THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
2 PARAGON DRIVE
MONTVALE, NEW JERSEY 07645
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held July 13, 2006
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To the Stockholders of
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
We will hold the Annual Meeting of Stockholders of The Great Atlantic &
Pacific Tea Company, Inc. (the "Company") at The Woodcliff Lake Hilton, 200 Tice
Boulevard, Woodcliff Lake, NJ, on Thursday, July 13, 2006, at 9:00 A.M. (E.D.T.)
for the following purposes:
1. To elect seven (7) directors, each for a term of one (1) year;
2. To act on a proposal to approve an amendment to the 2004 Non-Employee
Director Compensation Plan;
3. To act on a proposal to approve an amendment to the 1998 Long Term
Incentive and Share Award Plan and;
4. To transact such other business as may properly come before the
meeting and any adjournments thereof.
The Board of Directors has fixed May 19, 2006, as the Record Date for this
meeting. Only stockholders of record at the close of business on that date are
entitled to receive notice and to vote at the meeting or at any adjournment
thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE EITHER COMPLETE, SIGN
AND RETURN THE ACCOMPANYING PROXY TO THE COMPANY IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, OR USE THE INTERNET OR PHONE
VOTING OPTIONS DETAILED ON THE PROXY CARD.
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended February 25, 2006, accompanies this proxy statement.
By Order of the Board of Directors
ALLAN RICHARDS
Senior Vice President, Human Resources, Labor
Relations, Legal Services & Secretary
Dated: May 25, 2006
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You are cordially invited to attend the meeting. Whether or not you
plan to do so, your vote is important. Please promptly submit your
proxy by mail, telephone or internet.
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THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
2 PARAGON DRIVE
MONTVALE, NEW JERSEY 07645
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PROXY STATEMENT
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SOLICITATION AND REVOCATION OF PROXIES
This proxy statement is furnished by the Board of Directors of The Great
Atlantic & Pacific Tea Company, Inc. (the "Company") for use at the Company's
Annual Meeting of Stockholders to be held on July 13, 2006 (the "Annual
Meeting"). It is expected that the solicitation of proxies will be primarily by
mail. Proxies may also be solicited personally by regular employees of the
Company, by telephone or by other means of communication at nominal cost. The
Company will bear the cost of such solicitation. It will reimburse banks,
brokers and trustees, or their nominees, for reasonable expenses incurred by
them in forwarding proxy material to beneficial owners of stock in accordance
with the New York Stock Exchange ("NYSE") schedule of charges. Any stockholder
giving a proxy has the power to revoke it at any time prior to its exercise by
giving notice in writing to the Secretary, at the address above, or by casting a
ballot at the meeting in person or by proxy. This proxy statement is first being
mailed to stockholders on or about May 25, 2006.
VOTING AT MEETING
Only stockholders of record at the close of business on May 19, 2006 will be
entitled to vote at the Annual Meeting. As of May 19, 2006, there were
41,337,733 shares of the Company's $1 par value common stock (the "Common
Stock") each of which is entitled to one vote. There are no appraisal or
dissenter's rights with respect to any matter to be voted on at the Annual
Meeting. Proxies marked as abstaining (including proxies containing broker
non-votes) on any matter to be acted upon by stockholders will be treated as
present at the meeting for purposes of determining a quorum but will not be
counted as votes cast on such matters.
ITEM 1--ELECTION OF DIRECTORS
Seven (7) directors are to be elected to hold office until the next annual
meeting and until their successors are elected and shall qualify. The persons
named as proxies in the accompanying proxy intend to vote, unless otherwise
instructed, for the election to the Board of Directors of the persons named
below, each of whom has consented to nomination and to serve when elected. Each
nominee is presently a member of the Board of Directors. The affirmative vote of
a majority of the votes cast at the Annual Meeting is required for the election
of each director.
Mrs. Helga Haub and Mr. Richard Nolan will not stand for reelection. Mrs. Haub
served as a director for twenty-seven (27) years. Mr. Nolan joined the Board in
October 1999. The Company appreciates their dedicated service.
The Board has determined that four (4) of the seven (7) nominees, namely Bobbie
Gaunt, Dan Kourkoumelis, Edward Lewis and Maureen Tart-Bezer, are independent
directors under the Company's Standards of Independence, which conform to the
independence requirements in the NYSE listing rules. The Company's "Standards of
Independence" is attached as Appendix A.
THE BOARD RECOMMENDS A VOTE FOR THE NOMINEES FOR A ONE YEAR TERM ENDING IN 2007.
JOHN D. BARLINE
Mr. Barline, age 59, is and has been a member of the Board since July 9, 1996.
He is a member of the Compensation and Executive Committees.
Mr. Barline, an attorney in private practice since 1973, is currently of counsel
at the law firm of Williams, Kastner & Gibbs LLP in Tacoma, Washington. His
areas of practice include corporate tax law, mergers and acquisitions, general
business law, estate planning and real estate. He provides personal legal
services to the Haub family, including Christian W. E. Haub.
Mr. Barline is a member of the board of directors and corporate secretary of Sun
Mountain Resorts, Inc. and a director of Wissoll Trading Company, Inc. and Sun
Mountain Lodge, Inc., each a small closely held corporation owned primarily by
the Haub family. He is also chair of the board of directors of the Le May
Automobile Museum, and a director and chair of the compensation committee of
Precision Machine Works, Inc.
DR. JENS-JURGEN BOCKEL
Dr. Bockel, age 63, is and has been a member of the Board since April 29, 2004.
He is a member of the Executive Committee.
Dr. Bockel has served as the chief financial officer of Tengelmann
Warenhandelsgesellschaft KG ("Tengelmann") since January 1, 2000. From January,
1995 through December, 1999, Dr. Bockel served as chief financial officer and as
a member of the executive board of Schickedanz Holding - Stiftung & Co. KG, in
Furth, Germany.
Dr. Bockel is a member of the supervisory board of Kaiser's Tengelmann AG, in
Viersen, Germany, OBI AG, in Wermelskirchen, Germany, Lowa and Zielpunkt GmbH,
in Vienna, Austria. He is also chair of the family council and chairman of the
advisory board of Fahrzeug-Werke Lueg AG, in Bochum, Germany.
BOBBIE ANDREA GAUNT
Mrs. Gaunt, age 59, is and has been an independent member of the Board since May
15, 2001. She is Lead Director, Chair of the Compensation Committee and a member
of the Audit & Finance, Governance and Executive Committees.
Mrs. Gaunt was elected an officer and vice president of the Ford Motor Company
in June, 1999, and served as president and chief executive officer of the Ford
Motor Company of Canada, Ltd., from 1997 until her retirement from the company
in December of 2000. Mrs. Gaunt began her automotive career with Ford in 1972
and for over 28 years served in various managerial positions in the areas of
sales, marketing, research and building customer relationships. Between the
months of June through October, 2004, Ms. Gaunt served as Interim Chief
Executive Officer of ADVO, Inc. in Windsor, Connecticut.
Mrs. Gaunt is a member of the Board of Advisors of the Katz Business School, and
the Board of Trustees at the University of Pittsburgh; is a member (at the
request of the Company) of the Board of Directors of Metro, Inc., Montreal,
Quebec, Canada and serves as a member of both their Human Resources and Audit
Committees; is a member and chair of the board of the Saugatuck Center for the
Arts, in Saugatuck, Michigan; and, serves on the board of directors and as chair
of the compensation committee of ADVO, Inc., Windsor, Connecticut.
2
CHRISTIAN W. E. HAUB
Mr. Haub, age 41, is and has been a member of the Board since December 3, 1991.
He currently serves as Executive Chairman of the Board of the Company, and Chair
of the Executive Committee.
Mr. Haub has served as Executive Chairman of the Company since August 15, 2005.
Prior thereto Mr. Haub served as Chief Executive Officer of the Company since
May 1, 1998 and Chairman of the Board since May 1, 2001. In addition, Mr. Haub
also served as President of the Company from December 7, 1993 through February
24, 2002, and from November 4, 2002 through November 15, 2004.
Mr. Haub, is a partner and Co-Chief Executive Officer of Tengelmann. Mr. Haub is
a member of the Board of Directors of Metro, Inc., Montreal, Quebec, Canada, and
is on the board of directors of the Food Marketing Institute and on the board of
trustees of St. Joseph's University, in Philadelphia, Pennsylvania.
DAN PLATO KOURKOUMELIS
Mr. Kourkoumelis, age 55, is and has been an independent member of the Board
since March 21, 2000. Mr. Kourkoumelis is Chair of the Governance Committee and
a member of the Audit & Finance and Executive Committees.
Mr. Kourkoumelis was president and chief operating officer of Quality Food
Centers, Inc. from May 1989 until September 1996, and thereafter president and
chief executive officer of Quality Food Centers, Inc. until September 25, 1998,
when he retired after Quality Food Centers, Inc. was acquired. He also served as
a director of Quality Food Centers, Inc. from April 1991 until March 1998. Mr.
Kourkoumelis is a director of Expeditors International Inc. and a director and
past president of the Western Association of Food Chains. Mr. Kourkoumelis is a
member of the compensation and audit committees of Expeditors International.
EDWARD LEWIS
Mr. Lewis, age 66, is and has been an independent member of the Board since May
16, 2000. Mr. Lewis is a member of the Audit & Finance, Compensation and
Governance Committees.
Mr. Lewis is chairman and founder of Essence Communications Partners. He is
director of the leadership council of the Tanenbaum Center for Interreligious
Understanding, the Harvard Business School Board of Directors of the Associates,
the Economic Club of New York, the New York City Partnership, the Central Park
Conservancy, Girls, Inc., NYC2012 and the board of Jazz at Lincoln Center for
the Performing Arts. He also served as chairman of the Magazine Publishers of
America from 1997 to 1999, becoming the first African-American to hold this
position in the 75-year history of the organization.
MAUREEN B. TART-BEZER
Ms. Tart-Bezer, age 50, is and has been an independent member of the Board since
May 15, 2001. Ms. Tart-Bezer is Chair of the Audit & Finance Committee and a
member of the Compensation and Governance Committees.
Ms. Tart-Bezer is executive vice president and chief financial officer of Virgin
Mobile USA, a wireless MVNO (mobile virtual network operator) venture in the
United States. Prior to her current position, Ms. Tart-Bezer was executive vice
president and general manager of the American Express Company, U.S. Consumer
Charge Group through December, 2001. From 1977 to 2000, Ms. Tart-Bezer was with
AT&T Corporation, serving as a senior financial officer of the company,
including positions as senior vice president and corporate controller and senior
vice president and chief financial officer for the Consumer Services Group.
Ms. Tart-Bezer is currently a trustee of Caldwell College, a private college in
Caldwell, New Jersey and has served as a trustee of the AT&T Foundation and as a
director of AT&T Capital Corp. and Lucent Technologies. She is a prior director
of MaMamedia.com and trustee to St. Peter's College in Jersey City, New Jersey.
3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP OF MORE THAN 5% OF THE COMPANY'S COMMON STOCK
Except as set forth below, as of May 8, 2006, no person beneficially owned, to
the knowledge of the Company, more than 5% of the outstanding shares of the
Company's Common Stock.
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Amount and Nature of Beneficial Ownership
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Shared
Name and Address of Beneficial Owner Total Beneficial Sole Voting/Investment % of
Ownership Voting/Investment Power Power Class
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Christian W. E. Haub (1) 22,579,206 583,335(2) 21,995,871(3) 54.7%
2 Paragon Drive
Montvale, NJ 07645
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Erivan Karl Haub (1) 22,135,471 140,100 21,995,371 53.6%
Wissollstrasse 5-43
45478 Mulheim an der Ruhr, Germany
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Karl-Erivan Warder Haub (1) 21,995,371 0 21,995,371 53.3%
Wissollstrasse 5-43
45478 Mulheim an der Ruhr, Germany
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Tengelmann Warenhandelsgesellschaft KG (1) 21,995,371 0 21,995,371 53.3%
Wissollstrasse 5-43
45478 Mulheim an der Ruhr, Germany
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Prentice Capital Management, LP (4) 3,900,434 0 3,900,434 9.4%
623 Fifth Avenue, 32nd Floor
New York, NY 10022
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Goodwood Inc. and affiliates (5) 2,075,100 0 2,075,100 5.0%
212 King Street West
Suite 201
Toronto, Canada M5H 1K5.
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(1) The Company obtained the information regarding Tengelmann
Warenhandelsgesellschaft KG ("Tengelmann"), Tengelmann Verwaltungs- und
Beteiligungs GmbH ("TVB"), Erivan Karl Haub ("Erivan"), Karl-Erivan Warder
Haub ("Karl") and Christian W. E. Haub ("Christian") from such persons, and
from a Schedule 13G filed with the Securities and Exchange Commission (the
"SEC") on August 8, 2002. Tengelmann is engaged in general retail marketing
and controls, among others, Kaiser's Tengelmann AG, a supermarket retailer
in Germany. The general partners of Tengelmann are Erivan, TVB and two of
Erivan's sons, Karl and Christian. The sole limited partner of Tengelmann
is Georg Rudolf Otto Haub ("Georg"), Erivan's other son, who manages the
real estate activities of the Haub family. Erivan owns six percent (6%) of
the partnership interests of Tengelmann; the rest is divided equally among
Karl, Christian and Georg. TVB, the sole managing partner of Tengelmann,
has the exclusive right to direct Tengelmann and is solely responsible for
its conduct. TVB, whose only shareholders are Erivan and his three sons, is
not an operating company. Karl and Christian are the only Managing
Directors of TVB.
(2) Includes options to purchase 578,335 shares of Common Stock, all of which
are exercisable within sixty (60) days.
(3) Includes 500 shares of Common Stock held by the wife of Christian W. E.
Haub's and the 21,995,371 shares of Common Stock that are held by
Tengelmann.
4
(4) This information has been obtained from a Schedule 13G/A dated February 14,
2006 and filed with the SEC by Prentice Capital Management, LP, a Delaware
limited partnership ("Prentice Capital"), and Michael Zimmerman, a United
States citizen, with respect to 3,900,434 shares (the "Prentice Shares")
over which Prentice Capital and Zimmerman share voting and investment
power. According to the Schedule 13G/A, Prentice Capital serves a number of
investment funds, including Prentice Capital Partners, LP, Prentice Capital
Partners GP, LP and Prentice Capital Offshore, Ltd., and managed accounts
over which Prentice Capital serves as principal investment manager. As
investment manager, Prentice Capital has voting and dispositive authority
over the Prentice Shares. Mr. Zimmerman is the Managing Member of Prentice
Management GP, LLC, the general partner of Prentice Capital, and Prentice
Capital GP, LLC, the general partner of certain investment funds, and thus,
may also be deemed to control and to be the beneficial owner of the
Prentice Shares. Prentice Capital and Michael Zimmerman, to the extent
permitted by law, disclaim beneficial ownership over the Prentice Shares.
(5) On February 14, 2006, Goodwood Fund ("Fund"), Arrow Goodwood Fund
("Arrow"), Goodwood Capital Fund ("Capital Fund"), The Goodwood Fund 2.0
Ltd. ("2.0"), KBSH Goodwood Canadian Long/Short Fund ("KBSH"), Goodwood
Inc. ("Goodwood"), 1354037 Ontario Inc. ("Ontario"), Peter H. Puccetti
("Puccetti"), 620088 BC LTD. ("BC") and J. Cameron MacDonald ("MacDonald"),
collectively, filed a Schedule 13G with the Securities and Exchange
Commission. This Schedule 13G indicates that Goodwood acts as the
investment manager of each of Fund, Arrow, Capital Fund, 2.0 and KBSH,
which are the sole owners of 584,700, 247,300, 58,100 shares, 150,000
shares, 8,400 shares of the Company's Common Stock, respectively. As
investment manager, Goodwood is deemed to beneficially own all of the
foregoing 1,048,500 shares (the "Goodwood Shares"). Goodwood, however,
disclaims such ownership. Goodwood is controlled by Ontario, which in turn
is controlled by Mr. MacDonald and Mr. Puccetti. Mr. MacDonald, Mr.
Puccetti and Ontario, are therefore, deemed to beneficially own the
Goodwood Shares. Mr. MacDonald, Mr. Puccetti and Ontario, however, disclaim
such beneficial ownership. Lastly, BC, which is controlled by Mr.
MacDonald, holds 10,900 shares of the Company's Common Stock. Mr. MacDonald
disclaims beneficial ownership of such 10,900 shares.
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock of the
Company beneficially owned as of May 8, 2006, by each director, each nominee for
director, each executive officer of the Company on that date as named and noted
in the Summary Compensation Table, infra, and by all directors and the executive
officers of the Company as a group:
SHARES STOCK
BENEFICIALLY OPTION DEFERRED % OF
OWNED SHARES(1) PLAN (2) TOTAL CLASS
----- --------- -------- ----- -----
John D. Barline ..................................... 11,902 3,289 17,729 32,920 *
Jens- Jurgen Bockel.................................. 0 1,686 9,167 10,853 *
Eric Claus........................................... 12,186 0 0 12,186 *
Christian W. E. Haub (3)............................. 22,000,871 578,335 0 22,579,206 54.7
Helga Haub (3)....................................... 11,259 3,333 0 14,592 *
Bobbie Andrea Gaunt.................................. 1,000 4,217 20,528 25,745 *
Dan Kourkoumelis..................................... 7,444 4,850 15,228 27,522 *
Edward Lewis......................................... 10,459 422 15,101 25,982 *
John E. Metzger ..................................... 1,500 123,362 0 124,862 *
Richard Nolan........................................ 100 2,530 23,826 26,456 *
Maureen B. Tart-Bezer................................ 2,000 4,217 15,269 21,486 *
Stephen Slade........................................ 0 4,741 0 4,741 *
Paul Wiseman......................................... 0 0 0 0 *
All directors and executive officers as a group (18
persons)............................................. 22,058,721 777,126 116,848 22,906,551 55.5
* Less than 1%
5
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(1) The amounts shown include all purchase options granted under the Company's
stock option plans exercisable within sixty (60) days from May 8, 2006 and
reflect anti-dilution adjustments made in April 2006.
(2) The amounts shown represent the stock equivalent units accrued under the
Company's Directors' Deferred Payment Plan and the 2004 Non-Employee
Director Compensation Plan, after the anti-dilution adjustments made in
April 2006. These share equivalents are subject to Common Stock market
price fluctuations.
(3) Mr. Christian W. E. Haub has shared voting and investment power over the
shares owned by Tengelmann and they are therefore included in the number of
shares beneficially owned by him. Mrs. Haub, wife of Mr. Erivan Haub, who
is a general partner of Tengelmann, disclaims any investment or voting
power of the shares he beneficially owns and the same are not included in
her amounts.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that directors, executive officers
and persons who own more than 10% of the Company's Common Stock, file initial
reports of ownership of the Company's Common Stock and changes in such ownership
with the Securities & Exchange Commission ("SEC"). Based on a review of the
reports and written representations provided to the Company, the Company
believes that during and with respect to Fiscal 2005, all required reports were
filed on a timely basis, except as indicated in the following sentences. Dr.
Bockel filed a Form 4 on August 3, 2005 for a July 25, 2005 sale of 2,000 shares
of Common Stock. Mrs. Haub filed a Form 4 on November 2, 2005 for an October 28,
2005 purchase by her husband of 5,000 shares of Common Stock. Mr. Piwek filed a
Form 4 on August 3, 2005 for a July 27, 2005 sale of 2,000 shares of Common
Stock and for a July 29, 2005 purchase and sale of 25,000 stock options. Mr.
Claus filed a Form 4 on May 19, 2005 for a May 13, 2005 purchase of 4,500 shares
of Common Stock. Mr. Wiseman filed a Form 4 on September 26, 2005 for 70,000
shares of performance restricted stock units granted to him on September 12,
2005. Prior to the adoption of the 2004 Non-Employee Director Compensation Plan,
the Company compensated non-employee directors under the Directors' Deferred
Payment Plan, pursuant to which the Company, on a monthly basis, credited a
portion of each director's retainer to a common stock equivalent account. Each
director reported such transactions on a timely Form 5 for Fiscal 2004, but
because the reporting rule for such stock equivalent accounts changed several
monthly Form 4 filings also were missed in Fiscal 2005 until August 2005.
THE BOARD OF DIRECTORS OF THE COMPANY
GOVERNANCE OF THE COMPANY
The Board of Directors is responsible for the supervision of the overall affairs
of the Company. The Board has adopted a Code of Business Conduct and Ethics that
applies to all employees, officers and directors of the Company, and has
established a set of Corporate Governance Guidelines, which set forth the
policies and principles of the Board and the Company.
The Company's website, www.aptea.com, includes the Company's governance
materials, including without limitation, the Corporate Governance Guidelines,
the Code of Business Conduct and Ethics, information regarding the process by
which stockholders can send communications to the Board and the Company's policy
regarding the attendance of members of the Board at annual meetings.
BOARD MEETINGS AND COMMITTEES
During Fiscal 2005, the Board of Directors held fourteen (14) meetings including
eight (8) by telephone, and committees thereof held seventeen (17) meetings.
Each director attended at least 89% of the aggregate of (i) the total number of
meetings of the Board and (ii) the total number of meetings held by all
Committees of the Board on which such director served. Each Board meeting
includes an executive session of the independent directors, which is chaired by
a Lead Director. The independent directors elected Bobbie Gaunt Lead Director
for 2006. In April 2006, the IT Oversight and the Finance Committees were folded
into a newly constituted Audit & Finance Committee. The Board now has an
Executive Committee, an Audit & Finance Committee, a Compensation Committee and
a Governance Committee. The Audit & Finance Committee, Compensation Committee
and Governance Committee each has a written charter, which outlines the
respective committee's duties and responsibilities. The committee charters are
published in the Corporate Governance section of the Company's website,
www.aptea.com. A copy of the new Audit & Finance Committee charter is also
attached as Appendix B to this proxy statement.
6
Because Tengelmann owns more than 50% of the Company's Common Stock, the Company
qualifies as a "controlled company" under the NYSE listing standards. As a
controlled company, the Company is exempt from the NYSE's requirement that it
have a majority of independent directors, and entirely independent compensation
and nominating and corporate governance committees. As indicated below, with the
exception of the Compensation Committee, which although not entirely independent
does not include any management directors, the Company has voluntarily complied
with the NYSE's independence requirements. Additionally, the Company has chosen
to have the entirely independent Governance Committee, rather than the
Compensation Committee, review and recommend changes to the Executive Chairman
of the Board (ECOB's) compensation.
The Audit Committee, which held eight (8) meetings in Fiscal 2005, including
five (5) by telephone, consisted of Maureen Tart-Bezer, as Chair, Bobbie Gaunt,
Dan Kourkoumelis and Richard Nolan. In April 2006 Ed Lewis replaced Richard
Nolan. The Board has determined that each member of the Audit Committee and each
member of the Audit & Finance Committee is independent in accordance with the
NYSE listing rules, the Company's Standards of Independence and Rule 10A-3 of
the Exchange Act. In addition, the Board has determined that each qualifies as
an "audit committee financial expert," as defined by the SEC. This Committee (i)
reviews annual financial statements prior to submission to the Board and reports
thereon, (ii) reviews quarterly results prior to release, (iii) at its
discretion, examines and considers matters relating to the internal and external
audit of the Company's accounts and financial affairs, (iv) appoints the
independent accountants, (v) determines the compensation and retention of, and
oversees, the outside accountants, and (vi) as appropriate, meets with Company
personnel in the performance of its functions.
The Compensation Committee, which held four (4) meetings in Fiscal 2005,
consisted of Bobbie Gaunt, as Chair, John Barline and Edward Lewis. In April
2006, Maureen Tart-Bezer became an additional member. The Compensation Committee
(i) reviews, approves and modifies all compensation for any Company executive
(other than ECOB) who is a direct report to the CEO and/or holds a salary grade
of thirty-seven (37) or higher, (ii) recommends to the Board and interprets
incentive plans, and (iii) serves as the committee to administer the employee
stock option and long term incentive and share award plans.
The Governance Committee, which held two (2) meetings in Fiscal 2005, consisted
of Richard Nolan, as Chair, Bobbie Gaunt, Dan Kourkoumelis, Edward Lewis and
Maureen Tart-Bezer. In April 2006, Dan Kourkoumelis replaced Mr. Nolan as
Committee Chair. The Board has determined that each member of the Governance
Committee is independent. The Committee's primary purpose is to (i) evaluate the
performance of the members of the Board individually and as a group, (ii) review
and recommend any changes to the ECOB's compensation, (iii) recommend to the
Board guidelines and policies for the corporate governance of the Company, (iv)
oversee and recommend changes to the governance policies of the Company, examine
the relationship between management and the Board and annually review the status
of director compensation, and (v) act as a committee for the nomination of
candidates for election to the Board.
The Governance Committee will consider director candidates suggested by members
of the Board, as well as candidates suggested by management and by stockholders.
To submit a recommendation for the Company's next annual meeting, anticipated to
be held in July, 2007, please provide the prospective candidate's name, contact
information, biographical data and qualifications, together with the prospective
candidate's written consent to being named as a nominee and to serving on the
Board if nominated and elected, to the Governance Committee, c/o The Great
Atlantic & Pacific Tea Company, Inc., Chief Compliance Officer, 2 Paragon Drive,
Montvale, NJ, 07645, by February 1, 2007.
7
The Governance Committee screens all potential candidates in the same manner
regardless of the source of the recommendation. For each candidate, the
Governance Committee determines whether the candidate meets the Company's
minimum qualifications and specific qualities and skills for directors, which
are set forth in the Corporate Governance section of the Company's website, and
evaluates the candidate's (i) character, judgment, personal and professional
ethics, integrity, values and familiarity with national and international issues
affecting business, (ii) depth of experience, skills and knowledge complementary
to the Board and the Company's business, and (iii) willingness to devote
sufficient time to carry out the duties and responsibilities effectively. The
Governance Committee also considers such other relevant factors as it deems
appropriate.
BOARD OF DIRECTOR COMPENSATION
The Company does not pay directors who are also officers of the Company any
additional compensation or benefits for serving on the Board; however, as
discussed hereinafter, the ECOB receives compensation from the Company's
Canadian affiliate for services rendered on its Board of Directors. The Company
pays non-employee directors pursuant to the 2004 Non-Employee Director
Compensation Plan (the "Plan"), initially adopted at the Annual Meeting of
Stockholders for Fiscal 2003. The Plan provides for the payment of a portion of
each non-employee director's compensation in cash and a portion in shares of
Common Stock. The Plan was amended in October 2005 to increase the annual
retainer for the Chair of each Committee (except the Executive Committee) and to
provide a separate annual retainer for the Lead Director. On April 19, 2006 the
Board adopted further amendments to the Plan, subject to adoption by the
stockholders as outlined in Item 2, infra.
Under the Plan, as so amended, the Company pays the Lead Director an annual rate
of $120,000, each non-employee director an annual retainer of $32,000,
attendance fees of $1,000 for each Board meeting attended and $1,000 for each
Committee meeting attended if substantial time or effort is involved, plus
expenses of attendance. If two (2) or more compensable meetings are held on the
same day, the fee for the second meeting is limited to $500. Except for the
Executive Committee Chair, the Company pays an additional annual retainer to the
Chair of each Committee, namely the Compensation and Governance Committees, in
an amount of $8,000 and to the Chair of the Audit & Finance Committee an
additional $10,000 per year.
Further, subject to adoption by the stockholders as outlined in Item 2, infra.,
the Company makes an annual award to each non-employee director of a number of
shares of Common Stock equal to $90,000, divided by the closing price of its
Common Stock on the NYSE, as reported in the Wall Street Journal on the date of
grant, namely the first business day after the applicable Annual Meeting of
Stockholders, provided, however, the grant in 2006 will be equivalent to
$135,000, as discussed in Item 2. The Plan further specifies that a non-employee
director, who at the Company's request sits on the board of directors of a
Company affiliate, may retain any director compensation paid by such affiliate.
Each non-employee director may elect to defer all or any portion of his/her cash
and equity compensation. A non-employee director shall always be fully vested in
his/her deferral account. The Company's obligation to pay benefits under the
Plan, however, represents an unfunded, unsecured obligation of the Company and
no non-employee director will have any secured interest or claim in any assets
or property of the Company.
ECOB Christian Haub and Lead Director Bobbie Gaunt, at the request of the
Company, serve on the Board of Directors for the Company's Canadian affiliate,
Metro, Inc. Mr. Haub also sits on the Executive and Governance Committees and
Ms.Gaunt is on the Audit and Human Resources Committees. Each is compensated for
these services pursuant to Metro, Inc.'s plan for director compensation. As here
relevant, the annual director's retainer is $CN30,000, and the annual Committee
member's retainer is $CN2,000 except for the Audit Committee where the retainer
is $CN3,000. Attendance fees are $CN1,250 per meeting, except that for
telephonic committee meetings the fee is $CN625. Payment is on a quarterly
basis. However, the base annual retainer is paid in deferred stock units or,
optionally, 50% in the form of Class A Subordinate Shares of Metro, Inc. until
the director holds three times base annual retainer in deferred stock units
and/or shares. Thereafter the director will continue to receive at least 25% of
total compensation in shares or, at the director's election, in deferred stock
units.
8
CERTAIN RELATIONSHIPS AND TRANSACTIONS
At the close of business on August 13, 2005, our Company completed the sale of
our Canadian business to Metro, Inc., a supermarket and pharmacy operator in the
Provinces of Quebec and Ontario, Canada, for $1.5 billion in cash, stock and
certain debt that was assumed by Metro, Inc. Simultaneously the Company entered
into an Information Technology Transition Services Agreement with Metro, Inc.,
for a fee of $CN20 million (U.S. $16.7 million) per year to provide certain
information technology and other services to Metro, Inc. for a period of 2 years
from the date of sale, with a potential for two additional six month renewal
periods. Metro, Inc. also leases a shopping center in Toronto, Ontario, Canada
from the Company which commenced at the time of the sale. The base annual rent
is $CN0.8 million (U.S. $0.7 million). The initial term expires on October 4,
2015 with four 5 year renewal options.
A&P Properties Limited, a former indirect subsidiary of the Company until the
sale of the Canadian operations, leased a store in Windsor, Ontario, Canada from
Tenga Capital Corporation, which is owned by Erivan and Helga Haub. The base
annual rental was CN$0.4 million (U.S. $0.3 million). Through the date of its
sale, the Company paid $0.2 million to Tenga Capital Corporation for this lease
during fiscal 2005.
During fiscal 2003, the Company entered into a three year agreement with OBI
International Development and Service GMBH ("OBI International"), a subsidiary
of Tengelmann, to purchase seasonal merchandise. Purchases from OBI
International totaled $2.1 million, $4.7 million and $0.8 million in fiscal
2005, fiscal 2004 and fiscal 2003, respectively.
The Company owns a jet aircraft, which Tengelmann leases under a full cost
reimbursement lease. During fiscal 2005, fiscal 2004 and fiscal 2003, Tengelmann
was obligated to and has reimbursed the Company $3.1 million, $3.5 million and
$2.8 million, respectively, for use of the aircraft.
REPORT OF THE COMPENSATION AND GOVERNANCE COMMITTEES
OUR COMPOSITION AND RESPONSIBILITIES
For fiscal year 2005, the Compensation Committee ("Committee") was comprised of
two (2) independent directors, including the Chair, and one (1) non-management
director. Members are elected annually by the Board on the recommendation of the
Governance Committee. For fiscal year 2005, the Governance Committee was
comprised of five (5) directors each of whom is independent.(1)
The Compensation Committee is responsible for the review, approval and
modification of all compensation (and all benefits specific thereto) for any
Company executive who is a direct report to the CEO and/or holds a salary grade
of thirty-seven (37) or greater (as determined under the Company's salary
structure), with the exception of the Executive Chairman of the Board (ECOB)
whose compensation is approved by the Governance Committee with input from the
Compensation Committee. Specifically, the Compensation Committee evaluates the
performance of the ECOB measured against a set of performance objectives
determined at the beginning of each fiscal year and certain other criteria and
provides the Governance Committee an assessment of the ECOB's overall
performance. The Governance Committee, after considering the Committee
recommendations and upon further deliberation, then approves his compensation
for the fiscal year for which performance was assessed. The Compensation
Committee also reviews with the Governance Committee the ECOB's performance
objectives for the next subsequent Fiscal Year. It is the Compensation
Committee's opinion that having separate committees review CEO and ECOB
compensation provides further independence with respect to executive
compensation and is appropriate given the Company's ownership structure and
status as a controlled company.
------------------
(1) On April 19, 2006, the Board elected one additional independent director to
the Compensation Committee, bringing the total number of committee members to
four (4) for fiscal year 2006 and the Board passed a resolution providing that
the Governance Committee would be comprised of four (4) independent directors
for fiscal year 2006.
9
In fiscal year 2005, the Compensation Committee exercised oversight with respect
to eight (8) executives and the CEO. This oversight included approval of base
salaries and target, threshold and maximum payouts for the annual bonus and
long-term/equity-based incentive compensation plans. The Compensation Committee
is also responsible for the interpretation and administration of all executive
compensation plans to ensure that they are tied to the company's financial
performance, to shareholder value creation and to long-term strategic
objectives.
EVENTS OF 2005 AND THEIR IMPACT ON THE COMPANY'S APPROACH TO EXECUTIVE
COMPENSATION
Fiscal year 2005 was a year of significant change for the Company, and one that
witnessed several actions targeted to improving the company's financial
position, reducing operating costs, restoring growth and profitability and
fostering management changes to enhance the Company's leadership structure.
Through the successful divestiture of its Canadian operations to Metro, Inc.,
the Company realized the significant value of that business. In addition to the
cash proceeds that transformed its balance sheet, the Company also gained a
significant investment position in the newly combined entity, giving the Company
a meaningful stake in one of the most profitable and growth-oriented retail
enterprises in North America. The sale of A&P Canada also fostered a positive
change in the Company's leadership structure, whereby Christian Haub became
Executive Chairman of the Board, fully assuming long-range strategic leadership
of the Company, and former A&P Canada CEO Eric Claus became President and Chief
Executive Officer, with full responsibility for the day to day operation of the
Company. These changes were accompanied by an administrative reorganization
designed to consolidate leadership of the business in a new Executive Management
Team at the headquarters level. In response to these significant developments,
the Compensation Committee adopted as its primary initiative the development of
a compensation program and philosophy that would support and complement the new
direction on which the Company had embarked.
OUR GOALS
In fiscal year 2005, the focal point of the Compensation Committee's efforts was
the selection of an external compensation advisor to assist with the refinement
of the Company's compensation strategy. We believe it was both appropriate and
prudent to engage external counsel in this area in light of the sale of A&P
Canada and the transformative restructuring of the Company from which key
management changes resulted. We also felt it was important to avail ourselves of
independent expertise to guide us through an emerging executive compensation
strategy that placed greater emphasis on incentive or performance-based metrics.
Our intent, therefore, in engaging an outside consultant revolved around six
primary goals:
1. To ensure that total compensation opportunity for the executive
management team is set at appropriate levels;
2. To solidify the performance link between incentive plans and the
execution of business strategy objectives, and to thereby foster,
through a program of compensation, executive accountability for the
Company's operating results;
3. To calibrate performance measures to ensure a pay for performance
compensation program is in place for fiscal year 2006 and beyond;
4. To develop a consistent process that would allow the company and the
committee to review the above objectives annually;
5. To devise a competitive compensation structure that will permit the
Company to attract and retain the best and brightest talent; and
6. To ensure that the compensation program will support teamwork as well
as individual achievement.
Following solicitation and review of competitive responses to
Requests-For-Proposals, the Compensation Committee engaged an Independent
Consultant as its compensation advisor. The Independent Consultant, in the
judgment of the Compensation Committee, is an independent compensation advisor
to the Compensation Committee.
10
OUR PROCESS FOR REDESIGNING THE COMPENSATION STRATEGY
The effort to redefine the Company's executive compensation strategy began with
a collaborative discussion between the Compensation Committee, Company
management and the Independent Consultant on the attributes of a compensation
program that would be most closely aligned with the Company's new strategic
initiatives. These discussions gave rise to a series of plan metrics that served
as the foundation for the Company's new executive compensation program, and are
set forth in "A&P's Executive Management Compensation Strategy Table"on page 12.
With the Company's renewed focus on strengthening the operational capabilities
of its core business in the regions where it enjoys significant presence and
market position, the Compensation Committee was keen to ensure that management's
activities, performance and rewards correspond to the overall goals of the new
Company. This became a primary focus, and a strong message, of the redesign
effort.
A central underpinning of the Company's compensation philosophy is to pay
competitively. To give current expression to this notion, we revised the
definition of our competitive market for executive talent through a review of
our key business talent needs. This set of peer companies include regional
retail grocers, wholesalers, drug retailers and select consumer product groups.
The Independent Consultant performed a competitive compensation benchmarking
analysis and reviewed the annual and long-term incentive plans of these peers.
On the strength of this analysis, we decided to implement a number of changes in
areas such as compensation opportunity levels, the allocation of
performance-based pay between annual and long-term/equity-based incentives and
the performance metrics of the annual and long-term/equity-based incentive
plans. These changes were a necessary and appropriate response to the
significant changes experienced by the business and the aggressive strategic
operating initiatives the Company had established for itself.
The Compensation Committee, in a collaborative effort with management and the
Independent Consultant, allocated significant time and resources to ensure that
the annual and long-term incentive metrics would serve as performance milestones
upon which executive compensation would be based while at the same time
comporting with shareholder expectations. The Compensation Committee's
fundamental aim, here, is to ensure that the new performance metrics are defined
by performance targets and ranges that will provide appropriate and competitive
compensation when key performance targets are achieved. In other words, we
worked to ensure that the Company utilizes a "pay for performance" program of
executive compensation.
The Compensation Committee will annually review the compensation programs,
analyze the competitive market and modify compensation programs to ensure that
executives continue to be rewarded upon successfully meeting the current and
future needs of the business, and, then, only in a manner that is consistent
with the Company's relevant peer groups and competitive practices.
Following the sale of A&P Canada in mid-year 2005 and the Company's ensuing
adoption of an aggressively forward-looking operating strategy, the Compensation
Committee (in consultation with management) elected to increase the expected
levels of performance for the remainder of the year. Despite the more aggressive
targets, the year concluded with higher than expected top line revenue growth
and reduced bottom line operating losses. The action of the Compensation
Committee demonstrates our commitment to careful oversight of executive
compensation and its expectation that the stockholders should expect to pay for
the performance of its executives and not subsidize windfalls.
Compensation actions will be guided by the principles of the A&P compensation
strategy, which are outlined in the following table.
11
A&P'S EXECUTIVE MANAGEMENT COMPENSATION STRATEGY TABLE
ELEMENT STRATEGY
--------------------------------------------------------------------------------------------------------------------
GUIDING o Compensation must be structured to attract, retain and motivate executive management
PRINCIPLES who will build shareholder value
o Management will be held accountable for overall company performance, and particularly
for profitability and shareholder value creation
o Management should be paid as a team based on overall corporate performance, with some
differentiation for individual performance
--------------------------------------------------------------------------------------------------------------------
EXECUTIVE LABOR o A&P should benchmark itself against regional retail grocers, discounters/wholesalers,
MARKET drug retailers, and select consumer products firms
--------------------------------------------------------------------------------------------------------------------
PAY POSITIONING o BASE SALARIES should be positioned at the median of our labor market
o TOTAL CASH COMPENSATION (base salary plus bonus) should be targeted at the median of
our labor market for target performance with significant upside and downside potential
linked to performance results
o When performance exceeds target, bonus should exceed target such that actual total cash
compensation can reach the 75th percentile or greater
o When performance is at or below threshold, there should be the possibility of low or no
bonus, potentially resulting in total compensation levels below the 25th percentile
o Total direct compensation (total cash compensation plus long-term incentives) should be
targeted at the median for expected performance
o Executives should have significant upside potential so that if the company produces
sustained, long-term shareholder value, the executives' equity incentives produce
significant gains
o Long-term incentives should balance rewarding executives for internal financial
performance with returns to shareholders
--------------------------------------------------------------------------------------------------------------------
PERFORMANCE o ANNUAL INCENTIVE PLAN: Incentive metrics will vary from year to year based on business
LINKAGE conditions. Generally incentive plan measures will focus on financial operating metrics
but may also include non-financial measures (e.g., customer satisfaction) that are
indicative of future performance. For fiscal year 2006 the annual incentive plan
measures are Sales, Operating Income and Individual Performance against objectives
o LONG-TERM INCENTIVE PLAN: Incentive plan metrics will be a combination of share price
performance and long-term (typically 3 years) financial performance targets. For fiscal
year 2006 the long-term incentive plan measures are Return on Invested Capital and
Operating Income targets.
--------------------------------------------------------------------------------------------------------------------
PAY MIX AND GRANT o A significant portion of our executive management team's total direct compensation
PRACTICE comes in the form of annual and long-term performance based incentive pay
o The average portion in performance-based pay is almost 70%
o The average ratio of long-term incentive to annual incentive exceeds 2:1
o A&P delivers a significant portion of total direct compensation through performance-
and time-based vesting equity in order to reward executives for growth of business,
long-term value creation, and retention; this is also consistent with competitive market
practice and creates significant alignment with shareholder interests
12
COMPONENTS AND OBJECTIVES OF THE COMPANY'S EXECUTIVE COMPENSATION PROGRAM
The Company's Executive Compensation Program consists of 5 elements (Base
Salary, Annual Incentives, Long-Term Incentives, Certain Other Benefits, and
Perquisites). Total direct compensation, and its components, base salary, annual
incentives and long-term incentives, are reviewed annually by the Compensation
Committee. For fiscal year 2005 details, please refer to the Summary
Compensation Table on page 17.
BASE SALARY
Role / Objective:
Base salary is fixed compensation; it is base pay in an amount commensurate with
the knowledge, skills and abilities that are required to perform the duties of
the position
Comments:
o Our current and long-term goal is to set salaries such that they are
competitive within a range of the Company's labor market - targeting the
50th percentile. Individual pay may be above or below this company target,
to reflect the incumbent's level of experience and performance, and to be
appropriately positioned relative to other comparable jobs within the
company and its peer group
o Based on changes to the management team in 2005 and based on the results of
the Independent Consultant's benchmarking analysis, certain executives'
base salaries were deemed to be substantially below the target market pay
positioning for that job. The committee reviewed individuals using the
above criteria to determine where base salaries should be relative to the
target market median and subsequently increased base salaries of selected
executives.
ANNUAL INCENTIVES
Role / Objectives:
Annual Incentives are defined as variable cash compensation paid based on
achieving certain operating and individual performance goals measured over one
fiscal year. Performance measures and their weightings may change yearly based
on current business priorities necessary to achieve long-term objectives. Target
awards are calibrated to provide competitive median total cash compensation
(base salary and annual incentives) when target company performance is achieved.
Comments:
o For the 2005 fiscal year, the annual incentive plan performance metrics
were Sales (25% weight), Operating Income (25% weight), Operating Cash Flow
(25% weight) and Individual Performance against objectives (25% weight).
These measures were key indicators of whether or not the Company has been
effectively executing its business strategy.
o The metric, thresholds and maximum targets allow for significant
variability in payout based on performance. Ranges were validated through
internal historical data and external historical industry specific
performance trends. We consider the variability of payouts to be
fundamental to the "incentive" nature of this compensation. In the event
the minimum threshold targets are not met, the Company may not issue
Incentive payments. Conversely, when performance warrants, the Company will
pay Incentives such that total cash compensation may meet or exceed
competitive 75th percentile levels if performance significantly exceeds
target levels. In this way, shareholder interests are protected.
LONG-TERM INCENTIVES
Role / Objectives:
o Long Term Incentives represent variable compensation delivered primarily
through shares (e.g., restricted share units) granted on the basis of
corporate operating performance and stock options whose value is contingent
on share price appreciation. The use of equity as a third compensation
vehicle allows the Company to attract and retain talented executives while
at the same time aligning rewards with both long-term operating performance
and share price performance.
13
Comments:
o In 2005, only performance-based restricted share units were used. Return to
profitability comprised the metrics used to determine vesting. Return to
profitability will be met if a net profit is achieved for total fiscal year
2006 or 2007. For the purpose of complete vesting, net profitability must
be sustained through fiscal year 2008. For this purpose, net profit is
defined as positive Net Income, excluding extraordinary income or loss not
associated with on-going business operations. For further detail please
refer to the performance share table set forth on page 20.
CERTAIN OTHER BENEFITS
Role / Objectives:
o The Company seeks to provide comprehensive/competitive benefit plans for
its executives that are part of the overall compensation of key executives
and that help with the attraction and retention of those key executives.
Secondly, the dual pronged retirement benefits are viewed as very
competitive in the market.
Comments:
o Medical, Dental, Life and Long Term Disability Plans
o Medical, including prescription and vision, and dental
benefits are provided under the Executive Medical Program.
This program provides 100% coverage for the Executive
Management Team and their dependents. Life insurance equal to
two times base salary up to a maximum of one million dollars
is provided. In addition, long term disability coverage at
sixty percent of base salary without any maximum is included.
Separately an annual comprehensive health examination is
offered to vice presidents and above, which includes all
testing and laboratory charges.
o Retirement, Savings, and other Supplemental Retirement Plans
o Benefits under the A&P Retirement Plan are calculated at four
percent of annual eligible compensation up to the maximum
recognizable compensation limit, as defined by the IRS. The
Supplemental Retirement and Benefit Restoration Plan provides
employees who have annual earnings above the Tax Code limit with a
benefit on the excess earnings comparable to the benefits they
receive under the Company's qualified plan. This plan is designed
to provide the same relative benefits under the qualified plan as
if the cap were not in place. The benefits are calculated at four
percent of the eligible compensation in excess of the IRS limit.
The Company 401(k) Savings Plan includes a match of $.50 on every
$1.00 for the first six percent deferred. In addition to the three
plans mentioned above the Company offers a Supplemental Executive
Retirement Plan (SERP). The SERP plan benefits are intended to
supplement other sources of retirement income. The targeted
benefit is three percent of annual base for each year of service,
up to a maximum of twenty years or sixty percent benefit.
o Deferred Compensation Plan
o The purpose of the Plan is to provide to certain employees of the
Company the opportunity to defer a portion of their payments under
the Company's compensation programs.
PERQUISITES
Role / Objectives:
An item is a perquisite when it confers a direct or indirect benefit that has a
personal aspect, unless it is generally available on a non-discriminatory basis
to all associates.
o The Company provides competitive levels of perquisites such as
auto program, living expenses, etc., to counter any potential
competitive advantage of our direct peers
14
Comments:
o Consistent with our pay for performance philosophy we believe the
role of these programs meet levels consistent in our direct peer
market
o A summary and value of the aforementioned benefits are provided in
the "Fiscal 2005 Other Compensation Table" on page 18.
OWNERSHIP COMMITMENTS
In fiscal year 2005, the Company has implemented share ownership guidelines
associated with the Turnaround Incentive Plan (TIP) as a means to further align
management with shareholders. We believe executives should always have a
significant portion of their wealth subject to the same variations that our
shareholders do. This provides the continuous link from executives' actions to
the concern for our investors. The guidelines are stated as a percent of salary.
The CEO must hold shares or share equivalent units equal to 3 times his salary,
the CEO's direct reports must hold shares equal to 2 times their base salary,
and the next reporting level must hold shares equal to 1 times their salaries.
The Committee has placed a five year timeframe for meeting these targets.
CHIEF EXECUTIVE OFFICER COMPENSATION
Total compensation for the Company's CEO is structured in accordance with the
five components of executive compensation described above. As with other
executives, the compensation program for the CEO is designed to be competitive
with the market data and directly linked to company performance, with a focus on
sustained long-term shareholder value creation.
In 2005, the Compensation Committee approved a performance-based incentive
payout to the Company CEO in the amount of $900,000 and, upon his commencement
of employment in the United States, a sign-on bonus in the amount of $800,000.
This compensation was attributed to the Company CEO's performance in
successfully managing the A&P Canada business, for as a result of which the
Company was able to realize significant value upon its divestiture, as well as
his promotion to the CEO position for the Company in the United States. The
foregoing compensation also reflects the improvement in the Company's
performance in 2005 during the Company CEO's tenure of leadership, as well as
compensation for the Company CEO's waiver of certain employment contract
provisions upon leaving A&P Canada.
In 2005 the Committee granted Mr. Claus 150,000 units under the 2005 TIP plan.
COMPENSATION FOR THE EXECUTIVE CHAIRMAN OF THE BOARD
The compensation for the Company's ECOB is consistent with that of the other top
executives for whom the Compensation Committee is responsible, the components of
which are listed above. The program for the Company ECOB is designed to be
competitive with the market data for this role, and directly linked to company
performance, with a focus on sustained long-term shareholder value creation.
Based on 2005 fiscal year results and, specifically, the improved results under
his time as Company ECOB, the Governance Committee (with input from the
Compensation Committee) approved an Incentive payout for performance of
$1,112,381 while approving a modest increase in the Company ECOB's Base Salary
to $775,000 from $752,000 (the first such increase since October of 2001). This
compensation was also predicated on the encouraging results of the Company's
ongoing turnaround efforts under the Company ECOB's leadership, as well as his
promotion to the ECOB position from that of Company CEO in fiscal year 2005. His
new role permits the Company ECOB to focus exclusively on the long-range
strategic leadership of the Company. This compensation also reflected the
substantial value realized by the Company upon the sale of A&P Canada to Metro,
Inc., which was in significant part attributed to the Company ECOB's efforts and
management.
In 2005 the Committee granted the Company ECOB 175,000 units under the 2005 TIP
plan.
15
INCOME TAX CONSEQUENCES
Section 162(m) of the Internal Revenue Code, enacted in 1993, subject to certain
exceptions, disallows a tax deduction to public companies for compensation over
$1,000,000 paid to the Company CEO and the four (4) other most highly
compensated executives at fiscal year end. The exceptions to the $1,000,000
deduction limit include compensation paid under preexisting employment
agreements and performance-based compensation meeting certain requirements. The
Company's 1994 Stock Option Plan and the 1998 Long Term Incentive and Share
Award Plan have been tailored to comply with the provisions of Section 162(m) so
that amounts received upon the exercise of options and thereunder should be
exempt from Section 162(m) limitations.
As a matter of practice, the Compensation Committee and with respect to the
Company ECOB, the Governance Committee, intends to set performance-based goals
annually under the Company's variable compensation plans and to deduct
compensation paid under these plans to the extent consistent with the provisions
of Section 162(m). However, if complying with Section 162(m) conflicts with what
the Compensation Committee or the Governance Committee, as applicable, believes
is in the best interest of the Company and its stockholders, the applicable
Committee may conclude that paying non-deductible compensation is more
consistent with the stockholders' best interests.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee or the Governance Committee indicated
below has ever been an officer or employee of the Company or any of its
subsidiaries.
COMPENSATION COMMITTEE GOVERNANCE COMMITTEE
Bobbie Gaunt, Chair Richard Nolan, Chair
John Barline Bobbie Gaunt
Ed Lewis Dan Kourkoumelis
Ed Lewis
Maureen Tart-Bezer
16
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following tables sets forth certain information concerning the compensation
paid by the Company and its subsidiaries for services rendered in all capacities
during each of the last three (3) fiscal years to or for the account of the
Chief Executive Officer of the Company (the "CEO"), and the six (6) other most
highly compensated officers of the Company who served as executive officers of
the Company during the fiscal year ended February 25, 2006, (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE (1)
ANNUAL COMPENSATION
-------------------------------------------
SECURITIES ALL OTHER
TOTAL OTHER ANNUAL UNDERLYING COMPEN-
PRINCIPAL POSITION COMPENSATION SALARY BONUS COMPENSATION OPTIONS SATION($)
DURING FISCAL YEAR YEAR ($)(2) ($)(3) ($)(4) ($)(5) (#) (4)
------------------ ---- ------ ------ ------ ------ --- ---
Christian W. E. Haub 2005 2,029,721 752,000 1,112,382 113,331 - 52,008
Executive Chairman 2004 1,676,797 752,000 768,550 156,247 - -
of the Board 2003 1,218,818 766,462 413,600 38,756 - -
Eric Claus 2005 2,294,125 483,446 1,700,000 144,715 - 10,722
President and 2004 CN979,666 CN500,000 CN455,875 CN23,791 - -
Chief Executive Officer 2003 CN751,768 CN509,615 CN240,000 CN2,153 50,000 -
Mitchell Goldstein ((7)) 2005 1,017,751 310,577 212,435 8,379 - 486,360
2004 835,110 364,519 435,000 35,591 - -
2003 587,282 346,538 219,120 21,624 50,000 -
John E. Metzger 2005 869,960 343,846 460,725 28,523 - 36,866
Executive Vice President 2004 758,548 305,000 373,625 79,923 - -
2003 519,752 310,865 188,490 20,397 50,000 -
Brian Piwek ((7)) 2005 888,161 250,000 149,423 7,352 - 481,386
2004 1,015,660 500,000 455,875 59,785 - -
2003 991,231 509,615 450,000 31,616 50,000 -
Stephen Slade 2005 648,971 338,077 283,985 10,178 - 16,731
Senior Vice President, 2004 446,774 271,635 47,578 127,561 - -
Merchandising 2003 4,807 4,807 - - - -
Paul Wiseman 2005 736,384 262,507 410,048 55,283 - 8,546
Senior Vice President, 2004 CN258,742 CN146,845 CN107,775 CN4,122 - -
Store Operations 2003 - - - - - -
-----------------
(1) Executive Compensation is reported in American dollars or otherwise noted.
In Fiscal 2005 and Fiscal 2004 there were fifty-two (52) weeks of Salary
and in Fiscal 2003 there were fifty-three (53) weeks of Salary.
(2) This reflects the sum of Salary, Bonus, Annual and All Other Compensation
columns.
(3) In the case of Mr. Haub, he also received compensation as a director on
the board of Metro, Inc., which is more fully disclosed in the Board of
Director Compensation section infra.
(4) The bonus total paid in Fiscal 2005 includes a sign-on bonus for Mr. Claus
($800,000) and for Mr. Wiseman ($101,253), and a final bonus payment under
the Evergreen Project (IT initiative) for Mr. Metzger ($92,925). Long Term
Incentive Plan ("LTIP") grants are reported in the LTIP table, infra.
(5) Detailed in the Other Compensation Detail Table, infra.
(6) In addition to the amounts detailed in the Other Compensation Detail
Table, infra, the amounts reported in this column include: a severance
payment for Mr. Piwek ($449,479), and for Mr. Goldstein a severance
payment ($159,932), the imputed value of his car ($47,189) and a lump sum
incentive payment ($250,000).
(7) Mr. Goldstein served as Executive Vice President & Chief Financial Officer
until he separated from employment on November 4, 2005. Mr. Piwek served
as President and Chief Operating Officer until he separated from
employment on July 31, 2005.
17
FISCAL 2005 OTHER COMPENSATION DETAIL TABLE
---------------------------------------------------------------------------------------------------------------------------------
Supp. MERP Deferred
4% Retire- Retirement 401K Life (Executive Auto Relocation Compen-
Name ment Plan Restoration Company Insurance Medical Program or Living sation
(2) Plan(1)(2) Match(2) (2) Plan) (2) (3) Expense(3) Interest(3)
---------------------------------------------------------------------------------------------------------------------------------
Christian Haub $8,200 $21,680 $6,907 $2,646 $12,575 $89,556(2) - $23,775
---------------------------------------------------------------------------------------------------------------------------------
Eric Claus - - - $3,387 $7,335 $6,748 $93,209 -
---------------------------------------------------------------------------------------------------------------------------------
Mitchell Goldstein $8,200 - $6,215 $2,249 $12,575 $8,379 - -
---------------------------------------------------------------------------------------------------------------------------------
John Metzger $8,200 $4,623 $6,788 $2,755 $14,500 $12,460 $6,904 $9,159
---------------------------------------------------------------------------------------------------------------------------------
Brian Piwek $8,200 - $5,846 $5,286 $12,575 $7,352 - -
---------------------------------------------------------------------------------------------------------------------------------
Stephen Slade - $4,815 $5,967 $1,754 $4,195 $10,178 - -
---------------------------------------------------------------------------------------------------------------------------------
Paul Wiseman - - $478 $1,781 $6,287 $7,515 $47,768 -
---------------------------------------------------------------------------------------------------------------------------------
(1) For an explanation of the Plan see the Report of the Compensation and
Governance Committees, supra.
(2) These amounts, along with footnote (6) to the Summary Compensation
Table, comprise the detail to the "All Other Compensation" column in the
Summary Compensation Table.
(3) Provides the detail for the "Other Annual Compensation" column in the
Summary Compensation Table. In the case of Mr. Claus, the amount
includes $44,761 in tax assistance. The auto allowance for Mr. Haub
includes the equivalent of a full time driver's salary and benefits.
EMPLOYMENT AND TERMINATION AGREEMENTS
The Company is a party to employment agreements with each of Mr. Claus, Mr.
Metzger, Mr. Wiseman and Mr. Slade (the "Employment Agreements"). The Employment
Agreements for Mr. Metzger, Mr. Wiseman and Mr. Slade provide for the continued
employment of such executives for a rolling eighteen (18) month term commencing
November 14, 2002 for Mr. Metzger, April 1, 2007 for Mr. Wiseman, and May 15,
2006 for Mr. Slade. Mr. Claus' employment period commences on August 15, 2005,
ends on August 14, 2008, and will automatically be extended for additional
12-month periods unless either party elects not to extend. The Employment
Agreements also provide for participation in Company benefit programs (including
bonus programs) and services, facilities and perquisites appropriate to their
positions, including without limitation, the Executive Medical Plan.
Following termination other than for Cause or resignation for Good Reason and in
the absence of a Change of Control (as such terms are defined in the Employment
Agreements), Mr. Claus, Mr. Metzger, Mr. Wiseman and Mr. Slade are entitled to
receive (i) a pro rata bonus for the year of termination, (ii) continued
insurance coverage for a period of twenty-four (24) months, for Mr. Claus, and
for a period of eighteen (18) months, for Mr. Metzger, Mr. Wiseman and Mr. Slade
and (iii) equal monthly payments of one-twelfth of annual base salary plus
average bonus for a period of twenty-four (24) months, for Mr. Claus, and for a
period of eighteen (18) months, for Mr. Metzger, Mr. Wiseman and Mr. Slade. Mr.
Claus will also receive the foregoing benefits if the employment period
terminates by reason of non-extension by the Company. If Mr. Claus is terminated
for Performance (as defined in the Employment Agreements), he will receive
continued insurance coverage and equal monthly payments of one-twelfth of annual
base salary for a period of twelve (12) months.
18
In the event of a Change of Control (as defined in the Employment Agreements),
in addition to certain other amounts, the Company shall pay in a lump sum within
forty-five (45) days after a resulting termination to the applicable executive,
as a severance benefit, an amount equal to three (3) times the sum of (i) the
executive's final base salary, and (ii) the average of the applicable
executive's three (3) highest bonuses in the (5) calendar or fiscal years
preceding the termination. The Company shall also pay to the executive, on or
about the date on which bonuses for the applicable year are paid to executives
of the Company, a pro-rata bonus for the year in which the termination occurred.
Additionally, the insurance continuation is extended to three (3) years. These
provisions apply to terminations without Cause or resignations for Good Reason,
and in the case of Mr. Claus a termination due to non-extension of the
employment period by the Company, occurring within thirteen (13) months
following a Change of Control and for any reason during the thirty (30) days
beginning on the first anniversary of a Change of Control. The Employment
Agreements also provide for gross-up payments to the executive in the event that
any payment or distribution made, or benefit provided, to or for the benefit of
the Employee is subject to an excise tax.
Mr. Goldstein and Mr. Piwek separated from the Company in 2005 and pursuant to
their Employment Agreements are receiving or have received (i) a pro rata bonus
for the year of termination, (ii) continued insurance coverage for a period of
twenty-four (24) months, for Mr. Piwek, and for a period of eighteen (18)
months, for Mr. Goldstein, and (iii) equal monthly payments of one-twelfth of
annual base salary plus average bonus for a period of twenty-four (24) months,
for Mr. Piwek, and for a period of eighteen (18) months, for Mr. Goldstein. In
addition, pursuant to an amendment to Mr. Piwek's Employment Agreement dated
February 4, 2005, (i) all outstanding stock options were vested upon his
separation date and are exercisable for one (1) year from that date, and (ii) he
was immediately vested in SERP benefits at the ten (10) year benefit level. In
addition, pursuant to an agreement dated September 6, 2005, Mr. Goldstein
received a lump sum incentive payment in the gross amount of $250,000 and is
receiving, or has received, (i) equal monthly payments of one-twelfth of annual
base salary plus average bonus and continued insurance coverage for an
additional six (6) months, (ii) his Company car, (iii) outplacement assistance,
and (iv) immediate vesting of all unvested stock options as of his separation
date (and he has one (1) year from his separation date to exercise all vested
options).
19
OPTION TABLE
The following table provides the aggregated options/exercises and fiscal
year-end values of the options held by the Named Executive Officers. The Company
did not grant stock options to the Named Executive Officers during Fiscal 2005.
AGGREGATED OPTIONS/EXERCISES IN LAST FISCALYEAR AND FY-END OPTION VALUE
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS IN-THE MONEY OPTIONS
SHARES ACQUIRED VALUE AT FY-END(1) AT FY-END(1)
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
(#) ($) (#) (#) ($) ($)
Christian W. E. Haub...... - - 457,500 - 5,324,894 -
Eric Claus ............... 99,667 1,023,603 - - - -
Mitchell Goldstein ....... 102,278 1,796,175 45,000 - 189,450 -
John E. Metzger .......... 30,000 478,200 97,583 10,417 1,872,794 289,488
Brian Piwek .............. 224,780 3,930,357 50,000 - 38,250 -
Stephen Slade ............ 3,750 60,053 3,750 7,500 92,513 185,025
Paul Wiseman ............. 4,000 85,464 - - - -
-----------------
(1) Values based on the closing price of the Common Stock on February 24, 2006
of $32.39 for the number of securities on that date and, hence, do not
reflect anti-dilution adjustments made in April 2006.
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OR OTHER NON-STOCK PRICE-BASED PLANS
OF UNITS PERIOD UNIT ------------------------------------------------
OR OTHER MATURATION THRESHOLD TARGET (# OF MAXIMUM
NAME RIGHTS (#)(1) OR PAYOUT(2) (# OF RSUs)(2) RSUs)(2) (# RSUs)(2)
---- ------------- ------------ -------------- -------- -----------
Christian W. E. Haub 175,000 2-3 years 58,333 175,000 175,000
Eric Claus 150,000 2-3 years 50,000 150,000 150,000
Mitchell Goldstein (3) 100,000 2-3 years 33,333 100,000 100,000
John Metzger 70,000 2-3 years 23,333 70,000 70,000
Brian Piwek (3) 125,000 2-3 years 41,666 125,000 125,000
Stephen Slade 75,000 2-3 years 25,000 75,000 75,000
Paul Wiseman 70,000 2-3 years 23,333 70,000 70,000
-----------------
(1) Reflects amounts as of Fiscal Year end and does not reflect anti-dilution
adjustments made in April 2006.
(2) A payout in stock of 1/3 the Restricted Stock Units ("RSU's") could be
achieved by the end of Fiscal Year 2006, and 1/3 could be earned for each
year thereafter. If nothing is earned by the end of Fiscal Year 2006, but
the net profitability is achieved during Fiscal Year 2007, then 50% would be
earned in respect of that year, and if net profitability is sustained, the
remaining half would vest following Fiscal Year 2008.
(3) These awards were forfeited upon their termination during fiscal 2005.
20
PENSION PLAN TABLE
YEARS OF SERVICE
----------------
10 15 20 OR GREATER
-- --- -------------
Remuneration
$450,000............. $135,000 $202,500 $ 270,000
500,000............. 150,000 225,000 300,000
550,000............. 165,000 247,500 330,000
600,000............. 180,000 270,000 360,000
650,000............. 195,000 292,500 390,000
700,000............. 210,000 315,000 420,000
The table above indicates the amount of annual benefit payable to a person at
age 65 in the specified final average remuneration and years-of-service
classifications under SERP, except that such benefits do not reflect the
requisite reduction for any applicable Social Security, or other Company
retirement benefits. SERP is an unfunded defined benefit final average pay plan
that, at fiscal year end, among the Named Executive Officers, covers Mr. Claus
and Mr. Piwek. In April 2006, the Board of Directors approved eligibility to
participate effective June 1, 2006 for Mr. Metzger, Mr. Slade and Mr. Wiseman.
The compensation covered by SERP is base salary, the "Annual Salary" reflected
in the Summary Compensation Table, computed as an average of such base salary
over the highest compensated five (5) years of employment during the last ten
(10) years. The benefit is computed at the rate of 3% for up to twenty (20)
years of service with a maximum benefit of up to 60% of such average base
salary. Estimated credited years of service at retirement for Mr. Claus, 19
years; Mr. Metzger, 20 years; Mr. Piwek, 10 years; Mr. Slade, 13 years, and Mr.
Wiseman, 22 years.
21
PERFORMANCE GRAPH
The following performance graph compares the five-year cumulative total
stockholder return (assuming reinvestment of dividends) of the Company's Common
Stock to the Standard & Poor's 500 Index and the Company's Peer Group which
consists of the Company, Albertson's, Inc., The Kroger Co. and Safeway, Inc. The
performance graph assumes $100 is invested in the Company's Common Stock, the
Standard & Poor's 500 Index and the Company's Peer Group on February 25, 2000,
and that dividends paid during the period were reinvested to purchase additional
shares.
[LINE GRAPHIC]
(Company fiscal year ends--last Saturday in February)
----------------------------------------------------------------------------
FISCAL YEAR ENDING S&P 500 A&P PEER GROUP
----------------------------------------------------------------------------
$ $ $
02/23/01 100 100 100
02/22/02 89 264 133
02/21/03 70 50 55
02/27/04 95 77 74
02/25/05 100 112 77
02/24/06 107 315 137
----------------------------------------------------------------------------
22
AUDIT & FINANCE COMMITTEE
REPORT OF THE AUDIT & FINANCE COMMITTEE
The Audit & Finance Committee is composed of four independent directors and
operates under a written charter adopted by the Board of Directors, a copy of
which is attached as Appendix B, to this Proxy Statement. The Audit & Finance
Committee recommends to the Board of Directors the selection of the Company's
independent auditors.
Management is responsible for the Company's internal controls and the financial
reporting process. The independent auditors are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with auditing standards generally accepted in the United States and
to express an opinion as to the conformity of such financial statements with
generally accepted accounting principles. The Audit & Finance Committee's
responsibility is to monitor and oversee these processes on behalf of the Board.
In performance of its oversight function, the Audit & Finance Committee has
reviewed and discussed the Company's audited financial statements for Fiscal
2005 and the performance and fees of PricewaterhouseCoopers LLP ("PwC"), the
Company's independent auditors, with management. The Audit & Finance Committee
has also met and discussed with PwC the matters required to be discussed by SAS
61 (Codification of Statements on Auditing Standards, AU 380), as may be
modified or supplemented, relating to the conduct of the audit. The Audit &
Finance Committee has received the written disclosures and the letter from PwC
required by Independence Standards Board No. 1 (Independence Standards Board
Standard No. 1, Independence Discussions with Audit & Finance Committee), as may
be modified or supplemented, and has discussed with PwC, its independence.
Lastly, the Audit & Finance Committee has met with the internal auditors to
assure that PwC, management and the internal auditors were carrying out their
respective responsibilities. Both PwC and the internal auditors have full access
to the Audit & Finance Committee, including regular meetings without management
present. Based on the review of the audited financial statements and the
discussions and review with the independent public accountants mentioned above,
the Audit & Finance Committee recommended to the Board that the audited
financial statements for Fiscal 2005 be included in the Company's Annual Report
on Form 10-K for Fiscal 2005.
AUDIT & FINANCE COMMITTEE
Maureen Tart-Bezer, Chair
Bobbie Gaunt
Dan Kourkoumelis
Edward Lewis
23
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the Audit & Finance Committee's recommendation
reappoints PwC, independent auditors, as the Company's independent auditors for
Fiscal 2006. One or more representative(s) of PwC will be present at the Annual
Meeting, will be given an opportunity to make a statement and will be available
to respond to questions.
FEES AND SERVICES
The following table presents aggregate fees billed to the Company by PwC for
professional services rendered for Fiscal 2005 and Fiscal 2004.
2005 2004
---- ----
Audit Fees (1) $2,335,000 $3,279,000
Audit-Related Fees (2) 390,591 1,705,962
Tax Fees (3) 807,165 49,574
Other (4) 62,000 348,099
--------------- --------------
PwC Total Fees $3,594,756 $5,382,635
=============== ===============
-----------------
(1) Audit Fees represent fees for professional services provided in connection
with the audit of the Company's consolidated annual financial statements
and review of the quarterly financial statements and internal controls over
financial reporting, and audit services in connection with statutory or
regulatory filings, consents or other SEC matters.
(2) Audit-Related Fees consist of fees billed for assurance and related
services that are reasonably related to the performance of the audit or
review of the Company's consolidated financial statements and are not
reported under "Audit Fees." In Fiscal 2005, this category consisted of
fees associated with the audit of employee benefit plans and the sale of
the Canadian operations. In Fiscal 2004, this category consisted primarily
of fees associated with the Fiscal 2001 re-audit and the audit of employee
benefit plans.
(3) Tax Fees consist of fees billed for professional services rendered for tax
consulting services. In Fiscal 2005, this category consisted primarily of
fees associated with the sale of the Canadian operations.
(4) Other Fees consist of fees for products and services other than those
reported above. In Fiscal 2005, Other Fees consisted primarily of services
relating to certain real estate transactions. In Fiscal 2004, Other Fees
consisted of services related to our Canadian Food Basics litigation as
well as review of accounting for certain real estate transactions.
PRE-APPROVAL PROCESS AND POLICY
Our Audit & Finance Committee's policy is to pre-approve all audit and
permissible non-audit services provided by the independent auditors. Our Audit &
Finance Committee pre-approved all such audit and non-audit services provided by
the independent auditors in Fiscal 2005 and 2004. These services have included
audit services, audit-related services, tax services and other services.
RELATIONSHIP WITH INDEPENDENT AUDITORS
As part of its duties, the Audit & Finance Committee also considered and
determined that the provision of services, other than audit services, during
Fiscal 2005 and 2004 by PwC is compatible with maintaining the independence of
PwC.
24
ITEM 2 - AMENDMENT TO THE COMPANY'S 2004 NON-EMPLOYEE DIRECTOR COMPENSATION PLAN
The 2004 Non-Employee Director Compensation Plan (the "Plan") was
approved by the stockholders, and became effective on July 14, 2004. The Plan
provides for the payment of a portion of each non-employee director's fees in
cash and a portion in shares of Common Stock. The Plan also permits deferral of
all or any portion of the participating director's Cash and Equity Compensation
(as those terms are hereinafter defined). Lastly the Plan established a
requirement that each director hold $150,000 of Common Stock within a reasonable
amount of time after becoming a director. At a meeting of the Compensation
Committee in October 2005 a separate annual cash retainer for the Lead Director
of $120,000 was approved, and an additional retainer fee for the Chair of each
Committee other than the Executive Committee was increased to $8,000, except
$10,000 for the Chair of the Audit Committee (now the Audit & Finance
Committee).
On April 19, 2006 the Board confirmed the foregoing cash compensation
increases and, subject to approval of the Stockholders at the Annual Meeting,
increased the annual equity award, provided that amounts deferred to the
Deferred Stock Unit ("DSU") account be credited at 125% of the amount of cash so
deferred, specified that a non-employee director who at the Company's request
sits on the board of directors of a Company affiliate may retain any director
compensation paid by such affiliate, and adopted technical amendments to confirm
compliance with Section 409A of the Internal Revenue Code (the "Amendment").
Pursuant to the equity amendment the Company will make an annual award to each
non-employee director of a number of shares of Common Stock equal to $90,000,
divided by the closing price of its Common Stock on the NYSE, as reported in the
Wall Street Journal on the date of grant, namely the first business day after
the applicable Annual Meeting of Stockholders; provided, however, the grant in
2006 will be equivalent to $135,000. The following is the resolution to be
presented for a vote of the stockholders at the Annual Meeting:
"RESOLVED that the adoption by the Board of Directors of the 2004
Non-Employee Director Compensation Plan, as amended, effective
July 13, 2006 and attached hereto as Appendix C, is hereby
approved, ratified and confirmed."
The Board and management believe that stock ownership further aligns
the interests of non-employee directors with the Company's stockholders, thereby
promoting long-term profitability and growth of the Company. The Board,
therefore, recommends that the stockholders vote "FOR" the Plan, as amended by
the Amendment. The affirmative vote of a majority of the shares voting on this
resolution is required for its adoption.
A summary of the principal features of the Plan, as amended by the
Amendment, is provided below and is qualified in its entirety by reference to
the actual Plan, a copy of which is included as Appendix C.
ELIGIBILITY. All non-employee directors of the Company, of which there
are currently eight, may participate in the Plan.
PLAN YEAR. The Plan year shall be defined as each twelve month period
beginning with the date of the Annual Meeting of Stockholders and ending the day
prior to the following Annual Meeting of Stockholders.
ADMINISTRATION/DURATION. The Plan shall be administered by the
Compensation Committee of the Board. It shall remain in effect until terminated
by the Board.
DESCRIPTION OF BENEFITS UNDER THE PLAN. The Company shall pay each
non-employee director an annual retainer of $32,000 and an additional annual
retainer of $120,000 to the Lead Director, plus attendance fees of $1,000 for
each Board meeting attended and $1,000 for each Committee meeting attended if
substantial time or effort is involved, plus expenses of attendance. If two (2)
or more compensable meetings are held on the same day, the fee for the second
meeting is limited to $500. Except for the Executive Committee Chair, the
Company pays an additional annual retainer to the Chair of each Committee,
namely the Compensation and Governance Committees, in an amount of $8,000, and
to the Chair of the Audit & Finance Committee an additional $10,000 per year.
The foregoing amounts constitute the director's "Cash Compensation."
25
In addition, upon approval by the stockholders of the Plan as amended,
each eligible director shall receive, on the first business day after each
Annual Meeting of Stockholders, that number of shares of Common Stock equal to
$90,000 (except $135,000 in 2006) divided by the closing price of the Company's
Common Stock on the NYSE, as reported in the Wall Street Journal on the date of
grant (the "Equity Compensation").
Under the amended Plan, a non-employee director sitting on the board of
directors of a Company affiliate may retain any director compensation paid to
such director by such affiliate.
Under the amended Plan, each director may elect prior to the last day
of the calendar year, to defer receipt of all or a percentage of his or her Cash
Compensation and/or Equity Compensation for the subsequent Plan Year. Any
deferral election shall specify (a) the percentage of the total Cash
Compensation (retainers and fees) and/or, (b) the percentage of the annual
Equity Compensation that the director wishes to defer.
The Company shall defer Cash Compensation to an unfunded interest
bearing US Treasury bond equivalent account in the amount so deferred, or to a
Deferred Stock Unit ("DSU") account in an amount equal to 125% of the amount of
cash so deferred, on a monthly basis. The Company shall defer Equity
Compensation to a DSU account on the first business day following the Annual
Meeting of Stockholders. For both Cash and Equity Compensation deferred to a DSU
account, only whole units will be credited; any remaining amounts will be
carried in a cash sub-account until the balance therein is sufficient to
purchase additional whole units. The Company will credit DSU cash sub-accounts
with any dividends paid, but will not pay interest on monies held in any DSU
cash sub-account.
The exact Cash and Equity Compensation that the Company will award to
non-employee directors under this Plan is not determinable prior to the
completion of the applicable Plan Year. Such amounts will depend on the number
of Board and committee meetings held and attended and the value of the Company's
Common Stock on the date of the grant. Each non-employee director shall always
be fully vested in his or her deferral account. The Company's obligation to pay
benefits under the Plan represents an unfunded, unsecured obligation of the
Company and no non-employee director will have any secured interest or claim in
any assets or property of the Company.
DISTRIBUTION OF DEFERRED COMPENSATION. As soon as practicable following
a director's termination from the Board, other than as a result of death or
disability, the Company shall pay all amounts due to such director, in cash and
stock as per his or her prior deferrals. In the event that a director's service
terminates as a result of death or disability, the director or the director's
beneficiary(s), if applicable, may elect to have any balance, on the date of the
director's death or disability in the applicable director's U.S. Treasury bond
account or DSU account converted to shares of Common Stock or to cash and paid
out in a lump sum. In the event of a director's death subsequent to termination
of his or her Board service, the director's beneficiary(s) may elect to have any
balance in the applicable director's U.S. Treasury bond account or DSU account
converted to shares of Common Stock or to cash and paid out in a lump sum.
AMENDMENT AND TERMINATION. The Board may amend, suspend or terminate
the Plan at any time, provided that the Board shall take no action that would
alter or impair rights previously granted under the Plan without the consent of
the affected non-employee director(s).
FEDERAL INCOME TAX CONSEQUENCES. The following description of the U.S.
federal income tax consequences of payments and/or deferrals under the Plan is a
general summary solely intended as information for stockholders.
A payment under the Plan will constitute compensation taxable as
ordinary income to the participant to the extent it is paid in cash or in an
immediately available equity based distribution. Generally, the Company will be
entitled to a corresponding tax deduction.
26
Generally, a participant under the Plan who elects prior to the last
day of the calendar year preceding a Plan Year to defer a portion of his or her
compensation for that Plan Year shall not be taxed on such deferrals. Amounts
distributed to the participant, or his or her beneficiary(s) in the event of
death, will be taxable to the recipient as ordinary income in the year of
distribution. The Company will generally be entitled to a corresponding tax
deduction in the year of distribution.
THE BOARD HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE AMENDED 2004 NON-EMPLOYEE DIRECTOR COMPENSATION PLAN. UNLESS
DIRECTED OTHERWISE, THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY HAVE
INDICATED THEY INTEND TO VOTE FOR THE APPROVAL OF THE AMENDED PLAN.
ITEM 3 - AMENDMENT TO THE 1998 LONG TERM INCENTIVE AND SHARE AWARD PLAN
The Board of Directors at its April 19, 2006 meeting adopted amendments to the
1998 Long Term Incentive and Share Award Plan (the "Award Plan"), subject to
approval of the stockholders of the Company (the "Amendment"). These amendments
are primarily technical to ensure compliance with relevant laws, notably Section
162(m) of the Internal Revenue Code (or the "Code"), and they provide
limitations on the number of shares with respect to which options, SARs or other
performance based equity awards may be granted to any eligible person during a
calendar year. Compliance with Section 162(m) of the Code enables certain awards
under the Award Plan to qualify as performance-based compensation that is exempt
from the provision of Section 162(m) disallowing a tax deduction to public
companies for annual compensation in excess of $1,000,000 paid to the Company
CEO and each of the four (4) other most highly compensated executives at fiscal
year end. In order to qualify for the exemption for performance-based
compensation, certain features of the Award Plan must be approved by the
Company's stockholders. The following is the resolution to be presented for a
vote of the stockholders at the Annual Meeting:
"RESOLVED that the adoption by the Board of Directors of the 1998
Long Term Incentive and Award Plan, as amended, effective July
13, 2006 and attached hereto as Appendix D, is hereby approved,
ratified and confirmed."
The Board and management believe that the Award Plan helps attract, retain and
motivate employees and promotes long-term growth and profitability by further
aligning employee and shareowner interests. The Board, therefore, recommends
that the stockholders vote "FOR" the Award Plan, as amended by the Amendment.
The affirmative vote of a majority of the shares voting on this resolution is
required for its adoption.
A summary of the principal features of the Award Plan, as amended by the
Amendment, is provided below and is qualified in its entirety by reference to
the actual Award Plan, a copy of which is included as Appendix D.
GENERAL. The Award Plan provides for the grant of Awards in the form of Stock
Option, SAR, Restricted Share, Restricted Share Unit, Performance Share,
Performance Unit, Dividend Equivalent, or Other Share-Based Award or any
combination thereof. The total number of shares of Common Stock available for
issuance under the Award Plan is 8,000,000 subject to anti-dilution provisions.
Shares may consist, in whole or in part, of authorized and unissued shares or
treasury shares including shares acquired by the Company in the open market or
in private transactions. If any Awards granted under the Award Plan are
forfeited, canceled, terminated, exchanged or surrendered or terminated for any
other reason prior to exercise or without a distribution of shares or settled in
cash, then the underlying shares of Common Stock again become available for
awards.
ADMINISTRATION. The Award Plan is administered by the Compensation Committee of
the Board, or such other committee designated by the Board (the "Committee"),
which consists of two or more directors, each of whom is a "non-employee
director" to the extent applicable under Rule 16b-3 under the Exchange Act.
Pursuant to the Amendment, each member must also be an "outside director" to the
extent applicable under Section 162(m) of the Internal Revenue Code; provided
however, that a failure to qualify as a non-employee director or "outside
director" shall not in itself invalidate any Award made under the Award Plan.
The Committee may make all decisions and determinations regarding the Award Plan
as it may deem necessary or advisable.
27
Subject to the terms of the Award Plan, the Committee is authorized to, among
other things, determine the type(s) of Awards, the number of Shares to which an
Award may relate and the terms and conditions of the Awards. Under the
Amendment, the Committee's authority to modify outstanding Awards is limited to
the extent necessary to avoid causing such an Award from becoming "deferred
compensation" under Section 409A of the Internal Revenue Code or failing to meet
the requirements prescribed under Section 409A, if the outstanding Award is
otherwise "deferred compensation". The Award Plan limits to 500,000 Shares the
number of options or SARs that may be granted to a participant during any
calendar year, and pursuant to the Amendment, with respect to any other Awards
intended to qualify as performance-based compensation under Section 162(m) of
the Internal Revenue Code, the maximum number of Shares that may be granted to a
participant in any calendar year is 750,000 Shares or the equivalent thereof.
ELIGIBILITY. The Committee has the discretion to grant Awards to any employee of
the Company, or a subsidiary or an affiliate, including any who is a member of
the Board. It is however the Committee's continuing intent that only management
employees at or above store manager level are eligible. As of the date of this
Proxy Statement, there are approximately 950 eligible participants.
NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE AWARD PLAN. The Award Plan
initially had 5,000,000 Shares available for issuance. At the Annual Meeting in
July 2005 the stockholders approved an increase of 3,000,000 Shares available
for issuance. The Committee may not grant an Award if the number of Shares to
which such Award relates, when added to the number of Shares previously issued
under the Award Plan, exceeds the total number of Shares available for issuance.
Shares awarded under the Award Plan may be authorized and unissued shares or
treasury shares.
AWARDS, TYPES AND APPLICABLE PROVISIONS. Stock options may include nonstatutory
stock options ("NSOs") as well as incentive stock options ("ISOs") intended to
qualify for special tax treatment. The term of an ISO cannot exceed 10 years,
and the exercise price of an ISO must be equal or greater than the fair market
value of the Common Stock on the effective date of grant.
NSO grants are governed by Section 83 of the Internal Revenue Code of 1986, as
amended. Generally, no federal income tax is payable by a participant upon the
grant of an NSO. Under current tax law, if a participant exercises an NSO, he or
she will be taxed on the difference between the fair market value of the Common
Stock on the exercise date and the option exercise price. The Company will be
entitled to a corresponding deduction on its income tax return upon the exercise
of an NSO.
ISO grants are governed by Section 422 of the Internal Revenue Code of 1986, as
amended. Generally no federal income tax is payable by a participant upon the
exercise of an ISO (except alternative minimum tax may be payable upon
exercise). Under current tax law, the participant will be taxed upon disposition
of the stock on the difference between exercise price and the amount received on
disposition of the stock. The length of time the participant holds the stock
after exercise of an ISO determines whether the income is taxed as capital gains
income or part compensation income and part capital gains income. The Company
will not be entitled to a corresponding deduction on its income tax return
except to the extent the participant recognizes compensation income.
SARs entitle the participant to receive any appreciation in the value of the
underlying stock from the Company, either in shares of Common Stock or in cash
or a combination of the two, with the Committee having the discretion to
determine the form in which such payment will be made. The amount payable on
exercise of a SAR is measured by the difference between the market value of the
underlying stock at exercise and the exercise price. SARs may, but need not, be
granted in conjunction with options. Upon exercise of a SAR granted in tandem
with an option, the corresponding portion of the related option must be
surrendered and cannot thereafter be exercised. The amount payable upon exercise
of a SAR will constitute compensation income to the participant at the time of
exercise, and the Company will be entitled to a corresponding deduction.
28
Restricted Shares and Performance Shares entitle the participant to ownership of
shares of the Company's Common Stock subject to any performance conditions or
other restrictions including installment or vesting conditions. A participant
who receives Restricted Shares or Performance Shares will generally recognize
compensation income at the time they vest based on the then fair market value of
the shares, unless the participant instead elects to be taxed at the time of the
award. The Company will be entitled to a corresponding deduction.
Restricted Share Units and Performance Units entitle the participant to receive
either shares of Common Stock or cash or a combination as the Committee shall
determine upon attainment of the performance objectives or satisfaction of other
restrictions or vesting criteria.
Dividend equivalents and Other Share-Based Awards may be granted to the
participant separately or in conjunction with the foregoing provided they are
denominated or payable consistent with the purpose of the Award Plan, including
unrestricted shares awarded purely as a "bonus" and cash awards as an element of
or supplement to any other Award under the Plan.
A participant who receives Restricted Share Units, Performance Units, Dividend
Equivalents or other Share-Based Awards will generally recognize compensation
income in respect of the amounts payable under the award at the time of payment,
and the Company will be entitled to a corresponding deduction.
The foregoing description concerning U.S. federal income tax consequences
related to Awards is a general summary and intended solely as information for
stockholders, not as tax guidance.
Under the Amendment, if the Committee determines that a Performance Share,
Performance Unit or other Award (other than an Option or SAR) should qualify as
"performance-based compensation" for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Award must be contingent upon achievement of
pre-established goals and other terms as detailed in the Amendment. Further,
while performance objectives may vary among participants, under the Amendment,
they shall be based upon one or more of the following performance criteria:
total stockholder return, earnings, earnings per share, operating income, net
income, pro forma net income, return on stockholders' equity, return on invested
capital, return on designated assets, net asset value, economic value added,
EBITDA, sales, revenues, expenses, operating profit margin, operating cash flow,
cash flow per share, and net profit margin.
The benefits to be received or allocated under the Award Plan are not
determinable; however, the following Awards are anticipated in Fiscal 2006,
subject to stockholder approval of the Amendment, as set forth in the table
below.
RSUs STOCK OPTIONS
---- -------------
(#) (1) (#) (2)
Eric Claus 48,381 25,911
Christian W. E. Haub 31,464 16,851
John Metzger 18,270 9,784
Paul Wiseman 13,026 6,976
Stephen Slade 13,702 7,338
Executive Officers as a Group 166,926 86,430
Non-Executive Officers & Employee Group 173,763 0
-----------------
(1) These RSUs are contingent, among other conditions, upon the Company
attaining specified metrics and targets over a three-year period. They will
vest, if at all, only if the thresholds are met and the individual is still
employed on May 15, 2009.
(2) These stock options will vest in four, equal annual installments.
29
TERM. The Committee shall determine the term of each Award; provided, however,
that in no event shall the term of any ISO exceed a period of ten (10) years
from its grant date (or such shorter period as may be applicable under Section
422 of the Code).
TRANSFERABILITY. Unless otherwise expressly indicated by the Committee, Awards
are not transferable except by will or the laws of descent and distribution or
beneficiary designation and shall be exercisable during the lifetime of the
holder only by such holder or his/her guardian or legal representative.
ADJUSTMENTS UPON CORPORATE TRANSACTION. In the event that a dividend in Shares,
recapitalization, Share split, reverse split, reorganization, merger,
consolidation, spin-off combination, repurchase, share exchange, or other
similar corporate transaction or event affects the Shares, such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Award holders, the Committee may adjust the aggregate number of shares
reserved for issuance under the Award Plan, the number of shares covered by each
outstanding award, and the amounts to be paid by Award holders or the Company on
any outstanding Award. No such adjustment may increase the aggregate value of
any outstanding award.
CHANGE OF CONTROL. In the event of a Change of Control (as defined in the Award
Plan), unless otherwise provided by the Committee at the time of grant, all
outstanding Awards pursuant to which a holder may have rights the exercise of
which is restricted or limited, shall become fully exercisable, all restrictions
or limitations on outstanding Awards shall lapse, and all performance criteria
and other conditions shall be deemed to be achieved or fulfilled and shall be
waived by the Company.
AMENDMENT AND TERMINATION. No Awards may be granted under the Award Plan
subsequent to July 14, 2008. The Board may terminate the Award Plan at an
earlier date, or amend the Award Plan at any time. However, the Company must
obtain stockholder approval for any Award Plan amendment to the extent required
by applicable legal or regulatory requirements or as required for the Award Plan
to satisfy the requirements of 422 of the Code. In addition, the award holder's
written consent is required for any amendment or termination of the Award Plan
which will adversely affect any previously granted award.
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE FOR APPROVAL OF THE
AMENDED 1998 LONG TERM INCENTIVE AND SHARE AWARD PLAN. UNLESS DIRECTED
OTHERWISE, THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY HAVE INDICATED THEY
INTEND TO VOTE FOR THE APPROVAL OF THE PLAN.
------------------
STOCKHOLDER PROPOSALS
The Company will consider including a stockholder's proposal in the proxy
statement and form of proxy for the Annual Meeting of Stockholders for Fiscal
2006 if it receives such proposal at the principal office of the Company no
later than January 27, 2007. In order for a proposal submitted outside of Rule
14a-8 of the Exchange Act to be considered "timely" within the meaning of Rule
14a-4(c), such proposal must be received by April 12, 2007.
30
OTHER MATTERS
No business other than that set forth in the attached Notice of Annual Meeting
is expected to come before the Annual Meeting. However, should any other matters
requiring a vote of stockholders arise, including the question of adjourning the
Annual Meeting, the persons named in the accompanying proxy will vote thereon
according to their best judgment in the interest of the Company. In the event
that any of the above-named nominees for the office of director shall withdraw
or otherwise become unavailable, the persons named as proxies may vote for other
persons in their place in the best interest of the Company.
By Order of the Board of Directors
ALLAN RICHARDS
Senior Vice President, Human Resources,
Labor Relations, Legal Services & Secretary
Dated: May 25, 2006
EACH PERSON SOLICITED BY THIS PROXY STATEMENT, INCLUDING ANY PERSON WHO ON MAY
19, 2006 IS A BENEFICIAL OWNER OF THE COMPANY'S COMMON STOCK, MAY REQUEST A COPY
OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE LAST FISCAL YEAR.
SUCH WRITTEN REQUESTS SHOULD BE DIRECTED TO THE SECRETARY OF THE COMPANY AT ITS
ADDRESS AFORESAID.
31
APPENDIX A
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
BOARD OF DIRECTORS
STANDARDS OF INDEPENDENCE
As required by the Rules of the New York Stock Exchange (the "NYSE"), the Board
of Directors of The Great Atlantic & Pacific Tea Company, Inc. (the "Company" or
"A&P") shall assess the independence of each director, and affirmatively
determine whether such director has a direct or indirect material relationship
with the Company (other than in his/her capacity as a director). The Board of
Directors shall make and publicly disclose its independence determination for
each director when the director is first elected to the Board of Directors and
annually thereafter in the Company's Proxy Statement for all nominees for
election as directors at the annual stockholder meeting.
The Board of Directors has established the following guidelines to assist it in
making independence determinations. When making such determinations, the Board
of Directors shall, in addition to applying the standards below, broadly
consider all relevant facts and circumstances. When assessing the materiality of
a director's relationship with the Company, the Board of Directors shall
consider the issue from the standpoint of both the director and the persons or
organizations with which the director has an affiliation.
STANDARDS
A. BUSINESS RELATIONSHIPS. In accordance with Section 303A.02 of the
NYSE's Listed Company Manual:
(i) A director who is an employee, or whose immediate family
member is an executive officer, of A&P is not "independent"
until three (3) years after the end of such employment
relationship;
(ii) A director who receives, or whose immediate family member
receives, more than $100,000 per year in direct compensation
from A&P, other than director and committee fees and pension
or other forms of deferred compensation for prior service
(provided such compensation is not contingent in any way on
continued service), is not "independent" until three (3) years
after he/she ceases to receive more than $100,000 per year in
such compensation;
(iii) A director who is affiliated with or employed by, or whose
immediate family member is affiliated with or employed in a
professional capacity by, the present or former internal or
external auditor of A&P is not "independent" until three (3)
years after the end of the affiliation or the employment or
auditing relationship;
(iv) A director who is employed, or whose immediate family member
is employed, as an executive officer of another company where
any of A&P's present executives serve on that company's
compensation committee is not "independent" until three (3)
years after the end of such service or the employment
relationship; and
(v) A director who is an executive officer or an employee, or
whose immediate family member is an executive officer, of a
company that makes payments to, or receives payments from, A&P
for property or services in an amount which, in any single
fiscal year, exceeds the greater of $1 million, or 2% of such
other company's consolidated gross revenues, is not
"independent" until three (3) years after falling below such
threshold.
B. CHARITABLE RELATIONSHIPS. A director is not "independent" if, at the
time of the independence determination, (i) the director serves as an
officer, director or trustee of a charitable organization, and (ii)
A&P's discretionary charitable contributions to such organization, in
any of the past three (3) fiscal years, exceeded the greater of
$1,000,000 or two percent (2%) of such organization's consolidated
gross revenues.
A-1
C. MAJORITY STOCKHOLDER RELATIONSHIPS.
(i) A director who is an employee or a director, or whose
immediate family member is an executive officer, of an entity
that holds fifty percent (50%) or more of the common stock of
A&P, on a fully-diluted basis (a "Majority Stockholder"), is
not "independent" until three (3) years after the end of such
employment relationship.
(ii) A director who provides, or whose immediate family member
provides, banking, consulting, legal, accounting or similar
services to a Majority Stockholder, is not "independent" until
three (3) years after the director, or the director's
immediate family member, ceases to provide such services.
D. OTHER RELATIONSHIPS. In addition to the standards set forth above, the
Board of Directors shall consider all other relationships between each
director and A & P; provided, however, that a relationship will not be
deemed a "material relationship" if such relationship is at arm's
length, does not conflict with the interests of A&P and does not impair
the director's independence or judgment. Specifically, the Board of
Directors shall consider the following:
(i) Any relationship pursuant to which the director, or an
immediate family member, provides banking, consulting, legal,
accounting or similar services to A & P;
(ii) Any relationship whereby the director is a partner or
stockholder with an ownership interest of 5% or more of an
organization that provides banking, consulting, legal,
accounting or similar services to or otherwise has a
significant relationship with A & P; and
(iii) Any relationship whereby the director is an executive officer
or employee, or an immediate family member is an executive
officer, of another company that (y) does business with A&P
and the sales by that company to A&P or purchases by that
company from A&P, in any fiscal year during the last three (3)
fiscal years, are more than the greater of $1 million or one
percent (1%) of the consolidated gross revenues of that
company, or (z) is indebted to A&P, or to which A&P is
indebted, and the total amount of either company's
indebtedness to the other at the end of any of the last three
(3) fiscal years is more than the greater of $1 million or one
percent (1%) of the consolidated gross revenues of that
company.
E. DEFINITIONS. As used in these Standards of Independence, the terms
"Company" and "A&P" will be deemed to include The Great Atlantic &
Pacific Tea Company, Inc. and any subsidiaries of A&P and the term
"immediate family member" of a director will mean his/her spouse,
parents, children, siblings, mother and father-in-law, sons and
daughters-in-law, brothers and sisters-in-law and anyone (other than
domestic employees) who shares such director's home.
A-2
APPENDIX B
AUDIT & FINANCE COMMITTEE CHARTER
I. ORGANIZATION
There shall be a Committee of the Board of Directors of The Great
Atlantic & Pacific Tea Company, Inc. (the "Company") to be known as the Audit
Committee. The Audit Committee shall be composed of three or more directors who,
as determined and disclosed by the Board of Directors, (i) meet the independence
requirements of the New York Stock Exchange (the "NYSE") and the Securities
Exchange Act of 1934, as amended (the "1934 Act"), as well as the rules and
regulations thereunder, and (ii) have sufficient financial literacy to enable
him/her to discharge the responsibilities of a Committee member. Additionally,
at least one member of the Audit Committee shall be an "Audit Committee
Financial Expert," as defined by the Securities and Exchange Commission ("SEC").
No member of the Audit Committee shall simultaneously serve on the audit
committee of more than two (2) other public companies. The Audit Committee shall
comply with all applicable rules and regulations of the SEC and the NYSE.
The Audit Committee shall meet four times per year or more frequently
as circumstances require and may ask members of management or others to attend
meetings and provide pertinent information as necessary.
To carry out its duties, the Audit Committee shall have the authority
to engage and obtain advice and assistance from outside legal, accounting and
other advisors to the extent it deems necessary and shall receive appropriate
funding, as determined in its sole judgment, from the Company for payment of
compensation to any and all outside advisors employed by the Audit Committee and
for ordinary administrative expenses necessary to carry out its duties.
Additionally, the Audit Committee shall meet separately, periodically, with the
independent auditors, with the internal auditors, with management and with the
Chief Legal Officer.
II. PURPOSE
The Audit Committee's primary purpose is to assist the Board of
Directors in its oversight of (i) the integrity of the Company's financial
statements, (ii) the qualifications and independence of the Company's
independent auditors, (iii) the performance of the Company's internal audit
function and the independent auditors, the system of internal financial and
accounting controls established by management and the audit process, and (iv)
compliance by the Company with legal and regulatory requirements. The Audit
Committee shall provide an open avenue of communication between the internal
auditors, the independent auditors, the Board of Directors and Company
management. The Audit Committee shall also function as the Company's qualified
legal compliance committee ("QLCC"), as defined in Rule 205.2(k) promulgated
under the 1934 Act.
It is not the responsibility of the Audit Committee to plan or conduct
audits, to prepare the Company's financial statements or to determine that the
Company's financial statements conform with generally accepted accounting
principles ("GAAP"). Management is responsible for the preparation of the
Company's financial statements and the independent auditors are responsible for
auditing those financial statements. It is also not the responsibility of the
Audit Committee to assure compliance with laws and regulations and the Company's
code of conduct. Management is responsible for assuring compliance with
applicable laws and regulations and with the Company's code of conduct.
III. RESPONSIBILITIES
In carrying out its oversight responsibilities, the Audit Committee
shall perform the following functions:
A. RELATIONSHIP WITH INDEPENDENT AUDITORS
The Audit Committee shall appoint a firm of certified public
accountants to conduct the audits of the financial statements of the Company,
and selected subsidiaries, for the fiscal year in which the firm is appointed.
The Audit Committee shall be directly responsible for the appointment,
compensation, retention and oversight of the independent auditors and such
independent auditors shall report directly to the Audit Committee. In
fulfillment of such responsibilities, the Audit Committee shall:
B-1
1. Pre-approve all audit and permissible non-audit services of
the independent auditors.
2. Meet with the independent auditors and financial management of
the Company to review (i) the scope and fees of the proposed
audit for the current year and the planned audit procedures
and (ii) any audit problems or difficulties, including without
limitation, restrictions on the scope of the independent
auditor's activities or on access to requested information,
any significant disagreements with management, communications
between the audit team and the independent auditors' national
office, and any "management" or "internal control" letter
issued, or proposed to be issued, by the independent auditors,
and management's response thereto.
3. Be directly responsible for the resolution of disagreements
between management and the independent auditors regarding
financial reporting.
4. Obtain from the independent auditors each year a formal
written statement delineating (i) the independent auditors'
internal quality-control procedures, any material issues
raised by the independent auditor's most recent internal
quality-control review or by any inquiry or investigation,
within the preceding five (5) years, by governmental or
professional authorities with respect to any independent audit
carried out by the auditor, and any steps taken to deal with
any such issues and (ii) all relationships between the
independent auditors and the Company.
5. Periodically engage in a dialogue with the independent
auditors regarding any relationships or services that may
impact the objectivity and independence of the auditors, and
recommend that the Board of Directors take appropriate action
in response to the independent auditors' report to oversee and
satisfy itself of the auditors' independence.
6. Review and discuss with the independent auditors (i) the
Company's annual audited financial statements and quarterly
financial statements, including the Company's disclosures
under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and (ii) the matters
required to be discussed by Statement on Auditing Standards
No. 61, as amended.
7. Review with the independent auditors all critical accounting
policies used by the Company, alternative accounting
treatments discussed with management along with the potential
ramifications of using those alternatives, and other written
communications provided by the independent auditors to
management, including a schedule of unadjusted audit
differences.
8. Set clear hiring policies for employees or former employees of
the Company's independent auditors.
B. OVERSIGHT OF FINANCIAL REPORTING
In carrying out its responsibilities with respect to oversight of the
Company's financial reporting, the Audit Committee shall:
1. Review and discuss with management the Company's annual
audited financial statements and quarterly financial
statements prior to submission to the Board of Directors,
including the Company's disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations".
2. Discuss the Company's earnings press releases, as well as
financial information and earnings guidance provided to
analysts and rating agencies.
B-2
3. Review the Annual Report on Form 10-K and the Proxy Statement
prior to submission to the SEC.
4. Meet separately, periodically, with management, with the
internal auditors and with the independent auditors. Among the
items to be discussed in these meetings are the independent
auditors' evaluation of the Company's financial, accounting
and auditing personnel, and the cooperation that the
independent auditors received during the course of the audit.
5. Discuss major financial risk exposures and the Company's
guidelines and policies with respect to financial risk
assessment and management.
6. Establish procedures for the receipt, retention and treatment
of complaints regarding accounting, internal accounting
controls or auditing matters and for the confidential,
anonymous submission by employees of concerns regarding
questionable accounting or auditing matters.
C. INTERNAL AUDIT
In carrying out its responsibilities with respect to oversight of the
Company's internal audit function, the Audit Committee shall:
The review should also include discussion of the
1. Review the internal audit function of the Company including
the independence and authority of its reporting obligations;
the proposed audit plans for the coming year and the
coordination of such plans with the independent auditors.
2. Receive quarterly, a summary of findings from completed
internal audits and a progress report on the proposed internal
audit plan, with explanations for any deviations from the
original plan.
3. Discuss with management and the internal auditors, the quality
of and compliance with the Company's internal controls and the
responsibilities, budget and staffing of the Company's
internal audit function.
D. LEGAL AND REGULATORY COMPLIANCE
In carrying out its responsibilities with respect to oversight of the
Company's compliance with legal and regulatory requirements, the Audit Committee
shall:
1. Review and reassess on an annual basis, the adequacy of the
Audit Committee's charter and the Audit Committee's
performance.
2. Issue annually a report to be included in the Company's Proxy
Statement as required by the rules of the SEC.
3. Review with the Company's Chief Legal Officer, legal matters
that could have a significant impact on the Company's
financial statements.
E. FINANCE MATTERS
The Audit & Finance Committee shall assume such responsibilities as it
deems appropriate with respect to matters relating to the oversight of:
B-3
1. The financial structure of the Company.
2. The Company's programs with respect to risk management.
3. The Company's acquisitions, dispositions and capital
expenditure programs.
4. The management and expenditure of the Company's surplus funds.
5. The investment performance of the Company's retirement plans.
F. QUALIFIED LEGAL COMPLIANCE COMMITTEE
The Audit Committee, in its capacity as a QLCC, shall receive reports
of material violations of the securities laws, breaches of fiduciary duties or
similar violations governed by such rule from attorneys representing the
Company, including in-house counsel and take such actions as may be permitted or
required of a QLCC under applicable law and the procedures adopted by the Board
of Directors.
G. REPORTS TO THE BOARD
The Audit Committee shall submit the minutes of all meetings of the
Audit Committee to, or review the matters discussed at each Audit Committee
meeting with, the Board of Directors.
In addition to the responsibilities outlined above, the Audit Committee
shall examine and consider such other matters in relation to the internal and
external audit of the Company's accounts and in relation to the financial
affairs of the Company and its books of account as the Audit Committee
determines to be desirable or as requested by the Board of Directors.
B-4
APPENDIX C
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
2004 NON-EMPLOYEE DIRECTOR COMPENSATION PLAN (THE "PLAN")
(AS AMENDED EFFECTIVE JULY 13, 2006)
I. NON-EMPLOYEE DIRECTOR COMPENSATION
A. General
Compensation amounts payable to Non-Employee Directors ("Directors") of The
Great Atlantic & Pacific Tea Company, Inc. (the "Company") shall be established
from time-to-time by the Board of Directors. Such compensation shall take the
form of a $32,000 annual retainer, plus a $1,000 attendance fee for each Board
of Directors meeting attended and a $1,000 attendance fee for each Committee
meeting attended, if substantial time or effort is involved. If two or more
compensable meetings are held on the same day, the fee for all such additional
meetings shall be limited to $500. The Company shall also pay the Chair of each
Committee, except the Executive Committee, an additional annual retainer of
$8,000 ($10,000 in the case of the Chair of the Audit & Finance Committee) and
shall pay the Lead Director an annual retainer of $120,000. In addition, an
annual grant of Company Common Stock equivalent to $90,000 ($135,000 in 2006)
shall be made to Directors. A Director sitting on the board of directors of
Company affiliates at the request of the Company may retain any director
compensation paid to such director by such affiliate. The amount of all Annual
Compensation will be reported annually in the Proxy Statement.
B. Payment of Cash Compensation
1. Annual cash retainers and non-meeting fees shall be payable in monthly
installments, with each installment payable as promptly as practicable
following the last business day of the calendar month to which they apply.
Such payments shall be pro-rated if Board service commences or terminates
during a calendar year. Meeting fees shall be payable as promptly as
practicable following the last business day of the calendar month to which
they are earned.
C. Grants of Common Stock
1. The $90,000 grant ($135,000 in 2006) of Common Stock shall be made on the
first business day following the Annual Meeting of Stockholders, provided,
however, that the first grant shall be delayed until the securities to be
issued under this Plan are registered in accordance with the Securities Act
of 1933.
2. The number of shares of the Company's Common Stock granted annually to each
non-employee Director will be based on the closing price of the Common Stock
on the New York Stock Exchange ("NYSE"), as reported in the Wall Street
Journal ("WSJ") on the date of grant. Only whole shares will be granted; any
remaining amounts will be paid in cash as promptly as practicable following
the date of grant.
II. DEFERRAL OF COMPENSATION
A. Deferral Elections
1. Prior to the last day of each calendar year, each Director shall be
permitted to make an irrevocable deferral election for the subsequent Plan
year (as hereinafter defined). Such deferral election shall specify (a) the
percentage of the total cash compensation (retainers and fees); and/or, (b)
the percentage of the annual grant of the Common Stock that the Director
wishes to defer.
C-1
B. Deferral Media
1. At the Director's election, deferrals of cash compensation (retainers and
fees) may be credited to an unfunded interest bearing 10-year U.S. Treasury
bond equivalent account in the amount so deferred or may be credited to a
Deferred Stock Unit ("DSU") account established for this purpose in an
amount equal to 125% of the amount of cash so deferred.
2. Deferral of grants of Company Common Stock shall be credited to a DSU
account established for this purpose.
C. Administration of Deferral Accounts
1. Deferrals of cash compensation will be credited to a U.S. Treasury bond
equivalent account and/or a DSU account, as per the Director's election, on
a monthly basis. The number of DSUs credited to a DSU account each month
will be based on the closing price of the Common Stock on the NYSE, as
reported in the WSJ, on the first business day of that month. Only whole
units will be credited; any remaining amounts will be carried in a cash
sub-account until the balance therein is sufficient to buy one or more
additional DSUs.
2. The number of DSUs credited to a Director's DSU account each year with
respect to deferrals of amounts allocated for the annual grant of the Common
Stock will be based on the closing price of the Common Stock on the NYSE, as
reported in the WSJ, on the first business day following the Annual Meeting
of Stockholders. Only whole units will be credited; any remaining amounts
will be carried in a cash sub-account until the balance is sufficient to buy
one or more additional DSUs.
3. DSU cash sub-accounts will be credited with any dividends paid. Any amounts
in such DSU sub accounts will be used, when sufficient, to purchase
additional whole units. Any amounts not sufficient to buy a whole unit will
remain in the cash sub-account.
4. Interest will not be paid on monies held in any cash sub account.
5. If, as a result of a recapitalization of the Company, including any stock
splits or dividends, the Company's Common Stock shall be changed into a
greater or smaller number of shares, the number of DSUs credited to a
Director's DSU account shall be appropriately adjusted on the same basis.
III. DISTRIBUTION OF DEFERRED COMPENSATION
A. Vesting
Directors shall always be fully vested in their deferral accounts.
B. Distributions from U.S. Treasury bond equivalent accounts
The value of a U.S. Treasury bond equivalent account will be the sum of the
credits and interest to the date of termination of the Director from the Board,
except for termination due to death or disability, and will be paid as soon as
practicable thereafter.
C. Distributions from DSU accounts
All credited DSUs held in a Director's account will be converted to the Common
Stock as soon as practicable following the Director's termination from the
Board, except for termination due to death or disability. Remaining amounts in
the Director's cash sub-account will be distributed concurrently in cash.
C-2
D. Distributions as a result of death or disability
In the event that a Director's service on the Board terminates as a result of
death or disability, the Director, or in the case of death, the beneficiary(s)
designated by the Director (or failing such designation, the Director's estate),
may elect to have any balance in a Director's U.S. Treasury bond account or DSU
account on the date of the Director's death or disability: (i) converted to
shares of the Common Stock as soon as practicable following the Director's death
or disability; or, (ii) converted to cash and paid out in a lump sum as soon as
practicable following the Director's death or disability. In the event of a
Director's death subsequent to termination of his or her Board service, but
prior to receiving all entitled distributions under the Plan, the beneficiary(s)
designated by the Director (or failing such designation, the Director's estate),
may elect to have any balance in a Director's U.S. Treasury bond account or DSU
account: (i) converted to shares of the Common Stock as soon as practicable
following the Director's death; or, (ii) converted to cash and paid out in a
lump sum as soon as practicable following the Director's death.
IV. GENERAL PROVISIONS
A. Former Directors Plans
No further awards would be made under the 1994 Stock Option Plan for
Non-Employee Directors. There will also be no further awards under the
Directors' Deferred Payment Plan, adopted May 1, 1996, as a result of the
adoption this Plan. Amounts previously credited to the Directors' Deferred
Payment Plan will continue to be administered under the provisions of that plan.
B. Assignability
No right to receive payment of deferred compensation or retirement awards shall,
other than as provided for herein, be transferable or assignable by a
participant except by will or laws of descent and distribution.
C. Amendment of the Plan
This Plan may be amended, suspended or terminated at any time by the Board of
Directors of the Company. However, no amendment, suspension or termination of
the Plan may, without the consent of a participant, alter or impair any of the
rights previously granted under the Plan.
D. Plan Year
The Plan year shall be defined as a twelve month period beginning with the date
of the Annual Meeting of Stockholders and ending the day prior to the following
Annual Meeting of Stockholders.
E. Effective Date/Termination Date
This Plan, as amended, is effective as of July 13, 2006, and shall terminate on
July 13, 2014.
C-3
APPENDIX D
1998 LONG TERM INCENTIVE AND SHARE AWARD PLAN
AS AMENDED EFFECTIVE JULY 13, 2006
1. Purposes.
The purposes of the 1998 Long Term Incentive and Share Award Plan are
to advance the interests of The Great Atlantic & Pacific Tea Company, Inc. and
its stockholders by providing a means to attract, retain, and motivate employees
of the Company upon whose judgment, initiative and efforts the continued
success, growth and development of the Company is dependent.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as set forth
below:
a) "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board or the Committee as a
participating employer under the Plan, provided that the Company
directly or indirectly owns at least 20% of the combined voting power
of all classes of stock of such entity or at least 20% of the
ownership interests in such entity.
b) "Award" means any Option, SAR, Restricted Share, Restricted Share
Unit, Performance Share, Performance Unit, Dividend Equivalent, or
Other Share-Based Award granted to an Eligible Person under the Plan.
c) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
d) "Beneficiary" means the person, persons, trust or trusts which have
been designated by the Eligible Person in his or her most recent
written beneficiary designation filed with the Company to receive the
benefits specified under this Plan upon the death of the Eligible
Person, or, if there is no designated Beneficiary or surviving
designated Beneficiary, then the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive
such benefits.
e) "Board" means the Board of Directors of the Company.
f) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to
include successor provisions thereto and regulations thereunder.
g) "Committee" means the Compensation Policy Committee of the Board, or
such other Board committee as may be designated by the Board to
administer the Plan; provided, however, that the Committee shall
consist of two or more directors of the Company, each of whom is a
"non-employee director" within the meaning of Rule 16b-3 under the
Exchange Act, to the extent applicable, and each of whom is an
`outside director' within the meaning of Section 162(m) of the Code,
to the extent applicable; provided, further, that the mere fact that
the Committee shall fail to qualify under either of the foregoing
requirements shall not invalidate and Award made by the Committee
which Award is otherwise validly made under the Plan.
h) "Company" means The Great Atlantic & Pacific Tea Company, Inc., a
corporation organized under the laws of Maryland, or any successor
corporation.
i) "Dividend Equivalent" means a right, granted under Section 5(g), to
receive cash, Shares, or other property equal in value to dividends
paid with respect to a specified number of Shares. Dividend
Equivalents may be awarded on a free-standing basis or in connection
with another Award, and may be paid currently or on a deferred basis.
D-1
j) "Eligible Person" means an employee of the Company, a Subsidiary or an
Affiliate, including any director who is an employee.
k) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act
shall be deemed to include successor provisions thereto and
regulations thereunder.
l) "Fair Market Value" means, with respect to Shares or other property,
the fair market value of such Shares or other property determined by
such methods or procedures as shall be established from time to time
by the Committee. If the Shares are listed on any established stock
exchange or a national market system, unless otherwise determined by
the Committee in good faith, the Fair Market Value of a Share shall
mean the closing price of the Share on the date on which it is to be
valued hereunder (or, if the Shares were not traded on that day, the
next preceding day that the Shares were traded) on the principal
exchange on which the Shares are traded, as such prices are officially
quoted on such exchange.
m) "ISO" means any option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
n) "NQSO" means any Option that is not an ISO.
o) "Option" means a right, granted under Section 5(b), to purchase
Shares.
p) "Other Share-Based Award" means a right, granted under Section 5(h),
that relates to or is valued by reference to Shares.
q) "Participant" means an Eligible Person who has been granted an Award
under the Plan.
r) "Performance Share" means a performance share granted under Section
5(f).
s) "Performance Unit" means a performance unit granted under Section
5(f).
t) "Plan" means this 1998 Long Term Incentive and Share Award Plan.
u) "Restricted Shares" means an Award of Shares under Section 5(d) that
may be subject to certain restrictions and to a risk of forfeiture.
v) "Restricted Share Unit" means a right, granted under Section 5(e), to
receive Shares or cash at the end of a specified deferral period.
w) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities
and Exchange Commission under Section 16 of the Exchange Act.
x) "SAR" or "Share Appreciation Right" means the right, granted under
Section 5(c), to be paid an amount measured by the difference between
the exercise price of the right and the Fair Market Value of Shares on
the date of exercise of the right, with payment to be made in cash,
Shares, or property as specified in the Award or determined by the
Committee.
y) "Shares" means common stock, $1 par value per share, of the Company.
z) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of
the corporations (other than the last corporation in the unbroken
chain) owns shares possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the
chain.
D-2
3. Administration.
a) Authority of the Committee. The Plan shall be administered by the
Committee, and the Committee shall have full and final authority to
take the following actions, in each case subject to and consistent
with the provisions of the Plan:
(i) to select Eligible Persons to whom Awards may be granted;
(ii) to designate Affiliates;
(iii) to determine the type or types of Awards to be granted to each
Eligible Person;
(iv) to determine the type and number of Awards to be granted, the
number of Shares to which an Award may relate, the terms and
conditions of any Award granted under the Plan (including, but
not limited to, any exercise price, grant price, or purchase
price, and any bases for adjusting such exercise, grant or
purchase price, any restriction or condition, any schedule for
lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability, or settlement
of an Award, and waiver or accelerations thereof, and waivers
of performance conditions relating to an Award, based in each
case on such considerations as the Committee shall determine),
and all other matters to be determined in connection with an
Award;
(v) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price
of an Award may be paid, in cash, Shares, other Awards, or
other property, or an Award may be canceled, forfeited,
exchanged, or surrendered;
(vi) to determine whether, to what extent, and under what
circumstances cash, Shares, other Awards, or other property
payable with respect to an Award will be deferred either
automatically, at the election of the Committee, or at the
election of the Eligible Person;
(vii) to determine whether, to what extent, and under what
circumstances any cash, Shares, other Awards, or other
property payable on a deferred basis will be adjusted for
interest or earnings equivalents and, if so, the basis for
determining such equivalents;
(viii) to prescribe the form of each Award Agreement, which need not
be identical for each Eligible Person;
(ix) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem
necessary or advisable to administer the Plan;
(x) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the
Plan and any Award, rules and regulations, Award Agreement, or
other instrument hereunder;
(xi) to accelerate the exercisability or vesting of all or any
portion of any Award or to extend the period during which an
Award is exercisable; and
(xii) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may
deem necessary or advisable for the administration of the
Plan.
D-3
(b) Manner of Exercise of Committee Authority. The Committee shall have
sole discretion in exercising its authority under the Plan. Any action
of the Committee with respect to the Plan shall be final, conclusive,
and binding on all persons, including the Company, Subsidiaries,
Affiliates, Eligible Persons, any person claiming any rights under the
Plan from or through any Eligible Person, and stockholders. The express
grant of any specific power to the Committee, and the taking of any
action by the Committee, shall not be construed as limiting any power
or authority of the Committee. The Committee may delegate to officers
or managers of the Company or any Subsidiary or Affiliate the
authority, subject to such terms as the Committee shall determine, to
perform administrative functions and, with respect to Awards granted to
persons not subject to Section 16 of the Exchange Act, to perform such
other functions as the Committee may determine, to the extent permitted
under Rule 16b-3 (if applicable) and applicable law.
(c) Limitation of Liability. Each member of the Committee shall be entitled
to, in good faith, rely or act upon any report or other information
furnished to him or her by any officer or other employee of the Company
or any Subsidiary or Affiliate, the Company's independent certified
public accountants, or other professional retained by the Company to
assist in the administration of the Plan. No member of the Committee,
nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan,
and all members of the Committee and any officer or employee of the
Company acting on their behalf shall, to the extent permitted by law,
be fully indemnified and protected by the Company with respect to any
such action, determination, or interpretation.
(d) Limitation on Committee's Discretion. Anything in this Plan to the
contrary notwithstanding, in the case of any Award which is intended to
qualify as "performance-based compensation" within the meaning of
Section 162(m)(4)(C) of the Code, unless the Award Agreement
specifically provides otherwise, the Committee shall have no discretion
to increase the amount of compensation payable under the Award to the
extent such an increase would cause the Award to lose its qualification
as such performance-based compensation.
(e) Quorum, Acts of Committee. A majority of the Committee shall constitute
a quorum, and the acts of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by
all of the members, shall be acts of the Committee.
(f) Limitation on Committee's Authority under 409A. Anything in this Plan
to the contrary notwithstanding, the Committee's authority to modify
outstanding Awards shall be limited to the extent necessary so that the
existence of such authority does not (i) cause an Award that is not
otherwise deferred compensation subject to Section 409A of the Code to
become deferred compensation subject to Section 409A of the Code or
(ii) cause an Award that is otherwise deferred compensation subject to
Section 409A of the Code to fail to meet the requirements prescribed by
Section 409A of the Code.
4. Shares Subject to the Plan.
(a) Subject to adjustment as provided in Section 4(c) hereof, the total
number of Shares reserved for issuance in connection with Awards under
the Plan shall be 8,000,000. No Award may be granted if the number of
Shares to which such Award relates, when added to the number of Shares
previously issued under the Plan, exceeds the number of Shares reserved
under the preceding sentence. If any Awards are forfeited, canceled,
terminated, exchanged or surrendered or such Award is settled in cash
or otherwise terminates without a distribution of Shares to the
Participant, any Shares counted against the number of Shares reserved
and available under the Plan with respect to such Award shall, to the
extent of any such forfeiture, settlement, termination, cancellation,
exchange or surrender, again be available for Awards under the Plan.
Upon the exercise of any Award granted in tandem with any other Awards,
such related Awards shall be canceled to the extent of the number of
Shares as to which the Award is exercised.
D-4
(b) Subject to adjustment as provided in Section 4(c) hereof, (i) the
maximum number of Shares with respect to which options or SARs may be
granted during any calendar year to any Eligible Person under this Plan
shall be 500,000 Shares, and (ii) with respect to Awards other than
Stock Options and SARs intended to qualify as performance-based
compensation within the meaning of Section 162(m)(4)(C) of the Code,
the maximum number of Shares that may be granted during any calendar
year to any Eligible Person under this Plan shall be 750,000 Shares or
the equivalent thereof.
(c) In the event that the Committee shall determine that any dividend in
Shares, recapitalization, Share split, reverse split, reorganization,
merger, consolidation, spin-off, combination, repurchase, or share
exchange, or other similar corporate transaction or event, affects the
Shares such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Eligible Persons under the
Plan, then the Committee shall make such equitable changes or
adjustments as it deems appropriate and, in such manner as it may deem
equitable, adjust any or all of (i) the number and kind of shares which
may thereafter be issued under the Plan, (ii) the number and kind of
shares, other securities or other consideration issued or issuable in
respect of outstanding Awards, and (iii) the exercise price, grant
price, or purchase price relating to any Award; provided, however, in
each case that, with respect to ISOs, such adjustment shall be made in
accordance with Section 424(a) of the Code, unless the Committee
determines otherwise. In addition, the Committee is authorized to make
adjustments in the terms and conditions of, and the criteria and
performance objectives included in, Awards in recognition of unusual or
non-recurring events (including, without limitation, events described
in the preceding sentence) affecting the Company or any Subsidiary or
Affiliate or the financial statements of the Company or any Subsidiary
or Affiliate, or in response to changes in applicable laws,
regulations, or accounting principles; provided, however, that, in the
case of an Award which is intended to qualify as "performance-based
compensation" within the meaning of Section 162(m)(4)(C) of the Code,
such authority shall be subject to Section 3(d) hereof.
(d) Any Shares distributed pursuant to an Award may consist, in whole or in
part, of authorized and unissued Shares or treasury Shares including
Shares acquired by purchase in the open market or in private
transactions.
5. Specific Terms of Awards.
a) General. Awards may be granted on the terms and conditions set forth in
this Section 5. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject to
Section 8(d)), such additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Committee shall determine,
including terms regarding forfeiture of Awards or continued
exercisability of Awards in the event of termination of employment by
the Eligible Person.
b) Options. The Committee is authorized to grant Options, which may be
NQSOs or ISOs, to Eligible Persons on the following terms and
conditions:
(i) Exercise Price. The exercise price per Share purchasable under
an Option shall be determined by the Committee, and the
Committee may, without limitation, set an exercise price that
is based upon achievement of performance criteria if deemed
appropriate by the Committee.
(ii) Option Term. The term of each Option shall be determined by
the Committee.
(iii) Time and Method of Exercise. The Committee shall determine at
the date of grant or thereafter the time or times at which an
Option may be exercised in whole or in part (including,
without limitation, upon achievement of performance criteria
if deemed appropriate by the Committee), the methods by which
such exercise price may be paid or deemed to be paid
(including, without limitation, broker-assisted exercise
arrangements), the form of such payment (including, without
limitation, cash, Shares, notes or other property), and the
methods by which Shares will be delivered or deemed to be
delivered to Eligible Persons.
D-5
(iv) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the
Code, including but not limited to the requirement that the
ISO shall be granted within ten years from the earlier of the
date of adoption or shareholder approval of the Plan. ISOs may
only be granted to employees of the Company or a Subsidiary.
c) SARs. The Committee is authorized to grant SARs (Share Appreciation
Rights) to Eligible Persons on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Eligible Person
to whom it is granted a right to receive with respect to each
Share subject thereto, upon exercise thereof, the excess of
(1) the Fair Market Value of one Share on the date of exercise
(or, if the Committee shall so determine in the case of any
such right, the Fair Market Value of one Share at any time
during a specified period before or after the date of
exercise) over (2) the base amount of the SAR as determined by
the Committee as of the date of grant of the SAR (which, in
the case of an SAR granted in tandem with an Option, shall be
equal to the exercise price of the underlying Option).
(ii) Other Terms. The Committee shall determine, at the time of
grant or thereafter, the time or times at which an SAR may be
exercised in whole or in part, the method of exercise, method
of settlement, form of consideration payable in settlement,
method by which Shares will be delivered or deemed to be
delivered to Eligible Persons, whether or not an SAR shall be
in tandem with any other Award, and any other terms and
conditions of any SAR. Unless the Committee determines
otherwise, an SAR (1) granted in tandem with an NQSO may be
granted at the time of grant of the related NQSO or at any
time thereafter and (2) granted in tandem with an ISO may only
be granted at the time of grant of the related ISO.
(d) Restricted Shares. The Committee is authorized to grant Restricted
Shares to Eligible Persons on the following terms and conditions:
(i) Issuance and Restrictions. Restricted Shares shall be subject
to such restrictions on transferability and other
restrictions, if any, as the Committee may impose at the date
of grant or thereafter, which restrictions may lapse
separately or in combination at such times, under such
circumstances (including, without limitation, upon achievement
of performance criteria if deemed appropriate by the
Committee), in such installments, or otherwise, as the
Committee may determine. Except to the extent restricted under
the Award Agreement relating to the Restricted Shares, an
Eligible Person granted Restricted Shares shall have all of
the rights of a shareholder including, without limitation, the
right to vote Restricted Shares and the right to receive
dividends thereon. The Committee must certify in writing prior
to the lapse of restrictions conditioned on achievement of
performance criteria that such performance criteria were in
fact satisfied.
(ii) Forfeiture. Except as otherwise determined by the Committee,
at the date of grant or thereafter, upon termination of
employment during the applicable restriction period,
Restricted Shares and any accrued but unpaid dividends or
Dividend Equivalents (and any accrued but unpaid interest or
earnings equivalents thereon) that are at that time subject to
restrictions shall be forfeited; provided, however, that the
Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted
Shares will be waived in whole or in part in the event of
terminations resulting from specified causes, and the
Committee may in other cases waive in whole or in part the
forfeiture of Restricted Shares.
D-6
(iii) Certificates for Shares. Restricted Shares granted under the
Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Shares are
registered in the name of the Eligible Person, such
certificates shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such
Restricted Shares, and the Company shall retain physical
possession of the certificate.
(iv) Dividends. Dividends paid on Restricted Shares shall be either
paid at the dividend payment date, or deferred (with or
without the crediting of interest or earnings equivalents
thereon as determined by the Committee) for payment to such
date as determined by the Committee, in cash or in
unrestricted Shares having a Fair Market Value equal to the
amount of such dividends; provided, however, that any such
dividends (and any interest or earnings equivalents credited
thereon) shall be subject to forfeiture upon such conditions,
if any, as the Committee may specify. Shares distributed in
connection with a Share split or dividend in Shares, and other
property distributed as a dividend, shall be subject to
restrictions and a risk of forfeiture to the same extent as
the Restricted Shares with respect to which such Shares or
other property has been distributed.
e) Restricted Share Units. The Committee is authorized to grant Restricted
Share Units to Eligible Persons, subject to the following terms and
conditions:
(i) Award and Restrictions. Delivery of Shares or cash, as the
case may be, will occur upon expiration of the deferral period
specified for Restricted Share Units by the Committee (or, if
permitted by the Committee, as elected by the Eligible
Person). In addition, Restricted Share Units shall be subject
to such restrictions as the Committee may impose, if any
(including, without limitation, the achievement of performance
criteria if deemed appropriate by the Committee), at the date
of grant or thereafter, which restrictions may lapse at the
expiration of the deferral period or at earlier or later
specified times, separately or in combination, in installments
or otherwise, as the Committee may determine. The Committee
must certify in writing prior to the lapse of restrictions
conditioned on the achievement of performance criteria that
such performance criteria were in fact satisfied.
(ii) Forfeiture. Except as otherwise determined by the Committee at
date of grant or thereafter, upon termination of employment
(as determined under criteria established by the Committee)
during the applicable deferral period or portion thereof to
which forfeiture conditions apply (as provided in the Award
Agreement evidencing the Restricted Share Units), or upon
failure to satisfy any other conditions precedent to the
delivery of Shares or cash to which such Restricted Share
Units relate, all Restricted Share Units that are at that time
subject to deferral or restriction shall be forfeited;
provided, however, that the Committee may provide, by rule or
regulation or in any Award Agreement, or may determine in any
individual case, that restrictions or forfeiture conditions
relating to Restricted Share Units will be waived in whole or
in part in the event of termination resulting from specified
causes, and the Committee may in other cases waive in whole or
in part the forfeiture of Restricted Share Units.
f) Performance Shares and Performance Units. The Committee is authorized
to grant Performance Shares or Performance Units or both to Eligible
Persons on the following terms and conditions:
(i) Performance Period. The Committee shall determine a
performance period (the "Performance Period") of one or more
years and shall determine the performance objectives for
grants of Performance Shares and Performance Units.
Performance objectives may vary from Eligible Person to
Eligible Person and shall be based upon one or more of the
following performance criteria as the Committee may select:
total stockholder return, earnings, earnings per share,
operating income, net income, pro forma net income, return on
stockholders' equity, return on invested capital, return on
designated assets, net asset value, economic value added,
EBITDA, sales, revenues, expenses, operating profit margin,
operating cash flow, cash flow per share, and net profit
margin. Performance Periods may overlap and Eligible Persons
may participate simultaneously with respect to Performance
Shares and Performance Units for which different Performance
Periods are prescribed.
D-7
(ii) Award Value. At the beginning of a Performance Period, the
Committee shall determine for each Eligible Person or group of
Eligible Persons with respect to that Performance Period the
range of number of Shares, if any, in the case of Performance
Shares, and the range of dollar values, if any, in the case of
Performance Units, which may be fixed or may vary in
accordance with such performance or other criteria specified
by the Committee, which shall be paid to an Eligible Person as
an Award if the relevant measure of Company performance for
the Performance Period is met.
(iii) Significant Events. If during the course of a Performance
Period there shall occur significant events as determined by
the Committee which the Committee expects to have a
substantial effect on a performance objective during such
period, the Committee may revise such objective; provided,
however, that, in the case of an Award which is intended to
qualify as "performance-based compensation" within the meaning
of Section 162(m)(4)(C) of the Code, such authority shall be
subject to Section 3(d) hereof.
(iv) Forfeiture. Except as otherwise determined by the Committee,
at the date of grant or thereafter, upon termination of
employment during the applicable Performance Period,
Performance Shares and Performance Units for which the
Performance Period was prescribed shall be forfeited;
provided, however, that the Committee may provide, by rule or
regulation or in any Award Agreement, or may determine in an
individual case, that restrictions or forfeiture conditions
relating to Performance Shares and Performance Units will be
waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of
Performance Shares and Performance Units.
(v) Payment. Each Performance Share or Performance Unit may be
paid in whole Shares, or cash, or a combination of Shares and
cash either as a lump sum payment or in installments, all as
the Committee shall determine, at the time of grant of the
Performance Share or Performance Unit or otherwise, commencing
as soon as practicable after the end of the relevant
Performance Period. The Committee must certify in writing
prior to the payment of any Performance Share or Performance
Unit that the performance objectives and any other material
terms were in fact satisfied.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to Eligible Persons. The Committee may provide, at the date
of grant or thereafter, that Dividend Equivalents shall be paid or
distributed when accrued or shall be deemed to have been reinvested in
additional Shares, or other investment vehicles as the Committee may
specify, provided that Dividend Equivalents (other than freestanding
Dividend Equivalents) shall be subject to all conditions and
restrictions of the underlying Awards to which they relate.
(h) Other Share-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Eligible Persons such
other Awards that may be denominated or payable in, valued in whole or
in part by reference to, or otherwise based on, or related to, Shares,
as deemed by the Committee to be consistent with the purposes of the
Plan, including, without limitation, unrestricted shares awarded purely
as a "bonus" and not subject to any restrictions or conditions, other
rights convertible or exchangeable into Shares, purchase rights for
Shares, Awards with value and payment contingent upon performance of
the Company or any other factors designated by the Committee, and
Awards valued by reference to the performance of specified Subsidiaries
or Affiliates. The Committee shall determine the terms and conditions
of such Awards at date of grant or thereafter. Shares delivered
pursuant to an Award in the nature of a purchase right granted under
this Section 5(h) shall be purchased for such consideration, paid for
at such times, by such methods, and in such forms, including, without
limitation, cash, Shares, notes or other property, as the Committee
shall determine. Cash awards, as an element of or supplement to any
other Award under the Plan, shall also be authorized pursuant to this
Section 5(h).
D-8
(i) Performance Awards. If the Committee determines that a Performance
Share, Performance Unit or other Award (other than an Option or SAR) to
be granted to an Eligible Person should qualify as 'performance-based
compensation' for purposes of Section 162(m) of the Code, the grant,
exercise and/or settlement of such Award (each, a 'Performance Award')
shall be contingent upon achievement of pre-established goals and other
terms set forth below:
(i) The performance goals for such Performance Awards shall consist
of one or more business criteria and a targeted level or levels
of performance with respect to each of such criteria, as
specified by the Committee consistent with this subsection (i).
The performance goals shall be objective and shall otherwise meet
the requirements of Section 162(m) of the Code and regulations
thereunder (including Treasury Regulation 1.162-27 and successor
regulations thereto), including the requirement that the level or
levels of performance targeted by the Committee result in the
achievement of performance goals being 'substantially uncertain.'
The Committee may determine that such Performance Awards shall be
granted, vested, exercised and/or settled upon achievement of any
one performance goal or that two or more of the performance goals
must be achieved as a condition to grant, vesting, exercise
and/or settlement of such Performance Awards. Performance goals
may differ for Performance Awards granted to any one Participant
or to different Participants.
(ii) One or more of the business criteria specified in Section 5(f)(1)
hereof for the Company and/or for specified Subsidiaries or
Affiliates or divisions or other business units or lines of
business of the Company shall be used by the Committee in
establishing performance goals for such Performance Awards.
(iii) Achievement of performance goals in respect of such Performance
Awards shall be measured over a performance period, as specified
by the Committee. A performance goal shall be established in
writing not later than the earlier of (A) 90 days after the
beginning of any performance period applicable to such
Performance Award or (B) the date on which 25% of such
performance period has elapsed. In all cases, the maximum
Performance Award of any Participant shall be subject to the
limitation set forth in Section 4(b).
(iv) The Committee may, in its discretion, reduce the amount of a
settlement otherwise to be made in connection with such
Performance Awards, but may not exercise discretion to increase
any such amount payable to the Participant in respect of a
Performance Award subject to this subsection (i).
(v) Determinations by the Committee as to the establishment of
performance goals for Performance Awards, the amount potentially
payable in respect of Performance Awards, the level of actual
achievement of the specified performance goals relating to
Performance Awards and the amount of any final Performance Award
shall be recorded in writing. Specifically, the Committee shall
certify in writing, in a manner conforming to applicable
regulations under Section 162(m) of the Code, prior to settlement
of each such Award, that the performance objective relating to
the Performance Award and other material terms of the Award upon
which settlement of the Award was conditioned have been
satisfied.
6. Certain Provisions Applicable to Awards.
a) Stand-Alone, Additional, Tandem and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted to
Eligible Persons either alone or in addition to, in tandem with, or in
exchange or substitution for, any other Award granted under the Plan or
any award granted under any other plan or agreement of the Company, any
Subsidiary or Affiliate, or any business entity to be acquired by the
Company or a Subsidiary or Affiliate, or any other right of an Eligible
Person to receive payment from the Company or any Subsidiary or
Affiliate. Awards may be granted in addition to or in tandem with such
other Awards or awards, and may be granted either as of the same time
as or a different time from the grant of such other Awards or awards.
The per Share exercise price of any Option, grant price of any SAR, or
purchase price of any other Award conferring a right to purchase Shares
which is granted, in connection with the substitution of awards granted
under any other plan or agreement of the Company or any Subsidiary or
Affiliate or any business entity to be acquired by the Company or any
Subsidiary or Affiliate, shall be determined by the Committee, in its
discretion.
D-9
b) Terms of Awards. The term of each Award granted to an Eligible Person
shall be for such period as may be determined by the Committee;
provided, however, that in no event shall the term of any ISO or an SAR
granted in tandem therewith exceed a period of ten years from the date
of its grant (or such shorter period as may be applicable under Section
422 of the Code).
c) Form of Payment Under Awards. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a
Subsidiary or Affiliate upon the grant, maturation, or exercise of an
Award may be made in such forms as the Committee shall determine at the
date of grant or thereafter, including, without limitation, cash,
Shares, or other property, and may be made in a single payment or
transfer, in installments, or on a deferred basis. The Committee may
make rules relating to installment or deferred payments with respect to
Awards, including the rate of interest or earnings equivalents to be
credited with respect to such payments.
d) Nontransferability. Unless otherwise set forth by the Committee in an
Award Agreement, Awards (except for vested shares) shall not be
transferable by an Eligible Person except by will or the laws of
descent and distribution (except pursuant to a Beneficiary designation)
and shall be exercisable during the lifetime of an Eligible Person only
by such Eligible Person or his or her guardian or legal representative.
An Eligible Person's rights under the Plan may not be pledged,
mortgaged, hypothecated, or otherwise encumbered, and shall not be
subject to claims of the Eligible Person's creditors.
7. Change of Control Provisions.
a) Acceleration of Exercisability and Lapse of Restrictions. In the event
of a Change of Control, the following acceleration provisions shall
apply unless otherwise provided by the Committee at the time of the
Award grant:
All outstanding Awards pursuant to which the Participant may have
rights the exercise of which is restricted or limited, shall become
fully exercisable at the time of the Change of Control. Unless the
right to lapse of restrictions or limitations is waived or deferred
by a Participant prior to such lapse, all restrictions or
limitations (including risks of forfeiture and deferrals) on
outstanding Awards subject to restrictions or limitations under the
Plan shall lapse, and all performance criteria and other conditions
to payment of Awards under which payments of cash, Shares or other
property are subject to conditions shall be deemed to be achieved
or fulfilled and shall be waived by the Company at the time of the
Change of Control.
b) Definitions of Certain Terms. For purposes of this Section 7, the
following definitions, in addition to those set forth in Section 2,
shall apply:
(i) "Change of Control" means and shall be deemed to have occurred
if:
a. any person (within the meaning of the Exchange Act), other
than the Company, a Related Party or Tengelmann
Warenhandelsgesellschaft, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of Voting Securities representing
40 percent or more of the total voting power of all the
then-outstanding Voting Securities; or
b. the individuals who, as of the effective date of the Plan,
constitute the Board, together with those who first become
directors subsequent to such date and whose recommendation,
election or nomination for election to the Board was
approved by a vote of at least a majority of the directors
then still in office who either were directors as of the
effective date of the Plan or whose recommendation,
election or nomination for election was previously so
approved (the "Continuing Directors"), cease for any reason
to constitute a majority of the members of the Board; or
D-10
c. the stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the
Company or a Subsidiary, reverse split of any class of
Voting Securities, or an acquisition of securities or
assets by the Company or a Subsidiary, or consummation of
any such transaction if stockholder approval is not
obtained, other than (I) any such transaction in which the
holders of outstanding Voting Securities immediately prior
to the transaction receive (or, in the case of a
transaction involving a Subsidiary and not the Company,
retain), with respect to such Voting Securities, voting
securities of the surviving or transferee entity
representing more than 60 percent of the total voting power
outstanding immediately after such transaction, with the
voting power of each such continuing holder relative to
other such continuing holders not substantially altered in
the transaction, or (II) any such transaction which would
result in a Related Party beneficially owning more than 50
percent of the voting securities of the surviving entity
outstanding immediately after such transaction; or
d. the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of
the Company's assets other than any such transaction which
would result in a Related Party owning or acquiring more
than 50 percent of the assets owned by the Company
immediately prior to the transaction.
ii. "Related Party" means (a) a majority-owned subsidiary of the
Company; (b) an employee or group of employees of the Company
or any majority-owned subsidiary of the Company; (c) a trustee
or other fiduciary holding securities under an employee
benefit plan of the Company or any majority-owned subsidiary
of the Company; or (d) a corporation owned directly or
indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of Voting Securities.
iii. "Voting Securities" means any securities of the Company which
carry the right to vote generally in the election of
directors.
8. General Provisions.
a) Compliance with Legal and Trading Requirements. The Plan,
the granting and exercising of Awards thereunder, and the
other obligations of the Company under the Plan and any
Award Agreement, shall be subject to all applicable federal
and state laws, rules and regulations, and to such
approvals by any regulatory or governmental agency as may
be required. The Company, in its discretion, may postpone
the issuance or delivery of Shares under any Award until
completion of such stock exchange or market system listing
or registration or qualification of such Shares or other
required action under any state or federal law, rule or
regulation as the Company may consider appropriate, and may
require any Participant to make such representations and
furnish such information as it may consider appropriate in
connection with the issuance or delivery of Shares in
compliance with applicable laws, rules and regulations. No
provisions of the Plan shall be interpreted or construed to
obligate the Company to register any Shares under federal
or state law.
b) No Right to Continued Employment or Service. Neither the
Plan nor any action taken thereunder shall be construed as
giving any employee or director the right to be retained in
the employ or service of the Company or any of its
Subsidiaries or Affiliates, nor shall it interfere in any
way with the right of the Company or any of its
Subsidiaries or Affiliates to terminate any employee's or
director's employment or service at any time.
D-11
c) Taxes. The Company or any Subsidiary or Affiliate is
authorized to withhold from any Award granted, any payment
relating to an Award under the Plan, including from a
distribution of Shares, or any payroll or other payment to
an Eligible Person, amounts of withholding and other taxes
due in connection with any transaction involving an Award,
and to take such other action as the Committee may deem
advisable to enable the Company and Eligible Persons to
satisfy obligations for the payment of withholding taxes
and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive
Shares or other property and to make cash payments in
respect thereof in satisfaction of an Eligible Person's tax
obligations.
d) Changes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or the
Committee's authority to grant Awards under the Plan
without the consent of stockholders of the Company or
Participants, except that any such amendment, alteration,
suspension, discontinuation, or termination shall be
subject to the approval of the Company's stockholders to
the extent such shareholder approval is required under
Section 422 of the Code; provided, however, that, without
the consent of an affected Participant, no amendment,
alteration, suspension, discontinuation, or termination of
the Plan may materially and adversely affect the rights of
such Participant under any Award theretofore granted to him
or her. The Committee may waive any conditions or rights
under, amend any terms of, or amend, alter, suspend,
discontinue or terminate, any Award theretofore granted,
prospectively or retrospectively; provided, however, that,
without the consent of a Participant, no amendment,
alteration, suspension, discontinuation or termination of
any Award may materially and adversely affect the rights of
such Participant under any Award theretofore granted to him
or her.
e) No Rights to Awards; No Shareholder Rights. No Eligible
Person or employee shall have any claim to be granted any
Award under the Plan, and there is no obligation for
uniformity of treatment of Eligible Persons and employees.
No Award shall confer on any Eligible Person any of the
rights of a shareholder of the Company unless and until
Shares are duly issued or transferred to the Eligible
Person in accordance with the terms of the Award.
f) Unfunded Status of Awards. The Plan is intended to
constitute an "unfunded" plan for incentive compensation.
With respect to any payments not yet made to a Participant
pursuant to an Award, nothing contained in the Plan or any
Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the
creation of trusts or make other arrangements to meet the
Company's obligations under the Plan to deliver cash,
Shares, other Awards, or other property pursuant to any
Award, which trusts or other arrangements shall be
consistent with the "unfunded" status of the Plan unless
the Committee otherwise determines with the consent of each
affected Participant
g) Nonexclusivity of the Plan. Neither the adoption of the
Plan by the Board nor its submission to the stockholders of
the Company for approval shall be construed as creating any
limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including,
without limitation, the granting of options and other
awards otherwise than under the Plan, and such arrangements
may be either applicable generally or only in specific
cases.
h) Not Compensation for Benefit Plans. No Award payable under
this Plan shall be deemed salary or compensation for the
purpose of computing benefits under any benefit plan or
other arrangement of the Company for the benefit of its
employees or directors unless the Company shall determine
otherwise.
i) No Fractional Shares. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Award. The
Committee shall determine whether cash, other Awards, or
other property shall be issued or paid in lieu of such
fractional Shares or whether such fractional Shares or any
rights thereto shall be forfeited or otherwise eliminated.
D-12
j) Governing Law. The validity, construction, and effect of
the Plan, any rules and regulations relating to the Plan,
and any Award Agreement shall be determined in accordance
with the laws of New Jersey without giving effect to
principles of conflict of laws.
k) Effective Date; Plan Termination. The Plan shall become
effective as of July 14, 1998 (the "Effective Date"),
subject to approval by the vote of the holders of a
majority of the shares of stock of the Company present or
represented at the annual meeting of stockholders to be
held in July 1999. Awards may be made prior to such
approval by stockholders, but each such Award shall be
subject to the approval of this Plan by the stockholders,
and if this Plan shall not be so approved, all Awards
granted under this Plan shall be of no effect. The Plan
shall terminate as to future awards on the date which is
ten (10) years after the Effective Date.
l) Relationship to 1998 Restricted Stock Plan. This Plan
constitutes an amendment and restatement of The Great
Atlantic & Pacific Tea Company, Inc. 1998 Restricted Stock
Plan (the "Restricted Stock Plan") effective as of July 14,
1998, the date of inception of the Restricted Stock Plan.
Any awards of shares of Restricted Stock made under the
Restricted Stock Plan shall be deemed to be Awards of
Restricted Shares under this Plan and shall be subject to
all the terms and conditions of this Plan.
m) Titles and Headings. The titles and headings of the
sections in the Plan are for convenience of reference only.
In the event of any conflict, the text of the Plan, rather
than such titles or headings, shall control.
n) Section 409A. It is intended that the Plan and Awards
issued thereunder will comply with Section 409A of the Code
(and any regulations and guidelines issued thereunder) to
the extent the Awards are subject thereto, and the Plan and
such Awards shall be interpreted on a basis consistent with
such intent. The Plan and any Award Agreements issued
thereunder may be amended in any respect deemed by the
Board or the Committee to be necessary in order to preserve
compliance with Section 409A of the Code."
D-13
ANNUAL MEETING OF STOCKHOLDERS OF
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
JULY 13, 2006
PLEASE DATE, SIGN AND MAIL
YOUR PROXY CARD IN THE
ENVELOPE PROVIDED AS SOON
AS POSSIBLE.
| |
| |
\|/ Please detach along perforated line and mail in the envelope provided. \|/
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
PROPOSALS 2 AND 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |x|
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
(1) ELECTION OF DIRECTORS (2) Proposal to amend the 2004 Non-Employee Director |_| |_| |_|
Compensation Plan.
NOMINEES: (THE DIRECTORS RECOMMEND A VOTE "FOR")
|_| FOR ALL NOMINEES O J. D. Barline
O J. J. Boeckel (3) Proposal to amend the 1998 Long Term Incentive and |_| |_| |_|
WITHHOLD AUTHORITY O B. Gaunt Share Award Plan.
|_| FOR ALL NOMINEES O C. W. E. Haub (THE DIRECTORS RECOMMEND A VOTE "FOR")
O D. Kourkoumelis
FOR ALL EXCEPT O E. Lewis
|_| (See instructions below) O M. B. Tart-Bezer
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: O
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
To change the address on your account, please check the box at right
and indicate your new address in the address space above. Please note
that changes to the registered name(s) on the account may not be |__|
submitted via this method.
--------------------------------------------------------------------------------
Signature of Stockholder____________________ Date:________ Signature of Stockholder____________________ Date:________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
Dear Stockholder:
We are pleased to send you our 2005 Annual Report and Proxy Statement. The
Annual Meeting of Stockholders will be held at 9:00 A.M. (E.D.T.) on Thursday,
July 13, 2006 at the The Woodcliff Lake Hilton, 200 Tice Boulevard, Woodcliff
Lake, New Jersey.
If you are interested in further information about the Company, you are invited
to contact the Treasury Department at the executive offices at 2 Paragon Drive,
Montvale, New Jersey or contact the A&P's home page at www.aptea.com.
Sincerely,
Allan Richards
Senior Vice President, Human Resources, Labor
Relations, Legal Services & Secretary
IMPORTANT NOTICE: All Annual Meeting attendees may be asked to present a
valid government-issued photo identification, such as a driver's license
or passport, before entering the meeting. In addition, video and audio
recording devices and other electronic devices will not be permitted at
the Annual Meeting, and attendees will be subject to security
inspections.
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
PROXY - FOR THE ANNUAL MEETING - JULY 13, 2006
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned, having received the Notice of Meeting and Proxy
Statement dated May 25, 2006, appoints CHRISTIAN W. E. HAUB, ALLAN RICHARDS and
CHRISTOPHER MC GARRY, and each or any of them as Proxies with full power of
substitution, to represent and vote all the shares of Common Stock which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders to be
held at 9:00 A.M. (E.D.T.) July 13, 2006, at The Woodcliff Lake Hilton, 200 Tice
Boulevard, Woodcliff Lake, New Jersey, or at any adjournment thereof, with all
powers which the undersigned would possess if personally present.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THE PROXY WILL BE VOTED
"FOR" ITEMS (1), (2) AND (3), ALL OF SAID ITEMS BEING MORE FULLY DESCRIBED IN
THE NOTICE OF MEETING AND THE ACCOMPANYING PROXY STATEMENT. THE UNDERSIGNED
RATIFIES AND CONFIRMS ALL THAT SAID PROXIES OR THEIR SUBSTITUTES MAY LAWFULLY DO
BY VIRTUE HEREOF.
(TO BE SIGNED ON REVERSE SIDE)
ANNUAL MEETING OF STOCKHOLDERS OF
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
JULY 13, 2006
-------------------------------
PROXY VOTING INSTRUCTIONS
-------------------------------
MAIL - Date, sign and mail your proxy
card in the envelope provided as soon as
possible.
-------------------------------
- OR - COMPANY NUMBER |
--------------------|----------
TELEPHONE - Call toll-free 1-800-PROXIES ACCOUNT NUMBER |
(1-800-776-9437) from any touch-tone --------------------|----------
telephone and follow the instructions. |
Have your proxy card available when you -------------------------------
call.
- OR -
INTERNET - Access "WWW.VOTEPROXY.COM"
and follow the on-screen instructions.
Have your proxy card available when you
access the web page.
-------------------------------------------------------------------------------
You may enter your voting instructions at 1-800-PROXIES or www.voteproxy.com
up until 11:59 PM Eastern Daylight Time the day before the cut-off or
meeting date.
-------------------------------------------------------------------------------
Please detach along perforated line and mail in the envelope provided IF you are
not voting via telephone or the Internet.
-------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS
AND PROPOSALS 2 AND 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
-------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
(1) ELECTION OF DIRECTORS (2) Proposal to amend the 2004 Non-Employee Director |_| |_| |_|
Compensation Plan.
NOMINEES: (THE DIRECTORS RECOMMEND A VOTE "FOR")
|_| FOR ALL NOMINEES O J. D. Barline
O J. J. Boeckel (3) Proposal to amend the 1998 Long Term Incentive and |_| |_| |_|
WITHHOLD AUTHORITY O B. Gaunt Share Award Plan.
|_| FOR ALL NOMINEES O C. W. E. Haub (THE DIRECTORS RECOMMEND A VOTE "FOR")
O D. Kourkoumelis
FOR ALL EXCEPT O E. Lewis The Confidential Voting Instruction form represents voting rights in the
|_| (See instructions below) O M. B. Tart-Bezer following number of equivalent shares of A&P Common Stock as of May 19,
2006.
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: O
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
To change the address on your account, please check the box at right
and indicate your new address in the address space above. Please note
that changes to the registered name(s) on the account may not be |__|
submitted via this method.
--------------------------------------------------------------------------------
Signature of Stockholder____________________ Date:________ Signature of Stockholder____________________ Date:________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
CONFIDENTIAL VOTING INSTRUCTION FORM
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
SAVINGS PLAN
PRUDENTIAL TRUST COMPANY - TRUSTEE
I hereby direct that the voting rights pertaining to shares of The Great
Atlantic & Pacific Tea Company, Inc. held by the Trustee and allocated to my
account shall be exercised at the Annual Meeting of Stockholders of the Company,
to be held on July 13, 2006, and at any adjournment of such meeting, as
specified herein, and if no vote is specified, that such rights be exercised
"FOR" items (1), (2), and (3).
By my signature on the reverse, I hereby acknowledge receipt of the Notice
of the Annual Meeting, the Proxy Statement of the Company dated May 25, 2006,
and a copy of the Annual Report.
PLEASE SIGN, DATE AND RETURN THIS FORM BEFORE JULY 5, 2006. AS TO MATTERS
COMING BEFORE THE MEETING FOR WHICH NO SIGNED DIRECTION IS RECEIVED BY THE
TRUSTEE PRIOR TO JULY 7, 2006, THE TRUSTEE MAY EXERCISE VOTING RIGHTS ON YOUR
BEHALF IN SUCH MANNER AS THE TRUSTEE MAY, IN ITS DISCRETION, DETERMINE.
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE, AND RETURN IN THE
ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)