AMENDED AND
RESTATED
EMPLOYMENT AGREEMENT
This Employment
Agreement between Sears Holdings Corporation (the
“Company”) and Alan J. Lacy (the
“Executive”) dated September 7, 2005 (the
“Agreement”) amends and restates the Employment
Agreement by and among Sears, Roebuck & Co., a New York
corporation, Kmart Holding Corporation, a Delaware corporation and
Alan J. Lacy (the “Executive”) dated as of the 16th day
of November, 2004.
1.
Effective Date . The “Effective Date” shall mean
September 30, 2005.
2.
Employment Period . The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to serve the
Company, subject to the terms and conditions of this Agreement, for
the period commencing on the Effective Date and ending
March 23, 2010 (the “Employment
Period”).
3. Terms
of Employment . (a) Position and Duties .
(i) During the Employment Period, the Executive shall serve as
the Vice Chairman of the Company and a member of the Office of the
Chairman with such duties and responsibilities as are reasonably
assigned by the Chairman of the Company to such positions. The
Executive shall report directly and exclusively to the Board of
Directors of the Company (the “Board”). The Executive
shall also serve as Chairman of Sears Canada and shall continue to
serve on the Board during the Employment Period, subject to
election by the shareholders of the Company, without additional
consideration.
(ii) During
the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his business attention and time to
the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive’s reasonable best
efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period, it shall not be a
violation of this Agreement for the Executive to (A) subject
to the approval of the Board, serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and
(C) manage personal investments, so long as such activities do
not significantly interfere with the performance of the
Executive’s responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Time and set
forth on Schedule A hereto, the continued conduct of such
activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Effective Time shall not
thereafter be deemed to interfere with the performance of the
Executive’s responsibilities to the Company.
(b)
Compensation (i) Base Salary . During the Employment
Period, the Executive shall receive an annual base salary
(“Annual Base Salary”) at a rate of not less than
$1,000,000 payable in accordance with the Company’s normal
payroll policies.
(ii)
Annual Bonus . With respect to the 2005 fiscal year of the
Company, the Executive shall continue to be eligible to receive an
annual bonus (the “2005 Bonus”) with a target of
$2,250,000. The actual Annual Bonus shall be based on the
attainment of performance objectives as determined by the
Compensation Committee of the Board (the “Committee”),
and it is understood that Committee will reduce the resulting bonus
(which could be higher or lower than $2,250,000) to a pro-rata
amount to reflect the period of time during the fiscal year that
the Executive served as the Company’s Chief Executive
Officer. Thereafter, no Annual Bonus will be paid to the Executive.
The 2005 Bonus shall be paid to the Executive when bonuses for 2005
are generally paid to executives of the Company, but no later than
March 15, 2006.
(iii)
Equity-Based Grants . The Executive has received a grant of
75,000 restricted shares of the Company (the “Restricted
Shares”) and a grant of options to purchase 200,000 shares of
the Company’s common stock (the “Stock Options”),
and such grants shall continue to be governed by the provisions of
their respective grant documents.
(iv)
Other Employee Benefit Plans . During the Employment Period,
the Executive and/or the Executive’s family, as the case may
be, shall be eligible for participation in and shall receive all
benefits under savings and retirement plans that are tax-qualified
under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the “Code”), in plans that are supplemental to
any such tax-qualified plans, and welfare benefit plans, practices,
policies and programs provided by the Company (including, without
limitation, medical, prescription, dental, vision, disability,
salary continuance, group life and supplemental group life,
accidental death, travel accident insurance, sick leave and
vacation plans, practices, policies and programs), but not any
severance plan, practice, policy or program, on a basis that is no
less favorable than those generally applicable or made available to
other senior executives of the Company. The Executive shall be
eligible for participation in fringe benefits and perquisite plans,
practices, policies and programs (including, without limitation,
expense reimbursement plans, practices, policies and programs) on a
basis that is no less favorable than those generally applicable or
made available to other senior executives of the
Company.
4.
Termination of Employment . (a) Death or Disability .
The Executive’s employment shall terminate automatically upon
the Executive’s death during the Employment Period. If the
Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to
the definition of Disability set forth below), it may provide the
Executive with written notice in accordance with Section 10(b) of
this Agreement of its intention to terminate the Executive’s
employment. In such event, the Executive’s employment with
the Company shall terminate effective on the 30th day after receipt
of such notice by the Executive (the “Disability Effective
Date”), provided that, within the 30 days after
such receipt, the Executive shall not have returned to full-time
performance of the Executive’s duties. For purposes of this
Agreement, “Disability” shall mean the absence of the
Executive from the Executive’s duties with the Company on a
full-time basis for 180 consecutive days as a result of incapacity
due to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executive’s
legal representative.
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(b)
Cause . The Company may terminate the Executive’s
employment during the Employment Period either with or without
Cause. For purposes of this Agreement, “Cause” shall
mean:
(i) the
Executive is convicted of, or pleads guilty or nolo contendere to a
charge of commission of, a felony; or
(ii) the
Executive has engaged in willful gross neglect or willful gross
misconduct in carrying out his duties, which results in material
economic harm to the Company or in reputational harm causing
quantifiable material injury to the Company.
For purposes of
this provision, no act or failure to act, on the part of the
Executive, shall be considered “willful” unless it is
done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive’s action or
omission was in the best interests of the Company. Any act, or
failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Board or
the Chairman of the Company or based upon the advice of counsel for
the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best
interests of the Company. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than
two-thirds of the entire membership of the Board at a meeting of
the Board called and held for such purpose (after reasonable notice
is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive
is guilty of the conduct described in clause (ii) above, and
specifying the particulars thereof in detail.
(c) Good
Reason . The Executive’s employment may be terminated by
the Executive with or without Good Reason. For purposes of this
Agreement, “Good Reason” shall mean in the absence of a
written consent of the Executive:
(i) the
assignment to the Executive, after the Effective Date, of any
duties inconsistent with the Executive’s position (including
status, offices, titles and reporting requirements), authority,
duties or responsibilities as contemplated by Section 3(a) of this
Agreement, or any other action by the Company, after the Effective
Date, which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial or inadvertent action not taken in bad faith and
which is remedied by the Company within 30 days after receipt
of notice thereof given by the Executive;
(ii) any
failure by the Company to comply with any of the provisions of
Section 3(b) of this Agreement, other than an isolated,
insubstantial or inadvertent failure not occurring in bad faith and
which is remedied by the Company within 30 days after receipt
of notice thereof given by the Executive;
(iii) any
requirement by the Company that the Executive’s services be
rendered primarily at a location or locations other than Hoffman
Estates, Illinois;
(iv) any
failure by the Company to comply with Section 9(c) of this
Agreement;
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(v) any
failure to elect or reelect the Executive to the Board.
For purposes of
this provision, “Good Reason” shall cease to exist for
an event on the ninetieth day after the Executive first has
knowledge of such event, unless the Executive has given the Company
written notice thereof prior to such date. Anything in this
Agreement to the contrary notwithstanding, a termination by the
Executive for any reason pursuant to a Notice of Termination given
during the 30-day period immediately following June 30, 2006
shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d)
Notice of Termination . Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated
by Notice of Termination to the other party hereto given in
accordance with Section 10(b) of this Agreement. For purposes of
this Agreement, a “Notice of Termination” means a
written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive’s employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the
giving of such notice). The failure by the Executive or the Company
to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively,
hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the
Executive’s or the Company’s rights
hereunder.
(e) Date
of Termination . “Date of Termination” means
(i) if the Executive’s employment is terminated by the
Company for Cause, or by the Executive with or without Good Reason,
the date of receipt of the Notice of Termination or any later date
specified therein within 30 days of such notice, as the case
may be, (ii) if the Executive’s employment is terminated
by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the
Executive’s employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may
be.
(f)
Resignation . Upon termination of the Executive’s
employment for any reason, the Executive agrees to resign, as of
the Date of Termination, to the extent applicable, from any
positions that the Executive holds with the Company and its
affiliated companies, the Board (and any committees thereof) and
the Board of Directors (and any committees thereof) of any of the
affiliated companies.
5.
Obligations of the Company upon Termination . (a) Good
Reason; Other Than for Cause, Death or Disability . If, during
the Employment Period, the Company shall terminate the
Executive’s employment other than for Cause, death or
Disability or the Executive shall terminate employment for Good
Reason:
(i) the
Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination (except that the amount
described in clause B below
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shall be paid
when annual bonuses are paid to senior executives generally, but no
later than March 15, 2006) the aggregate of the following
amounts:
A. the sum of
(1) the Executive’s accrued Annual Base Salary and any
accrued vacation pay through the Date of Termination, and
(2) the Executive’s business expenses that have not been
reimbursed by the Company as of the Date of Termination that were
incurred by the Executive prior to the Date of Termination in
accordance with the applicable Company policy (the sum of the
amounts described in clauses (1) and (2), shall be hereinafter
referred to as the “Accrued Obligations”);
and
B. if the Date of
Termination occurs prior to the date that the Executive has
received payment of the 2005 Bonus (described in
Section 3(b)(ii)), the 2005 Bonus shall be paid to the
Executive; and
C. the amount
equal to $7.5 million; and
(ii) the
Executive shall receive two additional years of age and service
credit under all welfare benefit plans, programs, agreements and
arrangements of the Company; and
(iii) any
equity-based awards granted to the Executive, including the
Restricted Shares and the Stock Options shall vest and become free
of restrictions immediately, any stock options granted to the
Executive, including the Stock Options, shall be exercisable for a
period of three years after his termination of employment, without
regard to any provisions relating to earlier termination of the
stock options based on termination of employment (the “Equity
Benefits”); and
(iv) for
the two-year period following the Date of Termination, the Company
shall continue to provide medical and dental benefits to the
Executive and his eligible dependents as if the Executive remained
an active employee of the Company, and the Executive and his
eligible dependents shall be eligible to participate in the
Company’s post-retirement welfare benefit programs in effect
for senior executives of the Company (collectively “Welfare
Benefits”). The applicable period of health benefit
continuation under the Consolidated Omnibus Budget Reconciliation
Act of 1985 (“COBRA”) shall begin on the Date of
Termination; and
(v) to
the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies
through the Date of Termination (such other amounts and benefits
shall be hereinafter referred to as the “Other
Benefits”). As used in this Agreement, the term
“affiliated companies” shall include any company
controlled by, controlling or under common control with the
Company.
In the event of
the Executive’s termination during the Employment Period by
the Company other than for Cause or Disability or by the Executive
for Good Reason, each of the Executive and the Company agree to
execute a mutual general release in favor of the other party,
substantially in
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the form
attached hereto as Exhibit A . The payments and
provision of benefits to the Executive required by Section 5(a)
(other than the Acc
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