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<SEC-DOCUMENT>0001125282-02-002164.txt : 20020705
<SEC-HEADER>0001125282-02-002164.hdr.sgml : 20020704
<ACCEPTANCE-DATETIME>20020705081542
ACCESSION NUMBER: 0001125282-02-002164
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 17
CONFORMED PERIOD OF REPORT: 20020223
FILED AS OF DATE: 20020705
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: GREAT ATLANTIC & PACIFIC TEA CO INC
CENTRAL INDEX KEY: 0000043300
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411]
IRS NUMBER: 131890974
STATE OF INCORPORATION: MD
FISCAL YEAR END: 0228
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-04141
FILM NUMBER: 02697034
BUSINESS ADDRESS:
STREET 1: 2 PARAGON DR
CITY: MONTVALE
STATE: NJ
ZIP: 07645
BUSINESS PHONE: 2015739700
MAIL ADDRESS:
STREET 1: 2 PARAGON DRIVE
CITY: MONTVALE
STATE: NJ
ZIP: 07645
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>b319220_10k.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 23, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-4141
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
----------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 13-1890974
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Paragon Drive
Montvale, New Jersey 07645
(Address of principal executive offices)
Registrant's telephone number, including area code: 201-573-9700
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock - $1 par value New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at May 23, 2002 was approximately $415,356,000. The number of shares
of common stock outstanding at May 23, 2002 was 38,506,565.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part I, Items 1 and 3, and Part II, Items 5, 6, 7,
7A, 8 and 14 are incorporated by reference from the Registrant's 2001 Annual
Report to Stockholders.
<PAGE>
PART I
ITEM 1 - Business
General
- -------
The Great Atlantic & Pacific Tea Company, Inc. ("A&P" or the "Company") is
engaged in the retail food business. The Company operated 702 stores averaging
approximately 38,000 square feet per store as of February 23, 2002. In addition,
the Company served as wholesaler to 67 franchise stores in Canada averaging
approximately 31,500 square feet per store as of February 23, 2002. On the basis
of reported sales for fiscal 2001, the Company believes that it is one of the 10
largest retail food chains in the United States.
Operating under the trade names A&P(R), Super Fresh(R), Sav-A-Center(R), Farmer
Jack(R), Kohl's, Waldbaum's(TM), Super Foodmart, Ultra Food & Drug, Dominion(R),
Food Basics(TM), The Barn Markets and The Food Emporium(TM), the Company sells
groceries, meats, fresh produce and other items commonly offered in
supermarkets. In addition, many stores have bakery, delicatessen, pharmacy,
floral, fresh fish and cheese departments, and on-site banking. National,
regional and local brands are sold as well as private label merchandise. In
support of its retail operations, the Company also operates one coffee roasting
plant in the United States. Through its Compass Foods Division, the Company
manufactures and distributes a line of whole bean coffees under the Eight
O'Clock(R), Bokar(R) and Royale(TM) labels, for sale through its own stores as
well as other retail channels. The Company sells other private label products in
its stores under other brand names of the Company which include without
limitation, America's Choice(R), Master Choice(R), Health Pride(R), Savings Plus
and The Farm.
Building upon a broad base of A&P supermarkets, the Company has historically
expanded and diversified within the retail food business through the acquisition
of other supermarket chains and the development of several alternative store
types. The Company now operates its stores with merchandise, pricing and
identities tailored to appeal to different segments of the market, including
buyers seeking gourmet and ethnic foods, a wide variety of premium quality
private label goods and health and beauty aids along with the array of
traditional grocery products.
Modernization of Facilities
- ---------------------------
The Company is engaged in a continuing program of modernizing its operations
including retail stores, warehousing and distribution facilities, supply and
logistics and processes. In support of its modernizing program, on March 13,
2000, the Company announced its business process initiative, a plan to develop a
state of the art supply chain and business management infrastructure over four
years.
During fiscal 2001, the Company expended approximately $246 million for capital
projects which included 21 new supermarkets and 26 major remodels or
enlargements. The Company has planned capital expenditures of approximately $300
million in fiscal 2002. These expenditures relate primarily to opening 25 new
supermarkets, enlarging or remodeling 70 - 75 supermarkets and capital purchases
associated with the Company's business process initiative. In addition, the
Company plans to continue with similar levels of capital expenditures in fiscal
2003 and several years thereafter.
2
<PAGE>
Restatement of Previously Issued Financial Statements
- -----------------------------------------------------
Prior to filing its 2001 Annual Report on Form 10-K, the Company discovered
certain irregularities relating to the timing for the recognition of vendor
allowances and the accounting for inventory. As the Company announced on May 24,
2002, it promptly commenced a review of these issues. This review caused the
Company to delay filing its Annual Report on Form 10-K. As a result of this
review, the Company has restated its financial statements for fiscal 1999,
fiscal 2000 and the first, second and third quarters of fiscal 2001, to adjust
for vendor allowances recorded prior to the accounting period in which they were
earned and improper inventory adjustments, each in violation of Company
policies. In addition, the Company has concluded that the financial statements
should also be restated to reflect primarily 1) the appropriate timing for the
recognition of vendor allowances, 2) an actuarially-based methodology of
estimating self-insurance reserves, and 3) the timing of recognition of sublet
income associated with certain closed stores. See Note 2 "Restatement of
Previously Issued Financial Statements" of the Company's Financial Statements in
the 2001 Annual Report to Stockholders filed herein for further details
regarding this restatement.
Asset Disposition Initiative
- ----------------------------
In May 1998, the Company initiated an assessment of its business operations in
order to identify the factors that were impacting the performance of the
Company. As a result of this assessment, in fiscal 1998 and 1999, the Company
announced a plan to close two warehouse facilities and a coffee plant in the
U.S., a bakery plant in Canada and 166 stores including the exit of the
Richmond, Virginia and Atlanta, Georgia markets.
3
<PAGE>
As of February 23, 2002, the Company had closed all stores and facilities
related to this phase of the initiative. The Company paid $29 million of the
total net severance charges from the time of the original charges through
February 23, 2002, which resulted from the termination of approximately 3,400
employees. The remaining severance liability primarily relates to future
obligations for early withdrawals from multi-employer union pension plans.
During the third quarter of fiscal 2001, the Company's Board of Directors
approved a plan resulting from Management's review of the performance and
potential of each of the Company's businesses and individual stores. At the
conclusion of this review, the Company determined that certain underperforming
operations, including 39 stores (30 in the United States and 9 in Canada) and 3
warehouses should be closed and/or sold, and certain administrative streamlining
should take place. As a result of these decisions, the Company announced on
November 14, 2001 that it would incur costs of approximately $200 - $215 million
pretax ($115 - $125 million after tax) through the third quarter of fiscal 2002.
Of this amount, $193.5 million pretax ($112.3 million after tax) was included in
the Statements of Consolidated Operations for fiscal 2001. The components of
this net pretax charge were as follows:
o $180.3 million of costs to close the stores and warehouses and perform
certain administrative streamlining, of which $63.5 million related to the
present value of future occupancy obligations, $85.0 million related to the
write-down of fixed assets, $24.3 million related to severance for store
and administrative personnel and $7.5 million related to other
miscellaneous items;
o $20.8 million of costs to discontinue development of 4 potential stores, of
which $16.9 million related to the present value of future occupancy
obligations, $3.5 million related to fixed asset write-offs and $0.4
million related to occupancy costs incurred in the current period; and
o $7.6 million in gains on the sale of other properties and equipment,
primarily land and buildings.
As of February 23, 2002, the Company had closed 31 of the aforementioned stores.
As of February 23, 2002, the Company paid approximately $2.9 million of the
total severance charge recorded to date which resulted from the termination of
approximately 850 employees. The remaining individual severance payments will be
paid by the end of fiscal 2003.
Sources of Supply
- -----------------
The Company obtains the merchandise sold in its stores from a variety of
suppliers located primarily in the United States and Canada. The Company has
long-standing and satisfactory relationships with its suppliers.
The Company maintains a processing facility that produces coffee products. The
main ingredients for coffee products are purchased principally from Brazilian
and Central American sources. Other ingredients are obtained from domestic
suppliers.
4
<PAGE>
Employees
- ---------
As of February 23, 2002, the Company had approximately 79,000 employees, of
which 67% were employed on a part-time basis. Approximately 88% of the Company's
employees are covered by union contracts.
Competition
- -----------
The supermarket business is highly competitive throughout the marketing areas
served by the Company and is generally characterized by low profit margins on
sales with earnings primarily dependent upon rapid inventory turnover, effective
cost controls and the ability to achieve high sales volume. The Company competes
for sales and store locations with a number of national and regional chains, as
well as with many independent and cooperative stores and markets.
Segment Information
- -------------------
The segment information required is contained under the caption "Note 13 -
Operating Segments" in the 2001 Annual Report to Stockholders and is herein
incorporated by reference.
Foreign Operations
- ------------------
The information required is contained under the captions "Management's
Discussion and Analysis", "Note 5 - Wholesale Franchise Business", "Note 6 -
Indebtedness", "Note 9 - Income Taxes", "Note 10 - Retirement Plans and
Benefits" and "Note 13 - Operating Segments" in the 2001 Annual Report to
Stockholders and is herein incorporated by reference.
ITEM 2 - Properties
At February 23, 2002, the Company owned 121 properties consisting of the
following:
Stores, Not Including Stores in Owned Shopping Centers
------------------------------------------------------
Land and building owned 27
Building owned and land leased 19
----
Total stores 46
Shopping Centers
----------------
Land and building owned 13
Building owned and land leased 1
----
Total shopping centers 14
Warehouses
----------
Land and building owned 7
Building owned and land leased -
----
Total warehouses 7
5
<PAGE>
Administrative and Other Properties
-----------------------------------
Land and building owned 22
Building owned and land leased 2
Property under development building owned and land leased 2
Property under development land and building owned 2
Property under development land only 1
Undeveloped land 25
----
Total other properties 54
----
Total Properties 121
====
At February 23, 2002, the Company operated 702 retail stores and serviced 67
franchised stores. These stores are geographically located as follows:
Company Stores:
---------------
New England States:
-------------------
Connecticut 37
Massachusetts 17
New Hampshire 1
Vermont 2
----
Total 57
Middle Atlantic States:
-----------------------
District of Columbia 1
Delaware 9
Maryland 32
New Jersey 100
New York 142
Pennsylvania 23
----
Total 307
Midwestern States:
------------------
Michigan 104
Ohio 6
Wisconsin 33
----
Total 143
Southern States:
----------------
Louisiana 21
Mississippi 4
North Carolina 1
Virginia 1
----
Total 27
----
Total United States 534
Ontario, Canada 168
----
Total Stores 702
====
Franchised Stores:
Ontario, Canada 67
----
Total Franchised Stores 67
====
6
<PAGE>
The total area of all Company operated retail stores is 26.7 million square feet
averaging approximately 38,000 square feet per store. Excluding liquor and The
Food Emporium(TM) stores, which are generally smaller in size, the average store
size is approximately 40,400 square feet. The total area of all franchised
stores is 2.1 million square feet averaging approximately 31,500 square feet per
store. The 21 new stores added in fiscal 2001 consisted of 20 supermarkets and 1
liquor store. Excluding the liquor store, the supermarkets opened in fiscal 2001
had a range in size from 31,500 to 72,100 square feet, with an average size of
approximately 52,200 square feet. The stores built by the Company over the past
several years and those planned for fiscal 2002 and thereafter, generally range
in size from 50,000 to 60,000 square feet. The selling area of new stores is
approximately 74% of the total square footage.
As of the end of fiscal 2001, the Company operated one coffee roasting plant in
the United States. In addition, the Company operated 13 warehouses to service
its store network. These warehouses are geographically located as follows:
Indiana 1
Louisiana 1
Maryland 1
Michigan 2
New Jersey 2
New York 2
Pennsylvania 1
Wisconsin 1
----
Total United States 11
Ontario, Canada 2
----
Total Warehouses 13
====
During fiscal 2001, one of the Company's warehouses was closed as part of the
asset disposition initiative. Subsequent to the end of fiscal 2001, one
warehouse was closed and another was announced for closure as a result of the
asset disposition initiative.
The net book value of real estate pledged as collateral for all mortgage loans
amounted to $1.0 million as of February 23, 2002. The net book value of real
estate pledged as collateral for the Company's $425 million Secured Revolving
Credit Agreement expiring December 31, 2003 amounted to $85.7 million as of
February 23, 2002.
ITEM 3 - Legal Proceedings
The information required is contained under the caption "Note 12 - Commitments
and Contingencies" in the 2001 Annual Report to Stockholders and is herein
incorporated by reference.
ITEM 4 - Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of fiscal 2001.
7
<PAGE>
PART II
ITEM 5 - Market for the Registrant's Common Stock and Related Security Holder
Matters
The information required is contained under the captions "Summary of Quarterly
Results", "Five Year Summary of Selected Financial Data", and "Stockholder
Information" in the 2001 Annual Report to Stockholders and is herein
incorporated by reference.
On December 14, 2001, the Company issued $275 million 9 1/8% Senior Notes due
December 15, 2011. These notes were issued at par, pay interest semi-annually on
June 15 and December 15 and are callable beginning December 15, 2006. The
Company used the proceeds from the issuance of these notes to repay
approximately $178 million of the total $200 million 7.70% Senior Notes due
January 15, 2004 and for general corporate purposes including repayment of
borrowings under the Company's secured revolving credit agreement. The joint
lead underwriters of these notes were Lehman Brothers and Goldman, Sachs & Co.
ITEM 6 - Selected Financial Data
The information required is contained under the caption "Five Year Summary of
Selected Financial Data" in the 2001 Annual Report to Stockholders and is herein
incorporated by reference.
ITEM 7 - Management's Discussion and Analysis
The information required is contained under the caption "Management's Discussion
and Analysis" in the 2001 Annual Report to Stockholders and is herein
incorporated by reference.
ITEM 7A - Quantitative and Qualitative Disclosures About Market Risk
The information required is contained in the section "Market Risk" under the
caption "Management's Discussion and Analysis" in the 2001 Annual Report to
Stockholders and is herein incorporated by reference.
ITEM 8 - Financial Statements and Supplementary Data
(a) Financial Statements: The financial statements required to be filed herein
are described in Part IV, Item 14 of this report. Except for the sections
included herein by reference, the Company's 2001 Annual Report to
Stockholders is not deemed to be filed as part of this report.
8
<PAGE>
(b) Supplementary Data: The information required is contained under the
caption "Summary of Quarterly Results" in the 2001 Annual Report to
Stockholders and is herein incorporated by reference.
ITEM 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10 - Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Current Position
- --------------------------- ------ -----------------------------------------------------------
<S> <C> <C>
Christian W.E. Haub 37 Chairman of the Board and Chief Executive Officer
Elizabeth R. Culligan 52 President, Chief Operating Officer and Director
Victor T. Alessandro 43 Senior Vice President, Chief Category Management
Officer
William P. Costantini 54 Senior Vice President, General Counsel & Secretary
Brenda M. Galgano 33 Vice President and Corporate Controller
Mitchell P. Goldstein 41 Senior Vice President, Chief Financial Officer
Laurane S. Magliari 51 Senior Vice President, People Resources and
Services
John E. Metzger 47 Senior Vice President, Chief Information Officer
William Moss 54 Vice President and Treasurer
Brian Pall 42 Senior Vice President, Chief Development Officer
Brian Piwek 55 Chairman, President and Chief Executive Officer,
The Great Atlantic & Pacific Company of Canada,
Limited
David A. Smithies 57 President, Atlantic Region
Don Sommerville 43 Senior Vice President, Chief Marketing Officer
John D. Barline, Esq. 55 Director
Rosemarie Baumeister 68 Director
Bobbie Gaunt 55 Director
Helga Haub 67 Director
Dan P. Kourkoumelis 51 Director
Edward Lewis 62 Director
Richard L. Nolan 62 Director
Maureen B. Tart-Bezer 46 Director
</TABLE>
The directors are elected annually. Each of the current directors has been
nominated for election to the Board of Directors at the Company's Annual Meeting
of Stockholders to be held on July 30, 2002.
9
<PAGE>
The executive officers of the Company are chosen annually and serve under the
direction of the Chief Executive Officer with the consent of the Board of
Directors.
Mr. Haub was elected a director on December 3, 1991, Chairman of the Board on
March 20, 2001, effective May 1, 2001 and Chief Executive Officer on May 1,
1998. Prior to that, he was Chief Operating Officer from December 7, 1993 until
he became Co-Chief Executive Officer on April 2, 1997 and was President from
December 7, 1993 until the election of Ms. Culligan on February 24, 2002. Mr.
Haub is Chairman of the Executive Committee and a member of the Finance
Committee. Mr. Haub, son of Erivan and Helga Haub, is a partner, and as of July
1, 2002 Co-Chief Executive Officer, of Tengelmann Warenhandelsgesellschaft, a
partnership organized under the laws of the Federal Republic of Germany
("Tengelmann"). Mr. Haub is on the Board of Directors of the Food Marketing
Institute.
Ms. Culligan was elected a director on March 19, 2002 and President & Chief
Operating Officer of the Company on February 24, 2002. Prior to that, she was
Executive Vice President, Chief Operating Officer since joining the Company in
January, 2001. Ms. Culligan was President of Nabisco International from March
1998 to December 2000. She joined Nabisco in September 1996 as Senior Vice
President of Marketing in the Nabisco Biscuit Division. She started her career
at Bristol-Myers Squibb and served in various managerial positions in the
pharmaceutical industry over the course of her career. Ms. Culligan serves on
the Board of Directors of F. Schumacher and Co.
Mr. Alessandro was elected Senior Vice President and Chief Category Management
Officer on July 13, 2001. Prior to joining the Company, Mr. Alessandro served as
Vice President, Category Management and Retail Services for PLMARKET INC. from
June 2000 to June 2001. From July 1996 to June 2000, Mr. Alessandro operated a
category management and merchandising consultancy. Prior to that Mr. Alessandro
was employed by H.E. Butt Grocery Co. from March 1991 to July 1996.
Mr. Costantini was elected Senior Vice President, General Counsel & Secretary
effective April 24, 2000. Prior to joining the Company, Mr. Costantini served as
Executive Vice President & General Counsel and Senior Vice President & General
Counsel of Olsten Corporation, during the period from June, 1992 through March,
2000.
Ms. Galgano was appointed Vice President, Corporate Controller on February 24,
2002. Ms. Galgano served as Assistant Corporate Controller of the Company from
July 2000 to February 2002 and Director of Accounting from October 1999 to July
2000. Prior to joining the Company, Ms. Galgano was with PriceWaterhouseCoopers
from July 1997 to July 1999 as Senior Manager and Manager of the Audit and
Business Advisory Services Group respectively.
Mr. Goldstein was elected Senior Vice President & Chief Financial Officer on
February 24, 2002. From January 2000 to February 24, 2002, Mr. Goldstein was
Senior Vice President, Finance & Treasurer of the Company. Prior to joining the
Company, Mr. Goldstein was Chief Financial Officer from October 1998 to January
2000 and, Vice President of Strategic Planning and Corporate Development from
September 1997 to October 1998 at Vlasic Foods International. Before that, he
was Director of Strategic Planning at the Campbell Soup Company. Vlasic Foods
International filed a petition under the Federal bankruptcy laws in January
2001.
10
<PAGE>
Ms. Magliari was elected Senior Vice President, People Resources and Services on
February 16, 1999. Prior to joining the Company, she was Vice President, Human
Resources, Publishers Clearing House from December 1997 to February 1999 and,
before that, Vice President, Global Marketing, Chase Manhattan Bank from
February 1990 to March 1997.
Mr. Metzger was appointed Senior Vice President, Chief Information Officer on
February 11, 2002. Prior to that, he was Senior Vice President and Business
Process Initiative Business Leader from May 2001 to February 2002, and Vice
President, Supply & Logistics from October 1999 to May 2001. Prior to joining
the Company, Mr. Metzger was Senior Vice President of CS Integrated LLC from
January 1998 to October 1999 and before that, Vice President, Distribution for
Darden Restaurants, Inc. from October 1993 to November 1998.
Mr. Moss was appointed Vice President, Treasurer on February 24, 2002. Prior to
that Mr. Moss was Vice President, Treasury Services and Risk Management from
1992 to February 2002.
Mr. Pall was appointed Chief Development Officer on May 1, 2000. Prior to that,
he was Senior Vice President, Development from 1996 to 2000 and, before that,
Corporate Vice President, Real Estate Development from 1993 to 1996.
Mr. Piwek was appointed Chairman, President and Chief Executive Officer of The
Great Atlantic & Pacific Company of Canada, Limited on April 1, 2002. Prior to
that, he was Vice Chairman, President and Chief Executive Officer of The Great
Atlantic & Pacific Company of Canada, Limited from February 2000. Before that,
Mr. Piwek was Vice Chairman and Co-Chief Executive Officer of The Great Atlantic
& Pacific Company of Canada, Limited from October 1997. Prior to joining the
Company, he was President of Overwaitea Food Group, a retailer and franchisor in
British Columbia and Alberta, Canada.
Mr. Smithies was elected President of the Atlantic Region on February 24, 2002.
Prior to that, he was President of the Atlantic Region's Northeast Operations
Group from February 2000 to February 2002 and President of Waldbaum Inc. from
August 1995 to January 2000.
Mr. Sommerville was appointed Senior Vice President, Chief Marketing Officer on
October 4, 2000. Prior to that, he was President of the Company's Compass Foods
division since March 1999. Mr. Sommerville joined the Company as Vice President
and General Manager of Eight O'Clock(R)Coffee in June 1998. Prior to joining the
Company, Mr. Sommerville was Director of Marketing at the Thomas J. Lipton
Company Inc., a subsidiary of Unilever, from July 1980 to May 1998.
Mr. Barline has been a member of the Board of Directors since July 9, 1996. He
is Chairman of the Compensation Committee and a member of the Governance and
Executive Committees. Mr. Barline, an attorney in private practice since 1973,
is currently associated with 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 Helga and Erivan Haub and
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., each a small closely held corporation owned primarily by
the Haub family. He is also a director of the Franciscan Foundation, the Le May
Automobile Museum, Precision Machine Works, Inc. and Sun Mountain Lodge, Inc.
11
<PAGE>
Mrs. Baumeister has been a member of the Board of Directors since 1979. She is a
member of the Compensation Committee. Mrs. Baumeister is currently Senior Vice
President of Tengelmann. Prior to assuming her present position, she served in
various executive capacities with Tengelmann. Mrs. Baumeister is a member of the
Supervisory Board of Kaiser's Tengelmann AG, an affiliate of Tengelmann, a
member of the Supervisory Board of Tengelmann Espana and a member of the
Advisory Board of Deutsche Bank.
Mrs. Gaunt was elected to the Board of Directors on May 15, 2001. She is a
member of the Compensation and Audit Committees. Mrs. Gaunt was elected Officer,
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 over 28 years served in various
managerial positions in the areas of sales, marketing, research and building
customer relationships. Mrs. Gaunt also serves on the Board of Advisors at the
Katz Business School, University of Pittsburgh and serves as a mentor to fellows
of the International Women's Forum in Washington, D.C.
Mrs. Haub has been a member of the Board of Directors since 1979. She is a
member of the Executive and Finance Committees. Mrs. Haub is a member of the
Supervisory Board of Kaiser's Tengelmann AG, an affiliate of Tengelmann, a
consultant to Tengelmann and has an interest in Tenga Capital Corporation. She
is also a director of The George C. Marshall Home Preservation Fund, Inc., a
member of the Board of Governors of World USO, president of the Board of
Trustees of the Elizabeth Haub Foundation for Environmental Policy and Law and a
member of the Supervisory Board of GfK Gesellschaft fur Konsumforschung,
Germany. Mrs. Haub is the wife of Mr. Erivan Haub and mother of Mr. Christian
Haub.
Mr. Kourkoumelis has been a member of the Board of Directors since March 21,
2000. Mr. Kourkoumelis is Chairman of the Governance Committee and a member of
the Audit 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, a director, and past president, of the Western
Association of Food Chains and a director of Briazz, Inc.
Mr. Lewis has been a member of the Board of Directors since May 16, 2000. Mr.
Lewis is Chairman of the Finance Committee and a member of the Executive and
Governance Committees. Mr. Lewis is Chairman and Chief Executive Officer of
Essence Communications Partners. He is cofounder and publisher of ESSENCE
magazine. He is also a member 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 and a committee member of the
Minority Business Round Table of the Joint Center for Political and Economic
Studies. Mr. Lewis sits on the boards of the New York City Partnership, the
Central Park Conservancy, Girls, Inc., NYC2012, the committee leading New York's
bid effort to host the 2012 Olympic Games, 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.
12
<PAGE>
Mr. Nolan has been a member of the Board of Directors since October 5, 1999. He
is Chairman of the Audit Committee and a member of the Executive and Governance
Committees. Mr. Nolan, the William Barclay Harding Professor of Management of
Technology at the Harvard Business School since 1991, is the originator of the
"Stages Theory," one of the most widely used management frameworks for
information technology baselining and planning. He is also a member of the Board
of Directors for Novell and ArcStream.
Ms. Tart-Bezer has been a member of the Board of Directors since May 15, 2001.
She is a member of the Audit and Finance Committees. Ms. Tart-Bezer is a Senior
Financial Advisor to Wireless MVNO (mobile virtual network operator) Ventures in
the United States. Prior to this 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 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.
Compliance with Section 16(a) of the Exchange Act
In November, 2001, Don Sommerville, Senior Vice President, Chief Marketing
Officer, filed a late Form 4 for shares of the Company's Common Stock that Mr.
Sommerville purchased in October, 2001. In April, 2002, John Metzger filed a
late Form 4 for stock options that the Company granted to Mr. Metzger in
conjunction with his promotion to Chief Information Officer in February 2002.
The Company believes that during fiscal 2001, all other reports required by
Section 16 of the Securities Exchange Act of 1934 were timely filed.
ITEM 11 - Executive Compensation
Summary Compensation Table
The following table sets forth 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 other four (4) most highly compensated officers
of the Company other than the CEO during fiscal 2001 (collectively with the CEO,
the "Named Executive Officers"), each of whom was serving as an executive
officer at February 23, 2002.
13
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Securities
Underlying All Other
Options/ Compensation
Principal Position During Fiscal Year Year Salary ($) Bonus ($) SAR's ($)(1)
--------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Christian Haub 2001 696,851 490,000 150,000 33,746
Chairman & Chief Executive Officer 2000 660,000 112,475 82,500 32,744
1999 619,615 319,838 - 12,444
Elizabeth Culligan (2) 2001 500,000 330,000 - 11,900
President & Chief Operating Officer 2000 67,307 - 200,000 -
1999 - - - -
Fred Corrado (3) 2001 585,000 239,680 110,000 69,397
Vice Chairman of the Board 2000 563,462 58,850 57,750 60,105
Chief Financial Officer 1999 546,677 167,348 - 47,805
Laurane S. Magliari 2001 335,000 150,000 75,000 20,353
Senior Vice President 2000 313,462 33,550 27,500 19,093
People Resources and Services 1999 300,000 122,000 - 1,293
Craig Sturken (3) 2001 400,000 108,580 75,000 45,095
President, Chief Executive Officer, 2000 350,096 28,258 50,000 35,975
Atlantic Region 1999 332,308 98,820 - 26,075
</TABLE>
- ------------
(1) Consists of, respectively, Company contributions to the Retirement/Savings
Plan and related supplemental plan, and the cost for insurance, for 2001:
Mr. Haub ($32,634 and $1,112); Mr. Corrado ($28,500 and $35,897); Ms.
Culligan ($11,900 and $0); Ms. Magliari ($18,500 and $1,853); and Mr.
Sturken ($23,995 and $21,100). Additionally, a tax preparation and
planning fee of $5,000 is included for Mr. Corrado.
(2) Ms. Culligan was hired on January 8, 2001.
(3) Mr. Corrado retired as an officer of the Company, from the Board of
Directors and as an employee on February 23, 2002, March 19, 2002 and May
20, 2002, respectively. Mr. Sturken retired as an officer of the Company
and as an employee on February 25, 2002 and April 9, 2002, respectively.
Employment and Termination Agreements
The Company is a party to employment agreements with each of Ms. Culligan and
Ms. Magliari (the "Employment Agreements") which provide for minimum base annual
salaries of $575,000 and $375,000, respectively. The Employment Agreements for
Ms. Culligan and Ms. Magliari have initial termination dates of January 8, 2004
and October 31, 2003, respectively; provided, however, that they provide for a
rolling eighteen (18) month term commencing July 8, 2002 for Ms. Culligan and
May 1, 2002 for Ms. Magliari. 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.
14
<PAGE>
Following termination other than for cause, permanent total disability, death or
a resignation not for Good Reason and in the absence of a Change of Control (as
such terms are defined in the Employment Agreements), each executive is entitled
to receive (i) eighteen (18) equal monthly payments of one-twelfth of annual
base salary plus average bonus and (ii) continued insurance coverage for such
eighteen (18) month period. In addition, the Employment Agreements provide for a
pro rata bonus for the year of termination.
Under the Change of Control provisions of the Employment Agreements, the
separation pay is increased to three (3) times the executive's final base salary
plus the bonus amount and is payable in lump sum. Additionally, the insurance
continuation is extended to three (3) years. These provisions apply to
terminations without cause or resignations for Good Reason 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 with
respect to any excise tax on golden parachute payments.
Mr. Corrado resigned as an officer of the Company as of February 23, 2002, and
as a member of the Company's Board of Directors as of March 19, 2002. In
connection with such resignations, the Company and Mr. Corrado entered into a
letter agreement on February 22, 2002 pursuant to which Mr. Corrado continued as
a non-executive employee of the Company until May 20, 2002 in order to provide
certain transition services and retired on that date. Pursuant to the letter
agreement, Mr. Corrado became entitled upon his retirement to (i) the eighteen
(18) months of severance benefits and other benefits provided under his
employment agreement, which are the same as those indicated in the Employment
Agreements above, except that Mr. Corrado's employment agreement also provided
for life insurance coverage equal to three (3) times his base salary upon
attainment of age 62, a credit for twenty years of service under Supplemental
Executive Retirement Plan ("SERP"), infra, and a SERP benefit unreduced for
early retirement prior to age 65 and (ii) employer provided executive medical
coverage for three (3) years following his retirement. In addition, the Company
agreed to vest the stock options granted to Mr. Corrado on March 20, 2001,
covering 110,000 shares of the Company's Common Stock, and to allow these
options to be exercised until the third anniversary of Mr. Corrado's retirement.
Mr. Sturken resigned from his positions with the Company on February 25, 2002
and as an employee on April 9, 2002. In connection with Mr. Sturken's
resignation, Mr. Sturken became entitled to the eighteen (18) months of
severance benefits and other benefits provided under his employment agreement,
which are the same as those indicated in the Employment Agreements above.
15
<PAGE>
Option Tables
The following tables provide information with respect to stock options granted
to the Named Executive Officers during Fiscal 2001 and the fiscal year-end value
of options held by such officers.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
Underlying Granted to Exercise Grant Date
Options Employees or Base Present
Granted in Fiscal Price Expiration Value
Name (#)(1) Year (2) ($/Sh) Date ($)(3)
- ----------------------------------------------- ----------- ------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Christian Haub................................. 150,000 10.01 9.06 3/20/11 826,500
Elizabeth Culligan............................. - - - - -
Fred Corrado................................... 110,000 7.34 9.06 3/20/11 606,100
Laurane S. Magliari............................ 75,000 5.00 9.06 3/20/11 413,250
Craig C. Sturken............................... 75,000 5.00 9.06 3/20/11 413,250
</TABLE>
- ------------
(1) The options vest 100% on the third anniversary of the grant date. All grants
have a ten-year term.
(2) Based on total grants during Fiscal 2001 of 1,498,513.
(3) These values were calculated using the Black-Scholes option pricing model.
The Black-Scholes model is a complicated mathematical formula which is widely
used and accepted for valuing traded stock options. The model is premised on
immediate exercisability and transferability of the options. This is not
generally true for the Company's options granted to executive officers and other
employees. Therefore, the values shown are purely theoretical and do not reflect
the market value of the Company's stock at a future date. In addition to the
stock prices at time of grants and exercise prices, which are identical, and the
ten-year term of each option, the following assumptions were used to calculate
the values shown for options granted during Fiscal 2001: expected dividend yield
of 0.0, expected stock price volatility of 55%, risk-free rate of return of
4.07% and 5.54% and a weighted average of seven (7) years from date of grant to
date of exercise. If the Named Executive Officers realize the grant date values
shown in the table, such values will be less than 1% of the total stockholder
appreciation.
Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-the-Money
Shares Underlying Options/SARs Options/SARs at
Acquired at Fiscal Year End Fiscal Year End (1)
on Value ------------------------------- -------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- ------------- ------------ ------------- --------------- ------------- ---------------
(#) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Christian Haub............. None - 250,625 261,875 271,414 3,294,117
Elizabeth Culligan......... None - 13,750 186,250 271,734 3,680,766
Fred Corrado............... None - 219,437 73,313 2,240,873 401,187
Laurane S. Magliari........ None - 34,625 104,875 63,680 1,551,539
Craig C. Sturken........... 6,250 97,813 31,250 125,250 57,891 1,866,047
</TABLE>
- ------------
(1) Based on the closing price of the Company's Common Stock on February 22,
2002 of $27.20.
16
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------------------------------------------
Remuneration 15 20 25 30 35
----------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$450,000 $202,500 $270,000 $270,000 $270,000 $270,000
500,000 225,000 300,000 300,000 300,000 300,000
550,000 247,500 330,000 330,000 330,000 330,000
600,000 270,000 360,000 360,000 360,000 360,000
650,000 292,500 390,000 390,000 390,000 390,000
700,000 315,000 420,000 420,000 420,000 420,000
</TABLE>
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 the 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 covers, among the Named Executive Officers, Messrs. Corrado and Sturken and
Ms. Culligan.
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 Messrs. Corrado and
Sturken for each year up to twenty (20) years of service, and for Ms. Culligan,
4% for each year up to fifteen (15) years of service, all with a maximum benefit
of up to 60% of such average base salary. Estimated or actual credited years of
service at retirement for each participating Named Executive Officer are: Mr.
Corrado, eighteen (18) years; Mr. Sturken, eighteen (18) years; Ms. Culligan,
fifteen (15) years.
Compensation of Directors
The Company does not pay officers of the Company who are also directors any
additional compensation or benefits for serving on the Board of Directors. The
Company pays directors who are neither officers nor employees of the Company an
annual retainer of $32,000, plus an attendance fee of $1,000 for each Board of
Directors meeting attended and $1,000 for each Committee meeting attended if
substantial time or effort is involved, plus expenses of attendance. If two (2)
compensable meetings are held on the same day, the fee for the second meeting is
limited to $500. The Company pays the Chairman of each Committee, except the
Executive Committee, an additional $5,000 per year. Under the directors stock
option plan, non-employee directors are entitled to an initial stock option
grant of 2,000 shares and an additional grant of 500 shares after each annual
meeting thereafter. These shares vest in one-third increments on succeeding
annual meeting dates.
The Company revised the compensation program for its non-employee directors
effective May 1, 1996. It suspended the retirement plan pursuant to which
directors, after serving five (5) years and attaining age 70, were entitled upon
retirement from the Board of Directors to an annual benefit equal to the highest
annual retainer paid during their tenure (currently $32,000) for a period equal
to their years of service up to fifteen (15) years. The directors had a one-time
election to transfer the present value of their accrued benefits to the new
plan. Under the deferred compensation plan, the Company contributes to book
accounts of all directors with less than fifteen (15) years of service an amount
equal to 75% of the current retainer. Up to all and at least 50% of these
deferred payments will be credited to a Company Common Stock equivalent account.
The balance, at the director's election in increments of 25% will be credited to
a 10-year U. S. Treasury bond equivalent account. The directors are fully vested
in their accounts. Accruals will be made to these accounts through the fifteenth
anniversary of service on the Board of Directors. Upon termination from service
as a director, the value of the Company Common Stock equivalent account will be
determined using the final average market value of the Company's shares for the
prior 180 calendar days, inclusive of appreciation for the effect of dividends.
The value of the bond equivalent account will be the sum of the credits and
interest to the date of termination. Benefits will then be paid to the retired
director equally over the subsequent 180 months or the length of service,
whichever is shorter. However, in the event of death, benefits will continue to
be paid to the director's beneficiary for a maximum of ten (10) years, which
includes any period of payment before death.
17
<PAGE>
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee of the Board of Directors during fiscal
2001 has ever been an officer or employee of the Company or any of its
subsidiaries.
ITEM 12 - 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 June15, 2002, no person beneficially owned, to
the knowledge of the Company, more than 5% of the outstanding shares of the
Company's Common Stock.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
--------------------------------------------------------------------
Sole Shared
Total Voting/ Voting/
Name and Address of Beneficial Investment Investment % of
Beneficial Owner Ownership Power Power Class
--------------------------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Erivan Karl Haub (1) 21,800,100 90,100 21,710,000 56.8%
Wissollstrasse 5-43
45478 Mulheim/Ruhr, Germany
Tengelmann 21,710,000 - 21,710,000 56.6%
Warenhandelsgesellschaft (1)
Wissollstrasse 5-43
45478 Mulheim/Ruhr, Germany
Dimensional Fund Advisors Inc. (2) 2,032,600 2,032,600 - 5.3%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
</TABLE>
- ------------
(1) The Company obtained the information regarding Tengelmann from Tengelmann
itself. Erivan Karl Haub controls Tengelmann. The partners of Tengelmann
are Erivan Karl Haub, Erivan Karl Haub's three sons, Karl-Erivan W. Haub,
Georg R. O. Haub and Christian W. E. Haub, and Tengelmann Verwaltungs-und
Beteiligungsgesellschaft, whose only shareholders are Erivan Karl Haub and
his three sons. Tengelmann controls, among others, Kaiser's Tengelmann AG,
a supermarket retailer in Germany, as well as Wilh. Schmitz-Scholl
("Wissoll"), a candy manufacturer in Germany. Mr. Erivan Haub also has an
interest in Tenga Capital Corporation.
18
<PAGE>
(2) The information regarding Dimensional Fund Advisors Inc., a Delaware
corporation ("Dimensional"), is derived from a Schedule 13G filed with the
Securities and Exchange Commission on February 12, 2002. Dimensional is an
investment advisor registered under Section 203 of the Investment Advisors
Act of 1940. It furnishes investment advice to four registered investment
companies, and serves as investment manager to certain other commingled
group trusts and separate accounts (collectively, the "Funds"). In its
role as investment advisor or manager, Dimensional possesses voting and/or
investment power over the securities of the Company that are owned by the
Funds, but all such securities are owned by the Funds. Dimensional
disclaims beneficial ownership of such securities.
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 June 15, 2002, by each director and nominee,
the chief executive officer of the Company (the "CEO"), the four (4) most highly
compensated officers of the Company other than the CEO during the fiscal year
ended February 23, 2002 (collectively, with the CEO, the "Named Executive
Officers") and by all directors and the Named Executive Officers as a group:
<TABLE>
<CAPTION>
Shares Stock
Beneficially Option Deferred % of
Owned Shares (1) Plan (2) Total Class
--------------- ---------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
John D. Barline, Esq. (3)........ 2,700 3,600 5,978 12,278 *
Rosemarie Baumeister (3)......... 2,800 4,200 - 7,000 *
Elizabeth Culligan............... 10,000 266,000 - 276,000 *
Fred Corrado (4)................. 11,700 252,750 - 264,450 *
Christian Haub (3)............... 3,500 482,500 - 486,000 1.3
Helga Haub (3)................... 2,800 4,200 - 7,000 *
Bobbie Andrea Gaunt.............. - 2,500 1,044 3,544 *
Dan Kourkoumelis................. - 3,000 3,247 6,247 *
Edward Lewis..................... - 3,000 3,070 6,070 *
Laurane S. Magliari.............. 507 139,500 - 140,007 *
Richard L. Nolan................. - 3,000 3,647 6,647 *
Craig Sturken (4)................ 50 31,249 - 31,299 *
Maureen B. Tart-Bezer............ - 2,500 521 3,021 *
All directors and
executive officers -------- ----------- -------- ----------- -----
as a group (13 persons)....... 34,057 1,197,999 17,507 1,249,563 3.2
======== =========== ======== =========== =====
</TABLE>
* Less than 1%
(1) The amounts shown include all purchase options granted under the Company's
stock option plans regardless of whether exercisable within sixty (60)
days.
(2) These shares represent the stock equivalent units accrued under the
Company's deferred compensation plan for non-employee directors. These
share equivalents are subject to Common Stock market price fluctuations.
(3) The association of Mmes. Baumeister and Haub, and Messrs. Barline and
Haub, with Tengelmann and Mr. Erivan Haub is set forth herein under Items
10 and 11. Mr. Christian Haub disclaims investment and voting power over
the shares owned by Tengelmann and they are excluded herein. Mrs. Haub
disclaims any investment or voting power over the shares owned by Mr.
Erivan Haub and the organizations which he controls and the same are not
included herein.
(4) Mr. Corrado retired as an officer of the Company, from the Board of
Directors and as an employee on February 23, 2002, March 19, 2002 and May
20, 2002, respectively. Mr. Sturken retired as an officer of the Company
and as an employee on February 25, 2002 and April 9, 2002, respectively.
19
<PAGE>
ITEM 13 - Certain Relationships and Related Transactions
A&P Properties Limited, an indirect subsidiary of the Company, leases a store in
Windsor, Ontario, Canada that sits on property of Tenga Capital Corporation,
which is owned by Erivan and Helga Haub. The initial term of the lease, which
commenced in 1983, expires on October 31, 2003, with four 5-year renewal
options. The base annual rental is CN$467,603, with percentage rents subject to
specified caps.
The Company is a party to agreements granting Tengelmann and its affiliates the
exclusive right to use the A&P(R) and Master Choice(R) trademarks in Germany and
other European countries pursuant to which it received $100,000 which is the
maximum annual royalty fee under such agreements. The Company is also a party to
agreements under which it purchased from Wissoll, an affiliate of Tengelmann,
approximately $598,091 worth of the Black Forest line and Master Choice candy.
The Company owns a jet aircraft which Tengelmann leases under a full cost
reimbursement lease that also allows the Company to charter the aircraft for its
use at a below market charter rate. During fiscal 2001, the annual amount
Tengelmann was obligated to reimburse the Company was $2.5 million.
PART IV
ITEM 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report.
1) Financial Statements: The financial statements required by Item 8 are
included in the fiscal 2001 Annual Report to Stockholders. The
following required items are herein incorporated by reference:
Statements of Consolidated Operations
Statements of Consolidated Stockholders' Equity and
Comprehensive (Loss) Income
Consolidated Balance Sheets
Statements of Consolidated Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report
2) Financial Statement Schedules are omitted because they are not required
or do not apply, or the required information is included elsewhere in
the Consolidated Financial Statements or Notes thereto.
3) Exhibits:
The following are filed as Exhibits to this Report:
20
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Articles of Incorporation of the Great Atlantic &
Pacific Tea Company, as amended through July 1987
(incorporated herein by reference to Exhibit 3(a) to
Form 10-K filed on May 27, 1988)
3.2* By-Laws of The Great Atlantic & Pacific Tea Company,
Inc., as amended through July 2, 2002
4.1 Indenture, dated as of January 1, 1991 between the
Company and JPMorgan Chase Bank (formerly The Chase
Manhattan Bank as successor by merger to
Manufacturers Hanover Trust Company), as trustee
(the "Indenture") (incorporated herein by reference
to Exhibit 4.1 to Form 8-K
4.2 First Supplemental Indenture, dated as of December
4, 2001, to the Indenture, dated as of January 1,
1991 between the Company and JPMorgan Chase Bank,
relating to the 7.70% Senior Notes due 2004
(incorporated herein by reference to Exhibit 4.1 to
Form 8-K filed on December 4, 2001)
4.3 Second Supplemental Indenture, dated as of December
20, 2001, to the Indenture between the Company and
JPMorgan Chase Bank, relating to the 9 1/8% Senior
Notes due 2011 (incorporated herein by reference to
Exhibit 4.1 to Form 8-K filed on December 20, 2001)
+ Agreements with respect to long-term debt where the total amount of securities
authorized thereunder does not exceed 10% of the total assets of the Registrant
and its subsidiaries on a consolidated basis shall be furnished to the
Commission on request.
10.1 Not Applicable
10.2 Employment Agreement, made and entered into as of
the 8th day of January, 2001, by and between the
Company and Elizabeth R. Culligan (incorporated
herein by reference to Exhibit 10 to Form 10-Q filed
on January 16, 2001) ("Culligan Agreement")
10.3* Amendment to Culligan Agreement dated April 8, 2002
10.4 Employment Agreement dated December 6, 1994, between
the Company and Fred Corrado (incorporated herein by
reference to Exhibit 10 to Form 10-K filed on May
24, 1995)
10.5* Amendment to Fred Corrado Employment Agreement dated
February 22, 2002
10.6 Employment Agreement, made and entered into as of
the 1st day of November, 2000, by and between the
Company and William P. Costantini (incorporated
herein by reference to Exhibit 10 to Form 10-Q filed
on January 16, 2001) ("Costantini Agreement")
10.7* Amendment to Costantini Agreement dated April 30,
2002
21
<PAGE>
10.8* Employment Agreement, made and entered into as of
the 24th day of February, 2002, by and between the
Company and Mitchell P. Goldstein
10.9 Employment Agreement, made and entered into as of
the 1st day of November, 2000, by and between the
Company and Nicholas Ioli, Jr. (incorporated herein
by reference to Exhibit 10 to Form 10-Q filed on
January 16, 2001)
10.10* Amendment to Nicholas Ioli Employment Agreement
dated April 3, 2002
10.11 Employment Agreement, made and entered into as of
the 1st day of November, 2000, by and between the
Company and Laurane Magliari (incorporated herein by
reference to Exhibit 10 to Form 10-Q filed on
January 16, 2001) ("Magliari Agreement")
10.12* Amendment to Magliari Agreement dated April 30, 2002
10.13* Employment Agreement, made and entered into as of
the 14th day of May, 2001, by and between the
Company and John E. Metzger ("Metzger Agreement") as
amended February 14, 2002
10.14* Employment Agreement, made and entered into as of
the 25th day of February, 2002 by and between the
Company and David A. Smithies
10.15 Supplemental Executive Retirement Plan effective as
of September 30, 1991 (incorporated herein by
reference to Exhibit 10.B to Form 10-K filed on May
28, 1993)
10.16 Supplemental Executive Retirement Plan effective as
of September 1, 1997 (incorporated herein by
reference to Exhibit 10.B to Form 10-K filed on May
27, 1998)
10.17 Supplemental Retirement and Benefit Restoration Plan
effective as of January 1, 2001 (incorporated herein
by reference to Exhibit 10(j) to Form 10-K filed on
May 23, 2001)
10.18 1994 Stock Option Plan (incorporated herein by
reference to Exhibit 10(e) to Form 10-K filed on May
24, 1995)
10.19 1994 Stock Option Plan for Non-Employee Directors
(incorporated herein by reference to Exhibit 10(f)
to Form 10-K filed on May 24, 1995)
10.20 Directors' Deferred Payment Plan adopted May 1, 1996
(incorporated herein by reference to Exhibit 10(h)
to Form 10-K filed on May 16, 1997)
22
<PAGE>
10.21 1998 Long Term Incentive and Share Award Plan
(incorporated herein by reference to Exhibit 10(k)
to Form 10-K filed on May 19, 1999)
10.22 Credit Agreement dated as of February 23, 2001,
among the Company, The Great Atlantic & Pacific
Company of Canada, Limited and the other Borrowers
party hereto and the Lenders party hereto, The Chase
Manhattan Bank, as U.S. Administrative Agent, and
The Chase Manhattan Bank of Canada, as Canadian
Administrative Agent ("Credit Agreement")
(incorporated herein by reference to Exhibit 10 to
Form 10-K filed on May 23, 2001)
10.23* Amendment No. 1 and Waiver, dated as of November 16,
2001 to Credit Agreement.
10.24* Amendment No. 2 dated as of March 21, 2002 to Credit
Agreement
10.25* Amendment No. 3 dated as of April 23, 2002 to Credit
Agreement
10.26* Waiver dated as of June 14, 2002 to Credit Agreement
11 Not Applicable
12 Not Applicable
13* 2001 Annual Report to Stockholders
16 Not applicable
18 Not Applicable
21* Subsidiaries of Registrant
22 Not Applicable
23* Independent Auditors' Consent
24 Not Applicable
99 Not Applicable
* Filed with this 10K
(b) Reports on Form 8-K
None.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
The Great Atlantic & Pacific Tea Company, Inc.
(registrant)
Date: July 3, 2002 By: /s/ Mitchell P. Goldstein
-------------------------------------------------
Mitchell P. Goldstein, Senior Vice President and
Chief Financial Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and as of the date indicated.
<TABLE>
<S> <C>
/s/ Christian W.E. Haub Chairman of the Board and Chief Executive Officer
- ------------------------------------
Christian W.E. Haub
/s/ John D. Barline Director
- ------------------------------------
John D. Barline
/s/ Rosemarie Baumeister Director
- ------------------------------------
Rosemarie Baumeister
/s/ Elizabeth R. Culligan President, Chief Operating Officer and Director
- ------------------------------------
Elizabeth R. Culligan
/s/ Bobbie Gaunt Director
- ------------------------------------
Bobbie Gaunt
/s/ Helga Haub Director
- ------------------------------------
Helga Haub
/s/ Dan P. Kourkoumelis Director
- ------------------------------------
Dan P. Kourkoumelis
/s/ Edward Lewis Director
- ------------------------------------
Edward Lewis
/s/ Richard L. Nolan Director
- ------------------------------------
Richard L. Nolan
/s/ Maureen B. Tart-Bezer Director
- ------------------------------------
Maureen B. Tart-Bezer
</TABLE>
24
<PAGE>
The above-named persons signed this report on behalf of the registrant on
July 3, 2002.
<TABLE>
<S> <C>
/s/ Brenda M. Galgano Vice President, Corporate Controller
- ------------------------------------
Brenda M. Galgano July 3, 2002
</TABLE>
25
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>3
<FILENAME>b319220ex_3-2.txt
<DESCRIPTION>AMENDED BY-LAWS
<TEXT>
<PAGE>
Exhibit 3.2
- --------------------------------------------------------------------------------
BY-LAWS OF THE GREAT ATLANTIC & PACIFIC
TEA COMPANY, INC.
As Amended
July 2, 2002
- --------------------------------------------------------------------------------
<PAGE>
BY LAWS
OF
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
ARTICLE I.
OFFICES.
SECTION 1. Principal Office. The principal office of The Great Atlantic
& Pacific Tea Company, Inc. (hereinafter called the Corporation) in the State of
Maryland shall be 1300 Mercantile Bank & Trust Building, 2 Hopkins Plaza in the
City of Baltimore. The name of the resident agent in charge thereof is United
States Corporation Company.
SECTION 2. Other Offices. The Corporation may also have an office or
offices in the Borough of Montvale, in the State of New Jersey, and at such
other place or places either within or without the State of Maryland as the
Board of Directors may from time to time determine, or the business of the
Corporation may require.
ARTICLE II.
MEETING OF STOCKHOLDERS.
SECTION 1. Annual Meetings. The annual meeting of the stockholders for
the election of directors and for the transaction of such other business as may
properly be brought before such meeting shall be held on such date between the
thirtieth day of June and the thirty-first day of July in each year as may be
fixed by the Board of Directors, at such time and place as may be designed by
the Board of Directors in the notice thereof.
<PAGE>
SECTION 2. Special Meetings. A special meeting of the stockholders for
any purpose or purposes may be called at any time by the Chief Executive
Officer, the Chairman of the Board, or the President and shall be called by the
Secretary upon written request of three or more members of the Board of
Directors or of the holders of shares entitled to not less than twenty-five per
cent of all the votes entitled to be cast at any such meeting. Such request
shall state the purpose or purposes of such meeting and the matters proposed to
be acted on thereat. No special meeting need be called upon the request of the
holders of shares entitled to cast less than a majority of all votes entitled to
be cast at such meeting, to consider any matter which is substantially the same
as a matter voted upon at any special meeting of the stockholders held during
the preceding twelve months. Each such special meeting shall be held at such
time and place as may be designated in the notice thereof.
SECTION 3. Notice of Meetings. Notice of time and place of each meeting
of the stockholders shall be given to each stockholder entitled to vote at such
meeting at least fifteen and not more than ninety days before the day on which
the meeting is to be held by mailing such notice in a postage prepaid envelope
addressed to him at his post office address as it appears on the records of the
Corporation. The notice of a meeting of the stockholders shall also state
briefly the objects and purposes thereof as required by law. Any stockholder may
at any time, in writing or by telegraph or cable, waive any notice required to
be given him under Article 23 of the Annotated Code of Maryland, the Certificate
of Incorporation, or these By-Laws.
SECTION 4. Quorum. At each meeting of the stockholders, except as
otherwise expressly provided by statute or the Certificate of Incorporation, the
holders of record of a majority of the issued and outstanding shares of stock of
the Corporation entitled to vote at such meeting, present either in person or by
proxy, shall constitute a quorum for the transaction of business. If there be no
such quorum present the holders of a majority of such shares so present or
represented may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of voting stock shall be
present. At such adjourned meeting at which the requisite amount of voting stock
shall be represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
<PAGE>
SECTION 5. Organization. At each meeting of the stockholders, the
Chairman of the Board shall act as Chairman and preside thereat. In his
absence, the following shall act in his stead in the order of precedence stated:
The Chief Executive Officer, the President, the Executive Vice Presidents (if
any) in order of seniority of service with the Corporation, the Vice Presidents
in order of seniority of service with the Corporation, the Treasurer, or the
Assistant Treasurer. The Secretary, or in his absence, the Assistant Secretary
or in the absence of both, such person as the Chairman may designate, shall act
as secretary of such meeting and keep the minutes thereof.
SECTION 6. Voting. Except as otherwise provided in the Certificate of
Incorporation, each stockholder shall at each meeting of the stockholders be
entitled to one vote in person or by proxy for each share of stock of the
Corporation entitled to be voted thereat held by him and registered in his name
on the books of the Corporation, on such date as may be fixed pursuant to
Section 4 of Article VI as the record date for the determination of stockholders
entitled to notice of and to vote at such meeting. At all meetings of the
stockholders all matters to be voted upon, except those the manner of deciding
which is otherwise expressly regulated by statute or the Certificate of
Incorporation, shall be decided by the vote of a majority in interest of the
stockholders present in person or by proxy and entitled to vote on such matters.
Except in the case of votes for the election of directors and for other matters
expressly so regulated by statute, the vote at any meeting of the stockholders
on any question need not be by ballot, unless demanded by a stockholder present
in person or by proxy and entitled to vote on such matters.
SECTION 7. List of Stockholders. It shall be the duty of the Secretary
who shall have charge of the stock ledger of the Corporation, either directly or
through a transfer agent appointed by the Board of Directors, to prepare and
make a complete list of the stockholders entitled to vote at any meeting. Such
list shall be kept at the place of election during the meeting.
SECTION 8. Inspectors of Election. Before, or at each meeting of the
stockholders, the Chairman of such meeting shall appoint two Inspectors of
Election to act thereat. Each Inspector of Election so appointed shall first
subscribe an oath or affirmation faithfully to execute the duties of an
Inspector of Election at such meeting with strict impartiality and according to
the best of his ability. Such Inspectors of Election shall take charge of the
ballots at such meeting and after the balloting thereat on any question shall
count the ballots cast thereon and shall make a report in writing to the
Secretary of such meeting of the results thereof.
<PAGE>
ARTICLE III.
BOARD OF DIRECTORS.
SECTION 1. General Powers. The property, business and affairs of the
Corporation shall be managed by the Board of Directors.
SECTION 2. Number, Qualification and Term of Office. The number of
directors shall be determined by the vote of a majority of the entire Board of
Directors, but such number shall not be decreased to less than three. Any
decrease in the number of directors shall not affect the tenure in office of any
director. Each director shall hold office until the annual meeting of the
stockholders next following his election and until his successor shall have been
elected and qualified or until his death, resignation or removal.
SECTION 3. Resignation and Removal of Directors. Any director may
resign at any time by giving notice to the Chief Executive Officer, the Chairman
of the Board, the President or the Secretary, in writing. Any such resignation
shall take effect at the time specified therein, or, if no time is so specified,
upon its receipt. The acceptance of such resignation shall not be necessary to
make it effective. At any meeting of stockholders, duly called and at which a
quorum is present, the stockholders may, by the affirmative vote of the holders
of a majority of the votes entitled to be cast thereon, remove any director or
directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of removed directors.
SECTION 4. Vacancies. Any vacancy in the Board of Directors may be
filled by vote of the majority of the remaining directors, except that a vacancy
occurring by reason of an increase in the number of directors may be filled by
vote of a majority of the entire Board, and each director so chosen shall hold
office until the next annual meeting of stockholders and until his successor
shall have been elected and shall qualify.
<PAGE>
SECTION 5. Meetings. As soon as practical after each annual meeting of
stockholders for the election of directors, the Board of Directors shall meet
for the purpose of organizing, for the election of officers, and for the
transaction of such other business as may come before the meeting. In addition
to such meeting of the Board of Directors, regular meetings of the Board of
Directors for the purpose of transacting such business as may properly come
before the meeting shall be held at such times as shall be designated by the
Board of Directors. All meetings of the Board of Directors shall be held at such
places as the Board may designate.
SECTION 6. Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by the Chief Executive Officer, the
Chairman of the Board, or by the President, or by the Secretary on the written
request of three directors. Notice of such meeting shall be mailed to each
director addressed to him at his residence or usual place of business at least
five days before the day on which the meeting is to be held. which notice shall
designate the time and place of such meeting. Any director may at any time, in
writing or by telegraph or cable, waive any notice required to be given him
under Article 23 of the Annotated Code of Maryland, the Certificate of
Incorporation, or these By-Laws.
SECTION 7. Organization. At each meeting of the Board of Directors, the
Chairman and the Secretary shall be those persons who would have acted in such
offices, respectively, at a meeting of the stockholders, as provided for in
Section 5 of Article II of these By-Laws.
SECTION 8. Quorum and Manner of Acting. One-half of the whole Board of
Directors shall constitute a quorum for the transaction of business at any
meeting, and the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the Board of Directors.
SECTION 9. Compensation. All directors may be allowed a fixed sum for
attendance at each meeting of the Board of Directors as may be fixed by
resolution of the Board and reimbursement for expenses incurred in connection
with the performance of their duties. Directors who are not employees of the
Corporation or of any of its subsidiaries may also be paid such annual
compensation as may be fixed by resolution of the Board. Members of the
Executive Committee or of other committees or boards designated by the Board
of Directors may be allowed a fixed sum and expenses incurred for attending
meetings of such committees or boards and, if they are not employees of the
Corporation or of any of its subsidiaries, may also be paid such annual
compensation as may be fixed by resolution of the Board of Directors. Nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefore.
<PAGE>
SECTION 10. Committees of Board of Directors.
(A) The Executive Committee.
There shall be an Executive Committee, composed of not less than five
nor more than seven directors. During the intervals between the meetings of the
Board of Directors, the Executive Committee shall have all the powers of the
Board and may exercise such powers when the exercise thereof prior to the next
regular meeting of the Board of Directors is deemed by the Committee to be
necessary in the management and direction of the business and affairs of the
Corporation.
The Executive Committee shall be elected by a majority of the Board of
Directors at each Annual Meeting of the Board. A majority of the members of the
Executive Committee shall be composed of directors who are not employees of the
Company or any of its subsidiaries and alternates for such members, who shall
themselves be directors who are not employees of the Company or any of its
subsidiaries, shall also be elected. In the absence from a meeting of the
Executive Committee of any non-employee member or members thereof, available
alternates shall serve in the order their respective names shall appear in the
resolution electing them, and shall act and vote in the stead of any such absent
non-employee member or members.
The Executive Committee shall keep minutes of its meetings and a copy
of such minutes (or a summary thereof) shall be forwarded promptly to each
director, and all action by the Executive Committee shall be reported to the
Board of Directors at its next meeting.
(B) Other Committees.
The Board of Directors may by resolution designate other committees or
boards composed of three or more of its members, which resolution shall set
forth the powers of such committees or boards. All action by such other
committees or boards shall be reported to the Board of Directors at its next
meeting.
<PAGE>
(C) General.
A majority of the members of each committee or board shall constitute a
quorum, but in the absence of a quorum the remaining members present may
designate one or more other directors to act at such meetings in the place of
absent members, subject to the provisions of Subsection A of this Section 10.
Each committee or board may fix its rules of procedure, determine its
manner of acting and fix the time and place of its meetings and specify what
notice thereof, if any, shall be given, unless the Board of Directors shall
otherwise by a resolution provide.
The Board of Directors shall have the power to change the membership of
any committee or board (including the Executive committee) at any time, to fill
vacancies therein, to discharge any such committee or board, and to remove any
member thereof, either with or without cause, at any time.
SECTION 11. Any action required or permitted to be taken at any meeting
of the Board of Directors or any committee thereof may be taken without a
meeting, if written consent to such action is signed by all members of the Board
or of such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board or Committee.
The Board of Directors or any committee designated thereby may
participate in a meeting of the Board or such committee, as the case may be, by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time.
ARTICLE IV.
OFFICERS.
SECTION 1. The officers of the Corporation shall be a Chief Executive
Officer, a Chairman of the Board, a President, a Chief Financial Officer, one or
more Vice Presidents, a Secretary, a Treasurer, a General Counsel and a
Controller. The Board may also elect one or more Vice Chairmen, one or more
Executive Vice Presidents, and one or more Assistant Secretaries and Assistant
Treasurers. The same person may hold more than one office, except that the same
person shall not hold simultaneously the offices of President and Vice President
or Chief Executive Officer and Chief Financial Officer.
<PAGE>
SECTION 2. Election and Term of Office. The officers shall be elected
annually by the Board of Directors. Each officer shall hold office until the
next annual election of officers and until his successor shall have been elected
and qualified.
SECTION 3. Resignations and Removal. Any officer may at any time resign
in the same manner as provided for a director in Section 3 of Article III. Any
officer may be removed, either with or without cause, at any time, by the vote
of a majority of the whole Board of Directors.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal or any other cause may be filled for the unexpired portion
of the term at any meeting of the Board of Directors.
SECTION 5. The Chief Executive Officer. The Chief Executive Officer
shall have general and active supervision over the business and affairs of the
Company, its officers employees and agents, subject to the control of the Board
of Directors, and shall be an ex-officio member of all committees of the Board
of Directors, with the exception of the Compensation Policy Committee and the
Audit Review Committee.
SECTION 6. The Chairman of the Board. The Chairman of the Board shall
act as Chairman and preside at all meetings of the stockholders and the Board of
Directors, and in general shall perform such duties as are incident to the
office of Chairman of the Board.
SECTION 7. [Intentionally Deleted]
SECTION 8. The President. The President shall in general perform such
duties as are incident to the office of President, subject to the control of the
Board of Directors, the Chief Executive Officer, or the Chairman of the Board.
<PAGE>
SECTION 9. Chief Financial Officer. The Chief Financial Officer shall
have charge of the financial affairs of the Corporation and shall have such
duties as may from time to time be assigned to him by the Board of Directors,
the Chief Executive Officer, the Chairman of the Board, or the President.
SECTION 10. Executive Vice Presidents. The Executive Vice Presidents
shall have such powers and perform such duties as may from time to time be
assigned to them by the Board of Directors, the Chief Executive Officer, the
Chairman of the Board, or the President.
SECTION 11. The Vice Presidents. The Vice Presidents shall have such
powers and perform such duties as may from time to time be assigned to them by
the Board of Directors, the Chief Executive Officer, the Chairman of the Board,
or the President.
SECTION 12. The Secretary. The Secretary shall record or cause to be
recorded all the proceedings of the meetings of the stockholders of the
Corporation and the Board of Directors in a book or books to be kept for that
purpose; shall see that all notices are duly given in accordance with the
provisions of these By-Laws or as required by statute or the Certificate of
Incorporation; shall have custody of the books and other records (other than the
accounting records) and of the seal of the Corporation and shall see that the
books, records and other documents required by law (including the stock ledger
and the records of the issue, transfer and registration of certificates for
shares of stock) are properly kept and filed; shall see that the seal of the
Corporation is affixed to all documents the execution of which on behalf of the
Corporation under its seal is duly authorized and shall attest such seal; and in
general shall perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him by the Board of
Directors, the Chief Executive Officer, the Chairman of the Board, or the
President.
SECTION 13. Assistant Secretaries. At the request of the Secretary, or
in the case of his absence or inability to act, the Assistant Secretary shall
perform the duties of the Secretary, and, when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the Secretary.
SECTION 14. The Treasurer. The Treasurer shall have such duties as may
from time to time be assigned to him by the Board of Directors, the Chief
Executive Officer, the Chairman of the Board, the President, or the Chief
Financial Officer. He shall have the authority to enter into and execute on the
Company's behalf all banking arrangements.
<PAGE>
SECTION 15. Assistant Treasurers. At the request of the Treasurer, or
in case of his absence or inability to act, the Assistant Treasurer shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the Treasurer.
SECTION 16. The General Counsel. The General Counsel shall be the chief
legal advisor to the Corporation and shall have such powers and perform such
duties as may from time to time be assigned to him by the Board of Directors,
the Chief Executive Officer, the Chairman of the Board, or the President.
SECTION 17. The Controller. The Controller shall have such powers and
perform such duties as may from time to time be assigned to him by the Board of
Directors, the Chief Executive Officer, the Chairman of the Board, the
President, or the Treasurer.
SECTION 18. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors or by any committee or officer to which
or to whom the Board of Directors shall delegate authority so to do.
ARTICLE V.
NOTES, CHECKS, PROXIES, ETC.
SECTION 1. Loans. Loans may be contracted on behalf of the Corporation
by those officers duly authorized by a resolution of the Board of Directors.
Such authorization will pertain not only to the borrowing of funds but also to
the execution and delivery by such officers of bonds, debentures, promissory
notes, or other evidences of indebtedness of the Corporation relating thereto.
SECTION 2. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money issued in the name of the Corporation shall be signed by
such officer or officers, or by such agent or agents as may be authorized so to
do from time to time by the Board of Directors, the Chief Executive Officer, the
Chairman of the Board, the President, the Chief Financial Officer, or the
Treasurer.
<PAGE>
SECTION 3. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board of Directors, the Chief Executive Officer, the
Chairman of the Board, the President, the Chief Financial Officer, or the
Treasurer shall direct in such banks, trust companies or other depositories as
the Board of Directors or such officers may select or as may be selected by any
officer or officers, or agent or agents, to whom power in that respect shall
have been delegated by the Board of Directors.
SECTION 4. Proxies in Respect of Stock or Other Securities of Other
Corporations. Unless otherwise provided by resolution adopted by the Board of
Directors, the Chief Executive Officer, or in his absence, the President may
from time to time appoint on behalf of the Corporation by a proxy in writing an
attorney or attorneys, or an agent or agents, to exercise in the name and on
behalf of the Corporation the powers and rights which the Corporation may have
as the holder of stock or other securities in any other corporation to vote or
consent in respect of such stock or other securities, and the Chief Executive
Officer, or in his absence, the President may instruct the person or persons so
appointed as to the manner of exercising such powers and rights.
ARTICLE VI.
CAPITAL STOCK.
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to
a certificate or certificates which shall represent and certify the number of
shares of stock owned by him in the Corporation. Each certificate shall be
signed by the Chairman of the Board or President and countersigned by the Chief
Financial Officer or the Treasurer and shall be sealed with the corporate seal
which may be a facsimile; provided, however, that where such certificate is
signed by a transfer agent acting on behalf of the Corporation and a registrar,
the signature of any such officer may be by facsimile. In case any officer who
has signed any certificate, or whose facsimile signature has been used thereon,
ceases to be an officer of the Corporation before the certificate is issued, the
certificate may nevertheless be issued by the Corporation with the same effect
as if the officer had not ceased to be such officer as of the date of its issue.
<PAGE>
SECTION 2. Transfers of Shares. Each transfer of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the Corporation, or with a
transfer agent appointed as provided in Section 3 of this Article, upon the
payment of all taxes thereon and the surrender of the certificate or
certificates for such shares properly endorsed. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
owner in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof.
SECTION 3. Regulations; Transfer Agents, etc. The Board of Directors
may make such rules and regulations as it may deem expedient, not inconsistent
with these By-Laws, concerning the issue, transfer and registration of
certificates for shares of stock of the Corporation. It may appoint one or more
transfer agents and one or more registrars, and may require all certificates for
shares of stock of the Corporation to bear the signature or signatures of any of
them.
SECTION 4. Record Date. The Board of Directors may fix in advance a
date, not exceeding ninety days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
capital stock shall go into effect, or a date for obtaining any consent of
stockholders for any purpose, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting and any
adjournment thereof, or entitled to receive payment of any such dividend,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid.
<PAGE>
SECTION 5. Lost, Destroyed and Mutilated Certificates. The holder of
any shares of stock of the Corporation shall immediately notify the Corporation
of any loss, destruction or mutilation of the certificate therefor, and the
Board of Directors may, by resolution, or regulation adopted pursuant to Section
3 of this Article, after the expiration of such period of time as it may
determine to be advisable, cause to be issued to him a new certificate or
certificates for shares of stock, upon the surrender of the mutilated
certificate or, in case of loss or destruction of the certificate, upon
satisfactory proof of such loss or destruction, and the Board of Directors may,
by such resolution or regulation, require the owner of the lost, destroyed or
mutilated certificate, or his legal representatives, to give the Corporation a
bond in such sum and with such surety or sureties as it may direct, to indemnify
the Corporation against any claim that may be made against it on account of the
alleged loss, destruction or mutilation of any such certificate or the issuance
of such new certificate.
SECTION 6. Examination of Books by Stockholders. The Board of Directors
shall, subject to any applicable statutes, have the power to determine whether
and to what extent and at what times and places and under what conditions and
regulations the accounts and books and documents of the Corporation or any of
them, shall be open to the inspection of the stockholders; and no stockholder
shall have any right to inspect any account or book or documents of the
Corporation, except as conferred by any such statute unless and until authorized
so to do by resolution of the Board of Directors.
ARTICLE VII.
SEAL.
The Board of Directors shall provide a corporate seal which shall be in
the form of a circle and shall bear the full name of the Corporation and words
and figures indicating the year and state in which the Corporation was
incorporated and such other words or figures as the Board of Directors may
approve and adopt.
ARTICLE VIII.
FISCAL YEAR.
The fiscal year of the Corporation shall end on the last Saturday in
February of each year.
<PAGE>
ARTICLE IX.
AMENDMENTS.
These By-Laws may be altered, amended or repealed and new By-Laws
adopted by the stockholders or by the Board of Directors by a majority vote at
any meeting called for that purpose but no amendment adopted by the stockholders
shall thereafter be altered or repealed by the Board of Directors.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>4
<FILENAME>b319220ex_10-3.txt
<DESCRIPTION>EMPLOYMENT AND SEPARATION AGREEMENTS
<TEXT>
<PAGE>
Exhibit 10.3
April 8, 2002
Ms. Elizabeth R. Culligan
17 Worthington Avenue
Spring Lake, NJ 07762
Re: Amendment to Employment Agreement of Elizabeth Culligan
Dear Beth:
As discussed, effective February 24, 2002 (the "Effective Date"), The
Great Atlantic & Pacific Tea Company, Inc. (the "Company") has promoted you from
Executive Vice President and Chief Operating Officer of the Company to President
and Chief Operating Officer of the Company (the "Promotion"). Additionally, as
of the Effective Date, you will have a base salary of $575,000 (Five Hundred
Seventy Five Thousand Dollars) and will report directly to, and comply with all
reasonable instructions of, the Chairman and Chief Executive Officer of the
Company.
In conjunction with the Promotion, as of the Effective Date, the
Employment Agreement, made and entered into as of the 8th date of January 2001,
by and between the Company and Elizabeth R. Culligan (the "Agreement"), shall be
deemed amended as follows:
(1) All references to Executive Vice President and Chief Operating Officer shall
be changed to President and Chief Operating Officer; and
(2) The base salary of $500,000 indicated in Section 3.1 shall be increased to
$575,000 (Five Hundred Seventy Five Thousand Dollars).
Except as indicated above, the Agreement, its terms and conditions shall remain
in full force and effect.
If the terms outlined above, and the changes to your Agreement are acceptable,
please sign below, and return an original executed copy of this letter
agreement. Upon execution of this letter agreement, the Agreement shall be
deemed amended in accordance with Section 28 thereof.
Sincerely,
The Great Atlantic & Pacific Tea Company, Inc.
By: /s/Christian W.E. Haub
----------------------
Agreed to and accepted this 8th day
of April, 2002
/s/ Elizabeth R. Culligan
- -----------------------------------
Elizabeth R. Culligan
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>5
<FILENAME>b319220ex_10-5.txt
<DESCRIPTION>LETTER AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.5
February 22, 2002
Mr. Fred Corrado
189 Brewster Road
Wyckoff, NJ 07481
Dear Fred:
In consideration of the agreements reflected below and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
this Letter Agreement (the "Letter Agreement") will serve to amend the
Employment Agreement entered into as of November 1, 2000, by and between
yourself and The Great Atlantic & Pacific Tea Company, Inc. (the "Company"), as
amended on May 30, 2001 (the "Agreement"). By executing this Letter Agreement,
you resign your position as an officer of the Company effective as of February
23, 2002, resign as a member of the Company's Board of Directors on March 19,
2002, and retire from the Company on May 20, 2002 (the "Retirement Date"). The
Company accepts such resignations as of the 23rd of this month and the 19th of
next month, respectively, and further agrees to your retirement on the
Retirement Date. You agree to provide transition services as the Company may
request. The Company agrees that the provisions of Section 10 of the Agreement
shall apply to your retirement.
Commencing May 21, 2002, per the terms of Section 10 of the Agreement, your 18
months of severance benefits pursuant to Section 10 shall commence (the
"Severance Period"). In addition to and without in any way diminishing the
benefits provided for in Section 10 of the Agreement, the Company agrees at its
cost to provide you with executive medical coverage, as the same may be in
effect for executives of the Company from time to time, until the third
anniversary of the Retirement Date.
Lastly, the options granted to you on March 20, 2001, under the Company's 1998
Long Term Incentive and Share Award Plan, to purchase up to a total of 110,000
shares of the Company's $1.00 par value common stock, are hereby immediately
vested and shall remain exercisable until the third anniversary of the
Retirement Date. No other options that you have been granted pursuant to the
Agreement or otherwise shall be affected by the foregoing change. Such options
shall continue to be governed by their respective grant terms.
Except as amended by this Letter Agreement, the terms of the Agreement shall
remain in full force and effect.
Sincerely,
The Great Atlantic & Pacific Tea Company, Inc.
By: /s/Christian Haub
-----------------
Christian Haub
Chairman, President & Chief Executive Officer
AGREED TO AND ACCEPTED BY:
/s/Fred Corrado
----------------------
Fred Corrado
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>6
<FILENAME>b319220ex_10-7.txt
<DESCRIPTION>AMEND TO EMPLOYMENT AGREEMENT
<TEXT>
Exhibit 10.7
April 8, 2002
William P. Costantini, Esq.
64 Bouton Road
South Salem, NY 10590
Re: Amendment to Employment Agreement of William P. Costantini
Dear Bill:
The Employment Agreement (the "Agreement"), made and entered into as of
the 1st day of November 2000, by and between The Great Atlantic & Pacific Tea
Company, Inc. (the "Company") and William P. Costantini (the "Employee") is
hereby amended as follows:
1.) Effective as of October 1, 2001, your base salary was increased from
$335,000 to $355,000; and
2.) Effective February 25, 2002, all references in the Agreement to the
Employee reporting to the "Vice Chairman and Chief Financial Officer" are
hereby amended to read "the Chairman and Chief Executive Officer."
Except as indicated above, the Agreement, its terms and conditions, shall
remain in full force and effect.
If the terms outlined above, and the changes to your Agreement are
acceptable, please sign below, and return an original executed copy of this
letter agreement. Upon execution of this letter agreement, the Agreement shall
be deemed amended in accordance with Section 28 thereof.
Sincerely,
The Great Atlantic & Pacific Tea Company, Inc.
By: /s/Christian Haub
-----------------
Christian Haub
Agreed to and accepted this 30th day
of April, 2002
/s/ William P. Costantini
- -----------------------------------
William P. Costantini
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>7
<FILENAME>b319220ex_10-8.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 24th day of
February, 2002, by and between THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
(the "Company"), and Mitchell P. Goldstein (the "Employee").
W I T N E S S E T H
WHEREAS, the Company and the Employee (the "Parties") have
agreed to enter into this agreement (the "Agreement) relating to the employment
of the Employee by the Company;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. Term of Employment.
(a) The Company agrees to continue to employ the Employee, and the Employee
agrees to remain in the employment of the Company, in accordance with the terms
and provisions of this Agreement, for the period set forth below (the
"Employment Period").
(b) The Employment Period under this Agreement shall commence as of February 24,
2002 and, subject only to the provisions of Sections 7, 8 and 9 below relating
to termination of employment, shall continue until (i) the close of business on
February 23, 2005 or (ii) such later date as shall result from the operation of
subparagraph (c) below (the "Terminal Date").
(c) Commencing on August 24, 2004, and on the first business day of each month
thereafter (such date and each such first business day, the "Renewal Date") the
Terminal Date set forth in subparagraph (b) above shall be extended so as to
occur eighteen months from the Renewal Date unless either the Company or the
Employee shall have given written notice to the other Party on or before such
Renewal Date that the Terminal Date is not to be extended.
2. Duties.
It is the intention of the Parties that during the term of his
employment under this Agreement, the Employee will serve as Senior Vice
President, Chief Financial Officer. The Employee will devote his full business
time and attention to the affairs of the Company and his duties as its Senior
Vice President, Chief Financial Officer. The Employee will have such duties as
are appropriate to his position as Senior Vice President, Chief Financial
Officer, and will have such authority as required to enable him to perform these
duties. Consistent with the foregoing, the Employee shall comply with all
reasonable instructions of the Chief Executive Officer of the Company. The
Employee will be based in Montvale, New Jersey and his services will be rendered
there except insofar as travel may be involved in connection with his regular
duties. The Employee will report directly to the Chief Executive Officer of the
Company.
3. Salary and Bonus.
3.1 Salary. The Company will pay the Employee a base salary at an initial
annual rate of not less than $340,000, which base salary as in effect from time
to time will not be reduced and will be reviewed periodically (at intervals of
not more than eighteen (18) months) by the Compensation Committee of the Board
of Directors (the "Board") for the purpose of considering increases thereof. In
evaluating increases in the Employee's base salary, the Compensation Committee
of the Board will take into account such factors as corporate performance,
individual merit and such other considerations as it deems appropriate. The
Employee's base salary will be paid in accordance with the standard practices
for other corporate executives of the Company.
3.2 Bonuses.
The Employee will be eligible to receive annually or otherwise
any bonus awards, whether payable in cash, shares of common stock of the Company
or otherwise, which the Company, the Compensation Committee of the Board or such
other authorized committee of the Board determines to award or grant.
4. Benefit Programs.
The Employee will receive such benefits and awards, including
without limitation stock options and restricted share awards, as the
Compensation Committee of the Board shall determine and will be eligible to
participate in all employee benefit plans and programs of the Company from time
to time in effect for the benefit of senior executives of the Company,
including, but not limited to, pension and other retirement plans, group life
insurance, hospitalization and surgical and major medical coverages, sick leave,
salary continuation arrangements, vacations and holidays, long-term disability
and such other benefits as are or may be made available from time to time to
senior executives of the Company.
5. Business Expenses and Perquisites.
The Employee will be reimbursed for all reasonable expenses
incurred by [him] in connection with the conduct of the business of the Company,
provided he properly accounts therefor in accordance with the Company's
policies. He will also be entitled to such other perquisites as are customary
for senior executives of the Company.
6. Office and Services Furnished.
The Company shall furnish the Employee with office
space, secretarial assistance and such other facilities and services as
shall be suitable to the Employee's position and adequate for the performance
of his duties hereunder.
7. Termination of Employment by the Company.
7.1 Involuntary Termination by the Company Other Than For Permanent and Total
Disability or For Cause.
The Company may terminate the Employee's employment at
any time and for any reason by giving him a written notice of termination to
that effect at least 45 days before the date of termination. In the event the
Company terminates the Employee's employment for any reason other than for
Permanent and Total Disability, as provided in Section 7.2, below, or for Cause,
as provided in Section 7.3, below, the Employee shall be entitled to the
benefits described in Section 10 or Section 11, whichever is applicable.
7.2 Termination Due to Permanent and Total Disability. If the Employee incurs a
Permanent and Total Disability, as defined below, the Company may terminate the
Employee's employment by giving him written notice of termination at least 45
days before the date of such termination. In the event of such termination of
the Employee's employment because of Permanent and Total Disability, the
Employee shall be entitled to receive (i) his base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned by the
Employee pursuant to this Agreement or any benefit plan or program of the
Company as of the date of such termination of employment at the normal time for
payment of such salary, compensation or benefits, and (ii) any reimbursement
amounts owing under Section 5. For purposes of this Agreement, the Employee
shall be considered to have incurred a Permanent and Total Disability if he is
unable to substantially carry out his duties under this Agreement by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months. The existence of such Permanent
and Total Disability shall be evidenced by such medical certification as the
Secretary of the Company shall require and shall be subject to the approval of
the Compensation Committee of the Board of Directors of the Company.
7.3 Termination for Cause. The Company may terminate the Employee's employment
for Cause if (i) the Employee willfully, substantially and continually fails to
perform the duties for which he is employed by the Company, (ii) the Employee
willfully fails to comply with the reasonable instructions of the Chief
Executive Officer of the Company, (iii) the Employee willfully engages in
conduct which is or would reasonably be expected to be materially and
demonstrably injurious to the Company, (iv) the Employee willfully engages in an
act or acts of dishonesty resulting in material personal gain to the Employee at
the expense of the Company, (v) the Employee is convicted of a felony, (vi) the
Employee engages in an act or acts of gross malfeasance in connection with his
employment hereunder, (vii) the Employee commits a material breach of the
confidentiality provision set forth in Section 15, or (viii) the Employee
exhibits demonstrable evidence of alcohol or drug abuse having a substantial
adverse effect on his job performance hereunder. The Company shall exercise its
right to terminate the Employee's employment for Cause by giving him written
notice of termination at least 45 days before the date of such termination
specifying in reasonable detail the circumstances constituting such Cause. In
the event of such termination of the Employee's employment for Cause, the
Employee shall be entitled to receive (i) his base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned
pursuant to this Agreement or any benefit plan or program of the Company as of
the date of such termination at the normal time for payment of such salary,
compensation or benefits and (ii) any amounts owed under the reimbursement
policy of Section 5.
8. Termination of Employment by the Employee.
(a) Good Reason. The Employee may terminate his employment for Good Reason by
giving the Company a written notice of termination at least 45 days before the
date of such termination specifying in reasonable detail the circumstances
constituting such Good Reason. In the event of the Employee's termination of his
employment for Good Reason, the Employee shall be entitled to the benefits
described in Section 10 or Section 11, whichever is applicable. For purposes of
this Agreement, Good Reason shall mean (i) a significant reduction in the scope
of the Employee's authority, functions, duties or responsibilities from that
which is contemplated by this Agreement, (ii) the Employee being required to
report directly to someone other than the Chief Executive Officer of the
Company, (iii) the relocation of the Employee's office location to a location
more than 50 miles away from the Employee's principal place of employment on
February 24, 2002, (iv) any reduction in the Employee's base salary, or (v) a
significant reduction in the employee benefits provided to the Employee other
than in connection with an across-the-board reduction similarly affecting
substantially all senior executives of the Company. If an event constituting a
ground for termination of employment for Good Reason occurs, and the Employee
fails to give notice of termination within 3 months after the occurrence of such
event, the Employee shall be deemed to have waived his right to terminate
employment for Good Reason in connection with such event (but not for any other
event for which the 3-month period has not expired).
(b) Other. The Employee may terminate his employment at any time and for any
reason, other than pursuant to subsection (a) above, by giving the Company a
written notice of termination to that effect at least 45 days before the date of
termination. In the event of the Employee's termination of his employment
pursuant to this subsection (b), the Employee shall be entitled to receive (i)
his base salary pursuant to Section 3.1 and any other compensation and benefits
to the extent actually earned by the Employee pursuant to this Agreement or any
benefit plan or program of the Company as of the date of such termination at the
normal time for payment of such salary, compensation or benefits, and (ii) any
reimbursement amounts owing under Section 5.
9. Termination of Employment By Death. In the event of the death of the
Employee during the course of his employment hereunder, the Employee's estate
shall be entitled to receive (i) his base salary pursuant to Section 3.1 and any
other compensation and benefits to the extent actually earned by the Employee
pursuant to this Agreement or any other benefit plan or program of the Company
as of the date of such termination at the normal time for payment of such
salary, compensation or benefits, and (ii) any reimbursement amounts owing under
Section 5. In addition, in the event of such death, the Employee's beneficiaries
shall receive any death benefits owed to them under the Company's employee
benefit plans.
10. Benefits Upon Termination Without Cause or For Good Reason (No Change of
Control). If (a) the Employee's employment with the Company shall terminate (i)
because of termination by the Company pursuant to Section 7.1 other than for
Cause and other than because of Permanent and Total Disability, or (ii) because
of termination by the Employee for Good Reason pursuant to Section 8(a), and (b)
such termination of employment does not occur within 13 months following a
"Change of Control" of the Company (as defined in Section 12), the Employee
shall be entitled to the following:
(a) The Company shall pay to the Employee his base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned by the
Employee under this Agreement or any benefit plan or program of the Company as
of the date of such termination at the normal time for payment of such salary,
compensation or benefits.
(b) The Company shall pay the Employee any reimbursement amounts owing
under Section 5.
(c) The Company shall pay to the Employee as a severance benefit for each month
during the 18 month period beginning with the month next following the date of
termination of the Employee's employment an amount equal to one-twelfth of the
sum of (i) his annual rate of base salary immediately preceding his termination
of employment, and (ii) the average of his three highest annual bonuses awarded
under the Company's annual management incentive bonus plan for any of the five
calendar years preceding his termination of employment (or, if he was not
eligible for a bonus for at least three calendar years in such five-year period,
then the average of such bonuses for all of the calendar years in such five-year
period for which he was eligible, and if he was not eligible for such a bonus in
any previous year, then 100% of his target annual bonus for the year of
termination of his employment), with any deferred bonuses counting for the year
earned rather than the year paid. Each such monthly benefit shall be paid no
later than the last day of the applicable month. In the event that the Employee
dies before the end of such 24-month period, the payments for the remainder of
such period shall be made to the Employee's estate.
(d) The Company shall pay to the Employee as a bonus for the year of termination
of his employment an amount equal to a portion (determined as provided in the
next sentence) of the bonus that the Employee would actually have received under
the Company's annual management incentive bonus plan for the calendar year of
termination of the Employee's employment if his employment had not terminated
(determined on the basis of his actual bonus opportunity and the actual degree
of achievement of the applicable performance goals) or, if no bonus opportunity
for that year had been established for the Employee at the time of such
termination of employment, such portion of the bonus awarded to him under the
Company's annual management incentive bonus plan for the calendar year
immediately preceding the calendar year of the termination of his employment,
with deferred bonuses counting for the year earned rather than the year paid.
Such portion shall be determined by dividing the number of days of the
Employee's employment during such calendar year up to his termination of
employment by 365 (366 if a leap year). Such payment shall be made on or about
the date on which bonuses for the applicable year are paid to executives of the
Company generally under the Company's annual management incentive bonus plan,
and the Employee shall have no right to any further bonuses under said plan.
(e) During the period of 18 months beginning on the date of the Employee's
termination of employment, the Employee shall remain covered by the medical,
dental, vision, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability plans of
the Company that covered him immediately prior to his termination of employment
as if he had remained in employment for such period. In the event that the
Employee's participation in any such plan is barred, the Company shall arrange
to provide the Employee with substantially similar benefits (but, in the case of
long-term disability benefits, only if reasonably commercially available). Any
medical insurance coverage for such 18-month period pursuant to this subsection
(e) shall become secondary upon the earlier of (i) the date on which the
Employee begins to be covered by comparable medical coverage provided by a new
employer, or (ii) the earliest date upon which the Employee becomes eligible for
Medicare or a comparable Government insurance program.
11. Benefits Upon Termination Without Cause or For Good Reason (Change of
Control). If (a) the Employee's employment with the Company shall terminate (i)
because of termination by the Company pursuant to Section 7.1 other than for
Cause and other than because of Permanent and Total Disability, (ii) because of
termination by the Employee for Good Reason pursuant to Section 8(a), or (iii)
for any reason during the 30 days beginning on the first anniversary of a Change
of Control, and (b) such termination of employment occurs within 13 months
following a "Change of Control" of the Company (as defined in Section 12), the
Employee shall be entitled to the following:
(a) The Company shall pay to the Employee his base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned by the
Employee under this Agreement or any benefit plan or program of the Company as
of the date of such termination at the normal time for payment of such salary,
compensation or benefits.
(b) The Company shall pay the Employee any reimbursement amounts owing
under Section 5.
(c) The Company shall pay to the Employee as a severance benefit an amount equal
to three (3) times the sum of (i) his annual rate of base salary immediately
preceding his termination of employment, and (ii) the average of his three
highest annual bonuses awarded under the Company's annual management incentive
bonus plan for any of the five calendar years preceding his termination of
employment (or, if he was not eligible for a bonus for at least three calendar
years in such five-year period, then the average of such bonuses for all of the
calendar years in such five-year period for which he was eligible, and if he was
not eligible for such a bonus in any previous year, then 100% of his target
annual bonus for the year of termination of his employment), with any deferred
bonuses counting for the year earned rather than the year paid. Such severance
benefit shall be paid in a lump sum within 45 days after the date of such
termination of employment.
(d) The Company shall pay to the Employee as a bonus for the year of termination
of his employment an amount equal to a portion (determined as provided in the
next sentence) of the bonus that the Employee would actually have received under
the Company's annual management incentive bonus plan for the calendar year of
termination of the Employee's employment if his employment had not terminated
(determined on the basis of his actual bonus opportunity and the actual degree
of achievement of the applicable performance goals) or, if no bonus opportunity
for that year had been established for the Employee at the time of such
termination of employment, such portion of the bonus awarded to him under the
Company's annual management incentive bonus plan for the calendar year
immediately preceding the calendar year of the termination of his employment,
with deferred bonuses counting for the year earned rather than the year paid.
Such portion shall be determined by dividing the number of days of the
Employee's employment during such calendar year up to his termination of
employment by 365 (366 if a leap year). Such payment shall be made on or about
the date on which bonuses for the applicable year are paid to executives of the
Company generally under the Company's annual management incentive bonus plan,
and the Employee shall have no right to any further bonuses under said plan.
(e) During the period of 36 months beginning on the date of the Employee's
termination of employment, the Employee shall remain covered by the medical,
dental, vision, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability plans of
the Company that covered him immediately prior to his termination of employment
as if he had remained in employment for such period. In the event that the
Employee's participation in any such plan is barred, the Company shall arrange
to provide the Employee with substantially similar benefits (but, in the case of
long-term disability benefits, only if reasonably commercially available). Any
medical insurance coverage for such 36-month period pursuant to this subsection
(e) shall become secondary upon the earlier of (i) the date on which the
Employee begins to be covered by comparable medical coverage provided by a new
employer, or (ii) the earliest date upon which the Employee becomes eligible for
Medicare or a comparable Government insurance program.
12. Change of Control. For the purposes of this Agreement, a "Change of Control"
shall be deemed to have occurred if (a) any person or persons acting together
which would constitute a "group" for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), other than the Company,
any subsidiary of the Company, and Tengelmann Warenhandelsgesellschaft, a
partnership organized under the laws of the Federal Republic of Germany or any
successor to such partnership (hereinafter "Tengelmann") shall beneficially own
(as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, at least
30% of the total voting power of all classes of capital stock of the Company
entitled to vote generally in the election of the Board and such voting power
exceeds the then current voting power of Tengelmann, (b) control of Tengelmann
is acquired by any person or persons other than family members or entities
controlled by family members of Erivan Haub, (c) Current Directors (as herein
defined) shall cease for any reason to constitute at least a majority of the
members of the Board (for this purpose, a "Current Director" shall mean any
member of the Board as of the date hereof and any successor of a Current
Director whose election, or nomination for election by the Company's
shareholders, was approved by at least two-thirds of the Current Directors then
on the Board), (d) the shareholders of the Company approve (i) a plan of
complete liquidation of the Company or (ii) an agreement providing for the
merger or consolidation of the Company other than a merger or consolidation in
which (x) the holders of the common stock of the Company immediately prior to
the consolidation or merger have, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or (y) the Board immediately prior to the merger or
consolidation would, immediately after the merger or consolidation, constitute a
majority of the board of directors of the continuing or surviving corporation,
or (e) the shareholders of the Company approve an agreement (or agreements)
providing for the sale or other disposition (in one transaction or a series of
transactions) of all or substantially all of the assets of the Company.
13. Entitlement to Other Benefits.
Except as otherwise provided in this Agreement, this Agreement
shall not be construed as limiting in any way any rights or benefits that the
Employee or his spouse, dependents or beneficiaries may have pursuant to any
other plan or program of the Company.
14. Non-Competition.
The Employee agrees that during the term of this Agreement and
for a period of eighteen months following termination of his employment, the
Employee will not, within any of the geographical areas of the United States or
Canada in which the Company is then conducting business (either directly or
through franchisees), directly or indirectly, own, manage, operate, control, be
employed by, participate in, provide consulting services to, or be connected in
any manner with the ownership, management, operation or control of any business
similar to any of the types of businesses conducted by the Company to any
significant extent during his employment or on the date of termination of his
employment, except the Employee may own for investment purposes up to 1% of the
capital stock of any company whose stock is publicly traded, and during such
eighteen month period following termination of his employment the Employee will
not contact or solicit employees of the Company for the purpose of inducing such
employees to leave the employ of the Company.
15. Confidential Information and Trade Secrets.
The Employee hereby acknowledges that he will have access to
and become acquainted with various trade secrets and proprietary information of
the Company and other confidential information relating to the Company. The
Employee covenants that he will not, directly or indirectly, disclose or use
such information except as is necessary and appropriate in connection with his
employment by the Company and that he will otherwise adhere in all respects to
the Company's policies against the use or disclosure of such information.
16. Arbitration; Injunctive Relief.
Any controversy or claim arising out of or relating to this
Agreement, directly or indirectly, or the performance or breach thereof, will be
settled by arbitration in accordance with the rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The arbitration will be held
in New York, New York, or such other place as may be agreed upon at the time by
the parties to the arbitration. The parties shall bear their own expenses in
connection with any arbitration or proceeding arising out of or relating to this
Agreement, directly or indirectly, or the performance or breach thereof;
provided, however, that in the event that the Employee substantially prevails,
the Company agrees promptly to reimburse the Employee for all expenses
(including costs and fees of witnesses, evidence and attorneys fees and
expenses) reasonably incurred by him in investigating, prosecuting, defending,
or preparing to prosecute or defend any action, proceeding or claim arising out
of or relating to this Agreement, directly or indirectly, or the performance or
breach thereof. The parties acknowledge and agree that a breach of Employee's
obligations under Sections 14 or 15 could cause irreparable harm to Company for
which Company would have no adequate remedy at law, and further agree that,
notwithstanding the agreement of the parties to arbitrate controversies or
claims as set forth above, the Company may apply to a court of competent
jurisdiction to seek to enjoin preliminarily or permanently any breach or
threatened breach of the Employee's obligations under Sections 14 and 15.
17. Indemnification.
The Company shall indemnify and hold the Employee harmless to
the fullest extent legally permissible under the laws of the State of Maryland,
against any and all expenses, liabilities and losses (including attorney's fees,
judgments, fines and amounts paid in settlement) reasonably incurred or suffered
by him by reason of any claim or cause of action asserted against him because of
his service at any time as a director or officer of the Company. The Company
shall advance to the Employee the amount of his expenses incurred in connection
with any proceeding relating to such service to the fullest extent legally
permissible under the laws of the State of Maryland. Notwithstanding the
foregoing, the Company's obligations pursuant to this Section 17 shall not apply
in the case of any claim or cause of action by or in the right of the Company or
any subsidiary thereof.
18. Liability Insurance.
To the extent that Company maintains a directors and officers
liability insurance policy in effect, the Company will take all steps necessary
to ensure that the Employee is covered under such policy for his service as a
director or officer of the Company or any subsidiary of the Company with respect
to claims made at any time with respect to such service.
19. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment or distribution made, or benefit provided
(including, without limitation, the acceleration of any payment, distribution or
benefit and the accelerated exercisability of any stock option), to or for the
benefit of the Employee (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 19) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (or any similar excise tax) or any interest or
penalties are incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive from the Company an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Employee of all taxes
(including any Excise Tax, income tax or employment tax and taking into account
any lost or reduced tax deductions on account of such Gross-Up Payment) imposed
upon the Gross-Up Payment and any interest or penalties imposed with respect to
such taxes, the Employee retains from the Gross-Up Payment an amount equal to
the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 19(c), all determinations required to
be made under this Section 19, including determination of whether a Gross-Up
Payment is required and of the amount of any such Gross-up Payment, shall be
made by Deloitte & Touche LLP (the "Accounting Firm"), which shall provide
detailed supporting calculations both to the Company and the Employee within 15
business days of the date of termination of the Employee's employment, if
applicable, or such earlier time as is requested by the Company, provided that
any determination that an Excise Tax is payable by the Employee shall be made on
the basis of substantial authority. The initial Gross-Up Payment, if any, as
determined pursuant to this Section 19(b), shall be paid to the Employee within
five business days of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by the Employee, it
shall furnish the Employee with a written opinion that he has substantial
authority not to report any Excise Tax on his Federal income tax return. Any
determination by the Accounting Firm meeting the requirements of this Section
19(b) shall be binding upon the Company and the Employee; subject only to
payments pursuant to the following sentence based on a determination that
additional Gross-Up Payments should have been made, consistent with the
calculations required to be made hereunder (the amount of such additional
payments is referred to herein as the "Gross-Up Underpayment"). In the event
that the Company exhausts its remedies pursuant to Section 19(c) and the
Employee thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Gross-Up Underpayment that has
occurred and any such Gross-Up Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee. The fees and disbursements of the
Accounting Firm shall be paid by the Company.
(c) The Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of a Gross-Up Payment. Such notification shall be given as soon as
practicable but not later than ten business days after the Employee receives
written notice of such claim and shall apprise the Company of the nature of such
claim and the date on which such Claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim and that it will bear the costs and
provide the indemnification as required by this sentence, the Employee shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax, income tax or employment tax (taking into
account any lost or reduced tax deductions on account of such payments),
including interest and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 19(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Employee to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Employee agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Employee to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Employee on an interest-free basis and shall
indemnify and hold the Employee harmless, on an after-tax basis, from any Excise
Tax, income tax or employment tax (taking into account any lost or reduced tax
deductions on account of such advance), including interest or penalties with
respect thereto, imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to the payment of taxes for the
taxable year of the Employee with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Employee shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the Company
pursuant to Section 19(c), the Employee becomes entitled to receive any refund
with respect to such claim, the Employee shall (subject to the Company's
complying with the requirements of Section 19(c)) promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the Employee of an
amount advanced by the Company pursuant to Section 19(c), a determination is
made that the Employee shall not be entitled to any refund with respect to such
claim and the Company does not notify the Employee in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then any obligation of the Employee to repay such advance shall
be forgiven and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
20. No Duty to Seek Employment. The Employee shall not be under any duty or
obligation to seek or accept other employment following termination of
employment, and no amount, payment or benefits due to the Employee hereunder
shall be reduced or suspended if the Employee accepts subsequent employment.
21. Deductions and Withholding.
All amounts payable or which become payable under any
provision of this Agreement shall be subject to any deductions authorized by the
Employee and any deductions and withholdings required by law.
22. Governing Law.
The validity, interpretation and performance of this Agreement
will be governed by the laws of the State of New Jersey without regard to the
conflict of law provisions.
23. Notice.
Any written notice required to be given by one Party to the
other Party hereunder will be deemed effected if mailed by registered mail:
To the Company at: The Great Atlantic & Pacific Tea Company
2 Paragon Drive
Montvale, New Jersey 07645
Attention: General Counsel
To the Employee at: 34 Laurence Court
Closter, NJ 07624
or such other address as may be stated in a notice given as hereinbefore
provided.
24. Severability.
If any one or more of the provisions contained in this
Agreement is held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability will not affect any other provision
hereof.
25. Successors and Assigns.
This Agreement will be binding upon and inure to the benefit
of the Parties hereto and their personal representatives, and, in the case of
the Company, its successors and assigns. To the extent the Company's obligations
under this Agreement are transferred to any successor or assign, such successor
or assign shall be treated as the "Company" for purposes of this Agreement.
Other than as contemplated by this Agreement, the Employee may not assign his
rights or duties under this Agreement.
26. Continuing Effect.
Wherever appropriate to the intention of the Parties hereto,
the respective rights and obligations of the Parties, including the obligations
referred to in Sections 10, 11, 14, 15 and 19, hereof, will survive any
termination or expiration of the term of this Agreement.
27. Entire Agreement.
This Agreement constitutes the entire agreement between the
Parties and supersedes any and all other agreements and understandings between
the Parties in respect of the matters addressed in this Agreement.
28. Amendment and Waiver.
No amendment or waiver of any provision of this Agreement
shall be effective, unless the same shall be in writing and signed by the
Parties, and then such amendment, waiver or consent shall be effective only in
the specific instance or for the specific purpose for which such amendment,
waiver or consent was given.
29. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed
an original but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer and the Employee has hereunto set his
hand as of the day and year first above written.
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.
By: /s/ Christian W.E. Haub
---------------------------
Christian W. E. Haub
Chairman, President & Chief Executive Officer
/s/Mitchell Goldstein
---------------------
Mitchell Goldstein
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>8
<FILENAME>b319220ex_10-10.txt
<DESCRIPTION>LETTER AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.10
Nicholas Ioli, Jr.
14 Crooked Hill
Oakland, New Jersey 07436
Dear Nick:
As we discussed, this Letter Agreement (the "Letter Agreement") will serve to
amend the Employment Agreement (the "Agreement") entered into as of November 1,
2000, by and between yourself and The Great Atlantic & Pacific Tea Company, Inc.
(the "Company"). Notwithstanding Section 10 of the Agreement which provides for
an 18 month severance benefit period (the "Severance Period"), the Company is
agreeable to reviewing, on a month-to-month basis, the possible extension of the
Severance Period to 24 months. Accordingly, at the end of the 17th month of the
Severance Period, should you not be employed, the Company will, after
considering all of the circumstances, determine if it chooses to extend the
Severance Period for an additional month. If the Company so decides to extend
the Severance Period for a 19th month, then at the end of the 18th month, should
you still not be employed, we will again review all of the circumstances, and so
on and so forth through and finally concluding at the end of the 23rd month from
the date of your termination. If at any time during the review process, should
the Company decide not to extend the Severance Period, then at such time the
process shall end.
Except as amended by this Letter Agreement, the terms of the Agreement shall
remain in full force and effect.
Sincerely,
The Great Atlantic & Pacific Tea Company, Inc.
By: /s/Laurane Magliari
------------------------
Laurane Magliari
Senior Vice President
AGREED TO AND ACCEPTED BY:
/s/Nick Ioli, Jr. 04/03/02
- --------------------------
Nick Ioli, Jr.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>9
<FILENAME>b319220ex_10-12.txt
<DESCRIPTION>AMENDMENT TO EMPLOYMENT AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.12
April 8, 2002
Ms. Laurane S. Magliari
445 West 19th Street
PHA
New York, NY 10011
Re: Amendment to Employment Agreement of Laurane S. Magliari
Dear Laurane:
The Employment Agreement (the "Agreement"), made and entered into as of
the 1st day of November 2000, by and between The Great Atlantic & Pacific Tea
Company, Inc. (the "Company") and Laurane S. Magliari (the "Employee") is hereby
amended as follows:
1.) Effective as of April 1, 2002, your base salary was increased from
$335,000 to $375,000.
Except as indicated above, the Agreement, its terms and conditions, shall
remain in full force and effect.
If the term outlined above, and the change to your Agreement are
acceptable, please sign below, and return an original executed copy of this
letter agreement. Upon execution of this letter agreement, the Agreement shall
be deemed amended in accordance with Section 28 thereof.
Sincerely,
The Great Atlantic & Pacific Tea Company, Inc.
By: /s/ Christian Haub
------------------
Christian Haub
Agreed to and accepted this 30th day
of April, 2002
/s/Laurane S. Magliari
- -----------------------------------
Laurane S. Magliari
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>10
<FILENAME>b319220ex_10-13.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 14th day of May
2001, by and between THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. (the
"Company"), and John Metzger (the "Employee").
W I T N E S S E T H
WHEREAS, the Company and the Employee (the "Parties") have
agreed to enter into this agreement (the "Agreement) relating to the employment
of the Employee by the Company;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. Term of Employment.
(a) The Company agrees to continue to employ the Employee, and the Employee
agrees to remain in the employment of the Company, in accordance with the terms
and provisions of this Agreement, for the period set forth below (the
"Employment Period").
(b) The Employment Period under this Agreement shall commence as of May 14, 2001
and, subject only to the provisions of Sections 7, 8 and 9 below relating to
termination of employment, shall continue until (i) the close of business on May
22, 2004, or (ii) such later date as shall result from the operation of
subparagraph (c) below (the "Terminal Date").
(c) Commencing on November 14, 2002, and on the first business day of each month
thereafter (such date and each such first business day, the "Renewal Date") the
Terminal Date set forth in subparagraph (b) above shall be extended so as to
occur eighteen months from the Renewal Date unless either the Company or the
Employee shall have given written notice to the other Party on or before such
Renewal Date that the Terminal Date is not to be extended.
2. Duties.
It is the intention of the Parties that during the term of his
employment under this Agreement, the Employee will serve as Senior Vice
President - everGReen Business Leader of the Company. The Employee will devote
his full business time and attention to the affairs of the Company and his
duties as its Senior Vice President - everGReen Business Leader. The Employee
will have such duties as are appropriate to his position as Senior Vice
President - everGReen Business Leader, and will have such authority as required
to enable him to perform these duties. Consistent with the foregoing, the
Employee shall comply with all reasonable instructions of the Vice Chairman,
Chief Financial Officer of the Company. The Employee will be based in Montvale,
New Jersey and his services will be rendered there except insofar as travel may
be involved in connection with his regular duties. The Employee will report
directly to the Vice Chairman, Chief Financial Officer of the Company. If,
during the Employment Period, Employee's duties hereunder as Senior Vice
President - everGReen Business Leader should conclude, and Employee is not in
breach of this Agreement, Employee shall be re-assigned new duties commensurate
with his position as a Senior Vice President. As such, Employee shall continue
to report to a member of the Chairman, President & Chief Executive Officer's
staff, which such staff member may not necessarily be the Vice Chairman, Chief
Financial Officer of the Company. Thereafter during the Employment Period,
Employee shall report to, comply with all reasonable instructions of and
otherwise be managed by that executive officer to whom he is then assigned.
3. Salary and Bonus.
3.1 Salary. The Company will pay the Employee a base salary at an initial
annual rate of not less than $265,000, which base salary as in effect from time
to time will not be reduced and will be reviewed periodically (at intervals of
not more than eighteen (18) months) by the Compensation Committee of the Board
of Directors (the "Board") for the purpose of considering increases thereof. In
evaluating increases in the Employee's base salary, the Compensation Committee
of the Board will take into account such factors as corporate performance,
individual merit, and such other considerations as it deems appropriate. The
Employee's base salary will be paid in accordance with the standard practices
for other corporate executives of the Company.
3.2 Bonuses.
The Employee will be eligible to receive annually or otherwise
any bonus awards, whether payable in cash, shares of common stock of the Company
or otherwise, which the Company, the Compensation Committee of the Board or such
other authorized committee of the Board determines to award or grant.
4. Benefit Programs.
The Employee will receive such benefits and awards, including
without limitation stock options and restricted share awards, as the
Compensation Committee of the Board shall determine and will be eligible to
participate in all employee benefit plans and programs of the Company from time
to time in effect for the benefit of senior executives of the Company,
including, but not limited to, pension and other retirement plans, group life
insurance, hospitalization and surgical and major medical coverages, sick leave,
salary continuation arrangements, vacations and holidays, long-term disability,
and such other benefits as are or may be made available from time to time to
senior executives of the Company.
5. Business Expenses and Perquisites.
The Employee will be reimbursed for all reasonable expenses
incurred by him in connection with the conduct of the business of the Company,
provided he properly accounts therefor in accordance with the Company's
policies. He will also be entitled to such other perquisites as are customary
for senior executives of the Company.
6. Office and Services Furnished.
The Company shall furnish the Employee with office space,
secretarial assistance and such other facilities and services as shall be
suitable to the Employee's position and adequate for the performance of his
duties hereunder.
7. Termination of Employment by the Company.
7.1 Involuntary Termination by the Company Other Than For Permanent and Total
Disability or For Cause. The Company may terminate the Employee's employment at
any time and for any reason by giving him a written notice of termination to
that effect at least 45 days before the date of termination; provided, however,
that should the reason for termination be performance related and Employee's
manager has failed to comply with the Company's Performance Management
requirements, then the Employee first shall be afforded a ninety (90) day cure
period. In the event the Company terminates the Employee's employment for any
reason other than for Permanent and Total Disability, as provided in Section
7.2, below, or for Cause, as provided in Section 7.3, below, the Employee shall
be entitled to the benefits described in Section 10 or Section 11, whichever is
applicable.
7.2 Termination Due to Permanent and Total Disability. If the Employee incurs a
Permanent and Total Disability, as defined below, the Company may terminate the
Employee's employment by giving him written notice of termination at least 45
days before the date of such termination. In the event of such termination of
the Employee's employment because of Permanent and Total Disability, the
Employee shall be entitled to receive (i) his base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned by the
Employee pursuant to this Agreement or any benefit plan or program of the
Company as of the date of such termination of employment at the normal time for
payment of such salary, compensation or benefits, expressly including without
limitation any management incentive or bonus compensation otherwise payable
pro-rated to the last day worked and (ii) any reimbursement amounts owing under
Section 5. For purposes of this Agreement, the Employee shall be considered to
have incurred a Permanent and Total Disability if he is unable to substantially
carry out his duties under this Agreement by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months. The existence of such Permanent and Total Disability
shall be evidenced by such medical certification as the Secretary of the Company
shall require and shall be subject to the approval of the Compensation Committee
of the Board of Directors of the Company.
7.3 Termination for Cause. The Company may terminate the Employee's employment
for Cause if (i) the Employee willfully, substantially, and continually fails to
perform the duties for which he is employed by the Company, (ii) the Employee
willfully fails to comply with the reasonable instructions of the Vice Chairman,
Chief Financial Officer of the Company, (iii) the Employee willfully engages in
conduct which is or would reasonably be expected to be materially and
demonstrably injurious to the Company, (iv) the Employee willfully engages in an
act or acts of dishonesty resulting in material personal gain to the Employee at
the expense of the Company, (v) the Employee is convicted of a felony, (vi) the
Employee engages in an act or acts of gross malfeasance in connection with his
employment hereunder, (vii) the Employee commits a material breach of the
confidentiality provision set forth in Section 15, or (viii) the Employee
exhibits demonstrable evidence of alcohol or drug abuse having a substantial
adverse effect on his job performance hereunder. The Company shall exercise its
right to terminate the Employee's employment for Cause by giving him written
notice of termination at least 45 days before the date of such termination
specifying in reasonable detail the circumstances constituting such Cause. In
the event of such termination of the Employee's employment for Cause, the
Employee shall be entitled to receive (i) his base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned
pursuant to this Agreement or any benefit plan or program of the Company as of
the date of such termination at the normal time for payment of such salary,
compensation or benefits and (ii) any amounts owed under the reimbursement
policy of Section 5.
8. Termination of Employment by the Employee.
(a) Good Reason. The Employee may terminate his employment for Good Reason by
giving the Company a written notice of termination at least 45 days before the
date of such termination specifying in reasonable detail the circumstances
constituting such Good Reason. In the event of the Employee's termination of his
employment for Good Reason, the Employee shall be entitled to the benefits
described in Section 10 or Section 11, whichever is applicable. For purposes of
this Agreement, Good Reason shall mean (i) a significant reduction in the scope
of the Employee's authority, functions, duties or responsibilities from that
which is contemplated by this Agreement, (ii) the Employee being required to
report directly to someone other than the Vice Chairman, Chief Financial Officer
of the Company, (iii) the relocation of the Employee's office location to a
location more than 50 miles away from the Employee's principal place of
employment on May 14, 2001, (iv) any reduction in the Employee's base salary, or
(v) a significant reduction in the employee benefits provided to the Employee
other than in connection with an across-the-board reduction similarly affecting
substantially all senior executives of the Company. If an event constituting a
ground for termination of employment for Good Reason occurs, and the Employee
fails to give notice of termination within 3 months after the occurrence of such
event, the Employee shall be deemed to have waived his right to terminate
employment for Good Reason in connection with such event (but not for any other
event for which the 3-month period has not expired).
(b) Other. The Employee may terminate his employment at any time and for any
reason, other than pursuant to subsection (a) above, by giving the Company a
written notice of termination to that effect at least 45 days before the date of
termination. In the event of the Employee's termination of his employment
pursuant to this subsection (b), the Employee shall be entitled to receive (i)
his base salary pursuant to Section 3.1 and any other compensation and benefits
to the extent actually earned by the Employee pursuant to this Agreement or any
benefit plan or program of the Company as of the date of such termination at the
normal time for payment of such salary, compensation or benefits, and (ii) any
reimbursement amounts owing under Section 5.
9. Termination of Employment By Death. In the event of the death of the
Employee during the course of his employment hereunder, the Employee's estate
shall be entitled to receive (i) his base salary pursuant to Section 3.1 and any
other compensation and benefits to the extent actually earned by the Employee
pursuant to this Agreement or any other benefit plan or program of the Company
as of the date of such termination at the normal time for payment of such
salary, compensation or benefits, and (ii) any reimbursement amounts owing under
Section 5. In addition, in the event of such death, the Employee's beneficiaries
shall receive any death benefits owed to them under the Company's employee
benefit plans.
10. Benefits Upon Termination Without Cause or For Good Reason (No Change of
Control). If (a) the Employee's employment with the Company shall terminate (i)
because of termination by the Company pursuant to Section 7.1 other than for
Cause and other than because of Permanent and Total Disability, or (ii) because
of termination by the Employee for Good Reason pursuant to Section 8(a), and (b)
such termination of employment does not occur within 13 months following a
"Change of Control" of the Company (as defined in Section 12), the Employee
shall be entitled to the following:
(a) The Company shall pay to the Employee his base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned by the
Employee under this Agreement or any benefit plan or program of the Company as
of the date of such termination at the normal time for payment of such salary,
compensation or benefits.
(b) The Company shall pay the Employee any reimbursement amounts owing
under Section 5.
(c) The Company shall pay to the Employee as a severance benefit for each month
during the 18 month period beginning with the month next following the date of
termination of the Employee's employment an amount equal to one-twelfth of the
sum of (i) his annual rate of base salary immediately preceding his termination
of employment, and (ii) the average of his three highest annual bonuses awarded
under the Company's annual management incentive bonus plan for any of the five
calendar years preceding his termination of employment (or, if he was not
eligible for a bonus for at least three calendar years in such five-year period,
then the average of such bonuses for all of the calendar years in such five-year
period for which he was eligible, and if he was not eligible for such a bonus in
any previous year, then 100% of his target annual bonus for the year of
termination of his employment), with any deferred bonuses counting for the year
earned rather than the year paid. Each such monthly benefit shall be paid no
later than the last day of the applicable month. In the event that the Employee
dies before the end of such 18-month period, the payments for the remainder of
such period shall be made to the Employee's estate.
(d) The Company shall pay to the Employee as a bonus for the year of termination
of his employment an amount equal to a portion (determined as provided in the
next sentence) of the bonus that the Employee would actually have received under
the Company's annual management incentive bonus plan for the calendar year of
termination of the Employee's employment if his employment had not terminated
(determined on the basis of his actual bonus opportunity and the actual degree
of achievement of the applicable performance goals) or, if no bonus opportunity
for that year had been established for the Employee at the time of such
termination of employment, such portion of the bonus awarded to him under the
Company's annual management incentive bonus plan for the calendar year
immediately preceding the calendar year of the termination of his employment,
with deferred bonuses counting for the year earned rather than the year paid.
Such portion shall be determined by dividing the number of days of the
Employee's employment during such calendar year up to his termination of
employment by 365 (366 if a leap year). Such payment shall be made on or about
the date on which bonuses for the applicable year are paid to executives of the
Company generally under the Company's annual management incentive bonus plan,
and the Employee shall have no right to any further bonuses under said plan.
(e) During the period of 18 months beginning on the date of the Employee's
termination of employment, the Employee shall remain covered by the medical,
dental, vision, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability plans of
the Company that covered him immediately prior to his termination of employment
as if he had remained in employment for such period. In the event that the
Employee's participation in any such plan is barred, the Company shall arrange
to provide the Employee with substantially similar benefits (but, in the case of
long-term disability benefits, only if reasonably commercially available). Any
medical insurance coverage for such 18-month period pursuant to this subsection
(e) shall become secondary upon the earlier of (i) the date on which the
Employee begins to be covered by comparable medical coverage provided by a new
employer, or (ii) the earliest date upon which the Employee becomes eligible for
Medicare or a comparable Government insurance program.
11. Benefits Upon Termination Without Cause or For Good Reason (Change of
Control). If (a) the Employee's employment with the Company shall terminate (i)
because of termination by the Company pursuant to Section 7.1 other than for
Cause and other than because of Permanent and Total Disability, (ii) because of
termination by the Employee for Good Reason pursuant to Section 8(a), or (iii)
for any reason during the 30 days beginning on the first anniversary of a Change
of Control, and (b) such termination of employment occurs within 13 months
following a "Change of Control" of the Company (as defined in Section 12), the
Employee shall be entitled to the following:
(a) The Company shall pay to the Employee his base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned by the
Employee under this Agreement or any benefit plan or program of the Company as
of the date of such termination at the normal time for payment of such salary,
compensation or benefits.
(b) The Company shall pay the Employee any reimbursement amounts owing
under Section 5.
(c) The Company shall pay to the Employee as a severance benefit an amount equal
to three (3) times the sum of (i) his annual rate of base salary immediately
preceding his termination of employment, and (ii) the average of his three
highest annual bonuses awarded under the Company's annual management incentive
bonus plan for any of the five calendar years preceding his termination of
employment (or, if he was not eligible for a bonus for at least three calendar
years in such five-year period, then the average of such bonuses for all of the
calendar years in such five-year period for which he was eligible, and if he was
not eligible for such a bonus in any previous year, then 100% of his target
annual bonus for the year of termination of his employment), with any deferred
bonuses counting for the year earned rather than the year paid. Such severance
benefit shall be paid in a lump sum within 45 days after the date of such
termination of employment.
(d) The Company shall pay to the Employee as a bonus for the year of termination
of his employment an amount equal to a portion (determined as provided in the
next sentence) of the bonus that the Employee would actually have received under
the Company's annual management incentive bonus plan for the calendar year of
termination of the Employee's employment if his employment had not terminated
(determined on the basis of his actual bonus opportunity and the actual degree
of achievement of the applicable performance goals) or, if no bonus opportunity
for that year had been established for the Employee at the time of such
termination of employment, such portion of the bonus awarded to him under the
Company's annual management incentive bonus plan for the calendar year
immediately preceding the calendar year of the termination of his employment,
with deferred bonuses counting for the year earned rather than the year paid.
Such portion shall be determined by dividing the number of days of the
Employee's employment during such calendar year up to his termination of
employment by 365 (366 if a leap year). Such payment shall be made on or about
the date on which bonuses for the applicable year are paid to executives of the
Company generally under the Company's annual management incentive bonus plan,
and the Employee shall have no right to any further bonuses under said plan.
(e) During the period of 36 months beginning on the date of the Employee's
termination of employment, the Employee shall remain covered by the medical,
dental, vision, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability plans of
the Company that covered him immediately prior to his termination of employment
as if he had remained in employment for such period. In the event that the
Employee's participation in any such plan is barred, the Company shall arrange
to provide the Employee with substantially similar benefits (but, in the case of
long-term disability benefits, only if reasonably commercially available). Any
medical insurance coverage for such 36-month period pursuant to this subsection
(e) shall become secondary upon the earlier of (i) the date on which the
Employee begins to be covered by comparable medical coverage provided by a new
employer, or (ii) the earliest date upon which the Employee becomes eligible for
Medicare or a comparable Government insurance program.
12. Change of Control. For the purposes of this Agreement, a "Change of Control"
shall be deemed to have occurred if (a) any person or persons acting together
which would constitute a "group" for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (other than the Company,
any subsidiary of the Company, and Tengelmann Warenhandelsgesellschaft (a
partnership organized under the laws of the Federal Republic of Germany or any
successor to such partnership, hereinafter "Tengelmann")) shall beneficially own
(as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, at least
30% of the total voting power of all classes of capital stock of the Company
entitled to vote generally in the election of the Board and such voting power
exceeds the then current voting power of Tengelmann; (b) control of Tengelmann
is acquired by any person or persons other than family members or entities
controlled by family members of Erivan Haub; (c) Current Directors (as herein
defined) shall cease for any reason to constitute at least a majority of the
members of the Board (for this purpose, a "Current Director" shall mean any
member of the Board as of the date hereof and any successor of a Current
Director whose election, or nomination for election by the Company's
shareholders, was approved by at least two-thirds of the Current Directors then
on the Board); (d) the shareholders of the Company approve (i) a plan of
complete liquidation of the Company or (ii) an agreement providing for the
merger or consolidation of the Company other than a merger or consolidation in
which (x) the holders of the common stock of the Company immediately prior to
the consolidation or merger have, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or (y) the Board immediately prior to the merger or
consolidation would, immediately after the merger or consolidation, constitute a
majority of the board of directors of the continuing or surviving corporation;
or (e) the shareholders of the Company approve an agreement (or agreements)
providing for the sale or other disposition (in one transaction or a series of
transactions) of all or substantially all of the assets of the Company.
13. Entitlement to Other Benefits. Except as otherwise provided in this
Agreement, this Agreement shall not be construed as limiting in any way any
rights or benefits that the Employee or his spouse, dependents or beneficiaries
may have pursuant to any other plan or program of the Company.
14. Non-Competition.
The Employee agrees that during the term of this Agreement and
for a period of eighteen months following termination of his employment, the
Employee will not, within any of the geographical areas of the United States or
Canada in which the Company is then conducting business (either directly or
through franchisees), directly or indirectly, own, manage, operate, control, be
employed by, participate in, provide consulting services to, or be connected in
any manner with the ownership, management, operation or control of any business
similar to any of the types of businesses conducted by the Company to any
significant extent during his employment or on the date of termination of his
employment, except the Employee may own for investment purposes up to 1% of the
capital stock of any company whose stock is publicly traded, and during such
eighteen month period following termination of his employment the Employee will
not contact or solicit employees of the Company for the purpose of inducing such
employees to leave the employ of the Company.
15. Confidential Information and Trade Secrets.
The Employee hereby acknowledges that he will have access to
and become acquainted with various trade secrets and proprietary information of
the Company and other confidential information relating to the Company. The
Employee covenants that he will not, directly or indirectly, disclose or use
such information except as is necessary and appropriate in connection with his
employment by the Company and that he will otherwise adhere in all respects to
the Company's policies against the use or disclosure of such information.
16. Arbitration; Injunctive Relief.
Any controversy or claim arising out of or relating to this
Agreement, directly or indirectly, or the performance or breach thereof, will be
settled by arbitration in accordance with the rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The arbitration will be held
in New York, New York, or such other place as may be agreed upon at the time by
the parties to the arbitration. The parties shall bear their own expenses in
connection with any arbitration or proceeding arising out of or relating to this
Agreement, directly or indirectly, or the performance or breach thereof;
provided, however, that in the event that the Employee substantially prevails,
the Company agrees promptly to reimburse the Employee for all expenses
(including costs and fees of witnesses, evidence and attorneys fees and
expenses) reasonably incurred by him in investigating, prosecuting, defending,
or preparing to prosecute or defend any action, proceeding or claim arising out
of or relating to this Agreement, directly or indirectly, or the performance or
breach thereof. The parties acknowledge and agree that a breach of Employee's
obligations under Sections 14 or 15 could cause irreparable harm to Company for
which Company would have no adequate remedy at law, and further agree that,
notwithstanding the agreement of the parties to arbitrate controversies or
claims as set forth above, the Company may apply to a court of competent
jurisdiction to seek to enjoin preliminarily or permanently any breach or
threatened breach of the Employee's obligations under Sections 14 and 15.
17. Indemnification.
The Company shall indemnify and hold the Employee harmless to
the fullest extent legally permissible under the laws of the State of Maryland,
against any and all expenses, liabilities and losses (including attorney's fees,
judgments, fines and amounts paid in settlement) reasonably incurred or suffered
by him by reason of any claim or cause of action asserted against him because of
his service at any time as a director or officer of the Company. The Company
shall advance to the Employee the amount of his expenses incurred in connection
with any proceeding relating to such service to the fullest extent legally
permissible under the laws of the State of Maryland. Notwithstanding the
foregoing, the Company's obligations pursuant to this Section 17 shall not apply
in the case of any claim or cause of action by or in the right of the Company or
any subsidiary thereof.
18. Liability Insurance.
To the extent that Company maintains a directors and officers
liability insurance policy in effect, the Company will take all steps necessary
to ensure that the Employee is covered under such policy for his service as a
director or officer of the Company or any subsidiary of the Company with respect
to claims made at any time with respect to such service.
19. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment or distribution made, or benefit provided
(including, without limitation, the acceleration of any payment, distribution or
benefit and the accelerated exercisability of any stock option), to or for the
benefit of the Employee (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 19) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (or any similar excise tax) or any interest or
penalties are incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive from the Company an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Employee of all taxes
(including any Excise Tax, income tax or employment tax and taking into account
any lost or reduced tax deductions on account of such Gross-Up Payment) imposed
upon the Gross-Up Payment and any interest or penalties imposed with respect to
such taxes, the Employee retains from the Gross-Up Payment an amount equal to
the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 19(c), all determinations required to
be made under this Section 19, including determination of whether a Gross-Up
Payment is required and of the amount of any such Gross-up Payment, shall be
made by Deloitte & Touche LLP (the "Accounting Firm"), which shall provide
detailed supporting calculations both to the Company and the Employee within 15
business days of the date of termination of the Employee's employment, if
applicable, or such earlier time as is requested by the Company, provided that
any determination that an Excise Tax is payable by the Employee shall be made on
the basis of substantial authority. The initial Gross-Up Payment, if any, as
determined pursuant to this Section 19(b), shall be paid to the Employee within
five business days of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by the Employee, it
shall furnish the Employee with a written opinion that he has substantial
authority not to report any Excise Tax on his Federal income tax return. Any
determination by the Accounting Firm meeting the requirements of this Section
19(b) shall be binding upon the Company and the Employee; subject only to
payments pursuant to the following sentence based on a determination that
additional Gross-Up Payments should have been made, consistent with the
calculations required to be made hereunder (the amount of such additional
payments is referred to herein as the "Gross-Up Underpayment"). In the event
that the Company exhausts its remedies pursuant to Section 19(c) and the
Employee thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Gross-Up Underpayment that has
occurred and any such Gross-Up Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee. The fees and disbursements of the
Accounting Firm shall be paid by the Company.
(c) The Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of a Gross-Up Payment. Such notification shall be given as soon as
practicable but not later than ten business days after the Employee receives
written notice of such claim and shall apprise the Company of the nature of such
claim and the date on which such Claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim and that it will bear the costs and
provide the indemnification as required by this sentence, the Employee shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii)cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax, income tax or employment tax (taking into
account any lost or reduced tax deductions on account of such payments),
including interest and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 19(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Employee to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Employee agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Employee to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Employee on an interest-free basis and shall
indemnify and hold the Employee harmless, on an after-tax basis, from any Excise
Tax, income tax or employment tax (taking into account any lost or reduced tax
deductions on account of such advance), including interest or penalties with
respect thereto, imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to the payment of taxes for the
taxable year of the Employee with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Employee shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the Company
pursuant to Section 19(c), the Employee becomes entitled to receive any refund
with respect to such claim, the Employee shall (subject to the Company's
complying with the requirements of Section 19(c)) promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the Employee of an
amount advanced by the Company pursuant to Section 19(c), a determination is
made that the Employee shall not be entitled to any refund with respect to such
claim and the Company does not notify the Employee in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then any obligation of the Employee to repay such advance shall
be forgiven and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
20. No Duty to Seek Employment. The Employee shall not be under any duty or
obligation to seek or accept other employment following termination of
employment, and no amount, payment or benefits due to the Employee hereunder
shall be reduced or suspended if the Employee accepts subsequent employment.
21. Deductions and Withholding.
All amounts payable or which become payable under any
provision of this Agreement shall be subject to any deductions authorized by the
Employee and any deductions and withholdings required by law.
22. Governing Law.
The validity, interpretation and performance of this Agreement
will be governed by the laws of the State of New Jersey without regard to the
conflict of law provisions.
23. Notice.
Any written notice required to be given by one Party to the
other Party hereunder will be deemed effected if mailed by registered mail:
To the Company at: The Great Atlantic & Pacific Tea Company
2 Paragon Drive
Montvale, New Jersey 07645
Attention: General Counsel
To the Employee at: 4205 Leslie Lane, Doylestown, PA 18901
or such other address as may be stated in a notice given as hereinbefore
provided.
24. Severability.
If any one or more of the provisions contained in this
Agreement is held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability will not affect any other provision
hereof.
25. Successors and Assigns.
This Agreement will be binding upon and inure to the benefit
of the Parties hereto and their personal representatives, and, in the case of
the Company, its successors and assigns. To the extent the Company's obligations
under this Agreement are transferred to any successor or assign, such successor
or assign shall be treated as the "Company" for purposes of this Agreement.
Other than as contemplated by this Agreement, the Employee may not assign his
rights or duties under this Agreement.
26. Continuing Effect.
Wherever appropriate to the intention of the Parties hereto,
the respective rights and obligations of the Parties, including the obligations
referred to in Sections 10, 11, 14, 15 and 19, hereof, will survive any
termination or expiration of the term of this Agreement.
27. Entire Agreement.
This Agreement constitutes the entire agreement between the
Parties and supersedes any and all other agreements and understandings between
the Parties in respect of the matters addressed in this Agreement.
28. Amendment and Waiver.
No amendment or waiver of any provision of this Agreement
shall be effective, unless the same shall be in writing and signed by the
Parties, and then such amendment, waiver or consent shall be effective only in
the specific instance or for the specific purpose for which such amendment,
waiver or consent was given.
29. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original
but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Employee has hereunto set his hand as
of the day and year first above written.
THE GREAT ATLANTIC & PACIFIC
TEA COMPANY, INC.
/s/Christian W.E. Haub
--------------------------------
Christian W. E. Haub, Chairman,
President & Chief Executive Officer
/s/John Metzger
--------------------------------
John Metzger
John Metzger
4205 Leslie Lane
Doylestown, PA 18901
Re: Amendment to Employment Agreement of John Metzger
Dear John:
As discussed, effective February 11, 2002 (the "Effective Date"), The
Great Atlantic & Pacific Tea Company, Inc. (the "Company") has promoted you from
Senior Vice President - everGReen Business Leader of the Company to Senior Vice
President - Chief Information Officer of the Company (the "Promotion").
Additionally, as of the Effective Date, you will have a base salary of Three
Hundred and Five Thousand Dollars ($305,000) and will report directly to, and
comply with all reasonable instructions of, the Chairman, President and Chief
Executive Officer of the Company.
In conjunction with the Promotion, as of the Effective Date, the
Employment Agreement, made and entered into as of the 14th date of May 2001, by
and between the Company and John Metzger (the "Agreement"), shall be deemed
amended as follows:
(1) All references to Senior Vice President - everGReen Business Leader shall be
changed to Senior Vice President - Chief Information Officer & everGReen
Business Leader;
(2) All references to Vice Chairman, Chief Financial Officer shall be
changed to Chairman, President and Chief Executive Officer; and
(3) The base salary of $265,000 indicated in Section 3.1 shall be increased to
Three Hundred and Five Thousand Dollars ($305,000).
Except as indicated above, the Agreement, its terms and conditions shall remain
in full force and effect.
If the terms outlined above, and the changes to your Agreement are acceptable,
please sign below, and return an original executed copy of this letter
agreement. Upon execution of this letter agreement, the Agreement shall be
deemed amended in accordance with Section 28 thereof.
Sincerely,
The Great Atlantic & Pacific Tea Company, Inc.
By: /s/Laurane Magliari
-------------------
Agreed to and accepted this 14th day
of February, 2002
/s/John Metzger
- -----------------------------------
John Metzger
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>11
<FILENAME>b319220ex_10-14.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 25th day of February,
2002, by and between THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. (the
"Company"), and Dave Smithies (the "Employee").
W I T N E S S E T H
WHEREAS, the Company and the Employee (the "Parties") have agreed to
enter into this agreement (the "Agreement) relating to the employment of the
Employee by the Company;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. Term of Employment.
(a) The Company agrees to continue to employ the Employee, and the Employee
agrees to remain in the employment of the Company, in accordance with the terms
and provisions of this Agreement, for the period set forth below (the
"Employment Period").
(b) The Employment Period under this Agreement shall commence as of February 25,
2002 and, subject only to the provisions of Sections 7, 8 and 9 below relating
to termination of employment, shall continue until (i) the close of business on
February 24, 2005 or (ii) such later date as shall result from the operation of
subparagraph (c) below (the "Terminal Date").
(c) Commencing on August 25, 2004, and on the first business day of each month
thereafter (such date and each such first business day, the "Renewal Date") the
Terminal Date set forth in subparagraph (b) above shall be extended so as to
occur eighteen months from the Renewal Date unless either the Company or the
Employee shall have given written notice to the other Party on or before such
Renewal Date that the Terminal Date is not to be extended.
2. Duties.
It is the intention of the Parties that during the term of his
employment under this Agreement, the Employee will serve as President - Atlantic
Region. The Employee will devote his full business time and attention to the
affairs of the Company and his duties as its President - Atlantic Region. The
Employee will have such duties as are appropriate to his position as President -
Atlantic Region and will have such authority as required to enable him to
perform these duties. Consistent with the foregoing, the Employee shall comply
with all reasonable instructions of the President and Chief Operating Officer of
the Company. The Employee will be based in Paterson, New Jersey and his services
will be rendered there except insofar as travel may be involved in connection
with his regular duties. The Employee will report directly to the President and
Chief Operating Officer of the Company.
3. Salary and Bonus.
3.1 Salary. The Company will pay the Employee a base salary at an initial annual
rate of not less than $320,000, which base salary as in effect from time to time
will not be reduced and will be reviewed periodically (at intervals of not more
than eighteen (18) months) by the Compensation Committee of the Board of
Directors (the "Board") for the purpose of considering increases thereof. In
evaluating increases in the Employee's base salary, the Compensation Committee
of the Board will take into account such factors as corporate performance,
individual merit, and such other considerations as it deems appropriate. The
Employee's base salary will be paid in accordance with the standard practices
for other corporate executives of the Company.
3.2 Bonuses.
The Employee will be eligible to receive annually or otherwise any
bonus awards, whether payable in cash, shares of common stock of the Company or
otherwise, which the Company, the Compensation Committee of the Board or such
other authorized committee of the Board determines to award or grant.
4. Benefit Programs.
The Employee will receive such benefits and awards, including
without limitation stock options and restricted share awards, as the
Compensation Committee of the Board shall determine and will be eligible to
participate in all employee benefit plans and programs of the Company from time
to time in effect for the benefit of senior executives of the Company,
including, but not limited to, pension and other retirement plans, group life
insurance, hospitalization and surgical and major medical coverage's, sick
leave, salary continuation arrangements, vacations and holidays, long-term
disability, and such other benefits as are or may be made available from time to
time to senior executives of the Company.
5. Business Expenses and Perquisites.
The Employee will be reimbursed for all reasonable expenses incurred
by him in connection with the conduct of the business of the Company, provided
he properly accounts therefor in accordance with the Company's policies. He will
also be entitled to such other perquisites as are customary for senior
executives of the Company.
6. Office and Services Furnished. The Company shall furnish the Employee with
office space, secretarial assistance and such other facilities and services as
shall be suitable to the Employee's position and adequate for the performance of
his duties hereunder.
7. Termination of Employment by the Company.
7.1 Involuntary Termination by the Company Other Than For Permanent and Total
Disability or For Cause. The Company may terminate the Employee's employment at
any time and for any reason by giving him a written notice of termination to
that effect at least 45 days before the date of termination. In the event the
Company terminates the Employee's employment for any reason other than for
Permanent and Total Disability, as provided in Section 7.2, below, or for Cause,
as provided in Section 7.3, below, the Employee shall be entitled to the
benefits described in Section 10 or Section 11, whichever is applicable.
7.2 Termination Due to Permanent and Total Disability. If the Employee incurs a
Permanent and Total Disability, as defined below, the Company may terminate the
Employee's employment by giving him written notice of termination at least 45
days before the date of such termination. In the event of such termination of
the Employee's employment because of Permanent and Total Disability, the
Employee shall be entitled to receive (i) his base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned by the
Employee pursuant to this Agreement or any benefit plan or program of the
Company as of the date of such termination of employment at the normal time for
payment of such salary, compensation or benefits, and (ii) any reimbursement
amounts owing under Section 5. For purposes of this Agreement, the Employee
shall be considered to have incurred a Permanent and Total Disability if he is
unable to substantially carry out his duties under this Agreement by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months. The existence of such Permanent
and Total Disability shall be evidenced by such medical certification as the
Secretary of the Company shall require and shall be subject to the approval of
the Compensation Committee of the Board of Directors of the Company.
7.3 Termination for Cause. The Company may terminate the Employee's employment
for Cause if (i) the Employee willfully, substantially, and continually fails to
perform the duties for which he is employed by the Company, (ii) the Employee
willfully fails to comply with the reasonable instructions of the President and
Chief Operating Officer of the Company, (iii) the Employee willfully engages in
conduct which is or would reasonably be expected to be materially and
demonstrably injurious to the Company, (iv) the Employee willfully engages in an
act or acts of dishonesty resulting in material personal gain to the Employee at
the expense of the Company, (v) the Employee is convicted of a felony, (vi) the
Employee engages in an act or acts of gross malfeasance in connection with his
employment hereunder, (vii) the Employee commits a material breach of the
confidentiality provision set forth in Section 15, or (viii) the Employee
exhibits demonstrable evidence of alcohol or drug abuse having a substantial
adverse effect on his job performance hereunder. The Company shall exercise its
right to terminate the Employee's employment for Cause by giving him written
notice of termination at least 45 days before the date of such termination
specifying in reasonable detail the circumstances constituting such Cause. In
the event of such termination of the Employee's employment for Cause, the
Employee shall be entitled to receive (i) his base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned
pursuant to this Agreement or any benefit plan or program of the Company as of
the date of such termination at the normal time for payment of such salary,
compensation or benefits and (ii) any amounts owed under the reimbursement
policy of Section 5.
8. Termination of Employment by the Employee.
(a) Good Reason. The Employee may terminate his employment for Good Reason by
giving the Company a written notice of termination at least 45 days before the
date of such termination specifying in reasonable detail the circumstances
constituting such Good Reason. In the event of the Employee's termination of his
employment for Good Reason, the Employee shall be entitled to the benefits
described in Section 10 or Section 11, whichever is applicable. For purposes of
this Agreement, Good Reason shall mean (i) a significant reduction in the scope
of the Employee's authority, functions, duties or responsibilities from that
which is contemplated by this Agreement, (ii) the Employee being required to
report directly to someone other than the President and Chief Operating Officer
of the Company, (iii) the relocation of the Employee's office location to a
location more than 50 miles away from the Employee's principal place of
employment on February 25, 2002, (iv) any reduction in the Employee's base
salary, or (v) a significant reduction in the employee benefits provided to the
Employee other than in connection with an across-the-board reduction similarly
affecting substantially all senior executives of the Company. If an event
constituting a ground for termination of employment for Good Reason occurs, and
the Employee fails to give notice of termination within 3 months after the
occurrence of such event, the Employee shall be deemed to have waived his right
to terminate employment for Good Reason in connection with such event (but not
for any other event for which the 3-month period has not expired).
(b) Other. The Employee may terminate his employment at any time and for any
reason, other than pursuant to subsection (a) above, by giving the Company a
written notice of termination to that effect at least 45 days before the date of
termination. In the event of the Employee's termination of his employment
pursuant to this subsection (b), the Employee shall be entitled to receive (i)
his base salary pursuant to Section 3.1 and any other compensation and benefits
to the extent actually earned by the Employee pursuant to this Agreement or any
benefit plan or program of the Company as of the date of such termination at the
normal time for payment of such salary, compensation or benefits, and (ii) any
reimbursement amounts owing under Section 5.
9. Termination of Employment By Death. In the event of the death of the Employee
during the course of his employment hereunder, the Employee's estate shall be
entitled to receive (i) his base salary pursuant to Section 3.1 and any other
compensation and benefits to the extent actually earned by the Employee pursuant
to this Agreement or any other benefit plan or program of the Company as of the
date of such termination at the normal time for payment of such salary,
compensation or benefits, and (ii) any reimbursement amounts owing under Section
5. In addition, in the event of such death, the Employee's beneficiaries shall
receive any death benefits owed to them under the Company's employee benefit
plans.
10. Benefits Upon Termination Without Cause or For Good Reason (No Change of
Control). If (a) the Employee's employment with the Company shall terminate (i)
because of termination by the Company pursuant to Section 7.1 other than for
Cause and other than because of Permanent and Total Disability, or (ii) because
of termination by the Employee for Good Reason pursuant to Section 8(a), and (b)
such termination of employment does not occur within 13 months following a
"Change of Control" of the Company (as defined in Section 12), the Employee
shall be entitled to the following:
(a) The Company shall pay to the Employee his base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned by the
Employee under this Agreement or any benefit plan or program of the Company as
of the date of such termination at the normal time for payment of such salary,
compensation or benefits.
(b) The Company shall pay the Employee any reimbursement amounts owing
under Section 5.
(c) The Company shall pay to the Employee as a severance benefit for each month
during the 18 month period beginning with the month next following the date of
termination of the Employee's employment an amount equal to one-twelfth of the
sum of (i) his annual rate of base salary immediately preceding his termination
of employment, and (ii) the average of his three highest annual bonuses awarded
under the Company's annual management incentive bonus plan for any of the five
calendar years preceding his termination of employment (or, if he was not
eligible for a bonus for at least three calendar years in such five-year period,
then the average of such bonuses for all of the calendar years in such five-year
period for which he was eligible, and if he was not eligible for such a bonus in
any previous year, then 100% of his target annual bonus for the year of
termination of his employment), with any deferred bonuses counting for the year
earned rather than the year paid. Each such monthly benefit shall be paid no
later than the last day of the applicable month. In the event that the Employee
dies before the end of such 18-month period, the payments for the remainder of
such period shall be made to the Employee's estate.
(d) The Company shall pay to the Employee as a bonus for the year of termination
of his employment an amount equal to a portion (determined as provided in the
next sentence) of the bonus that the Employee would actually have received under
the Company's annual management incentive bonus plan for the calendar year of
termination of the Employee's employment if his employment had not terminated
(determined on the basis of his actual bonus opportunity and the actual degree
of achievement of the applicable performance goals) or, if no bonus opportunity
for that year had been established for the Employee at the time of such
termination of employment, such portion of the bonus awarded to him under the
Company's annual management incentive bonus plan for the calendar year
immediately preceding the calendar year of the termination of his employment,
with deferred bonuses counting for the year earned rather than the year paid.
Such portion shall be determined by dividing the number of days of the
Employee's employment during such calendar year up to his termination of
employment by 365 (366 if a leap year). Such payment shall be made on or about
the date on which bonuses for the applicable year are paid to executives of the
Company generally under the Company's annual management incentive bonus plan,
and the Employee shall have no right to any further bonuses under said plan.
(e) During the period of 18 months beginning on the date of the Employee's
termination of employment, the Employee shall remain covered by the medical,
dental, vision, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability plans of
the Company that covered him immediately prior to his]termination of employment
as if he had remained in employment for such period. In the event that the
Employee's participation in any such plan is barred, the Company shall arrange
to provide the Employee with substantially similar benefits (but, in the case of
long-term disability benefits, only if reasonably commercially available). Any
medical insurance coverage for such 18-month period pursuant to this subsection
(e) shall become secondary upon the earlier of (i) the date on which the
Employee begins to be covered by comparable medical coverage provided by a new
employer, or (ii) the earliest date upon which the Employee becomes eligible for
Medicare or a comparable Government insurance program.
11. Benefits Upon Termination Without Cause or For Good Reason (Change of
Control). If (a) the Employee's employment with the Company shall terminate (i)
because of termination by the Company pursuant to Section 7.1 other than for
Cause and other than because of Permanent and Total Disability, (ii) because of
termination by the Employee for Good Reason pursuant to Section 8(a), or (iii)
for any reason during the 30 days beginning on the first anniversary of a Change
of Control, and (b) such termination of employment occurs within 13 months
following a "Change of Control" of the Company (as defined in Section 12), the
Employee shall be entitled to the following:
(a) The Company shall pay to the Employee his base salary pursuant to Section
3.1 and any other compensation and benefits to the extent actually earned by the
Employee under this Agreement or any benefit plan or program of the Company as
of the date of such termination at the normal time for payment of such salary,
compensation or benefits.
(b) The Company shall pay the Employee any reimbursement amounts owing
under Section 5.
(c) The Company shall pay to the Employee as a severance benefit an amount equal
to three (3) times the sum of (i) his annual rate of base salary immediately
preceding his termination of employment, and (ii) the average of his three
highest annual bonuses awarded under the Company's annual management incentive
bonus plan for any of the five calendar years preceding his termination of
employment (or, if he was not eligible for a bonus for at least three calendar
years in such five-year period, then the average of such bonuses for all of the
calendar years in such five-year period for which he was eligible, and if he was
not eligible for such a bonus in any previous year, then 100% of his target
annual bonus for the year of termination of his employment), with any deferred
bonuses counting for the year earned rather than the year paid. Such severance
benefit shall be paid in a lump sum within 45 days after the date of such
termination of employment.
(d) The Company shall pay to the Employee as a bonus for the year of termination
of his employment an amount equal to a portion (determined as provided in the
next sentence) of the bonus that the Employee would actually have received under
the Company's annual management incentive bonus plan for the calendar year of
termination of the Employee's employment if his employment had not terminated
(determined on the basis of his actual bonus opportunity and the actual degree
of achievement of the applicable performance goals) or, if no bonus opportunity
for that year had been established for the Employee at the time of such
termination of employment, such portion of the bonus awarded to him under the
Company's annual management incentive bonus plan for the calendar year
immediately preceding the calendar year of the termination of his employment,
with deferred bonuses counting for the year earned rather than the year paid.
Such portion shall be determined by dividing the number of days of the
Employee's employment during such calendar year up to his termination of
employment by 365 (366 if a leap year). Such payment shall be made on or about
the date on which bonuses for the applicable year are paid to executives of the
Company generally under the Company's annual management incentive bonus plan,
and the Employee shall have no right to any further bonuses under said plan.
(e) During the period of 36 months beginning on the date of the Employee's
termination of employment, the Employee shall remain covered by the medical,
dental, vision, life insurance, and, if reasonably commercially available
through nationally reputable insurance carriers, long-term disability plans of
the Company that covered him immediately prior to his termination of employment
as if he had remained in employment for such period. In the event that the
Employee's participation in any such plan is barred, the Company shall arrange
to provide the Employee with substantially similar benefits (but, in the case of
long-term disability benefits, only if reasonably commercially available). Any
medical insurance coverage for such 36-month period pursuant to this subsection
(e) shall become secondary upon the earlier of (i) the date on which the
Employee begins to be covered by comparable medical coverage provided by a new
employer, or (ii) the earliest date upon which the Employee becomes eligible for
Medicare or a comparable Government insurance program.
12. Change of Control. For the purposes of this Agreement, a "Change of Control"
shall be deemed to have occurred if (a) any person or persons acting together
which would constitute a "group" for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (other than the Company,
any subsidiary of the Company, and Tengelmann Warenhandelsgesellschaft a
partnership organized under the laws of the Federal Republic of Germany or any
successor to such partnership, (hereinafter "Tengelmann") shall beneficially own
(as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, at least
30% of the total voting power of all classes of capital stock of the Company
entitled to vote generally in the election of the Board and such voting power
exceeds the then current voting power of Tengelmann; (b) control of Tengelmann
is acquired by any person or persons other than family members or entities
controlled by family members of Erivan Haub; (c) Current Directors (as herein
defined) shall cease for any reason to constitute at least a majority of the
members of the Board (for this purpose, a "Current Director" shall mean any
member of the Board as of the date hereof and any successor of a Current
Director whose election, or nomination for election by the Company's
shareholders, was approved by at least two-thirds of the Current Directors then
on the Board); (d) the shareholders of the Company approve (i) a plan of
complete liquidation of the Company or (ii) an agreement providing for the
merger or consolidation of the Company other than a merger or consolidation in
which (x) the holders of the common stock of the Company immediately prior to
the consolidation or merger have, directly or indirectly, at least a majority of
the common stock of the continuing or surviving corporation immediately after
such consolidation or merger or (y) the Board immediately prior to the merger or
consolidation would, immediately after the merger or consolidation, constitute a
majority of the board of directors of the continuing or surviving corporation;
or (e) the shareholders of the Company approve an agreement (or agreements)
providing for the sale or other disposition (in one transaction or a series of
transactions) of all or substantially all of the assets of the Company.
13. Entitlement to Other Benefits. Except as otherwise provided in this
Agreement, this Agreement shall not be construed as limiting in any way any
rights or benefits that the Employee or his spouse, dependents or beneficiaries
may have pursuant to any other plan or program of the Company.
14. Non-Competition.
The Employee agrees that during the term of this Agreement and for a
period of eighteen months following termination of his employment, the Employee
will not, within any of the geographical areas of the United States or Canada in
which the Company is then conducting business (either directly or through
franchisees), directly or indirectly, own, manage, operate, control, be employed
by, participate in, provide consulting services to, or be connected in any
manner with the ownership, management, operation or control of any business
similar to any of the types of businesses conducted by the Company to any
significant extent during his employment or on the date of termination of his
employment, except the Employee may own for investment purposes up to 1% of the
capital stock of any company whose stock is publicly traded, and during such
eighteen month period following termination of his employment the Employee will
not contact or solicit employees of the Company for the purpose of inducing such
employees to leave the employ of the Company.
15. Confidential Information and Trade Secrets.
The Employee hereby acknowledges that he will have access to and
become acquainted with various trade secrets and proprietary information of the
Company and other confidential information relating to the Company. The Employee
covenants that he will not, directly or indirectly, disclose or use such
information except as is necessary and appropriate in connection with his
employment by the Company and that he will otherwise adhere in all respects to
the Company's policies against the use or disclosure of such information.
16. Arbitration; Injunctive Relief.
Any controversy or claim arising out of or relating to this
Agreement, directly or indirectly, or the performance or breach thereof, will be
settled by arbitration in accordance with the rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The arbitration will be held
in New York, New York, or such other place as may be agreed upon at the time by
the parties to the arbitration. The parties shall bear their own expenses in
connection with any arbitration or proceeding arising out of or relating to this
Agreement, directly or indirectly, or the performance or breach thereof;
provided, however, that in the event that the Employee substantially prevails,
the Company agrees promptly to reimburse the Employee for all expenses
(including costs and fees of witnesses, evidence and attorneys fees and
expenses) reasonably incurred by him in investigating, prosecuting, defending,
or preparing to prosecute or defend any action, proceeding or claim arising out
of or relating to this Agreement, directly or indirectly, or the performance or
breach thereof. The parties acknowledge and agree that a breach of Employee's
obligations under Sections 14 or 15 could cause irreparable harm to Company for
which Company would have no adequate remedy at law, and further agree that,
notwithstanding the agreement of the parties to arbitrate controversies or
claims as set forth above, the Company may apply to a court of competent
jurisdiction to seek to enjoin preliminarily or permanently any breach or
threatened breach of the Employee's obligations under Sections 14 and 15.
17. Indemnification.
The Company shall indemnify and hold the Employee harmless to the
fullest extent legally permissible under the laws of the State of Maryland,
against any and all expenses, liabilities and losses (including attorney's fees,
judgments, fines and amounts paid in settlement) reasonably incurred or suffered
by him by reason of any claim or cause of action asserted against him because of
his service at any time as a director or officer of the Company. The Company
shall advance to the Employee the amount of his expenses incurred in connection
with any proceeding relating to such service to the fullest extent legally
permissible under the laws of the State of Maryland. Notwithstanding the
foregoing, the Company's obligations pursuant to this Section 17 shall not apply
in the case of any claim or cause of action by or in the right of the Company or
any subsidiary thereof.
18. Liability Insurance.
To the extent that Company maintains a directors and officers
liability insurance policy in effect, the Company will take all steps necessary
to ensure that the Employee is covered under such policy for his service as a
director or officer of the Company or any subsidiary of the Company with respect
to claims made at any time with respect to such service.
19. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution made, or
benefit provided (including, without limitation, the acceleration of any
payment, distribution or benefit and the accelerated exercisability of any stock
option), to or for the benefit of the Employee (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 19) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (or any similar
excise tax) or any interest or penalties are incurred by the Employee with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Employee shall be entitled to receive from the Company an additional payment
(a "Gross-Up Payment") in an amount such that after payment by the Employee of
all taxes (including any Excise Tax, income tax or employment tax and taking
into account any lost or reduced tax deductions on account of such Gross-Up
Payment) imposed upon the Gross-Up Payment and any interest or penalties imposed
with respect to such taxes, the Employee retains from the Gross-Up Payment an
amount equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 19(c), all determinations
required to be made under this Section 19, including determination of whether a
Gross-Up Payment is required and of the amount of any such Gross-up Payment,
shall be made by Deloitte & Touche LLP (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company and the Employee
within 15 business days of the date of termination of the Employee's employment,
if applicable, or such earlier time as is requested by the Company, provided
that any determination that an Excise Tax is payable by the Employee shall be
made on the basis of substantial authority. The initial Gross-Up Payment, if
any, as determined pursuant to this Section 19(b), shall be paid to the Employee
within five business days of the receipt of the Accounting Firm's determination.
If the Accounting Firm determines that no Excise Tax is payable by the Employee,
it shall furnish the Employee with a written opinion that he has substantial
authority not to report any Excise Tax on his Federal income tax return. Any
determination by the Accounting Firm meeting the requirements of this Section
19(b) shall be binding upon the Company and the Employee; subject only to
payments pursuant to the following sentence based on a determination that
additional Gross-Up Payments should have been made, consistent with the
calculations required to be made hereunder (the amount of such additional
payments is referred to herein as the "Gross-Up Underpayment"). In the event
that the Company exhausts its remedies pursuant to Section 19(c) and the
Employee thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Gross-Up Underpayment that has
occurred and any such Gross-Up Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee. The fees and disbursements of the
Accounting Firm shall be paid by the Company.
(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of a Gross-Up Payment. Such notification shall be given as soon as
practicable but not later than ten business days after the Employee receives
written notice of such claim and shall apprise the Company of the nature of such
claim and the date on which such Claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim and that it will bear the costs and
provide the indemnification as required by this sentence, the Employee shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax, income tax or employment tax (taking into
account any lost or reduced tax deductions on account of such payments),
including interest and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 19(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Employee to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Employee agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Employee to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Employee on an interest-free basis and shall
indemnify and hold the Employee harmless, on an after-tax basis, from any Excise
Tax, income tax or employment tax (taking into account any lost or reduced tax
deductions on account of such advance), including interest or penalties with
respect thereto, imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to the payment of taxes for the
taxable year of the Employee with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Employee shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by
the Company pursuant to Section 19(c), the Employee becomes entitled to receive
any refund with respect to such claim, the Employee shall (subject to the
Company's complying with the requirements of Section 19(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Employee
of an amount advanced by the Company pursuant to Section 19(c), a determination
is made that the Employee shall not be entitled to any refund with respect to
such claim and the Company does not notify the Employee in writing of its intent
to contest such denial of refund prior to the expiration of 30 days after such
determination, then any obligation of the Employee to repay such advance shall
be forgiven and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
20. No Duty to Seek Employment. The Employee shall not be under any duty or
obligation to seek or accept other employment following termination of
employment, and no amount, payment or benefits due to the Employee hereunder
shall be reduced or suspended if the Employee accepts subsequent employment.
21. Deductions and Withholding.
All amounts payable or which become payable under any provision of
this Agreement shall be subject to any deductions authorized by the Employee and
any deductions and withholdings required by law.
22. Governing Law.
The validity, interpretation and performance of this Agreement will
be governed by the laws of the State of New Jersey without regard to the
conflict of law provisions.
23. Notice.
Any written notice required to be given by one Party to the other
Party hereunder will be deemed effected if mailed by registered mail:
To the Company at: The Great Atlantic & Pacific Tea Company
2 Paragon Drive
Montvale, New Jersey 07645
Attention: General Counsel
To the Employee at: 2330 Sultana Drive
Yorktown, NY 10598
or such other address as may be stated in a notice given as hereinbefore
provided.
24. Severability.
If any one or more of the provisions contained in this Agreement is
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability will not affect any other provision hereof.
25. Successors and Assigns.
This Agreement will be binding upon and inure to the benefit of the
Parties hereto and their personal representatives, and, in the case of the
Company, its successors and assigns. To the extent the Company's obligations
under this Agreement are transferred to any successor or assign, such successor
or assign shall be treated as the "Company" for purposes of this Agreement.
Other than as contemplated by this Agreement, the Employee may not assign his
rights or duties under this Agreement.
26. Continuing Effect.
Wherever appropriate to the intention of the Parties hereto, the
respective rights and obligations of the Parties, including the obligations
referred to in Sections 10, 11, 14, 15 and 19, hereof, will survive any
termination or expiration of the term of this Agreement.
27. Entire Agreement.
This Agreement constitutes the entire agreement between the Parties
and supersedes any and all other agreements and understandings between the
Parties in respect of the matters addressed in this Agreement.
28. Amendment and Waiver.
No amendment or waiver of any provision of this Agreement shall be
effective, unless the same shall be in writing and signed by the Parties, and
then such amendment, waiver or consent shall be effective only in the specific
instance or for the specific purpose for which such amendment, waiver or consent
was given.
29. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Employee has hereunto set his
hand as of the day and year first above written.
THE GREAT ATLANTIC & PACIFIC TEA
COMPANY, INC.
By: /s/ Christian W.E. Haub
-----------------------------
Christian W. E. Haub
Chairman, President & Chief
Executive Officer
/s/David Smithies
------------------
Dave Smithies
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.23
<SEQUENCE>12
<FILENAME>b319220ex_10-23.txt
<DESCRIPTION>AMENDEMENT TO CREDIT AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.23
AMENDMENT No. 1 AND WAIVER dated as of November 16, 2001, to the Credit
Agreement dated as of February 23, 2001 (the "Credit Agreement"), among THE
GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation (the
"Company"), THE GREAT ATLANTIC & PACIFIC COMPANY OF CANADA, LIMITED, a Canadian
corporation (the "Canadian Borrower"), Compass Foods, Inc., Borman's, Inc.,
Kohl's Food Stores, Inc., Shopwell, Inc., Waldbaum, Inc., Super Fresh Food
Markets, Inc. and Super Market Service Corp.(together with the Company, the
"U.S. Borrowers" and the U.S. Borrowers together with the Canadian Borrower, the
"Borrowers"), the banks party thereto (the "Lenders"), JPMORGAN CHASE BANK
(successor to The Chase Manhattan Bank), a New York banking corporation, as
agent for the U.S. Lenders (in such capacity, the "U.S. Administrative Agent"),
and J.P. MORGAN BANK CANADA formerly known as THE CHASE MANHATTAN BANK OF
CANADA, a Canadian chartered bank, as agent for the Canadian Lenders (in such
capacity, the "Canadian Administrative Agent").
A. Pursuant to the Credit Agreement, the Lenders have extended
credit to the Borrowers, and have agreed to extend credit to the Borrowers, in
each case pursuant to the terms and subject to the conditions set forth therein.
B. The Borrowers have requested that the Lenders agree to amend
certain provisions of the Credit Agreement as set forth herein.
C. The undersigned Lenders are willing to so amend the Credit
Agreement, in each case pursuant to the terms and subject to the conditions
set forth herein.
D. Capitalized terms used and not otherwise defined herein shall
have the meanings assigned thereto in the Credit Agreement.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms and
subject to the conditions set forth herein, as follows:
SECTION 1. Amendments. (a) Section 1.01 of the Credit
Agreement is hereby amended by deleting the definition of the term "Hedging
Agreement" and substituting in lieu thereof the following:
"Hedging Agreement" means any Currency and Commodity Hedging
Agreement or Interest Rate Hedging Agreement.
(b) Section 1.01 of the Credit Agreement is hereby amended by
deleting clause (d) of the definition of the term "Prepayment Event" and
substituting in lieu thereof the following:
(d) the incurrence by the Company or any Subsidiary of (i) any
Indebtedness, other than Indebtedness permitted by Section 6.01 (except as
described in clause (ii) of this paragraph) or (ii) any Indebtedness
described in clause (a)(ii)(B) of Section 6.01 in excess of the amount
used to prepay the 2004 Notes and any reasonable premiums, fees or
expenses incurred in connection with such prepayment.
(c) Section 1.01 of the Credit Agreement is hereby amended by
adding, in proper alphabetical order, the following defined terms:
"Currency and Commodity Hedging Agreement" means any foreign
currency exchange agreement, commodity price protection agreement or other
currency exchange rate or commodity price hedging arrangement.
"Interest Rate Hedging Agreement" means any interest rate protection
agreement or other interest rate hedging arrangement.
"2004 Notes" shall mean the Company's bond issuance in the principal
amount of $200,000,000 due January 2004.
(d) Section 6.01 of the Credit Agreement is hereby amended by
deleting clause (a)(ii) thereof in its entirety and substituting in lieu thereof
the following:
(ii) Indebtedness existing on the date hereof and set forth in
Schedule 6.01 and extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal amount thereof
(except (A) to the extent of any reasonable premiums, fees and expenses
incurred in connection with any such extensions, renewals and replacements
and (B) in the case of senior unsecured notes issued by the Company to
refinance the 2004 Notes within ten Business Days of receipt of such
proceeds, to the extent that the excess of (1) such principal amount over
(2) the amount used to refinance the 2004 Notes and reasonable premiums,
fees and expenses incurred in connection therewith (the "Excess Amount")
shall not exceed $60,000,000; provided that, the Excess Amount, if any,
shall be used to prepay the Loans) or result in an earlier maturity date
or decreased weighted average life thereof;
(e) Section 6.07 of the Credit Agreement is hereby amended by
deleting such Section in its entirety and substituting in lieu thereof the
following:
SECTION 6.07. Hedging Agreements. The Company will not, and will not
permit any of its Subsidiaries to, enter into any Hedging Agreement, other
than (a)(i) Currency and Commodity Hedging Agreements and (ii) Interest
Rate Hedging Agreements that have the effect of converting the interest
rate of the associated Indebtedness from a floating rate to a fixed rate,
in each case entered into in the ordinary course of business to hedge or
mitigate risks to which the Company or any Subsidiary is exposed in the
conduct of its business or the management of its liabilities; and
(b) Interest Rate Hedging Agreements with respect to no more than
$50,000,000 of the Company's long-term Indebtedness, that have the effect
of converting the interest rate on such long-term Indebtedness from a
fixed rate to a floating rate.
(f) Section 6.08 of the Credit Agreement is hereby amended by
adding, before the period at the end of clause (b) thereof, the following:
; provided, that the Company may also repurchase the 2004 Notes with the
proceeds of Indebtedness permitted pursuant to Section 6.01(a)(ii)(B).
SECTION 2. Waiver. The Required Lenders hereby waive any Default or
Event of Default as a result of the Company's entering into, and performance
under, an escrow agreement, substantially in the form of Exhibit A attached
hereto.
SECTION 3. Representations and Warranties. Each of the
Borrowers represents and warrants to the Agents and the Lenders that:
(a) This Amendment has been duly executed and delivered by it and
constitutes its legal, valid and binding obligation enforceable against it
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting creditors' rights generally and except as enforceability may be
limited by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) After giving effect to this Amendment, the representations and
warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects with the same effect as if made on the
date hereof, except to the extent such representations and warranties
expressly relate to an earlier date.
(c) After giving effect to this Amendment, no Event of Default, or
event that with notice or lapse of time or both would constitute an Event
of Default, has occurred and is continuing.
SECTION 4. Conditions to Effectiveness. This Amendment shall become
effective (as of the date first written above) on the date (the "Amendment
Effective Date") when (a) the Agents (or their counsel) shall have received
counterparts of this Amendment that, when taken together, bear the signatures of
the Borrowers and the Required Lenders and (b) the Agents shall have received
payment of the fees payable under Section 5 below (to the extent due on the
Amendment Effective Date) and any out-of-pocket expenses of the Agents payable
by the Borrowers that have been invoiced before the Amendment Effective Date.
SECTION 5. Amendment Fee. The Borrowers agree to pay to each Lender
that executes and delivers a copy of this Amendment to the Agents (or their
counsel) on or prior to November 30, 2001, an amendment fee in an amount equal
to 0.05% of such Lender's Commitment (whether used or unused), in each case as
of the Amendment Effective Date; provided that the Borrowers shall have no
liability for any such amendment fee if this Amendment does not become
effective. Such amendment fee shall be payable (i) on the Amendment Effective
Date, to each Lender entitled to receive such fee as of the Amendment Effective
Date and (ii) in the case of any Lender that becomes entitled to such fee after
the Amendment Effective Date, within two Business Days after such Lender becomes
entitled to such fee.
SECTION 6. Expenses. The Borrowers shall reimburse the Agents for
their reasonable out-of-pocket expenses incurred in connection with this
Amendment, including the reasonable fees and expenses of Cravath, Swaine &
Moore, counsel for the Agents.
SECTION 7. Effect of Amendment and Waiver. Except as expressly set
forth herein, this Amendment shall not by implication or otherwise limit,
impair, constitute a waiver of, or otherwise affect the rights and remedies of
the Agents or the Lenders under the Credit Agreement, and shall not alter,
modify, amend or in any way affect the terms, conditions, obligations, covenants
or agreements contained in the Credit Agreement, all of which are ratified and
affirmed in all respects and shall continue in full force and effect. Nothing
herein shall be deemed to entitle the Borrowers to a consent to, or a waiver,
amendment, modification or other change of, any terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement in similar or
different circumstances. This Amendment shall apply and be effective only with
respect to the provisions of the Credit Agreement specifically referred to
herein.
SECTION 8. Credit Agreement. Except as specifically amended or
waived hereby, the Credit Agreement shall continue in full force and effect in
accordance with the provisions thereof as in existence on the date hereof. After
the date hereof, any reference to the Credit Agreement shall mean the Credit
Agreement as amended and waived hereby. This Amendment shall constitute a Loan
Document for all purposes under the Credit Agreement.
SECTION 9. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 10. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract. Delivery of an executed
signature page of this Amendment by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
SECTION 11. Headings. The Section headings used herein are for
convenience of reference only, are not part of this Amendment and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first written above.
THE GREAT ATLANTIC & PACIFIC
TEA COMPANY, INC.,
by
Name:
Title:
THE GREAT ATLANTIC & PACIFIC
COMPANY OF CANADA, LIMITED,
by
Name:
Title:
JPMORGAN CHASE BANK,
individually and as U.S. Administrative Agent,
by
Name:
Title:
J.P. MORGAN BANK CANADA,
as Canadian Administrative Agent,
by
Name:
Title:
JPMORGAN CHASE BANK, TORONTO BRANCH, as a Lender,
by
Name:
Title:
COMPASS FOODS, INC.,
by
Name:
Title:
BORMAN'S, INC.,
by
Name:
Title:
KOHL'S FOOD STORES, INC.,
by
Name:
Title:
SHOPWELL, INC.,
by
Name:
Title:
WALDBAUM, INC.,
by
Name:
Title:
SUPER FRESH FOOD MARKETS, INC.,
by
Name:
Title:
SUPER MARKET SERVICE CORP.,
by
Name:
Title:
SIGNATURE PAGE TO AMENDMENT NO. 1 DATED AS OF NOVEMBER 16, 2001, TO THE
CREDIT AGREEMENT DATED AS OF FEBRUARY 23, 2001, among THE GREAT ATLANTIC &
PACIFIC TEA COMPANY, INC., THE GREAT ATLANTIC & PACIFIC COMPANY OF CANADA,
LIMITED, THE OTHER BORROWERS PARTY THERETO, THE LENDERS, JPMORGAN CHASE BANK,
as U.S. Administrative Agent, and J.P. MORGAN BANK CANADA, as Canadian
Administrative Agent,
Name of Institution: ___________________
by:
-------------------------------
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.24
<SEQUENCE>13
<FILENAME>b319220ex_10-24.txt
<DESCRIPTION>AMEND NO. 2 TO CREEDIT AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.24
EXECUTED COPY
AMENDMENT No. 2 dated as of March 21, 2002, to the Credit Agreement
dated as of February 23, 2001, as amended (the "Credit Agreement"), among THE
GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation (the
"Company"), THE GREAT ATLANTIC & PACIFIC COMPANY OF CANADA, LIMITED, a
Canadian corporation (the "Canadian Borrower"), Compass Foods, Inc.,
Borman's, Inc., Kohl's Food Stores, Inc., Shopwell, Inc., Waldbaum, Inc.,
Super Fresh Food Markets, Inc. and Super Market Service Corp.(together with
the Company, the "U.S. Borrowers" and the U.S. Borrowers together with the
Canadian Borrower, the "Borrowers"), the banks party thereto (the "Lenders"),
JPMORGAN CHASE BANK (successor to The Chase Manhattan Bank), a New York
banking corporation, as agent for the U.S. Lenders (in such capacity, the
"U.S. Administrative Agent"), and J.P. MORGAN BANK CANADA formerly known as
The Chase Manhattan Bank of Canada, a Canadian chartered bank, as agent for
the Canadian Lenders (in such capacity, the "Canadian Administrative Agent").
A. Pursuant to the Credit Agreement, the Lenders have extended
credit to the Borrowers, and have agreed to extend credit to the Borrowers, in
each case pursuant to the terms and subject to the conditions set forth therein.
B. The Borrowers have requested that the Lenders agree to amend
certain provisions of the Credit Agreement as set forth herein.
C. The undersigned Lenders are willing to so amend the Credit
Agreement, in each case pursuant to the terms and subject to the conditions
set forth herein.
D. Capitalized terms used and not otherwise defined herein shall
have the meanings assigned thereto in the Credit Agreement.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms and
subject to the conditions set forth herein, as follows:
SECTION 1. Amendments. (a) Section 1.01 of the Credit
Agreement is hereby amended by deleting the definition of the term "Canadian
Borrowing Base" and substituting in lieu thereof the following:
"Canadian Borrowing Base" means, on any date (subject to
adjustment as provided in Section 1.06), an amount (calculated based on
the most recent Borrowing Base Certificate delivered to the Canadian
Administrative Agent in accordance with Section 5.01(f), absent any error
in such Borrowing Base Certificate) that is equal to, less the Canadian
Vendor Reserve, (a) the sum of (i) 65% of (A) the amount of the Adjusted
Eligible Inventory located at the Canadian Distribution Centers minus (B)
the Over 13 Weeks Old Reserves allocable to the Canadian Distribution
Centers at such date and (ii) 60% of the amount of the Adjusted Eligible
Inventory located at the Canadian Stores (or in transit from any
Distribution Center to the Canadian Stores) at such date, minus (b) the
sum of (i) the aggregate dollar amount (expressed in U.S. Dollars)
represented by gift certificates then outstanding and entitling the holder
thereof to use all or a portion thereof to pay all or a portion of the
purchase price for any Inventory as of such day, (ii) the Canadian Reserve
for Leasehold Obligation and (iii) the maximum aggregate amount (giving
effect to any netting agreements) that the Canadian Borrower and the
Canadian Loan Parties would be required to pay under any Hedging
Agreements the obligations under which constitute Canadian Obligations if
such Hedging Agreements were terminated, determined as of the most recent
date for which financial statements have been delivered pursuant to
Section 5.01(a), (b) or (c), as applicable. The Canadian Borrowing Base
shall be computed weekly, as required by Section 5.01(f), and established
based upon the most recent Borrowing Base Certificate delivered to the
Canadian Administrative Agent and shall remain in effect until the
delivery to the Canadian Administrative Agent of a subsequent Borrowing
Base Certificate.
(b) Section 1.01 of the Credit Agreement is hereby amended by
deleting the date "December 31, 2003" appearing in the definition of the term
"Maturity Date" and substituting in lieu thereof the date "June 30, 2005".
(c) Section 1.01 of the Credit Agreement is hereby amended by
deleting the definition of the term "U.S. Borrowing Base" and substituting in
lieu thereof the following:
"U.S. Borrowing Base" means, on any date (subject to
adjustment as provided in Section 1.06), an amount (calculated based on
the most recent Borrowing Base Certificate delivered to the U.S.
Administrative Agent in accordance with Section 5.01(f), absent any error
in such Borrowing Base Certificate) that is equal to (a) the sum of (i)
65% of (A) the amount of the Adjusted Eligible Inventory located at the
U.S. Distribution Centers minus (B) the Over 13 Weeks Old Reserves
allocable to the U.S. Distribution Centers at such date, (ii) 60% of the
amount of the Adjusted Eligible Inventory located at the U.S. Stores (or
in transit from any Distribution Center to the U.S. Stores) at such date
and (iii) 50% of Eligible Real Estate at such date; provided that the
amount resultant from such percentage of real estate shall not exceed 15%
of the aggregate amount of the total Commitments minus (b) the sum of (i)
the aggregate dollar amount (expressed in U.S. Dollars) represented by
gift certificates then outstanding and entitling the holder thereof to use
all or a portion thereof to pay all or a portion of the purchase price for
any Inventory as of such day, (ii) the U.S. Reserve for Leasehold
Obligation, (iii) the PACA Liability Reserve and (iv) the maximum
aggregate amount (giving effect to any netting agreements) that the
Company and its Subsidiaries would be required to pay under any Hedging
Agreements the obligations under which constitute U.S. Obligations if such
Hedging Agreements were terminated, determined as of the most recent date
for which financial statements have been delivered pursuant to Section
5.01(a), (b) or (c), as applicable. The U.S. Borrowing Base shall be
computed weekly, as required by Section 5.01(f), and established based
upon the most recent Borrowing Base Certificate delivered to the U.S.
Administrative Agent and shall remain in effect until the delivery to the
Administrative Agent of a subsequent Borrowing Base Certificate.
(d) Section 1.01 of the Credit Agreement is hereby amended by adding
the following defined terms in proper alphabetical order:
"Amendment No. 2 Effective Date" means the date Amendment No. 2
dated as of March 21, 2002, to the Credit Agreement becomes effective
in accordance with its terms.
"Demutualization Proceeds" means the Net Proceeds received by the
Company pursuant to the demutualization of The Prudential Insurance
Company of America, including Net Proceeds received by the Company from
the sale of shares of capital stock in Prudential Financial, Inc. issued
to the Company in connection with such demutualization.
"Make-Whole Premium" means, with respect to any debt security at any
repurchase date, the excess, if any, of (a) the present value of the sum
of the principal amount and premium, if any, that would be payable on such
debt security on its maturity date and all remaining interest payments
(not including any portion of such payments of interest accrued as of the
repurchase date) to and including such maturity date, discounted on a
semi-annual bond equivalent basis from such maturity date to the
repurchase date at a per annum interest rate equal to the sum of the
Treasury Yield (determined on the Business Day immediately preceding the
date of such repurchase), plus 50 basis points over (b) the aggregate
principal amount of the debt securities being redeemed.
"Treasury Securities" means any investment in obligations issued or
guaranteed by the United States government or any agency thereof.
"Treasury Yield" means the yield to maturity at the time of
computation of Treasury Securities with a constant maturity (as compiled
by and published in the most recent Federal Reserve Statistical Release
H.15(519) which has become publicly available at least two Business Days
prior to the date fixed for repurchase (or, if such Statistical Release is
no longer published, any publicly available source of similar data)) most
nearly equal to the then remaining average life of the debt securities
being repurchased, provided that if the average life of such debt
securities is not equal to the constant maturity of a Treasury Security
for which a weekly average yield is given, the Treasury Yield shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of
a year) from the weekly average yields of Treasury Securities for which
such yields are given, except that if the average life of the notes is
less than one year, the weekly average yield on actually traded Treasury
Securities adjusted to a constant maturity of one year shall be used.
(e) Section 2.05 of the Credit Agreement is hereby amended by
deleting the amount "U.S.$75,000,000" appearing in clause (ii)(1) of the fourth
sentence of paragraph (b) thereof and substituting in lieu thereof the amount
"U.S.$150,000,000".
(f) Section 2.10 of the Credit Agreement is hereby amended by
deleting the world "In" appearing at the beginning of paragraph (c) thereof and
substituting in lieu thereof the following:
At any time that any Loans are outstanding, in
(g) Section 6.01 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (vii) of paragraph (a)
thereof, (ii) adding following clause (vii) of paragraph (a) thereof the
following:
(viii) Guarantees by the Company or any of its Subsidiaries of
Indebtedness of third parties given in connection with the acquisition or
improvement of real property for use in the business of the Company and
its Subsidiaries not exceeding $10,000,000 at any one time outstanding;
and
and (iii) by renumbering clause "(viii)" of paragraph (a) thereof as clause
"(ix)" of such paragraph (a).
(h) Section 6.07 of the Credit Agreement is hereby amended by
deleting the amount "$50,000,000" appearing in clause (b) of such Section and
substituting in lieu thereof the amount "$150,000,000".
(i) Section 6.08 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (a)(ii) thereof and
substituting in lieu thereof a comma, (ii) adding before the period at the end
of clause (a)(iii) thereof the following:
and (iv) the Company may purchase shares of its capital stock for an
aggregate purchase price not exceeding $30,000,000, provided that, after
giving effect to any proposed purchase, (A) no Default shall have occurred
and be continuing, (B) the total U.S. Exposure does not exceed 50% of the
lesser of the total U.S. Commitments and the U.S. Borrowing Base, and (C)
the total Canadian Exposure does not exceed 50% of the lesser of the total
Canadian Commitments and the Canadian Borrowing Base
and (iii) deleting the provisos contained in paragraph (b) thereof in their
entirety and substituting in lieu thereof the following:
provided that the Company may repurchase from time to time, prior to their
maturity, the debt securities referred to in the preceding clause (i) for
a purchase price less than or equal to par plus a Make-Whole Premium, so
long as the aggregate cost of all such repurchased debt securities from
the Amendment No. 2 Effective Date through the term of the Availability
Period does not exceed the sum of (w) the Demutualization Proceeds, (x)
U.S.$50,000,000, provided that no Loans are outstanding on the date of
repurchase or, if applicable, the date of the commencement of any tender
offer with respect to such repurchase pursuant to this clause (x), and (y)
the Net Proceeds received by the Company without violation of Section 6.05
and that are not required to be used to prepay the Loans pursuant to
Section 2.10(c); provided that only Net Proceeds received within the 360
days prior to repurchase shall be available for such repurchase pursuant
to this clause (y); provided, further, that, after giving effect to any
proposed repurchase, (A) no Default shall have occurred and be continuing,
(B) the total U.S. Exposure does not exceed 50% of the lesser of the total
U.S. Commitments and the U.S. Borrowing Base, and (C) the total Canadian
Exposure does not exceed 50% of the lesser of the total Canadian
Commitments and the Canadian Borrowing Base; provided, finally, that the
Company may also repurchase the 2004 Notes with the proceeds of
Indebtedness permitted pursuant to Section 6.01(a)(ii)(B).
(j) Section 6.10 of the Credit Agreement is hereby amended by
inserting the words "securing Obligations or any refinancing thereof" after the
word "Lien" appearing in clause (a) thereof and by inserting the word "actually"
before the word "owned" in clause (a) thereof.
(k) Section 6.14 of the Credit Agreement is hereby amended by
deleting the table set forth therein and substituting in lieu thereof the
following:
Year Amount
---- ------
Fiscal year ending on or $300,000,000
about February 23, 2002
Fiscal year ending on or $325,000,000
about February 22, 2003
Fiscal year ending on or $375,000,000
about February 22, 2004
Each fiscal year thereafter $400,000,000
(l) Schedule 3.12 of the Credit Agreement is hereby amended by
adding at the end thereof the following:
Food Basics, Inc. 100%
SECTION 2. Representations and Warranties. Each of the
Borrowers represents and warrants to the Agents and the Lenders that:
(a) This Amendment has been duly executed and delivered by it and
constitutes its legal, valid and binding obligation enforceable against it
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting creditors' rights generally and except as enforceability may be
limited by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) After giving effect to this Amendment, the representations and
warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects with the same effect as if made on the
date hereof, except to the extent such representations and warranties
expressly relate to an earlier date.
(c) After giving effect to this Amendment, no Event of Default, or
event that with notice or lapse of time or both would constitute an Event
of Default, has occurred and is continuing.
SECTION 3. Conditions to Effectiveness. (a) This Amendment (other
than the amendment to the definition of the term "Maturity Date" set forth in
Section 1(b)) shall become effective (as of the date first written above) on the
date (the "Amendment Effective Date") when (i) the Agents (or their counsel)
shall have received counterparts of this Amendment that, when taken together,
bear the signatures of the Borrowers and the Required Lenders and (ii) the
Agents shall have received payment of the amendment fees payable under Section
4(a) below (to the extent due on the Amendment Effective Date) and any
out-of-pocket expenses of the Agents payable by the Borrowers that have been
invoiced before the Amendment Effective Date.
(b) The amendment to the definition of the term "Maturity Date" set forth
in Section 1(b) shall become effective (as of the date first written above) on
the date when (i) the Agents (or their counsel) shall have received counterparts
of this Amendment that, when taken together, bear the signatures of the
Borrowers and the Lenders and (ii) the Agents shall have received payment of the
extension fees payable under Section 4(b) below (to the extent due on the
Amendment Effective Date) and any out-of-pocket expenses of the Agents payable
by the Borrowers that have been invoiced before the Amendment Effective Date.
SECTION 4. Fees. The Borrowers agree to pay to each Lender that
executes and delivers a copy of this Amendment to the Agents (or their counsel)
on or prior to 5:00 p.m. on April 3, 2002, (a) an amendment fee in an amount
equal to 0.10% of such Lender's Commitment (whether used or unused) and (b) an
extension fee in an amount equal to 0.25% of such Lender's Commitment (whether
used or unused), in each case as of the Amendment Effective Date; provided that
the Borrowers shall have no liability for (i) any such amendment fee if this
Amendment does not become effective pursuant to Section 3(a) or (ii) any such
extension fee if the amendment to the definition of the term "Maturity Date" set
forth in Section 1(b) does not become effective pursuant to Section 3(b). Such
amendment fee and extension fee shall be payable (i) on the Amendment Effective
Date, to each Lender entitled to receive such fee as of the Amendment Effective
Date and (ii) in the case of any Lender that becomes entitled to such fee after
the Amendment Effective Date, within two Business Days after such Lender becomes
entitled to such fee.
SECTION 5. Expenses. The Borrowers shall reimburse the Agents for
their reasonable out-of-pocket expenses incurred in connection with this
Amendment, including the reasonable fees and expenses of Cravath, Swaine &
Moore, counsel for the Agents, and McMillan Binch, Canadian counsel for the
Agents.
SECTION 6. Effect of Amendment. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Agents or the Lenders under the Credit Agreement, and shall not alter, modify,
amend or in any way affect the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement, all of which are ratified and
affirmed in all respects and shall continue in full force and effect. Nothing
herein shall be deemed to entitle the Borrowers to a consent to, or a waiver,
amendment, modification or other change of, any terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement in similar or
different circumstances. This Amendment shall apply and be effective only with
respect to the provisions of the Credit Agreement specifically referred to
herein.
SECTION 7. Credit Agreement. Except as specifically amended hereby,
the Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof as in existence on the date hereof. After the date
hereof, any reference to the Credit Agreement shall mean the Credit Agreement as
amended hereby. This Amendment shall constitute a Loan Document for all purposes
under the Credit Agreement.
SECTION 8. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract. Delivery of an executed
signature page of this Amendment by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
SECTION 10. Headings. The Section headings used herein are for
convenience of reference only, are not part of this Amendment and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first written above.
THE GREAT ATLANTIC & PACIFIC
TEA COMPANY, INC.,
by
Name:
Title:
THE GREAT ATLANTIC & PACIFIC
COMPANY OF CANADA, LIMITED,
by
Name:
Title:
JPMORGAN CHASE BANK,
individually and as U.S. Administrative Agent,
by
Name:
Title:
J.P. MORGAN BANK CANADA,
as Canadian Administrative Agent,
by
Name:
Title:
JPMORGAN CHASE BANK, TORONTO BRANCH, as a Lender,
by
Name:
Title:
COMPASS FOODS, INC.,
by
Name:
Title:
BORMAN'S, INC.,
by
Name:
Title:
KOHL'S FOOD STORES, INC.,
by
Name:
Title:
SHOPWELL, INC.,
by
Name:
Title:
WALDBAUM, INC.,
by
Name:
Title:
SUPER FRESH FOOD MARKETS, INC.,
by
Name:
Title:
SUPER MARKET SERVICE CORP.,
by
Name:
Title:
SIGNATURE PAGE TO AMENDMENT NO. 2 DATED AS OF MARCH 21, 2002, TO THE CREDIT
AGREEMENT DATED AS OF FEBRUARY 23, 2001, as amended, among THE GREAT ATLANTIC
& PACIFIC TEA COMPANY, INC., THE GREAT ATLANTIC & PACIFIC COMPANY OF CANADA,
LIMITED, THE OTHER BORROWERS PARTY THERETO, THE LENDERS, JPMORGAN CHASE BANK,
as U.S. Administrative Agent, and J.P. MORGAN BANK CANADA, as Canadian
Administrative Agent,
Name of Institution: ___________________
by:
-------------------------------
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.25
<SEQUENCE>14
<FILENAME>b319220ex_10-25.txt
<DESCRIPTION>AMEND NO. 3 TO CREDIT AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.25
EXECUTED COPY
AMENDMENT No. 3 dated as of April 23, 2002, to the Credit Agreement
dated as of February 23, 2001, as amended (the "Credit Agreement"), among THE
GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation (the
"Company"), THE GREAT ATLANTIC & PACIFIC COMPANY OF CANADA, LIMITED, a
Canadian corporation (the "Canadian Borrower"), Compass Foods, Inc.,
Borman's, Inc., Kohl's Food Stores, Inc., Shopwell, Inc., Waldbaum, Inc.,
Super Fresh Food Markets, Inc. and Super Market Service Corp.(together with
the Company, the "U.S. Borrowers" and the U.S. Borrowers together with the
Canadian Borrower, the "Borrowers"), the banks party thereto (the "Lenders"),
JPMORGAN CHASE BANK (successor to The Chase Manhattan Bank), a New York
banking corporation, as agent for the U.S. Lenders (in such capacity, the
"U.S. Administrative Agent"), and J.P. MORGAN BANK CANADA formerly known as
The Chase Manhattan Bank of Canada, a Canadian chartered bank, as agent for
the Canadian Lenders (in such capacity, the "Canadian Administrative Agent").
A. Pursuant to the Credit Agreement, the Lenders have extended
credit to the Borrowers, and have agreed to extend credit to the Borrowers, in
each case pursuant to the terms and subject to the conditions set forth therein.
B. The Borrowers have requested that the Lenders agree to amend
certain provisions of the Credit Agreement as set forth herein.
C. The undersigned Lenders are willing to so amend the Credit
Agreement, in each case pursuant to the terms and subject to the conditions
set forth herein.
D. Capitalized terms used and not otherwise defined herein shall
have the meanings assigned thereto in the Credit Agreement.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms and
subject to the conditions set forth herein, as follows:
SECTION 1. Amendments. (a) Section 1.01 of the Credit
Agreement is hereby amended by deleting the definition of the term
"Availability Period" and substituting in lieu thereof the following:
"Availability Period" means, with respect to any Lender or its
Commitment, the period from and including the Effective Date to but
excluding the earlier of the applicable Maturity Date with respect to such
Lender or its Commitment and the date of termination of such Commitment;
provided that, for purposes of Sections 2.05(a) and 6.08, the term
"Availability Period" shall be determined by reference to the Commitments
that are scheduled to terminate on the Extended Maturity Date.
(b) Section 1.01 of the Credit Agreement is hereby amended by
deleting the definition of the term "Maturity Date" and substituting in lieu
thereof the following:
"Maturity Date" means (a) with respect to any Lender that does not
execute Amendment No. 3, or any Commitment, Loan or other extension of
credit by such Lender hereunder, December 31, 2003 and (b) with respect to
any Lender that executes Amendment No. 3 or any Commitment, Loan or other
extension of credit by such Lender hereunder, the Extended Maturity Date.
It is understood that, if a Lender executes Amendment No. 3, then the
Extended Maturity Date will apply to each Commitment, Loan or other
extension of credit thereafter acquired by such Lender (including from a
Lender that did not execute Amendment No. 3), and that, if the Extended
Maturity Date at any time applies to any Commitment, Loan or other
extension of credit hereunder by reason of having been held by a Lender
that has executed Amendment No. 3, then the Extended Maturity Date will
continue to apply to such Commitment, Loan or other extension of credit
(or any interest therein) thereafter, including following any assignment
or transfer thereof.
(c) Section 1.01 of the Credit Agreement is hereby amended by
replacing the term "Maturity Date", appearing in the definition of the term
"Qualified Preferred Stock", with the term "Extended Maturity Date" in each
place in such definition that such term appears.
(d) Section 1.01 of the Credit Agreement is hereby amended by adding
the following defined terms in proper alphabetical order:
"Amendment No. 3" means Amendment No. 3 dated as of April 23,
2002, to this Agreement.
"Extended Maturity Date" means June 30, 2005.
(e) Section 2.01 of the Credit Agreement is hereby amended by (i)
adding, following the words "Availability Period" appearing in paragraph (a)
thereof, the words: "with respect to such U.S. Lender", (ii) adding, following
the amount "$425,000,000" appearing in each of paragraphs (a) and (b) thereof
the following: "(or, following December 31, 2003, $385,000,000)", (iii) adding,
following the words "Availability Period" appearing in paragraph (b) thereof,
the words: "with respect to such Canadian Lender" and (iv) replacing the words
"during the Availability Period" appearing in paragraph (c) thereof with the
words: "from each Lender during the Availability Period with respect to such
Lender".
(f) Section 2.02 of the Credit Agreement is hereby amended by
deleting the words "Maturity Date" appearing in paragraph (d) thereof and
substituting in lieu thereof the words "Extended Maturity Date".
(g) Section 2.04 of the Credit Agreement is hereby amended by (i)
adding, following the words "Maturity Date" appearing in each of paragraphs (a)
and (b) thereof, the words "with respect to such Canadian Lender" and (ii)
adding, following the amount "$425,000,000" appearing in paragraph (a) thereof,
the following: "(or, following December 31, 2003, $385,000,000)".
(h) Section 2.05 of the Credit Agreement is hereby amended by (i)
adding, following the amount "$425,000,000" appearing in paragraph (b) thereof,
the following: "(or, following December 31, 2003, $385,000,000)" and (ii)
replacing the words "Maturity Date" appearing in paragraph (c) thereof, with the
words "Extended Maturity Date".
(i) Section 2.05 of the Credit Agreement is hereby further amended
by adding, following the amount "$425,000,000" in each instance it appears in
paragraph (j) thereof, the following: "(or, following December 31, 2003,
$385,000,000)".
(j) Section 2.08 of the Credit Agreement is hereby amended by (i)
deleting paragraph (a) thereof in its entirety and substituting in lieu thereof
the following:
(a) Unless previously terminated, the Commitment of each Lender
shall terminate on the Maturity Date with respect to such Commitment.
and (ii) adding, following the amount "$425,000,000" appearing in clause (vi)
of paragraph (e) thereof, the following: "(or, following December 31, 2003,
$385,000,000)".
(k) Section 2.09 of the Credit Agreement is hereby amended by
adding, following the words "Maturity Date" appearing in paragraph (a)
thereof, the words: "applicable to such Loan".
(l) Section 2.10 of the Credit Agreement is hereby amended by
adding at the end thereof the following:
(g) In the event that, on December 31, 2003, the total U.S. Exposure
exceeds the total U.S. Commitments (after giving effect to the reduction
in total U.S. Commitments on such date), each of the U.S. Borrowers shall
promptly prepay its Borrowings (or, if no such Borrowings are outstanding,
deposit cash collateral in an account with the U.S. Administrative Agent
pursuant to Section 2.05(j)) in an aggregate amount equal to such excess.
(m) Section 2.11 of the Credit Agreement is hereby amended by (i)
adding, following the words "Maturity Date" appearing in clause (i) of paragraph
(b) thereof, the words: "with respect to such Lender" and (ii) replacing the
words "Maturity Date" appearing in clause (ii) of paragraph (b) thereof, with
the words "Extended Maturity Date".
(n) Section 2.12 of the Credit Agreement is hereby amended by
adding, (i) following the words "of any Loan" appearing in clause (ii) of
paragraph (e) thereof, the words "of any Lender" and (ii) following the words
"Availability Period" appearing in paragraph clause (ii) of paragraph (e)
thereof, the words "with respect to such Lender".
(o) Section 6.08 of the Credit Agreement is hereby amended by
deleting the words "Maturity Date" appearing in paragraph (b) thereof and
substituting in lieu thereof the words "Extended Maturity Date".
(p) Paragraph (c) of Section 9.04 of the Credit Agreement is hereby
amended by inserting therein, after the second sentence of such paragraph, the
following:
The Administrative Agents also shall indicate in the Register the Maturity
Date applicable to each Lender and its Commitments and Loans.
SECTION 2. Termination of Participations in Letters of Credit. If
this Amendment becomes effective as provided herein, and if less than all
Lenders execute this Amendment, then it is understood and agreed that, on
December 31, 2003, each Lender with respect to which such date is the Maturity
Date shall, as of the close of business on such date, be released from its
participations in all outstanding Letters of Credit, and the participations in
all Letters of Credit outstanding on such date shall be reallocated among the
Lenders, as if each such Letter of Credit was being issued on such date, after
giving effect to the termination of all Commitments terminating on such date;
provided, however, that the foregoing shall not apply if all Commitments have
terminated, or deemed to have terminated, on or prior to such date as a result
of an Event of Default or otherwise.
SECTION 3. Representations and Warranties. Each of the
Borrowers represents and warrants to the Agents and the Lenders that:
(a) This Amendment has been duly executed and delivered by it and
constitutes its legal, valid and binding obligation enforceable against it
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting creditors' rights generally and except as enforceability may be
limited by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) After giving effect to this Amendment, the representations and
warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects with the same effect as if made on the
date hereof, except to the extent such representations and warranties
expressly relate to an earlier date.
(c) After giving effect to this Amendment, no Event of Default, or
event that with notice or lapse of time or both would constitute an Event
of Default, has occurred and is continuing.
SECTION 4. Conditions to Effectiveness. This Amendment shall become
effective (as of the date first written above) on the date (the "Amendment
Effective Date") when (i) the Agents (or their counsel) shall have received
counterparts of this Amendment that, when taken together, bear the signatures of
the Borrowers and the Required Lenders and (ii) the Agents shall have received
payment of the amendment fees payable under Section 5 below and any
out-of-pocket expenses of the Agents payable by the Borrowers that have been
invoiced before the Amendment Effective Date.
SECTION 5. Fees. The Borrowers agree to pay to each Lender that
executes and delivers a copy of this Amendment to the Agents (or their counsel)
on or prior to 5:00 p.m. on April [ ], 2002, an amendment fee in an amount equal
to 0.25% of such Lender's Commitment (whether used or unused), in each case as
of the Amendment Effective Date; provided that the Borrowers shall have no
liability for any such amendment fee if this Amendment does not become effective
pursuant to Section 3. Such amendment fee shall be payable (i) on the Amendment
Effective Date, to each Lender entitled to receive such fee as of the Amendment
Effective Date and (ii) in the case of any Lender that becomes entitled to such
fee after the Amendment Effective Date, within two Business Days after such
Lender becomes entitled to such fee.
SECTION 6. Expenses. The Borrowers shall reimburse the Agents for
their reasonable out-of-pocket expenses incurred in connection with this
Amendment, including the reasonable fees and expenses of Cravath, Swaine &
Moore, counsel for the Agents, and McMillan Binch, Canadian counsel for the
Agents.
SECTION 7. Effect of Amendment. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Agents or the Lenders under the Credit Agreement, and shall not alter, modify,
amend or in any way affect the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement, all of which are ratified and
affirmed in all respects and shall continue in full force and effect. Nothing
herein shall be deemed to entitle the Borrowers to a consent to, or a waiver,
amendment, modification or other change of, any terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement in similar or
different circumstances. This Amendment shall apply and be effective only with
respect to the provisions of the Credit Agreement specifically referred to
herein.
SECTION 8. Credit Agreement. Except as specifically amended hereby,
the Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof as in existence on the date hereof. After the date
hereof, any reference to the Credit Agreement shall mean the Credit Agreement as
amended hereby. This Amendment shall constitute a Loan Document for all purposes
under the Credit Agreement.
SECTION 9. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 10. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract. Delivery of an executed
signature page of this Amendment by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
SECTION 11. Headings. The Section headings used herein are for
convenience of reference only, are not part of this Amendment and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first written above.
THE GREAT ATLANTIC & PACIFIC
TEA COMPANY, INC.,
by
Name:
Title:
THE GREAT ATLANTIC & PACIFIC
COMPANY OF CANADA, LIMITED,
by
Name:
Title:
JPMORGAN CHASE BANK,
individually and as U.S. Administrative Agent,
by
Name:
Title:
J.P. MORGAN BANK CANADA,
as Canadian Administrative Agent,
by
Name:
Title:
JPMORGAN CHASE BANK, TORONTO BRANCH, as a Lender,
by
Name:
Title:
COMPASS FOODS, INC.,
by
Name:
Title:
BORMAN'S, INC.,
by
Name:
Title:
KOHL'S FOOD STORES, INC.,
by
Name:
Title:
SHOPWELL, INC.,
by
Name:
Title:
WALDBAUM, INC.,
by
Name:
Title:
SUPER FRESH FOOD MARKETS, INC.,
by
Name:
Title:
SUPER MARKET SERVICE CORP.,
by
Name:
Title:
SIGNATURE PAGE TO AMENDMENT NO. 3 DATED AS OF APRIL 23, 2002, TO THE CREDIT
AGREEMENT DATED AS OF FEBRUARY 23, 2001, as amended, among THE GREAT ATLANTIC
& PACIFIC TEA COMPANY, INC., THE GREAT ATLANTIC & PACIFIC COMPANY OF CANADA,
LIMITED, THE OTHER BORROWERS PARTY THERETO, THE LENDERS, JPMORGAN CHASE BANK,
as U.S. Administrative Agent, and J.P. MORGAN BANK CANADA, as Canadian
Administrative Agent,
Name of Institution: ___________________
by:
-------------------------------
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26
<SEQUENCE>15
<FILENAME>b319220ex_10-26.txt
<DESCRIPTION>WAIVER TO CREDIT AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.26
EXECUTION COPY
WAIVER dated as of June 14, 2002, to the Credit Agreement dated as of
February 23, 2001, as amended (the "Credit Agreement"), among THE GREAT ATLANTIC
& PACIFIC TEA COMPANY, INC., a Maryland corporation (the "Company"), THE GREAT
ATLANTIC & PACIFIC COMPANY OF CANADA, LIMITED, a Canadian corporation (the
"Canadian Borrower"), Compass Foods, Inc., Borman's, Inc., Kohl's Food Stores,
Inc., Shopwell, Inc., Waldbaum, Inc., Super Fresh Food Markets, Inc. and Super
Market Service Corp.(together with the Company, the "U.S. Borrowers" and the
U.S. Borrowers together with the Canadian Borrower, the "Borrowers"), the banks
party thereto (the "Lenders"), JPMORGAN CHASE BANK (successor to The Chase
Manhattan Bank), a New York banking corporation, as agent for the U.S. Lenders
(in such capacity, the "U.S. Administrative Agent"), and J.P. MORGAN BANK CANADA
formerly known as The Chase Manhattan Bank of Canada, a Canadian chartered bank,
as agent for the Canadian Lenders (in such capacity, the "Canadian
Administrative Agent").
A. Pursuant to the Credit Agreement, the Lenders have extended
credit to the Borrowers, and have agreed to extend credit to the Borrowers, in
each case pursuant to the terms and subject to the conditions set forth therein.
B. The Borrowers have requested that the Lenders agree to waive
certain provisions of the Credit Agreement as set forth herein.
C. The undersigned Lenders are willing to agree to such waivers of
the Credit Agreement, in each case pursuant to the terms and subject to the
conditions set forth herein.
D. Capitalized terms used and not otherwise defined herein shall
have the meanings assigned thereto in the Credit Agreement.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms and
subject to the conditions set forth herein, as follows:
SECTION 1. Waivers. The Required Lenders hereby waive (a) any
potential inaccuracy of the representations set forth in Section 3.04(a) and
3.11 of the Credit Agreement and any historical financial statements and related
certificates (other than Borrowing Base Certificates) delivered to the Lenders
in respect of fiscal periods ending on or prior to April 20, 2002 if, and to the
extent, the Borrowers are required to restate their historical financial
statements during the Waiver Period (as defined below), it being understood that
such representations are not waived with respect to its financial statements, as
so restated, and (b) compliance by the Borrowers, during the period from May 24,
2002, through July 29, 2002 (the "Waiver Period"), with the provisions of
paragraphs (a), (c), (d) and (e) of Section 5.01 of the Credit Agreement with
respect to the delivery of (i) the financial statements for the fiscal year
ended February 23, 2002 and the fiscal four-week period ended May 18, 2002 and
(ii) related certificates; provided that (A) the waiver set forth in clause (b)
above shall expire on July 29, 2002 and any noncompliance with any such
paragraph of Section 5.01 that would have constituted a Default but for this
waiver shall constitute a Default on such date unless otherwise waived or
remedied prior to such date and (B) during the Waiver Period, the sum of the
total U.S. Exposure and the total Canadian Exposure shall not exceed the sum of
(i) the total U.S. Exposure immediately prior to the Waiver Effective Date (as
defined below), (ii) the total Canadian Exposure immediately prior to the
Effective Date and (iii) $50,000,000.
SECTION 2. Representations and Warranties. Each of the Borrowers
represents and warrants to the Agents and the Lenders that:
(a) This Waiver has been duly executed and delivered by it and
constitutes its legal, valid and binding obligation enforceable against it
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting creditors' rights generally and except as enforceability may be
limited by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) After giving effect to this Waiver, the representations and
warranties set forth in Article III of the Credit Agreement are true and
correct in all material respects with the same effect as if made on the
date hereof, except to the extent such representations and warranties
expressly relate to an earlier date.
(c) After giving effect to this Waiver, no Event of Default, or
event that with notice or lapse of time or both would constitute an Event
of Default, has occurred and is continuing.
SECTION 3. Conditions to Effectiveness. This Waiver shall become
effective (as of the date first written above) on the date (the "Waiver
Effective Date") when (i) the Agents (or their counsel) shall have received
counterparts of this Waiver that, when taken together, bear the signatures of
the Borrowers and the Required Lenders, (ii) the Agents shall have received
payment of the waiver fees payable under Section 4 below and any out-of-pocket
expenses of the Agents payable by the Borrowers that have been invoiced before
the Waiver Effective Date and (iii) the Lenders shall have received a projected
cash balance for the Company for each day during the Waiver Period.
SECTION 4. Fees. The Borrowers agree to pay to each Lender that
executes and delivers a copy of this Waiver to the Agents (or their counsel) on
or prior to 5:00 p.m. on June 14, 2002, a waiver fee in an amount equal to 0.03%
of such Lender's Commitment (whether used or unused), in each case as of the
Waiver Effective Date; provided that the Borrowers shall have no liability for
any such waiver fee if this Waiver does not become effective pursuant to Section
2. Such waiver fee shall be payable (i) on the Waiver Effective Date, to each
Lender entitled to receive such fee as of the Waiver Effective Date and (ii) in
the case of any Lender that becomes entitled to such fee after the Waiver
Effective Date, within two Business Days after such Lender becomes entitled to
such fee.
SECTION 5. Expenses. The Borrowers shall reimburse the Agents for
their reasonable out-of-pocket expenses incurred in connection with this Waiver,
including the reasonable fees and expenses of Cravath, Swaine & Moore, counsel
for the Agents, and McMillan Binch, Canadian counsel for the Agents.
SECTION 6. Effect of Waiver. Except as expressly set forth herein,
this Waiver shall not by implication or otherwise limit, impair, constitute a
waiver of, or otherwise affect the rights and remedies of the Agents or the
Lenders under the Credit Agreement, and shall not alter, modify, amend or in any
way affect the terms, conditions, obligations, covenants or agreements contained
in the Credit Agreement, all of which are ratified and affirmed in all respects
and shall continue in full force and effect. Nothing herein shall be deemed to
entitle the Borrowers to a consent to, or a waiver, amendment, modification or
other change of, any terms, conditions, obligations, covenants or agreements
contained in the Credit Agreement in similar or different circumstances. This
Waiver shall apply and be effective only with respect to the provisions of the
Credit Agreement specifically referred to herein.
SECTION 7. Credit Agreement. Except as specifically amended hereby,
the Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof as in existence on the date hereof. After the date
hereof, any reference to the Credit Agreement shall mean the Credit Agreement as
amended hereby. This Waiver shall constitute a Loan Document for all purposes
under the Credit Agreement.
SECTION 8. Applicable Law. THIS WAIVER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9. Counterparts. This Waiver may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract. Delivery of an executed
signature page of this Waiver by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
SECTION 10. Headings. The Section headings used herein are for
convenience of reference only, are not part of this Waiver and are not to affect
the construction of, or to be taken into consideration in interpreting, this
Waiver.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
duly executed by their respective authorized officers as of the day and year
first written above.
THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.,
by
Name:
Title:
THE GREAT ATLANTIC & PACIFIC COMPANY OF CANADA, LIMITED,
by
Name:
Title:
JPMORGAN CHASE BANK,
individually and as U.S. Administrative Agent,
by
Name:
Title:
J.P. MORGAN BANK CANADA,
as Canadian Administrative Agent,
by
Name:
Title:
JPMORGAN CHASE BANK, TORONTO BRANCH, as a Lender,
by
Name:
Title:
COMPASS FOODS, INC.,
by
Name:
Title:
BORMAN'S, INC.,
by
Name:
Title:
KOHL'S FOOD STORES, INC.,
by
Name:
Title:
SHOPWELL, INC.,
by
Name:
Title:
WALDBAUM, INC.,
by
Name:
Title:
SUPER FRESH FOOD MARKETS, INC.,
by
Name:
Title:
SUPER MARKET SERVICE CORP.,
by
Name:
Title:
<PAGE>
SIGNATURE PAGE TO WAIVER DATED AS OF JUNE 14, 2002, TO THE CREDIT AGREEMENT
DATED AS OF FEBRUARY 23, 2001, as amended, among THE GREAT ATLANTIC & PACIFIC
TEA COMPANY, INC., THE GREAT ATLANTIC & PACIFIC COMPANY OF CANADA, LIMITED, THE
OTHER BORROWERS PARTY THERETO, THE LENDERS, JPMORGAN CHASE BANK, as U.S.
Administrative Agent, and J.P. MORGAN BANK CANADA, as Canadian Administrative
Agent,
Name of Institution: ___________________
by:
-------------------------------
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>16
<FILENAME>b319220ex_13.txt
<DESCRIPTION>A/R OR Q/R TO SECURITY HOLDERS
<TEXT>
<PAGE>
Exhibit 13
The Great Atlantic & Pacific Tea Company, Inc.
Fiscal 2001
Annual Report to Stockholders
<PAGE>
Table of Contents
- -----------------
Comparative Highlights................................................. 3
CEO Letter to Stockholders............................................. 4
Management's Discussion and Analysis................................... 8
Statements of Consolidated Operations.................................. 23
Statements of Consolidated Stockholders' Equity
And Comprehensive (Loss) Income................................. 24
Consolidated Balance Sheets............................................ 25
Statements of Consolidated Cash Flows.................................. 26
Notes to Consolidated Financial Statements............................. 27
Management's Report on Financial Statements............................ 64
Independent Auditors' Report........................................... 65
Five Year Summary of Selected Financial Data........................... 66
Executive Officers..................................................... 68
Board of Directors..................................................... 68
Stockholder Information................................................ 69
2
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Comparative Highlights
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999
Fiscal 2001 As Restated (d) As Restated (d)
----------------- ---------------- -----------------
<S> <C> <C> <C>
Sales $ 10,973,315 $ 10,622,866 $ 10,151,334
(Loss) income from operations (a) (23,524) 66,030 147,082
(Loss) income before
extraordinary item (64,684) (19,500) 35,313
Net (loss) income (b) (71,906) (19,500) 35,313
(Loss) income per share before
extraordinary item - basic
and diluted (1.69) (0.51) 0.92
Net (loss) income per share - basic
and diluted (1.88) (0.51) 0.92
Cash dividends per share - 0.30 0.40
Expenditures for property 246,182 415,842 479,572
Depreciation and amortization 262,552 255,771 232,712
Working capital 27,611 67,811 65,544
Net debt (c) 806,402 1,039,947 970,342
Stockholders' equity 672,988 748,811 792,138
Debt to total capitalization 57% 58% 56%
Book value per share 17.54 19.53 20.65
New store openings 21 47 54
Number of stores at year end 702 752 750
Number of franchised stores
served at year end 67 68 65
- --------------------------------------------------------------------------------------------------------------------
(a) Asset disposition initiative $(193,468) $ - $(59,886)
Gain on proceeds from insurance
company demutualization 60,606 - -
All other earnings from operations 109,338 66,030 206,968
--------- -------- ---------
(Loss) income from operations $ (23,524) $ 66,030 $ 147,082
========= ======== =========
(b) Asset disposition initiative $(112,268) $ - $ (34,836)
Gain on proceeds from insurance
company demutualization 35,151 - -
Extraordinary loss on early extinguishment
of debt (7,222) - -
All other earnings (losses) 12,433 (19,500) 70,149
--------- -------- ---------
Net (loss) income $ (71,906) $(19,500) $ 35,313
========= ======== =========
(c) Net debt consists of obligations for long-term borrowings and capital
leases reduced by cash equivalents and short-term investments.
(d) See Note 2 - Restatement of Previously Issued Financial Statements in the
Company's Consolidated Financial Statements.
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Company Profile
- ---------------
The Great Atlantic & Pacific Tea Company, Inc. ("the Company"), based in
Montvale, New Jersey, operates combination food and drug stores, conventional
supermarkets and limited assortment food stores in 16 U.S. states, the District
of Columbia and Ontario, Canada, under the A&P(R), Waldbaum's(TM), Super
Foodmart, The Food Emporium(TM), Super Fresh(R), Farmer Jack(R), Kohl's,
Sav-A-Center(R), Dominion(R), Ultra Food & Drug, Food Basics(TM) and The Barn
Markets trade names. Through its Compass Foods Division, the Company also
manufactures and distributes a line of whole bean coffees under the Eight
O'Clock(R), Bokar(R) and Royale(TM) labels, both for sale through its own stores
as well as other retail channels.
CEO Letter to Stockholders
- --------------------------
To Our Stockholders:
Fiscal 2001 was a year in which we made solid progress despite facing many
challenges. A&P achieved improved results from ongoing operations and
implemented significant organizational changes.
Shortly before we planned to file our annual report, we discovered certain
irregularities relating to the appropriate timing for the recognition of vendor
allowances and the accounting for inventory. We promptly commenced a
Company-wide review of these accounting issues. As a result of this review, we
have restated our financial results for certain periods to reflect, among other
changes outlined below, the appropriate timing for the recognition of certain
vendor allowances received and to reflect the appropriate accounting for a small
amount of inventory associated with a single region. We are in the process of
implementing additional procedural changes designed to prevent such
irregularities in the future.
Once we decided to restate our financial statements for the reasons stated
above, we also reviewed all our accounting for the restated years and,
determined that it was appropriate to restate our accounting for vendor
allowances, self-insurance reserves and closed store sublease income. Footnote 2
of our Financial Statements more fully discusses these matters.
The fiscal year ended February 23, 2002 marked our return to net profitability,
achieved in the second quarter, and our 15th consecutive quarter of improved
comparable store sales.
Our successful rebound from the challenges of the previous year, despite the
persistent economic uncertainty that intensified after the tragic events of
September 11, was first and foremost the result of a clear strategic direction
and our focus on five key priorities:
4
<PAGE>
o Achieve operational excellence;
o Implement our supply chain and business process initiative;
o Reduce all costs;
o Identify profitable growth opportunities in our core markets; and
o Align and strengthen our organization through performance
management.
Comprehensive programs addressing all of those objectives were emphasized in
fiscal 2001, enabling us to reverse and steadily improve our earnings trend,
while preserving a rate of comparable store sales growth that was among the best
in our industry.
We significantly strengthened our balance sheet and secured our long-term
liquidity by reducing total net debt by $234 million, and issuing $275 million
in new 10 year notes. We have the financing in place to complete our strategic
infrastructure investments, and with our improving operating results, we expect
to further strengthen our financial position.
Our productivity and cost reduction efforts included rigorous asset management
and strategic sourcing programs to lower both inventory and supply expenses. We
also reduced administrative costs and established strict controls to better
manage overhead going forward.
Through the aligned efforts of corporate, regional and field management, we
sharpened our focus on store operating fundamentals and labor standards,
execution of merchandising programs and improvement of our customer service
capability throughout the year. While the opportunity to further enhance
performance in these areas is substantial, our improved results, market share
growth and positive customer feedback confirm our solid progress at the store
level.
We also acted to improve the overall quality and growth potential of our store
network with our decision to close 39 under performing stores, as part of the
asset disposition program announced in November of 2001. This will enable us to
direct our efforts and resources to locations we believe will contribute strong
top and bottom line results going forward.
5
<PAGE>
We continued to modernize our store base in fiscal 2001, adding 21 new stores
and remodeling 26. Our fiscal 2002 capital plan calls for 25 new stores, and
70-75 enlargement and remodeling projects. This reflects our strategy to
increase investment in the improvement of existing stores to drive profitable
growth within our core operations. Overall, we have established more rigorous
standards for the evaluation of all capital improvement projects, to ensure
their success and maximize our return on capital invested.
The Company's business process initiative advanced in 2001, as we began to
realize benefits from the initial elements in place. We enhanced the
productivity and effectiveness of our Supply & Logistics operations by
implementing our new warehouse and transportation management systems. The
ongoing improvement of our distribution capability, combined with the closure of
two warehouses, will further improve service levels while also reducing costs.
Additional progress in this important initiative lies immediately ahead, with
the upcoming implementation of our category management and merchandising
systems. We are confident that over the next year, we will remain on track to
execute the remaining phases of the initiative, and realize the systemic and
financial benefits as planned.
On the all-important people side of our business, we made positive strides in
our organizational development efforts. Our annual company-wide associate
opinion survey, performed in conjunction with The Gallup Organization, again
provided valuable insights into the ability of our management to engage our
associates in the initiatives of the Company at all levels. Participation in the
survey increased in fiscal 2001, as did our overall employee engagement ratings.
We expect to further improve those results as we move forward with the input of
our associates in mind.
A number of key appointments strengthened our executive and regional management
in the latter part of the year. The appointment of Elizabeth R. Culligan as
President & Chief Operating Officer and her election to our Board of Directors
reflect her significant contributions during her first year with A&P.
Also strengthening our senior management was the promotion of Mitchell P.
Goldstein to Senior Vice President & Chief Financial Officer, succeeding Fred
Corrado who retired after a successful career with A&P.
6
<PAGE>
Additionally, the promotions of John E. Metzger to Senior Vice President & Chief
Information Officer, and David Smithies to President of our Atlantic Region,
have to further strengthen our management.
Finally, we upgraded our expertise and competency in such critical disciplines
as marketing, information services and supply & logistics, to provide the
functional leadership necessary to our ongoing success.
Going forward in fiscal 2002, we are planning and managing our business in
anticipation of a difficult economic and competitive environment. I am confident
that our experienced management team, clear strategy and improving store network
and support organization will help to maximize our performance in these
challenging times, and position us for the growth opportunities that lie ahead.
On behalf of our Board of Directors and Management, my thanks to all of our
associates, customers, suppliers and stockholders for their support in fiscal
2001, especially in light of the issues with which we were recently confronted.
We look forward to better serving each of these vital constituencies in 2002 and
beyond, as we strive to achieve our ultimate mission . . . to become The
Supermarket of Choice(R), where people choose to shop, work, and invest.
Christian Haub
Chairman of the Board
& Chief Executive Officer
July 3, 2002
7
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis
BASIS OF PRESENTATION
- ---------------------
The Company's fiscal year ends on the last Saturday in February. Fiscal
2001 ended February 23, 2002, fiscal 2000 ended February 24, 2001 and fiscal
1999 ended February 26, 2000. Fiscal 2001, fiscal 2000 and fiscal 1999 were each
comprised of 52 weeks. Except where noted, all net income per share data
presented is both basic and diluted.
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
- -----------------------------------------------------
Prior to filing its 2001 Annual Report on Form 10-K, the Company
discovered certain irregularities relating to the timing for the recognition of
vendor allowances and the accounting for inventory. As the Company announced on
May 24, 2002, it promptly commenced a review of these issues. This review caused
the Company to delay filing its Annual Report on Form 10-K. As a result of this
review, the Company has restated its financial statements for fiscal 1999,
fiscal 2000 and the first, second and third quarters of fiscal 2001, to adjust
for vendor allowances recorded prior to the accounting period in which earned,
and improper inventory adjustments, each in violation of Company policies.
As summarized immediately below, the Company has concluded that the
financial statements should also be restated to reflect primarily 1) the
appropriate timing for the recognition of vendor allowances received, 2) an
actuarially-based method of estimating self-insurance reserves, and 3) timing of
recognition of sublet income associated with certain closed stores.
Vendor Allowances
- -----------------
The Company enters into agreements with vendors to receive cash allowances
for, among other things, slotting, purchase volume, advertising, and carrying of
new products. It is appropriate to record these allowances as a reduction of the
cost of merchandise sold during the periods in which they are earned. The
Company's previous methodology for recognizing vendor allowances for certain
one-year and multi-year allowance contracts resulted in the inappropriate timing
of the recognition of cost reductions. The Company's financial statements have
been adjusted to reflect the effect of proper recognition of such allowances as
reductions of cost of merchandise sold in the period earned.
Self-Insurance Reserves
- -----------------------
The Company's insurance coverages result in significant self-insured
risks. The Company's previous method of establishing its self-insurance
reserves was not based on an appropriate methodology. Accordingly, the Company
has adjusted the financial results based on actuarially determined estimates.
Closed Store Subleases
- ----------------------
In recording accruals for closed stores, the Company's previous
methodology resulted, for certain properties, in the recognition of a portion of
sublease amounts in excess of the related obligations. The Company has adjusted
the financial statements to restore such excess to the closed store accruals.
Such methodology had no effect on stores closed as part of the Asset Disposition
Initiative discussed in Note 3 of the Company's Consolidated Financial
Statements.
For a further discussion of these matters see Notes 2 and 18 to the
Consolidated Financial Statements.
8
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
OPERATING RESULTS
- -----------------
Fiscal 2001 Compared with 2000
- ------------------------------
OVERALL
- -------
Sales for fiscal 2001 were $11.0 billion, compared with $10.6 billion in
fiscal 2000; comparable store sales increased 2.6%. Net loss per share for
fiscal 2001 was $1.88. Included in the Company's results for fiscal 2001 was an
extraordinary after tax loss of $7 million or $0.19 per share for the cost of
repurchasing $178 million of its 7.70% Senior Notes due January 15, 2004 and $20
million of its 7.75% Notes due April 15, 2007, a $193 million charge ($112
million after tax or $2.88 per share - diluted) relating to its asset
disposition initiative (see Note 3 of the Company's Consolidated Financial
Statements), and a nonrecurring pretax gain of $61 million ($35 million after
tax or $0.90 per share - diluted) from proceeds received as a result of the
demutualization of The Prudential Insurance Company.
The following schedule details the adjustments from "as reported" to "as
adjusted" results for fiscal 2001:
<TABLE>
<CAPTION>
Adjustments to be (added) subtracted
--------------------------------------------
(In millions) Fiscal 2001 Asset Fiscal 2001 Fiscal 2000
results as disposition Extraordinary Gain on results as results
reported initiative loss proceeds adjusted As Restated*
-------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 10,973.3 $ - $ - $ - $ 10,973.3 $10,622.9
Cost of merchandise sold (7,822.6) (3.9) - - (7,818.7) (7,581.1)
----------- ----------- ---------- -------- ----------- -----------
Gross margin 3,150.7 (3.9) - - 3,154.6 3,041.8
Rate to sales 28.71% 28.75% 28.63%
Store operating, general
and administrative expense (3,234.8) (189.6) - - (3,045.2) (2,975.7)
Rate to sales 29.48% 27.75% 28.01%
Gain on proceeds from the
demutualization of a mutual
insurance company 60.6 - - 60.6 - -
----------- ------------ ---------- -------- ----------- ------------
(Loss) income from operations (23.5) (193.5) - 60.6 109.4 66.1
Interest expense (91.7) - - - (91.7) (102.5)
Interest income 6.9 - - - 6.9 6.2
----------- ------------ ---------- -------- ----------- ------------
(Loss) income before income
taxes and extraordinary item (108.3) (193.5) - 60.6 24.6 (30.2)
Benefit from (provision for)
income taxes 43.6 81.2 - (25.5) (12.1) 10.7
----------- ------------ ---------- -------- ----------- ------------
(Loss) income before
extraordinary item (64.7) (112.3) - 35.1 12.5 (19.5)
Extraordinary loss on early
extinguishment of debt,
net of income tax benefit
of $5.2 (7.2) - (7.2) - - -
----------- ------------ ---------- -------- ----------- ------------
Net (loss) income $ (71.9) $ (112.3) $ (7.2) $ 35.1 $ 12.5 $ (19.5)
=========== =========== ========== ======== =========== ============
</TABLE>
* See Note 2 - Restatement of Previously Issued Financial Statements in the
Company's Consolidated Financial Statements.
9
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
SALES
- -----
Sales for fiscal 2001 of $10,973 million increased $350 million or 3.3%
from sales of $10,623 million for fiscal 2000. The higher sales were due to
increases in retail sales of $304 million and wholesale sales of $46 million.
The increase in retail sales was attributable to the opening of 68 new stores
since the beginning of fiscal 2000, of which 21 were opened in fiscal 2001,
increasing sales by $535 million. This increase was partially offset by the
closure of 121 stores since the beginning of fiscal 2000, of which 72 were
closed in fiscal 2001, which decreased sales $437 million. Included in the 72
stores closed in fiscal 2001 were 31 stores closed as part of the asset
disposition initiative. Additionally, the unfavorable effect of the Canadian
exchange rate decreased sales $81 million. The remainder of the increase in
sales was caused primarily by increased comparable store sales, which include
replacement stores, for fiscal 2001 of 2.6% (1.5% in the U.S. and 7.8% in
Canada) when compared to fiscal 2000. The increase in wholesale sales was
attributable to higher sales volume of $76 million partially offset by the
unfavorable effect of the Canadian exchange rate which decreased sales by $30
million.
Sales in the U.S. increased by $243 million or 2.9% compared to fiscal
2000. Sales in Canada increased by $107 million or 4.5% from fiscal 2000.
Average weekly sales per supermarket were approximately $275,100 for
fiscal 2001 versus $263,000 for the corresponding period of the prior year, an
increase of 4.6%.
GROSS MARGIN
- ------------
Gross margin as a percentage of sales increased 8 basis points to 28.71%
for fiscal 2001 from 28.63% for fiscal 2000. The gross margin dollar increase of
$109 million resulted from increases in sales volume and the gross margin rate
partially offset by a decrease in the Canadian exchange rate. The U.S.
operations gross margin increase of $89 million resulted from increases of $74
million due to higher sales volume and $15 million due to a higher gross margin
rate. The Canadian operations gross margin increase of $20 million resulted from
an increase of $48 million due to higher sales volume partially offset by a
decrease of $4 million due to a lower gross margin rate and a decrease of $24
million from fluctuations in the Canadian exchange rate.
Included in gross margin for fiscal 2001 were costs related to the
Company's asset disposition initiative of $4 million which were incurred to mark
down inventory in stores announced for closure. Excluding this charge, as a
percentage of sales, gross margin would have been 28.75% and 28.63% for fiscal
2001 and fiscal 2000, respectively.
STORE OPERATING, GENERAL AND ADMINISTRATIVE EXPENSE
- ---------------------------------------------------
Store operating, general and administrative expense ("SG&A") was $3,235
million for fiscal 2001 compared to $2,976 million for fiscal 2000. As a
percentage of sales, SG&A was 29.48% for fiscal 2001 compared to 28.01% for
fiscal 2000.
10
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
Included in SG&A for fiscal 2001 were costs relating to the Company's asset
disposition initiative of $190 million as described in Note 3 of the
Consolidated Financial Statements. Excluding this charge, SG&A was $3,045
million or 27.75% as a percentage of sales. Also included in SG&A for fiscal
2001 and fiscal 2000 were costs relating to the Company's business process
initiative of $91 million and $68 million, respectively. These costs primarily
included professional consulting fees and salaries, including related benefits,
of employees working full-time on the initiative. Excluding these charges, SG&A
was $2,954 million or 26.92% for fiscal 2001 compared to $2,908 million or
27.37% for fiscal 2000. This decrease of 45 basis points was primarily due to
lower store advertising costs, lower store opening and closing costs, and lower
litigation expense.
GAIN ON PROCEEDS FROM THE DEMUTUALIZATION OF A MUTUAL INSURANCE COMPANY
- -----------------------------------------------------------------------
During the fourth quarter of fiscal 2001, the Company received cash and
common stock totaling $61 million from the demutualization of The Prudential
Insurance Company. This amount was recorded as a nonrecurring gain and included
in the determination of pretax income for fiscal 2001.
INTEREST EXPENSE
- ----------------
Interest expense of $92 million for fiscal 2001 decreased from the prior
year amount of $102 million. This was due to decreased borrowing requirements
during fiscal 2001 compared to fiscal 2000 as a result of lower capital
expenditures, a reduction in working capital and the proceeds received on the
sale leaseback transactions described in Note 14 of the Consolidated Financial
Statements. The reduction was also partially due to a decrease in interest
rates.
Fiscal 2000 Compared with 1999
- ------------------------------
OVERALL
- -------
Sales for fiscal 2000 were $10.6 billion, compared with $10.2 billion in
fiscal 1999; comparable store sales increased 2.2%.
Net loss per share for fiscal 2000 was $0.51 compared to net income per
share of $0.92 for fiscal 1999. Included in the results for fiscal 1999 were
costs related to the Company's asset disposition initiative of $103 million
pretax which consisted of $60 million of costs related to the store exiting
charges and $43 million of operating costs incurred by the stores identified for
closure prior to ceasing operations. Excluding the aforementioned charge, net
income per share was $2.48 in fiscal 1999.
11
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
SALES
- -----
Sales for fiscal 2000 of $10,623 million increased $472 million or 4.6%
from the prior year. The increase in sales was primarily attributable to
continued focus on the development of larger stores and comparable store sales
increases. Retail square footage increased by approximately 1.0 million or 3.8%
to 27.9 million square feet during fiscal 2000. This increase was accomplished
primarily by opening 47 new stores which added 2.2 million retail square feet
partially offset by closing 49 stores, which reduced retail square footage by
1.4 million. Comparable store sales, which include replacement stores, increased
2.2% in fiscal 2000 (1.6% in the U.S. and 4.9% in Canada).
Sales in the U.S. for fiscal 2000 increased by $266 million or 3.3%
compared to fiscal 1999. Sales in Canada for fiscal 2000 increased $206 million
or 9.5% from fiscal 1999.
Average weekly sales per supermarket were approximately $263,000 for
fiscal 2000 versus $245,700 for fiscal 1999, an increase of 7.0%.
GROSS MARGIN
- ------------
Gross margin as a percentage of sales decreased 11 basis points to 28.63%
for fiscal 2000 from 28.74% for fiscal 1999. The gross margin dollar increase of
$125 million resulted from an increase in sales volume partially offset by
decreases in the gross margin rate and the Canadian exchange rate. The U.S.
operations gross margin increase of $97 million resulted from increases of $81
million due to higher sales volume and $16 million due to a higher gross margin
rate. The Canadian operations gross margin increase of $28 million resulted from
an increase of $54 million due to higher sales volume partially offset by a
decrease of $19 million due to a lower gross margin rate and a decrease of $7
million from fluctuations in the Canadian exchange rate.
STORE OPERATING, GENERAL AND ADMINISTRATIVE EXPENSE
- ---------------------------------------------------
SG&A was $2,976 million for fiscal 2000 compared to $2,770 million for
fiscal 1999. As a percentage of sales, SG&A increased from 27.29% in fiscal 1999
to 28.01% in fiscal 2000.
The SG&A expense for fiscal 2000 included $68 million relating to the
Company's business process initiative. Such costs primarily included
professional consulting fees and salaries, including related benefits, of
employees working full-time on the initiative.
12
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
The SG&A expense for fiscal 1999 included $122 million relating to the
asset disposition initiative announced in fiscal 1998, including $75 million of
costs related to the store exiting charges and $69 million of operating costs
incurred by the stores identified for closure prior to ceasing operations. This
was partially offset by reversals of previously recorded restructuring charges
due to favorable progress in marketing and subleasing the closed stores of $22
million.
Excluding the aforementioned charges and the results of the stores
identified for closure previously noted, as a percentage of sales, SG&A
increased from 26.50% for fiscal 1999 to 27.37% for fiscal 2000. The increase of
87 basis points was primarily due to higher labor, occupancy and store closing
costs in fiscal 2000.
INTEREST EXPENSE
- ----------------
Interest expense for fiscal 2000 increased $12 million or 13.3% from
fiscal 1999 due to the increase in average borrowings, as well as an increase in
interest rates primarily associated with the 9.375% Senior Quarterly Interest
Bonds issued in August, 1999.
ASSET DISPOSITION INITIATIVE
- ----------------------------
In May 1998, the Company initiated an assessment of its business
operations in order to identify the factors that were impacting the performance
of the Company. As a result of this assessment, in fiscal 1998 and fiscal 1999,
the Company announced a plan to close two warehouse facilities and a coffee
plant in the U.S., a bakery plant in Canada and 166 stores including the exit of
the Richmond, Virginia and Atlanta, Georgia markets.
As of February 23, 2002, the Company had closed all stores and facilities
related to this phase of the initiative. Additionally, the Company paid $29
million of the total net severance charges from the time of the original charges
through February 23, 2002, which resulted from the termination of approximately
3,400 employees. The remaining severance liability primarily relates to future
obligations for early withdrawals from multi-employer union pension plans.
At each balance sheet date, Management assesses the adequacy of the
reserve balance to determine if any adjustments are required as a result of
changes in circumstances and/or estimates. The Company has made favorable
progress to date in marketing and subleasing the closed stores. As a result, in
the third quarter of fiscal 1999, the Company recorded a net reduction in SG&A
of $22 million to reverse a portion of the original charge. This amount
primarily represents a reduction in SG&A for lower store occupancy costs
resulting from earlier than anticipated lease terminations and subleases.
Additionally, in fiscal 2000, the Company recorded a net reduction in SG&A of $3
million to reverse a portion of the original charge. The reversal is primarily
the result of a change in estimate resulting from the sale of one of the
Company's warehouses sold during the first quarter of fiscal 2000.
13
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
During the third quarter of fiscal 2001, the Company's Board of Directors
approved a plan resulting from Management's review of the performance and
potential of each of the Company's businesses and individual stores. At the
conclusion of this review, the Company determined that certain underperforming
operations, including 39 stores (30 in the United States and 9 in Canada) and 3
warehouses should be closed and/or sold, and certain administrative streamlining
should take place. As a result of these decisions, the Company announced on
November 14, 2001 that it would incur costs of approximately $200 - $215 million
pretax ($115 - $125 million after tax) through the third quarter of fiscal 2002.
Of this amount, $193 million pretax ($112 million after tax) was included in the
Statements of Consolidated Operations for fiscal 2001. The components of this
net pretax charge were as follows:
o $180 million of costs to close the stores and warehouses and perform certain
administrative streamlining, of which $64 million related to the present
value of future occupancy obligations, $85 million related to the write-down
of fixed assets, $24 million related to severance for store and
administrative personnel and $7 million related to other miscellaneous items;
o $21 million of costs to discontinue development of 4 potential stores of
which $17 million related to the present value of future occupancy
obligations and $4 million related to fixed asset write-offs; and
o $8 million in gains on the sale of other properties and equipment, primarily
land and buildings.
Of this pretax charge, $4 million was included in "Cost of merchandise
sold" and $189 million was included in "Store operating, general and
administrative expense" in the Statements of Consolidated Operations for fiscal
2001.
To the extent fixed assets included in the items noted above could be
used in other continuing operations, the Company will transfer those assets as
needed. Fixed assets that the Company cannot transfer to other operations will
be scrapped. Accordingly, the write-down recorded during fiscal 2001 was based
on expected transfers.
As of February 23, 2002, the Company had closed 31 of the aforementioned
stores.
At each balance sheet date, Management assesses the adequacy of the
reserve balance to determine if any adjustments are required as a result of
changes in circumstances and/or estimates. As a result of such assessment,
during the fourth quarter of fiscal 2001, the Company recorded an adjustment to
severance and benefits of approximately $1 million related to a reduction in the
severance payments required to be made to certain store employees in Canada.
Under Ontario provincial law, employees to be terminated as part of a mass
termination are entitled to receive compensation, either worked or paid as
severance, for a set period of time after the official notice date. Since such
closures took place later than originally expected, less time remained in the
aforementioned guarantee period.
14
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
As of February 23, 2002, the Company paid approximately $3 million of the
total severance charge recorded to date which resulted from the termination of
approximately 850 employees. The remaining individual severance payments will be
paid by the end of fiscal 2003.
Based upon current available information, Management evaluated the reserve
balances as of February 23, 2002 of $66 million for the 1998 phase of the asset
disposition initiative and $100 million for the 2001 phase of the asset
disposition initiative and has concluded that they are adequate. The Company
will continue to monitor the status of the vacant properties and adjustments to
the reserve balances may be recorded in the future, if necessary.
BUSINESS PROCESS INITIATIVE
- ---------------------------
On March 13, 2000, the Company announced a four-year project to develop a
state-of-the-art supply chain and business management infrastructure.
A team of A&P executives and managers representing all key business
functions is working with a team of strategic alliance consultants concentrating
on the food and drug retailing industry formed by information technology
industry leaders. This combined team is upgrading all processes and business
systems related to the flow of information and products between A&P-operated
offices, distribution points and stores; and between the Company and its
suppliers. Such business processes support Store Operations, Marketing and
Merchandising, Supply and Logistics, People Resources & Services, Finance and
the enabling technologies.
Overall, the Company expects to achieve substantial cash benefits
resulting from improved margins, lower operating expenses, reduced working
capital and better product availability. After implementation is completed in
fiscal 2003, the Company expects to significantly raise the level of ongoing
annual operating income.
Costs related to implementing this initiative reduced diluted net
earnings for fiscal 2001 and 2000 by $1.46 and $1.15 per share, respectively.
The Company expects the cost of implementing this initiative to reduce net
earnings for fiscal 2002 by approximately $1.10 - $1.20 per share.
15
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had working capital of $28 million at February 23, 2002
compared to $68 million at February 24, 2001. The Company had cash and cash
equivalents aggregating $169 million at the end of fiscal 2001 compared to $132
million at the end of fiscal 2000. Working capital of $28 million at February
23, 2002 included $35 million of cash classified as "Cash and cash equivalents"
on the Company's Consolidated Balance Sheets and $27 million of short-term
investments classified as "Prepaid expenses and other current assets" on the
Company's Consolidated Balance Sheets received as a result of the
demutualization of Prudential Insurance Company (see Note 15 of the Company's
Consolidated Financial Statements for further details). After adjusting for this
item, the Company had negative working capital of $35 million at February 23,
2002. Working capital of $68 million at February 24, 2001 included $28 million
of assets held for sale within "Prepaid expenses and other current assets" on
the Company's Consolidated Balance Sheets relating to assets to be sold and
leased back in early fiscal 2001 (see Note 14 of the Company's Consolidated
Financial Statements). Excluding the items described above, the decrease in
working capital was attributable primarily to a decrease in inventories and
increases in book overdrafts and other accruals, partially offset by increases
in accounts receivable and prepaid expenses and other current assets and
decreases in accounts payable and current portion of long-term debt.
On December 14, 2001, the Company issued $275 million 9 1/8% Senior Notes
due December 15, 2011. These notes pay interest semi-annually on June 15 and
December 15 and are callable beginning December 15, 2006. The Company used the
proceeds from the issuance of these notes to repay approximately $178 million of
the total $200 million 7.70% Senior Notes due January 15, 2004 and for general
corporate purposes including repayment of borrowings under the Company's secured
revolving credit agreement. The repayment of approximately $178 million of the
7.70% Senior Notes due January 15, 2004 took place in the form of a tender offer
whereby the Company paid a 6.25% premium to par. In addition, the Company
repurchased in the open market $20 million of its 7.75% Notes due April 15,
2007. The net cost of this tender and open market repurchase resulted in an
extraordinary loss due to the early extinguishment of debt of $7 million after
tax ($12 million pretax). The Company has the right to make additional
repurchases and intends to do so from time to time in the future.
16
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
At February 23, 2002, the Company had a $425 million secured revolving
credit agreement (the "Secured Credit Agreement") expiring December 31, 2003,
with a syndicate of lenders, enabling it to borrow funds on a revolving basis
sufficient to refinance short-term borrowings and provide working capital as
needed. This agreement was secured primarily by inventory and company-owned real
estate. The Secured Credit Agreement was comprised of a U.S. credit agreement
amounting to $340 million and a Canadian credit agreement amounting to $85
million (C$136 million at February 23, 2002). As of February 23, 2002, the
Company had no borrowings under the Secured Credit Agreement. Accordingly, as of
February 23, 2002, after reducing availability for outstanding letters of credit
and inventory requirements, the Company had $367 million available under the
Secured Credit Agreement. Borrowings under the agreement bear interest based on
the variable LIBOR pricing. On March 21, 2002 and April 23, 2002, the Company
amended the Secured Credit Agreement in order to allow for, among other things,
additional debt repayments, the ability to enter additional interest rate
hedging agreements and an increase in the amount of letters of credit available
under the agreement. In addition, $385 million of the initial $425 million of
loan commitments under the original facility scheduled to expire in December
2003 was extended for an additional 18 months and will now expire in June 2005.
The Company's loan agreements and certain of its notes contain various
financial covenants which require, among other things, minimum fixed charge
coverage and maximum levels of leverage and capital expenditures. At February
23, 2002, the Company was in compliance with all of its covenants.
As a result of its delayed filing of the Annual Report on Form 10-K as
described in Note 2 of the Company's Consolidated Financial Statements, the
Company was not in compliance with its reporting covenant and therefore became
unable to draw upon the Secured Credit Agreement. On June 14, 2002 the Company
received a waiver from its lenders allowing it to borrow up to $50 million under
the Secured Credit Agreement through July 29, 2002. The filing of this Annual
Report on Form 10-K cures said covenant violation. The filing delay has also
caused a covenant violation under the indenture covering the Company's debt.
Such violation is cured upon filing.
The Company has active Registration Statements dated January 23, 1998 and
June 23, 1999, allowing it to offer up to $75 million of debt and/or equity
securities as of February 23, 2002 at terms determined by market conditions at
the time of sale.
During fiscal 2001, the Company sold 9 properties and simultaneously
leased them back from the purchaser. Net proceeds received by the Company
related to these transactions amounted to approximately $65 million. The Company
expects to enter into similar transactions with other owned properties from time
to time in the future.
During fiscal 2001, the Company funded its capital expenditures and debt
repayments through internally generated funds combined with proceeds from
disposals of property, revolving lines of credit and the issuance of $275
million 9 1/8% Senior Notes due 2011. Capital expenditures totaled $246 million
during fiscal 2001, which included 21 new supermarkets, 26 major remodels or
enlargements and capital expenditures related to the business process
initiative.
17
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
For fiscal 2002, the Company has planned capital expenditures of
approximately $300 million. These expenditures relate primarily to opening 25
new supermarkets, enlarging or remodeling 70 - 75 supermarkets, and capital
purchases associated with the Company's business process initiative. The Company
currently expects to close a total of approximately 15 - 20 stores in fiscal
2002.
The Company does not expect to pay dividends during fiscal 2002.
As of February 23, 2002, the Company had the following material
contractual obligations and commitments:
<TABLE>
<CAPTION>
Payments Due by Period (in millions)
-----------------------------------------------------------------------------------
Contractual Fiscal 2003 Fiscal 2005
Obligations Total Fiscal 2002 and 2004 and 2006 Thereafter
---------------------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Debt $ 781.5 $ 0.5 $ 23.3 $ 0.2 $ 757.5
Capital Leases 213.5 22.3 38.7 27.6 124.9
Operating Leases 3,350.8 249.0 471.0 434.5 2,196.3
Technology-Related 36.1 28.9 7.2 - -
Purchase Commitments 57.6 30.4 27.2 - -
Interest on Debt 1,080.1 67.4 133.1 131.3 748.3
---------- --------- --------- --------- ----------
Total $ 5,519.6 $ 398.5 $ 700.5 $ 593.6 $ 3,827.0
========== ========= ========= ========= ==========
Expiration of Commitments (in millions)
-----------------------------------------------------------------------------------
Other Fiscal 2003 Fiscal 2005
Commitments Total Fiscal 2002 and 2004 and 2006 Thereafter
---------------------- ---------- ----------- ---------- --------- ----------
Guarantees $ 2.5 $ 0.2 $ 0.7 $ 0.8 $ 0.8
========== ========= ========= ========= ==========
</TABLE>
The Company is the guarantor of a debt commitment of $2.5 million which
will expire in 2011.
The Company has product supply agreements that require it to make
purchases totaling $58 million as of February 23, 2002.
The Company's existing senior debt rating was B2 with negative
implications with Moody's Investors Service and BB with negative implications
with Standard & Poor's Ratings Group as of February 23, 2002. Future rating
changes could affect the availability and cost of financing to the Company.
The Company believes that its current cash resources, including the funds
available under the Secured Credit Agreement, together with cash generated from
operations, will be sufficient for the Company's capital expenditure programs
and mandatory scheduled debt repayments throughout fiscal 2002. However, certain
external factors such as unfavorable economic conditions, competition, labor
relations, and fuel and utility costs could have a significant impact on cash
generated from operations.
18
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
MARKET RISK
- -----------
Market risk represents the risk of loss from adverse market changes that
may impact the consolidated financial position, results of operations or cash
flows of the Company. Among other possible market risks, the Company is exposed
to such risk in the areas of interest rates and foreign currency exchange rates.
From time to time, the Company may enter hedging agreements in order to
manage risks incurred in the normal course of business including the managing of
interest expense and exposure to fluctuations in foreign exchange rates. These
agreements may include interest rate swaps, locks, caps, floors and collars as
well as the use of foreign currency swaps and forward exchange contracts.
Interest Rates
- --------------
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's debt obligations. The Company has no cash
flow exposure due to rate changes on its $777 million in notes as of February
23, 2002 because they are at fixed interest rates. However, the Company does
have cash flow exposure on its committed and uncommitted bank lines of credit
due to its variable LIBOR pricing. Accordingly, during fiscal 2001, a presumed
1% change in LIBOR would have impacted interest expense by $1 million.
On January 4, 2002, the Company entered into an interest rate hedging
agreement with a commercial bank with a notional amount of $50 million maturing
on April 15, 2007. This hedging agreement was designated as a fair value hedging
instrument and effectively converts a portion of the Company's 7.75% Notes due
April 15, 2007 from fixed rate debt to floating rate debt. There were no
ineffective changes in fair value of this hedging agreement. At February 23,
2002, this hedging agreement had a fair value of $1 million. A presumed 1%
change in LIBOR during the time the hedging agreements was outstanding during
fiscal 2001 would not have had a material impact on borrowing costs.
On April 25, 2002 and April 26, 2002, the Company entered into additional
interest rate hedging agreements with notional amounts totaling $100 million
maturing on April 15, 2007. These hedging agreements were designated as fair
value hedging instruments and effectively convert an additional portion of the
Company's 7.75% Notes due April 15, 2007 from fixed rate debt to floating rate
debt. There were no ineffective changes in fair value of these hedging
agreements.
Foreign Exchange Risk
- ---------------------
The Company is exposed to foreign exchange risk to the extent of adverse
fluctuations in the Canadian dollar. During fiscal 2001, a change in the
Canadian currency of 10% would have resulted in a fluctuation in net income of
$2 million. The Company does not believe that a change in the Canadian currency
of 10% will have a material effect on its financial position or cash flows.
19
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
CRITICAL ACCOUNTING POLICIES
- ----------------------------
Critical accounting policies are those accounting policies that
Management believes are important to the portrayal of the Company's financial
condition and results and require Management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain.
The preparation of financial statements in conformity with generally
accepted accounting principles requires Management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Insurance
- ---------
The Consolidated Balance Sheets include liabilities with respect to
self-insured workers' compensation and general liability claims. The Company
determines the required liability of such claims on a discounted basis,
utilizing an actuarially determined method which is based upon various
assumptions which include, but are not limited to, the Company's historical loss
experience, projected loss development factors, actual payroll, and other data.
It is possible that the final resolution of some of these claims may vary from
the Company's estimate of existing reserves.
Long-Lived Assets
- -----------------
The Company reviews the carrying values of its long-lived and
identifiable intangible assets for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of assets may not be
recoverable. Such review is based upon groups of assets and the undiscounted
estimated future cash flows from such assets to determine if the carrying value
of such assets are recoverable from their respective cash flows. If such review
indicates an impairment exists, the Company measures such impairment on a
discounted basis.
Store Closing Reserves
- ----------------------
For stores to be closed that are under long-term leases, the Company
records a liability for the future minimum lease payments and related costs from
the date of closure to the end of the remaining lease term, net of estimated
cost recoveries. The Company estimates future net cash flows based on its
experience and knowledge of the market in which the store expected to be closed
is located. However, these estimates project net cash flow several years into
the future and are affected by variable factors such as inflation, real estate
markets and economic conditions.
20
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
Net Operating Loss Carryforwards
- --------------------------------
The Company has net operating loss carryforwards from its Canadian and
U.S. operations. The Canadian portion of the net operating loss carryforwards
will expire between February 2003 and February 2009 and the U.S. portion will
expire between February 2019 and February 2022. The Company has assessed its
ability to utilize the net operating loss carryforwards and concluded that no
valuation allowance currently is required since the Company believes that it is
more likely than not that the net operating loss carryforwards will be utilized
either by generating taxable income or through tax planning strategies. However,
this cannot be assured. Accordingly, some portions of these net operating loss
carryforwards may expire before they can be utilized by the Company to reduce
its income tax obligations.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
- ---------------------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 142, "Goodwill and Other
Intangible Assets". The provisions of this statement are required to be applied
by the Company starting with fiscal 2002. This statement is required to be
applied to all goodwill and other intangible assets recognized in the Company's
financial statements at the date of adoption. At that time, goodwill will no
longer be amortized, but will be tested for impairment annually. Amortization
expense for fiscal years 2001, 2000 and 1999 was $1.4 million, $1.5 million and
$1.2 million, respectively. Additionally, impairment losses for goodwill and
indefinite-lived intangible assets that arise due to the initial application of
this statement would be reported as resulting from a change in accounting
principle. The Company intends to complete its assessment of the impact that
this statement will have on its financial statements during the second quarter
of fiscal 2002.
In June 2001, the FASB issued SFAS 143, "Accounting For Asset
Retirement Obligations". This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The Company is required to
adopt the provisions of SFAS No. 143 at the beginning of fiscal 2003. The
Company has determined that the adoption of this statement will not have a
material impact on its financial position or results of operations.
In August 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement requires that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. This statement also broadens
the presentation of discontinued operations to include more disposal
transactions. The provisions of this statement are required to be adopted by the
Company at the beginning of fiscal 2002. The Company is currently assessing the
impact this statement will have on its financial statements.
21
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Management's Discussion and Analysis - Continued
In April 2002, the FASB issued SFAS 145, "Recission of FASB Statements 4,
44 and 64, Amendment of FASB Statement 13, and Technical Corrections". SFAS 145
rescinds the provisions of SFAS 4 that requires companies to classify certain
gains and losses from debt extinguishments as extraordinary items, eliminates
the provisions of SFAS 44 regarding transition to the Motor Carrier Act of 1980
and amends the provisions of SFAS 13 to require that certain lease modifications
be treated as sale leaseback transactions. The provisions of SFAS 145 related to
classification of debt extinguishment are effective for fiscal years beginning
after May 15, 2002. The provisions of SFAS 145 related to lease modification are
effective for transactions occurring after May 15, 2002. The Company is
currently assessing the impact this statement will have on its financial
statements.
CAUTIONARY NOTE
- ---------------
This presentation may contain forward-looking statements about the future
performance of the Company, and is based on Management's assumptions and beliefs
in light of information currently available. The Company assumes no obligation
to update this information. These forward-looking statements are subject to
uncertainties and other factors that could cause actual results to differ
materially from such statements including but not limited to: competitive
practices and pricing in the food industry generally and particularly in the
Company's principal markets; the Company's relationships with its employees; the
terms of future collective bargaining agreements; the costs and other effects of
lawsuits and administrative proceedings; the nature and extent of continued
consolidation in the food industry; changes in the financial markets which may
affect the Company's cost of capital or the ability to access capital; supply or
quality control problems with the Company's vendors; and changes in economic
conditions, which may affect the buying patterns of the Company's customers.
22
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Statements of Consolidated Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999
(As Restated (As Restated
Fiscal 2001 See Note 2) See Note 2)
-------------- -------------- ---------------
<S> <C> <C> <C>
Sales $ 10,973,315 $ 10,622,866 $ 10,151,334
Cost of merchandise sold (7,822,649) (7,581,090) (7,234,343)
-------------- -------------- ---------------
Gross margin 3,150,666 3,041,776 2,916,991
Store operating, general
and administrative expense (3,234,796) (2,975,746) (2,769,909)
Gain on proceeds from the
demutualization of a mutual
insurance company 60,606 - -
-------------- -------------- ---------------
(Loss) income from operations (23,524) 66,030 147,082
Interest expense (91,722) (102,488) (90,445)
Interest income 6,972 6,222 6,218
-------------- -------------- ---------------
(Loss) income before income
taxes and extraordinary item (108,274) (30,236) 62,855
Benefit from (provision for)
income taxes 43,590 10,736 (27,542)
-------------- -------------- ---------------
(Loss) income before
extraordinary item (64,684) (19,500) 35,313
Extraordinary loss on early
extinguishment of debt, net of
income tax benefit of $5,230 (7,222) - -
-------------- -------------- ---------------
Net (loss) income $ (71,906) $ (19,500) $ 35,313
============== ============== ===============
Net (loss) income per share - basic and diluted:
(Loss) income before
extraordinary item $ (1.69) $ (0.51) $ 0.92
Extraordinary loss on early
extinguishment of debt (0.19) - -
-------------- -------------- ---------------
Net (loss) income per share - basic
and diluted $ (1.88) $ (0.51) $ 0.92
============== ============== ===============
Weighted average common shares outstanding:
Basic 38,350,616 38,347,216 38,330,379
============== ============== ===============
Diluted 38,350,616 38,347,216 38,415,420
============== ============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Statements of Consolidated Stockholders' Equity and Comprehensive (Loss) Income
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Unamortized Accumulated
Common stock Additional value of other Total
-------------------------- paid-in restricted comprehensive Retained stockholders'
Shares Amount capital stock grant loss earnings equity
------------- ----------- ----------- ------------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 2/27/99
As previously reported 38,290,716 $ 38,291 $ 454,971 $ - $ (69,039) $ 413,034 $ 837,257
Adjustment to retained
earnings due to
restatement (See
Note 2) (75,207) (75,207)
------------- ----------- ----------- ------------- ------------- ----------- -------------
Balance at 2/27/99 - As
Restated - See Note 2 38,290,716 38,291 454,971 - (69,039) 337,827 762,050
Net income - As Restated
- See Note 2 35,313 35,313
Stock options exercised 56,500 56 1,499 1,555
Issuance of 20,000
shares of restricted
common stock 20,000 20 631 (651) -
Amortization of restricted
stock grant 210 210
Comprehensive income 8,343 8,343
Cash dividends (15,333) (15,333)
------------- ----------- ----------- ------------- ------------- ----------- -------------
Balance at 2/26/00
As Restated - See Note 2 38,367,216 38,367 457,101 (441) (60,696) 357,807 792,138
Net loss - As Restated
- See Note 2 (19,500) (19,500)
Forfeiture of restricted
stock grant (20,000) (20) (631) 441 (210)
Comprehensive loss (12,112) (12,112)
Cash dividends (11,505) (11,505)
------------- ----------- ----------- ------------- ------------- ----------- -------------
Balance at 2/24/01
As Restated - See Note 2 38,347,216 38,347 456,470 - (72,808) 326,802 748,811
Net loss (71,906) (71,906)
Stock options exercised 20,412 21 283 304
Comprehensive loss (4,221) (4,221)
------------- ----------- ----------- ------------- ------------- ----------- -------------
Balance at 2/23/02 38,367,628 $ 38,368 $ 456,753 $ - $ (77,029) $ 254,896 $ 672,988
============= =========== =========== ============= ============= =========== =============
Fiscal 2000 Fiscal 1999
(As Restated (As Restated
Fiscal 2001 See Note 2) See Note 2)
----------- ----------- ---------
Comprehensive (loss) income
Net (loss) income $ (71,906) $ (19,500) $ 35,313
----------- ----------- ---------
Foreign currency translation adjustment (5,089) (14,802) 6,784
Minimum pension liability adjustment (65) 2,690 1,559
Unrealized gain on securities available for sale 933 - -
----------- --------- ---------
Other comprehensive (loss) income (4,221) (12,112) 8,343
----------- ----------- ---------
Total comprehensive (loss) income $ (76,127) $ (31,612) $ 43,656
=========== =========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
February 24, 2001
February 23, 2002 (As Restated - See Note 2)
----------------- --------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 168,620 $ 131,550
Accounts receivable, net of allowance for doubtful
accounts of $8,274 and $9,120 at February 23, 2002
and February 24, 2001, respectively 206,188 185,779
Inventories 716,083 777,380
Prepaid expenses and other current assets 121,183 103,164
------------ ------------
Total current assets 1,212,074 1,197,873
------------ ------------
Property:
Land 88,154 107,893
Buildings 303,581 359,275
Equipment and leasehold improvements 2,293,655 2,388,366
------------ ------------
Total - at cost 2,685,390 2,855,534
Less accumulated depreciation and amortization (1,053,850) (1,050,279)
------------ ------------
Property owned 1,631,540 1,805,255
Property leased under capital leases 76,800 84,758
------------ ------------
Property - net 1,708,340 1,890,013
Other assets 273,850 231,271
------------ ------------
Total assets $ 3,194,264 $ 3,319,157
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 526 $ 6,195
Current portion of obligations under capital leases 10,691 11,634
Accounts payable 547,113 566,482
Book overdrafts 127,079 108,448
Accrued salaries, wages and benefits 167,724 158,450
Accrued taxes 69,559 62,169
Other accruals 261,771 216,684
------------ ------------
Total current liabilities 1,184,463 1,130,062
------------ ------------
Long-term debt 779,440 915,321
Long-term obligations under capital leases 93,587 106,797
Other non-current liabilities 463,786 418,166
------------ ------------
Total liabilities 2,521,276 2,570,346
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - no par value; authorized - 3,000,000
shares; issued - none - -
Common stock - $1 par value; authorized - 80,000,000
shares; issued and outstanding - 38,367,628 and
38,347,216 shares at February 23, 2002 and
February 24, 2001, respectively 38,368 38,347
Additional paid-in capital 456,753 456,470
Accumulated other comprehensive loss (77,029) (72,808)
Retained earnings 254,896 326,802
------------ ------------
Total stockholders' equity 672,988 748,811
------------ ------------
Total liabilities and stockholders' equity $ 3,194,264 $ 3,319,157
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Statements of Consolidated Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999
(As Restated (As Restated
Fiscal 2001 See Note 2) See Note 2)
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net (loss) income $ (71,906) $ (19,500) $ 35,313
Adjustments to reconcile net (loss) income
to cash provided by operating activities:
Asset disposition initiative 201,067 (3,104) 14,078
Environmental charge 1,964 4,329 -
Depreciation and amortization 262,552 255,771 232,712
Deferred income tax (benefit) provision (47,298) (14,267) 22,957
Deferred income tax benefit from early
extinguishment of debt (5,230) - -
Loss (gain) on disposal of owned property and
write-down of property, net 348 4,263 (2,973)
(Increase) decrease in receivables (22,151) 40,479 (24,832)
Decrease in inventories 58,246 85 60,283
(Increase) decrease in prepaid expenses and other
current assets (39,469) 4,903 2,392
Decrease (increase) in other assets 988 (7,648) (16,630)
(Decrease) increase in accounts payable (12,446) 5,443 16,546
Increase in accrued expenses 18,027 13,104 4,797
(Decrease) increase in other accruals (17,051) (31,661) 5,878
Increase in other non-current liabilities (7,684) (882) (34,246)
Other, net 5,008 2,446 (1,615)
------------ ------------ ------------
Net cash provided by operating activities 324,965 253,761 314,660
------------ ------------ ------------
Cash Flows From Investing Activities:
Expenditures for property (246,182) (415,842) (479,572)
Unrealized gain on securities available for sale 933 - -
Proceeds from disposal of property 105,808 150,255 101,319
------------ ------------ ------------
Net cash used in investing activities (139,441) (265,587) (378,253)
------------ ------------ ------------
Cash Flows From Financing Activities:
Changes in short-term debt (5,000) (22,000) 3,900
Proceeds under revolving lines of credit 1,098,675 817,447 165,102
Payments on revolving lines of credit (1,288,282) (602,307) (235,150)
Proceeds from long-term borrowings 276,964 26,981 202,110
Payments on long-term borrowings (223,907) (166,670) (4,975)
Principal payments on capital leases (11,710) (11,252) (11,968)
Increase (decrease) in book overdrafts 18,824 (3,298) (49,354)
Deferred financing fees (13,485) (6,428) (6,298)
Proceeds from stock options exercised 304 - 1,555
Cash dividends - (11,505) (15,333)
------------ ------------ ------------
Net cash (used in) provided by financing activities (147,617) 20,968 49,589
------------ ------------ ------------
Effect of exchange rate changes on cash and
cash equivalents (837) (2,195) 1,797
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 37,070 6,947 (12,207)
Cash and cash equivalents at beginning of year 131,550 124,603 136,810
------------ ------------ ------------
Cash and cash equivalents at end of year $ 168,620 $ 131,550 $ 124,603
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, and where noted)
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries. The Company operates retail supermarkets in
the United States and Canada. The U.S. operations are mainly in the Eastern part
of the U.S. and certain parts of the Midwest. See the following footnotes for
additional information on the Canadian Operations: Note 5 - Wholesale Franchise
Business, Note 6 - Indebtedness, Note 9 - Income Taxes, Note 10 - Retirement
Plans and Benefits, and Note 13 - Operating Segments. The principal stockholder
of the Company, Tengelmann Warenhandelsgesellschaft ("Tengelmann"), owned 56.6%
of the Company's common stock as of February 23, 2002.
Fiscal Year
- -----------
The Company's fiscal year ends on the last Saturday in February. Fiscal
2001 ended February 23, 2002, fiscal 2000 ended February 24, 2001 and fiscal
1999 ended February 26, 2000. Fiscal 2001, fiscal 2000 and fiscal 1999 were each
comprised of 52 weeks.
Restatement of Previously Issued Financial Statements
- -----------------------------------------------------
As discussed in Note 2 - Restatement of Previously Issued Financial
Statements, the Company has restated its financial results for fiscal 1999,
fiscal 2000 and the first, second and third quarters of fiscal 2001, to correct
violations of Company policy identified in a review by the Company and to
reflect primarily 1) the appropriate timing for the recognition of vendor
allowances, 2) an actuarially-based method of estimating self-insurance
reserves, and 3) timing of recognition of sublet income associated with certain
closed stores.
Revenue Recognition
- -------------------
Retail revenue is recognized at point-of-sale while wholesale revenue is
recognized, in accordance with its terms, when goods are shipped.
Cash and Cash Equivalents
- -------------------------
Short-term investments that are highly liquid with an original maturity
of three months or less are deemed to be cash equivalents and are included in
"Cash and cash equivalents" on the Company's Consolidated Balance Sheets.
Inventories
- -----------
Store inventories are valued principally at the lower of cost or market
with cost determined under the retail method on a first-in, first-out basis.
Warehouse and other inventories are valued primarily at the lower of cost or
market with cost determined on a first-in, first-out basis. Inventories of
certain acquired companies are valued using the last-in, first-out method, which
was their practice prior to acquisition. See Note 4 - Inventory for additional
information regarding the Company's use of the last-in, first-out method.
Vendor Allowances
- -----------------
Vendor allowances when received are deferred and are recognized as a
reduction of cost of merchandise sold when earned.
27
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
Advertising Costs
- -----------------
Advertising costs are expensed as incurred. The Company recorded
advertising expense of $136.0 million, $146.5 million and $138.8 million for
fiscal 2001, 2000 and 1999, respectively.
Pre-opening Costs
- -----------------
The costs of opening new stores are expensed as incurred.
Software Costs
- --------------
The Company capitalizes externally purchased software and amortizes it
over three to five years. Amortization expense for fiscal 2001, 2000 and 1999
was $3.3 million, $1.4 million and $0.9 million, respectively.
The Company applies the provisions of the American Institute of Certified
Public Accountants' Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
requires the capitalization of certain internally generated software costs. In
fiscal 2001, 2000 and 1999, the Company capitalized $24.1 million, $3.7 million
and $0.9 million, respectively, of such software costs. Such software is
amortized over three to five years and for fiscal 2001, 2000 and 1999, the
Company recorded amortization expense of $2.7 million, $0.7 million and $0.5
million, respectively.
Earnings Per Share
- ------------------
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 requires dual presentation of basic and diluted earnings per
share ("EPS") on the face of the Statements of Consolidated Operations and
requires a reconciliation of the numerators and denominators of the basic and
diluted EPS calculations. Basic EPS is computed by dividing net income by the
weighted average shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if options to issue common stock were
exercised and converted to common stock.
The weighted average shares outstanding utilized in the basic EPS
calculation were 38,350,616 for fiscal 2001, 38,347,216 for fiscal 2000 and
38,330,379 for fiscal 1999. The common stock equivalents that were added to the
weighted average shares outstanding for purposes of diluted EPS were 85,041 for
fiscal 1999. The common stock equivalents for fiscal 2001 and 2000 would have
been 588,603 and 14,478, respectively; however, such shares were antidilutive
and thus excluded from the diluted EPS calculation.
Excess of Cost over Net Assets Acquired
- ---------------------------------------
The excess of cost over fair value of net assets acquired is amortized on
a straight-line basis between fifteen to forty years. The Company recorded
amortization expense of $1.4 million for fiscal 2001, $1.5 million for fiscal
2000 and $1.2 million for fiscal 1999. The book value of excess of cost over net
assets acquired at February 23, 2002 and February 24, 2001 was $32.0 million and
$34.2 million, net of accumulated amortization of $14.0 million and $12.5
million, respectively.
28
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements
At each balance sheet date, Management reassesses the appropriateness of
the goodwill balance based on forecasts of cash flows from operating results on
an undiscounted basis. If the results of such comparison indicate that an
impairment may exist, the Company will recognize a charge to operations at that
time based upon the difference between the present value of the expected cash
flows from future operating results (utilizing a discount rate equal to the
Company's average cost of funds at that time) and the balance sheet value. The
recoverability of goodwill is at risk to the extent the Company is unable to
achieve its forecast assumptions regarding cash flows from operating results. At
February 23, 2002, the Company estimates that the cash flows projected to be
generated by the respective businesses on an undiscounted basis should be
sufficient to recover the existing goodwill balance over its remaining life.
Long-Lived Assets
- -----------------
The Company reviews the carrying values of its long-lived and
identifiable intangible assets for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of assets may not be
recoverable. Such review is based upon groups of assets and the undiscounted
estimated future cash flows from such assets to determine if the carrying value
of such assets are recoverable from their respective cash flows. If such review
indicates an impairment exists, the Company measures such an impairment on a
discounted basis.
The Company recorded impairment losses during the years ended February
23, 2002 and February 24, 2001 related to the sale leaseback transactions (see
Note 14 - Sale-Leaseback Transactions for further details) and during the year
ended February 23, 2002 related to its asset disposition initiative (see Note 3
- - Asset Disposition Initiative for further details).
Properties
- ----------
Depreciation and amortization are calculated on the straight-line basis
over the estimated useful lives of the assets. Buildings are depreciated based
on lives varying from twenty to fifty years and equipment based on lives varying
from three to ten years. Real property leased under capital leases is amortized
over the lives of the respective leases or over their economic useful lives,
whichever is less. During fiscal 2001, 2000 and 1999, the Company disposed of
and/or wrote down certain assets which resulted in a pretax net loss of $0.3
million, a pretax net loss of $4.3 million and a pretax net gain of $3.0
million, respectively.
Income Taxes
- ------------
The Company provides deferred income taxes on temporary differences
between amounts of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws.
Current Liabilities
- -------------------
Certain accounts payable checks issued but not presented to banks
frequently result in negative book balances for accounting purposes. Such
amounts are classified as "Book overdrafts" on the Company's Consolidated
Balance Sheets.
29
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
The Company accrues for vacation pay. Liabilities for compensated
absences of $81.5 million and $81.7 million at February 23, 2002 and February
24, 2001, respectively, are included in "Accrued salaries, wages and benefits"
on the Company's Consolidated Balance Sheets.
Stock-Based Compensation
- ------------------------
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" ("APB 25") with pro forma disclosure of net income and
earnings per share as if the fair value based method prescribed by SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") had been applied.
Comprehensive (Loss) Income
- ---------------------------
The Company has other comprehensive (loss) income relating to foreign
currency translation adjustment, minimum pension liability adjustment and an
unrealized gain on securities available for sale.
Accumulated other comprehensive loss as of February 23, 2002 included
foreign currency translation of $77.8 million and an additional minimum pension
liability of $0.1 million partially offset by an unrealized gain on securities
available for sale of $0.9 million. Accumulated other comprehensive loss as of
February 24, 2001 included foreign currency translation of $72.7 million and an
additional minimum pension liability of less than $0.1 million.
Translation of Canadian Currency
- --------------------------------
Assets and liabilities denominated in Canadian currency are translated at
year-end rates of exchange, and revenues and expenses are translated at average
rates of exchange during the year. Gains and losses resulting from translation
adjustments are accumulated as a separate component of accumulated other
comprehensive loss within stockholders' equity.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP") requires
Management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The Consolidated Balance Sheets include liabilities with respect to
self-insured workers' compensation and general liability claims. The Company
determines the required liability of such claims on a discounted basis,
utilizing an actuarially-determined method which is based upon various
assumptions which include, but are not limited to, the Company's historical loss
experience, projected loss development factors, actual payroll, and other data.
It is possible that the final resolution of some of these claims may require
significant expenditures by the Company in excess of its existing reserves.
30
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
For stores to be closed that are under long-term leases, the Company
records a liability for the future minimum lease payments and related costs from
the date of closure to the end of the remaining lease term, net of estimated
cost recoveries. The Company estimates net future cash flows based on its
experience and knowledge of the market in which the store expected to be closed
is located. However, these estimates project net cash flow several years into
the future and are affected by variable factors such as inflation, real estate
markets and economic conditions.
The Company has net operating loss carryforwards from its Canadian and
U.S. operations. The Canadian portion of the net operating loss carryforwards
will expire between February 2003 and February 2009 and the U.S. portion will
expire between February 2019 and February 2022. The Company has assessed its
ability to utilize the net operating loss carryforwards and concluded that no
valuation allowance currently is required since the Company believes that it is
more likely than not that the net operating loss carryforwards will be utilized
either by generating taxable income or through tax planning strategies. However,
this cannot be assured. Accordingly, some portions of these net operating loss
carryforwards may expire before they can be utilized by the Company to reduce
its income tax obligations.
New Accounting Pronouncements Not Yet Adopted
- ---------------------------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS 142, "Goodwill and Other Intangible Assets". The provisions of this
statement are required to be applied by the Company starting with fiscal 2002.
This statement is required to be applied to all goodwill and other intangible
assets recognized in the Company's financial statements at the date of adoption.
At that time, goodwill will no longer be amortized, but will be tested for
impairment annually. Amortization expense for fiscal years 2001, 2000 and 1999
was $1.4 million, $1.5 million and $1.2 million, respectively. Additionally,
impairment losses for goodwill and indefinite-lived intangible assets that arise
due to the initial application of this statement would be reported as resulting
from a change in accounting principle. The Company intends to complete its
assessment of the impact that this statement will have on its financial
statements during the second quarter of fiscal 2002.
In June 2001, the FASB issued SFAS 143, "Accounting For Asset
Retirement Obligations". This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The Company is required to
adopt the provisions of SFAS 143 at the beginning of fiscal 2003. The
Company has determined that the adoption of this statement will not have a
material impact on its financial position or results of operations.
31
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
In August 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement requires that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. This statement also broadens
the presentation of discontinued operations to include more disposal
transactions. The provisions of this statement are required to be adopted by the
Company at the beginning of fiscal 2002. The Company is currently assessing the
impact this statement will have on its financial statements.
In April 2002, the FASB issued SFAS 145, "Recission of FASB Statements 4,
44 and 64, Amendment of FASB Statement 13, and Technical Corrections". SFAS 145
rescinds the provisions of SFAS 4 that requires companies to classify certain
gains and losses from debt extinguishments as extraordinary items, eliminates
the provisions of SFAS 44 regarding transition to the Motor Carrier Act of
1980 and amends the provisions of SFAS 13 to require that certain lease
modifications be treated as sale leaseback transactions. The provisions of SFAS
145 related to classification of debt extinguishment are effective for fiscal
years beginning after May 15, 2002. The provisions of SFAS 145 related to lease
modifications are effective for transactions occurring after May 15, 2002. The
Company is currently assessing the impact this statement will have on its
financial statements.
Note 2 - Restatement of Previously Issued Financial Statements
Prior to filing its 2001 Annual Report on Form 10-K, the Company discovered
certain irregularities relating to the timing for the recognition of vendor
allowances and the accounting for inventory. As the Company announced on May 24,
2002, it promptly commenced a review of these issues. This review caused the
Company to delay filing its Annual Report on Form 10-K. As a result of this
review, the Company has restated its financial statements for fiscal 1999,
fiscal 2000 and the first, second and third quarters of fiscal 2001, to adjust
for vendor allowances recorded prior to the accounting period in which earned
and improper inventory adjustments, each in violation of Company policies. The
financial statements for fiscal 1999 and 2000 include aggregate after-tax
charges of $4.6 million and $0.4 million relating to these vendor allowances and
perishable inventory adjustments, respectively.
As summarized immediately below, the Company has concluded that the
financial statements should also be restated to reflect primarily 1) the
appropriate timing for the recognition of vendor allowances received, 2) an
actuarially-based method of estimating self-insurance reserves, and 3) timing of
recognition of sublet income associated with certain closed stores.
Vendor Allowances
- -----------------
The Company enters into agreements with vendors to receive cash
allowances for, among other things, slotting, purchase volume, advertising, and
carrying of new products. It is appropriate to record these allowances as
reductions of the cost of merchandise sold during the periods in which they are
earned. The Company's previous methodology for recognizing vendor allowances
for certain one-year and multi-year allowance contracts resulted in
inappropriate timing of the recognition of cost reductions. The Company's
financial statements have been adjusted to reflect the effect of proper
recognition of such allowances as reduction of cost of merchandise sold in the
period earned. The impact on retained earnings as of February 27, 1999 was a
reduction of $33 million. The after-tax impact is to increase net income (loss)
by $8.2 million and $10.2 million for fiscal 1999 and 2000, respectively.
32
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
Self-Insurance Reserves
- -----------------------
The Company's insurance coverages result in significant self-insured
risks. The Company's previous method of establishing its self-insurance reserves
was not based on an appropriate methodology. Accordingly, the Company has
adjusted the financial statements based on actuarially determined estimates.
The impact on retained earnings as of February 27, 1999 was a reduction of
$28 million. The after-tax impact on net income (loss) is an increase of
$15.7 million for fiscal 1999 and a decrease of $0.8 million for fiscal 2000.
Closed Store Subleases
- ----------------------
In recording accruals for closed stores, the Company's previous
methodology resulted, for certain properties, in the recognition of a portion of
sublease amounts in excess of the related obligations. The Company has adjusted
the financial statements to restore such excess to the closed store accruals.
Such methodology had no effect on stores closed as part of the Asset Disposition
Initiative discussed in Note 3 of the Company's Consolidated Financial
Statements. Accordingly, the Company has adjusted the financial statements to
correct the timing of the recognition of subleases. The impact on retained
earnings as of February 27, 1999 was a reduction of $14 million. The impacts on
after-tax net income (loss) are decreases of $0.1 million and $1.5 million for
fiscal 1999 and 2000, respectively.
As a result of the foregoing, the Company has restated its financial
statements from amounts previously reported. The following is a summary of the
significant effects of the restatement on the Company's financial statements for
fiscal years 2000 and 1999:
<TABLE>
<CAPTION>
As
Previously As
Reported Adjustments Restated
------------- ----------- -------------
<S> <C> <C> <C>
Fiscal 2000
- -----------
Statement of Consolidated Operations
Cost of merchandise sold $ (7,594,450) $ 13,360 $ (7,581,090)
Gross margin 3,028,416 13,360 3,041,776
Store operating, general and
administrative expense (2,978,223) 2,477 (2,975,746)
Income from operations 50,193 15,837 66,030
Interest expense (96,088) (6,400) (102,488)
(Loss) income before income taxes (39,673) 9,437 (30,236)
Benefit from (provision for) income taxes 14,605 (3,869) 10,736
Net (loss) income (25,068) 5,568 (19,500)
Net (loss) income - basic and diluted $ (0.65) $ 0.14 $ (0.51)
Consolidated Balance Sheets
Accounts receivable $ 183,382 $ 2,397 $ 185,779
Inventories 783,758 (6,378) 777,380
Total current assets 1,201,854 (3,981) 1,197,873
Other assets 217,936 13,335 231,271
Total assets 3,309,803 9,354 3,319,157
Other accruals 194,106 22,578 216,684
Total current liabilities 1,107,484 22,578 1,130,062
Other non-current liabilities 382,904 35,262 418,166
Total liabilities 2,512,506 57,840 2,570,346
Retained earnings 375,288 (48,486) 326,802
Total stockholders' equity 797,297 (48,486) 748,811
Total liabilities and stockholders' equity 3,309,803 9,354 3,319,157
</TABLE>
33
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
<TABLE>
<CAPTION>
Fiscal 1999
- -----------
Statement of Consolidated Operations
<S> <C> <C> <C>
Cost of merchandise sold $ (7,243,718) $ 9,375 $ (7,234,343)
Gross margin 2,907,616 9,375 2,916,991
Store operating, general and
administrative expense (2,802,786) 32,877 (2,769,909)
Income from operations 104,830 42,252 147,082
Interest expense (84,045) (6,400) (90,445)
Income before income taxes 27,003 35,852 62,855
Provision for income taxes (12,843) (14,699) (27,542)
Net income 14,160 21,153 35,313
Net income - basic and diluted $ 0.37 $ 0.55 $ 0.92
Retained Earnings - February 27, 1999 413,034 (75,207) 337,827
</TABLE>
In addition to the above tables, see Note 18 - Summary of Quarterly
Results for the effect of the restatement on the fiscal 2000 and 2001 quarters.
Note 3 - Asset Disposition Initiative
In May 1998, the Company initiated an assessment of its business
operations in order to identify the factors that were impacting the performance
of the Company. As a result of this assessment, in fiscal 1998 and 1999, the
Company announced a plan to close two warehouse facilities and a coffee plant in
the U.S., a bakery plant in Canada and 166 stores including the exit of the
Richmond, Virginia and Atlanta, Georgia markets.
As of February 23, 2002, the Company had closed all stores and facilities
related to this phase of the initiative. The Company paid $29 million of the
total net severance charges from the time of the original charges through
February 23, 2002, which resulted from the termination of approximately 3,400
employees. The remaining severance liability primarily relates to future
obligations for early withdrawals from multi-employer union pension plans.
The following table summarizes the activity related to the aforementioned
charges over the last three fiscal years:
34
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
<TABLE>
<CAPTION>
Severance
Store Fixed and Facilities
Occupancy Assets Benefits Occupancy Total
----------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Reserve Balance at
Feb. 27, 1999 $ 114,532 $ - $ 10,066 $ 4,038 $ 128,636
Addition (1) 15,730 - 17,060 3,188 35,978
Utilization (4,614)(3) (295) (19,626) (3,659) (28,194)
Adjustment (2) (22,195) 295 - - (21,900)
----------- ---------- ---------- --------- -----------
Reserve Balance at
Feb. 26, 2000 103,453 - 7,500 3,567 114,520
Addition (1) 5,062 - - - 5,062
Utilization (4) (25,654) - (4,779) (463) (30,896)
Adjustment (2) - - - (3,104) (3,104)
----------- ---------- ---------- --------- -----------
Reserve Balance at
Feb. 24, 2001 82,861 - 2,721 - 85,582
Addition (1) 3,818 - - - 3,818
Utilization (4) (23,302) - (544) - (23,846)
Adjustment - - - - -
----------- ---------- ---------- --------- -----------
Reserve Balance at
Feb. 23, 2002 $ 63,377 $ - $ 2,177 $ - $ 65,554
=========== ========== ========== ========= ===========
</TABLE>
(1) The additions to store occupancy of $5.1 million and $3.8 million during
fiscal 2000 and 2001 represent the present value of accrued interest related
to lease obligations. The fiscal 1999 addition represents an increase to the
store occupancy reserve for the present value of accrued interest of $7.4
million, additional severance cost of $11.5 million and the cost of exiting
the Atlanta market (including store occupancy of $8.3 million, severance of
$5.6 million and facilities costs of $3.2 million).
(2) At each balance sheet date, Management assesses the adequacy of the reserve
balance to determine if any adjustments are required as a result of changes
in circumstances and/or estimates. As a result, in the third quarter of
fiscal 1999, the Company recorded a net reduction in "Store operating,
general and administrative expense" of $21.9 million to reverse a portion of
the original charge. This amount represents a $22.2 million reduction in
"Store operating, general and administrative expense" for lower store
occupancy costs resulting primarily from earlier than anticipated lease
terminations and subleases. The credit is partially offset by $0.3 million
of additional fixed asset write-downs resulting from lower than anticipated
proceeds from the sale of fixed assets. Additionally, in fiscal 2000, the
Company recorded a net reduction in "Store operating, general and
administrative expense" of $3.1 million to further reverse a portion of the
charge. This reversal is primarily a result of a change in estimate
resulting from the sale of one of the Company's warehouses sold during the
first quarter of fiscal 2000.
(3) Store occupancy utilization for fiscal 1999 is comprised of $29.6 million of
lease and other occupancy payments for the period, net of $25.0 million of
net proceeds on the assignment of leases which was considered in determining
the original charge recorded during fiscal 1998.
(4) Store occupancy utilization of $25.7 million and facilities occupancy of
$0.5 million for fiscal 2000 and store occupancy utilization of $23.3
million for fiscal 2001 represent lease and other occupancy payments made
during those periods.
35
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
At February 23, 2002, approximately $9.9 million of the reserve was
included in "Other accruals" and the remaining amount was included in "Other
non-current liabilities" on the Company's Consolidated Balance Sheets.
Included in the Statements of Consolidated Operations are the operating
results of the 166 underperforming stores which the Company has exited. The
operating results of these stores are as follows:
Fiscal 2001 Fiscal 2000 Fiscal 1999
----------- ----------- -----------
Sales $ 197 $ 678 $200,208
======== ======= ========
Operating loss $ (108) $ (139) $(30,572)
======== ======= ========
During the third quarter of fiscal 2001, the Company's Board of Directors
approved a plan resulting from Management's review of the performance and
potential of each of the Company's businesses and individual stores. At the
conclusion of this review, the Company determined that certain underperforming
operations, including 39 stores (30 in the United States and 9 in Canada) and 3
warehouses should be closed and/or sold, and certain administrative streamlining
should take place. As a result of these decisions, the Company announced on
November 14, 2001 that it would incur costs of approximately $200 - $215 million
pretax ($115 - $125 million after tax) through the third quarter of fiscal 2002.
Of this amount, $193.5 million pretax ($112.3 million after tax) was included in
the Statements of Consolidated Operations for fiscal 2001. The components of
this net pretax charge were as follows:
o $180.3 million of costs to close the stores and warehouses and perform
certain administrative streamlining, of which $63.5 million related to the
present value of future occupancy obligations, $85.0 million related to the
write-down of fixed assets, $24.3 million related to severance for store and
administrative personnel and $7.5 million related to other miscellaneous
items;
o $20.8 million of costs to discontinue development of 4 potential stores of
which $16.9 million related to the present value of future occupancy
obligations, $3.5 million related to fixed asset write-offs and $0.4 million
related to occupancy costs incurred in the current period; and
o $7.6 million in gains on the sale of other properties and equipment,
primarily land and buildings.
Of this net pretax charge, $3.9 million was included in "Cost of
merchandise sold" and $189.6 million was included in "Store operating, general
and administrative expense" in the Statements of Consolidated Operations for
fiscal 2001.
36
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
To the extent fixed assets included in the items noted above could be
used in other continuing operations, the Company will transfer those assets as
needed. Fixed assets that the Company cannot transfer to other operations will
be scrapped. Accordingly, the write-down recorded during fiscal 2001 was based
on expected transfers.
Included in the $193.5 million net charges recorded during fiscal 2001,
there were, and will continue to be, other charges related to the plan which
could not be accrued at February 23, 2002 because they did not meet the criteria
for accrual under EITF 94-3 "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit Activity (Including Certain Costs
Incurred in a Restructuring)". Such costs have been, and will continue to be,
expensed as incurred while the asset disposition is being executed. During
fiscal 2001, these costs amounted to $8.7 million, which were primarily related
to non-accruable closing costs and inventory markdowns. These costs are excluded
from the table on the following page which represents only the reserve recorded
on the balance sheet. Also included in the $193.5 million net charges was a
reversal of previously accrued severance and benefits of $0.6 million related to
a reduction in the severance payments required to be made to certain store
employees in Canada in accordance with Ontario provincial law.
The following table summarizes the activity related to the aforementioned
reserve recorded on the Consolidated Balance Sheets since the announcement of
the charge in November 2001:
<TABLE>
<CAPTION>
Severance
and Goodwill/
Occupancy Benefits Fixed Assets Total
--------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Original Charge $ 80,456 $ 23,435 $ 81,519 $ 185,410
Addition (1) 1,673 - - 1,673
Utilization (2) (1,806) (2,891) (81,519) (86,216)
Adjustment (3) - (584) - (584)
--------- --------- --------- ----------
Reserve Balance at
February 23, 2002 $ 80,323 $ 19,960 $ - $ 100,283
========= ========= ========= ==========
</TABLE>
(1) The addition to occupancy of $1.7 million represents the present value of
accrued interest related to lease obligations.
(2) Occupancy utilization of $1.8 million represents vacancy related payments
for closed locations. Severance utilization of $2.9 million represents
payments made to terminated employees during the period. Goodwill/fixed
asset utilization of $81.5 million represents the write-off of fixed assets
of the operations to be discontinued and the write-off of goodwill related
to the Barn warehouse in Canada that was deemed to be impaired.
(3) At each balance sheet date, Management assesses the adequacy of the reserve
balance to determine if any adjustments are required as a result of changes
in circumstances and/or estimates. As a result, the Company recorded an
adjustment to severance and benefits of $0.6 million related to a reduction
in the severance payments required to be made to certain store employees in
Canada. Under Ontario provincial law, employees to be terminated as part of
a mass termination are entitled to receive compensation, either worked or
paid as severance, for a set period of time after the official notice date.
Since such closures took place later than originally expected, less time
remained in the aforementioned guarantee period.
37
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
As of February 23, 2002, the Company paid approximately $2.9 million of
the total severance charge recorded which resulted from the termination of
approximately 850 employees. The remaining individual severance payments will be
paid by the end of fiscal 2003.
At February 23, 2002, approximately $34.4 million of the reserve was
included in "Other accruals" and the remaining amount was included in "Other
non-current liabilities" on the Company's Consolidated Balance Sheets.
Included in the Statements of Consolidated Operations for fiscal 2001,
2000 and 1999 are the sales and operating results of the 39 stores that were
identified for closure as part of this asset disposition. The results of these
operations are as follows:
Fiscal 2001 Fiscal 2000 Fiscal 1999
----------- ----------- -----------
Sales $266,802 $319,812 $253,670
======== ======== ========
Operating loss $(24,376) $(24,332) $(10,802)
======== ======== ========
Based upon current available information, Management evaluated the
reserve balances as of February 23, 2002 of $65.6 for the 1998 phase of the
asset disposition initiative and $100.3 million for the 2001 phase of the asset
disposition initiative and has concluded that they are adequate. The Company
will continue to monitor the status of the vacant properties and adjustments to
the reserve balances may be recorded in the future, if necessary.
Note 4 - Inventory
Approximately 12% of the Company's inventories are valued using the
last-in, first-out ("LIFO") method at both February 23, 2002 and February 24,
2001. Such inventories would have been $18.6 million and $18.1 million higher at
February 23, 2002 and February 24, 2001, respectively, if the retail and
first-in, first-out methods were used. The Company recorded a LIFO charge of
$0.5 million in fiscal 2001 and $0.9 million in fiscal 1999 as compared to a
LIFO credit of $1.5 million in fiscal 2000. Liquidation of LIFO layers in the
periods reported did not have a significant effect on the results of operations.
38
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
Note 5 - Wholesale Franchise Business
The Company serviced 67 franchised stores as of February 23, 2002 and 68
franchised stores as of February 24, 2001. These franchised stores, all of which
are located in Canada, are required to purchase inventory exclusively from the
Company which acts as a wholesaler to the franchisees. During fiscal 2001, 2000
and 1999, the Company had wholesale sales to these franchised stores of $677
million, $631 million and $523 million, respectively. A majority of the
franchised stores were converted from Company operated supermarkets. The Company
subleases the stores and leases the equipment in the stores to the franchisees.
The Company also provides merchandising, advertising, accounting and other
consultative services to the franchisees for which it receives a nominal fee
which mainly represents the reimbursements of costs incurred to provide such
services.
The Company holds as assets inventory notes collateralized by the
inventory in the stores and equipment lease receivables collateralized by the
equipment in the stores. The current portion of the inventory notes and
equipment leases, net of allowance for doubtful accounts, amounting to
approximately $2.8 million and $3.7 million, were included in "Accounts
receivable" on the Company's Consolidated Balance Sheets at February 23, 2002
and February 24, 2001, respectively. The long-term portion of the inventory
notes and equipment leases, net of allowance for doubtful accounts, amounting to
approximately $44.8 million and $55.3 million, were included in "Other assets"
on the Company's Consolidated Balance Sheets at February 23, 2002 and February
24, 2001, respectively.
The repayment of the inventory notes and equipment leases are dependent
upon positive operating results of the stores. To the extent that the
franchisees incur operating losses, the Company establishes an allowance for
doubtful accounts. The Company continually assesses the sufficiency of the
allowance on a store by store basis based upon the operating results and the
related collateral underlying the amounts due from the franchisees. In the event
of default by a franchisee, the Company reserves the option to reacquire the
inventory and equipment at the store and operate the franchise as a corporate
owned store.
Included below are the amounts due to the Company for the next five years
and thereafter from the franchised stores for equipment leases and inventory
notes.
Fiscal
2002 $ 5,981
2003 9,175
2004 8,343
2005 8,984
2006 8,505
2007 and thereafter 24,570
-----------
65,558
Less interest portion (17,992)
-----------
Due from franchise business $ 47,566
===========
39
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
For fiscal 2001, 2000 and 1999, approximately $1 million, $15 million and
$18 million, respectively, of the franchise business notes relate to equipment
leases which were non-cash transactions and, accordingly, have been excluded
from the Statements of Consolidated Cash Flows.
Note 6 - Indebtedness
Debt consists of the following:
<TABLE>
<CAPTION>
February 23, February 24,
2002 2001
--------------- ----------------
<S> <C> <C>
9.375% Notes, due August 1, 2039 $ 200,000 $ 200,000
9.125% Senior Notes, due December 15, 2011 275,000 -
7.75% Notes, due April 15, 2007 280,000 300,000
7.70% Senior Notes, due January 15, 2004 22,100 200,000
Fair value adjustment of hedged debt 992 -
Mortgages and Other Notes, due 2002 through 2018
(average interest rates at year end of 7.62% and
8.38%, respectively) 3,387 28,658
U.S. Bank Borrowings - 194,607
Less unamortized discount on 7.75% Notes (1,513) (1,749)
----------- -----------
779,966 921,516
Less current portion (526) (6,195)
----------- -----------
Long-term debt $ 779,440 $ 915,321
=========== ===========
</TABLE>
On December 14, 2001, the Company issued $275 million 91/8% Senior Notes
due December 15, 2011. These notes pay interest semi-annually on June 15 and
December 15 and are callable beginning December 15, 2006. The Company used the
proceeds from the issuance of these notes to repay approximately $178 million of
the total $200 million 7.70% Senior Notes due January 15, 2004 and for general
corporate purposes including repayment of borrowings under the Company's secured
revolving credit agreement. The repayment of approximately $178 million of the
7.70% Senior Notes due January 15, 2004 took place in the form of a tender offer
whereby the Company paid a 6.25% premium to par. In addition, the Company
repurchased in the open market $20 million of its 7.75% Notes due April 15,
2007. The net cost of this tender and open market repurchase resulted in an
extraordinary loss due to the early extinguishment of debt of $7.2 million after
tax ($12.5 million pretax). The Company has the right to make additional
repurchases and intends to do so from time to time in the future.
From time to time, the Company may enter hedging agreements in order to
manage risks incurred in the normal course of business including the managing of
interest expense and exposure to fluctuations in foreign exchange rates. These
agreements may include interest rate swaps, locks, caps, floors and collars as
well as the use of foreign currency swaps and forward exchange contracts.
40
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
On January 4, 2002, the Company entered into an interest rate hedging
agreement with a commercial bank with a notional amount of $50 million maturing
on April 15, 2007. This hedging agreement was designated as a fair value hedging
instrument and effectively converts a portion of the Company's 7.75% Notes due
April 15, 2007 from fixed rate debt to floating rate debt. There were no
ineffective changes in fair value of this hedging agreement. For the fiscal year
ended February 23, 2002, this hedging agreement reduced borrowing costs by $0.2
million and had a fair value of $1.0 million.
On April 25, 2002 and April 26, 2002, the Company entered into additional
interest rate hedging agreements with notional amounts totaling $100 million
maturing on April 15, 2007. These hedging agreements effectively convert an
additional portion of the Company's 7.75% Notes due April 15, 2007 from fixed
rate debt to floating rate debt. There were no ineffective changes in fair value
of these hedging agreements.
The Company has a $425 million secured revolving credit agreement (the
"Secured Credit Agreement") expiring December 31, 2003, with a syndicate of
lenders, enabling it to borrow funds on a revolving basis sufficient to
refinance short-term borrowings and provide working capital as needed. This
agreement is secured primarily by inventory and company-owned real estate. The
Secured Credit Agreement was comprised of a U.S. credit agreement amounting to
$340 million and a Canadian credit agreement amounting to $85 million (C$136
million at February 23, 2002). As of February 23, 2002, the Company had no
borrowings under the Secured Credit Agreement. Accordingly, as of February 23,
2002, after reducing availability for outstanding letters of credit and
inventory requirements, the Company had $367 million available under the Secured
Credit Agreement. Borrowings under the agreement bear interest based on the
variable LIBOR pricing. On March 21, 2002 and April 23, 2002, the Company
amended the Secured Credit Agreement in order to allow for, among other things,
additional debt repayments, the ability to enter additional interest rate
hedging agreements and an increase in the amount of letters of credit available
under the agreement. In addition, $385 million of the initial $425 million of
loan commitments under the original facility scheduled to expire in December
2003 has been extended for an additional 18 months and will now expire in June
2005.
On November 1, 2000, the Company's Canadian subsidiary, The Great
Atlantic & Pacific Company of Canada, Limited, repaid its outstanding $75
million 5 year Notes denominated in U.S. dollars. The repayment of these Notes
was funded by the Unsecured Credit Agreement at an average rate of 6.55% during
fiscal 2000.
As of February 23, 2002 the Company had no borrowings under uncommitted
lines of credit compared to borrowings of $5 million at February 24, 2001.
The Company's loan agreements and certain of its notes contain various
financial covenants which require, among other things, minimum fixed charge
coverage and maximum levels of leverage and capital expenditures. At February
23, 2002, the Company was in compliance with all of its covenants.
41
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
As a result of its delayed filing of the Annual Report on Form 10-K as
described in Note 2 of the Company's Consolidated Financial Statements, the
Company was not in compliance with its reporting covenant and therefore became
unable to draw upon the Secured Credit Agreement. On June 14, 2002 the Company
received a waiver from its lenders allowing it to borrow up to $50 million under
the Secured Credit Agreement through July 29, 2002. The filing of this Annual
Report on Form 10-K cures said covenant violation. The filing delay has also
caused a covenant violation under the indenture covering the Company's debt.
Such violation is cured upon filing.
The net book value of real estate pledged as collateral for all mortgage
loans amounted to approximately $1.0 million at February 23, 2002 and $4.5
million at February 24, 2001.
The Company has active Registration Statements dated January 23, 1998 and
June 23, 1999, allowing it to offer up to $75 million of debt and equity
securities as of February 23, 2002 at terms determined by market conditions at
the time of sale.
Maturities for the next five fiscal years and thereafter are: 2002 - $0.5
million; 2003 - $1.2 million; 2004 - $22.1 million; 2005 - $0.1 million; 2006 -
$0.1 million; 2007 and thereafter - $757.5 million. Interest payments on
indebtedness were approximately $60 million for fiscal 2001, $80 million for
fiscal 2000 and $66 million for fiscal 1999.
Note 7 - Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
February 23, 2002 February 24, 2001
------------------------------ ------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest Rate Swap $ 992 $ 992 $ - $ -
9.375% Notes, due August 1, 2039 (200,000) (190,800) (200,000) (161,280)
9.125% Senior Notes, due December 15, 2011 (275,000) (283,250) - -
7.75% Notes, due April 15, 2007 (279,479) (272,492) (298,251) (217,723)
7.70% Senior Notes, due January 15, 2004 ( 22,100) ( 22,874) (200,000) (160,000)
Mortgages and Other Notes, due 2002
through 2018 ( 3,387) ( 3,387) ( 28,658) ( 28,658)
U.S. Bank Borrowings - - (194,607) (194,607)
</TABLE>
Fair value for the public debt securities is based on quoted market
prices. As of February 23, 2002 and February 24, 2001, the carrying values of
cash and cash equivalents, accounts receivable and accounts payable approximated
fair values due to the short-term maturities of these instruments.
42
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
Note 8 - Lease Obligations
The Company operates primarily in leased facilities. Lease terms
generally range up to twenty-five years for store leases and thirty years for
other leased facilities, with options to renew for additional periods. In
addition, the Company also leases some store equipment and trucks. The majority
of the leases contain escalation clauses relating to real estate tax increases
and certain store leases provide for increases in rentals when sales exceed
specified levels.
The Consolidated Balance Sheets include the following:
<TABLE>
<CAPTION>
February 23, February 24,
2002 2001
------------- ----------------
<S> <C> <C>
Real property leased under capital leases $ 193,568 $ 205,409
Accumulated amortization (116,768) (120,651)
----------- -----------
Net property leased under capital leases $ 76,800 $ 84,758
=========== ===========
</TABLE>
During fiscal 2001, the Company did not enter into any new capital
leases. During fiscal 2000 and 1999, the Company entered into new capital leases
totaling $7 million and $16 million, respectively. These capital lease amounts
are non-cash transactions and, accordingly, have been excluded from the
Statements of Consolidated Cash Flows. Interest paid as part of capital lease
obligations was approximately $13 million in fiscal 2001 and $14 million in both
fiscal 2000 and 1999.
Rent expense for operating leases during the last three fiscal years
consisted of the following:
<TABLE>
<CAPTION>
Fiscal 2001 Fiscal 2000 Fiscal 1999
---------------- --------------- ---------------
<S> <C> <C> <C>
Minimum rentals $ 249,509 $ 219,113 $ 194,158
Contingent rentals 4,126 3,777 3,780
----------- ----------- -----------
Total rent expense $ 253,635 $ 222,890 $ 197,938
=========== =========== ===========
</TABLE>
43
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
Future minimum annual lease payments for capital leases and noncancelable
operating leases in effect at February 23, 2002 are shown in the table below.
All amounts are exclusive of lease obligations and sublease rentals applicable
to facilities for which reserves have previously been established. In addition,
the Company subleases 67 stores to the franchise business. Included in the
operating lease column in the table below are the rental payments to be made by
the Company partially offset by the rental income to be received from the
franchised stores.
Capital
Leases
Real Operating
Fiscal Property Leases
------ ------------ -------------
2002 $ 22,267 $ 248,979
2003 20,075 242,185
2004 18,593 228,769
2005 14,577 221,361
2006 13,038 213,149
2007 and thereafter 124,961 2,196,357
------------ -------------
213,511 $ 3,350,800
=============
Less executory costs (692)
------------
Net minimum rentals 212,819
Less interest portion (108,541)
------------
Present value of net minimum rentals $ 104,278
============
During fiscal 2000 an agreement was entered into which provided financing
for software purchases and hardware leases up to $71 million in the aggregate
primarily relating to the business process initiative. At that time, software
purchases and hardware leases were to be financed at an effective rate of 8.49%
per annum, were to occur from time to time through 2004 and were to have equal
monthly payments of $1.4 million. In May 2001, the agreement was amended to
include only hardware leases. The amounts previously funded relating to software
purchases of approximately $29 million were to be repaid over the next several
months. Accordingly, as of February 23, 2002, substantially all of this balance
had been repaid. Additionally, the monthly payment amount was amended to reflect
expected utilization related to hardware leases. As of February 23, 2002,
approximately $30 million had been funded related to hardware leases. Future
payments related to these leases are included in the future minimum annual lease
payments table on the previous page. There will be no further funding under this
agreement. The leasing of the hardware under this agreement is being accounted
for as an operating lease in accordance with SFAS No. 13, "Accounting for
Leases".
44
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
Note 9 - Income Taxes
The components of (loss) income before income taxes and extraordinary
item are as follows:
<TABLE>
<CAPTION>
Fiscal 2001 Fiscal 2000 Fiscal 1999
---------------- --------------- ---------------
<S> <C> <C> <C>
United States $ (142,468) $ (65,331) $ 35,775
Canadian 34,194 35,095 27,080
----------- ---------- ---------
Total $ (108,274) $ (30,236) $ 62,855
=========== ========== =========
</TABLE>
The benefit from (provision for) income taxes before extraordinary item
consists of the following:
<TABLE>
<CAPTION>
Fiscal 2001 Fiscal 2000 Fiscal 1999
---------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Federal $ - $ - $ (872)
Canadian (708) (531) (710)
State and local (3,000) (3,000) (3,003)
----------- ---------- ----------
(3,708) (3,531) (4,585)
----------- ---------- ----------
Deferred:
Federal 44,807 21,342 (11,512)
Canadian (15,535) (16,083) (12,045)
State and local 18,026 9,008 600
----------- ---------- ----------
47,298 14,267 (22,957)
----------- ---------- ----------
Benefit from (provision for) income taxes $ 43,590 $ 10,736 $ (27,542)
=========== ========== ==========
</TABLE>
The deferred income tax benefit (provision) resulted primarily from the
annual change in temporary differences between amounts of assets and liabilities
for financial reporting purposes and such amounts as measured by tax laws, and
net operating tax loss carryforwards.
The deferred tax benefit recorded for U.S. operations of approximately
$63 million mainly relates to book and tax differences of the asset
disposition initiative recorded in fiscal 2001. Included in the Canadian amount
for fiscal 2001 is an adjustment relating to a reduction in the Canadian federal
corporate income tax rate. This new legislation, which was enacted during the
first half of fiscal 2001, will reduce the Canadian federal corporate income tax
rate by a total of 7% from 28% to 21% by January 1, 2004. The tax benefit for
fiscal 2001 was decreased by $1.2 million to reflect the reduction in value of
the deferred Canadian tax asset (primarily relating to net operating loss
carryforwards) resulting from the lower rates.
During fiscal 2001, the Ontario government enacted corporate income tax
rate changes, gradually reducing the rate from 14% to 8% by January 1, 2005.
This Canadian tax rate reduction did not have a significant impact on the
financial statements for fiscal 2001.
The Company has elected to permanently reinvest earnings of the Canadian
subsidiary. Accordingly, the Company does not provide for taxes associated with
Canada's undistributed earnings.
45
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
As of February 23, 2002, the Company had net operating tax loss
carryforwards of approximately $29 million from the Canadian operations and $191
million from the U.S. operations. On March 9, 2002, U.S. legislation was enacted
that extended the 2 year carryback provisions to 5 years to offset prior taxable
income. As a result of this legislation, the Company was able to carryback
approximately $110 million of the U.S. net operating tax loss to prior years.
The Canadian portion of the net operating loss carryforwards will expire between
February 2003 and February 2009 and the U.S. portion will expire between
February 2019 and February 2022. The Company has assessed its ability to utilize
the net operating loss carryforwards and concluded that no valuation allowance
currently is required since the Company believes that it is more likely than not
that the net operating loss carryforwards will be utilized either by generating
taxable income or through tax planning strategies. However, this cannot be
assured. Accordingly, some portions of these net operating loss carryforwards
may expire before they can be utilized by the Company to reduce its income tax
obligations.
A reconciliation of income taxes at the 35% federal statutory income tax
rate for fiscal 2001, 2000 and 1999 to income taxes as reported is as follows:
<TABLE>
<CAPTION>
Fiscal 2001 Fiscal 2000 Fiscal 1999
---------------- --------------- ---------------
<S> <C> <C> <C>
Income tax benefit (provision) computed
at federal statutory income tax rate $ 37,899 $ 10,583 $ (21,999)
State and local income taxes, net of
federal tax benefit 9,912 3,905 (1,563)
Tax rate differential relating
to Canadian operations (4,276) (4,330) (3,278)
Goodwill and other permanent differences 55 578 (702)
----------- ---------- ----------
Income tax benefit (provision), as reported $ 43,590 $ 10,736 $ (27,542)
=========== ========== ==========
</TABLE>
Income tax payments, net of refunds, for fiscal 2001, 2000 and 1999 were
approximately $0.2 million, $2 million and $6 million, respectively.
46
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
The components of net deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
February 23,
2002 February 24, 2001
------------- -------------
<S> <C> <C>
Current assets:
Insurance reserves $ 26,481 $ 27,073
Other reserves and accrued benefits 47,299 40,435
Accrued postretirement and postemployment benefits 756 1,111
Lease obligations 899 1,198
Pension obligations 2,030 1,776
Miscellaneous 4,290 4,505
------------- -------------
81,755 76,098
------------- -------------
Current liabilities:
Inventories (8,815) (9,482)
Health and welfare (8,840) (9,631)
Miscellaneous (2,677) (2,751)
------------- -------------
(20,332) (21,864)
------------- -------------
Deferred income taxes included in prepaid expenses and
other current assets $ 61,423 $ 54,234
============= =============
Non-current assets:
Isosceles investment $ - $ 42,617
Alternative minimum tax 7,500 7,500
Other reserves including asset disposition charges 113,880 66,503
Lease obligations 9,473 13,193
Net operating loss carryforwards 168,345 121,288
Insurance reserves 15,539 17,748
Accrued postretirement and postemployment benefits 25,938 28,259
Pension obligations 9,494 9,503
Step rents 22,095 19,526
Miscellaneous 4,742 768
------------- -------------
377,006 326,905
------------- -------------
Non-current liabilities:
Fixed assets (266,159) (254,907)
Pension obligations (16,747) (23,205)
Miscellaneous (2,430) (2,463)
------------- -------------
(285,336) (280,575)
------------- -------------
Net non-current deferred income tax asset included in other assets $ 91,670 $ 46,330
============= =============
</TABLE>
47
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
Note 10 - Retirement Plans and Benefits
Defined Benefit Plans
The Company provides retirement benefits to certain non-union and union
employees under various defined benefit plans. The Company's defined benefit
pension plans are non-contributory and benefits under these plans are generally
determined based upon years of service and, for salaried employees,
compensation. The Company funds these plans in amounts consistent with the
statutory funding requirements.
The components of net pension (income) cost were as follows:
<TABLE>
<CAPTION>
Fiscal 2001 Fiscal 2000 Fiscal 1999
---------------- --------------- ---------------
<S> <C> <C> <C>
Service cost $ 8,679 $ 8,017 $ 16,153
Interest cost 19,045 19,192 26,300
Expected return on plan assets (27,116) (25,429) (34,890)
Amortization of unrecognized net asset (762) (1,255) (1,194)
Amortization of unrecognized net prior
service cost 584 910 1,240
Amortization of unrecognized net
actuarial (gain) loss (2,000) (1,432) 730
Curtailments and settlements - 668 1,205
Termination benefits and other 569 - -
----------- ---------- ----------
Net pension (income) cost $ (1,001) $ 671 $ 9,544
=========== ========== ==========
</TABLE>
The Company's U.S. defined benefit pension plans are accounted for on a
fiscal year basis, while the Company's Canadian defined benefit pension plans
are accounted for on a calendar year basis. The majority of plan assets are
invested in listed stocks and bonds. The following tables set forth the change
in benefit obligations and change in plan assets for fiscal 2001 and 2000 for
the Company's defined benefit plans:
<TABLE>
<CAPTION>
Change in Benefit Obligation 2001 2000
---------------------------- ------------- -------------
<S> <C> <C>
Benefit obligation - beginning of year $ 274,619 $ 393,614
Service cost 8,679 8,017
Interest cost 19,045 19,192
Actuarial loss 14,649 12,467
Benefits paid (21,712) (23,399)
Amendments 794 29
Curtailments and settlements - (122,633)
Termination benefits 361 -
Effect of exchange rate (5,555) (12,668)
----------- ------------
Benefit obligation - end of year $ 290,880 $ 274,619
=========== ===========
Change in Plan Assets
---------------------
Plan assets at fair value - beginning of year $ 346,780 $ 464,438
Actual return on plan assets 13,321 53,441
Company contributions 2,891 5,218
Benefits paid (21,712) (23,399)
Curtailments and settlements - (136,981)
Effect of exchange rate (6,910) (15,937)
----------- ------------
Plan assets at fair value - end of year $ 334,370 $ 346,780
=========== ===========
</TABLE>
48
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
Amounts recognized on the Company's Consolidated Balance Sheets consisted
of the following:
<TABLE>
<CAPTION>
2001 2000
------------- -------------
<S> <C> <C>
Plan assets in excess of projected benefit obligation $ 43,490 $ 72,161
Unrecognized net transition asset (1,068) (1,881)
Unrecognized prior service cost 2,558 2,419
Unrecognized net actuarial gain (25,967) (56,231)
Interim contributions between calendar and fiscal year end - 268
----------- -----------
Total recognized on the Consolidated Balance Sheets $ 19,013 $ 16,736
=========== ===========
Prepaid benefit cost $ 47,805 $ 44,592
Accrued benefit liability (29,963) (28,036)
Intangible asset 995 116
Accumulated other comprehensive loss 102 38
Tax benefit 74 26
----------- -----------
Total recognized on the Consolidated Balance Sheets $ 19,013 $ 16,736
=========== ===========
</TABLE>
Plans with accumulated benefit obligation in excess of plan assets
consisted of the following:
<TABLE>
<CAPTION>
2001 2000
------------- -------------
<S> <C> <C>
Accumulated benefit obligation $ 45,192 $ 21,998
Projected benefit obligation $ 45,894 $ 22,705
Plan assets at fair value $ 19,709 $ 275
</TABLE>
The prepaid pension asset is included in "Other assets" on the
Consolidated Balance Sheets while the pension liability is included in "Accrued
salaries, wages and benefits" and "Other non-current liabilities".
At February 23, 2002 and February 24, 2001, the Company's additional
minimum pension liability for its defined benefit plans exceeded the aggregate
of the unrecognized prior service costs and the net transition obligation.
Accordingly, stockholders' equity was reduced by $0.1 million and less than $0.1
million, respectively.
During the year ended February 25, 1995, the Company's Canadian
subsidiary and the United Food & Commercial Workers International Union, Locals
175 and 633, entered into an agreement that resulted in the amalgamation of
three of the Company's Canadian defined benefit pension plans with the Canadian
Commercial Workers Industry Pension Plan ("CCWIPP"), retroactive to July 1,
1994. The agreement was subject to the approval of the CCWIPP trustees and the
appropriate regulatory bodies. During the first quarter of fiscal 2000, the
Company received final approval of the agreement. Under the terms of this
agreement and as reflected in the above tables, for the year ended February 24,
2001, CCWIPP assumed the assets and defined benefit liabilities of the three
pension plans. Further, the Company is required to make defined contributions to
CCWIPP based upon hours worked by employees who are members of CCWIPP and to the
extent assets transferred exceeded liabilities assumed, the Company received a
funding holiday by CCWIPP for such defined contributions. As a result of this
transfer, during the first quarter of fiscal 2000, the Company recorded a $0.4
million net expense and a $2.7 million adjustment to the minimum pension
liability.
49
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
Actuarial assumptions used to determine year-end plan status are as
follows:
<TABLE>
<CAPTION>
2001 2000
---------------------- ----------------------
U.S. Canada U.S. Canada
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Weighted average discount rate 7.00% 6.50% 7.50% 7.00%
Weighted average rate of compensation increase 4.00% 4.00% 4.50% 4.00%
Expected long-term rate of return on plan assets 8.00% 8.50% 7.50-8.50% 8.50%
</TABLE>
The impact of the changes in the actuarial assumptions has been reflected
in the funded status of the pension plans and the Company believes that such
changes will not have a material effect on net pension cost for fiscal 2002.
Defined Contribution Plans
The Company maintains a defined contribution retirement plan to which the
Company contributes an amount equal to 4% of eligible participants' salaries and
a savings plan to which eligible participants may contribute a percentage of
eligible salary. The Company contributes to the savings plan based on specified
percentages of the participants' eligible contributions. Participants become
fully vested in the Company's contributions after 5 years of service. The
Company's contributions charged to operations for both plans were approximately
$12.3 million, $11.3 million and $10.8 million in fiscal years 2001, 2000 and
1999, respectively.
Multi-employer Union Pension Plans
The Company participates in various multi-employer union pension plans
which are administered jointly by management and union representatives and which
sponsor most full-time and certain part-time union employees who are not covered
by the Company's other pension plans. The pension expense for these plans
approximated $37.5 million, $35.3 million and $31.5 million in fiscal 2001, 2000
and 1999, respectively. The Company could, under certain circumstances, be
liable for unfunded vested benefits or other expenses of jointly administered
union/management plans. At this time, the Company has not established any
liabilities for future withdrawals because such withdrawals from these plans are
not probable.
Postretirement Benefits
The Company provides postretirement health care and life benefits to
certain union and non-union employees. The Company recognizes the cost of
providing postretirement benefits during employees' active service period. These
benefits are accounted for on a calendar year basis.
The components of net postretirement benefits cost are as follows:
<TABLE>
<CAPTION>
52 Weeks Ended
----------------------------------------------------
December 31, December 31, December 31,
2001 2000 1999
----------------- ---------------- -----------------
<S> <C> <C> <C>
Service cost $ 565 $ 487 $ 548
Interest cost 2,365 2,060 1,977
Prior service cost (1,380) (1,347) (1,347)
Amortization of gain (123) (692) (509)
----------- ----------- -----------
Net postretirement benefits cost $ 1,427 $ 508 $ 669
========== =========== ===========
</TABLE>
50
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
The unfunded status of the plans is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
2001 2000
---------------- ---------------
<S> <C> <C>
Unfunded accumulated benefit obligation
at beginning of year $ 33,713 $ 28,190
Service cost 565 487
Interest cost 2,365 2,060
Benefits paid (2,248) (1,937)
Actuarial loss (gain) 1,240 6,131
Foreign exchange (496) (1,218)
----------- ----------
Accumulated benefit obligation at end of year 35,139 33,713
Unrecognized net gain from experience differences 1,521 2,658
Unrecognized prior service cost 12,317 13,715
---------- ----------
Accrued postretirement benefit costs at end of year $ 48,977 $ 50,086
========== ==========
Assumed discount rate:
U.S. 6.75% 7.50%
Canada 6.75% 7.00%
</TABLE>
The assumed rate of future increase in health care benefit cost for
fiscal 2001 was 8.50% and is expected to decline to 5.0% by the year 2020 and
remain at that level thereafter. The effect of a 1% change in the assumed health
care cost trend rate for each future year on the net postretirement health care
cost would either increase or decrease by $0.1 million, while the accumulated
postretirement benefit obligation would either increase by $1.6 million or
decrease by $1.4 million.
Postemployment Benefits
The Company accrues costs for pre-retirement, postemployment benefits
provided to former or inactive employees and recognizes an obligation for these
benefits. The costs of these benefits have been included in operations for each
of the three fiscal years in the period ended February 23, 2002. As of February
23, 2002 and February 24, 2001, the Company had a liability reflected on the
Consolidated Balance Sheets of $24.7 million and $23.6 million, respectively,
related to such benefits.
Note 11 - Stock Options
At February 23, 2002, the Company has four fixed stock-based compensation
plans. The Company applies the principles of APB 25 for stock options and FASB
Interpretation No. 28 for Stock Appreciation Rights ("SAR's"). SAR's allow the
holder, in lieu of purchasing stock, to receive cash in an amount equal to the
excess of the fair market value of common stock on the date of exercise over the
option price. Most of the options and SAR's vest over a four year period on the
anniversary date of issuance, while some options vest immediately.
51
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
Effective July 13, 1999, the Board of Directors and stockholders approved
the 1998 Long Term Incentive and Share Award Plan (the "1998 Plan") for its
officers and key employees. The 1998 Plan provides for the granting of 5,000,000
shares as options, SAR's or stock awards.
The Company's 1994 Stock Option Plan (the "1994 Plan") for officers and
key employees provided for the granting of 1,500,000 shares as either options or
SAR's. The 1984 Stock Option Plan for officers and key employees, which expired
on February 1, 1994, provided for the granting of 1,500,000 shares and was
amended as of July 10, 1990 to increase by 1,500,000 the number of options
available for grant as either options or SAR's.
The 1994 Stock Option Plan for Board of Directors provides for the
granting of 100,000 stock options at the fair market value of the Company's
common stock at the date of grant. Options granted under this plan totaled 8,000
in both fiscal 2001 and fiscal 2000 and 3,600 in fiscal 1999. At February 23,
2002, there were 67,600 options available for grants under this plan.
Options and SAR's issued under all of the Company's plans are granted at
the fair market value of the Company's common stock at the date of grant. In
fiscal 2001, options granted under the 1998 Plan and the 1994 Plan totaled
1,172,113 and 326,400, respectively. There were no SAR's granted during fiscal
2001. At February 23, 2002, there were 1,825,320 and 193,800 options available
for grants under the 1998 Plan and 1994 Plan, respectively.
The Company accounts for stock options using the intrinsic value-based
method prescribed by APB 25. Had compensation cost for the Company's stock
options been determined based on the fair value at the grant dates for awards
under those plans consistent with the fair value methods prescribed by SFAS 123,
the Company's net (loss) income and (loss) income per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Fiscal 2001 Fiscal 2000 Fiscal 1999
---------------- --------------- ---------------
<S> <C> <C> <C>
Net (loss) income:
As reported $ (71,906) $ (19,500) $ 35,313
Pro forma $ (76,865) $ (23,643) $ 32,428
Net (loss) income per share - basic and diluted
As reported $ (1.88) $ (0.51) $ 0.92
Pro forma $ (2.00) $ (0.62) $ 0.85
</TABLE>
The pro forma effect on net (loss) income and net (loss) income per share
may not be representative of the pro forma effect in future years because it
includes compensation cost on a straight-line basis over the vesting periods of
the grants.
52
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
The fair value of the fiscal 2001, 2000 and 1999 option grants was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:
<TABLE>
<CAPTION>
Fiscal 2001 Fiscal 2000 Fiscal 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Expected life 7 years 7 years 7 years
Volatility 55% 60% 30%
Dividend yield range 0% 0%-4.60% 1.08%-1.42%
Risk-free interest rate range 4.07%-5.40% 4.94%-6.69% 5.37%-6.78%
</TABLE>
With respect to SAR's, for fiscal 2001, the Company recognized
compensation expense of $0.5 million. For fiscal 2000, no expense was recorded
due to the decline in the Company's stock price. For fiscal 1999, the Company
recognized a $3.1 million credit to reverse previously accrued SAR compensation
charges due to the decline in the Company's stock price. There was no
compensation expense recognized for the other fixed plans since the exercise
price of the stock options equaled the fair market value of the Company's common
stock on the date of grant.
A summary of option transactions is as follows:
<TABLE>
<CAPTION>
Officers, Key Employees and Directors
------------------------------------ Weighted
Average
Exercise
Shares Price
<S> <C> <C>
Outstanding February 27, 1999 1,799,800 $ 29.55
Granted 491,650 32.35
Cancelled or expired (211,000) 29.69
Exercised (56,500) 26.64
--------- ---------
Outstanding February 26, 2000 2,023,950 $ 30.30
Granted 1,498,550 16.11
Cancelled or expired (277,836) 26.88
--------- ---------
Outstanding February 24, 2001 3,244,664 $ 24.04
Granted 1,506,513 9.48
Cancelled or expired (419,780) 25.61
Exercised (20,412) 14.85
--------- ---------
Outstanding February 23, 2002 4,310,985 $ 18.84
========= =========
Exercisable at:
February 24, 2001 1,046,205 $ 29.55
February 23, 2002 1,393,561 $ 26.97
The weighted average fair values of options granted during the last three
fiscal years are as follows:
Fiscal 1999 $ 12.64
Fiscal 2000 $ 8.80
Fiscal 2001 $ 5.77
</TABLE>
53
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
A summary of stock options outstanding and exercisable at February 23,
2002 is as follows:
<TABLE>
<CAPTION>
Weighted
Options Average Weighted Options Weighted
Average Range Outstanding Remaining Average Exercisable Average
of Exercise at Contractual Exercise at Exercise
Prices 2/23/02 Life Price 2/23/02 Price
------------------------ ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 7.44 - $10.87 1,690,863 9.0 years $ 8.89 34,550 $ 8.54
$11.63 - $16.31 44,667 9.3 years $13.91 1,919 $16.24
$17.30 - $18.88 1,021,862 8.1 years $17.96 278,218 $17.95
$21.50 - $30.00 521,950 4.5 years $27.48 479,283 $27.56
$30.25 - $31.75 655,350 6.8 years $31.39 402,600 $31.34
$32.31 - $37.00 376,293 7.3 years $32.70 196,991 $32.70
--------- ---------
4,310,985 1,393,561
========== =========
</TABLE>
A summary of SAR transactions is as follows:
<TABLE>
<CAPTION>
Officers and Key Employees
- --------------------------
Price Range
Shares Per Share
--------------- ----------------------
<S> <C> <C>
Outstanding February 27, 1999 1,179,719 $ 21.88 - $65.13
Cancelled or expired (212,250) 23.38 - 65.13
Exercised (84,707) 21.88 - 27.25
------------ -------------------
Outstanding February 26, 2000 882,762 $ 21.88 - $52.38
Cancelled or expired (375,000) 24.75 - 52.38
------------ -------------------
Outstanding February 24, 2001 507,762 $ 21.88 - $45.38
Cancelled or expired (265,625) 23.38 - 24.75
Exercised (9,375) 23.38 - 45.38
------------ -------------------
Outstanding February 23, 2002 232,762 $ 21.88 - $31.63
============ ===================
Exercisable at:
February 24, 2001 506,512 $ 21.88 - $45.38
February 23, 2002 232,762 $ 21.88 - $31.63
</TABLE>
54
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
Note 12 - Commitments and Contingencies
On January 13, 2000, the Attorney General of the State of New York filed
an action in New York Supreme Court, County of New York, alleging that the
Company and its subsidiary Shopwell, Inc., together with the Company's outside
delivery service Chelsea Trucking, Inc., violated New York law by failing to pay
minimum and overtime wages to individuals who deliver groceries at one of the
Food Emporium's stores in New York City. The complaint seeks a determination of
violation of law, an unspecified amount of restitution, an injunction and costs.
A purported class action lawsuit was filed on January 13, 2000 in the federal
district court for the Southern District of New York against the Company,
Shopwell, Inc. and others by Faty Ansoumana and others. The federal court action
makes similar minimum wage and overtime pay allegations under both federal and
state law and extends the allegations to various stores operated by the Company.
In May 2001, the federal court granted plaintiffs' motion for certification of a
class action. On June 18, 2002, the plaintiffs, the Attorney General and the
Company entered into a Memorandum of Understanding providing for a settlement of
the actions brought by the plaintiff class and by the Attorney General. Under
the proposed settlement, the Company would pay approximately $3 million in full
settlement of the actions and would receive releases from the class and the
Attorney General, and the actions would be dismissed with prejudice. The
proposed settlement remains subject to, among other things, execution of a
definitive settlement agreement and the approval of the federal court. The
settlement amount has been accrued for and is included in "Other accruals" on
the Company's Consolidated Balance Sheets.
On June 5, 2002, a purported securities class action Complaint was filed
in the United States District Court for the District of New Jersey against the
Company and certain of its officers and directors in an action captioned Brody
v. The Great Atlantic & Pacific Tea Co., Inc., et al., Civ. Action No. 02-2674
(FSH) (D.N.J.). On June 17, 2002 and June 26, 2002, two similar purported class
action Complaints, captioned Huelsman v. The Great Atlantic & Pacific Tea Co.,
Inc., et al., Civ. Action No. 02-2882 (JAG) (D.N.J.), and Davis v. The Great
Atlantic & Pacific Tea Co., Inc., et. al., Civ. Action No. 02-3059 (WGB)
(D.N.J.), respectively, were filed in the same federal district court. (The
lawsuits are referred to collectively hereinafter as the "Class Action
Lawsuits.") The Complaints in the Class Action Lawsuits purport to assert claims
under Sections 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a) of the
Securities Exchange Act of 1934 arising out of the Company's accounting
practices, and allege that the Company made material misrepresentations and
omissions concerning its financial results. The Complaints in the Class Action
Lawsuits seek unspecified money damages, costs and expenses.
On May 31, 2002, a stockholders' derivative Complaint was filed in the
Superior Court of New Jersey in Bergen County against the Company's Board of
Directors and certain of its executive officers in an action entitled Osher v.
Barlin, et al., Civ. Action No. BER L-4673-02 (N.J. Super. Ct.). The Complaint
alleges that the defendants violated their fiduciary obligations to the Company
and its stockholders by failing to establish and maintain adequate accounting
controls and mismanaging the assets and business of the Company, and seeks
unspecified money damages, costs and expenses.
55
<PAGE>
The Great Atlantic & Pacific Tea Company, Inc.
Notes to Consolidated Financial Statements - Continued
The Company is subject to various other legal proceedings and claims,
either asserted or unasserted, which arise in the ordinary course of business.
The Company is also subject to certain environmental claims. While the outcome
of these claims cannot be predicted with certainty, Management does not believe
that the outcome of any of these legal matters will have a material adverse
effect on the Company's consolidated results of operations, financial position
or cash flows.
As part of the Company's business process initiative, contracts have been
entered committing the Company to purchase hardware, software and consulting
services from various vendors. At February 23, 2002, these commitments totaled
$36.1 million. These purchases will be made, in accordance with the terms of
their contracts, over the next three fiscal years.
The Company is the guarantor of a debt commitment of $2.5 million which
will expire in 2011.
The Company has product supply agreements that require it to make
purchases totaling $58 million as of February 23, 2002.
Note 13 - Operating Segments
The Company currently operates in three reportable segments: United
States Retail, Canada Retail