<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Food Lion, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
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 7, 1998, 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 L.L.P. as independent accountants for the fiscal
year ending January 2, 1999; and
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 20, 1998 as
the record date for the determination of shareholders entitled to vote at the
meeting and, accordingly, only shareholders who are otherwise entitled to vote
and who are holders of record at the close of business on that date will be
entitled to notice of and to vote at the meeting. The transfer books of the
Company will not be closed. A Proxy Statement and proxy card are enclosed
herewith. You are urged to date, sign and return the proxy card promptly in the
envelope provided.
TOM E. SMITH
Chairman of the Board, President
and Chief Executive Officer
April 15, 1998
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.
<PAGE> 3
FOOD LION, INC.
2110 EXECUTIVE DRIVE
P.O. BOX 1330
SALISBURY, NORTH CAROLINA 28145-1330
---------------------
APRIL 15, 1998
---------------------
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 7, 1998, at the Catawba College
Keppel Auditorium, Salisbury, North Carolina, and at any adjournment or
postponement thereof (the "Annual Meeting"). The entire cost of such
solicitation will be borne by the Company. In addition to solicitation by mail,
arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxy materials to their principals, and the Company may
reimburse them for their expenses in doing so. Personal solicitations may be
conducted by directors, officers and employees of the Company. This Proxy
Statement and accompanying proxy card will be mailed to shareholders on or about
April 15, 1998.
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. If the proxy card is properly signed and returned, but
where no choice is specified, the proxy will be voted (i) for the election of
the persons nominated to serve as the directors of the Company named in this
Proxy Statement, (ii) for the proposal to ratify the appointment of Coopers &
Lybrand L.L.P. as independent accountants for the fiscal year ending January 2,
1999 and (iii) 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 20, 1998
(the "Record Date") are entitled to vote at the Annual Meeting and are entitled
to one vote for each share held. At the close of business on the Record Date,
there were 232,727,364 shares of Class B Common Stock issued and outstanding and
236,439,670 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. Abstentions will be
<PAGE> 4
counted in determining the existence of a quorum for the Annual Meeting, but
abstentions and 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"; and FOR Proposal (2), ratifying the appointment of
Coopers & Lybrand L.L.P. as independent accountants for the fiscal year ending
January 2, 1999.
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:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP
AS OF PERCENT
NAME AND ADDRESS MARCH 20, 1998 OF CLASS
- ---------------- ----------------------- --------
<S> <C> <C>
Etablissements Delhaize Freres et Cie..................... 120,443,462(1) 51.7%
"Le Lion" S.A. ("Delhaize")
rue Osseghem, 53
1080 Brussels, Belgium
</TABLE>
- ---------------
(1) Includes 63,352,780 shares held of record by Delhaize's wholly owned
subsidiary, Delhaize The Lion America, Inc., a Delaware corporation
("Detla"). Detla's address is Suite 2160, Atlanta Plaza, 950 East Paces
Ferry Road, Atlanta, Georgia 30326. Delhaize, Detla, and the Company are
parties to a Shareholders Agreement, dated September 15, 1994, which governs
the voting of the shares held by Delhaize 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 20, 1998
is furnished for each director, nominee for director and Named Executive of the
Company (as identified below under "EXECUTIVE COMPENSATION -- Summary
Compensation Table") 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 20, 1998, but does
not include shares of Common Stock beneficially owned by Delhaize, as to which
Messrs. Beckers, Coppieters, Stroobant, Raquez and de Vaucleroy are associated
as further described herein. See "Principal Shareholder" above for more
information relating to the
2
<PAGE> 5
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.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
-------------------- --------------------
AMOUNT AND AMOUNT AND
NAME OF INDIVIDUAL NATURE OF PERCENT NATURE OF PERCENT
OR NUMBER OF BENEFICIAL OF BENEFICIAL OF
PERSONS IN GROUP OWNERSHIP CLASS OWNERSHIP CLASS
- ------------------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Pierre-Olivier Beckers.................................. -- -- -- --
A. Edward Benner........................................ 17,801(1) * 585 *
Jacqueline Kelly Collamore.............................. 867 * 1,000 *
Jean-Claude Coppieters.................................. -- -- -- --
William G. Ferguson..................................... 867 * -- --
Bernard W. Franklin..................................... 1,292 * -- --
Joseph C. Hall, Jr. .................................... 128,224(2) * 62,033(2) *
Margaret H. Kluttz...................................... 1,167 * 1,050 *
Pamela K. Kohn.......................................... 9,893(3) * -- --
R. William McCanless.................................... 37,844(4) * -- --
Dominique Raquez........................................ -- -- -- --
Tom E. Smith............................................ 806,537(5) * 1,529,267(5) *
Philippe Stroobant...................................... 20,000 * -- --
Gui de Vaucleroy........................................ -- -- -- --
All directors, nominees for director, and executive
officers as a group(28 persons)....................... 1,152,026(6) * 1,619,074 *
</TABLE>
- ---------------
* Indicates less than 1%.
(1) Includes 12,801 restricted shares of Class A Common Stock held pursuant to
the 1996 Employee Stock Incentive Plan of Food Lion, Inc.
(2) Includes (a) 6,930 shares of Class A Common Stock and 1,080 shares of Class
B Common Stock held by Mr. Hall as custodian for his children; (b) 300
shares of Class A Common Stock held by Mr. Hall's wife as custodian for
their children; (c) 1,008 shares of Class A Common Stock and 563 shares of
Class B Common Stock held jointly by Mr. Hall and his wife; (d) 5,400 shares
of Class A Common Stock and 5,400 shares of Class B Common Stock held by Mr.
Hall's children; (e) 36,582 restricted shares of Class A Common Stock held
pursuant to the 1996 Employee Stock Incentive Plan of Food Lion, Inc.; and
(f) 1,666 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.
(3) Includes (a) 333 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) 8,060 restricted shares of Class A Common Stock
held pursuant to the 1996 Employee Stock Incentive Plan of Food Lion, Inc.
(4) Includes (a) 2,666 shares of Class A Common Stock that may be acquired upon
exercise of options granted under the 1991 Employee Stock Option Plan; (b)
26,073 restricted shares of Class A Common Stock held pursuant to the 1996
Employee Stock Incentive Plan of Food Lion, Inc. and (c) 8,991 shares of
Class A Common Stock held by the estate of the late Etta H. Eagle, Mr.
McCanless' mother-in-law, for which Mr. McCanless acts as the executor.
3
<PAGE> 6
(5) Includes (a) 52,500 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.; (b) 480 shares of Class A Common Stock and 203 shares of
Class B Common Stock held by Mr. Smith's wife; and (c) 115,258 restricted
shares of Class A Common Stock held pursuant to the 1996 Employee Stock
Incentive Plan of Food Lion, Inc.; and excludes 166,792 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 (a) 75,496 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.; (b)
259,678 restricted shares of Class A Common Stock held pursuant to the 1996
Employee Stock Incentive Plan of Food Lion, Inc.; and (c) shares represented
by 17,462 units in the Profit Sharing Retirement Plan of Food Lion, Inc.
allocated to Class A Common Stock. The number of shares per unit in such
plan fluctuates based in part on the allocation of cash to the fund. As of
March 20, 1998, the 17,462 units held by all directors and executive
officers as a group represented 23,224 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's 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 Shareholders
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.
4
<PAGE> 7
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 1999 Annual Meeting of Shareholders
and until their successors are elected and qualified. Each nominee, with the
exception of Dominique Raquez, 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 brief biographical description of each of the ten nominees for
director are set forth below:
PIERRE-OLIVIER BECKERS (37) -- 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 January 1, 1998,
Mr. Beckers has been Executive Vice President of the Executive Committee of
Delhaize. He has been a manager of Delhaize since 1986. Mr. Beckers was first
elected as a director of the Company in 1992 and is a member of the Audit,
Senior Management Compensation and Stock Option Committees.
DR. JACQUELINE KELLY COLLAMORE (38) -- Dr. Collamore manages a corporate
consulting practice in Bethesda, Maryland. Between 1993 and 1996, she held the
positions, variously, of Associate with Credit Suisse, Vice President and Chief
of Staff of Credit Suisse Asset Management, Inc., and Associate and Chief of
Staff of Credit Suisse Private Banking. Dr. Collamore was a consultant with
Arthur D. Little from 1991 to 1992, and was an independent business consultant
from 1986 to 1991. She was a Lecturer of Marketing from 1989 to 1992 at various
colleges and universities. Dr. Collamore was first elected as a director in 1994
and is Chairperson of the Audit Committee.
JEAN-CLAUDE COPPIETERS 'T WALLANT (52) -- 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 a director, Vice President, Treasurer and
Assistant Secretary of Detla. Mr. Coppieters was first elected as a director of
the Company in 1996.
WILLIAM G. FERGUSON (70) -- Mr. Ferguson has been a director of Snow
Aviation International, Inc. since 1988 and the Executive Vice President since
1989. Mr. Ferguson is Chairman of the Board of Directors of Pyrocap
International Corporation. Mr. Ferguson was Chairman and Chief Executive Officer
of TTI Systems, Inc. from 1977 through the sale thereof to Transco Energy
Company in 1986 and until he retired from Transco in 1989. Mr. Ferguson was
first appointed to the Board on December 7, 1993. He is a member of the Audit
and Stock Option Committees and is Chairperson of the Senior Management
Compensation Committee.
DR. BERNARD W. FRANKLIN (45) -- 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)
5
<PAGE> 8
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 Chairperson of the Stock Option Committee.
JOSEPH C. HALL, JR. (48) -- 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.
MARGARET H. KLUTTZ (54) -- Mrs. Kluttz has been a member of the North
Carolina Board of Transportation since 1993. She was appointed Chairperson of
the North Carolina Rail Council in 1994. She served as Chairperson on the North
Carolina Rail Commission from 1994 until 1997. Mrs. Kluttz served as Mayor of
the City of Salisbury, North Carolina from 1991 until 1997 and was a member of
the City Council since 1988. Mrs. Kluttz is a member of the Board of Advisors of
the National Trust for Historic Preservation. She was first appointed to the
Board of Directors on September 20, 1994. Mrs. Kluttz is a member of the Audit
Committee and is Chairperson of the Nominating Committee.
DOMINIQUE RAQUEZ (38) -- Mr. Raquez is, and has been since 1995, a Member
of the Executive Committee of Delhaize. He serves, and has served since 1994, as
the Group Controller of Delhaize. He was the Secretary of the Executive
Committee of Delhaize from 1990 until 1994. He has been a Manager of Delhaize
since 1985. Mr. Raquez is the nephew of Mr. de Vaucleroy, a director of the
Company.
TOM E. SMITH (56) -- 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.
GUI DE VAUCLEROY (64) -- 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. Mr. de Vaucleroy is the uncle of Mr. Raquez, a nominee
for director of the Company.
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 Audit Committee also reviews
the scope and results of audits by the Company's Internal Audit Department and
other matters pertaining to the Company's accounting and financial reporting
functions. The members of the Audit Committee, which met three times during the
fiscal year ended January 3, 1998, are presently Pierre-
6
<PAGE> 9
Olivier Beckers, Jacqueline Kelly 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. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Shareholders
Agreement." 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, 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 Nominating 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 January
3, 1998.
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 the Key
Executive Annual Incentive Bonus Plan, both of which are described below under
the caption "REPORT ON EXECUTIVE COMPENSATION -- Incentive Compensation." The
members of the Senior Management Compensation Committee, which met three times
during the fiscal year ended January 3, 1998, 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, the 1991 Employee Stock Option Plan of Food Lion, Inc., and
the 1996 Employee Stock Incentive Plan of Food Lion, Inc. This Committee selects
the individuals who will be awarded options under each of these plans and
restricted stock under the 1996 Employee Stock Incentive Plan of Food Lion,
Inc., and establishes terms of options granted under such plans and the
restrictions on restricted stock awarded under the 1996 Employee Stock Incentive
Plan of Food Lion, Inc. See "REPORT ON EXECUTIVE COMPENSATION -- Stock Options."
The members of the Stock Option Committee, which met twice during the fiscal
year ended January 3, 1998, are presently Pierre-Olivier Beckers, William G.
Ferguson and Bernard W. Franklin (Chairperson).
The Board of Directors met five times during the fiscal year ended January
3, 1998. 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 and
(ii) the total number of meetings held by all committees on which the director
served.
COMPENSATION OF DIRECTORS
The Company has agreed to pay Jacqueline Kelly Collamore, Bernard W.
Franklin, William G. Ferguson 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. The $6,500 quarterly fee
is paid in cash in
7
<PAGE> 10
each of the first three quarters of the year. The Board of Directors has
approved the payment of the $6,500 fourth quarter fees in the form of Class A
Common Stock, until such time as the aggregate number of shares of Class A
Common Stock issued in payment of such director's fees is 25,000 shares. There
are no other arrangements pursuant to which directors of the Company are
compensated for services as directors.
PROPOSAL (2)
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The firm of Coopers & Lybrand L.L.P. ("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 January 2, 1999, 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 January 2, 1999, 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.
8
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following sets forth information concerning the annual and long-term
compensation earned by the Chief Executive Officer and four other officers of
the Company (the "Named Executives") for services rendered to the Company in all
capacities for the fiscal years ended January 3, 1998, December 28, 1996 and
December 30, 1995.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION LONG-TERM
OTHER RESTRICTED COMPENSATION
ANNUAL COMPENSATION ANNUAL STOCK OPTIONS/ ALL OTHER
----------------------------- COMP. AWARD(S) SARS COMP.
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS(2) ($)(3) ($)(4) (#) (5)
- --------------------------- ---- ------------ -------- ------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Tom E. Smith............... 1997 973,901 414,186 27,183 456,268 342,598/0 299,948
Chairman of the Board, 1996 781,395 385,756 24,478 346,854 246,607/0 269,863
President and Chief 1995 709,371 307,363 29,182 -- -- 221,169
Executive Officer
Joseph C. Hall, Jr......... 1997 441,577 166,845 8,362 153,164 115,006/0 130,218
Senior Vice President of 1996 360,961 139,037 18,760 100,883 71,724/0 76,065
Operations and Chief 1995 228,849 74,524 7,751 -- 5,000/0 40,749
Operating Officer
R. William McCanless....... 1997 368,983 139,037 6,615 108,491 81,463/0 97,658
Senior Vice President of 1996 259,893 100,107 10,787 72,644 51,647/0 55,157
Administration, Chief 1995 194,640 62,237 6,719 -- 6,000/0 34,554
Administrative Officer
and
Secretary
A. Edward Benner, Jr....... 1997 246,494 58,209 11,718 55,573 41,728/0 51,539
Vice President of 1996 201,492 48,508 22,987 33,121 23,547/0 44,200
Information 1995 184,519 44,413 11,739 -- 5,000/0 26,161
Technology and Chief
Information Officer
Pamela K. Kohn............. 1997 221,256 66,983 5,280 33,484 25,144/0 41,374
Senior Vice President of 1996 128,060 13,375 1,715 22,516 16,010/0 24,127
Merchandising 1995 83,819 6,540 949 -- 3,500/0 13,953
</TABLE>
- ---------------
(1) Includes $95,000, $230,000, and $152,000 that Mr. Smith earned in 1995, 1996
and 1997, respectively, and for which he elected to defer payment until
subsequent years.
(2) These amounts are awarded under the Key Executive Annual Incentive Bonus
Plan (for Mr. Smith in 1996 and 1997) or the Incentive Bonus Plan, and are
shown for the year earned.
(3) Includes amounts reimbursed for medical expenses, amounts deemed
compensation under the Company's Low Interest Loan Plan, amounts deemed
compensation in connection with an automobile furnished by the Company to
each of the Named Executives, amounts deemed compensation in connection with
life insurance policies for the Named Executives, and the value of certain
other personal benefits.
(4) The dollar values of the restricted stock awards shown in this column are
based on the closing market price of the Company's Class A Common Stock on
the date of grant multiplied by the number of shares
9
<PAGE> 12
awarded. The number and value of the aggregate restricted stock holdings for
each of the Named Executives at the end of the last completed fiscal year
(January 3, 1998), representing shares of restricted stock that had been
granted under the 1996 Employee Stock Incentive Plan, are as follows: for
Mr. Smith, 115,258 shares valued at $979,693; for Mr. Hall, 36,582 shares
valued at $310,947; for Mr. McCanless, 26,073 shares valued at $221,621; for
Mr. Benner, 12,801 shares valued at $108,809; and for Ms. Kohn, 8,060 shares
valued at $68,510. The value of such shares, which were granted in 1996 and
1997, is based on the closing stock price of the Company's Class A Common
Stock on January 2, 1998, the last trading day in fiscal year 1997. The
shares of restricted stock were granted on May 3, 1996 and May 1, 1997 in
the following amounts: to Mr. Smith, 47,031 shares in 1996 and 68,227 shares
in 1997; to Mr. Hall, 13,679 shares in 1996 and 22,903 shares in 1997; to
Mr. McCanless, 9,850 shares in 1996 and 16,223 shares in 1997; to Mr.
Benner, 4,491 shares in 1996, and 8,310 shares in 1997; and to Ms. Kohn,
3,053 shares in 1996 and 5,007 shares in 1997. The shares of restricted
stock granted in 1996 will vest one-fourth on May 3, 1998, one-fourth on May
3, 1999, one-fourth on May 3, 2000 and one-fourth on May 3, 2001. The shares
granted in 1997 will vest one-fourth on May 1, 1999, one-fourth on May 1,
2000, one-fourth on May 1, 2001, and one-fourth on May 1, 2002. No dividends
will be paid on the restricted stock during the period in which the shares
are subject to restrictions under the 1996 Employee Stock Incentive Plan.
(5) Includes $24,000 contributed by the Company on behalf of each of the Named
Executives under the Company's Profit Sharing Plan during 1997. Amounts set
forth in this column also include contributions to the Company's Profit
Sharing Restoration Plan on behalf of the Named Executives in lieu of
additional contributions that would have been made under the 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, $206,957 in 1997, $178,213 in 1996
and $131,697 in 1995; for Mr. Hall, $72,865 in 1997, $50,478 in 1996 and
$17,586 in 1995; for Mr. McCanless, $53,531 in 1997, $29,570 in 1996 and
$11,391 in 1995; for Mr. Benner, $24,339 in 1997, $18,613, in 1996 and
$2,998 in 1995; and for Ms. Kohn, $14,174 in 1997, $0 in 1996 and $0 in
1995. On May 4, 1995, the Board of Directors adopted the Profit Sharing
Restoration Plan, pursuant to which excess profit sharing payments are
credited to an account on behalf of each participant. See "REPORT ON
EXECUTIVE COMPENSATION -- Profit Sharing" below. Amounts set forth in this
column also include, for Messrs. Smith, Hall and McCanless, the economic
value of premiums paid by the Company directly or, in the case of Mr. Smith,
paid by Mr. Smith and reimbursed by the Company to Mr. Smith, to maintain
split dollar life insurance policies on behalf of the executives. Under an
agreement with Mr. Smith, Mr. Smith (or his assignee in the event of
assignment) has an interest in life insurance policies on his life in the
amount of $3,250,000. The Company has secured split dollar life insurance
policies for Messrs. Hall and McCanless and Ms. Kohn in the face amount of
three and one-half times such officer's base salary, if death occurs prior
to retirement, and two times base salary if death occurs after retirement.
The life insurance policies are assigned to the Company as security for the
premiums paid by the Company and, upon the death of the executive (or
earlier termination of the policies), the Company is entitled to receive
directly from the insurance carrier an amount equal to the sums advanced.
10
<PAGE> 13
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth the number of shares of the Company's Class
A Common Stock covered by outstanding stock options held by each of the Named
Executives at January 3, 1998, and the value of "in-the-money" stock options at
January 3, 1998 as determined by the spread between the exercise price of such
options and the closing price of shares of the Company's Class A Common Stock,
as reported by the NASDAQ National Market System on such date. None of the Named
Executives elected to exercise any of his or her outstanding options during the
fiscal year ended January 3, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END (#) FY-END ($)
----------------------- ----------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ---- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Tom E. Smith............................................ 52,500/ 611,705 0/ 1,326,274
Joseph C. Hall, Jr...................................... 0/ 191,730 0/ 426,756
R. William McCanless.................................... 1,500/ 139,110 1,982/ 308,197
A. Edward Benner, Jr.................................... 0/ 70,275 0/ 154,248
Pamela K. Kohn.......................................... 1,666/ 44,988 2,449/ 98,285
</TABLE>
11
<PAGE> 14
PERFORMANCE GRAPHS
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 $100 at the beginning of the periods indicated in the
Common Stock of the Company and the stock of the companies comprising the
Standard & Poor's 500 Stock Index and the Peer Group Index, and assuming the
reinvestment of dividends.
<TABLE>
<CAPTION>
FOOD LION
FIVE YEAR PERFORMANCE
1992 BASE PERIOD
S&P 500 PEER
FOOD LION INDEX GROUP
--------- ----- -----
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 83.67 110.08 98.94
1994 67.00 111.53 110.26
1995 76.05 153.45 146.21
1996 132.03 188.68 188.90
1997 115.99 251.63 251.16
</TABLE>
<TABLE>
<CAPTION>
TEN YEAR PERFORMANCE
1987 BASE PERIOD
S&P 500 PEER
FOOD LION INDEX GROUP
--------- ----- -----
<S> <C> <C> <C>
1987 100.00 100.00 100.00
1988 78.64 116.61 144.23
1989 92.08 153.56 198.09
1990 112.35 148.79 210.25
1991 235.33 194.12 228.17
1992 102.94 208.91 283.03
1993 86.14 229.97 280.02
1994 68.97 233.00 312.06
1995 78.28 320.56 413.82
1996 135.92 394.16 534.66
1997 119.41 525.67 710.86
</TABLE>
12
<PAGE> 15
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth the number of shares of the Company's Class
A Common Stock for which stock options were granted to each of the Named
Executives during the fiscal year ended January 3, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
INDIVIDUAL APPRECIATION FOR
GRANTS OPTION TERM
- --------------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E) (F) (G)
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS/SARS IN FISCAL PRICE EXPIRATION
NAME GRANTED (#) YEAR ($/SH) DATE 5%($) 10%($)
- ---- ----------------- ------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tom E. Smith............... 342,598 30.12 $6.6875 5/01/07 1,440,876 3,651,462
Joseph C. Hall, Jr......... 115,006 10.11 $6.6875 5/01/07 483,685 1,225,752
R. William McCanless....... 81,463 7.16 $6.6875 5/01/07 342,612 868,245
A. Edward Benner, Jr....... 41,728 3.67 $6.6875 5/01/07 175,497 444,743
Pamela K. Kohn............. 25,144 2.21 $6.6875 5/01/07 105,749 267,989
</TABLE>
13
<PAGE> 16
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 within the Company's industry to enable the Company to
attract and retain highly skilled and qualified senior management.
As in prior years, the Company worked with Towers Perrin, an independent
compensation consulting firm, to establish estimated competitive compensation
opportunities for the Company's senior executives to ensure that the Company's
compensation structure is sufficiently competitive to attract and retain highly
qualified executives in all of its senior management positions. Towers Perrin's
competitive review and analysis of industry pay practices was based on a
compilation of competitive compensation and benefit information from published
surveys of the retail grocery industry, proxy statements for eleven specific
competitors in the grocery industry selected on the basis of their revenues and
multi-store operational formats (Albertson's Inc.; American Stores Co.; Fleming
Companies, Inc.; Giant Food, Inc.; Great Atlantic & Pacific Tea Co.; Hannaford
Brothers Co.; Kroger; Publix; Safeway; Supervalue, Inc.; and Winn-Dixie Stores,
Inc.), as well as Towers Perrin's own compensation and benefit data sources.
This compilation of competitive information is referred to herein as the "Towers
Perrin Competitive Data." According to the Towers Perrin Competitive Data, total
compensation (which included stock options and restricted stock) for the Named
Executives was competitive, and Towers Perrin so advised the Compensation
Committee.
The primary components of compensation paid by the Company to executive
officers are base salary and incentive compensation, with incentive compensation
broken down further into incentive bonus payments, stock options, restricted
stock and profit sharing. The relationship of each principal component of
compensation to the Company's performance is discussed below.
BASE SALARY. Each year, the Senior Management Compensation Committee
reviews and approves the base salaries to be paid by the Company during the
following year to members of senior management. Annual adjustments to base
salaries are determined based on a number of factors, including the Company's
business and financial performance and the executives' contributions to the
Company's performance.
At its December 1997 meeting, the Senior Management Compensation Committee
reviewed the base salaries of the Named Executives taking into account their
roles and performance contributions, as well as the Company's overall
competitive pay positions, to determine appropriate increases to base salaries
for 1998. As a result of this review, such Committee increased the 1998 base
salary for each of the Named Executives in amounts ranging from 2% to 20%. This
Committee believes that these increases and the resulting new base salaries are
consistent with overall Company and individual performance and the Company's
general strategy of paying base salaries competitive within the industry to
allow it to retain valued executives. These salary
14
<PAGE> 17
actions are also consistent with such Committee's strategy over the past three
years to bring the Company's executive compensation program more in line with
competitive industry practice.
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
provides that Mr. Smith's base salary 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 the base salary and split dollar life
insurance, the Smith Employment Agreement does not address in detail any
component of Mr. Smith's compensation. See also "Employment Plans and
Agreements -- Senior Management Employment Agreements" for discussion of
employment agreements with Messrs. Hall, McCanless and Benner, and Ms. Kohn.
INCENTIVE COMPENSATION
INCENTIVE BONUS. A substantial portion of each executive officer's
compensation package is in the form of an incentive bonus designed to reward the
achievement of short-term operating goals and long-term increases in shareholder
value.
The Company's Incentive Bonus Plan, which was adopted by the Company in
1982, is designed to offer an incentive to those employees whose performance
most directly affects the Company's profitability, as determined by the Senior
Management Compensation Committee. Under the terms of the Incentive Bonus Plan,
each employee selected for participation in the plan is assigned a maximum
potential bonus award, which is computed by multiplying a predetermined
percentage rate ranging from 10% to 45%, depending on the participant's position
in the Company (the "Potential Percentage Rate"), by each participant's salary
(the "Potential Bonus"). Under the plan, the total bonus payable each year for
all participants (the "Total Bonus") may not exceed the lesser of (i) 2.1% of
the Company's net income before taxes and certain other adjustments in excess of
15% return on average shareholder's equity (the "ROE Bonus Amount") and (ii) the
aggregate of the Potential Bonus for all plan participants (the "Maximum Bonus
Amount"). A portion of each participant's bonus is determined by multiplying
one-half of such participant's Potential Percentage Rate by such participant's
salary (the "Objective Bonus"). All or any of the remaining Total Bonus is
determined and allocated among participants at the discretion of the Senior
Management Compensation Committee (the "Discretionary Bonus"). In determining
the Discretionary Bonus, the Senior Management Compensation Committee considers
a number of factors, including contributions of each participant toward the
accomplishment of business objectives during the year.
For the year ended January 3, 1998, each of the Named Executives except the
Chief Executive Officer (who participated in a separate plan described below),
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 1997
and for increasing long-term shareholder value of the Company. The Senior
Management Compensation Committee found that the Company had substantially
benefited during 1997 from improved financial performance in a highly
competitive industry, and the continued growth of the Company. In addition, the
Senior Management Compensation Committee considered to what extent each
participant met his or her personal goals established at the beginning of the
fiscal year by such participant and his or her supervisor.
15
<PAGE> 18
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 CEO and the
four highest-paid officers (other than the CEO) 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.
At the Annual Meeting of Shareholders in May, 1996, shareholders approved
the Key Executive Annual Incentive Bonus Plan which was designed to provide
annual incentive compensation opportunities that will qualify as
performance-based under the terms of IRC Section 162(m). Under the terms of such
Plan, the Senior Management Compensation Committee may designate certain
executive officers who may be affected by the terms of Section 162(m) to
participate in this Plan. Executives who are designated for participation in
this Plan may not simultaneously participate in the Company's Incentive Bonus
Plan.
Participants in the Key Executive Plan are eligible to receive bonuses if
and only to the extent that pre-established performance goals are met. The
potential maximum bonus that each participant in the Plan is eligible to receive
will be set as a fixed percentage of profit in excess of a return on average
equity threshold as pre-determined by the Senior Management Compensation
Committee. The maximum bonus award that any participant may receive in any
single year under this plan is $750,000. At the discretion of such Committee,
actual bonuses paid may be lower than the amounts generated by the formula, but
in no case may they be higher. In 1997, Mr. Smith was the only executive
designated to participate in the Key Executive Plan. In addition, certain
portions of Mr. Smith's compensation may be deferred as necessary for purposes
of IRC Section 162(m). See "Employment Plans and Agreements -- Deferred
Compensation Agreements."
STOCK OPTIONS. At the May 2, 1996 Annual Meeting, shareholders approved
amendments to the 1991 Employee Stock Option Plan, and renamed the plan the 1996
Employee Stock Incentive Plan of Food Lion, Inc. Like the Company's earlier
stock option plans, the 1996 Employee Stock Incentive Plan provides the Stock
Option Committee full and final authority, in its discretion, to determine
within the terms of the plan the individuals to receive awards pursuant to the
plan, the times or effective dates when awards will be granted, the number of
shares subject to each award, the exercise price for any stock options granted
and the time(s) when, and the conditions, if any, under which each award may be
vested and/or exercisable.
The 1996 Employee Stock Incentive Plan provides for grants of stock options
and/or restricted stock. Under the terms of this plan, options to purchase
shares of the Company's Class A Common Stock, or awards of shares of Class A
Common Stock subject to certain vesting and other restrictions determined by the
Stock Option Committee, may be granted on an annual basis to key employees.
Grants to the Named Executives of stock options and restricted stock under this
Plan are made with reference to competitive practice, the Company's overall goal
of linking executive compensation to the enhancement of long-term shareholder
value, and individual circumstances with respect to executive recruitment and
retention. Towers Perrin's recommendations to the Stock Option Committee
contemplated annual grants of stock options and restricted stock to the Named
Executives in amounts comparable to the grants made in 1996, assuming
satisfactory company and individual performance. During 1997, options for
1,401,509 shares of Class A Common Stock were granted under the 1996 Employee
Stock Incentive Plan to 706 employees.
PROFIT SHARING. The Company also maintains a Profit Sharing Retirement
Plan for employees pursuant to which the Company contributes annually an amount
of current or accumulated earnings as determined by the Board of Directors but
not exceeding the maximum amount deductible for income tax purposes. Each
employee of the Company is generally eligible to participate in the Company's
Profit Sharing Plan as of the
16
<PAGE> 19
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 a contribution to
the Company's Profit Sharing Plan for 1997 equal to 15% of the 1997 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. This limit was $30,000
during each of the last three fiscal years. Contributions on behalf of executive
officers in excess of these limitations are credited to the executives' accounts
under the Company's 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. Each
participant in the Profit Sharing Restoration Plan will receive a single lump
sum cash distribution in the amount of his or her entire account balance on the
first day of the month next succeeding termination of employment with the
Company.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Company also sponsors a
Supplemental Executive Retirement Plan ("SERP") for certain key employees
including 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 any Deferred Compensation Agreement
with the Company; and (4) the participant's Social Security benefit. Any
participant who retires on or after his normal retirement date and has completed
fewer that 20 years 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 $84,844 for Mr.
Smith, $30,175 for Mr. Hall and $0 for Messrs. McCanless and Benner, and for Ms.
Kohn. The projected SERP benefits to Messrs. McCanless and Benner, and to Ms.
Kohn, 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.
17
<PAGE> 20
This report is submitted by the Senior Management Compensation Committee,
the Stock Option Committee and the Board of Directors of the Company.
<TABLE>
<S> <C>
SENIOR MANAGEMENT
COMPENSATION COMMITTEE: STOCK OPTION COMMITTEE:
Pierre-Olivier Beckers Pierre-Olivier Beckers
William G. Ferguson, Chairperson William G. Ferguson
Gui de Vaucleroy Bernard W. Franklin, Chairperson
BOARD OF DIRECTORS:
Pierre Olivier Beckers Margaret H. Kluttz
Jacqueline K. Collamore Tom E. Smith, Chairman of the Board
William G. Ferguson Philippe Stroobant
Bernard W. Franklin Gui de Vaucleroy
Joseph C. Hall, Jr. Jean Claude Coppieters 't Wallant
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons served on the Senior Management Compensation
Committee during fiscal year 1997: 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 is a member of the Compensation Committee, and Mr.
Beckers, who is a member of 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 $188,070 in fixed rent and
$11,152 in common area maintenance fees for the Virginia store and $206,500 in
fixed rent and $6,249 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
18
<PAGE> 21
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
19
<PAGE> 22
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.
SENIOR MANAGEMENT EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with each of the Named
Executives. These agreements are referred to herein as the "Employment
Agreements" (with the exception of the employment agreement with Mr. Smith,
which is separately described above), and the executives are referred to as the
"Executives," except where referred to by name. The Employment Agreements with
Messrs. Hall and McCanless were entered into on February 27, 1997 and the
Employment Agreements with Mr. Benner and Ms. Kohn were entered into on October
1, 1997. The Employment Agreements have five year terms and will automatically
be extended for additional periods of one year unless the Executive or the
Company gives the other party at least 180 days' written notice prior to the
expiration of the term.
The Employment Agreement with Mr. Hall provides for Mr. Hall's employment
as Senior Vice President of Operations and Chief Operating Officer of the
Company, and for payment to Mr. Hall of a base salary of not less than $417,112
per year. The Employment Agreement with Mr. McCanless provides for Mr.
McCanless' employment as Senior Vice President of Administration and Chief
Administrative Officer of the Company, and for payment to Mr. McCanless of a
base salary of not less than $347,593 per year. The Employment Agreement with
Mr. Benner provides for his employment as Vice President of Information
Technology/Chief Information Officer of the Company, and for the payment to Mr.
Benner of a base salary of not less than $232,836 per year. The Employment
Agreement with Ms. Kohn provides for her employment as Senior Vice President of
Merchandising of the Company, and for the payment to her of a base salary of not
less than $208,556 per year. The Employment Agreements authorize the Board of
Directors to increase such minimum amounts from time to time. The Employment
Agreements also entitle the Executives to participate in other compensation and
benefit plans of the Company. The Executives may elect to defer some or all of
their bonus compensation and up to fifty percent of the base salary payable to
them pursuant to their Employment Agreements. The Employment Agreements with
Messrs. Hall and McCanless and Ms. Kohn require the Company to maintain split
dollar life insurance for each of the Executives in the face amount of three and
one-half times the Executive's base salary if his or her death occurs prior to
retirement (subject to certain conditions), and two times the Executive's last
base salary if death occurs after retirement.
The Company may terminate each Executive's employment for Cause, as defined
in the Employment Agreements. The Employment Agreements define Cause as (i)
willful failure (other than by reason of
20
<PAGE> 23
incapacity due to physical or mental illness) by the Executive to perform his or
her material duties thereunder and his or her inability or unwillingness to
correct such failure within thirty days after receipt of such notice, (ii)
conviction of the Executive of a felony or plea of no contest to a felony, or
(iii) perpetration of a material dishonest act or fraud against the Company or
any affiliate thereof. The definition of "Cause" expressly excludes any mistake
of fact or judgment made by the Executive in good faith with respect to the
Company's business. If the Company terminates the Executive's employment for
Cause, or the Executive's employment terminates due to death, the Company will
no longer be required to make payments to the Executive or his or her estate
under his or her Employment Agreement, except for compensation earned prior to
such termination and pursuant to plans, arrangements or agreements providing for
payments after termination of employment (including, in the case of the
Executive's death, payments pursuant to a Salary Continuation Agreement with the
Company. See "Employment Plans and Agreements -- Salary Continuation
Agreements.") The Company or the Executive may terminate the Executive's
employment upon the Executive's disability as specified in the Employment
Agreements, in which case, the Company shall pay the Executive a lump sum
payment equal to fifty percent of the present value of the future base salary
payable to the Executive during the remainder of the term of employment under
his or her Employment Agreement or for a period of two years, whichever is
longer.
The Executive may terminate his or her employment without liability to the
Company for Good Reason, as defined in the Employment Agreements. Good Reason is
defined as (i) a material diminution of the professional responsibilities of the
Executive, (ii) assignment of inappropriate duties to the Executive, (iii)
failure of the Company to comply with compensation and benefits obligations to
the Executive, (iv) transfer of the Executive more than 50 miles from Salisbury,
North Carolina, without good business reasons, as determined by the Company's
Board of Directors, (v) a purported termination of the Employment Agreement by
the Company other than in accordance with the terms thereof, (vi) the occurrence
of a Change in Control of the Company, or (vii) failure of the Company to
require any successor to the Company to assume and comply with the Employment
Agreement. The Employment Agreements define a "Change in Control" of the Company
as a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934 as amended (the "Exchange Act"); provided that a
Change in Control of the Company shall be deemed to have occurred if: (i) an
acquisition (other than directly from the Company) by a Person (as set forth in
Sections 3(a)(2) and 13(d)(3) of the Exchange Act, excluding the Company or an
employee benefit plan of the Company or an entity controlled by the Company's
shareholders) results in the aggregate number of shares of the Company's voting
securities beneficially owned by any other Person to exceed the number of shares
of the Company's voting securities beneficially owned by Etablissements Delhaize
Freres et Cie "Le Lion" S.A. ("Delhaize") and Delhaize "Le Lion" America, Inc.;
(ii) at any time during the term of the Employment Agreement there is a change
in the composition of the Board of Directors of the Company resulting in a
majority of the directors of the Company who are in office on the date of the
Employment Agreement ("Incumbent Company Directors") no longer constituting a
majority of the directors of the Company; provided that, in making such
determination, persons who are elected to serve as directors of the Company and
who are approved by all of the directors in office on the date of such election
(other than in connection with an actual or threatened proxy contest) shall be
treated as Incumbent Company Directors; (iii) consummation of a complete
liquidation or dissolution of the Company or a merger, consolidation or sale of
all or substantially all of the Company's assets (collectively, a "Business
Combination") other than a Business Combination in which all or substantially
all of the shareholders of the Company receive fifty percent or more of the
stock of the Company resulting from the Business Combination, at least a
majority of the board of directors of the resulting corporation are Incumbent
Company Directors and after which no person or entity
21
<PAGE> 24
owns twenty percent or more of the stock of the resulting corporation, who did
not own such stock immediately before the Business Combination; or (iv)
occurrence of any of the events described in (ii) or (iii) above to Delhaize, or
the acquisition by any Person of more than thirty percent of the stock of
Delhaize.
If any Executive terminates his or her employment for Good Reason or if the
Company terminates his or her employment (except for "Cause" as defined above,
or by reason of the Executive's disability), the Company is required to
maintain, for the remaining term of employment or three years (whichever is
greater), all employee benefit plans in which the Executive was entitled to
participate immediately prior to the date of termination or substantially
similar benefits if such plans prohibit the Executive's continued participation.
In addition, under the Employment Agreements, the Company would be required to
pay the Executive a lump sum equal to three (or the number of years remaining
under the Employment Agreement, whichever is greater) times the Executive's
current base salary.
Upon a Change in Control, or if the Executive's employment terminates other
than for Cause, all of the rights granted to the Executive by the Company to own
or acquire stock of the Company (including stock options and restricted stock
granted under the 1996 Employee Stock Incentive Plan or other plans) will
automatically vest upon the date of such Change in Control or date of
termination, provided however, that (assuming no occurrence of a Change in
Control) such rights shall not vest if the Executive's employment is terminated
for his or her failure adequately to perform his or her duties under his or her
Employment Agreement as determined by an affirmative vote of at least seventy
percent of the Board of Directors of the Company.
The Employment Agreements prohibit the Executives, without the written
consent of the Board of Directors, from engaging in any retail or wholesale
grocery business directly competitive with the business of the Company or any
affiliate thereof in any geographic area in which the Company or affiliate is
operating at the date of termination. This prohibition applies to the Executives
during the term of the Employment Agreements and for a period of two years after
their termination. The Employment Agreements also place restrictions, for a
period of two years after termination of an Executive's employment, on the
recruitment or solicitation of employees or independent contractors of the
Company for the purpose of being employed by such Executive or an entity on
behalf of which such Executive is acting as agent, representative or employee.
If, however, an Executive's employment is terminated prior to the first
anniversary of the date on which a Change in Control occurs, the foregoing
restrictions on competition and solicitation by such Executive shall not apply.
Under the Employment Agreements, the Company agrees to indemnify the
Executives to the fullest extent permitted under North Carolina law from and
against any losses, claims, damages, costs and expenses suffered by the
Executives as a result of the fact that they are or were officers of the Company
or are or were serving at the request of the Company as officers, employees or
agents of an affiliate of the Company. Each Employment Agreement also provides
that in the event that any payments to which the Executive is entitled are
subject to tax imposed by Section 4999 of the Internal Revenue Code (the "Excise
Tax"), the Company shall pay the Executive an additional amount such that the
net amount retained by the Executive shall be equal to the amount to which the
Executive is entitled prior to deduction of the Excise Tax.
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
22
<PAGE> 25
or for a period of ten years, whichever occurs later. Annual payments to each of
the Named Executives pursuant to these agreements will be as follows: Mr.
Smith -- $15,000, Mr. Hall -- $10,000, Mr. McCanless -- $10,000, Mr.
Benner -- $10,000 and Ms. Kohn -- $10,000.
Tom Smith has also entered into a Deferral Agreement and Election with the
Company, pursuant to which he has made an irrevocable election to defer such
portion of his compensation each year as necessary to avoid receiving any
non-performance based compensation in excess of $1,000,000 for purposes of IRC
Section 162(m) in any such year. Such irrevocable election to defer shall last
until Mr. Smith's retirement, death or total disability, or until his employment
with the Company is otherwise terminated. All deferred amounts shall be paid to
Mr. Smith, together with a rate of return of 10% per annum, in a lump sum or, at
Mr. Smith's election, in installments over five, ten or fifteen years.
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 at or
after 55 but prior to attaining the age of 65, payments after the first 12
months following death are made for a period of 9 years. Except as provided
above, all rights of the participant terminate upon his 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 pursuant to the arrangements described above:
<TABLE>
<CAPTION>
MONTHLY
PAYMENT SUBSEQUENT
------------- MONTHLY PAYMENTS
FIRST --------------------------------------
NAME OF INDIVIDUAL TWELVE MONTHS 24-YEAR PERIOD(1) 9-YEAR PERIOD
- ------------------ ------------- ----------------- OR -------------
<S> <C> <C> <C> <C>
Tom E. Smith.............................. $55,756 $ -- $22,302
Joseph C. Hall, Jr........................ 25,267 12,634 10,107
R. William McCanless...................... 21,056 10,528 8,422
A. Edward Benner, Jr...................... 14,104 -- 5,642
Pamela K. Kohn............................ 12,634 6,317 5,053
</TABLE>
- ---------------
(1) Based on Mr. Smith's and Mr. Benner's current age of 56, neither of them is
eligible to receive payments under the 24-year period calculation.
LOW INTEREST LOAN PLAN
Until December 31, 1997, the Company maintained a Low Interest Loan Plan to
provide low interest unsecured demand loans to certain officers and employees of
the Company. The Board of Directors of the Company terminated the Low Interest
Loan Plan as of December 31, 1997 and no further loans were extended under the
plan as of that date. However, the terms of the plan apply to amounts, if any,
still outstanding thereunder. 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
23
<PAGE> 26
100% thereafter. Interest is payable in monthly installments and may be paid
through bi-monthly payroll deductions from the borrower's salary. The rate of
interest charged is a rate equal to one half of the prime rate of NationsBank
Corporation on the first business day of each calendar quarter. Pursuant to the
Low Interest Loan Plan, the principal amount of a loan is payable on demand (or
within 90 days after a borrower leaves service with the Company). Participants
must supply a financial statement before receiving a loan under the Low Interest
Loan Plan, although no collateral is required.
The following table sets forth, with respect to the Named Executives, the
largest amounts outstanding under the plan during the fiscal year ended January
3, 1998 and the amounts outstanding as of March 20, 1998:
<TABLE>
<CAPTION>
AMOUNT
LARGEST AMOUNT OUTSTANDING ON
OUTSTANDING MARCH 20,
NAME OF INDIVIDUAL DURING 1997 1998
- ------------------ -------------- --------------
<S> <C> <C>
Tom E. Smith.............................................. $ -0- $ -0-
Joseph C. Hall, Jr........................................ $ -0- $ -0-
R. William McCanless...................................... $ 77,250 $ -0-
A. Edward Benner, Jr...................................... $177,700 $177,700
Pamela K. Kohn............................................ $ -0- $ -0-
</TABLE>
INFORMATION REGARDING DELHAIZE
Delhaize is the beneficial owner of approximately 39.5% and 51.7%
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, Raquez, Stroobant and de Vaucleroy. Delhaize is the owner of
the lion logo, which the Company uses with its own trademarks pursuant to a
nonexclusive license agreement.
CERTAIN TRANSACTIONS
Tom E. Smith, President and Chief Executive officer of the Company, is the
beneficial owner of 50% of the common stock of SAFHI, Inc., a corporation which
owns two Hampton Inn motels, one in Salisbury, North Carolina (the "Salisbury
Hampton Inn") and one in Mount Pleasant, South Carolina. In 1997, the Company
paid $350,793.60 to the Salisbury Hampton Inn, in connection with lodging for
various management trainees and other employees of the Company and its
subsidiaries. The Company believes that the rates paid to the Salisbury Hampton
Inn for such lodging were at least as favorable as would have been obtainable
from an unrelated party.
For other information relating to certain transactions, see "Executive
Compensation -- Compensation Committee Interlocks and Insider Participation."
24
<PAGE> 27
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 1999 Annual Meeting of the Company must be
received by the Company no later than December 16, 1998 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, the notice by the shareholder must be received by the Secretary no
more than 10 days after the date on which the notice of the meeting is mailed to
shareholders. The Company's bylaws should be consulted 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.
By order of the Board of Directors.
TOM E. SMITH
Chairman of the Board, President
and Chief Executive Officer
April 15, 1998
25
<PAGE> 28
Appendix A
PROXY
Food Lion, Inc.
This Proxy is Solicited on Behalf of the
Board of Directors of Food Lion, Inc.
The undersigned, having received the Notice of Meeting and the Proxy
Statement, hereby appoints Tom E. Smith and R. William McCanless, and each of
them, as proxies with full power of substitution, for and in the name of
the undersigned, to vote all shares of Class B Common Stock of Food Lion, Inc.
owned of record by the undersigned on the matters listed on the reverse side
hereof and, in their discretion, on such other matters as may properly come
before the Meeting of Shareholders to be held at the Catawba College Keppel
Auditorium, Salisbury, North Carolina on Thursday, May 7, 1998 at 10:00 a.m.,
and any adjournments or postponements thereof.
If you plan to attend the Meeting of Shareholders in person,
please mark the appropriate box on the reverse side of this card.
You are encouraged to specify your choices by marking the appropriate boxes,
SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. The proxies cannot
vote your shares unless you sign and return this card.
-----------
SEE REVERSE
SIDE
-----------
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
Please mark your 8724
[X] votes as in this
example.
This proxy when properly 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 of the Board of Directors' nominees and "FOR" Proposal 2.
The proxies are authorized to vote upon such other business as may properly
come before the Meeting unless otherwise specified herein.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR all Proposals.
- --------------------------------------------------------------------------------
1. Election of Directors FOR WITHHELD
[ ] [ ]
Pierre-Olivier Beckers, Dr. Jacqueline Kelly Collamore,
Jean-Claude Coppieters 't Wallant, William G. Ferguson,
Dr. Bernard W. Franklin, Joseph C. Hall, Jr.,
Margaret H. Kluttz, Dominique Raquez, Tom E. Smith, Gui de Vaucleroy
For, except vote withheld from the following nominees(s):
_________________________________________________________
2. Appointment of Coopers & Lybrand L.L.P. as independent accountants for the
fiscal year ending January 2, 1999.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- --------------------------------------------------------------------------------
Do you plan to attend the Meeting YES NO
of Shareholders in person? [ ] [ ]
SIGNATURE(S)__________________________________ Date _________________, 1998
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
[FOOD LION LOGO]
