-----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, HepnfSsQ7GeuaI+iGd8dDPqxTsHER+EUU90IsylQkbCDidsVs2+PnzxLfPKs7sHt 89zwRYJxbxXE4D+luOtBHw== 0001125282-01-500672.txt : 20010528 0001125282-01-500672.hdr.sgml : 20010528 ACCESSION NUMBER: 0001125282-01-500672 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20010525 EFFECTIVENESS DATE: 20010525 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RITE AID CORP CENTRAL INDEX KEY: 0000084129 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 231614034 STATE OF INCORPORATION: DE FISCAL YEAR END: 0302 FILING VALUES: FORM TYPE: S-8 SEC ACT: SEC FILE NUMBER: 333-61734 FILM NUMBER: 1648927 BUSINESS ADDRESS: STREET 1: 30 HUNTER LANE CITY: CAMP HILL OWN STATE: PA ZIP: 17011 BUSINESS PHONE: 7177612633 MAIL ADDRESS: STREET 1: PO BOX 3165 CITY: HARRISBURG STATE: PA ZIP: 17105 FORMER COMPANY: FORMER CONFORMED NAME: LEHRMAN LOUIS & CO DATE OF NAME CHANGE: 19680510 FORMER COMPANY: FORMER CONFORMED NAME: RACK RITE DISTRIBUTORS DATE OF NAME CHANGE: 19680510 S-8 1 b311812_s8.txt REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on May 25, 2001 Registration No. 333- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM S-8 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- RITE AID CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 23-1614034 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 30 Hunter Lane Camp Hill, Pennsylvania 17011 (717) 761-2633 (Address of Principal Executive Offices) ----------------- 1990 Omnibus Stock Incentive Plan 1999 Stock Option Plan 2000 Omnibus Equity Plan 2001 Stock Option Plan (Full title of the plan) ---------- Elliot S. Gerson, Esq. Senior Executive Vice President and General Counsel Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 (717) 761-2633 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) CALCULATION OF REGISTRATION FEE
---------------------------- ------------------ ---------------------- ---------------------- -------------------- Proposed Proposed Title of Amount Maximum Maximum Aggregate Securities to be to be Offering Price Per Offering Price Amount of Registered Registered (1) Share (2) (3) Registration Fee ---------------------------- ------------------ ---------------------- ---------------------- -------------------- Common Stock, $1.00 par 922,567 $8.260 $7,620,403.42 $1,905.10 value (4) ---------------------------- ------------------ ---------------------- ---------------------- -------------------- Common Stock, $1.00 par 20,556,000 $8.260 $169,792,560.00 $42,448.14 value (5) ---------------------------- ------------------ ---------------------- ---------------------- -------------------- Common Stock, $1.00 par 210,000 $2.4375 $511,875.00 $127.97 value, underlying options granted or issued and outstanding (6) ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 50,000 $2.6250 $131,250.00 $32.81 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 16,801,462 $2.7500 $46,204,020.50 $11,551.01 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 220,000 $3.0000 $660,000.00 $165.00 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 540,000 $3.4375 $1,856,250.00 $464.08 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 154,000 $3.9375 $606,375.00 $151.59 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 20,134,500 $4.0500 $81,544,725.00 $20,386.81 ---------------------------- ------------------ ---------------------- ---------------------- --------------------
---------------------------- ------------------ ---------------------- ---------------------- -------------------- Proposed Proposed Title of Amount Maximum Maximum Aggregate Securities to be to be Offering Price Per Offering Price Amount of Registered Registered (1) Share (2) (3) Registration Fee ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 100,000 $4.0625 $406,250.00 $101.56 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 5,000 $4.8750 $24,375.00 $6.09 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 5,112,301 $5.3750 $27,478,617.88 $6,869.65 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 23,000 $5.4375 $125,062.50 $31.27 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 108,500 $5.6250 $610,312.50 $152.58 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 10,000 $5.6825 $56,825.00 $14.21 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 554,000 $6.0900 $3,373,860 $843.47 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 10,000 $6.3125 $63,125.00 $15.78 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 367,500 $6.5000 $2,388,750.00 $597.19 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 20,000 $6.7500 $135,000.00 $33.75 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 20,000 $6.8125 $136,250.00 $34.06 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 259,000 $7.0000 $1,813,000.00 $453.25 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 11,000 $7.1250 $78,375.00 $19.59 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 180,000 $7.5000 $1,350,000.00 $337.50 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 142,012 $8.0000 $1,136,096.00 $284.02 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 150,600 $8.9125 $1,342,222.50 $335.56 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 4,700 $8.9150 $41,900.50 $10.48 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 2,750 $8.9400 $24,585.00 $6.15 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 1,458,649 $9.2500 $13,492,503.25 $3,373.13 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 150,850 $9.5625 $1,442,503.13 $360.63 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 4,700 $9.5650 $44,955.50 $11.24 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 150,850 $10.0625 $1,517,928.13 $379.48 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 5,950 $10.0650 $59,886.75 $14.97 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 150,850 $10.3125 $1,555,640.63 $388.91 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 5,950 $10.3150 $61,374.25 $15.34 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 10,000 $10.8750 $108,750.00 $27.19 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 155,850 $11.3125 $1,763,053.13 $440.76 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 8,450 $11.3150 $95,611.75 $23.90 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 7,200 $11.5000 $82,800.00 $20.70 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 167,000 $11.8750 $1,983,125.00 $495.78 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 166,500 $12.3750 $2,060,437.50 $515.11 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 1,250 $12.5000 $15,625.00 $3.91 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 2,500 $12.6875 $31,718.75 $7.93 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 100,000 $13.8750 $1,387,500.00 $346.88 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 166,000 $14.0000 $2,324,000.00 $581.00 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 3,000 $14.1250 $42,375.00 $10.59 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 284,000 $14.3125 $4,064,750.00 $1,016.19 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 15,000 $14.3150 $214,725.00 $53.68 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 10,000 $14.5650 $145,650.00 $36.41 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 166,000 $15.6250 $2,593,750.00 $648.44 ---------------------------- ------------------ ---------------------- ---------------------- --------------------
---------------------------- ------------------ ---------------------- ---------------------- -------------------- Proposed Proposed Title of Amount Maximum Maximum Aggregate Securities to be to be Offering Price Per Offering Price Amount of Registered Registered (1) Share (2) (3) Registration Fee ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 1,000 $15.6875 $15,687.50 $3.92 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 160,325 $15.8750 $2,545,159.38 $636.29 ---------------------------- ------------------ ---------------------- ---------------------- -------------------- 2,050 $16.0000 $32,800.00 $8.20 ============================ ================== ====================== ====================== ==================== Total $96,799.25(7) ============================ ================== ====================== ====================== ====================
- ------------------------- (1) Except for the 922,567 shares referred to in footnote 4 below, this registration statement relates to shares of Common Stock, par value $1.00 per share of the Rite Aid Corporation (the "Company") consisting of the aggregate number of shares which may be sold upon the exercise of options which have been granted and/or may hereafter be granted under the Company's 1990 Omnibus Stock Incentive Plan, 1999 Stock Option Plan, 2000 Omnibus Equity Plan and 2001 Stock Option Plan (collectively, the "Plans"). (2) In accordance with Rule 457 promulgated under the Securities Act of 1933 (the "Securities Act"), the Proposed Maximum Offering Price Per Share is based upon either (i) the price at which the options may be exercised or (ii) the market value as of May 18, 2001 of the Common Stock, which was $8.260 (the average of the high and low prices of the Shares reported on the New York Stock Exchange on May 18, 2001). (3) The Proposed Maximum Aggregate Offering Price is estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 of the Securities Act. (4) Represents "restricted securities" (as that term is defined in Section C of the General Instructions to Form S-8) of the Company. (5) Represents shares available for future grants. The number of shares available under the Company's 1999 Stock Option, 2000 Omnibus Equity Plan, and 2001 Stock Option Plan at May 21, 2001 is: 1,211,318 shares, 4,748,682 shares, and 14,596,000 shares, respectively. (6) Represents shares underlying options issued and outstanding. At May 21, 2001 the number of underlying options issued and outstanding under the Company's 1990 Omnibus Stock Incentive Plan, 1999 Stock Option Plan, 2000 Omnibus Equity Plan and 2001 Stock Option Plan is: 13,544,867 shares, 8,788,682 shares, 15,789,500 shares, and 5,404,000 shares, respectively. An additional 8,600,000 shares underlying options were issued to employees of the Company, pursuant to individual employment agreements and restricted stock and stock option award agreements. (7) Rite Aid Corporation previously paid a filing fee of $834,000.00 with respect to our Form S-3, 333-70777, filed on January 19, 1999. We are transferring $96,799.25 to this Form S-8 registration statement. EXPLANATORY NOTE This Registration Statement contains two parts. The first part contains a prospectus pursuant to Form S-3 (in accordance with Section C of the General Instructions to the Form S-8) which covers reoffers and resales of "restricted securities" (as that term is defined in Section C of the General Instructions to Form S-8) of Rite Aid Corporation. This Reoffer prospectus relates to 922,567 shares of common stock that have been issued to certain employees of Rite Aid Corporation. The second part of this Registration Statement contains Information Required in the Registration Statement pursuant to Part II of Form S-8. The Plan Information specified by Part I of Form S-8 is not being filed with the Securities and Exchange Commission but will be delivered to all participants in the Plans pursuant to Securities Act Rule 428(b)(1). REOFFER PROSPECTUS 922,567 Shares of Common Stock, $1.00 par value RITE AID CORPORATION ------------------ The shares of common stock of Rite Aid Corporation ("Rite Aid" or the "Company") covered by this reoffer prospectus may be offered and sold from time to time by selling stockholders identified in this prospectus for their own accounts. Our common stock is traded on the New York Stock Exchange and the Pacific Stock Exchange under the symbol "RAD." On May 24, 2001, the closing price of our common stock was $9.05 per share. The selling stockholders may sell their shares in one or more transactions on the New York Stock Exchange or the Pacific Exchange, in privately negotiated transactions, or through a combination of these methods. These sales may be at fixed prices, at market prices prevailing at the time of sale, at prices relating to such prevailing prices or at negotiated prices. Rite Aid will receive no part of the proceeds from sales made under this reoffer prospectus. The Selling Stockholders may sell shares through one or more agents, brokers or dealers or directly to purchasers. Such brokers or dealers may receive compensation in the form of commissions, discounts or concessions from the Selling Stockholders and/or purchasers of the shares, or both. Such compensation as to a particular broker or dealer may be in excess of customary commission. In connection with their sales, the Selling Stockholders and any participating broker or dealer may be deemed to be "underwriters" within the meaning of the Securities Act, as amended, and any commissions they receive and the proceeds of any sale of shares may be deemed to be underwriting discounts and commissions under the Securities Act. ------------------ This investment involves a high degree of risk. Please see "Risk Factors" on page 8. ------------------ Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined whether this reoffer prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this reoffer prospectus is May 25, 2001. TABLE OF CONTENTS Additional Information.........................................................2 Incorporation of Certain Documents by Reference................................3 The Company....................................................................4 Risk Factors...................................................................8 Cautionary Statement Regarding Forward-Looking Statements.....................13 Use of Proceeds...............................................................14 Selling Stockholders..........................................................14 Plan of Distribution..........................................................15 Legal Matters.................................................................15 Experts.......................................................................15 ADDITIONAL INFORMATION Rite Aid has filed with the Securities and Exchange Commission (the "Commission" or "SEC") a Registration Statement on Form S-8 under the Securities Act with respect to the shares of Common Stock offered hereby. This reoffer prospectus does not contain all of the information set forth or incorporated by reference in the Registration Statement and the exhibits thereto. For further information with respect to the Company and the Common Stock offered hereby, we encourage you to read this entire document and all other documents to which we refer. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, files reports and other information with the Commission. The Registration Statement, including exhibits, and the reports and other information filed by the Company can be inspected without charge at the public reference facilities maintained by the Commission at the Commission's principal office at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies of such material can be obtained from such office at fees prescribed by the Commission. The public may obtain information on the operation of the Public Reference room by calling the Commission at 1-800-SEC-0330. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of this site is http://www.sec.gov. 2 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which have been filed with the Commission pursuant to the Exchange Act, are hereby incorporated by reference in, and shall be deemed to be a part of, this Registration Statement: o The Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2001 (the "Annual Report"), filed May 21, 2001; and o The description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A, dated July 18, 1991, filed by the Company to register such securities under the Exchange Act, including all amendments and reports filed for the purpose of updating such description. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold are incorporated by reference in this Registration Statement. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein, or in any subsequently filed document which also is or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this Registration Statement. We will provide without charge to any person to whom this prospectus is delivered, upon written or oral request of such person, a copy of each document incorporated by reference in the registration statement (other than exhibits to such documents unless such exhibits are specifically incorporated by reference into this prospectus). Requests should be directed to Investor Relations, at Rite Aid Corporation, 30 Hunter Lane, Camp Hill, Pennsylvania 17011. The Company's telephone number is (717) 761-2633 and its website is located at http://www.riteaid.com. Information on the Company's website is not incorporated by reference into this prospectus. 3 THE COMPANY Overview We are the second largest retail drugstore chain in the United States based on store count and the third largest based on sales. We operate our drugstores in 30 states across the country and in the District of Columbia. As of March 3, 2001, we operated 3,648 stores and had a first or second place market position in 34 of the 65 major U.S. metropolitan markets in which we operated. Our stores are an average of 12,663 square feet. Our headquarters are located at 30 Hunter Lane, Camp Hill, Pennsylvania 17011, and our telephone number is (717) 761-2633. Our common stock is listed on the New York Stock Exchange and the Pacific Stock Exchange under the trading symbol "RAD". During all of the fiscal year ended March 3, 2001 ("fiscal 2001"), we operated in the retail drug segment and for a portion of fiscal 2001, we also operated in the pharmacy benefit management ("PBM") segment. Through our retail drug segment, we sell prescription drugs, sales of which represented approximately 59.5% of our total sales during fiscal 2001. Our drugstores filled over 204 million prescriptions during fiscal 2001. Our drugstores also offer non-prescription medications, health and beauty aids and personal care items, cosmetics, household items, beverages, convenience foods, greeting cards, photo processing, seasonal merchandise and numerous other everyday and convenience products which we refer to as our "front-end products." Until October 2, 2000, when we sold it to Advance Paradigm, Inc. (now AdvancePCS), we owned PCS Health Systems, Inc. ("PCS"), one of the nation's largest providers of pharmacy benefit management services to employers, insurance carriers and managed care companies. As a result of the sale, the PBM segment is reported as a discontinued operation for all relevant periods in the financial statements included in the Annual Report. From the beginning of fiscal 1997 until December 1999, we were engaged in an aggressive expansion program. During that period, we purchased 1,554 stores, relocated 866 stores, opened 445 new stores, remodeled 308 stores and acquired PCS. These activities had a significant negative impact on our operating results, severely strained our liquidity and increased our indebtedness to $6.6 billion as of February 26, 2000. In October 1999, we announced that we had identified accounting irregularities and our former chairman and chief executive officer resigned. In November 1999, our former auditors resigned and withdrew their previously issued opinions on our financial statements for the fiscal years 1998 and 1999. Thereafter, investigations were begun by the Securities and Exchange Commission and the United States Attorney for the Middle District of Pennsylvania into our affairs. In addition, the complaint in a securities class action lawsuit, which had been filed in March 1999, was amended to include allegations based upon the accounting irregularities we disclosed. In December 1999, new senior management was hired. In response to the situation we faced, we completed the following: o Restated our financial statements for fiscal years 1998 and 1999, engaged new auditors to audit our financial statements for fiscal years 1998, 1999 and 2000, and resumed normal financial reporting; o Refinanced our near term indebtedness to defer virtually all principal amortization to no earlier than August 2002; o Improved our front end same store sales growth from a minus 2.2% in fiscal 2000 to a positive 6.5% in fiscal 2001 by improving store conditions and launching a competitive marketing program; 4 o Reduced our indebtedness by $1.4 billion from $6.6 billion on February 26, 2000 to $5.2 billion on April 28, 2001 with the proceeds from the sale of PCS and as a result of debt for equity exchanges; o Curtailed our expansion plans resulting in an approximately $441 million reduction in capital expenditures from fiscal 2000 to fiscal 2001; o Pending court approval, settled the securities class action and related lawsuits for $45 million to be funded with insurance proceeds and $155 million of common stock, cash and/or notes to be issued and paid in January 2002; o Began development and implementation of a comprehensive plan to address accounting systems and controls; and o Entered into a bank commitment letter to refinance a significant portion of our indebtedness, see "Recent Event". Our long term operating strategy is to focus on improving the productivity of our existing store base. We believe that improving the sales of our existing stores is important to improving our future profitability and cash flow. We also believe that the substantial investment made in our store base over the last five years has given us one of the most modern store bases in the industry. However, our store base has not yet achieved the level of sales productivity that our major competitors achieve. We intend to improve the performance of our existing stores by continuing to (1) capitalize on the substantial investment in our stores and distribution facilities; (2) enhance our customer and employee relationships; and (3) improve the product offerings in our stores. Moreover, it is estimated that pharmacy sales in the United States will increase more than 75% over the next five years. This anticipated growth is expected to be fueled by the "baby boom" generation entering their 50's, the increasing life expectancy of the American population and the introduction of several new successful drugs and inflation. We believe that this growth will help increase the sales productivity of our existing store base. Since the beginning of fiscal 1997, we have opened 466 new stores, relocated 945 stores, generally to larger or free-standing sites, remodeled 406 stores and closed 1,139 stores. We also acquired 1,554 stores during the same period. All of our stores are integrated into a common information system. At March 3, 2001, 49.8% of our stores had been constructed, relocated or remodeled since the beginning of fiscal 1997. Our new and relocated stores are generally larger and need to develop a critical mass of customers to achieve profitability, which generally takes two to four years. Therefore, attracting more customers is a key component of our long term operating strategy. We have also improved our distribution network to support these new stores by, among other things, opening two high capacity distribution centers. We have initiated various programs that are designed to improve our image with customers. These include our weekly distribution of a nationwide advertising circular to announce vendor promotions, weekly sales items and, in our expanded test market, our customer reward program, "Rite Rewards." We have also initiated programs that are specifically directed to our pharmacy business. These include reduced cash prices and an increased focus on attracting and retaining managed care customers. Through the use of technology and attention to customers' needs and preferences, we are increasing our efforts to identify inventory and product categories that will enable us to offer more personalized products and services to our customers. We continue to develop and implement employee training programs to improve customer service and educate our employees about the products we offer. We are also developing employee programs that create compensatory and other incentives for employees to provide customers with quality service, to promote our private label brands and to improve our corporate culture. 5 We continue to add popular and profitable product departments, such as our General Nutrition Companies, Inc. ("GNC") stores-within-Rite Aid-stores and one-hour photo development departments. We continue to develop ideas for new product departments and have begun to implement plans to expand the categories of our front-end products. During fiscal 2001, we undertook several initiatives to increase sales of our Rite Aid brand products and generic prescription drugs. As private label and generic prescription drugs generate higher margins than branded label, we expect that increases in the sales of these products would enhance our profitability. We believe that the addition of new departments and increases in offerings of products and services are integral components of our strategy to distinguish us from other national drugstore chains. Recent Event On May 16, 2001, we issued a press release announcing the details of a comprehensive $3.0 billion refinancing package that includes a commitment for a new $1.9 billion senior secured credit facility fully underwritten by Citibank NA, J.P. Morgan Chase & Co., Credit Suisse First Boston and Fleet Retail Finance, Inc. We announced that upon completion of the planned transactions scheduled to close during our second fiscal quarter, we will have significantly reduced our debt and the amount of our debt maturing prior to March 2005. The closing of the new credit facility is subject to the satisfaction of customary closing conditions and our issuance of approximately $1.05 billion in new debt or equity securities, of which $527 million, as of May 16, 2001, has been committed or arranged, as described herein. We plan to raise, at a minimum, the additional $523 million by issuing equity and fixed income securities and through real estate mortgage financings in transactions which are intended to close simultaneously with, and which will be conditioned upon, the closing of the new credit facility. The new credit facility will be secured by inventory, accounts receivable and certain other assets owned by our subsidiaries. The facility will be used to repay our first and second lien debt, pay expenses associated with the planned refinancing and for general working capital purposes. In the $527 million in new debt and equity securities that has already been committed is a $149 million private placement comprised of 22.7 million shares of common stock committed on March 22, 2001 at $5.50 per share and 3.8 million shares of common stock committed on May 2, 2001 at $6.50 per share. The closing of this equity investment will take place simultaneously with, and is contingent upon, the completion of the new credit facility. One of the holders has committed to exchange $152 million of our 10.5% senior secured notes due 2002 for $152 million of new 12.5% senior secured notes maturing in 2006. The new notes will be secured by a second lien on the collateral securing the new credit facility. In connection with the exchange, the holder will receive five-year warrants to purchase approximately 3.0 million shares of our common stock at $6.00 per share. The exchange will take place simultaneously with, and is contingent upon, the closing of the new credit facility. We also announced that included in the $527 million that has already been committed are recently completed or contracted private exchanges of common stock for $226.2 million of our bank debt and 10.5% senior secured notes due 2002, as described herein. Once the refinancing transactions are completed, our remaining debt due before March 2005 will be $152.0 million of our 5.25% convertible subordinated notes due 2002, $107.8 million of our 6.0% dealer remarketable securities due 2003, $259.2 million of our 10.5% senior secured notes due 2002 and amortization of the new credit facility. We expect to use internally generated funds to retire both the 5.25% notes and the dealer remarketable securities at maturity and to meet the amortization payments under the new credit facility. We also announced that funds to repay the 10.5% notes at maturity are included in the new credit facility. 6 We are being advised on the refinancing by Salomon Smith Barney Inc., J.P. Morgan Chase & Co. and Credit Suisse First Boston. The debt and equity securities that we will offer will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements. As described in our May 16, 2001 press release, the completion of the proposed refinancing of our credit facility is subject to customary closing conditions, some of which are beyond our control, and also to our ability to successfully complete the additional financings required by the commitment letter for the refinancing. While we believe we will successfully complete the refinancing, there can be no assurance that the refinancing transactions will be consummated. 7 RISK FACTORS Risks Related to Our Financial Condition We are highly leveraged. Our substantial indebtedness severely limits cash flow available for our operations and could adversely affect our ability to service debt or obtain additional financing if necessary. As of April 28, 2001, we had $4.1 billion of outstanding indebtedness for borrowed money (including current maturities but excluding letters of credit) and $1.1 billion of capital leases and a negative stockholders' equity. As of the same date, we had additional borrowing capacity under our revolving credit facility of $264.0 million. Based on the indebtedness outstanding at April 28, 2001 and the then current interest rates, our annualized cash interest expense would be approximately $433.6 million. Our high level of indebtedness will continue to restrict our operations. Among other things, our indebtedness will: o limit our ability to obtain additional financing; o limit our flexibility in planning for, or reacting to, changes in the markets in which we compete; o place us at a competitive disadvantage relative to our competitors with less indebtedness; o render us more vulnerable to general adverse economic and industry conditions; and o require us to dedicate substantially all of our cash flow to service our debt. A substantial portion of our indebtedness matures in August and September 2002. Our ability to refinance this indebtedness will be substantially dependent on our ability to improve our operating performance. If we do not consummate the refinancing transaction described under "Recent Event", approximately $2.5 billion of our indebtedness at April 28, 2001 will mature in August and September 2002. In order to satisfy these obligations, we will need to refinance them, sell assets to satisfy them or seek postponement of their maturity dates from our existing lenders. Our ability successfully to accomplish any of these transactions will be substantially dependent on the successful execution of our long term strategic plan and the resulting improvements in our operating performance. The interest rate on certain of our outstanding indebtedness is based upon floating interest rates. If interest rates increase, our interest payment obligations will increase. Approximately $853.7 million of our outstanding indebtedness as of April 28, 2001 bears an interest rate that varies depending upon LIBOR. If we borrow additional amounts under our senior secured facility, the interest rate on those borrowings will vary depending upon LIBOR. If LIBOR rises, the interest rates on this outstanding debt will also increase. Therefore an increase in LIBOR would increase our interest payment obligations under these outstanding loans and have a negative effect on our cash flow and financial condition. We anticipate that any replacement financing we obtain will also have the interest rate on a floating rate. The covenants in our outstanding indebtedness impose restrictions that may limit our operating and financial flexibility. 8 The covenants in the instruments governing our outstanding indebtedness restrict our ability to incur liens and debt, pay dividends, make redemptions and repurchases of capital stock, make loans, investments and capital expenditures, prepay, redeem or repurchase debt, engage in mergers, consolidations, asset dispositions, sale-leaseback transactions and affiliate transactions, change our business, amend certain debt and other material agreements, issue and sell capital stock of subsidiaries, make distributions from subsidiaries and grant negative pledges to other creditors. We anticipate that any replacement financing we obtain, including those proposed by our May 15, 2001 bank commitment letter, will impose similar restrictions. Moreover, if we are unable to meet the terms of the financial covenants or if we breach any of these covenants, a default could result under one or more of these agreements. A default, if not waived by our lenders, could result in the acceleration of our outstanding indebtedness and cause our debt to become immediately due and payable. If acceleration occurs, we would not be able to repay our debt and it is unlikely that we would be able to borrow sufficient additional funds to refinance such debt. Even if new financing is made available to us, it may not be available on terms acceptable to us. Risks Related to Our Operations Major lawsuits have been brought against us and certain of our subsidiaries, and there are currently pending both civil and criminal investigations by the U.S. Securities and Exchange Commission and the United States Attorney. Any criminal conviction against us may result in the loss of licenses that are material to the conduct of our business, which would have a negative effect on our financial condition, results of operations and cash flows. There are currently pending both civil and criminal governmental investigations by the SEC and the United States Attorney concerning our financial reporting and other matters. In addition, an investigation has also been commenced by the U.S. Department of Labor concerning our employee benefit plans, including our principal 401(k) plan, which permitted employees to purchase our common stock. Purchases of our common stock under the plan were suspended in October 1999. In January 2001, we appointed an independent trustee to represent the interests of these plans in relation to the company and to investigate possible claims the plans may have against us. Both the independent trustee and the Department of Labor have asserted that the plans may have claims against us. These investigations are ongoing and we cannot predict their outcomes. If we were convicted of any crime, certain contracts that are material to our operations may be revoked, which would have a material adverse effect on our results of operations and financial condition. In addition, substantial penalties, damages, or other monetary remedies assessed against us could also have a material adverse effect on our results of operations, financial condition and cash flows. Given the size and nature of our business, we are subject from time to time to various lawsuits which, depending on their outcome, may have a negative impact on our results of operations, financial condition and cash flows. We are substantially dependent on a single supplier of pharmaceutical products and our other suppliers to sell products to us on satisfactory terms. We obtain approximately 93% of our pharmaceutical supplies from a single supplier, McKesson HBOC, Inc., pursuant to a long-term contract. Pharmacy sales represented approximately 59.5% of our total sales during fiscal 2001, and, therefore, our relationship with McKesson HBOC is important to us. Any significant disruptions in our relationships with our suppliers, particularly our relationship with McKesson HBOC would make it difficult for us to continue to operate our business, and would have a material adverse effect on our results of operations and financial condition. Our internal accounting systems and controls may be insufficient. 9 An audit of our financial statements for fiscal years 1999 and 1998, following a previous restatement, concluded in July 2000 and resulted in an additional restatement of fiscal years 1999 and 1998. Following its review of our books and records, our management concluded that further steps were needed to establish and maintain the adequacy of our internal accounting systems and controls. In connection with the above audits of our financial statements, Deloitte & Touche LLP advised us that it believed there were numerous "reportable conditions" under the standards established by the American Institute of Certified Public Accountants which relate to our accounting systems and controls and could adversely affect our ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. In order to address the reportable conditions identified, we are developing and implementing comprehensive, adequate and reliable accounting systems and controls which address the reportable conditions identified by Deloitte & Touche LLP. If, however, we determine that our internal accounting systems and controls require additional improvements beyond those identified, we may need to commit substantial resources, including time from our management team, to implement new systems and controls. We cannot assure you that management will be able to successfully manage our business or successfully implement our strategic plan. In December 1999, we hired a new management team. Our management team has considerable experience in the retail industry. Nonetheless, we cannot assure you that our management will be able successfully to manage our business or successfully implement our strategic business plan. We are dependent on our management team, and the loss of their services could have a material adverse effect on our business and the results of our operations or financial condition. The success of our business is materially dependent upon the continued services of our chairman and chief executive officer, Robert G. Miller, and the other members of our management team. The loss of Mr. Miller or other key personnel due to death, disability or termination of employment could have a material adverse effect on the results of our operations or financial condition, or both. Additionally, we cannot assure you that we will be able to attract or retain other skilled personnel in the future. We need to continue to improve our operations in order to improve our financial condition, but our operations will not improve if we cannot continue to effectively implement our business strategy. Our operations during fiscal 2000 were adversely affected by a number of factors, including our financial difficulties, inventory shortages, allegations of violations of the law, including drug pricing issues, problems with suppliers and uncertainties regarding our ability to produce audited financial statements. To improve operations, new management developed and in fiscal 2001 had been implementing and continues to implement, a business strategy to improve the pricing of products, provide more consistent advertising through weekly, national circulars, eliminated inventory shortages and out-dated inventory, shortages, resolved issues and disputes with our vendors, developed programs intended to enhance customer relationships and provide better service and continue to improve our stores and the product offerings within our stores. If we are not successful in implementing our business strategy, or if our business strategy is not effective, we may not be able to continue to improve our operations. Failure to continue to improve operations would adversely affect our ability to make principal or interest payments on our debt. The additional unregistered shares of common stock that we issued may depress the market price of our common stock because we have agreed to register those shares under the Securities Act to enable the holders of the shares to sell them. We are obligated to register the shares of our common stock that we issued in various transactions. In addition, we are obligated to register the 61,095,219 shares of our common stock underlying (as of March 31, 2001) the series B convertible preferred stock that we issued in October 1999 and the 2,500,000 10 shares of our common stock underlying the warrant issued to J.P. Morgan Ventures Corporation on October 1999. As of May 17, 2001, we have also agreed to register an aggregate of approximately 111,000,000 shares of our common stock that we issued or agreed to issue in various debt for equity exchanges. In addition, we expect to agree to register a significant number of additional shares of our common stock pursuant to the refinancings of our debt described under "Recent Event," and we may agree to register additional shares in the future pursuant to additional refinancings. The possible public sale of such large numbers of shares may have an adverse effect on the market price of our common stock. Risks Related to Our Industry The markets in which we operate are very competitive and further increases in competition could adversely affect us. We face intense competition with local, regional and national companies, including other drug store chains, independent drug stores, supermarkets and mass merchandisers. We may not be able to effectively compete against them because our existing or potential competitors may have financial and other resources that are superior to ours. In addition, we may be at a competitive disadvantage because we are more highly leveraged than our competitors. We believe that the continued consolidation of the drugstore industry will further increase competitive pressures in the industry. As competition increases, a significant increase in general pricing pressures could occur which would require us to increase our sales volume and to sell higher margin products and services in order to remain competitive. We cannot assure you that we will be able to continue effectively to compete in our markets or increase our sales volume in response to further increased competition. Changes in third-party reimbursement levels for prescription drugs could reduce our margins and have a material adverse effect on our business. Sales of prescription drugs, as a percentage of sales, have been increasing and we expect them to continue to increase. In fiscal 2001, we were reimbursed by third-party payors for approximately 90.3% of all of the prescription drugs that we sold. These third-party payors could reduce the levels at which they will reimburse us for the prescription drugs that we provide to their members. Furthermore, if Medicare is reformed to include prescription benefits, Medicare may cover some of the prescription drugs that we now sell at retail prices, and we may be reimbursed at prices lower than our current retail prices. If third-party payors reduce their reimbursement levels or if Medicare covers prescription drugs at reimbursement levels lower than our current retail prices, our margins on these sales would be reduced, and the profitability of our business and our results of operations and financial condition could be adversely affected. We are subject to governmental regulations, procedures and requirements; our noncompliance or a significant regulatory change could hurt our business, the results of our operations or our financial condition. Our pharmacy business is subject to federal, state, and local regulation. These include local registrations of pharmacies in the states where our pharmacies are located, applicable Medicare and Medicaid regulations, and prohibitions against paid referrals of patients. Failure to properly adhere to these and other applicable regulations could result in the imposition of civil and criminal penalties and could adversely affect the continued operation of our business. Furthermore, our pharmacies could be affected by federal and state reform programs, such as health care reform initiatives which could, in turn, negatively affect our business. The passing of these initiatives or any new federal or state programs could adversely affect our business and our results of operations and financial condition. Certain risks are inherent in the provision of pharmacy services; our insurance may not be adequate to cover any claims against us. 11 Pharmacies are exposed to risks inherent in the packaging and distribution of pharmaceuticals and other health care products. Although we maintain professional liability and errors and omissions liability insurance, we cannot assure you that the coverage limits under our insurance programs will be adequate to protect us against future claims, or that we will maintain this insurance on acceptable terms in the future. Any adverse change in general economic conditions can adversely affect consumer-buying practices and reduce our sales of front-end products, which are our higher margin products. If the economy slows down and unemployment increases or inflationary conditions worry consumers, our consumers may decrease their purchases, particularly of products other than pharmaceutical products that they need for health reasons. We make a higher profit on our sales of front-end products than we do on sales of pharmaceutical products. Therefore, any decrease in our sales of front-end products will decrease our profitability. 12 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This registration statement includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by terms and phrases such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "should," "could," "may," "plan," "project," "predict," "will" and similar expressions and include references to assumptions and relate to our future prospects, developments and business strategies. Factors that could cause actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to: o our high level of indebtedness; o our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our credit facilities and other debt agreements; o our ability to complete the financial restructuring contemplated by our May 15, 2001 bank commitment letter; o our ability to improve the operating performance of our existing stores, and, in particular, our new and relocated stores in accordance with our management's long term strategy; o the outcomes of pending lawsuits and governmental investigations, both civil and criminal, involving our financial reporting and other matters; o competitive pricing pressures, continued consolidation of the drugstore industry, third-party prescription reimbursement levels, regulatory changes governing pharmacy practices, general economic conditions and inflation, interest rate movements, access to capital and merchandise supply constraints; and o our ability to further develop, implement and maintain reliable and adequate internal accounting systems and controls. We undertake no obligation to revise the forward-looking statements included in this registration statement to reflect any future events or circumstances. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in this registration statement under the section entitled "Risk Factors" herein. 13 USE OF PROCEEDS The Company will not realize any proceeds from the sale of the Common Stock which may be sold pursuant to this prospectus for the respective accounts of the Selling Stockholders. The Company, however, will derive proceeds from the exercise of the options. All such proceeds will be available to the Company for working capital and general corporate purposes. No assurances can be given, however, as to when or if any or all of the Options will be exercised. SELLING STOCKHOLDERS The following table sets forth information with respect to the beneficial ownership of Selling Stockholders based upon corporate records of the Company as of May 21, 2001. At May 14, 2001, the number of shares outstanding was 394,341,787. The inclusion in the table of any of the Selling Stockholders shall not be deemed to be admission that any such individuals are "affiliates" of the Company.
- ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Percentage of Number of Shares to Outstanding Shares Number of Shares Maximum Number of be Beneficially Owned to be Owned if All Name of Selling Beneficially Owned Shares which may be if All Shares Offered Shares Offered Stockholder (1) Prior to Offering Sold Hereunder Hereby are Sold (2) Hereby are Sold (2) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- 17 Selling Stockholders 922,567 2,115,465 1,192,898 * - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- --------------- * Represents beneficial ownership of less than one percent. (1) Each of the selling stockholders have been employed with the Company within the past three years. (2) Beneficial ownership is determined in accordance with the Commission's rules and generally includes voting or investment power with respect to the securities. Under the Commission's rules, shares of common stock subject to options and warrants which are currently exercisable, or will become exercisable within 60 days of May 23, 2001 are deemed outstanding for computing the percentage of the person or entity holding such securities but are not outstanding for computing the percentage of any other person or entity. 14 PLAN OF DISTRIBUTION The selling stockholders may sell shares of Common Stock from time to time directly by or on behalf of the Selling Stockholder in one or more transactions on the New York Stock Exchange, Pacific Stock Exchange or on any stock exchange on which the Common Stock may be listed at the time of sale, in privately negotiated transactions, or through a combination of such methods, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at fixed prices or at negotiated prices. The Selling Stockholders may sell shares through one or more agents, brokers or dealers or directly to purchasers. Such brokers or dealers may receive compensation in the form of commissions, discounts or concessions from the Selling Stockholders and/or purchasers of the shares or both. Such compensation as to a particular broker or dealer may be in excess of customary commissions. In connection with their sales, the Selling Stockholders and any participating broker or dealer may be deemed to be "underwriters" within the meaning of the Securities Act, and any commissions they receive and the proceeds of any sale of shares may be deemed to be underwriting discounts and commissions under the Securities Act. LEGAL MATTERS The legality of the Common Stock which is registered for reoffer and resale has been passed upon for the Company by Elliot S. Gerson, Esq., Senior Executive Vice President and General Counsel of Rite Aid Corporation. EXPERTS The financial statements of the Company and its consolidated subsidiaries, except PCS Holding Corporation and subsidiaries which has been included in discontinued operations in such consolidated financial statements, as of March 3, 2001 and February 26, 2000, and for each of the three years in the period ended March 3, 2001, incorporated in this Registration Statement by reference, have been audited by Deloitte & Touche LLP as stated in their report which is incorporated herein by reference. The financial statements of PCS Holding Corporation and subsidiaries for the years ended February 26, 2000 and the thirty-six days ended February 27, 1999, not separately incorporated in this Registration Statement by reference herein, have been audited by Ernst & Young LLP, as stated in their report, which is incorporated herein by reference. Such financial statements of the Company and its consolidated subsidiaries are included herein in reliance upon the respective reports of such firms given upon their authority as experts in accounting and auditing. All of the foregoing firms are independent auditors. 15 Rite Aid Corporation No dealer, salesperson or any other person has been authorized to give any information or make any representations not contained in this prospectus. If given or made, such information or representations must not be relied upon as having been authorized by the Company or any underwriter. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which such offer or solicitation of an offer to buy any securities in any jurisdiction in which such offer or solicitation would be unlawful or to any person to whom it is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that any information contained herein is correct as of any time subsequent to its date. The date of this Reoffer Prospectus is May 25, 2001 16 PART II Item 3. Incorporation of Documents by Reference The following documents, which have been filed with the Commission pursuant to the Exchange Act, are hereby incorporated by reference in, and shall be deemed to be a part of, this Registration Statement: o The Company's Annual Report on Form 10-K for the year ended March 3, 2001, filed May 21, 2001; and o The description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A, dated July 18, 1991, filed by the Company to register such securities under the Exchange Act, including all amendments and reports filed for the purpose of updating such description. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold are incorporated by reference in this Registration Statement. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein, or in any subsequently filed document which also is or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this Registration Statement. Item 4. Description of Securities Not required to be filed with this Registration Statement. Item 5. Interest of Named Experts and Counsel Not applicable. Item 6. Indemnification of Directors and Officers Under Section 145 of the Delaware General Corporation Law ("DGCL"), a corporation may 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 or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding (i) if such person acted in good faith and in a manner that person reasonably believed to be in or not opposed to the best interests of the corporation and (ii) with respect to any criminal action or proceeding, if he or she had no reasonable cause to believe such conduct was unlawful. In actions brought by or in the right of the corporation, a corporation may indemnify such person against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner that person reasonably believed to be in or not opposed 17 to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which that person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware 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 indemnification for such expenses which the Court of Chancery or other such court shall deem proper. To the extent that such person has been successful on the merits or otherwise in defending any such action, suit or proceeding referred to above or any claim, issue or matter therein, he or she is entitled to indemnification for expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. The indemnification and advancement of expenses provided for or granted pursuant to Section 145 is not exclusive of any other rights of indemnification or advancement of expenses to which those seeking indemnification or advancement of expenses may be entitled, and a corporation may purchase and maintain insurance against liabilities asserted against any former or current director, officer, employee or agent of the corporation, or a person who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not the power to indemnify is provided by the statute. Article Tenth of the Company's Certificate of Incorporation and Article VII of the Company's By-laws provide for the indemnification of its directors and officers as authorized by Section 145 of the DGCL. The directors and officers of the Company and its subsidiaries are insured (subject to certain exceptions and deductions) against liabilities which they may incur in their capacity as such including liabilities under the Securities Act, under liability insurance policies carried by the Company. Item 7. Exemption from Registration Claimed The restricted securities to be reoffered and resold pursuant to this Registration Statement were issued under the 1990 Omnibus Stock Incentive Plan, the 2000 Omnibus Equity Plan and individual employment agreements and in transactions exempt from registration pursuant to Section 4(2) of the Securities Act. Item 8. Exhibits
Exhibit No. Description ----------- ----------- 4.1* 1990 Omnibus Stock Incentive Plan 4.2** 1999 Stock Option Plan 4.3*** 2000 Omnibus Equity Plan 4.4** 2001 Stock Option Plan 4.5 Employment Agreement by and between Rite Aid Corporation and Don Davis, made as of January 28, 2000 4.6** Employment Agreement by and between Rite Aid Corporation and Christopher Hall 4.7**** Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and David Jessick 4.8 Employment Agreement by and between Rite Aid Corporation and Keith Lovett, made as of May 1, 2000 4.9**** Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and Robert G. Miller. 4.10**** Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and Mary F. Sammons. 4.11**** Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and John T. Standley.
18
Exhibit No. Description ----------- ----------- 4.12 Employment Agreement by and between Rite Aid Corporation and Marty Tassoni, made as of March 15, 2000 4.13 Employment Agreement by and between Rite Aid Corporation and Murray Todd, made as of March 6, 2000 5.1 Opinion of Counsel 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of Ernst & Young LLP 24.1 Power of Attorney (included on signature page)
- ------------ * Incorporated by reference from the Company's Form S-8, filed on July 12, 1996. ** Incorporated by reference from the Company's Annual Report on Form 10-K, filed on May 21, 2001. *** Incorporated by reference from the Company's Annual Report on Form 10-K, filed on July 11, 2000. **** Incorporated by reference from the Company's Definitive Proxy Statement on Schedule 14A, filed on October 24, 2000. Item 9. Undertakings Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by these paragraphs is contained in periodic reports filed by 19 the registrant pursuant to Section 13 or Section 15(d) of the Securities and Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 20 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Camp Hill, Pennsylvania, on this 23rd day of May, 2001. RITE AID CORPORATION By: /s/ Robert G. Miller -------------------------------------- Name: Robert G. Miller Title: Chairman of the Board of Directors and Chief Executive Officer POWER OF ATTORNEY We, the undersigned officers and directors of Rite Aid Corporation and each of us, do hereby constitute and appoint Elliot S. Gerson and Christopher Hall jointly, as our true and lawful attorneys and agents, with full power of substitution and resubstitution, to do any and all acts and things in our name and behalf in any and all capacities and to execute any and all instruments for us in our names, in connection with this Registration Statement or any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, including specifically, but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto; and we hereby ratify and confirm all that said attorneys and agents, or their substitutes, shall do or cause to be done by virtue thereof. 21 Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:
Signatures Title Date ---------- ----- ---- /s/ Robert G. Miller Chairman of the Board of May 23, 2001 - ------------------------------------------- Directors and Chief Executive Robert G. Miller Officer) /s/ Mary F. Sammons President, Chief Operating May 23, 2001 - ------------------------------------------- Officer, and Director Mary F. Sammons /s/ John T. Standley Chief Financial Officer and May 23, 2001 - ------------------------------------------- Senior Executive Vice President John T. Standley /s/ Kevin Twomey Chief Accounting Officer and May 23, 2001 - ------------------------------------------- Senior Vice President Kevin Twomey /s/ William J. Bratton Director May 23, 2001 - ------------------------------------------- William J. Bratton /s/ Alfred M. Gleason Director May 23, 2001 - ------------------------------------------- Alfred M. Gleason /s/ Leonard I. Green Director May 23, 2001 - ------------------------------------------- Leonard I. Green /s/ Nancy A. Lieberman Director May 23, 2001 - ------------------------------------------- Nancy A. Lieberman /s/ Stuart M. Sloan Director May 23, 2001 - ------------------------------------------- Stuart M. Sloan /s/ Jonathan D. Sokoloff Director May 23, 2001 - ------------------------------------------- Jonathan D. Sokoloff /s/ Leonard Stern Director May 23, 2001 - ------------------------------------------- Leonard N. Stern /s/ Gerald Tsai, Jr. Director May 23, 2001 - ------------------------------------------- Gerald Tsai, Jr.
22 INDEX TO EXHIBITS
Exhibit No. Description ----------- ------------ 4.1* 1990 Omnibus Stock Incentive Plan 4.2** 1999 Stock Option Plan 4.3*** 2000 Omnibus Equity Plan 4.4** 2001 Stock Option Plan 4.5 Employment Agreement by and between Rite Aid Corporation and Don Davis, made as of January 28, 2000 4.6** Employment Agreement by and between Rite Aid Corporation and Christopher Hall 4.7**** Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and David Jessick 4.8 Employment Agreement by and between Rite Aid Corporation and Keith Lovett, made as of May 1, 2000 4.9**** Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and Robert G. Miller. 4.10**** Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and Mary F. Sammons. 4.11**** Rite Aid Corporation Restricted Stock and Stock Option Award Agreement, made as of December 5, 1999, by and between Rite Aid Corporation and John T. Standley. 4.12 Employment Agreement by and between Rite Aid Corporation and Marty Tassoni, made as of March 15, 2000 4.13 Employment Agreement by and between Rite Aid Corporation and Murray Todd, made as of March 6, 2000 5.1 Opinion of Counsel 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of Ernst & Young LLP 24.1 Power of Attorney (included on signature page) - ------------
* Incorporated by reference from the Company's Form S-8, filed on July 12, 1996. ** Incorporated by reference from the Company's Annual Report on Form 10-K, filed on May 21, 2001. *** Incorporated by reference from the Company's Annual Report on Form 10-K, filed on July 11, 2000. **** Incorporated by reference from the Company's Definitive Proxy Statement on Schedule 14A, filed on October 24, 2000. 23 EX-4.5 2 b311812_ex4-5.txt EMPLOYMENT AGREEMENT EX 4.5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 28th day of January, 2000 (the "Effective Date") by and between Rite Aid Corporation, a Delaware corporation (the "Company"), and Don P. Davis (the "Executive"). WHEREAS, Executive desires to provide the Company with his services and the Company desires to employ Executive in the capacity of Senior Vice President and Chief Information Officer on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. Term Of Employment. The term of Executive's employment with the Company hereunder (the "Term") shall commence on the Effective Date and, unless earlier terminated pursuant to Section 5 below, shall continue for a period ending on the date that is three (3) years following the Effective Date; provided, however, that on each anniversary of the Effective Date occurring prior to the termination of Executive's employment hereunder (each such date a "Renewal Date"), an additional year shall be added to the Term, unless notice of nonrenewal has been delivered by one party to the other party at least 180 days prior to such Renewal Date. For purposes of this Agreement, the phrases "year during the Term" or "during any year of the Term" or similar language shall refer to each 12-month period commencing on the Effective Date or applicable anniversaries thereof. 2. Position And Duties. 2.1 Position. During the Term, Executive shall be employed as Senior Vice President and Chief Information Officer of the Company. Following termination of Executive's employment for any reason, Executive shall immediately resign from all offices and positions he holds with the Company or any subsidiary. 2.2 Duties. Subject to the supervision and control of the Chief Administrative Officer of the Company, to whom he shall report, Executive shall do and perform all services and acts necessary or advisable to fulfill the duties and responsibilities of his position as Senior Vice President and Chief Information Officer and shall render such services on the terms set forth herein. In addition, Executive shall have such other executive and managerial powers and duties with respect to the Company and its subsidiaries, affiliates and strategic partners as may be assigned to him by the Chief Administrative Officer. Except for sick leave, vacations (as provided in Section 4.3 below), and excused leaves of absence, Executive shall, throughout the Term, devote substantially all his working time, attention, knowledge and skills faithfully and to the best of his ability, to the duties and responsibilities of his position in furtherance of the business affairs and activities of the Company and its subsidiaries, affiliates and strategic partners. Executive shall at all times be subject to, observe and carry out such rules, regulations, policies, directions, and restrictions as the Board of Directors of the Company (the "Board') or the Chief Executive Officer of the Company may from time to time establish for senior executive officers of the Company. 3. Compensation. 3.1 Base Salary. During the Term, as compensation for his services hereunder, Executive shall receive a salary at the annualized rate of Four Hundred Thousand Dollars ($400,000) per year ("Base Salary"), which shall be paid in accordance with the Company's normal payroll practices and procedures, less such deductions or offsets required by applicable law or otherwise authorized by Executive. During the Term the Base Salary shall be reviewed periodically by the Compensation Committee of the Board for possible increase. Any increase in the Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The Base Salary shall not be reduced after any such increase, and the term "Base Salary" shall thereafter refer to the Base Salary as from time to time so increased. 3.2 Guaranteed Bonus. Executive shall be entitled to receive a guaranteed bonus (the "Guaranteed Bonus") in the amount of $25,000 payable on April 1, 2000, provided Executive is employed with the Company hereunder on that date. 3.3 Performance Bonus. Commencing with the Company's fiscal year beginning on or about February 27, 2000, the Executive shall participate during the Term in the Company's annual bonus plan as adopted and approved by the Board or the Compensation Committee from time to time. The Executive's annual target bonus opportunity pursuant to such plans (the "Annual Target Bonus") shall equal 50% of the Base Salary in effect for the Executive at the beginning of each such fiscal year. 3.4 Stock Awards. (a) Subject to the commencement of Executive's employment hereunder, the Compensation Committee of the Board has approved the grant to Executive of an option (the "Option" ) to purchase 350,000 shares of the Company's common stock, par value $ 1.00 per share ("Company Stock"). The Option shall (i) be a non-qualified stock option, (ii) have an exercise price equal to the closing price of the Company Stock as reported on the New York Stock Exchange on the Effective Date, (iii) have a term of ten (10) years following the Effective Date, (iv) vest and become exercisable as to one-third of the shares of Company Stock subject to the Option on each of the first three anniversaries of the Effective Date, (v) be subject to the acceleration, exercise and termination provisions set forth in Section 3.4(c) and Article 5 hereof and (vi) otherwise be evidenced by and subject to the terms of the Company's form of stock option agreement for officers. (b) Subject to the commencement of Executive's employment hereunder, the Compensation Committee of the Board has approved the grant to Executive of 50,000 shares of restricted Company Stock (the "Restricted Stock"). Subject to (i) the acceleration and forfeiture provisions set forth in Section 3.4(c) and Article 5 hereof and (ii) the terms of the Company's form of restricted stock agreement for officers, the restrictions applicable to the Restricted Stock shall lapse as to one-third of such shares on each of the first three anniversaries of the Effective Date. (c) Upon the occurrence of a Change in Control of the Company prior to the termination of Executive's employment with the Company, the Option shall immediately vest and become exercisable in full, and all remaining restrictions on the Restricted Stock shall immediately lapse. For purposes of this Agreement "Change in Control" shall have the meaning set forth in the attached Appendix A. 2 (d) It is understood and acknowledged by Executive that the securities underlying the Option will not be subject to an effective registration statement under the federal securities laws until some time after the Effective Date. The Company agrees that if, as of the date of termination of Executive's employment under the circumstances described in Sections 5.3 and 5.5, the securities underlying the then vested and exercisable portion of the Option (or any other option to purchase Company Stock then held by Executive) are not subject to an effective registration statement, the 90-day periods in Sections 5.3 and 5.5, as applicable, will be deemed to run from the first date such securities become subject to an effective registration statement. The Company further agrees that if, as of the date of Executive's voluntary termination of employment other than for Good Reason, the securities underlying the then vested and exercisable portion of the Option (or any other option to purchase Company Stock then held by Executive) are not subject to an effective registration statement, Executive will be permitted to exercise the Option, to the extent vested and exercisable as of the date of such termination of employment, during the 30-day period following the first date such securities become subject to an effective registration statement. 4. Additional Benefits. 4.1 Employee Benefits. During the Term, Executive shall be entitled to participate in the employee benefit plans in which executive officers of the Company are generally eligible to participate, subject to any eligibility requirements and the other generally applicable terms of such plans. 4.2 Expenses. During the Term, the Company shall reimburse Executive for any expenses reasonably incurred by him in furtherance of his duties hereunder, including without limitation travel, meals and accommodations, upon submission of vouchers or receipts and in compliance with such rules and policies relating thereto as the Company may from time to time adopt or as may be required in order to permit such payments to be taken as proper deductions by the Company or any subsidiary under the Internal Revenue Code of 1986, as amended, and the rules and regulations adopted pursuant thereto now or hereafter in effect. 4.3 Vacation. Executive shall be entitled to four weeks paid vacation during each year of the Term. 4.4 Automobile Allowance. During the Term, the Company shall provide Executive with an automobile allowance of $750 per month. 4.5 Annual Financial Planning Allowance. During each year of the Term, the Company shall provide Executive with a financial planning allowance in the amount of $5,000. 4.6 Relocation Expenses. (a) The Company shall reimburse Executive for his reasonable expenses incurred in moving his household goods and cars from the Charlotte, North Carolina area to the Harrisburg, Pennsylvania area, in accordance with the Company's moving expense policies applicable to executive officers generally. (b) The Company shall reimburse Executive for any loss incurred upon sale of his principal Charlotte residence (measured as the excess, if any, of (i) the sum of (A) the sale price plus (B) a standard real estate commission, over (ii) the original purchase price of the residence), such amount to be "grossed up" to offset in full any net increase in executive's federal, state and local income, employment and other taxes resulting therefrom (and from such gross-up); provided that the aggregate 3 amount payable pursuant to this Section 4.6(b), including any such gross-up, shall not exceed $ 100,000. Executive agrees that he shall use his best efforts to sell such residence at its fair market value. (c) The Company shall reimburse Executive for his reasonable living expenses for a temporary residence in the Harrisburg area until the date of relocation. (d) The Company shall reimburse Executive for the reasonable costs of round trip air travel between Harrisburg and Charlotte for each weekend during the period from the Effective Date through the earlier of his relocation date or August 3 1, 2000. The Company shall also reimburse Executive for a reasonable number of roundtrip visits between Charlotte and the Harrisburg area by his immediate family members prior to the relocation date, including reasonable costs for meals, lodging and transportation during such trips. 4.7 Indemnification. The Company shall (a) indemnify and hold Executive harmless, to the full extent permitted under applicable law, for, from and against any and all losses, claims, costs, expenses, damages, liabilities or actions (including security holder actions, in respect thereof) related to or arising out of the Executive's employment with and service as an officer of the Company; and (b) pay all reasonable costs, expenses and attorney's fees incurred by Executive in connection with or relating to the defense of any such loss, claim, cost, expense, damage, liability or action. Following any termination of the Executive's employment or service with the Company, the Company shall cause any director and officer liability insurance policies applicable to the Executive prior to such termination to remain in effect for six (6) years following the date of termination of employment. 5. Termination. 5.1 Termination of Executive's Employment by the Company for Cause. The Company may terminate Executive's employment hereunder for Cause (as defined below). Such termination shall be effected by written notice thereof delivered by the Company to Executive, indicating in reasonable detail the facts and circumstances alleged to provide a basis for such termination, and shall be effective as of the date of such notice in accordance with Section 13 hereof. "Cause" shall mean (i) Executive's gross negligence or willful misconduct in the performance of the duties or responsibilities of his position with the Company or any subsidiary, or failure to timely carry out any lawful directive of the Board, the Chief Executive Officer or Chief Administrative Officer; (ii) Executive's misappropriation of any funds or property of the Company or any subsidiary; (iii) the commission by Executive of an act of fraud or dishonesty toward the Company or any subsidiary; or (iv) the use or imparting by Executive of any confidential or proprietary information of the Company or any subsidiary in violation of any confidentiality or proprietary agreement to which Executive is a party. 5.2 Compensation upon Termination by the Company for Cause or by Executive without Good Reason. In the event of Executive's termination of employment (i) by the Company for Cause or (ii) by Executive voluntarily without Good Reason: (a) Executive shall be entitled to receive (i) all amounts of accrued but unpaid Base Salary through the effective date of such termination, (ii) reimbursement for reasonable and necessary expenses incurred by Executive through the date of notice of such termination, to the extent otherwise provided under Section 4.2 above and (iii) all other vested payments and benefits to which Executive may otherwise be entitled pursuant to the terms of the applicable benefit plan or arrangement through the effective date of such termination ((i), (ii) and (iii), the "Accrued Benefits"). All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in 4 connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment. (b) Except as provided in Section 3.4(d), any portion of the Option or any other then outstanding stock option that has not been exercised prior to the date of termination shall immediately terminate as of such date, and any portion of the Restricted Stock or any other restricted stock or other equity incentive awards as to which the restrictions have not lapsed or as to which any other conditions shall not have been satisfied prior to the date of termination shall be forfeited as of such date. Any termination of Executive's employment by Executive voluntarily without Cause shall be effective upon 30 days' notice to the Company. 5.3 Compensation upon Termination of Executive's Employment by the Company Other Than for Cause or by Executive for Good Reason. Executive's employment hereunder may be terminated by the Company other than for Cause or by Executive for Good Reason. In the event that Executive's employment hereunder is terminated by the Company other than for Cause or by Executive for Good Reason: (a) Executive shall be entitled to receive (i) the Accrued Benefits, (ii) any previously unpaid Guaranteed Bonus, (iii) a pro rata annual bonus determined by multiplying Executive's then Annual Target Bonus by a fraction, (x) the numerator of which is the number of days between the beginning of the then current fiscal year of the Company and the date of termination of employment and (y) the denominator of which is 365, (iv) an amount equal to two times the sum of Executive's Base Salary plus Annual Target Bonus as of the date of termination of employment, such amount payable in equal installments pursuant to the Company's standard payroll procedures for executive officers over a period of two years following the date of termination of employment, and (v) continued health insurance coverage for Executive and his immediate family for a period of two years following the date of termination of employment. (b) All stock option awards held by Executive shall vest and become immediately exercisable and the restrictions with respect to any awards of restricted stock shall lapse, in each case to the extent such options would otherwise have become vested and exercisable (or such restrictions would have lapsed) had Executive remained in the employ of the Company for a period of two years following the date of termination. Except as provided in Section 3.4(d), such portion of Executive's stock options (together with any portion of Executive's stock options that have vested and become exercisable prior to the date of termination) shall remain exercisable for a period of 90 days following the date of termination of employment (or, if earlier, until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any portion of Executive's stock options that have not vested as of the date of termination shall terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall not have lapsed as of the date of termination shall be forfeited as of such date. (c) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment. Any termination of employment pursuant to this Section 5.3 shall be effective upon thirty (30) days notice thereof. 5 5.4 Definition of Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any one of the following: (a) any material adverse alteration in Executive's titles, positions, status, duties, authorities, reporting relationships or responsibilities with the Company or its subsidiaries from those specified in this Agreement, as the same may be augmented from time to time; (b) the assignment to Executive of any duties or responsibilities materially inconsistent with Executive's status as Senior Vice President and Chief Information Officer of the Company; or (c) any other material breach of this Agreement by the Company, including without limitation any decrease in Executive's Base Salary or Annual Target Bonus opportunity as set forth in Sections 3.1 and 3.3; provided, however, that in each such case the Company shall have the right, within ten (10) days after receipt of notice from Executive of the Company's violation of any of the foregoing, to cure the event or circumstances giving rise to such Good Reason, in the event of which cure such event or circumstances shall be deemed not to constitute Good Reason hereunder. 5.5 Compensation upon Termination of Executive's Employment by Reason of Executive's Death or Total Disability. In the event that Executive's employment with the Company is terminated by reason of Executive's death or Total Disability (as defined below): (a) Executive or Executive's estate, as the case may be, shall be entitled to receive (i) the Accrued Benefits, (ii) any previously unpaid Guaranteed Annual Bonus, (iii) any other benefits payable under the then current disability and/or death benefit plans, as applicable, in which Executive is a participant and (iv) continued health insurance coverage for Executive and/or his immediate family, as applicable, for a period of two years following the date of termination of employment. (b) All stock option awards held by Executive shall vest and become immediately exercisable and the restrictions with respect to any awards of restricted stock shall lapse, in each case to the extent such options would otherwise have become vested and exercisable (or such restrictions would have lapsed) had Executive remained in the employ of the Company for a period of two years following the date of termination. Except as provided in Section 3.4(d), such portion of Executive's stock options (together with any portion of Executive's stock options that have vested and become exercisable prior to the date of termination) shall remain exercisable for a period of 90 days following the date of termination of employment (or, if earlier, until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any portion of Executive's stock options that have not vested as of the date of termination shall terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall not have lapsed as of the date of termination shall be forfeited as of such date. (c) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment. "Total Disability" shall mean any physical or mental disability that prevents Executive from performing one or more of the essential functions of his position for a period of not less than 90 days in any 12-month period and/or which is expected to be of permanent duration. 6 5.6 Survival. In the event of any termination of Executive's employment for any reason, Executive and the Company nevertheless shall continue to be bound by the terms and conditions set forth in Sections 6 through 11 below, which shall survive the expiration of the Term. 5.7 Excise Tax Gross-Up. (a) In the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this Agreement or of any other plan, arrangement or agreement of the Company (or any affiliate) (collectively, the "Payments") would be subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), as determined as provided below, the Company shall pay to the Executive, at the time specified in Section 5.7(b) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of the Excise Tax on Payments and any federal, state and local income and employment or other tax and the Excise Tax upon the Gross-Up Payment, and any interest, penalties or additions to tax payable by the Executive with respect thereto, shall be equal to the total Payments. For purposes of determining whether any of the Payments will be sub subject to the Excise Tax and the amounts of such Excise Tax, (1) the total amount of the Payments shall be treated as 64 parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to Executive and selected by the accounting firm which was, immediately prior to the event giving rise to the Payment, the Company's independent auditor (the "Auditor"), a Payment (in whole or in part) does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in part) are not subject to the Excise Tax, (2) the amount of the Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Payments or (B) the amount of cc excess parachute payments" within the meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof), and (3) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rates of federal income taxation applicable to individuals in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of the Executive's residence in the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account any limitations applicable to individuals subject to federal income tax at the highest marginal rates. (b) The Gross-Up Payments provided for in Section 5.7(a) hereof shall be made upon the earlier of (i) ten days following the date of termination of Executive's employment or (ii) the imposition upon the Executive or payment by the Executive of any Excise Tax. (c) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax is less d= the amount taken into account under Section 5.7(a) hereof, the Executive shall repay to the Company within thirty (30) days of the Executive's receipt of notice of such final determination the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the portion of the Gross-Up Payment being repaid by the Executive if and to the extent that such repayment results in a reduction in Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for the purpose of federal, state and local income taxes) plus any 7 interest received by the Executive on the amount of such repayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax exceeds the amount taken into account hereunder (including without limitation by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment pursuant to Section 5.7(a) in respect of such excess within thirty (30) days of the Company's receipt of notice of such final determination or opinion. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. (d) In the event of any change in, or further interpretation of, sections 280G or 4999 of the Code and the regulations promulgated thereunder, the Executive shall be entitled, by written notice to the Company, to request an opinion of Tax Counsel regarding the application of such change to any of the foregoing, and the Company shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of the Auditor and Tax Counsel incurred in connection with this Agreement shall be borne by the Company. 5.8 No Other Severance or Termination Benefits. Except as expressly set forth herein, Executive shall not be entitled to damages or to any severance or other benefits upon termination of employment with the Company under any circumstances and for any or no reason. 6. Protection of Confidential Information. Executive acknowledges that during the course of his employment with the Company, its subsidiaries, affiliates and strategic partners, he will be exposed to documents and other information regarding the confidential affairs of the Company, its subsidiaries, affiliates and strategic partners, including without limitation information about their past, present and future financial condition, the markets for their products, key personnel, past, present or future actual or threatened litigation, trade secrets, current and prospective customer lists, operational methods, acquisition plans, prospects, plans for future development and other business affairs and information about the Company and its subsidiaries, affiliates and strategic partners not readily available to the public (the "Confidential Information"). Executive further acknowledges that the services to be performed under this Agreement are of a special, unique, unusual, extraordinary and intellectual character. In recognition of the foregoing, the Executive covenants and agrees as follows: 6.1 No Disclosure or Use of Confidential Information. At no time shall Executive ever divulge, disclose, or otherwise use any Confidential Information, unless and until such information is readily available in the public domain by reason other than Executive's disclosure or use thereof in violation of the first clause of this Section 6. 1. 6.2 Return of Company Property, Records and Files. Upon the termination of Executive's employment at any time and for any reason, or at any other time the Board may so direct, Executive shall promptly deliver to the Company's offices in Harrisburg, Pennsylvania all of the property and equipment of the Company, its subsidiaries, affiliates and strategic partners (including any cell phones, pagers, credit cards, personal computers, etc.) and any and all documents, records, and files, including any notes, memoranda, customer lists, reports or any and all other documents, including any copies thereof, whether in hard copy form or on a computer disk or hard drive, which relate to the Company, its subsidiaries, affiliates, strategic partners, successors or assigns, and/or their respective past and present officers, directors, employees or consultants (collectively, the "Company Property, Records and Files"); it 8 being expressly understood that, upon termination of Executive's employment at any time and for any reason, Executive shall not be authorized to retain any of the Company Property, Records and Files. 7. Noncompetition and Other Matters. 7.1 Noncompetition. During the Term and, as applicable, for the two-year period immediately following the date of termination of Executive's employment either (x) by the Company for Cause or (y) by Executive other than for Good Reason, Executive shall not, directly or indirectly, in any city, town, county, parish or other municipality in any state of the United States (the names of each such city, town, parish, or other municipality, including, without limitation, the name of each county in the State of Pennsylvania being expressly incorporated by reference herein), or any other place in the world, where the Company, or its subsidiaries, affiliates, strategic partners, successors, or assigns, engages in the ownership, management and operation of retail drugstores (i) engage in a Competing Business for Executive's own account; (ii) enter the employ of, or render any consulting services to, any Competing Business; or (iii) become interested in any Competing Business in any capacity, including, without limitation, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; provided however, Executive may own, directly or indirectly, solely as a passive investment, securities of any entity traded on any national securities exchange if Executive is not a controlling person of, or a member of a group which controls, such entity and does not, directly or indirectly, own I% or more of any class of securities of such entity. For purposes of this Section 7.1, the phrase "Competing Business" shall mean any entity a majority of whose business involves the ownership and operation of retail drug stores. 7.2 Noninterference. During the Term and for the two-year period immediately following the date of termination of Executive's employment at any time and for any reason (the "Restricted Period"), Executive shall not, directly or indirectly, solicit, induce, or attempt to solicit or induce any officer, director, employee, agent or consultant of the Company or any of its subsidiaries, affiliates, strategic partners, successors or assigns to terminate his, her or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for the purpose of associating with any competitor of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage any such person or entity to leave or sever his, her or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any other reason. 7.3 Nonsolicitation. During the Restricted Period, Executive shall not, directly or indirectly, solicit, induce, or attempt to solicit or induce any customers, clients, vendors, suppliers or consultants then under contract to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, to terminate his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, for the purpose of associating with any competitor of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage such customers, clients, vendors, suppliers or consultants then under contract to terminate his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any reason. 8. Rights and Remedies upon Breach. If Executive breaches, or threatens to commit a breach of, any of the provisions of Sections 6 or 7 above (the "Restrictive Covenants"), the Company and its subsidiaries, affiliates, strategic partners, successors or assigns shall have the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition to, and not in 9 lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns at law or in equity. 8.1 Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction by injunctive decree or otherwise, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns and that money damages would not provide an adequate remedy to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns. 8.2 Accounting. The right and remedy to require Executive to account for and pay over to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, as the case may be, all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as a result of any transaction or activity constituting a breach of any of the Restrictive Covenants. 8.3 Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in geographic and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full force and effect without regard to the invalid portions. 8.4 Modification by the Court. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, such court shall have the power (and is hereby instructed by the parties) to reduce the duration or scope of such provision, as the case may be (it being the intent of the parties that any such reduction be limited to the minimum extent necessary to render such provision enforceable), and, in its reduced form, such provision shall then be enforceable. 8.5 Enforceability in Jurisdictions. Executive intends to and hereby confers jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of Executive that such determination not bar or in any way affect the right of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns to the relief provided herein in the courts of any other jurisdiction within the geographic scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants. 9. Assignment of Intellectual Property Rights 9.1 Definition of "Intellectual Property." As used herein, the term "Intellectual Property" shall mean all inventions, discoveries, processes, literary, dramatic, musical and other artistic or creative materials, and all other intellectual property of any nature and in any media, including works-in-progress, whether or not subject to patent, trademark, tradename, copyright, trade secret, or mask work protection, and whether or not reduced to practice, which are made, created, authored, conceived, or reduced to practice by Executive, either alone or jointly with others, during the period of employment with the Company which (A) relate to the actual or anticipated business or activities of the Company or any subsidiary, affiliate or strategic partner, (B) result from or is suggested by work performed by Executive 10 for the Company or any subsidiary, affiliate or strategic partner (whether or not made or conceived during normal working hours or on the premises of the Company or such subsidiary, affiliate or strategic partner) or (C) which result, to any extent, from use of the premises or property of the Company or any subsidiary, affiliate or strategic partner. 9.2 Work for Hire. Executive expressly acknowledges that all copyrightable aspects of the Intellectual Property are to be considered "works made for hire" within the meaning of the Copyright Act of 1976, as amended (the "Act"), and that the Company is to be the "author" within the meaning of such Act for all purposes. All such copyrightable works, as well as all copies of such works in whatever medium fixed or embodied, shall be owned exclusively by the Company as of its creation, and Executive hereby expressly disclaims any and all interest in any of such copyrightable works. 9.3 Assignment. Executive acknowledges and agrees that all Intellectual Property constitutes trade secrets of the Company and shall be the sole property of the Company or any other entity designated by the Company. In the event that title to any or all of the Intellectual Property, or any part or element thereof, may not, by operation of law, vest in the Company, or such Intellectual Property may be found as a matter of law not to be "works made for hire" within the meaning of the Act, Executive hereby conveys and irrevocably assigns to the Company, without further consideration, all his right, title and interest, throughout the universe and in perpetuity, in all Intellectual Property and all copies thereof, in whatever medium fixed or embodied, and in all written records, graphics, diagrams, notes, or reports relating thereto in Executive's possession or under his control, including, with respect to any of the foregoing, all rights of copyright, patent, trademark, trade secret, mask work, and any and all other proprietary rights therein, the right to modify and create derivative works, the right to invoke the benefit of any priority under any international convention, and all rights to register and renew same. 9.4 Proprietary Notices; No Filings; Waiver of Moral Rights. Executive acknowledges that all Intellectual Property shall, at the sole option of the Company, bear the Company's patent, copyright, trademark, trade secret, and mask work notices. Executive agrees not to file any patent, copyright, or trademark applications relating to any Intellectual Property, except with prior written consent of an authorized representative of the Company (other than Executive). Executive hereby expressly disclaims any and all interest in any Intellectual Property and waives any right of droit morale or similar rights, such as rights of integrity or the right to be attributed as the creator of the Intellectual Property. 9.5 Further Assurances. Executive agrees to assist the Company, or any party designated by the Company, promptly on the Company's request, whether before or after the termination of employment, however such termination may occur, in perfecting, registering, maintaining, and enforcing, in any jurisdiction, the Company's rights in the Intellectual Property by performing all acts and executing all documents and instruments deemed necessary or convenient by the Company, including, by way of illustration and not limitation: (a) Executing assignments, applications, and other documents and instruments in connection with (i) obtaining patents, copyrights, trademarks, mask works, or other proprietary protections for the Intellectual Property and (ii) confirming the assignment to the Company of all right, title, and interest in the Intellectual Property or otherwise establishing the Company's exclusive ownership rights therein. (b) Cooperating in the prosecution of patent, copyright, trademark and mask work applications, as well as in the enforcement of the Company's rights in the Intellectual Property, 11 including, but not limited to, testifying in court or before any patent, copyright, trademark or mask work registry office or any other administrative body. Executive shall be reimbursed for all out-of-pocket costs incurred in connection with the foregoing, if such assistance is requested by the Company after the termination of Executive's employment. In addition, to the extent that, after the termination of employment for whatever reason, Executive's technical expertise shall be required in connection with the fulfillment of the aforementioned obligations, the Company shall compensate Executive at a reasonable rate for the time actually spent by Executive at the Company's request rendering such assistance. 9.6 Power of Attorney. Executive hereby irrevocably appoints the Company to be his Attorney-In-Fact to execute any document and to take any action in his name and on his behalf and to generally use his name for the purpose of giving to the Company the full benefit of the assignment provisions set forth above. 9.7 Disclosure of Intellectual Property. Executive shall make full and prompt disclosure to the Company of all Intellectual Property subject to assignment to the Company, and all information relating thereto in Executive's possession or under his control as to possible applications and use thereof. 9.8 Limited Exception. The Company hereby notifies Executive that the provisions of this Section 9 do not apply to any Intellectual Property for which no equipment, supplies, facilities or trade secret information of the Company was used and which was developed entirely on the Executive's own time, unless (i) such Intellectual Property relates to the business of the Company or to the Company's actual or demonstrably anticipated research or development, or (ii) such Intellectual Property results from any work performed by the Executive for the Company. 10. No Violation of Third-Party Rights. Executive represents, warrants and covenants that he: (i) will not, in the course of employment, infringe upon or violate any proprietary rights of any third party (including, without limitation, any third party confidential relationships, patents, copyrights, mask works, trade secrets, or other proprietary rights); (ii) is not a party to any conflicting agreements with third parties which will prevent him from fulfilling the terms of employment and the obligations of this Agreement; (iii) does not have in his possession any confidential or proprietary information or documents belonging to others and will not disclose to the Company, use, or induce the Company to use, any confidential or proprietary information or documents of others; and (iv) agrees to respect any and all valid obligations which he may now have to prior employers or to others relating to confidential information, inventions, discoveries or other intellectual property which are the property of those prior employers or others, as the case may be. 12 Executive has supplied to the Company a copy of each written agreement to which Executive is subject which includes any obligation of confidentiality, assignment of intellectual property or non-competition. Executive agrees to indemnify and save harmless the Company from any loss, claim, damage, cost or expense of any kind (including without limitation, reasonable attorney fees) to which the Company may be subjected by virtue of a breach by Executive of the foregoing representations, warranties, and covenants. 11. Arbitration. Except as necessary for the Company and its subsidiaries, affiliates, strategic partners, successors or assigns or Executive to specifically enforce or enjoin a breach of this Agreement (to the extent such remedies are otherwise available), the parties agree that any and all disputes that may arise in connection with, arising out of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Executive's employment with the Company or any subsidiary, affiliate or strategic partner, the termination of that employment or any other dispute by and between the parties or their subsidiaries, affiliates, strategic partners, successors or assigns, shall be submitted to binding arbitration in Harrisburg, Pennsylvania according to the National Employment Dispute Resolution Rules and procedures of the American Arbitration Association. The parties agree that the parties shall each bear his or its own attorneys' fees and costs in connection with any such arbitration. This arbitration obligation extends to any and all claims that may arise by and between the parties or their subsidiaries, affiliates, strategic partners, successors or assigns, and expressly extends to, without limitation, claims or causes of action for wrongful termination, impairment of ability to compete in the open labor market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and claims under the Pennsylvania constitution, the United States Constitution, and applicable state and federal fair employment laws, federal and state equal employment opportunity laws, and federal and state labor statutes and regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities Act of 1990, as amended, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as amended, and any other state or federal law. 12. Assignment. Neither this Agreement, nor any of Executive's rights or obligations hereunder, may be assigned or otherwise subject to hypothecation by Executive. The Company may assign its rights and obligations hereunder, in whole or in part, (i) to any of the Company's subsidiaries, affiliates, or parent corporations; or (ii) to any other successor or assign in connection with the sale of all or substantially all of the Company's assets or stock or in connection with any merger, acquisition and/or reorganization involving the Company. 13. Notices. All notices and other communications under this Agreement shall be in writing and shall be given by fax or first class mail, certified or registered with return receipt requested, and shall be deemed to 13 have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a fax to the respective persons named below: If to the Company: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel Fax: (717) 760-7867 with a copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP 1999 Avenue of the Stars, Suite 1600 Los Angeles, California 90067 Attention: Andrew Ash, Esq. Fax: (310) 788-1200 If to Executive: Don P. Davis (at the most recent address in the Company's records) Any party may change such party's address for notices by notice duly given pursuant hereto. 14. General. 14.1 No Offset or Mitigation. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others whether in respect of claims made under this Agreement or otherwise. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts, benefits and other compensation payable or otherwise provided to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced, regardless of whether the Executive obtains other employment. 14.2 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Pennsylvania without giving effect to conflicts of laws principles thereof which might refer such interpretations to the laws of a different state or jurisdiction. 14.3 Entire Agreement. This Agreement sets forth the entire understanding of the parties relating to Executive's employment with the Company and cancels and supersedes all agreements, arrangements and understandings relating thereto made prior to the date hereof, written or oral, between the Executive and the Company and/or any subsidiary or affiliate. 14.4 Amendments; Waivers. This Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants hereof may be waived, only by a written instrument executed by the parties, or in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by any party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 14 14.5 No Conflict with Other Agreements. Executive represents and warrants that neither his execution of this Agreement nor the full and complete performance of his obligations hereunder will violate or conflict in any respect with any written or oral agreement or understanding with any person or entity. 14.6 Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the Company (and its successors and assigns) and Executive and his heirs, executors and personal representatives. 14.7 Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. 14.8 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. 14.9 No Assignment. The rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. 14.10 Survival. This Agreement shall survive the termination of Executive's employment and the expiration of the Term to the extent necessary to give effect to its provisions. 14.11 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 14.12 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument. IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of the date first written above. RITE AID CORPORATION ___________________________ By:________________________ Its:_______________________ EXECUTIVE ___________________________ 15 APPENDIX A A "Change in Control of the Company" shall be deemed to have occurred if, as the result of a single transaction or a series of transactions, the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (2) Incumbent Directors cease at any time and for any reason to constitute a majority of the number of directors then serving on the Board. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the Effective Date or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors to the Board); or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (4) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act. "Beneficial Owner" shall have the meaning set forth in Rule l3d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities which are properly filed on a Form 13G. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. 16 "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 17 EX-4.8 3 b311812_ex4-8.txt EMPLOYMENT AGREEMENT EX 4.8 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 1st day of May, 2000 (the "Effective Date"), by and between Rite Aid Corporation, a Delaware corporation (the "Company"), and Keith Lovett (the "Executive"). WHEREAS, Executive desires to provide the Company with his services and the Company desires to employ Executive in the capacity of Senior Vice President of Human Resources on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. Term Of Employment. ------------------- The term of Executive's employment with the Company hereunder (the "Term") shall commence on the Effective Date and, unless earlier terminated pursuant to Section 5 below, shall continue for a period ending on the date that is three (3) years following the Effective Date; provided, however, that on each anniversary of the Effective Date occurring prior to the termination of Executive's employment hereunder (each such date a "Renewal Date"), an additional year shall be added to the Term, unless notice of nonrenewal has been delivered by one party to the other party at least 180 days prior to such Renewal Date. For purposes of this Agreement, the phrases "year during the Term" or "during any year of the Term" or similar language shall refer to each 12-month period commencing on the Effective Date or applicable anniversaries thereof. 2. Position And Duties. -------------------- 2.1 Position. During the Term, Executive shall be employed as Senior Vice President of Human Resources of the Company. Following termination of Executive's employment for any reason, Executive shall immediately resign from all offices and positions he holds with the Company or any subsidiary. 2.2 Duties. Subject to the supervision and control of the President and Chief Operating Officer of the Company, to whom he shall report, Executive shall do and perform all services and acts necessary or advisable to fulfill the duties and responsibilities of his position as Senior Vice President of Human Resources and shall render such services on the terms set forth herein. In addition, Executive shall have such other executive and managerial powers and duties with respect to the Company and its subsidiaries, affiliates and strategic partners as may be assigned to him by the President and Chief Operating Officer. Except for sick leave, vacations (as provided in Section 4.3 below), and excused leaves of absence, Executive shall, throughout the Term, devote substantially all his working time, attention, knowledge and skills faithfully and to the best of his ability, to the duties and responsibilities of his position in furtherance of the business affairs and activities of the Company and its subsidiaries affiliates and strategic partners. Executive shall at all times be subject to, observe and carry out such rules, regulations, policies, directions, and restrictions as the Board of Directors of the Company (the "Board") or the Chief Executive Officer of the Company may from time to time establish for senior executive officers of the Company. 3. Compensation. ------------- 3.1 Base Salary. During the Term, as compensation for his services hereunder. Executive shall receive a salary at the annualized rate of Three Hundred Thousand Dollars ($300,000) per year ("Base Salary") which shall be paid in accordance with the Company's normal payroll practices and procedures, less such deductions or offsets required by applicable law or otherwise authorized by Executive. During the Term the Base Salary shall be reviewed periodically by the Compensation Committee of the Board for possible increase. Any increase in the Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The Base Salary shall not be reduced after any such increase, and the term "Base Salary" shall thereafter refer to the Base Salary as from time to time so increased. 3.2 Annual Performance Bonus. The Executive shall participate during the Term in the Company's annual bonus plan as adopted and approved by the Board or the Compensation Committee from time to time. The Executive's annual target bonus opportunity pursuant to such plans (the "Annual Target Bonus") shall equal 35% of the Base Salary in effect for the Executive at the beginning of each such fiscal year. 3.3 Stock Awards. (a) The Compensation Committee of the Board has approved the grant to Executive of an option (the "Option" ) to purchase 300,000 shares of the Company's common stock, par value $ 1.00 per share ("Company Stock"). The Option shall (i) be a non-qualified stock option, (ii) have an exercise price equal to the closing price of the Company Stock as reported on the New York Stock Exchange on the Effective Date, (iii) have a term of ten (10) years following the Effective Date, (iv) vest and become exercisable as to one-third of the shares of Company Stock subject to the Option on each of the first three anniversaries of the Effective Date, (v) be subject to the acceleration, exercise and termination provisions set forth in Section 3.3(c) and Article 5 hereof and (vi) otherwise be evidenced by and subject to the terms of the Company's form of stock option agreement for officers. (b) The Compensation Committee of the Board has approved the grant to Executive of 30,000 shares of restricted Company Stock (the "Restricted Stock"). Subject to (i) the acceleration and forfeiture provisions set forth in Section 3.3(c) and Article 5 hereof and (ii) the terms of the Company's form of restricted stock agreement for officers, the restrictions applicable to the Restricted Stock shall lapse as to one-third of such shares on each of the first three anniversaries of the Effective Date. (c) Upon the occurrence of a Change in Control of the Company prior to the termination of Executive's employment with the Company, the Option shall immediately vest and become exercisable in full, and all remaining restrictions on the Restricted Stock shall immediately lapse. For purposes of this Agreement "Change in Control" shall have the meaning set forth in the attached Appendix A. (d) It is understood and acknowledged by Executive that the securities underlying the Option will not be subject to an effective registration statement under the federal securities laws until some time after the Effective Date. `Me Company agrees that if, as of the date of termination of Executive's employment under the circumstances described in Sections 5.3 and 5.5, the securities underlying the then vested and exercisable portion of the Option (or any other option to purchase Company Stock then held by Executive) are not subject to an effective registration statement, the 90-day periods in Sections 5.3 and 5.5, as applicable, will be deemed to run from the first date such securities become subject 2 to an effective registration statement. The Company further agrees that if, as of the date of Executive's voluntary termination of employment other than for Good Reason, the securities underlying the then vested and exercisable portion of the Option (or any other option to purchase Company Stock then held by Executive) are not subject to an effective registration statement, Executive will be permitted to exercise the Option, to the extent vested and exercisable as of the date of such termination of employment, during the 30-day period following the first date such securities become subject to an effective registration statement. 4. Additional Benefits. -------------------- 4.1 Employee Benefits. During the Term, Executive shall be entitled to participate in the employee benefit plans in which executive officers of the Company are generally eligible to participate, subject to any eligibility requirements and the other generally applicable terms of such plans. 4.2 Expenses. During the Term, the Company shall reimburse Executive for any expenses reasonably incurred by him in furtherance of his duties hereunder, including without limitation travel, meals and accommodations, upon submission of vouchers or receipts and in compliance with such rules and policies relating thereto as the Company may from time to time adopt or as may be required in order to permit such payments to be taken as proper deductions by the Company or any subsidiary under the Internal Revenue Code of 1986, as amended, and the rules and regulations adopted pursuant thereto now or hereafter in effect. 4.3 Vacation. Executive shall be entitled to four weeks paid vacation during each year of the Term. 4.4 Automobile Allowance. During the Term, the Company shall provide Executive with an automobile allowance of $750 per month. 4.5 Annual Financial Planning Allowance. During each year of the Term, the Company shall provide Executive with a financial planning allowance in the amount of $5,000. 4.6 Relocation Expenses. (a) Within one hundred eighty (180) days following the Effective Date, Executive shall relocate his principal residence from the Portland, Oregon area to the Harrisburg, Pennsylvania area. The Company shall reimburse Executive for his reasonable expenses incurred in moving his household goods and cars from Portland to Harrisburg, in accordance with the Company's moving expense policies applicable to executive officers generally. (b) The Company shall reimburse Executive for his reasonable living expenses for a temporary residence in the Harrisburg area until the date of relocation. (c) The Company shall reimburse Executive for reasonable and customary closing costs incurred on the purchase of a principal residence in the Harrisburg area. (d) The Company shall reimburse Executive for the reasonable costs of a reasonable number of round trip air fares for travel between Harrisburg and Portland prior to his date of relocation. The Company shall also reimburse Executive for a reasonable number of round-trip visits between Portland and the Harrisburg area by his immediate family members prior to the relocation date, including reasonable costs for meals, lodging and transportation during such trips. 3 (e) In all other respects, Executive shall be entitled to benefits under the Company's Executive Level relocation policy as from time to time in effect. 4.7 Indemnification. The Company shall (a) indemnify and hold Executive harmless, to the full extent permitted under applicable law, for, from and against any and all losses, claims, costs, expenses, damages, liabilities or actions (including security holder actions, in respect thereof) related to or arising out of the Executive's employment with and service as an officer of the Company; and (b) pay all reasonable costs, expenses and attorney's fees incurred by Executive in connection with or relating to the defense of any such loss, claim, cost, expense, damage, liability or action. Following any termination of the Executive's employment or service with the Company, the Company shall cause any director and officer liability insurance policies applicable to the Executive prior to such termination to remain in effect for six (6) years following the date of termination of employment. 5. Termination. ------------ 5.1 Termination of Executive's Employment by the Company for Cause. The Company may terminate Executive's employment hereunder for Cause (as defined below). Such termination shall be effected by written notice thereof delivered by the Company to Executive, indicating in reasonable detail the facts and circumstances alleged to provide a basis for such termination, and shall be effective as of the date of such notice in accordance with Section 12 hereof. "Cause" shall mean (i) Executive's gross negligence or willful misconduct in the performance of the duties or responsibilities of his position with the Company or any subsidiary, or failure to timely carry out any lawful directive of the Board, the Chief Executive Officer or the President and Chief Operating Officer; (ii) Executive's misappropriation of any funds or property of the Company or any subsidiary; (iii) the commission by Executive of an act of fraud or dishonesty toward the Company or any subsidiary; or (iv) the use or imparting by Executive of any confidential or proprietary information of the Company or any subsidiary in violation of any confidentiality or proprietary agreement to which Executive is a party. 5.2 Compensation upon Termination by the Company for Cause or by Executive without Good Reason. In the event of Executive's termination of employment (i) by the Company for Cause or (ii) by Executive voluntarily without Good Reason: (a) Executive shall be entitled to receive (i) all amounts of accrued but unpaid Base Salary through the effective date of such termination, (ii) reimbursement for reasonable and necessary expenses incurred by Executive through the date of notice of such termination, to the extent otherwise provided under Section 4.2 above and (iii) all other vested payments and benefits to which Executive may otherwise be entitled pursuant to the terms of the applicable benefit plan or arrangement through the effective date of such termination ((i), (ii) and (iii), the "Accrued Benefits'). All other rights of Executive (and, except as provided in Section 3.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment. (b) Except as provided in Section 3.3(d), any portion of the Option or any other then outstanding stock option that has not been exercised prior to the date of termination shall immediately terminate as of such date, and any portion of the Restricted Stock or any other restricted stock or other equity incentive awards as to which the restrictions have not lapsed or as to which any other conditions shall not have been satisfied prior to the date of termination shall be forfeited as of such date. 4 Any termination of Executive's employment by Executive voluntarily without Good Reason shall be effective upon 30 days' notice to the Company. 5.3 Compensation upon Termination of Executive's Employment by the Company Other Than for Cause or by Executive for Good Reason. Executive's employment hereunder may be terminated by the Company other than for Cause or by Executive for Good Reason. In the event that Executive's employment hereunder is terminated by the Company other than for Cause or by Executive for Good Reason: (a) Executive shall be entitled to-receive (i) the Accrued Benefits, (ii) a pro rata annual bonus determined by multiplying Executive's then Annual Target Bonus by a fraction, (x) the numerator of which is the number of days between the beginning of the then current fiscal year of the Company and the date of termination of employment and (y) the denominator of which is 365, (iii) an amount equal to two times the sum of Executive's Base Salary plus Annual Target Bonus as of the date of termination of employment, such amount payable in equal installments pursuant to the Company's standard payroll procedures for executive officers over a period of two years following the date of termination of employment, and (iv) continued health insurance coverage for Executive and his immediate family for a period of two years following the date of termination of employment. (b) All stock option awards held by Executive shall vest and become immediately exercisable and the restrictions with respect to any awards of restricted stock shall lapse, in each case to the extent such options would otherwise have become vested and exercisable (or such restrictions would have lapsed) had Executive remained in the employ of the Company for a period of two years following the date of termination. Except as provided in Section 3.3(d), such portion of Executive's stock options (together with any portion of Executive's stock options that have vested and become exercisable prior to the date of termination) shall remain exercisable for a period of 90 days following the date of termination of employment (or, if earlier, until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any portion of Executive's stock options that have not vested as of the date of termination shall terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall not have lapsed as of the date of termination shall be forfeited as of such date. (c) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment. Any termination of employment pursuant to this Section 5.3 shall be effective upon thirty (30) days notice thereof 5.4 Definition of Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any one of the following: (a) any material adverse alteration in Executive's titles, positions, status, duties, authorities, reporting relationships or responsibilities with the Company or its subsidiaries from those specified in this Agreement, as the same may be augmented from time to time; (b) the assignment to Executive of any duties or responsibilities materially inconsistent with Executive's status as Senior Vice President of Human Resources of the Company; or 5 (c) any other material breach of this Agreement by the Company, including without limitation any decrease in Executive's Base Salary or Annual Target Bonus opportunity as set forth in Sections 3.1 and 3.2; provided, however, that in each such case the Company shall have the right, within ten (10) days after receipt of notice from Executive of the Company's violation of any of the foregoing, to cure the event or circumstances giving rise to such Good Reason, in the event of which cure such event or circumstances shall be deemed not to constitute Good Reason hereunder. 5.5 Compensation upon Termination of Executive's Employment by Reason of Executive's Death or Total Disability. In the event that Executive's employment with the Company is terminated by reason of Executive's death or Total Disability (as defined below): (a) Executive or Executive's estate, as the case may be, shall be entitled to receive (i) the Accrued Benefits, (ii) any other benefits payable under the then current disability and/or death benefit plans, as applicable, in which Executive is a participant and (iii) continued health insurance coverage for Executive and/or his immediate family, as applicable, for a period of two years following the date of termination of employment. (b) All stock option awards held by Executive shall vest and become immediately exercisable and the restrictions with respect to any awards of restricted stock shall lapse, in each case to the extent such options would otherwise have become vested and exercisable (or such restrictions would have lapsed) had Executive remained in the employ of the Company for a period of two years following the date of termination. Except as provided in Section 3.3(d), such portion of Executive's stock options (together with any portion of Executive's stock options that have vested and become exercisable prior to the date of termination) shall remain exercisable for a period of 90 days following the date of termination of employment (or, if earlier, until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any portion of Executive's stock options that have not vested as of the date of termination shall terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall not have lapsed as of the date of termination shall be forfeited as of such date. (c) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment. "Total Disability" shall mean any physical or mental disability that prevents Executive from performing one or more of the essential functions of his position for a period of not less than 90 days in any 12-month period and/or which is expected to be of permanent duration. 5.6 Survival. In the event of any termination of Executive's employment for any reason, Executive and the Company nevertheless shall continue to be bound by the terms and conditions set forth in Sections 6 through 10 below, which shall survive the expiration of the Term. 5.7 Excise Tax Gross-Up. (a) In the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this Agreement or of any other plan, arrangement or agreement of the Company (or any affiliate) (collectively, the "Payments") would be subject to the excise tax (the "`Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), as 6 determined as provided below, the Company shall pay to the Executive, at the time specified in Section 5.7(b) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of the Excise Tax on Payments and any federal, state and local income and employment or other tax and the Excise Tax upon the Gross-Up Payment, and any interest, penalties or additions to tax payable by the Executive with respect thereto, shall be equal to the total Payments. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amounts of such Excise Tax, (1) the total amount of the Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all ",excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to Executive and selected by the accounting firm which was, immediately prior to the event giving rise to the Payment, the Company's independent auditor (the "Auditor"), a Payment (in whole or in part) does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in part) are not subject to the Excise Tax, (2) the amount of the Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Payments or (B) the amount of "excess parachute payments" within the meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof), and (3) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rates of federal income taxation applicable to individuals in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of the Executive's residence in the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account any limitations applicable to individuals subject to federal income tax at the highest marginal rates. (b) The Gross-Up Payment provided for in Section 5.7(a) hereof shall be made upon the earlier of (i) ten days following the date of termination of Executive's employment or (ii) the imposition upon the Executive or payment by the Executive of any Excise Tax. (c) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax is less than the amount taken into account under Section 5.7(a) hereof, the Executive shall repay to the Company within thirty (30) days of the Executive's receipt of notice of such final determination the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the portion of the Gross-Up Payment being repaid by the Executive if and to the extent that such repayment results in a reduction in Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for the purpose of federal, state and local income taxes) plus any interest received by the Executive on the amount of such repayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax exceeds the amount taken into account hereunder (including without limitation by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment pursuant to Section 5.7(a) in respect of such excess within thirty (30) days of the Company's receipt of notice of such final determination or proceeding. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. 7 (d) In the event of any change in, or further interpretation of, sections 280G or 4999 of the Code and the regulations promulgated thereunder, the Executive shall be entitled, by written notice to the Company, to request an opinion of Tax Counsel regarding the application of such change to any of the foregoing, and the Company shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of the Auditor and Tax Counsel incurred in connection with this Agreement shall be borne by the Company. 5.8 No Other Severance or Termination Benefits. Except as expressly set forth herein, Executive shall not be entitled to damages or to any severance or other benefits upon termination of employment with the Company under any circumstances and for any or no reason. 6. Protection of Confidential Information. --------------------------------------- Executive acknowledges that during the course of his employment with the Company, its subsidiaries, affiliates and strategic partners, he will be exposed to documents and other information regarding the confidential affairs of the Company, its subsidiaries, affiliates and strategic partners, including without limitation information about their past, present and future financial condition, the markets for their products, key personnel, past, present or future actual or threatened litigation, trade secrets, current and prospective customer lists, operational methods, acquisition plans, prospects, plans for future development and other business affairs and information about the Company and its subsidiaries, affiliates and strategic partners not readily available to the public (the "Confidential Information"). Executive further acknowledges that the services to be performed under this Agreement are of a special, unique, unusual, extraordinary and intellectual character. In recognition of the foregoing, the Executive covenants and agrees as follows: 6.1 No Disclosure or Use of Confidential Information. At no time shall Executive ever divulge, disclose, or otherwise use any Confidential Information, unless and until such information is readily available in the public domain by reason other than Executive's disclosure or use thereof in violation of the first clause of this Section 6.1. 6.2 Return of Company Property, Records and Files. Upon the termination of Executive's employment at any time and for any reason, or at any other time the Board may so direct, Executive shall promptly deliver to the Company's offices in Harrisburg, Pennsylvania all of the property and equipment of the Company, its subsidiaries, affiliates and strategic partners (including any cell phones, pagers, credit cards, personal computers, etc.) and any and all documents, records, and files, including any notes, memoranda, customer lists, reports or any and all other documents, including any copies thereof, whether in hard copy form or on a computer disk or hard drive, which relate to the Company, its subsidiaries, affiliates, strategic partners, successors or assigns, and/or their respective past and present officers, directors, employees or consultants (collectively, the "Company Property, Records and Files"); it being expressly understood that, upon termination of Executive's employment at any time and for any reason, Executive shall not be authorized to retain any of the Company Property, Records and Files. 7. Noncompetition and Other Matters. --------------------------------- 7.1 Noncompetition. During the Term and, as applicable, for the two-year period immediately following the date of termination of Executive's employment either (x) by the Company for Cause or (y) by Executive other than for Good Reason, Executive shall not, directly or indirectly, in any city, town, county, parish or other municipality in any state of the United States (the names of each such city, town, parish, or other municipality, including, without limitation, the name of each county in the 8 Commonwealth of Pennsylvania being expressly incorporated by reference herein), or any other place in the world, where the Company, or its subsidiaries, affiliates, strategic partners, successors, or assigns, engages in the ownership, management and operation of retail drugstores (i) engage in a Competing Business for Executive's own account; (ii) enter the employ of, or render any consulting services to, any Competing Business; or (iii) become interested in any Competing Business in any capacity, including, without limitation, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; provided, however, Executive may own, directly or indirectly, solely as a passive investment, securities of any entity traded on any national securities exchange if Executive is not a controlling person of, or a member of a group which controls, such entity and does not, directly or indirectly, own 1% or more of any class of securities of such entity. For purposes of this Section 7.1, the phrase "Competing Business" shall mean any entity a majority of whose business involves the ownership and operation of retail drug stores. 7.2 Noninterference. During the Term and for the two-year period immediately following the date of termination of Executive's employment at any time and for any reason (the "Restricted Period") Executive shall not, directly or indirectly, solicit, induce, or attempt to solicit or induce any officer, director, employee, agent or consultant of the Company or any of its subsidiaries, affiliates, strategic partners, successors or assigns to terminate his, her or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for the purpose of associating with any competitor of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage any such person or entity to leave or sever his, her or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any other reason. 7.3 Nonsolicitation. During the Restricted Period, Executive shall not, directly or indirectly, solicit, induce, or attempt to solicit or induce any customers, clients, vendors, suppliers or consultants then under contract to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, to terminate his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, for the purpose of associating with any competitor of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage such customers, clients, vendors, suppliers or consultants then under contract to terminate his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any reason. 8. Rights and Remedies upon Breach. -------------------------------- If Executive breaches, or threatens to commit a breach of, any of the provisions of Sections 6 or 7 above (the "Restrictive Covenants"), the Company and its subsidiaries, affiliates, strategic partners, successors or assigns shall have the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns at law or in equity. 8.1 Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction by injunctive decree or otherwise, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns and that money damages would not provide an adequate remedy to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns. 9 8.2 Accounting. The right and remedy to require Executive to account for and pay over to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, as the case may be, all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as a result of any transaction or activity constituting a breach of any of the Restrictive Covenants. 8.3 Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in geographic and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full force and effect without regard to the invalid portions. 8.4 Modification by the Court. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, such court shall have the power (and is hereby instructed by the parties) to reduce the duration or scope of such provision, as the case may be (it being the intent of the parties that any such reduction be limited to the minimum extent necessary to render such provision enforceable), and, in its reduced form, such provision shall then be enforceable. 8.5 Enforceability in Jurisdictions. Executive intends to and hereby confers jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of Executive that such determination not bar or in any way affect the right of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns to the relief provided herein in the courts of any other jurisdiction within the geographic scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants. 9. No Violation of Third-Pail Rights. Executive represents, warrants and covenants that he: (i) will not, in the course of employment, infringe upon or violate any proprietary rights of any third party (including, without limitation, any third party confidential relationships, patents, copyrights, mask works. trade secrets, or other proprietary rights); (ii) is not a party to any conflicting agreements with third parties which will prevent him from fulfilling the terms of employment and the obligations of this Agreement; (iii) does not have in his possession any confidential or proprietary information or documents belonging to others and will not disclose to the Company, use, or induce the Company to use, any confidential or proprietary information or documents of others; and (iv) agrees to respect any and all valid obligations which he may now have to prior employers or to others relating to confidential information, inventions, discoveries or other intellectual property which are the property of those prior employers or others, as the case may be. 10 Executive has supplied to the Company a copy of each written agreement to which Executive is subject which includes any obligation of confidentiality, assignment of intellectual property or non-competition. Executive agrees to indemnify and save harmless the Company from any loss, claim, damage, cost or expense of any kind (including without limitation, reasonable attorney fees) to which the Company may be subjected by virtue of a breach by Executive of the foregoing representations, warranties, and covenants. 10. Arbitration. ------------ Except as necessary for the Company and its subsidiaries, affiliates, strategic partners, successors or assigns or Executive to specifically enforce or enjoin a breach of this Agreement (to the extent such remedies are otherwise available), the parties agree that any and all disputes that may arise -in connection with, arising out of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Executive's employment with the Company or any subsidiary, affiliate or strategic partner, the termination of that employment or any other dispute by and between the parties or their subsidiaries, affiliates, strategic partners, successors or assigns, shall be submitted to binding arbitration in Harrisburg, Pennsylvania according to the National Employment Dispute Resolution Rules and procedures of the American Arbitration Association. The parties agree that the parties shall each bear his or its own attorneys' fees and costs in connection with any such arbitration. This arbitration obligation extends to any and all claims that may arise by and between the parties or their subsidiaries, affiliates, strategic partners, successors or assigns, and expressly extends to, without limitation, claims or causes of action for wrongful termination, impairment of ability to compete in the open labor market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and claims under the Pennsylvania constitution, the United States Constitution, and applicable state and federal fair employment laws, federal and state equal employment opportunity laws, and federal and state labor statutes and regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities Act of 1990, as amended, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as amended, and any other state or federal law. 11. Assignment. ----------- Neither this Agreement, nor any of Executive's rights or obligations hereunder, may be assigned or otherwise subject to hypothecation by Executive. The Company may assign its rights and obligations hereunder, in whole or in part, (i) to any of the Company's subsidiaries, affiliates, or parent corporations; or (ii) to any other successor or assign in connection with the sale of all or substantially all of the Company's assets or stock or in connection with any merger, acquisition and/or reorganization involving the Company. 12. Notices. -------- All notices and other communications under this Agreement shall be in writing and shall be given by fax or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a fax to the respective persons named below: 11 If to the Company: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel Fax: (717) 760-7867 with a copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP 1999 Avenue of the Stars, Suite 1600 Los Angeles, California 90067 Attention: Andrew Ash, Esq. Fax: (310) 788-1200 If to Executive: Keith Lovett ______________ ______________ Fax:__________ Any party may change such party's address for notices by notice duly given pursuant hereto. 13. General. -------- 13.1 No Offset or Mitigation. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others whether in respect of claims made under this Agreement or otherwise. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts, benefits and other compensation payable or otherwise provided to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced, regardless of whether the Executive obtains other employment. 13.2 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to conflicts of laws principles thereof which might refer such interpretations to the laws of a different state or jurisdiction. 13.3 Entire Agreement. This Agreement sets forth the entire understanding of the parties relating to Executive's employment with the Company and cancels and supersedes all agreements, arrangements and understandings relating thereto made prior to the date hereof, written or oral, between the Executive and the Company and/or any subsidiary or affiliate. 13.4 Amendments: Waivers. This Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants hereof may be waived, only by a written instrument executed by the parties, or in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by any party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 12 13.5 No Conflict with Other Agreements. Executive represents and warrants that neither his execution of this Agreement nor the full and complete performance of his obligations hereunder will violate or conflict in any respect with any written or oral agreement or understanding with any person or entity. 13.6 Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the Company (and its successors and assigns) and Executive and his heirs, executors and personal representatives. 13.7 Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal. state, local and foreign taxes that are required to be withheld by applicable laws or regulations. 13.8 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. 13.9 No Assignment. The rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. 13.10 Survival. This Agreement shall survive the termination of Executive's employment and the expiration of the Term to the extent necessary to give effect to its provisions. 13.11 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 13.12 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall, be an original but all such counterparts together shall constitute one and the same instrument. IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of the date first written above. RITE AID CORPORATION ___________________________________ By: _______________________________ Its:_______________________________ EXECUTIVE ___________________________________ 13 APPENDIX A A "Change in Control of the Company" shall be deemed to have occurred if, as the result of a single transaction or a series of transactions, the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (2) Incumbent Directors cease at any time and for any reason to constitute a majority of the number of directors then serving on the Board. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the Effective Date or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors to the Board); or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (4) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act. "Beneficial Owner" shall have the meaning set forth in Rule l3d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities which are properly filed on a Form 13G. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. EX-4.12 4 b311812_ex4-12.txt EMPLOYMENT AGREEMENT EX 4.12 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 15th day of March, 2000 (the "Effective Date") by and between Rite Aid Corporation, a Delaware corporation (the "Company"), and Martin Tassoni (the "Executive"'). WHEREAS, Executive desires to provide the Company with his services and the Company desires to employ Executive in the capacity of Senior Vice President of Category Management on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. Term Of Employment. ------------------- The term of Executive's employment with the Company hereunder (the "Term") shall commence on the Effective Date and, unless earlier terminated pursuant to Section 5 below, shall continue for a period ending on the date that is three (3) years following the Effective Date; provided, however, that on each anniversary of the Effective Date occurring prior to the termination of Executive's employment hereunder (each such date a "Renewal Date'), an additional year shall be added to the Term, unless notice of nonrenewal has been delivered by one party to the other party at least 180 days prior to such Renewal Date. For purposes of this Agreement, the phrases "year during the Term" or "during any year of the Term" or similar language shall refer to each 12-month period commencing on the Effective Date or applicable anniversaries thereof. 2. Position And Duties. -------------------- 2.1 Position. During the Term, Executive shall be employed as Senior Vice President of Category Management of the Company. Following termination of Executive's employment for any reason, Executive shall immediately resign from all offices and positions he holds with the Company or any subsidiary. 2.2 Duties. Subject to the supervision and control of the Executive Vice President of Category Management of the Company (or any other officer designated by the President and Chief Operating Officer (the "Designee"), to whom he shall report, Executive shall do and perform all services and acts necessary or advisable to fulfill the duties and responsibilities of his position as Senior Vice President of Category Management and shall render such services on the terms set forth herein. In addition, Executive shall have such other executive and managerial powers and duties with respect to the Company and its subsidiaries, affiliates and strategic partners as may be assigned to him by the Executive Vice President of Category Management or any Designee. Except for sick leave, vacations (as provided in Section 4.3 below), and excused leaves of absence, Executive shall, throughout the Term, devote substantially all his working time, attention, knowledge and skills faithfully and to the best of his ability, to the duties and responsibilities of his position in furtherance of the business affairs and activities of the Company and its subsidiaries, affiliates and strategic partners. Executive shall at all times be subject to, observe and carry out such rules, regulations, policies, directions, and restrictions as the Board of Directors of the Company (the "Board") or the Chief Executive Officer of the Company may from time to time establish for senior executive officers of the Company. 3. Compensation. ------------- 3.1 Base Salary. During the Term, as compensation for his services hereunder, Executive shall receive a salary at the annualized rate of Two Hundred Fifty Thousand Dollars ($250,000) per year ("Base Salary"), which shall be paid in accordance with the Company's normal payroll practices and procedures, less such deductions or offsets required by applicable law or otherwise authorized by Executive. During the Term the Base Salary shall be reviewed periodically by the Compensation Committee of the Board for possible increase. Any increase in the Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The Base Salary shall not be reduced after any such increase, and the term "Base Salary" shall thereafter refer to the Base Salary as from time to time so increased. 3.2 Annual Performance Bonus. Commencing with the Company's fiscal year beginning on or about February 27, 2000, the Executive shall participate during the Term in the Company's annual bonus plan as adopted and approved by the Board or the Compensation Committee from time to time. The Executive's annual target bonus opportunity pursuant to such plans (the "Annual Target Bonus") shall equal 35% of the Base Salary in effect for the Executive at the beginning of each such fiscal year. 3.3 Stock Awards. (a) The Compensation Committee of the Board has approved the grant to Executive of an option (the "Option" ) to purchase 200,000 shares of the Company's common stock, par value $ 1.00 per share ("Company Stock"). The Option shall (i) be a non-qualified stock option, (ii) have an exercise price equal to the closing price of the Company Stock as reported on the New York Stock Exchange on the Effective Date, (iii) have a term of ten (10) years following the Effective Date, (iv) vest and become exercisable as to one-third of the shares of Company Stock subject to the Option on each of the first three anniversaries of the Effective Date, (v) be subject to the acceleration, exercise and termination provisions set forth in Section 3.3(c) and Article 5 hereof and (vi) otherwise be evidenced by and subject to the terms of the Company's form of stock option agreement for officers. (b) The Compensation Committee of the Board has approved the grant to Executive of 25,000 shares of restricted Company Stock (the "Restricted Stock"). Subject to (i) the acceleration and forfeiture provisions set forth in Section 3.3(c) and Article 5 hereof and (ii) the terms of the Company's form of restricted stock agreement for officers, the restrictions applicable to the Restricted Stock shall lapse as to one-third of such shares on each of the first three anniversaries of the Effective Date. (c) Upon the occurrence of a Change in Control of the Company prior to the termination of Executive's employment with the Company, the Option shall immediately vest and become exercisable in full, and all remaining restrictions on the Restricted Stock shall immediately lapse. For purposes of this Agreement "Change in Control" shall have the meaning set forth in the attached Appendix A. (d) It is understood and acknowledged by Executive that the securities underlying the Option will not be subject to an effective registration statement under the federal securities laws until some time after the Effective Date. The Company agrees that if, as of the date of termination of Executive's employment under the circumstances described in Sections 5.3 and 5.5, the securities underlying the then vested and exercisable portion of the Option (or any other option to purchase Company Stock then held by Executive) are not subject to an effective registration statement, the 90-day periods in 2 Sections 5.3 and 5.5, as applicable, will be deemed to rim from the first date such securities become subject to an effective registration statement. The Company further agrees that if, as of the date of Executive's voluntary termination of employment other than for Good Reason, the securities underlying the then vested and exercisable portion of the Option (or any other option to purchase Company Stock then held by Executive) are not subject to an effective registration statement, Executive will be permitted to exercise the Option, to the extent vested and exercisable as of the date of such termination of employment, during the 30-day period following the first date such securities become subject to an effective registration statement. 4. Additional Benefits. -------------------- 4.1 Employee Benefits. During the Term, Executive shall be entitled to participate in the employee benefit plans in which executive officers of the Company are generally eligible to participate, subject to any eligibility requirements and the other generally applicable terms of such plans. 4.2 Expenses. During the Term, the Company shall reimburse Executive for any expenses reasonably incurred by him in furtherance of his duties hereunder, including without limitation travel, meals and accommodations, upon submission of vouchers or receipts and in compliance with such rules and policies relating thereto as the Company may from time to time adopt or as may be required in order to permit such payments to be taken as proper deductions by the Company or any subsidiary under the Internal Revenue Code of 1986, as amended, and the rules and regulations adopted pursuant thereto now or hereafter in effect. The Company shall provide Executive with a copy of its rules and policies regarding expense reimbursement. 4.3 Vacation. Executive shall be entitled to four weeks paid vacation during each year of the Term. 4.4 Automobile Allowance. During the Term, the Company shall provide Executive with an automobile allowance of $750 per month. 4.5 Annual Financial Planning Allowance. During each year of the Term, the Company shall provide Executive with a financial planning allowance in the amount of $3,000. 4.6 Relocation Expenses. (a) Within ninety (90) days following the Effective Date, Executive shall relocate his principal residence from the Portland, Oregon area to the Harrisburg, Pennsylvania area. The Company shall reimburse Executive for his reasonable expenses incurred in moving his household goods and cars from Portland to Harrisburg, in accordance with the Company's moving expense policies applicable to executive officers generally. (b) The Company shall reimburse Executive for any loss incurred upon sale of his principal Portland residence (measured as the excess, if any, of (i) the sum of (A) the sale price plus (B) a standard real estate commission, over (ii) the original purchase price of the residence), such amount to be "grossed up" to offset in full any net increase in executive's federal, state and local income, employment and other taxes resulting therefrom (and from such gross-up); provided, that the aggregate amount payable pursuant to this Section 4.6(b), including any such gross-up, shall not exceed $100,000. Executive agrees that he shall use his best efforts to sell such residence at its fair market value. 3 (c) The Company shall reimburse Executive for his reasonable living expenses for a temporary residence in the Harrisburg area until the date of relocation. (d) The Company shall reimburse Executive for reasonable and customary closing costs incurred on the purchase of a principal residence in the Harrisburg area. (e) The Company shall reimburse Executive for the reasonable costs of a reasonable number of round trip air fares for travel between Harrisburg and Portland prior to his date of relocation. The Company shall also reimburse Executive for a reasonable number of round-trip visits between Portland and the Harrisburg area by his immediate family members prior to the relocation date, including reasonable costs for meals, lodging and transportation during such trips. (f) In all other respects, Executive shall be entitled to benefits under the Company's Executive Level relocation policy as from time to time in effect. 4.7 Indemnification. The Company shall (a) indemnify and hold Executive harmless, to the full extent permitted under applicable law, for, from and against any and all losses, claims, costs, expenses, damages, liabilities or actions (including security holder actions, in respect thereof) related to or arising out of the Executive's employment with and service as an officer of the Company; and (b) pay all reasonable costs, expenses and attorney's fees incurred by Executive in connection with or relating to the defense of any such loss, claim, cost, expense, damage, liability or action. Following any termination of the Executive's employment or service with the Company, the Company shall cause any director and officer liability insurance policies applicable to the Executive prior to such termination to remain in effect for six (6) years following the date of termination of employment. 5. Termination. ------------ 5.1 Termination of Executive's Employment by the Company for Cause. The Company may terminate Executive's employment hereunder for Cause (as defined below). Such termination shall be effected by written notice thereof delivered by the Company to Executive, indicating in reasonable detail the facts and circumstances alleged to provide a basis for such termination, and shall be effective as of the date of such notice in accordance with Section 12 hereof. "Cause" shall mean (i) Executive's gross negligence or willful misconduct in the performance of the duties or responsibilities of his position with the Company or any subsidiary, or failure to timely carry out any lawful directive of the Board, the Chief Executive Officer or the Executive Vice President of Category Management or any Designee; (ii) Executive's misappropriation of any funds or property of the Company or any subsidiary; (iii) the commission by Executive of an act of fraud or dishonesty toward the Company or any subsidiary; or (iv) the use or imparting by Executive of any Confidential information in violation of this Agreement, or any confidential or proprietary information of the Company or any subsidiary in violation of any written confidentiality or proprietary agreement to which Executive is a party. 5.2 Compensation upon Termination by the Company for Cause or by Executive without Good Reason. In the event of Executive's termination of employment (i) by the Company for Cause or (ii) by Executive voluntarily without Good Reason: (a) Executive shall be entitled to receive (i) all amounts of accrued but unpaid Base Salary through the effective date of such termination, (ii) reimbursement for reasonable and necessary expenses incurred by Executive through the date of notice of such termination, to the extent otherwise provided under Section 4.2 above and (iii) all other vested payments and benefits to which Executive may 4 otherwise be entitled pursuant to the terms of the applicable benefit plan or arrangement through the effective date of such termination ((i), (ii) and (iii), the "Accrued Benefits"). AU other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment. (b) Except as provided in Section 3.3(d), any portion of the Option or any other then outstanding stock option that has not been exercised prior to the date of termination shall immediately terminate as of such date, and any portion of the Restricted Stock or any other restricted stock or other equity incentive awards as to which the `restrictions have not lapsed or as to which any other conditions shall not have been satisfied prior to the date of termination shall be forfeited as of such date. Any termination of Executive's employment by Executive voluntarily without Good Reason shall be effective upon 30 days' notice to the Company. 5.3 Compensation upon Termination of Executive's Employment by the Company Other Than for Cause or by Executive for Good Reason. Executive's employment hereunder may be terminated by the Company other than for Cause or by Executive for Good Reason. In the event that Executive's employment hereunder is terminated by the Company other than for Cause or by Executive for Good Reason: (a) Executive shall be entitled to receive (i) the Accrued Benefits, (ii) a pro rata annual bonus determined by multiplying Executive's then Annual Target Bonus by a fraction, (x) the numerator of which is the number of days between the beginning of the then current fiscal year of the Company and the date of termination of employment and (y) the denominator of which is 365, (iii) an amount equal to two times the sum of Executive's Base Salary plus Annual Target Bonus as of the date of termination of employment, such amount payable in equal installments pursuant to the Company's standard payroll procedures for executive officers over a period of two years following the date of termination of employment, and (iv) continued health insurance coverage for Executive and his immediate family for a period of two years following the date of termination of employment. (b) All stock option awards held by Executive shall vest and become immediately exercisable and the restrictions with respect to any awards of restricted stock shall lapse, in each case to the extent such options would otherwise have become vested and exercisable (or such restrictions would have lapsed) had Executive remained in the employ of the Company for a period of two years following the date of termination. Except as provided in Section 3.3(d), such portion of Executive's stock options (together with any portion of Executive's stock options that have vested and become exercisable prior to the date of termination) shall remain exercisable for a period of 90 days following the date of termination of employment (or, if earlier, until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any portion of Executive's stock options that have not vested as of the date of termination shall terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall not have lapsed as of the date of termination shall be forfeited as of such date. (c) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment. Any termination of employment pursuant to this Section 5.3 shall be effective upon thirty (30) days notice thereof. 5 5.4 Definition of Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any one of the following: (a) any material adverse alteration in Executive's titles, positions, status, duties, authorities, reporting relationships or responsibilities with the Company or its subsidiaries from those specified in this Agreement, as the same may be augmented from time to time; (b) the assignment to Executive of any duties or responsibilities materially inconsistent with Executive's status as Senior Vice President of Category Management of the Company; or (c) any other material breach of this Agreement by the Company, including without limitation any decrease in Executive's Base Salary or Annual Target Bonus opportunity as set forth in Sections 3.1 and 3.2; provided, however, that in each such case the Company shall have the right, within ten (10) days after receipt of notice from Executive of the Company's violation of any of the foregoing, to cure the event or circumstances giving rise to such Good Reason, in the event of which cure such event or circumstances shall be deemed not to constitute Good Reason hereunder. 5.5 Compensation upon Termination of Executive's Employment by Reason of Executive's Death or Total Disability. In the event that Executive's employment with the Company is terminated by reason of Executive's death or Total Disability (as defined below): (a) Executive or Executive's estate, as the case may be, shall be entitled to receive (i) the Accrued Benefits, (ii) any other benefits payable under the then current disability and/or death benefit plans, as applicable, in which Executive is a participant and (iii) continued health insurance coverage for Executive and/or his immediate family, as applicable, for a period of two years following the date of termination of employment. (b) All stock option awards held by Executive shall vest and become immediately exercisable and the restrictions with respect to any awards of restricted stock shall lapse, in each case to the extent such options would otherwise have become vested and exercisable (or such restrictions would have lapsed) had Executive remained in the employ of the Company for a period of two years following the date of termination. Except as provided in Section 3.3(d), such portion of Executive's stock options (together with any portion of Executive's stock options that have vested and become exercisable prior to the date of termination) shall remain exercisable for a period of 90 days following the date of termination of employment (or, if earlier, until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any portion of Executive's stock options that have not vested as of the date of termination shall terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall not have lapsed as of the date of termination shall be forfeited as of such date. (c) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment. "Total Disability" shall mean any physical or mental disability that prevents Executive from performing one or more of the essential functions of his position for a period of not less than 90 days in any 12-month period and/or which is expected to be of permanent duration. 6 5.6 Survival. In the event of any termination of Executive's employment for any reason, Executive and the Company nevertheless shall continue to be bound by the terms and conditions set forth in Sections 6 through 10 below, which shall survive the expiration of the Term. 5.7 Excise Tax Gross-Up. (a) In the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this Agreement or of any other plan, arrangement or agreement of the Company (or any affiliate) (collectively, the "Payments") would be subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") as determined as provided below, the Company shall pay to the Executive, at the time specified in Section 5.7(b) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of the Excise Tax on Payments and any federal, state and local income and employment or other tax and the Excise Tax upon the Gross-Up Payment, and any interest, penalties or additions to tax payable by the Executive with respect thereto, shall be equal to the total Payments. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amounts of such Excise Tax, (1) the total amount of the Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to Executive and selected by the accounting firm which was, immediately prior to the event giving rise to the Payment, the Company's independent auditor (the "Auditor"), a Payment (in whole or in part) does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in part) are not subject to the Excise Tax, (2) the amount of the Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Payments or (B) the amount of "excess parachute payments" within the meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof), and (3) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rates of federal income taxation applicable to individuals in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of the Executive's residence in the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account any limitations applicable to individuals subject to federal income tax at the highest marginal rates. (b) The Gross-Up Payment provided for in Section 5.7(a) hereof shall be made upon the earlier of (i) ten days following the date of termination of Executive's employment or (ii) the imposition upon the Executive or payment by the Executive of any Excise Tax. (c) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax is less than the amount taken into account under Section 5.7(a) hereof the Executive shall repay to the Company within thirty (30) days of the Executive's receipt of notice of such final determination the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the portion of the Gross-Up Payment being repaid by the Executive if and to the extent that such repayment results in a reduction in Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for the purpose of federal, state and local income taxes) plus any 7 interest received by the Executive on the amount of such repayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax exceeds the amount taken into account hereunder (including without limitation by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment pursuant to Section 5.7(a) in respect of such excess within thirty (30) days of the Company's receipt of notice of such final determination or proceeding. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. (d) In the event of any change in, or further interpretation of, sections 280G or 4999 of the Code and the regulations promulgated thereunder, the Executive shall be entitled, by written notice to the Company, to request an opinion of Tax Counsel regarding the application of such change to any of the foregoing, and the Company shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of the Auditor and Tax Counsel incurred in connection with this Agreement shall be borne by the Company. 5.8 No Other Severance or Termination Benefits. Except as expressly set forth herein, Executive shall not be entitled to any severance or other benefits upon termination of employment with the Company under any circumstances and for any or no reason. 6. Protection of Confidential Information. --------------------------------------- Executive acknowledges that during the course of his employment with the Company, its subsidiaries, affiliates and strategic partners, he will be exposed to documents and other information regarding the confidential affairs of the Company, its subsidiaries, affiliates and strategic partners, including without limitation information about their past, present and future financial condition, the markets for their products, key personnel, past, present or future actual or threatened litigation, trade secrets, current and prospective customer lists, operational methods, acquisition plans, prospects, plans for future development and other business affairs and information about the Company and its subsidiaries, affiliates and strategic partners not readily available to the public (the "Confidential Information"). Executive further acknowledges that the services to be performed under this Agreement are of a special, unique, unusual, extraordinary and intellectual character. In recognition of the foregoing, the Executive covenants and agrees as follows: 6.1 No Disclosure or Use of Confidential Information. Except as specifically authorized by the Company, at no time shall Executive ever divulge, disclose, or otherwise use any Confidential Information, unless and until such information is readily available in the public domain by reason other than Executive's disclosure or use thereof in violation of the first clause of this Section 6. 1. 6.2 Return of Company Property, Records and Files. Upon the termination of Executive's employment at any time and for any reason, or at any other time the Board may so direct, Executive shall promptly deliver to the Company's offices in Harrisburg, Pennsylvania all of the property and equipment of the Company, its subsidiaries, affiliates and strategic partners (including any cell phones, pagers, credit cards, personal computers, etc.) and any and all documents, records, and files, including any notes, memoranda, customer lists, reports or any and all other documents, including any copies thereof, whether in hard copy form or on a computer disk or hard drive, which relate to the Company, its subsidiaries, affiliates, strategic partners, successors or assigns, and/or their respective past and present officers, directors, employees or consultants (collectively, the "Company Property, Records and Files'); it 8 being expressly understood that, upon termination of Executive's employment at any time and for any reason, Executive shall not be authorized to retain any of the Company Property, Records and Files. 7. Noncompetition and Other Matters. --------------------------------- 7.1 Noncompetition. During the Term and, as applicable, for the two-year period immediately following the date of termination of Executive's employment either (x) by the Company for Cause or (y) by Executive other than for Good Reason, Executive shall not, directly or indirectly, in any city, town, county, parish or other municipality in any state of the United States (the names of each such city, town, parish, or other municipality, including, without limitation, the name of each county in the Commonwealth of Pennsylvania being expressly incorporated by reference herein), or any other place in the world, where the Company, or its subsidiaries, affiliates, strategic partners, successors, or assigns, engages in the ownership, management and operation of retail drugstores (i) engage in a Competing Business for Executive's own account; (ii) enter the employ of, or render any consulting services to, any Competing Business; or (iii) become interested in any Competing Business in any capacity, including, without limitation, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; provided however, Executive may own, directly or indirectly, solely as a passive investment, securities of any entity traded on any national securities exchange if Executive is not a controlling person of, or a member of a group which controls, such entity and does not, directly or indirectly, own 1% or more of any class of securities of such entity. For purposes of this Section 7.1, the phrase "Competing Business" shall mean any entity a majority of whose business involves the ownership and operation of retail drug stores. 7.2 Noninterference. During the Term and for the two-year period immediately following the date of termination of Executive's employment at any time and for any reason (the "Restricted Period"), Executive shall not, directly or indirectly, solicit, induce, or attempt to solicit or induce any officer, director, employee, agent or consultant of the Company or any of its subsidiaries, affiliates, strategic partners, successors or assigns to terminate his, her or its employment or-other relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for the purpose of associating with any competitor of the Company -or its subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage any such person or entity to leave or sever his, her or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any other reason. 7.3 Nonsolicitation. During the Restricted Period, Executive shall not, directly or indirectly, solicit, induce, or attempt to solicit or induce any customers, clients, vendors, suppliers or consultants then under contract to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, to terminate his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, for the purpose of associating with any competitor of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage such customers, clients, vendors, suppliers or consultants then under contract to terminate his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any reason. 8. Rights and Remedies upon Breach. -------------------------------- If Executive breaches, or threatens to commit a breach of, any of the provisions of Sections 6 or 7 above (the "Restrictive Covenants"), the Company and its subsidiaries, affiliates, strategic partners, successors or assigns shall have the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition to, and not in 9 lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns at law or in equity. 8.1 Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction by injunctive decree or otherwise, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns and that money damages would not provide an adequate remedy to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns. 8.2 Accounting. The right and remedy to require Executive to account for and pay over to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, as the case may be, all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as a result of any transaction or activity constituting a breach of any of the Restrictive Covenants. 8.3 Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in geographic and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given fun force and effect without regard to the invalid portions. 8.4 Modification by the Court. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, such court shall have the power (and is hereby instructed by the parties) to reduce the duration or scope of such provision, as the case may be (it being the intent of the parties that any such reduction be limited to the minimum extent necessary to render such provision enforceable), and, in its reduced form, such provision shall then be enforceable. 8.5 Enforceability in Jurisdictions. Executive intends to and hereby confers jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of Executive that such determination not bar or in any way affect the right of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns to the relief provided herein in the courts of any other jurisdiction within the geographic scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants. 9. No Violation of Third-Party Rights. Executive represents, wan-ants and covenants that he: (i) will not knowingly, in the course of employment, infringe upon or violate any proprietary rights of any third party (including, without limitation, any third party confidential relationships, patents, copyrights, mask works, trade secrets, or other proprietary rights); 10 (ii) is not a party to any conflicting agreements with third parties which will prevent him from fulfilling the terms of employment and the obligations of this Agreement; (iii) does not, to his actual knowledge, have in his possession any confidential or proprietary information or documents belonging to others and will not disclose to the Company, use, or induce the Company to use, any confidential or proprietary information or documents of others; and (iv) agrees to respect any and all valid obligations known to him and which he may now have to prior employers or to others relating to confidential information, inventions, discoveries or other intellectual property which are the property of those prior employers or others, as the case may be. To his knowledge, Executive is not subject to any written agreement which includes any obligation of confidentiality, assignment of intellectual property or non-competition. Executive agrees to indemnify and save harmless the Company from any loss, claim, damage, cost or expense of any kind (including without limitation, reasonable attorney fees) to which the Company may be subjected by virtue of a breach by Executive of the foregoing representations, warranties, and covenants. 10. Arbitration. ------------ Except as necessary for the Company and its subsidiaries, affiliates, strategic partners, successors or assigns or Executive to specifically enforce or enjoin a breach of this Agreement (to the extent such remedies are otherwise available), the parties agree that any and all disputes that may arise in connection with, arising out of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Executive's employment with the Company or any subsidiary, affiliate or strategic partner, the termination of that employment or any other dispute by and between the parties or their subsidiaries, affiliates, strategic partners, successors or assigns, shall be submitted to binding arbitration in Harrisburg, Pennsylvania according to the National Employment Dispute Resolution Rules and procedures of the American Arbitration Association. The parties agree that the parties shall each bear his or its own attorneys' fees and costs in connection with any such arbitration. This arbitration obligation extends to any and all claims that may arise by and between the parties or their subsidiaries, affiliates, strategic partners, successors or assigns, and expressly extends to, without limitation, claims or causes of action for wrongful termination, impairment of ability to compete in the open labor market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and claims under the Pennsylvania constitution, the United States Constitution, and applicable state and federal fair employment laws, federal and state equal employment opportunity laws, and federal and state labor statutes and regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities Act of 1990, as amended, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as amended, and any other state or federal law. 11 11. Assignment. ----------- Neither this Agreement, nor any of Executive's rights or obligations hereunder, may be assigned or otherwise subject to hypothecation by Executive. The Company may assign its rights and obligations hereunder, in whole or in part, (i) to any of the Company's subsidiaries, affiliates, or parent corporations; or (ii) to any other successor or assign in connection with the sale of all or substantially all of the Company's assets or stock or in connection with any merger, acquisition and/or reorganization involving the Company. 12. Notices. -------- All notices and other communications under this Agreement shall be in writing and shall be given by fax or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a fax to the respective persons named below: If to the Company: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel Fax: (717) 760-7867 with a copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP 1999 Avenue of the Stars, Suite 1600 Los Angeles, California 90067 Attention: Andrew Ash, Esq. Fax: (310) 788-1200 If to Executive: Martin Tassoni c/o Patrick H. Jensen Jensen Draudt, LLP 1000 SW Broadway, Suite 1950 Portland, OR 97205 Fax: (503) 225-9611 Any party may change such party's address for notices by notice duly given pursuant hereto. 13. General. -------- 13.1 No Offset or Mitigation. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others whether in respect of claims made under this Agreement or otherwise. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts, benefits and other compensation payable or otherwise provided to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced, regardless of whether the Executive obtains other employment. 12 13.2 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to conflicts of laws principles thereof which might refer such interpretations to the laws of a different state or jurisdiction. 13.3 Entire Agreement. This Agreement sets forth the entire understanding of the parties relating to Executive's employment with the Company and cancels and supersedes all agreements, arrangements and understandings relating thereto made prior to the date hereof, written or oral, between the Executive and the Company and/or any subsidiary or affiliate. 13.4 Amendments; Waivers. This Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants hereof may be waived, only by a written instrument executed by the parties, or in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by any party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 13.5 No Conflict with Other Agreements. Executive represents and wan-ants that neither his execution of this Agreement nor the full and complete performance of his obligations hereunder will violate or conflict in any respect with any written or oral agreement or understanding with any person or entity. 13.6 Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the Company (and its successors and assigns) and Executive and his heirs, executors and personal representatives. 13.7 Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. 13.8 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. 13.9 No Assignment. The rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. 13.10 Survival. This Agreement shall survive the termination of Executive's employment and the expiration of the Term to the extent necessary to give effect to its provisions. 13.11 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 13 13.12 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument. IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of the date first written above. RITE AID CORPORATION _____________________________________ By:__________________________________ Its:_________________________________ EXECUTIVE _____________________________________ 14 APPENDIX A A "Change in Control of the Company" shall be deemed to have occurred if, as the result of a single transaction or a series of transactions, the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (2) Incumbent Directors cease at any time and for any reason to constitute a majority of the number of directors then serving on the Board. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the Effective Date or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors to the Board); or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (4) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act. "Beneficial Owner" shall have the meaning set forth in Rule l3d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities which are properly filed on a Form 13G. 15 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 16 EX-4.13 5 b311812_ex4-13.txt EMPLOYMENT AGREEMENT EX 4.13 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 6th day of March, 2000 (the "Effective Date") by and between Rite Aid Corporation, a Delaware corporation (the "Company"), and Murray Todd (the "Executive"). WHEREAS, Executive desires to provide the Company with his services and the Company desires to employ Executive in the capacity of Senior Vice President of Store Operations and Procurement on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. Term Of Employment. The term of Executive's employment with the Company hereunder (the "Term") shall commence on the Effective Date and, unless earlier terminated pursuant to Section 5 below, shall continue for a period ending on the date that is three (3) years following the Effective Date; provided, however, that on each anniversary of the Effective Date occurring prior to the termination of Executive's employment hereunder (each such date a "Renewal Date" an additional year shall be added to the Term, unless notice of nonrenewal has been delivered by one party to the other party at least 180 days prior to such Renewal Date. For purposes of this Agreement, the phrases "year during the Term" or "during any year of the Term" or similar language shall refer to each 12-month period commencing on the Effective Date or applicable anniversaries thereof. 2. Position And Duties. 2.1 Position. During the Term, Executive shall be employed as Senior Vice President of Store Operations and Procurement of the Company. Following termination of Executive's employment for any reason, Executive shall immediately resign from all offices and positions he holds with the Company or any subsidiary. 2.2 Duties. Subject to the supervision and control of the President and Chief Operating Officer of the Company or any designee, to whom he shall report, Executive shall do and perform all services and acts necessary or advisable to fulfill the duties and responsibilities of his position as Senior Vice President of Store Operations and Procurement and shall render such services on the terms set forth herein. In addition, Executive shall have such other executive and managerial powers and duties with respect to the Company and its subsidiaries, affiliates and strategic partners as may be assigned to him by the President and Chief Operating Officer or any designee. Except for sick leave, vacations (as provided in Section 4.3 below), and excused leaves of absence, Executive shall, throughout the Term, devote substantially all his working time, attention, knowledge and skills faithfully and to the best of his ability, to the duties and responsibilities of his position in furtherance of the business affairs and activities of the Company and its subsidiaries, affiliates and strategic partners. Executive shall at all times be subject to, observe and carry out such rules, regulations, policies, directions, and restrictions as the Board of Directors of the Company (the "Board") or the Chief Executive Officer of the Company may from time to time establish for senior executive officers of the Company. 3. Compensation. 3.1 Base Salary. During the Term, as compensation for his services hereunder, Executive shall receive a salary at the annualized rate of Two Hundred Seventy Five Thousand Dollars ($275,000) per year ("Base Salary'), which shall be paid in accordance with the Company's normal payroll practices and procedures, less such deductions or offsets required by applicable law or otherwise authorized by Executive. During the Term the Base Salary shall be reviewed periodically by the Compensation Committee of the Board for possible increase. Any increase in the Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The Base Salary shall not be reduced after any such increase, and the term "Base Salary" shall thereafter refer to the Base Salary as from time to time so increased. 3.2 Annual Performance Bonus. Commencing with the Company's fiscal year beginning on or about February 27, 2000, the Executive shall participate during the Term in the Company's annual bonus plan as adopted and approved by the Board or the Compensation Committee from time to time. `Me Executive's annual target bonus opportunity pursuant to such plans (the "Annual Target Bonus') shall equal 35% of the Base Salary in effect for the Executive at the beginning of each such fiscal year. 3.3 Stock Awards. (a) The Compensation Committee of the Board has approved the grant to Executive of an option (the "Option" ) to purchase 200,000 shares of the Company's common stock, par value $1.00 per share ("Company Stock"). The Option shall (i) be a non-qualified stock option, (ii) have an exercise price equal to the closing price of the Company Stock as reported on the New York Stock Exchange on the Effective Date, (iii) have a term of ten (10) years following the Effective Date, (iv) vest and become exercisable as to one-third of the shares of Company Stock subject to the Option on each of the first three anniversaries of the Effective Date, (v) be subject to the acceleration, exercise and termination provisions set forth in Section 3.3(c) and Article 5 hereof and (vi) otherwise be evidenced by and subject to the terms of the Company's form of stock option agreement for officers. (b) Subject to approval by the Compensation Committee of the Board, Company management has recommended the grant to Executive of 25,000 shares of restricted Company Stock (the "Restricted Stock"). Subject to (i) the acceleration and forfeiture provisions set forth in Section 3.3(c) and Article 5 hereof and (ii) the terms of the Company's form of restricted stock agreement for officers, the restrictions applicable to the Restricted Stock shall lapse as to one-third of such shares on each of the first three anniversaries of the Effective Date. (c) Upon the occurrence of a Change in Control of the Company prior to the termination of Executive's employment with the Company, the Option shall immediately vest and become exercisable in full, and all remaining restrictions on the Restricted Stock shall immediately lapse. For purposes of this Agreement "Change in Control" shall have the meaning set forth in the attached Appendix A. (d) It is understood and acknowledged by Executive that the securities underlying the Option will not be subject to an effective registration statement under the federal securities laws until some time after the Effective Date. The Company agrees that if, as of the date of termination of Executive's employment under the circumstances described in Sections 5.3 and 5.5, the securities underlying the then vested and exercisable portion of the Option (or any other option to purchase Company Stock then held by Executive) are not subject to an effective registration statement, the 90-day periods in Sections 5.3 and 5.5, as applicable, will be deemed to run from the first date such securities become subject to an effective registration statement. The Company further agrees that if, as of the date of Executive's voluntary termination of employment other than for Good Reason, the securities underlying the then vested and exercisable portion of the Option (or any other option to purchase Company 2 Stock then held by Executive) are not subject to an effective registration statement, Executive will be permitted to exercise the Option, to the extent vested and exercisable as of the date of such termination of employment, during the 30-day period following the first date such securities become subject to an effective registration statement. 4. Additional Benefits. 4.1 Employee Benefits. During the Term, Executive shall be entitled to participate in the employee benefit plans in which executive officers of the Company are generally eligible to participate, subject to any eligibility requirements and the other generally applicable terms of such plans. 4.2 Expenses. During the Term, the Company shall reimburse Executive for any expenses reasonably incurred by him in furtherance of his duties hereunder, including without limitation travel, meals and accommodations, upon submission of vouchers or receipts and in compliance with such rules and policies relating thereto as- the Company may from time to time adopt or as may be required in order to permit such payments to be taken as proper deductions by the Company or any subsidiary under the Internal Revenue Code of 1986, as amended, and the rules and regulations adopted pursuant thereto now or hereafter in effect. 4.3 Vacation. Executive shall be entitled to four weeks paid vacation during each year of the Term. 4.4 Automobile Allowance. During the Term, the Company shall provide Executive with an automobile allowance of $750 per month. 4.5 Annual Financial Planning Allowance. During each year of the Term, the Company shall provide Executive with a financial planning allowance in the amount of $3,000. 4.6 Relocation Expenses. (a) Within ninety (90) days following the Effective Date, Executive shall relocate his principal residence from the Portland, Oregon area to the Harrisburg, Pennsylvania area. The Company shall reimburse Executive for his reasonable expenses incurred in moving his household goods and cars from Portland to Harrisburg, in accordance with the Company's moving expense policies applicable to executive officers generally. (b) The Company shall reimburse Executive for his reasonable living expenses for a temporary residence in the Harrisburg area until the date of relocation. (c) The Company shall reimburse Executive for reasonable and customary closing costs incurred on the purchase of a principal residence in the Harrisburg area. (d) The Company shall reimburse Executive for the reasonable costs of a reasonable number of round trip air fares for travel between Harrisburg and Portland prior to his date of relocation. The Company shall also reimburse Executive for a reasonable number of round-trip visits 3 between Portland and the Harrisburg area by his immediate family members prior to the relocation date, including reasonable costs for meals, lodging and transportation during such trips. (e) In all other respects, Executive shall be entitled to benefits under the Company's Executive Level relocation policy as from time to time in effect. 4.7 Indemnification. The Company shall (a) indemnify and hold Executive harmless, to the full extent permitted under applicable law, for, from and against any and all losses, claims, costs, expenses, damages, liabilities or actions (including security holder actions, in respect thereof) related to or arising out of the Executive's employment with and service as an officer of the Company; and (b) pay all reasonable costs, expenses and attorney's fees incurred by Executive in connection with or relating to the defense of any such loss, claim, cost, expense, damage, liability or action. Following any termination of the Executive's employment or service with the Company, the Company shall cause any director and officer liability insurance policies applicable to the Executive prior to such termination to remain in effect for six (6) years following the date of termination of employment. 5. Termination. 5.1 Termination of Executive's Employment by the Company for Cause. The Company may terminate Executive's employment hereunder for Cause (as defined below). Such termination shall be effected by written notice thereof delivered by the Company to Executive, indicating in reasonable detail the facts and circumstances alleged to provide a basis for such termination, and shall be effective as of the date of such notice in accordance with Section 12 hereof. "Cause" shall mean (i) Executive's gross negligence or willful misconduct in the performance of the duties or responsibilities of his position with the Company or any subsidiary, or failure to timely carry out any lawful directive of the Board, the Chief Executive Officer or the President and Chief Operating Officer or any designee; (ii) Executive's misappropriation of any funds or property of the Company or any subsidiary; (iii) the commission by Executive of an act of fraud or dishonesty toward the Company or any subsidiary; or (iv) the use or imparting by Executive of any confidential or proprietary information of the Company or any subsidiary in violation of any confidentiality or proprietary agreement to which Executive is a party. 5.2 Compensation upon Termination by the Company for Cause or by Executive without Good Reason. In the event of Executive's termination of employment (i) by the Company for Cause or (ii) by Executive voluntarily without Good Reason: (a) Executive shall be entitled to receive (i) all amounts of accrued but unpaid Base Salary through the effective date of such termination, (ii) reimbursement for reasonable and necessary expenses incurred by Executive through the date of notice of such termination, to the extent otherwise provided under Section 4.2 above and (iii) all other vested payments and benefits to which Executive may otherwise be entitled pursuant to the terms of the applicable benefit plan or arrangement through the effective date of such termination ((i), (ii) and (iii), the "Accrued Benefits"). All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment. (b) Except as provided in Section 3.3(d), any portion of the Option or any other then outstanding stock option that has not been exercised prior to the date of termination shall immediately terminate as of such date, and any portion of the Restricted Stock or any other restricted stock 4 or other equity incentive awards as to which the restrictions have not lapsed or as to which any other conditions shall not have been satisfied prior to the date of termination shall be forfeited as of such date. Any termination of Executive's employment by Executive voluntarily without Good Reason shall be effective upon 30 days' notice to the Company. 5.3 Compensation upon Termination of Executive's Employment by the Company Other Than for Cause or by Executive for Good Reason. Executive's employment hereunder may be terminated by the Company other than for Cause or by Executive for Good Reason. In the event that Executive's employment hereunder is terminated by the Company other than for Cause or by Executive for Good Reason: (a) Executive shall be entitled to receive (i) the Accrued Benefits, (ii) a pro rata annual bonus determined by multiplying Executive's then Annual Target Bonus by a fraction, (x) the numerator of which is the number of days between the beginning of the then current fiscal year of the Company and the date of termination of employment and (y) the denominator of which is 365, (iii) an amount equal to two times the sum of Executive's Base Salary plus Annual Target Bonus as of the date of termination of employment, such amount payable in equal installments pursuant to the Company's standard payroll procedures for executive officers over a period of two years following the date of termination of employment, and (iv) continued health insurance coverage for Executive and his immediate family for a period of two years following the date of termination of employment. (b) All stock option awards held by Executive shall vest and become immediately exercisable and the restrictions with respect to any awards of restricted stock shall lapse, in each case to the extent such options would otherwise have become vested and exercisable (or such restrictions would have lapsed) had Executive remained in the employ of the Company for a period of two years following the date of termination. Except as provided in Section 3.3(d), such portion of Executive's stock options (together with any portion of Executive's stock options that have vested and become exercisable prior to the date of termination) shall remain exercisable for a period of 90 days following the date of termination of employment (or, if earlier, until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any portion of Executive's stock options that have not vested as of the date of termination shall terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall not have lapsed as of the date of termination shall be forfeited as of such date. (c) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment. Any termination of employment pursuant to this Section 5.3 shall be effective upon thirty (30) days notice thereof. 5.4 Definition of Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any one of the following: (a) any material adverse alteration in Executive's titles, positions, status, duties, authorities, reporting relationships or responsibilities with the Company or its subsidiaries from those specified in this Agreement, as the same may be augmented from time to time; 5 (b) the assignment to Executive of any duties or responsibilities materially inconsistent with Executive's status as Senior Vice President of Store Operations and Procurement of the Company; or (c) any other material breach of this Agreement by the Company, including without limitation any decrease in Executive's Base Salary or Annual Target Bonus opportunity as set forth in Sections 3.1 and 3.2; provided, however, that in each such case the Company shall have the right, within ten (10) days after receipt of notice from Executive of the Company's violation of any of the foregoing, to cure the event or circumstances giving rise to such Good Reason, in the event of which cure such event or circumstances shall be deemed not to constitute Good Reason hereunder. 5.5 Compensation upon Termination of Executive's Employment by Reason of Executive's Death or Total Disability. In the event that Executive's employment with the Company is terminated by reason of Executive's death or Total Disability (as defined below): (a) Executive or Executive's estate, as the case may be, shall be entitled to receive (i) the Accrued Benefits, (ii) any other benefits payable under the then current disability and/or death benefit plans, as applicable, in which Executive is a participant and (iii) continued health insurance coverage for Executive and/or his immediate family, as applicable, for a period of two years following the date of termination of employment. (b) All stock option awards held by Executive shall vest and become immediately exercisable and the restrictions with respect to any awards of restricted stock shall lapse, in each case to the extent such options would otherwise have become vested and exercisable (or such restrictions would have lapsed) had Executive remained in the employ of the Company for a period of two years following the date of termination. Except as provided in Section 3.3(d), such portion of Executive's stock options (together with any portion of Executive's stock options that have vested and become exercisable prior to the date of termination) shall remain exercisable for a period of 90 days following the date of termination of employment (or, if earlier, until the expiration of the respective terms of the options), whereupon all such options shall terminate. Any portion of Executive's stock options that have not vested as of the date of termination shall terminate as of such date; and all shares of Restricted Stock as to which the restrictions shall not have lapsed as of the date of termination shall be forfeited as of such date. (c) All other rights of Executive (and, except as provided in Section 5.6 below, all obligations of the Company) hereunder or otherwise in connection with Executive's employment with the Company shall terminate effective as of the date of such termination of employment. "Total Disability" shall mean any physical or mental disability that prevents Executive from performing one or more of the essential functions of his position for a period of not less than 90 days in any 12-month period and/or which is expected to be of permanent duration. 5.6 Survival. In the event of any termination of Executive's employment for any reason, Executive and the Company nevertheless shall continue to be bound by the terms and conditions set forth in Sections 6 through 10 below, which shall survive the expiration of the Term. 6 5.7 Excise Tax Gross-Up. (a) In the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this Agreement or of any other plan, arrangement or agreement of the Company (or any affiliate) (collectively, the "Payments') would be subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), as determined as provided below, the Company shall pay to the Executive, at the time specified in Section 5.7(b) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of the Excise Tax on Payments and any federal, state and local income and employment or other tax and the Excise Tax upon the Gross-Up Payment, and any interest, penalties or additions to tax payable by the Executive with respect thereto, shall be equal to the total Payments. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amounts of such Excise Tax, (1) the total amount of the Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to Executive and selected by the accounting firm which was, immediately prior to the event giving rise to the Payment, the Company's independent auditor (the "Auditor"), `), a Payment (in whole or in part) does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in part) are not subject to the Excise Tax, (2) the amount of the Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Payments or (B) the amount of "excess parachute payments" within the meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof), and (3) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rates of federal income taxation applicable to individuals in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of the Executive's residence in the calendar year in which the Gross-Up Payment is to be made, net of the. maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account any limitations applicable to individuals subject to federal income tax at the highest marginal rates. (b) The Gross-Up Payment provided for in Section 5.7(a) hereof shall be made upon the earlier of (i) ten days following the date of termination of Executive's employment or (ii) the imposition upon the Executive or payment by the Executive of any Excise Tax. (c) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax is less than the amount taken into account under Section 5.7(a) hereof, the Executive shall repay to the Company within thirty (30) days of the Executive's receipt of notice of such final determination the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the portion of the Gross-Up Payment being repaid by the Executive if and to the extent that such repayment results in a reduction in Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for the purpose of federal, state and local income taxes) plus any interest received by the Executive on the amount of such repayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that the Excise Tax exceeds the amount taken into account hereunder (including without limitation by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an 7 additional Gross-Up Payment pursuant to Section 53(a) in respect of such excess within thirty (30) days of the Company's receipt of notice of such final determination or proceeding. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. (d) In the event of any change in, or further interpretation of, sections 280G or 4999 of the Code and the regulations promulgated thereunder, the Executive shall be entitled, by written notice to the Company, to request an opinion of Tax Counsel regarding the application of such change to any of the foregoing, and the Company shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of the Auditor and Tax Counsel incurred in connection with this Agreement shall be borne by the Company. 5.8 No Other Severance or Termination Benefits. Except as expressly set forth herein, Executive shall not be entitled to damages or to any severance or other benefits upon termination of employment with the Company under any circumstances and for any or no reason. 6. Protection of Confidential Information. Executive acknowledges that during the course of his employment with the Company, its subsidiaries, affiliates and strategic partners, he will be exposed to documents and other information regarding the confidential affairs of the Company, its subsidiaries, affiliates and strategic partners, including without limitation information about their past, present and future financial condition, the markets for their products, key personnel, past, present or future actual or threatened litigation, trade secrets, current and prospective customer lists, operational methods, acquisition plans, prospects, plans for future development and other business affairs and information about the Company and its subsidiaries, affiliates and strategic partners not readily available to the public (the "Confidential Information"). Executive further acknowledges that the services to be performed under this Agreement are of a special, unique, unusual, extraordinary and intellectual character. In recognition of the foregoing, the Executive covenants and agrees as follows: 6.1 No Disclosure or Use of Confidential Information. At no time shall Executive ever divulge, disclose, or otherwise use any Confidential Information, unless and until such information is readily available in the public domain by reason other than Executive's disclosure or use thereof in violation of the first clause of this Section 6. 1. 6.2 Return of Company Property, Records and Files. Upon the termination of Executive's employment at any time and for any reason, or at any other time the Board may so direct, Executive shall promptly deliver to the Company's offices in Harrisburg, Pennsylvania all of the property and equipment of the Company, its subsidiaries, affiliates and strategic partners (including any cell phones, pagers, credit cards, personal computers, etc.) and any and all documents, records, and files, including any notes, memoranda, customer lists, reports or any and all other documents, including any copies thereof, whether in hard copy form or on a computer disk or hard drive, which relate to the Company, its subsidiaries, affiliates, strategic partners, successors or assigns, and/or their respective past and present officers, directors, employees or consultants (collectively, the "Company Property, Records and Files"); it being expressly understood that, upon termination of Executive's employment at any time and for any reason, Executive shall not be authorized to retain any of the Company Property, Records and Files. 8 7. Noncompetition and Other Matters. 7.1 Noncompetition. During the Term and, as applicable, for the two-year period immediately following the date of termination of Executive's employment either (x) by the Company for Cause or (y) by Executive other than for Good Reason, Executive shall not, directly or indirectly, in any city, town, county, parish or other municipality in any state of the United States (the names of each such city, town, parish, or other municipality, including, without limitation, the name of each county in the Commonwealth of Pennsylvania being expressly incorporated by reference herein), or any other place in the world, where the Company, or its subsidiaries, affiliates, strategic partners, successors, or assigns, engages in the ownership, management and operation of retail drugstores (i) engage in a Competing Business for Executive's own account; (ii) enter the employ of, or render any consulting services to, any Competing Business; or (iii) become interested in any Competing Business in any capacity, including, without limitation, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; provided however, Executive may own, directly or indirectly, solely as a passive investment, securities of any entity traded on any national securities exchange if Executive is not a controlling person of, or a member of a group which controls, such entity and does not, directly or indirectly, own I% or more of any class of securities of such entity. For purposes of this Section 7.1, the phrase "Competing Business" shall mean any entity a majority of whose business involves the ownership and operation of retail drug stores. 7.2 Noninterference. During the Term and for the two-year period immediately following the date of termination of Executive's employment at any time and for any reason (the "Restricted Period"), Executive shall not, directly or indirectly, solicit, induce, or attempt to solicit or induce any officer, director, employee, agent or consultant of the Company or any of its subsidiaries, affiliates, strategic partners, successors or assigns to terminate his, her or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for the purpose of associating with any competitor of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage any such person or entity to leave or sever his, her or its employment or other relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any other reason. 7.3 Nonsolicitation. During the Restricted Period, Executive shall not, directly or indirectly, solicit, induce, or attempt to solicit or induce any customers, clients, vendors, suppliers or consultants then under contract to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, to terminate his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, for the purpose of associating with any competitor of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, or otherwise encourage such customers, clients, vendors, suppliers or consultants then under contract to terminate his, her or its relationship with the Company or its subsidiaries, affiliates, strategic partners, successors or assigns for any reason. 8. Rights and Remedies upon Breach. If Executive breaches, or threatens to commit a breach of, any of the provisions of Sections 6 or 7 above (the "Restrictive Covenants' the Company and its subsidiaries, affiliates, strategic partners, successors or assigns shall have the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns at law or in equity. 9 8.1 Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction by injunctive decree or otherwise, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns and that money damages would not provide an adequate remedy to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns. 8.2 Accounting. The right and remedy to require Executive to account for and pay over to the Company or its subsidiaries, affiliates, strategic partners, successors or assigns, as the case may be, all compensation, profits. monies, accruals, increments or other benefits derived or received by Executive as a result of any transaction or activity constituting a breach of any of the Restrictive Covenants. 8.3 Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in geographic and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full force and effect without regard to the invalid portions. 8.4 Modification by the Court. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, such court shall have the power (and is hereby instructed by the parties) to reduce the duration or scope of such provision, as the case may be (it being the intent of the parties that any such reduction be limited to the minimum extent necessary to render such provision enforceable), and, in its reduced form, such provision shall then be enforceable. 8.5 Enforceability in Jurisdictions. Executive intends to and hereby confers jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of Executive that such determination not bar or in any way affect the right of the Company or its subsidiaries, affiliates, strategic partners, successors or assigns to the relief provided herein in the courts of any other jurisdiction within the geographic scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants. 9. No Violation of Third-Party Rights. Executive represents, warrants and covenants that he: (i) will not, in the course of employment, infringe upon or violate any proprietary rights of any third party (including, without limitation, any third party confidential relationships, patents, copyrights, mask works, trade secrets, or other proprietary rights); (ii) is not a party to any conflicting agreements with third parties which will prevent him from fulfilling the terms of employment and the obligations of this Agreement; 10 (iii) does not have in his possession any confidential or proprietary information or documents belonging to others and will not disclose to the Company, use, or induce the Company to use, any confidential or proprietary information or documents of others; and (iv) agrees to respect any and all valid obligations which he may now have to prior employers or to others relating to confidential information, inventions, discoveries or other intellectual property which are the property of those prior employers or others, as the case may be. Executive has supplied to the Company a copy of each written agreement to which Executive is subject which includes any obligation of confidentiality, assignment of intellectual property or non-competition. Executive agrees to indemnify and save harmless the Company from any loss, claim, damage, cost or expense of any kind (including without limitation, reasonable attorney fees) to which the Company may be subjected by virtue of a breach by Executive of the foregoing representations, warranties, and covenants. 10. Arbitration. Except as necessary for the Company and its subsidiaries, affiliates, strategic partners, successors or assigns or Executive to specifically enforce or enjoin a breach of this Agreement (to the extent such remedies are otherwise available), the parties agree that any and all disputes that may arise in connection with, arising out of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Executive's employment with the Company or any subsidiary, affiliate or strategic partner, the termination of that employment or any other dispute by and between the parties or their subsidiaries, affiliates, strategic partners, successors or assigns, shall be submitted to binding arbitration in Harrisburg, Pennsylvania according to the National Employment Dispute Resolution Rules and procedures of the American Arbitration Association. The parties agree that the parties shall each bear his or its own attorneys' fees and costs in connection with any such arbitration. This arbitration obligation extends to any and all claims that may arise by and between the parties or their subsidiaries, affiliates, strategic partners, successors or assigns, and expressly extends to, without limitation, claims or causes of action for wrongful termination, impairment of ability to compete in the open labor market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and claims under the Pennsylvania constitution, the United States Constitution, and applicable state and federal fair employment laws, federal and state equal employment opportunity laws, and federal and state labor statutes and regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities Act of 1990, as amended, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as amended, and any other state or federal law. 11. Assignment. Neither this Agreement, nor any of Executive's rights or obligations hereunder, may be assigned or otherwise subject to hypothecation by Executive. The Company may assign its rights and obligations hereunder, in whole or in part, (i) to any of the Company's subsidiaries, affiliates, or parent 11 corporations; or (ii) to any other successor or assign in connection with the sale of all or substantially all of the Company's assets or stock or in connection with any merger, acquisition and/or reorganization involving the Company. 12. Notices. All notices and other communications under this Agreement shall be in writing and shall be given by fax or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a fax to the respective persons named below: If to the Company: Rite Aid Corporation 30 Hunter Lane Camp Hill, Pennsylvania 17011 Attention: General Counsel Fax: (717) 760-7867 with a copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP 1999 Avenue of the Stars, Suite 1600 Los Angeles, California 90067 Attention: Andrew Ash, Esq. Fax: (310) 788-1200 If to Executive: Murray Todd __________________ __________________ Fax: _____________ Any party may change such party's address for notices by notice duly given pursuant hereto. 13. General. 13.1 No Offset or Mitigation. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others whether in respect of claims made under this Agreement or otherwise. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts, benefits and other compensation payable or otherwise provided to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced, regardless of whether the Executive obtains other employment. 13.2 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to conflicts of laws principles thereof which might refer such interpretations to the laws of a different state or jurisdiction. 13.3 Entire Agreement. This Agreement sets forth the entire understanding of the parties relating to Executive's employment with the Company and cancels and supersedes all agreements, 12 arrangements and understandings relating thereto made prior to the date hereof, written or oral, between the Executive and the Company and/or any subsidiary or affiliate. 13.4 Amendments; Waivers. This Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants hereof may be waived, only by a written instrument executed by the parties, or in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no mariner affect the right of such party at a later time to enforce the same. No waiver by any party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 13.5 No Conflict with Other Agreements. Executive represents and wan-ants that neither his execution of this Agreement nor the full and complete performance of his obligations hereunder will violate or conflict in any respect with any written or oral agreement or understanding with any person or entity. 13.6 Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the Company (and its successors and assigns) and Executive and his heirs, executors and personal representatives. 13.7 Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. 13.8 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. 13.9 No Assignment. The rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. 13.10 Survival. This Agreement shall survive the termination of Executive's employment and the expiration of the Term to the extent necessary to give effect to its provisions. 13.11 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 13.12 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument. IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of the date first written above. RITE AID CORPORATION ___________________________ By:________________________ Its:_______________________ EXECUTIVE ___________________________ 13 APPENDIX A A "Change in Control of the Company" shall be deemed to have occurred if, as the result of a single transaction or a series of transactions, the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (2) Incumbent Directors cease at any time and for any reason to constitute a majority of the number of directors then serving on the Board. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the Effective Date or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors to the Board); or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (d) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; or (4) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act. "Beneficial Owner" shall have the meaning set forth in Rule l3d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities which are properly filed on a Form 13G. 14 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 15 EX-5 6 b311812_ex5-1.txt OPINION OF COUNSEL Exhibit 5.1 [RITE AID CORP. LETTERHEAD] May 23, 2001 Rite Aid Corporation 30 Hunter Lane Camp Hill, PA 17011 Re: Registration Statement on Form S-8 Ladies and Gentlemen: I have acted as counsel to Rite Aid Corporation, a Delaware corporation (the "Company"), in connection with the preparation of a registration statement on Form S-8 (the "Registration Statement) filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), relating to the sale of up to 70,022,815 shares of the Company's Common Stock, par value $1.00 per share (the "Common Stock"), which may be issued pursuant to incentive awards involving stock options, stock appreciation rights, restricted stock, and other stock-based awards (collectively, the "Awards") granted or to be granted under the Company's 1990 Omnibus Stock Incentive Plan, 1999 Stock Option Plan, 2000 Omnibus Equity Plan or the 2001 Stock Option Plan (collectively, the "Plans") or resold by the Selling Stockholders. I have examined such records, documents, statutes and decisions as I have deemed relevant in rendering this opinion. In my examination I have assumed the genuineness of documents submitted to me as originals and the conformity with the original of all documents submitted to me as copies thereof. In my opinion, the shares of Common Stock to be issued pursuant to Awards granted or to be granted in accordance with the terms of the Plans will be, when issued in accordance with the terms of such Awards and the Plans, duly authorized, validly issued, fully paid and nonassessable shares of Common Stock of the Company. The opinion set forth above is limited to the General Corporation Law of the State of Delaware. I hereby consent to the use of this opinion as Exhibit 5 to the Registration Statement. In giving such opinion, I do not thereby admit that I am acting within the category of persons whose consent is required under Section 7 of the Act or the rules or regulations of the Commission thereunder. Very truly yours, RITE AID CORPORATION /s/ Elliot S. Gerson ------------------------------- Senior Executive Vice President and General Counsel EX-23.1 7 b311812_ex23-1.txt CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.1 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in this Registration Statement of Rite Aid Corporation on Form S-8 of our report dated May 8, 2001 except for Note 25 for which the date is May 16, 2001, appearing in the Annual Report on form 10-K for the year ended March 3, 2001 and to the reference to us under the heading "Experts" in this Registration Statement. Deloitte & Touche LLP Philadelphia, Pennsylvania May 23, 2001 EX-23.2 8 b311812_ex23-2.txt CONSENT OF ERNST & YOUNG Exhibit 23.2 INDEPENDENT AUDITOR'S CONSENT We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-8) pertaining to the Stock Option Plan of Rite Aid Corporation and to the incorporation by reference therein of our report dated April 21, 2000 (except Note 12 for which the date is June 15, 2000), with respect to the consolidated financial statements and schedules of PCS Holding Corporation and Subsidiaries, which have not separately been included in Rite Aid Corporation's Annual Report (Form 10-K) for the year ended March 3, 2001, filed with the Securities and Exchange Commission. /s/ Ernst & Young Phoenix, Arizona May 22, 2001 -----END PRIVACY-ENHANCED MESSAGE-----