UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
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The Bon-Ton Stores, Inc.
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THE BON-TON STORES, INC.
(Name of Registrant as Specified in Its Charter)
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Proxy Statement and Notice of 2004
2005 Annual Meeting
(LOGO WITH PICTURE OF WOMAN)
[BON-TON LOGO]
THE BON-TONBON • TON STORES, INC.
2801 EAST MARKET STREET
YORK,East Market Street
York, PA 17402
WWW.BONTON.COM
June 17, 2004
www.bonton.com
May 13, 2005
Dear Shareholder:
You are cordially invited to attend our Annual Meeting of Shareholders to be held at Bon-Ton'sBon-Ton’s corporate offices at 2801 East Market Street, York, Pennsylvania on Wednesday, July 21, 2004,Tuesday, June 14, 2005, beginning at 9:00 a.m. Enclosed is the official notice of meeting, the proxy statement, the proxy card and our 20032004 Annual Report.
You may vote your shares via the Internet by accessing the voting site
shown on your proxy card, by telephone by calling the toll-free number shown on
your proxy card, by mail using the proxy card, or in person by attending and
voting at the meeting.
Your vote is important to us. Even if you plan to attend the meeting, please sign, date and return your proxy in the enclosed postage-paid envelope or vote by telephone or over the Internet.
Sincerely,
/s/ Tim Grumbacher
Tim Grumbacher
Chairman of the Board and
Chief Executive Officer
| Sincerely, | |
 | |
| Tim Grumbacher | |
| Chairman of the Board |
THE BON-TON STORES, INC.
2801 EAST MARKET STREET
YORK,East Market Street
York, PA 17402
WWW.BONTON.COM
www.bonton.com
NOTICE OF ANNUAL MEETING
The Annual Meeting of Shareholders of The Bon-Ton Stores, Inc. will be held on Wednesday, July 21, 2004,Tuesday, June 14, 2005, at 9:00 a.m., at Bon-Ton'sBon-Ton’s corporate offices at 2801 East Market Street, York, Pennsylvania.
The purposes of this year'sthe meeting are:
1. To elect an eight member Board of Directors for a one-year term.
2. To ratify the appointment of KPMG LLP as independent auditor for
2004.
3. To approve The Bon-Ton Stores, Inc. Cash Bonus Plan.
4. To approve the Amendment to The Bon-Ton Stores, Inc. 2000 Stock
Incentive Plan.
5.
| 1. | To elect a nine-member Board of Directors for a one-year term. | |
| 2. | To ratify the appointment of KPMG LLP as independent auditor for 2005. | |
| 3. | To consider any other matters as may properly come before the meeting. |
Shareholders who owned shares of our stock at the close of business on May 26, 2004April 25, 2005 may attend and vote at the meeting. You may vote by telephone or over the Internet or by mailing the proxy card in the enclosed postage-paid envelope. Any shareholder attending the meeting may vote in person, even though he or she has already returned a proxy card or voted by telephone or over the Internet.
Robert E. Stern
Vice President,
General Counsel and Secretary
| Robert E. Stern | |
| Vice President, | |
| General Counsel and Secretary |
York, Pennsylvania
June 17, 2004
May 13, 2005
Please vote by telephone or over the Internet as instructed on the enclosed proxy card or complete, sign and date the proxy card as promptly as possible and return it in the enclosed envelope. If you vote by telephone or over the Internet, do not return your proxy card.
CONTENTS
| Proxy | 1 | ||||
| Voting Procedures and Security | 1 | ||||
| Outstanding Shares and Voting | 1 | ||||
| Principal | 3 | ||||
| Security Ownership of Directors and Executive | 5 | ||||
| Election of | 6 | ||||
| Board and Board Committee | 7 | ||||
| Compensation of | 9 | ||||
| Ratification of the Appointment of the Independent | 10 | ||||
| Executive | 12 | ||||
| Summary Compensation | 12 | ||||
| Stock Option | 13 | ||||
| Stock Option Exercises and | 13 | ||||
| Employment | 14 | ||||
| Supplemental Retirement | 16 | ||||
| Executive | 16 | ||||
| Equity Compensation Plan | 16 | ||||
| Stock Performance | 18 | ||||
| Report on Executive | 18 | ||||
| Report of the Audit | 22 | ||||
| Section 16(a) Beneficial Ownership Reporting | 23 | ||||
| Related Party Transactions | 23 | ||||
| Shareholder | 23 | ||||
THE BON-TON STORES, INC.
---------------------
PROXY STATEMENT
We are providing this proxy statement to solicit your proxy for use at the annual meeting of shareholders. The annual meetingshareholders which will be held at 9:00 a.m. on Wednesday, July 21, 2004 at Bon-Ton's corporate offices at 2801 East Market
Street, York, Pennsylvania.Tuesday, June 14, 2005. The proxy materials, which consist of the Annual Report, the Notice of Annual Meeting, this proxy statement and the proxy card, are first being sent to our shareholders on or about June 17, 2004.May 13, 2005.
We do not anticipate that any matters will be raised at the meeting other than those described in the notice. If any other matters come before the meeting, your proxies will be authorized to act in accordance with their best judgment.
When your proxy card is returned properly signed, or you have effectively submitted your proxy over the Internet or by telephone, your shares will be voted in accordance with your instructions. If your proxy card is signed and returned without specifying choices, your shares will be voted "for"“for” the Board nominees "for"and “for” ratification of the appointment of KPMG LLP as independent auditor, and "for" approval of The Bon-Ton Stores, Inc. Cash Bonus Plan and
approval of the Amendment to The Bon-Ton Stores, Inc. 2000 Stock Incentive Plan.auditor.
You may revoke your proxy before its exercise by notifying the Secretary of the Company in writing, by delivering a properly executed, later-dated proxy card, by submitting your proxy again over the Internet or by telephone, or by voting in person at the meeting.
Your proxy is being solicited by the Board of Directors. We will bear the cost of this solicitation, including the charges of brokerage houses, nominees and fiduciaries in forwarding these materials to beneficial owners. This solicitation may be made in person, by telephone or by other means of communication by our directors, officers or employees.
References in this proxy statement to a year refer to our fiscal year, which is the 52 or 53 week period ending on the Saturday nearer January 31 of the following calendar year (for example, a reference to 20032004 is a reference to the fiscal year ended January 31, 2004)29, 2005).
VOTING PROCEDURES AND SECURITY OWNERSHIP
OUTSTANDING SHARES AND VOTING RIGHTS
Outstanding Shares and Voting Rights
Shareholders of record at the close of business on May 26, 2004,April 25, 2005 are entitled to vote at the meeting. At that time, there were 13,055,37813,685,682 shares of common stock and 2,951,490 shares of Class A common stock outstanding. The common stock and the Class A common stock vote together on all matters. Holders of common stock are entitled to one vote per share and holders of Class A common stock are entitled to ten votes per share. There are no other classes of voting securities outstanding. In the election of directors, shareholders do not have cumulative voting rights.
The presence at the meeting, in person or by proxy, of persons entitled to cast a majority of the shareholder votes will constitute a quorum.
The eightnine nominees receiving a plurality of the votes cast (that is, the eightnine nominees receiving the greatest number of votes) will be elected. A proxy marked "withhold"“withhold” with respect to the election of a director will not be voted as to the director indicated, but will be counted for purposes of determining whether there is a quorum.
Approval of any other matter requires the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes are counted to determine whether a quorum is present at the meeting but are not counted as a vote in favor or against a particular matter. A broker "non-vote"“non-vote” occurs when a nominee for a beneficial owner does not vote on a particular matter because the nominee does not have discretionary voting power as to that item and has not received voting instructions from the beneficial owner.
If you own common stock in your own name, you are an "owner“owner of record."” This means you may direct the persons named as proxies how to vote your shares. If you fail to vote, the proxies cannot vote your shares at the meeting.
You have four voting options:
- - INTERNET: You can vote over the Internet at the web address shown on your
proxy card. Internet voting is available 24 hours a day. If you have access
to the Internet, we encourage you to vote this way. IF YOU VOTE OVER THE
INTERNET, DO NOT RETURN YOUR PROXY CARD.
- - TELEPHONE: You can vote by telephone by calling the toll-free telephone
number on your proxy card. Telephone voting is available 24 hours a day.
Easy-to-follow voice prompts allow you to vote your shares and confirm that
your instructions have been properly recorded. IF YOU VOTE OVER THE
TELEPHONE, DO NOT RETURN YOUR PROXY CARD.
- - PROXY CARD: You can vote by mail by signing, dating and mailing your proxy
card in the postage-paid envelope provided.
- - VOTE IN PERSON:
| • | Internet: You can vote over the Internet at the web address shown on your proxy card. Internet voting is available 24 hours a day. If you have access to the Internet, we encourage you to vote this way.If you vote over the Internet, do not return your proxy card. |
| • | Telephone: You can vote by calling the toll-free telephone number on your proxy card. Telephone voting is available 24 hours a day. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded.If you vote over the telephone, do not return your proxy card. |
| • | Proxy Card: You can vote by signing, dating and mailing your proxy card in the postage-paid envelope provided. |
| • | Vote in Person: You can attend the Annual Meeting and vote at the meeting. |
If a broker, bank or other nominee holds your common stock for your benefit but not in your name, your shares are in "street“street name."” In that case, your bank, broker or other nominee will send you a voting instruction form to use in voting your shares. The availability of Internet and telephone voting depends on their voting processes. Please follow the voting instruction form they send you.
If you are a participant in The Bon-Ton Stores, Inc. Profit
Sharing/Retirement Contribution Plan (the "401(k) Plan"“401(k) Plan”), your proxy will incorporate all shares you own through the 401(k) Plan, assuming all your shares are registered in the same name. Your proxy will serve as a voting instruction for the trustee of the 401(k) Plan. If you own shares through the 401(k) Plan and you do not vote, the plan trustee will vote your shares in the same proportion as shares for which instructions were received from other shareholders under the 401(k) Plan.
The Nasdaq Stock Market regulations provide that if more than 50% of the voting power in a company is held by an individual, group or another company, the company is a "controlled"“controlled” company. Using this definition, Bon-Ton is a "controlled"“controlled” company because Tim Grumbacher, our Chairman of the Board, and Chief
Executive Officer, is the beneficial owner of shares of common stock and Class A common stock entitled to vote more than 50% of the votes entitled to be cast at the meeting. Mr. Grumbacher has indicated that he will vote "for"“for” each of the nominees for director and "for" each other proposal described herein to be
presented at“for” ratification of the annual meeting.appointment of KPMG LLP. Consequently, the election of each nominee for director and ratification of the appointment of KPMG LLP approval of The Bon-Ton
Stores, Inc. Cash Bonus Plan and approval of the Amendment to The Bon-Ton
Stores, Inc. 2000 Stock Incentive Plan are assured.
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PRINCIPAL SHAREHOLDERS
Principal Shareholders
This table shows owners of 5% or more of the Class A common stock or common stock as of May 3, 2004.April 8, 2005. Each person listed has sole voting power and sole investment power as to the shares indicated unless otherwise noted.
| Class A Common Stock | Common Stock(1) | |||||||||||||||
| Number of | Number of | |||||||||||||||
| Name and Address | Shares | Percent | Shares | Percent | ||||||||||||
| Tim Grumbacher 2801 E. Market Street York, PA 17402 | 2,406,253 | 81.53 | % | 5,883,475 | (2) | 36.50 | % | |||||||||
| Dimensional Fund Advisors, Inc. 1299 Ocean Avenue Santa Monica, CA 90401 | — | — | 1,041,853 | (3) | 7.62 | % | ||||||||||
Henry F. Miller 1650 Arch Street – 22ndFloor Philadelphia, PA 19103 | 545,237 | (4) | 18.47 | % | 799,414 | (5) | 5.62 | % | ||||||||
| Thomas W. Wolf 2801 E. Market Street York, PA 17402 | 545,237 | (4) | 18.47 | % | 871,374 | (6) | 6.13 | % | ||||||||
David R. Glyn 1650 Arch Street – 22ndFloor Philadelphia, PA 19103 | 545,237 | (4) | 18.47 | % | 645,601 | (7) | 4.54 | % | ||||||||
M. Thomas Grumbacher Trust dated March 9, 1989 for benefit of Matthew Reed Grumbacher 1650 Arch Street – 22ndFloor Philadelphia, PA 19103 | 181,746 | (8) | 6.16 | % | 202,898 | (8) | 1.47 | % | ||||||||
M. Thomas Grumbacher Trust dated March 9, 1989 for benefit of Beth Anne Grumbacher Elser 1650 Arch Street – 22ndFloor Philadelphia, PA 19103 | 181,746 | (8) | 6.16 | % | 202,898 | (8) | 1.47 | % | ||||||||
M. Thomas Grumbacher Trust dated March 9, 1989 for benefit of Max Aaron Grumbacher 1650 Arch Street – 22ndFloor Philadelphia, PA 19103 | 181,746 | (8) | 6.16 | % | 202,898 | (8) | 1.47 | % | ||||||||
| (1) | Each share of Class A |
| (2) | Includes (a) 165,773 shares of common stock held by The Grumbacher |
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| (3) | Based solely on a Schedule 13G dated February 9, 2005 filed with the Securities and Exchange Commission by Dimensional Fund Advisors, Inc. |
| (4) | Consists of Class A common stock held by trusts for the benefit of Tim Grumbacher’s children of which Thomas W. Wolf, |
| (5) | Consists of (a) 165,773 shares of common stock held by The Grumbacher Family Foundation, a charitable foundation of which Tim Grumbacher, Nancy T. Grumbacher, Thomas |
| (6) | Includes (a) 545,237 shares of Class A common stock and 63,454 shares of common stock held by trusts for the benefit of |
The holders of the Class A common stock have entered into an agreement granting Tim Grumbacher (or his personal representative) the right of first refusal to acquire any shares of Class A common stock proposed to be transferred.
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SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
4
Security Ownership of Directors and Executive Officers
This table shows, as of May 3, 2004,April 8, 2005, the holdings of our Chief Executive Officer, our Chairman of the Board who served as Chief Executive Officer for part of 2004, the four other most highly compensated executive officers during 2003
(the "named executives"2004 (collectively, the “named executives”), each director, and all directors and executive officers as a group. Each person listed has sole voting power and sole investment power with respect to the shares indicated unless otherwise noted.
| Class A Common Stock | Common Stock(1) | |||||||||||||||
| Shares | Shares | |||||||||||||||
| Beneficially | Beneficially | |||||||||||||||
| Name | Owned | Percent | Owned | Percent | ||||||||||||
| Tim Grumbacher | 2,406,253 | 81.53 | % | 5,883,475 | (2) | 36.50 | % | |||||||||
| James H. Baireuther | — | — | 181,000 | (3) | 1.32 | % | ||||||||||
| Robert B. Bank | — | — | — | * | ||||||||||||
| Byron L. Bergren | — | — | 35,000 | (4) | * | |||||||||||
| Philip M. Browne | — | — | 2,500 | * | ||||||||||||
| Shirley A. Dawe | — | — | — | * | ||||||||||||
| Lynn C. Derry | — | — | 9,989 | (3) | * | |||||||||||
| Marsha M. Everton | — | — | 860 | * | ||||||||||||
| John S. Farrell | — | — | 22,717 | (3) | * | |||||||||||
| Michael L. Gleim | — | — | 373,242 | (5) | 2.73 | % | ||||||||||
| Robert E. Salerno | — | — | 2,100 | * | ||||||||||||
| Thomas W. Wolf | 545,237 | (6) | 18.47 | % | 871,374 | (7) | 6.13 | % | ||||||||
| James M. Zamberlan | — | — | 7,000 | (4) | * | |||||||||||
| All directors and executive officers as a group (23 persons) | 2,951,490 | 100.00 | % | 7,353,265 | (8) | 43.66 | % | |||||||||
| * | less than 1% |
| (1) | See note (1) to Principal Shareholders table. |
| (2) | See note (2) to Principal Shareholders table. |
| (3) | Includes options exercisable within 60 days of April 8, 2005 to purchase the number of shares indicated as to each of the following: Mr. Baireuther — 10,000 shares; Ms. Derry — 5,000 shares; Mr. Farrell — 3,000 shares. |
| (4) | These shares were issued pursuant to the Company’s Amended and Restated 2000 Stock |
| (5) | Includes 73,000 shares owned by Mr. Gleim’s spouse and 5,700 shares which Mr. Gleim |
| (6) | See note (4) to Principal Shareholders table. |
| (7) | See note (6) to Principal Shareholders table. |
| (8) | See notes (2), (3), (4), (5) and (7) above. Includes 675 shares held in an IRA plan by the spouse of an executive |
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PROPOSAL ONE
ELECTION OF DIRECTORS
The Board proposes the following nominees for election as directors to hold office until the 20052006 Annual Meeting of Shareholders and until their respective successors have been elected. Each is currently a director and has agreed to serve if elected. Should a nominee become unable or decline to serve before the Annual Meeting, the proxies may vote for a substitute recommended by the Governance and Nominating Committee of the Board, unless the Board reduces the number of directors.
ROBERT B. BANK -- — Director since 2002. Age 57
58
President of Robert B. Bank Advisory Services, a private capital investment and consulting firm, since 1990.
President of Robert B. Bank Advisory Services, a private capital investment and consulting firm, since 1990.
BYRON L. BERGREN — Director since 2004. Age 58
President and Chief Executive Officer of Bon-Ton since August 2004. Mr. Bergren joined the Company in November 2003 as Vice Chairman, and has served as President and Chief Executive Officer of The Elder-Beerman Stores Corp. since February 2002. He served as Chairman of the Southern Division of Belk, Inc. from 1999 to February 2002, as Partner of the Florida Division of Belk, Inc. from 1992 to 1999, and in senior executive positions at Belk, Inc. from 1985 to 1992.
President and Chief Executive Officer of Bon-Ton since August 2004. Mr. Bergren joined the Company in November 2003 as Vice Chairman, and has served as President and Chief Executive Officer of The Elder-Beerman Stores Corp. since February 2002. He served as Chairman of the Southern Division of Belk, Inc. from 1999 to February 2002, as Partner of the Florida Division of Belk, Inc. from 1992 to 1999, and in senior executive positions at Belk, Inc. from 1985 to 1992.
PHILIP M. BROWNE -- — Director since 2002. Age 44
45
Senior Vice President and Chief Financial Officer of Advanta Corp., one of thenation'snation’s largest providers of business credit cards to small businesses, since June 1998. Prior to that, Mr. Browne was a partner at Arthur Andersen LLP, where he was employed for more than 15 years. Mr. Browne is a director and a member of
the audit committee of AF&L Insurance Company, a privately held long-term care
and home health care insurance company.
Senior Vice President and Chief Financial Officer of Advanta Corp., one of the
SHIRLEY A. DAWE -- — Director since 2002. Age 57
58
Corporate Director and, since 1986, President of Shirley Dawe Associates, Inc., aToronto basedToronto-based consumer goods marketing and merchandising consulting group. Prior to 1986, she held progressively senior merchandising positions with the Hudson'sHudson’s Bay Company, a Canadian national department store chain, for over 15 years. Ms. Dawe is a director of OshKosh B'Gosh,B’Gosh, Inc., a children'schildren’s apparel manufacturer; the National Bank of Canada; and Henry Birks & Sons, Inc., a Canadian fine jewelry retailer; and Acorn, a Michigan-based women's apparel specialty
retailer.
Corporate Director and, since 1986, President of Shirley Dawe Associates, Inc., a
MARSHA M. EVERTON -- — Director since 2003. Age 52
53
President and Chief Executive Officer of The Pfaltzgraff Co., a casual dinnerware manufacturer, since January 2002. Ms. Everton was Vice President of The Pfaltzgraff Co. for more than ten years prior to 2002, and was responsible during this period for various departments including stores and direct marketing, corporate development and market planning and administration.
President and Chief Executive Officer of The Pfaltzgraff Co., a casual dinnerware manufacturer, since January 2002. Ms. Everton was Vice President of The Pfaltzgraff Co. for more than ten years prior to 2002, and was responsible during this period for various departments including stores and direct marketing, corporate development and market planning and administration.
MICHAEL L. GLEIM -- — Director since 1991. Age 61
62
Vice Chairman and Chief Operating Officer of Bon-Ton from December 1995 to February 2002. From 1991 to December 1995 he was Senior Executive Vice President and from 1989 to 1991 he was Executive Vice President of Bon-Ton.
Vice Chairman and Chief Operating Officer of Bon-Ton from December 1995 to February 2002. From 1991 to December 1995 he was Senior Executive Vice President and from 1989 to 1991 he was Executive Vice President of Bon-Ton.
TIM GRUMBACHER -- — Director since 1967. Age 64
65
Chairman of the Board of Bon-Ton since August 1991, and Chief Executive Officersinceof Bon-Ton from June 2000.2000 to August 2004. From 1977 to 1989 he was President and from 1985 to 1995 he was Chief Executive Officer of Bon-Ton.
Chairman of the Board of Bon-Ton since August 1991, and Chief Executive Officer
ROBERT E. SALERNO -- — Director since 2002. Age 5657
Chief Operating Officer of Nancy Koltes Associates, a wholesaler of luxury domestics and linens, since June 2004. Chief Operating Officer of Kieselstein-Cord International, a luxury accessories
Chief Operating Officer of Nancy Koltes Associates, a wholesaler of luxury domestics and linens, since June 2004. Chief Operating Officer of Kieselstein-Cord International, a luxury accessories
6
wholesaler and retailer, sincefrom December 2002.2002 to June 2004. Vice President and Chief Operating Officer of Circline.Com, an internet based broker of fine arts and antiques, from November 2001 to December 2002. From October 1999 to August 2001, Mr. Salerno was Chief Executive Officer of Bluefish Clothing, an apparel marketer. In November 1999, Bluefish Clothing filed for relief under chapter 11 of the U.S. Bankruptcy Code and the company was liquidated in November 2001. From June 1996 to 7
February 1999, he was Senior Vice President of Bergdorf Goodman, responsible for all operational, financial and administrative functions.
THOMAS W. WOLF -- — Director since 1998. Age 55
56
President of the Wolf Organization, Inc., a building materials manufacturer and distributor, since 1985. He is also a director of Irex Corporation, a national building contractor.
President of the Wolf Organization, Inc., a building materials manufacturer and distributor, since 1985. He is also a director of Irex Corporation, a national building contractor.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR"“FOR” THE ELECTION OF THE
NOMINEES LISTED ABOVE
BOARD AND BOARD COMMITTEE INFORMATION
Board and Board Committee Information
The Board of Directors has determined that each of Messrs. Bank, Browne and Salerno, Ms. Dawe and Ms. Everton is an "independent"“independent” director as that term is defined in the listing standards of the Nasdaq Stock Market.
During 2003,2004, the Board held sixnine meetings and took action by unanimous consent without a meeting five times.one time.
The Board has an Executive Committee, an Audit Committee, a Human Resources and Compensation Committee, and a Governance and Nominating Committee. The primary functions of the committees, theeach committee, its members, thereof, the number of times the committeescommittee met during 2003,2004, and certain other information regarding the committeeseach committee, are as follows:
AUDIT COMMITTEEdescribed below.
Audit Committee
The members of the Audit Committee are Philip M. Browne, Chair, Robert B. Bank and Robert E. Salerno. The Board has determined that Mr. BrownBrowne is an "audit“audit committee financial expert"expert” as defined by SEC rules and the listing standards of the Nasdaq Stock Market. The Audit Committee is composed entirely of "independent"“independent” directors under applicable SEC rules and Nasdaq Stock Market listing standards and operates under a Charter which was adopted by the Board of Directors. This Charter is attached to this proxy statement as Annex A and is
posted in the Investor Relations section of the Company'sCompany’s website at www.bonton.com.
The Audit Committee appoints and establishes the compensation for the Company'sCompany’s independent auditor, approves in advance all engagements with the independent auditor to perform non-audit services, reviews and approves the procedures used to prepare the Company'sCompany’s periodic reports, reviews and approves the Company'sCompany’s critical accounting policies, discusses the plans and reviews results of the audit engagement with the independent auditor, reviews the independence of the independent auditor, and oversees the Company'sCompany’s accounting processes including the adequacy of its internal accounting controls. To assist it in carrying out its responsibilities, the Audit Committee is authorized to retain the services of independent advisors.
The Audit Committee met fiveeight times during 2003.
HUMAN RESOURCES AND COMPENSATION COMMITTEE2004.
Human Resources and Compensation Committee
The members of the Human Resources and Compensation Committee are Shirley A. Dawe, Chair, Robert B. Bank and Philip M. Browne. The Committee is composed entirely of "independent"“independent” directors, as defined by the listing standards of the Nasdaq Stock Market, and operates
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under a Charter which was adopted by the Board of Directors. This Charter is posted in the Investor Relations section of the Company'sCompany’s website at www.bonton.com.
The Human Resources and Compensation Committee advises and assists management in developing the Company'sCompany’s overall compensation strategy to assure that it promotes shareholder 8
interests, supports the Company'sCompany’s strategic and tactical objectives, and provides for appropriate rewards and incentives for the Company'sCompany’s management and employees. As part of that responsibility, the Committee reviews and approves the structure of the Company'sCompany’s bonus plans and administers the Company'sCompany’s stock option plans. To assist it in carrying out its responsibilities, the Committee is authorized to retain the services of independent advisors.
At the end of each year, the Human Resources and Compensation Committee evaluates the performance of the Chairman of the Board, the President and Chief Executive Officer, the
President and Chief Operating Officer, and the two Vice Chairmen,other principal executive officers of the Company, and establishes their compensation for the next year. The Committee also reviews with the Chief Executive Officer the performance of the other executive officers and approves their compensation for the next year. Finally, the Committee establishes the corporate goals under the cash bonus plan and, on occasion, determines whether there are reasons to waive aspectsthe requirements for receipt of those goals that were
not achieved.a bonus should be waived.
The Human Resources and Compensation Committee met seventhirteen times during 2003.
GOVERNANCE AND NOMINATING COMMITTEE2004.
Governance and Nominating Committee
The members of the Governance and Nominating Committee are Michael L. Gleim, Chair, Marsha M. Everton and Leon D. Starr.Thomas W. Wolf. Messrs. Gleim and StarrWolf are not "independent"“independent” directors as set forth under the Nasdaq Stock Market listing standards. As discussed above, the Company is a "controlled company"“controlled company” under Nasdaq Stock Market listing standards. As a controlled company, the Company may elect and has elected not to have a nominating committee comprised solely of independent directors. AlthoughBoth Mr. Gleim is not an independent director, he has
providedand Mr. Wolf provide the Board with valuable insight with respect to both the governance of the Company and the nominations process, and, therefore, the Board believes that
hethey should continue as a membermembers of the Governance and Nominating Committee. Mr.
Starr is not standing for reelection to the Board at the annual meeting and will
thus not be a continuing member of the Committee.
The Committee reviews, develops and makes recommendations to the Board of Directors regarding various aspects of the Company'sCompany’s governance processes and procedures. It also recommends candidates for election to fill vacancies on the Board, including renominations of members whose terms are due to expire. The Committee is also responsible for making recommendations to the Board regarding the compensation of its non-employee members. The Committee operates under a Charter which was adopted by the Board of Directors. This Charter is posted in the Investor Relations section of the Company'sCompany’s website at www.bonton.com.
The Committee will consider shareholder recommendations for candidates for the Board from any shareholder who has been a continuous record owner of at least 3% of the common stock of the Company for at least one year prior to submission of the recommendation and who provides a written statement that the shareholder intends to continue share ownership through the date of the meeting at which directors are to be elected. Any such shareholder recommendation should be sent to the Governance and Nominating Committee, c/o Office of General Counsel, The Bon-Ton Stores, Inc., P. O. Box 2821, York, PA 17405. Any candidate recommended by a shareholder shall, at a minimum, possess a background that includes a solid education, sufficient business, professional or academic experience and the requisite reputation, character, integrity, skills, judgment and temperament and such other relevant characteristics, which, in the Committee'sCommittee’s view, have prepared him or her for dealing with the multi-faceted financial, business and other issues that confront a Board of Directors of a corporation with the size, complexity, reputation and success of the Company.
8
The Committee also considers potential candidates recommended by current directors, Company officers, employees and others. The Committee screens all potential candidates in the same manner regardless of the source of the recommendation.
9
In nominating candidates to fill vacancies created by the expiration of the term of a member of the Board, the Committee determines whether the incumbent director is willing to stand for re-election. If so, the Committee evaluates his or her performance in office to determine suitability for continued service, taking into consideration the value of continuity and familiarity with the Company'sCompany’s business. When appropriate, the Committee may retain executive recruitment firms to assist in identifying suitable candidates.
The Governance and Nominating Committee met sixfive times during 2003.
EXECUTIVE COMMITTEE2004.
Executive Committee
The members of the Executive Committee are Thomas W. Wolf,Tim Grumbacher, Chair, Michael L. Gleim Tim Grumbacher and Leon D. Starr. Mr. Starr is not standing for
reelection to the Board and will thus not be a continuing member of the
Executive Committee.Thomas W. Wolf.
The Executive Committee has the authority to act in place of the Board of Directors on certain specified matters.
The Executive Committee has the following responsibilities: to propose the Board agenda for each year and to refine the agenda prior to each Board meeting; to keep the members of the Board informed of pertinent issues that arise between quarterly Board meetings; and to act as a sounding board for the Company’s CEO as appropriate. The Executive Committee Charter, under which the Executive Committee operates, was adopted by the Board and is posted in the Investor Relations section of the Company’s website at www.bonton.com.
The Executive Committee met eleventhirteen times during 2003.
ATTENDANCE AT MEETINGS2004.
Attendance at Meetings
No director attended fewer than 75% of the total number of meetings of the Board and committees on which he or she served while in office.
The Company has adopted a policy which encourages Board members to attend the annual shareholders meeting. Six members of the Board attended the 20032004 Annual Meeting of Shareholders.
COMMUNICATION WITH THE BOARD OF DIRECTORS
Communication with the Board of Directors
Any shareholder who wishes to communicate with the Board of Directors, or any individual director, may do so by directing correspondence which prominently displays the fact that it is a shareholder-board communication, to such director or directors, in care of thec/o Office of General Counsel, The Bon-Ton Stores, Inc., 2801 East Market Street,P. O. Box 2821, York, PA 17402.17405. Until and unless a procedure is adopted by a majority of the independent members of the Board whereby it may be deemed unnecessary or inappropriate to relay shareholder communications to the appropriate parties, all shareholder communications will be relayed to the intended director or directors.
COMPENSATION OF DIRECTORS
Mr.
Compensation of Directors
Messrs. Grumbacher is an employeeand Bergren are employees of the Company and isare not paid any separate compensation for serving as a director. He isdirectors. They are the only employeeemployees who servesserve as a
director.directors.
9
Each non-employee director receives both cash compensation and stock compensation, which includes:
- - a $90,000 annual fee, $40,000 of which is paid in cash and $50,000 of which
is paid in restricted stock units (RSU's) which vest 12 months following
termination of Board service;
- - a $15,000 annual fee for serving on the Executive Committee;
- - a $5,000 annual fee for serving on each committee other than the Executive
Committee;
- -
| • | a $90,000 annual fee, $40,000 of which is paid in cash and $50,000 of which is paid in restricted stock units which vest 12 months following termination of Board service; | |
| • | a $15,000 annual fee for serving on the Executive Committee; | |
| • | a $5,000 annual fee for serving on each committee other than the Executive Committee; | |
| • | a $10,000 supplemental fee for each Committee chair. |
In addition, Robert B. Bank, one of the Company’s non-employee directors, serves as the Board’s representative on the committee that oversees the Company’s Retirement Contribution Plan. For his service on this committee, Mr. Bank receives $1,000 for each meeting attended.
Directors may defer all or any part of their cash compensation into additional RSU's.
10
restricted stock units.
PROPOSAL TWO
RATIFICATION OF THE APPOINTMENT
OF THE INDEPENDENT AUDITOR
Subject to shareholder ratification, the
The Audit Committee has reappointedis recommending ratification of its appointment of KPMG LLP, which served as our independent auditorregistered public accounting firm in 2003,2004, to serve as our independent auditorregistered public accounting firm for 2004.2005. If the shareholders do not ratify this appointment, another independent auditorregistered public accounting firm will be considered by the Audit Committee.
In making its selection of KPMG, the Audit Committee considered whether the non-audit services provided by KPMG are compatible with maintaining KPMG’s independence.
10
FEES PAID TO KPMG
| 2004 | 2003 | |||||||
| Audit Fees(1) | $ | 1,386,400 | $ | 642,000 | ||||
| Audit-Related Fees(2) | 23,400 | 22,500 | ||||||
| Tax Fees(3) | 308,100 | 118,700 | ||||||
| All Other Fees(4) | — | 432,800 | ||||||
| (1) | Audit Fees include fees associated with audit services, consultation on matters related to the consolidated financial statements, review of the tax provision, consents, reviews of the Company’s quarterly reports on Form 10-Q and reviews of the Company’s Securities and Exchange Act filings. Included in Audit Fees for 2004 are fees for services related to the certification of management’s assessment of, and the operating effectiveness of, the Company’s internal control over financial reporting. |
| (2) | Audit-Related Fees reflect benefit plan audits. |
| (3) | Tax Fees reflect all tax related services, excluding any costs included in Audit Fees, including consultation, return preparation, planning, advice and compliance. |
| (4) | All Other Fees includes costs in 2003 related to the acquisition of Elder-Beerman. |
The charter of the Audit Committee provides that the Audit Committee is responsible for the pre-approval of all audit services and non-audit services performed by the Company’s independent registered public accounting firm. The fees shown in the chart above were pre-approved by the Audit Committee. The Audit Committee may delegate to one of its members the authority to grant such pre-approvals — any such approvals are presented to the full Audit Committee at its next scheduled meeting.
A representative of KPMG LLP is expected to be present at the meeting, will have the opportunity to make a statement if he or she so desires, and will be available to respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR"“FOR” RATIFICATION OF THE APPOINTMENT
OF THE INDEPENDENT AUDITOR
PROPOSAL THREE
APPROVAL OF
THE BON-TON STORES, INC. CASH BONUS PLAN
The Bon-Ton Stores, Inc. Cash Bonus Plan (the "Cash Bonus Plan") is a
performance-based plan that is intended to provide a means by which those key
employees who are designated as participants may be compensated for their roles
in the performance of the Company. The Cash Bonus Plan has been adopted by the
Board of Directors on the recommendation of its Human Resources and
11
EXECUTIVE COMPENSATION
Summary Compensation Committee as a means to provide greater flexibility in the establishment of
performance goals and setting of target bonuses while permitting such bonuses to
be fully deductible as "performance-based compensation" (as that term is used
under Section 162(m) of the Internal Revenue Code (the "Code")). No bonuses may
be paid under the Cash Bonus Plan unless and until it has been approved by the
Company's shareholders.
The design and administration of the Cash Bonus Plan are intended to
cause all taxable compensation attributable to the Cash Bonus Plan to be treated
as "performance-based compensation." As a consequence, the provisions of the
Code which would otherwise limit the deductibility by us of certain executive
compensation in excess of $1,000,000 should not be applicable to any
compensation expense attributable to the Cash Bonus Plan. The Cash Bonus Plan is
administered by the Human Resources and Compensation Committee of the Board (or
such other committee consisting exclusively of two or more "outside directors"
as may be designated to act in that capacity by the Board from time to time).
This administrative committee for the Cash Bonus Plan is referred to in this
Proposal Three as the "Committee."
The provisions of the Cash Bonus Plan are generally described below.
Eligibility. Participants in the Cash Bonus Plan are those key
executives who are designated by the Committee to participate in the Plan from
time to time.
Shareholder approval and term of Cash Bonus Plan. The Cash Bonus Plan is
in effect as of February 1, 2004, provided it is approved by the shareholders,
and will continue until it is terminated by the Board. The Cash Bonus Plan may
be submitted for reapproval by the shareholders from time to time, and should be
so reapproved no later than the shareholders' meeting that occurs in the fifth
year following its last shareholder approval in order to remain qualified as a
"performance-based" compensation arrangement for purposes of the Code rules
regarding executive compensation referred to above.
Benefits under the Cash Bonus Plan. In general, the benefits under the
Cash Bonus Plan consist of a cash bonus payable to participants provided the
performance goals established by the
11
Committee are met (and if met, the extent to which they are met). The maximum
amount that can be paid to any one participant as a bonus under the Cash Bonus
Plan with respect to any one year is two times his or her base salary in effect
for the relevant year, and in no event may any such bonus exceed $1,500,000.
The bases for such performance goals may include any of the following
considerations, or combinations of such criteria: stock price, market share,
gross sales, gross revenues, net revenues, pretax income, operating income, cash
flow, earnings per share, return on equity, return on invested capital or
assets, cost reductions and savings, return on revenues or productivity, or any
variation or combination of these. In addition, the Committee may establish as
an additional performance measure the attainment by a participant in the Cash
Bonus Plan of one or more personal objectives and/or goals that the Committee
deems appropriate, including, but not limited to, implementation of Company
policies, negotiation of significant corporate transactions, development of
long-term business goals or strategic plans for the Company, or the exercise of
specific areas of managerial responsibility.
In all cases, measurement of the Company's or a participant's achievement
of one or more performance goals must be objectively determinable and where
applicable, determined in accordance with generally accepted accounting
principles. In all cases, the performance goals for a year must be established
no later than 90 days after the beginning of the year. The achievement of
performance goals established under the Cash Bonus Plan must be certified by the
Committee before any bonus may be paid.
Administration of the Cash Bonus Plan. The Cash Bonus Plan is
administered by the Committee which, as noted above, will at all times consist
exclusively of two or more "outside directors" (as that term is defined under
Section 162(m) of the Code). The resolution of any questions arising with
respect to the Cash Bonus Plan will be determined by the Committee, and all such
determinations are final and conclusive.
Amendment and termination of the Cash Bonus Plan. The Board may
terminate or revoke the Cash Bonus Plan at any time and may amend the Cash Bonus
Plan from time to time, provided that neither the termination, revocation or
amendment of the Cash Bonus Plan may, without the written approval of the
participant, reduce the benefit to which the participant would otherwise be
entitled, and provided further that no changes that would increase the benefit
available will be effective without approval by the Committee and without
disclosure to and approval by the shareholders in a separate vote prior to the
date the participant would become entitled to such increased benefit. In
addition, the Cash Bonus Plan may be modified or amended by the Committee as it
deems appropriate in order to comply with any rules, regulations or other
guidance promulgated by the Internal Revenue Service with respect to applicable
provisions of the Code.
Federal tax issues. Section 162(m) of the Code limits the deductibility
of compensation in excess of $1,000,000 to certain employees of publicly held
companies (this limitation is referred to herein as the "million dollar cap"),
unless the compensation comes within certain exceptions. One exception to the
million dollar cap is available for "performance-based compensation." In order
for taxable compensation to be within this exception to the million dollar cap,
a number of requirements must be satisfied, including the establishment of
performance goals by a committee of two or more "outside" members of the
Company's Board, disclosure to the shareholders of the material terms of the
performance-based bonus arrangement under which the bonus is to be paid, and
approval by the shareholders of that arrangement. Additional rules apply to the
ongoing administration of such an arrangement in order for compensation to
qualify as performance-based.
Bonuses payable under the Cash Bonus Plan are intended to be provided
only on the attainment of the performance goals established by the Committee for
the year for which the bonus is paid. Assuming the Cash Bonus Plan is put into
effect in accordance with its terms, is approved by the Company's shareholders,
and is administered in accordance with the provisions
12
set forth therein, the taxable compensation payable under the Cash Bonus Plan
should qualify as "performance-based compensation" that is exempt from the
million dollar cap.
New Plan Benefits. The following table sets forth the maximum benefits
in the current fiscal year that may be received by participants under the Cash
Bonus Plan if it is approved.
The Board of Directors adopted the Cash Bonus Plan, as described above,
on May 25, 2004. Approval of the Cash Bonus Plan requires the affirmative vote
of a majority of the votes cast by holders of common stock and Class A common
stock.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" APPROVAL OF
THE BON-TON STORES, INC. CASH BONUS PLAN.
PROPOSAL FOUR
APPROVAL OF THE AMENDMENT TO THE
BON-TON STORES, INC. 2000 STOCK INCENTIVE PLAN
The Bon-Ton Stores, Inc. 2000 Stock Inventive Plan (the "Stock Incentive
Plan") was adopted by the Board of Directors and approved by the Company's
shareholders in June 2000. The purpose of the Stock Incentive Plan is to
recognize the contributions made to the Company by its employees, consultants
and advisors, to provide these individuals with additional incentives to devote
themselves to the future success of the Company, and to improve the ability of
the Company to attract, retain and motivate individuals upon whom the sustained
growth and financial success of the Company depends.
The Stock Incentive Plan provides for the grant of options ("Options") to
purchase shares of common stock and awards ("Awards") of shares of common stock
subject to risk of forfeiture ("Restricted Shares"). Under the Stock Incentive
Plan, as amended to date, Options and Awards can be granted for up to an
aggregate of 1,900,000 shares (exclusive of shares granted and thereafter
cancelled). In addition, the Stock Incentive Plan limits the number of shares
for which options may be granted to any single optionee in any fiscal year. The
Stock Incentive Plan has been amended by the Board of Directors to increase this
annual limitation on option grants to any single optionee, at the recommendation
of the Human Resources and Compensation Committee, from 200,000 shares to
400,000 shares, subject to the approval of the amendment by the Company's
shareholders.
The Board believes that this increase in the maximum option grant may be
an important factor in attracting, motivating and retaining qualified employees
and advisors who are essential to the success of the Company.
New Plan Benefits. Future Options and Awards, if any, that will be made
to eligible participants in the Stock Incentive Plan are subject to the
discretion of the Human Resources and Compensation Committee and, therefore, are
not determinable at this time.
13
The key provisions of the Stock Incentive Plan, as amended, are as
follows:
Number of Shares. The maximum number of shares that may be issued under
the Stock Incentive Plan is 1,900,000. The maximum number of shares will be
adjusted to reflect certain changes in the Company's capitalization. If any
shares subject to any Option or Award are forfeited, or an Option is terminated
without the issuance of shares, the shares subject to such Option or Award will
again be available pursuant to the Stock Incentive Plan. The closing sales price
for a share of common stock on May 26, 2004 was $11.90 as reported by the Nasdaq
Stock Market.
Administration. The Stock Incentive Plan is administered by the Board of
Directors, or, at the discretion of the Board of Directors, by a committee
composed of two or more members of the Board of Directors (for purposes of this
Proposal Four, the "Committee"). To the extent possible, and to the extent the
Board of Directors deems it necessary or appropriate, each member of the
Committee shall be a "Non-Employee Director" (as such term is defined in Rule
16b-3 under the Securities Exchange Act) and an "Outside Director" (as such term
is used for purposes of Code Section 162(m)). The Board also may choose to
designate more than one committee to operate and administer the Stock Incentive
Plan. The Stock Incentive Plan presently is administered by the Human Resources
and Compensation Committee.
Eligibility. All employees (including all executive officers),
directors, consultants and advisors of the Company or its subsidiaries and
affiliates are eligible to receive Options or Awards under the Stock Incentive
Plan.
Term of the Stock Incentive Plan. The Stock Incentive Plan became
effective March 3, 2000 and provides that no Options or Awards may be granted
after March 2, 2010.
Options and Awards. From time to time, at its discretion, the Committee
may select eligible recipients to whom Options or Awards will be granted,
determine when each Option or Award will be granted, determine the number of
shares subject to such Option or Award and, subject to the provisions of the
Stock Incentive Plan, determine the terms and conditions of each Option or
Award.
Options. Options granted under the Stock Incentive Plan may be either
incentive stock options ("ISOs") or non-qualified stock options. ISOs are
intended to qualify as "incentive stock options" within the meaning of Section
422 of the Code. Unless an Option is specifically designated at the time of
grant as an ISO, Options are non-qualified options. Options are not transferable
by the optionee except by will or by the laws of descent and distribution,
except for certain transfers of nonqualified stock options that may be required
under the terms of a "qualified domestic relations order" (generally, a court
order relating to provision of spousal or dependent support or to division of
marital property that meets certain requirements set forth in the Code). No
Option granted under the Stock Incentive Plan may be exercised unless at least
six months has elapsed since the date of the grant.
The exercise price of the Options is determined by the Committee,
provided that the exercise price of an ISO must be at least 100% of the fair
market value of a share of common stock on the date the Option is granted, or at
least 110% of the fair market value if the recipient owns shares possessing more
than 10% of the total combined voting power of all classes of stock of the
Company. The term of each Option is fixed by the Committee. The aggregate fair
market value, determined as of the time of grant, of the shares with respect to
which an ISO is exercisable for the first time by the recipient during any
calendar year (under all incentive stock option plans of the Company) may not
exceed $100,000.
Maximum Grants. The Stock Incentive Plan provides that the maximum
number of shares for which options may be granted to any single optionee in any
fiscal year is 400,000 shares.
14
Termination of Options. All Options terminate on the earliest of:
a. The expiration of the term specified in the Option, which shall not
exceed ten years from the date of grant or five years from the date
of grant of an ISO if the recipient owns shares possessing more than
10% of the total combined voting power of all classes of stock of the
Company;
b. The expiration of 90 days from the date the optionee's employment or
service with the Company terminates for any reason other than
disability (as defined in the Code) or death or as otherwise
specified in subparagraphs d. or e. below;
c. The expiration of one year from the date the optionee's employment or
service with the Company terminates due to the optionee's death or
disability;
d. A finding by the Committee that the optionee has breached his or her
employment contract with the Company or has engaged in disloyalty to
the Company; or
e. Such time as the Committee may determine if there is a Change of
Control of the Company as defined in the Stock Incentive Plan.
Payment for Options. An optionee may pay for shares in cash, certified
check or such other mode of payment as the Committee may approve, including
payment in shares held by the optionee for at least six months.
Awards. The Committee will determine the period, which under the Stock
Incentive Plan must extend for at least six months from the date of grant,
during which the grantee may not sell, transfer, pledge or assign Restricted
Shares (the "Restrictions"). Restrictions may lapse in installments, as
determined by the Committee. The Committee may, at its sole discretion, waive
any Restrictions in whole or in part. The Committee will determine the rights
that grantees have with respect to Restricted Shares, including the right to
vote Restricted Shares and the right to receive dividends paid with respect to
Restricted Shares. In the event a grantee terminates employment with the Company
for any reason other than death or disability, all Restricted Shares remaining
subject to Restrictions will be forfeited by the grantee and canceled by the
Company.
Provisions Relating to a Change of Control of the
Company. Notwithstanding any other provision of the Stock Incentive Plan, in
the event of a Change of Control of the Company, the Committee may take whatever
action with respect to Options and Awards outstanding as it deems necessary or
desirable, including acceleration of the expiration or termination date or the
date of exercisability of an Option or removing any restrictions from or
imposing any additional restrictions on outstanding Awards.
A "Change of Control" will occur if: (a) the Company is dissolved or
liquidated; (b) an agreement to sell or dispose of substantially all of the
assets of the Company is approved; (c) subject to certain exceptions, an
agreement to merge or consolidate the Company with or into another corporation
is approved; (d) any entity, person or group (within the meaning of certain
provisions of the Securities Exchange Act), other than Tim Grumbacher, members
of his family, his lineal descendants or entities of which such persons are the
beneficial owners of at least 50% of the voting interests, the Company or any of
its subsidiaries or any employee benefit plan (or related trust) sponsored or
maintained by the Company or any subsidiary of the Company, becomes the
beneficial owner or has obtained voting control over securities of the Company
representing more than 50% of the voting power of the Company's outstanding
voting stock; or (e) directors constituting a majority of the Board of Directors
have been members of the Board of Directors for less than 12 months, unless the
nomination for election of each new director who was not a director at the
beginning of such 12-month period was approved by a vote of at least two-thirds
of the directors then still in office who were the directors at the beginning of
such period.
Amendment and Termination. The Board of Directors may amend the Stock
Incentive Plan at any time, provided the Board may not (a) change the class of
individuals eligible to receive an
15
ISO, (b) increase the maximum number of shares as to which Options and Awards
may be granted or (c) make any other change or amendment as to which shareholder
approval is required in order to satisfy the conditions set forth in Rule 16b-3
under the Securities Exchange Act, in each case without obtaining shareholder
approval within 12 months before or after such action. No Option or Award will
be adversely affected by any such amendment without the consent of the optionee
or grantee.
Federal Income Tax Consequences. The following discussion is a summary
of certain federal income tax consequences of the issuance of Options and the
acquisition of shares of common stock by exercising Options or receiving Awards
of Restricted Shares under the Stock Incentive Plan and does not present a
complete analysis of all tax consequences which may be relevant to any
particular recipient. It does not purport to discuss state or local income tax
laws.
Options:
With respect to ISOs, for federal income tax purposes, an optionee will
not have taxable income upon grant or exercise. However, upon exercise of an
ISO, an optionee will generally recognize income for alternative minimum tax
purposes in an amount equal to the difference between the exercise price of the
ISO and the fair market value of the shares received. Any gain realized on sale
of the shares acquired upon exercise of an ISO will be treated as long-term
capital gain, provided the optionee does not dispose of the shares for at least
two years after the date of grant or within one year after the date of exercise.
No gain or loss will generally be recognized by an optionee upon, nor will any
deduction be allowed to the Company as a result of, the grant or exercise of
ISOs.
In general, in the case of non-qualified stock options or ISOs as to
which the foregoing holding period limitations have not been satisfied, an
optionee will have taxable income at ordinary income rates upon exercise (or at
the time of a sale of ISO stock which does not satisfy the holding periods) for
the difference between the exercise price and the fair market value at the date
of exercise or, if the optionee is subject to certain restrictions imposed by
federal securities laws, upon the lapse of those restrictions, unless the
optionee elects under Section 83(b) of the Code within 30 days after exercise to
be taxed upon exercise. The amount of that difference will generally be a
deductible expense to the Company.
The ability of the Company to deduct compensation expense is generally
subject to limitations under Section 162(m) of the Code (applicable to
compensation in excess of $1,000,000 paid to certain "covered" employees). Any
income recognized as ordinary compensation income on the exercise of a
non-qualified stock option should, however, be exempt from these Code
limitations as "performance-based" compensation provided the option grant meets
certain requirements. It is the Company's intention to administer the Stock
Incentive Plan in accordance with all applicable "performance-based"
compensation requirements, including administration of the Stock Incentive Plan
with respect to "covered" employees by a committee of two or more "outside"
directors (as that term is used in applicable IRS regulations) and to make
Option grants to such employees with an exercise price that is at least equal to
the fair market value of the shares on the date of grant. Under these
circumstances, such Options should, on exercise, result in a deductible
compensation expense that is exempt from Section 162(m) of the Code as
"performance-based" compensation.
Restricted Shares:
For federal income tax purposes, the recipient of an Award will not
recognize income and the Company will not be entitled to a deduction at the time
of the Award because the Restricted Shares are subject to risk of forfeiture and
are not transferable. When the risk of forfeiture and non-transferability
restrictions lapse, the recipient will recognize compensation income and the
Company will be entitled to a deduction (subject generally to a $1,000,000
limitation on deductible compensation of certain employees of the Company as
provided under Section 162(m) of the
16
Code) in an amount equal to the then fair market value of the Restricted Shares.
Except as provided below, an Award recipient may nevertheless elect pursuant to
Section 83(b) of the Code to include the Restricted Shares in his income at
their fair market value at the time of award, in which event the Company would
be entitled to a corresponding deduction. Such election must be made within 30
days after the Award. If this election is made, any appreciation in value
recognized by the Award recipient on a subsequent disposition of the Restricted
Shares will in general be taxed at capital gains rates and not as ordinary
income. If, however, an Award recipient who makes a Section 83(b) election
forfeits the Restricted Shares back to the Company, the recipient will not
recognize a loss on such forfeiture. In some cases, the particular restrictions
with respect to an Award may be such that an Award recipient will not be
entitled to make the Section 83(b) election.
The Board of Directors approved the above described amendment to the
Stock Incentive Plan on May 25, 2004. Approval of the amendment to the Stock
Incentive Plan requires the affirmative vote of a majority of the votes cast by
holders of common stock and Class A common stock.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" APPROVAL OF THE AMENDMENT TO
THE BON-TON STORES, INC. 2000 STOCK INCENTIVE PLAN.
17
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLETable
This table sets forth, for the last three years, certain information regarding the compensation paid or accrued for our Chief Executive Officer and for the named executives:
| Long-Term | ||||||||||||||||||||||||
| Compensation Awards | ||||||||||||||||||||||||
| Annual Compensation | Restricted | Securities | ||||||||||||||||||||||
| Name and | Stock | Underlying | All Other | |||||||||||||||||||||
| Position | Year | Salary | Bonus | Awards(1) | Options(#) | Compensation(2) | ||||||||||||||||||
| Byron L. Bergren(3) | 2004 | $ | 605,662 | $ | 247,143 | $ | 456,750 | 125,000 | $ | 1,838,760 | (4) | |||||||||||||
| President and Chief Executive | 2003 | 148,741 | 878,750 | — | — | 1,413 | ||||||||||||||||||
| Officer | 2002 | — | — | — | — | — | ||||||||||||||||||
| James H. Baireuther | 2004 | 394,564 | 149,900 | — | — | 14,719 | ||||||||||||||||||
| Vice Chairman, Chief | 2003 | 402,300 | 210,000 | — | — | 13,927 | ||||||||||||||||||
| Administrative Officer | 2002 | 410,737 | 147,000 | — | — | 13,378 | ||||||||||||||||||
| and Chief Financial Officer | ||||||||||||||||||||||||
| Lynn C. Derry | 2004 | 204,016 | 75,000 | — | — | 12,073 | ||||||||||||||||||
| Senior Vice President — | 2003 | 186,352 | 40,900 | — | — | 11,281 | ||||||||||||||||||
| General Merchandise Manager | 2002 | 174,714 | 33,000 | — | — | 10,217 | ||||||||||||||||||
| John S. Farrell | 2004 | 254,471 | 63,000 | — | — | 12,913 | ||||||||||||||||||
| Senior Vice President — Stores | 2003 | 261,288 | 60,000 | — | — | 12,121 | ||||||||||||||||||
| 2002 | 239,595 | 61,000 | — | — | 10,835 | |||||||||||||||||||
| Tim Grumbacher | 2004 | 712,500 | 845,025 | — | — | 12,217 | ||||||||||||||||||
| Chairman of the | 2003 | 625,000 | 817,500 | — | — | 11,425 | ||||||||||||||||||
| Board of Directors | 2002 | 558,654 | 270,000 | — | — | 11,068 | ||||||||||||||||||
| James M. Zamberlan(5) | 2004 | 370,350 | 114,900 | 104,090 | 5,000 | 10,269 | ||||||||||||||||||
| Executive Vice President — Stores | 2003 | 99,000 | 131,400 | — | — | 931 | ||||||||||||||||||
| 2002 | — | — | — | — | — | |||||||||||||||||||
| (1) | The total number of restricted stock awards held by the named executives at the end of 2004 was 63,000 shares. The closing price of the |
| (2) | The amounts disclosed in this column for 2004 include life insurance premiums, or reimbursement for life insurance premiums, and |
| (3) | Mr. Bergren became an executive officer of the Company in November 2003. |
| (4) | Includes $1,800,000 paid under the terms of Mr. Bergren’s former employment contract as noted below in the discussion of Employment Agreements, and $25,180 for relocation expenses paid to Mr. Bergren. |
| (5) | Mr. Zamberlan joined the Company in October 2003 |
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Stock Option Grants
The total number of restrictedfollowing table reflects the stock awards held by the named executives at
the end of 2003 was 88,814 shares. The closing price of the common stock on
January 31, 2004 was $12.34 per share, giving the named executives
restricted stock holdings a value of $1,095,965 at year end. One-third of
the restricted stock awardedoption grants to Mr. Tworecke in 2003 vested on March 17,
2004; the remainder of these shares were cancelled as a result of his
resignation from the Company. Holders of restricted stock are entitled to
the same dividend that the Company pays on common stock.
(2) The amounts disclosed in this column for 2003 consist of life insurance
premiums, or reimbursement for life insurance premiums, and Company
contributions under the Company's Profit Sharing/Retirement Savings Plan in
the amount of $10,831 for each of Messrs. Grumbacher, Tworecke, Baireuther
and Harmon.
(3) Mr. Tworecke resigned from the Company effective May 7, 2004.
(4) Mr. Bergren became an executive officer of the Company in November 2003.
STOCK OPTION GRANTS
None of the named executives received a stock option grant during 2003.2004. We do not have any plan pursuant to which stock appreciation rights may be granted.
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STOCK OPTION EXERCISES AND HOLDINGS
None of the named executives exercised any stock options during 2003.
Option Grants in 2004
| Individual Grants | ||||||||||||||||||||||||||||
| Potential Realizable Value at | ||||||||||||||||||||||||||||
| Securities | % of Total | Assumed Annual Rate of Stock Price | ||||||||||||||||||||||||||
| Underlying | Options Granted | Appreciation for Option Term(2) | ||||||||||||||||||||||||||
| Options | to Employees in | Exercise | Expiration | |||||||||||||||||||||||||
| Granted | 2004 | Price(1) | Date | 0% | 5% | 10% | ||||||||||||||||||||||
| Byron L. Bergren | 125,000 | (3) | 65.79 | % | $ | 13.05 | 8-23-14 | — | $ | 1,025,884 | $ | 2,599,792 | ||||||||||||||||
| James H. Baireuther | — | — | — | — | — | — | — | |||||||||||||||||||||
| Lynn C. Derry | — | — | — | — | — | — | — | |||||||||||||||||||||
| John S. Farrell | — | — | — | — | — | — | — | |||||||||||||||||||||
| Tim Grumbacher | — | — | — | — | — | — | — | |||||||||||||||||||||
| James M. Zamberlan | 5,000 | (4) | 2.63 | % | 14.87 | 11-28-14 | — | 46,758 | 118,495 | |||||||||||||||||||
| (1) | The exercise price represents the closing price of the common stock on the Nasdaq National Market on the date of grant. |
| (2) | Illustrates value that might be realized upon exercise of options immediately prior to the expiration of their term, assuming specified compounded rates of appreciation on the Common Stock over the term of the options. Assumed rates of appreciation are not necessarily indicative of future stock performance. |
| (3) | These options vest one-third on January 31, 2006, one-third on January 31, 2007 and one-third on January 31, 2008. |
| (4) | These options vest on January 28, 2006. |
Stock Option Exercises and Holdings
The following table shows stock option exercises during 2004 and the number and value of unexercised stock options for the named executives(exercised and unexercised) at the end of 2003:
OPTION VALUES AT JANUARY 31, 2004
(1) In-the-money options are options having an exercise price belowfor the year-end
share price of $12.34. Value is calculated by multiplying the difference
between the option exercise price and $12.34 by the number of shares
underlying the option.
EMPLOYMENT AGREEMENTS
named executives:
Option Values at January 29, 2005
| Number of Securities | ||||||||||||||||||||||||
| Underlying Unexercised | Value of Unexercised | |||||||||||||||||||||||
| Options at | In-the-Money Options | |||||||||||||||||||||||
| Shares | January 29, 2005 | at January 29, 2005(1) | ||||||||||||||||||||||
| Acquired or | Value | |||||||||||||||||||||||
| Exercised(#) | Realized | Exercisable | Unexercisable | Exercisable | Unexercisable | |||||||||||||||||||
| Byron L. Bergren | — | — | — | 125,000 | — | $ | 300,000 | |||||||||||||||||
| James H. Baireuther | 120,000 | $ | 1,396,100 | 10,000 | — | $ | 12,000 | — | ||||||||||||||||
| Lynn C. Derry | — | — | 2,000 | 10,000 | 10,275 | 125,100 | ||||||||||||||||||
| John S. Farrell | — | — | 3,000 | — | 5,100 | — | ||||||||||||||||||
| Tim Grumbacher | — | — | 44,550 | — | 391,073 | — | ||||||||||||||||||
| James M. Zamberlan | — | — | — | 5,000 | — | 2,900 | ||||||||||||||||||
| (1) | In-the-money options are options having an exercise price below the year-end share price of $15.45. Value is calculated by multiplying the difference between the option exercise price and $15.45 by the number of shares underlying the option. |
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Employment Agreements
Tim Grumbacher
The Human Resources and Compensation Committee (the "Committee"“Committee”) and Tim Grumbacher agreed to an arrangement pursuant to which Mr. Grumbacher'sGrumbacher’s base salary for 20032004 was fixed at $650,000. In addition, heMr. Grumbacher was eligible for an annual bonus of up to 150% of his base salary andsalary. The performance bonus paid to Mr. Grumbacher for 2004 was awarded a$350,025. Mr. Grumbacher also received the $495,000 balance of his $825,000 special bonus awarded in the amount of $330,000 as a result of his leadership2003, based upon achieving pre-determined savings in connection with the acquisition of Elder-Beerman.
Effective as of February 1, 2005, Mr. Grumbacher and the Company entered into an Executive Transition Agreement. Pursuant to the agreement, which runs through the first day of the Company’s fiscal year commencing on or about February 1, 2010, Mr. Grumbacher will serve as the Company’s executive Chairman of the Board and a member of the Executive Committee of the Board for a three-year period. For the remaining term of the agreement, Mr. Grumbacher will serve as non-executive Chairman and in such other capacity as the Board and Mr. Grumbacher may agree.
During the initial three-year period, Mr. Grumbacher will receive an annual base salary of $650,000 and will be eligible to earn an annual cash bonus in accordance with pre-determined criteria established by the Committee under the Company’s bonus plan for senior executives with target bonuses of 75%, 50% and 40% of base salary for 2005, 2006 and 2007, respectively. The totalmaximum bonus paidpayable for such years will be 150%, 100% and 80% of base salary, respectively.
Under the agreement, Mr. Grumbacher was granted 365,205 restricted shares of the Company’s common stock pursuant to the terms of the Company’s Amended and Restated 2000 Stock Incentive Plan. The shares will vest at the end of the term of the agreement, subject to accelerated vesting upon a change in control (as defined in the agreement) of the Company, upon Mr. Grumbacher ceasing to serve the Company as a result of his death or disability (as defined in the agreement) or if, prior to the end of the term, Mr. Grumbacher and the Board mutually agree that he shall cease to serve as Chairman of the Board. Mr. Grumbacher will forfeit the restricted shares if, prior to the end of the term, he ceases to serve as Chairman of the Board and such cessation of service is not the result of a breach of the agreement by the Company. Mr. Grumbacher will not be entitled to any other long-term incentive awards. The Company will also provide Mr. Grumbacher and his wife with medical insurance for the duration of each of their lives. In addition, for the duration of his life, the Company will provide Mr. Grumbacher with secretarial support and office space and allow him to participate in the Company’s discount program that allows executives to make “at-cost” purchases from the Company.
If during the initial three-year period, Mr. Grumbacher shall cease to serve as executive Chairman by reason of the occurrence of a change in control of the Company, then he shall be entitled to receive a lump sum cash payment, as soon as practicable following the cessation of such service (subject to delay if necessary to comply with Section 409A of the Internal Revenue Code), equal to the sum of (i) any accrued but unpaid compensation and reimbursement for any business expenses, (ii) the remainder of his base salary for the initial three-year period and (iii) the amount of any target bonus in respect of any fiscal year not commenced or completed prior to the change in control.
In the event that any amounts payable under the agreement or any other plan or agreement would constitute “excess parachute payments” that exceed ten percent of Mr. Grumbacher’s “safe harbor” (as each term is defined in Section 280G of the Internal Revenue Code and the regulations promulgated thereunder), the Company will provide a gross-up payment to Mr. Grumbacher is
reflectedto compensate him fully for the imposition of excise taxes under Section 280G. If the amounts payable exceed the “safe harbor” limit, but not by more than ten percent, then the
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amounts payable to Mr. Grumbacher shall be reduced so that no payments are deemed to be “excess parachute payments.”
Byron L. Bergren
Mr. Bergren was party to an employment agreement with the Company dated November 25, 2003 that terminated on April 15, 2004. Under this agreement, Mr. Bergren was entitled to a minimum annual base salary of $550,000 and was eligible to earn an annual cash bonus under the Company’s bonus plan for executive and management employees with target bonuses of 50% (and a maximum payout of 100%) of his annual base salary. As provided for in the Summary Compensation Table.
Frank Tworeckeagreement, Mr. Tworecke'sBergren received, upon termination of this agreement, a payment of $1,800,000 on April 15, 2004. Mr. Bergren was also eligible under this agreement to participate in the Company’s profit sharing plan, discount program, vacation plan, long-term disability plan and employee benefit programs generally made available to other employees of Elder-Beerman. The agreement also required the Company to pay the premium for $600,000 of supplemental term life insurance for Mr. Bergren.
Mr. Bergren’s current employment agreement commenced November 11, 1999 and
continuedwith the Company was entered into August 24, 2004. The term of this employment agreement continues to January 29, 2005. It31, 2008, and thereafter from year to year unless terminated by Mr. Bergren or the Company. The current employment agreement initially provided for a minimum annual base salary of $500,000 during 2003, and$700,000. This minimum base salary was increased to $750,000 effective May 1, 2005. The current employment agreement also provides for a bonus in accordance with pre-determined criteria established by the Committee up to a maximum bonus of 100% of his base salary.salary in 2004 and 150% in succeeding years. The bonus paid to Mr. TworeckeBergren for 2003 is reflected in the Summary Compensation Table. Mr.
Tworecke resigned from the Company effective May 7, 2004.
Byron L. Bergren
Mr. Bergren's2004 was $247,143, which consists of $222,143 calculated pursuant to his employment agreement with the Company was entered into
November 25, 2003 and continued until April 15, 2004. He is continuing his
employment with the Company in accordance with the terms and provisions of this
expired employment agreement. During 2003, the employment agreement provided for
a minimum annual base salary of $550,000, a bonus pursuant to the Elder-Beerman
2003 Performance Incentive Plan, and$25,000 representing an additional integration bonus if
Elder-Beerman achieved a certain operating profit for 2003. The bonus paidperformance bonus. If Mr. Bergren is reflecteddischarged without cause or resigns for good reason (each as defined in the Summary Compensation Table.
employment agreement) he will continue to receive his base salary and other benefits for a period of one year, provided that if such discharge occurs after August 23, 2005, Mr. Bergren will continue to receive his base salary and other benefits for the greater of one year or the remaining term of the current employment agreement.
Upon a change in control (as defined in the current employment agreement) of the Company, all options and shares of restricted stock held by Mr. Bergren will immediately vest and, upon termination of his employment under certain circumstances after a change in control, Mr. Bergren will be entitled to a payment equal to the lesser of (i) 2.99 times his base salary at the time of the change in control, and (ii) the maximum amount permitted by Section 280G of the Internal Revenue Code. As set forth in the agreement, Mr. Bergren was nominated to serve as a Director and was granted, effective August 24, 2004, 35,000 restricted shares of the Company’s common stock which vest on January 31, 2008 and options to purchase 125,000 shares of the Company’s common stock which vest in three equal installments on January 31, 2006, January 31, 2007 and January 31, 2008.
James H. Baireuther
Mr. Baireuther'sBaireuther’s employment agreement commenced February 3, 2002 and continues to January 31, 2006. During 2003, it providedIt provides for a minimum annual base salary of $400,000 and a bonus in accordance with pre-determined criteria established by the Committee up to a maximum bonus of 75%80% of his base
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salary. The bonus paid to Mr. Baireuther is reflected infor 2004 was $149,900, which consists of $114,900 calculated pursuant to his employment agreement and $35,000 representing achievement of specified objectives relating to the Summary
Compensation Table.integration of Elder-Beerman and Bon-Ton. If Mr. Baireuther is discharged without cause or resigns for good reason (each as defined in the employment agreement), he will continue to receive his base salary and other benefits for the greater of one year or the remaining term of the employment agreement.
SUPPLEMENTAL RETIREMENT BENEFITS
15
James M. Zamberlan
By agreement dated November 29, 2004, the Company assumed the terms and provisions of Mr. Zamberlan’s employment agreement with The Elder-Beerman Stores Corp., and agreed to certain modifications thereto. This employment agreement, as amended, continues to January 28, 2006, and thereafter from year to year unless terminated by the Company or Mr. Zamberlan. It provides for a minimum annual base salary of $400,000 and a bonus in accordance with pre-determined criteria established by the Committee up to a maximum bonus of 80% of his base salary. The bonus paid to Mr. Zamberlan for 2004 was $114,900. If Mr. Zamberlan terminates his employment on or prior to January 28, 2006, he shall be entitled to a lump sum severance payment of $1,039,367. If, after October 24, 2005, his employment is terminated by the Company without cause (as defined in his employment agreement), or if Mr. Zamberlan shall terminate his employment agreement for any reason, he shall be entitled to a termination payment of $1,039,367.
Supplemental Retirement Benefits
The Company has established a nonqualified, unfunded retirement plan for certain key executives. Under the terms of this plan, each participant is entitled to an annual retirement benefit if he remains employed by the Company for a stated period.
Under this plan, James H. Baireuther is entitled to an annual retirement benefit of $50,000.
EXECUTIVE SEVERANCE$50,000, and John S. Farrell will be entitled to an annual retirement benefit of $10,000 if he remains continuously employed by the Company until he is sixty years of age.
Executive Severance
We have entered into severance agreements with Mr. Harmon and certain of our executive officers other than Messrs. Bergren, Baireuther, Grumbacher Baireuther and Bergren,Zamberlan, which generally provide for payment of one year'syear’s base salary if the executive officer is terminated without cause (as defined in such agreement)agreements).
EQUITY COMPENSATION PLAN INFORMATION
Equity Compensation Plan Information
At January 31, 2004,29, 2005, the Amended and Restated 1991 Stock Option and Restricted Stock Plan, The Bon-Ton Stores, Inc. Amended and Restated 2000 Stock Incentive Plan, and
the Company'sCompany’s Phantom Equity Replacement Plan and the Management Incentive Plan were in effect. Each of
16
these plans has been approved by the shareholders. There were no other equity compensation plans in effect. The following information concerning these plans is as of January 31, 2004:
29, 2005:
| Number of shares of | Number of shares of common | |||||||||||||
| common stock to be | stock remaining available for | |||||||||||||
| issued upon exercise of | Weighted-average | future issuance (excluding | ||||||||||||
| outstanding options, | exercise price of | securities reflected | ||||||||||||
| Plan Category | warrants and rights | outstanding options | in the first column) | |||||||||||
| Equity compensation plans approved by security holders — | ||||||||||||||
| Stock Options | 594,355 | $ | 8.63 | (1 | ) | |||||||||
| Restricted Stock | 105,835 | N/A | (1 | ) | ||||||||||
| Restricted Stock Units | 26,817 | N/A | (1 | ) | ||||||||||
| Total | 727,007 | N/A | 1,472,911 | |||||||||||
| Equity compensation plans not approved by security holders | Not applicable | Not applicable | Not applicable | |||||||||||
| (1) | These plans |
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STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative total shareholder return on common stock from January 31, 199929, 2000 through January 31, 2004,29, 2005, the cumulative total return on the CRSP Total Return Index for The Nasdaq Stock Market (US(U.S. Companies) and the Nasdaq Retail Trade Stocks Index during such period. The comparison assumes $100 was invested on January 31, 1999,29, 2000 in the Company'sCompany’s common stock and in each of the foregoing indices and assumes the reinvestment of any dividends.
[STOCK PERFORMANCE GRAPH]
| NASDAQ | ||||||||||||||
| DATE | NASDAQ | RETAIL | BON-TON | |||||||||||
| 1/29/00 | 100.00 | 100.00 | 100.00 | |||||||||||
| 2/3/01 | 69.65 | 74.99 | 86.21 | |||||||||||
| 2/2/02 | 50.38 | 90.02 | 68.97 | |||||||||||
| 2/1/03 | 35.19 | 73.36 | 114.21 | |||||||||||
| 1/31/04 | 54.71 | 107.56 | 343.17 | |||||||||||
| 1/29/05 | 54.12 | 128.83 | 432.83 | |||||||||||
REPORT ON EXECUTIVE COMPENSATION
The Human Resources and Compensation Committee (the "Committee"“Committee”), which is composed entirely of independent directors, approves all general policies affecting the compensation of Bon-Ton'sBon-Ton’s executive officers. The Committee determined, within limits established by applicable employment agreements, the compensation of Tim Grumbacher, Chairman of the Board and Chief Executive Officer Frank Tworecke, President and Chief Operating Officer,(through August 24, 2004), Byron L. Bergren, Vice Chairman and President and Chief Executive Officer (as of Elder-Beerman, andAugust 24, 2004), James H. Baireuther, Vice Chairman, Chief Administrative Officer and Chief Financial Officer.Officer, and James M. Zamberlan, Executive Vice President — Stores. The Committee reviewed and approved the recommendations of Mr. Bergren pertaining to his direct reports who do not have employment agreements. As described in more detail below, the Commit-
18
tee also recommended to the Board the compensation package to be provided to Tim Grumbacher in connection with his transition to executive Chairman.
The basic forms of executive compensation are annual compensation, in the form of salary and bonus, and long-term incentives, currently consisting of stock options, restricted stock and 21
supplemental retirement benefits. The Committee seeks to achieve a mix of these to be competitive in the marketplace and to attract, retain and motivate the Company'sCompany’s executives. In doing so, the Committee considers various aspects of the Company'sCompany’s operating results as well as its financial condition, and considers each executive'sexecutive’s role in such achievement.
ANNUAL COMPENSATION -- SALARY AND BONUS
Annual Compensation — Salary and Bonus
Annual compensation is comprised of a base salary and a cash bonus based on the achievement of predeterminedpre-determined goals and objectives. The base salaries of Byron L. Bergren, James H. Baireuther Byron L. Bergren and Frank TworeckeJames M. Zamberlan for 20032004 were established pursuant to employment agreements approved by the Committee. The base salaries for these executives were based on a variety of factors, including the general level of executive compensation in the industry, the general level of executive compensation at Bon-Ton and an evaluation of each executive'sexecutive’s capacity to affect the Company'sCompany’s performance. Annually, the CEO recommends, if appropriate, salary increases for his direct reports. These recommendations are based upon the performance of the executive and the executive’s compensation within the industry, and are for retention purposes. The performance appraisals and the CEO’s salary recommendations are reviewed and approved by the Committee.
The Committee believes it appropriate that a portion of the potential annual compensation for these senior executives be in the form of an annual bonus which is dependent upon Bon-Ton'sBon-Ton’s performance. The bonus for 20032004 earned by each of the named executives is indicated in the Summary Compensation Table and was determined based upon the achievement of predetermined performance targets for the Company.
The Committee utilizes comparative data developed by independent external
compensation specialists
For 2004, the Company’s bonus program established “minimum”, “target”, and “maximum” payout potential for each executive based on performance criteria, attainment of pre-determined performance goals, and the overall evaluation of each executive.
Mr. Grumbacher’s “minimum” payout level was set at 37.5% of his base salary, his “target” payout level was set at 75% of his base salary, and his “maximum” payout level was set at 150% of his base salary. Mr. Bergren’s “minimum” payout level was set at 25% of his base salary, his “target” payout level at 50% of his base salary, and his “maximum” payout level at 100% of his base salary. Mr. Baireuther’s and Mr. Zamberlan’s “minimum” payout level was set at 20% of base salary, “target” payout level was set at 40% of base salary, and “maximum” payout level was set at 80% of base salary. For all other officers and executives, the “minimum” payout level was set within the range of 3.75% to assure15% of base salary, the competitiveness“target” level payout was set within the range of compensation7.5% to 30% of base salary, and the “maximum” payout level was set within the range of 15% to 60% of base salary. If performance falls below the pre-determined goals established for the named executives.“minimum” payout, no bonus is paid. Bonus plan payouts for 2004 were paid based on performance to the pre-determined goals.
A cash bonus award or option grant to a named executive may, in addition, be made at the discretion of the Committee for extraordinary achievement by the named executive.
LONG-TERM INCENTIVES -- STOCK OPTIONS AND RESTRICTED SHARE AWARDS
The Committee utilizes comparative data developed by independent external compensation specialists to assure the competitiveness of compensation for the named executives.
Long-Term Incentives — Stock Options and Restricted Share Awards
The Committee administers The Bon-Ton Stores, Inc. Amended and Restated 2000 Stock Incentive Plan (the "Plan"“Plan”), which provides for the grant of stock options and restricted share awards. These options and awards are intended to help align the executive officers'officers’ interests with
19
those of shareholders by increasing such officers'officers’ stake in Bon-Ton. These option grants and share awards are made periodically based on individual executive performance and retention needs.
Stock options and restricted share awards generally vest over a number of years. Any vested options are usually forfeited 90 days after termination of the recipient'srecipient’s employment, and any unvested restricted share awards and unvested options are usually forfeited upon termination of employment. Such options and share awards, therefore, are also intended to encourage recipients to remain in the employ of Bon-Ton over a substantial period of time.
During 2003,2004, there were grants of options with respect to 20,000190,000 shares and awards of 24,814108,817 restricted shares made under the Plan. NoThe option grants were made to a named executive. Theexecutives are reflected in the table of Option Grants in 2004. A 35,000 restricted share award was made to Frank
Tworecke.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICERMr. Bergren and a 7,000 restricted share award was made to Mr. Zamberlan. These equity awards were granted as part of the named executives new employment agreements.
Compensation of the Chief Executive Officers
| Compensation of Tim Grumbacher as Chief Executive Officer in 2004 |
On August 25, 2004, the Company announced the appointment of Byron L. Bergren to the position of President and Chief Executive Officer to replace Tim Grumbacher, who had announced in December 2003 his intention to step back from this position. Prior to the appointment of Mr. Bergren, Mr. Grumbacher continued to serve as Chief Executive Officer. The Committee set the annual base salary at $650,000 for TimMr. Grumbacher in 2003,2004, based on a variety of factors, including the general level of executive compensation in the industry, the general level of executive compensation at Bon-Ton and an evaluation of the importance of Mr. Grumbacher'sGrumbacher’s services to Bon-Ton. Mr. Grumbacher received a bonus of $487,500$350,025 based upon the Company'sCompany’s performance in 2003.2004 as measured against a pre-determined net income goal approved by the Committee. Mr. Grumbacher was also awarded areceived the $495,000 balance of his $825,000 special bonus awarded in the
amount of $825,0002003 attributable to Mr. Grumbacher'shis leadership role in effecting the accretive acquisition of The Elder-Beerman Stores Corp. This special bonus iswas payable in two tranches, the first, in the amount of $330,000, is includedwas paid in the Summary Compensation Table,2003, and the second, in the amount of $495,000, will
bewas paid based upon the Company achieving certain specified integration synergies during 2004. Mr. Grumbacher did not receive any stock options or restricted share awards in 2003.
22
INDEPENDENT COMMITTEE MEMBERS2004, but as noted below in the discussion of his Executive Transition Agreement, Mr. Grumbacher received a restricted stock grant in March 2005.
| Compensation of Byron L. Bergren as Chief Executive Officer in 2004 |
The Committee set the annual base salary for Mr. Bergren at $700,000 pursuant to the terms of his employment agreement. This was based on a variety of factors, including the general level of executive compensation in the industry, the general level of executive compensation at Bon-Ton and an evaluation of the importance of Mr. Bergren’s services to Bon-Ton. Mr. Bergren received a bonus of $247,143 based upon the Company’s performance in 2004 as measured against a pre-determined net income goal approved by the Committee, and this is included in the Summary Compensation Table. Mr. Bergren also received options to purchase 125,000 shares of the Company’s common stock at a purchase price of $13.05 per share, the closing price on the date of the option grant. These options will vest in equal installments on January 31, 2006, January 31, 2007 and January 31, 2008. He also received an award of 35,000 shares of restricted stock which will vest on January 31, 2008, provided Mr. Bergren is continuously employed by the Company through that date.
| Executive Transition Agreement |
In connection with Mr. Grumbacher’s transition to his new role as executive Chairman of the Board and as Chair of the Executive Committee of the Board, the Committee developed,
20
negotiated and ultimately recommended to the full Board a transition package that would appropriately recognize Mr. Grumbacher’s extraordinary contribution and leadership to the Company over the past forty years, and encourage his continued focus on strategic issues that will create additional shareholder value. The full Board, with Mr. Grumbacher not participating, approved the Committee’s recommendation in February 2005.
The Committee retained the assistance of an independent external compensation specialist and outside legal counsel to provide advice regarding the design and implementation of an executive transitional package.
Pursuant to the Executive Transition Agreement, which became effective as of February 1, 2005, Mr. Grumbacher will serve as the Company’s executive Chairman of the Board and as a member of the Executive Committee of the Board for a three-year period. For the remainder of the five-year agreement, Mr. Grumbacher will serve as non-executive Chairman or in such other capacity as the Board and Mr. Grumbacher may agree. During the initial three-year period, Mr. Grumbacher will receive an annual base salary of $650,000 (equal to his annual salary as Chief Executive Officer) and remain eligible to earn an annual cash bonus under the Company’s bonus plan for senior executives. The Committee established a target bonus of 75% of his annual base salary in 2005 in anticipation of the active role Mr. Grumbacher will play in the successful completion of the integration associated with the Elder-Beerman transaction. The annual cash bonus targets in 2006 and 2007 are set at 50% and 40% of annual base salary, respectively, reflecting an anticipated reduction in his overall day-to-day activities during those years.
Under the Executive Transition Agreement, Mr. Grumbacher was granted 365,205 restricted shares pursuant to the Plan. This restricted share grant was designed, in part, as a means to encourage his continued involvement on strategic issues and, in part, as a replacement for a supplemental retirement benefit. The Committee determined that a grant of restricted shares rather than a cash payment (or a comparable cash severance payment) would better align Mr. Grumbacher’s interests with those of other shareholders and would be more advantageous to Bon-Ton from a financial standpoint. The shares will vest at the end of the term of the Executive Transition Agreement in February 2010, subject to accelerated vesting under certain circumstances, including a change in control of Bon-Ton or Mr. Grumbacher’s ceasing to serve as executive Chairman as a result of his death, disability or by mutual agreement with the Board. In the Committee’s view, the five-year cliff vesting schedule enhances the retentive value of this incentive award. Mr. Grumbacher will not be entitled to receive any additional long-term incentive awards.
Independent Committee Members
No member of the Committee was a former or current officer or employee of the Company or any affiliate of the Company or received compensation from the Company in any capacity other than as a director of the Company or as a member of a Board committee. Each member of the Committee is "independent"“independent” pursuant to the listing standards of the Nasdaq Stock Market.
QUALIFYING EXECUTIVE COMPENSATION FOR DEDUCTIBILITY UNDER PROVISIONS OF THE
INTERNAL REVENUE CODE
Qualifying Executive Compensation for Deductibility Under Provisions of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code provides that a publicly-held corporation may not generally deduct compensation for its chief executive officer and certain other executive officers to the extent that compensation for the executive exceeds $1,000,000 unless such compensation is "performance based"“performance based” as defined in the Code. The Committee currently intends to recommendrecommended compensation amounts and plans which meet the requirements for deductibility, and the Committee expects that Section 162(m) will not materially limit the deductibility of any compensation expense in fiscal 2003.
2004. The Committee does, however, reserve the right to award non-deductible compensation when it believes it to be in the best interests of the Company.
21
Members of the Human Resources and Compensation Committee:
Shirley A. Dawe, Chair
Robert B. Bank
Philip M. Browne (appointed March 2004)
Robert C. Siegel (served until March 2004)
REPORT OF THE AUDIT COMMITTEE
The role of the Audit Committee is to assist the Board of Directors in its general oversight of (i) the integrity of the Company'sCompany’s consolidated financial statements, (ii) the Company'sCompany’s compliance with legal and regulatory requirements, (iii) the qualifications and independence of the Company'sCompany’s independent auditor,registered public accounting firm, (iv) the performance of the independent auditor,registered public accounting firm, and (v) the Company'sCompany’s management of credit, liquidity and other financial and operational risks; and to prepare this report. Management is responsible for the preparation, presentation and integrity of the Company'sCompany’s consolidated financial statements, accounting and financial reporting principles, and internal controls and procedures designed to ensure compliance with accounting standards, applicable laws and regulations. KPMG LLP, the Company'sCompany’s independent auditingregistered public accounting firm, is responsible for performing an independent auditexpressing its opinions on conformity of the Company’s audited consolidated financial statements in accordance with generally accepted auditing standards.accounting principles and on management’s assessment of the effectiveness of the Company’s internal control over financial reporting. In addition, KPMG has expressed its own opinion on the effectiveness of the Company’s internal control over financial reporting. The independent auditorregistered public accounting firm has free access to the Audit Committee to discuss any matter it deems appropriate.
The Audit Committee, which is comprised of three independent directors, serves a board-level oversight role in which it provides advice, counsel and direction to management and the independent auditorregistered public accounting firm on the basis of the information it receives, discussions with management and the auditorsindependent registered public accounting firm and the experience of the Committee'sCommittee’s members in business, financial and accounting matters. The members of the Audit Committee are not professionally engaged in the practice of auditing or accounting, and rely, without independent verification, on the information provided to them and on the representations made to them by management and the independent registered public accounting firm.
Among other matters, the Audit Committee monitors the activities and performance of the Company'sCompany’s independent auditor,registered public accounting firm, including the audit scope, audit fees, auditor independence matters and the extent to which the independent auditorregistered public accounting firm may be retained to perform non-audit services. The Audit Committee has ultimate authority and responsibility to select, evaluate and, when appropriate, replace the Company'sCompany’s independent auditor.registered public accounting firm. The Audit Committee also reviews the results of the external audit work with regard to the adequacy and appropriateness of the Company'sCompany’s financial, accounting and internal controls. ManagementManagement’s and the independent auditorregistered public accounting firm’s presentations to and discussions with the Audit Committee also cover various topics and events that may have significant financial impact or are the subject of discussions between management and the independent auditor.
23
registered public accounting firm.
The Committee has reviewed and discussed with management and the independent registered public accounting firm the audited consolidated financial statements, with managementmanagement’s assessment of the effectiveness of the Company’s internal control over financial reporting and the independent auditor; managementregistered public accounting firm’s evaluation of the Company’s internal control over financial reporting. Management represented to the Committee that the Company'sCompany’s audited consolidated financial statements were prepared in accordance with generally accepted accounting principles;principles, and the Audit Committee has discussed with the independent auditor represented that its presentations
includedregistered public accounting firm the matters required to be discussed with the Audit Committee by Statement on Auditing Standards No. 61, as amended, "Communication“Communication with Audit Committees."”
22
The Company'sCompany’s independent auditorregistered public accounting firm also provided the Committee with the written disclosures required by Independence Standards Board Standard No. 1, "Independence“Independence Discussions with Audit Committees,"” and the Committee discussed with the independent auditor that firm'sregistered public accounting firm its independence.
Following the Committee'sCommittee’s discussions with management and the independent auditor,registered public accounting firm, the Committee recommended that the Board of Directors include the audited consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended January 31, 2004.
29, 2005.
Members of the Audit Committee:
Philip M. Browne, Chair
Robert B. Bank
Robert E. Salerno
INDEPENDENT AUDITOR'S FEES
Subject to shareholder ratification, the Audit Committee has selected
KPMG LLP as the Company's independent auditor for 2004. KPMG served as the
Company's independent auditor in 2003. Representatives of KPMG are expected to
be present at the 2004 Annual Shareholders Meeting and will have an opportunity
to make a statement if they desire to do so, and are expected to be available to
respond to appropriate questions.
In making its selection of KPMG, the Audit Committee considered whether
the non-audit services provided by KPMG are compatible with maintaining KPMG's
independence.
The following table shows the fees billed by KPMG for professional
services rendered to the Company in 2003 and 2002.
(1) Fees related to acquisition of Elder-Beerman.
The charter of the Audit Committee provides that the Audit Committee is
responsible for the pre-approval of all audit services and non-audit services to
be performed for the Company by its independent auditor. Subject to the
transition provisions of applicable law, the fees paid to the independent
auditor that are shown in the chart above for 2003 were pre-approved by the
Audit Committee. The Audit Committee may delegate to one of its members the
authority to grant such pre-approvals. The decisions of such member regarding
approvals shall be presented to the full Audit Committee at its next scheduled
meeting.
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RELATIONSHIP WITH INDEPENDENT AUDITOR
Arthur Andersen LLP ("Andersen") was the Company's independent auditor at
the beginning of 2002. Effective June 13, 2002, the Company, upon recommendation
of the Audit Committee, dismissed Andersen and retained KPMG LLP as the
Company's independent auditor. Andersen's reports on the Company's financial
statements during the two fiscal years ended February 2, 2002, did not contain
an adverse opinion or a disclaimer of opinion, and was not qualified or modified
as to uncertainty, audit scope, or accounting principles. Further, during the
two fiscal years ended February 2, 2002, there were no disagreements with
Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Andersen, would have caused it to make a
reference to the subject matter of the disagreement in connection with its
report.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Executive officers, directors and persons who own more than 10% of the Company'sCompany’s common stock are required to file reports of their holdings and transactions in Company stock with the Securities and Exchange Commission. Based on our records and on written representations from those who are subject to these requirements, we believe that all 20032004 filing requirements were timely made except that (i) Frank Tworecke filed a Form 4 nine days late with respect
to a restricted stock grant, and (ii) Tim Grumbacher filed a Form 4 twelve days
late with respect to the sale of 3,050 shares of common stock by certain trusts
of which Mr. Grumbacher's wife is a trustee.
CERTAINmade.
RELATED PARTY TRANSACTIONS
The Company leases its Oil City, Pennsylvania store from Nancy T. Grumbacher, Trustee of the 2002 Indenture of Trust of M. Thomas Grumbacher, pursuant to a lease entered into on January 1, 1981. The rental payments during 20032004 under this lease were $223,500. The Oil City lease terminates on July 31, 20062011, and the Company has fivefour five-year renewal options. In connection withMs. Grumbacher is the acquisitionwife of Elder-Beerman, the Company obtained
equity financing in an aggregate amount of $6.5 million from Tim Grumbacher, theour Chairman and Chief Executive Officer of the Company, pursuant to a Stock
Purchase Agreement dated as of October 23, 2003 between the Company and Mr.
Grumbacher. Under the terms of the Stock Purchase Agreement, Mr. Grumbacher
purchased 476,890 newly issued shares of common stock. In connection with Mr.
Grumbacher's purchase of common stock pursuant to the Stock Purchase Agreement,
on October 31, 2003, the Company and Mr. Grumbacher also entered into a
Registration Rights Agreement with respect to such shares of common stock.Board.
During fiscal 2003,2004, the Company purchased approximately $1,424,000$1.3 million of merchandise from OshKosh B'Gosh,B’Gosh, Inc., and approximately $540,000$1.3 million of merchandise from The Pfaltzgraff Co., and The Elder-Beerman Stores Corp., which was acquired
by the Company in October 2003, purchased approximately $310,000 of merchandise
from OshKosh and approximately $976,000 of merchandise from Pfaltzgraff. Shirley A. Dawe, a director of the Company, is also a director of OshKosh B'Gosh,B’Gosh, Inc., and Marsha M. Everton, a director of the Company, is President and CEO of The Pfaltzgraff Co. The transactions noted above were on substantially the same terms as comparable transactions with other vendors of merchandise to the Company.
Mr. Starr, a non-employee director, rendered consulting services to
Bon-Ton from 1984 to March 2002. Upon the conclusion of Mr. Starr's consulting
agreement, the Company commenced payments to Mr. Starr in the amount of $65,000
per year in consideration of his agreement not to provide consulting services to
any of the Company's competitors.
Mr.
Michael L. Gleim, a non-employee director, rendered consulting services to Bon-Ton during 20032004 for which he was paid $201,767.$173,388. In addition, Mr. Gleim received a $50,000 supplemental retire-
25
mentretirement benefit during 20032004 from the Company pursuant to the terms of Mr. Gleim'san employment agreement which were in effect when he servedwith Mr. Gleim with respect to his employment as Vice Chairman of the Company.
Company from 1995 to 2002.
SHAREHOLDER PROPOSALS
Shareholder proposals for the 20052006 Annual Meeting of Shareholders must be received by the Company by February 17, 2005January 13, 2006 in order to be considered for
inclusionat the meeting and included in the Company'sCompany’s proxy statement and form of proxy relating to that meeting.
A shareholder may wish
If notice of any proposal with respect to have a proposal presentedmatter to be addressed at the 20052006 Annual Meeting of Shareholders but not included in the Company's proxy statement and
form of proxy for that meeting. If notice of any such proposal is received by the Company after May 3, 2005,March 29, 2006, the proposals with respect to such proposalmatter shall be deemed "untimely"“untimely” for purposes of Rule 14a-4(c) under the Securities Exchange Act and, therefore, the Company will have the right to exercise discretionary voting authority with respect to such proposal.
26
ANNEX A
THE BON-TON STORES, INC.
AUDIT COMMITTEE CHARTER
This Charter has been adopted by the Board of Directors (the "Board") of
The Bon-Ton Stores, Inc. (the "Company") to govern its Audit Committee (the
"Committee"), which shall have the authority, responsibility and specific powers
described below.
PURPOSES
The Committee shall be directly responsible for the appointment,
compensation and oversight over the Company's independent auditors (the
"Auditors").
The Committee shall monitor (1) the integrity of the financial statements
of the Company, (2) the Company's compliance with legal and regulatory
requirements, (3) the Auditors' qualifications and independence, (4) the
performance of the Company's internal audit function and (5) the performance of
the Auditors.
The Committee shall prepare the report required by the rules of the
Securities and Exchange Commission to be included in the Company's annual proxy
statement.
The Committee shall oversee the financial reporting processes of the
Company and the audits of the Company's financial statements.
ORGANIZATION
The Committee shall be composed of three or more directors who shall: (i)
meet the independence and experience requirements of the Nasdaq National Market
("Nasdaq") and Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as
amended; (ii) not have participated in the preparation of the financial
statements of the Company or any current subsidiary of the Company at any time
during the past three years; and (iii) be able to read and understand
fundamental financial statements, including a company's balance sheet, income
statement and cash flow statement. At least one member of the Committee shall be
an "audit committee financial expert," as such term is defined by the applicable
regulations of the Securities and Exchange Commission ("SEC") and shall meet any
applicable standards promulgated by Nasdaq related to enhanced financial
expertise applicable to at least one member of the Committee.
The members of the Committee shall be appointed and removed by the Board.
A member of the Committee shall be selected by the Board to serve as the
Committee's chairperson.
MEETINGS
The Committee shall meet at least quarterly, or more frequently as
circumstances dictate. The Committee shall meet at least annually with
management and the Auditors in separate executive sessions to discuss any
matters that the Committee or either of these groups believes should be
discussed privately. In addition, the Committee will meet with the Auditors and
management to review the Company's financial statements as provided under the
sub-heading "Document Review" below. Minutes or other records of meetings and
activities of the Committee shall be maintained.
RESPONSIBILITIES
The Committee shall have the sole authority to appoint or replace and
oversee the Auditors, including the authority to resolve disagreements between
management and the Auditors regarding financial reporting. The Auditors shall
report directly to the Committee.
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The Committee shall pre-approve (1) all audit engagement fees and terms
and (2) all non-audit services provided by the Auditors which are not proscribed
by applicable law. The Committee may delegate pre-approval responsibilities to a
member of the Committee, and the decisions of any Committee member to whom
pre-approval authority is delegated must be presented to the full Committee at
each of its scheduled meetings.
The Committee shall, at least annually, obtain and review a report by the
Auditors describing the following: (1) the Auditor's internal quality-control
procedures; (2) any material issues raised by the most recent internal
quality-control review, or peer review, of the Auditors, or by any inquiry or
investigation by governmental or professional authorities, within the preceding
five years, respecting one or more independent audits carried out by the
Auditors, and any steps taken to deal with any such issues; and (3) in order to
assess the Auditors' independence, all relationships between the Auditors and
the Company.
The Committee shall have the authority to engage and determine funding
for outside legal, accounting or other consultants to advise the Committee and
shall, as appropriate, obtain advice and assistance from such advisors. The
Committee may request any officer or employee of the Company or the Company's
outside counsel or the Auditor to attend a meeting of the Committee or to meet
with any members of, or consultants to, the Committee.
The Committee shall have the authority to determine, and the Company
shall provide, appropriate funding for, (1) compensation to any registered
public accounting firm engaged for the purpose of preparing or issuing an audit
report or performing other audit, review or attest services for the Company and
(2) payment for the ordinary administrative expenses of the Audit Committee that
are necessary or appropriate for carrying out its duties.
The Committee shall make regular reports to the Board. The Committee
shall review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval. The Committee shall annually
review the Committee's own performance.
The Committee shall (1) discuss the annual audited financial statements
and quarterly financial statements with management and the Auditors, including
the Company's disclosures under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in reports filed with
the SEC; (2) discuss earnings press releases, as well as financial information
and earnings guidance provided to analysts and rating agencies; (3) discuss
policies with respect to risk assessment and risk management; (4) review with
the Auditors any audit problems or difficulties and management's response; and
(5) set clear hiring policies for the Company concerning employees or former
employees of the Auditors.
In carrying out its duties and responsibilities, the Committee, to the
extent it deems necessary or appropriate, will:
Document Review
1. Review with management and the Auditors the financial statements and
disclosures under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" to be included in the Company's Annual Report on Form
10-K (or the annual report to shareholders if distributed prior to the filing of
Form 10-K), including their judgment about the quality, not just the
acceptability, of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements. Also,
the Committee shall discuss the results of the annual audit and any other
matters required to be communicated to the Committee by the Auditors under
generally accepted auditing standards.
2. Review the interim financial statements and disclosures under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" with management and the Auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the Committee
A-2
shall discuss the results of the quarterly review and any other matters required
to be communicated to the Committee by the Auditors under generally accepted
auditing standards.
Auditors
3. Review the proposed scope of the audit, the proposed staffing of the
audit to ensure adequate coverage, as well as appropriate coverage consistent
with Sections 203 and 206 of the Sarbanes-Oxley Act of 2002, and the fees
proposed to be charged for such audit.
4. Select the Auditors, considering independence and effectiveness, and
approve the fees and other compensation to be paid the Auditors. On an annual
basis, the Committee should ensure receipt from the Auditors, and review, the
Auditors' formal written statement delineating all relationships between the
Auditors and the Company, consistent with Independence Standards Board Standard
1. In addition, the Committee shall actively engage in dialogue with the
Auditors with respect to any disclosed relationships or services that may impact
the objectivity and independence of the Auditors and the Committee shall take,
or recommend that the full Board take, appropriate action to oversee the
independence of the Auditors.
5. Review the performance of the Auditors and approve any proposed
discharge of the Auditors when circumstances warrant.
6. Discuss with the Auditors any communications with the Auditors'
national office respecting auditing or accounting issues presented by the
engagement.
7. Review and evaluate the lead partner on the audit team. Ensure the
rotation of the lead partner having primary responsibility for the audit and the
partner responsible for reviewing the audit.
8. Periodically consult with the Auditors, without management present,
regarding the Company's internal controls and the fullness and accuracy of the
Company's financial statements.
9. Receive and review regular reports from the Auditors with respect to:
- - the critical accounting policies and practices of the Company,
- - all alternative treatments of financial information within generally accepted
accounting principles that have been discussed with management, ramifications
of the use of such alternative disclosures and treatments, and the treatment
preferred by the Auditors, and
- - other material written communications between the Auditors and management,
such as any management letter or schedule of unadjusted differences.
Financial Reporting Processes
10. Review with the Auditors (i) the Company's financial and accounting
personnel, (ii) the adequacy and effectiveness of the accounting and financial
controls of the Company, and (iii) elicit any recommendations for the
improvement of such internal controls or particular areas where new or more
detailed controls or procedures are desirable.
11. Review management's assertion on its assessment of the effectiveness
of internal controls as of the end of the most recent fiscal year and the
Auditors' report on management's assertions.
12. Review reports from management on material weaknesses or
deficiencies in the design or operation of internal controls and on any fraud
that involves personnel having a significant role in the internal controls.
13. In consultation with the Auditors, review the integrity of the
financial reporting processes, both internal and external.
A-3
14. Consider the Auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
15. Inquire of management and the Auditors about significant risks or
exposures and assess the steps management has taken to minimize such risks to
the Company.
16. Consider and approve, if appropriate, major changes to the Company's
auditing and accounting principles and practices as suggested by the Auditors or
management.
Process Improvement
17. Following completion of the annual audit, review separately with
management and with the Auditors any significant difficulties encountered during
the course of the audit, including any restrictions on the scope of the work or
access to required information.
18. Review any significant disagreement between management and the
Auditors in connection with the preparation of the financial statements.
19. Review with the Auditors and with management the extent to which
changes or improvements in financial or accounting practices, as approved by the
Committee, have been implemented. (This review should be conducted at an
appropriate time subsequent to implementation of changes or improvements, as
determined by the Committee.)
Ethical and Legal Compliance
20. Review and approve all related-party transactions.
21. Review and update periodically the Company's Code of Ethical
Standards and Business Practices and ensure that management has established a
system to enforce such code.
22. Review management's monitoring of the Company's compliance with such
code and periodically determine that management has the proper review system in
place to ensure that the Company's financial statements, reports and other
financial information disseminated to governmental organizations and the public
satisfy legal requirements.
23. Review legal compliance matters, including corporate securities
trading policies, with Company counsel.
24. Review with Company counsel any legal matter that could have a
significant impact on the financial statements.
25. Review and update periodically the Company's procedures for the
receipt, retention, and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing matters, and the
confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting or audit matters.
26. Review annually the travel and entertainment expenses of the
Company's Chief Executive Officer and a summary of all other executive officers'
travel and entertainment expenses.
27. Perform any other activities consistent with this Charter, the
Company's By-laws and governing law, as the Committee or the Board deems
necessary or appropriate.
LIMITATION OF COMMITTEE'S ROLE
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements and disclosures are complete
and accurate and are in accordance with generally accepted accounting principles
and applicable rules and regulations. These activities are the responsibility of
management and the Auditors.
A-4
23
ANNUAL MEETING OF SHAREHOLDERS OF
THE BON-TON STORES, INC.
JULY 21, 2004
June 14, 2005
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
-
êPlease detach along perforated line and mail in the envelope provided. -
ê
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"“FOR” THE ELECTION OF DIRECTORS AND "FOR" PROPOSALS 2 THROUGH 4.
“FOR” PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
1. Election of Directors:
þ
| 1. | Election of Directors: |
| o | FOR ALL NOMINEES | |
| o | WITHHOLD AUTHORITY FOR ALL NOMINEES | |
| o | FOR ALL EXCEPT (See instructions below) |
NOMINEES:
¡ Robert B. Bank
¡ Byron L. Bergren
¡ Philip M. Browne
¡ Shirley A. Dawe
¡ Marsha M. Everton
¡ Michael L. Gleim
¡ Tim Grumbacher
¡ Robert E. Salerno
¡ Thomas W. Wolf
| INSTRUCTION: | To withhold authority to vote for any individual nominee(s), mark“FOR ALL EXCEPT”and fill in the circle next to each nominee you wish to withhold, as shown here: l |
| To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. | o |
| FOR | AGAINST | ABSTAIN | ||||||
| 2. | Ratification of appointment of KPMG LLP | o | o | o |
| Signature of | Date: | Signature of Shareholder | Date: |
| Note: | Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the |
THE BON-TON STORES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of THE BON-TON-STORES, INC. (the "Company"“Company”) hereby appoints Tim GrumbacherByron L. Bergren and James H. Baireuther, or either of them, with full power of substitution, to act as attorneys and proxies for the undersigned and to vote all shares of stock of the Company which the undersigned is entitled to vote if personally present at the Annual Meeting of Shareholders of the Company, to be held at Bon-Ton'sBon-Ton’s corporate office, 2801 E. Market Street, York, PA 17402 on July 21, 2004,June 14, 2005, at 9:00 a.m., provided that said proxies are authorized and directed to vote as indicated with respect to matters set forth on the opposite side of this proxy.
UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED "FOR"“FOR” THE ELECTION OF ALL NOMINATED DIRECTORS, "FOR"AND “FOR” RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE COMPANY'SCOMPANY’S INDEPENDENT AUDITOR, "FOR" THE APPROVAL OF THE BON-TON STORES, INC.
CASH BONUS PLAN AND "FOR" APPROVAL OF THE AMENDMENT TO THE BON-TON STORES, INC.
2000 STOCK INCENTIVE PLAN. THIS PROXY ALSO DELEGATES DISCRETIONARY AUTHORITY TO
VOTE WITH RESPECT TO ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE
MEETING.
(TO BE SIGNED ON REVERSE SIDE)
AUDITOR. This proxy also delegates discretionary authority to vote with respect to any other business which may properly come before the meeting.
(To be signed on reverse side)
14475
ANNUAL MEETING OF SHAREHOLDERS OF
THE BON-TON STORES, INC.
JULY 21, 2004
June 14, 2005
PROXY VOTING INSTRUCTIONS
MAIL - —Date, sign and mail your proxy card in the envelope provided as soon as possible.
- OR -
TELEPHONE - —Call toll-free1-800-PROXIES
(1-800-776-9437) from any touch-tone telephone and follow the instructions. Have your proxy card available when you call.
(1-800-776-9437) from any touch-tone telephone and follow the instructions. Have your proxy card available when you call.
- OR -
INTERNET - —Access "WWW.VOTEPROXY.COM"“www.voteproxy.com” and follow the on-screen instructions. Have your proxy card available when you access the web page.
COMPANY NUMBER
------------------
ACCOUNT NUMBER
------------------
------------------
YOU MAY ENTER YOUR VOTING INSTRUCTIONS AT
COMPANY NUMBER | |||||
ACCOUNT NUMBER | |||||
You may enter your voting instructions at 1-800-PROXIES OR WWW.VOTEPROXY.COM UP
UNTILor www.voteproxy.com up until 11:59 PM EASTERN TIME THE DAY BEFORE THE CUT-OFF OR MEETING DATE.
- Eastern Time the day before the meeting date.
êPlease detach along perforated line and mail in the envelope provided -
IF you are not voting via telephone or the Internet.ê
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"“FOR” THE ELECTION OF DIRECTORS AND "FOR" PROPOSALS 2 THROUGH 4.
“FOR” PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
þ
| 1. | Election of |
| o | FOR ALL NOMINEES | |
| o | WITHHOLD AUTHORITY FOR ALL NOMINEES | |
| o | FOR ALL EXCEPT (See instructions below) |
NOMINEES:
¡ Robert B. Bank
¡ Byron L. Bergren
¡ Philip M. Browne
¡ Shirley A. Dawe
¡ Marsha M. Everton
¡ Michael L. Gleim
¡ Tim Grumbacher
¡ Robert E. Salerno
¡ Thomas W. Wolf
| INSTRUCTION: | To withhold authority to vote for any individual nominee(s), mark“FOR ALL EXCEPT”and fill in the circle next to each nominee you wish to withhold, as shown here: l |
| To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. | o |
| FOR | AGAINST | ABSTAIN | ||||||
| 2. | Ratification of appointment of KPMG LLP | o | o | o |
| Signature of | Date: | Signature of Shareholder | Date: |
| Note: | Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the |