RELIANCE GROUP HOLDINGS, INC.
KEY EMPLOYEE SHARE OPTION PLAN
Effective Date of Plan: December 10, 1997
RELIANCE GROUP HOLDINGS, INC.
KEY EMPLOYEE SHARE OPTION PLAN
Table of Contents
Page
Preamble...................................................................1
ARTICLE I Definitions..............................................1
ARTICLE II Grant of Options.........................................3
ARTICLE III Exercise of Options......................................5
ARTICLE IV Amendment or Termination of the Plan.....................7
ARTICLE V Plan Administration......................................8
ARTICLE VI Miscellaneous............................................10
Preamble
Reliance Group Holdings, Inc. (the "Sponsor") hereby establishes the
Reliance Group Holdings, Inc. Key Employee Share Option Plan (the "Plan"),
effective as of the date specified herein.
The purpose of the Plan is to provide alternate forms of compensation
to certain key employees of the Employer, commensurate with their contributions
to the success of the Employer's activities, in a form that will provide
incentives and rewards for meritorious performance and encourage the recipients'
continuance as employees of the Employer.
ARTICLE I
Definitions
As used in this Plan, the following capitalized words and phrases have
the meanings indicated, unless the context requires a different meaning:
1.1 "Administrative Committee" means the committee appointed in
accordance with Section 5.1 to administer the Plan, and shall initially consist
of the members of the Sponsor's Benefit Plans Committee.
1.2 "Beneficiary" means the person or persons designated by a
Participant, or who is otherwise entitled, to exercise Options after a
Participant's death.
1.3 "Board" means the Board of Directors of the Sponsor.
1.4 "Compensation Committee" means the Compensation Committee of the
Board or, with respect to Section 162(m) Reporting Persons, the Special
Compensation Committee of the Board.
1.5 "Designated Property" means shares of regulated investment
companies (mutual funds) designated by the Compensation Committee as subject to
purchase through the exercise of an Option, or the property substituted under
Section 2.5.
1.6 "Disability" means a mental or physical condition that would
entitle a Participant to receive benefits under the applicable Employer's
long-term disability plan.
1.7 "Effective Date" means December 10, 1997.
1.8 "Employee" means any common law employee of the Sponsor or any
other Employer.
1.9 "Employer" means the Sponsor, any other affiliate or subsidiary of
the Sponsor which is a member of its controlled group of corporations (within
the meaning of Section 1563 of the Internal Revenue Code of 1986, as amended)
which has been designated by the Sponsor to participate in this Plan as a
participating employer, and any successor to the Sponsor.
1.10 "Exercise Date" means, with respect to any Option, the date on
which the Participant exercises the Option in accordance with Section 3.3,
except that for purposes of determining any reduction in Option Exercise Price
under Section 2.4.1, the Option Exercise Price percentage shall be determined as
of the date on which occurred the Termination of Employment.
1.11 "Exercise Period" means the period of time stated in Section
3.1.1.
1.12 "Fair Market Value" means, with respect to shares of a regulated
investment company (mutual fund), the price of, or for mutual funds whose shares
are traded on the basis of net asset value, the net asset value ascribed to, the
shares of the applicable mutual fund as quoted at the close of the market on the
applicable date.
1.13 "Grant Date" means, with respect to any Option, the date on which
the Option Agreement has been made effective.
1.14 "Option" means the right of a Participant, granted by the Employer
in accordance with the terms of this Plan, to purchase Designated Property from
the Employer at the Option Exercise Price established under Section 2.
1.15 "Option Agreement" means an agreement from the Employer to a
Participant to whom Options have been granted, acknowledging the issuance of the
Options and setting forth certain terms governing the Option, including, but not
limited to a description of the Designated Property, the Option Exercise Price
and the Exercise Period.
1.16 "Option Exercise Price" means the price that a Participant must
pay in order to exercise an Option.
1.17 "Participant" means any Employee who has received a grant of
Options in accordance with Section 2.1 and whose Options have not been
completely exercised. After a Participant's death, his Beneficiary, or upon a
valid transfer under Section 3.4, the transferee, is considered to be a
Participant to the extent necessary to facilitate the exercise of any Options
that continue to be exercisable under the terms of the Plan.
1.18 "Plan" means the Reliance Group Holdings, Inc. Key Employee Share
Option Plan, as set forth herein and as from time to time amended.
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1.19 "Retirement" means Termination of Employment on or after the date
on which a Participant attains age 65.
1.20 "Section 162(m) Reporting Person" means any Participant whose
remuneration is, or as an executive officer of Sponsor may become, subject to
Section 162(m) of the Internal Revenue Code of 1986, as amended.
1.21 "Sponsor" means the Reliance Group Holdings, Inc., a Delaware
corporation or any successor thereto.
1.22 "Termination of Employment" means a Participant's separation from
the service of the Sponsor or any other Employer by reason of his resignation,
Retirement, discharge or death; other than any separation which results in a
transfer to another Employer.
1.23 "Termination of Employment for Cause" means Termination of
Employment as a result of (i) the willful and material failure of Employee to
timely perform duties assigned to him by Employer, (ii) the commission by
Employee of gross negligence or wanton misconduct in the conduct of his or her
assigned duties, (iii) the material violation of any guidelines established by
Employer, (iv) theft, misappropriation or defalcation of Employer funds by
Employee or (v) the indictment of Employee for, or the entry of a pleading of
nolo contendere by Employee to, any crime involving moral turpitude or any
felony.
ARTICLE II
Grant of Options
2.1 Eligibility for Grants. Grants of Options may be made to any
Employee of the Employer who, in the judgment of the Compensation Committee,
plays a key role with a significant impact on the Employer's fulfillment of the
purposes specified in its Articles of Incorporation and By-Laws.
2.2 Procedure for Granting Options. The recipients of Options are
determined from time to time by the Compensation Committee. Grants become
effective upon the execution and delivery by the Employer to the Participant of
an Option Agreement which shall contain such provisions as the Compensation
Committee in its sole discretion deems necessary or desirable. Grants may be
made at any time on or after the Effective Date and prior to the termination of
the Plan.
2.3 Selection of Designated Property. When an Option is granted, the
Compensation Committee will specify the Designated Property that may be
purchased by exercise of the Option and will determine the Exercise Price in
accordance with Section 2.4.
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2.4 Establishment of Exercise Price.
2.4.1 Unless the Option Agreement provides otherwise, the
Exercise Price of an Option shall be the greater of 25% of the Fair
Market Value of the shares on the Grant Date and a percentage of the
Fair Market Value of the shares on the Exercise Date, which percentage
varies with the earlier of Termination of Employment and Exercise Date.
Initially, such percentage will be 25% of the Fair Market Value of the
shares on the Exercise Date. However, for every two years the Option is
outstanding until the sixteenth anniversary of the Grant Date such
percentage of the Fair Market Value of the shares on the Exercise Date
will decrease by one-half of one percent (.5%), so that by the
sixteenth anniversary of the Grant Date such percentage would be 21%
instead of 25%. Finally, if the Option remains outstanding for the full
twenty years, such percentage will be reduced to 15% of the Fair Market
Value of the shares on the Exercise Date. No reduction of such
percentage of Fair Market Value of any Option shall be made for periods
after the Termination of Employment.
2.4.2 In the event of a stock split, reverse stock split,
stock dividend, rights offering, return of capital distribution,
recapitalization or similar transaction that materially affects the
Fair Market Value of the Designated Property, the Compensation
Committee may adjust the Option Exercise Price or increase the number
of Options that can be exercised so that it retains the same ratio to
the Fair Market Value of the Designated Property as existed immediately
before the transaction.
2.5 Substitution of Other Property for Designated Property. The
Compensation Committee may, in its sole discretion, at any time substitute the
Designated Property with any other property of at least equal value. Such
substituted property shall be deemed Designated Property for all purposes under
the Plan.
2.6 Cash Payment for Option in Lieu of Exercise and Sale. Options which
are exercisable pursuant to Section 3.1, but which have not yet been exercised,
may upon Termination of Employment For Cause be canceled by the Compensation
Committee, at its discretion, for a cash payment of an amount equal to the Fair
Market Value of the full number of exercisable shares or units of Designated
Property less the total Option Exercise Price of such shares or units (in lieu
of requiring or allowing actual exercise and sale of the shares).
2.7 Adjustment of Shares Deliverable under Option Agreement. The
Compensation Committee shall include a dividend or other distribution equivalent
right entitling the Optionee to receive amounts equal to the distributions paid,
during the time such Option is outstanding and unexercised, with respect to the
shares or units of Designated Property covered by such Option. The Compensation
Committee shall determine whether such payments shall be made in cash or in
additional Options to purchase shares or units of the Designated Property and
the time or times at which such
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payments shall be made. In the event additional Options are granted, the Options
shall be subject to all terms of the Plan, including, but not limited to the six
month waiting period before the Options could be exercised as provided under
Section 3.1, as of the Grant Date of such Options.
ARTICLE III
Exercise of Options
3.1 When Options are Exercisable. Unless the Option Agreement provides
otherwise, an Option shall be exercisable as follows:
3.1.1. A Participant may exercise an Option, in whole or in
part, at any time during the period commencing six months after the
Grant Date and ending on the twentieth anniversary of the Grant Date
(the "Normal Exercise Period").
3.1.2 Notwithstanding the above, the Exercise Period shall
end on the earlier of the following:
(a) Twenty-four months from the date of the
Participant's Termination of Employment, if his employment
terminates as a result of Retirement or Disability;
(b) Twenty-four months from the date of the
Participant's death, unless the Beneficiary is the
Participant's spouse, in which case the Exercise Period
shall end five (5) years from the date of the Participant's
death;
(c) Thirty (30) days from the date of the
Participant's Termination of Employment For Cause or, if
longer, seven months from the Grant Date;
(d) Ninety (90) from the date of the Participant's
Termination of Employment, or, if longer, nine months from
the Grant Date, if his employment terminates for any reason
other than as specified in (a), (b) or (c) above, unless
otherwise agreed in writing by the Compensation Committee
as in the best interests of the Employer under the
circumstances of a Termination of Employment; or
(e) Twenty-four months from the date the Plan is
terminated pursuant to Article IV hereof.
3.2 Vesting. Unless the Option Agreement provides otherwise, a
Participant shall be immediately vested in any Option granted to such
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Participant, regardless of such Participant's ability to exercise the Option
under Section 3.1.1.
3.3 Procedure for Exercising Option. Unless the Option Agreement
provides otherwise, the procedure for exercising an Option shall be as set
forth below.
3.3.1 Notice of Exercise. A Participant may exercise all or
a portion of his or her exercisable Options by giving written notice to
the Administrative Committee, or its delegate, in a form and at the
time acceptable to the Administrative Committee and tendering payment
of the applicable Exercise Price.
3.3.2 Payment of Exercise Price. The method of payment
shall be cash, cash equivalent (i.e., money order, cashier's check or
certified check) or any other method of payment approved by the
Administrative Committee.
3.3.3 Delivery of Option Shares. As soon as is reasonably
possible after receiving payment of the full Option Exercise Price, the
Sponsor shall, subject to the provisions of Sections 3.1, transfer to
the Participant, or to such other person as may then have the right to
exercise the Option, the number of shares or units of Designated
Property for which the Option has been exercised. If the method of
payment employed upon exercise so requires, and if applicable law
permits, a Participant may direct the Sponsor to deliver the
certificate(s) to the Participant's stockbroker or other investment
manager.
3.3.4 Payment of Applicable Taxes. The Sponsor shall be
entitled to require as a condition of transfer of the Designated
Property pursuant to the exercise of the Option that the Participant
remit to the Sponsor an amount sufficient in the opinion of the Sponsor
to satisfy all federal, state and other governmental tax withholding
requirements related thereto. The Sponsor may permit the Participant to
satisfy the foregoing condition by electing to have the Sponsor
withhold from other income earned by the Participant and paid by the
Sponsor or by electing to have the Sponsor withhold shares of
Designated Property deliverable under the Option.
3.4 Inalienability of Options. No Option granted under this Plan may be
transferred, assigned or alienated, except to a Beneficiary under this Plan, or,
if permitted by the Compensation Committee, to (i) a member of the Participant's
immediate family, such as the Participant's spouse, child, parent, brother or
sister, or to a trust, partnership or limited liability company for the benefit
of any such individual, or (ii) an inter vivos trust for the benefit of the
Participant. An Option may be exercised only by the Participant to whom it was
granted, by his Beneficiary, executor or administrator of his or her estate
after death, by a person or entity to whom the Option was validly transferred,
or by a person holding a valid power of attorney, or legally appointed as
guardian, to act on behalf of the person entitled to exercise the Option.
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3.5 Designation of Beneficiary
3.5.1 Designation or Change of Beneficiary by Participant.
Prior to the grant of an Option, a Participant may designate one or
more Beneficiaries and successor Beneficiaries. A Participant may
change his Beneficiary designation at any time by filing the prescribed
form with the Administrative Committee. The consent of the
Participant's current Beneficiary is not required for a change of
Beneficiary, and no Beneficiary has any rights under this Plan except
as are provided by its terms. The rights of a Beneficiary who
predeceases the Participant who designated him immediately terminate,
unless the Participant has specified otherwise.
3.5.2 Beneficiary if No Designation is Made. Unless a
different Beneficiary has been designated in accordance with Section
3.5.1, the Beneficiary of any Participant who is lawfully married on
the date of his death is his surviving spouse. The Beneficiary of any
other Participant who dies without having designated a Beneficiary is
his estate.
ARTICLE IV
Amendment or Termination of the Plan
4.1 Sponsor's Right to Amend or Terminate Plan. The Sponsor may, at any
time and from time to time, amend, in whole or in part, any of the provisions of
this Plan or may terminate it as a whole or with respect to any Participant or
group of Participants. Any such amendment is binding upon all Employers and
Participants, the Compensation Committee, the Administrative Committee and all
other parties in interest.
4.2 When Amendments Take Effect. A resolution amending or terminating
the Plan becomes effective as of the date specified therein or, if no date is
otherwise specified, upon the date the resolution is finally approved by the
Board.
4.3 Exercisability upon Termination. In the event that the Plan is
terminated, the Sponsor reserves the right to require all outstanding Options to
be exercised within two years of the date of such termination.
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ARTICLE V
Plan Administration
5.1 Administration of Plan. The Plan shall be administered by the
Administrative Committee appointed by the Compensation Committee; provided,
however, that with respect to any Participant who is a Section 162(m) Reporting
Person, the Plan shall be administered by the Compensation Committee.
5.1.1 Interested Parties. No member of the Administrative
Committee may participate in any decision if that member is not
disinterested with respect to the issue being considered.
5.1.2 Action by the Administrative Committee. The
Administrative Committee acts by a majority of its members at the time
in office and may take action either by vote at a meeting or by consent
in writing without a meeting. The Administrative Committee may adopt
such rules and appoint such subcommittees as it deems desirable for the
conduct of its affairs and the administration of the Plan.
5.1.3 Removal, Resignation, Action During Vacancies. The
Compensation Committee has the power to remove any member of the
Administrative Committee at any time, with or without cause, and may
fill any vacancy. If a vacancy occurs, the remaining member or members
of the Administrative Committee have full authority to act. In the
absence of any Administrative Committee members being appointed or
continuing in that capacity, the Compensation Committee shall
constitute the Administrative Committee. Any member of the
Administrative Committee may resign by delivering his written
resignation to the Compensation Committee. Any such resignation becomes
effective upon its receipt by the Compensation Committee, or on such
other date as is agreed to by the Compensation Committee and the
resigning member. Any Administrative Committee member who is an officer
of the Employer shall be deemed to submit his or her resignation upon
submitting a resignation from employment or upon being terminated from
employment by the Employer, which resignation shall be effective upon
the effective date of the resignation or termination from employment.
5.2 Powers of the Administrative Committee. In carrying out its duties
with respect to the general administration of the Plan, the Administrative
Committee has, in addition to any other powers conferred by the Plan or by law,
the following powers:
(a) to compute and certify to the Sponsor the amount of
distributions payable to Participants;
(b) to maintain all records necessary for the administration of
the Plan that are
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not maintained by the Sponsor;
(c) to interpret the provisions of the Plan and to make and
publish such rules for the administration of the Plan as are not
inconsistent with the terms thereof;
(d) to establish and modify the method of accounting for the
Plan;
(e) to employ counsel, accountants and other consultants to aid
in exercising its powers and carrying out its duties hereunder; and
(f) to perform any other acts necessary and proper for the
administration of the Plan, except those that are performed by the
Sponsor or the Compensation Committee.
5.3 Indemnification.
5.3.1 Indemnification of Members of the Compensation
Committee and Administrative Committee by the Employer. The Sponsor
agrees to indemnify and hold harmless each member of either the
Compensation or Administrative Committee against any and all expenses
and liabilities arising out of his action or failure to act in such
capacity, excepting only expenses and liabilities arising out of his
own willful misconduct or gross negligence. This right of
indemnification is in addition to any other rights to which any member
of either the Compensation or Administrative Committee may be entitled.
5.3.2 Liabilities for Which Members of the Compensation and
Administrative Committees are Indemnified. Liabilities and expenses
against which a member of either the Compensation or Administrative
Committee is indemnified hereunder include, without limitation, the
amount of any settlement or judgment, costs, counsel fees and related
charges reasonably incurred in connection with a claim asserted or a
proceeding brought against him or the settlement thereof, and any
penalties or fines imposed by any federal, state or local statute or
governmental entity.
5.3.3 Employer's Right to Settle Claims. The Sponsor may,
at its own expense, settle any claim asserted or proceeding brought
against any member of either the Compensation or Administrative
Committee when such settlement appears to be in the best interests of
the Sponsor.
5.4 Claims Procedure. If a dispute arises between the Administrative
Committee and a Participant over the amount of benefits payable under the Plan,
the Participant may file a claim for benefits by notifying the Administrative
Committee in writing of his claim. The Administrative Committee will review and
adjudicate the claim. If the claimant and the Administrative Committee are
unable to reach a mutually satisfactory resolution of the dispute, it may be
submitted by the claimant to the Compensation Committee for final adjudication.
5.5 Expenses of the Plan and the Administrative Committee. The members
of the Administrative Committee serve without compensation for services as such.
All
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expenses of the Administrative Committee are paid by the Sponsor.
ARTICLE VI
Miscellaneous
6.1 Plan not a Contract of Employment. The adoption and maintenance of
the Plan do not constitute a contract between any Employer and any Participant
and is not consideration for the employment of any person. Nothing herein
contained gives any Participant the right to be retained in the employ of any
Employer or derogates from the right of any Employer to discharge any
Participant at any time without regard to the effect of such discharge upon his
rights as a Participant in the Plan.
6.2 No Rights Under Plan Except as Set Forth Herein. Nothing in this
Plan, express or implied, is intended, or shall be construed, to confer upon or
give to any person, firm, association, or corporation, other than the parties
hereto and their successors in interest, any right, remedy, or claim under or by
reason of this Plan or any covenant, condition, or stipulation hereof, and all
covenants, conditions and stipulations in this Plan, by or on behalf of any
party, are for the sole and exclusive benefit of the parties hereto.
6.3 Rules of construction.
6.3.1 Governing law. The construction and operation of this
Plan are governed by the laws of the State of New York.
6.3.2 Headings. The headings of Articles, Sections and
Subsections are for reference only and are not to be utilized in
construing the Plan.
6.3.3 Gender. Unless clearly inappropriate, all pronouns of
whatever gender refer indifferently to persons or objects of any
gender.
6.3.4 Singular and plural. Unless clearly inappropriate,
singular terms refer also to the plural number and vice versa.
6.3.5 Severability. If any provision of this Plan is held
illegal or invalid for any reason, the remaining provisions are to
remain in full force and effect and to be construed and enforced in
accordance with the purposes of the Plan as if the illegal or invalid
provision did not exist.
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IN WITNESS WHEREOF, Reliance Group Holdings, Inc. has caused this Plan
to be executed by its duly authorized officer and its corporate seal to be
hereunto affixed by authority of its Board of Directors this 10th day of
December 1997.
RELIANCE GROUP HOLDINGS, INC.
[Corporate Seal]
By /s/ Robert M. Steinberg
--------------------------------
President
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