UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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Check the appropriate box:
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| Preliminary Proxy Statement
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| Definitive Proxy Statement
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| Soliciting Material under § 240.14a-12
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HARRIS TEETER SUPERMARKETS, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or
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HARRIS TEETER SUPERMARKETS, INC.
701 Crestdale Road
Matthews, North Carolina
28105
TO THE SHAREHOLDERS OF
HARRIS TEETER SUPERMARKETS, INC.
The Annual Meeting of the
Shareholders of Harris Teeter Supermarkets, Inc. (the Company) will be held at the Companys headquarters located at 701 Crestdale
Road, Matthews, North Carolina 28105, on Thursday, February 21, 2013 at 10:00 A.M., local time.
Pursuant to rules promulgated by
the Securities and Exchange Commission, we are providing access to our proxy materials over the Internet. On or about January 4, 2013, we will mail a
Notice of Internet Availability of Proxy Materials (the Notice) to our shareholders of record and beneficial owners at the close of
business on December 14, 2012. On the date of mailing of the Notice, all shareholders and beneficial owners will have the ability to access all of the
proxy materials on a website referred to in the Notice. These proxy materials will be available free of charge.
You are cordially invited to
attend the Annual Meeting of Shareholders in person. Even if you choose to attend in person, you are encouraged to review the proxy materials and vote
your shares in advance of the meeting by Internet. The Notice will contain instructions to allow you to request copies of the proxy materials to be
sent to you by mail. Any proxy materials sent to you will include a proxy card that will provide you with a telephone number you may call to cast your
vote, or you may complete, sign and return the proxy card by mail. Your vote is extremely important, and we appreciate you taking the time to vote
promptly.
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Sincerely, Thomas W. Dickson Chairman of the Board and Chief Executive Officer |
HARRIS TEETER SUPERMARKETS, INC.
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
TO BE HELD ON
FEBRUARY 21, 2013
To our Shareholders:
The Annual Meeting of the
Shareholders of your Company will be held at the Companys headquarters located at 701 Crestdale Road, Matthews, North Carolina 28105, on
Thursday, February 21, 2013, at 10:00 A.M., local time, for the following purposes:
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To elect eleven (11) directors to serve until the next Annual
Meeting of Shareholders or until their respective successors are duly elected and qualified; |
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To approve the Harris Teeter Supermarkets, Inc. 2013 Cash
Incentive Plan; |
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To consider and provide an advisory (non-binding) Say on
Pay vote to approve the compensation of the Companys named executive officers as described in the Proxy Statement; |
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To ratify the appointment of KPMG LLP as the independent
registered public accounting firm of the Company for the fiscal year ending October 1, 2013; and |
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To transact such other business as may properly come before the
Annual Meeting or any adjournment or adjournments thereof. |
Pursuant to the provisions of the
North Carolina Business Corporation Act, December 14, 2012 has been fixed as the record date for the determination of shareholders entitled to notice
of and to vote at the Annual Meeting, and accordingly, only holders of record of the common stock of the Company (the Common Stock) at the
close of business on that date will be entitled to notice of and to vote at the Annual Meeting and any adjournments thereof.
Your vote is extremely important.
We appreciate you taking the time to vote promptly. After reading the Proxy Statement, please vote, at your earliest convenience by Internet, or
request that proxy materials be sent to you by mail. If you request the proxy materials by mail, included therewith will be a proxy card with a
telephone number you may call to cast your vote, or you may complete, sign and return the proxy card by mail.
YOUR SHARES CANNOT BE VOTED
UNLESS YOU (I) VOTE BY INTERNET, (II) REQUEST PROXY MATERIALS BE SENT TO YOU THAT WILL INCLUDE A PROXY CARD WITH A TELEPHONE NUMBER YOU MAY CALL TO
CAST YOUR VOTE, OR YOU MAY COMPLETE, SIGN AND RETURN THE PROXY CARD BY MAIL, OR (III) ATTEND THE ANNUAL MEETING AND VOTE IN PERSON.
By order of the Board of
Directors.
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Douglas J. Yacenda Secretary |
January 4, 2013
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HARRIS TEETER SUPERMARKETS, INC.
ANNUAL MEETING OF SHAREHOLDERS
to be held on
February 21, 2013
This statement, first mailed or
made available to shareholders on or about January 4, 2013, is furnished in connection with the solicitation by the Board of Directors of Harris Teeter
Supermarkets, Inc. (together with its subsidiaries, herein called the Company) of proxies to be used at the Annual Meeting of Shareholders
of the Company (the Annual Meeting) to be held on Thursday, February 21, 2013, at 10:00 A.M., local time, at the Companys
headquarters located at 701 Crestdale Road, Matthews, North Carolina 28105, and at any adjournment or adjournments thereof (the Proxy
Statement).
In accordance with rules and
regulations adopted by the Securities and Exchange Commission, instead of mailing a printed copy of our proxy materials to each shareholder of record,
the Company furnishes proxy materials on the Internet. If you received a Notice of Internet Availability of Proxy Materials (the Notice) by
mail, you will not receive a printed copy of the proxy materials other than as described herein. Instead, the Notice will instruct you as to how you
may access and review all of the important information contained in the proxy materials. The Notice also instructs you as to how you may submit your
proxy over the Internet. If you received a Notice by mail and would like to receive a printed copy of our proxy materials or vote by telephone, you
should follow the instructions for requesting proxy materials included in the Notice.
It is anticipated that the Notice
will be sent to shareholders on or about January 4, 2013. This Proxy Statement and the form of proxy relating to the Annual Meeting will be made
available via the Internet to shareholders on the date that the Notice is first sent.
The proxy may be revoked in
writing by the person giving it at any time before it is exercised either by notice to the Companys Secretary or by submitting a proxy having a
later date, or it may be revoked by such person by appearing at the Annual Meeting and electing to vote in person in accordance with the prescribed
rules and procedures. All shares represented by valid proxies received pursuant to this solicitation, and not revoked before they are exercised, will
be voted in the manner specified therein. Where specifications are not made, proxies will be voted:
(i) in favor of
electing as directors of the Company the eleven persons named in this Proxy Statement as nominees, each to serve until the next Annual Meeting of
Shareholders or until their respective successors are duly elected and qualified,
(ii) in favor of
approval of the Harris Teeter Supermarkets, Inc. 2013 Cash Incentive Plan (the 2013 Cash Incentive Plan),
(iii) in favor of
providing an advisory (non-binding) Say on Pay vote to approve the compensation of the Companys named executive officers as described
in the Proxy Statement,
(iv) in favor of
ratification of the appointment of KPMG LLP as the independent registered public accounting firm of the Company for the fiscal year ending October 1,
2013, and
(v) in the discretion
of the proxy holders on any other matters presented at the Annual Meeting.
The entire cost of soliciting
these proxies will be borne by the Company. In addition to the delivery of the Notice by mail, the Company may request banks, brokers and other record
holders, or a proxy solicitor acting on its behalf, to send proxies and proxy materials to the beneficial owners of the Companys Common Stock
(the Common Stock) and secure their voting instructions and will reimburse them for their reasonable expenses in so doing. The Company has
not engaged a proxy solicitor to solicit proxies from shareholders; however, the Company retains the right to do so if it deems such solicitation
necessary. Furthermore, the Company may also use one or more of its regular employees, who will not be specially compensated, to solicit proxies from
the shareholders, either in person, by telephone or by special letter.
Pursuant to the provisions of the
North Carolina Business Corporation Act, December 14, 2012 has been fixed as the record date for the determination of shareholders entitled to notice
of and to vote at the Annual Meeting. Accordingly, only holders of the Common Stock of record at the close of business on that date will be entitled to
notice of and to vote at the Annual Meeting. On the record date, there were 49,469,155 shares of Common Stock outstanding and entitled to vote at the
Annual Meeting. Each share is entitled to one vote on each matter expected to be presented at the Annual Meeting, including the election of
directors.
The presence of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the Annual Meeting, present in person or represented by proxy, is necessary to
constitute a quorum. Abstentions and broker non-votes, if any, are counted as present and entitled to vote for purposes of determining a
quorum.
Under the rules of the New York
Stock Exchange Inc. (the NYSE), a bank, broker or other nominee holding the Companys shares in street name for a
beneficial owner has discretion (but is not required) to vote the clients shares with respect to routine matters if the client does
not provide voting instructions. The bank, broker or other nominee, however, is not permitted to vote the clients shares with respect to
non-routine matters without voting instructions. A broker non-vote occurs when a bank, broker or other nominee does not vote on
a particular proposal because that bank, broker or other nominee does not have discretionary voting power for that particular item and has not received
instructions from the beneficial owner.
The proposal to elect directors,
the proposal to approve the 2013 Cash Incentive Plan and the advisory (non-binding) Say on Pay vote to approve the compensation of the
Companys named executive officers are considered non-routine matters under the NYSE rules, which means that your bank, broker or other nominee
may not use its discretion to vote your shares held in street name on those matters without your express voting instructions. The proposal to ratify
the appointment of KPMG LLP as the Companys independent registered public accounting firm is considered a routine matter under the
NYSE rules, which means that your bank, broker or other nominee will have discretionary authority to vote your shares held in street name on that
matter.
Accordingly, if you do not
instruct your bank, broker or other nominee to vote your shares on a matter, the bank, broker or other nominee may either: (i) vote your shares on
routine matters and cast a broker non-vote on non-routine matters, or (ii) leave your shares unvoted altogether.
2
The following table sets forth
information concerning the beneficial ownership of Common Stock by those persons known to the Company to be the beneficial owners of more
than five percent of the Common Stock. The information below is provided as of October 31, 2012, and the information for Neuberger Berman Group LLC and
BlackRock, Inc. is based solely on the latest Schedule 13G reports each entity had filed with the Securities and Exchange Commission as of such date.
The nature of beneficial ownership of the shares included is presented in the notes following the table.
Name and Address of Beneficial Owner
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Number of Shares Beneficially Owned (1)
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Percent of Class
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T. Rowe Price Trust Company (2) Trustee of the Harris Teeter Supermarkets, Inc. Retirement and Savings Plan Post Office Box
89000 Baltimore, Maryland 21289 |
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3,128,938 |
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6.35 |
% |
Neuberger Berman Group LLC (3) 605 Third Avenue New York, NY 10158 |
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5,965,226 |
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12.10 |
% |
BlackRock, Inc. (4) 40 East 52nd Street New York, NY 10022 |
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3,313,979 |
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6.72 |
% |
(1) |
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Beneficial Ownership for purposes of the table, is
determined according to the meaning of applicable securities regulations and based on a review of reports filed with the Securities and Exchange
Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act). |
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T. Rowe Price Trust Company, in its capacity as directed
trustee, votes Common Stock held by the Harris Teeter Supermarkets, Inc. Retirement and Savings Plan (the Retirement and Savings Plan) that
have been allocated to individual accounts in accordance with the participants instructions and does not vote allocated Common Stock as to which
no instructions are received. Fiduciary Counselors Inc. (Fiduciary Counselors) was engaged as an independent fiduciary with respect to the
Common Stock held by the Retirement and Savings Plan in order to, among other things, monitor the Companys financial condition to determine, in
Fiduciary Counselors sole discretion, whether holding Common Stock by the Retirement and Savings Plan is no longer consistent with the Employee
Retirement Income Security Act of 1974, as amended, and if it were to become no longer consistent, to determine when and in what manner to liquidate
the shares. As such, Fiduciary Counselors filed a Schedule 13G/A with the Securities and Exchange Commission on February 14, 2012 claiming shared
dispositive power over the shares held by the Retirement and Savings Plan. |
(3) |
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Neuberger Berman Group LLC (NBG) reported in its
Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2012 that it had beneficial ownership of 5,965,226 shares, together
with its affiliates Neuberger Berman LLC, Neuberger Berman Management LLC and Neuberger Berman Equity Funds. Neuberger Berman Group LLC had shared
power to vote over 5,354,226 shares and shared power to dispose over 5,965,226 shares. Neuberger Berman LLC, a subsidiary of NBG, had shared power to
vote over 5,354,226 shares and shared power to dispose over 5,965,226 shares. Neuberger Berman Management LLC, a subsidiary of NBG, had shared power to
vote and shared power to dispose over 5,260,267 shares. Neuberger Berman Equity Funds had shared power to vote and shared power to dispose over
4,774,967 shares. |
(4) |
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BlackRock, Inc. (BlackRock) reported in its Schedule
13G/A filed with the Securities and Exchange Commission on February 13, 2012, that it had sole power to vote and sole power to dispose over 3,313,979
shares. |
3
ELECTION OF DIRECTORS
Under the Companys Bylaws,
the Board of Directors of the Company shall consist of not less than nine nor more than thirteen members, which number shall be fixed and determined
from time to time by resolution of the Board of Directors. The number of directors currently is fixed at ten, but the Board of Directors has fixed the
number at eleven effective at the Annual Meeting. All of the members of the Board of Directors will be elected annually to serve one year terms. At the
Annual Meeting the shareholders will elect all eleven members of the Board of Directors.
The Board of Directors has
nominated the eleven persons listed herein to be elected as directors at the Annual Meeting, each for a term of one year. All of the nominees other
than Mr. Ordan are currently members of the Board of Directors.
It is intended that the persons
named as proxies in the accompanying form of proxy will vote to elect as a director each of the eleven nominees listed herein, each to serve until the
next Annual Meeting of Shareholders or until such nominees successor shall be elected and qualified to serve, in each case unless authority to so
vote is withheld. Although the Board of Directors expects that each of the nominees will be available for election, in the event a vacancy in the slate
of nominees is occasioned by death or other unexpected occurrence, it is intended that shares represented by proxies in the accompanying form will be
voted for the election of a substitute nominee selected by the persons named in the proxy.
Once a quorum is present at the
Annual Meeting, director nominees will be elected by a plurality of the votes cast. This means that the director nominee with the most votes for a
particular seat on the Board of Directors is elected for that seat. You may vote for or withheld with respect to the election
of directors. Only votes for count in determining whether a plurality has been cast in favor of a director. Abstentions are not counted for
purposes of the election of directors.
Votes withheld from director
nominees do not technically have the effect of an against vote with respect to the election of directors. However, in accordance with the
Companys Corporate Governance Guidelines, each nominee for election to the Board of Directors has agreed in writing that if he or she receives a
greater number of votes withheld from his or her election than votes for such election (a Majority Withheld Vote),
that he or she will, with no further action, immediately resign from the Board of Directors, effective upon acceptance of the resignation by the Board
of Directors after its receipt of the recommendation of the Corporate Governance & Nominating Committee. Abstentions and broker non-votes are not
considered withheld votes.
If a nominee is the subject of a
Majority Withheld Vote, the Corporate Governance & Nominating Committee will promptly consider the resignation, and consider a range of possible
responses based on the circumstances that led to the Majority Withheld Vote, if known, and make a recommendation to the Board of Directors. The Board
of Directors then will decide whether or not to accept the resignation at its next regularly scheduled Board of Directors meeting, or, if a regularly
scheduled meeting will not occur within 100 days of the date the election is certified by the inspector of elections, the Board of Directors will hold
a special meeting to consider the matter. Thereafter, the Board of Directors will promptly disclose the explanation of its decision in a Current Report
on Form 8-K filed with the Securities and Exchange Commission.
A director who is the subject of
a Majority Withheld Vote will not participate in the Corporate Governance & Nominating Committees recommendation or the Board of
Directors action regarding whether to accept (i) such directors resignation or (ii) the resignation of any other director who is then also
the subject of a Majority Withheld Vote.
The Board of Directors recommends that the shareholders
vote to elect all of the nominees as directors.
Set forth herein is the name of
each nominee for election to the Board of Directors, as well as each such persons age, his or her current principal occupation (which has
continued for at least the past five years unless otherwise indicated) together with the name and principal business of the company by which such
person is employed, if any, the period during which such person has served as a director of the Company, all positions and offices
that
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such person holds with the
Company and such persons directorships over the past five years in other companies with a class of securities registered pursuant to Section 12
of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or companies registered as an investment company under the
Investment Company Act of 1940 and the specific experience, qualifications, attributes or skills that led to the conclusion that such person should
serve as a director of the Company.
Nominees for Election as Directors
JOHN
R. BELK, age 53, has been President and Chief Operating Officer of Belk, Inc., retail merchants, since May 2004. Prior to
that time, he served as President Finance, Systems and Operations of Belk, Inc. from May 1998 to May 2004. Mr. Belk is also a former Chairman of
the Board of Trustees of Novant Health, Inc. and served as director of ALLTEL Corporation from 1996 to November 2007. Mr. Belk has broad experience in
the management and oversight of a retail business. He brings significant expertise in retail business matters, strategic planning, risk management and
corporate governance, which are important to a large retail organization like the Company. He has been a director of the Company since 1997 and also
serves as a director of Belk, Inc.
JOHN
P. DERHAM CATO, age 62, has been the Chairman, President and Chief Executive Officer of The Cato
Corporation, a specialty apparel retailer, since February 2004. Prior to that time, Mr. Cato was the President, Vice Chairman of the Board and Chief
Executive Officer of The Cato Corporation from May 1999 to February 2004. Mr. Cato brings to the Board of Directors a breadth and depth of operations,
management, and strategic planning experience in the retail industry. His background at The Cato Corporation and leadership of a public company is
directly relevant to the oversight of a large organization like the Company. Mr. Cato has been a director of the Company since November 2002 and also
serves as a director of The Cato Corporation.
THOMAS
W. DICKSON, age 57, is the Chairman of the Board and Chief Executive Officer of the Company. He has been Chairman of the
Board since March 2006 and Chief Executive Officer since February 1997. In addition, he served as President from February 1997 through March 2012.
Before his election as President and Chief Executive Officer, he served as Executive Vice President of the Company from February 1996 to February 1997.
Prior to that time, from February 1994 to February 1996 he served as President of, and from February 1991 to February 1994 he served as Executive Vice
President of, American & Efird, Inc., a wholly owned subsidiary of the Company until November 2011. Mr. Dickson brings executive decision making
skills, operating and management experience, and broad supermarket and real estate experience to the Board of Directors from his 30 years of experience
with the Company and its subsidiaries. These experiences and Mr. Dicksons ongoing interaction with real estate developers provide the Board of
Directors with, among other things, valuable insight regarding store acquisitions and capital expenditure planning, industry expertise important to the
Companys business and a deep understanding of the Companys operations and the economic environment in which it operates. He has been a
director of the Company since 1997.
JAMES
E. S. HYNES, age 72, was the Chairman of the Board of Hynes Inc., a manufacturers representative,
from September 1986 until October 2000. As one of the most tenured directors, Mr. Hynes provides the Board of Directors with retailing and strategic
planning expertise through his service on the board of Hynes Inc. His experiences dealing with major manufacturers of health and beauty products and
large retailers are important to the Board of Directors oversight of strategic planning. He has been a director of the Company since 1983 and
serves as Chairman of the Board of Commissioners of Carolinas HealthCare System, one of the Southeasts leading healthcare
systems.
ANNA
SPANGLER NELSON, age 50, has been Chairman and Executive Vice President of Spangler Companies, Inc. (formerly known as
Golden Eagle Industries, Inc.), a private investment company, since January 2005. Ms. Nelson has been a general partner of the Wakefield Group, a
venture capital company, since September 1988. From these experiences, Ms. Nelson brings knowledge of financial products and investments that assists
the Board of Directors in overseeing the financial management and risk management practices of the Company. Ms. Nelson has been a director of the
Company since 1998, and serves as a Trustee of the Fidelity Charitable Gift Fund, the John S. and James L. Knight Foundation, and The North Carolina
Capital Management Trust.
5
MARK
S. ORDAN, age 53, has been the Chief Executive Officer of Sunrise Senior Living, Inc. (Sunrise), a provider
of senior living services in the United States, Canada and the United Kingdom, since November 2008. From March 2008 through November 2008, he served as
the Chief Investment and Administrative Officer of Sunrise. From October 2006 until May 2007, Mr. Ordan served as Chief Executive Officer and President
of The Mills Corporation (Mills), a publicly traded developer, owner and manager of a diversified portfolio of regional shopping malls and
retail entertainment centers. Prior to that, Mr. Ordan held senior executive positions at a number of companies in the real estate, food service and
supermarket industries. Mr. Ordans management and leadership experience as a chief executive officer of public and private companies; his
knowledge and experience regarding real estate financings, acquisitions and dispositions, joint ventures and corporate and debt restructurings; his
experience in the retail and supermarket industry; his director experience in public and private companies; and his service as the Chief Executive
Officer and director of Sunrise are valuable assets expected to be greatly utilized by the Board of Directors. Mr. Ordan does not currently have any
position or office with the Company. He has served as a director of Sunrise since July 2008.
BAILEY
W. PATRICK, age 51, has been Managing Partner of Merrifield Patrick Vermillion, LLC, a company involved in commercial
real estate, brokerage and development, since July 2010. Mr. Patrick was the President of Bissell Patrick LLC, which was also involved in commercial
real estate, brokerage and development, from September 1998 until December 2009, at which time Bissell Patrick LLC merged into Merrifield Patrick LLC.
Mr. Patrick was Managing Partner of Merrifield Patrick LLC from January 2010 until July 2010, at which time Merrifield Patrick merged to form
Merrifield Patrick Vermillion LLC. Mr. Patrick has been a director of the Company since August 2003 and serves as a director of The Cato Corporation.
Mr. Patrick brings a breadth and depth of operations and strategic planning experience to the Board of Directors, including real estate development
experience, from his leadership at Merrifield Patrick Vermillion, LLC and its predecessor organizations. Mr. Patricks background particularly
assists the Board of Directors in overseeing the Companys real estate functions and expansions.
ROBERT
H. SPILMAN, JR., age 56, has been the President and Chief Executive Officer of Bassett Furniture
Industries, Incorporated, a furniture manufacturer and distributor, since March 2000. Mr. Spilman has been the Companys Lead Independent Director
since August 2012, and has been a director of the Company since August 2002. He also serves as a director of Bassett Furniture Industries, Incorporated
and Dominion Resources, Inc. Through his management experience at Basset Furniture Industries, Incorporated, a vertically integrated manufacturer,
importer and retailer of home furnishings operating a network of licensed and corporate stores, Mr. Spilman provides the Board of Directors with sales,
operations, risk management, strategic planning and corporate governance expertise that is important to the oversight of the Company.
HAROLD
C. STOWE, age 66, has been the managing member of Stowe-Monier Management, LLC, a venture capital management company
since August 2007. Prior to that time, he served as the Interim Dean of Development at the Wall College of Business Administration of Coastal Carolina
University from June 2006 to August 2007. Prior to that time, Mr. Stowe was the President and Chief Executive Officer of Canal Holdings, LLC, a real
estate and asset management company, from October 2001 to March 2005. Prior to that time, he was the President and Chief Executive Officer of Canal
Industries, Inc., a forest products company, from March 1997 until October 2001. Mr. Stowe has a broad range of financial, banking, and management
expertise, which provides the Board of Directors with valuable experience in its oversight of the financial reporting and corporate governance of the
Company. Mr. Stowe has been a director of the Company since 1998 and also serves as a director of SCANA Corporation.
ISAIAH
TIDWELL, age 67, was the Georgia Wealth Management Director and Executive Vice President of Wachovia Bank, N.A. from September 2001 to
February 2005. Prior to that time, he served as the President, Georgia Banking, of Wachovia Bank from July 1999 to September 2001. Mr. Tidwells
extensive experience in retail banking operations and credit administration at Wachovia Bank provides the Board of Directors with significant financial
and retail expertise important to the oversight of the Companys retail operations, financial reporting and enterprise risk management. Mr.
Tidwell has been a director of the Company since 1999 and also serves as a director of Snyders-Lance, Inc. and Lincoln National
Corporation.
WILLIAM
C. WARDEN, JR., age 60, was the Executive Vice President, Administration, of Lowes Companies, Inc. from
February 1996 to February 2003. Mr. Wardens experience as an executive of a large retail organization provides the Board of Directors with
expertise in the areas of real estate, engineering and construction, loss
6
prevention and safety,
internal audit, administration and legal that is relevant to the Companys businesses, developments and operations as well as the strategic
planning functions of the Board of Directors. Mr. Warden has been a director of the Company since February 2008 and also serves as a director of
Bassett Furniture Industries, Incorporated.
No director or nominee for
director of the Company has a family relationship as close as first cousin with any other executive officer, director or nominee for director of the
Company.
Directors Fees and Attendance
The Company compensated each
director elected to the Board of Directors at the Companys 2012 Annual Meeting of Shareholders who was not an employee of the Company via an
annual fee in the amount of $37,500 for services as a director. Non-employee directors also receive a meeting fee for each Board of Directors or
committee meeting attended. The meeting fee was $2,000 for the October 2011 and November 2011 meetings and $2,500 per meeting for the meetings held
during the remainder of the fiscal year ended October 2, 2012 (Fiscal 2012). The Chairman of the Audit Committee was paid an annual fee of
$6,000 in addition to the fees described herein.
Pursuant to the Harris Teeter
Supermarkets, Inc. Director Deferral Plan (the Deferral Plan), non-employee directors of the Company may generally defer the payment of the
annual fee and/or board and committee meeting fees. The fees deferred by a director under the Deferral Plan are converted into stock units and credited
to the directors account as of the date such fees would have otherwise been paid to the director (the Valuation Date). The account of
a director is credited with a number of stock units equal to the number of whole and fractional shares of Common Stock which the director would have
received with respect to such fees if the fees had been paid in Common Stock, determined by dividing such fees by the average of the high and low sale
price (Average Price) of a share of Common Stock on the Valuation Date. Directors accounts are equitably adjusted for the amount of
any dividends, stock splits or applicable changes in the capitalization of the Company. The Company uses a non-qualified trust to purchase and hold the
Common Stock to satisfy the Companys obligation under the Deferral Plan, and the directors are general creditors of the Company in the event the
Company becomes insolvent. Upon termination of service as a director or in the event of death, the number of stock units in the directors account
are delivered and paid in the form of whole shares of Common Stock to the director or a designated beneficiary, plus the cash equivalent for any
fractional shares.
Pursuant to the provisions of the
Companys equity incentive plans, the Company has typically granted to each new non-employee director upon his or her initial election as director
a ten-year option to purchase 10,000 shares of Common Stock at an exercise price per share equal to the Average Price of the Common Stock on the date
of grant of the option. These options are typically immediately vested on the date of the directors election.
In addition to the compensation
discussed herein, the Company grants other incentive awards to its non-employee directors from time to time. At the meeting of the Board of Directors
held on November 17, 2011 each of John R. Belk, John P. Derham Cato, James E. S. Hynes, Anna Spangler Nelson, Bailey W. Patrick, Robert H. Spilman,
Jr., Harold C. Stowe, Isaiah Tidwell and William C. Warden, Jr., constituting all of the non-employee directors of the Company at the time of the
meeting, were credited with a discretionary Company contribution of $20,000, which was paid into the Deferral Plan and converted into stock units, as
described herein. The Company also provides $100,000 of term life insurance coverage for each non-employee director, personal group excess liability
insurance coverage, and certain perquisites as disclosed in the footnotes to the following table.
7
Director Compensation for 2012 (1)(2)
Name
|
|
|
|
Fees Earned or Paid in Cash ($)
|
|
All Other Compensation ($)(3)
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Thomas W. Dickson, the Companys Chairman of the Board and
Chief Executive Officer, is not included in this table because he is an employee of the Company and thus receives no compensation for his service as a
director. The compensation received by Mr. Dickson as an employee of the Company is shown in the Summary Compensation Table for 2012 provided
herein. |
(2) |
|
There were no option or other awards granted to the
Companys directors during Fiscal 2012, other than to Thomas W. Dickson. With respect to Mr. Dickson, please see Outstanding Equity Awards
at Fiscal Year-End for 2012 for a list of equity awards outstanding as of October 2, 2012. The assumptions used in the calculation of these
amounts, if any, are included in the note entitled Stock Options and Stock Awards in the Notes to Consolidated Financial Statements
included within the Companys Annual Report on Form 10-K for the fiscal year ended October 2, 2012, except that for the purposes of this table the
estimates of forfeitures related to service-based vesting conditions have been disregarded. The outstanding stock options for each director as of
October 2, 2012 were as follows: |
Outstanding Stock Option Awards at Fiscal Year-End for
2012
Name
|
|
|
|
Number
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
12,000 |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
|
|
|
2,000 |
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
10,000 |
|
(3) |
|
Perquisites and personal benefits were less than $10,000 in
aggregate for each director listed in the table who served during Fiscal 2012. The Company paid premiums of $85 for a full year of term life insurance
for each of the non-employee directors. |
The Board of Directors held six
(6) meetings during Fiscal 2012. Each director attended at least 75% of the aggregate number of meetings of the Board of Directors and all committees
of the Board of Directors on which they served during Fiscal 2012.
8
Committees of the Board of
Directors
As of October 2, 2012, the
Companys Board of Directors had the following standing committees: (i) the Audit Committee, whose current members are Harold C. Stowe (Chair),
John R. Belk, Bailey W. Patrick, Isaiah Tidwell and William C. Warden, Jr.; (ii) the Compensation Committee, whose current members are James E. S.
Hynes (Chair), John P. Derham Cato, Anna Spangler Nelson and William C. Warden, Jr.; and (iii) the Corporate Governance & Nominating Committee,
whose current members are Robert H. Spilman, Jr. (Chair), John R. Belk, Anna Spangler Nelson and Isaiah Tidwell. Included herein is a description of
each committee of the Board of Directors.
Audit Committee: The Audit
Committee discharges the Board of Directors responsibility relating to the oversight of (i) the integrity of the financial statements and
internal controls of the Company, (ii) the compliance by the Company with legal and regulatory requirements, (iii) the outside auditors
independence and qualifications, and (iv) the performance of the Companys internal audit function and outside auditors. The Audit Committee,
among other things, is responsible for the appointment, compensation and oversight of the independent auditors and reviews the financial statements,
audit reports, internal controls and internal audit procedures. Each member of the Audit Committee has been determined to be an independent director,
in accordance with the independence requirements of the Securities and Exchange Commission and the New York Stock Exchange. The Audit Committee was
established in accordance with Section 3(a)(58)A of the Exchange Act. The Audit Committee met eight (8) times during Fiscal 2012.
Compensation Committee:
The Compensation Committee assesses the Companys overall compensation programs and philosophies. Among other things, it and the Chairman of the
Corporate Governance & Nominating Committee approve the goals and objectives relevant to the Chief Executive Officers compensation and
recommend to the independent members of the Board of Directors for their approval, the salary, incentive compensation and equity compensation of the
Chairman of the Board and Chief Executive Officer. In addition, the Compensation Committee recommends to the independent members of the Board of
Directors for its approval, the salaries, incentive compensation and equity compensation for other executive officers. The Compensation Committee also
reviews the salaries and incentive compensation for other Company officers and key employees and the qualified and non-qualified retirement plans. In
addition, the Compensation Committee approves the annual bonus criteria under the Companys cash and equity incentive plans, including the 2013
Cash Incentive Plan being presented for shareholder approval at this Annual Meeting, the Harris Teeter Supermarkets, Inc. Cash Incentive Plan which was
effective October 2, 2006 (the 2006 Cash Incentive Plan) and the Harris Teeter Supermarkets, Inc. 2011 Incentive Compensation Plan (the
2011 Incentive Compensation Plan). The Compensation Committee grants restricted stock to the employees of the Company, other than the
executive officers of the Company, pursuant to the Companys equity incentive plans and reports such actions to the Board of
Directors.
The Compensation Committee may
delegate any of its powers or duties to the chairperson of the Compensation Committee or any subcommittee, other than as prohibited by law. Each member
of the Compensation Committee has been determined to be an independent director, in accordance with the independence requirements of the New York Stock
Exchange. The Compensation Committee met one (1) time during Fiscal 2012. For more information see the Report of the Compensation Committee
appearing elsewhere in this Proxy Statement.
Corporate Governance &
Nominating Committee: The Corporate Governance & Nominating Committee identifies, reviews, evaluates and recommends nominees for the Board of
Directors. In addition, the Corporate Governance & Nominating Committee monitors and evaluates the performance of the directors, individually and
collectively. The Corporate Governance & Nominating Committee also reviews and makes recommendations to the full Board of Directors regarding
changes in the number, chairperson, composition or responsibilities of each of the committees of the Board of Directors and also reviews the committee
charters. The Corporate Governance & Nominating Committee periodically reviews the Companys Corporate Governance Guidelines and recommends
changes to the Board of Directors. Each member of the Corporate Governance & Nominating Committee has been determined to be an independent
director, in accordance with the independence requirements of the New York Stock Exchange. The Corporate Governance & Nominating Committee met two
(2) times during Fiscal 2012. The Corporate Governance & Nominating Committee will consider nominations for directors from shareholders. A more
detailed discussion regarding the process for nominating potential director candidates is included elsewhere in this Proxy Statement under the heading
Corporate Governance Matters Process for Nominating Potential Director Candidates.
9
Beneficial Ownership of Company
Stock
The following table presents
information regarding the beneficial ownership of the Common Stock, within the meaning of applicable securities regulations, of all current directors
and all nominees for director of the Company and the executive officers named in the Summary Compensation Table for 2012 included herein, and of such
directors and executive officers of the Company as a group, all as of October 31, 2012. Except as otherwise indicated, the persons named in the table
have sole voting and investment power over the shares included in the table.
Name
|
|
|
|
Shares of Common Stock Beneficially Owned
(1)(2)
|
|
Percent of Class
|
|
|
|
|
|
48,097 |
(3) |
|
|
* |
|
|
|
|
|
|
10,783 |
(4) |
|
|
* |
|
|
|
|
|
|
12,000 |
(5) |
|
|
* |
|
|
|
|
|
|
314,679 |
(6) |
|
|
* |
|
|
|
|
|
|
6,780 |
|
|
|
* |
|
|
|
|
|
|
33,954 |
|
|
|
* |
|
Frederick J. Morganthall, II |
|
|
|
|
67,098 |
(7) |
|
|
* |
|
|
|
|
|
|
31,000 |
(8) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
5,040 |
(9) |
|
|
* |
|
|
|
|
|
|
3,000 |
(10) |
|
|
* |
|
|
|
|
|
|
4,000 |
(11) |
|
|
* |
|
|
|
|
|
|
15,000 |
(12) |
|
|
* |
|
|
|
|
|
|
76,050 |
(13) |
|
|
* |
|
All current directors and executive officers as a group (13 persons) |
|
|
|
|
593,527 |
(14) |
|
|
1.2 |
% |
(1) |
|
The table includes shares allocated under the Retirement and
Savings Plan to individual accounts of those named persons and group members who participate in the plan, the voting of which is directed by such named
persons or group members, as appropriate. |
(2) |
|
In accordance with Rule 13d-3 promulgated under the Exchange
Act, the table does not include shares of Common Stock that are deliverable in connection with the Deferral Plan. Pursuant to the Deferral Plan,
distributions under the Deferral Plan are paid in the form of Common Stock ninety days following the date of termination of service as a director. As
of October 31, 2012, the Company was authorized to deliver up to 500,000 shares of Common Stock pursuant to the Deferral Plan and has delivered 20,986
shares to the participating non-employee directors who have left the Board of Directors. Additionally there were 149,557 stock units reserved under the
Deferral Plan for delivery to the current participating non-employee directors. A more detailed discussion regarding the Deferral Plan is included
elsewhere in this Proxy Statement under the heading Election of Directors Directors Fees and Attendance. The number of stock
units that have been credited to each of the participating non-employee directors as of October 31, 2012 is set forth herein: |
10
Name
|
|
|
|
Stock Units Credited Under Deferral Plan
|
|
|
|
|
|
21,400 |
|
|
|
|
|
|
17,165 |
|
|
|
|
|
|
9,267 |
|
|
|
|
|
|
25,774 |
|
|
|
|
|
|
16,718 |
|
|
|
|
|
|
13,208 |
|
|
|
|
|
|
22,794 |
|
|
|
|
|
|
16,935 |
|
|
|
|
|
|
6,292 |
|
|
|
|
|
|
149,553 |
* |
* This sum may vary from other Deferral Plan totals included herein due to rounding.
|
|
|
|
|
|
|
(3) |
|
Includes 15,190 shares beneficially owned by Mr. Antolock, as to
which he has sole voting and investment power; 25,750 shares of restricted stock, as to which he has sole voting power, but no investment power; 5,500
performance shares that will be settled via restricted stock within sixty days of October 31, 2012, upon the issuance of which he will have sole voting
power, but no investment power; and 1,657 shares allocated to his Retirement and Savings Plan account, as to which he has sole voting power, but no
investment power except to the extent diversification of such shares is permitted by the plan. |
(4) |
|
Includes 6,783 shares beneficially owned by Mr. Belk, as to
which he has sole voting and investment power; and 4,000 shares that may be acquired upon the exercise of stock options that are currently exercisable,
as to which he would have sole voting and investment power upon acquisition. |
(5) |
|
Represents 12,000 shares that may be acquired upon the exercise
of stock options that are currently exercisable, as to which Mr. Cato would have sole voting and investment power upon acquisition. |
(6) |
|
Includes 201,728 shares beneficially owned by Mr. Dickson, as to
which he has sole voting and investment power; 11,138 shares allocated to his Retirement and Savings Plan account, as to which he has sole voting
power, but no investment power except to the extent diversification of such shares is permitted by the plan; 83,063 shares of restricted stock, as to
which he has sole voting power, but no investment power; and 18,750 performance shares that will be settled via restricted stock within sixty days of
October 31, 2012, upon the issuance of which he will have sole voting power, but no investment power. |
(7) |
|
Includes 14,473 shares beneficially owned by Mr. Morganthall, as
to which he has sole voting and investment power; 42,625 shares of restricted stock, as to which he has sole voting power, but no investment power; and
10,000 performance shares that will be settled via restricted stock within sixty days of October 31, 2012, upon the issuance of which he will have sole
voting power, but no investment power. |
(8) |
|
Includes 17,000 shares beneficially owned by Ms. Nelson as to
which she has sole voting and investment power; 2,000 shares that may be acquired upon the exercise of stock options that are currently exercisable, as
to which she would have sole voting and investment power upon acquisition; and 12,000 shares owned by a corporation with respect to which she has
shared voting and investment power and is deemed the beneficial owner. |
(9) |
|
Includes 3,040 shares beneficially owned by Mr. Spilman as to
which he has sole voting and investment power; and 2,000 shares that may be acquired upon the exercise of stock options that are currently exercisable,
as to which he would have sole voting and investment power upon acquisition. |
(10) |
|
Includes 1,000 shares beneficially owned by Mr. Stowe, as to
which he has sole voting and investment power; and 2,000 shares that may be acquired upon the exercise of stock options that are currently exercisable,
as to which he would have sole voting and investment power upon acquisition. |
(11) |
|
Includes 4,000 shares that may be acquired upon the exercise of
stock options that are currently exercisable, as to which Mr. Tidwell would have sole voting and investment power upon acquisition. |
11
(12) |
|
Includes 5,000 shares beneficially owned by Mr. Warden, as to
which he has sole voting and investment power; and 10,000 shares that may be acquired upon the exercise of stock options that are currently
exercisable, as to which he would have sole voting and investment power upon acquisition. |
(13) |
|
Includes 29,268 shares beneficially owned by Mr. Woodlief, as to
which he has sole voting and investment power; 1,875 shares allocated to his Retirement and Savings Plan account, as to which he has sole voting power,
but no investment power except to the extent diversification of such shares is permitted by the plan; 37,407 shares of restricted stock, as to which he
has sole voting power, but no investment power; and 7,500 performance shares that will be settled via restricted stock within sixty days of October 31,
2012, upon the issuance of which he will have sole voting power, but no investment power. |
(14) |
|
Includes (i) 334,181 shares beneficially owned as to which such
persons have sole voting and investment power; (ii) 36,000 shares that may be acquired by such persons upon the exercise of stock options that are
currently exercisable or become exercisable within sixty days of October 31, 2012, as to which such persons would have sole voting and investment power
upon acquisition; (iii) 12,000 shares as to which such persons have shared voting and investment power; (iv) 188,845 shares of restricted stock, as to
which such persons have sole voting power, but no investment power; (v) 41,750 performance shares that will be settled via restricted stock within
sixty days of October 31, 2012, upon the issuance of which such persons will have sole voting power, but no investment power; and (vi) 14,670 shares
allocated to their respective Retirement and Savings Plan accounts, as to which they have sole voting power, but no investment power except to the
extent diversification of such shares is permitted by the plan. |
12
Corporate Governance Guidelines and Committee
Charters
In furtherance of its
longstanding goal of providing effective governance of the Companys business and affairs for the benefit of shareholders, the Board of Directors
of the Company has approved Corporate Governance Guidelines. The Corporate Governance Guidelines contain general principles regarding the functions of
the Companys Board of Directors. The Corporate Governance Guidelines are available on the Companys website at www.harristeeter.com
under Investor Relations (the Companys Website). In addition, committee charters for the Companys Audit Committee,
Compensation Committee and Corporate Governance & Nominating Committee are also included on the Companys Website.
Director Independence
For a director to be considered
independent under the listing standards of the New York Stock Exchange, the Board of Directors must affirmatively determine that the director has no
direct or indirect material relationship with the Company, other than as a director. The Board of Directors has adopted categorical
standards to assist it in making independence determinations. The categorical standards set forth below and available on the Companys Website,
specify certain relationships that may exist between the Company and a director, each of which is deemed not to be a material relationship
and therefore will not, alone, prevent a director from being considered independent.
|
|
Prior Employment. The director was an employee of the
Company or one of its operating subsidiaries, or his or her immediate family member was an executive officer of the Company, and over five years have
passed since such employment ended. |
|
|
Prior Relationship with the Companys Auditors. A
director or immediate family member was an employee or partner of the Companys independent auditor, and over three years have passed since such
employment, partner or auditing relationship ended. |
|
|
Current Employment. An immediate family member of a
director is employed by the Company, one of its operating subsidiaries or another entity in a non-officer position, or by the Companys
independent auditor not as a partner and not participating in the firms audit, assurance or tax compliance practice. |
|
|
Interlocking Directorships. A director was employed, or
his or her immediate family member was employed, as an executive officer of another company, during a time in which any of the Companys executive
officers served on that other companys compensation committee, and over three years have passed since such service or employment relationship
ended. |
|
|
Business Relationships. A director was an executive
officer or an employee, or his or her immediate family member was an executive officer, of another company that made payments to, or received payments
from, the Company or its operating subsidiaries for property or services in an amount which, in each of the preceding three fiscal years, was less than
the greater of $1 million, or 2% of such other companys consolidated gross revenues. |
|
|
Charitable Contributions. A director was an executive
officer of a charitable organization that received contributions from the Company or its operating subsidiaries in an amount which, in each of the
preceding three fiscal years, was less than the greater of $1 million, or 2% of such charitable organizations consolidated gross
revenues. |
After considering these
categorical standards, the listing standards of the New York Stock Exchange and all other relevant facts and circumstances, including commercial or
charitable relationships between the directors and the Company, the Board of Directors has determined that all nominees for director meet the
Companys categorical independence standards, meet the independence requirements of the New York Stock Exchange and are independent except for
Thomas W. Dickson. In connection with its independence evaluation, the Board of Directors considered the transactions involving the Company and Mr.
Spilman. Mr. Spilman is the President and Chief Executive Officer of Bassett Furniture Industries, Incorporated, which was a customer of the
Companys American & Efird business
13
(A&E), which was sold on November 7, 2011. The Board of
Directors categorical standards for determining director independence are also available on the Companys Website.
Audit Committee Financial Expert
The Board of Directors has
determined that at least one member of the Audit Committee, Harold C. Stowe, is an audit committee financial expert. Mr. Stowe is
independent as that term is defined in the New York Stock Exchange Listed Company Manual.
Executive Sessions of Non-Management
Directors
Non-management directors meet
without management present at regularly scheduled executive sessions. In addition, to the extent that, from time to time, the group of non-management
directors includes directors that are not independent, at least once a year there is a scheduled executive session including only independent
directors. The Lead Independent Director (which position is described below under Lead Independent Director) presides over meetings of the
non-management or independent directors. Shareholders and other interested parties may communicate directly with any of the directors, including the
independent or non-management directors as a group, by following the procedures set forth herein under the caption Shareholder and Interested
Party Communications with Directors.
Code of Ethics and Code of Business Conduct and
Ethics
The Company has adopted a written
Code of Ethics (the Code of Ethics) that applies to the Companys Chairman of the Board and Chief Executive Officer, Executive Vice
President and Chief Financial Officer and Vice President and Treasurer. The Company has also adopted a Code of Business Conduct and Ethics (the
Code of Conduct) that applies to all employees, officers and directors of the Company. The Code of Ethics and Code of Conduct are available
on the Companys Website under the Corporate Governance caption. Any amendments to the Code of Ethics or Code of Conduct, or any
waivers of the Code of Ethics or any waiver of the Code of Conduct for directors or executive officers, will be disclosed on the Companys Website
promptly following the date of such amendment or waiver. Information on the Companys Website, however, does not form a part of this Proxy
Statement.
Majority Vote Policy for Director
Elections
The Companys Corporate
Governance Guidelines provide that if a director receives a Majority Withheld Vote, that he or she will, with no further action, immediately resign
from the Board of Directors, effective upon acceptance of the resignation by the Board of Directors. Abstentions and broker non-votes are not
considered withheld votes. Please see the discussion of the Majority Withheld Vote policy contained in Proposal 1 Election of
Directors.
Shareholder and Interested Party Communications with
Directors
Shareholders and other interested
parties may communicate directly with the entire Board of Directors, any committee of the Board of Directors, the Lead Independent Director, the Chair
of any committee, any individual director, the independent or non-management directors, as a group, or any other group of directors by writing to:
Harris Teeter Supermarkets, Inc. Board of Directors, c/o Secretary of the Corporation, 701 Crestdale Road, Matthews, North Carolina 28105. Each such
communication should specify the applicable addressee(s). The Companys Board of Directors has instructed the Secretary to forward these
communications to the addressee, and if no specific addressee is listed, to the Chairman of the Board.
Director Attendance at Annual
Meeting
The Company believes that the
Annual Meeting is an opportunity for shareholders to communicate directly with the Companys directors. Consequently, each director is encouraged
to attend the Annual Meeting of Shareholders. All of the Companys directors attended the 2012 Annual Meeting of Shareholders.
14
Process for Nominating Potential Director
Candidates
The Corporate Governance &
Nominating Committee is responsible for identifying and screening potential director candidates and recommending qualified candidates to the full Board
of Directors for nomination. Director nominees are recommended to the Board of Directors annually by the Corporate Governance & Nominating
Committee for election by the shareholders. As described in the Companys Corporate Governance Guidelines, which are available at the
Companys Website, nominees for director will be selected on the basis of outstanding achievement in their personal careers, wisdom, broad
experience, integrity, ability to make independent analytical inquiries, understanding of the business environment and willingness to devote adequate
time to Board of Directors duties.
The Corporate Governance &
Nominating Committee reviews the background and qualifications of each nominee to determine such nominees experience, competence and character
and shall assess such nominees potential contribution to the Board of Directors, taking into account the then-existing composition of the Board
of Directors and such other matters as the Corporate Governance & Nominating Committee deems appropriate. In addition, while the Company does not
have a formal policy on Board of Directors diversity, the Corporate Governance Guidelines specify that the Board of Directors is committed to
diversified membership. The Corporate Governance & Nominating Committee actively considers such diversity in recruitment and nominations of
directors. The current composition of the Board reflects those efforts.
Nominees recommended by
shareholders will be analyzed by the Corporate Governance & Nominating Committee in the same manner as nominees that are otherwise considered by
such committee. Any recommendation submitted by a shareholder to the Corporate Governance & Nominating Committee must comply in all respects with
Article III, Section 12, of the Companys Bylaws, which generally requires that such recommendation be in writing and include the
shareholders name and address; number of shares of each class of capital stock owned by the shareholder; the potential candidates name,
resumé and biographical information; and any material interest, direct or indirect, that the shareholder may have in the election of the
potential candidate to the Board of Directors. Article III, Section 12, of the Companys Bylaws also requires that any such shareholder
recommendation be received by the Company in accordance with the timeframe described under the caption Shareholder Proposals. A copy of the
Companys Bylaws is available upon request to: Harris Teeter Supermarkets, Inc., 701 Crestdale Road, Matthews, Charlotte, North Carolina 28105,
Attention: Secretary of the Corporation.
Pursuant to its Charter, the
Corporate Governance & Nominating Committee (i) periodically reviews the Companys corporate governance principles, including criteria for the
selection of Board of Directors members to insure that the criteria, including diversity, are being addressed appropriately and (ii) conducts an annual
assessment of its performance and of the Charter and recommends changes to the Board of Directors when necessary.
All nominees for election to the
Board of Directors have been recommended by the Corporate Governance & Nominating Committee. All such nominees are current directors standing for
re-election, except for Mr. Ordan. Mr. Ordan was identified and recommended to the Corporate Governance & Nominating Committee by the
Companys Chairman of the Board and Chief Executive Officer.
Lead Independent Director
The Companys Bylaws and
Corporate Governance Guidelines permit the independent directors to designate from among themselves a Lead Independent Director. If so designated, the
Lead Independent Director presides over executive session meetings of the non-management or independent directors, serves as the principal liaison
between the Chairman of the Board and the independent directors (unless the matter under consideration is within the jurisdiction of one of the
Boards committees), and consults with the Chairman of the Board regarding information to be sent to the Board, meeting agendas and establishing
meeting schedules.
Board Leadership Structure
The Board believes it is
beneficial to the Company and its shareholders to designate a Lead Independent Director, who carries out the roles described above. Mr. Spilman, an
independent director and the Chairman of the Corporate Governance & Nominating Committee, is currently our Lead Independent Director. Mr. Spilman
is an effective Lead Independent Director due to, among other things, his independence, his understanding of the
15
Company and its business
during his long tenure on the Board, his corporate governance knowledge acquired during his tenure as a member of the Corporate Governance &
Nominating Committee, his experience on other boards, and his business experience as an executive of another company.
Currently, Thomas W. Dickson
serves as Chairman of the Board and Chief Executive Officer. The Board of Directors believes that Mr. Dicksons service as both Chairman of the
Board and Chief Executive Officer is in the best interests of the Company and its shareholders because Mr. Dickson possesses detailed and in-depth
knowledge of the issues, opportunities and challenges facing the Company and its business and is thus best positioned to develop agendas, with
consultation of the Lead Independent Director, that ensure that the Board of Directors time and attention are focused on the most important
matters. The combined positions help to provide a unified leadership and direction for the Company, enables decisive leadership, ensures clear
accountability, and enhances the Companys ability to communicate its message and strategy clearly and consistently to the Companys
shareholders, employees, customers and suppliers.
The Board of Directors also
believes that its Lead Independent Director position effectively balances any risk of concentration of authority that may exist with a combined
Chairman of the Board and Chief Executive Officer position. Furthermore, the Board of Directors believes that this practice is appropriate in light of
the fact that currently only one of the directors, Mr. Dickson, is an employee of the Company, all of the other directors are independent, and that all
of the committees of the Board of Directors are comprised solely of independent directors. The Board of Directors believes that its current leadership
structure enhances Mr. Dicksons ability to provide insight and direction on important strategic initiatives simultaneously to both management and
the independent directors.
Role in Risk Oversight
As the Companys principal
governing body, the Board of Directors has the ultimate responsibility for overseeing the Companys risk management practices. The Board of
Directors has delegated certain risk management functions to its committees.
Pursuant to the Audit Committee
Charter, one of the primary roles and responsibilities of the Audit Committee is to assist the Board of Directors with the oversight of: (1) the
integrity of the financial statements and internal controls of the Company, (2) the compliance by the Company with legal and regulatory requirements,
(3) the outside auditors independence and qualifications, and (4) the performance of the Companys internal audit function and outside
auditors. Under the Audit Committee Charter, the Audit Committee will, among other responsibilities and duties:
|
|
Review with the outside auditor and management, as appropriate,
significant financial reporting issues and judgments identified by management or the outside auditor and made in connection with the preparation of the
Companys financial statements; |
|
|
Review with the outside auditor and management, major issues
identified by management or the outside auditor regarding the Companys accounting and auditing principles and practices, including critical
accounting policies, and major changes in auditing and accounting principles and practices suggested by the outside auditor, internal auditor or
management; and |
|
|
Consult with the outside auditor and management concerning the
Companys internal controls, including any significant deficiencies and significant changes in internal controls, and review managements and
the outside auditors reports on internal control over financial reporting. |
16
The Compensation Committee has
reviewed and discussed with management the Compensation Discussion and Analysis that immediately follows this report. Based on this review and
discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this
Proxy Statement and incorporated by reference into the Companys Annual Report on Form 10-K for the year ended October 2, 2012.
|
|
|
|
SUBMITTED BY THE COMPENSATION COMMITTEE |
|
|
|
|
John P. Derham Cato James E. S. Hynes Anna Spangler Nelson William C. Warden, Jr. |
17
Executive Summary
Despite the challenging economic
environment, the Company delivered strong financial results in Fiscal 2012. Due to the sale of A&E as previously described, A&Es results
were reported as discontinued operations for Fiscal 2012 and prior years. The Company reported earnings from continuing operations for Fiscal 2012 of
$99.9 million, or $2.04 per diluted share, a decrease from $111.4 million, or $2.28 per diluted share, for the fiscal year ended October 2, 2011
(Fiscal 2011). Fiscal 2012 earnings from continuing operations were impacted by the one-time incremental costs of $29.8 million associated
with the Companys previously announced sale and purchase transactions with Lowes Food Stores, Inc. (Lowes Foods) in June 2012
(the Lowes Foods Transaction Expenses). Consolidated Fiscal 2012 net earnings were $82.5 million, comprised of the $99.9 million in
earnings from continuing operations and $17.4 million in losses from discontinued operations (net of tax benefits). The Company also generated net
sales of $4.54 billion for Fiscal 2012, a 5.8% increase in net sales from Fiscal 2011, attributable to new store activity and comparable store sales
increases. Comparable store sales increased by 3.97% for Fiscal 2012. In addition, the Company successfully completed the realignment of the
Companys focus into one primary business, the supermarket business, while achieving its operating profit targets for Fiscal
2012.
We refer to the five named
executive officers listed in the Summary Compensation Table for 2012 as the NEOs. Mr. Jackson was an executive officer of the Company until
he separated from employment with the Company on November 7, 2011. However, Mr. Jackson is treated as an NEO for purposes of this Proxy Statement based
on SEC rules. Because some of the Compensation Committees decisions regarding Fiscal 2012 executive compensation occurred at its meeting held
subsequent to the sale of A&E and Mr. Jacksons separation, he is not included in certain of the discussions regarding the compensation
setting process for Fiscal 2012 (including for example the setting of Fiscal 2012 base salaries and performance criteria for equity awards). Those
distinctions are described in more detail below. The four NEOs other than Mr. Jackson are sometimes referred to as current
NEOs.
Based on a comprehensive
performance assessment of the Companys financial results, and combined with a review of the economic environment and competitive trends, the
Compensation Committee made the following decisions for the current NEOs for Fiscal 2012:
|
|
Base salaries increased for each current NEO, due to the
Companys meeting Fiscal 2011 performance targets and the relative success of each current NEO in achieving his applicable individual performance
goals, all as described in more detail below. |
|
|
Fiscal 2012 annual cash plan incentive awards were granted to
the current NEOs based upon the respective Fiscal 2012 operating results of the Company and as computed in accordance with the respective bonus
formulas approved by the Compensation Committee. |
|
|
The Compensation Committee granted long-term incentive awards
covering 37,500 shares of Common Stock to Mr. Dickson and covering an aggregate of 46,000 shares of Common Stock to the other current NEOs. |
For Fiscal 2012, Mr. Dickson
received total compensation of $3,330,328 (excluding amounts attributable to change in pension value and non-qualified deferred compensation earnings),
reflecting strong Company and individual performance in Fiscal 2012. Mr. Dicksons total compensation reflects the role he plays in establishing
the Companys strategic agenda and long-range plan, overseeing the management and execution of the Companys day-to-day operations and
leading the Company in a challenging global economic and regulatory environment. Although his compensation is generally determined using the same
methodology as used for each of the other NEOs, Mr. Dicksons compensation is higher than the compensation paid to any of the other NEOs as his
responsibilities and obligations at the Company are greater than those of any of the other NEOs.
Each of the other NEOs received
total compensation in Fiscal 2012, excluding amounts attributable to change in pension value and non-qualified deferred compensation earnings, as
follows: Mr. Morganthall, $1,959,581, Mr. Woodlief, $1,757,768, Mr. Antolock, $1,357,675, and Mr. Jackson, $995,949. The compensation paid to the
current NEOs reflects the performance of the Company during Fiscal 2012, as well as individual performance as detailed below. Mr. Jacksons
compensation reflects his base salary earned through the date of his separation, a cash
18
discretionary bonus for the
performance of A&E through November 7, 2011, accelerated vesting of outstanding equity awards as of the date of his separation, and other
amounts.
During Fiscal 2012, the
Compensation Committee made minimal changes to the compensation programs. No changes were made to the overall design of the Companys compensation
programs.
Executive Compensation Philosophy
The primary objective of the
Companys executive compensation program is to enhance shareholder value in the Company while attracting, retaining and rewarding highly qualified
executives. Accordingly, the Companys executive compensation program encourages management to produce strong financial performance by tying
corporate and individual performance to compensation levels. The Companys executive compensation program consists generally of annual base
salary, annual cash incentive bonuses, long-term equity incentive compensation, such as stock options, restricted stock and performance share grants,
and other benefits.
The Companys practice is to
provide incentives through its compensation program that promote both the short-term and long-term financial objectives of the Company. Achievement of
short-term objectives is rewarded through base salary and annual cash incentive bonuses, while long-term equity incentive awards encourage management
to focus on the Companys long-term goals and success. Both annual cash incentive bonuses and a substantial portion of long-term equity incentive
compensation are performance-based. These incentives are based on financial objectives of importance to the Company, including net operating profit
after tax return on invested capital. The Companys compensation practices reflect a pay-for-performance philosophy, whereby a substantial portion
of an executives potential compensation is at risk and tied to performance of the Company. The percentage of an executives compensation
that is tied to performance increases as the Companys profit performance and rate of return increases.
Compensation Setting Process
The Compensation Committee is
responsible for setting total compensation for executives of the Company and for overseeing the Companys various executive compensation plans and
the overall management of the compensation program. Periodically, the Compensation Committee obtains independent and impartial advice from external
compensation consulting firms and industry surveys and resources in executing its responsibilities. In prior fiscal years the Compensation Committee
had engaged Mercer to act as its independent compensation consultant. For Fiscal 2012 the Company did not retain the services of a compensation
consultant and the Compensation Committee instead referenced information provided to the Compensation Committee from prior fiscal years by the
compensation consultant, along with other market information the Compensation Committee considered relevant.
The Compensation Committee
considers various published broad-based third party surveys of the annual compensation of wholesale and retail food companies as well as other retail
companies including drug store, convenience, mass merchandising and specialty retail (the Compensation Surveys). The companies surveyed in
the Compensation Surveys generally include (i) companies that operate in the specific industries in which the Company operates, (ii) regional companies
that are comparable in size to the Company and (iii) other companies with which the Company believes it competes for its top executives. For example,
one survey covers 214 companies in the retail sector including big box stores, grocery, drug and convenience stores, outlet stores, restaurants,
department and specialty stores, while a second survey covers 111 companies in the retail sector, and a third survey covers 35 wholesale and retail
food companies. The Compensation Surveys generally provide information on what companies paid their executives in terms of base salary and annual
incentives, the target annual compensation the executives could have received upon attainment of certain goals, the value and composition of long term
incentives companies granted to executives, and long term incentives and annual incentives as a percentage of base salary. While the Compensation
Committee believes the Compensation Surveys are valuable, it does not use the Compensation Surveys as a benchmark to set executive compensation. The
Compensation Committee does not believe it is appropriate to tie executive compensation directly to the compensation awarded by other companies or to a
particular survey or group of surveys. Instead, the purpose of the Compensation Surveys, and the manner in which it was used by the Compensation
Committee, was to provide a general understanding of current compensation practices and trends of similarly situated companies. The Compensation
Surveys contain high-level
19
analyses and are compiled
from information from a number of companies. The Compensation Committee uses the Compensation Surveys as a tool to compare the overall compensation of
its own executives to the executives of other companies in similar sectors. No specific compensation decision for any individual was based on or
justified by any Compensation Survey.
In its annual review of executive
compensation, the Compensation Committee meets with the Companys Chief Executive Officer with regard to the compensation packages of the
Companys executive officers other than the Chief Executive Officer. The Chief Executive Officer recommends any compensation adjustments for these
officers to the Compensation Committee for its review, with changes in compensation being based upon the individuals performance, the performance
of the Company, and the individuals level of responsibility. The Compensation Committee accepts, rejects or modifies the Chief Executive
Officers recommendations at its discretion. The Compensation Committee then makes a recommendation to the independent directors for their
approval. The Compensation Committee, along with the Chairman of the Corporate Governance & Nominating Committee, performs the annual evaluation of
the Chief Executive Officer. The compensation for the Chief Executive Officer is approved by the independent directors upon the recommendation of the
Compensation Committee.
Shareholder Say-on-Pay Vote
At the 2012 Annual Meeting of
Shareholders, the Shareholders provided an advisory vote with 96% of the votes cast approving the compensation of the Companys named executive
officers for Fiscal 2011 (the Advisory Vote). Subsequently, in its meeting held in November 2012 the Compensation Committee considered the
results of the Advisory Vote in determining compensation policies and decisions of the Company. The Advisory Vote affected the Companys executive
compensation decisions and policies by reaffirming the Companys pay-for-performance philosophy, and the Compensation Committee will continue to
use this philosophy and past practice, as well as results of future say-on-pay proposals, in determining future compensation
decisions.
The Board has determined that the
Companys shareholders should vote on a say-on-pay proposal each year, consistent with the preference expressed by the shareholders at the 2010
Annual Meeting of Shareholders. Accordingly, at the Annual Meeting, shareholders will again have the opportunity to indicate their views on NEO
compensation. For additional information, see Proposal 3: Advisory (Non-Binding) Say On Pay Vote Approving Executive
Compensation in this Proxy Statement.
Elements of Compensation
Annual Cash Compensation.
The Companys annual cash compensation for its executives consists of base salary and cash incentive bonuses. The total annual cash compensation
levels of the respective executives reflect the varying duties and responsibilities of each individual executives position with the Company, with
consideration given to the executives individual performance, as well as the consolidated financial condition and results of operation of the
Company.
For Fiscal 2012, base salaries of
the current NEOs were reviewed and, on average, increases of 3.8% were provided. Mr. Jackson separated from the Company prior to the Compensation
Committees determination of Fiscal 2012 base salaries. Base salary increases were based on each current NEOs achievement of personal
performance objectives and operating results during Fiscal 2011. The operating results considered were primarily return on invested capital during the
fiscal year calculated as net operating profit after tax divided by invested capital at the beginning of the fiscal year (NOPAT Return) and
operating margin. The personal performance objectives vary for each current NEO as described in specific detail below, and were primarily tied to the
performance of the Company for the prior year, Fiscal 2011. No particular weight was assigned to any particular performance goal, and the personal
performance objectives considered by the Compensation Committee may from year to year change, depending on the needs of the Company. The Chief
Executive Officer meets with the Compensation Committee and presents a set of personal objectives for the Compensation Committee to consider. After
discussion, the Compensation Committee approves the personal objectives for the Chief Executive Officer. For all current NEOs other than the Chief
Executive Officer, the performance objectives are generally discussed between the respective current NEO and the Chief Executive Officer, who then
reviews them with the Compensation Committee. The Compensation Committee does not determine the current NEOs base salaries based on a formula or
targeted performance.
20
Based upon the recommendations of
management relating to managements expectations for Fiscal 2012 as well as the foregoing factors, the Compensation Committee determined to
increase the base salaries of the current NEOs for Fiscal 2012 as detailed in the 2012 Base Salary Adjustment table below. The target corporate
operating results and individual performance objectives for the current NEOs from the prior year, Fiscal 2011, that were used to determine the base
salaries for Fiscal 2012 were as follows:
|
|
For Mr. Dickson, the Fiscal 2011 target corporate operating
results were achieving sales at Harris Teeter of $4.15 billion (actual $4.29 billion) and operating profit of $172.5 million (actual $191.1 million),
and sales at A&E of $304.3 million (actual $320.8 million) and operating profit of $17.5 million (actual $27.0 million). The Fiscal 2011
performance objectives for Mr. Dickson included: achieving positive same store sales of 0.5%, at Harris Teeter, opening 8 new stores and completing 5
major remodelings, and achieving a variety of specific productivity, cost savings and operational goals, and at A&E, domestic and foreign
profitability improvements, and increased market share in A&Es foreign markets. During Fiscal 2011, the Company achieved most of Mr.
Dicksons performance objectives, including: Harris Teeter achieved positive same store sales of 3.27%, opened 7 new stores and completed 8 major
remodels, and made progress on a number of productivity and other goals, and until the Companys sale of A&E, A&E maintained consistent
profitability in the U.S. and achieved consistent profitability in Europe, and made some improvements in foreign market share. |
|
|
For Mr. Woodlief, the Fiscal 2011 target corporate operating
results were achieving sales at Harris Teeter of $4.15 billion (actual $4.29 billion) and operating profit of $172.5 million (actual $191.1 million),
and sales at A&E of $304.3 million (actual $320.8 million) and operating profit of $17.5 million (actual $27.0 million). The Fiscal 2011
performance objectives for Mr. Woodlief included continuing to support and update an enterprise-wide risk management process, work towards sale of the
Companys foreign investment and assist with cost optimization efforts. During Fiscal 2011, the Company achieved most of Mr. Woodliefs
performance objectives, including: the Company made a number of improvements in risk management, sold its foreign investment generating $21.6 million
of cash, and made progress towards cost optimization. |
|
|
For Mr. Morganthall, the Fiscal 2011 target corporate operating
results were achieving operating profit of $172.5 million (actual $191.1 million). The Fiscal 2011 performance objectives for Mr. Morganthall included
instituting new management systems, re-engineering distribution work standards, achieving positive same store sales of 0.5%, and reducing energy
consumption in core stores by 2%. During Fiscal 2011, the Company achieved most of Mr. Morganthalls performance objectives, including: achieving
positive same store sales of 3.27%. |
|
|
For Mr. Antolock, the Fiscal 2011 target corporate operating
results were achieving operating profit of $172.5 million (actual $191.1 million). The Fiscal 2011 performance objectives for Mr. Antolock included
improvements in customer satisfaction, implementation of technology systems, and reducing energy consumption in core stores. During Fiscal 2011, the
Company achieved most of Mr. Antolocks performance objectives. |
2012 Base Salary Adjustment
Name
|
|
|
|
Fiscal 2011 Base Salary ($)
|
|
Fiscal 2012 Base Salary ($)
|
|
Increase ($)
|
|
Increase (%)
|
|
|
|
|
|
682,000 |
|
|
|
709,000 |
|
|
|
27,000 |
|
|
|
4.0 |
|
|
|
|
|
|
482,000 |
|
|
|
500,000 |
|
|
|
18,000 |
|
|
|
3.7 |
|
|
|
|
|
|
472,500 |
|
|
|
487,000 |
|
|
|
14,500 |
|
|
|
3.1 |
|
|
|
|
|
|
396,907 |
|
|
|
415,000 |
|
|
|
18,093 |
|
|
|
4.6 |
|
|
|
|
|
|
328,000 |
|
|
|
N/A(1 |
) |
|
|
N/A |
|
|
|
N/A |
|
(1) |
|
Mr. Jackson separated from the Company on November 7, 2011 as
previously discussed herein. |
21
Annual cash incentive plan awards
(Incentive Bonuses) are provided to the current NEOs through the 2006 Cash Incentive Plan, which was approved by the shareholders at the
Annual Meeting of Shareholders held on February 15, 2007. Awards under the 2006 Cash Incentive Plan link incentive pay to level of achievement of
financial performance criteria. The Compensation Committee awards potential Incentive Bonuses to the current NEOs based upon each such NEOs level
of responsibility within the Company, and the attainment of that potential compensation is based upon the performance of the Company. In particular,
the Compensation Committee has set forth performance metrics for the Company based on information which the Compensation Committee deems most important
to determining the performance of such entities. The footnotes to the Cash Incentive Plan Awards for 2012 table identify the different performance
metric thresholds which the current NEOs would be required to meet in order to earn an Incentive Bonus under the plan. At its meeting in November 2012,
the Board of Directors adopted the 2013 Cash Incentive Plan being presented to shareholders for approval at this Annual Meeting (see Proposal 2:
Approval of the Harris Teeter Supermarkets, Inc. 2013 Cash Incentive Plan). It is anticipated that future Incentive Bonuses would be granted
pursuant to the 2013 Cash Incentive Plan.
Harris Teeter Supermarkets, Inc.
is a holding company for its primary operating subsidiary Harris Teeter, Inc. (Harris Teeter), and prior to the sale of A&E, was a
holding company for both Harris Teeter and A&E. Historically Incentive Bonuses for the Companys executives were based on the performance of
the company by which such executive was employed (i.e., Harris Teeter Supermarkets, Inc., Harris Teeter or A&E). At the time the performance
criteria for Fiscal 2012 Incentive Bonuses were set, Mr. Dickson and Mr. Woodlief were employed by Harris Teeter Supermarkets, Inc. and Mr. Morganthall
and Mr. Antolock were employed by Harris Teeter. Accordingly, for Fiscal 2012, Incentive Bonuses for Mr. Dickson and Mr. Woodlief were based on NOPAT
Return and Incentive Bonuses for Mr. Morganthall and Mr. Antolock were based on operating profit margin. As described above, Mr. Jackson was no longer
an employee of the Company as of November 2011, and, as such, the Compensation Committee did not award him an Incentive Bonus for Fiscal
2012.
Generally, if the Company or its
subsidiary achieves the applicable predetermined minimum goals, which are approved by the Compensation Committee, executives are paid a predetermined
percentage of their base salary as their Incentive Bonus. The percentage of base salary payable as Incentive Bonus increases as the operating profit
margin or NOPAT Return increases. The Compensation Committee has the discretion to eliminate or reduce the Incentive Bonus payable to any or all of the
current NEOs in accordance with the 2006 Cash Incentive Plan.
The Compensation Committee uses
NOPAT Return and operating profit margin as performance measures for the Company because the Compensation Committee believes these measures are
appropriate determinates of the Companys success. NOPAT Return is a measure by which the Compensation Committee is able to determine the
Companys return on total invested capital (for all investors, including shareholders and debt holders). NOPAT Return effectively adjusts for the
financing of a company and is a better measure of the operational performance of the business. By using NOPAT Return the Compensation Committee is able
to determine the on-going operational success of the Company. Operating profit margin is a measurement of what proportion of a companys revenue
is remaining after paying for all operating costs, specifically excluding financing costs. Operating profit margin provides a measure of how much a
company earns (before interest and taxes) on each dollar of sales. If the operating profit margin is increasing, the Company is earning more per dollar
of sales. In addition, the Compensation Committee has chosen these performance measures because the Compensation Committee believes these measures are
used by third parties, such as investment banks, analysts and lenders, to judge the performance of the Company and its competitors, and these
performance measures are utilized by the Company when evaluating their performance against its peers. Further, these measures are used to compensate
various other employees at the Company. However, as described below, for future years the Compensation Committee expects to utilize the same Incentive
Compensation performance metrics for all named executive officers, with variance in individual awards as a percentage of base salaries and the
thresholds for incentive bonuses reflective of their respective roles at the Company.
Pursuant to its authority under
the 2006 Cash Incentive Plan, in connection with determining whether the Company achieved its performance criteria for Fiscal 2012 Incentive Bonuses,
the Compensation Committee excluded the $29.8 million of Lowes Foods Transaction Expenses, as these expenses represented one-time non-operational items
occurring during the relevant performance period. The Compensation Committee determined that including the Lowes Foods Transaction Expenses in the
NOPAT Return or operating profit margin calculations
22
materially affected the
fairness of those performance criteria and unduly affected the Companys ability to meet them at the prescribed levels. The Compensation Committee
believes that the transactions with Lowes Foods provide a long-term strategic benefit to the Company, and that excluding the Lowes Foods Transaction
Expenses is in the best interests of the Companys shareholders because it is consistent with the Companys philosophy to align executive
compensation with long-term shareholder value. After excluding these expenses and reviewing the performance of the Company, the Compensation Committee
determined the Fiscal 2012 Incentive Bonuses.
The following table describes the
threshold and actual Incentive Bonuses that were payable under the 2006 Cash Incentive Plan to each of the current NEOs for Fiscal 2012. Based on the
actual Fiscal 2012 performance of the Company, adjusted for the Lowes Foods Transaction Expenses, as previously described, the current NEOs were
eligible for and received Incentive Bonuses for Fiscal 2012 in the aggregate amount of $2,043,820. The actual Incentive Bonuses payable to the current
NEOs for performance in Fiscal 2012 are reflected in the following table and in the Summary Compensation Table for 2012, and additional information
regarding the 2006 Cash Incentive Plan awards for Fiscal 2012 may be found below in the Grants of Plan-Based Awards Table for 2012. The difference in
the potential Incentive Bonuses paid among the current NEOs is reflective of the variance in the duties and responsibilities of the positions held by
each current NEO. This difference in potential Incentive Bonuses is influenced by the Compensation Committees assessment of the degree to which
the NEO may directly influence the Companys business.
Cash Incentive Plan Awards for 2012
Name
|
|
|
|
Threshold Performance Metric
|
|
Threshold Incentive Bonus (% of
Base Salary)
|
|
Threshold Incentive Bonus ($)
|
|
Actual Fiscal 2012 Performance
|
|
Actual Incentive Bonus (% of Base Salary)
|
|
Actual Incentive Bonus ($)
|
|
|
|
|
4% NOPAT Return on Beginning Invested Capital |
|
|
N/A(1) |
|
|
|
|
8.92% NOPAT Return on Beginning Invested Capital |
|
|
118.08 |
|
|
|
837,187 |
|
|
|
|
|
|
2% Operating Profit Margin |
|
|
15(3) |
|
|
|
|
4.58% Operating Profit Margin |
|
|
79.50 |
|
|
|
397,500 |
|
|
|
|
|
|
4% NOPAT Return on Beginning Invested Capital |
|
|
N/A(2) |
|
|
|
|
8.92% NOPAT Return on Beginning Invested Capital |
|
|
98.40 |
|
|
|
479,208 |
|
|
|
|
|
|
2% Operating Profit Margin |
|
|
15(3) |
|
|
|
|
4.58% Operating Profit Margin |
|
|
79.50 |
|
|
|
329,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
An Incentive Bonus of 24% of his base salary would be earned by
Mr. Dickson for each 1% NOPAT return on beginning invested capital above 4%. Increments of less than 1% would be calculated on a pro rata
basis. |
(2) |
|
An Incentive Bonus of 20% of his base salary would be earned by
Mr. Woodlief for each 1% NOPAT return on beginning invested capital above 4%. Increments of less than 1% would be calculated on a pro rata
basis. |
(3) |
|
An Incentive Bonus of 15% of his base salary would be earned by
the individual upon the achievement of a 2.0% operating profit margin, and an additional Incentive Bonus of 2.5% of his base salary would be earned for
each 0.1% operating profit margin over 2.0%. |
(4) |
|
Mr. Jackson separated from the Company on November 7, 2011 as
previously discussed herein. |
23
As described above, the
Compensation Committee historically set Incentive Bonus performance criteria based on the company by which an executive was employed. In November 2011
the Compensation Committee used this approach in setting Incentive Bonus thresholds for executives, including the current NEOs. However, subsequent to
the sale of A&E, Mr. Morganthall was named President and Chief Operating Officer of the holding company, and Mr. Antolock was named an Executive
Vice President of the holding company. Following the end of the performance period, the Compensation Committee reviewed its prior approach and
determined that, in light of Messrs. Morganthalls and Antolocks new roles and the fact that the Company is now engaged in one principal
line of business, it is appropriate and in the best interests of the Companys shareholders to award bonuses for all NEOs utilizing the same
performance criteria. The Compensation Committee then determined that Mr. Morganthall and Mr. Antolock would have received a larger bonus if their
Fiscal 2012 Incentive Bonuses were set based on NOPAT Return (the formula used for Mr. Dickson and Mr. Woodlief) rather than operating profit margin of
Harris Teeter. Accordingly, the Compensation Committee granted discretionary cash bonuses to these two NEOs such that their total cash bonus
compensation reflected approximately the amount of annual incentive compensation they would have received if their Incentive Bonuses were based on
NOPAT Return. This additional amount equaled $75,000 for Mr. Morganthall and $50,000 for Mr. Antolock. These discretionary bonuses also reflected the
executives respective contributions to the Company in Fiscal 2012, which included the successful acquisition and accelerated opening of stores in
connection with the Lowes Foods transactions described above. For Fiscal 2013, the Compensation Committee will use NOPAT Return for annual incentive
compensation for all named executive officers and operating profit margin for certain other employees of the Company.
Long-Term Equity Incentive
Compensation. The Companys executive compensation program is intended to provide executives who have significant responsibility for
the management, growth and future success of the Company with an opportunity to increase their ownership in the Company and thereby gain from
any long-term appreciation in the Companys stock. The Company typically provides long-term equity incentive compensation to its executives
through the grant of restricted stock and performance shares pursuant to its shareholder approved equity incentive plans.
Generally, the Company plans its
equity incentive award grant dates well in advance of any actual grant. The timing of the Companys regular annual awards coincides with a
scheduled meeting of the Board of Directors, which historically has been the first meeting of the Board of Directors in the new fiscal year. The grant
date is established when the Board of Directors, acting upon the recommendation of the Compensation Committee, approves the grants and all key terms.
Newly hired employees may receive equity incentive awards prior to the annual grant date upon the approval of the Compensation Committee. The Company
does not coordinate the timing of equity incentive awards with the release of material non-public information.
In Fiscal 2012, the Company
granted restricted stock and performance shares to a broad range of management employees of the Company, including the current NEOs. All of the Fiscal
2012 grants were made in November 2011 and generally each employee received a grant of equal amounts of restricted stock and performance shares. The
restricted stock vests 20% per year on each of the first five anniversaries of the date of the award. The performance shares entitled each recipient to
receive shares of restricted stock, only upon the achievement of certain performance objectives as described herein for Fiscal 2012. Restricted stock
issued in satisfaction of performance shares vests 25% per year on each of the first four anniversaries of the issuance of the restricted stock. The
issuances of restricted stock from performance shares for the current NEOs were 100% subject to the Company meeting its operating profit projections
for Fiscal 2012, which was $197,000,000.
The belief of the Compensation
Committee is that the equity awards incentivize employees by tying their compensation to the value of the Companys Common Stock. The performance
share grants are designed to incent the broad range of management employees, including the current NEOs, to achieve the annual operating profit
projections which are provided to the Companys Board of Directors. During Fiscal 2012, with respect to performance share awards, the
Companys executives earned the full amount of awards. The performance share awards for Fiscal 2012 are designed to be achievable by all of the
participants in such award plans. Reference is made to the Grants of Plan-Based Awards for 2012 table for more information regarding the equity award
grants.
The criteria considered by the
Compensation Committee in granting restricted stock and performance shares to current NEOs included level of responsibility or position with the
Company, performance and length of employment. The Compensation Committee also considers the number of equity awards previously granted
to
24
employees when approving new
grants. The Companys equity based incentive compensation awards are intended to provide executive officers a vested interest in the long-term
financial performance of the Company and closely align the interests of the shareholders and executives, with the goal of increasing shareholder value
in the Company. The vesting schedule utilized for both the restricted stock and performance shares is a retention feature designed to encourage
long-term employment by executives.
Pursuant to its authority under
the 2011 Incentive Compensation Plan, in connection with determining whether the Company achieved its performance criteria for performance shares, the
Compensation Committee excluded the effect of the Lowes Foods Transaction Expenses for the reasons described above with respect to Incentive Bonuses.
After excluding these expenses and reviewing the performance of the Company, the Compensation Committee determined that the Company met the applicable
performance criteria for issuance of restricted stock in settlement of performance shares.
2012 Restricted Stock Awards
Name
|
|
|
|
Shares of Restricted Stock Awarded in FY 2012 (1)
|
|
|
|
|
|
18,750 |
|
Frederick J. Morganthall, II |
|
|
|
|
10,000 |
|
|
|
|
|
|
7,500 |
|
|
|
|
|
|
5,500 |
|
|
|
|
|
|
|
|
(1) |
|
These awards of restricted stock will vest 20% per year on each
of the first five anniversaries of the date of the award. |
2012 Performance Share Awards
Name
|
|
|
|
Maximum Shares of Restricted Stock Awardable in FY
2013, Contingent on FY 2012 Performance (1)
|
|
Shares of Restricted Stock Awarded in FY 2013, Based
on Actual FY 2012 Performance (2)
|
|
|
|
|
|
18,750 |
|
|
|
18,750 |
|
Frederick J. Morganthall, II |
|
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
7,500 |
|
|
|
7,500 |
|
|
|
|
|
|
5,500 |
|
|
|
5,500 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Award was contingent upon achieving operating profit projection
for Fiscal 2012 of $197 million. |
(2) |
|
Once issued, these shares of restricted stock vest 25% per year
on each of the first four anniversaries of the date of the issuance. |
Pension Plan and Supplemental
Executive Retirement Plan. NEOs participate in the Harris Teeter Supermarkets, Inc. Employees Pension Plan (the Pension Plan), a
tax-qualified defined benefit retirement plan for eligible employees, on the same basis as other similarly situated employees. NEOs also participate in
the Harris Teeter Supermarkets, Inc. Supplemental Executive Retirement Plan (the SERP), which is an unfunded excess benefit plan maintained
to supplement the benefits payable to participants (generally senior officers of the Company) under the Pension Plan. SERP participants, depending on
length of service and vesting requirements, can become entitled to retirement payments inclusive of assumed pension, profit sharing and social security
retirement benefits up to 60% of a participants final average earnings. See the information under the headings Pension Plan and
SERP below for a more detailed discussion of the Pension Plan and the SERP. The Company historically viewed the Pension Plan as a basic
component in retaining employees; however, the Company chose to partially freeze the plan as other programs were deemed a more effective and widely
utilized method to compensate and retain employees. Effective September 30, 2005, the Companys Board of Directors approved changes to the Pension
Plan
25
which prohibited
participation by new employees, froze benefit accruals for certain participants, and provided transition benefits to those participants that achieved
specified age and service levels on December 31, 2005. These transition benefits were provided to the majority of the Pension Plan participants as
determined on the date of the freeze. Each of the Companys NEOs is entitled to these transition benefits and, as a result, the expected benefits
to each under the SERP and Pension Plan were not substantially affected by the plan changes.
Deferred Compensation
Plan. The Company has a deferred compensation plan, the Harris Teeter Supermarkets, Inc. Flexible Deferral Plan (the Flexible Deferral
Plan), which allows eligible participants to forego the receipt of earned compensation for specified periods of time. Each of the NEOs is
eligible to participate in the Flexible Deferral Plan. Pursuant to the Flexible Deferral Plan, compensation earned by participants (which is also
reported in the Summary Compensation Table for 2012) is deferred at the election of the plan participant. These deferred amounts and a Company match
based upon the same formula applicable to deferrals made pursuant to the Retirement and Savings Plan are credited to the individuals account. The
value of an individuals account will increase or decrease based on the performance of the selected market investment alternatives elected by the
participant of the Flexible Deferral Plan. Additional details of the Flexible Deferral Plan are included under the heading Flexible Deferral
Plan below.
Perquisites and Other
Benefits. The Company provides certain perquisites and other benefits to executive management where they generally either (i) meet the business
needs of the organization, or (ii) provide a level of benefits commensurate with the group insurance plans offered to all employees to recognize
limitations on wages. The Company believes that these types of benefits are highly effective in recruiting and retaining qualified executive officers
because they provide the executive officer with longer term security and protection for the future. The Company believes that providing these benefits
is a relatively inexpensive way to enhance the competitiveness of the executives compensation package and furthers the Companys goal of
attracting, retaining and rewarding highly qualified executives. Furthermore, the Company believes that while its executives could purchase such
coverage individually, the superior purchasing power of the Company allows the Company to purchase the benefits in a more cost effective manner. The
Company generally believes that perquisites have greater value to the executives than the cost to the Company to provide them, thus providing a return
on the cost of providing such benefits. The Compensation Committee considers these other forms of compensation, as well as perquisites made available
to executive officers, when setting annual base salary, incentive compensation and long-term incentive compensation. Additionally, the Company provides
tax gross-up reimbursements to the NEOs for the value of certain of these benefits, in order to provide the NEOs with the full value of such
benefits.
Perquisites. To the extent
reportable perquisites, as defined by the SEC, are granted in Fiscal 2012, they are disclosed in the footnotes to the Summary Compensation Table below.
Perquisites are provided from time to time consistent with the Companys philosophy outlined above.
Retirement and Savings
Plan. The Company also maintains the Retirement and Savings Plan in which executives and other employees are entitled to participate upon
satisfaction of the eligibility requirements. The Retirement and Savings Plan provides participants a specified Company match on a portion of their pay
contributed to the Retirement and Savings Plan in accordance with plan rules. The Company provides a match equal to 50% of the pay contributed to the
Retirement and Savings Plan up to 4% of pay, subject to certain limitations. The Retirement and Savings Plan also provides eligible participants a
Company-paid automatic retirement contribution. Based upon age and service points, eligible participants will receive an annual automatic retirement
contribution equal to between 2% and 5% of covered pay, subject to certain limitations.
Disability Benefits and Excess
Liability Insurance. The Company generally provides income protection in the event of disability under group insurance plans for its employees.
These group plans have limitations on income replacement and, as a result, highly compensated employees are not provided proportional income
protection. Accordingly, alternative disability coverage is provided by the Company to certain members of executive management, including all current
NEOs, pursuant to an executive long term disability plan (the Executive Long Term Disability Plan). The premiums paid with respect to the
Executive Long Term Disability Plan was grossed up for tax purposes. The Company also provides personal group excess liability insurance coverage to
certain members of executive management, including all current NEOs.
26
Life Insurance. The
Company maintains a group universal insurance plan through the Key Employee Life Insurance Plan (the KELIP) which provides for life
insurance coverage equal to two and one-half times an executives base salary. As part of the KELIP, the Company also makes a contribution into a
cash value investment account on behalf of KELIP participants in the amount of 0%, 1.2% or 2.4% of base salary. All current NEOs are in the 2.4%
category. In addition, the Harris Teeter Supermarkets, Inc. Executive Bonus Insurance Plan (the EBIP) provides the Companys
executives with a whole life insurance policy as to which the Company makes the premium payments while the participant is employed by the Company. The
premiums paid with respect to the Executive Bonus Insurance Plan were grossed up for tax purposes. The EBIP generally requires the Company to continue
premium payments on behalf of participants until age 65 if their employment is terminated within two years following a change in control. This
provision is coordinated with the Change-in-Control and Severance Agreements discussed below such that, in the case of a change in control, the Company
will continue EBIP premium payments for a current NEO until the later of the end of the continuation period provided under the EBIP or the
Change-in-Control and Severance Agreements.
Change-in-Control and
Severance Agreements. The Company entered into Change-in-Control and Severance Agreements with the NEOs during the Companys fiscal year ended
September 30, 2007 (Fiscal 2007). As previously disclosed, at the time of his separation from the Company, the Company and Mr. Jackson
mutually agreed to terminate his Change-in-Control and Severance Agreement. Please see the discussion of the Change-in-Control and Severance Agreements
contained below in Potential Payments Upon Termination of Employment or Change in Control.
Deductibility of Compensation
Expenses
Section 162(m) of the Internal
Revenue Code of 1986 (the Code) generally limits the tax deductibility by the Company for compensation paid to the Chief Executive Officer
and certain highly compensated executive officers to $1 million per officer per year, unless it qualifies as performance-based
compensation. To qualify as performance-based, compensation payments must satisfy certain conditions, including limitations on the
discretion of the Compensation Committee in determining the amounts of such compensation. It is the Companys current policy that, to the extent
possible, compensation paid to its executive officers be deductible under Section 162(m) of the Code. In furtherance of this policy, the Board of
Directors has adopted, and the shareholders have approved, the 2006 Cash Incentive Plan and the 2011 Incentive Compensation Plan, and the Board of
Directors has adopted the 2013 Cash Incentive Plan being presented to shareholders for approval at this Annual Meeting. The 2013 Cash Incentive Plan,
2006 Cash Incentive Plan, 2011 Incentive Compensation Plan have each been structured in a manner such that cash incentive payments and
performance-based equity awards under each plan can satisfy the requirements for performance-based compensation within the meaning of
Section 162(m) of the Code.
27
The table below summarizes the
compensation during the past three fiscal years for each NEO. Mr. Antolock became an executive officer in Fiscal 2012, so no compensation information
is provided for him for Fiscal 2011 or 2010. Mr. Jackson separated from the Company in November 2011, so Fiscal 2012 reflects a partial year for
him.
Summary Compensation Table for 2012
Name and Principal Position
|
|
Year
|
|
Salary ($)
|
|
Bonus ($)(1)
|
|
Stock Awards ($)(2)
|
|
Option Awards ($)
|
|
Non-Equity Incentive Plan Compensation
($)(3)
|
|
Change in Pension Value and
Non-Qualified Deferred Compensation Earnings ($)(4)
|
|
All Other Compensation ($)(5)
|
|
Total ($)
|
|
|
|
2012 |
|
|
|
709,000 |
|
|
|
|
|
1,591,500 |
|
|
|
|
|
|
|
837,187 |
|
|
|
3,283,000 |
|
|
|
192,641 |
|
|
|
6,613,328 |
|
Chairman of the Board and
|
|
|
2011 |
|
|
|
682,000 |
|
|
|
|
|
1,345,400 |
|
|
|
|
|
|
|
865,867 |
|
|
|
306,000 |
|
|
|
185,908 |
|
|
|
3,385,175 |
|
|
|
|
2010 |
|
|
|
620,000 |
|
|
|
|
|
667,062 |
|
|
|
|
|
|
|
662,160 |
|
|
|
1,804,000 |
|
|
|
139,686 |
|
|
|
3,892,908 |
|
|
Frederick J. Morganthall, II |
|
|
2012 |
|
|
|
500,000 |
|
|
|
75,000 |
|
|
|
848,800 |
|
|
|
|
|
|
|
397,500 |
|
|
|
1,018,000 |
|
|
|
138,281 |
|
|
|
2,977,581 |
|
|
|
|
2011 |
|
|
|
482,000 |
|
|
|
|
|
672,700 |
|
|
|
|
|
|
|
367,525 |
|
|
|
286,000 |
|
|
|
135,867 |
|
|
|
1,944,092 |
|
|
|
|
2010 |
|
|
|
452,500 |
|
|
|
|
|
333,532 |
|
|
|
|
|
|
|
341,638 |
|
|
|
1,245,000 |
|
|
|
118,290 |
|
|
|
2,490,960 |
|
|
|
|
|
2012 |
|
|
|
487,000 |
|
|
|
|
|
636,600 |
|
|
|
|
|
|
|
479,208 |
|
|
|
1,205,000 |
|
|
|
154,960 |
|
|
|
2,962,768 |
|
Executive Vice President and
|
|
|
2011 |
|
|
|
472,500 |
|
|
|
|
|
576,600 |
|
|
|
|
|
|
|
499,905 |
|
|
|
272,000 |
|
|
|
142,592 |
|
|
|
1,963,597 |
|
|
|
|
2010 |
|
|
|
435,000 |
|
|
|
|
|
333,532 |
|
|
|
|
|
|
|
387,150 |
|
|
|
728,000 |
|
|
|
139,766 |
|
|
|
2,023,448 |
|
|
|
|
|
2012 |
|
|
|
415,000 |
|
|
|
50,000 |
|
|
|
466,840 |
|
|
|
|
|
|
|
329,925 |
|
|
|
416,000 |
|
|
|
95,910 |
|
|
|
1,773,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
|
32,253 |
|
|
|
25,199 |
(6) |
|
|
934,425 |
(7) |
|
|
|
|
|
|
|
|
166,000 |
|
|
|
4,072 |
|
|
|
1,161,949 |
|
President of former subsidiary
|
|
|
2011 |
|
|
|
328,000 |
|
|
|
|
|
345,960 |
|
|
|
|
|
|
|
235,627 |
|
|
|
363,000 |
|
|
|
112,025 |
|
|
|
1,384,612 |
|
|
|
|
2010 |
|
|
|
295,000 |
|
|
|
29,500 |
(8) |
|
|
240,142 |
|
|
|
|
|
|
|
162,361 |
|
|
|
262,000 |
|
|
|
103,125 |
|
|
|
1,092,128 |
|
(1) |
|
Amounts represent a discretionary bonus provided to the
applicable NEO for the fiscal year indicated. For more information relating to discretionary cash bonuses for Fiscal 2012, please refer to Annual
Cash Compensation in the Compensation Discussion and Analysis section. |
(2) |
|
Amounts reflect the grant date fair value computed in accordance
with Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) Topic 718, related to restricted stock and
performance shares granted in the fiscal year noted. The assumptions used in the calculation of these amounts are included in the note entitled
Stock Options and Stock Awards in the Notes to Consolidated Financial Statements included within the Companys Annual Report on Form
10-K for the fiscal year ended October 2, 2012, except that for the purposes of this table the estimates of forfeitures related to service-based
vesting conditions have been disregarded. For more information on the actual forfeitures, if any, for each of the NEOs listed in the table during
Fiscal 2012, please refer to 2012 Performance Share Awards. For more information on the outstanding shares of restricted stock held by the
NEOs, please refer to Outstanding Equity Awards at Fiscal Year-End for 2012. |
(3) |
|
This column represents Incentive Bonuses paid to the NEOs. In
accordance with the Securities and Exchange Commission requirements, Incentive Bonuses paid are performance-based and therefore are
reported in the Non-Equity Incentive Plan Compensation column. As described in the Compensation Discussion and Analysis section, such cash
incentive bonuses are paid to the NEOs when specific performance measures are achieved and the payment is approved by the Compensation Committee. These
amounts were paid in the November following the end of the indicated fiscal year to each respective NEO with respect to the Companys performance
during the indicated fiscal year. |
28
(4) |
|
The amounts listed for Fiscal 2012 are attributable to the
change in actuarial present value for the Pension Plan and the SERP from October 3, 2011 through October 2, 2012. For a discussion of the assumptions
underlying this valuation, please refer to the note to the table entitled Pension Benefits for 2012. The Companys non-qualified
deferred compensation plan does not provide above-market or preferential earnings on deferred compensation, and therefore, in accordance with
Securities and Exchange Commission rules, there were no changes of value attributable to nonqualified deferred compensation earnings. A change in the
actuarial present value of the benefits under the Pension Plan and the SERP can occur due to changes in the discount rate. The present values of the
accumulated Pension Plan and SERP benefits of the NEOs were positively impacted due to a decrease in the discount rate from 5.50% for the Pension Plan
and 5.40% in the SERP for Fiscal 2011 to 4.45% for the Pension Plan and 4.20% for the SERP for Fiscal 2012. |
(5) |
|
All other compensation for each of the NEOs consists of the
following: |
|
|
|
|
Thomas W. Dickson ($)
|
|
Frederick J. Morganthall, II ($)
|
|
John B. Woodlief ($)
|
|
Rodney C. Antolock ($)
|
|
Fred A. Jackson ($)
|
Executive Bonus Insurance Plan |
|
|
|
|
42,253 |
|
|
|
41,052 |
|
|
|
52,858 |
|
|
|
28,882 |
|
|
|
|
|
Retirement and Savings Plan |
|
|
|
|
17,250 |
|
|
|
17,150 |
|
|
|
14,772 |
|
|
|
14,700 |
|
|
|
50 |
|
|
|
|
|
|
22,600 |
|
|
|
12,272 |
|
|
|
14,728 |
|
|
|
5,100 |
|
|
|
2,295 |
|
Key Employee Life Insurance Plan |
|
|
|
|
22,478 |
|
|
|
17,801 |
|
|
|
17,982 |
|
|
|
12,380 |
|
|
|
1,277 |
|
|
|
|
|
|
35,473 |
|
|
|
23,370 |
|
|
|
30,287 |
|
|
|
17,898 |
|
|
|
135 |
|
Executive Long Term Disability Plan |
|
|
|
|
6,902 |
|
|
|
3,192 |
|
|
|
3,759 |
|
|
|
2,787 |
|
|
|
315 |
|
Dividends on unvested Restricted Stock Awards |
|
|
|
|
45,685 |
|
|
|
23,444 |
|
|
|
20,574 |
|
|
|
14,163 |
|
|
|
|
|
(6) |
|
Amount represents a discretionary bonus provided to Mr. Jackson
for the performance of A&E through November 7, 2011. |
(7) |
|
Amount represents accelerated vesting of shares underlying
restricted stock awards previously granted to Mr. Jackson in connection with the sale of A&E. Please refer to Potential Payments Upon
Termination of Employment or Change in Control for additional information. |
(8) |
|
Amount represents a discretionary bonus provided to Mr. Jackson
in the amount of ten percent of his base salary for fiscal 2010 based on A&Es fiscal 2010 operating profit achievement. |
29
Grants of Plan-Based Awards for 2012
|
|
|
|
|
|
Estimated Future Payouts Under Non-Equity
Incentive Plan Awards (1)
|
|
Estimated Future Payouts Under Equity
Incentive Plan Awards (2)
|
|
All Other Stock Awards: Number of Shares of
Stock or Units
|
|
Grant Date Fair Value of Stock and Option
Awards
|
Name
|
|
|
|
Grant Date
|
|
Threshold($)
|
|
Target(#)
|
|
(#)(3)
|
|
($)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/17/2011 |
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
11/17/2011 |
|
|
|
N/A |
|
|
|
18,750 |
|
|
|
N/A |
|
|
|
795,750 |
|
|
|
|
|
|
11/17/2011 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
18,750 |
|
|
|
795,750 |
|
|
Frederick J. Morganthall, II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/17/2011 |
|
|
|
75,000 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
11/17/2011 |
|
|
|
N/A |
|
|
|
10,000 |
|
|
|
N/A |
|
|
|
424,400 |
|
|
|
|
|
|
11/17/2011 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
10,000 |
|
|
|
424,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/17/2011 |
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
11/17/2011 |
|
|
|
N/A |
|
|
|
7,500 |
|
|
|
N/A |
|
|
|
318,300 |
|
|
|
|
|
|
11/17/2011 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
7,500 |
|
|
|
318,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/17/2011 |
|
|
|
62,250 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
11/17/2011 |
|
|
|
N/A |
|
|
|
5,500 |
|
|
|
N/A |
|
|
|
233,420 |
|
|
|
|
|
|
11/17/2011 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
5,500 |
|
|
|
233,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts shown are estimated threshold payouts for Fiscal 2012 to
the NEOs under the 2006 Cash Incentive Plan. Under the applicable performance criteria, if the Company achieves the predetermined minimum goals,
executives are paid a predetermined percentage of base compensation as Incentive Bonus. The percentage of base compensation payable as Incentive Bonus
increases as the return or profit margin increases. The plans are discussed in greater detail in the Cash Incentive Plan Awards for 2012
table and the footnotes thereunder. |
(2) |
|
Amounts shown are estimated target number of performance shares
awards that were granted in Fiscal 2012, assuming the Company met or exceeded its operating profit projections, which are discussed in greater detail
in the Compensation Discussion and Analysis section. Performance shares were 100% subject to meeting the operating profit projections for
Fiscal 2012. If performance is achieved, these performance shares will be settled by issuance of restricted stock. Once issued, 25% of these shares of
restricted stock vest on each of the first four anniversaries of the date of the issuance. |
(3) |
|
Represents number of shares of restricted stock granted in
Fiscal 2012. The restricted stock will vest 20% per year on each of the first five anniversaries of the date of the award. |
(4) |
|
Represents the grant date fair value of performance shares
awards or restricted stock awards, as the case may be, of such award computed in accordance with FASB ASC Topic 718. The assumptions used in the
calculation of these amounts are included in the note entitled Stock Options and Stock Awards in the Notes to Consolidated Financial
Statements included within the Companys Annual Report on Form 10-K for the fiscal year ended October 2, 2012, except that for the purposes of
this table the estimates of forfeitures related to service-based vesting conditions have been disregarded. The grant date fair value for performance
shares awards is based on the FASB ASC Topic 718 value of $42.44 per share. |
30
Outstanding Equity Awards at Fiscal Year-End for
2012
|
|
|
|
Stock Awards
|
|
Name
|
|
|
|
Number of Shares or Units of Stock That
Have Not Vested (#)(1)
|
|
Market Value of Shares or Units of Stock
That Have Not Vested ($)(2)
|
|
Equity Incentive Plan Awards: Number of
Unearned Shares, Units or Other Rights That Have Not Vested (#)(3)
|
|
Equity Incentive Plan Awards: Market or Payout
Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(4)
|
|
|
|
|
|
83,063 |
|
|
|
3,146,426 |
|
|
|
18,750 |
|
|
|
710,250 |
|
Frederick J. Morganthall, II |
|
|
|
|
42,625 |
|
|
|
1,614,635 |
|
|
|
10,000 |
|
|
|
378,800 |
|
|
|
|
|
|
37,407 |
|
|
|
1,416,977 |
|
|
|
7,500 |
|
|
|
284,100 |
|
|
|
|
|
|
25,750 |
|
|
|
975,410 |
|
|
|
5,500 |
|
|
|
208,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,845 |
|
|
|
7,153,449 |
|
|
|
41,750 |
|
|
|
1,581,490 |
|
(1) |
|
A vesting schedule for each unvested restricted stock award,
including performance shares awards that have been settled by payment of restricted stock due to the achievement of performance goals, is included
herein: |
Thomas W. Dickson
|
|
Frederick J. Morganthall, II
|
|
John B. Woodlief
|
|
Rodney C. Antolock
|
|
Vesting Date
|
|
|
|
# of Shares Vesting
|
|
Vesting Date
|
|
# of Shares Vesting
|
|
Vesting Date
|
|
# of Shares Vesting
|
|
Vesting Date
|
|
# of Shares Vesting
|
|
|
|
|
|
5,312 |
|
|
|
11/15/2012 |
|
|
|
2,812 |
|
|
|
11/15/2012 |
|
|
|
2,656 |
|
|
|
11/15/2012 |
|
|
|
2,025 |
|
|
|
|
|
|
3,750 |
|
|
|
11/17/2012 |
|
|
|
2,000 |
|
|
|
11/17/2012 |
|
|
|
1,500 |
|
|
|
11/17/2012 |
|
|
|
1,100 |
|
|
|
|
|
|
7,874 |
|
|
|
11/18/2012 |
|
|
|
3,937 |
|
|
|
11/18/2012 |
|
|
|
3,374 |
|
|
|
11/18/2012 |
|
|
|
2,025 |
|
|
|
|
|
|
5,625 |
|
|
|
11/19/2012 |
|
|
|
2,813 |
|
|
|
11/19/2012 |
|
|
|
2,813 |
|
|
|
11/19/2012 |
|
|
|
2,025 |
|
|
|
|
|
|
5,312 |
|
|
|
11/20/2012 |
|
|
|
2,812 |
|
|
|
11/20/2012 |
|
|
|
2,656 |
|
|
|
11/20/2012 |
|
|
|
2,025 |
|
|
|
|
|
|
3,750 |
|
|
|
11/17/2013 |
|
|
|
2,000 |
|
|
|
11/17/2013 |
|
|
|
1,500 |
|
|
|
11/17/2013 |
|
|
|
1,100 |
|
|
|
|
|
|
7,875 |
|
|
|
11/18/2013 |
|
|
|
3,938 |
|
|
|
11/18/2013 |
|
|
|
3,375 |
|
|
|
11/18/2013 |
|
|
|
2,025 |
|
|
|
|
|
|
5,625 |
|
|
|
11/19/2013 |
|
|
|
2,812 |
|
|
|
11/19/2013 |
|
|
|
2,812 |
|
|
|
11/19/2013 |
|
|
|
2,025 |
|
|
|
|
|
|
5,313 |
|
|
|
11/20/2013 |
|
|
|
2,813 |
|
|
|
11/20/2013 |
|
|
|
2,657 |
|
|
|
11/20/2013 |
|
|
|
2,025 |
|
|
|
|
|
|
3,750 |
|
|
|
11/17/2014 |
|
|
|
2,000 |
|
|
|
11/17/2014 |
|
|
|
1,500 |
|
|
|
11/17/2014 |
|
|
|
1,100 |
|
|
|
|
|
|
7,875 |
|
|
|
11/18/2014 |
|
|
|
3,937 |
|
|
|
11/18/2014 |
|
|
|
3,375 |
|
|
|
11/18/2014 |
|
|
|
2,025 |
|
|
|
|
|
|
5,626 |
|
|
|
11/19/2014 |
|
|
|
2,813 |
|
|
|
11/19/2014 |
|
|
|
2,813 |
|
|
|
11/19/2014 |
|
|
|
2,025 |
|
|
|
|
|
|
3,750 |
|
|
|
11/17/2015 |
|
|
|
2,000 |
|
|
|
11/17/2015 |
|
|
|
1,500 |
|
|
|
11/17/2015 |
|
|
|
1,100 |
|
|
|
|
|
|
7,876 |
|
|
|
11/18/2015 |
|
|
|
3,938 |
|
|
|
11/18/2015 |
|
|
|
3,376 |
|
|
|
11/18/2015 |
|
|
|
2,025 |
|
|
|
|
|
|
3,750 |
|
|
|
11/17/2016 |
|
|
|
2,000 |
|
|
|
11/17/2016 |
|
|
|
1,500 |
|
|
|
11/17/2016 |
|
|
|
1,100 |
|
|
|
|
|
|
83,063 |
|
|
|
TOTAL |
|
|
|
42,625 |
|
|
|
TOTAL |
|
|
|
37,407 |
|
|
|
TOTAL |
|
|
|
25,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
Calculated by multiplying the unvested shares of restricted
stock by $37.88, the closing market price of the Companys Common Stock on October 2, 2012, the last day in Fiscal 2012 (the Closing Market
Price). |
(3) |
|
Amounts shown are target number of shares of performance shares
granted in Fiscal 2012, assuming the Company meets or exceeds its operating profit projection, which are discussed in greater detail in the
Compensation Discussion and Analysis section. Once issued, these performance-based shares of restricted stock vest 25% per year on each of
the first four anniversaries of the date of the issuance. |
(4) |
|
Calculated by multiplying the target number of shares of
performance shares by the Closing Market Price. |
31
Option Exercises and Stock Vested for
2012
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
|
|
Number of Shares Acquired on Exercise (#)
|
|
Value Realized on Exercise ($)(1)
|
|
Number of Shares Acquired on Vesting (#)
|
|
Value Realized on Vesting ($)(2)
|
|
|
|
|
|
|
|
|
|
24,906 |
|
|
|
1,056,270 |
|
Frederick J. Morganthall, II |
|
|
|
|
|
|
|
|
13,000 |
|
|
|
551,543 |
|
|
|
|
|
|
|
|
|
|
12,202 |
|
|
|
517,616 |
|
|
|
|
|
|
|
|
|
|
8,775 |
|
|
|
372,281 |
|
|
|
|
|
|
15,298 |
|
|
|
383,860 |
|
|
|
22,500 |
|
|
|
934,425 |
|
(1) |
|
The value realized on exercise represents: (a) the difference
between the average of the high and low sale price (Average Price) on the day of exercise and the exercise price multiplied by the number
of shares acquired on exercise, in the case of stock swaps, and (b) the actual gain realized in the case of cashless sale or cashless hold
exercises. |
(2) |
|
The value realized represents the number of shares acquired on
vesting multiplied by the Average Price on the day of vesting. |
(3) |
|
In connection with the sale of A&E, the Board approved
accelerated vesting of all previously unvested restricted stock awards for Mr. Jackson. Please refer to Potential Payments Upon Termination of
Employment or Change in Control for additional information. |
Pension Benefits for 2012 (1)
Name
|
|
|
|
Plan Name
|
|
Number of Years Credited Service (#)
|
|
Present Value of Accumulated Benefit ($)(2)
|
|
Payments During Last Fiscal Year ($)
|
|
|
|
|
|
|
|
32 |
|
|
|
1,271,000 |
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
10,787,000 |
|
|
|
Frederick J. Morganthall, II |
|
|
|
|
|
|
26 |
|
|
|
949,000 |
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
6,576,000 |
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
325,000 |
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
4,174,000 |
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
233,000 |
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
2,446,000 |
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
2,859,000 |
|
|
|
(1) |
|
For a discussion of the valuation methods and material
assumptions applied in quantifying the present value of the current accrued benefit under each of the Pension Plan and SERP, please refer to the note
entitled Employee Benefit Plans of the Consolidated Financial Statements included with the Companys Annual Report on Form 10-K for
the year ended October 2, 2012. |
(2) |
|
Present Value of Accumulated Benefit assumes the
value of the benefit as of October 2, 2012 and assumes that the NEO will wait to receive any benefit thereunder until the NEO would have attained an
age where such NEO would receive an unreduced benefit amount under such benefit plan. |
Pension Plan. The Pension
Plan is a tax-qualified defined benefit retirement plan for eligible employees. Effective October 1, 2005 the Pension Plan was amended to limit
participation in the Pension Plan to eligible employees of the Company who were employed on September 30, 2005. All of the current NEOs are
participants in the Pension Plan. Contributions to the Pension Plan are determined annually by the Retirement Plan Committee, the named fiduciary,
based upon an analysis and recommendation from actuarial consultants who estimate the Plans total
32
obligation to participants.
For participants with age and service points as of December 31, 2005 equal to or greater than 45, their benefit accruals under the Plan after September
30, 2005 will be offset by the actuarial equivalent of the portion of their account balance under the Retirement and Savings Plan that is attributable
to automatic retirement contributions made by the Company after September 30, 2005, plus earnings and losses on such contributions. All NEOs had 45
points or more as of December 31, 2005. A participants normal annual retirement benefit under the Pension Plan at age 65 is an amount equal to
0.8% (and through the Companys sale of A&E in November 2011, 0.6% for employees of A&E including Mr. Jackson) of the participants
final average earnings multiplied by years of service at retirement, plus 0.6% of the participants final average earnings in excess of Social
Security covered compensation multiplied by the number of years of service up to a maximum of thirty-five years. A participants final average
earnings is the average annual cash compensation paid to the participant during the plan year, including salary, incentive compensation and any amount
contributed to the Retirement and Savings Plan, for the five consecutive years in the last ten years that produce the highest average. As of the
Companys sale of A&E in November 2011, A&E employees, including Mr. Jackson, were no longer participants in the Pension
Plan.
SERP. The Company also
maintains the SERP. The SERP covers certain senior executive employees of the Company, including the NEOs, as designated by its administrative
committee. Under the SERP, participants who retire at normal retirement age (60) receive monthly retirement benefits equal to between 55% and 60% of
the participants final average earnings times the participants accrual fraction and reduced by the participants (1) assumed Pension
Plan Retirement Benefit, (2) assumed Social Security Benefit and (3) assumed profit sharing plan retirement benefit, if any. The final average earnings
are the average annual earnings during the highest 3 calendar years out of the last 10 calendar years preceding termination of employment for all
executives, other than the executives of A&E, for whom the final average earnings are the average of the 3 highest calendar years earnings during
their employment. The accrual fraction is a fraction, the numerator of which is the years of credited service, the denominator of which is 20, and
which may not exceed 1.0. The benefits payable under the SERP are payable for the participants lifetime with an automatic 75% survivor benefit
payable to the participants surviving eligible spouse for his or her lifetime. Participants are eligible to receive an early retirement benefit
upon termination of employment, other than on account of death, after attaining age 55 and completing 10 years of credited service. The amount of early
retirement benefit is the monthly retirement benefit reduced by 0.4167% for each month by which payment begins before normal retirement age. As of the
Companys sale of A&E in November 2011, accrued SERP benefits of participants who were A&E employees, including Mr. Jackson, were
frozen.
Non-Qualified Deferred Compensation for
2012
Name
|
|
|
|
Executive Contributions in Last Fiscal
Year ($)
|
|
Registrant Contributions in Last Fiscal
Year ($)
|
|
Aggregate Earnings in Last Fiscal Year
($)
|
|
Aggregate Withdrawals and/or Distributions
in Last Fiscal Year ($)
|
|
Aggregate Balance at Last Fiscal Year
End ($)
|
|
|
|
|
|
35,000 |
|
|
|
22,600 |
|
|
|
37,280 |
|
|
|
|
|
354,538 |
|
Frederick J. Morganthall, II |
|
|
|
|
20,000 |
|
|
|
12,272 |
|
|
|
30,133 |
|
|
|
|
|
271,167 |
|
|
|
|
|
|
149,972 |
|
|
|
14,728 |
|
|
|
36,826 |
|
|
|
|
|
278,871 |
|
|
|
|
|
|
|
|
5,100 |
|
|
|
174,459 |
|
|
|
|
|
1,046,244 |
|
|
|
|
|
|
|
|
2,295 |
|
|
|
|
|
|
|
16,191 |
|
Flexible Deferral Plan.
The Flexible Deferral Plan is an unfunded, excess benefit plan that provides certain highly compensated employees, including the current NEOs, the
opportunity to defer the receipt and taxation on a portion of their annual compensation. The purpose of the Flexible Deferral Plan is to allow deferral
of a portion of the participants annual base salary and Incentive Bonus and to supplement the benefits under the tax-qualified retirement plans
to the extent that such benefits are curtailed by the application of certain limits imposed by the Code (e.g., Code Section 402(g) and Code Section 414
limitations). During Fiscal 2012, eligible employees were permitted to defer up to 50% of their base salary and up to 90% of their Incentive Bonus
payment in the Flexible Deferral Plan. Cash compensation is eligible for deferral unless prohibited under Code Section 409A, subject to plan limits.
Plan participants may choose deemed investments in the Flexible Deferral Plan that represent choices that span a variety of diversified asset classes.
No contributions may be used to purchase the Common Stock. Participants make an election for each years deferral election regarding the timing of
plan distributions, subject
33
to limitations under the plan
and Code Section 409A. A participant may elect up to ten (10) in-service accounts and one (1) retirement account for payment of deferral contributions,
subject to plan limitations. Each in-service account will be paid in accordance with the respective election in lump-sum or installments and in the
year elected, subject to restrictions imposed by Code Section 409A. The Flexible Deferral Plan also allows for an in-service withdrawal for an
unforeseeable emergency based on facts and circumstances that meet Internal Revenue Service and plan guidelines. The Company uses a non-qualified trust
to purchase and hold the assets to satisfy the Companys obligation under the Flexible Deferral Plan, and participants in the Flexible Deferral
Plan are general creditors of the Company in the event the Company becomes insolvent.
Potential Payments Upon Termination of Employment or
Change in Control
After reviewing market trends,
including information prepared by a consultant, the Company entered into Change-in-Control and Severance Agreements with the NEOs during Fiscal 2007.
The Company determined to enter into the Change-in-Control and Severance Agreements with the NEOs because the Company believed that these agreements
would ensure that the NEOs were incentivized to achieve the greatest possible return for the Companys shareholders, including through a potential
change in control transaction, irrespective of a loss of their own position in connection with such a transaction. During Fiscal 2007 the Compensation
Committee was presented data that a majority of public companies surveyed by the compensation consultant entered into similar agreements with their
executives. A second goal of the Compensation Committee in entering into the Change-in-Control and Severance Agreements was to aid in the retention of
the Companys NEOs and to give them protections and benefits similar to executives at other companies. The Compensation Committee also considered
the cost to the Company of replacing the NEOs in the event of a change in control. The Compensation Committee and the Company believed it was important
for the Change-in-Control and Severance Agreements to contain provisions which would prohibit the NEOs from competing against the Company or soliciting
the Companys employees or clients following their termination, other than following a change in control. These provisions protect the Company
from any such actions by tying the benefits the NEO would receive upon such termination of employment, to the continued adherence to the
agreement.
The Compensation Committee
considered the information contained in the study and asked the consultant to provide a recommendation concerning the terms of such change in control
and severance agreements provided by such companies. The consultant recommended that the Company enter into agreements with the NEOs on terms
substantially similar to those contained in the executed agreements. Based on the consultants recommendations and the data contained in the
consultants study the Compensation Committee determined that the terms of the Change-in-Control and Severance Agreements were appropriate for the
NEOs. The Compensation Committee presented those terms to the NEOs, and the NEOs accepted the terms as presented. The Change-in-Control and Severance
Agreements are effective until the termination of the NEOs employment with the Company, or until terminated by written agreement between the
Company and the NEO.
Mr. Jacksons employment
with the Company ended upon the sale of A&E in November 2011. The sale of A&E did not constitute a triggering event under the Change-in-Control
and Severance Agreement with Mr. Jackson. In connection with the sale, however, the Company and Mr. Jackson entered into a written agreement
terminating the Change-in-Control and Severance Agreement applicable to Mr. Jackson as of the closing date of the sale, November 7, 2011, pursuant to
which written agreement Mr. Jackson waived any right to receive benefits under such agreement. Because the Change-in-Control and Severance Agreement
for Mr. Jackson was not in effect as of the last day of Fiscal 2012, Mr. Jackson would not have been entitled to any additional benefits assuming a
triggering event occurred at such time. Accordingly, certain of the discussions below in Potential Payments Upon Termination of Employment or
Change in Control related to NEOs exclude any hypothetical payments with respect to Mr. Jackson and, where appropriate, include a discussion of
actual benefits to which Mr. Jackson became entitled in connection with his severance. Actual payments pursuant to those benefits are disclosed in the
Summary Compensation Table for Fiscal 2012 and other tabular disclosure above. Additionally, as described above, accrued SERP benefits of participants
who were A&E employees, including Mr. Jackson, were frozen as of November 7, 2011, however those employees, including Mr. Jackson, remain
participants in the SERP.
34
Under the terms of the
Change-in-Control and Severance Agreements, as amended, a current NEO is entitled to severance benefits only if the NEOs employment is terminated
by the Company prior to a change in control (as defined below) transaction or after twenty-four (24) months following a change in
control transaction. The following is a summary of the severance benefits the current NEOs are expected to receive under the Change-in-Control
and Severance Agreements:
|
|
For Messrs. Dickson and Woodlief, a single lump sum payment in
an amount equal to (i) if terminated other than for cause (as defined below), death or disability, two (2) times the sum of his annual base
salary plus the greater of (a) his severance accrued bonus (as defined below) or (b) the average of his total bonus payments for the prior
three full fiscal years ending on or before his termination, and (ii) if terminated other than for cause, a pro-rated portion of his
severance accrued bonus. |
|
|
For Mr. Morganthall, a single lump sum payment in an amount
equal to (i) if terminated other than for cause, death or disability, one and one-half (1.5) times the sum of his annual base salary plus
the greater of (a) his severance accrued bonus or (b) the average of his total bonus payments for the prior three full fiscal years ending
on or before his termination, and (ii) if terminated other than for cause, a pro-rated portion of his severance accrued
bonus. |
|
|
For Mr. Antolock, a single lump sum payment in an amount equal
to (i) if terminated other than for cause, death or disability, the sum of his annual base salary plus the greater of (a) his
severance accrued bonus or (b) the average of his total bonus payments for the prior three full fiscal years ending on or before his
termination, and (ii) if terminated other than for cause, a pro-rated portion of his severance accrued bonus. |
The following is a summary of the
change in control benefits the NEOs are expected to receive under the Change-in-Control and Severance Agreements if the NEOs employment
terminates at any time within twenty-four (24) months following a change in control transaction:
|
|
For Messrs. Dickson and Woodlief, (i) if terminated by the
Company other than for cause, death, or disability, or by the NEO for good reason (as defined below), a single lump sum payment
in an amount equal to 2.99 times the sum of his annual base salary plus the greater of (a) his CIC accrued bonus (as defined below) or (b)
his CIC average prior bonus payments (as defined below), and (ii) if terminated by the Company other than for cause, or by the
NEO for good reason the pro-rated portion of his CIC prorated bonus (as defined below). This pro-rated portion of his CIC
prorated bonus payment shall be in addition to any pro-rated bonus such NEO may be entitled, during the period following a change in
control transaction through the termination of his employment. |
|
|
For Mr. Morganthall, (i) if terminated by the Company other than
for cause, death, or disability, or by Mr. Morganthall for good reason, a single lump sum payment in an amount equal to 2.50
times the sum of his annual base salary plus the greater of (a) his CIC accrued bonus, or (b) his CIC average prior bonus
payments and (ii) if terminated by the Company other than for cause, or by Mr. Morganthall for good reason, a pro-rated
portion of his CIC prorated bonus. This pro-rated portion of his CIC prorated bonus payment shall be in addition to any
pro-rated bonus Mr. Morganthall may be entitled, during the period following a change in control transaction through the termination of his
employment. |
|
|
For Mr. Antolock, (i) if terminated by the Company other than
for cause, death, or disability, or by Mr. Antolock for good reason, a single lump sum payment in an amount equal to 2.00 times
the sum of his annual base salary plus the greater of (a) his CIC accrued bonus, or (b) his CIC average prior bonus payments
and (ii) if terminated by the Company other than for cause, or by Mr. Antolock for good reason, a pro-rated portion of his
CIC prorated bonus. This pro-rated portion of his CIC prorated bonus payment shall be in addition to any pro-rated bonus Mr.
Antolock may be entitled, during the period following a change in control transaction through the termination of his
employment. |
In the event a NEOs
employment is terminated by the Company either before or after a change in control other than for cause, or by the NEO for
good reason, such NEO is also entitled to a payment of a bonus under an equity incentive plan based upon the Companys actual
performance up to the date of termination of such NEOs
35
employment. This bonus shall
be the shares, or the cash equivalent, of the performance shares that were awarded to the NEO, subject to the achievement of certain performance
criteria, prior to the termination of the NEOs employment. The shares received shall be fully vested.
In addition, in the event a
NEOs employment is terminated by the Company either before or after a change in control other than for cause, death or
disability, or by the NEO for good reason, each such NEO is entitled to continue certain employee benefits, including medical/dental,
disability and life insurance coverage, for a period of time following a termination within 24 months of change in control. The period of
continued benefits shall be 36 months for Messrs. Dickson and Woodlief, 30 months for Mr. Morganthall and 24 months for Mr. Antolock. Alternatively,
each such NEO is entitled to continue certain employee benefits, including medical/dental, disability and life insurance coverage, for a different
period of time following a termination before a change in control or more than 24 months after a change in control. The period
of continued benefits shall be 24 months for Messrs. Dickson and Woodlief, 18 months for Mr. Morganthall and 12 months for Mr. Antolock. A NEO may
elect to waive these benefits and in lieu thereof receive a single lump sum payment, equal to the Companys costs in providing such benefits,
including any related tax gross-up, if applicable.
If it is determined that any
payment or distribution will be subject to the excise tax imposed under Internal Revenue Code Section 280G, then the NEO may be entitled to receive an
additional payment or gross up to ensure that their severance payments are kept whole as follows:
|
|
For Messrs. Dickson and Woodlief, there is an unconditional
gross-up to cover 280G excise tax, but not ordinary tax obligations; and |
|
|
For Messrs. Morganthall and Antolock, there is a conditional
gross-up to cover 280G excise tax, but not ordinary tax obligations. The change in control benefit payments for Messrs. Morganthall and
Antolock are capped at the 280G threshold if the safe harbor is exceeded by 10% or less. |
When used in the
Change-in-Control and Severance Agreements, severance accrued bonus means an amount based upon the current bonus schedule provided in the
Companys Cash Incentive Plan, calculated utilizing the Companys annualized NOPAT return on the Companys invested capital for the
cumulative fiscal period-to-date as of the end of the most recent fiscal quarter ending on or before such NEOs termination.
When used in the
Change-in-Control and Severance Agreements, CIC accrued bonus means a bonus payment based upon the current bonus schedule provided in the
Companys Cash Incentive Plan, calculated utilizing the Companys annualized NOPAT return on the Companys invested capital for the
fiscal period-to-date as of the most recent fiscal quarter ending on or before either: (1) the date of such NEOs termination or (2) the date of
the change in control transaction; provided that the date which shall be used shall be the date that produces the greater payment to the
NEO.
When used in the
Change-in-Control and Severance Agreements, CIC average prior bonus payments means the greater of the average of a NEOs total bonus
payments for the prior three full fiscal years ending (1) on or before such NEOs termination or (2) on or before the change in
control transaction.
When used in the
Change-in-Control and Severance Agreements, CIC prorated bonus means a bonus payment calculated utilizing the Companys annualized
NOPAT return on the Companys invested capital in the case of each of Messrs. Dickson and Woodlief for the portion of the fiscal year period to
date as of the most recent fiscal quarter ending on or before the change in control transaction.
When used in the
Change-in-Control and Severance Agreements, cause means the termination of the NEO due to (a) fraud; (b) embezzlement; (c) conviction or
other final adjudication of guilt of the NEO of any felony; (d) a material breach of, or the willful failure to perform and discharge such NEOs
duties, responsibilities and obligations under their Change-in-Control and Severance Agreement; (e) any act of moral turpitude or willful misconduct
intended to result in personal enrichment of the NEO at the expense of the Company, or any of its affiliates or which has a material adverse impact on
the business or reputation of the Company or any of its affiliates; (f) intentional material damage to the property or business of the Company; or (g)
gross negligence. The determination of cause under (d), (e), (f) and (g) shall be made by the Board of Directors in its reasonable
judgment.
36
When used in the
Change-in-Control and Severance Agreements, good reason shall mean the termination by the NEO of the NEOs employment with the Company
within the two (2) year period following a change in control which is due to (i) a material diminution of responsibilities, or working
conditions, or duties, or in the case of Messrs. Dickson and Woodlief, ceasing to be the Chief Executive Officer or Chief Financial Officer,
respectively, of a publicly traded company; (ii) a material diminution in base salary or potential incentive compensation; (iii) a material negative
change in the terms or status of the Change-in-Control and Severance Agreement; or (iv) a forced relocation of the NEO outside of a 30 mile radius of
the intersection of the Trade and Tryon Streets in Charlotte, North Carolina.
When used in the
Change-in-Control and Severance Agreements, a change in control means a change in ownership, a change in effective
control, or a change in the ownership of substantial assets of a corporation as generally described in Treasury Regulation Section
1.409A-3(i)(5) and as specifically described in the Change-in-Control and Severance Agreements.
Pursuant to the Change-in-Control
and Severance Agreements, except in the event the NEOs employment terminates following a change in control, each NEO has agreed that
during the term of the Change-in-Control and Severance Agreements and for a period of 24 months thereafter, the NEO shall not directly or indirectly
enter into an employment relationship or a consulting arrangement (or other economically beneficial arrangement) with any competitor of the Company, as
defined in each NEOs respective Change-in-Control and Severance Agreement. In addition, each NEO has agreed not to solicit, induce or attempt to
induce any employee of the Company to leave the employ of the Company or to solicit or induce or attempt to induce or interfere with the relationship
between any customer, supplier, or other person or entity in a business relation with the Company during the same period.
Furthermore, under the terms of
the Harris Teeter Supermarkets, Inc. 2002 Comprehensive Stock Option and Award Plan (the 2002 Plan), in the event of a change in control of
the Company, as defined in the 2002 Plan, if all options or restricted stock are not converted, assumed, or replaced by a successor, then such awards
will become fully exercisable and all forfeiture restrictions on such awards will lapse and all restricted stock shall become deliverable, unless
otherwise provided in any award agreement or any other written agreement entered into with a NEO. The options shall remain exercisable for the
remaining term of such option. Under the terms of the 2011 Plan, the committee established to administer such plan may grant certain awards that
provide that restrictions will lapse upon, among other things, the occurrence of a change in control, as defined in the 2011 Plan. As of the end of
Fiscal 2012, all outstanding restricted stock awards granted under the 2011 Plan become fully vested upon a change in control, and all performance
shares granted under the 2011 Plan vest pro-rata in proportion to the portion of the performance period elapsed through the change in
control.
Accrued and Vested
Benefits. Each of the current NEOs has accrued various benefits under the Companys compensation programs and retirement and other broad-based
employee benefit plans. Many of these benefits and awards are fully vested and each of the current NEOs would receive all of their vested benefits and
awards in the event that their employment with the Company ends for any reason, including termination by the Company.
The table below summarizes the
accrued and vested benefits that each of the NEOs would be entitled to, assuming termination by the NEO from the Company on October 2, 2012, not
related to a change in control transaction and not due to death or disability.
|
|
|
|
Thomas W. Dickson ($)
|
|
Frederick J. Morganthall, II ($)
|
|
John B. Woodlief ($)
|
|
Rodney C. Antolock ($)
|
|
Fred A. Jackson ($)
|
|
|
|
|
|
10,787,000 |
|
|
|
6,576,000 |
|
|
|
4,174,000 |
|
|
|
|
|
2,859,000 |
|
Vested Pension Benefit (1) |
|
|
|
|
1,271,000 |
|
|
|
949,000 |
|
|
|
348,000 |
|
|
|
188,000 |
|
|
|
Vested Deferred Compensation Balance |
|
|
|
|
354,538 |
|
|
|
271,167 |
|
|
|
278,871 |
|
|
|
1,046,244 |
|
|
|
16,191 |
|
(1) |
|
The amount for the SERP and Pension Benefit represents the
actuarial present value of the benefit payable immediately. |
37
In addition to the amounts listed
in the table above, Mr. Jackson received 22,500 shares of Company stock underlying previously unvested restricted stock awards upon the Boards
accelerating vesting of all outstanding and unvested restricted stock awards (and the shares of Company stock payable thereunder) previously granted to
A&E employees at the time of the A&E sale in November 2011.
Death. The table below
summarizes the incremental benefits (beyond the accrued and vested benefits) that each of the NEOs would be entitled to, assuming their death occurred
on October 2, 2012.
|
|
|
|
Thomas W. Dickson ($)
|
|
Frederick J. Morganthall, II ($)
|
|
John B. Woodlief ($)
|
|
Rodney C. Antolock ($)
|
|
Fred A. Jackson ($)
|
|
|
|
|
|
837,187 |
|
|
|
472,500 |
|
|
|
479,208 |
|
|
|
379,925 |
|
|
|
Accelerated Equity Awards (1) |
|
|
|
|
3,850,058 |
|
|
|
1,990,014 |
|
|
|
1,698,159 |
|
|
|
1,181,719 |
|
|
|
Accelerated (Reduced) SERP |
|
|
|
|
(2,876,000 |
) |
|
|
(2,019,000 |
) |
|
|
(1,126,000 |
) |
|
|
1,971,000 |
|
|
|
(895,000 |
) |
Accelerated (Reduced) Pension Benefit |
|
|
|
|
(683,000 |
) |
|
|
(545,000 |
) |
|
|
(212,000 |
) |
|
|
(139,000 |
) |
|
|
(1) |
|
The value of the accelerated equity awards is composed of
restricted stock awards and performance share awards. The value of the restricted stock awards and performance share awards is calculated by
multiplying the number of accelerated shares by the Average Price on the last business day prior to the assumed termination of service date in
accordance with plan administration rules. |
Disability. The table
below summarizes the incremental benefits (beyond the accrued and vested benefits) that each of the current NEOs would be entitled to, assuming their
disability occurred on October 2, 2012.
|
|
|
|
Thomas W. Dickson ($)
|
|
Frederick J. Morganthall, II ($)
|
|
John B. Woodlief ($)
|
|
Rodney C. Antolock ($)
|
|
|
|
|
|
837,187 |
|
|
|
472,500 |
|
|
|
479,208 |
|
|
|
379,925 |
|
Accelerated Equity Awards (1) |
|
|
|
|
3,850,058 |
|
|
|
1,990,014 |
|
|
|
1,698,159 |
|
|
|
1,181,719 |
|
|
|
|
|
|
1,841,000 |
|
|
|
|
|
|
|
3,477,000 |
|
Accelerated (Reduced) Pension Benefit |
|
|
|
|
(591,000 |
) |
|
|
(260,000 |
) |
|
|
(23,000 |
) |
|
|
(3,000 |
) |
(1) |
|
The value of the accelerated equity awards is composed of
restricted stock awards and performance share awards. The value of the restricted stock awards and performance share awards is calculated by
multiplying the number of accelerated shares by the average of the high and low trading price on the last business day prior to the assumed termination
of service date in accordance with plan administration rules. |
(2) |
|
Messrs. Dickson and Antolock are the only current NEOs not currently eligible for
the full Plan benefit. |
Termination Without Cause.
The table below summarizes the incremental benefits (beyond the accrued and vested benefits) that each of the current NEOs would be entitled to,
assuming their termination by the Company on October 2, 2012, prior to a change in control or more than twenty-four (24) months following a
change in control other than for cause, death, or disability.
|
|
|
|
Thomas W. Dickson ($)
|
|
Frederick J. Morganthall, II ($)
|
|
John B. Woodlief ($)
|
|
Rodney C. Antolock ($)
|
|
|
|
|
|
3,092,374 |
|
|
|
1,346,250 |
|
|
|
1,932,416 |
|
|
|
744,925 |
|
Incentive Bonus Payments (2) |
|
|
|
|
837,187 |
|
|
|
397,500 |
|
|
|
479,208 |
|
|
|
329,925 |
|
Accelerated Equity Awards (3) |
|
|
|
|
3,850,058 |
|
|
|
1,990,014 |
|
|
|
1,698,159 |
|
|
|
1,181,719 |
|
Health and Welfare Benefits (4) |
|
|
|
|
215,730 |
|
|
|
137,619 |
|
|
|
230,400 |
|
|
|
71,685 |
|
(1) |
|
The value of the severance benefit is calculated in accordance
with and payable under the terms of each current NEOs Change-in-Control and Severance Agreement. |
38
(2) |
|
The value of the Incentive Bonus payment is calculated in
accordance with and payable under the terms each current NEOs Change-in-Control and Severance Agreement. |
(3) |
|
The value of the accelerated equity awards is composed of
restricted stock awards and performance share awards. The value of the restricted stock and performance share awards is calculated by multiplying the
number of accelerated shares by the average of the high and low trading price on the last business day prior to the assumed termination of service date
in accordance with plan administration rules. |
(4) |
|
This represents the aggregate estimated net cost to the Company
of health and welfare benefits provided to each current NEO under the terms of such NEOs Change-in-Control and Severance Agreement. |
Termination Following a Change
in Control or Resignation For Good Reason. The table below summarizes the incremental benefits (beyond the accrued and vested benefits) that each
of the current NEOs would be entitled to, assuming their termination occurred on October 2, 2012 concurrent with a change in control
transaction.
|
|
|
|
Thomas W. Dickson ($)
|
|
Frederick J. Morganthall, II ($)
|
|
John B. Woodlief ($)
|
|
Rodney C. Antolock ($)
|
Change In Control Benefit (1) |
|
|
|
|
4,623,099 |
|
|
|
2,243,750 |
|
|
|
2,888,962 |
|
|
|
1,489,850 |
|
Incentive Bonus Payments (2) |
|
|
|
|
837,187 |
|
|
|
397,500 |
|
|
|
479,208 |
|
|
|
329,925 |
|
Accelerated and Additional Portion of SERP Benefits (3) |
|
|
|
|
2,178,000 |
|
|
|
|
|
1,760,000 |
|
|
|
5,179,000 |
|
Accelerated Equity Awards (4) |
|
|
|
|
3,850,058 |
|
|
|
1,990,014 |
|
|
|
1,698,159 |
|
|
|
1,181,719 |
|
Health and Welfare Benefits (5) |
|
|
|
|
641,799 |
|
|
|
313,926 |
|
|
|
345,600 |
|
|
|
549,647 |
|
Excise Tax (280G) Gross-up |
|
|
|
|
3,502,395 |
|
|
|
|
|
2,176,257 |
|
|
|
2,089,923 |
|
(1) |
|
The value of the Change in Control Benefit is calculated in
accordance with and payable under the terms of their Change-in-Control and Severance Agreement. |
(2) |
|
The value of the Incentive Bonus payment is calculated in
accordance with and payable under the terms of their Change-in-Control and Severance Agreement. |
(3) |
|
The value of the accelerated and additional portion of SERP
Benefits reflects accelerated commencement of benefit payments without accrued benefit reduction and additional service accrual for all current NEOs,
and it is valued using the discount rate and method prescribed for the 280G calculations. |
(4) |
|
The value of the accelerated equity awards is composed of
restricted stock awards and performance share awards. The value of the restricted stock and performance share awards is calculated by multiplying the
number of accelerated shares by the average of the high and low trading price on the last business day prior to the assumed termination of service date
in accordance with plan administration rules. |
(5) |
|
The value of the health and welfare benefits represents the
aggregate estimated net cost to the Company of health and welfare benefits provided to each current NEO under the terms of their Change-in-Control and
Severance Agreement. |
Compensation Policies and Practices as they Relate to
Risk Management
As previously discussed, the
Companys compensation policies and practices for its employees are designed to attract and retain highly qualified and engaged employees, and to
minimize risks that would have a material adverse effect on the Company. In addition the Companys compensation policies and practices seek to
align the interests of management with those of the Companys shareholders. The Company believes its incentive compensation programs are
appropriately balanced between value created indirectly by the performance of the Common Stock and payments resulting from the achievement of specific
financial performance objectives. The Compensation Committee considers risks arising from the Companys employee compensation policies and
practices and has concluded that any risks from such policies and practices are not reasonably likely to have a material adverse effect on the Company.
Overall, the Compensation Committee reached this conclusion after considering a number of features of the Companys compensation structure that
are designed to mitigate risk, such as:
39
|
|
The Company uses a balance of fixed and variable compensation in
the form of cash and equity, which is designed to provide both short and long-term focus. |
|
|
The overall compensation of the NEOs is not overly-weighted
towards the achievement of performance criteria in a particular fiscal year and an appropriate portion of compensation is awarded in the form of equity
awards that vest over a multi-year period, subject to continued service by the recipient. This further aligns the interests of the NEOs to long-term
shareholder value and helps retain management. |
|
|
Payouts under the Companys annual incentive compensation
and other long-term incentive programs are based on performance criteria that the Compensation Committee believes to be challenging yet reasonable and
attainable without excessive risk-taking. |
40
The following table provides
information as of October 2, 2012 regarding the number of shares of Common Stock that may be issued under the Companys equity compensation
plans.
Plan category
|
|
|
|
Number of securities to be issued upon exercise
of outstanding options, warrants and rights (a)(1)
|
|
Weighted-average exercise price of outstanding
options, warrants and rights (b)(2)
|
|
Number of securities remaining available for
future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
|
Equity compensation plans approved by security holders |
|
|
|
|
139,350 |
|
|
|
21.17 |
|
|
|
2,750,595 |
|
Equity compensation plans not approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
139,350 |
|
|
|
21.17 |
|
|
|
2,750,595 |
|
(1) |
|
Includes grants of 103,350 performance shares outstanding as of
October 2, 2012. Excludes 149,557 shares of Common Stock that are deliverable in connection with the 149,557 stock units outstanding under the Director
Deferral Plan that have been accumulated in a rabbi trust for the purpose of funding distributions from the Deferral Plan. Does not include any shares
of restricted stock that were outstanding as of October 2, 2012 since these shares are already outstanding and do not represent potential dilution. For
more information on the Companys restricted stock and performance share grants, see the note entitled Stock Options and Stock Awards
in the Notes to Consolidated Financial Statements included within the Companys Annual Report on Form 10-K for the fiscal year ended October 2,
2012. |
(2) |
|
The weighted average exercise price does not take into account
performance share awards or restricted stock units outstanding as of October 2, 2012. |
41
The Audit Committee of the Board
of Directors is composed of five independent directors and operates under a written charter adopted by the Board of Directors. The Company has affirmed
to the New York Stock Exchange that the Board of Directors has determined that all members of the Audit Committee are independent as
defined in the New York Stock Exchange Listed Company Manual.
Management is responsible for the
Companys internal controls and the financial reporting process. KPMG LLP, the Companys independent registered public accounting firm (the
independent auditors), are responsible for performing an independent audit of the Companys consolidated financial statements in
accordance with the standards of the Public Company Accounting Oversight Board (United States) and issuing a report on those financial statements. The
Audit Committee, among other things, is responsible for monitoring and overseeing these processes and is directly responsible for the appointment,
compensation, retention and oversight of the Companys independent auditors.
In this context, the Audit
Committee has met and held discussions with management and the independent auditors. Management represented to the Audit Committee that the
Companys consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has
reviewed and discussed the audited consolidated financial statements with management and the independent auditors. The Audit Committee discussed with
the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional
Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Board in Rule 3200T and No. 114, The Auditors
Communication With Those Charged With Governance.
The Companys independent
auditors also provided to the Audit Committee the written disclosures and the letter required by the Public Company Accounting Oversight Board
regarding the independent accountants communications with the Audit Committee concerning independence, and the Audit Committee discussed with the
independent auditors that firms independence.
Based upon the Audit
Committees discussion with management and the independent auditors and the Audit Committees review of the representations of management and
the report of the independent auditors to the Audit Committee, the Audit Committee recommended that the Board of Directors include the audited
consolidated financial statements in the Companys Annual Report on Form 10-K for the fiscal year ended October 2, 2012.
|
|
|
|
SUBMITTED BY THE AUDIT COMMITTEE |
|
|
|
|
|
John R. Belk Bailey W. Patrick Harold C. Stowe Isaiah Tidwell William C. Warden, Jr. |
42
APPROVAL OF THE
HARRIS TEETER SUPERMARKETS, INC. 2013
CASH INCENTIVE PLAN
Effective October 3, 2012, the
Board of Directors established the Harris Teeter Supermarkets, Inc. 2013 Cash Incentive Plan (referred to in this Proposal 2 as the Plan).
The Plan replaces the Companys prior Cash Incentive Plan effective October 2, 2006. The Plan provides a non-exclusive framework that can satisfy
the standards of Section 162(m) of the United States Internal Revenue Code of 1986, as amended (the Code). Under the Plan, the Compensation
Committee will designate performance measures and a bonus formula with respect to a performance period for each Plan participant. Utilizing those
criteria and other factors that the Compensation Committee determines appropriate, the Compensation Committee uses the Plan to provide incentive
compensation based upon the Companys level of achievement of financial criteria during the performance period. The Board of Directors believes
that the Plan benefits shareholders because it creates a strong incentive for executives to achieve increasing levels of financial performance that are
appropriate for the Company. Shareholders are being asked to approve the Plan to fulfill one of the requirements to qualify the amounts paid pursuant
to the Plan for a United States federal income tax deduction.
The Board believes that it is in
the best interests of the Company and its shareholders to provide for a shareholder-approved plan under which bonuses paid to its executive officers
can qualify for deductibility by the Company for federal income tax purposes. Accordingly, the Company has structured the Plan in a manner such that
payments under it can satisfy the requirements for performance-based compensation within the meaning of Section 162(m) of the Code. In
general, Section 162(m) of the Code places a limit on the deductibility for federal income tax purposes of the compensation paid to the NEOs who were
employed by the Company on the last day of its taxable year. Under Section 162(m), compensation paid to such persons in excess of $1 million in a
taxable year is not generally deductible. However, compensation that qualifies as performance-based as determined under Section 162(m) does
not count against the $1 million limitation. One of the requirements of performance-based compensation for purposes of Section 162(m) of
the Code is that the material terms of the performance goals under which compensation may be paid must be disclosed to and approved by the
Companys shareholders. For purposes of Section 162(m) the material terms include (i) the employees eligible to receive compensation, (ii) a
description of the business criteria on which the performance goals are based and (iii) the maximum amount of compensation that can be paid to an
employee under the performance goals. Each of these aspects of the Plan is discussed below, and shareholder approval of the Plan will be deemed to
constitute approval of each of these aspects of the Plan for purposes of the approval requirements of Section 162(m) of the Code.
The following constitutes a brief
discussion of the material features of the Plan, and is qualified in its entirety by reference to a copy of the Plan which is attached as Appendix
A to this Proxy Statement.
Administration
The Compensation Committee has
complete authority to: (i) select from the eligible participants the individuals to whom awards under the Plan may from time to time be paid, (ii)
determine the performance periods and performance goals upon which payment of awards under the Plan will be based, and (iii) make any other
determination and take any other action that the Compensation Committee deems necessary or desirable to discharge its duties under the Plan. The
Compensation Committee will have the responsibility for general administration and interpretation of the Plan, except to the extent inconsistent with
Section 162(m) of the Code. The Compensation Committee may delegate its administrative tasks to the Companys employees or others as it deems
appropriate.
Participation and
Eligibility
Each of the Companys
employees who is considered an executive officer within the meaning of the Securities Exchange Act of 1934, as amended, is eligible to
participate in the Plan. The Companys non-employee directors are not entitled to participate in the Plan. Currently, the Companys four
current NEOs are the only persons eligible to participate in the Plan.
43
The payment of a bonus in
accordance with the Plan requires that the executive officer be an active employee on the payroll of the Company or an affiliate on the last day of the
performance period and at the time the payment is made, unless the executive officers employment was earlier terminated due to early, normal or
late retirement under the terms of the Companys pension or similar retirement plan.
Plan
Operation
Within the earlier of (i) 90 days
after commencement of a performance period, or (ii) the expiration of 25% of the performance period, the Compensation Committee will designate and
approve in writing:
|
|
the performance period (the Plan defines performance
period to mean the Companys fiscal year or such other period that the Compensation Committee may establish), |
|
|
the employees (designated by position or name) who will be
participants in the Plan for the performance period, |
|
|
the performance measures and targeted performance goals for
those measures during the performance period, and |
|
|
the bonus formula applicable to each participant for the
performance period (which can be set on an individual or group basis). |
When the Compensation Committee
establishes a bonus program, the Compensation Committee first determines the length of the performance period in which a bonus program applies. For
example, the Compensation Committee determined at its November 2012 meeting that the Fiscal 2013 cash incentive awards will have a performance period
that coincides with Fiscal 2013. The Compensation Committee also determines the performance measures and targeted goals for the applicable performance
period.
Business Criteria and
Maximum Amount of Compensation Payable Under the Plan
The performance measures for any
performance period will be any one or more of the following performance criteria, either individually, alternatively or in any combination, applied to
either the Company as a whole or to a region, business unit, affiliate or business segment, either individually, alternatively or in any combination,
and measured either on an absolute basis or relative to a pre-established target, to a previous periods results or to a designated comparison
group, in each case as specified by the Compensation Committee: (i) return on invested capital, (ii) net operating profit (before or after tax), (iii)
operating profit margin, (iv) gross margin, (v) operating profit, (vi) earnings before income taxes, (vii) earnings (which may include earnings before
interest and taxes and net earnings, and may be determined in accordance with United States Generally Accepted Accounting Principles (GAAP)
or adjusted to include or exclude any or all items), (viii) earnings per share (on a GAAP or non-GAAP basis), (ix) growth in any of the foregoing
measures, (x) stock price, (xi) return on equity or average shareholders equity, (xii) total shareholder return, (xiii) growth in shareholder
value relative to the moving average of the S&P 500 Index or another index, (xiv) return on capital, (xv) return on assets or net assets, (xvi)
return on investment, (xvii) economic value added, (xviii) market shares, (xix) overhead or other expense reduction, (xx) credit rating, strategic plan
development and implementation, (xxi) succession plan development and implementation, (xxii) improvement in workforce, (xxiii) diversity, (xxiv)
customer indicators, (xxv) improvements in productivity, (xxvi) attainment of objective operating goals and (xxvii) employee metrics.
The Plan further provides that
the Compensation Committee may appropriately adjust any evaluation of performance under a performance measure to exclude any of the following events
that occurs during a performance period: (A) the effects of currency fluctuations, (B) any or all items that are excluded from the calculation of
non-GAAP earnings as reflected in any the Company press release and Form 8-K filing relating to an earnings announcement, (C) asset write-downs, (D)
litigation or claim judgments or settlements, (E) the effect of changes in tax law, accounting principles or other such laws or provisions affecting
reported results, (F) accruals for reorganization and restructuring programs, and (G) any other extraordinary or non-operational items. However, in no
event will the Compensation Committee use its discretion to increase a bonus paid to a participant.
The maximum bonus that any one
participant may be paid under the Plan in any one fiscal year is $2 million.
44
Compensation Committee
Certification and Determination of Awards
The bonus amount for each
participant is determined after calculating the amount payable under the bonus formula approved at the beginning of the performance period for the
participant. After the conclusion of each performance period, the Compensation Committee will determine and certify the extent to which the targeted
goals for the performance measures applicable to the performance period were achieved or exceeded. The Compensation Committee will also certify the
bonus amount for each participant for the performance period based upon the bonus formula for such participant as previously established by the
Compensation Committee. The Compensation Committee has the authority to reduce or eliminate the amount of any bonus payable under the Plan to any
participant; however, the Compensation Committee cannot increase the bonus amounts payable under the Plan in excess of the maximum that a participant
would receive based on the bonus formula established for the participant at the beginning of the performance period.
Non-exclusivity
Nothing contained in the Plan
prevents the Board from adopting other or additional compensation arrangements that provide for bonuses or other forms of compensation for the
Companys executive officers, directors or other employees regardless of shareholders approval of the Plan. Such other arrangements may or
may not qualify for deductibility under Section 162(m) of the Code and may be either applicable only for specific executives, directors or employees or
may be generally applicable. However, for payments under the Plan to qualify as performance-based compensation under Section 162(m), any such other or
additional compensation arrangements may not be designed to provide Plan participants all or part of the compensation they would receive under the Plan
regardless of whether the performance goal is attained.
Term, Amendment and
Termination of the Plan
The Plan is effective as of
October 3, 2012, provided that the Plan will terminate unless it is approved by shareholders at the Annual Meeting. If the shareholders do not approve
the Plan, awards that are comparable to the 2013 cash Incentive Awards are expected to be granted in accordance with the Companys historical cash
incentive program, however, these awards will not be eligible for deduction under Section 162(m) to the extent the participants total
compensation exceeds the $1 million limit established by Section 162(m). If the Plan is approved by shareholders, the Compensation Committee may
establish additional bonus grants for subsequent performance periods until the earlier of (i) its termination at the discretion of the Compensation
Committee, (ii) the date any shareholder approval requirement under Section 162(m) of the Code ceases to be met or (iii) the date that is five years
after the Annual Meeting.
The Compensation Committee may
amend, suspend or terminate the Plan at any time as it may deem proper and in the best interests of the Company; provided that no amendment, suspension
or termination may be made that would increase the amount of compensation payable pursuant to a bonus awarded under the Plan or cause amounts payable
under the Plan to fail to qualify as performance-based compensation under Section 162(m) of the Code. Administrative changes or changes required by law
may be made by the Compensation Committee. To the extent required under applicable law, amendments to the Plan will be subject to shareholder
approval.
New Plan
Benefits
The performance criteria for
Fiscal 2013 Cash Incentive Awards to the current NEOs have been established under the Plan (the 2013 Cash Incentive Awards). These awards
entitle each recipient to a cash payment in fiscal 2014, based upon level of achievement of certain financial criteria for Fiscal 2013. Generally, if
the Company achieves the predetermined minimum level of achievement, executives are paid a predetermined percentage of base compensation as incentive
pay. The percentage of base compensation payable as incentive compensation increases as the return or profit margin increases. Amounts to be received,
if any, by the participants in connection with the 2013 Cash Incentive Awards are based on the Companys Fiscal 2013 performance, and,
accordingly, the value of the awards is not currently determinable. However, for the purposes of illustration only, set forth herein are the amounts
that would have been received in connection with the 2013 Cash Incentive Awards if the Plan and these awards had been in effect for Fiscal
2012.
45
Harris Teeter Supermarkets, Inc. 2013 Cash Incentive
Plan
Name and Position
|
|
|
|
Dollar Value ($) (1)
|
|
|
|
|
$ |
837,187 |
|
Chairman of the Board and Chief Executive Officer
|
|
|
|
|
|
|
Frederick J. Morganthall, II |
|
|
|
$ |
397,500 |
|
President and Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
$ |
479,208 |
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
$ |
329,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
President of Former Subsidiary American & Efird
|
|
|
|
|
|
|
|
|
|
|
$ |
2,043,820 |
|
Non-Executive Director Group |
|
|
|
|
Non-Executive Officer Employee Group |
|
|
|
|
(1) |
|
The 2013 Cash Incentive Awards are calculated based on NOPAT
Return for Mr. Dickson and Mr. Woodlief and, for the purpose of this illustrative table only, based on operating profit margin for Mr. Morganthall and
Mr. Antolock. |
Federal Income Tax
Consequences
All amounts paid pursuant to the
Plan constitute taxable income to the employee when received. If a participant elects to defer a portion of the bonus, the participant may be entitled
to defer the recognition of income. Generally, and subject to Section 162(m) of the Code, the Company will be entitled to a federal income tax
deduction when amounts paid under the Plan are included in the employees income. Subject to shareholder approval of the Plan, the failure of any
aspect of the Plan to satisfy Section 162(m) shall not void any action taken by the Compensation Committee under the Plan.
As stated previously, the Plan is
being submitted for shareholder approval at the Annual Meeting so that payments under the Plan can qualify for deductibility by the Company under
Section 162(m) of the Code. However, shareholder approval of the Plan is only one of several requirements under Section 162(m) of the Code that must be
satisfied for amounts payable under the Plan to qualify for the performance-based compensation exemption under Section 162(m) of the Code,
and submission of the Plan to shareholder approval should not be viewed as a guarantee that all amounts paid under the Plan will in practice be
deductible by the Company.
The foregoing is only a summary
of the effect of federal income taxation upon employees and the Company with respect to amounts paid pursuant to the Plan. It does not purport to be
complete and does not discuss the tax consequences arising in the context of the employees death or the income tax laws of any municipality,
state or foreign country in which the employees income or gain may be taxable.
Vote Required
The approval of the Plan requires
the affirmative vote of the shareholders holding a majority of the votes cast with respect to this matter at the Annual Meeting in person or by proxy.
Accordingly, while abstentions and broker non-votes, if any, will count for purposes of establishing a quorum with respect to this matter at the Annual
Meeting, neither abstentions nor broker non-votes will have the effect of a negative vote with respect to this matter.
The Board of Directors
recommends that the shareholders vote FOR the approval of the 2013 Cash Incentive Plan.
46
ADVISORY (NON-BINDING) SAY ON PAY VOTE
APPROVING EXECUTIVE COMPENSATION
As discussed under the heading
Compensation Discussion and Analysis, the Companys executive compensation program is designed to enhance shareholder value in the
Company while attracting, retaining and rewarding highly qualified executives. Additionally, the Companys compensation practices reflect a
pay-for-performance philosophy, whereby a substantial portion of an executives potential compensation is at risk and tied to performance of the
Company.
For these reasons and the others
described elsewhere in this Proxy Statement, the Board of Directors recommends that the Companys shareholders vote in favor of approving the
compensation of the NEOs as described in the narrative disclosure, tables and footnotes contained in this Proxy Statement (including under the heading
Compensation Discussion and Analysis and in the Summary Compensation Table for 2012).
The Board of Directors
recommends approval of the following resolution:
RESOLVED, that the
shareholders approve the compensation of the Companys named executive officers for the fiscal year ended October 2, 2012, as disclosed in
Companys Proxy Statement for Fiscal 2012 pursuant to the compensation disclosure rules of the Securities and Exchange
Commission.
The above Say on Pay
vote is being provided pursuant to Section 14A of the Exchange Act, is an advisory vote only and is not binding on the Company or the Board of
Directors. However, the Compensation Committee will consider, in its discretion, the result of the Say on Pay vote in future compensation decisions for
the NEOs. The Company includes this shareholder advisory vote annually, and the next such vote will occur at the 2014 Annual Meeting of
Shareholders.
Vote Required
The proposal for providing an
advisory (non-binding) resolution approving the NEO compensation for Fiscal 2012 requires the affirmative vote of the shareholders holding a majority
of the votes cast with respect to this matter at the Annual Meeting in person or by proxy. Accordingly, while abstentions and broker non-votes, if any,
will count for purposes of establishing a quorum with respect to this matter at the Annual Meeting, neither abstentions nor broker non-votes will have
the effect of a negative vote with respect to this matter.
The Board of Directors
recommends that the shareholders vote FOR the resolution approving the compensation of the Companys named executive officers as described in the
Proxy Statement.
47
RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Audit Committee of the Board
of Directors has retained KPMG LLP as the Companys independent registered public accounting firm for the fiscal year ending October 1, 2013.
Although the Audit Committee has the sole authority to select and appoint the independent registered public accounting firm, the Board of Directors
deems it advisable to obtain your ratification of this appointment. In retaining KPMG LLP as the Companys independent registered public
accounting firm, the Audit Committee considered whether the provision of non-audit services by KPMG LLP was compatible with maintaining KPMG LLPs
independence and concluded that it was.
Representatives of KPMG LLP are
expected to be present at the Annual Meeting and will have the opportunity to respond to appropriate questions and to make a statement if they
desire.
Vote Required
The ratification of the
appointment of KPMG LLP as the Companys independent registered public accounting firm requires the affirmative vote of the shareholders holding a
majority of the votes cast with respect to this matter at the Annual Meeting in person or by proxy.
The Board of Directors
recommends that the shareholders vote FOR the ratification of the appointment of KPMG LLP as the Companys Independent Registered Public
Accounting Firm for the Fiscal Year Ending October 1, 2013. If the shareholders do not ratify the appointment of KPMG LLP, the Audit Committee will
consider a change in independent registered public accounting firm for the next fiscal year.
Audit Fees
The fees billed by or payable to
KPMG LLP for services rendered to the Company for the fiscal years indicated were as follows:
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
October 2, 2012 ($)
|
|
October 2, 2011 ($)
|
|
|
|
|
|
468,000 |
|
|
|
930,044 |
|
|
|
|
|
|
203,500 |
|
|
|
|
|
|
|
|
580,031 |
|
|
|
382,020 |
|
|
|
|
|
|
234,650 |
|
|
|
100,000 |
|
(1) |
|
These amounts were incurred primarily for the audit of
discontinued operations. |
(2) |
|
Amounts for Fiscal 2012 include $114,435 for tax compliance
services related to short-period state returns related to A&E. The remaining fees related to other tax compliance services for the respective
fiscal years. |
(3) |
|
These amounts were incurred for tax analysis in connection with
the sale of A&E. |
Policy on Audit Committee Pre-Approval of Audit and
Permissible Non-Audit Services by the Independent Registered Public Accounting Firm
The Audit Committee is
responsible for the appointment, compensation and oversight of the work of the independent registered public accounting firm. As part of this
responsibility, the Audit Committee is required to pre-approve all audit and non-audit services performed by the independent registered public
accounting firm in order to assure that they do not impair their independence from the Company. Accordingly, the Audit Committee has adopted procedures
and conditions under which services proposed to be performed by the independent registered public accounting firm must be
pre-approved.
Pursuant to this policy, the
Audit Committee will consider annually and approve the terms of the audit engagement. Any proposed engagement relating to permissible non-audit
services must be presented to the Audit
48
Committee and pre-approved on
a case-by-case basis. In addition, particular categories of permissible non-audit services that are recurring may be pre-approved by the Audit
Committee subject to pre-set fee limits. If a category of services is so approved, the Audit Committee will be regularly updated regarding the status
of those services and the fees incurred. The Audit Committee reviews requests for the provision of audit and non-audit services by the Companys
independent registered public accounting firm and determines if they should be approved. Such requests could be approved either at a meeting of the
Audit Committee or upon approval of the Chair of the Audit Committee, or another member of the Audit Committee designated by the Chair. If a
permissible non-audit service is approved by the Chair or his designee, that decision is required to be presented at the next meeting of the Audit
Committee. Prior to approving any services, the Audit Committee considers whether the provision of such services is consistent with the Securities and
Exchange Commissions rules on auditor independence and is compatible with maintaining KPMG LLPs independence. All of the fees paid or
payable to KPMG LLP for Fiscal 2012 were pre-approved by the Audit Committee.
49
The Companys Code of
Business Conduct and Ethics provides that all employees, officers and directors must avoid any activity that is, or has the appearance of, conflicting
with the interests of the Company and that transactions in which certain related persons may have a material interest must be disclosed to the Company.
Related party transactions are reported to the Companys Secretary in response to an annual written questionnaire, or by the parties involved from
time to time, and reviewed by legal counsel for inclusion in the proxy statement as appropriate. The Companys executive officers and legal
counsel review any related party transaction and determine whether such transaction should be reported to the Board of Directors.
The Company does not have a
formal policy concerning the review, approval or ratification of related party transactions; however, as the transactions are reported, the Board of
Directors considers any related party transactions on a case by case basis to determine whether the Board of Directors must approve such transaction
and, if the Board of Directors determines such approval is required, the Board of Directors then determines, among other things, whether the
transaction or arrangement was undertaken in the ordinary course of business and whether the terms of the transaction are no less favorable to the
Company than terms that could have been reached with an unrelated party. If any member of the Board of Directors is interested in the transaction, such
director will recuse themselves from the discussion and decision on the transaction. For transactions that have been recurring annually, such as the
transactions with Metro Marketing and John Dickson as described below, the Board of Directors reviews the disclosure provided in the Proxy Statement,
and determines if any additional action or approval is required.
During Fiscal 2012, Metro
Marketing acted as a designated broker for Harris Teeter for several of its private label products and other specialty products. Metro Marketing, in
its role as independent broker, performed various services on behalf of Harris Teeter including order placement, interface with manufacturers for
product issues or product problems, marketing and retail support services and the development of new products. Third party manufacturers represented by
Metro Marketing that provide these products to Harris Teeter are required to pay Metro Marketing a fee based upon the amount of product sold. Rush
Dickson (the brother of Thomas W. Dickson) is the owner of Metro Marketing. During Fiscal 2012, Harris Teeter purchased approximately $38,837,352 of
product from manufacturers represented by Metro Marketing resulting in fees of approximately $1,132,667 paid to Metro Marketing. Included in these
purchases is approximately $536,617 paid by Harris Teeter to a manufacturer whose principal shareholder has borrowed approximately $1.8 million from
Metro Marketing. The terms of such services provided by Metro Marketing to Harris Teeter are, in the Companys opinion, no less favorable than the
Company would have been able to negotiate with an unrelated party for similar services.
John Dickson (the brother of
Thomas W. Dickson) is the Director of Property Development for Harris Teeter and was paid an aggregate salary, bonus and taxable benefits of $161,697
during Fiscal 2012. The terms of the employment relationship with John Dickson are, in the Companys opinion, no less favorable than the Company
would have been able to enter into with a similarly situated employee that was an unrelated party.
On December 12, 2011, Harris
Teeter and Legacy Properties College Road Investments, LLC (the Wilmington Landlord) entered into an amendment to Harris
Teeters existing lease for the Harris Teeter store located at 820 South College Road in Wilmington, North Carolina. The amendment was entered
into in connection with the Wilmington Landlords purchase of the real estate from an unrelated party that had listed the property for sale on the
open market. Under the terms of the amendment to the lease, the Wilmington Landlord agreed to provide $150,000 to be used by Harris Teeter for
renovations to the front exterior of the store, and Harris Teeter agreed to extend the base term of the lease, which was slated to expire in May 2015,
for an additional ten years beyond the original expiration date. Under the existing lease, which has been in place since 1995, Harris Teeter is
required to pay to the Wilmington Landlord approximately $616,858 per year (of which $558,340 is base rent and approximately $58,518 is pass-through
payments such as taxes and insurance), which terms were unchanged by the amendment. The amendment to the lease provides for six five-year renewal
periods, exercisable at the option of Harris Teeter, with a rent increase of five percent effective at the beginning of each renewal period. Harris
Teeter and the Wilmington Landlord entered into two subsequent amendments in Fiscal 2012 relating to Harris Teeters termination rights in the
event of certain occurrences at the store and an extension of the initial term by five years (with the same five-year extension options) at the same
lease rates, with certain site improvements and other
50
obligations being incurred by
the Wilmington Landlord in connection with the construction of shop space adjacent to the Harris Teeter store.
William T. Dickson and Michael A.
Dickson (sons of Thomas W. Dickson) together own all of the equity interests in the Wilmington Landlord. In determining whether to approve the
transactions described above, the Board took into consideration the report of an independent certified real estate appraiser, which found the rental
rate to be at or slightly below market and the $150,000 of improvement allowance as well as the lease extension terms to be in favor of Harris Teeter.
As a result, the Board approved the amendments and transactions. The amounts paid to the Wilmington Landlord under the lease, as amended, for Fiscal
2012 was approximately $532,310. The terms of the lease, as amended, are, in the Companys opinion, no less favorable than the Company would have
been able to negotiate with an unrelated party.
R. Stuart Dickson (the father of
Thomas W. Dickson) retired from the Company as an executive officer effective May 1, 2002, retired from his position as Chairman of the Executive
Committee of the Board effective March 31, 2006, and retired from the Board at the 2008 Annual Meeting. At the time of his retirement as an executive
officer, he became eligible to receive retirement benefits earned during his employment with the Company. The targeted aggregate annual retirement
benefit pursuant to the SERP, Pension Plan and Social Security was $241,573. In addition, beginning in January 2003, R. Stuart Dickson began to receive
monthly payments for a fifteen-year period pursuant to, and in accordance with the terms of, an historical deferred compensation plan in the amount of
$19,899. In recognition of R. Stuart Dicksons 38 years of service as a Company executive and his invaluable contributions to the Company, upon
the approval of the Board of Directors, the Company entered into a Supplemental Executive Retirement Plan (the March 2006 Retirement Plan)
that provides an annual life-time payment in the amount of $98,000, paid in equal monthly installments. The March 2006 Retirement Plan became effective
as of March 31, 2006, and the first of the monthly payments began on April 1, 2006.
R. Stuart Dickson has been
permitted to continue to use the Companys parking facilities and administrative support for personal purposes, but is required to reimburse the
Company for such usage. Consistent with past practice, he may also request to use Company aircraft for personal purposes, subject to availability and
approval by the Company. No reimbursement to the Company was historically required for such use, nor is reimbursement currently required or expected to
be required in the future. However, Internal Revenue Service regulations require reporting of such use as taxable income to the individual, determined
in accordance with rates prescribed by those regulations. Currently R. Stuart Dickson is not an employee or director of the Company, but continues to
receive the retirement benefits earned as an employee with the Company. The terms of the retirement benefits provided to R. Stuart Dickson were
approved by the Board of Directors in March 2006 as specified above based upon his contributions to the Company and based on the belief of the Board of
Directors that such benefits were merited by his service to the Company. The terms of those benefits are, in the Companys opinion, no more
favorable to R. Stuart Dickson than the Company would have provided to other executives for similar services, based on the relative contributions and
service of R. Stuart Dickson.
On June 13, 2012, in connection
with the previously disclosed transactions with Lowes Foods, Harris Teeter assumed from Lowes Foods a lease for property located at 10828 Providence
Road in Charlotte, North Carolina. In Fiscal 2012, pursuant to the lease, Harris Teeter paid to Promenade Shopping Center, LLC (the Promenade
Landlord) $279,439 (consisting of $248,831 in rent, plus certain reimbursements and pass-through payments). Subsequent to Fiscal 2012, the
payments due to the Promenade Landlord through the stated lease expiration of December 6, 2025 are estimated, based upon current levels of
expenditures, to total approximately $1,008,618 per year. John P. Derham Cato is a director of the Company. Trusts established by members of Mr.
Catos family, and in which Mr. Cato and his siblings have certain economic interests, own 90% of the equity interests in the Promenade Landlord,
with the remaining 10% equity interest owned by an unrelated third party. A member of his immediate family also is a manager of an entity that is a
manager of the Promenade Landlord. In determining whether to approve these transactions, the Board took into consideration the fact that (a) the
overall transactions with Lowes Foods were in the best interest of the Company; (b) the lease assumption was a required part of such transactions; (c)
the lease assumption was entered into in the ordinary course of Harris Teeters business; and (d) the lease, which was entered into in 2004 by
unrelated parties, remained unchanged as a result of the lease assumption. As a result, the Board approved the related party transactions described
above. The terms of Harris Teeters assumption are,
51
in the Companys
opinion, no less favorable than the Company would have been able to negotiate with an unrelated party.
See Potential Payments Upon
Termination of Employment or Change in Control included herein for a more detailed discussion of
agreements with the NEOs.
None of the individuals that
served as a member of the Compensation Committee during Fiscal 2012 were at any time officers or employees of the Company or had any relationship with
the Company requiring disclosure under Securities and Exchange Commission regulations.
Section 16 of the Exchange Act
requires the Companys directors, certain officers and beneficial owners of more than ten percent of the Companys Common Stock to file
reports with the Securities and Exchange Commission indicating their holdings of and transactions in the Companys equity securities and to
provide copies of such reports to the Company. To the Companys knowledge, based solely on a review of such copies or written representations
relating thereto, insiders of the Company complied with all filing requirements for the fiscal year.
The deadline for submission of
shareholder proposals pursuant to Rule 14a-8 under the Exchange Act for inclusion in the Companys proxy statement for its 2014 Annual Meeting of
Shareholders is Friday, September 6, 2013. Any shareholder proposal to be submitted at the 2014 Annual Meeting of Shareholders (but not required to be
included in the Companys proxy statement), including nominations for election to the Board of Directors, must also comply with Article III,
Section 12 of the Companys Bylaws, which requires that a shareholder give written notice to the Company not later than the 45th day prior to the
first anniversary of the date the Company first mailed its proxy materials for the preceding years annual meeting of shareholders. Shareholder
proposals submitted at the 2014 Annual Meeting of Shareholders (but not required to be included in the Companys proxy statement) will not be
considered timely unless the notice required by the Bylaws is delivered to the Secretary of the Company not later than Wednesday, November 20,
2013.
The Securities and Exchange
Commission rules permit registrants to send a single Notice to any household at which two or more shareholders reside if the registrant believes they
are members of the same family. This procedure, referred to as householding, reduces the volume of duplicate information shareholders receive and
reduces the expense to the registrant. The Company has not implemented these householding rules with respect to its record holders; however, a number
of brokerage firms have instituted householding which may impact certain beneficial owners of Common Stock. If your family has multiple accounts by
which you hold Common Stock, you may have previously received a householding notification from your broker. Please contact your broker directly if you
have any questions, require additional copies of the Notice, or wish to revoke your decision to household, and thereby receive multiple Notices. Those
options are available to you at any time.
We filed an Annual Report on Form
10-K with the Securities and Exchange Commission on November 21, 2012. We make available through the Companys Website our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the
Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange
Commission. Shareholders may also obtain a copy of these reports, without
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charge, upon request to:
Harris Teeter Supermarkets, Inc., 701 Crestdale Road, Matthews, North Carolina 28105, Attention: Secretary of the Corporation.
The Board of Directors knows of
no other business that will be presented for consideration at the Annual Meeting. However, if other matters are properly presented at the Annual
Meeting, it is the intention of the proxy holders named in the accompanying form of proxy to vote the proxies in accordance with their best
judgment.
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By order of the Board of Directors |
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Douglas J. Yacenda Secretary |
January 4, 2013
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HARRIS TEETER SUPERMARKETS, INC.
2013 CASH INCENTIVE
PLAN
The purpose of this Plan is to
provide executive officers of Harris Teeter Supermarkets, Inc. (f/k/a Ruddick Corporation) and its Affiliates with incentive compensation based upon
the level of achievement of financial, business and other performance criteria. This Plan is intended to permit the payment of bonuses under various
plans or arrangements that may qualify as performance-based compensation under Code Section 162(m) and related regulations. This Plan is a successor to
the Ruddick Corporation Cash Incentive Plan which was effective October 2, 2006.
(a)
Affiliate means a wholly owned subsidiary of Harris Teeter Supermarkets, Inc. or any entity that, directly or
indirectly, is controlled by Harris Teeter Supermarkets, Inc.
(b)
Board means the Board of Directors of Harris Teeter Supermarkets, Inc.
(c)
Bonus means a cash payment made pursuant to this Plan with respect to a particular Performance Period, determined
pursuant to Section 8 below.
(d)
Bonus Formula means as to any Performance Period, the formula established by the Committee pursuant to Section 6 of this
Plan in order to determine the Bonus amounts, if any, to be paid to Participants based upon the level of achievement of targeted goals for the selected
Performance Measures. The formula may differ from Participant to Participant or business group to business group. The Bonus Formula shall be of such a
nature that an objective third party having knowledge of all the relevant facts could determine whether targeted goals for the Performance Measures
have been achieved.
(e)
Code means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
(f)
Committee means the Compensation Committee of the Board consisting of at least two directors who shall qualify as
outside directors within the meaning of Code Section 162(m).
(g)
Fiscal Year means the fiscal year of Harris Teeter Supermarkets, Inc. or its Affiliates.
(h)
Participant means an employee of Harris Teeter Supermarkets, Inc. or its Affiliates who is considered an executive
officer of Harris Teeter Supermarkets, Inc. or its Affiliates within the meaning of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder and as designated under Section 6 below.
(i)
Performance-Based Compensation means compensation that qualifies as performance-based compensation within
the meaning of Code Section 162(m) and related regulations.
(j)
Performance Measure means any one or more of the performance criteria listed below. The performance criteria may be
applied either individually, alternatively, or in any combination and measured on an absolute basis or relative to a pre-established target as may be
specified and approved by the Committee. The performance criteria may include: return on invested capital, net operating profit (before or after tax),
operating profit margin, gross margin, operating profit, earnings before income taxes, earnings (which may include earnings before interest and taxes
and net earnings, and may be determined in accordance with United States Generally Accepted Accounting Principles (GAAP) or adjusted to
include or exclude any or all items), earnings per share (on a GAAP or non-GAAP basis), growth in any of the foregoing measures, stock price, return on
equity or average shareholders equity, total shareholder return, growth in shareholder value relative to the moving average of the S&P 500
Index or another index, return on capital, return on assets or net assets, return on investment, economic value added, market shares, overhead or other
expense reduction, credit rating, strategic plan development and implementation, succession plan development and implementation, improvement in
workforce,
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diversity,
customer indicators, improvements in productivity, attainment of objective operating goals and employee metrics.
(k)
Performance Period means any Fiscal Year or such other period as determined by the Committee.
(l)
Plan means this Harris Teeter Supermarkets, Inc. 2013 Cash Incentive Plan.
(m)
Predetermination Date means, for a Performance Period, (i) the earlier of 90 days after commencement of the Performance
Period or the expiration of 25% of the Performance Period, provided that the achievement of targeted goals under the selected Performance Measures for
the Performance Period is substantially uncertain at such time; or (ii) such other date on which a performance goal is considered to be pre-established
pursuant to Code Section 162(m).
The individuals eligible to
participate in this Plan for a given Performance Period shall be limited to Participants as defined herein.
(a)
The Committee shall be responsible for the requirements for qualifying compensation as Performance-Based Compensation. Subject to the
limitations on Committee discretion imposed under Code Section 162(m), including limits on discretionary bonus increases, the Committee shall have such
powers as may be necessary to discharge its duties hereunder. The Committee shall be responsible for the general administration and interpretation of
this Plan and for carrying out its provisions, including the authority to construe and interpret the terms of this Plan, determine the manner and time
of payment of any Bonuses, prescribe forms and procedures for purposes of Plan participation and distribution of Bonuses and adopt rules, regulations
and to take such action as it deems necessary or desirable for the proper administration of this Plan. The Committee may delegate its administrative
tasks to Harris Teeter Supermarkets, Inc. employees or others as appropriate for proper administration of this Plan.
(b)
Any rule or decision by the Committee or its delegate(s) that is not inconsistent with the provisions of this Plan shall be conclusive and
binding on all persons, and shall be given the maximum deference permitted by law.
This Plan shall be effective as
of October 3, 2012. Notwithstanding the foregoing, this Plan shall terminate unless it is approved at the next Harris Teeter Supermarkets, Inc. annual
shareholders meeting following the date that the Board adopts this Plan. Once approved by the Harris Teeter Supermarkets, Inc.s
shareholders, this Plan shall continue until the earlier of (i) a termination under Section 9 of this Plan, (ii) the date any shareholder approval
requirement under Code Section 162(m) ceases to be met or (iii) the date that is five years after the February , 2013 shareholder
meeting.
Prior to the Predetermination
Date for a Performance Period, the Committee shall designate and approve in writing, the following:
(a)
Performance Period;
(b)
Positions or names of employees who will be Participants for the Performance Period;
(c)
Targeted goals for selected Performance Measures during the Performance Period; and
(d)
Applicable Bonus Formula for each Participant, which may be for an individual Participant or a group of Participants.
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Determination of Amount of Bonus. |
(a)
Calculation. After the end of each Performance Period, the Committee shall certify in writing (to the extent required under Code
Section 162(m)) the extent to which the targeted goals for the Performance Measures applicable to each Participant for the Performance Period were
achieved or exceeded. The Bonus for each Participant shall be determined by applying the Bonus Formula to the level of actual performance that has been
certified by the Committee. Notwithstanding any contrary provision of this Plan, the Committee, in its sole discretion, may eliminate or reduce, but
not increase, the Bonus payable to any Participant below that which otherwise would be payable under the Bonus Formula. The aggregate Bonus(es) payable
to any Participant during any Fiscal Year shall not exceed $2,000,000.
The Committee
may appropriately adjust any evaluation of performance under a Performance Measure to exclude any of the following events that occurs during a
Performance Period: (A) the effects of currency fluctuations, (B) any or all items that are excluded from the calculation of earnings as reflected in
any Harris Teeter Supermarkets, Inc. press release and Form 8-K filing relating to an earnings announcement, (C) asset write-downs, (D) litigation or
claim judgments or settlements, (E) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported
results, (F) accruals for reorganization and restructuring programs, and (G) any other extraordinary or non-operational items.
(b)
Right to Receive Payment. Each Bonus under this Plan shall be paid solely from general assets of Harris Teeter Supermarkets, Inc.
and its Affiliates. This Plan is unfunded and unsecured; nothing in this Plan shall be construed to create a trust or to establish or evidence any
Participants claim of any right to payment of a Bonus other than as an unsecured general creditor with respect to any payment to which he or she
may be entitled.
(a)
Timing of Distributions. Harris Teeter Supermarkets, Inc. and its Affiliates shall distribute amounts payable to Participants as
soon as is administratively practicable following the determination and written certification of the Committee for a Performance Period, but in no
event later than two and one-half months after the end of the calendar year in which the Performance Period ends, except to the extent a Participant
has made a timely election to defer the payment of all or any portion of such Bonus under the Harris Teeter Supermarkets, Inc. Flexible Deferral Plan
or deferred compensation plan or arrangement established and approved by Harris Teeter Supermarkets, Inc.
(b)
Payment. The payment of a Bonus, if any (as determined by the Committee at the end of the Performance Period), with respect to a
specific Performance Period requires that the employee be an active employee on the payroll of Harris Teeter Supermarkets, Inc.s or an Affiliate
on the last day of each applicable Performance Period and at the time the payment is made, unless the Participants employment was earlier
terminated due to early, normal or late retirement under the terms of the Harris Teeter Supermarkets, Inc. pension or similar retirement
plan.
(c)
Code Section 409A. To the extent that benefits under this Agreement are or become subject to Internal Revenue Code Section 409A, the
Agreement shall be interpreted and construed to the fullest extent allowed under Code Section 409A and the applicable regulations and other guidance
thereunder to satisfy the requirements of an exception from the application of Code Section 409A or, alternatively, to comply with such Code Section
and the applicable regulations and other guidance thereunder, and to avoid any additional tax thereunder. To the extent compliance with the
requirements of Treasury Regulation Section 1.409A-3(i)(2) (or any successor provision) is necessary to avoid the application of an additional tax
under Code Section 409A to payments due to Employee upon or following his separation from service, then notwithstanding any other provision of this
Agreement, any such payments that are otherwise due within six (6) months following Employees separation from service will be deferred without
interest and paid to Employee in a lump sum immediately following that six (6) month period.
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Amendment and Termination. |
The Committee may amend, modify,
suspend or terminate this Plan, in whole or in part, at any time, including the adoption of amendments deemed necessary or desirable to correct any
defect or to supply omitted data or to reconcile any inconsistency in this Plan or in any Bonus granted hereunder; provided, however, that no
amendment, alteration, suspension or discontinuation shall be made which would (i) increase the amount of compensation payable pursuant to such Bonus,
or (ii) cause compensation that is, or may become, payable hereunder to fail to qualify as Performance-Based Compensation. Notwithstanding the
foregoing, the Committee may amend, modify, suspend or terminate this Plan if any such action is required by law. To the extent required under
applicable law, including Code Section 162(m), Plan amendments shall be subject to shareholder approval. At no time before the actual distribution of
funds to Participants under this Plan shall any Participant accrue any vested interest or right whatsoever under this Plan except as otherwise stated
in this Plan.
Distributions pursuant to this
Plan shall be subject to all applicable taxes and contributions required by law to be withheld in accordance with procedures established by Harris
Teeter Supermarkets, Inc.
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No Additional Participant Rights. |
The selection of an individual
for participation in this Plan shall not give such Participant any right to be retained in the employ of Harris Teeter Supermarkets, Inc. or any of its
Affiliates, and the right of Harris Teeter Supermarkets, Inc. and any such Affiliate to dismiss such Participant or to terminate any arrangement
pursuant to which any such Participant provides services to Harris Teeter Supermarkets, Inc. or its Affiliates, with or without cause, is specifically
reserved. No person shall have claim to a Bonus under this Plan, except as otherwise provided for herein, or to continued participation under this
Plan. There is no obligation for uniformity of treatment of Participants under this Plan. The benefits provided for Participants under this Plan shall
be in addition to and shall in no way preclude other forms of compensation to or in respect of such Participants. It is expressly agreed and understood
that the employment of a Participant is terminable at the will of either party and, if such Participant is a party to an employment contract with
Harris Teeter Supermarkets, Inc. or one of its Affiliates, in accordance with the terms and conditions of the Participants employment
agreement.
All obligations of Harris Teeter
Supermarkets, Inc. or its Affiliates under this Plan, with respect to awards granted hereunder, shall be binding on any successor to Harris Teeter
Supermarkets, Inc., whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all
or substantially all of the business or assets of Harris Teeter Supermarkets, Inc.
The rights of a Participant under
this Plan shall not be assignable or transferable by the Participant except by will or the laws of descent and distribution.
If any portion of this Plan is
deemed to be in conflict with applicable law, that portion of the Plan, and that portion only, will be deemed void under applicable law. All other
provisions of the Plan will remain in effect. Furthermore, if any provision of this Plan would cause Bonuses not to constitute Performance-Based
Compensation, that provision shall be severed from, and shall be deemed not to be a part of, the Plan, but the other provisions hereof shall remain in
full force and effect.
This Plan shall be governed and
construed under the laws of the State of North Carolina.
A-4
HARRIS TEETER SUPERMARKETS, INC.
701 CRESTDALE ROAD
MATTHEWS, NC 28105
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VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. Your proxy card must be received by Broadridge no later than the day before the meeting date.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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M50743-P30843 KEEP THIS PORTION FOR YOUR RECORDS
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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DETACH AND RETURN THIS PORTION ONLY
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HARRIS TEETER SUPERMARKETS, INC.
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For
All
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Withhold
All
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For All
Except
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To withhold authority to vote for any individual nominee(s), mark
“For All Except” and write the number(s) of the nominee(s) on the line below.
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The Board of Directors of Harris Teeter Supermarkets, Inc. recommends that you vote in Proposal 1 FOR ALL NOMINEES to the Board of Directors, and FOR each of Proposals 2, 3 and 4.
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1. |
Election of the following eleven nominees as Directors listed below to serve until the next Annual Meeting of Shareholders or until their respective successors are duly elected and qualified:
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Nominees:
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06) Mark S. Ordan
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07) Bailey W. Patrick
08) Robert H. Spilman, Jr.
11) William C. Warden, Jr.
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For
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Abstain
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4. |
To ratify the appointment of KPMG LLP as the independent registered public accounting firm of the Company for the fiscal year ending October 1, 2013.
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2. |
Approval of the Harris Teeter Supermarkets, Inc. 2013 Cash Incentive Plan.
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5. |
The proxies are authorized to act upon any other business which may properly be brought before said meeting or any adjournment thereof.
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3. |
An advisory (non-binding) vote approving the compensation of the Company’s named executive officers.
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The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders, dated January 4, 2013, and the Proxy Statement furnished therewith.
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For address changes and/or comments, please check this box and write them on the back where indicated.
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Please indicate if you plan to attend this meeting.
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Yes
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No
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Signature (Joint Owners)
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Date
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ANNUAL MEETING OF SHAREHOLDERS OF
HARRIS TEETER SUPERMARKETS, INC.
February 21, 2013
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The 2012 HARRIS TEETER SUPERMARKETS, INC. ANNUAL REPORT AND PROXY STATEMENT
(includes Notice)
are available at www.proxyvote.com.
Please detach along perforated line and mail in the envelope provided.
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HARRIS TEETER SUPERMARKETS, INC.
Annual Meeting of Shareholders
February 21, 2013 10:00 AM
This proxy is solicited by the Board of Directors
KNOW ALL MEN BY THESE PRESENTS, that the undersigned shareholder of Harris Teeter Supermarkets, Inc., a North Carolina corporation, hereby constitutes and appoints Thomas W. Dickson, John B. Woodlief, and Douglas J. Yacenda, and each of them, attorneys and proxies, with full power of substitution, to act for and on behalf of the undersigned to vote all shares of Harris Teeter Supermarkets, Inc. Common Stock that the undersigned is entitled to vote at the Annual Meeting of Shareholders to be held at the Company's headquarters located at 701 Crestdale Road, Matthews, NC on Thursday, February 21, 2013, at 10:00 A.M., local time, and any adjournment or adjournments thereof, as set forth on the reverse side.
This proxy card, when signed and returned, will also constitute voting instructions to T. Rowe Price Trust Company to vote, or cause to be voted, the shares held by T. Rowe Price Trust Company for the account of the undersigned in the Harris Teeter Supermarkets, Inc. Retirement and Savings Plan. If this proxy card is not returned, or is returned unsigned, the shares will not be voted.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE AND THIS PROXY CARD IS SIGNED AND RETURNED, THIS PROXY WILL BE VOTED IN FAVOR OF EACH OF THE NOMINEES FOR DIRECTOR LISTED IN PROPOSAL 1, IN FAVOR OF EACH OF PROPOSALS 2, 3 AND 4, AND IN THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER BUSINESS THAT PROPERLY COMES BEFORE THE MEETING.
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Address Changes/Comments: ______________________________________________________________________________
______________________________________________________________________________________________________
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(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side
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