Exhibit 10.3

 

Pathmark Stores, Inc.
200 Milik Street
Carteret, New Jersey 07008

 

August 23, 2005

 

Mr. John T. Standley
2849 Myrtle Drive
Mechanicsburg, PA 17055

 

Award Agreement

 

Dear Mr. Standley:

 

Pursuant to and subject to the terms and conditions set forth in this award
agreement (“Award Agreement”), Pathmark Stores, Inc. (the “Company”) hereby
grants you effective as of the date first set forth above a stock option (“Stock
Option”) to purchase the number of shares of Common Stock set forth below. 
Terms not defined in this Award Agreement, but defined in the Employment
Agreement dated August 23, 2005, between you and the Company (the “Employment
Agreement”), shall have the meaning set forth in the Employment Agreement.

 

1.                                       Stock Option.  Your Stock Option shall
entitle you to purchase an aggregate of 1,500,000 shares of Common Stock
(“Option Shares”) at an exercise price per share (“Exercise Price”) equal to
$10.39.  The Stock Option is granted without the approval of the Company’s
stockholders in reliance on Nasdaq Marketplace Rule 4350(i)(1)(A)(iv) and shall
not be subject to the Company’s 2000 Employee Equity Plan.  The Stock Option is
a not an “incentive stock option” within the meaning of Section 422 of the
Code.  The number of Option Shares and the Exercise Price shall be subject to
adjustment as provided in Section 8 below.  The Company shall reserve for
issuance a sufficient number of shares of Common Stock to permit exercise of the
Stock Option in full.

 

2.                                       Vesting.  Subject to the other terms
and conditions of the Award Agreement and your continued employment with the
Company on the applicable vesting date, your Stock Option shall vest and become
exercisable in three equal, annual installments of 500,000 Option Shares each on
each of the first three anniversaries of the Effective Date.  Vesting of your
Stock Option may be accelerated in accordance with the Section 5 below.

 

3.                                       Compliance with Securities Laws.

 

(a)                                  The exercise of your Stock Option must
comply with all applicable laws and regulations governing the Stock Option, and
the Stock Option may not be exercised if the

 

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Company reasonably determines in good faith that the exercise would not be in
material compliance with such laws and regulations.

 

(b)                                 The Company represents and warrants to you
that on or prior to the Effective Date all actions necessary to exempt the grant
of your Stock Option under Rule 16b-3(d) under the Exchange Act have been taken
by the Company.

 

4.                                       Option Term.  Subject to the other
terms and conditions of this Award Agreement, the term of your Stock Option
shall commence on the Grant Date and shall expire on the tenth anniversary
thereof (the “Expiration Date”).

 

5.                                       Termination of Employment; Change in
Control.

 

(a)                                  In the event that your employment with the
Company is terminated by reason of your Involuntary Termination, except as
otherwise expressly provided in this Section 5, your Stock Option shall be
considered vested and shall remain exercisable as set forth below:

 

(i)  if the Date of Termination occurs prior to the first anniversary of the
Effective Date, your Stock Option shall be considered vested as to 1,000,000
shares of Common Stock and unvested as to 500,000 shares of Common Stock, the
vested portion of your Stock Option shall remain exercisable until the third
anniversary of the Date of Termination and the unvested portion of your Stock
Option shall be forfeited;

 

(ii)  if the Date of Termination occurs on or after the first anniversary of the
Effective Date and prior to the second anniversary of the Effective Date, your
Stock Option shall be fully vested and shall remain exercisable (to the extent
not previously exercised) as to 500,000 shares of Common Stock until the
Expiration Date and as to 1,000,000 shares of Common Stock until the third
anniversary of the Date of Termination;

 

(iii)  if the Date of Termination occurs on or after the second anniversary of
the Effective Date and prior to the third anniversary of the Effective Date,
your Stock Option shall be fully vested and shall remain exercisable (to the
extent not previously exercised) as to 1,000,000 shares of Common Stock until
the Expiration Date and as to 500,000 shares of Common Stock until the third
anniversary of the Date of Termination; and

 

(iv)  if the Date of Termination occurs (A) on or after the third anniversary of
the Effective Date, (B) on or after a Change in Control, or (C) within six
months prior to a Change in Control and such Involuntary Termination prior to
the Change in Control was requested by a party to, or was otherwise in
connection with, the Change in Control, your Stock Option shall be fully vested
and shall remain exercisable (to the extent not previously exercised) until the
Expiration Date.

 

In the event that you resign from your employment with the Company without Good
Reason and the Date of Termination is prior to the third anniversary of the
Effective Date, the vested portion of your Stock Option shall remain exercisable
until the end of the 90-day period following the Date of Termination and the
unvested portion of your Stock Option shall be forfeited.  In the event that
your employment with the Company is terminated by reason of your death or

 

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Disability and the Date of Termination is prior to the third anniversary of the
Effective Date, except as otherwise expressly provided in this Section 5, the
vested portion of your Stock Option on the Date of Termination shall remain
exercisable until the Expiration Date, and the unvested portion of your Stock
Option shall be forfeited.  In the event that your employment with the Company
is terminated for any reason other than your termination for Cause and the Date
of Termination is on or following the third anniversary of the Effective Date,
your Stock Option shall be fully vested and, except as otherwise expressly
provided in this Section 5, shall remain exercisable until the Expiration Date. 
Upon termination of your employment by the Company for Cause, the vested and
unvested portion of your Stock Option shall be forfeited.

 

(b)                                 In the event of a Change in Control, your
Stock Option shall become fully vested immediately prior thereto; provided,
however, that the Compensation Committee of the Board (the “Committee”) may
elect in its sole discretion prior to a Change in Control not to vest your Stock
Option in connection with such Change in Control if (i) it reasonably determines
in good faith that not accelerating the unvested portion of your Stock Option is
necessary or advisable to consummate the Change in Control, (ii) immediately
following the Change in Control you are the Chief Executive Officer and you are
the most senior officer of the surviving corporation in the Change in Control
(other than any non-executive chairman of the surviving corporation’s board of
directors), which surviving corporation is at least comparable in size to the
Company immediately prior to the Change in Control and any related transactions,
(iii) such surviving corporation has a publicly traded class of common stock and
(iv) either (A) the Company is the surviving corporation in the Change in
Control or (B) your Stock Option is assumed or replaced by such surviving
corporation; provided further that if the Committee so elects not to vest the
unvested portion of your Stock Option in connection with a Change in Control,
subject to the other terms and conditions of this Award Agreement and your
continued employment with the Company on the applicable vesting date, the
portion of your Stock Option that is unvested after the date of the Change in
Control shall become fully vested on the six-month anniversary of the Change in
Control or, if earlier, in accordance with the other, applicable vesting
provisions of this Award Agreement.

 

(c)                                  In the event of a transaction described in
clause (vii) of the definition of Good Reason in the Employment Agreement
(whether or not Yucaipa has a controlling interest within the meaning of such
clause), your Stock Option shall become fully vested immediately prior to such
transaction.

 

(d)                                 Notwithstanding anything in this Award
Agreement or the Employment Agreement to the contrary, in the event of any
merger or consolidation of the Company or other transaction following which
either the Company is not the surviving corporation or the Common Stock ceases
to be publicly traded, the Committee shall provide for:

 

(i)  the substitution by the surviving corporation or the Company’s parent
corporation for your outstanding Stock Option of stock option(s) on the same
terms as your Stock Option, and which preserve(s) the economic value to you of
your outstanding Stock Option; or

 

(ii)  where all of the holders of the then outstanding Common Stock (other than
Yucaipa) receive payment in cash or cash equivalents in consideration for such
Common

 

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Stock, the cancellation of your Stock Option upon payment to you of a per share
amount in cash or cash equivalents equal to (A) the highest price paid for a
share of Common Stock in such transaction, minus (B) the exercise price of your
Stock Option.

 

6.                                       Exercise of Stock Option.  You may
exercise your Stock Option, to the extent vested, in whole or in part during its
term by delivering a written notice of exercise (in a form designated by or
otherwise reasonably acceptable to the Company) together with the exercise price
to the Secretary of the Company, or to such other person as the Company may
designate, during regular business hours, together with such additional
documents as the Company may then require.  The Stock Option may be exercised
for whole shares of Common Stock only.  Payment of the exercise price is due in
full upon exercise of all or any part of your Stock Option.  You may elect to
make payment of the exercise price to the Company (i) by cash or check, (ii) by
delivery of other shares of Common Stock with a value equal to the exercise
price that, in the case of shares acquired previously from the Company, have
been owned by you for at least six months on the date of delivery, or (iii) a
combination of any of (i) and (ii).  At your discretion, subject to reasonable
procedures adopted by the Committee, the Stock Option may also be exercised on a
cashless basis through a broker, whereby irrevocable instructions are delivered
to the broker to sell that number of shares equal in value to the aggregate
Exercise Price of the Option Shares with respect to which the Stock Option is
then being exercised and pay the proceeds to the Company.  As soon as reasonably
practicable after receipt of such notice of exercise and full payment of the
applicable Exercise Price and any required tax withholding, consistent with the
regular settlement policy and procedures of the Company, the Company shall issue
or transfer to you the number of Option Shares with respect to which your Stock
Option is exercised, less any Option Shares withheld in accordance with
Section 10 below.

 

7.                                       Transferability.  Your Stock Option is
not transferable by you otherwise than (i) to or from a Permitted Transferee,
(ii) to a designated beneficiary upon death or (iii) by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you or
a Permitted Transferee (or, in the event of your or a Permitted Transferee’s
adjudicated incapacity, your or Permitted Transferee’s personal
representative).  No other assignment or transfer of all or any part of the
Stock Option, or of the rights represented thereby, whether voluntary or
involuntary, by operation of law or otherwise, shall vest in the assignee or
transferee any interest or right herein whatsoever and no assignment or transfer
of all or any part of the Stock Option to a Permitted Transferee shall be given
effect unless such Permitted Transferee acknowledges in a writing satisfactory
to the Company that the Stock Option (and any Option Shares acquired pursuant
thereto) remains subject to the provisions of this Award Agreement and the
Employment Agreement.  For purposes of this Award Agreement, “Permitted
Transferee” shall mean (i) any member of your immediate family and (ii) any
living trust or other entity established by your or any Permitted Transferee for
estate planning purposes.  By way of clarification, transfers of the Stock
Option shall be permitted from any Permitted Transferee to you or between
Permitted Transferees.

 

8.                                       Adjustments.  In the event of any
change in the outstanding Common Stock by reason of any stock dividend or split,
reverse stock split, recapitalization, reorganization, merger, consolidation,
spin-off, combination, exchange of shares or other corporate change, or any
distributions to common shareholders other than regular cash dividends, the
Committee shall make such substitutions in or adjustments to the number and/or
kind of

 

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shares or Option Shares or other property subject to, and the Exercise Price of,
your Stock Option as the Committee shall reasonably determine in good faith to
be equitable under the circumstances of such change to maintain the benefit to
you of your Stock Option.

 

9.                                       Not a Service Contract.  Your Stock
Option is not an employment or service contract, and nothing therein shall be
deemed to create in any way whatsoever any obligation on your part to continue
in the employ of the Company or one of its subsidiaries, or of the Company or
any of its subsidiaries to continue your employment.  In addition, nothing
herein shall obligate the Company or any of its subsidiaries, their respective
shareholders, Boards of Directors, officers or employees to continue any
relationship that you might have as a director, advisor or consultant for the
Company or its subsidiaries.

 

10.                                 Withholding.  You may satisfy any applicable
tax withholding obligation relating to the exercise or acquisition of Common
Stock under your Stock Option by any of the following means or by a combination
of such means:  (a) tendering a cash payment; (b) authorizing the Company to
withhold shares from the shares of Common Stock otherwise deliverable to you as
a result of the exercise of your Stock Option (but no more than the minimum
required withholding liability); or (c) delivering to the Company owned and
unencumbered shares of Common Stock that, in the case of shares acquired
previously from the Company, you have owned for at least six months prior to
such delivery.

 

11.                                 Notices.  Any notices in connection herewith
shall be given in the manner contemplated under the Employment Agreement.

 

12.                                 Employment Agreement.  Your Stock Option is
subject to and conditional in all respects on the effectiveness of the
Employment Agreement and shall be void ab initio and without force and effect in
the event that any condition to such effectiveness is not met.  In the event of
any conflict between the provisions of this Award Agreement and those of the
Employment Agreement, the provisions of this Award Agreement shall control.

 

13.                                 Governing Law.  The validity,
interpretation, construction and performance of this Award Agreement shall be
governed by the laws of the State of Delaware applicable to contracts entered
into and performed in such state.

 

14.                                 Section 409A.  Your Stock Option is intended
not to provide for a “deferral of compensation” within the meaning of
Section 409A, and this Award Agreement shall be interpreted consistent with such
intent.  If any provision of this Award Agreement causes your Stock Option to be
subject to the requirements of Section 409A, or could otherwise cause you to be
subject to tax or the interest and penalties under Section 409A, such provision
shall be modified to maintain, to the maximum extent practicable, the original
intent of the applicable provision without violating the requirements of
Section 409A and the Company agrees to modify such provisions in such manner.

 

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Please indicate your acceptance of the foregoing by signing and dating where
indicated below.

 

 

 

Sincerely,

 

 

 

/s/ James L. Moody, Jr.

 

 

 

 

James L. Moody, Jr.

 

Chairman of the Board of Directors

 

 

Acknowledged and Agreed as of this 23rd day of August 2005.

 

 

/s/ John T. Standley

 

John T. Standley

 

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