FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 1-10434
THE READER'S DIGEST ASSOCIATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1726769
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Pleasantville, New York 10570-7000
(Address of principal executive offices) (Zip Code)
(914) 238-1000
(Registrant's telephone number, including area code)
______________________________________________
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
As of April 30, 1994, the following shares of the
registrant's common stock were outstanding:
Class A Nonvoting Common Stock, $0.01 par value: 93,573,924 shares
Class B Voting Common Stock, $0.01 par value: 21,240,347 shares
Page 1 of 13 pages.
THE READER'S DIGEST ASSOCIATION, INC.
Index to Form 10-Q
March 31, 1994
Part I - Financial Information Page No.
The Reader's Digest Association, Inc. and Subsidiaries
Financial Statements (unaudited):
Consolidated Condensed Statements of Income
for the Three-month and Nine-month periods
ended March 31, 1994 and 1993 3
Consolidated Condensed Balance Sheets
as of March 31, 1994 and June 30, 1993 4
Consolidated Condensed Statements of Cash Flows
for the Nine-month periods ended
March 31, 1994 and 1993 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Part II - Other Information 12
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three-month and Nine-month periods ended March 31, 1994 and 1993
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three-month period ended Nine-month period ended
March 31, March 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues $709,170 $ 737,617 $ 2,148,550 $ 2,224,280
Cost of sales, fulfillment
and distribution expense 260,294 282,334 802,169 843,581
Promotion, selling and
administrative expense 311,917 319,345 1,017,621 1,053,603
572,211 601,679 1,819,790 1,897,184
Operating profit 136,959 135,938 328,760 327,096
Other income, net 13,729 17,741 68,457 50,931
Income before provision for
income taxes and
cumulative effect of changes
in accounting
principles 150,688 153,679 397,217 378,027
Provision for income taxes 58,015 59,167 152,929 145,541
Income before cumulative
effect of changes in
accounting principles 92,673 94,512 244,288 232,486
Cumulative effect of changes
in accounting principles,
net of tax benefit -- -- ( 25,830) (50,938)
Net income $ 92,673 $ 94,512 $ 218,458 $ 181,548
Earnings per share before
cumulative effect of
changes in accounting
principles $ 0.80 $ 0.79 $ 2.10 $ 1.94
Cumulative effect of changes
in accounting principles -- -- (0.23) (0.42)
Earnings per share $ 0.80 $ 0.79 $ 1.87 $ 1.52
Average common shares
outstanding 115,427 118,523 116,130 119,149
</TABLE>
See accompanying notes to consolidated condensed financial
statements.
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
As of March 31, 1994 and June 30, 1993
(in thousands)
(unaudited)
March 31, June 30,
1994 1993
Assets
Cash and cash equivalents $ 233,408 $ 183,526
Short-term investments, at cost which
approximates market 209,893 206,585
Receivables, less allowances for
returns and bad debts 553,648 380,421
Inventories 171,448 169,458
Prepaid expenses and other current 156,986 134,733
assets
Total current assets 1,325,383 1,074,723
Marketable securities, at cost 343,372 333,248
Property, plant and equipment, net 229,775 235,160
Other noncurrent assets 230,432 229,277
Total assets $ 2,128,962 $1,872,408
Liabilities and stockholders' equity
Notes payable $-- $ 5,253
Accounts payable 230,364 172,508
Accrued expenses 271,214 240,256
Federal and foreign income taxes 117,348 75,845
Unearned revenue 448,196 371,100
Other current liabilities 15,537 16,364
Total current liabilities 1,082,659 881,326
Long-term notes payable 8,257 8,083
Other noncurrent liabilities 211,385 176,732
Total liabilities 1,302,301 1,066,141
Capital stock 29,586 29,162
Paid-in capital 90,193 77,320
Retained earnings 1,017,681 916,420
Foreign currency translation adjustment ( 36,024) ( 35,906)
Less: Treasury stock, at cost ( 274,775) ( 180,729)
Total stockholders' equity 826,661 806,267
Total liabilities and stockholders' $ 2,128,962 $1,872,408
equity
See accompanying notes to consolidated condensed financial
statements.
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine-month periods ended March 31, 1994 and 1993
(in thousands)
(unaudited)
Nine-month period ended
March 31,
1994 1993
Cash flows from operating activities:
Net income $ 218,458 $ 181,548
Depreciation and amortization 30,966 32,198
Cumulative effect of changes in accounting 25,830 50,938
principles
Other, net ( 20,319) ( 77,819)
Net cash provided by operating activities 254,935 186,865
Cash flows from investing activities:
Proceeds from maturities and sales of
marketable securities and
short-term investments 241,066 61,738
Purchases of marketable securities
and short-term investments ( 230,791) ( 57,066)
Capital expenditures ( 24,007) ( 34,743)
Proceeds from other long-term investments, net 20,333 9,427
Other, net 2,477 4,732
Net cash provided by (used in) investing 9,078 ( 15,912)
activities
Cash flows from financing activities:
Dividends paid ( 117,197) ( 102,359)
Common stock repurchased ( 99,177) ( 114,511)
Other, net 459 11,003
Net cash used in financing activities ( 215,915) ( 205,867)
Effect of exchange rate changes on cash 1,784 ( 16,711)
Net increase (decrease) in cash and cash 49,882 ( 51,625)
equivalents
Cash and cash equivalents at beginning of 183,526 292,703
period
Cash and cash equivalents at end of period $ 233,408 $ 241,078
See accompanying notes to consolidated condensed financial
statements.
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
(1) Basis of Presentation
The company reports on a fiscal year beginning July 1. The three-
month periods ended
March 31, 1994 and 1993 are the third fiscal quarters of fiscal
year 1994 and fiscal year 1993, respectively.
The accompanying consolidated condensed financial statements have
not been audited, but in the opinion of management, have been
prepared in conformity with generally accepted accounting
principles applying certain judgments and estimates which include
all adjustments (consisting only of normal recurring adjustments)
considered necessary to present fairly such information. Operating
results for any interim period are not necessarily indicative of
the results for an entire year due to the seasonality of the
company's business.
(2) Changes in Accounting Principles
The company adopted Statement of Financial Accounting Standards No.
(SFAS) 112, "Employers' Accounting for Postemployment Benefits," on
July 1, 1993. SFAS 112 requires the accrual of benefits such as
disability, severance and health insurance provided to former or
inactive employees prior to retirement over an employee's period of
service. The cumulative effect of the change was a pre-tax charge
of $42,000 offset by tax benefits of $16,170 for a net after-tax
charge of $25,830, or $.23 per share. The incremental expense in
the three-month and nine-month periods associated with the adoption
of SFAS 112 was not significant. Results for the three-month and
nine-month periods ended March 31, 1993 have not been restated for
SFAS 112.
In the fourth quarter of fiscal 1993, the company adopted SFAS 106,
"Employers' Accounting for Postretirement Benefits," and SFAS 109,
"Accounting for Income Taxes," retroactively to the first quarter
of fiscal 1993. SFAS 106 requires the accrual of the expected
costs of postretirement medical and other nonpension benefits
during an employee's period of service. SFAS 109 changes the
method of accounting for income taxes to an asset and liability
approach from the deferred method required under Accounting
Principles Board Opinion No. 11. Results for the nine-month period
ended March 31, 1993 have been restated to reflect the cumulative
effect of these changes, a pre-tax charge of $84,313 offset by tax
benefits of $33,375 for a net after-tax charge of $50,938, or $.42
per share. In addition, results for the three-month and nine-month
periods ended March 31, 1993 include the incremental expense
associated with SFAS 106. Fiscal 1994 results include a comparable
current period expense associated with SFAS 106.
(3) Earnings Per Share
Earnings per share is based on the average number of common shares
outstanding for the period and net income after deducting preferred
stock dividend requirements of $327 in each of the three-month
periods ended March 31, 1994 and 1993 and $981 in each of the nine-
month periods ended
March 31, 1994 and 1993.
(4) Stockholders' Equity
On March 14, 1994, the company announced that it plans to
repurchase up to five million shares of Class A nonvoting common
stock from time to time in open market transactions. This is the
company's third such program since it became public in February,
1990. The company completed its second program, announced in May,
1993, to repurchase three million shares of Class A nonvoting
common stock in March, 1994.
(5) Inventories
March 31, June 30,
1994 1993
Raw materials $ 18,083 $ 20,790
Work-in process 37,271 42,553
Finished goods 116,094 106,115
$171,448 $ 169,458
(6) Segment Information
The company's operations consist of the following segments:
Reader's Digest magazine, books and home entertainment products,
special interest magazines and other operations. The books and
home entertainment products segment includes books and music and
video products. The special interest magazines segment includes
magazines acquired or launched since 1987. A summary of revenues
by business segments and major geographic areas for the three-month
and nine-month periods ended March 31, 1994 and 1993, is as
follows:
<TABLE>
<CAPTION>
Three-month period ended Nine-month period ended
March 31, March 31,
<S> <C> <C> <C> <C>
BUSINESS SEGMENTS 1994 1993 1994 1993
Revenues
Reader's Digest magazine $ 167,623 $ 173,519 $ 510,838 $ 538,257
Books and home
entertainment products 502,422 527,567 1,458,908 1,528,875
Special interest magazines 21,513 20,845 62,500 58,732
Other operations 17,612 15,686 116,304 98,416
Total revenues $ 709,170 $ 737,617 $2,148,550 $2,224,280
GEOGRAPHIC AREAS
Revenues
United States $ 278,599 $ 307,592 $ 878,670 $ 911,277
International 430,571 430,025 1,269,880 1,313,003
Total revenues $ 709,170 $ 737,617 2,148,550 2,224,280
</TABLE>
The Reader's Digest Association, Inc.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Changes in Accounting Principles
On July 1, 1993 the company adopted Statement of Financial
Accounting Standards No. (SFAS) 112, "Employers' Accounting for
Postemployment Benefits." As a result, the company recognized a
one-time, non-cash, after-tax charge for the cumulative effect of
this change of $25.8 million, or $.23 per share which is reflected
in the results for the nine-month period ended March 31, 1994. The
incremental expense associated with this change was not
significant. Results for the third quarter and nine-month period
ended March 31, 1993 have not been restated for SFAS 112.
Results for the third quarter and nine-month period ended March 31,
1993 have been restated to reflect the adoption in the fourth
quarter of fiscal 1993 of SFAS 106, "Employers' Accounting for
Postretirement Benefits," and SFAS 109, "Accounting for Income
Taxes." Results for the nine-month period ended March 31, 1993
reflect the one-time, non-cash, after-tax cumulative effect charge
of $50.9 million, or $.42 per share, and additional expense related
to SFAS 106 for the third quarter and fiscal year-to-date period.
Fiscal 1994 third quarter and nine-month period results include a
comparable current period expense associated with SFAS 106.
Three-Month Period Ended March 31, 1994 Compared with Three-Month
Period Ended March 31, 1993
Revenues/Operating Profit
The company's worldwide revenues for the three-month period ended
March 31, 1994 decreased $28.4 million, or 4%, to $709.2 million
compared with revenues for the same period a year ago. Excluding
the effect of changes in foreign currency exchange rates, revenues
decreased about 2%. For the third quarter, U.S. revenues decreased
9% mainly due to lower levels of activity in the books and home
entertainment products business, which is consistent with the
company's plan to return this business to its historic growth
levels, and a decrease in Reader's Digest magazine advertising
revenue. International revenues were even with the prior year.
Excluding the effect of changes in foreign currency exchange rates,
international revenues increased about 3%. This 3% increase in
international revenues was below the nine-month revenue growth
trend due to timing of product offerings and product mix in several
locations, as well as lower Reader's Digest magazine advertising
revenues. Worldwide operating profit for the company increased 1%
to $137.0 million in the third quarter of fiscal 1994 compared with
$135.9 million in the third quarter of fiscal 1993. Excluding the
effect of changes in foreign currency exchange rates, operating
profit increased about 4%.
Other Income, Net
Other income, net for the quarter decreased $4.0 million to $13.7
million compared with $17.7 million a year ago. Interest income
was $10.6 million in fiscal 1994 compared with $12.1 million in
fiscal 1993. Other income, net also includes the effects of
foreign exchange transactions and hedging activity ($1.8 million
expense in fiscal 1994 compared with $1.5 million income in fiscal
1993) and gains on certain investments ($5.3 million in fiscal 1994
compared with $9.1 million in fiscal 1993).
Earnings Per Share
Earnings per share for the quarter increased 1% to $.80 from $.79
in the comparable period last year. Excluding the combined effect
of foreign exchange on operating profit and on other income, net,
earnings per share increased about 6%. Excluding the combined
total effect of foreign exchange and gains on certain investments,
earnings per share increased about 7%.
Business Segments
The company's operations are divided into four business segments:
(1) Reader's Digest magazine,
(2) books and home entertainment products, (3) special interest
magazines and (4) other operations.
Reader's Digest magazine revenues decreased $5.9 million, or 3%, to
$167.6 million compared with $173.5 million a year ago. Excluding
the effect of changes in foreign currency exchange rates, revenues
decreased about 2%. The decrease was attributable to lower
worldwide advertising revenues caused by a decrease in advertising
pages in a difficult global advertising environment. Approximately
two-thirds of the decrease in advertising revenues was offset by
increased subscription pricing. Circulation levels declined
slightly as the U.S. circulation rate base was lowered in January,
1994 from 16.25 million to 15.0 million in accordance with the
company's announcement in September, 1993. Operating profit
decreased primarily because of the decrease in revenues.
Books and home entertainment products revenues decreased $25.2
million, or 5%, to $502.4 million compared with $527.6 million for
the same period a year ago. Excluding the effect of changes in
foreign currency exchange rates, revenues decreased about 3%. This
3% decrease was primarily attributable to lower unit sales due to
lower activity in the U.S. U.S. revenues declined compared with
the prior year consistent with the company's strategy of optimizing
its U.S. profitability through lower levels of activity in order to
form a solid customer base for future growth. Operating profit in
this segment increased primarily as a result of decreased
promotional spending related to the lower activity in the U.S.
Special interest magazines revenues increased $.7 million, or 3%,
to $21.5 million from $20.8 million a year ago. The effect of
changes in foreign currency exchange rates on revenues was not
significant. The increase in revenues was caused almost entirely
by higher advertising revenues due to increased advertising rates.
Circulation levels were approximately the same as the prior year.
Special interest magazines operating performance improved compared
with the prior year primarily because of increased revenues and
lower amortization of intangible assets.
Nine-Month Period Ended March 31, 1994 Compared with Nine-Month
Period Ended March 31, 1993
Revenues/Operating Profit
The company's worldwide revenues for the nine-month period ended
March 31, 1994 decreased $75.7 million, or 3%, to $2.15 billion
compared with revenues for the same period a year ago. Excluding
the effect of changes in foreign currency exchange rates, revenues
increased about 3%. United States revenues decreased 4% mainly due
to lower levels of activity in the books and home entertainment
products business, which is consistent with the company's plan to
return this business to its historic growth levels, and a decrease
in Reader's Digest magazine advertising revenue. It has been
twelve months since the company initially discussed performance
issues in the U.S. books and home entertainment business. The
measures put in place since last spring are meeting the company's
expectations. Better targeting of mailings and promotional
activity has led to higher response rates, fewer returns of
products and better payment performance. The company is
increasingly confident that it is on the right track to return this
business to historical growth levels within the 12 to 24 month time
frame discussed a year ago. International revenues were 3% less
than the prior year. Excluding the effect of changes in foreign
currency exchange rates, international revenues increased about 8%.
Worldwide operating profit increased 1% to $328.8 million compared
with the prior year. Excluding the effect of changes in foreign
currency exchange rates, operating profit increased about 10%.
This 10% increase was primarily because of increased international
revenues (excluding the effect of changes in foreign currency
exchange rates) and lower promotional spending in the U.S. books
and home entertainment products business.
Other Income, Net
Other income, net for the nine-month period increased $17.6 million
to $68.5 million compared with $50.9 million a year ago. This
increase was primarily the result of increased gains on certain
investments ($42.2 million in fiscal 1994 compared with $22.1
million in fiscal 1993). Other income, net also includes the
effects of foreign exchange transactions and hedging activity ($2.2
million expense in fiscal 1994 compared with $1.9 million expense
in fiscal 1993) and interest income ($31.6 million in fiscal 1994
compared with $40.1 million in fiscal 1993).
Earnings Per Share
Earnings per share before the cumulative effect of changes in
accounting principles increased 8% to $2.10 from $1.94 in the
comparable period last year. This increase exceeded operating
profit growth because of higher gains from certain investments and
the reduction in outstanding shares due to the company's ongoing
share repurchase program. Excluding the combined effect of foreign
exchange on operating profit and on other income, net, earnings per
share before the cumulative effect of changes in accounting
principles increased about 17%. Excluding the combined total
effect of foreign exchange and gains on certain investments,
earnings per share before the cumulative effect of changes in
accounting principles increased about 11%.
For the nine-month period, comparative earnings were reduced by
$.17 per share from the adverse impact of foreign exchange. The
company has hedged a substantial portion of its exchange exposure
from its international businesses for the remainder of fiscal 1994
in order to limit the negative impact on full-year earnings to
about $.20 per share. For the nine-month period, capital gains
contributed about $.23 per share in fiscal 1994 compared with
approximately $.12 per share in fiscal 1993. Further capital gains
may not be realized in fiscal 1994. In the fourth quarter of
fiscal 1993, the company realized $7.4 million, or about $.04 per
share, in capital gains from certain investments.
Business Segments
Reader's Digest magazine revenues decreased $27.5 million, or 5%,
to $510.8 million compared with $538.3 million a year ago.
Excluding the effect of changes in foreign currency exchange rates,
revenues were about even with the prior year. These consistent
revenues were due to lower worldwide advertising revenues caused by
a decrease in advertising pages in a difficult global advertising
environment being offset primarily by increased subscription
pricing. For the nine-month period, average circulation levels
remained approximately the same as the prior year. Operating
profit decreased primarily because of lower advertising revenues
and an increase in promotional spending.
Books and home entertainment products revenues decreased 5%, or
$70.0 million, to $1.46 billion compared with $1.53 billion for the
same period a year ago. Excluding the effect of changes in foreign
currency exchange rates, revenues increased about 3%. This
increase was primarily attributable to higher prices and sales of a
higher priced product mix. U.S. revenues declined compared with
the prior year consistent with the company's strategy of optimizing
its U.S. profitability through lower levels of activity in order to
form a solid customer base for future growth. Operating profit in
this segment increased as a result of decreased promotional
spending related to the lower activity in the U.S and higher
international revenues.
Special interest magazines revenues increased $3.8 million, or 6%,
to $62.5 million from $58.7 million a year ago. Excluding the
effect of changes in foreign currency exchange rates, revenues
increased about 7%. Approximately three-fourths of the increase in
revenues was caused by increased advertising revenues because of
increased advertising rates. The balance of the increase was due
to higher subscription pricing. Circulation levels remained
approximately the same as the prior year. Special interest
magazines operating loss was reduced primarily because of increased
revenues and lower amortization of intangible assets.
Workforce Reduction
In November, 1993 the company announced a reduction in its U.S.
workforce of about 200 people. This reduction was designed to
bring the cost structure of U.S. operations in line with revenues,
and staffing levels in line with business activities. The costs of
the workforce reduction have been charged against the SFAS 112
accrual.
Liquidity and Capital Resources
March 31, 1994 Compared with June 30, 1993
Cash and cash equivalents, short-term investments and marketable
securities increased about $64 million to $787 million at March 31,
1994, compared with $723 million at June 30, 1993. The increase
was primarily the result of cash provided from operations ($255
million) exceeding payments for dividends ($117 million) and the
repurchase of 2.4 million shares of Class A nonvoting common stock
($99 million).
The company paid a $.35 per share dividend on its common stock in
the third quarter of fiscal 1994 compared with $.30 per share a
year ago. This represents a 17% increase over the prior year's
quarterly dividend payment. At the current rate, the company will
pay a total dividend of $1.35 in fiscal 1994 compared with $1.15 in
fiscal 1993. In March, 1994 the company completed its second share
repurchase program of three million shares which began in May,
1993. In March, 1994 the company also announced a third share
repurchase program to acquire up to an additional five million
shares of Class A nonvoting common stock.
The company believes that its liquidity, capital resources and cash
flow are sufficient to fund normal capital expenditures, working
capital requirements, the payment of dividends and the company's
share repurchase program. The company also believes its liquidity,
capital resources and cash flow are sufficient to finance present
plans to expand existing product lines in existing markets and to
identify and develop new products and markets.
New Accounting Standards
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. (SFAS) 115,
"Accounting for Certain Investments in Debt and Equity Securities."
This standard expands the use of fair value accounting and
addresses reporting requirements for certain investments in debt
and equity securities. SFAS 115 must be applied by the company no
later than the first quarter of fiscal 1995. The company is
currently assessing the impact of this statement.
In December 1993, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 93-7, "Reporting on
Advertising Costs." This statement sets forth the guidelines for
the recognition and reporting of advertising costs. Under these
guidelines, the costs of direct-response advertising should be
capitalized and amortized over the period during which future
benefit is expected to be received to better match revenues and
related costs of product offerings. Presently, the company
generally expenses these costs as they are incurred. SOP 93-7 must
be applied by the company no later than the first quarter of fiscal
1995. The company is currently assessing the impact of this
statement.
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
James P. Schadt has been named to succeed George V. Grune
as chief executive officer of the company, effective
August 1, 1994. Mr. Schadt will continue as president of
the company and Mr. Grune will remain chairman of the
board of directors of the company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.17 The Reader's Digest Association, Inc. 1994 Key
Employee Long Term Incentive Plan.
(b) Reports on Form 8-K
No report on Form 8-K was filed for the quarter for which
this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Reader's Digest Association, Inc.
(Registrant)
Date: May 13, 1994 By: Anthony W. Ruggiero
Anthony W. Ruggiero
Senior Vice President and
Chief Financial Officer
Sean F. Orr
Sean F. Orr
Vice President and
Controller
Chief Accounting Officer
THE READER'S DIGEST ASSOCIATION, INC.
1994 KEY EMPLOYEE LONG TERM
INCENTIVE PLAN
THE READER'S DIGEST ASSOCIATION, INC.
1994 KEY EMPLOYEE LONG TERM INCENTIVE PLAN
ARTICLE I
Purpose
The purpose of this 1994 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 shareholders.
ARTICLE II
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, 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 12.
2.4 "Code" shall mean the Internal Revenue Code of
1986, as amended.
2.5 "Committee" shall mean a committee of the Board
appointed from time to time by the Board consisting of three
or more Directors, none of whom shall be eligible to receive
any Award pursuant to this Plan.
2.6 "Common Stock" means the Class A non-voting 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 indi-
rectly, by the Company, which are designated from time to
time by the Board.
2.8 "Disability" shall mean Total Disability as
defined in the Company's Long Term Disability Plan.
2.9 "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.
2.10 "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.
2.11 "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.
2.12 "Non-Qualified Stock Option" shall mean any Stock
Option awarded under this Plan that is not an Incentive
Stock Option.
2.13 "Other Stock-Based Award" shall mean an Award
under Article 11 of this Plan that is valued in whole or in
part by reference to, or is payable in or otherwise based
on, Common Stock.
2.14 "Participant" shall mean an employee to whom an
Award has been made pursuant to this Plan.
2.15 "Performance Cycle" shall have the meaning set
forth in Section 10.1.
2.16 "Performance Period" shall have the meaning set
forth in Section 9.1.
2.17 "Performance Share" shall mean an Award made
pursuant to Article 9 of this Plan of the right to receive
Common Stock or cash of an equivalent value at the end of a
specified Performance Period.
2.18 "Performance Unit" shall mean an Award made
pursuant to Article 10 of this Plan of the right to receive
a fixed dollar amount, payable in cash or Common Stock or a
combination of both.
2.19 "Reference Stock Option" shall have the meaning
set forth in Section 7.1.
2.20 "Restricted Stock" shall mean an Award of shares
of Common Stock under this Plan that is subject to
restrictions under Article 8.
2.21 "Restriction Period" shall have the meaning set
forth in Subsection 8.3(a).
2.22 "Retirement" shall mean termination of employment
by an employee who is a least 55 years of age after at least
5 years of employment by the Company and/or a Designated
Subsidiary.
2.23 "Stock Appreciation 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.
2.24 "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.
2.25 "Termination of employment" shall mean a
termination of service for reasons other than military or
personal leave of absence granted by the Company or 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.
2.26 "Transfer" shall mean anticipate, alienate,
attach, sell, assign, pledge, encumber, charge or otherwise
transfer.
2.27 "Withholding Election" shall have the meaning set
forth in Section 15.4.
ARTICLE III
Administration
3.1 The Committee. The Plan shall be administered and
interpreted by the Committee.
3.2 Awards. The Committee shall have full authority
to grant, pursuant to the terms of this Plan, to eligible
employees: (i) Stock Options, (ii) Stock Appreciation
Rights, (iii) Restricted Stock, (iv) Performance Shares, (v)
Performance Units, and (vi) Other Stock-Based Awards. In
particular, the Committee shall have the authority:
(a) to select the eligible employees to whom Stock
Options, Stock Appreciation Rights, Restricted
Stock, Performance Shares, Performance Units and
Other Stock-Based Awards may from time to time be
granted hereunder;
(b) to determine whether and to what extent Incentive
Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance
Shares, Performance Units and Other Stock-Based
Awards, or any combination thereof, 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 and/or Restricted Stock
under Subsection 6.4(k); and
(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.
3.3 Guidelines. Subject to Article 13 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 IV
Share Limitation
4.1 Shares. The maximum aggregate number of shares of
Common Stock which may be issued under this Plan or with
respect to which Non-Tandem Stock Appreciation Rights may be
granted shall not exceed 6,000,000 shares (subject to any
increase or decrease pursuant to Section 4.2) which may be
either authorized and unissued Common Stock or outstanding
Common Stock reacquired by the Company. No more than 10% of
such maximum shall be issued under this Plan as Restricted
Stock. If any Option granted under this Plan shall expire,
terminate or be cancelled for any reason without having been
exercised in full, or payment shall have been made in other
than Common Stock, the number of unpurchased shares shall
again be available for the purposes of the Plan; provided,
however, that if such expired, terminated or cancelled
Option shall have been issued in tandem with a Stock
Appreciation Right or other Award, none of such unpurchased
shares shall again become available for purposes of this
Plan to the extent that the related Right or Award granted
under this Plan is exercised. Further, if any shares of
Common Stock granted hereunder are forfeited or such Award
otherwise terminates without the delivery of such shares
upon the lapse of restrictions, the shares subject to such
grant, to the extent of such forfeiture or termination,
shall again be available under this Plan.
4.2 Changes. 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, recapi-
talization, 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 aggregate number and kind of
shares which thereafter may be issued under this Plan, the
number and kind of shares subject to outstanding Options
granted under this Plan and the purchase price thereof, and
the number and kind of shares subject to other outstanding
Awards (including but not limited to Awards of Restricted
Stock, Performance Shares and Other Stock-Based Awards)
granted under this Plan, shall be appropriately adjusted
consistent with such change in such manner as the Committee
may deem equitable to prevent substantial dilution or
enlargement of the rights granted to, or available for,
Participants under this Plan, and 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, administra-
tors, 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.
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.
ARTICLE V
Eligibility
5.1 Senior officers, senior management and key
employees of the Company and its Designated Subsidiaries and
members of the Executive Committee of the Company's Board of
Directors are eligible to be granted Options and other
Awards under this Plan. Eligibility under this Plan shall
be determined by the Committee.
ARTICLE VI
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
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 Plans,
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 if
the Stock Option is intended to be an Incentive
Stock Option and shall not be less than 85% of the
Fair Market Value of the Common Stock at grant if
the Stock Option is intended to be a Non-Qualified
Stock Option.
(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 Stock on the payment date as
determined by the Committee (without regard to any
forfeiture restrictions applicable to Restricted
Stock). No shares of 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
shareholder 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 15.1.
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) Non-Transferability of Options. No Stock Option
shall be Transferable by the Participant otherwise
than by will or by the laws of descent and distri-
bution, and all Stock Options shall be
exercisable, during the Participant's lifetime,
only by the Participant.
(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 exer-
cisable 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
shareholders 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 condi-
tions 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 or Restricted Stock,
which shall be valued on the date of exercise on
the basis of the Fair Market Value of such
Performance Shares or Restricted Stock determined
without regard to the deferral limitations and/or
forfeiture restrictions involved.
ARTICLE VII
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 Refer-
ence 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 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.
7.5 Cash Settlements of Tandem and Non-Tandem Stock
Appreciation Rights. A Participant required to file reports
under Section 16(a) of the Securities Exchange Act of 1934
with respect to securities of the Company may receive cash
in complete or partial settlement of a Tandem or Non-Tandem
Stock Appreciation Right only if any election by such
Participant to receive cash in full or partial settlement of
the Stock Appreciation Right, as well as any exercise by him
of his Stock Appreciation Right for such cash, is made (i)
during the period beginning on the third business day
following the date of release for publication of the
quarterly or annual summary statements of sales and earnings
of the Company and ending on the twelfth business day
following such date, or (ii) during any other period in
which such election or exercise may be made under the
provisions of Rule 16b-3 promulgated pursuant to the Act.
ARTICLE VIII
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 persons to whom, and the time or
times at which, grants of Restricted Stock will be made, the
number of shares to be awarded, 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 of Restricted
Stock upon the attainment of specified performance goals or
such other factors as the Committee may determine, in its
sole discretion.
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. 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") 1994 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 the
stock certificates evidencing such shares 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 a period
set by the Committee commencing with the date of
such Award (the "Restriction Period"), the
Participant shall not be permitted to Transfer
shares of Restricted Stock awarded under this
Plan. 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 Shareholder. Except as provided in this
subsection (b) and subsection (a) above, 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 Commit-
tee, 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 Shares still subject to
restriction will vest or be forfeited in
accordance with the terms and conditions
established by the Committee at grant.
(d) Hardship. 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, the certificates for such
shares shall be delivered to the Participant. All
legends shall be removed from said certificates at
the time of delivery to the Participant.
ARTICLE IX
Performance Shares
9.1 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 9.2.
The Committee may condition the grant 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.
9.2 Terms and Conditions. Performance Shares awarded
pursuant to this Article 9 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. 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.
ARTICLE X
Performance Units
10.1 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 10.2.
A Performance Unit shall have a fixed dollar value.
The Committee may condition the 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.
10.2 Terms and Conditions. The Performance Units
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 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. 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.
ARTICLE XI
Other Stock-Based Awards
11.1 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 subsidiary
performance, may be granted either alone or in addition to
or in tandem with Stock Options, Stock Appreciation Rights,
Restricted Stock, 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.
11.2 Terms and Conditions. Other Stock-Based Awards
made 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,
shares of Common Stock subject to Awards made
under this Article 11 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 11
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 11 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 11.
(e) Price. Common Stock issued on a bonus basis under
this Article 11 may be issued for no cash
consideration; Common Stock purchased pursuant to
a purchase right awarded under this Article 11
shall be priced as determined by the Committee.
ARTICLE XII
Change in Control Provisions
12.1 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. 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 12.1,
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 of the extent to which 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 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.
Any determination by the Committee made pursuant to
paragraph (a) of this Section 12.1 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.
12.2 Change in Control. A "Change in Control" shall be
deemed to occur if (1) there shall be consummated any
consolidation or merger of the Company with or into any
other corporation, any corporate reorganization involving
the Company, any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company, or any
sale or other disposition of shares of capital stock of the
Company, and (2) as a result of such consolidation, merger,
reorganization, sale, lease, exchange or other disposition,
(A) any person or group (as such terms are used in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), shall have become
the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of a majority of the Company's outstanding
voting stock, or (B) any person other than the Company shall
be the beneficial owner of the assets of the Company as
described above; provided, however, that the non-employee
members of the Board immediately prior to such transaction
may determine that a Change in Control for purposes of the
Plan has not occurred where control is to be acquired by:
(i) an employee stock ownership plan of the Company; (ii) a
group of persons who immediately prior to the transaction
were officers and senior employees of the Company; (iii) an
entity organized directly or indirectly by persons who
immediately prior to the transaction were officers and
senior employees of the Company and who upon consummation of
the transaction will be officers and employees of the
Company and of the acquiring entity, will have
representation on the Board of Directors of the acquiring
entity and will own at least 10% of the voting shares of the
acquiring entity; (iv) an entity or entities that acquire
shares of the Company in a corporate reorganization or
restructuring that involves no substantial change in the
effective beneficial ownership or control of the Company;
(v) any one or more non-profit organizations designated by
the Board of Directors pursuant to this Section 12.2(v) at
least 12 months prior to the Change in Control; (vi) a
person or persons who at the time of or prior to the
transaction announce their intention to make no substantial
change in the composition of the Board; provided, however,
that if during the 24 months after a transaction referred to
in this clause (vi) of Section 12.2, individuals who at the
beginning of such period constituted the entire Board shall
cease for any reason to constitute a majority thereof unless
the election of each new director who was not a director at
the beginning of such period was approved by a vote of at
least two-thirds of the directors then still in office who
were directors at the beginning of the period, a Change in
Control shall be deemed to have occurred as of the date the
composition of the Board is so changed.
12.3 Limitation. In the event that any benefits to a
Participant under this Plan, either alone or together with
any other payments or benefits otherwise owed to the Par-
ticipant by the Company or a Designated Subsidiary on or
after a Change in Control would, in the Company's good faith
opinion, be deemed under Section 280G of the Code, or any
successor provision, to be parachute payments, the benefits
under this Plan shall be reduced to the extent necessary in
the Company's good faith opinion so that no portion of the
benefits provided herein shall be considered excess
parachute payments under Section 280G of the Code or any
successor provision. The Company's good faith opinion shall
be conclusive and binding upon the Participants.
ARTICLE XIII
Termination or Amendment of the Plan
13.1 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
regulatory requirement referred to in Article 15), 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 or other 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 (except by operation of Section 4.2);
(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 for a Stock Option
intended to be an Incentive Stock Option or to less than 85%
of the Fair Market Value on the date of grant for a Stock
Option intended to be a Non-Qualified Stock Option; or (iv)
extend the maximum option period under Section 6.4 of the
Plan.
The Committee may amend the terms of any Stock
Option or other Award theretofore granted, prospectively or
retroactively, but, subject to Article 4 above, no such
amendment or other action by the Committee shall impair the
rights of any holder without the holder's consent. The
Committee may also substitute new Stock Options for previ-
ously granted Stock Options having higher option exercise
prices than the new Stock Options being substituted
therefor.
ARTICLE XIV
Unfunded Plan
14.1 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 XV
General Provisions
15.1 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.
15.2 Other Plans. Nothing contained in this Plan shall
prevent the Board from adopting other or additional
compensation arrangements, subject to shareholder approval
if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific
cases.
15.3 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.
15.4 Withholding of Taxes. The Company shall have the
right to deduct from any payment to be made pursuant to this
Plan, or to otherwise require, prior to the issuance or
delivery of any shares of Common Stock or the payment of any
cash hereunder, payment by the Participant of, any Federal,
state or local taxes required by law to be withheld.
The Committee may permit any such withholding
obligation to be satisfied by reducing the number of shares
of Common Stock otherwise deliverable. A person required to
file reports under Section 16(a) of the Securities Exchange
Act of 1934 with respect to securities of the Company may
elect to have a sufficient number of shares of Common Stock
withheld to fulfill such tax obligations (hereinafter a
"Withholding Election") only if the election complies with
such conditions as are necessary to prevent the withholding
of such shares from being subject to Section 16(b) of the
Securities Exchange Act of 1934. To the extent necessary
under then current law, such conditions shall include the
following: (x) the Withholding Election shall be subject to
the disapproval of the Committee and (y) the Withholding
Election is made (i) during the period beginning on the
third business day following the date of release for
publication of the quarterly or annual summary statements of
sales and earnings of the Company and ending on the twelfth
business day following such date, (ii) six months before the
Stock Award becomes taxable, or (iii) during any other
period in which a Withholding Election may be made under the
provisions of Rule 16b-3 promulgated pursuant to the Act.
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.
15.5 No Assignment of Benefits. No Option, Award or
other benefit payable under this Plan shall, except as
otherwise specifically provided by law, 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.
15.6 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 15.6, 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.
15.7 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).
15.8 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.
15.9 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.
15.10 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.
15.11 Costs. The Company shall bear all expenses
incurred in administering this Plan, including expenses of
issuing Common Stock pursuant to any Awards hereunder.
15.12 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.
ARTICLE XVI
Effective Date of Plan
The Plan shall become effective upon the date specified
by the Board in its resolution adopting the Plan, subject to
the approval of the Plan by the holders of a majority of the
capital stock of the Company entitled to vote thereon within
one year after the Plan is adopted. Any grants of Awards
hereunder prior to such approval 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 Plan by shareholders.
ARTICLE XVII
Term of Plan
No Stock Option, Stock Appreciation Right, Restricted
Stock, Performance Shares, 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 shareholder approval but
Awards granted prior to such tenth anniversary may extend
beyond that date.
ARTICLE XVIII
Name of Plan
This Plan shall be known as "The Reader's Digest
Association, Inc. 1994 Key Employee Long Term Incentive
Plan."
KELTIP94.DOC 2/11/94
