Exhibit 10.18
RETENTION AGREEMENT
THIS RETENTION AGREEMENT ("Agreement") is effective as of March 22,
1998, by and between Petco Animal Supplies, Inc. ("PETCO") and
_________________("employee").
A. EMPLOYEE is currently employed by PETCO. If the employment is
pursuant to an Offer Letter of Employment ("Offer Letter"), a copy of the
Offer Letter is attached hereto as Exhibit 1.
B. Although PETCO presently anticipates no Change in Control, the
Board of Directors wishes to plan for such a possibility and to ensure
EMPLOYEE's continued dedication and efforts in such event without undue
concern for personal, financial and employment security.
C. The parties hereto desire to fulfill the above purpose
according to the terms set forth in this Agreement.
AGREEMENT
In consideration of the mutual covenants set forth in this Agreement
and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Definitions. The following words and phrases as used in this
Agreement shall have the following respective meanings.
1. Cause. A termination of employment for ACause@ is a
termination precipitated by EMPLOYEE's:
(i) failure to substantially perform EMPLOYEE's duties with
PETCO (other than due to incapacity resulting from
physical or mental illness), which failure has continued
for at least 30 days following receipt by EMPLOYEE of
written notice specifying the failure to substantially
perform,
(ii) engagement in conduct that is demonstrably and materially
injurious to PETCO, monetarily or otherwise, which
injurious conduct has continued for at least 30 days
following EMPLOYEE's receipt of written notice specifying
the injurious conduct and offering EMPLOYEE the
opportunity to explain the conduct to the President/Chief
Executive Officer; or
(iii) a material breach by Employee of any provision of this
Agreement or the Offer Letter.
2. Change in Control. A AChange in Control@ shall be deemed to
occur:
(1) if any person or entity other than persons or entities
currently owning more than five percent of PETCO's
securities is or becomes the "beneficial owner" (as
defined in rule 13d-3 of the Securities Exchange Act of
1934), directly or indirectly, of securities of PETCO
representing 50% or more of the combined voting power of
PETCO's then outstanding securities;
(2) upon the approval by PETCO's stockholders and the
consummation of a Transaction; or
(3) if, during any period, members of the Incumbent Board
cease for any reason to constitute at least a majority of
the Board.
Notwithstanding the foregoing, a Change in Control pursuant to
subparagraphs (ii) and (iii) above shall not be deemed to occur
if immediately following the consummation of a Transaction or
other event approved by the Incumbent Board, holders of PETCO's
voting securities immediately prior to a Transaction either
continue to own at least 50% of the combined voting power of
PETCO's then outstanding voting securities if PETCO survives
the Transaction or then own voting securities representing at
least 50% of the combined voting power of each surviving entity
after a Transaction.
3. Good Reason. Termination of employment by EMPLOYEE for "Good
Reason" is a termination of employment due to the occurrence of
any one of the following events or conditions:
(1) a material change in EMPLOYEE's status, title, position
or responsibilities which in the EMPLOYEE's reasonable
judgment represents a substantial reduction of the
status, title, position or responsibilities in effect
immediately prior to the change;
(2) the assignment of EMPLOYEE to a position which requires
EMPLOYEE to relocate permanently to a site outside of San
Diego County;
(3) assigning EMPLOYEE any duties or responsibilities (other
than due to a promotion) which in the EMPLOYEE's
reasonable judgment are inconsistent with his/her status,
title, position or responsibilities;
(4) any removal of EMPLOYEE from or failure to reappoint or
reelect EMPLOYEE to his/her previously held position,
except in connection with a promotion, the termination of
employment for Cause, as a result of permanent disability
(as determined by EMPLOYEE's eligibility to receive
disability benefits under any long-term disability plan
PETCO may then have in effect), as a result of EMPLOYEE's
death, or by EMPLOYEE other than for Good Reason; or
(5) any material breach by PETCO of any provision of this
Agreement or the Offer Letter.
4. Incumbent Board. The "Incumbent Board" consists of the members
of the Board of Directors of PETCO as of the date of this
Agreement, to the extent they continue to serve as Board
members and any individual who becomes a Board member after the
date of this Agreement if (i) his or her election or nomination
as a director was approved by a vote of at least two-thirds of
the then Incumbent Board and such person does not own more than
20% of PETCO's securities, or (ii) such individual is a
representative of an institutional investor that either owns
less than 20% of PETCO's securities or was represented on the
Board as of the date of this Agreement.
5. Severance Period. The "Severance Period" is the six-month
period beginning on the date of termination of EMPLOYEE's
employment or such longer period as offered by the acquiring
company consistent with acquiring company's policies and
practices or industry practices at that time.
6. Transaction. A "transaction" means a merger or consolidation,
reorganization, distribution of assets to stockholders by spin-
off, split-up or otherwise, a sale or disposition of all or
substantially all of PETCO's assets or a liquidation or
dissolution of PETCO.
2. At-Will Employment. Notwithstanding any of the provisions in the
Agreement, EMPLOYEE and PETCO understand and expressly agree that
EMPLOYEE's employment is not for a specified term and that, other
than during the first year following a Change in Control, EMPLOYEE's
employment may be terminated by PETCO or by EMPLOYEE at any time,
with or without notice, and with or without cause. EMPLOYEE and
PETCO expressly agree that this provision is intended by EMPLOYEE and
PETCO to be the complete and final expression of their understanding
regarding the terms and conditions under which EMPLOYEE's employment
may be terminated. EMPLOYEE and PETCO further understand and agree
that no representation contrary to this provision is valid, and that
this provision may not be augmented, contradicted or modified in any
way, except by a writing signed by EMPLOYEE and PETCO's president.
3. Severance
1. EMPLOYEE shall be entitled to receive from PETCO severance
benefits in the amount provided in subsection b, below, if in
connection with a Change in Control or within one year after a
Change in Control, EMPLOYEE's employment with PETCO is
terminated; provided, however, that EMPLOYEE will not be
entitled to any severance benefits if EMPLOYEE's termination of
employment is (i) for Cause, (ii) by reason of permanent
disability (as determined by EMPLOYEE's eligibility to receive
disability benefits under any long-term disability plan PETCO
may then have in effect), (iii) initiated by EMPLOYEE for other
than Good Reason or (iv) by reason of EMPLOYEE's death.
Notwithstanding any other provision of this Agreement, the
consummation of a Transaction in itself shall not be deemed a
termination of employment entitling EMPLOYEE to severance
benefits hereunder even if such event results in EMPLOYEE being
employed by a different entity which assumes PETCO's
obligations under this Agreement.
2. If EMPLOYEE's services are terminated, entitling EMPLOYEE to
severance benefits pursuant to subsection a, above, EMPLOYEE
shall be entitled to the following benefits:
(1) During the Severance Period, PETCO shall continue to pay
to EMPLOYEE base salary, less applicable withholding, at
the rate and according to the payment schedule in place
immediately prior to the termination of employment.
(2) During the Severance Period, PETCO shall continue on
behalf of EMPLOYEE (and EMPLOYEE's dependents and
beneficiaries) life insurance, disability insurance, and
medical, dental, and automobile benefits, if any, which
were being provided to EMPLOYEE at the time of
termination of employment and the expense shall be
allocated between PETCO and EMPLOYEE on the same basis as
prior to the date of termination of employment. The
period of time during which such payments and
continuation of coverage shall occur under this paragraph
will run concurrently with any separate period of time
during which the law requires continuation coverage. The
benefits provided pursuant to this subsection shall be no
less favorable to EMPLOYEE than the coverage provided to
EMPLOYEE under the plans providing such benefits at the
time notice of termination was given to EMPLOYEE. The
obligation of PETCO under this subsection shall be
limited to the extent that EMPLOYEE obtains any such
benefits pursuant to a subsequent employer's benefit
plans, in which case PETCO may reduce the coverage of any
benefits it is required to provide EMPLOYEE under this
subsection, as long as the aggregate coverage of the
combined benefit plans is no less favorable to EMPLOYEE,
in terms of amounts and deductibles and costs to
EMPLOYEE, than the coverage required to be provided under
this subsection. This subsection shall not be
interpreted so as to limit any benefits to which EMPLOYEE
(or EMPLOYEE's dependents or beneficiaries) are entitled
under any of PETCO's employee benefit plans, programs or
practices following EMPLOYEE's date of termination of
employment. The provision of continued benefits to
EMPLOYEE under this subsection shall not deprive EMPLOYEE
of any independent statutory right to continue benefits
coverage pursuant to sections 601 through 606 of the
Employee Retirement Income Security Act of 1974, as
amended; and
(3) On the date of termination of employment, PETCO shall pay
EMPLOYEE an amount equal to the bonus, if any, EMPLOYEE
would have received had EMPLOYEE remained in PETCO's
employment during the Severance Period. For purposes of
this paragraph, the bonus is calculated as the greater of
the prorata bonus norm or actual bonus earned.
(4) The above provisions set forth the minimum severance
benefits and do not prohibit better severance benefits
being offered that are consistent with the acquiring
company's policies and practices or industry practices at
that time.
(5) Nothing in this Retention Agreement is meant to prohibit
an employee from continuing to contribute to his or her
401(k) plan during the Severance Period.
4. Acceleration of Options. Pursuant to the authority granted to the
Board Committee under Section 4.7 of PETCO's 1994 Stock Option Plan
(the "Plan"), in the event of the occurrence of a Change in Control,
all of EMPLOYEE's rights to exercise option(s) granted under the Plan
and held by EMPLOYEE at the time of the Change in Control shall
immediately vest resulting in these option(s) becoming immediately
exercisable for the period specified in the section of the respective
option(s) relating to vesting of options, if the period specified is
less than three months, then three months after which time the
option(s) shall expire.
5. Term of Agreement. This Agreement shall continue in full force and
effect until terminated as provided in this section. This Agreement
shall terminate on the earlier of:
1. July 31st of a year after 1996, if the Board of Directors by
the affirmative vote of a majority of its members prior to
May 1 of such year and prior to the occurrence or consideration
of a specific Change in Control, has voted to terminate this
Agreement; or
2. if EMPLOYEE's services are terminated prior to the occurrence
of a Change in Control or after the first anniversary of a
Change in Control, the date of such termination of services;
3. if EMPLOYEE's services are terminated upon or within the first
year following a Change in Control under circumstances where
EMPLOYEE would not be entitled to severance benefits pursuant
to this Agreement, the date of such termination of services; or
4. after a Change in Control, the date on which any successor to
PETCO has performed all of its obligations under Section 3 of
this Agreement and EMPLOYEE has performed all of EMPLOYEE's
obligations under Section 3 of this Agreement.
6. Agreement Not to Use Trade Secrets.
1. Trade Secrets in General. During the course of EMPLOYEE's
employment, EMPLOYEE will have access to various trade secrets
of PETCO. A "Trade Secret" is information which is not
generally known to the public and, as a result, is of economic
benefit to PETCO in the conduct of its business. EMPLOYEE and
PETCO agree that Trade Secrets shall include, but not be
limited to, all information developed or obtained by PETCO,
comprising the following items, whether or not such items have
been reduced to tangible form (e.g., physical writing): all
methods, technics, processes, ideas, trade names, service
marks, slogans, forms, customer lists, pricing structures,
menus, business forms, recipes, formulas, marketing programs
and plans, layout and design, financial structure, operational
methods and tactics, cost information, the identity of
suppliers or customers of PETCO, customer lists, accounting
procedures, databases, and any document, record or other
information of PETCO relating to the above. Trade Secrets
include not only information belonging to PETCO which existed
before the date of this Agreement, but also information
developed by EMPLOYEE or PETCO or PETCO's employees during the
term of this Agreement and thereafter.
2. Restriction on Use of Trade Secrets. EMPLOYEE agrees that
EMPLOYEE's use of trade secrets is subject to the following
restrictions during the term of this Agreement and for an
indefinite period thereafter, so long as the Trade Secrets have
not become generally known to the public.
(1) Non-Disclosure. EMPLOYEE will not publish or disclose,
or allow to be published or disclosed, Trade Secrets to
any person who is not an employee of PETCO unless such
disclosure is necessary for the performance of EMPLOYEE's
obligations under this Agreement. Disclosure to someone
who is not an employee of PETCO must first be authorized
in writing by PETCO's president.
(2) Non-Removal. EMPLOYEE will not remove any Trade Secrets
from the office of PETCO or the premises of any facility
in which PETCO is performing services, or allow such
removal, unless permitted in writing by PETCO's
president.
(3) Prohibition Against Unfair Competition. At any time
after the termination of EMPLOYEE's employment with PETCO
for any reason, EMPLOYEE will not engage in competition
with PETCO while making use of the Trade Secrets of
PETCO.
3. Solicitation of Employees. EMPLOYEE will be called upon to
work closely with employees of PETCO in performing services
under this Agreement. EMPLOYEE expressly agrees that EMPLOYEE
will not, during EMPLOYEE's employment with PETCO and for one
year thereafter, solicit or take away any employee of PETCO.
In addition, all information about such employees which becomes
known to EMPLOYEE during the course of EMPLOYEE's employment
with PETCO, and which is not otherwise known to the public, is
a Trade Secret of PETCO and shall not be used by EMPLOYEE in
soliciting or taking away employees of PETCO at any time during
or after termination of EMPLOYEE's employment with PETCO.
4. Competition During Employment. During EMPLOYEE's employment
with PETCO, EMPLOYEE will not render services or give advice
to, affiliate with (as employee, partner, consultant or
otherwise) or invest or acquire any interest in, in whole or in
significant part, any other person or organization which is
engaged in or about to become engaged in franchising,
developing, owning or operating a retail store specializing in
pet food supplies and/or services (a "Conflicting
Organization"). EMPLOYEE shall not, however, be prohibited
from investing in securities of any Conflicting Organization
that is listed on a national securities exchange or traded on
the NASDAQ stock market, providing that EMPLOYEE does not own,
or have the right to acquire, more than three percent of the
outstanding voting securities of such company.
5. Return of Property. Upon the termination of EMPLOYEE's
employment for any reason, EMPLOYEE shall immediately deliver
to PETCO all originals and copies of documents, records,
computer disks, hard copy printouts of computer disks, software
programs, keys, security access cards, credit cards, financial
information, procedures, proposals, reports, computers, and
other items and information within EMPLOYEE's possession or
control, belonging to PETCO or in any way related to the
business of PETCO or the services EMPLOYEE performed for PETCO,
including, but not limited to, any and all of PETCO's Trade
Secrets.
6. Violations of Trade Secrets, Solicitation, Competition Clauses
and/or Return of Property. EMPLOYEE agrees and acknowledges
that the violation of any of the provisions contained in
Section 6 would cause irreparable injury to PETCO, that the
remedy at law for any violation or threatened violation thereof
would be inadequate and PETCO shall be entitled to temporary
and permanent injunctive or other equitable relief without the
necessity of proving actual damages. EMPLOYEE agrees that such
relief shall be available in a court of law regardless of the
arbitration provision contained in Section 14 of this
Agreement. In any proceeding by PETCO to enforce any of the
provisions contained in Section 6, the prevailing party shall
be entitled to reimbursement of all costs and reasonable
attorneys' fees incurred in such litigation.
7. Successors. This Agreement shall bind, and then be enforced by, any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business or assets of PETCO, in the same manner and to the same
extent that PETCO would be obligated under or entitled to enforce
this Agreement if no succession had taken place. In the case of any
Transaction in which a successor would not by the foregoing provision
or by operation of law be bound by this Agreement, PETCO shall use
its best efforts to require such successor expressly and
unconditionally to assume and agree to perform PETCO's obligations
under this Agreement, in the same manner and to the same extent that
PETCO would be required to perform if no such succession had taken
place unless PETCO previously arranged to establish an escrow to
satisfy its obligations thereunder.
8. Entire Agreement. Except as otherwise provided for in this
Agreement, this Agreement, together with the Offer Letter, if any,
represents the only agreement among the parties concerning the
subject matter hereof and supersedes all prior agreements whether
written or oral, relating thereto; provided, however, that the terms
of the option(s) granted to EMPLOYEE under the Plan are not
superseded except to the extent that this Agreement provides
severance compensation and benefits which are greater than under the
Offer Letters and that this Agreement restricts competition with
PETCO for a longer period than under the option(s) or the Offer
Letters in either of which case the provision of this Agreement shall
govern.
9. Assignment. This Agreement shall not be assignable by EMPLOYEE. Any
and all assignments of this Agreement or any interest therein by
EMPLOYEE shall be void.
10. No Waiver. Any waiver of any term or condition of this Agreement by
either party shall not operate as a waiver of any continued breach of
such term or condition, or any other term or condition, nor shall any
failure to enforce a provision of this Agreement operate as a waiver
of such provision or of any other provision of this Agreement.
11. Captions. The captions and headings of this Agreement are for
convenience only and shall in no way limit or otherwise affect any of
the terms or provisions contained herein.
12. Severability. Should any provision of this Agreement, or its
application, to any extent be held invalid or unenforceable, the
remainder of this Agreement and its application, excluding such
invalid or unenforceable provisions shall not be affected by such
exclusion and shall continue to be valid and enforceable to the
fullest extent permitted by law or equity.
13. Governing Law. This Agreement shall for all purposes be governed and
interpreted in accordance with the laws of the State of California.
14. Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this
Agreement, including claims of fraud in the inducement, shall be
discussed between the disputing parties in a good faith effort to
arrive at a mutual settlement of any such controversy. If, the
dispute cannot be resolved, it shall be settled by binding
arbitration. Judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. Arbitration
will be conducted pursuant to the provisions of this Agreement, and
the Commercial Arbitration Rules of the American Arbitration
Association, unless such rules are inconsistent with the provisions
of this Agreement. Limited civil discovery shall be permitted for
the production of documents and taking of depositions. Unresolved
discovery disputes may be brought to the attention of the arbitrator
who may dispose of such dispute. The arbitrator shall have the
authority to award any remedy or relief that a court of this state
could order or grant. The arbitrator may award to the prevailing
party, if any, as determined by the arbitrator, all of its costs and
fees, including the arbitrator's fees, administrative fees, travel
expenses, out-of-pocket expenses and reasonable attorneys' fees.
Unless otherwise agreed by the parties, the place of any arbitration
proceedings shall be San Diego County, California.
15. Amendments. No amendment or modification of these terms or
conditions of this Agreement shall be valid unless in writing and
signed by the parties hereto.
16. Counterparts. This Agreement may be executed in counterparts, and if
so executed, each such counterpart shall have the force and effect of
an original.
17. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing, sent by mail to his/her
residence in the case of the EMPLOYEE, or hand delivered to the
EMPLOYEE, or to PETCO's principal office (corporate office) in the
case of PETCO.
18. Construction. This Agreement shall not be construed against any
party on the grounds that such party drafted the Agreement or caused
it to be drafted.
19. Authority to Sign. Each individual signing this Agreement directly
and expressly warrants that he/she has been given and has received
and accepted authority to sign and execute the Agreement on behalf of
the party for whom it is indicated he/she has signed, and further has
been expressly given and received and accepted authority to enter
into a binding agreement on behalf of such party with respect to the
matters contained herein and as stated herein.
20. Acknowledgment. EMPLOYEE acknowledges that EMPLOYEE has been advised
by PETCO to consult with independent counsel of EMPLOYEE's own
choice, at EMPLOYEE's expense, concerning this Agreement, that
EMPLOYEE has had the opportunity to do so, and that EMPLOYEE has
taken advantage of that opportunity to the extent that EMPLOYEE
desires. EMPLOYEE further acknowledges that EMPLOYEE has read and
understands this Agreement, is fully aware of its legal effect, and
has entered into it freely based on EMPLOYEE's own judgment.
IN WITNESS HEREOF, the parties have executed this Agreement as of the date
set forth above.
PETCO ANIMAL SUPPLIES, INC.
By:
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Its:
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EMPLOYEE
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