EXHIBIT 10.1

KIRKLAND’S, INC.

AMENDED AND RESTATED 2002 EQUITY INCENTIVE PLAN

(Amended and Restated Effective June 4, 2013)

1. Purpose; Definitions.

The purpose of the Kirkland’s, Inc. Amended and Restated 2002 Equity Incentive
Plan (the “Plan”) are to (a) enable Kirkland’s, Inc. (the “Company”) and its
affiliated companies to recruit and retain highly qualified employees, directors
and consultants; (b) provide those employees, directors and consultants with an
incentive for productivity; and (c) provide those employees, directors and
consultants with an opportunity to share in the growth and value of the Company.

For purposes of the Plan, the following initially capitalized words and phrases
have the meanings defined below, unless the context clearly requires a different
meaning:

(a) “Award” means the grant of Options, SARs, Restricted Shares, Restricted
Share Units or Performance Awards pursuant to the provisions of the Plan.

(b) “Award Agreement” means, with respect to any particular Award, the written
document that sets forth the terms of that particular Award.

(c) “Board” means the Board of Directors of the Company, as constituted from
time to time; provided, however, that if the Board appoints a Committee to
perform some or all of the Board’s administrative functions hereunder pursuant
to Section 2, references in this Plan to the “Board” will be deemed to also
refer to that Committee in connection with administrative matters to be
performed by that Committee.

(d) “Cause” exists when a Participant (as determined by the Board, in its sole
discretion):

(i) engages in any type of disloyalty to the Company, including without
limitation, fraud, embezzlement, theft, or dishonesty in the course of his
employment or engagement, or otherwise breaches any fiduciary duty owed to the
Company;

(ii) is convicted of a felony or a misdemeanor involving moral turpitude;

(iii) enters a plea of guilty or nolo contendere to a felony or a misdemeanor
involving moral turpitude.

(iv) discloses any proprietary information belonging to the Company without the
consent of the Company; or

(v) breaches any agreement with or duty to the Company.

However, notwithstanding the foregoing, if an Participant is bound by the terms
of an employment agreement with the Company or any Subsidiary that includes a
definition of “cause,” the determination of whether that Participant has been
terminated for “Cause” will be made in accordance with that employment
agreement.

(e) “Change in Control” means (i) the sale, transfer, assignment or other
disposition (including by merger or consolidation) by shareholders of the
Company, in one transaction or a series of related transactions, of more than
50% of the voting power represented by the then outstanding capital stock of the
Company to one or more persons, (ii) the sale of substantially all the assets of
the Company, or (iii) the liquidation or dissolution of the Company.

(f) “Code” means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.

(g) “Committee” means a committee appointed by the Board in accordance with
Section 2 of this Plan.

 

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(h) “Director” means a member of the Board.

(i) “Disability” means a condition rendering a Participant Disabled.

(j) “Disabled” means, with respect to any Participant (i) entitled to benefits
under a long-term disability policy or program of the Company, or (ii) if the
Participant is not covered by any such policy or program, when the Participant
is prevented by a physical or mental impairment from engaging in any
substantial, gainful activity for a period of at least six (6) months, as
determined by the Board, in its sole and absolute discretion; provided, however,
notwithstanding the foregoing, if an Participant is bound by the terms of an
employment agreement with the Company or any Subsidiary that includes a
definition of “disabled” or disability,” the determination of whether that
Participant is “Disabled” for purposes of this Plan will be made in accordance
with that employment agreement.

(k) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(l) “Fair Market Value” means, as of any date: (i) the closing price of the
Shares as reported on the principal nationally recognized stock exchange on
which the Shares are traded on such date, or if no Share prices are reported on
such date, the closing price of the Shares on the last preceding date on which
there were reported Share prices; or (ii) if the Shares are not listed or
admitted to unlisted trading privileges on a nationally recognized stock
exchange, the closing price of the Shares as reported by The Nasdaq Stock Market
on such date, or if no Share prices are reported on such date, the closing price
of the Shares on the last preceding date on which there were reported Share
prices; or (iii) if the Shares are not listed or admitted to unlisted trading
privileges on a nationally recognized stock exchange or traded on The Nasdaq
Stock Market, the Fair Market Value will be determined by the Board acting in
its discretion, which determination will be conclusive.

(m) “Incentive Stock Option” means any Option intended to be and designated as
an “Incentive Stock Option” within the meaning of Section 422 of the Code.

(n) “Non-Employee Director” will have the meaning set forth in Rule
16b-3(b)(3)(i) promulgated by the Securities and Exchange Commission under the
Exchange Act, or any successor definition adopted by the Securities and Exchange
Commission; provided, however, that the Board may, to the extent necessary to
comply with Section 162(m) of the Code or regulations thereunder, require each
“Non-Employee Director” to also be an “outside director,” as that term is
defined in regulations under Section 162(m) of the Code.

(o) “Non-Qualified Stock Option” means any Option that is not an Incentive Stock
Option.

(p) “Option” means any option to purchase Shares (including Restricted Shares,
if the Board so determines) granted pursuant to Section 5 hereof.

(q) “Participant” means an employee, consultant or director of the Company or a
Subsidiary to whom an Award is granted.

(r) “Performance Award” means an Award granted pursuant to Section 9 hereof.

(s) “Restricted Shares” means Shares that are subject to restrictions pursuant
to Section 8 hereof.

(t) “Restricted Share Unit” means a contractual right that entitles the
Participant, subject to the restrictions in Section 8 hereof, to receive one
Share.

(u) “SAR” means a share appreciation right granted under the Plan and described
in Section 6 hereof.

(v) “Share” means a share of common stock, no par value, of the Company, subject
to substitution or adjustment as provided in Section 3(c) hereof.

(w) “Subsidiary” means, in respect of the Company, a subsidiary company, whether
now or hereafter existing, as defined in Sections 424(f) and (g) of the Code.

 

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2. Administration.

The Plan will be administered by the Board; provided, however, that the Board
may at any time appoint a Committee to perform some or all of the Board’s
administrative functions hereunder; and provided further, that the authority of
any Committee appointed pursuant to this Section 2 will be subject to such terms
and conditions as the Board may prescribe and will be coextensive with, and not
in lieu of, the authority of the Board hereunder.

Any Committee established under this Section 2 shall consist of one or more
members of the Board (who may also be officers of the Company); provided that,
for purposes of the grant and administration of Awards to members of the Board
or “officers” of the Company (within the meaning of Section 16 of the Exchange
Act), any Committee appointed by the Board will be composed solely of two or
more Non-Employee Directors. From time to time the Board may increase the size
of any Committee and appoint additional members thereto, remove members (with or
without cause) and appoint new members in substitution therefore, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.

Members of the Board who are eligible for Awards or have received Awards may
vote on any matters affecting the administration of the Plan or the grant of
Awards, except that no such member will act upon the grant of an Award to
himself or herself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board or Committee during which
action is taken with respect to the grant of Awards to himself or herself.

The Board will have full authority to grant Awards under this Plan. In
particular, but without limitation, the Board will have the authority:

(a) to select the persons to whom Awards may from time to time be granted
hereunder (consistent with the eligibility conditions set forth in Section 4);

(b) to determine the type of Award to be granted hereunder;

(c) to determine the number of Shares, if any, to be covered by each such Award;

(d) to establish the terms of each Award Agreement;

(e) to determine whether and under what circumstances an Option may be exercised
without a payment of cash under Section 5(f);

(f) subject to Section 9 hereof, establish the performance conditions relevant
to any Award and certify whether such performance conditions have been satisfied
following the end of the relevant performance period;

(g) to determine whether and under what circumstances an Award may be settled in
cash; and

(h) accelerate the vesting or exercisability of an Award, to extend the
post-termination exercise period of an Award and to otherwise modify or amend
the terms of an Award, subject to Section 10.

The Board will have the authority to adopt, alter and repeal such administrative
rules, guidelines and practices governing the Plan as it, from time to time,
deems advisable; to interpret the terms and provisions of the Plan and any Award
Agreement; and to otherwise supervise the administration of the Plan. The Board
may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or in any Award in the manner and to the extent it deems necessary to
carry out the intent of the Plan.

All decisions made by the Board pursuant to the provisions of the Plan will be
final and binding on all persons, including the Company and Participants. No
member of the Board will be liable for any good faith determination, act or
omission in connection with the Plan or any Award.

3. Shares Subject to the Plan.

(a) Shares Subject to the Plan. The Shares to be subject or related to awards
under the Plan will be authorized and unissued Shares of the Company, whether or
not previously issued and subsequently acquired by the Company. The maximum
number of Shares that may be the subject of awards under the Plan is 3,500,000
and the Company

 

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will reserve for the purposes of the Plan such number of Shares. All Shares
authorized for issuance hereunder may be issued in respect of Incentive Stock
Options. No Participant will receive Options or SARs with respect to more than
500,000 Shares in any calendar year. The maximum number of Shares issuable to
any Participant in any one calendar year with respect to Performance Awards
denominated in Shares will be 500,000. The maximum amount payable to any
Participant in any one calendar year with respect to Performance Awards
denominated in cash will be $1,600,000.

(b) Effect of the Expiration or Termination of Awards. If and to the extent that
an Award expires, terminates or is canceled or forfeited for any reason without
having been exercised in full, the Shares associated with the expired,
terminated, canceled or forfeited portion of the Award will again become
available for grant under the Plan. If any Share is received in satisfaction of
the exercise price payable upon exercise of an Option, or if the issuance of any
Share is withheld pursuant to Section 15(d) in settlement of a tax obligation
associated with an Award, that Share will become available for grant under the
Plan.

(c) Other Adjustment. In the event of any recapitalization, reorganization,
merger, stock split or combination, stock dividend or other similar event or
transaction (including, without limitation, any “corporate transaction,” within
the meaning of Treasury Regulation § 1.424-1(a)(3)), substitutions or
adjustments will be made by the Board: (i) to the aggregate number, class and/or
issuer of the securities reserved for issuance under the Plan; (ii) to the
number, class and/or issuer of securities subject to outstanding Awards; and
(iii) to the exercise price of outstanding Options or SARs, in each case in a
manner that reflects equitably the effects of such event or transaction. For
avoidance of doubt, a substitution or adjustment that reflects equitably the
effects of a given event or transaction will include (but will not be limited
to) any substitution or adjustment consistent with the requirements of Treasury
Regulation § 1.424-1(a) or any successor provision.

(d) Change Control. Notwithstanding anything to the contrary set forth in this
Plan, upon or in anticipation of any Change in Control, the Board may, in its
sole and absolute discretion and without the need for the consent of any
Participant, take one or more of the following actions contingent upon the
occurrence of that Change in Control: (i) cause any or all outstanding Awards to
become vested and immediately exercisable (as applicable), in whole or in part;
(ii) cause any outstanding Option to become fully vested and immediately
exercisable for a reasonable period in advance of the Change in Control and, to
the extent not exercised prior to that Change in Control, cancel that Option
upon closing of the Change in Control; (iii) cancel any Option in exchange for
an option to purchase common stock of any successor corporation, which new
option satisfies the requirements of Treas. Reg. § 1.425-1(a)(4)(i) (without
regard to whether the original Option was intended to be an Incentive Stock
Option), (iv) cancel any Restricted Shares, Restricted Share Unit or SARs in
exchange for a restricted shares, restricted share units or stock appreciation
rights with respect to the capital stock of any successor corporation or its
parent, (v) redeem any Restricted Share or Restricted Share Unit for cash and/or
other substitute consideration with a value equal to the Fair Market Value on
the date of the Change in Control, and/or (vi) cancel any Option or SAR in
exchange for cash and/or other substitute consideration with a value equal to
the (A) the number of Shares subject to that Option or SAR, multiplied by
(B) the difference between the Fair Market Value on the date of the Change in
Control and the exercise price of that Option or SAR, provided, that if the Fair
Market Value on the date of the Change in Control does not exceed the exercise
price of any such Option or SAR, the Board may cancel that Option or SAR without
any payment of consideration therefor.

In the discretion of the Board, any cash or substitute consideration payable
upon cancellation of an Award may be subjected to (i) vesting terms
substantially identical to those that applied to the cancelled Award immediately
prior to the Change in Control, or (ii) earn-out, escrow, holdback or similar
arrangements, to the extent such arrangements are applicable to any
consideration paid to stockholders in connection with the Change in Control.

4. Eligibility.

Employees, directors, consultants and other individuals who provide services to
the Company or its Subsidiaries are eligible to be granted Awards. Persons who
are not employees of the Company or a Subsidiary are eligible to be granted
Awards, but are not eligible to be granted Incentive Stock Options.

5. Options.

Options may be either: (i) Incentive Stock Options or (ii) Non-Qualified Stock
Options. The Award Agreement evidencing any Option will incorporate the
following terms and conditions and may contain such additional terms and
conditions (not inconsistent with the terms of this Plan) as the Board deems
appropriate, in its sole discretion:

(a) Option Price. The exercise price per Share purchasable under any Option will
not be less than 100% of the Fair Market Value on the date of the grant.
However, any Incentive Stock Option granted to any Participant who, at the time
the Option is granted, owns more than 10% of the voting power of all classes of
shares of the Company or of a Subsidiary will have an exercise price per Share
of not less than 110% of Fair Market Value on the date of the grant.

 

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(b) Option Term. The term of each Option will be fixed by the Board, but no
Option will be exercisable more than ten (10) years after the date the Option is
granted. However, any Incentive Stock Option granted to any Participant who, at
the time such Option is granted, owns more than 10% of the voting power of all
classes of shares of the Company or of a Subsidiary may not have a term of more
than five (5) years. No Option may be exercised by any person after expiration
of the term of the Option.

(c) Method of Exercise. Subject to the terms of the applicable Award Agreement
and the termination provisions set forth in Section 7, Options may be exercised
in whole or in part at any time and from time to time during the term of the
Option, by giving written notice of exercise to the Company specifying the
number of Shares to be purchased. Such notice will be accompanied by payment in
full of the purchase price, either by certified or bank check, or such other
means as the Board may accept. As determined by the Board, in its sole
discretion, at or after grant, payment in full or in part of the exercise price
of an Option may be made in the form of previously acquired Shares based on the
Fair Market Value of the Shares on the date the Option is exercised or through
means of a “net settlement,” whereby the Option exercise price will be satisfied
by the withholding of Shares otherwise issuable upon such exercise, such that
the number of Shares issued upon such exercise will be equal to: (i) the product
of (A) the number of Shares as to which the Option is then being exercised, and
(B) the excess of (1) the then current Fair Market Value over (2) the Option
exercise price, divided by (ii) the then current Fair Market Value.

No Shares will be issued upon exercise of an Option until full payment therefore
has been made. A Participant will not have the right to distributions or
dividends or any other rights of a shareholder with respect to Shares subject to
the Option until the Participant has given written notice of exercise, has paid
in full for such Shares, and, if requested, has given the representation
described in Section 15(a) hereof.

(d) Incentive Stock Option Limitations. In the case of an Incentive Stock
Option, the aggregate Fair Market Value (determined as of the time of grant) of
the Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Participant during any calendar year under the Plan and/or any
other plan of the Company or any Subsidiary will not exceed $100,000. For
purposes of applying the foregoing limitation, Incentive Stock Options will be
taken into account in the chronological order in which they were granted. Any
Option not meeting such limitation will be treated for all purposes as a
Non-Qualified Stock Option.

(e) Termination of Employment. Unless otherwise specified in the applicable
Award Agreement, Options will be subject to the terms of Section 7 with respect
to exercise following termination of employment.

(f) Transferability of Options. Except as may otherwise be specifically
determined by the Board with respect to a particular Option, no Option will be
transferable by the Participant other than by will or by the laws of descent and
distribution, and all Options will be exercisable, during the Participant’s
lifetime, only by the Participant or, in the event of his Disability, by his
personal representative.

6. Stock Appreciation Rights.

(a) Grant. The grant of an SAR provides the holder the right to receive the
appreciation in value of Shares between the date of grant and the date of
exercise. SARs may be granted alone (“Stand-Alone SARs”) or in conjunction with
all or part of any Option (“Tandem SARs”). In the case of a Non-Qualified Stock
Option, a Tandem SAR may be granted either at or after the time of the grant of
such Option. In the case of an Incentive Stock Option, a Tandem SAR may be
granted only at the time of the grant of such Option.

(b) Exercise.

(i) Tandem SARs. A Tandem SAR or applicable portion thereof will terminate and
no longer be exercisable upon the termination or exercise of the related Option
or portion thereof, except that, unless otherwise determined by the Board, in
its sole discretion at the time of grant, a Tandem SAR granted with respect to
less than the full number of Shares covered by a related Option will be reduced
only after such related Option is exercised or otherwise terminated with respect
to the number of Shares not covered by the Tandem SAR.

A Tandem SAR may be exercised by a Participant by surrendering the applicable
portion of the related Option, only at such time or times and to the extent that
the Option to which such Tandem SAR relates will be exercisable in accordance
with the provisions of Section 5 and this Section 6. Options which have been so
surrendered, in whole or in part, will no longer be exercisable to the extent
the related Tandem SARs have been exercised.

 

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Upon the exercise of a Tandem SAR, a Participant will be entitled to receive,
upon surrender to the Company of all (or a portion) of an Option in exchange for
cash and/or Shares, an amount equal to the excess of (A) the Fair Market Value,
as of the date such Option (or such portion thereof) is surrendered, of the
Shares covered by such Option (or such portion thereof) over (B) the aggregate
exercise price of such Option (or such portion thereof).

Upon the exercise of a Tandem SAR, the Option or part thereof to which such
Tandem SAR is related, will be deemed to have been exercised for the purpose of
the limitation set forth in Section 3 of the Plan on the number of Shares to be
issued under the Plan, but only to the extent of the number of Shares issued
under the Tandem SAR at the time of exercise based on the value of the Tandem
SAR at such time.

A Tandem SAR may be exercised only if and when the Fair Market Value exceeds the
per Share exercise price of such Option.

(ii) Stand-Alone SARs. A Stand-Alone SAR may be exercised by a Participant
giving notice of intent to exercise to the Company, provided that all or a
portion of such Stand-Alone SAR will have become vested and exercisable as of
the date of exercise.

Upon the exercise of a Stand-Alone SAR, a Participant will be entitled to
receive, in either cash and/or Shares, an amount equal to the excess, if any, of
(A) the Fair Market Value, as of the date such SAR (or portion of such SAR) is
exercised, of the Shares covered by such SAR (or portion of such SAR) over
(B) the Fair Market Value of the Shares covered by such SAR (or a portion of
such SAR) as of the date such SAR (or a portion of such SAR) was granted.

(c) Terms and Conditions. The Award Agreement evidencing any SAR will
incorporate the following terms and conditions and will contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the Board
deems appropriate in its sole and absolute discretion:

(i) Term of SAR. Unless otherwise specified in the Award Agreement, the term of
a Tandem SAR will be identical to the term of the associated Option, and the
term of a Stand-Alone SAR will be ten (10) years.

(ii) Exercisability. SARs will vest and become exercisable at such time or times
and subject to such terms and conditions as will be determined by the Board at
the time of grant; provided that, unless otherwise specified in the Award
Agreement, a Tandem SAR will vest and become exercisable in the same manner and
at the same time as the associated Option.

(iii) Termination of Employment. Unless otherwise specified in the Award
Agreement, SARs will be subject to the terms of Section 7 with respect to
exercise upon termination of employment.

7. Termination of Service.

Unless otherwise specified with respect to a particular Award, Options or SARs
granted hereunder will remain exercisable after termination of employment only
to the extent specified in this Section 7.

(a) Termination by Reason of Death. If a Participant’s service with the Company
or any Subsidiary terminates by reason of death, any Option or SAR held by such
Participant may thereafter be exercised, to the extent then exercisable or on
such accelerated basis as the Board may determine, at or after grant, by the
legal representative of the estate or by the legatee of the Participant under
the will of the Participant, for a period expiring (i) at such time as may be
specified by the Board at or after the time of grant, (ii) if not specified by
the Board, then one year from the date of death, or (iii) if sooner than the
applicable period specified under (i) or (ii) above, then upon the expiration of
the stated term of such Option or SAR.

(b) Termination by Reason of Disability. If a Participant’s service with the
Company or any Subsidiary terminates by reason of Disability, any Option or SAR
held by such Participant may thereafter be exercised by the Participant or his
personal representative, to the extent it was exercisable at the time of
termination, or on such accelerated basis as the Board may determine at or after
grant, for a period expiring (i) at such time as may be specified by the Board
at

 

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or after the time of grant, (ii) if not specified by the Board, then one year
from the date of termination of service, or (iii) if sooner than the applicable
period specified under (i) or (ii) above, then upon the expiration of the stated
term of such Option or SAR.

(c) Cause. If a Participant’s service is terminated for Cause: (i) any Option or
SAR not already exercised will be immediately and automatically forfeited as of
the date of such termination, and (ii) any Shares for which the Company has not
yet delivered share certificates will be immediately and automatically forfeited
and the Company will refund to the Participant the Option exercise price paid
for such Shares, if any.

(d) Other Termination. If a Participant’s service with the Company or any
Subsidiary terminates for any reason other than death, Disability, or Cause, any
Option or SAR held by such Participant may thereafter be exercised by the
Participant, to the extent it was exercisable at the time of such termination or
on such accelerated basis as the Board may determine at or after the time of
grant, for a period expiring (i) at such time as may be specified by the Board
at or after the time of grant, (ii) if not specified by the Board, then 90 days
from the date of termination of service, or (iii) if sooner than the applicable
period specified under (i) or (ii) above, then upon the expiration of the stated
term of such Option or SAR; provided, however, that if the Board does not
specifically provide for any post-termination exercise period, then any Option
or SAR held by such terminated Participant will expire immediately upon the date
of such termination.

8. Restricted Shares and Restricted Share Units.

(a) Issuance. Restricted Shares and Restricted Share Units may be issued either
alone or in conjunction with other Awards. The Board will determine the time or
times within which Restricted Shares or Restricted Share Units may be subject to
forfeiture, and all other conditions of such Awards.

(b) Awards and Certificates. The Award Agreement evidencing the grant of any
Restricted Shares or Restricted Share Units will contain such terms and
conditions, not inconsistent with the terms of the Plan, as the Board deems
appropriate in its sole and absolute discretion. The prospective recipient of an
Award of Restricted Shares or Restricted Share Units will not have any rights
with respect to such Award, unless and until such recipient has executed an
Award Agreement and has delivered a fully executed copy thereof to the Company,
and has otherwise complied with the applicable terms and conditions of such
Award. The purchase price for Restricted Shares or Restricted Share Units may,
but need not, be zero.

Any share certificate issued in connection with an Award of Restricted Shares
will bear the following legend and/or any other legend required by this Plan,
the Award Agreement, the Company’s shareholders’ agreement, if any, and any
applicable law:

THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE
SUBJECT TO THE TERMS AND CONDITIONS OF THE KIRKLAND’S, INC. AMENDED AND RESTATED
2002 INCENTIVE PLAN AND AN AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER
AND KIRKLAND’S, INC. COPIES OF THAT PLAN AND AGREEMENT ARE ON FILE IN THE
PRINCIPAL OFFICES OF KIRKLAND’S, INC. AND WILL BE MADE AVAILABLE TO THE HOLDER
OF THIS CERTIFICATE WITHOUT CHARGE UPON REQUEST TO THE SECRETARY OF THE COMPANY.

Any certificates evidencing Restricted Shares shall be held in custody by the
Company or in escrow by an escrow agent until the restrictions thereon have
lapsed. As a condition of any Restricted Share award, the Participant may be
required to deliver to the Company a share power, endorsed in blank, relating to
the Shares covered by such Award.

(c) Restrictions and Conditions. The Restricted Shares or Restricted Share Units
awarded pursuant to this Section 8 will be subject to the following restrictions
and conditions, as applicable:

(i) During a period commencing with the date of an Award of Restricted Shares
and ending at such time or times as specified by the Board (the “Restriction
Period”), the Participant will not be permitted to sell, transfer, pledge,
assign or otherwise encumber Restricted Shares awarded under the Plan. The Board
may condition the lapse of restrictions on Restricted Shares or Restricted Share
Units upon the continued employment or service of the recipient, the attainment
of specified individual or corporate performance goals, or such other factors as
the Board may determine, in its sole and absolute discretion.

 

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(ii) Except as provided in this Paragraph (ii) or Section 8(c)(i), once
Restricted Shares have been issued to a Participant, the Participant will have,
with respect to those Shares, all of the rights of a shareholder of the Company,
including the right to vote the Shares, and the right to receive any cash
distributions or dividends. The Board, in its sole discretion, as determined at
the time of award, may permit or require the payment of cash distributions or
dividends to be deferred and, if the Board so determines, reinvested in
additional Restricted Shares to the extent Shares are available under Section 3
of the Plan. Any distributions or dividends paid in the form of securities with
respect to Restricted Shares will be subject to the same terms and conditions as
the Restricted Shares with respect to which they were paid, including, without
limitation, the same Restriction Period. A Participant whose Award consists of
Restricted Share Units shall not have the right to vote or receive dividend
equivalents with respect to such Restricted Share Units.

(iii) Subject to the applicable provisions of the Award Agreement, if a
Participant’s service with the Company terminates prior to the expiration of the
Restriction Period, all of that Participant’s Restricted Shares or Restricted
Share Units that then remain subject to forfeiture will then be forfeited
automatically.

(iv) If and when the Restriction Period expires without a prior forfeiture of
the Restricted Shares subject to such Restriction Period (or if and when the
restrictions applicable to Restricted Shares lapse, pursuant to Sections 3(d)),
any certificates representing such Shares will be replaced with new
certificates, without the portion restrictive legends described in Section 8(b)
applicable to such lapsed restrictions, and such new certificates will be
promptly delivered to the Participant, the Participant’s representative (if the
Participant has suffered a Disability), or the Participant’s estate or heir (if
the Participant has died).

9. Performance Based Awards.

(a) Performance Awards Generally. The Board may grant Performance Awards in
accordance with this Section 9. Performance Awards may be denominated in Shares
or cash and may be earned based upon achievement or satisfaction of performance
conditions specified by the Board. In addition, the Board may specify that any
other Award shall constitute a Performance Award by conditioning the vesting or
settlement of the Award upon the achievement or satisfaction of such performance
conditions as may be specified by the Board. Subject to Section 9(b), the Board
may use such business criteria or other measures of performance as it may deem
appropriate in establishing the relevant performance conditions and may, in its
discretion, adjust such criteria from time to time.

(b) Qualified Performance-Based Compensation Under Section 162(m). Performance
Awards intended to constitute “qualified performance-based compensation” under
Section 162(m) of the Code will be granted by a Committee composed solely of two
or more “outside directors” (as that term is defined in regulations under
Section 162(m) of the Code) and will be subject to the terms of this
Section 9(b).

(i) Performance Goals. The grant, vesting and/or settlement of a Performance
Award subject to this Section 9(b) will be contingent upon achievement, during a
specified performance period, of one or more of the following business criteria
(subject to adjustment in accordance with Section 9(b)(ii), below): (1) the
attainment of certain target levels of, or a specified percentage increase in,
net sales, revenues, market share, operating income, income before income taxes,
net income, pretax income before allocation of corporate overhead and bonus,
earnings before income tax, earnings before interest and taxes and earnings
before interest, taxes, depreciation and amortization, or a combination of any
or all of the foregoing; (2) the attainment of certain target levels of, or a
percentage increase in, after-tax or pre-tax profits including that attributable
to continuing and/or other operations; (3) the attainment of certain target
levels of, or a specified increase in, operational cash flow; (4) the
achievement of a certain level of, reduction of, or other specified objectives
with regard to limiting the level of increase in, all or a portion of, the
Company’s bank debt or other long-term or short-term public or private debt or
other similar financial obligations of the Company, which may be calculated net
of such cash balances and/or other specified offsets; (5) the attainment of a
specified level of, or specified percentage increase in, earnings per share or
earnings per share from continuing operations; (6) the attainment of certain
target levels of, or a specified increase in, return on capital employed or
return on invested capital or assets; (7) the attainment of certain target
levels of, or a percentage increase in, after-tax or pre-tax return on
stockholders’ equity; (8) appreciation in and/or maintenance of certain target
levels in the Fair Market Value; (9) the attainment of a certain level of,
reduction of, or other specified objectives with regard to limiting the level of
or rate of increase in all or a portion of specified expenses. The performance
goals for a particular performance period need not be the same for all
Participants.

(ii) Adjustments to Performance Goals. The Committee may provide, at the time
performance goals are established in accordance with Section 9(b)(i), that
adjustments will be made to those performance goals to take into account, in any
objective manner specified by the Committee, the impact of one or more of the
following: (1) gain or loss from all or certain claims and/or litigation and
insurance recoveries, (2) the impairment of tangible or

 

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intangible assets, (3) stock-based compensation expense, (4) extraordinary
items, (5) restructuring activities reported in the Company’s public filings,
(6) investments, dispositions or acquisitions, (7) loss from the disposal of
certain assets, (8) gain or loss from the early extinguishment, redemption, or
repurchase of debt, (9) cash or non-cash charges related to store closing
expenses, (10) changes in accounting principles, or (11) any other item, event
or circumstance that would not cause an Award to fail to constitute “qualified
performance-based compensation” under Section 162(m) of the Code. For purposes
of item (4) above, “extraordinary items” shall mean all items of gain, loss or
expense for the fiscal year determined to be extraordinary or unusual in nature
or infrequent in occurrence or related to a corporate transaction (including a
disposition or acquisition) or related to a change in accounting principle, all
as determined in accordance with standards established by Opinion No. 30 of the
Accounting Principles Board. Any adjustment shall be determined in accordance
with generally accepted accounting principles and standards, unless such other
objective method of measurement is designated at the time performance goals are
established. In addition, adjustments will be made as necessary to any
performance goals related to the Company’s capital stock to reflect changes in
corporate capitalization, including a recapitalization, stock split or
combination, stock dividend, spin-off, merger, reorganization or other similar
event or transaction affecting the Company’s capital stock.

(iii) Absolute or Relative Measurements. Performance goals and adjustments
thereto may be established on a Company-wide basis or with respect to one or
more business units, divisions, subsidiaries, affiliates, or products; and in
either absolute terms or relative to the performance of one or more comparable
companies or an index covering multiple companies.

(c) Other Terms of Performance Awards. The Board may specify other terms
pertinent to a Performance Award in the applicable Award Agreement, including
without limitation the treatment of that Award in the event of a Change in
Control prior to the end of the applicable performance period.

10. Amendments and Termination.

The Board may amend, alter or discontinue the Plan at any time, but, except as
otherwise provided in Section 3(d) of the Plan, no amendment, alteration or
discontinuation will be made that would impair the rights of a Participant with
respect to an Award that is outstanding under the Plan without the Participant’s
consent, or that, without the approval of such amendment within one year (365
days) of its adoption by the Board, by a majority of the votes cast at a duly
held shareholder meeting at which a quorum representing a majority of the
Company’s outstanding voting shares is present (either in person or by proxy),
would: (i) increase the total number of Shares reserved for the purposes of the
Plan (except as otherwise provided in Section 3(c)), or (ii) change the persons
or class of persons eligible to receive Awards.

11. Prohibition on Repricing Programs.

The Company will not implement any cancellation/re-grant program pursuant to
which outstanding Options or SARs are cancelled and replaced with new Options or
SARs with a lower exercise price per Share or otherwise reduce the exercise
price of outstanding Options or SARs (other than pursuant to Section 3(c))
without approval of majority of the votes cast at a duly held shareholder
meeting.

12. Limits on Transferability; Beneficiaries.

No Award or other right or interest of a Participant under the Plan shall be
pledged, encumbered, or hypothecated to, or in favor of, or subject to any lien,
obligation, or liability of such Participant to, any party, other than the
Company or any Subsidiary, or assigned or transferred by such Participant
otherwise than by will or the laws of descent and distribution, and such Awards
and rights shall be exercisable during the lifetime of the Participant only by
the Participant or his or her guardian or legal representative. Notwithstanding
the foregoing, the Board may, in its discretion, provide that Awards (other than
Incentive Stock Options) are transferable, without consideration, to immediate
family members (i.e., children, grandchildren or spouses) or to trusts for the
benefit of such immediate family members and/or the Participant. In addition, a
Participant may, in the manner established by the Board, designate a beneficiary
to exercise the rights of the Participant, and to receive any distribution
payable with respect to an Award, upon the death of the Participant. A
beneficiary, guardian, legal representative or other person claiming any rights
under the Plan from or through any Participant shall be subject to all terms and
conditions of the Plan and any Award Agreement applicable to such Participant,
except as otherwise determined by the Board, and to any additional restrictions
deemed necessary or appropriate by the Board.

13. Liability of Company.

(a) If the Company cannot, by the exercise of commercially reasonable efforts,
obtain authority from any regulatory body having jurisdiction over the issuance
of Shares under this Plan, and such authority is deemed by the Company’s counsel
to be necessary to the lawful issuance of those Shares, the Company will be
relieved of any liability for failing to issue those Shares.

 

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(b) If Shares subject to an Award exceed, as of the date of grant, the number of
Shares that may be issued under the Plan without additional shareholder
approval, that Award will be contingent with respect to such excess Shares, on
the effectiveness under applicable law of a sufficient increase in the number of
Shares subject to this Plan.

(c) The Company will pay all amounts payable under this Plan only to the
applicable Participant, or beneficiaries entitled thereto pursuant to this Plan.
The Company will not be liable for the debts, contracts, or engagements of any
Participant or his or her beneficiaries, and rights to cash payments under this
Plan may not be taken in execution by attachment or garnishment, or by any other
legal or equitable proceeding while in the hands of the Company.

14. Unfunded Status of Plan.

The Plan is intended to be “unfunded.” With respect to any payments not yet made
to a Participant by the Company, nothing contained herein will give any such
Participant any rights that are greater than those of a general creditor of the
Company. In its sole discretion, the Board may authorize the creation of grantor
trusts or other arrangements to meet the obligations created under the Plan to
deliver Shares or payments in lieu of Shares or with respect to Awards.

15. General Provisions.

(a) The Board may require any Participant to represent to and agree with the
Company in writing that the Participant is acquiring securities of the Company
for investment purposes and without a view to distribution thereof and as to
such other matters as the Board believes are appropriate. Any certificate
evidencing an Award and any securities issued pursuant thereto may include any
legend which the Board deems appropriate to reflect any restrictions on transfer
and compliance with securities laws.

All certificates for Shares or other securities delivered under the Plan will be
subject to such share-transfer orders and other restrictions as the Board may
deem advisable under the rules, regulations, and other requirements of the
Securities Act of 1933, as amended, the Exchange Act, any stock exchange upon
which the Shares are then listed, and any other applicable Federal or state
securities laws, and the Board may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.

(b) Nothing contained in the Plan will prevent the Board from adopting other or
additional compensation arrangements, subject to shareholder approval if such
approval is required; and such arrangements may be either generally applicable
or applicable only in specific cases.

(c) The adoption of the Plan will not confer upon any person the right to
continued employment or engagement by the Company or such Subsidiary, nor will
it interfere in any way with the right of the Company or such Subsidiary to
terminate the employment or engagement of any of its service providers at any
time.

(d) No later than the date as of which an amount first becomes includable in the
gross income of the Participant for Federal income tax purposes with respect to
any Award, the Participant will pay to the Company, or make arrangements
satisfactory to the Board regarding the payment, of any Federal, state or local
taxes of any kind required by law to be withheld with respect to such amount.
Unless otherwise determined by the Board, the minimum required withholding
obligations may be settled with Shares, including Shares that are part of the
Award that gives rise to the withholding requirement. The obligations of the
Company under this Plan are conditioned on such payment or arrangements and the
Company will, to the extent permitted by law, have the right to deduct any such
taxes from any payment otherwise due to the Participant.

(e) The Company makes no representations or warranties concerning the tax
consequences of participation in the Plan under Code Section 409A or any other
federal, state or local tax law.

(f) By acceptance of any Award, a Participant will be deemed to acknowledge that
such Award will be subject to any clawback policy adopted by the Company, as in
effect from time to time.

 

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16. Effective Date of Plan.

This amended and restated Plan will become effective on the date that it is duly
approved by the Company’s stockholders.

17. Term of Plan.

This Plan will continue in effect until terminated in accordance with
Section 10; provided, however, that no Incentive Stock Option will be granted
hereunder on or after the tenth (10th) anniversary of the date of the most
recent shareholder approval of the Plan; but provided further, that Incentive
Stock Options granted prior to such tenth (10th) anniversary may extend beyond
that date.

18. Invalid Provisions.

In the event that any provision of this Plan is found to be invalid or otherwise
unenforceable under any applicable law, such invalidity or unenforceability will
not be construed as rendering any other provisions contained herein as invalid
or unenforceable, and all such other provisions will be given full force and
effect to the same extent as though the invalid or unenforceable provision was
not contained herein.

19. Governing Law.

This Plan and all Awards made and actions taken thereunder will be governed by
and construed in accordance with the laws and judicial decisions of the State of
Tennessee, without regard to the application of the principles of conflicts of
laws.

20. Board Action.

Notwithstanding anything to the contrary set forth in this Plan, any and all
actions of the Board taken under or in connection with this Plan and any
agreements, instruments, documents, certificates or other writings entered into,
executed, granted, issued and/or delivered pursuant to the terms hereof, will be
subject to and limited by any and all votes, consents, approvals, waivers or
other actions of all or certain stockholders of the Company or other persons
required by:

(i) the Company’s Articles of Incorporation (as the same may be amended and/or
restated from time to time);

(ii) the Company’s Bylaws (as the same may be amended and/or restated from time
to time); and

(iii) any other agreement, instrument, document or writing now or hereafter
existing, between or among the Company and its stockholders or other persons (as
the same may be amended from time to time).

21. Notices.

Any notice to be given to the Company pursuant to the provisions of the Plan
will be addressed to the Company in care of its Secretary (or such other person
as the Company may designate from time to time) at its principal executive
office, and any notice to be given to a Participant will be delivered personally
or addressed to him or her at the address given beneath his or her signature on
his or her Award Agreement, or at such other address as such Participant may
hereafter designate in writing to the Company. Any such notice will be deemed
duly given on the date and at the time delivered via personal, courier or
recognized overnight delivery service or, if sent via telecopier, on the date
and at the time telecopied with confirmation of delivery or, if mailed, on the
date five (5) days after the date of the mailing (which will be by regular,
registered or certified mail). Delivery of a notice by telecopy (with
confirmation) will be permitted and will be considered delivery of a notice
notwithstanding that it is not an original that is received.

 

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