Harris Teeter 2012 Annual Report Download - page 118

TRANSACTIONS WITH RELATED PERSONS AND CERTAIN CONTROL PERSONS
The Company’s Code of Business Conduct and Ethics provides that all employees, officers and directors must
avoid any activity that is, or has the appearance of, conflicting with the interests of the Company and that transactions
in which certain related persons may have a material interest must be disclosed to the Company. Related party
transactions are reported to the Company’s Secretary in response to an annual written questionnaire, or by the parties
involved from time to time, and reviewed by legal counsel for inclusion in the proxy statement as appropriate. The
Company’s executive officers and legal counsel review any related party transaction and determine whether such
transaction should be reported to the Board of Directors.
The Company does not have a formal policy concerning the review, approval or ratification of related party
transactions; however, as the transactions are reported, the Board of Directors considers any related party
transactions on a case by case basis to determine whether the Board of Directors must approve such transaction
and, if the Board of Directors determines such approval is required, the Board of Directors then determines, among
other things, whether the transaction or arrangement was undertaken in the ordinary course of business and whether
the terms of the transaction are no less favorable to the Company than terms that could have been reached with
an unrelated party. If any member of the Board of Directors is interested in the transaction, such director will recuse
themselves from the discussion and decision on the transaction. For transactions that have been recurring annually,
such as the transactions with Metro Marketing and John Dickson as described below, the Board of Directors reviews
the disclosure provided in the Proxy Statement, and determines if any additional action or approval is required.
During Fiscal 2012, Metro Marketing acted as a designated broker for Harris Teeter for several of its private
label products and other specialty products. Metro Marketing, in its role as independent broker, performed various
services on behalf of Harris Teeter including order placement, interface with manufacturers for product issues or
product problems, marketing and retail support services and the development of new products. Third party
manufacturers represented by Metro Marketing that provide these products to Harris Teeter are required to pay
Metro Marketing a fee based upon the amount of product sold. Rush Dickson (the brother of Thomas W. Dickson)
is the owner of Metro Marketing. During Fiscal 2012, Harris Teeter purchased approximately $38,837,352 of
product from manufacturers represented by Metro Marketing resulting in fees of approximately $1,132,667 paid
to Metro Marketing. Included in these purchases is approximately $536,617 paid by Harris Teeter to a manufacturer
whose principal shareholder has borrowed approximately $1.8 million from Metro Marketing. The terms of such
services provided by Metro Marketing to Harris Teeter are, in the Company’s opinion, no less favorable than the
Company would have been able to negotiate with an unrelated party for similar services.
John Dickson (the brother of Thomas W. Dickson) is the Director of Property Development for Harris Teeter
and was paid an aggregate salary, bonus and taxable benefits of $161,697 during Fiscal 2012. The terms of the
employment relationship with John Dickson are, in the Company’s opinion, no less favorable than the Company
would have been able to enter into with a similarly situated employee that was an unrelated party.
On December 12, 2011, Harris Teeter and Legacy Properties — College Road Investments, LLC (the
“Wilmington Landlord”) entered into an amendment to Harris Teeter’s existing lease for the Harris Teeter store
located at 820 South College Road in Wilmington, North Carolina. The amendment was entered into in connection
with the Wilmington Landlord’s purchase of the real estate from an unrelated party that had listed the property for
sale on the open market. Under the terms of the amendment to the lease, the Wilmington Landlord agreed to provide
$150,000 to be used by Harris Teeter for renovations to the front exterior of the store, and Harris Teeter agreed
to extend the base term of the lease, which was slated to expire in May 2015, for an additional ten years beyond
the original expiration date. Under the existing lease, which has been in place since 1995, Harris Teeter is required
to pay to the Wilmington Landlord approximately $616,858 per year (of which $558,340 is base rent and
approximately $58,518 is pass-through payments such as taxes and insurance), which terms were unchanged by
the amendment. The amendment to the lease provides for six five-year renewal periods, exercisable at the option
of Harris Teeter, with a rent increase of five percent effective at the beginning of each renewal period. Harris Teeter
and the Wilmington Landlord entered into two subsequent amendments in Fiscal 2012 relating to Harris Teeter’s
termination rights in the event of certain occurrences at the store and an extension of the initial term by five years
(with the same five-year extension options) at the same lease rates, with certain site improvements and other
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