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EXHIBIT
10.2
SEARS HOLDINGS
CORPORATION
2008 LONG-TERM
INCENTIVE PROGRAM (LTIP)
SECTION 1
GENERAL
1.1. Purpose .
The Sears Holdings Corporation 2008 Long-Term Incentive Program
(the “LTIP”) is a performance-based program. The LTIP
is designed to motivate the executive leadership of Sears Holdings
Corporation (the “Company”) or Sears Holdings
Management Corporation, Sears, Roebuck and Co., Kmart Holding
Corporation and their Subsidiaries (as defined in Section 8)
(collectively referred to as “Subsidiaries”), to
achieve significant, lasting change that successfully positions the
Company for future growth. Performance goals under the LTIP align
Participants’ financial incentives with the financial goals
of the Company. Awards (as defined in Section 8) under the
LTIP are designed to vary commensurately with achieved performance
. Both (a) Awards structured to satisfy the
requirements for “performance-based compensation”
outlined in regulations issued under Section 162(m) of the
Internal Revenue Code (“Code Section 162(m)”), and
(b) Awards not so structured, may be issued hereunder. The
effective date of the LTIP is April 22, 2008, which is the
date the Compensation Committee (as defined in Section 8)
adopted the LTIP (the “Effective Date”).
1.2. Operation,
Administration, and Definitions . The operation and
administration of the LTIP, including the Awards made under the
LTIP, shall be subject to the provisions of Section 6
(relating to operation and administration). Capitalized terms in
the LTIP shall be defined as set forth in the LTIP (including as
defined in Section 8). The LTIP is established under, and
constitutes a part of, the Sears Holdings Corporation Umbrella
Incentive Program (the “UIP”).
SECTION 2
PARTICIPATION
2.1. Eligible
Employee . The term “Eligible Employee” means
those salaried employees of the Company or a Subsidiary who
(a) hold a position of divisional vice president (or
equivalent) or higher, as determined by the Senior Corporate
Compensation Executive (as defined in Section 8), and
(b) are designated as Eligible Employees by the Senior
Corporate Compensation Executive or the Compensation Committee, as
applicable. Subject to the terms and conditions of the LTIP, the
Senior Corporate Compensation Executive or the Compensation
Committee, as applicable, shall determine and designate, from time
to time, from among the Eligible Employees, those persons who shall
be granted one or more Awards under the LTIP, and thereby become
“Participants” in the LTIP. The Senior Corporate
Compensation Executive shall make eligibility determinations under
this Section 2 with respect to all Eligible Employees other
than those who are executives for whom compensation matters are
under the purview of the Compensation Committee.
2008
LTIP
2.2. New Hires and
Promotions to Eligible Employee Status . The Senior
Corporate Compensation Executive or the Compensation Committee, as
applicable, may designate as Participants those employees whom the
Senior Corporate Compensation Executive or the Compensation
Committee, as applicable, determines have been newly hired or
promoted into the group of Eligible Employees identified in
subsection 2.1(a) above, after the Effective Date, provided that
the terms and conditions of Awards to such individuals shall be
subject to (a) a fraction, the numerator of which is the
number of full days remaining in the Performance Period (as
described in subsection 3.2) after the Eligible Employee’s
date of hire, or promotion, as applicable, and the denominator is
the number of full days in the Performance Period, and (b) if
Awards to such individuals are intended to meet the requirements of
Code Section 162(m), such other adjustments as the
Compensation Committee deems necessary or desirable to qualify such
Awards as “performance-based compensation” for purposes
of Code Section 162(m). The term “performance-based
compensation”, as referred to herein, shall have the meaning
ascribed to it under Code Section 162(m) and the regulations
thereunder.
2.3. Demotions from
Eligible Employee Status . If a Participant is demoted
below a position of divisional vice president, as of the date of
such demotion, the individual will no longer be a Participant, will
be deemed to have forfeited any unvested portion of his or her
Award, and will receive no LTIP distribution under
Section 4.
2.4 Other Changes in
Status . If a Participant is promoted after the Effective
Date, the Senior Corporate Compensation Executive or the
Compensation Committee, as applicable, may make a second Target
Cash Incentive Award (as defined in subsection 3.1) to such
individual and the total amount payable to such individual shall be
based on a pro-ration, whereby the Target Cash Incentive Award for
the new position will apply to the remainder of the Performance
Period and the Target Cash Incentive Award for the immediately
preceding incentive-eligible position will apply to the portion of
the Performance Period immediately preceding the effective date of
the promotion. Notwithstanding the foregoing, in no event will
positive discretion be applied to any Award that has been
designated as intended to meet the requirements of Code
Section 162(m) (and the regulations issued thereunder) with
respect to the Performance Period or as of the payment date (as
defined in subsection 4.1). If a Participant is demoted, but is
still an Eligible Employee, the Senior Corporate Compensation
Executive or the Compensation Committee, as applicable, may make a
second Target Cash Incentive Award to such individual and the total
Award for such an individual shall be based on a pro-ration,
whereby the Target Cash Incentive for the new position will apply
only to the remainder of the Performance Period and the Target Cash
Incentive for the immediately preceding position will apply only to
the portion of the Performance Period immediately preceding the
effective date of the promotion, and in either case an Award will
only be paid if the target for the full Performance Period is
met.
SECTION 3
CASH INCENTIVE
AWARDS
3.1. Target Cash
Incentive Awards . After the Effective Date, the Senior
Corporate Compensation Executive or the Compensation Committee (at
one or more meetings of the Compensation Committee), as applicable,
may award “Target Cash Incentive Awards” (as defined in
subsection 3.1(a) below) to each Participant designated by the
Senior Corporate Compensation Executive or the Compensation
Committee (at such meeting), as applicable, in an amount determined
by the applicable entity in its sole discretion. In connection with
such Awards, the Senior Corporate Compensation Executive or
the
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2008
LTIP
Compensation Committee, as applicable,
shall establish “Target LTIP EBITDA” and
“Threshold LTIP EBITDA” (each as defined in subsection
3.3 below), provided, however, that Threshold LTIP EBITDA shall be
expressed as a percentage of Target LTIP EBITDA. The Senior
Corporate Compensation Executive shall make the determinations
referred to in this Section 3 with respect to all Participants
other than those who are executives for whom compensation matters
are under the purview of the Compensation Committee.
(a) A Target Cash Incentive
Award shall, at the date of grant, consist of a commitment by the
Company to distribute, at the time specified in, and in accordance
with the provisions of, Section 4 below, as applicable, an
amount equal to the Participant’s Target Cash Incentive Award
multiplied by the applicable Award Multiple set forth in subsection
3.4 below, subject to approval of the final award amount by the
Senior Corporate Compensation Executive or Compensation Committee,
as applicable, (the “Cash Incentive Award”) and to the
provisions of subsection 6.4.
(b) A Cash Incentive Award
shall generally be satisfied by a distribution in cash to the
Participant, provided, however, that, at the discretion of the
Compensation Committee, the Company may elect, by such deadline as
specified under uniform and nondiscriminatory rules established by
the Compensation Committee, to satisfy such Cash Incentive Award by
payment of shares of Company common stock (“Stock”) in
lieu of cash, or a combination of cash and shares of Stock. The
number of shares of Stock shall be equal to (i) the amount of
the Award to be paid in stock in accordance with this paragraph
(b), divided by (ii) the Fair Market Value of a share of
Stock, on the principal securities exchange or market on which the
shares are then listed or admitted, on the business day immediately
preceding the date of distribution or, if the Stock is not traded
on that date, on the next preceding date on which Stock was traded;
provided that issuance of any shares of Stock in accordance with
this subsection 3.1(b) shall be contingent on the availability of
shares of Stock under any shareholder-approved plan of the Company
providing for the issuance of Stock in satisfaction of the Awards
hereunder (which in no event shall be an employee stock purchase
plan).
3.2. Performance
Period . The “Performance Period” shall be the
Company’s 2008, 2009 and 2010 Fiscal Years; provided that, in
the case of an employee who is newly hired or promoted into the
group of Eligible Employees after the Effective Date, the
Performance Period shall be such shorter period as established by
the Senior Corporate Compensation Executive or the Compensation
Committee, as applicable, subject to the requirements of Code
Section 162(m), if applicable. The amount of the Cash
Incentive Award shall be determined at the completion of the
Performance Period in accordance with subsection 3.1 above and
subsection 4.1 below.
3.3. “ LTIP
EBITDA .”
(a) LTIP EBITDA
. Subject to adjustment, if any, in accordance with subsection
(d) of this subsection 3.3, “LTIP EBITDA” refers
to earnings before interest, taxes, depreciation and amortization
for the Performance Period computed as operating income appearing
on the Company’s statement of operations for the applicable
reporting period, other than Sears Canada (referred to as the
“Domestic Company”), less depreciation and
amortization
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2008
LTIP
and gains/(losses) on sales
of assets. In addition, it is adjusted to exclude significant
litigation or claim judgments or settlements (defined as matters
which are $1 million or more) including the costs related thereto;
the effect of purchase accounting and changes in accounting
methods; gains, losses and costs associated with acquisitions,
divestitures and store closures; integration costs that are
disclosed as merger related; and restructuring activities. If after
the Effective Date, the Domestic Company acquires assets or an
entity that has associated EBITDA (measured using the same
principles as those described in the preceding provisions of this
subsection 3.3(a)) in its last full fiscal year prior to the
acquisition of greater than or equal to $100,000,000, any EBITDA
associated with such assets or entity (after its acquisition) and
during the Performance Period shall be disregarded in determining
LTIP EBITDA under this subsection 3.3(a).
(b) Target LTIP EBITDA
. Subject to adjustment, if any, in paragraph (d), “Target
LTIP EBITDA” refers to the target level of LTIP EBITDA,
established by the Compensation Committee in accordance with
subsection 3.1 above, for the Performance Period.
(c) Threshold LTIP
EBITDA . Subject to adjustment, if any, in paragraph (d),
“Threshold LTIP EBITDA” refers to a level of LTIP
EBITDA, for the Performance Period, established by the Compensation
Committee, which shall be equal to ninety percent (90%) of
Target LTIP EBITDA and, if exactly achieved, shall generate an
Award Multiple (described in subsection 3.4 below) of sixty percent
(60%).
(d) Adjustments to Target
LTIP EBITDA . The LTIP EBITDA incentive target contemplates
that the Domestic Company does not make any significant
acquisitions or divestitures over the period of the LTIP. If after
the Effective Date the Domestic Company divests itself of assets or
an entity that has associated EBITDA (measured using the same
principles as those described in subsection 3.3(a)) in its last
full fiscal year prior to the divestiture of greater than or equal
to $100,000,000, Target LTIP EBITDA for the Company’s fiscal
year in which the divestiture occurs will be decreased by actual
EBITDA of such assets or entity for the portion of such
assets’ or entity’s last full fiscal year prior to the
divestiture corresponding to the portion of the Company’s
fiscal year (in which the divestiture occurs) remaining after the
divestiture occurs; and Target LTIP EBITDA for each of the
following fiscal years of the Company, if any, in the Performance
Period will be decreased by the actual EBITDA of such assets or
entity for such assets’ or entity’s last full fiscal
year prior to the divestiture.
3.4. “ Award
Multiple .” The Award Multiple shall be as outlined
below:
(a) if LTIP EBITDA is one
hundred percent (100%) of Target LTIP EBITDA, the Award
Multiple shall be one hundred percent (100%);
(b) if LTIP EBITDA is equal
to Threshold LTIP EBITDA, the Award Multiple shall be sixty percent
(60%);
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LTIP
(c) if LTIP EBITDA is greater
than Threshold LTIP EBITDA, but less than Target LTIP EBITDA, the
Award Multiple shall be a whole percentage between sixty percent
(60%) and one hundred percent (100%), determined by
interpolation on a straight line basis relative to such LTIP
EBITDA, Threshold LTIP EBITDA and Target LTIP EBITDA amounts, and
rounded down to the nearest whole percentage;
(d) if LTIP EBITDA is less
than Threshold LTIP EBITDA, the Award Multiple shall be zero (0);
and
(e) if LTIP EBITDA is greater
than Target LTIP EBITDA, the Award Multiple shall be a percentage
equal to one hundred (100%) plus two percent (2%) for
each one percent (1%) by which LTIP EBITDA exceeds Target LTIP
EBITDA, and rounded down to the nearest whole
percentage.
3.5. Limitation on
Individual Awards . Notwithstanding anything herein to the
contrary, the total Cash Incentive Award paid to any Participant
for the Performance Period pursuant to the LTIP shall in no event
exceed $15 million.
3.6. Additional
Requirements . All Cash Incentive Awards awarded under the
LTIP (and any Stock or cash otherwise distributable pursuant
thereto) are subject to the provisions of Sections 4, 5 and
6.
SECTION 4
DISTRIBUTION
4.1. General .
Subject to Sections 5 and 6, the cash or shares of Stock, if any,
that result from the payout formula described at Section 3
shall be distributed, in a single lump sum, as soon as practicable
after the first Compensation Committee meeting occurring on or
after the LTIP EBITDA results for the Company’s 2010 Fiscal
Year are available to the Compensation Committee, which shall in no
event be later than the date that is two and one-half (2
1 /
2 ) months after the last day of the 2010 Fiscal Year.
Notwithstanding anything herein to the contrary, no distribution
shall be made hereunder until after the Compensation Committee has
certified the attainment of the performance goals and, with respect
to Participants under its purview, approved the amount to be paid
to each Participant. The Senior Corporate Compensation Executive
shall be responsible for approving the amount payable to all other
Participants. The date as of which payment is made in accordance
with this subsection 4.1 is referred to herein as the
“payment date.”
4.2. Termination of
Employment and Other Provisions . All distributions are
subject to the provisions of Sections 5 and 6 below.
SECTION 5
TERMINATION OF
EMPLOYMENT
The effect of termination of
employment on a Participant’s right to receive a Cash
Incentive Award (whether
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