2005 EQUITY INCENTIVE
PLAN
1.00 PURPOSE AND EFFECTIVE
DATE
1.01
Purpose. This Plan is
intended to foster and promote the long-term financial success of
the Company and Related Entities and to materially increase
shareholder value by [1] providing Consultants, Employees
and Eligible Directors an opportunity to acquire an ownership
interest in the Company and [2] enabling the Company and
Related Entities to attract and retain the services of outstanding
Consultants, Employees and Eligible Directors upon whose judgment,
interest and special efforts the successful conduct of the
Group’s business is largely dependent.
1.02
Effective Date. The Plan
will be effective upon its adoption by the Board and approval by
the affirmative vote of the Company’s shareholders under
applicable rules and procedures described in Code
§§162(m) and 422. Any Award granted before shareholder
approval will be null and void if the shareholders do not approve
the Plan within the period just described. Subject to
Section 14.00, the Plan will continue until the tenth
anniversary of the date it is adopted by the Board or approved by
the Company’s shareholders, whichever is earliest.
When used in
this Plan, the following terms have the meanings given to them in
this section unless another meaning is expressly provided elsewhere
in this document or clearly required by the context. When applying
these definitions and any other word, term or phrase used in this
Plan, the form of any word, term or phrase will include any and all
of its other forms.
Act. The Securities Exchange Act of 1934, as amended,
or any successor statute of similar effect even if the Company is
not subject to the Act.
Affiliated
SAR. An SAR that is
granted in conjunction with an Option and which is always deemed to
have been exercised at the same time that the related Option is
exercised. The deemed exercise of an Affiliated SAR will not reduce
the number of shares of Stock subject to the related Option, except
to the extent of the exercise of the related Option.
Annual
Meeting. The annual
meeting of the Company’s shareholders.
Annual
Retainer. The annual
retainer and any other fees paid to each Eligible Director for
service as a member of the Board and as a member of any Board
committee.
Annual
Retainer Deferral Form. The form each Eligible Director must complete to
defer all or a portion of his or her Annual Retainer.
Award. Any Incentive Stock Option, Nonstatutory Stock
Option, Performance Share, Performance Unit, Restricted Stock,
Restricted Stock Unit, Stock Appreciation Right and Stock Unit
granted under the Plan.
Award
Agreement. The written or
electronic agreement between the Company and each Participant that
describes the terms and conditions of each Award and the manner in
which it will be settled if earned. If there is a conflict between
the terms of this Plan and the terms of the Award Agreement, the
terms of this Plan will govern.
Beneficiary. The person a Participant designates to receive
(or to exercise) any Plan benefits (or rights) that are unpaid (or
unexercised) when he or she dies. A Beneficiary may be designated
only by following the procedures described in Section 15.02;
neither the Company nor the Committee is required to infer a
Beneficiary from any other source.
Board. The Company’s board of
directors.
Cause. Unless the Committee specifies otherwise in the
Award Agreement, with respect to any Participant and subject to any
cure provision included in any written agreement between the
Participant and the Company:
[1] A
material failure to substantially perform his or her position or
duties;
[2] Engaging in illegal or grossly negligent conduct
that is materially injurious to the Company or any Related
Entity;
[3] A
material violation of any law or regulation governing the Company
or any Related Entity;
[4] Commission of a material act of fraud or
dishonesty which has had or is likely to have a material adverse
effect upon the Company’s (or any Related Entity’s)
operations or financial conditions;
[5] A
material breach of the terms of any other agreement (including any
employment agreement) with the Company or any Related Entity;
or
[6] A
breach of any term of this Plan or Award Agreement.
If a
Participant Terminates (or is Terminated) for any reason other than
Cause and the Company subsequently discovers an act, failure or
event that, if known before the Participant’s Termination
would have justified a Termination for Cause and that act, event or
failure was actively concealed by the Participant and could not
have been discovered through reasonable diligence before the
Participant Terminated, that Participant will be retroactively
treated as having been Terminated for Cause.
Change in
Control. The earliest of
any of the following events to occur after completion of the
initial public offering of the Company’s stock which is the
subject of the Registration Statement:
[1] During any period consisting of 12 consecutive
calendar months beginning after completion of the initial public
offering of the Company’s stock which is the subject of the
Registration Statement, the members of the Board specified in the
Registration Statement (“Incumbent Directors”) cease
for any reason other than death to constitute at least a majority
of the members of the Board, provided [a] that any director
whose election, or nomination for election by the Company’s
shareholders, was approved by a vote of at least a majority of the
then Incumbent Directors also will be treated as an Incumbent
Director unless that person was nominated for election to the Board
(or otherwise became a member of the Board) in connection with an
actual or threatened election contest relating to the election or
removal of Board members or other threatened or actual solicitation
of proxies of consent by or in behalf of any “person,”
including a “group” [as those terms are used in Act
§§13(d) and 14(d)(2)], [b] this element of this
definition will not apply if the Company reorganizes into an entity
that does not have a board of directors or analogous governing body
and that reorganization is not a Change in Control under another
element of this definition and [c] if the Company becomes a
subsidiary of another entity (i.e., another entity owns, directly
or indirectly, more than 50 percent of the total combined
voting power of all classes of Stock) in a transaction that is not
a Change in Control under another element of this definition,
subpart [1] of this definition will be applied by reference to
changes to the board of directors of the parent entity (or of the
ultimate parent entity).
[2] Any “person,” including a
“group” [as these terms are used in Act
§§13(d) and 14(d)(2)], becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Act),
directly or indirectly, of 30 percent or more of the combined
voting power of the Company and of securities of the Company
sufficient to elect a majority of the members of the Board but
disregarding the effect of [a] any acquisition by a person
who on the Effective Date is the beneficial owner of
30 percent or more of the combined voting power of the
Company, [b] any acquisition directly from the Company,
including a public offering of securities, [c] any
acquisition by the Company or any Related Entity, [d] any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Related Entity,
[e] any acquisition through a transaction described in
subpart [3], [4] or [5] of this definition, [f] any
acquisition by Retail Ventures, Inc. or any corporation,
partnership or other form of unincorporated entity of which Retail
Ventures, Inc. owns, directly or indirectly, 50 percent or
more of the total combined voting power of all classes of stock, if
the entity is a corporation, or of the capital or profits interest,
if the entity is a partnership or another form of unincorporated
entity, [g] any acquisition by Schottenstein Stores
Corporation (the persons identified in subparts [a], [c], [f] and
[g] of this subpart being sometimes referred to as “Permitted
Acquirers”), [h] any acquisition by any one or more of
the trusts established for the benefit of any of Jay L.
Schottenstein, Susan S. Diamond, Ann Deshe, Lori Schottenstein,
Geraldine Schottenstein or any of their respective spouses,
children or lineal descendants or any person controlled by any such
trust or trusts, [i] any acquisition by an entity that files
SEC Form 13-G in connection with its ownership of Stock unless and
until that entity files SEC Form 13-D in connection with its
ownership of Stock or [j] any acquisition by Cerberus
Partners, Ltd. unless, at the time of the acquisition, the
Permitted Acquirers, as defined in subpart [2][g] of this
definition and the trusts described in subpart [2][h] of this
definition, directly or indirectly, own less than 10 percent
of the voting power of the Company’s stock.
[3] The completion of a transaction or a series of
related transactions effecting [a] the merger or other
business combination of the Company with or into another entity
other than a Permitted Acquirer in which the shareholders of the
Company immediately before the effective date of such merger or
other business combination own less than 50 percent of the
voting power in such entity; or [b] the sale or other
disposition of all or substantially all of the assets of the
Company except a sale or other disposition to [i] an entity
in which the shareholders of the Company immediately
before
the sale or
disposition own more than 50 percent of the voting power of
such entity after that transaction or [ii] a Permitted
Acquirer.
[4] Liquidation or dissolution of the Company other
than a liquidation or dissolution into an entity [a] in
which the shareholders of the Company before the effective date of
the liquidation or dissolution own more than 50 percent of the
voting power of such entity after the liquidation or dissolution or
[b] which is a Permitted Acquirer.
[5] Any other transaction or event that the Board,
in its sole discretion, decides will have as material an effect on
the Company as any transaction or event described in subparts [1]
through [4] of this definition but which is not otherwise described
in this section.
Provided, in
the case of an award (or portion thereof) subject to Code
§409A, such event also constitutes a change in the ownership
or effective control of the Company, or in the ownership of a
substantial portion of the Company’s assets, within the
meaning of Code §409A. However, and regardless of any other
provision of this Plan or element of this definition, a Change in
Control will not occur solely as a result of the initial public
offering of the Company’s stock which is the subject of the
Registration Statement or of any event directly related to that
initial public offering.
Change in
Control Price. The
highest price per share of Stock offered in conjunction with any
transaction resulting in a Change in Control (as determined in good
faith by the Committee if any part of the offered price is payable
other than in cash) or, in the case of a Change in Control
occurring solely by reason of events not related to a transfer of
Stock, the highest Fair Market Value of a share of Stock on any of
the 30 consecutive trading days ending on the last trading day
before the Change in Control occurs.
Code. The Internal Revenue Code of 1986, as amended or
superseded after the Effective Date and any applicable rulings or
regulations issued under the Code.
[1] In
the case of any Award to Eligible Directors, the entire
Board;
[2] In
the case of any Award granted to Participants other than Eligible
Directors before the Company becomes a “publicly held
corporation,” as defined in Code §162(m)(2), the entire
Board; or
[2] In
the case of Awards made to Participants other than Eligible
Directors after the Company becomes a “publicly held
corporation,” as defined in Code §162(m)(2), the
Board’s Compensation Committee which also constitutes a
“compensation committee” within the meaning of Treas.
Reg. §1.162-27(c)(4). The Committee will be comprised of at
least three persons [a] each of whom is [i] an
outside director, as defined in Treas. Reg. §1.162-27(e)(3)(i)
and [ii] a “non-employee” director within the
meaning of Rule 16b-3 under the Act and [b] none of
whom may receive remuneration from the Company or any Related
Entity in any capacity other than as a director, except as
permitted under Treas. Reg. §1.162-27(e)(3)(ii).
Company. DSW Inc., an Ohio corporation, and any and all
successors to it.
Consultant. Any person, other than an Employee or an
Eligible Director, who provides significant services to the Company
or any Related Entity.
Covered
Officer. Those Employees
whose compensation is subject to limited deductibility under Code
§162(m) as of the last day of any calendar year ending with or
within any Performance Period.
Disability. Unless the Committee specifies otherwise in the
Award Agreement:
[1] With respect to an Incentive Stock Option, as
defined in Code §22(e)(3).
[2] With respect to any Award subject to Code
§409A, the Participant is [a] unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment arising before
Termination which can be expected to result in death or can be
expected to last for a continuous period of not less than 12
continuous months beginning before Termination; or [b] by
reason of any readily determinable physical or mental impairment
arising before Termination which can be expected to result in death
or can be expected to last for a continuous period of not less than
12 months beginning before Termination, receiving income
replacement benefits for a period of not less than three months
beginning before Termination under an accident and health plan
covering employees of the Participant’s employer;
or
[3] With respect to any Award not described in
subpart [1] or [2] of this definition, the Participant’s
inability, with a reasonable accommodation, to perform his or her
duties on a full-time basis for a period of more than six
consecutive calendar months due to a physical or mental infirmity
arising before Termination.
Dividend
Equivalent Right. A right
to receive the amount of any dividend paid on a share of Stock
underlying a Stock Unit, as provided in
Section 7.01.
Eligible
Director. A person who,
on an applicable Grant Date [1] is an elected member of the
Board or of a Related Board (or has been appointed to the Board or
to a Related Board to fill an unexpired term and will continue to
serve at the expiration of that term only if elected by
shareholders) and [2] is not an Employee. For purposes of
applying this definition, an Eligible Director’s status will
be determined as of the Grant Date applicable to each affected
Award.
Employee. Any person who, on any applicable date, is a
common law employee of the Company or any Related Entity. A worker
who is classified as other than a common law employee but who is
subsequently reclassified as a common law employee of the Company
for any reason and on any basis will be treated as a common law
employee only from the date that reclassification occurs and will
not retroactively be reclassified as an Employee for any purpose of
this Plan.
Exercise
Price. The price at which
a Participant may exercise an Award.
Fair Market
Value. The value of one
share of Stock on any relevant date, determined under the following
rules:
[1] If
the Stock is traded on an exchange, the reported “closing
price” on the relevant date, if it is a trading day,
otherwise on the next trading day;
[2] If
the Stock is traded over-the-counter with no reported closing
price, the mean between the lowest bid and the highest asked prices
on that quotation system on the relevant date if it is a trading
day, otherwise on the next trading day; or
[3] If
neither subparts [1] nor [2] of this definition apply, the fair
market value as determined by the Committee in good faith and, with
respect to Incentive Stock Options, consistent with rules
prescribed under Code §422.
Freestanding
SAR. An SAR that is not
associated with an Option and is granted under
Section 10.00.
Grant
Date. The later of
[1] the date the Committee establishes the terms of an Award
or [2] the date specified in the Award Agreement.
Group. The Company and all Related Entities. The
composition of the Group will be determined as of any relevant
date.
Incentive
Stock Option. Any Option
granted under Section 6.00 that, on the Grant Date, meets the
conditions imposed under Code §422 and is not subsequently
modified in a manner inconsistent with Code §422.
Nonstatutory
Stock Option. Any Option
granted under Section 6.00 that is not an Incentive Stock
Option.
Option. The right granted to a Participant to purchase a
share of Stock at a stated price for a specified period of time.
Subject to Section 6.00, an Option may be either [1] an
Incentive Stock Option or [2] a Nonstatutory Stock
Option.
Participant. Any Consultant, Employee or Eligible Director to
whom an Award has been granted and is still outstanding.
Performance-Based Award. An Award granted subject to
Section 11.00.
Performance
Criteria. The criteria
described in Section 11.02.
Performance
Period. The period over
which the Committee will determine if applicable Performance
Criteria have been met.
Performance
Share. An Award granted
under Section 9.00.
Performance
Unit. An Award granted
under Section 9.00.
Plan. The DSW Inc. 2005 Equity Incentive
Plan.
Plan
Year. The Company’s
fiscal year.
Registration
Statement. The Form S-1
Registration Statement filed with the Securities and Exchange
Commission on March 14, 2005 (Registration #333-123289), as
amended at the time it is declared effective by the Securities and
Exchange Commission.
Related
Board. The board of
directors of any incorporated Related Entity or the governing body
of any unincorporated Related Entity.
Related
Entity. Any corporation,
partnership or other form of unincorporated entity [1] of
which the Company owns, directly or indirectly, 50 percent or
more of the total combined voting power of all classes of stock, if
the entity is a corporation, or of the capital or profits interest,
if the entity is a partnership or another form of unincorporated
entity or [2] except when identifying Related Boards, which
owns 50 percent or more of the total combined voting power of
all classes of the Stock.
Restricted
Stock. An Award granted
under Section 8.01.
Restricted
Stock Unit. An Award
granted under Section 8.02.
Restriction
Period. The period over
which the Committee will determine if a Participant has met
conditions placed on Restricted Stock or Restricted Stock
Units.
Retirement. Unless the Committee specifies otherwise in the
Award Agreement, the date:
[1] An
Employee Terminates on or after reaching age 65 and completing at
least five years of service; or
[2] An
Eligible Director Terminates as a Board or a Related Board member
after completing one full term as a member of the Board or the
board of directors of a Related Entity after reaching age
65.
[3] For purposes of applying this
definition:
[a] No
Consultant will be deemed to have “Retired” regardless
of the circumstances surrounding his or her Termination;
[b] A
Participant’s status as an Employee or an Eligible Director
will be determined as of the Grant Date applicable to each affected
Award; and
[c] An
Eligible Director serving on the Board and/or one or more Related
Boards may Retire from one board while continuing to serve as a
member of other Group boards (or governing bodies). In this case,
the Eligible Director’s Retirement will affect only Awards
granted with respect to his or her service on the board (or other
governing body) from which he or she is Retiring.
Stock. The Class A common shares, without par
value, issued by the Company or any security issued by the Company
in substitution, exchange or in place of these shares.
Stock
Appreciation Right (or “SAR”). An Award granted under Section 10.00 that
is a Tandem SAR, an Affiliated SAR or a Freestanding
SAR.
Stock
Unit. A right to receive
payment of the Fair Market Value of a share of Stock as provided in
Section 7.00.
Tandem
SAR. An SAR that is
associated with an Option and which expires when that Option
expires or is exercised, as described in
Section 10.00.
[1] Unless the Committee specifies otherwise in the
Award Agreement:
[a] Cessation of the employee-employer relationship
between an Employee and the Company and all Related Entities for
any reason;
[b] A
Participant who is an Employee of a Related Entity at a Grant Date
[i] will not be treated as having Terminated solely because
his or her employer ceases to be a Related Entity and that
individual continues to be
employed by the
former Related Entity (in which case the former employee will be
treated as having Terminated or not Terminated under this
definition as if the former Related Entity had remained a Related
Entity) but [ii] will be treated as having Terminated if
(and to the extent that) his or her Award is replaced by the former
Related Entity following procedures and principles described in
Code §424 within 90 days after the disaffiliation;
[c] With respect to a Participant who is a
Consultant, a cessation of the service relationship between the
Consultant and the Company and all Related Entities, unless there
is a simultaneous reengagement of the Consultant by the Company or
a Related Entity;
[d] With respect to a Participant who is an Eligible
Director, cessation of his or her service on the Board or a Related
Board for any reason.
[2] For purposes of this definition:
[a] An
Eligible Director serving on the Board and/or one or more Related
Boards may Terminate from one board while continuing to serve as a
member of other Related Boards. In this case, the Eligible
Director’s Termination will affect only Awards granted with
respect to his or her Terminating board membership.
[b] With respect to any Award (including an
Incentive Stock Option granted to an Employee) a Termination will
not have occurred while the Employee is absent from active
employment for a period of not more than three months (or, if
longer, the period during which reemployment rights are protected
by law, contract or written agreement, including the Award
Agreement, between the Participant and the Company) due to illness,
military service or other leave of absence approved by the
Committee.
[c] Subject to other rules described in the Plan and
the Award Agreement, an Employee whose status changes from an
Employee to a Consultant will not be treated as having Terminated.
In these circumstances, the former Employee will be treated as
having Terminated under rules applicable to Consultants.
[1] Consistent with the terms of the Plan and
subject to Section 3.02, the Committee will [a] decide
which Consultants, Employees and Eligible Directors will be granted
Awards; and [b] specify the type of Award to be granted and
the terms upon which an Award will be granted and may be
earned.
[2] The Committee may establish different terms and
conditions [a] for each type of Award, [b] for each
Participant receiving the same type of Award; and [c] for
the same Participant for each Award the Participant receives,
whether or not those Awards are granted at different
times.
[3] The Committee (or the Board, as appropriate)
also may amend the Plan and the Award Agreements without any
additional consideration to affected Participants to the extent
necessary to avoid penalties arising under Code §409A, even if
those amendments reduce, restrict or eliminate rights granted under
the Plan or Award Agreement (or both) before those
amendments.
[4] Unless permitted by Code §409A, no Award
subject to Code §409A will be granted under this Plan to any
person who is performing services only for an entity that is not an
affiliate of the Company within the meaning of Code
§§414(b) and (c).
3.02
Conditions of Participation. By accepting an Award, each Participant
agrees:
[1] To
be bound by the terms of the Award Agreement and the Plan and to
comply with other conditions imposed by the Committee;
and
[2] That the Committee (or the Board, as
appropriate) may amend the Plan and the Award Agreements without
any additional consideration to the extent necessary to avoid
penalties arising under Code §409A, even if those amendments
reduce, restrict or eliminate rights granted under the Plan or
Award Agreement (or both) before those amendments.
4.01
Committee Duties. The
Committee is responsible for administering the Plan and has all
powers appropriate and necessary to that purpose. Consistent with
the Plan’s objectives, the Committee may adopt, amend and
rescind rules and regulations relating to the Plan, to the extent
appropriate to protect the Company’s and the Group’s
interests, and has complete discretion to make all other decisions
(including whether a Participant has incurred a Disability)
necessary or advisable for the administration and interpretation of
the Plan. Any action by the Committee will be final, binding and
conclusive for all purposes and upon all persons.
4.02
Delegation of Ministerial Duties. In its sole discretion, the Committee may
delegate any ministerial duties associated with the Plan to any
person (including Employees) that it deems appropriate. However,
the Committee may not delegate any duties it is required to
discharge under Code §162(m).
4.03 Award
Agreement. At the time an
Award is made, the Committee will prepare and deliver an Award
Agreement to each affected Participant. The Award
Agreement:
[1] Will describe [a] the type of Award and
when and how it may be exercised or earned and [b] any
Exercise Price associated with each Award.
[2] To
the extent different from the terms of the Plan, will describe
[a] any conditions that must be met before the Award may be
exercised or earned, [b] any objective restrictions placed
on Awards and any performance-related conditions and Performance
Criteria that must be met before those restrictions will be
released and [c] any other applicable terms and conditions
affecting the Award.
4.04
Restriction on Repricing. Regardless of any other provision of this Plan,
neither the Company nor the Committee may “reprice” (as
defined under rules issued by the exchange on which the Stock is
then traded) any Award without the prior approval of the
shareholders.
5.00 STOCK SUBJECT TO
PLAN
5.01 Number
of Shares of Stock. Subject to Section 5.03, the number of
shares of Stock issued under the Plan may not be larger than
7,600,000, of which up to 7,600,000 may be issued through Incentive
Stock Options. The shares of Stock to be delivered under the Plan
may consist, in whole or in part, of treasury Stock or authorized
but unissued Stock not reserved for any other purpose.
5.02
Unfulfilled Awards. Any
Stock subject to an Award that, for any reason, is forfeited,
cancelled, terminated, relinquished, exchanged or otherwise settled
without the issuance of Stock or without payment of cash equal to
the difference between the Award’s Fair Market Value and its
Exercise Price (if any) may again be granted under the Plan and, in
the discretion of the Committee and subject to the limits described
in Section 5.01, may be subject to a subsequent Award. Any
decision by the Committee under this section will be final and
binding on all Participants.
5.03
Adjustment in Capitalization. If, after the Effective Date, there is a Stock
dividend or Stock split, recapitalization (including payment of an
extraordinary dividend), merger, consolidation, combination,
spin-off, distribution of assets to shareholders, exchange of
shares, or other similar corporate change affecting Stock, the
Committee will appropriately adjust [1] the number of Awards
that may or will be granted to Participants during a Plan Year,
[2] the aggregate number of shares of Stock available for
Awards under Section 5.01 or subject to outstanding Awards (as
well as any share-based limits imposed under this Plan), [3]
the respective Exercise Price, number of shares and other
limitations applicable to outstanding or subsequently granted
Awards and [4] any other factors, limits or terms affecting
any outstanding or subsequently granted Awards.
5.04 Limits
on Awards to Covered Officers. During any Plan Year, no Covered Officer may
receive [1] Options and Stock Appreciation Rights covering
more than 500,000 shares (adjusted as provided in
Section 5.03), including Aw
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