W. Bruce Johnson Offer Letter



 Exhibit 10.16 

 

			
	Sears Holdings Management Corporation	  	Sears Hometown and Outlet Stores, Inc.
	3333 Beverly Road	  	3333 Beverly Road
	Hoffman Estates, IL 60179	  	Hoffman Estates, IL 60179

 July 17, 2012 
 Mr. William Bruce Johnson 
 1310 N Astor Street 

Chicago, IL 60610 
 Dear Bruce, 

On behalf of Sears Hometown and Outlet Stores, Inc. (“SHO”), we are pleased to extend to you our offer to join SHO as Chief Executive Officer
and President. Your start date with SHO will be the effective date of the SHO spin-off (“Spin-off”). This letter serves as confirmation of our offer, contingent upon the completion of the Spin-off and subject to the additional
contingencies listed below. 
 The key elements of your compensation package are as follows: 

 

	•	 	 Annual Base Salary - $1,000,000. 


  

	•	 	 Annual Incentive Plans 


  

	 	•	 	 With respect to your participation under the Sears Holdings Corporation Annual Incentive Plan (“SHC AIP”) for the 2012 fiscal year,
upon the Spin-off your participation in the 2012 SHC AIP will transition as follows: 


  

	 	•	 	 For the 1st and 2nd
fiscal quarters of 2012, the portion of your target incentive award that is based on the quarterly SHC EBITDA measure (25%) will be determined based on year-to-date results. The performance at the end of these two quarters will be compared to
the plan goals and if any payout has been earned, it will be paid to you by SHO under the 2012 SHO AIP in April 2013, provided that you are actively employed by SHO as of the payment date. The SHC EBITDA gate will continue to need to be attained
before any payout is earned. The quarterly SHC EBITDA measure will not be a component of your 2012 annual incentive for the
3rd and 4th fiscal quarters of 2012. Instead, the 25% weighted incentive based
on the quarterly SHC EBITDA measure for that time will be converted to a new measure of SHO EBITDA under the 2012 SHO AIP. 


  

	 	•	 	 For the performance period prior to the date of the Spin-off and with respect to the annual portion of your target incentive that is currently based on
the Auto, Hometown, and Outlet BOPs (75%), the 40% weight based on the Hometown and Outlet BOPs will be converted to a new measure of SHO EBITDA under the 2012 SHO AIP. The 35% weight based on Auto BOP, will be based on year-to-date results at the
time of Spin-off and will apply to the full 2012 fiscal year. 


  

	 	•	 	 You will be eligible to participate in the Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (“SHO AIP”) with an annual
incentive opportunity of 100% of your base salary following fiscal 2012. For the period between the effective date of the Spin-off and the end of fiscal 2012, your target annual incentive will be 65% of your base salary applicable to that period and
will be based on a SHO EBITDA after the Spin-off. 










 William Bruce Johnson 
 July 17, 2012 
  Page
 2
 
  


	 	•	 	 SHO AIP EBITDA targets and thresholds will be based on the valuation and profit conversion of combined SHC HTS and Outlet BOPs. Final 2012 AIP targets
and thresholds will need to be approved by SHO Board of Directors. 


  

	 	•	 	 Any incentive payable under the SHO AIP with respect to a fiscal year will be paid by April 15th of the following fiscal year, provided that you are actively
employed by SHO at the payment date. Payouts will be pro-rated pending actual date of Spin-off. Further details regarding your 2012 SHO AIP target award will be provided to you following the approval of the 2012 SHO AIP.



  

	•	 	 Long-Term Incentive Plan 


  

	 	•	 	 Participation in the Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program (“SHO LTIP”). SHO, like SHC, intends to
provide annual LTIP awards to its executives. You will first become eligible to participate in a SHO LTIP starting with the 2012 SHO LTIP with a target incentive percentage of 200% of base salary (at the time of the LTIP award) when finalized and
approved by the SHO Board of Directors. Further details regarding your 2012 SHO LTIP target award will be provided to you following the earlier of your start date with SHO and the approval of the 2012 SHO LTIP. 2012 LTIP targets and thresholds will
be based on SHO 3-year valuation and profit projections. Final 2012 LTIP targets and thresholds will need to be approved by SHO Board of Directors. 


  

	 	•	 	 With respect to your participation in the outstanding Sears Holdings Corporation Long-Term Incentive Programs (“SHC LTIPs”), you
currently participate in the 2010 and 2011 SHC LTIPs with a target incentive percentage of 200% of base salary (at the time of the LTIP award) under each. Upon the Spin-off, your participant in these programs will transition as follows:



  

	 	•	 	 Your participation under 2010 and 2011 SHC LTIPs will be closed out as of the effective date of the Spin-off and any incentive that may become payable
(as explained below) will be payable under the SHO LTIP. 


  

	 	•	 	 For the 2010 SHC LTIP, performance to date from fiscal year 2010 through the 2nd fiscal quarter end of 2012 will be determined and based on year-to-date results. If any incentive has been earned, it
will be payable to you by SHO in April 2013, in accordance with the terms of the SHO LTIP (which will have terms substantially similar to the SHC LTIP), as long as you are actively employed by SHO as of the payment date.



  

	 	•	 	 For the 2011 SHC LTIP, performance to date from fiscal year 2011 through the 2nd fiscal quarter end of 2012 will be determined and based on year-to-date results. If any incentive has been earned, it
will be payable to you by SHO in April 2014, in accordance with the terms of the SHO LTIP (which will have terms substantially similar to the SHC LTIP), as long as you are actively employed by SHO as of the payment date.



  

	 	•	 	 Any payout of these amounts will be pro-rated based on the number of eligible days worked at SHC and SHO during the performance period for each LTIP.











 William Bruce Johnson 
 July 17, 2012 
  Page
 3
 
  


	•	 	 Unvested Restricted Stock and Cash Awards 


  

	 	•	 	 Prior to effective date of the Spin-off, you received the following restricted stock (“RS”) and cash awards from SHC that are currently
unvested. 


  

													
	 Grant Date
	 	 Vest Date
	 	 RS Grant
 Value

/share
	 	 Shares

Granted
	 	 RS Award
 Value
 (at
grant)
	 	 RS Current

Value($55/share)
	 	 Cash Rights

	 04/06/2010
	 	04/06/2013	 	$ 108	 	10,000	 	$1,079,100	 	$550,000	 	$9,289
	 04/06/2010
	 	04/06/2014	 	$ 108	 	10,000	 	$1,079,100	 	$550,000	 	$9,289

  

	 	•	 	 Because, under their terms, these awards would forfeit upon you ceasing to be employed by SHC as a result of the Spin-off, these awards will be
transitioned as follows: 


  

	 	•	 	 In place of the forfeited RS awards, upon the effective date of the Spin-off, you will receive an equivalent cash retention award from SHO, which will
continue under the same (remaining) vesting schedule as the award it is replacing. Equivalent value will be determined based upon the market closing price of SHC shares on the day before the effective date of the Spin-off. That closing price will be
multiplied by the number of shares for each award to arrive at the dollar value of the cash retention award. 


  

	 	•	 	 In place of your Cash Rights identified in the chart above (issued in connection with the Spin-off of Orchard Supply Hardware Stores Corporation), you
will receive cash retention awards from SHO, equal to the same amount and subject to the same (remaining) vesting schedule as the awards they are replacing. 



 

	 	•	 	 Each of these cash retention awards will be payable by SHO, provided you remain employed by SHO through the vesting date for the applicable award
provided, however, with respect to the remaining shares of restricted stock you were granted on April 6, 2010 (which grant vests on a graduated basis;
 1/4 on each of the first four anniversaries of the grant date), if your employment is involuntarily terminated (other than for Cause, death or Disability, as such capitalized terms are defined in the
Executive Severance Agreement, referred to below), as of such termination date you will be deemed to have vested in any portion of this restricted stock grant that you were scheduled to vest in during the fifteen (15) months immediately
following such termination date. 


  

	•	 	 Executive Severance Agreement 


  

	 	•	 	 Your current Executive Severance Agreement (“Agreement”) with SHC will be assigned to and assumed by SHO effective as of the Spin-off in
accordance with Section 20 of the Agreement. Therefore, if post-Spin-off your employment with SHO is terminated by SHO (other than for Cause, death or Disability) or by you for Good Reason (as such capitalized terms are defined in the
Agreement), you will receive twelve (12) months of salary continuation, equal to your base salary at the time of termination plus a target bonus (equivalent to your target bonus for the year of termination or if such target bonus has not been
set, equivalent to the target bonus for the year immediately preceding the year of termination), subject to mitigation. Under the Agreement, you agree, among other things, not to disclose confidential information and for twelve (12) months











 William Bruce Johnson 
 July 17, 2012 
  Page
 4
 
  


	 	 
following termination of employment not to solicit employees. You also agree not to aid, assist or render services for any “Sears Competitor” or “Sears Vendor” (as such terms
are defined in the Agreement) for twelve (12) months following termination of employment. The non-disclosure, non-solicitation, non-compete and non-affiliation provisions apply regardless of whether you are eligible for severance benefits under
this Agreement. 


  

	•	 	 Other 


  

	 	•	 	 Upon the Spin-off, SHO will assume and continue to provide you with the use of company-furnished ground transportation for travel between your
residence in the Chicago metropolitan area and the company’s corporate headquarters in Hoffman Estates, Illinois consistent with the ground transportation benefit you were awarded by the Compensation Committee of the SHC Board of Directors as
outlined to you in a letter dated April 5, 2010. The aggregate incremental cost will continue to be imputed income to you and you will continue to be responsible for any related taxes. 



 

	 	•	 	 On a fiscal year basis, you will continue to be eligible to receive four (4) weeks paid vacation. Added to this, you will qualify for six
(6) paid National Holidays each year. You also will be eligible for up to four (4) personal days per year. 


  

	 	•	 	 Upon the Spin-off, you will be eligible to participate in all retirement, health and welfare programs made available or sponsored by SHO on a basis no
less favorable than other executives at your level, in accordance with the applicable terms, conditions and availability of those programs. 


 Bruce, we are looking forward to you leading Sears Hometown and Outlet Stores, Inc. We are appreciative of your many contributions over the years and are excited about the important contributions you will
make to this new independent, public company upon the Spin-off and look forward to your acceptance of our offer. If you need additional information or clarification, please call. 
 This offer will expire if not accepted within one week from the date of this letter. 
 Sincerely,

  

					
	Sears Holdings Management Corporation	 		 	Sears Hometown and Outlet Stores, Inc.
			
	 /s/ Dean Carter
	 		 	 /s/ Robert Riecker

	 Dean Carter
 Chief Human
Resources Officer
	 		 	 Robert Riecker
 Interim
Financial Officer

			
	Enclosures	 		 	
			
	Accepted:	 		 	
			
	 /s/ William Bruce Johnson
	 		 	 7/19/2012

	William Bruce Johnson	 		 	Date