AMENDED AND RESTATED EXECUTIVE
CHANGE IN CONTROL AND SEVERANCE BENEFIT PLAN
The PetSmart, Inc.
Amended and Restated Executive Change in Control and Severance
Benefit Plan (the “Plan”) hereby amends and restates
through December 12, 2006 (the “Amendment Date”)
the PETsMART, Inc. Executive Change in Control and Severance
Benefit Plan that was established effective March 25, 2003
(the “Effective Date”). The purpose of the Plan is to
provide for the payment of severance benefits and/or change in
control benefits to certain eligible employees of PetSmart, Inc.
(“PetSmart”) and its wholly owned subsidiaries
(PetSmart and such subsidiaries being collectively referred to as
the “Company”). The Plan supersedes and replaces in its
entirety the Change of Control Severance Arrangement adopted by the
Compensation Committee of the Board of Directors of PetSmart on
February 1, 1999. This Plan also supersedes any unwritten
severance plan, policy or practice of the Company and any unwritten
change of control plan, policy or practice of the Company. However,
except as set forth above, this Plan does not supersede any written
severance benefit or written change in control benefit plan or
policy of the Company or any written agreement between the Company
and any employee that provides for payments or benefits in the
event of termination of employment or a change in control of the
Company; subject, however, to the provisions of this Plan providing
for certain offsets or reduction of benefits under this Plan on
account of such other benefits. This document also is the Summary
Plan Description for the Plan.
For purposes of
the Plan, the following terms are defined as follows except as may
otherwise be provided in a Participation Notice:
(a) “Alternative Benefits” means Covered
Benefits that are provided by a program, plan or arrangement other
than this Plan. Accordingly, for example, an “Alternative
Cash Severance Benefit” means a Cash Severance Benefit that
is an Alternative Benefit; an “Alternative Continued Medical
Benefit” means a Continued Medical Benefit that is an
Alternative Benefit; and an “Alternative Continued Life
Insurance Benefit” means a Continued Life Insurance Benefit
that is an Alternative Benefit. Notwithstanding the foregoing, a
benefit that is designated an Alternative Benefit in a
Participant’s Participation Notice shall be deemed to be an
Alternative Benefit with respect to such Participant, and a benefit
that is designated as not an Alternative Benefit in a
Participant’s Participation Notice shall not be deemed to be
an Alternative Benefit with respect to such Participant. Any
benefit provided to a Participant other than by this Plan which is
not addressed in the Participant’s Participation Notice shall
be deemed to be an Alternative Benefit if such benefit is described
in the first sentence of this Section 2(a).
(b) “Base Salary Amount” means the greater
of (i) the Participant’s base salary as determined on a
monthly basis at the time of the Measurement Date multiplied by
twelve (12) or (ii) the greatest amount of base salary
received by the Participant in any consecutive twelve
(12)
1.
month period
that occurred within the thirty-six (36) month period
immediately preceding the Measurement Date. For clarity purposes,
any amount that a Participant elects to have withheld from the
Participant’s base salary, for example, contributions to the
PetSmart, Inc. SaveSmart 401(k) Plan or the PetSmart, Inc. Amended
and Restated Deferred Compensation Plan, shall not reduce the
Participant’s Base Salary Amount.
(c) “Basic Severance Benefit” means the
Participant’s Base Salary Amount multiplied by the
Participant’s Multiplier. Except as may be set forth in the
Participant’s Participation Notice, in the event the
Participant has received or is entitled to and has not waived an
Alternative Cash Severance Benefit, the Basic Severance Benefit
shall be reduced (but not below zero) by the present value, as
determined by the Plan Administrator, of the Alternative Cash
Severance Benefit.
(d) “Board” means the Board of Directors of
PetSmart.
(e) “Cash Severance Benefit” means one or
more cash payments by the Company to, or on behalf of, a
Participant on account of the employee’s termination of
employment with the Company or in lieu of severance benefits. Such
payments may be paid in a lump sum or over time. The manner by
which the amount of such benefit is determined shall not affect the
characterization of the benefit as a Cash Severance Benefit;
provided, however, that salary, vacation pay and bonuses
that are earned but unpaid as of the date of such termination of
employment and distributions from the PetSmart, Inc. SaveSmart
401(k) Plan and/or the PetSmart, Inc. Amended and Restated Deferred
Compensation Plan shall not constitute Cash Severance Benefits. For
example, payments pursuant to Section 4(a) shall constitute Cash
Severance Benefits.
(f) “Change in Control” is defined as one
or more of the following events:
(i) there is consummated a sale or other disposition of all
or substantially all of the assets of the Company, as determined on
a consolidated basis, (other than a sale to an entity where at
least seventy-five percent (75%) of the combined voting power of
the voting securities of such entity are owned by the stockholders
of PetSmart in substantially the same proportions as their
ownership of PetSmart immediately prior to such sale);
(ii) any person, entity or group (other than PetSmart, a
subsidiary or affiliate of PetSmart, or a Company employee benefit
plan, including any trustee of such plan acting as trustee) becomes
the beneficial owner, directly or indirectly, of securities of
PetSmart representing twenty-five percent (25%) or more of the
combined voting power of PetSmart’s then outstanding
securities other than by virtue of a merger, consolidation or
similar transaction;
(iii) there is consummated a merger, consolidation or
similar transaction involving (directly or indirectly) PetSmart
and, immediately after the consummation of such transaction, the
stockholders of PetSmart immediately prior to the consummation of
such transaction do not own, directly or indirectly, outstanding
voting securities representing more than seventy five percent (75%)
of the combined outstanding voting power of the surviving entity in
such transaction or more than seventy five percent (75%) of the
combined outstanding voting power of the parent of the surviving
entity in such transaction, in each case in
2.
substantially
the same proportions as their ownership of PetSmart immediately
prior to such transaction; or
(iv) when the individuals who, at the beginning of any
period of two years or less, constituted the Board of Directors of
PetSmart cease, for any reason, to constitute at least a majority
thereof, unless the election or nomination for election of each new
director was approved by the vote of at least two-thirds of the
directors then still in office who were directors at the beginning
of such period.
(g) “Code” means the Internal Revenue Code
of 1986, as amended.
(h) “Company” means PetSmart, Inc. and its
wholly owned subsidiaries or, following a Change in Control, the
surviving entity resulting from such transaction.
(i) “Constructive Termination” means a
voluntary termination of employment by a Participant after one of
the following is undertaken without the Participant’s express
written consent:
(i) the assignment to the Participant of duties or
responsibilities that results in a material diminution in the
Participant’s authority, duties, position, status or
responsibilities with the Company as in effect at any time during
the twelve (12) month period preceding such
assignment;
(ii) a change in reporting responsibilities, titles or
offices that is not in connection with a promotion;
(iii) a reduction in the Participant’s base
salary;
(iv) a change in the Participant’s business location
of more than 35 miles from the business location prior to such
change, except for required travel for the Company’s business
to an extent substantially consistent with Participant’s
prior business travel obligations;
(v) a material breach by the Company of any provisions of
the Plan or any enforceable written agreement between the Company
and the Participant; or
(vi) any failure by the Company to obtain assumption of the
Plan by any successor or assign of the Company.
Notwithstanding
the foregoing, a voluntary termination shall not be deemed a
Constructive Termination unless (x) the Participant provides
the Company with written notice (the “Constructive
Termination Notice”) that the Participant believes that an
event described in this Section 2(i) has occurred , (y) the
Constructive Termination Notice is given within one (1) year
of the date the event occurred, and (z) the Company does not
rescind or cure the conduct giving rise to the event described in
this Section 2(i) within fifteen (15) days of receipt by the
Company of the Constructive Termination Notice.
(j) “Continuation Period” means the period
for which a Participant is entitled to receive the benefits
described in Section 4(b)(ii) and Section 4(b)(iii). The
Continuation Period
3.
for a
Participant shall be that number of months equal to 12 multiplied
by the Participant’s Multiplier. For example, the
Continuation Period for a Senior Vice President shall be eighteen
(18) months. Notwithstanding the foregoing, if the Covered
Termination occurs within the twelve (12) month period
immediately following the commencement of a Participant’s
employment with the Company, the Continuation Period determined
pursuant to this paragraph shall be reduced by fifty percent (50%);
provided, however, that if a Change in Control occurs in the period
commencing with such Participant’s commencement of employment
with the Company and ending three (3) months after such
Participant’s Covered Termination, this sentence shall not
apply.
(k) “Continued Medical Benefits” means the
Company’s direct payment or reimbursement, in whole or in
part, whether pursuant to the Plan or otherwise, for the premium
cost of medical, dental or vision insurance coverage for the
Participant or the Participant’s family members, where such
premium is paid by the Company after the Participant’s
termination of employment with the Company and such premium covers
a period extending beyond such termination of employment. For the
purposes of the preceding sentence, a wholly or partially
self-insured plan or arrangement maintained by the Company shall be
considered insurance coverage. For example, the benefits pursuant
to Section 4(b)(ii) shall constitute Continued Medical
Benefits.
(l) “Continued Life Insurance Benefits”
means the Company’s direct payment or reimbursement, in whole
or in part, whether pursuant to the Plan or otherwise, for the
premium cost of life insurance on the Participant’s life,
where such premium is paid by the Company after the
Participant’s termination of employment with the Company and
such premium covers a period extending beyond such termination of
employment. For example, the benefits pursuant to
Section 4(b)(iii) shall constitute Continued Life Insurance
Benefits.
(m) “Covered Benefits” means the following
benefits: (i) Cash Severance Benefits, (ii) Continued Medical
Benefits, (iii) Continued Life Insurance Benefits,
(iv) outplacement services, (v) accelerated vesting of
Company stock awards, and (vi) extended exercisability of
options granted by the Company for the purchase of Company
stock.
(n) “Covered Termination” means an
Involuntary Termination Without Cause or a Constructive Termination
(as defined in Section 2(i) above). Termination of employment of a
Participant due to death or disability shall not constitute a
Covered Termination unless a voluntary termination of employment by
the Participant immediately prior to the Participant’s death
or disability would have qualified as a Constructive
Termination.
(o) “Eligible Employee” means (i) the
Chief Executive Officer, (ii) the Chief Operating Officer,
(iii) a Senior Vice President, or (iv) a Vice President
of the Company. In addition to the foregoing, “Eligible
Employee” means any other current or former employee of the
Company (x) who has been designated by the Board as eligible for
benefits under the Plan and (y) whose highest seniority level
was at least the equivalent of a Vice President; provided, however,
that the Board shall not designate more than ninety-nine
(99) persons as Eligible Employees at any one time.
4.
(p) “ERISA” means the Employee Retirement
Income Security Act of 1974, as amended.
(q) “Involuntary Termination Without Cause”
means an involuntary termination of employment by the Company other
than for one of the following reasons:
(i) a refusal or failure to follow the lawful and reasonable
directions of the Board or individual to whom the Participant
reports, which refusal or failure is not cured within 30 days
following delivery of written notice of such conduct to the
Participant;
(ii) a material failure by the Participant to perform his or
her duties in a manner reasonably satisfactory to the Board that is
not cured within 30 days following delivery of written notice
of such failure to the Participant; or
(iii) participation in, a conviction of or a plea of guilty
or nolo contendere to a felony or any crime involving moral
turpitude, fraud or dishonesty that is likely to have or has had a
material adverse effect on the Company.
(r) “Measurement Date” means, for the
purposes of determining a Participant’s benefits payable
pursuant to Section 4, the date of the Participant’s
Covered Termination and, for the purposes of determining a
Participant’s benefits payable pursuant to Section 5,
the effective date of the applicable Change in Control.
(s) “Multiplier” means (i) 2.0 in the
case of a Participant who served as the Chief Executive Officer or
the Chief Operating Officer of the Company at any time during the
four month period immediately preceding the applicable Measurement
Date, (ii) 1.5 in the case of a Participant not described in
clause (i) who served as a Senior Vice President of the
Company at any time during the four month period immediately
preceding the applicable Measurement Date, and (iii)1.0 in the case
of a Participant not described in clause (i) or (ii) who
served as a Vice President of the Company at any time during the
four month period immediately preceding the applicable Measurement
Date. For all Participants not described in the preceding sentence,
“Multiplier” means 1.0 unless another Multiplier is
specified by the Participant’s Participation
Notice.
(t) “Option” means any and all options
granted to a Participant by the Company to acquire common stock of
the Company other than any options granted to a Participant which
expressly provide that this Plan shall not apply to such option.
For the purposes of this Plan, the term “Option” shall
also include stock appreciation rights measured by the
Company’s common stock provided that the exercise or strike
price of such stock appreciation right is at least equal to the
fair market value of the Company’s common stock on the date
the stock appreciation right was granted.
(u) “Participant” means an Eligible
Employee who has received a Participation Notice that the employee
is eligible to receive benefits pursuant to this Plan.
(v) “Participation Notice” means the latest
notice delivered by the Company to an Eligible Employee informing
the employee that the employee is a Participant in the Plan. A
Participation Notice shall be in such form as may be determined by
the Company.
5.
Notwithstanding
the foregoing, once a Participation Notice has been delivered to a
Participant, neither the Company nor any successor may amend a
Participation Notice in any way that is adverse to a Participant,
without the written consent of the Participant, unless (x) the
amendment is made more than six (6) months prior to an
applicable Measurement Date and (y) the amendment does not
reduce any benefits the Participant would receive under the Plan to
an amount that is less than the benefits the Participant would
receive if the Participation Notice did not address such
benefit.
(w) “Plan Administrator” means the Board or
any committee duly authorized by the Board to administer the Plan.
The Plan Administrator may, but is not required to be, the
Compensation Committee of the Board. The Board may at any time
administer the Plan, in whole or in part, notwithstanding that the
Board has previously appointed a committee to act as the Plan
Administrator.
(x) “Stock Award” means any and all stock
awards (including Options) granted to a Participant by the Company
which entitle the Participant to receive common stock of the
Company (or cash measured in whole or in part by reference to the
value of the Company’s common stock) other than any stock
awards granted to a Participant which expressly provide that this
Plan shall not apply to such stock awards.
(y) “Vested” means that the relevant
portion of the Stock Award is (i) in the case of an Option,
exercisable in full and (ii) in the case of any Stock Award,
the Stock Award is not subject to the Company’s right
(whether conditionally or unconditionally) to reacquire the Stock
Award due to forfeiture or repurchase at less than the fair market
value of the stock or Stock Award.
SECTION 3.
Eligibility For
Benefits.
(a) General Rules. Subject to the provisions set forth
in this Section and Section 6, in the event of a Covered
Termination, the Company will provide the severance benefits
described in Section 4 of the Plan to the affected
Participant. Subject to the provisions set forth in this Section
and Section 6, in the event of a Change in Control, the
Company will provide the change in control benefits described in
Section 5 of the Plan to the affected Participants.
(b) Exceptions to Benefit Entitlement. An employee who
otherwise is a Participant will not receive benefits under the Plan
in any of the following circumstances, as determined by the Company
in its sole discretion:
(i) The employee voluntarily terminates his or her
employment with the Company in order to accept employment with
another entity that is controlled (directly or indirectly) by the
Company or is otherwise an affiliate of the Company.
(ii) The Participant does not confirm in writing that
Participant shall be subject to the Company’s Confidentiality
Agreement and Non-Compete Agreement.
(iii) Except as may be set forth in a Participant’s
Participation Notice, the Participant shall not be entitled to
receive the benefit set forth in Section 4(b)(ii) if the
Participant
6.
has either
(i) previously received an Alternative Continued Medical
Benefit or (ii) is eligible for and has not waived an
Alternative Continued Medical Benefit.
(iv) Except as may be set forth in a Participant’s
Participation Notice, the Participant shall not be entitled to
receive the benefit set forth in Section 4(b)(iii) if the
Participant has either (i) previously received an Alternative
Continued Life Insurance Benefit or (ii) is eligible for and
has not waived an Alternative Continued Life Insurance
Benefit.
(c) Termination of Benefits. A Participant’s
right to receive the payment of benefits under this Plan shall
terminate immediately if, at any time prior to or during the period
for which Participant is receiving benefits hereunder, the
Participant, without the prior written approval of the
Company:
(i) willfully breaches a material provision of the
Participant’s proprietary information or confidentiality
agreement with the Company, as referenced in
Section 3(b)(ii);
(ii) owns, manages, operates, joins, controls or
participates in the ownership, management, operation or control of,
is employed by or connected in any manner with, any person,
enterprise or entity which is engaged in any business competitive
with that of the Company; provided, however, that such
restriction will not apply to any passive investment representing
an interest of less than two percent (2%) of an outstanding class
of publicly-traded securities of any corporation or other entity or
enterprise;
(iii) encourages or solicits any of the Company’s then
current employees to leave the Company’s employ for any
reason or interferes in any other manner with employment
relationships at the time existing between the Company and its then
current employees;
(iv) induces any of the Company’s then current
clients, customers, suppliers, vendors, distributors, licensors,
licensees or other third party to terminate their existing business
relationship with the Company or interferes in any other manner
with any existing business relationship between the Company and any
then current client, customer, supplier, vendor, distributor,
licensor, licensee or other third party.
SECTION 4.
Amount of Severance
Benefit.
(a) Cash
Severance Benefits. On or before the tenth (10
th ) day following a Covered Termination, the
Participant who incurred such Covered Termination shall receive the
following benefits:
(i) Covered Termination at Least 12 Months Following
Commencement of Employment with the Company. If the Covered
Termination occurs after the twelve (12) month period
immediately following the commencement of the Participant’s
employment with the Company (the “Participant’s Initial
Year”), the Participant shall receive a cash bonus equal to
the Participant’s Basic Severance Benefit. Any amounts paid
pursuant to this Section 4(a)(i) shall be subject to all
applicable income tax and employment tax withholding amounts as
well as other applicable withholding amounts.
7.
(ii) Covered Termination within 12 Months Following
Commencement of Employment with the Company. If the Covered
Termination occurs within the Participant’s Initial Year,
then the Participant shall receive a cash bonus equal to
(a) fifty percent (50%) of the Participant’s Basic
Severance Benefit if no Change in Control occurred after the
commencement of the Participant’s employment with the Company
and prior to three months after the Participant’s Covered
Termination or (b) one hundred percent (100%) of the
Participant’s Basic Severance Benefit if a Change in Control
occurred after the commencement of the Participant’s
employment with the Company and prior to three months after the
Participant’s Covered Termination. In connection with the
foregoing clause (b) of the preceding sentence, in the event a
Change in Control has not occurred prior to the Covered
Termination, but the Change in Control does occur within the three
(3) months following the Covered Termination, then 50% of the
Participant’s Basic Severance Benefit shall be paid on or
before the tenth (10 th )
day following the Covered Termination, and the remaining 50% shall
be paid on or before the tenth (10 th )
day following the Change in Control. Any amounts payable pursuant
to this Section 4(a)(ii) shall be subject to all applicable
income tax and employment tax withholding amounts as well as other
applicable withholding amount.
(b) Other
Severance Benefits. A Participant who incurs a Covered
Termination shall receive the following benefits:
(i) Outplacement Services. The Participant shall be
entitled to outplacement services to assist in the
Participant’s transition. Such outplacement services shall be
provided by the outplacement firm typically used by the Company
provided that the firm is well recognized in the industry,
accessible and diligent in its efforts. In the case of a
Participant whose Multiplier is greater than one (1), the Company
shall pay the costs of such outplacement services for a period of
twelve (12) months following the Covered Termination. In the
case of a Participant whose Multiplier is one (1) or less, the
Company shall pay the costs of such outplacement services for a
period of six (6) months following the Covered Termination.
Notwithstanding the foregoing, if the Covered Termination occurs
within the twelve (12) month period immediately following the
commencement of a Participant’s employment with the Company,
then the period for outplacement services for a Participant shall
be reduced by fifty percent (50%) from the amount calculated
pursuant to this Section; provided, however, that if a Change in
Control occurs in the period commencing with such
Participant’s commencement of employment with the Company and
ending three (3) months after such Participant’s Covered
Termination, this sentence shall not apply.
(ii) Continued Medical Benefits . Provided that the
Participant timely elects continued coverage under the Consolidated
Omnibus Budget Reconciliation Act of 1985 (“COBRA”),
the Company shall pay the portion of premiums of each
Participant’s group medical, dental and vision coverage,
including coverage for those persons who are eligible for COBRA
continuation coverage as a result of the Participant’s
termination of employment, that the Company paid prior to the
Covered Termination for the Continuation Period; provided,
however, that no such premium payments (or any other payments
for medical, dental or vision coverage by the Company) shall be
made following the effective date of the Participant’s
coverage by a medical, dental or vision insurance plan of a
subsequent employer. Each Participant shall be required to notify
the Company immediately if the Participant becomes covered by a
medical, dental or vision insurance plan of a subsequent employer.
No provision of
8.
this Plan will
affect the continuation coverage rules under COBRA, except that the
Company’s payment of any applicable insurance premiums during
the Continuation Period will be credited as payment by the
Participant for purposes of the Participant’s payment
required under COBRA. Therefore, the period during which a
Participant may elect whether or not to continue the
Company’s group medical, dental or vision coverage under
COBRA, the length of time during which COBRA continuation coverage
will be made available to the Participant, and all other rights and
obligations of the Participant under COBRA will be applied in the
same manner that such rules would apply in the absence of this
Plan. At the conclusion of the Continuation Period, the Participant
will be responsible for the entire payment of premiums required
under COBRA for the remainder, if any, of the COBRA continuation
period. For purposes of this Section 4(b)(ii), applicable
premiums paid by the Company during the Continuation Period shall
not include any amounts payable by the Participant under a
Section 125 health care reimbursement plan, which amounts, if
any, are the sole responsibility of the Participant. If the
Participant or his spouse or his dependents cannot remain eligible
for continued COBRA coverage for the entire Continuation Period,
the Company shall provide individual medical, dental and vision
coverage for the individual(s) who cease to be eligible for the
remaining Continuation Period in such manner and form as determined
by the Company in its sole discretion.
(iii) Continued Life Insurance Benefit. If (x) the
Participant’s life was insured through a plan or program
sponsored by the Company other than a plan described in Section
401(a) of the Code or Section 409A of the Code, (y) the
Company was paying immediately prior to the Covered Termination the
premiums for such life insurance (other than through a payroll
reduction or a withholding program), and (z) the Company was
not, directly or indirectly, the primary beneficiary of the
insurance policy, the Company will provide the Participant with
equivalent term life insurance coverage for the Continuation
Period. At the Company’s option, such term life insurance
coverage can be obtained by conversion or portability of existing
policies or through purchase by the Company of a policy or policies
of insurance, which obtain substantially similar term life coverage
as the policy in effect on the date of the Covered Termination.
During the period (the “Initial Period”) commencing
with the Participant’s Covered Termination and ending ten
(10) days prior to the termination of any conversion privilege
election period, the Company shall have the sole discretion to
determine the method for coverage for the Participant. If the
Company has not obtained such coverage within the Initial Period
and notifies the Participant of the same, the Participant will have
ten (10) days to make an affirmative election to convert the
existing policy of life insurance. Thereafter, the Company shall
have a continuing right to obtain substantially similar term life
insurance coverage for the Participant. As a condition to any
obligation of the Company pursuant to this Section 4(b)(iii),
the Participant and all persons with an interest in any existing
coverage at the time of termination of employment shall cooperate
and assist the Company, as necessary, in any continuation coverage
or any change to other life insurance coverage, including the
timely completion of enrollment and/or application materials and
any medical examination as may be reasonably requested by the
Company. The Company will pay any life insurance premiums and any
charges for converting or changing the life insurance coverage, if
applicable.
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