-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DnvCdH457HM59zoyR6xx5zzaXQPKC3BLzHwy0yXgrF4vlvCJ40Re1TTS0i+Gi0RB AW0HdOFBD3G42C7HEQf7kA== 0000031364-96-000001.txt : 19960501 0000031364-96-000001.hdr.sgml : 19960501 ACCESSION NUMBER: 0000031364-96-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19960203 FILED AS OF DATE: 19960430 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ECKERD CORP CENTRAL INDEX KEY: 0000031364 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 133302437 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04844 FILM NUMBER: 96553797 BUSINESS ADDRESS: STREET 1: 8333 BRYAN DAIRY ROAD CITY: LARGOO STATE: FL ZIP: 34647 BUSINESS PHONE: 8133996000 MAIL ADDRESS: STREET 1: JACK ECKERD CORPORATION STREET 2: P O BOX 4689 CITY: CLEARWATER STATE: FL ZIP: 34618 FORMER COMPANY: FORMER CONFORMED NAME: ECKERD DRUGS OF FLORIDA INC DATE OF NAME CHANGE: 19700112 10-K 1 ANNUAL REPORT - FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended February 3, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission File Number 1-4844 ECKERD CORPORATION (Exact name of registrant as specified in its charter DELAWARE 13-3302437 (State of incorporation) (I.R.S. Employer Identification No.) 8333 Bryan Dairy Road Largo, FL 34647 (Address and zip code of principal executive offices) (813) 399-6000 (Registrant's telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each Title of each class exchange on which registered ------------------- ---------------------------- Common Stock, par value $.01 New York Stock Exchange 9 1/4% Senior Subordinated Notes Due 2004 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Company as of March 29, 1996 was $1,548,335,443 (Calculated on the assumption that all directors, all executive officers, and certain entities affiliated with Merrill Lynch & Co. are affiliates). As of March 29, 1996, 69,966,834 shares of common stock, par value $.01, were outstanding (adjusted to give effect to a two-for-one stock split payable in the form of a stock dividend declared April 1, 1996 and payable on or about May 13, 1996). DOCUMENTS INCORPORATED BY REFERENCE (1) Certain portions of the Annual Report to Stockholders for the fiscal year ended February 3, 1996 Parts II & IV (2 Certain portions of the Definitive Proxy Statement for Stockholder Meeting to be held on May 23, 1996 Part III ECKERD CORPORATION FEBRUARY 3, 1996 FORM 10-K ANNUAL REPORT Table of Contents Item Page - ---- PART I ---- 1. Business 3 2. Properties 9 3. Legal Proceedings 10 4. Submission of Matters to a Vote of Security Holders 10 Executive Officers of the Registrant 10 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters 12 6. Selected Financial Data 12 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 8. Financial Statements and Supplementary Data 13 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 13 PART III 10. Directors and Executive Officers of the Registrant 13 11. Executive Compensation 13 12. Security Ownership of Certain Beneficial Owners and Management 14 13. Certain Relationships and Related Transactions 14 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 14 2 PART I Item 1. Business General Eckerd Corporation (the "Company" or "Eckerd") operates the Eckerd drug store chain, which is one of the largest drug store chains in the United States. At February 3, 1996, the Eckerd chain consisted of 1,715 stores in 13 states located primarily in the Sunbelt. Over its 43-year history, the Eckerd drug store chain has built a strong market position in areas where demographic characteristics are favorable to drug store growth. The Company's stores are concentrated in 10 of the 12 metropolitan statistical areas with the largest percentage growth in population from 1980 to 1990, and, according to industry sources, the Company ranks first or second in terms of drug store sales in 12 of the major metropolitan markets in which it operates. The primary focus of Eckerd stores is the sale of prescription and over-the-counter drugs, which, during fiscal 1995, generated approximately 62% of the Company's sales. Eckerd stores sell a wide variety of nonpharmacy merchandise, including health and beauty aids, convenience foods, greeting cards and numerous other convenience products. Another significant focus of Eckerd stores is photofinishing. The Company offers overnight photofinishing services in all Eckerd stores and at February 3, 1996 operated Eckerd Express Photo one-hour photofinishing mini-labs in 515 stores. The Company believes that customer service and convenience are critical in positioning itself as the alternative to mass merchandisers, supermarkets and other large format retailing channels. The Company emphasizes service and convenience through pharmacy support services, store location and design, merchandising programs and operating hours geared to the needs of the particular market. The Company was formed in 1985 for the purpose of acquiring the former Jack Eckerd Corporation ("Old Eckerd"), in a leveraged buyout in April 1986 (the "Acquisition"). On August 12, 1993, the Company completed an initial public offering (the "IPO") in which it issued and sold 10,350,000 shares of Common Stock for $7.00 per share (adjusted for the two-for-one stock split declared April 1, 1996 and payable on or about May 13, 1996). In connection with the IPO the Company's name was changed from "Jack Eckerd Corporation" to "Eckerd Corporation." The Drug Store Industry Prescription and over-the-counter medications have traditionally been sold by independent drug stores as well as drug store chains, such as Eckerd. The drug store industry has recently undergone significant changes as a result of the following important trends: (i) the increase in third-party payments for prescription drugs, (ii) the consolidation within the drug store industry, (iii) the aging of the United States population and (iv) the increase in competition from non-traditional retailers of prescription and over-the-counter drugs. During the last several years, a growing percentage of prescription drug volume throughout the industry has been accounted for by sales to customers who are covered by third-party payment programs ("managed care sales"). In a typical managed care sale, the drug store has a contract with a managed care payor, such as an insurance company, health maintenance organization ("HMO"), preferred provider organization ("PPO"), other managed care provider, government agency or 3 private employer, which agrees to pay for part or all of the customer's eligible prescription purchases. Although these managed care sales contracts often provide a high volume of prescription sales, such sales typically generate lower gross margins than non-managed care sales due principally to the highly competitive nature of this business and the high level of competition between managed care firms and the resulting efforts to reduce costs. Larger drug store chains, such as Eckerd, are better able to service the growing managed care segment than independent drug stores and smaller chains as a result of the larger chains' more sophisticated technology systems, larger number of stores and greater penetration within their markets. As a result of the economies of scale from which larger drug store chains benefit as well as the managed care payment trend, the number of independent drug stores and smaller drug store chains has decreased as many of such retailers have been acquired by larger drug store chains. This trend is expected to continue because larger chains are better positioned to handle the increased managed care sales, purchase inventory on more advantageous terms and achieve other economies of scale with respect to their marketing, advertising, distribution and other expenditures. The Company believes that the number of independent drug stores and smaller drug store chains remaining in operation may provide significant acquisition opportunities for larger drug store chains, such as the Company. Strong demographic trends have also contributed to changes in the drug store industry, as the group of persons over age 50 is the fastest growing segment of the United States population. This trend has had, and is expected to continue to have, a marked effect on the pharmacy business in the United States because consumer prescription and over-the-counter drug usage generally increases with age. The Company's markets have large concentrations of, and are continuing to experience significant growth in, the number of persons over age 65. Eckerd Drug Stores As of February 3, 1996, the Company operated the number of Eckerd stores and Eckerd Express Photo centers indicated below in each of the following states: Drug Stores Eckerd With Eckerd Drug Express Photo Stores Centers ------ ------- Florida 575 247 Texas 475 138 North Carolina 178 46 Georgia 163 46 Louisiana 95 20 South Carolin 76 13 New Jersey 38 1 Tennessee 35 1 Mississippi 26 - Oklahoma 26 - Alabama 16 3 Delaware 11 - Maryland 1 - ----- --- Total 1,715 515 ===== === 4 Over the past five years the Company has implemented several initiatives designed to improve the quality and operating performance of the Company's store base. Among such initiatives are the opening, relocation and acquisition of additional stores, the closure or divestiture of underperforming stores and an extensive remodeling program. Since the beginning of fiscal 1990, 390 Eckerd drug stores have been opened or acquired within the Company's existing markets, more than 300 underperforming stores have been closed or divested, and more than 50% of the Company's remaining stores have been remodeled. In addition, the Company opened more than 300 Express Photo centers. The Company has also increased the degree to which merchandise is tailored to specific markets, instituted a chainwide shrinkage reduction program and made a significant investment in its management information systems. The following table summarizes the number of Eckerd drug stores operated by the Company and the sales on an aggregate and per store basis for the last five years.
Fiscal Years ------------ 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Number of Eckerd drug stores at beginning of period 1,735 1,718 1,696 1,675 1,673 Stores opened or acquired (1) 88 (2) 39 52 50 22 Stores sold or closed (108) (3) (22) (30) (29) (20) ----- ---- ---- ---- ---- Number of Eckerd drug stores at end of period 1,715 1,735 1,718 1,696 1,675 ===== ===== ===== ===== ===== Number with Express Photo centers 515 481 413 378 321 Sales of Eckerd drug stores (in thousands) $4,986,804 4,436,926 4,052,302 3,759,246 3,629,037 Average annual sales per Eckerd drug store (in thousands) $2,925 2,584 2,388 2,244 2,163
(1) Excludes relocations. (2) Includes 40 Florida stores acquired from Rite Aid of Florida, Inc. (3) Consists of (i) 84 stores that were closed as a result of the Company's decision in the fourth quarter of fiscal 1994 to accelerate the closing of approximately 90 geographically dispersed, under-performing stores, and (ii) 24 stores closed in the normal course of business. The Company intends to continue to expand its business through both internal expansion and acquisitions of drug store chains and independent drug stores. Although the Company currently plans to expand within the Company's existing markets, the Company also considers strategic acquisitions in other markets. The Company opened or acquired 120 drug stores including 32 relocations in fiscal 1995 and has a goal of opening (including relocations) 100 drug stores in fiscal 1996 and expects the rate of new store development to accelerate about 20% each year thereafter, through fiscal 2000. The majority of the new and relocated stores are expected to be freestanding locations. In addition to such openings and acquisitions, the Company expects to sell or close a small number of drug stores per year in fiscal 1996 and thereafter through fiscal 2000. The cash costs associated with opening a drug store are estimated to be approximately $545,000, which includes initial inventory costs of approximately $315,000. The Company intends to use cash flow from operations to finance the cash costs of this growth, although borrowings may also be available to finance such growth. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." In determining the areas in which to open or acquire drug stores, the Company evaluates a number of demographic considerations, including the size, growth pattern and per capita income of the population, as well as the competitive environment and the accessibility of a proposed site to the customer and to the Company's warehouse and distribution facilities. The Company also continually reviews these factors and the performance of individual stores in determining whether to close or relocate certain stores. 5 Products and Services Pharmacy The primary focus of Eckerd drug stores is the sale of prescription and over-the-counter drugs. The Company seeks to position pharmacists as health-care professionals who build relationships with their customers. Over the years, marketing and advertising campaigns have been focused on reinforcing the professionalism of the Company's pharmacists and positioning them as a key factor in high quality pharmacy service. The Company has also instituted several health-related programs such as health screenings, education and outreach programs. Eckerd pharmacy departments are modern, clean and clearly identified by attractive signs. The pharmacy areas in the Company's newer and remodeled stores provide a consultation area and a waiting area with comfortable seating, informational brochures and free blood pressure testing. The pharmacy areas are designed to be conducive to customer service and counseling by the pharmacists. The Company has devoted substantial resources to marketing to managed care payors, such as insurance companies, HMO's, PPO's and other managed care providers and government agencies. This effort has produced managed care sales of approximately 71% of prescription sales in fiscal 1995 compared to approximately 36% in fiscal 1990. The Company's computer systems provide on-line adjudication which permits the Company and the managed care payor to determine electronically, at the time of sale, eligibility of the customer, coverage of the prescription and pricing and co-payment requirement, if any, and automatically bills the respective plan. On-line adjudication reduces losses from rejected claims and eliminates a portion of the Company's paperwork for billing and collection of receivables and costs associated therewith. Nonpharmacy Merchandise In addition to prescription and over-the-counter drugs, Eckerd stores sell a wide variety of nonpharmacy merchandise, including health and beauty aids, convenience foods, greeting cards and numerous other convenience products. Eckerd-brand products, which are attractively priced and provide higher margins than similar national brand products, represent a growing segment of products offered. Items such as Eckerd Award soft drinks, bottled water and cookies are recent additions to the Eckerd brand products offered by Eckerd stores. Health merchandise offerings include a broad assortment of popular national brands as well as private label over-the-counter drugs and other products related to dental care, foot care, vitamins and nutritional supplements, feminine hygiene, family planning and baby care. Eckerd stores offer an assortment of popular brand name cosmetics, fragrances and other beauty products. Skin care products are an increasingly important component of the beauty category due to the aging population and growing concern about the effects of the environment on the skin. The greeting card department in Eckerd stores offers a wide selection of contemporary and traditional cards, gift wrap, bows and novelties. This wide selection and the locations of its stores should enable customers to satisfy their card and gift needs more conveniently than at traditional card stores. The convenience products merchandise category consists of an assortment of items, including candy, soft drinks, cookies, bottled water, tobacco products, books and magazines, household products, seasonal merchandise and toys. The Company also seeks to serve its customers' needs by specifically tailoring items in this category to meet the needs of its customers in specific store locations. 6 Photofinishing The Company believes that it is the leading source of photofinishing in all of the major markets in which it operates. The Company believes that its branded processing programs, which emphasize quality and service, have helped position the Company as a leader in photofinishing. The Company's photo departments also offer camera and photo accessories, small electronics, batteries and audio and video tapes. Store Operations The Company will continue to remodel and reset its stores to provide modern, well-identified stores, which are easily accessible to customers and will seek to open new stores in easily accessible high traffic locations. The Company also tailors its merchandising to provide the product mix and selection to best serve the customers of each particular store. The Company typically provides several conveniently located, modern stores in a community. The Company's stores range in size from 8,200 to 11,000 square feet and are located primarily in neighborhood strip centers or freestanding locations. Such stores are typically open every day of the year except Christmas, with some open until midnight or 24 hours a day. Purchasing and Distribution Merchandising, buying and supplier payments are generally centralized at Company headquarters to assure consistency and efficiency. The Company uses an electronic buying system to aid in inventory and gross profit management which enables the Company to take better advantage of quantity discounts and forward buying opportunities, which the Company believes will lower the average cost of inventory. Approximately 85% of store merchandise is purchased centrally and distributed, principally by Company-operated trucks, through the Company's five centrally located distribution facilities located in or near Orlando, Florida; Atlanta, Georgia; Charlotte, North Carolina; and Dallas and Houston, Texas. The remainder of store merchandise is shipped directly to the stores, some of which is purchased at the store level. Advertising and Marketing A combination of newspaper advertising and TV and radio commercials is used throughout the year to promote sales. The Company's concentration of stores within its markets enables it to achieve economies of scale in its advertising and marketing expenditures and also enables the Company to negotiate favorable rates for advertising time and print production. The Company believes that its current level of advertising expenditures is appropriate to support its existing marketing strategies. Information and Technology The Company intends to continue to invest in information systems to improve customer service, reduce operating costs, provide information needed to support management decisions and enhance the Company's competitive position with managed care payors. In fiscal 1994 and 1995 the Company completed the installation of a satellite communications network, enhanced the point of sale ("POS") reporting system and enhanced the merchandise and store information management systems. In fiscal 1996 the Company will complete the rollout of POS scanning equipment to all stores and also complete the installation of a state of the art pharmacy system for the stores. 7 In 1993, the Company and Integrated Systems Solutions Corporation ("ISSC"), a wholly-owned subsidiary of IBM, entered into a Systems Operations Service Agreement. Under the Company's supervision, ISSC manages the entire information systems operation and is responsible for providing technology services to the Company. The Systems Operations Services Agreement has a 10-year term, and the total payments to be made by the Company thereunder are expected to be $480.0 million over such term, based on currently anticipated services. The Company believes that this arrangement has and will continue to enable the Company to further improve customer service, replace the Company's existing systems, reduce operating costs and capital expenditures for hardware, obtain information needed to support management decisions on an improved basis and increase the Company's focus on its core business. Competition The Company's retail drug stores operate in a highly competitive industry. The Company's drug stores compete primarily on the basis of customer service, convenience of location and store design, price and product mix and selection. In addition to traditional competition from independent drug stores and other drug store chains, the Company faces competition from discount stores, supermarkets, combination food and drug stores, mail order distributors, hospitals and HMOs. These other formats have experienced significant growth in their market share of the prescription and over-the-counter drug business. The Company's Express Photo centers compete with a variety of photo processors including other mini-labs, retail stores and photo specialty stores. The Company's Express Photo business competes primarily on the basis of quality of processing, quality and speed of service and value. Seasonality The Company's sales and earnings are higher during peak holiday periods and from Christmas through Easter in selected geographic areas. Sales of health-related products peak during seasonal outbreaks of cough and cold/flu virus, typically during the winter and spring. Accordingly, sales and earnings are typically highest in the fourth quarter followed by the first quarter. Regulation All of the Company's pharmacists and stores are required to be licensed by the appropriate state boards of pharmacy. The Company's drug stores and distribution centers are also registered with the Federal Drug Enforcement Administration. Most of the stores sell beer and wine and are subject to various state and local liquor licensing requirements. By virtue of these license and registration requirements, the Company is obligated to observe certain rules and regulations, and a violation of such rules and regulations could result in a suspension or revocation of a license or registration. The Company has a number of managed care payor contracts pursuant to which the Company is a provider of prescription drugs. "Freedom of choice" state statutes, pursuant to which all pharmacies would be entitled to be a provider under such a contract, have been enacted in certain states, including Alabama, Delaware, Georgia, Louisiana, Maryland, Mississippi, New Jersey, North Carolina, South Carolina, Tennessee and Texas, and may be enacted in others. Although such 8 statutes may adversely affect certain of the Company's managed care contracts, they may also provide the Company with opportunities regarding additional managed care contracts. In recent years, an increasing number of legislative proposals have been introduced or proposed in Congress and in some state legislatures that would effect major changes in the health care system, either nationally or at the state level. The Company cannot predict whether any federal or state health care reform legislation will eventually be passed, and if so, the impact thereof on the Company's financial position or results of operations. Health care reform, if implemented, could adversely affect the pricing of prescription drugs or the amount of reimbursement from governmental agencies and managed care payors, and consequently could be adverse to the Company. However, to the extent health care reform expands the number of persons receiving health care benefits covering the purchase of prescription drugs, it may also result in increased purchases of such drugs and could thereby have a favorable impact on both the Company and the retail drug industry in general. Nevertheless, there can be no assurance that any future federal or state health care reform legislation will not adversely affect the Company or the retail drug store industry generally. Employees As of February 3, 1996, the Company had approximately 44,600 employees, of which 23,300 were full-time employees. The Company believes that overall employee relations are good. None of the Company's employees are represented by unions. Patents, Trademarks and Tradenames No patent, trademark, license, franchise or concession is considered to be of material importance to the business of the Company other than the trade names under which the Company operates its retail businesses, including the Eckerd name. The Company also holds servicemarks for its photofinishing products, private label products and information systems. Item 2. Properties The Company conducts substantially all of its retail businesses from stores located in leased premises. Substantially all of these leases will expire within the next twenty years. In the normal course of business, however, it is expected that leases will be renewed through the exercise of existing options or amendments, or replaced by leases on other properties. Most of the Company's store leases provide for a fixed minimum rental together with a percentage rental based on sales. The material office and distribution center properties owned or leased by the Company at February 3, 1996 are as follows: Owned or Location Square Feet Leased -------- ----------- -------- Largo, Flor 488,000 Owned (1) Charlotte, North 587,000 Owned Garland, Texas 270,000 Owned Conroe, Texas 345,000 Owned Orlando, Florida 587,000 Leased (2) Newnan, Georg 244,000 Owned (3) Hammond, Louisia 185,000 Owned (3)(4) 9 ------------------------------ (1) Includes the Company headquarters. (2) In January 1993 the Company assumed a lease for an office and distribution facility of approximately 587,000 square feet (lease expires 2005). The Company's existing Orlando facilities and the Largo distribution center facility were consolidated into the new facility during 1993. (3) Construction was financed pursuant to revenue bond issues. Because these properties are currently leased subject to nominal purchase options with development authorities which the Company anticipates it will exercise, they are listed as owned by the Company. (4) The Company closed the Hammond distribution center and previously subleased the former Hammond, Louisiana office and distribution center. The property has been listed for sale. The Company considers that all property owned or leased is well maintained and in good condition. Item 3. Legal Proceedings In the ordinary course of its business, the Company and its subsidiaries are parties to various legal actions which the Company believes are routine in nature and incidental to the operation of the business of the Company and its subsidiaries. The Company believes that the outcome of the proceedings to which the Company and its subsidiaries currently are parties will not have a material adverse effect upon its operations or financial condition. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the last quarter of the fiscal year ended February 3, 1996. Executive Officers of the Registrant The name, age and office of the executive officers of the Company as of February 3, 1996 and certain information relating to their business experience are set forth below: Name Age Position - ---- --- -------- Stewart Turley 61 Director, Chairman of the Board Francis A. Newman 47 Director, President and Chief Executive Officer James M. Santo 54 Executive Vice President/Administration and Secretary Samuel G. Wright 45 Executive Vice President and Chief Financial Officer Kenneth L. Flynn 51 Senior Vice President/Store Operations Edward W. Kelly 50 Senior Vice President/Merchandising Richard R. Powis 48 Senior Vice President/Pharmacy Services Martin W. Gladysz 43 Vice President/Treasurer Robert E. Lewis 35 Vice President/General Counsel and Assistant Secretary Thomas M. Nash 48 Vice President/Real Estate N. John Simmons, Jr. 40 Vice President/Controller Mr. Turley has served as Chairman of the Board of the Company since 1986. He served as Chief Executive Officer of the Company from 1986 until February 1996 and as President of the Company from 1986 until July 1993. He joined Old Eckerd in 1966 and served as Senior Vice President (1971-1974) and President and Chief Executive Officer (1974-1975) prior to being elected to Chairman of the Board, President and Chief Executive Officer. He is also a 10 director of Barnett Banks, Inc., Sprint Corporation and Springs Industries, Inc. He has been a director of the Company since 1986, and was a director of Old Eckerd between 1971 and 1986. Mr. Newman has been Chief Executive Officer of the Company since February 1996. He is also President, Chief Operating Officer and a director of the Company, positions he has held since July 1993. Prior to joining the Company, Mr. Newman served as President, Chief Executive Officer and a director of F&M Distributors, Inc. ("F&M"), a drug store chain, since 1986. F&M filed bankruptcy under Chapter 11 of the United States Bankruptcy Code in December 1994. Prior to joining F&M, he was the Executive Vice President of Household Merchandising, Inc., a retail firm, from 1984 to 1986 and the Senior Vice President of Merchandising for F.W. Woolworth, a retail firm, from 1980 to 1984. Mr. Newman is also a director of FabriCenters of America, a retail firm. Mr. Santo was appointed Executive Vice President/Administration of the Company in May 1995. Prior thereto he served as Senior Vice President/Administration (February 1993) and was also Vice President/Legal Affairs of the Company, a position he held for more than the past five years prior to 1993. In addition, Mr. Santo was appointed Secretary of the Company effective January 1, 1992. Mr. Wright was appointed Executive Vice President/Chief Financial Officer of the Company in May 1995. Prior thereto he was appointed Senior Vice President and Chief Financial Officer in February 1995. Mr. Wright also served as Senior Vice President/Finance from February 1993 until February 1995 and Vice President and Controller of the Company, from September 1988 until February 1993. Mr. Wright became a Vice President of the Company in June 1986. In addition, Mr. Wright served as Vice President of Finance of Eckerd Drug Company, formerly Old Eckerd's principal subsidiary ("Eckerd Drug Company") and now the Company's principal division, since May 1985. Mr. Flynn was appointed Senior Vice President/Store Operations of the Company in December 1994. Prior to joining the Company, Mr. Flynn was Executive Vice President with the Thrifty/Payless drug chain in Portland, Oregon. Prior to joining Thrifty/Payless in August 1993, Mr. Flynn was employed by Lucky Stores, Inc. for over 30 years, most recently as Senior Vice President/Store Operations. Mr. Kelly was appointed Senior Vice President/Merchandising of the Company in February 1993. Prior thereto he served as Vice President of Merchandising of Eckerd Drug Company for more than the preceding five years. Mr. Powis was appointed Senior Vice President/Pharmacy Services of the Company in April 1995. Prior to joining the Company, he was Senior Vice President Pharmacy Services for the American Board of Retired Persons ("AARP"). Prior to joining AARP in September 1994, Mr. Powis was employed for over 19 years by Hooks SupRx, Inc., most recently as Senior Vice President Pharmacy Services. Mr. Gladysz was appointed Vice President/Treasurer of the Company in May 1994. Prior to joining the Company, Mr. Gladysz was Executive Vice President/Treasurer for Fortune Bancorp, a Florida banking organization, a position he held for more than the five years prior to 1994. Mr. Lewis was appointed Vice President/General Counsel and Assistant Secretary of the Company in August 1994. He was a shareholder in the law firm of Shackleford, Farrior, Stallings & Evans, P.A. in Tampa, Florida, from January 1992 to August 1994 and was an associate at that firm for more than five years prior thereto. 11 Mr. Nash was appointed Vice President/Real Estate of the Company in August 1995. Prior to joining the Company, he served as Vice President Real Estate at Checkers Drive-In Restaurants, Inc. from 1993 until 1995 and at Morrison Restaurants, Inc. from 1990 until 1993. Mr. Simmons was appointed Vice President/Controller of the Company in August 1995. Prior to joining the Company, Mr. Simmons served as Vice President of Finance and Chief Financial Officer of Checkers Drive-In Restaurants, Inc. from January 1993 until August 1995. Prior thereto, he was a partner at KPMG Peat Marwick LLP for more than the preceding five years. Officers are elected for a one-year term by the Board of Directors at its annual meeting. There is no family relationship between any of the aforementioned officers or directors of the Company. PART II Item 5.Market for the Registrant's Common Equity and Related Stockholder Matters The Company's common stock is listed on the New York Stock Exchange (Symbol: ECK). The approximate number of shareholders of record on March 29, 1996 was 965. All market price per share information below has been restated to reflect a two-for-one stock split effected in the form of a stock dividend declared April 1, 1996 (payable on or about May 13, 1996). Fiscal 1995 Quarter Ended Market Price ------------- Per Share Information 4/29/95 7/29/95 10/28/95 2/3/96 - --------------------- ------- ------- -------- ------ High 15.12 17.31 21.00 22.37 Low 12.25 14.19 16.31 19.06 Fiscal 1994 Quarter Ended Market Price ------------- Per Share Information 4/30/94 7/30/94 10/29/94 1/28/95 - --------------------- ------- ------- -------- ------- High 12.00 12.62 15.75 16.00 Low 9.25 9.06 11.62 12.69 The Company is subject to restrictive covenants under its Credit Agreement and the 9 1/4% Senior Subordinated Notes which restrict the payment of dividends. The Company has not paid or declared any dividends on its common stock. Item 6. Selected Financial Data The selected financial information required by this item is included in the Company's 1995 annual report to stockholders on page 11 under the heading "Five Year Financial Operating Summary." Such information is incorporated herein by reference. The ratio of earnings to fixed charges was 2.1X, 1.7X and 1.0X in fiscal 1995, 1994 and 1991, respectively. In fiscal 1993 and 1992 earnings were inadequate to cover fixed charges, and the Company had a deficiency in earnings to fixed charges of $2,941,000 and $4,123,000 in fiscal 1993 and 1992, respectively. 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is included in the Company's 1995 annual report to stockholders on pages 12 through 15 under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition." Such information is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The following consolidated financial statements as of February 3, 1996 and January 28, 1995 and for each of the years in the three year period ended February 3, 1996 included in the Company's 1995 annual report to stockholders on pages 16 through 27 are incorporated herein by reference: Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Stockholders' Equity (Deficit) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Information on selected quarterly financial data also required by this item is included in the Company's 1995 annual report to stockholders on page 30 under the heading "Quarterly Information (Unaudited)." Such information is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant Information required by this item regarding the directors of the Company is included in the Company's definitive proxy statement dated April 23, 1996 for the 1996 annual meeting of stockholders on pages 2 through 4 under the headings "Nominees For Election of Directors In Class III With Terms Expiring in 1999"; "Directors in Class I With Terms Expiring in 1997" and "Directors in Class II With Terms Expiring in 1998." Such information is incorporated herein by reference. Information required by this item regarding executive officers of the Company is contained in Part I of this Form 10-K under the item entitled "Executive Officers of the Registrant." Information required by this item regarding compliance with Section 16(a) of the Exchange Act is included in the Company's definitive proxy statement dated April 23, 1996 for the 1996 annual meeting of stockholders on page 5 under the heading "Security Ownership of Certain Persons." Such information is incorporated herein by reference. Item 11. Executive Compensation Information regarding management remuneration is included in the Company's definitive proxy statement dated April 23, 1996 for the 1996 annual meeting of stockholders on pages 1 and 2, and 7 through 13 under the headings 13 "Nomination and Election of Directors" and "Executive Compensation." Such information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information regarding security ownership of certain beneficial owners and of management is included in the Company's definitive proxy statement dated April 23, 1996 for the 1996 annual meeting of stockholders on pages 5 and 6 under the heading "Security Ownership Of Certain Persons." Such information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information regarding certain relationships and related transactions is included in the Company's definitive proxy statement dated April 23, 1996 for the 1996 annual meeting of stockholders on pages 12 and 16 under the headings "Executive Compensation - Compensation Committee Interlocks and Insider Participation" and "Certain Transactions." Such information is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Listed below are all financial statements, notes, schedules, and exhibits filed as part of this Form 10-K annual report: (a) Financial Statements and Schedules 1. The following financial statements and schedules of the Company together with the Report of Independent Certified Public Accountants dated March 26, 1996 in this Form 10-K are filed herewith: Eckerd Corporation and Subsidiaries Financial Statements: Independent Auditors' Report Consolidated Balance Sheets as of February 3, 1996 and January 28, 1995 Consolidated Statements of Operations for the Years Ended February 3, 1996, January 28, 1995 and January 29, 1994 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended February 3, 1996, January 28, 1995 and January 29, 1994 Consolidated Statements of Cash Flows for the Years Ended February 3, 1996, January 28, 1995 and January 29, 1994 Notes to Consolidated Financial Statements Schedules: II - Reserves Independent Auditors' Report 14 All other schedules for the Company are omitted as the required information is inapplicable or the information is presented in the respective consolidated financial statements or related notes. Also filed in this Form 10-K is the consent of KPMG Peat Marwick LLP to the incorporation by reference of their auditors' report dated March 26, 1996, relating to the consolidated financial statements appearing in the Form 10-K, into Registration Statement Numbers 33-49977, 33-50755 and 33-60175 on Form S-8 and Registration Statement Numbers 33-50223 and 33-56261 on Form S-3. 2. Exhibits: Exhibits previously filed or filed by incorporation by reference: 3.1 Restated Certificate of Incorporation of Eckerd Corporation (the "Company") (incorporated by reference to Exhibit 3.1(i) to the Registration Statement on Form S-3 of the Company (No. 33-50223)). 4.1 Form of certificate for the Company's Common Stock, par value $.01 per share (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 4.2 Form of 9-1/4% Senior Subordinated Notes Due 2004 of the Company (incorporated by reference to Exhibit 4.01 to the Current Report on Form 8-K dated October 26, 1993 of the Company (File No. 1-4844)). 4.3 Indenture dated as of November 1, 1993 between the Company and State Street Bank and Trust Company of Connecticut, National Association, as Trustee relating to the Company's 9-1/4% Senior Subordinated Notes Due 2004 (incorporated by reference to Exhibit 4.02 to the Current Report on Form 8-K dated October 26, 1993 of the Company (File No. 1-4844)). 4.4 Amendment Agreement dated as of November 29, 1995 to the Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3, 1994, among the Company, the lenders named therein, Chemical Bank and NationsBank of Florida, N.A., as managing agents and swingline lenders, and Chemical Bank as administrative agent and NationsBank of Florida, N.A. as documentation agent (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-3 of the Company (No. 33-64409)). 10.1 Commercial Paper Placement Agency Agreement dated July 17, 1989 between the Company and Merrill Lynch Money Markets, Inc. (incorporated by reference to Exhibit 10.15 of Form 10-K of the Company for the period ended February 3, 1990). 10.2 Registration Rights Agreement dated as of April 30, 1986 by and among the Company, the Merrill Lynch Investors, Morgan Capital Corporation and the other bank affiliates listed therein, the institutional and corporate investors listed therein and certain members of management of the Company (incorporated by reference to Exhibit 10.19 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 15 10.3 First Amendment to Registration Rights Agreement among the Company, EDS Holdings Inc., the Merrill Lynch Investors, the Bank Affiliates, the Institutional Investors and the Management Investors (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.4 Master Lease Agreement I dated as of May 18, 1993 between the Company and Imaging Financial Services d/b/a EKCC ("IFS") (incorporated by reference to Exhibit 10.28 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.5 Master Lease Agreement II dated as of June 15, 1993 between the Company and IFS (incorporated by reference to Exhibit 10.29 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.6 Systems Operations Service Agreement dated as of July 14, 1993 between the Company and Integrated Systems Solutions Corporation (incorporated by reference to Exhibit 10.30 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)) 10.7 Letter dated March 16, 1993 between IFS and the Company relating to IFS Sale and Leaseback (incorporated by reference to Exhibit 10.31 to Amendment No. 2 of the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.8 1993 Stock Option and Incentive Plan of the Company (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 of the Company (No. 33-49977)). 10.9 1995 Stock Option and Incentive Plan of the Company (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 of the Company (No. 33-60175)). 10.10 Receivables Purchase Agreement dated as of January 26, 1995 between the Company and Three Rivers Funding Corporation (incorporated by reference to Exhibit 10.18 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.11 First Amendment to Receivables Purchase Agreement dated as of March 31, 1995 between the Company and Three Rivers Funding Corporation (incorporated by reference to Exhibit 10.19 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.12 Registration Rights Agreement dated as of December 31, 1994 by and among the Company and the Eckerd Corporation Profit Sharing Plan (incorporated by reference to Exhibit 10.20 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.13 Guarantee Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 (the "Guarantee Agreement") among the subsidiaries of the Company listed therein and Chemical Bank, as collateral agent (incorporated by reference to Exhibit 10.21 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.14 Indemnity, Subrogation and Contribution Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 (the "Indemnity, Subrogation and Contribution Agreement"), among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent (incorporated by reference to Exhibit 10.22 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 16 10.15 Pledge Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Registrant listed therein and Chemical Bank, as collateral agent (incorporated by reference to Exhibit 10.23 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.16 Security Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent (incorporated by reference to Exhibit 10.24 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.17 Trademark Security Agreement dated as of June 14, 1993 as amended and restated as of August 3, 1994 among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent (incorporated by reference to Exhibit 10.25 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.18 Revolving Note, dated as of August 3, 1994, made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement (incorporated by reference to Exhibit 10.26 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.19 Term Note, dated as of August 3, 1994, made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement (incorporated by reference to Exhibit 10.27 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.20 Swingline Note, dated as of August 3, 1994, made by the Company in favor of Chemical Bank issued pursuant to the Credit Agreement (incorporated by reference to Exhibit 10.28 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.21 Deed of Trust, Security Agreement and Assignment of Leases and Rents dated as of June 14, 1993, as amended and restated as of August 3, 1994, by the Company in favor of Kenneth Plifka, as trustee, for the benefit of Chemical Bank, as collateral agent, relating to certain real property located in Dallas County, Texas (incorporated by reference to Exhibit 10.29 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.22 Deed of Trust, Security Agreement and Assignment of Leases and Rents dated as of June 14, 1993, as amended and restated as of August 3, 1994, by the Company in favor of Kenneth Plifka, as trustee, for the benefit of Chemical Bank, as collateral agent, relating to certain real property located in Montgomery County, Texas (incorporated by reference to Exhibit 10.30 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.23 Amendment, Consent and Waiver dated as of October 31, 1994 to the Credit Agreement, the Guarantee Agreement, the Indemnity, Subrogation and Contribution Agreement (incorporated by reference to Exhibit 10.31 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.24 Amended and Restated Mortgage, Security Agreement and Assignment of Leases and Rents dated as of August 3, 1994, as mortgagor and Chemical Bank, as mortgagee (incorporated by reference to Exhibit 10.32 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 17 12.1 Statement regarding computation of ratio of earnings to fixed charges of the Company (incorporated by reference to Exhibit 12.1 to the Registration Statement on Form S-3 of the Company (No. 33-50223)). Exhibits filed herewith: 3.2 Amended and Restated By-Laws of the Company. 10.25 Employment and Consulting Agreement dated February 4, 1996 between the Company and Stewart Turley. 10.26 Employment Agreement dated February 4, 1996 between the Company and Francis A. Newman. 10.27 Employment Agreement dated February 4, 1996 between the Company and James M. Santo. 10.28 Employment Agreement dated February 4, 1996 between the Company and Samuel G. Wright. 10.29 Employment Agreement dated February 4, 1996 between the Company and Kenneth L. Flynn. 10.30 The Executive Excess Benefit Plan of Jack Eckerd Corporation and Its Subsidiaries. 10.31 Eckerd Corporation Executive Three (3) Year Bonus Plan. 12.2 Statement regarding computation of ratio of earnings to fixed charges of the Company. 13 The following sections of the 1995 annual report to stockholders of the Company incorporated by reference and included in Parts II and IV of this Form 10-K: Five Year Financial Operating Summary. Management's Discussion and Analysis of Results of Operations and Financial Condition. Consolidated Financial Statements and Independent Auditors' Report. Quarterly Information (Unaudited). 21.1 Subsidiaries of the Company. 23.1 Consent of Independent Certified Public Accountants. 27 Financial data schedules. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the fourteen weeks ended February 3, 1996. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K report to be signed on its behalf by the undersigned, thereunto duly authorized. April 30, 1996 ECKERD CORPORATION By:/s/Samuel G. Wright ---------------------------------------- Samuel G. Wright Executive Vice President Chief Financial and Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the date indicated. Signature Titles Date --------- ------ ---- /s/Stewart Turley - ---------------------------------- Stewart Turley Chairman of the Board April 30, 1996 /s/Francis A. Newman - ---------------------------------- Francis A. Newman President, Chief Executive Officer and Director April 30, 1996 /s/John W. Boyle - ---------------------------------- John W. Boyle Director April 30, 1996 /s/James T. Doluisio - ---------------------------------- James T. Doluisio Director April 30, 1996 /s/Donald F. Dunn - ---------------------------------- Donald F. Dunn Director April 30, 1996 /s/Albert J. Fitzgibbons, III - ---------------------------------- Albert J. Fitzgibbons, III Director April 30, 1996 /s/Margaret H. Jordan - ---------------------------------- Margaret H. Jordan Director April 30, 1996 /s/Lewis W. Lehr - ---------------------------------- Lewis W. Lehr Director April 30, 1996 /s/Alexis P. Michas - ---------------------------------- Alexis P. Michas Director April 30, 1996 /s/Rupinder S. Sidhu - ---------------------------------- Rupinder S. Sidhu Director April 30, 1996 19
Schedule II ECKERD CORPORATION AND SUBSIDIARIES RESERVES Years ended February 3, 1996, January 28, 1995 and January 29, 1994 (In Thousands) Balance at Charged Balance at Beginning to End Description of Period earnings Deductions Other of Period Allowance for doubtful receivables (a) Year ended February 3, 1996 $3,000 $4,564 $4,564 - $3,000 ====== ====== ====== ========== ====== Year ended January 28, 1995 $5,000 $7,148 $4,924 ($4,224) $3,000 ====== ====== ====== ========== ====== Year ended January 29, 1994 $5,000 $7,000 $7,000 - $5,000 ====== ====== ====== ========== ======
- -------------- Notes: (a) This reserve is deducted from receivables in the balance sheets. Independent Auditors' Report ---------------------------- The Board of Directors Eckerd Corporation and Subsidiaries Under date of March 26, 1996, we reported on the consolidated balance sheets of Eckerd Corporation and subsidiaries as of February 3, 1996 and January 28, 1995, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended February 3, 1996, which are incorporated by reference in the Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule in the Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in note 9 to the consolidated financial statements, the Company changed its accounting policy in fiscal year 1994 related to the timing of the recognition of closed store obligations. KPMG PEAT MARWICK LLP Tampa, Florida March 26, 1996 Exhibit Index Eckerd Corporation Form 10-K for the Fiscal Year Ended February 3, 1996 Exhibit Page Index Description of Exhibit Number - ------- ---------------------- ------ 3.1 Restated Certificate of Incorporation of Eckerd Corporation * (the "Company") (incorporated by * reference to Exhibit 3.1(i) to the Registration Statement on Form S-3 of the Company (No. 33-50223)). 3.2 Amended and Restated By-laws of the Company. 4.1 Form of certificate for the Company's Common Stock, par value * $.01 per share (incorporated by * reference to Exhibit 4.1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 4.2 Form of 9 1/4% Senior Subordinated Notes Due 2004 of the * Company (incorporated by reference * to Exhibit 4.01 to the Current Report on Form 8-K dated October 26, 1993 of the Company (File No. 1-4844)). 4.3 Indenture dated as of November 1, 1993 between the Company and * State Street Bank and Trust * Company of Connecticut, National Association, as Trustee relating to the Company's 9 1/4% Senior Subordinated Notes Due 2004 (incorporated by reference to Exhibit 4.02 to the Current Report on Form 8-K dated October 26, 1993 of the Company (File No. 1-4844)). 4.4 Amendment Agreement dated as of November 29, 1995 to the Credit * Agreement dated as of June * 14, 1993, as amended and restated as of August 3, 1994, among the Company, the lenders named therein, Chemical Bank and NationsBank of Florida, N.A., as managing agents and swingline lenders, and Chemical Bank as administrative agent and NationsBank of Florida, N.A. as documentation agent (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-3 of the Company (No. 33-64409)). 10.1 Commercial Paper Placement Agency Agreement dated July 17, 1989 * between the Company and * Merrill Lynch Money Markets, Inc. (incorporated by reference to Exhibit 10.15 of Form 10-K of the Company for the period ended February 3, 1990). 10.2 Registration Rights Agreement dated as of April 30, 1986 by and * among the Company, the * Merrill Lynch Investors, Morgan Capital Corporation and the other bank affiliates listed therein, the institutional and corporate investors listed therein and certain members of management of the Company (incorporated by reference to Exhibit 10.19 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.3 First Amendment to Registration Rights Agreement among the * Company, EDS Holdings Inc., the * Merrill Lynch Investors, the Bank Affiliates, the Institutional Investors and the Management Investors (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.4 Master Lease Agreement I dated as of May 18, 1993 between the * Company and Imaging Financial * Services d/b/a EKCC ("IFS") (incorporated by reference to Exhibit 10.28 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.5 Master Lease Agreement II dated as of June 15, 1993 between the * Company and IFS (incorporated * by reference to Exhibit 10.29 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.6 Systems Operations Service Agreement dated as of July 14, 1993 * between the Company and * Integrated Systems Solutions Corporation (incorporated by reference to Exhibit 10.30 to Amendment No. 1 to the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.7 Letter dated March 16, 1993 between IFS and the Company * relating to IFS Sale and Leaseback * (incorporated by reference to Exhibit 10.31 to Amendment No. 2 of the Registration Statement on Form S-2 of the Company (No. 33-64906)). 10.8 1993 Stock Option and Incentive Plan of the Company * (incorporated by reference to Exhibit * 99.1 to the Registration Statement on Form S-8 of the Company (No. 33-49977)). 10.9 1995 Stock Option and Incentive Plan of the Company * (incorporated by reference to Exhibit * 99.1 to the Registration Statement on Form S-8 of the Company (No. 33-60175)). 10.10 Receivables Purchase Agreement dated as of January 26, 1995 * between the Company and Three * Rivers Funding Corporation (incorporated by reference to Exhibit 10.18 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.11 First Amendment to Receivables Purchase Agreement dated as of * March 31, 1995 between the * Company and Three Rivers Funding Corporation (incorporated by reference to Exhibit 10.19 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.12 Registration Rights Agreement dated as of December 31, 1994 by * and among the Company and the * Eckerd Corporation Profit Sharing Plan (incorporated by reference to Exhibit 10.20 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.13 Guarantee Agreement dated as of June 14, 1993 as amended and * restated as of August 3, 1994 * (the "Guarantee Agreement") among the subsidiaries of the Company listed therein and Chemical Bank, as collateral agent (incorporated by reference to Exhibit 10.21 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.14 Indemnity, Subrogation and Contribution Agreement dated as of * June 14, 1993 as amended and * restated as of August 3, 1994 (the "Indemnity, Subrogation and Contribution Agreement"), among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent (incorporated by reference to Exhibit 10.22 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.15 Pledge Agreement dated as of June 14, 1993 as amended and * restated as of August 3, 1994 among * the Company, each subsidiary of the Registrant listed therein and Chemical Bank, as collateral agent (incorporated by reference to Exhibit 10.23 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.16 Security Agreement dated as of June 14, 1993 as amended and * restated as of August 3, 1994 * among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent (incorporated by reference to Exhibit 10.24 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.17 Trademark Security Agreement dated as of June 14, 1993 as * amended and restated as of August * 3, 1994 among the Company, each subsidiary of the Company listed therein and Chemical Bank, as collateral agent (incorporated by reference to Exhibit 10.25 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.18 Revolving Note, dated as of August 3, 1994, made by the Company * in favor of Chemical Bank * issued pursuant to the Credit Agreement (incorporated by reference to Exhibit 10.26 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.19 Term Note, dated as of August 3, 1994, made by the Company in * favor of Chemical Bank issued * pursuant to the Credit Agreement (incorporated by reference to Exhibit 10.27 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.20 Swingline Note, dated as of August 3, 1994, made by the Company * in favor of Chemical Bank * issued pursuant to the Credit Agreement (incorporated by reference to Exhibit 10.28 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.21 Deed of Trust, Security Agreement and Assignment of Leases and * Rents dated as of June 14, * 1993, as amended and restated as of August 3, 1994, by the Company in favor of Kenneth Plifka, as trustee, for the benefit of Chemical Bank, as collateral agent, relating to certain real property located in Dallas County, Texas (incorporated by reference to Exhibit 10.29 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.22 Deed of Trust, Security Agreement and Assignment of Leases and * Rents dated as of June 14, * 1993, as amended and restated as of August 3, 1994, by the Company in favor of Kenneth Plifka, as trustee, for the benefit of Chemical Bank, as collateral agent, relating to certain real property located in Montgomery County, Texas (incorporated by reference to Exhibit 10.30 to Form 10-K405 for the year ended January 28, 1995 of the Company (File No. 1-4844)). 10.23 Amendment, Consent and Waiver dated as of October 31, 1994 to * the Credit Agreement, the * Guarantee Agreement, the Indemnity, Subrogation and Contribution Agreement (incorporated by reference to Exhibit 10.31 to Form 10-K405 for the year ended January 28, 1995 of the Company (File 1-4844)). 10.24 Amended and Restated Mortgage, Security Agreement and * Assignment of Leases and Rents dated as * of August 3, 1994, as mortgagor and Chemical Bank, as mortgagee (incorporated by reference to Exhibit 10.32 to Form 10-K405 for the year ended January 28, 1995 of the Company (File 1-4844)). 10.25 Employment and Consulting Agreement dated February 4, 1996 between the Company and Stewart Turley. 10.26 Employment Agreement dated February 4, 1996 between the Company and Francis A. Newman. 10.27 Employment Agreement dated February 4, 1996 between the Company and James M. Santo. 10.28 Employment Agreement dated February 4, 1996 between the Company and Samuel G. Wright. 10.29 Employment Agreement dated February 4, 1996 between the Company and Kenneth L. Flynn. 10.30 The Executive Excess Benefit Plan of Jack Eckerd Corporation and Its Subsidiaries. 10.31 Eckerd Corporation Executive Three (3) Year Bonus Plan. 12.1 Statement regarding computation of ratio of earnings to fixed * charges of the Company * (incorporated by reference to Exhibit 12.1 to the Registration Statement on Form S-3 of the Company (No. 33-50223). 12.2 Statement regarding computation of ratio of earnings to fixed charges of the Company. 13 The following sections of the 1995 annual report to * stockholders of the Company incorporated * by reference and included in Parts II and IV of this Form 10-K: Five Year Financial Operating Summary. Management's Discussion and Analysis of Results of Operations and Financial Condition. Consolidated Financial Statements and Independent Auditors' Report. Quarterly Information (Unaudited). 21.1 Subsidiaries of the Company. 23.1 Consent of Independent Certified Public Accountants. 27 Financial data schedules. - ------------------------------ * Filed by incorporation by reference. EX-3.2 2 AMENDED AND RESTATED BYLAWS EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF ECKERD CORPORATION (hereinafter called the "Corporation") (As of February 8, 1996) ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meetings. The Annual Meetings of Stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Written notice of the Annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 3. Special Meetings. Unless otherwise prescribed by law or by the Certificate of Incorporation, Special Meetings of Stockholders, for any purpose or purposes, may be called by either the Chairman, if there be one, the President or the Secretary and shall be called by either such officer at the request in writing of a majority of the Board of Directors or at the request in writing of stockholders owning a majority of the capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Written notice of a Special Meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting and only such business as is stated in such notice shall be acted thereat. Section 4. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. Section 5. Voting. Unless otherwise required by law, the Certificate of Incorporation or these Amended and Restated By-Laws, any question brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote thereat. Each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot. Section 6. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. Section 7. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 6 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 8. Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 8 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 8. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an annual meeting, not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and provided, further, that with respect to the Corporation's first annual meeting of stockholders held subsequent to August 12, 1993, to be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the date of the annual meeting, unless less than seventy (70) days' notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, in which case notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation that are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation that are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 8. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. Section 9. Business at Annual Meetings. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 9 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 9. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and provided, further, that with respect to the Corporation's first annual meeting of stockholders held subsequent to August 12, 1993, to be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the date of the annual meeting, unless less than seventy (70) days' notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, in which case notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation that are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 9, provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 9 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. ARTICLE III DIRECTORS Section 1. Election of Directors. Except as provided in Section 2 of this Article III, Directors shall be elected by a plurality of the votes cast at Annual Meetings of Stockholders, and each director so elected shall hold office as provided by Article FIFTH, Section 3 of the Restated Certificate of Incorporation. Any director may resign at any time upon notice to the Corporation. Directors need not be stockholders. Section 2. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, or until their earlier resignation or removal. Section 3. Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Amended and Restated By-Laws directed or required to be exercised or done by the stockholders. Section 4. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, if there be one, or the President or by a majority of the directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Section 5. Quorum. Except as may be otherwise specifically provided by law, the Restated Certificate of Incorporation or these Amended and Restated By-Laws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. Action by Written Consent. Unless otherwise provided by the Certificate of Incorporation or these Amended and Restated By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or of any committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 7. Meetings by Means of Conference Telephone. Unless otherwise provided by the Restated Certificate of Incorporation or these Amended and Restated By-Laws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. Section 8. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required. Section 9. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director, or both. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 10. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV OFFICERS Section 1. General. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also choose a Chairman of the Board of Directors (who must be a director), a Vice Chairman (who also must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Restated Certificate of Incorporation or these Amended and Restated By-Laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation. Section 2. Election. The Board of Directors at its first meeting held after each Annual Meeting of Stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. Section 3. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. Section 4. Chairman of the Board of Directors. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. Except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these Amended and Restated By-Laws or by the Board of Directors. Section 5. President. The President shall be the Chief Executive Officer of the Corporation. The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these Amended and Restated By-Laws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and the Board of Directors. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these Amended and Restated By-Laws or by the Board of Directors. Section 6. Vice Presidents. At the request of the President or in his absence or in the event of his inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President or the Vice Presidents if there is more than one (in the order designated by the Board of Directors) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Section 7. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 8. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 9. Assistant Secretaries. Except as may be otherwise provided in these Amended and Restated By-Laws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of his disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. Section 10. Assistant Treasurers. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of his disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 11. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. ARTICLE V STOCK Section 1. Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board of Directors, the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Section 2. Signatures. Where a certificate is countersigned by (i) a transfer agent other than the Corporation or its employee, or (ii) a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Amended and Restated By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VI NOTICES Section 1. Notices. Whenever written notice is required by law, the Restated Certificate of Incorporation or these Amended and Restated By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex or cable. Section 2. Waivers of Notice. Whenever any notice is required by law, the Restated Certificate of Incorporation or these Amended and Restated By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Restated Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 2. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII INDEMNIFICATION Section 1. Power to Indemnify in Actions, Suits or Proceedings other Than Those by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 3. Authorization of Indemnification. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case. Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 of this Article VIII, as the case may be. Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because he has met the applicable standards of conduct set forth in Sections 1 or 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application. Section 6. Expenses Payable in Advance. Expenses incurred by a director or officer in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Section 7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-Law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise. Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or the obligation to indemnify him against such liability under the provisions of this Article VIII. Section 9. Certain Definitions. For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VIII. Section 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 11. Limitation on Indemnification. Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation. Section 12. Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation. ARTICLE IX AMENDMENTS Section 1. These Amended and Restated By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws may be adopted by the stockholders or by the Board of Directors, provided, however, that notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such meeting of stockholders or Board of Directors as the case may be. All such amendments must be approved by either the holders of a majority of the outstanding capital stock entitled to vote thereon or by a majority of the entire Board of Directors then in office. Section 2. Entire Board of Directors. As used in this Article IX and in these Amended and Restated By-Laws generally, the term "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies. EX-10.25 3 EMPLOYMENT AGREEMENT EXHIBIT 10.25 EMPLOYMENT AND CONSULTING AGREEMENT AGREEMENT made as of February 4, 1996 by and between ECKERD CORPORATION, a Delaware corporation (the "Company") and STEWART TURLEY, residing at 401 St. Andrews Drive, Belleair, Florida 34616 ("Turley"). WHEREAS, upon the terms and subject to the conditions of this Agreement, the Company desires to employ Turley and to engage him as a consultant to the Company and Turley is willing to accept employment by the Company and to render consulting services to the Company. NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: I. EMPLOYMENT 1. Employment. Upon the terms and subject to the conditions of this Agreement, the Company hereby employs Turley and Turley hereby accepts employment by the Company in the capacity hereinafter set forth. 2. Term of Employment. The term of Turley's employment by the Company under this Agreement shall commence on February 4, 1996 and shall continue through January 31, 1998, subject to termination as provided in Section 14 hereof (the "Employment Period"). 3. Duties; Extent of Services. (a) During the Employment Period, Turley shall serve as the Chairman of the Board of the Company or in such other executive capacity as shall be determined from time to time by agreement between Turley and the Board of Directors of the Company and shall perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by a person in such position in the business in which the Company is engaged. (b) Except as otherwise provided herein and except for illness, permitted vacation periods and permitted leaves of absence during the Employment Period, Turley shall (i) devote such time and attention during normal business hours to the business of the Company and its subsidiaries as Turley and the Company shall agree; (ii) use his efforts to promote the Company's and its subsidiaries' interest; and (iii) discharge such other and further executive and administrative duties as may be reasonably assigned to him by the Board of Directors of the Company and its subsidiaries. 4. Compensation. (a) In consideration of the services rendered by Turley as an employee under this Agreement, the Company shall pay Turley a base annual salary (the "Base Salary") in the amount of Six Hundred Fifty Thousand Dollars ($650,000) payable monthly on the fifteenth (15th) of each month during the Employment Period. (b) During the Employment Period, as additional compensation for his services and as a further incentive and inducement to Turley to accept employment by the Company and to devote his efforts to the business and affairs of the Company and its subsidiaries, Turley shall be entitled to participate in the Company's Executive Three Year Bonus Plan (or any bonus plan replacing such plan). Turley's participation in the Company's Key Management Bonus Plan shall terminate on February 3, 1996, although the Board of Directors may, in its discretion, pay additional bonuses to Turley during the Employment Period. (c) The Company agrees that Turley shall be entitled to defer some portion or all of his Base Salary for any calendar year in accordance with the provisions of the Company's Executive Deferred Compensation Plan as adopted by the Board of Directors. 5. Fringe Benefits. In addition to the compensation provided in Section 4 above, during the Employment Period Turley shall be entitled to the following benefits: (a) Turley shall be entitled to paid vacation time annually in accordance with the Company policy as determined by the Board of Directors. (b) Turley shall be entitled to participate in all employee benefit programs now or hereafter maintained by the Company for executive personnel for which he is eligible, including, without limitation, group life insurance, short and long-term disability, profit sharing, pension, automobile allowance or leasing, stock option (subject to approval by the Board of Directors), supplemental retirement income (subject to approval by the Board of Directors), hospitalization and medical and dental reimbursement plan or program, his participation in such programs to be based upon the applicable provisions of such programs as they may exist from time to time. II. CONSULTING 6. Consultant. Upon the terms and subject to the conditions of this Agreement, the Company hereby agrees to retain Turley, and Turley hereby agrees to serve the Company, as a consultant. 7. Term of Consultant Relationship. The term of Turley's retention as a consultant to the Company shall commence on February 1, 1998 and shall continue through February 3, 2001, subject to termination as provided in Section 13 hereof (the "Consulting Period") (the Employment Period and the Consulting Period are collectively referred to herein as the "Contract Period"). 8. Duties; Extent of Service. During the Consulting Period, Turley shall serve as a consultant to the Company and its subsidiaries to act in an advisory capacity thereto. Turley shall furnish such consulting services as may be reasonably requested of him from time to time during the Consulting Period as are commensurate with his knowledge, ability and experience, provided that he shall not be called upon to render such services more than fifty (50) days during any fiscal year of the Company during the Consulting Period. Turley shall be available to advise and counsel the Company and its subsidiaries at such reasonable times and locations as may be agreed upon from time to time by Turley and the Board of Directors or Chief Executive Officer of the Company. 9. Compensation. In consideration of the consulting services rendered by Turley under this Agreement, the Company shall pay Turley an annual consulting fee (the "Consulting Fee") in the amount of Three Hundred Twenty-Five Thousand Dollars ($325,000) payable monthly on the fifteenth (15th) of each month during the Consulting Period. 10. Fringe Benefits. In addition to the compensation provided in Section 9 above, during the Consulting Period Turley shall be entitled to participate in the same life insurance and hospitalization and medical and dental reimbursement plan or programs that he participates in during the Employment Period. 11. Consultant Relationship. During the Consulting Period, Turley shall be an independent contractor and, except as provided in Section 10 above or as otherwise provided by the Board of Directors, shall not be entitled to participate in any pension, profit sharing, stock purchase or option plan, or any plan of life, disability or heath insurance or incentive compensation plan or any other employee benefit plan or program of the Company. During the Consulting Period, Turley shall be responsible for payment of all taxes, including Federal, state and local taxes arising out of activities engaged in during the Consulting Period, including but not limited to all federal and state income tax, social security tax, unemployment insurance taxes and any other applicable taxes. III. GENERAL 12. Expenses. The Company shall pay or reimburse Turley for all reasonable expenses reasonably incurred or paid by him in connection with the performance of his duties under this Agreement (whether as an employee or as a consultant) upon presentation of expense statements or vouchers and such other supporting documentation as the Company may from time to time reasonably request. 13. Benefits Payable Upon Disability or Death. (a) In the event of the disability (as hereinafter defined) of Turley during the Contract Period, the Company shall continue to pay Turley the applicable compensation provided in Section 4 or Section 9 hereof (as the case may be) during the period of his disability or earlier termination hereof; provided, however, that in the event Turley is disabled for a continuous period exceeding six (6) consecutive calendar months, the Company may, at its election, terminate this Agreement at the close of business on the date thirty (30) days after the Company shall have delivered a written notice of such election to Turley, in which event Turley shall be entitled to (i) receive benefits under the Company's Long Term Disability Plan as such plan may exist as of the date of termination of this Agreement (provided that he is then participating in such plan), and (ii) promptly receive a lump sum payment equal to the amount of Base Salary or Consulting Fee, or both, as the case may be, that would otherwise have been payable to him during the remainder of the Contract Period pursuant to this Agreement. As used in this Agreement, the term "disability" shall mean the inability of Turley due to illness or physical or mental infirmity to perform his duties under this Agreement as determined by a physician selected by Turley and acceptable to the Company. (b) During the period Turley shall be entitled to receive monthly payments under Section 13(a) above, to the extent that he is physically and mentally able to do so, he shall, upon the request of the Company, furnish information and assistance to the Company, and, in addition, upon reasonable request of Chief Executive Officer or the Board of Directors, he shall make himself available to the Company to undertake reasonable assignments consistent with the dignity, importance and scope of his position and his physical and mental health. (c) In the event of the death of Turley during the Contract Period, the Company shall pay, or cause to be paid, to Turley's designated beneficiary or beneficiaries or estate or legal representatives: (i) the payment due pursuant to the terms of the group term insurance policies together with such other death benefits as may be payable under the Company's benefit plans which he then participates in, and (ii) a lump sum payment equal to the amount of Base Salary or Consulting Fee, or both, as the case may be, that would otherwise have been payable to him during the remainder of the Contract Period pursuant to this Agreement. 14. Termination. (a) Except as otherwise provided in subsection (c) and (d) hereof, this Agreement and the Company's contractual relationship with Turley hereunder shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date that is the last day of the Contract Period; (ii) the close of business on the date of death of Turley; (iii) the close of business on the date the Company delivers to Turley a written notice of its election to terminate this Agreement for "Cause" (as defined in paragraph (b) below); (iv) the close of business on the date thirty (30) days after the Company shall have delivered to Turley a written notice of its intention to terminate this Agreement because the Board of Directors has determined that such termination is in the best interests of the Company and such termination is not for cause, death, or disability; or (v) the close of business on the date of a termination by the Company pursuant to Section 13(a) hereof; or (vi) the close of business on the date on which Turley terminates this Agreement other than pursuant to Section 17(c) hereof. (b) For purposes of this Agreement, the term "Cause" shall mean: (i) Turley's conviction (which, through lapse of time or otherwise, is not subject to appeal) of, or a plea of guilty or nolo contendre to, any crime or offense which constitutes a felony in the jurisdiction involved or involves moral turpitude, (ii) the commission of an act of fraud, embezzlement or intentional dishonesty against the Company or any of its subsidiaries, (iii) a breach of this Agreement by Turley, or (iv) breach of fiduciary duty resulting in injury to the Company or its subsidiaries. (c) For purposes hereof, upon termination of this Agreement as provided in Section 14(a)(i)-(vi), all obligations and liabilities of the parties hereto shall cease and be of no effect except for those liabilities and obligations provided for in Section 13, 15 and 16 hereof. (d) For purposes of clause (iv) of Section 14(a) above, Turley shall be relieved of his duties and shall vacate his office and the Company's premises on the date of receipt of the notice required by such clause unless requested by the Company to remain in the active employment of, or as a consultant to, the Company during such period between the receipt of notice and the effective date of termination. 15. Payments to Employee Upon Termination. (a) Upon the termination of this Agreement by the Company in accordance with clause (iv) of Section 14(a) of this Agreement, the Company shall pay to Turley, or in the event of his subsequent death, to his beneficiary or beneficiaries or his estate or legal representative, as severance pay (i) a lump sum payment equal to the amount of Base Salary or Consulting Fee, or both, as the case may be, that would otherwise have been payable to him during the remainder of the Contract Period pursuant to this Agreement, plus (ii) if the termination occurs during the Employment Period, subject to the terms and provisions of the Executive Three Year Bonus Plan, a pro rata portion of any bonus compensation payable to Turley under the Company's Executive Three Year Bonus Plan. (b) Upon the termination of this Agreement pursuant to clause (iv) of Section 14(a) of this Agreement during the Employment Period, the Company shall at its expense continue on behalf of Turley the following benefits: life insurance, short and long-term disability insurance, hospitalization insurance and medical and dental reimbursement plan insurance. The coverage of any such insurance provided by the Company hereunder shall be no less favorable to Turley, in terms of amounts and deductibles, than the coverage provided under the benefit programs maintained by the Company from time to time for the Company's executives. The Company's obligation hereunder with respect to each of the foregoing benefit plans shall terminate upon the earlier of the end of the Severance Period or the date Turley obtains any such benefits pursuant to a subsequent employer's benefit plans. (c) Benefits pursuant to the Company's Profit Sharing and Pension Plans (and such other plans in which Employee participates) shall be payable to Turley in accordance with the terms of such Plans. (d) For purposes of this Agreement, the Severance Period shall mean eighteen (18) months. (e) Turley further acknowledges that as a condition precedent to receiving any benefits under this Agreement, Turley shall complete, execute and deliver to the Company at the time of the termination of this Agreement a Release in the form of Exhibit "A" hereto which releases any and all claims that Turley may have against the Company as of the date of termination arising under federal, state, local or common law. 16. Covenants of Turley. (a) Turley agrees that during the Contract Period and for a period of time equal to (i) one year in the event of a termination of this Agreement in accordance with clause (iii) of Section 14(a); (ii) two years in the event of a termination of this Agreement in accordance with Section 13(a); or (iii) the Severance Period in the event of a termination of this Agreement in accordance with clause (iv) of Section 14(a) or in the event of a termination under any other circumstance, he will not, directly or indirectly, engage, assist or participate in, whether as a director, officer, employee, agent, manager, consultant, partner, owner or independent contractor or other participant, any business, firm, corporation, partnership, enterprise or organization that competes with the business engaged or hereafter engaged in by the Company or any of its subsidiaries (including, but not limited to, the operation of retail drug stores in which prescription drugs are sold, the sale of photofinishing products or services, the mail order pharmacy business, and/or the pharmacy benefits management business) in the Company's or such subsidiaries' trade areas (for purposes hereof "trade areas" shall mean any county in any state of the United States in which retail drug stores operated by the Company and its subsidiaries are located or in which services are provided by the Company or its subsidiaries). Nothing contained herein shall prevent Turley from acquiring less than 2% of any class of outstanding securities of any Company that has any of its securities listed on a national securities exchange or traded in the over-the-counter market. (b) Turley agrees that during the Contract Period and for a period of two years after the termination of this Agreement for any reason, he will not directly induce or solicit any person employed or hereafter employed by the Company or any of its subsidiaries to leave the employ of the Company or any of its subsidiaries. (c) Turley agrees and acknowledges that the Confidential Information of the Company and its subsidiaries (as hereinafter defined) is valuable, special and unique to their business; that such business depends on such Confidential Information; and that the Company wishes to protect such Confidential Information by keeping it confidential for the use and benefit of the Company. Based on the foregoing, Turley agrees to undertake the following obligations with respect to such Confidential Information: (i) Turley agrees to keep any and all Confidential Information in trust for the use and benefit of the Company; (ii) Turley agrees that, except as required by Turley's duties or authorized in writing by the Company and its subsidiaries or required by applicable law, he will not at any time during and for a period of five (5) years after the termination of this Agreement, disclose, directly or indirectly, any Confidential Information of the Company or any of its subsidiaries. (iii) Turley agrees to take all reasonable steps necessary, or reasonably requested by the Company and its subsidiaries, to ensure that all Confidential Information of the Company is kept confidential for the use and benefit of the Company and its subsidiaries; and (iv) Turley agrees that, upon termination of this Agreement by the Company or any of its subsidiaries or at any other time the Company may in writing so request, he will promptly deliver to the Company all materials constituting Confidential Information (including all copies thereof) that are in his possession or under his control. Turley further agrees that, if requested by the Company to return any Confidential Information pursuant to this Subsection (iv), he will not make or retain any copy or extract from such materials. For purposes of this Section 16(c), Confidential Information means any and all information developed by or for the Company or any of its subsidiaries of which Turley gained knowledge by reason of his employment by (or consultant relationship with) the Company or any of its subsidiaries prior to the date hereof or his employment under this Agreement that is not generally known in any industry in which the Company is or may become engaged. Confidential Information includes, but is not limited to, any and all information developed by or for the Company concerning plans, marketing and sales methods, materials, processes, business forms, procedures, devices used by the Company, its subsidiaries, suppliers and customers with which the Company had dealt prior to Turley's termination of this Agreement, plans for development of new products, services and expansion into new areas or markets, internal operations, and any trade secrets and proprietary information of any type owned by the Company and its subsidiaries, together with all written, graphic and other materials relating to all or any part of the same. 17. Change of Control (a) Definition of Change of Control. No benefits shall be payable under this Section 17 unless there shall have been a Change of Control, as set forth below, and this Agreement shall thereafter have been terminated in accordance with Section 17(b) below. As used herein, the term "Change of Control" shall mean: (i) the acquisition by any individual, firm, corporation or other entity or any group of individuals, firms, corporations or other entities acting in concert ("Person") together with all Affiliates and Associates (as such terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 (the "Exchange Act") of such Person of beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act) of more than 25% of the outstanding shares of voting stock of the Company; (ii) any change in the composition of the Board of Directors of the Company resulting in members of the Board on the date hereof (or such other persons who are elected by, or on the recommendation of, a majority of such members or other persons who had been elected by, or on the recommendation of, a majority of such members) ("Continuing Directors") ceasing to constitute a majority of the Board of Directors; or (iii) any other event determined by a majority of the Board of Directors of the Company to constitute a Change of Control. (b) Termination Following Change of Control. If any of the events described in Section 17(a) above constituting a Change of Control shall have occurred, Turley shall be entitled to the benefits provided in Section 17(e) hereof upon the subsequent termination of employment during the time period referred to in Section 17(e) hereof if such termination is (i) by the Company pursuant to Subsections 14(a)(iv) or (v) hereof or (ii) by Turley for Good Reason. (c) Definition of Good Reason. (A) Turley shall be entitled to terminate for Good Reason. For purposes of this Agreement, "Good Reason" shall without Turley's express written consent, mean, following a Change of Control: (1) the assignment to Turley of any duties inconsistent with Turley's status as a senior executive officer of, or consultant to, the Company or a substantial alteration in the nature or status of Turley's responsibilities from those in effect immediately prior to a Change of Control; or an adverse and substantial alteration in Turley's reporting responsibilities, title or offices as in effect immediately prior to a Change of Control or any removal of Turley from or failure to reelect Turley to any such positions except in connection with the termination of this Agreement for Disability or Cause or as a result of death or by Turley other than for Good Reason; (2) a reduction by the Company in Turley's annual Base Salary as in effect on the date hereof during the Employment Period or in the Consulting Fee during the Consulting Period; (3) any material breach by the Company of any provision of this Agreement; or (4) any purported termination of this Agreement which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 17(d) below and, for purposes of this Agreement, no such purported termination shall be effective. (B) Turley's right to terminate his employment pursuant to this Subsection 17(c) shall not be affected by Turley's incapacity due to physical or mental illness. (d) Notice of Termination. Any purported termination by the Company or by Turley shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 19 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision of this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of this Agreement under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination. (e) Compensation for Termination. If this Agreement shall be terminated by the Company within two years after a Change of Control but prior to the end of the Contract Period (a) by the Company pursuant to Subsections (14)(a)(iv) or (v), or (b) by Turley for Good Reason, then: (i) within five (5) days of the date of such termination, the Company shall pay Turley a single severance payment in cash in an amount equal to the amount of Base Salary or Consulting Fee, or both, as the case may be, that would otherwise have been payable to him during the remainder of the Contract Period pursuant to this Agreement plus, if such termination occurs during the Employment Period, a lump sum payment equal to two (2) times the amount of Turley's Base Salary, plus (x) if the termination occurs during the Employment Period, all accrued but unpaid Base Salary and a pro rata amount of the bonus payable pursuant to Section 4 hereof through the date of termination, or (y) if the termination occurs during the Consulting Period, all accrued but unpaid amounts of the Consulting Fee; (ii) for a period of two (2) years after a termination that occurs during the Employment Period, the Company shall at its expense continue on behalf of Turley the benefits described in Section 15(b) of this Agreement; and (iii) any restrictions on any outstanding incentive awards (including, but not limited to, restricted stock) granted to Turley under any of the Company's benefit plans or otherwise shall lapse and such incentive awards shall become 100% vested. (f) Mitigation. Turley shall not be required to mitigate the amount of any payment provided for in this Section 17 by seeking other employment or otherwise nor shall the amount of any payment or benefit provided for in this Section 17 be reduced by any compensation earned by Turley as the result of employment by another employer or by retirement benefits after the date of termination or otherwise. (g) Compensation Election. If Turley receives compensation pursuant to this Section 17, Turley shall not be entitled to any other benefits hereunder, other than that referred to in subsection (e) above, the receipt of any compensation which Turley had earned but previously elected to defer receipt of and the right to exercise options in accordance with the terms of the Company's Stock Option Plans under which such options were granted. (h) Excise Tax Payment. In the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), to Turley or for this benefit paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment or consulting with the Company or a Change in Control of the Company (a "Payment" or "Payments"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Turley with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Turley will be entitled to immediately receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Turley of all taxes (including any interest or penalties, other than interest and penalties imposed by reason of Turley's failure to file timely a tax return or pay taxes shown due on his return, imposed with respect to such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment, Turley retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. 18. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns. The term "Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all the assets and business of this Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable by Turley, his beneficiaries, or legal representatives without the Company's prior written consent; provided, however, that nothing in this Section 18 shall preclude (i) Turley from designating a beneficiary to receive any benefit payable hereunder upon his death, or (ii) the executors, administrators, or other legal representatives of Turley or his estate from assigning any rights hereunder to distributees, legatees, beneficiaries, testamentary trustees or other legal heirs of Turley. (c) After a Change of Control, the Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation of otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle Turley to compensation from the Company in the same amount and on the same terms as Turley would be entitled hereunder if Turley terminated employment for Good Reason except that, for purposes of implementing the foregoing, the date on which any such succession or assignment becomes effective shall be deemed the date of termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 19. Notices. Any notice required or permitted by this Agreement shall be given by registered or certified mail, return receipt requested, addressed to the Company at its then principal office, or to Turley at his address specified on page 1 of this Agreement, or to either party hereto at such other address or addresses as he or it may from time to time specify for such purposes in a notice similarly given. 20. Governing Law; Litigation; Expenses. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without giving effect to the conflicts of law principles thereof. (b) Turley and the Company hereby agree that the courts of the State of Florida shall have exclusive jurisdiction to hear and determine any claims or disputes pertaining to this Agreement or to any matter arising therefrom. Each of Turley and the Company expressly submits and consents in advance to such jurisdiction in any action commenced in such courts hereby waiving personal service of the summons and complaint or other process or papers issued therein, and agreeing that service of such summons and complaint, or other process or papers, may be made by registered or certified mail addressed to the Company at its then principal office or to Turley at his address specified on page 1 of this Agreement, or to either party hereto at such other addresses as it or he from time to time specify to the other party in writing for such purpose. The exclusive choice of forum set forth in this Section 20 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce such judgment in any appropriate jurisdiction. (c) All costs and expenses (including attorneys' fees) incurred in connection with any litigation relating to a claim or dispute pertaining to this Agreement shall be paid by the party incurring such expenses, except if the claim or dispute pertains to the enforcement of Section 17 hereof, in which case the prevailing party shall be entitled to an award of such costs and expenses from the non-prevailing party. (d) Nothing contained in this Section 20 shall be deemed to limit the Company's obligation to indemnify Turley to the fullest extent permitted by applicable law in respect of any actions, claims or proceedings which are based upon acts or omissions of Turley related to the performance of his duties hereunder to the extent he would have otherwise been entitled to indemnification under the by-laws or charter of the Company or any of its subsidiaries or to the extent to which indemnification is to be paid to officers and directors as a matter of law. 21. Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof and supersedes any and all other agreements and understandings, whether written, oral or otherwise, with respect to the subject matter hereof and all of such other agreements and understandings shall be of no force or effect. Nothing contained in this Agreement shall in any way limit any benefits that Turley shall otherwise be entitled to under the Company's profit sharing or pension plans or other employee benefit plans that Turley participated or participates in either prior to or after the date hereof. No modification of this Agreement shall be valid unless in writing and signed by the parties hereto. The waiver of a breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition of this Agreement. 22. Severability. If any term or provision of this Agreement or the application thereof to any person, property or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons, property or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 23. Injunctive Relief. (a) Turley acknowledges and agrees that the covenants and obligations contained in Sections 16(a), 16(b) and 16(c) of this Agreement relate to special, unique and extraordinary matters and that a violation of any of the terms of such Sections will cause the Company irreparable injury for which adequate remedies at law are not available. Therefore, Turley agrees that the Company shall be entitled to an injunction, restraining order, or other equitable relief from any court of competent jurisdiction, restraining Turley from committing any violation of the covenants and obligations set forth in Sections 16(a), 16(b) and 16(c) hereof. (b) The Company's rights and remedies under this Section 23 are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In connection with the foregoing provision of this Section 23, Turley represents that his economic means and circumstances are such that such provisions will not prevent him from providing for himself and his family on a basis satisfactory to him. 24. Withholding Taxes. The Company may deduct from any payments to be made hereunder any federal, state or local withholding or other taxes which the Company determines it is required to deduct under applicable law. 25. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day, month and year first written above. ECKERD CORPORATION TURLEY By: /s/ James M. Santo /s/ Stewart Turley Name: James M. Santo Stewart Turley Its: Executive Vice President a: turley EX-10.26 4 EMPLOYMENT AGREEMENT EXHIBIT 10.26 EMPLOYMENT AGREEMENT AGREEMENT made as of February 4, 1996, by and between Eckerd Corporation, a Delaware corporation (the "Company") and Frank Newman residing at 820 South Bayside Drive, Tampa, Florida 33609, (the "Employee"). WHEREAS, upon the terms and subject to the conditions of this Agreement, the Company desires to employ the Employee and the Employee is willing to accept employment by the Company, NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. Upon the terms and subject to the conditions of this Agreement, the Company hereby employs the Employee and the Employee hereby accepts employment by the Company in the capacity hereinafter set forth. 2. Term of Employment. The term of the Employee's employment by the Company under this Agreement shall commence on the date hereof, and shall be for a term of twelve (12) months, subject to extension and termination as provided in Section 8 hereof (the "Contract Period"). 3. Duties; Extent of Services. (a) During the Contract Period, the Employee shall serve as the Chief Executive Officer, President and Chief Operating Officer of the Company and shall perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by a person in such position in the business in which the Company is engaged. (b) Except as otherwise provided herein and except for illness, permitted vacation periods and permitted leaves of absence during the Contract Period, the Employee shall (i) devote his full time and attention during normal business hours to the business of the Company and its subsidiaries; (ii) use his best efforts to promote the Company's and its subsidiaries' interests; (iii) discharge such other and further executive and administrative duties not inconsistent with his position as may be assigned to him by the Board of Directors of the Company or its chief executive officer; and (iv) in addition to serving as a director of the Company (if elected), serve as director of any subsidiary of the Company if elected as such. (c) Except for directorships held by the Employee on the date of this Agreement, during the Contract Period the Employee will not, without the prior written consent of the Company's Board of Directors, such consent not to be unreasonably withheld, serve as a director of any corporation, joint venture, association or other commercial enterprise not controlled by, controlling or under common control with, the Company and its subsidiaries. 4. Compensation. (a) In consideration of the services rendered by the Employee under this Agreement, the Company shall pay the Employee a base annual salary (the "Base Salary") in the amount of $575,000 (or such other higher amount as the Board of Directors of the Company shall determine) payable monthly on the fifteenth (15th) of each month during the Contract Period. The Base Salary shall be reviewed as of February 1, 1997 and annually thereafter. (b) During the Contract Period, as additional compensation for his services and as a further incentive and inducement to the Employee to accept employment by the Company and to devote his best efforts to the business and affairs of the Company and its subsidiaries, the Company shall pay to the Employee additional compensation (the "Bonus Compensation") in the following amounts: (i) The Employee shall be entitled to participate in the Company's annual bonus, and three-year bonus plans (and such other plans as may be in effect from time to time) on the same terms and conditions generally applicable to the other senior executive officers of the Company as determined by the Board of Directors of the Company from time to time. (c) The Company agrees that the Employee shall be entitled to defer some portion or all of his Base Salary for any calendar year in accordance with the provisions of the Company's Executive Deferred Compensation Plan as adopted by the Board of Directors. (d) The Company shall provide either a top of the line domestic model automobile for Employee's use in accordance with the Company's standard policies, or, at Employee's option, a monthly automobile allowance sufficient for Employee to lease a top of the line domestic model automobile, together with reimbursement of automobile expenses provided the expenses do not exceed those associated with a top of the line domestic model automobile. 5. Fringe Benefits. In addition to the compensation provided in Section 4 above, during the Contract Period the Employee shall be entitled to the following benefits: (a) The Employee shall be entitled to paid vacation time for at least four (4) weeks annually. (b) The Employee shall be entitled to participate in all employee benefit programs now or hereafter maintained by the Company for senior executive personnel for which he is eligible, including, without limitation, group life insurance, short and long-term disability, profit sharing, pension, stock option, supplemental retirement income, hospitalization and medical and dental reimbursement plan or program, his participation in such programs to be based upon the applicable provisions of such programs as they may exist from time to time. (c) The Employee shall be entitled to a private office and a secretary and such other assistance and accommodations as shall be suitable to the character of the Employee's position with the Company and adequate for the performance of his duties hereunder. 6. Expenses. The Company shall pay or reimburse the Employee for all reasonable and normal business expenses, including reasonable expenses associated with participation in professional or similar business organizations reasonably incurred or paid by him in connection with the performance of his duties hereunder upon presentation of expense statements or vouchers and such other supporting documentation as the Company may from time to time reasonably request. 7. Benefits Payable Upon Disability. (a) In the event of the disability (as hereinafter defined) of the Employee during the Contract Period, the Company shall, subject to the provisions of Section 9 hereof, continue to pay the Employee the compensation provided in Section 4 hereof during the period of his disability or earlier termination hereof; provided, however, that in the event the Employee is disabled for a continuous period exceeding six (6) consecutive calendar months, the Company may, at its election, terminate this Agreement at the close of business on the date thirty (30) days after the Company shall have delivered a written notice of such election to the Employee, in which event the Employee shall be entitled to receive benefits under the Company's Long Term Disability Plan as such plan may exist as of the date of termination of this Agreement and compensation provided in Section 4(a) hereof shall cease, provided however, that Employee shall receive not less than $25,000 per month up to age sixty-five (65). As used in this Agreement the term "disability" shall mean the inability of the Employee due to illness or physical or mental infirmity to perform his duties under this Agreement as determined by a physician selected by the Employee and acceptable to the Company. (b) During the period the Employee shall be entitled to receive payments under Section 7(a) above, to the extent that he is physically and mentally able to do so, he shall, upon the request of the Company furnish information and assistance to the Company, and, in addition, upon reasonable request of the chief executive officer of the Company, he shall make himself available to the Company to undertake reasonable assignments consistent with the dignity, importance and scope of his position and his physical and mental health. (c) In the event of the death of Employee during the Contract Period, the Company shall pay, or cause to be paid, to the Employee's designated beneficiary or beneficiaries or estate or legal representatives, the payment due pursuant to the terms of the group term insurance policies together with such other death benefits as may be payable under the Company's benefit plans. 8. Termination. (a) Except as otherwise provided in Sections 7, 9 and 10 hereof, this Agreement and the employment of the Employee hereunder shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date that is one year after the date hereof (the "Initial Period"), except that this Agreement and the employment of the Employee hereunder shall be automatically extended from year to year thereafter unless terminated by the Company or the Employee by the delivery of not less than ninety (90) days written notice to the Employee or the Company, as the case may be, (in which case the employment of the Employee shall terminate on the date specified for termination in such notice); (ii) the close of business on the date of death of the Employee; (iii) the close of business on the date the Company delivers to the Employee a written notice of its election to terminate his employment for "cause" (as defined in paragraph (b) below); (iv) the close of business on the date thirty (30) days after the Company shall have delivered to the Employee a written notice of its intention to terminate his employment because the Board of Directors has determined that such termination is in the best interests of the Company and such termination is not for cause, death, disability or failure to extend pursuant to Section 8(a)(i) hereof; or (v) the close of business on the date of a termination by the Company pursuant to Section 7(a) hereof. (b) For purposes of this Agreement, the term "cause" shall include a willful refusal to perform duties in accordance with the Company's policies, commission by Employee of a material act of fraud or intentional dishonesty, breach of fiduciary duty resulting in significant injury to the Company and Employee's conviction for, or a plea of nolo contendere to, a felony. 9. Payments to Employee Upon Termination of Employment. (a) Upon the termination of the Employee's full-time employment hereunder by the Company in accordance with clauses (i), (iv) or (v) of Section 8(a) of this Agreement, the Company shall pay to the Employee, or in the event of his subsequent death, to his beneficiary or beneficiaries or his estate or legal representative, as severance pay an amount equal to two (2) times the then current Base Salary paid to the Employee under this Agreement, payable in twenty-four (24) equal monthly payments plus (y) a pro rata portion of any Bonus Compensation which would have been paid to the Employee pursuant to Section 4(b)(i) hereof in respect of the year of termination if he had not been so terminated. The Employee shall continue to be entitled to receive any compensation which Employee had earned but previously elected to defer receipt of. (b) For a period of two (2) years following the termination of the Employee's full-time employment hereunder for any reason which termination occurs during the Contract Period other than termination by the Company for cause or death, the Company shall at its expense provide on behalf of the Employee the following benefits: life insurance, short and long-term disability insurance, hospitalization insurance and medical and dental reimbursement plan insurance with coverage in terms of amounts and deductibles comparable to that provided from time to time during such two year period to senior executives of the Company. The Company's obligation hereunder with respect to each of the foregoing benefit plans shall be limited to the extent that the Employee obtains any such benefits pursuant to a subsequent employer's benefit plans in which case the Company may reduce the coverage of any benefits it is required to provide the Employee under the foregoing plans as long as the aggregate coverage of the combined benefit plans is no less favorable to the Employee, in terms of amounts and deductibles, than the coverage provided under the benefit programs maintained by the Company for senior executives of the Company from time to time during such two year period. (c) If the Company terminates Employee pursuant to clauses (ii) or (iii) of Section 8(a) or the Employee terminates employment pursuant to clause (i) of Section 8(a), the Employee shall be entitled to Base Salary up to the date of termination plus any benefits, if any, to the extent provided for in any Company plans, and no other compensation or benefits, except that: (i) in the case of a termination pursuant to clause (ii) of Section 8(a), the death benefits referred to in Section 7(c) shall be payable, and (ii) Employee shall continue to be entitled to receive any compensation which Employee had earned but previously elected to defer receipt of. 10. Covenants of the Employee. (a) The Employee agrees (unless Employee is terminated by the Company pursuant to clause (iii) of Section 8(a), which termination has not been intentionally induced by Employee) that during the Contract Period and for a period of two (2) years thereafter, (herein referred to as the "Non-Compete Period"), he will not, directly or indirectly, engage, assist or participate in, whether as a director, officer, employee, agent, manager, consultant, partner, owner or independent contractor or other participant, any business, firm, corporation, partnership, enterprise or organization that through the operation of any of the following types of business operations (collectively referred to herein as "Competitive Business"): (i) retail drug chains similar to those operated by the Company; (ii) "deep discount" drug chains; (iii) "food/drug" combination retail chains; (iv) Walmart or any similar type of discount chain stores of a regional nature which are predominately operating in the same states as the Company's stores are located; or (v) any other chain retail organizations whose sales are comprised of thirty-five (35%) percent or more of prescription drug sales is engaged in Competitive Business in any states in which the Company or any of its subsidiaries is engaged in Competitive Business during the Contract Period, on the date of termination of Employee's employment, or in any states in which the Company or any of its subsidiaries plans (which plans are evidenced by some written documentation), as of the date of Employee's termination of employment, to engage in Competitive Business within the next three (3) years, provided however, that Employee's covenants herein shall not extend beyond the Non-Compete Period. Nothing contained herein shall prevent the Employee from acquiring less than 2% of any class of outstanding securities of any company that has any of its securities listed on a national securities exchange or traded in the over-the-counter market. (b) The Employee agrees that during the Contract Period and for a period of two years after the termination of this Agreement for any reason, he will not directly induce or solicit any person employed or hereafter employed by the Company or any of its subsidiaries in an executive or key management position to leave the employ of the Company or any of its subsidiaries. (c) The Employee agrees and acknowledges that the Confidential Information of the Company and its subsidiaries (as hereinafter defined) is valuable, special and unique to their business; that such business depends on such Confidential Information; and that the Company wishes to protect such Confidential Information by keeping it confidential for the use and benefit of the Company. Based on the foregoing, the Employee agrees to undertake the following obligations with respect to such Confidential Information: (i) The Employee agrees to keep any and all Confidential Information in trust for the use and benefit of the Company; (ii) The Employee agrees that, except as required by the Employee duties or authorized in writing by the Company and its subsidiaries or required by applicable law, he will not at any time during and for a period of five (5) years after the termination of his employment with the Company and its subsidiaries, disclose, directly or indirectly, any Confidential Information of the Company or any of its subsidiaries; (iii) The Employee agrees to take all reasonable steps necessary, or reasonably requested by the Company and its subsidiaries, to ensure that all Confidential Information of the Company is kept confidential for the use and benefit of the Company and its subsidiaries; and (iv) The Employee agrees that, upon termination of his employment by the Company or any of its subsidiaries or at any other time the Company may in writing so request, he will promptly deliver to the Company all materials constituting Confidential Information (including all copies thereof) that are in the possession of or under the control of the Employee. The Employee further agrees that, if requested by the Company to return any Confidential Information pursuant to this Subsection (iv), he will not make or retain any copy or extract from such materials. For purposes of this Section 10(c), Confidential Information means any and all information developed by or for the Company or any of its subsidiaries of which the Employee gained knowledge by reason of his employment by the Company or any of its subsidiaries prior to the date hereof or his employment under this Agreement and does not include information: (i) that is generally known in any industry in which the Company is or may become engaged (ii) that is generally available to the public other than as a result of a disclosure by Employee (iii) that becomes available to Employee on a non-confidential basis from a source other than the Company or one of its representatives; or (iv) information that Employee is legally compelled (by oral question or request for information or documents in legal proceedings, interrogatories, subpoena, civil investigative demand or similar process) to disclose provided that prior to complying with such request Employee gives the Company prompt notice of such request so that the Company may seek an appropriate protective order and/or waive Employee's compliance with this Section 10(c). Confidential Information includes, but is not limited to, any and all information developed by or for the Company concerning plans, marketing and sales methods, materials, processes, business forms, procedures, devices used by the Company, its subsidiaries, suppliers and customers with which the Company had dealt prior to the Employee's termination of employment with the Company and its subsidiaries, plans for development of new products, services and expansion into new areas or markets, internal operations, and any trade secrets and proprietary information of any type owned by the Company and its subsidiaries, together with all written, graphic and other materials relating to all or any part of the same. 11. Change of Control. (a) Definition of Change of Control. No benefits shall be payable under this Section 11 unless there shall have been a Change of Control, as set forth below, and Employee's employment by the Company shall thereafter have been terminated in accordance with Section 11(b) below. As used herein, the term "Change of Control" shall mean: (i) the acquisition by any individual, firm, corporation or other entity or any group of individuals, firms, corporations or other entities acting in concert ("Person") together with all Affiliates and Associates (as such terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 (the "Exchange Act") of such Person of beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act) of more than 25% of the outstanding shares of voting stock of the Company; (ii) any change in the composition of the Board of Directors of the Company resulting in members of the Board on the date hereof (or such other persons who are elected by, or on the recommendation of, a majority of such members or other persons who had been elected by, or on the recommendation of, a majority of such members) ("Continuing Directors") ceasing to constitute a majority of the Board of Directors; or (iii) any other event determined by a majority of the Board of Directors of the Company to constitute a Change of Control. (b) Termination Following Change of Control. If any of the events described in Section 11(a) above constituting a Change of Control shall have occurred, Employee shall be entitled to the benefits provided in Section 11(e) hereof upon the subsequent termination of employment during the time period referred to in Section 11(e) hereof if such termination is (i) by the Company pursuant to Subsections 8(a)(i), (iv) or (v) hereof or (ii) by Employee for Good Reason. (c) Definition of Good Reason. (i) Employee shall be entitled to terminate employment for Good Reason. For purposes of this Agreement, "Good Reason" shall without Employee's express written consent, mean, following a Change of Control: (a) the assignment to Employee of any duties inconsistent with Employee's status as a senior executive officer of the Company or a substantial alteration in the nature or status of Employee's responsibilities from those in effect immediately prior to a Change of Control; or an adverse and substantial alteration in Employee's reporting responsibilities, titles or offices as in effect immediately prior to a Change of Control or any removal of Employee from or failure to reelect Employee to any of such positions except in connection with the termination of employment for Disability, Retirement or Cause or as a result of death or by Employee other than for Good Reason. (b) a reduction by the Company in Employee's annual Base Salary as in effect on the date hereof. (c) any material breach by the Company of any provision of this Agreement; (d) any purported termination of Employee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 11(d) below and, for purposes of this Agreement, no such purported termination shall be effective. (ii) Employee's right to terminate his employment pursuant to this Subsection 11(c) shall not be affected by Employee's incapacity due to physical or mental illness. (d) Notice of Termination. Any purported termination by the Company or by Employee shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 13 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination. (e) Compensation for Termination. If Employee's employment by the Company shall be terminated within two years after a Change of Control (a) by the Company pursuant to Subsections (8)(a)(i), (iv), (v) or (b) by Employee for Good Reason then: (i) within five (5) days of the date of such termination, the Company shall pay Employee a single severance payment in cash in an amount equal to 2.9 multiplied by Employee's Base Salary paid to Employee by the Company in the Company's fiscal year immediately preceding the year in which the termination occurs plus all accrued but unpaid Base Salary and a pro rata bonus amount payable pursuant to Section 4 hereof through the date of termination; (ii) for a period of two (2) years after such termination, the Company shall at its expense continue on behalf of Employee the benefits described in Section 9(b) of this Agreement; and (iii) any restrictions on any outstanding incentive awards (including, but not limited to, restricted stock) granted to Employee under any of the Company's benefit plans or otherwise shall lapse and such incentive awards shall become 100% vested. (f) Mitigation. Employee shall not be required to mitigate the amount of any payment provided for in this Section 11 by seeking other employment or otherwise nor shall the amount of any payment or benefit provided for in this Section 11 be reduced by any compensation earned by Employee as the result of employment by another employer or by retirement benefits after the date of termination or otherwise. (g) Compensation Election. If Employee receives compensation pursuant to this Section 11, Employee shall not be entitled to any other benefits hereunder, other than that referred to in subsection (e) above, the receipt of any compensation which Employee had earned but previously elected to defer receipt of and the right to exercise options in accordance with the terms of the Company's Stock Option Plans under which such options were granted. (h) Excise Tax Payment. In the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), to Employee or for this benefit paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Company or a Change in Control of the Company (a "Payment" or "Payments"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee will be entitled to immediately receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties, other than interest and penalties imposed by reason of the Employee's failure to file timely a tax return or pay taxes shown due on his return, imposed with respect to such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. 12. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns. The term "Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all the assets and business of this Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries, or legal representatives without the Company's prior written consent; provided, however, that nothing in this Section 12 shall preclude (i) the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death, or (ii) the executors, administrators, or other legal representatives of the Employee or his estate from assigning any rights hereunder to distributees, legatees, beneficiaries, testamentary trustees or other legal heirs of the Employee. (c) After a Change of Control, the Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle Employee to compensation from the Company in the same amount and on the same terms as Employee would be entitled hereunder if Employee terminated employment for Good Reason except that, for purposes of implementing the foregoing, the date on which any such succession or assignment becomes effective shall be deemed the date of termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13. Notices. Any notice required or permitted by this Agreement shall be given by registered or certified mail, return receipt requested, addressed to the Company at its then principal office, or to the Employee at his address specified on page 1 of this Agreement, or to either party hereto at such other address or addresses as he or it may from time to time specify for such purpose in a notice similarly given. 14. Governing Law; Litigation; Expenses. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without giving effect to the conflicts of law principles thereof. (b) The Employee and the Company hereby agree that the courts of the State of Florida shall have exclusive jurisdiction to hear and determine any claims or disputes pertaining to this Agreement or to any matter arising therefrom. Each of the Employee and the Company expressly submits and consents in advance to such jurisdiction in any action commenced in such courts hereby waiving personal service of the summons and complaint or other process or papers issued therein, and agreeing that service of such summons and complaint, or other process or papers, may be made by registered or certified mail addressed to the Company at its then principal office or to the Employee at his address specified on page 1 of this Agreement, or to either party hereto at such other addresses as it or he from time to time specify to the other party in writing for such purpose. The exclusive choice of forum set forth in this Section 14 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce such judgment in any appropriate jurisdiction. (c) All costs and expenses (including attorneys' fees) incurred in connection with any litigation relating to a claim or dispute pertaining to this Agreement shall be paid by the party incurring such expenses except all costs and expenses (including attorneys' fees) incurred in connection with any litigation relating to a claim or dispute pertaining to this Agreement shall be paid by the party incurring such expenses, except if the claim or dispute pertains to the enforcement of Section 11 hereof, in which case the prevailing party shall be entitled to an award of such costs and expenses from the non-prevailing party. (d) Nothing contained in this Section 14 shall be deemed to limit the Company's obligation to indemnify the Employee to the fullest extent permitted by applicable law in respect of any actions, claims or proceedings which are based upon acts or omissions of the Employee related to the performance of his duties hereunder to the extent he would have otherwise been entitled to indemnification under the by-laws or charter of the Company or any of its subsidiaries or to the extent to which indemnification is to be paid to officers and directors as a matter of law. 15. Entire Agreement. This instrument contains that entire agreement of the parties relating to the subject matter hereof, and there are no restrictions, agreements, promises, covenants, undertakings, representations or warranties with respect to the subject matter hereof other than those expressly set forth herein. No modification of this Agreement shall be valid unless in writing and signed by the parties hereto. The waiver of a breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition of this Agreement. 16. Severability. If any term or provision of this Agreement or the application thereof to any person, property or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons, property or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 17. Injunctive Relief. (a) The Employee acknowledges and agrees that the covenants and obligations contained in Sections 10(a), 10(b) and 10(c) of this Agreement relate to special, unique and extraordinary matters and that a violation of any of the terms of such Sections will cause the Company irreparable injury for which adequate remedies at law are not available. Therefore, the Employee agrees that the Company shall be entitled to an injunction, restraining order, or other equitable relief from any court of competent jurisdiction, restraining the Employee from committing any violation of the covenants and obligations set forth in Sections 10(a), 10(b), and 10(c) hereof. (b) The Company's rights and remedies under this Section 17 are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. The Company's rights and remedies under this Section 17 are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. 20. Withholding Taxes. The Company may deduct from any payments to be made hereunder any federal, state or local withholding or other taxes which the Company determines it is required to deduct under applicable law. 21. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original of which together shall constitute one and the same instrument.. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day, month and year first written above. ECKERD CORPORATION EMPLOYEE By: /s/ James M. Santo /s/ Frank A. Newman Name: James M. Santo Frank A. Newman Its: Executive Vice President EX-10.27 5 EMPLOYMENT AGREEMENT EXHIBT 10.27 EMPLOYMENT AGREEMENT (Exec. VP) AGREEMENT made as of February 1, 1996, by and between ECKERD CORPORATION, a Delaware corporation (the "Company) and JAMES M. SANTO, residing at 5113 S. Nichol Street , Tampa, Florida 33611 (the "Employee"). WHEREAS, upon the terms and subject to the conditions of this Agreement, the Company desires to employ the Employee and the Employee is willing to accept employment by the Company. NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Employment. Upon the terms and subject to the conditions of this Agreement, the Company hereby employs the Employee and the Employee hereby accepts employment by the Company in the capacity hereinafter set forth. 2. Term of Employment. The term of the Employee's employment by the Company under this Agreement shall commence on the date hereof and shall be for a term of twelve (12) months, subject to extension and termination as provided in Section 8 hereof (the "Contract Period"). 3. Duties; Extent of Services. (a) During the Contract Period, the Employee shall serve as Executive Vice President/Administration of the Company or in such other executive capacity as shall be determined from time to time by the Board of Directors of the Company and shall perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by a person in such position in the business in which the Company is engaged. (b) Except as otherwise provided herein and except for illness, permitted vacation periods and permitted leaves of absence during the Contract Period, the Employee shall (i) devote his full time and attention during normal business hours to the business of the Company and its subsidiaries; (ii) use his best efforts to promote the Company's and its subsidiaries' interest; and (iii) discharge such other and further executive and administrative duties as may be assigned to him by the Board of Directors of the Company and its subsidiaries. (c) Except for directorships held by the Employee on the date of this Agreement, during the Contract Period the Employee will not, without the prior written consent of the Company's Board of Directors, serve as a director of any corporation, joint venture, association or other commercial enterprise not controlled by, controlling or under common control with, the Company and its subsidiaries. 4. Compensation. (a) In consideration of the services rendered by the Employee under this Agreement, the Company shall pay the Employee a base annual salary (the "Base Salary") in the amount of $241,000 (or such other amount as the Board of Directors of the Company shall determine) payable monthly on the fifteenth (15th) of each month during the Contract Period. (b) During the Contract Period, as additional compensation for his services and as a further incentive and inducement to the Employee to accept employment by the Company and to devote his best efforts to the business and affairs of the Company and its subsidiaries, the Employee shall be entitled to participate in such additional compensation plans (the "Bonus Compensation") which the Company allows the Employee to participate in from time to time. (c) The Company agrees that the Employee shall be entitled to defer some portion or all of his Base Salary for any calendar year in accordance with the provisions of the Company's Executive Deferred Compensation Plan as adopted by the Board of Directors. 5. Fringe Benefits. In addition to the compensation provided in Section 4 above, during the Contract Period the Employee shall be entitled to the following benefits: (a) The Employee shall be entitled to paid vacation time annually in accordance with the Company policy as determined by the Board of Directors. (b) The Employee shall be entitled to participate in all employee benefit programs now or hereafter maintained by the Company for executive personnel for which he is eligible, including, without limitation, group life insurance, short and long-term disability, profit sharing, pension, automobile allowance or leasing, stock option (subject to approval by the Board of Directors), supplemental retirement income (subject to approval by the Board of Directors), hospitalization and medical and dental reimbursement plan or program, his participation in such programs to be based upon the applicable provisions of such programs as they may exist from time to time. 6. Expenses. The Company shall pay or reimburse the Employee for all reasonable expenses reasonably incurred or paid by him in connection with the performance of his duties hereunder upon presentation of expense statements or vouchers and such other supporting documentation as the Company may from time to time reasonably request. 7. Benefits Payable Upon Disability, Death, or Retirement. (a) In the event of the disability (as hereinafter defined) of the Employee during the Contract Period, the Company shall continue to pay the Employee the compensation provided in Section 4 hereof during the period of his disability or earlier termination hereof; provided, however, that in the event the Employee is disabled for a continuous period exceeding six (6) consecutive calendar months, the Company may, at its election, terminate this Agreement at the close of business on the date thirty (30) days after the Company shall have delivered a written notice of such election to the Employee, in which event the Employee shall be entitled to receive benefits under the Company's Long Term Disability Plan as such plan may exist as of the date of termination of this Agreement. As used in this Agreement, the term "disability" shall mean the inability of the Employee due to illness or physical or mental infirmity to perform his duties under this Agreement as determined by a physician selected by the Employee and acceptable to the Company. (b) During the period the Employee shall be entitled to receive payments under Section 7(a) above, to the extent that he is physically and mentally able to do so, he shall, upon the request of the Company, furnish information and assistance to the Company, and, in addition, upon reasonable request of Senior Management or the Board of Directors, he shall make himself available to the Company to undertake reasonable assignments consistent with the dignity, importance and scope of his position and his physical and mental health. (c) In the event of the death of the Employee during the Contract Period, the Company shall pay, or cause to be paid, to the Employee's designated beneficiary or beneficiaries or estate or legal representatives, the payment due pursuant to the terms of the group term insurance policies together with such other death benefits as may be payable under the Company's benefit plans. (d) In the event of the retirement of the Employee on his Normal Retirement Date (as such term is defined in the Company's Pension Plan) the Employee shall be entitled to such retirement benefits, if any, as are available to the Employee upon retirement pursuant to the Company's retirement benefit plans. 8. Termination. (a) Except as otherwise provided in subsection (c) and (d) hereof, this Agreement and the employment of the Employee hereunder shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date that is one year after the date hereof (the "Initial Period"), except that this Agreement and the employment of the Employee hereunder shall be automatically extended from year to year thereafter unless (x) terminated by the Company by delivery of not less than 60 days written notice to the Employee prior to the end of the Initial Period or any extension thereof in which case the employment of the Employee shall terminate on the date specified for termination in such notice, or (y) terminated by the Employee by delivery of not less than 60 days written notice to the Company prior to the end of the Initial Period or any extension thereof in which case the employment of the Employee shall terminate on the date specified for termination in such notice; (ii) the close of business on the date of death of the Employee; (iii) the close of business on the date the Company delivers to the Employee a written notice of its election to terminate his employment for "Cause" (as defined in paragraph (b) below); (iv) the close of business on the date thirty (30) days after the Company shall have delivered to the Employee a written notice of its intention to terminate his employment because the Board of Directors has determined that such termination is in the best interests of the Company and such termination is not for Cause, death, disability or failure to extend pursuant to Section 8(a)(i)(x) hereof; (v) the close of business on the date of a termination by the Company pursuant to Section 7(a) hereof; or (vi) the close of business on the date of the retirement of the Employee pursuant to Section 7(d) hereof. (b) For purposes of this Agreement, the term "Cause" shall mean: (i) the Employee's conviction (which, through lapse of time or otherwise, is not subject to appeal) of, or a plea of guilty or nolo contendre to, any crime or offense which constitutes a felony in the jurisdiction involved or involves moral turpitude, (ii) the commission of an act of fraud, embezzlement or intentional dishonesty against the Company or any of its subsidiaries, (iii) a breach of this Agreement by the Employee, (iv) breach of fiduciary duty resulting in injury to the Company or its subsidiaries (v) gross misconduct in connection with the Employee's performance of the Employee's duties hereunder, or (vi) the Employee's continued or willful failure or refusal to comply with the Company's policies or the policies or written directives of the Company's Senior Management or the Board of Directors. (c) For purposes hereof, upon termination of this Agreement and employment of Employee as provided in Section 8(a)(i)-(vi), all obligations and liabilities of the parties hereto shall cease and be of no effect except for those liabilities and obligations provided for in Section 7, 9 and 10 hereof. (d) For purposes of clauses (i) and (iv) of Section 8(a) above, the Employee shall be relieved of his duties and shall vacate his office and the Company's premises on the date of receipt of the notice required by such clauses unless requested by the Company to remain in the active employment of the Company during such period between the receipt of notice and the effective date of termination of employment. 9. Payments to Employee Upon Termination of Employment. (a) Upon the termination of the Employee's full-time employment hereunder by the Company in accordance with clauses (i)(x) or (iv) of Section 8(a) of this Agreement, the Company shall pay to the Employee, or in the event of his subsequent death, to his beneficiary or beneficiaries or his estate or legal representative, as severance pay (i) an amount equal the Employee's Base Salary on the date of termination for the Applicable Severance Period payable in monthly installments on the fifteenth (15th) of each month during the Applicable Severance Period plus (ii) subject to the terms and provisions of any additional compensation plans that the Employee participates in from time to time, a pro rata portion of any bonus compensation payable to the Employee. (b) Upon the termination of the Employee's full-time employment hereunder pursuant to clauses (i)(x) or (iv) of Section 8(a) of this Agreement, the Company shall at its expense continue on behalf of the Employee the following benefits: life insurance, short and long-term disability insurance, hospitalization insurance and medical and dental reimbursement plan insurance. The coverage of any such insurance provided by the Company hereunder shall be no less favorable to the Employee, in terms of amounts and deductibles, than the coverage provided under the benefit programs maintained by the Company from time to time for the Company's executives. The Company's obligation hereunder with respect to each of the foregoing benefit plans shall terminate upon the earlier of the end of the Applicable Severance Period or the date the Employee obtains any such benefits pursuant to a subsequent employer's benefit plans. The Employee agrees that the Company's continued provision of benefits described in this Section 9(b) shall count toward satisfying any obligation that the Company may have under COBRA. (c) Benefits pursuant to the Company's Profit Sharing and Pension Plans (and such other plans in which Employee participates) shall be payable to Employee in accordance with the terms of such Plans. (d) For purposes of this Agreement, the Applicable Severance Period shall be two (2) years. (e) Employee further acknowledges that as a condition precedent to receiving any benefits under this Agreement, Employee shall complete, execute and deliver to the Company at the time of his termination of employment a Release in the form of Exhibit "A" hereto which releases any and all claims that the Employee may have against the Company as of the date of termination arising under federal, state, local or common law. 10. Covenants of the Employee. (a) The Employee agrees that during the Contract Period and for a period of time equal to (i) one year in the event of a termination of employment in accordance with clauses (i)(y) or (iii) of Section 8(a); (ii) two years in the event of a termination of employment in accordance with Section 7(a) or retirement in accordance with Section 7(d); or (iii) the Applicable Severance Period in the event of a termination of employment in accordance with clauses (i)(x) or (iv) of Section 8(a), he will not, directly or indirectly, engage, assist or participate in, whether as a director, officer, employee, agent, manager, consultant, partner, owner or independent contractor or other participant, any business, firm, corporation, partnership, enterprise or organization that competes with the business engaged or hereafter engaged in by the Company or any of its subsidiaries (including, but not limited to, the operation of retail drug stores in which prescription drugs are sold, the sale of photofinishing products or services, the mail order pharmacy business, and/or the pharmacy benefits management business) in the Company's or such subsidiaries' trade areas (for purposes hereof "trade areas" shall mean any county in any state of the United States in which retail drug stores operated by the Company and its subsidiaries are located or in which services are provided by the Company or its subsidiaries). Nothing contained herein shall prevent the Employee from acquiring less than 2% of any class of outstanding securities of any Company that has any of its securities listed on a national securities exchange or traded in the over-the-counter market. (b) The Employee agrees that during the Contract Period and for a period of two years after the termination of this Agreement for any reason, he will not directly induce or solicit any person employed or hereafter employed by the Company or any of its subsidiaries to leave the employ of the Company or any of its subsidiaries nor will he directly or indirectly call upon, solicit, write, direct, divert or accept business with respect to any account or customer of the Company or its subsidiaries, including, without limitation, accounts or customers obtained before or during the term of this Agreement. (c) The Employee agrees and acknowledges that the Confidential Information of the Company and its subsidiaries (as hereinafter defined) is valuable, special and unique to their business; that such business depends on such Confidential Information; and that the Company wishes to protect such Confidential Information by keeping it confidential for the use and benefit of the Company. Based on the foregoing, the Employee agrees to undertake the following obligations with respect to such Confidential Information: (i) The Employee agrees to keep any and all Confidential Information in trust for the use and benefit of the Company; (ii) The Employee agrees that, except as required by the Employee's duties or authorized in writing by the Company and its subsidiaries or required by applicable law, he will not at any time during and for a period of five (5) years after the termination of his employment with the Company and its subsidiaries, disclose, directly or indirectly, any Confidential Information of the Company or any of its subsidiaries. (iii) The Employee agrees to take all reasonable steps necessary, or reasonably requested by the Company and its subsidiaries, to ensure that all Confidential Information of the Company is kept confidential for the use and benefit of the Company and its subsidiaries; and (iv) The Employee agrees that, upon termination of his employment by the Company or any of its subsidiaries or at any other time the Company may in writing so request, he will promptly deliver to the Company all materials constituting Confidential Information (including all copies thereof) that are in the possession of or under the control of the Employee. The Employee further agrees that, if requested by the Company to return any Confidential Information pursuant to this Subsection (iv), he will not make or retain any copy or extract from such materials. For purposes of this Section 10(c), Confidential Information means any and all information developed by or for the Company or any of its subsidiaries of which the Employee gained knowledge by reason of his employment by the Company or any of its subsidiaries prior to the date hereof or his employment under this Agreement that is not generally known in any industry in which the Company is or may become engaged. Confidential Information includes, but is not limited to, any and all information developed by or for the Company concerning plans, marketing and sales methods, materials, processes, business forms, procedures, devices used by the Company, its subsidiaries, suppliers and customers with which the Company had dealt prior to the Employee's termination of employment with the Company and its subsidiaries, plans for development of new products, services and expansion into new areas or markets, internal operations, and any trade secrets and proprietary information of any type owned by the Company and its subsidiaries, together with all written, graphic and other materials relating to all or any part of the same. 11. Change of Control (a) Definition of Change of Control. No benefits shall be payable under this Section 11 unless there shall have been a Change of Control, as set forth below, and Employee's employment by the Company shall thereafter have been terminated in accordance with Section 11(b) below. As used herein, the term "Change of Control" shall mean: (i) the acquisition by any individual, firm, corporation or other entity or any group of individuals, firms, corporations or other entities acting in concert ("Person") together with all Affiliates and Associates (as such terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 (the "Exchange Act") of such Person of beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act) of more than 25% of the outstanding shares of voting stock of the Company; (ii) any change in the composition of the Board of Directors of the Company resulting in members of the Board on the date hereof (or such other persons who are elected by, or on the recommendation of, a majority of such members or other persons who had been elected by, or on the recommendation of, a majority of such members) ("Continuing Directors") ceasing to constitute a majority of the Board of Directors; or (iii) any other event determined by a majority of the Board of Directors of the Company to constitute a Change of Control. (b) Termination Following Change of Control. If any of the events described in Section 11(a) above constituting a Change of Control shall have occurred, Employee shall be entitled to the benefits provided in Section 11(e) hereof upon the subsequent termination of employment during the time period referred to in Section 11(e) hereof if such termination is (i) by the Company pursuant to Subsections 8(a)(i), (iv) or (v) hereof or (ii) by Employee for Good Reason. (c) Definition of Good Reason. (A) Employee shall be entitled to terminate employment for Good Reason. For purposes of this Agreement, "Good Reason" shall without Employee's express written consent, mean, following a Change of Control: (1) the assignment to Employee of any duties inconsistent with Employee's status as a senior executive officer of the Company or a substantial alteration in the nature or status of Employee's responsibilities from those in effect immediately prior to a Change of Control; or an adverse and substantial alteration in Employee's reporting responsibilities, title or offices as in effect immediately prior to a Change of Control or any removal of Employee from or failure to reelect Employee to any such positions except in connection with the termination of employment for Disability, Retirement or Cause or as a result of death or by Employee other than for Good Reason; (2) a reduction by the Company in Employee's annual Base Salary as in effect on the date hereof; (3) any material breach by the Company of any provision of this Agreement; or (4) any purported termination of Employee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 11(d) below and, for purposes of this Agreement, no such purported termination shall be effective. (B) Employee's right to terminate his employment pursuant to this Subsection 11(c) shall not be affected by Employee's incapacity due to physical or mental illness. (d) Notice of Termination. Any purported termination by the Company or by Employee shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 13 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision of this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination. (e) Compensation for Termination. If Employee's employment by the Company shall be terminated within two years after a Change of Control (a) by the Company pursuant to Subsections (8)(a)(i), (iv), or (v) or (b) by Employee for Good Reason, then: (i) within five (5) days of the date of such termination, the Company shall pay Employee a single severance payment in cash in an amount equal to 2.9 multiplied by Employee's Base Salary paid to Employee by the Company in the Company's fiscal year immediately preceding the year in which the termination occurs plus all accrued but unpaid Base Salary and a pro rata bonus amount payable pursuant to Section 4 hereof through the date of termination; (ii) for a period of two (2) years after such termination, the Company shall at its expense continue on behalf of Employee the benefits described in Section 9(b) of this Agreement; and (iii) any restrictions on any outstanding incentive awards (including, but not limited to, restricted stock) granted to Employee under any of the Company's benefit plans or otherwise shall lapse and such incentive awards shall become 100% vested. (f) Mitigation. Employee shall not be required to mitigate the amount of any payment provided for in this Section 11 by seeking other employment or otherwise nor shall the amount of any payment or benefit provided for in this Section 11 be reduced by any compensation earned by Employee as the result of employment by another employer or by retirement benefits after the date of termination or otherwise. (g) Compensation Election. If Employee receives compensation pursuant to this Section 11, Employee shall not be entitled to any other benefits hereunder, other than that referred to in subsection (e) above, the receipt of any compensation which Employee had earned but previously elected to defer receipt of and the right to exercise options in accordance with the terms of the Company's Stock Option Plans under which such options were granted. (h) Excise Tax Payment. In the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), to Employee or for this benefit paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Company or a Change in Control of the Company (a "Payment" or "Payments"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee will be entitled to immediately receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties, other than interest and penalties imposed by reason of the Employee's failure to file timely a tax return or pay taxes shown due on his return, imposed with respect to such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. 12. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns. The term "Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all the assets and business of this Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries, or legal representatives without the Company's prior written consent; provided, however, that nothing in this Section 12 shall preclude (i) the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death, or (ii) the executors, administrators, or other legal representatives of the Employee or his estate from assigning any rights hereunder to distributees, legatees, beneficiaries, testamentary trustees or other legal heirs of the Employee. (c) After a Change of Control, the Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation of otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle Employee to compensation from the Company in the same amount and on the same terms as Employee would be entitled hereunder if Employee terminated employment for Good Reason except that, for purposes of implementing the foregoing, the date on which any such succession or assignment becomes effective shall be deemed the date of termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13. Notices. Any notice required or permitted by this Agreement shall be given by registered or certified mail, return receipt requested, addressed to the Company at its then principal office, or to the Employee at his address specified on page 1 of this Agreement, or to either party hereto at such other address or addresses as he or it may from time to time specify for such purposes in a notice similarly given. 14. Governing Law; Litigation; Expenses. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without giving effect to the conflicts of law principles thereof. (b) The Employee and the Company hereby agree that the courts of the State of Florida shall have exclusive jurisdiction to hear and determine any claims or disputes pertaining to this Agreement or to any matter arising therefrom. Each of the Employee and the Company expressly submits and consents in advance to such jurisdiction in any action commenced in such courts hereby waiving personal service of the summons and complaint or other process or papers issued therein, and agreeing that service of such summons and complaint, or other process or papers, may be made by registered or certified mail addressed to the Company at its then principal office or to the Employee at his address specified on page 1 of this Agreement, or to either party hereto at such other addresses as it or he from time to time specify to the other party in writing for such purpose. The exclusive choice of forum set forth in this Section 13 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce such judgment in any appropriate jurisdiction. (c) All costs and expenses (including attorneys' fees) incurred in connection with any litigation relating to a claim or dispute pertaining to this Agreement shall be paid by the party incurring such expenses, except if the claim or dispute pertains to the enforcement of Section 11 hereof, in which case the prevailing party shall be entitled to an award of such costs and expenses from the non-prevailing party. (d) Nothing contained in this Section 14 shall be deemed to limit the Company's obligation to indemnify the Employee to the fullest extent permitted by applicable law in respect of any actions, claims or proceedings which are based upon acts or omissions of the Employee related to the performance of his duties hereunder to the extent he would have otherwise been entitled to indemnification under the by-laws or charter of the Company or any of its subsidiaries or to the extent to which indemnification is to be paid to officers and directors as a matter of law. 15. Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof and supersedes any and all other agreements and understandings, whether written, oral or otherwise, with respect to the employment of the Employee by the Company and all of such other agreements and understandings shall be of no force or effect. No modification of this Agreement shall be valid unless in writing and signed by the parties hereto. The waiver of a breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition of this Agreement. 16. Severability. If any term or provision of this Agreement or the application thereof to any person, property or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons, property or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 17. Injunctive Relief. (a) The Employee acknowledges and agrees that the covenants and obligations contained in Sections 10(a), 10(b) and 10(c) of this Agreement relate to special, unique and extraordinary matters and that a violation of any of the terms of such Sections will cause the Company irreparable injury for which adequate remedies at law are not available. Therefore, the Employee agrees that the Company shall be entitled to an injunction, restraining order, or other equitable relief from any court of competent jurisdiction, restraining the Employee from committing any violation of the covenants and obligations set forth in Sections 10(a), 10(b) and 10(c) hereof. (b) The Company's rights and remedies under this Section 17 are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In connection with the foregoing provision of this Section 17, the Employee represents that his economic means and circumstances are such that such provisions will not prevent him from providing for himself and his family on a basis satisfactory to him. 18. Withholding Taxes. The Company may deduct from any payments to be made hereunder any federal, state or local withholding or other taxes which the Company determines it is required to deduct under applicable law. 19. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day, month and year first written above. ECKERD CORPORATION By: /s/ Frank Newman Name: Frank Newman Its: President/CEO/COO EMPLOYEE /s/ James M. Santo JAMES M. SANTO g: employ1/winword/forms EX-10.28 6 EMPLOYMENT AGREEMENT EXHIBIT 10.28 EMPLOYMENT AGREEMENT (Exec. VP) AGREEMENT made as of February 1, 1996, by and between ECKERD CORPORATION, a Delaware corporation (the "Company) and SAMUEL G. WRIGHT, residing at 1520 Gulf Blvd. #1504, Clearwater, Florida 34630 (the "Employee"). WHEREAS, upon the terms and subject to the conditions of this Agreement, the Company desires to employ the Employee and the Employee is willing to accept employment by the Company. NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Employment. Upon the terms and subject to the conditions of this Agreement, the Company hereby employs the Employee and the Employee hereby accepts employment by the Company in the capacity hereinafter set forth. 2. Term of Employment. The term of the Employee's employment by the Company under this Agreement shall commence on the date hereof and shall be for a term of twelve (12) months, subject to extension and termination as provided in Section 8 hereof (the "Contract Period"). 3. Duties; Extent of Services. (a) During the Contract Period, the Employee shall serve as Executive Vice President/Chief Financial Officer of the Company or in such other executive capacity as shall be determined from time to time by the Board of Directors of the Company and shall perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by a person in such position in the business in which the Company is engaged. (b) Except as otherwise provided herein and except for illness, permitted vacation periods and permitted leaves of absence during the Contract Period, the Employee shall (i) devote his full time and attention during normal business hours to the business of the Company and its subsidiaries; (ii) use his best efforts to promote the Company's and its subsidiaries' interest; and (iii) discharge such other and further executive and administrative duties as may be assigned to him by the Board of Directors of the Company and its subsidiaries. (c) Except for directorships held by the Employee on the date of this Agreement, during the Contract Period the Employee will not, without the prior written consent of the Company's Board of Directors, serve as a director of any corporation, joint venture, association or other commercial enterprise not controlled by, controlling or under common control with, the Company and its subsidiaries. 4. Compensation. (a) In consideration of the services rendered by the Employee under this Agreement, the Company shall pay the Employee a base annual salary (the "Base Salary") in the amount of $265,000 (or such other amount as the Board of Directors of the Company shall determine) payable monthly on the fifteenth (15th) of each month during the Contract Period. (b) During the Contract Period, as additional compensation for his services and as a further incentive and inducement to the Employee to accept employment by the Company and to devote his best efforts to the business and affairs of the Company and its subsidiaries, the Employee shall be entitled to participate in such additional compensation plans (the "Bonus Compensation") which the Company allows the Employee to participate in from time to time. (c) The Company agrees that the Employee shall be entitled to defer some portion or all of his Base Salary for any calendar year in accordance with the provisions of the Company's Executive Deferred Compensation Plan as adopted by the Board of Directors. 5. Fringe Benefits. In addition to the compensation provided in Section 4 above, during the Contract Period the Employee shall be entitled to the following benefits: (a) The Employee shall be entitled to paid vacation time annually in accordance with the Company policy as determined by the Board of Directors. (b) The Employee shall be entitled to participate in all employee benefit programs now or hereafter maintained by the Company for executive personnel for which he is eligible, including, without limitation, group life insurance, short and long-term disability, profit sharing, pension, automobile allowance or leasing, stock option (subject to approval by the Board of Directors), supplemental retirement income (subject to approval by the Board of Directors), hospitalization and medical and dental reimbursement plan or program, his participation in such programs to be based upon the applicable provisions of such programs as they may exist from time to time. 6. Expenses. The Company shall pay or reimburse the Employee for all reasonable expenses reasonably incurred or paid by him in connection with the performance of his duties hereunder upon presentation of expense statements or vouchers and such other supporting documentation as the Company may from time to time reasonably request. 7. Benefits Payable Upon Disability, Death, or Retirement. (a) In the event of the disability (as hereinafter defined) of the Employee during the Contract Period, the Company shall continue to pay the Employee the compensation provided in Section 4 hereof during the period of his disability or earlier termination hereof; provided, however, that in the event the Employee is disabled for a continuous period exceeding six (6) consecutive calendar months, the Company may, at its election, terminate this Agreement at the close of business on the date thirty (30) days after the Company shall have delivered a written notice of such election to the Employee, in which event the Employee shall be entitled to receive benefits under the Company's Long Term Disability Plan as such plan may exist as of the date of termination of this Agreement. As used in this Agreement, the term "disability" shall mean the inability of the Employee due to illness or physical or mental infirmity to perform his duties under this Agreement as determined by a physician selected by the Employee and acceptable to the Company. (b) During the period the Employee shall be entitled to receive payments under Section 7(a) above, to the extent that he is physically and mentally able to do so, he shall, upon the request of the Company, furnish information and assistance to the Company, and, in addition, upon reasonable request of Senior Management or the Board of Directors, he shall make himself available to the Company to undertake reasonable assignments consistent with the dignity, importance and scope of his position and his physical and mental health. (c) In the event of the death of the Employee during the Contract Period, the Company shall pay, or cause to be paid, to the Employee's designated beneficiary or beneficiaries or estate or legal representatives, the payment due pursuant to the terms of the group term insurance policies together with such other death benefits as may be payable under the Company's benefit plans. (d) In the event of the retirement of the Employee on his Normal Retirement Date (as such term is defined in the Company's Pension Plan) the Employee shall be entitled to such retirement benefits, if any, as are available to the Employee upon retirement pursuant to the Company's retirement benefit plans. 8. Termination. (a) Except as otherwise provided in subsection (c) and (d) hereof, this Agreement and the employment of the Employee hereunder shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date that is one year after the date hereof (the "Initial Period"), except that this Agreement and the employment of the Employee hereunder shall be automatically extended from year to year thereafter unless (x) terminated by the Company by delivery of not less than 60 days written notice to the Employee prior to the end of the Initial Period or any extension thereof in which case the employment of the Employee shall terminate on the date specified for termination in such notice, or (y) terminated by the Employee by delivery of not less than 60 days written notice to the Company prior to the end of the Initial Period or any extension thereof in which case the employment of the Employee shall terminate on the date specified for termination in such notice; (ii) the close of business on the date of death of the Employee; (iii) the close of business on the date the Company delivers to the Employee a written notice of its election to terminate his employment for "Cause" (as defined in paragraph (b) below); (iv) the close of business on the date thirty (30) days after the Company shall have delivered to the Employee a written notice of its intention to terminate his employment because the Board of Directors has determined that such termination is in the best interests of the Company and such termination is not for Cause, death, disability or failure to extend pursuant to Section 8(a)(i)(x) hereof; (v) the close of business on the date of a termination by the Company pursuant to Section 7(a) hereof; or (vi) the close of business on the date of the retirement of the Employee pursuant to Section 7(d) hereof. (b) For purposes of this Agreement, the term "Cause" shall mean: (i) the Employee's conviction (which, through lapse of time or otherwise, is not subject to appeal) of, or a plea of guilty or nolo contendre to, any crime or offense which constitutes a felony in the jurisdiction involved or involves moral turpitude, (ii) the commission of an act of fraud, embezzlement or intentional dishonesty against the Company or any of its subsidiaries, (iii) a breach of this Agreement by the Employee, (iv) breach of fiduciary duty resulting in injury to the Company or its subsidiaries (v) gross misconduct in connection with the Employee's performance of the Employee's duties hereunder, or (vi) the Employee's continued or willful failure or refusal to comply with the Company's policies or the policies or written directives of the Company's Senior Management or the Board of Directors. (c) For purposes hereof, upon termination of this Agreement and employment of Employee as provided in Section 8(a)(i)-(vi), all obligations and liabilities of the parties hereto shall cease and be of no effect except for those liabilities and obligations provided for in Section 7, 9 and 10 hereof. (d) For purposes of clauses (i) and (iv) of Section 8(a) above, the Employee shall be relieved of his duties and shall vacate his office and the Company's premises on the date of receipt of the notice required by such clauses unless requested by the Company to remain in the active employment of the Company during such period between the receipt of notice and the effective date of termination of employment. 9. Payments to Employee Upon Termination of Employment. (a) Upon the termination of the Employee's full-time employment hereunder by the Company in accordance with clauses (i)(x) or (iv) of Section 8(a) of this Agreement, the Company shall pay to the Employee, or in the event of his subsequent death, to his beneficiary or beneficiaries or his estate or legal representative, as severance pay (i) an amount equal the Employee's Base Salary on the date of termination for the Applicable Severance Period payable in monthly installments on the fifteenth (15th) of each month during the Applicable Severance Period plus (ii) subject to the terms and provisions of any additional compensation plans that the Employee participates in from time to time, a pro rata portion of any bonus compensation payable to the Employee. (b) Upon the termination of the Employee's full-time employment hereunder pursuant to clauses (i)(x) or (iv) of Section 8(a) of this Agreement, the Company shall at its expense continue on behalf of the Employee the following benefits: life insurance, short and long-term disability insurance, hospitalization insurance and medical and dental reimbursement plan insurance. The coverage of any such insurance provided by the Company hereunder shall be no less favorable to the Employee, in terms of amounts and deductibles, than the coverage provided under the benefit programs maintained by the Company from time to time for the Company's executives. The Company's obligation hereunder with respect to each of the foregoing benefit plans shall terminate upon the earlier of the end of the Applicable Severance Period or the date the Employee obtains any such benefits pursuant to a subsequent employer's benefit plans. The Employee agrees that the Company's continued provision of benefits described in this Section 9(b) shall count toward satisfying any obligation that the Company may have under COBRA. (c) Benefits pursuant to the Company's Profit Sharing and Pension Plans (and such other plans in which Employee participates) shall be payable to Employee in accordance with the terms of such Plans. (d) For purposes of this Agreement, the Applicable Severance Period shall be two (2) years. (e) Employee further acknowledges that as a condition precedent to receiving any benefits under this Agreement, Employee shall complete, execute and deliver to the Company at the time of his termination of employment a Release in the form of Exhibit "A" hereto which releases any and all claims that the Employee may have against the Company as of the date of termination arising under federal, state, local or common law. 10. Covenants of the Employee. (a) The Employee agrees that during the Contract Period and for a period of time equal to (i) one year in the event of a termination of employment in accordance with clauses (i)(y) or (iii) of Section 8(a); (ii) two years in the event of a termination of employment in accordance with Section 7(a) or retirement in accordance with Section 7(d); or (iii) the Applicable Severance Period in the event of a termination of employment in accordance with clauses (i)(x) or (iv) of Section 8(a), he will not, directly or indirectly, engage, assist or participate in, whether as a director, officer, employee, agent, manager, consultant, partner, owner or independent contractor or other participant, any business, firm, corporation, partnership, enterprise or organization that competes with the business engaged or hereafter engaged in by the Company or any of its subsidiaries (including, but not limited to, the operation of retail drug stores in which prescription drugs are sold, the sale of photofinishing products or services, the mail order pharmacy business, and/or the pharmacy benefits management business) in the Company's or such subsidiaries' trade areas (for purposes hereof "trade areas" shall mean any county in any state of the United States in which retail drug stores operated by the Company and its subsidiaries are located or in which services are provided by the Company or its subsidiaries). Nothing contained herein shall prevent the Employee from acquiring less than 2% of any class of outstanding securities of any Company that has any of its securities listed on a national securities exchange or traded in the over-the-counter market. (b) The Employee agrees that during the Contract Period and for a period of two years after the termination of this Agreement for any reason, he will not directly induce or solicit any person employed or hereafter employed by the Company or any of its subsidiaries to leave the employ of the Company or any of its subsidiaries nor will he directly or indirectly call upon, solicit, write, direct, divert or accept business with respect to any account or customer of the Company or its subsidiaries, including, without limitation, accounts or customers obtained before or during the term of this Agreement. (c) The Employee agrees and acknowledges that the Confidential Information of the Company and its subsidiaries (as hereinafter defined) is valuable, special and unique to their business; that such business depends on such Confidential Information; and that the Company wishes to protect such Confidential Information by keeping it confidential for the use and benefit of the Company. Based on the foregoing, the Employee agrees to undertake the following obligations with respect to such Confidential Information: (i) The Employee agrees to keep any and all Confidential Information in trust for the use and benefit of the Company; (ii) The Employee agrees that, except as required by the Employee's duties or authorized in writing by the Company and its subsidiaries or required by applicable law, he will not at any time during and for a period of five (5) years after the termination of his employment with the Company and its subsidiaries, disclose, directly or indirectly, any Confidential Information of the Company or any of its subsidiaries. (iii) The Employee agrees to take all reasonable steps necessary, or reasonably requested by the Company and its subsidiaries, to ensure that all Confidential Information of the Company is kept confidential for the use and benefit of the Company and its subsidiaries; and (iv) The Employee agrees that, upon termination of his employment by the Company or any of its subsidiaries or at any other time the Company may in writing so request, he will promptly deliver to the Company all materials constituting Confidential Information (including all copies thereof) that are in the possession of or under the control of the Employee. The Employee further agrees that, if requested by the Company to return any Confidential Information pursuant to this Subsection (iv), he will not make or retain any copy or extract from such materials. For purposes of this Section 10(c), Confidential Information means any and all information developed by or for the Company or any of its subsidiaries of which the Employee gained knowledge by reason of his employment by the Company or any of its subsidiaries prior to the date hereof or his employment under this Agreement that is not generally known in any industry in which the Company is or may become engaged. Confidential Information includes, but is not limited to, any and all information developed by or for the Company concerning plans, marketing and sales methods, materials, processes, business forms, procedures, devices used by the Company, its subsidiaries, suppliers and customers with which the Company had dealt prior to the Employee's termination of employment with the Company and its subsidiaries, plans for development of new products, services and expansion into new areas or markets, internal operations, and any trade secrets and proprietary information of any type owned by the Company and its subsidiaries, together with all written, graphic and other materials relating to all or any part of the same. 11. Change of Control (a) Definition of Change of Control. No benefits shall be payable under this Section 11 unless there shall have been a Change of Control, as set forth below, and Employee's employment by the Company shall thereafter have been terminated in accordance with Section 11(b) below. As used herein, the term "Change of Control" shall mean: (i) the acquisition by any individual, firm, corporation or other entity or any group of individuals, firms, corporations or other entities acting in concert ("Person") together with all Affiliates and Associates (as such terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 (the "Exchange Act") of such Person of beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act) of more than 25% of the outstanding shares of voting stock of the Company; (ii) any change in the composition of the Board of Directors of the Company resulting in members of the Board on the date hereof (or such other persons who are elected by, or on the recommendation of, a majority of such members or other persons who had been elected by, or on the recommendation of, a majority of such members) ("Continuing Directors") ceasing to constitute a majority of the Board of Directors; or (iii) any other event determined by a majority of the Board of Directors of the Company to constitute a Change of Control. (b) Termination Following Change of Control. If any of the events described in Section 11(a) above constituting a Change of Control shall have occurred, Employee shall be entitled to the benefits provided in Section 11(e) hereof upon the subsequent termination of employment during the time period referred to in Section 11(e) hereof if such termination is (i) by the Company pursuant to Subsections 8(a)(i), (iv) or (v) hereof or (ii) by Employee for Good Reason. (c) Definition of Good Reason. (A) Employee shall be entitled to terminate employment for Good Reason. For purposes of this Agreement, "Good Reason" shall without Employee's express written consent, mean, following a Change of Control: (1) the assignment to Employee of any duties inconsistent with Employee's status as a senior executive officer of the Company or a substantial alteration in the nature or status of Employee's responsibilities from those in effect immediately prior to a Change of Control; or an adverse and substantial alteration in Employee's reporting responsibilities, title or offices as in effect immediately prior to a Change of Control or any removal of Employee from or failure to reelect Employee to any such positions except in connection with the termination of employment for Disability, Retirement or Cause or as a result of death or by Employee other than for Good Reason; (2) a reduction by the Company in Employee's annual Base Salary as in effect on the date hereof; (3) any material breach by the Company of any provision of this Agreement; or (4) any purported termination of Employee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 11(d) below and, for purposes of this Agreement, no such purported termination shall be effective. (B) Employee's right to terminate his employment pursuant to this Subsection 11(c) shall not be affected by Employee's incapacity due to physical or mental illness. (d) Notice of Termination. Any purported termination by the Company or by Employee shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 13 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision of this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination. (e) Compensation for Termination. If Employee's employment by the Company shall be terminated within two years after a Change of Control (a) by the Company pursuant to Subsections (8)(a)(i), (iv), or (v) or (b) by Employee for Good Reason, then: (i) within five (5) days of the date of such termination, the Company shall pay Employee a single severance payment in cash in an amount equal to 2.9 multiplied by Employee's Base Salary paid to Employee by the Company in the Company's fiscal year immediately preceding the year in which the termination occurs plus all accrued but unpaid Base Salary and a pro rata bonus amount payable pursuant to Section 4 hereof through the date of termination; (ii) for a period of two (2) years after such termination, the Company shall at its expense continue on behalf of Employee the benefits described in Section 9(b) of this Agreement; and (iii) any restrictions on any outstanding incentive awards (including, but not limited to, restricted stock) granted to Employee under any of the Company's benefit plans or otherwise shall lapse and such incentive awards shall become 100% vested. (f) Mitigation. Employee shall not be required to mitigate the amount of any payment provided for in this Section 11 by seeking other employment or otherwise nor shall the amount of any payment or benefit provided for in this Section 11 be reduced by any compensation earned by Employee as the result of employment by another employer or by retirement benefits after the date of termination or otherwise. (g) Compensation Election. If Employee receives compensation pursuant to this Section 11, Employee shall not be entitled to any other benefits hereunder, other than that referred to in subsection (e) above, the receipt of any compensation which Employee had earned but previously elected to defer receipt of and the right to exercise options in accordance with the terms of the Company's Stock Option Plans under which such options were granted. (h) Excise Tax Payment. In the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), to Employee or for this benefit paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Company or a Change in Control of the Company (a "Payment" or "Payments"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee will be entitled to immediately receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties, other than interest and penalties imposed by reason of the Employee's failure to file timely a tax return or pay taxes shown due on his return, imposed with respect to such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. 12. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns. The term "Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all the assets and business of this Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries, or legal representatives without the Company's prior written consent; provided, however, that nothing in this Section 12 shall preclude (i) the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death, or (ii) the executors, administrators, or other legal representatives of the Employee or his estate from assigning any rights hereunder to distributees, legatees, beneficiaries, testamentary trustees or other legal heirs of the Employee. (c) After a Change of Control, the Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation of otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle Employee to compensation from the Company in the same amount and on the same terms as Employee would be entitled hereunder if Employee terminated employment for Good Reason except that, for purposes of implementing the foregoing, the date on which any such succession or assignment becomes effective shall be deemed the date of termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13. Notices. Any notice required or permitted by this Agreement shall be given by registered or certified mail, return receipt requested, addressed to the Company at its then principal office, or to the Employee at his address specified on page 1 of this Agreement, or to either party hereto at such other address or addresses as he or it may from time to time specify for such purposes in a notice similarly given. 14. Governing Law; Litigation; Expenses. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without giving effect to the conflicts of law principles thereof. (b) The Employee and the Company hereby agree that the courts of the State of Florida shall have exclusive jurisdiction to hear and determine any claims or disputes pertaining to this Agreement or to any matter arising therefrom. Each of the Employee and the Company expressly submits and consents in advance to such jurisdiction in any action commenced in such courts hereby waiving personal service of the summons and complaint or other process or papers issued therein, and agreeing that service of such summons and complaint, or other process or papers, may be made by registered or certified mail addressed to the Company at its then principal office or to the Employee at his address specified on page 1 of this Agreement, or to either party hereto at such other addresses as it or he from time to time specify to the other party in writing for such purpose. The exclusive choice of forum set forth in this Section 13 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce such judgment in any appropriate jurisdiction. (c) All costs and expenses (including attorneys' fees) incurred in connection with any litigation relating to a claim or dispute pertaining to this Agreement shall be paid by the party incurring such expenses, except if the claim or dispute pertains to the enforcement of Section 11 hereof, in which case the prevailing party shall be entitled to an award of such costs and expenses from the non-prevailing party. (d) Nothing contained in this Section 14 shall be deemed to limit the Company's obligation to indemnify the Employee to the fullest extent permitted by applicable law in respect of any actions, claims or proceedings which are based upon acts or omissions of the Employee related to the performance of his duties hereunder to the extent he would have otherwise been entitled to indemnification under the by-laws or charter of the Company or any of its subsidiaries or to the extent to which indemnification is to be paid to officers and directors as a matter of law. 15. Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof and supersedes any and all other agreements and understandings, whether written, oral or otherwise, with respect to the employment of the Employee by the Company and all of such other agreements and understandings shall be of no force or effect. No modification of this Agreement shall be valid unless in writing and signed by the parties hereto. The waiver of a breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition of this Agreement. 16. Severability. If any term or provision of this Agreement or the application thereof to any person, property or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons, property or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 17. Injunctive Relief. (a) The Employee acknowledges and agrees that the covenants and obligations contained in Sections 10(a), 10(b) and 10(c) of this Agreement relate to special, unique and extraordinary matters and that a violation of any of the terms of such Sections will cause the Company irreparable injury for which adequate remedies at law are not available. Therefore, the Employee agrees that the Company shall be entitled to an injunction, restraining order, or other equitable relief from any court of competent jurisdiction, restraining the Employee from committing any violation of the covenants and obligations set forth in Sections 10(a), 10(b) and 10(c) hereof. (b) The Company's rights and remedies under this Section 17 are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In connection with the foregoing provision of this Section 17, the Employee represents that his economic means and circumstances are such that such provisions will not prevent him from providing for himself and his family on a basis satisfactory to him. 18. Withholding Taxes. The Company may deduct from any payments to be made hereunder any federal, state or local withholding or other taxes which the Company determines it is required to deduct under applicable law. 19. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day, month and year first written above. ECKERD CORPORATION By: /s/ Frank Newman Name: Frank Newman Its: President/CEO/COO EMPLOYEE /s/ Samuel G. Wright SAMUEL G. WRIGHT g: employ1/winword/forms EX-10.29 7 EMPLOYMENT AGREEMENT EXHIBIT 10.29 EMPLOYMENT AGREEMENT (Sen. Exec.) AGREEMENT made as of February 1, 1996, by and between ECKERD CORPORATION, a Delaware corporation (the "Company) and KENNETH L. FLYNN, residing at 8673 Laurel Drive, Pinellas Park, Florida 34666 (the "Employee"). WHEREAS, upon the terms and subject to the conditions of this Agreement, the Company desires to employ the Employee and the Employee is willing to accept employment by the Company. NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Employment. Upon the terms and subject to the conditions of this Agreement, the Company hereby employs the Employee and the Employee hereby accepts employment by the Company in the capacity hereinafter set forth. 2. Term of Employment. The term of the Employee's employment by the Company under this Agreement shall commence on the date hereof and shall be for a term of twelve (12) months, subject to extension and termination as provided in Section 8 hereof (the "Contract Period"). 3. Duties; Extent of Services. (a) During the Contract Period, the Employee shall serve as Senior Vice President/Operations of the Company or in such other executive capacity as shall be determined from time to time by the Board of Directors of the Company and shall perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by a person in such position in the business in which the Company is engaged. (b) Except as otherwise provided herein and except for illness, permitted vacation periods and permitted leaves of absence during the Contract Period, the Employee shall (i) devote his full time and attention during normal business hours to the business of the Company and its subsidiaries; (ii) use his best efforts to promote the Company's and its subsidiaries' interest; and (iii) discharge such other and further executive and administrative duties as may be assigned to him by the Board of Directors of the Company and its subsidiaries. (c) Except for directorships held by the Employee on the date of this Agreement, during the Contract Period the Employee will not, without the prior written consent of the Company's Board of Directors, serve as a director of any corporation, joint venture, association or other commercial enterprise not controlled by, controlling or under common control with, the Company and its subsidiaries. 4. Compensation. (a) In consideration of the services rendered by the Employee under this Agreement, the Company shall pay the Employee a base annual salary (the "Base Salary") in the amount of $309,000 (or such other amount as the Board of Directors of the Company shall determine) payable monthly on the fifteenth (15th) of each month during the Contract Period. (b) During the Contract Period, as additional compensation for his services and as a further incentive and inducement to the Employee to accept employment by the Company and to devote his best efforts to the business and affairs of the Company and its subsidiaries, the Employee shall be entitled to participate in such additional compensation plans (the "Bonus Compensation") which the Company allows the Employee to participate in from time to time. (c) The Company agrees that the Employee shall be entitled to defer some portion or all of his Base Salary for any calendar year in accordance with the provisions of the Company's Executive Deferred Compensation Plan as adopted by the Board of Directors. 5. Fringe Benefits. In addition to the compensation provided in Section 4 above, during the Contract Period the Employee shall be entitled to the following benefits: (a) The Employee shall be entitled to paid vacation time annually in accordance with the Company policy as determined by the Board of Directors. (b) The Employee shall be entitled to participate in all employee benefit programs now or hereafter maintained by the Company for executive personnel for which he is eligible, including, without limitation, group life insurance, short and long-term disability, profit sharing, pension, automobile allowance or leasing, stock option (subject to approval by the Board of Directors), supplemental retirement income (subject to approval by the Board of Directors), hospitalization and medical and dental reimbursement plan or program, his participation in such programs to be based upon the applicable provisions of such programs as they may exist from time to time. 6. Expenses. The Company shall pay or reimburse the Employee for all reasonable expenses reasonably incurred or paid by him in connection with the performance of his duties hereunder upon presentation of expense statements or vouchers and such other supporting documentation as the Company may from time to time reasonably request. 7. Benefits Payable Upon Disability, Death, or Retirement. (a) In the event of the disability (as hereinafter defined) of the Employee during the Contract Period, the Company shall continue to pay the Employee the compensation provided in Section 4 hereof during the period of his disability or earlier termination hereof; provided, however, that in the event the Employee is disabled for a continuous period exceeding six (6) consecutive calendar months, the Company may, at its election, terminate this Agreement at the close of business on the date thirty (30) days after the Company shall have delivered a written notice of such election to the Employee, in which event the Employee shall be entitled to receive benefits under the Company's Long Term Disability Plan as such plan may exist as of the date of termination of this Agreement. As used in this Agreement, the term "disability" shall mean the inability of the Employee due to illness or physical or mental infirmity to perform his duties under this Agreement as determined by a physician selected by the Employee and acceptable to the Company. (b) During the period the Employee shall be entitled to receive payments under Section 7(a) above, to the extent that he is physically and mentally able to do so, he shall, upon the request of the Company, furnish information and assistance to the Company, and, in addition, upon reasonable request of Senior Management or the Board of Directors, he shall make himself available to the Company to undertake reasonable assignments consistent with the dignity, importance and scope of his position and his physical and mental health. (c) In the event of the death of the Employee during the Contract Period, the Company shall pay, or cause to be paid, to the Employee's designated beneficiary or beneficiaries or estate or legal representatives, the payment due pursuant to the terms of the group term insurance policies together with such other death benefits as may be payable under the Company's benefit plans. (d) In the event of the retirement of the Employee on his Normal Retirement Date (as such term is defined in the Company's Pension Plan) the Employee shall be entitled to such retirement benefits, if any, as are available to the Employee upon retirement pursuant to the Company's retirement benefit plans. 8. Termination. (a) Except as otherwise provided in subsection (c) and (d) hereof, this Agreement and the employment of the Employee hereunder shall terminate upon the earliest to occur of the dates specified below: (i) the close of business on the date that is one year after the date hereof (the "Initial Period"), except that this Agreement and the employment of the Employee hereunder shall be automatically extended from year to year thereafter unless (x) terminated by the Company by delivery of not less than 60 days written notice to the Employee prior to the end of the Initial Period or any extension thereof in which case the employment of the Employee shall terminate on the date specified for termination in such notice, or (y) terminated by the Employee by delivery of not less than 60 days written notice to the Company prior to the end of the Initial Period or any extension thereof in which case the employment of the Employee shall terminate on the date specified for termination in such notice; (ii) the close of business on the date of death of the Employee; (iii) the close of business on the date the Company delivers to the Employee a written notice of its election to terminate his employment for "Cause" (as defined in paragraph (b) below); (iv) the close of business on the date thirty (30) days after the Company shall have delivered to the Employee a written notice of its intention to terminate his employment because the Board of Directors has determined that such termination is in the best interests of the Company and such termination is not for Cause, death, disability or failure to extend pursuant to Section 8(a)(i)(x) hereof; (v) the close of business on the date of a termination by the Company pursuant to Section 7(a) hereof; or (vi) the close of business on the date of the retirement of the Employee pursuant to Section 7(d) hereof. (b) For purposes of this Agreement, the term "Cause" shall mean: (i) the Employee's conviction (which, through lapse of time or otherwise, is not subject to appeal) of, or a plea of guilty or nolo contendre to, any crime or offense which constitutes a felony in the jurisdiction involved or involves moral turpitude, (ii) the commission of an act of fraud, embezzlement or intentional dishonesty against the Company or any of its subsidiaries, (iii) a breach of this Agreement by the Employee, (iv) breach of fiduciary duty resulting in injury to the Company or its subsidiaries (v) gross misconduct in connection with the Employee's performance of the Employee's duties hereunder, or (vi) the Employee's continued or willful failure or refusal to comply with the Company's policies or the policies or written directives of the Company's Senior Management or the Board of Directors. (c) For purposes hereof, upon termination of this Agreement and employment of Employee as provided in Section 8(a)(i)-(vi), all obligations and liabilities of the parties hereto shall cease and be of no effect except for those liabilities and obligations provided for in Section 7, 9 and 10 hereof. (d) For purposes of clauses (i) and (iv) of Section 8(a) above, the Employee shall be relieved of his duties and shall vacate his office and the Company's premises on the date of receipt of the notice required by such clauses unless requested by the Company to remain in the active employment of the Company during such period between the receipt of notice and the effective date of termination of employment. 9. Payments to Employee Upon Termination of Employment. (a) Upon the termination of the Employee's full-time employment hereunder by the Company in accordance with clauses (i)(x) or (iv) of Section 8(a) of this Agreement, the Company shall pay to the Employee, or in the event of his subsequent death, to his beneficiary or beneficiaries or his estate or legal representative, as severance pay (i) an amount equal the Employee's Base Salary on the date of termination for the Applicable Severance Period payable in monthly installments on the fifteenth (15th) of each month during the Applicable Severance Period plus (ii) subject to the terms and provisions of any additional compensation plans that the Employee participates in from time to time, a pro rata portion of any bonus compensation payable to the Employee. (b) Upon the termination of the Employee's full-time employment hereunder pursuant to clauses (i)(x) or (iv) of Section 8(a) of this Agreement, the Company shall at its expense continue on behalf of the Employee the following benefits: life insurance, short and long-term disability insurance, hospitalization insurance and medical and dental reimbursement plan insurance. The coverage of any such insurance provided by the Company hereunder shall be no less favorable to the Employee, in terms of amounts and deductibles, than the coverage provided under the benefit programs maintained by the Company from time to time for the Company's executives. The Company's obligation hereunder with respect to each of the foregoing benefit plans shall terminate upon the earlier of the end of the Applicable Severance Period or the date the Employee obtains any such benefits pursuant to a subsequent employer's benefit plans. The Employee agrees that the Company's continued provision of benefits described in this Section 9(b) shall count toward satisfying any obligation that the Company may have under COBRA. (c) Benefits pursuant to the Company's Profit Sharing and Pension Plans (and such other plans in which Employee participates) shall be payable to Employee in accordance with the terms of such Plans. (d) For purposes of this Agreement, the applicable Severance Period shall mean (i) twelve (12) months for a termination which occurs prior to the Employee's tenth (10th) anniversary of employment with the Company, or (ii) eighteen (18) months for a termination which occurs after the Employee's tenth (10th) anniversary of employment with the Company. (e) Employee further acknowledges that as a condition precedent to receiving any benefits under this Agreement, Employee shall complete, execute and deliver to the Company at the time of his termination of employment a Release in the form of Exhibit "A" hereto which releases any and all claims that the Employee may have against the Company as of the date of termination arising under federal, state, local or common law. 10. Covenants of the Employee. (a) The Employee agrees that during the Contract Period and for a period of time equal to (i) one year in the event of a termination of employment in accordance with clauses (i)(y) or (iii) of Section 8(a); (ii) two years in the event of a termination of employment in accordance with Section 7(a) or retirement in accordance with Section 7(d); or (iii) the Applicable Severance Period in the event of a termination of employment in accordance with clauses (i)(x) or (iv) of Section 8(a), he will not, directly or indirectly, engage, assist or participate in, whether as a director, officer, employee, agent, manager, consultant, partner, owner or independent contractor or other participant, any business, firm, corporation, partnership, enterprise or organization that competes with the business engaged or hereafter engaged in by the Company or any of its subsidiaries (including, but not limited to, the operation of retail drug stores in which prescription drugs are sold, the sale of photofinishing products or services, the mail order pharmacy business, and/or the pharmacy benefits management business) in the Company's or such subsidiaries' trade areas (for purposes hereof "trade areas" shall mean any county in any state of the United States in which retail drug stores operated by the Company and its subsidiaries are located or in which services are provided by the Company or its subsidiaries). Nothing contained herein shall prevent the Employee from acquiring less than 2% of any class of outstanding securities of any Company that has any of its securities listed on a national securities exchange or traded in the over-the-counter market. (b) The Employee agrees that during the Contract Period and for a period of two years after the termination of this Agreement for any reason, he will not directly induce or solicit any person employed or hereafter employed by the Company or any of its subsidiaries to leave the employ of the Company or any of its subsidiaries nor will he directly or indirectly call upon, solicit, write, direct, divert or accept business with respect to any account or customer of the Company or its subsidiaries, including, without limitation, accounts or customers obtained before or during the term of this Agreement. (c) The Employee agrees and acknowledges that the Confidential Information of the Company and its subsidiaries (as hereinafter defined) is valuable, special and unique to their business; that such business depends on such Confidential Information; and that the Company wishes to protect such Confidential Information by keeping it confidential for the use and benefit of the Company. Based on the foregoing, the Employee agrees to undertake the following obligations with respect to such Confidential Information: (i) The Employee agrees to keep any and all Confidential Information in trust for the use and benefit of the Company; (ii) The Employee agrees that, except as required by the Employee's duties or authorized in writing by the Company and its subsidiaries or required by applicable law, he will not at any time during and for a period of five (5) years after the termination of his employment with the Company and its subsidiaries, disclose, directly or indirectly, any Confidential Information of the Company or any of its subsidiaries. (iii) The Employee agrees to take all reasonable steps necessary, or reasonably requested by the Company and its subsidiaries, to ensure that all Confidential Information of the Company is kept confidential for the use and benefit of the Company and its subsidiaries; and (iv) The Employee agrees that, upon termination of his employment by the Company or any of its subsidiaries or at any other time the Company may in writing so request, he will promptly deliver to the Company all materials constituting Confidential Information (including all copies thereof) that are in the possession of or under the control of the Employee. The Employee further agrees that, if requested by the Company to return any Confidential Information pursuant to this Subsection (iv), he will not make or retain any copy or extract from such materials. For purposes of this Section 10(c), Confidential Information means any and all information developed by or for the Company or any of its subsidiaries of which the Employee gained knowledge by reason of his employment by the Company or any of its subsidiaries prior to the date hereof or his employment under this Agreement that is not generally known in any industry in which the Company is or may become engaged. Confidential Information includes, but is not limited to, any and all information developed by or for the Company concerning plans, marketing and sales methods, materials, processes, business forms, procedures, devices used by the Company, its subsidiaries, suppliers and customers with which the Company had dealt prior to the Employee's termination of employment with the Company and its subsidiaries, plans for development of new products, services and expansion into new areas or markets, internal operations, and any trade secrets and proprietary information of any type owned by the Company and its subsidiaries, together with all written, graphic and other materials relating to all or any part of the same. 11. Change of Control (a) Definition of Change of Control. No benefits shall be payable under this Section 11 unless there shall have been a Change of Control, as set forth below, and Employee's employment by the Company shall thereafter have been terminated in accordance with Section 11(b) below. As used herein, the term "Change of Control" shall mean: (i) the acquisition by any individual, firm, corporation or other entity or any group of individuals, firms, corporations or other entities acting in concert ("Person") together with all Affiliates and Associates (as such terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 (the "Exchange Act") of such Person of beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act) of more than 25% of the outstanding shares of voting stock of the Company; (ii) any change in the composition of the Board of Directors of the Company resulting in members of the Board on the date hereof (or such other persons who are elected by, or on the recommendation of, a majority of such members or other persons who had been elected by, or on the recommendation of, a majority of such members) ("Continuing Directors") ceasing to constitute a majority of the Board of Directors; or (iii) any other event determined by a majority of the Board of Directors of the Company to constitute a Change of Control. (b) Termination Following Change of Control. If any of the events described in Section 11(a) above constituting a Change of Control shall have occurred, Employee shall be entitled to the benefits provided in Section 11(e) hereof upon the subsequent termination of employment during the time period referred to in Section 11(e) hereof if such termination is (i) by the Company pursuant to Subsections 8(a)(i), (iv) or (v) hereof or (ii) by Employee for Good Reason. (c) Definition of Good Reason. (A) Employee shall be entitled to terminate employment for Good Reason. For purposes of this Agreement, "Good Reason" shall without Employee's express written consent, mean, following a Change of Control: (1) the assignment to Employee of any duties inconsistent with Employee's status as a senior executive officer of the Company or a substantial alteration in the nature or status of Employee's responsibilities from those in effect immediately prior to a Change of Control; or an adverse and substantial alteration in Employee's reporting responsibilities, title or offices as in effect immediately prior to a Change of Control or any removal of Employee from or failure to reelect Employee to any such positions except in connection with the termination of employment for Disability, Retirement or Cause or as a result of death or by Employee other than for Good Reason; (2) a reduction by the Company in Employee's annual Base Salary as in effect on the date hereof; (3) any material breach by the Company of any provision of this Agreement; or (4) any purported termination of Employee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 11(d) below and, for purposes of this Agreement, no such purported termination shall be effective. (B) Employee's right to terminate his employment pursuant to this Subsection 11(c) shall not be affected by Employee's incapacity due to physical or mental illness. (d) Notice of Termination. Any purported termination by the Company or by Employee shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 13 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision of this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination. (e) Compensation for Termination. If Employee's employment by the Company shall be terminated within two years after a Change of Control (a) by the Company pursuant to Subsections (8)(a)(i), (iv), or (v) or (b) by Employee for Good Reason, then: (i) within five (5) days of the date of such termination, the Company shall pay Employee a single severance payment in cash in an amount equal to 2.9 multiplied by Employee's Base Salary paid to Employee by the Company in the Company's fiscal year immediately preceding the year in which the termination occurs plus all accrued but unpaid Base Salary and a pro rata bonus amount payable pursuant to Section 4 hereof through the date of termination; (ii) for a period of two (2) years after such termination, the Company shall at its expense continue on behalf of Employee the benefits described in Section 9(b) of this Agreement; and (iii) any restrictions on any outstanding incentive awards (including, but not limited to, restricted stock) granted to Employee under any of the Company's benefit plans or otherwise shall lapse and such incentive awards shall become 100% vested. (f) Mitigation. Employee shall not be required to mitigate the amount of any payment provided for in this Section 11 by seeking other employment or otherwise nor shall the amount of any payment or benefit provided for in this Section 11 be reduced by any compensation earned by Employee as the result of employment by another employer or by retirement benefits after the date of termination or otherwise. (g) Compensation Election. If Employee receives compensation pursuant to this Section 11, Employee shall not be entitled to any other benefits hereunder, other than that referred to in subsection (e) above, the receipt of any compensation which Employee had earned but previously elected to defer receipt of and the right to exercise options in accordance with the terms of the Company's Stock Option Plans under which such options were granted. (h) Excise Tax Payment. In the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), to Employee or for this benefit paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Company or a Change in Control of the Company (a "Payment" or "Payments"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee will be entitled to immediately receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties, other than interest and penalties imposed by reason of the Employee's failure to file timely a tax return or pay taxes shown due on his return, imposed with respect to such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. 12. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns. The term "Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all the assets and business of this Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries, or legal representatives without the Company's prior written consent; provided, however, that nothing in this Section 12 shall preclude (i) the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death, or (ii) the executors, administrators, or other legal representatives of the Employee or his estate from assigning any rights hereunder to distributees, legatees, beneficiaries, testamentary trustees or other legal heirs of the Employee. (c) After a Change of Control, the Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation of otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle Employee to compensation from the Company in the same amount and on the same terms as Employee would be entitled hereunder if Employee terminated employment for Good Reason except that, for purposes of implementing the foregoing, the date on which any such succession or assignment becomes effective shall be deemed the date of termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13. Notices. Any notice required or permitted by this Agreement shall be given by registered or certified mail, return receipt requested, addressed to the Company at its then principal office, or to the Employee at his address specified on page 1 of this Agreement, or to either party hereto at such other address or addresses as he or it may from time to time specify for such purposes in a notice similarly given. 14. Governing Law; Litigation; Expenses. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without giving effect to the conflicts of law principles thereof. (b) The Employee and the Company hereby agree that the courts of the State of Florida shall have exclusive jurisdiction to hear and determine any claims or disputes pertaining to this Agreement or to any matter arising therefrom. Each of the Employee and the Company expressly submits and consents in advance to such jurisdiction in any action commenced in such courts hereby waiving personal service of the summons and complaint or other process or papers issued therein, and agreeing that service of such summons and complaint, or other process or papers, may be made by registered or certified mail addressed to the Company at its then principal office or to the Employee at his address specified on page 1 of this Agreement, or to either party hereto at such other addresses as it or he from time to time specify to the other party in writing for such purpose. The exclusive choice of forum set forth in this Section 13 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce such judgment in any appropriate jurisdiction. (c) All costs and expenses (including attorneys' fees) incurred in connection with any litigation relating to a claim or dispute pertaining to this Agreement shall be paid by the party incurring such expenses, except if the claim or dispute pertains to the enforcement of Section 11 hereof, in which case the prevailing party shall be entitled to an award of such costs and expenses from the non-prevailing party. (d) Nothing contained in this Section 14 shall be deemed to limit the Company's obligation to indemnify the Employee to the fullest extent permitted by applicable law in respect of any actions, claims or proceedings which are based upon acts or omissions of the Employee related to the performance of his duties hereunder to the extent he would have otherwise been entitled to indemnification under the by-laws or charter of the Company or any of its subsidiaries or to the extent to which indemnification is to be paid to officers and directors as a matter of law. 15. Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof and supersedes any and all other agreements and understandings, whether written, oral or otherwise, with respect to the employment of the Employee by the Company and all of such other agreements and understandings shall be of no force or effect. No modification of this Agreement shall be valid unless in writing and signed by the parties hereto. The waiver of a breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition of this Agreement. 16. Severability. If any term or provision of this Agreement or the application thereof to any person, property or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons, property or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 17. Injunctive Relief. (a) The Employee acknowledges and agrees that the covenants and obligations contained in Sections 10(a), 10(b) and 10(c) of this Agreement relate to special, unique and extraordinary matters and that a violation of any of the terms of such Sections will cause the Company irreparable injury for which adequate remedies at law are not available. Therefore, the Employee agrees that the Company shall be entitled to an injunction, restraining order, or other equitable relief from any court of competent jurisdiction, restraining the Employee from committing any violation of the covenants and obligations set forth in Sections 10(a), 10(b) and 10(c) hereof. (b) The Company's rights and remedies under this Section 17 are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In connection with the foregoing provision of this Section 17, the Employee represents that his economic means and circumstances are such that such provisions will not prevent him from providing for himself and his family on a basis satisfactory to him. 18. Withholding Taxes. The Company may deduct from any payments to be made hereunder any federal, state or local withholding or other taxes which the Company determines it is required to deduct under applicable law. 19. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day, month and year first written above. ECKERD CORPORATION By: /s/ Frank Newman Name: Frank Newman Its: President/CEO/COO EMPLOYEE /s/ Kenneth L. Flynn KENNETH L. FLYNN g: employ1/winword/forms EX-10.30 8 EXEC EXCESS BENEFIT PLAN EXHIBIT 10.30 THE EXECUTIVE EXCESS BENEFIT PLAN OF JACK ECKERD CORPORATION AND ITS SUBSIDIARIES Effective December 1, 1989, JACK ECKERD CORPORATION, a Delaware corporation, hereby establishes this EXECUTIVE EXCESS BENEFIT PLAN to provide benefits on behalf of those of its executive officers participating in its Profit Sharing Plan and Pension Plan (as hereinafter defined) whose benefits under those plans are reduced by reason of the limits imposed by either or both of Sections 401(a)(17) and 415 of the Code. The Plan is intended solely to replace (and thus to provide benefits equal to) the amount of Profit Sharing Plan and Pension Plan benefits that participating employees will be prevented from earning under those Plans by reason of such limits but would have earned had such limits not applied. Accordingly, the Plan provides benefits only to the extent that such limits reduce the Profit Sharing Plan and Pension Plan benefits to which participating employees would otherwise be entitled. It is intended that the Plan shall benefit only those executive employees of the Company who are nominated by either its Chief Executive Officer or its Senior Vice President, Finance and Administration and who are approved by the Executive Compensation and Stock Option Committee of its Board of Directors. 1. Definitions Provided in Pension Plan. Except as otherwise provided in Section 2, the terms used herein shall have the meanings assigned to them under the Jack Eckerd Corporation Pension Plan, as now in effect and as it may be amended hereafter from time to time. 2. Specific Definitions. Notwithstanding Section 1, the following terms, when used herein, shall have the following meanings unless a different meaning is plainly required by the context: a."Account" shall mean a Participant's Excess Pension Account or Excess Profit Sharing Account, or both, as the context requires. b."Beneficiary" shall mean either or both of a Pension Beneficiary or a Profit Sharing Beneficiary, as the context requires. c."Board" or "Board of Directors" shall mean the Board of Directors of Jack Eckerd Corporation. d."Change in Control" shall have the meaning ascribed to that term in the Trust. e."Code" shall mean the Internal Revenue of 1986, as amended from time to time. f."Committee" shall mean the Administrative Committee appointed to manage and administer the Plan in accordance with the provisions of Section 14. The members of the Committee at any time shall be the same individuals who are at that time members of the Pension Committee under the Pension Plan. g."Company" shall mean Jack Eckerd Corporation and any of its direct and indirect subsidiaries that are authorized to participate in the Pension Plan and the Profit Sharing Plan. h."Compensation Committee" shall mean the Executive Compensation and Stock Option Committee of the Board. i."Computation Date" shall mean the earliest of (i) the day before the date as of which the Participant begins receiving benefits under the Pension Plan, (ii) the date as of which the Compensation Committee determines, in accordance with Section 3(b), that the Participant is no longer employed in a position that qualifies him/her to participate in the Plan, and (iii) the day before the date the Plan is terminated. j."Disabled" or "Disability" shall mean that a Participant has been determined, in accordance with Section 5.1 of the Pension Plan, to be entitled to receive a disability pension under the Pension Plan. k."Employee" shall mean any person regularly employed full time by the Company in any capacity (including officers and directors who regularly render services to the Company as regular full-time employees). Employees shall not include part-time employees, consultants or independent contractors of the Company. l."Excess Pension Account" shall mean the account established to record a participant's Excess Pension Amount (as defined in Section 4(d)) under the Plan. m."Excess Pension Benefit" shall have the meaning ascribed to that term in Section 8(a). n."Excess Profit Sharing Account" shall mean the Account established to record amounts credited to a Participant under Sections 4(b) and 4(c). o."Excess Profit Sharing Benefit" shall have the meaning ascribed to that term in Section 8(a). p."Participant" shall mean an Employee who is eligible to participate in the Plan and has become a participant in the Plan in accordance with Section 3. q."Pension Beneficiary" shall mean the Participant's spouse (if the spouse survives the Participant), except that if, on the date of his death, the Participant has attained the age of fifty-five (55) years, has completed any Service Period (as defined in the Pension Plan) that may then be required for such purpose under the provision of the Pension Plan that corresponds to clause (i)(B) of Section 6(a) hereof, and is unmarried but has children under the age of twenty-one (21) years living at home or enrolled in an educational institution, his Pension Beneficiary shall be his eligible children (collectively). r."Pension Plan" shall mean the Jack Eckerd Corporation Pension Plan, as amended from time to time. s."Pension Retirement Date" shall mean the Normal Retirement Date as defined in the Pension Plan or, in the case of a Participant who is eligible for, and who has elected to receive, an early retirement pension under Article 4 of the Pension Plan, the date the Participant becomes eligible for an early retirement pension under the Pension Plan. t."Plan" shall mean the Executive Excess Benefit Plan of Eckerd Corporation and its subsidiaries, which shall be evidenced by this instrument, as amended from time to time, and by each Plan Agreement. u."Plan Agreement" shall mean the written agreement, in the form attached hereto as Exhibit A, that is entered into from time to time by and between the Company and a Participant. v."Plan Year" shall mean the period from December 1, 1989 through December 31, 1989, and each calendar year thereafter. w."Profit Sharing Account" shall mean the account maintained for a Participant in the Profit Sharing Plan. x."Profit Sharing Beneficiary" shall mean the person or persons (including a trust created by a person or the estate of a person) designated by a Participant to receive the Participant's Excess Profit Sharing Benefit under the Plan upon the death of the Participant or, in the event no such person or persons are designated or survive the Participant, then the Participant's beneficiary under the Profit Sharing Plan. y."Profit Sharing Normal Retirement Date" shall mean the Normal Retirement Date as defined in the Profit Sharing Plan. z."Profit Sharing Plan" shall mean the Jack Eckerd Corporation Profit Sharing Plan. References herein to Sections or provisions of the Profit Sharing Plan refer to Sections or provisions of the Profit Sharing Plan document in effect on December 31, 1988 (as such Sections or provisions may be subsequently renumbered or amended). aa."Retirement" and "Retire" shall mean severance from employment with the Company on or after a Participant's Pension Retirement Date or Profit Sharing Normal Retirement Date. bb."Section" shall mean, unless specified otherwise, a section hereof. cc."Section 401(a)(17) Limitations" and "Section 415 Limitations" shall mean the limitations imposed by Section 401(a)(17) or 415 of the Code, respectively, and regulations and other governmental interpretations thereunder and by the provisions of any qualified plan maintained by the Company that are intended to give effect to those limitations. dd."Trust" shall mean the Jack Eckerd Corporation Benefit Plans Trust, as amended from time to time. ee."Trustee" shall mean the trustee of the Trust. 3. Eligibility to Participate in the Plan. a. Those executive Employees who are participants in the Pension Plan and the Profit Sharing Plan and who are selected from time to time by the Compensation Committee upon the recommendation of the Chief Executive Officer or the Senior Vice President, Finance and Administration of the Company shall be eligible to become Participants in the Plan. As a condition of participation, each individual so selected shall complete, execute and return to the Compensation Committee a Plan Agreement in the form attached hereto as Exhibit A and shall comply with such further conditions as may be established by and in the sole discretion of the Compensation Committee. b. In the event that subsequent to commencement of participation in the Plan, a Participant fails to maintain a position of employment in the Company that, in the sole discretion of the Compensation Committee, qualifies for participation in the Plan, then such Participant shall have his Account balance adjusted, in accordance with Section 4(e) below, by the amount of his Excess Pension Benefit, and shall cease to accrue further benefits under the Plan. Such Participant shall be entitled to receive his vested benefits, if any, at the time and in the manner provided by the Plan. c. An individual shall remain a Participant so long as any amount is credited to any of his Accounts, whether or not he is still an Employee at the time such amount continues to be credited to his Accounts. 4. Computation of Benefits. a. Calculation of Imputed Profit Sharing Allocation. For each Plan Year with respect to which the Participant is an active participant in the Profit Sharing Plan and the Pension Plan, a Participant's "Imputed Profit Sharing Allocation" shall be equal to the amount of Company contributions and forfeitures that would be allocated to the Participant's Profit Sharing Account for the Plan Year of the Profit Sharing Plan that ends on the last day of the Plan Year of the Plan under Sections 6.2 and 7.1 of the Profit Sharing Plan if the Section 415 Limitations and Section 401(a)(17) Limitations did not apply to the Profit Sharing Plan. b. Annual Adjustment of Account. (i) As of each Adjustment Date (as defined in the Profit Sharing Plan), the Excess Profit Sharing Account of each Participant shall be adjusted upward or downward by the same percentage as the accounts of participants in the Profit Sharing Plan are adjusted in accordance with Section 7.3 of the Profit Sharing Plan. (ii) As of the Adjustment Date (as defined in the Profit Sharing Plan) for each Plan Year with respect to which a Participant is an active participant in the Profit Sharing Plan and the Pension Plan, the Excess Profit Sharing Account of each Participant (after adjustment in accordance with subparagraph (1) of this paragraph (b)) shall be credited with the Participant's Imputed Profit Sharing Allocation reduced (but not below zero) by the amount of Company contributions and forfeitures actually credited to such Participant's Profit Sharing Account for that Plan Year. c. Final Adjustment. If the Quarterly Valuation Date (as defined in the Profit Sharing Plan) immediately preceding a Participant's Computation Date is not an Adjustment Date (as defined in the Profit Sharing Plan), the Participant's Excess Profit Sharing Account as of such Quarterly Valuation Date shall be multiplied by the adjustment ratio calculated under Section 7.6 of the Profit Sharing Plan for such Quarterly Valuation Date. d. Calculation of Excess Pension Amount. A Participant's "Excess Pension Amount" shall be computed as of his Computation Date and shall be equal to (i) the amount that the Participant would have accrued as a benefit under the Pension Plan (as in effect on his Computation Date) if the Section 401(a)(17) Limitations and the Section 415 Limitations did not apply to the Pension Plan, the Profit Sharing Plan, or any other qualified plan maintained by the Company, reduced (but not below zero) by (ii) the Participant's Accrued Benefit under the Pension Plan. In computing, in accordance with clause (i) of the preceding sentence, the amount that a Participant would have accrued as a benefit under the Pension Plan, (I) the amount of the offset for the benefit under the Profit Sharing Plan shall be computed as if the Section 401(a)(17) Limitations and the Section 415 Limitations did not apply to the Profit Sharing Plan, and (II) all provisions of the Pension Plan and the Profit Sharing Plan effective on the Computation Date, including, but not limited to, any provisions freezing any benefits as of a date prior to or coincident with the Computation Date, shall be taken into account. In determining a Participant's Excess Pension Amount, the Committee shall reduce, in accordance with Section 4.,2 of the Pension Plan, the level of any benefits that commence prior to the Participant's Pension Normal Retirement Date. e.One-Time Adjustment of Excess Pension Account. As of a Participant's Computation Date, the Committee shall credit his Excess Pension Account with his Excess Pension Amount. 5. Retirement or Death After Retirement. a. Retirement. If a Participant Retires on or after his Pension Retirement Date, distribution of his Excess Pension Benefit shall commence in the form determined in accordance with Section 8(b) on the same date as the distribution of the Participant's benefits under the Pension Plan. If a Participant Retires on or after his Profit Sharing Normal Retirement Date, distribution of his Excess Profit Sharing Benefit shall be made in a single lump sum in cash as soon as administratively practicable after the Participant terminates service. b. Death After Retirement or Disability. If a Participant dies after Retiring or becoming Disabled but before receiving all payments from his Excess Pension Account under the Plan, the Participant's Pension Beneficiary shall receive the remaining payments from the Participant's Excess Pension Account to which the Participant would have been entitled if the Participant had lived. If a Participant dies after Retiring or becoming Disabled, but before receiving a distribution of his entire vested interest in his Excess Profit Sharing Account, his Profit Sharing Beneficiary shall receive a single lump sum cash payment of the Participant's Excess Profit Sharing Account. 6. Death Before Retirement, Disability and Termination of Employment. a. Benefits in the Case of a Death. If a Participant dies (whether or not he is an Employee on the date of his death) before Retirement and is not Disabled at the time of his death, (i)(A) if the Participant is married on the date of his death, his Excess Pension Benefit shall be paid to his Pension Beneficiary in a Single Life Annuity (as defined in Section 8(b)) commencing on the same date as the distribution of the Pension Beneficiary's benefits under Article 7 of the Pension Plan, and (B) if, on the date of his death, the Participant has attained the age of fifty-five (55) years, has completed any Service Period (as defined in the Pension Plan) that may then be required for such purpose under the provision of the Pension Plan that corresponds to his clause (B), and is unmarried but has children under the age of twenty-one (21) years living at home or enrolled in an educational institution, his Excess Pension Benefit shall be paid to his eligible children (collectively) in a Single Life Annuity (as defined in Section 8(b)) commencing on the same date as the distribution of benefits to such children under Article 7 of the Pension Plan; and (ii) his Excess Profit Sharing Benefit shall be paid to his Profit Sharing Beneficiary in a single lump sum cash distribution as soon as administratively practicable after the Participant's death. If an unmarried Participant dies before Retirement and is not Disabled at the time of his death, and if subparagraph (i)(B) of this Section 6(a) does not apply to the Participant, then his Excess Pension Benefit shall be forfeited. b. Benefits in the Case of Disability. If a Participant is Disabled, he shall be entitled to receive (i) his Excess Pension Benefit in the form determined in accordance with Section 8(b) and commencing on the same date as the distribution of his disability benefits under Article 5 of the Pension Plan, and (ii) his Excess Profit Sharing Benefit in a single lump sum cash distribution as soon as administratively practicable after he is determined to be Disabled. c. Benefits in the Case of Termination of Employment. Upon termination of employment (other than by Retirement, as provided in Section 5, death or Disability), a Participant shall be entitled to receive (i) his Excess Pension Benefit, payable in the form determined in accordance with Section 8(b) and commencing on the same date as the distribution of his benefits under Article 6 of the Pension Plan, and (ii) his Excess Profit Sharing Benefit in a single lump sum cash distribution as soon as administratively practicable after his termination. 7. Obligation to Pay Benefits Hereunder. Except as required by the Trust, the Company shall have no obligation to fund a trust fund or escrow account or otherwise to segregate assets to guarantee, secure or assure the payment of any benefit under the Plan, but the Company may (and to the extent required by the Trust, shall) fund a non-qualified grantor trust to provide for the payment of benefits under the Plan. The establishment or funding of any such non-qualified grantor trust shall not relieve the Company of any of its obligations pursuant to the Plan, except that amounts paid to the Participants or other payees hereunder from any such trust shall be offset against the amount of payments required to be made hereunder by the Company to the Participant or other payee. To the extent that any person acquires a right to receive payments from the Company or from any trust pursuant to the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company and shall not be deemed to be a right to payment of wages for purposes of any law providing for a lien or any other priority for claims for wages. Any trust established to provide for any payments hereunder shall be subject to the claims of creditors of the Company in the event of any insolvency of the Company, and all the Company's obligations to pay benefits pursuant to the Plan shall constitute only a general and unsecured contractual liability of the Company to the Participants and other payees hereunder in accordance with the terms hereof. Amounts payable hereunder, whether from such a non-qualified grantor trust or from the Company's general assets, shall be subject in all respects to claims of general creditors of the Company until actually paid over to the person(s) entitled to receive the same. 8. Vesting and Payment of Benefits. a. Vesting. A Participant's Excess Pension Benefit under the Plan shall be equal to the vested percentage of the amount credited to his Excess Pension Account. At any given time, such vested percentage shall be equal to the vested percentage of the Participant's Accrued Benefit under the Pension Plan. A Participant's Excess Profit Sharing Benefit under the Plan shall be equal to the vested percentage of the amount credited to his Excess Profit Sharing Account. At any given time, such vested percentage shall be equal to the vested percentage of the Participant's account balance under the Profit Sharing Plan. b. Election of Form of Distribution of Excess Pension Benefit. An Eligible Employee who has been approved, in accordance with Section 3, to participate in the Plan, and who is married on the day before the date he commences participation in the Plan, shall file, prior to his commencement of participation, an irrevocable written election of the form of distribution of his Excess Pension Benefit upon his Retirement or other termination of service (his "Initial Election"). The Initial Election shall be made on a form provided by the Committee. Such married Eligible Employee may elect either consecutive, approximately level monthly payments for life with no survivor benefit (a "Single Life Annuity") or a joint and survivor annuity that is the actuarial equivalent of a Single Life Annuity and that provides consecutive, approximately level monthly payments for the life of the Eligible Employee and, after his death, consecutive, approximately level monthly payments to the Eligible Employee's Pension Beneficiary in a monthly amount equal to 50%, 75% or 100% (as elected by the Eligible Employee as part of his Initial Election) of the monthly amount paid to the Eligible Employee during his life (a "Joint and Survivor Annuity"). An Eligible Employee who has been approved, in accordance with Section 3, to participate in the Plan and who is unmarried on the day before the date he commences participation in the Plan, shall receive his Excess Pension Benefit in the form of a Single Life Annuity, except that, if he is married on or after the date he commences participation in the Plan but prior to commencement of payment of his Excess Pension Benefit, then he may irrevocably elect, within 90 days after the date of his marriage, a 50%, 75% or 100% (as elected by the Eligible Employee as part of such election) Joint and Survivor Annuity (a "Marital Election"). If such a Participant fails to make such Marital Election within 90 days after the date of his marriage, he shall receive his Excess Pension Benefit in the form a of a Single Life Annuity. A Participant's Initial Election or Martial Election to receive a Joint and Survivor Annuity shall be null and void if, prior to the date of the commencement of payment of his Excess Pension Benefit, (i) the spouse to whom the Participant was married on the date of such Initial Election or Marital Election dies, or (ii) the Participant is divorced from such spouse, and in that event the Participant shall receive his Excess Pension Benefit in the form of a Single Life Annuity; provided that, if a widowed or divorced Participant described in this sentence is subsequently married prior to the date of commencement of payment of his Excess Pension Benefit, he may make a new Marital Election in accordance with the preceding sentence. c. Withholding Taxes, Etc. All amounts payable during the lifetime of a Participant shall be paid directly to the Participant unless applied for the Participant's benefit in accordance with Section 11. All amounts payable, whether to a living person or to the estate of a deceased person, shall be paid out net after the withholding of any federal, state or local income, earnings and other taxes that might be required to be withheld from such payments. d. Notwithstanding any provisions hereof to the contrary, if a Participant (or Beneficiary of a deceased Participant) submits to the Committee evidence satisfactory to the Committee (in its reasonable judgment) that the Internal Revenue Service has determined that any portion (which may include all) of his benefit under the Plan is includible in his gross income for any year prior to the year in which such portion of his benefit would be paid to him accordance with the provisions of the Plan other than this Section 8(d), then such portion of his benefit shall be paid to him in a single lump sum cash distribution as soon as administratively practicable after the Committee has received such evidence. 9. Profit Sharing Beneficiary. a. Each Participant shall specifically designate, by name, on forms provided by the Company, the Profit Sharing Beneficiary or Beneficiaries who shall receive any benefits that might be payable under the Plan from his Excess Profit Sharing Account after his death. Such designation may be made at any time satisfactory to the Company. If a Participant has not designated a Profit Sharing Beneficiary in the manner provided above, the Participant's beneficiary under the Profit Sharing Plan shall also be his Profit Sharing Beneficiary under the Plan. b. A designation of a Profit Sharing Beneficiary may be changed or revoked in writing without the consent of the Profit Sharing Beneficiary at any time or from time to time in such manner as may be provided by the Company, and the Company shall have no duty to notify any person designated as a Profit Sharing Beneficiary of any change in any such designation that might affect such person's present or future rights hereunder. If the designated Profit Sharing Beneficiary does not survive the Participant, all amounts that would have been paid to such deceased Profit Sharing Beneficiary shall be paid to the alternative or successor Profit Sharing Beneficiary or Beneficiaries (if any) designated by the Participant or, if the Participant has not designated any alternative or successor Profit Sharing Beneficiary, to the estate of the deceased Participant. Not more than five (5) persons or, if a greater number, that number of persons as shall be necessary to permit the Participant to designate as simultaneous Profit Sharing Beneficiaries any or all of the Participant's surviving children and spouse, may be named as simultaneous Profit Sharing Beneficiaries of any Participant at any one time, and, if two or more persons are to be simultaneous Profit Sharing Beneficiaries, or, if the Participant wishes to designate alternative, successor or contingent Profit Sharing Beneficiaries, the Participant shall specify the shares, terms and conditions upon which amounts shall be paid to such multiple, alternative, successor or contingent Profit Sharing Beneficiaries, all of which must be clearly stated to the satisfaction of the Committee. c. If a designated Beneficiary, having survived the Participant, dies before receiving all of the amount payable hereunder to such Beneficiary, the amount that such Beneficiary would have received had he lived shall be paid to the estate of such deceased Beneficiary unless a contrary direction was made by the Participant in writing in such manner as may be satisfactory to the Company, in which event such direction shall control. 10. Payee Presumed Competent. Every person receiving or claiming amounts payable under this Plan shall be conclusively presumed to be mentally competent and of legal age until the Company receives a written notice, in form, manner and substance acceptable to it, that such person has been adjudged legally incompetent or is a minor or that a guardian or other person legally vested with the care of such person's estate has been appointed. 11. Distribution to Persons Under a Legal Disability. If any amount payable hereunder is payable to a minor or other person under legal disability, the Company shall make payments thereof in one (or any combination) of the following ways, as the Committee shall determine in its sole discretion; provided, however, the Company shall have the right, but is not obligated, to insist that a legal guardian be appointed before making any payments hereunder: a. directly to said minor or other person; b. to the legal representatives of said minor or other person; or c.to some relative or friend of said minor or other person for the support, welfare or education of such minor or other person. The Company shall not be required to see to the application of any payment so made, and the receipt of the person in one of the above three categories to whom such payment is actually made shall fully discharge the Company from any further accountability or responsibility with respect to the amount so paid. 12. Notice of Address; Lost Payees. a. Every Participant shall file a notice of his or her post office address and of the post office address and Social Security number of each Beneficiary designated by him or her and of each change of any such address, in writing, with the Company. Any communication, statement or notice addressed to any such person at the latest post office address on file shall be binding upon such person for all purposes, and the Company shall not be obliged to search for or attempt to ascertain the whereabouts of any such person except as hereinafter provided. If a Participant fails or neglects to file such addresses, the Participant's address shall be presumed to be his or her last address on file in the personnel records of the Company, and, in the case of a person whose rights accrued through or from a Participant, his or her last address shall be presumed to be in care of the last address of such Participant on file in the personnel records of the Company. b. If the Company is unable to locate any person entitled to receive a payment hereunder or the estate of any such person, if deceased, and if the Company shall make a search for such person and/or such person's estate in the manner hereinafter prescribed, the right and interest of such payee in and to the amount payable shall terminate on the last day of the one (1) year period commencing with the publication of the notice hereinafter described, and the amount so payable shall be payable to the estate of the Participant to whom such amount had originally been payable; provided, however, that, if the estate of such Participant cannot be located within an additional one (1) year period, the unclaimed amount shall be forfeited. In its search for such payee, the Company shall mail a notice, postage prepaid, by U.S. registered or certified mail, return receipt requested and return postage guaranteed, to the last known address of such payee or (if the payee is not the Participant and if the address of the payee is unknown) to such payee in care of the last known address of the Participant from whom such payee's rights are derived. If all notices sent as aforesaid are returned unclaimed or addressee unknown, the Company shall publish a notice in a newspaper having a general circulation in the same general area as the last known address of the payee stating that the Company holds an amount of payment hereunder and giving such additional information as may be reasonably calculated to come to the notice of the parties having an interest herein. The foregoing actions shall satisfy the Company's obligation to conduct a search for such payee or the estate of the Participant; provided, however, that the Company shall never be required to expend in such search an amount greater than the amount payable hereunder, and all amounts so expended shall be charged against the amounts held for payment. 13. No Liability for Participant's Debts (Other than Indebtedness to the Company). If, at the time any benefit becomes payable hereunder, there is any indebtedness due the Company from the payee thereof, the Company (without being obligated to do so) may direct that some or all of the amount payable to such party be applied against such indebtedness (including any interest properly payable on such indebtedness), and only the unapplied balance shall be paid to the party otherwise entitled to receive such payment. Except to the extent amounts otherwise payable are applied against indebtedness of the Participant or Beneficiary to the Company in accordance with the foregoing authority, this Plan and the amounts payable hereunder shall not, in any manner, be liable for or subject to the debts or liabilities of any payee, and no amount payable hereunder shall, at any time or in any manner, be subject to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance of any kind, whether to the Company or to any other party whomsoever, and whether with or without consideration. If any payee shall attempt to, or shall, anticipate, alienate, sell, transfer, assign, pledge or otherwise encumber any amounts payable hereunder or any part thereof, or, if by reason of bankruptcy or other event, such amounts would at any time be received or enjoyed by persons other than such payee except as otherwise permitted by this Plan, the Company, in its sole discretion, may terminate such person's interest in any such amounts and hold or apply such amounts to or for the use of such person or such person's spouse, children or other dependents, or any of them, as the Company may determine. 14. Administration. This Plan shall be administered by the Committee, which shall have full power, authority and discretion to do all things necessary or appropriate to the proper administration hereof, except that the Compensation Committee shall have sole power to determine whether any Employee is entitled to participate in the Plan. The Committee's power, authority and discretion shall include, without limiting the generality of the foregoing, full power, authority and discretion to construe and interpret the Plan and the Plan Agreements and to determine all questions that may arise hereunder relating to the administration of the Plan and the Plan Agreement (other than eligibility to participate in the Plan), including questions relating to the status and rights of Participants, Beneficiaries and other persons hereunder. Any rules adopted by the Committee shall be administered uniformly and applied with equal effectiveness and in a nondiscriminatory manner to all persons similarly situated. Notwithstanding any other provision hereof, the Trustee shall have the power, authority, and discretion, pursuant to and to the extent provided in the Trust, to override any determination or interpretation by the Committee, the Compensation Committee or the Company affecting the rights of any Participant or Beneficiary to a benefit under the Plan. Notwithstanding any other provision hereof, all power, authority and discretion vested in the Committee, the Compensation Committee, or the Company under the Plan shall, on and after the date on which a Change in Control occurs, no longer be vested in the Company, the Compensation Committee, or the Committee and instead shall be vested in the Trustee. 15. Negation of Employment Contract. This Plan is intended to, and does, relate exclusively to benefits payable after termination of employment and does not create an employment contract. Nothing contained herein shall be deemed: a.to give a Participant the right to be retained in the employ of the Company; b.to interfere with the right of the Company to discharge or demote a Participant at any time; c.to give the Company the right to require a Participant to remain in its employ; or d.to interfere with the right of a Participant to terminate employment at any time. 16. Modification, Amendment or Termination. a. The Company reserves the absolute right to modify or amend this Plan in whole or in part, at any time and from time to time, effective as of any specified prior, current or future date, by action of the Board of Directors or its delegate, including the right to modify or amend the Plan in a manner that would reduce the amount that would otherwise be credited to a Participant's Accounts under the Plan. Notwithstanding the preceding sentence, the Company shall have no power to modify or amend the Plan in any manner that would reduce any Participant's Excess Profit Sharing Account balance hereunder on the later of (I) the effective date or (II) the adoption date, of the modification or amendment, or that would reduce the Excess Pension Benefit that any Participant would be entitled to hereunder if his Computation Date were the day before the later of (I) the effective date or (II) the adoption date of the modification or amendment, unless such action is necessary to prevent the Plan from being subject to any provision of Title I, Subtitle B, Parts 2, 3 or 4 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or any successor thereto or to comply with applicable law. Notwithstanding the first sentence of this Section 16a, on or after the date of a Change in Control, the Company shall have no power to modify, amend or interpret the Plan in any manner that would result in any Participant receiving a smaller Excess Pension Benefit or Excess Profit Sharing Benefit than such Participant would have received under the terms of the Plan as in effect on the day before the date on which the Change in Control occurs. Nothing contained herein shall prevent the Company from amending, prior to a Change in Control, to the extent permitted by the Code and ERISA, and the regulations thereunder, any provision of the Pension Plan that would affect the amount credited to a Participant's Excess Pension Account under the Plan. b. The Company also reserves the right to terminate this Plan, in whole or in part, voluntarily as of any specified current or future date by action of the Board. This Plan shall be automatically terminated upon a dissolution of the Company (but not upon a merger, consolidation, reorganization or recapitalization of the Company if a surviving corporation therein assumes this Plan); upon the Company being legally adjudicated a bankrupt; upon the appointment of a receiver or trustee in bankruptcy with respect to the Company's assets and business if such appointment is not set aside within ninety (90) days thereafter; or upon the making by the Company of an assignment for the benefit of creditors. Upon termination of this Plan, no additional Employees shall be selected to participate herein, and no additional benefits shall be accrued hereunder. Notwithstanding the total or partial termination of this Plan, no Participant affected thereby shall be deprived of the right to receive all amounts credited to all of his Accounts as of the date of termination of the Plan at the time and in the manner provided by this Plan upon observance and performance of his obligations under the Plan Agreement to which the Participant is a party unless such action is necessary to prevent this Plan from being subject to any provision of Title I, Subtitle B, Parts 2, 3 or 4 of ERISA or any successor thereto. c. In the event of the death of a Participant or any Beneficiary designated by him, the Company need not make any payment provided for under this Plan until it shall have received proof satisfactory to it of such death and of the identity, existence and location of the party thereafter entitled to receive payments under the Plan. d. In making any payment or taking any action under this Plan, the Company and the Committee shall be absolutely protected in relying upon any finding or statement of facts believed by it to be true, and on any written instrument believed by it to have been signed by the proper party. e. The Plan and all Plan Agreements entered into hereunder shall be construed and enforced under and in accordance with the laws of the State of Delaware, except to the extent superseded by federal law. 17. Plan Agreement. Each Participant shall be entitled to benefits in accordance with the Plan and his Plan Agreement. In the event of a conflict between the Plan Agreement and the Plan, the Plan shall control. 18. Claims Procedure. In the event that benefits under the Plan are not paid to the Participant (or his Beneficiary in the case of the Participant's death), and such person believes that he is entitled to receive them, a claim shall be made in writing to the Committee within sixty (60) days from the date payments are claimed to be due but not made. Such claim shall be reviewed by the Committee in its sole discretion. If the claim is denied in full or in part, the Committee shall provide a written notice within ninety (90) days setting forth the specific reasons for denial, specific reference to the provisions of the Plan or the Plan Agreement upon which the denial is based and any additional material or information necessary to perfect the claim. Also, such written notice shall indicate the steps to be taken if a review of the denial is desired. However, under no circumstances shall a notification of denial that does not satisfy all of the foregoing requirements be deemed to constitute an acceptance of a claim. If the Committee does not provide the Participant (or the Beneficiary in the case that the Participant is deceased) with notice of its decision within ninety (90) days, the claim shall be deemed to be denied. If a claim is denied and a review is desired, the Participant, or his Beneficiary in the case of the Participant's death, shall so notify the Committee in writing within sixty (60) days after receipt of either the notification of denial or the expiration of the ninety (90)-day period, whichever first occurs. In requesting a review, the Participant or his Beneficiary may review this Plan document or his Plan Agreement or any documents relating to it and submit any written issues and comments he believes are appropriate. In its sole discretion, the Committee shall then review the claim and provide a written decision, likewise, shall state the specific reasons for the decision and shall include reference to specific provisions of the Plan or the Plan Agreement on which the decision is based. 19. Gender and Number. In order to shorten and to improve the understandability of the Plan document by eliminating the repeated usage of such phrases as "her or his" or "Participant or Participants", masculine terminology herein also shall include the feminine (and neuter, where applicable), and any term used herein in the singular also shall refer to the plural except when indicated otherwise by the context. IN WITNESS WHEREOF, JACK ECKERD CORPORATION has caused this Plan to be executed, and its corporate seal to be hereunto affixed, by its officers thereunto duly authorized, effective as of the date first written above. JACK ECKERD CORPORATION By: /s/ Stewart Turley Title: (SEAL) Attest: /s/ Jackie Post Secretary EXHIBIT A EXECUTIVE EXCESS BENEFIT PLAN AGREEMENT OF JACK ECKERD CORPORATION AND ITS SUBSIDIARIES The undersigned executive employee ("Employee") acknowledges that as an employee of Jack Eckerd Corporation and its subsidiaries ("Employer"), Employee has been offered an opportunity to participate in the Executive Excess Benefit Plan of Jack Eckerd Corporation and its subsidiaries ("Plan") subject to the terms and conditions stated in the Plan, a copy of which is attached hereto and incorporated herein by reference. In the event of any inconsistency between the provisions of this plan Agreement and the Plan, the provisions of the Plan shall prevail. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to those terms in the Plan. 1. Employee elects the following form of distribution of his Excess Pension Benefit under the Plan following his retirement or termination for any other reason except death (elect one option only): [ ] a. Single Life Annuity with no survivor benefit. [ ] b. Life Annuity with 50% survivor benefit. [ ] c. Life Annuity with 75% survivor benefit. [ ] d. Life Annuity with 100% survivor benefit. 2. Profit Sharing Beneficiary(ies): a. Employee hereby designates the following person or persons as primary beneficiary or beneficiaries to receive any Excess Profit Sharing Benefit payable under the Plan after the death of Employee: Primary Profit Sharing Beneficiary(ies): Name Share Relationship Address and Social Security Number S.S. # b. Employee designates the following person or persons as successor Profit Sharing Beneficiary or Beneficiaries to receive any Excess Profit Sharing Benefit payable under the Plan after the death of Employee and the primary Profit Sharing Beneficiary(ies). Successor Profit Sharing Beneficiary(ies): Name Share Relationship Address and Social Security Number S.S. # 3. Employee has read this Plan Agreement and the Plan and is aware of and accepts the terms and conditions set forth in each document. In particular, Employee understands that the benefits payable pursuant to the Plan and the Plan Agreement are unsecured contractual obligations of the Employer. IN WITNESS WHEREOF the parties hereto have hereunto set their hands this day of , 19 . EMPLOYER: ATTEST: JACK ECKERD CORPORATION By: - ----------------------- ---------------------------- Title: Chairman of the Board WITNESS: EMPLOYEE: - ----------------------- Signature Signature ------------------------------ Type or Print Name ------------------------------ ------------------------------ Address of Employee EX-10.31 9 EXEC THREE YEAR BONUS PLAN EXHIBIT 10.31 ECKERD CORPORATION EXECUTIVE THREE (3) YEAR BONUS PLAN 1. Purpose. The purpose of the Executive Three (3) Year Bonus Plan (the "Plan") of Eckerd Corporation (the "Company") is to aid in maintaining and developing strong management by rewarding those executive employees who contribute materially toward the Company's objective of earnings growth and return on investment and to provide an incentive for the continued service of such executive employees with the Company and its subsidiaries. 2. Administration. The Plan shall be administered by the Board of Directors of the Company. The Board may delegate the administration of the Plan to the Executive Compensation and Stock Option Committee of the Board of Directors comprised of three or more members of the Board or such other committee as the Board may designate from time to time (the "Committee"). The Board of Directors or the Committee may, from time to time, establish such rules and regulations for carrying out the Plan as they shall deem necessary or desirable. The Board of Directors or the Committee shall decide all questions of fact arising in the application of the Plan and shall interpret and construe the provisions of the Plan and of any other documents relating to the Plan or a bonus award hereunder and any such decision, interpretation or construction shall be conclusive and binding upon all persons. 3. Effective Date of Plan. This Plan shall become effective as of January 29, 1995 upon approval by: (i) the Board of Directors upon the recommendation of the Committee, and (ii) the Company's Shareholders. 4. Eligibility of Executive Employees. Those executive employees of the Company and its subsidiaries selected from time to time by the Committee upon the recommendation of the Chairman of the Board or the President shall be eligible to participate in the Plan. For purposes of the Plan, executive employees shall mean corporate, regional and district officers and other key employees of the Company and its subsidiaries. 5. Selection of Executive Employees. For purposes of this Plan, each performance period shall be a three (3) year performance period. The first performance period shall be for the 1994, 1995, and 1996 fiscal years of the Company. The Committee, within ninety (90) days of the end of the 1994 fiscal year of the Company, shall select and notify in writing each executive employee who is to participate (a "Participant") under the Plan for a bonus award during the 1994, 1995, and 1996 fiscal years of the Company (the "1994 - 1996 Performance Period") and the 1995, 1996 and 1997 fiscal years of the Company (the "1995 - 1997 Performance Period"). Thereafter, within ninety (90) days after the end of each fiscal year, the Committee may select Participants for a new performance period so that, for example, within ninety (90) days of the end of the 1995 fiscal year of the Company, the Committee may select and notify Participants for a performance period to be designated the 1996-1998 Performance Period. In addition, where an executive employee is added or a present employee is promoted to an executive status during a performance period, the Committee, upon the special recommendation of the Chairman of the Board or the President, may select any such executive employee to participate in the Plan for a pro rata portion of the performance period and on a pro rata basis. 6. Determination of the Amount of a Bonus Award. For purposes of the determination of a Participant's bonus award, the following terms shall have the meaning described below: Adjusted EBIT shall mean, with respect to any fiscal year, (a) earnings of the Company and its consolidated subsidiaries before interest and income taxes for such fiscal year, plus (b) extraordinary or non-recurring losses of the Company and its consolidated subsidiaries for such fiscal year, less (c) extraordinary or non-recurring gains of the Company and its consolidated subsidiaries for such fiscal year relating to management strategies, approved by the Committee. Return on Investment shall mean, with respect to any fiscal year, Adjusted EBIT for such fiscal year divided by the monthly average during such fiscal year of the: (i) the total assets of the Company, less (ii) liabilities exclusive of interest accruing debt. The amount of a bonus award to a Participant will be that percentage of a Participant's annual base salary at the beginning of a performance period which is determined by the average annual increase in Adjusted EBIT and the average annual Return on Investment determined by the Committee. The Committee may change the manner in which Adjusted EBIT and average annual Return on Investment are calculated from time to time. The maximum bonus award payable to a Participant may not exceed $1,000,000 with respect to any fiscal year of the Company. The Committee is authorized to set the levels of Adjusted EBIT and average annual Return on Investment which must be met for the payment of bonus awards under this Plan and the percentage of base salary which will be paid as a bonus award: (i) within ninety (90) days after the end of the Company's 1994 fiscal year for the 1994 - 1996 Performance Period and the 1995 - 1997 Performance Period, and (ii) within ninety days after the end of each succeeding fiscal year for each performance period beginning thereafter. The Committee, in its sole discretion, is authorized to change or modify the performance objectives and to add earnings per share or sales (or any combination thereof) as additional or alternative performance criteria in any respect for any future performance period and to establish durations of greater or less than three (3) years for future performance periods which performance periods may overlap or be co-extensive with other performance periods. In addition, the Committee, in its sole discretion, is authorized to change or modify the criteria for any performance period in the event of an acquisition, disposition or other change in the composition of the Company during such period. 7. Payment of Awards. Payment of bonus awards shall, at the option of the Committee, be made: (i) 100% in cash, (ii) 50% in cash and 50% in shares of common stock of the Company, or (iii) any other combination of cash and common stock of the Company, as determined by the Committee. Payments shall be made as soon as practical after the end of each performance period. The percentage of a bonus award that is payable in shares of common stock of the Company shall be valued at the market value of the common stock of the Company as of the close of business on the day prior to the date the Company publicly discloses its earnings for the final fiscal year of the respective performance period. As soon as practical after the public disclosure of the earnings, the Committee shall notify each Participant of the Participant's bonus award. At the time of receipt of written notice of the Participant's bonus award, each Participant shall arrange with the Company for the payment of the amount of any taxes required to be collected or withheld as a result of the payment of the bonus award. Upon receipt of the aforesaid taxes, the Company shall cause the bonus award to be paid. 8. Award Shares. The maximum number of shares of common stock reserved for the payment of awards under this Plan shall be 250,000, subject to adjustment for stock splits, reverse stock splits, stock dividends, and like transactions. The source of the Company's stock which may be made subject to awards under the Plan shall be shares of the $ .01 per value common stock of the Company. Such shares may be treasury shares or shares of original issue or a combination of the forgoing. Fractional shares of common stock shall not be issued as an award and any award which would be represented by a fractional share shall be paid in cash. 9. Termination of Obligation to Pay Award. The obligation of the Company to pay any bonus award shall terminate upon the occurrence of any of the following: a. Upon the failure of the Company to achieve the performance objectives set by the Board of Directors or the Committee pursuant to Paragraph 6. b. Upon the date of a change in the position held by the Participant with the Company or one of its subsidiaries unless such new position, in the sole judgment of the Board of Directors or the Committee, qualifies for participation in the Plan. c. Upon the termination of employment of a Participant with the Company or its subsidiaries; provided, however, the Board of Directors or the Committee, in its sole discretion, may pay a prorated bonus award to any Participant who has terminated employment with the Company or its subsidiaries, provided (i) the Participant was not terminated for cause (as defined in the Participant's written employment agreement with the Company and, if none, as defined by the Committee from time to time), and (ii) the Participant participated in the Plan for a period up to at least six (6) months prior to the end of the performance period for which the bonus award is payable. d. Upon the death, disability or retirement of a Participant; provided, however, the Board of Directors or the Committee, in its sole discretion, may pay a prorated bonus award to a Participant or the estate of any Participant who has become disabled, retired or died during the performance period, provided that such Participant had participated in the Plan for a period of time equal to or greater than one-third (1/3) of the total number of months comprising the performance period for which the bonus award is payable. For purposes hereof: (i) retire or retirement shall mean retirement pursuant to the Eckerd Corporation Pension Plan (Pension Plan) at or on the Participant's Normal Retirement Date (as that term is defined in the Pension Plan) or retirement at an earlier date with the consent of the Board of Directors, and (ii) disabled or disability shall mean the inability of the Participant to perform substantially such Participant's duties and responsibilities to the Company or any of its subsidiaries by reason of physical or mental disability or infirmity for a continuous period of six (6) months. The date of such disability shall be on the last day of such six (6) month period. e. Upon the commission of an intentional act by a Participant determined by the Board of Directors or the Committee to be contrary to the interests of the Company or its subsidiaries. 10. Termination of Plan. The Plan shall terminate upon the close of business on January 31, 2004, unless it shall have sooner terminated by action of the Board of Directors. 11. Requirements of Law. If any law, regulation of the Securities and Exchange Commission, or any regulation of any other commission or agency having jurisdiction shall require the Company or any Participant to take any action with respect to the shares of common stock acquired by reason of a bonus award, then the date upon which the Company shall issue or cause to be issued the certificate or certificates for the shares of common stock shall be postponed until full compliance has been made with all such requirements of law or regulation. Further, if requested by the Company, at or before the time of the issuance of the shares of common stock with respect to which a bonus award has been made, the Participant shall deliver to the Company his written statement, satisfactory in form and content to the Company, that he intends to hold the shares so awarded him for investment and not with a view to resale or other distribution thereof to the public in violation of the requirements of the exemption contained in Section 4 (2) of the Securities Act of 1933, as amended. Moreover, in the event that the Company shall determine that, in compliance with the Securities Act of 1933, or other applicable statutes or regulations, it is necessary to register any of the shares of common stock with respect to which an award has been made or to qualify any such shares for exemption from any of the requirements of the Securities Act of 1933 or any other applicable statute or regulation, the shares of common stock shall not be issued to the Participant until such action has been completed. 12. Amendment or Discontinuance of Plan. The Board of Directors or the Committee may, insofar as permitted by law, amend, suspend or discontinue this Plan at any time without restriction, provided, however, that the Board may not alter or amend or discontinue or revoke or otherwise impair the participation of any Participant notified by the Board of Directors or the Committee in accordance with Paragraph 5 hereof except as provided in Paragraph 9 hereof or unless there is secured the written consent of the Participant. Nothing contained in this paragraph, however, shall, in any way, condition or limit the termination of an award as provided in Paragraph 9 hereof. 13. Liquidation of the Corporation. In the event of the complete liquidation or dissolution of the Company (except for a reorganization, merger, consolidation, acquisition or sale of substantially all of the assets of the Company as provided in Paragraph 14), any participation under the Plan shall be deemed canceled without regard to or limitation by any other provision of this Plan. In the event of a complete liquidation or dissolution of a subsidiary of the Company or in the event that such a subsidiary ceases to be a subsidiary corporation as defined hereinabove, any participation by employees of such subsidiary pursuant to this Plan shall be deemed canceled unless the employee shall, at or before the time of the liquidation or dissolution or cessation of subsidiary relationship, be or become employed by the Company or by any other subsidiary of the Company in a position which, in the sole judgment of the Board of Directors or the Committee, qualifies for participation in the Plan, or in the event that the Board or the Committee, in its sole discretion, elects to pay a prorated bonus award in accordance with Paragraph 9 (c). 14. Merger, Sale of Assets. In the event of a reorganization, merger, consolidation, acquisition or sale of substantially all of the assets of the Company, any participation under the Plan shall be deemed canceled; provided, however, the Board or the Committee, in its sole discretion, may pay a prorated bonus award to Participants who have participated in the Plan for a period equal to or greater than one-third (1/3) of the total number of months comprising the performance period for which the bonus award is payable. 15. Shareholder Approval. The Plan shall be submitted to the next annual meeting of the shareholders of the Company for the purpose of its approval and ratification of the shareholders as provided in Paragraph 3. a: 3yrexec1/disk EX-12.2 10 EARNINGS TO FIXED CHARGE RATIO Exhibit 12.2
ECKERD CORPORATION AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges Years Ended February 3, 1996 and January 28, 1995 February 3, 1996 January 28, 1995 ---------------- ---------------- Earnings before income taxes and extraordinary item $123,383 87,084 Add: Portion of rents representative of the interest factor (*) 39,599 37,282 Interest expense 76,836 93,735 -------- ------- Income as adjusted $239,818 218,101 ======== ======= Fixed charges: Interest expense 76,836 93,735 Portion of rents representative of interest factor 39,599 37,282 -------- ------- Total fixed charges $116,435 131,017 ======== ======= Ratio of earnings to fixed charges 2.06 1.66 ==== ==== (*) The portion of rents representative of the interest factor is calculated as 33-1/3% of minimum rentals.
EX-13 11 SECTIONS OF 1995 ANNUAL REPORT EXHIBIT 13 Five Year Financial Operating Summary (In thousands, except per share amounts Fiscal years ended February 3, January 28, January 29, January 30 and drug stores) and February 1, respectively (1) (2) 1996 1995 1994 1993 1992 Summary of Operations Data: Sales and other operating revenue $4,997,073 4,589,517(3) 4,228,747 3,923,750 3,774,852 Cost of sales, including store occupancy, warehousing and delivery expense 3,874,723 3,484,627 3,213,583 2,933,202 2,773,545 Operating and administrative expenses 922,131 924,071(3) 857,980 855,165 854,209 Earnings before interest expense 200,219 180,819 157,184 135,383 147,098 Net interest expense 76,836 93,735 113,215 137,404 143,194 Earnings (loss) before income taxes and extraordinary items 123,383 87,084 43,969 (2,021) 3,904 Income tax expense 20,600 8,753(3) 2,556 2,864 2,927 Earnings (loss) before extraordinary items 102,783 78,331 41,413 (4,885) 977 Extraordinary item-early retirement of debt and preferred stock, net of tax benefit (9,306) (30,523) (44,354) -- -- Extraordinary item-tax effect of utilization of net operating loss carryforward -- -- -- 762 1,680 Net earnings (loss) for the year 93,477 47,808 (2,941) (4,123) 2,657 Preferred stock dividends -- -- 4,924 10,815 10,823 Net earnings (loss) available to common shares $ 93,477 47,808 (7,865) (14,938) (8,166) Earnings (loss) before extraordinary items per common share $ 1.50 1.21 .62 (.30) (.19) Net earnings (loss) per common share $ 1.36 .74 (.13) (.28) (.16) Dividends per common share $ -- -- -- -- -- Weighted average common shares outstanding 68,606 64,863 58,786 53,148 51,354 Balance Sheet Data: Working capital $ 320,618 280,289 306,588 367,027 328,617 Total assets 1,490,699 1,342,347 1,420,137 1,418,922 1,412,249 Long-term debt (4) 702,818 787,013 954,891 1,048,222 1,023,106 Preferred stock -- -- -- 75,000 75,000 Stockholders' equity (deficit) 54,741 (122,742) (179,022) (243,291) (228,353) Drug Store Data: Stores open at end of year 1,715 1,735 1,718 1,696 1,675 Comparable store sales growth 8.8% 8.1 6.1 3.1 5.7
Notes: (1) Years ended the Saturday nearest January 31. All fiscal years include 52 weeks of operations except fiscal year ended February 3, 1996 which includes 53 weeks of operations. (2) All fiscal years have been restated to reflect the two-for-one stock split effected in the form of a stock dividend declared April 1, 1996 (payable May 13, 1996). Fiscal years prior to January 29, 1994 have been restated to reflect the reclassification of previously issued Class A and Class B common stock into Common Stock, to reflect a two-for-three reverse stock split and the exchange of EDS Holdings Inc. common stock and merger into the Company. (3) Sales and other operating revenue includes $54,125 and income tax expense includes $4,655 from the gain on the sale of Insta-Care Pharmacy Services and operating and administrative expenses includes a $48,988 charge for future store closings. (4) Includes current installments. Management's Discussion and Analysis of Results of Operations and Financial Condition Condensed Consolidated Statements of Operations (In thousands) 1995 Fiscal Year 1994 Fiscal Year 1993 Fiscal Year Ended February 3, Ended January 28, Ended January 29, 1996 1995 1994 As Reported As Adjusted(1) As Reported As Adjusted(2) Sales and other operating revenue $4,997,073 4,589,517 4,446,728 4,228,747 4,060,614 Cost of sales 3,874,723 3,484,627 3,425,860 3,213,583 3,104,734 Operating and administrative expenses 922,131 924,071 849,253 857,980 805,603 Earnings before interest expense 200,219 180,819 171,615 157,184 150,277 Interest expense 76,836 93,735 93,735 113,215 113,215 Income tax expense 20,600 8,753 3,895 2,556 2,155 Earnings before extraordinary items 102,783 78,331 73,985 41,413 34,907 Extraordinary items (9,306) (30,523) (30,523) (44,354) (44,354) Net earnings (loss) for the year $ 93,477 47,808 43,462 (2,941) (9,447)
(1) Sales and other operating revenue excludes $54.1 million from the gain on the sale of Insta-Care Holdings, Inc. ("Insta-Care"), as well as $88.7 million of Insta-Care sales prior to the disposition. Cost of sales, operating and administrative expenses and income tax expense exclude $58.8 million, $25.8 million and $4.9 million of expenses related to Insta-Care's operations and sale. Operating and administrative expenses also exclude a charge of $49.0 million for future store closings. (2) Sales and other operating revenue excludes $168.1 million for the Vision Group and Insta-Care operations prior to disposition. Cost of sales, operating and administrative expenses and income tax expense exclude $108.8 million, $52.4 million and $0.4 million of expenses related to the Vision Group and Insta-Care operations. Results of Operations Fiscal Year 1995 compared with Fiscal Year 1994 The preceding as adjusted condensed consolidated statement of operations for fiscal 1994 and the following management's discussion and analysis exclude the items noted above in footnote (1) to the condensed consolidated statement of operations to eliminate the operations and gain on the sale of Insta-Care (sold effective November 15, 1994) and exclude the charge for accelerated future store closings. The Company's sales and other operating revenue for fiscal 1995 were $5.0 billion, a 12.4% increase over fiscal 1994. Sales benefited from significant increases in both prescription and front end sales. Also contributing to the increased sales were revenues from Florida drug stores acquired from Rite Aid (the "Florida Rite Aid Acquisition") and from one additional week in fiscal 1995 which was a 53 week year compared to fiscal 1994 which was a 52 week year. For fiscal 1995, prescription sales were $2.7 billion, a 19.6% increase over fiscal 1994. In addition, front end sales increased to $2.3 billion, a 5.1% increase over fiscal 1994. Comparable drug store sales (stores open for one year or more, excluding relocated stores open less than one year) for identical periods increased 8.8% during fiscal 1995 compared to an 8.1% increase in fiscal 1994. The increase in comparable drug store sales was primarily attributable to the increase in sales of prescription drugs. Comparable drug store sales growth was also positively affected by increased sales of non-prescription items in the health, greeting card, convenience food and photofinishing categories. Prescription sales as a percentage of drug store sales was 53.7% for fiscal 1995 compared with 50.5% for fiscal 1994. The growth in prescription sales was primarily the result of increased managed care prescription sales, the Company's competitive cash pricing strategy and the Florida Rite Aid Acquisition. Additionally, these sales benefited from a higher incidence of cough, cold and flu virus during both the first and fourth quarters of fiscal 1995 compared to fiscal 1994. Managed care prescription sales represented 70.6% and 64.6% of the Company's prescription sales in fiscal 1995 and 1994, respectively. The Company expects prescription sales to managed care payors, in terms of both dollar volume and as a percentage of total prescription sales, to continue to increase in fiscal 1996 and for the foreseeable future. Managed care payors typically negotiate lower prescription prices than those of non-managed care prescriptions, resulting in decreasing gross profit margins on the Company's prescription sales. However, contracts with managed care payors generally increase the volume of prescription sales and gross profit dollars. Cost of sales and related expenses in fiscal 1995 were $3.9 billion, a 13.1% increase over fiscal 1994. As a percentage of sales, cost of sales and related expenses were 77.5% and 77.0% for fiscal 1995 and 1994, respectively. The increase in cost of sales and related expenses as a percentage of sales resulted primarily from the continued increase in managed care prescription sales, which generally have lower gross profit margins than non-managed care prescription sales. The LIFO charge was $15.0 million in fiscal 1995 compared to $10.8 million in fiscal 1994. Operating and administrative expenses in fiscal 1995 were $922.1 million, an 8.6% increase over fiscal 1994. As a percentage of sales, operating and administrative expenses were reduced to 18.5% for fiscal 1995 from 19.1% for fiscal 1994. The decrease in operating and administrative expenses in fiscal 1995 as a percentage of sales resulted primarily from operating efficiencies related to the higher sales (including benefits derived from closing certain under-performing stores) and cost controls which helped produce lower costs as a percentage of sales in such expense categories as payroll and insurance. Earnings before interest expense, income taxes and extraordinary items in fiscal 1995 were $200.2 million, a 16.7% increase over fiscal 1994. The increase in earnings before interest expense, income taxes and extraordinary items was due primarily to the increase in gross profit dollars as a result of higher sales and other operating revenue and the decrease in operating and administrative expenses as a percentage of sales due to improved productivity and expense control in fiscal 1995 compared to fiscal 1994. Total interest expense was $76.8 million in fiscal 1995, a decrease of 18.0% from fiscal 1994. The decrease in interest expense was due to lower average borrowings in fiscal 1995, due primarily to paydowns of borrowings from net proceeds from the sale of non-retail drug store operations, lower bank loan interest spreads and the early retirement of high interest cost subordinated debentures. Income tax expense was $20.6 million (17% effective rate) and $3.9 million (5% effective rate) in fiscal 1995 and 1994, respectively. Income tax expense in both fiscal years represents alternative minimum tax and state income taxes for the Company, and reflects the utilization of net operating loss carryforwards. As a result of the foregoing factors, the Company had earnings before extraordinary items of $102.8 million in fiscal 1995 compared to earnings on an adjusted basis before extraordinary items of $74.0 million in fiscal 1994, an increase of $28.8 million or 38.9%, and net income more than doubled to $93.5 million in fiscal 1995 compared to $43.5 million on an adjusted basis in fiscal 1994, a $50.0 million increase. The Company had extraordinary items of $9.3 million (net of tax benefit of $1.9 million) and $30.5 million (net of tax benefit of $1.6 million) in fiscal 1995 and 1994, respectively. The extraordinary items in fiscal 1995 and 1994 are primarily from the write-off of deferred costs related to the significant revisions of the bank credit agreement, as well as the write-off of deferred costs and original issue discount from the early retirement of $95.5 million in 1995 and $50.0 million in 1994 of the 11.125% subordinated debentures. Fiscal Year 1994 compared with Fiscal Year 1993 The following fiscal 1994 comparison is based on the preceding as adjusted condensed consolidated statements of operations and footnotes for fiscal 1994 and fiscal 1993. The fiscal 1994 results exclude the operations and gain on the sale of Insta-Care and the charge for accelerated future store closings. The fiscal 1993 results exclude the Company's Vision Group (sold effective January 30, 1994) and Insta-Care operations. The Company's sales and other operating revenue for fiscal 1994 were $4.4 billion, a 9.5% increase over fiscal 1993. Sales benefited from significant increases in prescription sales and increases in front end sales. For fiscal 1994, prescription sales were $2.2 billion, a 15.2% increase over fiscal 1993. In addition, front end sales increased to $2.2 billion, a 4.2% increase over fiscal 1993. Comparable drug store sales (stores open for one year or more) increased 8.1% during fiscal 1994 compared to a 6.1% increase in fiscal 1993. The increase in comparable drug store sales was primarily attributable to the increase in sales of prescription drugs. Comparable drug store sales growth was also positively affected by increased sales of non-prescription categories such as health, toiletries, convenience food and photofinishing items resulting from increased marketing emphasis and shelf space for these categories. Prescription sales as a percentage of drug store sales was 50.5% for fiscal 1994 compared with 48.0% for fiscal 1993. The growth in prescription sales was primarily the result of increased managed care prescription sales and the Company's competitive cash pricing strategy. These sales were strong despite a lower incidence of cough, cold and flu virus during the first and fourth quarters of fiscal 1994 compared to fiscal 1993. Managed care prescription sales represented 64.6% and 58.0% of the Company's prescription sales in fiscal 1994 and 1993, respectively. Cost of sales and related expenses in fiscal 1994 were $3.4 billion, a 10.3% increase over fiscal 1993. As a percentage of sales, cost of sales and related expenses were 77.0% and 76.5% for fiscal 1994 and 1993, respectively. The increase in cost of sales and related expenses as a percentage of sales resulted primarily from the continued increase in managed care prescription sales which generally have lower gross profit margins than non-managed care prescription sales. The LIFO charge was $10.8 million in fiscal 1994 compared to $8.5 million in fiscal 1993. Operating and administrative expenses in fiscal 1994 were $849.3 million, a 5.4% increase over fiscal 1993. As a percentage of sales, operating and administrative expenses were reduced to 19.1% for fiscal 1994 from 19.8% in fiscal 1993. The decrease in operating and administrative expenses in fiscal 1994 as a percentage of sales resulted primarily from the economies of scale related to the higher sales and cost controls which helped produce lower costs as a percentage of sales in such expense categories as payroll, insurance and supplies. In the fourth quarter of fiscal 1994, the Company decided to accelerate the closing of approximately 90 geographically dispersed, under-performing stores, and established a $49.0 million reserve for future store closings. These closings were in addition to the small number of stores the Company closes in the normal course of business. The $49.0 million reserve included approximately $27.0 million for lease settlements and obligations, approximately $4.0 million for severance and other expenses directly related to the store closings, and approximately $18.0 million for the write-off of impaired assets which include inventory liquidation and the write-off of intangible and fixed assets. Earnings before interest expense, income taxes and extraordinary items in fiscal 1994 were $171.6 million, a 14.2% increase over fiscal 1993. The increase in earnings before interest expense, income taxes and extraordinary items was due primarily to the increase in gross profit dollars as a result of higher sales and other operating revenue and the decrease in operating and administrative expenses as a percentage of sales in fiscal 1994 compared to fiscal 1993. Total interest expense was $93.7 million in fiscal 1994, a decrease of 17.2% from fiscal 1993. The decrease was due primarily to the lower cost of debt to the Company resulting from fiscal 1993's refinancing, initial public offering of stock and 9.25% senior subordinated note issuance and the bank credit agreement revision which provided improved pricing. In addition, the decrease in interest expense was due to lower average borrowings in fiscal 1994, due primarily to paydowns of borrowings from net proceeds from the sale of Vision Group and Insta-Care operations, partially offset by the numerous marketplace interest rate increases during fiscal 1994. Income tax expense was $3.9 million and $2.2 million in fiscal 1994 and 1993, respectively. Income tax expense in both fiscal years represents alternative minimum tax and state income taxes for the Company, and reflects the utilization of net operating loss carryforwards. As a result of the foregoing factors, the Company had earnings on an adjusted basis before extraordinary items of $74.0 million in fiscal 1994 compared to $34.9 million in fiscal 1993, an increase of $39.1 million or 111.9%, and net income of $43.5 million in fiscal 1994 compared to a net loss before $4.9 million of preferred dividends of $9.4 million in fiscal 1993, a $52.9 million increase. The Company had extraordinary items of $30.5 million (net of tax benefit of $1.6 million) and $44.4 million (net of tax benefit of $0.9 million) in fiscal 1994 and 1993, respectively. The extraordinary item in fiscal 1994 is primarily from the write-off of deferred costs related to the significant revision of the bank credit agreement, as well as the write-off of deferred costs and original issue discount from the early retirement of $50.0 million of the 11.125% subordinated debentures. The extraordinary item in fiscal 1993 is primarily from the write-off of deferred costs and original issue discount from the early retirement of a portion of the 11.125% subordinated debentures, all of the 13% subordinated debentures and the redemption of the 14.5% preferred stock. Liquidity and Capital Resources On November 29, 1995, the Company entered into a significant revision of the bank credit agreement. The revised agreement provides for a total loan facility of $750.0 million. The revolving loan facility was increased to $500.0 million and the term loan facility was reduced to $250.0 million to be amortized equally over five years. Although the revision did not provide any additional proceeds to the Company, it does provide improved pricing and increased operating flexibility with respect to acquisitions and term loan amortization. At February 3, 1996, the Company had approximately $230.0 million outstanding under the term loan facility, $230.0 million outstanding under the revolving loan facility and $184.4 million available for borrowing under the revolving loan facility portion of the bank credit agreement which is net of $85.6 million of letters of credit. Pursuant to the bank credit agreement, the Company is required to make scheduled payments of the outstanding principal amount of the term loan facility in quarterly payments. Prepayments made pursuant to the bank credit agreement are applied pro rata among the remaining scheduled term loan principal payments. The bank credit agreement matures in November 2000. On February 3, 1996, the Company had working capital of $320.6 million and a current ratio of 1.5 to 1 compared to $280.3 million and 1.5 to 1 at January 28, 1995. Cash flow provided by operating activities increased $45.3 million to $164.3 million for fiscal 1995 compared with $119.0 million for fiscal 1994. The increase was principally attributable to higher net earnings which increased $45.7 million during fiscal 1995 partially offset by a reduction of $20.9 million in non-cash extraordinary charges related to the early retirement of debt and significant revisions to the bank credit agreement. Depreciation and amortization including original issue discount amortization increased $2.9 million in 1995 to a total of $86.6 million. Working capital items, including receivables, inventory, other assets, accounts payable and accrued expenses, combined to use operating cash of $27.0 million in fiscal 1995 compared to a source of cash of $9.5 million in fiscal 1994, an increase in use of funds of $36.5 million. Net cash from investing activities for fiscal 1995 and 1994 used $171.5 million and provided $50.6 million, respectively. Uses of cash were principally for capital expenditures of $109.8 million and $57.2 million for fiscal 1995 and 1994, respectively, for additions to the Company's drug stores and Express Photo units and improvements to existing stores and for the installation of point-of-sale product scanning equipment. Fiscal 1995 also included the acquisition of $76.9 million in drug store assets primarily as a result of the Florida Rite Aid Acquisition. In fiscal 1994, a source of cash to the Company from investing activities was provided by the sales of the Insta-Care and Vision Group operations. Capital improvements planned for fiscal 1996, including those to be acquired under a deferred payment arrangement and through operating leases, are expected to total approximately $130 million. Funds for the planned cash capital expenditures are expected to come from cash flow from operating activities and available borrowings, if necessary. Financing activities for fiscal 1995 provided $6.2 million. Proceeds from the sale of common stock of $82.4 million combined with increased bank debit balances of $15.2 million at year end together offset the redemption of the remaining $95.5 million of 11.125% subordinated debentures. Financing activities for fiscal 1994 used $172.8 million primarily for the reduction of bank borrowings and the early retirement of $50.0 million of the 11.125% subordinated debentures. Based upon the Company's ability to generate cash flow from operating activities, the available unused portion of the revolving loan facility under the bank credit agreement and other existing sources, the Company believes that it will have the funds necessary to meet the principal and interest payments on its debt as they become due and to operate and expand its business. The payment of dividends and other distributions by the Company is subject to restrictions under certain of the financing agreements to which the Company is a party, including the bank credit agreement and the 9.25% senior subordinated notes. The Company currently does not plan to pay dividends on its common stock. Consolidated Statements of Operations (In thousands, except per share amounts) February 3, January 28 and January 29, respectively 1996 1995 1994 Sales and other operating revenue (note 1(c)) $4,997,073 4,589,517 4,228,747 Costs and expenses: Cost of sales, including store occupancy, warehousing and delivery expense 3,874,723 3,484,627 3,213,583 Operating and administrative expenses (note 9) 922,131 924,071 857,980 4,796,854 4,408,698 4,071,563 Earnings before interest expense 200,219 180,819 157,184 Interest expense: Interest expense, net 75,030 87,838 105,999 Amortization of original issue discount and deferred debt expenses 1,806 5,897 7,216 Total interest expense 76,836 93,735 113,215 Earnings before income taxes and extraordinary items 123,383 87,084 43,969 Income tax expense (note 5) 20,600 8,753 2,556 Earnings before extraordinary items 102,783 78,331 41,413 Extraordinary items: Early retirement of debt and preferred stock, net of tax benefit of $1,907, $1,607 and $929 (note 4) (9,306) (30,523) (44,354) Net earnings (loss) for the year 93,477 47,808 (2,941) Preferred stock dividends -- -- 4,924 Net earnings (loss) attributable to common shares $ 93,477 47,808 (7,865) Earnings (loss) per common share: Earnings before extraordinary items $ 1.50 1.21 .62 Extraordinary items (.14) (.47) (.75) Net earnings (loss) $ 1.36 .74 (.13)
See accompanying notes to consolidated financial statements. Consolidated Balance Sheets (In thousands, except share amounts) February 3 and January 28, respectively 1996 1995 Assets Current assets: Cash $ 7,922 8,898 Receivables, less allowance for doubtful receivables of $3,000 70,137 52,487 Merchandise inventories 835,551 771,122 Prepaid expenses and other current assets 4,396 2,366 Total current assets 918,006 834,873 Property, plant and equipment, at cost: Land 17,420 17,814 Buildings 73,955 74,002 Furniture and equipment 368,251 306,962 Transportation equipment 14,225 11,911 Leasehold improvements 160,172 131,502 634,023 542,191 Less accumulated depreciation 282,974 249,214 Net property, plant and equipment 351,049 292,977 Excess of cost over net assets acquired, less accumulated amortization of $19,986 and $16,715 62,162 27,667 Favorable lease interests, less accumulated amortization of $404,001 and $383,708 131,961 153,664 Unamortized debt expenses (note 4) 6,086 10,138 Other assets 21,435 23,028 $1,490,699 1,342,347 Liabilities and Stockholders' Equity (Deficit) Current liabilities: Bank debit balances $ 59,620 44,373 Current installments of long-term debt (note 4) 1,020 1,452 Accounts payable 311,411 287,551 Accrued interest 12,533 19,246 Accrued payroll 70,205 70,640 Other accrued expenses (note 9) 142,599 131,322 Total current liabilities 597,388 554,584 Other noncurrent liabilities (note 9) 136,772 124,944 Long-term debt, excluding current installments (note 4) 701,798 785,561 Stockholders' equity (deficit) (notes 1 and 6): Preferred stock of $.01 par value. Authorized 20,000,000 shares; none issued or outstanding -- -- Voting common stock of $.01 par value. Authorized 96,481,272 shares; issued 69,937,790 and 64,211,548 700 642 Nonvoting common stock of $.01 par value. Authorized 3,518,728 shares; no shares issued -- -- Capital in excess of par value 317,654 233,706 Retained deficit (263,613) (357,090) Total stockholders' equity (deficit) 54,741 (122,742) Commitments and related party transactions (notes 7 and 8) $1,490,699 1,342,347
See accompanying notes to consolidated financial statements. Consolidated Statements of Stockholders' Equity (Deficit) (In thousands, except share amounts) Years ended February 3, 1996, January 28, 1995 and January 29, 1994 Capital Total Voting Nonvoting in stockholders' common common excess of Retained equity stock stock par value deficit (deficit) Balance at January 30, 1993 $472 6 153,264 (397,033) (243,291) Reclassification of common stock previously subject to put options 42 -- 7,258 -- 7,300 Common stock sold under employee stock option plan 2 -- 271 -- 273 Common stock sold in public stock offering, net of expenses of sale 104 -- 64,457 -- 64,561 Net loss for the year -- -- -- (2,941) (2,941) 14 1/2% preferred stock cash dividends -- -- -- (4,924) (4,924) Balance at January 29, 1994 620 6 225,250 (404,898) (179,022) Expenses for secondary public stock offering -- -- (953) -- (953) Common stock sold under employee stock option plan 2 -- 951 -- 953 Contribution of common stock to profit sharing plan 2 -- 894 -- 896 Issuance of 606,120 shares of common stock at $12.50 per share for drug store acquisition 6 -- 7,570 -- 7,576 Conversion of nonvoting common stock to voting common stock 12 (6) (6) -- -- Net income for the year -- -- -- 47,808 47,808 Balance at January 28, 1995 642 -- 233,706 (357,090) (122,742) Common stock sold in public stock offering, net of expenses of sale 54 -- 82,340 -- 82,394 Expenses for secondary public stock offering -- -- (329) -- (329) Common stock sold under employee stock option plan 2 -- 1,043 -- 1,045 Contribution of common stock to profit sharing plan 2 -- 894 -- 896 Net income for the year -- -- -- 93,477 93,477 Balance at February 3, 1996 $700 -- 317,654 (263,613) 54,741
See accompanying notes to consolidated financial statements. Consolidated Statements of Cash Flows (In thousands) February 3, January 28 and January 29, respectively 1996 1995 1994 Cash flows from operating activities: Net earnings (loss) for the year $ 93,477 47,808 (2,941) Adjustments to reconcile net earnings (loss) for the year to net cash provided by operating activities: Gain on sale of subsidiary -- (54,125) -- Extraordinary charge related to early retirement of debt and preferred stock 11,213 32,130 45,283 Depreciation and amortization 84,750 77,794 85,660 Amortization of original issue discount and deferred debt expenses 1,806 5,897 7,216 Decrease (increase) in receivables (17,650) 12,047 (13,867) Increase in merchandise inventories (44,475) (22,621) (35,455) Decrease (increase) in prepaid expenses and other current assets (2,030) 3,048 (3,408) Increase in accounts payable and accrued expenses 37,183 17,010 87,393 Net cash provided by operating activities 164,274 118,988 169,881 Cash flows from investing activities: Additions to property, plant and equipment* (109,782) (57,246) (39,327) Sale of property, plant and equipment 8,255 4,253 37,942 Net proceeds from sale of subsidiaries 5,231 114,912 -- Acquisition of certain drug store assets (76,902) (6,080) (14,314) Other 1,733 (5,216) (3,341) Net cash provided by (used in) investing activities (171,465) 50,623 (19,040) Cash flows from financing activities: Increase in bank debit balances 15,247 3,399 28,743 14 1/2% preferred stock cash dividends -- -- (4,924) Additions to long-term debt 1,985 1,604 1,476 Reductions of long-term debt (1,848) (2,926) (3,769) Net reductions under prior credit agreement -- -- (221,723) Net additions (reductions) under current credit agreement 4,627 (120,816) 576,189 Redemption of 141/2% preferred stock -- -- (75,000) Common stock sold in public stock offering, net of expenses of sale 82,394 -- 64,561 Issuance of 91/4% senior subordinated notes -- -- 200,000 Redemption of 13% and 111/8% subordinated debentures (95,500) (50,000) (490,165) Redemption of senior notes -- -- (168,000) Other, including redemption fees and deferred financing costs (690) (4,084) (64,761) Net cash provided by (used in) financing activities 6,215 (172,823) (157,373) Net decrease in cash (976) (3,212) (6,532) Cash at beginning of year 8,898 12,110 18,642 Cash at end of year $ 7,922 8,898 12,110
See accompanying notes to consolidated financial statements. * Total capital expenditures for fiscal years 1995, 1994 and 1993 were $117,680, $84,694 and $41,960, of which $7,898, $27,448 and $2,633 were acquired under a deferred payment arrangement. Notes to Consolidated Financial Statements February 3, 1996, January 28, 1995 and January 29, 1994 (In thousands, except share amounts and drug stores) (1) Organization of Business (a) Description of Business Eckerd Corporation (Company) operates the Eckerd Drug store chain, which is one of the largest drug store chains in the United States. The Company's stores are located primarily in the Sunbelt, with the largest concentration of stores being in Florida and Texas. During 1993, 1994 and 1995, the Company purchased 74 drug stores in four transactions at an aggregate cost of $85,517. The operations of such stores, which have been included in the consolidated financial statements from dates of acquisition, are not material to the Company and, accordingly, pro forma comparative operating numbers are not presented. (b) Initial and Secondary Public Offerings On August 12, 1993, the Company completed an initial public offering (IPO) in which it issued and sold 10,350,000 shares of its Common Stock par value $.01 per share (Common Stock) for $7.00 per share. In connection with the IPO, the Company amended its Restated Certificate of Incorporation to effect, among other things: (i) the reclassification of its Class A common stock and Class B common stock into Common Stock at certain specified rates (Reclassification); (ii) a two-for-three reverse stock split (Stock Split); (iii) the adoption of certain provisions, such as a classified board of directors and the prohibition of stockholder action by written consent, which could make non-negotiated acquisitions of the Company more difficult; and (iv) the change of the Company's name from "Jack Eckerd Corporation" to "Eckerd Corporation." On May 2, 1994, the Company completed an underwritten secondary offering of 6,398,112 shares of its Common Stock for $9.50 per share. The secondary offering only included shares owned by certain institutional stockholders. The Company did not receive any of the proceeds from the sale of shares of common stock and was required to pay certain expenses of the secondary offering. On August 3, 1995, the Company completed an underwritten primary and secondary offering of 12,351,000 shares of its Common Stock for $16.12 per share. The offering consisted of 5,350,000 shares sold by the Company and 7,001,000 shares sold by certain institutional stockholders. On December 15, 1995, the Company completed an underwritten secondary offering of 12,000,000 shares of its Common Stock for $21.00 per share. The secondary offering only included shares owned by certain institutional stockholders. The Company did not receive any of the proceeds from the sale of shares of common stock and was required to pay certain expenses of the secondary offering. (c) Sales of Subsidiaries On March 31, 1994, the Company closed on the sale of its Vision Group operations which were sold effective January 30, 1994 for an amount in cash and notes approximately equal to the book value of the related assets. In 1993, Vision Group sales were approximately $61,000 and earnings before interest and taxes were approximately $3,000. On November 15, 1994, the Company closed on the sale of its Insta-Care Pharmacy Services (Insta-Care) operations for a total consideration of $112,000 in cash. The net proceeds after certain closing adjustments were approximately $94,000. Insta-Care operations are included in the consolidated financial statements up to the closing date of the sale. In 1994, Insta-Care sales were approximately $89,000 and earnings before interest and income taxes were approximately $4,000. The Company recognized a gain on the sale of Insta-Care of $49,470, net of income taxes of $4,655. The gain of $54,125 before income taxes is reported in the consolidated statement of operations as part of sales and other operating revenue. (2) Summary of Significant Accounting Policies (a) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (b) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts have been eliminated in the consolidation. (c) Definition of Fiscal Year The Company's fiscal year ends on the Saturday nearest January 31. Fiscal year 1995 ended February 3, 1996 and consisted of 53 weeks. Fiscal years 1994 and 1993 ended January 28, 1995 and January 29, 1994, respectively, and consisted of 52 weeks. (d) Merchandise Inventories Inventories consist principally of merchandise held for resale and are based on physical inventories taken throughout the year. Inventories are stated at the lower of cost (last-in, first-out) or market. At February 3, 1996 and January 28, 1995, inventories would have been higher than reported by approximately $91,900 and $76,900, respectively, if the first-in, first-out method of valuing inventories had been used by the Company. (e) Income Taxes Effective January 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes. Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect of a change in tax rates on deferred tax assets or liabilities is recognized in income in the period that includes the enactment date. (f) Depreciation Policy and Maintenance and Repairs Plant and equipment is depreciated principally by the straight-line method over the estimated useful lives of such assets. The principal lives used to compute depreciation are: buildings, 16-45; furniture and equipment, 1-10; transportation equipment, 1-8; and leasehold improvements, 2-20. Maintenance and repairs are charged to expense as incurred. The Company's policy is to capitalize expenditures for renewals and betterments and to reduce the asset accounts and the related allowance for depreciation for the cost and accumulated depreciation of items replaced, retired or fully depreciated. (g) Favorable Lease Interests Favorable lease interests represent the present value of the excess of current market rents at dates of acquisition over the below market rents of leases acquired (principally store locations). Such costs are amortized over the lives of the favorable leases averaging approximately twenty years. (h) Unamortized Debt Expenses Unamortized debt expenses represent underwriting discounts, professional fees and other costs related to long-term debt (see note 4) which are amortized over the life of the debt instruments. (i) Advertising Costs Net advertising costs are expensed when incurred and were $24,752, $24,050 and $26,758 for the years ended February 3, 1996, January 28, 1995 and January 29, 1994, respectively. (j) Reclassification Certain amounts have been reclassified in the 1993 and 1994 consolidated financial statements to conform to the 1995 consolidated financial statement presentation. (k) Supplemental Cash Flow Information The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents. During 1994, the Company issued $7,576 of Common Stock in connection with the acquisition of certain drug stores. Cash paid for interest was $82,152, $86,821 and $120,329 for the years ended February 3, 1996, January 28, 1995 and January 29, 1994, respectively. Cash paid for income taxes was $5,337, $7,294 and $1,273 for the years ended February 3, 1996, January 28, 1995 and January 29, 1994, respectively. (l) Earnings (Loss) Per Share and Stock Split Primary earnings per share have been computed based on the weighted average number of shares of common stock outstanding during each fiscal year (68,606,482 in 1995, 64,863,438 in 1994 and 58,785,610 in 1993). All share information in these consolidated financial statements has been restated to reflect the two-for-one stock split declared April 1, 1996 (payable May 13, 1996) and the August 12, 1993 Reclassification and Stock Split. (m) Recent Accounting Pronouncements The Company will adopt Statement of Financial Accounting Standards No. 121 (SFAS No. 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, during the first quarter of fiscal year 1996. SFAS No. 121 is not expected to have a material impact on the consolidated financial statements of the Company. In October 1995, Statement of Financial Accounting Standards No. 123 (SFAS No. 123), Accounting for Stock - Based Compensation, was issued, which is effective for fiscal year 1996. Under SFAS No. 123, the Company can elect, but is not required, to recognize compensation expense for all stock-based awards using a fair value method. The Company expects to implement the disclosure-only provisions, as permitted by SFAS No. 123, in fiscal year 1996. (3) Employees' Benefit Plans (a) Profit Sharing Plan The Company has in effect a noncontributory profit sharing plan which covers all regular, full-time employees. The Company makes annual contributions to the Plan at the discretion of the Company's Board of Directors. All funds are held by a bank as trustee under a trust agreement. Included in operating and administrative expenses are charges accrued for contributions to the Plan of $11,231, $9,712 and $8,765 for February 3, 1996, January 28, 1995 and January 29, 1994, respectively. Plan assets at fair value, consisting of fixed income securities, the Company's stock and listed stocks, amounted to approximately $256,800 for the plan year ended December 31, 1995. (b) Pension Plans The Company has in effect a noncontributory pension plan covering all full-time employees who qualify as to age and length of service. Benefits are computed based on the average annual compensation for the five consecutive years that produce the highest average during the final ten years of creditable service. The Company's policy is to fund the Plan in accordance with minimum Internal Revenue Service (IRS) requirements. The Company accounts for pension costs in accordance with Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions. The funded status of the Company's pension plan at February 3, 1996 and January 28, 1995 was: 1996 1995 (Projected) Accumulated benefit obligation (including vested benefits of $40,743 and $34,792 at January 1, 1995 (most recent valuation date) and January 1,1994, respectively) $(45,107) (37,814) Effect of anticipated future compensation levels and other events (11,130) (8,824) Projected benefit obligation for service rendered to date (56,237) (46,638) Plan assets at fair value, consisting of fixed income securities and listed stocks 44,751 34,602 Plan assets less than projected benefit obligation (11,486) (12,036) Unrecognized prior service cost 2,245 2,436 Unrecognized net loss 8,791 10,290 Unrecognized net transition asset at January 1, 1987, which is being amortized over 13 years (2,100) (2,777) Accrued pension cost $(2,550) (2,087) Net periodic pension costs for the years ended February 3, 1996, January 28, 1995 and January 29, 1994 included the following (income) expense components: 1996 1995 1994 Service costs (benefits earned during the period) $3,606 3,552 2,818 Interest cost on projected benefit obligation 3,790 3,159 2,548 Return on assets (3,536) (3,411) (3,271) Amortization of prior service cost 191 (204) (161) Amortization of net transition asset (677) (677) (677) Amortization of net loss 101 461 -- Net periodic pension cost $3,475 2,880 1,257 Assumptions used in determining the accumulated and projected benefit obligations were: Weighted average discount rate 7.5% 8.25% 7.5% Weighted average long-term rate of return on assets 9% 9% 9% Rate of compensation increases 5% 5% 5% The Company has in effect an Executive Supplemental Benefit Plan to provide additional income for its executives after their retirement as well as pre-retirement death benefits to beneficiaries of such executives. Annual benefits will generally be no greater than 25 percent of the participant's salary mid-point on the date the participant retires or separates from service with the Company. (4) Long-Term Debt Long-term debt at February 3, 1996 and January 28, 1995 was: 1996 1995 Term loan, due November 29, 2000 (a) $230,000 434,373 Revolving credit and bankers acceptances (a) 230,000 21,000 9 1/4% Senior Subordinated Notes due February 15, 2004, $200,000 face amount (b) 200,000 200,000 11 1/8% Subordinated Debentures due May 1, 2001, $95,500 face amount, net of original issue discount of $6,542 (c) -- 88,958 Variable rate demand industrial development revenue refunding bonds, due $8,250 March 1, 2009 and $10,000 May 1, 2013 (d) 18,250 18,250 Other (principally notes secured by fixtures and equipment) 24,568 24,432 Total long-term debt 702,818 787,013 Less amounts due within one year 1,020 1,452 Amounts due after one year $701,798 785,561 The aggregate minimum annual maturities of long-term debt for the next five fiscal years are: 1996 - $31,020; 1997 - $50,729; 1998 - $50,667; 1999 - $50,605; and 2000 - $280,548. Although the term loan commitment requires a repayment of $30,000 during fiscal year 1996, the Company has excess availability under the revolving credit commitment, and accordingly, has not treated the 1996 required repayment as current. (a) On June 15, 1993, the Company entered into a Credit Agreement which was subsequently revised on August 3, 1994. The original agreement was for a total of $950,000. The revised agreement provided for a total loan facility of $850,000. The revised loan facility did not provide any additional proceeds to the Company, but it provided improved pricing and increased operating flexibility with respect to acquisitions, capital expenditures and lease payments. The revolving loan facility was extended a year and increased to $350,000 (with $30,000 available as a bank swingline loan facility and $155,000 available as a letter of credit and bankers' acceptance facility) (Revolving Loan), and a five-year amortizing term loan facility (Term Loan) was reduced to $500,000. On November 29, 1995, the Company entered into another significant revision of the Credit Agreement. The new agreement provides for a total loan facility of $750,000. The new loan facility did not provide any additional proceeds to the Company, but it does provide improved pricing and increased operating flexibility through reduced annual term loan amortization. The Revolving Loan facility matures on November 29, 2000 and was increased to $500,000 (including the bank swingline loan facility and the letter of credit and bankers' acceptance facility), and the Term Loan facility maturity was extended to November 29, 2000, and was reduced to $250,000. The Term Loan and the Revolving Loan bear interest at various rates approximating, at the Company's option (i) Alternate Base Rate (ABR) (as defined) or (ii) adjusted LIBOR plus 5/8%. The spread above LIBOR may decrease or increase by 1/8% in two separate instances if certain ratios of cash flow to interest expense are achieved by the Company. The spread above LIBOR may also decrease by an additional 1/8% if a certain ratio of cash flow to interest expense is achieved and the bank facility receives an investment grade rating by both major rating agencies. Interest on ABR borrowings is payable quarterly. Interest on LIBOR borrowings is payable at the end of the relevant interest period (one, two, three or six month periods, except that with respect to six month periods, interest shall be payable every three months). The Company is required to pay a commitment fee of 1/4% per annum on the undrawn amount of the Revolving Loan facility and it may decrease or increase by 1/16% in two separate instances if certain ratios of cash flows to interest expense are achieved by the Company. The Company is also required to pay letter of credit fees and bankers' acceptance fees. The Company has entered into interest rate cap agreements relating to the Credit Agreement. The cap agreements are for $200,000 and mature at various dates in 1996. The cap agreements have an approximate 6% interest rate. At February 3, 1996, these agreements had a value to the Company of approximately $164 below their carrying values. Principal of the Term Loan will be amortized in quarterly payments and mature in full on November 29, 2000. Required annual principal payments are $30,000 in 1996 and $50,000 in 1997 through 2000. The Company has the right to prepay any borrowings under the Credit Agreement in whole or in part at any time. The Company is required to prepay borrowings under the Credit Agreement with (i) in any fiscal year, the excess of the aggregate net proceeds of dispositions of assets of the Company and its subsidiaries over $10,000; (ii) in any fiscal year, the net proceeds of any incurrence of debt (other than indebtedness permitted under the Credit Agreement); and (iii) the net proceeds of the sale and leaseback of any asset. Prepayments are to be applied pro rata against the remaining scheduled payments due in respect to the Term Loan and, after such loan is paid in full, to the swingline loans and then the Revolving Loan. The borrowings under the Credit Agreement are secured by a pledge of all capital stock of the Company's subsidiaries, as well as substantially all personal property, including inventory and accounts receivable and certain real property (as defined), contain certain restrictive covenants which provide limitations on the Company with respect to incurring debt, the incurring of liens, making investments in excess of $7,000, payment of dividends and purchase of shares of stock of the Company, consolidations and mergers, sale of assets, acquisitions, and transactions with affiliates. The Credit Agreement also requires the Company to satisfy certain financial ratios. At February 3, 1996, the Company was in compliance with these covenants. (b) On November 2, 1993, the Company issued $200,000 aggregate principal amount of 91/4% Senior Subordinated Notes (Notes) due February 15, 2004. The Notes are unsecured and subordinated to all existing and future senior debt (as defined) of the Company and are redeemable at the option of the Company, in whole or in part, at any time after February 15, 1999 at various redemption prices (as defined) plus accrued interest to the date of redemption. Interest is payable semi-annually on February 15 and August 15 of each year. (c) The 11 1/8% Subordinated Debentures were subordinated to all existing and future senior debt (as defined) of the Company, and were redeemable at the option of the Company, in whole or in part, at any time at 100% of their principal amount plus accrued interest to the date of redemption. During 1994 and 1995, $50,000 face amount and the remaining $95,500 face amount, respectively, of these subordinated debentures were redeemed by the Company. (d) The variable rate demand industrial development revenue refunding bonds currently have an interest rate which is a daily rate established by First National Bank of Chicago and is indicative of current bid-side yields of high grade tax-exempt securities. At the Company's option, and under certain conditions, the interest rate may be changed to a monthly rate or a fixed rate. The bonds are secured by the related buildings, leases and letters of credit. (e) An extraordinary charge of $30,523 (net of tax benefit of $1,607) was recognized during the year ended January 28, 1995, primarily from the write-off of unamortized debt expenses related to the significant revision of the Credit Agreement, as well as the early repayment of debt from a portion of the net proceeds from the sale of Insta-Care. An extraordinary charge of $9,306 (net of tax benefit of $1,907) was recognized during the year ended February 3, 1996, primarily from the write-off of original issue discount and unamortized debt expenses on the redemption of the 11 1/8% Subordinated Debentures and from the write-off of unamortized debt expenses related to the significant revision of the Credit Agreement. (f ) The fair value of the Term Loan, Revolving Loan and the variable rate demand industrial development revenue refunding bonds approximate their carrying value, based on the frequency of the interest rate reset periods. The fair value of the Notes is approximately $215,250, based on its quoted market price. The fair value of the other long-term debt approximates its carrying value, based on the relatively short remaining maturity of the debt. (5) Income Taxes Income tax expense before extraordinary items for the years ended February 3, 1996, January 28, 1995 and January 29, 1994 was: 1996 1995 1994 Current: Federal $19,309 5,278 2,232 State 1,291 3,475 2,324 Total $20,600 8,753 2,556 For fiscal years 1995, 1994 and 1993, the income tax expense differs from amounts computed by applying the Federal statutory rate of 35% to earnings before income taxes and extraordinary items. The actual tax differs from the expected tax for the years ended February 3, 1996, January 28, 1995 and January 29, 1994 as follows: 1996 1995 1994 Expected tax $43,184 30,479 15,389 State taxes, net of Federal benefit 839 2,259 211 Changes in valuation allowance through the use of loss carryforwards (42,239) (29,263) (15,276) Other 18,816 5,278 2,232 $20,600 8,753 2,556 "Other" consists principally of alternative minimum tax. In addition to alternative minimum tax credit carryforwards of approximately $21,000, the Company has Federal income tax loss carryforwards of approximately $177,000, which are available to offset future taxable income, if any, through 2008. The Company's Federal income tax returns have been examined through April 30, 1986 and any assessments have been paid or accrued. The Federal income tax returns for the fiscal periods ended January 31, 1987 and January 30, 1988 are currently being examined. The Company has established a valuation allowance for the full amount of its loss carryforward. The valuation allowance will be reviewed in the future, based on management's estimates of the expected outcome of these examinations. Temporary differences and carryforwards which give rise to deferred tax assets and liabilities as of February 3, 1996 and January 28, 1995 are as follows: 1996 1995 Deferred tax assets: Reserves and other liabilities $13,620 23,880 Amortization 7,452 7,804 Other 6,351 7,613 Loss carryforwards 67,111 82,745 Credit carryforwards 25,803 8,364 Gross deferred tax assets 120,337 130,406 Less valuation allowance (67,111) (94,176) Net deferred tax assets $53,226 36,230 Deferred tax liabilities: Inventory $37,698 23,481 Fixed assets 15,528 12,749 Gross deferred tax liabilities $53,226 36,230 (6) Stockholders' Equity (a) Common Stock The Company's authorized common stock consists of 100,000,000 shares of Common Stock, par value $.01 per share (of which 3,518,728 shares are Nonvoting Common Stock (Series I), par value $.01 per share). (b) Preferred Stock The Company's authorized preferred stock consists of 20,000,000 shares. The preferred stock is issuable in series with terms as fixed by the Board of Directors. No preferred stock has been issued. (c) Stock Options The Company has reserved 6,782,406 shares of its Common Stock for the granting of stock options and other incentive awards to officers, directors and key employees under the 1993 and 1995 Stock Option and Incentive Plans of Eckerd Corporation. Options are granted at prices which are not less than the fair market value of a share of common stock on the date of grant. Commencing three years after the date of grant, all options are exercisable to the extent of 50%, with an additional 25% exercisable after each of the next two successive years. Unexercised options expire ten years after the date of grant. Options granted under prior plans were surrendered and granted under the terms of the 1993 plan. Shares under option and option prices have been adjusted to reflect the Reclassification and the Stock Split (note 1(b)) and the two-for-one stock split (note 2(l)). As of February 3, 1996, January 28, 1995 and January 29, 1994, 3,531,658, 458,354 and 445,336 shares of Common Stock were available for grant. At February 3, 1996, options for 758,308 shares of Common Stock were exercisable at $2.59 to $7.00 per share. At January 28, 1995, options for 699,720 shares of Common Stock were exercisable at $.28 to $7.00 per share. At January 29, 1994, options for 900,786 shares of Common Stock were exercisable at $.28 to $7.00 per share. A summary of changes during the years ended February 3, 1996, January 28, 1995 and January 29, 1994 is set forth below: Shares under Option option prices Outstanding January 30, 1993 1,373,920 $ .28 - $18.75 Granted 1,711,830 $ 5.00 - $ 7.00 Exercised (148,790) $ 2.82 - $ 4.62 Cancelled (122,952) $ 2.82 - $18.00 Outstanding January 29, 1994 2,814,008 $ .28 - $ 7.00 Granted 171,000 $ 7.00 - $14.63 Exercised (248,998) $ .28 - $ 7.00 Cancelled (184,018) $ .28 - $12.32 Outstanding January 28, 1995 2,551,992 $ .28 - $14.63 Granted 1,059,134 $12.81 - $22.00 Exercised (227,940) $ .28 - $ 7.00 Cancelled (132,438) $ 7.00 - $19.31 Outstanding at February 3, 1996 3,250,748 $ 2.59 - $22.00 Options previously granted at prices greater than $7.00 per share were modified to $7.00 per share at the date of the IPO. (7) Commitments The Company conducts the major portion of its retail operations from leased store premises under leases that will expire within the next 20 years. Such leases generally contain renewal options exercisable at the option of the Company. In addition to minimum rental payments, certain leases provide for payment of taxes, maintenance and percentage rentals based upon sales in excess of stipulated amounts. Rental expense for the years ended February 3, 1996, January 28, 1995 and January 29, 1994 was: 1996 1995 1994 Minimum rentals $118,797 111,845 111,072 Percentage rentals 25,651 20,971 18,369 $144,448 132,816 129,441 At February 3, 1996, minimum rental commitments for the next five fiscal years and thereafter under noncancelable leases were as follows: 1996 - $110,423; 1997 - $103,451; 1998 - $90,791; 1999 - $82,881; 2000, - $75,030; and thereafter - $529,864. These amounts include any rental commitments for under-performing stores closed or to be closed (note 9). In 1987, the Company entered into an operating lease agreement for 72 stores with a third-party lessor established by an affiliate of Merrill Lynch & Co. (which, through affiliated entities, controls approximately 6% of the Company's common stock). The lease agreement has certain restrictive covenants, which, upon violation by the Company, give the lessor the right to require the lessee to purchase the leased stores at the remaining balance of the lease contract. At February 3, 1996, the balance subject to the repurchase terms is $35,774. At February 3, 1996, the Company was in compliance with these covenants. During 1995, 1994 and 1993, the Company sold certain photo processing equipment to an unrelated third party for approximately $4,900, $14,800 and $35,000, respectively, and entered into five-year leases with respect to such equipment. No gain or loss was recorded in connection with these transactions. Annual lease payments by the Company of $6,801 are required over the term of the leases. During 1993, the Company and Integrated Systems Solutions Corporation (ISSC) entered into a Systems Operations Service Agreement (Service Agreement) pursuant to which ISSC will manage the Company's entire information systems operation, including the implementation of a new point-of-sale system with scanning capabilities. The Service Agreement has a ten year term, and the total payments to be made by the Company are expected to be $480,000 over such term, based on currently anticipated services. A portion of these payments is being accounted for as capital expenditures. As of February 3, 1996, the Company has acquired $83,711 of equipment, of which $37,979 has been acquired under a deferred payment arrangement. (8) Transactions with Related Parties In April 1989, the Company entered into a "Master Lease" agreement with a third-party lessor established by an affiliate of Merrill Lynch & Co. (which, through affiliated entities, controls approximately 6% of the Company's common stock) whereby such lessor would finance the acquisition of store sites and the construction of buildings and acquisition of equipment. As of February 3, 1996, there were 12 stores leased under the agreement with an aggregate cost of approximately $18,400. The Company pays the Merrill Lynch affiliate a structure fee of 1% of the cost of land, buildings and equipment financed under the Master Lease plus an administration fee. The Company paid the Merrill Lynch affiliate fees aggregating $43, $43 and $44 for the years ended February 3, 1996, January 28, 1995 and January 29, 1994, respectively. During 1993, Merrill Lynch & Co., as one of the representatives of the underwriters in the IPO, received underwriting commissions and related fees of $1,847. In addition, as sole underwriter in the issuance of the Notes, Merrill Lynch & Co. received approximately $4,000 in underwriting discounts from the Company. During 1995, Merrill Lynch & Co., as one of the representatives of the underwriters in the August offering, received underwriting commissions and related fees of $3,000. During 1994, Merrill Lynch & Co. acted as financial advisors to the Company in connection with the sale of Insta-Care and received a fee of $1,417 for its services. (9) Store Closing Charges In 1994, the Company changed its accounting policy for closed stores to record the loss at the time the decision is made to close the store, in accordance with Emerging Issues Task Force Issue No. 94-3. In the fourth quarter of 1994, the Company established a $48,988 provision for future drug store closings. In addition to the small number of stores the Company would close in the normal course of business, the Company accelerated the closing of approximately 90 geographically dispersed under-performing stores. At February 3, 1996, 84 of the approximately 90 under-performing stores had been closed. The total charge of $48,988 was included in operating and administrative expenses on the 1994 consolidated statement of operations. Of the total charge, approximately $31,000 related to lease settlements and obligations and other expenses to be incurred in connection with the store closings. The remaining charge of approximately $18,000 was for the write-off of impaired assets which included inventory liquidation and the write-off of intangible and fixed assets. The effect of this accounting change on prior periods was immaterial. In 1995, approximately $20,400 of the provision was utilized for lease obligations, settlements and asset write-offs. Remaining expenses are anticipated to be less than the balance of the provision; therefore, approximately $10,800 of the provision is available for the 1996 store closings primarily related to relocation of existing stores. Independent Auditors' Report The Board of Directors Eckerd Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of Eckerd Corporation and subsidiaries as of February 3, 1996 and January 28, 1995, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended February 3, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Eckerd Corporation and subsidiaries at February 3, 1996 and January 28, 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended February 3, 1996, in conformity with generally accepted accounting principles. As described in note 9, the Company changed its accounting policy in fiscal year 1994 related to the timing of the recognition of closed store obligations. /s/KPMG Peat Marwick LLP KPMG Peat Marwick LLP Tampa, Florida March 26, 1996 Quarterly Information (Unaudited) (In thousands, except per share amounts) Fiscal 1995 Quarters Ended 4/29/95 7/29/95 10/28/95 2/3/96 Financial Information Sales and other operating revenue $1,219,594 1,138,724 1,164,907 1,473,848 Cost of sales, including store occupancy, warehousing and delivery expense 939,488 885,108 915,137 1,134,990 Operating and administrative expenses 220,591 221,832 224,301 255,407 Interest expense 20,356 19,593 18,720 18,167 Earnings before income taxes and extraordinary item 39,159 12,191 6,749 65,284 Income taxes 8,615 115 1,147 10,723 Earnings before extraordinary item 30,544 12,076 5,602 54,561 Extraordinary item-early retirement of debt, net of tax benefit -- (1,021) (5,012) (3,273) Net earnings $ 30,544 11,055 590 51,288 Earnings before extraordinary item per common share $ .47 .18 .08 .76 Net earnings per common share $ .47 .17 .01 .71 Weighted average common shares outstanding 65,626 65,794 71,242 71,764 Market Price Per Share Information High $ 15-1/8 17-5/16 21 22-3/8 Low 12-1/4 14-3/16 16-5/16 19-1/16 (In thousands, except per share amounts) Fiscal 1994 Quarters Ended 4/30/94 7/30/94 10/29/94 1/28/95 Financial Information Sales and other operating revenue $1,136,195 1,066,890 1,071,036 1,315,396 Cost of sales, including store occupancy, warehousing and delivery expense 866,083 820,281 831,513 966,750 Operating and administrative expenses 217,846 215,767 215,476 274,982 Interest expense 23,901 24,491 23,410 21,933 Earnings before income taxes and extraordinary item 28,365 6,351 637 51,731 Income taxes 1,420 330 32 6,971 Earnings before extraordinary item 26,945 6,021 605 44,760 Extraordinary item - early retirement of debt, net of tax benefit -- -- (26,620) (3,903) Net earnings (loss) $ 26,945 6,021 (26,015) 40,857 Earnings before extraordinary item per common share $ .42 .09 .01 .68 Net earnings (loss) per common share $ .42 .09 (.40) .62 Weighted average common shares outstanding 64,448 64,492 64,844 65,670 Market Price Per Share Information High $ 12 12-5/8 15-3/4 16 Low 9-1/4 9-1/16 11-5/8 12-11/16
The Company's stock is listed on the New York Stock Exchange (Symbol: ECK). The approximate number of shareholders of record on March 29, 1996 was 965. The Company is subject to restrictive covenants under its bank credit agreement and its 91/4% senior subordinated notes which restrict the payment of dividends. The Company has not paid or declared any dividend distributions on its common stock. Earnings (loss) per common share are computed independently for each of the quarters. Therefore, the sum of the quarterly earnings (loss) per share may not equal the annual earnings per common share. All quarters have been restated to reflect a two-for-one stock split effected in the form of a stock dividend declared April 1, 1996 (payable May 13, 1996). EX-21.1 12 SUBSIDIARIES OF THE COMPANY Exhibit 21.1 ECKERD CORPORATION Subsidiaries of the Company At February 3, 1996, Eckerd Corporation, incorporated in the State of Delaware, had eight wholly-owned subsidiaries, which are included in the consolidated financial statements of the Company. The names of the eight subsidiaries have been omitted because these unnamed subsidiaries, considered in the aggregate as a single subsidiary, do not constitute a significant subsidiary. EX-23.1 13 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 The Board of Directors Eckerd Corporation and Subsidiaries Re: Registration Statement on Form S-3 (No. 33-50223) Registration Statement on Form S-8 (No. 33-49977) Registration Statement on Form S-8 (No. 33-50755) Registration Statement on Form S-3 (No. 33-56261) Registration Statement on Form S-8 (No. 33-60175) We consent to the incorporation by reference in the above referenced registration statements of Eckerd Corporation and subsidiaries of our report dated March 26, 1996, relating to the consolidated balance sheets of Eckerd Corporation and subsidiaries as of February 3, 1996 and January 28, 1995, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows, and related schedules for each of the years in the three-year period ended February 3, 1996, which report appears in the February 3, 1996 Annual Report on Form 10-K of Eckerd Corporation and subsidiaries. KPMG Peat Marwick LLP Tampa, Florida April 25, 1996 EX-27 14 FDS EXHIBIT 27
5 0000031364 ECKERD CORPORATION 1,000 YEAR FEB-03-1996 FEB-03-1996 7,922 0 73,137 3,000 835,551 918,006 634,023 282,974 1,490,699 597,388 701,798 700 0 0 54,041 1,490,699 4,997,073 4,997,073 3,874,723 3,874,723 917,567 4,564 76,836 123,383 20,600 102,783 0 (9,306) 0 93,477 1.36 1.36 EPS PRIMARY AND DILUTED REFLECTS THE TWO-FOR-ONE STOCK SPLIT EFFECTED IN THE FORM OF A STOCK DIVIDEND DECLARED APRIL 1, 1996 AND PAYABLE ON OR ABOUT MAY 13, 1996. EPS PRIMARY AND DILUTED FOR PREVIOUSLY FILED FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED FOR THE STOCK SPLIT.
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