FOOD LION, INC.
2110 Executive Drive
P.O. Box 1330
Salisbury, North Carolina 28145-1330
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF
FOOD LION, INC.:
The Annual Meeting of the Shareholders of Food Lion, Inc. (the
"Company") will be held at 10:00 a.m. on Thursday, May 5, 1994, at
the Catawba College Keppel Auditorium, Salisbury, North Carolina,
for the following purposes, all as more fully described in the
accompanying Proxy Statement:
(1) To elect ten members to the Board of Directors;
(2) To consider and vote upon a proposal to ratify the
appointment of Coopers & Lybrand as independent
accountants for the fiscal year ending December 31, 1994;
(3) To consider and vote upon a proposal to amend the 1991
Employee Stock Option Plan;
(4) To act upon the shareholder proposal included on pages
16-19 of this Proxy Statement; and
(5) To transact such other business as may properly come
before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on
March 16, 1994 as the record date for the determination of
shareholders entitled to vote at the meeting and, accordingly, only
shareholders who are otherwise entitled to vote and who are holders
of record at the close of business on that date will be entitled to
notice of and to vote at the meeting. The transfer books of the
Company will not be closed. A Proxy Statement and proxy card are
enclosed herewith. You are urged to date, sign and return the
proxy card promptly in the envelope provided.
TOM E. SMITH
Chairman of the Board, President
and Chief Executive Officer
April 14, 1994
SHAREHOLDERS MAY REVOKE A PROXY UPON DELIVERY TO THE SECRETARY OF
THE COMPANY OF A WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED
PROXY BEARING A LATER DATE. SHAREHOLDERS MAY ALSO REVOKE A PROXY
BY ATTENDING THE ANNUAL MEETING OF SHAREHOLDERS AND VOTING IN
PERSON.
FOOD LION, INC.
2110 Executive Drive
P.O. Box 1330
Salisbury, North Carolina 28145-1330
April 14, 1994
PROXY STATEMENT
The accompanying proxy is solicited by and on behalf of the
Board of Directors of Food Lion, Inc. (the "Company") for use at
the Annual Meeting of Shareholders to be held at 10:00 a.m. on May
5, 1994, at the Catawba College Keppel Auditorium, Salisbury, North
Carolina, and at any adjournment thereof (the "Annual Meeting").
The entire cost of such solicitation will be borne by the Company.
In addition to solicitation by mail, arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries to
send proxy materials to their principals, and the Company may
reimburse them for their expenses in doing so. Personal
solicitations may be conducted by directors, officers and employees
of the Company. This Proxy Statement and accompanying proxy card
will be mailed to shareholders on or about April 14, 1994.
The shares represented by the accompanying proxy and entitled
to vote will be voted if the proxy card is properly signed and
received by the Company prior to the meeting. Where a choice is
specified on any proxy card as to the vote on any matter to come
before the meeting, the proxy will be voted in accordance with such
specification. Where no choice is specified, the proxy will be
voted for the election of the persons nominated to serve as the
directors of the Company named in this Proxy Statement, for the
proposal to ratify the appointment of Coopers & Lybrand as
independent accountants for the fiscal year ended December 31,
1994, for the approval of an amendment to the 1991 Employee Stock
Option Plan, against the shareholder proposal included on pages 16-
19 of this Proxy Statement and in such manner as the persons named
on the enclosed proxy card in their discretion determine upon such
other business as may properly come before the Annual Meeting.
VOTING SECURITIES OF THE COMPANY
The Company is authorized to issue and has outstanding (i)
non-voting shares of Class A Common Stock, par value $.50 per share
("Class A Common Stock"), and (ii) voting shares of Class B Common
Stock, par value $.50 per share ("Class B Common Stock")
(collectively, the "common stock"). Holders of record of the Class
B Common Stock at the close of business on March 16, 1994 are
entitled to vote at the Annual Meeting and are entitled to one vote
for each share held. At the close of business on March 16, 1994,
there were 239,571,114 shares of Class B Common Stock issued and
outstanding and 244,135,824 shares of Class A Common Stock issued
and outstanding. Shares of Class A Common Stock have no voting
rights other than as provided by North Carolina law.
The laws of North Carolina, under which the Company is
incorporated, provide that, in connection with the election of
directors, the persons receiving a plurality of the votes cast will
be elected as directors. The affirmative vote of a majority of the
shares of Class B Common Stock represented and entitled to vote at
the Annual Meeting will be required to ratify the appointment of
independent accountants, approve an amendment to the 1991 Employee
Stock Option Plan and approve the shareholder proposal included on
pages 16-19 of this Proxy Statement. Abstentions will be counted
in determining the existence of a quorum for the Annual Meeting,
but abstentions and non-votes, including broker non-votes, will not
be counted as votes in favor of or against the proposals described
above.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Principal Shareholders
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:
<TABLE>
Amount and Nature
of Beneficial
Ownership as of Percent
Name and Address March 16, 1994 of Class
<CAPTION>
<S> <C> <C>
Etablissements Delhaize Freres et Cie
"Le Lion" S.A. ("Delhaize")
rue Osseghem, 53
1080 Brussels, Belgium 120,443,462(1) 50.3%
</TABLE>
(1) Includes 63,352,780 shares held of record by Delhaize's wholly
owned subsidiary, Delhaize The Lion America, Inc., a Delaware
corporation ("Detla"). Detla's address is Suite 2160, Atlanta
Plaza, 950 East Paces Ferry Road, Atlanta, Georgia 30326.
Delhaize, Detla, Ralph W. Ketner and Tom E. Smith, who at
March 16, 1994 owned in the aggregate 125,972,680 shares or
52.6% of the outstanding shares of the Company's Class B
Common Stock, are parties to a Shareholders Agreement dated
September 22, 1988, which governs the voting of their shares
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 16, 1994, is furnished for each director, nominee
for director and named executive officer of the Company, 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 of March 16,
1994 but does not include shares of common stock beneficially owned
by Delhaize, as to which Messrs. Beckers, Boon, de Cooman
d'Herlinckhove, de Vaucleroy and LeClercq are associated as further
described herein. See "Principal Shareholders" above for more
information relating to the ownership of Class B Common Stock by
Delhaize. 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.... -- -- -- --
A. Edward Benner, Jr...... 10,651(1) * 54,225 *
Raymond-Max Boon.......... -- * -- *
Dan A. Boone.............. 26,014(2) * 15,180(2) *
Jacqueline Kelly Collamore -- -- -- --
William G. Ferguson....... -- -- -- --
Bernard W. Franklin....... 425 * -- --
E. Charles de Cooman
d'Herlinckhove........... -- -- -- --
Gui de Vaucleroy.......... -- -- -- --
Jacques LeClercq.......... -- -- -- (3) --
Eugene R. McKinley........ 125,894(4) * 50,239 *
Tom E. Smith.............. 1,226,428(5) * 1,529,267(5) *
John P. Watkins........... 25,695(6) * 30,000 *
- -All directors and
executive officers as a
group (21 persons)........ 1,795,302(7) * 2,224,410 *
* Indicates less than 1%.
(1) Includes 2,500 shares of Class A Common Stock that may be
acquired upon exercise of options granted under the Food Lion,
Inc. 1983 Employee Stock Option Plan.
(2) Includes (a) 5,250 shares of Class A Common Stock that may be
acquired upon exercise of options granted under the Food Lion,
Inc. 1983 Employee Stock Option Plan; (b) 225 shares of Class
A Common Stock held by Mr. Boone and his wife as joint
tenants, as to which Mr. Boone exercises shared voting and
investment power; and (c) 405 shares of Class A Common Stock
and 180 shares of Class B Common Stock held by Mr. Boone's
wife as custodian for their children.
(3) Does not include 45 shares of Class B Common Stock held by Mr.
LeClercq's wife as custodian for their grandchildren.
(4) Includes (a) 2,500 shares of Class A Common Stock that may be
acquired upon exercise of options granted under the Food Lion,
Inc. 1983 Employee Stock Option Plan; and (b) 1,240 shares of
Class A Common Stock held by Mr. McKinley's wife.
(5) Includes (a) 22,500 shares of Class A Common Stock that may be
acquired upon exercise of options granted under the 1991
Employee Stock Option Plan of Food Lion, Inc.; and (b) 480
shares of Class A Common Stock and 203 shares of Class B
Common Stock held by Mr. Smith's wife; and excludes 429,412
shares of Class A Common Stock and 348,912 shares of Class B
Common Stock owned by trusts created by Mr. Smith for his
children and over which Mr. Smith exercises no voting or
investment power.
(6) Includes 1,500 shares of Class A Common Stock that may be
acquired upon exercise of options granted under the Food Lion,
Inc. 1983 Employee Stock Option Plan.
(7) Includes 44,750 shares of Class A Common Stock that may be
acquired upon exercise of options granted under the Food Lion,
Inc. 1983 Employee Stock Option Plan and the 1991 Employee
Stock Option Plan of Food Lion, Inc.
Shareholders Agreement
On September 22, 1988, an agreement was entered into between
Delhaize, Detla, Ralph W. Ketner and Tom E. Smith (the
"Shareholders Agreement") which contains provisions regarding,
among other things, the voting of securities beneficially owned by
the parties to the Shareholders Agreement for the election of
directors, the role of Mr. Smith in the management of the Company
and other matters concerning the operation of the Company. At
March 16, 1994, Delhaize, Detla and Messrs. Ketner and Smith
beneficially owned in the aggregate 125,972,680 shares or 52.6% of
the Company's outstanding Class B Common Stock. The Shareholders
Agreement is effective until September 22, 1994.
The Shareholders Agreement provides that the parties shall
vote securities beneficially owned by them for the election of
nominees designated by Delhaize and Mr. Smith, with Delhaize and
Mr. Smith each being entitled to designate for this purpose a
number of persons equal to 50% of the total number of directors to
be elected. Delhaize has designated as its nominees Messrs.
Beckers, de Cooman d'Herlinckhove, de Vaucleroy, LeClercq and Mrs.
Collamore. Mr. Smith has designated as his nominees, in addition
to himself, Messrs. Boone, Franklin, Ferguson and Watkins.
In addition to provisions regarding the election of directors,
the Shareholders Agreement addresses other matters concerning the
operation of the Company. Pursuant to the Shareholders Agreement,
the Company's bylaws provide that the Board of Directors may not,
without the affirmative vote of more than 80% of the directors,
take certain action with respect to the operation and management of
the Company, including the election of a President and Chief
Executive Officer and Chairman of the Board other than Mr. Smith.
Detla is authorized to exercise certain rights of Delhaize
under the Shareholders Agreement in the event a Belgian national
emergency prevents air travel or communication between Belgium and
the United States.
Proposal (1)
ELECTION OF DIRECTORS
Article 3, Section 2 of the Bylaws of the Company provides for
a minimum of eight and a maximum of ten 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. The ten persons named below are
nominated to serve on the Board of Directors until the 1995 Annual
Meeting of Shareholders and until their successors are elected and
qualified. Except for Mrs. Collamore, each nominee is currently a
director of the Company.
Each nominee for director has indicated that he or she is
willing and able to serve as a director if elected. However, if
any nominee should become unable to serve or will not serve, the
persons named on the enclosed proxy card will vote for such other
nominees and substitute nominees as designated by the Board of
Directors.
The age and a brief biographical description of each of the
ten nominees for director are set forth below.
PIERRE OLIVIER BECKERS (33)--Mr. Beckers is a member of the
Management Committee of Delhaize, a position he has held since
January 1990. Mr. Beckers has also served as Grocery Buying
Director (from 1988 to 1989) and Manager (from 1986 to 1988) of
that company. Mr. Beckers was first elected as a director in 1992
and is a member of the Finance Committee.
DAN A. BOONE (41)--Mr. Boone is the Chief Financial Officer, Vice
President of Finance and Secretary of the Company, positions he has
held since May 6, 1993, July 18, 1989 and May 10, 1990,
respectively. Mr. Boone, who has been an employee of the Company
since 1982, has also served as Director of Finance (from 1985 to
1989) and Treasurer (from 1985 to 1991). Mr. Boone is also a
director on the local board of Wachovia Bank of N.C., N.A.,
Salisbury, N.C. Mr. Boone was first elected as a director in 1992
and is a member of the Executive Committee and the Profit Sharing
Committee.
JACQUELINE KELLY COLLAMORE (34)--Mrs. Collamore is Vice President
and Chief of Staff of Credit Suisse Asset Management, Inc., which
she joined in February, 1993. Since January, 1994, she has also
served as Associate and Chief of Staff of Credit Suisse Private
Banking. Mrs. Collamore is a member of the Management Committee
for both entities. Mrs. Collamore was a consultant with Arthur D.
Little from 1991 to 1992, and was an independent business
consultant from 1986 to 1991. Mrs. Collamore was a Lecturer of
Marketing from 1989 to 1992 at various colleges and universities.
If elected, this will be Mrs. Collamore's first term as a director.
WILLIAM G. FERGUSON (66)--Mr. Ferguson has been a director of Snow
Aviation International, Inc. since 1988 and the executive vice
president since 1989. Mr. Ferguson is also a director of Crestview
Aerospace Corporation. Mr. Ferguson was Chairman and CEO of TTI
Systems, Inc. from 1977 through the sale of the company to Transco
Energy Company in 1986 and until he retired from Transco in 1989.
Mr. Ferguson was first appointed to the Board on December 7, 1993
following the resignation of David E. Johnston on November 22,
1993, and is Chairman of the Senior Management Compensation
Committee.
DR. BERNARD W. FRANKLIN (41)--Dr. Franklin has been the President
of Livingstone College and Hood Theological Seminary in Salisbury,
North Carolina since July 1989. Dr. Franklin served as Vice
President of Student Affairs at Virginia Union University (from
1987 to 1989) and Assistant Vice President of Student Affairs at
Johnson C. Smith University (from 1985 to 1987). Dr. Franklin was
first elected as a director in 1993 and is a member of the Audit
Committee and the Stock Option Committee.
E. CHARLES DE COOMAN D'HERLINCKHOVE (60)--Mr. de Cooman
d'Herlinckhove is, and has been for more than five years, a
director, officer and member of the Management Committee of
Delhaize. Mr. de Cooman d'Herlinckhove is the first cousin of Mr.
de Vaucleroy. Mr. de Cooman d'Herlinckhove was first elected as a
director in 1985.
GUI DE VAUCLEROY (60)--Mr. de Vaucleroy is, and has been for more
than five years, a director of Delhaize. Since January 1, 1990,
Mr. de Vaucleroy has served as the President and Chief Executive
Officer of Delhaize and has also served that company as Chief
Operating Officer (from 1984 until 1989). Mr. de Vaucleroy is the
first cousin of Mr. de Cooman d'Herlinckhove. Mr. de Vaucleroy was
first elected as a director in 1975 and is a member of the Finance
Committee, Audit Committee, Senior Management Compensation
Committee and Nominating Committee.
JACQUES LECLERCQ (64)--Mr. LeClercq is, and has been for more than
five years, a director of Delhaize and President of Detla, a
subsidiary of Delhaize. Mr. LeClercq was first elected as a
director in 1974, is Chairman of the Audit and Stock Option
Committees and is a member of the Finance Committee, Senior
Management Compensation Committee, Nominating Committee and
Executive Committee.
TOM E. SMITH (52)--Mr. Smith is the President and Chief Executive
Officer of the Company and Chairman of the Board. He has held the
position of President since April 14, 1981 and the position of
Chief Executive Officer since January 1, 1986. He was elected to
the position of Chairman of the Board on May 10, 1990. Mr. Smith
was first elected as a director in 1973, is Chairman of the Finance
Committee and Executive Committee and is a member of the Audit
Committee, Nominating Committee and Profit Sharing Committee.
JOHN P. WATKINS (38)--Mr. Watkins is the Chief Operating Officer
and Senior Vice President of Store Operations of the Company,
positions he has held since May 6, 1993 and May 9, 1991,
respectively. Mr. Watkins, who has been an employee of the Company
since 1977, has also served as Director of Merchandising (from 1984
to 1988) and Vice President of Merchandising (from 1988 to 1991).
Mr. Watkins was first elected as director in 1992 and is a member
of the Finance Committee and Executive Committee.
THE BOARD OF DIRECTORS
The business of the Company is managed under the direction of
the Board of Directors, as provided by North Carolina law and the
Company's bylaws. The Board of Directors has established a Finance
Committee, an Audit Committee, a Senior Management Compensation
Committee, a Nominating Committee, a Stock Option Committee, an
Executive Committee and a Profit Sharing Committee.
Pursuant to the Shareholders Agreement among Delhaize, Detla,
Tom E. Smith and Ralph W. Ketner, the Company's bylaws provide that
the Board of Directors shall maintain a Finance Committee which,
for so long as the Shareholders Agreement remains in effect, must
consist of three directors appointed by Delhaize, the Company's
President and Chairman of the Board and one director appointed by
the Company's President and Chairman of the Board. The
responsibilities of the Finance Committee include adopting the
Company's five-year growth plan and its annual capital expenditure
budget, and approving policies regarding the number, size, location
and format of stores and warehouses of the Company. The members of
the Finance Committee, which met three times during the fiscal year
ended January 1, 1994, are presently Tom E. Smith (Chairman),
Pierre Beckers, Gui de Vaucleroy, Jacques LeClercq and John P.
Watkins.
The Audit Committee recommends to the Board of Directors the
appointment of the Company's outside accountants and reviews the
scope and the results of the audits by the Company's outside
accountants. The committee also reviews the scope and results of
audits by the Company's Internal Audit Department and other matters
pertaining to the Company's accounting and financial reporting
functions. The members of the Audit Committee, which met three
times during the fiscal year ended January 1, 1994, are presently
Jacques LeClercq (Chairman), Bernard W. Franklin, Gui de Vaucleroy
and Tom E. Smith.
In 1991, the Board of Directors of the Company established the
Senior Management Compensation Committee. This committee, which
consists of three nonemployee directors, is responsible for
reviewing and approving compensation for senior management of the
Company, including amounts allocated to participants under the
Company's Annual Incentive Bonus Plan (described below). The
members of the Senior Management Compensation Committee, which met
once during the fiscal year ended January 1, 1994, are presently
William G. Ferguson (Chairman), Gui de Vaucleroy and Jacques
LeClercq.
In 1992, the Board of Directors established the Nominating
Committee. The responsibilities of the Nominating Committee
include reviewing from time to time the size and composition of the
Company's Board of Directors, recommending individuals for
nomination as directors, recommending candidates to fill vacancies
on the Board and reviewing criteria for selecting directors. The
members of the Nominating Committee, which met one time during the
fiscal year ended January 1, 1994, are presently Gui de Vaucleroy,
Jacques LeClercq and Tom E. Smith (Chairman). The Committee will
consider candidates suggested by shareholders, and suggestions for
candidates, accompanied by biographical material for evaluation,
may be sent to the Nominating Committee at the address appearing on
the first page of this Proxy Statement.
The Stock Option Committee administers the Food Lion, Inc.,
1983 Employee Stock Option Plan and the 1991 Employee Stock Option
Plan of Food Lion, Inc., selects the individuals who will be
awarded options under these plans and determines the timing,
pricing and amounts of options granted under these plans, each
within the terms of the plans. The members of the Stock Option
Committee, which met three times during the fiscal year ended
January 1, 1994, are presently Jacques LeClercq (Chairman) and
Bernard W. Franklin.
The Executive Committee serves as an advisory body to the
Board of Directors and the Chairman of the Board concerning the
daily business operations of the Company. Its functions include
periodic review of results of operations, sales projections,
capital expenditures, new policies and systems and other matters.
The members of the Executive Committee, which met two times during
the fiscal year ended January 1, 1994, are Tom E. Smith (Chairman),
Dan A. Boone, Jacques LeClercq and John P. Watkins.
The Profit Sharing Committee oversees the administration of
the Company's Profit Sharing Plan. The members of the Profit
Sharing Committee, which met two times during the fiscal year ended
January 1, 1994, are Dan A. Boone, Tom E. Smith and Eugene R.
McKinley, Vice President of Human Resources.
The Board of Directors met six times during the fiscal year
ended January 1, 1994. During that period, each incumbent
director, other than Raymond-Max Boon attended at least 75% of the
aggregate of (i) the total number of meetings of the Board of
Directors and (ii) the total number of meetings held by all
committees on which the director served during the last fiscal
year. Raymond-Max Boon attended 67% of the meetings of the
Company's Board of Directors during the fiscal year ended January
1, 1994.
Compensation of Directors
The Company has agreed to pay, effective May 6, 1993, Dr.
Bernard W. Franklin and William G. Ferguson, who are serving and
have been nominated to continue to serve on the Board of Directors,
and Mrs. Jacqueline Kelly Collamore, who has been nominated as a
new director to serve on the Board of Directors, a quarterly fee of
$6,500, a per board meeting fee of $1,000 and reimbursement for all
related travel expenses, for their service on the Board of
Directors, and commencing upon their appointment to the Board.
There are no other standard or other arrangements pursuant to
which directors of the Company are compensated for services as
director.
Proposal (2)
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The firm of Coopers & Lybrand, Charlotte, North Carolina, has,
upon the recommendation of the Audit Committee of the Board of
Directors, been selected by the Board of Directors of the Company
as independent accountants for the fiscal year ending December 31,
1994, subject to ratification of that appointment by the vote of a
majority of the shares of Class B Common Stock represented and
entitled to vote at the Annual Meeting. Coopers & Lybrand has
acted as independent accountants for the Company since 1973.
Representatives of Coopers & Lybrand are expected to be present at
the Annual Meeting with the opportunity to make a statement if they
so desire and will also be available to respond to appropriate
questions.
The persons named on the accompanying proxy card intend to
vote in favor of the ratification of the appointment of Coopers &
Lybrand as independent accountants for the fiscal year ending
December 31, 1994, unless a contrary choice is indicated on the
enclosed proxy card. The affirmative vote of a majority of the
shares of Class B Common Stock represented and entitled to vote at
the Annual Meeting is necessary to ratify this appointment. The
Board of Directors unanimously recommends that each shareholder
vote FOR this proposal.
Proposal (3)
Proposal to Approve an Amendment to the
1991 Employee Stock Option Plan
The Board of Directors proposes that the shareholders approve
an amendment to the 1991 Employee Stock Option Plan of Food Lion,
Inc. (the "Option Plan") to increase the number of shares reserved
for issuance pursuant to the exercise of options granted under the
Option Plan from 3,000,000 shares of the Company's Class A Common
Stock to 5,000,000 shares of Class A Common Stock (the
"Amendment").
Pursuant to the Option Plan, both Non-qualified Options and
Incentive Options, as defined in the Option Plan, may be granted to
key employees (the "Participants") of the Company, up to an
aggregate of 3,000,000 shares of Class A Common Stock. As of March
16, 1994, options to purchase 2,833,000 shares of Common Stock were
outstanding under the Option Plan, no options to purchase shares
had been exercised and 167,000 shares remained available for the
grant of options under the Option Plan. The proposed Amendment
would increase to 5,000,000 the number of shares of Class A Common
Stock reserved for issuance pursuant to options granted or to be
granted under the Option Plan.
The Board of Directors believes that it is in the Company's
and its shareholders' best interest to approve the Amendment to
allow the Company to continue to grant options under the Option
Plan to secure for the Company the benefits of the additional
incentive inherent in the ownership of its common stock by key
employees of the Company. Accordingly, effective April 1, 1994,
the Board of Directors of the Company approved the Amendment,
subject to shareholder approval.
The major features of the Option Plan, as proposed to be
amended, are summarized below, but this is only a summary and is
qualified in its entirety by reference to the actual text of the
Option Plan. The market value of the Class A Common Stock was
$6.3125 per share on March 16, 1994.
Purpose
The purpose of the Option Plan is to encourage and enable
selected employees of the Company to acquire or to increase their
holdings of Class A Common Stock in order to promote a closer
identification of their interests with those of the Company and its
shareholders, thereby further stimulating their efforts to enhance
the efficiency, soundness, profitability, growth, and value of the
Company. This purpose is carried out through the granting of
options intended to qualify as incentive stock options under
section 422 of the Internal Revenue Code ("Incentive Options") and
non-qualified stock options ("Non-qualified Options") to purchase
shares of the Company's Class A Common Stock to selected employees
of the Company.
Administration
The Option Plan is administered by the Stock Option Committee
of the Board of Directors of the Company, members of which must be
eligible to administer the Option Plan pursuant to the
disinterested administration requirements of Rule 16b-3 under the
Securities Exchange Act of 1934. Members of the Stock Option
Committee are Jacques LeClercq, Chairman and Dr. Bernard W.
Franklin. The Stock Option Committee has full and final authority
in its discretion to take any action with respect to the Option
Plan. With respect to Section 16 Insiders (defined below), the
Committee has full and final authority in its discretion to
determine within the terms of the Option Plan the individuals to
receive options pursuant to the Option Plan, the times or effective
date when options will be granted, the number of shares to be
subject to each option, the price at which options may be exercised
into shares of Class A Common Stock and the time(s) when, and the
conditions, if any, under which, each option may be exercisable.
Prior to the amendment described below, the Stock Option Committee
had the same discretion with respect to other participants in the
Option Plan. With respect to all participants in the Option Plan,
the Stock Option Committee has full and final authority in its
discretion to: (i) prescribe the form(s) of the agreements
evidencing any options granted pursuant to the Option Plan, (ii)
establish, amend, and rescind rules, regulations, and guidelines
for the administration of the Option Plan and (iii) construe and
interpret the Option Plan and the agreements evidencing options
granted thereunder.
Pursuant to authority granted to it under the Option Plan, the
Board of Directors amended the Option Plan, effective April 1,
1994, to provide automatic grants of options pursuant to the Option
Plan to key employees (defined below) who are not Section 16
Insiders. The grants occur upon an employee's promotion to certain
positions and upon completion of specified periods of service in
those positions. "Section 16 Insider" is defined in the amendment
as an individual who is serving as a director (including a director
who is an employee), any individual who is serving in a position
designated as an "executive officer" by the Board of Directors of
the Corporation, or any individual required to file pursuant to
Rule 16a-3 under Section 16 of the Securities Exchange Act of 1934
(the "Exchange Act") as an "officer" within the meaning of Rule
16a-1(f) of the Exchange Act, as such Act and Rules may hereinafter
be amended from time to time. Pursuant to this amendment, the
Stock Option Committee may in its discretion grant options for
shares in excess of the minimum number automatically granted to
Non-Section 16 Insiders, and may reduce or eliminate grants to any
Non-Section 16 Insider, but only on a prospective basis. The Stock
Option Committee has the authority to modify on a prospective
basis, in its discretion, the automatic grants to Non-Section 16
Insiders, including without limitation the power to add or delete
positions from the list of those qualifying for automatic grants,
to increase or decrease the number of options awarded upon
promotion or completion of a period of service in a position
qualifying for an automatic award, and to increase or decrease the
period of service required for an automatic award. Had the
amendment been in effect in 1993, 53,300 options would have been
granted to Non-Section 16 Insiders under the Option Plan unless the
Stock Option Committee, in its discretion, had adjusted the number
of options granted to such participants as provided in the Option
Plan.
Option Plan Participants
Options may be granted to "key employees." Under the Option
Plan, "key employees" are employees who hold designated positions
as determined by the Stock Option Committee as well as all other
employees who, in the determination of the Stock Option Committee,
are in a position to materially affect the profits of the Company
by reason of the nature and extent of their duties,
responsibilities, personal capabilities, performance and potential.
Approximately 1,300 persons are currently eligible to participate
in the Option Plan. Subject to the maximum number of shares
remaining with respect to which stock options may be granted at any
time, there is no maximum number of shares with respect to which
stock options many be granted under the Option Plan to any person,
but there are certain limitations on the maximum value of Incentive
Options which may become first exercisable by any person in any
year. Each option granted under the Option Plan must be evidenced
by a written agreement containing such provisions as required by
the Option Plan.
Shares Subject to Grant
Under the Option Plan, the maximum number of shares of Class
A Common Stock with respect to which stock options may be granted
is currently 3,000,000 shares and is proposed to be increased to
5,000,000 shares of Class A Common Stock. However, if there is any
change in the shares of Class A Common Stock because of a merger,
consolidation or reorganization involving the Company, or if the
Board of Directors of the Company declares a stock dividend or
stock split distributable in shares of Class A Common Stock, or if
there is a change in the capital stock structure of the Company
affecting the Class A Common Stock, the number of shares of Class
A Common Stock reserved for issuance under the Option Plan will be
correspondingly adjusted, and the Stock Option Committee will make
such adjustment to options that have been issued under the Option
Plan or to any provisions of the Option Plan as it deems equitable
to prevent dilution or enlargement of options. If a stock option
expires or terminates for any reason without having been fully
exercised, the shares subject to the unexercised portion of the
option are again available for further grant under the Option Plan.
Amendment or Termination of the Option Plan
The Option Plan may be amended or terminated at any time by
the Board of Directors of the Company, provided, however, that
approval by the shareholders of the Company will be required for
any amendment which would (i) increase the number of shares of
Class A Common Stock which may be issued under the Plan, (ii)
materially change the requirements for eligibility to be a
Participant or (iii) otherwise require a shareholder approval
pursuant to the provisions of Rule 16b-3 (or any successor rule)
under the Securities Exchange Act of 1934, as amended.
Unless sooner terminated by the Board of Directors, the Option
Plan will terminate on November 5, 2001, which is ten years after
its adoption by the Board of Directors.
Stock Options
1. Option Price
The price per share at which an option may be exercised must
be the greater of (i) the par value per share of Class A Common
Stock or (ii) the fair market value per share of Class A Common
Stock on the date the option is granted. For these purposes, the
date of grant with respect to the automatic option grants described
above is the date of the employee's promotion to a position
qualifying for an automatic grant or completion of the period of
service required for automatic grant. For all other options, the
date of grant is the date on which the Stock Option Committee acts
to grant the option or any later date specified by the Stock Option
Committee as the effective date of the option, and the fair market
value per share of Class A Common Stock is the closing price of
such stock on the NASDAQ National Market System on the day the
option is granted.
2. Exercisability, Option Period and Limitations on the
Right to Exercise Options
Of the options granted pursuant to the automatic grant
implemented by the amendment described above, 1/3 are exercisable
beginning on the third anniversary of the grant, 1/3 are
exercisable beginning on the fourth anniversary of the grant and
1/3 are exercisable beginning on the date that is four years and
six months after the date of the grant. The period for exercising
the options granted pursuant to the automatic grant ends on the
fifth anniversary of the date of the grant and any options not
exercised by that date shall terminate. The period during which
any other option may be exercised, which cannot extend more than
ten years from the date of grant (the "Option Period"), and the
time(s) when options granted pursuant to the plan will become
exercisable, is determined by the Stock Option Committee at the
time the option is granted. Any option or portion thereof not
exercised before the expiration of the Option Period will
terminate. An option may be exercised by giving written notice to
the Stock Option Committee accompanied by the payment of the
purchase price, which can be in the form of cash, shares of Class
A Common Stock owned by the optionee or a combination of cash and
shares.
No option may be exercised unless the optionee is, at the time
of exercise, an employee of the Company and has been an employee of
the Company continuously since the date the option was granted,
subject to certain exceptions relating to military or sick leave,
disability and other bona fide leaves of absence. If the
employment of an optionee is terminated for any reason, all options
held by such optionee may be exercised to the extent exercisable on
the date of such termination. However, the Stock Option Committee,
in its sole discretion, may accelerate the exercise date of any
option in whole or in part which was not otherwise exercisable on
the date of termination, without any obligation to accelerate such
date with respect to options granted to any other optionee or to
treat all optionees similarly situated in the same manner. Options
held by an optionee at the time of termination must be exercised,
if at all, prior to the earlier of (i) the close of the period of
twelve months next succeeding the date of termination (if the
employment of the optionee is terminated because of retirement or
death); (ii) the close of the period of three months less one day
next succeeding the date of termination (if the employment of the
options is terminated for reasons other than retirement or death)
and (iii) the close of the Option Period.
3. Transferability
No option can be transferred (including by pledge or
hypothecation) other than by will or the laws of intestate
succession or pursuant to a qualified domestic relations order as
defined by the Internal Revenue Code of 1986 or Title I of the
Employee Retirement Income Security Act, or the rules promulgated
thereunder. In addition, shares of Class A Common Stock acquired
upon exercise of an option may not, without the consent of the
Stock Option Committee, be disposed of by an optionee until the
expiration of six months after the date the option was granted.
Federal Income Tax Consequences
The rules governing the tax treatment of options and stock
acquired upon the exercise of options are quite technical.
Therefore, the description of tax consequences set forth below is
necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual
circumstances. Finally, the consequences under applicable state
and local income tax laws may not be the same as under the federal
income tax laws.
Incentive Options
Incentive Options granted under the Option Plan are intended
to qualify as "Incentive Stock Options" under Section 422 of the
Internal Revenue Code. Pursuant to Section 422, the grant and
exercise of an incentive stock option will not result in taxable
income to the optionee (with the possible exception of alternative
minimum tax liability) if the optionee does not dispose of shares
received upon exercise of such option less than one year after the
date of exercise and two years after the date of grant, and if the
optionee has continuously been an employee of the Company from the
date of grant to three months before the date of exercise (or 12
months in the event of death or disability). The Company will not
be entitled to a deduction for income tax purposes in connection
with the exercise of an Incentive Stock Option. Upon the
disposition of shares acquired upon exercise of an Incentive Stock
Option, the optionee will be taxed on the amount by which the
amount realized upon such disposition exceeds the option price, and
such amount will be treated as long-term capital gain or loss. If
the holding period requirements for Incentive Stock Option
treatment described above are not met, the option will be treated
as a Non-qualified Option.
No Incentive Option may be granted to an employee who owns
more than 10 percent of the voting power of all classes of the
Company's common stock, unless, at the time the option is granted,
the option price is at least 110% of the fair market value of the
stock subject to the option. In addition, the aggregate fair
market value (on the date of grant) of the stock with respect to
which an Incentive Option is exercisable for the first time by an
individual during any calendar year cannot exceed $100,000.
Non-qualified Options
If an optionee receives a Non-qualified Option, the difference
between the market value of the stock on the date of exercise and
the option price will constitute taxable ordinary income to the
optionee on the date of exercise. The Company will be entitled to
a deduction in the same year in an amount equal to the income
taxable to the optionee. The optionee's basis in shares of Class
A Common Stock acquired upon exercise of an option will equal the
option price plus the amount of income taxable at the time of
exercise. Any subsequent disposition of the stock by the optionee
will be taxed as a capital gain or loss to the optionee, and will
be long-term capital gain or loss if the optionee has held the
stock for more than one year at the time of sale.
Accounting Treatment
Generally, neither the grant nor the exercise of an Incentive
Option or a Non-qualified Option under the Option Plan requires any
charge against earnings, if the exercise price of the option is
equal to the fair market value of the stock on the date of grant.
If the exercise price is below the fair market value of the stock
on the date of grant, an earnings charge or a reduction in
stockholders' equity equal to the difference will be required
either at the date of grant or possibly over the term of the
option.
The persons named in the accompanying Proxy intend to vote
such Proxy in favor of the proposal to approve the amendment to the
Option Plan, unless a contrary choice is indicated in the enclosed
Proxy. The affirmative vote of the holders of a majority of the
shares of Class B Common Stock of the Company represented and
entitled to vote at the Annual Meeting is necessary to approve the
proposal. The Board of Directors recommends a vote FOR approval of
the proposal.
Proposal (4)
Shareholder Proposal
A proposal ("Proposal") has been submitted by a shareholder
with notice of an intention to present it for action at the Annual
Meeting to be held on May 5, 1994. The name and address of the
shareholder submitting the Proposal is: Food & Allied Service
Trades Department - AFL/CIO ("FAST") Sixteenth Street, N.W., Suite
408, Washington, DC 20006-4104. FAST is currently the owner of
354.0690 shares of Food Lion's Class B Common Stock.
It should be noted that the Board of Directors recommends a vote
AGAINST the Proposal.
TEXT OF SHAREHOLDER PROPOSAL
"WHEREAS, the shareholders are the owners of the company and
vested with the ultimate oversight of the Board of Directors'
decisions regarding the compensation of key executives; and
WHEREAS, the Board of Directors should consider company performance
when making decisions and setting policies regarding executive
compensation; and
WHEREAS, the shareholders should have knowledge of the value of
major components of executive compensation to evaluate the Board's
decisions regarding such compensation in relation to company
performance; and
WHEREAS, the company has a long-established profit-sharing plan as
its principal retirement program for all employees; and the plan
annually reports to all employees, including executives, the
balance of their individual accounts, including annual incremental
changes in contributions, earnings, and forfeitures; and
WHEREAS, the company proxy does not presently disclose to
shareholders the value of the individual profit-sharing accounts of
key executives, or the annual incremental changes in contributions,
earnings, and forfeitures to their accounts; and
WHEREAS, this information would enable shareholders to fulfill an
obligation as owners to assure the appropriateness of the
compensation level of the company's key employees in light of the
company's performance; NOW THEREFORE BE IT
RESOLVED, that the shareholders request that the company disclose
in all future proxy statements the balance of the individual
profit-sharing accounts of key executives for the plan year,
including the annual incremental changes in contributions,
earnings, and forfeitures to their accounts.
This information will equip shareholders with the information
needed to assess the adequacy of the compensation of employees
whose efforts are critical to the success of the company."
The following statement has been submitted by FAST in support
of this proposal:
"As shareholders we must be made aware of the compensation of
key executives responsible for the success of our company. We urge
you to vote FOR this proposal."
STATEMENT OF DIRECTORS AGAINST SHAREHOLDER PROPOSAL
Your Board of Directors recommend a vote AGAINST the proposal
for the following reasons:
The Board of Directors believes that the proposal does not
involve a matter that would enable shareholders to evaluate the
level of compensation of management against performance. Awards
under the Profit Sharing Plan (the "Plan") are based on a formula.
That formula is based on the Company's profitability. Further,
this Plan limits the total amount of awards and imposes a limit on
individual awards. Awards are disclosed annually in accordance
with the requirements of the Securities and Exchange Commission's
(the "SEC") rules.
The proposal seeks disclosure of the account balances of
certain individuals who have previously received awards under the
Plan. These awards were disclosed. The account balances, if
disclosed, would not reflect current compensation. The balances,
in effect, reflect only the individual's savings (including the
return earned on such savings). The Board of Directors notes that
under the requirements of the SEC's rules, the Company is not
required to disclose the amounts in an individual's account balance
because the SEC has indicated that these amounts are not
compensation. The Board of Directors believes that requiring
disclosure of individual account balances is equivalent to
requiring management to disclose information on their personal bank
accounts or on their personal investments.
The Board of Directors also believes that the proposal was not
submitted to further a legitimate shareholder interest. The Board
of Directors believes that the proposal is part of the proponent's
"Corporate Campaign" against the Company and its management. As
part of a concerted effort to injure the economic standing and
reputation of the Company, it appears that the proponent and its
affiliates may be seeking to use the shareholder proposal process
to examine the private affairs of management even as they continue
to distribute materials critical of the Company and its management
to further their own goals which we believe are contrary to the
goals of the majority of our shareholders.
In conclusion, since the proposal does not address
compensation as it relates to the Company's performance and because
the proposal appears to have been submitted for other reasons, the
Board of Directors recommends that shareholders vote AGAINST the
proposal. Where a proxy card is returned to the Company properly
executed but with no choice specified, the proxy will be voted
AGAINST the proposal. The affirmative vote of a majority of the
shares of Class B Common Stock represented and entitled to vote at
the Annual Meeting is necessary to approve the proposal.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following sets forth information concerning the annual and
long-term compensation earned by the Chief Executive Officer and
four other officers of the Company (the "Named Executives") for
services rendered to the Company in all capacities for the fiscal
years ended January 1, 1994, January 2, 1993 and December 28, 1991:
<TABLE>
Long-Term
Annual Compensation Compensation
Other All
Name and Annual Other
Principal Comp. Options/SARs Comp.
Position Year Salary ($) Bonus (1) ($) (2) (#) (3) ($) (4)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Tom E. Smith 1993 642,314 0 97,201 -- 96,696
Chairman of the 1992 628,788 282,955 153,228 -- 96,844
Board, President 1991 528,575 229,050 116,555 75,000/0 96,148
and Chief
Executive Officer
John P. Watkins 1993 196,071 25,389 11,674 -- 30,000
Senior Vice President 1992 180,175 72,069 13,801 -- 30,000
of Store Operations 1991 119,588 28,640 862 4,500/0 20,487
and Chief Operating
Officer
Dan A. Boone 1993 174,413 21,455 8,526 -- 28,776
Vice President of 1992 169,788 67,915 19,352 -- 30,000
Finance, Chief 1991 151,616 58,400 13,400 750/0 30,000
Financial Officer and
Secretary
A. Edward Benner, Jr., 1993 157,509 12,747 7,202 -- 23,214
Vice President of 1992 153,174 38,293 9,467 -- 30,000
Management Information 1991 145,384 35,000 6,451 -- 29,178
Systems
Eugene R. McKinley 1993 183,620 14,383 10,344 -- 26,214
Vice President of Human 1992 173,448 43,356 12,269 -- 30,000
Resources 1991 165,634 39,875 10,449 -- 30,000
</TABLE>
(1) In a letter to the Board of Directors, Mr. Smith requested
that he not be considered for any 1993 bonus under the
Company's Incentive Bonus Plan. Mr. Smith stated that his
purpose in declining to be considered for a bonus was to
express his personal commitment to directors, employees and
shareholders to restoring the Company to its historical levels
of profitability. The Board of Directors did not consider Mr.
Smith for a bonus.
(2) Includes additional payments made to Messrs. Smith, Watkins,
Boone, Benner and McKinley in lieu of additional contributions
that would have been made under the Company's non-contributory
qualified profit sharing plan (the "Profit Sharing Plan") but
for certain limitations on such contributions in the Internal
Revenue Code. These payments for Mr. Smith were $79,918 in
1993, $135,844 in 1992 and $107,713 in 1991, for Mr. Watkins
were $1,823 in 1993, $6,079 in 1992 and $0 in 1991, for Mr.
Boone were $0 in 1993, $9,818 in 1992 and $3,449 in 1991, for
Mr. Benner were $0 in 1993, $2,367 in 1992 and $0 in 1991 and
for Mr. McKinley were $0 in 1993, $7,316 in 1992 and $3,189 in
1991. See footnote (3), below, for information with respect
to amounts contributed during 1993 by the Company to the
Profit Sharing Plan on behalf of the Named Executives. Also
includes amounts reimbursed for executive medical expenses and
financial planning services, amounts deemed compensation under
the Company's Low Interest Loan Plan and amounts deemed
compensation in connection with an automobile furnished by the
Company to each of the Named Executives, and the value of
noncash personal benefits deemed additional compensation for
income tax purposes. Certain personal benefits which did not,
when aggregated with other personal benefits, exceed the
lesser of $50,000 and 10% of salary and bonus for any of the
Named Executives are not included.
(3) The number of options set forth in this column has been
restated to reflect a three-for-two stock split effected in
the form of a 50% stock dividend on June 8, 1992.
(4) Includes amounts contributed by the Company on behalf of the
Named Executives under the Company's Profit Sharing Plan,
which amounts were $30,000 for Messrs. Smith and Watkins,
$28,776 for Mr. Boone, $23,214 for Mr. Benner and $26,214 for
Mr. McKinley during 1993. Amounts set forth in this column
also include, for Tom E. Smith, amounts advanced by the
Company to Mr. Smith pursuant to split dollar life insurance
agreements with Mr. Smith. Under these agreements, Mr. Smith
(or his assignee in the event of assignment) has an interest
in life insurance policies on his life in the amount of
$3,250,000 and is responsible for the payment of premiums on
such policies. Each year the Company advances to Mr. Smith or
his assignee the amount of the annual premiums on such
policies. The amount advanced during 1993 was approximately
$66,696. The life insurance policies are assigned to the
Company as security for the amounts advanced under the
agreements and, upon the death of Mr. Smith (or earlier
termination of the policies), the Company is entitled to
receive directly from the insurance carrier an amount equal to
the sums advanced.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values
The following table sets forth the number of shares of the
Company's Class A Common Stock covered by outstanding stock
options held by each of the Named Executives at January 1, 1994,
and the value of "in-the-money" stock options at January 1, 1994 as
determined by the spread between the option price and the price of
shares of the Company's Class A Common Stock, as reported by the
NASDAQ National Market System. No options were granted to the
Named Executives during the fiscal year ended January 1, 1994, and
none of the Named Executives elected to exercise any of their
outstanding options during the fiscal year ended January 1, 1994.
Number of Value of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable(1)
Tom E. Smith 22,500/52,500 --
John P. Watkins 0/4,500 --
Dan A. Boone 3,500/2,500 --
A. Edward Benner, Jr. 2,500/5,000 --
Eugene R. McKinley 2,500/5,000 --
(1) All options held by Tom E. Smith, John P. Watkins, Dan A.
Boone, A. Edward Benner, Jr. and Eugene R. McKinley are
exercisable at prices that are more than the price of shares
of the Company's Class A Common Stock at January 1, 1994, as
reported by the NASDAQ National Market System.
Performance Graph
The graphs set forth below compare, for the five and ten year
periods 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 nine retail
food chain stores consisting of Albertson's, Inc., American Stores
Co., Bruno's, Inc., Giant Food, Inc. (Class A), Great Atlantic &
Pacific Tea Co., Kroger Co., Safeway, Inc., Vons Companies, Inc.
and Winn-Dixie Stores, Inc. (the "Peer Group Index"). "Cumulative
shareholder return" has been computed assuming an investment of
$100, at the beginning of the periods indicated, in the common
stock of the Company 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.
Data Points for Performance Graphs
Food Lion, Inc.
Five Year Performance Graph
1988 1989 1990 1991 1992 1993
Food Lion, Inc. 100.00 117.10 142.89 299.29 130.91 109.53
S&P 500 Index 100.00 131.69 127.59 166.47 179.16 197.22
Peer Group 100.00 137.34 145.77 158.19 196.24 194.14
<TABLE>
Data Points for Performance Graphs
Food Lion, Inc.
Ten Year Performance Graph
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Food Lion,Inc. 100.00 141.98 213.89 329.42 714.54 561.91 658.00 802.89 1681.73 735.59 615.47
S&P 500 Index 100.00 106.22 139.83 165.86 174.46 203.43 267.90 259.57 338.66 364.47 401.20
Peer Group 100.00 114.54 159.68 177.87 194.82 281.01 385.93 409.63 444.53 551.44 545.54
</TABLE>
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:
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 or within the Company's industry;
reward executive officers for the achievement of short-
term operating goals and for the enhancement of the long-
term shareholder value of the Company; and
align the interests of executive officers with those of
the Company's shareholders with respect to short-term
operating results.
The primary components of compensation paid by the Company to
executive officers, and the relationship of such components to the
Company's performance, are discussed below.
Base Salary. Each year, the 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 were determined based on a number of factors,
including the Company's performance and the executives'
contributions to the Company's performance.
In 1993, except for John P. Watkins, executives of the
Company, including Tom E. Smith, the Company's Chief Executive
Officer, received a base compensation increase of approximately 2%-
6% from the prior year. The Chief Executive Officer received a
2.2% increase in base salary which reflected a cost of living
adjustment received by all executives. Mr. Watkins received an
8.8% increase, reflecting an increase in the responsibilities of
the Chief Operating Officer. In determining 1993 base salaries for
management, including Mr. Smith, the Committee gave the greatest
weight to rewarding senior management for increasing the long-term
shareholder value of the Company, while at the same time assuring
compensation is commensurate with compensation paid within the
Company's industry. In that regard, the Compensation Committee
took into account information received from Hay Management
Consultants, an independent human resources consulting firm which
the Company has consulted since 1989 regarding executive
compensation. Because of the limited number of supermarket chains
of similar size to the Company, companies to whose executive
compensation comparison was made were selected from companies in
the food industry having sales of between $1 billion and $7
billion. Overall, the compensation paid by the Company, including
compensation paid to Mr. Smith, is within the range of compensation
paid by such other companies, with some Food Lion employee
compensation falling in each of the low, middle and high ranges of
the compensation information provided by Hay Management
Consultants.
Incentive Compensation. A substantial portion of each
executive officer's compensation package is in the form of
incentive compensation 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 directly affects the Company's
profitability, as determined by the 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 with the Company, (the "Potential Percentage Rate") by
each participant's salary (the "Potential Bonus"). Under the plan,
the total bonus payable each year (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 shareholders' equity (the "ROE Bonus Amount") and (ii) the
aggregate of the Potential Bonus for all plan participants (the
"Maximum Bonus Amount"). One-half of the total bonus is determined
by multiplying one-half of each 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 in the discretion of the Compensation Committee (the
"Discretionary Bonus"). In determining the Discretionary Bonus,
the Compensation Committee considers a number of factors including
contributions of each participant during the year.
Prior to the fiscal year ended January 1, 1994, in recent
years, the Company's financial performance had been such that the
ROE Bonus Amount exceeded the Maximum Bonus Amount. Accordingly,
the Total Bonus paid to participants under the plan (including the
Chief Executive Officer and the other Named Executives) equaled the
Maximum Bonus Amount. However, for the fiscal year ended January
1, 1994, the ROE Bonus Amount was less than the Maximum Bonus
Amount, so that each participant could receive only a portion of
his maximum bonus. That portion was 34.28%, and consequently, any
participant who received his entire Discretionary Bonus, received
34.28% of his Potential Bonus. For the purpose of determining the
ROE Bonus Amount for 1993, the Board of Directors amended the plan
to exclude the one-time charge for costs associated with closing 88
unprofitable stores. In determining the Discretionary Bonus
awarded to each executive the Compensation Committee considered the
contributions and achievements of the executives during a year that
included many challenges. In particular, the Compensation
Committee considered to what extent each participant met his
personal goals established at the beginning of the fiscal year by
such participant and his supervisor.
By letter to the Board of Directors of the Company, Tom Smith,
the Chief Executive Officer, requested that he not be considered
for any 1993 bonus (Objective or Discretionary). Mr. Smith stated
that his purpose in declining to be considered for a bonus was to
express his personal commitment to directors, employees and
stockholders to restoring the Company to historical levels of
profitability.
The Company has maintained two Stock Option Plans pursuant to
which options to purchase shares of the Company's Class A Common
Stock may be granted to key employees. Generally, the exercise
price of the options is the fair market value of the underlying
shares of stock as reported by the NASDAQ National Market System on
the date of grant, but the Stock Option Committee has the
discretion to set a higher exercise price. Under the terms of the
stock option plans in effect during 1993, the Stock Option
Committee had sole authority, within the terms of the plans, to
select the employees to be granted options under the plans and to
determine the timing and amount of options awarded. The Company
has maintained for a number of years, and the Stock Option
Committee has adopted, guidelines with respect to the granting of
options to employees upon their promotion to important managerial
or supervisory classifications and after specified periods of
service in those positions. These guidelines, which were developed
over a number of years, are designed to reward employees upon
promotion to important positions, and for long service in those
positions, and to provide such employees with the incentive to
enhance the long-term shareholder value of the Company by providing
them with the opportunity to share in increases in shareholder
value in amounts that are consistent with their contributions to
the Company. During 1993, 2,800,000 shares were granted under the
Option Plan to approximately 8,500 employees. No options were
granted to the Named Executives during the fiscal year ended
January 1, 1994.
The Company also maintains a Profit Sharing Plan for employees
pursuant to which the Company contributes annually an amount of
current or accumulated earnings determined by the Board of
Directors not exceeding the maximum amount deductible for income
tax purposes. Each employee of the Company is generally eligible
to participate in the Company's Profit Sharing Plan as of the first
day of 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. 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 Internal
Revenue Code of 1986, which limit was $30,000 during each of the
last three fiscal years. Contributions on behalf of executive
officers in excess of these limitations are paid in cash to the
executive officers following the end of each fiscal year. For the
past twenty-three years through 1992, the Board of Directors
approved a contribution to the Company's Profit Sharing Plan equal
to 15% of the wages of all eligible employees. In light of the
decreased profits for the 1993 fiscal year, the Board of Directors
approved for 1993 a contribution to the Company's Profit Sharing
Plan equal to 10% of the 1993 wages of all eligible employees.
This report is submitted by the Senior Management Compensation
Committee, the Stock Option Committee and the Board of Directors of
the Company.
SENIOR MANAGEMENT
COMPENSATION COMMITTEE: STOCK OPTION COMMITTEE:
William G. Ferguson, Chairman Jacques LeClercq, Chairman
Gui de Vaucleroy Bernard W. Franklin
Board of Directors
Tom E. Smith, Chairman of the Board Dr. Bernard W. Franklin
Pierre Olivier Beckers E. Charles de Cooman, d'Herlinckhove
Raymond-Max Boon Jacques LeClercq
Dan A. Boone John P. Watkins
Gui de Vaucleroy William G. Ferguson
Compensation Committee Interlocks and Insider Participation
Messrs. Boone, Watkins and Smith, who are executive officers
of the Company, are members of the Company's Board of Directors and
participate in the 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 Company's
Profit Sharing Plan. Mr. Smith and Mr. Boone also serve on the
Profit Sharing Committee, which oversees the administration of the
Profit Sharing Plan.
Gui de Vaucleroy, who sits on the Compensation Committee, and
Jacques LeClercq, who sits on the Compensation Committee and Stock
Option Committee, are affiliated with Delhaize. The Company has
entered into two leases for the operation of Company stores with a
real estate venture in which an indirect subsidiary of Delhaize
owns a one-half interest. On February 12, 1986, the Company
entered into a 20-year lease with Shipp's Corner Joint Venture, in
which an indirect subsidiary of Delhaize is a general partner, for
the operation of a 25,000 square foot Company store located in a
shopping center in Virginia Beach, Virginia. The Company's store
opened in December 1986. Additionally, 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 leases, the provisions of which the Company
believes are no more favorable than leases with third party
lessors, the Company is expected to make annual payments of
$148,750 in fixed rent and $6,250 in common area maintenance fees
for the Virginia store and $203,000 in fixed rent and $5,800 in
common area maintenance fees for the Florida store. In addition,
each lease provides for an additional 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. Each
lease also includes an option to extend the lease for up to four
five-year periods.
Employment Plans and Agreements
Employment Agreement with Tom E. Smith
On August 1, 1991, Tom E. Smith entered into an agreement with
the Company providing for his employment as President of the
Company (the "1991 Agreement"). The 1991 Agreement expires on
August 1, 2001, provides for Mr. Smith to receive a base salary of
not less than $528,575 per year, and authorizes the Board of
Directors (which has delegated its responsibility to the Senior
Management Compensation Committee) to increase such minimum amount
from time to time. The 1991 Agreement also entitles Mr. Smith to
participate in other compensation and benefit plans and requires
the Company to maintain split dollar life insurance for Mr. Smith
as described elsewhere in this Proxy Statement. Mr. Smith may
elect to defer all or any portion of the cash compensation payable
to him pursuant to the 1991 Agreement.
The Company may terminate Mr. Smith's employment for Good
Cause, as defined in the 1991 Agreement, or as a result of a long-
term disability. If the Company terminates Mr. Smith's employment
for any such reason, or in the event of Mr. Smith's death, the
Company will no longer be required to make payments to Mr. Smith or
his estate under the 1991 Agreement, except pursuant to plans,
arrangements or agreements providing for payments after termination
of employment.
Mr. Smith may terminate his employment without liability to
the Company for Good Reason, as defined in the 1991 Agreement.
Good Reason includes a breach of the 1991 Agreement by the Company,
a significant change in the nature or scope of Mr. Smith's
authority or duties or a "change in control" of the Company (as
such term is defined in the 1991 Agreement). If Mr. Smith
terminates his employment for Good Reason, the Company would be
required to maintain, for the remaining term of employment or three
years (whichever is greater), all employee benefit plans in which
Mr. Smith was entitled to participate immediately prior to the date
of termination or substantially similar benefits if such plans
prohibited Mr. Smith's continued participation. In addition, the
1991 Agreement would require the Company to pay Mr. Smith a lump
sum equal to the present value of the future salary payable to Mr.
Smith during the remaining term of employment, assuming that Mr.
Smith's annual salary on the date of termination would continue for
the remaining term. Such payment, however, would be reduced if and
to the extent that it would be nondeductible by the Company because
of section 280G of the Internal Revenue Code of 1986 relating to
"excess parachute payments."
In the event of a termination of the 1991 Agreement by Mr.
Smith for Good Reason or by the Company other than for Good Cause,
Mr. Smith may cause the Company to purchase up to 33% of his Class
A Common Stock and Class B Common Stock of the Company for a cash
purchase price per share equal to the average per share market
price for the preceding 30 business days.
The 1991 Agreement prohibits Mr. Smith, without the written
consent of the Company, from engaging in any retail or wholesale
grocery business directly competitive with the business of the
Company or any subsidiary in any geographic area in which the
Company or subsidiary is operating at the date of termination.
This prohibition applies to Mr. Smith during the term of the 1991
Agreement and for a period of three years after its termination.
Deferred Compensation Agreements
The Company has entered into deferred compensation agreements
with the President and Chief Executive Officer and all Vice
Presidents of the Company providing for the payment of deferred
compensation commencing on reaching age 65 (if employed by the
Company at such time) and continuing until their death or for a
period of ten years, whichever occurs later. Annual payments
pursuant to these agreements will be as follows: Mr. Smith -
$15,000, Mr. Watkins - $10,000, Mr. Boone - $10,000, Mr. Benner -
$10,000 and Mr. McKinley - $10,000.
Salary Continuation Agreements
The Company has entered into salary continuation agreements
with each 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 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
reaching age 65 or on the date he 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:
Subsequent
Monthly Payment Monthly Payments
First Twelve 24-year 9-year
Name of Individual Months Period Period
Tom E. Smith ............ $36,774 $18,387 $14,710
John P. Watkins ......... 11,226 5,613 4,490
Dan A. Boone ............ 9,986 4,993 3,994
A. Edward Benner, Jr .... 9,018 4,509 3,607
Eugene R. McKinley ...... 10,218 5,109 4,087
Low Interest Loan Plan
The Company maintains a Low Interest Loan Plan to provide low
interest unsecured demand loans to certain officers and employees
of the Company. With minor exceptions, the total of all loans
outstanding to any one employee cannot exceed the following
percentages of the employee's annual salary: an amount equal to
25% during the first year of participation in the Low Interest Loan
Plan, 50% during the second year, 75% during the third year and
100% thereafter. Interest is payable in monthly installments and
may be paid through bi-monthly payroll deductions from the
borrower's salary. The rate of interest charged is a rate equal to
one half of the prime rate of NationsBank Corporation on the first
business day of each calendar quarter. Pursuant to the Low
Interest Loan Plan, the principal amount of a loan is payable on
demand (or within 90 days after a borrower leaves service with the
Company). Participants must supply a financial statement before
receiving a loan under the Low Interest Loan Plan, although no
collateral is required.
The following table sets forth, with respect to the Named
Executives, the largest amounts outstanding under the plan during
the fiscal year ended January 1, 1994 and the amounts outstanding
as of March 16, 1994:
Largest Amount Amount
Outstanding Outstanding
Name of Individual During 1993 March 16, 1994
Tom E. Smith $226,460 $ -0-
John P. Watkins 160,875 160,875
Dan A. Boone 120,000 140,000
A. Edward Benner, Jr. 128,500 128,500
Eugene R. McKinley 170,500 170,500
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Except as described below, the Company believes that its
officers and directors complied with all filing requirements under
Section 16(a) of the Securities Exchange Act of 1934 during the
fiscal year ended January 1, 1994. Dr. Bernard W. Franklin was
late in filing his Initial Statement of Beneficial Ownership of
Securities on Form 3.
In light of a re-evaluation of the management structure of the
Company, the Board of Directors has passed a resolution effective
April 11, 1994 identifying the following additional persons as
officers for purposes of filing reports under Section 16 of the
Securities Exchange Act of 1934: Jay J. Abraham, A. Edward Benner,
Jr., Robert J. Brunory, Charles C. Buckley, James H. Goodwin, Jr.,
Joseph C. Hall, Jr., Kenneth Harris and Eugene R. McKinley. These
persons have been advised of the obligation to file ownership
reports with the Securities and Exchange Commission.
INFORMATION REGARDING DELHAIZE
Delhaize is the beneficial owner of approximately 38.2% and
50.3% respectively, of the outstanding Class A Common Stock and
Class B Common Stock of the Company. Delhaize, a Belgian
corporation founded in 1867, has its principal executive offices at
rue Osseghem, 53, 1080 Brussels, Belgium. Its shares are listed on
the Brussels Stock Exchange. Delhaize is engaged primarily in the
operation of supermarkets located in Belgium and supplied by its
own warehouse facilities, the operation of other retail food
outlets and the packaging, distribution and sale of wine, food and
food products. Although a precise determination cannot be made
since its shares are not registered, its management estimates that
approximately 38% of the outstanding stock of Delhaize is held by
the descendants of the founders and their relatives, including
Messrs. Beckers, de Cooman d'Herlinckhove, de Vaucleroy and
LeClercq, who are nominated to serve as directors of the Company.
Delhaize is the owner of the lion logo which the Company uses
with its own trademarks pursuant to a nonexclusive license
agreement.
CERTAIN TRANSACTIONS
For information relating to certain transactions, see
"Executive Compensation--Compensation Committee Interlocks and
Insider Participation."
PROPOSALS OF SHAREHOLDERS
Under certain conditions, shareholders may request the Company
to include a proposal for action at a forthcoming meeting of the
shareholders of the Company in the proxy material of the Company
for such meeting. All proposals of shareholders intended to be
presented at the 1995 Annual Meeting of the Company must be
received by the Company no later than December 20, 1994 for
inclusion in the Proxy Statement and proxy card relating to such
meeting.
OTHER MATTERS
The management of the Company knows of no other business which
will be presented for consideration at the meeting. However, if
other matters are properly presented at the meeting, it is the
intention of the proxy holders named in the accompanying proxy card
to vote such proxies in accordance with their best judgment.
By order of the Board of Directors.
TOM E. SMITH
Chairman of the Board,
President and Chief
Executive Officer
April 14, 1994
EXHIBIT A
1994 AMENDMENT TO 1991 EMPLOYEE STOCK OPTION
PLAN OF FOOD LION, INC.
The 1991 Employee Stock Option Plan of Food Lion, Inc.
(the "Plan") is amended, effective April 1, 1994, as follows:
1) Section 4 of the Plan is amended to replace "two million
(2,000,000)" with "five million (5,000,000)." The amendment made
by this paragraph shall not take effect unless approved by the
shareholders of the Corporation in accordance with Rule 16b-3(a)
under the Securities Exchange Act of 1934, as amended.
2) Section 2 of the Plan is amended to designate the existing
text as paragraph (a), to strike clause (i) of such paragraph (a)
and to redesignate clauses (ii) through (vi) of paragraph (a) as
clauses (i) through (v) and to add the following new paragraphs
(b), (c), and (d):
(b) In the case of an individual who is a Section 16
Insider, the Committee shall have full and final authority in its
discretion to determine which of such individuals shall receive
Options, the nature of each Option as an Incentive Option or a
Nonqualified Option, the times or effective dates when Options
shall be granted, the number of shares of Common Stock to be
subject to each Option, the Option Price (determined in accordance
with Section 6) and the time or times when, and the conditions, if
any, upon the happening of which each Option shall be exercisable
including determining whether or not to accelerate the exercise
date of an Option as provided in Section 6(b).
(c) Except as otherwise determined by the Committee in
accordance with Section 2(d), an individual who is not a Section 16
Insider and who is promoted to one of the positions set forth in
Exhibit A to the Plan or who is employed by the Corporation in one
of the positions set forth in Exhibit A for a period of service set
forth in Exhibit A shall be granted, effective as of the date of
such promotion or of completion of such period of service, the
number of Incentive Options specified in Exhibit A. The recipient
of Options granted pursuant to this Section 2(c) shall be entitled
to exercise such options during the period ending on the fifth
anniversary of the date the grant is effective and beginning (i) in
the case of 1/3 of the Options, on the third anniversary of the
date the grant is effective, (ii) in the case of an additional 1/3
of the Options, on the fourth anniversary of the date the grant is
effective, and (iii) in the case of the final 1/3 of the Options,
on the date that is four years and six months from the date the
grant is effective. Any Option granted pursuant to this Section
2(c) that is not exercised by the fifth anniversary of the date the
grant is effective shall terminate. In the event an employee of
the Corporation receives a grant of Options pursuant to this
Section 2(c) as a result of promotion to or completion of a period
of service in a position and then is demoted from that position,
any of such Options that have not been exercised prior to the
effective date of the demotion shall be forfeited. The exercise
price of each Option granted pursuant to this Section 2(c) shall be
the fair market value (determined in accordance with Section 6 (a)
(ii) of the Common Stock on the date the grant is effective. The
Committee shall have full and final authority in its discretion to
modify Exhibit A, including, without limitation, adding positions
to or deleting positions from the list of those eligible for
awards, increasing or decreasing the number of Options granted upon
promotion to a position or completion of a period of service in a
position, and increasing or decreasing the period of service in a
position required for grant of Options; provided that, no such
modification by the Committee shall affect the rights of a
Participant under any Option granted prior to the date of the
Committee's action.
(d) In the case of an individual who is not a Section 16
Insider and who is a "key employee" as determined by the Committee
in accordance with Section 5(b), the Committee shall have full and
final authority in its discretion to grant Options in addition to
those granted pursuant to Section 2(c), and to determine which of
such individuals shall receive such Options, the nature of each
such Option as an Incentive Option or a Nonqualified Option, the
times or effective dates when such Options shall be granted, the
number of shares of Common Stock to be subject to each such Option,
the Option Price (determined in accordance with Section 6) and the
time or times when, and the conditions, if any, upon the happening
of which each such Option shall be exercisable, including
determining whether or not to accelerate the exercise date of an
Option as provided in Section 6(b). Notwithstanding the provisions
of Section 2(c), the Committee shall have full and final authority
in its discretion to determine that an individual who would
otherwise be entitled, pursuant to Section 2(c), to be granted
Options upon a promotion or completion of a period of service,
shall not receive such a grant or shall be granted a reduced number
of Options; provided that, no such determination by the Committee
shall be effective unless it is made before the date on which the
grant of Options pursuant to Section 2(c) would otherwise be
effective.
3) Paragraph (b) of Section 5 of the Plan is amended to replace
the final sentence thereof with the following:
Each individual who is employed by the Corporation in one of
the positions set forth in Exhibit A, as such Exhibit A may be
modified by the Committee in accordance with Section 2(c), shall be
a key employee for purposes of the Plan. The Committee shall
determine which employees, in addition to those described in the
preceding sentence, qualify as key employees.
4) Paragraph (c) of Section 5 of the Plan is amended to read as
follows:
(c) The individual, being otherwise eligible to receive
an Option under this Section 5, is granted an Option pursuant to
Section 2 (c) or is selected by the Committee as an individual to
whom an Option shall be granted (an "Optionee").
5) Clause (i) of Paragraph (a) of Section 6 of the Plan is
amended to read as follows:
(i) An Option granted pursuant to paragraph (c) of
Section 2 shall be deemed to be granted on the date specified in
that paragraph. Any other Option shall be deemed to be granted on
the date that the Committee acts to grant the Option, or on any
later date specified by the Committee as the effective date of the
Option.
6) Clause (i) of paragraph (b) of Section 6 of the Plan is
amended to replace the first sentence thereof with the following:
The period during which an Option granted pursuant to
paragraph (c) of Section 2 may be exercised shall be the period
specified in that paragraph. The period during which any other
Option may be exercised (the "Option Period") shall be determined
by the Committee at the time the Option is granted.
7) Section 11 of the Plan is amended to add the following new
paragraph (e):
(e) "Section 16 Insider" shall mean an individual who is
serving as a director (including a director who is an employee),
any individual who is serving in a position designated as an
"executive officer" by the Board of Directors of the Corporation,
or any individual required to file pursuant to Rule 16a-3 under
Section 16 of the Securities Exchange Act of 1934 (the "Exchange
Act") as an "officer" within the meaning of Rule 16a-1(f) of the
Exchange Act, as such Act and Rules may hereinafter be amended from
time to time.
Except as specifically amended hereby, the Corporation
hereby reaffirms the Plan in all respects and the same shall remain
in full force and effect.
