SCHEDULE 14A
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The Bon-Ton Stores, Inc.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
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Proxy Statement
and Notice of 2004
Annual Meeting
(LOGO WITH PICTURE OF WOMAN)
[BON-TON LOGO]
THE BON-TON STORES, INC.
2801 EAST MARKET STREET
YORK, PA 17402
WWW.BONTON.COM
June 17, 2004
Dear Shareholder:
You are cordially invited to attend our Annual Meeting of Shareholders to
be held at Bon-Ton's corporate offices at 2801 East Market Street, York,
Pennsylvania on Wednesday, July 21, 2004, beginning at 9:00 a.m. Enclosed is the
official notice of meeting, the proxy statement, the proxy card and our 2003
Annual Report.
You may vote your shares via the Internet by accessing the voting site
shown on your proxy card, by telephone by calling the toll-free number shown on
your proxy card, by mail using the proxy card, or in person by attending and
voting at the meeting.
Your vote is important to us. Even if you plan to attend the meeting,
please sign, date and return your proxy in the enclosed postage-paid envelope or
vote by telephone or over the Internet.
Sincerely,
/s/ Tim Grumbacher
Tim Grumbacher
Chairman of the Board and
Chief Executive Officer
THE BON-TON STORES, INC.
2801 EAST MARKET STREET
YORK, PA 17402
WWW.BONTON.COM
NOTICE OF ANNUAL MEETING
The Annual Meeting of Shareholders of The Bon-Ton Stores, Inc. will be
held on Wednesday, July 21, 2004, at 9:00 a.m., at Bon-Ton's corporate offices
at 2801 East Market Street, York, Pennsylvania.
The purposes of this year's meeting are:
1. To elect an eight member Board of Directors for a one-year term.
2. To ratify the appointment of KPMG LLP as independent auditor for
2004.
3. To approve The Bon-Ton Stores, Inc. Cash Bonus Plan.
4. To approve the Amendment to The Bon-Ton Stores, Inc. 2000 Stock
Incentive Plan.
5. To consider any other matters as may properly come before the
meeting.
Shareholders who owned shares of our stock at the close of business on
May 26, 2004 may attend and vote at the meeting. You may vote by telephone or
over the Internet or by mailing the proxy card in the enclosed postage-paid
envelope. Any shareholder attending the meeting may vote in person, even though
he or she has already returned a proxy card or voted by telephone or over the
Internet.
Robert E. Stern
Vice President,
General Counsel and Secretary
York, Pennsylvania
June 17, 2004
Please vote by telephone or over the Internet as instructed on the enclosed
proxy card or complete, sign and date the proxy card as promptly as possible and
return it in the enclosed envelope. If you vote by telephone or over the
Internet, do not return your proxy card.
CONTENTS
<Table>
Proxy Statement............................................. 1
Voting Procedures and Security Ownership.................... 1
Outstanding Shares and Voting Rights...................... 1
Principal Shareholders.................................... 3
Security Ownership of Directors and Executive Officers.... 6
Election of Directors....................................... 7
Board and Board Committee Information..................... 8
Compensation of Directors................................. 10
Ratification of the Appointment of the Independent
Auditor................................................... 11
Approval of The Bon-Ton Stores, Inc. Cash Bonus Plan........ 11
Approval of the Amendment to The Bon-Ton Stores, Inc. 2000
Stock Incentive Plan...................................... 13
Executive Compensation...................................... 18
Summary Compensation Table................................ 18
Stock Option Grants....................................... 18
Stock Option Exercises and Holdings....................... 19
Employment Agreements..................................... 19
Supplemental Retirement Benefits.......................... 20
Executive Severance....................................... 20
Equity Compensation Plan Information...................... 20
Stock Performance Graph..................................... 21
Report on Executive Compensation............................ 21
Report of the Audit Committee............................... 23
Independent Auditor's Fees.................................. 24
Relationship With Independent Auditor....................... 25
Section 16(a) Beneficial Ownership Reporting Compliance..... 25
Certain Transactions........................................ 25
Shareholder Proposals....................................... 26
</Table>
THE BON-TON STORES, INC.
---------------------
PROXY STATEMENT
We are providing this proxy statement to solicit your proxy for use at
the annual meeting of shareholders. The annual meeting will be held at 9:00 a.m.
on Wednesday, July 21, 2004 at Bon-Ton's corporate offices at 2801 East Market
Street, York, Pennsylvania. The proxy materials, which consist of the Annual
Report, the Notice of Annual Meeting, this proxy statement and the proxy card,
are first being sent to our shareholders on or about June 17, 2004.
We do not anticipate that any matters will be raised at the meeting other
than those described in the notice. If any other matters come before the
meeting, your proxies will be authorized to act in accordance with their
judgment.
When your proxy card is returned properly signed, or you have effectively
submitted your proxy over the Internet or by telephone, your shares will be
voted in accordance with your instructions. If your proxy card is signed and
returned without specifying choices, your shares will be voted "for" the Board
nominees, "for" ratification of the appointment of KPMG LLP as independent
auditor, and "for" approval of The Bon-Ton Stores, Inc. Cash Bonus Plan and
approval of the Amendment to The Bon-Ton Stores, Inc. 2000 Stock Incentive Plan.
You may revoke your proxy before its exercise by notifying the Secretary
of the Company in writing, by delivering a properly executed, later-dated proxy
card, by submitting your proxy again over the Internet or by telephone, or by
voting in person at the meeting.
Your proxy is being solicited by the Board of Directors. We will bear the
cost of this solicitation, including the charges of brokerage houses, nominees
and fiduciaries in forwarding these materials to beneficial owners. This
solicitation may be made in person, by telephone or by other means of
communication by our directors, officers or employees.
References in this proxy statement to a year refer to our fiscal year,
which is the 52 or 53 week period ending on the Saturday nearer January 31 of
the following calendar year (for example, a reference to 2003 is a reference to
the fiscal year ended January 31, 2004).
VOTING PROCEDURES AND SECURITY OWNERSHIP
OUTSTANDING SHARES AND VOTING RIGHTS
Shareholders of record at the close of business on May 26, 2004, are
entitled to vote at the meeting. At that time, there were 13,055,378 shares of
common stock and 2,951,490 shares of Class A common stock outstanding. The
common stock and the Class A common stock vote together on all matters. Holders
of common stock are entitled to one vote per share and holders of Class A common
stock are entitled to ten votes per share. There are no other classes of voting
securities outstanding. In the election of directors, shareholders do not have
cumulative voting rights.
The presence at the meeting, in person or by proxy, of persons entitled
to cast a majority of the shareholder votes will constitute a quorum.
The eight nominees receiving a plurality of the votes cast (that is, the
eight nominees receiving the greatest number of votes) will be elected. A proxy
marked "withhold" with respect to the election of a director will not be voted
as to the director indicated, but will be counted for purposes of determining
whether there is a quorum.
Approval of any other matter requires the affirmative vote of a majority
of the votes cast. Abstentions and broker non-votes are counted to determine
whether a quorum is present at the meeting but are not counted as a vote in
favor or against a particular matter. A broker "non-vote" occurs when a nominee
for a beneficial owner does not vote on a particular matter because the
nominee does not have discretionary voting power as to that item and has not
received voting instructions from the beneficial owner.
If you own common stock in your own name, you are an "owner of record."
This means you may direct the persons named as proxies how to vote your shares.
If you fail to vote, the proxies cannot vote your shares at the meeting.
You have four voting options:
- - INTERNET: You can vote over the Internet at the web address shown on your
proxy card. Internet voting is available 24 hours a day. If you have access
to the Internet, we encourage you to vote this way. IF YOU VOTE OVER THE
INTERNET, DO NOT RETURN YOUR PROXY CARD.
- - TELEPHONE: You can vote by telephone by calling the toll-free telephone
number on your proxy card. Telephone voting is available 24 hours a day.
Easy-to-follow voice prompts allow you to vote your shares and confirm that
your instructions have been properly recorded. IF YOU VOTE OVER THE
TELEPHONE, DO NOT RETURN YOUR PROXY CARD.
- - PROXY CARD: You can vote by mail by signing, dating and mailing your proxy
card in the postage-paid envelope provided.
- - VOTE IN PERSON: You can attend the Annual Meeting and vote at the meeting.
If a broker, bank or other nominee holds your common stock for your
benefit but not in your name, your shares are in "street name." In that case,
your bank, broker or other nominee will send you a voting instruction form to
use in voting your shares. The availability of Internet and telephone voting
depends on their voting processes. Please follow the voting instruction form
they send you.
If you are a participant in The Bon-Ton Stores, Inc. Profit
Sharing/Retirement Plan (the "401(k) Plan"), your proxy will incorporate all
shares you own through the 401(k) Plan, assuming all your shares are registered
in the same name. Your proxy will serve as a voting instruction for the trustee
of the 401(k) Plan. If you own shares through the 401(k) Plan and you do not
vote, the plan trustee will vote your shares in the same proportion as shares
for which instructions were received from other shareholders under the 401(k)
Plan.
The Nasdaq Stock Market regulations provide that if more than 50% of the
voting power in a company is held by an individual, group or another company,
the company is a "controlled" company. Using this definition, Bon-Ton is a
"controlled" company because Tim Grumbacher, our Chairman of the Board and Chief
Executive Officer, is the beneficial owner of shares of common stock and Class A
common stock entitled to vote more than 50% of the votes entitled to be cast at
the meeting. Mr. Grumbacher has indicated that he will vote "for" each of the
nominees for director and "for" each other proposal described herein to be
presented at the annual meeting. Consequently, the election of each nominee for
director, ratification of the appointment of KPMG LLP, approval of The Bon-Ton
Stores, Inc. Cash Bonus Plan and approval of the Amendment to The Bon-Ton
Stores, Inc. 2000 Stock Incentive Plan are assured.
2
PRINCIPAL SHAREHOLDERS
This table shows owners of 5% or more of the Class A common stock or
common stock as of May 3, 2004. Each person listed has sole voting power and
sole investment power as to the shares indicated unless otherwise noted.
<Table>
<Caption>
Class A Common Stock Common Stock(1)
--------------------- ---------------------
Number of Number of
Name and Address Shares Percent Shares Percent
- ----------------------------------------------------------------------------------------
Tim Grumbacher 2,951,490(2) 100.0% 6,151,912(3) 38.3%
2801 E. Market Street
York, PA 17402
RS Investment Management L.P. -- -- 882,000(4) 6.8%
388 Market Street
San Francisco, CA 94111
Nancy T. Grumbacher 545,237(5) 18.5% 758,314(6) 5.6%
2801 E. Market Street
York, PA 17402
Henry F. Miller 545,237(5) 18.5% 749,414(7) 5.5%
1650 Arch Street - 22(nd) Floor
Philadelphia, PA 19103
Dimensional Fund Advisors, Inc. -- -- 747,500(8) 5.7%
1299 Ocean Avenue
Santa Monica, CA 90401
Advisory Research, Inc. -- -- 744,384(9) 5.7%
110 North Stetson Street, Suite 5780
Chicago, IL 60601
Thomas W. Wolf 545,237(5) 18.5% 702,541(10) 5.2%
2801 E. Market Street
York, PA 17402
David R. Glyn 545,237(5) 18.5% 642,541(11) 4.7%
1650 Arch Street - 22(nd) Floor
Philadelphia, PA 19103
M. Thomas Grumbacher Trust 181,746(12) 6.2% 202,896(12) 1.5%
dated March 9, 1989 for benefit of
Matthew Reed Grumbacher
1650 Arch Street - 22(nd) Floor
Philadelphia, PA 19103
M. Thomas Grumbacher Trust 181,746(12) 6.2% 202,896(12) 1.5%
dated March 9, 1989 for benefit of
Beth Anne Grumbacher Elser
1650 Arch Street - 22(nd) Floor
Philadelphia, PA 19103
M. Thomas Grumbacher Trust 181,746(12) 6.2% 202,896(12) 1.5%
dated March 9, 1989 for benefit of
Max Aaron Grumbacher
1650 Arch Street - 22(nd) Floor
Philadelphia, PA 19103
</Table>
(1) Each share of Class A common stock is convertible into one share of common
stock at the holder's option. Accordingly, the number of shares of common
stock for each person includes the number of shares of common stock
issuable upon conversion of all shares of Class A common stock beneficially
owned by such person. Also, the total number of shares of common stock
outstanding for purposes of calculating percentage ownership of a person
includes the number of shares of Class A common stock beneficially owned by
such person.
3
(2) Includes 545,237 shares of Class A common stock held by trusts for the
benefit of Mr. Grumbacher's children of which Nancy T. Grumbacher (Mr.
Grumbacher's wife), Thomas W. Wolf, Henry F. Miller and David R. Glyn are
the trustees. Mr. Grumbacher disclaims beneficial ownership of all shares
referred to in this note.
(3) Includes (a) 115,773 shares of common stock held by The Grumbacher Family
Foundation, a charitable foundation of which Mr. Grumbacher, Nancy T.
Grumbacher and Henry F. Miller are the directors, (b) 545,237 shares of
Class A common stock and 63,454 shares of common stock held by trusts for
the benefit of Mr. Grumbacher's children of which Ms. Grumbacher, Thomas W.
Wolf, Mr. Miller and David R. Glyn are the trustees, (c) 24,950 shares of
common stock held by other trusts for the benefit of Mr. Grumbacher's
children of which Ms. Grumbacher and Messrs. Wolf, Miller and Glyn are the
trustees, and (d) 8,900 shares of common stock held by trusts for the
benefit of Mr. Grumbacher's grandchildren of which Ms. Grumbacher, Beth
Elser, and Messrs. Wolf and Glyn are the trustees. Mr. Grumbacher disclaims
beneficial ownership of all shares referred to in this note. Also includes
options to purchase 44,550 shares of common stock exercisable within 60
days of May 3, 2004.
(4) Based solely on a Schedule 13G dated February 14, 2004 filed by RS
Investment Management L.P. with the Securities and Exchange Commission.
(5) Consists of Class A common stock held by trusts for the benefit of Tim
Grumbacher's children of which Nancy T. Grumbacher, Thomas W. Wolf, Henry
F. Miller and David R. Glyn are the trustees. Ms. Grumbacher and Messrs.
Wolf, Miller and Glyn each disclaim beneficial ownership of all shares
referred to in this note.
(6) Consists of (a) 115,773 shares of common stock held by The Grumbacher
Family Foundation, a charitable foundation of which Ms. Grumbacher, Tim
Grumbacher and Henry F. Miller are the directors, (b) 545,237 shares of
Class A common stock and 63,454 shares of common stock held by trusts for
the benefit of Mr. Grumbacher's children of which Ms. Grumbacher, Thomas W.
Wolf, Mr. Miller and David R. Glyn are the trustees, (c) 24,950 shares of
common stock held by other trusts for the benefit of Mr. Grumbacher's
children of which Ms. Grumbacher and Messrs. Wolf, Miller and Glyn are the
trustees, and (d) 8,900 shares of common stock held by trusts for the
benefit of Mr. Grumbacher's grandchildren of which Ms. Grumbacher, Beth
Elser and Messrs. Wolf and Glyn are the trustees. Ms. Grumbacher disclaims
beneficial ownership of all shares referred to in this note.
(7) Consists of (a) 115,773 shares of common stock held by The Grumbacher
Family Foundation, a charitable foundation of which Tim Grumbacher, Nancy
T. Grumbacher and Mr. Miller are the directors, (b) 545,237 shares of Class
A common stock and 63,454 shares of common stock held by trusts for the
benefit of Mr. Grumbacher's children of which Ms. Grumbacher and Thomas W.
Wolf, Mr. Miller and David R. Glyn are the trustees, and (c) 24,950 shares
of common stock held by other trusts for the benefit of Mr. Grumbacher's
children of which Ms. Grumbacher and Messrs. Wolf, Miller and Glyn are the
trustees. Mr. Miller disclaims beneficial ownership of all shares referred
to in this note.
(8) Based solely on a Schedule 13G dated February 6, 2004 filed with the
Securities and Exchange Commission by Dimensional Fund Advisors, Inc.
(9) Based solely on a Schedule 13G dated February 12, 2004 filed by Advisory
Research, Inc. with the Securities and Exchange Commission.
(10) Includes (a) 545,237 shares of Class A common stock and 63,454 shares of
common stock held by trusts for the benefit of Tim Grumbacher's children of
which Nancy T. Grumbacher, Mr. Wolf, Henry F. Miller and Mr. Glyn are the
trustees, (b) 24,950 shares of common stock held by other trusts for the
benefit of Mr. Grumbacher's children of which Ms. Grumbacher and Messrs.
Wolf, Miller and Glyn are the trustees, and (c) 8,900 shares of common
stock held by trusts for the benefit of Mr. Grumbacher's grandchildren of
which Ms. Grumbacher, Beth Elser and Messrs. Wolf and Glyn are the
trustees. Mr. Wolf disclaims beneficial ownership of
4
all shares referred to above. Also includes options to purchase 5,000
shares of common stock exercisable within 60 days of May 3, 2004.
(11) Consists of (a) 545,237 shares of Class A common stock and 63,454 shares of
common stock held by trusts for the benefit of Tim Grumbacher's children of
which Nancy T. Grumbacher, Thomas W. Wolf, Henry F. Miller and Mr. Glyn are
the trustees, (b) 24,950 shares of common stock held by other trusts for
the benefit of Mr. Grumbacher's children, of which Ms. Grumbacher and
Messrs. Wolf, Miller and Glyn are the trustees, and (c) 8,900 shares of
common stock held by trusts for the benefit of Mr. Grumbacher's
grandchildren of which Ms. Grumbacher, Beth Elser and Messrs. Wolf and Glyn
are the trustees. Mr. Glyn disclaims beneficial ownership of all shares
referred to in this note.
(12) In notes (2), (3), (5), (6), (7), (10) and (11) above, we discussed trusts
for the benefit of Tim Grumbacher's children, of which Nancy T. Grumbacher,
Thomas W. Wolf, Henry F. Miller and David R. Glyn serve as trustees. This
is one of such trusts.
The holders of the Class A common stock have entered into an agreement
granting Tim Grumbacher (or his personal representative) the right of first
refusal to acquire any shares of Class A common stock proposed to be
transferred.
5
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
This table shows, as of May 3, 2004, the holdings of our Chief Executive
Officer, the four other most highly compensated executive officers during 2003
(the "named executives"), each director, and all directors and executive
officers as a group. Each person listed has sole voting power and sole
investment power with respect to the shares indicated unless otherwise noted.
<Table>
<Caption>
Class A Common Stock Common Stock(1)
------------------------ ------------------------
Shares Shares
Beneficially Beneficially
Name Owned Percent Owned Percent
- --------------------------------------------------------------------------------------------
Tim Grumbacher 2,951,490(2) 100.0% 6,151,912(3) 38.3%
James H. Baireuther -- -- 147,667(4) 1.1%
Robert B. Bank -- -- -- --
Byron L. Bergren -- -- -- --
Philip M. Browne -- -- 2,500 *
Shirley A. Dawe -- -- -- --
Marsha M. Everton -- -- 860 *
Michael L. Gleim -- -- 443,289(5) 3.4%
William T. Harmon -- -- 53,671(6) *
Robert E. Salerno -- -- 2,100 *
Leon D. Starr -- -- 27,080(7) *
Frank Tworecke(12) -- -- 264,814 2.0%
Thomas W. Wolf 545,237(8) 18.5% 702,541(9) 5.2%
All directors and executive officers
as a group (23 persons) 2,951,490(10) 100.0% 7,282,807(11) 44.8%
</Table>
* less than 1%
(1) See note (1) to Principal Shareholders table.
(2) See note (2) to Principal Shareholders table.
(3) See note (3) to Principal Shareholders table.
(4) Includes options exercisable within 60 days of May 3, 2004 to purchase
30,000 shares.
(5) Includes 93,000 shares owned by Mr. Gleim's spouse and 5,700 shares which
Mr. Gleim holds as custodian for his grandchildren. Mr. Gleim disclaims
beneficial ownership of all of the foregoing shares. Also includes options
exercisable within 60 days of May 3, 2004 to purchase 116,373 shares.
(6) Includes 1,440 shares owned by Mr. Harmon's spouse, as to which Mr. Harmon
disclaims beneficial ownership, and options exercisable within 60 days of
May 3, 2004 to purchase 25,000 shares.
(7) Includes 21,500 shares owned by Mr. Starr's spouse, as to which Mr. Starr
disclaims beneficial ownership, and options exercisable within 60 days of
May 3, 2004 to purchase 3,000 shares.
(8) See note (5) to Principal Shareholders table.
(9) See note (10) to Principal Shareholders table.
(10) See notes (2) and (8) above.
(11) See notes (3), (4), (5), (6), (7) and (9) above. Includes 675 shares held
in an IRA plan by the spouse of an executive officer as to which the
executive officer disclaims beneficial ownership. Also includes options
exercisable within 60 days of May 3, 2004 to purchase 25,982 shares.
(12) Mr. Tworecke resigned from the Company effective May 7, 2004.
6
PROPOSAL ONE
ELECTION OF DIRECTORS
The Board proposes the following nominees for election as directors to
hold office until the 2005 Annual Meeting of Shareholders and until their
respective successors have been elected. Each is currently a director and has
agreed to serve if elected. Should a nominee become unable or decline to serve
before the Annual Meeting, the proxies may vote for a substitute recommended by
the Governance and Nominating Committee of the Board, unless the Board reduces
the number of directors.
ROBERT B. BANK -- Director since 2002. Age 57
President of Robert B. Bank Advisory Services, a private capital investment and
consulting firm, since 1990.
PHILIP M. BROWNE -- Director since 2002. Age 44
Senior Vice President and Chief Financial Officer of Advanta Corp., one of the
nation's largest providers of business credit cards to small businesses, since
June 1998. Prior to that, Mr. Browne was a partner at Arthur Andersen LLP, where
he was employed for more than 15 years. Mr. Browne is a director and a member of
the audit committee of AF&L Insurance Company, a privately held long-term care
and home health care insurance company.
SHIRLEY A. DAWE -- Director since 2002. Age 57
Corporate Director and, since 1986, President of Shirley Dawe Associates, Inc.,
a Toronto based consumer goods marketing and merchandising consulting group.
Prior to 1986, she held progressively senior merchandising positions with the
Hudson's Bay Company, a Canadian national department store chain, for over 15
years. Ms. Dawe is a director of OshKosh B'Gosh, Inc., a children's apparel
manufacturer; the National Bank of Canada; Henry Birks & Sons, Inc., a Canadian
fine jewelry retailer; and Acorn, a Michigan-based women's apparel specialty
retailer.
MARSHA M. EVERTON -- Director since 2003. Age 52
President and Chief Executive Officer of The Pfaltzgraff Co., a casual
dinnerware manufacturer, since January 2002. Ms. Everton was Vice President of
The Pfaltzgraff Co. for more than ten years prior, responsible during this
period for various departments including stores and direct marketing, corporate
development and market planning and administration.
MICHAEL L. GLEIM -- Director since 1991. Age 61
Vice Chairman and Chief Operating Officer of Bon-Ton from December 1995 to
February 2002. From 1991 to December 1995 he was Senior Executive Vice President
and from 1989 to 1991 he was Executive Vice President of Bon-Ton.
TIM GRUMBACHER -- Director since 1967. Age 64
Chairman of the Board of Bon-Ton since August 1991, and Chief Executive Officer
since June 2000. From 1977 to 1989 he was President and from 1985 to 1995 he was
Chief Executive Officer of Bon-Ton.
ROBERT E. SALERNO -- Director since 2002. Age 56
Chief Operating Officer of Kieselstein-Cord International, a luxury accessories
wholesaler and retailer, since December 2002. Vice President and Chief Operating
Officer of Circline.Com, an internet based broker of fine arts and antiques,
from November 2001 to December 2002. From October 1999 to August 2001, Mr.
Salerno was Chief Executive Officer of Bluefish Clothing, an apparel marketer.
In November 1999, Bluefish Clothing filed for relief under chapter 11 of the
U.S. Bankruptcy Code and the company was liquidated in November 2001. From June
1996 to
7
February 1999, he was Senior Vice President of Bergdorf Goodman, responsible for
all operational, financial and administrative functions.
THOMAS W. WOLF -- Director since 1998. Age 55
President of the Wolf Organization, Inc., a building materials manufacturer and
distributor, since 1985. He is also a director of Irex Corporation, a national
building contractor.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" THE ELECTION OF THE
NOMINEES LISTED ABOVE
BOARD AND BOARD COMMITTEE INFORMATION
The Board of Directors has determined that each of Messrs. Bank, Browne
and Salerno, Ms. Dawe and Ms. Everton is an "independent" director as that term
is defined in the listing standards of the Nasdaq Stock Market.
During 2003, the Board held six meetings and took action by unanimous
consent without a meeting five times.
The Board has an Executive Committee, an Audit Committee, a Human
Resources and Compensation Committee, and a Governance and Nominating Committee.
The primary functions of the committees, the members thereof, the number of
times the committees met during 2003, and certain other information regarding
the committees are as follows:
AUDIT COMMITTEE
The members of the Audit Committee are Philip M. Browne, Chair, Robert B.
Bank and Robert E. Salerno. The Board has determined that Mr. Brown is an "audit
committee financial expert" as defined by SEC rules and the listing standards of
the Nasdaq Stock Market. The Audit Committee is composed entirely of
"independent" directors under applicable SEC rules and Nasdaq Stock Market
listing standards and operates under a Charter which was adopted by the Board of
Directors. This Charter is attached to this proxy statement as Annex A and is
posted in the Investor Relations section of the Company's website at
www.bonton.com.
The Audit Committee appoints and establishes the compensation for the
Company's independent auditor, approves in advance all engagements with the
independent auditor to perform non-audit services, reviews and approves the
procedures used to prepare the Company's periodic reports, reviews and approves
the Company's critical accounting policies, discusses the plans and reviews
results of the audit engagement with the independent auditor, reviews the
independence of the independent auditor, and oversees the Company's accounting
processes including the adequacy of its internal accounting controls. To assist
it in carrying out its responsibilities, the Committee is authorized to retain
the services of independent advisors.
The Audit Committee met five times during 2003.
HUMAN RESOURCES AND COMPENSATION COMMITTEE
The members of the Human Resources and Compensation Committee are Shirley
A. Dawe, Chair, Robert B. Bank and Philip M. Browne. The Committee is composed
entirely of "independent" directors, as defined by the listing standards of the
Nasdaq Stock Market, and operates under a Charter which was adopted by the Board
of Directors. This Charter is posted in the Investor Relations section of the
Company's website at www.bonton.com.
The Human Resources and Compensation Committee advises and assists
management in developing the Company's overall compensation strategy to assure
that it promotes shareholder
8
interests, supports the Company's strategic and tactical objectives, and
provides for appropriate rewards and incentives for the Company's management and
employees. As part of that responsibility, the Committee reviews and approves
the structure of the Company's bonus plans and administers the Company's stock
option plans. To assist it in carrying out its responsibilities, the Committee
is authorized to retain the services of independent advisors.
At the end of each year, the Human Resources and Compensation Committee
evaluates the performance of the Chairman and Chief Executive Officer, the
President and Chief Operating Officer, and the two Vice Chairmen, and
establishes their compensation for the next year. The Committee also reviews
with the Chief Executive Officer the performance of the other executive officers
and approves their compensation for the next year. Finally, the Committee
establishes the corporate goals under the bonus plan and, on occasion,
determines whether there are reasons to waive aspects of those goals that were
not achieved.
The Human Resources and Compensation Committee met seven times during
2003.
GOVERNANCE AND NOMINATING COMMITTEE
The members of the Governance and Nominating Committee are Michael L.
Gleim, Chair, Marsha M. Everton and Leon D. Starr. Messrs. Gleim and Starr are
not "independent" directors as set forth under the Nasdaq Stock Market listing
standards. As discussed above, the Company is a "controlled company" under
Nasdaq Stock Market listing standards. As a controlled company, the Company may
elect and has elected not to have a nominating committee comprised solely of
independent directors. Although Mr. Gleim is not an independent director, he has
provided the Board with valuable insight with respect to both the governance of
the Company and the nominations process, and, therefore, the Board believes that
he should continue as a member of the Governance and Nominating Committee. Mr.
Starr is not standing for reelection to the Board at the annual meeting and will
thus not be a continuing member of the Committee.
The Committee reviews, develops and makes recommendations to the Board of
Directors regarding various aspects of the Company's governance processes and
procedures. It also recommends candidates for election to fill vacancies on the
Board, including renominations of members whose terms are due to expire. The
Committee is also responsible for making recommendations to the Board regarding
the compensation of its non-employee members. The Committee operates under a
Charter which was adopted by the Board of Directors. This Charter is posted in
the Investor Relations section of the Company's website at www.bonton.com.
The Committee will consider shareholder recommendations for candidates
for the Board from any shareholder who has been a continuous record owner of at
least 3% of the common stock of the Company for at least one year prior to
submission of the recommendation and who provides a written statement that the
shareholder intends to continue share ownership through the date of the meeting
at which directors are to be elected. Any such shareholder recommendation should
be sent to the Governance and Nominating Committee, c/o Office of General
Counsel, The Bon-Ton Stores, Inc., P. O. Box 2821, York, PA 17405. Any candidate
recommended by a shareholder shall, at a minimum, possess a background that
includes a solid education, sufficient business, professional or academic
experience and the requisite reputation, character, integrity, skills, judgment
and temperament and such other relevant characteristics, which, in the
Committee's view, have prepared him or her for dealing with the multi-faceted
financial, business and other issues that confront a Board of Directors of a
corporation with the size, complexity, reputation and success of the Company.
The Committee also considers potential candidates recommended by current
directors, Company officers, employees and others. The Committee screens all
potential candidates in the same manner regardless of the source of the
recommendation.
9
In nominating candidates to fill vacancies created by the expiration of
the term of a member of the Board, the Committee determines whether the
incumbent director is willing to stand for re-election. If so, the Committee
evaluates his or her performance in office to determine suitability for
continued service, taking into consideration the value of continuity and
familiarity with the Company's business. When appropriate, the Committee may
retain executive recruitment firms to assist in identifying suitable candidates.
The Governance and Nominating Committee met six times during 2003.
EXECUTIVE COMMITTEE
The members of the Executive Committee are Thomas W. Wolf, Chair, Michael
L. Gleim, Tim Grumbacher and Leon D. Starr. Mr. Starr is not standing for
reelection to the Board and will thus not be a continuing member of the
Executive Committee.
The Executive Committee has the authority to act in place of the Board of
Directors on certain specified matters.
The Executive Committee met eleven times during 2003.
ATTENDANCE AT MEETINGS
No director attended fewer than 75% of the total number of meetings of
the Board and committees on which he or she served while in office.
The Company has adopted a policy which encourages Board members to attend
the annual shareholders meeting. Six members of the Board attended the 2003
Annual Meeting of Shareholders.
COMMUNICATION WITH THE BOARD OF DIRECTORS
Any shareholder who wishes to communicate with the Board of Directors, or
any individual director, may do so by directing correspondence which prominently
displays the fact that it is a shareholder-board communication, to such director
or directors in care of the Office of General Counsel, The Bon-Ton Stores, Inc.,
2801 East Market Street, York, PA 17402. Until and unless a procedure is adopted
whereby it may be deemed unnecessary or inappropriate to relay shareholder
communications to the appropriate parties, all shareholder communications will
be relayed to the intended director or directors.
COMPENSATION OF DIRECTORS
Mr. Grumbacher is an employee of the Company and is not paid any separate
compensation for serving as a director. He is the only employee who serves as a
director.
Each non-employee director receives both cash compensation and stock
compensation, which includes:
- - a $90,000 annual fee, $40,000 of which is paid in cash and $50,000 of which
is paid in restricted stock units (RSU's) which vest 12 months following
termination of Board service;
- - a $15,000 annual fee for serving on the Executive Committee;
- - a $5,000 annual fee for serving on each committee other than the Executive
Committee;
- - a $10,000 supplemental fee for each Committee chair.
Directors may defer all or any part of their cash compensation into
additional RSU's.
10
PROPOSAL TWO
RATIFICATION OF THE APPOINTMENT
OF THE INDEPENDENT AUDITOR
Subject to shareholder ratification, the Audit Committee has reappointed
KPMG LLP, which served as our independent auditor in 2003, to serve as our
independent auditor for 2004. If the shareholders do not ratify this
appointment, another independent auditor will be considered by the Audit
Committee.
A representative of KPMG LLP is expected to be present at the meeting,
will have the opportunity to make a statement if he or she so desires, and will
be available to respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" RATIFICATION OF THE APPOINTMENT
OF THE INDEPENDENT AUDITOR
PROPOSAL THREE
APPROVAL OF
THE BON-TON STORES, INC. CASH BONUS PLAN
The Bon-Ton Stores, Inc. Cash Bonus Plan (the "Cash Bonus Plan") is a
performance-based plan that is intended to provide a means by which those key
employees who are designated as participants may be compensated for their roles
in the performance of the Company. The Cash Bonus Plan has been adopted by the
Board of Directors on the recommendation of its Human Resources and Compensation
Committee as a means to provide greater flexibility in the establishment of
performance goals and setting of target bonuses while permitting such bonuses to
be fully deductible as "performance-based compensation" (as that term is used
under Section 162(m) of the Internal Revenue Code (the "Code")). No bonuses may
be paid under the Cash Bonus Plan unless and until it has been approved by the
Company's shareholders.
The design and administration of the Cash Bonus Plan are intended to
cause all taxable compensation attributable to the Cash Bonus Plan to be treated
as "performance-based compensation." As a consequence, the provisions of the
Code which would otherwise limit the deductibility by us of certain executive
compensation in excess of $1,000,000 should not be applicable to any
compensation expense attributable to the Cash Bonus Plan. The Cash Bonus Plan is
administered by the Human Resources and Compensation Committee of the Board (or
such other committee consisting exclusively of two or more "outside directors"
as may be designated to act in that capacity by the Board from time to time).
This administrative committee for the Cash Bonus Plan is referred to in this
Proposal Three as the "Committee."
The provisions of the Cash Bonus Plan are generally described below.
Eligibility. Participants in the Cash Bonus Plan are those key
executives who are designated by the Committee to participate in the Plan from
time to time.
Shareholder approval and term of Cash Bonus Plan. The Cash Bonus Plan is
in effect as of February 1, 2004, provided it is approved by the shareholders,
and will continue until it is terminated by the Board. The Cash Bonus Plan may
be submitted for reapproval by the shareholders from time to time, and should be
so reapproved no later than the shareholders' meeting that occurs in the fifth
year following its last shareholder approval in order to remain qualified as a
"performance-based" compensation arrangement for purposes of the Code rules
regarding executive compensation referred to above.
Benefits under the Cash Bonus Plan. In general, the benefits under the
Cash Bonus Plan consist of a cash bonus payable to participants provided the
performance goals established by the
11
Committee are met (and if met, the extent to which they are met). The maximum
amount that can be paid to any one participant as a bonus under the Cash Bonus
Plan with respect to any one year is two times his or her base salary in effect
for the relevant year, and in no event may any such bonus exceed $1,500,000.
The bases for such performance goals may include any of the following
considerations, or combinations of such criteria: stock price, market share,
gross sales, gross revenues, net revenues, pretax income, operating income, cash
flow, earnings per share, return on equity, return on invested capital or
assets, cost reductions and savings, return on revenues or productivity, or any
variation or combination of these. In addition, the Committee may establish as
an additional performance measure the attainment by a participant in the Cash
Bonus Plan of one or more personal objectives and/or goals that the Committee
deems appropriate, including, but not limited to, implementation of Company
policies, negotiation of significant corporate transactions, development of
long-term business goals or strategic plans for the Company, or the exercise of
specific areas of managerial responsibility.
In all cases, measurement of the Company's or a participant's achievement
of one or more performance goals must be objectively determinable and where
applicable, determined in accordance with generally accepted accounting
principles. In all cases, the performance goals for a year must be established
no later than 90 days after the beginning of the year. The achievement of
performance goals established under the Cash Bonus Plan must be certified by the
Committee before any bonus may be paid.
Administration of the Cash Bonus Plan. The Cash Bonus Plan is
administered by the Committee which, as noted above, will at all times consist
exclusively of two or more "outside directors" (as that term is defined under
Section 162(m) of the Code). The resolution of any questions arising with
respect to the Cash Bonus Plan will be determined by the Committee, and all such
determinations are final and conclusive.
Amendment and termination of the Cash Bonus Plan. The Board may
terminate or revoke the Cash Bonus Plan at any time and may amend the Cash Bonus
Plan from time to time, provided that neither the termination, revocation or
amendment of the Cash Bonus Plan may, without the written approval of the
participant, reduce the benefit to which the participant would otherwise be
entitled, and provided further that no changes that would increase the benefit
available will be effective without approval by the Committee and without
disclosure to and approval by the shareholders in a separate vote prior to the
date the participant would become entitled to such increased benefit. In
addition, the Cash Bonus Plan may be modified or amended by the Committee as it
deems appropriate in order to comply with any rules, regulations or other
guidance promulgated by the Internal Revenue Service with respect to applicable
provisions of the Code.
Federal tax issues. Section 162(m) of the Code limits the deductibility
of compensation in excess of $1,000,000 to certain employees of publicly held
companies (this limitation is referred to herein as the "million dollar cap"),
unless the compensation comes within certain exceptions. One exception to the
million dollar cap is available for "performance-based compensation." In order
for taxable compensation to be within this exception to the million dollar cap,
a number of requirements must be satisfied, including the establishment of
performance goals by a committee of two or more "outside" members of the
Company's Board, disclosure to the shareholders of the material terms of the
performance-based bonus arrangement under which the bonus is to be paid, and
approval by the shareholders of that arrangement. Additional rules apply to the
ongoing administration of such an arrangement in order for compensation to
qualify as performance-based.
Bonuses payable under the Cash Bonus Plan are intended to be provided
only on the attainment of the performance goals established by the Committee for
the year for which the bonus is paid. Assuming the Cash Bonus Plan is put into
effect in accordance with its terms, is approved by the Company's shareholders,
and is administered in accordance with the provisions
12
set forth therein, the taxable compensation payable under the Cash Bonus Plan
should qualify as "performance-based compensation" that is exempt from the
million dollar cap.
New Plan Benefits. The following table sets forth the maximum benefits
in the current fiscal year that may be received by participants under the Cash
Bonus Plan if it is approved.
<Table>
<Caption>
NAME AND POSITION DOLLAR VALUE
- --------------------------------------------------------------------------
Tim Grumbacher
Chairman and Chief Executive Officer $975,000
Byron L. Bergren
Vice Chairman and President and Chief Executive Officer of
Elder-Beerman $825,000
James H. Baireuther
Vice Chairman, Chief Administrative Officer and Chief
Financial Officer $600,000
</Table>
The Board of Directors adopted the Cash Bonus Plan, as described above,
on May 25, 2004. Approval of the Cash Bonus Plan requires the affirmative vote
of a majority of the votes cast by holders of common stock and Class A common
stock.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" APPROVAL OF
THE BON-TON STORES, INC. CASH BONUS PLAN.
PROPOSAL FOUR
APPROVAL OF THE AMENDMENT TO THE
BON-TON STORES, INC. 2000 STOCK INCENTIVE PLAN
The Bon-Ton Stores, Inc. 2000 Stock Inventive Plan (the "Stock Incentive
Plan") was adopted by the Board of Directors and approved by the Company's
shareholders in June 2000. The purpose of the Stock Incentive Plan is to
recognize the contributions made to the Company by its employees, consultants
and advisors, to provide these individuals with additional incentives to devote
themselves to the future success of the Company, and to improve the ability of
the Company to attract, retain and motivate individuals upon whom the sustained
growth and financial success of the Company depends.
The Stock Incentive Plan provides for the grant of options ("Options") to
purchase shares of common stock and awards ("Awards") of shares of common stock
subject to risk of forfeiture ("Restricted Shares"). Under the Stock Incentive
Plan, as amended to date, Options and Awards can be granted for up to an
aggregate of 1,900,000 shares (exclusive of shares granted and thereafter
cancelled). In addition, the Stock Incentive Plan limits the number of shares
for which options may be granted to any single optionee in any fiscal year. The
Stock Incentive Plan has been amended by the Board of Directors to increase this
annual limitation on option grants to any single optionee, at the recommendation
of the Human Resources and Compensation Committee, from 200,000 shares to
400,000 shares, subject to the approval of the amendment by the Company's
shareholders.
The Board believes that this increase in the maximum option grant may be
an important factor in attracting, motivating and retaining qualified employees
and advisors who are essential to the success of the Company.
New Plan Benefits. Future Options and Awards, if any, that will be made
to eligible participants in the Stock Incentive Plan are subject to the
discretion of the Human Resources and Compensation Committee and, therefore, are
not determinable at this time.
13
The key provisions of the Stock Incentive Plan, as amended, are as
follows:
Number of Shares. The maximum number of shares that may be issued under
the Stock Incentive Plan is 1,900,000. The maximum number of shares will be
adjusted to reflect certain changes in the Company's capitalization. If any
shares subject to any Option or Award are forfeited, or an Option is terminated
without the issuance of shares, the shares subject to such Option or Award will
again be available pursuant to the Stock Incentive Plan. The closing sales price
for a share of common stock on May 26, 2004 was $11.90 as reported by the Nasdaq
Stock Market.
Administration. The Stock Incentive Plan is administered by the Board of
Directors, or, at the discretion of the Board of Directors, by a committee
composed of two or more members of the Board of Directors (for purposes of this
Proposal Four, the "Committee"). To the extent possible, and to the extent the
Board of Directors deems it necessary or appropriate, each member of the
Committee shall be a "Non-Employee Director" (as such term is defined in Rule
16b-3 under the Securities Exchange Act) and an "Outside Director" (as such term
is used for purposes of Code Section 162(m)). The Board also may choose to
designate more than one committee to operate and administer the Stock Incentive
Plan. The Stock Incentive Plan presently is administered by the Human Resources
and Compensation Committee.
Eligibility. All employees (including all executive officers),
directors, consultants and advisors of the Company or its subsidiaries and
affiliates are eligible to receive Options or Awards under the Stock Incentive
Plan.
Term of the Stock Incentive Plan. The Stock Incentive Plan became
effective March 3, 2000 and provides that no Options or Awards may be granted
after March 2, 2010.
Options and Awards. From time to time, at its discretion, the Committee
may select eligible recipients to whom Options or Awards will be granted,
determine when each Option or Award will be granted, determine the number of
shares subject to such Option or Award and, subject to the provisions of the
Stock Incentive Plan, determine the terms and conditions of each Option or
Award.
Options. Options granted under the Stock Incentive Plan may be either
incentive stock options ("ISOs") or non-qualified stock options. ISOs are
intended to qualify as "incentive stock options" within the meaning of Section
422 of the Code. Unless an Option is specifically designated at the time of
grant as an ISO, Options are non-qualified options. Options are not transferable
by the optionee except by will or by the laws of descent and distribution,
except for certain transfers of nonqualified stock options that may be required
under the terms of a "qualified domestic relations order" (generally, a court
order relating to provision of spousal or dependent support or to division of
marital property that meets certain requirements set forth in the Code). No
Option granted under the Stock Incentive Plan may be exercised unless at least
six months has elapsed since the date of the grant.
The exercise price of the Options is determined by the Committee,
provided that the exercise price of an ISO must be at least 100% of the fair
market value of a share of common stock on the date the Option is granted, or at
least 110% of the fair market value if the recipient owns shares possessing more
than 10% of the total combined voting power of all classes of stock of the
Company. The term of each Option is fixed by the Committee. The aggregate fair
market value, determined as of the time of grant, of the shares with respect to
which an ISO is exercisable for the first time by the recipient during any
calendar year (under all incentive stock option plans of the Company) may not
exceed $100,000.
Maximum Grants. The Stock Incentive Plan provides that the maximum
number of shares for which options may be granted to any single optionee in any
fiscal year is 400,000 shares.
14
Termination of Options. All Options terminate on the earliest of:
a. The expiration of the term specified in the Option, which shall not
exceed ten years from the date of grant or five years from the date
of grant of an ISO if the recipient owns shares possessing more than
10% of the total combined voting power of all classes of stock of the
Company;
b. The expiration of 90 days from the date the optionee's employment or
service with the Company terminates for any reason other than
disability (as defined in the Code) or death or as otherwise
specified in subparagraphs d. or e. below;
c. The expiration of one year from the date the optionee's employment or
service with the Company terminates due to the optionee's death or
disability;
d. A finding by the Committee that the optionee has breached his or her
employment contract with the Company or has engaged in disloyalty to
the Company; or
e. Such time as the Committee may determine if there is a Change of
Control of the Company as defined in the Stock Incentive Plan.
Payment for Options. An optionee may pay for shares in cash, certified
check or such other mode of payment as the Committee may approve, including
payment in shares held by the optionee for at least six months.
Awards. The Committee will determine the period, which under the Stock
Incentive Plan must extend for at least six months from the date of grant,
during which the grantee may not sell, transfer, pledge or assign Restricted
Shares (the "Restrictions"). Restrictions may lapse in installments, as
determined by the Committee. The Committee may, at its sole discretion, waive
any Restrictions in whole or in part. The Committee will determine the rights
that grantees have with respect to Restricted Shares, including the right to
vote Restricted Shares and the right to receive dividends paid with respect to
Restricted Shares. In the event a grantee terminates employment with the Company
for any reason other than death or disability, all Restricted Shares remaining
subject to Restrictions will be forfeited by the grantee and canceled by the
Company.
Provisions Relating to a Change of Control of the
Company. Notwithstanding any other provision of the Stock Incentive Plan, in
the event of a Change of Control of the Company, the Committee may take whatever
action with respect to Options and Awards outstanding as it deems necessary or
desirable, including acceleration of the expiration or termination date or the
date of exercisability of an Option or removing any restrictions from or
imposing any additional restrictions on outstanding Awards.
A "Change of Control" will occur if: (a) the Company is dissolved or
liquidated; (b) an agreement to sell or dispose of substantially all of the
assets of the Company is approved; (c) subject to certain exceptions, an
agreement to merge or consolidate the Company with or into another corporation
is approved; (d) any entity, person or group (within the meaning of certain
provisions of the Securities Exchange Act), other than Tim Grumbacher, members
of his family, his lineal descendants or entities of which such persons are the
beneficial owners of at least 50% of the voting interests, the Company or any of
its subsidiaries or any employee benefit plan (or related trust) sponsored or
maintained by the Company or any subsidiary of the Company, becomes the
beneficial owner or has obtained voting control over securities of the Company
representing more than 50% of the voting power of the Company's outstanding
voting stock; or (e) directors constituting a majority of the Board of Directors
have been members of the Board of Directors for less than 12 months, unless the
nomination for election of each new director who was not a director at the
beginning of such 12-month period was approved by a vote of at least two-thirds
of the directors then still in office who were the directors at the beginning of
such period.
Amendment and Termination. The Board of Directors may amend the Stock
Incentive Plan at any time, provided the Board may not (a) change the class of
individuals eligible to receive an
15
ISO, (b) increase the maximum number of shares as to which Options and Awards
may be granted or (c) make any other change or amendment as to which shareholder
approval is required in order to satisfy the conditions set forth in Rule 16b-3
under the Securities Exchange Act, in each case without obtaining shareholder
approval within 12 months before or after such action. No Option or Award will
be adversely affected by any such amendment without the consent of the optionee
or grantee.
Federal Income Tax Consequences. The following discussion is a summary
of certain federal income tax consequences of the issuance of Options and the
acquisition of shares of common stock by exercising Options or receiving Awards
of Restricted Shares under the Stock Incentive Plan and does not present a
complete analysis of all tax consequences which may be relevant to any
particular recipient. It does not purport to discuss state or local income tax
laws.
Options:
With respect to ISOs, for federal income tax purposes, an optionee will
not have taxable income upon grant or exercise. However, upon exercise of an
ISO, an optionee will generally recognize income for alternative minimum tax
purposes in an amount equal to the difference between the exercise price of the
ISO and the fair market value of the shares received. Any gain realized on sale
of the shares acquired upon exercise of an ISO will be treated as long-term
capital gain, provided the optionee does not dispose of the shares for at least
two years after the date of grant or within one year after the date of exercise.
No gain or loss will generally be recognized by an optionee upon, nor will any
deduction be allowed to the Company as a result of, the grant or exercise of
ISOs.
In general, in the case of non-qualified stock options or ISOs as to
which the foregoing holding period limitations have not been satisfied, an
optionee will have taxable income at ordinary income rates upon exercise (or at
the time of a sale of ISO stock which does not satisfy the holding periods) for
the difference between the exercise price and the fair market value at the date
of exercise or, if the optionee is subject to certain restrictions imposed by
federal securities laws, upon the lapse of those restrictions, unless the
optionee elects under Section 83(b) of the Code within 30 days after exercise to
be taxed upon exercise. The amount of that difference will generally be a
deductible expense to the Company.
The ability of the Company to deduct compensation expense is generally
subject to limitations under Section 162(m) of the Code (applicable to
compensation in excess of $1,000,000 paid to certain "covered" employees). Any
income recognized as ordinary compensation income on the exercise of a
non-qualified stock option should, however, be exempt from these Code
limitations as "performance-based" compensation provided the option grant meets
certain requirements. It is the Company's intention to administer the Stock
Incentive Plan in accordance with all applicable "performance-based"
compensation requirements, including administration of the Stock Incentive Plan
with respect to "covered" employees by a committee of two or more "outside"
directors (as that term is used in applicable IRS regulations) and to make
Option grants to such employees with an exercise price that is at least equal to
the fair market value of the shares on the date of grant. Under these
circumstances, such Options should, on exercise, result in a deductible
compensation expense that is exempt from Section 162(m) of the Code as
"performance-based" compensation.
Restricted Shares:
For federal income tax purposes, the recipient of an Award will not
recognize income and the Company will not be entitled to a deduction at the time
of the Award because the Restricted Shares are subject to risk of forfeiture and
are not transferable. When the risk of forfeiture and non-transferability
restrictions lapse, the recipient will recognize compensation income and the
Company will be entitled to a deduction (subject generally to a $1,000,000
limitation on deductible compensation of certain employees of the Company as
provided under Section 162(m) of the
16
Code) in an amount equal to the then fair market value of the Restricted Shares.
Except as provided below, an Award recipient may nevertheless elect pursuant to
Section 83(b) of the Code to include the Restricted Shares in his income at
their fair market value at the time of award, in which event the Company would
be entitled to a corresponding deduction. Such election must be made within 30
days after the Award. If this election is made, any appreciation in value
recognized by the Award recipient on a subsequent disposition of the Restricted
Shares will in general be taxed at capital gains rates and not as ordinary
income. If, however, an Award recipient who makes a Section 83(b) election
forfeits the Restricted Shares back to the Company, the recipient will not
recognize a loss on such forfeiture. In some cases, the particular restrictions
with respect to an Award may be such that an Award recipient will not be
entitled to make the Section 83(b) election.
The Board of Directors approved the above described amendment to the
Stock Incentive Plan on May 25, 2004. Approval of the amendment to the Stock
Incentive Plan requires the affirmative vote of a majority of the votes cast by
holders of common stock and Class A common stock.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" APPROVAL OF THE AMENDMENT TO
THE BON-TON STORES, INC. 2000 STOCK INCENTIVE PLAN.
17
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
This table sets forth, for the last three years, certain information
regarding the compensation paid or accrued for our Chief Executive Officer and
for the named executives:
<Table>
<Caption>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------- -------------------------
RESTRICTED SECURITIES
NAME AND STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) AWARDS($)(1) OPTIONS(#) COMPENSATION($)(2)
- -----------------------------------------------------------------------------------------------------------------------
Tim Grumbacher 2003 625,000 817,500 -- -- 11,425
Chairman of the 2002 558,654 270,000 -- -- 11,068
Board of Directors and 2001 241,346 75,000 -- -- 8,258
Chief Executive Officer
Frank Tworecke(3) 2003 532,644 300,000 121,589 -- 24,163
President and 2002 471,021 175,000 -- -- 108,089
Chief Operating Officer 2001 461,095 60,000 75,000 -- 133,209
Byron L. Bergren(4) 2003 148,741 878,750 -- -- 1,413
Vice Chairman and 2002 -- -- -- -- --
President and Chief Executive 2001 -- -- -- -- --
Officer of Elder-Beerman
James H. Baireuther 2003 402,300 210,000 -- -- 13,927
Vice Chairman, Chief 2002 410,737 147,000 -- -- 13,378
Administrative Officer 2001 315,113 50,000 127,500 100,000 9,922
and Chief Financial Officer
William T. Harmon 2003 271,663 53,200 -- -- 11,427
Senior Vice President -- 2002 249,853 43,000 -- -- 11,028
Marketing, Planning 2001 241,185 10,000 -- -- 8,469
and Allocation
</Table>
(1) The total number of restricted stock awards held by the named executives at
the end of 2003 was 88,814 shares. The closing price of the common stock on
January 31, 2004 was $12.34 per share, giving the named executives
restricted stock holdings a value of $1,095,965 at year end. One-third of
the restricted stock awarded to Mr. Tworecke in 2003 vested on March 17,
2004; the remainder of these shares were cancelled as a result of his
resignation from the Company. Holders of restricted stock are entitled to
the same dividend that the Company pays on common stock.
(2) The amounts disclosed in this column for 2003 consist of life insurance
premiums, or reimbursement for life insurance premiums, and Company
contributions under the Company's Profit Sharing/Retirement Savings Plan in
the amount of $10,831 for each of Messrs. Grumbacher, Tworecke, Baireuther
and Harmon.
(3) Mr. Tworecke resigned from the Company effective May 7, 2004.
(4) Mr. Bergren became an executive officer of the Company in November 2003.
STOCK OPTION GRANTS
None of the named executives received a stock option grant during 2003.
We do not have any plan pursuant to which stock appreciation rights may be
granted.
18
STOCK OPTION EXERCISES AND HOLDINGS
None of the named executives exercised any stock options during 2003.
The following table shows the number and value of unexercised stock
options for the named executives at the end of 2003:
OPTION VALUES AT JANUARY 31, 2004
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT JANUARY 31, 2004 AT JANUARY 31, 2004(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------
Tim Grumbacher 44,550 -- $ 252,522 --
Frank Tworecke 200,000 -- 1,324,240 --
Byron L. Bergren -- -- -- --
James H. Baireuther 96,667 33,333 782,637 $331,663
William T. Harmon 25,000 -- 116,800 --
</Table>
(1) In-the-money options are options having an exercise price below the year-end
share price of $12.34. Value is calculated by multiplying the difference
between the option exercise price and $12.34 by the number of shares
underlying the option.
EMPLOYMENT AGREEMENTS
Tim Grumbacher
The Human Resources and Compensation Committee (the "Committee") and Tim
Grumbacher agreed to an arrangement pursuant to which Mr. Grumbacher's base
salary for 2003 was fixed at $650,000. In addition, he was eligible for an
annual bonus of up to 150% of his base salary and was awarded a special bonus in
the amount of $330,000 as a result of his leadership in connection with the
acquisition of Elder-Beerman. The total bonus paid to Mr. Grumbacher is
reflected in the Summary Compensation Table.
Frank Tworecke
Mr. Tworecke's employment agreement commenced November 11, 1999 and
continued to January 29, 2005. It provided for a minimum annual base salary of
$500,000 during 2003, and a bonus in accordance with criteria established by the
Committee up to a maximum bonus of 100% of his base salary. The bonus paid to
Mr. Tworecke for 2003 is reflected in the Summary Compensation Table. Mr.
Tworecke resigned from the Company effective May 7, 2004.
Byron L. Bergren
Mr. Bergren's employment agreement with the Company was entered into
November 25, 2003 and continued until April 15, 2004. He is continuing his
employment with the Company in accordance with the terms and provisions of this
expired employment agreement. During 2003, the employment agreement provided for
a minimum annual base salary of $550,000, a bonus pursuant to the Elder-Beerman
2003 Performance Incentive Plan, and an additional integration bonus if
Elder-Beerman achieved a certain operating profit for 2003. The bonus paid Mr.
Bergren is reflected in the Summary Compensation Table.
James H. Baireuther
Mr. Baireuther's employment agreement commenced February 3, 2002 and
continues to January 31, 2006. During 2003, it provided for a minimum base
salary of $400,000 and a bonus in accordance with criteria established by the
Committee up to a maximum bonus of 75% of his base
19
salary. The bonus paid to Mr. Baireuther is reflected in the Summary
Compensation Table. If Mr. Baireuther is discharged without cause or resigns for
good reason (each as defined in the employment agreement), he will continue to
receive his base salary and other benefits for the greater of one year or the
remaining term of the employment agreement.
SUPPLEMENTAL RETIREMENT BENEFITS
The Company has established a nonqualified, unfunded retirement plan for
certain key executives. Under the terms of this plan, each participant is
entitled to an annual retirement benefit if he remains employed by the Company
for a stated period.
Under this plan, James H. Baireuther is entitled to an annual retirement
benefit of $50,000.
EXECUTIVE SEVERANCE
We have entered into severance agreements with Mr. Harmon and certain of
our executive officers other than Messrs. Grumbacher, Baireuther and Bergren,
which generally provide for payment of one year's base salary if the executive
officer is terminated without cause (as defined in such agreement).
EQUITY COMPENSATION PLAN INFORMATION
At January 31, 2004, the Amended and Restated 1991 Stock Option and
Restricted Stock Plan, The Bon-Ton Stores, Inc. 2000 Stock Incentive Plan and
the Company's Phantom Equity Replacement Plan were in effect. Each of these
plans has been approved by the shareholders. There were no other equity
compensation plans in effect. The following information concerning these plans
is as of January 31, 2004:
<Table>
<Caption>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK OF COMMON STOCK
TO BE ISSUED UPON WEIGHTED-AVERAGE REMAINING AVAILABLE FOR FUTURE
EXERCISE OF EXERCISE PRICE OF ISSUANCE (EXCLUDING SECURITIES
PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS REFLECTED IN THE FIRST COLUMN)
- --------------------------------------------------------------------------------------------------------
Equity compensation plans 849,542 shares $5.71 1,755,186 shares
approved by security
holders
Equity compensation plans Not applicable Not applicable Not applicable
not approved by security
holders
</Table>
20
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the
cumulative total shareholder return on common stock from January 31, 1999
through January 31, 2004, the cumulative total return on the CRSP Total Return
Index for The Nasdaq Stock Market (US Companies) and the Nasdaq Retail Trade
Stocks Index during such period. The comparison assumes $100 was invested on
January 31, 1999, in the Company's common stock and in each of the foregoing
indices and assumes the reinvestment of any dividends.
[STOCK PERFORMANCE GRAPH]
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------------------
NASDAQ
DATE NASDAQ RETAIL BON-TON
- -------------------------------------------------------------------------------------------------------------------------
1/30/99 100.00 100.00 100.00
1/29/00 150.97 82.01 46.03
2/3/01 105.16 61.49 39.68
2/2/02 76.06 73.83 31.75
2/01/03 53.13 60.16 52.57
1/31/04 82.60 88.20 157.96
- -------------------------------------------------------------------------------------------------------------------------
</Table>
REPORT ON EXECUTIVE COMPENSATION
The Human Resources and Compensation Committee (the "Committee"), which
is composed entirely of independent directors, approves all general policies
affecting the compensation of Bon-Ton's executive officers. The Committee
determined, within limits established by applicable employment agreements, the
compensation of Tim Grumbacher, Chairman of the Board and Chief Executive
Officer, Frank Tworecke, President and Chief Operating Officer, Byron L.
Bergren, Vice Chairman and President and Chief Executive Officer of
Elder-Beerman, and James H. Baireuther, Vice Chairman, Chief Administrative
Officer and Chief Financial Officer.
The basic forms of executive compensation are annual compensation, in the
form of salary and bonus, and long-term incentives, currently consisting of
stock options, restricted stock and
21
supplemental retirement benefits. The Committee seeks to achieve a mix of these
to be competitive in the marketplace and to attract, retain and motivate the
Company's executives. In doing so, the Committee considers various aspects of
the Company's operating results as well as its financial condition, and
considers each executive's role in such achievement.
ANNUAL COMPENSATION -- SALARY AND BONUS
Annual compensation is comprised of a base salary and a cash bonus based
on the achievement of predetermined goals and objectives. The base salaries of
James H. Baireuther, Byron L. Bergren and Frank Tworecke for 2003 were
established pursuant to employment agreements approved by the Committee. The
base salaries for these executives were based on a variety of factors, including
the general level of executive compensation in the industry, the general level
of executive compensation at Bon-Ton and an evaluation of each executive's
capacity to affect the Company's performance.
The Committee believes it appropriate that a portion of the potential
annual compensation for these senior executives be in the form of an annual
bonus which is dependent upon Bon-Ton's performance. The bonus for 2003 earned
by each of the named executives is indicated in the Summary Compensation Table
and was determined based upon predetermined performance targets for the Company.
The Committee utilizes comparative data developed by independent external
compensation specialists to assure the competitiveness of compensation for the
named executives.
A cash bonus award or option grant to a named executive may, in addition,
be made at the discretion of the Committee for extraordinary achievement by the
named executive.
LONG-TERM INCENTIVES -- STOCK OPTIONS AND RESTRICTED SHARE AWARDS
The Committee administers The Bon-Ton Stores, Inc. 2000 Stock Incentive
Plan (the "Plan"), which provides for the grant of stock options and restricted
share awards. These options and awards are intended to help align the executive
officers' interests with those of shareholders by increasing such officers'
stake in Bon-Ton.
Stock options and restricted share awards generally vest over a number of
years. Any vested options are usually forfeited 90 days after termination of the
recipient's employment, and any unvested restricted share awards are usually
forfeited upon termination of employment. Such options and awards, therefore,
are also intended to encourage recipients to remain in the employ of Bon-Ton
over a substantial period of time.
During 2003, there were grants of options with respect to 20,000 shares
and awards of 24,814 restricted shares made under the Plan. No option grants
were made to a named executive. The restricted share award was to Frank
Tworecke.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Committee set the annual base salary at $650,000 for Tim Grumbacher
in 2003, based on a variety of factors, including the general level of executive
compensation in the industry, the general level of executive compensation at
Bon-Ton and an evaluation of the importance of Mr. Grumbacher's services to
Bon-Ton. Mr. Grumbacher received a bonus of $487,500 based upon the Company's
performance in 2003. Mr. Grumbacher was also awarded a special bonus in the
amount of $825,000 attributable to Mr. Grumbacher's leadership role in effecting
the accretive acquisition of The Elder-Beerman Stores Corp. This special bonus
is payable in two tranches, the first, in the amount of $330,000, is included in
the Summary Compensation Table, and the second in the amount of $495,000, will
be paid based upon the Company achieving certain specified integration synergies
during 2004. Mr. Grumbacher did not receive any stock options or restricted
share awards in 2003.
22
INDEPENDENT COMMITTEE MEMBERS
No member of the Committee was a former or current officer or employee of
the Company or any affiliate of the Company or received compensation from the
Company in any capacity other than as a director of the Company or as a member
of a Board committee. Each member of the Committee is "independent" pursuant to
the listing standards of the Nasdaq Stock Market.
QUALIFYING EXECUTIVE COMPENSATION FOR DEDUCTIBILITY UNDER PROVISIONS OF THE
INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code provides that a publicly-held
corporation may not generally deduct compensation for its chief executive
officer and certain other executive officers to the extent that compensation for
the executive exceeds $1,000,000 unless such compensation is "performance based"
as defined in the Code. The Committee currently intends to recommend
compensation amounts and plans which meet the requirements for deductibility,
and the Committee expects that Section 162(m) will not limit the deductibility
of any compensation expense in fiscal 2003.
Members of the Human Resources and Compensation Committee:
Shirley A. Dawe, Chair
Robert B. Bank
Philip M. Browne (appointed March 2004)
Robert C. Siegel (served until March 2004)
REPORT OF THE AUDIT COMMITTEE
The role of the Audit Committee is to assist the Board of Directors in
its general oversight of (i) the integrity of the Company's financial
statements, (ii) the Company's compliance with legal and regulatory
requirements, (iii) the qualifications and independence of the Company's
independent auditor, (iv) the performance of the independent auditor, and (v)
the Company's management of credit, liquidity and other financial and
operational risks; and to prepare this report. Management is responsible for the
preparation, presentation and integrity of the Company's financial statements,
accounting and financial reporting principles, and internal controls and
procedures designed to ensure compliance with accounting standards, applicable
laws and regulations. KPMG LLP, the Company's independent auditing firm, is
responsible for performing an independent audit of the consolidated financial
statements in accordance with generally accepted auditing standards. The
independent auditor has free access to the Audit Committee to discuss any matter
it deems appropriate.
The Audit Committee serves a board-level oversight role in which it
provides advice, counsel and direction to management and the independent auditor
on the basis of the information it receives, discussions with management and the
auditors and the experience of the Committee's members in business, financial
and accounting matters.
Among other matters, the Audit Committee monitors the activities and
performance of the Company's independent auditor, including the audit scope,
audit fees, auditor independence matters and the extent to which the independent
auditor may be retained to perform non-audit services. The Audit Committee has
ultimate authority and responsibility to select, evaluate and, when appropriate,
replace the Company's independent auditor. The Audit Committee also reviews the
results of the external audit work with regard to the adequacy and
appropriateness of the Company's financial, accounting and internal controls.
Management and independent auditor presentations to and discussions with the
Audit Committee also cover various topics and events that may have significant
financial impact or are the subject of discussions between management and the
independent auditor.
23
The Committee has reviewed and discussed the audited consolidated
financial statements with management and the independent auditor; management
represented to the Committee that the Company's audited consolidated financial
statements were prepared in accordance with generally accepted accounting
principles; and the independent auditor represented that its presentations
included the matters required to be discussed with the Audit Committee by
Statement on Auditing Standards No. 61, as amended, "Communication with Audit
Committees."
The Company's independent auditor also provided the Committee with the
written disclosures required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees," and the Committee discussed
with the independent auditor that firm's independence.
Following the Committee's discussions with management and the independent
auditor, the Committee recommended that the Board of Directors include the
audited consolidated financial statements in the Annual Report on Form 10-K for
the fiscal year ended January 31, 2004.
Members of the Audit Committee:
Philip M. Browne, Chair
Robert B. Bank
Robert E. Salerno
INDEPENDENT AUDITOR'S FEES
Subject to shareholder ratification, the Audit Committee has selected
KPMG LLP as the Company's independent auditor for 2004. KPMG served as the
Company's independent auditor in 2003. Representatives of KPMG are expected to
be present at the 2004 Annual Shareholders Meeting and will have an opportunity
to make a statement if they desire to do so, and are expected to be available to
respond to appropriate questions.
In making its selection of KPMG, the Audit Committee considered whether
the non-audit services provided by KPMG are compatible with maintaining KPMG's
independence.
The following table shows the fees billed by KPMG for professional
services rendered to the Company in 2003 and 2002.
<Table>
<Caption>
2003 2002
- ---------------------------------------------------------------------------------
Audit Fees $642,000 $307,000
Audit-Related Fees -- --
Tax Fees 118,700 338,000
All Other Fees 432,800(1) 23,000
</Table>
(1) Fees related to acquisition of Elder-Beerman.
The charter of the Audit Committee provides that the Audit Committee is
responsible for the pre-approval of all audit services and non-audit services to
be performed for the Company by its independent auditor. Subject to the
transition provisions of applicable law, the fees paid to the independent
auditor that are shown in the chart above for 2003 were pre-approved by the
Audit Committee. The Audit Committee may delegate to one of its members the
authority to grant such pre-approvals. The decisions of such member regarding
approvals shall be presented to the full Audit Committee at its next scheduled
meeting.
24
RELATIONSHIP WITH INDEPENDENT AUDITOR
Arthur Andersen LLP ("Andersen") was the Company's independent auditor at
the beginning of 2002. Effective June 13, 2002, the Company, upon recommendation
of the Audit Committee, dismissed Andersen and retained KPMG LLP as the
Company's independent auditor. Andersen's reports on the Company's financial
statements during the two fiscal years ended February 2, 2002, did not contain
an adverse opinion or a disclaimer of opinion, and was not qualified or modified
as to uncertainty, audit scope, or accounting principles. Further, during the
two fiscal years ended February 2, 2002, there were no disagreements with
Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Andersen, would have caused it to make a
reference to the subject matter of the disagreement in connection with its
report.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Executive officers, directors and persons who own more than 10% of the
Company's common stock are required to file reports of their holdings and
transactions in Company stock with the Securities and Exchange Commission. Based
on our records and on written representations from those who are subject to
these requirements, we believe that all 2003 filing requirements were timely
made except that (i) Frank Tworecke filed a Form 4 nine days late with respect
to a restricted stock grant, and (ii) Tim Grumbacher filed a Form 4 twelve days
late with respect to the sale of 3,050 shares of common stock by certain trusts
of which Mr. Grumbacher's wife is a trustee.
CERTAIN TRANSACTIONS
The Company leases its Oil City, Pennsylvania store from Nancy T.
Grumbacher, Trustee of the 2002 Indenture of Trust of M. Thomas Grumbacher,
pursuant to a lease entered into on January 1, 1981. The rental payments during
2003 under this lease were $223,500. The Oil City lease terminates on July 31,
2006 and the Company has five five-year renewal options.
In connection with the acquisition of Elder-Beerman, the Company obtained
equity financing in an aggregate amount of $6.5 million from Tim Grumbacher, the
Chairman and Chief Executive Officer of the Company, pursuant to a Stock
Purchase Agreement dated as of October 23, 2003 between the Company and Mr.
Grumbacher. Under the terms of the Stock Purchase Agreement, Mr. Grumbacher
purchased 476,890 newly issued shares of common stock. In connection with Mr.
Grumbacher's purchase of common stock pursuant to the Stock Purchase Agreement,
on October 31, 2003, the Company and Mr. Grumbacher also entered into a
Registration Rights Agreement with respect to such shares of common stock.
During fiscal 2003, the Company purchased approximately $1,424,000 of
merchandise from OshKosh B'Gosh, Inc., and approximately $540,000 of merchandise
from The Pfaltzgraff Co., and The Elder-Beerman Stores Corp., which was acquired
by the Company in October 2003, purchased approximately $310,000 of merchandise
from OshKosh and approximately $976,000 of merchandise from Pfaltzgraff. Shirley
A. Dawe, a director of the Company, is also a director of OshKosh B'Gosh, Inc.,
and Marsha M. Everton, a director of the Company, is President and CEO of The
Pfaltzgraff Co. The transactions noted above were on substantially the same
terms as comparable transactions with other vendors of merchandise to the
Company.
Mr. Starr, a non-employee director, rendered consulting services to
Bon-Ton from 1984 to March 2002. Upon the conclusion of Mr. Starr's consulting
agreement, the Company commenced payments to Mr. Starr in the amount of $65,000
per year in consideration of his agreement not to provide consulting services to
any of the Company's competitors.
Mr. Gleim, a non-employee director, rendered consulting services to
Bon-Ton during 2003 for which he was paid $201,767. In addition, Mr. Gleim
received a $50,000 supplemental retire-
25
ment benefit during 2003 from the Company pursuant to the terms of Mr. Gleim's
employment agreement which were in effect when he served as Vice Chairman of the
Company.
SHAREHOLDER PROPOSALS
Shareholder proposals for the 2005 Annual Meeting of Shareholders must be
received by the Company by February 17, 2005 in order to be considered for
inclusion in the Company's proxy statement and form of proxy relating to that
meeting.
A shareholder may wish to have a proposal presented at the 2005 Annual
Meeting of Shareholders but not included in the Company's proxy statement and
form of proxy for that meeting. If notice of any such proposal is received by
the Company after May 3, 2005, such proposal shall be deemed "untimely" for
purposes of Rule 14a-4(c) under the Securities Exchange Act and, therefore, the
Company will have the right to exercise discretionary voting authority with
respect to such proposal.
26
ANNEX A
THE BON-TON STORES, INC.
AUDIT COMMITTEE CHARTER
This Charter has been adopted by the Board of Directors (the "Board") of
The Bon-Ton Stores, Inc. (the "Company") to govern its Audit Committee (the
"Committee"), which shall have the authority, responsibility and specific powers
described below.
PURPOSES
The Committee shall be directly responsible for the appointment,
compensation and oversight over the Company's independent auditors (the
"Auditors").
The Committee shall monitor (1) the integrity of the financial statements
of the Company, (2) the Company's compliance with legal and regulatory
requirements, (3) the Auditors' qualifications and independence, (4) the
performance of the Company's internal audit function and (5) the performance of
the Auditors.
The Committee shall prepare the report required by the rules of the
Securities and Exchange Commission to be included in the Company's annual proxy
statement.
The Committee shall oversee the financial reporting processes of the
Company and the audits of the Company's financial statements.
ORGANIZATION
The Committee shall be composed of three or more directors who shall: (i)
meet the independence and experience requirements of the Nasdaq National Market
("Nasdaq") and Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as
amended; (ii) not have participated in the preparation of the financial
statements of the Company or any current subsidiary of the Company at any time
during the past three years; and (iii) be able to read and understand
fundamental financial statements, including a company's balance sheet, income
statement and cash flow statement. At least one member of the Committee shall be
an "audit committee financial expert," as such term is defined by the applicable
regulations of the Securities and Exchange Commission ("SEC") and shall meet any
applicable standards promulgated by Nasdaq related to enhanced financial
expertise applicable to at least one member of the Committee.
The members of the Committee shall be appointed and removed by the Board.
A member of the Committee shall be selected by the Board to serve as the
Committee's chairperson.
MEETINGS
The Committee shall meet at least quarterly, or more frequently as
circumstances dictate. The Committee shall meet at least annually with
management and the Auditors in separate executive sessions to discuss any
matters that the Committee or either of these groups believes should be
discussed privately. In addition, the Committee will meet with the Auditors and
management to review the Company's financial statements as provided under the
sub-heading "Document Review" below. Minutes or other records of meetings and
activities of the Committee shall be maintained.
RESPONSIBILITIES
The Committee shall have the sole authority to appoint or replace and
oversee the Auditors, including the authority to resolve disagreements between
management and the Auditors regarding financial reporting. The Auditors shall
report directly to the Committee.
A-1
The Committee shall pre-approve (1) all audit engagement fees and terms
and (2) all non-audit services provided by the Auditors which are not proscribed
by applicable law. The Committee may delegate pre-approval responsibilities to a
member of the Committee, and the decisions of any Committee member to whom
pre-approval authority is delegated must be presented to the full Committee at
each of its scheduled meetings.
The Committee shall, at least annually, obtain and review a report by the
Auditors describing the following: (1) the Auditor's internal quality-control
procedures; (2) any material issues raised by the most recent internal
quality-control review, or peer review, of the Auditors, or by any inquiry or
investigation by governmental or professional authorities, within the preceding
five years, respecting one or more independent audits carried out by the
Auditors, and any steps taken to deal with any such issues; and (3) in order to
assess the Auditors' independence, all relationships between the Auditors and
the Company.
The Committee shall have the authority to engage and determine funding
for outside legal, accounting or other consultants to advise the Committee and
shall, as appropriate, obtain advice and assistance from such advisors. The
Committee may request any officer or employee of the Company or the Company's
outside counsel or the Auditor to attend a meeting of the Committee or to meet
with any members of, or consultants to, the Committee.
The Committee shall have the authority to determine, and the Company
shall provide, appropriate funding for, (1) compensation to any registered
public accounting firm engaged for the purpose of preparing or issuing an audit
report or performing other audit, review or attest services for the Company and
(2) payment for the ordinary administrative expenses of the Audit Committee that
are necessary or appropriate for carrying out its duties.
The Committee shall make regular reports to the Board. The Committee
shall review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval. The Committee shall annually
review the Committee's own performance.
The Committee shall (1) discuss the annual audited financial statements
and quarterly financial statements with management and the Auditors, including
the Company's disclosures under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in reports filed with
the SEC; (2) discuss earnings press releases, as well as financial information
and earnings guidance provided to analysts and rating agencies; (3) discuss
policies with respect to risk assessment and risk management; (4) review with
the Auditors any audit problems or difficulties and management's response; and
(5) set clear hiring policies for the Company concerning employees or former
employees of the Auditors.
In carrying out its duties and responsibilities, the Committee, to the
extent it deems necessary or appropriate, will:
Document Review
1. Review with management and the Auditors the financial statements and
disclosures under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" to be included in the Company's Annual Report on Form
10-K (or the annual report to shareholders if distributed prior to the filing of
Form 10-K), including their judgment about the quality, not just the
acceptability, of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements. Also,
the Committee shall discuss the results of the annual audit and any other
matters required to be communicated to the Committee by the Auditors under
generally accepted auditing standards.
2. Review the interim financial statements and disclosures under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" with management and the Auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the Committee
A-2
shall discuss the results of the quarterly review and any other matters required
to be communicated to the Committee by the Auditors under generally accepted
auditing standards.
Auditors
3. Review the proposed scope of the audit, the proposed staffing of the
audit to ensure adequate coverage, as well as appropriate coverage consistent
with Sections 203 and 206 of the Sarbanes-Oxley Act of 2002, and the fees
proposed to be charged for such audit.
4. Select the Auditors, considering independence and effectiveness, and
approve the fees and other compensation to be paid the Auditors. On an annual
basis, the Committee should ensure receipt from the Auditors, and review, the
Auditors' formal written statement delineating all relationships between the
Auditors and the Company, consistent with Independence Standards Board Standard
1. In addition, the Committee shall actively engage in dialogue with the
Auditors with respect to any disclosed relationships or services that may impact
the objectivity and independence of the Auditors and the Committee shall take,
or recommend that the full Board take, appropriate action to oversee the
independence of the Auditors.
5. Review the performance of the Auditors and approve any proposed
discharge of the Auditors when circumstances warrant.
6. Discuss with the Auditors any communications with the Auditors'
national office respecting auditing or accounting issues presented by the
engagement.
7. Review and evaluate the lead partner on the audit team. Ensure the
rotation of the lead partner having primary responsibility for the audit and the
partner responsible for reviewing the audit.
8. Periodically consult with the Auditors, without management present,
regarding the Company's internal controls and the fullness and accuracy of the
Company's financial statements.
9. Receive and review regular reports from the Auditors with respect to:
- - the critical accounting policies and practices of the Company,
- - all alternative treatments of financial information within generally accepted
accounting principles that have been discussed with management, ramifications
of the use of such alternative disclosures and treatments, and the treatment
preferred by the Auditors, and
- - other material written communications between the Auditors and management,
such as any management letter or schedule of unadjusted differences.
Financial Reporting Processes
10. Review with the Auditors (i) the Company's financial and accounting
personnel, (ii) the adequacy and effectiveness of the accounting and financial
controls of the Company, and (iii) elicit any recommendations for the
improvement of such internal controls or particular areas where new or more
detailed controls or procedures are desirable.
11. Review management's assertion on its assessment of the effectiveness
of internal controls as of the end of the most recent fiscal year and the
Auditors' report on management's assertions.
12. Review reports from management on material weaknesses or
deficiencies in the design or operation of internal controls and on any fraud
that involves personnel having a significant role in the internal controls.
13. In consultation with the Auditors, review the integrity of the
financial reporting processes, both internal and external.
A-3
14. Consider the Auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
15. Inquire of management and the Auditors about significant risks or
exposures and assess the steps management has taken to minimize such risks to
the Company.
16. Consider and approve, if appropriate, major changes to the Company's
auditing and accounting principles and practices as suggested by the Auditors or
management.
Process Improvement
17. Following completion of the annual audit, review separately with
management and with the Auditors any significant difficulties encountered during
the course of the audit, including any restrictions on the scope of the work or
access to required information.
18. Review any significant disagreement between management and the
Auditors in connection with the preparation of the financial statements.
19. Review with the Auditors and with management the extent to which
changes or improvements in financial or accounting practices, as approved by the
Committee, have been implemented. (This review should be conducted at an
appropriate time subsequent to implementation of changes or improvements, as
determined by the Committee.)
Ethical and Legal Compliance
20. Review and approve all related-party transactions.
21. Review and update periodically the Company's Code of Ethical
Standards and Business Practices and ensure that management has established a
system to enforce such code.
22. Review management's monitoring of the Company's compliance with such
code and periodically determine that management has the proper review system in
place to ensure that the Company's financial statements, reports and other
financial information disseminated to governmental organizations and the public
satisfy legal requirements.
23. Review legal compliance matters, including corporate securities
trading policies, with Company counsel.
24. Review with Company counsel any legal matter that could have a
significant impact on the financial statements.
25. Review and update periodically the Company's procedures for the
receipt, retention, and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing matters, and the
confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting or audit matters.
26. Review annually the travel and entertainment expenses of the
Company's Chief Executive Officer and a summary of all other executive officers'
travel and entertainment expenses.
27. Perform any other activities consistent with this Charter, the
Company's By-laws and governing law, as the Committee or the Board deems
necessary or appropriate.
LIMITATION OF COMMITTEE'S ROLE
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements and disclosures are complete
and accurate and are in accordance with generally accepted accounting principles
and applicable rules and regulations. These activities are the responsibility of
management and the Auditors.
A-4
ANNUAL MEETING OF SHAREHOLDERS OF
THE BON-TON STORES, INC.
JULY 21, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
- Please detach along perforated line and mail in the envelope provided. -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSALS 2 THROUGH 4.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
1. Election of Directors:
NOMINEES:
[ ] FOR ALL NOMINEES [ ] Robert B. Bank
[ ] Philip M. Browne
[ ] WITHHOLD AUTHORITY [ ] Shirley A. Dawe
FOR ALL NOMINEES [ ] Marsha M. Everton
[ ] Michael L. Gleim
[ ] FOR ALL EXCEPT [ ] Tim Grumbacher
(See instructions below) [ ] Robert E. Salerno
[ ] Thomas W. Wolf
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here: [X]
FOR AGAINST ABSTAIN
2. Ratification of appointment of KPMG LLP [ ] [ ] [ ]
as the Company's independent auditor.
3. Approval of The Bon-Ton Stores, Inc. [ ] [ ] [ ]
Cash Bonus Plan.
4. Approval of the Amendment to The [ ] [ ] [ ]
Bon-Ton Stores, Inc. 2000 Stock
Incentive Plan.
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that [ ]
changes to the registered name(s) on the account may not be submitted via
this method.
Signature of Shareholder Date:
--------------------------------- ---------------
Signature of Shareholder Date:
--------------------------------- ---------------
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
THE BON-TON STORES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of THE BON-TON-STORES, INC. (the "Company")
hereby appoints Tim Grumbacher and James H. Baireuther, or either of them, with
full power of substitution, to act as attorneys and proxies for the undersigned
and to vote all shares of stock of the Company which the undersigned is entitled
to vote if personally present at the Annual Meeting of Shareholders of the
Company, to be held at Bon-Ton's corporate office, 2801 E. Market Street, York,
PA 17402 on July 21, 2004, at 9:00 a.m., provided that said proxies are
authorized and directed to vote as indicated with respect to matters set forth
on the opposite side of this proxy.
UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED "FOR" THE ELECTION OF ALL
NOMINATED DIRECTORS, "FOR" RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE
COMPANY'S INDEPENDENT AUDITOR, "FOR" THE APPROVAL OF THE BON-TON STORES, INC.
CASH BONUS PLAN AND "FOR" APPROVAL OF THE AMENDMENT TO THE BON-TON STORES, INC.
2000 STOCK INCENTIVE PLAN. THIS PROXY ALSO DELEGATES DISCRETIONARY AUTHORITY TO
VOTE WITH RESPECT TO ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE
MEETING.
(TO BE SIGNED ON REVERSE SIDE)
14475
ANNUAL MEETING OF SHAREHOLDERS OF
THE BON-TON STORES, INC.
JULY 21, 2004
PROXY VOTING INSTRUCTIONS
MAIL - Date, sign and mail your proxy card in the envelope provided as soon as
possible.
- OR -
TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) from any touch-tone
telephone and follow the instructions. Have your proxy card available when you
call.
- OR -
INTERNET - Access "WWW.VOTEPROXY.COM" and follow the on-screen instructions.
Have your proxy card available when you access the web page.
COMPANY NUMBER
------------------
ACCOUNT NUMBER
------------------
------------------
YOU MAY ENTER YOUR VOTING INSTRUCTIONS AT 1-800-PROXIES OR WWW.VOTEPROXY.COM UP
UNTIL 11:59 PM EASTERN TIME THE DAY BEFORE THE CUT-OFF OR MEETING DATE.
- Please detach along perforated line and mail in the envelope provided -
IF you are not voting via telephone or the Internet.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSALS 2 THROUGH 4.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
NOMINEES:
Election of Directors
[ ] FOR ALL NOMINEES [ ] Robert B. Bank
[ ] Philip M. Browne
[ ] WITHHOLD AUTHORITY [ ] Shirley A. Dawe
FOR ALL NOMINEES [ ] Marsha M. Everton
[ ] Michael L. Gleim
[ ] FOR ALL EXCEPT [ ] Tim Grumbacher
(See instructions below) [ ] Robert E. Salerno
[ ] Thomas W. Wolf
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here: [X]
FOR AGAINST ABSTAIN
2. Ratification of appointment of KPMG LLP [ ] [ ] [ ]
as the Company's independent auditor.
3. Approval of The Bon-Ton Stores, Inc. [ ] [ ] [ ]
Cash Bonus Plan.
4. Approval of the Amendment to The [ ] [ ] [ ]
Bon-Ton Stores, Inc. 2000 Stock
Incentive Plan.
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that [ ]
changes to the registered name(s) on the account may not be submitted via
this method.
Signature of Shareholder Date:
--------------------------------- ---------------
Signature of Shareholder Date:
--------------------------------- ---------------
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.