A&P Bankruptcy Judge Denies 'Tier 1' Bonus Pay

U.S Bankruptcy Judge Robert Drain denied a request to pay $1.3 million to three top A&P executives at a hearing held on March 8 in White Plains, NY. However, Drain did grant the company permission to pay bonuses to more than 140 “second-tier” managers, saying those bonuses had triggers that were not a “walk in the park.” In his decision, which was applauded by labor unions and creditors, Drain asserted that the company needs to develop a business plan, negotiate more terms for its reorganization and show additional business metrics before granting $440,000 per person to three top executives.

Drain rejected the plan that would pay up to 175 percent bonuses for three “Tier 1” executive vice presidents: Tom O’Boyle, executive VP- marketing and merchandising; Carter Knox, senior VP- human resources; and Paul Hertz, executive VP- operations, for reaching the same benchmarks as the “Tier 2” employees. Those three could have earned up to $1.3 million in cash bonuses under the proposed plan.

Sam Martin, CEO, and Jake Brace, A&P’s chief restructuring officer, elected not to participate in the plan, but A&P said last month that they would look to negotiate separate incentive agreements. While A&P plans to revisit the executive incentive bonus plan at the next hearing in late April, Judge Drain, made it clear to A&P’s attorneys that he would likely reject the plan again if changes weren’t made.

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“I just wonder if you need to do more vetting with your constituents,” said Drain said.

Also objecting was the U.S. Trustee, who in an earlier filing stated the package doesn’t meet the standards of a 2005 bankruptcy law that curtails payments to insiders of companies in bankruptcy protection if they’re designed to favor powerful insiders economically.

Lawyers for the United Food & Commercial Workers Union called the bonus requests “astounding” considering the short time since the bankruptcy filing. The UFCW noted that not enough time had lapsed to fairly judge A&P performance coupled with the fact that the Montvale, NJ chain hasn’t presented a one-year business plan to the court.

“The debtors appear blind to the inequities of their proposal and the devastating impact of the motion on the rest of the debtors’ employees, the collective bargaining process, the estate, and the restructuring process,” the UFCW said in another filing.

A&P had originally sought court authorization to pay $6.8 million to 146 of its non-union salaried employees, with $1.3 million going to three top executives, for a seven-month period, according to court documents. It later amended its request to seek approval to incentivize its “tier 2” managers.

Creditors said in their objections that the payments, which included $5 million to second-tier managers, could total $14 million a year. A&P is also is also party to 39 collective bargaining agreements covering around 95 percent of its workforce, which it seeks to cut costs on in bankruptcy.

The chain’s creditors, unions and the U.S. bankruptcy trustee had all objected to the bonuses, saying they were retention packages, rather than incentive packages, as the company described them.

A&P’s will also move forward with the process to close 32 under performing stores (listed below). All of those units are slated to be shuttered by April 15.

The 13 Pathmark stores that are slated for closure include units in: Glasgow, DE; Deptford, NJ; Gillette, NJ; Hillsborough, NJ; Livingston, NJ; Middletown, NJ; North Hackensack, NJ; South Plainfield, NJ ; Whippany, NJ; Brooklyn, NY (Nostrand Avenue); Commack, NY; Hartsdale, NY; and Bethlehem, PA.

The eight Super Fresh units that will be shuttered are stores located in: Ocean City, MD (Gold Coast Mall); Cape May Courthouse, NJ; East Windsor, NJ; Hamilton Township, NJ; Hammonton, NJ; Mt. Holly, NJ; Lionville, PA; and Yardley, PA.

A&P bannered stores will be shuttered in: Barnegat, NJ; Flanders, NJ; Manville, NJ: Carmel, NY; Greenburgh, NY; New Rochelle, NY; and Port Chester, NY.

Additionally, Waldbaum’s stores in Farmingdale, NY, Smithtown, NY and Valley Stream, NY, and a Food Basics unit in Bridgeport, CT are scheduled for closing.

On the financial front, for the period beginning January 2 and ended January 29 A&P and four of its affiliates incurred a net loss of $27.4 million on total sales of $602.7 million in the four-week period.

That $27.4 million loss continued a negative trend that began when A&P reported its first period sales and earnings in January. During that initial bankruptcy four week stretch which ran from December 5 to January 1, the beleaguered retailer incurred a net loss of $104.9 million on total sales of $621.5 million for the period.

At the March 8 hearing, Judge Drain also denied a request made by Frito-Lay Inc, Kraft Foods Inc, PepsiCo/Frito, Nestle USA Inc, Bimbo Bakeries USA, Kellogg North America, Wise Foods Inc, Dr. Pepper Snapple Group and Campbell Soup Company (collectively the requesting creditors) for an order appointing an official committee of direct-store-delivery/trade creditors in A&P’s bankruptcy case.