Sample Business Contracts

Severance Agreement - Kmart Corp. and Janet G. Kelley

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                                                                February 5, 2003

Ms. Janet G. Kelley
533 Wallace Street
Birmingham, Michigan  48009

Dear Janet:

         This letter ("Amended Letter") serves to amend and restate that certain
letter to you dated January 15, 2003 (the "January 15 Letter"), and evidences
the current position of Kmart Corporation (the "Company") with respect to the
termination of your employment, pending any subsequent determination by the
Company of its rights and obligations relating to your termination.

1.       Termination. Your employment with the Company terminated effective
         January 16, 2003 (the "Termination Date").

2.       Compliance with Agreement. The Company expects that you will comply in
         all respects with your obligations (other than noncompetition
         obligations) under your Special Retention Agreement dated December 7,
         2001 (the "2001 Agreement").

3.       Return of Company Property. You represent that, except as noted below,
         you have returned to the Company all property of the Company or its
         subsidiary or affiliates which was in your possession, including, but
         not limited to, customers or client lists, documents, contracts,
         agreements, plans, photographs, books, notes, memoranda, manuals,
         records, electronically stored data, proprietary computer software,
         source codes, algorithms and all copies of the foregoing, as well as
         any laptop or other computer hardware, automobile or other materials or
         equipment supplied by the Company to you. The Company agrees that you
         and/or your counsel may retain certain documents, copies of which have
         been provided to the Company and/or its counsel, that are necessary for
         purposes of your providing testimony in connection with matters
         relating to the Company's stewardship investigation and investigation
         of its accounting and financial statements.

4.       Reservation of Rights. The Company reserves all of its rights relating
         to your termination, including, without limitation, the right of the
         Company to characterize your termination in a particular manner for
         purposes of the 2001 Agreement, the promissory note dated December 7,
         2001, relating to a $500,000 loan to you from the Company (the "Loan"),
         and any other agreement, plan or arrangement between you and the


5.       Severance. Provided you shall have fully repaid the principal amount of
         the Loan by no later than February 6, 2003, and provided that (i) you
         execute the enclosed copy of this letter and the enclosed Release and
         return them to the Company by February 6, 2003, (ii) you do not revoke
         the Release and (iii) you are and remain in compliance with your
         obligations under this letter, the Company will pay to you as severance
         a monthly sum, less applicable withholding (including withholding with
         respect to forgiveness of accrued interest on the Loan), in an amount
         equal to your monthly salary as in effect on the Termination Date and
         will pay a monthly COBRA subsidy on your behalf and will provide
         outplacement services. Such payments will commence as soon as
         practicable following expiration of the revocation period applicable to
         the Release (the initial payment will cover the period from January 17,
         2003 through the date of payment) and, subject to the provisions
         hereof, shall be made for a period of 24 months (except that
         outplacement services will be provided for up to one year). These
         monthly payments shall be reduced by the amount of compensation you
         earn from subsequent employment (including self-employment) and you
         shall promptly notify the Company of any such compensation. Further,
         the Company reserves the right to terminate these monthly payments at
         any time upon ten (10) days' notice to you and to seek repayment by you
         of any amounts previously paid by the Company pursuant to the preceding
         sentence if, based on the results of its current stewardship
         investigation and investigation of its accounting and financial
         statements, the Company determines that your employment was terminated
         by the Company for Cause (as such term is defined in the 2001

6.       Consulting with Counsel. The Company has advised you to consult with an
         attorney of your choosing prior to signing this letter. You represent
         that you understand and agree that you have the right and have been
         given the opportunity to review this letter with an attorney. You
         further represent that you understand and agree that the Company is
         under no obligation to offer this letter to you and that you have
         executed this letter freely and voluntarily.

7.       Governing Law. This letter shall be governed by and construed and
         enforced in accordance with the laws of the State of Michigan, applied
         without reference to principles of conflicts of laws.

                                             KMART CORPORATION

                                             By: ___________________________
                                                  Julian Day
                                                  President and Chief Executive

                  Janet G. Kelley