Exhibit 10.2

 

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

 

August 23, 2005

 

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

 

Employment Agreement

 

Dear Mr. Standley:

 

The following sets forth the agreement (“Agreement”) between Pathmark
Stores, Inc. (the “Company”) and you regarding the terms and provisions of your
employment as Chief Executive Officer of the Company.  Capitalized words not
otherwise defined herein shall have the meanings set forth in Section 7 below.

 

1.                                       Term of Employment.  The term of your
employment under this Agreement, including extensions hereof (the “Term”), shall
commence on August 29, 2005 (the “Effective Date”) and shall continue until
August 29, 2008.  The Term shall automatically renew for successive one-year
periods, subject to written notice of non-renewal by either party at least 180
days prior to expiration of the then Term.  Subject to the provisions of
Section 4 below, either party may terminate your employment under this Agreement
at any time.

 

2.                                       Title and Duties.  During the Term, you
shall be employed as the Chief Executive Officer and most senior officer of the
Company and shall report directly to the Board of Directors of the Company
(the “Board”).  Your duties and responsibilities to the Company shall be
consistent in all respects with the position of Chief Executive Officer and most
senior officer of the Company, including, without limitation, having all
officers and employees of the Company report directly or indirectly to you and,
subject only to Board approval, selecting, hiring and terminating any and all
officers of the Company.  Nothing in this Agreement shall prohibit the Board, in
accordance with the Board’s good faith exercise of its fiduciary duties with
respect to corporate governance, from requiring (i) that specified officers of
the Company also report directly to the Board or to appropriate directors or
committees of the Board and (ii) that you also report to the non-executive
chairman of the Board, the Board’s lead director or to appropriate committees of
the Board.  The previous sentence is not intended to limit in any way the
responsibilities of officers and employees to report directly or indirectly to
you with respect to normal business operations and strategic opportunities or
alternatives.  You shall devote substantially all of your business time,
attention, skills and efforts exclusively to the business and affairs of the
Company; provided that, to the extent consistent with performing your duties
hereunder, you can manage your personal finances, engage in charitable or
community services, serve on industry, civic or charitable boards and committees
and, subject to the prior written

 

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approval of the Board (which approval will not be unreasonably withheld), serve
on the boards of corporations and other for-profit entities.  Your principal
place of employment shall be the executive offices of the Company in the
Carteret, New Jersey area, although you understand and agree that you will be
required to travel from time to time for business purposes.  Effective on the
Effective Date, you shall be appointed to the Board and any executive committee
of the Board; provided that you will not be considered an independent director
nor a Yucaipa designee under any shareholder agreement or related agreement
between the Company and Yucaipa.

 

3.                                       Compensation and Benefits.

 

(a)                                  Annual Salary.  As compensation to you for
all services rendered to the Company, the Company will pay you an annual base
salary ( “Annual Salary”) during the Term at the rate of $900,000 per annum. 
Your Annual Salary shall be reviewed annually by the Board, and may be increased
but not decreased by the Board on the basis of such review.  Your Annual Salary
will be paid to you in accordance with the Company’s regular payroll practices
applicable to its executive officers (but in no event less frequently than
monthly).  For no additional consideration, you shall serve as an officer and/or
director of any of the Company’s subsidiaries consistent with your position as
Chief Executive Officer and most senior officer of the Company.

 

(b)                                 Annual Bonus.  During the Term, you shall be
eligible to earn an annual bonus (“Annual Bonus”) pursuant to the Company’s
Executive Incentive Plan.  For each full fiscal year of the Company during the
Term your target Annual Bonus shall equal 100% of your Annual Salary, at the
rate in effect at the beginning of the fiscal year (except that your average
annual rate of Annual Salary for the fiscal year shall be substituted for the
rate in effect at the start of the fiscal year to the extent that the use of
such average rate will not, in the reasonable, good faith judgment of the
Company, prevent such Annual Bonus from qualifying as performance-based
compensation under Section 162(m) of the Code).  Annual Bonus targets and
adjustments for performance above and below the target will be reasonably set by
the Board in good faith after consultation with you, such matrix to provide that
the Annual Bonus will increase above the target of 100% for performance above
target.  Your target Annual Bonus for each partial fiscal year during the Term
shall be prorated based on the number of days in such fiscal year occurring
during the Term (including any partial fiscal year ending at the expiration of
the Term due to a non-renewal by either party, in which case the Annual Bonus
shall be calculated based on performance through the Date of Termination).  The
Annual Bonus for each year, if earned, shall be paid to you in cash within 75
days of the end of the applicable fiscal year.  In addition to any Annual Bonus,
within 30 days following the Effective Date, the Company shall pay you a
one-time bonus in cash in the amount of $335,000.

 

(c)                                  Equity Awards.  The Company shall grant you
the following equity awards (“Equity Awards”):

 

(i)  On August 23, 2005 (the “Grant Date”), an award of stock options to
purchase 1,500,000 shares of the Company’s common stock (“Common Stock”), at an
exercise price equal to the fair market value of such Common Stock on the Grant
Date, pursuant to the terms of an award agreement in the form of Attachment A.

 

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(ii)  On the Effective Date, an award of 500,000 restricted shares of Common
Stock, pursuant to the terms of an award agreement in the form of Attachment B.

 

The Company shall be under no obligation to grant any additional equity awards
to you.  The Company shall promptly register with the Securities and Exchange
Commission on Form S-8 the shares of Common Stock issued or issuable as part of
the Equity Awards and shall list such shares on the Nasdaq Stock Market;
provided that such shares shall be so registered and so listed no later than the
first date any Equity Award vests or any restriction thereon lapses.  The
Company agrees to use commercially reasonable efforts to maintain the
effectiveness of such registration on Form S-8 and such listing on the Nasdaq
Stock Market.

 

(d)                                 Benefits.  During the Term, you shall be
eligible to participate in all of the pension, welfare and fringe benefit
programs and any other employee benefit plan made available generally to
executives of the Company, in accordance with the terms and provisions thereof;
provided, however, that the Company shall not be obligated to provide you any
non-qualified retirement plan (except pursuant to the election by you described
in Section 3(g) below).  You shall participate in the Company’s car program on
the same basis as other Company executive officers.  You shall receive life
insurance and disability coverage in accordance with the Company’s policies on
the same basis as other executive officers.  You shall be entitled to five
weeks’ vacation per each twelve-month period during the Term and otherwise in
accordance with the Company’s policies on the same basis as other executive
officers.

 

(e)                                  Relocation.  The Company shall provide you
with the following relocation benefits; provided that the Company shall not be
required to pay to you or reimburse you the following amounts in excess, in the
aggregate, of $450,000:

 

(i)  The Company shall pay or promptly reimburse the cost of moving your
personal belongings from your current primary residence in Pennsylvania to a new
residence within commuting distance of the Company’s executive offices in New
Jersey.

 

(ii)  The Company shall pay or promptly reimburse the reasonable cost for you
and the members of your family of a reasonable number of house-hunting trips to
New Jersey.

 

(iii)  The Company shall pay or promptly reimburse the reasonable cost of
temporary housing for you and your family within commuting distance of the
Company’s executive offices in New Jersey for a period not to exceed twelve
months.

 

(iv)  The Company shall pay or promptly reimburse your reasonable commuting
costs from your current primary residence in Pennsylvania to the temporary
housing contemplated by item (iii) above and to the Company’s executive offices
in New Jersey.

 

(v)  The Company shall pay or promptly reimburse the other direct costs incurred
by you in connection with your relocation, such as brokerage commissions and
buying and selling costs and, in addition, the carrying costs of your home in
Pennsylvania.

 

(vi)  The Company shall pay or promptly reimburse any loss associated with the
sale of your current primary residence in Pennsylvania.

 

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(vii)  To the extent that the payments or reimbursements described above will
result in taxable income to you, the Company will promptly pay you an additional
lump-sum amount such that you are in the same net after-tax position you would
have been in if no such relocation expenses had been paid or reimbursed.

 

All payments and reimbursements under this Section 3(e) shall be subject to
presentation to the Company of appropriate documentation of the costs incurred.

 

(f)                                    Business Expenses.  The Company shall
reimburse you upon presentation by you of appropriate documentation, in
accordance with the Company’s regular practice, for business expenses reasonably
incurred by you in connection with the performance of your duties under this
Agreement.

 

(g)                                 Deferred Compensation.  On the Effective
Date and on each anniversary of the Effective Date during the Term, the Company
shall credit an amount of $200,000 to your account under a deferred compensation
plan to be established by the Company.  With respect to such amounts, your
account balance shall vest and shall be non-forfeitable on the day before the
first anniversary of the date such amount was first credited or, if earlier,
immediately prior to the date of a Change in Control; provided, however, that if
your Involuntary Termination occurs within six months prior to a Change in
Control, you will receive at the time of the Change in Control an amount equal
to any unvested portion of your account balance that was forfeited as a result
of such termination.  Upon termination of your employment with the Company as a
result of a Termination Event (other than a Termination Event resulting from
your death or Disability, in which case your account shall vest pro rata in
accordance with Section 4(b)(iv) below), you shall forfeit your account balance
with respect to any such amounts that are unvested on the Date of Termination. 
Promptly following the Effective Date, the Company and you shall negotiate in
good faith and agree upon the specific terms of the deferred compensation plan,
including the applicable investment vehicle(s) and terms and schedule of
payments.  In addition, you will be permitted to defer some or all of your
Annual Salary and/or Annual Bonus pursuant to the deferred compensation plan, as
to which amounts you will be fully vested immediately.  Any amounts deferred
under the plan will be credited to a bookkeeping account established on the
books and records of the Company for this purpose and the value of your account,
allocated among vested and unvested balances, will be adjusted to reflect the
performance of a nominal investment in accordance with the terms of the plan. 
The plan shall comply in all respects with the requirements of Section 409A. 
Notwithstanding Section 3(d) above, on or prior to December 31, 2005, you may
elect to participate, in lieu of participating in the Company’s deferred
compensation plan, in the Company’s other non-qualified retirement plans;
provided that you shall not be eligible to receive the supplemental retirement
benefits from the Company provided to certain current officers of the Company in
their individual retirement agreements.

 

(h)                                 Indemnification.  The Company shall
(i) indemnify, defend and hold you harmless, to the full extent permitted under
applicable law, for, from and against any and all losses, claims, costs,
expenses, damages, liabilities or actions (including security holder actions)
related to or arising out of your employment with and service as a director
and/or an officer of the Company and/or its subsidiaries (including with respect
to the appointment of officers and other employees), and (ii) pay as incurred
all reasonable costs, expenses and attorneys’ fees incurred by you in connection
with or relating to the defense of any such losses, claims, costs,

 

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expenses, damages, liabilities or actions or the enforcement of any
indemnification right hereunder.  You shall be entitled to coverage under any
director and officer liability insurance policies of the Company to the extent
of any other director or officer of the Company.

 

4.                                       Effect of Termination of Employment.

 

(a)                                  Involuntary Termination.  In the event of
your Involuntary Termination during the Term, the Company shall pay you in cash:

 

(i)  the full amount of the accrued but unpaid Annual Salary you have earned
through and including the Date of Termination, plus a cash payment for all
unused vacation time which you may have accrued through and including the Date
of Termination, on or as soon as practicable after the Date of Termination or as
otherwise required by applicable law;

 

(ii)  the amount of any earned but unpaid Annual Bonus for any fiscal year of
the Company ended on or prior to the Date of Termination, on or as soon as
practicable after the Date of Termination or as otherwise required by applicable
law;

 

(iii)  any unpaid reimbursement for business or relocation expenses you are
entitled to receive under Section(s) 3(e) and/or 3(f) above, in accordance with
the Company’s expense reimbursement policies;

 

(iv)  your vested account balance under the deferred compensation plan described
in Section 3(g) above and a prorated portion of your unvested account balance
based on the number of months elapsed (including any partial month) in the
applicable vesting period prior to your Date of Termination, in accordance with
your elections and the terms of the plan; and

 

(v)  subject to your execution of a general release of claims against the
Company in the form of Attachment C, an amount (the “Severance Amount”) equal to
(A) two times the sum of your Annual Salary plus your target Annual Bonus on the
Date of Termination, plus (B) a pro rata portion of your target Annual Bonus for
the applicable year (assuming for this purpose that you have met all the
necessary performance targets for such year at 100% of the performance target)
based upon the number of days occurring in such year through and including the
Date of Termination.

 

The Severance Amount shall be payable in cash in 24 equal monthly installments
commencing on the date 30 days after the Date of Termination (such 24-month
period being referred to as the “Severance Period”); provided that, to the
extent required under Section 409A to avoid the imposition of additional tax
under that section to you, any payment of the Severance Amount shall commence on
the six-month anniversary of your separation from service with the Company (or,
if earlier, the date of your death) and continue in equal monthly installments
over the remainder of the Severance Period; provided further that, to the extent
permitted under Section 409A without the imposition of additional tax under that
section to you, the Severance Amount shall be paid (A) in an immediate lump-sum
in the event such Involuntary Termination occurs on or after a Change in Control
or (B) in an immediate lump sum at the time of a Change in Control (less any
amounts previously paid to you) in the event that your Involuntary Termination
occurs

 

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within six months prior to a Change in Control.  In addition, medical coverage
shall continue to be provided by the Company to you and your family to the same
extent as if you remained employed with the Company, or, in the alternative,
COBRA premiums for such coverage shall be paid for by the Company, for one year
following the Date of Termination.  Except as otherwise provided by the
provisions of any pension, welfare or fringe benefit program and any other
employee benefit plan in which you are a participant or this Agreement, in the
event of your Involuntary Termination, as of the Date of Termination, you shall
not have any right to any additional payments or benefits from the Company under
this Agreement or otherwise.  The Company agrees that, in the event that your
employment with the Company terminates as a result of the Company’s delivering a
notice of non-renewal in accordance with Section 1 above within six months prior
to a Change in Control, such termination will be treated as an Involuntary
Termination for purposes of this Section 4(a).

 

(b)                                 Termination Event.  In the event your
employment ends at any time during the Term as a result of a Termination Event,
the Company shall pay you in the same applicable manner described in
Section 4(a) above:

 

(i)  the full amount of the accrued but unpaid Annual Salary you have earned
through and including the Date of Termination, plus a cash payment for all
unused vacation time which you may have accrued through and including the Date
of Termination;

 

(ii)  the amount of any earned but unpaid Annual Bonus for any fiscal year of
the Company ended on or prior to the Date of Termination and, if the Termination
Event is death or Disability, a portion of your Annual Bonus, if any, that you
would have been entitled to receive, based upon the number of days you were
employed in such year;

 

(iii)  any unpaid reimbursement for business expenses you are entitled to
receive under Section(s) 3(e) and/or 3(f) above; and

 

(iv)  any vested account balance under the deferred compensation plan described
in Section 3(g) above and, in the case of your termination of employment as a
result of your death or Disability, a prorated portion of your unvested account
balance based on the number of months elapsed (including any partial month) in
the applicable vesting period prior to your Date of Termination, in accordance
with your elections and the terms of the plan.

 

If the Termination Event is death or Disability, medical coverage shall continue
to be provided by the Company to you and/or your family to the same extent as if
you remained employed with the Company, or, in the alternative, COBRA premiums
for such coverage shall be paid for by the Company, for one year following the
Date of Termination.  Except as otherwise provided by the provisions of any
pension, welfare or fringe benefit program and any other employee benefit plan
in which you are a participant or this Agreement, in the event of a Termination
Event, as of the Date of Termination, you shall not have any right to any
additional payments or benefits from the Company under this Agreement or
otherwise.

 

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(c)                                  Treatment of Equity Awards.  The treatment
of your Equity Awards in connection with the termination of your employment with
the Company shall be as set forth in the award agreements described in
Section 3(c) above.

 

(d)                                 Date and Notice of Termination.  Any
termination of your employment by the Company or by you during the Term shall be
communicated by a notice of termination to the other party hereto (the “Notice
of Termination”).  The Notice of Termination shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.  The date of
your termination of employment with the Company (the “Date of Termination”)
shall be determined as follows:  (i) if your employment is terminated for
Disability, 30 days after a Notice of Termination is given (provided that you
shall not have returned to the full-time performance of your duties during such
30-day period); (ii) if your employment is terminated by the Company in an
Involuntary Termination, the date specified in the Notice of Termination (or if
no date is specified in the Notice of Termination, the date the Notice of
Termination is delivered to you); (iii) if your employment is terminated by the
Company for Cause, the later of (A) the date specified in the Notice of
Termination and (B) the expiration of the applicable period set forth in the
definition of Cause during which you may effect a cure or meet with the Board if
such period expires without such cure being effected by you and without a
reversal on the part of the Board regarding its decision to terminate you for
Cause; (iv) if your employment is terminated by a non-renewal notice by either
you or the Company, the last day of the then Term; (v) if the basis for your
Involuntary Termination is your resignation for Good Reason, the Date of
Termination shall be the later of (A) the date specified in the Notice of
Termination and (B) the expiration of the applicable cure period set forth in
the definition of Good Reason if such period expires without such cure being
effected by the Company; (vi) if your employment is terminated by your
resignation other than for Good Reason, the Date of Termination shall be the
date set forth in the applicable notice, which shall be 30 days after the date
such notice is received by the Company; and (vii) if your employment is
terminated as a result of your death, the Date of Termination shall be the date
of your death.

 

(e)                                  Other Positions.  You agree that, if
requested in connection with any termination of your employment with the
Company, you shall resign from any or all positions with the Company, including
as a member of the Board, or with any subsidiary of the Company.

 

(f)                                    Mitigation.  You shall not be required to
mitigate the Severance Amount or other payments hereunder by seeking other
employment or otherwise, and the Severance Amount and such other amounts will
not be reduced if such other employment is obtained.

 

5.                                       Payment of Excise Taxes.

 

(a)                                  In the event that any payment or benefit
received or to be received by you pursuant to the terms of this Agreement or of
any other plan, arrangement or agreement of the Company or any of its
subsidiaries (collectively, the “Payments”), would be subject to the excise tax
(the “Excise Tax”) imposed by Section 4999 of the Code, as determined below, the
Company shall pay to you, at the time specified in Section 5(b) below, an
additional amount (the “Gross-Up Payment”) such that the net amount retained by
you, after deduction of the Excise Tax on Payments and any federal, state and
local income and employment or other tax and the Excise

 

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Tax upon the Gross-Up Payment (including all taxes on all Gross-Up Payments),
and any interest, penalties or additions to tax payable by you with respect
thereto, shall be equal to the total Payments, less the federal, state and local
income and employment or other tax (other than the Excise Tax) that would apply
to such Payments if the Excise Tax did not apply.  For purposes of determining
the amount of the Gross-Up Payment, you shall be deemed to pay federal income
taxes at the highest marginal rates of federal income taxation applicable to the
individuals in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rates of taxation
applicable to individuals as are in effect in the state and locality of your
residence in the calendar year in which the Gross-Up Payment is to be made, net
of the maximum reduction in federal income taxes that can be obtained by you
from deduction of such state and local taxes, taking into account any
limitations applicable to individuals subject to federal income tax at the
highest marginal rates.

 

(b)                                 The Gross-Up Payments provided for in
Section 5(a) above shall be made coincident with the Payment with respect to
which such Excise Tax relates.

 

(c)                                  All calculations under this Section 5 shall
be made initially reasonably and in good faith by the Company and the Company
shall provide prompt written notice thereof to you to enable you to timely file
all applicable tax returns.  Upon your request, the Company shall provide you
with sufficient tax and compensation data to enable you or your tax advisor to
independently make the calculations described in Section 5(a) above and the
Company shall reimburse you for reasonable fees and expenses incurred with
respect to any such calculations.  If you give written notice to the Company of
any objection to the results of the Company’s calculations within 60 days of
your receipt of written notice thereof, the dispute shall be referred for
determination to an independent accounting firm selected by the independent
auditors of the Company (the “Accounting Firm”); provided that such Accounting
Firm is reasonably acceptable to you.  The Company shall pay all fees and
expenses of such Accounting Firm.  Pending such determination by the Accounting
Firm, the Company shall pay you the Gross-Up Payment as determined by it in good
faith.  The Company shall pay you any additional amount determined by the
Accounting Firm to be due under this Section 5 (together with interest thereon
at a rate equal to 120% of the federal short term rate determined under
Section 1274(d) of the Code) promptly after such determination.

 

(d)                                 The determination by the Accounting Firm
will be conclusive and binding upon all parties unless the Internal Revenue
Service, a court of competent jurisdiction, or such other duly empowered
governmental body or agency (a “Taxing Authority”) determines that you owe a
greater or lesser amount of Excise Tax with respect to any Payment than the
amount determined by the Accounting Firm.  If a Taxing Authority makes a claim
against you that, if successful, would require the Company to make a payment
under this Section 5(d), you agree to contest the claim on request of the
Company subject to the following conditions:

 

(i)  You shall notify the Company of any such claim within ten days of your
being notified thereof.  In the event that the Company desires the claim to be
contested, it shall promptly (but in no event more than 30 days after the notice
from you or such shorter time as the Taxing Authority may specify for responding
to such claim) request that you contest the claim.  You shall not make any
payment of any tax which is the subject of the claim before you have given the
notice or during the 30-day period thereafter unless

 

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you receive written instructions from the Company to make such payment together
with an advance of funds sufficient to make the requested payment plus any
amounts payable under this Section 5 determined as if such advance were an
Excise Tax, in which event you shall act promptly in accordance with such
instructions.

 

(ii)  If the Company so requests, you shall contest the claim by either paying
the tax claimed and suing for a refund in the appropriate court or contesting
the claim in the United States Tax Court or other appropriate court, as directed
by the Company; provided, however, that any request by the Company for you to
pay the tax shall be accompanied by an advance from the Company to you of funds
sufficient to make the requested payment plus any amounts payable under this
Section 5, determined as if such advance were an Excise Tax.  If directed by the
Company in writing, you shall take all action necessary to compromise or settle
the claim, but in no event shall you compromise or settle the claim or cease to
contest the claim without the written consent of the Company; provided, however,
that you may take any such action if you waive in writing the right to a payment
under this Section 5(d) for any amounts payable in connection with such claim. 
You agree to cooperate in good faith with the Company in contesting the claim
and to comply with any reasonable request from the Company concerning the
contest of the claim, including the pursuit of administrative remedies, the
appropriate forum for any judicial proceedings, and the legal basis for
contesting the claim.  Upon request of the Company, you shall take appropriate
appeals of any judgment or decision that would require the Company to make a
payment under this Section 5.  The Company shall be liable for, and indemnify,
defend and hold you harmless against, any loss in connection with, and all costs
and expenses, including attorneys’ fees, which may be incurred as a result of,
contesting the claim, and will provide to you within 30 days after each written
request therefor by you cash advances or reimbursement for all such costs and
expenses actually incurred or reasonably expected to be incurred by you as a
result of contesting the claim; provided that you are in compliance with the
other provisions of this Section 5(d)(ii).

 

(e)                                  If it is established pursuant to a final
determination of a court or other Taxing Authority that the Excise Tax is less
than the amount taken into account under Section 5(a) above, you shall repay to
the Company within 30 days of your receipt of notice of such final determination
the portion of the Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the portion of the Gross-Up Payment being
repaid by you if and to the extent that such repayment results in a reduction in
Excise Tax and a dollar-for-dollar reduction in your taxable income and wages
for the purpose of federal, state and local income taxes) plus any interest
received by you on the amount of such repayment.  If it is established pursuant
to a final determination of a court or other Taxing Authority that the Excise
Tax exceeds the amount taken into account hereunder (including, without
limitation, by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment pursuant to Section 5(a) above in respect of such
excess within 30 days of the Company’s receipt of notice of such final
determination or opinion.

 

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6.                                       Restrictive Covenants.

 

(a)                                  No Competing Employment.  During the period
beginning on the Effective Date and ending on the first anniversary of the Date
of Termination (the “Restricted Period”), you shall not, without the prior
written consent of the Board, directly or indirectly, whether as owner,
consultant, employee, partner, venturer, or agent, through stock ownership,
investment of capital, lending of money or property, rendering of services, or
otherwise (except ownership of less than 5% of the number of shares outstanding
of any securities which are publicly traded), (i) compete in any Excluded
Location with the Business or (ii) provide services to, whether as an employee
or consultant, own, manage, operate, control, participate in or be connected
with (as a stockholder, partner, or any similar ownership interest) any
corporation, firm, partnership, joint venture, sole proprietorship or other
entity that competes with the Business in any Excluded Location, except for the
aforementioned 5% ownership of publicly traded securities; provided that, in the
event that your employment with the Company is terminated as a result of either
you or the Company delivering a notice of non-renewal in accordance with
Section 1 above, then, following the Date of Termination, the Company may elect
to have the restrictions in this Section 6(a) apply for a one-year period
following the Date of Termination, in which event the Company shall continue to
pay you for such one-year period a monthly amount equal to (A) your Base Salary
(at the annual rate in effect at the end of the Term) plus your then target
Annual Bonus, divided by (B) twelve; and provided further that, if the Company
desires to have the restrictions in this Section 6(a) apply to you for such
one-year period it must notify you in writing of such election at the time that
the Company delivers to you its notice of non-renewal or within 30 days
following the Company’s receipt of the notice of non-renewal from you; and
provided further that you shall not be eligible to receive the payments of Base
Salary and Annual Bonus contemplated by this sentence during any portion of such
one-year period that you are in breach of the provisions of this
Section 6(a) (provided that the Company shall give you written notice of such
breach and an opportunity to cure, if curable, and you shall be entitled to
receive such payments in the event that such breach is cured), but the
restrictions set forth in this Section 6(a) shall continue to apply to you for
such one-year period.  Notwithstanding the foregoing provisions of this
Section 6(a), (i) an entity will be treated as competing with the Business in an
Excluded Location only if such entity operates (A) a store that is typically
considered to be a “supermarket” or “supercenter” or (B) a “wholesale grocery
business” (as such terms are reasonably and customarily understood in the
Business) in such Excluded Location; and (ii) you will not be in violation of
this Section 6(a) if you are employed by or providing services to a regional
chain of stores that is affiliated with another entity that competes with the
Business in an Excluded Location, so long as (A) such regional chain does not
compete with the Business in any Excluded Location and (B) you do not render
services in any capacity to such other entity other than the services rendered
to such regional chain.

 

(b)                                 No Solicitation of Employees and Certain
Other Persons.  During the period beginning on the Effective Date and ending on
the first anniversary of the Date of Termination (the “Non-Solicitation
Period”), you shall not, without the prior written consent of the Board, other
than in furtherance of the business of the Company, directly or indirectly
(i) solicit or recruit, directly or indirectly, any Key Employee (as defined
below) or any independent contractor of the Company or any of its subsidiaries
for the purpose of being employed or retained by you, directly or indirectly, or
by any person on behalf of which you are acting as an agent, representative or
employee; (ii) solicit, influence, or attempt to influence, for

 

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a purpose or in a manner that would likely be detrimental in any material
respect to the business of the Company, any provider of services or products to
the Company with respect to its relationship therewith, including, without
limitation, any person or entity which has been a provider of services or
products to the Company and its subsidiaries during your employment with the
Company, or take any action detrimental in any material respect to the existing
relationships between the Company and any provider of services or products; or
(iii) assist or encourage any other person in carrying out, directly or
indirectly, any activity that would be prohibited by the provisions of this
Section 6(b) if such activity were carried out by you.  In particular, you agree
that, other than in furtherance of the business of the Company, you will not,
directly or indirectly, during the Non-Solicitation Period carry out any
activity or take any action, or induce any employee of the Company and its
subsidiaries to carry out any activity or take any action, that would be
reasonably likely to result in any employee or independent contractor of the
Company ceasing to perform services for the Company or any subsidiary thereof. 
Notwithstanding the foregoing provisions of this Section 6(b), you will not have
violated this Section 6(b) if the person or entity with which you are then
employed or to which you are otherwise providing services solicits or recruits
employees, independent contractors or providers of services or products through
the placing of advertisements in a newspaper, on the internet or similar
searches for employees not targeted specifically at employees, independent
contractors or other providers of services or products to the Company or its
subsidiaries.  For purposes of this Section 6(b), “Key Employee” means any
employee of the Company or its subsidiaries with the title of store manager or
above.  The Company agrees to give you prompt written notice if it becomes aware
that you violated the provisions of this Section 6(b) with respect to a Key
Employee whose base salary is less than $100,000 per annum and that the first
such violation shall not be considered to be a violation if the act in question
was not directly undertaken by you.

 

(c)                                  Confidentiality.  You recognize that the
services you perform for the Company are special, unique and extraordinary in
that you may acquire confidential information and trade secrets concerning the
operations of the Company and its subsidiaries, the use or disclosure of which
could cause the Company and its subsidiaries substantial loss and damages which
could not be readily calculated, and for which no remedy at law would be
adequate.  Accordingly, you covenant and agree with the Company that you will
not at any time, except in performance of your obligations to the Company
hereunder or with the prior written consent of the Board, directly or
indirectly, disclose any secret or confidential information that you may learn
by reason of your association with the Company, except as required by law,
regulation, legal process or the rules of any self-regulatory organization.  The
term “confidential information” means confidential and proprietary information
of the Company or its subsidiaries not previously disclosed or known to the
public or to the trade (other than through a disclosure by you in breach of this
Section 6(c)) with respect to business plans, prospects and opportunities, the
identity of any suppliers, proprietary information regarding customers,
operational strengths and weaknesses, trade secrets, know-how and other
intellectual property, systems, procedures, manuals, confidential reports,
product price lists, marketing plans or strategies, and financial information of
the Company and its subsidiaries.  You understand and agree that the rights and
obligations set forth in this Section 6(c) are perpetual and, in any case, shall
extend beyond the Restricted Period.

 

(d)                                 Injunctive Relief.  Without limiting the
remedies available to the Company, you acknowledge that a breach of any of the
covenants contained in this Section 6

 

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may result in material irreparable injury to the Company for which there is no
adequate remedy at law, that it will not be possible to measure damages for such
injuries precisely and that, in the event of such a breach or threat thereof,
the Company shall be entitled to obtain a temporary restraining order or a
preliminary or permanent injunction restraining you from engaging in activities
prohibited by this Section 6 or such other relief as may be required to
specifically enforce any of the covenants in this Section 6.

 

7.                                       Definitions.  For purposes of this
Agreement, the following capitalized words shall have the meanings set forth
below:

 

(a)                                  “Business” shall mean the retail or
wholesale grocery business.

 

(b)                                 “Cause” shall mean (i) your continuing,
willful failure to perform your lawful and proper duties hereunder (other than
as a result of total or partial incapacity due to physical or mental illness)
after written notice from the Board of such failure to perform such duties of
your employment, (ii) your conviction of or plea of nolo contendere to any
felony (other than a felony involving a traffic infraction), or (iii) an act or
acts on your part constituting fraud, theft or embezzlement or that otherwise
constitutes a felony under the laws of the United States or any state thereof
which results or was intended to result directly or indirectly in gain or
personal enrichment by you at the expense of the Company.  In the case of any
item described in the previous sentence, you shall be given written notice of
the alleged act or omission constituting Cause, which notice shall set forth in
reasonable detail the reason or reasons that the Board believes you are to be
terminated for Cause, including any act or omission that is the basis for the
decision to terminate you.  In the case of an act or omission described in
clause (i) or (iii) of this definition of Cause, (A) you shall be given 30 days
from the date of such written notice to effect a cure of such alleged act or
omission constituting “Cause” which, upon such cure to the reasonable
satisfaction of the Board, shall no longer constitute a basis for Cause, and
(B) an opportunity to make a presentation to the Board (accompanied by counsel
or other representative, if you so desire) at a meeting of the Board held
promptly following such 30-day cure period.  At or following such meeting, the
Board shall determine in good faith whether or not to terminate you for “Cause”
and shall notify you in writing of its determination and the effective date of
such termination (which date may be no earlier than the date of the
aforementioned Board meeting).

 

(c)                                  “Change in Control” shall mean:

 

(i)  the individuals who, as of the Effective Date, constitute the Board, and
subsequently elected members of the Board whose election is approved or
recommended by at least a majority of the members of the Board as of the
Effective Date or their successors whose election was so approved or recommended
(other than any subsequently elected members whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of any Person (as defined below) other
than the Board), cease for any reason to constitute at least a majority of the
Board;

 

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(ii)  the acquisition of beneficial ownership, within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), of 35% or more of the Common Stock then outstanding, by any person,
entity or group (a “Person”), within the meaning of Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act, other than (A) the Company or any of its
subsidiaries, (B) an employee benefit plan of the Company or trustee or other
fiduciary holding securities under an employee benefit plan of the Company or
person or entity organized, appointed or established by the Company for or
pursuant to the terms of any such employee benefit plan, (C) an underwriter
temporarily holding securities pursuant to an offering of such securities,
(D) an entity owned, directly or indirectly, by the Company’s stockholders in
substantially the same proportions as their ownership of Common Stock or
(E) Yucaipa; provided, however, that a reverse subsidiary merger or similar
transaction shall not be a Change in Control under this Section 7(c)(ii) if it
would not otherwise be a Change in Control under Section 7(c)(iii) below; or

 

(iii)  the consummation in one or a series of transactions, or the approval of
the Company’s stockholders in the case of clause (A), of either (A) a plan of
complete liquidation or dissolution of the Company or (B) a merger, amalgamation
or consolidation of the Company with any Person, the issuance of voting
securities of the Company or any subsidiary in connection with a merger,
consolidation or recapitalization of the Company or a subsidiary, the sale or
other disposition of all or substantially all of the assets of the Company to
any Person or the acquisition of assets of any Person or other business
combination or transaction (each, a “Business Combination”), unless, in each
case of a Business Combination, immediately following such Business Combination,
all or substantially all of the individuals and entities who were the beneficial
owners of the Common Stock outstanding immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the then
outstanding shares of Common Stock and 50% of the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the entity resulting from such Business
Combination (including, without limitation, an entity which as a result of such
transaction owns the Company or all or substantially all of the assets of the
Company and its subsidiaries either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Common Stock.

 

Notwithstanding the foregoing, in no event shall a Change in Control result from
(I) any increase in Yucaipa’s beneficial ownership of equity of the Company or
(II) the acquisition by Yucaipa of all or substantially all of the business or
assets of the Company.

 

(d)                                 “Code” shall mean the Internal Revenue Code
of 1986, as amended.

 

(e)                                  “Disability” shall mean your absence from
full-time employment with the Company for a period of at least 180 consecutive
days by reason of a mental or physical illness.

 

(f)                                    “Excluded Location” means a 25-mile
radius of any location where the Company operates its business.

 

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(g)                                 “Good Reason” shall mean (i) the failure of
the Company to pay any material amount of compensation to you when due,
(ii) your no longer being the Chief Executive Officer and the most senior
officer of (A) the Company or (B) in the event of a sale of all or substantially
all of the assets of the Company or a merger, consolidation or other business
combination involving the Company, the successor to the Company’s business or
assets or (C) if all or substantially all of the voting stock of the Company is
held by another public company, such public company, (iii) the assignment to you
of any duties or responsibilities inconsistent with your status under clause
(ii) of this sentence or your failure at any time to report directly to the
board of directors of the applicable company described in such clause (ii),
(iv) any material and adverse change in your duties or reporting
responsibilities, (v) the failure of you to be reelected as Chief Executive
Officer and the most senior officer of the entity described in clause
(ii) hereof or your removal from the office of Chief Executive Officer or the
most senior officer of the entity described in clause (ii) hereof, (vi) any
failure by the Company to maintain your principal place of employment and the
executive offices of the Company in the Carteret, New Jersey area, (vii) the
Company, the surviving corporation of any merger, consolidation or other
transaction with the Company and any parent corporation of the Company or such
surviving corporation ceases to have a publicly traded class of common stock
(other than where Yucaipa continues to have a controlling interest in the
Company or such surviving corporation or parent), or (viii) any material breach
by the Company of the Agreement; provided, however, that, for any of the
foregoing to constitute Good Reason, you must provide written notification of
your intention to resign within 30 days after you know of the occurrence of any
such event, and the Company shall have 30 days (10 days in the case of a
material breach related to payment of any amounts due hereunder) from the date
of receipt of such notice to effect a cure of the condition constituting Good
Reason, and, upon cure thereof by the Company, such event shall no longer
constitute Good Reason; provided further that it shall not be an event of Good
Reason for the applicable entity described in clause (ii) above to appoint an
individual other than you as the non-executive chairman of its board of
directors.

 

(h)                                 “Involuntary Termination” shall mean
(i) your termination of employment by the Company other than for Cause, death or
Disability (but not including the Company’s notice of non-renewal of the Term)
or (ii) your resignation of employment with the Company for Good Reason.

 

(i)                                     “Section 409A” shall mean Section 409A
of the Code.

 

(j)                                     “Termination Event” shall mean your
resignation without Good Reason or a termination by the Company for Cause or
Disability or by reason of your death.

 

(k)                                  “Yucaipa” means The Yucaipa Companies, LLC,
and each Person or entity controlled by, controlling or under common control
with The Yucaipa Companies, LLC, including, without limitation, investment funds
or other investment entities.

 

8.                                       Notice.  For the purpose of this
Agreement, notices and all other communications provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
by hand or mailed by United States registered mail, return receipt requested,
postage prepaid, or sent by facsimile transmission, upon confirmation of receipt
by the sender of such transmission, addressed to Corporate Secretary, Pathmark
Stores,

 

14

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Inc., 200 Milik Street, Carteret, New Jersey 07008, facsimile (732) 499-3460,
with a copy to the General Counsel of the Company (if different from the
Secretary), or to you at the address set forth on the first page of this
Agreement or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.

 

9.                                       Miscellaneous.

 

(a)                                  No Rights to Continued Employment.  Neither
this Agreement nor any of the rights or benefits evidenced hereby shall confer
upon you any right to continuance of employment by the Company or interfere in
any way with the right of the Company to terminate your employment, subject to
the provisions of Section 4 above, for any reason, with or without Cause or for
you to terminate your employment, subject to the provisions of Section 4, for
any reason, with or without Good Reason.

 

(b)                                 Entire Agreement.  The parties to this
Agreement represent, acknowledge and agree that this Agreement, together with
the award agreements described in Section 3(c) above, sets forth the full and
complete understanding and entire agreement regarding the subject matter hereof
and shall supersede all other agreements with respect thereto.

 

(c)                                  Amendments, Waivers, Etc.  No provision of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing by the parties hereto.  No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.  No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not expressly set forth in this Agreement, and this Agreement shall
supersede all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, with respect to the subject
matter hereof, including, without limitation, any term sheets or document other
than this Agreement setting forth the proposed terms hereof.

 

(d)                                 Validity.  The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.

 

(e)                                  Successors; Binding Agreement.  This
Agreement shall be binding upon and inure to the benefit of you (and your
personal representatives and heirs) and the Company and any organization which
succeeds to all or substantially all of the business or assets of the Company,
whether by means of merger, consolidation, acquisition of all or substantially
all of the assets of the Company or otherwise, including, without limitation, as
a result of a change in control or by operation of law.  The Company shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company to expressly assume and to agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if

 

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no such succession had taken plan; provided, however, that no such assumption
shall relieve the Company of its obligations hereunder.

 

(f)                                    Representations.  You hereby represent
and warrant to the Company that the execution and delivery by you of this
Agreement to the Company and your performance of your obligations hereunder will
not breach the terms of any contract, agreement or understanding to which you
are a party, including any covenant not to compete against any prior employer,
and you acknowledge and agree that a breach of this representation by you shall
render this Agreement void ab initio and without force and effect.  You further
acknowledge and agree that the grant of the Equity Awards is conditioned upon
the following representations being true and complete in your good faith belief
as of the date you sign this Agreement, which representations shall be set forth
in a written statement (the “Statement”) delivered to the Company on such date: 
(i) your equity awards from your current employer will be forfeited or will
lapse, in each case, without the receipt of consideration by you, at the time
and in the manner previously described by you to the Board in connection with
the negotiation of this Agreement, as set forth in the Statement; and (ii) that
you have no contractual entitlement to have any of such equity awards continue
beyond the dates described in the Statement or to have any awards vest that
would otherwise be forfeited in the manner described in the Statement.  You
shall not be deemed to be in breach of the foregoing representation in the event
of (X) an extension by your current employer for not more than 90 days of the
normal post-termination exercise period described in the Statement for your
options from your current employer to allow you time to exercise your options
following the expiration of the 90-day lock-up period currently in effect for
the executive officers of your current employer and/or (Y) the exercise by your
current employer of the unilateral right of your current employer to modify any
of the equity terms described in the Statement or to make a cash or other
payment or other form of compensation to you in connection with your termination
of employment.  The Company represents and warrants to you that the execution
and delivery by it of this Agreement and the Company’s performance of its
obligations hereunder have been approved by all necessary parties and all
necessary actions and will not breach or conflict with the terms of any
contract, agreement or understanding, including, without limitation, those
contemplated by the last sentence of Section 2 above.

 

(g)                                 Counterparts.  This Agreement may be
executed in several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same instrument.

 

(h)                                 Withholding.  Amounts paid to you hereunder
shall be subject to all required federal, state and local income tax and wage
withholdings.

 

(i)                                     Source of Payments.  All payments
provided for under this Agreement (other than payments made pursuant to a plan
which provides otherwise or as otherwise expressly provided hereunder) shall be
paid in cash from the general funds of the Company, no special or separate fund
shall be established, and no other segregation of assets made, to assure payment
and you will have no right, title or interest whatsoever in or to any
investments which the Company may make to aid it in meeting its obligations
hereunder.  To the extent that any person acquires a right to receive payments
from the Company hereunder, such right shall be no greater than the right of an
unsecured creditor of the Company.

 

16

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(j)                                     Headings.  The headings contained in
this Agreement are intended solely for convenience of reference and shall not
affect the rights of the parties to this Agreement.

 

(k)                                  Governing Law.  The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New Jersey applicable to contracts entered into and
performed in such state.

 

(l)                                     Attorneys’ Fees.  The Company agrees to
reimburse all reasonable legal fees and expenses incurred by you in any dispute
relating to the enforcement of this Agreement if you prevail as to at least half
of the material issues in the dispute.  Promptly following the Effective Date,
upon presentation of appropriate documentation by you, the Company shall
reimburse you for all reasonable legal fees and expenses incurred by you in
negotiating and entering into this Agreement and the agreements contemplated
hereby and matters incidental hereto or thereto, in an amount not to exceed
$50,000.

 

(m)                               Section 409A.  The provisions of this
Agreement are intended to satisfy the applicable requirements of Section 409A
and shall be performed and interpreted consistent with such intent.  If any
provision of this Agreement does not satisfy such requirements or could
otherwise cause you to be subject to the interest and penalties under
Section 409A, you and the Company agree to negotiate in good faith an
appropriate modification to maintain, to the maximum extent practicable, the
original intent of the applicable provision without violating the requirements
of Section 409A (or causing the imposition of additional tax on you under
Section 409A).

 

17

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If this letter sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company the enclosed copy of this letter, which will then
constitute our agreement on this subject.

 

 

 

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

 

 

18

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Attachment A

 

 

[Included as Exhibit 10.3 hereto]

 

 

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Attachment B

 

 

[Included as Exhibit 10.4 hereto]

 

 

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Attachment C

 

Release

 

I, the undersigned John T. Standley, in consideration of the payments and
benefits provided to me under the Employment Agreement dated August 23, 2005,
between Pathmark Stores, Inc. (the “Company”) and me (the “Agreement”),
including the Severance Amount (as defined in the Agreement)(the “Payments”),
and after consultation with counsel, I, for myself and on behalf of each of my
heirs, executors, administrators, representatives, agents, successors and
assigns (collectively, the “Releasors”), hereby irrevocably and unconditionally
release and forever discharge the Company and its subsidiaries and affiliates
(the “Company Group”) and each of their respective officers, employees,
directors, shareholders and agents from any and all claims, actions, causes of
action, rights, judgments, obligations, damages, demands, accountings or
liabilities of whatever kind or character (collectively, “Claims”), including,
without limitation, any Claims under any federal, state, local or foreign law,
that the Releasors may have, or in the future may possess, arising out of (i) my
employment relationship with and service as an employee, officer or director of
the Company Group, and the termination of such relationship or service, (ii) the
Agreement, or (iii) any event, condition, circumstance or obligation that
occurred, existed or arose on or prior to the date hereof; provided, however,
that this Release shall not apply to (i) the obligations of the Company under
the Agreement (including, without limitation, as to Annual Salary, Annual Bonus,
reimbursements, Severance Amount, Equity Awards and continuing medical benefits)
and (ii) any indemnification rights I may have in accordance with the Company’s
governance instruments or the Agreement or under any director and officer
liability insurance maintained by the Company.  Other than as contemplated
above, the Releasors further agree that the payments and benefits described in
this Release shall be in full satisfaction of any and all Claims for payments or
benefits, whether express or implied, that the Releasors may have against the
Company Group arising out of my employment relationship or my service as an
employee, officer and director of the Company Group and the termination thereof.

 

In further consideration of the Payments, the Releasors hereby unconditionally
release and forever discharge the Company Group, and each of their respective
officers, employees, directors, shareholders and agents from any and all Claims
that the Releasors may have as of the date hereof arising under the Federal Age
Discrimination in Employment Act of 1967, as amended, and the applicable
rules and regulations promulgated thereunder (“ADEA”).  By signing this Release,
I hereby acknowledge and confirm the following:  (i) I was advised by the
Company in connection with my termination of employment to consult with an
attorney of my choice prior to signing this Release and to have such attorney
explain to me the terms of this Release, including, without limitation, the
terms relating to my release of claims arising under ADEA and, I have in fact
consulted with an attorney; (ii) I was given a period of not fewer than 21 days
to consider signing this Release and to consult with an attorney of my choosing
with respect thereto; (iii) I am providing this Release only in exchange for
consideration in addition to anything of value to which I am already entitled;
and (iv) I knowingly and voluntarily am providing this Release.

 

 

 

 

 

 

 

 

 

Date:

 

 

 

C-1

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