Directors' Phantom Stock Option Plan - Reader's Digest Association Inc.
THE READER'S DIGEST ASSOCIATION, INC.
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Directors' Phantom Stock Option Plan
{Inactive since 1998}
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Table of Contents
Page
ARTICLE I Purpose........................................1
ARTICLE II Definitions....................................1
ARTICLE III Phantom Stock Options..........................2
ARTICLE IV General Provisions.............................4
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THE READER'S DIGEST ASSOCIATION, INC.
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Directors' Phantom Stock Option Plan
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ARTICLE I
Purpose
The purpose of this Directors' Phantom Stock Option
Plan (the "Plan") is to enable The Reader's Digest Association,
Inc. (the "Company") to offer non-employee directors of the
Company phantom stock options with respect to the Class A
Nonvoting Common Stock of the Company, thereby attracting,
retaining and rewarding non-employee directors, and strengthening
the mutuality of interests between non-employee directors and the
Company's stockholders.
ARTICLE II
Definitions
For purposes of this Plan, the following terms shall
have the following meanings:
2.1 "Board" shall mean the Board of Directors of the
Company.
2.2 "Common Stock" shall mean the Class A Nonvoting
Common Stock, $.01 par value per share, of the Company.
2.3 "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
2.4 "Fair Market Value" shall mean, as of any date,
the mean between the high and low sales price on the applicable
date, or if no sales price is available for that date, the mean
between the closing bid and asked prices for that 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 that date, on the
first day prior thereto on which the Common Stock was reported or
quoted.
2.5 "Grant Date" shall mean the date on which an
Option is granted.
2.6 "Non-employee Director" shall mean a director of
the Company who is not an employee of the Company or any of its
subsidiaries.
2.7 "Option" shall mean a phantom stock option granted
under the Plan. An Option in respect of one share of Common
Stock shall mean the right to receive an amount in cash equal to
the difference between (x) the Fair Market Value of a share of
Common Stock as of the date the Option is exercised in respect of
that share, and (y) the Fair Market Value of a share of Common
Stock as of the Grant Date.
2.8 "Participant" shall mean a Non-employee Director
to whom an Option has been granted pursuant to the Plan.
2.9 "Transfer" shall mean anticipate, alienate,
attach, sell, assign, pledge, encumber, charge or otherwise
transfer.
ARTICLE III
Phantom Stock Options
3.1 Grant. Each Non-employee Director of the Company
shall be granted, on the date of his or her election or
reelection as a Director at the Company's Annual Meeting of
Stockholders each year, an Option in respect of 1,000 shares of
Common Stock. Each Option shall be evidenced by an agreement
containing other terms and conditions not inconsistent with the
provisions of the Plan as may be determined by the Board;
provided, however, that those terms shall not vary the price,
amount or timing of Options, including provisions dealing with
vesting, forfeiture and termination.
3.2 Term. The term of each Option shall be ten years
from the Grant Date.
3.3 Exercise. Except as provided in Section 3.5, an
Option may not be exercised prior to the first anniversary of the
Grant Date and may not be exercised unless the Participant has
remained a Non-employee Director from the Grant Date until the
date of exercise. An Option may be exercised from time to time
after the expiration of the one-year period referred to above,
provided that the aggregate number of shares of Common Stock in
respect of which an Option is exercised shall not exceed:
(i) after one (1) year, but before the expiration of
two (2) years from the Grant Date, twenty-five percent of the
total number of shares in respect of which the Option is granted;
(ii) after two (2) years, but before the expiration of
three (3) years from the Grant Date, fifty percent of the total
number of shares in respect of which the Option is granted;
(iii)after three (3) years, but before the expiration
of four (4) years from the Grant Date, seventy-five percent of
the total number of shares in respect of which the Option is
granted;
(iv) after four (4) years from the Grant Date, one
hundred percent of the total number of shares in respect of which
the Option is granted.
3.4 Termination by Death. If a Participant shall die
holding an Option that has not expired and has not been fully
exercised, his or her executors, administrators, heirs or
distributees, as the case may be, may, at any time within one
year after the date of death (but in no event after the Option
has expired under the provisions of Section 3.2 above or ceased
to be exercisable under the provisions of Section 3.5 below),
exercise the Option with respect to any shares as to which the
decedent could have exercised the Option at the time of his or
her death.
3.5 Other Termination. If a Participant shall cease
to be a Non-employee Director for any reason other than death,
any then outstanding Options shall be exercisable with respect to
one hundred percent of the number of shares in respect of which
the Option was granted and as to which it has not yet been
exercised. Each Option shall remain exercisable for a period of
three years from the date the Participant ceased to be a
Non-employee Director (but in no event after the Option has
expired under the provisions of Section 3.2 above).
3.6 Method of Exercise of Option. Exercise of an
Option, in whole or in part as to any portion that is then
exercisable, shall be made by submitting to the Company written
notice of exercise in the form of the exercise letter provided by
the Company with the agreement evidencing the Option, specifying
the number of shares in respect of which the Option is to be
exercised. The exercise of an Option shall be deemed to be
effective on the first business day on which the Company receives
notice of exercise at the principal corporate offices of the
Company in accordance with the procedures established by the
Company. All applicable withholding taxes shall be deducted by
the Company from the amount of cash payable upon exercise.
3.7 Payment. Upon the exercise of an Option a
Participant shall be entitled to receive, for each share of
Common Stock as to which the Option is exercised, an amount in
cash equal in value to the excess of (x) the Fair Market Value of
one share of Common Stock on the date the Option is exercised
over (y) the Fair Market Value of one share of Common Stock on
the Grant Date. Payment shall be made within three business days
following the date the exercise becomes effective.
3.8 Limitations on Amendment. To the extent required
so that the grant of Options will be deemed to constitute
"formula awards" pursuant to Rule 16b-3(c)(2)(ii) under the
Exchange Act, the provisions in this Article III and the other
provisions of the Plan shall not be amended more than once every
six months.
ARTICLE IV
General Provisions
4.1 Administration. The Plan shall be administered by
the Board. The Board shall have all the powers vested in it by
the terms of the Plan, including the authority (within the
limitations described in the Plan) to prescribe the form of the
agreement embodying awards of Options. The Board shall, subject
to the provisions of the Plan, have the power to construe the
Plan, to determine all questions arising under the Plan and to
adopt and amend rules and regulations for the administration of
the Plan as it may deem desirable. Any decisions of the Board in
the administration of the Plan shall be final and conclusive.
The Board may act only by a majority of its members in office,
except that the members of the Board may authorize any one of
their number or the Secretary or any other officer of the Company
to execute and deliver documents on behalf of the Board.
4.2 Changes in Capital Stock. In the event of any
change in the capital stock of the Company by reason of any stock
dividend or distribution, stock split or reverse stock split,
recapitalization, reorganization, merger, consolidation,
split-up, combination or exchange of shares, distribution with
respect to its outstanding Common Stock of capital stock other
than Common Stock, reclassification of its capital stock,
issuance of warrants or options 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
similar change affecting the capital stock of the Company, then
the number of shares of Common Stock subject to outstanding
Options, the Fair Market Value of shares subject to outstanding
Options and the number of shares of Common Stock subject to
Options to be awarded thereafter pursuant to Section 3.1 shall be
appropriately adjusted consistent with the change in such manner
as the Board may deem equitable to prevent substantial dilution
or enlargement of the rights granted to, or available for,
Participants, and any adjustment determined by the Board in good
faith shall be binding and conclusive on the Company and all
Participants and their respective heirs, executors,
administrators, successors and assigns.
4.3 Termination or Amendment. Subject to Section 3.8
but notwithstanding any other provision of the 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 regulatory requirement referred to in Section 4.8, or
suspend or terminate it entirely, retroactively or otherwise;
provided, however, that, unless otherwise required by law, the
rights of a Participant with respect to Options granted prior to
any amendment, suspension or termination, may not be impaired
without the consent of the Participant.
4.4 Unfunded Plan. The 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, no Participant shall have any rights that are
greater than those of a general creditor of the Company.
4.5 Other Plans. Nothing contained in the Plan shall
prevent the Board from adopting other or additional compensation
arrangements, subject to shareholder approval if required; and
these arrangements may be either generally applicable or
applicable only in specific cases.
4.6 Withholding of Taxes. The Company shall have the
right to deduct from any payment to be made pursuant to the Plan,
or to otherwise require, as a condition to any payment to be made
pursuant to the Plan, payment by the Participant of, any Federal,
state or local taxes required by law to be withheld.
4.7 No Assignment of Benefits. No Option shall,
except as otherwise specifically provided by law, and except as
provided in Section 3.4 upon the death of a Participant, be
Transferable in any manner, and any attempt to Transfer any
benefit shall be void, and any 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 that person.
4.8 Interpretation. Following the required
registration of any equity security of the Company pursuant to
Section 12 of the Exchange Act:
(a) It is intended that all Options be excluded
from the definition of derivative securities in Rule 16a-1(c)
under the Exchange Act and the Board shall interpret and
administer the provisions of the Plan or any agreement pursuant
thereto in a manner consistent therewith. Any provisions
inconsistent with this interpretation shall be inoperative and
shall not affect the validity of the Plan.
(b) All Options are intended to qualify as
formula awards under Rule 16b-3(c)(2)(ii) under the Exchange Act
(thereby preserving the disinterested status of Non-employee
Directors receiving Options) and the Board shall interpret and
administer the provisions of the Plan or any agreement pursuant
thereto in a manner consistent therewith. Any provisions
inconsistent with the foregoing intent shall be inoperative and
shall not affect the validity of the Plan.
4.9 Governing Law. The Plan and actions taken in
connection with the Plan 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).
4.10 Construction. Wherever any words are used in the
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 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.
4.11 Liability. No member of the Board and no employee
of the Company shall be liable for any act or action in
connection with the Plan, 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.
4.12 Other Benefits. No payment under the Plan shall
be deemed compensation for purposes of computing benefits under
any retirement plan of the Company 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.
4.13 Costs. The Company shall bear all expenses
incurred in administering the Plan.
4.14 Effective Date of Plan. The Plan shall become
effective upon the date specified by the Board in its resolution
adopting the Plan.
4.15 Term of Plan. No Option shall be granted on or
after the tenth anniversary of the date the Plan is adopted, but
Options granted prior to the tenth anniversary may extend beyond
that date.