain unexercised shall terminate and cease to be exercisable. All other stock options that have been granted to the Executive that have not vested prior to the Retirement Date, shall remain outstanding and shall vest as of the Retirement Date, and shall remain exercisable for three months following the Retirement Date. For purposes of clarification, Schedule A attached hereto sets forth the unexercised stock options that have been granted to the Executive as of the date immediately prior to the Retirement Date. Section 2.3 Restricted Stock. The Executive shall continue to be vested in all restricted stock that has vested as of the Retirement Date. All restricted stock under awards to the Executive that have not vested prior to the Retirement Date shall remain outstanding following the Retirement Date and shall vest as of the Retirement Date. For purposes of clarification, Schedule A attached hereto sets forth the restricted stock that has been awarded to the Executive as of the date immediately prior to the Retirement Date. Section 2.4. Vehicle. As soon as practicable after the Retirement Date, the Company shall transfer title to the vehicle currently used by the Executive to the Executive. Thereafter, the Executive shall be responsible for all maintenance, insurance and other expenses relating to such vehicle, and the Company shall have no further obligations with respect to such vehicle. Section 2.5. Split-Dollar Life. The Company shall continue to pay the premiums on and shall maintain in effect the split-dollar life insurance policy currently in effect with respect to the Executive (Policy No.3650144) through August 31, 2003. As of August 31, 2003, such insurance policies shall be transferred to the Executive, and thereafter the Executive shall be responsible for all premiums under such policies, and the Company shall waive its right to receive reimbursement for premiums paid on such policies. Section 2.6 Withholding of Taxes. The Company may withhold from any benefits or compensation payable under this Agreement all federal, state, city or other taxes as may be required pursuant to any law or governmental regulation or ruling. Section 2.7 Miscellaneous. Except as specifically provided herein or as otherwise may be required by law, the Executive shall not be entitled to receive any other payments, benefits or severance amounts from the Delhaize Companies following the Retirement Date. ARTICLE III: CONFIDENTIAL INFORMATION -2- 3 The Executive acknowledges that during his service and employment with the Delhaize Companies that he has been privy and made party to confidential information, including but not limited to knowledge or data relating to the Delhaize Companies and their businesses and investments, information regarding vendors, employees, strategic and business plans, and analysis of competitors ("Confidential Information") and Trade Secrets (as defined below). Following the Retirement Date, the Executive shall hold in a fiduciary capacity for the benefit of the Delhaize Companies all Trade Secrets and Confidential Information, which shall have been obtained by the Executive during his service and employment with the Delhaize Companies and which is not generally available public knowledge (other than by acts by the Executive in violation of this Agreement). For three years following the Retirement Date, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or any legal process, or as is necessary in connection with any adversarial proceeding against any of the Delhaize Companies (in which case the Executive shall use his reasonable best efforts in cooperating with the Company in obtaining a protective order against disclosure by a court of competent jurisdiction), communicate or divulge any such Trade Secrets or Confidential Information to anyone other than the Company and those designated by the Company. All records, files, drawings, documents, models, equipment, and the like relating to the Delhaize Companies' business, which the Executive has control over, shall not be removed from the Company's premises and, if so removed, shall be returned to the Company by the Retirement Date. The Executive acknowledges that he has assigned to the Company all rights to Trade Secrets and other products relating to the Delhaize Companies' business developed by him alone or in conjunction with others at any time while employed by or in the service of the Delhaize Companies. For purposes of this Agreement, Trade Secrets shall mean all information, without regard to form, including, but not limited to, technical or non-technical data, formulae, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, business projects, product plans, distribution lists or lists of actual or potential customers, advertisers or suppliers which is not commonly known by or available to the public and which information: (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. ARTICLE IV: NON-COMPETITION; NON-SOLICITATION; NON-DISPARAGEMENT Section 4.1 Acknowledgements. The Executive acknowledges (i) that during his service and employment with the Delhaize Companies, he required special expertise and talent in conducting his duties and that the Executive had substantial contacts with customers, suppliers, advertisers and vendors of the Delhaize Companies and their affiliates; (ii) that the Executive was placed in a position of trust and responsibility and had access to a substantial amount of Confidential Information and Trade Secrets and that the Delhaize Companies placed him in such position and gave him access to such information in reliance upon his agreement not to compete with the Delhaize Companies during the time periods set forth below, including, but not limited to, the review and preparation of strategic plans and business strategies to expand the Delhaize Companies' business operations; (iii) that due to the Executive's management and supervising duties, the Executive is a repository of a substantial portion of the goodwill of the Delhaize -3- 4 Companies and would have an unfair advantage in competing with the Delhaize Companies; (iv) that due to the Executive's special experience and talent, the breach of this Article 4 cannot be reasonably or adequately compensated solely by damages in an action at law; (v) that the Executive is capable of competing with the Delhaize Companies and their subsidiaries; (vi) that the Executive is capable of obtaining gainful employment that does not violate the restrictions contained in this Agreement; and (vii) that a material inducement for the Company in executing this Agreement and making the payments hereunder was the Executive's willingness to be bound by the terms of this Article 4. Section 4.2 Non-Competition. In light of the acknowledgements set forth above and in consideration of the payments made to the Executive hereunder, the Executive shall not, directly or indirectly, own, manage, operate, control, be employed by, or perform services (i) for three years following the Retirement Date, for any business, howsoever organized and in whatsoever form, that engages in any retail grocery or supermarket business and which is located anywhere within the continental United States, and (ii) for two years following the Retirement Date, for any business, however organized and in whatever form, that engages in any non-retail grocery or supermarket business and which is located anywhere within the continental United States; provided, however , that the Company will not unreasonably withhold waivers of the restrictions under Section 4.2(ii). Section 4.3. Non-Solicitation. To protect the goodwill of the Delhaize Companies and the Delhaize Companies' legitimate business interests and in consideration of the payments made to the Executive hereunder, for three years after the Retirement Date, the Executive shall not, directly or indirectly, solicit the customers, suppliers or employees of the Delhaize Companies or any of their affiliates to terminate their relationship with any of the Delhaize Companies or their affiliates (or to modify such relationship in a manner that is adverse to the interests of any of the Delhaize Companies or their affiliates), or to violate any valid contracts they may have with the Delhaize Companies or their subsidiaries; provided, however, that nothing in this Section 4.3 shall prohibit the Executive from responding to an unsolicited request from any third party for an employment reference with respect to any person who was an employee of any of the Delhaize Companies during the period of the Executive's employment by and service with the Delhaize Companies. Section 4.4. Non-Disparagement. Following the Retirement Date, the Executive shall not disparage the Company or any of the Company's subsidiaries, affiliates, and their respective officers, directors, employees, agents, successors and assigns, and the Company shall not disparage the Executive or any of his representatives or agents, or any of their respective heirs and assigns. A proceeding brought by any party to enforce its rights shall not be deemed to be a breach of this Section 4.4. Section 4.5. Miscellaneous. The Executive acknowledges that the restrictions, prohibitions and other provisions of this Article 4 are reasonable, fair and equitable in scope, term and duration, are necessary to protect the legitimate business interests of the Company and its affiliates and are a material inducement to the Company to enter into this Agreement and make the payments hereunder. It is the intention of the parties hereto that the restrictions contained in this Article 4 be enforceable to the fullest extent permitted by applicable law. -4- 5 Therefore, if, at any time, the provisions of this Article 4 shall be determined to be invalid or unenforceable, by reason of being vague or unreasonable as to area, duration or scope of activity, this Article 4 shall be considered divisible and shall become and be immediately amended to only such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter and the Executive agrees that this Article 4 as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. ARTICLE V: MISCELLANEOUS Section 5.1 Remedy. Should the Executive engage in or perform, either directly or indirectly, any of the acts prohibited by Articles 3 and 4, it is agreed that the Company shall be entitled to immediately withhold any payments or benefits to be made to the Executive under Article 2 of this Agreement and all outstanding stock options held by the Executive shall immediately be canceled and cease to be exercisable (and to the extent such payments and benefits have already been made, the Executive shall immediately repay such amounts to the Company upon such breach, including, but not limited to, any gain realized upon the lapse of restricted stock or exercise of stock options, as provided in Sections 2.2 and 2.3 hereof) and the Company shall be entitled to full injunctive relief, to be issued by any competent court of equity, enjoining and restraining the Executive and each and every other person, firm, organization, association, or corporation concerned therein, from the continuance of such violative acts. The foregoing remedy shall not be deemed to limit or prevent the exercise by the Company of any or all further rights and remedies which may be available to the Company hereunder or at law or in equity. Section 5.2 Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered, sent by facsimile or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to such address or sent to such facsimile number as each party may furnish to the other in writing from time to time. Section 5.3 Applicable Law, Jurisdiction and Venue. This Agreement is entered into under, and shall be governed for all purposes by, the laws of the State of North Carolina, without giving effect to any choice of law principles. In any such litigation, each party hereto waives personal service of any summons, complaint or other process and agrees that the service thereof may be made by certified mail directed to such party at his or its address for purposes of notice under Section 5.2 hereof. Section 5.4 No Waiver. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall (i) be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time or (ii) preclude insistence upon strict compliance in the future. Section 5.5 Severability. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of -5- 6 that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. Section 5.6 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. Section 5.7 Headings. The paragraph headings have been inserted for purposes of convenience and shall not be used for interpretive purposes. Section 5.8 Gender and Plurals. Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural and conversely. Section 5.9 Affiliate. As used in this Agreement, unless otherwise indicated, "affiliate" shall mean any person or entity which directly or indirectly through any one or more intermediaries owns or controls, is owned or controlled by, or is under common ownership or control with the Company. Section 5.10 Assignment. This Agreement is binding on the Executive and the Company and their successors and assigns; provided, however, that the rights and obligations of the Company under this Agreement may be assigned to a successor entity which assumes (either by operation of law or otherwise) the Company's obligations hereunder. Any such assignment by the Company will not release the Company unless and until all obligations to the Executive hereunder are fully discharged. No rights or obligations of the Executive hereunder may be assigned by the Executive to any other person or entity, except by will or the laws of descent and distribution. In the event of the Executive's death prior to receipt by the Executive of all amounts payable by the Company hereunder, such amounts shall be payable to the Executive's designated beneficiaries on the same schedule as provided for in this Agreement. Section 5.11 Entire Agreement. Except as otherwise specifically provided herein, this Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the Executive's resignation from the Delhaize Companies, and amends and supersedes all prior employment or severance agreements between the Executive and the Company or any of its predecessors or affiliates, including, but not limited to, the Employment Agreement. The Executive acknowledges and agrees that the consideration provided for herein is adequate consideration for the Executive waiving his rights under the Employment Agreement. Except as otherwise provided herein, each party to this Agreement acknowledges that no representation, inducement, promise or agreement, oral or written, has been made by either party, or by anyone acting on behalf of either party, which is not embodied herein, and that no agreement, statement, or promise relating to the Executive's resignation from the Delhaize Companies, which is not contained in this Agreement, shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing and signed by the party to be charged. -6- 7 Section 5.12 Release. In consideration of the amounts set forth in this Agreement, Executive, for himself, his heirs, executors, administrators, successors and assigns (hereinafter referred to as the "Releasors"), hereby fully releases and discharges the Delhaize Companies, their officers, directors, executives, agents, insurers, subsidiaries, parents, affiliates, successors or assigns (all such persons, firms, corporations and entities being deemed beneficiaries hereof and are referred to herein as the "Delhaize Entities") from any and all actions, causes of action, claims, obligations, costs, losses, liabilities, damages and demands of whatsoever character, whether or not known, suspected or claimed, which the Releasors have, through the date of this Agreement, against the Delhaize Entities arising out of or in any way related to Executive's employment or termination of his employment; provided, however, that this shall not be a release with respect to any amounts and benefits owed to Executive pursuant to this Agreement. Section 5.13 Waiver of Rights Under Other Statutes. Executive understands that this Agreement waives claims and rights Executive may have under certain statutes, if applicable, including without limitation, the Age Discrimination in Employment Act (including the Older Workers Benefit Protection Act) ("ADEA"), Title VII of the Civil Rights Act, as amended; the Executive Retirement Income Security Act of 1974, as amended; the Equal Pay Act; the Rehabilitation Act of 1973; the Americans with Disabilities Act; the Worker Adjustment and Retraining Notification Act; and under any other law or regulation of any jurisdiction that in any way relates to Executive's employment or termination of employment and any and all amendments to any of same. Section 5.14 Waiver of Rights Under the Age Discrimination Act. Executive understands that this Agreement, and the release contained herein, waives claims and rights Executive might have under the ADEA. The waiver of Executive's rights under the ADEA does not extend to claims or rights that might arise after the date this Agreement is executed. For a period of seven (7) days following execution of this Agreement, Executive may revoke the terms of this Agreement relating to ADEA claims by a written document received by Company on or before the end of the seven (7) day period. The Agreement will not be effective until said revocation period has expired. Executive acknowledges that he has been given up to 21 days to decide whether to sign this Agreement. Section 5.15 Arbitration. Except as otherwise necessary to secure the remedy specified in Section 5.1 of this Agreement, any dispute arising between the Company and the Executive with respect to the performance or interpretation of this Retirement 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 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. -7- 8 ARTICLE VI: EXECUTIVE ACKNOWLEDGEMENTS The Executive acknowledges that: (a) He has read and understands the terms of this Agreement and has voluntarily agreed to their terms without coercion or undue persuasion by the Delhaize Companies or any officer, director or other agent thereof; (b) He has been encouraged by the Company to seek, and has sought, competent legal counsel in his review and consideration of this Agreement and its terms; and (c) This Agreement does not purport to waive, and does not waive, any rights the Executive may have which arise after the date on which this Agreement is finally executed. [The next page is the signature page] -8- 9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. DELHAIZE AMERICA, INC. By: /s/ William G. Ferguson --------------------------------- William G. Ferguson, Chairman Senior Management Compensation Committee /s/ Joseph C. Hall, Jr. ------------------------------------ Joseph C. Hall, Jr., Individually -9- EX-10.H 4 g68126ex10-h.txt EMPLOYMENT AGREEMENT/FARRINGTON 1 Exhibit 10(h) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of this 31st day of July, 2000 (the "Effective Date"), between DELHAIZE AMERICA, INC., a North Carolina corporation with its principal place of business in Salisbury, North Carolina (the "Company"), and HUGH G. FARRINGTON, an individual residing at 15 Lighthouse Point Road, Cape Elizabeth, Maine ("Mr. Farrington"), W I T N E S S E T H: WHEREAS, as of the date hereof, the Company is acquiring Hannaford Bros. Co. ("Hannaford") in a merger transaction in which Hannaford will become a wholly-owned subsidiary of the Company; WHEREAS, Mr. Farrington has served as the Chief Executive Officer of Hannaford; WHEREAS, the Company and Mr. Farrington desire to enter into this Employment Agreement to provide for the employment of Mr. Farrington as Vice Chairman of the Company and Chief Executive Officer of Hannaford. NOW, THEREFORE, in consideration of the premises, and the mutual agreements herein contained, the Company and Mr. Farrington hereby agree as follows: 1. Employment. The Company hereby agrees to employ Mr. Farrington as Vice Chairman of the Company and Chief Executive Officer of Hannaford for the Term of Employment as herein set forth, and Mr. Farrington hereby agrees to serve as Vice Chairman of the Company and Chief Executive Officer of Hannaford 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 written notice to the other party no less than one hundred eighty (180) days prior to the expiration of the applicable Term of Employment. 3. Employment During the Term. During the Term of Employment, Mr. Farrington shall devote his full professional time to the business of the Company and Hannaford, shall use his best efforts to promote the interests of the Company and Hannaford and shall serve as Vice Chairman of the Company and Chief Executive Officer of Hannaford and in such other senior executive capacities as the Board of Directors of the Company, with Mr. Farrington's consent, shall hereafter designate from time to time. 2 4. Vacation. Mr. Farrington shall be entitled to annual vacations in accordance with the vacation policy and practices of the Company, provided that the minimum number of weeks of vacation to which he shall be entitled each year shall be six (6). 5. Compensation. (a) Base Salary. As compensation for Mr. Farrington's services hereunder and for his covenants set forth in Sections 10, 11 and 12 below, the Company shall pay to Mr. Farrington a base salary which shall not be less than Six Hundred Sixty-Eight Thousand Four Hundred Seventy-Six Dollars ($668,476) 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 Mr. Farrington under this Employment Agreement remains competitive with amounts paid to other chief executive officers in the large supermarket chain industry and reflects the performance of Mr. Farrington and the financial performance of the Company and Hannaford. 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. Mr. Farrington annually shall be eligible to receive up to forty-five percent (45%) of his base salary in the form of a bonus under the Company's Key Executive Annual Incentive Bonus Plan, as it shall be administered by the Board of Directors of the Company and the relevant committees thereof. In addition, Mr. Farrington shall be eligible to participate in the Company's stock option plans and Hannaford's compensation plans, as they shall be administered by the Board of Directors of the Company or Hannaford, as applicable, and the relevant committees thereof. Mr. Farrington shall not be eligible to participate in the Company's Annual Incentive Bonus Plan. (c) Deferral Arrangement. (i) Right to Defer. Mr. Farrington 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 Mr. Farrington in writing prior to the start of the fiscal year to which such bonus relates. Any deferral of base salary shall be irrevocable and must be requested by Mr. Farrington in writing prior to the start of the fiscal year to which such salary relates. Any deferral of base compensation or bonus compensation for fiscal year 2000 shall be made in accordance with procedures established 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 Mr. Farrington prior to the start of such fiscal year. (ii) Bookkeeping Account and Grantor Trust. Any amounts deferred by Mr. Farrington hereunder will be credited to a bookkeeping account established on the books and records of the Company for the purpose of accounting for the amounts deferred by Mr. Farrington. 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 Mr. Farrington. 2 3 In connection with the deferral election, Mr. Farrington 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 Mr. Farrington. Mr. Farrington'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 Mr. Farrington selects results in a loss to the bookkeeping account, the Company will have no obligation to compensate Mr. Farrington for such loss or to make any compensatory adjustment to the bookkeeping account to make up for such loss. Notwithstanding the foregoing, at no time shall Mr. Farrington's rights to any amounts deferred under this Section 5(c)(ii) be greater than those of general unsecured creditors of the Company. (iii) Distribution. The timing of the payment of all amounts deferred by Mr. Farrington shall be specified in his initial deferral election and may not be subsequently changed by Mr. Farrington 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 Mr. Farrington's deferral election, all amounts deferred hereunder (and all amounts to which Mr. Farrington is entitled under any Hannaford nonqualified deferred compensation plan) will be paid to Mr. Farrington within thirty (30) days following a termination of this Employment Agreement for any reason specified in Sections 7(c) or 7(e). 6. Benefits. Mr. Farrington shall be entitled to participate in all health, accident, disability, medical, life and other insurance programs and other benefit and compensation plans maintained by Hannaford or the Company, as applicable, for the benefit of Mr. Farrington and/or other executive employees of Hannaford in accordance with Hannaford's policies. 7. Termination. Termination of Mr. Farrington's employment under any of the following circumstances shall not constitute a breach of this Employment Agreement: (a) Death. Termination upon the death of Mr. Farrington. (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 (other than by reason of incapacity due to physical or mental illness) or unwillingness to correct such failure within thirty (30) days after receipt of written notice, (ii) conviction of Mr. Farrington of a felony or plea of guilty or 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 Mr. Farrington in good faith with respect to the Company's or Hannaford's business. The written notice referred to in this section shall contain sufficient detail to permit Mr. Farrington to take corrective action, and such notice shall be given only after it has been determined by an affirmative vote of at least seventy percent (70%) of the Board of Directors of the Company that Mr. Farrington has willfully failed to perform his material duties under this Employment Agreement. 3 4 (c) Good Reason. Termination by Mr. Farrington 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 Mr. Farrington, (ii) assignment of inappropriate duties to Mr. Farrington, (iii) failure of the Company to comply with compensation and benefits obligations to Mr. Farrington, (iv) transfer of Mr. Farrington more than 50 miles from Scarborough, Maine, (v) a purported termination of this Employment Agreement by the Company other than in accordance with the terms hereof or (vi) 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 Mr. Farrington of "Good Reason" shall be conclusive. An election by Mr. Farrington to terminate his employment under this Section 7(c) shall not be deemed a voluntary termination of employment by Mr. Farrington for the purpose of this Employment Agreement or any plan, arrangement or program of the Company or Hannaford. (d) Disability. Termination by the Company or Mr. Farrington upon Disability of Mr. Farrington. 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) Mr. Farrington 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 Mr. Farrington's absence from continuous full-time employment with the Company or Hannaford 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 Mr. Farrington examined at such reasonable times by such physicians satisfactory to Mr. Farrington as the Company may designate, and Mr. Farrington 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 Mr. Farrington to perform his duties hereunder, whether by reason of injury, illness (physical or mental) or otherwise shall not result in the termination of Mr. Farrington'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) Without Good Reason. Termination of Mr. Farrington without "Good Reason," upon ninety (90) days' advance written notice. (g) Date and Notice of Termination. Any termination of Mr. Farrington's employment by the Company or by Mr. Farrington (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 Mr. Farrington's employment under the provision so indicated. 4 5 "Date of Termination" shall mean (i) if Mr. Farrington's employment is terminated by his death, the date of his death, and (ii) if Mr. Farrington'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). The notification of a dispute shall be given in writing and shall set forth in reasonable detail the facts and circumstances being disputed. 8. Effect of Termination. In the event of termination of employment as described in Section 7 hereof, the Company shall compensate Mr. Farrington as follows: (a) Death. If Mr. Farrington's employment is terminated as a result of his death, as specified in Section 7(a), the Company shall pay Mr. Farrington's beneficiary the benefit called for under his Salary Continuation Agreement with the Company, if any. Mr. Farrington'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 Mr. Farrington's employment is terminated by the Company or Mr. Farrington as a result of his disability as specified in Section 7(d), then the Company shall pay Mr. Farrington his full compensation until the Date of Termination. Within thirty (30) days after the termination of his employment, the Company shall pay Mr. Farrington a lump sum payment equal to fifty percent (50%) of the present value of the future base salary payable to Mr. Farrington 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 Mr. Farrington'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 Mr. Farrington shall be entitled to receive under any applicable disability insurance policies maintained by Hannaford for Mr. Farrington. (c) Cause. If Mr. Farrington's employment is terminated for any reason specified in Section 7(b) hereof, the Company and Hannaford shall no longer be obligated to make any payments to Mr. Farrington 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. 5 6 (d) Good Reason or Without Cause. (i) If Mr. Farrington's employment is terminated by Mr. Farrington 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): (A) the Company shall pay Mr. Farrington the full amount of his base salary and other compensation earned prior to the Date of Termination; and (B) the Company shall pay Mr. Farrington, within thirty (30) days after the Date of Termination, a lump sum payment equal to the present value of three (3) (or the number of years left in the Term of this Agreement, whichever is greater) times his current annual 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. (ii) If prior to a Change in Control of the Company (as defined below), Mr. Farrington's employment is terminated by Mr. Farrington for Good Reason or by the Company without Cause, the Company or Hannaford, as applicable, shall maintain in full force and effect for the continued benefit of Mr. Farrington and his eligible dependents for three (3) years after the Date of Termination (or for the number of years remaining in the Term of this Agreement, whichever is greater), employee fringe benefit plans and programs such as medical, dental, health and life insurance in which Mr. Farrington was entitled to participate immediately prior to the Date of Termination, but not including the Company's Key Executive Annual Incentive Bonus Plan, the Wellness Bonus Plan, the Profit Sharing Plan and the Profit Sharing Restoration Plan and any other bonus, retirement or similar compensation plan; provided, however, if such participation in any such plan or program is not permitted under the terms thereof, the Company shall provide Mr. Farrington (and his eligible dependents) with benefits substantially similar to those which were being provided immediately prior to his termination of employment. (iii) If (A) Mr. Farrington's employment is terminated by the Company without Cause within six (6) months prior to a Change in Control or (B) Mr. Farrington's employment is terminated by the Company without Cause or by Mr. Farrington with Good Reason within one (1) year following a Change in Control of the Company, the Company shall pay Mr. Farrington the compensation and fringe benefits set forth in clauses (i) and (ii) above, and in addition, for three (3) years following the Date of Termination (or for the number of years remaining in the Term of this Agreement, whichever is greater), Mr. Farrington shall be paid an annual amount equal to the amounts, if any, which would have been payable to him under the Company's Key Executive Annual Incentive Bonus Plan, and any plan of Hannaford in which Mr. Farrington was entitled to participate immediately prior to the Date of Termination (or such other plans in which Mr. Farrington was entitled to participate as of the Date of Termination) assuming Mr. Farrington had remained employed for such three (3) year (or greater) period and received an annual salary at the rate in effect on his Date of Termination. Wherever the terms "remainder of his Term of Employment," "number of years left in the Term of this Agreement," or similar terms are used herein, they shall include the fractional portion of partial years. 6 7 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, in the aggregate, by Etablissements Delhaize Freres et Cie "Le Lion" S.A. ("Delhaize") and Delhaize The 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 holders of voting securities of the Company receive fifty percent (50%) or more of the voting securities of the company or entity resulting from the Business Combination ("Resulting Company"), at least a majority of the board of directors of the resulting corporation were Incumbent Company Directors, and after which no person or entity beneficially owns twenty percent (20%) ("Beneficial Ownership Threshold") or more of the voting securities of the Resulting Company, who did not beneficially own such stock immediately before the Business Combination; or (D) occurrence of any of the events described in Section 8(d)(iii)(B) or (C) to Delhaize or the acquisition by any Person of more than thirty percent (30%) of the voting securities of Delhaize. Notwithstanding any other provision of this paragraph, for purposes of the definition of "Change in Control of the Company," a change in control of Delhaize shall not constitute a Change in Control of the Company unless it involves an event contemplated by this Section 8(d)(iii)(D). With respect to Section 8(d)(iii)(C) as it applies to Delhaize under this Section 8(d)(iii)(D), the Beneficial Ownership Threshold shall be thirty percent (30%). 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, the term "Person" shall have the meaning 7 8 set forth in Sections 3(a)(2) and 13(d)(3) of the Exchange Act and the term "voting securities" shall have the meaning set forth in Rule 12b-2 under the Exchange Act. 9. Business Expenses. The Company agrees that during the Term of Employment, the Company or Hannaford, as applicable, will reimburse Mr. Farrington 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 and Hannaford, as applicable. 10. No Competing Employment. Mr. Farrington agrees that, during the Term of Employment and for a period of two (2) years after the Date of Termination specified in the Notice 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. Mr. Farrington 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. Mr. Farrington 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 any affiliate thereof for the purpose of being employed by Mr. Farrington, directly or indirectly, or any other person or entity on behalf of which Mr. Farrington is acting as an agent, representative or employee. Notwithstanding the above, if Mr. Farrington'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. Mr. Farrington agrees that, during the Term of Employment and thereafter, he will not, without the prior 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. Mr. Farrington also recognizes and acknowledges that he has a common law obligation not to disclose trade secrets and other proprietary information of the Company or Hannaford. Mr. Farrington further agrees that, should he leave the active service of the Company or Hannaford, 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 or Hannaford pertaining to their business, sales, financial condition, or products. Mr. Farrington 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, Mr. Farrington acknowledges that a breach of the covenants contained in Sections 10, 11 and 12 herein may result in material irreparable injury to the Company or Hannaford 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 Mr. Farrington 8 9 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 Mr. Farrington 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 Mr. Farrington as a result of the fact that Mr. Farrington is or was an officer of the Company, or is or was serving at the request of the Company as an officer, employee, fiduciary or agent of an affiliate of the Company or a trust or employee benefit plan maintained by the Company or an affiliate of the Company. The expenses incurred by Mr. Farrington in any proceeding shall be paid promptly by the Company in advance of the final disposition of any proceeding at the written request of Mr. Farrington 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 Mr. Farrington 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 Mr. Farrington at the time specified below, an additional amount (the "Gross-Up Payment") such that the net amount retained by Mr. Farrington (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 Mr. Farrington, 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 Mr. Farrington in connection with a Change in Control of the Company or the termination of Mr. Farrington's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement with the 9 10 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 and (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, Mr. Farrington 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, Mr. Farrington 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 Mr. Farrington'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 Mr. Farrington 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 in Control) such rights shall not vest if Mr. Farrington's employment is terminated for Mr. Farrington's failure (other than by reason of incapacity due to physical or mental illness) to adequately perform his duties hereunder as determined by an affirmative vote of at least seventy percent (70%) of the Board of Directors 10 11 of the Company, and further provided that Mr. Farrington is given written notice of such failure and is unable (other than by reason of incapacity due to physical or mental illness) or unwilling to correct such failure within thirty (30) days after receipt of such written notice. For purposes of the preceding sentence, "Change in Control of the Company" shall have the meaning set forth in Section 8(d)(iii) hereof. 17. Legal Expenses. The Company shall reimburse Mr. Farrington for all reasonable legal fees incurred in a successful effort to establish entitlement to compensation and benefits under this Employment Agreement. 18. Mitigation. The Company recognizes that Mr. Farrington 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 Mr. Farrington 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 Mr. Farrington 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. The Employment Continuity Agreement, dated May 19, 1998, but effective as of January 1, 1998, between Hannaford and Mr. Farrington is hereby terminated and shall be of no further force and effect. 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. 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. 24. Notices. Any notices or other communications required or permitted hereunder shall be deemed sufficiently given if sent by registered mail, postage prepaid, as follows: 11 12 (a) If to Mr. Farrington: Hugh G. Farrington 15 Lighthouse Point Road Cape Elizabeth, Maine 04107 (b) If to the Company: Delhaize America, Inc. Post Office Box 1330 2110 Executive Drive Salisbury, North Carolina 28145-1330 Attention: Secretary with a copy to: Richard L. Wyatt, Jr. 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. [The next page is the signature page] 12 13 IN WITNESS WHEREOF, the Company has caused this Employment Agreement to be executed by its duly authorized representative, and Mr. Farrington has hereunto set his hand as of the date first above written. DELHAIZE AMERICA, INC. By: /s/ R. William McCanless ------------------------ R. William McCanless Chief Executive Officer /s/ Hugh G. Farrington ----------------------------- Hugh G. Farrington 13 EX-10.AD 5 g68126ex10-ad.txt EMPLOYMENT AGREEMENT/BRUNORY 1 Exhibit 10(ad) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made this 20th day of January, 2000 (the "Effective Date"), between FOOD LION, a division of Delhaize America, Inc., a North Carolina corporation with its principal place of business in Salisbury, North Carolina (the "Company"), and Robert J. Brunory, an individual residing at 685 Timberlane Trail, Salisbury, North Carolina 28147 ("Employee"), W I T N E S S E T H: WHEREAS, Employee is currently employed by the Company in its Food Lion division as its Senior Vice President of Category Management/Procurement; 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, the Company is in the process of converting into a holding company and will transfer substantially all of the assets of the Food Lion division to a newly-formed, wholly-owned subsidiary (the "Subsidiary") (such transfer is referred to herein as the "Holding Company Restructuring"); WHEREAS, at the time of the Holding Company Restructuring, Employee will continue in Employee's position as Senior Vice President of Category Management/Procurement but at the Subsidiary level only, and this Employment Agreement will be assigned to and assumed by the Subsidiary; WHEREAS, Employee is willing to continue to serve the Company and, from and after the Holding Company Restructuring, the Subsidiary; 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: 2 1. Continue to Employ. The Company hereby agrees to continue to employ Employee, prior to the Holding Company Restructuring, as Senior Vice President of Category Management/Procurement at the Food Lion division level and, after the Holding Company Restructuring, as Senior Vice President of Category Management/Procurement at the Subsidiary level, for the Term of Employment as herein set forth, and Employee hereby agrees to continue to serve in such positions 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 third (3rd) 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 written notice to the other party no less than ninety (90) days prior to the expiration of the applicable Term of Employment. 3. Employment During the Term. During the Term of Employment, Employee shall devote Employee's full professional time to the business of the Company, shall use Employee's best efforts to promote the interests of the Company and shall serve, prior to the Holding Company Restructuring, as Senior Vice President of Category Management/Procurement of the Food Lion division and, after the Holding Company Restructuring, as Senior Vice President of Category Management/Procurement of the Subsidiary, and in such other senior executive capacities (at the Company or at subsidiaries of the Company) 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 Employee's 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-Eight Thousand Seven Hundred Eight Dollars ($238,708) per annum; provided, however, such amount may be reviewed for increase from time to time by the Board of Directors of the Company. In no event shall such 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 and in their sole discretion. -2- 3 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 Employee's material duties hereunder and Employee's inability or unwillingness to correct such failure within thirty (30) days after receipt of written notice, (ii) conviction of Employee of a felony or plea of guilty or no contest to a felony, (iii) perpetration of a material dishonest act or fraud against the Company or any affiliate thereof or (iv) a material violation of any Company policy or any state, federal or other governmental statute or regulation. The definition of "Cause" also includes the termination of Employee's employment by the Company in connection with an assignment of this Employment Agreement to a successor or subsidiary of the Company, including but not limited to the Subsidiary, in accordance with Section 18 hereof. The definition of "Cause" also includes subsequent terminations of Employee's employment in connection with subsequent assignments of this Employment Agreement to the Company or its successors or direct or indirect subsidiaries of the Company. 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 the occurrence of any of the following circumstances without Employee's consent, provided that Employee has provided notice to the Company of Employee's intention to terminate his or her employment for Good Reason within thirty (30) days after the occurrence of such event and the Company has failed to cure such circumstance, if curable, within thirty (30) days after receipt of notice thereof: (i) a material diminution of the professional responsibilities of Employee as such responsibilities existed on the date of this Agreement, (ii) assignment of duties to Employee which are materially adverse to and inconsistent with Employee's position, (iii) failure of the Company to provide compensation and benefits obligations to Employee as set forth herein, (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 or (v) failure of the Company to require any successor to the Company to assume and comply with this Employment Agreement. The definition of "Good Reason" expressly excludes any assignment of this Employment Agreement to a successor or subsidiary of the Company, including but not limited to the -3- 4 Subsidiary, in accordance with Section 18 hereof and any changes in responsibilities or duties resulting therefrom. In addition, the definition of "Good Reason" expressly excludes subsequent terminations of Employee's employment in connection with subsequent assignments of this Employment Agreement to the Company or its successors or direct or indirect subsidiaries of the Company. An election by Employee to terminate his or her employment under this Section 7(c) 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 Employee's 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 Employee's 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 Employee shall be entitled to continue to receive Employee's 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 Employee's death, the date of Employee's 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 -4- 5 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, and provided that Employee (or Employee's beneficiary in the event of death) has signed and agreed to be bound by a general release of claims against the Company in form reasonably satisfactory to the Company, the Company shall compensate Employee as follows: (a) Death. If Employee's employment is terminated as a result of Employee's death, as specified in Section 7(a), the Company shall pay Employee's beneficiary the benefit called for under the Salary Continuation Agreement, if any, between Employee and 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 Employee's disability as specified in Section 7(d), then the Company shall pay Employee his or her full compensation until the Date of Termination. Within thirty (30) days after the termination of Employee's 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 the Term of Employment under this Employment Agreement or for a period of one (1) year, 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 one (1) year, 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 Employee's 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. -5- 6 (d) Good Reason or Without Cause. (i) If Employee's employment is terminated by Employee for Good Reason as specified in Section 7(c) hereof, or if Employee's employment is terminated by the Company without Cause as specified in Section 7(e): (A) the Company shall pay Employee the full amount of Employee's base salary and other compensation earned prior to the Date of Termination; and (B) the Company shall pay Employee an amount (the "Termination Payment") equal to the product of the Employee's current monthly base salary multiplied by the greater of (x) twelve (12) months or (y) the number of full months remaining in the Term of this Agreement. The Company may elect to pay the Termination Payment (i) in monthly installments, beginning thirty (30) days after the Date of Termination and payable thereafter on the date of the last regularly scheduled payroll for each month, or (ii) in one lump sum payment, due and payable thirty (30) days after the Date of Termination, in an amount equal to the present value of all such monthly payments 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. (ii) If prior to a Change in Control of the Company (as defined below) (and if Section 8(d)(iii) hereof does not apply), Employee's employment is terminated by Employee for Good Reason or by the Company without Cause, the Company shall maintain in full force and effect for the continued benefit of Employee and Employee's eligible dependents for one (1) year after the Date of Termination (or for the number of years remaining in the Term of this Agreement, whichever is greater), the employee fringe benefit plans and programs relating to 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 permitted under the general terms and provisions of such plans and programs and applicable law, but not including the Annual Incentive Bonus Plan, the Wellness Bonus Plan, the Profit Sharing Plan and the Profit Sharing Restoration Plan and any other bonus, retirement or similar compensation plan. (iii) If (A) Employee's employment is terminated by the Company without Cause in contemplation of a Change in Control of the Company within six (6) months prior to such Change in Control or (B) Employee's employment is terminated by the Company without Cause or by Employee with Good Reason within one (1) year following a Change in Control of the Company, the Company shall pay Employee the compensation and benefits set forth in clauses (i) and (ii) above, and in addition, for one (1) year following the Date of Termination (or for the number of years remaining in the Term of this Agreement, whichever is greater), Employee shall be paid an annual amount equal to the amounts, if any, which would have been payable to Employee under the Annual Incentive Bonus Plan, the Wellness Bonus Plan, the Profit Sharing Plan and the Profit Sharing Restoration Plan (or such other plans in which Employee was entitled to participate as of the Date of Termination) assuming Employee had -6- 7 remained employed for such one (1) year (or greater) period and received an annual salary at the rate in effect on Employee's Date of Termination. (iv) 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, in the aggregate, by Etablissements Delhaize Freres et Cie "Le Lion" S.A. ("Delhaize") and Delhaize The 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 at least 70% of the Incumbent Company 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 beneficial holders of voting securities of the Company receive or retain fifty percent (50%) or more of the voting securities of the company or entity resulting from the Business Combination ("Resulting Company"), at least a majority of the board of directors of the resulting corporation were Incumbent Company Directors, and after which no person or entity beneficially owns twenty percent (20%) or more of the voting securities ("Beneficial Ownership Threshold") of the Resulting Company, who did not beneficially own such stock immediately before the Business Combination; or (D) occurrence of any of the events described in Section 8(d)(iv)(B) or (C) to Delhaize or the acquisition by any Person of more than thirty percent (30%) of the stock of Delhaize. Notwithstanding any other provision of this paragraph, for purposes of the definition of "Change in Control of the Company," a change in control of Delhaize shall -7- 8 not constitute a Change in Control of the Company unless it involves an event contemplated by this Section 8(d)(iv)(D). With respect to Section 8(d)(iv)(C) as it applies to Delhaize under Section 8(d)(iv)(D), the Beneficial Ownership Threshold shall be thirty percent (30%). 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, the term "Person" shall have the meaning set forth in Sections 3(a)(2) and 13(d)(3) of the Exchange Act and the term "voting securities" shall have the meaning set forth in Rule 12b-2 under the Exchange Act. 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 Employee in connection with the performance of Employee's duties hereunder and accounted for in accordance with the policies and procedures currently established by the Company. 10. No Competing Employment. (a) Employee agrees that, during the Term of Employment and for a period of two (2) years after the date specified in the Notice of Termination or, if applicable, the date of Employee's resignation ("Restricted Period"), Employee will not, without the written consent of the Board of Directors, own, operate, control or be employed as an officer, director, manager or consultant, or as an employee with management or executive level duties or responsibilities, in any case, for or by any business engaged in any retail or wholesale grocery or supermarket business within ten (10) miles of any store operated by the Company or any subsidiary thereof on the date on which Employee's employment with the Company ends; provided, however, that this restriction contained in this Section 10(a) shall not apply if Employee works, consults or accepts employment with a business that does not directly compete with the Company or any subsidiary thereof. (b) Employee agrees that, during the Restricted Period, Employee will not, without the written consent of the Board of Directors, own, operate, control or be employed as an officer, director, manager or consultant, or as an employee with management or executive level duties or responsibilities, in any case, for or by any entity whose business, or whose direct or indirect parent entity's or direct or indirect subsidiary entity's business is any retail or wholesale grocery or supermarket business within ten (10) miles of any store operated by the Company or any subsidiary thereof on the date on which Employee's employment with the Company ends. (c) Employee understands and agrees that a portion of the amounts payable to Employee under Section 5(a) and Section 8, if applicable, is in consideration for Employee's covenants set forth in Sections 10, 11 and 12. -8- 9 11. No Solicitation. Employee agrees that, during the Restricted Period, Employee 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, Employee will not, without the prior 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 Employee has a common law and statutory law obligation not to disclose trade secrets and other proprietary information of the Company. Employee further agrees that, should Employee leave the active service of the Company, Employee will not take 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. Failure to Comply. All payments to Employee hereunder, including without limitation all such payments made pursuant to Section 8 of this Agreement, are conditional upon Employee's full compliance with the provisions of this Agreement, including specifically Sections 10, 11 and 12 hereof, which provisions are hereby expressly incorporated by reference as conditions to all such payment. The provisions of sections 10, 11 and 12 will remain incorporated as conditions to payments under this Agreement, regardless of any judicial declaration of their invalidity or unenforceability as affirmative covenants. In the event that the Employee shall fail to comply with any provision of Sections 10, 11 and 12, (a) all rights hereunder of the Employee and any person claiming under or through him shall thereupon terminate and no person shall be entitled to receive any payments or benefits under this Agreement and (b) the Employee agrees to immediately pay to the Company any and all amounts previously paid to the Employee by the Company pursuant to Section 8 of this Agreement. In addition to the foregoing and without limiting any other 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. -9- 10 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 Article 8, 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 -10- 11 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, and (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; -11- 12 provided, however, that (assuming no occurrence of a Change in Control) such rights shall not vest if Employee's employment is terminated for Employee's failure to adequately perform Employee's duties hereunder as determined by an affirmative vote of at least seventy percent (70%) of the Board of Directors of the Company. For purposes of the preceding sentence, "Change in Control of the Company" shall have the meaning set forth in Section 8(d)(iv) hereof except for the portion thereof describing a Change in Control at Delhaize as set forth in subsection 8(d)(iv)(D). 17. Mitigation. The Company recognizes that Employee has no duty to mitigate the amounts due to Employee 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 Employee's employment with the Company. 18. 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 or 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. For purposes of this Section 18, the Subsidiary shall be deemed a successor to which this Employment Agreement may be assigned. In addition, this Employment Agreement may be assigned to an existing or future direct or indirect subsidiary of the Company. Furthermore, from and after the Holding Company Restructuring and after an assignment of this Employment Agreement to the Subsidiary or any other existing or future direct or indirect subsidiary of the Company, this Employment Agreement may be reassigned to the Company. 19. Amendments. This Employment Agreement contains the entire contractual understanding between the parties and supersedes all prior agreements and understandings, both written and oral, between the parties hereto with respect to the subject matter hereof (except for the Salary Continuation Agreement, if any, between Employee and the Company). This Employment Agreement may not be changed orally but only by a written instrument signed by the parties hereto. 20. Governing Law. This Employment Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina without regard to the conflicts of law principles thereof. 21. 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. -12- 13 22. Arbitration. Except as otherwise necessary to secure the remedy specified in Section 13 of this Employment Agreement (which remedy may be secured in a court of competent jurisdiction), 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. Pursuant to North Carolina General Statutes section 1-567.2, the provisions of Chapter 1, Subchapter XV, Article 45A of the North Carolina General Statutes shall apply to this Employment Agreement. 23. 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. 24. 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: Robert J. Brunory 685 Timberlane Trail Salisbury, North Carolina 28147 (b) If to the Company: Delhaize America, Inc. Post Office Box 1330 2110 Executive Drive Salisbury, North Carolina 28145-1330 Attention: Secretary -13- 14 with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1700 Pacific Avenue Suite 4100 Dallas, TX 75201-4675 Attention: Michael E. Dillard, P.C. 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. [The next page is the signature page] -14- 15 IN WITNESS WHEREOF, the Company has caused this Employment Agreement to be executed by its duly authorized representative, and Employee has hereunto set Employee's hand as of the date first above written. FOOD LION, a division of Delhaize America, Inc. Attest: By: /s/ R. William McCanless - ------------------------------- -------------------------------- R. William McCanless Chief Executive Officer EMPLOYEE: Attest: /s/ Robert J. Brunory - ------------------------------- ------------------------------------ Robert J. Brunory -15- EX-10.AE 6 g68126ex10-ae.txt EMPLOYMENT AGREEMENT/GEHL 1 Exhibit 10(ae) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made this 10th day of January, 2000 (the "Effective Date"), between FOOD LION, a division of Delhaize America, Inc., a North Carolina corporation with its principal place of business in Salisbury, North Carolina (the "Company"), and Keith M. Gehl, an individual residing at 25 Blenheim Road, Concord, North Carolina 28025 ("Employee"), W I T N E S S E T H: WHEREAS, Employee is currently employed by the Company in its Food Lion division as its Vice President of Real Estate/Store Development; 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, the Company is in the process of converting into a holding company and will transfer substantially all of the assets of the Food Lion division to a newly-formed, wholly-owned subsidiary (the "Subsidiary") (such transfer is referred to herein as the "Holding Company Restructuring"); WHEREAS, at the time of the Holding Company Restructuring, Employee will continue in Employee's position as Vice President of Real Estate/Store Development but at the Subsidiary level only, and this Employment Agreement will be assigned to and assumed by the Subsidiary; WHEREAS, Employee is willing to continue to serve the Company and, from and after the Holding Company Restructuring, the Subsidiary; 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: 2 1. Continue to Employ. The Company hereby agrees to continue to employ Employee, prior to the Holding Company Restructuring, as Vice President of Real Estate/Store Development at the Food Lion division level and, after the Holding Company Restructuring, as Vice President of Real Estate/Store Development at the Subsidiary level, for the Term of Employment as herein set forth, and Employee hereby agrees to continue to serve in such positions 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 third (3rd) 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 written notice to the other party no less than ninety (90) days prior to the expiration of the applicable Term of Employment. 3. Employment During the Term. During the Term of Employment, Employee shall devote Employee's full professional time to the business of the Company, shall use Employee's best efforts to promote the interests of the Company and shall serve, prior to the Holding Company Restructuring, as Vice President of Real Estate/Store Development of the Food Lion division and, after the Holding Company Restructuring, as Vice President of Real Estate/Store Development of the Subsidiary, and in such other senior executive capacities (at the Company or at subsidiaries of the Company) 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 Employee's 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 Seventeen Thousand Three Hundred Thirteen Dollars ($217,313) per annum; provided, however, such amount may be reviewed for increase from time to time by the Board of Directors of the Company. In no event shall such 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 and in their sole discretion. -2- 3 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 Employee's material duties hereunder and Employee's inability or unwillingness to correct such failure within thirty (30) days after receipt of written notice, (ii) conviction of Employee of a felony or plea of guilty or no contest to a felony, (iii) perpetration of a material dishonest act or fraud against the Company or any affiliate thereof or (iv) a material violation of any Company policy or any state, federal or other governmental statute or regulation. The definition of "Cause" also includes the termination of Employee's employment by the Company in connection with an assignment of this Employment Agreement to a successor or subsidiary of the Company, including but not limited to the Subsidiary, in accordance with Section 18 hereof. The definition of "Cause" also includes subsequent terminations of Employee's employment in connection with subsequent assignments of this Employment Agreement to the Company or its successors or direct or indirect subsidiaries of the Company. 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 the occurrence of any of the following circumstances without Employee's consent, provided that Employee has provided notice to the Company of Employee's intention to terminate his or her employment for Good Reason within thirty (30) days after the occurrence of such event and the Company has failed to cure such circumstance, if curable, within thirty (30) days after receipt of notice thereof: (i) a material diminution of the professional responsibilities of Employee as such responsibilities existed on the date of this Agreement, (ii) assignment of duties to Employee which are materially adverse to and inconsistent with Employee's position, (iii) failure of the Company to provide compensation and benefits obligations to Employee as set forth herein, (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 or (v) failure of the Company to require any successor to the Company to assume and comply with this Employment Agreement. The definition of "Good Reason" expressly excludes any assignment of this Employment Agreement to a successor or subsidiary of the Company, including but not limited to the -3- 4 Subsidiary, in accordance with Section 18 hereof and any changes in responsibilities or duties resulting therefrom. In addition, the definition of "Good Reason" expressly excludes subsequent terminations of Employee's employment in connection with subsequent assignments of this Employment Agreement to the Company or its successors or direct or indirect subsidiaries of the Company. An election by Employee to terminate his or her employment under this Section 7(c) 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 Employee's 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 Employee's 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 Employee shall be entitled to continue to receive Employee's 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 Employee's death, the date of Employee's 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 -4- 5 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, and provided that Employee (or Employee's beneficiary in the event of death) has signed and agreed to be bound by a general release of claims against the Company in form reasonably satisfactory to the Company, the Company shall compensate Employee as follows: (a) Death. If Employee's employment is terminated as a result of Employee's death, as specified in Section 7(a), the Company shall pay Employee's beneficiary the benefit called for under the Salary Continuation Agreement, if any, between Employee and 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 Employee's disability as specified in Section 7(d), then the Company shall pay Employee his or her full compensation until the Date of Termination. Within thirty (30) days after the termination of Employee's 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 the Term of Employment under this Employment Agreement or for a period of one (1) year, 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 one (1) year, 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 Employee's 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. -5- 6 (d) Good Reason or Without Cause. (i) If Employee's employment is terminated by Employee for Good Reason as specified in Section 7(c) hereof, or if Employee's employment is terminated by the Company without Cause as specified in Section 7(e): (A) the Company shall pay Employee the full amount of Employee's base salary and other compensation earned prior to the Date of Termination; and (B) the Company shall pay Employee an amount (the "Termination Payment") equal to the product of the Employee's current monthly base salary multiplied by the greater of (x) twelve (12) months or (y) the number of full months remaining in the Term of this Agreement. The Company may elect to pay the Termination Payment (i) in monthly installments, beginning thirty (30) days after the Date of Termination and payable thereafter on the date of the last regularly scheduled payroll for each month, or (ii) in one lump sum payment, due and payable thirty (30) days after the Date of Termination, in an amount equal to the present value of all such monthly payments 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. (ii) If prior to a Change in Control of the Company (as defined below) (and if Section 8(d)(iii) hereof does not apply), Employee's employment is terminated by Employee for Good Reason or by the Company without Cause, the Company shall maintain in full force and effect for the continued benefit of Employee and Employee's eligible dependents for one (1) year after the Date of Termination (or for the number of years remaining in the Term of this Agreement, whichever is greater), the employee fringe benefit plans and programs relating to 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 permitted under the general terms and provisions of such plans and programs and applicable law, but not including the Annual Incentive Bonus Plan, the Wellness Bonus Plan, the Profit Sharing Plan and the Profit Sharing Restoration Plan and any other bonus, retirement or similar compensation plan. (iii) If (A) Employee's employment is terminated by the Company without Cause in contemplation of a Change in Control of the Company within six (6) months prior to such Change in Control or (B) Employee's employment is terminated by the Company without Cause or by Employee with Good Reason within one (1) year following a Change in Control of the Company, the Company shall pay Employee the compensation and benefits set forth in clauses (i) and (ii) above, and in addition, for one (1) year following the Date of Termination (or for the number of years remaining in the Term of this Agreement, whichever is greater), Employee shall be paid an annual amount equal to the amounts, if any, which would have been payable to Employee under the Annual Incentive Bonus Plan, the Wellness Bonus Plan, the Profit Sharing Plan and the Profit Sharing Restoration Plan (or such other plans in which Employee was entitled to participate as of the Date of Termination) assuming Employee had -6- 7 remained employed for such one (1) year (or greater) period and received an annual salary at the rate in effect on Employee's Date of Termination. (iv) 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, in the aggregate, by Etablissements Delhaize Freres et Cie "Le Lion" S.A. ("Delhaize") and Delhaize The 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 at least 70% of the Incumbent Company 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 beneficial holders of voting securities of the Company receive or retain fifty percent (50%) or more of the voting securities of the company or entity resulting from the Business Combination ("Resulting Company"), at least a majority of the board of directors of the resulting corporation were Incumbent Company Directors, and after which no person or entity beneficially owns twenty percent (20%) or more of the voting securities ("Beneficial Ownership Threshold") of the Resulting Company, who did not beneficially own such stock immediately before the Business Combination; or (D) occurrence of any of the events described in Section 8(d)(iv)(B) or (C) to Delhaize or the acquisition by any Person of more than thirty percent (30%) of the stock of Delhaize. Notwithstanding any other provision of this paragraph, for purposes of the definition of "Change in Control of the Company," a change in control of Delhaize shall -7- 8 not constitute a Change in Control of the Company unless it involves an event contemplated by this Section 8(d)(iv)(D). With respect to Section 8(d)(iv)(C) as it applies to Delhaize under Section 8(d)(iv)(D), the Beneficial Ownership Threshold shall be thirty percent (30%). 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, the term "Person" shall have the meaning set forth in Sections 3(a)(2) and 13(d)(3) of the Exchange Act and the term "voting securities" shall have the meaning set forth in Rule 12b-2 under the Exchange Act. 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 Employee in connection with the performance of Employee's duties hereunder and accounted for in accordance with the policies and procedures currently established by the Company. 10. No Competing Employment. (a) Employee agrees that, during the Term of Employment and for a period of two (2) years after the date specified in the Notice of Termination or, if applicable, the date of Employee's resignation ("Restricted Period"), Employee will not, without the written consent of the Board of Directors, own, operate, control or be employed as an officer, director, manager or consultant, or as an employee with management or executive level duties or responsibilities, in any case, for or by any business engaged in any retail or wholesale grocery or supermarket business within ten (10) miles of any store operated by the Company or any subsidiary thereof on the date on which Employee's employment with the Company ends; provided, however, that this restriction contained in this Section 10(a) shall not apply if Employee works, consults or accepts employment (i) with a business that does not directly compete with the Company or any subsidiary thereof or (ii) in an area of a competitor's business which does not directly compete with the Company or any subsidiary thereof. (b) Employee agrees that, during the Restricted Period, Employee will not, without the written consent of the Board of Directors, own, operate, control or be employed as an officer, director, manager or consultant, or as an employee with management or executive level duties or responsibilities, in any case, for or by any entity whose business, or whose direct or indirect parent entity's or direct or indirect subsidiary entity's business is any retail or wholesale grocery or supermarket business within ten (10) miles of any store operated by the Company or any subsidiary thereof on the date on which Employee's employment with the Company ends. (c) Employee understands and agrees that a portion of the amounts payable to Employee under Section 5(a) and Section 8, if applicable, is in consideration for Employee's covenants set forth in Sections 10, 11 and 12. -8- 9 11. No Solicitation. Employee agrees that, during the Restricted Period, Employee 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, Employee will not, without the prior 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 Employee has a common law and statutory law obligation not to disclose trade secrets and other proprietary information of the Company. Employee further agrees that, should Employee leave the active service of the Company, Employee will not take 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. Failure to Comply. All payments to Employee hereunder, including without limitation all such payments made pursuant to Section 8 of this Agreement, are conditional upon Employee's full compliance with the provisions of this Agreement, including specifically Sections 10, 11 and 12 hereof, which provisions are hereby expressly incorporated by reference as conditions to all such payment. The provisions of sections 10, 11 and 12 will remain incorporated as conditions to payments under this Agreement, regardless of any judicial declaration of their invalidity or unenforceability as affirmative covenants. In the event that the Employee shall fail to comply with any provision of Sections 10, 11 and 12, (a) all rights hereunder of the Employee and any person claiming under or through him shall thereupon terminate and no person shall be entitled to receive any payments or benefits under this Agreement and (b) the Employee agrees to immediately pay to the Company any and all amounts previously paid to the Employee by the Company pursuant to Section 8 of this Agreement. In addition to the foregoing and without limiting any other 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 -9- 10 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 Article 8, 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 -10- 11 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, and (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 -11- 12 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 in Control) such rights shall not vest if Employee's employment is terminated for Employee's failure to adequately perform Employee's duties hereunder as determined by an affirmative vote of at least seventy percent (70%) of the Board of Directors of the Company. For purposes of the preceding sentence, "Change in Control of the Company" shall have the meaning set forth in Section 8(d)(iv) hereof except for the portion thereof describing a Change in Control at Delhaize as set forth in subsection 8(d)(iv)(D). 17. Mitigation. The Company recognizes that Employee has no duty to mitigate the amounts due to Employee 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 Employee's employment with the Company. 18. 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 or 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. For purposes of this Section 18, the Subsidiary shall be deemed a successor to which this Employment Agreement may be assigned. In addition, this Employment Agreement may be assigned to an existing or future direct or indirect subsidiary of the Company. Furthermore, from and after the Holding Company Restructuring and after an assignment of this Employment Agreement to the Subsidiary or any other existing or future direct or indirect subsidiary of the Company, this Employment Agreement may be reassigned to the Company. 19. Amendments. This Employment Agreement contains the entire contractual understanding between the parties and supersedes all prior agreements and understandings, both written and oral, between the parties hereto with respect to the subject matter hereof (except for the Salary Continuation Agreement, if any, between Employee and the Company). This Employment Agreement may not be changed orally but only by a written instrument signed by the parties hereto. 20. Governing Law. This Employment Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina without regard to the conflicts of law principles thereof. 21. 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. -12- 13 22. Arbitration. Except as otherwise necessary to secure the remedy specified in Section 13 of this Employment Agreement (which remedy may be secured in a court of competent jurisdiction), 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. Pursuant to North Carolina General Statutes section 1-567.2, the provisions of Chapter 1, Subchapter XV, Article 45A of the North Carolina General Statutes shall apply to this Employment Agreement. 23. 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. 24. 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: Keith M. Gehl 25 Blenheim Road Concord, North Carolina 28025 (b) If to the Company: Delhaize America, Inc. Post Office Box 1330 2110 Executive Drive Salisbury, North Carolina 28145-1330 Attention: Secretary -13- 14 with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1700 Pacific Avenue Suite 4100 Dallas, TX 75201-4675 Attention: Michael E. Dillard, P.C. 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. [The next page is the signature page] -14- 15 IN WITNESS WHEREOF, the Company has caused this Employment Agreement to be executed by its duly authorized representative, and Employee has hereunto set Employee's hand as of the date first above written. FOOD LION, a division of Delhaize America, Inc. Attest: By: /s/ R. William McCanless - ------------------------------- -------------------------------- R. William McCanless Chief Executive Officer EMPLOYEE: Attest: /s/ Keith M. Gehl - ------------------------------- ------------------------------------ Keith M. Gehl -15- EX-10.AI 7 g68126ex10-ai.txt AMENDMENT #1/2000 SHAREHOLDERS AGREEMENT 1 Exhibit 10(ai) AMENDMENT NO. 1 TO 2000 SHAREHOLDERS' AGREEMENT This Amendment No. 1 to 2000 Shareholders' Agreement (this "Amendment") is made and entered into September ____, 2000 among ETABLISSEMENTS DELHAIZE FRERES ET CIE "LE LION" S.A., a Belgian corporation ("Delhaize"), DELHAIZE THE LION AMERICA, INC., a Delaware corporation and wholly owned subsidiary of Delhaize ("Detla"), and DELHAIZE AMERICA, INC., a North Carolina corporation (the "Company"). STATEMENT OF PURPOSE Delhaize and Delta (collectively, the "Shareholders") and the Company have entered into that certain 2000 Shareholders' Agreement, dated as of March 27, 2000 (the "Agreement"). The Shareholders and the Company desire to amend the Agreement to fix the number of directors to be nominated by the Nominating Committee and submitted to the annual meeting of shareholders for election at ten persons. The Shareholders and the Company further desire to amend the Agreement to fix the number of directors to be proposed by the Chief Executive Officer of Delhaize to the Nominating Committee at four persons. AGREEMENT 1. Defined Terms. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement. 2. Amendment. Section (1)(a)(ii) of the Agreement is hereby amended and restated in its entirety as follows: "(ii) The slate of directors nominated by the Nominating Committee shall consist of ten (10) persons, four (4) of whom shall have been proposed by the Chief Executive Officer of Delhaize (hereinafter the "Delhaize Designees"), two (2) of whom shall have been proposed by the Chief Executive Officer of the Company (hereinafter the "CEO Designees"), and four (4) of whom shall be independent directors;" 3. Effect of Amendment. Except as expressly set forth herein, this Amendment shall not be deemed to waive, amend or modify any term or condition of the Agreement, which is hereby ratified and reaffirmed, and which shall remain in full force and effect, and this Amendment shall not serve as a consent to any matter prohibited by the terms and conditions thereof. References in any agreement, instrument or other document to the Agreement shall be deemed to be a reference as amended hereby. 4. Counterparts. This Amendment may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of such together shall constitute one and the same instrument. 2 5. Presentation of Composite Document. The parties agree that, even though this Amendment is not a restatement of the Agreement, the parties may file with governmental authorities or present to third parties a composite document that incorporates into the Agreement the amendments set forth in this Amendment. [The next page is the signature page] 2 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first above written. ETABLISSEMENTS DELHAIZE FRERES ET CIE "LE LION" S.A. ____________________________________ By: ________________________________ ____________________________________ By: ________________________________ DELHAIZE THE LION AMERICA, INC. ____________________________________ By: ________________________________ Its: _______________________________ DELHAIZE AMERICA, INC. ____________________________________ By: ________________________________ Its: _______________________________ EX-10.AJ 8 g68126ex10-aj.txt AMENDMENT / CREDIT AGREEMENT 1 EXHIBIT 10(aj) EXECUTION COPY AMENDED AND RESTATED CREDIT AGREEMENT AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 17, 2000 (this "AMENDMENT AND RESTATEMENT") among DELHAIZE AMERICA, INC. (the "BORROWER"), the LENDERS party hereto (the "LENDERS") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT"). W I T N E S S E T H : WHEREAS, the parties hereto have heretofore entered into a 364-Day Credit Agreement dated as of November 19, 1999 (the "CREDIT AGREEMENT"); and WHEREAS, the parties hereto desire to amend the Credit Agreement as set forth herein and to restate the Credit Agreement in its entirety to read as set forth in the Credit Agreement with the amendments specified below; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each capitalized term used herein which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall from and after the date hereof refer to the Credit Agreement as amended and restated hereby. SECTION 2. Additional Definitions. The following definition in Section 1.01 of the Credit Agreement is amended to read as follows: "Maturity Date" means November 16, 2001. SECTION 3. Updated Representations. (a) Each reference to "January 2, 1999" and "September 11, 1999" contained in Section 3.04(a) of the Credit Agreement is changed to "January 1, 2000" and "September 9, 2000", respectively. (b) The reference to "June 19, 1999"contained in Section 3.04(b) is changed to "September 9, 2000". 2 SECTION 4. Additional Covenant Regarding Repayments. A new Section 6.12 is added immediately after Section 6.11 of the Credit Agreement, to read in its entirety as follows: "SECTION 6.12. Sources of Repayments. The Borrower will not, and will not permit any of its Subsidiaries to, use the proceeds of any Loans made hereunder or loans made under the 5-Year Agreement to repay any loans outstanding under the Bridge Agreement." SECTION 5. Change in Commitments. With effect from and including the date this Amendment and Restatement becomes effective in accordance with Section 8 hereof, the Commitment of each Lender shall be the amount set forth opposite the name of such Lender on the attached Commitment Schedule, which shall replace Schedule 2.01 to the Credit Agreement. Any Lender whose Commitment is changed to zero shall upon such effectiveness cease to be a party to the Agreement, and all accrued fees and other amounts payable under the Agreement for the account of such Lender shall be due and payable on such date; provided that the provisions of Sections 2.13, 2.14, 2.15 and 9.03 of the Agreement shall continue to inure to the benefit of each such Lender. SECTION 6. Representations and Warranties. The Borrower hereby represents and warrants that as of the date hereof and after giving effect hereto: (a) no Default or Event of Default has occurred and is continuing; and (b) each representation and warranty of the Borrower set forth in the Credit Agreement after giving effect to this Amendment and Restatement is true and correct as though made on and as of such date, except for any such representation and warranty made as of a specific date, which are true and correct as of such specific date. SECTION 7. Governing Law. This Amendment and Restatement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 8. Counterparts; Effectiveness. This Amendment and Restatement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment and Restatement shall become effective as of the date hereof when each of the following conditions shall have been satisfied: (i) receipt by the Administrative Agent of duly executed counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been 2 3 received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (ii) receipt by the Administrative Agent of an opinion of such counsel for the Borrower as may be acceptable to the Administrative Agent, substantially to the effect of Exhibit B to the Credit Agreement with reference to this Amendment and Restatement and the Credit Agreement as amended and restated hereby; and (iii) receipt by the Administrative Agent of all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of the Credit Agreement as amended and restated hereby, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent; provided that this Amendment and Restatement shall not become effective or binding on any party hereto unless all of the foregoing conditions are satisfied not later than the date hereof. The Administrative Agent shall promptly notify the Borrower and the Lenders of the effectiveness of this Amendment and Restatement, and such notice shall be conclusive and binding on all parties hereto. 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Restatement to be duly executed by their respective authorized officers as of the day and year first above written. DELHAIZE AMERICA, INC. By: ----------------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, individually and as Administrative Agent By: ----------------------------------------- Name: Title: 5 CITIBANK, N.A. By: ----------------------------------------- Name: Title: BANK OF AMERICA, N.A. By: ----------------------------------------- Name: Title: WACHOVIA BANK, N.A. By: ----------------------------------------- Name: Title: BBL INTERNATIONAL (U.K.) LIMITED By: ----------------------------------------- Name: Title: BNP PARIBAS (HOUSTON) By: ----------------------------------------- Name: Title: 6 DEUTSCHE BANK AG, NEW YORK BRANCH and/or Cayman Islands Branch By: ----------------------------------------- Name: Title: FORTIS (USA) FINANCE LLC By: ----------------------------------------- Name: Title: COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK INTERNATIONAL", ATLANTA BRANCH By: ----------------------------------------- Name: Title: THE BANK OF NEW YORK By: ----------------------------------------- Name: Title: BANK ONE, NA By: ----------------------------------------- Name: Title: 7 CREDIT AGRICOLE INDOSUEZ By: ----------------------------------------- Name: Title: By: ----------------------------------------- Name: Title: FIRST UNION NATIONAL BANK By: ----------------------------------------- Name: Title: SUNTRUST BANK, ATLANTA By: ----------------------------------------- Name: Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: ----------------------------------------- Name: Title: 8 COBANK, ACB By: ----------------------------------------- Name: Title: THE DAI-ICHI KANGYO BANK, LTD. By: ----------------------------------------- Name: Title: THE FUJI BANK, LIMITED By: ----------------------------------------- Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED By: ----------------------------------------- Name: Title: BNP PARIBAS (BRUSSELS) By: ----------------------------------------- Name: Title: 9 BRANCH BANKING & TRUST COMPANY By: ----------------------------------------- Name: Title: CREDIT COMMERCIALE DE FRANCE S.A. By: ----------------------------------------- Name: Title: DEXIA BANK S.A. By: ----------------------------------------- Name: Title: FLEET NATIONAL BANK By: ----------------------------------------- Name: Title: 10 COMMITMENT SCHEDULE BANK COMMITMENT - ---- ------------ Morgan Guaranty Trust Company of New York $33,500,000 Citibank, N.A. $32,000,000 Bank of America, N.A. $27,500,000 Wachovia Bank, N.A. $27,500,000 BBL International (U.K.) Limited $25,000,000 BNP Paribas (Houston) $25,000,000 Deutsche Bank AG - New York Branch $25,000,000 Fortis (USA) Finance LLC $25,000,000 Cooperative Centrale Raiffeisen-Boerenleenbank B.A., $25,000,000 "Rabobank International", Atlanta Branch The Bank of New York $25,000,000 Bank One, NA $20,500,000 Credit Agricole Indosuez $20,500,000 First Union National Bank $20,500,000 SunTrust Bank $20,500,000 Bank of Tokyo-Mitsubishi Trust Company $20,000,000 CoBank, ACB $20,000,000 The Dai-Ichi Kangyo Bank, Ltd. $15,000,000 The Fuji Bank, Limited $15,000,000 The Industrial Bank of Japan, Limited $15,000,000 BNP Paribas (Brussels) $12,500,000 Branch Banking & Trust Company $12,500,000 Credit Commerciale de France S.A. $12,500,000 11 BANK COMMITMENT - ---- ------------ Dexia Bank S.A. $12,500,000 Fleet National Bank $12,500,000 TOTAL: $500,000,000 EX-21 9 g68126ex21.txt SUBSIDIARIES 1 Exhibit 21 STATE OF SUBSIDIARIES (1) INCORPORATION Food Lion, LLC North Carolina Kash n' Karry Food Stores, Inc. Delaware Hannaford Bros. Co. Maine Risk Management Services, Inc. North Carolina FL Food Lion, Inc. Florida Food Lion (Thailand), Inc. Delaware Hannaford Bros. Co. Maine Athenian Real Estate Development, Inc.(1) Virginia Hannbro Company(1) Maine Boney Wilson & Sons, Inc.(2) North Carolina Hannaford Licensing Corp.(2) Maine Hannaford Procurement Corp.(2) Maine Hannaford Trucking Company(2) Maine Martin's Foods of South Burlington, Inc.(2) Vermont Progressive Distributors, Inc.(2) Maine Shop 'n Save-Mass., Inc.(2) Massachusetts Hanncot Company(1) Maine Plain Street Properties, Inc.(1) Maine - ----------------------- (1) Corporation is wholly-owned by Hannaford Bros. Co. (2) Corporation is wholly-owned by Hannbro Company. EX-23 10 g68126ex23.txt CONSENT INDEPENDENT ACCOUNTANTS 1 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Annual Report on Form 10-K of our report dated February 6, 2001, relating to the consolidated financial statements of Delhaize America, Inc. for the year ended December 30, 2000, and the incorporation by reference in the Registration Statement on Form F-4 (File No. 333-13302) of Etablissements Delhaize Freres et Cie "Le Lion" S.A., and the Current Report on Form 8-K of Delhaize America, Inc. dated March 29, 2001, of our aforementioned report, which appears in this Annual Report on Form 10-K. We also consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 33-03669) and Form S-3 (File Nos. 33-40457 and 33-49620) and Post-Effective Amendment No. 1 on Form S-8 and Post-Effective Amendment No. 2 on Form S-8 to Form S-4 Registration Statement (No. 333-91123) of Delhaize America, Inc. of our aforementioned report which appears in this Annual Report on Form 10-K. /s/ PRICEWATERHOUSECOOPERS, LLP Charlotte, North Carolina March 30, 2001 EX-99 11 g68126ex99.txt UNDERTAKING OF THE COMPANY 1 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 1, 2000, 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. This is the 30th day of March, 2001. DELHAIZE AMERICA, INC. /s/ Laura C. Kendall Laura C. Kendall Chief Financial Officer Principal Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----