EX-10 2 exhkerp.txt 2004 KEY EMPLOYEE RETENTION PLAN Exhibit 10.26 Factory 2-U Stores, Inc. 2004 Key Employee Retention Plan On January 13, 2004, in order to implement an operational and financial restructuring, Factory 2-U Stores, Inc. (the "Company") voluntarily filed a petition under chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court in the District of Delaware (the "Bankruptcy Court"). In order to maintain consistently effective, high quality management in certain critical positions during the reorganization of Company, and to reward certain employees for continuing to provide services to the Company in these uncertain times, the Board of Directors of the Company has determined that it is in the best interest of the estate to develop and implement a key employee retention plan (the "Retention Plan"). The Retention Plan is subject to Bankruptcy Court approval. 1. Potential Participants in the Retention Plan -------------------------------------------- Twenty eight (28) employees, including approximately 13 Vice Presidents and 15 Directors set forth more particularly in the attached Exhibit A, together with any successors employed by the Company to fill vacancies left by those listed employees who resign or are terminated. If the Company creates one or more new positions (not already included in Exhibit A) at the level of vice president or director, any employee hired to fill such new positions shall only be entitled to participate with the express written consent of (i) the Board of Directors of the Company and (ii) the Official Committee of Unsecured Creditors. No other employee shall participate in the Retention Plan. 2. Potential Benefits Available Under the Retention Plan ----------------------------------------------------- A. Vice Presidents 35% of salary B. Directors 35% of salary Individuals not otherwise eligible to be a participant in the Retention Plan but either newly employed to fill a vacancy in a position held currently by a participant, or to fill a newly created position that is eligible, shall only receive a pro rata share of the potential benefit under the Retention Plan based upon the length of service in the covered position. The calculation for pro rata shall be calculated based upon the percentage of service in each of the three time periods covered in the Retention Plan, as set forth below in section 5 hereof. 3. Conditions for Payments Under the Retention Plan ------------------------------------------------ A. The affected employee is employed by the Company on the date of entry of the order by the Bankruptcy Court approving the Retention Plan or thereafter fills a vacancy in an eligible position. B. Continued uninterrupted full time employment by the Company of the affected employee through the date and time of payment for each of the payments. C. Payments shall be made net of (i) any and all loans and advances from the Company to the affected employee and any and all other amounts due to the Company from the affected employee, and (ii) all required federal and state withholding taxes and similar required withholdings, as applicable. 4. Credit Against any Severance Payments ------------------------------------- To the extent an employee receives any payments under the Retention Plan, such payments shall offset dollar for dollar any payment that may be received under the Company's 2004 Key Employee Severance Plan (the "Severance Plan"). 5. Time for Payment ---------------- A. For service from January 13, 2004 through July 31, 2004, one quarter of the retention payment shall be made on August 2, 2004. B. For service from August 1, 2004 through December 1, 2004, one quarter of the retention payment shall be made on December 15, 2004. C. For service from December 1, 2004 through the date of payment, the remaining one half of the retention payment shall be made on April 30, 2005. D. Notwithstanding the foregoing, any and all payments not yet made before the effective date of a confirmed chapter 11 plan (the "Effective Date") shall be made on the Effective Date, or as soon thereafter as is practicable. 6. Priority of Payment Obligations ------------------------------- Payments to be made under this Retention Plan shall be entitled to priority under section 503(b) of the Bankruptcy Code as an administrative priority, and shall be due and owing no later than the Effective Date, except as otherwise provided for in the Retention Plan. 7. Miscellaneous ------------- All rights under the Retention Plan shall at all times be entirely unfunded, and no provision shall at any time be made with respect to segregating any assets of the Company for payment of any amounts due under the Retention Plan. Any payments under the Retention Plan shall be made from the general assets of the Company as and when due. No member of the Board of Directors of the Company, nor any officer or employee of the Company, shall be personally liable if the Company is unable to make any of the payments provided for in the Retention Plan for any reason, including, without limitation, lack of funding or financing, legal prohibition, or failure to obtain required consents. Nothing contained in this Retention Plan shall be construed to be an employment contract between a participant in the Retention Plan and the Company. No interest of any participant in the Retention Plan, or any right to receive any payment hereunder, shall be subject to any manner of sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind, nor may such interest or right to receive a payment be taken, voluntarily or involuntarily, for the satisfaction of the obligation of, or other claims against, any participant, including claims for alimony, support, separate maintenance, and claims in bankruptcy cases. The Board of Directors of the Company shall have the right to amend the Retention Plan from time to time and may terminate the Retention Plan at any time; provided, however, that no amendment may be made to the Retention Plan and no termination of the Retention Plan may be effective until after the later of (i) May 1, 2005, and (ii) the effective date of a confirmed plan of reorganization for the Company. Approved by the Board of Directors of the Company on March 16, 2004 By: /s/Susan M. Skrokov ------------------- Susan M. Skrokov, Secretary Exhibit A Department Name Title FINANCE AND ACCOUNTING 9105 FIDIRA -VP, Controller 9106 FIDRFR-Dir, Fin Anal & Rptg 9106 FINAGC - Asst Gen Counsel ITS 9107 VP of ITS 9107 ITDRSD - Dir, System Developme 9107 ITDRSA-Director, System Admin HUMAN RESOURCES 9109 HRVP- VP, Human Resources 9153 HRDRTW - Dir, Train. & WF Plan REAL ESTATE, CONSTRUCTION, STORE PLANNING 9111 REDIR1 - Director - Real Estat 9115 FCDIRC - Director - Constructi LOSS PREVENTION 9119 VPLP1 - VP - Loss Prevention 9119 LPDRRM - Dir. Risk Management 9121 LPRMG1 - RM - LP 9123 LPRMG1 - RM - LP 9125 LPRMG1 - RM - LP MARKETING 9131 ADDIRMK - Director, Marketing MERCHANDISING 9139 MEMGM1 - Vice Pres. - Merch. 9141 MEMGM1 - Vice Pres. - Merch. 9135 MEMGM1 - Vice Pres. - Merch. 9137 MEMGM1 - Vice Pres. - Merch. PLANNING 9143 VP of Planning & Allocation 9143 PLADIR - Director of Plng 9143 PLADIR - Director of Plng ALLOCATION 9144 DIRALL - Director, Allocation STORE OPERATIONS 9145 FMDRSO - VP, Store Ops 9145 Divisional VP 9161 Divisional VP DISTRIBUTION 9449 VPTDC1 - VP - Transportation/D