EXHIBIT 10.2
THE PMI GROUP, INC.
EQUITY INCENTIVE
PLAN
(AMENDED AND RESTATED. EFFECTIVE AS OF FEBRUARY 12, 1998)
TABLE OF CONTENTS
Page
1. Purpose........................................................................ 1
2. Definitions.................................................................... 1
3. Scope of the Plan.............................................................. 6
(a) Number of Shares Available For Delivery Under the Plan.................. 6
(b) Effect of Expiration or Termination..................................... 6
(c) Treasury Stock.......................................................... 7
(d) Committee Discretion to Cancel Options.................................. 7
4. Administration................................................................. 7
(a) Committee Administration................................................ 7
(b) Board Reservation and Delegation........................................ 7
(c) Committee Authority..................................................... 7
(d) Committee Determinations Final.......................................... 8
5. Eligibility.................................................................... 8
6. Conditions to Grants........................................................... 9
(a) General Conditions...................................................... 9
(b) Grant of Replacement Options............................................ 9
(c) Grant of Options and Option Price....................................... 11
(d) Grant of Incentive Stock Options........................................ 11
(e) Grant of Reload Options................................................. 12
(f) Grant of Shares of Restricted Stock..................................... 13
(g) Grant of Unrestricted Stock............................................. 16
(h) Grant of Performance Shares............................................. 16
7. Non-transferability............................................................ 17
8. Exercise....................................................................... 17
(a) Exercise of Options..................................................... 17
(b) Special Rules for Section 16 Grantees................................... 18
(c) Permissible Shares Issued............................................... 18
(d) Vesting Upon Retirement, Death or Disability............................ 19
(e) Vesting Upon Change of Control.......................................... 19
9. Deferral....................................................................... 19
10. Loans and Guarantees........................................................... 20
I
11. Notification under Section 83(b)............................................... 21
12. Mandatory Withholding Taxes.................................................... 21
13. Elective Share Withholding..................................................... 21
14. Termination of Employment...................................................... 22
(a) Restricted Stock.......................................................... 22
(b) Other Awards.............................................................. 22
(c) Maximum Extension......................................................... 23
15. Equity Incentive Plans of Foreign Subsidiaries................................. 23
16. Substituted Awards............................................................. 23
17. Securities Law Matters......................................................... 23
18. No Funding Required............................................................ 24
19. No Employment Rights........................................................... 24
20. Rights as a Stockholder........................................................ 24
21. Nature of Payments............................................................. 24
22. Non-Uniform Determinations..................................................... 25
23. Adjustments.................................................................... 25
24. Amendment of the Plan.......................................................... 25
25. Termination of the Plan........................................................ 25
26. No Illegal Transactions........................................................ 25
27. Controlling Law................................................................ 25
28. Severability................................................................... 26
II
The Plan. The PMI Group, Inc., having established The PMI Group, Inc.
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Equity Incentive Plan, hereby amends and restates the Plan, effective as of
February 12, 1998.
1. Purpose. The primary purpose of the Plan is to provide a means by
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which key employees of the Company and its Subsidiaries can acquire and maintain
stock ownership, thereby strengthening their commitment to the success of the
Company and its Subsidiaries and their desire to remain employed by the Company
and its Subsidiaries. Another purpose of the Plan is to provide continuation of
benefits and opportunities provided to former participants in any of the Sears
Plans, or the Allstate Plan, which benefits and opportunities were lost,
terminated, forfeited, canceled (with or without the consent of the granter) or
reduced as a result of the Company's initial public offering ("IPO"), by
providing for the grant of substitute Awards hereunder. The Plan also is
intended to attract and retain key employees and to provide such employees with
additional incentive and reward opportunities designed to encourage them to
enhance the profitable growth of the Company and its Subsidiaries.
2. Definitions.
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As used in the Plan, terms defined parenthetically immediately after
their use shall have the respective meanings provided by such definitions and
the terms set forth below shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
(a) "Allstate Option" means an option granted under the Allstate Plan.
(b) "Allstate Plan" means The Allstate Corporation Equity Incentive
Plan.
(c) "Award" means, individually or collectively, a grant under the
Plan of options, restricted Stock, unrestricted Stock or performance shares.
(d) "Award Agreement" means the written agreement by which an Award is
evidenced.
(e) "Board" means the board of directors of the Company.
(f) "Change of Control" means:
(a). The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the
following shall not
constitute a Change of Control: (i) any acquisition directly
from the Company, (ii) any acquisition by the Company, (iii)
any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company, (iv) any beneficial ownership
maintained by (but not additional acquisitions by), The
Allstate Corporation and its subsidiaries, and their respective
successors ("Allstate"), pending such time that Allstate
distributes or transfers its current ownership interest in the
Outstanding Company Common Stock and Outstanding Company Voting
Securities as contemplated by the Prospectus dated April 10,
1995, relating to the initial public offering of the common
stock of the Company, or (v) any acquisition pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) of this Article 2(f). Notwithstanding the
foregoing, in its sole discretion, the Board may increase the
20% threshold set forth above in this subsection (a) prior to
any acquisition of 20% or more beneficial ownership of the
Outstanding Company Common Stock or the Outstanding Company
Voting Securities; provided, that (i) such increased threshold
shall apply only to the acquisition and maintenance of
beneficial ownership by any Person eligible to report such
beneficial ownership at the time of such acquisition on
Schedule 13G under the Exchange Act, and (ii) in the event that
any Person initially eligible to so report on Schedule 13G
thereafter ceases to be eligible to so report on Schedule 13G,
the occurrence of the event causing such Person no longer to be
eligible to so report shall be deemed an acquisition by such
Person of all of the Outstanding Company Common Stock and
Outstanding Company Voting Securities beneficially owned by
such Person immediately prior to such occurrence; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(c) Consummation by the Company of a reorganization, merger
or consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the acquisition
of assets of another entity (a "Business Combination"), in each
case, unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who
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were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 60% of, respectively,
the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result
of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combination
of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person
(excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination;
or
(d) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change of Control shall not be deemed to
occur solely because any Person acquires beneficial ownership of 20% or
more of the Outstanding Company Voting Securities or Outstanding Company
Common Stock as a result of the acquisition of such securities or stock by
the Company, which acquisition reduces the number of the Outstanding
Company Voting Securities or Outstanding Company Common Stock; provided,
that if after such acquisition by the Company such Person (while such
Person remains the beneficial owner of 20% or more of the Outstanding
Company Voting Securities or Outstanding Company Common Stock) becomes the
beneficial owner of additional shares of such Outstanding Company Voting
Securities or Outstanding Company Common Stock (as the case may be), a
Change of Control shall then occur. Capitalized terms used in this Article
2(f), not otherwise defined, shall have the meaning set forth in the form
of change of control employment agreement approved at the February 12, 1998
meeting of the Board of Directors.
(g) "Committee" means the committee of the Board appointed pursuant to
Article 4.
(h) "Company" means The PMI Group, Inc., a Delaware corporation.
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(i) "Disability" means, as relates to the exercise of an incentive
stock option after Termination of Employment, a permanent and total disability
within the meaning of Section 22(e)(3) of the Internal Revenue Code, and for all
other purposes, a mental or physical condition which, in the opinion of the
Committee, renders a Grantee unable or incompetent to carry out the job
responsibilities which such Grantee held or the duties to which such Grantee was
assigned at the time the disability was incurred, and which is expected to be
permanent or for an indefinite duration.
(j) "Effective Date" means the date described in the first paragraph
of the Plan.
(k) "Fair Market Value" of the Stock means, as of any applicable date
(other than the Effective Date) the mean between the high and low prices of the
Stock as reported on the New York Stock Exchange Composite Tape, or if there
were no sales on such date, on the next preceding date on which there was such a
reported sale, provided, however, that if the Stock is acquired and sold in a
simultaneous sale pursuant to the provisions of Article 8(a)(iv), Fair Market
Value means the price received upon such sale. Solely as of the effective date
of the IPO, Fair Market Value of the Stock means the price to the public
pursuant to the form of final prospectus used in connection with the IPO, as
indicated on the cover page of such prospectus or otherwise.
(l) "Fiscal Year" means the fiscal year of the Company.
(m) "Grant Date" means the date of grant of an Award determined in
accordance with Article 6.
(n) "Grantee" means an individual who has been granted an Award.
(o) "Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended, and regulations and rulings thereunder. References to a particular
section of the Internal Revenue Code shall include references to successor
provisions.
(p) "IPO" means such term as defined in the first paragraph of the
Plan.
(q) "Minimum Consideration" means the $.01 par value per share or such
larger amount determined pursuant to resolution of the Board to be capital
within the meaning of Section 154 of the Delaware General Corporation Law.
(r) "Net Operating Income Per Share" means as to any Fiscal Year, (i)
the Company's net income from operations, net of after-tax realized capital
gains and losses, divided by (ii) the weighted average number of shares of Stock
outstanding during the Fiscal Year, plus dilutive common equivalent shares
calculated in accordance with Accounting Principles Board Opinion No. 15. Net
Operating Income Per Share for a multi-Fiscal Year period means the average of
Net Operating Income Per Share calculated separately for each Fiscal Year of
such multi-Fiscal Year period.
(s) "1934 Act" means the Securities Exchange Act of 1934, as amended.
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(t) "Option Price" means the per share purchase price of (i) Stock
subject to an option or (ii) restricted Stock subject to an option.
(u) "Parent" means Allstate Insurance Company.
(v) "Performance Goals" means the goal(s) (or combined goal(s))
determined by the Committee (in its discretion) to be applicable to a Grantee
with respect to an Award. As determined by the Committee, the Performance Goals
(if any) applicable to an Award may provide for a targeted level or levels of
achievement using one or more of the following measures: (i) Net Operating
Income per Share, (ii) Return on Equity, and (iii) Total Return. The
Performance Goals may differ from Grantee to Grantee and from Award to Award.
(w) "Plan" means The PMI Group, Inc. Equity Incentive Plan, as set
forth in this instrument and as hereafter amended from time to time.
(x) "PMI Group Grantee" means any individual who is employed on the
Effective Date by The PMI Group, Inc. or any of its Subsidiaries.
(y) "Reload Option" has the meaning specified in Article 6(e).
(z) "Retirement" means a Termination of Employment occurring on or
after an individual attains age 65, or a Termination of Employment approved by
the Company as an early retirement; provided that in the case of a Section 16
Grantee, such early retirement must be approved by the Committee.
(aa) "Return on Equity" means as to any Fiscal Year, the Company's net
income after taxes expressed as a percentage of average stockholders' equity.
For this purpose, average stockholders' equity shall be calculated as the
average of stockholders' equity on the first and last days of the Fiscal Year,
and excluding unrealized gains and losses.
(bb) "Sears" means Sears, Roebuck and Co., a New York corporation.
(cc) "Sears Option" means an option granted under a Sears Plan.
(dd) "Sears Plans" means the following plans of Sears: the 1994
Employees Stock Plan, the 1990 Employees Stock Plan, the 1986 Employees Stock
Plan, the 1982 Employees Stock Plan, the 1978 Employees Stock Plan and the 1979
Incentive Compensation Plan.
(ee) "SEC" means the Securities and Exchange Commission.
(ff) "Section 16 Grantee" means a person subject to potential
liability with respect to equity securities of the Company under Section 16(b)
of the 1934 Act.
(gg) "Stock" means common stock of the Company, par value $.01 per
share.
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(hh) "Subsidiary" means a corporation as defined in Section 424(f) of
the Internal Revenue Code, with the Company being treated as the employer
corporation for purposes of this definition.
(ii) "10% Owner" means a person who owns stock (including stock
treated as owned under Section 424(d) of the Internal Revenue Code) possessing
more than 10% of the Voting Power of the Company.
(jj) "Termination of Employment" occurs the first day on which an
individual is for any reason no longer employed by the Company or any of its
Subsidiaries, or by the Parent or any of its subsidiaries, or with respect to an
individual who is an employee of a Subsidiary or a subsidiary of the Parent, the
first day on which the Company (or the Parent, as the case may be) no longer
owns voting securities possessing at least 50% of the Voting Power of such
Subsidiary (or subsidiary of the Parent, as the case may be).
(kk) "Total Return" means as to any Fiscal Year or multi-Fiscal Year
period, the total return (change in share price plus reinvestment of any
dividends) of the Stock, as compared to the total return of an index or indexes
selected by the Committee. For this purpose, the Committee shall choose from
among (i) the Standard & Poor's 500 Composite Index, (ii) the Standard & Poor's
Financial Miscellaneous Index, (iii) the Russell 1000 Index, and (iv) the
Russell 1000 Financial Services Index.
(ll) "Voting Power" means the combined voting power of the then-
outstanding voting securities entitled to vote generally in the election of
directors.
3. Scope of the Plan.
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(a) Number of Shares Available For Delivery Under the Plan. A maximum
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of 1,400,000 shares of Stock shall be authorized for issuance and delivery on
account of the exercise of Awards, including Awards of Replacement Options. No
more than an aggregate of 300,000 shares of the aforesaid 1,400,000 shares of
Stock may be granted under Article 6(f) and (g). No more than 150,000 shares of
Stock may be granted as stock options to any employee during the duration of the
Plan. During any Fiscal Year, no Grantee shall be granted more than 20,000
performance shares. Shares of Stock issuable under the Plan may be either
authorized but unissued shares of Stock or Treasury Stock.
(b) Effect of Expiration or Termination. If and to the extent an
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Award shall expire or terminate for any reason without having been exercised in
full (including, without limitation, a cancellation and regrant of an option
pursuant to Article 4(c)(vii)), or shall be forfeited, without, in either case,
the Grantee having enjoyed any of the benefits of stock ownership (other than
voting rights or dividends that are likewise forfeited), the shares of Stock
(including restricted Stock) associated with such Award shall become available
for other Awards. Except in the case of a Reload Option granted to a Section 16
Grantee, the grant of a Reload Option shall not reduce the number of shares of
Stock available for other Awards.
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(c) Treasury Stock. The Committee shall have the authority to cause
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the Company to purchase from time to time shares of Stock to be held as treasury
shares and used for or in connection with Awards.
(d) Committee Discretion to Cancel Options. Except with respect to
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options granted pursuant to Article 6(b), the Committee may, in its discretion,
elect at any time, should it determine it is in the best interest of the
Company's stockholders to cancel any options granted hereunder, to cancel all or
any of the options granted hereunder and pay the holders of any such options an
amount (payable in such proportion as the Committee may determine in cash or in
Stock (valued at the Fair Market Value of a share of Stock on the date of
cancellation of such option)) equal to the number of shares of Stock subject to
such canceled option, multiplied by the amount (if any) by which the Fair Market
Value of Stock on the date of cancellation of the option exceeds the Option
Price; provided that if the Committee should determine that not making payment
of such amount to the holders of such option upon the cancellation would be in
the best interests of stockholders of the Company (ignoring in such
determination the cost of such payment and considering only other matters), the
Committee may void options granted hereunder and declare that no payment shall
be made to the holders of such options.
4. Administration.
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(a) Committee Administration. Subject to Article 4(b), the Plan shall
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be administered by the Committee, which shall consist of not less than two
persons appointed by the Board, who are directors of the Company and not
employees of the Parent, the Company or any of its Subsidiaries. Membership on
the Committee shall be subject to such limitations (including, if appropriate, a
change in the minimum number of members of the Committee) as the Board deems
appropriate to permit transactions pursuant to the Plan to be exempt from
potential liability under Section 16(b) of the 1934 Act and to comply with
Section 162 (m) of the Internal Revenue Code.
(b) Board Reservation and Delegation. The Board may, in its
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discretion, reserve to itself or delegate to another committee of the Board any
or all of the authority and responsibility of the Committee with respect to
Awards to Grantees who are not Section 16 Grantees at the time any such
delegated authority or responsibility is exercised. Such other committee may
consist of one or more directors who may, but need not be, officers or employees
of the Company or of any of its Subsidiaries. To the extent that the Board has
reserved to itself or delegated the authority and responsibility of the
Committee to such other committee, all references to the Committee in the Plan
shall be to such other committee.
(c) Committee Authority. The Committee shall have full and final
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authority, in its sole and absolute discretion, but subject to the express
provisions of the Plan, as follows:
(i) to grant Awards,
(ii) to determine (A) when Awards may be granted, and (B) whether
or not specific Awards shall be identified with other specific Awards, and
if so, whether they shall be exercisable cumulatively with, or
alternatively to, such other specific Awards,
7
(iii) to interpret the Plan and to make all determinations
necessary or advisable for the administration of the Plan,
(iv) to prescribe, amend, and rescind rules and regulations
relating to the Plan, including, without limitation, rules with respect to
the exercisability and nonforfeitability of Awards upon the Termination of
Employment of a Grantee,
(v) to determine the terms and provisions of the Award
Agreements, which need not be identical and, with the consent of the
Grantee, to modify any such Award Agreement at any time,
(vi) to cancel options in accordance with the provision of
Section 3(d),
(vii) except as provided in Section 4(c)(vi) hereof, to cancel,
with the consent of the Grantee, outstanding Awards, and to grant new
Awards in substitution thereof,
(viii) to accelerate the exercisability of, and to accelerate or
waive any or all of the restrictions and conditions applicable to, any
Award,
(ix) to authorize foreign Subsidiaries to adopt plans as
provided in Article 15,
(x) to make such adjustments or modifications to Awards to
Grantees working outside the United States as are necessary and advisable
to fulfill the purposes of the Plan,
(xi) to authorize any action of or make any determination by
the Company as the Committee shall deem necessary or advisable for carrying
out the purposes of the Plan,
(xii) to make appropriate adjustments to, cancel or continue
Awards in accordance with Article 23, and
(xiii) to impose such additional conditions, restrictions, and
limitations upon the grant, exercise or retention of Awards as the
Committee may, before or concurrently with the grant thereof, deem
appropriate, including, without limitation, requiring simultaneous exercise
of related identified Awards, and limiting the percentage of Awards which
may from time to time be exercised by a Grantee.
(d) Committee Determinations Final. The determination of the
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Committee on all matters relating to the Plan or any Award Agreement shall be
conclusive and final. No member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Award.
5. Eligibility. Awards may be granted to any employee of the Company or
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any of its Subsidiaries. In selecting the individuals to whom Awards may be
granted, as well as in
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determining the number of shares of Stock subject to, and the other terms and
conditions applicable to, each Award, the Committee shall take into
consideration such factors as it deems relevant in promoting the purposes of the
Plan.
6. Conditions to Grants.
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(a) General Conditions.
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(i) In accordance with its powers under the Plan, the
Committee may grant replacement options (including Reload Options) in
accordance with this Article 6 to preserve those opportunities and benefits
of PMI Group Grantees which were terminated, forfeited, canceled, or
reduced in connection with the IPO.
(ii) The Grant Date of an Award shall be the date on which the
Committee grants the Award or such later date as specified in advance by
the Committee.
(iii) The term of each Award (subject to Article 6(b), with
respect to replacement Awards and Articles 6(d) and 6(e) with respect to
incentive stock options and Reload Options, respectively) shall be a period
of not more than 12 years from the Grant Date, and shall be subject to
earlier termination as herein provided.
(iv) A Grantee may, if otherwise eligible, be granted
additional Awards in any combination.
(v) The Committee may grant Awards with terms and conditions
which differ among the Grantees thereof. To the extent not set forth in the
Plan, the terms and conditions of each Award shall be set forth in an Award
Agreement.
(b) Grant of Replacement Options. Subject to Article 3(a), the
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Committee may grant options ("Replacement Options") under the Plan to each PMI
Group Grantee who holds unexercised Sears Options (whether or not
nonforfeitable) and unexercised Allstate Options (whether or not forfeitable) at
the Effective Date; provided that such PMI Group Grantee's right to exercise any
Sears Options and Allstate Options has been forfeited or canceled in connection
with the IPO. The Award Agreement with respect to such Replacement Options shall
provide that the Grantee may exercise a Replacement Option at the same time as
he would have been able to exercise the Sears Option or Allstate Option it
replaces, subject to Article 8(b), if applicable.
(i) Replacement of Sears Options.
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(A) The Option Price for a Replacement Option shall be
determined by the following formula; provided that in no event shall
the Option Price be less than the Minimum Consideration:
Option Price = A x B
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C
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Any fraction of a cent shall be rounded down to the next full cent.
(B) The number of shares of Stock for which the Replacement
Option is exercisable shall be determined in accordance with the
following formula:
Number of Shares = C x D
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B
Any fractional share shall be rounded up to the next full share.
(C) In the foregoing formulas,
"A" is the option exercise price for a Sears Option being
replaced,
"B" is the Fair Market Value of a share of Stock as of the
effective date of the IPO,
"C" is the Fair Market Value of a Sears common share as of the
effective date of the IPO, and
"D" is the number of Sears common shares for which the Sears
Option being replaced is exercisable.
(D) Each Replacement Option shall have the same terms and
conditions (other than the Option Price and the number of shares of
Stock, but including any provision for Reload Options) as, and not
give the Grantee any benefits he did not have, under the corresponding
Sears Option.
(ii) Replacement of Allstate Options.
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(A) The Option Price for a Replacement Option shall be
determined by the following formula; provided that in no event shall
the Option Price be less than the Minimum Consideration:
Option Price = A x B
-----
C
Any fraction of a cent shall be rounded down to the next full cent.
(B) The number of shares of Stock for which the Replacement
Option is exercisable shall be determined in accordance with the
following formula:
Number of Shares = C x D
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B
Any fractional share shall be rounded up to the next full share.
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(C) In the foregoing formulas,
"A" is the option exercise price for an Allstate Option being
replaced,
"B" is the Fair Market Value of a share of Stock as of the
effective date of the IPO,
"C" is the Fair Market Value of an Allstate common share as of
the effective date of the IPO, and
"D" is the number of Allstate common shares for which the
Allstate Option being replaced is exercisable.
(D) Each Replacement Option shall have the same terms and
conditions (other than the Option Price and the number of shares of
Stock, but including any provision for Reload Options) as, and not
give the Grantee any benefits he did not have, under the corresponding
Allstate Option.
(c) Grant of Options and Option Price. Other than for purposes of
---------------------------------
Replacement Options as set forth in Article 6(b) above, the Committee may, in
its discretion, grant options (which may be options to acquire unrestricted
Stock or restricted Stock) to any employee eligible under Article 5 to receive
Awards. No later than the Grant Date of any option, the Committee shall
determine the Option Price; provided that the Option Price shall, except as
provided in subsection (d) below and in Article 16, not be less than 100% of the
Fair Market Value of the Stock on the Grant Date.
(d) Grant of Incentive Stock Options. At the time of the grant of any
--------------------------------
option other than a Replacement Option, the Committee may designate that such
option shall be made subject to additional restrictions to permit it to qualify
as an "incentive stock option" under the requirements of Section 422 of the
Internal Revenue Code. Any option designated as an incentive stock option:
(i) shall have an Option Price of (A) not less than 100% of
the Fair Market Value of the Stock on the Grant Date or (B) in the case of
a 10% Owner, not less than 110% of the Fair Market Value of the Stock on
the Grant Date;
(ii) shall have a term of not more than 10 years (five years,
in the case of a 10% Owner) from the Grant Date, and shall be subject to
earlier termination as provided herein or in the applicable Award
Agreement;
(iii) shall not have an aggregate Fair Market Value (determined
for each incentive stock option at its Grant Date) of Stock with respect to
which incentive stock options are exercisable for the first time by such
Grantee during any calendar year (under the Plan and any other employee
stock option plan of the Grantee's employer or any parent (including but
not limited to Allstate Insurance Company and Sears) or subsidiary thereof
("Other Plans")), determined in accordance with the provisions of Section
422 of the Internal Revenue Code, which exceeds $100,000 (the "$100,000
Limit");
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(iv) shall, if the aggregate Fair Market Value of Stock
(determined on the Grant Date) with respect to all incentive stock options
previously granted under the Plan and any Other Plans ("Prior Grants") and
any incentive stock options under such grant (the "Current Grant") which
are exercisable for the first time during any calendar year would exceed
the $100,000 Limit, be exercisable as follows:
(A) the portion of the Current Grant exercisable for the
first time by the Grantee during any calendar year which would be,
when added to any portions of any Prior Grants exercisable for the
first time by the Grantee during such calendar year with respect to
stock which would have an aggregate Fair Market Value (determined as
of the respective Grant Date for such options) in excess of the
$100,000 Limit shall, notwithstanding the terms of the Current Grant,
be exercisable for the first time by the Grantee in the first
subsequent calendar year or years in which it could be exercisable for
the first time by the Grantee when added to all Prior Grants without
exceeding the $100,000 Limit; and
(B) if, viewed as of the date of the Current Grant, any
portion of a Current Grant could not be exercised under the provisions
of the immediately preceding sentence during any calendar year
commencing with the calendar year in which it is first exercisable
through and including the last calendar year in which it may by its
terms be exercised, such portion of the Current Grant shall not be an
incentive stock option, but shall be exercisable as a separate option
at such date or dates as are provided in the Current Grant;
(v) shall be granted within 10 years from the earlier of the
date the Plan is adopted or the date the Plan is approved by the
stockholders of the Company; and
(vi) shall require the Grantee to notify the Committee of any
disposition of any Stock issued pursuant to the exercise of the incentive
stock option under the circumstances described in Section 421(b) of the
Internal Revenue Code (relating to certain disqualifying dispositions),
within 10 days of such disposition.
Notwithstanding the foregoing and Article 4(c)(v), the Committee may take any
action with respect to any option, including but not limited to an incentive
stock option, without the consent of the Grantee, in order to prevent such
option from being treated as an incentive stock option.
(e) Grant of Reload Options. The Committee may provide in an Award
-----------------------
Agreement, including an Award Agreement for the grant of a Replacement Option
when the Replaced Sears Option or Replaced Allstate Option included a reload
option for Sears shares or Allstate shares, respectively, as the case may be,
that a Grantee who exercises all or any portion of an option for shares of Stock
which have a Fair Market Value equal to not less than 100% of the Option Price
for such options ("Exercised Options") and who paid the Option Price with shares
of Stock shall be granted, subject to Article 3, an additional option ("Reload
Option") for a number of shares of stock equal to the sum ("Reload Number") of
the number of shares of Stock tendered to exercise the Exercised Options plus,
if so provided by the Committee, the number of shares of
12
Stock, if any, retained by the Company in connection with the exercise of the
Exercised options to satisfy any federal, state or local tax withholding
requirements.
Reload Options shall be subject to the following terms and conditions:
(i) the Grant Date for each Reload Option shall be the date of
exercise of the Exercised Option to which it relates;
(ii) subject to Article 6(e)(iii) below, the Reload Option may
be exercised at any time during the unexpired term of the Exercised Option
(subject to earlier termination thereof as provided in the Plan and in the
applicable Award Agreement); and
(iii) the terms of the Reload Option shall be the same as the
terms of the Exercised Option to which it relates, except that (A) the
Option Price shall be the Fair Market Value of the Stock on the Grant Date
of the Reload Option and (B) no Reload Option may be exercised within one
year from the Grant Date thereof.
(f) Grant of Shares of Restricted Stock.
-----------------------------------
(i) The Committee may, in its discretion, grant shares of
restricted Stock to any employee eligible under Article 5 to receive
Awards.
(ii) Before the grant of any shares of restricted Stock, the
Committee shall determine, in its discretion:
(A) whether the certificates for such shares shall be
delivered to the Grantee or held (together with a stock power executed
in blank by the Grantee) in escrow by the Secretary of the Company
until such shares become nonforfeitable or are forfeited,
(B) the per share purchase price of such shares, which
may be zero provided, however, that
(1) the per share purchase price of all such shares
(other than treasury shares) shall not be less than the Minimum
Consideration for each such share; and
(2) if such shares are to be granted to a Section 16
Grantee, the per share purchase price of any such shares shall
also be at least 50% of the Fair Market Value of the Stock on the
Grant Date unless such shares are granted for no monetary
consideration (in which case treasury shares are to be delivered)
or with a purchase price per share equal to the Minimum
Consideration for the Stock, and
(C) the restrictions applicable to such grant;
13
(iii) Payment of the purchase price (if greater than zero) for
shares of restricted Stock shall be made in full by the Grantee before the
delivery of such shares and, in any event, no later than 10 days after the
Grant Date for such shares. Such payment may, at the election of the
Grantee, be made in any one or any combination of the following:
(A) cash,
(B) Stock valued at its Fair Market Value on the date of
payment or, if the date of payment is not a business day, the next
succeeding business day, or
(C) with the approval of the Committee, shares of
restricted Stock, each valued at the Fair Market Value of a share of
Stock on the date of payment or, if the date of payment is not a
business day, the next succeeding business day
provided, however, that, in the case of payment in Stock or restricted
Stock,
(1) the use of Stock or restricted Stock in payment of
such purchase price by a Section 16 Grantee is subject to the
prior receipt by the Company of either a favorable opinion of
counsel for the Company or a "no action" letter from the staff of
the SEC with respect to the exemption of such use of stock from
potential liability under Section 16(b) of the 1934 Act or the
inapplicability of such Section;
(2) in the discretion of the Committee and to the
extent permitted by law, payment may also be made in accordance
with Article 10; and
(3) if the purchase price for restricted Stock ("New
Restricted Stock") is paid with shares of restricted Stock ("Old
Restricted Stock"), the restrictions applicable to the New
Restricted Stock shall be the same as if the Grantee had paid for
the New Restricted Stock in cash unless, in the judgment of the
Committee, the Old Restricted Stock was subject to a greater risk
of forfeiture, in which case a number of shares of New Restricted
Stock equal to the number of shares of Old Restricted Stock
tendered in payment for New Restricted Stock may in the
discretion of the Committee be subject to the same restrictions
as the Old Restricted Stock, determined immediately before such
payment.
(iv) The Committee may, but need not, provide that all or any
portion of a Grantee's Award of restricted Stock shall be forfeited
14
(A) except as otherwise specified in the Award Agreement,
upon the Grantee's Termination of Employment within a specified time
period after the Grant Date, or
(B) if the Company or the Grantee does not achieve
specified performance goals within a specified time period after the
Grant Date and before the Grantee's Termination of Employment, or
(C) upon failure to satisfy such other restrictions as the
Committee may specify in the Award Agreement.
(v) If a share of restricted Stock is forfeited, then
(A) the Grantee shall be deemed to have resold such share
of restricted Stock to the Company at the lesser of (1) the purchase
price paid by the Grantee (such purchase price shall be deemed to be
zero dollars ($0) if no purchase price was paid) or (2) the Fair
Market Value of a share of Stock on the date of such forfeiture;
(B) the Company shall pay to the Grantee the amount
determined under clause (A) of this sentence as soon as is
administratively practical; and
(C) such share of restricted Stock shall cease to be
outstanding, and shall no longer confer on the Grantee thereof any
rights as a stockholder of the Company, from and after the date of the
Company's tender of the payment specified in clause (B) of this
sentence, whether or not such tender is accepted by the Grantee.
(vi) Any share of restricted Stock shall bear an appropriate
legend specifying that such share is non-transferable and subject to the
restrictions set forth in the Plan. If any shares of restricted Stock
become nonforfeitable, the Company shall cause certificates for such shares
to be issued or reissued without such legend and delivered to the Grantee
or, at the request of the Grantee, shall cause such shares to be credited
to a brokerage account specified by the Grantee
(vii) Notwithstanding any contrary provision of the Plan, with
respect to all outstanding restricted Stock and restricted Stock granted on
or after May 21, 1998, 100% of any such outstanding restricted Stock shares
shall be 100% vested in the Grantee upon the Grantee's Termination of
Employment on account of Retirement, death or Disability.
(viii) Notwithstanding any contrary provision of the Plan or of
any Award Agreement in respect of any restricted Stock, immediately upon
the occurrence of a Change of Control that occurs prior to a Grantee's
Termination of Employment, 100% of any outstanding restricted Stock shares
shall be 100% vested in the Grantee. Notwithstanding the preceding
provisions of this Article 6(f)(viii), if the Committee
15
determines that the acceleration of vesting of restricted Stock following a
Change of Control would cause a Change of Control transaction to be
ineligible for pooling of interests accounting under APB No. 16, which
transaction (but for such accelerated vesting) otherwise would have been
eligible for such accounting treatment, the Committee, in its sole
discretion, may determine that no such accelerated vesting shall occur.
(g) Grant of Unrestricted Stock. The Committee may, in its
---------------------------
discretion, grant shares of unrestricted Stock to any employee eligible
under Article 5 to receive Awards.
(h) Grant of Performance Shares.
---------------------------
(i) The Committee may, in its discretion, grant performance
shares to any employee eligible under Article 5 to receive Awards.
(ii) Each performance share shall have an initial value equal
to the Fair Market Value of a share of Stock on the date of grant.
(iii) The Committee shall set performance objectives in its
discretion which, depending on the extent to which they are met, will
determine the number of performance shares that will be paid out to the
Participants. The time period during which the performance objectives must
be met shall be called the "Performance Period".
(iv) The Committee may set performance objectives based upon
the achievement of Company-wide, divisional, or individual goals,
applicable Federal or state securities laws, or any other basis determined
by the Committee in its discretion. For purposes of qualifying grants of
performance shares as "performance-based compensation" under Section 162(m)
of the Internal Revenue Code, the Committee, in its discretion, may
determine that the performance objectives applicable to performance shares
shall be based on the achievement of Performance Goals. The Performance
Goals shall be set by the Committee on or before the latest date
permissible to enable the performance shares to qualify as "performance-
based compensation" under Section 162(m) of the Internal Revenue Code. In
granting performance shares which are intended to qualify under Code
Section 162(m), the Committee shall follow any procedures determined by it
from time to time to be necessary or appropriate to ensure qualification of
the performance shares under Internal Revenue Code Section 162(m) (e.g., in
----
determining the Performance Goals).
(v) After the applicable Performance Period has ended, the
Grantee shall be entitled to receive a payout of the number of performance
shares earned over the Performance Period, to be determined as a function
of the extent to which the corresponding performance objectives have been
achieved. Payment of earned performance shares shall be made as soon as
practicable after the expiration of the applicable Performance Period. The
Committee, in its sole discretion, may pay earned performance shares in the
form of cash, in shares of Stock (which have an aggregate Fair
16
Market Value equal to the value of the earned performance Shares at the
close of the applicable Performance Period) or in a combination thereof.
(vi) Notwithstanding any contrary provision of the Plan, with
respect to all outstanding performance shares and performance shares
granted on or after May 21, 1998, upon the Grantee's Termination of
Employment on account of Retirement, death or Disability, 100% of any such
outstanding performance shares shall be deemed to be earned and shall be
immediately payable to the Grantee, or, in cases where a Grantee has
received a target award of performance shares, 100% of the target amount
shall vest.
(vii) Notwithstanding any contrary provision of the Plan or of
any Award Agreement in respect of any performance share, immediately upon
the occurrence of a Change of Control that occurs prior to a Grantee's
Termination of Employment, 100% of any outstanding performance shares shall
be deemed to be earned and shall be immediately payable to the Grantee, or,
in cases where a Grantee has received a target award of performance shares,
100% of the target amount shall vest. Notwithstanding the preceding
provisions of this Article 6(h)(vii), if the Committee determines that the
acceleration of vesting of performance shares following a Change of Control
would cause a Change of Control transaction to be ineligible for pooling of
interests accounting under APB No. 16, which transaction (but for such
accelerated vesting) otherwise would have been eligible for such accounting
treatment, the Committee, in its sole discretion, may determine that no
such accelerated vesting shall occur.
7. Non-transferability. Each Award (other than unrestricted Stock)
-------------------
granted hereunder shall by its terms not be assignable or transferable other
than by will or the laws of descent and distribution and may be exercised,
during the Grantee's lifetime, only by the Grantee. Each share of restricted
Stock shall be non-transferable until such share becomes nonforfeitable.
Notwithstanding the foregoing, the Grantee may, to the extent provided in the
Plan and in a manner specified by the Committee, (a) designate in writing a
beneficiary to exercise his options after the Grantee's death, and (b) transfer
an option (other than an incentive stock option) by bona fide gift and not for
any consideration, to a member of the Grantee's immediate family, or to a trust
for the exclusive benefit of the Grantee and/or a member or members of the
Grantee's immediate family.
8. Exercise.
--------
(a) Exercise of Options. Subject to Articles 4, 6, 15 and 18, and
-------------------
such terms and conditions as the Committee may impose, each option shall be
exercisable in one or more installments commencing not earlier than the first
anniversary of the Grant Date of such option; provided, however, that in the
case of a Replacement Option, such option shall be exercisable commencing not
earlier than the first anniversary of the grant date of the Sears Option or
Allstate Option it replaces. Options shall not be exercisable for twelve months
following a hardship distribution that is subject to Treasury Regulation
(S)1.401(k)-1(d)(2)(iv)(B)(4), except to the extent permitted thereunder. Each
option shall be exercised by delivery to the Company of written notice of intent
to purchase a specific number of shares of Stock or restricted Stock subject to
the option. The Option Price of any shares of Stock or restricted Stock as to
which an option shall be
17
exercised shall be paid in full at the time of the exercise. Payment may, at the
election of the Grantee, or if specified, as provided in the Award Agreement, be
made in any one or any combination of the following forms:
(i) check in such form as may be satisfactory to the
Committee,
(ii) Stock valued at its Fair Market Value on the date of
exercise or, if the date of exercise is not a business day, the next
succeeding business day; provided that for the exercise of a Replacement
Option, such Stock must have been held for at least six months, valued at
the Fair Market Value on the date of exercise,
(iii) Except with respect to the exercise of a Replacement Sears
Option, with the approval of the Committee, shares of restricted Stock,
each valued at the Fair Market Value of a share of Stock on the date of
exercise or, if the date of exercise is not a business day, the next
succeeding business day, or
(iv) Except with respect to the exercise of a Replacement Sears
option, through simultaneous sale through a broker of shares of
unrestricted Stock acquired on exercise, as permitted under Regulation T of
the Federal Reserve Board.
If restricted Stock ("Tendered Restricted Stock") is used to pay the
Option Price for Stock, then a number of shares of Stock acquired on exercise of
the option equal to the number of shares of Tendered Restricted Stock shall be
subject to the same restrictions as the Tendered Restricted Stock, determined as
of the date of exercise of the option. If the Option Price for restricted Stock
is paid with Tendered Restricted Stock, and if the Committee determines that the
restricted Stock acquired on exercise of the option is subject to restrictions
("Greater Restrictions") that cause it to have a greater risk of forfeiture than
the Tendered Restricted Stock, then notwithstanding the preceding sentence, all
the restricted Stock acquired on exercise of the option shall be subject to such
Greater Restrictions.
Shares of unrestricted Stock acquired by a Grantee on exercise of an
option shall be delivered to the Grantee or, at the request of the Grantee,
shall be credited directly to a brokerage account specified by the Grantee.
(b) Special Rules for Section 16 Grantees. Subject to Articles 6 and
-------------------------------------
16, no option shall be exercisable by a Section 16 Grantee during the first six
months after its Grant Date, except as exempted from Section 16(b) of the 1934
Act under Rule 16a-2(d) under the 1934 Act. This limitation shall not apply if
the Grantee dies or incurs a Disability before the end of the six-month period.
(c) Permissible Shares Issued. No shares of Stock shall be issued
-------------------------
hereunder upon option exercise except shares of Stock available under Article
3(a). Each Grantee, by acceptance of an award, waives all rights to specific
performance or injunctive or other equitable relief and acknowledges that he has
an adequate remedy at law in the form of damages
18
(d) Vesting Upon Retirement, Death or Disability. Notwithstanding any
--------------------------------------------
contrary provision of the Plan, with respect to all outstanding stock options,
and options granted on or after May 21, 1998, the right to exercise each such
option then outstanding shall accrue as to 100% of the shares of Stock subject
to such option upon the Grantee's Termination of Employment on account of
Retirement, death or Disability.
(e) Vesting Upon Change of Control. Notwithstanding any contrary
------------------------------
provision of the Plan or of any Award Agreement in respect of an option,
immediately upon the occurrence of a Change of Control that occurs prior to a
Grantee's Termination of Employment, the right to exercise each option then
outstanding shall accrue as to 100% of the shares of Stock then subject to such
option. Notwithstanding the preceding provisions of this Article 8(e), if the
Committee determines that the acceleration of vesting of options following a
Change of Control would cause a Change of Control transaction to be ineligible
for pooling of interests accounting under APB No. 16, which transaction (but for
such accelerated vesting) otherwise would have been eligible for such accounting
treatment, the Committee, in its sole discretion, may determine that no such
accelerated vesting shall occur.
9. Deferral.
--------
(a) Notwithstanding anything herein to the contrary, a Grantee of an
option hereunder who is eligible to defer income under the Company's Officer
Deferred Compensation Plan may elect, at the discretion of, and in accordance
with rules which may be established by, the Committee, to defer delivery of the
proceeds of exercise of an option which is exercised by means of an exchange of
Stock as described in Article 8(a)(ii) or (iii), provided, in either such case,
that shares of Stock tendered or applied in exercise of such option shall have
been held by the Grantee for at least six months prior to such exercise. A
Grantee's election as provided in the preceding sentence shall be irrevocable.
Notwithstanding any other provision of this Article 9, a deferral election made
by a Grantee hereunder shall be void and shall not be given effect unless (i)
the Grantee's deferral election is made at least six full calendar months prior
to the calendar month in which the option otherwise would expire, (ii) the
Grantee's deferral election is made at least six full calendar months prior to
the calendar month in which the option is exercised, and (iii) the Grantee is
employed by the Company or any of its Subsidiaries on the date of exercise of
the option. For purposes of either or both of clauses (i) or (ii) of the
preceding sentence, rules established by the Committee may require an election
earlier than the six calendar month period described therein. Upon exercise of
an option to which a deferral election applies, the shares of Stock covered by
such exercise shall not be issued or transferred to the Grantee, and instead, a
number of Stock Units, as defined below, equal to the number of shares of Stock
covered by such exercise and in respect of which the Grantee has made a deferral
election, shall be credited to an account in the name of the Grantee on the
books and records of the Company (a "Deferred Option Compensation Account") at
the date of exercise. A separate Deferred Option Compensation Account shall be
maintained with respect to each effective deferral election.
(b) For purposes of this Article 9, a "Stock Unit" is a bookkeeping
entry initially representing an amount equivalent to the fair market value of
one share of Stock. Stock Units represent an unfunded and unsecured obligation
of the Company, except as otherwise provided for by the Committee. Settlement of
Stock Units shall be made by issuance of shares of
19
Stock on such date or dates or upon the occurrence of such event or events as
the Committee may authorize the Grantee to designate at the time a deferral
election is made hereunder, provided, however, that in no event shall settlement
occur more than 60 days after a Grantee's Termination of Employment for any
reason. The number of shares of Stock to be so distributed may be increased by
dividend equivalents, which may be valued as if reinvested in shares of Stock.
Until a Stock Unit is settled, the number of shares of Stock represented by a
Stock Unit shall be subject to adjustment pursuant to Article 23.
(c) Grantees have the status of general unsecured creditors of the
Company with respect to their Deferred Option Compensation Accounts, and such
accounts constitute a mere promise by the Company to make payments with respect
thereto.
(d) A Grantee's right to benefit payments with respect to the Deferred
Option Compensation Accounts may not be anticipated, alienated, sold,
transferred, assigned, pledged, encumbered, attached or garnished by creditors
of the Grantee or the Grantee's beneficiary and any attempt to do so shall be
void and shall not be given effect.
(e) To the extent determined by the Committee, any amount deferred
under this Article 9, and any Deferred Option Compensation Account, may be
treated and held as a portion of the Company's Officer Deferred Compensation
Plan, in which event the provisions of said plan shall govern the operation and
administration of deferred amounts hereunder and Deferred Option Compensation
Accounts, to the extent not inconsistent with the provisions of this Article 9.
10. Loans and Guarantees. The Committee may, in its discretion except
--------------------
with respect to the Replacement of a Sears Option:
(a) allow a Grantee to defer payment to the Company of all or any
portion of (i) the Option Price of an option, (ii) the purchase price of a share
of restricted Stock, or (iii) any taxes associated with a benefit hereunder
which is not a cash benefit at the time such benefit is so taxable, or
(b) cause the Company to guarantee a loan from a third party to the
Grantee, in an amount equal to all or any portion of such option Price, purchase
price, or any related taxes. Any such payment deferral or guarantee by the
Company pursuant to this Article 10 shall be, on a secured or unsecured basis,
for such periods, at such interest rates, and on such other terms and conditions
as the Committee may determine. Notwithstanding the foregoing, a Grantee shall
not be entitled to defer the payment of such Option Price, purchase price, or
any related taxes unless the Grantee (i) enters into a binding obligation to pay
the deferred amount and (ii) except with respect to treasury shares, pays upon
exercise of an option or grant of shares of restricted Stock, as the case may
be, an amount equal to or greater than the aggregate Minimum Consideration
therefor. If the Committee has permitted a payment deferral or caused the
Company to guarantee a loan pursuant to this Article 10, then the Committee may,
in its discretion, require the immediate payment of such deferred amount or the
immediate release of such guarantee upon the Grantee's Termination of Employment
or if the Grantee sells or otherwise transfers the Grantee's shares of Stock
purchased pursuant to such deferral or guarantee.
20
11. Notification under Section 83(b). The Committee may, on the Grant
--------------------------------
Date or any later date, prohibit a Grantee from making the election described
below. If the Committee has not prohibited such Grantee from making such
election, and the Grantee shall, in connection with the exercise of any option,
or the grant of any share of restricted Stock, make the election permitted under
Section 83(b) of the Internal Revenue Code (i.e., an election to include in such
Grantee's gross income in the year of transfer the amounts specified in Section
83(b) of the Internal Revenue Code), such Grantee shall notify the Company of
such election within 10 days of filing notice of the election with the Internal
Revenue Service, in addition to any filing and notification required pursuant to
regulations issued under the authority of Section 83(b) of the Internal Revenue
Code.
12. Mandatory Withholding Taxes.
---------------------------
(a) Whenever under the Plan, cash or shares of Stock are to be
delivered upon exercise or payment of an Award or upon a share of restricted
Stock becoming nonforfeitable, or any other event with respect to rights and
benefits hereunder, the Company shall be entitled to require as a condition of
delivery (i) that the Grantee remit an amount sufficient to satisfy all federal,
state, and local withholding tax requirements related thereto, (ii) the
withholding of such sums from compensation otherwise due to the Grantee or from
any shares of Stock due to the Grantee under the Plan or (iii) any combination
of the foregoing.
(b) If any disqualifying disposition described in Article 6(d)(vi) is
made with respect to shares of Stock acquired under an incentive stock option
granted pursuant to the Plan or any election described in Article 11 is made,
then the person making such disqualifying disposition or election shall remit to
the Company an amount sufficient to satisfy all federal, state, and local
withholding taxes thereby incurred; provided that, in lieu of or in addition to
the foregoing, the Company shall have the right to withhold such sums from
compensation otherwise due to the Grantee or from any shares of Stock due to the
Grantee under the Plan.
13. Elective Share Withholding.
--------------------------
(a) Subject to the prior approval of the Committee and to Article
13(b), a Grantee may elect the withholding ("Share Withholding") by the Company
of a portion of the shares of Stock otherwise deliverable to such Grantee upon
the exercise or payment of an Award or upon a share of restricted Stock's
becoming nonforfeitable (each a "Taxable Event") having a Fair Market Value
equal to
(i) the minimum amount necessary to satisfy required federal,
state, or local withholding tax liability attributable to the Taxable
Event; or
(ii) with the Committee's prior approval, a greater amount, not
to exceed the estimated total amount of such Grantee's tax liability with
respect to the Taxable Event.
(b) Each Share Withholding election by a Grantee shall be subject to
the following restrictions:
21
(i) any Grantee's election shall be subject to the Committee's
right to revoke its approval of Share Withholding by such Grantee at any
time before the Grantee's election if the Committee has reserved the right
to do so at the time of its approval;
(ii) if the Grantee is a Section 16 Grantee, such Grantee's
election shall be subject to the disapproval of the Committee at any time,
whether or not the Committee has reserved the right to do so;
(iii) the Grantee's election must be made before the date (the
"Tax Date") on which the amount of tax to be withheld is determined;
(iv) the Grantee's election shall be irrevocable;
(v) a Section 16 Grantee may not elect Share Withholding to
the extent that such Share Withholding is to occur within six months after
the grant of the related option (except if the Grantee dies or incurs a
Disability before the end of the six-month period); and
(vi) a Section 16 Grantee must elect Share Withholding during
the ten business day period beginning on the third business day after the
release of the Company's quarterly or annual summary statement of sales and
earnings.
14. Termination of Employment.
-------------------------
(a) Restricted Stock. Except as otherwise provided by the Committee
----------------
on or after the Grant Date, a Grantee's shares of restricted Stock that are
forfeitable shall be forfeited upon the Grantee's Termination of Employment.
(b) Other Awards. If a Grantee has a Termination of Employment, then,
------------
unless otherwise provided in the Grant Agreement, any unexercised option to the
extent exercisable on the date of the Grantee's Termination of Employment may be
exercised by the Grantee, in whole or in part, at any time within three months
following such Termination of Employment, except that
(i) if the Grantee's Termination of Employment is on account
of Disability, then any unexercised option (except a Replacement of a Sears
Option) to the extent exercisable at the date of such Termination of
Employment, may be exercised, in whole or in part, by the Grantee at any
time within two years after the date of such Termination of Employment; and
(ii) if the Grantee's Termination of Employment is on account
of Retirement, then any unexercised option to the extent exercisable at the
date of such Termination of Employment, may be exercised, in whole or in
part, by the Grantee at any time within (a) two years after the date of
such Termination of Employment, in the case of a Replacement Sears Option
or (b) five years after the date of such Termination of Employment in the
case of all other options.
22
(iii) if the Grantee's Termination of Employment is caused by
the death of the Grantee or if the Grantee's death occurs during the period
following Termination of Employment during which the option would be
exercisable under the preceding clause of Article 14(b) or under Article
14(b)(i) or (ii), then any unexercised option to the extent exercisable on
the date of the Grantee's death, may be exercised, in whole or in part, at
any time within two years after the Grantee's death by the Grantee's
personal representative or by the person to whom the option is transferred
by will or the applicable laws of descent and distribution.
(c) Maximum Extension. Notwithstanding the foregoing, no Award shall
-----------------
be exercisable beyond the maximum term permitted under the original Award
Agreement unless with respect to any option except a Replacement Sears option,
the Committee explicitly extends such original term, in which case such term
shall not be extended beyond the maximum term permitted by the Plan.
15. Equity Incentive Plans of Foreign Subsidiaries. The Committee may
----------------------------------------------
authorize any foreign Subsidiary to adopt a plan for granting Awards ("Foreign
Equity Incentive Plan"). All awards granted under such Foreign Equity Incentive
Plans shall be treated as grants under the Plan. Such Foreign Equity Incentive
Plans shall have such terms and provisions as the Committee permits not
inconsistent with the provisions of the Plan and which may be more restrictive
than those contained in the Plan. Awards granted under such Foreign Equity
Incentive Plans shall be governed by the terms of the Plan except to the extent
that the provisions of the Foreign Equity Incentive Plans are more restrictive
than the terms of the Plan, in which case such terms of the Foreign Equity
Incentive Plans shall control.
16. Substituted Awards. Except with respect to Replacement Options, the
------------------
Committee may grant substitute awards for any canceled Award granted under this
Plan or any plan of any entity acquired by the Company or any of its
Subsidiaries in accordance with this Article 16. If the Committee cancels any
Award (granted under this Plan, or any plan of any entity acquired by the
Company or any of its Subsidiaries), and a new Award is substituted therefor,
then the Committee may, in its discretion, determine the terms and conditions of
such new Award, and may provide that the Grant Date of the canceled Award shall
be the date used to determine the earliest date or dates for exercising the new
substituted Award under Article 8 hereof so that the Grantee may exercise the
substituted Award at the same time as if the Grantee had held the substituted
Award since the Grant Date of the canceled Award.
17. Securities Law Matters.
----------------------
(a) If the Committee deems necessary to comply with the Securities Act
of 1933, the Committee may require a written investment intent representation by
the Grantee and may require that a restrictive legend be affixed to certificates
for shares of Stock.
(b) If based upon the opinion of counsel for the Company, the
Committee determines that the exercise or nonforfeitability of, or delivery of
benefits pursuant to, any Award could violate any applicable provision of (i)
federal or state securities law or regulations or (ii) the listing requirements
of any national securities exchange on which are listed any of the Company's
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equity securities, then the Committee may postpone any such exercise,
nonforfeitability or delivery, as the case may be, but the Company shall use its
best efforts to cause such exercise, nonforfeitability or delivery to comply
with all such provisions at the earliest practicable date.
18. No Funding Required. Benefits payable under the Plan to any person
-------------------
shall be paid directly by the Company. The Company shall not be required to
fund, or otherwise segregate assets to be used for payment of, benefits under
the Plan.
19. No Employment Rights. Neither the establishment of the Plan, nor the
--------------------
granting of any Award shall be construed to (a) give any Grantee the right to
remain employed by the Company or any of its Subsidiaries or to any benefits not
specifically provided by the Plan or (b) in any manner modify the right of the
Company or any of its Subsidiaries to modify, amend, or terminate any of its
employee benefit plans.
20. Rights as a Stockholder. A Grantee shall not, by reason of any Award
-----------------------
(other than restricted Stock) have any right as a stockholder of the Company
with respect to the shares of Stock which may be deliverable upon exercise or
payment of such Award until such shares have been delivered to him. Shares of
restricted Stock held by a Grantee or held in escrow by the Secretary of the
Company shall confer on the Grantee all rights of a stockholder of the Company,
except as otherwise provided in the Plan or the Award Agreement. The Committee,
in its discretion, at the time of grant of restricted Stock, may permit or
require the payment of cash dividends thereon to be deferred and, if the
Committee so determines, reinvested in additional restricted Stock to the extent
shares are available under Article 3, or otherwise reinvested in Stock. Stock
dividends, deferred cash dividends and dividends in the form of property other
than cash, issued with respect to restricted Stock shall, unless otherwise
provided in the Award Agreement, be treated as additional shares of restricted
Stock that are subject to the same restrictions and other terms as apply to the
shares with respect to which such dividends are issued. The Committee may, in
its discretion, provide for crediting and payment of interest on deferred cash
dividends.
21. Nature of Payments. Any and all grants, payments of cash, or
------------------
deliveries of shares of Stock hereunder shall constitute special incentive
payments to the Grantee and shall not be taken into account in computing the
amount of salary or compensation of the Grantee for the purposes of determining
any pension, retirement, death or other benefits under (a) any pension,
retirement, profit-sharing, bonus, life insurance or other employee benefit plan
of the Company or any of its Subsidiaries or (b) any agreement between the
Company or any Subsidiary, on the one hand, and the Grantee, on the other hand,
except as such plan or agreement shall otherwise expressly provide.
22. Non-Uniform Determinations. Neither the Committee's nor the Board's
--------------------------
determinations under the Plan need be uniform and may be made by the Committee
or the Board selectively among persons who receive, or are eligible to receive,
Awards (whether or not such persons are similarly situated). Without limiting
the generality of the foregoing, the Committee shall be entitled, among other
things, to make non-uniform and selective determinations, to enter into non-
uniform and selective Award Agreements as to (a) the identity of the Grantees,
(b) the
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terms and provisions of Awards, and (c) the treatment, under Article 14, of
Termination of Employment.
23. Adjustments. Subject to Article 6, the Committee may make such
-----------
provision with respect to Awards, including without limitation, equitable
adjustment of
(a) the aggregate numbers of shares of Stock available under Articles
3(a) and 3(b),
(b) the number of shares of Stock or shares of restricted Stock
covered by an Award, and
(c) the Option Price, or
the termination or continuation of an Award as it may determine to be
appropriate and equitable to reflect a stock dividend, stock split, reverse
stock split, share combination, recapitalization, merger, consolidation,
acquisition of property or shares, separation, spin-off, reorganization, stock
rights offering, liquidation, or similar event, of or by the Company.
24. Amendment of the Plan. The Board may from time to time in its
---------------------
discretion amend or modify the Plan without the approval of the stockholders of
the Company, except as such stockholder approval may be required (a) to permit
transactions in Stock pursuant to the Plan to be exempt from potential liability
under Section 16(b) of the 1934 Act, (b) to permit the Company to deduct, in
computing its income tax liability pursuant to the provisions of the Internal
Revenue Code, compensation resulting from Awards, (c) to retain incentive stock
option treatment under Section 422 of the Internal Revenue Code, or (d) under
the listing requirements of any securities exchange on which are listed any of
the Company's equity securities.
25. Termination of the Plan. The Plan shall terminate on the tenth (10th)
-----------------------
anniversary of the Effective Date or at such earlier time as the Board may
determine. Any termination, whether in whole or in part, shall not affect (a)
any Award then outstanding under the Plan, or (b) the Company's ability to make
adjustments to or cancel or continue Awards in accordance with Article 23.
26. No Illegal Transactions. The Plan and all Awards granted pursuant to
-----------------------
it are subject to all laws and regulations of any governmental authority which
may be applicable thereto; and notwithstanding any provision of the Plan or any
Award, Grantees shall not be entitled to exercise Awards or receive the benefits
thereof and the Company shall not be obligated to deliver any Stock or pay any
benefits to a Grantee if such exercise, delivery, receipt or payment of benefits
would constitute a violation by the Grantee or the Company of any provision of
any such law or regulation.
27. Controlling Law. The law of the State of Delaware except its law with
---------------
respect to choice of law, shall be controlling in all matters relating to or
arising out of the Plan or any Award.
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28. Severability. If all or any part of the Plan is declared by any court
------------
or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of the Plan not declared to
be unlawful or invalid. Any Article or part of an Article so declared to be
unlawful or invalid shall, if possible, be construed in a manner which will give
effect to the terms of such Article or part of an Article to the fullest extent
possible while remaining lawful and valid.
EXECUTION
IN WITNESS WHEREOF, The PMI Group, Inc., by its duly authorized
officer, has executed this Plan on the date indicated below.
THE PMI GROUP, INC.
Dated: July 28 1998 By /s/ CHARLES BROOM
-------------------, ------------------------------
Title: AVP/HR
26