Document:

exv10w30

 

Exhibit 10.30

Sears, Roebuck and Co.

February 17, 2005

Mr. Glenn R. Richter

Executive Vice President and Chief Financial Officer

Sears, Roebuck and Co.

3333 Beverly Road

Hoffman Estates, Illinois 60179

Dear Glenn:

This letter agreement (this “Agreement”) is to confirm our understanding with you regarding the
termination of your employment as Executive Vice President and Chief Financial Officer of Sears,
Roebuck and Co., a New York corporation (“Sears”) in connection with the consummation of the
transactions contemplated under that certain Agreement and Plan of Merger dated as of November 16,
2004 by and among Kmart Holding Corporation, a Delaware corporation (“Kmart”), Sears, Sears
Holdings Corporation, a Delaware corporation, Kmart Acquisition Corp., a Delaware corporation, and
Sears Acquisition Corp., a New York corporation (such agreement, the “Merger Agreement”, and the
transactions contemplated thereby, collectively, the “Merger”).

You and Sears entered into an Executive Severance/Non-Compete Agreement dated as of November 16,
2001 (the “Severance Agreement”) and, as required under the Severance Agreement, an Executive
Non-Disclosure and Non-Solicitation Agreement dated as of November 16, 2001 (the “Non-Disclosure
Agreement”). This Agreement constitutes an amendment to your Severance Agreement and to your
Non-Disclosure Agreement, in each case, solely to the extent set forth below. Any capitalized
terms not defined herein shall have the meaning set forth in the Severance Agreement.

In consideration of the mutual covenants contained herein and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, you and Sears agree as follows:

1. Effectiveness of this Agreement. This Agreement shall become effective as of the date hereof
immediately upon the execution of this Agreement by the parties hereto; provided, however, that in
the event the Merger Agreement terminates in accordance with its terms prior to the Effective Time
(as such term is defined in the Merger Agreement), then this Agreement shall terminate at that same
time and be of no further force and effect, and your Severance Agreement and Non-Disclosure
Agreement shall thereafter remain in full force and effect without regard to the provisions of this
Agreement.

2. Resignation of Positions; Execution of General Release and Waiver. If you remain employed by
Sears immediately prior to the Effective Time, then, (a) effective at the Effective Time, you shall
resign as an officer and director of Sears and any of its subsidiaries, affiliates, related
companies, and any parent or successor entities thereto and (b) immediately following

 

 

such resignation, you shall execute a General Release and Waiver in the form attached hereto as
Exhibit A (the “Release”).

3. Employment During Transition Period. You hereby agree to remain continuously employed by Sears
during the period from the date of this Agreement until the Effective Time (the “Transition
Period”), during which time you shall continue to hold the title of Executive Vice President and
Chief Financial Officer of Sears (the “CFO”) and shall continue to receive the same rate of base
salary and employee benefit coverage that you received immediately prior to the date hereof. As
the CFO during the Transition Period, subject to the immediately following sentence, you shall
continue to perform those duties and responsibilities reasonably required to be performed by the
CFO but, if instructed, you shall refrain from performing such duties and responsibilities as the
Chief Executive Officer, and/or the Board of Directors, of Sears may require. Only for so long as
you continue to have the authorities and responsibilities of a chief financial officer of Sears
that are necessary or appropriate for you to provide the certifications under Sections 302 and 906
of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder, shall you be the “chief
financial officer” of Sears for purposes of such certifications.

4. Payments and Benefits in Lieu of Change in Control Severance Pay. So long as you remain
continuously employed by Sears as CFO at all times during the Transition Period, then upon your
resignation from employment with Sears on the Effective Time, you shall be entitled to receive, in
lieu of all payments and benefits for which you might otherwise be eligible under Section 1,
Section 2(a) and Section 3 (other than Section 3(c)) of the Severance Agreement, (a) a lump sum
payment equal to $641,000 and (b) full vesting of any restricted stock held by you that was
outstanding and unvested immediately prior to the Effective Time, but which is not otherwise
required to be vested at the Effective Time by the terms of the Merger Agreement (the payment and
benefit provided herein, collectively, the “Severance Payments”); provided, that, the Severance
Payments shall only be provided to you on the Release Expiration Date (as such term is defined in
the Release), and in the event that you revoke your execution of the Release, you shall cease to
have any rights to receive all or any portion of the Severance Payments.

5. Vesting of Equity Awards Under Merger Agreement. In addition to the benefit provided in Section
4(b) above, so long as you remain continuously employed by Sears as CFO at all times during the
Transition Period, upon the consummation of the Merger, any stock options or restricted stock held
by you that were outstanding and unvested immediately prior to the Merger shall fully vest as of
the date of the Merger to the extent such vesting is required by the terms of such awards and/or
the Merger Agreement.

6. Termination of Employment Prior to Effective Time; Amendment of Good Reason Definition.

(a) In the event your employment by Sears terminates for any reason prior to the Effective
Time, the terms of the Severance Agreement and Non-Disclosure Agreement shall be applicable to such
termination, without regard to the provisions of this Agreement, except as the terms of the
Severance Agreement are modified by Section 6(b) of this Agreement.

(b) Section 2(b)(iii) of the Severance Agreement (the definition of “Good Reason”) is hereby
deleted in its entirety and replaced with the following:

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     “Good Reason” shall mean a significant reduction in Executive’s title or rate of annual
base salary, or Executive’s mandatory relocation to an office more than 50 miles from the
primary location at which Executive is required to perform Executive’s duties immediately
prior to the Change in Control (or to the Potential Change in Control Period during which
the Change in Control occurs), and which relocation is not remedied in a reasonable period
of time (which shall not be greater than thirty (30) days) after receipt of written notice
from Executive specifying that “Good Reason” exists for purposes of this Agreement.”

     7. Amendment of Non-Disparagement Covenant. Section 5 of the Severance Agreement is hereby deleted
in its entirety and replaced with
         the following covenant:

     “Non-Disparagement. Executive will not take any action detrimental to the
interests of Sears, Kmart or any of their respective affiliates, make derogatory statements,
either written or oral to any third party, or otherwise disparage Sears, Kmart or any of
their respective affiliates, products, services, actions (including, without limitation, the
Merger or any transactions or events leading up to the consummation of the Merger),
omissions, or present or former employees, officers, directors or significant shareholders,
and will not authorize others to make such derogatory or disparaging statements, either
written or oral, on Executive’s behalf. For the avoidance of doubt, Executive shall be
deemed to be in violation of this Section 5 if Executive, or any person or entity on
Executive’s behalf, makes any written or oral statement to any third party with respect to
how Executive has voted any shares of stock of Sears beneficially owned, directly or
indirectly, by Executive, to the extent the Executive votes against the consummation of the
Merger or otherwise fails to vote in favor of the Merger. Notwithstanding the foregoing,
nothing herein shall prohibit Executive from competing with Sears, Kmart or any of their
respective affiliates or from making any statements or taking any actions required by
applicable law or court order; provided, that, Executive shall provide reasonable advance
written notice to Sears, Kmart or their respective affiliates, as applicable, that Executive
will be making such statements as so required.”

     8. Waiver of Non-Competition Covenant. The provisions of Section 8(b) of the Severance Agreement
are deleted in their entirety and shall
         cease to be of any further force and effect, and shall be
replaced with the following:

     “(b) [Intentionally omitted.]”

     9. Amendment of Non-Disclosure Agreement. The Non-Disclosure Agreement is hereby amended as
follows:

     (a) Section 1 of the Non-Disclosure Agreement is hereby amended by adding at the end of such
section the following sentence:

     “In addition to the foregoing, “Sears Confidential Information” shall also mean any of
the foregoing as the same relates to Kmart or any of its affiliates, and shall include,
without limitation, any information received from or in respect of Kmart or any of its
affiliates, including, without limitation, any information relating to the Merger or post-

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     Merger plans or operations, other than such information that is known generally to
the public or in the industry.”

     (b) Section 6 of the Non-Disclosure Agreement is hereby deleted in its entirety and replaced
with the following:

     “During my employment with Sears and for two (2) years thereafter, I shall not,
directly or indirectly, solicit, employ or retain, or assist any other individual, person,
firm or other entity in soliciting, employing or retaining, any employee or other agent of
Sears, Kmart or any of their respective affiliates, including any employee or agent, who
ceased working for any of Sears, Kmart or any of their respective affiliates within a six
(6) month period before the date on which the first such solicitation, employment, retention
or assistance occurred; provided, that, this provision shall not apply to any such employee
or agent whose employment was terminated by Sears, Kmart or any of their respective
affiliates within such six-month period, if and only if none of the activities
otherwise prohibited under this Section 6 occurred prior to such termination.”

10. Effect of this Agreement. Except as expressly amended hereby, the terms and conditions of each
of the Severance Agreement and Non-Disclosure Agreement, as applicable, shall continue in full
force and effect.

11. Third Party Beneficiaries. In acknowledgement that Kmart is relying upon the terms and
conditions of this Agreement in consideration for waiving Sections 1.10(a), 4.1(k) and 5.10(b) of
the Merger Agreement, the parties hereto agree that (a) Kmart and its affiliates (including but not
limited to its significant shareholders) shall be third party beneficiaries of this Agreement and
(b) this Agreement may not be amended without the prior written consent of Kmart (and any such
amendment without such consent shall be null and void).

12. Miscellaneous. The provisions of Sections 13, 14, 15, 18, 19 and 20 of the Severance Agreement
are incorporated by reference into this Agreement.

*   *   *   *   *

4

 

Glenn, if this Agreement is acceptable to you, please sign where indicated below and return a copy
to Andrea Zopp promptly after your execution hereof.

	 	 	 	 	 
	 	Sincerely,

 	 
	 	/s/ Andrea Zopp 	 
	 	Andrea Zopp 	 
	 	General Counsel

Sears, Roebuck and Co. 	 
	 

Agreed this 17th day of February 2005.

/s/ Glenn R. Richter                              

Glenn R. Richter

Agreed this 17th day of February 2005.

Kmart Holding Corporation

		
	By: 	/s/ William C. Crowley                    

William C. Crowley

Senior Vice President, Finance

5exv10w44

 

Exhibit 10.44

SEARS ROEBUCK AND CO.

LONG-TERM INCENTIVE PROGRAM (LTIP)

SECTION 1

GENERAL

     Purpose.     The Sears, Roebuck and Co. 2005 Long-Term Incentive LTIP (the “LTIP”) is a
performance-based program under the Sears Roebuck and Co. 2000 Employee Stock Plan (the “2000 Stock
Plan”), any successor plan thereto, and the Sears, Roebuck and Co. Long Term Incentive Compensation
Plan (as amended and restated as of January 1, 1994) (the “Long Term Incentive Compensation Plan”).
The LTIP is designed to motivate the senior leaders of Sears, Roebuck and Co. (the “Company”) and
its Subsidiaries to achieve significant, lasting change that successfully positions the Company for
future growth. Performance goals under the LTIP align participants’ financial incentives with
those of the Company’s shareholders. Awards under the LTIP are designed to vary commensurately
with achieved performance, and are intended to satisfy the requirements for “performance-based
compensation” outlined in regulations issued under Code Section 162(m).

     1.1.      Operation, Administration, and Definitions. The operation and administration of
the LTIP, including the Awards made under the LTIP, shall be subject to the provisions of Section 7
(relating to operation and administration). Capitalized terms in the LTIP shall be defined as set
forth in the LTIP (including the definitional provisions of Section 11).

SECTION 2

PARTICIPATION

     2.1.      Participation. Subject to the terms and conditions of the LTIP, the Committee
(described at Section 9) shall determine and designate, from time to time, from among the Eligible
Employees, those persons who shall be granted one or more Awards under the LTIP, and thereby become
“Participants” in the LTIP.

     2.2.      Eligible Employee. The term “Eligible Employee” means the following employees of
the Company or a Subsidiary: Chief Executive Officer of the Company (“CEO”); President,
Merchandising of the Company; all employees who report directly to the CEO; and other key employees
as recommended by the CEO.

     2.3.      New Hires. The Committee may designate for participation executives who have
been newly hired or promoted into the group of Eligible Employees. The Committee may, in its sole
discretion, decide the number of shares which a newly hired or promoted executive would otherwise
be awarded, including any adjustment that the Committee deems necessary or desirable to qualify
such award as performance-based compensation for purposes of section 162(m) of the Internal Revenue
Code or to require the deferral of any such award which does not so qualify.

 

 

SECTION 3

STOCK OPTIONS

     3.1.      Annual Grants.

     At the first meeting of the Compensation Committee of the Board of Directors in each of 2006,
and 2007, the Committee may award to each Participant designated by the Committee a grant of
nonqualified stock options (“Options”) to purchase shares of Sears’ common stock (“Stock”) with an
Exercise Price described in subsection 3.2. Each grant to a Participant shall be divided into
three equal tranches and shall be subject to a vesting schedule described in subsection 3.3(a). The
Committee in its sole discretion shall determine the number of Options granted to each Participant
so designated by the Committee. The Awards described herein may be made contingent on shareholder
approval of a successor plan to the 2000 Stock Plan or on an increase in the number of available
shares under the 2000 Stock Plan.

     3.2.      Exercise Price. The “Exercise Price” of each Option granted under this Section 3
shall be established by the Committee or shall be determined by a method established by the
Committee at the time that the Option is granted. The Exercise Price shall not be less than 100%
of the Fair Market Value of a share of Stock on the date of grant (or, if greater, the par value of
a share of Stock).

     3.3.      Vesting. 

     (a)      With respect to the Options described at subsection 3.1, the first tranche of each
grant of Options to a Participant shall vest and become exercisable on the date that the
average Fair Market Value of a share of Stock for the previous 20 trading days has increased
by 10% or more above the Exercise Price for that grant. The second tranche of each grant of
Options to a Participant shall vest on the date that the average Fair Market Value of a
share of Stock for the previous 20 trading days has increased by 20% or more above the
Exercise Price for that grant. The third tranche of each grant of Options to a Participant
shall vest on the date that the average Fair Market Value of a share of Stock for the
previous 20 trading days has increased by 30% or more above the Exercise Price for that
grant.

     (b)      In addition to the provisions of this subsection 3.3, the exercise of an Option
shall be subject to the terms of the 2000 Stock Plan or a successor plan under which such
Option is granted and such further terms and conditions as may be established by the
Committee. In no event, however, shall an Option expire later than ten years after the date
of its grant.

     3.4.      Payment of Option Exercise Price. The payment by the Participant of the Exercise
Price of an Option granted under this Section 3 shall be subject to the terms and conditions of the
2000 Stock Plan or any successor plan under which the Option is granted.

     3.5.     Limitations. The number of shares of Stock subject to Options granted to any
Participant under this Section 3 (together with any other Options granted under the 2000 Stock Plan
(or any successor plan) to such Participant) shall not exceed the limitation in the 2000 Stock

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Plan (or any applicable successor plan) on the maximum number of shares of Stock subject to
Options that may be granted to an individual for any period.

SECTION 4

PERFORMANCE UNITS

     4.1.     Performance Units. At the first meeting of the Compensation Committee of the
Board of Directors in 2005, the Committee may award Performance Units to each Participant
designated by the Committee, in an amount determined by the Committee in its sole discretion.
Performance Units under this subsection 4.1 are intended to constitute performance-based
compensation and may be awarded under the 2000 Stock Plan (or under any successor plan thereto) or
under the Long Term Incentive Compensation Plan, as the Committee shall determine in its
discretion.

     (a)      Those Performance Units awarded under the 2000 Stock Plan or a successor plan
thereto shall, at the date of grant, consist of a commitment by Sears to distribute, at the
time specified in, and in accordance with the provisions of, Section 5, below, as
applicable, a number of shares of Stock equal to the number of Performance Units multiplied
by the applicable “Total Shareholder Return” (“TSR”) multiple set forth at subsection 4.4,
below, at the end of the performance period, subject to approval of the final award amount
by the Committee. The number of shares of Stock actually delivered shall be more than,
equal to, or less than the number of Performance Units awarded based on Sears’ TSR
performance relative to that of the S&P 500 Index companies.

     (b)      Those Performance Units awarded under the Long Term Incentive Compensation Plan
shall consist of a commitment by Sears to distribute, at the time specified in, and in
accordance with the provisions of Section 5, below, as applicable, cash in an amount equal
to the value of a number of shares of Stock that is equal to the number of Performance Units
multiplied by the applicable TSR multiple set forth at subsection 4.4, below, at the end of
the performance period, subject to approval of the final award amount by the Committee. The
cash actually delivered shall be more than, equal to, or less than, the value of Performance
Units awarded, based on Sears’ TSR performance relative to that of the S&P 500 Index
companies.

     (c)      The Committee may, in its discretion, apply negative discretion to the calculated
award.

     4.2.      Performance Period. The performance period shall begin on January 1, 2005, and
end on December 31, 2007. The number of shares of Stock or amount of cash that may be earned shall
be determined at the completion of the performance period.

     4.3.      Total Shareholder Return (“TSR”). Total Shareholder Return (“TSR”) as applied to
Sears and the S&P 500 Index companies is defined as the return Sears’ shareholders and the
shareholders of the S&P 500 Index companies as a whole receive on their investment, taking into
account share price appreciation plus dividends (assuming reinvestment), expressed as a percentage
increase or decrease over the course of the relevant period. The average closing market prices
(adjusted for stock dividends and stock splits) for the 20 trading days ending

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December 31, 2004, and the average closing market price adjusted for stock dividends and stock
splits for the 20 trading days ending on December 31, 2007, shall be used in the calculation to
determine Sears’ TSR performance for the performance period, as well as that of the companies in
the S&P 500 Index for the performance period. Sears’ percentile rank shall be calculated using the
Microsoft Excel percentage rank function, rounded up or down to the nearest percentage point. This
function interpolates Sears’ performance in relation to the S&P 500 Index companies, thereby
increasing the precision of the relative TSR result. Performance of companies shall not be market
cap weighted.

     4.4.      The TSR Multiple. The TSR multiple shall be applied as shown in the table below:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	TSR	 	% of Target	 	 	TSR	 	 	% of Target	 
	Percentile Rank	 	Performance Units	 	 	Percentile Rank	 	 	Performance Units	 
	 	 	Earned	 	 	 	 	 	 	Earned	 
	Below 25th
	 	0	%	 	 	50th	 	 	100	%	 
	25th
	 	50	%	 	 	51st	 	 	102	%	 
	26th
	 	52	%	 	 	52nd	 	 	104	%	 
	27th
	 	54	%	 	 	53rd	 	 	106	%	 
	28th
	 	56	%	 	 	54th	 	 	108	%	 
	29th
	 	58	%	 	 	55th	 	 	110	%	 
	30th
	 	60	%	 	 	56th	 	 	112	%	 
	31st
	 	62	%	 	 	57th	 	 	114	%	 
	32nd
	 	64	%	 	 	58th	 	 	116	%	 
	33rd
	 	66	%	 	 	59th	 	 	118	%	 
	34th
	 	68	%	 	 	60th	 	 	120	%	 
	35th
	 	70	%	 	 	61st	 	 	122	%	 
	36th
	 	72	%	 	 	62nd	 	 	124	%	 
	37th
	 	74	%	 	 	63rd	 	 	126	%	 
	38th
	 	76	%	 	 	64th	 	 	128	%	 
	39th
	 	78	%	 	 	65th	 	 	130	%	 
	40th
	 	80	%	 	 	66th	 	 	132	%	 
	41st
	 	82	%	 	 	67th	 	 	134	%	 
	42nd
	 	84	%	 	 	68th	 	 	136	%	 
	43rd
	 	86	%	 	 	69th	 	 	138	%	 
	44th
	 	88	%	 	 	70th	 	 	140	%	 
	45th
	 	90	%	 	 	71st	 	 	142	%	 
	46th
	 	92	%	 	 	72nd	 	 	144	%	 
	47th
	 	94	%	 	 	73rd	 	 	146	%	 
	48th
	 	96	%	 	 	74th	 	 	148	%	 
	49th
	 	98	%	 	 	75th and above	 	 	150	%	 

     4.5.      Banked Awards. Notwithstanding the foregoing provisions of this Section 4, but
subject to subsections 4.6 and 4.7, and Sections 5, 6 and 8, the number of shares of Stock to which
a Participant shall be entitled as of the end of the performance period shall be no less than (or
in the case of Awards under the Long Term Incentive Compensation Plan, the cash Award

4

 

shall be no less than the value of) the sum of (i) 30% of the Performance Units multiplied by
the TSR multiple, as set forth at subsection 4.4, determined as of December 31, 2005 plus (ii) 30%
of the Performance Units awarded to the Participant multiplied by the TSR multiple, as set forth at
subsection 4.4 determined as of December 31, 2006. The TSR multiple as of each of the dates
referenced in this subsection 4.5 shall be calculated using average closing market prices for the
20 trading days, adjusted for stock dividends and stock splits, ending December 31, 2004, and
average closing market prices for the 20 trading days, adjusted for stock dividends and stock
splits, ending on such referenced date.

     4.6.      Limitation on Individual Awards. In the case of Awards made pursuant to the 2000
Stock Plan, in no event shall the number of Performance Units granted to an individual for the
performance period exceed 200,000 nor the number of shares of Stock distributed hereunder to any
individual exceed 300,000. Further, in no event shall the number of shares of Stock distributed to
any individual for the performance period, cause the total number of shares of Stock issued to such
individual for such period under the 2000 Stock Plan or any successor plan to exceed the limitation
under the 2000 Stock Plan or successor plan on the number of shares that may be granted to any
individual in any calendar year pursuant to “Performance Based Recognition Rights” as defined in
the 2000 Stock Plan or in any successor plan. In the case of Awards made pursuant to the Long Term
Incentive Compensation Plan, in no event shall the number of Performance Units granted to an
individual for the performance period exceed 200,000, and the cash payment distributed to any
individual at the end of the performance period (together with any other cash bonuses granted to
the individual for such period under the Long Term Incentive Compensation Plan) shall not exceed
the limitations described in the Long Term Incentive Compensation Plan.

     4.7.      Limitations. All Performance Units awarded under the LTIP (and any Stock or cash
otherwise distributable pursuant thereto) are subject to the provisions of Sections 5, 6, 7 and 8.

SECTION 5

DISTRIBUTION

     5.1.      General. Subject to Sections 6, 7 and 8, the shares of Stock or the cash that
result from the payout formula described at Section 4 shall be distributed as soon as practicable
after the February 2008 Compensation Committee meeting (or the first Compensation Committee meeting
after February 2008 if no meeting is held that month), provided that such shares or cash shall be
distributed to Participants net of applicable tax withholding. Notwithstanding anything herein to
the contrary, no distribution shall be made hereunder until after the Compensation Committee has
certified the attainment of the performance goals and the amount to be paid to each Participant.

     5.2.      No Equity Swap. Any distribution of shares of Stock to an executive under this
Plan shall not be eligible for an “Equity Swap.”

     5.3.      Termination Provisions. All distributions are subject to the provisions of
Sections 6, 7 and 8, below.

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     5.4.      Deferral of Awards. Distributions under the LTIP may be eligible for deferral
under the Sears Deferred Compensation Plan, pursuant to the terms of that Plan.

     5.5.      Dividend Equivalents No dividend or dividend equivalents shall be paid or accrued
on any Performance Units prior to December 31, 2007. If the record date for dividends on Stock
occurs between the end of the performance period and the distribution date, then each Participant
shall be paid a dividend equivalent amount based upon the number of shares of Stock to be delivered
to the Participant. Such dividend equivalents shall be reported as in accordance with applicable
tax laws and shall be subject to any applicable withholding requirements. Payment of such dividend
equivalents shall occur at the same time as dividends payable to holders of Stock (or as soon as
practicable thereafter), or, if later, as soon as practicable after the number of shares of Stock
or amount of cash to be delivered has been certified under Section 4.1.

SECTION 6

TERMINATION

     6.1.     Stock Options. Forfeiture provisions for Options are those specified in the 2000
Stock Plan, any successor plan under which the Options are granted, this LTIP document and such
further terms and conditions as specified by the Committee.

     6.2.     Performance Units. The effect of termination of employment on an individual’s
Performance Units depends both on the reason for the termination and the point in the performance
period that the termination occurs, as described below.

     (a)      Voluntary Termination or Involuntary Termination for Cause. In the event that a
Participant voluntarily terminates employment (other than by retirement at or after age 65
or with Committee consent), or is involuntarily terminated (with cause as defined in the
Participant’s Executive Severance/Noncompete Agreement) prior to the end of the performance
period, such individual shall forfeit all of his Performance Units including any Banked
Awards under subsection 4.5.

     (b)      Retirement, Disability, or Involuntary Termination without Cause. In the event
that, prior to the end of the performance period, a Participant retires at or after age 65,
or earlier with Committee consent, or suffers a permanent and total disability, or is
involuntarily terminated (without cause as defined in the Participant’s Executive
Severance/Noncompete Agreement), subject to Sections 7 and 8, below, such individual shall
be entitled to a distribution (i) of shares of Stock (or the cash equivalent for Awards
under the Long Term Incentive Compensation Plan) in an amount equal to the Award amount as
described in subsection 4.1(a), above, pro-rated for the number of whole months of
Participation in the LTIP, or (ii) the Banked Awards earned prior to the
applicable event described in this paragraph (b), whichever is greater. Such individual’s
shares of Stock (or the cash equivalent, as applicable) shall be distributed in accordance
with, and after the Committee meeting described in, subsection 5.1.

     (c)      Death. In the event that a Participant dies prior to the end of the performance
period, his or her Target Award (defined below) shall be prorated through the date of death,
in accordance with paragraph (e) below, and, subject to Sections 7 and

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8, below, his or her estate shall be entitled to receive shares of Stock (or the cash
equivalent, as applicable) equal to his or her prorated Target Award, or if greater, his or
her Banked Awards earned prior to his or her death. Such shares of Stock (or cash
equivalent, as applicable) shall be distributed in accordance with, and after the Committee
meeting described in, subsection 5.1.

     (d)      A Participant’s “Target Award” equals the number of Performance Units granted to
the Participant without respect to any subsequent adjustments by the TSR multiplier. All
pro rations of the Target Award under this Section 6 are based on a fraction, the numerator
of which is the number of full months worked during the performance period, and the
denominator of which is 36 months.

SECTION 7

OPERATION AND ADMINISTRATION

     7.1.      Source of Awards. Awards under the LTIP are made (as determined by the Committee
in its discretion) under the 2000 Stock Plan or the Long-term Incentive Compensation Plan, both of
which have been approved by shareholders, or under any successor plan to the 2000 Stock Plan as may
hereafter be approved by shareholders. In the case of Awards under the LTIP that are granted
pursuant to the 2000 Stock Plan, in the event of any conflict between this document and the 2000
Stock Plan, the provisions of the 2000 Stock Plan shall govern, provided that subsection 8.1 of the
LTIP shall supersede any provision in the 2000 Stock Plan to the contrary. In the case of Awards
under the LTIP that are granted under the Long Term Incentive Compensation Plan, in the event of
any conflict between this document and the Long Term Incentive Compensation Plan, the provision of
the Long Term Incentive Compensation Plan shall govern, provided that subsection 8.1 of the LTIP
shall supersede any provision in the Long Term Incentive Compensation Plan to the contrary.

     7.2.      Committee. The LTIP is administered by the Compensation Committee of the Board
of Directors of Sears Roebuck and Co. (the “Committee”), as further described at Section 9. Any
determinations by the Committee regarding this LTIP are binding on all Participants. The Committee
may make additional changes that it deems appropriate for the effective administration of the LTIP.
Subject to subsection 7.3, these changes may not increase the benefits to which Participants may
become entitled under the LTIP, nor change the pre-established measures in goals that have been
approved.

     7.3.      Negative Discretion. Notwithstanding anything in the LTIP to the contrary, prior
to the settlement of any Award, the Committee may apply “negative discretion” to any such Award and
reduce the amount of such Award or the number of shares of Stock or amount of cash to be delivered
in connection with such Award.

     7.4.      General Restrictions. Delivery of shares of Stock or cash, or other awards
under the LTIP shall be subject to the following:

     (a)      Notwithstanding any other provision of the LTIP, the Company shall have no
obligation to deliver any shares of Stock or make any other distribution of benefits under
the LTIP unless such delivery or distribution complies with all applicable laws

7

 

(including, without limitation, the requirements of the Securities Act of 1933), and
the applicable requirements of any securities exchange or similar entity.

     (b)      To the extent that the LTIP provides for issuance of Stock certificates to reflect
the issuance of shares of Stock, the issuance may be affected on a non-certificated basis,
to the extent not prohibited by applicable law or the applicable rules of any Stock
exchange.

     7.5.      Tax Withholding. All distributions under the LTIP are subject to withholding of
all applicable taxes, and the Committee may condition the delivery of any shares or other benefits
under the LTIP on satisfaction of the applicable withholding obligations. Except as otherwise
provided by the Committee, such withholding obligations may be satisfied (i) through cash payment
by the Participant; (ii) through the surrender of shares of Stock which the Participant already
owns (provided, however, that to the extent shares described in this clause (ii) are used to
satisfy more than the minimum statutory withholding obligation, as described below, then, except as
otherwise provided by the Committee, payments made with shares of Stock in accordance with this
clause (ii) shall be limited to shares held by the Participant for not less than six months prior
to the payment date); or (iii) through the surrender of shares of Stock to which the Participant is
otherwise entitled under the LTIP, provided, however, that such shares under this clause (iii) may
be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on
minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes,
that are applicable to such supplemental taxable income).

     7.6.      Settlement of Awards. The obligation to make payments and distributions with
respect to Awards may be satisfied through cash payments, the delivery of shares of Stock, or a
combination thereof as the Committee shall determine, subject to the terms of the 2000 Stock Plan
(or the successor plan under which the Award is granted) or the Long Term Incentive Compensation
Plan, as applicable. Satisfaction of any such obligations under an Award, which is sometimes
referred to as the “settlement” of the Award, may be subject to such conditions, restrictions and
contingencies as the Committee shall determine. Each Subsidiary shall be liable for payment of
cash due under the LTIP with respect to any Participant to the extent that such benefits are
attributable to the services rendered for that Subsidiary by the Participant. Any disputes
relating to liability of a Subsidiary for cash payments shall be resolved by the Committee.

     7.7.      Transferability. Except as otherwise provided by the Committee, Awards under the
LTIP are not transferable except as designated by the Participant by will or by the laws of descent
and distribution.

     7.8.      Form and Time of Elections. Unless otherwise specified herein, each election
required or permitted to be made by any Participant or other person entitled to benefits under the
LTIP, and any permitted modification, or revocation thereof, shall be in writing filed with the
Committee at such times, in such form, and subject to such restrictions and limitations, not
inconsistent with the terms of the LTIP, as the Committee shall require.

     7.9.      Agreement With Company. An Award under the LTIP shall be subject to such terms
and conditions, not inconsistent with the LTIP, as the Committee shall, in its sole

8

 

discretion, prescribe. The terms and conditions of any Award to any Participant shall be
reflected in such form of written (including electronic) document as is determined by the
Committee. A copy of such document shall be provided to the Participant, and the Committee may,
but need not, require that the Participant sign a copy of such document. Such document is referred
to as an “Award Agreement” regardless of whether any Participant signature is required.

     7.10.      Action by Company or Subsidiary. Any action required or permitted to be taken
by the Company or any Subsidiary shall be by resolution of its board of directors, or by action of
one or more members of the board (including a committee of the board) who are duly authorized to
act for the board, or (except to the extent prohibited by applicable law or applicable rules of any
Stock exchange) by a duly authorized officer of such company.

     7.11.      Gender and Number. Where the context admits, words in any gender shall include
any other gender, words in the singular shall include the plural and the plural shall include the
singular.

     7.12.      Limitation of Implied Rights.

     (a)      Neither a Participant nor any other person shall, by reason of participation in the
LTIP, acquire any right in or title to any assets, funds or property of the Company or any
Subsidiary whatsoever, including, without limitation, any specific funds, assets, or other
property which the Company or any Subsidiary, in its sole discretion, may set aside in
anticipation of a liability under the LTIP. A Participant shall have only a contractual
right to the Stock or amounts, if any, payable under the LTIP, unsecured by any assets of
the Company or any Subsidiary, and nothing contained in the LTIP shall constitute a
guarantee that the assets of the Company or any Subsidiary shall be sufficient to pay any
benefits to any person.

     (b)      The LTIP does not constitute a contract of employment, and selection as a
Participant shall not give any participating employee the right to be retained in the employ
of the Company or any Subsidiary, nor any right or claim to any benefit under the LTIP,
unless such right or claim has specifically accrued under the terms of the LTIP. Except as
otherwise provided in the LTIP, no Award under the LTIP shall confer upon the holder thereof
any rights as a shareholder of the Company prior to the date on which the individual
fulfills all conditions for receipt of such rights.

     7.13.      Evidence. Evidence required of anyone under the LTIP may be by certificate,
affidavit, document or other information, which the person charged with acting on such evidence
considers pertinent and reliable, and which has been signed, made or presented by the proper party
or parties.

     7.14.      Corporate Transaction. Subject to Section 8, in the event of a corporate
transaction involving the Company (including without limitation, any Stock dividend, Stock split,
extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, sale of assets or subsidiaries, combination or exchange of shares), the Committee may
adjust Awards to preserve but in no event increase the benefits or potential benefits of the
Awards. Actions by the Committee may include: (i) adjustment of the number and kind of

9

 

shares subject to outstanding Awards; (ii) adjustment of the Exercise Price of outstanding
Options; and (iii) any other adjustments that the Committee determines to be equitable (which may
include, without limitation, (I) replacement of Awards with other Awards which the Committee
determines have comparable value and which are based on Stock of a company resulting from the
transaction, and (II) cancellation of the Award in return for cash payment of the current value of
the Award, determined as though the Award is fully vested at the time of the payment, provided that
in the case of an Option, the amount of such payment may be the excess of value of the Stock
subject to the Option at the time of the transaction over the exercise price).

SECTION 8

CHANGE IN CONTROL/TERMINATION OF AWARDS

     8.1     Merger with Kmart Holding Corporation. Notwithstanding anything in the LTIP (or
in any Award Agreement thereunder) to the contrary, including without limitation the provisions of
Section 10 hereof, the LTIP and all Awards made under the LTIP shall be automatically cancelled
(without Participant consent and without payment of consideration to any Participant) immediately
prior to the Effective Time (as defined in the Agreement and Plan of Merger dated as of November
16, 2004 between the Company and Kmart Holding Corporation (the “Merger Agreement”), and neither
Sears, nor any successor of Sears, nor any affiliate thereof, shall have any obligation hereunder,
under any Award Agreement or in any respect with respect to any Award. Anything in the LTIP to the
contrary notwithstanding, no distribution of an Award may be paid or settled hereunder so long as
the Merger Agreement (or any successor thereto) has not been terminated or if the Effective Time
occurs.

     8.2     Change of Control. In the event of a Change of Control, other than the
transaction described in the Merger Agreement, such Change of Control shall have the effect, if
any, with respect to any Award as set forth in the Award Agreement, or, to the extent not
prohibited by the LTIP or Award Agreement, as provided by the Committee.

SECTION 9

COMMITTEE

     9.1.     Administration. As provided at subsection 7.2, the authority to control and
manage the operation and administration of the LTIP shall be vested in the Compensation Committee
of the Board of Directors (the “Committee”).

     9.2.     Powers of Committee. The Committee’s administration of the LTIP shall be subject
to the following:

     (a)      Subject to the provisions of the LTIP, the Committee shall have the authority and
discretion to select from among the Eligible Employees those persons who shall receive
Awards, to determine the time or times of receipt, to determine the types of Awards and the
number of shares covered by the Awards, to establish the terms, conditions, restrictions,
and other provisions of such Awards, and (subject to the restrictions imposed by Section 10)
to amend, cancel, or suspend Awards.

     (b)      To the extent that the Committee determines that the restrictions imposed by the
LTIP preclude the achievement of the material purposes of the Awards in

10

 

jurisdictions outside the United States, the Committee shall have the authority and
discretion to modify those restrictions as the Committee determines to be necessary or
appropriate to conform to applicable requirements or practices of jurisdictions outside of
the United States.

     (c)      The Committee shall have the authority and discretion to interpret the LTIP, to
establish, amend, and rescind any rules and regulations relating to the LTIP, to determine
the terms and provisions of any Award Agreement made pursuant to the LTIP, and to make all
other determinations that may be necessary or advisable for the administration of the LTIP.

     (d)      Any interpretation of the LTIP by the Committee and any decision made by it under
the LTIP is final and binding on all persons.

     (d)      In controlling and managing the operation and administration of the LTIP, the
Committee shall take action in a manner that conforms to the articles and by-laws of the
Company, and applicable state corporate law.

     9.3.      Delegation by Committee. Except to the extent prohibited by applicable law or
the applicable rules of a Stock exchange, or as would cause LTIP Awards to not constitute
performance based compensation under Code Section 162(m), the Committee may allocate all or any
portion of its responsibilities and powers to any one or more of its members and may delegate all
or any part of its responsibilities and powers to any person or persons selected by it. The
Committee may revoke any such allocation or delegation at any time.

     9.4.      Information to be Furnished to Committee. The Company and Subsidiaries shall
furnish the Committee with such data and information as it determines may be required for it to
discharge its duties. The records of the Company and Subsidiaries as to an employee’s or
Participant’s employment, termination of employment, leave of absence, reemployment, and
compensation shall be conclusive on all persons unless determined to be incorrect. Participants and
other persons entitled to benefits under the LTIP must furnish the Committee such evidence, data or
information as the Committee considers desirable to carry out the terms of the LTIP.

SECTION 10

AMENDMENT AND TERMINATION

     The Board may, at any time, amend or terminate the LTIP, and the Board or the Committee may
amend any Award Agreement, provided that no amendment or termination may, in the absence of written
consent to the change by the affected Participant (or, if the Participant is not then living, the
affected beneficiary), adversely affect the rights of any Participant or beneficiary under any
Award granted under the LTIP prior to the date such amendment is adopted by the Board (or the
Committee, if applicable). Notwithstanding anything herein to the contrary, (i) no amendment shall
be made that would cause the Plan to violate Code Section 409A, and (ii) the LTIP and any Award
thereunder may be amended without Participant consent to the extent that the Committee determines
such amendment necessary to cause the LTIP or Award to comply with the requirements of Code Section
409A.

11

 

SECTION 11

DEFINED TERMS

     In addition to the other definitions contained herein, the following definitions shall apply:

     (a)      Award. The term “Award” means any award or benefit granted under the LTIP,
including, without limitation, the grant of Options, and Performance Units, and any amounts
payable with respect thereto.

     (b)      Board. The term “Board” means the Board of Directors of the Company.

     (c)      A Change of Control shall be defined as:

     (i)      The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) (a “Person”) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then
outstanding common shares of the Company (the “Outstanding Company Common Shares”)
or (B) the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the “Outstanding
Company Voting Securities”); provided, however, that the following acquisitions
shall not constitute a Change of Control: (x) any acquisition directly from the
Company (excluding an acquisition by virtue of the exercise of a conversion
privilege); (y) any acquisition by the Company or any of its subsidiaries; (z) any
acquisition by any employee benefit plan (or any related trust) sponsored or
maintained by the Company of any of its subsidiaries; or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation, if, following
such reorganization, merger or consolidation, the conditions described in clauses
(i), (ii) and (iii) of (c) below are satisfied; or

     (ii)      Individuals who, as of the date hereof, constitute the Board of Directors
of the Company (the “Board”) (as of the date hereof, the “Incumbent Board”) cease
for any reason to constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company’s shareholders, was approved by
a vote of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used under Section 14 of the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board; or

     (iii)      Consummation of a reorganization, merger or consolidation unless,
following such reorganization, merger or consolidation, (i) more than 60% of,
respectively, the then outstanding common shares of the corporation resulting from
such reorganization, merger of consolidation and the combined voting

12

 

power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Shares and
Outstanding Company Voting Securities immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Shares and Outstanding Company Voting Securities, as the
case may be, (ii) no Person (excluding the Company, any of its subsidiaries, any
employee benefit plan (or related trust) sponsored or maintained by the Company, any
of its subsidiaries or such corporation resulting from such reorganization, merger
or consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of the
Outstanding Company Common Shares or Outstanding Company Voting Securities, as the
case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding common shares of the corporation resulting from
such reorganization, merger or consolidation or the combined voting power of the
then outstanding voting securities of such corporation entitled to vote generally in
the election of directors and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of the execution of
the initial agreement providing for such reorganization, merger or consolidation: or

     (iv)      Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company; or

     (v)      Consummation of the sale or other disposition of all or substantially all
of the assets of the Company, other than to a corporation, with respect to which
following such sale or other disposition, (i) more than 60% of, respectively, the
then outstanding common shares of such corporation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Shares and
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Shares
and Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding the Company, any of its subsidiaries, and any employee benefit plan (or
related trust) sponsored or maintained by the Company, any of its subsidiaries or
such corporation and any Person beneficially owning, immediately prior to such sale
or other disposition, directly or indirectly, 20% or more of the Outstanding Company
Common Shares or Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of, respectively, the then
outstanding common shares of such corporation and the combined voting power

13

 

of the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (iii) at least a majority of the members
of the board of directors of such corporation were members of the Incumbent Board at
the time of the execution of the initial agreement or action of the Board providing
for such sale or other disposition of assets of the Company.

For purposes of the foregoing definition of “Change of Control”, a “subsidiary” of the Company
shall mean any corporation in which the Company, directly or indirectly, holds a majority of the
voting power of such corporation’s outstanding shares of capital Stock. If this definition of
“Change of Control” is not consistent with the regulations related to the American Jobs Creation
Act of 2004, that are contemplated to be issued by the IRS under Code Section 409A, then upon the
issuance of those IRS regulations the “Change of Control” definition herein shall automatically be
redefined in the same manner as under the regulations issued by the IRS under Code Section 409A.

     (d)      Code. The term “Code” means the Internal Revenue Code of 1986, as amended.
A reference to any provision of the Code shall include reference to any successor provision
of the Code.

     (e)      Fair Market Value shall be the mean between the lowest and highest reported
sales price of Sears shares on the principal exchange or market on which Sears shares are
then listed or admitted to trading.

     (f)      Performance-Based Compensation. The term “Performance-Based Compensation”
shall have the meaning ascribed to it under Code section 162(m) and the regulations
thereunder.

     (g)      Subsidiary. The term “Subsidiary” means any company during any period in
which it is a “subsidiary corporation” (as that term is defined in Code section 424(f)) with
respect to the Company Stock. The term “Stock” means shares of common Stock of the
Company.

14

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