SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
PATHMARK STORES, INC.
- ------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- ------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
PATHMARK STORES, INC.
200 MILIK STREET, CARTERET,
NJ 07008
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 14, 2001
---------------------
To the Stockholders of the Company:
The Annual Meeting of Stockholders of PATHMARK STORES, INC. will be held at
the corporate headquarters, 200 Milik Street, Carteret, New Jersey 07008, on
Thursday, June 14, 2001, at 3:00 p.m., local Eastern Time, for the following
purposes:
1. To elect seven directors; and
2. To consider and vote upon the 2001 Executive Incentive Plan for
Executive Officers of Pathmark Stores, Inc.; and
3. To transact such other business as properly may be brought before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 18, 2001 are
entitled to notice of and to vote at the annual meeting or any adjournments
thereof.
Your attention is called to the Proxy Statement on the following pages. We
hope that you will attend the meeting. If you do not plan to attend, please fill
in, sign, date and mail the enclosed proxy in the enclosed envelope, which
requires no postage if mailed in the United States.
By Order of the Board of Directors,
Marc A. Strassler
SENIOR VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
May 4, 2001
PATHMARK STORES, INC.
200 MILIK STREET
CARTERET, NEW JERSEY 07008
------------------------
PROXY STATEMENT
------------------------
INTRODUCTION
This Proxy Statement is sent to you in connection with the solicitation of
proxies by the Board of Directors of Pathmark Stores, Inc., a Delaware
corporation, for use at the 2001 Annual Meeting of Stockholders. The meeting
will be held at the Company's headquarters, 200 Milik Street, Carteret, New
Jersey 07008, at 3:00 p.m. (local Eastern Time), on Thursday, June 14, 2001, and
any adjournment or postponement thereof. Copies of this Proxy Statement and the
accompanying proxy are being mailed to stockholders on or about May 11, 2001.
As used in this Proxy Statement, "Annual Meeting" refers to the meeting
described above. "Company" or "Pathmark" refers to Pathmark Stores, Inc.,
"Common Stock" refers to the Company's common stock, par value $0.01, and
"Record Date" for the Annual Meeting refers to April 18, 2001.
On July 12, 2000 (the "Petition Date"), Pathmark and its then three parent
entities, PTK Holdings, Inc. ("PTK"), Supermarkets General Holdings Corporation
("Holdings") and SMG-II Holdings Corporation ("SMG-II"), filed a prepackaged
plan of reorganization (the "Plan of Reorganization") in the U.S. Bankruptcy
Court in Delaware (the "Court") pursuant to Chapter 11 of the United States
Bankruptcy Code ("Chapter 11"). On September 7, 2000, the Court entered an order
confirming the Plan of Reorganization, which became effective on September 19,
2000 (the "Plan Effective Date"), at which time the Company formally exited
Chapter 11. As part of the Plan of Reorganization, all subordinated debt in the
amount of approximately $1 billion was canceled and the holders of such
subordinated debt received 100% of the Common Stock and warrants to purchase an
additional 15% of the Common Stock (the "Warrants"). Additionally, as part of
the Plan of Reorganization, (a) PTK merged with Pathmark, with Pathmark being
the surviving entity; (b) immediately thereafter Holdings merged with Pathmark,
with Pathmark being the surviving entity; and (c) immediately thereafter, SMG-II
merged with Pathmark, with Pathmark being the surviving entity, on the Plan
Effective Date.
VOTING INFORMATION
STOCKHOLDERS WHO MAY VOTE
Only holders of record of the Common Stock at the close of business on the
Record Date are entitled to vote at the Annual Meeting. On the Record Date,
there were outstanding for voting purposes 30,098,510 shares of Common Stock.
Each stockholder shall have one vote per share on all business of the Annual
Meeting.
QUORUM; EFFECT OF VOTES
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of the Company's Common Stock will constitute a quorum at the
Annual Meeting. Outstanding shares of Common Stock represented by stockholders
who duly execute and return proxies on the accompanying proxy card will be
treated as being present at the Annual Meeting for purposes of determining a
quorum.
Directors are to be elected by a plurality of the votes cast at the meeting
in person or by proxy by the holders of shares entitled to vote in the election.
With respect to the proposal to approve the 2001 Executive Incentive Plan for
Executive Officers of the Company (the "EIP"), the affirmative vote of a
majority of the shares present, or represented, and entitled to vote at the
Annual Meeting is required to approve the EIP. Stockholders may vote for or
withhold voting for any or all nominees for the Board of Directors and may vote
for or against, or abstain from voting on the EIP proposal by so indicating on
the accompanying proxy card. If a proxy instruction indicates an abstention
under the EIP proposal or that a vote is being withheld in connection with the
election of one or more nominees for director, the shares represented by that
proxy will not be counted as casting votes with respect to the EIP proposal or
for such director nominees, although they will be included in determining the
number of shares present at the meeting and entitled to vote on the subject
matter.
Brokers who hold shares in street name for customers who have not instructed
the broker as to the voting of their shares have the authority to vote on the
election of directors and certain other matters, but lack such authority on
other matters, including the approval of the EIP. The shares subject to such
"broker non-votes" would not be counted as votes for or against the EIP and
would not be included in determining the number of shares entitled to vote on
that proposal. They would, however, count for the purposes of the election of
directors.
The Company does not presently know of any other business that may properly
come before the stockholders for a vote at the Annual Meeting. As to any such
other matters, unless a greater or different vote were required by applicable
law, the certificate of incorporation or the by-laws, the affirmative vote of a
majority of the shares present in person or represented by proxy at the Annual
Meeting and entitled to vote on the subject matter would be required to approve
such matter, and abstentions and broker non-votes would be treated as described
above.
PROXY SOLICITATION
Proxies are being solicited by and on behalf of the Board of Directors. All
expenses of this solicitation, including the cost of preparing and mailing this
Proxy Statement, will be borne by the Company. In addition to solicitation by
use of the mails, proxies may be solicited by directors, officers and employees
of the Company in person or by telephone, facsimile or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed by out-of-pocket expenses in connection with
such solicitation. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of Common Stock held of record by such custodians, nominees and fiduciaries, and
the Company may reimburse such custodians, nominees and fiduciaries for
reasonable expenses incurred in connection therewith.
2
PROXY VOTING AND REVOCATION OF PROXY
The proxy solicited by this Proxy Statement, if properly signed and received
by the Company in time for the Annual Meeting, will be voted in accordance with
the instructions it contains. A stockholder may revoke the proxy at any time
prior to its use at the Annual Meeting by filing written notice of such
revocation with the Secretary of the Company at 200 Milik Street, Carteret, New
Jersey 07008, by submitting a later dated and properly executed proxy, or by
appearing at the Annual Meeting and giving the Secretary notice of your
intention to vote in person. Representatives of Mellon Investor Services will
tabulate the votes and act as inspectors of election.
YOU ARE REQUESTED TO COMPLETE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. Unless you indicate
otherwise in your proxy, the persons named as your proxies will vote FOR all of
the nominees for director and for approval of the EIP. Although the Company does
not presently know of any other business to be presented at the meeting, should
any other business properly come before the meeting, the persons named as your
proxies, to the extent permitted by law, will have discretion to vote and will
vote in accordance with their best judgment.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of seven members. At
this Annual Meeting, seven directors are to be elected to hold office until the
next Annual Meeting of Stockholders and until their successors are elected and
qualified. All director nominees are currently directors of the Company and each
has consented to serve as director until the expiration of his term. If any of
them should decline or be unable to act as a director, the persons named in the
proxy will vote for such substitute nominee or nominees, as may be designated by
the Board, unless the Board reduces the number of directors accordingly.
NOMINEES
DIRECTOR OF THE
NAME AGE POSITIONS AND OFFICE COMPANY SINCE
- ---- --- -------------------- ---------------
William J. Begley...... 58 Currently retired. Former Deputy Chairman at 2000
Wasserstein Perella Co., Inc., an investment bank,
and President of the firm's trading division. He
is currently Chairman Emeritus of Wasserstein
Perella Securities, Inc. Mr. Begley is also a
Director of the Bank of Somerset Hills.
James L. Donald(1)..... 47 Chairman of the Board, President and Chief 1996
Executive Officer ("CEO") of the Company since
October 1996. President of the Eastern Division of
Safeway, Inc., a supermarket chain, prior thereto.
Mr. Donald is a member of the Board of Directors
of Modell's Sporting Goods and Nash Finch Company.
Daniel H. Fitzgerald... 48 Principal of Turnberry Capital, a private equity 2000
firm. Managing Director at Gleacher Natwest, an
investment bank, from 1996 to 2000. Prior thereto,
Mr. Fitzgerald spent 14 years at Donaldson Lufkin
Jenrette, an investment bank, as Managing
Director--High Yield Sales.
3
DIRECTOR OF THE
NAME AGE POSITIONS AND OFFICE COMPANY SINCE
- ---- --- -------------------- ---------------
Eugene M. Freedman..... 69 Senior Advisor and Director of Monitor Clipper 2000
Partners, Inc., a private equity firm, since
January 2000. Since 2001, he has been Senior
Advisor of Monitor Company Group Limited
Partnership, an international business strategy
and consulting firm. He was Managing Director and
President of Monitor Clipper from 1997 to 1999 and
Senior Advisor and Director of Monitor Comany,
Inc. from 1995 to 2000. Until October 1994, and
for more than five years prior thereto, Mr.
Freedman was a partner of Coopers & Lybrand, where
he served as Chairman and Chief Executive Officer
of Coopers & Lybrand LLP, U.S. since October 1991,
and as Chairman of Coopers & Lybrand,
International since 1992. Mr. Freedman is
currently a director of The Limited, Inc., a NYSE
listed company, Bernard Technologies, Inc.,
e-Studio Live, Anserity, Inc., Outcome Sciences,
Inc., and Wheelhouse Corporation, Inc.
Robert G. Miller(1).... 57 Chairman of the Board and Chief Executive Officer 2000
of Rite Aid Corporation, a drugstore chain, since
January 2000; Vice Chairman of Kroger Corporation,
a supermarket chain, from May 1999 to December
1999; Chairman and Chief Executive Officer of Fred
Meyer, Inc., a diversified retailer, prior
thereto. Mr. Miller is a member of the Board of
Directors of Scottish Power, Harrah's
Entertainment Advance P.C.S., and the Jim Pattison
Group. Mr. Miller previously served on the Board
of Directors of the Company from January 10, 1997
through March 6, 2000.
Frank Vitrano(1)....... 45 Executive Vice President, Chief Financial Officer 2000
and Treasurer of the Company since January 2000;
Senior Vice President, Chief Financial Officer and
Treasurer from September 1998 to January 2000;
Vice President and Treasurer from December 1996 to
September 1998; Treasurer prior thereto.
Steven L. Volla(1)..... 53 Chairman of Primary Health Systems, Inc., a 2000
hospital management company from June 1994 until
February 2001. From 1995 through the Plan
Effective Date, Mr. Volla was a Director of
Holdings.
- --------------------------
(1) Mr. Donald was Chairman of the Board of Directors and CEO of the Company and
Holdings, and Mr. Volla was a member of the Board of Directors of Holdings,
on the Petition Date. Mr. Miller resigned from the Board of Directors of the
Company and Holdings on March 6, 2000. Mr. Vitrano served as the Company's
Executive Vice President and Chief Financial Officer on the Petition Date.
The Plan of Reorganization was confirmed by the Court on September 7, 2000
and the Company emerged from Chapter 11 on the Plan Effective Date.
BOARD RECOMMENDATION
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF THE ABOVE NOMINEES
AS DIRECTORS.
4
INFORMATION REGARDING THE BOARD AND ITS COMMITTEES
The Company's Board of Directors met six times during the fiscal year ended
February 3, 2001 ("Fiscal 2000"). No incumbent director attended fewer than 75%
of the total number of meetings held by the Board and committees of the Board on
which he served.
The Company's Board of Directors has an Audit Committee and a Compensation
Committee. There is no nominating committee. Between the Plan Effective Date and
the end of Fiscal 2000, the Audit Committee held two meetings and the
Compensation Committee met once. Messrs. Fitzgerald, Freedman (Chair) and Volla
serve on the Audit Committee, and Messrs. Begley, Miller and Volla (Chair) serve
on the Compensation Committee. Prior to the Plan Effective Date, the audit
committee and compensation committee of SMG-II met four times and three times,
respectively, during Fiscal 2000.
ROLE OF THE AUDIT COMMITTEE
The Audit Committee: (1) oversees financial and operational matters
involving accounting, internal and independent auditing, internal controls,
financial reporting, compliance and business ethics; (2) reviews areas of
potential significant financial risk to the Company; (3) recommends to the Board
each year an accounting firm to audit the consolidated financial statements of
the Company, and monitors the independence and performance of the independent
accounting firm; and (4) provides an avenue of communication among the
independent auditors, management, the internal auditing functions and the Board
of Directors.
AUDIT COMMITTEE REPORT(1)
The Audit Committee of the Board is responsible for providing independent,
objective oversight of the Company's financial and operational matters involving
accounting, internal and independent auditing, internal controls, financial
reporting, compliance and business ethics. The Audit Committee is composed of
three directors, each of whom is independent as defined by the NASD listing
standards. The Audit Committee operates under a written charter approved by the
Board of Directors. A copy of the charter is attached to this Proxy Statement as
Appendix A.
Management is responsible for the Company's internal controls and financial
reporting process. The independent accountants are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with auditing standards generally accepted in the United States of
America and to issue a report thereon. The Audit Committee's responsibility is
to monitor and oversee these processes. It is understood that the independent
accountants are accountable to the Audit Committee and the Board of Directors.
In connection with these responsibilities, the Audit Committee met with
management and the independent accountants to review and discuss the audited
consolidated financial statements for the year ended February 3, 2001. Prior to
the filing of each requisite quarterly report with the Securities and Exchange
Commission ("SEC"), the Audit Committee reviewed any significant issues arising
out of the independent accountants quarterly review. The Audit Committee also
discussed and reviewed with the independent accountants all communications
required by generally accepted auditing standards, including the matters
required by Statement on Auditing Standards No. 61 (Communication with Audit
Committees). The Audit Committee also received written disclosures from the
independent accountants required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees). The Audit Committee discussed
with the independent accountants any relationships that may impact their
objectivity and independence, and satisfied itself as to the independent
accountants' independence. The Audit Committee also discussed with management as
well as the independent accountants and internal auditors the quality and
adequacy of the Company's internal controls and elicited recommendations for
increases in controls.
- ------------------------
(1) This Report is not deemed filed with the SEC and shall not be deemed to be
incorporated by reference in any filing of the Company under the Securities
Act of 1933 or the Securities Exchange Act of 1934, by any general
incorporation language in any such filing, except to the extent that the
Company specifically incorporates the Report by reference in any such
filing.
5
Based upon the Audit Committee's discussions with management and the
independent accountants, and the Audit Committee's review of the representations
of management and the independent accountants, the Audit Committee recommended
that the Board of Directors include the audited consolidated financial
statements in the Company's Annual Report on Form 10-K for the year ended
February 3, 2001, filed with the SEC.
THE AUDIT COMMITTEE
Eugene Freedman (Chair)
Daniel Fitzgerald
Steven Volla
ROLE OF THE COMPENSATION COMMITTEE
The Compensation Committee reviews and approves compensation elements such
as base salary, bonus awards, employment agreements and supplemental retirement
agreements for Company officers (no member of the Committee may be a member of
management or eligible for compensation other than as a director or consultant)
and grants stock options to officers and employees of the Company under the
Pathmark Stores, Inc. 2000 Equity Incentive Plan (the "Equity Plan").
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Company's Compensation Committee is a current or former
officer or employee of the Company. In addition, there are no compensation
committee interlocks between Pathmark and other entities involving Pathmark
executive officers and Pathmark Board members who serve as executive officers of
such other entities.
BOARD COMPENSATION AND BENEFITS
RETAINER AND FEES. Non-employee directors receive retainers in quarterly
increments based on an annualized rate of $22,000 a year. Directors also receive
$1,500 for each Board and $750 for each committee meeting attended. In addition,
non-employee directors also receive a retainer of $750 per year for serving as a
member of a committee ($1,500 for the Committee Chair). Directors who are also
employees of the Company, such as Messrs. Donald and Vitrano, receive no
additional compensation for service on the Board.
OPTIONS. Each member of the Board who has not been an employee of the
Company or any of its subsidiaries for at least one year prior to the date of
grant automatically receives a NON-QUALIFIED option to purchase 3,000 shares of
the Common Stock on the date of the first regularly scheduled meeting of the
Board held in the Company's third fiscal quarter, pursuant to the Company's 2000
Non-Employee Directors Equity Incentive Plan (the "Directors Plan"). The option
price for each option granted is the fair market value of the Common Stock on
the date of grant. Options are generally exercisable twelve months from the date
of grant (subject to vesting and the individual serving as director for the
duration of that period), vest in three equal annual installments beginning on
the first anniversary of the grant date, and expire five years after the date of
grant (subject to earlier termination if the director ceases to serve as a
director).
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the amount of shares of Common Stock
beneficially owned (as of March 31, 2001, unless otherwise indicated) by current
directors of the Company and the named executive officers reported in the
"Executive Compensation--Summary Compensation Table" below, and all directors
and executive officers as a group. Percentage of ownership is calculated using
the
6
number of outstanding shares as of the Record Date, plus the number of shares
the individual or group had the right to acquire within 60 days, as indicated in
the notes following the table.
SHARES OF
COMMON STOCK PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF OWNERSHIP
- ---------------- --------------------- ------------
DIRECTORS:
James Donald.............................................. 98,510(2) *
Frank Vitrano............................................. 6,020(3) *
OTHER NAMED EXECUTIVE OFFICERS:
Robert Joyce.............................................. 600 *
Eileen Scott.............................................. 1,500 *
Harvey Gutman............................................. 500 *
All Directors and Officers as group (13 persons)............ 107,920(3) *
- ------------------------
* Less than 1% of outstanding shares.
(1) There are no shares pursuant to outstanding options under either the Equity
Plan or Directors Plan which are exercisable or which will become
exercisable within sixty days. Except for Messrs. Donald and Vitrano, no
director reports shares of Common Stock currently owned.
(2) Represents restricted stock which will fully vest on September 19, 2001 if
Mr. Donald is employed by the Company on that date.
(3) Includes 202 shares of Common Stock which Mr. Vitrano has a right to acquire
upon exercise of 202 Warrants to purchase Common Stock expiring
September 19, 2010. The exercise price of the Warrants is $22.31 per share.
BY OTHERS
Management of the Company knows of no person, except as set forth below, who
is the beneficial owner of more than 5% of the Company's issued and outstanding
Common Stock. The table shows information reported to the Company as of
February 14, 2001:
SHARES OF
COMMON STOCK PERCENTAGE OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNERSHIP(1)
- ------------------------ ------------------ -------------
FMR Corp.................................................... 13,551,652(2) 42.1
82 Devonshire Street
Boston, MA 02109
- ------------------------
(1) Percentage of ownership is calculated using the number of outstanding shares
as of the Record Date, plus the number of shares the individual or group had
the right to acquire within 60 days as indicated in Note 2 below.
(2) Based on the Schedule 13G/A filed with the SEC on February 14, 2001 for the
calendar year ended December 31, 2000 by FMR Corp. reporting sole
dispositive power as to all shares shown and sole voting power as to 685,263
of such shares. Shares of Common Stock Beneficially Owned include 2,060,142
shares of Common Stock which the beneficial owner has a right to acquire
upon exercise of 2,060,142 Warrants to purchase Common Stock expiring
September 19, 2010. The exercise price of the Warrants is $22.31 per share.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the directors
and executive officers of the Company and persons who own more than ten percent
of a registered class of the Company's equity securities ("Reporting Persons")
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock. Specific due dates for these reports have been
established, and the Company is required to disclose in this proxy statement any
failure to file by these dates during Fiscal 2000. Based solely on a review of
the copies of such reports furnished to the Company, or written representations
from our Reporting Persons, the Company believes all of these requirements were
satisfied during Fiscal 2000.
7
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company during
the last three fiscal years to the Chief Executive Officer and the four highest
paid executive officers of the Company in Fiscal 2000:
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------- -------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5)
- --------------------------- -------- -------- --------- ------------ ---------- ------------ ------------
James Donald.................... 2000 611,539 2,152,885 843,750 1,193,941 490,000 8,722
Chairman, President 1999 600,000 750,000 1,125,000 -- -- 8,422
and Chief Executive Officer 1998 600,000 750,000 1,125,000 -- -- 8,480
Robert Joyce.................... 2000 242,234 240,000 2,328 -- 225,000 21,950
Executive Vice President-- 1999 231,749 173,811 2,195 -- -- 5,600
Administration 1998 231,749 127,461 2,195 -- -- 5,600
Eileen Scott.................... 2000 264,641 280,000 -- -- 250,000 5,950
Executive Vice President-- 1999 231,075 173,306 -- -- -- 5,600
Merchandising & Distribution 1998 220,000 182,600 -- -- -- 5,600
Frank Vitrano................... 2000 275,537 280,000 -- -- 250,000 5,950
Executive Vice President and 1999 209,272 174,825 -- -- -- 5,600
Chief Financial Officer 1998 161,284 110,000 -- -- -- 5,600
Harvey Gutman................... 2000 222,750 165,226 4,077 -- 56,000 33,950
Senior Vice President-- 1999 213,665 117,516 3,841 -- -- 5,600
Retail Development 1998 210,641 115,853 3,841 -- -- 5,600
- --------------------------
(1) The amounts with respect to Fiscal 2000 in this column represent payments
made pursuant to individual Retention Agreements described below plus, with
respect to Mr. Donald, a minimum guaranteed payment of $152,885 payable
pursuant to the Donald Agreement (as defined below). Amounts in 1999 and
1998 were paid pursuant to the Company's Executive Incentive Plan.
(2) Represents (i) with respect to Mr. Donald, forgiveness of loan payments due
to the Company of $1,125,000 in 1998 and 1999 and $843,750 in 2000; and
(ii) with respect to Messrs. Joyce and Gutman, payments as reimbursement for
interest paid to the Company for a loan, in each case of under $60,000 and
includes an amount sufficient to pay any income taxes resulting therefrom
after taking into account the value of any deductions available as a result
of the payment of such interest and taxes.
(3) On October 3, 2000, as part of his Retention Agreement, Mr. Donald was
granted an award of 98,510 restricted shares of Common Stock (the "Award").
The Award will vest on September 19, 2001, the first anniversary of the Plan
Effective Date, if Mr. Donald is employed by the Company on that date. The
value of the Award at the end of Fiscal 2000 was $1,637,729. Mr. Donald is
eligible to receive dividends on the Award if any were to be declared;
however, the Company does not expect to pay dividends on its Common Stock
during the current fiscal year.
(4) No Stock Appreciation Rights (SARs) have been granted and none are
outstanding. These are options for shares of Common Stock issued pursuant to
the Equity Plan.
(5) Represents in Fiscal 2000 (i) with respect to Mr. Donald, payments of $3,622
for a term life insurance premium on Mr. Donald's life and $5,100
representing the Company's matching contribution to the Company's 401(k)
Plan (the "Savings Plan"); (ii) with respect to Ms. Scott and Mr. Vitrano,
the Company's matching contribution under the Savings Plan; and (iii) with
respect to Messrs. Joyce and Gutman, income on account of forgiveness of the
aforementioned loans of $16,000 and $28,000, respectively, plus $5,950 and
$5,950, respectively, representing the Company's matching contribution under
the Savings Plan.
8
FISCAL YEAR OPTION GRANTS
The following table sets forth the number of options granted and the
estimated grant date present value for the named executive officers during the
fiscal year ended February 3, 2001:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE ($)(2)(3)
- ---- -------------- ---------------- ----------- ---------- -------------
J. Donald................... 490,000 23.6% 13.94 10/25/10 2,234,400
R. Joyce.................... 225,000 10.8% 13.94 10/25/10 1,026,000
E. Scott.................... 250,000 12.0% 13.94 10/25/10 1,140,000
F. Vitrano.................. 250,000 12.0% 13.94 10/25/10 1,140,000
H. Gutman................... 56,000 2.7% 13.94 10/25/10 255,360
- ------------------------
(1) No Stock Appreciation Rights (SARs) were granted in Fiscal 2000.
Non-qualified stock options and Incentive Stock Options were granted in
Fiscal 2000 pursuant to the Equity Plan at an option price equal to the fair
market value of the stock at the date of grant. The option price may be paid
by delivery of cash or already owned shares, subject to certain conditions.
The number of options exercisable increases in 25% increments after each
successive anniversary of the date of grant. Options may become exercisable
sooner in the event of death, involuntary termination, disability, or
retirement or in the event of a change in control. The options have a term
of ten years, subject to earlier expiration in the event of termination of
employment.
(2) Grant date present value estimates were made using a variation of the
Black-Scholes pricing model. The following factors and assumptions were
used:
Option and market price (fair market value on grant date)... $13.94
Expected Life of option..................................... 4 years
Risk free rate of return.................................... 5.7%
Dividend yield.............................................. 0%
Volatility.................................................. 30%
(3) Although the Black-Scholes pricing model is widely used, the value of stock
options cannot be guaranteed because of the wide range of assumptions and
variations which may occur from time to time. No assumptions made in
connection with this table are intended to represent a forecast of possible
future appreciation of the Common Stock, stockholder return, or performance
of the Company.
OPTION EXERCISES AND YEAR-END OPTION VALUES
The table below shows the number of exercisable and unexercisable
in-the-money options and their values at fiscal year end. No Stock Appreciation
Rights (SARs) have been granted. An option is in-the-money if the fair market
value of the underlying securities exceeds the exercise price of the option.
9
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES VALUE AT FY-END(#) AT FY-END($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
J. Donald......................... -- -- -- 490,000 -- 1,315,650
R. Joyce.......................... -- -- -- 225,000 -- 604,125
E. Scott.......................... -- -- -- 250,000 -- 671,250
F. Vitrano........................ -- -- -- 250,000 -- 671,250
H. Gutman......................... -- -- -- 56,000 -- 150,360
- ------------------------
(1) Represents the difference between the exercise price and the fair market
value determined on the date of exercise; no options were exercised in
Fiscal 2000.
(2) Values were calculated by subtracting the exercise price of the option from
the closing market price of the Common Stock at February 3, 2001 ($16.625),
and multiplying the result by the respective number of shares relating to
in-the-money options.
PENSION PLANS
Pension benefits are provided to all nonunion employees (including executive
officers) of the Company under the Pension Plan, a qualified defined benefit
pension plan, and the Excess Benefit Plan (collectively, the "Pension Plans").
The Excess Benefit Plan provides benefits to certain employees, including those
named in the Summary Compensation Table, that cannot be paid under the qualified
Pension Plan due to Internal Revenue Code limitations on the amount of
compensation that may be recognized and the amount of benefits that may be paid.
The table below illustrates the aggregate annual pension benefits payable under
the Pension Plans.
PENSION PLAN TABLE
YEARS OF SERVICE
30 OR
FINAL AVERAGE PAY 10 15 20 25 MORE
- ----------------- -------- -------- -------- -------- --------
300,000....................................... 40,000 60,000 80,000 100,000 120,000
350,000....................................... 46,667 70000 93,333 116,667 140,000
400,000....................................... 53,333 80,000 106,667 133,333 160,000
450,000....................................... 60,000 90,000 120,000 150,000 180,000
500,000....................................... 66,667 100,000 133,333 166,667 200,000
550,000....................................... 73,333 110,000 146,667 183,333 220,000
600,000....................................... 80,000 120,000 160,000 200,000 240,000
650,000....................................... 86,667 130,000 173,333 216,667 260,000
700,000....................................... 93,333 140,000 186,667 233,333 280,000
750,000....................................... 100,000 150,000 200,000 250,000 300,000
800,000....................................... 106,667 160,000 213,334 266,668 320,000
850,000....................................... 113,333 170,000 226,666 283,333 340,000
900,000....................................... 120,000 180,000 240,000 300,000 360,000
950,000....................................... 126,667 190,000 253,334 316,668 380,000
1,000,000...................................... 133,334 200,000 266,668 333,335 400,000
1,100,000...................................... 146,666 220,000 293,332 366,665 440,000
1,200,000...................................... 160,000 240,000 320,000 400,000 480,000
1,300,000...................................... 173,334 260,000 346,668 433,335 520,000
1,400,000...................................... 186,666 280,000 373,332 466,665 560,000
1,500,000...................................... 200,000 300,000 400,000 500,000 600,000
1,600,000...................................... 213,332 320,000 426,664 533,330 640,000
1,700,000...................................... 226,666 340,000 453,332 566,669 680,000
10
The retirement benefit for individuals with 30 years of credited service is
40% of the individual's average compensation during his or her highest five
compensation years in the last ten years before retirement, less one-half of the
social security benefit received. The retirement benefit is reduced by 3.33% for
every year of credited service less than 30. Covered compensation under the
Pension Plans includes all cash compensation subject to withholding, plus
amounts deferred under the Savings Plan pursuant to Section 401(k) of the
Internal Revenue Code of 1986, as amended, and as to individuals identified in
the Summary Compensation Table, would be the amount set forth in that table
under the headings "Salary" and "Bonus". The above table shows the estimated
annual benefits an individual would be entitled to receive if normal retirement
at age 65 occurred in January 2001 after the indicated number of years of
covered employment and if the average of the participant's covered compensation
for the five years out of the last ten years of such employment yielding the
highest such average equaled the amounts indicated. The estimated annual
benefits are based on the assumption that the individual will receive retirement
benefits in the form of a single life annuity (married participants may elect a
joint survivorship option) and are before applicable deductions for social
security benefits in effect as of January 2001. As of December 31, 2000, the
following individuals had the number of years of credited service indicated
after their names: Mr. Donald, 4.2; Mr. Vitrano, 23.2; Mr. Joyce, 30;
Ms. Scott, 25.8, and Mr. Gutman, 24.8. As described below in "Compensation Plans
and Arrangements--Supplemental Retirement Agreements", each of the named
executive officers is a party to a Supplemental Retirement Agreement with
Pathmark.
COMPENSATION PLANS AND ARRANGEMENTS
SUPPLEMENTAL RETIREMENT AGREEMENTS. The Company has entered into
supplemental retirement agreements with Messrs. Vitrano, Gutman, Joyce,
Ms. Scott and Mr. Donald (the "SERPs"), which provide that said executive
officers will be paid upon termination of employment after attainment of age 60
a supplemental pension benefit in such an amount as to assure him or her an
annual amount of pension benefits payable under the SERP, the Pension Plans and
certain other plans of the Company, including Savings Plan balances as of
March 31, 1983, (A) with respect to Ms. Scott and Messrs. Gutman, Joyce and
Vitrano, equal to (i) 30% of his or her final average "Compensation" based on
ten years of service with the Company and increasing 1% per year for each year
of service thereafter, to a maximum of 40%, of his or her final average
Compensation (as defined in the Supplemental Retirement Agreement) based on
20 years of service, or (ii) $250,000 ($150,000 with respect to Messrs. Joyce
and Gutman), whichever is less, and (B) with respect to Mr. Donald, equal to
(i) 30% of his final average Compensation based on ten years of service with the
Company and increasing 2% per year for each year of service thereafter, to a
maximum of 50% of his final average Compensation based on 20 years of service,
or (ii) $600,000, whichever is less. "Compensation" includes base salary and
bonus payments, but excludes Company matching contributions under the Savings
Plan. If the executive leaves the Company prior to completing 20 years of
service (other than for disability), the supplemental benefit would be reduced
proportionately. Should the executive die, the surviving spouse would be
entitled to a benefit equal to two-thirds of the benefit to which the executive
would have been entitled, provided the executive has attained at least ten years
of service with the Company. With respect to Mr. Donald's SERP, seven years have
been added to his actual years of service with the Company.
EMPLOYMENT AGREEMENTS
EMPLOYMENT AGREEMENT BETWEEN PATHMARK AND JAMES L. DONALD. On October 8,
1996 (the "Effective Date"), the Company entered into an employment agreement
with Mr. Donald pursuant to which Mr. Donald was elected Chairman, President and
Chief Executive Officer for a term of five years, which agreement, as amended on
May 9, 1999 and July 1, 2000, was extended as of the Plan Effective Date (the
"Donald Agreement") until October 8, 2005. The Donald Agreement provides
Mr. Donald with a minimum annual base salary of $600,000 and provides that he
shall participate in the Pathmark Executive Incentive Plan, under which
Mr. Donald may earn an annual bonus of up to
11
125% of his annual salary based on performance targets that are set by the
Compensation Committee. Under the Donald Agreement, Mr. Donald is guaranteed an
annual bonus in each year during the term of the Donald Agreement of at least
25% of his base salary. The Donald Agreement provides Mr. Donald with the right
to defer up to 50% of his annual bonus and salary, which shall be held in a
grantor trust established by the Company. During the term of the Donald
Agreement, in addition to the base salary, bonus eligibility and other customary
annual benefits and perquisites that the Company generally provides to its
executive officers, the Company will provide Mr. Donald with a company car and
term life insurance in the amount of $3.2 million.
Pursuant to the Donald Agreement, the Company lent Mr. Donald $4.5 million
evidenced by 16 separate promissory notes. Under the terms of each note, if
Mr. Donald was in full employment of the Company on a quarterly anniversary of
the Effective Date, Mr. Donald's obligation to pay such note maturing on such
date was forgiven as to principal, but not any then accrued and unpaid interest.
These notes bore interest at an effective rate of 6%. The last promissory note
was forgiven during the third quarter of Fiscal 2000.
In the event of Mr. Donald's Involuntary Termination, Pathmark will pay him
(w) the full amount of any accrued but unpaid base salary, plus a cash payment
(calculated on the basis of the base salary then in effect) for all unused
vacation time which Mr. Donald may have accrued as of the date of Involuntary
Termination; (x) the amount of any earned but unpaid annual bonus for any Fiscal
Year of Pathmark ended on or prior to the date of Involuntary Termination;
(y) any unpaid reimbursement for business expenses; and (z) a severance amount
equal to four times Mr. Donald's annual rate of salary, based upon the annual
rate then in effect immediately prior to the date of termination, payable in
monthly installments over 24 months. In addition, in the event of an Involuntary
Termination, Mr. Donald and his eligible dependents shall continue to be
eligible to participate in the medical, dental, health and life insurance plans
applicable to Mr. Donald immediately prior to the Involuntary Termination on the
same terms and conditions in effect immediately prior to such Involuntary
Termination until the earliest to occur of (i) the end of the 24-month period
after the date of termination; (ii) the date Mr. Donald becomes eligible to be
covered under the benefit plans of a subsequent employer, and (iii) the date
Mr. Donald breaches any of the protective covenants described below. During the
30-day period beginning six months after a change in control, Mr. Donald shall
be eligible to resign from the Company for no stated reason and receive all the
amounts listed in clauses (w), (x), (y) and (z) above. Any such resignation in
such 30-day period following a change in control shall be treated as an
Involuntary Termination for all purposes of the Donald Agreement.
In the event Mr. Donald voluntarily resigns his employment at any time
during the term, the Company shall pay him only the amounts described in clauses
(w), (x) and (y) above.
Although, in the event of an Involuntary Termination, Mr. Donald has no duty
to mitigate the severance amount by seeking new employment, any severance amount
payable during the second year of the severance period shall be reduced by any
compensation or benefits Mr. Donald earns in connection with any employment by
another employer.
The Donald Agreement includes protective covenants that prohibit Mr. Donald
from engaging (i) in any activity in competition with Pathmark, or any parent or
subsidiary thereof, or (ii) in soliciting employees or customers of Pathmark, or
any parent or subsidiary thereof, during his term of employment and up to two
years thereafter. The Donald Agreement also includes a confidentiality clause
which prohibits Mr. Donald from disclosing any confidential information
regarding Pathmark.
OTHER EXECUTIVE EMPLOYMENT AGREEMENTS
As of February 1, 1999, Pathmark entered into employment agreements with
each of Ms. Scott and Messrs. Vitrano, Joyce and Gutman. Each employment
agreement has a two-year term which renews automatically each year for an
additional one year unless proper notice is provided by either party to the
other of such party's desire to terminate the agreement. Each employment
agreement provides for
12
a certain minimum level of compensation ($280,000 per annum base salary for
Ms. Scott and Mr. Vitrano; $237,664 per annum base salary for Mr. Joyce; and
$218,500 for Mr. Gutman), and benefits.
Each of the employment agreements also provide that each executive shall be
entitled an annual bonus opportunity of up to 75% (55% for Mr. Gutman) of his or
her annual base salary and shall be provided the opportunity to participate in
pension and welfare plans, programs and arrangements that are generally made
available to executives of Pathmark or as may be deemed appropriate by the
Compensation Committee.
In the event of the Involuntary Termination of any of the four above named
executives, that executive is entitled to receive his or her base salary and
continued coverage under health and insurance plans for a period of two years
from the date of such termination or resignation.
The employment agreements contain agreements by the executives not to
compete with Pathmark as long as they are receiving payments under the
employment agreement.
As used in the Donald Agreement and the other executive employment
agreements, "Involuntary Termination" means termination of the executive's
employment by Pathmark other than for Cause or termination by the executive for
Good Reason. "Cause" is defined generally as a felony conviction, perpetration
by the executive of a material dishonest act or fraud against Pathmark, material
breach or willful and repeated failure to perform material duties of employment.
"Good Reason" is defined generally as demotion, reduction in compensation,
unapproved relocation (except for Mr. Donald), material breach of the employment
agreement by Pathmark, and failure to extend the term of the employment
agreement (except for Mr. Donald).
RETENTION AGREEMENTS
The Company has entered into agreements with each of the named executive
officers, providing for the payment under specified conditions of a retention
bonus and a sale bonus.
MR. DONALD'S AGREEMENT. Under Mr. Donald's Retention Agreement, Mr. Donald
received a retention bonus of $2 million in August 2000 and 98,510 shares of
restricted Common Stock on October 3, 2000. The restricted Common Stock will
vest on the first anniversary of the Plan Effective Date if he is employed by
the Company on that date. In addition to the retention bonus, under certain
circumstances, Mr. Donald will become entitled to receive a sale bonus.
Mr. Donald will become entitled to receive a sale bonus in the event that an
event that could result in a change in control (defined as a "Triggering Event"
in Mr. Donald's Retention Agreement) occurs on or before the second anniversary
of the Plan Effective Date and a change in control contemplated by such
Triggering Event occurs thereafter. The amount of the sale bonus shall be equal
to 0.0043 multiplied by an amount equal to the sum of the aggregate fair market
value of any securities issued and any other non-cash consideration delivered,
and any cash consideration paid to the stockholders of the Company in connection
with a change in control, plus the amount of all indebtedness of the Company
which is assumed or acquired by any purchaser in connection with a change in
control or retired or defeased in connection with such change in control (which
amount is defined as the "Aggregate Consideration"), offset by the value
received in connection with his stock options that are redeemed for cash or
exchanged for other securities in connection with such change in control.
JOYCE, SCOTT, VITRANO AND GUTMAN RETENTION AGREEMENTS. Mr. Joyce,
Ms. Scott, Mr. Vitrano and Mr. Gutman (the "Executives") all have essentially
the same terms in their Retention Agreements. Under their Retention Agreements,
each of the Executives received a retention bonus during Fiscal 2000 as follows:
Ms. Scott, $280,000; Mr. Vitrano, $280,000; Mr. Joyce, $240,000; and
Mr. Gutman, $165,226. In addition to the retention bonus, under the same
circumstances which would entitle Mr. Donald to a sale bonus, the Executives
will also become entitled to receive a sale bonus. The Executives will become
entitled to receive a sale bonus in the event that a Triggering Event (as
defined
13
in each of their Retention Agreements) occurs on or before the second
anniversary of the Plan Effective Date and a change in control contemplated by
such Triggering Event occurs thereafter. The amount of the sale bonus will be
equal to a specified number (.002 for Mr. Vitrano; .001 for Ms. Scott; and
.00075 for Messrs. Joyce and Gutman, respectively), multiplied by an amount
equal to the Aggregate Consideration, offset by the value received in connection
with their stock options that are redeemed for cash or exchanged for other
securities in connection with such change in control.
As used in the Retention Agreements, a "Change in Control" is generally
defined to include a variety of events, including significant changes in the
stock ownership of Pathmark, changes in Pathmark's Board of Directors, certain
mergers and consolidations of Pathmark, and the sale or disposition of all or
substantially all of the consolidated assets of Pathmark.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION (1)
OVERVIEW AND PHILOSOPHY
The Compensation Committee is composed entirely of non-employee directors
and is responsible for developing and making recommendations to the Board with
respect to the Company's executive compensation policies. The Compensation
Committee, pursuant to authority delegated by the Board of Directors, determines
on an annual basis the compensation to be paid to the Chief Executive Officer
and all executive vice presidents and administers the Executive Incentive Plan
and the Equity Plan. The Compensation Committee is comprised solely of members
who are "outside directors" under Section 162(m) of the Internal Revenue Code.
The objectives of the Company's executive compensation program are to:
- Provide compensation that will attract and retain superior talent and
reward individual performance.
- Support the achievement of the Company's strategic business plan and short
and long-term financial and operating goals which, in turn, will maximize
stockholder value.
- Align the executive officers' interest with the interests of the Company
by placing a portion of pay at risk, with payout dependent upon corporate
performance.
The executive compensation program is designed to provide an overall level
of compensation opportunity that is above the median level of the market
contingent on achieving superior levels of performance. Base salaries are
generally at or around the labor market median. Annual and long-term incentive
targets are established so that compensation is greater or less than the market
average depending on corporate and individual performance. The Compensation
Committee will use its discretion to set executive compensation where in its
judgment circumstances warrant it.
Competitive pay levels are determined by reviewing compensation levels of
food retail and supermarket industries, as well as with a broader group of
retail companies of comparable size and complexity. The Company uses survey data
from several compensation consulting firms to determine these pay levels.
EXECUTIVE OFFICER COMPENSATION FOR FISCAL 2000
The Company's executive officer compensation program is comprised of base
salary, annual cash incentive compensation, long-term incentive compensation in
the form of stock options, and various benefits, including medical and pension
plans generally available to non-union full-time associates of the Company.
- ------------------------
(1) This Report is not deemed filed with the SEC and shall not be determined to
be incorporated by reference in any filing of the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934, by any
general incorporation language in any such filing, except to the extent that
the Company specifically incorporates the Report by reference in any such
filing.
14
BASE SALARY
Salary levels for executive officers are determined by:
- evaluating each position's responsibilities and accountabilities, as
compared to other positions within the Company, and
- comparing to salaries at companies in the food retail and supermarket
industries and at other comparable retail companies as previously
described.
Each year, a formal performance review is conducted and salary increases are
granted to reward performance under the Company's "Pay for Performance" program.
Increases to salary are influenced by 1) individual performance against goals;
2) an executive's position within his/her established salary range, and
3) budgetary guidelines.
These salary increase guidelines are set each year, taking into account
published salary planning information from compensation consultants, economic
data available from the Bureau of Labor Statistics, surveys of selected food
retail and supermarket chains with whom we routinely share compensation data,
competitive position against the market, and expected Company financial
performance.
To determine increases to the salaries of certain executive officers, the
Compensation Committee follows the "Pay for Performance" concept and considers
changes in responsibilities and any equitable issues that may exist.
ANNUAL INCENTIVE COMPENSATION
The Executive Incentive Plan ("EIP") is the Company's annual incentive
program for executive officers. The purpose of the plan is to provide a direct
financial incentive in the form of an annual cash award to executives who
achieve pre-established individual performance goals and/or the Company's
financial goals. Goals for Company and business unit performance are set near
the beginning of each fiscal year and, with respect to the fiscal year ended
February 3, 2001, were measured based on Earnings Before Interest, Taxes,
Depreciation, Amortization and LIFO charges ("EBITDA") and same-store sales
targets.
Target incentive awards for executives in Fiscal 2000 ranged from 50% to
125% of base salary and were set at a competitive level as previously discussed
and depend on the level of each position based on an evaluation of its
responsibilities and accountabilities and its contribution to Company results.
In Fiscal 2000, the Company did not achieve any of its predetermined financial
goals for incentive purposes and no payments were made pursuant to the EIP.
However, after the contract of sale of the Company to Royal Ahold N.V. ("Ahold")
was abandoned by Ahold in December of 1999, the Board recognized that in light
of the failure of Ahold to purchase the Company, a financial restructuring was
necessary. The Board was concerned about losing senior management. In order to
retain the key members of management, the Company entered into retention
agreements with Mr. Donald and the four named executive officers, as well as
certain other key executives. Under the terms of the various retention
agreements, the Company paid retention bonuses ranging from 50-100% of base
salary for key executives (other than Mr. Donald) if they continued in
employment with the Company through January 31, 2001. Mr. Donald received a
retention bonus comprised of a payment of $2 million and 98,510 restricted
shares of Pathmark common stock.
STOCK OPTION PROGRAM
Long-term incentives are intended to closely align shareholder and executive
interests through the achievement of the Company's strategic business plan.
Currently, long-term incentives are granted in the form of stock options under
the Equity Plan. Under the plan, the Committee may award stock options, stock
appreciation rights, stock awards, restricted stock units, and performance units
which have terms not to exceed ten years and are granted at no less than the
fair market of Pathmark
15
common stock on the date of the award grant. In the initial grant awarded upon
confirmation of the Company's Plan of Reorganization, executive officers
received stock option grants based on the general industry competitive market
for their respective positions and long term compensation practices for
companies emerging from a restructuring.
CHIEF EXECUTIVE OFFICER COMPENSATION
The fiscal compensation for Mr. Donald is set forth in his employment
agreement (the "Donald Agreement"). The compensation elements under the Donald
Agreement include base salary and bonus. These compensation elements were
extensively negotiated between Mr. Donald and the Board prior to his employment
with the Company. The Donald Agreement reflects the Board's judgment as to a
competitive total compensation program that would be necessary to retain
Mr. Donald as the Chief Executive Officer of the Company.
BASE SALARY
The Donald Agreement set Mr. Donald's Fiscal 2000 base salary at a rate of
$600,000 per annum.
BONUS
Mr. Donald received the minimum guaranteed annual bonus of $152,885 under
the Donald Agreement with respect to Fiscal 2000 since the Company did not
achieve its target under the EIP, in addition to the retention bonus described
above.
LONG-TERM INCENTIVES
The long-term incentives for Mr. Donald are divided into two components:
stock options and restricted stock. The restricted stock vests on September 19,
2001. The restricted stock grant is designed to provide Mr. Donald with an
incentive to remain employed by the Company and will generally be forfeited if
he resigns or is terminated.
In Fiscal 2000, Mr. Donald received a stock option to purchase 490,000
shares of Pathmark common stock. The stock option was granted at fair market
value and consists of nonqualified and incentive stock options. The stock option
grant is intended to provide Mr. Donald with an incentive to enhance stockholder
equity value and to remain employed by the Company.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code disallows a deduction for
federal income tax purposes by public corporations for compensation paid in
excess of $1,000,000 in any year to a "covered employee" except under certain
circumstances, including the attainment of objective "performance-based" goals.
"Covered employees" are defined as the CEO and the other four most highly
compensated executive officers of a company. Prior to the Plan Effective Date,
the Company was not a public corporation and not subject to Section 162(m)
restrictions. It is the Company's policy going forward to qualify all
compensation paid to its top executives, in a manner consistent with the
Company's compensation policies, for deductibility under Section 162(m) in order
to maximize the Company's income tax deductions. However, this policy does not
rule out the possibility that compensation may be approved that may not qualify
for the compensation deduction, if in light of all applicable circumstances it
would be in the best interests of the Company for such compensation to be paid.
THE COMPENSATION COMMITTEE
Steven Volla (Chair)
William Begley
Robert Miller
16
PERFORMANCE GRAPH (1)
The following graph below compares the cumulative total stockholder return
on Common Stock (based on its market price) since September 28, 2000, the date
Pathmark's common shares began trading on the Nasdaq Stock Market, through
February 3, 2001, with the Standard & Poor's 500 Stock Index ("S&P 500") and the
Standard & Poor's Retail (Food Chains) Index for the same period. The graph
assumes: 1) $100 invested on September 28, 2000, and 2) that all dividends have
been reinvested.
Stock price performance shown on the graph is not necessarily indicative of
future price performance and in no way reflects the Company's forecast of future
financial performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Dollars
9/28/00 11/1/00 12/1/00 12/29/00 2/2/01
PATHMARK STORES, INC. 100 129.84 132.98 138.21 139.26
S&P GROUP INDEX 100 111.17 123.52 127.94 114.55
S&P 500 INDEX 100 99.58 91.73 92.17 95.45
9/28/00 11/1/00 12/1/00 12/29/00 2/2/01
-------- -------- -------- -------- --------
Pathmark............................. 100 129.84 132.98 138.21 139.26
S&P 500 Index........................ 100 99.58 91.73 92.17 95.45
S&P Retail (Food Chains) Index....... 100 111.17 123.52 127.94 114.55
- ------------------------
(1) This performance graph is not deemed filed with the SEC and shall not be
deemed to be incorporated by reference in any filing of the Company under
the Securities Act of 1933 or the Securities Exchange Act of 1934, by any
general incorporation language in any such filing, except to the extent that
the Company specifically incorporates the performance graph by reference in
any such filing.
PROPOSAL 2
APPROVAL OF 2001 EXECUTIVE INCENTIVE PLAN FOR
EXECUTIVE OFFICERS OF PATHMARK STORES, INC.
At the Annual Meeting, stockholders are being asked to approve the EIP. The
EIP was approved by the Board of Directors in March 2001. The Board is seeking
stockholder approval of the EIP so that
17
bonuses paid thereunder will be able to satisfy the requirements for
performance-based compensation under Section 162(m) of the Internal Revenue Code
of 1986 and, accordingly, to be eligible for deductibility by the Company. In
general, Section 162(m) limits a company's deduction for compensation paid to
each of certain executive officers to $1 million per year unless the
compensation qualifies as "performance-based". Based on performance targets
established by the Committee for Fiscal 2001, only Mr. Donald's combined base
salary and payment under the EIP could exceed $1 million.
DESCRIPTION OF THE EIP
The following information includes summaries of certain provisions of the
EIP. This information does not purport to be complete and is qualified in its
entirety by reference to the provisions of the EIP, a copy of which is attached
as Appendix B to the Proxy Statement. Copies of the EIP may be obtained by
making written request of the Company's Secretary, Marc Strassler, 200 Milik
Street, Carteret, NJ 07008.
BONUS AWARDS TO EXECUTIVE OFFICERS
ELIGIBILITY. Each executive officer of the Company (currently eight
individuals) is eligible for a bonus award for each fiscal year in an amount
equal to a preestablished percentage, determined in the discretion of the
Compensation Committee, of the amount determined by multiplying the executive
officer's regular weekly base salary rate (proportionately adjusted for salary
changes over the year) by the number of weeks during such year that the
executive officer served as an executive officer, up to a maximum bonus of
$750,000 ($1.25 million for the Chief Executive Officer and $750,000 for a newly
hired executive). An executive officer of the Company is defined as an officer
subject to Section 16(a) of the Exchange Act.
PERFORMANCE CRITERIA. Each executive officer's bonus is based on a
performance target established by the Compensation Committee, which shall
include one or more of the following components: (i) same-store sales;
(ii) earnings before interest, taxes, depreciation and amortization;
(iii) working capital; (iv) operating profit and (v) return on equity. The bonus
may also be based on individual performance criteria.
The EIP provides that for each fiscal year, the Compensation Committee may
provide for objectively determined adjustments to any of the performance
components for one or more items of gain, loss, profit or expense
(i) determined to be extraordinary or unusual in nature or infrequent in
occurrence; (ii) related to the disposal of assets; (iii) related to a change in
accounting principles; (iv) related to discontinued operations not qualifying as
a business segment, or (v) attributable to the business operations of any entity
or assets acquired by the Company during such fiscal year.
BONUS AMOUNT. The bonus award for any executive officer is based on the
achievement of various levels above the performance target specified by the
Compensation Committee, subject to the maximum bonus described above. The
Compensation Committee, in its discretion, may reduce the amount payable to any
executive officer. Under the EIP, bonus awards are paid in cash after the end of
the fiscal year following the Compensation Committee's determination that the
performance goals have been attained.
AMENDMENT. The EIP may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the Board.
However, to the extent required by Section 162(m) with respect to bonus awards
which the Compensation Committee determines should qualify as performance-based
compensation under Section 162(m), no action of the Board may modify the
performance targets, target bonus awards, or the percentages to be used to
determine such bonus awards after the commencement of the fiscal year with
respect to which such bonus awards relate.
18
OTHER BONUSES. The Company may adopt other bonus arrangements outside the
EIP. Currently, Mr. Donald is entitled to a minimum guaranteed bonus under his
employment agreement.
BOARD RECOMMENDATION
The Board unanimously recommends a vote FOR the approval of the EIP. The
Board believes it is in the best interest of the Company to qualify
performance-based compensation for deductibility under Section 162(m) of the
Code in order to maximize the Company's income tax deductions. The affirmative
vote of the holders of a majority of shares present in person or by proxy and
entitled to vote at the meeting is necessary to approve the EIP. Unless
otherwise instructed, proxies will be voted FOR approval of the EIP.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1996, pursuant to the Donald Agreement, Mr. Donald, Chairman and
CEO, was provided by Pathmark with a four-year loan of $4.5 million, evidenced
by 16 full recourse promissory notes for $281,250 each bearing interest at the
short-term or intermediate-term federal rate in effect as of the date of each
note (effective rate of 6%). Under the Donald Agreement, one promissory note was
forgiven at the end of each quarter of a year during which Mr. Donald remained
employed by Pathmark. The last promissory note was forgiven during the third
quarter of Fiscal 2000. The largest amount of Mr. Donald's outstanding
indebtedness during Fiscal 2000 was $843,750.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has appointed the Audit Committee, whose members and functions are
described under "Additional Information about the Board of Directors--Committees
of the Board" above and whose charter is attached as Appendix A. Upon
recommendation of the Audit Committee, the Board has appointed the firm of
Deloitte & Touche LLP as the Company's independent accountants for the current
year. Deloitte & Touche LLP has served as auditor of the Company since fiscal
1970.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so, and will be available to respond to appropriate questions.
AUDIT FEES
In Fiscal 2000, the Company incurred audit fees of $404,900 for audit
services performed by its independent accountants.
ALL OTHER FEES
In Fiscal 2000, the Company incurred $1,016,600 for non-audit services
performed by its independent accountants, including $138,600 for tax compliance
and consulting work and $878,000 for tax and accounting work related to the
Company's restructuring. No fees were incurred for financial information systems
design and implementation in Fiscal 2000. The Audit Committee has considered
whether the independent auditors provision of other non-audit services to the
Company is compatible with the auditor's independence.
ANNUAL REPORT
A copy of the 2000 Annual Report to Stockholders which includes the
financial statements, but excludes Form 10-K exhibits, is being mailed to each
stockholder of record as of April 18, 2001, together with the proxy materials.
19
DEADLINE FOR STOCKHOLDER PROPOSALS
To be considered for inclusion in next year's Proxy Statement, any proposal
of an eligible stockholder must be in writing and received by the Secretary of
the Company at its principal executive offices located at 200 Milik Street,
Carteret, New Jersey 07008 on or before January 4, 2002.
For any proposal that is not submitted for inclusion in next year's Proxy
Statement, but is instead sought to be presented directly at the 2002 annual
meeting, under our By-Laws, and as permitted by the rules of the SEC, certain
procedures are provided which a stockholder must follow to nominate persons for
election as Directors or to introduce an item of business at an annual meeting
of stockholders. These procedures provide that nominations for Director
nominees, and/or an item of business to be introduced at an annual meeting of
stockholders, must be submitted in writing to the Secretary of the Company at
200 Milik Street, Carteret, New Jersey 07008. A notice of intention to propose
an item of business must set forth as to each proposal (i) a brief description
of the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the proposing stockholder's name
and address, (iii) the class and number of shares of the Company's stock which
are beneficially owned by the stockholder, and (iv) any material interest of the
stockholder in such business. A notice of intention to nominate a director must
include certain information regarding the nominee and contain the nominee's
consent to serve if elected. A notice of intention to introduce a nomination or
proposed item of business at the Company's 2002 Annual Meeting must be received
by the Company:
- no earlier than 90 but no later than 60 days in advance of the 2002 Annual
Meeting, if it is being held within 30 days preceding the anniversary date
of this year's meeting (June 14, 2001); or
- no earlier than 120 but no later than 90 days in advance of the meeting,
if it is being held on or after the anniversary date of this year's
meeting; or
- by the tenth day following the date of public disclosure of the date of
the meeting in all other cases.
Even if the Company receives timely notice of a stockholder's intention to
propose an item of business at the 2002 Annual Meeting, the proxies solicited by
the Board of Directors for such meeting will confer discretionary authority to
vote on the proposal, without describing the proposal in the Proxy Statement, if
notice of the proposal is received by the Company after March 20, 2002 (assuming
the 2002 Annual Meeting is held within thirty days before or after June 14,
2002), or after a reasonable time before the Company mails its proxy materials
for such meeting (if the meeting is held outside of this time period).
OTHER BUSINESS
As of the date of this Proxy Statement, neither the Board nor Management
knows of any other matters to be brought before the stockholders at this Annual
Meeting. If any other matters properly come before the meeting, action my be
taken thereon pursuant to the proxies in the form enclosed, which confer
discretionary authority on the persons named therein or their substitute with
respect to such matters.
By Order of the Board of Directors,
Marc A. Strassler
Senior Vice President
Secretary and General Counsel
May 4, 2001
20
APPENDIX A
PATHMARK STORES, INC.
AUDIT COMMITTEE CHARTER
POLICY
- This Audit Committee Charter (the "Charter") has been adopted by the Board
of Directors (the "Board") of Pathmark Stores, Inc. (the "Company"). The
Audit Committee the Board (the "Committee") shall review and reassess this
Charter annually and recommend any proposed changes to the Board for
approval.
- The Committee assists the Board in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing,
internal control and financial reporting practices of the Company.
ORGANIZATION AND INDEPENDENCE
- The membership of the Committee shall consist of at least three
independent directors, who are each free of any relationship that, in the
opinion of the Board, may interfere with such member's individual exercise
of independent judgment.
- Each Committee member shall meet the financial literacy requirements for
serving on the Committee which includes the ability to read and understand
fundamental financial statements, including balance sheet, income
statement, and cash flow statement, or will become able to do so within a
reasonable period of time after his or her appointment to the Committee.
- At least one member of the Committee must have past employment experience
in finance or accounting, requisite professional certification in
accounting, or any other comparable experience or background which results
in the individual's financial sophistication, including being or having
been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities.
- One member of the Committee shall be appointed as chairperson. The
chairperson shall be responsible for leadership of the Committee,
presiding over meetings and making regular reports to the Board. The
chairperson will also maintain regular contact with the Company's Chief
Executive Officer, Chief Financial Officer and Controller and the lead
independent and internal audit partners.
- The Committee shall maintain free and open communication with the
independent auditors, the internal auditors and Company management. In
discharging its oversight role, the Committee is empowered to investigate
any matter relating to the Company's accounting, auditing, internal
control or financial reporting practices brought to its attention, with
full access to all Company books, records, facilities and personnel. The
Committee may retain outside counsel, auditors or other advisors.
- The Committee shall meet at least four times a year, or more frequently as
the Committee considers necessary. At least once each year the Committee
shall have private meetings with the independent and internal auditors.
A-1
RESPONSIBILITIES
- Oversee the relationship with the independent auditors, including their
audit scope and fee.
- Recommend to the Board the independent auditors to be retained, or if
applicable, nominated for shareholder approval, to audit the financial
statements of the Company. Such auditors are ultimately accountable to the
Board and the Committee, as representatives of the shareholders.
- Evaluate, together with the Board and management, the performance of the
independent auditors and, where appropriate, to replace such auditors.
- Obtain annually from the independent auditors a formal written statement
describing all relationships between the auditors and the Company,
consistent with Independence Standards Board Standard No. 1. The Committee
shall actively engage in a dialogue with the independent auditors with
respect to any relationships that may impact the objectivety and
independence of the auditors and shall take, or recommend that the Board
take appropriate actions to oversee and satisfy itself as to the auditors'
independence.
- Discuss with a representative of management and the independent auditors:
(1) the interim financial information contained in the Company's Quarterly
Report on Form 10-Q prior to its filing, (2) the earnings announcement
prior to its release, and (3) the results of the review of such
information by the independent auditors. These discussions may be held
with the Committee as a whole or with the Committee chairperson in person
or by telephone.
- Review the audited financial statements and discuss them with management
and the independent auditors. These discussions shall include the matters
required to be discussed under Statement of Auditing Standards No. 61 and
consideration of the quality of the Company's accounting principles as
applied in its financial reporting, including a review of particularly
sensitive accounting estimates, reserves and accruals, judgmental areas,
audit adjustments (whether or not recorded), and other such inquiries as
the Committee or the independent auditors shall deem appropriate. Based on
such review, the Committee shall make its recommendation to the Board as
to the inclusion of the Company's audited financial statements in the
Company's Annual Report on Form 10-K (or the Annual Report to
Shareholders, if distributed prior to the filing of the Form 10-K).
- Issue annually a report to be included in the Company's proxy statement as
required by the rules of the Securities and Exchange Commission, if
applicable.
- Discuss with management, the internal auditors and the independent
auditors the quality and adequacy of and compliance with the Company's
internal controls.
- Discuss with management and/or the Company's general counsel any legal
matters, including the status of pending litigation, that may have a
material impact on the Company's financial statements, and any material
reports or inquiries from regulatory or governmental agencies.
- Review significant cases of employee conflict of interest, misconduct or
fraud, if applicable.
- Oversee internal audit activities, including discussing with management
and the internal auditors the internal audit function's organization,
objectivity, responsibilities, plans, results, budget and staffing.
- Annually review and assess the adequacy of this Charter, amend it as
appropriate, and seek and receive Board approval of the proposed changes.
A-2
APPENDIX B
THE 2001 EXECUTIVE INCENTIVE PLAN
FOR EXECUTIVE OFFICERS OF PATHMARK STORES, INC.
Pathmark Stores, Inc., a Delaware corporation (the "Company"), hereby adopts
The 2001 Executive Incentive Plan for Executive Officers of Pathmark
Stores, Inc. (the "Plan"), effective with respect to bonuses for fiscal years
beginning on or after February 4, 2001, subject to approval of the Plan by the
stockholders of the Company. The objectives of the Plan are to motivate and
reward executives to produce results that increase shareholder value and to
encourage individual and team behavior that helps the Company achieve both short
and long-term corporate objectives. The Plan is designed to assure that amounts
paid to certain Executive Officers of the Company will not fail to be deductible
by the Company for Federal Income Tax purposes because of the limitations
imposed by Section 162(m) of the Internal Revenue Code ("Section 162(m)").
ARTICLE I
DEFINITIONS
Section 1.1--BASE COMPENSATION. "Base Compensation" shall mean the
Participant's regular weekly base salary rate, excluding moving expenses, bonus
pay and other payments which are not considered part of regular weekly salary
rate, multiplied by the number of weeks the Participant is eligible, including
up to six weeks of Paid Leave of Absence. Any changes in the Participant's
regular weekly base salary rate effected during the fiscal year shall be taken
into account, on a proportionate basis, in computing any bonus award for the
fiscal year.
Section 1.2--COVERED EMPLOYEE. "Covered Employee" shall have the same
meaning set forth in Section 162(m).
Section 1.3--PAID LEAVE OF ABSENCE. "Paid Leave of Absence" shall mean a
period of time during which a Participant performs no duties due to an illness,
incapacity (including disability), layoff, jury duty, military duty or a leave
of absence for which the Participant is so paid or so entitled to payment by the
Company, whether direct or indirect, but excluding vacation time.
Section 1.4--PARTICIPANT. "Participant" shall mean any of the Chief
Executive Officer ("CEO") and any other Executive Officer. "Executive Officer"
shall mean any officer of the Company subject to Section 16(a) of the Securities
Exchange Act of 1934, as amended.
ARTICLE II
BONUS AWARDS
Section 2.1--ELIGIBILITY. Each Executive Officer is eligible for a bonus
award under this Section. For each fiscal year of the Company, the Compensation
Committee of the Board (the "Committee") shall establish an objectively
determinable performance target under this Section 2.1 which shall include one
or more of the following components of overall Company performance: (i) same
store sales, (ii) earnings before interest, taxes, depreciation and
amortization, (iii) working capital, (iv) operating profit and (v) return on
equity, in each case as determined in accordance with the Company's accounting
practices in effect on the first day of such fiscal year, and which may also
provide for adjustments in accordance with Section 2.2, and one or more
components of individual performance. Achievement of specified levels above the
performance target will result in an award to the Executive Officer not to
exceed a percentage of Base Compensation determined by the Committee, up to a
maximum bonus award of $1.25 million for the Chief Executive Officer and
$750,000 for other Executive Officers, paid in accordance with Article III. The
Committee shall establish such specified levels above the performance target and
the bonus award to be paid at each such specified level. Prior
B-1
to the payment of a bonus award, the Committee shall certify in writing the
level of performance attained by the Company during the fiscal year to which
such bonus award relates. The Compensation Committee, in its discretion, may
reduce the amount payable to any Executive Officer.
Section 2.2--ADJUSTMENTS TO PERFORMANCE COMPONENTS. For each fiscal year of
the Company, the Committee may provide for objectively determinable adjustments
to any of the performance components under Section 2.1 or 5.3 for one or more of
the items of gain, loss, profit or expense: (i) determined to be extraordinary
or unusual in nature or infrequent in occurrence, (ii) related to the disposal
of assets, (iii) related to a change in accounting principle, (iv) related to
discontinued operations, and (v) attributable to the business operations of any
entity or assets acquired by the Company during the fiscal year.
ARTICLE III
PAYMENT OF BONUS AWARD
Section 3.1--FORM OF PAYMENT. Each bonus award shall be paid in cash.
Section 3.2--TIMING OF PAYMENT. Unless otherwise directed by the Committee,
each bonus award shall be paid as soon as practicable after the end of the
fiscal year to which such bonus award relates.
ARTICLE IV
SECTION 162(M)
Section 4.1--QUALIFIED PERFORMANCE BASED COMPENSATION. The Committee, in
its discretion, may determine whether a bonus award should qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Internal Revenue Code of 1986, as amended (the "Code"), and may take such
actions which it may deem necessary to ensure that such bonus award will so
qualify.
Section 4.2--PERFORMANCE GOALS. With respect to any bonus award which the
Committee determines should qualify as performance-based compensation, any of
the performance targets described in Section 2.1, if applicable to such bonus
award, shall be established in writing before the first day of the fiscal year
to which such bonus award relates; provided, however, that, to the extent
permitted under Section 162(m)(4)(C) of the Code and the Treasury Regulations
thereunder, such performance targets may be established by the Committee in
writing not later than 90 days after the commencement of the period of service
to which the performance targets relate, provided that the outcome is
substantially uncertain at the time the Committee actually establishes the
performance targets; and, provided further, that in no event shall the
performance targets be established after 25% of the period of service (as
scheduled in good faith at the time the performance targets are established) has
elapsed.
ARTICLE V
TRANSFERS AND TERMINATIONS
Section 5.1--TRANSFERS. For a Participant who moves from one Executive
Officer position to another during a fiscal year, the bonus award for the fiscal
year will be the sum of the pro-rata bonus awards calculated for each position.
Section 5.2--TERMINATIONS. Except as provided in Section 5.1, or as
otherwise provided by the Committee or, if applicable, by the Participant's
employment agreement, a Participant who, whether voluntarily or involuntary, is
terminated, demoted, transferred or otherwise ceases to be an Executive Officer
at any time during a fiscal year shall not be eligible to receive a partial year
bonus award, except when the reason for leaving the position is for reasons of
health or retirement; provided,
B-2
however, that with respect to a Participant who leaves for reasons of health or
retirement, the Committee may determine that such Participant shall not receive
a partial fiscal year bonus award.
Section 5.3--NEW EXECUTIVE OFFICERS. A Participant who is transferred from
a non-Executive Officer position to an Executive Officer position during a
fiscal year, or who commences employment with the Company in an Executive
Officer position during a fiscal year, shall be eligible for a bonus award for
such fiscal year in accordance with Article II, unless the Committee determines,
on the basis that the performance targets established under Article II are no
longer substantially uncertain or otherwise, that such Participant shall be
eligible for a bonus award for such fiscal year under this Section 5.3. In the
event a Participant is eligible for a bonus award under this Section 5.3 for
such fiscal year, the Committee shall establish an objectively determinable
performance target under this Section 5.3 which shall relate to such
Participant's period of service as an Executive Officer during such fiscal year,
and which shall include one or more of the performance components specified in
Section 2.1, and may also provide for adjustments in accordance with
Section 2.2. Achievement of specified levels above the performance target will
result in a bonus award to such Participant not to exceed a percentage of Base
Compensation determined by the Committee, up to a maximum bonus award of
$1.25 million (in the case of the CEO) or $750,000 (in the case of any Executive
Officer other than the CEO), paid in accordance with Article III. The Committee
shall establish such specified levels above the performance target and the bonus
award to be paid at each such specified level. Prior to the payment of a bonus
award, the Committee shall certify in writing the level of performance attained
by the Company for the fiscal year to which such bonus award relates. With
respect to any bonus award under this Section 5.3 which the Committee determines
should qualify as performance-based compensation, any of the performance targets
described in this Section 5.3, if applicable to such bonus award, shall be
established in writing before the first day of such Participant's employment in
an Executive Officer position during the fiscal year to which such bonus
relates; provided, however, that, to the extent permitted under
Section 162(m)(4)(C) of the Code and the Treasury Regulations thereunder, such
performance targets may be established in writing by the Committee after the
commencement of the period of service to which the performance targets relate,
provided that the outcome is substantially uncertain at the time the Committee
actually establishes the performance targets; and, provided further, that in no
event shall the performance targets be established after 25% of the period of
service (as scheduled in good faith at the time the performance targets are
established) has been established.
ARTICLE VI
ADMINISTRATION
Section 6.1--COMPENSATION COMMITTEE.
(a) The Committee shall consist of at least two persons appointed by and
holding office at the pleasure of the Board.
(b) Appointment of Committee members shall be effective upon acceptance of
appointment. Committee members may resign at any time by delivering
written notice to the Board. Vacancies in the Committee shall be filled
by the Board.
Section 6.2--DUTIES AND POWERS OF COMMITTEE. It shall be the duty of the
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall have the power to interpret the Plan, and to
adopt such rules for the administration, interpretation and application of the
Plan as are consistent therewith and to interpret, amend or revoke any such
rules. In its absolute discretion, the Board may at any time and from time to
time exercise any and all rights and duties of the Committee under the Plan,
except with respect to matters which under Section 162(m) of the Code are
required to be determined in the sole and absolute discretion of the Committee.
Notwithstanding any other provision in the Plan to the contrary, the Committee
shall have the right, in
B-3
its discretion, to pay to any Participant who is not a Covered Employee an
annual bonus for such year in an amount up to the maximum bonus payable under
Section 2.2, based on individual performance or any other criteria that the
Company deems appropriate. In addition, the Committee, in its discretion, may
reduce the bonus amount payable to any Executive Officer.
Section 6.3--MAJORITY RULE. The Committee shall act by a majority of its
members in office. The Committee may act either by vote at a meeting or by a
memorandum or other written instrument signed by a majority of the Committee.
ARTICLE VII
OTHER PROVISIONS
Section 7.1--AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. This Plan
does not constitute a promise to pay and may be wholly or partially amended or
otherwise modified, suspended or terminated at any time and from time to time by
the Board. However, to the extent required by Section 162(m) with respect to
bonus awards which the Committee determines should qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, no action of the
Board may modify the performance targets described in Section 2.1, if applicable
to such bonus awards, after the commencement of the year with respect to which
such bonus awards relate.
Section 7.2--APPROVAL OF PLAN BY STOCKHOLDERS. This plan shall be submitted
for the approval of the Company's stockholders at the Annual Meeting of
Stockholders to be held in 2001.
B-4
PROXY
PATHMARK STORES, INC.
200 Milik Street
Carteret, New Jersey 07008
Proxy for Annual Meeting of Stockholders, June 14, 2001
(The Solicitation of This Proxy is Made on Behalf of the Board of Directors)
The undersigned hereby appoints James Donald, Frank Vitrano and Marc
Strassler, or a majority of them, with full power of substitution and
revocation, as proxies to represent the undersigned at the Annual Meeting of
Stockholders of Pathmark Stores, Inc. to be held at 200 Milik Street, Carteret,
New Jersey, Thursday, June 14, 2001 at 3:00 P.M. local time, and at any
adjournment thereof, and to vote all the shares of stock the undersigned would
be entitled to vote if personally present.
Change of Address
- ------------------------------
- ------------------------------
- ------------------------------
(If you have written in the above space, please mark the corresponding box on
the reverse side of this card)
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
Page 1
PLEASE DATE, SIGN AND MAIL THIS PROXY TODAY
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
The shares represented by this proxy will be voted Please mark |X|
as directed by the shareholder. If no direction is your votes as
made, this proxy will be voted for proposals 1 and 2. indicated in
this example
1. Election of Directors
FOR WITHHELD
FOR ALL
|_| |_|
Messrs. William J. Begley, James L. Donald, Daniel H. Fitzgerald,
Eugene M. Freedman, Robert G. Miller, Frank G. Vitrano and Steven L.
Volla
WITHHELD FOR: (Write that nominee's name in the space provided below)
- --------------------------------------------------------------------------------
2. Approval of the Executive Incentive Plan
FOR AGAINST ABSTAIN
|_| |_| |_|
3. In their discretion, the Proxyholders are authorized to vote upon such other
mattersthat may properly come before the Meeting or any adjournments thereof.
If you plan to attend the Annual Meeting,
please mark the box. / /
Signature ____________________ Signature___________________ Date_______________
NOTE: Please sign as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
Dear Stockholder:
On behalf of the Board of Directors of Pathmark Stores, Inc., thank you for
your continued interest and support.
We realize that many of you may be unable to attend our Annual Meeting of
Stockholders in June. Because your vote is important, we encourage you to
promptly complete and return your proxy.
Regards,
James L. Donald, Chairman