KMART MANAGEMENT CORPORATION
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, dated and effective as of January 2, 2004 (the "Grant
Date") by and between Kmart Management Corporation, a Michigan
"Company"), and James D. Donlon
(the "Executive"), is entered into as follows:
WHEREAS, the Company and the Executive are parties to an Employment
Agreement made and entered into on January 1, 2004 (the "Employment Agreement");
WHEREAS, the Compensation Committee of the Board of Directors of Kmart
oration ("Holding Corp."), a Delaware
corporation and the Company's
parent corporation, has determined that, as an inducement material to the
Executive's agreement to enter into employment with the Company, in satisfaction
of the Company's obligation under Section 5 of the Employment Agreement, and
subject to the restrictions stated below, the Executive should be granted shares
of the Holding Corp.'s $1.00 par value Common Stock (the "Restricted Stock");
NOW, THEREFORE, the parties hereby agree as follows:
1. Grant of Stock.
Pursuant to Section 5 of the Employment Agreement, the Executive is hereby
granted, effective on the Grant Date and subject to the terms and conditions of
this Agreement, 21,552 shares of Restricted Stock, said number of shares being
determined as follows: (a) the average of the highest ($24.00) and lowest
($22.41) fair market value of one share of Holding Corp. Common Stock on the
Grant Date is $23.20; and (b) 21,552 shares of Holding Corp. Common Stock, at a
fair market value of $23.20, would have a fair market value of $500,006.
2. Issuance of Stock.
As soon as practicable, the Company shall cause the shares of Restricted
Stock to be issued in the Executive's name. The Restricted Stock shall be held
in the custody of the Company or its designee for the Executive's account. The
Restricted Stock shall be subject to the restrictions described herein. The
Restricted Stock shall bear appropriate legends with respect to the restrictions
(a) The interest of the Executive in the Restricted Stock shall vest as to
one-third of such Restricted Stock (7184 shares) at 12:01 a.m. on the date after
the end of fiscal year 2004, as to an additional one-third (7184 shares) at
12:01 a.m. on the date after the end of fiscal year 2005, and as to the final
one-third (7184 shares) at 12:01 a.m. on the date after the end of fiscal year
2006, so as to be 100% vested at 12:01 a.m. on the date after the end of fiscal
year 2006, conditioned upon the Executive's continued employment with the
Company as of each vesting date.
(b) Notwithstanding the foregoing, pursuant to and in accordance with the
terms, conditions and definitions of the Employment Agreement, the interest of
the Executive in the Stock shall vest as to 100% of the then unvested Restricted
Stock upon the Executive's termination of employment (i) without Cause (other
than due to disability or death), (ii) by reason of Constructive Termination, or
(iii) upon expiration of the Term of Employment following the Company's having
given a notice of non-extension of the Term of Employment.
(a) No portion of the Restricted Stock or rights granted hereunder may be
sold, transferred, assigned, pledged or otherwise encumbered or disposed of by
the Executive until such portion of the Restricted Stock becomes vested in
accordance with Section 3 of this Agreement. The period of time between the date
hereof and the date all Restricted Stock becomes vested is referred to herein as
the "Restriction Period."
(b) If the Executive's employment with the Company is terminated for any
reason which does not give rise to 100% vesting of the Restricted Stock, as
provided in Section 3 above, the balance of the Restricted Stock subject to the
provisions of this Agreement which have not vested at the time of the
Executive's termination of employment shall be forfeited by the Executive, and
ownership transferred back to the Company.
5. Executive Shareholder Rights.
During the Restriction Period, the Executive shall have all the rights of
a shareholder with respect to the Restricted Stock except for the right to
transfer the Restricted Stock, as set forth in Section 4 of this Agreement.
Accordingly, the Executive shall have the right to vote the Restricted Stock and
to receive any cash dividends paid to or made with respect to the Restricted
Stock, provided, however, that dividends paid, if any, with respect to that
Restricted Stock which has not vested at the time of the dividend payment shall
be held in the custody of the Company and shall be subject to the same
restrictions that apply to the corresponding Restricted Stock.
6. Changes in Stock.
In the event that as a result of (a) any stock dividend, stock split or
other change in the Restricted Stock, or (b) any merger or sale of all or
substantially all of the assets or other acquisition of the Company or Holding
Corp., and by virtue of any such change, the Executive shall in his capacity as
owner of unvested shares of Restricted Stock which have been awarded to him (the
"Prior Stock") be entitled to new or additional or different shares or
securities, such new or additional or different shares or securities shall
thereupon be considered to be unvested Restricted Stock and shall be subject to
all of the conditions and restrictions which were applicable to the Prior Stock
pursuant to this Agreement.
The Executive shall be liable for any and all taxes, including withholding
taxes, arising out of this grant or the vesting of Restricted Stock hereunder.
The Executive may elect to satisfy
such withholding tax obligation by having the Company retain Restricted Stock
having a fair market value equal to the Company's minimum withholding
(a) The Company shall not be required (i) to transfer on its books any
shares of Restricted Stock which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement, or (ii) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
(b) The parties agree to execute such further instruments and to take such
action as may reasonably be necessary to carry out the intent of this Agreement.
(c) Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon delivery to the Executive at his
address then on file with the Company.
(d) This Agreement shall not be construed so as to grant the Executive any
right to remain in the employ of the Company.
(e) The parties agree that: (i) this Restricted Stock Agreement and the
grant of Restricted Stock hereunder are in full and final satisfaction of the
Company's obligations under Section 5 of the Employment Agreement; (ii) the
Company shall have no further obligation to the Executive pursuant to Section 5
of the Employment Agreement except as stated herein; and (iii) neither the
Company nor Holding Corp. shall have any further obligation to the Executive
relating to the grant of stock except as stated herein.
(f) This Agreement and the Employment Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement effective
on the date first set above.
EXECUTIVE KMART MANAGEMENT CORPORATION
- ------------------------------------ ---------------------------------
James D. Donlon