SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 15, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........to...........
Commission File number 0-6080
FOOD LION, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0660192
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 1330, 2110 Executive Drive Salisbury, NC 28145-1330
(Address of principal executive office) (Zip Code)
(704) 633-8250
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
Outstanding shares of common stock of the Registrant as of July
19, 1996.
Class A Common Stock 235,668,134
Class B Common Stock 233,252,364
Page 1 of 40
The Exhibit index is located on page 15.
FOOD LION, INC.
INDEX TO FORM 10-Q
JUNE 15, 1996
PAGE
NUMBER
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the 12 and 24 weeks
ended June 15, 1996 and June 17, 1995 3-4
Balance sheets as of June 15, 1996,
December 30, 1995 and June 17, 1995 5
Statements of Cash Flows for the 24 weeks
ended June 15, 1996 and June 17, 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security
Holders 12-13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
-2-
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FOOD LION, INC.
STATEMENTS OF INCOME
(Unaudited)
For the 12 Weeks ended June 15, 1996 and June 17, 1995
(Dollars in thousands except per share data)
June 15, 1996 June 17, 1995 12 WEEKS
(A) (B) (A) (B)
% %
<S> <C> <C> <C> <C>
Net sales $2,084,414 $1,895,208 100.00 100.00
Cost of goods sold 1,640,768 1,504,752 78.72 79.40
Gross profit 443,646 390,456 21.28 20.60
Selling and administrative expenses 306,410 274,382 14.70 14.48
Interest expense 19,639 18,691 .94 .98
Depreciation 37,951 33,888 1.82 1.79
SFAS No. 121 charge
364,000 326,961 17.46 17.25
Income before income taxes 79,646 63,495 3.82 3.35
Provision for income taxes 31,062 24,763 1.49 1.31
Net income $ 48,584 $ 38,732 2.33 2.04
Earnings per share $ .10 $ 0.08
Dividends per share $ .03 $ 0.02
Weighted average number
of shares outstanding
Class A 235,689,846 244,075,739
Class B 234,617,072 239,405,864
Total 470,306,918 483,481,603
</TABLE>
-3-
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FOOD LION, INC.
STATEMENTS OF INCOME
(Unaudited)
For the 24 Weeks ended June 15, 1996 and June 17, 1995
(Dollars in thousands except per share data)
June 15, 1996 June 17, 1995 24 WEEKS
(C) (D) (C) (D)
% %
<S> <C> <C> <C> <C>
Net sales $4,108,867 $3,761,470 100.00 100.00
Cost of goods sold 3,253,598 2,987,941 79.18 79.44
Gross profit 855,269 773,529 20.82 20.56
Selling and administrative expenses 585,398 543,215 14.26 14.44
Interest expense 38,643 37,565 .94 1.00
Depreciation 74,970 66,998 1.82 1.78
SFAS No. 121 charge 9,640 .23
708,651 647,778 17.25 17.22
Income before income taxes 146,618 125,751 3.57 3.34
Provision for income taxes 57,181 49,354 1.39 1.31
Net income $ 89,437 $ 76,397 2.18 2.03
Earnings per share $ 0.19 $ 0.16
Dividends per share $ 0.06 $ 0.05
Weighted average number
of shares outstanding
Class A 236,446,163 244,108,677
Class B 235,276,093 239,488,489
Total 471,722,256 483,597,166
</TABLE>
-4-
<TABLE>
FOOD LION, INC.
BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
June 15, 1996 December 30, 1995 June 17, 1995
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 75,690 $ 70,035 $ 125,730
Receivables 123,494 127,995 133,583
Inventories 871,203 881,021 801,883
Prepaid expenses and other 102,703 73,362 80,572
Total current assets 1,173,090 1,152,413 1,141,768
Property, at cost, less accumulated depreciation 1,538,938 1,492,852 1,375,046
Total assets $2,712,028 $2,645,265 $2,516,814
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable, trade $ 404,444 $ 363,571 $ 354,392
Accrued expenses 322,831 316,569 289,076
Capital lease obligations - current 16,667 15,032 10,219
Other liabilities - current 3,457 3,523 3,368
Total current liabilities 747,399 698,695 657,055
Long-term debt 315,300 355,300 355,300
Capital lease obligations 398,033 372,645 315,255
Deferred income taxes 44,120 44,120 46,190
Deferred compensation 705 726 661
Other liabilities 78,820 71,269 66,582
Total liabilities 1,584,377 1,542,755 1,441,043
Shareholders' Equity:
Class A non-voting common stock, $.50 par value 117,805 119,255 121,956
Class B voting common stock, $.50 par value 116,776 118,313 119,521
Retained earnings 893,070 864,942 834,294
Total shareholders' equity 1,127,651 1,102,510 1,075,771
Total liabilities and shareholders' equity $2,712,028 $2,645,265 $2,516,814
</TABLE>
-5-
FOOD LION, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the 24 Weeks ended June 15, 1996 and June 17, 1995
(Dollars in thousands)
24 Weeks
June 15, 1996 June 17, 1995
Cash flows from operating activities
Net income $ 89,437 $ 76,397
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 74,970 66,998
Gain on disposals of property ( 463) ( 707)
SFAS No. 121 charge 9,640
Changes in operating assets and liabilities:
Receivables 4,501 7,045
Inventories 9,818 51,401
Prepaid expenses and other ( 29,341) ( 12,667)
Accounts payable and accrued expenses 47,135 8,015
Income taxes payable (22,169)
Deferred compensation ( 21) ( 7)
Other liabilities 7,485 9,252
Total adjustments 123,724 107,161
Net cash provided by operating activities 213,161 183,558
Cash flows from investing activities
Proceeds from disposal of property 7,939 6,189
Capital expenditures (102,936) ( 76,887)
Net cash used in investing activities ( 94,997) ( 70,698)
Cash flows from financing activities
Net payments under short-term borrowings ( 20,000)
Principal payments under capital lease obligations ( 8,213) ( 5,995)
Principal payments on long-term debt ( 40,000) ( 25)
Proceeds from issuance of common stock 541 18
Repurchase of common stock ( 38,599) ( 4,776)
Dividends paid ( 26,238) ( 23,221)
Net cash used in financing activities (112,509) ( 53,999)
Net increase in cash and cash
equivalents 5,655 58,861
Cash and cash equivalents at beginning
of period 70,035 66,869
Cash and cash equivalents at end of period $ 75,690 $125,730
-6-
Notes to Financial Statements (Dollars in thousands)
1) Basis of Presentation:
The accompanying financial statements are presented in
accordance with the requirements of Form 10-Q and, consequently,
do not include all the disclosures normally required by
generally accepted accounting principles or those normally made
in the Annual Report on Form 10-K of Food Lion, Inc. (the
"Company"). Accordingly, the reader of this Form 10-Q should
refer to the Company's Form 10-K for the year ended December 30,
1995 for further information.
The financial information has been prepared in accordance
with the Company's customary accounting practices and has not
been audited. In the opinion of management, the financial
information includes all adjustments consisting of normal
recurring accruals necessary for a fair presentation of interim
results.
2) Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
June 15, 1996 June 17, 1995
Interest (net of amounts
capitalized)* $38,905 $37,282
Income taxes 87,826 76,551
*Interest capitalized 623 1,044
Capital lease obligations for stores of $46,179 and $18,495
were incurred in the 24 week period of 1996 and 1995,
respectively. Capital lease retirements of $10,943 and $1,111
were recorded in the 24 week period of 1996 and 1995,
respectively.
The Company considers all highly liquid investment instruments
purchased with an original maturity of three months or less to
be cash equivalents.
-7-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS (12 and 24 weeks ended June 15, 1996
compared to 12 and 24 weeks ended June 17, 1995)
Net sales increased 10.0% and 9.2% for the quarter and year to
date, respectively. Same store sales increased 6.0% for the
quarter and 5.6% year to date. Sales were positively impacted by
the following: renovations and expansion of older stores, the
expansion of many stores to 24-hour service along with operating
and marketing initiatives such as the "Gold Lion Guarantee," "MVP
Customer Program" and sports marketing promotions.
The 1996 business plan includes opening 50 new stores (up to 17 of
these replacing older stores) and renovating approximately 120
existing stores. As of the end of the second quarter, the Company
had opened seven new stores (offsetting three older units) and
renovated 41 existing stores. In addition to the planned
openings, the Company acquired the assets of Food Fair of North
Carolina, Inc. in the first quarter which contributed nine additional
stores, resulting in a total of 1,086 stores operating at the end
of the second quarter this year compared with 1,046 stores
last year.
Gross profits increased 0.68% of sales for the quarter and 0.26%
of sales year to date. Gross profits were positively impacted by
the increase in customer traffic in the fresh departments (deli
and market), areas that command a higher gross profit. The
increase in the deli department gross profit is also due to a
25.6% increase in the number of stores with deli-bakeries (785
stores this year compared to 625 stores last year). Gross profits
have also been positively impacted by the growth of Food Lion's
private label program (currently representing 13% of total sales).
Finally, gross profits increased due to a decrease in shrinkage in
the grocery and perishable departments.
For the quarter, selling and administrative expenses increased
0.22% of sales primarily due to increases in store rent and
advertising. Store rent included a provision accrued for 1996
store closings of $9.2 million or 0.44% of sales (older units to
be replaced by new Food Lion locations). Advertising expenses
increased as a result of additional print and media costs incurred
as the Company focused marketing efforts on certain markets. Year
to date, selling and administrative expenses decreased 0.18% of
sales primarily as the result of the Company's control of variable
costs such as salaries, supplies, benefits and maintenance repairs
during a period of strong sales performance offset by increased
advertising.(1)
Interest expense decreased 0.04% of sales and 0.06% of sales for
the quarter and year to date, respectively. This year, during the
second quarter, Note Purchase Agreements totaling $40.0 million
(due 2/1/97) were repurchased contributing to the decrease. This decrease
was offset by an increase in the number of stores with capital leases
(413 this year compared to 365 last year).
-8-
Depreciation increased 0.03% of sales and 0.04% of sales for the
quarter and year to date, respectively primarily due to remodels
and new store openings since second quarter last year.(1)
During the first quarter of 1996, Food Lion implemented Financial
Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of" (SFAS No. 121). The implementation of SFAS No. 121
created a non-operating, non-cash charge against first quarter
earnings of $9.6 million to properly reflect the carrying value of
the Company's assets. Excluding the SFAS No. 121 charge, earnings
per share were $0.20 year to date.
At year end 1993, the Company established a pre-tax charge of
$170.5 million (approximately $104 million after tax) to cover
management's best estimate of the costs associated with closing 88
underperforming
stores in 1994. During the first six months of 1994, the Company
closed 84 of these stores (a decision was made in early 1994 to keep
four stores open). As of the end of the second quarter 1996, the
Company has charged $59.8 million against the provision (including
$11.5 million during the second quarter), primarily as a result of
the payment of remaining rent obligations on leased stores, and
the disposition of store inventory and property. As of June 15,
1996, the Company had made no additional adjustments to the
realizable value of the properties. The Company believes the
provision is adequate at this time and will continue to monitor
and evaluate the provision to make necessary adjustments.
(1)Last year the quarter and year to date included 0.12%, 0.06%,
0.03% of sales and 0.11%, 0.07%, 0.03% of sales, respectively for
selling and administrative expenses, interest expense and
depreciation, respectively, for certain leases misclassified as
capital rather than operating which were later adjusted in the
third quarter of 1995.
-9-
Liquidity and Capital Resources
Cash provided by operating activities totaled $213.2 million for
the 24 weeks ended June 15, 1996 compared with $183.6 million for the same
period last year. The increase in 1996 was primarily a factor of
increased net income along with an increase in payables and income
taxes payable, offset by an increase in prepaid expenses and
changes in the comparative levels of inventory.
Capital expenditures totaled $102.9 million for the 24 weeks ended
June 15, 1996 compared with $76.9 million for the same period in
1995. The increase is primarily due to equipment costs for
renovations and new stores along with costs associated with the
Food Fair acquisition during the first quarter of 1996. During
the second quarter of 1996, the Company opened four new stores and
renovated 34 existing stores. For the year, the Company plans to
open 50 new stores and renovate approximately 120 stores. The
majority of the new stores will be opened under conventional
leasing arrangements and, as a result, the impact on liquidity of
owning stores will be insignificant in 1996.
Significant cash capital expenditures currently estimated for the
remainder of 1996 are as follows:
Store expansion and new store construction $ 47 million
Equip new and renovated stores $ 81 million
Land costs $ 5 million
Capital expenditures for 1996 will be financed through funds
generated from operations, existing bank and credit lines, and
other debt, if necessary. The Company will consider the
possibility of sale-leaseback transactions on certain free-
standing, Company-owned stores in the future if advantageous
opportunities are presented by potential lessors.
The Company maintains the following bank and credit lines:
$250 million commercial paper program under which no
borrowings were outstanding during the second quarter or as of
June 15, 1996 and June 17, 1995.
A revolving credit facility with a syndicate of commercial
banks providing $350 million in committed lines of credit. This
facility will expire in November, 1999. There were no borrowings
against these lines as of June 15, 1996 and June 17, 1995.
-10-
Additional short-term committed lines of credit totaling
$30.5 million. These lines of credit are available when needed.
The company is not required to maintain compensating balances and
borrowings may occur periodically. Borrowings during the quarter
were as follows (see table below):
$30.5 million Short-term Committed Lines
1996 1995
Outstanding borrowings at end
of second quarter 0 0
Average borrowings $ 6.4 million 0
Maximum amount outstanding $23.0 million 0
Daily weighted average interest rate 5.371% N/A
Periodic short-term borrowings under informal credit
arrangements, which are available to the Company at the discretion
of the lender. Borrowings for the quarter were as follows (see
table below):
Informal Credit Lines
1996 1995
Outstanding borrowings at end
of second quarter 0 0
Average borrowings $ 5.3 million 0
Maximum amount outstanding $25.0 million 0
Daily weighted average interest rate 5.449% N/A
During the second quarter of 1996, the Company expended $17.7
million for the purchase of Class A and Class B shares, as part of
the Company's stock repurchase plans. The Company purchased
425,000 shares of Class A stock during the quarter at an average
price of $7.06 per share, and 1,924,750 shares of Class B stock at
an average price of $7.55 per share. Additional purchases may be
made in the open market under the current program which began May,
1996 as deemed in the best interest of shareholders. Since the
original plan which began in May, 1995, 8,642,615 Class A shares
and 6,018,750 Class B shares have been repurchased at a total cost
of $89.5 million.
-11-
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Company has had no significant developments related
to legal matters since the Item 1 disclosure included in the
Company's Form 10Q filed on May 1, 1996 for the quarter
ended March 23, 1996.
Item 2. Change in Securities
This item is not applicable.
Item 3. Defaults Upon Senior Securities
This item is not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a). The Company held its Annual Meeting of Shareholders on May 2, 1996.
(b). Not applicable
(c). Matters voted upon at the meeting:
Election of Directors
Broker
For Withheld Non-Votes
Pierre Olivier Beckers 202,790,582 563,540 32,239,992
Dr. Jacqueline Kelly Callomore 202,804,427 549,695 32,239,992
William G. Ferguson 202,749,780 604,342 32,239,992
Dr. Bernard W. Franklin 202,727,338 626,784 32,239,992
Jean-Claude Coppieters `t Wallant 202,798,365 555,757 32,239,992
Gui De Vaucleroy 202,796,635 557,487 32,239,992
Margaret Kluttz 202,704,099 650,023 32,239,992
Tom E. Smith 202,576,537 777,585 32,239,992
Philippe Stroobant 202,820,976 533,146 32,239,992
Joseph C. Hall, Jr. 202,779,115 575,007 32,239,992
-12-
Appointment of Independent Accountants
Broker
For Against Abstain Non-Votes
Coopers & Lybrand, 203,026,798 123,257 204,067 32,239,992
L.L.P.
Approval of 1996 Employee Stock Incentive Plan of Food Lion, Inc.
Broker
For Against Abstain Non-Votes
197,035,185 5,900,208 418,729 32,239,992
Approval of Key Executive Annual Incentive Bonus Plan
Broker
For Against Abstain Non-Votes
193,513,711 9,073,762 766,649 32,239,992
(d). Not applicable.
Item 5. Other Information
This item is not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
10a-Employee Stock Incentive Plan
10b-Key Executive Annual Incentive Bonus Plan
11-Computation of Earnings per Share
27-Financial Data Schedule
(b). The Company did not file a report on Form 8-K for the period
ended June 15, 1996.
-13-
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
FOOD LION, INC.
Registrant
DATE: July 30, 1996 BY: Dan A. Boone
Dan A. Boone
Vice President-Finance
Chief Financial Officer
Principal Financial Officer
(Duly Authorized Officer)
-14-
EXHIBIT INDEX
SEQ. PAGE
EXHIBIT # DESCRIPTION NO.
10a Employee Stock Incentive Plan 16-29
10b Key Executive Annual Incentive Bonus Plan 30-37
11 Computation of Earnings per Share 38
27 Financial Data Schedule 39-40
-15-
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except Years Ended
per share amounts)
June 15, 1996 June 17, 1995
PRIMARY
NET INCOME $ 89,437 $76,397
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 471,722 483,597
STOCK OPTIONS 269 0
471,991 483,597
PRIMARY EARNINGS PER SHARE (*) $ .1895 $ .1580
FULLY DILUTED
NET INCOME $ 89,437 $76,397
ELIMINATION OF INTEREST EXPENSE,
NET OF RELATED TAX EFFECT,
APPLICABLE TO 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE 2003 1,614 1,614
ADJUSTED INCOME APPLICABLE TO
COMMON STOCK $ 91,051 $78,011
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 471,722 483,597
STOCK OPTIONS 561 41
SHARES ISSUABLE UPON
CONVERSION OF 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE
2003 (AS OF DATE OF ISSUE
JUNE 14, 1993) 14,557 14,557
486,840 498,195
FULLY DILUTED EARNINGS PER SHARE (*) $ .1870 $ .1566
(*) NOTE: Dilution is less than 3%. Therefore, common stock
equivalents have been excluded from the total weighted average
common shares.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets, the Consolidated Statements of Income and
the Consolidated Statement of Cash Flows and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-15-1996
<CASH> 75690
<SECURITIES> 0
<RECEIVABLES> 123494
<ALLOWANCES> 0
<INVENTORY> 871203
<CURRENT-ASSETS> 1173090
<PP&E> 2421008
<DEPRECIATION> 882070
<TOTAL-ASSETS> 2712028
<CURRENT-LIABILITIES> 747399
<BONDS> 315300
0
0
<COMMON> 234581
<OTHER-SE> 893070
<TOTAL-LIABILITY-AND-EQUITY> 2712028
<SALES> 4108867
<TOTAL-REVENUES> 4108867
<CGS> 3253598
<TOTAL-COSTS> 3253598
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38643
<INCOME-PRETAX> 146618
<INCOME-TAX> 57181
<INCOME-CONTINUING> 89437
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89437
<EPS-PRIMARY> .19
<EPS-DILUTED> 0
</TABLE>
1996 EMPLOYEE STOCK INCENTIVE PLAN
OF
FOOD LION, INC.1
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."
2. 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).
(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
1 1991 Plan as Amended in 1994 and 1996.
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 payablefor 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.
