AMENDED AND RESTATED
KMART CORPORATION
1998 MANAGEMENT DEFERRED
COMPENSATION AND RESTORATION PLAN
and restated as of September 1, 1998; and
further amended as of September 19, 2000
2
CONTENTS
Article 1. Establishment and Purpose 1
Article 2. Definitions 1
Article 3. Administration 8
Article 4. Eligibility and Participation 8
Article 5. Voluntary Deferrals - Base Pay 8
Article 6. Voluntary Deferrals - Annual Bonus 9
Article 7. Mandatory Deferrals 10
Article 8. Voluntary Stock Unit Deferrals 11
Article 9. Company 401(k) Match Restoration 12
Article 10. Company Profit Sharing Restoration 13
Article 11. Discretionary Company Credits 14
Article 12. Participant Accounts and Rabbi Trust 14
Article 13. Allocation of Prior Deferrals and Company Credits 16
Article 14. Beneficiary Designation 17
Article 15. Withholding of Taxes 17
Article 16. Employment/Misconduct 17
Article 17. Amendment and Termination 18
Article 18. Miscellaneous 18
3
AMENDED AND RESTATED KMART CORPORATION 1998 MANAGEMENT
DEFERRED COMPENSATION AND RESTORATION PLAN
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. Kmart Corporation, a Michigan corporation ( the
"Company"), hereby establishes, effective as of January 1, 1998 (the "Effective
Date"), a deferred compensation and savings restoration plan for key management
employees as described herein, which shall be known as the "Kmart Corporation
1998 Management Deferred Compensation and Restoration Plan" (the "Plan").
1.2 PURPOSE. The primary purpose of the Plan is to provide key management
employees of the Company and of its participating subsidiaries and affiliates
with the opportunity to defer a portion of their compensation and to restore
certain retirement benefits lost due to statutory limits imposed by the Code,
subject to the terms of the Plan. By adopting the Plan, the Company desires to
enhance its ability to attract and retain key management employees.
ARTICLE 2. DEFINITIONS
2.1 DEFINITIONS. Whenever used herein, the following terms shall have the
meanings set forth below, and when the meaning is intended, the term is
capitalized:
(a) "Accrued Account Balances" means the then current aggregate
account balances of a Participant through a specific date
in question, including Voluntary Deferrals (as described in
Articles 5 and 6 hereof), Mandatory Deferrals (as described
in Article 7 hereof), Voluntary Stock Unit Deferrals (as
described in Article 8 hereof); Company 401(k) Match
Restoration (as described in Article 9 hereof), Company
Profit Sharing Restoration (as described in Article 10
hereof), Discretionary Company Credits (as described in
Article 11 hereof), and earnings thereon (as described in
Article 12 hereof).
(b) "Accrued Rabbi Trust Obligations" means the then current
Accrued Account Balances of all Participants through a
specific date in question.
(c) "Annual Bonus" means the bonus earned by a Participant
under the Kmart Corporation Annual Incentive Bonus Plan, as
amended from time to time, or other annual incentive bonus
plan.
(d) "Base Pay" means, before any deductions, all wages,
overtime, salary, and commissions and any extraordinary
bonuses and awards which are determined to be part of Base
Pay by the Company earned by a Participant for services
rendered during a Plan Year.
(e) "Beneficial Ownership" has the same meaning ascribed to
such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.
1
4
(f) "Board" or "Board of Directors" means the Board of
Directors of the Company.
(g) "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:
(i) 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
(ii) 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
(iii) 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
stockholders of the Company, 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).
(h) "Closing Price" means the last price at which the Company
Stock shall have been sold on the specific date in
question, or if no such sale was made on such date then on
the next preceding day on which there was such a sale of
Company Stock. The price shall be as reported on the
Composite Transactions reporting system, or if not so
reported, as reported by the New York Stock Exchange.
(i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(j) "Committee" means the Compensation and Incentives Committee
of the Board (or such other committee as designated by the
Board as a successor thereto) which has the authority to
administer the Plan.
(k) "Company Stock" means the common stock of Kmart
Corporation.
(l) "Company Stock Fund" has the same meaning ascribed to such
term in the Retirement Savings Plan.
(m) "Compensation" has the same meaning ascribed to such term
in the Retirement Savings Plan.
2
5
(n) "Deferral Period" means the beginning of a month following
the pay period for services rendered prior to the date a
deferral election in made through the earlier of the end of
the Plan Year or the date a Participant is no longer
eligible to participate in the Plan.
(o) "Disability" means "total and permanent disability" as
defined in the Kmart Corporation Long-Term Disability Plan.
(p) "Discretionary Company Credits Account" has the meaning set
forth in Section 11.2 hereof.
(q) "Employee Directed Contributions" has the same meaning
ascribed to such term in the Retirement Savings Plan.
(r) "Employer Matching Contributions" has the same meaning
ascribed to such term in the Retirement Savings Plan.
(s) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, or any successor
thereto.
(t) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor act thereto.
(u) "Exercise Date" has the meaning set forth in Section 8.2
hereof.
(v) "Expiration Date" has the meaning set forth in Section 8.2
hereof.
(w) "Form of Payout" means a Participant's elected method of
payout. A Participant may choose either (i) a Lump-Sum
Payment or (ii) Installment Payments. If no Form of Payout
is elected, then payment will be made in a Lump-Sum
Payment.
A Participant may at any time, at least six (6) months
prior to a Payout Commencement Date, petition the Committee
or its delegate to change the Form of Payout previously
elected by such Participant to a different Form of Payout
otherwise available under the Plan (i.e., a Lump-Sum
Payment or Installment Payments); provided, however, the
Committee must approve any change in the Form of Payout of
Company Stock for Section 16 Officers.
If a Participant remains employed with the Company through
a Payout Commencement Date, and if the Accrued Account
Balances payable on such Payout Commencement Date are less
than ten thousand dollars ($10,000), then the Accrued
Account Balances shall be paid as soon as administratively
practicable following the Payout Commencement Date, in a
Lump-Sum Payment regardless of the Participant's previous
elections.
3
6
If a Participant's employment with the Company terminates
for any reason and the Participant's Accrued Account
Balances payable on any coincident or future Payout
Commencement Date are less than ten thousand dollars
($10,000) at the time of such termination of employment,
then the Accrued Account Balances payable on such Payout
Commencement Date(s) shall be paid as soon as
administratively practicable following the Payout
Commencement Date, in a Lump-Sum Payment regardless of the
Participant's previous elections.
If a Participant's employment with the Company terminates
due to Disability or death, and the Participant's Accrued
Account Balances payable on any coincident or future Payout
Commencement Date are individually equal to or greater than
ten thousand dollars ($10,000), such Participant, or such
Participant's estate, as the case may be, may petition the
Committee or its delegate to pay out the Accrued Account
Balances in a Lump-Sum Payment as soon as administratively
practicable regardless of the Participant's previous
elections. In the case of employment termination due to
Disability, the termination shall be deemed to have
occurred on the day that the Committee or its delegate
determines the Disability to be total and permanent. The
decision of whether to allow for an accelerated Lump-Sum
Payment shall be at the discretion of the Committee or its
delegate.
(x) "Installment Payments" means a series of payments, from two
(2) up to twenty (20) approximately equal annual payments,
as elected by the Participant, to be made in cash or
Company Stock, as applicable, with the initial payment due
within thirty (30) calendar days after the applicable
Payout Commencement Date elected by the Participant. Each
of the remaining Installment Payments shall be made in cash
or Company Stock, as applicable, each year thereafter on
the anniversary of such Payout Commencement Date, until all
Accrued Account Balances deferred to such Payout
Commencement Date have been paid in full. Earnings shall
continue to accrue on any remaining Accrued Account
Balances in the manner provided in Section 12.2 hereof
until all Accrued Account Balances deferred to such Payout
Commencement Date have been paid in full. The amount of
each Installment Payment shall be equal to the applicable
portion of the Accrued Account Balances remaining
immediately prior to each such payment, multiplied by a
fraction, the numerator of which is one (1) and the
denominator of which is the number of Installment Payments
remaining to be paid (including such payment).
(y) "Investment Funds" has the same meaning ascribed to such
term in the Retirement Savings Plan.
(z) "Lump-Sum Payment" means a single payment to be made in
cash or Company Stock, as applicable, within thirty (30)
calendar days after the applicable Payout Commencement
Date.
(aa) "Mandatory Deferral Account" has the meaning set forth in
Section 7.1 hereof.
4
7
(bb) "Match Restoration Account" has the meaning set forth in
Section 9.2 hereof.
(cc) "Participant" means:
Each Senior Officer, Divisional Vice President, Operations
Vice President, and Regional Vice President of the Company;
(i) Each Senior Officer, Divisional Vice President,
Operations Vice President, and Regional Vice
President of the Company;
(ii) Each key management employee of the Company,
except for Participants described in (i) above,
who (i) is qualified to participate in the
Retirement Savings Plan; and (ii) experiences a
cutback in Employee Directed Contributions,
Employer Matching Contributions, and/or Profit
Sharing Contributions due to the limitations
imposed by the Code; and (iii) meets such other
qualification standards (including pay level) as
determined by the Committee or its delegate from
time to time, and who is thereby selected for
participation in the Plan by the Committee or its
delegate; and
(iii) Each other employee of the Company, its
subsidiaries or its affiliates so designated by
the Committee or its delegate.
(dd) "Payout Commencement Date" means a date elected by a
Participant, or as otherwise provided herein, upon which
payment of Accrued Account Balances begins.
A Participant may, at any time at least six (6) months
prior to a Payout Commencement Date, petition the Committee
or its delegate to change the Payout Commencement Date
previously elected by such Participant to a different
Payout Commencement Date otherwise available under the
Plan; provided, however, the Committee must approve any
change in the Form of Payout of Company Stock for Section
16 Officers.
A Payout Commencement Date elected by a Participant shall
be no earlier than one year following the end of the year
in which amounts deferred hereunder are otherwise earned,
and no later than the later of (i) the January following
the Participant's sixty-fifth (65th) birthday; or (ii) the
Participant's termination of employment with the Company if
such Participant is employed on his or her sixty-fifth
(65th birthday). No limit exists on the number of different
Payout Commencement Dates that can be elected by each
Participant.
If no Payout Commencement Date is specified by a
Participant for any Voluntary Deferrals or Voluntary Stock
Unit Deferrals, then payout of these amounts shall occur in
the January following the Participant's termination of
employment.
5
8
All Company Profit Sharing Restoration and Company 401(k)
Match Restoration shall automatically be paid out beginning
in the January following the Participant's termination of
employment.
(ee) "Plan Year" means the calendar year.
(ff) "Predecessory Deferral/Restoration Arrangements" has the
meaning set forth in Article 13 hereof.
(gg) "Profit Sharing Contributions" has the same meaning
ascribed to such term in the Retirement Savings Plan.
(hh) "Profit Sharing Restoration Account" has the meaning set
forth in Section 10.2 hereof.
(ii) "Rabbi Trust" means a grantor trust, as intended by
Sections 671-678 of the Code, established by the Company
for the benefit of Participants and their beneficiaries.
(jj) "Retirement Savings Plan" means the Kmart Corporation
Retirement Savings Plan A and Plan B.
(kk) "Section 16 Officer" means any Participant who is an
officer within the meaning of Rule 16a-1(f) promulgated
under the Securities Exchange Act of 1934 and who are
subject to the reporting requirements under Section 16 of
the Securities Exchange Act of 1934 with respect to Company
Stock.
(ll) "Stock Unit" means a bookkeeping entry which is the
equivalent of one share of Company Stock.
(mm) "Stock Unit Subaccount" means the bookkeeping account
established for a Participant which is credited with Stock
Units equal to the number of shares of Company Stock
(including fractions of a share) that could have been
purchased with the corresponding amount of Company 401(k)
Match Restoration (as provided under Article 9 hereof) at
the Closing Price of the shares of Company Stock on the
date as of which such Stock Unit Subaccount is so credited.
The Stock Unit Subaccount shall be reduced in a similar
manner as of the date that any Company Stock is distributed
from such Subaccount to the Participant.
As of the date that any dividend is paid to holders
of shares of Company Stock, a Participant's Stock Unit
Subaccount shall be credited with additional Stock Units
equal to the number of shares of Company Stock (including
fractions of a share) that could have been purchased, at
the Closing Price of a share of Company Stock on such date,
with the amount that would have been paid as dividends on
that number of shares of Company Stock (including fractions
of a share) which is equal to the number of Stock Units
attributable to the Participant's Stock Unit Subaccount as
of the record date of such dividend. In the case of
6
9
dividends paid in property, the amount of the dividend
shall be deemed to be the fair market value of the property
at the time of the payment thereof, as determined by the
Committee or its delegate. A distribution from the Stock
Unit Subaccount shall be paid in a number of shares of
Company Stock equal to the number of Stock Units
distributable.
(nn) "Voluntary Deferral Account" means the bookkeeping account
established for a Participant which is credited with Base
Pay and/or Annual Bonus deferrals which are voluntarily
elected by the Participant pursuant to Articles 5 and/or 6
hereof.
(oo) "Voluntary Stock Unit Deferral Account" means the
bookkeeping account established for a Participant which is
credited with Stock Units equal to the number of shares of
Company Stock (including fractions of a share) that were
voluntarily deferred into the Voluntary Stock Unit Deferral
Account by a Participant in connection with a stock option
exercise, or the lapse of restrictions on a restricted
stock grant or purchase, pursuant to the provisions of a
Company stock plan. The Voluntary Stock Unit Deferral
Account shall be reduced in a similar manner as of the date
that any Company Stock is distributed from such account to
the Participant.
As of the date that any dividend is paid to holders of
shares of Company Stock, a Participant's Voluntary Stock
Unit Deferral Account shall be credited with additional
Stock Units equal to the number of shares of Company Stock
(including fractions of a share) that could have been
purchased, at the Closing Price of a share of Company Stock
on such date, with the amount that would have been paid as
dividends on that number of shares of Company Stock
(including fractions of a share) which is equal to the
number of Stock Units attributable to the Participant's
Voluntary Stock Unit Deferral Account as of the record date
of such dividend. In the case of dividends paid in
property, the amount of the dividend shall be deemed to be
the fair market value of the property at the time of the
payment thereof, as determined by the Committee. A
distribution from the Voluntary Stock Unit Deferral Account
shall be paid in a number of shares of Company Stock equal
to the number of Stock Units distributable.
(pp) "Voluntary Stock Unit Deferral" has the same meaning
ascribed to such term in Article 8 hereof.
2.2 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.
ARTICLE 3. ADMINISTRATION
3.1 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee or its delegate except as limited by law or by the Articles of
Incorporation or the Bylaws of the Company. Subject to the terms hereof, the
Committee shall have full power to (a) determine the terms and
7
10
conditions of each Participant's participation in the Plan; (b) construe and
interpret the Plan and any agreement or instrument entered into under the Plan;
(c) establish, amend, or waive rules and regulations for the Plan's
administration; (d) amend (subject to the provisions of Article 17 hereof) the
terms and conditions of the Plan and any agreement or instrument entered into
under the Plan; (e) designate one or more persons to administer the Plan; and
(f) make other determinations which may be necessary or advisable for the
administration of the Plan.
3.2 DECISIONS BINDING. All determinations and decisions of the Committee
as to any disputed question arising under the Plan, including questions of
construction and interpretation, shall be final, conclusive and binding on all
parties.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
4.1 ELIGIBILITY. Eligibility to participate in the Plan shall be limited
to Participants. In the event a Participant no longer meets the requirements
for eligibility to participate in the Plan, such Participant shall become an
inactive Participant retaining all of the rights described under the Plan
pertaining to such Participant's then Accrued Account Balances, except the right
to make any further deferrals hereunder and the right to receive any further
Company credits. An inactive Participant may become an active Participant again
in the future.
4.2 PARTICIPATION. When a Participant first becomes eligible to
participate in the Plan, such Participant shall, as soon as practicable
thereafter, be notified of his or her eligibility to participate. At such time,
or as soon as administratively practicable thereafter, the Participant shall be
provided with deferral and investment election forms; such election forms must
be completed and returned, within the time period specified, to the Company in
order for the Participant to participate in the Plan.
ARTICLE 5. VOLUNTARY DEFERRALS - BASE PAY
5.1 DEFERRAL. Prior to the beginning of a Deferral Period in which Base
Pay is otherwise earned, or in advance of earning(s) at intervals reasonably
determined by the Committee or its delegate, a Participant may voluntarily elect
to defer up to one hundred percent (100%) of his or her Base Pay for that
Deferral Period. Any amount deferred pursuant to this Section 5.1, and earnings
thereon, shall be credited to such Participant's Voluntary Deferral Account.
Each Participant shall be one hundred percent (100%) vested in any amount
deferred pursuant to this Section 5.1, and earnings thereon, at all times. A new
deferral election will be required by each Participant prior to the beginning of
each new Plan Year for which they are eligible to defer Base Pay.
Notwithstanding anything herein to the contrary, the amount of Base Pay
that a Participant may defer pursuant to this Section 5.1 shall be limited by
(a) amounts deferred pursuant to the Retirement Savings Plan; (b) amounts
withheld for applicable federal, state, and local taxes; (c) amounts deducted
pursuant to any insurance or benefit program; (d) voluntary payroll deductions
(e.g., United Way contributions); (e) involuntary payroll deductions (e.g.,
garnishments); and (f) all other proper deductions, as determined by the
Committee or its delegate.
5.2 PARTIAL PLAN YEAR PARTICIPATION. In the event a Participant first
becomes eligible to participate in the Plan after the beginning of a Plan Year,
the Committee or its delegate may, in its
8
11
discretion, allow such Participant to complete a deferral election form and
investment election form within thirty (30) calendar days of becoming eligible
to participate.
5.3 DEFERRAL ELECTION. A Participant shall make an election to defer Base
Pay: (i) prior to the beginning of the Deferral Period in which the Base Pay is
otherwise earned, or (ii) in advance of earning, at intervals reasonably
determined by the Committee or its delegate, or (iii) not later than thirty (30)
calendar days following notification of initial eligibility to participate for a
partial Plan Year, as applicable. The deferral election shall apply only to Base
Pay earned on or after the first day of the month following the date on which a
valid deferral election form is received by the Committee or its delegate. Each
such election shall indicate the following:
(a) The amount of Base Pay earned during the Plan Year to be
deferred, which shall apply only to Base Pay earned on or
after the first day of the month following the date on
which a valid deferral election is received by the
Committee or its delegate;
(b) The Payout Commencement Date for the deferred Base Pay, and
earnings thereon, which shall pertain to a Plan Year
pursuant to Section 2.1(dd) hereof; and
(c) The Form of Payout which shall pertain to a Plan Year
pursuant to Section 2.1(w) hereof.
5.4 LENGTH OF DEFERRAL AND FORM OF PAYOUT. Subject to Section 2.1(dd)
hereof, a Participant may elect the length of deferral of Base Pay deferred each
Plan Year by designating a corresponding Payout Commencement Date for such
deferral. The Form of Payout shall be as elected by the Participant pursuant to
Section 2.1(w) hereof.
ARTICLE 6. VOLUNTARY DEFERRALS - ANNUAL BONUS
6.1 DEFERRAL. The option to defer annual Bonus pursuant to the terms of this
article 6 shall be effective with the Plan Year beginning January 1, 2001. Prior
to the beginning of the Plan Year in which Annual Bonus is otherwise earned, or
in advance of earning at intervals reasonably determined by the Committee or its
delegate, a Participant may voluntarily elect to defer up to one hundred percent
(100%) of his or her Annual Bonus for that Plan Year. Any amount deferred
pursuant to this Section 6.1, and earnings thereon, shall be credited to such
Participant's Voluntary Deferral Account. A Participant shall be one hundred
percent (100%) vested in any amount deferred pursuant to this Section 6.1, and
earnings thereon, at all times.
Notwithstanding anything herein to the contrary, the amount of
Annual Bonus that a Participant may defer pursuant to this Section 6.1 shall be
limited by (a) amounts deferred pursuant to the Retirement Savings Plan; (b)
amounts withheld for applicable federal, state, and local taxes; (c) amounts
deducted pursuant to any insurance or benefit program; (d) voluntary payroll
deductions (e.g., United Way contributions); (e) involuntary payroll deductions
(e.g., garnishments); and (f) all other proper deductions, as determined by the
Committee or its delegate.
9
12
6.2. PARTIAL PLAN YEAR PARTICIPATION. In the event a Participant first
becomes eligible to participate IN THE PLAN AFTER THE BEGINNING OF A
PLAN YEAR, THE COMMITTEE OR ITS DELEGATE MAY, IN ITS DISCRETION,
ALLOW SUCH PARTICIPANT TO COMPLETE A DEFERRAL ELECTION FORM AND
INVESTMENT ELECTION FORM WITHIN THIRTY (30) CALENDAR DAYS OF BECOMING
ELIGIBLE TO PARTICIPATE.
6.3 DEFERRAL ELECTION. A Participant shall make an election to defer
Annual Bonus: (i) prior to the beginning of the Plan Year in which the Annual
Bonus is otherwise earned, or (ii) in advance of earning, at intervals
reasonably determined by the Committee or its delegate, or (iii) not later than
thirty (30) calendar days following notification of initial eligibility to
participate for a partial Plan Year, as applicable. The deferral election shall
apply only to Annual Bonus earned subsequent to the first day of the month
following the date on which a valid deferral election form is received by the
Committee or its delegate. Each such election shall indicate the following:
(a) The amount of Annual Bonus earned during the Plan Year to
be deferred;
(b) The Payout Commencement Date for the deferred Annual Bonus,
and earnings thereon, which shall pertain to a Plan Year
pursuant to Section 2.1(dd) hereof; and
(c) The Form of Payout which shall pertain to a Plan Year
pursuant to Section 2.1(v) hereof.
6.4 LENGTH OF DEFERRAL AND FORM OF PAYOUT. Subject to Section 2.1(dd)
hereof, a Participant may elect the length of deferral of Annual Bonus deferred
each Plan Year by designating a corresponding Payout Commencement Date for such
deferral. The Form of Payout shall be as elected by the Participant pursuant to
Section 2.1(w) hereof.
ARTICLE 7. MANDATORY DEFERRALS
7.1 DEFERRAL. If the Committee determines that, with respect to any tax
year, a Participant is a "covered employee" for purposes of Section 162(m) of
the Code, the Committee may, in its discretion, impose a mandatory deferral of
all amounts otherwise payable to such employee by the Company to the extent that
such amounts meet the definition of "applicable employee remuneration" (as such
term is defined in Section 162(m) of the Code) and such amounts exceed
$1,000,000 (or such other amount as may be specified by Section 162(m) from time
to time) as determined by the Committee.
Amounts deferred pursuant to this Section 7.1 shall be credited to such
Participant's Mandatory Deferral Account. The Participant shall be one hundred
percent (100%) vested in amounts deferred pursuant to this Section 7.1, and
earnings thereon, at all times.
7.2 LENGTH OF DEFERRAL. Any amount deferred pursuant to Section 7.1
hereof, and earnings thereon, shall be paid out to the Participant on the
earliest date on which such amount can be received by the Participant without
subjecting the Company to a loss of deductibility (due to Section 162(m) of the
Code) with respect to any part of such amounts. However, subject to Section
2.1(dd) hereof, a Participant can make an irrevocable election to have these
amounts deferred to a later Payout Commencement Date at which time no loss of
the Company deduction
10
13
would occur (due to Section 162(m)); such election must be made prior to lapse
of the restriction set forth in this Section 7.2.
7.3 FORM OF PAYOUT. Subject to Sections 7.2 and 7.4 hereof, the payout of
Mandatory Deferrals, and earnings thereon, shall be in a Lump-Sum Payment to the
extent not deferred by the Participant to a Payout Commencement Date. If
deferred to a Payout Commencement Date, the Form of Payout shall be as elected
by such Participant pursuant to Section 2.1(w) hereof.
7.4 COMMITTEE DISCRETION. In the event that any payment under this Plan
would cause the Company a loss of deductibility (due to Section 162(m)), the
Committee reserves the right hereunder to (i) delay such payment; (ii) require
additional mandatory deferrals to offset such payment; or (iii) to take any
other action necessary and appropriate to avoid such loss of deductibility.
ARTICLE 8. VOLUNTARY STOCK UNIT DEFERRALS
8.1 PARTICIPATION. A Participant may voluntarily defer the receipt of
shares of Company Stock which were voluntarily cancelled and Stock Units granted
in lieu thereof by the election of the Participant in connection with (a) the
exercise of a stock option under a Company stock plan, or (b) the lapse of
restrictions on restricted stock granted or purchased under a Company stock
plan.
8.2 DEFERRAL. At least six (6) months prior to the exercise of a stock
option (the "Exercise Date") under a Company stock plan or the lapse of
restrictions (the "Expiration Date") on restricted stock granted or purchased
under a Company stock plan, a Participant may voluntarily elect to cancel the
applicable shares of Company Stock and receive Stock Units in lieu thereof and
to defer such Stock Units pursuant to the terms hereof.
Subject to the terms hereof, such election shall be irrevocable. Such
Stock Units deferred pursuant to this Section 8.2, and earnings thereon, shall
be credited to the Participant's Voluntary Stock Unit Deferral Account. A
Participant shall be one hundred percent (100%) vested in such Stock Units
deferred pursuant to this Section 8.2, and earnings thereon, at all times.
8.3 DEFERRAL ELECTION. A Participant shall make an election to defer Stock
Units as described in Section 8.2 hereof by submitting a valid deferral election
form to the Committee or its delegate at least six (6) months prior to the
Exercise Date or Expiration Date, as applicable, and by entering into a written
agreement with the Company under the applicable Company stock plan. Each such
election shall indicate the following:
(a) The number of restricted shares, or option shares, as
applicable, to be deferred as Voluntary Stock Unit
Deferrals, which shall be irrevocable pursuant to Section
8.2 hereof;
(b) The Payout Commencement Date for the Voluntary Stock Unit
Deferrals, and earnings thereon, which shall be irrevocable
pursuant to Section 8.4 hereof; and
(c) The Form of Payout pursuant to Section 2.1(w) hereof.
11
14
8.4 LENGTH OF DEFERRAL AND FORM OF PAYOUT. Subject to Section 2.1(dd)
hereof, a Participant may elect the length of deferral of each Voluntary Stock
Unit Deferral by designating a corresponding Payout Commencement Date for each
such Deferral. Any Stock Units credited to a Participant's Voluntary Stock Unit
Deferral Account shall be paid out to the Participant in shares of Company
Stock. The Form of Payout shall be as elected by such Participant pursuant to
Section 2.1(w) hereof.
ARTICLE 9. COMPANY 401(K) MATCH RESTORATION
9.1 PARTICIPATION. Subject to Section 9.3 hereof, a Participant who is
eligible to participate in the Retirement Savings Plan and experiences a cutback
in Employer Matching Contributions due to the limitations imposed by the Code
shall be eligible to receive Company credits pursuant to this Article 9 for such
Plan Year.
9.2 COMPANY 401(K) MATCH RESTORATION. For each Plan Year in which an
employee is eligible to receive Company credits pursuant to this Article 9, the
Company shall credit to such Participant's Match Restoration Account an amount
equal to the excess of (a) over (b):
(a) The Employer Matching Contribution that would have been
credited to the Participant's account for that Plan Year
under the Retirement Savings Plan had the contribution been
based on the Participant's total Compensation for the Plan
Year (including all deferred compensation), unreduced by
tax-qualified plan limits of the Code, and increased by
amounts deferred pursuant to the Retirement Savings Plan.
(b) The actual Employer Matching Contribution credited to the
Participant's account for that Plan Year under the
Retirement Savings Plan.
A Participant shall become one hundred percent (100%) vested in amounts
credited to such Participant's Match Restoration Account pursuant to this
Section 9.2, and earnings thereon, upon the date such Participant becomes one
hundred percent (100%) vested in Employer Matching Contributions credited to
such Participant under the Retirement Savings Plan. Notwithstanding the
immediately preceding sentence, a Participant, who is an active employee of the
Company, automatically becomes one hundred percent (100%) vested in amounts
credited to such Participant's Match Restoration Account pursuant to this
Section 9.2, and earnings thereon, upon such Participant's sixty-fifth (65th)
birthday or death.
9.3 PARTIAL PLAN YEAR PARTICIPATION. In the event a Participant first
becomes eligible to participate in the Plan after the beginning of a Plan Year,
the Committee or its delegate may, in its discretion, allow such Participant to
participate during such partial Plan Year.
9.4 LENGTH OF DEFERRAL AND FORM OF PAYOUT. Subject to Section 2.1(dd)
hereof, any vested amount credited to a Participant's Match Restoration Account
pursuant to Section 9.2 hereof, and earnings thereon, shall be paid out to the
Participant in shares of Company Stock beginning in the January following such
Participant's termination of employment with the Company. The Form of Payout
shall be as elected by such Participant pursuant to Section 2.1(w) hereof.
12
15
ARTICLE 10. COMPANY PROFIT SHARING RESTORATION
10.1 PARTICIPATION. Subject to Section 10.3 hereof, a Participant who is
eligible to participate in the Retirement Savings Plan and experiences a cutback
in Profit Sharing Contributions due to the limitations imposed by the Code shall
be eligible to receive Company credits pursuant to this Article 10 for such Plan
Year.
10.2 COMPANY PROFIT SHARING RESTORATION. For each Plan Year in which a
Participant is eligible to receive Company credits pursuant to this Article 10,
the Company shall credit to such Participant's Profit Sharing Restoration
Account an amount equal to the excess of (a) over (b):
(a) The Profit Sharing Contribution that would have been
credited to the Participant's account for the Plan Year
under the Retirement Savings Plan had the contribution been
based on the Participant's total Compensation for the Plan
Year (including all deferred compensation), unreduced by
tax-qualified plan limits of the Code, and increased by
amounts deferred pursuant to the Retirement Savings Plan.
(b) The actual Profit Sharing Contribution credited to the
Participant's account for that Plan Year under the
Retirement Savings Plan.
A Participant shall become one hundred percent (100%) vested in any amount
credited to the Participant's Profit Sharing Restoration Account pursuant to
this Section 10.2, and earnings thereon, automatically upon the first to occur
of (a) five (5) years of service with the Company; (b) the Participant's
sixty-fifth (65th) birthday; or (c) the Participant's death.
Company credits credited to a Participant pursuant to this Section 10.2
shall in no way reduce amounts available to the Company to make Profit Sharing
Contributions under the Retirement Savings Plan.
10.3 PARTIAL PLAN YEAR PARTICIPATION. In the event a Participant first
becomes eligible to participate in the Plan after the beginning of a Plan Year,
the Committee or its delegate may, in its discretion, allow such Participant to
participate during such partial Plan Year.
10.4 LENGTH OF DEFERRAL AND FORM OF PAYOUT. Subject to Section 2.1(dd)
hereof, any vested amounts credited to a Participant's Profit Sharing
Restoration Account pursuant to Section 10.2 hereof, and earnings thereon, shall
be paid out to the Participant beginning in the January following the
Participant's termination of employment with the Company. The Form of Payout
shall be as elected by the Participant pursuant to Section 2.1(w) hereof.
ARTICLE 11. DISCRETIONARY COMPANY CREDITS
11.1 PARTICIPATION. Any Participant designated by the Committee in its
discretion is eligible to receive Company credits pursuant to this Article 11.
11.2 DISCRETIONARY COMPANY CREDITS. In addition to the Company 401(k)
Match Restoration and Company Profit Sharing Restoration, as set forth in
Sections 9.2 and 10.2 hereof, the Committee in its discretion may cause
additional Company credits to be credited to the Discretionary Company
13
16
Credits Account of a Participant, or group of Participants, for any reason
whatsoever. The Committee shall establish rules and procedures for, and the
terms of, such credits.
ARTICLE 12. PARTICIPANT ACCOUNTS AND RABBI TRUST
12.1 PARTICIPANT ACCOUNTS. The Company shall establish and maintain
individual bookkeeping accounts for each Participant's Accrued Account Balances.
Each component of a Participant's Accrued Account Balances shall be credited to
the Participant's bookkeeping account as soon as administratively practicable
following the date such credits can first be calculated. The establishment and
maintenance of such accounts, however, shall not be construed as entitling a
Participant to any specific asset of the Company.
A Participant who has a balance in any account shall be furnished a
statement of his or her Accrued Account Balances at least annually.
12.2 INVESTMENT ELECTIONS. All Accrued Account Balances shall be credited
with earnings based upon the rate of return actually achieved by the underlying
investments, as described in this Section 12.2.
(a) Amounts credited to a Participant's Voluntary Deferral Account
shall be invested as elected by the Participant in one or more Investment
Funds, except for any investment choice excluded due to applicable law or
regulation or by action of the Committee.
(b) Amounts credited to a Participant's Mandatory Deferral Account
shall be invested as elected by the Participant in one or more Investment
Funds, except for any investment choices excluded due to applicable law or
regulation or by action of the Committee.
(c) Stock Units credited to a Participant's Match Restoration
Account shall be automatically credited to the Stock Unit Subaccount. Once
a Participant reaches age fifty-five (55), all or any part of the Stock
Units credited both before or after age fifty-five (55), to such
Participant's Match Restoration Account shall be invested as elected by
each Participant in either (i) the Stock Unit Subaccount; or (ii) one or
more Investment Funds except for any investment choices excluded due to
applicable law or regulation or by action of the Committee. No such
transfer is allowed prior to a Participant's fifty-fifth (55th) birthday.
A Participant may not make transfers into the Stock Unit Subaccount from
any other account. Once amounts are transferred out of the Stock Unit
Subaccount, they cannot be transferred back into this investment choice.
(d) Voluntary Stock Unit Deferrals shall be credited to a
Participant's Voluntary Stock Unit Deferral Account. A Participant may not
make transfers into or out of the Voluntary Stock Unit Deferral Account.
(e) Amounts credited to a Participant's Profit Sharing Restoration
Account shall be invested as elected by the Participant in one or more
Investment Funds, except for any investment choices excluded due to
applicable law or regulation or by action of the Committee.
14
17
(f) Amounts credited to a Participant's Discretionary Company
Credits Account shall be invested pursuant to the rules and procedures
determined by the Committee in its discretion.
A Participants shall be permitted to change his or her investment
elections in the same frequency as a participant under the Retirement Savings
Plan except that a Section 16 Officer may not make transfers into and out of the
Company Stock Fund. Investment elections are not permitted with respect to the
Voluntary Stock Unit Deferral Account, or, except as provided in Section
12.2(c), with respect to the Match Restoration Account.
Notwithstanding anything herein to the contrary, the Committee reserves
the right to (a) change the number and availability of the investment
alternatives at any time; and (b) not actually invest deferrals and/or Company
credits into the investment alternatives elected by a Participant.
12.3 CHARGES AGAINST ACCOUNTS. There shall be charged against a
Participant's Accrued Account Balances any payments made thereunder to the
Participant or to his or her beneficiary.
12.4 ESTABLISHMENT OF RABBI TRUST. As soon as administratively practicable
following the Effective Date, the Company shall establish an irrevocable Rabbi
Trust, governed by a Rabbi Trust Agreement (which shall be a grantor trust
within the meaning of Code Sections 671-678) for the benefit of Participants and
beneficiaries of Participants, as appropriate and applicable. The Rabbi Trust
shall have an independent Trustee (such Trustee to have a fiduciary duty to
carry out the terms and conditions of the Trust) as selected by the Company, and
shall have restrictions as to the Company's ability to amend the Trust or to
cancel benefits provided thereunder.
Assets contained in the Rabbi Trust shall at all times be specifically
subject to the claims of the Company's general creditors in the event of
insolvency; such term shall be specifically defined within the provisions of the
Rabbi Trust, along with a required procedure for notifying the Trustee of any
such insolvency.
All benefits hereunder shall be paid first from the Rabbi Trust, to the
extent assets exist in the Rabbi Trust and then, as necessary, by the Company
from general assets.
12.5 FUNDING OF RABBI TRUST. At the discretion of the Committee, the
Company may contribute cash, cash equivalents, and/or Kmart stock to the Rabbi
Trust, for the benefit of Participants and beneficiaries of Participants, as the
Committee deems appropriate. It is intended that the Rabbi Trust shall be fully
funded at all times to cover the Accrued Rabbi Trust Obligations of the Company.
Upon a Change in Control, the Company shall be required to make an immediate
contribution to the Rabbi Trust to cause all Accrued Rabbi Trust Obligations to
be fully or overfunded as of that date.
ARTICLE 13. ALLOCATION OF PRIOR DEFERRALS AND COMPANY CREDITS
Any outstanding Participant deferrals and Company 401(k) match or profit
sharing restoration amounts, and earnings thereon, credited to any Participant
account under either the Kmart Corporation Supplemental Savings Plan or the
Kmart Corporation Executive Deferred
15
18
Compensation Plan (together the "Predecessory Deferral/Restoration
Arrangements"), as of the Effective Date of this Plan, shall be withdrawn and
automatically transferred to such Participant's account under this Plan within
ninety (90) calendar days from the Effective Date, or as soon as otherwise
administratively practicable.
Amounts transferred pursuant to this Article 13 shall be invested as
follows:
(a) Amounts transferred, and earnings thereon, that meet the
definition of Employer Matching Contributions and that were
originally credited to a Participant under the Kmart Corporation
Supplemental Savings Plan shall be invested pursuant to Section
12.2(c) hereof;
(b) Amounts transferred, and earnings thereon, that meet the
definition of Mandatory Deferrals and that were originally
credited to a Participant pursuant to Section 2(b) of the Kmart
Corporation Executive Deferred Compensation Plan shall be invested
as elected by the Participant in one or more Investment Funds,
except for any investment choices excluded due to applicable law
or regulation or by action of the Committee; and
(c) All other amounts transferred, and earnings thereon, shall be
invested as elected by the Participant in one or more Investment
Funds, except for any investment choices excluded due to
applicable law or regulation or by action of the Committee.
By no later than the end of the first Plan Year, the Company shall
contribute cash, cash equivalents, and/or Kmart Stock to the Rabbi Trust for the
benefit of Participants in an amount equal to the amount of all deferrals and
Company credits, and earnings thereon, accrued in prior years under Predecessory
Deferral/Restoration Arrangements.
It is intended that this Plan replace the Predecessory
Deferral/Restoration Arrangements. No Participant shall be allowed to defer any
amounts or accrue any benefits under the Predecessory Deferral/Restoration
Arrangements after the Effective Date hereof.
ARTICLE 14. BENEFICIARY DESIGNATION
14.1 DESIGNATION OF BENEFICIARY. A Participant may designate or change a
beneficiary or beneficiaries who, upon the Participant's death, shall receive
the amounts that otherwise would have been paid to the Participant under the
Plan. Any such designation of beneficiary and any change thereto shall be signed
by the Participant, and shall be in such form as prescribed by the Committee or
its delegate. A designation of beneficiary shall be effective as of the date
delivered to the designated Company employee The payment of an amount equal to
the amount that otherwise would have been paid to the Participant shall be paid
in accordance with the last unrevoked written designation of beneficiary that
has been signed by the Participant and delivered by the Participant to the
designated Company delegate employee prior to the Participant's death.
14.2 DEATH OF BENEFICIARY. In the event that all of the beneficiaries
named by a Participant, pursuant to Section 14.1 hereof, predecease the
Participant, the amount that otherwise would have
16
19
been paid to the Participant or the Participant's beneficiaries under the Plan
shall be paid to the Participant's estate or the person designated by the
Participant's estate.
14.3 INEFFECTIVE DESIGNATION. In the event a Participant does not
designate a beneficiary, or for any reason such designation is ineffective, in
whole or in part, the amounts that otherwise would have been paid to the
Participant or the Participant's beneficiaries under the Plan shall be paid to
the person or persons that the Participant designated as the beneficiary or
beneficiaries under the Retirement Savings Plan, and if no such designation was
made, then to the Participant's estate or the person designated by the
Participant's estate.
14.4 INDEMNITY. The Company may require an indemnity and/or evidence or
other assurances as it deems necessary in connection with any payment hereunder
to a Participant's beneficiary, estate, legal representative, or guardian.
ARTICLE 15. WITHHOLDING OF TAXES
The Company shall have the right to require a Participant to remit to the
Company, or any person or entity designated by the Committee to administer the
Plan, an amount sufficient to satisfy federal, state, and local tax withholding
requirements, or to deduct from all payments made pursuant to the Plan amounts
sufficient to satisfy such withholding requirements.
ARTICLE 16. EMPLOYMENT/MISCONDUCT
16.1 EMPLOYMENT. No provision of the Plan, nor any action taken by the
Committee or the Company pursuant to the Plan, shall give or be construed as
giving a Participant any right to be retained in the employ of the Company, or
affect or limit in any way the right of the Company to terminate his or her
employment.
16.2 MISCONDUCT. Notwithstanding anything herein to the contrary, all
rights with respect to the Accrued Account Balances of a Participant are subject
to the conditions that the Participant not engage or have engaged (a) in fraud,
dishonesty, conduct in violation of Company, subsidiary, or affiliate policy, as
applicable, or similar acts at any time while an employee of the Company, its
subsidiaries, or affiliates; or (b) in activity directly or indirectly in
competition with any business of the Company, its subsidiaries or affiliates, as
applicable, or in other conduct inimical to the best interests of the Company,
its subsidiaries, and affiliates during or following the Participant's
employment with the Company, its subsidiaries, or its affiliates. If it is
determined by the Committee, either before or after termination of employment of
a Participant, that there has been a failure of any such conditions, the
Committee shall:
(a) Withhold, and the Participant shall forfeit all rights with
respect to, all amounts then remaining in such
Participant's Match Restoration Account, Profit Sharing
Restoration Account, and/or Discretionary Company Credits
Account; and
(b) Accelerate the payout amounts then remaining in such
Participant's Voluntary Deferral Account, Mandatory
Deferral Account, and/or Voluntary Stock Unit Deferral
Account to a date to be determined by the Committee or its
delegate, in its discretion.
17
20
ARTICLE 17. AMENDMENT AND TERMINATION
The Company hereby reserves the right to amend, suspend, or terminate the
Plan at any time by action of the Board, in its sole discretion. No such
amendment, suspension, or termination shall in any material manner adversely
affect any Participant's rights to amounts theretofore accrued and payable
hereunder, without the written consent of the Participant.
ARTICLE 18. MISCELLANEOUS
18.1 FINANCIAL OR MEDICAL HARDSHIP. The Committee or its delegate shall
have the authority to alter the timing or manner of payment of Accrued Account
Balances in the event that a Participant establishes, to the satisfaction of the
Committee or its delegate, severe financial or medical hardship. In such event,
the Committee or its delegate may, in its discretion:
(a) Authorize the cessation of Voluntary Deferrals pursuant to
Section 5.2 and Section 6.2 hereof;
(b) Provide that all, or a portion, of the Accrued Account
Balances shall immediately be paid in cash in a Lump-Sum
Payment; and/or
(c) Provide that all, or a portion of, Installment Payments
payable over a period of time shall instead be paid
immediately in cash in a Lump-Sum Payment; and/or
(d) Provide for such other payment schedule as deemed
appropriate by the Committee or its delegate under the
circumstances.
However, the amount paid pursuant to this Section 18.1 shall not exceed
that amount which the Committee or its delegate determines to be reasonably
necessary for the Participant to meet the financial or medical hardships at the
time of such payment. The severity of the financial or medical hardship shall be
judged by the Committee or its delegate. Severe financial or medical hardship
shall be deemed to exist in the event of the Participant's long and serious
illness, impending bankruptcy, or similar unforeseeable and extraordinary
circumstances arising as a result of events beyond the control of the
Participant. The decision of the Committee or its delegate with respect to the
severity of financial or medical hardship and the manner in which, if at all,
the Participant's future deferral opportunities hereunder shall cease, and/or
the manner in which, if at all, the payment of Accrued Account Balances to the
Participant shall be altered or modified, shall be final, conclusive, and not
subject to appeal.
18.2 NOTICE. Any notice or filing required or permitted to be given to the
Company under the Plan shall be sufficient if in writing and hand delivered, or
sent by registered or certified mail to the Chairman of the Committee or its
delegate. Such notice, if mailed, shall be addressed to the principal executive
offices of the Company. Notice mailed to a Participant shall be at the last
known address as is given in the records of the Company. A notice shall be
deemed given as of the date of delivery or, if delivery is made by mail, as of
the date shown on the postmark on the receipt for registration or certification.
18
21
18.3 UNFUNDED PLAN. This Plan is intended to be an unfunded plan
maintained primarily to provide deferred compensation benefits for "a select
group of management or highly compensated employees" within the meaning of
Sections 201, 301, and 401 of ERISA, and therefore is further intended to be
exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA.
Accordingly, the Committee may terminate the Plan for any or all Participants,
subject to Article 17 hereof, in order to achieve and maintain this intended
result.
18.4 SUCCESSORS. All obligations of the Company under the Plan 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.
18.5. EFFECT OF CERTAIN CHANGES. In the event of any extraordinary
dividend, stock dividend, recapitalization, merger, consolidation, stock split,
warrant or rights issuance, or combination or exchange of shares, or other
similar transactions with respect to the Company Stock, the number of Stock
Units credited to the Stock Unit Subaccount, and the number of shares of Company
Stock to be distributed hereunder, including, without limitation, pursuant to
Articles 5, 6, 7, 9, 11 and 12 (as applicable), shall be equitably adjusted by
the Committee to reflect such event and to preserve the value of such Stock
Units, and the Committee may make such other adjustments to the terms of
outstanding Stock Units as it may deem equitable under the circumstances;
provided, however, that any fractional shares resulting from such adjustment
shall be disregarded.
18.6 NONTRANSFERABILITY. A Participant's right to Accrued Account Balances
under the Plan may not be sold, transferred, assigned, or otherwise alienated or
hypothecated, other than pursuant to Article 14 hereof or by will or by the laws
of descent and distribution. In no event shall the Company make any payment
under the Plan to any assignee or creditor of a Participant.
18.7 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
18.8 COSTS OF THE PLAN. All costs of implementing and administering the
Plan shall be borne by the Company.
18.9 OTHER PERMITTED DEFERRAL OPPORTUNITIES. The Committee may, in its
discretion, permit a Participant to defer such Participant's receipt, if any, of
the payment of cash or the delivery of capital stock of the Company that would
otherwise be due to such Participant pursuant to the terms of the 1997 Kmart
Corporation Long-Term Equity Compensation Plan, or any other stock plan of the
Company, and any successor plans thereto. The Committee shall establish rules
and procedures for such deferrals.
18.10 GOVERNING LAW. The Plan shall be governed by and construed in
accordance with the internal laws of the State of Michigan without giving effect
to any choice or conflicts of laws provision or rule.
Effective Date: January 1, 1998; amended and restated as of September 1, 1998;
and further amended as of September 19, 2000.
19
1998 Management Deferred Compensation and Restoration Plan - Kmart Corp.
Was this helpful?