Exhibit 10B
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made as of this 7th day of April,
1999 (the "Effective Date"), between FOOD LION, INC., a North
Carolina corporation with its principal place of business in
Salisbury, North Carolina (the "Company"), and R. WILLIAM
McCANLESS, an individual residing at 244 Confederate Avenue,
Salisbury, North Carolina 28144 ("Mr. McCanless"),
W I T N E S S E T H:
WHEREAS, Mr. McCanless is currently employed by the Company
as its President and Chief Executive Officer;
WHEREAS, the Board of Directors of the Company recognizes
that it is in the best interests of the Company and its
shareholders to retain capable and experienced executive officers
such as Mr. McCanless;
WHEREAS, the Board of Directors recognizes that Mr.
McCanless has made substantial contributions to the growth and
success of the Company and desires to provide for the continuing
employment of Mr. McCanless and to encourage the continued
dedication and attention of Mr. McCanless to the Company;
WHEREAS, Mr. McCanless is willing to continue to serve the
Company; and
WHEREAS, the Company and Mr. McCanless desire to enter into
this Employment Agreement.
NOW, THEREFORE, in consideration of the premises, and the
mutual agreements herein contained, the Company and Mr. McCanless
hereby agree as follows:
1. Continue to Employ. The Company hereby agrees to continue
to employ Mr. McCanless as President and Chief Executive Officer
of the Company for the Term of Employment as herein set forth,
and Mr. McCanless hereby agrees to continue to serve the Company
as President and Chief Executive Officer for such term.
2. Term of Employment. The "Term of Employment," as used
herein, will commence on the date hereof and, unless sooner
terminated as hereinafter provided, shall terminate on the fifth
(5th) anniversary of such date; provided, however, that the Term
of Employment shall automatically be extended for additional
periods of one (1) year each on the terms and conditions provided
herein unless either party shall give 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. McCanless shall devote his full professional time to the
business of the Company, shall use his best efforts to promote
the interests of the Company and shall serve as President and
Chief Executive Officer of the Company and in such other senior
executive capacities as the Board of Directors of the Company
shall hereafter designate from time to time.
4. Vacation. Mr. McCanless 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 Mr. McCanless's services
hereunder and for his covenants set forth in Sections 10, 11 and
12 below, the Company shall pay to Mr. McCanless a base salary
which shall not be less than Six Hundred Fifty Thousand Dollars
($650,000) 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. McCanless
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. McCanless and
the financial performance of the Company. In no event shall such
annual review result in any reduction in base salary provided in
this Employment Agreement. Such compensation shall be payable in
accordance with the Company's payroll practices for executive
employees.
(b) Bonus Plans. Mr. McCanless 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. McCanless shall be eligible to participate in the
Company's 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. Mr.
McCanless shall not be eligible to participate in the Company's
Annual Incentive Bonus Plan.
(c) Deferral Arrangement.
(i) Right to Defer. Mr. McCanless 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. McCanless 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. McCanless 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 1999
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. McCanless prior to the start of
such fiscal year.
(ii) Bookkeeping Account and Grantor Trust. Any amounts deferred
by Mr. McCanless 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.
McCanless. 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. McCanless. In
connection with the deferral election, Mr. McCanless 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. McCanless. Mr. McCanless'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. McCanless selects results in
a loss to the bookkeeping account, the Company will have no
obligation to compensate Mr. McCanless 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. McCanless'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. McCanless shall be specified in his initial
deferral election and may not be subsequently changed by Mr.
McCanless 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. McCanless's deferral election, all amounts
will be paid to Mr. McCanless within thirty (30) days following a
termination of this Employment Agreement for any reason specified
in Sections 7(c) or 7(e).
(a) Jump Start Options. As of the Effective Date, the Company
shall grant to Mr. McCanless options to purchase 600,000 shares
of Class A Common Stock of the Company on such terms and
conditions set forth in the underlying stock option agreement,
provided that, the terms shall not be inconsistent with those
provided in this Employment Agreement (the "Jump Start Options").
The Jump Start Options shall have a term commencing on the
Effective Date and ending on April 7, 2009 (the "Option Term").
If the closing price per share of the Class A Common Stock of the
Company (as reported on the Nasdaq National Market or other
nationally-recognized securities market or exchange on which such
shares are traded) is $20 or greater for forty-five (45)
consecutive trading days ending on or prior to the third (3rd)
anniversary of the Effective Date and Mr. McCanless is employed
as the President and Chief Executive Officer of the Company on
such date, the Jump Start Options shall vest and be exercisable
on such date and remain exercisable until April 7, 2009. If the
Jump Start Options have not vested on or prior to April 7, 2002,
the Jump Start Options shall automatically vest and be
exercisable 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 per share for the Jump
Start Options shall be $8.875 (which is the closing price per
share of Class A Common Stock as reported on the Nasdaq National
Market on the Effective Date). At the end of the Option Term,
all unexercised Jump Start Options shall terminate and cease to
be exercisable.
1. Benefits. Mr. McCanless 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 Mr. McCanless and/or
other executive employees of the Company in accordance with the
Company's policies. In addition, the Company shall maintain in
full force and effect on the life of Mr. McCanless a life
insurance policy subject to a split dollar arrangement in the
face amount of three and one-half (3.5) times Mr. McCanless's
base salary if his death occurs prior to his retirement (provided
his retirement is on terms consistent with the terms of the life
insurance policy and any split dollar arrangements between Mr.
McCanless and the Company relating thereto ) and two (2) times
Mr. McCanless's last base salary if his death occurs after any
such retirement. Mr. McCanless shall be the owner of such policy
with the authority to designate the beneficiary thereof.
2. Termination. Termination of Mr. McCanless'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. McCanless.
(b) Cause. Termination by the Company for "Cause" as described
in this Section 7(b). For purposes of this Employment Agreement,
"Cause" shall mean (i) willful failure (other than by reason of
incapacity due to physical or mental illness) to perform his
material duties hereunder and his inability or unwillingness to
correct such failure within thirty (30) days after receipt of
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.
(c) Good Reason. Termination by Mr. McCanless 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. McCanless,
(ii) assignment of inappropriate duties to Mr. McCanless, (iii)
failure of the Company to comply with compensation and benefits
obligations to Mr. McCanless, (iv) transfer of Mr. McCanless more
than 50 miles from Salisbury, North Carolina, (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.
McCanless of "Good Reason" shall be conclusive.
An election by Mr. McCanless to terminate his employment
under this Section 7(c) shall not be deemed a voluntary
termination of employment by Mr. McCanless for the purpose of
this Employment Agreement or any plan, arrangement or program of
the Company.
(d) Disability. Termination by the Company or Mr. McCanless
upon Disability of Mr. McCanless. 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. McCanless
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. McCanless'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 Mr. McCanless examined at such reasonable times
by such physicians satisfactory to Mr. McCanless as the Company
may designate, and Mr. McCanless 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.
McCanless to perform his duties hereunder, whether by reason of
injury, illness (physical or mental) or otherwise shall not
result in the termination of Mr. McCanless's employment
hereunder, and he shall be entitled to continue to receive his
base salary and other benefits as provided herein.
(e) Without Cause. Termination by the Company without Cause.
(f) Date and Notice of Termination. Any termination of Mr.
McCanless's employment by the Company or by Mr. McCanless (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. McCanless's employment under the provision so indicated.
"Date of Termination" shall mean (i) if Mr. McCanless's
employment is terminated by his death, the date of his death, and
(ii) if Mr. McCanless's employment is terminated pursuant to a
Notice of Termination, the date specified in the Notice of
Termination; provided that, if within thirty (30) days after any
Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the
date which is finally determined to be the Date of Termination,
either by mutual written agreement of the parties, by a binding
and final arbitration award, or by a final judgment, order, or
decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
8. Effect of Termination. In the event of termination of
employment as described in Section 7 hereof, the Company shall
compensate Mr. McCanless as follows:
(a) Death. If Mr. McCanless's employment is
terminated as a result of his death, as specified in Section
7(a), the Company shall pay Mr. McCanless's beneficiary the
benefit called for under his Salary Continuation Agreement with
the Company. Mr. McCanless'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. McCanless's employment is terminated by
the Company or Mr. McCanless as a result of his disability as
specified in Section 7(d), then the Company shall pay Mr.
McCanless his full compensation until the Date of Termination.
Within thirty (30) days after the termination of his employment,
the Company shall pay Mr. McCanless a lump sum payment equal to
fifty percent (50%) of the present value of the future base
salary payable to Mr. McCanless 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. McCanless'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.
McCanless shall be entitled to receive under any applicable
disability insurance policies maintained by the Company for Mr.
McCanless.
(c) Cause. If Mr. McCanless'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 Mr. McCanless
pursuant to this Employment Agreement, except for the full amount
of his base salary and all compensation earned prior to the Date
of Termination and payments pursuant to plans, programs, or
arrangements, as determined under the provisions of such plans or
policies.
(d) Good Reason or Without Cause.
(i) If Mr. McCanless's employment is terminated by Mr.
McCanless 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.
McCanless the full amount of his base salary and other
compensation earned prior to the Date of Termination; and (B) the
Company shall pay Mr. McCanless, 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. McCanless's employment is terminated by Mr.
McCanless for Good Reason 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
(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. McCanless
was entitled to participate immediately prior to the Date of
Termination, if Mr. McCanless's continued participation is
permitted under the general terms and provisions of such plans
and programs and applicable law, but not including the 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.
(iii) If (A) Mr. McCanless'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) Mr. McCanless's employment is terminated by the
Company without Cause or by Mr. McCanless with Good Reason within
one (1) year following a Change in Control of the Company, the
Company shall pay Mr. McCanless 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. McCanless shall be paid an
annual amount equal to the amounts, if any, which would have been
payable to him under the Key Executive Annual Incentive Bonus
Plan, the Wellness 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 (3) year (or greater) period and received an annual
salary at the rate in effect on his Date of Termination.
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 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 Mr. McCanless for
actual travel and other out-of-pocket expenses reasonably
incurred by him in connection with the performance of his duties
hereunder and accounted for in accordance with the policies and
procedures currently established by the Company.
10. No Competing Employment. Mr. McCanless agrees that, during
the Term of Employment and for a period of two (2) years after
the Date of Termination ("Restricted Period"), he will not,
without the written consent of the Board of Directors, engage in
any retail or wholesale grocery business which is directly
competitive with the business of the Company or any affiliate
thereof in any geographic area in which the Company or any
affiliate operates on the Date of Termination. Mr. McCanless
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. McCanless agrees that, during the
Restricted Period, he will not, without the prior written consent
of the Board of Directors, directly or indirectly solicit or
recruit any employee or independent contractor of the Company for
the purpose of being employed by Mr. McCanless, directly or
indirectly, or any other person or entity on behalf of which Mr.
McCanless is acting as an agent, representative or employee.
Notwithstanding the above, if Mr. McCanless'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. McCanless 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. McCanless also recognizes and
acknowledges that he has a common law obligation not to disclose
trade secrets and other proprietary information of the Company.
Mr. McCanless further agrees that, should he leave the active
service of the Company, he will not take with him or retain,
without the written authorization of the Board of Directors, any
papers, files, or other documents or copies thereof or other
confidential information of any kind belonging to the Company
pertaining to its business, sales, financial condition, or
products. Mr. McCanless 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. McCanless 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 Mr. McCanless 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. McCanless 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. McCanless as a result of the fact that Mr. McCanless 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 Mr. McCanless
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. McCanless 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. McCanless 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.
McCanless at the time specified below, an additional amount (the
"Gross-Up Payment") such that the net amount retained by Mr.
McCanless (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. McCanless, 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. McCanless
in connection with a Change in Control of the Company or the
termination of Mr. McCanless'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, Mr. McCanless 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.
McCanless 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.
McCanless'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. McCanless 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
and including, subject to the last sentence of this Section 16,
the Jump Start Options) 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. McCanless's employment
is terminated for Mr. McCanless's failure to adequately perform
his duties hereunder as determined by an affirmative vote of at
least seventy percent (70%) of the Board of Directors of the
Company. For purposes of the preceding sentence, "Change in
Control of the Company" shall have the meaning set forth in
Section 8(d)(iii) hereof. Notwithstanding anything herein to the
contrary, if the Jump Start Options have not vested by April 7,
2002, the Jump Start Options shall not vest for any reason,
including, without limitation, a Change in Control of the Company
or a termination of Mr. McCanless's employment (pursuant to
Sections 7(a), 7(c), 7(d) or 7(e) hereof or otherwise) prior to
April 7, 2006.
17. Legal Expenses. The Company shall reimburse Mr. McCanless
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. McCanless 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. McCanless 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. McCanless and his legal representatives. The
Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company to
expressly assume and agree to perform this Employment Agreement
in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.
20. Amendments. This Employment Agreement, which contains the
entire contractual understanding between the parties, may not be
changed orally but only by a written instrument signed by the
parties hereto.
21. Governing Law. This Employment Agreement shall be governed
by and construed in accordance with the laws of the State of
North Carolina.
22. Waiver. The waiver of breach of any term or condition of
this Employment Agreement shall not be deemed to constitute the
waiver of any other breach of the same or any other term or
condition.
23. 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 Mr. McCanless:
R. William McCanless
244 Confederate Avenue
Salisbury, North Carolina 28144
(b) If to the Company:
Food Lion, Inc.
Post Office Box 1330
2110 Executive Drive
Salisbury, North Carolina 28145-1330
Attention: Secretary
with a copy to:
Bruce S. Mendelsohn
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Suite 400
Washington, D.C. 20036
or to such other address as shall have been specified in writing
by either party to the other. Any such notice or communication
shall be deemed to have been given on the second day (excluding
any days U.S. Post Offices are not open) after the date so
mailed.
[The next page is the signature page]
IN WITNESS WHEREOF, the Company has caused this Employment
Agreement to be executed by its duly authorized representative,
and Mr. McCanless has hereunto set his hand as of the date first
above written.
FOOD LION, INC.
By: \s\ William G. Ferguson
William G. Ferguson
Chairman, Senior Management
Compensation Committee
\s\ R. William McCanless
R. William McCanless