EXHIBIT 10.1
EMPLOYMENT AND CONSULTING AGREEMENT
EMPLOYMENT AND CONSULTING AGREEMENT dated as of December 16, 1998 between
XXXXXXXX DRUG STORES, INC., a Delaware corporation (the "Company"), X. X.
PENNEY COMPANY, INC., a Delaware corporation (the "Parent") and XXXXXXX
XXXXXXXX (the "Executive").
WHEREAS, pursuant to an Agreement and Plan of Merger dated November 23, 1998
among the Company, Parent and Legacy Acquisition Corp., a Delaware corporation
("Legacy") and a wholly owned subsidiary of Parent (the "Merger Agreement"),
Parent has agreed to acquire all of the outstanding common stock the Company
through the merger of Legacy with and into the Company;
WHEREAS, the Executive has been employed by the Company for a number of
years and possesses an intimate knowledge of the business and affairs of the
Company's business, its policies, methods and certain key personnel;
WHEREAS, Parent, the Company and the Executive recognize that the continued
application of the Executive's experience, abilities and services to the
business of the Company and its affiliates would be extremely beneficial to
the Company;
WHEREAS, subject to the provisions hereof, the Company wishes to retain the
services of Executive as an employee through June 14, 1999, and to be assured
that from June 15, 1999 through June 14, 2001 (the "Expiration Date"), the
Executive will be available to consult with the Company and that the Executive
will be restricted from disclosing certain information concerning the Company;
and
WHEREAS, as a further inducement to the Parent to enter into the Merger
Agreement, the Executive is willing to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein set forth and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Effectiveness. This Agreement shall only become effective at such time as
the merger of Legacy with and into the Company pursuant to the terms of the
Merger Agreement becomes effective (the "Effective Time").
2. Term. Subject to Section 1 hereof, the term of this Agreement shall
commence at the Effective Time and shall expire on June 14, 2001 (the "Term").
The period from the Effective Time through June 14, 1999, shall be referred to
herein as the "Employment Term" and the period from June 15, 1999 through June
14, 2001 shall be referred to herein as the "Consulting Term".
3. Duties. (a) As an Employee. The Company hereby continues to employ the
Executive, and the Executive hereby accepts continued employment, as Chairman,
Chief Executive Officer and President of the Company during the Employment
Term carrying on in all material respects duties and responsibilities that are
associated with such position immediately prior to the Effective Time as
determined by the Board of Directors of the Company.
(b) As a Consultant. From time to time during the Consulting Term, as and
when requested by the person then serving as Chief Executive Officer of the
Company (the "Successor CEO") or by the Board of Directors of the Company (the
"Board"), the Executive will make himself available to consult and cooperate
with and advise the Successor CEO or the Board, as applicable, to the best of
his ability, with respect to such matters involving the business and affairs
of the Company or any of its affiliates as the Successor CEO, or the Board,
may present to the Executive. The Executive will perform such services on a
limited time basis, and will not be required to perform such services for more
than 20 hours per month (exclusive of any services performed by the Executive
in his capacity as a director of Eckerd Corporation, as an independent
contractor to, and not as an employee of, the Company).
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(c) As a Director. From the Effective Time through the Expiration Date, the
Executive shall serve as a director of Eckerd Corporation without additional
compensation being paid to the Executive therefor.
4. Compensation/Retainer Fees. (a) As an Employee. In consideration of the
Executive's agreement herein and his services as an employee through June 14,
1999, the Company shall pay to the Executive an annual base salary of $500,000
and a minimum annual bonus of $250,000, to be paid in accordance with the
Company's normal payroll practices for its senior executives except that such
bonus shall be paid within five business days following June 14, 1999. The
aggregate compensation described in the preceding sentence shall be multiplied
by a fraction, the numerator of which is the number of calendar days in the
Employment Term and the denominator of which is 365.
During the Employment Term, the Executive shall be eligible to continue to
participate in all incentive, pension, retirement, savings, 401(k) and other
employee pension benefit and welfare plans and programs maintained by the
Company or its affiliates from time to time for the benefit of active senior
executives and/or other employees of the Company. At the end of the Employment
Term, the Executive will be entitled to receive distribution of his vested
accrued benefits under the Company's qualified and nonqualified retirement and
savings plans in accordance with the terms of such plans and his respective
elections duly filed thereunder.
(b) As a Consultant. In consideration of the Executive's agreements herein
and his services as a consultant during the Consulting Term, the Company shall
pay to the Executive an annual consulting retainer fee equal to $300,000 per
year during the Consulting Term, prorated in the same manner as described
above for any partial year, such annual retainer fee to be paid, in arrears,
in equal monthly installments of $25,000 (prorated for any partial month).
During the Consulting Term, the Executive shall be entitled to continue
participation in the Company's medical and other welfare plans and other
benefits and perquisites in accordance with Section 4(a) of the Executive's
severance agreement dated as of June 13, 1995, as amended (as amended, the
"Severance Agreement"), or the Company shall provide suitable alternative
arrangements providing comparable insurance coverage on a tax-equivalent basis
to the Executive.
(c) Miscellaneous Benefits.
(i) Split Dollar Life Insurance. During the Term and thereafter, Parent agrees
to pay, or shall cause the Company to pay, the premiums on Executive's
existing split dollar life insurance policies (the "Policies") in
accordance with the Company's past practice provided that such aggregate
net premiums to be paid by Parent or the Company from and after the
Effective Date shall not exceed $2,035,204. In accordance with item 4 of
Schedule 6.05 of the Company Disclosure Letter to the Merger Agreement (the
"Company Disclosure Letter"), a copy of which is attached hereto, the
Company shall return as soon as possible (to the extent not returned prior
to the Effective Time) to the Xxxxxxxx Family Life Insurance Trust all
shares of stock pledged in support of the Policies provided that the return
thereof does not result in a charge to the Company's earnings. Parent's and
Company's obligations under this provision shall survive the Expiration
Date.
(ii) Office and Support Staff. During the Term, the Executive shall be
provided with suitable office space at the Company's present headquarters
or at such other location in the New York City, New York metropolitan
region as shall be reasonably acceptable to the Executive. Executive shall
be provided with secretarial assistance (including the services of the
person serving as his secretary immediately prior to the Effective Time)
commensurate with his position and past Company practice.
(iii) Travel. Executive shall be entitled to travel on business-related
matters (and shall be reimbursed therefor in accordance with Section 5
hereof) either on a first-class basis on commercial airliners consistent
with past practice, or, at Parent's discretion, on aircraft owned by the
Parent.
5. Expenses. The Executive shall be entitled to receive reimbursement for
all reasonable expenses incurred by the Executive (in accordance with policies
and procedures substantially the same as those established by the Board for
its senior executive officers) in performing services hereunder provided that
the Executive properly accounts therefor.
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6. Confidential Information. The Executive agrees that, during the Term and
thereafter, he will not, without the prior written consent of the Board, (i)
use for his benefit or disclose to any person, any information obtained or
developed by him while in the employ of the Company with respect to any aspect
of the Company's business (including, without limitation, information with
respect to any customers, suppliers, employees, financial affairs or methods
of design, distribution, procurement or production, of the Company or any of
its subsidiaries or affiliates, or any other confidential matter), except
information which at the time is available to others in the business or
generally known to the public other than as a result of disclosure by him not
permitted hereunder, or (ii) take with him upon leaving the Company's employ
any document or paper relating to any of the foregoing or any property of the
Company (or any of its subsidiaries or affiliates).
7. Specific Performance. The Executive acknowledges that a violation on his
part of any of the covenants contained in Section 6 hereof would cause
immeasurable and irreparable damage to the Company and Parent. The Executive
accordingly agrees, without limiting the remedies available to the Company or
Parent, that any actual or threatened violation of such covenants may be
enjoined by any court of competent jurisdiction.
8. Severance Agreement Payment. In addition to all other amounts payable to
the Executive under this Agreement, on the earlier of (i) June 14, 1999 and
(ii) ten days after the date of the Executive's death if such death occurs on
or after the Effective Time and prior to June 14, 1999, the Executive (or his
beneficiaries, if applicable) shall be paid all severance compensation to
which he would be entitled under Section 4(a)(i) of the Severance Agreement
and commence the 24-month period of benefits described in Section 4(a)(ii) of
the Severance Agreement. The amounts payable under the Severance Agreement
shall not be subject to offset for any claim by Parent or the Company nor
shall Executive's right thereto be affected by any failure on his part to
perform any required duties during the Consulting Term or by any breach by
Executive of the provisions of Section 6 hereof occurring on or after June 14,
1999. All other rights of the Executive under the Severance Agreement shall be
honored by Parent and the Company. In determining Executive's Severance
Benefits and his other rights under the Severance Agreement, Parent and
Company shall pay the Executive in accordance with Schedule 6.05 of the
Company Disclosure Letter under the heading "clarification of golden parachute
issues under nine severance agreements".
9. Coordination with Merger Agreement. Parent will also be required to
provide, or cause the Company to provide, to the extent not otherwise provided
herein, the Executive with those specified benefit arrangements set forth in
the Company Disclosure Letter, as follows:
Section 3.10 -- items 3-7
Section 6.05(e) -- items 1-2
Schedule 6.05 -- items 1-2, 4-5, 9 and 11 (third paragraph only).
10. Indemnification. In connection with his rendering of services as an
employee or director of Eckerd Corporation in accordance with Section 3 of
this Agreement, Parent shall, or shall cause the Company to, indemnify the
Executive therefor during the Term and thereafter to the fullest extent any
other employee or director of the Company or Eckerd is so indemnified. In
connection with his rendering of services as a consultant in accordance with
Section 3 of this Agreement, Parent shall, or shall cause the Company to,
indemnify the Executive therefor to the fullest extent permitted by applicable
law during the Term and thereafter except for actions taken by the Executive
in bad faith which constitute gross negligence or wilful misconduct on his
part. Parent's and Company's obligations under this provision shall survive
the Expiration Date.
11. Severability. If for any reason any provision of this Agreement shall be
held invalid, such invalidity shall not affect any other provision of this
Agreement not so held invalid, and all other such provisions shall to the full
extent consistent with law continue in full force and effect. If any such
provision shall be held invalid in part, such invalidity shall in no way
affect the rest of such provision which, together with all other provisions of
this Agreement, shall likewise to the full extent consistent with law continue
in full force and effect.
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12. Termination of Agreement. The Executive acknowledges that, in the event
that he should die prior to the Expiration Date, the Company's obligations
hereunder shall cease as of such time and the Company shall be under no
further obligation to make any additional payments under this Agreement to the
Executive or his estate (other than payments attributable to the period prior
to the Executive's death to the extent such payments are otherwise required
pursuant to the terms of this Agreement, including, but not limited to, the
payment upon the Executive's death in respect of Section 4(a)(i) of the
Severance Agreement pursuant to the first sentence of Section 8 hereof).
13. Successors and Assigns. The provisions of this Agreement shall be
binding upon the heirs, executors and administrators of the Executive and upon
the successors and assigns of the Company and Parent. Parent and the Company
shall require any successor to them to expressly assume in writing their
respective obligations hereunder.
14. Notice. Any notice or other communication hereunder to either party
shall be in writing and shall be deemed to have been duly given when delivered
personally or mailed by registered mail, return receipt requested, postage
prepaid, addressed as follows:
if to the Executive:
00 Xxxxxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
if to the Company:
Xxxxxxxx Drug Stores, Inc.
00 Xxxxxx Xxxxx
Xxxxxxxx, XX 00000
if to the Parent:
X. X. Xxxxxx Company, Inc.
Xxxxxx, XX 00000-0000
15. Miscellaneous. Except as provided in Sections 9 and 10 hereof, this
Agreement constitutes the entire agreement between the parties concerning the
employment and consulting relationship between the Executive and the Company
following the Effective Time and supersedes all prior commitments and
understandings between the parties relating to such subject matter. No
provision of this Agreement may be modified, waived or discharged unless such
modification, waiver or discharge is agreed to in writing and is signed 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 provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions at the same or at any prior or subsequent time.
16. Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed to be an original, but each of which together will
constitute one and the same agreement.
17. Governing Law. This Agreement shall be governed by the laws of the State
of New York, without regard to its principles of conflicts of law.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the Company and Parent and by the Executive on
the date first above written.
Xxxxxxxx Drug Stores, Inc.
By: /s/ Xxxxxxxxxxx Xxxxxx
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Vice President and Chief
Financial Officer
X. X. Penney Company, Inc.
By: /s/ X.X. Xxxxxxxxxxxxx
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Chairman of the Board and Chief
Executive Officer
/s/ Xxxxxxx Xxxxxxxx
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Xxxxxxx Xxxxxxxx
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