EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between Rite Aid Corporation, a Delaware
corporation (the "Company"), and Xxxxxx X. Xxxxxx (the "Executive"), is
dated as of the 5th day of December, 1999 (the "Effective Date").
W I T N E S S E T H
WHEREAS, the Company and the Executive have agreed that the
employment of the Executive is essential to the successful implementation
of the Company's long term business strategy; and
WHEREAS, the Company wishes to provide for the employment by
the Company of the Executive, and the Executive wishes to serve the
Company, in the capacities and on the terms and conditions set forth in
this Agreement;
NOW, THEREFORE, it is hereby agreed as follows:
1. TERM. Subject to earlier termination in accordance with the
provisions of Section 4, the term of Executive's employment under this
Agreement (the "Employment Period") shall commence as of the Effective Date
and end on the third anniversary thereof, provided, however, that on each
anniversary of the Effective Date (each such date, a "Renewal Date"), an
additional year shall be added to the Employment Period, unless notice of
non-renewal has been delivered by one party to the other party at least 180
days prior to such Renewal Date.
2. POSITION AND DUTIES. (a) During the Employment Period, the
Executive shall serve as the Chairman (the "Chairman") of the Board of
Directors of the Company (the "Board") and as Chief Executive Officer of
the Company, with such duties and responsibilities as are customarily
assigned to such position, and such other duties and responsibilities
appropriate to such office as may from time to time be assigned to him by
the Board. Executive shall report solely to the Board and subject to the
Board's consent, which consent shall not unreasonably be withheld, shall
have the sole right to appoint and terminate the appointment of the
Company's executive officers. On the Effective Date, Executive shall be (i)
appointed as a member of the Board, to serve as a member of the class of
directors with the longest remaining term as of the Effective Date, and
(ii) elected Chairman. Subsequently, during the Employment Period, the
Company shall cause the Executive to be included in the slate of persons
nominated to serve as directors on the Board upon each expiration of
Executive's term as a director of the Company and shall use its best
efforts to have the Executive reelected to the Board and as Chairman. In
addition, following the Effective Date, the Executive shall be entitled to
submit to the Board (or an appropriate Board committee) the names of two
individuals (which individuals shall not be employees of the Company and
shall have no affiliation with the Executive) for consideration for
appointment to the Board. The Board (or such committee) shall, in due
course, consider such individuals in good faith. In the event that the
Board (or a committee thereof) does not approve either or both of such
individuals, the Executive shall be entitled to submit the names of one or
more alternative individuals (who shall also not be employees of the
Company or have any affiliation with the Executive) for consideration until
the Board (or a committee thereof) shall have approved two such individuals
for appointment to the Board (each such individual together with each
successor thereto who is appointed or elected in accordance with the
provisions of this section, being referred to herein as a "New Independent
Director"). In addition, during the Employment Period, upon each expiration
of the term (or other termination of service) of a New Independent Director
as a director of the Company, the Company shall cause such New Independent
Director (or any successor nominated in accordance with the provisions
hereof) to be included in the slate of persons nominated to serve as
directors on the Board and shall use its best efforts to have such New
Independent Director (or such successor) elected or reelected to the Board,
as applicable. Following termination of the Executive's employment for any
reason, the Executive shall immediately resign from the Board and from all
other offices and positions he holds with the Company.
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
shall devote substantially his full attention and time during business
hours to the business and affairs of the Company and shall carry out such
responsibilities faithfully and efficiently. Notwithstanding the foregoing,
to the extent consistent with the performance of his duties and
responsibilities hereunder, the Executive may serve on corporate, industry,
civic or charitable boards and committees and shall be permitted to make
and manage his personal investments.
(c) Other than for necessary travel in connection with the
performance of his duties hereunder, the Executive shall be based in
Portland, Oregon, and shall not at any time be required to relocate his
primary residence from the Portland metropolitan area, regardless of the
location from time to time of the Company's principal headquarters. The
Company shall provide suitable office space, staff and equipment to enable
the Executive to discharge his duties from such location.
3. COMPENSATION. (a) BASE SALARY. During the Employment Period,
the Company shall pay Executive an annual base salary ("Annual Base
Salary") of not less than $1,250,000. The Annual Base Salary shall be
payable in accordance with the Company's regular payroll practice for its
senior executives, as in effect from time to time (but in no event less
frequently than monthly). During the Employment Period, the Annual Base
Salary shall be reviewed periodically by the Compensation Committee of the
Board (the "Compensation Committee") for possible increase. Any increase in
the Annual Base Salary shall not limit or reduce any other obligation of
the Company under this Agreement. The Annual Base Salary shall not be
reduced after any such increase, and the term "Annual Base Salary" shall
thereafter refer to the Annual Base Salary as from time to time so
increased.
(b) INCENTIVE COMPENSATION. To compensate Executive for lost
bonus opportunities with his prior employer for 1999, the Company shall pay
to the Executive, on or about April 1, 2000, a guaranteed bonus in respect
of calendar year 1999 in the amount of $600,000 (the "1999 Guaranteed
Bonus"). Commencing with the Company's 2000 fiscal year, the Executive
shall participate during the Employment Period in annual cash incentive
compensation plans (each, an "Annual Bonus Plan"), as adopted and approved
by the Board or the Compensation Committee from time to time, with targets
based upon the Company's business plan developed by the Executive and the
Board. The Executive's annual target bonus opportunity pursuant to such
plans (the "Annual Target Bonus") shall equal at least 100% of the Annual
Base Salary in effect for the Executive at the beginning of such fiscal
year.
(c) OTHER BENEFITS. During the Employment Period, except as and
to the extent otherwise provided herein, (1) the Executive shall be
entitled to participate in all applicable fringe benefit and perquisite
programs and savings and retirement plans (including non-qualified
supplemental executive retirement plans), practices, policies and programs
of the Company on the same basis as all other senior executives of the
Company; and (2) the Executive and/or the Executive's eligible dependents,
as the case may be, shall be eligible for participation in, and shall
receive benefits under, all applicable welfare benefit plans, practices,
policies and programs provided by the Company on the same basis and subject
to the same terms and conditions, as all other senior executives of the
Company. Without limiting the generality of the foregoing, during the
Employment Period the Company shall provide Executive with (i) an annual
financial and tax planning allowance of $10,000; (ii) a car allowance of
$1500 per month; (iii) use of Company-owned aircraft for business and
personal travel; (iv) reimbursement for the annual dues at a country club
of Executive's choice; and (v) subject to the immediately succeeding
sentence, term life insurance covering the Executive's life and long term
disability insurance, in each case in a face amount equal to $3,000,000.
The Executive agrees to cooperate with the Company in obtaining such life
and disability insurance, including submitting to a physical examination if
required to do so by the insurance carrier. The beneficiary of each of the
aforementioned policies shall be designated by the Executive and if not so
designated shall be his estate. The Company shall promptly reimburse
Executive for (x) all necessary and reasonable business expenses, including
first-class travel and hotel accommodations, incurred by the Executive in
connection with the discharge of his duties hereunder, and (y) all
reasonable costs and expenses incurred by Executive in the course of
meeting with Company directors and officers, performing due diligence and
with respect to all other matters undertaken in connection with the Company
and/or its business prior to the Effective Date. The Executive shall be
entitled to five weeks' vacation per year in accordance with the Company's
vacation policy for senior executives. During the Employment Period, the
Company shall provide the Executive with a suitable apartment in the
vicinity of the Company's principal headquarters in Harrisburg,
Pennsylvania. Following any termination of the Executive's employment with
the Company, other than (a) a termination for Cause (as hereinafter
defined) or (b) a termination by the Executive other than for Good Reason
(as hereinafter defined) prior to the first anniversary of the Effective
Date, the Company shall make an annual payment to the Executive for his
life (and thereafter to his surviving spouse for her life) equal to the
cost to the Executive of purchasing medical coverage substantially
comparable in all material respects to the coverage provided by the Company
to its senior executives (and their spouses and dependents) immediately
prior to such termination. Notwithstanding the foregoing, the payment
described in the preceding sentence shall not be made to the Executive with
respect to any period during which the Company provides such medical
coverage to the Executive and his spouse and dependents pursuant to Section
5(a) or 5(b) hereof.
(d) DEFERRED COMPENSATION; SERVICE CREDIT. As of the Effective
Date, the Company shall establish a non-qualified deferred compensation
plan (the "New Deferred Compensation Plan") for the benefit of the
Executive. As of the first day of each month during the Employment Period,
the Company shall credit Executive's account under the New Deferred
Compensation Plan with an amount equal to $20,000. The Executive shall be
fully vested at all times in his account balance under the New Deferred
Compensation Plan. Promptly following the Effective Date, the Company and
Executive shall negotiate in good faith and agree upon the specific terms
of the New Deferred Compensation Plan, including the applicable investment
vehicle and terms and schedule of payments. In addition, as of the
Effective Date, the Executive and the Company shall enter into the
customary deferred compensation agreement provided to senior executives by
the Company and the Executive shall be deemed to have, as of the Effective
Date, fifteen years of service with the Company for purposes of such
agreement. Such deferred compensation agreement shall provide benefits
which are commensurate with Executive's position and consistent with the
Company's past practice.
(e) EQUITY AWARDS. As of the Effective Date, the Company shall
grant to the Executive (i) an option (the "Option") to purchase 3,000,000
shares of the Company's common stock, par value $1.00 per share ("Company
Stock") and (ii) 600,000 shares of restricted Company Stock (the
"Restricted Stock"), on the terms and conditions set forth in that certain
Restricted Stock and Stock Option Award Agreement (the "Stock Agreement")
attached hereto as Exhibit A and incorporated herein by this reference,
subject in each case however to the acceleration and exercise provisions of
Section 5 hereof and all other applicable provisions of this Agreement. In
the case of any conflict between the terms and conditions of this Agreement
and the terms and conditions of the Stock Agreement, the terms and
conditions of this Agreement shall govern.
(f) INDEMNIFICATION. The Company shall (a) indemnify and hold
Executive harmless, to the full extent permitted under applicable law, for,
from and against any and all losses, claims, costs, expenses, damages,
liabilities or actions (including security holder actions, in respect
thereof) (i) related to or arising out of the Executive's employment with
and service as a director and an officer of the Company (including with
respect to the appointment of officers and other employees) and (ii)
related to or arising out of the termination of Executive's employment with
his prior employer and any subsidiary or affiliate thereof, including
without limitation claims in respect of amounts payable under any
applicable agreement upon or otherwise in connection with such termination
of employment and Executive's commencement of and continuing employment
with the Company and the employment by the Company of any Covered Executive
(as hereinafter defined); and (b) pay all reasonable costs, expenses and
attorney's fees incurred by Executive in connection with or relating to the
defense of any such loss, claim, cost, expense, damage, liability or
action. Following any termination of the Executive's employment or service
with the Company, the Company shall cause any director and officer
liability insurance policies applicable to the Executive prior to such
termination to remain in effect for six (6) years following the Termination
Date.
4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. The Company shall be entitled to
terminate the Executive's employment because of the Executive's Disability
during the Employment Period. "Disability" means that Executive has been
unable, for six consecutive months, to perform the Executive's duties under
this Agreement, as a result of physical or mental illness or injury. The
effective date of any termination of Executive's employment for Disability
is referred to herein as the "Disability Effective Date." A termination of
the Executive's employment by the Company for Disability shall be
communicated to the Executive by written notice, and shall be effective on
the 30th day after receipt of such notice by the Executive, unless the
Executive returns to full-time performance of the Executive's duties before
the Disability Effective Date. During any period prior to the Disability
Effective Date during which Executive is absent from the full-time
performance of his duties with the Company due to such physical or mental
illness or injury, the Company shall continue to pay Executive his Annual
Base Salary and Executive shall be entitled to receive any bonus payable
under the terms of the applicable Annual Bonus Plan(s) in the ordinary
course pursuant to the terms of such Annual Bonus Plan.
(b) TERMINATION BY THE COMPANY. The Company may terminate the
Executive's employment at any time during the Employment Period for Cause
or without Cause. "Cause" shall mean only an act of fraud, embezzlement or
misappropriation by the Executive, in any such case intended by the
Executive to result in substantial personal enrichment at the expense of
the Company. Notwithstanding the foregoing, Executive shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to Executive a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the non-employee members of
the Board at a meeting of the Board called and held for such purpose (after
reasonable written notice to Executive setting forth in reasonable detail
the specific conduct of the Executive upon which the Board relies in
reaching its determination and an opportunity for Executive, together with
his counsel, to be heard before the Board), finding that in the good faith
opinion of the Board, Executive was guilty of the conduct set forth in the
second sentence of this Section 4(b), and Executive shall be entitled to
receive all compensation and benefits hereunder pending the delivery of
such resolution. The effective date of any termination for Cause shall be
the date such resolution is delivered to the Executive.
(c) GOOD REASON. (i) The Executive may terminate employment for
Good Reason or without Good Reason. "Good Reason" shall mean the occurrence
of any one of the following:
A. any (i) adverse alteration in Executive's titles,
positions, status, duties, authorities, reporting relationships or
responsibilities with the Company or its subsidiaries from those
specified in this Agreement, as the same may be augmented from time
to time (it being understood that, if the Company is no longer a
public company, the failure of Executive to hold the position and
duties under Section 2 with any ultimate corporate or other
parent of the Company or any successor shall be deemed to constitute
such Good Reason), (ii) assignment to Executive of any duties or
responsibilities inconsistent with Executive's status as Chairman and
Chief Executive Officer of the Company, (iii) failure of Executive
during the Employment Period to be nominated or re-elected to the
offices of Chairman and Chief Executive Officer or the removal of
Executive from either such office under any circumstances (other than
in connection with the termination of Executive's employment
hereunder) or (iv) failure of the Company to comply with the
provisions of Section 2(a) hereof with respect to New Independent
Directors;
B. any failure by the Company to comply with any
provision of Section 3 of this Agreement;
C. any failure by the Company to comply with
Section 2(c) of this Agreement;
D. any failure by the Company to comply with
paragraph (b) of Section 11 of this Agreement;
E. delivery by the Company to the Executive of
a notice of non-renewal of the Employment Period pursuant to Section 1
hereof; or
F. any other material breach of this Agreement by the
Company; provided, however, that the Company shall have the right,
within ten (10) days after receipt of notice from Executive of the
Company's violation of any one of subparagraphs A, B or F, to cure in
full the event or circumstances giving rise to such Good Reason, in
the event of which cure such event or circumstances shall be deemed
not to constitute Good Reason hereunder.
In addition, any termination of employment by the Executive
within the six month period commencing on the date of a Change in Control
of the Company (as defined in the Stock Agreement) shall be treated as a
termination of employment by the Executive for Good Reason. A termination
of employment by the Executive for Good Reason shall be effectuated by
giving the Company written notice ("Notice of Termination for Good Reason")
of the termination, setting forth in reasonable detail the specific conduct
of the Company that constitutes Good Reason and the specific provision(s)
of this Agreement on which the Executive relies, provided, that Executive's
continued employment shall not be deemed to constitute consent to, or a
waiver of rights with respect to, any act, omission or other grounds
constituting Good Reason hereunder. For clarity, it is understood that the
requirement of setting forth such specific conduct and specific
provisions(s) is intended (i) to permit the Company to make a reasonable
evaluation of Executive's claim of termination for Good Reason and (ii) to
permit the Company, where applicable, to cure such conduct, but not to
require Executive to specify each act, omission or other grounds
constituting Good Reason, there being no intention of the parties that
failure to so specify will function as an estoppel with respect to any
claim by Executive. A termination of employment by the Executive for Good
Reason shall be effective on the latest of (i) the fifth business day
following the expiration of the Company's cure period described above, if
applicable, (ii) the date specified by Executive in the Notice of
Termination for Good Reason or (iii) 45 days following the date the Notice
of Termination for Good Reason is delivered to the Company.
(ii) A termination of the Executive's employment by the
Executive without Good Reason shall be effected by giving the Company at
least 90 days' written notice of such termination, and shall be effective
on the date specified by Executive in such notice, provided, however, that
no such notice period shall be required with respect to any such
termination as to which such written notice of termination is delivered to
the Company following a Change in Control of the Company.
(d) DATE OF TERMINATION. The "Date of Termination" means the
date of the Executive's death, the Disability Effective Date, or the date
on which the termination of the Executive's employment by the Company for
Cause or without Cause or by the Executive for Good Reason or without Good
Reason becomes effective, as the case may be. On the Date of Termination,
the Employment Period shall terminate.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) OTHER THAN
FOR CAUSE OR DISABILITY, OR FOR GOOD REASON. If, during the Employment
Period, the Company terminates the Executive's employment for any reason
other than Cause or Disability, or the Executive terminates his employment
for Good Reason;
(1) the Company shall pay to the Executive, not later than ten (10)
days following the Date of Termination, (i) an amount equal to three
times the sum of (x) the Executive's then current Annual Base Salary
(without giving effect to any reductions thereof) plus (y) the
Executive's then current Annual Target Bonus; (ii) (A) any accrued
but unpaid amounts of the Executive's Annual Base Salary through the
Date of Termination, (B) any bonus under any Annual Bonus Plan
accrued but unpaid through the Date of Termination (including without
limitation any such bonus payable on a date following the
Date of Termination with respect to a fiscal year or other applicable
measuring period completed prior to the Date of Termination), (C) any
other compensation and benefits accrued (and, where applicable,
vested) through the Date of Termination under the terms of the
Company's compensation and benefit plans, programs or arrangements
(including without limitation vacation benefits and the deferred
compensation arrangements referenced in Section 3(d) hereof) as in
effect immediately prior to the Date of Termination (or, if in any
case providing a greater benefit to Executive, as in effect
immediately prior to an event constituting Good Reason) and (D) any
amounts of reimbursable business expenses incurred through the Date
of Termination (all of the items in this clause (ii) are hereinafter
referred to collectively as the "Accrued Benefits"); (iii) an amount
equal to the product of (A) the maximum annual bonus that the
Executive would have been eligible to earn under the Annual Bonus
Plan for the bonus measurement period during which the Date of
Termination occurs, and (B) a fraction, the numerator of which is the
number of days from the first day of such period through the Date of
Termination and the denominator of which is the total number of days
in such measurement period, together with a similarly pro rated bonus
with respect to any applicable long term incentive plan then in
effect; (iv) an amount equal to the sum of the deferred compensation
amounts which would otherwise have been credited to the Executive
pursuant to the New Deferred Compensation Plan had Executive
continued employment with the Company through the end of the then
remaining Employment Period (measured as of the Date of Termination
without regard to any subsequent renewals thereof), without reduction
in any such case to a net or other present value; and (v) if not
theretofore paid, the 1999 Guaranteed Bonus;
(2) medical coverage provided to the Executive immediately prior to
the Date of Termination (or, at Executive's sole discretion, medical
coverage provided to the Executive immediately prior to the
occurrence of any event constituting Good Reason) shall continue to
be provided by the Company to the Executive (and, if applicable, his
spouse and dependents) for three years following the Date of
Termination;
(3) all of the Executive's then outstanding stock options shall vest
and become fully exercisable as of the Date of Termination and (i)
the Option shall remain fully vested and exercisable throughout the
remainder of its ten-year term and (ii) any other outstanding options
to acquire Company securities shall similarly remain exercisable for
the remainder of their stated term, without regard to any early
termination provisions or other terms and conditions otherwise
applicable to such options; and
(4) all remaining restrictions applicable to the Restricted Stock and
any other restricted stock awards shall immediately lapse and any
performance goals or other conditions applicable to any other equity
incentive awards shall immediately be deemed to have been satisfied
in full (with performance goals being deemed to have been satisfied
at targeted levels).
(b) DEATH AND DISABILITY. If the Executive's employment is
terminated by reason of the Executive's death or Disability during the
Employment Period;
(1) the Company shall pay to the Executive or, in the case of the
Executive's death, to the Executive's designated beneficiaries (or,
if there is no such beneficiary, to the Executive's estate or legal
representative), in a lump sum in cash within ten (10) days after the
Date of Termination, the sum of the following amounts: (i) the
Accrued Benefits; (ii) an amount equal to the product of (A) the
maximum annual bonus that the Executive would have been eligible to
earn under the Annual Bonus Plan for the bonus measurement period
during which the Date of Termination occurs, and (B) a fraction, the
numerator of which is the number of days from the first day of such
period through the Date of Termination and the denominator of which
is the total number of days in such measurement period, together with
a similarly pro rated bonus with respect to any applicable long term
incentive plan then in effect; and (iii) if not theretofore paid, the
1999 Guaranteed Bonus;
(2) medical coverage provided to the Executive immediately prior to
the Date of Termination shall continue to be provided by the Company
(i) in the event of Disability, to the Executive (and, if applicable,
his spouse and dependents) or (ii) in the event of Executive's death,
to his surviving spouse (and, if applicable, his dependents), for
three years following the Date of Termination;
(3) all of the Executive's then outstanding stock options shall vest
and become fully exercisable as of the Date of Termination and (i)
the Option shall remain fully vested and exercisable throughout the
remainder of its ten-year term and (ii) any other outstanding options
to acquire Company securities shall similarly remain exercisable for
the remainder of their stated term, without regard to any early
termination provisions or other terms and conditions otherwise
applicable to such options; and
(4) all remaining restrictions applicable to the Restricted Stock and
any other restricted stock awards shall immediately lapse and any
performance goals or other conditions applicable to any other equity
incentive awards shall immediately be deemed to have been satisfied
in full (with performance goals being deemed to have been satisfied
at targeted levels).
(c) BY THE COMPANY FOR CAUSE. If the Executive's employment is
terminated by the Company for Cause during the Employment Period, (1) the
Company shall pay to the Executive the Accrued Benefits within ten (10)
days after the Date of Termination; (2) any portion of the Option or any
other then outstanding stock option that has not been exercised prior to
the Date of Termination shall immediately terminate; and (3) any portion of
the Restricted Stock or any other restricted stock or other equity
incentive awards as to which the restrictions have not lapsed or as to
which any other conditions shall not have been satisfied prior to the Date
of Termination shall be forfeited as of the Date of Termination.
(d) BY THE EXECUTIVE OTHER THAN FOR GOOD REASON. If the
Executive's employment is terminated by Executive (other than for Good
Reason) during the Employment Period;
(1) the Company shall pay to the Executive the Accrued Benefits,
within ten (10) days after the Date of Termination;
(2) any portion of the Option or any other then outstanding stock
option that has not vested and become exercisable prior to the Date
of Termination shall immediately terminate and any portion of the
Option or any other then outstanding stock option that has vested and
become exercisable prior to the Date of Termination shall remain
vested and exercisable for a period of ninety (90) days following the
Date of Termination, at the end of which period such portion of the
option shall terminate, provided, however, that if the Date of
Termination shall be on or after the third anniversary of the
Effective Date, the entire Option shall remain vested and exercisable
throughout the remainder of its ten-year term; and
(3) the restrictions on the Restricted Stock shall continue to lapse
in accordance with the terms of the Stock Agreement as if Executive's
employment with the Company had continued uninterrupted until such
restrictions had lapsed in full; provided, however, that in the event
Executive's employment is terminated by Executive (other than for
Good Reason) prior to the first anniversary of the Effective Date any
portion of the Restricted Stock as to which the restrictions have not
lapsed pursuant to the terms of the Stock Agreement prior to the Date
of Termination shall be forfeited as of the Date of Termination.
(e) (i) In the event that any payment or benefit received or to
be received by the Executive pursuant to the terms of this agreement or of
any other plan, arrangement or agreement of the Company (or any affiliate)
(collectively, the "Payments") would be subject to the excise tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), as determined as provided below, the Company shall
pay to the Executive, at the time specified in Section 5(e)(ii) below, an
additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of the Excise Tax on Payments
and any federal, state and local income and employment or other tax and the
Excise Tax upon the Gross-Up Payment, and any interest, penalties or
additions to tax payable by the Executive with respect thereto, shall be
equal to the total Payments. For purposes of determining whether any of the
Payments will be subject to the Excise Tax and the amounts of such Excise
Tax, (1) the total amount of the Payments shall be treated as "parachute
payments" within the meaning of section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of section 280G(b)(1) of the
Code shall be treated as subject to the Excise Tax, except to the extent
that, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable
to Executive and selected by the accounting firm which was, immediately
prior to the event giving rise to the Payment, the Company's independent
auditor (the "Auditor"), a Payment (in whole or in part) does not
constitute a "parachute payment" within the meaning of section 280G(b)(2)
of the Code, or such "excess parachute payments" (in whole or in part) are
not subject to the Excise Tax, (2) the amount of the Payments that shall be
treated as subject to the Excise Tax shall be equal to the lesser of (A)
the total amount of the Payments or (B) the amount of "excess parachute
payments" within the meaning of section 280G(b)(1) of the Code (after
applying clause (1) hereof), and (3) the value of any noncash benefits or
any deferred payment or benefit shall be determined by the Auditor in
accordance with the principles of sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income taxes at the highest
marginal rates of federal income taxation applicable to the individuals in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rates of taxation applicable to
individuals as are in effect in the state and locality of the Executive's
residence in the calendar year in which the Gross-Up Payment is to be made,
net of the maximum reduction in federal income taxes that can be obtained
from deduction of such state and local taxes, taking into account any
limitations applicable to individuals subject to federal income tax at the
highest marginal rates.
(ii) The Gross-Up Payments provided for in Section 5(e)(i)
hereof shall be made upon the earlier of (i) ten days following the Date of
Termination or (ii) the imposition upon the Executive or payment by the
Executive of any Excise Tax.
(iii) If it is established pursuant to a final determination of
a court or an Internal Revenue Service proceeding that the Excise Tax is
less than the amount taken into account under Section 5(e)(i) hereof, the
Executive shall repay to the Company within thirty (30) days of the
Executive's receipt of notice of such final determination the portion of
the Gross-Up Payment attributable to such reduction (plus the portion of
the Gross-Up Payment attributable to the Excise Tax and federal, state and
local income tax imposed on the portion of the Gross-Up Payment being
repaid by the Executive if and to the extent that such repayment results in
a reduction in Excise Tax and a dollar-for-dollar reduction in the
Executive's taxable income and wages for the purpose of federal, state and
local income taxes) plus any interest received by the Executive on the
amount of such repayment. If it is established pursuant to a final
determination of a court or an Internal Revenue Service proceeding that the
Excise Tax exceeds the amount taken into account hereunder (including
without limitation by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment pursuant to Section
5(e)(i) in respect of such excess within thirty (30) days of the Company's
receipt of notice of such final determination or opinion. The Executive and
the Company shall each reasonably cooperate with the other in connection
with any administrative or judicial proceedings concerning the existence or
amount of liability for Excise Tax with respect to the Payments.
(iv) In the event of any change in, or further interpretation
of, sections 280G or 4999 of the Code and the regulations promulgated
thereunder, the Executive shall be entitled, by written notice to the
Company, to request an opinion of Tax Counsel regarding the application of
such change to any of the foregoing, and the Company shall use its best
efforts to cause such opinion to be rendered as promptly as practicable.
All fees and expenses of the Auditor and Tax Counsel incurred in connection
with this Agreement shall be borne by the Company.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies for which the Executive may qualify, nor shall
anything in this Agreement limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any
of its affiliated companies.
7. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in, and otherwise to perform its obligations under,
this Agreement shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action that the Company may
have against the Executive or others whether in respect of claims made
under this Agreement or otherwise. In no event shall the Executive be
obligated to seek other employment or take any other action by way of
mitigation of the amounts, benefits and other compensation payable or
otherwise provided to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced, regardless of whether the
Executive obtains other employment. In no event shall any amounts, benefits
or other compensation payable or otherwise provided to Executive hereunder
be reduced in respect of, or the Company's obligations to Executive
hereunder be affected by, or any other form of "clawback" provision apply
to, the payment to Executive at any time of any amounts, benefits or other
compensation in respect of his employment with any prior employer.
8. CONFIDENTIAL INFORMATION; COMPETITION; SOLICITATION. During
the Employment Period and for a period of three years following the
applicable Date of Termination, the Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies and their respective businesses that the Executive
obtains during the Executive's employment by the Company or any of its
affiliated companies and that is not public knowledge (other than as a
result of the Executive's violation of this Section 8) ("Confidential
Information") and the Executive shall not communicate, divulge or
disseminate Confidential Information at any time during such period to
anyone other than the Company, appropriate Company personnel and those
other persons designated by the Company, except (i) with the prior written
consent of the Company, (ii) as otherwise required by law or legal process,
(iii) on behalf of the Company in the furtherance of its business or in the
course of performing Executive's duties to the Company or (iv) in the
course of any adversarial proceeding against the Company. During the
Employment Period (and if during the Employment Period (A) the Executive
terminates his employment with the Company without Good Reason or (B) the
Executive is terminated by the Company for Cause, then for one year after
the Date of Termination), (i) the Executive shall not, without the written
consent of the Board, directly or indirectly, knowingly engage or be
interested in (as owner, partner, stockholder, employee, director, officer,
agent, consultant or otherwise), with or without compensation, any
Competitor of the Company, (ii) the Executive shall not, without the
written consent of the Board, directly or indirectly solicit or recruit any
person (other than persons employed in a clerical or other nonprofessional
position) who is then employed by the Company or who was employed by the
Company or any of its subsidiaries or affiliates at any time during the
six-month period preceding the Date of Termination for the purpose of being
employed by the Executive, by any entity or person on whose behalf the
Executive is acting as an agent, representative or employee or by any
Competitor of the Company and (iii) the Executive shall not, without the
written consent of the Board, directly or indirectly, solicit, entice,
persuade or induce any person or entity doing business with the Company and
its subsidiaries and affiliates, to terminate such relationship or to
refrain from extending or renewing the same. For purposes of this Section
8, the term "Competitor of the Company" shall mean any entity a majority of
whose business involves the ownership and operation of retail drug stores,
provided, however, that such term shall not include any entity a majority
of whose business involves the business of the retail sale or wholesale
distribution of food and related products (including, without limitation,
health and beauty care and general merchandise products and all other
products sold to the supermarket industry), regardless of whether such
entity sells certain products of a type found in retail drug stores and
regardless of whether one or more divisions or subsidiaries of such entity,
standing alone, would otherwise be a Competitor of the Company. Nothing
herein, however, shall prohibit the Executive from acquiring or holding not
more than five percent of any class of publicly traded securities of any
such business; provided that such securities entitle the Executive to no
more than five percent of the total outstanding votes entitled to be cast
by security holders of such business in matters on which such security
holders are entitled to vote. In the event of a breach or any threatened
breach of the Section 8, Executive agrees that, in addition to any other
remedy available to the Company at law or in equity, the Company shall be
entitled to injunctive relief in a court of appropriate jurisdiction to
remedy any breach or prevent any threatened breach. Executive further
acknowledges that damages would be inadequate and insufficient to
compensate the Company for any breach of this Section 8.
9. GROUP TERMINATION BY SENIOR EXECUTIVES. As a material
inducement to the Company's willingness to enter into this Agreement and
the Stock Agreement, the Executive agrees that he will not deliver to the
Company a notice of termination pursuant to Section 5(c)(ii) hereof within
thirty days of the delivery of a similar notice by any of the persons
listed on Exhibit B hereto (individually each a "Covered Executive" and
collectively, the "Covered Executives") pursuant to the terms of such
Covered Executive's employment agreement with the Company; provided,
however, that the preceding clause shall be void and of no force and effect
from and after the occurrence of a Change in Control of the Company.
10. DISPUTE RESOLUTION; ATTORNEYS' FEES. All disputes arising
under or related to the employment of the Executive by the Company or the
provisions of this agreement shall be settled by arbitration under the
rules of the American Arbitration Association then in effect, such
arbitration to be held in Portland, Oregon, as the sole and exclusive
remedy of either party and judgment on any arbitration award may be entered
in any court of competent jurisdiction. The Company agrees to reimburse all
reasonable legal fees and other expenses incurred by the Executive in any
such dispute if the Executive prevails as to one or more of the material
issues in the dispute. Promptly following the Effective Date, the Company
shall reimburse the Executive for legal fees and expenses incurred by the
Executive in negotiating and entering into this Agreement and the New
Deferred Compensation Agreement (and incidental matters contemplated
hereby) up to a maximum of $37,500.
The Company shall also promptly reimburse the Executive for
legal fees, costs and expenses incurred in any dispute, arbitration or
other litigation relating to or arising out of the termination of
Executive's employment with his prior employer and any subsidiary or
affiliate thereof, including without limitation claims in respect of
amounts payable under any applicable agreement upon or otherwise in
connection with such termination of employment and Executive's commencement
of and continuing employment with the Company (including with respect to
the appointment of officers and other employees) and the employment by the
Company of any Covered Executive.
11. SUCCESSORS. (a) No rights or obligations of Executive under
this Agreement may be assigned or transferred by Executive other than his
rights to payments, benefits or other compensation hereunder, which
(without the prior written consent of the Company) may be transferred only
by will or the laws of descent and distribution or as otherwise provided in
the Stock Agreement. Upon Executive's death, this Agreement and all rights
of Executive hereunder shall inure to the benefit of and be enforceable by
Executive's beneficiary or beneficiaries, personal or legal
representatives, or estate, to the extent any such person succeeds to
Executive's interests under this Agreement. Executive shall be entitled to
select and change a beneficiary or beneficiaries to receive any payment,
benefit or other compensation payable hereunder following Executive's death
by giving the Company written notice thereof. In the event of Executive's
death or a judicial determination of his incompetence, reference in this
Agreement to Executive shall be deemed, where appropriate, to refer to his
beneficiary or beneficiaries, estate or other legal representative(s).
(b) No rights or obligations of the Company under this
Agreement may be assigned or transferred except that the Company shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would
have been required to perform it if no such succession had taken place. As
used in this Agreement, the "Company" shall mean both the Company as
defined above and any successor to its business and/or assets (by merger,
purchase or otherwise) which executes and delivers the agreement provided
for in this Section 11(b) or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law or otherwise.
12. COMPANY REPRESENTATION. The Company represents and warrants
to the Executive that (i) it has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder in full, (ii) the execution and delivery of this
Agreement by the Company and the performance of its obligations hereunder
have been duly and validly authorized by all necessary corporate action and
(iii) no other corporate proceedings on the part of the Company (including
on the part of the shareholders of the Company) are necessary to authorize
this Agreement or perform such obligations. This Agreement has been duly
and validly executed and delivered by the Company and constitutes a legal,
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms.
13. MISCELLANEOUS. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Oregon, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect.
This Agreement may not be amended or modified except by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications under this Agreement
shall be in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested, postage
prepaid, or by a nationally recognized overnight courier addressed as
follows:
If to the Executive:
Xxxxxx X. Xxxxxx
0305 XX Xxxxxxxxxx #F508
Xxxxxxxx, XX 00000
If to the Company:
Rite Aid Corporation
00 Xxxxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxxxx 00000
Attention: General Counsel
or to such other address as either party furnishes to the other in writing
in accordance with this paragraph (b) of Section 13. Notices and
communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be
held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall
remain valid and enforceable and continue in full force and effect to the
fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by
applicable laws or regulations.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provisions of, or to assert, any right under,
this Agreement (including, without limitation, the right of the Executive
to terminate employment for Good Reason pursuant to paragraph (c) of
Section 4 of this Agreement) shall not be deemed to be a waiver of such
provision or right or of any other provision of or right under this
Agreement.
(f) Except as provided in the Stock Agreement, the rights and
benefits of the Executive under this Agreement may not be anticipated,
assigned, alienated or subject to attachment, garnishment, levy, execution
or other legal or equitable process except as required by law. Except as
provided in the Stock Agreement, any attempt by the Executive to
anticipate, alienate, assign, sell, transfer, pledge, encumber or charge
the same shall be void. Payments hereunder shall not be considered assets
of the Executive in the event of insolvency or bankruptcy.
(g) This Agreement (together with the exhibits hereto) sets
forth the entire agreement of the parties hereto in respect of the subject
matter construed herein and supersedes all prior agreements, promises,
covenants, arrangements, communications, representations or warranties,
whether oral or written by any party or any officer or other representative
of such party in respect of such subject matter.
(h) This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and said counterparts shall
constitute but one and the same instrument.
(i) This Agreement shall survive the termination of the
Employment Period and the termination of Executive's employment hereunder
under any circumstances to the extent necessary to give effect to its
provisions.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to due authorization, the Company has caused
this Agreement to be executed in its name on its behalf, all as of the day
and year first above written.
RITE AID CORPORATION
-----------------------------------------
By: Xxxxxxx Xxxxx
Title: Chairman of the Board
-----------------------------------------
Xxxxxx X. Xxxxxx
