SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
240.14a-11(c) or 240.14a-12
The Reader's Digest Association, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-
11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Investment
Company Act Rule 20a-1(c).
[ ] $500 per each party to the
controversy pursuant to Exchange Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per
Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: (Set forth
the amount on which the filing fee is calculated and state
how it was determined:
4) Proposed maximum aggregate value of transaction:
[ ] Fee paid previously with preliminary materials.
[ ] Check the box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
[Reader's Digest Logo]
September 28, 1994
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of The Reader's Digest Association, Inc. to be held
at 10:00 a.m. on Friday, November 11, 1994, at the Sheraton
Stamford Hotel, One First Stamford Place, Stamford, Connecticut.
Driving directions and a map showing how to reach the Sheraton
Stamford appear on the last page of the accompanying Proxy
Statement.
The accompanying Notice of Meeting and Proxy Statement
describe the matters to be considered and voted upon at the
Meeting. In addition to consideration of these matters, there
will be a report to stockholders on the affairs of the Company,
and stockholders will have an opportunity to discuss matters of
interest concerning the Company.
Although only holders of the Company's Class B Voting Common
Stock are entitled to vote at the Meeting, we invite all
stockholders of the Company, including the holders of the
Company's Class A Nonvoting Common Stock, to attend.
If you are entitled to vote at the Meeting, it is important
that your shares be represented, whether or not you plan to
attend the Meeting personally. To ensure that your vote will be
received and counted, please promptly complete, date and return
your proxy in the enclosed return envelope, whether or not you
plan to attend the meeting in person.
Sincerely yours,
GEORGE V. GRUNE JAMES P. SCHADT
George V. Grune James P. Schadt
Chairman of the Board President and Chief
Executive Officer
NOTICE OF 1994 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
The Annual Meeting of Stockholders of The Reader's Digest
Association, Inc. (the "Company") will be held at the Sheraton
Stamford Hotel, One First Stamford Place, Stamford, Connecticut,
on Friday, November 11, 1994 at 10:00 a.m., New York time, to
consider and take action on the following matters:
(a) election of Directors of the Company;
(b) a proposal to approve The Reader's Digest
Association, Inc. 1994 Key Employee Long Term
Incentive Plan;
(c) a proposal to approve the business criteria,
maximum amount and eligible employees for
performance units under The Reader's Digest
Association, Inc. 1994 Key Employee Long Term
Incentive Plan;
(d) a proposal to approve The Reader's Digest
Association, Inc. Employee Stock Purchase Plan
(Amendment and Restatement as of July 8, 1994);
and
(e) transaction of such other business as may
properly come before the Meeting.
Only holders of record of the Company's Class B Voting
Common Stock at the close of business on September 19, 1994 are
entitled to notice of, to attend and to vote at, the Meeting.
Holders of the Company's Class A Nonvoting Common Stock on the
record date are also welcome to attend the Meeting.
By Order of the Board of
Directors:
CONNIE K. BECK
Connie K. Beck
Vice President, Corporate
Secretary and Associate General
Counsel
September 28, 1994
PROXY STATEMENT
GENERAL INFORMATION
Annual Meeting Time and Location
The Annual Meeting of Stockholders of The Reader's Digest
Association, Inc. (the "Company") will be held at the Sheraton
Stamford Hotel, One First Stamford Place, Stamford, Connecticut,
on Friday, November 11, 1994 at 10:00 a.m., New York time.
Driving directions and a map showing how to reach the Sheraton
Stamford appear on the last page of this Proxy Statement.
Principal Executive Offices of the Company
The principal address of the executive offices of the
Company is Pleasantville, New York, 10570.
Meeting Admittance Procedures
Attendance at the Meeting will be limited to stockholders of
record on the record date (as defined below), or their duly
appointed proxy holders (not to exceed one per stockholder). If
you or your proxy holder plans to attend the Meeting, please
return the longer portion of the enclosed admission card. Your
name will then be placed on an admission list held at the
entrance to the Meeting. Please save the shorter portion of the
admission card. You will have to present the shorter portion of
the admission card to gain entrance to the Meeting.
If you plan to attend the Meeting and vote your shares in
person, but your shares are held in the name of a broker, trust,
bank or other nominee, you should also bring with you a proxy or
letter from the broker, trustee, bank or nominee confirming your
beneficial ownership of the shares.
Securities Entitled to be Voted at the Meeting; Record Date
The only securities entitled to be voted at the Meeting are
shares of the Company's Class B Voting Common Stock (the "Class B
Voting Common Stock"), and only holders of record at the close of
business on September 19, 1994 (the record date) are entitled to
vote. The Class B Voting Common Stock is entitled to one vote
per share. On September 19, 1994, 21,515,159 shares of Class B
Voting Common Stock were outstanding.
The Class A Nonvoting Common Stock is not entitled to be
voted at the Meeting. Holders of Class A Nonvoting Common Stock
are receiving this Proxy Statement for information purposes only
and will not receive a proxy card.
Proxies Solicited by the Board of Directors
This Proxy Statement, and the proxy card that accompanies
the Proxy Statement to the holders of the Class B Voting Common
Stock, are first being sent or given to stockholders on or about
September 28, 1994.
The accompanying proxy card is solicited by the Board of
Directors of the Company. It may be revoked by written notice
given to the Corporate Secretary of the Company at any time
before being voted. Proxies in this form, properly executed,
duly returned to the Company and not revoked, will be voted for
the election of Directors (except to the extent that authority
therefor is withheld) in accordance with the instructions in the
proxy. Presence at the meeting does not of itself revoke the
proxy.
The Company will bear the cost of the solicitation of
proxies pursuant to this Proxy Statement, including reimbursement
of brokers and other persons holding stock in their names, or in
the names of nominees, at approved rates, for their expenses for
sending proxy material to principals and obtaining their proxies.
The Company has retained Morrow & Co., Inc. to solicit proxies on
behalf of management for an estimated fee of $3,500, plus
reimbursement of reasonable out-of-pocket expenses. In addition,
proxies may be solicited personally, or by mail, telephone or
electronic transmission, by regular employees of the Company
without additional compensation.
Vote Tabulation
Abstentions and "non-votes" are counted as present in
determining whether the quorum requirement is satisfied.
Abstentions and "non-votes" have the same effect as votes against
proposals presented to stockholders other than election of
directors. A "non-vote" occurs when a nominee holding shares for
a beneficial owner votes on one proposal, but does not vote on
another proposal because the nominee does not have discretionary
voting power and has not received instructions from the
beneficial owner.
As a matter of Company practice, the tabulation of
stockholder votes at the Annual Meeting of Stockholders is to be
made on a confidential basis by independent third parties and
certain employees of the Company involved in the tabulation
process. Each stockholder proxy card, ballot and the votes
specified thereon are to be kept confidential until the final
vote is tabulated, except that disclosure may be made as required
by applicable law, in the case of proxy cards containing a
stockholder comment or question, and in the event of a contested
proxy solicitation.
ELECTION OF DIRECTORS
Nominees
The Board of Directors consists of 10 members who are
elected annually to hold office until the next Annual Meeting or
until their successors are duly elected and qualified. The
election of directors is shown on the accompanying proxy as
Proposal 1. The affirmative vote of a plurality of the votes
cast by the holders of the Class B Voting Common Stock present in
person or represented by proxy and entitled to vote thereon is
necessary to elect a Director. If no contrary indication is made,
proxy cards in the accompanying form are to be voted for the
nominees named below or, in the event any such nominee is not a
candidate or is unable to serve as a Director at the time of the
election (which is not now expected), for any nominee who shall
be designated by the Board of Directors to fill such vacancy.
All nominees named below are incumbent members of the Board of
Directors.
Set forth below opposite the name and age of each nominee
are the nominee's present positions and offices with the Company,
the year in which the nominee was first elected a Director of the
Company and the nominee's principal occupations during the past
five years.
<TABLE>
<CAPTION>
Positions and Offices With the Company and
Name and Age Principal Occupations During the Past Five Years
<S> <C>
George V. Grune (65) Mr. Grune is Chairman of the Board of the Company.
He served as Chairman and Chief Executive Officer
from 1984 through July 1994, when he retired as Chief
Executive Officer upon reaching age 65. Mr. Grune
has been a member of the Board of Directors of the
Company since 1976. He joined the Company in 1960.
Mr. Grune serves on the boards of directors of Avon
Products, Inc., Chemical Banking Corporation, CPC
International, Inc., and Federated Department Stores,
Inc.
<CAPTION>
Positions and Offices With the Company and
Name and Age Principal Occupations During the Past Five Years
<S> <C>
James P. Schadt (56) Mr. Schadt was elected Chief Executive Officer of
the Company effective August 1994 and continues as
President. He joined the Company as President and
Chief Operating Officer and was elected to the Board
of Directors of the Company in September 1991. He
was a member of the board of directors of Cadbury
Schweppes plc of London and Chief Executive Officer
of its worldwide beverage business, Cadbury
Beverages, Inc., from 1986 through July 1991.
Melvin R. Laird (72) Mr. Laird has been a member of the Board of
Directors of the Company since 1990. He has served
as Senior Counsellor since 1974 and was elected to
the additional position of Vice President in 1989.
Mr. Laird joined the Company in 1974. Mr. Laird
serves as Chairman of the Board of Directors of
COMSAT Corporation and is also a director of IDS
Mutual Fund Group, Martin Marietta Corporation,
Metropolitan Life Insurance Company, Northwest
Airlines, Inc. and Science Applications
International Corporation.
William G. Bowen (60) Dr. Bowen has been a member of the Board of
Directors of the Company since 1985. He has been
the President of The Andrew W. Mellon Foundation
since 1988 and was President of Princeton University
from 1972 to 1988. Dr. Bowen also serves on the
boards of directors of American Express Company and
Merck & Co., Inc.
Lynne V. Cheney (53) Dr. Cheney joined the Board of Directors in January
1993. She has been W.H. Brady, Jr. Distinguished
Fellow of the American Enterprise Institute for
Public Policy Research since January 1993, and
served as Chairman of the National Endowment for the
Humanities from May 1986 to January 1993. Dr.
Cheney is also a director of IDS Mutual Fund Group,
The Interpublic Group of Companies, Inc. and
Lockheed Corporation.
M. Christine DeVita (44) Ms. DeVita has been President of the DeWitt Wallace-
Reader's Digest Fund, Inc. and the Lila Wallace-
Reader's Digest Fund, Inc. since June 1989, having
served as executive director from 1987. From 1984
to 1987, Ms. DeVita was a deputy general counsel of
the Company.
James E. Preston (61) Mr. Preston joined the Board of Directors in July
1994. He became Chairman of the Board of Avon
Products, Inc. in January 1989 and has been Chief
Executive Officer since 1988, holding the additional
position of President from 1988 until November 1993.
Mr. Preston also serves on the boards of directors
of The ARA Group, Inc. and Woolworth Corporation.
Robert G. Schwartz (66) Mr. Schwartz has been a member of the Board of
Directors of the Company since 1989. He retired in
April 1993 as Chairman of the Board, President and
Chief Executive Officer of Metropolitan Life
Insurance Company, having served in that position
since September 1989. Mr. Schwartz also serves on
the boards of directors of COMSAT Corporation,
Consolidated Edison Co. of New York, Inc., CS First
Boston, Inc., Lone Star Industries, Inc., Lowe's
Companies, Inc., Mobil Corporation and Potlatch
Corporation.
<CAPTION>
Positions and Offices With the Company and
Name and Age Principal Occupations During the Past Five Years
<S> <C>
Walter V. Shipley (58) Mr. Shipley has been a member of the Board of
Directors of the Company since 1989. He became
Chairman and Chief Executive Officer of Chemical
Banking Corporation in January 1994, having served as
its President since its merger with Manufacturers
Hanover Corporation in December 1991. He had been
Chairman of the Board and Chief Executive Officer of
Chemical Banking Corporation since 1983. Mr. Shipley
also serves on the boards of directors of Champion
International Corporation and NYNEX Corporation.
C.J. Silas (62) Mr. Silas has been a member of the Board of Directors
of the Company since April 1992. He retired in May
1994 as Chairman and Chief Executive Officer of
Phillips Petroleum Company, positions he had held
since 1985. Mr. Silas is a Director of COMSAT
Corporation and Halliburton Company.
</TABLE>
Board of Directors and Committees
During the Company's fiscal year ended June 30, 1994, its
Board of Directors held 12 meetings. The Board of Directors of
the Company has an Audit Committee, a Compensation & Nominating
Committee, a Finance Committee and a Public Policy Committee.
The Audit Committee, which met twice during the 1994 fiscal
year, is comprised of Drs. Bowen (Chairman) and Cheney, Ms.
DeVita and Mr. Shipley. Its functions include recommending
annually to the Board of Directors a firm of independent
accountants to audit and review the Company's books and records
and approving the scope of such firm's audit; reviewing the
adequacy of the Company's internal controls and auditing
procedures; reviewing the appropriateness of and effect of
changes in the Company's accounting principles and auditing
procedures; reviewing the Company's ethics policies and
procedures; and reviewing, approving and recommending to the
Board the Company's annual financial statements.
The Compensation & Nominating Committee, which met four
times during the last fiscal year, consists of Mr. Schwartz
(Chairman), Dr. Bowen and Mr. Silas. Its functions include
administering certain employee benefit plans; recommending the
amount and form of any contribution to The Reader's Digest
Employees Profit-Sharing Plan; reviewing the compensation levels
and programs for officers and key personnel and determining
incentive compensation for employees of the Company and its
subsidiaries; and reviewing and recommending candidates and
nominees for election to the Board of Directors.
The Finance Committee, which met twice during the 1994
fiscal year, is comprised of Messrs. Silas (Chairman), Laird and
Shipley. The Finance Committee's functions include overseeing
the financial affairs of the Company, such as the Company's
investment policies and programs and those of its employee
benefit plans; and advising the Board with respect to corporate
financial policies and procedures, dividend policy, financing
plans and budgets, foreign exchange management, tax planning and
insurance coverage.
The Public Policy Committee, which met three times during
the last fiscal year, consists of Dr. Cheney (Chairman), Ms.
DeVita and Mr. Schwartz. Its functions include advising the
Board and management on matters of public and social policy
affecting the Company; reviewing and monitoring regulations
governing employment practices and policies; reviewing material
litigation; reviewing the Company's philanthropic activities; and
reviewing investor relations, public relations, and consumer and
government affairs matters.
Each Director who is not an officer or employee of the
Company or of one of its subsidiaries receives an annual retainer
of $32,000 each fiscal year for services as a Director. In
addition, such Directors receive a fee of $1,000 for each Board
or Committee meeting attended in person or by telephone ($1,500
for the Chairman of the Committee) and are reimbursed for their
reasonable expenses of attending such meetings and otherwise in
connection with their duties as Directors. Each such Director
who serves for more than five years will, upon retirement from
the Board, continue to receive annually compensation in the
amount of the Director's retainer in effect at the time of
retirement.
Under the Deferred Compensation Plan for Non-Employee
Directors of The Reader's Digest Association, Inc., non-employee
Directors are eligible to defer payment of 50%, 75% or 100% of
their annual retainer for certain established deferral periods.
Deferred annual retainers are credited to an unfunded account for
each participant, on which interest accrues at a rate determined
by a committee comprised of employee Directors. Payment of the
deferred annual retainer will be made, at the election of the
participant, in a lump sum or in annual installments of from one
to 10 years.
EQUITY SECURITY OWNERSHIP
Principal Stockholders
The following table shows, based on information reported to
the Company by or on behalf of such persons, the ownership, as of
September 19, 1994, of the Company's voting securities by the
only persons known to the Company to be the beneficial owners of
more than five percent of the Class B Voting Common Stock, the
only class of voting securities of the Company outstanding:
<TABLE>
<CAPTION>
Amount and nature
Name and address of beneficial owner of beneficial ownership Percent of class
<S> <C> <C>
DeWitt Wallace-Reader's Digest Fund, Inc. 7,750,000 shares 36.02%
261 Madison Avenue (sole voting and investment
New York, NY 10016 <F1> power)
Lila Wallace-Reader's Digest Fund, Inc. 7,750,000 shares 36.02%
261 Madison Avenue (sole voting and investment
New York, NY 10016 <F1> power)
___________
<FN>
<F1>
(1) As of September 19, 1994, the DeWitt Wallace-Reader's Digest
Fund, Inc. also owned 6,117,240 shares of Class A Nonvoting
Common Stock, which, together with its holding of Class B Voting
Common Stock, represented 12.20% of the total outstanding common
stock of the Company. The Lila Wallace-Reader's Digest Fund,
Inc. also owned 2,439,558 shares of Class A Nonvoting Common
Stock, which, together with its holding of Class B Voting Common
Stock, represented 8.96% of the total outstanding common stock of
the Company.
</FN>
</TABLE>
The By-Laws of each of the DeWitt Wallace-Reader's Digest
Fund, Inc. and the Lila Wallace-Reader's Digest Fund, Inc.
(collectively, the "Funds" and each a "Fund") provide for eight
members and a board consisting of eight directors. The By-Laws
also require that, during any period in which the Fund owns,
directly or beneficially, 20% or more of the voting stock of the
Company, one half of the members and one half of the directors
must be persons who are certain "Designated Employees" of the
Company or the Fund and the other half of the members and
directors of the Fund must be persons who are neither Designated
Employees nor employees of the Company. The By-Laws further
provide that any Designated Employee member or director who
ceases to be a Designated Employee of the Company or the Fund
automatically ceases to be a member or director of the Fund, as
the case may be, although that person would still be eligible for
election as a non-Designated Employee member or director.
Messrs. Grune, Schadt and Laird and Ms. DeVita are currently
the Designated Employee members and directors of each of the
Funds. Dr. Bowen, Messrs. Shipley and Silas and Laraine S.
Rothenberg are currently the non-Designated Employee members and
directors of each of the Funds.
The By-Laws of each of the Funds provide that, with certain
exceptions, the quorum and vote required for action by the board
of directors of the Fund is a majority of the entire board, and
the quorum and vote required for action by the members is a
majority of all the members.
It has been the intention of the Company to make annual
contributions to The Reader's Digest Employees Profit-Sharing
Plan of previously unissued Class B Voting Common Stock at the
rate of approximately 2% of the Class B Voting Common Stock per
year. The Company's objective is that the plan would hold up to
20% of the Class B Voting Common Stock, or approximately 4% of
the equity in common stock of the Company, if contributions were
to continue through fiscal 1999. As of September 19, 1994,
approximately 7.04% of the outstanding Class B Voting Common
Stock is held by the plan.
In order to avoid the imposition of excise taxes, commencing
in the year 2000 the Funds together may not own more than 50% of
the voting stock or value of the Company. Accordingly, the Funds
must reduce their aggregate holdings of Class B Voting Common
Stock to 50% by the year 2000. The Funds presently own
approximately 72% of the outstanding Class B Voting Common Stock.
If 20% of the total Class B Voting Common Stock were issued to
The Reader's Digest Employees Profit-Sharing Plan, the Funds
would be required to dispose of 3,000,000 shares of Class B
Voting Common Stock by the year 2000, in order to avoid the
imposition of excise taxes. No determination has been made at
this time as to the manner in which further reductions in
ownership of Class B Voting Common Stock will be effected. The
Funds intend to retain 50% of the Class B Voting Common Stock.
Directors, Nominees and Officers
The following table shows, as to the current Directors and
nominees individually, the Named Executive Officers (as listed in
the Summary Compensation Table) and the current Directors and
officers of the Company as a group, the equity securities of the
Company and its subsidiaries that were beneficially owned by them
as of September 19, 1994.
Shares of
Class A Nonvoting
Name of beneficial owner<F1><F2> Common Stock
George V. Grune 276,100 <F3>
James P. Schadt 33,823 <F4>
Melvin R. Laird 11,000
William G. Bowen 500
Lynne V. Cheney 640
M. Christine DeVita 1,000
James E. Preston 1,000
Robert G. Schwartz 2,000
Walter V. Shipley 1,000
C.J. Silas 1,000
Kenneth A.H. Gordon 67,000 <F5>
Anthony W. Ruggiero 37,791 <F5>
Thomas M. Kenney 69,495 <F5>
All Directors, nominees and
officers as a group (30 persons) 826,697 <F3><F4><F5>
______________
[FN]
<F1>
(1) "Beneficial ownership" has been determined in accordance
with rule 13d-3 under the Securities Exchange Act of 1934.
Each Director, nominee or officer had voting and investment
power over the shares shown, except as noted below. Each
Director, nominee or Named Executive Officer individually, and
the Directors and officers as a group, beneficially owned less
than one percent of the total issued and outstanding shares of
Class A Nonvoting Common Stock.
<F2>
(2) Other than as indicated in Note (5) below, no Director,
nominee or officer holds any shares of Class B Voting Common
Stock or any shares of preferred stock of the Company.
Messrs. Grune, Schadt, Laird, Bowen, Shipley and Silas and Ms.
DeVita are members and directors of the Funds, which together
beneficially own 9.28% of the Class A Nonvoting Common Stock
and 72.04% of the outstanding Class B Voting Common Stock.
See Principal Stockholders.
<F3>
(3) Does not include 1,000 shares owned by Mr. Grune's wife, as
to which Mr. Grune disclaims beneficial ownership.
<F4>
(4) Does not include 14,400 restricted shares granted by the
Company, with respect to which the restrictions have not yet
lapsed.
<F5>
(5) Includes shares of Class A Nonvoting Common Stock underlying
presently exercisable stock options as follows: Mr. Gordon,
45,000; Mr. Ruggiero, 27,750; Mr. Kenney, 64,000; all
Directors, nominees and officers, 360,275. Does not include
45,163 shares of Class B Voting Common Stock over which
members of the group have voting authority as a result of
their participation in The Reader's Digest Employees Profit-
Sharing Plan.
[/FN]
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information for each of the
fiscal years ended June 30, 1994, 1993 and 1992 concerning the
compensation of the Company's chief executive officer and its
four next most highly compensated executive officers
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual compensation Long-term compensation
Awards<F1> Payouts
Fiscal All
year Restricted other
ended stock Options/ LTIP compensa-
Name and principal position June 30 Salary Bonus Other<F2> award SARs payouts tion<F2>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George V. Grune 1994 $887,308 $650,000 $632,421<F4> 42,000 $872,800 $30,000<F5>
Chairman and Chief 1993 $822,693 $500,000 $384,959<F4> 42,000 $896,250 $26,136<F5>
Executive Officer<F3> 1992 $762,692 $630,000 42,000 $2,646,956
James P. Schadt 1994 $583,846 $475,000 210,000<F7> $490,950 $30,000<F5>
President and Chief 1993<F6> $530,768 $325,000 25,000 $358,500 $26,136<F5>
Operating Officer<F3> 1992<F6> $411,538 $300,000 $1,300,500<F8> 25,000 $542,626
Kenneth A.H. Gordon 1994 $388,077 $300,000 85,000<F7> $290,934 $30,000<F5>
President, Reader's Digest 1993 $348,192 $240,000 14,000 $274,850 $26,136<F5>
U.S.A., and Senior Vice 1992 $328,154 $225,000 14,000 $1,018,060
President<F9>
Anthony W. Ruggiero 1994 $360,385 $180,000 55,000<F7> $218,200 $30,000<F5>
Senior Vice President and 1993 $333,078 $155,000 11,000 $227,050 $26,136<F5>
Chief Financial Officer<F9> 1992 $309,231 $180,000 11,000 $610,836
Thomas M. Kenney 1994 $365,000 $175,000 45,000<F7> $272,750 $30,000<F5>
President, U.S. Magazine 1993 $349,615 $155,000 14,000 $274,850 $26,136<F5>
Publishing, and Vice 1992 $330,846 $200,000 14,000 $1,018,060
President
<FN>
<F1>
(1) All awards are made in or with respect to shares of Class A
Nonvoting Common Stock.
<F2>
(2) As permitted by Securities and Exchange Commission
transition rules, information in these columns is provided
for fiscal 1994 and 1993 only.
<F3>
(3) Mr. Grune continues as Chairman of the Board. Mr. Grune
retired as Chief Executive Officer upon reaching age 65.
Mr. Schadt was elected Chief Executive Officer effective
August 1, 1994. Mr. Schadt remains President of the
Company.
<F4>
(4) Includes $428,598 and $324,073 paid to offset tax liability
resulting from the vesting in fiscal 1994 and 1993,
respectively, of restricted stock previously awarded to Mr.
Grune. Includes for fiscal 1994 $116,332 of dividend
equivalent payments with respect to restricted share units
held by Mr. Grune.
<F5>
(5) Represents amounts contributed by the Company to The
Reader's Digest Employees Profit-Sharing Plan for the
accounts of the Named Executive Officers.
<F6>
(6) Mr. Schadt joined the Company in September 1991. LTIP
payouts were prorated for service during a portion of the
applicable performance period.
<F7>
(7) Represents five-year options and SARs awarded in fiscal
1994, as described in the Report of the Compensation &
Nominating Committee herein.
<F8>
(8) Represents 36,000 shares of restricted stock granted in
connection with the commencement of Mr. Schadt's employment.
20% of the shares vest on each successive anniversary of the
date of grant. Mr. Schadt receives dividends on such
shares. The restricted stock shown in the table is valued
at the closing market price of the Class A Nonvoting Common
Stock on the NYSE on the date of grant. At June 30, 1994,
Mr. Schadt held an aggregate of 21,600 shares of restricted
stock, valued at $896,400, based on the closing price of the
Class A Nonvoting Common Stock on the NYSE on such date.
<F9>
(9) Mr. Gordon and Mr. Ruggiero, who were formerly Vice
Presidents of the Company, were elected Senior Vice
Presidents on January 14, 1994.
</FN>
</TABLE>
Stock Options and SARs Granted in Last Fiscal Year
The following table sets forth information concerning stock
options and stock appreciation rights granted during the fiscal
year ended June 30, 1994 to the Named Executive Officers.
<TABLE>
<CAPTION>
Individual grants
Potential realizable
Percent value at assumed annual rates of
of total stock price appreciation for
options/ option/SAR term<F2>
SARs
Options/ granted to Exercise
SARs employees in or Expira-
granted fiscal year base tion
Name (#)<F1> price date 0% 5%<F3> 10%<F4>
($/sh)
<S> <C> <C> <C> <C> <C> <C> <C>
George V. Grune 42,000 2.05% $41.50 3/10/04 $0 $1,096,163 $2,777,893
James P. Schadt 210,000 10.24%<F5> $41.50 3/10/04 $0 $5,480,817 $13,889,466
Kenneth A.H. Gordon 85,000 4.14%<F5> $41.50 3/10/04 $0 $2,218,426 $5,621,927
Anthony W. Ruggiero 55,000 2.68%<F5> $41.50 3/10/04 $0 $1,435,452 $3,637,717
Thomas M. Kenney 45,000 2.19%<F5> $41.50 3/10/04 $0 $1,174,461 $2,976,314
All Common -- -- -- -- $0 $2,970,381,048<F6> $7,527,241,476<F6>
Stockholders
<FN>
<F1>
(1) All options and SARs are granted with respect to Class A
Nonvoting Common Stock. The grant to Mr. Grune will vest
with respect to 25% of the related shares on each successive
anniversary of the date of grant. The grants to the other
Named Executive Officers are five-year awards as described
in the Report of the Compensation & Nominating Committee
herein. These grants will vest with respect to 5%, 10%,
15%, 20% and 50% of the total related shares on each
respective successive anniversary of the date of grant.
<F2>
(2) The values shown are based on the assumed hypothetical
compound annual appreciation rates of 5% and 10% prescribed
by Securities and Exchange Commission rules. These
hypothetical rates are not intended to forecast either the
future appreciation, if any, of the price of Class A
Nonvoting Common Stock or the values, if any, that may
actually be realized upon such appreciation, and there can
be no assurance that the hypothetical rates will be
achieved. The actual value realized upon exercise of an
option or SAR will be measured by the difference between the
price of the Class A Nonvoting Common Stock and the exercise
price on the date the option or SAR is exercised.
<F3>
(3) For the values stated in this column to be realized, the
price of the Class A Nonvoting Common Stock would have to
appreciate to $67.60 during the 10-year option/SAR term.
<F4>
(4) For the values stated in this column to be realized, the
price of the Class A Nonvoting Common Stock would have to
appreciate to $107.64 during the 10-year option/SAR term.
<F5>
(5) If the five-year grants to the Named Executive Officers had
been awarded as five one-year grants, the 1994 grants would
represent the following percentages of total options/SARs
granted to employees in fiscal 1994: Mr. Schadt, 2.05%, Mr.
Gordon, .83%, Mr. Ruggiero, .54%, and Mr. Kenney, .44%.
<F6>
(6) For "All Common Stockholders," the potential realizable
values have been calculated on the basis of the same price
at which stock options and SARs were granted to the Named
Executive Officers and on the basis of the total number of
shares of Class A Nonvoting Common Stock and Class B Voting
Common Stock outstanding on June 30, 1994. An increase in
the price of the Class A Nonvoting Common Stock will benefit
all holders of such stock and all option holders
commensurately.
</FN>
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values
The following table sets forth information concerning stock
options and SARs exercised during the fiscal year ended June 30,
1994 and the fiscal year-end value of unexercised options and
SARs for the Named Executive Officers.
<TABLE>
<CAPTION>
Number of unexercised Value of unexercised
options/SARs at fiscal in-the-money options/SARs
Shares year end at fiscal year end
acquired on Value
Name exercise realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
George V. Grune -- -- 63,000 105,000 $379,890 $126,630
James P. Schadt -- -- 18,750 241,250 $0 $0
Kenneth A.H. Gordon -- -- 45,000 106,000 $642,630 $42,210
Anthony W. Ruggiero -- -- 27,750 80,250 $271,761 $167,149
Thomas M. Kenney -- -- 64,000 66,000 $1,051,130 $42,210
</TABLE>
Long-Term Incentive Plans - Awards in Last Fiscal Year
The following table sets forth information concerning long-
term incentive plan ("LTIP") awards during the fiscal year ended
June 30, 1994 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
Performance Estimated future payouts under non-stock
Number of or other price-based plans
shares, units period until
or other maturation or
Name rights<F1> payout Threshold<F2> Target<F2> Maximum<F2>
<S> <C> <C> <C> <C> <C>
George V. Grune 900,000 7/1/93 - 6/30/96 $630,000 $900,000 $1,350,000
James P. Schadt 630,000 7/1/93 - 6/30/96 $441,000 $630,000 $945,000
121,700<F3> 7/1/94 - 6/30/95 $85,190 $121,700 $182,550
180,000<F3> 7/1/94 - 6/30/96 $126,000 $180,000 $270,000
Kenneth A.H. Gordon 340,000 7/1/93 - 6/30/96 $238,000 $340,000 $510,000
Anthony W. Ruggiero 226,000 7/1/93 - 6/30/96 $158,200 $226,000 $339,000
Thomas M. Kenney 275,000 7/1/93 - 6/30/96 $192,500 $275,000 $412,500
<FN>
<F1>
(1) Each unit entitles the participant to one dollar at the end
of the performance cycle, if performance target is met.
Payment of performance units may be made, as determined by
the Compensation & Nominating Committee, in any combination
of cash and shares of Class A Nonvoting Common Stock valued
at their fair market value on the date of payment.
<F2>
(2) Threshold, target and maximum amounts are based on the
Company's earnings during the performance period.
<F3>
(3) Represents additional units awarded to Mr. Schadt to
recognize his increased responsibility as Chief Executive
Officer during these performance cycles.
</FN>
</TABLE>
Retirement Plans
The following table shows the estimated annual retirement
benefit to employees in specified compensation and years of
service classifications under The Reader's Digest Association,
Inc. Retirement Plan (the "Qualified Retirement Plan") based on
the retirement formula effective July 1, 1992. Amounts
calculated under the retirement formula which exceed the limits
under the Internal Revenue Code of 1986, as amended (the
"Internal
Revenue Code"), will be paid under the Excess Benefit Retirement
Plan of The Reader's Digest Association, Inc. (the "Excess
Benefit Plan") from the Company's assets and are included in the
amounts shown below.
<TABLE>
<CAPTION>
Highest Estimated Annual Retirement Benefit for
Consecutive Representative Years of Credited Service
Three Year
Average
Compensation 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 200,000 60,798 81,063 101,329 121,595 141,867
$ 250,000 76,443 101,924 127,405 152,886 178,367
$ 350,000 107,729 143,638 179,548 215,457 251,367
$ 450,000 139,014 185,353 231,691 278,029 324,367
$ 550,000 170,300 227,067 283,834 340,600 397,367
$ 600,000 185,943 247,924 309,905 371,886 433,867
$ 700,000 217,229 289,638 362,048 434,457 506,867
$ 800,000 248,514 331,353 414,191 497,029 579,867
$ 900,000 279,800 373,067 466,334 559,600 652,867
$ 1,000,000 311,086 414,781 518,476 622,172 725,867
$ 1,250,000 389,300 519,067 648,834 778,600 908,367
</TABLE>
Compensation covered by the Qualified Retirement Plan is
based on salary. Messrs. Grune, Schadt, Gordon, Ruggiero and
Kenney were credited with approximately 35, 3, 21, 4, and 5 years
of service, respectively, at June 30, 1994 under the Qualified
Retirement Plan. The amounts shown in the table reflect the
effect of social security integration. The estimated amounts in
the table are based on the assumption that payments under the
Qualified Retirement Plan and the Excess Benefit Plan will
commence upon retirement at age 65, that the Qualified Retirement
Plan and the Excess Benefit Plan will continue in force in their
present form and that benefits will be paid in the form of a
single life annuity.
Effective July 1, 1992, the Company adopted The Reader's
Digest Executive Retirement Plan (the "1992 Executive Retirement
Plan"). Benefits under the 1992 Executive Retirement Plan are
based on compensation (consisting of salary and bonus) and years
of service. Benefits are reduced by benefits payable under the
Qualified Retirement Plan, the Excess Benefit Retirement Plan and
certain other Company-provided retirement benefits. Because of
the nature of the interdependency among the 1992 Executive
Retirement Plan, the Qualified Retirement Plan and the Excess
Benefit Plan, it is not possible to present estimated benefits
under the 1992 Executive Retirement Plan in tabular format.
Benefits payable under the 1992 Executive Retirement Plan, after
the reductions for benefits payable under other plans, are
currently estimated at $160,728 for Mr. Grune, $156,794 for Mr.
Schadt, $107,993 for Mr. Gordon, $101,398 for Mr. Ruggiero and
$90,215 for Mr. Kenney. These amounts are based on the
assumption that payment under the 1992 Executive Retirement Plan
will commence upon retirement at age 65 (age 67 with respect to
Mr. Grune), that the 1992 Executive Retirement Plan will continue
in force in its present form and that benefits will be paid in
the form of a single life annuity.
The Company is a party to supplemental retirement benefit
agreements with those senior officers, senior management and
certain key employees who have elected to enter into such
agreements, pursuant to which the participating employees may
defer currently a certain amount of their income to fund
supplemental retirement benefits. Each of the Named Executive
Officers entered into such an agreement with the Company. The
Company has agreed to pay death benefits under such agreements
regardless of whether the supplemental retirement benefits have
yet been fully funded by the employees.
In addition, the Company has entered into a separate
Supplemental Retirement Agreement (the "Agreement") with Mr.
Grune, pursuant to which Mr. Grune is entitled to receive upon
his retirement a supplemental retirement benefit of $68,500 per
year for 15 years or until he dies, if earlier. The Agreement
also provides for certain death and disability benefits.
Severance Plan
Under The Reader's Digest Association, Inc. Severance Plan
for Senior Management (the "Severance Plan"), senior officers and
key executives of the Company, including the Named Executive
Officers, whose employment is terminated by the Company other
than for cause or for reasons of death, disability or sale by the
Company of the division which employs the employee (provided a
comparable position is offered to the employee by the new owner),
will be entitled to receive severance payments computed at a rate
of one month of base annual salary at the time of termination for
each year of service, but in any event, no less than 12 and no
more than 24 months' pay. A participant will also be entitled to
receive certain additional benefits, including a supplemental
payment in an amount equal to the difference between the
participant's monthly retirement benefits under the Qualified
Retirement Plan, the Excess Benefit Plan and the 1992 Executive
Retirement Plan and the amounts that would have been payable if
the participant's credited service under such plans had included
the number of months of severance payments made under the
Severance Plan. In addition, a participant will be entitled to
receive credited service equal to the severance period for
purposes of certain welfare benefits.
Income Continuation Plan
Under The Reader's Digest Association, Inc. Income
Continuation Plan for Senior Management (the "Income Continuation
Plan"), certain officers and key employees of the Company,
including the Named Executive Officers, whose employment is
terminated involuntarily (other than for cause, disability,
retirement or death) within 24 months following a change in
control of the Company, or who terminates employment within 90
days following constructive termination and within 24 months
following a change in control of the Company, will be entitled to
receive a payment of three full years' base annual salary in
effect immediately prior to termination or, if higher,
immediately prior to the change in control. Any benefits payable
under the Income Continuation Plan will be reduced by any
payments made under the Severance Plan and any monthly retirement
benefit actually paid under the Qualified Retirement Plan. A
participant will also be entitled to certain additional benefits,
including a supplemental payment equal to the difference between
the participant's monthly retirement benefits under the Qualified
Retirement Plan, the Excess Benefit Plan and the 1992 Executive
Retirement Plan and the amounts that would have been payable if
the participant's credited service under such plans had included
the number of months of benefit payments under the Income
Continuation Plan (reduced by any months of benefit under the
Severance Plan ). In addition, the participant will be entitled
to receive a lump-sum payment equal to three times the average of
the three highest of the five preceding annual cash bonuses
awarded to the participant. Benefits under the Income
Continuation Plan will be reduced to the extent necessary to
prevent any portion of such benefits from being considered
"excess parachute payments" under Section 280G of the Internal
Revenue Code, when considered alone or in combination with any
payments otherwise payable to the participant upon a change in
control.
Stock options, SARs, performance units and other awards
under The Reader's Digest Association, Inc. Key Employee Long
Term Incentive Plans also generally become immediately vested
upon a change in control.
Miscellaneous
Mr. Grune, who attained age 65 in July 1994, has agreed to
serve as Chairman of the Board of the Company for a period of up
to two years Mr. Grune will receive an annual base salary of
$500,000 and will remain eligible for annual bonus and
participation in benefit programs.
During the 1994 fiscal year, H.K. Helenius, an executive
officer of the Company, was granted an interest-free loan from
the Company in the amount of $100,000 in connection with his
relocation to the United States. $25,000 remains outstanding.
REPORT OF THE COMPENSATION & NOMINATING COMMITTEE
Executive Compensation Philosophy
The Company's executive compensation program is designed to
offer market competitive compensation opportunities which are
tied to individual, financial and stock performance. The
purposes of the program are to:
Continue to retain and attract high caliber executive
talent critical to the success of the Company.
Direct executive attention on performance measures that
are important to stockholders, such as earnings-per-
share growth and stock price appreciation.
Reward executives for successful strategic management,
growth in earnings, customers and markets, and
increases in return to stockholders.
Promote stock ownership to foster commonality of
interests between executives and stockholders.
The Company's executive compensation philosophy is to
provide compensation at levels competitive with those provided in
the markets in which the Company competes for business and for
executive resources. The Company is committed to placing a
majority of total compensation at risk by linking incentives to
the achievement of the Company's short- and long-term financial
goals and to the performance of the Company's Class A Nonvoting
Common Stock. In addition, the program attempts to recognize and
reward exceptional individual contributions.
The Company's incentive compensation programs for executive
officers are designed to reward participants on the basis of
individual and corporate performance that benefits the Company
and its stockholders. The Committee believes that it is
desirable for executive compensation to be deductible for federal
income tax purposes, but only to the extent that achieving
deductibility is practicable, consistent with the Company's
overall compensation objectives, and in the best interests of the
Company and its stockholders. Accordingly, although the
Committee retains discretion to provide compensation programs
intended to achieve corporate goals regardless of tax
deductibility, the Committee may from time to time take
appropriate action intended to qualify compensation as
"performance based" for tax deductibility as within the meaning
of Section 162(m) of the Internal Revenue Code. This action
includes seeking stockholder approval of the Company's 1994 Key
Employee Long Term Incentive Plan and the material terms of
performance goals applicable to performance units under that
Plan, as described elsewhere in this Proxy Statement.
Compensation Components
The executive compensation program consists of three
elements: base salary, annual incentive bonus and long-term
incentive compensation. The Company annually reports to the
Compensation & Nominating Committee (the "Committee") on the
competitiveness of the level and structure of total annual
executive compensation, specifically, as it compares to that of a
selected group of peer companies with which the Company competes
for business and for executive talent. These peer companies
include but are not limited to those media and publishing
companies reflected in the performance graph appearing elsewhere
in this Proxy Statement, and in addition, selected consumer
product and direct marketing companies. The Company regularly
receives advice from an independent outside compensation
consultant in setting compensation structure and levels.
Periodically, the Committee meets with an outside consultant to
independently assess the competitiveness of the executive
compensation program and its effectiveness in linking pay to
total stockholder return.
Base salaries are targeted at the 50th percentile of
competitive market data. Salary opportunities are set by annual
comparison to external rates of pay for comparable positions
within competitive companies. The Committee reviews and approves
individual salary adjustments, generally every 12 to 24 months,
based on individual performance, and changes in responsibility,
as well as general movement in external salary levels. Decisions
regarding salary adjustments for executive officers are
consistent with the salary increase guidelines in effect for all
employees which are established each year by the Company, and
which are consistent with competitive salary administration
practices.
In fiscal 1994, the Committee approved salary increases for
executive officers which were in accordance with the Company's
fiscal 1994 salary increase guidelines established for all
employees.
Annual incentive bonus targets are set at the 50th
percentile of competitive practice of peer companies. Annual
bonus targets vary by position and level of responsibility. The
purpose of these awards is to deliver competitive compensation
for the attainment of individual performance goals, and Company
financial objectives which the Committee believes are primary
determinants of share price over time. The Committee establishes
a reserve for annual incentives equal to a percentage of net
income for the year. The amount of the reserve available for the
purpose of funding the incentive pool is determined after
consideration of the Company's short-term performance measured
against the operating profit goal (on a currency neutral basis)
established by the Committee prior to the start of the fiscal
year. If the Company and/or individual business units achieve or
exceed the established financial goals, the incentive pool
increases up to 130% of the sum of the individual target awards.
If Company and/or individual business unit performance falls
below 85% of target performance, no pool of funds is available
for awards. Once the overall pool is determined, individual
awards are decided based upon a review of individual performance
against annual goals which include financial, operational and
strategic management objectives. Individual awards may range
from 0% - 150% of targeted levels and are made in the sole
discretion of the Committee, but in no event may the sum of the
awards exceed the reserve for that fiscal year. At the close of
fiscal 1994, the Committee, upon assessing the extent to which
Company and business unit operating profit goals were achieved,
approved annual incentive awards for executive officers which
overall reflected target Company financial performance. Annual
awards for the Chief Executive Officer and Chief Operating
Officer were determined by the Committee upon evaluation of the
Company's overall financial performance against established
goals, and upon consideration of the extent to which individual
strategic management objectives were met.
Long-term incentive compensation consists of an annual
grant of stock options or stock appreciation rights, and
performance units which are based on earnings-per-share growth
typically over a three-year performance cycle. Individual grants
are based upon position and level of responsibility.
Participation in the long-term incentive program is limited to
those executives who are responsible for implementing operational
plans designed to achieve the Company's long-term strategic
objectives as approved by the Board of Directors. Guidelines for
annual grants are set by regular periodic comparison to general
industry long-term incentive competitive practices and as
recommended by an independent consultant. The purpose of the
long-term incentive component is to tie compensation to the long-
term financial performance of the Company and to align the long-
term interests of executives with those of stockholders by
providing executives with an equity interest in the Company. The
combination of stock options or stock appreciation rights and
performance units is designed to deliver long-term incentive
compensation competitive with the 75th percentile of the long-
term compensation at peer companies when superior financial
performance is achieved. The long-term incentive compensation
program is designed to deliver to executives the majority of long-
term incentive through stock options or stock appreciation rights
in order to closely align the executive's interests with
stockholder interests.
Stock option or stock appreciation rights grant guidelines
were established in 1990 at the time of the Company's initial
public offering, and were based on a review of competitive long-
term incentive values and were recommended by an independent
consultant. The number of stock options or stock appreciation
rights awarded to executives varied by position and level of
responsibility. Neither the number, nor the value of stock
options or stock appreciation rights held by an executive are
considered when determining individual awards. The guidelines
for grants to executive officers are reviewed annually by an
independent consultant. Under these guidelines the actual number
of underlying shares granted to executive officers has remained
unchanged since 1991.
The 1994 stock option or stock appreciation right grant
guidelines continue to be consistent with the fixed share grant
guidelines established in 1991. The 1994 grants for certain
executive officers and members of senior management represent the
equivalent of five annual grants and replace subsequent annual
grants. Since one half of these stock options or stock
appreciation rights vests at the end of five years, this special
one-time grant was designed with the objective of retaining and
motivating the executive talent necessary to achieve the
Company's long-term strategic, growth, and earnings goals. This
special grant comes at an important time in the Company's history
and marks a key transition as Mr. Grune continues as Chairman and
Mr. Schadt assumes the role of Chief Executive Officer as of
August 1, 1994.
The performance unit program generally pays cash awards at
the end of three-year performance cycles with a new cycle
beginning each year. Beginning with grants for fiscal 1992-1994,
performance targets are based on cumulative earnings-per-share
growth (determined before the effect of accounting changes and
special charges). Prior grants were based on operating profit
growth. Cash awards range from 0% - 150% of individual target
awards, and are based on earnings-per-share growth (determined
before the effect of accounting changes and special charges)
relative to the growth goal established by the Committee at the
start of the cycle. If cumulative growth is below 70% of the
targeted growth goal, then no awards are paid. If the targeted
growth is achieved, then 100% of the target awards are paid. If
performance exceeds goal by as much as 50%, up to 150% of the
target awards may be paid.
At the commencement of fiscal 1994, the Committee
established the earnings-per-share growth goal for the 1994-1996
performance cycle and approved the 1994-1996 performance unit
target awards for participants. After evaluating the Company's
earnings-per-share growth (determined before the effect of
accounting changes and special charges) over the 1992-1994
period, which exceeded the targeted growth determined by the
Committee at the beginning of fiscal 1992, the Committee approved
the payment of 1992-1994 performance unit awards at above target.
The Company can also grant restricted shares, performance
shares and other equity-based awards under the terms of the Key
Employee Long Term Incentive Plan.
Fiscal 1994 CEO Compensation
CEO compensation is based on the same factors as
compensation for other executive officers. In setting the CEO's
target annual compensation, the Committee seeks to be competitive
with CEO compensation in peer companies, and to put at least 60%
of CEO compensation at risk by linking pay to the achievement of
the Company's short- and long-term financial goals and the
performance of the Company's Class A Nonvoting Common Stock.
In September 1993, the Committee approved a salary increase
for Mr. Grune which took effect on January 8, 1994 and which was
consistent with Company salary increase guidelines. Mr. Grune's
fiscal 1994 annual incentive bonus award was based on the
Committee's assessment of the progress made in achieving the
Company's short-term financial, operational and strategic goals.
Specifically, the Committee considered the Company's earnings-per-
share growth in 1994, the significant improvement made in
rebuilding the U.S. books and home entertainment business to
properly position the U.S. business to achieve expected
profitability and growth objectives, the continuation of the
organizational restructuring and cost containment initiatives,
and achieving the appropriate balance between Company resources
and business needs, as well as the successful implementation of
the top management transition.
The fiscal 1992-1994 performance unit award approved by the
Committee for Mr. Grune reflected earnings-per-share growth
(determined before the effect of accounting changes and special
charges) which exceeded the three-year targeted growth goal. In
March 1994, the Committee awarded Mr. Grune an annual grant of
stock appreciation rights which was consistent with the fixed-
share grant guidelines established in 1991.
In anticipation of Mr. Grune's retirement as Chief
Executive Officer on July 31, 1994 and Mr. Schadt's election as
Chief Executive Officer effective August 1, 1994, the Committee
approved a salary increase for Mr. Schadt. The increase was
consistent with the Company's salary increase guidelines for
promotions. The Committee also approved an increase to Mr.
Schadt's annual incentive bonus target beginning with fiscal
1995, to reflect his new role as President and Chief Executive
Officer, which is consistent with median target incentive levels
for peer company Chief Executive Officers. In March 1994, the
Committee awarded a special one-time five-year grant of stock
appreciation rights to Mr. Schadt. This grant is intended to
provide a meaningful incentive to maximize stockholder value and
achieve a greater alliance of Mr. Schadt's actions with the
interests of stockholders. The Committee also approved
additional performance unit grants for a fiscal year 1995
performance cycle and a fiscal year 1995-1996 performance cycle
to recognize Mr. Schadt's increased responsibility as Chief
Executive Officer during those cycles.
The Compensation & Nominating
Committee:
Robert G. Schwartz, Chairman
William G. Bowen
C. J. Silas
PERFORMANCE GRAPH
The following graph compares the total return to
stockholders (stock price plus reinvested dividends) on a $100
investment from February 15, 1990 (the date the Class A Nonvoting
Common Stock began trading publicly) through June 30, 1994, in
each of the following: the Class A Nonvoting Common Stock, the
S&P 500 Stock Index and the Dow Jones Media-Publishing Group
Index.
Comparison of Cumulative Total Return: The Reader's Digest
Association, Inc.
vs. S&P 500 and Dow Jones Media-Publishing Group
[Performance Graph]
<TABLE>
<CAPTION>
Feb. 15, June 30, June 30, June 30, June 30, June 30,
1990 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
The Reader's Digest Association, Inc. $100.00 $128.78 $177.60 $241.72 $225.16 $229.38
Dow Jones Media-Publishing Group $100.00 $101.54 $109.44 $128.14 $135.89 $142.03
S&P 500 $100.00 $108.78 $116.82 $132.49 $150.55 $151.90
</TABLE>
PROPOSAL NO. 2--APPROVAL OF THE 1994 KEY EMPLOYEE
LONG TERM INCENTIVE PLAN
On February 1, 1994, the Compensation & Nominating Committee
established, and on February 11, 1994, the Board of Directors
ratified The Reader's Digest Association, Inc. Key Employee Long
Term Incentive Plan (the "1994 Long Term Incentive Plan"). The
Board approved the 1994 Long Term Incentive Plan to provide
additional shares of Class A Nonvoting Common Stock for stock
awards and in order to be able to make awards that may be
deductible to the Company under the Internal Revenue Code as
recently amended. See "U.S. Federal Income Tax Consequences."
The purpose of the 1994 Long Term Incentive Plan is to enable the
Company to offer key employees of the Company and its designated
subsidiaries performance-based stock and cash incentives and
other equity interests in the Company and other incentive awards,
thereby attracting, retaining and rewarding such key employees,
and strengthening the mutuality of interests between key
employees and the Company's stockholders. The 1994 Long Term
Incentive Plan contains substantially the same provisions as The
Reader's Digest Association, Inc. 1989 Key Employee Long Term
Incentive Plan (the "1989 Long Term Incentive Plan"), which was
previously approved by the Board of Directors and the
stockholders of the Company.
Types of Awards
Awards under the 1994 Long Term Incentive Plan ("Awards")
may consist of Stock Options (which may be Incentive Stock
Options or Non-Qualified Stock Options), Stock Appreciation
Rights (which may be Tandem Stock Appreciation Rights or Non-
Tandem Stock Appreciation Rights), Restricted Stock, Performance
Shares, Performance Units and Other Stock-Based Awards. No
Awards may be made under the 1994 Long Term Incentive Plan after
February 11, 2004.
Administration; Amendment and Termination
The 1994 Long Term Incentive Plan is administered and
interpreted by a committee of the Company's Directors (the
"Committee"), currently comprised of the members of the Company's
Compensation & Nominating Committee. The Committee's broad
powers include authority, within the limitations provided in the
1994 Long Term Incentive Plan, to select the eligible employees
to receive Awards, to determine the type, amount and terms and
conditions of Awards and to construe and interpret and correct
defects, omissions and inconsistencies in the 1994 Long Term
Incentive Plan and agreements relating thereto.
The Board of Directors may at any time and from time to time
amend, suspend or terminate the 1994 Long Term Incentive Plan in
whole or in part, provided, however, that, unless required by
law, no amendment may impair the rights of a participant with
respect to outstanding Awards without the participant's consent
and without the approval of the stockholders, no amendment may be
made that would (i) increase the aggregate number of shares of
Class A Nonvoting Common Stock that may be issued, (ii) change
the definition of eligible employees, (iii) decrease the option
price of any Stock Option to less than 100% of the fair market
value on the date of grant for an Incentive Stock Option or to
less than 85% of the fair market value on the date of grant for a
Non-Qualified Stock Option, or (iv) extend the maximum option
period under the 1994 Long Term Incentive Plan.
Eligibility
Key employees of the Company and its designated subsidiaries
as determined by the Committee, including the Company's executive
officers, are eligible to be granted Awards under the 1994 Long
Term Incentive Plan. Currently, approximately 460 employees are
eligible to receive Awards under the 1994 Long Term Incentive
Plan.
Shares Reserved
The maximum number of shares that may be issued under the
1994 Long Term Incentive Plan or with respect to which Non-Tandem
Stock Appreciation Rights may be granted is 6,000,000 shares of
the Company's Class A Nonvoting Common Stock. Unexercised
Options (except those that relate to another Right or Award under
the 1994 Long Term Incentive Plan that is exercised) that expire,
terminate or are canceled, or are settled other than in Class A
Nonvoting Common Stock, become again available for Awards under
the 1994 Long Term Incentive Plan.
The number and kind of shares to which Awards under the 1994
Long Term Incentive Plan, and the purchase price thereof, are
subject to appropriate adjustment in the event of certain changes
in the capital stock of the Company, including stock dividends
and splits, recapitalizations, reorganizations, mergers,
consolidations, split-ups, combinations or exchanges of shares,
and certain distributions, reclassifications and warrants,
options and rights offerings.
Stock Options
Stock Options may be Incentive Stock Options, which are
intended to qualify under Section 422 A of the Internal Revenue
Code, or Non-Qualified Stock Options, which are not intended to
so qualify. The exercise price of an Incentive Stock Option may
not be less than 100% of the Fair Market Value of the Class A
Nonvoting Common Stock at grant and its term may not exceed 10
years from the date of grant. The exercise price of a Non-
Qualified Stock Option may not be less than 85% of the Fair
Market Value at grant and its term may not exceed 10 years and
one day from the date of grant. The Company intends that
compensation attributable to Stock Options with an exercise price
no less than 100% of the Fair Market Value of the underlying
stock on the date of grant will not be subject to the deduction
limitation of Section 162(m) of the Internal Revenue Code. See
"U.S. Federal Income Tax Consequences." So long as the Class A
Nonvoting Common Stock remains listed on the New York Stock
Exchange, "Fair Market Value" is the mean between the high and
low sales prices on the New York Stock Exchange on the applicable
date. The closing price of the Class A Nonvoting Common Stock on
the New York Stock Exchange (Composite Transactions) on September
19, 1994 was $43.125. Unless determined by the Committee at
grant, no Stock Option may be exercised prior to the first
anniversary of the date of grant. The Committee may substitute
new Stock Options for previously granted Stock Options having
higher exercise prices.
A Stock Appreciation Right is the right to receive the
difference, either in cash or in Class A Nonvoting Common Stock,
between the fair market value of a share of Class A Nonvoting
Common Stock as of the date of exercise and as of the date of
award. Tandem Stock Appreciation Rights are granted in
conjunction with all or part of a Stock Option and Non-Tandem
Stock Appreciation Rights are granted without reference to all or
part of a Stock Option.
Generally, the term and exercisability of a Tandem Stock
Appreciation Right are the same as the related Stock Option, and
the Tandem Stock Appreciation Right may be exercised only by
surrendering the applicable portion of the related Stock Option.
The term and exercisability of a Non-Tandem Stock Appreciation
Right are determined by the Committee, but the term shall not
exceed 10 years and one day from the date of grant.
The Committee may provide for Stock Options and Stock
Appreciation Rights to be exercisable in installments. No Stock
Option or Stock Appreciation Right may be transferred by the
recipient otherwise than by will or the laws of descent and
distribution. A Stock Option agreement may provide that the
Stock Option be settled upon exercise by the delivery of
Performance Shares or Restricted Stock valued at fair market
value.
No employee may be granted either Stock Options or Non-
Tandem Stock Appreciation Rights, or both, with respect to a
total of more than 500,000 shares of Class A Nonvoting Common
Stock during any fiscal year of the Company.
If the participant's employment terminates by reason of
death, disability or retirement, generally any outstanding Stock
Option or Stock Appreciation Right will vest fully and be
exercisable until the first anniversary of the date of death or
the third anniversary of the date of termination by disability or
retirement, or until expiration of the Award, if earlier. Upon
termination for any other reason, any Stock Option or Stock
Appreciation Right will immediately terminate, except that a
previously vested Award will be exercisable for the lesser of
three months or the balance of the Award's term if the
participant is terminated involuntarily without cause.
Restricted Stock
Restricted Stock are shares of Class A Nonvoting Common
Stock awarded under the 1994 Long Term Incentive Plan subject to
such transferability restrictions and other terms and conditions
as the Committee may determine, including purchase price (if
any), restriction period, vesting schedule (including whether
restrictions lapse upon termination of employment) and
requirement of attainment of performance goals. The Committee
may, in its discretion, provide for the lapse, acceleration or
waiver of any restrictions, in whole or in part. The participant
has all the rights of a stockholder with respect to the shares of
Restricted Stock, including the right to receive dividends.
No more than 600,000 shares of Class A Nonvoting Common
Stock may be issued under the 1994 Long Term Incentive Plan as
Restricted Stock.
Performance Units and Performance Shares
A Performance Unit is the right to receive a fixed dollar
amount in cash or Class A Nonvoting Common Stock based on the
attainment during a Performance Cycle (determined by the
Committee) of such performance goals or other factors or criteria
as the Committee determines. A Performance Share is the right to
receive Class A Nonvoting Common Stock or cash of an equivalent
value at the end of a specified Performance Period (determined by
the Committee) based on the attainment during the Performance
Period of such performance goals or other factors or criteria as
the Committee determines. Unless otherwise determined by the
Committee, a participant is not entitled to receive dividends on
the Class A Nonvoting Common Stock covered by a Performance Share
Award.
Generally, neither Performance Units nor Performance Shares
may be transferred by the participant. At the end of the
Performance Cycle or Performance Period, the Committee determines
the extent to which any pertinent performance goals have been
achieved and the percentage of Performance Units or number of
Performance Shares that have vested. The Committee may, in its
discretion, provide for accelerated vesting of Performance Units
and Performance Shares.
Other Stock-Based Awards
Other Awards of Class A Nonvoting Common Stock and other
Awards that are valued in whole or in part by reference to, or
are payable in or otherwise based on, Class A Nonvoting Common
Stock may be granted under the 1994 Long Term Incentive Plan
subject to such terms and conditions, including price, dividend
entitlement, vesting and transferability, as the Committee
determines.
Change in Control
Generally, in the event of a change in control of the
Company, all outstanding Stock Options and Stock Appreciation
Rights become fully vested and immediately exercisable in their
entirety, all Performance Units and Performance Shares become
vested, at a minimum, as if the applicable Performance Cycle or
Performance Period had ended upon the change in control, with
performance goals measured at such time, and all restrictions on
Restricted Stock lapse. Benefits under the 1994 Long Term
Incentive Plan will be reduced to the extent necessary to prevent
any portion of such benefits from being considered "excess
parachute payments" under Section 280G of the Internal Revenue
Code, when considered alone or in combination with any payments
otherwise payable to the participant upon a change in control.
U.S. Federal Income Tax Consequences
The following summary describes the U.S. federal income tax
consequences of the 1994 Long Term Incentive Plan.
Stock Options. No income will be recognized by the holder
and the Company will not be entitled to a deduction at the time
of grant of either a Non-Qualified Stock Option or an Incentive
Stock Option.
On exercise of a Non-Qualified Stock Option, the amount by
which the fair market value of the Class A Nonvoting Common Stock
on the date of exercise exceeds the option exercise price will be
taxable to the holder as ordinary income and, subject to
satisfying applicable withholding requirements and any deduction
limitation under Section 162(m), deductible by the Company. The
subsequent disposition of shares acquired upon exercise of a Non-
Qualified Stock Option will ordinarily result in capital gain or
loss.
On exercise of an Incentive Stock Option, the holder will
not recognize any income and the Company will not be entitled to
a deduction. However, for purposes of the alternative minimum
tax, the exercise of an Incentive Stock Option will be treated as
an exercise of a Non-Qualified Stock Option. Accordingly, the
exercise of an Incentive Stock Option may result in an
alternative minimum tax liability.
The disposition of shares acquired upon exercise of an
Incentive Stock Option will ordinarily result in capital gain or
loss. However, if the holder disposes of shares acquired upon
exercise of an Incentive Stock Option within two years after the
date of grant or one year after the date of exercise (a
"disqualifying disposition"), the holder will recognize ordinary
income, in the amount of the excess of the fair market value of
the shares of Class A Nonvoting Common Stock on the date the
option was exercised over the option exercise price (or, in
certain circumstances, the gain on sale, if less). Any excess of
the amount realized by the holder on the disqualifying
disposition over the fair market value of the shares on the date
of exercise of the Option will generally be capital gain.
Subject to any deduction limitation under Section 162(m), the
Company will be entitled to a deduction equal to the amount of
ordinary income recognized by a holder.
If an Option is exercised through the use of Class A
Nonvoting Common Stock previously owned by the holder, such
exercise generally will not be considered a taxable disposition
of the previously owned shares and thus no gain or loss will be
recognized with respect to such shares upon such exercise.
However, if the option is an Incentive Stock Option, and the
previously owned shares were acquired on the exercise of an
Incentive Stock Option or other tax-qualified stock option (such
as shares received under the Company's Employee Stock Purchase
Plan), and the holding period requirement for those shares is not
satisfied at the time they are used to exercise the Option, such
use will constitute a disqualifying disposition of the previously
owned shares resulting in the recognition of ordinary income
(but, under proposed Treasury Regulations, not any additional
capital gain) in the amount described above.
Stock Appreciation Rights. The amount of any cash (or the
fair market value of any Class A Nonvoting Common Stock) received
upon the exercise of a stock appreciation right under the 1994
Long Term Incentive Plan will be includible in the employee's
ordinary income and, subject to satisfying applicable withholding
requirements and any deduction limitation under Section 162(m),
deductible by the Company.
Other Awards. Under Section 83(b) of the Internal Revenue
Code, an employee may elect to include in ordinary income, as
compensation at the time Restricted Stock is first issued, the
excess of the fair market value of such shares at the time of
issuance over the amount paid, if any, by the employee for such
shares. Unless a Section 83(b) election is made, no taxable
income will generally be recognized by the recipient of a
Restricted Stock award until such shares are no longer subject to
the restrictions or the risk of forfeiture. When either the
restrictions or the risk of forfeiture lapses, the employee will
recognize ordinary income and, subject to satisfying applicable
withholding requirements and any deduction limitation under
Section 162(m), the Company will be entitled to a deduction in an
amount equal to the excess of the fair market value of the Class
A Nonvoting Common Stock on the date of lapse over the amount
paid, if any, by the employee for such shares. Absent a Section
83(b) election, any cash dividends or other distributions paid
with respect to the Restricted Stock prior to the lapse of the
restrictions or risk of forfeiture will be included in the
employee's ordinary income as compensation at the time of
receipt.
Generally, an employee will not recognize any taxable income
and the Company will not be entitled to a deduction upon the
award of Performance Shares or Performance Units. At the time
the employee receives the distribution in respect to the
Performance Shares or the Performance Units, the fair market
value of shares of Class A Nonvoting Common Stock or the amount
of any cash received in payment for such Awards generally is
taxable to the employee as ordinary income and, subject to the
deduction limitation under Section 162(m), deductible by the
Company.
Section 162(m). Section 162(m) of the Internal Revenue Code
generally disallows a federal income tax deduction to any
publicly held corporation for compensation paid in excess of $1
million in any taxable year to the chief executive officer or any
of the four other most highly compensated executive officers who
are employed by the Company on the last day of the taxable year,
but does not disallow a deduction for qualified "performance-
based compensation" the material terms of which are disclosed to
and approved by stockholders. The Company has structured and
intends to implement the 1994 Long Term Incentive Plan (except
with respect to Awards of Restricted Stock, Performance Shares
and Stock Options with an exercise price less than the Fair
Market Value of the underlying shares on the date of grant) so
that compensation resulting therefrom would be qualified
"performance-based compensation." To allow the Company to so
qualify such compensation, the Company is seeking stockholder
approval of the 1994 Long Term Incentive Plan and the material
terms of performance goals applicable to Performance Units under
the 1994 Long Term Incentive Plan.
Effect on Earnings
Currently, neither the grant nor the exercise of a Stock
Option will result in any charge to pretax earnings. Grants of
Restricted Stock result in a charge to pretax earnings over the
restriction period for the fair market value of the stock at the
date of issuance. All other Awards provided for under the 1994
Long Term Incentive Plan will require a pretax charge to earnings
accrued over an appropriate period of time, based on the
difference between fair market value of the shares or Award and
the grant price.
On June 30, 1993, the Financial Accounting Standards Board
(the "FASB") issued an exposure draft of a proposed Statement of
Financial Accounting Standards, "Accounting for Stock-Based
Compensation." Under the proposed Statement, compensation cost
would be recognized for virtually all stock-based compensation
arrangements and would be measured on the date of grant. The
FASB is currently redeliberating its decisions proposed in the
1993 exposure draft. Those redeliberations are not expected to
be completed before the first quarter of 1995.
New Plan Benefits
The table below shows the Awards that have been made to date
under the 1994 Long Term Incentive Plan.
<TABLE>
<CAPTION>
Number of Number of Dollar Value of Performance Units
Options/ Performance
Name SARs Units Threshold<F1> Target<F1> Maximum<F1>
<S> <C> <C> <C> <C> <C>
George V. Grune 0 500,000 $350,000 $500,000 $750,000
James P. Schadt 0 950,000 $665,000 $950,000 $1,425,000
Kenneth A.H. Gordon 0 360,000 $252,000 $360,000 $540,000
Anthony W. Ruggiero 0 240,000 $168,000 $240,000 $360,000
Thomas M. Kenney 0 195,000 $136,500 $195,000 $292,500
All executive officers 0 4,165,000 $2,915,500 $4,165,000 $6,247,500
All Directors who are N/A N/A N/A N/A N/A
not executive officers
All employees, exclud- 900,500 1,116,000 $781,200 $1,116,000 $1,674,000
ing executive officers
<FN>
<F1>
(1) Represents amounts that could be paid out at the end of the
fiscal year 1995-1997 Performance Cycle, based on the
Company's performance in relation to the pertinent
performance goals.
</FN>
</TABLE>
Vote Required for Approval
The affirmative vote of a majority of the shares of Class B
Voting Common Stock present in person or represented by proxy and
entitled to vote on Proposal No. 2 at the Meeting is required for
approval of Proposal No. 2. Any of such shares not voted on
Proposal No. 2, whether by abstention, broker non-vote or
otherwise, will have the effect of a negative vote.
Stockholder approval of the 1994 Long Term Incentive Plan is
being sought in order to make available certain exemptions under
Section 16 of the Securities Exchange Act of 1934 and to allow
the Company to qualify certain compensation received under the
1994 Long Term Incentive Plan for tax deductibility under Section
162(m) of the Internal Revenue Code. If the 1994 Long Term
Incentive Plan is not approved by stockholders, the Company will
consider whether to implement the 1994 Long Term Incentive Plan
without the benefit of such exemptions and qualification.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL OF PROPOSAL NO. 2.
PROPOSAL NO. 3--APPROVAL OF BUSINESS CRITERIA, MAXIMUM AMOUNT AND
ELIGIBLE EMPLOYEES FOR PERFORMANCE UNITS UNDER THE 1994 KEY
EMPLOYEE LONG TERM INCENTIVE PLAN
On June 10, 1994, the Compensation & Nominating Committee
approved the material terms of the performance goals applicable
to Performance Units awarded under The Reader's Digest
Association, Inc. 1994 Key Employee Long Term Incentive Plan (the
"1994 Long Term Incentive Plan"). A Performance Unit is the
right to receive a fixed dollar amount in cash or Class A
Nonvoting Common Stock based on the attainment during a
Performance Cycle (determined by the Committee that administers
the 1994 Long Term Incentive Plan) of such performance goals or
other factors or criteria as the Committee determines.
(Reference is made to Proposal No. 2 for a summary of the
provisions of the 1994 Long Term Incentive Plan with respect to
Performance Units.) The provisions of the 1994 Long Term
Incentive Plan are substantially the same as those of the 1989
Long Term Incentive Plan, which were previously approved by the
Board of Directors and the stockholders of the Company.
Performance Units are an integral part of the Company's
executive compensation program, designed to attract, retain and
reward those employees based on corporate and individual
performance. The material terms of the performance goals
applicable to Performance Units are the following:
1. Business Criteria. The performance
goal shall be based on any one or more of the following business
criteria relating to the Company or any subsidiary, division or
other unit of the Company: revenue, net income, net income per
share, operating profit, operating profit per share, earnings per
share, return on assets, return on equity, return on investment,
or any one or more of the foregoing before the effect of
acquisitions, divestitures, accounting changes, restructuring and
special charges, or foreign currency effects.
2. Maximum Amount. The amount paid to
any employee with respect to any one Award of Performance Units
shall not exceed the product of $1,000,000 multiplied by the
number of years in the Performance Cycle for such Award. In
addition, the aggregate amount paid to any employee with respect
to all Awards of Performance Units for which the Performance
Cycle ends in any one year shall not exceed $3,000,000.
3. Eligible Employees. The employees
eligible to receive Awards of Performance Units under the 1994
Long Term Incentive Plan shall be the executive officers of the
Company and such other key employees of the Company and its
designated subsidiaries as shall be determined by the Committee.
New Plan Benefits
The Performance Units that have been awarded to date under
the 1994 Long Term Incentive Plan are shown in the table under
Proposal 2.
Vote Required for Approval
The affirmative vote of a majority of the shares of Class B
Voting Common Stock present in person or represented by proxy and
entitled to vote on Proposal No. 3 at the Meeting is required for
approval of Proposal No. 3. Any shares not voted on Proposal No.
3, whether by abstention, broker non-vote or otherwise, will have
the effect of a negative vote.
Stockholder approval of the material terms of Performance
Units is being sought in order to qualify certain compensation
thereunder as "performance based" under Section 162(m) of the
Internal Revenue Code . (See "U.S. Federal Income Tax
Consequences" described under Proposal No. 2.) If Proposal No. 3
is not approved by stockholders, the Company will consider
whether to implement the material terms without the benefit of
such qualification.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL OF PROPOSAL NO. 3.
PROPOSAL NO. 4--APPROVAL OF THE AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE PLAN
On July 8, 1994, the Board of Directors approved, subject to
the approval of the stockholders of the Company, an amendment and
restatement of The Reader's Digest Association, Inc. Employee
Stock Purchase Plan (the "Amended Employee Stock Purchase Plan").
The plan was originally approved by the Board and the
stockholders of the Company on November 22, 1989. The purpose of
the Amended Employee Stock Purchase Plan is to provide an
opportunity for eligible employees to purchase shares of Class A
Nonvoting Common Stock at a discounted price through voluntary,
systematic payroll deductions, without the payment of brokerage
fees. These employees are thereby provided with a convenient
opportunity to acquire or increase their equity interest in the
Company and an additional incentive to promote the best interests
of the Company and all of its stockholders.
The Amended Employee Stock Purchase Plan is intended to be
an "employee stock purchase plan" within the meaning of Section
423 of the Internal Revenue Code.
Administration; Amendment and Termination
The Amended Employee Stock Purchase Plan is administered and
interpreted by a committee of the Company's Directors (the
"Committee") currently comprised of the Company's Compensation &
Nominating Committee. The Committee's broad powers include
authority, within the limitations provided in the Amended
Employee Stock Purchase Plan, to construe and interpret and
correct defects, omissions and inconsistencies in the Amended
Employee Stock Purchase Plan.
The Board of Directors may at any time and from time to time
amend, suspend or terminate the Amended Employee Stock Purchase
Plan in whole or in part, provided, however, that no amendment,
suspension or termination may adversely affect the rights of a
participant with respect to an outstanding offering without the
participant's consent. The Amended Employee Stock Purchase Plan
will terminate when all or substantially all of the shares
reserved thereunder have been issued.
Eligible Employees
Generally, all regular, full-time employees of the Company
and of certain designated subsidiaries at the commencement of a
Purchase Period who have been employed for at least 30 days and
whose customary employment is for more than 20 hours per week and
for not less than five months in any calendar year are eligible
to participate in the Amended Employee Stock Purchase Plan.
Currently, approximately 2,450 employees are eligible to
participate.
Shares Offered and Purchasable
A total of 1,650,000 shares of Class A Nonvoting Common
Stock has been reserved for issuance under the Amended Employee
Stock Purchase Plan. The shares delivered under the Amended
Employee Stock Purchase Plan may be newly issued, treasury or
reacquired shares. The Committee has the authority to determine
whether or not each offering will be made, the number of shares
(up to 330,000 per year, unless otherwise determined by the
Board) to be offered, the timing of the offering and the duration
of each Purchase Period. A Purchase Period is generally a six-
month period, commencing on January 1 or July 1, during which
payroll deductions are made under the Amended Employee Stock
Purchase Plan.
The Committee also has authority to determine the number of
shares to be offered in a Purchase Period, the maximum percentage
of an employee's payroll that may be deducted to purchase shares,
and the maximum number of shares that any employee may purchase
in any Purchase Period. No participant may purchase shares under
the Amended Employee Stock Purchase Plan (and all other employee
stock purchase plans) at a rate in excess of $25,000 of fair
market value for any calendar year.
Purchase Price
The purchase price of shares of Class A Nonvoting Common
Stock in any offering under the Amended Employee Stock Purchase
Plan is 85% of the lower of the fair market value of the Class A
Nonvoting Common Stock on the first day and last business days of
the Purchase Period, unless a greater percentage is determined by
the Committee and the Board. So long as the Class A Nonvoting
Common Stock remains listed on the New York Stock Exchange, "fair
market value" is the mean between the high and low sales prices
on the New York Stock Exchange on the applicable date.
Method of Purchase of Shares
Shares of Class A Nonvoting Common Stock are purchased under
the Amended Employee Stock Purchase Plan with automatic payroll
deductions made pursuant to voluntary employee elections.
Amounts held by the Company for the purchase of shares under the
Amended Employee Stock Purchase Plan are held as part of the
general corporate assets of the Company. The Company bears all
administrative expenses of the Amended Employee Stock Purchase
Plan and any brokerage expenses incurred upon the purchase of
shares under the Amended Employee Stock Purchase Plan.
Other Information
The rights to purchase shares under the Amended Employee
Stock Purchase Plan may not be assigned or transferred (except by
will or the laws of descent and distribution). The number and
kind of shares purchasable under the Amended Employee Stock
Purchase Plan, and the purchase price thereof, are subject to
appropriate adjustment in the event of certain changes in the
capital stock of the Company, including stock dividends and
splits, recapitalizations, reorganizations, mergers,
consolidations, split-ups, combinations or exchanges of shares,
and certain distributions, reclassifications and warrants,
options and rights offerings.
U.S. Federal Income Tax Consequences
The Amended Employee Stock Purchase Plan is intended to
qualify as an "employee stock purchase plan," as defined in
Section 423 of the Internal Revenue Code. If the employee holds
shares acquired thereunder until a date that is more than two
years from the first date of the relevant Purchase Period and one
year from the date of purchase, the employee must report as
ordinary income in the year of disposition of the shares (or at
death) the lesser of (a) the excess of the fair market value of
the shares at the time of disposition (or death) over the
purchase price and (b) the excess of the fair market value of the
shares on the first day of the relevant Purchase Period over the
option price. For this purpose the option price is 85% of the
fair market value of the shares on the first day of the Purchase
Period (assuming the shares are offered at a 15% discount). Any
additional income is treated as long-term capital gain. If these
holding period requirements are met, the Company is not entitled
to any deduction for tax purposes. If the employee does not meet
the holding period requirements, the employee recognizes at the
time of disposition of the shares ordinary income equal to the
difference between the price paid for the shares and fair market
value on the purchase date, irrespective of the price at which
the employee disposes of the shares, and an amount equal to such
ordinary income is deductible by the Company, subject to the
deduction limitation of Section 162(m). Any gain or loss
realized on the disposition of the shares will be capital gain or
loss, and will be long-term gain or loss if the shares were held
for more than one year.
New Plan Benefits
Because the Amended Employee Stock Purchase Plan is based on
voluntary participation, benefits thereunder are not
determinable.
Vote Required for Approval
The affirmative vote of a majority of the shares of Class B
Voting Common Stock present in person or represented by proxy and
entitled to vote on Proposal No. 4 at the Meeting is required for
approval of Proposal No. 4. Any of such shares not voted on
Proposal No. 4, whether by abstention, broker non-vote or
otherwise, will have the effect of a negative vote.
Stockholder approval of the Amended Employee Stock Purchase
Plan is being sought in order to make available to participants
the tax advantages of compliance with Section 423 of the Internal
Revenue Code and to make available certain exemptions under
Section 16 of the Securities Exchange Act of 1934. If the
Amended Employee Stock Purchase Plan is not approved by
stockholders, the Company will continue to implement the current
version of The Reader's Digest Association, Inc. Employee Stock
Purchase Plan in the form that has previously been approved by
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL OF PROPOSAL NO. 4.
SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS
Pursuant to Securities and Exchange Commission rules and the
Company's By-Laws, proposals of stockholders intended to be
submitted at the 1995 Annual Meeting of Stockholders must be
received by the Company at its principal executive offices on or
before May 28, 1995 to be eligible for inclusion in the Company's
notice of meeting, proxy statement and accompanying proxy card
for such meeting or to be introduced from the floor at such
meeting.
The Company's By-Laws also provide that notice of proposed
stockholder nominations for election of directors must be given
to the Corporate Secretary of the Company not less than 14 or
more than 50 days prior to a meeting called to elect directors.
Such notice must contain certain information about each proposed
nominee including age, business and residence addresses,
principal employment, number of shares of Class B Voting Common
Stock beneficially owned (with evidence of such ownership) and
such other information as would be required in a proxy statement
soliciting proxies for the election of such proposed nominee, and
a signed consent of the nominee to serve as a director if
elected.
MISCELLANEOUS
The Board of Directors is not aware at the date hereof of
any matter proposed to be presented at the Meeting other than the
election of Directors nominated in the Proxy Statement. If any
other matter is properly presented, the persons named in the
accompanying proxy card will have discretionary authority to vote
thereon according to their best judgment.
It is expected that a member of KPMG Peat Marwick LLP, the
Company's independent auditors, will attend the Annual Meeting to
respond to any appropriate questions that may be asked by
stockholders.
The Company's Annual Report to Stockholders is being mailed
with this Proxy Statement. It is not to be deemed a part of the
proxy solicitation material and is not incorporated herein by
reference.
A copy of the Company's 1994 annual report on Form 10-K
filed with the Securities and Exchange Commission (without
exhibits) will be made available to stockholders without charge
upon written request to the Vice President, Investor Relations,
The Reader's Digest Association, Inc., Pleasantville, NY 10570-
7000.
By Order of the Board of
Directors:
CONNIE K. BECK
Connie K. Beck
Vice President, Corporate
Secretary and Associate General
Counsel
September 28, 1994
Map of route to Sheraton Stamford Hotel
Sheraton Stamford Hotel
One First Stamford Place
Stamford, Connecticut 06902
203-967-2222
From Manhattan, Southern Connecticut and Westchester: Follow New
England Thruway (I-95) North to Exit 7 (Greenwich Avenue). At
end of ramp turn right, then make another quick, sharp right into
First Stamford Place. Hotel is at the end of road.
From Northern Connecticut on New England Thruway: Follow I-95
South to Stamford, Exit 6 (West Avenue). At the end of the ramp,
turn left at the light. Go under the I-95 overpass. Go to the
next light and turn left onto the entrance ramp of I-95 North.
Go to the next exit which is Exit 7 (Greenwich Avenue). At the
end of the ramp turn right, then make another quick, sharp right
turn into First Stamford Place. Hotel is at the end of the road.
From Northern or Southern Connecticut on the Merritt Parkway:
Follow Merritt Parkway to Exit 34 (Long Ridge Road, Rte. 104).
At the end of the exit ramp take Rte. 104 South for 2-1/4 miles.
At a very large merging intersection turn right onto Rte. 137
(Cold Spring Road). Bear left onto Washington Boulevard.
Continue on Rte. 137 straight to Tresser Boulevard intersection.
Turn right onto Tresser Boulevard (Rte. 1). Then take second
left onto Greenwich Avenue. Go straight, under I-95 overpass.
Turn right at second set of lights into First Stamford Place.
Hotel is at end of road.
Reader's Digest and the Pegasus logo are registered trademarks of
The Reader's Digest Association, Inc.
[Logo] Printed on recycled paper.
Appendix 1
THE READER'S DIGEST ASSOCIATION, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of CONNIE K. BECK AND
ANTHONY W. RUGGIERO as attorney and proxy, with power of
substitution, to represent the undersigned and vote as designated
below all the shares of Class B Voting Common Stock that the
undersigned may be entitled to vote at the Annual Meeting of
Stockholders of THE READER'S DIGEST ASSOCIATION, INC. to be held
November 11, 1994, and at any adjournments thereof, with all
powers the undersigned would possess if personally present, on
the proposals described in the Notice of Meeting and Proxy
Statement of the Board of Directors and in accordance with their
discretion of the Board of Directors on any other business that
may come before the meeting.
Please mark, date and sign your name exactly as it appears on
this proxy card and return this proxy card in the enclosed
envelope. For shares registered jointly, each joint owner should
sign. Persons signing in a representative capacity (e.g.,
attorney, executor, administrator, trustee, guardian, etc.) or as
an officer of a corporation should indicate their capacity, title
or office.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
Please
[X] mark your
votes as
this
CLASS B COMMON
The Board of Directors recommends a vote FOR Proposals 1, 2, 3,
and 4.
WITHHELD
1 ELECTION OF DIRECTORS FOR FOR ALL
Nominees: George V. Grune, [ ] [ ]
James P. Schadt, Melvin R. Laird,
William G. Bowen, Lynne V. Cheney,
M. Christine DeVita, James E. Preston,
Robert G. Schwartz, Walter V. Shipley,
C.J. Silas
WITHHELD FOR: (Write that nominee's name in the
space provided below).
2 APPROVAL OF 1994 FOR AGAINST ABSTAIN
KEY EMPLOYEE LONG [ ] [ ] [ ]
TERM INCENTIVE PLAN
3 APPROVAL OF MATERIAL [ ] [ ] [ ]
TERMS OF PERFORMANCE
UNIT GOALS
4 APPROVAL OF AMENDED [ ] [ ] [ ]
EMPLOYEE STOCK
PURCHASE PLAN
Receipt is hereby acknowledged of The Reader's Digest
Association, Inc. Notice of Meeting and Proxy Statement.
Signature(s) Date
NOTE: Please sign as name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as
such.
Appendix 2
THE READER'S DIGEST EMPLOYEES PROFIT-SHARING PLAN
THE READER'S DIGEST ASSOCIATION, INC.
CONFIDENTIAL VOTING DIRECTION TO THE TRUSTEE, SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
I hereby direct State Street Bank and Trust Company, as
Trustee under The Reader's Digest Employee Profit-Sharing Plan,
to vote as directed on the reverse side my proportionate interest
in the shares of Class B Voting Common Stock of THE READER'S
DIGEST ASSOCIATION, INC. held in the Stock Fund under that Plan
at the Annual Meeting of Stockholders of THE READER'S DIGEST
ASSOCIATION, INC. to be held November 11, 1994, and at any
adjournments thereof, on the proposals described in the Notice of
Meeting and Proxy Statement of the Board of Directors.
(Please note any change of address below.)
Proportionate interest in shares-
shares of
a total of 1,515,159 shares of
Class B Voting Common Stock
in the Stock Fund
To be completed, signed and dated on the reverse side.
Please
[X] mark your
votes as
this
The Board of Directors recommends a vote FOR Proposals 1, 2, 3,
and 4.
WITHHELD
1 ELECTION OF DIRECTORS FOR FOR ALL
Nominees: George V. Grune, [ ] [ ]
James P. Schadt, Melvin R. Laird,
William G. Bowen, Lynne V. Cheney,
M. Christine DeVita, James E. Preston,
Robert G. Schwartz, Walter V. Shipley,
C.J. Silas
WITHHELD FOR: (Write that nominee's name in the
space provided below).
2 APPROVAL OF 1994 FOR AGAINST ABSTAIN
KEY EMPLOYEE LONG [ ] [ ] [ ]
TERM INCENTIVE PLAN
3 APPROVAL OF MATERIAL [ ] [ ] [ ]
TERMS OF PERFORMANCE
UNIT GOALS
4 APPROVAL OF AMENDED [ ] [ ] [ ]
EMPLOYEE STOCK
PURCHASE PLAN
The Trustee will vote your proportionate interest in the shares
of Class B Voting Common Stock in the Stock Fund as you direct.
IF YOU SIGN BELOW, BUT DO NOT GIVE ANY INSTRUCTIONS, THE TRUSTEE
WILL VOTE YOUR PROPORTIONATE INTEREST IN THOSE SHARES 'FOR' THE
PROPOSALS LISTED HEREIN.
Dated: ,1994
Signature of Participant
(Please date, and sign exactly as your name is printed
hereon.)
Appendix 3
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 indirectly, 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, recapitalization,
reorganization, merger, consolidation, split-up, combination
or exchange of shares, distribution with respect to its
outstanding Common Stock of capital stock other than
Common Stock, reclassification of its capital stock, issuance of
warrants or options to purchase any Common Stock or securities
convertible into Common Stock, or rights offering to purchase
capital stock at a price below fair market value, or any similar
change affecting the capital stock of the Company; then the
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,
administrators, successors and assigns. Any such adjusted Option
price shall also be used to determine the amount payable by the
Company upon the exercise of any Stock Appreciation Right
associated with any Stock Option.
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 distribution, 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 exercisable to the extent to which it was
exercisable at the time of death for a period of twelve
months from the date of such death or until the
expiration of the stated term of such Stock Option,
whichever period is the shorter. In the event of
termination of employment by reason of Disability, if
an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for
purposes of Section 422A of the Code, such Stock Option
will thereafter be treated as a Non-Qualified Stock
Option.
(h) Termination by Reason of Retirement. Subject to
subsection (j), if a Participant's employment by the
Company or a Designated Subsidiary terminates by reason
of Retirement, any Stock Option held by such
Participant, unless otherwise determined by the
Committee at grant, shall be fully vested and may
thereafter be exercised by the Participant for a period
of three years (or such other period as the Committee
may specify at grant) from the date of such termination
of employment or the expiration of the stated term of
such Stock Option, whichever period is the shorter;
provided, however, that, if the Participant dies within
such three-year period, any unexercised Stock Option
held by such Participant shall thereafter be
exercisable, to the extent to which it was exercisable
at the time of death, for a period of twelve months
from the date of such death or until the expiration of
the stated term of such Stock Option, whichever period
is the shorter. In the event of termination of
employment by reason of Retirement, if an Incentive
Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section
422A of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the
Committee at or after grant, if a Participant's
employment by the Company or a Designated Subsidiary
terminates for any reason other than death, Disability
or Retirement, the Stock Option shall thereupon
terminate, except that such Stock Option may be
exercised, to the extent it was exercisable immediately
preceding such termination, for the lesser of three
months or the balance of such Stock Option's term if
the Participant is involuntarily terminated by the
Company or the Designated Subsidiary without cause.
(j) Incentive Stock Option Limitations. To the extent that
the aggregate Fair Market Value (determined as of the
time of grant) of the Common Stock with respect to
which Incentive Stock Options are exercisable for the
first time by the Participant during any calendar year
under the Plan and/or any other stock option plan of
the Company or any subsidiary or parent corporation
(within the meaning of Section 425 of the Code) exceeds
$100,000, such Options shall be treated as Options
which are not Incentive Stock Options.
To the extent (if any) permitted under Section 422A of
the Code, or the applicable regulations thereunder or
any applicable Internal Revenue Service pronouncement,
if (i) a Participant's employment with the Company or a
Designated Subsidiary is terminated by reason of death,
Disability or Retirement and (ii) the portion of any
Incentive Stock Option that is otherwise exercisable
during the post-termination period specified under
subsections (f), (g) or (h) above, computed without
regard to the $100,000 limitation currently contained
in Section 422A(d) of the Code, is greater than the
portion of such Stock Option that is immediately
exercisable as an "incentive stock option" during such
post-termination period under Section 422A, such excess
shall be treated as a Non-Qualified Stock Option. If
the exercise of an Incentive Stock Option is
accelerated by reason of a Change in Control, any
portion of such Option that is not exercisable as an
Incentive Stock Option by reason of the $100,000
limitation contained in Section 422A(d) of the Code
shall be treated as a Non-Qualified Stock Option.
Should any of the foregoing provisions not be necessary
in order for the Stock Options to qualify as Incentive
Stock Options, or should any additional provisions be
required, the Committee may amend the Plan accordingly,
without the necessity of obtaining the approval of the
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 conditions as the Committee
shall establish and communicate to the Participant at
the time that such offer is made.
In addition, if the Option agreement so provides at
grant or is amended (with the Participant's consent)
after grant and prior to exercise to so provide, the
Committee may require that all or part of the shares to
be issued with respect to the spread value of an
exercised Option take the form of Performance Shares 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 Reference Stock Option. Upon
such exercise and surrender, the Participant shall be
entitled to receive an amount determined in the manner
prescribed in this Section 7.2. Stock Options which
have been so surrendered, in whole or in part, shall no
longer be exercisable to the extent the related Tandem
Stock Appreciation Rights have been exercised.
(d) Payment. Upon the exercise of a Tandem Stock
Appreciation Right a Participant shall be entitled to
receive up to, but no more than, an amount in cash
and/or shares of Common Stock equal in value to the
excess of the Fair Market Value of one share of Common
Stock over the option price per share specified in the
Reference Stock Option multiplied by the number of
shares in respect of which the Tandem Stock
Appreciation Right shall have been exercised, with the
Committee having the right to determine the form of
payment.
(e) Non-Transferability. Tandem Stock Appreciation Rights
shall be Transferable only when and to the extent that
the underlying Stock Option would be Transferable under
Subsection 6.4(e) of the Plan.
(f) Deemed Exercise of Reference Stock Option. Upon the
exercise of a Tandem Stock Appreciation Right, the
Reference Stock Option or part thereof to which such
Stock Appreciation Right is related shall be deemed to
have been exercised for the purpose of the limitation
set forth in Article 4 of the Plan on the number of
shares of Common Stock to be issued under the Plan.
7.3 Non-Tandem Stock Appreciation Rights. Non-Tandem Stock
Appreciation Rights may also be granted without reference to any
Stock Options granted under this Plan; provided, however, that no
Participant shall be granted Stock Options or Non-Tandem Stock
Appreciation Rights, or both, with respect to a total of more
than 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 Committee, in its
sole discretion, as determined at the time of Award,
may permit or require the payment of dividends to be
deferred.
(c) Termination of Employment. Subject to the applicable
provisions of the Award agreement and this Plan, upon
termination of a Participant's employment with the
Company or a Designated Subsidiary for any reason
during the Restriction Period, all Restricted 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, how
ever, 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 Participant 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 previously 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."
Appendix 4
THE READER'S DIGEST ASSOCIATION, INC.
______________________________
EMPLOYEE STOCK PURCHASE PLAN
(Amendment and Restatement as of July 8, 1994)
______________________________
1. PURPOSE.
The Employee Stock Purchase Plan (the "Plan") of The Reader's
Digest Association, Inc. (the "Company") is designed to provide
an opportunity for the employees of the Company and its
Designated Subsidiaries (defined below) to purchase shares of the
Company's nonvoting common stock, $.01 par value per share
("Common Stock") through voluntary automatic payroll deductions
and to encourage such employees to continue in the employ of and
to exert their best efforts on behalf of the Company and such
subsidiaries. The Plan is intended to be an "employee stock
purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. CERTAIN TERMS.
(a) This Plan shall be administered and interpreted by a
committee appointed by the Board of Directors of the Company (the
"Board") as set forth in Section 12 (the "Committee").
(b) "Designated Subsidiaries" shall mean such subsidiaries
of the Company, 80 percent or more of the total combined voting
power of all classes of stock of which is owned, directly or
indirectly, by the Company, which are designated from time to
time by the Board or the Committee.
(c) "Offering" shall mean an offering of shares of Common
Stock ("Shares") for purchase hereunder.
(d) "Purchase Period" shall mean a period of up to six
months during which payroll deductions are to be made pursuant to
the Plan. Unless otherwise provided by the Committee, Purchase
Periods shall commence on January 1 and July 1 and shall be six
months in duration.
(e) "Gross Payroll Amount" shall mean the gross amount of
pay an employee would receive at each regular pay period before
the deduction of withholding, FICA, medical and dental premiums,
medical reimbursement accounts, amount contributed to a trust
pursuant to a qualified cash or deferred compensation arrangement
under Section 401(k) of the Code, and all other amounts to be
withheld, including deductions under this Plan, but after the
deduction of amounts withheld pursuant to deferred compensation
arrangements.
(f) An "Enrollment Period" shall mean the period of ten
business days beginning before the first day of a Purchase
Period.
3. OFFERING UNDER THE PLAN; ELECTION TO PURCHASE.
(a) In each instance, the Committee shall determine
whether or not there will be an Offering. If the Committee shall
decide that there shall be an Offering, the Committee shall, in
advance of the Offering, determine: (i) the first and last days
of the Offering and the Purchase Period, (ii) the aggregate
number of Shares to be offered in a Purchase Period, (iii) the
maximum percentage of an employee's Gross Payroll Amount that he
may elect for payroll deductions described in Section 8, and (iv)
the maximum number, if any, of Shares which any employee may
purchase in any Purchase Period during such Offering; and shall
give each eligible employee written notice of such determinations
prior to the commencement of the Enrollment Period.
(b) Each eligible employee may elect to buy Shares in any
Purchase Period by completing, signing and delivering to the
Company, an Election and Authorization form in the form
prescribed by the Company prior to the commencement of the
Purchase Period which:
(i) specifies the percentage of his Gross Payroll
Amount (not in excess of the maximum set by the Committee) he
elects to have deducted and applied to purchase Shares hereunder;
(ii) authorizes the Company to make (or receive from
a Designated Subsidiary) the specified periodic payroll
deductions from his compensation during such Purchase Period or
until such earlier date as (x) he shall cancel or (if permitted
by the Committee) modify his authorization by filing an executed
cancellation or modification (in the time and form prescribed by
the Company) with the Company, (y) he shall have purchased the
maximum number of Shares he is entitled to purchase in the
Purchase Period, or (z) he shall have terminated employment with
the Company or Designated Subsidiary for purposes of Section 8 of
this Plan; and
(iii) specifies the exact name in which Shares
purchased by him in the Purchase Period are to be issued, which
shall be the full legal name of the employee.
(c) Each eligible employee who elects to participate in
the Plan during any Enrollment Period shall remain enrolled in
the Plan and shall continue to participate in each successive
Offering until the employee's authorization is cancelled or the
employee ceases to be eligible to participate in the Plan.
4. ELIGIBLE EMPLOYEES.
All regular, full-time employees of the Company and of the
Designated Subsidiaries at the commencement of a Purchase Period
shall be eligible employees under this Plan with respect to such
Purchase Period, except:
(a) employees who at the commencement of the Purchase
Period have been employed by the Company or a Designated
Subsidiary for less than 30 days;
(b) employees whose customary employment by the Company or
a Designated Subsidiary at the commencement of a Purchase Period
is 20 hours or less per week;
(c) employees whose customary employment by the Company or
a Designated Subsidiary at the commencement of a Purchase Period
is for not more than five months in any calendar year; and
(d) any employee who, as of the first day of a Purchase
Period, would own stock or hold outstanding options to purchase
stock, possessing in the aggregate (as determined under Sections
423 and 424 of the Code) five percent or more of the total
combined voting power or value of all classes of stock of the
Company or of any subsidiary.
5. NUMBER OF SHARES PURCHASABLE.
(a) The maximum number of Shares that may be purchased by
any eligible employee during a Purchase Period shall be
determined by the Committee in its sole discretion. Such
limitation shall be expressed both as a maximum percentage of an
eligible employee's Gross Payroll Amount that may be deducted and
applied to the purchase of Shares hereunder (which percentage
shall be uniform as to all eligible employees), and a maximum
number of Shares that may be purchased by an eligible employee
hereunder. An eligible employee may elect to purchase all or any
part of such maximum number of Shares by so indicating in such
employee's Election and Authorization form.
(b) The amount of any payroll deduction made pursuant to
Section 8, or of any payment to be made hereunder to an employee
or his legal representative, in a currency other than United
States dollars shall be converted to or from United States
dollars, as the case may be, based on the exchange rate in effect
on the date the Company receives such deduction or makes such
payment, respectively. The Committee shall determine the
applicable exchange rate by any reasonable method, which may be
based on the exchange rate actually available to the Company in
the ordinary course of business on the date of such conversion.
(c) If at any time during a Purchase Period the number of
Shares which all eligible employees have duly elected to purchase
through authorized payroll deductions but which have not yet been
purchased (the "aggregate Shares elected") would cause the
aggregate number of Shares to be acquired in the Purchase Period
to exceed the number of Shares designated by the Committee as
available for purchase in such Purchase Period, the Shares which
may thereafter be purchased by each employee shall be reduced
from the number so elected on a pro rata basis in the proportion
that the number of Shares so elected by each such employee bears
to the aggregate number of Shares elected by all such employees.
The reductions shall be determined by the Committee by any
reasonable method such that the aggregate number of Shares sold
in the Purchase Period shall be not more than and as nearly equal
as possible to the number of Shares originally designated by the
Committee as available for purchase in such Purchase Period. No
fractional Shares may be purchased unless the Committee otherwise
provides.
(d) Notwithstanding any other provision of this Plan, no
employee shall be entitled to purchase Shares in any Purchase
Period to the extent such purchase would permit such employee to
accrue (as determined under Section 423 of the Code) the right to
purchase under this Plan and under all other employee stock
purchase plans of the Company and its subsidiaries, the right or
option to so purchase at a rate which exceeds $25,000 of fair
market value of such stock, determined at the time such right or
option is granted, for any calendar year in which such right or
option is outstanding at any time.
6. SHARES SUBJECT TO THE PLAN.
The Shares which may be offered under this Plan may be
authorized and issued Common Stock, authorized and unissued
Common Stock or Common Stock reacquired by the Company and held
in its treasury. The maximum aggregate number of shares of Common
Stock which may be made available by the Committee for purchase
and issued under this Plan is 1,650,000, subject to any increase
or decrease pursuant to Section 11. All Shares offered in any
Offering which for any reason are not purchased shall be included
in the Shares available for subsequent Offerings.
7. PRICE.
The price at which Shares may be purchased in any Purchase
Period shall be 85% of the lower of the fair market value of the
Common Stock on the first day of the Purchase Period and the last
day of the Purchase Period on which the Common Stock is traded
(or if the Common Stock is not listed for trading, on the last
business day of the Purchase Period) or such greater percentage
as determined by the Committee with the approval of the Board.
As used in this Section 7, "fair market value" shall mean 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
exchanges, 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.
8. PAYROLL DEDUCTIONS; PURCHASE OF SHARES; RIGHTS OF
CANCELLATION; RIGHTS ON TERMINATION OF EMPLOYMENT OR
DEATH.
(a) Except as otherwise provided herein, Shares purchased
under this Plan shall be paid for primarily by payroll deductions
during the Purchase Period. All funds received under this Plan,
either through payroll deductions or cash deposits, shall be
applied to the purchase of Common Stock hereunder as of the last
day of a Purchase Period on which the Common Stock is traded, or
if the Common Stock is not listed for trading, on the last
business day of a Purchase Period. Such Shares shall be
allocated to the accounts of individual employees as soon as
practicable after the purchase.
(b) Each employee may cancel his election to purchase
additional Shares through payroll deductions in any Purchase
Period under this Plan by giving ten business days prior written
notice of cancellation to the Company on the form prescribed by
the Company. In such case, no further amounts shall be withheld
for the account of such employee through payroll deductions in
respect of such Purchase Period (but such employee shall not be
precluded from participating in a subsequent Purchase Period by
reason of such revocation). Any amount theretofore deducted
under this Plan for such employee's account and not yet applied
to the purchase of Shares shall not be paid to the employee but
shall be applied to the purchase of Common Stock in accordance
with the otherwise applicable provisions of the Plan.
(c) If the employment with the Company or any Designated
Subsidiary of any eligible employee who has delivered a completed
and duly executed Election and Authorization form for any
Purchase Period (an "electing employee") shall terminate prior to
the end of such Purchase Period because of his retirement or
death, or because the subsidiary with which he is employed ceases
to be a Designated Subsidiary during such Purchase Period, then:
(i) all further payroll deductions hereunder shall cease, (ii)
amounts theretofore deducted under the Plan for his account shall
be applied to purchase Shares in accordance with the otherwise
applicable provisions of the Plan, and (iii) such employee or, in
the case of the death of an employee, his legal representative,
may purchase the number of Shares the employee had elected and
would have been eligible to purchase in such Purchase Period and
which had not yet been purchased by making a lump sum cash
payment in United States dollars to the Company prior to the
expiration of the Purchase Period. The amount of such lump sum
cash payment shall be an amount which, when added to the amounts,
if any, deducted prior to the employee's retirement or death for
the purchase of Common Stock in such Purchase Period and not yet
applied to the purchase of Shares, will be sufficient to cover
the purchase price of such number of Shares and such amount shall
be accompanied by a purchase authorization in the form designated
by the Company. For purposes of this Plan, "retirement" shall
mean termination of employment by an employee who is at least 55
years of age after at least five years of employment by the
Company and/or a Designated Subsidiary. If the full time regular
employment of any eligible employee with the Company or a
Designated Subsidiary shall terminate prior to the end of a
Purchase Period for any other reason, then the electing employee
shall be deemed to have revoked his election to have payroll
deductions made and applied to purchase Shares in the Purchase
Period as of the date of such termination and the amount
theretofore deducted under the Plan for his account and not
applied to the purchase of Shares shall be paid to such employee
as soon as practicable. The transfer of an eligible employee
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, shall not constitute a termination of
employment under this Section 8.
(d) No employee may modify the percentage of Gross Payroll
Amount that he has elected to have deducted on the Election and
Authorization form delivered to the Company unless pursuant to a
revocation or cancellation hereunder, or unless the Committee
otherwise provides as to all eligible employees.
9. ISSUE OF SHARES.
(a) No employee shall have any rights as a stockholder
with respect to any Shares which he may elect to purchase under
the Plan prior to the date of purchase of such Shares for his
account. A statement reflecting the allocation of Shares
purchased under the Plan to individual employee accounts shall be
delivered on a periodic basis to the employees. Upon the request
of an employee, certificates representing Shares purchased under
this Plan for the account of such employee shall be issued as
soon as practicable and delivered to such employee. The cost of
issuance of such Share certificates shall be borne by the
requesting employee.
(b) The Company shall not be required to issue, or deliver
any certificates for, Shares of Common Stock prior to (i) the
listing of such Shares on any stock exchange on which the Common
Stock may then be listed; and (ii) the completion of any
registration or qualification of such Shares under any federal or
state securities or other law, or any ruling or regulation of any
government body which the Company shall, in its sole discretion,
determine to be necessary or advisable.
10. ASSIGNABILITY.
No assignment or transfer by an employee, former employee or
his legal representative of any option, election to purchase
Shares, or any other interest under this Plan will be recognized
or of any force or effect; any purported assignment or transfer,
whether voluntary or by operation of law (except by will or the
laws of descent and distribution), shall have the effect of
terminating such option, election to purchase or other interest.
An employee's option and election to purchase shall be
exercisable, during his lifetime, only by him. If an election to
purchase is terminated by reason of the provisions of this
Section 10, the only right thereafter continuing shall be the
right to have the amount of payroll deductions then credited to
the employee's account which have not been applied to the
purchase of Shares paid to the employee or his legal
representative.
11. ADJUSTMENTS IN EVENT OF CHANGE IN CAPITAL STOCK.
In the event of any change in the capital stock of the Company
by reason of any stock dividend or distribution, stock split or
reverse stock split, recapitalization, reorganization, merger,
consolidation, split-up, combination or exchange of shares,
distribution with respect to its outstanding Common Stock of
capital stock other than Common Stock, reclassification of its
capital stock, issuance of warrants or options to purchase any
Common Stock or securities convertible into Common Stock, or
rights offering to purchase capital stock at a price below fair
market value other than pursuant to this Plan, or any similar
change affecting the capital stock of the Company; then the
aggregate number and kind of Shares or other securities which
thereafter may be sold under the Plan and the number and kind of
Shares or other securities which may be purchased under any
outstanding Offering and the purchase price thereof 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, eligible employees under the Plan and any such adjustment
determined by the Committee in good faith shall be binding and
conclusive on the Company, Designated Subsidiaries and all
employees and their respective heirs, executors, administrators,
successors and assigns.
12. ADMINISTRATION OF THE PLAN.
The Committee shall be appointed from time to time by the
Board and shall consist of three or more Directors, none of whom
shall be eligible to participate in the Plan. The Committee
shall have full authority to construe and interpret the terms and
provisions of the Plan and each Offering hereunder, 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, and to otherwise supervise the
administration of the Plan. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the
Plan, or in the terms of any Offering hereunder, in the manner
and to the extent it shall deem necessary to carry the Plan into
effect. 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, Designated
Subsidiaries and all employees and their respective heirs,
executors, administrators, successors and assigns.
Notwithstanding the foregoing, all employees participating in the
Plan shall have the same rights and privileges under the Plan,
except to the extent permitted by Section 423(b)(5) of the Code.
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. 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.
13. COMPLIANCE WITH GOVERNMENT LAW AND REGULATIONS; GOVERNING
LAW.
This Plan, each Offering hereunder, and the obligation of the
Company to sell and deliver Common Stock hereunder shall be
subject to all applicable Federal and state laws, rules and
regulations and to such approvals by any governmental or
regulatory agency as may from time to time be required, by or of
the country in which the Company and any Designated Subsidiary,
as the case may be, is incorporated. The Board of Directors of
the Company may make such changes in this Plan as may be
necessary or desirable, in the opinion of the Board, to comply
with the laws, rules and regulations of any governmental or
regulatory authority, or to be eligible for tax benefits under
the Code, or any other laws or regulations of any Federal, state,
local or foreign government. 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).
14. COMPANY'S PAYMENT OF EXPENSES RELATED TO THE PLAN.
Except as otherwise specifically provided herein, the Company
will bear all expenses incurred in administering this Plan,
including any brokerage fees incurred upon the purchase of
Shares.
15. PLAN AND RIGHTS TO PURCHASE COMMON STOCK NOT TO CONFER
RIGHT WITH RESPECT TO CONTINUANCE OF EMPLOYMENT.
This Plan and any Offering or other rights to purchase Common
Stock granted under this Plan shall not confer upon any employee
any right with respect to continuance of employment by the
Company or any subsidiary, nor shall they be a limitation in any
way on the right of the Company or any subsidiary by which an
employee is employed to terminate his employment at any time.
16. 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 or the payment of any cash
hereunder, payment by each eligible employee of, any taxes
required by applicable law to be withheld.
The Committee may permit any such withholding obligation to be
satisfied by reducing the number of Shares 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 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
Shares become 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
required to satisfy such tax obligations shall be disregarded and
the amount due shall be paid instead in cash by the employee.
17. GENERAL.
(a) The Committee shall accumulate and hold for each
employee's account any amounts deducted from his compensation
pursuant to this Plan and amounts deposited as a lump sum payment
and shall maintain book-entry accounts for each electing employee
to account for payroll deductions made by the employee. Interest
will not be credited or paid with respect to any account
hereunder.
(b) Unless the Committee otherwise provides, only full
Shares may be purchased under this Plan. Fractions of shares may
be maintained in employee accounts hereunder; however, no
certificates for fractions of Shares shall be issued. Instead,
the employee shall receive a cash payment in lieu thereof.
(c) In the event of a termination of the Plan during a
Purchase Period, all amounts credited to employee accounts
hereunder which have not been applied to the purchase of Shares
shall be refunded to the employees for whose accounts they are
credited.
(d) Payment for the purchase price of Shares hereunder
shall be made in United States dollars.
18. AMENDMENT OR DISCONTINUANCE.
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, or suspend or
terminate it entirely, retroactively or otherwise; provided,
however, that any such amendment, suspension or termination may
not, without the employee's consent, adversely affect any rights
outstanding at the time of such amendment, suspension or
termination to purchase Shares for the balance of a Purchase
Period pursuant to any Offering hereunder. The Plan will
terminate in any event when the Committee determines that all or
substantially all of the Shares reserved for purposes of the Plan
have been issued.
19. 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. The titles to
sections of this Plan are intended solely as a convenience and
shall not be used as an aid in construction of any provisions
thereof.
20. NAME.
This Plan shall be known as "The Reader's Digest Association,
Inc. Employee Stock Purchase Plan."
21. EFFECTIVE DATE.
The Plan originally became effective upon November 22, 1989
and was approved by the holders of a majority of the capital
stock of the Company entitled to vote thereon on November 22,
1989. The effective date of the amended and restated Plan is
July 8, 1994, subject to the approval of the Plan by the holders
of a majority of the capital stock of the Company within one year
after the amended and restated plan is adopted.
