Document:

Alpha 2012 Long-Term Incentive Plan

Exhibit 10.1

ALPHA NATURAL RESOURCES, INC. 
AMENDED AND RESTATED 2012 LONG-TERM INCENTIVE PLAN
Section 1.    Purpose.  The purpose of this Plan is to advance the interests of Alpha and its stockholders by providing incentives to certain Eligible Persons who contribute significantly to the strategic and long-term performance objectives and growth of the Company.
Section 2.    Definitions.  Certain capitalized terms applicable to this Plan are set forth in Appendix A.
Section 3.    Administration.  This Plan shall be administered by the Committee.  The Committee shall have all the powers vested in it by the terms of this Plan, such powers to include, but not limited to, exclusive authority to select the Eligible Persons to be granted Awards under this Plan, to determine the type, size, terms and conditions of the Award to be made to each Eligible Person selected, to modify or waive the terms and conditions of any Award that has been granted, to determine the time when Awards will be granted, to establish performance objectives, to make any adjustments necessary or desirable as a result of the granting of Awards to Eligible Persons located outside the United States, to prescribe the form of the agreements evidencing Awards made under this Plan, and to incorporate clawback or other recoupment provisions to Awards granted hereunder.  Awards may, in the discretion of the Committee, be made under this Plan in assumption of, or in substitution for, outstanding Awards previously granted by (i) the Company, (ii) any predecessor of the Company, or (iii) a company acquired by the Company or with which the Company combines.  The number of Common Shares underlying such substitute awards shall be counted against the aggregate number of Common Shares available for Awards under this Plan.
The Committee is authorized to interpret this Plan and the Awards granted under this Plan, to establish, amend and rescind any rules and regulations relating to this Plan, and to make any other determinations that it deems necessary or desirable for the administration of this Plan.  The Committee may correct any defect or omission or reconcile any inconsistency in this Plan or in any Award in the manner and to the extent the Committee deems necessary or desirable to carry it into effect.  Any decision of the Committee in the interpretation and administration of this Plan, as described in this Plan, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Participants and their Beneficiaries or Permitted Transferees).  The Committee may act only by a majority of its members, except that the members thereof may authorize any one or more of their members or any officer of the Company to execute and deliver documents or to take any other ministerial action on behalf of the Committee with respect to Awards made or to be made to Participants.
No member of the Committee and no officer of the Company shall be liable for anything done or omitted to be done by such member or officer, by any other member of the Committee or by any other officer of the Company in connection with the performance of duties under this Plan, except for his or her own willful misconduct or as expressly provided by statute.  In addition to all other rights of indemnification and reimbursement to which a member of the Committee and an officer of the Company may be entitled, the Company shall indemnify and hold harmless each such member or officer who was or is a party or is threatened to be made a 

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party to any threatened, pending or completed proceeding or suit in connection with the performance of duties under this Plan against expenses (including reasonable attorneys’ fees), judgments, fines, liabilities, losses and amounts paid in settlement actually and reasonably incurred by him or her in connection with such proceeding or suit, except for his or her own willful misconduct or as expressly provided otherwise by statute.  Expenses (including reasonable attorneys’ fees) incurred by such a member or officer in defending any such proceeding or suit shall be paid by the Company in advance of the final disposition of such proceeding or suit upon receipt of a written affirmation by such member or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification and a written undertaking by or on behalf of such member or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company as authorized in this Section.
Section 4.    Participation.  Consistent with the purposes of this Plan, the Committee shall have exclusive power to select the Eligible Persons who may participate in this Plan and be granted Awards under this Plan.  Eligible Persons may be selected individually or by groups or categories, as determined by the Committee in its discretion.
Section 5.    Awards under this Plan.
(a)    Types of Awards.  Awards under this Plan may include, but need not be limited to, one or more of the following types, either alone or in any combination thereof: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Restricted Stock Units, (v) Performance Grants and (vi) any other type of Award deemed by the Committee in its discretion to be consistent with the purposes of this Plan (including, but not limited to, Other Share-Based Awards, and Awards to be made to Participants who are foreign nationals or are employed or performing services outside the United States).
(b)    Maximum Number of Common Shares that May be Issued.  The maximum aggregate number of Common Shares available for issuance under Awards granted under this Plan, including Incentive Stock Options, shall not exceed the sum of (i) 13,100,000 and (ii) the number of Common Shares that are represented by restricted stock unit and performance awards which previously have been granted and are outstanding under the Alpha Natural Resources, Inc. 2010 Long-Term Incentive Plan as of May 17, 2012 that result from the expiration or lapse of such awards, are forfeited or cancelled, or result from such awards being settled without the delivery of the full number of Common Shares underlying such awards or are settled for cash, at any time after May 17, 2012.  No Eligible Person may be granted: (i) Stock Options or Stock Appreciation Rights under this Plan for more than 750,000 Common Shares in any one fiscal year of the Company; (ii) Performance Grants (denominated in Common Shares) under this Plan for more than 1,500,000 Common Shares in any one fiscal year of the Company (valued at target performance on the grant date of the award) and (iii) Performance Grants (denominated in cash) under this Plan for more than $10,000,000 in any one fiscal year of the Company (valued at target performance 

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on the grant date of the award).  No non-employee director of the Board may be granted Award(s) (denominated in Common Shares) in excess of 50,000 Common Shares under this Plan in any one fiscal year of the Company.  The foregoing limitations shall be subject to adjustment as provided in Section 16.  Common Shares issued pursuant to this Plan may be either authorized but unissued shares, treasury shares, reacquired shares or any combination thereof.  If any award is forfeited or cancelled, or terminates unexercised, or if an award is otherwise settled without the delivery of the full number of Common Shares underlying the award (including in connection with the payment of withholding taxes), then such Common Shares shall be or become available for issuance under this Plan; provided, however, that Common Shares (i) delivered in payment of the exercise price of a Stock Option or (ii) not issued upon settlement of Stock Appreciation Rights shall not become available again for issuance under this Plan.   To the extent that any Awards are paid in cash, and not in Common Shares, such Awards shall not count against the aggregate share limit under this Plan.  
(c)    Rights with Respect to Common Shares and Other Securities.  Except as provided in subsection 8(c) with respect to Awards of Restricted Stock and unless otherwise determined by the Committee in its discretion, a Participant to whom an Award is made (and any Person succeeding to such a Participant’s rights pursuant to this Plan) shall have no rights as a stockholder with respect to any Common Shares or as a holder with respect to other securities, if any, issuable pursuant to any such Award until the date a stock certificate evidencing such Common Shares or other evidence of ownership is issued to such Participant or until Participant’s ownership of such Common Shares shall have been entered into the books of the registrar in the case of uncertificated shares.
Section 6.    Stock Options.  The Committee may grant Stock Options; provided that an Incentive Stock Option may be granted only to Eligible Persons who are employees of Alpha or any parent or subsidiary of Alpha within the meaning of Code Sections 424(e) and (f), including a subsidiary which becomes such after adoption of the Plan. Each Stock Option granted or sold under this Plan shall be evidenced by an agreement in such form as the Committee shall prescribe from time to time in accordance with this Plan and shall comply with the applicable terms and conditions of this Section and this Plan, and with such other terms and conditions, including, but not limited to, restrictions upon the Stock Option or the Common Shares issuable upon exercise thereof, as the Committee, in its discretion, shall establish.
(a)    The exercise price of a Stock Option shall not be less than the Fair Market Value of the Common Shares subject to such Stock Option on the date of grant, as determined by the Committee; provided, however, if an Incentive Stock Option is granted to a Ten Percent Employee, such exercise price shall not be less than 110% of such Fair Market Value at the time the Stock Option is granted.
(b)    The Committee shall determine the number of Common Shares to be subject to each Stock Option.

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(c)    Any Stock Option may be exercised during its term only at such time or times and in such installments as the Committee may establish.
(d)    A Stock Option shall not be exercisable:
(i)    in the case of any Incentive Stock Option granted to a Ten Percent Employee, after the expiration of five years from the date it is granted, and, in the case of any other Stock Option, after the expiration of ten years from the date it is granted; and
(ii)    no shares shall be issued unless payment in full is made for the shares being acquired under such Stock Option at the time of exercise as provided in subsection 6(h).
(e)    The Committee shall determine in its discretion and specify in each agreement evidencing a Stock Option the effect, if any, the termination of the Participant’s employment with or performance of services for the Company shall have on the exercisability of the Stock Option; provided, however, that an Incentive Stock Option that is exercised at a time that is beyond the time an Incentive Stock Option may be exercised in order to qualify as such under the Code shall cease to be an Incentive Stock Option.
(f)    In the case of an Incentive Stock Option, the amount of the aggregate Fair Market Value of Common Shares (determined at the time of grant of the Stock Option) with respect to which Incentive Stock Options are exercisable for the first time by an employee of the Company during any calendar year (under all such plans of his or her employer corporation and its parent and subsidiary corporations) shall not exceed $100,000 or such other amount as is specified in the Code.
(g)    It is the intent of Alpha that Nonqualified Stock Options granted under this Plan not be classified as Incentive Stock Options, that the Incentive Stock Options granted under this Plan be consistent with and contain or be deemed to contain all provisions required under Section 422 and the other appropriate provisions of the Code and any implementing regulations (and any successor provisions thereof), and that any ambiguities in construction shall be interpreted in order to effectuate such intent.  If a Stock Option is intended to be an Incentive Stock Option, and if for any reason such Stock Option (or portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Stock Option (or portion thereof) shall be regarded as a Nonqualified Stock Option granted under this Plan; provided that such Stock Option (or portion thereof) otherwise complies with this Plan’s requirements relating to Nonqualified Stock Options. In no event shall any member of the Committee or the Company (or its employees, officers or directors) have any liability to any Participant (or any other Person) due to the failure of a Stock Option to qualify for any reason as an Incentive Stock Option.

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(h)    For purposes of payments made to exercise Stock Options, such payment shall be made in such form (including, but not limited to, cash, Common Shares owned by the Participant or Common Shares subject to the Stock Option, the surrender of another outstanding Award under this Plan, broker assisted cashless exercise or any combination thereof) as the Committee may determine in its discretion.
(i)    If the exercise of a Stock Option is prevented by subsection 18(e), the Stock Option shall remain exercisable until thirty days after the date such exercise first would no longer be prevented by such provision, but in any event no later than the expiration date of such Stock Option.
Section 7.    Stock Appreciation Rights.  The Committee may grant Stock Appreciation Rights.  Each Award of Stock Appreciation Rights granted under this Plan shall be evidenced by an agreement in such form as the Committee shall prescribe from time to time in accordance with this Plan and shall comply with the applicable terms and conditions of this Section and this Plan, and with such other terms and conditions, including, but not limited to, restrictions upon the Award of Stock Appreciation Rights or the Common Shares issuable upon exercise thereof, as the Committee, in its discretion, shall establish.
(a)    The Committee shall determine the number of Common Shares to be subject to each Award of Stock Appreciation Rights.
(b)    Any Stock Appreciation Right may be exercised during its term only at such time or times and in such installments as the Committee may establish and shall not be exercisable after the expiration of ten years from the date it is granted.
(c)    The Committee shall determine in its discretion and specify in each agreement evidencing an Award of Stock Appreciation Rights the effect, if any, the termination of the Participant’s employment with or performance of services for the Company shall have on the exercisability of the Award of Stock Appreciation Rights.
(d)    An Award of Stock Appreciation Rights shall entitle the holder to exercise such Award and to receive from Alpha in exchange thereof, without payment to Alpha, that number of Common Shares having an aggregate value equal to the excess of the Fair Market Value of one Common Share, at the time of such exercise, over the exercise price, times the number of Common Shares subject to the Award, or portion thereof, that is so exercised or surrendered, as the case may be. Stock Appreciation Rights shall have an exercise price no less than the Fair Market Value of the Common Shares covered by the right on the date of grant.
(e)    A Stock Appreciation Right may provide that it shall be deemed to have been exercised at the close of business on the business day preceding the expiration date of the Stock Appreciation Right, or such other date as specified by the Committee, if at such time such Stock Appreciation Right has a positive value. Such 

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deemed exercise shall be settled or paid in the same manner as a regular exercise thereof as provided in subsection 7(d) of this Plan.
(f)    If the exercise of a Stock Appreciation Right is prevented by subsection 18(e), the Stock Appreciation Right shall remain exercisable, subject to subsection 7(e), until thirty days after the date such exercise first would no longer be prevented by such provision, but in any event no later than the expiration date of such Stock Appreciation Right.
Section 8.    Restricted Stock and Restricted Stock Units.  The Committee may grant Awards of Restricted Stock and Restricted Stock Units. Each Award of Restricted Stock or Restricted Stock Units under this Plan shall be evidenced by an agreement in such form as the Committee shall prescribe from time to time in accordance with this Plan and shall comply with the applicable terms and conditions of this Section and this Plan, and with such other terms and conditions as the Committee, in its discretion, shall establish.
(a)    The Committee shall determine the number of Common Shares to be issued to a Participant pursuant to the Award of Restricted Stock or Restricted Stock Units, and the extent, if any, to which they shall be issued in exchange for cash, other consideration, or both.
(b)    Until the expiration of such period as the Committee shall determine from the date on which the Award is granted and subject to such other terms and conditions as the Committee, in its discretion, shall establish (the “Restricted Period”), a Participant to whom an Award of Restricted Stock is made shall be issued, but shall not be entitled to the delivery of, a stock certificate or other evidence of ownership representing the Common Shares subject to such Award.  
(c)    Unless otherwise determined by the Committee in its discretion, a Participant to whom an Award of Restricted Stock has been made (and any Person succeeding to such a Participant’s rights pursuant to this Plan) shall have, after issuance of a certificate for the number of Common Shares awarded (or after the Participant’s ownership of such Common Shares shall have been entered into the books of the registrar in the case of uncertificated shares) and prior to the expiration of the Restricted Period, ownership of such Common Shares, including the right to vote such Common Shares and to receive dividends or other distributions made or paid with respect to such Common Shares, provided that, such Common Shares, and any new, additional or different shares, or Other Alpha Securities or property, or other forms of consideration that the Participant may be entitled to receive with respect to such Common Shares as a result of a stock split, stock dividend or any other change in the corporation or capital structure of Alpha, shall be subject to the restrictions set forth in the Award and this Plan.
(d)    The Committee shall determine in its discretion and specify in each agreement evidencing an Award of Restricted Stock or Restricted Stock Units the 

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effect, if any, the termination of the Participant’s employment with, or performance of services for, the Company during the Restricted Period shall have on such Award.
(e)    The Committee may grant Dividend Equivalents to Participants in connection with Awards of Restricted Stock Units. The Committee may provide, at the date of grant or thereafter, that Dividend Equivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested in additional Common Shares, or other investment vehicles as the Committee may specify; provided that, unless otherwise determined by the Committee, Dividend Equivalents shall be subject to all conditions and restrictions of the underlying Restricted Stock Units to which they relate.  
(f)    Notwithstanding the foregoing, cash and stock dividends and Dividend Equivalents with respect to Restricted Stock and Restricted Stock Units that are granted as Performance Grants shall vest only if and to the extent that the underlying Performance Grant vests, as determined by the Committee.
Section 9.    Performance Grants.
(a)    Grant. Subject to the limitations set forth in Section 5(b), the Committee may grant a Performance Grant which shall consist of a right that is (i) denominated and/or payable in cash, Common Shares or any other form of Award issuable under this Plan (or any combination thereof) (other than Stock Options or Stock Appreciation Rights), (ii) valued, as determined by the Committee, in accordance with the achievement of such performance goals applicable to such performance periods as the Committee shall establish and (iii) payable at such time and in such form as the Committee shall determine.  The Committee may award Performance Grants that are intended to be performance-based compensation under Section 162(m).  Unless otherwise determined by the Committee, any such Performance Grant shall be evidenced by an Award agreement containing the terms of the Award, including, but not limited to, the performance criteria and such terms and conditions as may be determined, from time to time, by the Committee, in each case, not inconsistent with this Plan.  In relation to any Performance Grant, the performance period may consist of one or more calendar years or other period for which performance is being measured.
(b)    Terms and Conditions.  For Performance Grants intended to be performance-based compensation under Section 162(m), the Performance Grants shall be conditioned upon the achievement of pre-established goals relating to one or more of the following performance measures, as determined in writing by the Committee and subject to such modifications as specified by the Committee: cash flow; cash flow from operations; earnings (including, but not limited to, earnings before interest, taxes, depreciation and amortization or some variation thereof); earnings per share, diluted or basic; earnings per share from continuing operations; net asset turnover; inventory turnover; capital expenditures; debt; debt reduction; working capital; return on investment; return on sales; net or gross sales; market 

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share; economic value added; cost of capital; change in assets; expense reduction levels; productivity; delivery performance; safety record and/or performance; environmental record and/or performance; stock price; return on equity; total or relative increases to stockholder return; return on invested capital; return on assets or net assets; revenue; income or net income; operating income or net operating income; operating profit or net operating profit; gross margin, operating margin or profit margin; and completion of acquisitions, business expansion, product diversification, new or expanded market penetration, and other non-financial operating and management performance objectives.  To the extent consistent with Section 162(m), the Committee may determine that certain adjustments shall apply, in whole or in part, in such manner as determined by the Committee, to exclude or include the effect of specified events that occur during a performance period, including the following: the impairment of tangible or intangible assets; asset write-downs; litigation or claim judgments or settlements; acquisitions or divestitures; gains/losses on the sale of assets; foreign exchange gains and/or losses; the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; business combinations, reorganizations and/or restructuring programs, including, but not limited to, reductions in force and early retirement incentives; currency fluctuations; and any extraordinary, unusual, infrequent or non-recurring items, including, but not limited to, such items described in management’s discussion and analysis of financial condition and results of operations or the financial statements and notes thereto appearing in Alpha’s annual report for the applicable period.  Performance measures may be determined either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or subsidiary entity thereof, either individually, alternatively or in any combination, and measured over a period of time including any portion of a year, annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous fiscal years’ results or to a designated comparison group, in each case as specified by the Committee.
(c)    Preestablished Performance Goals.  For Performance Grants intended to be performance-based compensation under Section 162(m), performance goals relating to the performance measures set forth above shall be preestablished in writing by the Committee, and achievement thereof certified in writing prior to payment of the Award, as required by Section 162(m) and Treasury Regulations promulgated thereunder.  All such performance goals shall be established in writing no later than ninety (90) days after the beginning of the applicable performance period (or, if longer or shorter, within the maximum period allowed under Section 162(m) and Treasury Regulations promulgated thereunder). In addition to establishing minimum performance goals below which no compensation shall be payable pursuant to a Performance Grant, the Committee, in its sole discretion, may create a performance schedule under which an amount less than or more than the target award may be paid so long as the performance goals have been achieved. 

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(d)    Additional Restrictions/Negative Discretion. The Committee, in its sole discretion, may also establish such additional restrictions or conditions that must be satisfied as a condition precedent to the payment of all or a portion of any Performance Grants. Such additional restrictions or conditions need not be performance-based and may include, among other things, the receipt by a Participant of a specified annual performance rating, the continued employment by the Participant and/or the achievement of specified performance goals by the Company, business unit or Participant.  Furthermore, and notwithstanding any provision of this Plan to the contrary, the Committee, in its sole discretion, may retain the discretion to reduce the amount of any Performance Grant to a Participant if it concludes that such reduction is necessary or appropriate based upon: (i) an evaluation of such Participant’s performance; (ii) comparisons with compensation received by other similarly-situated individuals working within the Company’s industry; (iii) the Company’s financial results and conditions or (iv) such other factors or conditions that the Committee deems relevant; provided, however, the Committee shall not use its discretionary authority to increase any Performance Grant that is intended to be performance-based compensation under Section 162(m).
(e)    Payment of Performance Awards.  Performance Grants may be paid in a lump sum or in installments following the close of the performance period or, in accordance with procedures established by the Committee and compliant with Section 162(m), on a deferred or accelerated basis.  
Section 10.    Other Share-Based Awards.  The Committee may grant Other Share-Based Awards, which shall consist of any right that is (i) not an Award described in Sections 6 through 9 above and (ii) an Award of Common Shares or an Award denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Common Shares (including, without limitation, securities convertible into Common Shares), as deemed by the Committee to be consistent with the purposes of this Plan.  Subject to the terms of this Plan and any applicable Award agreement, the Committee shall determine the terms and conditions of any such Other Share-Based Award.  
Section 11.    Section 409A.  Notwithstanding any provision of the Plan or an Award agreement to the contrary, if any Award provided under this Plan is subject to the provisions of Section 409A, the provisions of the Plan and any applicable Award agreement shall be administered, interpreted and construed in a manner necessary in order to comply with Section 409A or an exception thereto (or disregarded to the extent such provision cannot be so administered, interpreted or construed), and the following provisions shall apply, as applicable and as required by Section 409A:
(a)    If a Participant is a Specified Employee for purposes of Section 409A and a payment subject to Section 409A (and not excepted therefrom) to the Participant is due upon Separation from Service, such payment shall be delayed for a period of six (6) months after the date the Participant Separates from Service (or, if earlier, the death of the Participant).  Any payment that would otherwise have been 

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due or owing during such six-month period will be paid immediately following the end of the six-month period unless another compliant date is specified in the applicable agreement.
(b)    For purposes of Section 409A, and to the extent applicable to any Award under the Plan, it is intended that distribution events qualify as permissible distribution events for purposes of Section 409A and shall be interpreted and construed accordingly.  Whether a Participant has Separated from Service will be determined by the Committee based on all of the facts and circumstances and, to the extent applicable to any Award, in accordance with the guidance issued under Section 409A.  For this purpose, a Participant will be presumed to have experienced a Separation from Service when the level of bona fide services performed permanently decreases to a level less than twenty percent (20%) of the average level of bona fide services performed during the immediately preceding thirty-six (36) month period or such other applicable period as provided by Section 409A.
(c)    The grant of Nonqualified Stock Options, Stock Appreciation Rights and other stock rights subject to Section 409A shall be granted under terms and conditions consistent with Treas. Reg. § 1.409A-1(b)(5) such that any such Award does not constitute a deferral of compensation under Section 409A.  Accordingly, any such Award may be granted to Eligible Persons of Alpha and its subsidiaries and affiliates in which Alpha has a controlling interest.  In determining whether Alpha has a controlling interest, the rules of Treas. Reg. § 1.414(c)-2(b) (2)(i) shall apply; provided that the language “at least 50 percent” shall be used instead of “at least 80 percent” in each place it appears; provided, further, where legitimate business reasons exist (within the meaning of Treas. Reg. § 1.409A-1(b)(5)(iii)(E)(i)), the language “at least 20 percent” shall be used instead of “at least 80 percent” in each place it appears.  The rules of Treas. Reg. §§ 1.414(c)-3 and 1.414(c)-4 shall apply for purposes of determining ownership interests.
(d)    Neither the Company nor the Committee warrants that any Award will qualify for favorable tax treatment under Section 409A and in no event shall any member of the Committee or the Company (or its employees, officers or directors) have any liability to any Participant (or any other Person) due to the failure of an Award to satisfy the requirements of Section 409A.
Section 12.    Deferred Payment of Awards.  The Committee, in its discretion, may specify the conditions under which the payment of all or any portion of any cash compensation, or Common Shares or other form of payment under an Award, may be deferred until a later date.  Deferrals shall be for such periods or until the occurrence of such events, and upon such terms and conditions, as the Committee shall determine in its discretion, in accordance with the provisions of Section 409A; provided, however, that no deferral shall be permitted with respect to Stock Options or Stock Appreciation Rights.
Section 13.    Transferability of Awards.  Except pursuant to the laws of descent and distribution, a Participant’s rights and interest under this Plan or any Award may not be assigned 

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or transferred, hypothecated or encumbered in whole or in part, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner; provided, however, the Committee may permit such transfer to a Permitted Transferee; and provided, further, that, unless otherwise permitted by the Code, any Incentive Stock Option granted pursuant to this Plan shall not be transferable other than by will or by the laws of descent and distribution, and shall be exercisable during the Participant’s lifetime only by Participant.
Section 14.    Amendment or Substitution of Awards under this Plan.  
(a)    The terms of any outstanding Award under this Plan may be amended or modified from time to time after grant by the Committee in its discretion in any manner that it deems appropriate (including, but not limited to, acceleration of the date of exercise of any Award and/or payments under any Award) in accordance with the terms of the Plan.  No such amendments or acceleration shall adversely affect in a material manner any right of a Participant under the Award without his or her written consent.  Notwithstanding the foregoing or any provision of an Award to the contrary, the Committee may at any time (without the consent of any Participant) modify, amend or terminate any or all of the provisions of an Award to the extent necessary to conform the provisions of the Award with Section 162(m), Section 409A or any other provision of the Code or other applicable law, the regulations issued thereunder or an exception thereto, regardless of whether such modification, amendment or termination of the Award shall adversely affect the rights of a Participant.  Except as otherwise provided in Section 14(b) hereof, the Committee may, in its discretion, permit holders of Awards under this Plan to surrender outstanding Awards in order to exercise or realize the rights under other Awards, or in exchange for the grant of new Awards, or require holders of Awards to surrender outstanding Awards as a condition precedent to the grant of new Awards under this Plan. 
(b)    Except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, distribution (whether in the form of cash, Common Shares, Other Alpha Securities or other property), stock split, extraordinary cash dividend, recapitalization, change in control, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Common Shares or Other Alpha Securities, or similar transaction(s)), the terms of outstanding Stock Options or Stock Appreciation Rights may not be amended to reduce the exercise price of such outstanding Stock Options or Stock Appreciation Rights or cancel outstanding Stock Options or Stock Appreciation Rights in exchange for cash, other Awards or Stock Options or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Stock Options or Stock Appreciation Rights without obtaining stockholder approval.
Section 15.    Termination of a Participant.  For all purposes under this Plan, the Committee shall determine whether a Participant has Separated from Service, terminated employment with, or terminated the performance of services for, the Company; provided, however, an absence or leave approved by the Company, to the extent permitted by applicable 

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provisions of the Code, shall not be considered an interruption of employment or performance of services for any purpose under this Plan.
Section 16.    Dilution and Other Adjustments.  In the event a dividend (other than a regular cash dividend) or other distribution (whether in the form of cash, Common Shares, Other Alpha Securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Common Shares or Other Alpha Securities, issuance of warrants or other rights to purchase Common Shares or Other Alpha Securities or other similar corporate transaction or event affects the Common Shares such that an adjustment is determined by the Committee to be necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, then the Committee shall, in an equitable manner, adjust (a) the aggregate maximum number of Common Shares or Other Alpha Securities (or number and kind of other securities or property) with respect to which Awards may be granted under this Plan pursuant to Section 5(b), (b) the individual maximum number of Common Shares that may be granted as Stock Options, Stock Appreciation Rights, Performance Grants, and other Awards (denominated in Common Shares) to a Participant pursuant to Section 5(b) of this Plan, (c) the number of Common Shares or Other Alpha Securities (or number and kind of other securities or property) subject to outstanding Awards, (d) the grant or exercise price with respect to any outstanding Award and/or (e) any applicable performance goals with respect to Awards.
In addition, the Committee may, if deemed appropriate, in its discretion, determine that in connection with any merger, consolidation, sale of all or substantially all of the Company’s assets, change in control, dissolution, liquidation, or any other transaction or event having a similar effect to any of the foregoing, (i) provide for an equivalent Award or substitute Award in respect of securities of the surviving entity of any such transaction, (ii) upon advance notice to the affected Participants, cancel any outstanding Stock Options or Stock Appreciation Rights and pay to the holders thereof, in cash, stock, or other property (including the property, if any, payable in such transaction) (or any combination thereof), an amount equal to the excess of the fair market value of the Common Shares covered by the Award, based on the price per Common Share received or to be received by other stockholders of Alpha in such a transaction or such other value as determined by the Committee (the “Transaction Fair Market Value”), over the exercise price of the Award, or (iii) make provision for a cash payment or payment of other property (including the property, if any, payable in such transaction) to the holder of any other outstanding Award in settlement of such Award; provided that, in the case of a Stock Option or Stock Appreciation Right with an exercise price that equals or exceeds the Transaction Fair Market Value of a Common Share, the Committee may cancel such Stock Option or Stock Appreciation Right without payment or consideration therefor.  
Any such adjustment or other actions taken by the Committee pursuant to this Section 16 shall be performed in accordance with the applicable provisions of Code and the Treasury Regulations issued thereunder so as to not affect the status of (i) any Award intended to qualify as performance-based compensation under Section 162(m), unless the Committee determines otherwise, (ii) any Award intended to qualify as an Incentive Stock Option under Section 422, 

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unless the Committee determines otherwise, or (iii) any Award intended to comply with, or qualify for an exception to, Section 409A.
Any such termination, adjustment or other action taken by the Committee will be final, conclusive and binding for all purposes of this Plan.
Section 17.    Designation of Beneficiary by Participant.  A Participant may name a beneficiary to receive any payment to which such Participant may be entitled with respect to any Award under this Plan in the event of his or her death, on a written form to be provided by and filed with the Committee, and in a manner determined by the Committee in its discretion (a “Beneficiary”).  The Committee reserves the right to review and approve Beneficiary designations.  A Participant may change his or her Beneficiary from time to time in the same manner, unless such Participant has made an irrevocable designation.  Any designation of a Beneficiary under this Plan (to the extent it is valid and enforceable under applicable law) shall be controlling over any other disposition, testamentary or otherwise, as determined by the Committee in its discretion. If no designated Beneficiary survives the Participant and is living on the date on which any amount becomes payable to such a Participant’s Beneficiary, such payment will be made to the legal representatives of the Participant’s estate, and the term “Beneficiary” as used in this Plan shall be deemed to include such Person or Persons.  If there are any questions as to the legal right of any Beneficiary to receive a distribution under this Plan, the Committee in its discretion may determine that the amount in question be paid to the legal representatives of the estate of the Participant, in which event the Company, the Board, the Committee, the Designated Administrator (if any), and the members thereof, will have no further liability to anyone with respect to such amount.
Section 18.    Miscellaneous Provisions.
(a)    Any proceeds from Awards shall constitute general funds of Alpha.
(b)    No fractional shares may be delivered under an Award, but in lieu thereof a cash or other adjustment may be made as determined by the Committee in its discretion.
(c)    No Eligible Person or other Person shall have any claim or right to be granted an Award under this Plan. Determinations made by the Committee under this Plan need not be uniform and may be made selectively among Eligible Persons under this Plan, whether or not such Eligible Persons are similarly situated.  Neither this Plan nor any action taken under this Plan shall be construed as giving any Eligible Person any right to continue to be employed by or perform services for the Company, and the Company specifically reserves the right to terminate the employment of, or performance of services by, Eligible Persons at any time and for any reason.
(d)    No Participant or other Person shall have any right with respect to this Plan or the Common Shares reserved for issuance under this Plan or in any Award, contingent or otherwise, until written evidence of the Award shall have been delivered to the Participant and all the terms, conditions and provisions of this Plan and the 

13

Award applicable to such Participant (and each Person claiming under or through him or her) have been met.
(e)    Notwithstanding anything to the contrary contained in this Plan or in any Award agreement, each Award shall be subject to the requirement, if at any time the Committee shall determine, in its sole discretion, that such requirement shall apply, that the listing, registration or qualification of any Award under this Plan, or of the Common Shares, Other Alpha Securities or property or other forms of payment issuable pursuant to any Award under this Plan, on any stock exchange or other market quotation system or under any federal or state law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Award or the exercise or settlement thereof, such Award shall not be granted, exercised or settled in whole or in part until such listing, registration, qualification, consent or approval shall have been effected, obtained and maintained free of any conditions not acceptable to the Committee.  Notwithstanding anything to the contrary contained in this Plan or in any Award agreement, no Common Shares, Other Alpha Securities or property or other forms of payment shall be issued under this Plan with respect to any Award unless the Committee shall be satisfied that such issuance will be in compliance with applicable law and any applicable rules of any stock exchange or other market quotation system on which such Common Shares are listed.  If the Committee determines that the exercise of any Stock Option or Stock Appreciation Right would fail to comply with any applicable law or any applicable rules of any stock exchange or other market quotation system on which Common Shares are listed, the Participant holding such Stock Option or Stock Appreciation Right shall have no right to exercise such Stock Option or Stock Appreciation Right until such time as the Committee shall have determined that such exercise will not violate any applicable law or any such applicable rule.
(f)    Although it is the intent of Alpha that this Plan and Awards hereunder, to the extent the Committee deems appropriate and to the extent applicable, comply with Rule 16b-3 and Sections 162(m), 409A and 422; (i) the Company does not warrant that any Award under the Plan will qualify for favorable tax treatment under any provision of the federal, state, local or non-United States law; and (ii) in no event shall any member of the Committee or the Company (or its employees, officers or directors) have any liability to any Participant (or any other Person) due to the failure of an Award to satisfy the requirements of Rule 16b-3 and Sections 162(m), 409A and 422 or for any tax, interest, or penalties the Participant might owe as a result of the grant, holding, vesting, exercise, or payment of any Award under the Plan.
(g)    The Company shall have the right to deduct from any payment made under this Plan any federal, state, local or foreign income or other taxes required by law to be withheld with respect to such payment. It shall be a condition to the obligation of Alpha to issue Common Shares, Other Alpha Securities, other securities or property, or other forms of payment, or any combination thereof, upon exercise, 

14

settlement or payment of any Award under this Plan, that the Participant (or any Beneficiary or Person entitled to act) pay to Alpha, upon its demand, such amount as may be required by the Company for the purpose of satisfying any liability to withhold federal, state, local or foreign income or other taxes.  If the amount requested is not paid, Alpha may refuse to issue Common Shares, Other Alpha Securities, other securities or property, or other forms of payment, or any combination thereof. Notwithstanding anything in this Plan to the contrary, the Committee may, in its discretion, permit an Eligible Person (or any Beneficiary or Person entitled to act) to elect to pay a portion or all of the amount requested by the Company for such taxes with respect to such Award, at such time and in such manner as the Committee shall deem to be appropriate (including, but not limited to, by authorizing Alpha to withhold, or agreeing to surrender to Alpha on or about the date such tax liability is determinable, Common Shares, Other Alpha Securities, other securities or property, or other forms of payment, or any combination thereof, owned by such Person or a portion of such forms of payment that would otherwise be distributed, or have been distributed, as the case may be, pursuant to such Award to such Person, having a market value equal to the amount of such taxes); provided, however, that any broker-assisted cashless exercise shall comply with the requirements of Financial Accounting Standards Board, Accounting Standards Codification, Topic 718 and any withholding satisfied through a net-settlement of an Award shall be limited to the minimum statutory withholding requirements.
(h)    The expenses of this Plan shall be borne by the Company; provided, however, the Company may recover from a Participant or his or her Beneficiary, heirs or assigns any and all damages, fees, expenses and costs incurred by the Company arising out of any actions taken by a Participant in breach of this Plan or any agreement evidencing such Participant’s Award.
(i)    This Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Award under this Plan, and rights to the payment of Awards shall be no greater than the rights of the Company’s general creditors.
(j)    By accepting any Award or other benefit under this Plan, each Participant (and each Person claiming under or through him or her) shall be conclusively deemed to have indicated his or her acceptance and ratification of, and consent to, any action taken under this Plan by the Company, the Board, the Committee or the Designated Administrator (if applicable).
(k)    The appropriate officers of the Company shall cause to be filed any reports, returns or other information regarding Awards under this Plan or any Common Shares issued pursuant to this Plan as may be required by applicable law and any applicable rules of any stock exchange or other market quotation system on which Common Shares are listed.

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(l)    Records of the Company shall be conclusive for all purposes under this Plan or any Award, unless determined by the Committee to be incorrect.
(m)    If any provision of this Plan or any Award is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of this Plan or any Award, but such provision shall be fully severable, and this Plan or Award, as applicable, shall be construed and enforced as if the illegal or invalid provision had never been included in this Plan or Award, as applicable.
(n)    The terms of this Plan shall govern all Awards under this Plan and in no event shall the Committee have the power to grant any Award under this Plan that is contrary to any of the provisions of this Plan.
(o)    Notwithstanding the foregoing, any Award granted under the Plan which is or becomes subject to recovery under any Company policy adopted after the Effective Date and required by law, regulation or stock exchange listing requirement, shall be subject to such deductions, recoupment, and clawback as may be required to be made pursuant to such Company policy (the “Clawback Policy”).  Upon the adoption of the Clawback Policy, the Committee is hereby granted the authority, in its discretion, to amend and/or terminate any similar recoupment and clawback provisions in outstanding Awards which are inconsistent with, similar to, or duplicative of, such Clawback Policy.  
(p)    The Committee may from time to time establish sub-plans under this Plan for purposes of satisfying securities, tax or other laws of various jurisdictions in which the Company intends to grant Awards.  Any sub-plans shall contain such limitations and other terms and conditions as the Committee determines are necessary or desirable.  All sub-plans shall be deemed a part of this Plan, but, if applicable, each sub-plan shall apply only to the Participants in the jurisdiction for which the sub-plan was designed.
(q)    For purposes of interpretation of this Plan, the masculine pronoun includes the feminine and the singular includes the plural wherever appropriate.
Section 19.    Plan Amendment or Suspension.  This Plan may be amended or suspended in whole or in part at any time and/or from time to time by the Committee; provided that no such change or amendment shall be made without stockholder approval if such approval is necessary to qualify for or comply with any tax or regulatory requirement or other applicable law for which the Committee deems it necessary or desirable to qualify or comply.  No amendment of this Plan shall adversely affect in a material manner any right of any Participant with respect to any Award previously granted without such Participant’s written consent, except as permitted under Sections 14 and 16.  Notwithstanding the foregoing or any provision of the Plan to the contrary, the Committee may at any time (without the consent of any Participant) modify, amend or terminate any or all of the provisions of the Plan to the extent necessary to conform the provisions of the Plan with Section 162(m), Section 409A or any other provision of the Code or other applicable law, the regulations issued thereunder or an exception thereto, 

16

regardless of whether such modification, amendment or termination of the Plan shall adversely affect the rights of a Participant.
Section 20.    Plan Termination.  This Plan shall terminate upon the earlier of the following dates or events to occur:
(a)    upon the adoption of a resolution of the Board terminating this Plan; or
(b)    the tenth anniversary of the Effective Date; provided, however, that in no event may an Incentive Stock Option be granted under the Plan after May 16, 2022.
Section 21.    Effective Date.  This Plan (as amended and restated) shall be effective on the date of the Annual Meeting (the “Effective Date”), subject to its approval by the stockholders of Alpha at the Annual Meeting.  If the Plan, as amended and restated, is not so approved at the Annual Meeting, then the Plan as in effect immediately prior to such Annual Meeting shall remain in effect.
Section 22.    Governing Law.  This Plan and any Award granted under this Plan as well as any determinations made or actions taken under this Plan shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Delaware without regard to its choice or conflicts of laws principles.

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APPENDIX A
The following terms shall have the meaning indicated:
“Alpha” shall mean Alpha Natural Resources, Inc., a Delaware corporation.
“Annual Meeting” shall mean Alpha’s annual meeting of stockholders to be held on May 22, 2014 (or, if the meeting is postponed, such other date on which a stockholders’ meeting or vote to approve this Plan actually occurs).
“Award” shall mean an award of rights to an Eligible Person under this Plan.
“Beneficiary” has the meaning set forth in Section 16. 
“Board” shall mean the board of directors of Alpha.
“Clawback Policy” has the meaning set forth in Section 18(o).
“Code” shall mean the Internal Revenue Code of 1986, as it now exists or may be amended from time to time, and the rules and regulations promulgated thereunder, as they may exist or may be amended from time to time.
“Committee” shall mean the person or persons responsible for administering this Plan. The Board shall constitute the Committee until the Board appoints a Board Committee, after which time the Board Committee shall constitute the Committee, provided, however, that at any time the Board may designate itself as the Committee or designate itself to administer certain of the Committee’s authority under this Plan, including administering certain Awards under this Plan.  The Board or the Board Committee may designate a Designated Administrator to constitute the Committee or to administer certain of the Committee’s authority under this Plan, including administering certain Awards under this Plan, subject to the right of the Board or the Board Committee, as applicable, to revoke its designation at any time and to make such designation on such terms and conditions as it may determine in its discretion.  For purposes of this definition, the “Board Committee” shall mean a committee of the Board designated by the Board to administer this Plan.  The Board Committee (i) shall be comprised of not fewer than three directors, (ii) shall meet any applicable requirements under Rule 16b-3, including any requirement that the Board Committee consist of “Non-Employee Directors” (as defined in Rule 16b-3), (iii) shall meet any applicable requirements under Section 162(m), including any requirement that the Board Committee consist of “outside directors” (as defined in Treasury Regulation §1.162-27(e)(3)(i) or any successor regulation), and (iv) shall meet any applicable requirements of any stock exchange or other market quotation system on which Common Shares are listed. For purposes of this definition, the “Designated Administrator” shall mean one or more Company officers and/or directors designated by the Board or a Board Committee to act as a Designated Administrator pursuant to this Plan in compliance with applicable law or rule.
“Company” shall mean Alpha and any parent, affiliate or subsidiary of Alpha, including any affiliates or subsidiaries which become such after adoption of this Plan.

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“Common Shares” shall mean shares of common stock, par value $0.01 per share, of Alpha and stock of any other class into which such shares may thereafter be changed.
“Dividend Equivalents” shall mean an Award of cash or other Awards with a Fair Market Value equal to the dividends which would have been paid on the Common Shares underlying an outstanding Award of Restricted Stock Units had such Common Shares been outstanding.
“Effective Date” has the meaning set forth in Section 21.
“Eligible Person(s)” shall mean those persons who are full or part-time employees of the Company or other individuals who perform services for the Company, including, without limitation, directors who are not employees of the Company and consultants and independent contractors who perform services for the Company.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as it now exists or may be amended from time to time, and the rules promulgated thereunder, as they may exist or may be amended from time to time.
“Fair Market Value” shall mean (i) with respect to the Common Shares, as of any date (A) if the Company’s Common Shares are listed on any established stock exchange, system or market, the closing market price of the Common Shares as quoted in such exchange, system or market on such date as reported in the Wall Street Journal or such other source as the Committee deems reliable or (B) in the absence of an established market for the Common Shares, as determined in good faith by the Committee or (ii) with respect to property other than Common Shares, the value of such property, as determined by the Committee, in its sole discretion.
“Incentive Stock Option” shall mean a Stock Option that is an incentive stock option as defined in Section 422.  Incentive Stock Options are subject, in part, to the terms, conditions and restrictions described in Section 6.
“Nonqualified Stock Option” shall mean a Stock Option that is not an incentive stock option as defined in Section 422. Nonqualified Stock Options are subject, in part, to the terms, conditions and restrictions described in Section 6.
“Other Alpha Securities” shall mean Alpha securities (which may include, but need not be limited to, unbundled stock units or components thereof, debentures, preferred stock, warrants, securities convertible into Common Shares or other property) other than Common Shares.
“Participant” shall mean an Eligible Person to whom an Award has been granted under this Plan.
“Performance Grant” shall mean an Award subject, in part, to the terms, conditions and restrictions described in Section 9, pursuant to which the recipient may become entitled to receive cash, Common Shares, Other Alpha Securities or other property issuable under this Plan, or any combination thereof, as determined by the Committee.

2

“Permitted Transferee” means (i) any person defined as an employee in the Instructions to Registration Statement Form S-8 promulgated by the Securities and Exchange Commission, as such Form may be amended from time to time, which persons include, as of the date of adoption of this Plan, executors, administrators or beneficiaries of the estates of deceased Participants, guardians or members of a committee for incompetent former Participants, or similar persons duly authorized by law to administer the estate or assets of former Participants, and (ii) Participants’ family members who acquire Awards from the Participant other than for value, including through a gift or a domestic relations order.  For purposes of this definition, “family member” includes any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Participant’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent of the voting interests. For purposes of this definition, neither (i) a transfer under a domestic relations order in settlement of marital property rights, nor (ii) a transfer to an entity in which more than fifty percent of the voting or beneficial interests are owned by family members (or the Participant) in exchange for an interest in that entity is considered a transfer for “value”.
“Person” means any individual, firm, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, governmental body or other entity of any kind.
“Plan” shall mean this Alpha Natural Resources, Inc. Amended and Restated 2012 Long-Term Incentive Plan or, for purposes of Section 21 hereof, the Alpha Natural Resources, Inc. 2012 Long-Term Incentive Plan immediately prior to its amendment and restatement effective at the time of the Annual Meeting.
“Restricted Period” has the meaning set forth in subsection 8(b).
“Restricted Stock” shall mean an Award of Common Shares that are issued subject, in part, to the terms, conditions and restrictions described in Section 8.
“Restricted Stock Units” shall mean an Award of the right to receive either (as the Committee determines) Common Shares or cash equal to the Fair Market Value of a Common Share on the payment date, issued subject, in part, to the terms, conditions and restrictions described in Section 8.
“Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act and any successor rule.
“Section 162(m)” shall mean §162(m) of the Code, any rules or regulations promulgated thereunder, as they may exist or may be amended from time to time, or any successor to such section.

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“Section 409A” shall mean §409A of the Code, any rules or regulations promulgated thereunder, as they may exist or may be amended from time to time, or any successor to such section.
“Section 422” shall mean §422 of the Code, any rules or regulations promulgated thereunder, as they may exist or may be amended from time to time, or any successor to such section.
“Separation from Service” and “Separate from Service” shall mean the Participant’s death, retirement or other termination of employment or service with the Company (including all persons treated as a single employer under Section 414(b) and 414(c) of the Code) that constitutes a “separation from service” (within the meaning of Section 409A).  For purposes hereof, the determination of controlled group members shall be made pursuant to the provisions of Section 414(b) and 414(c) of the Code; provided that the language “at least 50 percent” shall be used instead of “at least 80 percent” in each place it appears in Section 1563(a)(1), (2) and (3) of the Code and Treas. Reg. § 1.414(c)-2; provided, further, where legitimate business reasons exist (within the meaning of Treas. Reg. § 1.409A-1(h)(3)), the language “at least 20 percent” shall be used instead of “at least 80 percent” in each place it appears.
“Specified Employee” means a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Company as determined in accordance with Section 409A and the procedures established by the Company.
“Stock Appreciation Right” shall mean an Award of a right to receive (without payment to Alpha) cash, Common Shares, Other Alpha Securities or other property, or other forms of payment, or any combination thereof, as determined by the Committee, based on the increase in the value of the number of Common Shares specified in the Stock Appreciation Right. Stock Appreciation Rights are subject, in part, to the terms, conditions and restrictions described in Section 7.
“Stock Option” shall mean an Award of a right to purchase Common Shares.  The term Stock Option shall include Nonqualified Stock Options and Incentive Stock Options.
“Ten Percent Employee” shall mean an employee of Alpha or any parent or subsidiary of Alpha who owns stock representing more than ten percent of the voting power of all classes of stock of Alpha or any parent or subsidiary of Alpha within the meaning of Code Sections 424(e) and (f).
“Transaction Fair Market Value” has the meaning set forth in Section 16.
“Treasury Regulation” shall mean a final, proposed or temporary regulation of the Department of Treasury under the Code and any successor regulation.

4SHLDEX101Q12014

Sears Holdings Corporation
Annual Incentive Plan

EXHIBIT 10.1

SEARS HOLDINGS CORPORATION 
ANNUAL INCENTIVE PLAN
(Amended and Restated Effective April 29, 2014)
SECTION 1
GENERAL
1.1.    Purpose.  The Sears Holdings Corporation Annual Incentive Plan (“AIP”) is a performance-based incentive program.  The purpose of the AIP is to reward eligible employees of Sears Holdings Corporation (“Company”) and its participating subsidiaries and affiliates (collectively referred to as “Employers”), for sustained Company fiscal performance.  The AIP is hereby amended and restated effective as of April 29, 2014 (“Effective Date”), which is the date the Compensation Committee adopted the amended and restated AIP.  For purposes of this document, the Effective Date shall also refer to the effective date of an annual incentive plan established in the future by the Compensation Committee under the AIP.  Both (a) Awards (as defined in Section 9) not structured to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Internal Revenue Code (“Code”), and (b) Section 162(m) Awards (as defined in Section 9), which are structured to satisfy such requirements, may be issued under the AIP.  
1.2.    Operation, Administration and Definitions.  The operation and administration of the AIP, including the Awards made under the AIP with respect to any Performance Period (as defined under subsection 3.3), shall be subject to the provisions of Section 7.  Capitalized terms in the AIP shall be defined in the provision in which a term first appears or as set forth in Section 9.  The AIP is established under, and constitutes a part of, the amended and restated Sears Holdings Corporation Umbrella Incentive Program (“UIP”).  
1.3.    Participating Employers.  Each Employer whose eligible employees are covered by the AIP may be referred to herein as a “Participating Employer”.  Participating Employers are listed on Appendix A. 
SECTION 2
PARTICIPATION
2.1.    Eligible Employee.  Except as provided herein, “Eligible Employee” means as to any Performance Period an employee of the Company or a participating Subsidiary who is designated by the Compensation Committee or Senior Corporate Compensation Executive as eligible to participate in an AIP as of such Performance Period.  The Senior Corporate Compensation Executive shall make eligibility determinations under this Section 2 with respect to all Eligible Employees other than those who are “Executives” for whom compensation matters are under the purview of the Compensation Committee (as defined in Section 9), and the Compensation Committee shall make eligibility determinations with respect to all Executives.  Once designated as eligible to participate, an Eligible Employee shall become a “Participant” in the applicable AIP; provided, however, that an otherwise Eligible Employee shall not be a Participant in the AIP with respect to any portion of a Performance Period during which he or she 

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Sears Holdings Corporation
Annual Incentive Plan

is participating under any other annual incentive program that is sponsored by the Company or any subsidiary or affiliate of the Company regardless of when awards under such program are paid.
2.2.    New Hires; Changes in Status; Promotions and Demotions.  
(a)    New Hires.  The Compensation Committee, the Senior Corporate Compensation Executive, or an authorized representative of either, as applicable, shall determine whether and when an employee who is a new hire is an Eligible Employee.  The terms and conditions of any Award for such an individual shall be (i) based on the Target Annual Incentive for the new hire’s incentive-eligible position and (ii) subject to a fraction, the numerator of which is the number of full days on active payroll (except as otherwise provided in Section 6.2) during the applicable Performance Period (as defined in subsection 3.3) that the Eligible Employee was a Participant in the AIP and the denominator of which is the number of full days in such Performance Period.
(b)    Changes in Status.  The Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall determine whether and when an employee who has a change in status becomes or ceases to be an Eligible Employee during the Performance Period.  The terms and conditions of any Award for such an individual shall be (i) based on the Target Annual Incentive for the incentive-eligible position and (ii) subject to a fraction, the numerator of which is the number of full days on active payroll (except as otherwise provided in Section 6.2) during the applicable Performance Period that the Eligible Employee was a Participant in the AIP and the denominator of which is the number of full days in such Performance Period.
(c)    Promotion.  If a Participant is promoted, the Award for such an individual shall be based on a pro-ration, whereby the Target Annual Incentive for the new position will apply to the remainder of the applicable Performance Period and the Target Annual Incentive for the immediately preceding incentive-eligible position will apply to the portion of such Performance Period immediately preceding the effective date of the promotion, subject to subsection 3.2.  
(d)    Demotions.  If a Participant is demoted, the Award for such an individual shall be based on a pro-ration, whereby the Target Annual Incentive for the new incentive-eligible position (if any) will apply only to the remainder of the Performance Period and the Target Annual Incentive for the immediately preceding incentive-eligible position will apply only to the portion of the Performance Period immediately preceding the effective date of the demotion, subject to subsection 3.2.
SECTION 3
ANNUAL INCENTIVE AWARDS
3.1.    Annual Incentive Awards.  Except as provided herein, the Senior Corporate Compensation Executive shall determine, in its sole discretion, the “Target Annual Incentive” (as defined herein) for each Participant.  Notwithstanding the forgoing, the Compensation Committee shall approve the Target Annual Incentives and the Awards for Executives (as defined in Section 9) under its purview. 

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Sears Holdings Corporation
Annual Incentive Plan

(a)    A “Target Annual Incentive” shall refer to the percentage of a Participant’s rate of base pay during a Performance Period, which may be reflected as a percentage of base pay or flat dollar amount (or combination thereof).  The Target Annual Incentive shall consist of any annual, quarterly and/or monthly Award components applicable to a Participant.  The Target Annual Incentive may be constituted by an Award based entirely on established performance goals (described in subsection 4.1 below), a “Discretionary Performance Award” (described in subsection 4.2), or a combination of both types of Awards. 
(b)    The “Target Incentive Award” shall consist of a commitment by the Company to distribute, at the time(s) specified in, and in accordance with the applicable provisions of, Section 5 below, a total dollar amount based on a Participant’s Target Annual Incentive and constituted by an Award based on actual performance of the Company and the Participant, as compared to established performance goals (described in subsection 4.1 below) and/or a Discretionary Performance Award (described in subsection 4.2 below).  The Target Incentive Award shall be subject to pro-ration (if applicable) and certification of the calculation of the final Award amount by the Compensation Committee or Senior Corporate Compensation Executive, as applicable.  A Participant’s total Target Incentive Award may consist of annual, quarterly and/or monthly award components as described below in this Section 3.1.
(c)    The “Quarterly Incentive Award” shall refer to the final quarterly portion of a Participant’s Target Incentive Award that is based on applicable quarterly performance goal(s) and measures, and, if any, may be payable on a Quarterly Payment Date (as defined in subsection 5.1(b) below) or the Annual Payment Date (as defined in subsection 5.1(a) below), as determined by the Compensation Committee or Senior Corporate Compensation Executive, as applicable.  Notwithstanding the foregoing, this does not preclude the Compensation Committee or Senior Corporate Compensation Executive, as applicable, from creating a Performance Period by combining Fiscal Quarters (as defined in Section 9) into a period less than a Fiscal Year.
(d)    The “Monthly Incentive Award” shall refer to the final monthly portion of a Participant’s Target Incentive Award that is based on applicable monthly performance goal(s) and measures, and, if any, may be payable on a Monthly Payment Date (as defined in subsection 5.1(c) below) or the Annual Payment Date (as defined in subsection 5.1(a) below), as determined by the Compensation Committee or Senior Corporate Compensation Executive, as applicable.  Notwithstanding the foregoing, this does not preclude the Compensation Committee or Senior Corporate Compensation Executive, as applicable, from creating a Performance Period by combining Fiscal Months (as defined in Section 9) into a period less than a Fiscal Year.
(e)    The “Annual Incentive Award” shall refer to the final annual portion of a Participant’s Target Incentive Award payable on the Annual Payment Date, if any; which as noted above may be constituted by separate Awards based on achievement of established performance goals (described in subsection 4.1 below), a Discretionary Performance Award (described in subsection 4.2 below) or a combination of both types of Awards.

3

Sears Holdings Corporation
Annual Incentive Plan

(f)    Any Quarterly Incentive Award, Monthly Incentive Award and/or Annual Incentive Award shall be satisfied by a distribution in accordance with Section 5 and subject to Sections 6 and 7.
3.2.    Adjustments based on Status Changes during Performance Period.  Notwithstanding anything in the AIP to the contrary, with respect to Awards that are not Section 162(m) Awards, and prior to the settlement of any such Award, if the Target Annual Incentive for a new incentive-eligible position (including if due to promotion or demotion) is lower or higher than the Target Annual Incentive for a Participant’s immediately prior position, the Participant’s Target Incentive Award may be adjusted by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, to ensure that the overall target cash compensation (i.e., the sum of base pay and Target Annual Incentive) for the new position is comparable to the overall target cash compensation for the immediately prior position.
3.3.    Performance Period.  The “Performance Period” refers to (a) with respect to the portion of an Award that is payable based on the Fiscal Year (as defined in Section 9), the applicable Fiscal Year, (b) with respect to the portion of an Award that is payable based on a Fiscal Quarter (as defined in Section 9), the applicable Fiscal Quarter, and (c) with respect to the portion of an Award that is payable based on a Fiscal Month (or months), the applicable calendar or Fiscal Month(s); in either case, as determined by the Compensation Committee or Senior Corporate Compensation Executive, as applicable.  The amount of an Award, if any, shall be determined following completion of the applicable Performance Period in accordance with this Section 3 and Section 4.
3.4.    Pro-ration.
(a)    The Annual Incentive Award and applicable Quarterly Incentive Awards and/or Monthly Incentive Awards, if any, of a Participant who experiences a status change or position change are subject to pro-ration based on the number of days worked on active payroll in each incentive-eligible position during the applicable Performance Period.
(b)    The Annual Incentive Award and applicable Quarterly Incentive Awards and/or Monthly Incentive Awards, if any, of a Participant who experiences a demotion, promotion, status or location change are subject to pro-ration based on the Target Annual Incentives in effect during the applicable Performance Period, subject to Sections 2.2 and 3.2 above.
(c)    The Annual Incentive Award and applicable Quarterly Incentive Awards and/or Monthly Incentive Awards, if any, of a Participant who experiences a disability or death, as described in subsections 6.1(b) and (c) respectively, shall be pro-rated based upon a fraction, the numerator of which is the number of days worked on active payroll in an incentive-eligible position during the applicable Performance Period and the denominator of which is the number of days in such Performance Period.  
(d)    The Annual Incentive Award and applicable Quarterly Incentive Awards and/or Monthly Incentive Awards, if any, of a Participant who experiences an unpaid 

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leave of absence during the applicable Performance Period shall be pro-rated in accordance with subsection 6.2(a). 
3.5.    Reimbursement of Excess Awards.  If the Company’s financial statements or approved performance measures under the AIP are the subject of a restatement due to error or misconduct, to the extent permitted by governing law, in all appropriate cases, the Company will seek reimbursement of Excess Awards paid under the AIP to Executives (and any other Participant who is determined to have known of or been involved in any such misconduct) for the relevant performance period(s).  For purposes of the AIP, an “Excess Award” means the positive difference, if any, between (a) the Annual Incentive Award, Quarterly Incentive Awards and/or Monthly Incentive Award paid to an Executive and (b) the Annual Incentive Award, Quarterly Incentive Awards and/or Monthly Incentive Award that would have been paid to the Executive, had the Award been calculated based on the Company’s financial statements or performance measures as restated.  The Company will not be required to award Participants, including Executives, an additional AIP payment should the restated financial statements or performance measures result in a higher Annual Incentive Award, Quarterly Incentive Award or Monthly Incentive Award. 
SECTION 4
GOALS AND PERFORMANCE
4.1.    Company Goals and Performance.  For each Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall establish in writing the performance goals and any particulars or components (including without limitation Targets or Thresholds) applicable to each business unit (including sub-business units) and, with respect to each Participant, his or her Assignment (as defined in Section 9).  The performance goals and any particulars or components will be objectively measurable and any payment based upon the achievement of a specified percentage or level of performance.  
(a)    Goals.  Except as otherwise approved by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, with respect to a Performance Period, the performance goals shall be based upon one or more of the performance measures identified in the UIP.    
(b)    Performance.  Except as otherwise approved by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, with respect to a Performance Period, the following concepts shall apply:
(i)    Achievement of Target.  With respect to each Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall establish a target level of achievement for each performance goal (“Target”), which may be reflected as annual, quarterly and/or monthly Targets, as applicable to the performance measure.  If achieved, payout of applicable Award(s) to which that performance goal applies shall be at 100%, subject to any applicable modifiers or adjustments.   
(ii)    Achievement of Threshold.  With respect to each Performance Period, the Compensation Committee or Senior Corporate Compensation 

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Executive, as applicable, shall establish a threshold level of achievement that must be met with respect to a performance goal before any portion of an applicable Award to which the performance goal applies is payable (“Threshold”), which may be reflected as annual, quarterly and/or monthly Thresholds.  If achieved, payout of Awards to which that performance goal applies shall be at the Threshold percentage, subject to any applicable modifiers or adjustments.
(iii)    Achievement Between Threshold and Target.  In the event achievement of a performance goal falls between Threshold and Target with respect to a Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may establish a formula for determining payout levels between these two points, which payout shall be subject to any applicable modifiers or adjustments.  
(iv)    Payout Above Target.  In the event achievement of a performance goal exceeds the Target with respect to a Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may establish a formula for determining payout levels above Target, which payout shall be subject to any applicable modifiers or adjustments.  The Compensation Committee or Senior Corporate Compensation Executive, as applicable, also may provide for a maximum payout level or no maximum.
(v)    Modifiers.  Notwithstanding this subsection 4.1 and subsection 4.2, for each Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall have the discretion to establish individual, team, department, store or other unit performance modifiers to an Annual Incentive Award, Quarterly Incentive Award or Monthly Incentive Award, which enables the Award to be modified, positively (subject to subsection 4.3 below) or negatively, based on the performance of an individual, team, department, store or other unit with respect to a Performance Period.  
(vi)    Qualifiers.  Notwithstanding this subsection 4.1 and subsection 4.2, for each Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall have the discretion to establish qualifiers based on Company, business unit, store, department or other unit performance measures, which qualifiers would need to be achieved, in addition to achievement of the performance goals described above, in order for any Annual Incentive Award, Quarterly Incentive Award or Monthly Incentive Award to be paid.  Such qualifiers may or may not be (1) equivalent to specific AIP goals and thresholds, and (2) the same for all Participants.
4.2.    Discretionary Performance Awards.  
(a)    Notwithstanding subsection 4.1 or anything else in the AIP to the contrary, for each Performance Period the Senior Corporate Compensation Executive shall have the discretion to establish that a Participant’s Target Annual Incentive and Target Incentive Award shall be constituted by separate Awards including, other than Awards based on established performance goals (described in subsection 4.1 above), a 

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“Discretionary Performance Award” (as described below).  Notwithstanding the forgoing, the Compensation Committee shall approve any Discretionary Performance Award for Executives (as defined in Section 9) under its purview.
(b)    The determination of what portion of a Participant’s Target Annual Incentive and Target Incentive Award payable with respect to a Performance Period shall be based on discretionary performance measures, including relative contribution and overall productivity (the “Discretionary Performance Award”) shall be determined solely by the Senior Corporate Compensation Executive (or his or her authorized representative).  Notwithstanding the foregoing, the Compensation Committee shall determine and approve payment of any portion of an Executive’s Target Annual Incentive and Target Incentive Award that is constituted by a Discretionary Performance Award. 
4.3.    Awards Subject to Code Section 162(m)
(a)    General Rules.
(i)    Notwithstanding anything in the AIP to the contrary, this subsection 4.3 will apply to all Section 162(m) Awards.  To the extent there is a conflict between the rules of this subsection 4.3 and any other section in the AIP, the terms of this subsection 4.3 will control. 
(ii)    In no event will positive discretion be applied, by the Compensation Committee or Senior Corporate Compensation Executive, to any Section 162(m) Award with respect to the Performance Period or as of the Payment Date (as defined under subsection 5.1(d) below).  Modifiers described in subsection 4.1(b)(v) shall not apply to any Section 162(m) Award.
(iii)    To the extent that an Executive experiences a promotion or other change in status, no adjustment to a Section 162(m) Award shall be made if such adjustment would not otherwise meet the requirements of Code Section 162(m).
(b)    Performance Measures.   Section 162(m) Awards shall use the performance measures established under the UIP.  As provided in the UIP, at the time of establishing the performance goals, the Compensation Committee may exclude the effects of extraordinary items in a manner that satisfies the requirements of Code Section 162(m). 
(c)    Establishment of Performance Goals.  Section 162(m) Awards shall have the applicable objective performance goals and any particulars or components established in writing and approved by the Compensation Committee by the deadline established in the UIP, in accordance with Code Section 162(m) and the regulations issued thereunder.   
(d)    Attainment of Performance Goals.  Distributions under Section 162(m) Awards shall not be made until the Compensation Committee has determined, and certifies in writing, that the performance goals have been satisfied.

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(e)    Maximum Award.  Section 162(m) Awards are subject to the maximum award limits established under the UIP.
4.4.    Additional Requirements.  All Annual Incentive Awards, Quarterly Incentive Awards and Monthly Incentive Awards awarded under the AIP are subject to the provisions of Sections 5, 6 and 7.
SECTION 5
DISTRIBUTION
5.1.    Time of Payment.  Subject to Sections 6 and 7, the Annual Incentive Awards, Quarterly Incentive Awards and Monthly Incentive Awards that are payable under the AIP, based on the Awards and payout formulas described at Sections 3 and 4, shall be distributed after the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, has determined the amount to be paid to each Participant, subject to the following:
(a)    The Annual Incentive Award, if any, shall be distributed no later than the date that is the 15th day of the third month following the last day of the relevant Performance Period; provided, however, that no distribution shall be made hereunder until after the Compensation Committee has certified the attainment of any relevant performance goals and the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, has determined the amount to be paid to each Participant.  Notwithstanding anything herein to the contrary, such distributions shall be made no later than required by Code Section 409A to avoid treatment of the AIP as a deferred compensation plan under Code Section 409A.  The date as of which payment of an Annual Incentive Award is made in accordance with this subsection 5.1(a) shall be the “Annual Payment Date.”  
(b)    The Quarterly Incentive Awards, if any, shall be distributed, as follows:
(i)    If payable quarterly, then with respect to the first three Fiscal Quarters of the Performance Period, within sixty (60) days of the close of the applicable Fiscal Quarter (or quarters if combined as a Performance Period within the applicable Fiscal Year) (or as soon as administratively feasible thereafter if later), and with respect to the fourth Fiscal Quarter of the Performance Period, no later than the date that is the 15th day of the third month following the last day of the applicable fourth Fiscal Quarter; which may be referred to as a “Quarterly Payment Date”; 
(ii)    If payable annually, no later than the date that is the 15th day of the third month following the last day of the applicable Fiscal Year that contains the Performance Period; and 
(iii)    Provided, however, that no distribution shall be made hereunder until after the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, has certified the attainment of any relevant performance goals and the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, has determined the amount to be paid to each Participant.

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(c)    The Monthly Incentive Awards, if any, shall be distributed, as follows:
(i)    If payable monthly, then with respect to the first eleven Fiscal Months of the Performance Period, within thirty (30) days of the close of the applicable Fiscal Month (or months if combined as a Performance Period within the applicable Fiscal Year) (or as soon as administratively feasible thereafter if later), and with respect to the twelfth Fiscal Month of the Performance Period, no later than the date that is the 15th day of the third month following the last day of the applicable twelfth Fiscal Month; which may be referred to as a “Monthly Payment Date”; 
(ii)    If payable annually, no later than the date that is the 15th day of the third month following the last day of the applicable Fiscal Year that contains the Performance Period; and 
Provided, however, that no distribution shall be made hereunder until after the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, has certified the attainment of any relevant performance goals and the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, has determined the amount to be paid to each Participant.
(d)    The Annual Payment Date,  Quarterly Payment Date and Monthly Payment Date may be referred to herein generically as the “Payment Date”. 
5.2.    Form of Payment.  An Annual Incentive Award, Quarterly Incentive Award and Monthly Incentive Award shall generally be satisfied by a single, lump sum cash payment to the Participant with respect to the applicable Performance Period, provided, however, that, at the discretion of the Compensation Committee, the Company may elect, by such deadline as specified under uniform and nondiscriminatory rules established by the Compensation Committee, to satisfy such Award by payment of shares of Company common stock (“Stock”) in lieu of cash, or a combination of cash and shares of Stock.  The number of shares of Stock shall be equal to (a) the amount of the Award to be paid in stock in accordance with this subsection 5.2, divided by (b) the fair market value of a share of Stock as evidenced by its closing price, on the principal securities exchange or market on which the Stock is then listed or admitted, on the business day immediately preceding the date of distribution or, if the Stock is not traded on that date, on the next preceding date on which Stock was traded; provided that issuance of any shares of Stock in accordance with this subsection 5.2 shall be contingent on the availability of shares of Stock under any shareholder-approved plan of the Company providing for the issuance of Stock in satisfaction of the Awards hereunder (which in no event shall be an employee stock purchase plan).  
SECTION 6
TERMINATION OF EMPLOYMENT; LEAVE OF ABSENCE; REINSTATEMENT
Any Award payable under this Section 6 shall be payable in accordance with Section 5.
6.1.    Termination of Employment.  If a Participant incurs a termination of employment before the applicable Payment Date (as defined in Section 5.1(d) above) for a 

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Performance Period, the effect of termination of employment on a Participant’s right to receive an Award under the AIP shall depend on the reason for the termination, as described in this subsection 6.1.
(a)    Voluntary Termination or Involuntary Termination.  In the event that prior to the Payment Date of an Award, a Participant (i) voluntarily terminates employment (for any reason other than due to permanent and total disability (as defined in subsection (b) immediately below)) or (ii) is involuntarily terminated for any reason (other than death), such Participant shall forfeit his or her Award, except as prohibited by law.   A Participant’s decision to retire prior to the Payment Date of an Award is a voluntary termination and such Participant shall forfeit his or her Award.   
(b)    Disability.  Except as otherwise approved by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, in the event that prior to the Payment Date of an Award, a Participant suffers a permanent and total disability (as defined in the Company’s long-term disability program, regardless of whether the Participant is covered by such program) while employed by the Company or an Employer resulting in termination or retirement, subject to Section 7 below, such Participant shall be entitled to a distribution of the Award that would otherwise be payable to the Participant under Sections 3 and 4 above, pro-rated based upon a fraction, the numerator of which is the number of full days worked on active payroll in an incentive-eligible position during the applicable Performance Period and the denominator of which is the number of days in such Performance Period (or the number of days remaining in such Performance Period after the individual is assigned to an incentive-eligible position). 
(c)    Death.  Except as otherwise approved by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, in the event that a Participant dies while employed by a Participating Employer but prior to the Payment Date of his or her Award, the estate of such Participant shall be entitled to a distribution of the Award, if any, payable in cash that would otherwise be payable to the Participant under Sections 3 and 4 above, pro-rated based upon a fraction, the numerator of which is the number of full days worked on active payroll in an incentive-eligible position during the applicable Performance Period and the denominator of which is the number of full days in such Performance Period (or the number of days remaining in such Performance Period after the individual is assigned to an incentive-eligible position).
6.2.    Leave of Absence.  
(a)    General.  Except as otherwise approved by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, in the event that a Participant is on an unpaid leave of absence any time during the Performance Period or at the time of the Payment Date, subject to subsections (b) and (c) immediately below and Section 7, such Participant shall be entitled to a distribution of the Award that would otherwise be payable to the Participant under Sections 3 and 4 above, pro-rated based upon a fraction, the numerator of which is the number of full days worked on active payroll in an incentive-eligible position during the applicable 

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Performance Period and the denominator of which is the number of days in such Performance Period.
(b)    Short-Term Disability.  Subject to subsection 6.2(a) above, in the event that a Participant is on a leave of absence due to short-term disability (including, for purposes of the AIP, paid maternity  leave) any time during the Performance Period, subject to subsection (c) below and Section 7, the period of the leave of absence shall be treated as time on active payroll and will be credited toward the determination of the Participant’s Award and the Participant shall be entitled to payment of the Award in accordance with Section 5, even if the Participant is on the short-term disability leave of absence as of the Payment Date.
(c)    Salary Continuation.  In the event that a Participant is receiving salary continuation under a severance-related agreement or a Company-sponsored transition pay or severance pay plan as of the Payment Date, such Participant shall forfeit his or her Award. 
6.3.    Reinstatement.  If a Participant who forfeited his or her Award with respect to a Performance Period as a result of a termination of employment is reinstated or rehired during the Performance Period, any Award attributable to the portion of such Performance Period prior to the termination of employment shall remain forfeited.  Notwithstanding the foregoing, such a Participant shall be eligible for an Award based on a fraction, the numerator of which is the number of days worked on active payroll in an incentive-eligible position on or after the date of reinstatement or rehire during the Performance Period and the denominator of which is the number of days in such Performance Period.
SECTION 7
OPERATION AND ADMINISTRATION
7.1.    Compensation Committee and Senior Corporate Compensation Executive.  
(a)    Compensation Committee.  Notwithstanding subsection (b) immediately below, the Compensation Committee:
(i)    Shall approve the Target Annual Incentives and the Awards,  including eligibility for Quarterly and Monthly Incentive Awards, for Executives under its purview;
(ii)    With respect to Executives under its purview, shall have the authority and discretion to establish the terms, conditions, restrictions, and other provisions of such Awards, including without limitation the performance goals and the performance measures for each such Executive’s Assignment in accordance with Section 4, and to amend, cancel, or suspend Awards (in accordance with Section 8), subject to the requirements of Code Section 162(m), if applicable;
(iii)    May make additional changes to the AIP that it deems appropriate for the effective administration of the AIP; provided however, that these changes may not increase the benefits to which Participants may become entitled under the 

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AIP nor change the pre-established measures or goals that have been approved, except as explicitly provided in the AIP; and
(iv)    Shall be responsible for all other duties and responsibilities allocated to the Compensation Committee under the terms and conditions of the AIP.
(b)    Senior Corporate Compensation Executive.  Except as provided in subsection (a) immediately above, the Senior Corporate Compensation Executive:
(i)    Shall Determine the Target Annual Incentive and Awards, including eligibility for Quarterly Incentive Awards and Monthly Incentive Awards, for Participants other than Executives under the purview of the Compensation Committee;  
(ii)    Shall have the authority to control and manage the operation and administration of the AIP;
(iii)    Shall be responsible for the day-to-day administration of the AIP, including without limitation the exception process described in Section 7.2 below;
(iv)    With respect to Participants other than Executives under the purview of the Compensation Committee and subject to the other provisions of the AIP, shall have the authority and discretion to determine the time or times of receipt of Awards, to establish the terms, conditions, restrictions, and other provisions of such Awards, and to amend, cancel, or suspend Awards (in accordance with Section 8), subject to the requirements of Code Section 162(m), if applicable; and 
(v)    Shall be responsible for all other duties and responsibilities allocated to the Senior Corporate Compensation Executive under the terms and conditions of the AIP.
(c)    Any determinations by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, regarding this AIP are binding on all applicable Participants.
(d)    The Compensation Committee and the Senior Corporate Compensation Executive, as appropriate, shall have the authority and discretion to interpret the AIP, to establish, amend, and rescind any rules and regulations relating to the AIP and to make all other determinations that may be necessary or advisable for the administration of the AIP.
7.2.    Incentive Exceptions.  The Senior Corporate Compensation Executive shall have the authority to receive and consider requests by business units of the Participating Employers for an exception to an established performance measure due to circumstances outside of the business unit’s control.  The Senior Corporate Compensation Executive may establish a procedure for reviewing and approving or rejecting an exception.  Any exception determination shall be binding.  

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7.3.    Discretion.  Notwithstanding Section 7.2 or anything in the AIP to the contrary, with respect to Awards that are not Section 162(m) Awards, and prior to the settlement of any such Award, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may change the pre-established measures and goals that have been approved for such Award and increase or reduce the amount of such Award. 
7.4.    Tax Withholding.  All distributions under the AIP are subject to withholding of all applicable taxes.  In the case of Awards under the AIP that are settled in shares of Stock, if any, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may condition the delivery of any shares or other benefits under the AIP on satisfaction of the applicable withholding obligations.  To the extent permitted by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, such withholding obligations may be satisfied: (a) through cash payment by the Participant; (b) through the surrender of shares of Stock which the Participant already owns (provided, however, that to the extent shares described in this subsection (b) are used to satisfy more than the minimum statutory withholding obligation, as described below, then, except as otherwise provided by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, payments made with shares of Stock in accordance with this subsection (b) shall be limited to shares held by the Participant for not less than six months prior to the Payment Date (or such other period of time as the Company’s accountants may require)); or (c) through the surrender of shares of Stock to which the Participant is otherwise entitled under the AIP, provided, however, that such shares under this subsection (c) may be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). 
7.5.    Source of Awards.  In the case of Awards under the AIP that are settled in shares of Stock, such shares shall be distributed under a stock plan adopted by the Company and approved by the shareholders thereof that provides for the issuance of Stock in satisfaction of Awards hereunder, (which in no event shall be an employee stock purchase plan.)  In the event of any conflict between this document and such stock plan, the provisions of the stock plan shall govern. 
7.6.    Settlement of Awards.  The obligation to make payments and distributions with respect to Awards may be satisfied through cash payments, the delivery of shares of Stock, or a combination thereof, as provided under subsection 5.2, subject, in the case of settlement in shares, to the terms of the stock plan under which the Stock is issued.  Satisfaction of any such obligations under an Award, which is sometimes referred to as the “settlement” of the Award, may be subject to such conditions, restrictions and contingencies as the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, shall determine.  Each Employer shall be liable for payment of an Award due under the AIP with respect to any Participant to the extent that such benefits are attributable to the services rendered for that Employer by the Participant.  Any disputes relating to liability of an Employer for payment of an Award shall be resolved by the Compensation Committee or Senior Corporate Compensation Executive, as appropriate.  
7.7.    Transferability.  Except as otherwise provided by the Senior Corporate Compensation Executive, Awards under the AIP are not transferable except as designated by the Participant by will or by the laws of descent and distribution.

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7.8.    Form and Time of Elections.  Unless otherwise specified herein, any election required or permitted to be made by any Participant or other person entitled to benefits under the AIP, and any permitted modification, or revocation thereof, shall be in writing filed with the Senior Corporate Compensation Executive at such times, in such form, and subject to such restrictions and limitations, not inconsistent with the terms of the AIP, as the Senior Corporate Compensation Executive shall require.  
7.9.    Action by Company or Employer.  Any action required or permitted to be taken under the AIP by the Company or any other Employer shall be by resolution of its board of directors, or by action of one or more members of the board of directors of such company (including a committee of the board) who are duly authorized to act for such board with respect to the applicable action, or (except to the extent prohibited by applicable law or applicable rules of any securities exchange or similar entity) by a duly authorized officer of such company.
7.10.    Gender and Number.  Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular.
7.11.    Limitation of Implied Rights.
(a)    Neither a Participant nor any other person shall, by reason of participation in the AIP, acquire any right in or title to any assets, funds or property of the Company or any Employer whatsoever, including, without limitation, any specific funds, assets, or other property which the Company or any Employer, in its sole discretion, may set aside in anticipation of a liability under the AIP.  A Participant shall have only a contractual right to the cash, if any, payable under the AIP, unsecured by any assets of the Company or any Employer, and nothing contained in the AIP shall constitute a guarantee that the assets of the Company or any Employer shall be sufficient to pay any benefits to any person.
(b)    The AIP does not constitute a contract of employment, and status as a Participant shall not give any Eligible Employee the right to be retained in the employ of the Company or any Employer, nor any right or claim to any benefit under the AIP, unless such right or claim has specifically accrued and vested under the terms of the AIP.
7.12.    Evidence.  Evidence required of anyone under the AIP may be by certificate, affidavit, document or other information, which the person charged with acting on such evidence considers pertinent and reliable, and which has been signed, made or presented by the proper party or parties.
7.13.    Information to be Furnished. The Company and the Participating Employers shall furnish the Compensation Committee and the Senior Corporate Compensation Executive with such data and information as it determines may be required for it to discharge its duties.  The records of the Company and the Participating Employers as to an employee’s or Participant’s employment, termination of employment, leave of absence, reemployment, and compensation shall be conclusive on all persons unless determined to be incorrect.  Participants and other persons entitled to benefits under the AIP must furnish the Compensation Committee or Senior 

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Corporate Compensation Executive, as appropriate, such evidence, data or information as the Compensation Committee or Senior Corporate Compensation Executive considers desirable to carry out the terms of the AIP, subject to any applicable privacy laws.
7.14.    Governing Law.  The AIP will be governed under the internal laws of the state of Illinois without regard to principles of conflicts of laws.  The state and federal courts located in the state of Illinois shall have exclusive jurisdiction in any action, lawsuit or proceeding based on or arising out of the AIP.
7.15.    Severability.  If any provision(s) of the AIP shall be found invalid, illegal, or unenforceable, in whole or in part, then such provision(s) shall be modified or restricted so as to effectuate as nearly as possible in a valid and enforceable way the provisions hereof, or shall be deemed excised from the AIP, as the case may require, and the AIP shall be construed and enforced to the maximum extent permitted by law, as if such provision(s) had been originally incorporated herein as so modified or restricted or as if such provision(s) had not been originally incorporated herein, as the case may be.
SECTION 8
AMENDMENT AND TERMINATION
The Company may amend or terminate the AIP at any time and for any reason in its sole discretion.  No amendment shall be made that would cause the AIP not to comply with any applicable law or rule of any applicable securities exchange or similar entity, or cause Participants to experience adverse tax consequences under Code Section 409A.  The AIP and any Award thereunder may be amended without Participant consent to the extent that the Compensation Committee (or its authorized representative) determines such amendment necessary to cause the AIP or any Award to comply with any applicable law or rule of any applicable securities exchange or similar entity or to prevent adverse tax consequences under Code Section 409A for Participants.
SECTION 9
DEFINED TERMS
9.1.    Each capitalized term in the AIP is defined where it first appears herein or in this Section 9.  In addition to the terms defined previously in the AIP, the following definitions shall apply:
(a)    Assignment.  The term “Assignment” refers to the performance goals and measure(s) that have been assigned by the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, to a Participant, based upon position, location and/or business unit.  Assignment also includes the weight of each performance measure assigned to the Participant.  
(b)    Award.  The term “Award” or “Awards” refers to any Annual Incentive Award(s), Quarterly Incentive Award(s) and Monthly Incentive Award(s), as applicable, awarded under the AIP, some of which Awards may be structured to be performance-based compensation under Code Section 162(m) and some of which may not be structured to be performance-based compensation under Code Section 162(m).

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(c)    Compensation Committee.  The term “Compensation Committee” refers to the Compensation Committee of the Board of Directors of Sears Holdings Corporation.
(d)    Code.  The term “Code” means the Internal Revenue Code of 1986, as amended from time to time (and the regulations issued thereunder).  A reference to any provision of the Code shall include reference to any successor provision of the Code (and the regulations issued thereunder).
(e)    Executive.  The term “Executive” refers to any employee of an Employer who holds a position of senior vice president or higher of Sears Holdings Corporation (not of any subsidiary or affiliate) or any employee who is an officer under Section 16(b) of the Securities and Exchange Act of 1934 with respect to Sears Holdings Corporation. 
(f)    Fiscal Month.  The capitalized term “Fiscal Month” refers to a fiscal month within the applicable Fiscal Year of the Company.
(g)    Fiscal Quarter.  The capitalized term “Fiscal Quarter” refers to a fiscal quarter within the applicable Fiscal Year of the Company.
(h)    Fiscal Year.  The capitalized term “Fiscal Year” refers to the applicable fiscal year of the Company. 
(i)    Section 162(m) Award.  The term “Section 162(m) Award” refers to any Award that is designated by the Compensation Committee as intended to meet the requirements for “performance-based compensation” under Code Section 162(m).
(j)    Senior Corporate Compensation Executive.  The term “Senior Corporate Compensation Executive” refers to the Senior Vice President and President, Talent and Human Capital Services (or equivalent), or if he or she has explicitly delegated his or her duties with respect to the AIP, as provided herein, then the Senior Corporate Compensation Executive shall refer to such authorized representative to whom the duties of administering the AIP have been delegated.
SECTION 10
EXPIRATION OF AIP
The payment obligation under the AIP with respect to a specific Performance Period shall expire, subject to earlier termination pursuant to Section 8, on the date on which all Annual Incentive Awards,  Quarterly Incentive Awards and/or Monthly Incentive Awards (if any) are paid in full or would have been payable in accordance with the provisions of the AIP with respect to such Performance Period.  Notwithstanding this Section 10, the Company's right to reimbursement under Section 3.5 will continue to survive after the expiration of the AIP.
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IN WITNESS WHEREOF, on April 29, 2014 the Compensation Committee of the Board of Directors of Sears Holdings Corporation approved this restatement of the AIP effective as of April 29, 2014, and delegated the authority to the undersigned officer of Sears Holdings Corporation to execute this document.
SEARS HOLDINGS CORPORATION
                                
By:    /s/ Dean Carter                       
    Dean Carter
Title: Vice President, Talent and Human Capital Services

Date:  April 29, 2014

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Sears Holdings Corporation
Annual Incentive Plan

SEARS HOLDINGS CORPORATION 
ANNUAL INCENTIVE PLAN

APPENDIX A
Participating Employers
(As of April 29, 2014)

1.    Sears Holdings Corporation
		
	•
	Excluding: (a) Sears Canada Inc.; (b) SHC Israel Ltd.;  and (c)  Sears IT Management Services India Pvt. Ltd other than with respect to U.S.-based employees of Sears Global Technology Services LLC designated for participation in accordance with Section 2.1

2.    Sears Holdings Management Corporation
3.    Sears, Roebuck and Company
4.    Kmart Holding Corporation

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