Exhibit 10.1

 

EMPLOYMENT AGREEMENT

     THIS AGREEMENT, made in the City of Cincinnati and State of Ohio, as of the
1st day of March 2007, between FEDERATED DEPARTMENT STORES, INC., a Delaware
corporation (hereinafter called the "Employer"), and TERRY J. LUNDGREN
(hereinafter called the "Employee").

     In consideration of the premises, it is agreed by and between the parties
hereto as follows:

ARTICLE I

EMPLOYMENT

     1.1 Term and Duties. The Employer shall employ the Employee, and the
Employee shall serve the Employer, as an executive for the period (the "Term")
beginning on the date of this Agreement and ending on the later of (a) the date
set forth on Exhibit A hereto and (b) any later date to which the Term may have
been extended by agreement of the parties. During the Term the Employee shall
faithfully and in conformity with the directions of the Board of Directors of
the Employer (the "Board") or its delegate perform the duties of his employment
and shall devote to the performance of such duties his full time and attention.
During the Term the Employee shall serve in the office or offices of the
Employer to which the Board may from time to time elect or appoint him. The
Employee shall be excused from performing any services hereunder during periods
of temporary incapacity and during vacations in accordance with the Employer's
disability and vacation policies.

     1.2 Compensation. In consideration of his services during the Term, the
Employer shall pay the Employee cash compensation at an annual rate not less
than the greater of his current base salary as set forth on Exhibit A hereto or
the base salary of the Employee most recently approved by the Board or its
delegate ("Base Compensation"). Employee's Base Compensation shall be subject to
such increases as may be approved by the Board or its delegate.

     1.3 Payment Schedule. The Base Compensation specified in Section 1.2(a)
hereof shall be payable as current salary, in installments not less frequently
than monthly, and at the same rate for any fraction of a month unexpired at the
end of the Term.

     1.4 Expenses. During the Term the Employee shall be allowed reasonable
traveling expenses and shall be furnished office space, assistance and
accommodations suitable to the character of his position with the Employer and
adequate for the performance of his duties hereunder.

     1.5 Termination in Case of Disability. The Employee shall not be in breach
of this Agreement if he shall fail to perform his duties hereunder because of
physical or mental disability. If for a continuous period of 12 months during
the Term the Employee fails to render services to the Employer because of the
Employee's physical or mental disability, the Board or its delegate may end the
Term prior to its stated termination date. If there should be any dispute
between the parties as to the Employee's physical or mental disability at any
time, such question shall be settled by the opinion of an impartial reputable
physician agreed upon for the purpose by the parties or their representatives,
or failing agreement within 10 days of a written request therefor by either
party to the other, then one designated by the then president of the local
Academy of Medicine. The written opinion of such physician as to the matter in
dispute shall be final and binding on the parties.

     1.6 Termination of Services. If the Employer notifies the Employee that his
services will no longer be required during the Term or if the Employee notifies
the Employer that circumstances constituting Good Reason have occurred, the
Employee shall be entitled (except as otherwise provided in Section 1.5 or
Section 1.7 hereof) to continue to receive (i) his Base Compensation for the
remainder of the Term on the same periodic basis that he had been receiving Base
Compensation prior to such notice and (ii) his target annual bonus for the
remainder of the Term under the bonus plan applicable to him as of the date of
such notice, payable (i) in the fiscal year in which such notice is provided, on
a monthly basis commencing in the month following the month in which the notice
is given and for each month remaining in the Term occurring in that year and in
an amount equal to the number derived by dividing the months remaining in the
Term and occurring in that year by such annual target bonus and (ii) in any
fiscal year while the Term remains following the year in which such notice is
given, on a monthly basis for each month remaining in the Term in an amount
equal to one-twelfth of such annual target bonus.

     1.7 Mitigation. If the Employee or the Employer receives notice from the
other pursuant to Section 1.6 hereof, the Employee (subject to Section
2.4 hereof) shall be free to become actively engaged with another business and
shall use his best efforts to find other comparable employment. Upon the payment
to the Employee of compensation for employment or other services by any
unaffiliated third party, the Employee shall automatically cease to be an
employee of the Employer. The Employee shall promptly notify the Employer of any
such employment or other services and of the compensation received, to be
received or receivable from his subsequent employer or such other party
attributable to the Term. All Base Compensation and Target Bonus otherwise
payable to the Employee by the Employer under this Agreement during the
remainder of the Term shall be reduced to the extent of similar base or bonus
compensation received, to be received or receivable from such other employment
or other services.

     1.8 Termination for Cause. The Employer may terminate the employment of the
Employee and this Agreement and all of its obligations hereunder, except for
obligations accrued but unpaid to the effective date of termination, for Cause
upon notice given pursuant to this Section. As used in this Agreement, the term
"Cause" shall mean:

          (a) an intentional act of fraud, embezzlement, theft or any other
material violation of law in connection with the Employee's duties or in the
course of his employment with the Employer;

          (b) intentional wrongful damage to material assets of the Employer;

          (c) intentional wrongful disclosure of material confidential
information of the Employer;

          (d) intentional wrongful engagement in any competitive activity which
would constitute a material breach of the duty of loyalty; or

          (e) intentional breach of any stated material employment policy of the
Employer.

          No act, or failure to act, on the part of an Employee shall be deemed
"intentional" if it was due primarily to an error in judgment or negligence, but
shall be deemed "intentional" only if done, or omitted to be done, by the
Employee not in good faith and without reasonable belief that his action or
omission was in or not opposed to the best interest of the Employer. Failure to
meet performance standards or objectives of the Employer shall not constitute
Cause for purposes hereof.

     1.9 The Term "Good Reason" means:

          A. The assignment to the Employee of any duties materially
inconsistent with the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
in Article I of this Agreement, or any other action by the Employer which
results in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose an action not taken in bad faith
and which is remedied by the Employer within ten (10) days after receipt of
written notice thereof given by the Employee, provided that repeated instances
of such action shall be evidence of the bad faith of the Employer;

          B. any material failure by the Employer to comply with any of the
provisions of this Agreement, other than a failure not occurring in bad faith
and which is remedied by the Employer within ten (10) days after receipt of
written notice thereof given by the Employee, provided that repeated failures
shall be evidence of the bad faith of the Employer;

          C. failure of the Employee to be elected or reelected Chief Executive
Officer (and the failure of the Employee to be elected or reelected Chairman
following the retirement of James A. Zimmerman) of Federated or to be elected or
reelected to membership on the Federated's Board of Directors; or

          D. any purported termination by the Employer of the Employee's
employment otherwise than as expressly permitted by this Agreement.

ARTICLE II

CERTAIN OBLIGATIONS OF THE EMPLOYEE

     2.1 No Participation in Other Businesses. During the Term (except as
otherwise expressly provided in Section 1.7 hereof) the Employee shall not,
without the consent of the Board or its delegate, become actively associated
with or engaged in any business other than that of the Employer or a division or
affiliate of the Employer, and he shall do nothing inconsistent with his duties
to the Employer.

     2.2 Trade Secrets and Confidential Information. Employee shall not (either
during the Term or thereafter) without the consent of the Employer disclose to
anyone outside of the Employer, or use in other than the Employer's business,
trade secrets or confidential information relating to the Employer's business in
any way obtained by him while employed by the Employer.

     2.3 Noncompetition. It is recognized by the Employee and the Employer that
Employee's duties hereunder will entail the receipt of trade secrets and
confidential information, which include not only information concerning the
Employer's current operations, procedures, suppliers and other contacts, but
also its short-range and long-range plans, and that such trade secrets and
confidential information have been developed by the Employer and its affiliates
at substantial cost and constitute valuable and unique property of the Employer.
Accordingly, the Employee acknowledges that the foregoing makes it reasonably
necessary for the protection of the Employer's business interests that the
Employee not compete with the Employer or any of its affiliates during the Term
and for a reasonable and limited period thereafter. Therefore, during the Term
and for a period of one year thereafter, the Employee shall not have an
investment of $100,000 or more in a Competing Business (as hereinafter defined)
and shall not render personal services to any such Competing Business in any
manner, including, without limitation, as owner, partner, director, trustee,
officer, employee, consultant or advisor thereof. The noncompete provisions of
this section shall not be applicable to Employee if he has been notified
pursuant to Section 1.6 hereof that his services will no longer be required
during the Term or if Employee has been advised that his services will no longer
be required after the expiration of the Term.

     If the Employee shall breach the covenants contained in this Section 2.3 or
in Section 2.2 hereof, the Employer shall have no further obligation to make any
payment to the Employee pursuant to this Agreement and may recover from the
Employee all such damages as it may be entitled to at law or in equity. In
addition, the Employee acknowledges that any such breach is likely to result in
immediate and irreparable harm to the Employer for which money damages are
likely to be inadequate. Accordingly, the Employee consents to injunctive and
other appropriate equitable relief upon the institution of proceedings therefor
by the Employer in order to protect the Employer's rights hereunder. Such relief
may include, without limitation, an injunction to prevent the Employee from
disclosing any trade secrets or confidential information concerning the Employer
to any Competing Business, to prevent any Competing Business from receiving from
the Employee or using any such trade secrets or confidential information and/or
to prevent any such Competing Business from retaining or seeking to retain any
other employees of the Employer. Employer agrees, however, that it will not seek
injunctive relief for the purposes of preventing Employee from competing with
Employer after the expiration of the Term. The provisions of the foregoing
sentence shall not apply, however, to injunctions of the type described in the
preceding sentence.

     (a) As used in this Agreement, the term "affiliate" shall mean, with
respect to a particular person, a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, such person.

     (b) As used in this Agreement, the term "Competing Business" shall mean any
business which:

          (i) at the time of determination, is substantially similar to the
whole or a substantial part of the business conducted by the Employer or any of
its divisions or affiliates;

          (ii) at the time of determination, is operating a store or stores
which, during its or their fiscal year preceding the determination, had
aggregate net sales, including sales in leased and licensed departments, in
excess of $10,000,000, if such store or any of such stores is or are located in
a city or within a radius of 25 miles from the outer limits of a city where the
Employer, or any of its division's or affiliates, is operating a store or stores
which, during its or their fiscal year preceding the determination, had
aggregate net sales, including sales in leased and licensed departments, in
excess of $10,000,000; and

          (iii) had aggregate net sales at all its locations, including sales in
leased and licensed departments and sales by its divisions and affiliates,
during its fiscal year preceding that in which the Employee made such an
investment therein, or first rendered personal services thereto, in excess of
$25,000,000.

     2.4 Conflicts of Interest. The Employee shall not engage in any activity
that would violate the Conflict of Interest or Business Ethics Statement signed
from time to time by the Employee.

     2.5 Non-Solicitation. During the Term and for a period of one year
hereafter (such period is referred to as the "No Recruit Period"), the Employee
will not solicit, either directly or indirectly, any person that he or she knows
or should reasonably know to be an employee of Federated Department Stores, Inc.
or any of its subsidiaries, divisions or affiliates (collectively referred to in
this Agreement as the "Federated Affiliates") (whether any such employees are
now or hereafter through the No Recruit Period so employed or engaged) to
terminate their employment with any of the Federated Affiliates. The foregoing
undertaking is not intended to limit any legal rights or remedies that any of
the Federated Affiliates may have under common law with regard to any
interference by Employee at any time with the contractual relationship the
Federated Affiliates may have with any of their employees.

ARTICLE III

MISCELLANEOUS

     3.1 Assignment. This Agreement may be assigned by the Employer to any of
its affiliates. This Agreement shall not otherwise be assignable by the Employer
without the consent of the Employee, except that, if the Employer shall merge or
consolidate with, or transfer all or any substantial portion of its assets,
including goodwill, to another corporation or other form of business
organization, this Agreement shall (or, in the case of any such transfer, may)
be assigned to and shall bind and run to the benefit of the successor of the
Employer resulting from such merger, consolidation or transfer. The Employee may
not assign, pledge or encumber his interest in this Agreement or any part
hereof.

     3.2 Governing Law. This Agreement has been executed on behalf of the
Employer by an officer of the Employer located in the City of Cincinnati, Ohio.
This Agreement and all questions arising in connection herewith shall be
governed by the internal substantive laws of the State of Ohio. The Employer and
the Employee each consent to the jurisdiction of, and agree that any controversy
between them arising out of this Agreement shall be brought in, the United
States District Court for the Southern District of Ohio, Western Division; the
Court of Common Pleas for Hamilton County, Ohio; or such other court venued
within Hamilton County, Ohio as may have subject matter jurisdiction over the
controversy.

     3.3 Severability. If any portion of this Agreement is held to be invalid or
unenforceable, such holding shall not affect any other portion of this
Agreement.

     3.4 Entire Agreement. This Agreement comprises the entire agreement between
the parties hereto and as of the date hereof, supersedes, cancels and annuls any
and all prior agreements between the parties hereto. This Agreement may not be
modified, renewed or extended orally, but only by a written instrument referring
to this Agreement and executed by the parties hereto.

     3.5 Gender and Number. Words in the masculine herein may be interpreted as
feminine or neuter, and words in the singular as plural, and vice versa, where
the sense requires.

     3.6 Notices. Any notice or consent required or permitted to be given under
this Agreement shall be in writing and shall be effective when given by personal
delivery or five business days after being sent by certified U.S. mail, return
receipt requested, to the Secretary of Federated Department Stores, Inc. at its
principal place of business in the City of Cincinnati or to the Employee at his
last known address as shown on the records of the Employer.

     3.7 Withholding Taxes. The Employer may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.

> 1.     Waiver and Release.

In consideration of the Employer's entering into this Agreement, and the receipt
of other good and valuable consideration, the sufficiency of which is expressly
acknowledged, the Employee, for himself and his successors, assigns, heirs,
executors and administrators, hereby waives and releases and forever discharges
the Employer and its affiliates and their officers, directors, agents,
employees, shareholders, successors and assigns from all claims, demands,
damages, actions and causes of action whatsoever which he now has on account of
any matter, whether known or unknown to him and whether or not previously
disclosed to the Employee or the Employer, that relates to or arises out of
(a) any existing or former employment agreement (written or oral) entered into
between the Employee and the Employer or any of its affiliates (or any amendment
or supplement to any such agreement), (b) any agreement providing for a payment
or payments or extension of the employment relationship triggered by a merger or
sale or other disposition of the stock or assets or restructuring of the
Employer or any affiliate of the Employer, or (c) any applicable severance plan.

2.    Enforcement of Agreement

. If the Employee incurs legal and other fees and expenses in an effort to
establish entitlement to benefits under this Agreement, regardless of whether
the Employee ultimately prevails, the Employer shall reimburse him for such fees
and expenses, unless a court of competent jurisdiction determines that the
Employee made such effort in bad faith.

     Reimbursement of fees and expenses described in the preceding paragraph
shall be made monthly during the course of any action upon the written
submission of a request for reimbursement together with proof that the fees and
expenses were incurred.

     IN WITNESS WHEREOF, the parties hereto have hereunto and to a duplicate
hereof set their signatures as of the day and year first above written.

FEDERATED DEPARTMENT STORES, INC.

By: /s/ Dennis J. Broderick

Dennis J. Broderick

Title: Senior Vice President, General Counsel & Secretary

 

/s/ Terry J. Lundgren

TERRY J. LUNDGREN

Dated: March 8, 2007

 

 

 

EXHIBIT A

to

EMPLOYMENT AGREEMENT

Dated as of March 1, 2007 between

TERRY J. LUNDGREN

AND

FEDERATED DEPARTMENT STORES, INC.

 

Name:

Terry J. Lundgren

   

End of Term:

February 28, 2011

   

Annual Base Compensation:

$1,500,000.00

Annual Bonus

: The annual bonus payable (if any) under the terms of the 1992 Incentive Bonus
Plan (as such may be amended from time to time) of Federated Department Stores,
Inc. ("Federated") will be based on performance goals established for the senior
executives of the Employer on an annual basis by the Board of Directors of
Federated or a Committee thereof, with the amount of bonus equal to a sliding
percent of Employee's annual base compensation in effect as of the last day of
the performance period based on performance against the targeted annual goals.

Such sliding percent, and the targeted annual goals are set out in Schedule 1
hereto.

 

TERRY J. LUNDGREN

FEDERATED DEPARTMENT STORES, INC.

 

/s/ Terry J. Lundgren

 

/s/ Dennis J. Broderick

Dennis J. Broderick, Senior Vice President

Dated: March 8, 2007

 

 

SCHEDULE 1 TO EXHIBIT A

TO EMPLOYMENT AGREEMENT DATED AS OF MARCH 1, 2007

BETWEEN TERRY J. LUNDGREN AND FEDERATED CORPORATE SERVICES, INC.

Component

Threshold

Point at which incremental rate changes

Target

Over Target

Corporate EBIT $

85% of plan

18% of salary

95% of plan

54% of salary

100% of plan

90% of salary

Over 100% of plan

9% of salary for each 1% of EBIT over plan plus 90% of salary

Corporate Sales $

98% of plan

10% of salary

Not applicable

100% of plan

30% of salary

101% of plan

60% of salary

Corporate Cash Flow

$50 million below plan

12% of salary

$25 million below plan

 18% of salary

100% of plan

30% of salary

$150 million above plan

60% of salary

Total

40% of salary

 

150% of salary

300% of salary

300% bonus calculated based on:

Achieving 110% of EBIT $ plan and earning a bonus of 180% of salary for this
component.

Achieving the maximum bonus of 60% for sales and cash flow components.

Note:

Achieving more than 110% of EBIT $

plan will result in a bonus payment in excess of 180% of salary for that
component. Total bonus payment may not exceed $7 million.