Execution Copy
Pathmark Stores, Inc.
February 1, 2000
Xxxxxx Xxxxx
c/o Pathmark Stores, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
Sale and Retention Bonus Agreement
Dear Xxxxxx:
The following sets forth the agreement between you and Pathmark
Stores, Inc., a corporation organized under the laws of Delaware (the
"Company"), regarding the terms of the sale bonus (the "Sale Bonus") and the
retention bonus (the "Retention Bonus") that you may be eligible to receive in
accordance with the terms and conditions set forth below. This letter agreement
(the "Letter Agreement") is in addition to, and not in substitution for, any
other agreements between or among you and the Company Group (as defined below),
including without limitation the employment agreement between you and the
Company, dated February 1, 1999 (the "Employment Agreement"), and the Retention
Bonus and the Sale Bonus are in addition to, and not in substitution for, any
other pay or benefits to which you are eligible to earn from the Company Group.
1. Definitions. For purposes of this Letter Agreement, the following
capitalized words that are not otherwise defined in the text of the Letter
Agreement shall have the meanings set forth below:
"Aggregate Consideration" shall mean an amount equal to the sum of
the aggregate fair market value of any securities issued and any other
non-cash consideration delivered, and any cash consideration paid to the
Company Group or its security holders in connection with a Change in
Control, plus the amount of all indebtedness of the Company Group which is
assumed or acquired by any Purchaser in connection with a Change in
Control or retired or defeased in connection with such Change in Control.
The fair market value of any securities issued and any other non-cash
consideration delivered in connection with a Change in Control will be the
value determined in good faith by the Board.
"Beneficial Owner" shall have the meaning given to such term in Rule
13D-3 under the Securities and Exchange Act of 1934, as amended.
"Board" shall mean the Board of Directors of Holdings.
"Change in Control" shall mean the consummation of a Triggering
Event.
"Company" shall mean Pathmark Stores, Inc.
"Company Group" shall mean, individually and as a group, Holdings,
the Company, PTK Holdings, Inc. and Supermarkets General Holdings
Corporation, and any successors thereto.
"Effective Date" shall mean February 1, 2000.
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"Holdings" shall mean SMG-II Holdings Corporation, a corporation
organized under the laws of the State of Delaware.
"Independent Third Party" shall mean any entity other than a member
of the Company Group or any of the Stockholders or any entity controlled
by or under common control with any of the Stockholders or the Company
Group.
"Payment Date" shall mean July 31, 2000.
"Purchaser" shall mean any Independent Third Party that engages in a
Change in Control.
"Sellers" shall mean selling equity holders, which holders may be at
the level of any of the Company Group.
A "Triggering Event" shall be deemed to have occurred on the date
that any of he following shall have occurred:
(A) any member of the Company Group enters into a binding agreement
with one or more Independent Third Parties to directly acquire, in
exchange for cash, stock, claims, or property, fifty percent or more of
the aggregate equity securities of Holdings for which the MLCP Investors
and the Equitable Investors (as defined in the Amended and Restated
Stockholders Agreement among Holdings and its Stockholders, dated January
22, 1998) (together, the "Stockholders") are Beneficial Owners as of the
Effective Date;
(B) any member of the Company Group enters into a binding agreement
providing for a merger, consolidation, reorganization or other business
combination upon consummation of which one or more Independent Third
Parties would own or control fifty percent or more of either (i) the
aggregate voting securities of the Company Group, (ii) the aggregate
economic interest of the outstanding equity securities of the Company
Group or (iii) the aggregate value of the assets of the Company;
(C) any member of the Company Group enters into transaction upon
consummation of which an Independent Third Party would acquire in exchange
for cash, stock, claims or property fifty percent or more of either (I)
the aggregate equity securities of the Company, PTK Holdings, Inc. or
Supermarkets General Holdings Corporation, or (II) the Company's assets;
or
(D) any member of the Company Group files a plan of reorganization
or motion for relief in a case under title 11 of the United States Code
for the purpose of implementing an agreement or transaction of the type
described in any of the preceding clauses (A), (B) or (C); provided,
however, that a Triggering Event shall not include any change of ownership
resulting from a public offering of any of the securities of any of the
Company Group pursuant to an effective registration statement under the
Securities Act of 1933, as amended.
2. Term. The term of this Letter Agreement (the "Term") shall
commence on the Effective Date and shall continue until the later of (a) first
anniversary of the Effective Date if a Triggering Event does not occur prior to
such anniversary or (b) in the event that a Triggering Event occurs prior to the
first anniversary of the Effective Date, either the date of a Change in Control
that occurs subsequent to a corresponding Triggering Event or the date the
Triggering Event is definitively canceled or otherwise becomes void.
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3. Retention Bonus.
In consideration of, and subject to, your continued employment with
the Company during the period beginning on the Effective Date and ending on the
Payment Date, the Company will pay you a Retention Bonus equal to the annual
rate of your base salary, as in effect on the Payment Date. The Company will pay
the Retention Bonus to you in a lump sum cash amount as soon as practicable
after the Payment Date but in no event more than thirty days thereafter.
4. Sale Bonus.
(a) General Terms. You will become entitled to receive the Sale
Bonus in the event that (I) a Triggering Event occurs during the Term, and (ii)
a Change in Control contemplated by such Triggering Event occurs thereafter. The
amount of the Sale Bonus shall be equal to 0.00075 multiplied by the Aggregate
Consideration.
(b) Payment of Sales Bonus. (I) Change in Control--No Post-Closing
Adjustment. In the event that the transaction resulting in a Change in Control
does not include any provisions either (A) for an earn-out with respect to which
a part of the Aggregate Consideration will be paid to the Sellers either in full
or in part in one or more installments after the Change in Control or any
similar deferral of the payment of the Aggregate Consideration or (B) that would
potentially require the Sellers to reimburse any portion of the Sale Price to
the purchaser or require the purchaser to pay to the Sellers any amount in
addition to the Aggregate Consideration, as a result of a post-closing
adjustment or any other reason, after the Change in Control (either (A) or (B),
a "Post-Closing Adjustment"), the Company shall pay to you the Sale Bonus within
five days following the date of such Change in Control; provided, however, that
in no event shall the Sale Bonus be payable to you until the full amount of the
Aggregate Consideration has been paid to the Sellers.
(ii) Change in Control--Post-Closing Adjustment. In the event that
the Change in Control transaction includes provisions for any Post-Closing
Adjustment, the Company shall pay the Sale Bonus according to the terms of this
Section 4(b)(ii).
(A) In the event that the Change in Control transaction includes a
Post-Closing Adjustment described in Section 4(b)(I)(A) above, the Company
shall pay you a portion of the Sale Bonus within five days after the date
of such Change in Control equal to 0.00075 multiplied by the portion of
the Aggregate Consideration paid to the Sellers on or about the date of
the Change in Control. Thereafter, within five days after any additional
portion of the Aggregate Consideration is paid to the Sellers, the Company
shall pay you a portion of the Aggregate Consideration multiplied by
0.00075.
(B) In the event that the Change in Control transaction is a
Post-Closing Adjustment described in Section 4(b)(I)(B) that would
potentially require the Sellers to reimburse any portion of the Aggregate
Consideration to the purchaser after the Change in Control, within five
days after the date of such Change in Control, the Company shall pay you a
portion of the Sale Bonus determined in good faith by the Board
immediately prior to the consummation of the Change in Control, less an
amount that shall take into account the potential adjustment to the Sales
Price (the "Withheld Amount"). As soon as practicable after the Sellers
know with certainty the portion, if any, of the Sale Price that the
Sellers must reimburse to the purchaser and the Sellers make such
reimbursement, if any, the Company shall pay to you a prorated portion of
the Withheld Amount corresponding to the portion of the maximum potential
amount that Sellers may have been required to reimburse to the purchaser
less the amount actually reimbursed.
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(C) In the event that the Change in Control transaction is a
Post-Closing Adjustment described in Section 4(b)(I)(B) that would
potentially require the purchaser to pay to the Sellers any amount in
addition to the Sale Price after the Change in Control, within five days
after the date of such Change in Control, the Company shall pay you the
Sale Bonus. Thereafter, within five days after the purchaser knows with
certainty the additional amount that such purchaser must pay to the
Sellers, if any, and the purchaser makes such payment to the Sellers, the
Company shall pay to you an additional amount determined in good faith by
the Board that shall take into account the additional payment made by the
purchaser to the Sellers.
(c) Determination of the Board Final. The determination of whether a
Triggering Event or Change in Control has occurred, the amount of the Aggregate
Consideration and the amount of any Sale Bonus shall be made in good faith by
the Board (unless otherwise required by applicable law) and, absent manifest
error, shall be final and binding on you, the Company Group and all other
interested parties.
(d) Single Sales Bonus. The parties hereto acknowledge and agree
that you shall be entitled to receive only one Sale Bonus under this Letter
Agreement which shall become payable in connection with the first Triggering
Event that occurs during the Term and that in the event any additional
Triggering Event occurs during the Term, you will not be entitled to any Sale
Bonus as a consequence thereof.
5. Effect of Termination of Employment.
(a) Involuntary Termination. In the event of your Involuntary
Termination (as defined in the Employment Agreement) prior to the Payment Date,
you shall be entitled to receive the Retention Bonus in accordance with the
terms of Section 3, as if your employment had continued until such Payment Date.
In the event of your Involuntary Termination on or after August 1, 2000 and
prior to a Triggering Event, you shall remain entitled to receive the Sale Bonus
in the event of a subsequent Triggering Event and a corresponding Change in
Control in the same manner as if your employment with the Company had continued
through the end of the Term.
(b) Other Termination. In the event that your employment terminates
for any reason other than an Involuntary Termination prior to the Payment Date,
you shall forfeit your right to the Retention Bonus in its entirety. Similarly,
in the event that your employment terminates for any reason other than an
Involuntary Termination at any time during the Term, you shall forfeit any right
you may have to receive the Sale Bonus.
6. Notice. For the purpose of this Letter Agreement, notices and all
other communications provided for in this Letter Agreement shall be in writing
and shall be deemed to have been duly given when delivered by hand, sent by
telecopier or mailed by United States registered mail, return receipt requested,
postage prepaid, addressed to the Chief Executive Officer, Pathmark Stores,
Inc., 000 Xxxxx Xxxxxx, Xxxxxxxx, Xxx Xxxxxx 00000, telecopier: (000) 000-0000,
with a copy to the General Counsel of the Company, or to you at the address set
forth on the first page of this Letter Agreement or to such other address as
either party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon receipt.
7. Reduction of Payments if Reduction Would Result in Greater
After-Tax Amount. Notwithstanding anything herein to the contrary, if the
payment of the Retention Bonus or the Sale Bonus (together, the "Payments")
constitute a "parachute payment" (as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), and the net after-tax
amount of the parachute payment is less than the net after-tax amount if the
aggregate Payments to be made to you were three times your "base amount"
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(as defined in Section 280G(b)(3) of the Code), less $1.00, then the aggregate
of the amounts of the Sale Bonus and/or Retention Bonus constituting the
parachute payment shall be reduced to an amount that will equal three times your
base amount, less $1.00.
8. Miscellaneous.
(a) No Rights to Continued Employment. Neither this Letter Agreement
nor any of the rights or benefits evidenced hereby shall confer upon you any
right to continuance of employment by the Company or interfere in any way with
the right of the Company to terminate your employment, subject to the provisions
of Section 5 above, for any reason, with or without Cause.
(b) Amendments, Waivers. No provision of this Letter Agreement may
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing by the parties hereto. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Letter Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
(c) Counterparts. This Letter Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
(d) Withholding. Amounts paid to you hereunder shall be subject to
all applicable federal, state and local wage withholdings.
(e) Headings. The headings contained in this Letter Agreement are
intended solely for convenience of reference and shall not affect the rights of
the parties to this Letter Agreement.
(f) Stockholder Approval. This Letter Agreement shall become
effective only if it is approved by a majority of seventy-five percent of the
stockholders of Holdings, Supermarkets General Holdings Corporation, PTK
Holdings, Inc. and the Company within one-hundred and eighty days after date
first shown above. In the event that such stockholders do not approve this
Agreement on or before the one-hundred and eightieth day after the date of this
Letter Agreement, it shall automatically lapse and become void.
(g) Governing Law. The validity, interpretation, construction and
performance of this Letter Agreement shall be governed by the laws of the State
of New Jersey applicable to contracts entered into and performed in such state.
If this Letter Agreement sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of this
letter, which will then constitute our agreement on this subject.
Sincerely,
PATHMARK STORES, INC.
By /s/ Xxxxx X. Xxxxxx
--------------------------------------
Name: Xxxxx X. Xxxxxx
Title: President
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Agreed to as of this 7th day of April, 2000.
/s/ Xxxxxx Xxxxx
-----------------------------------
Xxxxxx Xxxxx
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