HomeMy WebLinkAbout05-0216ORIGINAL
ROBERT SOUDER, IN THE COURT OF COMMON PLEAS,
Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA
RITE AID CORPORATION, CIVIL ACTION - EQUfTY
Defendant
NOTICE
You have been sued in court. If you wish to defend against the claims set forth in
the following pages, you must take action within twenty (20) days after this complaint
and notice are served, by entering a written appearance personally or by attorney and
filing in writing with the court your defenses or objections to the claims set forth against
you. You are warned that if you fail to do so the case may proceed without you and a
judgment may be entered against you by the court without further notice for any money
claimed in the complaint or for any other claim or relief requested by the plaintiff. You
may lose money or property or other rights important to you.
YOU SHOULD TAKE THIS PAPER TO YOUR LAWYER AT ONCE. IF YOU DO
NOT HAVE A LAWYER, GO TO OR TELEPHONE THE OFFICE SET FORTH BELOW.
THIS OFFICE CAN PROVIDE YOU WITH INFORMATION ABOUT HIRING A
LAWYER.
IF YOU CANNOT AFFORD TO HIRE A LAWYER, THIS OFFICE MAY BE ABLE
TO PROVIDE YOU WITH INFORMATION ABOUT AGENCIES THAT MAY OFFER
LEGAL SERVICES TO ELIGIBLE PERSONS AT A REDUCED FEE OR NO FEE.
Cumberland County Bar Association
2 Liberty Avenue
Carlisle, Pennsylvania
(717) 249-3166
ROBERT SOUDER, IN THE COURT OF COMMON PLEAS,
Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA
V. No. 0 5 l C, 1 c1' Te -
RITE AID CORPORATION, CIVIL ACTION - EeUfTY
Defendant
COMPLAINT
AND NOW, comes Defendant, Robert Souder, by and through his attorneys, Wix,
Wenger & Weidner and files this Complaint, stating as follows:
1. Plaintiff is Robert Souder, an adult individual residing at 108 South Lewisberry
Road, Mechanicsburg, Pennsylvania.
2. Defendant is Rite Aid Corporation, a Delaware Corporation, which maintains its
primary place of business in Camp Hill, Pennsylvania (referred to as "Defendant"
or "Rite Aid")
3. Plaintiff formerly served as Rite Aid's Senior Vice President of Human Resources
4. On October 21, 2003, Defendant filed an Amended Complaint against Plaintiff in
this Court (the "Complaint"), docketed number 03-3059 (the "Underlying Action").
The Complaint is attached hereto as Exhibit "A."
5. The Complaint contains counts in unjust enrichment, mistake, fraud, breach of
contract, and breach of fiduciary duty.
6. Rite Aid alleges in its unjust enrichment count (Count 1) that Plaintiff should not
have been paid as an officer and employee of the corporation pursuant to a long-
term incentive plan adopted by Defendant in or about March, 1995 (the "LTIP I"),
and that he refused to repay the amounts he received.
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7. Rite Aid alleges in its mistake count (Count II) that Plaintiff should not have been
paid as an officer and employee of the corporation pursuant to the LTIP I on
account of the mutual mistake by the parties and that he refused to repay the
amounts he received.
8. Rite Aid alleges in its fraud count (Count III) that Plaintiff, while serving as an
officer and employee of the corporation, submitted a letter signed by the CEO of
Rite Aid, Martin Grass, that reflected the terms of an oral amendment to a
Deferred Compensation Agreement, entered into on or about April 12, 1996 (the
"Deferred Compensation Agreement"). Defendant alleges that the letter was
delivered to Plaintiff by Grass after Grass had left the company, that Plaintiff
knew it to be back-dated, and represented it to be a genuine obligation of Rite
Aid intending that Rite Aid rely on the letter and honor the terms therein.
9. Rite Aid alleges in its first breach of contract count (Count IV) that on account of
an alleged breach of duty to cooperate in an investigation, Rite Aid is entitled to
forfeit Plaintiff's benefits under his Deferred Compensation Agreement and
Executive Separation Agreement and General Release, dated July 29, 2000 (the
"Separation Agreement"), both of which arose out of and during his service as an
officer and employee of the corporation. Plaintiff further alleges that Plaintiff
refused to repay amounts provided to him under the Deferred Compensation
Agreement and Separation Agreement.
10. Rite Aid alleges in its second breach of contract count (Count V) that on account
of acts alleged to have been performed by Plaintiff, including the alleged
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submission of a back-dated letter, the Defendant was entitled to determine that
the Deferred Compensation Agreement and Separation Agreement were
terminated, thus forfeiting past and future benefits to Plaintiff. Plaintiff further
alleges that Plaintiff refused to repay amounts provided to him under the
Deferred Compensation Agreement and Separation Agreement.
11. Rite Aid alleges in its breach of fiduciary duty count (Count VI) that Plaintiff in his
position as a senior officer of Rite Aid, violated a fiduciary duty of undivided
loyalty owed to Rite Aid by submitting the allegedly back-dated letter, and
accepting payment under the LTIP I.
12. The facts that Defendant alleges to support its claim for breach of fiduciary duty
are the very same facts that it alleges support its claims of unjust enrichment,
mistake, fraud, and breaches of contract.
13. All counts in the Underlying Action complain of actions allegedly taken by Plaintiff
in his official capacity as an officer of Rite Aid Corporation.
14. On July 6, 2004, Plaintiff filed an Answer with New Matter and Counterclaim (the
"Answer"), denying Defendant's allegations. Plaintiff asserted that Defendant is
not due repayment of the amounts paid to him under the LTIP I. Plaintiff further
asserted that he committed no wrongful acts with respect to Rite Aid and that the
Deferred Compensation Agreement, as amended, is binding upon Defendant.
Plaintiff's Answer is attached hereto as Exhibit "B."
15. Additionally, Plaintiff filed a counterclaim with counts of breach of contract for
Defendant's refusal to pay to Plaintiff amounts owed pursuant to the Deferred
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Compensation Agreement, as amended, and the Separation Agreement, as well
as claims for declaratory judgment, unjust enrichment, and for relief under the
Pennsylvania Wage Payment and Collection Act (collectively, the
"Counterclaims")
16. The Counterclaims, if proved, are additional reasons why Defendant should not
recover.
17. The Restated Certificate of Incorporation of Rite Aid Corporation, adopted by
Defendant's Board of Directors on December 12, 1996 (the "Certificate of
Incorporation"), which is attached hereto as Exhibit "C" and incorporated herein,
provides for Plaintiff a right of indemnification from any liability that may arise out
of the Underlying Action. Additionally, the Certificate of Incorporation imposes
upon Defendant the obligation to advance to Plaintiff his legal fees and other
expenses incurred in defense of the Underlying Action, and any other threatened
or existing legal action. The Certificate of Incorporation further provides Plaintiff
the right to bring suit to enforce said right of advancement of costs.
18. Delaware law controls the disposition of this action as Rite Aid is a Delaware
corporation and the Certificate of Incorporation was adopted pursuant to
Delaware statute.
19. Section 10(B)(1) of the Certificate of Incorporation creates the right to
indemnification for an officer of Rite Aid, stating, in pertinent part:
Right to Indemnification. Each person who was or is made a parry
or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that
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he or she ... is or was a director or officer of the corporation[,]
whether the basis of such proceeding is alleged action in an official
capacity as a director or officer or in any other capacity while
serving as a director or officer shall be indemnified and held
harmless by the corporation to the fullest extent authorized by the
[Delaware] General Corporation Law as the same exists or may
hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the corporation to
provide broader indemnification rights than said law permitted the
corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as
to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors
and administrators ....
20. Section 10(B)(1) of the Certificate of Incorporation further states that the right to
indemnification is a contractual right and creates the right of an officer of Rite Aid
to have his or her legal fees advanced, stating, in pertinent part:
The right to indemnification conferred in this Section B shall be a
contract right and shall include the right to be paid by the
corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however,
that if the General Corporation Law requires, the payment of such
expenses incurred by a director or officer (and not in any other
capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to any
employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the corporation of
an undertaking by or on behalf of such director or officer, to repay
all amounts so advanced if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under this
Section B or otherwise.
21. The Underlying Action and the expenses incurred by Plaintiff in defending himself
against Defendant's claims meet the requirements of Section 10(B)(1) as Plaintiff
has been made a party to a civil action by reason of the fact that he was an
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officer of Rite Aid and because of alleged actions taken while he was an officer of
Rite Aid.
22. Additionally, counterclaims raised by a Defendant in the course of defending
claims against an action brought by his employer are reasons why the employer
should not recover and, therefore, are within the Certificate of Incorporation's
cost advancement provisions.
23. Defendant must advance to Plaintiff all expenses incurred in the prosecution of
his counterclaims in the Underlying Action.
24. Accordingly, Defendant must advance his anticipated legal expenses in
connection with the Underlying Action, including expenses already incurred.
25. Plaintiff has demanded from Defendant the benefits of the above-quoted
provisions, subject to the conditions and undertakings set forth therein.
26. Defendant has refused to honor the provisions, and has denied any responsibility
for expenses incurred by Plaintiff in connection with this action.
27. Section 10(B)(2) of the Certificate of Incorporation gives Plaintiff the right to bring
suit against Defendant to enforce his right to advancement of costs under
Section 10(B)(1) and to recover legal expenses incurred to enforce his right to
advancement, stating, in pertinent part:
If a claim under paragraph (1) of this Section B is not paid in full by
the corporation within the thirty days after a written claim has been
received by the corporation, the claimant may at any time thereafter
bring suit against the corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim.
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28. The provisions of Section 10(8)(2) of the Certificate of Incorporation preclude
Defendant's denial of advancement in the instant case because the provisions
expressly limit such a denial to only those situations in which the "undertaking",
described in the Section, is required of the claimant but has not been tendered.
The Section states, in pertinent part, as follows:
It shall be a defense to [an action to recover legal expenses] (other
than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to
the corporation) that the claimant has not met the standards of
conduct which make it permissible under the [Delaware] General
Corporation Law for the corporation to indemnify the claimant for
the amount claimed ....
(Emphasis added).
29. Because this action is for advancement of legal fees, under the terms of the
Certificate of Incorporation and controlling law, neither Plaintiff's ultimate
entitlement to indemnification nor the merits of the Underlying Action are relevant
to the determination of said right to advancement.
30. Plaintiff's right to advancement of costs and fees protects him from a
burdensome and oppressive expenditure of his own funds against suits brought
due to his having served as an officer of Rite Aid.
31. If Plaintiff's requested relief is not granted, his rights under the Certificate of
Incorporation to be so protected will be irretrievably lost.
32. If Plaintiff's requested relief is not granted, he will be irreparably harmed in that
his ability to defend himself in the Underlying Action will be substantially and
irretrievably impaired.
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33. Granting Plaintiff's requested relief will maintain the status quo between the
parties in that his right to advancement of his costs and legal expenses will be
fulfilled without undue harm or inconvenience to the Defendant and without
prejudice to any of Defendant's rights.
34. Defendant will not be injured or unfairly prejudiced by the enforcement of the
indemnification and advancement clauses of the Certification of Incorporation,
which it adopted of its own volition and for its own purposes.
35. The Certificate of Incorporation is clear in its language and express intent in
creating the right to advancement of legal expenses in cases brought against an
individual on account of his service as an officer and employee of the
corporation, such as the instant one.
36. Plaintiff, in defending against the Underlying Action and in seeking advancement
of costs and legal fees, has incurred expenses in excess of $75,040.00 through
December 2, 2004.
37. Plaintiff is unable to predict the amount of future expenses to be incurred in
defending himself against the Underlying Action.
38. Plaintiff is unable to predict the amount of future expenses to be incurred in
enforcing his rights to advancement of such expenses.
WHEREFORE, Plaintiff, Robert Souder, respectfully requests this Court to enter
an order (a) requiring Defendant, Rite Aid Corporation, to reimburse Plaintiff for costs
incurred by him in defending himself against the Underlying Action, (b) requiring
Defendant to advance such future costs as may be incurred by Plaintiff, (c) enjoining
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Defendant from prosecuting the action in the Court of Common Pleas of Cumberland
County, Pennsylvania, docket number 03-3059 until Defendant makes such payments,
and (d) providing such other further relief as the Court shall deem appropriate.
Respectfully submitted,
Date:
WIX, VVM?NGER & WEIDNER
ichard H. ix, I.D. No. 72 4
Thomas L. Wenger, I. . No. 15489
Dean A. Weidner, I.D. No. 06363
Jeffrey C. Clark, I. D. No. 89277
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
9
AIN
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;;,rI"!'I ._, I -11,.
VERIFICATION
1, Robert Souder, Plaintiff in the foregoing Complaint to Enjoin
Proceedings and Compel Advancement of Legal Fees, have read said Complaint
and hereby affirm and verify that it is true and correct to the best of my personal
knowledge, information and belief. I verify that all of the statements made in the
foregoing pleading are true and correct and that false statements made therein
may subject me to the penalties of
18 Pa.C.S. §4904, relating to unsworn falsification to authorities.
Date:
Robert Souder
EXHIBIT A
1807274vl
JURY TRIAL DEMANDED
THIS IS NOT AN ARBITRATION CASE, AN
ASSESSMENT OF DAMAGES IS REQUIRED
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
By: William A. Slaughter
Hara K. Jacobs
Peter C. Amuso
PA ID Nos. 30637, 74832 & 80182
1735 Market Street, 5 Floor
Philadelphia, PA 19103-7599
1215) 665-8500
Attorneys for Plaintiff
Rite Aid Corporation
RITE AID CORPORATION
30 Hunter Lane
Camp Hill, PA 17011
Plaintiff,
V.
ROBERTSOUDER
108 South Lewisberry Road
Mechanicsburg, PA 17055
Defendant.
NOTICE
You have been sued in court. If you wish to defend
against the claims set forth in the following pages, you
must take action within twenty (20) days after this
complaint and notice are served, by entering a written
appearance personally or by attorney and filing in
writing with the court your defenses or objections to
the claims set forth against you. You are warned that if
you fail to do so the case may proceed without you and
a judgment may be entered against you by the court
without further notice for any money claimed in the
complaint or for any other claim or relief requested by
the plaintiff. You may lose money or property or other
rights important to you.
YOU SHOULD TAKE THIS PAPER TO YOUR
LAWYER AT ONCE IF YOU DO NOT HAVE A
LAWYER OR CANNOT AFFORD ONE, GO TO OR
TELEPHONE THE OFFICE SET FORTH BELOW TO
FIND OUT WHERE YOU CAN GET HELP.
Cumberland County Bar Association
2 Liberty Avenue
Carlisle, PA 17013
(717) 249-3166
CUMBERLAND COUNTY,
COURT OF COMMON PLEAS
CIVIL ACTION
NO. 03-3059
AMENDED COMPLAINT - CIVIL
ACTION
AVISO
Le han demandado a usted en la corte. Si usted quiere
defenderse de estas demandas ex-puestas en las
paginas siguientes, usted tiene veinte (20) dial de plazo
al partir de la fecha de la demanda y la notificacion.
Hace falta asentar una comparencia escrita o en
persona o con un abogado y entregar a la corte en
forma escrita sus defensas o sus objeciones a las
demandas en contra de su persona. Sea avisado que si
usted no se defiende, la corte tomara medidas y puede
continuar la demanda en contra suya sin previo aviso o
notification. Ademas, la corte puede decidir a favor
del demandante y requiere que usted cumpla con todas
las provisions de esta demanda. Usted puede perder
dinero o sus propiedades u otros derechos importantes
Para usted.
LLEVE ESTA DEMANDA A UN ABOGADO
INMEDIATAMENTE. SI NO TIENE ABOGADO O SI
NO TIENE EL DINERO SUFICIENTE DE PAGAR
TAL SERVICO, VAYA EN PERSONA O LLAIME POR
TELEFONO A LA OFICINA CUYA DIRECCION SE
ENCUENTRA ESCRTTA ABAJO PARA AVERIGUAR
DONDE SE PUEDE CONSEGUIR ASISTENCIA
LEGAL.
Cumberland County Bar Association
2 Liberty Avenue
Carlisle, PA 17013
(717) 244-3166
AMENDED COMPLAINT
Plaintiff, Rite Aid Corporation ("Rite Aid" or the "Company"), by its undersigned
counsel, for its amended complaint against Robert Souder ("Souder"), avers as follows:
THE PARTIES
1. Rite Aid is a Delaware corporation with its principal place of business in
Camp Hill, Pennsylvania. Rite Aid is one of the nation's leading drugstore chains, operating
approximately 3400 stores in 28 states.
2. Souder, who was formerly Rite Aid's Senior Vice President, Human
Resources until the termination of his employment in early 2000, resides at 108 South
Lewisberry Road, Mechanicsburg, PA 17055.
JURISDICTION AND VENUE
3. This action arises out of events, transactions and occurrences that took
place in Cumberland County, Pennsylvania, where Rite Aid's principal place of business is
located. Souder resides and is subject to service in Pennsylvania. Accordingly, this Court has
jurisdiction over Souder and venue is proper pursuant to Pa. R.C.P. 1006.
SUBSTANTIVE ALLEGATIONS
Backsround
4. In October of 1999, Rite Aid's Chairman and Chief Executive Officer
Martin L. Grass and its former Chief Financial Officer Franklyn M. Bergonzi were dismissed
from their positions with the Company by the Company's Board of Directors after the Board
discovered that financial statements of the Company prepared by Grass and Bergonzi and filed
with the Securities and Exchange Commission would have to be restated. The restatement of
Rite Aid's financial statements, originally estimated to require a reduction of $500 million in the
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Company's reported earnings over three years, ultimately required a cumulative earnings
reduction of over $1.6.
5. Grass and Bergonzi were subsequently indicted and pleaded guilty to a
criminal conspiracy to defraud Rite Aid, its shareholders, investors, Board of Directors and
vendors, among others. In addition to the misstatement of the Company's financial results, such
conspiracy involved: payments of substantial sums to selected Company executives purportedly
under a long term incentive plan (known as LTIP I), even though the requirements for payment
under LTIP I as established by the Company's Board had not been met; and the creation of
fraudulently back-dated employment agreements in favor of selected Company executives,
purporting to obligate the Company to pay substantial sums to such employees upon the
termination of their employment with the Company.
6. Souder was among the Company executives who received payment under
LTIP I and who received a back-dated employment agreement.
The LTIP I Payment
7. In March of 1995, at the request and recommendation of Grass, Rite Aid's
Board of Directors adopted a long term incentive plan denominated LTIP I under which certain
executives of the Company would be entitled to receive shares of the Company's stock or the
dollar equivalent value of such shares in the event the Company's earnings per share grew at
certain rates over the ensuing four years. Under the terms of LTIP I, the Board authorized
payment only if the Company's earnings per share grew at a minimum rate of at least 8% per
01 year, compounded annually. The measurement period under LTIP I began in March of 1995 and
concluded in March of 1999, covering the results of the Company's 1995 through 1999 fiscal
years. A copy of the Company's 1996 Proxy Statement containing the terms of LTIP I (under
the title "Long-Term Incentive Plan" at p.11) is attached hereto as Exhibit A. The LTIP I
document listing Mr. Souder as one of the Company executives entitled to receive shares under
the plan is attached hereto as Exhibit B.
8. Even though the Company had not met the minimum earnings per share
growth target required for payment under LTIP I, in July of 1999 Grass and Bergonzi caused the
Company to make a payment to Souder thereunder, falsely representing to the Board that the
minimum earnings per share growth target required for payment under LTIP I had been met. In
or about July 1999, Souder received a substantial payment from the Company purportedly on
account of his earning the right to receive shares of the Company's common stock under LTIP I.
9. Despite the Company's request, Souder has failed and refused to repay
such sum.
The Back-Dated Severance Agreement
10. In late 1999 or early 2000, after Grass had been dismissed by the Board
and no longer had any authority to act on the Company's behalf, he created, executed and
delivered letters to several Company executives, purporting to obligate Rite Aid to pay such
executives substantial sums upon the termination of their employment with the Company.
Souder was one of the Company executives to receive such a letter.
11. The letter addressed to Souder was falsely dated June 12, 1998, falsely
purported to have been written on Rite Aid stationary, and falsely purported to have been
executed by Grass in his capacity as Rite Aid's Chief Executive Officer at a time when Grass
was authorized to act in that capacity. In fact, the letter was a fabrication, typed on ersatz Rite
Aid stationary and backdated to appear as though written over a year earlier when Grass was the
Company's CEO. A copy of the back-dated letter from Grass to Souder is attached hereto as
Exhibit C.
12. The back-dated letter to Souder purported to enhance the benefits Souder
would otherwise have been entitled to receive under the standard deferred compensation
agreement then in place between Souder and the Company in several material respects: it
4
purported to increase the amount of the annual payments Souder would be entitled to receive; it
purported to extend the period of time over which Souder would receive such payments; it
purported to accelerate the time when such payments would commence; it purported to
accelerate the vesting of stock options granted to Souder; and it purported to eliminate one of the
material conditions to payment, the requirement that Souder continue employment with the
Company until age 65. None of such enhanced benefits had been approved by any person with
authority to act for the Company.
13. After receiving the letter from Grass, and knowing it to be a back-dated
fabrication, Souder caused the letter to be presented to the new management of Rite Aid, falsely
representing that it was a genuine written obligation of the Company, intending that the
Company rely on the letter's bona fides and intending that the Company honor the purported
obligations assumed in the letter in accordance with its terms.
14. Unaware of Souder's deception, the Company honored the terms of the
back-dated letter presented to new management by Souder by entering into an Executive
Separation Agreement and General Release dated July 29, 2000 (the "Separation Agreement"),
which, among other things, amended a Deferred Compensation Agreement dated April 12, 1996
between Souder and the Company (the "Deferred Compensation Agreement"). A copy of the
Separation Agreement is attached hereto as Exhibit D and a copy of the Deferred Compensation
Agreement is attached hereto as Exhibit E.
15. Like the fabricated back-dated letter from Grass, the Separation
Agreement entitled Souder to receive benefits superior to those payable under the Deferred
Compensation Agreement then in place between Souder and the Company in several material
respects: it increased the amount of the annual payments Souder would be entitled to receive; it
extended the period of time over which Souder would receive such payments; it accelerated the
time when such payments would commence; it accelerated the vesting of Souder's stock options;
and it eliminated the requirement that Souder continue employment with the Company until age
65 to receive benefits.
16. Souder resigned from employment with Rite Aid upon the execution of
the Separation Agreement. Rite Aid has paid Souder substantial amounts under the Separation
Agreement and under the Deferred Compensation Agreement as amended by the Separation
Agreement.
17. Among its other provisions, the Separation Agreement required Souder
to cooperate fully and honestly with the Company and its counsel in connection with any
investigation relating to any matter in which Souder was involved while a Company employee.
Specifically, the Separation Agreement provided:
[Souder] shall at all times cooperate fully with the Company
and its subsidiaries and affiliates and its counsel in connection with
any investigation by the Company relating to any matter in which
[Souder] was or is involved or of which [Souder] has knowledge
by virtue of his employment or other position with Releasees or
any other aspect of the Company's affairs, including without
limitation the pending investigation of the Company's accounting
practices and related matters. Without limiting the generality of
the foregoing, [Souder] shall (i) make himself available to be
interviewed upon reasonable notice and otherwise on a reasonable
basis and for a reasonable period of time relating to any such
investigation, (ii) provide truthful, accurate and complete
information and responses in the course thereof (including without
limitation during interviews) and (iii) provide any and all requested
documentation, to the extent that any such documentation is in his
possession.
18. The Separation Agreement further provided that the Company could
terminate the Separation Agreement in the event Souder failed to cooperate fully with the
Company in connection with any such investigation, in which case all of Souder's benefits under
the Separation Agreement would be forfeited:
Notwithstanding anything herein to the contrary, if the Company
shall determine, in its reasonable discretion, the [Souder] has in a
material respect failed to perform his obligations set forth in this
Section 7, the Company shall have the right to terminate
immediately payment and provision of the Severance Benefits in
their entirety ...and such Severance Benefits shall thereupon be
forfeited by [Souder]. For clarity, it is understood and agreed by
[Souder] that (i) such forfeiture shall result in, among other things,
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(x) the immediate termination of all benefits under the Deferred
Compensation Agreement ... and (y) the immediate termination of
any otherwise then exercisable stock options.
19. Souder violated his obligations under Section 7 of the Separation
Agreement by failing to give truthful, accurate and complete information and responses to
counsel for the Company in connection with investigations by the Company into matters in
which Souder was involved during the course of his employment with the Company.
Specifically, Souder lied to such counsel concerning the back-dated letter he received from
Grass, falsely stating that he had received such letter while Grass was still employed by the
Company as its CEO. Souder similarly lied to the FBI regarding such matters.
20. The Deferred Compensation Agreement amended by the Separation
Agreement further provided for the forfeiture of any rights Souder might otherwise have
thereunder in the event of his discharge for good cause or in the event of the discovery by the
Company of his having committed an act that could have resulted in his discharge for good
cause. Specifically, the Deferred Compensation Agreement states:
If at any time [Souder] is discharged for good cause by
Corporation with the acquiescence of the Board of Directors,
or if subsequent to [Souder's] retirement, disability or death, it
is discovered that [Souder] committed an act which could have
resulted in [Souder's] discharge for good cause by Corporation,
had it been known to Corporation, this Agreement shall
terminate any and all rights and benefits of [Souder] and of any
person claiming by, from or through [Souder] under this
Agreement shall be forfeited and any benefits then being paid
or to be paid in the future shall cease.
21. Upon learning of Souder's deception, Rite Aid's Board terminated the
Separation Agreement and the Deferred Compensation Agreement, and demanded repayment of
the sums paid to Souder thereunder. Despite Rite Aid's request, Souder has failed and refused to
repay the amounts paid to him by Rite Aid under his Separation Agreement and under his
Deferred Compensation Agreement as amended by his Separation Agreement.
7
COUNT I (UNJUST ENRICHMENT)
22. The foregoing averments are incorporated herein by reference.
23. Under the terms of LTIP I, Rite Aid's Board authorized payment to plan
participants only in the event the Company's earnings per share grew at a compound rate of at
least 8% per annum during fiscal years 1996 through 1999.
24. Rite Aid's earnings per share did not grow at a compound rate of 8% per
annum during fiscal years 1996 through 1999. To the contrary, the Company's earnings declined
during that period and the Company suffered substantial losses in 1998 and 1999.
25. Souder nevertheless received payment under LTIP I and has been
unjustly enriched at the Company's expense to the extent of that payment.
26. Despite the Company's request, Souder has failed and refused to repay
the amount he received from the Company on account of LTIP I.
WHEREFORE, Rite Aid demands judgment in its favor and against Souder in
an amount in excess of $50,000, together with interest, delay damages, and costs, including
reasonable attorney's fees, and such other and further relief as the Court deems just and proper.
COUNT II (MISTAKE)
27. The foregoing averments are incorporated herein by reference.
28. Rite Aid paid Souder under LTIP I based upon a mutual mistake of fact,
to wit: the belief that the Company's had experienced growth in its earnings per share over the
relevant period sufficient to meet the target required to justify payment to Souder under LTIP I
when in fact the Company had not achieved such growth in its earnings per share.
29. Despite having received payment under LTIP I by mistake, and despite
Rite Aid's demand for repayment, Souder has failed and refused to repay the amount he received
from the Company on account of LTIP I.
WHEREFORE, Rite Aid demands judgment in its favor and against Souder in
an amount in excess of $50,000, together with interest, delay damages, and costs, including
reasonable attorney's fees, and such other and further relief as the Court deems just and proper.
COUNT III (FRAUD)
30. The foregoing averments are incorporated herein by reference
31. After receiving his letter from Grass, and knowing it to be a back-dated
fabrication, Souder caused the letter to be presented to the new management of Rite Aid, falsely
representing that it was a genuine written obligation of the Company, intending that the
Company rely on the letter's bona fides and intending that the Company honor the purported
obligations assumed in the letter in accordance with its terms.
32. Such misrepresentations were material and were reasonably and
justifiably relied upon by Rite Aid in negotiating and agreeing to the Separation Agreement, in
amending the Deferred Compensation Agreement, and in paying Souder thereunder.
33. As a direct and proximate result of Souder's fraudulent conduct, Rite Aid
has suffered damages.
WHEREFORE, Rite Aid demands judgment in its favor and against Souder in
an amount in excess of $50,000, together with interest, delay damages, and costs, including
reasonable attorney's fees, and such other and further relief as the Court deems just and proper.
COUNT IV (BREACH OF CONTRACT)
34. The foregoing averments are incorporated herein by reference.
35. Under the Separation Agreement, Souder undertook to "at all times
cooperate fully with the Company and its subsidiaries and affiliates and its counsel in connection
with any investigation by the Company relating to any matter in which [Souder] was or is
involved," and specifically to "provide truthful, accurate and complete information and
9
responses in the course thereof (including without limitation during interviews)."
36. Souder breached his obligations under the Separation Agreement by
failing to cooperate fully with the Company and its counsel in connection with Company
investigations relating to matters in which Souder was involved, by failing to provide truthful,
accurate and complete information and responses to Company counsel and by lying to such
counsel about the back-dated letter he had received from Grass.
37. As a result of such breach Rite Aid properly terminated the Separation
Agreement and Souder forfeited the benefits he would otherwise have been entitled to receive
thereunder, including benefits payable under his Deferred Compensation Agreement as amended
by the Separation Agreement.
38. Despite Rite Aid's demand, Souder has failed and refused to repay the
amounts paid to him by Rite Aid under the Separation Agreement and under his Deferred
Compensation Agreement as amended by the Separation Agreement.
WHEREFORE, Rite Aid demands judgment in its favor and against Souder in
an amount in excess of $50,000, together with interest, delay damages, and costs, including
reasonable attorney's fees, and such other and further relief as the Court deems just and proper.
COUNT V (BREACH OF CONTRACT)
39. The forgoing averments are incorporated herein by reference.
40. Under the Deferred Compensation Agreement as amended by the
Separation Agreement, if Souder were discharged for good cause by Rite Aid, or if after
Souder's retirement, disability or death the Company discovered Souder had committed an act
which could have resulted in his discharge for good cause by the Company had it been known to
the Company, the Deferred Compensation Agreement terminated, in which case Souder forfeited
any past or future benefits payable to him under the Deferred Compensation Agreement.
10
41. As alleged more fully above, Souder was guilty of acts which could have
resulted in his discharge for cause had they been known to the Company, including his
submission of a fraudulently back-dated letter agreement to the Company as alleged herein.
42. Using reasonable and non-discriminatory standards, the Board of
Directors of the Company has determined that Souder was guilty of an act which would have
justified his discharge for good cause by the Company and has terminated the Deferred
Compensation Agreement.
43. Despite the Company's request, Souder has failed and refused to repay
those sums previously paid to Souder by the Company under his Deferred Compensation
Agreement.
WHEREFORE, Rite Aid demands judgment in its favor and against Souder in
an amount in excess of $50,000 together with interest, delay damages, and costs, including
reasonable attorney's fees, and such other and further relief as the Court deems just and proper.
COUNT VI BREACH OF FIDUCIARY DUTY)
44. The foregoing averments are incorporated herein by reference.
45. By virtue of his position as a senior officer of the Company, Souder
owed the Company a fiduciary duty of undivided loyalty.
46. Souder breached that duty by engaging in the conduct that is alleged
herein, including submitting to the Company a fraudulently back-dated letter agreement
intending that the Company honor the agreement in accordance with its terms, and accepting
payment under LTIP I even though the requirements established by the Board of the Company
for payment thereunder had not been met.
47. As the result of such breach of fiduciary duty, the Company has been
damaged.
11
WHEREFORE, Rite Aid demands judgment in its favor and against Souder in
an amount in excess of $50,000 together with interest, delay damages, and costs, including
reasonable attorney's fees, and such other and further relief as the Court deems just and proper.
Dated: October 21, 2003
William A. Sl ghter
Hara K. Jaco s
Peter C. Amuso
BALLARD SPAHR ANDREWS
& INGERSOLL, LLP
1735 Market Street, 51" Floor
Philadelphia, PA 19103-7599
(215) 665-8500
Attorneys for Rite Aid Corporation
12
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RITE AID CORPORATION
Lora TEt Irtc2 4TM PLO
Mie Plan is based on increases in EPS over four year period from 1995 actual EPS
Growth in Earnings Per Share
• Awards interpolated at intermediate points
Average % of Sbares
growth hate Fastness
12.0% 100%
11.5 90
11.0 80
10.5 70
10.0 60
9.5 50
9.0 40
g,5 30
8.0 20
Below 8% 0
•- The following individual awards are earned based on actual EPS levels achieved:
Executive I QO% RthqM SO% Share$ 60% cares 400/6 Shares I06A Shm es No Shares
Grass 500,000 400,000 300,000 200,000 100,000 0
Noonan 300,000 240,000 180,000 120,000 60,000 0
Brown 150,000 120,000 90,000 60,000 30,000 0
Bergonai 150,000 120,000 90,000 60,000 30,000 0
Mann 150,000 120,000 90,000 60,000 30,000 0
Kibler 50,000 40,000 30,000 20,000 10,000 0
Bowman 50,000 40,000 30,000 20,000 10,000 0
Markovitz 40,000 32,000 24,000 16,000 8,000 0
Souder 25,000 20,000 15,000 10,000 5,000 0
Feldman 25,000 20,000 15,000 10,000 5,000 0
Gibson 25,000 20,000 15,000 10,000 5,000 0
Miller 25,000 20,000 15,000 10,000 5,000 0
Total 1,490,000 1,192,000 894,000 596,000 298,000 0
% of Outstanding
Over Four Years
1.8% 1.4% .7% .4% 0
Rite Aid Corporation Confidenftl
TOTAL PPM.0
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tom! atosew" ON M
Am 1Z, 1990
W. Robot R. Souder
108 tmwkbony Rwd
Madra k t fol PA 17055
Orr Bob,
I tfifnic•wo had a ve y pmdocM ftor- m cn ttu testsudw" of ttre smlb rraA6De.l: >t ofthe
human MsoMoes aad labor rdurtiorts A,.?.Ib. i aAp e;: atr'i your candor and yaw dwftq of
bft `-,.--wUQn and kVdty. Bit -y?.?i1? tD ?f ti?ItC?.?.tC? IOU ?L ?t.7Yld ? 11! tD ?1t11Q In g
d w guz-.AW vo that va can train It far a few years before you would bn vw the rdns
o0lrrplibib. Ilk vdi arable you and me to ?,porfiwt, males and select the earruL't
VMa have agreed that you wM be r+esh tupoa•yow alsAtrting ap 60, at the end %9X-%Jt, 2001.
In owNit.4w of your a thls swr._iftt early m*emw*, the Compwaty herby amends your
defad Ono rt..1 cwttrad as tol am
(a) The Peymenls under the dlferW wAsq)e umw 0orood via wttulAlkA -,":A
upon your Al11-?d,Ptt at ape 60 and two aor4ma for 1S years baywtd the nomtd
uo1??.??errt i? of 65.
a
?) a w M'satMy pla ya r itio rt snmsd db== OxkV?th &duf cca1 ywn 1 ry
volt ON of
In addllort, w to any stock opUans held by you at the tlme of your r0u.-axft they shd than vest
and be a..1t-u?bt= in wh* ar in Pert from *ne to time fbr a period tip too 36 ira id s. C x,.L-UOty
shall stowna yaw do t.
I •m ax ddb. R that yw wyl apply yourself to ttte task with the same AW and bysRy as you have
de rtorababed h the pent.
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v
EXECUTIVE SEPARATION AGREEMENT AND GENERAL RELEASE
This Executive Separation Agreement and General Release ("Agreement') by and
between Robert Souder ("Executive") and Rite Aid Corporation (the "Company") is entered into
as of July 29, 2000, subject to the revocation and effectiveness provisions of Section 14 below.
WHEREAS. Executive has for many years served as an officer and employee of
the Company and its subsidiaries; and
WHEREAS, the Company has provided Executive with a letter agreement. dated
June 12. 1998 (the "Letter Agreement'). setting forth certain terms regarding Executive's
retirement from the Company; and
WHEREAS, the Company and Executive have determined that Executive's
employment with the Company shall terminate effective as of July 29, 2000: and
WHEREAS. the Company and Executive have determined to further memorialize
Executive's retirement compensation. as set forth in the Letter Agreement. and certain other
matters. subject to the terms and conditions set forth herein.
NOW. THEREFORE. in consideration of the premises and covenants set forth
herein, and for other good and valuable consideration. the receipt and sufficiency of which is
hereby acknowledged by the parties hereto. Executive and the Company hereby agree as follows:
1. Resignation of Positions. Executive hereby voluntarily resigns his
employment with the Company effective as of July 29, 2000 (the "Termination Date"), and the
Company hereby accepts such resignation. Executive hereby further resigns. effective as of the
Termination Date, from all positions he may hold as an officer or director of the Company and its
subsidiaries and affiliates. and the Company hereby accepts such resignations. Executive
covenants and agrees to execute all such instruments and take all such other actions as the
Company may reasonably deem necessary or desirable to evidence or accomplish the foregoing
in full.
2. Severance Benefits. In consideration for Executive's resignations and
release of claims set forth herein, but subject to (i) the forfeiture provisions set forth in Sections 7
and 8 and (ii) expiration of the Revocation Period (as defined in Section 14) without Executive's
revocation of this Agreement, the Company shall provide Executive with the following benefits
(the "Severance Benefits"):
(a) One used desktop computer (including monitor and keyboard)
from the Company's existing inventory of such items.
(b) Within seven days of the date hereof, $238.271.72 (less applicable
withholding and other taxes) in full payment and satisfaction of all amounts due and owing to
Executive by reason of any actual deferral by Executive of any salary or bonus earned by
Executive during his employment with the Company.
23003610-souder.wpd
RS-0002
(c) All 210.000 stock options held by Executive as of the Termination
Date shall become immediately vested and exercisable and shall remain vested and exercisable
through July 29. 20033 (or, if earlier. through the end of the stated term of such stock options).
whereupon any such options that have not theretofore been exercised shall terminate and expire
in their entirety. A schedule with respect to the details of those options is attached as Exhibit A.
(d) That certain Deferred Compensation Agreement. dated April 12.
1996 between Executive and the Company (the "Deferred Compensation Agreement"). is hereby
amended to provide that (i) Executive shall be eligible to receive-payment of benefits under the
Deferred Compensation Agreement commencing July 30.2000: (ii) unless earlier terminated in
accordance with the terms of the Deferred Compensation Agreement or the terms hereof, such
benefits shall be payable to Executive or Executive's beneficiary through and including July 29.
2020; and (iii) the amount of the retirement benefit payable under the Deferred Compensation
Agreement shall be calculated based upon 50% of Executive's highest annual salary plus
Executive's highest annual bonus paid during the 1998. 1999 and 2000 fiscal years of the
Company (ie. 30% of the sum of (i) $196.031.68 (Executive's annual salary in fiscal 2000) and
(ii) $90,394.00 (Executive's annual bonus paid with respect to fiscal 1998)). Other than as set
forth herein, the terms and conditions of the Deferred Compensation Agreement shall remain in
full force and effect.
(e) Executive shall be eligible to receive benefits under any applicable
pension and welfare benefit plans (including the 401(k) Plan) maintained by the Company in
which Executive is a participant as of the Termination Date in accordance with the terms and
conditions of such plans.
(f) The Company shall (i) indemnify Executive to the full extent
permitted by the Company's Certificate of Incorporation (subject to any limitations imposed
under applicable law) and provide advancement of attorneys' fees in connection therewith. and
(ii) continue coverage for Executive for a period of six (6) years following termination of his
employment with the Company under any Director and Officer insurance policies maintained
from time to time by the Company; provided, that Executive shall (and hereby does) undertake to
repay the Company any such amounts advanced with respect to any action. claim or other
proceeding as to which it is ultimately determined under applicable law that Executive shall not
be entitled to indemnification from the Company; and vrovided, urte . that Executive agrees to
execute any similar.or related undertaking in such form as shall be required of other officers and
directors of the Company.
Notwithstanding anything herein to the contrary. Executive acknowledges
and agrees that (i) he shall not receive or be entitled to receive anv annual or other bonus in
respect of the Company's fiscal year ending in or about February 2001, (ii) he shall not receive
or be entitled to receive any payment in respect of any long-term bonus or incentive plan in
which Executive has at any time been a participant prior to the Termination Date, (iii) he shall
not receive or be entitled to receive pension credits or otherwise be eligible for retirement plan
contributions in connection with the Severance Benefits and (iv) other than as set forth in this
Section 2. Executive shall not receive or be entitled to receive any amounts or benefits under any
23003640-soudcr.wpd 2
RS-0003
stock-based or other incentive. bonus or other compensation. severance or fringe benefits plan.
program, policy, agreement or arrangement of the Company. Executive shall not 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 Executive under this Section 2. and
such amounts. benefits and other compensation shall not be reduced in respect of any amounts
actually earned by Executive from subsequent employment.
3. Full Discharge. Executive agrees and acknowledges that the Severance
Benefits provided to Executive under this Agreement and referred to in Section 2 above (i)
exceed in the aggregate any sums or other payments of benefits to which Executive would
otherwise be entitled in respect of his employment with the Company and the termination thereof
under any policy, plan, or procedure of. or any agreement or understanding with. the Company or
its subsidiaries or affiliates and (ii) except as provided in Section 4(a). is in full discharge of any
and all claims the Executive has or may have against the Releasees. as defined in Section 4(a).
including without limitation for wages, benefits (including plan contributions), or attorney's fees.
and any amounts which Executive would otherwise be entitled to receive under the Letter
Agreement.
4. General Release.
(a) In consideration of the Severance Benefits, Executive, for himself
and for his heirs, executors, administrators, representatives, successors and assigns (hereinafter
collectively referred to as the "Releasors"), releases and forever discharges the Company and
any and all of its subsidiaries, divisions. affiliated entities, representatives, successors and
assigns, and any and all of its or their employee benefit or pension plans or funds, and any and all
of its or their past or present officers, directors. stockholders, agents. trustees, administrators.
employees, successors or assigns (whether acting as agents for such entities or in their individual
capacities) (hereinafter collectively referred to as the "Releasees'). from and against any and all
claims. charges, complaints. demands. actions. causes of action. agreements, promises,
contributions, fees, losses. expenses and liabilities of any kind whatsoever (based upon any legal
or equitable theory, whether contractual. common-law, statutory. federal, state, local or
otherwise), whether known or unknown. which Releasors ever had. now have or may have
against Releasees by reason of any actual or alleged act. omission. transaction. practice. conduct.
occurrence, or other matter up to and including the Release Effective Date (as defined in Section
14); provided, that such release shall not apply with respect to (i) any rights of indemnification
and advancement to Which Executive is entitled as of the Termination Date and (ii) Executive's
rights under this Agreement.
(b) Without limiting the generality of the foregoing, this Agreement is
intended to and shall release the Releasoes from any and all claims arising out of Executive's
employment by or other service with Releasees. or the resignation or termination of Executive's
employment or other service with Releasees. including without limitation. (i) any claim under the
Age Discrimination in Employment Act. as amended by, among other laws. the Older Workers
Benefit Protection Act; (ii) any claim under Title VII of the Civil Rights Act of 1964, as amended
by, among other laws, the Civil Rights Act of 1991; (iii) any claim under the Americans with
23003640-sou&r %vO 3
RS-0004
Disabilities Act; (iv) any claim under applicable Pennsylvania employment or other laws: (v)
any other claim of discrimination or retaliation in employment (whether based on federal. state or
local law, statutory or decisional); (vi) any claim under the Employee Retirement Income
Security Act of 1974. as amended ("ERISA"): (vii) any claim under the National Labor Relations
Act. as amended, (viii) any claim under the Worker Adjustment and Retraining Notification Act:
(ix) any claim for tort or for breach of contract. and (x) any claim for attorneys' fees. costs.
disbursements or the like. except to the extent any such claim relates to (A) any rights of
indemnification and advancement to which Executive is entitled as of the Termination Date and
(B) Executive's rights under this Agreement.
(c) Executive further agrees that he will not seek or accept any award
or settlement from any source or proceeding with respect to any claim or right covered by this
Section 4 and Section 5 below.
5. No Claims. Executive agrees. to the fullest extent permitted by law. not to
commence. maintain, prosecute or participate in any action or proceeding of any kind, nor
encourage anyone else to do so. against any of the Releasees. arising out of any act. omission.
transaction or occurrence occurring up to and including the Release Effective Date (other than
with respect to any action, omission. transaction or occurrence that is expressly subject to the
proviso in Section 4(a)), and Executive represents and warrants that he has not done so at any
time prior to or as of the Release Effective Date.
6. No Injurious Conduct. Executive acknowledges that he has not and agrees
that he will not intentionally engage in any conduct that is injurious to Releasees' reputation or
interest, including but not limited to (i) divulging, communicating, or in any way making use of
any confidential or proprietary information acquired in the performance of Executive's duties for
Releasees (except as may be required pursuant to Section 7 below or by applicable law): and (ii)
publicly disparaging (or inducing or encouraging others to publicly disparage) any of the
Releasees.
7. Cooperation.
(a) Executive shall at all times cooperate fully with the Company and
its subsidiaries and affiliates and its counsel in connection with any investigation by the
Company relating to any matter in which Executive was or is involved or of which Executive has
knowledge by virtue of his employment or other position with Releasees or any other aspect of
the Company's affairs, including without limitation the pending investigation of the Company's
accounting practices and related matters. Without limiting the generality of the foregoing,
Executive shall (i) make himself available to be interviewed upon reasonable notice and
otherwise on a reasonable basis and for a reasonable period of time relating to any such
investigation. (ii) provide truthful, accurate and complete information and responses in the course
thereof (including without limitation during interviews) and (iii) provide any and all requested
documentation. to the extent that any such documentation is in his possession.
2 3 00 3 640-souda.MA 4
RS-0005
(b) Executive agrees that. in the event he is subpoenaed by any person
or entity to give testimony (in a deposition. court proceeding or otherwise) which in any way
relates to Executive's employment or other position with Releasees. any investigation.
proceeding or litigation or otherwise relates to the subject matter of this Agreement. Executive
shall give prompt notice of such request to the Company's General Counsel at the address listed
below.
(c) The Company shall reimburse Executive for his reasonable and
properly documented travel expenses relating to the discharge of his obligations pursuant to this
Section 7.
(d) Notwithstanding anything herein to the contrary. if the Company
shall determine, in its reasonable discretion, that Executive has in a material respect failed to
perform his obligations set forth in this Section 7. the Company shall have the right to terminate
immediately payment and provision of the Severance Benefits in their entirety (other than vested
benefits protected under ERISA and Executive's rights to indemnification and advancement as
set forth in Section 2(f)), and such Severance Benefits shall thereupon be forfeited by Executive.
For clarity, it is understood and agreed by Executive that (i) such forfeiture shall result in. among
other things, (x) the immediate termination of all benefits under the Deferred Compensation
Agreement (notwithstanding anything to the contrary therein) and (y) the immediate termination
of any otherwise then exercisable stock options; and (ii) the termination of payment and
provision of Severance Benefits pursuant to this Section 7(e) shall in no way affect the
continuing validity and enforceability of the release provided in Section 4 and Executive's other
covenants and agreements hereunder.
8. Cause. If at any time the Company shall become aware of evidence on the
basis of which it shall reasonably determine that during the period of his employment with the
Company, Executive committed an act of a material nature which could have resulted in
Executive's discharge for cause by .the Company, had it been known to the Company. the
Company shall have the right to terminate immediately payment and provision of the Severance
Benefits in their entirety (other than vested benefits protected under ERISA). and such Severance
Benefits shall thereupon be forfeited by Executive. For purposes of this Agreement and the
Deferred Compensation Agreement. acts which shall be deemed to have resulted in Executive's
discharge by the Company for "cause" shall include (i) any act of fraud. embezzlement.
dishonesty or concealment relating to the business of the Company or any subsidiary or affiliate,
(ii) knowing falsification of records of the Company or any subsidiary or affiliate. (iii) gross
misconduct or willful malfeasance in the performance of his duties with the Company or any
subsidiary or affiliate, (iv) commission of any felony or securities law violation. or (v) any other
act or omission that would permit the Company to terminate Executive's employment for cause
under applicable decisional or statutory law. For clarity, it is understood and agreed by
Executive that (i) such forfeiture shall result in, among other things, (x) the immediate
termination of all benefits under the Deferred Compensation Agreement and (y) the immediate
termination of any otherwise then exercisable stock options, (ii) the termination of payment and
provision of the Severance Benefits pursuant to this Section 8 shall in no way affect the
continuing validity and enforceability of the release provided in Section 4 and Executive's other
13003640-sou&r.wo
RS-0006
covenants and agreements hereunder; and (iii) it shall be no defense to the forfeiture provisions
of this Section 8 that one or more acts constituting grounds for discharge for cause may actually
have been known to the Company or to any officer or director thereof (or of any subsidiary or
affiliate) during the period of Executive's employment with or service as an officer or director of
the Company (the Company acknowledges that it does not know of any such grounds for
discharge).
9. Non-Disclosure. The terms and conditions of this Agreement. the
disclosure information attached as Exhibit B. and the circumstances and discussions giving rise
to this Agreement are and shall be deemed to be confidential. and shall not be disclosed by
Executive to any person or entity without the prior written consent of the Chairman and Chief
Executive Officer of the Company, except if required by law, or to Executive's accountants.
attorneys, spouse or members of his immediate family, provided that these latter persons each
agree to maintain the confidentiality of this Agreement. the disclosure information and the
circumstances and discussions giving rise to the Agreement. Executive further represents that he
has not disclosed the terms and conditions of this Agreement or the disclosure information or the
circumstances and discussions giving rise to the Agreement to anyone other than his attorneys.
accountants or spouse.
10. Confidentiality. Executive acknowledges that during the course of his
employment with the Company, its subsidiaries and affiliates, he has been exposed to documents
and other information regarding the confidential affairs of the Company, its subsidiaries and
affiliates, 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 and affiliates not readily available to the
public (the "Confidential Information"). In recognition of the foregoing, the Executive covenants
and agrees as follows:
(a) Except as required by law. 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 unauthorized disclosure
or use thereof. unless such disclosure or use is expressly authorized by the Chairman and Chief
Executive Officer of the Company in writing in advance of such disclosure or use.
(b) Promptly following the Termination Date, Executive shall deliver
to the Company's offices in Camp Hill. Pennsylvania all of the property and equipment of the
Company and its subsidiaries (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, successors or assigns, and/or their respective past and present officers.
directors, employees, agents or consultants (collectively, the "Company Property, Records and
Files"); it being expressly understood that Executive shall not be authorized to retain any of the
23003640-souder.wyd 6
RS-0007
Company Property, Records and Files. except to the extent expressly so authorized in writing by
the Company's Chairman and Chief Executive Officer.
11. Non-Solicitation. From the Termination Date through July 30. 2002.
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, successors or assigns to terminate his, her or its employment or other relationship with
the Company or its subsidiaries, affiliates. successors or assigns for the purpose of associating
with any competitor of the Company or its subsidiaries. affiliates: 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. successors or assigns for any
other reason. For purposes of this Section 11, the term "competitor of the Company" shall be
defined as any person or entity which directly or indirectly through one or more subsidiaries and
affiliates owns and/or operates 200 or more retail drugstores in the United States.
12. Rights and Remedies upon Breach. If Executive breaches, or threatens to
commit a material breach of. any of the provisions of Sections 6. 10 or 11 above (the "Restrictive
Covenants"). and in the case of breaches subject to being cured, after notice to the Executive and.
if not cured by the Executive within 15 days of such notice, the Company and its subsidiaries,
affiliates, 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, successors or assigns at law or in equity:
(a) 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. successors or assigns. as the case
may be, and that money damages would not provide an adequate remedy to the Company or its
subsidiaries, affiliates, successors or assigns. as the case may be.
(b) The right and remedy to require Executive to account for and pay
over to the Company or its subsidiaries, affiliates, 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. -
(c) 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.
(d) 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
23003640-souder.wpd 7
RS-0008
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. to render such provision enforceable (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.
(e) 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, 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.
In addition to the foregoing remedies. in the event Executive materially breaches
any of the provisions of the Restrictive Covenants, the Company shall have the right to terminate
immediately payment and provision of the Severance Benefits in their entirety (other than vested
benefits protected under ERISA and Executive's rights to indemnification and advancement as
set forth in Section 2(f)), and such Severance Benefits shall thereupon be forfeited by Executive.
The provisions of Section 11 of the Deferred Compensation Agreement shall be applicable to any
decision by the Company to terminate payment and provision of Severance Benefits and the
second sentence of Section 7(d) shall apply to the preceding sentence.
13. No Violation. The making of this Agreement is not intended to, and shall
not, be construed as an admission that Releasees have violated any federal, state or local law
(statutory or decisional), ordinance or regulation. breached any agreement. contract.
understanding, policy or practice, or committed any wrong whatsoever against Releasors. The
parties further agree that this Agreement may be used as evidence only in a subsequent
proceeding in which any of the parties alleges a breach of this Agreement.
14. Review and Revocation Period. Executive shall have up to forty-five (45)
days from the date of receipt hereof to consider the terms and conditions of this Agreement.
Executive may accept this Agreement by signing it before a notary and returning it to Mr. Robert
G. Miller. Chairman and Chief Executive Officer. Rite Aid Corporation. at 30 Hunter Lane,
Camp Hill, Pennsylvania 17011, by no later than the close of business on the forty-fifth (45th)
day after Executive receives this Agreement ('`Agreement and Release Return Date"). After
signing this Agreement, Executive shall have seven (7) days (the "Revocation Period") to revoke
this Agreement by indicating his desire to do so in writing (i) addressed to Mr. Miller at the
address listed above. and (ii) received in hand by Mr. Miller no later than the close of business on
the seventh (7th) day following the date Executive executes this Agreement. The effective date
of this Agreement shall be the eighth (8th) day after Executive executes it (the "Release Effective
Date"). If the last day of the Agreement and Release Return Date or the Revocation Period falls
on a Saturday, Sunday, or holiday, the last day of the Agreement and Release Return Date or the
Revocation Period, respectively, will be deemed to be the next business day. In the event
23003640-louder. wpd
RS-ooo9
Executive does not accept this Agreement as set forth above, or in the event Executive revokes
this Agreement during the Revocation Period, this Agreement, including but not limited to the
obligation of the Company to provide the Severance Benefits referred to in Section 2, shall
automatically be deemed null and void: provided, that notwithstanding anything herein to the
contrary, the date of termination of Executive's employment with the Company shall at all events
be July 29. 2000.
15. Acknowledgment. Executive acknowledges that: (a) he has carefully read
this Agreement in its entirety; (b) he has been offered and had an opportunity to consider fully
the terms of this Agreement and the disclosure information attached as Exhibit A provided
pursuant to the Older Workers Benefit Protection Act, for a period of at least forty-five (45) days.
or where applicable has waived the necessity of a full 45 days: (c) he has been advised by the
Company in writing to consult with an attorney of Executive's choice before signing this
Agreement; (d) he fully understands the significance of all of the terms and conditions of this
Agreement and he has discussed them with his independent legal counsel. or has had a
reasonable opportunity to do so: (e) he has had answered to his satisfaction any questions he has
asked with regard to the meaning and significance of any of the provisions of this Agreement;
and (f) he is signing this Agreement voluntarily and of his own free will and assents to all the
terms and condition contained herein.
16. Successors. This Agreement is binding upon, and shall inure to the benefit
of, the parties and their respective heirs. executors. administrators. representatives, successors
and assigns.
17. Survival. Executive's obligations under Sections 4, 5.6.7, 9. 10 and I 1 of
this Agreement and the Company's rights hereunder shall survive the payment of the Severance
Benefits.
18. Severability.: Subject to Section 12. if any provision of this Agreement
shall be held by a court of competent jurisdiction to be illegal, void. or unenforceable. such
provision shall be of no force and effect. However, the illegality or unenforceability of such
provision shall have no effect upon. and shall not impair the enforceability of. any other
provision of this Agreement; provided. however, that, upon any finding by a court of competent
jurisdiction that the release and covenants provided for by Sections 4 and 5 of this Agreement are
illegal, void, or unenforceable, Executive agrees either to return promptly to the Company the
Severance Benefits theretofore paid and provided to him under this Agreement in their entirety or
to execute a release, waiver or covenant (reasonably satisfactory to the Company) that is legal
and enforceable and has to the extent permissible under applicable law substantially the effect of
the release and covenants provided for by Sections 4 and 5 of this Agreement. Further. if
Executive seeks to challenge the validity of or otherwise vitiate this Agreement or any provision
thereof (including, without limitation. Sections 4 and 5), Executive shall, as a precondition, be
required to repay to the Company the Severance Benefits theretofore paid and provided to him
under this Agreement in their entirety.
23003640-souder wpd 9
RS-oo?i io
19. 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
If to Executive: Robert Souder
108 Lewisberry Road
Mechanicsburg, Pennsylvania 17055
Fax:
Any party may change such parry's address for notices by notice duly given pursuant hereto.
20. Governing Law: Venue. This Agreement shall be governed by the laws of
the Commonwealth of Pennsylvania and the parties in any action arising out of this Agreement
shall be subject to the jurisdiction and venue of the federal and state courts. as applicable. in the
County of Cumberland. Commonwealth of Pennsylvania.
21. Entire Agreement. This Agreement and Exhibits A and B hereto and the
Deferred Compensation Agreement as amended by this Agreement constitute the complete
understanding between the parties and supersede any and all prior agreements. understandings,
and discussions, whether written or oral. between the parties. Without limiting the generality of
the foregoing, Executive further acknowledges that this Agreement supersedes the Letter
Agreement in its entirety, and that'the Letter Agreement shall be of no further force or effect
from and after the Release Effective Date. No other promises or agreements shall be binding
unless in writing and executed after the Release Effective Date by the parties to be bound
thereby.
22. _ Amendment: Waiver. 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 parry 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.
23003610•souder.wpd 10
RS-00011
23. 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.
24. Headings. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
25. 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. the Executive has hereunto set his hand and. pursuant
to due authorization. the Company has caused this Agreement to be executed in its name and on
its behalf. all as of the day and year set forth below.
RITE AID CORPORATION
Date: By: Elliot S. Gerson
Its: Senior Executive Vice President
Date: c? ?7 U - J1
obert Souder
._003610-souder %Vd I 1
RS-00012
COMMONWEALTH OF PENNSYLVANIA
COUNTY OF CUMBERLAND
:ss
On thisal day of July, 2000. before me personally came Robert Souder. to me
known and known to me to be the person described in and who executed the Executive Separation
Agreement and General Release, and he duly acknowledged to me that he executed the same.
No Public
z J?s .,,...
Linda L 8rown, Notary Public
Easl Pennsboro Twp. Cumberland County
Mr Commission Expires June 18, 2000,
COMMONWEALTH OF PENNSYLVANIA
COUNTY OF CUMBERLAND
:ss
On thiAQh day of . July, 2000, before me personally came Elliot S. Gerson, who
acknowledged that he is the Senior Executive Vice President of Rite Aid Corporation to me known
and known to me to be the person described in and who executed the Executive Separation
Agreement and General Release, and he duly acknowledged to me that he executed the same on
behalf of Rite Aid_Corporation.
Notary Public
Notarial Seal ~ -?
Linda L. Brown, Notary Public
East Pennsboro Twp. Cumberland County
My Commission Expires June 18, 200fiY1
2)003640-wuder.wpd
12
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RS-00014
EXHIBIT B
Severance benefits have been offered to Timothy Noonan and William Titelman in connection with
the termination of their employment with the Company pursuant to individually negotiated
arrangements.
Name Age Title
Timothy Noonan 58 Interim Chief Executive Officer. President and COO
William Titelman 53 Executive Vice President
Philip Markovitz 59 Senior Vice President
230036"sou&r. wpd
13
RS-oom
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• i
DEjrrorn COMPVQSATION AGP 'NT
AGREEMENT entered into as of the 12th day of April.,
1996, by and between RITE AID CORPORATION, with offices at 30
Hunter Lane, Camp Hill, Pennsylvania 11011 ("Corporation,),
and the euployee named on-the signature page-of this,
Agreement ('Employee").
WHEREAS, Employee is rendering and Corporation desires
that zmloyee continue to render valuable services to
corporation; and
WKmwAS, to assist Employee in providing for the
contingencies of death, disability and old age dependency,
Corporation and RMloyee desire to enter into this Agreement
"Agreement') to provide Employee with deferred compensation.
NOW, THMWORE, Corporation and Employee hereby agree as
follows:
,
1. (a) In the event that Employee's employment with
corporation terminates after Employee has reached age sixty
five (65) and has completed at least twenty (20) years of
service with Corporation, Employee shall be entitled to
retirement ('Retirement') with the compensation provided in
this Agreement. In such event, the Corporation shall pay 'to
Employee, monthly, an amount equal to one twelfth (1/12) of
fifty (50%)- percent of the average of the three (3) highest
annual base salaries paid or. accrued in respect of three (3)
fiscal years of the Corporation within the last ten (lo)
fiscal.years of the Corporation prior to termination of
Employee's employment; provided, however, that in the event
Employee's Retirement commences after at least six (6) months
of the fiscal year in which Employee's Retirement takes place
have elapsed, that fiscal year shall be included as the tenth
year in the calculation of the Retirement Allowance and
Employee shall be deemed to have been paid an annual base
salary for that entire fiscal year at the highest rate paid
to Employee in-that fiscal year. The monthly amount of such
payments shall hereinafter be referred to as the "Retirement
Allowance". Monthly payments of Retirement Allowance shall
commence on the first day of the month next following
Employee's Retirement and shall continue for one hundred
eighty (180) months. All payments of Retirement Allowance
2
•under this Agreement shall be made subject to such
withholding and deductions as may bu required by law.
(b) if the Employee's service with the Corporation is
terminated or suspended by reason of disability
(*Disability), then regardless of the Emmployee's age or
length of service, and provided Employee is not then
receiving disability payments under Corporation's Long Term
Disability Plan, if requested by Employee and if approved by
the Board of Directors in its sole discretion, Corporation
shall pay to Employee, monthly, commencing on the first day
of the third month next following its receipt of Evtployee's
request, so much of the Retirement Allowance (determined at
the date of Employee's Disability) as the Board of Directors
shall deem appropriate. Such monthly payments shall continue
until the earlier of: (i) the cessation of Employee's
Disability (whether or not Employee returns to active
employment with Corporation or with another employer) or (ii)
the payment of an aggregate amount of the product of 180 and
the Retirement Allowance or (ii) Employee's death.
EaVloyee shall be deemed to have incurred a Disability
only if according to certification of competent medical
authority approved or selected by Corporation's Hoard of
3
Directors ('Board of Directors'), Employee is incapable of
performing normal duties with Corporation by reason of a
medically determinable physical or mental impairment which
will persist for an indeterminate period of time.
(c) if after receiving monthly Disability payments
under this Agreement, Employee returns to employment with
corporation, the total dollar amount of Retirement Allowance
received by Employee during Employee's Disability shall, in
any manner deemed equitable by the Board of Directors, be
subtracted from the aggregate Retirement Allowance to which
Employee may later become entitled at such time as that
Retirement Allowance becomes payable under this Agreement.
However, there shall = be subtracted from the Retirement
Allowance any payments received under any other disability
insurance or program = arising out of this Agreement.
2. (a) If IhVloyee•dies while employed by Corporation
or while subject to a Disability, Corporation shall pay to
F:mployee's beneficiary- designated pursuant to Section 5 'or as
otherwise provided in that Section, a Retirement Allowance
the amount of which shall be calculated as if the death had
occurred W after Employee had completed twenty (20) years
of service with Corporation and (ii) after Employee had
4
reached age sixty five (65), reduced by one-180th of the
aggregate amount, if any, paid to Employee under Section
I(b). Monthly payment of that Retirement Allowance shall
commence on the first day of the month next following the
date of Employees death and shall continue for one hundred
eighty (180) months.
(b) If Employee dies after payments under Section
1 have. commenced, but before payments have been completed,
the'remeining payments shall be continued to Employee Ia
beneficiary designated pursuant, to Section S or as otherwise
provided in that Section.
3. If EmPloYee's employment with Corporation
terminates for any reason other than Retirement, disability
or death, this Agreement shall terminate and no benefits
shall be payable to Employee or to any person or entity
claiming by, from or through Employee.
4. If at any time Employee is discharged for good
cause by Corporation with the acquiescence of the Board of
Directors, or if subsequent to Euployee,a retirement,
disability or death, it is discovered that EMloyee committed
an act which could have resulted in Employee's discharge for
5
t
good cause by Corporation, had it been )mown to corporation,
this Agreement shall terminate and any and all rights and
benefits of Employee and of any person claiming by, from or
through Employee under this Agreement shall be forfeited and
any benefits then being paid or to be paid in the future
shall cease. In the case of an after-discovered fact, the
Board of Directors shall.determine whether there has been an
act which would have Justified a discharge for good cause,
_ using reasonable and non-discriminatory standards.
5. Employee shall designate in writing on.a form
delivered to the Board of Directors (Attention: Cbairman)•a
beneficiary or beneficiaries and successor beneficiaries
(including address) to receive the benefits, if any, payable
under this Agreement upon Employee's death. The Board of
Directors shall decide which beneficiary or beneficiaries, if
any, shall have been validly designated. Such designation of
benef-ciary may be revoked and changed by Employee, from time
to time, in writing on a form delivered to the Hoard of
Directors (Attention: Chairman), and shall be revoked
automatically if the designated beneficiary or beneficiaries
predecease Employee, in which case a new designation of
beneficiary or beneficiaries may be made:- If, at the time of
Employee's death no designation of beneficiary is then in
6
effect, or following Employes's death, upon the death of all
successor beneficiaries designated by Employee, all remaining
Retirement Allowance shall be paid to Employee's estate.
6. Employee's rights under this Agreement and the
rights of Employees beneficiary or estate may not be
assigned, transferred, pledged or encumbered.
7. in determining Employee's length of service with
corporation for purposes of this Agreement there shall be
counted any period of: (a) employment with any business
entity controlling, controlled by or under common control
with corporation; (b) employment with any business entity at
the request of Corporation; (c) service prior to the,date of.
this Agreement with any business entity referred to in (a)
and (b) of this Section and (d) any period of Disability
(whether or not payments of the Retirement Allowance were
made to Employee as a result thereof).
S. Nothing contained in this Agreement shall be
construed as conferring upon Employee the right to continue
' in the employ of Corporation in any capacity and the
employment rights of Employee shall be determined as if this
Agreement had never been executed.
7
9. If at any time after Retirement Employee,-without
the prior consent of the Board of Directors, undertakes
employment with or provides consulting or advisory services
to any person or entity engaged in the continental United
states. (a) in any business in which Corporation or any
entity, employment with which would, for purposes of this
Agreement, constitute employment by the corporation, is
engaged (whether or not in competition with Corporation or
such entity) or (b) in the operation of pharmacy benefit
manager, Emloyee's right to any remaining Retirement
Allowance otherwise payable under this Agreement shall at
that time cease and terminate permanently. The provisions of
this Section 9 shall not be applicable with respect to
employment by or consulting services to a trade association
of persons or entities referred to in (a)-of this section.
10. The benefits, if any, payable to Employee in
accordance with this Agreement shall not constitute a
segregation of funds or other property for the benefit of
Employee or of any person or entity claiming by, from or
through Employee. Nothing contained in this Agreement and no
action taken pursuant to the provision of this Agreement
shall create or be construed as creating a trust of any kind
or a fiduciary relationship between Corporation and Employee
8
4W
or any parson or entity claiming by, from or throug.a Employee
and neither Employee nor any person or entity claiming by,
from or through Employee shall have rights with respect to
the benefits under this Agreement greater than the rights of
an unsecured general creditor of the Corporation.
11. (a) The Board of Directors shall have full power
and authority to interpret, construe and administer this
Agreement and shall not be liable to Employee or any person
or entity claiming by, from or through Employee for any
action taken or omitted in connection with the
interpretation,•construction or administration or this
Agreement and no action taken or omitted by the Board of
Directors in connection with the interpretation, construction
or administration of any similar or dissimilar agreement
between Corporation and any other employee of Corporation
shall by reason of this Agreement create any cause of action
in Employee or any person or entity claiming by, from or
through Employee. All decisions, interpretations and actions
of the Board of Directors taken in connection with this
Agreement, including any claims for benefits made under this
Agreement, shall be conclusive, final and binding on all
parties.
9
(b) if the Board of Directors denies the claim of
an Employee or of any person claiming by, from or through
Employee (a •Claimant•) for payment of the Retirement
Allowance under this Agreement, the Board of Directors shall
provide written notice,. within sixty (60) days after receipt
of the claim, setting forth in a manner calculated to be
understood by the Claimant;
(i) the specific reasons for such denial;
. (ii) the specific reference to the provisions
of this Agreement on which denial is based;
(iii) a description of any additional material
or information necessary to perfect the claim and an
explanation of why such material or information is
needed; and
{iv) an explanation of this Agreement's claim
review procedure and the time limitations of this
subsection applicable thereto.
Employee or any Claimant whose claim for payment of
the Retirement Allowance has been denied may request review
10
4r
by the Board of Directors of the denied claim by notifying
the Board of Directors in writing within sixty (60) days
after receipt of the notification of claim denial. As part
of said review procedure, the Fznployee or Claimant or their
authorized representatives may review pertinent documents and
submit issues and comments to the Board of Directors in
writing. The Board of Directors shall render its decision to
Employee or the Claimant in writing in a manner calculated to
be understood by the Employee or Claimant not later than
sixty (60)• days after receipt of the request for review,
unless special circumstances require an extension of time, in
which case decision shall be rendered as soon after the sixty
(60) day period as possible, but not later than one hundred
twenty (120) days after receipt of the request for review.
' The decision on review shall state the specific reasons
therefor and the specific Agreement references on which it is
based.
12. This Agreement shall be binding upon and inure to
the benefit of this Corporation, its successors and assigns,
and Employee, Employee's beneficiary, heirs, executors,
administrators and legal representatives.
11
I
13. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be
deemed a waiver of such term, covenant or condition, nor
shall any waiver or relinquishment of any right or power
hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or
times.
14. If any clause, sentence, paragraph, section or part
of this Agreement shall be held by any-court of coupetent
jurisdiction to be invalid, such judgment shall not affect,
impair or invalidate the remainder hereof.
15. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and sent by
registered or certified mail; if to Employee, to the address
shown on the books of Corporation; and if to Corporation, to
the address shown above or such other address as Corporation
may have designated in writing, or if actually received by
the person to whom sent.
16. This Agreement shall be subject to and construed in
accordance with the laws of the commonwealth of Pennsylvania
12
J
r
'where it is made without giving effect to principles of
conflict of law.
IN WITNESS WHEREOF, Corporation has caused this Agreement
to be executed by its duly authorized officer and
Employee has hereunder set Employee's band as of the date first
above written.
RITE AID OR-PORATION
By
it L. Grass
irman of the Board and
Chief Executive Officer .
EMPLO
ame: Robert S uder
-13-
J w
DESIGNA'T'ION OF BVMntMY
TO: The Board of DirecOo4a. of Rite Aid Corporation
Aneatiou: chairman
In accordance with the Deferred Compensation Asrmne nt zmated to me
by Rite Aid Corporation, I hereby duignate the following beaddaries to receive any
payment9 %tkich may be due following my death:
Primary Beneficiary (or Beneficiaries):
Name Percentage Address
JrO,? PV SO vd 10 o y+ J ot• .S).4 u),slbQLy )U
??,I?,uJcs ?vf? PA
Il
Social
Severity Number
c2&r3 6 7rg 1
Secondary Beneficiary (or Beuef4aries) if all Primacy BeneficimTies are deemed:
Social
Name Percentage Addren Sprity Nmaber
,lywiltiL SOV d Eli/ b eja i'? 6??i...vwN Al"AN4L? ?•r
A P%Y ssu d O-R- s'? %, yr'is c? ?v? WAA DA-
If mote than one Primary or Contingent benadcasry is named, specify die
permatage to be paid to each; if percentages are not specified, payments will be made
equally to the beaeficiades dm Twang.
I understand that this Designation is subject to the beams of the Avemmerct,
and that I rosy amend or revoke d6 DaciVmdon at any time at times in the nmaec
provided for in &e AjjAa wAt;
- Y
Date:
04? - J 5 1 S S Sigature: _ "r
i
DSW2 06? 1
VERIFICATION
I, Robert B. Sari, hereby state that I am the Senior Vice President, General Counsel &
Corporate Secretary Rite Aid Corporation; that I am authorized to make this verification on
behalf of plaintiff in the foregoing action; that I have personal knowledge of the statements made
in the foregoing Amended Complaint; and that the statements made in the Amended Complaint
are true and correct to the best of my knowledge, information and belief. I understand that the
statements in this verification are made subject to the penalties of 18 Pa.C.S. § 4904 relating to
unsworn falsification to authorities.
obert B. Sari
14
BALLARD SPAHR ANDREWS & INGERSOLL, LLP Attorneys for Plaintiff
By: William A. Slaughter Rite Aid Corporation
Hara K. Jacobs
Peter C. Amuso
PAID Nos. 30637, 74832 & 80182
1735 Market Street, 50 Floor
Philadelphia, PA 19103-7599
(215) 665-8500
RITE AID CORPORATION CUMBERLAND COUNTY,
30 Hunter Lane COURT OF COMMON PLEAS
Camp Hill, PA 17011 CIVIL ACTION
Plaintiff,
NO. 03-3059
V.
ROBERT SOUDER CIVIL ACTION
108 South Lewisberry Road
Mechanicsburg, PA 17055
Defendant.
CERTIFICATE OF SERVICE
I hereby certify that on October 21, 2003, a true and correct copy of the Amended
Complaint of plaintiff Rite Aid Corporation was served via first class mail, postage prepaid
upon:
Thomas L. Wenger, Esquire
Wix, Wenger & Weidner
508 North Second Street
Harrisburg, PA 17108
Attorney for Plaintiff
Peter C. A? Iuso
14
EXHIBIT B
RITE AID CORPORATION, IN THE COURT OF COMMON PLEAS,
Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA
V. NO. 03-3059
ROBERT SOUDER, CIVIL ACTION -
Defendant JURY TRIAL DEMANDED
NOTICE TO PLEAD
TO: Plaintiff, Rite Aid Corporation, by and through Alan J. Davis, Esquire, William A.
Slaughter, Esquire, Peter C. Amuso, Esquire, Ballard Spahr Andrews & Ingersoll,
LLP, 1735 Market Street, 51St Floor, Philadelphia, Pennsylvania 19130-7599.
YOU ARE HEREBY NOTIFIED to plead to the within New Matter and
Counterclaim within twenty (20) days from service hereof, or a default judgment may be
entered against you.
Date: July 6, 2004
WIX, W GER & WEIDNER
Rif r? H. Wix, I.D. N),0 2 4
Thomas L. Wenger, I.D. 15489
Dean A. Weidner, I.D. No. 06363
Jeffrey C. Clark, I.D. No. 89277
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
RITE AID CORPORATION,
Plaintiff
V.
ROBERT SOUDER,
Defendant
IN THE COURT OF COMMON PLEAS,
CUMBERLAND COUNTY, PENNSYLVANIA
NO. 03-3059
: CIVIL ACTION -
: JURY TRIAL DEMANDED
ANSWER WITH NEW MATTER AND COUNTERCLAIM
AND NOW, comes Defendant, Robert Souder, by and through his attorneys, Wix,
Wenger & Weidner, and files this Answer, stating as follows:
THE PARTIES
1. Admitted.
2. Admitted.
JURISDICTION AND VENUE
3. Admitted in part, denied in part. It is admitted this action arose out of events that
occurred in Cumberland County Pennsylvania. It is denied that this Court has
jurisdiction over claims arising in this case involving the Employee Retirement
Income Security Act ("ERISA").
SUBSTANTIVE ALLEGATIONS
Background
4. Paragraph 4 of the Amended Complaint contains multiple allegations, which and
answered as follows: The allegations about the dismissal of Grass and Bergonzi
are not within Souder's knowledge, and said allegations are therefore denied,
strict proof is demanded. The allegations about Rite Aid's Board's discovery and
actions regarding financial statements and the requirements of such financial
1
statements are not within Souder's knowledge, and said allegations are therefore
denied; strict proof is demanded.
5. Paragraph 5 of the Amended Complaint contains multiple allegations, which are
answered as follows: The allegations about charges of criminal conspiracy
against Grass and Bergonzi and the acts to which they pled guilty, are not within
Souder's knowledge, and are therefore denied; strict proof is demanded. Insofar
as the paragraph alleges, by implication or otherwise, that Souder wrongfully
received payment pursuant to the LTIP I or the Separation Agreement the
allegations are specifically denied, and strict proof is demanded. Insofar as the
paragraph alleges, by implication or otherwise, that Souder received an
employment agreement that was part of or in any way connected with an
actionable or indicted federal criminal conspiracy, such allegations are
specifically denied and strict proof is demanded. Insofar as the paragraph
alleges, by implication or otherwise, that Souder's retirement agreement was in
any way fraudulently or wrongfully obtained by him, said allegations are
specifically denied; strict proof is demanded. Insofar as the paragraph alleges,
by implication or otherwise, that Souder's entitlement to retirement benefits were
dependent upon any back-dated or otherwise improper documents, such
allegations are specifically denied; strict proof is demanded. On the contrary,
Rite Aid unilaterally determined to make LTIP I payments upon such standards
as it deemed fit and with knowledge that previously announced standards had
not been met. On the contrary further, the terms of Souder's employment
2
agreement were set long before the departure of Grass from the corporation and
before the delivery of a confirmatory writing memorializing the terms of said
agreement.
6. Admitted in part and denied in part. It is admitted that Souder received payment
under the LTIP I. Any allegation, by implication or otherwise, that he wrongfully
or unjustly received payment pursuant to the LTIP I is specifically denied, and
strict proof is demanded. It is specifically denied that Souder's rights to
retirement benefits under an amended retirement agreement were created by a
back-dated employment agreement, and strict proof is demanded. On the
contrary, the terms of Souder's employment agreement were set long before the
departure of Grass from the corporation and any writing delivered to Souder at or
about the time of Grass's departure was merely confirmatory of the previously
established terms.
The LTIP I Pavment
7. Denied. The allegations about the Rite Aid Board's adoption of the LTIP I, and
its determinations as to its terms and when and under what conditions payments
were to be made were authorized only under certain conditions, and the
measurement period for the LTIP I are not within Souder's knowledge, and said
allegations are therefore denied; strict proof is demanded.
8. Paragraph 8 of the Amended Complaint contains multiple allegations, which are
answered as follows: Insofar as the paragraph alleges that Souder received an
LTIP I payment the allegation is admitted. All other allegations contained in the
3
paragraph are not within Souder's knowledge and said allegation is specifically
denied; strict proof is demanded.
9. Admitted in part and denied in part. It is admitted that Souder has refused to
repay the sums voluntarily paid to him by Rite Aid. It is specifically denied that
he has an obligation to do so, and strict proof is demanded.
The Back-Dated Severance Agreement
10. Paragraph 10 of the Amended Complaint contains multiple allegations, which are
answered as follows: Insofar as the paragraph alleges that Souder received a
letter signed by Grass about retirement benefits the allegation is admitted. All
other allegations contained in the paragraph are not within Souder's knowledge
and said allegations are specifically denied; strict proof is demanded.
11. Denied. The allegations about the characteristics of the letter attached as
Plaintiff's Exhibit A are not within Souder's knowledge, and are therefore denied;
strict proof is demanded.
12. Denied. Paragraph 12 of the Amended Complaint is specifically denied, and
strict proof is demanded.
13. Denied. Paragraph 13 of the Amended Complaint is specifically denied, and
strict proof is demanded.
14. Admitted in part and denied in part. It is admitted that Souder and Rite Aid
entered into an Executive Separation Agreement and General Release dated
July 29, 2000. It is denied that there was any deception on the part of Souder in
doing so, and strict proof is demanded. On the contrary, Rite Aid initiated and
4
entered an amended retirement agreement and Separation Agreement for its
own purposes and benefit.
15. Admitted in part and denied in part. It is admitted that the Separation Agreement
recited certain enumerated benefits to which Souder was entitled under the terms
of the amended retirement agreement. All other allegations of the Paragraph are
specifically denied, and strict proof is demanded.
16. Admitted in part and denied in part. It is admitted that Souder resigned from
employment with Rite Aid and has received payments pursuant to the amended
retirement agreement and Separation Agreement. All other allegations of the
Paragraph are specifically denied, and strict proof is demanded.
17. Denied. The Separation Agreement is a writing which speaks for itself.
Paragraph 17 of the Amended Complaint is specifically denied to the extent that
it does not fully comport with the language of the writing, and proof is demanded.
18. Denied. The Separation Agreement is a writing which speaks for itself.
Paragraph 18 of the Amended Complaint is specifically denied to the extent that
it does not fully comport with the language of the writing, and proof is demanded.
19. Denied. Averments contained in Paragraph 19 of the Amended Complaint
express conclusions of law to which no answer is required. To the extent an
answer is required, Paragraph 19 of the Amended Complaint is specifically
denied and strict proof is demanded.
20. Denied. The Deferred Compensation Agreement is a writing which speaks for
itself. Paragraph 20 of the Amended Complaint is specifically denied to the
5
extent that it does not fully comport with the language of the writing, and proof is
demanded.
21. Admitted in part and denied in part. It is admitted that Rite Aid unilaterally
terminated the Separation Agreement and Deferred Compensation Agreement
and that Souder refused to repay amounts paid to him. It is specifically denied
that Souder deceived Rite Aid, that Rite Aid was justified in terminating the
Separation Agreement or Deferred Compensation Agreement, or that Souder
has an obligation to repay amounts paid to him. Strict proof is demanded.
COUNT I (UNJUST ENRICHMENT)
22. Paragraph 22 of the Amended Complaint requires no answer as it is an
incorporating paragraph.
23. The determination of what the terms of the LTIP I are is a legal conclusion to
which no answer is required. To the extent an answer is required, whether
payment was authorized only under certain conditions, and the measurement
period for the LTIP I, are not within Souder's knowledge, and Rite Aid's
allegations are therefore denied; strict proof is demanded.
24. The allegations of Paragraph 24 of the Amended Complaint are not within
Souder's knowledge and are therefore denied; strict proof is demanded.
25. Paragraph 25 of the Amended Complaint is a legal conclusion to which no
answer is required. To the extent an answer is required, Paragraph 25 of the
Amended Complaint is specifically denied, and strict proof is demanded.
6
26. Admitted in part and denied in part. It is admitted that Souder has refused to
repay the amount he received from Rite Aid. It is specifically denied that he has
any obligation to repay the amount, and strict proof is demanded.
WHEREFORE, Defendant respectfully requests that this Honorable Court enter
judgment in his favor and against Plaintiff, Rite Aid Corporation, and grant such other
relief as this Court deems just and appropriate.
COUNT II (MISTAKE)
27. Paragraph 27 of the Amended Complaint requires no answer as it is an
incorporating paragraph.
28. Paragraph 28 of the Amended Complaint is a legal conclusion to which no
answer is required. To the extent an answer is required, Paragraph 28 of the
Amended Complaint is specifically denied, and strict proof is demanded.
29. Admitted in part and denied in part. It is admitted that Souder has refused to
repay the amount he received from Rite Aid. It is specifically denied that he
received payment by mistake or has any obligation to repay the amount, and
strict proof is demanded.
WHEREFORE, Defendant respectfully requests that this Honorable Court enter
judgment in his favor and against Plaintiff, Rite Aid Corporation, and grant such other
relief as this Court deems just and appropriate.
7
COUNT III (FRAUD)
30. Paragraph 30 of the Amended Complaint requires no answer as it is an
incorporating paragraph.
31. Denied. Paragraph 31 of the Amended Complaint is specifically denied, and
strict proof is demanded.
32. Paragraph 32 of the Amended Complaint is a legal conclusion to which no
answer is required. To the extent an answer is required, Paragraph 32 of the
Amended Complaint is specifically denied, and strict proof is demanded.
33. Paragraph 33 of the Amended Complaint is a legal conclusion to which no
answer is required. To the extent an answer is required, Paragraph 33 of the
Amended Complaint is specifically denied, and strict proof is demanded.
WHEREFORE, Defendant respectfully requests that this Honorable Court enter
judgment in his favor and against Plaintiff, Rite Aid Corporation, and grant such other
relief as this Court deems just and appropriate.
COUNT IV (BREACH OF CONTRACT)
34. Paragraph 34 of the Amended Complaint requires no answer as it is an
incorporating paragraph.
35. Denied. The Separation Agreement is a writing which speaks for itself.
Paragraph 35 of the Amended Complaint is specifically denied to the extent that
it does not fully comport with the language of the writing, and proof is demanded.
8
36. Paragraph 36 of the Amended Complaint is a legal conclusion to which no
answer is required. To the extent an answer is required, Paragraph 36 of the
Amended Complaint is specifically denied, and strict proof is demanded.
37. Paragraph 37 of the Amended Complaint is a legal conclusion to which no
answer is required. To the extent an answer is required, Paragraph 37 of the
Amended Complaint is specifically denied, and strict proof is demanded.
38. Admitted in part and denied in part. It is admitted that Souder has refused to
repay the amount he received from Rite Aid. It is specifically denied that he had
any obligation to repay the amount, and strict proof is demanded.
WHEREFORE, Defendant respectfully requests that this Honorable Court enter
judgment in his favor and against Plaintiff, Rite Aid Corporation, and grant such other
relief as this Court deems just and appropriate.
COUNT V (BREACH OF CONTRACT)
39. Paragraph 39 of the Amended Complaint requires no answer as it is an
incorporating paragraph.
40. Denied. The Deferred Compensation Agreement and Separation Agreement are
writings which speak for themselves. Paragraph 40 of the Amended Complaint is
specifically denied to the extent that it does not fully comport with the language of
the writings, and proof is demanded.
9
41, Paragraph 41 of the Amended Complaint is a legal conclusion to which no
answer is required. To the extent an answer is required, Paragraph 41 of the
Amended Complaint is specifically denied, and strict proof is demanded.
42. Paragraph 42 of the Amended Complaint is a legal conclusion to which no
answer is required. To the extent an answer is required, Paragraph 42 of the
Amended Complaint is specifically denied, and strict proof is demanded.
43. Admitted in part and denied in part. It is admitted that Souder has refused to
repay the amount he received from Rite Aid. It is specifically denied that he had
any obligation to repay the amount, and strict proof is demanded.
WHEREFORE, Defendant respectfully requests that this Honorable Court enter
judgment in his favor and against Plaintiff, Rite Aid Corporation, and grant such other
relief as this Court deems just and appropriate.
COUNT VI (BREACH OF FIDUCIARY DUTY)
44. Paragraph 44 of the Amended Complaint requires no answer as it is an
incorporating paragraph.
45. Paragraph 45 of the Amended Complaint is a legal conclusion to which no
answer is required.
46. Paragraph 46 of the Amended Complaint is a legal conclusion to which no
answer is required. To the extent an answer is required, Paragraph 46 of the
Amended Complaint is specifically denied, and strict proof is demanded.
10
47. Paragraph 47 of the Amended Complaint is a legal conclusion to which no
answer is required. To the extent an answer is required, Paragraph 47 of the
Amended Complaint is specifically denied, and strict proof is demanded.
WHEREFORE, Defendant respectfully requests that this Honorable Court enter
judgment in his favor and against Plaintiff, Rite Aid Corporation, and grant such other
relief as this Court deems just and appropriate.
NEW MATTER AND COUNTERCLAIM
NEW MATTER
48. Paragraphs 1 through 47 are incorporated herein as though fully set forth.
49. Souder was hired by Rite Aid in 1969 and worked continuously for the
Corporation until his retirement in July 2000.
50. In or about March 1995, Rite Aid, by action of its Board of Directors, adopted a
bonus/incentive plan, styled as LTIP I, which purported to entitle certain
executives, including Souder, to certain bonus/incentive payments, depending
upon performance by the Company.
51. Souder played no role in the development or adoption of the LTIP I plan.
52. The plan is not set forth in any corporate minute, agreement, or other document.
53. On or about July 2, 1999, Rite Aid informed Souder by letter that, certain
corporate goals having been attained, an incentive payment would be awarded to
him. A copy of the July 2, 1999 letter is attached as Defendant's Exhibit "A."
11
54. Rite Aid transferred the bonus/incentive payment amount to Souder pursuant to
the July 2, 1999 letter.
55. Rite Aid, in its sole discretion, selected and applied criteria, and determined that
payments were to be made pursuant to the plan.
56. The formation and administration of the LTIP I plan, the determination of its
standards and goals, and the decision to make bonus/incentive payments were
matters solely controlled and conducted by Rite Aid.
57. Souder played no role in the implementation of the plan.
58. Souder was made Senior Vice President in charge of Labor Relations and
Human Resources for the Corporation in 1986 and served in that position until
1996.
59. His responsibilities as Senior Vice President consisted generally of administering
the company's labor relations and employee benefits matters.
60. As Senior Vice President, he was a direct subordinate to the Chief Executive
Officer of the Corporation.
61. From 1986 until 1995, Souder answered directly to Alex Grass, the CEO of Rite
Aid during that time.
62. On or about March 1, 1995, Martin Grass became the Corporation's CEO, and
Chairman of its Board of Directors, and Souder's immediate supervisor.
63. In 1996 Rite Aid installed a deferred compensation plan which covered Souder
and other executives of the Corporation. Plaintiff's Exhibit "E."
12
64. The 1996 deferred compensation plan purported to bestow certain retirement
benefits and was intended by Rite Aid to induce individuals covered by the plan
to remain in the employ of the Corporation.
65. In 1995, Souder was instructed by Martin Grass to hire an assistant vice-
president to serve under Souder.
66. In or about October 1996, Souder was removed from his position of Senior Vice
President in charge of Human Relations by CEO Grass and replaced by the
individual which Grass had instructed Souder to hire.
67. In or about October 1997, Souder was reinstated as Senior Vice President in
charge of Human Resources by Martin Grass.
68. Soon after the time when Souder was reinstated to from his position as head of
Human Resources, CEO Grass advised Souder of his intention to substantially
change the management of Rite Aid, and asked Souder to remain with the
Corporation to train his replacement and to aid in the transition.
69. At or about the time Grass reinstated Souder as head of Human Resources,
Grass informed Souder that the reinstatement was temporary and Grass' intent
to change Rite Aid management, including the replacement of Souder, remained
intact.
70. At or about the same time Grass asked Souder to remain with Rite Aid through
the eventual hiring of Souder's successor and to aid in the training of his
successor and the transition to new management in return for enhanced
retirement benefits.
13
71. The amended retirement terms proposed by Grass were to induce Souder to
take early retirement when he reached the age of 60 in March 2000, but also to
remain in the employ of the company from 1997 until that time, during the
transition to new management personnel; in return for which Souder's retirement
payments under the deferred compensation agreement would be amended to
provide that payments would begin upon his retirement at the age of 60 and
would continue for a period of 20 years; further, that the amount of the retirement
benefit would be 50% of Souder's highest salary and bonus during the three
fiscal years preceding his retirement.
72. At the time of the events described in Paragraphs 66 through 71 above, Grass
exercised virtually complete control over all corporation matters, including
matters such as Souder's employment, position in the company, and
compensation and benefit package.
73. Souder relied upon the Corporation's verbal amendment described above and
consequently accepted the prospect of eventual loss of his office, mandatory
early retirement, and continued service to the company in the transition to new
management and in the training of his own replacement.
74. Souder accepted the terms of Grass' proposal and served in the position as head
of Human Resources until his retirement from the Corporation in July 2000.
75. During the remaining tenure of Souder as head of Human Resources following
his reinstatement in 1997, Grass and or his agents interviewed possible
replacements for Souder.
14
76. Prior to Grass' departure from Rite Aid, he hired a second replacement for
Souder. The individual, however, never undertook the duties of the position for
which he was hired.
77. On or about October 8, 1999, Grass resigned as the Corporation's CEO and
Chairman of the Board of Directors and withdrew from the Company, having
provided to Souder a writing, which Grass dated June 12, 1998, reflecting the
terms of the verbal amendment to Souder's Deferred Compensation Agreement.
78. The writing provided by Grass accurately stated the terms of the verbal
amendment to the retirement agreement described in Paragraph 71 above.
79. Following Grass' departure from the Company, Souder continued in the employ
of Rite Aid under interim management and then under its successor CEO and
Chairman of the Board, Robert Miller.
80. Following Grass' departure from the Company, Souder continued to serve as the
Company's head of Human Resources.
81. In or about January 2000, Souder advised company CEO and Chairman Robert
Miller of his retirement agreement and his intention to retire when he reached the
age of 60 in March, 2000 in order to invoke and qualify for the provisions of the
agreement.
82. At or about the same time, the terms of Souder's retirement and his retirement
benefits, as described in Paragraph 71 hereof, were discussed by Souder with
CEO Miller and other representatives of Rite Aid management.
15
83. During and following said discussions Souder's entitlement to retirement benefits,
as described in Paragraph 71 hereof, were accepted and unchallenged by Rite
Aid.
84. Said discussions and acceptance by Rite Aid did not involve, nor were they in
any way based upon, the Martin Grass letter dated June 12, 1998. Plaintiff's
Exhibit "C."
85. Seeking to induce Souder to remain in his position beyond his sixtieth birthday,
Miller proposed to Souder the same retirement terms as those of the amended
retirement agreement if Souder would remain head of Human Resources.
86. In reliance upon Miller's statement, Souder remained with Rite Aid as head of
Human Resources beyond March 1, 2000, his planned retirement date.
87. Subsequently, the President of Rite Aid Corporation, Mary Sammons, advised
Souder that a replacement for him had been found and Souder's services were
wanted to train the replacement, but not thereafter.
88. In or about June 2000, in the course of preparing fro retirement, Souder supplied
to Rite Aid management a copy of the Grass letter as an aid to management in
drafting a Separation and Severance Agreement.
89. Souder retired on or about July 31, 2000.
90. Rite Aid commenced payments to Souder in accordance with the terms of the
amended retirement agreement.
91. In or about June 2003, Rite Aid ceased making retirement payments, including
ancillary benefits such as health care insurance provided by the retirement
16
agreement, and demanded repayment of previously paid retirement amounts and
repayment of previously paid LTIP I payments.
92. By letter dated June 26, 2003, attached as Exhibit T" and incorporated herein by
reference, Rite Aid refused to make further payments pursuant to the Separation
Agreement and demanded repayment of amounts previously provided to Souder.
93. By amending Souder's Deferred Compensation/Retirement Agreement through
Grass' representations to Souder and by subsequently further amending the
Agreement through Miller's statements to Souder and Souder's action in reliance
upon said statements, Rite Aid sought to, and did in fact, obtain for itself the
benefit of Souder's services through times of dramatic management change
within the Company.
94. In accepting and relying upon the terms of the several amendments to his
deferred compensation/retirement agreement Souder was induced to forego
other employment and business opportunities.
95. As a direct and proximate result of Souder's reliance upon Rite Aid's promises
made in the deferred compensation/retirement agreement, and Rite Aid's failure
to fulfill those promises, Souder has suffered the loss of employment and
business opportunities.
96. As a direct and proximate result of Rite Aid's public denial of said benefits to
Souder and its initiation of litigation seeking repayment of retirement payments
and LTIP I payments on the alleged basis of Souder's wrongdoing, Souder
incurred substantial harm to his personal and professional reputation.
17
97. In publicly denying retirement payments to Souder and in publicly demanding
repayment of retirement payments and LTIP I payments previously made, Rite
Aid sought to enhance its corporate image and standing at Souder's expense.
COUNTERCLAIM
Count I - Breach of Contract (Amended Deferred Compensation Aqreement)
98. Paragraphs 1 through 97 are incorporated herein as though fully set forth.
99. The Deferred Compensation Agreement, as amended by the verbal amendment
of 1997 constitutes a valid contract under which Rite Aid is obligated to make
payments to Souder according to its terms.
100. Rite Aid has not made the required payments since June 2003 and has by letter
dated June 26, 2003 stated its intent to make no further payments.
101. Rite Aid is in breach of the amended agreement.
102. As a direct and proximate result of Rite Aid's breach of contract, Souder has
suffered the loss of the benefits of said agreement.
WHEREFORE, Defendant respectfully requests that this Honorable Court enter
judgment in his favor and against Plaintiff, Rite Aid Corporation, and grant such other
relief as this Court deems just and appropriate.
Count II - Breach of Contract (Separation Aqreement)
103. Paragraphs 1 through 102 are incorporated herein as though fully set forth.
18
104. The Separation Agreement, as amended by the verbal amendment of 1997
constitutes a valid contract under which Rite Aid is obligated to make payments
to Souder according to its terms.
105. Rite Aid has not made the required payments since June 2003 and has by letter
dated June 26, 2003 stated its intent to make no further payments
106. Rite Aid is in breach of the amended agreement.
107. As a direct and proximate result of Rite Aid's breach of contract, Souder has
suffered the loss of the benefits of said agreement.
WHEREFORE, Defendant respectfully requests that this Honorable Court enter
judgment in his favor and against Plaintiff, Rite Aid Corporation, and grant such other
relief as this Court deems just and appropriate.
Count III - Breach of Contract (Deferred Compensation Aqreement)
108. Paragraphs 1 through 107 are incorporated herein as though fully set forth.
109. The Deferred Compensation Agreement, as amended by Grass in or about June
1996, is an enforceable contract.
110. Rite Aid has not made payments to Souder since in or about June 2003, and
has, by letter dated June 26, 2003, stated that it will make no further payments.
111. Rite Aid is in breach of the Deferred Compensation Agreement.
WHEREFORE, Defendant respectfully requests that this Honorable Court enter
judgment in his favor and against Plaintiff, Rite Aid Corporation, and grant such other
relief as this Court deems just and appropriate.
19
Count IV - Declaratorv Judqment
112. Paragraphs 1 through 111 are incorporated herein as though fully set forth.
113. An actual, immediate and justiciable controversy exists between Souder and Rite
Aid with regard to payments to be made to Souder under the agreements
reached regarding his early retirement. A declaratory judgment by this Court will
affect the rights and interests of the parties.
114. By letter dated June 26, 2003, Rite Aid said it would no longer make any
payments under the Separation Agreement.
115. Accordingly, Souder seeks relief in the nature of a judicial declaration that Rite
Aid has a continuing obligation to make payments to Souder under the
Separation Agreement.
WHEREFORE, Defendant respectfully requests judgment in his favor and
against Plaintiff, Rite Aid Corporation, for a declaration that Defendant is obligated to
continue making payments under the Separation Agreement, along with court costs,
attorney's fees, and such other relief as the Court deems just and appropriate.
Count V - Pennsylvania Wage Payment and Collection Act,
43 P.S. § 260.1 et seq.
116. Paragraphs 1 through 115 are incorporated herein as though fully set forth.
117. Rite Aid was Souder's employer within the meaning of the Pennsylvania Wage
Payment and Collection Act, 43 P.S. § 260.1 et seq. (the "PWPCA").
118. Payments under the Separation Agreement are "wages" and "fringe benefits" or
"wage supplements" within the meaning of the PWPCA.
20
119. Rite Aid has failed to make payment of wages that are due and owing to Souder
pursuant to the Separation Agreement and/or the 1996 Deferred Compensation
Agreement, as amended by CEO Grass in 1998.
120. Rite Aid has willfully failed to make payments under the Separation Agreement
and therefore is in violation of PWPCA.
121. The PWPCA entitles a litigant to liquidated damages in the amount of twenty-five
(25%) percent of the total amount of wages and fringe benefits or wage
supplements due.
122. The PWPCA entitles a litigant to his reasonable attorney's fees.
WHEREFORE, Defendant respectfully requests judgment in his favor and
against Plaintiff, Rite Aid Corporation, for payment of wages due and owing, interest,
liquidated damages, court costs and attorneys' fees, and such other relief as the Court
deems just and appropriate.
Count VI - Uniust Enrichment
123. Paragraphs 1 through 122 are incorporated herein as though fully set forth.
124. The claims of Plaintiff Rite Aid Corporation in this action with respect to Souder's
entitlement to retirement benefits are baseless.
125. The claims by Plaintiff Rite Aid Corporation in this action with respect to Souder's
entitlement to LTIP I payments are baseless.
126. Said claims are designed, in whole or in part, to enhance Rite Aid Corporation's
standing, reputation and value in the estimation of the business and investing
communities.
21
127. Said claims have resulted in a benefit to Rite Aid and a detriment to Souder
which constitutes an unjust enrichment of Rite Aid.
WHEREFORE, Defendant respectfully requests judgment in his favor and
against Plaintiff, Rite Aid Corporation, for payment of wages due and owing, interest,
liquidated damages, court costs and attorneys' fees, and such other relief as the Court
deems just and appropriate
Date: 71U/o
Respectfully submitted,
WIX, NGER & WEIDNER
By. vv? tQ,{,?.
Richard H. , I. o. 07 74
Thomas L. Wenger, I.D. . 15489
Dean A. Weidner, I.D. No. 063E3
Jeffrey C. Clark, I.D. No. 89277
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
F:\tlw\8052 Souder, Robert R\12421 Souder & Rite Aid Utigation\Answer.doc
22
VERIFICATION
1, Robert Souder, have read the foregoing Answer with New Matter and
Counterclaim and hereby affirm and verify that it is true and correct to the best of my
personal knowledge, information and belief. I verify that all of the statements made in
the foregoing pleading are true and correct and that false statements made therein may
subject me to the penalties of 18 Pa.C.S. §4904, relating to unsworn falsification to
authorities.
Date: July 6, 2004
Robert 5ouder
EXHIBIT A
RITE
LAID
Rite Aid Corporation
MARTIN L. GRASS
Chairman
Chief Executive Officer
Robert Souder
LA.
July 2, 1999
• MAILING ADDRESS
P.O. Box 3165
Harrisburg, PA 17105
• GENERAL OFFICE
30 Hunter Lane
Camp Hilt, PA 17011
• (717) 975-5701
• (717) 975-5905 Fax
RE: 1995 LONGTERM INCENTIVE PLAN
Dear Bob:
As you know, the 1995 LTIP matured at the close of our 1999 fiscal year. At that
time, we were required to determine the percentage level of the attainment of our earnings goal
during the four (4) . year period. The company achieved average earnings level which entitles the
holders of the LTIP to S eventy-three Percent (73 %) of the number of shares available for maximum
achievement.
Accordingly, you will be entitled to a cash payment equivalent to an average value
ofThirty-six Thousand Five Hundred (36,500) shares during the thirty (30) day period following the
date of the announcement of earnings on March 29, 1999. The average closing price of the shares
during that thirty (3 0) day period was Twenty-five Dollars Four Cents ($25.04). Accordingly, your
gross cash award is Nine Hundred Thirteen Thousand Nine Hundred Sixty Dollars ($913,960). On
or about July 7, 1999 you will be paid that sum minus payroll deductions required by law. The
payroll deductions will include twenty-five percent (25%) for Federal Income Tax as well as all
other required withholdings as typically appear on your payroll stub. While we did not attain the
maximum goal we believe that this award is a reflection of major efforts on the part of our executive
team.
Best wishes.
RS-0001
exHIB/T g
• MAILING ADDRESS
P.O. Box 3165
Harrisburg, PA 17105
• GENERAL OFFICE
30 Hunter Lane
RITE AID Corporation Camp Hill, PA 17011
LEGAL DEPARTMENT June 26, 2003 • Telephone (717) 975-5833
• Fax (717) 760-7867
ROBERT B. SARI • e-mail: rsari@riteaid.com
Senior Vice President
General Counsel and Secretary
VIA. FACSIMILE 212-918-3100
AND VIA OVERNIGHT MAIL
Ira M. Feinberg, Esq.
Hogan & Hartson, LLP
885 Third Avenue
New York, NY 10022
Re: Rite Aid Corporation -- Robert Souder
Dear Mr. Feinberg:
I am writing to you on behalf of Rite Aid Corporation in your capacity as counsel
for Robert Souder.
On July 29, 2000, Rite Aid and Mr. Souder entered into an Executive Separation
Agreement and General Release (the. "Separation Agreement") providing, among other things,
for certain payments to be made to Mr. Souder upon the termination of his employment with the
Company. Based upon information that has recently come to its attention, the Company has
determined that Mr. Souder procured such Separation Agreement by fraud, falsely representing
to the Company that its former Chief Executive Officer, Martin L. Grass, had written a letter to
Mr. Souder dated June 12, 1998 purporting to grant Mr. Souder the benefits later documented in
the Separation Agreement. In fact, it now appears that such letter was only written by Mr. Grass
and delivered to Mr. Souder after Mr. Grass had resigned as the Company's CEO.
Accordingly we hereby advise you that the Company has, effective immediately,
discontinued all payments to Mr. Souder under the Separation Agreement. Further, the
Company hereby demands repayment forthwith from Mr. Souder of the sums heretofore paid to
Mr. Souder under such Separation Agreement, totaling $413,111.
In addition, the Company hereby demands repayment forthwith of $913,960 paid
to Mr. Souder in July of 1999, purportedly on account of the Company's long term incentive
plan known as LTIP I.
The Company is commencing an action against Mr. Souder by writ of summons
in the Court of Common Pleas of Cumberland County to recover the amounts owed to the
Company by Mr. Souder as set forth herein.
PHL_A #1769017 v1
Ira M. Feinberg, Esq.
June 26, 2003
Page 2
Any inquiries concerning this matter should be directed to the Company's outside
counsel, William A. Slaughter of Ballard Spahr Andrews & Ingersoll, LLP.
Sincerely, r?
?Robert B. Sari
Senior Vice President,
General Counsel, and
Corporate Secretary
Robert Souder
PHL_A #1769017 v1
RITE AID CORPORATION, IN THE COURT OF COMMON PLEAS,
Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA
V. NO. 03-3059
ROBERT SOUDER, CIVIL ACTION -
Defendant JURY TRIAL DEMANDED
CERTIFICATE OF SERVICE
I hereby certify that the foregoing Answer with New Matter and Counterclaim was
sent by first class certified mail return receipt requested, postage prepaid this day to the
following:
Alan J. Davis, Esquire
William A. Slaughter, Esquire
Peter C. Amuso, Esquire
Ballard Spahr Andrews & Ingers,)ll, LLP
1735 Market Street, 51 st Floor
Philadelphia, PA 19130-7599
Respectfully submitted,
WIX, WENGER & WEIDNER
Date O 4 By:
?66
Harva OwingOaughman,
Legal Assistant
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
EXHIBIT C
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MIN or r-:AMr4W
XMCM&W Or 11m
JIM 02:40 PW U/i?/ilse
9603MU - 0676129
AESTJITaO
CMTtrXrATZ OF INCORFMTIQN
Of
RITE MO CORPOR#TIM
Rite Bid corporation, a corporation organised and.
existing under the lags of the State of Oslavare, hereby
COZTUids as loilowa s
.18 The name of the corporation is Rita Aid
corporation and the corporation Was-originally Inoorporabed under
the sass nose. The original Certificate at Znesrporation of Rite
Aid Corporation was filed April 19, n6s.
as - This Restated Certificate of Incorporation merely
restates.and integrates and does not further asend the provisions
of the Certificate of Incorporation of the aorporation, as.
amended or supplessmted, and there is no disonpaAay between the
provisions of the Cartiticate of Incorporation, an awended, and
this'Aestated Certificate of Incorporation.
/ 3. This Restated Certificate of Irwosporatian has
been duly adopted by the Board of airewtors of the .-c..Vr"ation in
sooerdanae with the provisions of section 115 at the General
corporation Law of the state of Delaware.
4. The text of the Restated certificate of
Sneorporation as beretotore amended or r ppl mented is hereby
1 restated to read in its entirety as follower
UTN AZO CCs?oAA=OX, (hereinafter
; aratioaThe ej naie of this
called the Ocarp
• The address, including strsst, mbar, city,
and county, of tthe rogistered office of the ration 3A the
/ Otate'of Delaware is 1013 contra Road, city at Niltington, County
of Now castlai and .the need of the registered agent of the
corporation in the Stata of Delaware at such address is The
PtaatiCC-gall Corporation syeteus, Inc.
Qe The purpose o:9 the corporation is to engage
or Wiselawful ar the General corporation Low of the State or
orga
Delaware (ths "General Corparation Uwe):
TOOM: ' The total auaber of shares of stock which the
eorporation'sball have authority to issue shall be three hundred
twenty uillion (1308000,000) shares of-Which three hundred
1 million (300,0o0,000) shares shall be Co=wn Stock of the par
valve of 81.00 per share, and twenty Million (20,000,000) shares
shall be Preferred Stock of the par value.of Si.00 per share.
1 CLCCR s VIM IRO-3
She designations, *oforences and relative,
participating, optional or other s still rights and
qualifications, limitations or restrictions at each class of
stock are as follow n
k. The preferred steak may, .be issued in one er sore
series and may be with such voting povars, full or limited, or
without voting powers, and With such designations, praleiencas
end relative, participating, optional or other special righter
and qualifications, limitations or restrictions thoreof$ as shall
be tilted by the Board of Director's uant to authority hsseby
expressly granted to it, and as shall be stated and expressed.
the resolution at resolutions providing for the issue of such
steals adopted by the, Board of Directors pursuant to authority
expressly vested in it by these provisions.
e. Any Preterred stock or series thereof may be me, i.
subject to redemption at such tine or times and-at such price or
prices as shall be stated and expressed in the resolutions or
resolutions providing for the issue of such stook adapted by the
scard of Directors as hersinabave provided.
C. The holders of preferred stock or of any aeries
thereat shall be entitled to receive dividends st.such rates, an
such conditions and at such .times as shall be started alld
expressed in the resolution or resolutions providing for the
issue of such stock adopted by the Board of Directors as
horeinabove provided payable in protersnce to, or .in such
relation to, the dividends payable on any other class or classes
of stock, or cumulative ar non-cmulative as shall. be so stated
and expressed.
V. The fielders of Preferred Stook or of any Class or
at any caries thsrsol, shall be entitled to such rights upon the
dissolution of, at upon any distribution of the assets of, the,
corporation as shall be stated and expressed in the rsaalutiall of
resolutions providing for the issue or such sneak adeptad by the
Board of Directors as hersinabove provided.
Z. Any preferred stock of any close or of any series
thereat way be made convertible into, or exchangeable for, shares.
of qtly other class or classes or of any otbes series of the each
as of any ether class or classes of steak of the corporation or
shares at any class or series of stock of any other oorporaaon,
at sueb price or prices or at such rates of axehanle and with
such adjustments as shall be stated and expressed or provided for
in the resolution or resolutions providing for the issue at such
stock adopted by the board of Directors as hareivabave provided.
F. Except as otherwise by statuta or by the
resolutions providing for the issue of Preferred Stock
specifically provided, the Preferred Stock and the Common stock
shall each have the right snd power to vote on all matters on
d4ieh a vote of stockholders is is be taken. Zach holder of
aca?ua a.e wee ? Z
0 CCC ?n?1PT7Tr n 1 1111 1 M- I I T I
8teferred stock .and sack heldsr of common stock of the
..aNation untitled to vote stall bays ens vote for: each share
thereof held.
Z=: The name and the sailing address of the
incorporator is as fellove:. Laurance P. Lavan, ai Broadway,, Now
Yolk, Raw York 10006.
A=: The corporation is to have perpetual
existence.
OVIPMTH:. Nhsnaver a .:ombWasise or arrangement is
proposed betvaeft the corporation and its creditors or any class
of theta and/or between the corporation and its stockholders or
any class of thsal, any court of equitable jurisdiction within the
state of Delaware may, on the application its a summary way of the
corporation, -or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the
corporation under the provisions at Section 291 of the General
C4mpr+sotion Law or on the application of tsraateee in dissolution
or of any receiver or raoaivers appointed for the corporation
vender the provisions of Section 279 of the General Corporation
law otder a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the
corporation, as the case say be, to .be . eu:msoned in such manner am
the said court directs, It a sm:Jarity in number representing
.tbres-fourths La valve of the creditors or clew of creditors,
andlar of the stockholders or class of stockholders of the
corporation,. AS Us case may be, agree to any compromise or
arrangement and to any reorganisation of the corporation as
consequence of such compromise as arrangesent,'the said
compromise or arrangement and the said reorganisation shall, it
sanctioned by the court to which the said application has been
made, ba binding on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on
the corporation.
FT0MMt Yar the manag.ment of the business and tow
the csnduct of the affairs of the owporation, and in further
definition, limitation and regulation of the powers of the
corposation and of its directors and stockholders, or any class
thereof, as the come say be, it is farther provideds
1. The managesent of.the business and the
conduct of the affairs of the corporation, including the
election of the chairman of the Board of Directors, if any,
the President the Treasurerv the decratary, and othsr
principal officers of the corporation, shall be vested in
its board of Directors, The number of Directors of the
wsporation saall be find by the iy-Lava of the corporation
and say be altered from time to time as provided therein,
but In no event shall the number of directors of the
corporation be less than three nor acre than fifteen. A
director shall be elected to hold attics until the
? mosw? o? sassn a ? .
1
expiration of the term far which such person is elected, and
until such person's successor shall be duly elected and
qualified. The directors of the oorperation shall be
1 divided into three classes,-as nearly equal in number as
posaible, designated class I class 11, and Clas• IZt. The
term of office of the initial class Z directors Shall expire
at the-annual mestinq of stockholders to be held in 19771
the term of off Los of the initial Class ZI directors shall
expire. at the annual amstinq of stockholders to be held in
3,97s1 and the tern at office of the initial class ZZ2.
/ dizscton shall expire'at the annual seating of stockholders,
to be hold in 1979. At each annual meeting of ateeMoldows .
cosmencinq with the annual nesting to be held in 1977 for.
trio purpose of electing a class of directors persons shall
be elected to bold office as such class at d?reetws for a
period of three years and until the third succeeding annual
/ meeting of stockholders following the nesting at which they.
are elected. ithsn the number of directors is charged, an
newly created directorships or any daareams in directossh s
shall be so apportioned among the classes so as to mks al
clissem as pearly equal in number as possible. Any
vacancies created ih the aoard of Directors through increase
in the nuber Of directors or otherwise, say be tilled in
/ accordance with the eyLaws of the corporaton avid the
applicable Saw at the state of Delaware. Sleetion at
directose need rot be by written ballot.
Z. The Original By-Laws of the corporation
shall be adopted by the incorporator. Thereafter, the
power to make# alter, oc repeal the By-Lars and to
1 adopt any new By-Law, exvapt a By-Lev classirrin9
directors for election for staggered terse, shall be
vested in the Board of Directors.-
3. . wherever the corporation shall ba
authorised to issue cote than One Close of stook, ono
or more of which is denied voting pour, no outstanding
1 share of any class of stage which is denied voting
power under this certificate of Incorporation shall
entitle the bolder thereof to notice of, and the right
to vote, at any meeting of stockholders except as the
provisions of paragraph (b) (2) of section 242 of the
General Corporatien Law and of Section 251,. 252 and
253 of the denarel corporation Law shall ot;a aei
I requir¦= provided, that me share of any such class
which is otherwise denied voting power shall entitle
the bolder thereof to vote upon the increase or
decrease in the number of authorized shares of said
class.
a. Ia lieu of taking any permissive or
1 regaisits action by vote at a sooting of stockholders,
any such vote and any such meeting. may ba dispensed.
with if either all of the stockholders entitled to vote
MCMWW ohm =M.3
I !•r?,v,^,_,,.T"!TI I11 11'1 1 1 ?•?• • • •
r?..nn • 1
upon the action at any each s?aatinq shall consent in
writing to any such corporate action being takma or it
loss then all o9 the stockholders a8titled to vote.npon
the action at any such meeting shall consent in writing
to any such corporate action bring eakenj provided
that any such'action taken upon less than the uUnIroua
written consent of all stockholders entitled to vote
upon airy much action shall be by the written consent of
the stockholders boidinq at least the tinlaca
percentage of the votes required to be cast to
authorize any such action under the provisions of the
General Corporation Lav or under the. provisions of this
cartilicata of Incorporation or the by-Lave as
permitted by the provisions of the Canerai corporation
Lavf and, provided, that prompt active be given to all
stockholders entitled to vote on any such action or the
taking of such action without a wasting and by less
than unanimaue written convent.
WIMI No contract or transaction between the.
corporation and one or rare of its directors ov officers, or
between the corporation and any other corporation, partnership,
1 association, or other organization in vhieh one or more of its
directors or officers axe directors or officers, or have -a
tinancial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at
or participates in the testing of the Ward -of Directors or a
committee thereof which authorises the contract or transaction,
or solely because his or their votes an counted for such
/ Purpose, if t
(a) The material
facts an to his interest
and as to the contract or transaction are.
disclosed or are known to the Board of Directors
or the com>ittee, and the Board or committee in
quad faith authorises the centrset or transaction
1 by a vote sufficient for such purpose without
ootimting the vote of the interested dissotor or
directors= or
(b) The material !acts as to his
interest and as to the contract sr
transaction aso disclosed as are kt?evn to the
/ stockholders entitled to vote thereon, and
the contract or transaction is spacilically
approved In Wood faith by vote of the
stockholders= or
(c) The contract
as to the corporation
authorised 'a roved
board of D1rectors, a
the stockholders.
1 mecum UM 211 mj
or transaction is lair
as at the tits it in
ar ratitied, by the
committee thereof, or
Intarested directors may be counted in datesni" the
presence of a quorum at a mating at tbe.bosrd o! Directors or of
a committee which authorizes the contract or transaction:
A.- Modification of certain Liability of Directors.
A director of the obal.ar ation thall not be personally
liable to the corporation or its stockholders for monetary
dadages for breach of lidaciary duty as a director, expapt for
liability (i tar any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) tar acts or omissions,
not in good faith or which involve intentional siscanduet or a
knowing violation of law, (iii) under Section 174 of the General
corporation Law, or `iv) for any transaction from which the
director derived an improper personal benefit. it the General
corporation Law is amended to autAorlaa corporate action further
eliminating or limiting the personal liability of directors; then
the liability of a director of the corporation shall be'
eliminated or limited to she fullest extant permitted by the
reneral Corporation Law, an so amended. any repeal or
modification of this Section A or i.by the stockholders of the
corporation shall not adversely affect any right or 1wotection of
a director of the corporation existing at the time o such repeal
or modification.
s. zndeanif ication and Insurance.
(1) Right to ipdpmpiiteat ion. Each person who Vas
or is zeds a party or is threatened to be made a party-to or
is involved in any action, suit or proceeding( whether'
civil criminal, administrative or investigative
(hereinafter a *proceadinq%a by reason of the tact that he
or ¦he or a person of whoa or she is the legal
representative is or was a direct= or officer of the
corporation or is- or was serving. at the request of the
corporation as a director or officer of another corporation
or of a partnership,, joint vantase, trust of other
enterprise# including service with respect to emp loyse
benefit plans, whether the basis of such prooseUM is
alleged action in an official capacity as a director or
officer or ln.any other capacity while serving an a director
or officer shall be indemnified and held harmless by the
corporation to the fullest extent authorised by the General
corporation Law as the same exists or may hereafter be
amended (bat, in the case of a such amendments only to the
extent that such amendment peruits the corporation to
provide broader indemnification rights than said I&W
persitted the corporation to provide prior to such
asendeent?, against all expanse, liability and loss
(including attorneys' fees, judgments, fires, fRUA.excise
taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person
i Onom Darodl 3
DEC,-17' 96 (TQEI 12:03 JORID
in connection therewith and such indemnification shall
continue as to a person who has ceased to be a direetos,
offices, employee or agent and shall inure to the benefit of
his or bar heirs, executors and administrators; provided,
howevas, that except as provided in paragraph (2) of this
section s with respect to Proceedings seeking to enforce
rights to indesnification,-the corporation shall indemnify
any such person seeking indemnification in connection with a
ps a?_mrding (or part thereof) initiated by such ppearson.only
it such procesang (or part thereof) was authorised by the
Board of Directors of the corporation. The'right to
indemnification conferred in this loction I shall be a
contract riebt and shall include the right to be.-paid by the
corporstLon the expensea'incurled in defending any much
proceeding in advance of its final disposition) provided,
however, that if the serteral corporation law requisas, the
payment of such expenses incurred by a director or officer
in his or her capacity as a director or officer (and.not in
any other capacity in which service was or is rendered by
sndh parson while a director or officer, including Witho t.
limitation, service to any employee benefit plan)
of the final disposition of a proceeding, shall be made only
upon delivery to the corporation of an undertaking by or on
behalf of such director or officer, to repay all amounts so
advanced it it shall ultimately be determined that such
director or officer is not entitled to bi indemnified Under
this section a or otherwise.
(9) Right or c)ai*+ant to Drina suit, if a claim under.
paragraph (1) of this Section 8 is not paid in lull by:tae
corporation vithin the thirty days after a.vritten eliAm has
been received by the corporation, the claimant may at any
time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, it successful in
whole or in part, the claimant shall be entitled to be paid.
slag the expense of prosecuting such claim. It aball be e'
defense to any each action (other than an action brought to
enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the
required undertaxing, if any is required, has been tendered,
to no corporation) that the claimaat has not out the
standards of conduct which make it parmissible under the
t deneral Corporation Law for the corporation to indemnityy the
alaivart for the aAauat claimed, but the burden of.provinq
ouch detente shall be on the corporation. Neither the
• failure of the corporation (including its soard of
director:, Independent legal counsel or stockholders) to
have made a determination prior to the commencement of such
action that indemnifieatien of the claimant is proper in the
circamstances.because he or she has mat the applicable
standard of conduct mat forth in the Caner-s1 Corporation
Law, nor an actual determination by the corporation
(including its Board of uirectors, independent legal counsel
at stockholders) that the claimant has not set such .
o.eaaAt e.? s?mr_r
0
V Y u6
YGV. l l 7411u41 ?L•vv
applicable standard of conduct, aball be a defense to the
action or create a presumption that the clai"at has not set
the applicable standard of oonduat.
(3) KPn "el++sivi'ty Af Rite. The right to
indemnificatioe and the payment of expenses incurred in
defending.-a proeeading in advance of its final disposition
conferred in this section a shall not be exclusive at any
other right which any person may have or hereafter acquire
undar any statute, provision of this Cartif Mate of
tneor ation, by-Law, agreement, vote at stockholders or
disinterested diroetora or otherwise.
(4) 1nsyyerce. The corporation tray maintain
insurance, at its expanse, to protect itself and any
director, officer, employ" -or aloft of the corporation or
another corporation, partnership, joint venture, trust or
other arterpriss against an expense, liability or loss,
whether or not the corporation would have the power to
indemnity such person against such expanse, liability or
loss under the Canarai Corporation Lau.
T&ZV%ms From time to tine any of the provisions of
this certificate of Zncorparation may be amended, altered or
repealed, and otter provisions authorised by the laws of the
8tatm or Delaware it the time 1A tares may be added or inserted
in the manner and at the time prescribed by said law, and all
rights at any time conferred upon the stockholders of the
corporation by this certificate of Ucarparstion are granted
subject to the provisions of this Article 3dZVZM.'
Tt".M s A. As used in thie Article TVF&M z
(1) "Attiliate" and $Associate* shall be determined
pursuant to Kyle 2.1b-2 (or any successor rule) of the General
Roles and Regulations under- the aeauritias rxehange Act of 19341
(i) 'Beneficial ownershipo shall be determined
pursuant to Rule 13d-3 (or wT successor rule) of the Cenral
Auks and Regulations under the Securities ftehanga Act of 1934
acrd shall inclade s
(i) shares of stock whielt a Person bas the right to
aegairs, hold at vote pursuant to any agresment, arrangement
or understandLail, or upon stearcise of conversion rights,
warrants, options or otherwise; and
(ii) shares of stock which are beneficially owned,
directly ar indirectly (includinq shares deemed owned
through a pliestion of the foregoi clause (i)), by an
person it) vith which it or its Affiliate or Associate has
any a9zeement, arrangement or understanding for the purpose
of aegviriM, bolding, voting or disposing of stares at
0 C3ACZM of mks 5
YYV. L 1 J4 %I I •r'w"?
stock of the corporation or (b) which is its Aff Mats cc
Associate;
(3) "Buainess Combinations shall include;
(3) any merger or eonselidation of the corporation
with ar.into any other Related Psrsonj
(ii) the. sala, lease, exehangu, mortgage, pledgee
transfer or other disposition (in one transaction or a
series at transactions to or with any wlated.Person of any
assets of the corporation or any subaidiary•thersef having .
an aggregate fair market value of 813pcoo,000 or 11=01
(iiij the issuance or transfer by the corporation or
any subs, ialry thereof (in one transaction or a series at
transactions) at any securities at the corporation or any
subsidiary thereof to any Related Person ir'sudhance for
cash, securities or other property. (or a combination
thereof) having an aggregate fair market valve of
$1111000,000 or morel
tiv) the sdopklon•at any plan or proposal for the
liquidation or dissolution of. the corporation proposed by or
on behalf of any Related Persons or
((v) any reclassification or recapitalization of
securities of the corporation it the eifeets directly or
indirectly, of snap transaction is to increase the relative
voting power at any Related person;
(d) "Continuing Directors shall swan a tea) &_ 'at the
board of Dirootors of the corporation who Was not stfiliat,@d with
the Related Person and vas a sesber of the Board of Directors
poor to. the time that the Related Person acquired she last
shares of stock of the ocar-action entitling such Related Parson
to exercise, in the aggregate, in excess of ten percent (10%) of
the total voting power of all classes of stock of the corporation
entitled to vote in elections of directors, or a Person
recomended to succeed s Continnit12 Director by a 54jerity of
Continuing Directoral
p (5) "person" shall include any individual,
oorporstiono partnership, person or other entity; and
(6) ORelated Personm shall seen any person, together
with any Affiliate or komocists of such Parson, which has
Beneficial ownership, directly or indirectly, of shares of stock
of the corporation entitling such Person to exorcism more than
p ten percept (30%) of the total voting paver of all classes of
stock of the corporation entitled to vote in elections of
disecto?ra, censidarad for the purposes of this Article TfiBLM as
one class, together with the successors end assigns at any suob
person in any transaction or series of transactions not involving
0 Cuzm m bw %AV 3 9
DEC, -17' 96 (TUE1 12:04
Mb
a public offering at the corporationfa stock within the meaning
of the Securities Act of 1939.
20 unless the conditions-set tam in subparapapha
(),) or (7) of this paragraph-3 are satistied, the affiraa ivs
vote of not less than seventy-give percent 17541 of the
eulstsndieq shares at stack of the corporation entitled to vote
in sleationa of directors, considered for the purposes of thin
article TUNLPPR as one :lass, shall be required for the adoption
or authorization of a enaino s Combination with any Related
Person, Such atlinative vote shall be required notvithatandinq
the fact that no vote) or a lesser percentage, spay be required by
law or in any agreement with any national securities sxcbnmp or
otbarwise, but much vote shall not be applicable ift
(1) she definitive agreeuent or other arrangements to
effectuate a Business combination with a Related Putman are
approved by a majority of the Continuing Directors; such
dateteination stall be made by a majority of the Continuinq
Diractorm even if much majority does not constitute a quorums of
the xambsrs of the board of directors than in attics) or
(Z) Rll•of the following conditions are satistiedi
((1) The cash and fair market value of tha property,
securities or other consideration•(including, without
limitation, stock of the corporation retained by its
existing public stockholders in the event of a business
L:umbUation in which the corporation is the surviving
corporation) to be received per share by the holaera of each
class or caries of stock of the corporation in a business
carbin•tion with a Related person is not lass than the
highsat, per share price (including brokerage cosaissiona
and/or soliciting dealerall fees) paid by ow* Related Person
la acquiring any shares of such class or series,
? 'sespsativalp? '
(ii) The consideratian to be received by holders of a
particular class of securities shall be'in cash or in the
sage form of the Related Person has eviousl paid for
shares of such claw of stack. ii the Related Person has
paid for eharee of any class of stook with varying forms of.
1 consideration, the form of consideration for such class of
stock shall be either cash or the fora used to acquire the
largest number of shares of such class at stoat previously
acquired by itp
(ii!) After a Person has become a Related parson
and prior to the conmumation of a Business Combination,
r except so approved by a majority of the Continuing
Diractors, there shall have been no reduction in the annual
rate of dividands paid on shams of stock of the corporation
(except to necessary to reflect any subdivision of such
ahares) t
r
ac xM1 Dec 111"".3 to
0
urm -Li iuviuoI iciuo au
(iv) -The Related person shall not have (a received the:
benatit, directly or indirectly (except prop6rUcantely as a
stockholder), of a loans, advances, yuarantses, pledgos or. .
other, financial assistance or tax credits provided by the
corporation, or (b) %ade any imajor change IN M
corporation's business or equity capital structure without
the approval of a majority of the Dontinuing Diraetors, in
either case prior to the consummation of the Rusinsss
combinationr and
(v) A proxy statement complying with the requirements
of the securities fxchangs Act of 1831 shall be sailed to.
public stockholders of the corporstion for tha purpose of
soliciting stockholder approval of the Business combination
and shall contain at the front thereof, in a prosiness
plane, any reeormsndations as to the advisability (or
inadvisability) of the business combination which the
Continuing Directors, or any of them, may c1boose to state
snd, i! deemed advisable by a majority of the Continuing
Directors, an opinion of a reputable investment banking lim
as to the fairness (or tact) of the terms of such Business
Combination, tram the point of view of the remaining public
stockholders of the corporation (Ruch ihveatzent banking
firm to be selected by.a majority of the Continuing
Directors and to be paid a reasonable fee for their sarviva¦
by the corporation upon receipt of such opinion).
The provisions of this article TWEMS shall also apply to a.
Business combination with any Person which at any time has been a
Related Parson, notwithstanding the fact that such Person is no .
longer a Related Person, if at the tine the definitive agreement
or other arrangements relating to a Business Combination with
such Person vas entered into, it was a Related Person or it, as'
of the record data for the determination of stoMeldeirs entitled
to notice of and to vote on the business combination, such parson
is an Alfiliate of the corporations
C. A majority of the Continuing Directors shall have
the power and duty, consistent with their fiduciary obligations,
to determine for the purposes of thin Article TgtLPZl on the
basis of information known to them#
1 (1) whether any Person is s Related Parson;
(2) whether any Person is an A[riliate or Associate of
another;
(3) whether any Person has an agroement, arrangaaent,
1 or understanding with anotberi or
(;) the fair market value of property, securities or
other ounsideration (other than cash) to be received by holders
of shares at stQex.of tba corporation.
atXWR see MRU n i 1
DEC. 11' 96VrUhI lZ:Ub ?uK
The good faith determination
Directors an sucb setters shall
purposes of this Artials TWET"1'!?.
of a majority of the continuing
be binding and conclusive for
as Any corporation action which say be taken by the
written consent off stockholders entitled to vote upon such cation
pursuant to micla LIGH'M Section 4 of this Certificate of
2nccrporaition or pursuant to the General Conaration Law stall be
only br the written consent of holders of not less than •-v__ri
live percent (754) of the shares at stock of the corporation
entitled to vats theseon, notwithntanding the tact that a lesser
percentage bay be requited by law or otherwise.
S. Any corporate action which may be taken at a
special Sestinq at etockholdsrs called -by the board all oirectara,
a majority of which land are not -continuing tireotcws, shall be
only by the affirmative vote of the holders of not less than
seventy-rigs percent (75% of the outstanding shares of stock401
the corporation entitled to vote in elections of directors,
Considered for purposes of this Article TfflM6l"1'A as one class,
notwithstanding-the tact that a lesser percentage say be required
by law oz otherrisa..
E. Notwithstanding any other provision contained in
this certificate of Incorporation, any action by stockholders to
asand this Certitieate of incorporation or the ft-t ova at the
corporation shall be made at a westing of the stockholders called
for that purpose arA not by written consent.
G. No annuftente to this certificate of Incorporation
of the eatporation shall amend, alter, change or repeal any of
the provisions of this Article Tir=I.l391, unless the amendment
affecting such anendsent, alteration, change or repeal shall
receive -the aft irmative vote of not lean than savanty-five
percent (154) oat the shares of stock of the corporation entitled
to vote in slaetionb of directors, considered for the purposes of
thin Artiole TWLLFTR as one clasel provided that this paragraph d
abali not apply to, and such seventy-fie percent (73t) vote
shall not be required for, any amendment, alteration, change or
repaal recommended to the stockholders by a sajority of the
Continuing Directors:
A. Nothing contained in this Article TWZLM shall be
construed to relieve the board of Directors or any Related Person
from any fiduciary obligation imposed by law.
Iff WZT ZSS WHM=or, this Restate coartificata of
Incorporation has boon s igned by f lJ, w S 9W&ML) , its
authorised officer, this. 12th day of Doceabeir, 1995.
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BALLARD SPAHR ANDREWS & INGERSOLL, LLP
By: William A. Slaughter
Peter C. Amuso
Joshua A. Mooney
PAID Nos. 30637, 80182 and 85945
1735 Market Street, 5151 Floor
Philadelphia, PA 19103-7599
(215) 665-8500
ROBERTSOUDER
Plaintiff,
V.
Attorneys for Defendant
Rite Aid Corporation
CUMBERLAND COUNTY,
COURT OF COMMON PLEAS
CIVIL ACTION
: NO. 05-0216
RITE AID CORPORATION
Defendant.
: CIVIL ACTION
: JURY TRIAL DEMANDED
NOTICE TO PLEAD
To: Robert Souder
c/o Wix, Wenger & Weidner
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108
You are hereby notified to file a written response to the enclosed New Matter within
twenty (20) days from service hereof or a default judgment may be entered against you.
Dated: January 31, 2005
William A. Slaug ter
Peter C. Amuso
Joshua A. Mooney
BALLARD SPAHR ANDREWS
& INGERSOLL, LLP
1735 Market Street, 51 s` Floor
Philadelphia, PA 1 91 03-7599
(215) 864-8114
Attorneys for Rite Aid Corporation
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
By: William A. Slaughter
Peter C. Amuso
Joshua A. Mooney
PAID Nos. 30637, 80182 and 85945
1735 Market Street, 51" Floor
Philadelphia, PA 19103-7599
(215) 665-8500
ROBERT SOUDER
Plaintiff,
V.
Attorneys for Defendant
Rite Aid Corporation
: CUMBERLAND COUNTY,
: COURT OF COMMON PLEAS
: CIVIL ACTION
: NO. 05-0216
RITE AID CORPORATION
Defendant.
: CIVIL ACTION
: JURY TRIAL DEMANDED
ANSWER AND NEW MATTER OF RITE AID CORPORATION
TO COMPLAINT
Plaintiff, Rite Aid Corporation ("Rite Aid" or the "Company"), by its undersigned
counsel, answers the complaint of plaintiff Robert Souder ("Souder") and asserts new matter as
follows:
ANSWER
Admitted.
Admitted.
Admitted. By way of further response, Rite Aid states that Souder served
as the Company's Senior Vice President, Human Resources, until the termination of his
employment in early 2000.
4. Admitted in part and denied in part. Rite Aid admits that it filed the
complaint attached as plaintiff's Exhibit "A" ("Rite Aid Complaint"). The remaining averments
of paragraph 4 are characterizations of the complaint, a document which speaks for itself, and
therefore those averments are denied.
5. Denied. The averments of paragraph 5 are characterizations of the Rite Aid
Complaint, a document which speaks for itself, and are therefore denied.
6. Denied. The averments of paragraph 6 are characterizations of the Rite Aid
Complaint, a document which speaks for itself, and are therefore denied.
Denied. The averments of paragraph 7 are characterizations of the Rite Aid
Complaint, a document which speaks for itself, and are therefore denied.
8. Denied. The averments of paragraph 8 are characterizations of the Rite Aid
Complaint, a document which speaks for itself, and are therefore denied.
9. Denied. The averments of paragraph 9 are characterizations of the Rite Aid
Complaint, a document which speaks for itself, and are therefore denied.
10. Denied. The averments of paragraph 10 are characterizations of the Rite
Aid Complaint, a document which speaks for itself, and are therefore denied.
11. Denied. The averments of paragraph 11 are characterizations of the Rite
Aid Complaint, a document which speaks for itself, and are therefore denied.
12. Denied. The averments of paragraph 12 are characterizations of the Rite
Aid Complaint, a document which speaks for itself, and are therefore denied.
13. Denied. The averments of paragraph 13 are characterizations of the Rite
Aid Complaint, a document which speaks for itself, and are therefore denied. By way of further
response, Rite Aid states that this action concerns solely claims brought by and against Souder in
his personal capacity: enforcement of the provisions of employment agreements between a
corporate officer and the corporation. Souder acted in a personal capacity in an adversarial,
arms-length relationship with Rite Aid concerning his payment under LTIP I, his back-dated
severance letter and his Separation and Deferred Compensation Agreements. The Rite Aid
Complaint was brought against him in that personal capacity, and not by reason of the fact that
he was an officer of the Company.
14. Admitted in part and denied in part. Rite Aid admits that Souder filed the
answer attached as plaintiffs Exhibit "B" (the "Souder Answer"). The remaining averments of
paragraph 14 are characterizations of the Souder Answer, a document which speaks for itself,
and therefore those averments are denied.
15. Denied. The averments of paragraph 15 are characterizations of the
Souder Answer, a document which speaks for itself, and are therefore denied.
16. Denied. The averments of paragraph 16 are conclusions of law to which no
responsive pleading is required.
17. Admitted in part and denied in part. Rite Aid admits that plaintiff s
Exhibit "C" is the Company's Restated Certificate of Incorporation (the "Certificate"). The
averments of paragraph 17 that are characterizations of that Certificate, a document which speaks
for itself, and therefore those averments are denied. By way of further response, Rite Aid denies
that Souder has or could have any right to indemnification from Rite Aid for amounts Souder
may be found to owe to Rite Aid in this action in which Rite Aid filed the Rite Aid Complaint.
Any such claimed right to indemnification would be circular and nonsensical. In its Certificate,
Rite Aid undertook only to indemnify Souder from liability for claims brought against him "by
reason of the fact" that he served as a Company officer. The claims asserted in the Rite Aid
Complaint are claims based upon Souder's breach of personal obligations owed to the Company,
including claims arising out of Souder's back-dated severance letter and claims arising out of his
unjust receipt of LTIP I benefits that he had not earned. Such claims are not subject to
indemnification from the Company under Delaware law. See Stifel Financial Corp. v. Cochran,
809 A.2d 555, 562 (Del. 2002) (officer is not indemnified defending claims that he violated his
personal obligations to the company); Shearin v. E.F. Hutton Group, 652 A.2d 578, 594 (Del.
Ch. 1994) (same).
18. Denied. The averments of paragraph 18 are conclusions of law to which no
responsive pleading is required.
19. Denied. The averments of paragraph 19 are characterizations of the
Certificate, a document which speaks for itself, and are therefore denied. The averments of
paragraph 19 are also conclusions of law to which no responsive pleading is required.
20. Denied. The averments of paragraph 20 are characterizations of the
Certificate, a document which speaks for itself, and are therefore denied. The averments of
paragraph 20 are also conclusions of law to which no responsive pleading is required.
21. Denied. The averments of paragraph 21 are conclusions of law to which no
responsive pleading is required. By way of further response, Rite Aid states that the gravamen of
Rite Aid's claims in the Rite Aid Complaint is not a breach of Souder's official duties. Rather,
Rite Aid seeks recovery of Souder's LTIP I payout on claims of unjust enrichment and mutual
mistake because that payment was never earned, and Rite Aid seeks disgorgement of Souder's
severance payments because he violated his severance agreement and misled new management
by asking the Company to honor his back-dated severance letter. In the words of the Delaware
Chancery Court, "claims brought by a corporation against an officer for excessive compensation
paid or breaches of a non-competition agreement are `quintessential examples of a dispute
between an employer...and an employee' and are not brought `by reason of the fact' of the
director's position with the corporation." Zenimax, 2004 WL 243163 at *3 (quoting Cochran v.
Stifel Fin. Com., 2000 WL 1847676, at *5 (Del. Ch. Dec. 13, 2000), affd, 809 A.2d 555 (Del.
2002)).
4
22. Denied. The averments of paragraph 22 are conclusions of law to which
no responsive pleading is required.
23. Denied. The averments of paragraph 23 are conclusions of law to which
no responsive pleading is required.
24. Denied. The averments of paragraph 24 are conclusions of law to which
no responsive pleading is required.
25. Denied as stated. Although Souder has demanded that Rite Aid advance
his legal expenses incurred in defending himself from the claims made in the Rite Aid
Complaint, Souder is not entitled to advancement.
26. Denied. By way of further response, the claims asserted in the Rite Aid
Complaint are claims based upon Souder's breach of personal obligations owed to the Company,
including claims arising out of Souder's back-dated severance letter and claims arising out of his
unjust receipt of LTIP I benefits that he had not earned. Such claims are not subject to
indemnification from the Company under Delaware law nor under the Certificate. See Stifel
Financial Corp. v. Cochran, 809 A.2d 555, 562 (Del. 2002) (officer is not indemnified defending
claims that he violated his personal obligations to the company); Shearin v. E.F. Hutton Group,
652 A.2d 578, 594 (Del. Ch. 1994) (same).
27. Denied. The averments of paragraph 27 are characterizations of the
Certificate, a document which speaks for itself, and are therefore denied. The averments of
paragraph 27 are also conclusions of law to which no responsive pleading is required.
28. Denied. The averments of paragraph 28 are characterizations of the
Certificate, a document which speaks for itself, and are therefore denied. The averments of
paragraph 28 are also conclusions of law to which no responsive pleading is required.
29, Denied. The averments of paragraph 29 are conclusions of law to which no
responsive pleading is required.
30. Denied. The averments of paragraph 30 are conclusions of law to which no
responsive pleading is required.
31, Denied. The averments of paragraph 31 are conclusions of law to which
no responsive pleading is required.
32. Denied. The averments of paragraph 32 are conclusions of law to which
no responsive pleading is required. By way of further response, Rite Aid states that Souder has
maintained able counsel who has vigorously defended Souder's rights during eighteen months of
litigation concerning the Rite Aid Complaint, without advancement from Rite Aid.
33. Denied. The averments of paragraph 33 are conclusions of law to which
no responsive pleading is required.
34. Denied. The averments of paragraph 34 are conclusions of law to which
no responsive pleading is required.
35. Denied. The averments of paragraph 35 are characterizations of the
Certificate, a document which speaks for itself, and are therefore denied. The averments of
paragraph 35 are also conclusions of law to which no responsive pleading is required.
36. Denied. Rite Aid is without knowledge or information sufficient to form a
belief as to the truth of the allegations set forth in paragraph 36.
37. Denied. Rite Aid is without knowledge or information sufficient to form a
belief as to the truth of the allegations set forth in paragraph 37.
38. Denied. Rite Aid is without knowledge or information sufficient to form a
belief as to the truth of the allegations set forth in paragraph 38.
6
WHEREFORE, Rite Aid respectfully requests that judgment be entered in its favor against
defendant, together with such other relief, including attorneys' fees and costs as the Court deems
just and proper.
NEW MATTER
FIRST AFFIRMATIVE DEFENSE
39. Defendant's claim fails to state a cause of action or any claim upon which
relief can be granted.
SECOND AFFIRMATIVE DEFENSE
40. Defendant's claim is barred in whole or in part by the doctrines of waiver
and/or estoppel.
THIRD AFFIRMATIVE DEFENSE
41. Rite Aid has performed each and every duty owed to defendant to the
extent any such duty exists or ever existed.
WHEREFORE, Rite Aid respectfully requests that judgment be entered in its favor against
defendant, together with such other relief, including attorneys' fees and costs as the Court deems
just and proper.
Dated: January 31, 2005
BALLARD SPAHR ANDREWS
& INGERSOLL, UP
1735 Market Street, 5151 Floor
Philadelphia, PA 19103-7599
(215) 864-8114
Attorneys for Rite Aid Corporation
7
Teter t:. Amuso
Joshua A. Mooney
,TAN.26'2005 10:33 717 760 7867 RTTEAID CORP #0910 P.003{003
VERIFICATION
I, Robert B. Sari, hereby state that I am the Senior Vice President, General
Counsel & Corporate Secretary Rite Aid Corporation; that I am authorized to make this
verification on behalf of defendant in the foregoing action; that I have personal knowledge of the
statements made in the foregoing Answer and New Matter of Rite Aid Corporation to Complaint;
and that the statements made in the Answer and New Matter of Rite Aid Corporation to
Complaint, are true and correct to the best of my knowledge, information and belief. I
understand that the statements in this verification are made subject to the penalties of IS Pa.C.S.
§ 4904 relating to unworn falsification to authorities.
'k7
Robert B. Sari
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
By: William A. Slaughter
Peter C. Amuso
Joshua A. Mooney
PAID Nos. 30637, 80182 and 85945
1735 Market Street, 519` Floor
Philadelphia, PA 19103-7599
(215) 665-8500
ROBERT SOUDER
Plaintiff,
v.
RITE AID CORPORATION
Defendant.
Attorneys for Defendant
Rite Aid Corporation
: CUMBERLAND COUNTY,
: COURT OF COMMON PLEAS
: CIVIL ACTION
NO. 05-0216
CIVIL ACTION
JURY TRIAL DEMANDED
CERTIFICATE OF SERVICE
I hereby certify that on January 31, 2005, true and correct copies of the Answer and New
Matter of defendant Rite Aid Corporation were served via overnight mail upon:
Thomas L. Wenger, Esquire
Wix, Wenger & Weidner
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
Attorneys for Defendant / X
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ROBERT SOUDER, IN THE COURT OF COMMON PLEAS,
Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA
V. : NO. 05-216
RITE AID CORPORATION, CIVIL ACTION
Defendant
ANSWER TO NEW MATTER
AND NOW, comes Plaintiff, Robert Souder, by and through his attorneys, Wix,
Wenger & Weidner, and files this Answer to New Matter, stating as follows:
FIRST AFFIRMATIVE DEFENSE
39. The averment contained in Paragraph 39 constitutes a conclusion of law to which
no responsive pleading is required.
SECOND AFFIRMATIVE DEFENSE
40. The averment contained in Paragraph 40 constitutes a conclusion of law to which
no responsive pleading is required. To the extent an answer is required,
Paragraph 40 is specifically denied and strict proof is demanded.
THIRD AFFIRMATIVE DEFENSE
41. The averment contained in Paragraph 41 constitutes a conclusion of law to which
no responsive pleading is required. To the extent an answer is required,
Paragraph 41 is specifically denied and strict proof is demanded.
1
WHEREFORE, Plaintiff, Robert Souder, respectfully requests that this Honorable
Court enter judgment in his favor and against Defendant, Rite Aid Corporation, as
requested in the Complaint.
Date:
Respectfully submitted,
WIX, WENGER & WEIDNER
Richard H. Wix,'I.D. No. QjI2Y4
Thomas L. Wenger, I.D o. 15489
Dean A. Weidner, I.D. o. 06363
Jeffrey C. Clark, I.D. No. 89277
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
2
ROBERT SOUDER, IN THE COURT OF COMMON PLEAS,
Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA
V. : NO. 05-216
RITE AID CORPORATION, CIVIL ACTION
Defendant
CERTIFICATE OF SERVICE
I hereby certify that the foregoing Answer to New Matter was sent by first class
certified mail return receipt requested, postage prepaid this day to the following:
William A. Slaughter, Esquire
Peter C. Amuso, Esquire
Joshua A. Mooney, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51St Floor
Philadelphia, PA 19130-7599
Respectfully submitted,
WIX, WENGER & WEIDNER
Date: 31116S By: f? ??xph
Harva Owings Baughma , Paralegal
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
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Wix, Wenger & Weidner
Richard H. Wix, I.D. No. 07274
Thomas L. Wenger, I.D. No. 15489
Dean A. Weidner, I.D. No. 06363
Jeffrey C. Clark, I.D. No. 89277
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
ROBERT SOUDER,
Plaintiff
V.
RITE AID CORPORATION,
Defendant
IN THE COURT OF COMMON PLEAS,
CUMBERLAND COUNTY, PENNSYLVANIA
NO. 05-216
CIVIL ACTION
MOTION FOR SUMMARY JUDGMENT
AND NOW, comes Plaintiff, Robert Souder, by and through his attorneys, Wix,
Wenger & Weidner, and files this Motion for Summary Judgment, stating as follows:
1. On January 11, 2005, Souder filed a Complaint requesting that this Court order
Defendant, Rite Aid Corporation ("Rite Aid"), to reimburse such legal fees and
expenses as have been reasonably incurred by him in defending against the
action in the Court of Common Pleas of Cumberland County, Pennsylvania,
docket number 03-3059 (the "Underlying Action"), advance such future legal fees
and expenses as may be reasonably incurred by Souder in defending against the
Underlying Action, and pay to Souder legal fees and expenses incurred in
enforcing his right to advancement of legal fees and expenses, and to enjoin
Defendant, Rite Aid Corporation, from prosecuting the Underlying Action until
said payments are made.
2. On January 31, 2005, Rite Aid filed its Answer and New Matter.
3. On March 3, 2005, Souder filed an Answer to New Matter.
4. This action is appropriately decided by summary judgment because there is no
genuine issue of any material fact as to a necessary element of the cause of
action or defense which could be established by discovery or expert report.
5. The only issues for this Court are the determination of legal questions and the
interpretation of pleadings and of written documents which created contractual
obligations.
6. The Underlying Action was initiated by Rite Aid when it filed an Amended
Complaint against Souder on October 21, 2003, which is attached to the
Complaint as Exhibit "A".
7. The Amended Complaint in the Underlying Action contained counts in unjust
enrichment, mistake, fraud, breach of contract, and breach of fiduciary duty.
8. Souder filed an Answer with New Matter and Counterclaim in the Underlying
Action on July 6, 2004 (the "Answer"), which is attached to the Complaint as
Exhibit "B," denying Rite Aid's allegations and filing a counterclaim with counts of
breach of contract, and unjust enrichment, and seeking declaratory judgment and
relief under the Pennsylvania Wage Payment and Collection Act (the
"Counterclaims").
9. Judge Edward E. Guido and Judge Kevin A. Hess ruled on a matter related to
this Motion in the Underlying Action.
Souder is Entitled to Advancement of his Legal Fees and Expenses
Incurred by him on Account of the Underlying Action
10. Paragraphs 1 through 9 are incorporated herein by reference as though set forth
in full.
11. Souder is entitled to advancement of his legal fees and expenses in defending
against the Underlying Action under the express language of the Restated
Certificate of Incorporation of Rite Aid Corporation, adopted by Rite Aid's Board
of Directors on December 12, 1996 (the "Certificate of Incorporation"), which is
attached to the Complaint as Exhibit "C."
12. Section 10(B)(1) of the Certificate of Incorporation creates the right to
indemnification for an officer of Rite Aid, stating, in pertinent part:
Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that
he or she ... is or was a director or officer of the corporation(,]
whether the basis of such proceeding is alleged action in an official
capacity as a director or officer or in any other capacity while
serving as a director or officer shall be indemnified and held
harmless by the corporation to the fullest extent authorized by the
[Delaware] General Corporation Law ... against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and
administrators ....
13. Section 10(B)(1) of the Certificate of Incorporation further states that the right to
indemnification is a contractual right and creates the right of an officer of Rite Aid
to have his or her legal fees advanced, stating, in pertinent part:
The right to indemnification conferred in this Section B shall be a contract
right and shall include the right to be paid by the corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition ....
14. The Underlying Action and the legal fees and expenses incurred by Souder in
defending himself against Rite Aid's claims meet the requirements of Section
10(b)(1) because in the Underlying Action Souder has been made a party to a
civil action by reason of the fact that he was an officer of Rite Aid and because of
alleged actions taken while he was an officer of Rite Aid.
15. All counts in the Underlying Action complain of actions allegedly committed by
Souder in his official capacity as Senior Vice President, Human Resources, of
Rite Aid.
16. All of Rite Aid's counts in the Underlying Action are alleged by Rite Aid to be or
contribute to a breach of fiduciary duty by Souder. All facts alleged by the other
counts are expressly incorporated by Rite Aid in its breach of fiduciary duty count
as the basis for its claim for recovery.
17. A claim that a corporate officer has breached his fiduciary duty is inescapably a
claim brought by reason of the fact that a defendant was an officer of the
corporation.
18. Accordingly, Rite Aid is precluded from arguing that the Underlying Action, or any
of the particular counts in the Amended Complaint, was not brought by reason of
the fact that Souder was an officer of Rite Aid Corporation.
19. Additionally, under Delaware law, counterclaims raised by a defendant in the
course of defending claims against an action brought by his employer are
reasons why the employer should not recover and, therefore, are within the
Certificate of Incorporation's cost advancement provisions.
20. Under the terms of the Certificate of Incorporation and controlling state law, Rite
Aid must advance to Souder all legal fees and expenses incurred in the
prosecution of his counterclaims in the Underlying Action.
21. Souder has demanded from Rite Aid the benefits of the above-quoted provisions
of the Certificate of Incorporation, subject to the conditions and undertakings set
forth therein, but Rite Aid has refused to honor the provisions, and has denied
any responsibility for the legal fees and expenses incurred by Souder in
connection with the Underlying Action.
22. The provisions of Section 10(6)(2) of the Certificate of Incorporation preclude
Rite Aid's denial of advancement in the instant case because the provisions
expressly limit such a denial to only those situations in which the "undertaking",
described in the Section, is required of the claimant but has not been tendered.
The Section states, in pertinent part, as follows:
It shall be a defense to [an action to recover legal fees and
expenses] (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its
final disposition where the required undertaking, if any is required,
has been tendered to the corporation) that the claimant has not met
the standards of conduct which make it permissible under the
[Delaware] General Corporation Law for the corporation to
indemnify the claimant for the amount claimed ....
(Emphasis added).
23. Further, because this action is for advancement of legal fees and expenses,
under Delaware law, neither Souder's ultimate entitlement to indemnification nor
the merits of the Underlying Action are relevant to the determination of his right to
advancement.
24. Section 10(B)(2) of the Certificate of Incorporation gives Souder the right to bring
suit against Rite Aid to enforce his right to advancement of legal fees and
expenses under Section 10(B)(1) and to recover legal fees and expenses
incurred to enforce his right to such advancement, stating, in pertinent part:
If a claim under paragraph (1) of this Section B is not paid in full by
the corporation within the thirty days after a written claim has been
received by the corporation, the claimant may at any time thereafter
bring suit against the corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim.
25. Accordingly, Souder is entitled to summary judgment as Rite Aid is obligated to
advance Souder's anticipated legal fees and expenses in connection with the
Underlying Action, including fees and expenses already incurred, and to pay
Souder the legal fees and expenses incurred in bringing this action to obtain
such advancement
26. Souder is unable to estimate his future legal fees and expenses to be incurred on
account of the Underlying Action.
27. Souder is unable to estimate his future legal fees and expenses to be incurred in
enforcing his right to advancement.
WHEREFORE, Plaintiff, Robert Souder, respectfully requests this Court enter an
order granting summary judgment in favor of Plaintiff and against Defendant, Rite Aid
Corporation, and granting the relief requested in the Complaint.
Souder is Entitled to the Remedy of an Injunction
28. Paragraphs 1 through 27 are incorporated herein by reference as though set
forth in full.
29. Souder's right to advancement of legal fees and expenses is a contractual right
whose enforcement through injunctive relief is necessary and appropriate in
order to protect him from irreparable injury not adequately measurable or
compensable.
30. The right to advancement protects Souder from a burdensome and oppressive
expenditure of his own funds against suits brought due to his having served as
an officer of Rite Aid.
31. If Souder's requested relief is not granted, his rights under the Certificate of
Incorporation to be so protected will be irretrievably lost.
32. If Souder's requested relief is not granted, he will be irreparably harmed in that
his ability to defend himself in the Underlying Action will be substantially and
irretrievably impaired.
33. Granting Souder's requested relief will maintain the status quo between the
parties in that his right to advancement of his legal fees and expenses will be
fulfilled without undue harm to Rite Aid and without prejudice to any of Rite Aid's
rights.
34. Rite Aid will not be injured or unfairly prejudiced by the enforcement of the
indemnification and advancement clauses of the Certification of Incorporation,
which it adopted of its own volition and for its own purposes.
35. The Certificate of Incorporation is clear in its language and express intent in
creating the right to advancement of legal fees and expenses in cases brought
against an individual on account of his service as an officer and employee of the
corporation, such as the instant one.
36. Accordingly, Souder is entitled to summary judgment granting him the relief
requested herein, including the issuance of an injunction barring the Defendant
from prosecuting the Underlying Action until such time as Defendant advances to
Souder the legal fees and expenses incurred and anticipated by Souder in
defending the Underlying Action and in enforcing his right to such advancement
of legal fees and expenses.
WHEREFORE, Plaintiff, Robert Souder, respectfully requests this Court enter an
order granting summary judgment in favor of Plaintiff and against Defendant, Rite Aid
Corporation, and granting the equitable relief requested in the Complaint.
Respectfully submitted,
Date: 3!z ; os
WIX, WENGER & WEIDNER
(i ,
By: l
Ric d H. Wix, 1. D. No. 07274
Thomas L. Wenger, I.D. No. 15489
Dean A. Weidner, I.D. No. 06363
Jeffrey C. Clark, I.D. No. 89277
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
ROBERT SOUDER, IN THE COURT OF COMMON PLEAS,
Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA
V. : NO. 05-216
RITE AID CORPORATION, CIVIL ACTION
Defendant
CERTIFICATE OF SERVICE
I hereby certify that the foregoing Motion for Summary Judgment was sent by first
class mail, postage prepaid this day to the following:
William A. Slaughter, Esquire
Peter C. Amuso, Esquire
Joshua A. Mooney, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 515` Floor
Philadelphia, PA 19103-7599
Attorneys for Defendant
Respectfully Submitted,
WIX, WENGER & WEIDNER
By:
Holly A. Pft tz, Legal Assi ant
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Date: `? Attorneys for Plaintiff
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SHERIFF'S RETURN - REGULAR
CASE NO: 2005-00216 P
COMMONWEALTH OF PENNSYLVANIA:
COUNTY OF CUMBERLAND
SOUDER ROBERT
VS
RITE AID CORPORATION
KENNETH GOSSERT , Sheriff or Deputy Sheriff of
Cumberland County,Pennsylvania, who being duly sworn according to law,
says, the within COMPLAINT - EQUITY was served upon
RITE AID CORPORATI
DEFENDANT
at 30 HUNTER
CAMP HILL, P.
the
, at 1615:00 HOURS, on the 12th day of January , 2005
7011
TRACEY LANDIS, PARALEGAL
by handing to
IN CHARGE
a true and attested copy of COMPLAINT - EQUITY together with
and at the same time directing Her attention to the contents thereof.
Sheriff's Costs
Docketing 18.00
Service 11.10
Affidavit .00
Surcharge 10.00
.00
39.10
Sworn and Subscribed to before
me this ag o day of
Ur75? A. D.
Prothonotary'
So Answers:
R. Thomas Kline
01/13/2005
WIX WENGER WEIDNER
By:
?Aj iff
D pu y
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
By: William A. Slaughter
Peter C. Amuso
Joshua A. Mooney
PAID Nos. 30637, 80182 & 85945
1735 Market Street, 51s` Floor
Philadelphia, PA 19103-7599
Attorneys for Defendant
Rite Aid Corporation
(215) 665-8500
: CUMBERLAND,
: COURT OF CON
: CIVIL ACTION
PLEAS
ROBERTSOUDER
Plaintiff,
V.
RITE AID CORPORATION
Defendant.
NO. 05-0216
CIVIL ACTION
RESPONSE OF RITE AID CORPORATION IN OPPOSITION
MOTION FOR SUMMARY JUDGMENT
Defendant, Rite Aid Corporation ('Rite Aid" or the
undersigned counsel, responds to the motion of plaintiff Robert Souder ("
judgment and injunctive relief as follows:
1. Admitted in part and denied in part. Rite Aid
complaint in this action (the "Complaint"). The remaining averments of
characterizations of the Complaint, a writing which speaks for itself, and
2. Admitted.
3. Admitted.
4. Admitted. By way of further response, Rite Aid
) PLAINTIFF'S
iy"), by its
uder") for summary
that Souder filed a
agraph 1 are
:therefore denied.
that it is moving for
summary judgment it its favor on plaintiffs claims in the Complaint.
5. Admitted. By way of further response, Rite Aid states that it has moved
for summary judgment it its favor on plaintiff s claims in the Complaint.
6. Admitted in part and denied in part. Rite Aid denies
Underlying Action when it filed an amended complaint against Souder on
"Amended Complaint"). To the contrary, Rite Aid commenced the
summons on June 27, 2003. Rite Aid admits that the Exhibit "A" to
Action is a copy of the Amended Complaint.
7. Denied. The averments of paragraph 7 are
Amended Complaint, a writing which speaks for itself, and are therefore
8. Admitted in part and denied in part. Rite Aid
Answer with New Matter and Counterclaim in the Underlying Action on
"Answer"), and that Exhibit "B" attached to the Complaint is a copy of the
remaining averments of paragraph 8 are characterizations of the Answer, a
for itself, and are therefore denied
9. Denied as stated. On June 15, 2004, the Court
preliminary objections to the Amended Complaint in the Underlying
attempted to compel advancement of his fees incurred in the Underlying
the Underlying Litigation pending advancement. On November 23, 2004,
Souder's advancement claim because it was not properly before the Court.
10. Rite Aid repeats and restates its responses to
Complaint as though set forth in full.
hat it "initiated" the
ctober 21, 2003 (the
ing Action by writ of
's Complaint in this
7ations of the
lied.
Souder filed an
y 6, 2004 (the
knswer. The
vriting which speaks
Souder's
Sender then
igation, and to stay
ie Court denied
1 through 9 of the
2
11. Admitted in part and denied in part. Rite Aid admits that Exhibit "C" to
the Complaint is a copy of Rite Aid's restated Certificate of Incorporation (the "Certificate").
The remaining averments of paragraph 11 are characterizations of the Certificate, a writing
which speaks for itself, and are therefore denied. By way of further response, Rite Aid denies
that Souder has or could have any right to advancement from Rite Aid for legal fees or expenses,
including amounts Sunder may be found to owe to Rite Aid, in the Underlying Action. In its
Certificate, Rite Aid undertook only to indemnify Souder from liability for Olaims brought
against him "by reason of the fact" that he served as a Company officer. The claims asserted in
the Underlying Action are claims based upon Souder's breach of personal obligations owed to
the Company, including claims arising out of Souder's back-dated severance letter and claims
arising out of his unjust receipt of LTIP I benefits that he had not earned. Such claims are not
subject to indemnification, and therefore advancement, from the Company finder Delaware law.
See Stifel Financial Corp. v. Cochran, 809 A.2d 555, 562 (Del. 2002) (officer is not indemnified
defending claims that he violated his personal obligations to the company);
Hutton Group, 652 A.2d 578, 594 (Del. Ch. 1994) (same).
12. Denied. The averments of paragraph 12 are characte#izations of the
Certificate, a writing which speaks for itself, and are therefore denied.
13. Denied. The averments of paragraph 13 are characterizations of the
Certificate, a writing which speaks for itself, and are therefore denied.
14. Denied. The averments of paragraph 14 are characte> izations of the
Certificate, which is a writing that speaks for itself. By way of further response, Rite Aid states
that the claims asserted in the Underlying Action are claims based upon Souder's breach of
personal obligations owed to the Company, and not by "by reason of the fact" that he served as a
Company officer.
15. Denied. The averments of paragraph 15 are
Amended Complaint, which is a writing that speaks for itself. By way of
Aid states that Underlying Action concerns solely claims brought by and
personal capacity.
16. Denied. The averments of paragraph 16 are
Amended Complaint, a writing which speaks for itself, and are therefore
17. Denied. The averments of paragraph 17 are
no responsive pleading is required.
18. Denied. The averments of paragraph 18 are
no responsive pleading is required. By way of further response, Rite Aid
response to paragraph 1 I of Souder's motion as though fully set forth
19. Denied. The averments of paragraph 19 are
no responsive pleading is required.
20. Denied. The averments of paragraph 20 are
no responsive pleading is required.
tions of the
r response, Rite
t Souder in his
tions of the
1.
of law to which
of law to which
porates its
of law to which
of law to which
21. Admitted in part and denied in part. The averments f paragraph 21 are
conclusions of law to which no responsive pleading is required, and are the fore denied, except
that Rite Aid admits that counsel for Souder has written to the Company
of Souder's legal fees incurred in the Underlying Action. By way
states that Souder also moved to compel advancement of his legal fees in
advancement
response, Rite Aid
Underlying Action,
4
and that the Court denied that motion on the grounds that the advancement
properly before the Court. Rite Aid denies that Souder has any right to
22. Denied. The averments of paragraph 22 are
Certificate, which is a writing that speaks for itself
23. Denied. The averments of paragraph 23 are
no responsive pleading is required.
24. Denied. The averments of paragraph 24 are
Certificate, which is a writing that speaks for itself.
25. Denied. The averments of paragraph 25 are
no responsive pleading is required. By way of further response, Rite Aid
response to paragraph 11 of Souder's motion as though fully set forth
moved for summary judgment it its favor on plaintiffs claims in the
26. Denied. Rite Aid is without knowledge or
belief as to the truth of the averments set forth in paragraph 26.
27. Denied. Rite Aid is without knowledge or
belief as to the truth of the averments set forth in paragraph 27.
WHEREFORE, Rite Aid respectfully requests that Souder's
judgment be denied, Rite Aid's motion for summary judgment be granted,
allowed such other and further relief as the Court deems just and proper.
28. Rite Aid repeats and restates its responses to
the Complaint as though set forth in full.
were not
advancement.
of the
of law to which
of the
of law to which
its
and states that it has
sufficient to form a
sufficient to form a
for summary
that Rite Aid be
1 through 27 of
5
29. Denied. The averments of paragraph 29 are conclusions of law to which
no responsive pleading is required. By way of further response, Rite Aid states that Souder seeks
only money damages -- any injury he might suffer would not be
30. Denied. The averments of paragraph 30 are conclusions of law to which
no responsive pleading is required. By way of further response, Rite Aid states the Underlying
Action was brought against Souder due to actions taken by him in his personal capacity. Rite Aid
also incorporates its response to paragraph I 1 of Souder's motion as though fully set forth herein
31. Denied. The averments of paragraph 31 are conclusions of law to which
no responsive pleading is required. By way of further response, Rite Aid incorporates its
response to paragraph 29 of Souder's motion as though fully set forth
32. Denied. The averments of paragraph 32 are conclusions of law to which
no responsive pleading is required. By way of further response, Rite Aid responds that the
Company's rightful refusal to pay for Souder's legal fees has not prevented lhis counsel from
mounting a vigorous defense of Souder in this action during the eighteen months since Rite Aid
filed its original complaint. By way of further response, Rite Aid incorpor4es its response to
paragraph 29 of Souder's motion as though fully set forth herein.
33. Denied. The averments of paragraph 33 are conclusions of law to which
no responsive pleading is required. By way of further response, Rite Aid states, on information
and belief, that if it is forced to advance to Souder his legal fees incurred in this action, Souder
will not repay the Company should it ultimately be decided that Souder is not entitled to
indemnification. In contrast, should it be ultimately determined that Soude? should be
indemnified, the Company has the resources to indemnify him.
6
34. Denied. The averments of paragraph 34 are
no responsive pleading is required. By way of further response, Rite Aid
response to paragraph 33 of Souder's motion as though fully set forth
35. Denied. The averments of paragraph 35 are
no responsive pleading is required. The averments of paragraph 35 are ah
the Certificate, which is a writing that speaks for itself. By way of further
states that contrary to averments of paragraph 35, the Certificate is clear tl
advancement and indemnification in cases such as this action. Rite Aid ii
response to paragraph 11 of Souder's motion as though fully set forth
36. Denied. To the contrary, it is Rite Aid who is
judgment. The Certificate and Delaware law are clear that Souder has no
for legal fees and expenses incurred defending himself against the Rite A
Underlying Action, which have been brought against him in his personal
further response, Rite Aid incorporates its response to paragraph 11 of So
though fully set forth herein.
ms of law to which
,orporates its
ms of law to which
characterizations of
;spouse, Rite Aid
t there is no right to
orporates its
to summary
;ht to advancement
s claims in the
)acity. Byway of
er's motion as
7
WHEREFORE, Rite Aid respectfully requests that Souder's
Aid from prosecuting the Underlying Action be denied, and that Rite Aid
and further relief as the Court deems just and proper.
Dated: April 4, 2005
Peter C. Amuso
Joshua A. Mooney
BALLARD SPAHR ANDRE`
& INGERSOLL, LLP
1735 Market Street, 51s` Floor
Philadelphia, PA 19103-7599
(215) 864-8114
Attorneys for Rite Aid
to enjoin Rite
allowed such other
VERIFICATION
I, Robert B. Sari, hereby state that I am the Senior Vice
Counsel & Corporate Secretary Rite Aid Corporation; that I am authorized
verification on behalf of plaintiff in the foregoing action; that I have persor
statements made in the foregoing Response of Rite Aid Corporation to Plai
Summary Judgment; and that the statements made in the Response of Rite
Plaintiff's Motion for Summary Judgment, are true and correct to the best i
information and belief. I understand that the statements in this verification
ent, General
make this
knowledge of the
iffs Motion for
id Corporation to
my knowledge,
re made subject to
the penalties of 18 Pa.C.S. § 4904 relating to unsworn falsification to
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
By: William A. Slaughter
Peter C. Amuso
Joshua A. Mooney
PAID Nos. 30637, 80182 & 85945
1735 Market Street, 51s` Floor
Philadelphia, PA 19103-7599
(215) 665-8500
ROBERTSOUDER
Plaintiff,
V.
RITE AID CORPORATION
Defendant.
Attorneys for
Rite Aid Cori
: CUMBERLAND
: COURT OF CON
: CIVIL ACTION
NO. 05-0216
CIVIL ACTION
CERTIFICATE OF SERVICE
I hereby certify that on April 4, 2005, a true and correct copy of the
Corporation to Plaintiff's Motion for Summary Judgment were served via
Thomas L. Wenger, Esquire
Wix, Wenger & Weidner
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
Attorneys for Plaintiff
Peter
PLEAS
of Rite Aid
mail upon:
,,
;,
.,
;
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t
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ROBERT SOUDER,
Plaintiff
V.
RITE AID CORPORATION,
Defendant
IN THE COURT OF COMMON PLEAS,
CUMBERLAND COUNTY, PENNSYLVANIA
NO. 05-216
CIVIL ACTION
PRAECIPE FOR LISTING CASE FOR ARGUMENT
TO THE PROTHONOTARY OF CUMBERLAND COUNTY:
Please list the above matter for the next Argument Court.
The matter to be argued is Plaintiff's Motion for Summary Judgment and
Defendant's Cross-Motion for Summary Judgment.
The following counsel will argue the case:
For Plaintiff: Thomas L. Wenger, Esquire
Wix, Wenger & Weidner
508 North Second Street
P.O. Box 845
Harrisburg, PA 17101
For Defendant: William A. Slaughter, Esquire
Peter C. Amuso, Esquire
Joshua A. Mooney, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Harrisburg, PA 19103
All parties will be notified within two days that this case has been listed for
argument.
Argument Court Date: May 4, 2005.
[SIGNATURE APPEARS ON FOLLOWING PAGE]
Respectfully submitted,
Date:
1 ?
i
WIX, WENGER & WEIDNER
By: h 1A/Jj4AQA
Ri hard H. Wix, I.D. No. 017'?
Th mas L. Wenger, LD. N 15489
Dean A. Weidner, I.D. No. 6363
Jeffrey C. Clark, I.D. No. 89277
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
2
ROBERT SOUDER, IN THE COURT OF COMMON PLEAS,
Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA
V. : NO. 05-216
RITE AID CORPORATION, CIVIL ACTION
Defendant
CERTIFICATE OF SERVICE
I hereby certify that the foregoing Praecipe for Listing Case for Argument was
sent by first class, postage prepaid, United States mail this day to the following:
William A. Slaughter, Esquire
Peter C. Amuso, Esquire
Joshua A. Mooney, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51St Floor
Harrisburg, PA 19103
Date:
Respectfully submitted,
WIX, WENGER & WEIDNER
By: (t?4. 1 iv r1 ?'i
Holly Pitz, Legal Secretary
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
3
C)
? =y
J? TI
Tory '?
ni rii 3
Fri
-
1 7
F ?? C J
Byrn
N
ul
ROBERT SOUDER,
Plaintiff
V.
RITE AID CORPORATION,
Defendant
IN THE COURT OF COMMON PLEAS,
CUMBERLAND COUNTY, PENNSYLVANIA
NO. 05-216
CIVIL ACTION
PRAECIPE TO WITHDRAW PRAECIPE FOR LISTING CASE FOR ARGUMENT
TO THE PROTHONOTARY OF CUMBERLAND COUNTY:
Please withdraw the Praecipe for Listing Case for Argument, which was filed on
April 8, 2005.
Respectfully submitted,
WIX, WENGER & WEIDNER
Date: ` / 7/o5 -
By:
Ric H. WV' , I.D. No. 07274
Th as L. W nger, I.D. No. 15489
Dean A. Weidner, I.D. No. 06363
Jeffrey C. Clark, I.D. No. 89277
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
?.>
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,;
ROBERT SOUDER, IN THE COURT OF COMMON PLEAS,
Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA
v, NO. 05-216
RITE AID CORPORATION, CIVIL ACTION
Defendant
CERTIFICATE OF SERVICE
I hereby certify that the foregoing Praecipe to Withdraw Praecipe for Listing Case
for Argument was sent by first class, postage prepaid, United States mail this day to the
following:
William A. Slaughter, Esquire
Peter C. Amuso, Esquire
Joshua A. Mooney, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51St Floor
Philadelphia, PA 19103
Respectfully submitted,
WIX, WENGER & WEIDNER
0 „„ Date: By:
e Ed-]:A
Lvi s/?S Holly Pilsit egal Secr®t ry
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
2
ROBERT SOUDER,
Plaintiff
V.
RITE AID CORPORATION,
Defendant
IN THE COURT OF COMMON PLEAS,
CUMBERLAND COUNTY, PENNSYLVANIA
NO. 05-216
CIVIL ACTION
PRAECIPE FOR LISTING CASE FOR ARGUMENT
TO THE PROTHONOTARY OF CUMBERLAND COUNTY:
Please list the above matter for the next Argument Court.
The matter to be argued is Plaintiff's Motion for Summary Judgment and
Defendant's Cross-Motion for Summary Judgment.
The following counsel will argue the case:
For Plaintiff: Thomas L. Wenger, Esquire
Wix, Wenger & Weidner
508 North Second Street
P.O. Box 845
Harrisburg, PA 17101
For Defendant: William A. Slaughter, Esquire
Peter C. Amuso, Esquire
Joshua A. Mooney, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51 s' Floor
Harrisburg, PA 19103
All parties will be notified within two days that this case has been listed for
argument.
Argument Court Date: June 1, 2005.
[SIGNATURE APPEARS ON FOLLOWING PAGE]
Respectfully submitted,
Date: `I /Z`i/os
WIX, WENGER & WEIDNER
By:4
Rich H. Mix, I.D. No. 07274
Th( na L. Wenger, I.D. No. 15489
Dean A. Weidner, I.D. No. 06363
Jeffrey C. Clark, I.D. No. 89277
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
2
ROBERT SOUDER, IN THE COURT OF COMMON PLEAS,
Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA
V. : NO. 05-216
RITE AID CORPORATION, CIVIL ACTION
Defendant
CERTIFICATE OF SERVICE
William A. Slaughter, Esquire
Peter C. Amuso, Esquire
Joshua A. Mooney, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
I hereby certify that the foregoing Praecipe for Listing Case for Argument was
by first class, postage prepaid, United States mail this day to the following:
Harrisburg, PA 19103
Date:
Respectfully submitted,
WIX, WENGER & WEIDNER
By: ?-( G
Holly Pilsitz, L gal Secre ry
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
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ROBERT SOUDER,
PLAINTIFF
V.
RITE AID CORPORATION,
DEFENDANT
IN THE COURT OF COMMON PLEAS OF
CUMBERLAND COUNTY, PENNSYLVANIA
05-0216 CIVIL TERM
IN RE: CROSS-MOTIONS FOR SUMMARY JUDGMENT
BEFORE BAYLEY J. AND GUIDO, J.
ORDER OF COURT
AND NOW, this I L4 + day of July, 2005, IT IS ORDERED:
(1) The motion of plaintiff, Robert Souder, for summary judgment, IS DENIED.
(2) The motion of Rite Aid Corporation for summary judgment, IS GRANTED.
Plaintiffs complaint against Rite Aid Corporation, IS DISMISSED.
By the
Edgar B. Bayley, J.
Thomas L. Wenger, Esquire
508 North 2nd Street
P.O. Box 845
Harrisburg, PA 17108-0845
For Plaintiff
Peter C. Amuso, Esquire
1735 Market Street
515` Floor
Philadelphia, PA 19103-7599
For Defendant
:sal
a. '
i1f-;U 3HI dG
ROBERT SOUDER,
PLAINTIFF
V.
RITE AID CORPORATION,
DEFENDANT
IN THE COURT OF COMMON PLEAS OF
CUMBERLAND COUNTY, PENNSYLVANIA
05-0216 CIVIL TERM
IN RE: CROSS-MOTIONS FOR SUMMARY JUDGMENT
BEFORE BAYLEY, J. AND GUIDO, J.
OPINION AND ORDER OF COURT
Bayley, J., July 14, 2005:--
Plaintiff, Robert Souder, was Senior Vice President of Human Resources for
defendant, Rite Aid Corporation. Rite Aid terminated his employment in July, 2000.
Rite Aid then instituted a suit against him seeking recovery of more than $50,000 that
he received from the corporation. In that underlying action, Rite Aid alleges in Count I,
unjust enrichment, that Souder received money from a long-term incentive plan to
which he was not entitled because the required level of growth in earnings per share
was never met; Count II, mistake, the money Souder received from the long-term
incentive plan was by mutual mistake; Count III, fraud, Souder delivered a back-dated
letter to new management misrepresenting that it was a genuine obligation to honor an
oral amendment to a Deferred Compensation Agreement; Count IV, breach of
contract, it is entitled to forfeit benefits received by Souder under his Deferred
Compensation Agreement and Executive Separation Agreement and General Release;
Count V, breach of contract, it is entitled to consider the Deferred Compensation
Agreement and Separation Agreement terminated with Souder forfeiting past paid and
future benefits; and Count VI, breach of fiduciary duty, Souder breached a fiduciary
05-0216 CIVIL TERM
duty by submitting to the company the fraudulently back-dated letter agreement, and
accepting payment under the long-term incentive plan. Souder filed a counterclaim
alleging that Rite Aid breached its contract by refusing to pay him amounts owed under
the Deferred Compensation Agreement and the Separation Agreement. He alleges
unjust enrichment by Rite Aid. He also seeks relief under the Pennsylvania Wage
Payment and Collection Act, and a declaratory judgment.
Souder then instituted this suit seeking an order requiring Rite Aid to advance his
legal costs incurred in the underlying suit, and in pursuing this relief. He further seeks
an order enjoining Rite Aid from pursing the underlying action until all such advance
payments are made. Responsive pleadings were filed. Cross-motions for summary
judgment were briefed and argued on June 1, 2005. In Washington v. Baxter, 719
A.2d 733 (Pa. 1998), the Supreme Court of Pennsylvania set forth the standard for
examining a motion for summary judgment. A court:
[mJust view the record in the light most favorable to the non-moving
parry, and all doubts as to the existence of a genuine issue of material
fact must be resolved against the moving partly, Pennsylvania State
University v. County of Centre, 532 Pa. 142, '143-145, 615 A.2d 303, 304
(1992).... In order to withstand a motion for summary judgment, a non-
moving party "must adduce sufficient evidence on an issue essential to his
case and on which he bears the burden of proof such that a jury could
return a verdict in his favor. Failure to adduce this evidence establishes
that there is no genuine issue of material fact and the moving party is
entitled to judgment as a matter of law." Ertrel v. Patriot-News Co., 544
Pa. 93, 101-102, 674 A.2d 1038, 1042 (1996)..
Because Rite Aid is incorporated in Delaware, application of Delaware law to this
case is required. The Delaware General Corporation Law (GCL) provides:
A corporation shall have power to indemnify any person who was or is a
-2-
05-0216 CIVIL TERM
party ... to any threatened, pending, or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of
the fact that the person is or was a director, officer, employee or agent of
the corporation ... against expenses (including attorneys' fees) actually
and reasonably incurred by the person in connection with the defense or
settlement of such action or suit ...
Del. Code Ann. Tit. 8 § 145(b) (2003). Rite Aid's Certificate of Incorporation provides
the full scope of protections authorized by the GCL. Section 10(b)(1) provides:
Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit, or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she ... is or was, a director or officer of the
corporation[,] whether the basis of such proceeding is alleged action in an
official capacity as a director or officer or in any other capacity while
serving as a director or officer shall be indemnified and held harmless by
the corporation to the fullest extent authorized by the [Delaware] General
Corporation Law .., against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid or to be paid in settlement) reasonably incurred or suffered
by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators.
The GCL also permits payment on account of a corporation's obligation to
indemnify an officer for the cost of the officer's defense in advance of the final
disposition of the action, provided that the officer agrees to repay amounts so advanced
if it is determined that he is not entitled to indemnification. The GCL provides:
Expenses (including attorneys' fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled
to be indemnified by the corporation as authorized in this section. Such
expenses (including attorneys' fees) incurred by former directors and
-3-
05-0216 CIVIL TERM
officers or other employees and agents may be so paid upon such terms
and conditions, if any, as the corporation deems appropriate.
Del. Code Ann. Tit. 8 § 145(e) (2003). Section 10(6)(1) of Rite Aid's Certificate of
Incorporation provides:
The right to indemnification conferred in this Section B shall be a contract
right and shall include the right to be paid by the corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition any such proceeding in advance of its final disposition;
provided, however, that if the General Corporation Law requires, the
payment of such expenses incurred by a director or officer ... in advance
of the final disposition of the proceedings, shall be made only upon
delivery to the corporation of an undertaking by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified
under this Section B or otherwise.
The present dispute involves only a claim for advancement of legal costs, not
indemnification, and turns on whether the conduct of Souder which resulted in the suit
against him by Rite Aid was done in his capacity as a corporate officer. See Scharf v.
Edgcomb Corp., 2004 WL 718923 (Del. Ch. March 24, 2004);' Perconti v. Thornton
Oil Corporation, 2002 WL 982419 (Del. Ch. May 3, 2002). If an officer is found to
have acted in a personal or employee capacity, and not in an official corporate capacity,
then the officer is not entitled to an advancement of legal fees. Weaver v. Zenimax
Media, Inc., 2004 WL 243163 (Del. Ch. Jan. 30, 2004). In Weaver, suit by a
corporation against its former chief technology officer alleged (1) breach of fiduciary duty
in that the officer had failed to manage properly the research and development projects
for which he was responsible, and by making repeated misrepresentations about the
Rev'd on other grounds, Scharf v. Edgcomb Corp., 864 A.2d 909 (Del. 2004).
-4-
05-0216 CIVIL TERM
projects to management, and (II) that:
(1) Weaver "fail[ed] to devote his full time and efforts to the business of
the Company;" (2) he "was paid for non-work related absences in excess
of his allotted 4 week [paid] annual vacation;" and (3) he "wrongly received
reimbursement for travel and other expenses."
Whereas entitlement of advancement of the cost of defense of Count I was held
appropriate, it was denied for Count II. Citing Perconti, the Court stated:
These claims are in the nature of an employment dispute, based on a
personal obligation owed to the corporation ... and, unlike Perconti,
Weaver did not need to make use of any "entrusted corporate powers" in
order to engage in the conduct that gave rise to the specific claims alleged
in Count II.
The Court must seek to discern the nature of the claims which
Weaver is called upon to defend by reading the Counterclaim as a whole
and providing a reasonable interpretation of the substance of the
allegations of each count. Notwithstanding the somewhat artless drafting
(at least from the perspective of one charged with ascertaining the scope
of an advancement claim), Count I and its fiduciary duty claims are fairly
read as arising out of Weaver's "entrusted corporate powers" and do not
rely upon Weaver's failure to put in time on the job; by contrast, the failure
to put in the appropriate time is squarely implicated and clearly the target
of Count 11. In sum, factual allegations discretely within Count II address
employee issues arising out of his personal capacity--not issues based on
Weaver's status as an officer or director.
Similarly in the case sub judice, the claims of Rite Aid involve an employment
dispute as to plaintiffs entitlement to various forms of reimbursement for his service to
the corporation. Plaintiff did not make use of any entrusted corporate powers to
engage in the conduct that gave rise to Rite Aid's claims against him. The fact that
Count VI alleges a breach of fiduciary duty is immaterial because the alleged breach
relates only to Souder's conduct in obtaining personal remuneration from the
-5-
05-0216 CIVIL TERM
corporation. Plaintiffs reliance on Citadel Holding Corporation v. Roven, 603 A.2d
818 (Del. 1992), is misplaced. In Citadel, the corporation alleged that Roven, a
corporate director, violated the Securities and Exchange Act, 15 U.S.C. Section 98p(b),
by purchasing options to buy Citadel stock while he was a director of the corporation.
The Supreme Court of Delaware, interpreting a written Agreement between Roven and
Citadel that provided him with greater protection for an advancement of legal costs in
defending a suit than provided under the Delaware General Corporation law and
Citadel's certificate of incorporation, concluded the Roven was entitled to an
advancement in defending against the action. There is no such separate Agreement
between Souder and Rite Aid in the present case.
For the foregoing reason, the following order is entered.
ORDER OF COURT
AND NOW, this %U4\ day of July, 2005, IT IS ORDERED:
(1) The motion of plaintiff, Robert Souder, for summary judgment, IS DENIED.
(2) The motion of Rite Aid Corporation for summary judgment, IS GRANTED.
Plaintiff's complaint against Rite Aid Corporation, IS DISMISSED,._-,,,-)
7
By
Edgar B. Bayley, J.
-6-
05-0216 CIVIL TERM
Thomas L. Wenger, Esquire
508 North 2"d Street
P.O. Box 845
Harrisburg, PA 17108-0845
For Plaintiff
Peter C. Amuso, Esquire
1735 Market Street
515 Floor
Philadelphia, PA 19103-7599
For Defendant
:sal
-7-
ROBERT SOUDER,
Plaintiff
V.
RITE AID CORPORATION,
Defendant
IN THE COURT OF COMMON PLEAS,
CUMBERLAND COUNTY, PENNSYLVANIA
NO. 05-216
CIVIL ACTION
NOTICE OF APPEAL
Pursuant to Pa.R.A.P. 901 et. seq., Notice is hereby given that Plaintiff, Robert
Souder, hereby appeals to the Superior Court of Pennsylvania from the Order of Court
entered in the above-captioned matter on July 14, 2005. The Order of Court has been
entered in the docket as evidenced by the attached copy of the docket entry.
submitted,
WIX, WIfNGER & WEPNER
Date:
Ri and H. Wix,\(D. No. 071 t
T mas L. Wenger, I.D. No. 5489
Dean A. Weidner, I.D. No. 363
Jeffrey C. Clark, I.D. No. 89277
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
1
08205307192005 Cumberland County Prothonotary's Office Page
.PYS5 0 Civil Case Print
2005-00216 SOUDER ROBERT (vs) RITE AID CORPORATION
Reference No..: Filed........: 1/11/2005
Case Type.....: COMPLAINT Time.........: 8:24
Judgment...... .00 Execution Date 0/00/0000
Judge Assigned: Jury Trial....
Disposed Desc.: Disposed Date. 0/00/0000
------------ Case Comments ------------- Higher Crt 1.:
Higher Crt 2.:
1
*************************************************1,******************************
General Index Attorney Info
SOUDER ROBERT
108 SOUTH LEWISBERRY ROAD
MECHANICSBURG PA 17055
RITE AID CORPORATION
NO ADDRESS PROVIDED
PLAINTIFF WIX RICHARD H
DEFENDANT
********************************************************************************
* Date Entries
********************************************************************************
- - - - - - - - - - - - - FIRST ENTRY - - - - - - - - - - - - - -
1/11/2005 COMPLAINT
------------------------------------------------------------------
1/13/2005 SHERIFF'S-FILE RETURNED FILED.
Case Type: COMPLAINT - EQUITY Ret Type.: Regular
Litigant.: RITE AID CORPORATION
Add ess..: 30 HUNTER LANE
Cty/St/Z • CAMP HILL, PA 17011
Hnd To: TRACEY LANDIS, PARALEGAL ADULT IN CHARGE
Shf/D ty.: KENNETH GOSSERT
Date/ Time: 01/12/2005 1615:00
Costs....: $39.10 Pd By: WIX WENGER WEIDNER 01/13/2005
-------------------------------------------------------------------
1/31/2005 ANSWER AND NEW MATTER OF RITE AID CORPORATION TO COMPLAINT
-------------------------------------------------------------------
3/03/2005 ANSWER TO NEW MATTER - BY THOMAS L WENGER ESQ
-------------------------------------------------------------------
3/07/2005 MOTION FOR SUMMARY JUDGMENT - BY RICHARD H WIX ESQ
-------------------------------------------------------------------
4/04/2005 RESPONSE OF RITE AID CORPORATION IN OPPOSITION TO PLFF'S MOTION
FOR SUMMARY JUDGMENT - BY WILLIAM A SLAUGHTER ESQ
-------------------------------------------------------------------
4/08/2005 PRAECIPE FOR LISTING CASE FOR ARGUMENT - PLFF'S MOTION FOR SUMMARY
JUDGMENT AND DEFT'S CROSS MOTION FOR SUMMARY JUDGMENT - BY RICHARD
H WIX ESQ
--------------------------------------------------------------------
4/14/2005 PRAECIPE TO WITHDRAW PRAECIPE FOR LISTING CASE FOR ARGUMENT - BY
RICHARD H WIX ESQ
--------------------------------------------------------------------
4/14/2005 CERTIFICATE OF SERVICE FOR PRAECIPE FOR LISTING CASE FOR ARGUMENT
-BY HOLLY PILSITZ ESQ
--------------------------------------------------------------------
5/02/2005 PRAECIPE FOR LISTING CASE FOR ARGUMENT - PLFF'S MOTION FOR SUMMARY
JUDGMENT AND DEFT'S CROSS-MOTION FOR SUMMARY JUDGMENT - BY JEFFREY
C CLARK ESQ
-------------------------------------------------------------------
7/14/2005 ORDER OF COURT - DATED 7//14 05 - IN RE CROSS-MOTIONS FOR SUMMARY
JUGMENT - THE MOTION OF 12OB RT SOUDER FOR SUMMARY JUDGMENT IS
DENIED - THE MOTION OF RITE AID CORPORATION FOR SUMMARY JUDGMENT
IS GRANTED PLFF'S COMPLAINT AGAINST RITE AID CORPORATION IS
DISMISSED - BY THE COURT EDGAR B BAYLEY" J COPIES MAILED
- - - - - - - - - - - - - - LAST ENTRY - - - - - - - - - - - - - -
********************************************************************************
* Escrow Information.
* Fees & Debits Beg Bal P*ymts/Add End Dal
******************************** ******** ****** *******************************
COMPLAINT 35.00 35.00 .00
TAX ON CMPLT .50 .50 .00
SETTLEMENT 5.00 5.00 .00
08205307192005 Cumberland County Prothonota:ry's Office Page
PYS510 Civil Case Print
2005-00216 SOUDER ROBERT (vs) RITE AID CORPORATION
Reference No..: Filed........: 1/11/2005
Case Type.....: COMPLAINT Time.........: 8:24
Judgment...... .00 Execution Date 0/00/0000
Judge Assigned: Jury Trial....
Disposed Desc.: Disposed Date. 0/00/0000
------------ Case Comments ----------- -- Higher Crt 1.:
Higher Crt 2.:
AUTOMATION 5.00 5.00 .00
JCP FEE 10.00 10.00 .00
--------------
55.50 ---------- --
55.50 ----------
.00
2
* End of Case Information
********************************************************************************
ROBERT SOUDER,
Plaintiff
V.
RITE AID CORPORATION,
Defendant
IN THE COURT OF COMMON PLEAS,
CUMBERLAND COUNTY, PENNSYLVANIA
NO. 05-216
CIVIL ACTION
STATEMENT IN ABSENCE OF TRANSCRIPT
Pursuant to Pa.R.A.P. 904(c), Plaintiff's counsel states that there was no record
or transcript made of the oral argument on Plaintiff's Motion for Summary Judgment and
Defendant's Cross-Motion. The arguments at the hearing were reiterative of those
made in the parties' briefs.
Respectfulty submitted,
WIX, WEROER & WEIDNER
Date: 7izii,5
Thbmas L. Wenger, 1. D. No/15489
Dean A. Weidner, I.D. No. 6363
Jeffrey C. Clark, I.D. No. 89277
508 North Second Street
P.O. Bo.(845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
2
ROBERT SOUDER, IN THE COURT OF COMMON PLEAS,
Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA
V. : NO. 05-216
RITE AID CORPORATION, CIVIL ACTION
Defendant
CERTIFICATE OF SERVICE!
hereby certify that the foregoing Plaintiff's Notice of Appeal was sent by first
class, postage prepaid this day to the following:
William A. Slaughter, Esquire
Peter C. Amuso, Esquire
Joshua A. Mooney, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 5155 Floor
Philadelphia, PA 19130-7599
Attorneys for Defendant
The Honorable Edgar B. Bayley
Cumberland County Courthouse
1 Courthouse Square
Carlisle, PA 17103
Court Reporter
Cumberland County Courthouse
1 Courthouse Square
Carlisle, PA 17103
Date: -?/„ZI/W
Taryn N. Dixon, Court Administrator
Cumberland County Courthouse
1 Courthouse Square, 3R
Carlisle, PA 17013
Respectfully submitted,
WIX, WENGER & WEIDNER
By: ?4&
Holly A. Pil z, Legal Secre ry
508 North Second Street
P.O. Box: 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
-W4
? w
1?
?` 7
ROBERT SOUDER,
Plaintiff
V.
RITE AID CORPORATION,
Defendant
IN THE COURT OF COMMON PLEAS,
CUMBERLAND COUNTY, PENNSYLVANIA
NO. 05-216
CIVIL ACTION
AND NOW, comes Plaintiff, Robert Souder, by and through his attorneys, Wix,
Wenger & Weidner and files this Statement of Matters Complained of and Intended to
be Argued on Appeal, pursuant to Local Rule 1925, stating as follows:
Plaintiff asserts that this Honorable Court erred as a matter of law in that,
for the reasons more fully set forth in his Brief in Support of Motion for
Summary Judgment and in Opposition to Defendant's Cross-Motion for
Summary Judgment, filed with this Court on May 19, 2005, and for the
reasons as explained at the hearing on Plaintiff's Motion for Summary
Judgment and Defendant's Cross-Motion for Summary Judgment, under
Delaware law and Rite Aid Corporation's Certificate of Incorporation,
Plaintiff is entitled to advancement of his legal fees and expenses because
Defendant's cause of action against him is based on actions allegedly
taken while serving as a corporate officer.
[SIGNATURE APPEARS ON FOLLOWING PAGE]
Respectfully submitted,
Date: 7/?7/p 5?
WIX, WINGER & WEIDNER
Ri a& H. Wix; 1.15. No. 07,274
T mas L. Wenger, I.D. o. 15489
Dean A. Weidner, I.D. No. 06363
Jeffrey C. Clark, I.D. No. 89277
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
2
ROBERT SOUDER, : IN THE COURT OF COMMON PLEAS,
Plaintiff : CUMBERLAND COUNTY, PENNSYLVANIA
NO. 05-216
RITE AID CORPORATION, CIVIL ACTION
Defendant
CERTIFICATE OF SERVICE
I hereby certify that the foregoing Statement of Matters Complained of and
Intended to be Argued on Appeal was sent by first class, postage prepaid this day to the
following:
The Honorable Edgar B. Bayley
Cumberland County Courthouse
1 Courthouse Square
Carlisle, PA 17103
William A. Slaughter, Esquire
Peter C. Amuso, Esquire
Joshua A. Mooney, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51s` Floor
Philadelphia, PA 19130-7599
Attorneys for Defendant
Respectfully submitted,
WIX, WENGER & WEIDNER
Date: By:Holly A P
I. Pils , Legal Secrets
508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
(717) 234-4182
Attorneys for Robert Souder
3
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10:52 A.M.
Appeal Docket Sheet
Docket Number: ?
Page 1 of 3
July 29, 2005
Sur or Cour Pennsylvania
Aft
Robert Souder, Appellant
V.
Rite Aid Corporation
Initiating Document: Notice of Appeal
Case Status: Active
Case Processing Status: July 29, 2005
Journal Number:
Case Category: Civil
Consolidated Docket Nos.:
Awaiting Original Record
CaseType: Civil Action Law
Related Docket Nos.:
SCHEDULED EVENT
Next Event Type: Receive Docketing Statement
Next Event Type: Original Record Received
Next Event Due Date: August 12, 2005
7/29/2005
3023
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10:52 AA
Appeal Docket Sheet Superior Court of Pennsylvania
Docket Number: 1218 MDA 2005
Page 2 of 3 AML
July 29, 2005
COUNSEL INFORMATION
Appellant Souder, Robert
Pro Se: Appoint Counsel Status:
IFP Status: No
Appellant Attorney Information:
Attorney: Wenger, Thomas L.
Bar No.: 15489 Law Firm: Wix, Wenger & Weidner, P.C.
Address: 508 North Second Street
P.O. Box 845
Harrisburg, PA 17108-0845
Phone No.: (717)234-4182 Fax No.: (717)234-4224
Receive Mail: Yes
E-Mail Address: twenger@wwwpalaw.com
Receive E-Mail: No
Appellee Rite Aid Corporation
Pro Se: Appoint Counsel Status:
IFP Status:
Appellee Attorney Information:
Attorney: Slaughter, William Alison
Bar No.: 30637 Law Firm: Ballard Spahr Andrews & Ingersoll, LLP
Address: 1735 Market St 51 st FI
Philadelphia, PA 19103
Phone No.: (215)864-8114 Fax No.: (215)864-9788
Receive Mail: Yes
E-Mail Address:
Receive E-Mail: No
FEE INFORMATION
Paid
Fee Date Fee Name Fee Amt Amount Receipt Number
7/28/05 Notice of Appeal 60.00 60.00 2005SPRMD000633
TRIAL COURT/AGENCY INFORMATION
Court Below: Cumberland County Court of Common Pleas
County: Cumberland
Date of Order Appealed From: July 14, 2005
Date Documents Received: July 28, 2005
Order Type: Order Entered
Judge: Bayley, Edgar B.
Judge
Division: Civil
Judicial District: 9
Date Notice of Appeal Filed: July 26, 2005
OTN:
Lower Court Docket No.: 2005-216
ORIGINAL RECORD CONTENTS
7/29/2005 3023
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10:52 AM,
Appeal Docket Sheet
Docket Number: 1218 MDA 2005
Page 3 of 3
July 29, 2005
Superior Court of Pennsylvania
9RUM
Original Record Item Filed Date Content/Description
Date of Remand of Record:
BRIEFS
DOCKET ENTRIES
Filed Date Docket Entry/Document Name Party Type Filed By
July 29, 2005 Notice of Appeal Filed
Appellant Souder, Robert
July 29, 2005 Docketing Statement Exited (Civil)
Mliddle District Filing Office
7/29/2005 3023
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IN THE SUPREME COURT OF PENNSYLVANIA
MIDDLE DISTRICT
ROBERT SOUDER, : No. 70 MAL 2007
Petitioner
Petition for Allowance of Appeal from the
Order of the Superior Court
V.
RITE AID CORPORATION,
Respondent
PER CURIAM:
ORDER
AND NOW, this 13th day of September, 2007, the Petition for Allowance of
Appeal is hereby DENIED.
TRUE & CORRECT COPY
AMSr S E P 13
ENE M. BIZZOSO, ES M
DEPUTY PROTHONOTARY
-L u
c:)
t ; c?
Karen Reid Bramblett, Esq.
Prothonotary
James D. McCullough, Esq.
Deputy Prothonotary
TO: Mr. Curtis R. Long
Prothonotary
t
Superior Court of Pennsylvania
Middle District
October 13, 2006
Certificate of Remittal/Remand of Record
RE: Souder, R. v. Rite Aid Corp.
No. 1218 MDA 2005
Trial Court/Agency Dkt. Number: 2005-216
Trial Court/Agency Name: Cumberland County Court of Common
Pleas
Intermediate Appellate Court Number:
100 Pine Street. Suite 400
Harrisburg, PA 17101
717-772-1294
www. superior. court. state. Pa. us
Annexed hereto pursuant to Pennsylvania Rules of Appellate Procedure 2571 and 2572
is the entire record for the above matter.
Contents of Original Record:
Original Record Item Filed Date Description
Part August 22, 2005 1
Date of Remand of Record: OCT 0 5 2007
ORIGINAL RECIPIENT ONLY - Please acknowledge receipt by signing, dating, and
returning the enclosed copy of this certificate to our office. Copy recipients (noted below) need
not acknowledge receipt.
?t
<17 1%
Signature
Date
Printed Name
/aaw
M •
Respondent
No. 70 MAL 2007
Petition for Allowance of Appeal from the
Order of the Superior Court
ORDER
ROBERT SOUDER,
V.
IN THE SUPREME COURT OF PENNSYLVANIA
. MIDDLE DISTRICT
Petitioner
RITE AID CORPORATION,
PER CURIAM:
AND NOW, this 13th day of September, 2007, the Petition for Allowance of
Appeal is hereby DENIED.
TRUE & CORRECT COPY
ATTEST: S E P 13
ENE M. BIZZOSO, ES
DEPUTY PROTHONOTARY
J. A05021/06
ROBERT SOUDER,
APPELLANT
V.
RITE AID CORPORATION
IN THE SUPERIOR COURT
OF PENNSYLVANIA
No. 1218 MDA 2005
ORDER OF COURT
The Court hereby DENIES the application filed October 27, 2006,
requesting reargument or reconsideration of the decision dated October 13,
2006.
PER CURIAM
DATE: December 20, 2006
TRUE COPY FROM RECORD
Attest: 0 5 7007
Deputy Prothonotary
Superior Court of PA - Midd Meitrict
3. A05021/06
2006 PA Super 292
ROBERT SOLIDER, IN THE SUPERIOR COURT OF
Appellant PENNSYLVANIA
V.
RITE AID CORPORATION,
Appellee
No. 1218 MDA 2005
Appeal from the Order Entered July 14, 2005, in the Court
of Common Pleas of Cumberland County, Civil Division,
at No. 2005-216.
BEFORE: BENDER, BOWES AND PANELLA, JJ.
OPINION BY BOWES, J.: FILED: October 13, 2006
¶ 1 Robert Souder appeals the July 14, 2005 order granting summary
judgment to Rite Aid Corporation in this action seeking indemnification for
legal fees under Delaware law. We affirm.
¶ 2 On January 11, 2005, Appellant instituted this action in the Court of
Common Pleas of Cumberland County against Appellee, a Delaware
corporation, seeking advancement of attorney's fees and legal costs that
have been and will be incurred by him in an action currently pending against
Appellant by Appellee. That action also was instituted in the Court of
Common Pleas of Cumberland County, and we will refer to it as the
underlying action. Appellee filed an answer and new matter herein on
January 31, 2005, and on March 3, 2005, Appellant filed a motion for
summary judgment. A cross-motion for summary judgment filed by
Appellee was granted on July 14, 2005. This timely appeal followed.
$ 3 We first outline our standard of review:
3. A05021/06
Our scope of review of a trial court's order disposing of a
motion for summary judgment is plenary. Accordingly, we must
consider the order in the context of the entire record. Our
standard of review is the same as that of the trial court; thus,
we determine whether the record documents a question of
material fact concerning an element of the claim or defense at
issue. If no such question appears, the court must then
determine whether the moving party is entitled to judgment on
the basis of substantive law. Conversely, if a question of
material fact is apparent, the court must defer the question for
consideration of a jury and deny the motion for summary
judgment. We will reverse the resulting order only where it is
established that the court committed an error of law or clearly
abused its discretion.
Grimminger v. Maitra, 2005 PA Super 374, 5 (quoting Stanton v.
Lackawanna Energy, Ltd., 820 A.2d 1256, 1258-59 (Pa.Super. 2003)).
¶ 4 Appellant maintains that he, rather than Appellee, should have been
granted summary judgment in this action. Appellant premises his claim to
advancement of attorney's fees and legal costs in the underlying action on
language contained in Appellee's certificate of incorporation in accordance
with the dictates of Delaware law.
$ 5 Before we can determine whether Appellant is entitled to advancement
of attorney's fees and legal costs, we must examine the allegations in the
underlying action. In that case, Appellee alleged that Appellant received
money from Appellee under both an executive incentive plan and a back-
dated severance agreement, and that Appellant was not entitled to that
money. Appellant was an employee of Appellee for many years and retired
in 2000, when he was a senior vice-president for human resources. In
October 1999, Appellee's Chairman and Chief Executive Officer, Martin L.
-2-
1. A05021/06
Grass, and its former Chief Financial Officer, Franklyn M. Bergonzi, were
dismissed by Appellee's Board of Directors (the "Board") after the Board
discovered that Grass and Bergonzi prepared and filed financial statements
with the Securities and Exchange Commission that falsely inflated Appellee"s
reported earnings by approximately $500 million in each of the previous
three years. Grass and Bergonzi subsequently were indicted and pled guilty
to criminal conspiracy to defraud Appellee, its shareholders, investors, the
Board, and vendors.
$ 6 The conspiracy not only involved overstated reported earnings, it also
involved the payment of substantial sums of money to select executives
under a long-term incentive plan, known as the LTIP I, even though the
requirements for a payout under the LTIP I, as established by the Board, had
not been satisfied. Grass and Bergonzi also fraudulently created back-dated
employment agreements in favor of certain executives, and those
agreements purportedly obligated Appellee to pay substantial amounts of
money to those employees upon termination of their employment. Appellant
was among the executives who received improper payments both under the
LTIP I and pursuant to a back-dated employment agreement.
¶ 7 The LTIP I operated in the following manner. In March 1995, at
Grass's instigation, the Board adopted a long-term incentive plan, the LTIP I.
Under the LTIP I, certain executives were entitled to receive Appellee's stock
or the dollar equivalent of stock if Appellee's earnings per share grew at
specified rates over the ensuing four years. Payment was authorized only if
-3-
J. A05021/06
Appellee's earnings per share grew at a minimum rate of eight percent per
year. The measurement period under the plan started in March 1995 and
ended in March 1999, coextensive with Appellee's 1995 through 1999 fiscal
years. Grass and Bergonzi caused Appellee to make payments to Appellant
under the LTIP I by falsely reporting to the Board that the minimum earnings
per share growth target required for payment under the LTIP I had been
met. In July 1999, Appellant received a substantial payment from Appellee
that he was not entitled to receive under the LTIP I, and he has refused to
return the money.
$ 8 Appellant also wrongfully received payments under a back-dated
severance agreement created by Grass when Grass no longer had authority
to act on behalf of Appellee. In late 1999 or early 2000, after he already
had been dismissed by Appellee, Grass fraudulently created and delivered
letters to several executives, including Appellant, purporting to oblige
Appellee to pay those executives substantial sums upon termination of
employment. The letter was falsely dated June 12, 1998, and fraudulently
purported to be executed by Grass in his capacity as Appellee's Chief
Executive Officer.
$ 9 The letter to Appellant materially increased severance benefits both in
amount and in duration that Appellant was entitled to receive from a
deferred compensation agreement. Appellant, knowing that the letter was
back-dated and was created when Grass no longer was authorized to act on
behalf of Appellee, presented the letter to the new management of Appellee
-4-
J. A05021/06
and demanded that they comply with its terms. Unaware of the deception,
Appellee honored the terms of the back-dated letter. Appellee subsequently
discovered the deception. In the underlying action, Appellee sought
recovery of compensation wrongfully paid to Appellee under the LTIP I as
well as under the severance agreement.
¶ 10 Appellant seeks legal fees and costs in the underlying action based
upon the following language in subsection (13)(1) of the tenth article in
Appellee's certificate of incorporation, which was contained in the bylaws as
required by 8 Del. Code § 145:
(1) Right to Indemnification. Each person who was or
is made a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a
'proceeding"), by reason of the fact that he or she or a person
of whom he or she is the legal representative is or was a
director or officer of the corporation or is or was serving at the
request of the corporation as a director or officer of another
corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in
an official capacity as a director or officer or in any other
capacity while serving as a director or officer shall be
indemnified and held harmless by the corporation to the fullest
extent authorized by the General Corporation Law as the same
exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment
permits the corporation to provide broader indemnification rights
than said law permitted the corporation to provide prior to such
amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise tax or penalties
and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and
such indemnification shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall
inure to the benefit of his or her heirs, executers and
administrators; provided, however, that except as provided in
-5-
3. A05021/06
paragraph (2) of this Section B with respect to proceedings
seeking to enforce rights to indemnification, the corporation
shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such
person only if such proceeding (or part thereof) was authorized
by the Board of Directors of the corporation. The right to
indemnification conferred in this Section B shall be a contract
right and shall include the right to be paid by the corporation the
expenses incurred in defending any such proceeding in advance
of its final disposition; provided, however, that if the General
Corporation Law required, the payment of such expenses
incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which
services was or is rendered by such person while a director or
officer, including, without limitation, service to any employee
benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the corporation of any
undertaking by or on behalf of such director or officer, to repay
all amounts so advanced if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under
this Section B or otherwise.
¶ 11 In accordance with this language and as mandated by Delaware Law,
Appellant is to be advanced attorney's fees and costs in actions only when
the action is brought "by reason of the fact" that he was an officer of
Appellee. In the underlying action, Appellee contends that Appellant was not
entitled to receive the compensation that was due to the fraudulent financial
records created by Bergonzi and Grass. There is no allegation that Appellant
performed any executive level function. After Grass and Bergonzi falsified
financial documents,. Appellant merely received compensation under the
terms of the LTIP I. Appellant's only affirmative act was to submit the
backdated severance letter to Appellee's management.
¶ 12 We begin our discussion with an examination of the Delaware Supreme
Court's decision in Stifel Financial Corp. v. Cochran, 809 A.2d 555
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(Del.Sup. 2002), because it also involved a claim by a corporation that a
former officer and director had received improper compensation. In Stifel,
Cochran was a former corporate officer and director of Stifel Financial
Corporation. Cochran sought indemnification for legal costs incurred in two
underlying actions. The underlying action that is relevant to our disposition
herein involved an arbitration action that had been brought by Stifel against
Cochran. In that underlying action, as in the underlying action before us,
Stifel sought repayment of excess compensation paid to Cochran and also
sought repayment of a loan that Stifel had made to Cochran. The
corporation's bylaws, as the ones at issue herein, indemnified any officer for
any action brought "by reason of the fact" that the employee was an officer
or employee of the corporation.
¶ 13 The chancellor ruled that Cochran was not entitled to indemnification
for the action that had been brought by Stifel seeking repayment of the
compensation and loan, and the Delaware Supreme Court affirmed that
ruling. The Court reasoned that Cochran, a former corporate officer and
director, was acting in his personal capacity rather than his official capacity
when he obtained the compensation and procured the loan. The Court
concluded that when a corporate officer negotiates and executes an
employment contract, he is acting in a personal capacity and that the
obligations under the contract are personal in nature. The Court observed
that when a corporation institutes suit under an employment contract, which
involves individual obligations, the suit is not an "official capacity" suit
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subjection to indemnification under section 145. The Court ruled that the
claims by the corporation seeking improperly-paid compensation and loan
repayment should be characterized as personal rather than official because
the claims did not relate to the former officer's duties as an officer and
director.
¶ 14 Another pertinent case discussing actions that are "personal" rather
than "official" is Weaver v. Zenimax Media, Inc., 2004 WL 243163
(Del.Ch. 2004). In that case, Weaver sought advancement of costs incurred
in defending counterclaims brought against him by Zenimax Media
Corporation, his former employer, in an action filed by Weaver. In the
underlying action, Weaver claimed entitlement to severance benefits, and
Zenimax had raised two counterclaims. In one counterclaim, the corporation
maintained that Weaver had breached his fiduciary duties to that corporation
by failing to properly perform his job responsibilities, causing a financial loss.
In the second counterclaim, the corporation alleged that Weaver had taken
more vacation time than allotted and had improperly received
reimbursement from the corporation for personal rather than work-related
travel. The corporation conceded that it was required to advance costs for
its former employee's defense of the first counterclaim. The chancellor then
denied indemnification for the second counterclaim.
¶ 15 The chancellor in Weaver noted that "by reason of the fact" is not
construed so as to embrace every suit instituted against a corporation's
officer and director and that actions brought by a corporation against an
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officer for improperly paid compensation are classic examples of suits not
brought "by reason of the fact" of the officer's position with the corporation.
The chancellor observed that Weaver was not using any of his entrusted
corporate powers when he obtained corporate reimbursement of personal
rather than work-related expenses and when he was paid for non-work-
related absences exceeding his permitted leave limit. Rather, the chancellor
reasoned that Weaver was acting in a personal capacity.
¶ 16 Stifel and Weaver can be contrasted with Reddy v, Electronic Data
Systems, 2002 WL 1358761 (Del. Ch.), which also involved a corporation's
attempt to recoup wrongfully-paid compensation. Reddy had entered into
an incentive compensation agreement with his employer that linked
payments to the earnings of the employer. He sought advancement of
expenses for two lawsuits. One action was brought by the United States
Attorney's Office, and the second action was brought by Reddy's employer.
Both lawsuits contained allegations that Reddy engaged in financial fraud
against his employer while he was performing his official duties as an
employee and that he performed those actions in order to obtain incentive
compensation. Reddy allegedly manipulated and falsified financial records to
inflate his incentive compensation under the compensation agreement.
$ 17 Reddy involved the same chancellor who decided Stifel. That
chancellor granted advancement in Reddy because both actions sought to
hold Reddy liable for wrongdoing that he committed in his official capacity as
an executive of his employer. The chancellor reasoned that advancement
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was warranted since all of the misconduct allegedly committed by Reddy
involved actions that he performed on the job and in the course of
performing his day-to-day managerial duties, with the objective of obtaining
excess compensation. The chancellor specifically distinguished his prior
holding in Stifel because that case did not involve a situation where the
breach of the employment agreement stemmed from the identical conduct
that was the breach of fiduciary duty. Instead, the chancellor found that
Stifel merely involved receipt of a windfall compensation package.
¶ 18 In this case, Appellant's conduct mirrors the conduct at issue in Stifel
and Weaver. Appellant was not using his entrusted corporate powers and
was not performing his employment responsibilities when he handed
Appellee the fraudulent document for severance pay. Likewise, he did not
exercise corporate authority or discharge employment duties when he
benefited from the manipulation of the corporate records by Bergonzi and
Grass. In contrast, Bergonzi and Grass were performing their official
functions when they created the fraudulent documents and manipulated
corporate records. The allegations of misconduct as to Appellant do not
involve the performance of his corporate duties but relate to misfeasance in
the performance of the employment responsibilities of Grass and Bergonzi.
¶ 19 Grass and Bergonzi acted similar to Reddy because their misconduct
was not limited to receiving improper compensation. Instead, while
performing their employment duties, they engaged in the conduct that
resulted in the lawsuits against them and the receipt of that compensation.
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By contrast, Appellant, like Stifel and Weaver, just received windfall
compensation, in a purely personal capacity. The underlying action
contained no allegations related to Appellant's performance of duties as an
employee of Appellee and was not brought by reason of the fact of his
employment. It was instituted because Appellant individually received
compensation, based upon the wrongful actions of others committed while
they were officers of the company.
¶ 20 Our conclusion is not altered by the allegations in the present
complaint regarding breach of fiduciary duty. The underlying action was
brought to recover money received personally by Appellant, and his actions
to obtain that money were committed for his own personal welfare and were
not performed "by reason of the fact" that he was an officer of Appellee.
Thus, in the instant case, as in Stife/ and Weaver, the underlying action by
the corporation was brought to recover monies paid to Appellant in a
personal capacity and based upon actions that were unrelated to his
employment responsibilities.
¶ 21 Appellant relies heavily upon Citadel Ho/ding Corp, v, Roven, 603
A.2d 818 (Del.Sup. 1992), and suggests that it is controlling. We disagree.
In that case, the indemnification agreement, which was negotiated
separately, contained both the indemnification language in section 145 as
well as additional, broader language that required indemnification for "any
action." Id. at 820 (emphasis added). Indeed, the Court observed that the
agreement provided the director with greater protection than that afforded
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by the certificate of incorporation and bylaws. Any language contained in
that case has no application in this case.
¶ 22 In addition, Appellant maintains that advancement and indemnification
should be treated differently and that since he seeks an advancement for
legal expenses rather than indemnification for past expenses paid, Stifel is
not controlling. This contention ignores the basic premise of Stifel, which
provides that a corporation's obligation for payment of attorney's fees and
legal costs can arise only, as provided by the pertinent language, when a
legal action was brought against an employee ""by reason of the fact" that
the employee was an officer or employee of the corporation. Stifel applies
whether an employee is seeking to be paid in advance for legal fees or the
employee is seeking repayment of expended legal fees. The right to
indemnification or advancement depends upon the nature of the allegations
in the underlying action rather than the timing of the payment of the legal
expenses.
¶ 23 Our analysis might differ if the precise nature of the underlying action
could not be determined at the time the employee sought payment for legal
expenses. However, in the present case, the nature of the underlying action
is readily ascertainable by reference to the allegations in the complaint, and
that action is completely unrelated to Appellant's performance of his
employment duties.
¶ 24 Appellant also claims that he is entitled to advancement even if a
lawsuit is brought against him in a personal capacity. He relies upon the
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portion of the indemnification provision which states that a person is entitled
to indemnification "whether the basis of such proceeding is alleged action in
an official capacity as a director or officer or in any other capacity."
Appellant takes the bolded language completely out of context, arguing that
he is entitled to advancement if a lawsuit is brought against him in "any
capacity." Appellant disregards that this language is a dependent clause and
that the proceeding still must be brought by "reason of the fact" of his
employment. Indeed, the clause itself explicitly refers back to the
introductory language by its inclusion of the words, "such proceeding."
¶ 25 If we construed the language as Appellant suggests, he would be
entitled to indemnification for any proceeding brought against him in any
capacity. In other words, he would be entitled to payment of legal fees and
costs by his employer in a divorce action, in a federal prosecution for tax
evasion, and in state criminal proceedings pertaining to actions wholly
unrelated to his employment. We reject this argument, as it is clear that
indemnification is triggered only when an action is brought based on the
performance of employment responsibilities as an officer.
¶ 26 In a similar vein, Appellant posits that "[b]ecause he is being sued by
his former employer on account of alleged actions while he was an officer of
the company . . . [Appellant] is entitled to have his costs of defending
against the Underlying Action advanced by [Appellee]." Appellant's brief at
11. This claim is also meritless. The mere fact that Appellant performed
acts giving rise to a lawsuit while he was employed as an officer by Appellee
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does not mean that he is entitled to indemnification in this case. For
example, if Appellant had burglarized a neighbor's home while he was
employed by Appellee and a criminal action for that burglary had been
brought against him, Appellant would be entitled to neither advancement nor
indemnification of his legal fees and costs incurred in defending the criminal
action.
¶ 27 The acts alleged in the complaint were performed in a personal
capacity and solely for personal gain. Thus, the trial court herein correctly
concluded that Appellant is not entitled to indemnification.
¶ 28 Order affirmed.
Judgment Entered:
G`
J&2y -
e uty Prothonotary
Date: October 13, 2006
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