ARM FINANCIAL GROUP, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
ARM FINANCIAL GROUP, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purposes
The purposes of the Plan are to attract, retain and compensate
highly qualified individuals who are not employees of the Company for service as
members of the Board and to provide them with an ownership interest in the
Common Stock. The Plan will be beneficial to the Company and its stockholders by
allowing Eligible Directors to (i) have a personal financial stake in the
Company through an ownership interest in the Common Stock and (ii) underscore
their common interest with stockholders in increasing the value of the Common
Stock over the long term.
2. Definitions and Rules of Construction
(a) Definitions. For purposes of this Plan, the following
capitalized words shall have the meanings set forth below:
"Affiliates" and "Associates" have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
"Annual Award" means an award of Options pursuant to Section
5(b) of the Plan.
"Annual Meeting" means an annual meeting of the Company's
stockholders.
"Beneficial Owner" has the meaning ascribed to such term in
Rule 13d-3 promulgated under the Exchange Act.
"Board" means the Board of Directors of the Company.
"Change in Control of the Company" shall be deemed to occur if
any of the following circumstances shall occur:
(i) any Person (other than (x) the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any person or entity organized, appointed
or established by the Company or any Subsidiary of the Company for or
pursuant to the terms of any such plan or (y) any of the Morgan Stanley
Stockholders or any of their respective Affiliates or any other entity
controlled by one or more of them), alone or together with its
Affiliates and Associates (collectively, an "Acquiring Person"), shall
become the Beneficial Owner of twenty (20%) or more of the then
outstanding shares of Common Stock or the Combined Voting Power of the
Company;
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(ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board, and any new
director (other than a director who is a representative or nominee of
an Acquiring Person) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least a majority of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved (collectively, the
"Continuing Directors"), cease for any reason to constitute a majority
of the Board;
(iii) the consummation of a merger or consolidation with any
other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity or
any Parent of such surviving entity) at least 51% of the Combined
Voting Power of the Company, such surviving entity or the Parent of
such surviving entity outstanding immediately after such merger or
consolidation; or
(iv) the consummation of a plan of reorganization (other than
a reorganization under the United States Bankruptcy Code) or complete
liquidation of the Company or the sale or disposition by the Company of
all or substantially all of the Company's assets;
provided, however, that a Change in Control shall not be deemed to have occurred
in the event of (i) a sale or conveyance in which the Company continues as a
holding company of an entity or entities that conduct all or substantially all
of the business or businesses formerly conducted by the Company or (ii) any
transaction undertaken for the purpose of reincorporating the Company under the
laws of another jurisdiction, if such sale, conveyance or transaction does not
materially affect the beneficial ownership of the Company's capital stock.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combined Voting Power" means the combined voting power of the
Company's or other relevant entity's then outstanding voting securities.
"Committee" means the committee designated by the Board
pursuant to Section 3(c) of the Plan.
"Common Stock" means the Class A Convertible Common Stock of
the Company, par value $.01 per share, or such other class or kind of shares or
other securities as may be applicable under Section 12.
"Company" means ARM Financial Group, Inc., a Delaware
corporation, or any successor to substantially all its business.
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"Effective Date" means January 1, 1998.
"Eligible Director or Eligible Directors" has the meaning
specified in Section 4 of the Plan.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means, in the event the Common Stock is
traded on a recognized securities exchange or quoted by the National Association
of Securities Dealers Automated Quotations on National Market Issues, an amount
equal to the average of the high and low prices of the Common Stock on such
exchange or such quotation on the date set for valuation or, if no sales of
Common Stock were made on said exchange or so quoted on that date, the average
of the high and low prices of the Common Stock on the next preceding day on
which sales were made on such exchange or quotations; or, if the Common Stock is
not so traded or quoted, that value determined, in its sole discretion, by the
Committee.
"Initial Award" means an award of Options pursuant to Section
5(a) of the Plan.
"Morgan Stanley Stockholders" means Morgan Stanley Dean Witter
& Co., The Morgan Stanley Leveraged Equity Fund II, L.P., Morgan Stanley Capital
Partners III, L.P., Morgan Stanley Capital Investors, L.P. and MSCP III 892
Investors, L.P.
"Option or Options" means an option or options to purchase
shares of Common Stock awarded to an Eligible Director pursuant to the Plan.
Options awarded pursuant to this Plan shall be non-statutory stock options.
"Option Shares" means the shares of Common Stock issuable upon
exercise of a Option.
"Parent" means any corporation which is a "parent corporation"
within the meaning of Section 424(e) of the Code with respect to the relevant
entity.
"Permanent Disability" means a medically determinable physical
or mental impairment rendering an Eligible Director substantially unable to
function as a member of the Board for any period of six consecutive months. Any
dispute as to whether an Eligible Director is Permanently Disabled shall be
resolved by a physician mutually acceptable to the Eligible Director and the
Company, whose decision shall be final and binding upon the Eligible Director
and the Company.
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"Person" means any person, entity or "group" within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act.
"Plan" means the ARM Financial Group, Inc. 1998 Non-Employee
Director Stock Option Plan as described herein.
"Retirement" means an Eligible Director ceasing to be a member
of the Board as a result of retirement from the Board in accordance with the
retirement policy then applicable to Board members.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means (i) any corporation which is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code with respect to
the Company or (ii) any other corporation or other entity in which the Company,
directly or indirectly, has an equity or similar interest and which the
Committee designates as a Subsidiary for the purposes of the Plan.
(b) Rules of Construction. The masculine pronoun shall be deemed
to include the feminine pronoun and the singular form of a word shall be deemed
to include the plural form, unless the context requires otherwise. Unless the
text indicates otherwise, references to sections are to sections of the Plan.
3. Shares Available; Administration
(a) Subject to the provisions of Section 10(b) of the
Plan, the maximum number of shares of Common Stock which may be issued under the
Plan shall not exceed 100,000 shares (the "Plan Limit"). Either authorized and
unissued shares of Common Stock or treasury shares may be delivered upon
exercise of Options awarded pursuant to the Plan.
(b) For purposes of determining the number of shares of
Common Stock that remain available for issuance, the following shares shall be
added back to the Plan Limit and again be available for Options.
(i) the number of shares tendered to pay the
exercise price of an Option or to satisfy an Eligible
Director's tax withholding obligations, if applicable; and
(ii) the number of shares withheld from any Option to
satisfy an Eligible Director's tax withholding obligations, if
applicable, or to pay the exercise price of an Option.
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(c) The Plan will be administered by a committee designated by
the Board and composed exclusively of members of the Board who are not Eligible
Directors (the "Committee"). Subject to the provisions of this Plan, the
Committee shall have full and final authority to (i) interpret the Plan; (ii)
establish, amend and rescind any rules and regulations relating to the Plan;
(iii) prescribe award documentation; (iv) make factual determinations in
connection with the administration or interpretation of the Plan; and (v) take
any other actions necessary or advisable for the administration of the Plan. The
Committee's interpretation of the Plan, and all actions taken and determinations
made by the Committee pursuant to the powers vested in it hereunder, shall be
conclusive and binding upon all parties concerned including the Company, its
stockholders and persons granted Options under the Plan. The Chairman of the
Board of the Company shall be authorized to implement the Plan in accordance
with its terms and to take or cause to be taken such actions of a ministerial
nature as shall be necessary to effectuate the intent and purposes thereof.
Notwithstanding the foregoing, the full Board shall approve any Discretionary
Option granted pursuant to Section 5(d) of the Plan or take any other action in
order to ensure that the grant of such Discretionary Options under the Plan (or
the tendering or withholding of shares of Common Stock) are exempt from
liability under Section 16 of the Exchange Act pursuant to Rule 16b-3
promulgated thereunder.
4. Eligibility
Options awarded pursuant to the Plan shall be granted only to
active members of the Board who are not, as of the date of any Option grants,
employees of the Company, any of its Subsidiaries or affiliates or any of the
Morgan Stanley Stockholders (each an "Eligible Director", and collectively, the
"Eligible Directors").
5. Option Grant
(a) Initial Award. (i) In April 1998, each Eligible
Director will be granted, subject to the approval of the Plan by the Company's
stockholders, an Option to purchase 10,000 shares of Common Stock. Such Options
will be fully vested and have an exercise price equal to the Fair Market Value
of the Common Stock on the date of grant. (ii) On the date of an Eligible
Director's initial election or appointment to the Board, such Eligible Director
(including any Eligible Director reelected or reappointed after a period of at
least 12 calendar months during which he did not serve on the Board) shall be
granted an Initial Award consisting of an Option to purchase 10,000 shares of
Common Stock. Such Option shall have a per share exercise price equal to the
Fair Market Value of the Common Stock on the date of the award and shall be
subject to the vesting schedule provided for in Section 6(a) and the other terms
and conditions provided for herein.
(b) Annual Awards. At each Annual Meeting during the term of
the Plan, each Eligible Director who has continuously served as a member of the
Board since the immediately preceding Annual Meeting, and who is reelected at
such Annual Meeting or who
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will otherwise continue to serve on the Board following such Annual Meeting,
will receive an Annual Award consisting of an Option to purchase 2,000 shares of
Common Stock; provided, however, that if any such Eligible Director had received
an award pursuant to Section 5(a)(i) or (ii) during the period following the
previous Annual Meeting, such Eligible Director shall not receive an Annual
Award at such Annual Meeting. The Option shall have a per share exercise price
equal to the Fair Market Value of the Common Stock on the date such Option is
granted and shall be subject to the vesting schedule provided for in Section
6(a) and the other terms and conditions provided for herein.
(c) Automatic Grants. Grants of Options under Section 5(a)
and (b) shall be made automatically pursuant to the terms of the Plan and,
except for stockholder approval of the Plan pursuant to Section 11, shall not
require the approval of any person. Such Options are subject to the terms of the
Plan
(d) Discretionary Awards. The Board may in its discretion
grant Options ("Discretionary Options") ratably to Eligible Directors as a
result of extraordinary service upon such terms and conditions to be determined
by the Board and set forth in a certificate, including those relating to vesting
or the acceleration thereof; provided, however, that the exercise price of such
Discretionary Options shall be no less than the Fair Market Value of the Common
Stock on the applicable date of grant.
6. Vesting
(a) Vesting. Options awarded pursuant to the Plan (other
than Discretionary Options) shall vest and become exercisable in four equal
annual installments of 25%, commencing on the first anniversary of the date of
grant.
(b) Accelerated Vesting. Notwithstanding anything to the
contrary in Section 6(a), an Option (other than a Discretionary Option) shall
become vested and exercisable with respect to 50% of an award (to the extent not
already so vested) upon an Eligible Director ceasing to be a member of the Board
as a result of death, Permanent Disability or Retirement. Notwithstanding
anything to the contrary in Section 6(a), an Option shall become fully vested
and exercisable upon a Change in Control in the Company.
(c) Forfeiture. In the event of an Eligible Director's
termination of service as a member of the Board for any reason other than death,
Permanent Disability, Retirement or a Change in Control of the Company prior to
the satisfaction of the vesting period described in Section 6(a), the unvested
portion of any Options awarded to the Eligible Director (other than a
Discretionary Option) shall be forfeited to the Company as of the date of
termination of service, and the Eligible Director shall have no further rights
or interest therein.
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7. Term of Options
(a) Ten-Year Term. Each Option shall expire ten years
from the date of its grant, subject to earlier termination as provided herein.
(b) Exercise Following Certain Terminations of Service.
If an Eligible Director's service as a member of the Board terminates for any
reason other than death, Permanent Disability, Retirement or a Change in Control
of the Company, the Eligible Director shall have the right, subject to the terms
and conditions hereof, to exercise the Option, to the extent it has vested as of
the date of such termination of service, at any time within 90 days after the
date of such termination, subject to the earlier expiration of the Option as
provided in Section 7(a). At the end of such 90 day period the Option shall
expire.
(c) Exercise Following Termination of Service Due to
Death, Permanent Disability, Retirement or a Change in Control of the Company.
If an Eligible Director's service as a member of the Board terminates by reason
of death, Permanent Disability, Retirement or a Change in Control of the
Company, all Options awarded to such Eligible Director that are vested
(including those that vested pursuant to Section 6(b) of the Plan) may be
exercised by such Eligible Director, or by his or her estate, personal
representative or beneficiary, as the case may be, at any time within one year
after the date of termination of service, subject to the earlier expiration of
the Option as provided in Section 7(a). At the end of such one-year period the
Option shall expire.
(d) Exercise Following Termination of Service Subject to
Company Policies and Procedures on Insider Trading. Any exercise of an Option
pursuant to Section 7(b) or 7(c) following termination of an Eligible Director's
service as a member of the Board for any reason other than death shall be
subject to, and shall be permitted only to the extent such exercise complies
with, the policies and procedures of the Company concerning insider trading that
were applicable to the Eligible Director on the date of such termination of
service (as such policies and procedures may be amended by the Company during
the period provided in Section 7(b) or 7(c), as the case may be, for exercise of
the Option).
8. Time and Manner of Exercise
(a) Notice of Exercise. Subject to the other terms and
conditions hereof, an Eligible Director may exercise any Options (to the extent
vested) by giving written notice of exercise to the Company; provided, however,
that no less than 100 Option Shares may be purchased upon any exercise of the
Option unless the number of Option Shares purchased at such time is the total
number of Option Shares in respect of which an Option is then exercisable, and
provided, further, that in no event shall an Option be exercisable for a
fractional share. The date of exercise of an Option shall be the later of (i)
the date on which the Company receives such written notice or (ii) the date on
which the conditions provided in Section 8(b) are satisfied.
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Notwithstanding any other provision of the Plan or of the notice of award
relating to an Option provided for in Section 9, no Option may be exercised,
whether in whole or in part, and no Option Shares will be issued by the Company
in respect of any such attempted exercise, at any time when such exercise is
prohibited by Company policy then in effect concerning transactions by an
Eligible Director in the Company's securities. In the event that an Eligible
Director gives written notice of exercise to the Company at a time when such
exercise is prohibited by such policy, the Company in its sole discretion may
disregard such notice of exercise or may consider such notice to be delivered as
of the first date that the Eligible Director is permitted to exercise such
Option in accordance with such Company policy.
(b) Payment. Prior to the issuance of a certificate
pursuant to Section 8(e) hereof evidencing the Option Shares in respect of which
all or a portion of an Option shall have been exercised, an Eligible Director
shall have paid to the Company the exercise price for all Option Shares
purchased pursuant to the exercise of such Option. Payment of the Option price
shall be made (i) by personal check, bank draft or postal or express money order
(such modes of payment are collectively referred to as "cash") payable to the
order of the Company in U.S. dollars, (ii) in whole shares of Common Stock of
the Company owned by the Eligible Director for a period of a least six months,
or (iii) in a combination of cash and delivery of shares of Common Stock as the
Board in its sole discretion may approve. In addition to the exercise methods
described above, subject to approval of the Committee, an Eligible Director may
exercise an Option through a procedure whereby the Eligible Director delivers to
the Company an irrevocable notice of exercise in exchange for the Company
issuing the shares of Common Stock subject to the Option to a broker previously
designated or approved by the Company.
(c) Stockholder Rights. An Eligible Director shall have
no rights as a stockholder with respect to any shares of Common Stock issuable
upon exercise of an Option until a certificate evidencing such shares shall have
been issued to the Eligible Director pursuant to Section 8(e), and no adjustment
shall be made for dividends or distributions or other rights in respect of any
share for which the record date is prior to the date upon which the Eligible
Director shall become the holder of record thereof.
(d) Limitation on Exercise. No Option shall be
exercisable unless the Common Stock subject thereto has been registered under
the Securities Act and qualified under applicable state "blue sky" laws in
connection with the offer and sale thereof, or the Company has determined that
an exemption from registration under the Securities Act and from qualification
under such state "blue sky" laws is available.
(e) Issuance of Shares. Subject to the foregoing
conditions, as soon as is reasonably practicable after its receipt of a proper
notice of exercise and payment of the Option price for the number of shares with
respect to which the Option is exercised, the Company shall deliver to the
Eligible Director (or following the Eligible Director's death, such other person
entitled to exercise the Option), at the principal office of the Company or at
such other location
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as may be acceptable to the Company and the Eligible Director (or such other
person), one or more stock certificates for the appropriate number of shares of
Common Stock issued in connection with such exercise. Such shares shall be fully
paid and nonassessable and shall be issued in the name of the Eligible Director
(or such other person).
(f) Tax Withholding. The Company shall have the right,
prior to the delivery of any certificates evidencing shares of Common Stock to
be issued upon full or partial exercise of an Option, to require an Eligible
Director to remit to the Company any amount sufficient to satisfy any Federal,
state or local tax withholding requirements. The Company may permit the Eligible
Director to satisfy, in whole or in part, such obligation to remit taxes, by
directing the Company to withhold shares of Common Stock that would otherwise be
received by the Eligible Director, pursuant to such rules as the Committee may
establish from time to time, by delivering to the Company shares of Common Stock
owned by the Eligible Director prior to exercising the Option, or by making a
payment to the Company consisting of a combination of cash and such shares of
Common Stock. Such an election shall be subject to the following:
(i) the election shall be made in such manner as may be
prescribed by the Committee and the Committee shall have the right, in
its discretion, to disapprove such election; and
(ii) the election shall be made prior to the date to be used
to determine the tax to be withheld and shall be irrevocable.
The value of any share of Common Stock to be withheld by the Company or
delivered to the Company pursuant to this Section 8(f) shall be the Fair Market
Value of the Common Stock on the date to be used to determine the amount of tax
to be withheld.
The Company shall also have the right to deduct from all cash
payments made pursuant to or in connection with the Option any Federal, state or
local taxes required to be withheld with respect to such payments.
(g) Restrictions on Transfer. An Option may not be
transferred, pledged, assigned, or otherwise disposed of, except by will or by
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined in the Code or Title I of ERISA ("QDRO"); provided,
however, that the Committee may, subject to such terms and conditions as the
Committee shall specify, permit the transfer of an Option to an Eligible
Director's family members or to one or more trusts established in whole or in
part for the benefit of one or more of such family members. The Option shall be
exercisable, during the Eligible Director's lifetime, only by the Eligible
Director, by the person to whom the Option has been transferred pursuant to a
QDRO or to a permitted transferee pursuant to the proviso contained in the
preceding sentence.
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(h) Non-qualified Status of Options. Options awarded
under the Plan are not intended to qualify, and shall not be treated, as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
9. Notice of Award
The terms and conditions of each award of Options shall be
embodied in a certificate which shall incorporate the Plan by reference. Each
certificate shall state the date on which the Options were granted, the number
of shares subject to such Option and the per share exercise price therefor.
Certificates representing Discretionary Options shall contain such other terms
and conditions consistent with the terms of the Plan as the Board of Directors
may prescribe.
10. No Restriction on Right of Company to Effect
Corporate Changes
(a) Authority of the Company and Stockholders. The
existence of the Plan, any award certificates and the Options granted hereunder
shall not affect or restrict in any way the right or power of the Company or the
stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
(b) Change in Capitalization. Notwithstanding any
provision of the Plan or any award certificates, the number and kind of shares
authorized for issuance under Section 3(a) may be equitably adjusted in the sole
discretion of the Committee in the event of a stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, extraordinary dividend,
split-up, spin-off, combination, exchange of shares, warrants or rights offering
to purchase Common Stock at a price substantially below Fair Market Value or
other similar corporate event affecting the Common Stock in order to preserve,
but not increase, the benefits or potential benefits intended to be made
available under the Plan. In addition, upon the occurrence of any of the
foregoing events, the number of outstanding Options and the number and kind of
shares subject to any outstanding Option and the purchase price per share, if
any, under any outstanding Option may be equitably adjusted (including by
payment of cash to an Eligible Director) in the sole discretion of the Committee
in order to preserve the benefits or potential benefits intended to be made
available to Eligible Directors granted Options. Such adjustments shall be made
by the Committee, in its sole discretion, whose determination as to what
adjustments shall be made, and the extent thereof, shall be final. Unless
otherwise determined by the Committee, such adjusted
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Options shall be subject to the same vesting schedule and restrictions to which
the underlying Option is subject.
11. Effective Date; Term of the Plan
Subject to approval by the majority of the stockholders of the
Company at the 1998 Annual Meeting, the effective date of the Plan shall be
January 1, 1998. If the Plan is not approved by the stockholders at such Annual
Meeting, the Plan and all interests in the Plan awarded to Eligible Directors
before the date of such Annual Meeting shall be void ab initio and of no further
force and effect. Unless terminated earlier in accordance with Section 12 below,
the Plan shall terminate on the Annual Meeting of stockholders of the Company in
2007. After such date, no further awards of Options may be made hereunder, but
previously granted awards shall remain outstanding subject to the terms hereof.
12. Amendments; Termination
The Board may at any time and from time to time alter, amend,
suspend or terminate the Plan in whole or in part. Any amendment to the Plan,
which under the requirements of applicable law must be approved by the
stockholders of the Company, shall not be effective unless and until such
stockholder approval has been obtained in compliance with such law. No
termination or amendment of the Plan may, without the written consent of the
Eligible Director, affect any such person's rights under the provisions of the
Plan with respect to awards of Options which were made prior to such action.
13. No Right to Reelection
Nothing in the Plan shall be deemed to create any obligation
on the part of the Board to nominate any of its members for reelection by the
Company's stockholders, nor confer upon any Eligible Director the right to
remain a member of the Board for any period of time, or at any particular rate
of compensation.
14. Governing Law
Except as to matters of federal law, the Plan, all award
documents issued and all actions taken thereunder shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to conflicts of law principles.