Document:

EXHIBIT 10.2 - LOWE'S COMPANIES, INC. 2006 LONG TERM INCENTIVE PLAN

    

    Exhibit
      10.2

    

    

    LOWE’S
      COMPANIES, INC.

    

    2006
      LONG TERM INCENTIVE PLAN

    

    

    TABLE
      OF CONTENTS

    

      
        	
                ARTICLE
                  I INTRODUCTION AND
                  PURPOSE.....................................................................................................

              	
                1

              
	
                ARTICLE
                  II
                  DEFINITIONS........................................................................................................................................

              	
                1

              
	
                Section
                  2.1

              	
                Administrator....................................................................................

              	
                1

              
	
                Section
                  2.2

              	
                Affiliate..................................................
                  ........................................

              	
                1

              
	
                Section
                  2.3

              	
                Agreement.......................................................................................

              	
                1

              
	
                Section
                  2.4

              	
                Board............................................................................................

              	
                1

              
	
                Section
                  2.5

              	
                Cause.............................................................................................

              	
                1

              
	
                Section
                  2.6

              	
                Change
                  in Control............................................................................

              	
                1

              
	
                Section
                  2.7

              	
                Code............................................................................................

              	
                2

              
	
                Section
                  2.8

              	
                Committee........................................................................................

              	
                2

              
	
                Section
                  2.9

              	
                Common
                  Stock.................................................................................

              	
                2

              
	
                Section
                  2.10

              	
                Company.........................................................................................

              	
                2

              
	
                Section
                  2.11

              	
                Corresponding
                  SAR.........................................................................

              	
                3

              
	
                Section
                  2.12

              	
                Covered
                  Employee........................ ..................................................

              	
                3

              
	
                Section
                  2.13

              	
                Deferred
                  Stock Account.................................................................... 

              	
                3

              
	
                Section
                  2.14

              	
                Deferred
                  Stock
                  Benefit........................................................................

              	
                3

              
	
                Section
                  2.15

              	
                Disability........................................................................................

              	
                3

              
	
                Section
                  2.16

              	
                Effective
                  Date.......................... ........................................................

              	
                3

              
	
                Section
                  2.17

              	
                Exchange
                  Act...................................................................................

              	
                3

              
	
                Section
                  2.18

              	
                Fair
                  Market
                  Value.............................................................................

              	
                3

              
	
                Section
                  2.19

              	
                Good
                  Reason........................ .........................................................

              	
                3

              
	
                Section
                  2.20

              	
                Initial
                  Value....................................
.................................................

              	
                3

              
	
                Section
                  2.21

              	
                Incentive
                  Stock Option......................................................................

              	
                4

              
	
                Section
                  2.22

              	
                Non-Qualified
                  Stock Option......... ....................................................

              	
                4

              
	
                Section
                  2.23

              	
                Option.............................................................................................
                  

              	
                4

              
	
                Section
                  2.24

              	
                Participant......................................................................................
                  

              	
                4

              
	
                Section
                  2.25

              	
                Performance
                  Shares.......................................................................... 

              	
                4

              
	
                Section
                  2.26

              	
                Plan...............................................................................................
                  

              	
                4

              
	
                Section
                  2.27

              	
                Retirement.......................................................................................
                  

              	
                4

              
	
                Section
                  2.28

              	
                SAR..............................................................................................

              	
                4

              
	
                Section
                  2.29

              	
                Stock
                  Award....................................................................................

              	
                4

              
	
                Section
                  2.30

              	
                Subsidiary......................................................................................

              	
                4

              

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              Section
                2.31

            	
              2001
                Plan........................................................................................

            	
              4

            
	
              ARTICLE
                III
                ADMINISTRATION............................................................................................................................

            	
              4

            
	
              ARTICLE
                IV
                ELIGIBILITY.........................................................................................................................................

            	
              5

            
	
              ARTICLE
                V STOCK SUBJECT TO
                PLAN.............................................................................................................

            	
              5

            
	
              Section
                5.1

            	
              Shares
                Issued.....................................................................................

            	
              5

            
	
              Section
                5.2

            	
              Aggregate
                Limit..........................................................................

            	
              5

            
	
              Section
                5.3

            	
              Reallocation
                of Shares..................................................................

            	
              5

            
	
              ARTICLE
                VI
                OPTIONS..............................................................................................................................................

            	
              6

            
	
              Section
                6.1

            	
              Award........................................................................................

            	
              6

            
	
              Section
                6.2

            	
              Option
                Price................................................................................

            	
              6

            
	
              Section
                6.3

            	
              Maximum
                Option Period...............................................................

            	
              6

            
	
              Section
                6.4

            	
              Ten
                Percent Shareholders............................................................

            	
              6

            
	
              Section
                6.5

            	
              Limit
                for Incentive Stock Options..................................................

            	
              6

            
	
              Section
                6.6

            	
              Exercise.....................................................................................

            	
              6

            
	
              Section
                6.7

            	
              Payment....................................................................................

            	
              7

            
	
              Section
                6.8

            	
              Disposition
                of Stock...................................................................

            	
              7

            
	
              ARTICLE
                VII
                SARS....................................................................................................................................................

            	
              7

            
	
              Section
                7.1

            	
              Award........................................................................................

            	
              7

            
	
              Section
                7.2

            	
              Maximum
                SAR Period..................................................................

            	
              7

            
	
              Section
                7.3

            	
              Exercise.....................................................................................

            	
              7

            
	
              Section
                7.4

            	
              Settlement..................................................................................

            	
              7

            
	
              ARTICLE
                VIII STOCK
                AWARDS............................................................................................................................

            	
              7

            
	
              Section
                8.1

            	
              Award........................................................................................

            	
              7

            
	
              Section
                8.2

            	
              Vesting......................................................................................

            	
              8

            
	
              Section
                8.3

            	
              Performance
                Objectives................................................................

            	
              8

            
	
              Section
                8.4

            	
              Shareholder
                Rights.......................................................................

            	
              8

            
	
              ARTICLE
                IX PERFORMANCE SHARE
                AWARDS..............................................................................................

            	
              8

            
	
              Section
                9.1

            	
              Award........................................................................................

            	
              8

            
	
              Section
                9.2

            	
              Earning
                the Award.......................................................................

            	
              8

            
	
              Section
                9.3

            	
              Payment....................................................................................

            	
              9

            
	
              ARTICLE
                X PROVISIONS APPLICABLE TO AWARDS
                GENERALLY........................................................

            	
              9

            
	
              Section
                10.1

            	
              Limits
                on Transfer......................................................................

            	
              9

            
	
              Section
                10.2

            	
              Acceleration
                upon Death or Disability...........................................

            	
              9

            
	
              Section
                10.3

            	
              Acceleration
                upon a Change in
                Control.................................................

            	
              9

            
	
              Section
                10.4

            	
              Acceleration
                for any other Reason................................................

            	
              9

            
	
              Section
                10.5

            	
              Effect
                of Acceleration..................................................................

            	
              9

            
	
              Section
                10.6

            	
              Termination
                of Employment...........................................................

            	
              9

            
	
              Section
                10.7

            	
              Form
                of Payment for Awards.........................................................

            	
              10

            
	
              ARTICLE
                XI MANDATORY DEFERRAL OF STOCK
                AWARDS.....................................................................

            	
              10

            
	
              Section
                11.1

            	
              Deferred
                Stock
                Benefits........................................................................

            	
              10

            
	
              Section
                11.2

            	
              Dividends..................................................................................

            	
              10

            
	
              Section
                11.3

            	
              Distributions..............................................................................

            	
              10

            
	
              Section
                11.4

            	
              Beneficiaries...............................................................................

            	
              10

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              ARTICLE
                XII ADJUSTMENT UPON CHANGE IN COMMON
                STOCK...........................................................

            	
              10

            
	
              ARTICLE
                XIII COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY
                BODIES....................

            	
              11

            
	
              ARTICLE
                XIV GENERAL
                PROVISIONS...............................................................................................................

            	
              11

            
	
              Section
                14.1

            	
              Effect
                on Employment and Service................................................. 

            	
              11

            
	
              Section
                14.2

            	
              Unfunded
                Plan........................................................................ ...

            	
              11

            
	
              Section
                14.3

            	
              Rules
                of Construction...................................................................

            	
              11

            
	
              Section
                14.4

            	
              No
                Rights to Awards................................................................ .

            	
              12

            
	
              Section
                14.5

            	
              No
                Shareholder Rights................................................................

            	
              12

            
	
              Section
                14.6

            	
              Withholding...............................................................................
                

            	
              12

            
	
              Section
                14.7

            	
              Governing
                Law............................................................................. 

            	
              12

            
	
              ARTICLE
                XV AMENDMENT, MODIFICATION, AND
                TERMINATION..........................................................
                

            	
              12

            
	
              Section
                15.1

            	
              Amendment,
                Modification, and Termination................................... 

            	
              12

            
	
              Section
                15.2

            	
              Awards
                Previously Granted..........................................................

            	
              12

            
	
              Section
                15.3

            	
              Deferred
                Stock Benefits................................................................ 

            	
              12

            
	
              Section
                15.4

            	
              Code
                Section 409A Amendments..................................................

            	
              13

            
	
              ARTICLE
                XVI DURATION OF
                PLAN.....................................................................................................................

            	
              13

            
	
              ARTICLE
                XVII EFFECTIVE DATE OF
                PLAN........................................................................................................

            	
              13

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

      LOWE’S
        COMPANIES, INC.

      

      2006
        LONG TERM INCENTIVE PLAN

      

       

      ARTICLE
        I

      INTRODUCTION
        AND PURPOSE

       

      Lowe’s
        Companies, Inc. previously adopted the Lowe’s Companies, Inc. 2001 Incentive
        Plan under which the Company could make equity and cash incentive awards
        to
        employees who contribute significantly to the profits or growth of the
        Company.
        The
        Company desires to replace the 2001 Plan effective as of the Effective Date
        with
        a combination of two plans: (1) the 2006 Long Term Incentive Plan, as set
        forth
        in this document, for the purpose of granting long-term, equity-based awards
        to
        such employees, and (2) the Lowe’s Companies, Inc. 2006 Annual Incentive Plan,
        as set forth in a separate document, for the purpose of granting annual,
        performance-based cash incentive awards to such employees. This
        Plan
        and the 2006 Annual Incentive Plan shall supersede and replace the 2001 Plan
        in
        its entirety, and no further awards shall be granted under the 2001 Plan
        as of
        the Effective Date, provided that
        any
        outstanding awards granted under the 2001 Plan prior to the Effective Date
        shall
        continue to remain outstanding in accordance with the terms thereof.

       

      

       

      ARTICLE
        II

      DEFINITIONS

       

      Section
        2.1 
         Administrator
        means
        the Committee and any delegate of the Committee that is appointed in accordance
        with Article III.

       

      Section
        2.2 
         Affiliate
        means
        any Subsidiary of the Company.

       

      Section
        2.3 
         Agreement
        means a
        written agreement (including any amendment or supplement thereto) between
        the
        Company and a Participant specifying the terms and conditions of a Stock
        Award,
        an award of Performance Shares, an Option or a SAR granted to such
        Participant.

       

      Section
        2.4 
         Board
        means
        the Board of Directors of the Company.

      

      Section
        2.5 
         Cause as
        a
        reason for a Participant’s termination of employment shall have the meaning
        assigned such term in the employment agreement, if any, between such Participant
        and the Company or an Affiliate; provided,
        however,
        that if
        there is no such employment agreement in which such term is defined, “Cause”
shall mean (i) the Participant’s willful and continued failure to perform his or
        her duties with the Company or an Affiliate (other than any such failure
        resulting from incapacity due to physical or mental illness, and specifically
        excluding any failure by the Participant, after reasonable efforts, to meet
        performance expectations), after a written demand for performance is delivered
        to the Participant by his or her supervisor which specifically identifies
        the
        manner in which the Company or an Affiliate believes that the Participant
        has
        not substantially performed his or her duties; or (ii) the willful engaging
        by
        the Participant in illegal conduct or gross misconduct which is materially
        and
        demonstrably injurious to the Company. For purposes of this provision, no
        act or
        failure to act, on the part of the Participant, shall be considered “willful”
unless it is done, or omitted to be done, by the Participant in bad faith
        or
        without reasonable belief that his or her action or omission was in the best
        interests of the Company.

       

      Section
        2.6 
         Change
        in Control means
        the
        occurrence of any one of the following events:

      (i) individuals
        who, at the Effective Date, constitute the Board (the “Incumbent
        Directors”)
        cease
        for any reason to constitute at least a majority of the Board, provided that
        any
        person becoming a director after the Effective Date and whose election or
        nomination for election was approved by a vote of at least a majority of
        the
        Incumbent Directors then on the Board (either by a specific vote or by approval
        of the proxy statement of the Company in which such 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    person
      is
      named as a nominee for director, without written objection to such nomination)
      shall be an Incumbent Director; provided,
      however,
      that no
      individual initially elected or nominated as a director of the Company as a
      result of an actual or threatened election contest (as described in Rule 14a-11
      under the Exchange Act (“Election
      Contest”)
      or
      other actual or threatened solicitation of proxies or consents by or on behalf
      of any “person” (as such term is defined in Section 3(a)(9) of the Exchange Act
      and as used in Section 13(d)(3) and 14(d)(2) of the Exchange Act) other than
      the
      Board (“Proxy
      Contest”),
      including by reason of any agreement intended to avoid or settle any Election
      Contest or Proxy Contest, shall be deemed an Incumbent Director;

    
       

      (ii)
          any
        person becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange
        Act), directly or indirectly, of securities of the Company representing 25%
        or
        more of the combined voting power of the Company’s then outstanding securities
        eligible to vote for the election of the Board (the “Company
        Voting Securities”);
        provided,
        however,
        that
        the event described in this paragraph (ii) shall not be deemed to be a Change
        in
        Control of the Company by virtue of any of the following acquisitions: (A)
        an
        acquisition directly by or from the Company or any Affiliate; (B) an acquisition
        by any employee benefit plan (or related trust) sponsored or maintained by
        the
        Company or any Affiliate, (C) an acquisition by an underwriter temporarily
        holding securities pursuant to an offering of such securities, or (D) an
        acquisition pursuant to a Non-Qualifying Transaction (as defined in paragraph
        (iii)); or

       

      (iii)
         the
        consummation of a reorganization, merger, consolidation, statutory share
        exchange or similar form of corporate transaction involving the Company that
        requires the approval of the Company’s shareholders, whether for such
        transaction or the issuance of securities in the transaction (a “Reorganization”),
        or
        the sale or other disposition of all or substantially all of the Company’s
        assets to an entity that is not an affiliate of the Company (a “Sale”),
        unless immediately following such Reorganization or Sale: (A) more than 60%
        of
        the total voting power of (x) the corporation resulting from such Reorganization
        or the corporation which has acquired all or substantially all of the assets
        of
        the Company (in either case, the “Surviving
        Corporation”),
        or
        (y) if applicable, the ultimate parent corporation that directly or indirectly
        has beneficial ownership of 100% of the voting securities eligible to elect
        directors of the Surviving Corporation (the “Parent
        Corporation”),
        is
        represented by the Company Voting Securities that were outstanding immediately
        prior to such Reorganization or Sale (or, if applicable, is represented by
        shares into which such Company Voting Securities were converted pursuant
        to such
        Reorganization or Sale), and such voting power among the holders thereof
        is in
        substantially the same proportion as the voting power of such Company Voting
        Securities among the holders thereof immediately prior to the Reorganization
        or
        Sale, (B) no person (other than (x) the Company, (y) any employee benefit
        plan
        (or related trust) sponsored or maintained by the Surviving Corporation or
        the
        Parent Corporation, or (z) a person who immediately prior to the Reorganization
        or Sale was the beneficial owner of 25% or more of the outstanding Company
        Voting Securities) is the beneficial owner, directly or indirectly, of 25%
        or
        more of the total voting power of the outstanding voting securities eligible
        to
        elect directors of the Parent Corporation (or, if there is no Parent
        Corporation, the Surviving Corporation), and (C) at least a majority of the
        members of the board of directors of the Parent Corporation (or, if there
        is no
        Parent Corporation, the Surviving Corporation) following the consummation
        of the
        Reorganization or Sale were Incumbent Directors at the time of the Board’s
        approval of the execution of the initial agreement providing for such
        Reorganization or Sale (any Reorganization or Sale which satisfies all of
        the
        criteria specified in (A), (B) and (C) above shall be deemed to be a
“Non-Qualifying
        Transaction”).

       

      Section
        2.7 
         Code
        means
        the Internal Revenue Code of 1986, and any amendments thereto.

       

      Section
        2.8 
         Committee
        means
        the Compensation and Organization Committee of the Board, although,
        at the
        discretion of the Board from time to time, the Plan may be administered by
        the
        Board.
        During
        any time that the Board is acting as Administrator of the Plan, it shall
        have
        all the powers of the Committee hereunder, and any reference herein to the
        Committee (other than in this Section 2.8) shall include the Board. It is
        intended that the directors appointed to serve on the Committee shall be
        “non-employee directors” (within the meaning of Rule 16b-3 promulgated under the
        Exchange Act) and “outside directors” (within the meaning of Code Section 162(m)
        and the regulations thereunder). However, the mere fact that a Committee
        member
        shall fail to qualify under either of the foregoing requirements shall not
        invalidate any award made by the Committee which award is otherwise validly
        made
        under the Plan. The members of the Committee shall be appointed by, and may
        be
        changed at any time and from time to time in the discretion of, the Board.
        

       

      Section
        2.9 
         Common Stock
        means
        the common stock of the Company.

       

      Section
        2.10  Company
        means
        Lowe’s Companies, Inc., a North Carolina corporation.

       

      
        
          
          

        

        
           

          
            

          

        

        
          
          

        

      

    

     

    
      Section
        2.11
         Corresponding
        SAR
        means a
        SAR that is granted in relation to a particular Option and that can be exercised
        only upon the surrender to the Company, unexercised, of that portion of the
        Option to which the SAR relates.

       

      Section
        2.12
         Covered
        Employee
        means a
        Participant who the Administrator determines meets the definition of a covered
        employee as defined in Code Section 162(m)(3) and the regulations promulgated
        thereunder, which definition generally includes the chief executive officer
        of
        the Company and the four highest compensated officers of the Company other
        than
        the chief executive officer.

       

      Section
        2.13
         Deferred
        Stock Account
        means
        that bookkeeping record esta-blished for each Participant who earns a Deferred
        Stock Benefit. A Deferred Stock Account is established only for purposes
        of
        measuring a Deferred Stock Benefit and not to segregate assets or to identify
        assets that may or must be used to satisfy a Deferred Stock Benefit. A Deferred
        Stock Account will be credited with the Deferred Stock Benefits attributable
        to
        forfeited Stock Awards and awards of Performance Shares in accordance with
        Article XI. 

       

      Section
        2.14
         Deferred
        Stock Benefit
        means
        the deferred benefit earned by a Participant in accordance with Section 11.1
        that results in payments governed by Section 11.3.

       

      Section
        2.15
         Disability
        of a
        Participant means a mental or physical disability as determined by the Committee
        in accordance with standards and procedures similar to those under the Company’s
        employee long-term disability plan, if any. At any time that the Company
        does
        not maintain such a long-term disability plan, Disability shall mean any
        illness
        or other physical or mental condition of a Participant that renders the
        Participant incapable of performing his or her customary and usual duties
        for
        the Company, or any medically determinable illness or other physical or mental
        condition resulting from a bodily injury, disease or mental disorder which,
        in
        either case, has lasted or can reasonably be expected to last for at least
        180
        days out of a period of 365 consecutive days. The Committee may require such
        medical or other evidence as it deems necessary to judge the nature and
        permanency of the Participant’s condition. Notwithstanding the above, with
        respect to an Incentive Stock Option, Disability shall mean Permanent and
        Total
        Disability as defined in Section 22(e)(3) of the Code.

       

      Section
        2.16
         Effective
        Date
        means,
        subject to Article XVII, March 24, 2006.

       

      Section
        2.17
         Exchange
        Act
        means
        the Securities Exchange Act of 1934, as amended and as in effect on the date
        of
        this Agreement.

       

      Section
        2.18
         Fair Market Value
        means,
        on any given date, the closing price of a share of Common Stock as reported
        on
        the New York Stock Exchange composite tape on such date, or if the Common
        Stock
        was not traded on the New York Stock Exchange on such day, then on the next
        preceding day that the Common Stock was traded on such exchange, all as reported
        by such source as the Administrator may select.

       

      Section
        2.19
         Good
        Reason
        for a
        Participant’s termination of employment following a Change in Control shall have
        the meaning assigned such term in the employment agreement, if any, between
        such
        Participant and the Company or an Affiliate; provided,
        however,
        that if
        there is no such employment agreement in which such term is defined, “Good
        Reason” shall mean any of the following acts by the Company or an Affiliate
        without the consent of the Participant (in each case, other than an isolated,
        insubstantial and inadvertent action not taken in bad faith and which is
        remedied by the Company or an Affiliate promptly after receipt of notice
        thereof
        given by the Participant): (i) diminution of the Participant’s position,
        authority, title, reporting requirements, duties, or responsibilities as
        in
        effect on the date immediately prior to the Change in Control, or (ii) a
        reduction by the Company or an Affiliate in the Participant’s base salary as in
        effect on the date immediately prior to the Change in Control, or (iii) the
        Company’s requiring the Participant, without his or her consent, to be based at
        any office or location more than 50 miles from the office or location at
        which
        the Participant was based on the date immediately prior to the Change in
        Control, or to travel on Company business to a substantially greater extent
        than
        required immediately prior to the Change in Control.

       

      Section
        2.20
         Initial
        Value
        means,
        with respect to a SAR, the Fair Market Value of one share of Common Stock
        on the
        date of grant.

       

      
        
          
          

        

        
           

          
            

          

        

        
          
          

        

      

    

     

    
      Section
        2.21
         Incentive
        Stock Option means
        an
        Option that is intended to meet the requirements of Section 422 of the Code
        or
        any successor provision thereto.

       

      Section
        2.22
         Non-Qualified
        Stock Option
        means an
        Option that is not an Incentive Stock Option.

       

      Section
        2.23
         Option
        means a
        stock option that entitles the holder to purchase from the Company a stated
        number of shares of Common Stock at the price set forth in an Agreement.
        An
        Option
        may be either an Incentive Stock Option or a Non-Qualified Stock
        Option.

       

      Section
        2.24
         Participant
        means an
        employee of the Company or an Affiliate, including an employee who is a member
        of the Board, who satisfies the requirements of Article IV and is selected
        by
        the Administrator to receive a Stock Award, an award of Performance Shares,
        an
        Option or a SAR or a combination thereof, or who has a Deferred Stock
        Benefit.

       

      Section
        2.25
         Performance
        Shares
        means an
        award, in the amount determined by the Administrator and specified in an
        Agreement, stated with reference to a specified number of shares of Common
        Stock, that in accordance with the terms of an Agreement entitles the holder
        to
        receive a payment for each specified share equal to the Fair Market Value
        of
        Common Stock on the date of payment.

       

      Section
        2.26
         Plan
        means
        the Lowe’s Companies, Inc. 2006 Long Term Incentive Plan, as set forth herein
        and as amended from time to time.

       

      Section
        2.27
         Retirement
        of a
        Participant means the Participant’s voluntary termination of employment on or
        after the later of (i) 90 days after the Participant has provided written
        notice
        to the Company’s Secretary of his or her decision to retire, or (ii) the
        Participant’s attainment of age 60. The term “Retirement” does not include a
        termination of the Participant’s employment by the Company or an Affiliate for
        Cause.

       

      Section
        2.28
         SAR
        means a
        stock appreciation right that in accordance with the terms of an Agreement
        entitles the holder to receive, with respect to each share of Common Stock
        encompassed by the exercise of such SAR, the amount determined by the
        Administrator and specified in an Agreement. In the absence of such a
        determination, the holder shall be entitled to receive, with respect to each
        share of Common Stock encompassed by the exercise of such SAR, the excess
        of the
        Fair Market Value on the date of exercise over the Initial Value. References
        to
“SARs” include both Corresponding SARs and SARs granted independently of
        Options, unless the context requires otherwise.

       

      Section
        2.29
         Stock
        Award
        means
        Common Stock awarded to a Participant under Article VIII.

       

      Section
        2.30
         Subsidiary
        means
        any corporation, limited liability company, partnership or other entity of
        which
        a majority of the outstanding voting stock or voting power is beneficially
        owned
        directly or indirectly by the Company. Notwithstanding the above, with respect
        to an Incentive Stock Option, Subsidiary shall have the meaning set forth
        in
        Section 424(f) of the Code.

       

      Section
        2.31
         2001
        Plan
        means
        the Lowe’s Companies, Inc. 2001 Incentive Plan.

       

      

       

      ARTICLE
        III

      ADMINISTRATION

       

      The
        Plan
        shall be administered by the Administrator. The Administrator shall have
        the
        sole authority to grant Stock Awards, Performance Shares, Options and SARs
        upon
        such terms (not inconsistent with the provisions of the Plan), as the
        Administrator may consider appropriate. Such terms may include conditions
        (in
        addition to those contained in the Plan) on the exercisability of all or
        any
        part of an Option or SAR or on the transferability or forfeitability of a
        Stock
        Award or an award of Performance Shares. Notwithstanding any such conditions,
        pursuant to Article X, the Administrator may, in its discretion, accelerate
        the
        time at which any Option or SAR may be exercised, or the time at which a
        Stock
        Award may become transferable or nonforfeitable or the time at which an award
        of
        Performance Shares may be settled. The Administrator shall have complete
        authority to interpret all provisions of the Plan; to prescribe the form
        of
        Agreements and documents used in 

       

      
        
          
          

        

        
           

          
            

          

        

        
          
          

        

      

       

      connection
        with the Plan; to adopt, amend, and rescind rules and regulations pertaining
        to
        the administration of the Plan; and to make all other determinations necessary
        or advisable for the administration of the Plan. The express grant in the
        Plan
        of any specific power to the Administrator or the Committee shall not be
        construed as limiting any power or authority of the Administrator or the
        Committee. Any decision made, or action taken, by the Adminis-trator or the
        Committee in connection with the administration of the Plan shall be final
        and
        conclu-sive. Neither the Administrator nor any member of the Committee shall
        be
        liable for any act done in good faith with respect to the Plan or any Agreement,
        Option, SAR, Stock Award or award of Performance Shares. All expenses of
        administering the Plan shall be borne by the Company.

      
         

        The
          Committee, in its discretion, may delegate to a special committee consisting
          of
          one or more directors who are also officers of the Company or the Executive
          Committee of the Board, all or part of the Commit-tee’s authority and duties
          with respect to grants and awards to individuals who at the time of grant
          are
          not, and are not anticipated to become, either (i) Covered Employees or
          (ii)
          persons subject to the reporting and other provisions of Section 16 of the
          Exchange Act. The Committee may revoke or amend the terms of a delegation
          at any
          time but such action shall not invalidate any prior actions of the Committee’s
          delegate or delegates that were consistent with the terms of the
          Plan.

         

        

         

        ARTICLE
          IV

        ELIGIBILITY

         

        Any
          employee of the Company or an Affiliate (including a corporation that becomes
          an
          Affiliate after the adoption of the Plan), is eligible to participate in
          the
          Plan if the Administrator, in its sole discretion, determines that such
          person
          has contributed significantly or can be expected to contribute significantly
          to
          the profits or growth of the Company or an Affiliate. Directors of the
          Company
          who are employees of the Company or an Affiliate may be selected to participate
          in the Plan. 

         

        

         

        ARTICLE
          V

        STOCK SUBJECT TO PLAN

         

        Section
          5.1
            Shares
          Issued.
          Upon
          the award of shares of Common Stock pursuant to a Stock Award or in settlement
          of an award of Performance Shares, the Company may issue shares of Common
          Stock
          from its authorized but unissued Common Stock. Upon the exercise of any
          Option
          or SAR or upon distribution of Deferred Stock Benefits the Company may
          deliver
          to the Participant (or the Participant’s broker if the Participant so directs),
          shares of Common Stock from its authorized but unissued Common Stock.

         

        Section
          5.2 
           Aggregate
          Limit.
          This
          document supersedes and replaces the 2001 Incentive Plan, and no further
          awards
          shall be granted under the 2001 Incentive Plan from and after the Effective
          Date, provided that
          any
          outstanding awards under the 2001 Incentive Plan shall continue to remain
          outstanding in accordance with the terms thereof. The
          maximum aggregate number of shares of Common Stock that may be issued under
          the
          Plan pursuant to the exercise of SARs and Options, the grant of Stock Awards
          and
          the settlement of Performance Shares and Deferred Stock Benefits is 25,000,000.
          The maximum aggregate number of shares that may be issued under the Plan
          as
          Stock Awards and in settlement of Performance Shares (or as the portion
          of a
          Deferred Stock Benefit that represents forfeited or deferred shares of
          Common
          Stock subject to such awards) is 7,000,000. Shares of Common Stock issued
          in
          settlement of a Deferred Stock Benefit, and the shares of Common Stock
          subject
          to the Option, Stock Award or Performance Share award (or portion thereof)
          with
          respect to which such Deferred Stock Benefit was earned or elected, shall
          be
          counted toward the foregoing limits only once (even in the case of a shares
          subject to a Stock Award that are cancelled in connection with the Deferred
          Stock Benefit); provided,
          however,
          that
          shares of Common Stock issued in settlement of a Deferred Stock Benefit
          that
          constitute earnings on deferred or forfeited shares of Common Stock shall
          be
          counted separately toward the foregoing limits. The maximum aggregate number
          of
          shares that may be issued under the Plan and the maximum number of shares
          that
          may be issued as Stock Awards, and in settlement of Performance Shares
          (or as
          the portion of a Deferred Stock Benefit that represents forfeited or deferred
          shares of Common Stock subject to such awards) shall be subject to adjustment
          as
          provided in Article XII. 

         

                      
          Section 5.3 
           Reallocation
          of Shares.
          If an
          Option is terminated, in whole or in part, for any reason other than its
          exercise (including an exercise that results in a Deferred Stock Benefit)
          or the
          exercise of a Corresponding SAR that is settled 

         

        
          
            
            

          

          
             

            
              

            

          

          
            
            

          

        

      

    

     

    with
      Common Stock, the number of shares of Common Stock allocated to the Option
      or
      portion thereof may be reallocated to other Options, SARs, Performance Shares
      and Stock Awards to be granted under the Plan and to the settlement of Deferred
      Stock Benefits. If a SAR is terminated, in whole or in part, for any reason
      other than its exercise that is settled with Common Stock or the exercise of
      a
      related Option, the number of shares of Common Stock allocated to the SAR or
      portion thereof may be reallocated to other Options, SARs, Performance Shares
      and Stock Awards to be granted under the Plan and to the settlement of Deferred
      Stock Benefits. If an award of Performance Shares is terminated, in whole or
      in
      part, for any reason other than its settlement with Common Stock (including
      a
      settlement that results in a Deferred Stock Benefit), the number of shares
      of
      Common Stock allocated to the Performance Shares or portion thereof may be
      reallocated to other Options, SARs, Performance Shares and Stock Awards to
      be
      granted under the Plan and to the settlement of Deferred Stock Benefits. If
      a
      Stock Award is forfeited, in whole or in part, for any reason (other than a
      cancellation that results in a Deferred Stock Benefit), the number of shares
      of
      Common Stock allocated to the Stock Award or portion thereof may be reallocated
      to other Options, SARs, Performance Shares and Stock Awards to be granted under
      the Plan, and to the settlement of Deferred Stock Benefits. If a Deferred Stock
      Benefit is forfeited, in whole or in part, the number of shares of Common Stock
      allocated to the Deferred Stock Benefit or portion thereof may be reallocated
      to
      other Options, SARs, Performance Shares and Stock Awards to be granted under
      the
      Plan, and to the settlement of other Deferred Stock Benefits.

    
       

      

       

      ARTICLE
        VI

      OPTIONS

       

      Section
        6.1 
         Award.
        In
        accordance with the provisions of Article IV, the Administrator will designate
        each individual to whom an Option is to be granted and will specify the terms
        of
        the Option, including the vesting schedule, whether the Option is an Incentive
        Stock Option or a Non-Qualified Stock Option, and the number of shares of
        Common
        Stock covered by such awards; provided,
        however,
        that no
        individual may be granted Options in any fiscal year covering more than
        1,000,000 shares of Common Stock; provided
        further,
        however,
        that in
        connection with his or her initial employment with the Company, a Participant
        may be granted Options with respect to up to an additional 1,000,000 shares
        of
        Common Stock, which shall not count against the foregoing annual
        limit.

       

      Section
        6.2 
         Option
        Price.
        The
        price per share for Common Stock purchased on the exercise of an Option shall
        be
        determined by the Administrator on the date of grant, but shall not be less
        than
        the Fair Market Value on the date the Option is granted. 

       

      Section
        6.3 
         Maximum Option Period.
        The
        maximum period in which an Option may be exercised shall be determined by
        the
        Administrator on the date of grant, except that no Option shall be exercisable
        after the expiration of ten years from the date such Option was granted.
        The
        terms of any Option may provide that it is exercisable for a period less
        than
        such maximum period.

       

      Section
        6.4 
         Ten
        Percent Shareholders.
        Notwithstanding Sections 6.2 and 6.3, no Incentive Stock Option shall be
        granted
        to any individual who, at the date of grant, owns stock possessing more than
        10%
        of the total combined voting power of all classes of stock of the Company
        or any
        Affiliate unless the exercise price per share of such Option is at least
        110% of
        the Fair Market Value per share of Common Stock at the date of grant and
        the
        Option expires no later than five years after the date of grant.

       

      Section
        6.5 
         Limit
        for Incentive Stock Options.
        The
        aggregate Fair Market Value (determined as of the time the Option is granted)
        of
        all shares of Common Stock with respect to which Incentive Stock Options
        are
        first exercisable by a Participant in any calendar year may not exceed
        $100,000.

       

      Section
        6.6 
         Exercise.
        Subject
        to the other provisions of the Plan and the applicable Agreement, an Option
        may
        be exercised in whole at any time or in part from time to time at such times
        and
        in compliance with such requirements as the Administrator shall determine.
        An
        Option granted under the Plan may be exercised with respect to any number
        of
        whole shares less than the full number for which the Option could be exercised.
        A partial exercise of an Option shall not affect the right to exercise the
        Option from time to time in accordance with the Plan and the applicable
        Agreement with respect to the remaining shares subject to the Option. The
        exercise of an Option shall result in the termination of any Corresponding
        SAR
        to the extent of the number of shares with respect to which the Option is
        exercised.

       

      
        
          
          

        

        
           

          
            

          

        

        
          
          

        

      

       

      
        Section
          6.7 
           Payment.
          Unless
          otherwise provided by the Agreement, payment of the Option price shall
          be made
          in cash or a cash equivalent acceptable to the Admin-is-trator (including
          “cashless exercise” arrangements).
          If the
          Agreement provides, payment of all or part of the Option price may be made
          by
          surrendering shares of Common Stock to the Company (by attestation of ownership
          or actual delivery of one or more certificates). If Common Stock is used
          to pay
          all or part of the Option price, the sum of the cash and cash equivalent
          and the
          Fair Market Value (determined as of the day preceding the date of exercise)
          of
          the shares surrendered must not be less than the Option price of the shares
          for
          which the Option is being exercised.

         

        Section
          6.8 
           Disposition
          of Stock.
          A
          Participant shall notify the Company of any sale or other disposition of
          Common
          Stock acquired pursuant to an Option that was an Incentive Stock Option
          if such
          sale or disposition occurs (i) within two years of the grant of an Option
          or (ii) within one year of the issuance of the Common Stock to the
          Participant. Such notice shall be in writing and directed to the Secretary
          of
          the Company.

         

        

         

        ARTICLE
          VII

        SARS

         

        Section
          7.1 
           Award.
          In
          accordance with the provisions of Article IV, the Administrator will designate
          each individual to whom SARs are to be granted and will specify the number
          of
          shares covered by such awards; provided,
          however,
          that no
          individual may be granted SARs in any fiscal year covering more than 1,000,000
          shares;
          provided
          further,
          however,
          that in
          connection with his or her initial employment with the Company, a Participant
          may be granted SARs with respect to up to an additional 1,000,000 shares
          of
          Common Stock, which shall not count against the foregoing annual
          limit.
          For
          purposes of the preceding sentence, an Option and Corresponding SAR shall
          be
          treated as a single award. In addition, no Participant may be granted
          Corresponding SARs (under all incentive plans of the Company and its Affiliates)
          that are related to Incentive Stock Options which are first exercisable
          in any
          calendar year for stock having an aggregate Fair Market Value (determined
          as of
          the date the related Option is granted) that exceeds $100,000.

         

        Section
          7.2 
           Maximum
          SAR Period.
          The
          term of each SAR shall be determined by the Administrator on the date of
          grant,
          except that no Corresponding SAR shall have a term of more than ten years
          from
          the date such related Option was granted (or, if Section 6.4 applies, five
          years
          from such date of grant). 

         

        Section
          7.3 
           Exercise.
          Subject
          to the other provisions of the Plan and the applicable Agreement, a SAR
          may be
          exercised in whole at any time or in part from time to time at such times
          and in
          compliance with such requirements as the Administrator shall determine;
          provided,
          however,
          that a
          Corresponding SAR may be exercised only to the extent that the related
          Option is
          exercisable and only when the Fair Market Value exceeds the option price
          of the
          related Option. A SAR granted under the Plan may be exercised with respect
          to
          any number of whole shares less than the full number for which the SAR
          could be
          exercised. A partial exercise of a SAR shall not affect the right to exercise
          the SAR from time to time in accordance with the Plan and the applicable
          Agreement with respect to the remaining shares subject to the SAR. The
          exercise
          of a Corresponding SAR shall result in the termination of the related Option
          to
          the extent of the number of shares with respect to which the SAR is
          exercised.

         

        Section
          7.4 
           Settlement.
          At the
          Administrator’s discretion, the amount payable as a result of the exercise of a
          SAR may be settled in cash, Common Stock, or a combination of cash and
          Common
          Stock. No fractional share will be deliverable upon the exercise of a SAR
          but a
          cash payment will be made in lieu thereof.

         

        

         

        ARTICLE
          VIII

        STOCK
          AWARDS

         

        Section
          8.1 
           Award.
          In
          accordance with the provisions of Article IV, the Administrator will designate
          each individual to whom a Stock Award is to be made and will specify the
          number
          of shares of Common Stock covered by such awards; provided,
          however,
          that no
          Participant may receive Stock Awards in any fiscal year for more than 300,000
          shares of Common Stock.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        
           

          Section
            8.2 
             Vesting.
            A
            Participant’s rights in a Stock Award shall be forfeitable or otherwise
            restricted for a period of time or subject to such conditions as may
            be set
            forth in the Agreement. The period of restriction shall be at least three
            years;
provided,
            however,
            that
            the minimum period of restriction shall be at least one year in the case
            of a
            Stock Award that will become transferable and nonforfeitable on account
            of the
            satisfaction of performance objectives prescribed by the
            Administrator.

           

          Section
            8.3 
             Performance
            Objectives.
            In
            accordance with Section 8.2, the Administrator may prescribe that Stock
            Awards
            will become vested or transferable or both based on objectives stated
            with
            respect to (i)
            the
            Company’s earnings before interest and taxes (EBIT), (ii)
            the
            Company’s earnings before taxes, (iii)
            the
            Company’s earnings before taxes in relation to non-cash beginning assets
            (beginning assets less beginning cash and short-term investments), (iv)
            the
            achievement by the Company, an Affiliate or an operating unit of stated
            objectives with respect to return on equity, earnings per share, total
            earnings,
            earnings growth, return on capital, or return on assets, (v)
            Fair
            Market Value, (vi)
            revenues, (vii)
            total
            shareholder return, (viii)
            operating earnings or margin, (ix)
            economic profit or value created, (x)
            strategic business criteria consisting of one or more objectives based
            on
            meeting specified goals relating to market penetration, geographic business
            expansion, cost targets, customer or employee satisfaction, human resources
            management, supervision of litigation or information technology or acquisitions
            or divestitures of subsidiaries, affiliates or joint ventures, or (xi)
            any
            combination of the foregoing. If the Administrator, on the date of award,
            prescribes that a Stock Award shall become nonforfeitable and transferable
            only
            upon the attainment of performance objectives stated with respect to
            one or more
            of the foregoing criteria, the shares subject to such Stock Award shall
            become
            nonforfeitable and transferable only to the extent that the Administrator
            certifies that such objectives have been achieved.

           

          Section
            8.4 
             Shareholder
            Rights.
            Prior
            to
            their forfeiture in accordance with the terms of the applicable Agreement,
            a
            Participant will have all rights of a shareholder with respect to a Stock
            Award
            unless such rights are limited by the terms of the applicable Agreement,
            including the right to receive dividends and vote the shares; provided,
            however,
            that
            during such period (i) except as provided in Section 10.1, a Participant
            may not
            sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of
            shares of
            Common Stock granted pursuant to a Stock Award, (ii) the Company shall
            retain
            custody of the shares of Common Stock granted pursuant to a Stock Award,
            and
            (iii) the Participant will deliver to the Company a stock power, endorsed
            in
            blank, with respect to each Stock Award. The limitations set forth in
            the
            preceding sentence shall not apply after the shares of Common Stock granted
            under the Stock Award are transferable and are no longer
            forfeitable.

           

          

           

          ARTICLE
            IX

          PERFORMANCE
            SHARE AWARDS

           

          Section
            9.1 
             Award.
            In
            accordance with the provisions of Article IV, the Adminis-trator will
            designate each individual to whom an award of Performance Shares is to
            be made
            and will specify the number of shares of Common Stock covered by such
            awards;
provided,
            however,
            that no
            Participant may receive an award of Performance Shares in any fiscal
            year for
            more than 300,000 shares of Common Stock.

           

          Section
            9.2 
             Earning
            the Award.
            The
            Administrator, on the date of the grant of an award, shall prescribe
            that the
            Performance Shares, or portion thereof, will be earned, and the Participant
            will
            be entitled to receive payment pursuant to the award of Performance Shares,
            only
            upon the satisfaction of performance objectives and such other criteria
            as may
            be prescribed by the Administrator during a performance measurement period
            of at
            least one year. The performance objectives may be stated with respect
            to
            (i)
            the
            Company’s earnings before interest and taxes (EBIT), (ii)
            the
            Company’s earnings before taxes, (iii)
            the
            Company’s earnings before taxes in relation to non-cash beginning assets
            (beginning assets less beginning cash and short-term investments), (iv)
            the
            achievement by the Company, an Affiliate or an operating unit of stated
            objectives with respect to return on equity, earnings per share, total
            earnings,
            earnings growth, return on capital, or return on assets, (v)
            Fair
            Market Value, (vi)
            revenues, (vii)
            total
            shareholder return, (viii)
            operating earnings or margin, (ix)
            economic profit or value created, (x)
            strategic business criteria consisting of one or more objectives based
            on
            meeting specified goals relating to market penetration, geographic business
            expansion, cost targets, customer or employee satisfaction, human resources
            management, supervision of litigation or information technology or acquisitions
            or divestitures of subsidiaries, affiliates or joint ventures, or (xi)
            any
            combination of the foregoing. No payments will be made with respect to
            Performance Shares unless, and then only to the extent that, the Administrator
            certifies that stated objectives have been achieved.

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        
          Section
            9.3 
             Payment.
            In the
            discretion of the Administrator, the amount payable when an award of
            Performance
            Shares is earned may be settled in cash, by the issuance of Common Stock
            or a
            combination of cash and Common Stock. A fractional share shall not be
            deliverable when an award of Performance Shares is earned, but a cash
            payment
            will be made in lieu thereof.

           

          

           

          ARTICLE
            X

          PROVISIONS
            APPLICABLE TO AWARDS GENERALLY

           

          Section
            10.1 
            Limits
            on Transfer.
            No
            right or interest of a Participant in any unexercised or restricted award
            issued
            under the Plan may be pledged, encumbered, or hypothecated to or in favor
            of any
            party other than the Company or an Affiliate, or shall be subject to
            any lien,
            obligation, or liability of such Participant to any other party other
            than the
            Company or an Affiliate. No unexercised or restricted award shall be
            assignable
            or transferable by a Participant other than by will or the laws of descent
            and
            distribution.

           

          Section
            10.2
             Acceleration
            upon Death or Disability.
            Except
            as otherwise provided in the Agreement, upon the Participant’s death or
            Disability during his or her employment, all outstanding Options and
            SARs shall
            become fully exercisable and all restrictions and performance conditions
            on
            outstanding Stock Awards and Performance Shares shall lapse. Any Option
            or SARs
            shall thereafter continue or lapse in accordance with the other provisions
            of
            the Plan and the Agreement. To the extent that this provision causes
            Incentive
            Stock Options to exceed the $100,000 limitation set forth in Section
            6.5, the
            excess Options shall be deemed to be Non-Qualified Stock Options.

           

          Section
            10.3
             Acceleration
            upon a Change in Control.
            Except
            as otherwise provided in the Agreement, upon termination of a Participant’s
            employment by the Company without Cause, or by the Participant for Good
            Reason,
            within a period of one year following the occurrence of a Change in Control,
            all
            outstanding Options and SARs held by such Participant shall become fully
            exercisable and all restrictions and performance conditions on outstanding
            Stock
            Awards and awards of Performance Shares held by such Participant shall
            lapse. To
            the extent that this provision causes Incentive Stock Options to exceed
            the
            $100,000 limitation set forth in Section 6.5, the excess Options shall
            be deemed
            to be Non-Qualified Stock Options.

           

          Section
            10.4
             Acceleration
            for any other Reason.
            Regardless of whether an event has occurred as described in Section 10.3
            above,
            the Committee may in its sole discretion at any time determine that all
            or a
            portion of a Participant’s Options or SARs shall become fully or partially
            exercisable, or that all or a part of the restrictions and performance
            conditions on all or a portion of any outstanding Stock Awards and Performance
            Shares shall lapse, in either case, as of such date as the Committee
            may, in its
            sole discretion, declare. The Committee may discriminate among Participants
            and
            among awards granted to a Participant in exercising its discretion pursuant
            to
            this Section 10.4. To the extent that this provision causes Incentive
            Stock
            Options to exceed the $100,000 limitation set forth in Section 6.5, the
            excess
            Options shall be deemed to be Non-Qualified Stock Options.

           

          Section
            10.5  Effect
            of Acceleration.
            If an
            award is accelerated under the Plan in connection with a particular business
            transaction, the Committee may, in its sole discretion, provide (i) that
            the
            award will expire after a designated period of time after such acceleration
            to
            the extent not then exercised, (ii) that the award will be settled in
            cash
            rather than Common Stock, (iii) that the award will be assumed by another
            party
            to the transaction giving rise to the acceleration or otherwise be equitably
            converted in connection with such transaction, or (iv) any combination
            of the
            foregoing. The Committee’s determination need not be uniform and may be
            different for different Participants whether or not such Participants
            are
            similarly situated.

           

                         Section
            10.6
             Termination
            of Employment.
            Whether
            military, government or other service or other leave of absence shall
            constitute
            a termination of employment shall be determined in each case by the Committee
            at
            its discretion, and any determination by the Committee shall be final
            and
            conclusive. A termination of employment shall not occur (i) in a circumstance
            in
            which a Participant transfers from the Company to one of its Parents
            or
            Subsidiaries, transfers from an Affiliate to the Company, or transfers
            from one
            Affiliate to another Affiliate, or (ii) in the discretion of the Committee
            as
            specified at or prior to such occurrence, in the case of a spin-off,
            sale or
            disposition of the Participant’s employer from the Company or any Affiliate. To
            the extent that this provision causes Incentive Stock Options to extend
            beyond
            three 

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

        

      

    

     

    months
      from the date a Participant is deemed to be an employee of the Company or an
      Affiliate for purposes of Section 424(f) of the Code, the Options held by such
      Participant shall be deemed to be Non-Qualified Stock Options.

    
       

      Section
        10.7
         Form
        of Payment for Awards.
        Subject
        to the terms of the Plan and any applicable law or Agreement, payments or
        transfers to be made by the Company or an Affiliate on the grant or exercise
        of
        an award may be made in such form as the Committee determines at or after
        the
        time of grant, including without limitation, cash, Common Stock, other awards,
        or other property, or any combination, and may be made in a single payment
        or
        transfer, in installments, or on a deferred basis, in each case determined
        in
        accordance with rules adopted by, and at the discretion of, the
        Committee.

       

      

       

      ARTICLE
        XI

      MANDATORY
        DEFERRAL OF STOCK AWARDS

       

      Section
        11.1
         Deferred
        Stock Benefits.
        A
        Deferred Stock Benefit will be earned by any Participant whose applicable
        employee remuneration, as defined in Code Section 162(m)(4), would exceed
        the
        limit in Code Section 162(m)(1). Such Deferred Stock Benefit shall consist
        of a
        credit equal to the portion of a Stock Award or an award of Performance Shares
        that, pursuant to procedures established by the Administrator, was forfeited
        because its vesting or transferability, or its settlement, would have caused
        the
        limit in Code Section 162(m)(1) to be exceeded. Deferred Stock Benefits will
        be
        credited to a Deferred Stock Account and credited with earnings as described
        in
        Section 11.2. Deferred Stock Awards attributable to forfeited Stock Awards
        and
        Performance Share Awards will be credited as soon as practicable after the
        applicable award or portion thereof has been forfeited. Deferred Stock Benefits
        may not be assigned by a Participant.

      

      Section
        11.2
         Dividends.
        A
        Deferred Stock Account shall be credited with any dividends that would have
        been
        paid on the whole shares of Common Stock credited to the Deferred Stock Account.
        A Deferred Stock Account shall be credited with the number of whole and
        fractional shares of Common Stock that a Participant could have purchased
        with
        such dividends based on the Fair Market Value on the day before such dividends
        are credited to the account. The Deferred Stock Account shall be credited
        as of
        the day that dividends are paid on the Common Stock.

      

      Section
        11.3
         Distributions.
        Deferred Stock Benefits will be paid to a Participant in a single sum no
        later
        than the last day of the Company’s fiscal year in which the distribution would
        not result in the Participant’s applicable employee remuneration, as defined in
        Code Section 162(m)(4), to exceed the limit in Code Section 162(m)(1). A
        Deferred Stock Benefit must be distributed in shares of Common Stock, and
        cash
        in lieu of fractional shares, equal to the number of whole and fractional
        shares
        of Common Stock credited to the Participant’s Deferred Stock Account on the last
        day of the month preceding the month of distribution. Notwithstanding
        the foregoing, no payments
        of Deferred Stock Benefits to a “key employee” (as defined in Code Section 409A)
        shall be made prior to the date required to comply with Code Section
        409A.

      

      Section
        11.4
         Beneficiaries.
        A
        Participant may designate one or more beneficiaries, on a form acceptable
        to the
        Administrator or its designee, to receive the Participant’s Deferred Stock
        Benefits in the event of the Participant’s death. If there is no valid
        designation by the Participant, or if the designated beneficiary fails to
        survive the Participant or otherwise fails to take the benefit, the
        Participant’s beneficiary is the first of the following who survives the
        Participant: a Participant’s spouse (the person legally married to the
        Participant at the time of the Participant’s death), the Participant’s children
        in equal shares, and the Participant’s estate.

       

      

       

      ARTICLE
        XII

      ADJUSTMENT
        UPON CHANGE IN COMMON STOCK

       

      In
        the
        event of a corporate transaction involving the Company (including, without
        limitation, any stock dividend, stock split, extraordinary cash dividend,
        recapitalization, reorganization, merger, consolidation, split-up, spin-off,
        combination or exchange of shares), the authorization limits under Sections
        5.2,
        6.1, 6.5, 7.1, 8.1, and 9.1 shall be adjusted proportionately, and the Committee
        may adjust Options, SARs, Performance Shares, Stock Awards and Deferred Stock
        Benefits to preserve the benefits or potential benefits of such awards. Action
        by the Committee may include: (i) 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

      adjustment
        of the number and kind of shares which may be delivered under the Plan; (ii)
        adjustment of the number and kind of shares subject to outstanding awards;
        (iii)
        adjustment of the exercise price of outstanding awards; and (iv) any other
        adjustments that the Committee determines to be equitable. Without limiting
        the
        foregoing, in the event a stock dividend or stock split is declared upon
        the
        Common Stock, the authorization limits under Sections 5.2, 6.1, 6.5, 7.1,
        8.1,
        and 9.1 shall be increased proportionately, and the shares of Common Stock
        then
        subject to each Option, SAR, Performance Share, Stock Award and Deferred
        Stock
        Benefit shall be increased proportionately without any change in the aggregate
        purchase price therefor.

       

      The
        issuance by the Company of shares of stock of any class, or securities
        convertible into shares of stock of any class, for cash or property, or for
        labor or services, either upon direct sale or upon the exercise of rights
        or
        warrants to subscribe therefor, or upon conversion of shares or obligations
        of
        the Company convertible into such shares or other securities, shall not affect,
        and no adjustment by reason thereof shall be made with respect to, the maximum
        number of shares as to which Options, SARs, Performance Shares and Stock
        Awards
        may be granted or the maximum number of shares that may be distributed as
        Deferred Stock Benefits; the per individual limitations on the number of
        shares
        for which Options, SARs, Performance Shares and Stock Awards may be granted;
        or
        the terms of outstanding Stock Awards, Options, Performance Shares or SARs
        or
        undistributed Deferred Stock Benefits.

       

      The
        Committee may make Stock Awards and may grant Options, SARs, and Performance
        Shares in substitution for similar awards held by an individual who becomes
        an
        employee of the Company or an Affiliate in connection with a transaction
        described in the first paragraph of this Article XII. Notwithstanding any
        provision of the Plan (other than the limitation of Section 5.2), the terms
        of
        such substituted awards shall be as the Committee, in its discretion, determines
        is appropriate.

       

      

       

      ARTICLE
        XIII

      COMPLIANCE
        WITH LAW AND

      APPROVAL
        OF REGULATORY BODIES

       

      No
        Option
        or SAR shall be exercisable, no Common Stock shall be issued, no shares of
        Common Stock shall be delivered, and no payment shall be made under the Plan
        except in compliance with all applicable federal and state laws and regulations
        (including, without limitation, withholding tax requirements), any listing
        agreement to which the Company is a party, and the rules of all domestic
        stock
        exchanges on which the Company’s shares may be listed. The Company shall have
        the right to rely on an opinion of its counsel as to such compliance. Any
        share
        certificate issued to evidence Common Stock when a Stock Award is granted,
        a
        Performance Share is settled or for which an Option or SAR is exercised may
        bear
        such legends and statements as the Administrator may deem advisable to assure
        compliance with federal and state laws and regulations. No Option or SAR
        shall
        be exercisable, no Stock Award or Performance Share shall be granted, no
        Common
        Stock shall be issued, no certificate for shares shall be delivered, and
        no
        payment shall be made under the Plan until the Company has obtained such
        consent
        or approval as the Administrator may deem advisable from regulatory bodies
        having jurisdiction over such matters.

       

      

       

      ARTICLE
        XIV

      GENERAL PROVISIONS

       

      Section
        14.1
         Effect on Employment
        and Service.
        Neither
        the adoption of the Plan, its operation, nor any documents describing or
        referring to the Plan (or any part thereof), shall confer upon any individual
        any right to continue in the employ or service of the Company or an Affiliate
        or
        in any way affect any right and power of the Company or an Affiliate to
        terminate the employment or service of any individual at any time with or
        without assigning a reason therefor.

       

                     
        Section 14.2
         Unfunded Plan.
        The
        Plan, insofar as it provides for grants, shall be unfunded, and the Company
        shall not be required to segregate any assets that may at any time be
        represented by grants under the Plan. Any liability of the Company to any
        person
        with respect to any grant under the Plan shall be based solely upon any
        contractual obligations that 

    

     

    
      
        
        

      

      
         

        
          

        

      

      
        
        

      

    

    may
      be
      created pursuant to the Plan. No such obli-gation of the Company shall be deemed
      to be secured by any pledge of, or other encumbrance on, any property of the
      Company.

     

    Section
      14.3
       Rules of Construction.
      Headings are given to the articles and sections of the Plan solely as a
      convenience to facilitate reference. The reference to any statute, regulation,
      or other provision of law shall be construed to refer to any amendment to or
      successor of such provision of law.

     

    Section
      14.4
       No
      Rights to Awards.
      No
      Participant or any eligible participant shall have any claim to be granted
      any
      award under the Plan, and neither the Company nor the Committee is obligated
      to
      treat Participants or eligible participants uniformly.

     

    Section
      14.5
       No
      Shareholder Rights.
      Subject
      to Section 8.4, no award gives the Participant any of the rights of a
      shareholder of the Company unless and until shares of Common Stock are in fact
      issued to such person in connection with such award.

     

    Section
      14.6
       Withholding.
      The
      Company or any Affiliate shall have the authority and the right to deduct or
      withhold, or require a Participant to remit to the Company, an amount sufficient
      to satisfy federal, state, and local taxes (including the Participant’s FICA
      obligation) required by law to be withheld with respect to any taxable event
      arising as a result of the Plan. With respect to withholding required upon
      any
      taxable event under the Plan, the Committee may, at the time the award is
      granted or thereafter, require or permit that any such withholding requirement
      be satisfied, in whole or in part, by withholding from the award shares of
      Common Stock having a Fair Market Value on the date of withholding equal to
      the
      minimum amount (and not any greater amount) required to be withheld for tax
      purposes, all in accordance with such procedures as the Administrator
      establishes.

     

    Section
      14.7 Governing
      Law.
      To the
      extent not governed by federal law, the Plan and all Agreements shall be
      construed in accordance with and governed by the laws of the State of North
      Carolina.

     

    

     

    ARTICLE
      XV

    AMENDMENT,
      MODIFICATION, AND TERMINATION

     

    Section
      15.1
       Amendment,
      Modification, and Termination.
      The
      Committee may, at any time and from time to time, amend, modify or terminate
      the
      Plan without shareholder approval; provided,
      however,
      that
      the Committee may condition any amendment or modification on the approval of
      shareholders of the Company if such approval is necessary or deemed advisable
      with respect to tax, securities or other applicable laws, policies or
      regulations. 

     

    Section
      15.2
       Awards
      Previously Granted.
      At any
      time and from time to time, the Committee may amend, modify or terminate any
      outstanding award without approval of the Participant; provided,
      however,
      that,
      subject to the terms of the applicable Agreement, such amendment, modification
      or termination shall not, without the Participant’s consent, reduce or diminish
      the value of such award determined as if the award had been exercised, vested,
      cashed in or otherwise settled on the date of such amendment or
      termination; and
      provided further that the original term of any Option may not be extended and,
      except as otherwise provided in the anti-dilution provision of the Plan, the
      exercise price of any Option may not be reduced. No termination, amendment,
      or
      modification of the Plan shall adversely affect any award previously granted
      under the Plan, without the written consent of the Participant. 

    

    Section
      15.3
       Deferred
      Stock Benefits.
      Notwithstanding the provisions of Section 15.1, except
      for an
      amendment or termination of the Plan caused by the deter-mination of the Board
      that the laws upon which the Plan is based have changed in a manner that negates
      the Plan’s objectives, the Board may not alter, amend, suspend, or terminate the
      terms of the Plan applicable to Deferred
      Stock
      Benefits
      without
      the majority consent of all Participants for whom a Deferred Stock Account
      is
      maintained at the time of the amendment or termination if that action would
      result either in a distribution of all Deferred Stock Benefits in any manner
      other than as provided in this Plan or that would result in immediate taxation
      of Deferred Stock Benefits to applicable Participants. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      Section
        15.4
         Code
        Section 409A Amendments.
        Notwithstanding any other provision of this Article XV, the
        Committee may amend or modify the Plan or any outstanding Option, SAR, Stock
        Award, Performance Share award or Deferred Stock Benefit without the approval
        of
        any Participant or beneficiary to the extent necessary to cause the Plan
        or such
        award to comply with the requirements of Sections 409A(a)(2), (3) and (4)
        of the
        Code (as amended by the American Jobs Creation Act of 2004) and any rules
        or
        regulations issued thereunder by the United States Department of the
        Treasury.

       

      

       

      ARTICLE
        XVI

      DURATION OF PLAN

       

      No
        Stock
        Award, Performance Share award, Option or SAR may be granted under the Plan
        after March 1, 2016. Stock Awards, Performance Shares awards, Options and
        SARs
        granted before that date shall remain valid in accordance with their terms.
        The
        Plan shall remain in effect with respect to Deferred Stock Benefits until
        all
        Deferred Stock Accounts have been distributed in full, unless sooner terminated
        by the Board in accordance with Article XV.

       

      

       

      ARTICLE
        XVII

      EFFECTIVE DATE OF PLAN

       

      Options,
        SARs and Performance Shares may be granted under the Plan on or after the
        Effective Date, provided that no Option, SAR or Performance Shares shall
        be
        effective or exercisable unless the Plan is approved by a majority of the
        votes
        cast by the Company’s shareholders, voting either in person or by proxy, at a
        duly held shareholders’ meeting at which a quorum is present. Stock Awards may
        be granted under the Plan on or after its approval by shareholders in accordance
        with the preceding sentence.Exhibit 10.1(b)

             Schedule of Secured Convertible Note (demand) Issued by
              NCT Group, Inc. to Carole Salkind on August 31, 2006

Issue Date          Due Date           Principal           Conversion Price
----------          --------           ---------           ----------------
 08/31/06        Earlier of:           $550,000        Greater of:  (i) $0.0037;
                 (i) demand;                           or (ii) the par value of
                 or (ii) 02/28/07                      NCT Group, Inc. common
                                                       stock on the date of
                                                       conversion

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