Senior Vice President, Associate Resources Employment Agreement - David Whipple

EXHIBIT 10.1


EXECUTION COPY


EMPLOYMENT AGREEMENT


THIS AGREEMENT, made and entered into on June 1, 2004, by and between Kmart Management Corporation, a Michigan corporation (together with its successors and assigns permitted under this Agreement, the "Company"), and David Whipple (the "Executive").


WHEREAS, the Company desires that the Executive become employed by the Company and provide services to the Company and Holding Corp. (as hereinafter defined), in the best interest of the Company and its affiliates and constituencies;


WHEREAS, the Executive desires to be employed by the Company as provided herein; and


WHEREAS, the Executive and the Company desire to enter into this Agreement to set forth the terms and conditions of the Executive's services with the Company;


NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive (individually a "Party" and together the "Parties") agree as follows:


1. Definitions. The following definitions shall apply to this Agreement in its entirety.


(a) "Base Salary" shall mean the salary granted to the Executive pursuant to Section 4.


(b) "Board" shall mean the Board of Directors of the Company.


(c) "Cause" shall mean (i) the Executive is convicted of a felony involving moral turpitude or any other felony (other than motor vehicle related) and, in the case of such other felony, the Executive is unable to show that he (A) acted in good faith and in a manner he reasonably believed to be in the best interests of the Company and its affiliates and (B) had no reasonable cause to believe his conduct was unlawful; or (ii) the Executive engages in conduct that constitutes willful gross neglect or willful misconduct in carrying out his duties under this Agreement, resulting, in either case, in material harm to the Company or its affiliates, unless the Executive believed in good faith that such act or non-act was in, or was not opposed to, the best interests of the Company and its affiliates.


(d) "Committee" shall mean the Compensation and Incentives Committee of the Holding Corp. Board or any other committee of the Holding Corp. Board performing similar functions.


(e) "Constructive Termination" by the Executive shall mean termination, during the Term of Employment, based on the occurrence without the Executive's express written consent of any of the following: (i) a material diminution or adverse change in the Executive's responsibilities, duties, authorities or any reduction in title, other than for Cause or Disability; (ii) a reduction in the Executive's Base Salary or Target Bonus (as defined in Section 7) other than for Cause or Disability and other than as part of an across-the-board salary reduction generally imposed on senior executives of the Company; (iii) the failure of the Company to obtain the assumption in writing of its obligation to perform this Agreement by any successor to all or substantially all of the assets of the Company on or prior to a merger, consolidation, sale or similar transaction; or (iv) if the Executive no longer reports to the CEO or to the COO or other direct report of the CEO. The Executive shall further be required to comply with the provisions of Section 11(d)(i) of this Agreement with respect to a Constructive Termination.


(f) "Disability" shall mean the Executive's inability, with or without a reasonable accommodation, to substantially perform his duties and responsibilities under this Agreement by reason of any physical or mental incapacity for a period of 180 consecutive days.


(g) "Effective Date" shall mean June 1, 2004.


(h) "Holding Corp." shall mean Kmart Holding Corporation, a Delaware corporation and the Company's parent corporation.


(i) "Holding Corp. Board" shall mean the board of directors of Holding Corp.


2. Term of Employment. Subject to Holding Corp. Board approval as set forth in Section 19 and subject to termination pursuant to Section 11, the Company shall employ the Executive, and the Executive hereby accepts such employment, for the period commencing on the Effective Date and ending on the third anniversary thereof (the "Term of Employment"); provided, however, that the Term of Employment shall be automatically extended for additional one-year periods on each subsequent annual anniversary of the Effective Date, unless written notice of non-extension is provided by either Party to the other Party at least 60 days prior to any such anniversary.


3. Position, Duties and Responsibilities.


(a) During the Term of Employment, the Executive shall be employed by the Company and shall serve as Senior Vice President, Associate Resources (or such other position or positions as may be agreed upon in writing by the Executive and Holding Corp. and/or the Company, as applicable). The Executive shall have all authority commensurate with the position of Senior Vice President, Associate Resources, subject to the direction of the Holding Corp. Board, the Board and/or the Chief Executive Officer ("CEO") of the Company. The Executive shall initially report directly to the CEO, but this may be changed such that he reports to the COO or other direct report of the CEO. The Executive shall devote substantially all of his business time, attention and


skill to the performance of such duties and responsibilities, and shall use his best efforts to promote the interests of the Company and its affiliates. The Executive shall not, without the prior written approval of the Holding Corp. Board, engage in any other business activity which is in violation of policies established from time to time by the Company or its affiliates.


(b) Anything herein to the contrary notwithstanding, nothing shall preclude the Executive from (i) serving on the boards of directors of a reasonable number of other corporations or the boards of a reasonable number of trade associations and/or charitable organizations (subject to the reasonable approval of the Holding Corp. Board), (ii) engaging in charitable activities and community affairs, and (iii) managing his personal investments and affairs, provided that such activities do not materially interfere with the proper performance of his duties and responsibilities as a senior executive officer of Holding Corp. and the Company.


4. Base Salary. During the Term of Employment, the Executive shall be paid an annualized Base Salary, payable in accordance with the regular payroll practices of the Company, in the amount of $390,000. The Base Salary shall be reviewed no less frequently than annually for increase in the discretion of the Holding Corp. Board and/or the Committee. The Base Salary, including any increase, shall not be decreased during the Term of Employment.


5. Transition Payment. The Company shall pay $50,000 to the Executive promptly following commencement of the Executive's employment with the Company to compensate the Executive for expenses associated with his transition to employment with the Company which are not otherwise covered by the Company's executive benefit plans, programs and arrangements.


6. Additional Payments. If any payment or benefit received or to be received by the Executive (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company or any affiliate) (all such payments and benefits, excluding the Gross-Up Payment (as hereinafter defined), being hereinafter called "Total Payments") will be subject (in whole or part) to any excise tax (the "Excise Tax") imposed under section 4999 of the Internal Revenue Code of 1986, as amended, then the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments.


7. Annual Incentive Awards. During the Term of Employment, the Executive shall be eligible for an annual target bonus ("Target Bonus") of 60% of his then-current Base Salary under the annual cash-based incentive program of the Company (or its affiliate, if applicable) payable if the performance goals thereunder for the relevant fiscal year are met. Payment of the annual bonus shall be made at the same time that other senior executives receive their incentive awards. The actual bonus, if any, earned


by the Executive for fiscal year 2004 shall be subject to pro-ration by reason of the Executive's not having been employed by the Company for the entire fiscal year.


8. Long-Term Incentive Programs. Starting with the performance period that begins on February 1, 2005 and continuing throughout the remainder of the Term of Employment, the Executive shall be eligible to participate in the Kmart Long Term Incentive Plan ("LTIP"). While awards granted under the LTIP are subject to the provisions of the LTIP and the discretion of the LTIP Committee (and thus this sentence shall not be construed as creating any binding obligation of Company), the Parties anticipate that such awards, will provide for the payment (in common stock and/or cash at the Executive's election as provided in the LTIP) of an amount equal to the average annual salary and target bonuses paid to the Executive during a three-year performance period, payment at or about the conclusion of the third fiscal year in the performance period (commencing, therefore, with a payment at or about the conclusion of fiscal year 2007) if the Company meets or exceeds its cumulative EBITDA target for the three-year period.


9. Employee Benefit Programs. During the Term of Employment, the Executive shall be eligible to participate in all employee pension and welfare benefit plans and programs made available generally to the Company's senior executives (other than those made available only to the CEO) or to its employees generally (on terms consistent, respectively, with those offered to the Company's other senior executives and/or its employees generally), as such plans or programs may be in effect from time to time, including, without limitation, pension, profit sharing, savings and other retirement plans or programs, medical, dental, hospitalization, short-term and long-term disability and life insurance plans, accidental death and dismemberment protection, travel accident insurance, and any other pension or retirement plans or programs and any other employee welfare benefit plans or programs that may be sponsored by the Company from time to time, including any plans that supplement the above-listed types of plans or programs, whether funded or unfunded.


10. Reimbursement of Business and Other Expenses: Perquisites; Vacations.


(a) The Executive is authorized to incur reasonable expenses
in carrying out his duties and responsibilities under this Agreement and
the Company shall promptly reimburse him for all reasonable business
expenses incurred in connection with carrying out the business of the
Company and its affiliates, subject to documentation in accordance with
the Company's policy.


(b) During the Term of Employment, the Company shall reimburse
the Executive for reasonable personal financial (including tax) counseling
(other than legal fees) by a firm or consultant to be chosen by the
Executive, such reimbursement to be no more than the amount authorized
under Company policy in effect from time to time.


(c) During the Term of Employment, the Executive shall be
entitled to four weeks' paid vacation per year.


(d) Relocation Expenses.


(i) From the Effective Date until August 31, 2004, the
Company shall provide to, or reimburse (following receipt of appropriate
documentation), the Executive for temporary housing in the Troy, Michigan
area; and coach airfare for the Executive for weekend travel home or for
the reasonable travel of his spouse and two children.


(ii) The Executive shall be afforded a relocation
package consisting of the following: (A) reimbursement of reasonable
moving expenses, including an amount equal to $7,500 for the purpose of
covering incidental moving expenses; (B) reimbursement of reasonable
travel expenses incurred by the Executive's spouse for the purpose of
searching for a permanent residence in the area of Company headquarters;
(C) Company assistance with the sale of the Executive's current residence
in accordance with the Company's executive relocation program; and (D)
benefits offered under the Company's Tier 4 Domestic Relocation Program.


11. Termination of Employment.


(a) Termination Due to Death. In the event the Executive's employment is terminated due to his death, his estate or his beneficiaries as the case may be, shall be entitled to the following:


(i) Base Salary through the date of death;


(ii) an amount equal to a prorated annual incentive
award for the year in which death occurs, based on the actual performance
for such year, the amount of which prorated bonus, if any, shall be
determined and paid promptly following the end of the year to which such
bonus relates;


(iii) the balance of any annual or long-term cash
incentive awards (if any) earned (but not yet paid) pursuant to the terms
of the applicable programs (Executive shall be vested pro-rata on any
outstanding long-term cash incentive award if the Company was ahead of
plan at date of termination);


(iv) any amounts earned, accrued or owing to the
Executive but not yet paid under this Agreement; and


(v) other or additional benefits in accordance with
applicable plans and programs of the Company or its affiliates.


(b) Termination Due to Disability. In the event the Executive's employment is terminated due to his Disability, he shall be entitled in such case to the following:


(i) Base Salary through the date of termination;


(ii) through the Company's long-term disability plans or
otherwise, an amount equal to 60% of the Base Salary for the period
beginning on the date of termination through the Executive's attainment of
age 65;


(iii) an amount equal to a prorated annual incentive
award for the year in which termination due to Disability occurs, based on
the actual performance for such year, the amount of which prorated bonus,
if any, shall be determined and paid promptly following the end of the
year to which such bonus relates;


(iv) the balance of any annual or long-term cash
incentive awards (if any) earned (but not yet paid) pursuant to the terms
of the applicable programs (Executive shall be vested pro-rata on any
outstanding long-term cash incentive award if the Company was ahead of
plan at date of termination);


(v) any amounts earned, accrued or owing to the
Executive but not yet paid under this Agreement; and


(vi) other or additional benefits in accordance with
applicable plans and programs of the Company or its affiliat ...