-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SWfzzIWy+G5lyWwnQIcIiWn9+oQZHtyBdoaLo/TNpP7NQ00KCQvrJbfe7SXQ/8KK m5B77ARUPOJAR64iqunHaA== 0001125282-02-002164.txt : 20020705 0001125282-02-002164.hdr.sgml : 20020704 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 10-K 1 b319220_10k.txt ANNUAL REPORT 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. 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 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 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 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 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 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 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 (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:
Name Age Current Position - --------------------------- ------ ----------------------------------------------------------- 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
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 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 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 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 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 SUMMARY COMPENSATION TABLE
Securities Underlying All Other Options/ Compensation Principal Position During Fiscal Year Year Salary ($) Bonus ($) SAR's ($)(1) --------- ------------- ------------- -------------- ------------- 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
- ------------ (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 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 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
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) - ----------------------------------------------- ----------- ------------- ----------- -------------- ------------- 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
- ------------ (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
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 - --------------------------- ------------- ------------ ------------- --------------- ------------- --------------- (#) ($) (#) (#) ($) ($) 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
- ------------ (1) Based on the closing price of the Company's Common Stock on February 22, 2002 of $27.20. 16 PENSION PLAN TABLE
Years of Service ----------------------------------------------------------------------------------- Remuneration 15 20 25 30 35 ----------------- ------------- ------------- ------------- ------------- ------------- $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
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 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.
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 --------------------------------- --------------- ---------------- --------------- ---------------- 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
- ------------ (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 (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:
Shares Stock Beneficially Option Deferred % of Owned Shares (1) Plan (2) Total Class --------------- ---------------- --------------- ---------------- ----------- 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 ======== =========== ======== =========== =====
* 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 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 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 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 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 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. 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
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. /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
24 The above-named persons signed this report on behalf of the registrant on July 3, 2002. /s/ Brenda M. Galgano Vice President, Corporate Controller - ------------------------------------ Brenda M. Galgano July 3, 2002
25 EX-3.2 3 b319220ex_3-2.txt AMENDED BY-LAWS Exhibit 3.2 - -------------------------------------------------------------------------------- BY-LAWS OF THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. As Amended July 2, 2002 - -------------------------------------------------------------------------------- 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. 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. 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. 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. 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. 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. (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. 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. 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. 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. 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. 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. 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. 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. EX-10.3 4 b319220ex_10-3.txt EMPLOYMENT AND SEPARATION AGREEMENTS 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 EX-10.5 5 b319220ex_10-5.txt LETTER AGREEMENT 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 EX-10.7 6 b319220ex_10-7.txt AMEND TO EMPLOYMENT AGREEMENT 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 EX-10.8 7 b319220ex_10-8.txt EMPLOYMENT AGREEMENT 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 EX-10.10 8 b319220ex_10-10.txt LETTER AGREEMENT 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. EX-10.12 9 b319220ex_10-12.txt AMENDMENT TO EMPLOYMENT AGREEMENT 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 EX-10.13 10 b319220ex_10-13.txt EMPLOYMENT AGREEMENT 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 EX-10.14 11 b319220ex_10-14.txt EMPLOYMENT AGREEMENT 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 EX-10.23 12 b319220ex_10-23.txt AMENDEMENT TO CREDIT AGREEMENT 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: EX-10.24 13 b319220ex_10-24.txt AMEND NO. 2 TO CREEDIT AGREEMENT 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: EX-10.25 14 b319220ex_10-25.txt AMEND NO. 3 TO CREDIT AGREEMENT 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: EX-10.26 15 b319220ex_10-26.txt WAIVER TO CREDIT AGREEMENT 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. 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: 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: EX-13 16 b319220ex_13.txt A/R OR Q/R TO SECURITY HOLDERS Exhibit 13 The Great Atlantic & Pacific Tea Company, Inc. Fiscal 2001 Annual Report to Stockholders 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 The Great Atlantic & Pacific Tea Company, Inc. Comparative Highlights (Dollars in thousands, except per share amounts)
Fiscal 2000 Fiscal 1999 Fiscal 2001 As Restated (d) As Restated (d) ----------------- ---------------- ----------------- 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. - --------------------------------------------------------------------------------
3 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 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 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 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 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 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:
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* -------------- ------------- ------------- ------------- ------------- ------------- 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) =========== =========== ========== ======== =========== ============
* See Note 2 - Restatement of Previously Issued Financial Statements in the Company's Consolidated Financial Statements. 9 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 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 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 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 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 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 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 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 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:
Payments Due by Period (in millions) ----------------------------------------------------------------------------------- Contractual Fiscal 2003 Fiscal 2005 Obligations Total Fiscal 2002 and 2004 and 2006 Thereafter ---------------------- ---------- ----------- ---------- ---------- ---------- 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 ========== ========= ========= ========= ==========
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 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 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 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 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 The Great Atlantic & Pacific Tea Company, Inc. Statements of Consolidated Operations (Dollars in thousands, except per share amounts)
Fiscal 2000 Fiscal 1999 (As Restated (As Restated Fiscal 2001 See Note 2) See Note 2) -------------- -------------- --------------- 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 ============== ============== ===============
See Notes to Consolidated Financial Statements. 23 The Great Atlantic & Pacific Tea Company, Inc. Statements of Consolidated Stockholders' Equity and Comprehensive (Loss) Income (Dollars in thousands, except share amounts)
Unamortized Accumulated Common stock Additional value of other Total -------------------------- paid-in restricted comprehensive Retained stockholders' Shares Amount capital stock grant loss earnings equity ------------- ----------- ----------- ------------- ------------ ----------- -------------- 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 =========== =========== =========
See Notes to Consolidated Financial Statements. 24 The Great Atlantic & Pacific Tea Company, Inc. Consolidated Balance Sheets (Dollars in thousands, except share amounts)
February 24, 2001 February 23, 2002 (As Restated - See Note 2) ----------------- -------------------------- 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 ============ ============
See Notes to Consolidated Financial Statements. 25 The Great Atlantic & Pacific Tea Company, Inc. Statements of Consolidated Cash Flows (Dollars in thousands)
Fiscal 2000 Fiscal 1999 (As Restated (As Restated Fiscal 2001 See Note 2) See Note 2) ------------ ------------ ------------ 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 ============ ============ ============
See Notes to Consolidated Financial Statements. 26 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 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 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 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 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 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 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:
As Previously As Reported Adjustments Restated ------------- ----------- ------------- 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
33 The Great Atlantic & Pacific Tea Company, Inc. Notes to Consolidated Financial Statements - Continued
Fiscal 1999 - ----------- Statement of Consolidated Operations 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
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 The Great Atlantic & Pacific Tea Company, Inc. Notes to Consolidated Financial Statements - Continued
Severance Store Fixed and Facilities Occupancy Assets Benefits Occupancy Total ----------- ---------- ---------- --------- ----------- 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 =========== ========== ========== ========= ===========
(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 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 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:
Severance and Goodwill/ Occupancy Benefits Fixed Assets Total --------- ----------- ------------ ---------- 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 ========= ========= ========= ==========
(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 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 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 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:
February 23, February 24, 2002 2001 --------------- ---------------- 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 =========== ===========
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 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 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:
February 23, 2002 February 24, 2001 ------------------------------ ------------------------------ Carrying Fair Carrying Fair Amount Value Amount Value ------------- ------------- ------------- ------------- 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)
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 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:
February 23, February 24, 2002 2001 ------------- ---------------- 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 =========== ===========
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:
Fiscal 2001 Fiscal 2000 Fiscal 1999 ---------------- --------------- --------------- 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 =========== =========== ===========
43 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 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:
Fiscal 2001 Fiscal 2000 Fiscal 1999 ---------------- --------------- --------------- United States $ (142,468) $ (65,331) $ 35,775 Canadian 34,194 35,095 27,080 ----------- ---------- --------- Total $ (108,274) $ (30,236) $ 62,855 =========== ========== =========
The benefit from (provision for) income taxes before extraordinary item consists of the following:
Fiscal 2001 Fiscal 2000 Fiscal 1999 ---------------- --------------- --------------- 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) =========== ========== ==========
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 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:
Fiscal 2001 Fiscal 2000 Fiscal 1999 ---------------- --------------- --------------- 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) =========== ========== ==========
Income tax payments, net of refunds, for fiscal 2001, 2000 and 1999 were approximately $0.2 million, $2 million and $6 million, respectively. 46 The Great Atlantic & Pacific Tea Company, Inc. Notes to Consolidated Financial Statements - Continued The components of net deferred tax assets (liabilities) are as follows:
February 23, 2002 February 24, 2001 ------------- ------------- 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 ============= =============
47 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:
Fiscal 2001 Fiscal 2000 Fiscal 1999 ---------------- --------------- --------------- 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 =========== ========== ==========
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:
Change in Benefit Obligation 2001 2000 ---------------------------- ------------- ------------- 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 =========== ===========
48 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:
2001 2000 ------------- ------------- 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 =========== ===========
Plans with accumulated benefit obligation in excess of plan assets consisted of the following:
2001 2000 ------------- ------------- Accumulated benefit obligation $ 45,192 $ 21,998 Projected benefit obligation $ 45,894 $ 22,705 Plan assets at fair value $ 19,709 $ 275
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 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:
2001 2000 ---------------------- ---------------------- U.S. Canada U.S. Canada --------- -------- -------- --------- 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%
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:
52 Weeks Ended ---------------------------------------------------- December 31, December 31, December 31, 2001 2000 1999 ----------------- ---------------- ----------------- 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 ========== =========== ===========
50 The Great Atlantic & Pacific Tea Company, Inc. Notes to Consolidated Financial Statements - Continued The unfunded status of the plans is as follows:
December 31, December 31, 2001 2000 ---------------- --------------- 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%
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 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:
Fiscal 2001 Fiscal 2000 Fiscal 1999 ---------------- --------------- --------------- 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
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 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:
Fiscal 2001 Fiscal 2000 Fiscal 1999 ------------------ ------------------ ------------------ 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%
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:
Officers, Key Employees and Directors ------------------------------------ Weighted Average Exercise Shares Price 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
53 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:
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 ------------------------ ------------- ------------- -------------- ------------- ------------- $ 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 ========== =========
A summary of SAR transactions is as follows:
Officers and Key Employees - -------------------------- Price Range Shares Per Share --------------- ---------------------- 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
54 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 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 and Canada Wholesale. The retail segments are comprised of retail supermarkets in the United States and Canada, while the Wholesale segment is comprised of the Company's Canadian operation that serves as exclusive wholesaler to the Company's franchised stores and serves as wholesaler to certain third party retailers. The accounting policies for the segments are the same as those described in the summary of significant accounting policies. The Company measures segment performance based upon operating profit. 56 The Great Atlantic & Pacific Tea Company, Inc. Notes to Consolidated Financial Statements - Continued Information on segments is as follows:
OPERATING DATA Fiscal 2001 Fiscal 2000 Fiscal 1999 - -------------- ----------------- ------------------ ------------------ Sales U.S. Retail $ 8,490,104 $ 8,247,224 $ 7,981,134 Canada Retail 1,806,705 1,745,129 1,646,712 Canada Wholesale 676,506 630,513 523,488 --------------- --------------- ---------------- Total Company $ 10,973,315 $ 10,622,866 $ 10,151,334 =============== =============== ================ Depreciation and amortization U.S. Retail $ 227,257 $ 223,550 $ 204,975 Canada Retail 35,295 32,221 27,413 Canada Wholesale - - 324 --------------- --------------- ---------------- Total Company $ 262,552 $ 255,771 $ 232,712 =============== =============== ================ (Loss) income from operations U.S. Retail $ (62,271) $ 22,703 $ 111,955 Canada Retail 12,213 19,676 17,029 Canada Wholesale 26,534 23,651 18,098 --------------- --------------- ---------------- Total Company $ (23,524) $ 66,030 $ 147,082 =============== =============== ================ Interest expense U.S. Retail $ (81,574) $ (88,084) $ (76,497) Canada Retail (7,557) (11,436) (11,504) Canada Wholesale (2,591) (2,968) (2,444) --------------- --------------- ---------------- Total Company $ (91,722) $ (102,488) $ (90,445) =============== =============== ================ Interest income U.S. Retail $ 1,377 $ 50 $ 317 Canada Retail 1,970 2,099 2,521 Canada Wholesale 3,625 4,073 3,380 --------------- --------------- ---------------- Total Company $ 6,972 $ 6,222 $ 6,218 =============== =============== ================ (Loss) income before income taxes and extraordinary item U.S. Retail $ (142,468) $ (65,331) $ 35,775 Canada Retail 6,626 10,339 8,046 Canada Wholesale 27,568 24,756 19,034 --------------- --------------- ---------------- Total Company $ (108,274) $ (30,236) $ 62,855 =============== =============== ================
57 The Great Atlantic & Pacific Tea Company, Inc. Notes to Consolidated Financial Statements - Continued
February 23, February 24, February 26, FINANCIAL POSITION DATA 2002 2001 2000 - ----------------------- ----------------- ------------------ ------------------ Capital expenditures U.S. Retail $ 192,705 $ 356,850 $ 416,863 Canada Retail 53,477 58,992 61,444 Canada Wholesale - - 1,265 --------------- --------------- ---------------- Total Company $ 246,182 $ 415,842 $ 479,572 =============== =============== ================ Total assets U.S. Retail $ 2,600,281 $ 2,688,571 $ 2,680,458 Canada Retail 520,625 548,801 567,573 Canada Wholesale 73,358 81,785 83,328 --------------- --------------- ---------------- Total Company $ 3,194,264 $ 3,319,157 $ 3,331,359 =============== =============== ================ Long-lived assets United States $ 1,451,235 $ 1,637,036 $ 1,652,094 Canada 289,088 287,211 265,818 --------------- --------------- ---------------- Total Company $ 1,740,323 $ 1,924,247 $ 1,917,912 =============== =============== ================
Note 14 - Sale-Leaseback Transactions During the fourth quarter of fiscal 2000, the Company sold 12 properties and simultaneously leased them back from the purchaser. The properties subject to this sale had a carrying value of approximately $68 million. Net proceeds received by the Company related to this transaction amounted to approximately $113 million. Of the 12 properties sold, 11 were sold for a profit resulting in a gain after deducting expenses of approximately $45 million. This gain will be deferred and amortized over the lives of the respective leases as a reduction of rental expense. One property in the aforementioned transaction was sold at a loss of approximately $3 million after expenses. Since the fair value of this property was less than its carrying value, the Company recognized this loss in full during fiscal 2000. During fiscal 2001, the Company sold 9 additional properties and simultaneously leased them back from the purchaser. The properties subject to this sale had a carrying value of approximately $52 million. Net proceeds received by the Company related to these transactions amounted to approximately $65 million. Of the 9 properties sold, 6 were sold for a profit resulting in a gain after deducting expenses of approximately $15 million. This gain will be deferred and amortized over the lives of the respective leases as a reduction of rental expense. Three properties in the aforementioned transaction were sold at a loss of approximately $4 million after expenses. The majority of this loss was related to one of these properties, which was anticipated at the end of fiscal 2000, and, accordingly, was recognized in full at that time since the carrying value of such property exceeded its fair value less the cost of disposal. The Company expects to enter into similar transactions with other owned properties from time to time in the future. 58 The Great Atlantic & Pacific Tea Company, Inc. Notes to Consolidated Financial Statements - Continued The resulting leases of the 21 properties sold in fiscal 2000 and 2001 have terms ranging from 20 to 25 years, with options to renew for additional periods, and are being accounted for as operating leases in accordance with SFAS No. 13, "Accounting for Leases". Future minimum lease payments for these operating leases, which have been included in the future minimum lease payments table in Note 8 - Lease Obligations, are as follows: Fiscal ------ 2002 $ 20,612 2003 20,612 2004 20,612 2005 20,612 2006 20,612 2007 and thereafter 319,925 ----------- Total $ 422,985 =========== Note 15 - 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 $60.6 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. At February 23, 2002, the Company had an unrealized gain of $0.9 million related to the aforementioned common stock held as available for sale securities that was recorded as a separate component of Stockholders' Equity. Note 16 - Related Party 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. Erivan Haub is the father of Christian W. E. Haub, the Company's Chairman and Chief Executive Officer, and owns a controlling interest in Tengelmann, which owns a controlling interest of the Company's common stock. Helga Haub is the mother of Christian W. E. Haub and is a member of the Company's Board of Directors. 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$0.5 million (U.S. $0.3 million at February 23, 2002), with percentage rents subject to specified caps. 59 The Great Atlantic & Pacific Tea Company, Inc. Notes to Consolidated Financial Statements - Continued 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 $0.1 million during each of fiscal 2001, 2000 and 1999 which is the maximum annual royalty fee under such agreements. The Company is also a party to agreements under which it purchased from Wissoll, which is an affiliate of Tengelmann, approximately $0.6 million, $0.7 million and $1.0 million worth of the Black Forest line and Master Choice(R) candy during fiscal 2001, 2000 and 1999, respectively. 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, 2000 and 1999, Tengelmann was obligated to reimburse the Company $2.5 million, $3.2 million and $3.2 million, respectively, for its use of the aircraft. Note 17 - Environmental Liability The Company owns a non-retail real estate location that was subjected to environmental contamination. The Company obtained an environmental remediation report to enable it to assess the potential environmental liability related to this property. Factors considered in determining the liability included, among others, whether the Company had been designated as a potentially responsible party, the number of potentially responsible parties designated at the site, the stage of the proceedings and the available environmental technology. During the first quarter of fiscal 2000, the Company assessed the likelihood that a loss had been incurred at this site as probable and based on findings included in remediation reports and discussion with legal counsel, estimated the potential loss to be approximately $3.0 million on an undiscounted basis. Accordingly, such amount was accrued at that time. At each balance sheet date the Company assesses its exposure with respect to this environmental remediation based on current available information. Subsequently, during fiscal 2000, with respect to such review, it was determined that additional costs amounting to approximately $1.3 million would be incurred to remedy these environmental issues, and accordingly, this additional amount was accrued. During the fourth quarter of fiscal 2001, due to an unfavorable ruling by the local municipality, which was subsequently upheld by the New Jersey Superior Court, denying the Company's proposed development plan, the Company determined that a decrease in the value of the property had occurred, and recorded an additional charge of $2.0 million. The total liability, net of costs incurred to date, of $5.0 million was included in "Other non-current liabilities" on the Consolidated Balance Sheets at February 23, 2002. 60 The Great Atlantic & Pacific Tea Company, Inc. Notes to Consolidated Financial Statements - Continued Note 18 - Summary of Quarterly Results The following table summarizes the Company's results of operations by quarter for fiscal 2001 and 2000. The first quarter of each fiscal year contains sixteen weeks, while the other quarters each contain twelve weeks.
As Restated(e) -------------------------------------------------- First Second Third Fourth Total Quarter Quarter Quarter Quarter Year --------------- ---------------- --------------- ---------------- --------------- 2001 (unaudited) (Dollars in thousands, except per share amounts) - ---------------------------- Sales $3,388,294 $2,547,590 $2,525,388 $2,512,043 $10,973,315 Gross margin 970,434 737,376 726,912 715,944 3,150,666 Depreciation and amortization 82,205 61,051 61,697 57,599 262,552 Income (loss) from operations (a) 29,625 16,276 (135,284) 65,859 (23,524) Interest expense (30,505) (20,969) (20,495) (19,753) (91,722) (Loss) income before income taxes and extraordinary item 962 (2,801) (154,329) 47,894 (108,274) Extraordinary loss on early extinguishment of debt, net of tax - - - (7,222) (7,222) Net (loss) income (b) (969) (1,743) (89,636) 20,442 (71,906) Per share data: (Loss) income before extraordinary item - basic (c) (0.03) (0.05) (2.34) 0.72 (1.69) Extraordinary loss on early extinguishment of debt - basic - - - (0.19) (0.19) Net (loss) income - basic (0.03) (0.05) (2.34) 0.53 (1.88) (Loss) income before extraordinary item - diluted (d) (0.03) (0.05) (2.34) 0.70 (1.69) Extraordinary loss on early extinguishment of debt - diluted (d) - - - (0.18) (0.19) Net (loss) income - diluted (d) (0.03) (0.05) (2.34) 0.52 (1.88) Market price: High 27.20 Low 20.66 Number of stores at end of period 702 Number of franchised stores served at end of period 67 - ------------------------------------------------------------------------------------------------------------------------- Such amounts are comprised of the following; item (b) is net of applicable income taxes: (a) Asset disposition initiative $ - $ (217) $(164,658) $(28,593) $(193,468) Gain on proceeds from insurance company demutualization - - - 60,606 60,606 All other earnings from operations 29,625 16,493 29,374 33,846 109,338 -------- -------- --------- -------- --------- Income (loss) from operations $ 29,625 $ 16,276 $(135,284) $ 65,859 $ (23,524) ======== ======== ========= ======== ========= (b) Asset disposition initiative $ - $ (126) $ (95,529) $(16,613) $(112,268) Gain on proceeds from insurance company demutualization - - - 35,151 35,151 Extraordinary loss on early extinguishment of debt - - - (7,222) (7,222) All other (losses) earnings (969) (1,617) 5,893 9,126 12,433 -------- -------- --------- -------- --------- Net (loss) income $ (969) $ (1,743) $ (89,636) $ 20,442 $ (71,906) ======== ======== ========= ======== ========= (c) The sum of quarterly basic income per share differs from full year amounts because the number of weighted average common shares outstanding has increased each quarter. (d) The sum of quarterly diluted income per share differs from the full year amounts because securities that are dilutive in the fourth quarter are antidilutive on a full-year basis. (e) See Note 2 - Restatement of Previously Issued Financial Statements. - ------------------------------------------------------------------------------------------------------------------
61 The Great Atlantic & Pacific Tea Company, Inc. Notes to Consolidated Financial Statements - Continued
As previously reported -------------------------------------------------- First Second Third Quarter Quarter Quarter --------------- ---------------- --------------- 2001 (unaudited) (Dollars in thousands, except per share amounts) - ---------------------------- Sales $3,388,294 $2,547,590 $2,525,388 Gross margin 961,022 738,497 725,437 Depreciation and amortization 82,205 61,051 61,697 Income (loss) from operations (a) 17,542 12,625 (141,284) Interest expense (29,060) (19,884) (19,410) (Loss) income before income taxes and extraordinary item (9,676) (5,367) (159,244) Extraordinary loss on early extinguishment of debt, net of tax - - - Net (loss) income (b) (7,139) (3,231) (92,487) Per share data: (Loss) income before extraordinary item - basic (0.19) (0.08) (2.41) Extraordinary loss on early extinguishment of debt - basic - - - Net (loss) income - basic (0.19) (0.08) (2.41) (Loss) income before extraordinary item - diluted (0.19) (0.08) (2.41) Extraordinary loss on early extinguishment of debt - diluted - - - Net (loss) income - diluted (0.19) (0.08) (2.41) Market price: High 14.00 20.30 23.95 Low 8.13 12.51 13.18 Number of stores at end of period 747 743 740 Number of franchised stores served at end of period 67 67 67 - -------------------------------------------------------------------------------------- Such amounts are comprised of the following; item (b) is net of applicable income taxes: (a) Asset disposition initiative $ - $ (217) $(164,658) All other earnings from operations 17,542 12,842 23,374 -------- -------- --------- (Loss) income from operations $ 17,542 $ 12,625 $(141,284) ======== ======== ========= (b) Asset disposition initiative $ - $ (126) $ (95,529) All other (losses) earnings (7,139) (3,105) 3,042 -------- -------- --------- Net (loss) income $ (7,139) $ (3,231) $ (92,487) ======== ======== =========
62 The Great Atlantic & Pacific Tea Company, Inc. Notes to Consolidated Financial Statements - Continued
(As Restated - See Note 2) ------------------------------------------------------------------------------------- First Second Third Fourth Total Quarter Quarter Quarter Quarter Year --------------- ---------------- --------------- ---------------- --------------- (Dollars in thousands, except per share amounts) 2000 (unaudited) - ---------------- Sales $3,199,820 $2,439,534 $2,428,790 $2,554,722 $10,622,866 Gross margin 922,826 706,208 689,209 723,533 3,041,776 Depreciation and amortization 76,648 58,803 59,596 60,724 255,771 Income (loss) from operations 39,648 13,769 (3,201) 15,814 66,030 Interest expense (30,905) (23,609) (24,717) (23,257) (102,488) Net income (loss) 5,505 (5,443) (15,984) (3,578) (19,500) Per share data: Net income (loss) - basic and diluted 0.14 (0.14) (0.42) (0.09) (0.51)
As previously reported ------------------------------------------------------------------------------------- First Second Third Fourth Total Quarter Quarter Quarter Quarter Year --------------- ---------------- --------------- ---------------- --------------- (Dollars in thousands, except per share amounts) 2000 (unaudited) - ---------------- Sales $3,199,820 $2,439,534 $2,428,790 $2,554,722 $10,622,866 Gross margin 919,345 704,253 688,560 716,258 3,028,416 Depreciation and amortization 76,648 58,803 59,596 60,724 255,771 Income (loss) from operations 37,813 12,409 (2,184) 2,155 50,193 Interest expense (28,936) (22,132) (23,240) (21,780) (96,088) Net income (loss) 5,584 (5,374) (14,513) (10,765) (25,068) Per share data: Net income (loss) - basic and diluted 0.15 (0.14) (0.38) (0.28) (0.65) Cash dividends 0.10 0.10 0.10 - 0.30 Market price: High 24.06 17.88 11.50 11.85 Low 17.41 12.06 9.13 6.25 Number of stores at end of period 749 750 751 752 Number of franchised stores served at end of period 63 67 68 68
63 Management's Report on Financial Statements - ------------------------------------------- The Management of The Great Atlantic & Pacific Tea Company, Inc. has prepared the consolidated financial statements and related financial data contained in this Annual Report. The financial statements were prepared in accordance with generally accepted accounting principles appropriate to the business and, by necessity and circumstance, include some amounts which were determined using Management's best judgments and estimates with appropriate consideration to materiality. Management is responsible for the integrity and objectivity of the financial statements and other financial data included in this report. To meet this responsibility, Management maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that accounting records are reliable. Management supports a program of internal audits and internal accounting control reviews to provide reasonable assurance that the system is operating effectively. The Board of Directors pursues its responsibility for reported financial information through its Audit Committee. The Audit Committee meets periodically and, when appropriate, separately with Management, internal auditors and the independent auditors, Deloitte & Touche LLP, to review each of their respective activities. Christian W.E. Haub Mitchell P. Goldstein Chairman of the Board, Senior Vice President, Chief Executive Officer Chief Financial Officer 64 Independent Auditors' Report - ---------------------------- To the Stockholders and Board of Directors of The Great Atlantic & Pacific Tea Company, Inc.: We have audited the accompanying consolidated balance sheets of The Great Atlantic & Pacific Tea Company, Inc. and its subsidiary companies as of February 23, 2002 and February 24, 2001 and the related statements of consolidated operations, consolidated stockholders' equity and comprehensive (loss) income, and consolidated cash flows for each of the three fiscal years in the period ended February 23, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Great Atlantic & Pacific Tea Company, Inc. and its subsidiary companies at February 23, 2002 and February 24, 2001 and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 23, 2002 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2, the accompanying financial statements for the years ended February 24, 2001 and February 26, 2000 have been restated. Deloitte & Touche LLP Parsippany, New Jersey July 3, 2002 65 Five Year Summary of Selected Financial Data
(As Restated - See Note 2) --------------------------------- Fiscal 2001 Fiscal 2000 Fiscal 1999 Fiscal 1998 Fiscal 1997 (52 Weeks)(d) 52 Weeks)(d) (52 Weeks)(d) (52 Weeks)(c)(d) (53 Weeks)(c)(d) --------------- ---------------- --------------- ---------------- ----------------- (unaudited) (unaudited) (Dollars in thousands, except per share amounts) Operating Results Sales $10,973,315 $10,622,866 $10,151,334 $10,179,358 $10,262,243 (Loss) income from operations (a) (23,524) 66,030 147,082 (149,337) 162,256 Depreciation and amortization (262,552) (255,771) (232,712) (233,663) (234,236) Interest expense (91,722) (102,488) (90,445) (71,497) (80,152) Net (loss) income before extraordinary item (64,684) (19,500) 35,313 (58,282) 67,714 Extraordinary loss on early extinguishment of debt, net of tax (7,222) - - - (544) Net (loss) income (b) (71,906) (19,500) 35,313 (58,282) 67,170 Per Share Data (Loss) income before extraordinary item - basic (1.69) (0.51) 0.92 (1.52) 1.77 Extraordinary loss on early extinguishment of debt - basic (0.19) - - - (0.01) Net (loss) income - basic (1.88) (0.51) 0.92 (1.52) 1.76 (Loss) income before extraordinary item - diluted (1.69) (0.51) 0.92 (1.52) 1.77 Extraordinary loss on early extinguishment of debt - diluted (0.19) - - - (0.01) Net (loss) income - diluted (1.88) (0.51) 0.92 (1.52) 1.76 Cash dividends - 0.30 0.40 0.40 0.40 Book value per share 17.54 19.53 20.65 20.76 22.88 Financial Position Current assets $1,212,074 $1,197,873 $1,218,717 $1,243,110 $1,217,227 Current liabilities 1,184,463 1,130,062 1,153,173 1,134,063 955,130 Working capital 27,611 67,811 65,544 109,047 262,097 Current ratio 1.02 1.06 1.06 1.10 1.27 Expenditures for property 246,182 415,842 479,572 438,345 267,623 Total assets 3,194,264 3,319,157 3,331,359 3,160,814 2,995,253 Current portion of long-term debt 526 6,195 2,382 4,956 16,824 Current portion of capital lease obligations 10,691 11,634 11,327 11,483 12,293 Long-term debt 779,440 915,321 865,675 728,390 695,292 Long-term portion of capital lease obligations 93,587 106,797 117,870 115,863 120,980 Total debt 884,244 1,039,947 997,254 860,692 845,389 Debt to total capitalization 57% 58% 56% 52% 49%
66 Five Year Summary of Selected Financial Data - Continued
(As Restated - See Note 2) --------------------------------- Fiscal 2001 Fiscal 2000 Fiscal 1999 Fiscal 1998 Fiscal 1997 (52 Weeks)(d) (52 Weeks)(d) (52 Weeks)(d) (52 Weeks)(c)(d) (53 Weeks)(c)(d) --------------- ---------------- --------------- ---------------- ----------------- (unaudited) (unaudited) (Dollars in thousands, except per share amounts) Equity Stockholders' equity 672,988 748,811 792,138 794,783 875,276 Weighted average shares outstanding 38,350,616 38,347,216 38,330,379 38,273,859 38,249,832 Number of registered stockholders 6,087 6,281 6,890 7,419 8,029 Other Number of employees 78,995 83,000 80,900 83,400 79,980 New store openings 21 47 54 46 40 Number of stores at year end 702 752 750 839 936 Total store area (square feet) 26,664,312 27,931,729 26,904,331 28,736,319 30,574,286 Number of franchised stores served at year end 67 68 65 55 52 Total franchised store area (square feet) 2,108,969 2,021,206 1,908,271 1,537,388 1,389,435 - ---------------------------------------------------------------------------------------------------------------------------- Such amounts are comprised of the following; item (b) is net of applicable income taxes: (a) Asset disposition initiative $(193,468) $ - $ (59,886) $(279,415) $ - Gain on proceeds from insurance company demutualization 60,606 - - - - All other earnings from operations 109,338 66,030 206,968 130,078 162,256 --------- --------- --------- --------- --------- (Loss) income from operations $ (23,524) $ 66,030 $ 147,082 $(149,337) $ 162,256 ========= ========= ========= ========= ========= (b) Asset disposition initiative $(112,268) $ - $ (34,836) $(166,517) $ - Gain on proceeds from insurance company demutualization 35,151 - - - - Extraordinary loss on early extinguishment of debt (7,222) - - - (544) Reversal of deferred tax asset valuation allowance - - - 60,300 - All other earnings (losses) 12,433 (19,500) 70,149 47,935 67,714 --------- --------- --------- --------- --------- Net (loss) income $ (71,906) $ (19,500) $ 35,313 $ (58,282) $ 67,170 ========= ========= ========= ========= ========= (c) Fiscal 1997 and fiscal 1998 include adjustments consisting of a $2,900 charge and a $14,900 credit to self-insurance expense and credits of $9,897 and $154 to closed store subleases, respectively. However, the Company was unable to determine the adjustments to the vendor allowance amounts for fiscal 1997 and 1998 since the documentation related to this item was not available. While the adjustments required for fiscal 1997 and 1998 related to vendor allowances cannot be determined with accuracy, Management does not believe that the financial data presented herein are no longer indicative of the results for these periods. (d) Not derived from audited financial information. - --------------------------------------------------------------------------------------------------------------------
67 Executive Officers - ------------------ Christian W.E. Haub Chairman of the Board, Chief Executive Officer Elizabeth R. Culligan President, Chief Operating Officer William P. Costantini Senior Vice President, General Counsel and Secretary Mitchell P. Goldstein Senior Vice President, Chief Financial Officer Laurane S. Magliari Senior Vice President, People Resources and Services John E. Metzger Senior Vice President, Chief Information Officer Richard P. De Santa Vice President, Corporate Affairs - ---------------------------- Board Of Directors - ------------------ Christian W.E. Haub (c)(d) Chairman of the Board, Chief Executive Officer John D. Barline, Esq. (b)(c)(e) Williams, Kastner & Gibbs LLP, Tacoma, Washington Rosemarie Baumeister (b) Senior Vice President, Tengelmann Warenhandelsgesellschaft, Muelheim, Germany Elizabeth R. Culligan (c)(d) President, Chief Operating Officer Bobbie Gaunt (a)(b) Former President and CEO, Ford Motor Company of Canada Helga Haub (c)(d) Dan P. Kourkoumelis (a)(c)(e) Former President and CEO, Quality Food Centers, Inc. Edward Lewis (c)(d)(e) Chairman and Chief Executive Officer Essence Communications Partners Richard L. Nolan (a)(c)(e) William Barclay Harding Professor of Management Technology at the Harvard Business School Maureen B. Tart-Bezer (a)(d) Senior Financial Advisor Wireless MVNO Ventures
(a) Member of Audit Committee Richard L. Nolan, Chairman (b) Member of Compensation Committee John D. Barline, Chairman (c) Member of Executive Committee Christian W.E. Haub, Chairman (d) Member of Finance Committee Edward Lewis, Chairman (e) Member of Governance Committee Dan P. Kourkoumelis, Chairman 68 Stockholder Information - ----------------------- Executive Offices Box 418 2 Paragon Drive Montvale, NJ 07645 Telephone 201-573-9700 Independent Auditors Deloitte & Touche LLP Two Hilton Court Parsippany, NJ 07054 Stockholder Inquiries and Publications Stockholders, security analysts, members of the media and others interested in further information about the Company are invited to contact the Investor Relations Help Line at 201-571-4537. Internet users can access information on A&P at: www.aptea.com Correspondence concerning stockholder address changes or other stock account matters should be directed to the Company's Transfer Agent & Registrar American Stock Transfer and Trust Company 59 Maiden Lane New York, NY 10038 Telephone 800-937-5449 www.amstock.com Form 10-K Copies of Form 10-K filed with the Securities and Exchange Commission will be provided to stockholders upon written request to the Secretary at the Executive Offices in Montvale, New Jersey. Annual Meeting The Annual Meeting of Stockholders will be held at 9:00 a.m. (EDT) on Tuesday, July 30, 2002 at White Elephant Hotel 50 Easton St. Nantucket, Massachusetts Common Stock Common stock of the Company is listed and traded on the New York Stock Exchange under the ticker symbol "GAP" and has unlisted trading privileges on the Boston, Midwest, Philadelphia, Cincinnati, and Pacific Stock Exchanges. The stock is generally reported in newspapers and periodical tables as "GtAtPc". (C) 2002 The Great Atlantic & Pacific Tea Co., Inc. All rights reserved. 69 EX-21 17 b319220ex_21.txt SUBSIDIARIES LIST Exhibit 21 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. AND SUBSIDIARIES SUBSIDIARIES JURISDICTION OF INCORPORATION A&P Wine and Spirits, Inc. Massachusetts ANP Properties I Corp. Delaware ANP Sales Corp. Maryland APW Produce Company, Inc. New York APW Supermarket Corporation Delaware APW Supermarkets, Inc. New York Big Star, Inc. Georgia The Great Atlantic and Pacific Tea Company, Limited (NRO) Canada The Great Atlantic & Pacific Company of Canada, Limited d/b/a A&P and New Dominion Canada A&P Drug Mart Limited Ontario A&P Properties Limited Ontario 3399486 Canada Inc. Canada G. A. Love Foods Inc. Ontario Love's York Properties Inc. Ontario Borman's, Inc. d/b/a Farmer Jack Delaware Compass Foods, Inc. Delaware Family Center, Inc. d/b/a Family Mart Delaware Food Basics, Inc. Delaware Futurestore Food Markets, Inc. Delaware Gerard Avenue, Inc. Delaware The Great Atlantic & Pacific Tea Company of Vermont, Inc. Vermont Hamilton Property I, Inc. Delaware Hopelawn Property I, Inc. Delaware Kohl's Food Stores, Inc. Wisconsin Kwik Save Inc. Pennsylvania Limited Foods, Inc. Delaware LO-LO Discount Stores, Inc. Texas Montvale Holdings, Inc. New Jersey North Jersey Properties, Inc. I Delaware North Jersey Properties, Inc. II Delaware North Jersey Properties, Inc. III Delaware North Jersey Properties, Inc. IV Delaware North Jersey Properties, Inc. V Delaware North Jersey Properties, Inc. VI Delaware Richmond, Incorporated d/b/a Pantry Pride & Sun, Inc. Delaware Regina Properties, Inc. New Jersey St. Pancras Company Limited Bermuda St. Pancras Too, Limited Bermuda Shopwell, Inc. d/b/a Food Emporium Delaware Southern Acquisition Corporation Delaware Southern Development, Inc. of Delaware Delaware Super Fresh Food Markets, Inc. Delaware Super Fresh Food Markets of Maryland, Inc. Maryland Super Fresh/Sav-A-Center, Inc. Delaware Super Fresh Food Markets of Virginia, Inc. Delaware Super Market Service Corp. Pennsylvania Super Plus Food Warehouse, Inc. Delaware Supermarket Distribution Service Corp. New Jersey Supermarket Distribution Service - Florence, Inc. New Jersey Supermarket Distribution Services, Inc. Delaware Supermarket Systems, Inc. Delaware Tea Development Co., Inc. Delaware The South Dakota Great Atlantic & Pacific Tea Company, Inc. South Dakota Transco Service-Milwaukee, Inc. New Jersey Waldbaum, Inc. d/b/a Waldbaum, Inc. and Food Mart New York W.S.L. Corporation New Jersey 2008 Broadway, Inc. New York EX-23 18 b319220ex_23.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 2-92428 on Form S-8, Post Effective Amendment No. 7 to Registration Statement No. 2-59290 on Form S-8 and Post Effective Amendment No. 3 to Registration Statement No. 2-73205 on Form S-8 of our report dated July 3, 2002 (which expresses an unqualified opinion and includes an explanatory paragraph relating to the restatement described in Note 2), appearing in the Fiscal 2001 Annual Report to Stockholders and incorporated by reference in the Annual Report on Form 10-K of The Great Atlantic & Pacific Tea Company, Inc. for the year ended February 23, 2002. Deloitte & Touche LLP Parsippany, New Jersey July 3, 2002 -----END PRIVACY-ENHANCED MESSAGE-----