Term Sheet
Amended and Restated Employment Agreement
For
Julian Day
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Effective Date; Term Effective Date: January 17, 2003.
Term of Employment: From Effective Date until January 31, 2006.
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Titles; Reporting Titles: Chief Executive Officer and President. President title to be given
to a suitable hire if found.
Reporting: Reports directly to the Board; all other executive officers
report to Day.
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Base Salary $1 million.
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Cash Incentives Annual Incentive: For 2003 fiscal year, annual bonus at discretion of
post-Emergence Compensation Committee. For subsequent fiscal years, annual
bonus opportunity expressed as a percentage of Base Salary, based on
achievement against performance criteria included in business plan approved
in connection with plan of reorganization, as follows:
Performance as % of Target Bonus as % of Salary
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Below 75% 0
75% 50%
100% 100%
200% 200%
300% or more 400%
(straight-line interpolation for incremental performance). For 2004
fiscal year, target is $400 million EBITDA.
In addition, eligible for participation in any other long-term cash-based
incentive programs that may be established by the Company for its senior
executives.
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Equity Incentives Initial equity grant of 10-year option on 1.5% of fully diluted equity at
Emergence. Option price for 2/3 of grant based on $1 billion valuation;
option price for remaining 1/3 of grant based on $2 billion valuation;
customary equitable adjustment provisions, including stock splits. Option to
vest ratably over 4 years. In case of Day's death or termination entitling
Day to severance, portion of option that would have vested within next 24
months will immediately vest; vested option remains exercisable for 2 years;
and Company has right to repurchase stock at time of exercise at market
price. Accelerated vesting on change in control, to be defined in equity
plan.
Eligible for participation in any equity-based incentive programs that may be
established by the Company for its senior executives.
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Emergence Payment $1 million at Emergence.
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Perquisites Use of Company aircraft for business purposes and, if necessary for security,
personal purposes.
No tax gross-ups on this benefit; personal use of aircraft to be reimbursed
by Day based on applicable tax rates.
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Severance Severance payable if Day dies, is terminated by the Company without cause or
because of a constructive termination (customary terms) or if agreement not
renewed, subject in each case to execution of a mutual release. Severance to
consist of:
Lump sum cash severance equal to 3 times base salary if termination
is prior to 2/1/04; otherwise, 2 times base salary;
Prorated annual bonus for the year in which termination occurs, based
on actual performance for the entire year;
Balance of any incentives earned but not paid;
Additional vesting of initial option grant (see above, "Equity
Incentives");
Continued participation in welfare benefit plans for 3 years if
termination is prior to 2/1/04; otherwise, for 2 years; and
If termination is pre-Emergence, entitled to Emergence Payment at
Emergence.
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Restrictive Covenants Day: 2-year post-termination non-competition and non-solicitation covenants;
perpetual confidentiality and cooperation covenants.
Day and Company: perpetual non-disparagement covenant.
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Administrative Liability Cap Cap on claims by Day, in the event the Company does not reorganize as a
stand-alone business enterprise, equivalent to the claims that would have
been allowed under his existing contract.
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Other Indemnification; 280G Gross-up; Day pays his own legal fees.
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JD Term Sheet
KMART CORPORATION
/s/ Robert Kennedy
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By: Robert Kennedy
Chairman, Compensation and
Incentives Committee of the
Board of Directors
ACCEPTED AND AGREED: JULIAN C. DAY
Julian C. Day
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