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 2,
1996, 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 on a proposal to ratify the
appointment of Coopers & Lybrand as independent
accountants for the fiscal year ending December 28,
1996;
(3) To consider and vote on a proposal to approve the
1996 Employee Stock Incentive Plan of Food Lion, Inc.;
(4) To consider and vote on a proposal to approve the
Key Executive Annual Incentive Bonus Plan; 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 14, 1996 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
March 29, 1996
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
March 29, 1996
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 2, 1996, 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 March 29, 1996.
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 28, 1996, for approval of the 1996
Employee Stock Incentive Plan of Food Lion, Inc., for the
approval of the Key Executive Annual Incentive Bonus Plan, 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 14, 1996
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
14, 1996, there were 235,594,114 shares of Class B Common Stock
issued and outstanding and 236,242,225 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 the 1996 Employee
Stock Incentive Plan of Food Lion, Inc., and approve the Key
Executive Annual Incentive Bonus Plan. 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.
Etablissements Delhaize Freres et Cie "Le Lion" S.A.
("Delhaize") and its wholly owned subsidiary, Delhaize The Lion
America, Inc., a Delaware corporation ("Detla"), own, in the
aggregate, more than 50% of the outstanding shares of the
Company's Class B Common Stock. See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Principal
Shareholder." The affirmative vote by Delhaize and Detla will
guarantee the passage of any of the proposals described above
(and any other proposals that require majority vote for passage).
The Company has been informed that Delhaize and Detla intend to
vote for the election of the ten nominees for director proposed
herein under "Proposal (1) -- Election of Directors"; for
Proposal (2), ratifying the appointment of Coopers & Lybrand as
independent accountants for the fiscal year ending December 28,
1996; for Proposal (3), approving the 1996 Employee Stock
Incentive Plan of Food Lion, Inc.; and for Proposal (4),
approving the Key Executive Annual Incentive Bonus Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Principal Shareholder
The following information is furnished for each person known
by management of the Company to be the beneficial owner of more
than 5% of the outstanding shares of the Company's Class B Common
Stock, the only voting security of the Company:
Amount and Nature
of Beneficial
Ownership as of Percent
Name and Address March 14, 1996 of Class
Etablissements Delhaize Freres et Cie
"Le Lion" S.A. ("Delhaize")
rue Osseghem, 53
1080 Brussels, Belgium 120,443,462(1) 51.1%
(1) Includes 63,352,780 shares held of record by Delhaize'
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, and the Company are
parties to a Shareholders Agreement dated September 15,
1994, which governs the voting of the shares held by
Delhaize and Detla in the election of directors and other
matters. See "Shareholders Agreement" below.
Ownership of Management
The following information with respect to beneficial
ownership of shares of the Company's Class A Common Stock and
Class B Common Stock as of March 14, 1996, 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 14, 1996, but does not include shares of
common stock beneficially owned by Delhaize, as to which Messrs.
Beckers, de Cooman d'Herlinckhove, Coppieters, Stroobant and de
Vaucleroy are associated as further described herein. See
"Principal Shareholder" 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
Name of Individual Amount and Percent Amount and Percent
or Number of Nature of of Nature of of
Persons in Group Beneficial Class Beneficial Class
Ownership Ownership
Pierre-Olivier Beckers -- -- -- --
Dan A. Boone 21,464 (1) * 15,180 (1) *
Jacqueline Kelly -- -- 1,000 *
Collamore
E. Charles de Cooman -- -- -- --
d'Herlinckhove
Jean-Claude Coppieters -- -- -- --
William G. Ferguson -- -- -- --
Bernard W. Franklin 425 * -- --
Joseph C. Hall, Jr. 90,374 (2) * 62,033 (2) *
Margaret H. Kluttz 300 * 1,050 *
R. William McCanless 2,139 (3) * -- --
Eugene R. McKinley 23,282 (4) * 50,239 *
Tom E. Smith 740,600 (5) * 1,529,267 (5) *
Philippe Stroobant 20,000 * -- --
Gui de Vaucleroy -- -- -- --
All directors and
executive officers as
a group (22 persons) 1,056,522 (6)* 1,741,659 *
- ----------------------
* Indicates less than 1%.
(1) Includes (a) 750 shares of Class A Common Stock that may be
acquired upon exercise of options granted under the Food
Lion, Inc. 1991 Employee Stock Option Plan; (b) 175 shares
of Class A Common Stock held by Mr. Boone's wife; 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.
(2) Includes 12,330 shares of Class A Common Stock and 6,480 shares
of Class B Common Stock held by Mr. Hall as custodian for his
children; and (b) 300 shares of Class A Common Stock held by
Mr. Hall's wife as custodian for their children.
(3) Includes 2,000 shares of Class A Common Stock that may be
acquired upon exercise of options granted under the 1983 and
1991 Employee Stock Option Plans.
(4) Includes 1,240 shares of Class A Common Stock held by Mr.
McKinley's wife. Does not include 14,530.921 units in the
Profit Sharing Retirement Plan of Food Lion, Inc. allocated
to Food Lion Class A Common Stock. The number of shares per
unit in such plan fluctuates daily based in part on the
allocation of cash to the fund. As of March 14, 1996, the
14,530.921 units held by Mr. McKinley represented 22,330.31
shares of Class A Common Stock.
(5) Includes (a) 37,500 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 165,092
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 52,150 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. Does not
include 20,596.543 units in the Profit Sharing Retirement
Plan of Food Lion, Inc. allocated to Food Lion Class A
Common Stock. The number of shares per unit in such plan
fluctuates daily based in part on the allocation of cash to
the fund. As of March 14, 1996, the 20,596.543 units held
by all directors and executive officers as a group
represented 31,651.61 shares of Class A Common Stock.
Shareholders Agreement
On September 15, 1994, Delhaize, Detla and the Company
entered into an agreement ("1994 Shareholders Agreement" or
"Shareholders Agreement") containing provisions regarding, among
other things, the nomination of candidates for election to the
Board of Directors, the voting of securities beneficially owned
by the parties to the Shareholders Agreement for the election of
directors, the role of Tom E. Smith in the management of the
Company and the voting requirements applicable to specified
actions by the Board of Directors. The 1994 Shareholders
Agreement is effective until April 30, 2001, unless Delhaize' and
Detla's aggregate ownership of voting shares of the Company is
reduced below 10%, in which case the Shareholders Agreement would
terminate at that time.
The 1994 Shareholders Agreement provides for, subject to the
fiduciary duties of directors under North Carolina law or except
as the Board by Special Vote may otherwise direct, a Nominating
Committee of the Board of Directors to nominate the slate of
directors to be submitted to the shareholders for election to the
Board and persons to fill any vacancies on the Board that arise
from time to time. See "THE BOARD OF DIRECTORS." The
Shareholders Agreement provides that the Nominating Committee
shall consist of three persons, one of whom will be designated by
Delhaize and Detla, one of whom will be the Chief Executive
Officer of the Company or his designee from among the members of
the Board of Directors, and one of whom will have no affiliation
(other than Board or Committee Membership of the Company) with
either Delhaize or the Company. The Shareholders Agreement
specifies that the slate to be proposed for election to the Board
of Directors shall consist of ten persons, four proposed by the
Chief Executive Officer of Delhaize, two proposed by the Chief
Executive Officer of the Company, and four to have no affiliation
(other than Board or Committee Membership of the Company) with
either Delhaize or the Company. The Agreement requires persons
nominated to fill vacancies to be selected in a corresponding
manner.
The Shareholders Agreement also reflects a voting agreement
between Delhaize and Detla to vote in favor of the slate of
directors proposed by the Nominating Committee and approved by
the Board of Directors of the Company, and not to participate,
directly or indirectly, in any effort to cause cumulative voting
to be in effect for any election of directors of the Company.
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 who
receive the highest number of votes at the meeting (assuming a
quorum is present) shall be deemed to have been elected. The ten
persons named below are nominated to serve on the Board of
Directors until the 1997 Annual Meeting of Shareholders and until
their successors are elected and qualified. Except for Mr.
Coppieters, 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
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 (35)--Mr. Beckers is a director of
Delhaize and has been for more than five years a member of the
Executive Committee of Delhaize. Mr. Beckers serves as a
director, President and Chief Operating Officer of Detla, a
wholly owned subsidiary of Delhaize. Since April 1995, Mr.
Beckers has been Executive Vice President of the Executive
Committee of Delhaize in charge of international activities. He
has been a manager of Delhaize since 1986. Mr. Beckers was first
elected as a director of the Company in 1992 and is a member of
the Audit, Senior Management Compensation and Stock Option
Committees.
DR. JACQUELINE KELLY COLLAMORE (36)--Dr. Collamore is an
Associate with Credit Suisse. She previously served as 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. Dr. Collamore was a consultant
with Arthur D. Little from 1991 to 1992, and was an
independent business consultant from 1986 to 1991. Dr. Collamore
was a Lecturer of Marketing from 1989 to 1992 at various colleges
and universities. Dr. Collamore was first elected as a director
in 1994, is a member of the Stock Option Committee and is
Chairperson of the Audit Committee.
JEAN-CLAUDE COPPIETERS `t WALLANT(50)--Mr. Coppieters is and has
been for more than five years the Secretary of the Board of
Directors and a member of the Executive Committee of Delhaize.
He has been the Chief Financial Officer of Delhaize since 1974.
He is also Vice-President, Treasurer and Assistant Secretary of
Detla. If elected, this will be Mr. Coppieters' first term as a
director.
WILLIAM G. FERGUSON (68)--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
Digital Cockpits, Inc. Mr. Ferguson was Chairman and Chief
Executive Officer 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. He is a member of the Audit
Committee and is Chairperson of the Senior Management
Compensation Committee.
DR. BERNARD W. FRANKLIN (43)--Dr. Franklin has been the President
of St. Augustine's College in Raleigh, North Carolina since March
1995. From July 1989 until March 1995, Dr. Franklin served as
President of Livingstone College and Hood Theological Seminary in
Salisbury, North Carolina. 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 is Chairperson of the Stock Option Committee.
JOSEPH C. HALL, JR. (46)--Mr. Hall is Senior Vice President of
Operations and Chief Operating Officer of the Company, and has
held those positions since July 1, 1995. Mr. Hall joined the
Company in 1976 and has served as a Vice President since 1988.
Mr. Hall has variously held the positions of Vice President of
Purchasing, Vice President of Marketing, Vice President of
Operations - Southern Division and Vice President of Operations -
Central Division before assuming his current position. Mr. Hall
was first appointed to the Board on July 13, 1995, following the
resignation of John P. Watkins.
MARGARET H. KLUTTZ (52)--Mrs. Kluttz was appointed Chairperson of
the North Carolina Rail Council in 1994. She has served on the
North Carolina Rail Commission since 1994, and the North Carolina
Board of Transportation since 1993. Mrs. Kluttz has served as
Mayor of the City of Salisbury, North Carolina since 1991 and has
been a member of the City Council since 1988. She was first
appointed to the Board of Directors on September 20, 1994. Mrs.
Kluttz is a member of the Audit Committee and is Chairperson of
the Nominating Committee.
TOM E. SMITH (54)--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, and is a member of
the Nominating Committee.
PHILIPPE STROOBANT (43)--Mr. Stroobant is, and has been for more
than five years, a director and member of the Executive Committee
of Delhaize. On April 1, 1995, he was appointed Executive Vice
President of the Executive Committee of Delhaize in charge of
Belgian activities. Mr. Stroobant is a director of Detla. Mr.
Stroobant has been a Manager of Delhaize since 1983. He was
first elected as a director of the Company in 1995.
GUI DE VAUCLEROY (62)--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 of the Executive
Committee 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 Chairman of the Board, Chief
Executive Officer and a director of Detla. Mr. de Vaucleroy was
first elected as a director in 1975 and is a member of the Audit,
Nominating and Senior Management Compensation Committees.
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 an
Audit Committee, Nominating Committee, Senior Management
Compensation Committee, and Stock Option Committee.
The Audit Committee recommends to the Board of Directors the
appointment of the Company's outside accountants and reviews the
scope and 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 December 30, 1995,
are presently Pierre-Olivier Beckers, Jacqueline K. Collamore
(Chairperson), William G. Ferguson, Bernard W. Franklin, Margaret
H. Kluttz and Gui de Vaucleroy.
Under the company's Bylaws, the Nominating Committee must
consist of three directors, one director designated by Delhaize,
one by the Company's Chief Executive Officer and one who has no
affiliation (other than Board or Committee membership of the
Company) with either Delhaize or the Company. The Nominating
Committee is responsible for nominating the slate of directors to
be submitted to the shareholders for election, if approved by the
Board, and for nominating persons to fill vacancies that arise on
the Board. Under the Bylaws, the slate of directors nominated by
the Nominating Committee will consist of ten persons, four of
whom are proposed by Delhaize, two of whom are proposed by the
Chief Executive Officer of the Company and four of whom have no
affiliation (other than Board or Committee Membership of the
Company) with either Delhaize or the Company. If any director
ceases to be a director of the Company, then the Nominating
Committee, subject to the Board's approval, shall nominate an
appropriate person to fill the vacancy, selected in a
corresponding manner (e.g., if a director proposed by Delhaize
ceases to be a director, then Delhaize shall propose the person
to fill the vacancy). The members of the Nominating Committee are
Margaret H. Kluttz (Chairperson), Tom E. Smith and Gui de
Vaucleroy. The Committee will consider candidates suggested by
shareholders in accordance with the procedures set forth in the
Company's Bylaws. The Nominating Committee met twice during the
fiscal year ended December 30, 1995.
The Senior Management Compensation 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 and, if Proposal (4) is approved by
the shareholders, the Key Executive Annual Incentive Bonus Plan,
both of which are described below under the caption "REPORT ON
EXECUTIVE COMPENSATION -- Incentive Compensation." See also
"Proposal (4)-- Approval of Key Executive Annual Incentive Bonus
Plan." The members of the Senior Management Compensation
Committee, which met five times during the fiscal year ended
December 30, 1995, are presently Pierre-Olivier Beckers, William
G. Ferguson (Chairperson) and Gui de Vaucleroy.
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., and 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. If Proposal (3) is approved,
the Stock Option Committee will also administer the 1996 Employee
Stock Incentive Plan of Food Lion, Inc. See "REPORT ON EXECUTIVE
COMPENSATION-- Stock Options," and "Proposal (3)-- Approval of
1996 Employee Stock Incentive Plan of Food Lion, Inc." The
members of the Stock Option Committee, which met three times
during the fiscal year ended December 30, 1995, are presently
Pierre-Olivier Beckers, Jacqueline K. Collamore and Bernard W.
Franklin (Chairperson).
The Board of Directors met six times during the fiscal year
ended December 30, 1995. During that period, each incumbent
director attended at least 75% of the aggregate of (i) the total
number of meetings of the Board of Directors (held during the period
for which he or she has been a director) and (ii) the total
number of meetings held by all committees on which the director
served (during the periods that he or she served).
Compensation of Directors
The Company has agreed to pay Jacqueline K. Collamore,
William G. Ferguson,Bernard W. Franklin, and Margaret H. Kluttz
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.
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 28, 1996, 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 28, 1996, 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)
Approval of 1996 Employee Stock Incentive Plan of Food Lion, Inc.
The Board of Directors of the Company believes that the
Company and its shareholders have benefited from having officers
and certain employees acquire Options for shares of Class A
Common Stock pursuant to the 1991 Employee Stock Option Plan
of Food Lion, Inc.(the "1991 Plan"). The 1991 Plan has enabled officers
and certain employees to acquire a proprietary interest in the
Company, which serves as an incentive for employee performance.
Under the 1991 Plan, both Non-Qualified Options and Incentive
Options may be granted to key employees ("Participants") of the
Company, up to an aggregate of 5,000,000 shares of Class A Common
Stock. As of December 30, 1995, Options to purchase 2,441,444
shares of Common Stock were outstanding under the 1991 Plan,
Options to purchase 13,276 shares had been exercised and
2,545,280 shares remained available for the grant of Options.
In February, 1996, the Board of Directors reviewed the
recommendations of Towers Perrin, an independent compensation
consulting firm, regarding the Company's long-term incentive
equity arrangements and the design and administration of the
1991 Plan. These recommendations were part of a comprehensive
review by Towers Perrin of executive compensation to ensure that
the compensation structure is sufficiently competitive to allow
the Company to attract and retain top executive and managerial
talent. At its February 8, 1996 meeting, the Board approved
amendments to the 1991 Plan, consistent with Towers Perrin's
recommendations. The amendments to the 1991 Plan, subject to
shareholder approval, will (i) authorize the award of restricted
shares of Class A Common Stock ("Restricted Stock"); (ii)
increase the number of shares reserved for issuance pursuant to
the exercise of Options and the grant of Restricted Stock to
10,000,000 shares; (iii) require Plan administrators, in addition
to other requirements, to be "outside directors," as such term is
used for purposes of Section 162(m) of the Internal Revenue Code
of 1986; (iv) set 300,000 as the maximum aggregate number of
shares of Common Stock with respect to which Options may be
granted, and that may be granted as Restricted Stock (or any
combination of grants of Options and Restricted Stock) to any
employee during any one calendar year; (v) modify the tax
withholding feature of the Plan by establishing that the
Committee may provide at the time of grant that the Optionee or
recipient shall, or may, satisfy tax withholding requirements by
electing to deliver Class A Common Stock or having the Company
withhold Class A Common Stock (the 1991 Plan established these
privileges directly rather than providing discretion to the
Committee); (vi) granting the Committee additional discretion
with respect to rules governing tax withholding elections (e.g.,
the form, revocability, and timing of elections, including timing
requirements applicable to Section 16 Insiders, defined below);
and (vii) provide that the Plan shall be construed in accordance
with North Carolina law, except to the extent Federal law is
applicable (the 1991 Plan not containing the reference to federal
law). The amendment relating to the maximum number of shares
that may be awarded under the Plan and the amendment relating to
administration by "outside directors" are both intended to
satisfy the requirements to qualify the Plan under Section 162(m)
of the Internal Revenue Code, so that any compensation realized
under the Plan will be deductible to the Company for tax
purposes. The increase in the number of shares reserved for
issuance under the Plan is designed to ensure that a sufficient
number of shares is available in upcoming years to fulfill the
purposes of the Plan.
The purpose of the Restricted Stock feature of the Plan is
to encourage and provide an additional incentive to officers and
other key employees of the Company to increase the value of the
Company and its Common Stock by permitting them to acquire a
significant equity interest in the Company. The Restricted Stock
feature is intended to facilitate the Company's ability to
attract and retain superior personnel and to strengthen their
desire to remain employed by the Company.
The Board of Directors believes that the addition of a
Restricted Stock feature, the increase in the number of shares
reserved for issuance, and the other changes to the Plan
described herein are in the best interest of the Company. These
amendments are designed to secure for the Company the benefits of
additional incentive inherent in the ownership of its Common
Stock by key employees of the Company.
Although the changes to the 1991 Plan described herein
constitute amendments to such Plan, the Board of Directors has
determined to submit the Plan in its entirety for approval by the
shareholders. The 1991 Plan, as so amended, is referred to herein
as the 1996 Employee Stock Incentive Plan of Food Lion, Inc.
("Incentive Plan" or "Plan"). Assuming the Incentive Plan is
approved by the shareholders, its effective date will be February
8, 1996.
The major features of the 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 Incentive
Plan, which has been filed with the Securities and Exchange
Commission. Unless otherwise indicated, the description that
follows applies to the Incentive Plan, i.e., the 1991 Plan as
amended as described further herein.
Purpose
The purpose of the Incentive 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 and Non-qualified Stock Options to purchase shares
of the Company's Class A Common Stock to selected employees of
the Company. Subject to shareholder approval as described herein,
the Incentive Plan will also authorize the award of Restricted
Stock to selected employees of the Company pursuant to the terms
of the Plan.
Administration
The Incentive Plan will be administered by the Stock Option
Committee ("Committee") of the Board of Directors of the Company,
members of which must be eligible to administer the Incentive
Plan pursuant to the disinterested administration requirements of
Rule 16b-3 under the Securities Exchange Act of 1934 ("Exchange
Act"). Assuming the Incentive Plan is approved by the
shareholders, the administrators will also be required to qualify as
"outside directors," as such term is used for purposes of Section
162(m) of the Internal Revenue Code of 1986 and any rules and
regulations promulgated thereunder (the "Code"). Currently, the
members of the Stock Option Committee are Pierre-Olivier Beckers,
Jacqueline K. Collamore and Bernard W. Franklin (Chairperson).
The Committee has full and final authority in its discretion to
take any action with respect to the 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 Plan the individuals to receive
Options or Restricted Stock, the times or effective dates when
Options or Restricted Stock will be granted, the number of shares
to be granted as Restricted Stock or to be subject to each
Option, and the time(s) when, and the conditions, if any, under
which each Option may be exercisable. With respect to all
Participants, the Committee has full and final authority in its
discretion to: (i) prescribe the form(s) of the instruments or
agreements evidencing any Options or Restricted Stock granted
pursuant to the Plan, (ii) establish, amend, and rescind rules,
regulations, and guidelines for the administration of the Plan,
and (iii) construe and interpret the Plan and the instruments or
agreements evidencing Options or Restricted Stock granted
thereunder.
With respect to key employees (defined below) who are not
Section 16 Insiders, the Plan includes a schedule on the basis of
which, in part, these employees will receive Options. These
grants occur upon an employee's promotion to certain positions
and upon completion of specified periods of service in those
positions, except that such grants are subject to adjustment as
described below.
"Section 16 Insider" is defined in the Plan 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 Exchange Act as an "officer"
within the meaning of Rule 16a-l(f) of the Exchange Act, as such
Act and Rules may hereinafter be amended from time to time.
Subject to the contingencies described below, a non-Section
16 Insider promoted to a salary grade III position would receive
Options for 50 shares and, after remaining in that position for
five years, would be eligible to receive Options for an
additional 50 shares in the discretion of the Committee; salary
grade IV, Options for 100 shares, and after five years an
additional 100 discretionary Options; salary grade V, Options for
100 shares, and after five years an additional 150 discretionary
options; salary grade VI, 250 Options, and after five years an
additional 250 discretionary Options; salary grade VII, 500
Options, and after five years an additional 500 discretionary
Options; salary grades VIII, IX and X, 1,000 Options with no
discretionary Options. The number of Options granted to an
employee upon promotion to a higher salary grade position will be
reduced by the number of Options previously granted to that
employee. Notwithstanding the foregoing, the Committee may in
its discretion grant Options for shares in excess of the number
designated for Non-Section 16 insiders, and may reduce or
eliminate grants to a Non-Section 16 Insider, but only on a
prospective basis. The Committee has the authority to modify on a
prospective basis, in its discretion, the designated grants to
Non-Section 16 Insiders, including without limitation the power
to add or delete positions from the list of those qualifying for
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 award, and to increase or decrease the period
of service required for an award. As discussed above, the
Committee has full and final authority in its discretion to
determine, within the terms of the Plan, the number of Options or
shares of Restricted Stock that will be granted to Section 16
insiders.
In the case of an individual who is not a Section 16
Insider and who is a "key employee" as determined by the
Committee, the Committee will have full and final authority in
its discretion to grant Restricted Stock in addition to Options
granted pursuant to the Plan, and to determine which of such
individuals shall receive such Restricted Stock. This provision
was not contained in the 1991 Plan but was approved by the Board
of Directors on February 8, 1996, subject to shareholder
approval.
Plan Participants
Options and Restricted Stock may be granted to "key
employees." Under the Incentive Plan, "key employees" are
employees who hold designated positions as determined by the
Committee as well as all other employees who, in the
determination of the Committee, are in a position materially to
affect the profits of the Company by reason of the nature and
extent of their duties, responsibilities, personal capabilities,
performance and potential. As of March 22, 1996, approximately
2,650 persons were eligible to participate in the Incentive Plan.
Shares Subject to Grant
Under the 1991 Plan, the maximum number of shares of Class
A Common Stock that may be issued pursuant to the exercise of
Options granted under the Plan is 5,000,000 shares. Subject to
approval by the shareholders, the maximum number of shares of
Class A Common Stock that may be issued pursuant to the exercise
of Options granted under the Incentive Plan and the grant of
Restricted Stock thereunder will be 10,000,000 shares. The
maximum aggregate number of shares of Common Stock with respect
to which Options may be granted and that may be granted as
Restricted Stock (or any combination of grants of Options and
Restricted Stock) to any employee during any one calendar year is
300,000 shares. 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 Incentive Plan will be
correspondingly adjusted, and the Committee will make such
adjustment to Options or Restricted Stock that have been issued
under the Incentive Plan or to any provisions of the Incentive
Plan as it deems equitable to prevent dilution or enlargement of
Options. If an Option or grant of Restricted Stock expires or
terminates, such shares may again be the subject of a grant under
the Plan of an Option or Restricted Stock.
Amendment or Termination of the Plan
The Board of Directors will be able to amend or terminate
the Incentive Plan at any time, provided, however, that approval
by the shareholders of the Company will be required for any
amendment that would (i) increase the number of shares of Class A
Common Stock that may be issued under the Plan, (ii) materially
change the requirements for eligibility to be a Participant or
(iii) otherwise require 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 Incentive Plan will
terminate on February 8, 2006, 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 is
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 Option grants to Non-Section 16
Insiders described above is the date of the employee's promotion
to a position qualifying for a grant or completion of the period
of service required for grant. For all other Options, the date
of grant is the date on which the Committee acts to grant the
Option or any later date specified by the 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 to Non-Section 16 Insiders as
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 grants to Non-Section 16 Insiders 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 Options 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 Committee at the time the
Options are 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 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
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; or 3 months in the case of an
Incentive Option, where employment is terminated because of
retirement); (ii) the close of the period of three months less
one day next succeeding the date of termination (if the
employment of the Optionee 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, if applicable, 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 of
1974, as amended, 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.
Restricted Stock
Grants of Restricted Stock will be subject to the terms and
conditions of the Plan, and any additional terms and conditions
not inconsistent with the express terms of the Plan, as the
Committee sets forth in a grant instrument or agreement.
Restricted Stock may be granted alone or in addition to any grant
of Options under the Plan. Subject to the terms of the Plan, the
Committee shall determine the number of shares of Restricted
Stock to be granted to an individual, and the Committee may
impose different terms and conditions on any particular
Restricted Stock grant made to any individual.
A grant of Restricted Stock is a grant of a number of shares
of Class A Common Stock to a Participant, subject to such
restrictions, terms and conditions as the Committee deems
appropriate, such as restrictions on sale or transfer, a
requirement that the shares be forfeited upon termination of
employment for specified reasons within a certain period of time,
and restrictions on vesting based upon service, performance
goals, a change of control of the Company or a related
corporation, or other factors.
Restricted Stock will only become unrestricted and vest in a
Participant in accordance with such vesting schedule as the
Committee establishes at the time of grant (the period over which
such stock vests being referred to herein as the "Restriction
Period"). During the Restriction Period, shares of Restricted
Stock will remain unvested and accordingly, a Participant may not
sell, transfer, pledge or otherwise dispose of such shares.
Shares of Restricted Stock issued in certificated form shall bear
a legend reflecting applicable restrictions upon transfer.
Except as may otherwise be provided in an instrument or
agreement issued or entered into at the time of grant, an
individual shall have during the Restriction Period, with respect
to shares of Class A Common Stock received under a grant of
Restricted Stock, all of the rights of a shareholder of the
Company, including, without limitation, the right to vote the
shares and to receive any cash dividends. Stock dividends issued
with respect to such Restricted Stock shall be treated as
additional Restricted Stock grants, and shall be subject to the
same restrictions and other terms and conditions that apply to
the shares of Restricted Stock with respect to which such stock
dividends are issued.
Federal Income Tax Consequences
The rules governing the tax treatment of Options, stock
acquired upon the exercise of Options and Restricted Stock 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 Incentive 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 (such one and two year holding periods being referred to
as the "ISO Holding Period"), 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 "employment
requirement"). 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 shares acquired
upon exercise of Incentive Stock Options are disposed of prior to
the expiration of the ISO Holding Period or if the Optionee does
not meet the employment requirement described above, the Optionee
will be obligated to report as ordinary income for the year in
which the disposition occurs the amount, if any, by which the
lesser of the fair market value of such shares on the date of
exercise of such option or the amount realized from such sale
exceeded the amount the Optionee paid for the shares. If the
Optionee does not meet the employment requirement, the shares
received upon the exercise of the Options are taxed as the
exercise of non-qualified options.
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.
Restricted Stock
Under present federal income tax regulations, generally,
absent an election by the Participant, there will be no federal
income tax consequences to either the Company or a Participant
upon the grant of a Restricted Stock award. A Participant will
recognize income, for federal income tax purposes, at the time
that the restrictions with respect to any portion of an award are
removed, in an amount equal to the fair market value of the
shares that are unconditionally vested on that date, plus the
amount of any cash award. That income generally will be taxable
at ordinary income rates. The Company generally is entitled to a
federal income tax deduction with respect to the amount equal to
the amount of ordinary income recognized by the Participant as a
result of the removal of the restrictions. To avoid taxation at
the time Restricted Stock becomes non-forfeitable, as described
above, a holder of a Restricted Stock award may elect to
recognize ordinary income for the taxable year in which the award
of Restricted Stock is made, in an amount equal to the fair
market value of all shares of Restricted Stock awarded to such
grantee (even if the shares are subject to forfeiture). For
purposes of this election, fair market value will be determined
as of the date the award of Restricted Stock is made.
Accounting Treatment
Generally, neither the grant nor the exercise of an
Incentive Option or a Non-qualified Option under the Incentive
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 market value of the
Class A Common Stock was $5.37 on March 14, 1996.
Plan Benefits
During fiscal year 1995, the following persons and groups
received Options under the 1991 Plan: (1) the Named Executives,
Options for 16,000 shares (Tom E. Smith, 0; Joseph C. Hall, Jr.,
5,000; R. William McCanless, 6,000; Dan A. Boone, 0; and Eugene
R. McKinley, 5,000); (2) all current executive officers as a
group, excluding the Named Executives, Options for 24,500 shares;
(3) all current directors who are not executive officers, as a
group, 0; and (4) all employees, excluding executive officers and
Named Executives, as a group, 106,150. Between January 1, 1996
and March 23, 1996, the following persons and groups received
Options under the 1991 Plan: (1) the Named Executives, 0; (2) all
current executive officers, as a group, 0; (3) all current
directors who are not executive officers, as a group, 0; (4) all
employees, excluding executive officers and Named Executives, as
a group, Options for 18,350 shares. Since inception of the 1991
Plan until March 23, 1996, the following persons and groups have
received Options under the Plan: (1) the Named Executives,
Options for 97,000 shares (Tom E. Smith, 75,000; Joseph C. Hall.
Jr., 5,000; R. William McCanless, 7,500; Dan A. Boone, 4,500; and
Eugene R. McKinley, 5,000); (2) all current executive officers as
a group, excluding Named Executives, Options for 39,500 shares;
(3) all current directors who are not executive officers, as a
group, 0; and (4) all employees, excluding executive officers and
Named Executive Officers, as a group, 3,047,550. See also
"Proposal to Approve 1996 Employee Stock Incentive Plan of Food
Lion, Inc.--Plan Administration."
The persons named in the accompanying Proxy intend to vote
such Proxy in favor of the proposal to approve the Incentive
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 this
proposal.
Proposal (4)
Approval Of Key Executive Annual Incentive Bonus Plan
In 1993, the Internal Revenue Code was amended to add
Section 162(m), which prevents a publicly held corporation from
taking federal income tax deductions previously allowed for
compensation in excess of $1 million per year paid to the named
executive officers whose compensation is disclosed in the
corporation's proxy statement. The Code, however, exempts
compensation that qualifies as "performance based."
In view of the changes to the tax laws, the Senior
Management Compensation Committee of the Board of Directors has
adopted, and proposed for approval by the shareholders, the Key
Executive Annual Incentive Bonus Plan (the "Key Executive Plan").
The purpose of the Plan is to satisfy Internal Revenue Code
requirements for shareholder approved, performance based
compensation in order to preserve the Company's income tax
deduction for annual incentive bonus payments to eligible
employees of the Company. The major features of the Key
Executive Plan are summarized below, but this is only a summary
and is qualified in its entirety by reference to the actual text
of the Key Executive Plan, which has been filed with the
Securities and Exchange Commission.
The Key Executive Plan provides for the payment of annual
incentive bonus awards to participants if, and only to the extent
that, pre-established performance goals are met. All executive
officers of the Company are eligible to participate in the Key
Executive Plan. The participants in the Plan will be selected
annually by the Senior Management Compensation Committee from
among the class consisting of the Chief Executive Officer of the
Company and other executive officers of the Company. While there
are currently fourteen executive officers of the Company, the
Committee has determined that Mr. Smith is the only executive
officer who will participate in the Plan in 1996 if this Proposal
(4) is approved. Participants in the Key Executive Plan will not
be eligible to participate in the Company's Incentive Bonus Plan
while they are participants in the Key Executive Plan. If
approved by the shareholders, the Key Executive Plan will have an
effective date of January 1, 1996. The amounts that will be paid
to any participant in the Key Executive Plan depend on
contingencies that are not presently determinable.
The potential maximum bonus that each participant in the Key
Executive Plan is eligible to receive will be set as a fixed
percentage of profit (with certain adjustments) in excess of a
minimum return on average equity (with certain adjustments)
threshold. In addition to this maximum bonus threshold, no
single participant shall be paid more than $750,000 under the Key
Executive Plan in any Plan Year. The actual award for each
participant may be adjusted downward from the amounts generated
by the formula set forth above, subject to the discretion of the
Senior Management Compensation Committee, taking into account the
participant's individual performance objectives for the fiscal
year, as established at the beginning of each fiscal year, and
such other factors as the Committee deems relevant for
consideration. In no event may the award be adjusted upward from
the amounts generated by the formula set forth above except upon
the consent of the shareholders.
The persons named in the accompanying Proxy intend to vote
such Proxy in favor of the proposal to approve the Key Executive
Plan, unless a contrary choice is indicated in the enclosed
Proxy. The affirmative vote of the holders of a majority of the
shares of Class B Common Stock of the Company represented and
entitled to vote at the Annual Meeting is necessary to approve
the proposal. The Board of Directors recommends a vote FOR this
proposal.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following sets forth information concerning the annual
and long-term compensation earned by the Chief Executive Officer
and four other officers of the Company (the "Named Executives")
for services rendered to the Company in all capacities for the
fiscal years ended December 30, 1995, December 31, 1994, and
January 1, 1994.
Long-Term
Other Compensation
Annual Options/
Annual Comp. SARS
Compensation ($)(2) (#) All Other
Comp. (3)
Name and Year Salary Bonus
Principal ($)(1)
Position
Tom E. Smith 1995 709,371 307,363 160,879 - 89,472
Chairman of 1994 661,584 286,686 73,362 - 87,510
the Board,
President and 1993 642,314 0 97,201 - 96,696
Chief
Executive
Officer
Joseph C. 1995 228,849 74,524 25,337 5000/0 23,163
Hall, Jr.
Senior Vice 1994 145,537 35,037 6,130 - 20,951
President of
Store
Operations and 1993 131,631 10,855 5,379 - 19,543
Chief
Operating
Officer
Dan A. Boone 1995 215,280 82,903 34,479 - 23,163
Vice President 1994 180,343 69,465 15,287 4,500/0 20,951
of Finance,
Chief
Financial 1993 174,413 21,455 9,526 - 28,776
Officer and
Secretary
R. William 1995 194,640 62,237 18,110 6,000/0 23,163
McCanless
Senior Vice 1994 120,980 29,125 3,323 - 17,412
President of
Administration 1993 89,183 3,680 732 1,500/0 11,640
and Assistant
Secretary
Eugene R. 1995 193,078 46,479 30,548 5,000/0 23,163
McKinley
Vice President 1994 183,818 44,253 15,093 - 20,951
of Human
Resources 1993 183,620 14,383 10,344 - 26,214
(1) Includes $95,000 that Mr. Smith deferred until 1996.
(2) Includes, in 1995, payments made to the Profit Sharing
Restoration Plan on behalf of the Named Executives, and in 1994
and 1993, payments made directly to the Named Executives 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 were,
for Mr. Smith, $131,697 in 1995, $62,151 in 1994 and $79,918 in
1993; for Mr. Hall, $17,586 in 1995, $0 in 1994 and $0 in 1993;
for Mr. Boone, $20,807 in 1995, $6,216 in 1994 and $0 in 1993;
for Mr. McCanless, $11,391 in 1995, $0 in 1994 and $0 in 1993;
for Mr. McKinley, $13,485 in 1995, $5,784 in 1994 and $0 in 1993.
On May 4, 1995, the Board of Directors adopted the Profit Sharing
Restoration Plan, pursuant to which excess Profit Sharing
payments will be credited to an account on behalf of each
participant. See "REPORT ON EXECUTIVE COMPENSATION - Profit
Sharing" below. See also footnote (2) below for information
relating to amounts contributed during 1995 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 that 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) Includes $20,250 contributed by the Company on behalf of
each of the Named Executives under the Company's Profit Sharing
Plan during 1995. Amounts set forth in this column also include,
for Tom 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 1995 was
approximately $66,309. The life insurance policies are assigned
to the Company as security for the amounts advanced under the
agreements and, upon the death of Mr. Smith (or earlier
termination of the policies), the Company is entitled to receive
directly from the insurance carrier an amount equal to the sums
advanced.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values
The following table sets forth the number of shares of the
Company's Class A Common Stock covered by outstanding stock
options held by each of the Named Executives at December 30,
1995, and the value of "in-the-money" stock options at December
30, 1995 as determined by the spread between the exercise price
and the closing price of shares of the Company's Class A Common
Stock, as reported by the NASDAQ National Market System on such
date. None of the Named Executives elected to exercise any of
their outstanding options during the fiscal year ended December
30, 1995.
Number of
Securities
Underlying
Unexercised Value of Unexercised
Options/SARs Options/SARs
at FY - End at FY-End
(#) ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable (1)
Tom E. Smith 37,500/37,500 -
Joseph C. Hall, Jr. 0/5,000 7,610
Dan A. Boone 500/4,750 -
R. William McCanless 2,000/6,250 7,340
Eugene R. McKinley 0/5,000 -
(1) All options held by Tom E. Smith, Dan A. Boone, 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 December
30, 1995, 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 $100 at the beginning of the periods
indicated, in the common stock of the Company and the stock of
the companies comprising the Standard & Poor's 500 Stock Index
and the Peer Group Index, and assuming the reinvestment of
dividends.
Data Points for Performance Graphs
Food Lion, Inc.
Five Year Performance Graph
12/90 12/91 12/92 12/93 12/94 12/95
Food Lion, Inc 100.00 209.46 91.63 76.67 61.39 69.67
S&P 500 Index 100.00 130.47 140.41 154.56 156.60 215.45
Peer Group 100.00 108.52 134.62 133.18 148.42 196.83
<TABLE>
Data Points for Performance Graphs
Food Lion, Inc.
Ten Year Performance Graph
12/85 12/86 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Food Lion, Inc 100.00 154.01 334.07 262.70 307.61 375.33 786.16 343.90 287.75 230.41 261.52
S&P 500 Index 100.00 118.67 124.90 145.64 191.79 185.83 242.45 260.92 287.22 291.02 400.37
Peer Group 100.00 111.39 121.99 175.96 241.67 256.51 278.36 345.31 341.61 380.69 504.84
</TABLE>
Option/SAR Grants in last Fiscal Year
The following table sets forth the number of shares of the
Company's Class A Common Stock for which stock options were
granted to each of the Named Executives during the fiscal year
ended December 30, 1995.
<TABLE>
Potential
Realizable Value
at Assumed Annual
Rates of Stock Price
Appreciation for
Option Term
Individual
Grants
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARS Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Tom E. Smith 0 - - - -
Joseph C. Hall, 5,000 3.41% $5.63 5/4/00 $7,770 $17,171
Jr.
Dan A. Boone 0 - - - - -
R. William 3,500 2.39% $5.63 5/4/00 $5,439 $12,019
McCanless
2,500 1.70% $5.81 9/13/00 $4,015 $8,871
Eugene R. 5,000 3.41% $6.06 7/5/00 $8,375 $18,506
McKinley
</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:
reward executive officers for the achievement of short-term
operating goals and for the enhancement of the long-term
shareholder value of the Company;
align the interests of executive officers with those of the
Company's shareholders with respect to short-term operating
results;
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 to enable the Company to attract and
retain highly skilled and qualified senior management.
The primary components of compensation paid by the Company
to executive officers are base salary and incentive compensation,
with incentive compensation broken down further into incentive
bonus payments, stock options, profit sharing and, if Proposal
(3) is adopted, restricted stock. See "Proposal (3)--Approval of
1996 Stock Incentive Plan of Food Lion, Inc." The relationship
of each principal component of compensation to the Company's
performance is discussed below.
Base Salary. Each year, the Senior Management Compensation
Committee reviews and approves the base salaries to be paid by
the Company during the following year to members of senior
management. Annual adjustments to base salaries are determined
based on a number of factors, including the Company's business
and financial performance and the executives' contributions to
the Company's performance.
In late 1994, Towers Perrin, an independent compensation
consulting firm, conducted a competitive analysis of executive
compensation focusing on the Company's top 14 executive officers
with a view to helping the Company ensure that its compensation
structure is sufficiently competitive to enable the Company to
attract and retain highly qualified members of senior management.
Towers Perrin's analysis of industry pay practices was based on a
compilation of competitive compensation and benefit information
from published surveys of the retail grocery industry, proxy
statements for 11 specific competitors in the grocery industry
(Albertson's, Inc., American Stores Co., Fleming, Giant Food,
Inc., Great Atlantic & Pacific Tea Co., Kroger, Publix, Safeway,
Super Value, Vons and Winn-Dixie Stores, Inc.), as well as Towers
Perrin's own compensation and benefit data sources. At its
December 5, 1994 meeting, the Senior Management Compensation
Committee made adjustments to the 1995 base salaries for the top
five executive officers taking into account the Company's
performance for the year, individual contributions to the
Company's performance, and the findings of Towers Perrin's
competitive analysis. Specifically, the Committee increased the
base salary for Mr. Smith by 7.5%, for John P. Watkins (then
Chief Operating Officer) by 40%, for Mr. Boone by 20%, for A.
Edward Benner, Jr. (who was among the top 5 executive officers at
the time of the Towers Perrin study) by 14% and for Mr. McKinley
by 5%. The intention of the Committee was to set the executive
officers' base salaries to take into account salaries paid by
competitors and the individual contributions of the given
executive to the Company's business objectives.
Towers Perrin updated its competitive analysis in 1995 using
the same methodology it used in its 1994 analysis. At its
December 4, 1995 meeting, the Senior Management Compensation
Committee again considered overall Company performance,
individual executives' roles and performance contributions, and
the Company's competitive pay position in determining appropriate
increases to executive officer base salaries for 1996. The
Committee increased the base salary for each of the Named
Executives in amounts ranging from 3% to 11%, except for
Mr. Hall, whose base salary was increased by 25%. The Committee
believes that these base salaries and base salary increases are
consistent with overall Company and individual performance and
the Company's general strategy of paying base salaries
competitive within the industry to allow it to retain valued
executives.
Tom E. Smith's terms of employment, including the level of
his base salary, are set forth in an August 1, 1991 Employment
Agreement between Mr. Smith and the Company (the "Smith
Employment Agreement"). The Smith Employment Agreement sets Mr.
Smith's base salary initially at $528,575 and provides that it
will be competitive within the Company's industry as determined
annually based upon a consultant's report of industry practices,
but that Mr. Smith's base salary will not be reduced in
connection with any annual review of industry practices. The
Smith Employment Agreement further provides that Mr. Smith shall
be eligible to participate in compensation plans of the Company
and that he shall be provided split dollar life insurance in
specified amounts. Except for base salary and split dollar life
insurance, the Smith Employment Agreement does not deal in detail
with any component of Mr. Smith's compensation.
Incentive Compensation.
Incentive Bonus. A substantial portion of each executive
officer's compensation package is in the form of an incentive
bonus designed to reward the achievement of short-term operating
goals and long-term increases in shareholder value.
The Company's Incentive Bonus Plan, which was adopted by the
Company in 1982, is designed to offer an incentive to those
employees whose performance most directly affects the Company's
profitability, as determined by the Senior Management
Compensation Committee. Under the terms of the Incentive Bonus
Plan, each employee selected for participation in the plan is
assigned a maximum potential bonus award, which is computed by
multiplying a predetermined percentage rate ranging from 10% to
45%, depending on the participant's position with the Company
(the "Potential Percentage Rate"), by each participant's salary
(the "Potential Bonus"). Under the plan, the total bonus
payable each year for all participants (the "Total Bonus") may
not exceed the lesser of (i) 2.1% of the Company's net income
before taxes and certain other adjustments in excess of a 15%
return on average shareholders' equity (the "ROE Bonus Amount")
and (ii) the aggregate of the Potential Bonus for all plan
participants (the "Maximum Bonus Amount"). A portion of each
participant's bonus is determined by multiplying one-half of such
participant's Potential Percentage Rate by such participant's
salary (the "Objective Bonus"). All or any of the remaining
Total Bonus is determined and allocated among participants at the
discretion of the Senior Management Compensation Committee (the
"Discretionary Bonus"). In determining the Discretionary Bonus,
the Senior Management Compensation Committee considers a number
of factors, including contributions of each participant toward
the accomplishment of business objectives during the year.
For the year ended December 31, 1995, each of the Named
Executives, including the Chief Executive Officer, received his
Potential Bonus, and the Total Bonus paid to participants under
the plan equaled the Maximum Bonus Amount. In determining the
Discretionary Bonus awarded to each executive, the Senior
Management Compensation Committee sought to reward senior
management for the Company's financial performance during 1995
and for increasing the long-term shareholder value of the
Company. The Senior Management Compensation Committee found that
the Company had substantially benefited during 1995 from improved
financial performance in nearly every area, continued growth of
the Company, the renovation of numerous stores including the
addition of deli-bakeries and the reorganization of certain
management responsibilities. In addition, the Senior Management
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.
In December 1995, the Internal Revenue Service issued its
final regulations for Section 162(m) of the Internal Revenue Code
("IRC") covering the non-deductibility of compensation in excess
of $1,000,000 for the five highest-paid officers named in the
proxy statements of public companies. IRC Section 162(m)
provides for deductibility of "performance-based" compensation in
excess of $1,000,000 so long as it meets the requirements of
Section 162(m), which include, among other things, that the
compensation be paid through application of a shareholder-
approved plan.
The Company has decided to take advantage of the relief
provided by Section 162(m) for performance-based compensation by
modifying the design of the annual incentive bonus arrangement
for certain key executives and requesting shareholder approval of
an incentive bonus plan that will apply to such key executives.
See "Proposal (4)-- Approval of Key Executive Annual
Incentive Bonus Plan." The Committee has determined that Mr.
Smith is the only executive officer currently affected by Section
162(m). In 1995, Mr. Smith deferred a portion of his
compensation and, as a result, his compensation did not reach the
non-deductibility threshold of Section 162(m). Mr. Smith is the
only executive who will participate in the Key Executive Annual
Incentive Bonus Plan in 1996, if the Plan is approved by the
shareholders under Proposal (4) herein. Under the terms of the
Plan, the Senior Management Compensation Committee may designate
other executive officers to participate in the Plan. Executives
who are participants in the Key Executive Annual Incentive Bonus
Plan will not be eligible simultaneously to participate in the
Company's Incentive Bonus Plan.
Under the terms of the Key Executive Plan, participants will
be eligible to receive bonuses if, and only to the extent that
pre-established performance goals are met. The potential maximum
bonus that each participant in the Plan is eligible to receive
will be set as a fixed percentage of profit in excess of a return
on equity threshold as predetermined by the Senior Management
Compensation Committee. The maximum incentive bonus award that
any participant may receive in any single year under this plan is
$750,000. At the discretion of the Senior Management
Compensation Committee, the actual bonus paid may be less than
that generated by application of the bonus formula described
above, but in no case may it be greater. If the Senior
Management Compensation Committee amends the Plan without first
gaining shareholder approval, compensation paid under the plan
may not be treated as performance-based under Section 162(m) and
may therefore not be deductible to the Company. Proposal (4)--
"Approval of Key Executive Annual Incentive Bonus Plan"-outlines
the main provisions of the new Key Executive Plan, under which
compensation is intended to qualify as performance-based
compensation under IRC Section 162(m).
Stock Options. 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 plan in effect during 1995,
with respect to Section 16 Insiders (as defined in the plan,
which definition includes all of the Named Executives), the Stock
Option Committee has full and final authority, in its discretion,
to determine within the terms of the plan, the individuals to
receive options pursuant to the 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 and
the time(s) when, and the conditions, if any, under which, each
option may be exercisable.
During 1995, options for 146,650 shares were granted under
the stock option plan to 441 employees. Of the Named Executives,
Mr. Hall was granted options to purchase 5,000 shares at an
exercise price of $5.63; Mr. McCanless was granted options to
purchase 3,500 shares at an exercise price of $5.63 and 2,500
shares at an exercise price of $5.81; and Mr. McKinley was
granted options to purchase 5,000 shares at an exercise price of
$6.06. The options granted to Mr. Hall and Mr. McKinley were to
reward them for their years of service to the Company. Mr.
McCanless was granted options both to reward him for his years of
service to the Company and in conjunction with his promotion to
the position Senior Vice President of Administration.
In 1995, the Stock Option Committee further reviewed the
recommendations from the competitive compensation analysis
performed by Towers Perrin in 1994, focusing on suggested
modifications to the Company's long-term incentive equity
arrangements and the design and administration of the Stock
Option Plan. Towers Perrin's report noted several areas for
modifying the Stock Option Plan to make it more consistent with
comparable plans provided by other large grocery and retail
companies, including: increasing the exercise term for all stock
options to 10 years; allowing for annual grants of stock options;
introducing a restricted stock grant feature to allow greater
flexibility to the Stock Option Committee in tailoring equity
awards to eligible participants that will more closely
approximate competitive practice; and adopting individual
participant award guidelines consistent with competitive
practice.
At its November 8, 1995 meeting, the Stock Option Committee
voted in favor of amending the 1991 Stock Option Plan, which
incorporates several of the modifications recommended by Towers Perrin.
In addition, the new plan sets forth an individual maximum award
limit of 300,000 shares per year, consistent with the
requirements of IRC Section 162(m), so that any compensation
realized by the Named Executives through the Plan will be treated
as "performance-based" compensation and will be deductible to the
Company for tax purposes. The proposed plan is outlined
and submitted for shareholder approval in Proposal (3)--
Approval of 1996 Employee Stock Incentive Plan of Food Lion, Inc.
Profit Sharing. 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.
The Board of Directors approved for 1995 a contribution to the
Company's Profit Sharing Plan equal to 13.5% of the 1995 wages of
all eligible employees.
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, as amended, 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 credited to the
executive's account under the Profit Sharing Restoration Plan,
which includes a credit of interest at a variable rate equal to
the 10-year Constant Maturity Treasury yield in effect on the
last day of the previous calendar quarter. Participants will
receive a single lump sum cash distribution in the amount of
their entire account balance on the first day of the month next
succeeding their termination of employment with the Company.
Supplemental Executive Retirement Plan. The Company also
sponsors a Supplemental Executive Retirement Plan ("SERP") for
certain key employees including each of the Named Executives.
This plan provides a supplemental benefit that, combined with
benefits from the Profit Sharing and Profit Sharing Restoration
plans, Deferred Compensation Agreements, and Social Security,
will provide estimated annual benefits at normal retirement (age
65) of up to 60 % of the participant's final average
compensation. A participant's "final average compensation" means
the annual average of the participant's annual cash compensation
(to include base salary and incentive bonus) paid to the
participant for the five completed calendar years that
immediately precede the year in which payments of benefits under
the plan are to begin. A participant who retires on or after his
normal retirement date, and has completed 20 or more years of
service to the Company will receive an annual retirement benefit
under the SERP payable as a single life annuity that is equal to
the difference between 60 % of his final average compensation and
certain "benefit offsets." The benefit offsets are the sum of:
(1) the participant's annuity under the Profit Sharing Plan; (2)
the Participant's annuity under the Profit Sharing Restoration
Plan; (3) the participant's annuity under a Deferred Compensation
Agreement with the Company; and (4) the participant's Social
Security benefit. Any participant who retires on or after his
normal retirement date and has completed fewer than 20 years of
service will receive a reduced benefit in proportion to the
participant's years of service. A participant who retires prior
to normal retirement age may be entitled to reduced benefits
under the Plan, depending on the participant's age and years of
service.
Based on currently available information and assumptions,
the estimated annual benefits under the SERP alone to the Named
Executives are $61,120 for Mr. Smith, and $0 for Messrs. Hall,
Boone, McCanless and McKinley. The projected SERP benefits to
Messrs. Hall, Boone, McCanless and McKinley are $0 because it is
estimated that the benefit offsets will exceed 60% of the final
average compensation for each of these Named Executives. These
estimates may change from time to time depending on the projected
final average compensation and the projected value of the benefit
offsets for each of the Named Executives.
This report is submitted by the Senior Management Compensation
Committee, the Stock Option Committee and the Board of Directors of
the Company.
SENIOR MANAGEMENT
COMPENSATION COMMITTEE: STOCK OPTION COMMITTEE:
Pierre-Olivier Beckers Pierre-Olivier Beckers
William G. Ferguson, Chairperson Jacqueline K. Collamore
Gui de Vaucleroy Bernard W. Franklin, Chairperson
Board of Directors
Pierre-Olivier Beckers Joseph C. Hall, Jr.
Jacqueline Kelly Collamore Margaret H. Kluttz
E. Charles de Cooman d'Herlinckhove Tom E. Smith,Chairman of the Board
William G. Ferguson Philippe Stroobant
Bernard W. Franklin Gui de Vaucleroy
Compensation Committee Interlocks and Insider Participation
The following persons served on the Senior Management
Compensation Committee during fiscal year 1995: William G.
Ferguson (Chairperson), Pierre-Olivier Beckers and Gui de
Vaucleroy. Messrs. Hall and Smith, who are executive officers of
the Company, are members of the Company's Board of Directors and
participate in decisions by the Board of Directors with respect
to annual contributions made by the Company to or for the benefit
of employees (including the Named Executives) under the Company's
Profit Sharing Plan.
Mr. de Vaucleroy, who sits on the Compensation Committee,
and Mr. Beckers, who sits on the Compensation and Stock Option
Committees, 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. See
"EXECUTIVE COMPENSATION, Summary Compensation Table." 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. The 1991 Agreement defines Good Cause as "(i)
willful misconduct of a material nature by Smith in connection
with the performance of his duties hereunder, (ii) drunkenness
or use of narcotics by Smith to the extent that it materially
affects his ability to perform his duties hereunder, (iii)
conviction of Smith of a felony or serious misdemeanor involving
moral turpitude, embezzlement or theft from the Company, (iv)
gross inattention to or dereliction of duty by Smith, or (v)
performance by Smith of any other willful acts that Smith knew or
reasonably should have known would be materially detrimental to
the business of the Company." 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. The 1991 Agreement
defines a "change in control" of the Company as a change in
control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"); provided that, without limitation, a change in
control of the Company shall be deemed to have occurred if (i)
the aggregate number of shares of the Company's voting securities
beneficially owned by Etablissements Delhaize Freres et Cie "Le
Lion" S.A. ("Delhaize") and Delhaize The Lion America, Inc. is
exceeded by the number of shares of the Company's voting
securities beneficially owned by any other person; (ii) at any
time during the term of the 1991 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 were
in office on the date of the 1991 Agreement ("incumbent Company
directors") no longer constituting a majority of the directors of
the Company; provided that, in making such determination, persons
who are elected to serve as directors of the Company and who are
approved by all of the directors in office on the date of such
election shall be treated as incumbent Company directors; or
(iii) at any time during the term of the 1991 Agreement there is
a change in the composition of the board of directors of Delhaize
resulting in a majority of the directors of Delhaize who were in
office on the date of the 1991 Agreement ("incumbent Delhaize
directors") not constituting a majority of the directors of
Delhaize; provided that, in making such determination, persons
who are elected to serve as directors of Delhaize and who are
approved by a majority of the directors in office on the date of
such election shall be treated as incumbent Delhaize directors.
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 shall have the one-time right, exercisable
within 30 business days after such termination, to sell to the
Company, and if Mr. Smith exercises such right, the Company shall
be obligated to purchase from Smith 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. Hall- $10,000, Mr. Boone - $10,000, Mr.
McCanless- $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(1) Period
Tom E. Smith $41,485 $20,743 $16,594
Joseph C. Hall, Jr. 17,161 8,581 6,865
Dan A. Boone 12,635 6,317 5,054
R. William McCanless 13,687 6,843 5,475
Eugene R. McKinley 11,283 -- 4,513
(1) Based on Mr. McKinley's current age of 62, he is not
eligible to receive payments under the 24-year period
calculation.
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 Nations
Bank 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 December 30, 1995 and the amounts
outstanding as of March 14, 1996:
Largest Amount Amount
Outstanding Outstanding
Name of Individual During 1995 March 14, 1996
Tom E. Smith -0- -0-
Joseph C. Hall, Jr. $33,700 -0-
Dan A. Boone $140,000 $140,000
R. William McCanless $97,250 $77,250
Eugene R. McKinley $170,500 $170,500
INFORMATION REGARDING DELHAIZE
Delhaize is the beneficial owner of approximately 39.5% and
51.1% 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 35% of the outstanding
stock of Delhaize is held by the descendants of the founders and
their relatives, including Messrs. Beckers, Stroobant and de
Vaucleroy, who are nominated to serve as directors of the
Company, and including Mr. de Cooman, who is currently a director
of the Company but who is not nominated to serve as a director 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
Pursuant to Rule 14a-8, under the Securities Exchange Act of
1934, 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 1997 Annual Meeting of the Company must be
received by the Company no later than November 29, 1996 for
inclusion in the Proxy Statement and proxy card relating to such
meeting. Subject to any rights that a shareholder has, pursuant
to Rule 14a-8, to have a proposal included in the Proxy
Statement, if a shareholder wishes to raise a matter at a
shareholders' meeting, or if a shareholder wishes to nominate a
person for election to the Board of Directors of the Company at
an annual or special meeting, the shareholder is required by the
Company's bylaws to give written notice to the Secretary of the
Company at least 10 but no more than 60 days before the meeting,
unless fewer than 21 days' notice of the meeting is given to
shareholders. If fewer than 21 days' notice of the meeting is
given to shareholders, then the notice by the shareholder must be
received by the Secretary no fewer than 10 days after the date on
which the notice of the meeting is mailed to shareholders. See
the Company's bylaws for the specific requirements for raising
matters at shareholders' meetings and for nominating persons to
the Board of Directors.
OTHER MATTERS
The management of the Company knows of no other business
that 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.
A shareholder proposal has been omitted from this proxy
statement without objection from the staff of the Securities and
Exchange Commission.
By order of the Board of Directors.
TOM E. SMITH
Chairman of the Board,
President and Chief
Executive Officer
March 29, 1996
Appendix A
PROXY
FOOD LION, INC.
P.O. Box 1330, Salisbury, North Carolina 28145-1330
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints TOM E. SMITH and DAN A. BOONE, as
agents, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated below,
all the shares of Class B Common Stock of Food Lion, Inc. held of
record by the undersigned on March 14, 1996 at the Annual Meeting
of the Shareholders to be held May 2, 1996 at 10:00 A.M. at the
Catawba College Keppel Auditorium, Salisbury, North Carolina, and
at any adjournment thereof.
The Board of Directors recommends a vote "FOR" all nominees
in Item 1 and "FOR" Proposals 2, 3 and 4.
1. ELECTION OF DIRECTORS
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) listed below
Pierre-Olivier Beckers; Dr. Jacqueline K. Collamore; Jean-
Claude Coppieters; William G. Ferguson; Dr. Bernard W.
Franklin; Joseph C. Hall, Jr.; Margaret H. Kluttz; Tom E.
Smith; Philippe Stroobant and Gui de Vaucleroy.
(Instruction: To withhold authority to vote for any
individual nominee, write that nominee's name on the space
provided below.)
Name(s):
2. PROPOSAL TO RATIFY THE APPOINTMENT OF COOPERS & LYBRAND,
INDEPENDENT ACCOUNTANTS, FOR THE YEAR ENDING DECEMBER 28, 1996:
For Against Abstain
3. PROPOSAL TO APPROVE THE 1996 EMPLOYEE STOCK INCENTIVE PLAN
OF FOOD LION, INC.
For Against Abstain
4. PROPOSAL TO APPROVE THE KEY EXECUTIVE ANNUAL INCENTIVE BONUS
PLAN.
For Against Abstain
IN THEIR DISCRETION, THE PROXY AGENTS ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
(CONTINUED ON OTHER SIDE)
(CONTINUED FROM OTHER SIDE)
This proxy, when properly dated and executed, will be voted in
the manner directed herein by the undersigned shareholder. If no
direction is made, this proxy will be voted FOR all the nominees
for Director named above, and FOR Proposals 2, 3 and 4.
Please sign exactly as name appears below. When shares are held
by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate
name by the president or other authorized officer. If a
partnership, please sign in partnership name by an authorized
person.
Signature
Signature if held jointly
DATED: ,1996
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING
THE ENCLOSED ENVELOPE.
Appendix B
1996 EMPLOYEE STOCK INCENTIVE PLAN
OF
FOOD LION, INC. 1
Purpose.
The purpose of the 1996 Employee Stock Incentive Plan
of Food Lion, Inc. (the "Plan") is to encourage and enable
selected key employees of Food Lion, Inc. (the "Corporation") to
acquire or to increase their holdings of Class A common stock of
the Corporation (the "Common Stock") in order to promote a closer
identification of their interests with those of the Corporation
and its shareholders, thereby further stimulating their efforts
to enhance the efficiency, soundness, profitability, growth and
shareholder value of the Corporation. This purpose will be
carried out through the granting of incentive stock options
("Incentive Options"), nonqualified stock options ("Nonqualified
Options") and Restricted Stock (herein so called). Incentive
Options and Nonqualified Options shall be referred to herein
collectively as "Options."
Administration of the Plan.
(a) The Plan shall be administered by those members of
the Stock Option Committee of the Board of Directors of the
Corporation (the "Committee"), but not less than two, who (1) are
eligible to administer the Plan pursuant to the disinterested
administration requirements of Rule 16b-3(c)(2)(i) (or any
successor rule) under the Securities Exchange Act of 1934 and (2)
qualify as "outside directors," as such term is used for purposes
of Section 162(m) of the Internal Revenue Code of 1986 and any
rules and regulations promulgated thereunder (the "Code"). Any
action taken by the Committee may be taken by a written
instrument signed by all of the members of the Committee and any
such action so taken by written consent shall be as fully
effective as if it had been taken by a majority of the members at
a meeting duly held and called. Subject to the provisions of the
Plan, the Committee shall have full and final authority in its
discretion to take any action with respect to the Plan including,
without limitation, the following: (i) to prescribe the form or
forms of the investments or agreements evidencing any Options or
Restricted Stock granted under the Plan; (ii) to establish, amend
and rescind rules, regulations and guidelines for the
administration of the Plan; (iii) to construe and interpret the
Plan and the instruments or agreements evidencing Options or
Restricted Stock granted under the Plan; (iv) to establish and
interpret rules, regulations and guidelines for administering the
Plan; and (v) to make all other determinations deemed necessary
or advisable for administering the Plan.
(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 or Restricted Stock, the nature of each Option as an
Incentive Option or a Nonqualified Option, the times or effective
dates when Options or Restricted Stock shall be granted, the
number of shares of Common Stock to be granted as Restricted
Stock or 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).
1 1991 Plan as Amended in 1994 and 1996.
(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 or salary
grade levels set forth in Exhibit A to the Plan or who is
employed by the Corporation in one of the positions or salary
grade levels 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 or salary grade levels to or
deleting positions or salary grade levels from the list of those
eligible for awards, increasing or decreasing the number of
Options granted upon promotion to a position or salary grade
level or completion of a period of service in a position or
salary grade level , and increasing or decreasing the period of
service in a position or salary grade level 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
or Restricted Stock in addition to those Options granted pursuant
to Section 2(c), and to determine which of such individuals shall
receive such Options or Restricted Stock, 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. Effective Date.
The effective date of the Plan, as amended, shall be
February 8, 1996 (the "Effective Date"). Options may be granted
under the Plan on and after the effective date, but not after
February 8, 2006.
4. Shares of Common Stock Subject to the Plan.
The number of shares of Common Stock that may be issued
pursuant to the exercise of Options granted hereunder and the
grant of Restricted Stock shall not exceed in the aggregate Ten
Million (10,000,000) shares of either authorized but unissued
shares of Common Stock of the Corporation, or shares of Common
Stock held in the Corporation's treasury, including shares
purchased on the open market. The Corporation hereby reserves
sufficient authorized shares of Common Stock to meet the exercise
of Options granted hereunder or the grant of Restricted Stock
hereunder. Any shares subject to an Option or a Restricted Stock
grant which for any reason expires or is terminated unexercised
as to such shares may again be the subject of a grant under the
Plan of an Option or Restricted Stock. If there is any change in
the shares of Common Stock because of a merger, consolidation or
reorganization involving the Corporation or a related
corporation, or if the Board of Directors of the Corporation
declares a stock dividend or stock split distributable in shares
of Common Stock, or if there is a change in the capital stock
structure of the Corporation or a related corporation affecting
the Common Stock, the number of shares of Common Stock reserved
for issuance under the Plan shall be correspondingly adjusted,
and the Committee shall make such adjustments to Options,
Restricted Stock grants or to any provisions of this Plan as the
Committee deems equitable to prevent dilution or enlargement of
Options. The maximum aggregate number of shares of Common Stock
with respect to which Options may be granted and that may be
granted as Restricted Stock (or any combination of grants of
Options and Restricted Stock) to any employee in any calendar
year during the term of this Plan shall be three hundred thousand
(300,000) shares.
5.Eligibility.
An Option or shares of Restricted Stock may be granted
only to an individual who satisfies the following eligibility
requirements on the date of grant.
(a) The individual is an employee of the Corporation
or a related corporation. For this purpose, an individual
shall be considered to be an "employee" only if there exists
between the individual and the Corporation or a related
corporation the legal and bona fide relationship of employer
and employee. In determining whether such a relationship
exists, the regulations of the United States Treasury
Department relating to the determination of the employment
relationship for the purpose of collection of income tax on
wages at the source shall be applied.
(b) The individual falls within the classification of
key employees of the Corporation or a related corporation.
For this purpose, "key employees" are those employees who
are in a position materially to affect the profits of the
Corporation or such related corporation by reason of the
nature and extent of each such employee's duties,
responsibilities, personal capabilities, performance and
potential. Each individual who is employed by the
Corporation in one of the positions or salary grade levels
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.
(c) The individual, being otherwise eligible to
receive an Option or Restricted Stock 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") or to whom Restricted Stock shall be
granted.
(d) With respect to Incentive Options, the individual
does not own, immediately before the time that the Incentive
Option is granted, stock possessing more than ten percent of
the total combined voting power of all classes of stock of
the Corporation. For this purpose, an individual will be
deemed to own stock which is attributable to him under
Section 424(d) of the Code.
6. Options.
(a) Option Price.
Both Incentive Options and Nonqualified
Options may be granted under the Plan. The price per share
at which an Option may be exercised (the "Option Price")
shall be the fair market value per share of the Common Stock
on the date the Option is granted. For this purpose, the
following rules shall apply:
(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.
(ii) The fair market value of the Common
Stock on the date the option is granted shall be
determined in good faith by the Committee, and shall
mean the closing sales price of such Common Stock as
reported on the NASDAQ National Market System on the
date the Option is granted, or if the Option is not
granted on a trading date, on the trading date
immediately preceding the date the Option is granted;
provided, that if the Common Stock is not included in
the NASDAQ National Market System on the date the
Option is granted, the fair market value of the Common
Stock shall be determined in accordance with the
applicable provisions of Section 20.2031-2 of the
Federal Estate Tax Regulations, or in any other manner
consistent with the Code and accompanying regulations.
(iii) In no event shall there first become
exercisable by the Optionee in any one calendar year
Incentive Options granted by the Corporation or any
related corporation with respect to shares having an
aggregate fair market value (determined at the time an
option is granted) greater than $100,000; provided,
that to the extent that an Incentive Option granted
under this Plan exceeds the foregoing limitation, it
shall be treated for all purposes under the Plan as a
Nonqualified Option.
(b) Option Period and Limitations on the Right to
Exercise Options.
(i) 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. Such period shall not extend more than ten
years from the date on which the Option is granted.
Any Option or portion thereof not exercised before
expiration of the Option Period shall terminate.
(ii) An Option may be exercised by giving
written notice of at least ten days to the Committee at
such place as the Committee shall direct. Such notice
shall specify the number of shares of Common Stock to
be purchased pursuant to the Option and the aggregate
purchase price to be paid therefor, and shall be
accompanied by the payment of such purchase price.
Such payment shall be in the form of cash or shares of
Common Stock owned by the Optionee at the time of
exercise, or in any combination of cash and shares.
Shares of Common Stock tendered in payment on the
exercise of an Option shall be valued at their fair
market value on the date of exercise, as determined by
the Committee by applying the provisions of Section
6(a)(ii).
(iii) No Option shall be exercised unless the
Optionee is, at the time of exercise, an employee as
described in Section 5(a), and has been an employee
continuously since the date the Option was granted,
subject to the following:
(A) An Option shall not be affected by
any change in the terms, conditions or status of
the Optionee's employment, provided that the
Optionee continues to be an employee of the
Corporation or a related corporation.
(B) The employment relationship of an
Optionee shall be treated as continuing intact for
any period that the Optionee is on military or
sick leave or other bona fide leave of absence,
provided that the period of such leave does not
exceed ninety days or, if longer, as long as the
Optionee's right to reemployment is guaranteed
either by statue or by contract. The employment
relationship of an Optionee shall also be treated
as continuing intact while the Optionee is not in
active service because of such disability under
Section 422. For purposes of this Section
6(b)(iii)(B), "disability" shall mean the
inability to engage in any substantial gainful
activity by reason of any medically determinable
physical or mental impairment which can be
expected to result in death, or which has lasted
or can be expected to last for a continuous period
of not less than twelve months. The Committee
shall determine whether there is a disability
within the meaning of this section.
(C) If the employment of an Optionee is
terminated because of retirement (herein,
"retirement") as provided in Section 1.20 (or any
successor provision) of the Profit Sharing
Retirement Plan of Food Lion, Inc. or any
successor plan thereto applicable to the Optionee,
or if the Optionee dies while he is an employee or
after his termination of employment because of
retirement, the Option may be exercised only to
the extent exercisable on the date of the
Optionee's retirement or death (the "termination
date"), except that the Committee, in its sole and
absolute discretion, may accelerate the date that
any Option which was not otherwise exercisable on
the termination date shall be exercisable in whole
or in part, without any obligation to accelerate
such date with respect to other Options granted to
the Optionee or to accelerate such date with
respect to Options granted to any other Optionee,
or to treat all Optionees similarly situated in
the same manner. The Option must be exercised, if
at all, prior the earlier of: (1) the close of the
period of twelve months (three months in the case
of an Incentive Option) next succeeding the
termination date; or (2) the close of the Option
Period. In the event of the Optionee's death,
such Option shall be exercisable by such person or
persons as shall have acquired the right to
exercise the Option by will or by the laws of
intestate succession.
(D) If the employment of the Optionee
is terminated for any reason other than as
provided in subparagraph (C) immediately
preceding, his Option may be exercised only to the
extent exercisable on the date of such termination
of employment, except that the Committee, in its
sole and absolute discretion, may accelerate the
date that any Option which was not otherwise
exercisable on the date of such termination of
employment shall be exercised in whole or in part,
without any obligation to accelerate such date
with respect to other Options granted to the
Optionee or to accelerate such date with respect
to Options granted to any other Optionee, or to
treat all Optionees similarly situated in the same
manner. The Option must be exercised, if at all,
prior to the earlier of: (1) the close of the
period of three months less one day next
succeeding the date of termination of employment;
or (2) the close of the Option Period. If the
Optionee dies following such termination of
employment and prior to the earlier of the dates
specified in (1) and (2) in the immediately
preceding sentence, the Optionee shall be treated
as having died while employed under subparagraph
(C) immediately preceding (treating for this
purpose the Optionee's date of termination of
employment as the termination date).
(iv) An Optionee or his legal representative,
legatees or distributees shall not be deemed to be
the holder of any shares of Common Stock subject
to an Option unless and until certificates for
such shares are issued to him or them under the
Plan. Common Stock certificates shall be issued
and distributed as soon as practicable following
the date of exercise of an Option.
(c) Stock Option Agreement.
The grant of any Option under the Plan shall
be evidenced by the execution of a 1996 Employee Stock
Option Agreement of Food Lion, Inc. (the "Agreement")
between the Corporation and the Optionee. Such Agreement
shall set forth the date of grant of the Option, the number
of shares of Common Stock subject to the Option, the Option
Price, the Option Period and the time or times when and the
conditions upon the happening of which the Option shall
become exercisable. Such Agreement shall also designate the
Option as an Incentive Option or a Nonqualified Option, and
shall set forth any restrictions which shall apply to the
shares to be purchased thereunder, and any other terms and
conditions consistent with the provisions of the Plan and
applicable law and regulations to which the Option shall be
expressly made subject at the time the Option is granted.
(d) Nontransferability of Options and Shares.
No Option shall be transferable (including by
pledge or hypothecation) other than by will or the laws of
intestate succession or, if applicable, pursuant to a
qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. An Option shall
be exercisable during the Optionee's lifetime only by him.
Shares of Common Stock acquired upon the exercise of an
Option shall not, without the consent of the Committee, be
disposed of until the expiration of six months after the
date the Option was granted.
7. Restricted Stock.
(a) Terms and Conditions.
Grants of Restricted Stock shall be subject
to the terms and conditions set forth in this Section 7 and
any additional terms and conditions, not inconsistent with
the express terms and provisions of the Plan, as the
Committee, in its sole discretion, shall set forth in a
grant instrument or agreement. Restricted Stock may be
granted alone or in addition to any grant of Options under
the Plan. Subject to the terms of the Plan, the Committee
shall determine the number of shares of Restricted Stock to
be granted to an individual and the Committee may impose
different terms and conditions on any particular Restricted
Stock grant made to any individual.
(b) Restrictions.
A grant of Restricted Stock is a grant of a
number of shares of Common Stock to a Participant, subject
to such restrictions, terms and conditions as the Committee
deems appropriate, including, without limitation, (a)
restrictions on the sale, assignment, transfer,
hypothecation or other disposition of such shares, (b) the
requirement that the Participant deposit such shares with
the Company while such shares are subject to such
restrictions, (c) the requirement that such shares be
forfeited upon termination of employment for specified
reasons within a specified period of time and
(d) restrictions on the vesting of such shares based on
service, the attainment of performance goals, a change of
control of the Corporation or a related corporation or other
factors.
(c) Restriction Period.
In accordance with Sections 7(a) and 7(b) of
the Plan, Restricted Stock shall only become unrestricted
and vest in the Participant in accordance with such vesting
schedule relating to the restriction applicable to such
Restricted Stock, if any, as the Committee may establish at
the time of the grant in the relevant grant instrument or
agreement (the period over which such stock vests being
referred to herein as the "Restriction Period"). During the
Restriction Period such stock shall be and remain unvested
and a Participant may not sell, assign, transfer, pledge,
encumber or otherwise dispose of or hypothecate such stock.
Upon satisfaction of the vesting schedule and any other
applicable restrictions, terms and conditions, the
Participant shall be entitled to receive payment of the
Restricted Stock or a portion thereof, as the case may be,
as provided in Section 7(d) of the Plan.
(d) Issuance of Restricted Stock Shares.
The actual issuance of any share of
Restricted Stock issued in connection with a grant hereunder
may be evidenced in such manner as the Committee, in its
sole discretion, shall deem appropriate including, without
limitation, book-entry registration or issuance of a stock
certificate or certificates. In the event any stock
certificate is issued in respect of Restricted Stock granted
hereunder, such certificate shall bear, among any other
required legends, the following legend:
The transferability of this certificate and the
shares of stock represented hereby are subject to the
terms and conditions (including, without limitation,
forfeiture events) contained in the 1996 Employee Stock
Incentive Plan of Food Lion, Inc. and a grant
instrument or agreement delivered or entered into
between the registered owner hereof and Food Lion, Inc.
Copies of such Plan and instrument or agreement are on
file in the office of the Secretary of Food Lion, Inc.,
and Food Lion, Inc. will furnish to the record holder
of the certificate, without charge, upon written
request at its principal place of business a copy of
such Plan and grant instrument or agreement.
The Committee may provide that the Corporation may retain,
at its option, the physical custody of any stock certificate
representing any grants of Restricted Stock during the
Restriction Period or require that the Restricted Stock be
placed in escrow or trust, along with a stock power endorsed
in blank, until all restrictions or vesting provisions are
satisfied or removed.
(e) Payment of Restricted Stock Grants.
After the satisfaction and/or lapse of
the restrictions, terms and conditions established by
the Committee in respect of a grant of Restricted
Stock, a certificate (without the legend set forth in
Section 7(d) above) for the number of shares of Common
Stock which are no longer subject to such restrictions,
terms and conditions shall, as soon as practicable
thereafter, be delivered to the Participant.
(f) Shareholder Rights.
Except as may otherwise be provided in
the relevant grant instrument or agreement, an
individual shall have, during the Restriction Period
with respect to the shares of Common Stock received
under a grant of Restricted Stock, all of the rights of
a shareholder of the Corporation, including, without
limitation, the right to vote the shares and to receive
any cash dividends. Stock dividends issued with
respect to such Restricted Stock shall be treated as
additional Restricted Stock grants and shall be subject
to the same restrictions and other terms and conditions
that apply to the shares of Restricted Stock with
respect to which such stock dividends are issued.
8. Withholding.
The Committee shall require any Optionee or recipient
of Restricted Stock hereunder to timely pay the Corporation in
cash the amount of any tax or other amount required by any
governmental authority to be withheld and paid over by the
Corporation to such authority for the account of such recipient.
Notwithstanding the foregoing, the Committee may provide at the
time of grant that the Optionee or recipient shall, or that the
Optionee or recipient may, satisfy such obligation in whole or in
part, and any other local, state, or federal income tax
obligations resulting from the exercise or surrender of a
Nonqualified Option or the vesting of Restricted Stock by
electing (such election being referred to herein as the
"Election") to deliver to the Corporation shares of Common Stock
owned by the Optionee at the time of exercise, or to have the
Corporation withhold from the shares of Common Stock to which the
recipient is entitled. The number of shares to be delivered or
withheld shall have a fair market value (determined in accordance
with Section 6(a)(ii) hereof) as of the date that the amount of
tax to be withheld is determined (the "Tax Date") as nearly equal
as possible to (but not exceeding) the amount of such obligations
being satisfied. Except to the extent the Committee determines
otherwise, the following additional rules shall apply with
respect to Elections:
(a) Each Election must be made in writing to the
Committee prior to the Tax Date. The Committee may reject
any Election, or may suspend or terminate the right to make
an Election. An Election, once made by the recipient and
accepted by the Committee, shall be irrevocable.
(b) Notwithstanding the foregoing, if a recipient is
an officer or director of the Corporation within the meaning
of Section 16 of the Securities Exchange Act of 1934, then,
unless approved by the Committee, (i) no Election shall be
made as of a Tax Date which occurs within six months of the
date of grant of a Nonqualified Option, and (ii) the
Election, as well as the withholding of shares, must occur
during a period beginning on the third business day
following the date or release for publication of the
Corporation's quarterly or annual summary statements of
revenues and earnings and ending on the twelfth business day
following such date.
9. No Right or Obligation of Continued Employment.
Nothing contained in the Plan shall require the
Corporation or a related corporation to continue to employ the
recipient of an Option or Restricted Stock, nor shall any such
individual be required to remain in the employment of the
Corporation or a related corporation. Options granted under the
Plan shall not be affected by any change in the duties or
position of the Optionee, as long as such individual remains an
employee of the Corporation or a related corporation (taking into
account the provisions of Section 6(b)(iii)(B) hereof). A change
in the duties or position of a recipient of Restricted Stock
shall have such effect, if any, on such grant of Restricted Stock
as may be provided in the relevant grant instrument or agreement.
10. Retirement Plans.
In no event shall any amounts accrued, distributable or
payable under the Plan be treated as compensation for the purpose
of determining the amount of contributions or benefits to which
any person shall be entitled under any retirement plan sponsored
by the Corporation or a related corporation that is intended to
be a qualified plan within the meaning of Section 401(a) of the
Code.
11. Certain Definitions.
For purposes of the Plan, the following terms shall
have the meaning indicated:
(a) "Related corporation" shall mean any parent,
subsidiary or predecessor of the Corporation.
(b) "Parent" or "parent corporation" shall mean any
corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation if each
corporation other than the Corporation owns stock possessing
fifty percent or more of the total combined voting power of
all classes of stock in another corporation in the chain.
(c) "Subsidiary" or "subsidiary corporation" shall
mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the
Corporation of each corporation other than the past
corporation in the unbroken chain owns stock possessing
fifty percent or more of the total combined voting power of
all classes of stock in another corporation in the chain.
(d) "Predecessor" or "predecessor corporation" shall
mean a corporation which was a party to a transaction
described in Section 424(a) of the Code (or which would be
so described if a substitution or assumption under that
Section had occurred) with the Corporation, or a corporation
which is a parent or subsidiary of the Corporation, or a
predecessor of any such corporation.
(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.
12. Amendment and Termination of the Plan.
The Plan may be amended or terminated at any time by
the Board of Directors of the Corporation; provided that such
amendment or termination shall not, without the consent of an
Optionee or grantee of Restricted Stock, adversely affect the
Optionee's or grantee's rights with respect to an Option or
shares of Restricted Stock previously granted; and provided
further, that approval by the shareholders of the Corporation
shall be required for any amendment which would (i) increase the
number of shares of Common Stock which may be issued under the
Plan, except to the extent of adjustments pursuant to Section 4,
or (ii) materially change the requirements for eligibility to be
an Optionee or grantee of Restricted Stock. Notwithstanding the
foregoing, shareholder approval shall be required for any other
amendments which require such approval in order to secure an
exemption from Section 16(b) of the Securities Exchange Act of
1934.
13. Restrictions on Shares.
The Committee may impose such restrictions on any
shares of Common Stock acquired pursuant to grants hereunder as
it may deem advisable, including without limitation restrictions
under the Securities Act of 1933, as amended, and under any Blue
Sky or securities laws applicable to such shares. The Committee
may cause a restrictive legend to be placed on any certificate
issued pursuant to an Option hereunder in such form as may be
prescribed from time to time by applicable laws and regulations
or as may be advised by legal counsel.
14. Applicable Law.
The Plan shall be governed by and construed in
accordance with the laws of the State of North Carolina, except
to the extent federal law may be applicable.
15. Shareholder Approval.
The Plan is subject to approval by the shareholders of
the Corporation on or before June 1, 1996. Options and
Restricted Stock granted prior to such shareholder approval shall
be conditioned upon and shall be effective only upon approval of
the Plan by such shareholders on or before such date.
16. Predecessor Plans.
The Food Lion, Inc. 1983 Employee Stock Option Plan, as
amended, and the 1991 Employee Stock Option Plan of Food Lion,
Inc. (together, the "Predecessor Plans") shall continue in effect
following the effective date of this Plan, and shall be
applicable with respect to all options issued under the
Predecessor Plans before the effective date of this Plan.
EXHIBIT A
TO
1996 EMPLOYEE STOCK INCENTIVE
PLAN OF FOOD LION, INC.
Salary Grade I, II 0 Minimum
0 Discretionary after five years of service
Salary Grade III 50 Minimum
50 Discretionary after five years of service
Salary Grade IV 100 Minimum
100 Discretionary after five years of service
Salary Grade V 100 Minimum
150 Discretionary after five years of service
Salary Grade VI 250 Minimum
250 Discretionary after five years of service
Salary Grade VII 500 Minimum
500 Discretionary after five years of service
Salary Grade VIII, IX, X 1000 Minimum
0 Discretionary after five years of service
Appendix C
Food Lion, Inc.
Key Executive Annual Incentive Bonus Plan
March 1996
I. Purpose
The purpose of the Key Executive Annual Incentive Bonus Plan
is to provide a means to reward Food Lion's Chief Executive
Officer and other key executive officers as designated by the
Senior Management Compensation Committee of the Board of
Directors for the success of Food Lion, Inc. The Plan design
creates the opportunity for cash awards based on annual profits
in excess of a threshold level of return on average
shareholders' equity. It is expected that the opportunity for
additional compensation provided by the Plan will serve to
motivate and retain the CEO and other designated Participants
and provide appropriate rewards for continued and growing
profitability.
II. Definitions
The following terms shall have the meanings set forth below
when used in connection with the Plan and its related documents:
A. "Plan" shall mean this Key Executive Annual Incentive
Bonus Plan.
B. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
C. "Company" shall mean Food Lion, Inc., and any
subsidiary thereof.
D. "Committee" shall mean the Senior Management
Compensation Committee. Members of this Committee
shall be appointed from time to time by the Board of
Directors from its own membership.
E. "Participant" shall mean the Chief Executive Officer of
Food Lion, Inc. or any other executive officer of the
Company who is selected by the Committee pursuant to
Article III hereof.
F. "Plan Year" shall mean the fiscal year in which the
Plan is in effect.
G. "Profits" shall be determined on the basis of the
Company's fiscal year by the Company's independent
public accountants in accordance with generally accepted
accounting principles, consistently applied, measured after
Profit-Sharing Plan accruals or contributions and
before any accrual, charge or deduction of the
following items:
1. federal and state income taxes;
2. the amount of the Plan Year Bonus Funding as
determined under Article V hereunder;
3. any LIFO adjustments to the inventory of the
Company;
4. Non-recurring, non-cash charges; and
5. Non-cash charges or deductions that result from
purchase accounting for acquisitions that occur
after the effective date of the Plan.
H. "Average Equity" shall mean the sum of the
shareholders' equity at the beginning of the
Company's fiscal year plus the shareholders' equity at the end of
the fiscal year before any effect of the Plan Year
Bonus Funding under this Plan (both determined by
the Company's independent public accountants in accordance with
generally accepted accounting principles, consistently applied)
divided by two.
I. "Return on Average Equity" shall be measured as Profits
divided by Average Equity.
J. "Beneficiary/Estate" shall mean the Participant's
named beneficiary of any Plan awards, on file with
the Company, or where no beneficiary has been named, the
Participant's estate.
K. "Normal Retirement" shall mean the normal retirement
date specified within the Company's qualified
retirement plan(s).
L. "Permanent Disability" shall be defined in the
Company's long-term disability plan or as defined
by the Committee.
III. Eligibility and Notification of Participation
The Participants shall be selected by the Committee from
among the class consisting of the Chief Executive Officer of the
Company and other executive officers of the Company. The
selection process shall occur annually, no later than 90 days
after the beginning of the Plan Year, and those employees
selected shall be notified of their participation in the
upcoming Plan Year through a written communication from the
Committee.
IV. Bonus Potential
The Bonus Potential for each Participant in the plan shall
be set by the Committee no later than 90 days after the
beginning of the Plan Year. The Bonus Potential shall be
set as a fixed percentage (the "Participant's Percentage of
Net Profit") of Profit in excess of a fixed percentage
Return On Average Equity (ROAE) threshold. The aggregate of
all of the Participants' Percentages of Net Profit shall not
exceed 100 %.
V. Individual Award Determination
Each Participant's bonus award shall be calculated as
specified in Article IV based upon the Company's financial
performance for the fiscal year. Under no circumstances may
any Participant's actual bonus award exceed the dollar amounts
generated by the formula and procedure specified in Article
IV. The actual awards may, however, be adjusted downward from
the amounts generated by the formula, subject to the discretion
of the Committee and taking into account the Participant's
individual performance objectives for the fiscal year, as
confirmed in writing within 90 days of the start of the fiscal
year, and such other factors as the Committee may deem
relevant for consideration; provided, however, that a reduction
in the amount of one Participant's bonus shall not result in an
increase in the amount payable to another Participant.
VI. Individual Maximum Bonus Award
The maximum annual bonus award that may be paid to any
single Participant in the Plan shall be $750,000.
VII. Payment of Awards
Awards shall be paid in cash annually on or before March 15
following the Plan Year in which any performance goal
established under the Plan is exceeded on an Award Payment Date
selected by the Committee, unless the Participant elects to defer
all or a percentage of the award through the deferral option
of Article VIII. Awards shall only be paid upon the
determination and written certification by the Committee that the
performance goal of achieving a minimum ROAE, as established
by the Committee in accordance with Paragraph IV herein was
satisfied.
VIII. Deferral Option
Instead of receiving their awards on the Award Payment Date,
Participants may elect to defer all or a percentage of their
awards from any Plan Year until retirement or for some other
specified purpose. This election to defer must be made through a
written communication to the Committee prior to the Plan year
with respect to which the award would be paid (i.e., prior to
commencement of the period of service with respect to which
the award would be paid). The election shall be effective for all
subsequent Plan Years unless, prior to the beginning of any
Plan Year, the Participant revokes or changes the deferral
election. Any revocation or change shall be effective only for
Plan Years subsequent to the fiscal year in which such
revocation or change is filed with the Committee.
All amounts deferred under the Plan, plus accrued interest,
shall be unsecured, general obligations of the Company. Title
to and beneficial ownership of any assets, whether cash or
investments, which the Company may set aside or earmark to meet
its deferred obligation under the Plan, shall at all times
remain the property of the Company; and no Participant or
beneficiary shall under any circumstance acquire any property
interest in any specific assets or the Company.
A. Deferral Limitation
The deferral option is subject to the following
limitation: If an election is made to defer, the
minimum deferral for any Plan Year shall be $1,000.
The Participant's election must state which of the
following procedures shall apply in the event that his/her
elected deferral percentage results in less than $1,000
deferral:
1. No deferral shall be made for the Plan Year and
payment of the entire award shall occur on the
Award Payment Date;
2. The deferral percentage of the award shall
automatically be increased to defer the
minimum $1,000. If the total award is less than $1,000, no
deferral will be made and payment will occur on the Award
Payment Date.
B. Payment of Deferred Awards
Deferred awards shall be credited to the deferral
account on the Award Payment Date. Interest shall
accrue on deferred awards at the 10-year government bond
rate adjusted annually as of each anniversary of the Award
Payment Date on which the award is credited to a deferral
account. The deferred principal, plus the interest on
the principal, shall be payable to the Participant, or, in the
event of the Participant's death, to his/her
beneficiary/estate, in one single lump sum payment
from among the following payment methods or contingency payment
methods elected by the Participant:
1. Contingency Payment Methods
Deferred principal and accrued interest may also
be payable to the Participant, or, in the
event of his/her death, to his/her beneficiary/estate,
under any of the following conditions:
a. Participant's Financial Hardship -- Payment
to occur when requested by the
Participant at some future date in one lump sum as
the result of financial hardship due to unforeseeable
emergencies as determined by the Committee. The
Committee shall use the following
guideline in determining financial hardship:
Circumstances of sufficient severity that a Participant or
his/her family are clearly endangered by
present or impending want or privation.
b. Participant's Permanent Disability -- Payment
to occur in one lump sum one month
following the Participant's permanent disability.
c. Participant's Death-- Payment to the
Participant's beneficiary/estate to occur in one
lump sum one month following the Participant's
death.
d. Participant's Termination of Employment With
The Company For Any Reason -- Payment to
occur in one lump sum one month following
Participant's termination.
IX. Vesting
A Participant shall be 100 percent vested in any bonus
awards payable for a particular Plan Year if
he or she is employed for the entire Plan year. A
Participant's voluntary or involuntary termination of employment
during the Plan year for any reson other than
permanent disability, normal retirement or death
shall, at the option of the Committee, be cause for cancellation
of all rights to the receipt of his/her bonus award
for that particular Plan Year. Should termination of
employment during the Plan Year occur as the result of permanent
disability, normal retirement, or death, the
Participant, or his/her beneficiary/estate, shall be
eligible for a prorated bonus award, based upon the percentage of
that period worked compared to twelve (12) months.
Any Participant voluntarily or involuntarily
terminating his/her employment for any reason after the
Plan Year but prior to the Award Payment Date, shall be eligible
to receive an award as though the Participant were still an
employee of the Company except for (1), (2),
and (3) below. In the event of a Participant's death
following the Plan Year but prior to the Award Payment Date,
his/her beneficiary/estate shall be eligible to
receive his/her award.
No award shall be payable to any Participant under the
following circumstances if they should occur prior
to the award payment date for the Plan Year:
1. Participant admits to theft from the Company;
2. Participant is convicted of a theft from the
Company;
3. Participant is discharged for cause.
X. Designation of Beneficiary
A Participant shall have the right to designate the person
or persons who shall have the right to receive, in the event
of the Participant's death, any award payments which may be
payable by the Company. Such designation shall be in a form
acceptable to the Company and shall be valid upon receipt by
the Company. Any beneficiary designation made under such
document shall be revocable at any time unless expressly made
irrevocable. In the event that, at the Participant's death,
there is no beneficiary designated for purposes of receiving
any bonus payments from the Plan, such payments shall be paid to
the Participant's estate.
XI. Administration
The Plan has been established and is administered by the
Committee subject to such limitations as are necessary to
ensure compliance with the requirements of section 162(m) and
the regulations thereunder relating to "qualified performance-
based compensation." The Committee shall have full power and
authority in its sole discretion to construe and interpret the
Plan, and to determine which key executives of the Company shall
participate, what their Bonus Potential Percentages shall be
(subject to the maximum of Article VI), and what their
final awards will be. All determinations and decisions of the
Committee shall be unanimous and shall be final and binding on
all persons, except that no member of the Committee may at any
time participate in any decision affecting his/her unique
interests.
Subject to ratification by the Board of Directors, the
Committee shall have full authority to amend, alter, modify,
and terminate the Plan provided such action is for subsequent
years and becomes effective the first day of the following Plan
year.
XII. General Provisions
A. The Plan does not create in any employee or group of
employees any right with respect to continuation
of employment by the Company, and it shall not be deemed
to interfere in any way with the Company's right to terminate or
otherwise modify an employee's employment at any
time.
B. Nothing contained in this document shall be construed
to create a trust or escrow account of any kind or
create any fiduciary relationship. Moneys set aside or
invested under the Plan shall continue for all purposes to be a
part of the general assets of the Company, and no
entity or person other than the Company shall, by
virtue of the provisions of this Plan, have any interest in such
moneys. To the extent that any person acquires a
right to receive payments from the Company under this
Plan, such right shall be no greater than the right of any
unsecured general creditor of the Company.
C. To the extent permitted by law, the right of any
Participant or his/her beneficiary/estate to any
payment under this Plan shall not be subject in any manner
to attachment or other legal process for the debts of such
Participant or beneficiary/estate; and any
such payment shall not be subject to anticipation,
alienation, sale, transfer, assignment, or encumbrance.
D. The Plan is intended not to be an employee benefit plan
subject to the provisions of the Employment Retirement
Income Security Act of 1974, as amended.
