KMART CORPORATION 1997 LONG-TERM EQUITY COMPENSATION PLAN
ARTICLE 1. ESTABLISHMENT, OBJECTIVES, AND DURATION
1.1. Establishment of the Plan. Kmart Corporation, a Michigan
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "Kmart Corporation 1997 Long-Term
Equity Compensation Plan" (hereinafter referred to as the "Plan"), as set forth
in this document. The Plan permits the grant of Nonqualified Stock Options,
Incentive Stock Options, Stock Appreciation Rights, Restricted Stock,
Unrestricted Stock Performance Shares and Performance Units.
The Plan shall become effective as of March 18, 1997 (the "Effective
Date") and shall remain in effect as provided in Section 1.3 herein. All grants
to officers and directors and any grants of incentive stock options under the
Plan shall be subject to stockholder approval of the Plan.
1.2. Objectives of the Plan. The objectives of the Plan are to optimize
the profitability and growth of the Company through incentives which are
consistent with the Company's goals and which link the personal interests of
Participants to those of the Company's stockholders; to provide Participants
with an incentive for excellence in individual performance; and to promote
teamwork among Participants.
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract, and retain the services of Participants who
make significant contributions to the Company's success and to allow
Participants to share in the success of the Company.
1.3. Duration of the Plan. The Plan shall commence on the Effective
Date set forth in Section 1.1 herein, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 16 herein, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may an Award be granted under the Plan after March 17, 2007. Awards granted
prior thereto, however, may extend beyond such date and the provisions of the
Plan shall continue to apply thereto.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below, and, when the meaning is intended, the initial letter of the
word shall be capitalized:
2.1. "Affiliate" has the meaning ascribed to such term in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act.
2.2. "Award" means, individually or collectively, a grant under the
Plan of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Unrestricted Stock Performance Shares or Performance
Units.
2.3. "Award Agreement" means an agreement evidencing and setting forth
the terms of an Award granted under the Plan, in such form as the Committee may,
from time to time, approve.
2.4. "Beneficial Owner" or "Beneficial Ownership" has the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.5. "Board" or "Board of Directors" means the Board of Directors of
the Company.
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2.6. "Change in Control" of the Company is deemed to have occurred as
of the first day that any one or more of the following conditions shall have
been satisfied:
(a) The "Beneficial Ownership" of securities representing more
than thirty-three percent (33%) of the combined voting power of the
Company is acquired by any "person" as defined in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company); or
(b) The stockholders of the Company approve a definitive
agreement to merge or consolidate the Company with or into another
corporation or to sell or otherwise dispose of all or substantially all
of its assets, or adopt a plan of liquidation; or
(c) During any period of three consecutive years, individuals
who at the beginning of such period were members of the Board cease for
any reason to constitute at least a majority thereof (unless the
election, or the nomination for election by the Company's stockholders,
of each new director was approved by a vote of at least a majority of
the directors then still in office who were directors at the beginning
of such period or whose election or nomination was previously so
approved).
2.7. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.8. "Committee" means the Compensation and Incentives Committee of the
Board, unless and until another committee is appointed by the Board in its
discretion to administer Awards to Employees, as described in Article 3 herein.
2.9. "Employee" means any non-officer employee of the Company or its
Subsidiaries or Affiliates.
2.10. "Director" means any individual who is a member of the Board of
Directors of the Company; provided, however, that any Director who is employed
by the Company shall be considered an Employee under the Plan.
2.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
2.12. "Fair Market Value" is deemed to be the mean of the highest price
and lowest price at which the Shares shall have been sold, regular way, on the
date in question or on the next preceding day on which there were such sales of
Shares if no such sales shall have been made on the date in question, as
reported on the Composite Transactions reporting system.
2.13. "Freestanding SAR" means an SAR that is granted to a Participant
independently of any Option pursuant to Article 7 herein.
2.14. "Incentive Stock Option" or "ISO" means an option to purchase
Shares granted to a Participant pursuant to Article 6 herein and which is
designated as an Incentive Stock Option and which is intended to meet the
requirements of Code Section 422.
2.15 "Nonemployee Director" means a Director who is not also an
Employee.
2.16. "Nonqualified Stock Option" or "NQSO" means an option to purchase
Shares granted to a Participant pursuant to Article 6 herein and which is not
intended to meet the requirements of Code Section 422.
2.17. "Option" means an Incentive Stock Option granted to a Participant
pursuant to Article 6 herein.
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2.18. "Option Price" means the price at which a Share may be purchased
by a Participant pursuant to an Option.
2.19. "Participant" means an Employee or Director who has been selected
to receive an Award or one who has an outstanding Award granted under the Plan.
2.20 "Performance-Based Exception" means the performance-based
exception from the tax deductibility limitations of Code Section 162(m).
2.21. "Performance Share" means an Award granted to a Participant
pursuant to Article 10 herein.
2.22. "Performance Unit" means an Award granted to a Participant
pursuant to Article 10 herein.
2.23. "Period of Restriction" means the period during which the
transfer of Shares of Restricted Stock is limited in some way (based on the
passage of time, the achievement of performance goals, or upon the occurrence of
other events as determined by the Committee or its delegate, in its discretion),
and the Shares are subject to a substantial risk of forfeiture, as provided in
Article 8 herein.
2.24. "Restricted Stock" means an Award granted to a Participant
pursuant to Article 8 herein.
2.25. "Shares" means the shares of common stock of the Company.
2.26. "Stock Appreciation Right" or "SAR" means an Award, granted to a
Participant alone or in connection with a related Option, designated as an SAR,
pursuant to Article 7 herein.
2.27. "Subsidiary" means any corporation, partnership, joint venture,
or other entity in which the Company directly or indirectly has a majority
interest and/or which the Company consolidates in its financial statements.
2.28. "Tandem SAR" means an SAR that is granted to a Participant in
connection with a related Option pursuant to Article 7 herein, the exercise of
which shall require forfeiture of the right to purchase a Share under the
related Option (and when a Share is purchased under the Option, the Tandem SAR
shall similarly be canceled).
2.29. "Unrestricted Stock" means an Award granted to a Participant
pursuant to Article 9 herein.
ARTICLE 3. ADMINISTRATION
3.1. General. The Plan shall be administered by the Committee, or by
any committee appointed by the Board; provided, however, that the Board shall
administer the Plan with respect to Awards granted to Directors. Any such
Committee shall be comprised entirely of Nonemployee Directors who meet the
applicable requirements of a "nonemployee director" under Rule 16b-3 of the
General Rules and Regulations under the Exchange Act and of an "outside
director" under Section 162(m) of the Code. The members of the Committee shall
be appointed from time to time by, and shall serve at the discretion of, the
Board of Directors. To the extent that the administration of the Plan remains
with the Board or any other committee designated by the Board, all applicable
references to the Committee in the Plan shall be to the Board or other
committee, as applicable. The Committee shall have the authority to delegate
administrative duties to officers of the Company.
3.2. Authority of the Committee. Except as limited by law or by the
Articles of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee or
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its delegate, or the Board where applicable, shall have full power to select
Employees and Directors who shall participate in the Plan; determine the sizes
and types of Awards; determine the terms and conditions of Awards in a manner
consistent with the Plan; construe and interpret the Plan and any agreement or
instrument entered into under the Plan; establish, amend, or waive rules and
regulations for the Plan's administration; and amend the terms and conditions of
any outstanding Award as provided in the Plan. Further, the Committee shall make
all other determinations which may be necessary or advisable for the
administration of the Plan
3.3. Decisions Binding. All determinations and decisions made by the
Committee or its delegate pursuant to the provisions of the Plan and all related
orders and resolutions of the Committee or its delegate shall be final,
conclusive, and binding on all persons, including the Company, its stockholders,
Employees, Participants, and their estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1. Number of Shares Available for Grants. Subject to adjustment as
provided in Section 4.2 herein, the number of Shares which may be issued to
Participants under the Plan shall be forty-eight million (48,000,000), of which
no more than ten million (10,000,000) may be granted in the form of Restricted
or Unrestricted Stock. Shares issued or subject to an Award under the Plan may
be either authorized and unissued Shares or issued Shares which have been
reacquired by the Company. No Award may be granted under the Plan to an Employee
or Director who owns more than five percent (5%) of the outstanding Shares. In
the event that any Award or portion thereof expires or is canceled, surrendered,
forfeited, or terminated for any reason, such Shares shall again become
available for issue under the Plan.
The following rules shall apply to grants of such Awards under the
Plan:
(a) Stock Options: The maximum aggregate number of Shares that
may be granted in the form of Stock Options, pursuant to Awards granted
in any one fiscal year to any one Participant, shall be one million
(1,000,000).
(b) SARs: The maximum aggregate number of Shares that may be
granted in the form of Stock Appreciation Rights, pursuant to Awards
granted in any one fiscal year to any one Participant, shall be one
million (1,000,000).
(c) Restricted Stock: The maximum aggregate number of Shares
that may be granted in the form of Restricted Stock, pursuant to Awards
granted in any one fiscal year to any one Participant, shall be five
hundred thousand (500,000).
(d) Unrestricted Stock: The maximum aggregate number of Shares
that may be granted in the form of Unrestricted Stock pursuant to
Awards granted in any one fiscal year to any one Participant shall be
five hundred thousand (500,000).
(e) Performance Shares: The maximum aggregate number of Shares
that may be granted in the form of Performance Shares, pursuant to
Awards granted in any one fiscal year to any one Participant, shall be
five hundred thousand (500,000).
(f) Performance Units: The maximum aggregate payout
(determined as of the end of the applicable Performance Period), with
respect to Awards of Performance Units granted in any one fiscal year
to any one Participant, shall be equal to the value of five hundred
thousand (500,000).
4.2. Adjustments in Authorized Shares. In the event of: any change in
corporate capitalization, such as a stock split; a corporate transaction, such
as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company; any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368); or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under
Section 4.1 herein, in
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the number and class of and/or price of Shares subject to outstanding Awards
granted under the Plan, and in the Award limits set forth in subsection 4.1(a)
through (e) herein, as may be determined to be appropriate and equitable by the
Committee, in its discretion, to prevent dilution or enlargement of rights;
provided, however, that the number of Shares subject to any Award shall always
be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
The Committee or its delegate may, from time to time, grant Awards
under the Plan to Participants. The Committee or its delegate shall determine in
its discretion, in accordance with the provisions of the Plan, to whom an Award
is granted and the terms and conditions of the Award. In making such
determinations, the Committee or its delegate may consider the position and
responsibilities of the Participant, the nature and value to the Company of his
or her services and accomplishments, his or her present and potential
contribution to the Company and such other factors as the Committee or its
delegate may deem relevant.
ARTICLE 6. STOCK OPTIONS
6.1. Grant of Options. Subject to the terms and conditions of the Plan,
the Committee or its delegate, at any time, and from time to time, may grant
Options to Participants in such amounts and upon such terms as the Committee or
its delegate shall determine in its discretion. Options granted under the Plan
shall be subject to and governed by the provisions of the Plan and by such other
terms and conditions, not inconsistent with the Plan, as shall be determined by
the Committee or its delegate.
6.2. Option Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee or its delegate shall determine. The Award Agreement also shall
specify whether the Option is an ISO or an NQSO.
6.3. Option Price. The Option Price for each grant of an Option under
the Plan shall be not less than the Fair Market Value of a Share on the date the
Option is granted.
6.4. Duration of Options. An Option granted under the Plan may not be
exercised after the earlier of (a) the date specified by the Committee or its
delegate, which shall be a maximum of ten years from the date of grant as to an
ISO and a maximum of ten years and two days from the date of grant as to an NQSO
or (b) the applicable time limit specified in the second paragraph of Section
6.5 herein. Any Option not exercised within these time periods shall
automatically terminate at the expiration of such period.
6.5. Exercise and Payment. Options granted pursuant to this Article 6
shall be exercised by the delivery of a written notice of exercise to the
Company (in the form prescribed by the Company), setting forth the number of
Shares with respect to which the Option is to be exercised and by full payment
for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent (in U.S. dollars), or (b)
by tendering previously acquired Shares having an aggregate Fair Market Value at
the time of exercise equal to the Option Price (provided that the Shares which
are tendered must have been held by the Participant for at least six (6) months
prior to exercise of the Option), or (c) by a combination of cash and Shares
equal to the Option Price. Shares used in payment shall be valued as of the date
notice of exercise is received by the Company. Any Shares delivered in payment
shall be in such form as is acceptable to the Company.
6.6. Exercisability of Options. Options granted pursuant to this
Article 6 shall be exercisable at such times and be subject to such restrictions
and conditions as the Committee or its delegate shall in each instance approve,
which need not be the same for each grant or for each Participant.
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An Option may be exercised, prior to its expiration, by an optionee
only while such optionee is an Employee or Director or within three months
thereafter (or such longer period thereafter as determined by the Committee or
its delegate in its discretion or as provided in Section 15.1 herein), and only
if the Option is otherwise exercisable prior to termination of employment or
service, provided, however, if at the date of termination of employment or
service of the Participant, the Participant has five or more years of full-time
service as an Employee or Director or if such termination results from death or
total and permanent disability as defined in the Company's Long-Term Disability
Plan, such three-month period shall be extended to five years or to the
expiration of the option, whichever occurs first. Except as otherwise provided
by the Committee, any Option that is not exercisable at the date of termination
shall be forfeited and reacquired by the Company and all rights of the
Participant shall terminate to the extent of the forfeiture without further
obligation on the part of the Company.
An Option granted with a maximum exercise period of more than three
years may not be exercised earlier than in three equal annual installments
commencing on the first anniversary of the date of grant (or such other period
as determined by the Committee or its delegate in its discretion); provided,
however, this limitation shall be removed if termination of employment or
service of the Participant results from death or total and permanent disability
as defined in the Company's Long-Term Disability Plan, or if termination of
employment or service of the Participant occurs at or after age 55 and the
Participant has five or more years of full-time service as an Employee or
Director, or if and to the extent the Committee or its delegate may so determine
in its discretion, or as provided in Section 15.1 herein. An Option granted with
a maximum exercise period of three years or less is not subject to the
limitation contained in the preceding sentence.
6.7. Other Restrictions. The Committee or its delegate may impose such
conditions and/or restrictions on any Shares acquired pursuant to the exercise
of an Option granted pursuant to this Article 6 as it may deem advisable,
including, without limitation, restrictions under applicable federal securities
laws, under the requirements of any stock exchange or market upon which such
Shares are then listed and/or traded, and under any blue sky or state securities
laws applicable to such Shares.
6.8. Transferability. Except as otherwise determined by the Committee
or its delegate in its discretion, no Option or any rights with respect thereto
shall be subject to any debts or liabilities of a Participant. Options may,
however, be transferred or assigned to charitable trusts, family members, or
family trusts by the Participant's execution of such form and at such time as
prescribed by the Committee or its delegate. Additionally, any shares issued to
a Participant hereunder may at the request of the Participant be issued in the
name of the Participant and one other person, as joint tenants with right of
survivorship and not as tenants in common, or in the name of a trust for the
benefit of the Participant or for the benefit of the Participant and others. An
Option may, after the death or total and permanent disability, as defined in the
Company's Long-Term Disability Plan, of a Participant also be exercised pursuant
to paragraph (iv) of Section 5B herein. In order to continue to meet the
requirements of Code Section 422, however, ISO's may not be assignable or
transferable except by will or the laws of descent and distribution, nor be
exercisable during the Participant's lifetime other than by him or her, nor
shall shares be issued to or in the name of one other than the Participant.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1. Grant of SARs. Subject to the terms and conditions of the Plan,
the Committee or its delegate, at any time, and from time to time, may grant
SARs to Participants in such amounts and upon such terms as the Committee shall
determine in its discretion. The Committee may grant Freestanding SARs, Tandem
SARs, or any combination of these forms of SARs. SARs granted under the Plan
shall be subject to and governed by the provisions of the Plan and by such other
terms and conditions, not inconsistent with the Plan, as shall be determined by
the Committee or its delegate.
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The grant price of a Freestanding SAR shall equal the Fair Market Value
of a Share on the date of grant of the SAR. The grant price of Tandem SARs shall
equal the Option Price of the related Option.
7.2. SAR Agreement. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the grant price, the term of the SAR, the number of
SARs, and such other provisions as the Committee or its delegate shall
determine.
7.3. Payment of SAR Amount. Upon exercise of an SAR, a Participant
shall be entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on
the date of exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is
exercised.
At the discretion of the Committee or its delegate, the payment upon
exercise of an SAR may be in cash, in Shares of equivalent value or in some
combination thereof.
7.4. Term of SARs. The term of an SAR granted under the Plan shall be
determined by the Committee or its delegate, in its discretion; provided,
however, that such term shall not exceed ten (10) years.
7.5. Exercise of Tandem SARs. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the right
to exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to any Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payment with respect to the Tandem SAR may be no more than one hundred
percent (100%) of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying ISO at the
time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only
when the Fair Market Value of the Shares subject to the ISO exceeds the Option
Price of the ISO.
7.6. Exercise of Freestanding SARs. Freestanding SARs may be exercised
upon whatever terms and conditions the Committee or its delegate, in its
discretion, imposes upon them.
7.7. Termination of Employment/Directorship. Each SAR Award Agreement
shall set forth the extent to which the Participant shall have the right to
exercise the SAR following termination of the Participant as an Employee or
Director. Such provisions shall be determined in the discretion of the Committee
or its delegate, shall be included in the Award Agreement entered into with the
Participant, need not be uniform among all SARs issued pursuant to this Article
7, and may reflect distinctions based on the reasons for termination.
7.8. Other Restrictions. The Committee or its delegate may impose such
conditions and/or restrictions on any Shares issued pursuant to the exercise of
any SAR granted pursuant to this Article 7 as it may deem advisable, including,
without limitation, restrictions under applicable federal securities laws, under
the requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.
7.9. Nontransferability of SARs. Except as otherwise determined by the
Committee or its delegate in its discretion, no SAR or any rights with respect
thereto shall be subject to any debts or liabilities of a Participant, nor be
assignable or transferable except by will or the laws of descent and
distribution, nor be exercisable during the Participant's lifetime other than by
him or her, nor
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shall Shares be issued to or in the name of one other than the Participant;
provided, however, that any Shares issued to a Participant pursuant to an SAR
hereunder may at the request of the Participant be issued in the name of the
Participant and one other person as joint tenants with right of survivorship and
not as tenants in common, or in the name of a trust for the benefit of the
Participant or for the benefit of the Participant and others.
ARTICLE 8. RESTRICTED STOCK
8.1. Grant of Restricted Stock. Subject to the terms and conditions of
the Plan, the Committee or its delegate, at any time, and from time to time, may
grant Restricted Stock to Participants in such amounts and upon such terms as
the Committee or its delegate shall determine in its discretion. Restricted
Stock granted under the Plan shall be subject to and governed by the provisions
of the Plan and by such other terms and conditions, not inconsistent with the
Plan, as shall be determined by the Committee or its delegate.
8.2. Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by an Award Agreement that shall specify the Period(s) of Restriction,
the number of Shares of Restricted Stock granted, and such other provisions as
the Committee or its delegate shall determine.
8.3. Termination of Employment/Directorship. Except as otherwise
provided in the Plan or in the Award Agreement, unless and until the
restrictions and other terms and conditions applicable to a Restricted Stock
Award expire or are terminated or otherwise satisfied, such Award and the Shares
and any dividends or other rights applicable thereto shall be forfeited and
reacquired by the Company if the Participant ceases to be an Employee or
Director, and all rights of the Employee or Director shall terminate to the
extent of the forfeiture without further obligations on the part of the Company.
8.4. Other Restrictions. Subject to Article 11 herein, the Committee or
its delegate may impose such conditions and/or restrictions on any Shares of
Restricted Stock granted pursuant to this Article 8 as it may deem advisable,
including, without limitation, restrictions requiring the Participant's payment
of a stipulated purchase price for each Share of Restricted Stock, restrictions
based upon the achievement of specific performance goals, time-based
restrictions on vesting, and/or restrictions under federal or state securities
laws applicable to such Shares.
As soon as practicable following the grant of Shares of Restricted
Stock, either (i) a stock certificate or certificates representing such Shares
shall be registered in the Participant's name and shall bear an appropriate
legend referring to the restrictions applicable thereto, which certificates may
be held in the custody of the Company or its designee for the account of the
Participant; or (ii) the Company's stock transfer agent or its designee shall
credit such Shares to the Participant's Restricted Stock Account, which Shares
shall be subject to the restrictions applicable thereto.
If and to the extent that the restrictions and other terms and
conditions applicable to a Restricted Stock Award are not satisfied, such Award
and the Shares and any dividends or other rights applicable thereto shall be
forfeited and reacquired by the Company, and all rights of the Participant shall
terminate to the extent of the forfeiture without further obligation on the part
of the Company.
The Committee or its delegate may in its discretion terminate, shorten,
or accelerate any period of restriction or waive any terms or conditions
applicable to all or any portion of a Restricted Stock Award.
Upon the expiration or termination of the restrictions and the
satisfaction of any other terms and conditions applicable to a Restricted Stock
Award, a stock certificate or certificates representing Shares free from the
restrictions and any legend, except as may be imposed by law, shall be issued to
the Participant or to the Participant's beneficiary, estate or legal
representative,
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as the case may be, along with any dividends applicable thereto which have been
withheld by the Company.
8.5. Nontransferability of Restricted Stock. Except as otherwise
provided in this Article 8 or determined by the Committee or its delegate in its
discretion, no Shares of Restricted Stock or any rights with respect thereto
shall be subject to any debts or liabilities of a Participant, nor be assignable
or transferable until the expiration or termination of the restrictions and the
satisfaction of any other terms and conditions applicable to the Award, nor
shall any rights with respect to Restricted Stock be available during a
Participant's lifetime other than to him or her.
8.6. Shareholder Rights. Except as provided in the Plan or in the Award
Agreement, a Participant to whom Restricted Stock is issued, shall generally
have the rights and privileges of a stockholder as to the Restricted Stock,
including the right to vote such Shares.
At the discretion of the Committee or its delegate, dividends declared
with respect to Shares of Restricted Stock may either be paid to the Participant
or withheld by the Company for the Participant's account, and interest may be
paid on any dividends withheld at a rate determined by the Committee or its
delegate. The Committee or its delegate may apply any restrictions to the
dividends that the Committee or its delegate deems appropriate. Without limiting
the generality of the preceding sentence, if the grant or vesting of Restricted
Shares is designed to comply with the requirements of the Performance-Based
Exception, the Committee or its delegate may apply any restrictions it deems
appropriate to the payment of dividends declared with respect to such Restricted
Shares, such that the dividends and/or the Restricted Shares maintain
eligibility for the Performance-Based Exception.
ARTICLE 9. UNRESTRICTED STOCK
9.1. Grant of Unrestricted Stock. Subject to the terms and conditions
of the Plan, the Committee or its delegate, at any time, and from time to time,
may grant Unrestricted Stock to Participants, in such amounts and upon such
terms as the Committee or its delegate shall determine in its discretion. Such
Stock granted under the Plan shall be subject to and governed by the provisions
of the Plan and by such other terms and conditions, not inconsistent with the
Plan, as shall be determined by the Committee or its delegate.
9.2. Unrestricted Stock Agreement. Each Unrestricted Stock grant shall
be evidenced by an Award Agreement that shall specify the number of Shares of
Unrestricted Stock granted, and such other provisions as the Committee or its
delegate shall determine.
9.3. Other Conditions. The Committee or its delegate may impose such
conditions on any Shares of Unrestricted Stock granted pursuant to this Article
9 as it may deem advisable.
As soon as practicable following the grant of Shares of Unrestricted
Stock, either (i) a stock certificate or certificates representing such Shares
shall be registered in the Participant's name; or (ii) the Company's stock
transfer agent or its delegate shall credit such Shares to the Participant's
Stock Account.
The Committee or its delegate may in its discretion waive any terms or
conditions applicable to all or any portion of an Unrestricted Stock Award.
ARTICLE 10. PERFORMANCE UNITS AND PERFORMANCE SHARES
10.1. Grant of Performance Units/Shares. Subject to the terms and
conditions of the Plan, the Committee or its delegate, at any time, and from
time to time, may grant Performance Units and/or Performance Shares to
Participants in such amounts and upon such terms as the Committee or its
delegate shall determine in its discretion. Performance Units and Performance
Shares granted under the Plan shall be subject to and governed by the provisions
of the Plan and by such other terms and conditions, not inconsistent with the
Plan, as shall be determined by the Committee or its delegate.
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10.2. Value of Performance Units/Shares. Each Performance Unit shall
have an initial value that is established by the Committee or its delegate at
the time of grant. Each Performance Share shall have an initial value equal to
the Fair Market Value of a Share on the date of grant. Subject to Article 11
herein, the Committee or its delegate shall set performance goals in its
discretion which, depending on the extent to which they are met, shall determine
the number and/or value of Performance Units/Shares that shall be paid out to
the Participant. For purposes of this Article 10, the time period during which
the performance goals must be met shall be called a "Performance Period."
10.3. Earning of Performance Units/Shares. Subject to the terms of the
Plan and the Award Agreement, after the applicable Performance Period has ended,
the holder of Performance Units/Shares shall be entitled to receive a payout on
the number and value of Performance Units/Shares earned by the Participant over
the Performance Period, to be determined as a function of the extent to which
the corresponding performance goals have been achieved.
10.4. Form and Timing of Payment of Performance Units/Shares. Payment
of earned Performance Units/Shares shall be made at the close of the applicable
Performance Period or upon the attainment of the applicable performance goal.
Subject to the terms of the Plan, the Committee or its delegate, in its
discretion, may pay earned Performance Units/Shares in the form of cash or in
Shares (or in a combination thereof) which have an aggregate Fair Market Value
equal to the value of the earned Performance Units/Shares at the close of the
applicable Performance Period. Such Shares may be granted subject to any
restrictions deemed appropriate by the Committee or its delegate.
At the discretion of the Committee or its delegate, Participants may be
entitled to receive any dividends declared with respect to Shares which have
been earned in connection with grants of Performance Units and/or Performance
Shares, but not yet distributed to Participants (such dividends shall be subject
to the same accrual, forfeiture, and payout restrictions as apply to dividends
earned with respect to Shares of Restricted Stock, as set forth in Section 8.6
herein). In addition, Participants may, in the discretion of the Committee or
its delegate, have the rights and privileges of a stockholder as to the Shares,
including the right to vote such Shares.
10.5. Termination of Employment/Directorship. Except as otherwise
provided in the Plan or in the Award Agreement, unless and until the terms and
conditions applicable to an Award of Performance Units/Shares are met, such
Award and the Performance Units/Shares and any dividends or other rights
applicable thereto shall be forfeited to the Company if the Participant ceases
to be an Employee or Director, and all rights of the Employee or Director shall
terminate to the extent of the forfeiture without further obligation on the part
of the Company; provided, however, that the Committee or its delegate may in its
discretion waive any terms or conditions or permit a payout with respect to all
or any portion of an Award of Performance Units/Shares.
10.6. Other Restrictions. The Committee may impose such conditions
and/or restrictions on any Shares issued pursuant to this Article 10 as it may
deem advisable, including, without limitation, restrictions under applicable
federal securities laws, under the requirements of any stock exchange or market
upon which such Shares are then listed and/or traded, and under any blue sky law
or state securities laws applicable to such Shares.
If and to the extent that no payout is earned with respect to an Award
of Performance Units/Shares in accordance with the terms and conditions of the
Award, such Award and the Performance Units/Shares and any dividends or other
rights applicable thereto shall be forfeited to the Company, and all rights of
the Participant shall terminate to the extent of the forfeiture without further
obligation on the part of the Company.
10.7. Nontransferability of Performance Units/Shares. Except as
otherwise determined by the Committee in its discretion, no Performance
Units/Shares or any rights with respect thereto shall be subject to any debts or
liabilities of a Participant, nor be assignable or transferable except by will
or the laws of descent and distribution, nor be exercisable during the
Participant's lifetime
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other than by him or her, nor shall Shares be issued to or in the name of one
other than the Participant; provided, however, that any Shares issued to a
Participant hereunder may at the request of the Participant be issued in the
name of the Participant and one other person, as joint tenants with right of
survivorship and not as tenants in common, or in the name of a trust for the
benefit of the Participant or for the benefit of the Participant and others.
ARTICLE 11. PERFORMANCE MEASURES
The performance measure(s) to be used for purposes of granting
performance-based Awards shall be chosen from among the following, with respect
to the Company, its Subsidiaries, its Affiliates, subdivisions thereof, or any
combination thereof:
(a) Return on equity, assets, capital, sales, or investment;
(b) Pretax or after-tax profit levels;
(c) Expense reduction levels;
(d) Implementation of processes or projects;
(e) Changes in the market price of Shares;
(f) Total shareholder return; and
(g) Cash flow.
This measure may be expressed as a concrete goal, in terms of an
increase or decrease or in comparison to the Company's competitors, the
industry, or some other comparator group.
The Committee or its delegate shall have the authority to set a
threshold level of performance below which no payment shall be made, levels of
performance at which specified percentages of payment shall be made, and a
maximum level of performance above which no additional payment shall be made.
Following the determination of the level of performance, the Committee
or its delegate may in its discretion adjust (upward or downward) the payment
which would otherwise have been made; provided, however, no upward adjustment
shall be authorized to the extent that it would disqualify the payment under the
Performance-Based Exception..
To the extent applicable, any such performance goal shall be determined
in accordance with generally accepted accounting principles and reported upon by
the Company's independent accountants.
The Committee or its delegate may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.2 herein) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee or its delegate determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Awards; provided,
however, that no such adjustment shall be authorized to the extent that it would
disqualify the Awards under the Performance-Based Exception.
ARTICLE 12. BENEFICIARY DESIGNATION/LEGAL REPRESENTATIVE
In the event one who holds an outstanding Award dies, either before or
after termination of his or her status as Employee or Director, any Award which
is otherwise exercisable or payable may be exercised by or paid to the person or
persons whom the Participant shall have designated as beneficiary in writing on
forms prescribed by and filed with the Company, or if no designation has been
made, by the person or persons entitled thereto through the Participant's
estate. In the event of the total and permanent disability, as defined in the
Company's Long-Term Disability Plan, of a Participant, an Award which is
otherwise exercisable or payable may be exercised by or paid to the
Participant's legal representative or guardian. The Company may require an
indemnity and/or such evidence or other assurances as it may deem necessary in
connection with an
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exercise of an Award by or payment of an Award to a beneficiary, estate, heir,
legal representative, or guardian.
ARTICLE 13. DEFERRALS
The Committee or its delegate may permit or require a Participant to
defer such Participant's receipt of the payment of cash or the delivery of
Shares that would otherwise be due to such Participant by virtue of the exercise
of an Option or SAR, the lapse or waiver of restrictions with respect to
Restricted Stock, or the satisfaction of any requirements or goals with respect
to Performance Units/Shares. If any such deferral election is required or
permitted, the Committee or its delegate shall, in its discretion, establish
rules and procedures for such payment deferrals.
ARTICLE 14. EMPLOYMENT/MISCONDUCT
14.1. Employment. No provision of the Plan, nor any term or condition
of any Award, nor any action taken by the Committee, the Company, a Subsidiary,
or an Affiliate pursuant to the Plan, shall give or be construed as giving a
Participant any right to be retained in the employ of or remain a director of
the Company, a Subsidiary, or an Affiliate, or affect or limit in any way the
right of the Company, a Subsidiary, or an Affiliate to terminate his or her
employment or directorship. Employment with or directorship of a Subsidiary or
an Affiliate shall be deemed terminated on the date such Subsidiary or Affiliate
ceases to be a Subsidiary or an Affiliate of the Company.
14.2. Participation. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected to
receive a future Award.
14.3. Misconduct. Notwithstanding anything contained in the Plan or in
an Award Agreement to the contrary, all rights with respect to all Awards of a
Participant are subject to the conditions that the Participant not engage or
have engaged (i) in fraud, dishonesty, conduct in violation of Company policy,
or any similar act at any time while an Employee or Director; or (ii) in
activity directly or indirectly in competition with any business of the Company,
a Subsidiary, or an Affiliate, or in other conduct inimical to the best
interests of the Company, a Subsidiary, or an Affiliate, during or following the
Participant's employment with the Company, a Subsidiary, or an Affiliate or
directorship with the Company. If it is determined by the Committee or the
Committee's designee, either before or after termination of employment or
directorship of a Participant, that there has been a failure of any such
condition, all Awards and all rights with respect to all Awards granted to such
Participant shall immediately terminate and be null and void.
ARTICLE 15. CHANGE IN CONTROL
15.1. Treatment of Outstanding Awards. Subject to Section 15.3 herein,
upon the occurrence of a Change in Control:
(a) Any and all Options and SARs granted hereunder shall
become immediately exercisable and shall remain exercisable throughout
their entire term;
(b) Any restriction periods and restrictions imposed on
Restricted Shares which are not performance-based shall lapse;
(c) The target payout opportunities attainable under all
outstanding Awards of performance-based Restricted Stock, Performance
Units, and Performance Shares shall be deemed to have been fully earned
for the entire Performance Period(s) as of the effective date of the
Change in Control. The vesting of all Awards denominated in Shares
shall be accelerated as of the effective date of the Change in Control,
and there shall be paid out to Participants within thirty (30) days
following the effective date of the Change in Control a pro rata number
of Shares (or their cash equivalents) based upon an assumed achievement
of all relevant targeted performance goals and upon the length of time
within
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the Performance Period which has elapsed prior to the Change in
Control. Awards denominated in cash shall be paid pro rata to
participants in cash within thirty (30) days following the effective
date of the Change in Control, with the proration determined as a
function of the length of time within the Performance Period which has
elapsed prior to the Change in Control, and based on an assumed
achievement of all relevant targeted performance goals.
15.2. Termination, Amendment, and Modifications of Change-in-Control
Provisions. Notwithstanding any other provision of the Plan or any Award
Agreement provision, the provisions of this Article 15 may not be terminated,
amended, or modified on or after the date of an event which is likely to give
rise to a Change in Control to affect adversely any Award theretofore granted
under the Plan without the prior written consent of the Participant with respect
to said Participant's outstanding Awards.
15.3. Pooling of Interests Accounting. Notwithstanding anything
contained in the Plan to the contrary, in the event that the consummation of a
Change in Control is contingent on using pooling of interests accounting
methodology, the Board may, in its discretion, take any action necessary to
preserve the use of pooling of interests accounting.
ARTICLE 16. AMENDMENT, MODIFICATION, AND TERMINATION
Except as provided in Section 15.2 herein, the Committee may from time
to time alter, amend, suspend, or terminate the Plan in whole or in part. Any
such amendment may be effective in respect of all past and future Awards granted
hereunder in the discretion of the Committee.
ARTICLE 17. WITHHOLDING
17.1. Tax Withholding. The Company shall have the power and the right
to deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of this Plan.
17.2. Share Withholding. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising as a result of Awards granted hereunder,
the Committee or its delegate may in its discretion permit a Participant to
elect, in such form and at such time as the Committee or its delegate may
prescribe, to satisfy the withholding requirement, in whole or in part, by
electing to (i) have the Company withhold whole Shares or (ii) deliver other
whole Shares owned by the Participant having a Fair Market Value equal to the
amount to be withheld; provided, however, that the amount to be withheld shall
not exceed the minimum Federal, State and local tax rates applicable to the
transaction.
ARTICLE 18. SUCCESSORS
All obligations to the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise of all or substantially all of the business
and/or assets of the Company.
ARTICLE 19. LEGAL CONSTRUCTION
19.1. Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein shall include the feminine; the plural
shall include the singular; and the singular shall include the plural.
19.2. Severability. If any provision of the Plan, or any term or
condition of any Award or Award Agreement or form executed or to be executed
thereunder, or any application thereof to any person or circumstance is invalid
or would result in an ISO failing to meet the requirements of
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Code Section 422, such provision, term, condition or application shall to that
extent be void, or, in the discretion of the Committee or its delegate, such
provision, term, or condition may be amended so as to avoid such invalidity or
failure, and shall not affect other provisions, terms, conditions, or
applications thereof, and to this extent such provision, term, or condition is
severable.
19.3. Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
19.4. Securities Law Compliance. The Plan is intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the Exchange Act
and shall be construed to so comply.
19.5. Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Michigan
without reference to principles of conflict of laws.
Adopted March 18, 1997. Amended as of May 16, 2000, July 18, 2000 and November
21, 2000.
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1997 Long-Term Equity Compensation Plan - Kmart Corp.
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