Document:

EX-10.17

 

EXHIBIT 10.17

AMENDMENT NO. 3 AND CONSENT NO. 3

TO REVOLVING CREDIT AGREEMENT

     AMENDMENT
NO. 3 AND CONSENT NO. 3 (this “Amendment”), dated as of
December 1, 2004, to the REVOLVING CREDIT AGREEMENT, dated as of
August 20, 2003, by and among HAIGHTS CROSS OPERATING COMPANY
(the “Borrower”), the several lenders from time to
time parties thereto (the “Lenders”), BEAR STEARNS
CORPORATE LENDING, INC., as Syndication Agent (in such capacity, the
“Syndication Agent”), and THE BANK OF NEW YORK
(“BNY”), as administrative agent for the Lenders (in
such capacity, the “Administrative Agent”) as
amended by Amendment No. 1 and Consent No. 1, dated as of
January 26, 2004 and Amendment No. 2 and Consent
No. 2, dated as of April 14, 2004 (and, as further amended
from time to time, the “Credit Agreement”).

RECITALS

     I.     Unless
defined herein, all capitalized terms used herein shall have the
meanings ascribed to them in the Credit Agreement.

     II.     The
Borrower has advised the Administrative Agent and the Lenders that it
will be making a Permitted Acquisition consisting of the acquisition
of substantially all of the assets of, and assumption of certain
liabilities of, Options Publishing, Inc. (the “Options
Acquisition”).

     III.     The
Borrower has requested that the Administrative Agent and the Required
Lenders:

          (a)     amend
Section 7.2 of the Credit Agreement to permit (i) the
Borrower to incur Indebtedness in the principal amount of $36,500,000
which will be (1) issued pursuant to the Senior Note Indenture
and (2) evidenced by add-on senior notes (the “Add-On
Senior Notes (2004)”), and (ii) the Subsidiary
Guarantors to incur Guarantee Obligations with respect to the Add-On
Senior Notes (2004).

          (b)     amend
Section 7.2 of the Credit Agreement to permit (i) the
Borrower to incur Indebtedness in the principal amount of $32,500,000
(the “Term Loans (2004)”) which will be
(1) issued pursuant to a term loan agreement having
substantially the same terms, conditions and covenants as the Term
Loan Agreement (the “Term Loan Agreement (2004)”) and
(2) evidenced by senior secured floating rate notes (the
“Senior Secured Notes (2004)”) and (ii) the
Subsidiary Guarantors to incur Guarantee Obligations with respect to
the Indebtedness of the Borrower under the Term Loan Agreement (2004).

 

          
(c)    amend Section 7.3 of the Credit
Agreement to permit the Borrower to secure its obligations under
the Term Loan Agreement (2004) and to permit the Subsidiary
Guarantors to secure their Guarantee Obligations with respect
thereto by security interests as “Parity Lien Debt” under
and pursuant to the Collateral Trust Agreement.

     
IV. The Administrative Agent and the
Required Lenders have agreed to the Borrower’s requests on
the terms and subject to the conditions set forth in this
Amendment.

          
Accordingly, in consideration of the covenants,
conditions and agreements hereinafter set forth, and for other
good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as
follows:

     
1.   Amendments.

          
(a) Section 1 of the Credit Agreement
is hereby amended by adding, in appropriate alphabetical order,
the following defined terms:

		
	 	     
    “Add-On Senior Notes (2004)”
    shall have the meaning assigned to such term in the Recitals of
    Amendments No. 3.
    
	 
	 	     
    “Amendment No. 3” shall
    mean Amendment No. 3 and Consent No. 3 to Revolving
    Credit Agreement, dated as of December 1, 2004, among the
    Borrower, the Required Lenders, the Administrative Agent and the
    Syndication Agreement.
    
	 
	 	     
    “Options Acquisition” shall have the
    meaning assigned to such term in the Recitals of
    Amendment No. 3.
    
	 
	 	     
    “Senior Secured Notes
    (2004)” shall have the meaning
    assigned to such term in the Recitals of Amendment No. 3.
    
	 
	 	     
    “Term Loan Agreement (2004)”
    shall have the meaning assigned to such term in the Recitals of
    Amendment No. 3.
    
	 
	 	     
    “Term Loans (2004)” shall have
    the meaning assigned to such term in the Recitals of Amendment
    No. 3.
    

          
(b) Section 7.2 of the Credit Agreement
to add the following sub-sections (j) and (k):

		
	 	     
    “(j) Unsecured Indebtedness of the
    Borrower in a principal amount not to exceed $36,500,000
    evidenced by the Add-On Senior Notes
    

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    (2004) issued pursuant to the Senior Note Indenture and
    unsecured Guarantee Obligations of any subsidiary Guarantor in
    respect of such Indebtedness, provided that prior
    to the incurrence of such Indebtedness and the Guarantee
    Obligations with respect thereto the Administrative Agent shall
    have received (i) a certificate of a Financial Officer of
    the Borrower attaching thereto true and complete copies of the
    Add-On Senior Notes and (ii) such other documents and
    information as the Administrative Agent may reasonably request and
    provided further that the proceeds of such Add-On
    Senior Notes (2004) are used solely for general corporate
    purposes and to finance Permitted Acquisitions (other than the
    Options Acquisition).

		
	 	     
    (k)          Indebtedness
    of the Borrower in respect of the Term Loans (2004) issued
    pursuant to the Term Loan Agreement (2004) in a principal amount
    not to exceed $32,500,000, which may be secured so long as such
    indebtedness constitutes “Parity Lien Debt” under the
    Collateral Trust Agreement and all Liens securing such
    indebtedness are subordinate to the Liens in favor of the
    Secured Parties under the Security Documents as set forth in the
    Collateral Trust Agreement and Guarantee Obligations of any
    Subsidiary Guarantor in respect of such Indebtedness so long as
    such Guarantee Obligations constitute “Parity Lien
    Debt” under the Collateral Trust Agreement and any Liens
    securing such Guarantee Obligations are similarly subordinated,
    and in each case, Permitted Refinancings thereof,
    provided that prior to the incurrence of such
    Indebtedness and the Guarantee Obligations with respect thereto,
    the Administrative Agent (i) shall have received a
    certificate of a Financial Officer of the Borrower attaching
    thereto a true and complete copy of the Senior Secured Notes
    (2004) and the Term Loan Agreement (2004), (ii) shall have
    confirmed that the terms, conditions and covenants of the Term
    Loan Agreement (2004) are substantially identical to the terms,
    conditions and covenants, Term Loan Agreement, and
    (iii) the Indebtedness of the Borrower under the Term Loan
    Agreement and the Guarantee Obligation of the Subsidiary
    Guarantor with respect thereto are “Parity Lien Debt”
    under and are secured pursuant to the Collateral Trust Agreement
    and provided further that the proceeds of the Term
    Loans (2004) are used solely for general corporate purposes and
    to finance Permitted Acquisitions (other than the Options
    Acquisition).

		
	 	
    (c)          Section
    7.3 of the Credit Agreement to add the following
    sub-section (n):

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		 	“(n) Liens to secure Indebtedness of
the Borrower or any other Subsidiary incurred pursuant to Section
7.2(k); provided that such Indebtedness is “Parity Lien
Debt” under the Collateral Trust Agreement and such Liens are
subordinated to the Liens securing the Borrower’s Obligations
hereunder and the Guarantee Obligations of the Subsidiary Guarantors
in respect of such Obligations in the manner set forth in the
Collateral Trust Agreement.”

	 
		(d) Section 7.9 of the Credit Agreement by
deleting the text thereof and substituting therefore the following:

	 
			“Make or offer to make any optional
or voluntary payment, prepayment, repurchase or redemption of or
otherwise optionally or voluntarily defease or segregate funds with
respect to the Senior Notes, the Add-On Senior Notes, (2004), the
Term Loans or the Term Loans (2004) other than pursuant to a
Permitted Refinancing, or (b) amend, modify, waive or otherwise
change, or consent or agree to any amendment, modification, waiver,
or other change to, any of the terms of the Senior Notes, the Add-On
Senior Notes, the Term Loan Agreement or the Term Loan Agreement
(2004) (other than any such amendment, modification, waiver or other
change that (i) would extend the maturity or reduce the amount of any
payment of principal thereof or reduce the rate or extend any date
for payment of interest thereon and (ii) does not involve the payment
of a consent fee).”

	 
		2.	Conditions to Effectiveness
	 
	This Amendment shall be effective as of
December 1, 2004, provided that the following conditions are
satisfied on or before December 31, 2004:

	 
		(i) the Administrative Agent shall
have received this Amendment executed by a duly authorized
signatories of the Borrower and each of the Guarantors and by each of
the Required Lenders; and

	 
		(ii) the Administrative Agent shall
have received such other documents as the Administrative Agent may
reasonably request (1) on or prior to December 1, 2004, with
respect to any documents relating to the Senior Secured Notes (2004)
and (2) on or prior to the date immediately preceding the making of
the Term Loans (2004), with respect to any documents related thereto.

	 
		3.	Miscellaneous
	 
			(a)	The Borrower hereby:

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(i)  acknowledges and reaffirms its obligations under, and
confirms the validity and enforceability of, the Credit Agreement and
the other Loan Documents;

     
     
(ii)  represents and warrants that there exists no Default
or Event of Default and no Default or Event of Default will result
from the consummation of the transactions described in this
Amendment; and

     
     
(iii)  represents and warrants that the representations and
warranties contained in the Credit Agreement (other than the
representations and warranties made as of a specific date) are true
and correct in all material respects on and as of the date hereof.

     
     
(iv)  represents and warrants that (1) the Options
Acquisition is a Permitted Acquisition under the proviso of clause
(c) of the definition of Permitted Acquisition and (2) the purchase
price for the Options Acquisition has or will be paid from the
sources described in clause (A) of such proviso.

     (b)  Each of the
Guarantors, by signing this Amendment, hereby:

     
     
(i)  acknowledges and consents to the execution of this
Amendment; and

     
     
(ii)  acknowledges and reaffirms its obligations under, and
confirms the validity and enforceability of, the Guarantee and
Collateral Agreement and the other Loan Documents to which it is a
party.

     (c)  This Amendment may be
executed in any number of counterparts and by facsimile, each of
which shall be an original and all of which shall constitute one
agreement. It shall not be necessary in making proof of this
Amendment to produce or account for more than one counterpart signed
by the party to be charged.

     (d)  This Amendment is
being delivered in and is intended to be performed in the State of
New York and shall be construed and enforceable in accordance with,
and be governed by, the internal laws of the State of New York
without regard to principles of conflict laws.

     (e)  The Borrower agrees
to pay the reasonable fees and expenses of the Administrative
Agent’s
counsel in connection with this Amendment.

[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]

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HAIGHTS CROSS AMENDMENT NO. 3

     
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and
duly authorized officers as of the day and year first above
written.

		
	 	
    BORROWER:
	 
	 	
    HAIGHTS CROSS OPERATING COMPANY

			
	 	BY: 	
    /s/ Paul J. Crecca
    

		
	 	
     

	 	
    Name: Paul J. Crecca
	 	
    Title: EVP & CFO

 

HAIGHTS CROSS AMENDMENT NO. 3

		
	 	
    GUARANTORS:
	 
	 	
    HAIGHTS CROSS COMMUNICATIONS, INC.

			
	 	By: 	
    /s/ Paul J. Crecca
    

		
	 	
     

	 	
    Name: Paul J. Crecca
	 	
    Title: EVP & CFO
	 
	 	
    SUNDANCE/NEWBRIDGE

EDUCATIONAL PUBLISHING, LLC

			
	 	By: 	
    /s/ Paul J. Crecca
    

		
	 	
     

	 	
    Name: Paul J. Crecca
	 	
    Title: VP
	 
	 	
    TRIUMPH LEARNING, LLC

			
	 	By: 	
    /s/ Paul J. Crecca
    

		
	 	
     

	 	
    Name: Paul J. Crecca
	 	
    Title: VP
	 
	 	
    RECORDED BOOKS, LLC

			
	 	By: 	
    /s/ Paul J. Crecca
    

		
	 	
     

	 	
    Name: Paul J. Crecca
	 	
    Title: VP
	 
	 	
    OAKSTONE PUBLISHING, LLC

			
	 	By: 	
    /s/ Paul J. Crecca
    

		
	 	
     

	 	
    Name: Paul J. Crecca
	 	
    Title: VP

94

 

HAIGHTS CROSS AMENDMENT NO. 3

			
	 	
    CHELSEA HOUSE PUBLISHERS, LLC
	 	 	 
	 	By: 	
    /s/ Paul J. Crecca
    
	 	 	
     

	 	 	
    Name: Paul J. Crecca
	 	 	
    Title:   VP
	 
	 	
    THE CORIOLIS GROUP, LLC
	 	 	 
	 	By: 	
    /s/ Paul J. Crecca
    
	 	 	
     

	 	 	
    Name: Paul J. Crecca
	 	 	
    Title:   VP
	 
	 	
    W F HOWES LIMITED
	 
	 	By: 	
    /s/ Neil Tress
    
	 	 	
     

	 	 	
    Name: Neil Tress
	 	 	
     

	 	 	
    Title:   Secretary & Director
	 	 	
     

 

HAIGHTS CROSS AMENDMENT NO. 3

		
	 	
    THE BANK OF NEW YORK
	 	
    as a Lender and as Administrative Agent

			
	 	By: 	
    /s/ Steven J. Correll

		
	 	
    

	 	
    Name: Steven J. Correll
	 	
    Title: Vice President

 

HAIGHTS CROSS AMENDMENT NO. 3

		
	 	
    BEAR STEARNS CORPORATE
	 	
    LENDING INC., as a Lender and as
	 	
    Syndication Agent

			
	 	By: 	
    /s/ Victor Bulzacchelli
	 	 	
     

	 	 	
    Name: Victor Bulzacchelli
	 	 	
    Title: Vice President

 

 

HAIGHTS CROSS AMENDMENT NO. 3

		
	 	
    CIT LENDING SERVICES
	 	
    CORPORATION, as a Lender

							
	 	By: 	 	/s/ Michael
V. Monahan	 
	 	 	 	Name: 	 	Michael
V. Monahan	 
	 	 	 	Title: 	 	Vice PresidentEX-10.1:

 

Exhibit 10.1

EXECUTION COPY

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

     
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the
“Agreement”), is made and entered into as of
March 24, 2005 (the “Effective Date”), by and
between Sears Holdings Corporation, a Delaware corporation
(together with its successors and assigns permitted under this
Agreement, the “Company”), and Aylwin Lewis (the
“Executive”). As of the Effective Time, as defined in
Section 1.7 of the Merger Agreement (as defined below),
this Agreement shall supersede and replace the Executive’s
Employment Agreement with Kmart Management Corporation, a
Michigan corporation (“Management”), made as of
October 18, 2004, and all amendments thereto (collectively,
the “Prior Agreement”).

     
WHEREAS, pursuant to the Agreement and Plan of Merger, dated as
of November 16, 2004, as supplemented by a joinder
agreement (the “Merger Agreement”), by and between
Sears, Roebuck and Co., a New York corporation
(“Sears”), Kmart Holding Corporation, a Delaware
corporation (“Kmart”), Sears Acquisition Corp., a New
York Corporation, Kmart Acquisition Corp., a Delaware
corporation, and the Company, Sears and Kmart shall each become
a wholly-owned subsidiary of the Company (the
“Mergers”);

     
WHEREAS, the Company desires that the Executive become employed
by the Company and provide services to the Company, in the best
interest of the Company and its affiliates and constituencies;

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

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

     
WHEREAS, in the event that the Mergers fail to be consummated,
this Agreement shall be void ab initio and the Prior
Agreement shall remain in full force and effect;

     
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable
consideration, the receipt of which is mutually acknowledged,
the Company and the Executive agree as follows:

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

		
	 	     
    (a) “Base Salary” shall mean the salary
    granted to the Executive pursuant to Section 4.
	 
	 	     
    (b) “Board” shall mean the Board of
    Directors of the Company.
	 
	 	     
    (c) “Cause” shall mean (i) the
    Executive’s commission of a felony, (ii) the
    Executive’s willful neglect or willful misconduct in
    carrying out his duties under this Agreement, or
    (iii) other willful gross misconduct by the Executive that
    the Board determines in good faith has resulted, or is likely to
    result, in material harm to the business or reputation of the
    Company or any of its affiliates.
	 
	 	     
    (d) “Committee” shall mean the
    Compensation Committee of the Board or any other committee of
    the Board performing similar functions.
	 
	 	     
    (e) “Constructive Termination” by the
    Executive shall mean the Executive’s voluntary termination
    of his employment, during the Term of Employment, in accordance
    with the procedures set forth in Section 13(d)(i) and based
    on any action by the Company or the Board that, without the
    Executive’s express written consent, results in any of the
    following: (i) the Executive’s ceasing to hold the
    titles of President of the Company, Chief Executive Officer and
    President of Kmart, and Chief Executive Officer of Sears Retail,
    other than as permitted by Section 3(b) or as a result of
    his death or Disability or a termination of his employment for
    Cause; (ii) following Alan J. Lacy’s ceasing to hold
    the title of Chief Executive Officer of the Company, any
    individual, other than the Executive or Edward S. Lampert,
    assuming the title of Chief Executive Officer of the Company;

1

 

		
	 	
    (iii) a diminution or adverse change in the
    Executive’s responsibilities, duties, authorities, that in
    either case is material, other than as permitted by
    Section 3(b) or as a result of his death or Disability or a
    termination of his employment for Cause; (iv) a reduction
    in the Executive’s Base Salary or Target Bonus (as defined
    in Sections 4 and 5), other than as a result of his death
    or Disability or a termination of his employment for Cause; or
    (v) the failure of the Company to comply with the third
    sentence of Section 16. Notwithstanding the foregoing, any
    action by the Board taken pursuant to Section 13(c)(i)
    shall not be deemed to constitute Constructive Termination,
    provided that, if such actions do not result in a termination of
    the Executive’s employment for Cause, they are reversed
    promptly following completion of the procedures set forth in
    Section 13(c)(i).
	 
	 	     
    (f) “Disability” shall mean the
    Executive’s inability, with or without a reasonable
    accommodation, to substantially perform his duties and
    responsibilities under this Agreement for a period of
    180 consecutive days, or for an aggregate of 180 days
    out of any period of 365 consecutive days, by reason of any
    physical or mental incapacity.
	 
	 	     
    (g) “Fair Market Value” as of a given date
    shall mean the average of the highest and lowest per-share sales
    prices for a share of Kmart Common Stock on Nasdaq during normal
    business hours on such date, or if such date was not a trading
    day, on the most recent preceding day that was a trading day;
    provided that, with respect to the Merger Restricted Stock, Fair
    Market Value shall mean the closing price of Kmart Common Stock
    on Nasdaq on the last trading day on which Kmart Common Stock is
    traded prior to the day on which the Effective Time occurs.
	 
	 	     
    (h) “Fiscal Year” shall mean a fiscal year
    of the Company, designated by reference to the calendar year in
    which such fiscal year begins, but determined based upon the
    Company’s schedule of fiscal years as in effect on the
    Effective Date, without regard to any subsequent change thereto
    (for example, Fiscal Year 2005 shall mean the Company’s
    fiscal year that ended on January 28, 2006).
	 
	 	     
    (i) “Party” shall mean the Company or the
    Executive, and “Parties” shall mean both of
    them.

		
	 	     
    2. Term of Employment. The Company shall
    employ the Executive, and the Executive hereby accepts such
    employment, for the period commencing on the Effective Date and
    ending on the fifth anniversary thereof (the “Term of
    Employment”), subject to termination of the
    Executive’s employment pursuant to Section 13.
	 
	 	     
    3. Position, Duties and Responsibilities.

		
	 	     
    (a) During the Term of Employment, the Executive shall be
    employed by the Company and shall serve as President of the
    Company, Chief Executive Officer and President of Kmart, and
    Chief Executive Officer of Sears Retail. The Executive shall
    also be appointed as a member of the Board. The Executive shall
    report to the Office of the Chairman.
	 
	 	     
    (b) The Executive shall devote substantially all of his
    business time, attention and skill to the performance of his
    duties and responsibilities pursuant to Section 3(a), and
    shall use his best efforts to promote the interests of the
    Company and its affiliates. The Executive shall not, without the
    prior written approval of the Board, engage in any other
    business activity which is in violation of policies established
    from time to time by the Company or its affiliates.
	 
	 	     
    (c) Anything herein to the contrary notwithstanding,
    nothing shall preclude the Executive from (i) serving on
    the boards of directors of a reasonable number of other
    corporations or the boards of a reasonable number of trade
    associations and/or charitable organizations (subject in each
    case to the reasonable approval of the Board),
    (ii) engaging in charitable activities and community
    affairs, and (iii) managing his personal investments and
    affairs, provided that such activities do not materially
    interfere with the proper performance of his duties and
    responsibilities to the Company.

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    4. Base Salary. During the Term of
    Employment, the Executive shall be paid a Base Salary, payable
    in accordance with the regular payroll practices of the Company,
    in an annual amount of not less than $1,000,000.
	 
	 	     
    5. Annual Bonuses. For each Fiscal Year that
    ends during the Term of Employment, the Executive shall be
    eligible for an annual bonus (the “Annual
    Bonus”), the target amount of which (the
    “Target Bonus”) shall equal 100% of his
    then-current Base Salary under the annual cash-based incentive
    program of the Company (or its affiliate, if applicable),
    payable if and to the extent that the performance goals
    thereunder for the relevant Fiscal Year are met. Payment of the
    Annual Bonus shall be made at the same time that other
    senior-level executives receive their incentive awards.
	 
	 	     
    6. Option Grant. As an inducement material to
    the Executive’s agreement to enter into employment with
    Management, as of October 18, 2004, the Executive received
    a grant of non-qualified stock options to acquire
    150,000 shares of the common stock, par value
    $0.01 per share, of Kmart (the “Kmart Common
    Stock”), having a per-share exercise price equal to the
    Fair Market Value on such date (such options being referred to
    as the “Options”). The Options shall have a
    term of ten years from the date of grant, and shall become
    vested and exercisable in four equal installments on the last
    day of the Company’s 2005, 2006, 2007 and 2008 Fiscal
    Years, conditioned upon the Executive’s continued
    employment with the Company through the relevant vesting date
    and subject to Section 9. Notwithstanding the foregoing, in
    the event the Executive’s employment is terminated during
    the Term of Employment (i) by the Company without Cause
    (other than due to Disability or death) or (ii) by reason
    of a Constructive Termination, any installment of the Options
    that would have vested on or before the first anniversary of the
    date of termination (but in any event, not less than one
    additional installment), had the Executive remained employed,
    shall vest on the date of termination, and all vested Options
    shall remain exercisable until the second anniversary of the
    date of termination. As of the Effective Time, the Company shall
    assume the Options, which shall cease to represent options to
    acquire Kmart Common Stock and shall be converted into options
    to acquire, on the same terms and conditions as were applicable
    under the original award, that number of shares of the common
    stock of the Company (the “Company Common
    Stock”) equal to the number of shares of Kmart Common
    Stock subject to the Options immediately prior to the Effective
    Time, at a per share price equal to the per share exercise price
    specified in such Options immediately prior the Effective Time.
	 
	 	     
    7. Restricted Stock Grant. As an inducement
    material to the Executive’s agreement to enter into
    employment with Management, the Executive received a grant of
    restricted Kmart Common Stock having a Fair Market Value of
    $4,500,000 on October 18, 2004 (the “Restricted
    Stock”), which Restricted Stock may not be sold,
    pledged or otherwise transferred unless and until the Restricted
    Stock becomes vested, in accordance with the provisions of this
    Section 7. The Restricted Stock shall be eligible to become
    vested in four installments (each, an
    “Installment”), as set forth below, with each
    of the first three Installments consisting of a portion of the
    Restricted Stock that had a fair market value on
    October 18, 2004 of $1 million, rounded to the nearest
    whole number of shares, and the final such Installment
    representing the remainder of the Restricted Stock. Each
    Installment shall vest as of the later of (a) the last day
    of the first Fiscal Year, of Fiscal Years 2005 through 2008,
    during which the Performance Goal is met and (b) in the
    case of the first Installment, the last day of Fiscal Year 2005;
    in the case of the second Installment, the last day of Fiscal
    Year 2006; in the case of the third Installment, the last day of
    Fiscal Year 2007; and in the case of the final Installment, the
    last day of Fiscal Year 2008; conditioned, in each case, on the
    Executive’s continued employment with the Company as of the
    relevant vesting date and subject to Section 9. If the
    Restricted Stock does not vest on or before the last day of
    Fiscal Year 2008, it shall thereupon be forfeited. The
    “Performance Goal” will be considered to have been met
    if, for any of Fiscal Years 2005 through 2008, either
    Kmart’s earnings before interest, taxes, depreciation and
    amortization, as reported in its audited financial statements
    for such Fiscal Year (“EBITDA”), equals or exceeds
    $100 million, or Kmart realizes gross proceeds from sales
    of real estate equal to or greater than $50 million.
    Notwithstanding the foregoing, in the event the Executive’s
    employment is terminated during the Employment Term (i) by
    the Company without Cause, (ii) as a result of his
    Disability or death, or (iii) by the Executive in a
    Constructive Termination, any Installments

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    of the Restricted Stock that have not yet vested shall vest as
    of the date of termination. As of the Effective Time, the
    Company shall assume the Restricted Stock, which shall vest and
    become free of such restrictions to the extent required by the
    terms thereof and shall be converted into the right to receive
    the Kmart Consideration, as defined in Section 2.5(a) of
    the Merger Agreement, in accordance with the Merger Agreement;
    provided that all Company Common Stock issuable upon conversion
    of such Restricted Stock shall be subject to the same terms
    (including the vesting terms) as were applicable to such
    restricted shares of Kmart Common Stock in respect of which they
    are issued.
	 
	 	     
    8. Additional Restricted Stock Grant.
    Immediately prior to the Effective Time, the Executive received
    a grant of restricted Kmart Common Stock having a Fair Market
    Value of $1,000,000 (the “Merger Restricted
    Stock”), which Merger Restricted Stock may not be sold,
    pledged or otherwise transferred unless and until the Merger
    Restricted Stock becomes vested, in accordance with the
    provisions of this Section 8. The Merger Restricted Stock
    shall be eligible to become vested in three equal installments
    (each, an Installment), as set forth below. Each Installment
    shall vest as of the later of (a) the last day of the first
    Fiscal Year, of Fiscal Years 2005 through 2007, during which the
    Performance Goal is met and (b) in the case of the first
    Installment, the last day of Fiscal Year 2005; in the case of
    the second Installment, the last day of Fiscal Year 2006; and in
    the case of the final Installment, the last day of Fiscal Year
    2007; conditioned, in each case, on the Executive’s
    continued employment with the Company as of the relevant vesting
    date and subject to Section 9. If the Merger Restricted
    Stock does not vest on or before the last day of Fiscal Year
    2007, it shall thereupon be forfeited. The “Performance
    Goal” will be considered to have been met if, for any of
    Fiscal Years 2005 through 2007, either Kmart’s EBITDA
    equals or exceeds $100 million, or Kmart realizes gross
    proceeds from sales of real estate equal to or greater than
    $50 million. Notwithstanding the foregoing, in the event
    the Executive’s employment is terminated during the
    Employment Term as a result of his Disability or death, any
    Installments of the Merger Restricted Stock that have not yet
    vested shall vest as of the date of termination. As of the
    Effective Time, the Company shall assume the Merger Restricted
    Stock, which shall vest and become free of such restrictions to
    the extent required by the terms thereof and shall be converted
    into the right to receive the Kmart Consideration, as defined in
    Section 2.5(a) of the Merger Agreement, in accordance with
    the Merger Agreement; provided that all Company Common Stock
    issuable upon conversion of such Merger Restricted Stock shall
    be subject to the same terms (including the vesting terms) as
    were applicable to such restricted shares of Kmart Common Stock
    in respect of which they are issued.
	 
	 	     
    9. Conditions to Grant of Options, Restricted Stock
    and Merger Restricted Stock. The vesting of the Options,
    the Restricted Stock and the Merger Restricted Stock has been
    approved by Kmart’s shareholders, in a manner satisfying
    the requirements of Section 162(m)(4)(C) of the Internal
    Revenue Code of 1986, as amended (the “Code”), of a
    plan under which such grants are made, or of the grants
    themselves, and of the Performance Goal set forth above for
    vesting of the Restricted Stock and the Merger Restricted Stock.
    Kmart sought and obtained such approval at a special meeting of
    shareholders on March 24, 2005. In addition, in the event
    that, before the Options, the Restricted Stock and/or the Merger
    Restricted Stock are granted or before the grant thereof is
    fully documented, there occurs a stock dividend, stock split,
    reverse stock split, share combination, or recapitalization or
    similar event affecting Company Common Stock (or, prior to the
    Effective Time, Kmart Common Stock), the number of shares of
    Company Common Stock (or, prior to the Effective Time, Kmart
    Common Stock) to be subject to the Options, the Restricted Stock
    and/or the Merger Restricted Stock upon grant shall be adjusted,
    to the extent and in the manner determined by the Committee (or,
    prior to the Effective Time, the Compensation Committee of the
    Board of Directors of Kmart) to be equitable and appropriate; it
    being understood that similar adjustments for such events
    occurring after the grants are made and fully documented will be
    set forth in the documentation thereof.
	 
	 	     
    10. Other Incentive Plans. It is understood
    and agreed that the incentive compensation provided for in
    Sections 5 through 9 above shall be the only equity-based
    or other incentive compensation provided to the Executive during
    the Term of Employment, unless and to the extent the Committee
    in its sole

4

 

		
	 	
    discretion determines otherwise. Without limiting the generality
    of the foregoing, it is not expected that the Executive will
    participate in the Kmart Long Term Incentive Plan during the
    Term of Employment.
	 
	 	     
    11. Employee Benefit Programs. During the
    Term of Employment, the Executive shall be eligible to
    participate in all employee pension and welfare benefit plans
    and programs made available generally to Kmart’s or, in the
    Company’s discretion, the Company’s senior-level
    executives or to its employees generally (on terms consistent,
    respectively, with those offered to Kmart’s or the
    Company’s other senior-level executives and/or its
    employees generally), as such plans or programs may be in effect
    from time to time, including, without limitation, pension,
    profit sharing, savings and other retirement plans or programs,
    medical, dental, hospitalization, short-term and long-term
    disability and life insurance plans, accidental death and
    dismemberment protection, travel accident insurance, and any
    other pension or retirement plans or programs and any other
    employee welfare benefit plans or programs that may be sponsored
    by Kmart or, in the Company’s discretion, the Company from
    time to time, including any plans that supplement the
    above-listed types of plans or programs, whether funded or
    unfunded.
	 
	 	     
    12. Reimbursement of Business and Other Expenses:
    Perquisites; Vacations.

		
	 	     
    (a) The Executive is authorized to incur reasonable
    expenses in carrying out his duties and responsibilities under
    this Agreement and the Company shall promptly reimburse him for
    all reasonable business expenses incurred in connection with
    carrying out the business of the Company and its affiliates,
    subject to documentation in accordance with the Company’s
    policy.
	 
	 	     
    (b) During the Term of Employment, the Executive shall
    receive the perquisites that are made available generally to
    Kmart’s or, in the Company’s discretion, the
    Company’s senior-level executives or to its employees
    generally (on terms consistent, respectively, with those offered
    to Kmart’s or, in the Company’s discretion, the
    Company’s other senior-level executives and/or its
    employees generally), as in effect from time to time.
	 
	 	     
    (c) Vacation. During the Term of Employment,
    the Executive shall be entitled to four weeks’ paid
    vacation per year, to be taken in accordance with the
    Company’s vacation policy as in effect from time to time
    for its senior executives.
	 
	 	     
    (d) Relocation Expenses. The Company shall
    reimburse Executive for all reasonable and customary costs and
    expenses that are incurred by Executive (i) during the
    three-year period following the Effective Time and are
    associated with (A) the physical move of Executive’s
    family and belongings to the Chicago metropolitan area
    (e.g., transportation, packing, storing and unpacking of
    household goods), and (B) the sale of Executive’s home
    in Troy, Michigan (the “Michigan Residence”) and
    Executive’s purchase of a primary residence in the Chicago
    metropolitan area (e.g., brokers’ commissions, taxes,
    legal fees, inspection, appraisal and survey charges, title
    search and insurance charges, and closing costs), and
    (ii) during the two-year period following the Effective
    Time and are associated with temporary housing in the Chicago
    metropolitan area. The Company shall reimburse such costs and
    expenses promptly following Executive’s submission of
    written documentation satisfactory to the Company evidencing
    that Executive has incurred such costs and expenses. During the
    two-year period following the Effective Time, the Executive
    shall also have the use of a Company plane, to the extent
    reasonably available, or other private aircraft for travel
    between Troy, Michigan and the Chicago metropolitan area. In
    addition, if, during the three-year period following the
    Effective Time, the Executive makes good faith efforts to sell
    the Michigan Residence for at least three months and is unable,
    within such time, to reach a definitive agreement to sell such
    residence at a price not less than the Appraised Value (as
    defined in the next sentence), then the Executive may offer to
    sell such residence to the Company, in which case the Company
    shall purchase it, or cause it to be purchased by a third party,
    for the Appraised Value. The “Appraised Value”
    shall mean the fair market value of the Michigan Residence,
    determined by an expert appraiser selected by mutual agreement
    of the Executive and the Company.

5

 

		
	 	     
    13. Termination of Employment.

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

		
	 	     
    (i) Base Salary through the date of death;
	 
	 	     
    (ii) an amount equal to a prorated Annual Bonus for the
    Fiscal Year in which death occurs, based on the actual
    performance for such Fiscal Year, the amount of which prorated
    Annual Bonus, if any, shall be determined and paid promptly
    following the end of the Fiscal Year to which such Annual Bonus
    relates;
	 
	 	     
    (iii) any amounts earned, accrued or owing to the Executive
    but not yet paid under this Agreement; and
	 
	 	     
    (iv) other or additional benefits, if any, in accordance
    with applicable plans and programs of the Company or its
    affiliates.

		
	 	     
    (b) Termination Due to Disability.

		
	 	     
    (i) A termination of the Executive’s employment for
    Disability shall be effected by the Executive’s giving
    written notice thereof to the Company, or vice versa, in either
    case in accordance with Section 20 below.
	 
	 	     
    (ii) In the event the Executive’s employment is
    terminated due to his Disability, the Executive shall be
    entitled to the following:

		
	 	     
    (A) Base Salary through the date of termination;
	 
	 	     
    (B) through the Company’s long-term disability plans
    or otherwise, an amount equal to 60% of the Base Salary for the
    period beginning on the date of termination through the
    Executive’s attainment of age 65;
	 
	 	     
    (C) an amount equal to a prorated Annual Bonus for the
    Fiscal Year in which termination due to Disability occurs, based
    on the actual performance for such Fiscal Year, the amount of
    which prorated Annual Bonus, if any, shall be deter mined and
    paid promptly following the end of the Fiscal Year to which such
    Annual Bonus relates;
	 
	 	     
    (D) any amounts earned, accrued or owing to the Executive
    but not yet paid under this Agreement; and
	 
	 	     
    (E) other or additional benefits, if any, in accordance
    with applicable plans and programs of the Company or its
    affiliates.

		
	 	     
    (c) Termination by the Company for Cause.

		
	 	     
    (i) A termination of the Executive’s employment by the
    Company shall not be considered to be for Cause unless the
    provisions of this Section 13(c)(i) are complied with. The
    Executive shall be given written notice by the Board of the
    intention to terminate him for Cause, such notice (A) to state
    in detail the particular act or acts or failure or failures to
    act that constitute the grounds on which the proposed
    termination for Cause is based and (B) to be given within
    six months of the Board learning of such act or acts or failure
    or failures to act. The Executive shall have 10 days after
    the date that such written notice has been given to the
    Executive in which to cure such conduct, to the extent such cure
    is possible. The Executive shall also be entitled to a hearing
    before the Board, to be held within 15 days of notice to
    the Company by the Executive, provided he requests such hearing
    within 10 days of the written notice from the Board of the
    intention to terminate his employment for Cause. Notwithstanding
    the foregoing procedures, the Board shall have the right to
    suspend or terminate the Executive’s employment at any time
    upon or after giving the written notice described above,
    regardless of whether the Executive’s opportunity to cure
    has expired and regardless of whether or not any such hearing

6

 

		
	 	
    has been requested or held, without prejudice to the question of
    whether Cause exists, and without having been deemed to have
    breached this Agreement.
	 
	 	     
    (ii) In the event the Company terminates the
    Executive’s employment for Cause, the Executive shall be
    entitled to:

		
	 	     
    (A) Base Salary through the date of the termination of his
    employment;
	 
	 	     
    (B) an amount equal to a prorated Annual Bonus for the
    Fiscal Year in which such termination occurs, based on the
    actual performance for such Fiscal Year, the amount of which
    prorated Annual Bonus, if any, shall be determined and paid
    promptly following the end of the Fiscal Year to which such
    Annual Bonus relates;
	 
	 	     
    (C) any amounts earned, accrued or owing to the Executive
    but not yet paid under this Agreement; and
	 
	 	     
    (D) other or additional benefits, in any, in accordance
    with applicable plans or programs of the Company or its
    affiliates;

		
	 	     
    (d) Termination Without Cause; Constructive
    Termination.

		
	 	     
    (i) A Constructive Termination shall not take effect unless
    the provisions of this Section 13(d)(i) are complied with.
    The Company shall be given written notice by the Executive of
    the intention to terminate his employment on account of a
    Constructive Termination, such notice (A) to state in detail the
    particular act or acts or failure or failures to act that
    constitute the grounds on which the proposed Constructive
    Termination is based and (B) to be given within six months
    of the Executive learning of such act or acts or failure or
    failures to act. The Company shall have 30 days after the
    date that such written notice has been given to the Company in
    which to cure such conduct. If such conduct is not cured within
    that period, the Executive may then terminate his employment by
    reason of Constructive Termination.
	 
	 	     
    (ii) In the event the Executive’s employment is
    terminated (1) by the Company without Cause (other than due
    to Disability or death) or (2) by reason of a Constructive
    Termination, the Executive shall be entitled to:

		
	 	     
    (A) Base Salary through the date of termination of the
    Executive’s employment;
	 
	 	     
    (B) Base Salary, at the rate in effect on the date of
    termination of the Executive’s employment (or in the event
    a reduction in Base Salary is the basis for a Constructive
    Termination, then at the rate in effect immediately prior to
    such reduction), payable for a period (the “Severance
    Period”) from the date of termination through the later
    of (i) the third anniversary of the date of termination or,
    if sooner, the last day of the Employment Term, and
    (ii) the first anniversary of the date of termination;
	 
	 	     
    (C) an amount equal to a prorated Annual Bonus for the
    Fiscal Year in which such termination occurs, based on the
    actual performance for such Fiscal Year, the amount of which
    prorated Annual Bonus, if any, shall be determined and paid
    promptly following the end of the Fiscal Year to which such
    Annual Bonus relates;
	 
	 	     
    (D) any amounts earned, accrued or owing to the Executive
    but not yet paid under this Agreement;
	 
	 	     
    (E) continued participation during the Severance Period in
    medical, dental, hospitalization and life insurance coverage and
    in all other employee welfare plans and programs (other than
    disability plans and programs) in which he was participating on
    the date of termination, on the same basis as such coverage is
    provided to active employees from time to time during the
    Severance Period; provided, that the Company’s obligations
    under this clause (E) shall be reduced to the extent
    that the Executive receives similar coverage and

7

 

		
	 	
    benefits under the plans and programs of a subsequent employer;
    and provided, further, that (x) if the Company determines
    that the Executive is precluded from continuing his
    participation in any employee benefit plan or program as
    provided in this clause on account of his employment status or
    for any other reason, he shall be provided with the after-tax
    economic equivalent of the benefits provided under the plan or
    program in which he is unable to participate for the period
    specified in this clause (E) of this
    Section 13(d); (y) the economic equivalent of any
    benefit foregone shall be deemed to be the lowest cost that
    would be incurred by the Executive in obtaining such benefit
    himself on an individual basis through payment of COBRA
    continuation coverage premiums or by other means, and
    (z) payment of such after-tax economic equivalent shall be
    made quarterly in advance;
	 
	 	     
    (F) other or additional benefits, if any, in accordance
    with applicable plans and programs of the Company or its
    affiliates, other than severance plans and programs.

		
	 	     
    (iii) The Executive agrees to notify the Company
    immediately upon obtaining subsequent employment (including
    self-employment), and to provide all information related to the
    terms thereof that the Company may reasonably request, so that
    the Company may determine and administer the offset provided
    under clause (E) of Section 13(d)(ii).

		
	 	     
    (e) Voluntary Termination. In the event of a
    termination of employment by the Executive on his own
    initiative, other than a termination due to death or Disability
    or a Constructive Termination, the Executive shall have the same
    entitlements as provided in Section 13(c) above for a
    termination for Cause. A voluntary termination under this
    Section 13(e) shall be effective upon 30 days’
    prior written notice to the Company and shall not be deemed a
    breach of this Agreement.
	 
	 	     
    (f) No Mitigation; No Offset. In the event of
    any termination of employment under this Section 13, the
    Executive shall have no obligation to seek other employment.
    There shall be no offset against amounts due the Executive under
    this Agreement on account of any remuneration attributable to
    any subsequent employment that he may obtain except as
    specifically provided in this Section 13.
	 
	 	     
    (g) Nature of Payments. Any amounts due under
    this Section 13 are in the nature of severance payments and
    liquidated damages. Failure to qualify for any such payment is
    not in the nature of a penalty.
	 
	 	     
    (h) Exclusivity of Severance Payments. Upon
    termination of the Executive’s employment during the Term
    of Employment, he shall not be entitled to any payments or
    benefits from the Company or its affiliates, other than as
    provided herein, or any payments by the Company or its
    affiliates on account of any claim by him of wrongful
    termination, including claims under any federal, state or local
    human and civil rights or labor laws, other than the payments
    and benefits provided hereunder, except for any benefits which
    may be due under any employee benefit plan of the Company or its
    affiliates which provides benefits after termination of
    employment (as set forth above and incorporated herein).
	 
	 	     
    (i) Non-competition. The Executive agrees
    that any right to receive any payments and/or benefits
    hereunder, other than Base Salary and/or any pension, and/or any
    other compensation already earned by the Executive and required
    to be paid by state law other than under this Agreement, will
    cease and be immediately forfeited if the Executive breaches the
    provisions of Section 14. The Executive agrees that any
    violation of the provisions of Section 14 will result in
    the immediate forfeiture of any rights to exercise or receive
    the Options or any other stock options and to receive and vest
    in the Restricted Stock or any other restricted stock or other
    equity-based award. The foregoing is in addition to the rights
    of the Company under Section 14.
	 
	 	     
    (j) Release of Claims. As a condition of the
    Executive’s entitlement to the payment and/or delivery of
    any of the severance rights and benefits provided in this
    Section 13 (other than in the

8

 

		
	 	
    event of the Executive’s death), the Executive shall be
    required to execute and honor a release of claims in the form
    reasonably requested by the Company.
	 
	 	     
    (k) Termination at Will. Notwithstanding
    anything herein to the contrary, the Executive’s employment
    with the Company is terminable at will with or without Cause;
    provided, however, that a termination of the Executive’s
    employment shall be governed in accordance with the terms hereof.

		
	 	     
    14. Restrictive Covenants.

		
	 	     
    (a) Non-Compete. By and in consideration of
    the substantial compensation and benefits provided by the
    Company hereunder, and further in consideration of the
    Executive’s exposure to the proprietary information of the
    Company and its affiliates, the Executive agrees that he shall
    not, during the Term of Employment and for a period ending on
    the first anniversary of the termination of his employment for
    any reason, directly or indirectly own, manage, operate, join,
    control, be employed by, or participate in the ownership,
    management, operation or control of or be connected in any
    manner, including, but not limited to, holding the positions of
    officer, director, shareholder, consultant, independent
    contractor, employee, partner, or investor, with any Competing
    Enterprise; provided, however, that the Executive may invest in
    stocks, bonds or other securities of any corporation or other
    entity (but without participating in the business thereof) if
    such stocks, bonds, or other securities are listed for trading
    on a national securities exchange or NASDAQ National Market and
    the Executive’s investment does not exceed 1% of the issued
    and outstanding shares of capital stock, or in the case of bonds
    or other securities, 1% of the aggregate principal amount
    thereof issued and outstanding. For purposes of this
    Section 14, “Competing Enterprise” shall mean any
    and/or all of the following: (i) American Retail Group,
    Inc., Carrefour SA, Fleming Companies, Inc., Kohl’s
    Corporation, The May Department Store Company, J.C. Penney
    Company, ShopKo Stores, Inc., Target Corp., The Home Depot,
    Inc., Toys R Us Inc., TJX Companies, Inc., and Wal-Mart Stores,
    Inc., and any of their parents and/or subsidiaries that are
    engaged in retail operations; and/or (ii) an entity or
    enterprise whose business is in direct competition with a
    business that the Company hereafter acquires and which reports
    directly to the Executive during his employment hereunder,
    provided that such business represents at least ten percent of
    the combined EBITDA of Kmart. Notwithstanding the foregoing, if,
    following Alan J. Lacy’s ceasing to hold the title of Chief
    Executive Officer of the Company, any individual, other than the
    Executive or Edward S. Lampert, assumes the title of Chief
    Executive Officer of the Company, the provisions of this
    Section 14(a) shall not apply.
	 
	 	     
    (b) Nonsolicitation. By and in consideration
    of the substantial compensation and benefits to be provided by
    the Company and its affiliates hereunder, and further in
    consideration of the Executive’s exposure to the
    proprietary information of the Company and its affiliates, the
    Executive agrees that he shall not, during the Term of
    Employment and for a period ending on the first anniversary of
    the termination of his employment for any reason, without the
    express prior written approval of the Company, (i) directly
    or indirectly, in one or a series of transactions, recruit,
    solicit or otherwise induce or influence any proprietor,
    partner, stockholder, lender, director, officer, employee, sales
    agent, joint venturer, investor, lessor, supplier, agent,
    representative or any other person which has a business
    relationship with the Company or any of its subsidiaries or
    affiliates, or had a business relationship with the Company or
    any of its subsidiaries or affiliates within the 24-month period
    preceding the date of the incident in question, to discontinue,
    reduce or modify such employment, agency or business
    relationship with the Company or such subsidiary(ies) or
    affiliate(s), or (ii) directly or indirectly, employ or
    seek to employ (including through any employer of the Executive)
    or cause any Competing Enterprise to employ or seek to employ
    any person or agent who is then (or was at any time within six
    months prior to the date the Executive or the Competing
    Enterprise employs or seeks to employ such person) employed or
    retained by the Company or any of its subsidiaries or affiliates.
	 
	 	     
    (c) Confidential Information. During the Term
    of Employment and at all times thereafter, Executive agrees that
    he will not divulge to anyone or make use of any Confidential
    Information

9

 

		
	 	
    except in the performance of his duties as an executive of the
    Company or any of its subsidiaries or affiliates or when legally
    required to do so (in which case the Executive shall give prompt
    written notice to the Company in order to allow the Company the
    opportunity to object or otherwise resist such disclosure).
    “Confidential Information” shall mean any knowledge or
    information of any type relating to the business of the Company
    or any of its subsidiaries or affiliates, as well as any
    information obtained from customers, clients or other third
    parties, including, without limitation, all types of trade
    secrets and confidential commercial information. The Executive
    agrees that he will return to the Company, immediately upon
    termination, any and all documents, records or reports
    (including electronic information) that contain any Confidential
    Information. Confidential Information shall not include
    information (i) that is or becomes part of the public
    domain, other than through the breach of this Agreement by the
    Executive or (ii) regarding the business or industry of the
    Company or any of its subsidiaries or affiliates properly
    acquired by the Executive in the course of his career as an
    executive in the Company’s industry and independent of the
    Executive’s employment by the Company. The Executive
    acknowledges that the Company and its affiliates have expended,
    and will continue to expend, significant amounts of time, effort
    and money in the procurement of its Confidential Information,
    that the Company and its affiliates have taken all reasonable
    steps in protecting the secrecy of the Confidential Information,
    and that said Confidential Information is of critical importance
    to the Company and its affiliates.
	 
	 	     
    (d) Non-Disparagement. The Parties agree
    that, during the Term of Employment and thereafter (including
    following the Executive’s termination of employment for any
    reason): (i) the Executive will not make statements or
    representations, or otherwise communicate, directly or
    indirectly, in writing, orally, or otherwise, or take any action
    which may, directly or indirectly, disparage the Company or any
    subsidiary or affiliate or their respective officers, directors,
    employees, advisors, businesses or reputations; and
    (ii) the officers of the Company will not make any
    statements or representations or otherwise communicate, directly
    or indirectly, in writing, orally, or otherwise, or take any
    action which may, directly or indirectly, disparage the
    Executive. Notwithstanding the foregoing, nothing in this
    Agreement shall preclude either the Executive or the Company
    from making truthful statements or disclosures that are required
    by applicable law, regulation or legal process.
	 
	 	     
    (e) Cooperation. The Executive agrees to
    cooperate with the Company, during the Term of Employment and
    thereafter (including following the Executive’s termination
    of employment for any reason), by being reasonably available to
    testify on behalf of the Company or any subsidiary or affiliate
    in any action, suit, or proceeding, whether civil, criminal,
    administrative, or investigative, and to assist the Company, or
    any subsidiary or affiliate, in any such action, suit or
    proceeding, by providing information and meeting and consulting
    with the Board or their representatives or counsel, or
    representatives or counsel to the Company, or any subsidiary or
    affiliate, as reasonably requested. The Company agrees to
    reimburse the Executive for all expenses actually incurred in
    connection with his provision of testimony or assistance
    (including attorneys’ fees incurred in connection
    therewith) upon submission of appropriate documentation to the
    Company.
	 
	 	     
    (f) Remedies. The Executive agrees that any
    breach of the terms of this Section 14 would result in
    irreparable injury and damage to the Company for which the
    Company would have no adequate remedy at law; the Executive
    therefore also agrees that in the event of said breach or any
    threat of said breach, the Company shall be entitled to an
    immediate injunction and restraining order to prevent such
    breach and/or threatened breach and/or continued breach by the
    Executive and/or any and all persons and/or entities acting for
    and/or with the Executive. The terms of this Section 14
    shall not prevent the Company from pursuing any other available
    remedies for any breach or threatened breach hereof, including,
    but not limited to, remedies available under this Agreement and
    the recovery of damages. The Executive and the Company further
    agree that the provisions of the covenant not to compete are
    reasonable. Should a court or arbitrator determine, however,
    that any provision of the covenant not to compete is
    unreasonable, either in period of time, geographical

10

 

		
	 	
    area, or otherwise, the Parties agree that the covenant shall be
    interpreted and enforced to the maximum extent which such court
    or arbitrator deems reasonable.
	 
	 	     
    (g) Continuing Operation. The provisions of
    this Section 14 shall survive any termination of this
    Agreement and the Term of Employment, and the existence of any
    claim or cause of action by the Executive against the Company,
    whether predicated on this Agreement or otherwise, shall not
    constitute a defense to the enforcement by the Company of the
    covenants and agreements of this Section 14.
	 
	 	     
    (h) Notice to Employer. The Executive agrees
    that as long as the provisions of Section 14(a) or 14(b)
    continue to bind the Executive, he will provide written notice
    of the terms and provisions of this Section 14 to any
    prospective employer.

		
	 	     
    15. Indemnification.

		
	 	     
    (a) The Company agrees that if the Executive is made a
    party, or is threatened to be made a party, to any action, suit
    or proceeding, whether civil, criminal, administrative or
    investigative (a “Proceeding”), by reason of the fact
    that he is or was a director or employee of the Company or any
    of its affiliates, or is or was serving at the request of the
    Company as a director, employee or agent of another corporation,
    partnership, joint venture, trust or other enterprise, including
    service with respect to employee benefit plans, whether or not
    the basis of such Proceeding is the Executive’s alleged
    action in an official capacity while serving as a director,
    employee or agent, the Executive shall be indemnified and held
    harmless by the Company to the fullest extent legally permitted
    or authorized by its certificate of incorporation or bylaws or
    resolutions of the Board or, if greater, by the laws of its
    state of incorporation against all cost, expense, liability and
    loss (including, without limitation, attorney’s fees,
    judgments, fines, ERISA excise taxes or penalties and amounts
    paid or to be paid in settlement) reasonably incurred or
    suffered by the Executive in connection therewith, and such
    indemnification shall continue as to the Executive even if he
    has ceased to be a director, employee or agent of the Company or
    other entity and shall inure to the benefit of the
    Executive’s heirs, executors and administrators. The
    Company shall advance to the Executive all reasonable costs and
    expenses incurred by him in connection with a Proceeding within
    20 days after receipt by the Company of a written request
    for such advance. Such request shall include an undertaking by
    the Executive to repay the amount of such advance if it shall
    ultimately be determined that he is not entitled to be
    indemnified against such costs and expenses.
	 
	 	     
    (b) The Company agrees to continue and/or maintain a
    directors and officers’ liability insurance policy covering
    the Executive to the same extent it provides such coverage for
    its other executive officers and directors and for not less than
    the amounts in effect for its other executive officers and
    directors.

		
	 	     
    16. Assignability; Binding Nature. This
    Agreement shall be binding upon and inure to the benefit of the
    Parties and their respective successors, heirs (in the case of
    the Executive) and assigns. No rights or obligations of the
    Company under this Agreement may be assigned or transferred by
    the Company except that such rights or obligations may be
    assigned or transferred pursuant to a merger or consolidation in
    which the Company is not the continuing entity, or the sale or
    liquidation of all or substantially all of the assets of the
    Company, provided that the assignee or transferee is the
    successor to all or substantially all of the assets of the
    Company and such assignee or transferee assumes the liabilities,
    obligations and duties of the Company, as contained in this
    Agreement, either contractually or by operation of law. The
    Company further agrees that, in the event of a sale or
    reorganization transaction as described in the preceding
    sentence, it shall take whatever action it legally can in order
    to cause such assignee or transferee to assume the liabilities,
    obligations and duties of the Company hereunder, if such
    assumption does not take place by operation of law. No rights or
    obligations of the Executive under this Agreement may be
    assigned or transferred by the Executive other than his rights
    to compensation and benefits, which may be transferred only by
    will or operation of law, except as otherwise provided herein.

11

 

		
	 	     
    17. Miscellaneous Provisions.

		
	 	     
    (a) This Agreement contains the final and entire
    understanding and agreement between the Parties concerning the
    subject matter hereof and supersedes all prior representations,
    agreements, discussions, negotiations and undertakings, whether
    written or oral, between the Parties with respect thereto;
    provided, however, that this Agreement shall not supersede any
    separate written commitments by the Company with respect to
    indemnification.
	 
	 	     
    (b) No provision in this Agreement may be amended unless
    such amendment is authorized by the Board or the Committee and
    agreed to in writing and signed by the Executive and an
    authorized officer of the Company. No waiver by any Party of any
    breach by another Party of any condition or provision contained
    in this Agreement to be performed by such other Party shall be
    deemed a waiver of a similar or dissimilar condition or
    provision at the same or any prior or subsequent time. Any
    waiver must be in writing and signed by the Executive or an
    authorized officer of the Company.
	 
	 	     
    (c) In the event that any provision or portion of this
    Agreement shall be determined to be invalid or unenforceable for
    any reason, in whole or in part, the remaining provisions of
    this Agreement shall be unaffected thereby and shall remain in
    full force and effect to the fullest extent permitted by law.
	 
	 	     
    (d) The respective rights and obligations of the Parties
    hereunder shall survive any termination of the Executive’s
    employment to the extent necessary to the intended preservation
    of such rights and obligations.
	 
	 	     
    (e) The Executive shall be entitled, to the extent
    permitted under any applicable law, to select and change a
    beneficiary or beneficiaries to receive any compensation or
    benefit payable hereunder following the Executive’s death
    by giving the Company written notice thereof. In the event of
    the Executive’s death or a judicial determination of his
    incompetence, reference in this Agreement to the Executive shall
    be deemed, where appropriate, to refer to his beneficiary,
    estate or other legal representative.
	 
	 	     
    (f) All amounts required to be paid by the Company shall be
    subject to reduction in order to comply with applicable Federal,
    state and local tax withholding requirements, except as
    otherwise provided herein.
	 
	 	     
    (g) The headings of the sections contained in this
    Agreement are for convenience only and shall not be deemed to
    control or affect the meaning or construction of any provision
    of this Agreement.
	 
	 	     
    (h) This Agreement may be executed in two or more
    counterparts.

		
	 	     
    18. Governing Law. This Agreement shall be
    governed by and construed and interpreted in accordance with the
    laws of Delaware without reference to principles of conflict of
    laws.
	 
	 	     
    19. Arbitration.

		
	 	     
    (a) Any and all controversies, disputes or claims arising
    between the Executive, on the one hand, and the Company, on the
    other hand, including any purported controversies, disputes or
    claims not arising under contract, that have not been resolved
    within twenty (20) days after notice is given in writing of
    the controversy, dispute or claim shall be submitted for
    arbitration in accordance with the rules of the American
    Arbitration Association in effect as of the Effective Date.
    Arbitration shall take place at an appointed time and place in
    New York, New York. The Executive and the Company shall each
    select one arbitrator, and the two so designated shall select a
    third arbitrator. If either the Executive or the Company shall
    fail to designate an arbitrator within fifteen
    (15) calendar days after arbitration is requested, or if
    the two arbitrators shall fail to select a third arbitrator
    within thirty (30) calendar days after arbitration is
    requested, then such arbitrator shall be selected by the
    American Arbitration Association, or any successor thereto, upon
    application of either such Party.

12

 

		
	 	     
    (b) Arbitration under this provision shall be the sole and
    exclusive forum and remedy for resolution of controversies,
    disputes and claims of any kind or nature, whether or not
    presently known or anticipated, including any purported
    controversies, disputes or claims not arising under contract,
    between the Executive, on the one hand, and the Company, on the
    other hand, and no recourse shall be had to any other judicial
    or other forum for any such resolution. The award of the
    arbitrators may grant any relief that a court of general
    jurisdiction has authority to grant, including, without
    limitation, an award of damages and/or injunctive relief. All
    costs and expenses of arbitration (including fees and
    disbursements of counsel and experts) shall be borne by the
    respective Party incurring such costs and expenses, except that
    the Executive, on the one hand, and the Company, on the other
    hand, shall bear one-half of the aggregate fees and
    disbursements of the arbitrators and costs of the American
    Arbitration Association. Any award of the majority of
    arbitrators shall be binding and not subject to judicial appeal
    or review of the award, including without limitation any
    proceedings under sections 9 and 10 of the Federal Arbitration
    Act, 9 U.S.C. § 1 et seq., or any
    comparable provision for review of an arbitral award under any
    comparable statute or law of any jurisdiction, all rights to
    which are hereby expressly waived by the Parties. Subject to the
    preceding sentence, the United States District Court for the
    District of Delaware and the courts of the State of Delaware
    shall have sole and exclusive jurisdiction solely for the
    purpose of entering judgment upon any award by the majority of
    arbitrators.

		
	 	     
    20. Notices. Any notice given to a Party
    shall be in writing and shall be deemed to have been given when
    delivered personally or sent by certified or registered mail,
    postage prepaid, return receipt requested, duly addressed to the
    Party concerned at the address indicated below or to such
    changed address as such Party may subsequently give such notice
    of:

          If
to the Company:

          Sears
Holdings Corporation

          3333
Beverly Road

          Hoffman
Estates, IL 60179

          Attention:
General Counsel

          If
to the Executive:

          Aylwin
Lewis

          c/o Sears
Holdings Corporation

          3333
Beverly Road

          Hoffman
Estates, IL 60179

		
	 	     
    21. Certain Additional Payments by the
    Company.

		
	 	     
    (a) Anything in this Agreement to the contrary
    notwithstanding and except as set forth below, in the event it
    shall be determined that any Payment would be subject to the
    Excise Tax, then the Executive shall be entitled to receive an
    additional payment (the “Gross-Up Payment”) in
    an amount such that, after payment by the Executive of all taxes
    (and any interest or penalties imposed with respect to such
    taxes), including, without limitation, any income taxes (and any
    interest and penalties imposed with respect thereto) and Excise
    Tax imposed upon the Gross-Up Payment, the Executive retains an
    amount of the Gross-Up Payment equal to the Excise Tax imposed
    upon the Payments. Notwithstanding the foregoing provisions of
    this Section 21(a), if it shall be determined that the
    Executive is entitled to the Gross-Up Payment, but that the
    Parachute Value of all Payments does not exceed 110% of the Safe
    Harbor Amount, then no Gross-Up Payment shall be made to the
    Executive and the amounts payable under this Agreement shall be
    reduced so that the Parachute Value of all Payments, in the
    aggregate, equals the Safe Harbor Amount. The reduction of the
    amounts payable hereunder, if applicable, shall be made by first
    reducing the payments under Section 13(d)(i)(B) unless an
    alternative method of reduction is elected by the Executive, and
    in any event shall be made in such a manner as to maximize the
    Value of all Payments actually made to the Executive. For
    purposes of reducing the Payments to the Safe Harbor Amount,
    only amounts

13

 

		
	 	
    payable under this Agreement (and no other Payments) shall be
    reduced. If the reduction of the amount payable under this
    Agreement would not result in a reduction of the Parachute Value
    of all Payments to the Safe Harbor Amount, no amounts payable
    under the Agreement shall be reduced pursuant to this
    Section 21(a). The Company’s obligation to make
    Gross-Up Payments under this Section 21 shall not be
    conditioned upon the Executive’s termination of employment.
	 
	 	     
    (b) Subject to the provisions of Section 21(c), all
    determinations required to be made under this Section 21,
    including whether and when a Gross-Up Payment is required, the
    amount of such Gross-Up Payment and the assumptions to be
    utilized in arriving at such determination, shall be made by a
    nationally recognized certified public accounting firm
    designated by the Company (the “Accounting
    Firm”). The Accounting Firm shall provide detailed
    supporting calculations both to the Company and the Executive
    within 15 business days of the receipt of notice from the
    Executive that there has been a Payment or such earlier time as
    is requested by the Company. All fees and expenses of the
    Accounting Firm shall be borne solely by the Company. Any
    Gross-Up Payment, as determined pursuant to this
    Section 21, shall be paid by the Company to the Executive
    within 5 days of the receipt of the Accounting Firm’s
    determination. Any determination by the Accounting Firm shall be
    binding upon the Company and the Executive. As a result of the
    uncertainty in the application of Section 4999 of the Code
    at the time of the initial determination by the Accounting Firm
    hereunder, it is possible that Gross-Up Payments that will not
    have been made by the Company should have been made (the
    “Under-payment”), consistent with the calculations
    required to be made hereunder. In the event the Company exhausts
    its remedies pursuant to Section 21(c) and the Executive
    thereafter is required to make a payment of any Excise Tax, the
    Accounting Firm shall determine the amount of the Underpayment
    that has occurred and any such Underpayment shall be promptly
    paid by the Company to or for the benefit of the Executive.
	 
	 	     
    (c) The Executive shall notify the Company in writing of
    any claim by the Internal Revenue Service that, if successful,
    would require the payment by the Company of the Gross-Up
    Payment. Such notification shall be given as soon as
    practicable, but no later than 10 business days after the
    Executive is informed in writing of such claim. The Executive
    shall apprise the Company of the nature of such claim and the
    date on which such claim is requested to be paid. The Executive
    shall not pay such claim prior to the expiration of the 30-day
    period following the date on which the Executive gives such
    notice to the Company (or such shorter period ending on the date
    that any payment of taxes with respect to such claim is due). If
    the Company notifies the Executive in writing prior to the
    expiration of such period that the Company desires to contest
    such claim, the Executive shall:

		
	 	     
    (i) give the Company any information reasonably requested
    by the Company relating to such claim,
	 
	 	     
    (ii) take such action in connection with contesting such
    claim as the Company shall reasonably request in writing from
    time to time, including, without limitation, accepting legal
    representation with respect to such claim by an attorney
    reasonably selected by the Company,
	 
	 	     
    (iii) cooperate with the Company in good faith in order
    effectively to contest such claim, and
	 
	 	     
    (iv) permit the Company to participate in any proceedings
    relating to such claim;

		
	 	
    provided, however, that the Company shall bear and pay directly
    all costs and expenses (including additional interest and
    penalties) incurred in connection with such contest, and shall
    indemnify and hold the Executive harmless, on an after-tax
    basis, for any Excise Tax or income tax (including interest and
    penalties) imposed as a result of such representation and
    payment of costs and expenses. Without limitation on the
    foregoing provisions of this Section 21(c), the Company
    shall control all proceedings taken in connection with such
    contest, and, at its sole discretion, may pursue or forgo any
    and all administrative appeals, proceedings, hearings and
    conferences with the applicable taxing authority in respect of
    such claim and may, at its sole discretion, either pay the tax
    claimed to the

14

 

		
	 	
    appropriate taxing authority on behalf of the Executive and
    direct the Executive to sue for a refund or contest the claim in
    any permissible manner, and the Executive agrees to prosecute
    such contest to a determination before any administrative
    tribunal, in a court of initial jurisdiction and in one or more
    appellate courts, as the Company shall determine; provided,
    however, that, if the Company pays such claim and directs the
    Executive to sue for a refund, the Company shall indemnify and
    hold the Executive harmless, on an after-tax basis, from any
    Excise Tax or income tax (including interest or penalties)
    imposed with respect to such payment or with respect to any
    imputed income in connection with such payment; and provided,
    further, that any extension of the statute of limitations
    relating to payment of taxes for the taxable year of the
    Executive with respect to which such contested amount is claimed
    to be due is limited solely to such contested amount.
    Furthermore, the Company’s control of the contest shall be
    limited to issues with respect to which the Gross-Up Payment
    would be payable hereunder, and the Executive shall be entitled
    to settle or contest, as the case may be, any other issue raised
    by the Internal Revenue Service or any other taxing authority.

		
	 	     
    (d) If, after the receipt by the Executive of a Gross-Up
    Payment or payment by the Company of an amount on the
    Executive’s behalf pursuant to Section 21(c), the
    Executive becomes entitled to receive any refund with respect to
    the Excise Tax to which such Gross-Up Payment relates or with
    respect to such claim, the Executive shall (subject to the
    Company’s complying with the requirements of
    Section 21(c), if applicable) promptly pay to the Company
    the amount of such refund (together with any interest paid or
    credited thereon after taxes applicable thereto). If, after
    payment by the Company of an amount on the Executive’s
    behalf pursuant to Section 21(c), a determination is made
    that the Executive shall not be entitled to any refund with
    respect to such claim and the Company does not notify the
    Executive in writing of its intent to contest such denial of
    refund prior to the expiration of 30 days after such
    determination, then the amount of such payment shall offset, to
    the extent thereof, the amount of Gross-Up Payment required to
    be paid.
	 
	 	     
    (e) Notwithstanding any other provision of this
    Section 21, the Company may, in its sole discretion,
    withhold and pay over to the Internal Revenue Service or any
    other applicable taxing authority, for the benefit of the
    Executive, all or any portion of any Gross-Up Payment, and the
    Executive hereby consents to such withholding.
	 
	 	     
    (f) Definitions. The following terms shall have the
    following meanings for purposes of this Section 21.

		
	 	     
    (i) “Excise Tax” shall mean the excise tax
    imposed by Section 4999 of the Code, together with any
    interest or penalties imposed with respect to such excise tax.
	 
	 	     
    (ii) “Parachute Value” of a Payment shall
    mean the present value as of the date of the change of control
    for purposes of Section 280G of the Code of the portion of
    such Payment that constitutes a “parachute payment”
    under Section 280G(b)(2), as determined by the Accounting
    Firm for purposes of determining whether and to what extent the
    Excise Tax will apply to such Payment.
	 
	 	     
    (iii) A “Payment” shall mean any payment
    or distribution in the nature of compensation (within the
    meaning of Section 280G(b)(2) of the Code) to or for the
    benefit of the Executive, whether paid or payable pursuant to
    this Agreement or otherwise.
	 
	 	     
    (iv) The “Safe Harbor Amount” shall mean
    2.99 times the Executive’s “base amount,” within
    the meaning of Section 280G(b)(3) of the Code.
	 
	 	     
    (v) “Value” of a Payment shall mean the
    economic present value of a Payment as of the date of the change
    of control for purposes of Section 280G of the Code, as
    deter-mined by the Accounting Firm using the discount rate
    required by Section 280G(d)(4) of the Code.

15

 

     
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date first set forth above.

		
	 	
    SEARS HOLDINGS CORPORATION
	 
	 	
    By: /s/ William C.
    Crowley
    
	 	
     

			
	 	Title:	
    Executive Vice President, Finance 

     and Integration

		
	 	
    THE EXECUTIVE
	 
	 	
    /s/ Aylwin Lewis
    
	 	
     

	 	
    Aylwin Lewis

16

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