FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 1-10434
THE READER'S DIGEST ASSOCIATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1726769
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Pleasantville, New York 10570-7000
(Address of principal executive offices) (Zip Code)
(914) 238-1000
(Registrant's telephone number, including area code)
______________________________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
As of April 30, 1996, the following shares of the registrant's
common stock were outstanding:
Class A Nonvoting Common Stock, $0.01 par value: 86,130,518 shares
Class B Voting Common Stock, $0.01 par value:21,716,057 shares
Page 1 of 42 pages.
THE READER'S DIGEST ASSOCIATION, INC.
Index to Form 10-Q
March 31, 1996
Part I - Financial Information Page No.
The Reader's Digest Association, Inc. and Subsidiaries
Financial Statements (unaudited):
Consolidated Condensed Statements of Income
for the three and nine-month periods
ended March 31, 1996 and 1995 3
Consolidated Condensed Balance Sheets
as of March 31, 1996 and June 30, 1995 4
Consolidated Condensed Statements of Cash Flows
for the nine-month periods ended
March 31, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Part II - Other Information 13
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three and nine-month periods ended March 31, 1996 and 1995
(in millions, except per share data)
(unaudited)
<TABLE>
Three-month period ended Nine-month period ended
March 31, March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $ 747.5 $ 793.0 $2,396.6 $2,359.4
Product, distribution and
editorial expense 258.2 259.3 821.5 768.5
Promotion, marketing and
administrative expense 414.8 435.0 1,274.4 1,229.7
Other operating items 245.0 -- 245.0 --
Operating (loss) profit ( 170.5) 98.7 55.7 361.2
Other income, net 8.5 7.0 16.4 20.2
(Loss) income before income
taxes (162.0) 105.7 72.1 381.4
(Benefit) provision for
income taxes ( 48.0) 39.7 37.4 143.0
Net (loss) income $( 114.0) $ 66.0 $ 34.7 $ 238.4
(Loss) earnings per share $ (1.06) $ 0.59 $ 0.31 $ 2.11
Average common shares
outstanding 107.9 111.7 107.9 112.7
</TABLE>
See accompanying notes to consolidated condensed financial statements.
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
As of March 31, 1996 and June 30, 1995
(in millions)
(unaudited)
March 31, June 30,
1996 1995
Assets
Cash and cash equivalents $ 248.3 $ 214.6
Short-term investments 74.6 93.0
Receivables, net 489.3 396.4
Inventories 237.9 188.6
Prepaid expenses and other current assets 317.0 218.5
Total current assets 1,367.1 1,111.1
Marketable securities 100.3 224.5
Property, plant and equipment, net 265.3 256.6
Other noncurrent assets 322.0 366.5
Total assets $2,054.7 $1,958.7
Liabilities and stockholders' equity
Accounts payable $ 185.7 $ 224.8
Accrued expenses 542.1 340.2
Income taxes payable 80.5 97.5
Unearned revenue 432.8 391.7
Other current liabilities 20.6 17.9
Total current liabilities 1,261.7 1,072.1
Other noncurrent liabilities 292.0 245.8
Total liabilities 1,553.7 1,317.9
Capital stock 28.2 29.5
Paid-in capital 135.8 118.3
Retained earnings 987.0 1,093.5
Net unrealized gains on certain investments 1.7 5.1
Foreign currency translation adjustment ( 10.0) ( 0.3)
Treasury stock, at cost ( 641.7) ( 605.3)
Total stockholders' equity 501.0 640.8
Total liabilities and stockholders' equity $2,054.7 $1,958.7
See accompanying notes to consolidated condensed financial statements.
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine-month periods ended March 31, 1996 and 1995
(in millions)
(unaudited)
Nine-month period ended
March 31,
1996 1995
Cash flows from operating activities:
Net income $ 34.7 $ 238.4
Other operating items 245.0 --
Depreciation and amortization 35.7 32.5
Other, net ( 206.5) ( 47.9)
Net change in cash due to operating 108.9 223.0
activities
Cash flows from investing activities:
Proceeds from maturities and sales of
short-term investments and marketable 343.0 244.6
securities
Purchases of short-term investments and
marketable securities ( 193.6) ( 123.9)
Other, net ( 60.8) ( 43.8)
Net change in cash due to investing 88.6 76.9
activities
Cash flows from financing activities:
Dividends paid ( 141.2) ( 130.8)
Common stock repurchased ( 45.5) ( 155.0)
Other, net 24.3 10.0
Net change in cash due to financing ( 162.4) ( 275.8)
activities
Effect of exchange rate changes on cash ( 1.4) 15.8
Net change in cash and cash equivalents 33.7 39.9
Cash and cash equivalents at beginning of 214.6 183.2
period
Cash and cash equivalents at end of period $ 248.3 $ 223.1
See accompanying notes to conslidated condensed financial statements.
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in millions, except per share data)
(unaudited)
(1) Basis of Presentation
The company reports on a fiscal year beginning July 1. The three-
month periods ended March 31, 1996 and 1995 are the third fiscal
quarters of fiscal year 1996 and fiscal year 1995, respectively.
The accompanying consolidated condensed financial statements have
not been audited, but in the opinion of management, have been
prepared in conformity with generally accepted accounting principles
applying certain judgments and estimates which include all
adjustments (consisting only of normal recurring adjustments)
considered necessary to present fairly such information. Operating
results for any interim period are not necessarily indicative of the
results for an entire year due to the seasonality of the company's
business.
(2) Change in Presentation
In the current year, the company reclassified certain costs and
expenses in the Consolidated Condensed Statements of Income to more
closely reflect its business and internal reporting practices. There
was no impact on operating profit. Additionally, certain prior year
amounts in the company's Consolidated Condensed Balance Sheet and
Consolidated Condensed Statement of Cash Flows have been reclassified
to conform with the current year's presentation.
(3) Loss/Earnings Per Share
Loss/earnings per share is computed by dividing net loss/income,
less preferred stock dividend requirements of $0.3 in each of the
three-month periods ended March 31, 1996 and 1995, and $1.0 in each
of the nine-month periods ended March 31, 1996 and 1995, by the
weighted average number of common shares outstanding during the
period.
(4) Inventories
March 31, June 30,
1996 1995
Raw materials $ 45.5 $ 32.4
Work-in process 25.3 24.7
Finished goods 167.1 131.5
$ 237.9 $ 188.6
(5) Revenues by Business Segments and Geographic Areas
Three-month period ended Nine-month period ended
March 31, March 31,
1996 1995 1996 1995
BUSINESS SEGMENTS
Reader's Digest Magazine $ 181.0 $ 180.7 $ 548.7 $ 539.2
Books and Home Entertainment 520.2 569.4 1,628.6 1,627.6
Products
Special Interest Magazines 22.8 23.3 68.6 66.7
Other Businesses 23.5 19.6 150.7 125.9
Total revenues $ 747.5 $ 793.0 $2,396.6 $2,359.4
GEOGRAPHIC AREAS
United States $ 316.7 $ 321.2 $1,008.7 $ 945.2
Europe 328.7 371.6 1,057.3 1,098.2
Other Markets 102.1 100.2 330.6 316.0
Total revenues $ 747.5 $ 793.0 $2,396.6 $2,359.4
(6) Other Operating Items
Operating profit for the period ended March 31, 1996 includes total
charges of $245.0 ($169.8 after tax or $1.57 per share), comprised of
$204.0 relating primarily to streamlining of the company's
organizational structure and the strategic repositioning of certain
businesses and $41.0 for various claims against the company.
The streamlining of the company's organizational structure will result
in the elimination of approximately 1,300 employee positions from the
worldwide workforce by the end of fiscal 1997 through a combination of
voluntary early retirement incentives and involuntary severance
programs. Nearly one-half of these positions will be eliminated from
European operations, with the remainder divided between the United
States and Other Markets.
Also associated with the streamlining, and included in Other items in
the table below, are asset write-downs and contract terminations
related to: the redirection of distributor and supplier relationships,
the outsourcing of certain functions where it is cost-beneficial to
the company, building lease terminations, and the discontinuing of
individual products in specific geographic markets.
The strategic repositioning of certain businesses relate in part to
the special interest magazines in the United States, which were re-
assessed for their fit with the overall corporate strategy, including
their ability to attract new customers. As a result, Travel Holiday
magazine was sold effective March 21, 1996, and certain other
magazines will re-focus their editorial content and their target
audiences. Other businesses affected were a publishing and book club
business in the United Kingdom, and a children's book club business in
the United States.
The components of the $204.0 charge, as well as reserve balances
remaining at March 31, 1996 , were:
Total
Charged Utilized Remaining
Employee retirement & $104.4 $ 9.0 $ 95.4
severance benefits
Other items 51.5 10.4 41.1
Business repositioning 48.1 16.3 31.8
Total $204.0 $35.7 $168.3
(7) Commitments and Contingencies
During the third quarter of fiscal 1996, the company's QSP, Inc.
subsidiary and the company reached an agreement with the plaintiffs
to settle an antitrust class action lawsuit commenced in December 1993
by the Roman Catholic Bishop of San Diego and the Chino Unified School
District. The agreement, which is subject to final approval by the
U.S. District Court for the Southern District of California, provides
for QSP, Inc. and the company to deliver up to $40.0 million in retail
value of company products, coupons for discounts on QSP, Inc.
programs, and cash.
The Reader's Digest Association, Inc.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Dollars in millions, except per share data)
Results of Operations
Three-Month Period Ended March 31, 1996 Compared With Three-Month
Period Ended March 31, 1995
Financial Statement Presentation
In the current year, the company reclassified certain costs and
expenses in the Consolidated Condensed Statements of Income to more
closely reflect its business and internal reporting practices.
There was no impact on operating profit. Additionally, certain
prior year amounts in the company's Consolidated Condensed Balance
Sheet and Consolidated Condensed Statement of Cash Flows have been
reclassified to conform with the current year's presentation.
Other Operating Items
Operating profit for the quarter ended March 31, 1996 includes total
charges of $245.0 ($169.8 after tax or $1.57 per share), comprised of
$204.0 relating primarily to streamlining of the company's
organizational structure and the strategic repositioning of certain
businesses and $41.0 for various claims against the company. These
charges are recorded in other operating items in the accompanying
Consolidated Condensed Statements of Income for the period ended March
31, 1996.
The streamlining of the company's organizational structure will result
in the elimination of approximately 1,300 employee positions from the
worldwide workforce by the end of fiscal 1997 through a combination of
voluntary early retirement incentives and involuntary severance
programs. Nearly one-half of these positions will be eliminated from
European operations, with the remainder divided between the United
States and Other Markets.
Also associated with the streamlining are asset write-downs and
contract terminations related to: the redirection of distributor and
supplier relationships, the outsourcing of certain functions where it
is cost-beneficial to the company, building lease terminations, and
the discontinuing of individual products in specific geographic
markets.
The strategic repositioning of certain businesses relate in part to
the special interest magazines in the United States, which were re-
assessed for their fit with the overall corporate strategy, including
their ability to attract new customers. As a result, Travel Holiday
magazine was sold effective March 21, 1996, and certain other
magazines will re-focus their editorial content and their target
audiences. Other businesses affected were a publishing and book club
business in the United Kingdom, and a children's book club business in
the United States.
The primary components of the $204.0 charge are as follows: $104.4 of
severance costs associated with the reduction of the worldwide
workforce, $51.5 of other items such as asset write-downs and contract
termination costs, and $48.1 million related to the strategic
repositioning of certain businesses. As a result of these
initiatives, the company expects to realize approximately $50.0 of
annual pre-tax savings, beginning in fiscal 1997. Additionally, these
initiatives will require pre-tax cash outlays of approximately $144.0,
the majority of which are expected to occur in fiscal 1997. The
savings from these actions are not necessarily indicative of
incremental earnings in fiscal 1996 or 1997 as they will help fuel the
company's investment in long-term growth initiatives.
Revenues/Operating Profit
Worldwide revenues for the third quarter of 1996 decreased 6%, to
$747.5, compared with the third quarter of 1995. On a geographic
basis, this decrease was primarily due to lower revenues in Europe.
The business segment which was the primary contributor to this
decrease was Books and Home Entertainment Products.
The company reported a worldwide operating loss of $170.5 for the
third quarter of 1996, compared with operating profit of $98.7 in
the third quarter of 1995. This decrease is primarily due to the
charges for other operating items taken in the third quarter of
1996, as discussed above. Excluding the effect of other operating
items, worldwide operating profit decreased 25% to $74.5 in the
third quarter of 1996, compared with the third quarter of 1995.
This $24.2 decrease was primarily because of higher global paper and
postage costs and lower customer response rates to third quarter
promotional mailings, particularly in Europe. Response rates in
Europe continue to be lower than the prior year. These factors were
partially offset by the benefit of cost containment initiatives
throughout the company.
Other Income, Net
Other income, net for the third quarter of 1996 increased to $8.5,
compared with $7.0 a year ago. Significant factors that contributed
to this increase were capital gains ($4.0 in 1996 compared with $0.3
in 1995) offset by lower interest income ($4.9 in 1996 compared with
$10.3 in 1995).
Loss/Earnings Per Share
Loss per share was $1.06 in the third quarter of 1996. Excluding the
effect of other operating items, earnings per share declined 14% to
$0.51 in the third quarter of 1996, compared with $0.59 for the same
period in 1995. Earnings per share was favorably affected by a lower
effective tax rate ($0.04), the reduction in outstanding shares due
to the company's share repurchase program ($0.02), and higher
capital gains ($0.02).
Income Taxes
In the third quarter of 1996 the company re-estimated its full-year
effective tax rate, excluding the effect of other operating items,
downward by one percentage point to 35.5%. The third quarter of
1996 reflects the cumulative adjustment for year-to-date results.
The decrease in the overall effective tax rate, excluding the effect
of other operating items, to 35.5% in the third quarter of 1996,
compared with 37.5%, in the third quarter of 1995, was primarily
attributable to favorable settlements relating to prior years and
effective tax planning.
Business Segments
Reader's Digest Magazine
Revenues for Reader's Digest Magazine remained relatively flat at
$181.0 for the third quarter of 1996, compared with $180.7 for the
third quarter of 1995. Global circulation and advertising revenues
remained about even compared with the same period a year ago.
Circulation revenue was impacted by lower circulation levels,
particularly in Europe, offset by higher subscription pricing.
Subscription price increases in Europe and Other Markets were offset
by lower subscription pricing in the United States consistent with
the company's long-term growth strategy. Globally, advertising rate
increases were offset by decreased advertising pages. Operating
profit for Reader's Digest Magazine decreased during the third
quarter of 1996 compared with the same period a year ago primarily
due to higher paper and postage costs.
Books and Home Entertainment Products
Revenues for Books and Home Entertainment Products decreased 9%, to
$520.2, for the third quarter of 1996 from $569.4 for the third
quarter of 1995. This decrease was primarily due to decreased unit
sales in Europe. Global revenues for condensed books and general
books declined substantially, due primarily to lower unit sales in
all geographic areas, particularly in Europe, while video products
reported healthy gains due to higher unit sales, compared with the
same period a year ago. Operating profit for Books and Home
Entertainment Products decreased significantly in 1996 compared with
1995 principally due to performance in Europe, as well as the impact
of the January promotional mailing in the United States, as
discussed below.
Special Interest Magazines
Revenues for Special Interest Magazines decreased 2%, to $22.8 for
the third quarter of 1996 from $23.3 for the third quarter of 1995.
This decrease was attributable to lower circulation revenue
partially offset by higher advertising revenue. The decrease in
circulation revenue was equally due to lower subscription pricing
and circulation volume. Advertising revenues increased primarily
due to higher advertising rates. Operating profit increased in 1996
compared with 1995.
Geographic Areas
United States
Revenues in the United States decreased from $321.2 to $316.7, or by
1%, in the third quarter of 1996, compared with the third quarter of
1995. The decrease was primarily from lower revenues for Books and
Home Entertainment Products due to the timing of promotions and
lower response to this year's January promotional mailing. Notably,
within Books and Home Entertainment Products, general books reported
lower unit sales as this year's January book offering did not have
the same breadth of appeal as the prior year's book offering.
Operating profit decreased primarily because of the weaker January
promotional mailing, higher paper and postage costs and increased
investment spending, partially offset by the benefit of cost
containment initiatives.
Europe
Revenues in Europe decreased from $371.6 to $328.7, or by 12%, in
the third quarter of 1996, compared with the third quarter of 1995.
Operating profit decreased significantly in 1996 compared with 1995.
These results reflect a weakness in response rates and performance
due to less appealing promotion formats and products offered in the
third quarter of fiscal 1996 and a decline in the number of active
customers. The company has implemented a program to restore long-
term customer and revenue growth by decreasing the number of
mailings and mail quantities to reduce the promotional intensity
that led to lower customer response. In addition, the company is
varying its promotional formats and distribution channels and
moderating the rate of price increases. Due to the long lead times
in planning promotional mailings, changes in local and regional
management, the ongoing changes throughout the company, as well as
external factors, such as the weak overall European consumer economy
and the national and postal strikes in France, the recovery pace is
slower than anticipated. These factors and circumstances resulted
in lower performance primarily in Books and Home Entertainment
Products.
Other Markets
Revenues in Other Markets increased from $100.2 to $102.1, or by 2%,
in the third quarter of 1996 compared with the third quarter of 1995
due to higher revenues in Reader's Digest magazine partially offset
by a decline in Books and Home Entertainment Products.
Approximately two-thirds of the increase in Reader's Digest magazine
revenue was due to circulation revenue and about one-third due to
advertising. Within Books and Home Entertainment Products, volume
increases were offset by a lower priced product mix. Operating
profit decreased in 1996 compared with 1995 due primarily to lower
response rates to promotional mailings in South Africa, timing of
promotional mailings in Mexico, and investment in new countries,
which were partially offset by the benefit of cost containment
initiatives.
Corporate Expense
Corporate expense decreased to $10.0, compared with $14.1 in the
third quarter of 1995, principally due to the benefit of cost
containment initiatives.
Nine-Month Period Ended March 31, 1996 Compared With Nine-Month
Period Ended March 31, 1995
Revenues/Operating Profit
Worldwide revenues for the nine-month period ended March 31, 1996
increased 2%, to $2,396.6 compared with the nine-month period ended
March 31, 1995. Higher revenues in the United States and Other
Markets were offset by lower revenues in Europe, which were
favorably affected by changes in foreign currency exchange rates.
The company reported worldwide operating profit of $55.7 for the
nine month period ended March 31, 1996, compared with $361.2 in
1995. This decrease is primarily due to the charges for other
operating items taken in the third quarter of 1996, as discussed
above. Excluding the effect of other operating items, worldwide
operating profit decreased 17% to $300.7 in the nine-month period
ended March 31, 1996. This $60.5 decrease was primarily because of
higher paper and postage costs and performance in the company's
European operations, which were favorably affected by changes in
foreign currency exchange rates.
Other Income, Net
Other income, net for the nine-month period ended March 31, 1996
decreased to $16.4, compared with $20.2 a year ago. This decrease
was primarily because of lower interest income ($16.6 in 1996
compared with $30.7 in 1995), partially offset by lower expense
related to losses on foreign exchange transactions and hedging
activity ($6.2 in 1996 compared with $7.9 in 1995) and the gain on
sale of short-term investments and certain securities ($7.6 in 1996
compared with $1.7 in 1995).
Income Taxes
The company reduced its overall effective tax rate, excluding the
effect of other operating items, to 35.5% in 1996 from 37.5% in
1995. This decrease was primarily attributable to favorable
settlements relating to prior years, as well as effective tax
planning.
Earnings Per Share
Earnings per share was $0.31 for the nine-month period ended March
31, 1996. Excluding the effect of other operating items, earnings
per share declined 10% to $1.89 for the nine-month period ended
March 31, 1996, compared with $2.11 for the same period in 1995.
Earnings per share was favorably affected by a lower effective tax
rate and the reduction in outstanding shares due to the company's
share repurchase program.
Business Segments
Reader's Digest Magazine
Revenues for Reader's Digest Magazine increased 2%, to $548.7, for
the nine-month period ended March 31, 1996 from $539.2 for the nine-
month period ended March 31, 1995. Approximately two-thirds of this
increase was due to higher advertising revenue and about one-third
due to circulation revenue. The increase in advertising revenues was
primarily attributable to higher rates in the United States and the
company's Other Markets. Increased advertising pages, primarily in
the United States, also contributed to this increase. Circulation
revenue increased due to higher subscription pricing and the
favorable effect of changes in foreign currency exchange rates
offset by lower circulation levels. Subscription price increases in
Europe and Other Markets were partially offset by lower subscription
pricing in the United States consistent with the company's long-term
growth strategy. Operating profit for Reader's Digest Magazine
decreased significantly compared with the same period a year ago.
The effect of higher revenues was more than offset by higher paper
and postage costs and increased promotional spending to retain high-
quality subscribers who purchase the company's other products.
Books and Home Entertainment Products
Revenues for Books and Home Entertainment Products were relatively
flat at $1,628.6 for the nine-month period ended March 31, 1996,
compared with $1,627.6 for the nine-month period ended March 31,
1995. Excluding the effect of changes in foreign currency exchange
rates, revenues decreased 2% compared with the prior year. This
decrease was primarily due to lower unit sales in Europe. Notably,
global revenues for series books, music and video products reported
healthy gains, offset by substantially lower revenues for general
books and condensed books. Operating profit for Books and Home
Entertainment Products decreased in 1996 compared with 1995
principally due to performance in Europe.
Special Interest Magazines
Revenues for Special Interest Magazines increased 3%, to $68.6 for
the nine-month period ended March 31, 1996 from $66.7 for the same
period a year ago. This increase was primarily attributable to
higher circulation levels and subscription pricing. The operating
loss decreased in 1996 compared with 1995 due to the increase in
revenues, which more than offset higher paper and postage costs.
Geographic Areas
United States
Revenues in the United States increased from $945.2 to $1,008.7, or
by 7%, in 1996 compared with 1995, of which approximately 5% and 1%
was attributable to Books and Home Entertainment Products and Other
Businesses, respectively. Within Books and Home Entertainment
Products, the increase was principally due to higher music products
and series books revenues which were primarily attributable to the
launch of a new illustrated book series and increased membership in
music series. The revenue increase in Other Businesses was due to
higher sales at QSP. Operating profit decreased in 1996 compared
with 1995 due to higher paper and postage costs and weaker January
mailings, which were partially offset by the benefit of cost
containment initiatives.
Europe
Revenues in Europe decreased from $1,098.2 to $1,057.3, or
by 4%, in 1996 compared with 1995. Excluding the favorable effects
of foreign currency exchange rates, revenues declined 8%. Operating
profit decreased significantly in 1996 compared with 1995. These
results reflect a weakness in response rates and performance, as
discussed above, particularly in Books and Home Entertainment
Products. Higher paper costs also contributed to the operating
profit decline.
Other Markets
Revenues in Other Markets increased from $316.0 to $330.6, or by 5%,
in 1996 compared with 1995. Excluding the unfavorable effects of
foreign exchange, revenues increased 10% due to higher sales in all
product lines. Revenues for Other Businesses increased due to the
acquisition of QSP Canada. Within Books and Home Entertainment
Products, excluding the unfavorable effects of foreign currency
exchange rates, all product lines reported revenue increases due
primarily to a higher priced product mix. Operating profit
decreased in 1996 compared with 1995. The decrease in operating
profit was primarily attributable to higher paper costs and
investments in new countries.
Corporate Expense
Corporate expense decreased to $38.9, compared with $47.2 for the
nine-month period ended March 31, 1995, principally due to the benefit
of cost containment initiatives.
Forward-Looking Information
The company's strategic actions discussed above are expected to
provide initial benefits in the form of improving customer response
rates, reducing product returns and bad debts and rebuilding and
augmenting the customer base throughout 1997 with financial benefits
to follow. Performance in the company's European operating group is
subject to a number of significant variables and, as it is the
company's largest operating group, overall company earnings per
share for full year fiscal 1996 and 1997 are contingent on this
group's progress. While the company expects to have fiscal 1996
fourth quarter results that compare very favorably with the fiscal
1995 fourth quarter, it is anticipated that full fiscal year 1996
earnings per share, excluding other operating items, will be
comparable to or slightly below the prior year.
The company seeks to maximize total long-term return to shareholders
and believes that through the expansion of product lines,
distribution channels and promotional programs to attract new and
younger customers it will be able to achieve sustainable growth over
the long term. However, performance in Europe may prevent the
company from resuming double digit growth in fiscal 1997 as
previously expected and it is too early to determine when the
company will return to a running rate of double-digit growth.
The statements contained in this report, if not historical, are
forward looking statements, that involve risks and uncertainties
that could cause actual results to differ materially from the
financial results described in the forward looking statements.
These risks and uncertainties include the level and rate of progress
in the company's program to stabilize and restore growth in its
operations, particularly in Europe, the effect of worldwide paper
and postage costs, and the ability of the company to achieve
earnings per share growth through internal investment, strategic
alliances, joint ventures and other methods. The success of the
company's program is in turn dependent on factors such as the
effectiveness of the company's marketing strategies to grow its
customer base and improve customer response rates, the appeal of the
company's mix of products, the company's success at entering into
and collaborating with others to conduct effective strategic
alliances and joint ventures, and general economic conditions.
Liquidity and Capital Resources
March 31, 1996 Compared With June 30, 1995
Cash and cash equivalents, short-term investments and marketable
securities decreased $108.9 to $423.2 at March 31, 1996. The
decrease results from dividend payments of $141.2 and the repurchase
of Class A nonvoting common stock at a cost of $45.5, exceeding cash
provided by operations of $108.9. In addition, the Company also
expended $61.5 for investments in strategic alliances and capital
expenditures.
In the third quarter of fiscal 1996, the company paid a $0.45 per
share dividend on its common stock, representing a 13% increase,
compared with $0.40 per share a year ago. At the current rate, the
company will pay a total dividend of $1.75 per share in fiscal 1996
compared with $1.55 in fiscal 1995.
The company repurchased 1.0 shares of Class A nonvoting common stock
in fiscal 1996. The company has repurchased approximately 14.6
shares, through March 31, 1996, since its first program was
announced in February 1992.
The company believes that its liquidity, capital resources and cash
flow are sufficient to fund normal capital expenditures, working
capital requirements, the payment of dividends and the company's
share repurchase program. The company also believes its liquidity,
capital resources and cash flow are sufficient to finance present
plans to expand existing product lines in existing markets, to
identify and develop new products and markets and to enter into
strategic alliances and make small acquisitions.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
During the third quarter of fiscal 1996, the company's QSP, Inc.
subsidiary and the company reached an agreement with the plaintiffs
to settle an antitrust class action lawsuit commenced in December 1993
by the Roman Catholic Bishop of San Diego and the Chino Unified School
District. The agreement, which is subject to final approval by the
U.S. District Court for the Southern District of California, provides
for QSP, Inc. and the company to deliver up to $40.0 million in retail
value of company products, coupons for discounts on QSP, Inc.
programs, and cash.
Item 6. EXHIBITS AND REPORTS ON FORM 10-K
(a) Exhibits
10.1.1 Amendment No. 1 to The Reader's Digest Association,
Inc. Management Incentive Compensation Plan (effective
as of April 11, 1996). (1 page)*
10.3.1 Amendment No. 1 to The Reader's Digest Association,
Inc. 1994 Key Employee Long Term Incentive Plan
(effective as of April 11, 1996). (1 page)*
10.23 Termination Agreement dated as of April 1, 1996 between
the registrant and James P. Schadt. (8 pages)*
10.24 Termination Agreement dated as of April 1, 1996 between
the registrant and Barbara J. Morgan. (8 pages)*
10.25 Termination Agreement dated as of April 1, 1996 between
the registrant and Paul A. Soden. (8 pages)*
10.26 Termination Agreement dated as of April 1, 1996 between
the registrant and Stephen R. Wilson. (8 pages)*
27 Financial Data Schedule. (1 page)
* Denotes a management contract or compensatory plan.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter for which this
report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
The Reader's Digest Association, Inc.
(Registrant)
Date: May 13, 1996 By: Stephen R. Wilson
Stephen R. Wilson
Executive Vice President and
Chief Financial Officer
George S. Scimone
George S. Scimone
Vice President and Controller
Chief Accounting Officer
EXHIBIT INDEX
Exhibit Page
10.1.1 Amendment No. 1 to The Reader's Digest
Association, Inc. Management Incentive
Compensation Plan (effective as of April 11,
1996).*
10.3.1 Amendment No. 1 to The Reader's Digest
Association, Inc. 1994 Key Employee Long Term
Incentive Plan (effective as of April 11,
1996).*
10.23 Termination Agreement dated as of April 1, 1996
between the registrant and James P. Schadt.*
10.24 Termination Agreement dated as of April 1, 1996
between the registrant and Barbara J. Morgan.*
10.25 Termination Agreement dated as of April 1, 1996
between the registrant and Paul A. Soden.*
10.26 Termination Agreement dated as of April 1, 1996
between the registrant and Stephen R. Wilson.*
27 Financial Data Schedule
* Denotes a management contract or compensatory plan.
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<LEGEND>
This schedule contains summary financial information extracted from Registrant's
Consolidated Condensed Statement of Income and Consolidated Condensed Balance
Sheet for the nine month period ended March 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 248,300
<SECURITIES> 74,600
<RECEIVABLES> 724,400
<ALLOWANCES> 235,100
<INVENTORY> 237,900
<CURRENT-ASSETS> 1,367,100
<PP&E> 607,300
<DEPRECIATION> 342,000
<TOTAL-ASSETS> 2,054,700
<CURRENT-LIABILITIES> 1,261,700
<BONDS> 0
<COMMON> (600)
0
28,800
<OTHER-SE> 472,800
<TOTAL-LIABILITY-AND-EQUITY> 2,054,700
<SALES> 2,396,600
<TOTAL-REVENUES> 2,396,600
<CGS> 821,500
<TOTAL-COSTS> 821,500
<OTHER-EXPENSES> 1,519,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,800
<INCOME-PRETAX> 72,100
<INCOME-TAX> 37,400
<INCOME-CONTINUING> 34,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,700
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
Exhibit 10.1.1
Amendment No. 1 to
The Reader's Digest Association, Inc.
Management Incentive Compensation Plan
(Amended and Restated as of July 1, 1994)
Effective as of April 11, 1996, The Reader's Digest
Association, Inc. Management Incentive Compensation Plan (Amended
and Restated as of July 1, 1994) (the "Plan") is hereby amended
as follows:
1. Section 4.7 of the Plan shall be amended to read in its
entirety as follows:
4.7 Each award made under the Plan shall be paid
or allocated as soon as practicable after the close of
the fiscal year, except as provided in Article V and
unless otherwise determined by the Committee. The
Committee, in its sole discretion, may permit a
Participant to defer payment of his award under The
Reader's Digest Association, Inc. Deferred Compensation
Plan, as such plan may be modified from time to time,
or any other plan applicable to the Participant. The
Committee, in its sole discretion, may permit a
Participant to elect, under The Reader's Digest
Association, Inc. 1994 Key Employee Long Term Incentive
Plan, as such plan may be modified from time to time,
or any other plan applicable to the Participant, to be
granted a stock option, stock appreciation right or
other award thereunder in lieu of receiving payment of
all or part of an award under this Plan.
Exhibit 10.3.1
Amendment No. 1 to
The Reader's Digest Association, Inc.
1994 Key Employee Long Term Incentive Plan
Effective as of April 11, 1996, The Reader's Digest
Association, Inc. 1994 Key Employee Long Term Incentive Plan (the
"Plan") is hereby amended as follows:
1. The Plan shall be amended by the addition of Article
XVIV, which shall read in its entirety as follows:
ARTICLE XVIV
Election to Receive Awards in Lieu of Other
Compensation
The Committee, in its sole discretion, may permit
a Participant to elect pursuant to this Plan, on such
terms and conditions as shall be approved by the
Committee, to receive an Award under this Plan in lieu
of receiving payment of other compensation, under this
Plan or otherwise, from the Company or any Designated
Subsidiary. The Committee shall have sole discretion
to consent to or disapprove any such election by any
Participant. The grant of Awards pursuant to such
election shall be subject to the provisions and
limitations of this Plan and applicable law.
April 1, 1996
Mr. James P. Schadt
Chairman and Chief Executive Officer
The Reader's Digest Association, Inc.
Pleasantville, NY 10570-7000
Dear Jim:
This letter serves to confirm those payments and benefits
that you will receive, subject to and in accordance with the
terms and conditions of this Agreement in connection with a
termination of your employment with the Company.
1. Termination of Employment
1.1 The Company may terminate your employment at any time,
with or without stated reason. You shall receive the
benefits provided hereunder upon the termination of
your employment by you for "Good Reason," as defined in
Section 1.2, or the termination of your employment by
the Company, unless such termination is for "Cause," as
defined in Section 3.1 of the Severance Plan. Any
termination by you shall be communicated by written
Notice of Termination indicating the termination
provision in this Agreement relied upon, if any, and
the Date of Termination; provided that the Date of
Termination shall in no event be earlier than 10
business days after the date on which such Notice of
Termination is effective pursuant to Section 15 hereof.
1.2 For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following without
your express written consent:
1.2.1 the assignment to you without your written
consent of any duties materially inconsistent
with your then current position, duties,
responsibilities and status with the Company,
or a material change or a substantial
diminution in your then current authority,
reporting responsibilities, titles or
offices, or removal from or failure to re-
elect you to any such position or office
except in the event of a termination of your
employment for Cause, death, total disability
(as defined in The Reader's Digest
Association, Inc. Retirement Plan) or
mandatory retirement;
1.2.2 a reduction by the Company in your annual
base salary as in effect on the date of this
Agreement or as the same may be increased
from time to time, unless such reduction is
part of and consistent with a good faith
management-wide or Company-wide cost cutting
program, and then only if the percentage of
your reduction is no greater than that of the
other management personnel;
1.2.3 a relocation without your written consent to
an office located anywhere other than within
50 miles of your primary residence, except
for required travel on Company business to an
extent substantially consistent with your
then current business travel obligations;
1.2.4 the failure by the Company to continue in
effect any compensation plan or other fringe
benefit provided by the Company in which you
participate on the date of this Agreement
that, by itself or in the aggregate, is
material to your total compensation from the
Company, unless there shall have been
instituted a replacement or substitute plan
or fringe benefit providing comparable
benefits or unless such failure is part of
and consistent with a good faith benefit
discontinuance applicable to all of the
management personnel of the Company and then
only if the scope of the discontinuance with
respect to you is no greater than that of the
other management personnel; or
1.2.5 the failure of the Company to obtain a
satisfactory agreement from any successor to
the Company to assume and agree to perform
this Agreement. The Company shall use its
best efforts to require any successor
(whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or
substantially all of the businesses or assets
of the Company to expressly assume and agree
to perform this Agreement.
1.3 Any termination of your employment by you for "Good
Reason" shall be made within 180 days after the
occurrence of the "Good Reason."
2. Compensation Upon Termination
2.1 If your employment shall be terminated and you are
entitled to benefits under Section 1 of this Agreement
then, except as provided in Section 2.2 and 2.3, you
shall receive the following benefits for each year of
the Severance Period (as defined below):
2.1.1 the Company shall pay to you as severance pay
a total amount equal to the sum of
(a) your highest annual base salary in effect any
time during the 12-month period prior to the
Date of Termination plus
(b) the higher of the following:
(i) the highest amount paid to you under The
Reader's Digest Association, Inc.
Management Incentive Compensation Plan
(the "Annual Incentive Plan") during the
three plan years most recently ended
prior to the Date of Termination; or
(ii) the originally approved target amount of
the highest award, if any, under the
Annual Incentive Plan outstanding on the
Date of Termination, as such target
amount may have been increased prior to
the Date of Termination.
Any compensation received by you or granted
to you in lieu of an amount paid under the
Annual Incentive Plan for any one-year period
(whether in the form of restricted stock or
otherwise) shall be deemed to be an amount
paid to you under the Annual Incentive Plan
for purposes of this Section. Any
compensation receivable by you in lieu of an
amount payable under the Annual Incentive
Plan for any period shall be deemed to be an
additional target amount for purposes of this
Section. The amount of any non-cash
compensation received or receivable shall be
the greater of the fair market value of such
compensation on the date of award or the cash
amount that would have been received by you
in lieu of such non-cash compensation.
The aggregate amount of severance payable under
this Section shall be paid in equal installments
on a bi-weekly basis, commencing upon the Date of
Termination.
2.1.2 the Company shall maintain in full force and
effect, for your continued benefit for the
Severance Period, all welfare benefit plans
and programs or arrangements in which you
participated immediately prior to the Date of
Termination, provided that your continued
participation is possible under the general
terms and conditions of such welfare plans
and programs. In the event that your
participation in any such plan or program is
barred, the Company shall provide you with
benefits substantially similar to those which
you would have been entitled to receive under
such welfare plans and programs had your
participation not been barred.
2.2 If your employment is terminated by you for "Good
Reason" or if your employment is terminated by the
Company other than for "Cause," then the Severance
Period shall be the period of two years immediately
following the Date of Termination.
2.3 If your employment is terminated for Cause, the Company
shall pay you your base salary through the Date of
Termination, and the Company shall have no further
obligations to you under this Agreement.
3. Long-Term Incentive Plan Benefits
3.1 You shall have the right to exercise your outstanding
stock options and stock appreciation rights under the
1989 and 1994 Key Employee Long-Term Incentive Plans
(the "Long Term Incentive Plans") to the extent they
are exercisable or would become exercisable during the
Severance Period as if your employment with the Company
continued during the Severance Period. Such stock
options and stock appreciation rights shall continue to
vest during the Severance Period as if your employment
with the Company continued during the Severance Period
and, upon completion of the Severance Period, shall
vest and be exercisable as if your employment
terminated at that time by reason of either (a) an
involuntary termination without cause or a mutual
agreement (within the terms of the particular award) or
(b) retirement (within the terms of the particular
award), if applicable.
3.2 Your outstanding performance units, restricted stock
and awards (other than stock options and stock
appreciation rights) under the Long Term Incentive
Plans shall continue to be outstanding and payable
during the Severance Period as if your employment with
the Company continued during the Severance Period and,
if applicable, shall vest upon completion of the
Severance Period in accordance with the terms of the
award as if your employment terminated at that time by
reason of either (a) an involuntary termination without
cause or a mutual agreement (within the terms of the
particular award) or (b) retirement (within the terms
of the particular award), if applicable. Any such
award that is based on a period of employment shall be
payable on a prorated basis as if your employment had
continued during the Severance Period.
3.2.1 If any such award is subject to specific
performance goals and your employment is
terminated by you for "Good Reason" or your
employment is terminated by the Company other
than for "Cause," then the award shall be
payable to the extent such performance goals
are attained.
3.3 If any benefits due under Section 3 cannot be paid
under the existing or amended terms of an applicable
plan or award agreement, the Company shall pay you the
value of such benefits at the time they would otherwise
be payable if they were payable under such terms.
4. Retirement Plan Benefits
4.1 The Company shall pay to you an amount equal to the
difference between your monthly retirement benefit
payable under The Reader's Digest Association, Inc.
Retirement Plan (the "Retirement Plan"), the Excess
Benefit Retirement Plan of The Reader's Digest
Association, Inc. (the "Excess Benefit Retirement
Plan") and The Reader's Digest Executive Retirement
Plan (the "Executive Retirement Plan") and the amount
that would have been payable if your age and aggregate
periods of service under those plans included the
Severance Period. In addition, the Severance Period
shall be considered to be additional Credited Service
for all purposes (including vesting) under the
Executive Retirement Plan. Any amount payable under
this Section 4.1 shall be payable at the same time and
in the same form as such payments would have been made
under the Retirement Plan.
4.2 Upon completion of the Severance Period, if you are not
vested under the Retirement Plan, the Excess Retirement
Plan or the Executive Retirement Plan, you will receive
a lump sum payment in the amount of the equivalent
actuarial value (as determined under the Retirement
Plan) of pension credits that would have been earned
through the end of the Severance Period, without regard
to vesting, with any such payment to be made within 90
days of the end of the Severance Period.
5. Your participation in The Reader's Digest Employees
Profit-Sharing Plan and the Profit -Sharing Benefit
Restoration Plan of The Reader's Digest Association,
Inc. (the "Profit-Sharing Plans") ceases upon your
termination of employment with the Company. However,
you shall receive cash payments equal to the amounts
that would have been contributed to your account had
your employment with the Company continued for the
Severance Period, with payments to be made to you by
the Company at the time any contributions have been
made for participants in the Profit-Sharing Plans. In
addition, the Severance Period shall be considered to
be additional Credited Service for purposes of your
vesting in any amounts previously contributed to your
account under the Profit-Sharing Plans.
6. Any benefits payable under this Agreement shall be
reduced by the amount of any benefits paid under The
Reader's Digest Association, Inc. Severance Plan for
Senior Management or The Reader's Digest Association,
Inc. Income Continuation Plan for Senior Management.
7. The payment of any amounts or benefits under this
Agreement is expressly conditioned on the receipt by
the Company from you of a duly executed General Waiver
and Release of Claims in the form specified under the
Severance Plan, the repayment by you of any outstanding
advances or loans due the Company and the return by you
of all Company property.
8. Any reference to a specific plan in this Agreement
shall be deemed to include any similar plan or program
of the Company then in effect that is the predecessor
of, the successor to, or the replacement for, such
specific plan.
9. The Company may withhold from any benefits payable
under this Agreement all federal, state, local or other
applicable taxes as shall be required pursuant to any
law or governmental regulation or ruling.
10. In case of your death while any amounts are still
payable to you under this Agreement, the Company shall
pay all such amounts to your designated beneficiary or,
if none has been designated, to your estate as if your
employment had continued until the end of the Severance
Period.
11. The Company shall indemnify you and hold you harmless
from any and all liabilities, losses, costs or damages,
including defense costs and expenses (including,
without limitation, fees and disbursements of counsel
incurred by you in any action or proceeding between the
parties to this Agreement or between you and any third
party or otherwise) in connection with all claims,
suits or proceeding relating to or arising from a
breach or alleged breach of this Agreement by the
Company.
12. You acknowledge that (i) prior to executing this
Agreement, you had an opportunity to consult with an
attorney of your choosing and review this Agreement
with such counsel, (ii) you are executing this
Agreement knowingly and voluntarily and (iii) you
understand all of the terms set forth herein.
13. In the event the Company terminates your employment for
Cause and you dispute the Company's right to do so or
you claim that you are entitled to terminate your
employment for Good Reason and the Company disputes
your right to do so, a mediator acceptable to you and
the Company will be appointed within 10 days to assist
in reaching a mutually satisfactory resolution, but
will have no authority to issue a binding decision.
Such mediation must be concluded within 60 days of the
date of termination or claim to termination for Good
Reason. You agree that you will not institute any
legal proceeding relating to the matter until the
conclusion of such mediation. Should such mediation
fail to reach an acceptable conclusion and you are
successful in any litigation or settlement that issues
from such dispute, you shall be entitled to receive
from the Company all of the expenses incurred by you in
connection with any such dispute, including reasonable
attorney's fees.
14. Acts Detrimental to the Company
14.1 You agree that you will not do any of the following
during the Severance Period:
14.1.1 commit any criminal act against the Company
or any act that would constitute "Cause;"
14.1.2 disclose any information likely to be
regarded as confidential and relating to the
Company's business;
14.1.3 solicit the Company's employees to work for a
competitor of the Company; or
14.1.4 perform any act detrimental to the Company or
its employees, including, but not limited to,
disparaging the Company, its senior
management or its products.
14.2 You agree that any breach or threatened breach of
Section 14.1 shall entitle the Company to apply for and
to obtain injunctive relief, which shall be in addition
to any and all other rights and remedies available to
the company at law or in equity.
14.3 All of your rights and benefits under this Agreement
shall cease upon any breach by you of Section 14.1 of
this Agreement.
15. Miscellaneous
15.1 Notices and other communications provided for herein
shall be in writing and shall be effective upon
delivery addressed as follows:
if to the Company:
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: Senior Vice President, Human Resources
with a copy to
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: General Counsel
or if to you, at the address set forth above,
or to such other address as to which either party shall
give notice in accordance with the foregoing.
15.2 This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective
successors and assigns; provided, however, that this
Agreement may not be assigned by either party without
the consent of the other party.
15.3 Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating
the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any
other jurisdiction.
15.4 This Agreement constitutes the entire understanding of
the parties hereto with respect to the subject matter
hereof and supersedes any prior agreements, written or
oral, with respect thereto.
15.5 This Agreement may be amended or modified only by a
written agreement duly executed by both of the parties
hereto.
15.6 This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York
applicable to contracts executed in and to be wholly
performed within that State.
Very truly yours,
The Reader's Digest
Association, Inc.
By
Name: Joseph M. Grecky
Joseph M. Grecky
Title: Senior Vice President,
Human Resources
Agreed to and accepted as of 4/16/96:
Name: James P. Schadt
James P. Schadt
April 1, 1996
Mrs. Barbara J. Morgan
Senior Vice President and Editor-in-Chief,
Books and Home Entertainment
The Reader's Digest Association, Inc.
Pleasantville, NY 10570-7000
Dear Barbara:
This letter serves to confirm those payments and benefits
that you will receive, subject to and in accordance with the
terms and conditions of this Agreement in connection with a
termination of your employment with the Company.
1. Termination of Employment
1.1 The Company may terminate your employment at any time,
with or without stated reason. You shall receive the
benefits provided hereunder upon the termination of
your employment by you for "Good Reason," as defined in
Section 1.2, or the termination of your employment by
the Company, unless such termination is for "Cause," as
defined in Section 3.1 of the Severance Plan. Any
termination by you shall be communicated by written
Notice of Termination indicating the termination
provision in this Agreement relied upon, if any, and
the Date of Termination; provided that the Date of
Termination shall in no event be earlier than 10
business days after the date on which such Notice of
Termination is effective pursuant to Section 15 hereof.
1.2 For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following without
your express written consent:
1.2.1 the assignment to you without your written
consent of any duties materially inconsistent
with your then current position, duties,
responsibilities and status with the Company,
or a material change or a substantial
diminution in your then current authority,
reporting responsibilities, titles or
offices, or removal from or failure to re-
elect you to any such position or office
except in the event of a termination of your
employment for Cause, death, total disability
(as defined in The Reader's Digest
Association, Inc. Retirement Plan) or
mandatory retirement;
1.2.2 a reduction by the Company in your annual
base salary as in effect on the date of this
Agreement or as the same may be increased
from time to time, unless such reduction is
part of and consistent with a good faith
management-wide or Company-wide cost cutting
program, and then only if the percentage of
your reduction is no greater than that of the
other management personnel;
1.2.3 a relocation without your written consent to
an office located anywhere other than within
50 miles of your primary residence, except
for required travel on Company business to an
extent substantially consistent with your
then current business travel obligations;
1.2.4 the failure by the Company to continue in
effect any compensation plan or other fringe
benefit provided by the Company in which you
participate on the date of this Agreement
that, by itself or in the aggregate, is
material to your total compensation from the
Company, unless there shall have been
instituted a replacement or substitute plan
or fringe benefit providing comparable
benefits or unless such failure is part of
and consistent with a good faith benefit
discontinuance applicable to all of the
management personnel of the Company and then
only if the scope of the discontinuance with
respect to you is no greater than that of the
other management personnel; or
1.2.5 the failure of the Company to obtain a
satisfactory agreement from any successor to
the Company to assume and agree to perform
this Agreement. The Company shall use its
best efforts to require any successor
(whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or
substantially all of the businesses or assets
of the Company to expressly assume and agree
to perform this Agreement.
1.3 Any termination of your employment by you for "Good
Reason" shall be made within 180 days after the
occurrence of the "Good Reason."
2. Compensation Upon Termination
2.1 If your employment shall be terminated and you are
entitled to benefits under Section 1 of this Agreement
then, except as provided in Section 2.2 and 2.3, you
shall receive the following benefits for each year of
the Severance Period (as defined below):
2.1.1 the Company shall pay to you as severance pay
a total amount equal to the sum of
(a) your highest annual base salary in effect any
time during the 12-month period prior to the
Date of Termination plus
(b) the higher of the following:
(i) the highest amount paid to you under The
Reader's Digest Association, Inc.
Management Incentive Compensation Plan
(the "Annual Incentive Plan") during the
three plan years most recently ended
prior to the Date of Termination; or
(ii) the originally approved target amount of
the highest award, if any, under the
Annual Incentive Plan outstanding on the
Date of Termination, as such target
amount may have been increased prior to
the Date of Termination.
Any compensation received by you or granted
to you in lieu of an amount paid under the
Annual Incentive Plan for any one-year period
(whether in the form of restricted stock or
otherwise) shall be deemed to be an amount
paid to you under the Annual Incentive Plan
for purposes of this Section. Any
compensation receivable by you in lieu of an
amount payable under the Annual Incentive
Plan for any period shall be deemed to be an
additional target amount for purposes of this
Section. The amount of any non-cash
compensation received or receivable shall be
the greater of the fair market value of such
compensation on the date of award or the cash
amount that would have been received by you
in lieu of such non-cash compensation.
The aggregate amount of severance payable under
this Section shall be paid in equal installments
on a bi-weekly basis, commencing upon the Date of
Termination.
2.1.2 the Company shall maintain in full force and
effect, for your continued benefit for the
Severance Period, all welfare benefit plans
and programs or arrangements in which you
participated immediately prior to the Date of
Termination, provided that your continued
participation is possible under the general
terms and conditions of such welfare plans
and programs. In the event that your
participation in any such plan or program is
barred, the Company shall provide you with
benefits substantially similar to those which
you would have been entitled to receive under
such welfare plans and programs had your
participation not been barred.
2.2 If your employment is terminated by you for "Good
Reason" or if your employment is terminated by the
Company other than for "Cause," then the Severance
Period shall be the period of two years immediately
following the Date of Termination.
2.3 If your employment is terminated for Cause, the Company
shall pay you your base salary through the Date of
Termination, and the Company shall have no further
obligations to you under this Agreement.
3. Long-Term Incentive Plan Benefits
3.1 You shall have the right to exercise your outstanding
stock options and stock appreciation rights under the
1989 and 1994 Key Employee Long-Term Incentive Plans
(the "Long Term Incentive Plans") to the extent they
are exercisable or would become exercisable during the
Severance Period as if your employment with the Company
continued during the Severance Period. Such stock
options and stock appreciation rights shall continue to
vest during the Severance Period as if your employment
with the Company continued during the Severance Period
and, upon completion of the Severance Period, shall
vest and be exercisable as if your employment
terminated at that time by reason of either (a) an
involuntary termination without cause or a mutual
agreement (within the terms of the particular award) or
(b) retirement (within the terms of the particular
award), if applicable.
3.2 Your outstanding performance units, restricted stock
and awards (other than stock options and stock
appreciation rights) under the Long Term Incentive
Plans shall continue to be outstanding and payable
during the Severance Period as if your employment with
the Company continued during the Severance Period and,
if applicable, shall vest upon completion of the
Severance Period in accordance with the terms of the
award as if your employment terminated at that time by
reason of either (a) an involuntary termination without
cause or a mutual agreement (within the terms of the
particular award) or (b) retirement (within the terms
of the particular award), if applicable. Any such
award that is based on a period of employment shall be
payable on a prorated basis as if your employment had
continued during the Severance Period.
3.2.1 If any such award is subject to specific
performance goals and your employment is
terminated by you for "Good Reason" or your
employment is terminated by the Company other
than for "Cause," then the award shall be
payable to the extent such performance goals
are attained.
3.3 If any benefits due under Section 3 cannot be paid
under the existing or amended terms of an applicable
plan or award agreement, the Company shall pay you the
value of such benefits at the time they would otherwise
be payable if they were payable under such terms.
4. Retirement Plan Benefits
4.1 The Company shall pay to you an amount equal to the
difference between your monthly retirement benefit
payable under The Reader's Digest Association, Inc.
Retirement Plan (the "Retirement Plan"), the Excess
Benefit Retirement Plan of The Reader's Digest
Association, Inc. (the "Excess Benefit Retirement
Plan") and The Reader's Digest Executive Retirement
Plan (the "Executive Retirement Plan") and the amount
that would have been payable if your age and aggregate
periods of service under those plans included the
Severance Period. In addition, the Severance Period
shall be considered to be additional Credited Service
for all purposes (including vesting) under the
Executive Retirement Plan. Any amount payable under
this Section 4.1 shall be payable at the same time and
in the same form as such payments would have been made
under the Retirement Plan.
4.2 Upon completion of the Severance Period, if you are not
vested under the Retirement Plan, the Excess Retirement
Plan or the Executive Retirement Plan, you will receive
a lump sum payment in the amount of the equivalent
actuarial value (as determined under the Retirement
Plan) of pension credits that would have been earned
through the end of the Severance Period, without regard
to vesting, with any such payment to be made within 90
days of the end of the Severance Period.
5. Your participation in The Reader's Digest Employees
Profit-Sharing Plan and the Profit -Sharing Benefit
Restoration Plan of The Reader's Digest Association,
Inc. (the "Profit-Sharing Plans") ceases upon your
termination of employment with the Company. However,
you shall receive cash payments equal to the amounts
that would have been contributed to your account had
your employment with the Company continued for the
Severance Period, with payments to be made to you by
the Company at the time any contributions have been
made for participants in the Profit-Sharing Plans. In
addition, the Severance Period shall be considered to
be additional Credited Service for purposes of your
vesting in any amounts previously contributed to your
account under the Profit-Sharing Plans.
6. Any benefits payable under this Agreement shall be
reduced by the amount of any benefits paid under The
Reader's Digest Association, Inc. Severance Plan for
Senior Management or The Reader's Digest Association,
Inc. Income Continuation Plan for Senior Management.
7. The payment of any amounts or benefits under this
Agreement is expressly conditioned on the receipt by
the Company from you of a duly executed General Waiver
and Release of Claims in the form specified under the
Severance Plan, the repayment by you of any outstanding
advances or loans due the Company and the return by you
of all Company property.
8. Any reference to a specific plan in this Agreement
shall be deemed to include any similar plan or program
of the Company then in effect that is the predecessor
of, the successor to, or the replacement for, such
specific plan.
9. The Company may withhold from any benefits payable
under this Agreement all federal, state, local or other
applicable taxes as shall be required pursuant to any
law or governmental regulation or ruling.
10. In case of your death while any amounts are still
payable to you under this Agreement, the Company shall
pay all such amounts to your designated beneficiary or,
if none has been designated, to your estate as if your
employment had continued until the end of the Severance
Period.
11. The Company shall indemnify you and hold you harmless
from any and all liabilities, losses, costs or damages,
including defense costs and expenses (including,
without limitation, fees and disbursements of counsel
incurred by you in any action or proceeding between the
parties to this Agreement or between you and any third
party or otherwise) in connection with all claims,
suits or proceeding relating to or arising from a
breach or alleged breach of this Agreement by the
Company.
12. You acknowledge that (i) prior to executing this
Agreement, you had an opportunity to consult with an
attorney of your choosing and review this Agreement
with such counsel, (ii) you are executing this
Agreement knowingly and voluntarily and (iii) you
understand all of the terms set forth herein.
13. In the event the Company terminates your employment for
Cause and you dispute the Company's right to do so or
you claim that you are entitled to terminate your
employment for Good Reason and the Company disputes
your right to do so, a mediator acceptable to you and
the Company will be appointed within 10 days to assist
in reaching a mutually satisfactory resolution, but
will have no authority to issue a binding decision.
Such mediation must be concluded within 60 days of the
date of termination or claim to termination for Good
Reason. You agree that you will not institute any
legal proceeding relating to the matter until the
conclusion of such mediation. Should such mediation
fail to reach an acceptable conclusion and you are
successful in any litigation or settlement that issues
from such dispute, you shall be entitled to receive
from the Company all of the expenses incurred by you in
connection with any such dispute, including reasonable
attorney's fees.
14. Acts Detrimental to the Company
14.1 You agree that you will not do any of the following
during the Severance Period:
14.1.1 commit any criminal act against the Company
or any act that would constitute "Cause;"
14.1.2 disclose any information likely to be
regarded as confidential and relating to the
Company's business;
14.1.3 solicit the Company's employees to work for a
competitor of the Company; or
14.1.4 perform any act detrimental to the Company or
its employees, including, but not limited to,
disparaging the Company, its senior
management or its products.
14.2 You agree that any breach or threatened breach of
Section 14.1 shall entitle the Company to apply for and
to obtain injunctive relief, which shall be in addition
to any and all other rights and remedies available to
the company at law or in equity.
14.3 All of your rights and benefits under this Agreement
shall cease upon any breach by you of Section 14.1 of
this Agreement.
15. Miscellaneous
15.1 Notices and other communications provided for herein
shall be in writing and shall be effective upon
delivery addressed as follows:
if to the Company:
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: Senior Vice President, Human Resources
with a copy to
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: General Counsel
or if to you, at the address set forth above,
or to such other address as to which either party shall
give notice in accordance with the foregoing.
15.2 This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective
successors and assigns; provided, however, that this
Agreement may not be assigned by either party without
the consent of the other party.
15.3 Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating
the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any
other jurisdiction.
15.4 This Agreement constitutes the entire understanding of
the parties hereto with respect to the subject matter
hereof and supersedes any prior agreements, written or
oral, with respect thereto.
15.5 This Agreement may be amended or modified only by a
written agreement duly executed by both of the parties
hereto.
15.6 This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York
applicable to contracts executed in and to be wholly
performed within that State.
Very truly yours,
The Reader's Digest
Association, Inc.
By
Name: Joseph M. Grecky
Joseph M. Grecky
Title: Senior Vice President,
Human Resources
Agreed to and accepted as of 4/25/96:
Name: Barbara J. Morgan
Barbara J. Morgan
April 1, 1996
Mr. Paul A. Soden
Senior Vice President, General Counsel and Secretary
The Reader's Digest Association, Inc.
Pleasantville, NY 10570-7000
Dear Paul:
This letter serves to confirm those payments and benefits that
you will receive, subject to and in accordance with the terms and
conditions of this Agreement in connection with a termination of
your employment with the Company.
1. Termination of Employment
1.1 The Company may terminate your employment at any time, with
or without stated reason. You shall receive the benefits
provided hereunder upon the termination of your employment
by you for "Good Reason," as defined in Section 1.2, or the
termination of your employment by the Company, unless such
termination is for "Cause," as defined in Section 3.1 of the
Severance Plan. Any termination by you shall be
communicated by written Notice of Termination indicating the
termination provision in this Agreement relied upon, if any,
and the Date of Termination; provided that the Date of
Termination shall in no event be earlier than 10 business
days after the date on which such Notice of Termination is
effective pursuant to Section 15 hereof.
1.2 For purposes of this Agreement, "Good Reason" shall mean the
occurrence of any of the following without your express
written consent:
1.2.1 the assignment to you without your written consent
of any duties materially inconsistent with your
then current position, duties, responsibilities
and status with the Company, or a material change
or a substantial diminution in your then current
authority, reporting responsibilities, titles or
offices, or removal from or failure to re-elect
you to any such position or office except in the
event of a termination of your employment for
Cause, death, total disability (as defined in The
Reader's Digest Association, Inc. Retirement Plan)
or mandatory retirement;
1.2.2 a reduction by the Company in your annual base
salary as in effect on the date of this Agreement
or as the same may be increased from time to time,
unless such reduction is part of and consistent
with a good faith management-wide or Company-wide
cost cutting program, and then only if the
percentage of your reduction is no greater than
that of the other management personnel;
1.2.3 a relocation without your written consent to an
office located anywhere other than within 50 miles
of your primary residence, except for required
travel on Company business to an extent
substantially consistent with your then current
business travel obligations;
1.2.4 the failure by the Company to continue in effect
any compensation plan or other fringe benefit
provided by the Company in which you participate
on the date of this Agreement that, by itself or
in the aggregate, is material to your total
compensation from the Company, unless there shall
have been instituted a replacement or substitute
plan or fringe benefit providing comparable
benefits or unless such failure is part of and
consistent with a good faith benefit
discontinuance applicable to all of the management
personnel of the Company and then only if the
scope of the discontinuance with respect to you is
no greater than that of the other management
personnel; or
1.2.5 the failure of the Company to obtain a
satisfactory agreement from any successor to the
Company to assume and agree to perform this
Agreement. The Company shall use its best efforts
to require any successor (whether direct or
indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the
businesses or assets of the Company to expressly
assume and agree to perform this Agreement.
1.3 Any termination of your employment by you for "Good Reason"
shall be made within 180 days after the occurrence of the
"Good Reason."
2. Compensation Upon Termination
2.1 If your employment shall be terminated and you are entitled
to benefits under Section 1 of this Agreement then, except
as provided in Section 2.2 and 2.3, you shall receive the
following benefits for each year of the Severance Period (as
defined below):
2.1.1 the Company shall pay to you as severance pay a
total amount equal to the sum of
(a) your highest annual base salary in effect any time
during the 12-month period prior to the Date of
Termination plus
(b) the higher of the following:
(i) the highest amount paid to you under The
Reader's Digest Association, Inc. Management
Incentive Compensation Plan (the "Annual
Incentive Plan") during the three plan years
most recently ended prior to the Date of
Termination; or
(ii) the originally approved target amount of the
highest award, if any, under the Annual
Incentive Plan outstanding on the Date of
Termination, as such target amount may have
been increased prior to the Date of
Termination.
Any compensation received by you or granted to you
in lieu of an amount paid under the Annual
Incentive Plan for any one-year period (whether in
the form of restricted stock or otherwise) shall
be deemed to be an amount paid to you under the
Annual Incentive Plan for purposes of this
Section. Any compensation receivable by you in
lieu of an amount payable under the Annual
Incentive Plan for any period shall be deemed to
be an additional target amount for purposes of
this Section. The amount of any non-cash
compensation received or receivable shall be the
greater of the fair market value of such
compensation on the date of award or the cash
amount that would have been received by you in
lieu of such non-cash compensation.
The aggregate amount of severance payable under this
Section shall be paid in equal installments on a bi-
weekly basis, commencing upon the Date of Termination.
2.1.2 the Company shall maintain in full force and
effect, for your continued benefit for the
Severance Period, all welfare benefit plans and
programs or arrangements in which you participated
immediately prior to the Date of Termination,
provided that your continued participation is
possible under the general terms and conditions of
such welfare plans and programs. In the event
that your participation in any such plan or
program is barred, the Company shall provide you
with benefits substantially similar to those which
you would have been entitled to receive under such
welfare plans and programs had your participation
not been barred.
2.2 If your employment is terminated by you for "Good Reason" or
if your employment is terminated by the Company other than
for "Cause," then the Severance Period shall be the period
of two years immediately following the Date of Termination.
2.3 If your employment is terminated for Cause, the Company
shall pay you your base salary through the Date of
Termination, and the Company shall have no further
obligations to you under this Agreement.
3. Long-Term Incentive Plan Benefits
3.1 You shall have the right to exercise your outstanding stock
options and stock appreciation rights under the 1989 and
1994 Key Employee Long-Term Incentive Plans (the "Long Term
Incentive Plans") to the extent they are exercisable or
would become exercisable during the Severance Period as if
your employment with the Company continued during the
Severance Period. Such stock options and stock appreciation
rights shall continue to vest during the Severance Period as
if your employment with the Company continued during the
Severance Period and, upon completion of the Severance
Period, shall vest and be exercisable as if your employment
terminated at that time by reason of either (a) an
involuntary termination without cause or a mutual agreement
(within the terms of the particular award) or (b) retirement
(within the terms of the particular award), if applicable.
3.2 Your outstanding performance units, restricted stock and
awards (other than stock options and stock appreciation
rights) under the Long Term Incentive Plans shall continue
to be outstanding and payable during the Severance Period as
if your employment with the Company continued during the
Severance Period and, if applicable, shall vest upon
completion of the Severance Period in accordance with the
terms of the award as if your employment terminated at that
time by reason of either (a) an involuntary termination
without cause or a mutual agreement (within the terms of the
particular award) or (b) retirement (within the terms of the
particular award), if applicable. Any such award that is
based on a period of employment shall be payable on a
prorated basis as if your employment had continued during
the Severance Period.
3.2.1 If any such award is subject to specific
performance goals and your employment is
terminated by you for "Good Reason" or your
employment is terminated by the Company other than
for "Cause," then the award shall be payable to
the extent such performance goals are attained.
3.3 If any benefits due under Section 3 cannot be paid under the
existing or amended terms of an applicable plan or award
agreement, the Company shall pay you the value of such
benefits at the time they would otherwise be payable if they
were payable under such terms.
4. Retirement Plan Benefits
4.1 The Company shall pay to you an amount equal to the
difference between your monthly retirement benefit payable
under The Reader's Digest Association, Inc. Retirement Plan
(the "Retirement Plan"), the Excess Benefit Retirement Plan
of The Reader's Digest Association, Inc. (the "Excess
Benefit Retirement Plan") and The Reader's Digest Executive
Retirement Plan (the "Executive Retirement Plan") and the
amount that would have been payable if your age and
aggregate periods of service under those plans included the
Severance Period. In addition, the Severance Period shall
be considered to be additional Credited Service for all
purposes (including vesting) under the Executive Retirement
Plan. Any amount payable under this Section 4.1 shall be
payable at the same time and in the same form as such
payments would have been made under the Retirement Plan.
4.2 Upon completion of the Severance Period, if you are not
vested under the Retirement Plan, the Excess Retirement Plan
or the Executive Retirement Plan, you will receive a lump
sum payment in the amount of the equivalent actuarial value
(as determined under the Retirement Plan) of pension credits
that would have been earned through the end of the Severance
Period, without regard to vesting, with any such payment to
be made within 90 days of the end of the Severance Period.
5. Your participation in The Reader's Digest Employees Profit-
Sharing Plan and the Profit -Sharing Benefit Restoration
Plan of The Reader's Digest Association, Inc. (the "Profit-
Sharing Plans") ceases upon your termination of employment
with the Company. However, you shall receive cash payments
equal to the amounts that would have been contributed to
your account had your employment with the Company continued
for the Severance Period, with payments to be made to you by
the Company at the time any contributions have been made for
participants in the Profit-Sharing Plans. In addition, the
Severance Period shall be considered to be additional
Credited Service for purposes of your vesting in any amounts
previously contributed to your account under the Profit-
Sharing Plans.
6. Any benefits payable under this Agreement shall be reduced
by the amount of any benefits paid under The Reader's Digest
Association, Inc. Severance Plan for Senior Management or
The Reader's Digest Association, Inc. Income Continuation
Plan for Senior Management.
7. The payment of any amounts or benefits under this Agreement
is expressly conditioned on the receipt by the Company from
you of a duly executed General Waiver and Release of Claims
in the form specified under the Severance Plan, the
repayment by you of any outstanding advances or loans due
the Company and the return by you of all Company property.
8. Any reference to a specific plan in this Agreement shall be
deemed to include any similar plan or program of the Company
then in effect that is the predecessor of, the successor to,
or the replacement for, such specific plan.
9. The Company may withhold from any benefits payable under
this Agreement all federal, state, local or other applicable
taxes as shall be required pursuant to any law or
governmental regulation or ruling.
10. In case of your death while any amounts are still payable to
you under this Agreement, the Company shall pay all such
amounts to your designated beneficiary or, if none has been
designated, to your estate as if your employment had
continued until the end of the Severance Period.
11. The Company shall indemnify you and hold you harmless from
any and all liabilities, losses, costs or damages, including
defense costs and expenses (including, without limitation,
fees and disbursements of counsel incurred by you in any
action or proceeding between the parties to this Agreement
or between you and any third party or otherwise) in
connection with all claims, suits or proceeding relating to
or arising from a breach or alleged breach of this Agreement
by the Company.
12. You acknowledge that (i) prior to executing this Agreement,
you had an opportunity to consult with an attorney of your
choosing and review this Agreement with such counsel, (ii)
you are executing this Agreement knowingly and voluntarily
and (iii) you understand all of the terms set forth herein.
13. In the event the Company terminates your employment for
Cause and you dispute the Company's right to do so or you
claim that you are entitled to terminate your employment for
Good Reason and the Company disputes your right to do so, a
mediator acceptable to you and the Company will be appointed
within 10 days to assist in reaching a mutually satisfactory
resolution, but will have no authority to issue a binding
decision. Such mediation must be concluded within 60 days
of the date of termination or claim to termination for Good
Reason. You agree that you will not institute any legal
proceeding relating to the matter until the conclusion of
such mediation. Should such mediation fail to reach an
acceptable conclusion and you are successful in any
litigation or settlement that issues from such dispute, you
shall be entitled to receive from the Company all of the
expenses incurred by you in connection with any such
dispute, including reasonable attorney's fees.
14. Acts Detrimental to the Company
14.1 You agree that you will not do any of the following during
the Severance Period:
14.1.1 commit any criminal act against the Company or any
act that would constitute "Cause;"
14.1.2 disclose any information likely to be regarded as
confidential and relating to the Company's
business;
14.1.3 solicit the Company's employees to work for a
competitor of the Company; or
14.1.4 perform any act detrimental to the Company or its
employees, including, but not limited to,
disparaging the Company, its senior management or
its products.
14.2 You agree that any breach or threatened breach of Section
14.1 shall entitle the Company to apply for and to obtain
injunctive relief, which shall be in addition to any and all
other rights and remedies available to the company at law or
in equity.
14.3 All of your rights and benefits under this Agreement shall
cease upon any breach by you of Section 14.1 of this
Agreement.
15. Miscellaneous
15.1 Notices and other communications provided for herein shall
be in writing and shall be effective upon delivery addressed
as follows:
if to the Company:
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: Senior Vice President, Human Resources
with a copy to
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: General Counsel
or if to you, at the address set forth above,
or to such other address as to which either party shall give
notice in accordance with the foregoing.
15.2 This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective
successors and assigns; provided, however, that this
Agreement may not be assigned by either party without the
consent of the other party.
15.3 Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other
jurisdiction.
15.4 This Agreement constitutes the entire understanding of the
parties hereto with respect to the subject matter hereof and
supersedes any prior agreements, written or oral, with
respect thereto.
15.5 This Agreement may be amended or modified only by a written
agreement duly executed by both of the parties hereto.
15.6 This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York applicable
to contracts executed in and to be wholly performed within
that State.
Very truly yours,
The Reader's Digest
Association, Inc.
By
Name: Joseph M. Grecky
Joseph M. Grecky
Title: Senior Vice President,
Human Resources
Agreed to and accepted as of 4/1/96:
Name: Paul A. Soden
Paul A. Soden
April 1, 1996
Mr. Stephen R. Wilson
Executive Vice President and Chief Financial Officer
The Reader's Digest Association, Inc.
Pleasantville, NY 10570-7000
Dear Steve:
This letter serves to confirm those payments and benefits
that you will receive, subject to and in accordance with the
terms and conditions of this Agreement in connection with a
termination of your employment with the Company.
1. Termination of Employment
1.1 The Company may terminate your employment at any time,
with or without stated reason. You shall receive the
benefits provided hereunder upon the termination of
your employment by you for "Good Reason," as defined in
Section 1.2, or the termination of your employment by
the Company, unless such termination is for "Cause," as
defined in Section 3.1 of the Severance Plan. Any
termination by you shall be communicated by written
Notice of Termination indicating the termination
provision in this Agreement relied upon, if any, and
the Date of Termination; provided that the Date of
Termination shall in no event be earlier than 10
business days after the date on which such Notice of
Termination is effective pursuant to Section 15 hereof.
1.2 For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following without
your express written consent:
1.2.1 the assignment to you without your written
consent of any duties materially inconsistent
with your then current position, duties,
responsibilities and status with the Company,
or a material change or a substantial
diminution in your then current authority,
reporting responsibilities, titles or
offices, or removal from or failure to re-
elect you to any such position or office
except in the event of a termination of your
employment for Cause, death, total disability
(as defined in The Reader's Digest
Association, Inc. Retirement Plan) or
mandatory retirement;
1.2.2 a reduction by the Company in your annual
base salary as in effect on the date of this
Agreement or as the same may be increased
from time to time, unless such reduction is
part of and consistent with a good faith
management-wide or Company-wide cost cutting
program, and then only if the percentage of
your reduction is no greater than that of the
other management personnel;
1.2.3 a relocation without your written consent to
an office located anywhere other than within
50 miles of your primary residence, except
for required travel on Company business to an
extent substantially consistent with your
then current business travel obligations;
1.2.4 the failure by the Company to continue in
effect any compensation plan or other fringe
benefit provided by the Company in which you
participate on the date of this Agreement
that, by itself or in the aggregate, is
material to your total compensation from the
Company, unless there shall have been
instituted a replacement or substitute plan
or fringe benefit providing comparable
benefits or unless such failure is part of
and consistent with a good faith benefit
discontinuance applicable to all of the
management personnel of the Company and then
only if the scope of the discontinuance with
respect to you is no greater than that of the
other management personnel; or
1.2.5 the failure of the Company to obtain a
satisfactory agreement from any successor to
the Company to assume and agree to perform
this Agreement. The Company shall use its
best efforts to require any successor
(whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or
substantially all of the businesses or assets
of the Company to expressly assume and agree
to perform this Agreement.
1.3 Any termination of your employment by you for "Good
Reason" shall be made within 180 days after the
occurrence of the "Good Reason."
2. Compensation Upon Termination
2.1 If your employment shall be terminated and you are
entitled to benefits under Section 1 of this Agreement
then, except as provided in Section 2.2 and 2.3, you
shall receive the following benefits for each year of
the Severance Period (as defined below):
2.1.1 the Company shall pay to you as severance pay
a total amount equal to the sum of
(a) your highest annual base salary in effect any
time during the 12-month period prior to the
Date of Termination plus
(b) the higher of the following:
(i) the highest amount paid to you under The
Reader's Digest Association, Inc.
Management Incentive Compensation Plan
(the "Annual Incentive Plan") during the
three plan years most recently ended
prior to the Date of Termination; or
(ii) the originally approved target amount of
the highest award, if any, under the
Annual Incentive Plan outstanding on the
Date of Termination, as such target
amount may have been increased prior to
the Date of Termination.
Any compensation received by you or granted
to you in lieu of an amount paid under the
Annual Incentive Plan for any one-year period
(whether in the form of restricted stock or
otherwise) shall be deemed to be an amount
paid to you under the Annual Incentive Plan
for purposes of this Section. Any
compensation receivable by you in lieu of an
amount payable under the Annual Incentive
Plan for any period shall be deemed to be an
additional target amount for purposes of this
Section. The amount of any non-cash
compensation received or receivable shall be
the greater of the fair market value of such
compensation on the date of award or the cash
amount that would have been received by you
in lieu of such non-cash compensation.
The aggregate amount of severance payable under
this Section shall be paid in equal installments
on a bi-weekly basis, commencing upon the Date of
Termination.
2.1.2 the Company shall maintain in full force and
effect, for your continued benefit for the
Severance Period, all welfare benefit plans
and programs or arrangements in which you
participated immediately prior to the Date of
Termination, provided that your continued
participation is possible under the general
terms and conditions of such welfare plans
and programs. In the event that your
participation in any such plan or program is
barred, the Company shall provide you with
benefits substantially similar to those which
you would have been entitled to receive under
such welfare plans and programs had your
participation not been barred.
2.2 If your employment is terminated by you for "Good
Reason" or if your employment is terminated by the
Company other than for "Cause," then the Severance
Period shall be the period of two years immediately
following the Date of Termination.
2.3 If your employment is terminated for Cause, the Company
shall pay you your base salary through the Date of
Termination, and the Company shall have no further
obligations to you under this Agreement.
3. Long-Term Incentive Plan Benefits
3.1 You shall have the right to exercise your outstanding
stock options and stock appreciation rights under the
1989 and 1994 Key Employee Long-Term Incentive Plans
(the "Long Term Incentive Plans") to the extent they
are exercisable or would become exercisable during the
Severance Period as if your employment with the Company
continued during the Severance Period. Such stock
options and stock appreciation rights shall continue to
vest during the Severance Period as if your employment
with the Company continued during the Severance Period
and, upon completion of the Severance Period, shall
vest and be exercisable as if your employment
terminated at that time by reason of either (a) an
involuntary termination without cause or a mutual
agreement (within the terms of the particular award) or
(b) retirement (within the terms of the particular
award), if applicable.
3.2 Your outstanding performance units, restricted stock
and awards (other than stock options and stock
appreciation rights) under the Long Term Incentive
Plans shall continue to be outstanding and payable
during the Severance Period as if your employment with
the Company continued during the Severance Period and,
if applicable, shall vest upon completion of the
Severance Period in accordance with the terms of the
award as if your employment terminated at that time by
reason of either (a) an involuntary termination without
cause or a mutual agreement (within the terms of the
particular award) or (b) retirement (within the terms
of the particular award), if applicable. Any such
award that is based on a period of employment shall be
payable on a prorated basis as if your employment had
continued during the Severance Period.
3.2.1 If any such award is subject to specific
performance goals and your employment is
terminated by you for "Good Reason" or your
employment is terminated by the Company other
than for "Cause," then the award shall be
payable to the extent such performance goals
are attained.
3.3 If any benefits due under Section 3 cannot be paid
under the existing or amended terms of an applicable
plan or award agreement, the Company shall pay you the
value of such benefits at the time they would otherwise
be payable if they were payable under such terms.
4. Retirement Plan Benefits
4.1 The Company shall pay to you an amount equal to the
difference between your monthly retirement benefit
payable under The Reader's Digest Association, Inc.
Retirement Plan (the "Retirement Plan"), the Excess
Benefit Retirement Plan of The Reader's Digest
Association, Inc. (the "Excess Benefit Retirement
Plan") and The Reader's Digest Executive Retirement
Plan (the "Executive Retirement Plan") and the amount
that would have been payable if your age and aggregate
periods of service under those plans included the
Severance Period. In addition, the Severance Period
shall be considered to be additional Credited Service
for all purposes (including vesting) under the
Executive Retirement Plan. Any amount payable under
this Section 4.1 shall be payable at the same time and
in the same form as such payments would have been made
under the Retirement Plan.
4.2 Upon completion of the Severance Period, if you are not
vested under the Retirement Plan, the Excess Retirement
Plan or the Executive Retirement Plan, you will receive
a lump sum payment in the amount of the equivalent
actuarial value (as determined under the Retirement
Plan) of pension credits that would have been earned
through the end of the Severance Period, without regard
to vesting, with any such payment to be made within 90
days of the end of the Severance Period.
5. Your participation in The Reader's Digest Employees
Profit-Sharing Plan and the Profit -Sharing Benefit
Restoration Plan of The Reader's Digest Association,
Inc. (the "Profit-Sharing Plans") ceases upon your
termination of employment with the Company. However,
you shall receive cash payments equal to the amounts
that would have been contributed to your account had
your employment with the Company continued for the
Severance Period, with payments to be made to you by
the Company at the time any contributions have been
made for participants in the Profit-Sharing Plans. In
addition, the Severance Period shall be considered to
be additional Credited Service for purposes of your
vesting in any amounts previously contributed to your
account under the Profit-Sharing Plans.
6. Any benefits payable under this Agreement shall be
reduced by the amount of any benefits paid under The
Reader's Digest Association, Inc. Severance Plan for
Senior Management or The Reader's Digest Association,
Inc. Income Continuation Plan for Senior Management.
7. The payment of any amounts or benefits under this
Agreement is expressly conditioned on the receipt by
the Company from you of a duly executed General Waiver
and Release of Claims in the form specified under the
Severance Plan, the repayment by you of any outstanding
advances or loans due the Company and the return by you
of all Company property.
8. Any reference to a specific plan in this Agreement
shall be deemed to include any similar plan or program
of the Company then in effect that is the predecessor
of, the successor to, or the replacement for, such
specific plan.
9. The Company may withhold from any benefits payable
under this Agreement all federal, state, local or other
applicable taxes as shall be required pursuant to any
law or governmental regulation or ruling.
10. In case of your death while any amounts are still
payable to you under this Agreement, the Company shall
pay all such amounts to your designated beneficiary or,
if none has been designated, to your estate as if your
employment had continued until the end of the Severance
Period.
11. The Company shall indemnify you and hold you harmless
from any and all liabilities, losses, costs or damages,
including defense costs and expenses (including,
without limitation, fees and disbursements of counsel
incurred by you in any action or proceeding between the
parties to this Agreement or between you and any third
party or otherwise) in connection with all claims,
suits or proceeding relating to or arising from a
breach or alleged breach of this Agreement by the
Company.
12. You acknowledge that (i) prior to executing this
Agreement, you had an opportunity to consult with an
attorney of your choosing and review this Agreement
with such counsel, (ii) you are executing this
Agreement knowingly and voluntarily and (iii) you
understand all of the terms set forth herein.
13. In the event the Company terminates your employment for
Cause and you dispute the Company's right to do so or
you claim that you are entitled to terminate your
employment for Good Reason and the Company disputes
your right to do so, a mediator acceptable to you and
the Company will be appointed within 10 days to assist
in reaching a mutually satisfactory resolution, but
will have no authority to issue a binding decision.
Such mediation must be concluded within 60 days of the
date of termination or claim to termination for Good
Reason. You agree that you will not institute any
legal proceeding relating to the matter until the
conclusion of such mediation. Should such mediation
fail to reach an acceptable conclusion and you are
successful in any litigation or settlement that issues
from such dispute, you shall be entitled to receive
from the Company all of the expenses incurred by you in
connection with any such dispute, including reasonable
attorney's fees.
14. Acts Detrimental to the Company
14.1 You agree that you will not do any of the following
during the Severance Period:
14.1.1 commit any criminal act against the Company
or any act that would constitute "Cause;"
14.1.2 disclose any information likely to be
regarded as confidential and relating to the
Company's business;
14.1.3 solicit the Company's employees to work for a
competitor of the Company; or
14.1.4 perform any act detrimental to the Company or
its employees, including, but not limited to,
disparaging the Company, its senior
management or its products.
14.2 You agree that any breach or threatened breach of
Section 14.1 shall entitle the Company to apply for and
to obtain injunctive relief, which shall be in addition
to any and all other rights and remedies available to
the company at law or in equity.
14.3 All of your rights and benefits under this Agreement
shall cease upon any breach by you of Section 14.1 of
this Agreement.
15. Miscellaneous
15.1 Notices and other communications provided for herein
shall be in writing and shall be effective upon
delivery addressed as follows:
if to the Company:
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: Senior Vice President, Human Resources
with a copy to
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: General Counsel
or if to you, at the address set forth above,
or to such other address as to which either party shall
give notice in accordance with the foregoing.
15.2 This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective
successors and assigns; provided, however, that this
Agreement may not be assigned by either party without
the consent of the other party.
15.3 Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating
the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any
other jurisdiction.
15.4 This Agreement constitutes the entire understanding of
the parties hereto with respect to the subject matter
hereof and supersedes any prior agreements, written or
oral, with respect thereto.
15.5 This Agreement may be amended or modified only by a
written agreement duly executed by both of the parties
hereto.
15.6 This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York
applicable to contracts executed in and to be wholly
performed within that State.
Very truly yours,
The Reader's Digest
Association, Inc.
By
Name: Joseph M. Grecky
Joseph M. Grecky
Title: Senior Vice President,
Human Resources
Agreed to and accepted as of 4/15/96:
Name: Stephen R. Wilson
Stephen R. Wilson
