THE READER'S DIGEST ASSOCIATION, INC.
2005 KEY EMPLOYEE LONG TERM
INCENTIVE PLAN
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THE READER'S DIGEST ASSOCIATION, INC.
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2005 KEY EMPLOYEE LONG TERM INCENTIVE PLAN
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ARTICLE 1
Purpose
The purpose of this 2005 Key Employee Long Term Incentive Plan (the
"Plan") is to enable The Reader's Digest Association, Inc. (the "Company") to
offer key employees of the Company and Designated Subsidiaries (defined below)
performance-based stock incentives and other equity interests in the Company and
other incentive awards, thereby attracting, retaining and rewarding such key
employees, and strengthening the mutuality of interests between key employees
and the Company's stockholders.
ARTICLE 2
Definitions
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 "Award" shall mean any award under this Plan of any Stock Option,
Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance
Shares, Performance Units or Other Stock-Based Award. All Awards shall be
granted by, confirmed by, and subject to the terms of, a written agreement
executed by the Company and the Participant.
2.2 "Board" shall mean the Board of Directors of the Company.
2.3 "Change in Control" shall have the meaning set forth in Article 13.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.5 "Committee" shall mean a committee, as described in Article 3, of the
Board appointed from time to time by the Board to administer the Plan and to
perform the functions set forth herein.
2.6 "Common Stock" means the Common Stock, $.01 par value per share, of the
Company.
2.7 "Designated Subsidiary" shall mean one of such subsidiaries of the
Company, 80 percent or more of the voting capital stock of which is owned,
directly or indirectly, by the Company, which are designated from time to time
by the Board.
2.8 "Disability" shall mean, unless otherwise determined in the terms and
conditions of the Award at the time of grant by the Committee, Total Disability
as defined in the Company's Long Term Disability Plan or any successor or
equivalent plan designated by the Company.
2.9 "Effective Date" shall mean the effective date of this Plan pursuant to
Article 17.
2.10 "Eligible Employees" shall mean the employees of the Company and the
Designated Subsidiaries who are eligible pursuant to Article 5 to be granted
Awards under this Plan.
2.11 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
2.12 "Executive Officer" shall have the meaning specified for purposes of
Section 303A of the New York Stock Exchange Listed Company Manual or such other
similar meaning as shall be specified by the Committee.
2.13 "Fair Market Value" for purposes of this Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, shall mean, as of any date, the mean between the high and low sales
prices on the applicable date, or if no sales price is available for such date,
the mean between the closing bid and asked prices for such date, of a share of
Common Stock (i) as reported by the principal national securities exchange in
the United States on which it is then traded, or (ii) if not traded on any such
national securities exchange, as quoted on an automated quotation system
sponsored by the National Association of Securities Dealers, or if the Common
Stock shall not have been reported or quoted on such date, on the first day
prior thereto on which the Common Stock was reported or quoted. If the Common
Stock is not readily tradeable on a national securities exchange or any system
sponsored by the National Association of Securities Dealers, its Fair Market
Value shall be set by the Board on the advice of an investment advisor in good
faith.
2.14 "Incentive Stock Option" shall mean any Stock Option awarded under
this Plan intended to be and designated as an "Incentive Stock Option" within
the meaning of Section 422A of the Code.
2.15 "Nonemployee Director" shall mean a director of the Company who is a
"nonemployee director" within the meaning of Rule 16b-3 promulgated under the
Exchange Act.
2.16 "Non-Qualified Stock Option" shall mean any Stock Option awarded under
this Plan that is not an Incentive Stock Option.
2.17 "Other Stock-Based Award" shall mean an Award under Article 12 of this
Plan that consists of, or is valued in whole or in part by reference to, or is
payable in or otherwise based on, Common Stock.
2.18 "Outside Director" shall mean a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2.19 "Participant" shall mean an employee to whom an Award has been made
pursuant to this Plan.
2.20 "Performance-Based Compensation" shall mean any Award that is
intended to constitute "performance-based compensation" within the meaning of
Section 162(m)(4)(C) of the Code and the regulations promulgated thereunder.
2.21 "Performance-Based Restricted Stock" shall have the meaning set forth
in Section 8.1.
2.22 "Performance-Based Restricted Stock Unit" shall have the meaning set
forth in Section 9.1.
2.23 "Performance Cycle" shall have the meaning set forth in Section 11.1.
2.24 "Performance Period" shall have the meaning set forth in Sections 8.1,
9.1 and 10.1.
2.25 "Performance Share" shall mean an Award made pursuant to Article 10 of
this Plan of the right to receive Common Stock or cash of an equivalent value at
the end of a specified Performance Period.
2.26 "Performance Unit" shall mean an Award made pursuant to Article 11 of
this Plan of the right to receive a fixed dollar amount, payable in cash or
Common Stock or a combination of both.
2.27 "Prior Plan" shall mean The Reader's Digest Association, Inc. 2002 Key
Employee Long Term Incentive Plan.
2.28 "Reference Stock Option" shall have the meaning set forth in Section
7.1.
2.29 "Restricted Stock" shall mean an Award of shares of Common Stock under
this Plan that is subject to restrictions under Article 8.
2.30 "Restricted Stock Unit" shall mean an Award made pursuant to Article 9
of this Plan. Each Restricted Stock Unit shall be the right to receive one share
of Common Stock, or cash equivalent to the value (as determined by the
Committee) of one share of Common Stock, on the vesting date at the end of the
Restriction Period, subject to restrictions under Article 9.
2.31 "Restriction Period" shall mean the period during which conditions are
required to be satisfied for vesting of an Award and the Award is subject to
restrictions and risk of forfeiture under Article 8 or Article 9.
2.32 "Retirement" shall mean, unless otherwise determined in the terms and
conditions of the Award at the time of grant by the Committee, termination of
employment by an employee who is at least 55 years of age after at least 10
years of employment by the Company and/or a Designated Subsidiary.
2.33 "Stock Appreciation Right" or "Right" shall mean the right pursuant to
an Award granted under Article 7. A Tandem Stock Appreciation Right shall mean
the right to surrender to the Company all (or a portion) of a Stock Option in
exchange for an amount equal to the difference between (i) the Fair Market
Value, as of the date such Stock Option (or such portion thereof) is
surrendered, of the shares of Common Stock covered by such Stock Option (or such
portion thereof), and (ii) the aggregate exercise price of such Stock Option (or
such portion thereof). A Non-Tandem Stock Appreciation Right shall mean the
right to receive an amount equal to the difference between (x) the Fair Market
Value of a share of Common Stock as of the date such Right is exercised, and (y)
the Fair Market Value of a share of Common Stock as of the date such Right is
awarded, otherwise than on surrender of a Stock Option.
2.34 "Stock Option" or "Option" shall mean any option to purchase shares of
Common Stock (including Restricted Stock and Performance Shares, if the
Committee so determines) granted pursuant to Article 6.
2.35 "Termination of Employment" shall mean a termination of service for
reasons other than (i) military or personal leave of absence granted by the
Company or (ii) a transfer of a Participant from the Company or a Designated
Subsidiary to another Designated Subsidiary or to the Company or to any
affiliate as defined in Section 414 of the Code.
2.36 "Transfer" shall mean anticipate, alienate, attach, sell, assign,
pledge, encumber, charge or otherwise transfer.
2.37 "Withholding Election" shall have the meaning set forth in Section
16.4.
ARTICLE 3
Administration
3.1 The Committee. The Plan shall be administered and interpreted by the
Committee, which shall hold meetings at such times as may be necessary for the
proper administration of the Plan. The Committee shall keep minutes of its
meetings. The Committee shall consist of at least one (1) director of the
Company and may consist of the entire Board; provided, however, that, (A) if the
Committee consists of less than the entire Board, then with respect to any
Option or Award to an Eligible Employee who is subject to Section 16 of the
Exchange Act, the Committee shall consist of at least two (2) directors of the
Company each of whom shall be a Nonemployee Director and (B) to the extent
necessary for any Option or Award intended to qualify as Performance-Based
Compensation to so qualify, the Committee shall consist of at least two (2)
directors of the Company each of whom shall be an Outside Director. For purposes
of the preceding sentence, if one or more members of the Committee is not a
Nonemployee Director and an Outside Director but recuses himself or herself or
abstains from voting with respect to a particular action taken by the Committee,
then the Committee, with respect to that action, shall be deemed to consist only
of the members of the Committee who have not recused themselves or abstained
from voting. Subject to applicable law, the Committee may delegate its authority
under the Plan to any other person or persons. The Committee may delegate to one
or more Executive Officers of the Company the authority to make Awards to
Participants, and to cancel Awards that have not been delivered to Participants,
other than any of the Company's Executive Officers, provided that when so
delegating, the Committee shall fix the aggregate maximum amount of such Awards
and the maximum Award for any one Participant that may be awarded or canceled
pursuant to such delegation. Any action pursuant to the foregoing delegation
shall be deemed to be action of the Committee and any such action shall be
reported to the Committee promptly, but no later than at its next regular
meeting.
3.2 Awards. The Committee shall have full authority to grant Awards,
pursuant to the terms of this Plan, to eligible employees. In particular, the
Committee shall have the authority:
(a) to select the eligible employees to whom Awards may from time
to time be granted hereunder;
(b) to determine whether and to what extent any Award, or any
combination of Awards, are to be granted hereunder to one or
more eligible employees;
(c) to determine the number of shares of Common Stock to be
covered by each such Award granted hereunder;
(d) to determine the terms and conditions, not inconsistent with
the terms of this Plan, of any Award granted hereunder
(including, but not limited to, the share price, any
restriction or limitation, any vesting schedule or
acceleration thereof, or any forfeiture restrictions or waiver
thereof, regarding any Stock Option or other Award and the
shares of Common Stock relating thereto, based on such
factors, if any, as the Committee shall determine, in its sole
discretion);
(e) to determine whether, to what extent and under what
circumstances grants of Options and other Awards under this
Plan are to operate on a tandem basis and/or in conjunction
with or apart from other awards made by the Company outside of
this Plan;
(f) to determine whether and under what circumstances a Stock
Option may be settled in cash, Common Stock, Performance
Shares, Restricted Stock or Restricted Stock Units, or any
combination thereof, under subsection 6.4(k);
(g) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with
respect to an Award under this Plan shall be deferred either
automatically or at the election of the Participant; and
(h) generally, to exercise such powers and to perform such acts as
are deemed necessary or advisable to promote the best
interests of the Company with respect to the Plan.
3.3 Guidelines. Subject to Article 14 hereof, the Committee shall have the
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing this Plan and perform all acts, including the delegation of
its administrative responsibilities, as it shall, from time to time, deem
advisable; to construe and interpret the terms and provisions of this Plan and
any Award issued under this Plan (and any agreements relating thereto); and to
otherwise supervise the administration of this Plan. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in this Plan or
in any agreement relating thereto in the manner and to the extent it shall deem
necessary to carry this Plan into effect. Notwithstanding the foregoing, no
action of the Committee under this Section 3.3 shall impair the rights of any
Participant without the Participant's consent.
3.4 Decisions Final. Any decision, interpretation or other action made or
taken in good faith by or at the direction of the Company, the Board, or the
Committee (or any of its members) arising out of or in connection with the Plan
shall be within the absolute discretion of all and each of them, as the case may
be, and shall be final, binding and conclusive on the Company and all employees
and Participants and their respective heirs, executors, administrators,
successors and assigns.
3.5 Reliance on Counsel. The Company or the Committee may consult with
legal counsel, who may be counsel for the Company or other counsel, with respect
to its obligations or duties hereunder, or with respect to any action or
proceeding or any question of law, and shall not be liable with respect to any
action taken or omitted by it in good faith pursuant to the advice of such
counsel.
ARTICLE 4
Share Limitation
4.1 Number of Shares Under the Plan. The maximum aggregate number of shares
of Common Stock that may be issued under this Plan or with respect to which
Non-Tandem Stock Appreciation Rights may be granted shall not exceed 2,900,000
shares, plus the number of shares authorized for issuance under the Prior Plan
but not previously issued or subject to any outstanding award under the Prior
Plan on the Effective Date of this Plan (subject to any increase or decrease
pursuant to Section 4.3), which may be either authorized and unissued Common
Stock or outstanding Common Stock reacquired by the Company. No more than
750,000 shares of Common Stock shall be issued under this Plan with respect to
Awards other than Stock Options and Non-Tandem Stock Appreciation Rights, plus
the number of shares authorized for this purpose under the Prior Plan.
4.2 Canceled, Terminated, or Forfeited Awards, etc., Under the Plan and the
Prior Plan. If, after the Effective Date of this Plan, any Award granted under
the Plan or any award granted under the Prior Plan expires or is terminated,
canceled or forfeited, or is settled for cash or otherwise settled without the
issuance of Common Stock, then any shares of Common Stock covered by such
expired, terminated, canceled, forfeited or settled portion of such Award or
Prior Plan award and any such tendered shares of Common Stock shall be available
for issuance under this Plan; provided, however, that, the following shares
shall not again become available for issuance under this Plan: (a) shares
tendered in payment of the exercise price of Options; (b) shares reserved for
issuance upon grant of Stock Appreciation Rights, to the extent the number of
reserved shares exceeds the number of shares actually issued upon exercise of
the Stock Appreciation Rights; and (c) shares withheld by, or otherwise remitted
to, the Company to satisfy a Participant's tax withholding obligations upon the
exercise or settlement of an Award.. Any shares that become available for grant
under this Section 4.2 with respect to any Award made under this Plan from the
shares authorized for issuance under this Plan in Section 4.1 may be used for
any type of Award, but shares related to any award outstanding under the Prior
Plan on the Effective Date of this Plan may be used only in respect of Awards of
a type corresponding to or substantially similar to the type of award made under
the Prior Plan (e.g., shares related to forfeited stock option grants under the
Prior Plan may be used to grant Stock Options and Stock Appreciation Rights
under this Plan, and forfeited restricted stock grants under the Prior Plan may
be used to make grants of Restricted Stock or Restricted Stock Units under this
Plan).
4.3 Changes. In the event of any increase or reduction in the number of
shares of capital stock of the Company, or any change (including, but not
limited to, in the case of a spin-off, dividend or other distribution in respect
of shares, a change in value) in the capital stock of the Company or exchange of
capital stock of the Company for a different number or kind of shares or other
securities of the Company or another corporation by reason of any stock
dividend, stock split or reverse stock split, reclassification,
recapitalization, reorganization, merger, consolidation, spin-off, split-up,
combination or exchange of shares, distribution with respect to its outstanding
Common Stock or capital stock other than Common Stock, reclassification of its
capital stock, issuance of warrants, rights or debentures to purchase any Common
Stock or securities convertible into Common Stock, or rights offering to
purchase capital stock at a price below fair market value, or any change in
corporate structure or otherwise; then (i) the aggregate number and kind of
shares of Common Stock or other stock or securities which thereafter may be
issued under this Plan, (ii) the number and kind of shares subject to
outstanding Options or Rights or other stock or securities granted under this
Plan and the purchase or exercise price thereof, (iii) the number and kind of
shares of Common Stock or other stock or securities subject to other outstanding
Awards (including but not limited to Awards of Restricted Stock, Restricted
Stock Units, Performance Units, Performance Shares and Other Stock-Based Awards)
granted under this Plan and the purchase or exercise price thereof, if
applicable, (iv) the aggregate number and kind of shares of Common Stock or
other stock or securities with respect to which Options and Awards may be
granted to any Eligible Employee in any fiscal year period, and (v) the
performance goals under Articles 8, 9, 10 and 11 of the Plan, shall be
appropriately adjusted consistent with such change in such manner as the
Committee may deem equitable in its sole discretion to prevent substantial
dilution or enlargement of the rights granted to, or available for, Participants
under this Plan. Any such adjustment determined by the Committee in good faith
shall be binding and conclusive on the Company and all Participants and
employees and their respective heirs, executors, administrators, successors and
assigns. Any such adjusted Option price shall also be used to determine the
amount payable by the Company upon the exercise of any Stock Appreciation Right
associated with any Stock Option.
(a) To the extent possible, any such adjustment in the shares of Common
Stock or other stock or securities (i) subject to outstanding
Incentive Stock Options (including any adjustments in the exercise
price) shall be made by the Committee in such manner as not to
constitute a modification as defined by Section 424(h)(3) of the Code
and only to the extent otherwise permitted by Sections 422 and 424 of
the Code, or (ii) subject to outstanding Options or Awards that are
intended to qualify as Performance-Based Compensation, shall be made
by the Committee in such a manner as not to adversely affect the
treatment of the Options or Awards as Performance-Based Compensation.
(b) If, by reason of a change pursuant to this Section, a holder of an
Award shall be entitled to, or a holder shall be entitled to exercise
an Option with respect to, new, additional or different shares of
stock or securities of the Company or any other corporation, such new,
additional or different shares shall thereupon be subject to all of
the conditions, restrictions and performance criteria which were
applicable to the shares subject to the Award or Option, as the case
may be, prior to such change.
4.3 Purchase Price. Notwithstanding any provision of this Plan to the
contrary, if authorized but previously unissued shares of Common Stock are
issued under this Plan, such shares shall be issued for a consideration which
shall not be less than par value.
4.4 Non-U.S. Awards. To conform with the provisions of local laws and
regulations, or with local compensation practices and policies, in countries
outside the United States in which the Company or any Designated Subsidiary
operates, but subject to any limitations set forth herein regarding the maximum
number of shares issuable hereunder and the maximum award to any single
Participant, the Committee may (a) modify the terms and conditions of Awards
granted to Participants employed outside the United States ("Non-U.S. Awards"),
(b) establish subplans with modified exercise procedures and such other
modification as may be necessary or advisable under the circumstances
("Subplans"), and (c) take any action that it deems advisable to obtain, comply
with or otherwise reflect any necessary governmental regulatory procedures,
exemptions or approvals with respect to the Plan. The Committee's decision to
grant Non-U.S. Awards or to establish Subplans is entirely voluntary, and at the
complete discretion of the Committee. The Committee may amend, modify or
terminate any Subplans at any time, and such amendment, modification or
termination may be made without prior notice to the Participants. The Company,
its Designated Subsidiaries and the members of the Committee shall not incur any
liability of any kind to any Participant as a result of any change, amendment,
modification or termination of any Subplan at any time. The benefits and rights
provided under any Subplan or by any Non-U.S. Award (d) are wholly discretionary
and, although provided by either the Company or a Designated Subsidiary, do not
constitute regular or periodic payments and (e) are not to be considered part of
the Participant's salary or compensation under the Participant's employment with
the Participant's local employer for purposes of calculating any severance,
resignation, redundancy or other end-of-service payments, vacation, bonuses,
long-term service awards, indemnification, pension or retirement benefits, or
any other payments, benefits or rights of any kind. If a Subplan is terminated,
the Committee may direct the payment of Non-U.S. Awards (or direct the deferral
of payments whose amount shall be determined) prior to the dates on which
payments would otherwise have been made and, in the Committee's discretion, such
payments may be made in a lump sum or in installments.
ARTICLE 5
Eligibility
5.1 Senior officers, senior management and key employees of the Company and
its Designated Subsidiaries are eligible to be granted Options and other Awards
under this Plan. Eligibility under this Plan shall be determined by the
Committee.
ARTICLE 6
Stock Options
6.1 Options. Stock Options may be granted alone or in addition to other
Awards granted under this Plan. Each Stock Option granted under this Plan shall
be one of two types: (i) an Incentive Stock Option or (ii) a Non-Qualified Stock
Option.
6.2 Grants. The Committee shall have the authority to grant to any
Participant one or more Incentive Stock Options, Non-Qualified Stock Options, or
both types of Stock Options (in each case with or without Stock Appreciation
Rights); provided, however, that no Participant shall be granted Stock Options
or Non-Tandem Stock Appreciation Rights, or both, with respect to a total of
more than 1,500,000 shares of Common Stock during any fiscal year of the
Company. To the extent that any Stock Option does not qualify as an Incentive
Stock Option (whether because of its provisions or the time or manner of its
exercise or otherwise), such Stock Option or the portion thereof which does not
qualify shall constitute a separate Non-Qualified Stock Option.
6.3 Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be so exercised, so as to disqualify the Plan under
Section 422A of the Code, or, without the consent of the Participants affected,
to disqualify any Incentive Stock Option under such Section 422A.
6.4 Terms of Options. Options granted under this Plan shall be subject to
the following terms and conditions and shall be in such form and contain such
additional terms and conditions, not inconsistent with the terms of this Plan,
as the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock purchasable
under a Stock Option shall be determined by the Committee at the time
of grant but shall be not less than 100% of the Fair Market Value of
the Common Stock at grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more
than ten years after the date the Option is granted, and no
Non-Qualified Stock Option shall be exercisable more than ten years
and one day after the date the Option is granted.
(c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined
by the Committee at grant; provided, however, that, except as provided
in subsections (f), (g) and (h) below and Article 3, unless otherwise
determined by the Committee at grant, no Stock Option shall be
exercisable prior to the first anniversary date of the granting of the
Option. If the Committee provides, in its discretion, that any Stock
Option is exercisable only in installments, the Committee may waive
such installment exercise provisions at any time at or after grant in
whole or in part, based on such factors, if any, as the Committee
shall determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever installment exercise and
waiting period provisions apply under subsection (c) above, Stock
Options may be exercised in whole or in part at any time during the
option term, by giving written notice of exercise to the Company
specifying the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase price in such form as
the Committee may accept. If and to the extent determined by the
Committee in its sole discretion at or after grant, payment in full or
in part may also be made in the form of Common Stock (other than
Restricted Stock) owned by the Participant (and for which the
Participant has good title free and clear of any liens and
encumbrances) or Restricted Stock, or by reduction in the number of
shares issuable upon such exercise based, in each case, on the Fair
Market Value of the Common Stock on the payment date as determined by
the Committee (without regard to any forfeiture restrictions
applicable to Restricted Stock). No shares of Common Stock shall be
issued until payment, as provided herein, therefor has been made. A
Participant shall generally have the rights to dividends or other
rights of a stockholder with respect to shares subject to the Option
when the optionee has given written notice of exercise, has paid for
such shares as provided herein, and, if requested, has given the
representation described in Section 16.1. Notwithstanding the
foregoing, if payment in full or in part has been made in the form of
Restricted Stock, an equivalent number of shares of Common Stock
issued on exercise of the Option shall be subject to the same
restrictions and conditions, and during the remainder of the
Restriction Period, applicable to the shares of Restricted Stock
surrendered therefor.
(e) Transferability of Options.
(1) No Stock Option shall be Transferable by the Participant
otherwise than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable, during
the Participant's lifetime, only by the Participant.
Notwithstanding the foregoing, the Committee may provide in the
terms and conditions governing any Stock Option other than an
Incentive Stock Option, at the time of grant or thereafter, that
the Stock Option may be Transferred, to the extent vested, to
members of the Participant's immediate family, to trusts solely
for the benefit of such immediate family members, and to
partnerships in which such immediate family members and/or trusts
are the only partners. For this purpose "immediate family
members" means the Participant's spouse, parents, children,
stepchildren, grandchildren and other issue and legal dependents.
Any Transfer of Stock Options made under this provision will not
be effective until notice of such Transfer is received by the
Company.
(2) Notwithstanding any thing to the contrary herein, if a Stock
Option has been Transferred in accordance with this Section 6.4,
the Stock Option shall be exercisable solely by the Transferee.
The Stock Option shall remain subject to the provisions of the
Plan, including that it shall be exercisable only to the extent
that the Participant or Participant's estate would have been
entitled to exercise it if the Participant had not Transferred
the Stock Option. In the event of the death of the Participant
prior to the expiration of the right to exercise the Transferred
Stock Option, the period during which the Stock Option shall be
exercisable shall terminate on the date one year following the
date of the Participant's death. In the event of the death of the
Transferee prior to the expiration of the right to exercise the
Stock Option, the period during which the Stock Option shall be
exercisable by the executors, administrators, legatees and
distributees of the Transferee's estate, as the case may be,
shall terminate on the date one year following the date of the
Transferee's death. In no event, however, shall the Stock Option
be exercisable after the expiration of the Stock Option period
set forth in the terms and conditions of the Stock Option. The
Stock Option shall be subject to such other rules as the
Committee shall determine.
(f) Termination by Death. Subject to subsection (j) below, if a
Participant's employment by the Company or a Designated Subsidiary
terminates by reason of death, any Stock Option held by such
Participant, unless otherwise determined by the Committee at grant,
shall be fully vested and may thereafter be exercised by the legal
representative of the estate, for a period of one year (or such other
period as the Committee may specify at grant) from the date of such
death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(g) Termination by Reason of Disability. Subject to subsection (j) below,
if a Participant's employment by the Company or a Designated
Subsidiary terminates by reason of Disability, any Stock Option held
by such Participant, unless otherwise determined by the Committee at
grant, shall be fully vested and may thereafter be exercised by the
Participant for a period of three years (or such other period as the
Committee may specify at grant) from the date of such termination of
employment or until the expiration of the stated term of such Stock
Option, whichever period is the shorter; provided, however, that, if
the Participant dies within such three-year period (or such other
period as the Committee shall specify at grant), any unexercised Stock
Option held by such Participant shall thereafter be exercisable to the
extent to which it was exercisable at the time of death for a period
of twelve months from the date of such death or until the expiration
of the stated term of such Stock Option, whichever period is the
shorter. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section
422A of the Code, such Stock Option will thereafter be treated as a
Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. Subject to subsection (j), if a
Participant's employment by the Company or a Designated Subsidiary
terminates by reason of Retirement, any Stock Option held by such
Participant, unless otherwise determined by the Committee at grant,
shall be fully vested and may thereafter be exercised by the
Participant for a period of three years (or such other period as the
Committee may specify at grant) from the date of such termination of
employment or the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that, if the
Participant dies within such three-year period, any unexercised Stock
Option held by such Participant shall thereafter be exercisable, to
the extent to which it was exercisable at the time of death, for a
period of twelve months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period
is the shorter. In the event of termination of employment by reason of
Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section
422A of the Code, such Stock Option will thereafter be treated as a
Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee at or
after grant, if a Participant's employment by the Company or a
Designated Subsidiary terminates for any reason other than death,
Disability or Retirement, the Stock Option shall thereupon terminate,
except that such Stock Option may be exercised, to the extent it was
exercisable immediately preceding such termination, for the lesser of
three months or the balance of such Stock Option's term if the
Participant is involuntarily terminated by the Company or the
Designated Subsidiary without cause.
(j) Incentive Stock Option Limitations. To the extent that the aggregate
Fair Market Value (determined as of the time of grant) of the Common
Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Participant during any calendar year under
the Plan and/or any other stock option plan of the Company or any
subsidiary or parent corporation (within the meaning of Section 425 of
the Code) exceeds $100,000, such Options shall be treated as Options
which are not Incentive Stock Options.
To the extent (if any) permitted under Section 422A of the Code, or
the applicable regulations thereunder or any applicable Internal
Revenue Service pronouncement, if (i) a Participant's employment with
the Company or a Designated Subsidiary is terminated by reason of
death, Disability or Retirement and (ii) the portion of any Incentive
Stock Option that is otherwise exercisable during the post-termination
period specified under subsections (f), (g) or (h) above, computed
without regard to the $100,000 limitation currently contained in
Section 422A(d) of the Code, is greater than the portion of such Stock
Option that is immediately exercisable as an "incentive stock option"
during such post-termination period under Section 422A, such excess
shall be treated as a Non-Qualified Stock Option. If the exercise of
an Incentive Stock Option is accelerated by reason of a Change in
Control, any portion of such Option that is not exercisable as an
Incentive Stock Option by reason of the $100,000 limitation contained
in Section 422A(d) of the Code shall be treated as a Non-Qualified
Stock Option.
Should any of the foregoing provisions not be necessary in order for
the Stock Options to qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee may amend the Plan
accordingly, without the necessity of obtaining the approval of the
stockholders of the Company.
(k) Buyout and Settlement Provisions. The Committee may at any time offer
to buy out an Option previously granted, based on such terms and
conditions as the Committee shall establish and communicate to the
Participant at the time that such offer is made.
In addition, if the Option agreement so provides at grant or is
amended (with the Participant's consent) after grant and prior to
exercise to so provide, the Committee may require that all or part of
the shares to be issued with respect to the spread value of an
exercised Option take the form of Performance Shares, Restricted Stock
or Restricted Stock Units, which shall be valued on the date of
exercise on the basis of the Fair Market Value of such Performance
Shares, Restricted Stock or Restricted Stock Units determined without
regard to the deferral limitations and/or forfeiture restrictions
involved.
ARTICLE 7
Stock Appreciation Rights
7.1 Tandem Stock Appreciation Rights. Stock Appreciation Rights may be
granted in conjunction with all or part of any Stock Option (a "Reference Stock
Option") granted under this Plan ("Tandem Stock Appreciation Rights"). In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Reference Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of the grant
of such Reference Stock Option.
7.2 Terms and Conditions of Tandem Stock Appreciation Rights. Tandem Stock
Appreciation Rights shall be subject to such terms and conditions, not
inconsistent with the provisions of this Plan, as shall be determined from time
to time by the Committee, including the following:
(a) Term. A Tandem Stock Appreciation Right or applicable portion thereof
granted with respect to a Reference Stock Option shall terminate and
no longer be exercisable upon the termination or exercise of the
Reference Stock Option, except that, unless otherwise determined by
the Committee, in its sole discretion, at the time of grant, a Tandem
Stock Appreciation Right granted with respect to less than the full
number of shares covered by the Reference Stock Option shall not be
reduced until and then only to the extent the exercise or termination
of the Reference Stock Option causes the number of shares covered by
the Tandem Stock Appreciation Right to exceed the number of shares
remaining available and unexercised under the Reference Stock Option.
(b) Exercisability. Tandem Stock Appreciation Rights shall be exercisable
only at such time or times and to the extent that the Reference Stock
Options to which they relate shall be exercisable in accordance with
the provisions of Article 6 and this Article 7; provided, however,
that any Tandem Stock Appreciation Right granted subsequent to the
grant of the Reference Stock Option shall not be exercisable during
the first six months of its term, except that this special limitation
shall not apply in the event of death or Disability of the Participant
prior to the expiration of the six-month period.
(c) Method of Exercise. A Tandem Stock Appreciation Right may be exercised
by an optionee by surrendering the applicable portion of the Reference
Stock Option. Upon such exercise and surrender, the Participant shall
be entitled to receive an amount determined in the manner prescribed
in this Section 7.2. Stock Options which have been so surrendered, in
whole or in part, shall no longer be exercisable to the extent the
related Tandem Stock Appreciation Rights have been exercised.
(d) Payment. Upon the exercise of a Tandem Stock Appreciation Right a
Participant shall be entitled to receive up to, but no more than, an
amount in cash and/or shares of Common Stock equal in value to the
excess of the Fair Market Value of one share of Common Stock over the
option price per share specified in the Reference Stock Option
multiplied by the number of shares in respect of which the Tandem
Stock Appreciation Right shall have been exercised, with the Committee
having the right to determine the form of payment.
(e) Non-Transferability. Tandem Stock Appreciation Rights shall be
Transferable only when and to the extent that the underlying Stock
Option would be Transferable under subsection 6.4(e) of the Plan.
(f) Deemed Exercise of Reference Stock Option. Upon the exercise of a
Tandem Stock Appreciation Right, the Reference Stock Option or part
thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set
forth in Article 4 of the Plan on the number of shares of Common Stock
to be issued under the Plan.
7.3 Non-Tandem Stock Appreciation Rights. Non-Tandem Stock Appreciation
Rights may also be granted without reference to any Stock Options granted under
this Plan; provided, however, that no Participant shall be granted Stock Options
or Non-Tandem Stock Appreciation Rights, or both, with respect to a total of
more than 1,500,000 shares of Common Stock during any fiscal year of the
Company.
7.4 Terms and Conditions of Non-Tandem Stock Appreciation Rights.
Non-Tandem Stock Appreciation Rights shall be subject to such terms and
conditions, not inconsistent with the provisions of this Plan, as shall be
determined from time to time by the Committee, including the following:
(a) Term. The term of each Non-Tandem Stock Appreciation Right shall be
fixed by the Committee, but shall not be greater than ten years and
one day after the date the Right is granted.
(b) Exercisability. Non-Tandem Stock Appreciation Rights shall be
exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee at grant; provided,
however, that any Right shall not be exercisable during the first six
months of its term, except that this special limitation shall not
apply in the event of death or Disability of the Participant prior to
expiration of this six-month period. If the Committee provides, in its
discretion, that any such Right is exercisable only in installments,
the Committee may waive such installment exercise provisions at any
time at or after grant in whole or in part, based on such factors, if
any, as the Committee shall determine, in its sole discretion.
(c) Method of Exercise. Subject to whatever installment exercise and
waiting period provisions apply under subsection (b) above, Non-Tandem
Stock Appreciation Rights may be exercised in whole or in part at any
time during the option term, by giving written notice of exercise to
the Company specifying the number of Rights to be exercised.
(d) Payment. Upon the exercise of a Non-Tandem Stock Appreciation Right a
Participant shall be entitled to receive, for each Right exercised, up
to, but no more than, an amount in cash and/or shares of Common Stock
equal in value to the excess of the Fair Market Value of one share of
Common Stock on the date the Right is exercised over the Fair Market
Value of one share of Common Stock on the date the Right was awarded
to the Participant, with the Committee having the right to determine
the form of payment.
(e) Non-Transferability. No Non-Tandem Stock Appreciation Right shall be
Transferable by the Participant otherwise than by will or by the laws
of descent and distribution, and all such Rights shall be exercisable,
during the Participant's lifetime, only by the Participant.
(f) Termination by Death. If a Participant's employment by the Company or
a Designated Subsidiary terminates by reason of death, any Non-Tandem
Stock Appreciation Right held by such Participant, unless otherwise
determined by the Committee at grant, shall be fully vested and may
thereafter be exercised by the legal representative of the estate, for
a period of one year (or such other period as the Committee may
specify at grant) from the date of such death or until the expiration
of the stated term of such Right, whichever period is the shorter.
(g) Termination by Reason of Disability or Retirement. If a Participant's
employment by the Company or a Designated Subsidiary terminates by
reason of Disability or Retirement, any Non-Tandem Stock Appreciation
Right held by such Participant, unless otherwise determined by the
Committee at grant, shall be fully vested and may thereafter be
exercised by the Participant for a period of three years (or such
other period as the Committee may specify at grant) from the date of
such termination of employment or until the expiration of the stated
term of such Right, whichever period is the shorter; provided,
however, that, if the Participant dies within such three-year period
(or such other period as the Committee shall specify at grant), any
unexercised Non-Tandem Stock Appreciation Right held by such
Participant shall thereafter be exercisable to the extent to which it
was exercisable at the time of death for a period of twelve months
from the date of such death or until the expiration of the stated term
of such Right, whichever period is the shorter.
(h) Other Termination. Unless otherwise determined by the Committee at or
after grant, if a Participant's employment by the Company or a
Designated Subsidiary terminates for any reason other than death,
Disability or Retirement, the Non-Tandem Stock Appreciation Right
shall thereupon terminate, except that such Right may be exercised, to
the extent it was exercisable immediately preceding such termination,
for the lesser of three months or the balance of the stated term of
such Right if the Participant is involuntarily terminated by the
Company or the Designated Subsidiary without cause.
ARTICLE 8
Restricted Stock
8.1 Awards of Restricted Stock. Shares of Restricted Stock may be issued
either alone or in addition to other Awards granted under the Plan. The
Committee shall determine the Eligible Employees to whom, and the time or times
at which, grants of Restricted Stock will be made, the number of shares to be
awarded to any person, the price (if any) to be paid by the recipient (subject
to Section 8.2), the time or times within which such Awards may be subject to
forfeiture, the vesting schedule and rights to acceleration thereof, and all
other terms and conditions of the Awards. The Committee may condition the grant
or vesting (i.e., lapse of restrictions and risk of forfeiture) of Restricted
Stock upon the attainment of specified performance goals or such other factors
or criteria as the Committee may determine in its sole discretion.
Restricted Stock intended to meet the requirements of Section 162(m) of the
Code for Performance-Based Compensation is referred to herein as
"Performance-Based Restricted Stock." The Committee shall determine the Eligible
Employees to whom and the time or times at which Performance-Based Restricted
Stock shall be awarded, the number of shares of Performance-Based Restricted
Stock to be awarded to any person, the duration of the period (the "Restriction
Period") during which, and the conditions under which, the Participant shall not
be permitted to Transfer shares of Performance-Based Restricted Stock and the
shares shall be subject to risk of forfeiture, the duration of the period during
which any performance goals shall be required to be attained (the "Performance
Period") and the other terms and conditions of the Award. Performance-Based
Restricted Stock shall be subject to the restrictions and conditions of this
Plan as Restricted Stock. Performance-Based Restricted Stock may be issued
either alone or in addition to other Awards granted under the Plan and shall
have the following material terms:
(a) Eligible Employees. Employees eligible to receive Awards of
Performance-Based Restricted Stock shall be those persons eligible
under Section 5.1.
(b) Maximum Amount. The aggregate amount paid to any employee with respect
to Awards of Performance-Based Restricted Stock with respect to a
Performance Period shall not exceed 1,000,000 shares of
Performance-Based Restricted Stock. The Performance Period for this
purpose shall be one (1) to five (5) years, as specified by the
Committee. Unless otherwise provided by the Committee, two or more
Performance Periods may overlap, but no two Performance Periods may
consist entirely of the same period.
(c) Business Criteria.
(i) The performance goals shall be based on any one or more of the
following business criteria relating to the Company or any
subsidiary, division or other unit of the Company: (i) revenue,
(ii) net income, (iii) net income per share, (iv) operating
income, (v) earnings per share, (vi) cash flow, (vii) earnings
before interest and taxes (EBIT) or earnings before interest,
taxes, depreciation and amortization (EBITDA), (viii) total
stockholder return, (ix) total stockholder return relative to
peers, (x) financial returns (including, without limitation,
return on assets, return on equity and return on investment),
(xi) cost reduction targets, (xii) customer satisfaction, (xiii)
customer growth, or (xiv) employee satisfaction.
(ii) Except to the extent that the treatment of the Performance-Based
Restricted Stock as Performance-Based Compensation would be
adversely affected, at the time of grant of the Performance-Based
Restricted Stock, the Committee may provide for the manner in
which performance will be measured against the performance goals
(or may adjust the performance goals) to reflect losses from
discontinued operations, special, extraordinary, unusual or
nonrecurring gains and losses or charges, non-cash charges, the
cumulative effect of accounting changes, acquisitions or
divestitures, core process redesigns, structural
changes/outsourcing, foreign exchange impacts, the impact of
specified corporate transactions, accounting or tax law changes
and other special, extraordinary, unusual or nonrecurring events.
(iii) The performance goals with respect to a Performance Period shall
be established by the Committee by the earlier of (x) the date on
which a quarter of the Performance Period has elapsed or (y) the
date which is ninety (90) days after the commencement of the
Performance Period, and in any event while the performance
relating to the performance goals remains substantially
uncertain.
8.2 Awards and Certificates. The prospective Participant selected to
receive a Restricted Stock Award shall not have any rights with respect to such
Award, unless and until such Participant has delivered a fully executed copy of
the agreement evidencing the Award to the Company and has otherwise complied
with the applicable terms and conditions of such Award. Further, such Award
shall be subject to the following conditions:
(a) Purchase Price. Subject to Section 4.3, the purchase price for
shares of Restricted Stock may be less than their par value and
may be zero.
(b) Acceptance. Awards of Restricted Stock must be accepted within a
period of 60 days (or such shorter period as the Committee may
specify at grant) after the Award date, by executing a Restricted
Stock Award agreement and by paying whatever price (if any) the
Committee has designated thereunder.
(c) Legend. Unless shares are held in book-entry form (or any
electronic equivalent thereof) in the name of or on behalf of the
Participant, each Participant receiving a Restricted Stock Award
shall be issued a stock certificate in respect of such shares of
Restricted Stock. Such certificate shall be registered in the
name of such Participant, and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable
to such Award, substantially in the following form:
"The anticipation, alienation, attachment, sale, transfer,
assignment, pledge, encumbrance or charge of the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of The Reader's Digest Association, Inc.
(the "Company") 2005 Key Employee Long Term Incentive Plan and an
Agreement entered into between the registered owner and the
Company dated . Copies of such Plan and Agreement are on file at
the principal office of the Company."
(d) Custody. The Committee shall require that any stock certificates
evidencing shares of Restricted Stock be held in custody by the
Company until the restrictions thereon shall have lapsed, and
that, as a condition of any Restricted Stock Award, the
Participant shall have delivered a duly signed stock power,
endorsed in blank, relating to the Common Stock covered by such
Award.
8.3 Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Plan shall be subject to the following restrictions and
conditions:
(a) Restriction Period. Subject to the provisions of this Plan and
the Award agreement, during the Restriction Period, the
Participant shall not be permitted to Transfer shares of
Restricted Stock awarded under this Plan. Except in the case of
grants to new employees, the period over which the restrictions
on service-based Restricted Stock Awards shall lapse may not be
less than three years and the period over which restrictions on
performance-based Restricted Stock Awards shall lapse may not be
less than one year, which in each case may include pro rata
vesting over such period. Within these limits, the Committee, in
its sole discretion, may provide for the lapse of such
restrictions in installments and may accelerate or waive such
restrictions in whole or in part, based on service, performance
and/or such other factors or criteria as the Committee may
determine in its sole discretion.
(b) Rights as Stockholder. Except as provided in this subsection (b)
and subsection (a) above or as otherwise provided in the terms
and conditions and restrictions at the time of grant, the
Participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a holder of shares of Common Stock of
the Company including the right to receive any dividends. The
Committee, in its sole discretion, as determined at the time of
Award, may permit or require the payment of dividends to be
deferred.
(c) Termination of Employment. Subject to the applicable provisions
of the Award agreement and this Plan, upon termination of a
Participant's employment with the Company or a Designated
Subsidiary for any reason during the Restriction Period, all
Restricted Stock still subject to restriction will vest or be
forfeited in accordance with the terms and conditions established
by the Committee at grant.
(d) Hardship. Subject to the applicable provisions of the Award
agreement and this Plan, in the event of hardship or other
special circumstances of a Participant whose employment with the
Company or a Designated Subsidiary is involuntarily terminated
(other than for cause), the Committee may, in its sole
discretion, waive in whole or in part any or all remaining
restrictions with respect to such Participant's shares of
Restricted Stock, based on such factors as the Committee may deem
appropriate.
(e) Lapse of Restrictions. If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock subject to
such Restriction Period, such Restricted Stock shall vest and the
certificates for such shares shall be delivered to the
Participant. All legends relating to the restrictions applicable
to the Restricted Stock shall be removed from said certificates
at the time of delivery to the Participant.
(f) Determination of Performance. Promptly after the end of the
Performance Period and prior to the vesting, payment, settlement
or lapsing of any restrictions with respect to any Award of
Performance-Based Restricted Stock, the Committee shall certify
in writing that the applicable performance goals have been
satisfied to the extent necessary for the Award to qualify as
Performance-Based Compensation. Promptly after the end of the
Performance Period and prior to the vesting, payment, settlement
or lapsing of any restrictions with respect to any other Award of
Restricted Stock with performance-based conditions, the Committee
shall certify in writing the extent to which the applicable
performance goals have been satisfied. A Participant's Award of
Performance-Based Restricted Stock may be reduced at any time
before payment or delivery of shares.
ARTICLE 9
Restricted Stock Units
9.1 Awards of Restricted Stock Units. Restricted Stock Units may be awarded
either alone or in addition to other Awards granted under the Plan. The
Committee shall determine the eligible persons to whom, and the time or times at
which, grants of Restricted Stock Units will be made, the number of Restricted
Stock Units to be awarded to any person, the price (if any) to be paid by the
recipient, the time or times within which such Awards may be subject to
forfeiture, the vesting schedule and rights to acceleration thereof, and all
other terms and conditions of the Awards. The Committee may condition the grant
or vesting (i.e., lapse of restrictions and risk of forfeiture) of Restricted
Stock Units upon the attainment of specified performance goals or such other
factors or criteria as the Committee may determine in its sole discretion.
Restricted Stock Units intended to meet the requirements of Section 162(m)
of the Code for Performance-Based Compensation are referred to herein as
"Performance-Based Restricted Stock Units." The Committee shall determine the
Eligible Employees to whom and the time or times at which Performance-Based
Restricted Stock Units shall be awarded, the number of Performance-Based
Restricted Stock Units to be awarded to any person, the duration of the period
(the "Restriction Period") during which, and the conditions under which,
settlement of Performance-Based Restricted Stock Units shall be deferred and the
Performance-Based Restricted Stock Units shall be subject to risk of forfeiture,
the duration of the period during which any performance goals shall be required
to be attained (the "Performance Period"), and the other terms and conditions of
the Award. Performance-Based Restricted Stock Units shall be subject to the
restrictions and conditions of this Plan as Restricted Stock Units.
Performance-Based Restricted Stock Units may be awarded either alone or in
addition to other Awards granted under the Plan and shall have the following
material terms:
(a) Eligible Employees. Employees eligible to receive Awards of
Performance-Based Restricted Stock Units shall be those persons
eligible under Section 5.1.
(b) Maximum Amount. The aggregate amount paid to any employee with
respect to Awards of Performance-Based Restricted Stock Units
with respect to a Performance Period shall not exceed 1,500,000
Restricted Stock Units. The Performance Period for this purpose
shall be one (1) to five (5) years, as specified by the
Committee. Unless otherwise provided by the Committee, two or
more Performance Periods may overlap, but no two Performance
Periods may consist entirely of the same period.
(c) Business Criteria.
(i) The performance goals shall be based on any one or more of
the following business criteria relating to the Company or
any subsidiary, division or other unit of the Company: (i)
revenue, (ii) net income, (iii) net income per share, (iv)
operating income, (v) earnings per share, (vi) cash flow,
(vii) earnings before interest and taxes (EBIT) or earnings
before interest, taxes, depreciation and amortization
(EBITDA), (viii) total stockholder return, (ix) total
stockholder return relative to peers, (x) financial returns
(including, without limitation, return on assets, return on
equity and return on investment), (xi) cost reduction
targets, (xii) customer satisfaction, (xiii) customer
growth, or (xiv) employee satisfaction.
(ii) Except to the extent that the treatment of the
Performance-Based Restricted Stock Units as
Performance-Based Compensation would be adversely affected,
at the time of grant of the Performance-Based Restricted
Stock Units, the Committee may provide for the manner in
which performance will be measured against the performance
goals (or may adjust the performance goals) to reflect
losses from discontinued operations, special, extraordinary,
unusual or nonrecurring gains and losses and charges,
non-cash charges, the cumulative effect of accounting
changes, acquisitions or divestitures, core process
redesigns, structural changes/outsourcing, foreign exchange
impacts, the impact of specified corporate transactions,
accounting or tax law changes and other special,
extraordinary, unusual or nonrecurring events.
(iii) The performance goals with respect to a Performance Period
shall be established by the Committee by the earlier of (x)
the date on which a quarter of the Performance Period has
elapsed or (y) the date which is ninety (90) days after the
commencement of the Performance Period, and in any event
while the performance relating to the performance goals
remains substantially uncertain.
9.2 Terms and Conditions. Restricted Stock Units awarded pursuant to this
Article 9 shall be subject to the following terms and conditions:
(a) Acceptance. Awards of Restricted Stock Units must be accepted within a
period of 60 days (or such shorter period as the Committee may specify
at grant) after the Award date, by executing a Restricted Stock Unit
Award agreement and by paying whatever price (if any) the Committee
has designated thereunder.
(b) Restriction Period. Subject to the applicable provisions of the Award
agreement and this Plan, Restricted Stock Units may not be Transferred
during the Restriction Period. Except in the case of grants to new
employees, the period over which the restrictions on service-based
Restricted Stock Unit Awards shall lapse may not be less than three
years and the period over which restrictions on performance-based
Restricted Stock Unit Awards shall lapse may not be less than one
year, which in each case may include pro rata vesting over such
period. Within these limits, the Committee, in its sole discretion,
may provide for the lapse of such restrictions in installments and may
accelerate or waive such restrictions in whole or in part, based on
service, performance and/or such other factors or criteria as the
Committee may determine in its sole discretion.
(c) Dividends. Unless otherwise determined by the Committee at the time of
Award, amounts equal to any dividends declared during the Restriction
Period with respect to the number of shares of Common Stock relating
to a Restricted Stock Unit Award will not be paid to the Participant.
(d) Payment. Subject to the provisions of the Award agreement and this
Plan, at the expiration of the Restriction Period, the Restriction
Stock Units subject to the Restriction Period shall vest and shares of
Common Stock or the cash value of each vested Restricted Stock Unit,
or a combination thereof, shall be delivered to the Participant, or
his legal representative.
(e) Termination of Employment. Subject to the applicable provisions of the
Award agreement and this Plan, upon termination of a Participant's
employment with the Company or a Designated Subsidiary for any reason
during the Restriction Period for a given Award, the Restricted Stock
Units in question will vest or be forfeited in accordance with the
terms and conditions established by the Committee at grant.
(f) Accelerated Vesting. Based on service, performance and/or such other
factors or criteria, if any, as the Committee may determine, the
Committee may, at or after grant, accelerate the vesting of all or any
part of any Restricted Stock Unit and/or waive the deferral
limitations for all or any part of such Award.
(g) Hardship. Subject to the applicable provisions of the Award agreement
and this Plan, in the event of hardship or other special circumstances
of a Participant whose employment with the Company or a Designated
Subsidiary is involuntarily terminated (other than for cause), the
Committee may, in its sole discretion, based on such factors as the
Committee may deem appropriate, waive in whole or in part any or all
of the remaining deferral limitations imposed hereunder with respect
to any or all of the Participant's Restricted Stock Units.
(h) Determination of Performance. Promptly after the end of the
Performance Period and prior to the vesting, payment, settlement or
lapsing of any restrictions with respect to any Performance-Based
Restricted Stock Unit, the Committee shall certify in writing that the
applicable performance goals have been satisfied to the extent
necessary for the Award to qualify as Performance-Based Compensation.
Promptly after the end of the Performance Period and prior to the
vesting, payment, settlement or lapsing of any restrictions with
respect to any other Restricted Stock Unit with performance-based
conditions, the Committee shall certify in writing the extent to which
the applicable performance goals have been satisfied. A Participant's
Award of Performance-Based Restricted Stock Units may be reduced at
any time before payment or delivery of shares.
ARTICLE 10
Performance Shares
10.1 Award of Performance Shares. Performance Shares may be awarded either
alone or in addition to other Awards granted under this Plan. The Committee
shall determine the eligible persons to whom and the time or times at which
Performance Shares shall be awarded, the number of Performance Shares to be
awarded to any person, the duration of the period (the "Performance Period")
during which, and the conditions under which, receipt of the Shares will be
deferred, and the other terms and conditions of the Award in addition to those
set forth in Section 10.2. The Committee may condition the grant or vesting of
Performance Shares upon the attainment of specified performance goals or such
other factors or criteria as the Committee shall determine, in its sole
discretion. Performance Shares intended to meet the requirements of Section
162(m) of the Code shall have the following material terms:
(a) Eligible Employees. Employees eligible to receive Awards of
Performance Shares shall be those persons eligible under Section 5.1.
(b) Maximum Amount. The aggregate amount paid to any employee with respect
to Awards of Performance Shares with respect to a Performance Period
shall not exceed 1,500,000 Performance Shares. Unless otherwise
provided by the Committee, an Award of Performance Shares will consist
of shares of Common Stock or the value of such shares based on the
average closing price of the Common Stock over the last twenty (20)
days of the Performance Period. The Performance Period for this
purpose shall be one (1) to five (5) years, as specified by the
Committee. Unless otherwise provided by the Committee, two or more
Performance Periods may overlap, but no two Performance Periods may
consist entirely of the same period.
(c) Business Criteria.
(i) The performance goals shall be based on any one or more of the
following business criteria relating to the Company or any
subsidiary, division or other unit of the Company: (i) revenue,
(ii) net income, (iii) net income per share, (iv) operating
income, (v) earnings per share, (vi) cash flow, (vii) earnings
before interest and taxes (EBIT) or earnings before interest,
taxes, depreciation and amortization (EBITDA), (viii) total
stockholder return, (ix) total stockholder return relative to
peers, (x) financial returns (including, without limitation,
return on assets, return on equity and return on investment),
(xi) cost reduction targets, (xii) customer satisfaction, (xiii)
customer growth, or (xiv) employee satisfaction.
(ii) Except to the extent that the treatment of the Performance Shares
as Performance-Based Compensation would be adversely affected, at
the time of grant of the Performance Shares, the Committee may
provide for the manner in which performance will be measured
against the performance goals (or may adjust the performance
goals) to reflect losses from discontinued operations, special,
extraordinary, unusual or nonrecurring gains and losses or
charges, non-cash charges, the cumulative effect of accounting
changes, acquisitions or divestitures, core process redesigns,
structural changes/outsourcing, foreign exchange impacts, the
impact of specified corporate transactions, accounting or tax law
changes and other special, extraordinary, unusual or nonrecurring
events.
(iii) The performance goals with respect to a Performance Period shall
be established by the Committee by the earlier of (x) the date on
which a quarter of the Performance Period has elapsed or (y) the
date which is ninety (90) days after the commencement of the
Performance Period, and in any event while the performance
relating to the performance goals remains substantially
uncertain.
10.2 Terms and Conditions. Performance Shares awarded pursuant to this
Article 10 shall be subject to the following terms and conditions:
(a) Non-Transferability. Subject to the applicable provisions of the Award
agreement and this Plan, Performance Share Awards may not be
Transferred during the Performance Period.
(b) Dividends. Unless otherwise determined by the Committee at the time of
Award, amounts equal to any dividends declared during the Performance
Period with respect to the number of shares of Common Stock covered by
a Performance Share Award will not be paid to the Participant.
(c) Payment. Subject to the provisions of the Award agreement and this
Plan, at the expiration of the Performance Period, share certificates
and/or cash of an equivalent value (as the Committee may determine in
its sole discretion) shall be delivered to the Participant, or his
legal representative, in a number equal to the vested shares covered
by the Performance Share Award.
(d) Termination of Employment. Subject to the applicable provisions of the
Award agreement and this Plan, upon termination of a Participant's
employment with the Company or a Designated Subsidiary for any reason
during the Performance Period for a given Award, the Performance
Shares in question will vest or be forfeited in accordance with the
terms and conditions established by the Committee at grant.
(e) Accelerated Vesting. Based on service, performance and/or such other
factors or criteria, if any, as the Committee may determine, the
Committee may, at or after grant, accelerate the vesting of all or any
part of any Performance Share Award and/or waive the deferral
limitations for all or any part of such Award.
(f) Hardship. Subject to the applicable provisions of the Award agreement
and this Plan, in the event of hardship or other special circumstances
of a Participant whose employment with the Company or a Designated
Subsidiary is involuntarily terminated (other than for cause), the
Committee may, in its sole discretion, based on such factors as the
Committee may deem appropriate, waive in whole or in part any or all
of the remaining deferral limitations imposed hereunder with respect
to any or all of the Participant's Performance Shares.
(g) Determination of Performance. Promptly after the end of the
Performance Period and prior to the vesting, payment, settlement or
lapsing of any restrictions with respect to any Award of Performance
Shares that is intended to constitute Performance-Based Compensation
made to a Participant who is subject to Section 162(m) of the Code,
the Committee shall certify in writing that the applicable performance
goals have been satisfied to the extent necessary for the Award to
qualify as Performance-Based Compensation. A Participant's Award of
Performance Shares may be reduced at any time before payment or
delivery of shares.
ARTICLE 11
Performance Units
11.1 Award of Performance Units. Performance Units may be awarded either
alone or in addition to other Awards granted under this Plan. The Committee
shall determine the eligible persons to whom and the time or times at which
Performance Units shall be awarded, the number of Performance Units to be
awarded to any person, the duration of the period (the "Performance Cycle")
during which, and the conditions under which, a Participant's right to
Performance Units will be vested, the ability of Participants to defer the
receipt of payment of such Units, and the other terms and conditions of the
Award in addition to those set forth in Section 11.2. A Performance Unit shall
have a fixed dollar value. The Committee may condition the grant or vesting of
Performance Units upon the attainment of specified performance goals or such
other factors or criteria as the Committee shall determine, in its sole
discretion. Performance Units intended to meet the requirements of Section
162(m) of the Code shall have the following material terms:
(a) Eligible Employees. Employees eligible to receive Awards of
Performance Units shall be those persons eligible under Section 5.1.
(b) Maximum Amount. The amount paid to any employee with respect to any
one Award of Performance Units shall not exceed $3,000,000 multiplied
by the number of years in the Performance Cycle. Performance Cycles
shall be one (1) to five (5) years, as specified by the Committee.
Unless otherwise provided by the Committee, two or more Performance
Cycles may overlap, but no two Performance Cycles may consist entirely
of the same period.
(c) Business Criteria.
(i) The performance goals shall be based on any one or more of the
following business criteria relating to the Company or any
subsidiary, division or other unit of the Company: (i) revenue,
(ii) net income, (iii) net income per share, (iv) operating
income, (v) earnings per share, (vi) cash flow, (vii) earnings
before interest and taxes (EBIT) or earnings before interest,
taxes, depreciation and amortization (EBITDA), (viii) total
stockholder return, (ix) total stockholder return relative to
peers, (x) financial returns (including, without limitation,
return on assets, return on equity and return on investment),
(xi) cost reduction targets, (xii) customer satisfaction, (xiii)
customer growth, or (xiv) employee satisfaction.
(ii) Except to the extent that the treatment of the Performance Units
as Performance-Based Compensation would be adversely affected, at
the time of grant of the Performance Units, the Committee may
provide for the manner in which performance will be measured
against the performance goals (or may adjust the performance
goals) to reflect losses from discontinued operations, special,
extraordinary, unusual or nonrecurring gains and losses or
charges, non-cash charges, the cumulative effect of accounting
changes, acquisitions or divestitures, core process redesigns,
structural changes/outsourcing, foreign exchange impacts, the
impact of specified corporate transactions, accounting or tax law
changes and other special, extraordinary, unusual or nonrecurring
events.
(iii) The performance goals with respect to a Performance Cycle shall
be established by the Committee by the earlier of (x) the date on
which a quarter of the Performance Cycle has elapsed or (y) the
date which is ninety (90) days after the commencement of the
Performance Cycle, and in any event while the performance
relating to the performance goals remains substantially
uncertain.
11.2 Terms and Conditions. The Performance Units awarded pursuant to this
Article 11 shall be subject to the following terms and conditions:
(a) Non-Transferability. Subject to the applicable provisions of the Award
agreement and this Plan, Performance Unit Awards may not be
Transferred.
(b) Vesting. At the expiration of the Performance Cycle, the Committee
shall determine the extent to which the performance goals have been
achieved, and the percentage of the Performance Units of each
Participant that have vested.
(c) Payment. Subject to the applicable provisions of the Award agreement
and this Plan, at the expiration of the Performance Cycle, cash and/or
share certificates of an equivalent value (as the Committee may
determine in its sole discretion) shall be delivered to the
Participant, or his legal representative, in payment of the vested
Performance Units covered by the Performance Unit Award.
(d) Termination of Employment. Subject to the applicable provisions of the
Award agreement and this Plan, upon termination of a Participant's
employment with the Company or a Designated Subsidiary for any reason
during the Performance Cycle for a given Award, the Performance Units
in question will vest or be forfeited in accordance with the terms and
conditions established by the Committee at grant.
(e) Accelerated Vesting. Based on service, performance and/or such other
factors or criteria, if any, as the Committee may determine, the
Committee may, at or after grant, accelerate the vesting of all or any
part of any Performance Unit Award and/or waive the deferral
limitations for all or any part of such Award.
(f) Hardship. Subject to the applicable provisions of the Award agreement
and this Plan, in the event of hardship or other special circumstances
of a Participant whose employment with the Company or a Designated
Subsidiary is involuntarily terminated (other than for cause), the
Committee may, in its sole discretion, based on such factors as the
Committee may deem appropriate, waive in whole or in part any or all
of the remaining deferral limitations imposed hereunder with respect
to any or all of the Participant's Performance Units.
(g) Determination of Performance. Promptly after the end of the
Performance Period and prior to the vesting, payment, settlement or
lapsing of any restrictions with respect to any Award of Performance
Units that is intended to constitute Performance-Based Compensation
made to a Participant who is subject to Section 162(m) of the Code,
the Committee shall certify in writing that the applicable performance
goals has been satisfied to the extent necessary for the Award to
qualify as Performance-Based Compensation. A Participant's Award of
Performance Units may be reduced at any time prior to payment.
ARTICLE 12
Other Stock-Based Awards
12.1 Other Awards. Other Awards of Common Stock and other Awards that are
valued in whole or in part by reference to, or are payable in or otherwise based
on, Common Stock ("Other Stock-Based Awards"), including, without limitation,
Awards valued by reference to specified performance goals or such other factors
as the Committee may determine, may be granted either alone or in addition to or
in tandem with Stock Options, Stock Appreciation Rights, Restricted Stock,
Restricted Stock Units, Performance Shares or Performance Units.
Subject to the provisions of this Plan, the Committee shall have authority
to determine the persons to whom and the time or times at which such Awards
shall be made, the number of shares of Common Stock to be awarded pursuant to
such Awards, and all other conditions of the Awards. The Committee may also
provide for the grant of Common Stock under such Awards upon the completion of a
specified performance period.
12.2 Terms and Conditions. Other Stock-Based Awards made pursuant to this
Article 12 shall be subject to the following terms and conditions:
(a) Non-Transferability. Subject to the applicable provisions of the Award
agreement and this Plan, shares of Common Stock subject to Awards made
under this Article 12 may not be Transferred prior to the date on
which the shares are issued, or, if later, the date on which any
applicable restriction, performance or deferral period lapses.
(b) Dividends. Unless otherwise determined by the Committee at the time of
Award, subject to the provisions of the Award agreement and this Plan,
the recipient of an Award under this Article 12 shall be entitled to
receive, currently or on a deferred basis, dividends or dividend
equivalents with respect to the number of shares of Common Stock
covered by the Award, as determined at the time of the Award by the
Committee, in its sole discretion.
(c) Vesting. Any Award under this Article 12 and any Common Stock covered
by any such Award shall vest or be forfeited to the extent so provided
in the Award agreement, as determined by the Committee, in its sole
discretion.
(d) Waiver of Limitation. In the event of the Participant's Retirement,
Disability or death, or in cases of special circumstances, the
Committee may, in it sole discretion, waive in whole or in part any or
all of the limitations imposed hereunder (if any) with respect to any
or all of an Award under this Article 12.
(e) Price. Common Stock issued on a bonus basis under this Article 12 may
be issued for no cash consideration; Common Stock purchased pursuant
to a purchase right awarded under this Article 12 shall be priced as
determined by the Committee.
ARTICLE 13
Change in Control Provisions and Transactions
13.1 Benefits. In the event of a Change in Control of the Company (as
defined below), and except as otherwise provided by the Committee upon the grant
of an Award, the Participant shall be entitled to the following benefits:
(a) All outstanding Stock Options and Non-Tandem Stock Appreciation Rights
of such Participant granted prior to the Change in Control shall be
fully vested and immediately exercisable in their entirety, and shall
remain outstanding in accordance with their terms. In its sole
discretion, the Committee may provide for the purchase of any such
Stock Options by the Company or Designated Subsidiary for an amount of
cash equal to the excess of the Change in Control price (as defined
below) of the shares of Common Stock covered by such Stock Options,
over the aggregate exercise price of such Stock Options. For purposes
of this Section 13.1, Change in Control price shall mean the higher of
(i) the highest price per share of Common Stock paid in any
transaction related to a Change in Control of the Company, or (ii) the
highest Fair Market Value per share of Common Stock at any time during
the 60-day period preceding a Change in Control.
(b) All Performance Share Awards and Performance Unit Awards of such
Participant granted prior to the Change in Control shall vest, at a
minimum, as if the applicable Performance Period or Performance Cycle
had ended upon such Change in Control and the determination that any
specified performance goals or targets had been achieved had been made
at such time.
(c) The restrictions to which any shares of Restricted Stock and any
Restricted Stock Units of such Participant granted prior to the Change
in Control are subject shall lapse as if the applicable Restriction
Period had ended upon such Change in Control and the determination
that any specified performance goals or targets had been achieved had
been made at such time.
Any determination by the Committee made pursuant to paragraph (a) of
this Section 13.1 may be made as to all outstanding Awards or only as to certain
outstanding Awards specified by the Committee and any such determination may be
made prior to or after a Change in Control.
13.2 Change in Control. For the purposes of the Plan, a "Change in Control"
means:
(a) an acquisition (other than directly from the Company) or holding by a
Person or a Group (other than a Permitted Holder) of Beneficial
Ownership of shares representing 20% or more of the then outstanding
shares of Common Stock of the Company (the "Outstanding Company Common
Stock"); provided, however, that a Business Combination satisfying
clauses 13.2(c)(i) through (iii) below shall not constitute a Change
in Control;
(b) if the Directors who were members of the Board on the date of adoption
of this provision (the "Initial Directors") and any Directors whose
election by the Company's stockholders was approved by a majority of
the Company's Directors then still in office who were either Incumbent
Directors or whose election or nomination for election was previously
so approved, but excluding any such individual whose election as a
Director occurs as a result of an actual or threatened proxy contest
or consent solicitation by or on behalf of a person other than the
Company or the Board (the "Approved Directors, and together with the
Initial Directors, the "Incumbent Directors"), shall cease for any
reason to constitute at least a majority of the Board;
(c) consummation of a Business Combination, other than a transaction
(i) in which all or substantially all of the stockholders of the
Company receive Beneficial Ownership of more than 50% of the
voting securities of the company resulting from the Business
Combination,
(ii) in which at least a majority of the board of directors of the
resulting company were Incumbent Directors, and
(iii) after which no Person or Group has Beneficial Ownership of 35%
or more of the voting securities of the resulting company, who
did not own at least such percentage of stock of the Company
immediately before the Business Combination; or
(d) stockholder approval of a complete liquidation or dissolution of
the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person or Group has Beneficial Ownership of shares
of Outstanding Company Common Stock or Outstanding Company Voting Power equal to
the 20% threshold in subsection 13.2(a) above as a result of the acquisition by
the Company of such Common Stock or other voting securities which reduces the
number of shares of Outstanding Company Common Stock or reduces the Outstanding
Company Voting Power; provided, that if, after such acquisition by the Company,
such Person or Group obtains Beneficial Ownership of shares of Common Stock or
other voting securities that increases the percentage of Outstanding Company
Common Stock or Outstanding Company Voting Power Beneficially Owned by such
person while such Person or Group has met the 20% threshold in subsection
13.2(a) above, a Change in Control shall then be deemed to occur.
For purposes of this Section 13.2:
"Beneficial Ownership" shall have the meaning given to that term under Rule
13d-3 under the Exchange Act.
"Business Combination" shall mean a merger, consolidation or
reorganization involving the Company or its subsidiaries or a sale,
lease, exchange or other disposition of all or substantially all of the
Company's assets.
"Director" shall mean a member of the Board.
"Group" shall have the meaning given to that term under Rule
13d-5 under the Exchange Act.
"Permitted Holder" shall mean the Company or an employee
benefit plan of the Company or a corporation controlled by the Company.
"Person" shall have the meaning given to that term under
Section 13(d)(3) or 14(d)(2) of the Exchange
Act.
13.3 Effect of Certain Transactions. Subject to Sections 13.1 and 13.2 or
as otherwise provided in an Award agreement, in the event of (a) the liquidation
or dissolution of the Company, or (b) a merger, consolidation, reorganization or
other corporate transaction of the Company (a "Transaction"), the Plan and the
Awards issued hereunder shall continue in effect with their respective terms,
except that following a Transaction, at the Committee's sole discretion, either
(i) each outstanding Award shall be treated as provided for in the agreement
entered into in connection with the Transaction, or (ii) if not so provided in
such agreement, each Participant shall be entitled to receive in respect of each
share of Common Stock or other stock or securities subject to any outstanding
Awards, as the case may be, upon exercise of any Option or payment or transfer
in respect of any Award, the same number and kind of stock, securities, cash,
property or other consideration that each holder of a share of Common Stock or
other stock or securities was entitled to receive in the Transaction in respect
of such share; provided, however, that such stock, securities, cash, property,
or other consideration shall remain subject to all of the conditions,
restrictions and performance criteria which were applicable to the Awards prior
to such Transaction. The treatment of any Award as provided in this Section
shall be conclusively presumed to be appropriate for purposes of Section 4.3.
ARTICLE 14
Termination or Amendment of the Plan
14.1 Termination or Amendment. Notwithstanding any other provision of this
Plan, the Board may at any time, and from time to time, amend, in whole or in
part, any or all of the provisions of the Plan (including any amendment deemed
necessary to ensure that the Company may comply with any legal or regulatory
requirement), or suspend or terminate it entirely, retroactively or otherwise;
provided, however, that, unless in connection with compliance with a legal or
regulatory requirement, the rights of a Participant with respect to Awards
granted prior to such amendment, suspension or termination, may not be impaired
without the consent of such Participant and, provided further, without the
approval of the holders of the Company's stock entitled to vote, no amendment
may be made which would (i) increase the aggregate number of shares of Common
Stock that may be issued under this Plan or the percentage of shares that may be
issued with respect to Awards other than Stock Options and Non-Tandem Stock
Appreciation Rights (except by operation of Section 4.3); (ii) change the
definition of employees eligible to receive Stock Awards under this Plan; (iii)
decrease the option price of any Stock Option to less than 100% of the Fair
Market Value on the date of grant; (iv) reduce the option price of an
outstanding Stock Option, either by lowering the option price or by canceling an
outstanding Stock Option and granting a replacement Stock Option with a lower
exercise price, or (v) extend the maximum option period under Section 6.4 of the
Plan.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but, subject to Article 4 above; provided,
however, that, unless in connection with compliance with a legal or regulatory
requirement, no such amendment or other action by the Committee shall impair the
rights of any holder without the holder's consent. Notwithstanding the
foregoing, if a Stock Option has been Transferred in accordance with the Plan,
written consent of the Transferee (and not the Participant) shall be necessary
to impair the rights of the holder under the Stock Option.
Notwithstanding the foregoing, the Board may amend the provisions of this
Plan and the terms of any Award granted, prospectively or retroactively, at any
time without the consent of any affected Participant or Transferee to the extent
necessary for the Plan and the Award thereunder to comply with Section 409A of
the Code and any regulations or other guidance issued thereunder, even if the
amendment affects or impairs the rights of the Participant or Transferee.
ARTICLE 15
Unfunded Plan
15.1 Unfunded Status of Plan. This Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments as to which a Participant has a fixed and vested interest but which are
not yet made to a Participant by the Company, nothing contained herein shall
give any such Participant any rights that are greater than those of a general
creditor of the Company.
ARTICLE 16
General Provisions
16.1 Legend. The Committee may require each person purchasing shares
pursuant to a Stock Option or other Award under the Plan to represent to and
agree with the Company in writing that the Participant is acquiring the shares
without a view to distribution thereof. In addition to any legend required by
this Plan, the certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on Transfer.
All certificates for shares of Common Stock delivered under the Plan shall
be subject to such stock transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed or any national securities exchange system upon whose system the
Stock is then quoted, any applicable federal or state securities law, and any
applicable corporate law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.
16.2 Other Plans. Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
16.3 No Right to Employment. Neither this Plan nor the grant of any Option
or other Award hereunder shall give any Participant or other employee any right
with respect to continuance of employment by the Company or any subsidiary, nor
shall they be a limitation in any way on the right of the Company or any
subsidiary by which an employee is employed to terminate his employment at any
time.
16.4 Withholding of Taxes.
(a) At such times as a Participant recognizes taxable income in connection
with the receipt of shares of Common Stock or cash hereunder (a
"Taxable Event"), the Participant shall pay to the Company an amount
equal to the federal, state and local income taxes and other amounts
as may be required by law to be withheld by the Company in connection
with the Taxable Event (the "Tax Withholding") prior to the issuance,
or release from escrow, of such shares of Common Stock or the payment
of such cash. The Company shall have the right to deduct from any
payment of cash to a Participant an amount equal to the Tax
Withholding in satisfaction of the obligation to pay Tax Withholding.
In satisfaction of the obligation to pay Tax Withholding to the
Company, a Participant may make a written election (the "Tax
Election"), which may be accepted or rejected in the sole discretion
of the Committee, to have withheld a portion of the shares then
issuable to him or her having an aggregate Fair Market Value equal to
the Tax Withholding.
(b) To the extent required by the Committee in its discretion, if a
Participant makes a disposition, within the meaning of Section 424(c)
of the Code and regulations promulgated thereunder, of any share or
shares of Common Stock issued to the Participant pursuant to the
exercise of an Incentive Stock Option within the two-year period
commencing on the day after the date of grant or within the one-year
period commencing on the day after the transfer of such share or
shares of Common Stock to the Participant pursuant to such exercise,
the Participant shall, within ten (10) days after such disposition,
notify the Company thereof, by delivery of written notice to the
Company at its principal executive office.
(c) Notwithstanding the foregoing, if Stock Options have been Transferred,
the Participant shall provide the Company with funds sufficient to pay
such Tax Withholding when such Tax Withholding is due. Furthermore, if
such Participant does not satisfy the applicable Tax Withholding
obligation, the Transferee may provide the funds sufficient to enable
the Company to pay the Tax Withholding. However, if Stock Options have
been Transferred, the Company shall have no right to retain or sell
without notice, or to demand surrender from the Transferee of, shares
of Common Stock in order to pay such Tax Withholding. Any fraction of
a share of Common Stock required to satisfy such tax obligations shall
be disregarded and the amount due shall be paid instead in cash by the
Participant.
16.5 Deferral Election. A Participant may elect, in the sole discretion of
the Committee and consistent with any rules, procedures or regulations
established by the Committee, to defer the delivery of the proceeds of any
Award. A Participant may elect to have the payment of a portion of each Award
deferred in accordance with the terms and procedures set forth in the Company's
Deferred Compensation Plan, or any equivalent or successor plan, as in effect
from time to time (the "Deferred Compensation Plan"). The election to defer the
delivery of the proceeds from any eligible Award must be made on or before the
Election Date (as such term is defined in the Deferred Compensation Plan).
16.6 No Assignment of Benefits. No Option, Award or other benefit payable
under this Plan shall, except as otherwise specifically provided by law or by
the Plan, be Transferable in any manner, and any attempt to Transfer any such
benefit shall be void, and any such benefit shall not in any manner be liable
for or subject to the debts, contracts, liabilities, engagements or torts of any
person who shall be entitled to such benefit, nor shall it be subject to
attachment or legal process for or against such person.
16.7 Listing and Other Conditions.
(a) As long as the Common Stock is listed on a national securities
exchange or system sponsored by a national securities association, the
issue of any shares of Common Stock pursuant to an Option or other
Award shall be conditioned upon such shares being listed on such
exchange or system. The Company shall have no obligation to issue such
shares unless and until such shares are so listed, and the right to
exercise any Option or other Award with respect to such shares shall
be suspended until such listing has been effected.
(b) If at any time counsel to the Company shall be of the opinion that any
sale or delivery of shares of Common Stock pursuant to an Option or
other Award is or may in the circumstances be unlawful or result in
the imposition of excise taxes under the statutes, rules or
regulations of any applicable jurisdiction, the Company shall have no
obligation to make such sale or delivery, or to make any application
or to effect or to maintain any qualification or registration under
the Securities Act of 1933, as amended, or otherwise with respect to
shares of Common Stock or Awards, and the right to exercise any Option
or other Award shall be suspended until, in the opinion of said
counsel, such sale or delivery shall be lawful or will not result in
the imposition of excise taxes.
(c) Upon termination of any period of suspension under this Section 16.7,
any Award affected by such suspension which shall not then have
expired or terminated shall be reinstated as to all shares available
before such suspension and as to shares which would otherwise have
become available during the period of such suspension, but no such
suspension shall extend the term of any Option.
16.8 Interpretation. Following the required registration of any equity
security of the Company pursuant to Section 12 of the Exchange Act:
(a) The Plan is intended to comply with Rule 16b-3 promulgated under the
Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent
therewith. Any provisions inconsistent with such Rule shall be
inoperative and shall not affect the validity of the Plan.
(b) Unless otherwise expressly stated in the relevant Agreement, each
Option, Stock Appreciation Right, Performance-Based Restricted Stock,
Performance-Based Restricted Stock Unit, Performance Share and
Performance Unit granted under the Plan is intended to be
Performance-Based Compensation. The Committee shall be precluded from
exercising any discretion otherwise authorized hereunder with respect
to Awards that are intended to qualify as Performance-Based
Compensation to increase the amount payable that would otherwise be
due upon attainment of the performance goal.
16.9 Governing Law. This Plan and actions taken in connection herewith
shall be governed and construed in accordance with the laws of the State of New
York (regardless of the law that might otherwise govern under applicable New
York principles of conflict of laws).
16.10 Construction. Wherever any words are used in this Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
16.11 Liability. No member of the Board, no employee of the Company and no
member of the Committee (nor the Committee itself) shall be liable for any act
or action hereunder, whether of omission or commission, by any other member or
employee or by any agent to whom duties in connection with the administration of
the Plan have been delegated or, except in circumstances involving his bad
faith, gross negligence or fraud, for anything done or omitted to be done by
himself.
16.12 Other Benefits. No Award payment under this Plan shall be deemed
compensation for purposes of computing benefits under any retirement plan of the
Company or its subsidiaries nor affect any benefits under any other benefit plan
now or subsequently in effect under which the availability or amount of benefits
is related to the level of compensation.
16.13 Costs. The Company shall bear all expenses incurred in administering
this Plan, including expenses of issuing Common Stock pursuant to any Awards
hereunder.
16.14 No Right to Same Benefits. The provisions of Awards need not be the
same with respect to each Participant, and such Awards to individual
Participants need not be the same in subsequent years.
16.15 Severability. Whenever possible, each provision of the Plan or an
Award agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of the Plan or an Award agreement
shall be held by a court of competent jurisdiction to be prohibited by or
invalid of unenforceable under applicable law, then (a) such provision shall be
deemed to be amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (b) all other provisions of
the Plan or the Award agreement shall remain in full force and effect.
16.15 Indemnification. Each person who is or shall have been a member of
the Committee and each delegate of such Committee shall be indemnified and held
harmless by the Company against and from any loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by such person in connection
with or resulting from any claim, action, suit, or proceeding to which such
person may be made a party or in which such person may be involved by reason of
any action taken or failure to act under the Plan and against and from any and
all amounts paid by such person in settlement thereof, with the Company's
approval, or paid by such person in satisfaction of any judgment in any such
action, suit, or proceeding against such person; provided that the Company is
given an opportunity, at its own expense, to handle and defend the same before
such person undertakes to handle and defend it personally. The foregoing right
of indemnification shall not be exclusive and shall be independent of any other
rights of indemnification to which such person may be entitled under the
Company's Certificate of Incorporation or By-Laws, by contract, as a matter of
law, or otherwise.
ARTICLE 17
Effective Date of Plan and Amendments
The Plan shall become effective on the date, following adoption by the
Board, on which the Plan is approved by the holders of a majority of the capital
stock of the Company entitled to vote thereon at a duly constituted meeting of
the stockholders of the Company. Any amendment of the Plan shall become
effective upon the date specified by the Board in its resolution adopting the
amendment, subject to the approval of any material amendment by the holders of a
majority of the capital stock of the Company entitled to vote thereon within one
year after the material amendment is adopted. Any grants of Awards hereunder
prior to such approval of a material amendment shall be effective when made
(unless otherwise specified by the Committee at the time of grant), but shall be
conditioned on, and subject to, such approval of the material amendment by
stockholders.
ARTICLE 18
Term of Plan
No Stock Option, Stock Appreciation Right, Restricted Stock, Restricted
Stock Unit, Performance Share, Performance Unit or Other Stock-Based Award shall
be granted pursuant to the Plan on or after the tenth anniversary of the earlier
of the date the Plan is adopted or the date of stockholder approval but Awards
granted prior to such tenth anniversary may extend beyond that date.
ARTICLE 19
Name of Plan
This Plan shall be known as "The Reader's Digest Association, Inc. 2005 Key
Employee Long Term Incentive Plan."
ARTICLE 20
Election to Receive Awards in Lieu of Other Compensation
The Committee, in its sole discretion, may permit a Participant to elect
pursuant to this Plan, on such terms and conditions as shall be approved by the
Committee, to receive an Award under this Plan in lieu of receiving payment of
other compensation, under this Plan or otherwise, from the Company or any
Designated Subsidiary. The Committee shall have sole discretion to consent to or
disapprove any such election by any Participant. The grant of Awards pursuant to
such election shall be subject to the provisions and limitations of this Plan
and applicable law.