<PAGE>
SCHEDULE I
DELCHAMPS, INC.
305 DELCHAMPS DRIVE
P.O. BOX 1668
MOBILE, ALABAMA 36633-1668
------------------------
INFORMATION STATEMENT
PURSUANT TO SECTION 14(F)
OF THE
SECURITIES EXCHANGE ACT OF 1934
AND
RULE 14F-1 THEREUNDER
------------------------
This Information Statement is being furnished as part of the
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
of Delchamps, Inc. (the "Company"), to be mailed on or about July 14, 1997 to
shareholders of the Company. Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Schedule 14D-9. You are
receiving this Information Statement in connection with the possible election of
persons designated by the Offeror to hold at least a majority of the positions
on the board of directors of the Company (the "Board"). The Merger Agreement
requires the Company, upon payment by the Offeror for the Shares pursuant to the
Offer, to use its best efforts to cause an appropriate number of the members of
the Board to resign and for the Offeror's designees to be elected or appointed
to the Board under the circumstances described therein. See "Board of
Directors--Right to Designate Directors" below.
Pursuant to the Merger Agreement, the Offeror commenced the Offer on July
14, 1997. The Offer is scheduled to expire on August 8, 1997, unless the Offer
is extended. The Merger Agreement provides that, following the consummation of
the Offer and the satisfaction or waiver of certain conditions, the Offeror will
be merged with and into the Company (the "Merger"). As a result of the Offer and
the Merger, the Company will become a wholly owned subsidiary of Parent.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14f-1 promulgated thereunder. You are urged to
read this information statement carefully. YOU ARE NOT, HOWEVER, REQUIRED TO
TAKE ANY ACTION IN CONNECTION WITH THIS INFORMATION STATEMENT.
The information contained in this Information Statement concerning the
Offeror's designees has been furnished to the Company by Parent and the Offeror,
and the Company assumes no responsibility for the accuracy or completeness of
such information.
<PAGE>
THE BOARD OF DIRECTORS
GENERAL
The Common Stock is the only class of voting securities of the Company
outstanding. Each share of Common Stock has one vote. As of July 8, 1997, there
were 7,127,743 shares of Common Stock outstanding. The Board currently has nine
members who serve staggered, three-year terms. Each director holds office until
such director's successor is elected and qualified or until such director's
earlier resignation or removal. The Company's by-laws authorize the Board to fix
the size of the Board. Vacancies in the Board may be filled by the Board; any
director chosen to fill a vacancy will hold office until the next election of
directors.
RIGHT OF OFFEROR TO DESIGNATE DIRECTORS
The Merger Agreement provides that upon payment for the Shares by the
Offeror pursuant to the Offer, the Offeror will be entitled to designate such
number of directors, rounded up to the next whole number, as will give the
Offeror representation on the Board equal to at least that number of directors
equal to the product of (i) the total number of directors on the Board and (ii)
the percentage that the number of shares so purchased bears to the number of
Shares outstanding, and the Company is required, at such time, to use its best
efforts to cause the appropriate number of directors to resign and the Offeror's
designees to be appointed or elected. The Offeror has informed the Company that
each of the Offeror's designees has consented to act as a director. Until the
consummation of the Merger, the Company is required to maintain on the Board, to
the extent they are willing to serve, at least three directors who were
directors on July 8, 1997 and who are not designees nor officers, directors,
employees or affiliates of Parent or the Offeror, nor employees of the Company
or any of its subsidiaries.
OFFEROR DESIGNEES
The Offeror will choose the Offeror's designees from among the individuals
listed below:
NAME, AGE, PRINCIPAL OCCUPATION AND
DIRECTORSHIPS IN OTHER PUBLIC COMPANIES
- ------------------------------------
BRUCE C. BRUCKMANN, 43; Director of Parent since March 1996 and a principal in
Bruckmann, Rosser, Sherrill & Co., Inc. ("BRS"). He was an officer and
subsequently a Managing Director of Citicorp Venture Capital, Ltd. ("CVC") from
1983 through 1994. Member of the Board of Directors of AmeriSource Distribution
Corporation, CORT Business Services Corporation, Chromcraft Revington, Inc.,
Mohawk Industries, Inc., and Anvil Knitwear, Inc., as well as several private
companies.
ROGER P. FRIOU, 62; Director of Parent since June 1984. President of Parent from
March 1996 to May 1997. Prior to 1996 served as Vice Chairman, Chief Financial
Officer, and Secretary of Parent since 1991. Executive Vice President of the
Parent from 1984 to 1991. Member of the Board of Directors of Parkway
Properties, Inc.
W. H. HOLMAN, JR., 67; Chairman of the Board of Parent since 1967. Chief
Executive Officer of the Parent from 1967 until January 1997. Member of the
Board of Directors of two private companies.
MICHAEL E. JULIAN, 46; President of Parent since May 1997 and Chief Executive
Officer of Parent since January 1997. Director of Parent since April 1996. From
1988 to January 1997, served as Director, Chairman, President and Chief
Executive Officer of Farm Fresh, Inc. Member of the Board of Directors of
Jackson Hewitt Inc. and one private company.
HAROLD O. ROSSER, II, 48; Director of Parent since March 1996 and a principal in
BRS. He was an officer and subsequently a Managing Director of CVC from 1987
through 1994. Member of the Board of Directors of DavCo Restaurants, Inc., as
well as several private companies.
SchI-2
<PAGE>
STEPHEN C. SHERRILL, 44; Director of Parent since March 1996 and a principal in
BRS. He was an officer and subsequently a Managing Director of CVC from 1983
through 1994. Member of the Board of Directors of Galey & Lord, Inc., and of
several private companies.
CURRENT DIRECTORS OF THE COMPANY
Unless otherwise indicated, each director has been engaged in the principal
occupation or employment shown for more than the past five years.
<TABLE>
<CAPTION>
FIRST SERVING
NAME, AGE, PRINCIPAL OCCUPATION AND ELECTED TERM
DIRECTORSHIPS IN OTHER PUBLIC COMPANIES DIRECTOR EXPIRING
- --------------------------------------------- ----------- -----------
<S> <C> <C>
J. THOMAS ARENDALL, JR., 55(1)(2)(3).......................................................... 1991 1997
President, Arendall and Associates, Inc. (professional and business services provider)
CARL F. BAILEY, 66(1)(2)(4)................................................................... 1987 1999
Retired President and Chief Executive Officer, South Central Bell Telephone Company Retired
Co-Chairman, BellSouth Telecommunications, Inc.
E. E. BISHOP, 66(1)(2)(5)..................................................................... 1989 1997
Member of Board of Directors, Morrison Fresh Cooking, Inc.(family restaurant chain) and
Morrison Health Care, Inc. (food service provider for health care institutions)
JOHN A. CADDELL, 67(1)(2)..................................................................... 1977 1999
Chairman of the Board and Chief Executive Officer, Caddell Construction Company Inc.
JAMES M. CAIN, 64(1)(2)(6).................................................................... 1990 1998
Retired Vice Chairman, Entergy Corporation (electric and gas utility holding company);
Director, Whitney Holding Corporation (bank holding company)
WILLIAM W. CRAWFORD, 69(1)(2)(7).............................................................. 1977 1998
Retired Senior Vice President and Secretary, Kraft, Inc (food, consumer and commercial
products company)
TIMOTHY E. KULLMAN, 41(2)(8).................................................................. 1995 1999
Senior Vice-President, Chief Financial Officer, Treasurer and Secretary of the Company
RICHARD W. LATRACE, 60(9)..................................................................... 1995 1998
President of the Company
DAVID W. MORROW, 65(1)(10).................................................................... 1994 1997
Chairman and Chief Executive Officer of the Company; Director, Furr's Supermarkets, Inc.
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Mr. Arendall has served as President of Arendall and Associates, Inc. since
October 1992. From May 1992 until its incorporation in October 1992, Mr.
Arendall was a partner of Arendall and Associates. Prior to May 1992 he was
principally employed as President of Gulf Furniture Stores, Inc.
(4) In October 1991, Mr. Bailey retired as President and Chief Executive Officer
of South Central Bell Telephone Company and Co-Chairman of BellSouth
Telecommunications, Inc.
(5) Prior to June 1992, Mr. Bishop also served as Chief Executive Officer of
Morrison Restaurants, Inc.
SchI-3
<PAGE>
(6) Mr. Cain retired September 1, 1993 as Vice Chairman of Entergy Corporation,
a position he had held since February 1991. Prior to that time he was
Chairman and Chief Executive Officer of Louisiana Power & Light Co. and New
Orleans Public Service, Inc., both subsidiaries of Entergy.
(7) Prior to September 1988, Mr. Crawford also served as Kraft's general
counsel. He retired from Kraft in December 1988.
(8) Mr. Kullman joined the Company on August 22, 1994 as Senior Vice-President
and Chief Financial Officer. In 1995 he was also named Treasurer and
Secretary. From August 1989 to July 1994, Mr. Kullman served as Senior
Vice-President, Chief Financial Officer and Secretary of Farm Fresh, Inc., a
retail grocery chain.
(9) Mr. LaTrace was named President of the Company in June 1995. He served as
President and Chief Operating Officer of XTRA Super Foods, Inc. from July
1992 until his retirement in November 1993 and served as President of
Corporate Retail for Wetterau, Inc. from December 1990 to July 1992.
(10) Mr. Morrow was named Chairman of the Board and Chief Executive Officer of
the Company in April 1995. In 1994, Mr. Morrow retired as President and
Chief Executive Officer of Pueblo International, Inc., a supermarket chain
("Pueblo"). Mr. Morrow served as Chairman and Chief Executive Officer of
Pueblo from 1991 to 1993 and as President and Chief Operating Officer from
1983 to 1991.
During the Company's last fiscal year the Board of Directors held six
meetings. The Board has a Compensation Committee and an Audit Committee. The
Audit Committee met two times during the last fiscal year with the Company's
internal auditor and with its independent public accountants to review their
accounting, financial and audit reports, their recommendations for improvements
in internal accounting controls and their audit plan for the fiscal year 1997
audit. The Compensation Committee, which met four times during the last fiscal
year, sets all officers' compensation and administers the Company's incentive
compensation plans. No director attended fewer than 75% of the total number of
meetings of the Board and the committees on which he served.
COMPENSATION OF DIRECTORS
During the last fiscal year each director not otherwise employed by the
Company received an annual retainer of $18,000 as well as a fee of $1,500 for
each Board meeting attended and $650 for each Audit or Compensation Committee
meeting attended. A director may elect to defer his retainer and meeting fees
until the earlier of the director's 70th birthday or the date the director
ceases to be a member of the Board. Deferred amounts earn interest at a rate
equal to the interest paid on 90-day U.S. Treasury bills. During the last fiscal
year directors could also choose to use their retainer and meeting fees to
purchase Company Common Stock at a 25% discount from its trading price.
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<PAGE>
SECURITY HOLDINGS OF DIRECTORS, EXECUTIVE OFFICERS AND
CERTAIN BENEFICIAL OWNERS
SECURITY HOLDINGS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the beneficial
ownership of Common Stock of the Company by each director, by each of the
Offeror designees, by each executive officer for whom compensation information
is disclosed under the heading "Summary of Executive Compensation" and by all
directors and current executive officers of the Company as a group, as of July
9, 1997, determined in accordance with Rule 13d-3 of the Securities and Exchange
Commission. Unless otherwise indicated, the Common Stock shown is held with sole
voting and investment power.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME OF BENEFICIAL OWNER SHARES OF CLASS(1)
- ------------------------------------------------------------------------------------------ --------- ------------
<S> <C> <C>
OFFEROR DESIGNEES
Bruce C. Bruckmann........................................................................ -- *
Roger P. Friou............................................................................ -- *
W. H. Holman, Jr.......................................................................... -- *
Michael E. Julian......................................................................... -- *
Harold O. Rosser, II...................................................................... -- *
Stephen C. Sherrill....................................................................... -- *
CURRENT DIRECTORS
J. Thomas Arendall, Jr.................................................................... 572 *
Carl F. Bailey............................................................................ 3,362 *
E. E. Bishop.............................................................................. 3,253 *
John A. Caddell........................................................................... 5,967 *
James M. Cain............................................................................. 1,635 *
William W. Crawford....................................................................... 8,142(2) *
Timothy E. Kullman........................................................................ 5,000(3) *
Richard W. LaTrace........................................................................ 33,334(3) *
David W. Morrow........................................................................... 205,000(4) 2.8%
NAMED EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS OR NOMINEES
Frank L. Bennen........................................................................... 3,334(3) *
Thomas P. Robbins......................................................................... 2,667(3) *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP(5)........................................ 313,852 4.25%
</TABLE>
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* Less than 1%.
(1) Shares subject to options exercisable within 60 days are deemed to be
outstanding for purposes of computing the percentage of the Common Stock
owned by such person individually and by all directors and executive
officers as a group but are not deemed to be outstanding for the purpose of
computing the ownership percentage of any other person.
(2) Includes 500 shares held of record by Mr. Crawford's wife.
(3) Shares entitled to be acquired pursuant to currently exercisable stock
options.
(4) Includes 200,000 shares entitled to be acquired pursuant to currently
exercisable stock options.
(5) Includes only current directors and executive officers.
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<PAGE>
SECURITY HOLDINGS OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME AND ADDRESS SHARES OF CLASS
- ----------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
First Alabama Bank
Trustee fbo Delchamps, Inc.
Employee Stock Ownership Trust(1)...................................... 1,156,593 16.23%
Post Office Drawer 2527
Mobile, Alabama 36622
GAMCO Investors, Inc., Gabelli Funds Inc.,
Gabelli & Company, Inc., Mario J. Gabelli, Gabelli International
Limited(2)........................................................... 1,051,300 14.75%
One Corporate Center
Rye, New York 10580-1434
Franklin Resources, Inc.(3)............................................ 405,679 5.69%
777 Marines Island Blvd.
San Mateo, California 94404
</TABLE>
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(1) As of July 31, 1996. Shares held by the Trustee are voted according to the
instructions of each participating employee to the extent of the number of
shares allocated to his account on all matters submitted to a vote of
shareholders. Unallocated shares are required to be voted as a block in the
same manner as a majority of the allocated shares.
(2) As reported on Amendment No. 15 to Schedule 13D dated July 7, 1997 and filed
with the Securities and Exchange Commission. A total of 51,500 of such
shares are held with sole investment power alone.
(3) As reported on Schedule 13G dated July 9, 1997 and filed with the Securities
and Exchange Commission.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and greater-than-10% shareholders to file with the
Securities and Exchange Commission reports of beneficial ownership and changes
in beneficial ownership of the Company's Common Stock. All such reports were
timely filed.
SchI-6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation paid
by the Company for services rendered in all capacities during the fiscal years
ended July 1, 1995, June 29, 1996 and June 28, 1997 to each person who served as
the Chief Executive Officer during the last fiscal year and to each of the four
other most highly compensated persons who served as executive officers of the
Company during the last fiscal year and whose salary and bonus exceeded
$100,000.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- -------------------------------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
David W. Morrow, Chairman of the Board and Chief
Executive Officer (1)........................... 1997 $400,000 $225,000 -- --
1996 520,000 -- 100,000 --
1995 112,000 -- 100,000 --
Richard W. LaTrace, President (2)................. 1997 315,000 177,188 25,000 --
1996 300,000 100,000 50,000 $32,000
Timothy E. Kullman, Senior Vice President, Chief
Financial Officer, Treasurer and Secretary
(3)............................................. 1997 177,500 73,219 5,000 --
1996 165,375 25,000 -- --
1995 131,149 -- 5,000 43,500(4)
Frank L. Brennan, Senior Vice President,
Operations (5).................................. 1997 175,000 72,188 5,000 --
1996 160,000 25,000 5,000 23,130(4)
1995 3,077 -- -- --
Thomas P. Robbins, Senior Vice President, Sales
and Marketing (6)............................... 1997 175,000 72,188 5,000 --
1996 120,577 18,720 5,000 18,760(4)
</TABLE>
- ------------------------
(1) Mr. Morrow was named Chairman and Chief Executive Officer in April, 1995.
(2) Mr. LaTrace joined the Company in June, 1995.
(3) Mr. Kullman joined the Company in August, 1994.
(4) Consists of reimbursement of relocation expenses.
(5) Mr. Bennen joined the Company in June, 1995.
(6) Mr. Robbins joined the Company in October, 1995.
SchI-7
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT
PERCENTAGE OF ASSUMED ANNUAL RATES
NUMBER TOTAL OPTIONS OF
OF GRANTED TO STOCK PRICE
SECURITIES EMPLOYEES IN EXERCISE EXPIRATION APPRECIATION
UNDERLYING FISCAL YEAR PRICE DATE FOR OPTION TERM
OPTIONS ------------- ----------- ----------- --------------------
NAME GRANTED(1) 5% 10%
- --------------------------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard W. LaTrace............... 25,000 39.1% $ 23.00 07/29/01 $ 158,750 $ 351,000
Timothy E. Kullman............... 5,000 7.8% 23.00 07/29/01 31,750 70,200
Frank L. Bennen.................. 5,000 7.8% 23.00 07/29/01 31,750 70,200
Thomas P. Robbins................ 5,000 7.8% 23.00 07/29/01 31,750 70,200
</TABLE>
- ------------------------
(1) The options become exercisable in one-third annual increments, unless the
Compensation Committee elects to accelerate exercisability. In addition, the
options automatically become exercisable in the event of a change of control
of the Company.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
SHARES
ACQUIRED NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ON VALUE IN-THE-MONEY OPTIONS AT IN-THE-MONEY OPTIONS AT
EXERCISE REALIZED FISCAL YEAR END FISCAL YEAR END
----------- ------------- -------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
David W. Morrow.............................. None $ 0 200,000 -- $ 2,475,000 --
Richard W. LaTrace........................... None 0 33,335 41,666 425,021 $ 406,242
Frank L. Bennen.............................. None 0 3,334 6,666 40,008 58,742
Timothy E. Kullman........................... None 0 3,334 6,666 40,842 59,159
Thomas P. Robbins............................ None 0 1,667 8,333 20,838 78,746
</TABLE>
EMPLOYMENT, INDEMNITY AND CHANGE OF CONTROL AGREEMENTS
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with David W. Morrow
dated as of January 1, 1997. The agreement is for a term of one year and is
automatically superseded upon a change of control of the Company by his change
of control agreement with the Company. Mr. Morrow is entitled under his
employment agreement to a weekly salary of $7,692.31 ($400,000 for 52 weeks),
plus a cash bonus under the Company's annual incentive award program (i) for the
Company's fiscal year ended June 30, 1997 and (ii) on a prorated basis for the
number of months in the Company's fiscal year ended June 30, 1998 during which
he is employed by the Company.
INDEMNITY AGREEMENTS
The Company has entered into indemnity agreements with each of its directors
pursuant to which the Company has agreed under certain circumstances to purchase
and maintain directors' and officers' liability insurance, unless such insurance
is not reasonably available or, in the reasonable judgment of the Board, there
is insufficient benefit to the Company from such insurance. The agreements also
provide that the Company will indemnify each director to the fullest extent
permitted by law against any costs and expenses, judgments, settlements and
fines incurred in connection with any claim involving him by reason of his
position as director.
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<PAGE>
CHANGE OF CONTROL AGREEMENTS
The Company has entered into change of control agreements with each of its
executive officers. The purpose of the agreements is to diminish the inevitable
distraction of executives by the personal economic concerns and anxieties that
are created by the possibility, threat or occurrence of a change of control and,
thereby, to encourage the continued dedication of the executives to advancing
the Company's business interests during such periods of uncertainty.
The agreements do not constitute employment contracts and only apply in
circumstances following a change of control. The agreements provide that certain
employment and severance arrangements become effective if a change of control,
as defined in the agreements, occurs within three years from the date of the
agreements, with automatic annual extensions unless terminated after notice by
the Company.
If a change of control occurs during the term of the agreements, the
agreements provide for continued employment of the executives, in at least
comparable positions with at least comparable compensation and benefits, for
three years following the change of control. If the Company terminates an
executive's employment during such three-year period other than for cause or
disability or if the executive terminates employment for good reason, the
executive is entitled to receive, in addition to other accrued amounts such as
vacation pay, a lump sum in cash equal to three times his annual base salary and
bonus. An executive who continues employment for one year after a change of
control earns a special bonus equal to his annual salary and bonus. In addition,
an executive who continues employment for such one-year period may terminate
employment during the 30-day period immediately following without any reason and
receive the same benefits as if he had terminated for good reason. The
agreements further provide for payment to the executive of an amount equal to
the excise tax, if any, payable by the executive on his severance benefits.
Health and other welfare benefits continue, following termination, for the
remainder of the three-year period.
DIRECTOR COMPENSATION PLAN
In accordance with the Merger Agreement, the Company has amended the
Director Compensation Plan to eliminate future issuances of stock thereunder.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, all members of the Board of Directors of the
Company, other than David W. Morrow, Richard W. LaTrace and Timothy E. Kullman,
served on the Compensation Committee. None of the members of the Compensation
Committee have been officers or employees of the Company or any of its
subsidiaries. No executive officer of the Company served in the last fiscal year
as a director or a member of the compensation committee of another entity, one
of whose executive officers served as a director or on the Compensation
Committee of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for review and administration of the Company's executive
compensation program. The Committee's strategy is to develop and implement an
executive compensation program that allows the Company to attract and retain
highly qualified persons to manage the Company in order to enhance shareholder
value. The objectives of this strategy are to provide a compensation package
that permits the recognition of individual contributions and achievements as
well as Company results. Within this strategy, the Committee considers it
essential to the vitality of the Company to maintain levels of compensation
opportunity that are competitive with similar companies in the grocery industry.
The Committee recommends to the entire Board salary levels for the executive
officers of the Company. The Committee also administers the Company's annual
SchI-9
<PAGE>
incentive plan and the 1993 Stock Incentive Plan. In its deliberations, the
Committee takes into account the recommendations of appropriate Company
officials and independent professional compensation consultants.
Under the Omnibus Budget Reconciliation Act ("OBRA") enacted in 1993,
publicly held companies may be prohibited from deducting as an expense for
federal income tax purposes total compensation in excess of $1 million paid to
certain executive officers in a single year. However, OBRA provides an exception
for compensation that qualifies as "performance based." The Committee has not
taken any action to qualify any portion of executive compensation as performance
based. The Committee will periodically evaluate compensation levels and may
determine to take action in the future to ensure that all executive compensation
paid will be deductible.
BASE SALARIES
Salaries for executive officers, including the Chief Executive Officer, are
generally based on evaluations of the executives' performance, their
contributions to the performance of the Company, their responsibilities,
experience and potential, and compensation practices for comparable positions at
other companies in the grocery industry. The base salary opportunities are
targeted at the 50th percentile of a large group of both public and private
supermarket chains. The comparison group includes the companies that make up the
Dow Jones Food Retailers Index but is weighted more heavily toward supermarket
chains similar in size to the Company. Incremental amounts may be earned above
the 50th percentile for outstanding performance.
ANNUAL INCENTIVE COMPENSATION
Executive officers are eligible for annual incentive awards. These awards
are not in addition to market level compensation but are designed to place a
significant part of an executive's annual compensation at risk. The Chief
Executive Officer's award is based on corporate performance measured against
pre-tax profit objectives set by the Committee at the beginning of the year.
Awards to other executive officers are based on the same corporate performance
measure and on individual achievement of specified objectives established by the
Chief Executive Officer at the beginning of the year. Targeted awards are a
percentage of the executive officer's base salary ranging from 15% to 50% based
on the officer's position and salary grade. Awards based on Company performance
may range from 25% of target for exceeding a threshold profit level to a maximum
award of 50% greater than target for achieving or exceeding a maximum pre-tax
profit goal. At year-end, individual performance of the other executive officers
is evaluated against pre-established objectives. The combination of base salary
and an annual incentive award are intended to provide an executive the
opportunity to earn total compensation slightly above the 50th percentile of the
competitive marketplace if Company and individual goals are achieved.
LONG-TERM INCENTIVE PLAN
To be consistent with the Company's executive compensation philosophy, the
Committee recommends that a significant portion of total executive compensation
be tied directly to shareholders' results. Toward that end, the Board of
Directors adopted the 1993 Stock Incentive Plan (the "Incentive Plan") and the
Incentive Plan was approved by the Company's shareholders at the 1993 annual
meeting. Stock options and other stock incentives are an integral part of the
Company's executive compensation program in order to align the interests of the
executive officers with the interests of the Company's shareholders. The
Committee granted stock options to the Company's executive officers in fiscal
1997 providing officers with the opportunity to buy and maintain an equity
interest in the Company, thereby encouraging them to direct their efforts toward
appreciation of the value of the Company's common shares. The number of options
that a particular executive officer receives is generally based upon the
officer's base salary and level of responsibility. The options granted have an
exercise price equal to the fair market value of the shares on the grant date
and, to encourage a long-term perspective, generally vest over three years and
have a ten-
SchI-10
<PAGE>
year term. Stock option compensation bears a direct relationship to corporate
performance in that, over the long term, share price appreciation depends upon
corporate performance, and without share price appreciation the options are of
no value.
Submitted by the Compensation Committee.
<TABLE>
<S> <C>
J. Thomas Arendall, Jr. John A. Caddell
Carl F. Bailey James M. Cain
E. E. Bishop William W. Crawford
</TABLE>
SchI-11
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Company's Common Stock for the last five fiscal years with the cumulative total
return on the S&P 500 Index and the Dow Jones Food Retailers Index, in each case
assuming the investment of $100 on June 26, 1992 at closing prices on June 26,
1992 and the reinvestment of dividends. The Dow Jones Food Retailers Index
consists of the following eleven companies and is published periodically in the
Wall Street Journal: Albertson's, Inc., American Stores Company, Bruno's, Inc.,
Flemming Companies Inc., Food Lion, Inc., Giant Food Inc., The Great Atlantic &
Pacific Tea Company, Inc., The Kroger Company, SUPERVALU INC., The Vons
Companies, Inc. and Winn-Dixie Stores, Inc.
COMPARISON OF DELCHAMPS, INC., S&P 500 AND
DOW JONES FOOD RETAILERS INDEX
GRAPH DEPICTS CHART BELOW
<TABLE>
<CAPTION>
TOTAL RETURN FOR THE FISCAL YEAR
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------
Delchamps....................................................... 100.00 98.13 115.10 97.47 122.79 155.70
S&P 500......................................................... 100.00 110.39 108.85 133.47 164.75 217.40
Dow Jones Food Retailers Index.................................. 100.00 98.80 95.90 119.18 137.92 178.61
</TABLE>
SchI-12
