SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
240.14a-11(c) or 240.14a-12
The Reader's Digest Association, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Investment Company Act Rule 20a-1(c).
[ ]$500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[ ]Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
1) Title of each class of securities
to which transaction applies:
2) Aggregate number of securities to
which transaction applies:
3) Per unit price or other underlying
value of transaction computed pursuant to Exchange Act
Rule 0-11: (Set forth the amount on which the filing fee
is calculated and state how it was determined:
4) Proposed maximum aggregate value of
transaction:
[ ]Fee paid previously with preliminary materials.
[ ]Check the box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
RD LOGO APPEARS HERE
October 27, 1997
Dear Stockholder:
You are cordially invited to attend the Annual
Meeting of Stockholders of The Reader's Digest
Association, Inc. to be held at 10:00 a.m. on Friday,
December 12, 1997, at the Sheraton Stamford Hotel, One
First Stamford Place, Stamford, Connecticut. The back
cover page of the Proxy Statement contains driving
directions and a map showing how to reach the Sheraton
Stamford Hotel.
The accompanying Notice of Meeting and Proxy
Statement describe the matters to be considered and voted
upon at the Meeting. In addition to consideration of
these matters, there will be a report to stockholders on
the affairs of the Company, and stockholders will have an
opportunity to discuss matters of interest concerning the
Company.
Although only holders of record of the Company's
Class B Voting Common Stock at the close of business on
October 22, 1997 are entitled to vote at the Meeting, we
invite all stockholders of the Company, including the
holders of the Company's Class A Nonvoting Common Stock,
to attend.
If you are entitled to vote at the Meeting, it is
important that your shares be represented, whether or not
you plan to attend the Meeting personally. To ensure that
your vote will be received and counted, please promptly
complete, date and return your proxy in the enclosed
return envelope, whether or not you plan to attend the
meeting in person.
Sincerely yours,
/S/GEORGE V. GRUNE
George V. Grune
Chairman and Chief Executive
Officer
RD LOGO APPEARS HERE
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
The Annual Meeting of Stockholders of The Reader's
Digest Association, Inc. (the "Company") will be held at
the Sheraton Stamford Hotel, One First Stamford Place,
Stamford, Connecticut, , on Friday, December 12, 1997 at
10:00 a.m., New York time, to consider and take action on
the following matters:
(1) election of Directors of the Company;
(2) amendment of the 1994 Key Employee Long
Term Incentive Plan to increase the number of
shares available for awards under that plan;
and
(3) such other business as may properly come
before the Meeting.
Only holders of record of the Company's Class B
Voting Common Stock at the close of business on October
22, 1997 are entitled to notice of, to attend and to vote
at, the Meeting. Holders of the Company's Class A
Nonvoting Common Stock on the record date are also welcome
to attend the Meeting.
By Order of the Board of
Directors:
/S/C.H.R. DUPREE
C.H.R. DuPree
Vice President,
Associate General
Counsel and Acting
Secretary
October 27, 1997
PROXY STATEMENT
GENERAL INFORMATION
Annual Meeting Time and Location
The Annual Meeting of Stockholders of The Reader's Digest
Association, Inc. (the "Company") will be held at the Sheraton
Stamford Hotel, One First Stamford Place, Stamford, Connecticut,
on Friday, December 12, 1997 at 10:00 a.m., New York time. The
back cover page of this Proxy Statement contains driving
directions and a map showing how to reach the Sheraton Stamford
Hotel.
Principal Executive Offices of the Company
The principal mailing address of the executive offices of
the Company is Pleasantville, New York 10570.
Record Date; Securities Entitled to be Voted at the Meeting
The record date for the Meeting is October 22, 1997. Only
shares of the Company's Class B Voting Common Stock (the "Class B
Voting Common Stock") held by holders of record at the close of
business on the record date are entitled to vote at the Meeting.
Each share of Class B Voting Common Stock is entitled to one
vote. On October 22, 1997, 21,716,057 shares of Class B Voting
Common Stock were outstanding.
The Class A Nonvoting Common Stock is not entitled to be
voted at the Meeting. Holders of Class A Nonvoting Common Stock
are receiving this Proxy Statement for information purposes only
and will not receive a proxy card.
Meeting Admittance Procedures
Only stockholders of record on the record date, or their
duly appointed proxy holders (not to exceed one per stockholder),
may attend the Meeting. If you or your proxy holder plans to
attend the Meeting, please return the longer portion of the
enclosed admission card. We will then place your name on an
admission list held at the entrance to the Meeting. Please save
the shorter portion of the admission card. You will have to
present the shorter portion of the admission card to gain
entrance to the Meeting.
If you plan to attend the Meeting and vote your shares in
person, but your shares are held in the name of a broker, trust,
bank or other nominee, you should also bring with you a proxy or
letter from the broker, trustee, bank or nominee confirming that
you beneficially own the shares.
Proxies Solicited by the Board of Directors
This Proxy Statement, and the proxy card that accompanies
the Proxy Statement to the holders of the Class B Voting Common
Stock, are first being sent or given to stockholders on or about
October 27, 1997.
The accompanying proxy card is solicited by the Board of
Directors of the Company. It may be revoked by written notice
given to the Corporate Secretary of the Company at any time
before being voted. Proxies in this form, properly executed,
duly returned to the Company and not revoked, will be voted in
favor of the election of Directors (except to the extent that
authority therefor is withheld) and in favor of any management
proposals in accordance with the instructions in the proxy.
Presence at the meeting does not of itself revoke the proxy.
The Company will bear the cost of the solicitation of
proxies pursuant to this Proxy Statement, including reimbursement
of brokers and other persons holding stock in their names, or in
the names of nominees, at approved rates, for their expenses for
sending proxy material to principals and obtaining their proxies.
The Company has retained Morrow & Co., Inc. to solicit proxies on
behalf of management for an estimated fee of $3,500, plus
reimbursement of reasonable out-of-pocket expenses. In addition,
proxies may be solicited personally, or by mail, telephone or
electronic transmission, by regular employees of the Company
without additional compensation.
Vote Tabulation
Abstentions and "broker non-votes" are counted as present in
determining whether the quorum requirement is satisfied.
Abstentions have the same effect as votes against proposals
presented to stockholders other than election of directors.
"Broker non-votes" would have no effect on any matter considered
at the Annual Meeting because they are not considered "shares
present" for voting purposes. A "broker non-vote" occurs when a
nominee holding shares for a beneficial owner votes on one
proposal, but does not vote on another proposal because the
nominee does not have discretionary voting power and has not
received instructions from the beneficial owner.
As a matter of Company practice, the tabulation of
stockholder votes at the Annual Meeting of Stockholders is to be
made on a confidential basis by independent third parties and
certain employees of the Company involved in the tabulation
process. Each stockholder proxy card, ballot and the votes
specified thereon are to be kept confidential until the final
vote is tabulated, except that disclosure may be made as required
by applicable law, in the case of proxy cards containing a
stockholder comment or question, and in the event of a contested
proxy solicitation.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
Nominees
The Board of Directors currently consists of nine members
who are elected annually to hold office until the next Annual
Meeting or until their successors are duly elected and qualified.
Due to increasing commitments relating to his principal
occupation as Chairman and Chief Executive Officer of The Chase
Manhattan Bank, Walter V. Shipley, who is currently a Director,
has decided not to stand for re-election at the 1997 Annual
Meeting. Consequently, the number of Directors will be eight.
The affirmative vote of a plurality of the votes cast by the
holders of the Class B Voting Common Stock present in person or
represented by proxy and entitled to vote thereon is necessary to
elect a Director. If no contrary indication is made, proxy cards
in the accompanying form are to be voted for the nominees named
below or, in the event any such nominee is not a candidate or is
unable to serve as a Director at the time of the election (which
is not now expected), for any nominee who shall be designated by
the Board of Directors to fill such vacancy. All nominees named
below are incumbent members of the Board of Directors.
Set forth below opposite the name and age of each nominee
are the nominee's present positions and offices with the Company,
the year in which the nominee was first elected a Director of the
Company and the nominee's principal occupations during the past
five years.
Positions and Offices With the Company
Name and Age and
Principal Occupations During the Past
Five Years
George V. Grune (68) Mr. Grune returned to the Company to
serve as Chairman of the Board and Chief
Executive Officer on August 11, 1997,
after having previously served as
Chairman of the Board of the Company
until his retirement in August 1995 and
as Chief Executive Officer until August
1994. Mr. Grune first joined the Company
in 1960 and was a member of the Board of
Directors from 1976 to 1995. Mr. Grune
has also served as Chairman of the DeWitt
Wallace-Reader's Digest Fund, Inc. and
the Lila Wallace-Reader's Digest Fund,
Inc. since July 1987. Mr. Grune is also
a director of Avon Products, Inc., The
Chase Manhattan Corporation, CPC
International, Inc. and Federated
Department Stores, Inc.
Melvin R. Laird (75) Mr. Laird has been a member of the Board
of Directors of the Company since 1990.
He has served as Senior Counsellor for
national and international affairs since
1974 and was elected to the additional
position of Vice President in 1989. Mr.
Laird joined the Company in 1974. Mr.
Laird also serves as a director of IDS
Mutual Fund Group.
Lynne V. Cheney (56) Dr. Cheney joined the Board of Directors
in 1993. She is an author, lecturer and
television commentator with CNN and has
been a senior fellow of the American
Enterprise Institute for Public Policy
Research since January 1993. She served
as Chairman of the National Endowment for
the Humanities from May 1986 to January
1993. Dr. Cheney is also a director of
FPL Group, Inc. (parent of Florida Power
& Light Company), IDS Mutual Fund Group,
Lockheed-Martin Corporation and Union
Pacific Resources Group, Inc.
M. Christine DeVita (47) Ms. DeVita has been a member of the Board
of Directors of the Company since 1993.
She has been President of the DeWitt
Wallace-Reader's Digest Fund, Inc. and
the Lila Wallace-Reader's Digest Fund,
Inc. since June 1989.
James E. Preston (64) Mr. Preston has been a member of the Board
of Directors of the Company since 1994.
He became Chairman of the Board of Avon
Products, Inc. (beauty and related
products) in January 1989 and has been
Chief Executive Officer since 1988,
holding the additional position of
President from 1988 until November 1993.
Mr. Preston also serves on the boards of
directors of Aramark, Inc. and Woolworth
Corporation.
Robert G. Schwartz (69) Mr. Schwartz has been a member of the
Board of Directors of the Company since
1989. He retired in April 1993 as
Chairman of the Board, President and Chief
Executive Officer of Metropolitan Life
Insurance Company, having served in that
position since September 1989. Mr.
Schwartz also serves on the boards of
directors of COMSAT Corporation,
Consolidated Edison Co. of New York, Inc.,
Lone Star Industries, Inc., Lowe's
Companies, Inc., Mobil Corporation and
Potlatch Corporation.
C.J. Silas (65) Mr. Silas has been a member of the Board
of Directors of the Company since 1992.
He retired in May 1994 as Chairman and
Chief Executive Officer of Phillips
Petroleum Company, positions he had held
since 1985. Mr. Silas is also a director
of Halliburton Company.
William J. White (59) Mr. White has been a member of the Board
of Directors of the Company since 1996.
He has been Chairman of the Board of Bell
& Howell Company (information access and
mail processing systems) since 1990 and
served as Chief Executive Officer from
February 1990 to March 1997 and as
President from February 1990 to February
1995. Mr. White is also a director of
Ivex Packaging Corporation and TJ
International, Inc.
Board of Directors and Committees
During the Company's fiscal year ended June 30, 1997, its
Board of Directors held nine meetings. The Board of Directors of
the Company has an Audit Committee, a Compensation & Nominating
Committee and a Finance Committee.
The Audit Committee, which met three times during the 1997
fiscal year, is comprised of Mr. Preston (Chairman), Dr. Cheney,
and Messrs. Schwartz and White. Prior to the November 1996
annual meeting of the Board, the Committee was comprised of Mr.
Shipley (Chairman), Ms. DeVita and Messrs. Preston and Schwartz.
Its functions include recommending annually to the Board of
Directors a firm of independent accountants to audit and review
the Company's books and records and approving the scope of such
firm's audit; reviewing the adequacy of the Company's internal
controls and auditing procedures; reviewing the appropriateness
of and effect of changes in the Company's accounting principles
and auditing procedures; reviewing the Company's ethics policies
and procedures; and reviewing, approving and recommending to the
Board the Company's annual financial statements.
The Compensation & Nominating Committee, which met five
times during the last fiscal year, consists of Mr. Silas
(Chairman), Dr. Cheney and Messrs. Schwartz and Shipley. During
fiscal 1997, William G. Bowen, a former Director of the Company,
was a member and Chairman of the Committee. Mr. Silas became
Chairman of the Committee in August 1997 and Mr. Schwartz joined
the Committee in October 1997. The Committee's functions include
administering certain employee benefit plans; recommending the
amount and form of any contribution to The Reader's Digest
Employees Profit-Sharing Plan; reviewing the compensation levels
and programs for officers and key personnel and determining
incentive compensation for employees of the Company and its
subsidiaries; and reviewing and recommending candidates and
nominees for election to the Board of Directors.
The Finance Committee, which met twice during the 1997
fiscal year, is comprised of Ms. DeVita (Chairman) and Messrs.
Laird, Preston and Schwartz. Prior to the 1996 annual meeting of
the Board, the Committee was comprised of Messrs. Silas
(Chairman), Laird, Preston and Schwartz. The Finance Committee's
functions include overseeing the financial affairs of the
Company, such as the Company's investment policies and programs
and those of its employee benefit plans; and advising the Board
with respect to corporate financial policies and procedures,
dividend policy, financing plans and budgets, foreign exchange
management, tax planning and insurance coverage.
All members of the Board attended at least 75% of the
aggregate of (1) the total number of meetings of the Board held
during the period in the 1997 fiscal year that he or she was a
Director and (2) the total number of meeting held by all
committees of the Board on which he or she served during the
period in the fiscal 1997 year that he or she served, except Mr.
Shipley, who attended 73% of such meetings.
Each Director who is not an officer or employee of the
Company or of one of its subsidiaries receives an annual retainer
of $32,000 each fiscal year for services as a Director. In
addition, such Directors receive a fee of $1,000 for each Board
or Committee meeting attended in person or by telephone ($1,500
for the Chairman of the Committee) and are reimbursed for their
reasonable expenses of attending such meetings and otherwise in
connection with their duties as Directors. Each such Director
who serves for more than five years will, upon retirement from
the Board, continue to receive annually compensation in the
amount of the Director's retainer in effect at the time of
retirement.
As of October 1, 1996, the Directors' Phantom Stock Option
Plan provides for the grant to each non-employee Director of
1,000 phantom stock options relating to the Company's Class A
Nonvoting Common Stock annually on the date of the Company's
Annual Meeting of Stockholders. Under the terms of the plan, the
options are granted at the fair market value of the Class A
Nonvoting Common Stock on the date of grant, have a term of 10
years and vest with respect to 25% of the total number of shares
covered thereby on each successive anniversary of the date of
grant. The options also vest when the Director ceases to be a
member of the Board.
Under the Deferred Compensation Plan for Non-Employee
Directors of The Reader's Digest Association, Inc., non-employee
Directors are eligible to defer payment of 50%, 75% or 100% of
their annual retainer for certain established deferral periods.
Deferred annual retainers are credited to an unfunded account for
each participant, on which interest accrues at a rate determined
by a committee comprised of employee Directors. Payment of the
deferred annual retainer will be made, at the election of the
participant, in a lump sum or in annual installments of from one
to 10 years.
EQUITY SECURITY OWNERSHIP
Principal Stockholders
The following table shows, based on information reported to
the Company by or on behalf of such persons, the ownership, as of
October 22, 1997, of the Company's voting securities by the only
persons known to the Company to be the beneficial owners of more
than five percent of the Class B Voting Common Stock, the only
class of voting securities of the Company outstanding:
Amount and
Name and address of beneficial nature Percent of
owner of beneficial class
ownership
DeWitt Wallace-Reader's Digest 7,750,000 35.69%
Fund, Inc. shares
Two Park Avenue (sole voting
New York, NY 10016 (1) and
investment
power)
Lila Wallace-Reader's Digest Fund, 7,750,000 35.69%
Inc. shares
Two Park Avenue (sole voting
New York, NY 10016 (1) and
investment
power)
State Street Bank and Trust 1,716,057 7.90%
Company, shares
as trustee of The Reader's Digest (shared voting
Employees and
Profit-Sharing Plan (2) investment
power)
___________
(1) As of October 22, 1997, the DeWitt Wallace-Reader's Digest
Fund, Inc. also owned 6,117,240 shares of Class A Nonvoting
Common Stock, which, together with its holding of Class B
Voting Common Stock, represented 13.04% of the total
outstanding common stock of the Company. The Lila Wallace-
Reader's Digest Fund, Inc. also owned 2,439,558 shares of
Class A Nonvoting Common Stock, which, together with its
holding of Class B Voting Common Stock, represented 9.58% of
the total outstanding common stock of the Company.
(2) State Street Bank and Trust Company ("State Street") is
trustee of the Trust created by the Trust Agreement amended
and restated as of July 1, 1992 between The Reader's Digest
Association, Inc. and State Street, as trustee, relating to
The Reader's Digest Employees Profit-Sharing Plan (the "Profit-
Sharing Plan). According to the Schedule 13G filed by State
Street in such capacity and received by the Company, State
Street may be deemed to have shared voting and shared
dispositive power over the shares listed, but has disclaimed
beneficial ownership of all such shares.
Each of the DeWitt Wallace-Reader's Digest Fund, Inc. and
the Lila Wallace-Reader's Digest Fund, Inc. (collectively, the
"Funds") has five members and a board consisting of five
directors. Ms. DeVita and Messrs. Grune, Shipley and Silas, who
are Directors of the Company, are also members and directors of
each of the Funds.
It has been the Company's objective since fiscal 1990 that
the Company's employee benefit plans, including the Profit-
Sharing Plan would hold up to 20% of the Class B Voting Common
Stock, or approximately 4% of the equity in common stock of the
Company, by the end of fiscal 1999. As of October 22, 1997,
approximately 7.90% of the outstanding Class B Voting Common
Stock is held by the Profit-Sharing Plan, which is the only
employee benefit plan that holds such stock.
In order to avoid the imposition of excise taxes, commencing
in the year 2000 the Funds together may not own more than 50% of
the voting stock or value of the Company. Accordingly, the Funds
must reduce their aggregate holdings of Class B Voting Common
Stock to 50% by the year 2000. The Funds presently own
approximately 71% of the outstanding Class B Voting Common Stock.
The Funds will be required to dispose of between 3-to-4.5 million
shares of Class B Voting Common Stock by the year 2000 (depending
on the amount of Class B Voting Common Stock outstanding,
including the amount held by the Company's employee benefit
plans), in order to avoid the imposition of excise taxes. No
determination has been made at this time as to the manner in
which, or the time during which, further reductions in ownership
of Class B Voting Common Stock will be effected. The Funds
intend to retain 50% of the Class B Voting Common Stock as long-
term investors.
Directors, Nominees and Executive Officers
The following table shows, as to the current Directors and
nominees individually, the Named Executive Officers (as listed in
the Summary Compensation Table) and the current Directors and
executive officers of the Company as a group, the equity
securities of the Company that were beneficially owned by them as
of October 22, 1997 (except as otherwise noted below).
Shares of
Class A Nonvoting
Name of beneficial owner(1)(2) Common Stock
George V. Grune 190,100(3)
Melvin R. Laird 5,000(4)
Lynne V. Cheney 1,180
M. Christine DeVita 1,000
James E. Preston 2,000
Robert G. Schwartz 5,000
Walter V. Shipley 3,000
C.J. Silas 1,000
William J. White 2,000
Martin J. Pearson 39,650 (5)
James P. Schadt 104,570 (5)
Paul A. Soden 19,788 (5)
Stephen R. Wilson 39,788 (5)
All current Directors, nominees
and executive 383,726(3)(4)(5)
officers as a group (17 persons)
(Footnotes on following page)
(Footnotes to table on preceding page)
______________
(1) "Beneficial ownership" has been determined in accordance
with rule 13d-3 under the Securities Exchange Act of 1934.
Each Director, nominee or officer had sole voting and
investment power over the shares shown, except as noted below.
Each Director, nominee or Named Executive Officer
individually, and the Directors and executive officers as a
group, beneficially owned less than one percent of the total
issued and outstanding shares of Class A Nonvoting Common
Stock.
(2) Other than as indicated in footnote 5 below, no Director,
nominee or officer holds any shares of Class B Voting Common
Stock or any shares of preferred stock of the Company.
Messrs. Grune, Shipley and Silas and Ms. DeVita are members
and directors of the Funds, which together beneficially own
10.11% of the Class A Nonvoting Common Stock and 71.38% of the
outstanding Class B Voting Common Stock. See "Principal
Stockholders."
(3) Includes 25,000 shares owned by the Grune Family Foundation,
as to which Mr. Grune disclaims beneficial ownership.
(4) Does not include 10,000 shares previously beneficially owned
by Mr. Laird that have been placed in trusts for the benefit
of Mr. Laird's grandchildren.
(5) Information is stated as of June 30, 1997 for Mr. Pearson,
as of July 31, 1997 for Mr. Schadt and as of August 31, 1997
for Messrs. Soden and Wilson. See "Executive Compensation--
Recent Management Changes." Includes shares of Class A
Nonvoting Common Stock underlying presently exercisable stock
options as follows: Mr. Pearson, 39,650; Mr. Soden, 13,750;
Mr. Wilson, 23,750; and all Directors, nominees and executive
officers, 153,875. Does not include 37,002 shares of Class B
Voting Common Stock over which members of the group have
voting authority as a result of their participation in the
Profit-Sharing Plan.
EXECUTIVE COMPENSATION
Recent Management Changes
On August 11, 1997, George V. Grune replaced James P. Schadt
as Chairman of the Board, Chief Executive Officer and a Director
of the Company. On September 5, 1997, Stephen R. Wilson,
Executive Vice President and Chief Financial Officer and Paul A.
Soden, Senior Vice President, General Counsel and Secretary of
the Company, left the Company. On June 30, 1997, Martin J.
Pearson, President, Reader's Digest Europe and a Vice President
of the Company, left the Company. See "Severance Arrangements,"
below.
Summary Compensation Table
The following table sets forth information for each of the
fiscal years ended June 30, 1997, 1996 and 1995 concerning the
compensation of the individuals whose compensation is required to
be disclosed pursuant to Securities and Exchange Commission
regulations (collectively, the "Named Executive Officers").
<TABLE>
<S> <S> <S> <S> <S> <S> <S> <S>
Annual Compensation Long-term compensation
Awards(1) Payouts All
Fiscal Other
Year Restricted Compen-
ended Stock Options/ LTIP sation(2)
Name and Principal Position June30 Salary Bonus Other award SARS # Payouts
<C> <S> <S> <S> <S> <S> <S> <S> <S>
James P. Schadt 1997 $850,000 $0(4) $122,327(5) (6) 0(7) $0 $0
Chairman and Chief Executive 1996 $800,000 $588,327(4) $101,440(5) 122,200(7) $0 $3,500
Officer(3) 1995 $740,866 $713,792(4) $73,584(5) 0(7) $457,452 $7,000
Stephen R. Wilson 1997 $465,000 $0 $68,270(5) 0(7) $0 $360,000(10)
Executive Vice President and Chief 1996 $435,000 $246,000 46,300(7) $0 $343,500(10)
Financial Officer(8) 1995 $114,423 $250,000 $433,125(9) 90,000(7) $0 $307,000(10)
Paul A. Soden 1997 $365,000 $0 6,990(7) $0 $0
Senior Vice President, General 1996 $323,000 $150,000 25,100(7) $0 $3,500
Counsel and Secretary(11) 1995 $127,212 $160,000 50,000(7) $43,958 $0
Martin J. Pearson 1997 $364,000 $0 0(7) $0 $0
President, Reader's Digest Europe 1996 $327,500 $155,000 49,300(7) $0 $3,500
and Vice President (12) 1995 $257,346 $200,000 0(7) $109,330 $7,000
Melvin R. Laird 1997 $340,000 $0 $55,182(5) 0(7) $0 $0
Vice President, and Senior 1996 $318,000 $72,000 $53,858(5) 12,200(7) $0 $3,500
Counsellor 1995 $320,538 $110,000 0(7) $64,090 $7,000
</TABLE>
(1) All awards are made in or with
respect to shares of Class A Nonvoting Common Stock.
(2) Represents amounts contributed by
the Company to The Reader's Digest Employees Profit-Sharing
Plan (the "Profit-Sharing Plan") for the accounts of the Named
Executive Officers except Mr. Wilson (see footnote 10).
(3) Mr. Schadt served as President and
Chief Executive Officer until August 1995, as Chairman,
President and Chief Executive Officer thereafter until
September 1995 and as Chairman and Chief Executive Officer
thereafter until his resignation effective August 11, 1997.
See "Severance Arrangements."
(4) Mr. Schadt's 1996 and 1995 annual
bonuses reflect the fact that a significant portion of his
target annual bonus has been granted as performance-based
restricted stock. In fiscal 1996, Mr. Schadt was awarded
shares of performance-based restricted stock under the 1994
Key Employee Long Term Incentive Plan. 20% of the shares
granted vested on September 15, 1995 and September 15, 1996,
respectively, and an additional 20% will vest on each
successive anniversary of that date, subject to the
satisfaction of Company performance goals. Mr. Schadt's
bonuses include $413,327 for 1996 and $478,792 for 1995,
representing the value of shares of performance-based
restricted stock that vested on September 15, 1996 and
September 15, 1995, respectively, after certification of the
attainment of the Company performance goal relating to fiscal
1996 and 1995. The value of the vested shares reported is
based on the closing market price of the Class A Nonvoting
Common Stock on the NYSE on those respective dates. Because
of the failure to attain the Company performance goal relating
to fiscal 1997, the related 10,269 shares of performance-based
restricted stock were forfeited on September 15, 1997. See
"Report of the Compensation & Nominating Committee."
(5) Includes for Mr. Schadt $65,621 in
1997, $38,063 in 1996 and $31,073 in 1995 for personal use of
corporate transportation and related tax reimbursement.
Includes for Mr. Wilson $61,803 for personal use of corporate
transportation and related tax reimbursement. Includes for
Mr. Laird $21,930 in 1997 and $23,871 in 1996 for insurance
coverage.
(6) As of June 30, 1997, Mr. Schadt held an aggregate of 30,809
shares of restricted stock, valued at $922,344, based on the
closing price of the Class A Nonvoting Common Stock on the
NYSE on that date.
(7)The grants for 1994 represent options or SARs equivalent to
five annual grants. Comparable grants were made to newly
hired executive officers in subsequent years. Consistent with
these multiple-year grants, no options or SARs were awarded to
these individuals in 1995, 1996 or 1997 other than grants in
connection with new employment and promotions and grants of
recovery stock options. See "Stock Options and SARs Granted
in Last Fiscal Year" and "Report of the Compensation &
Nominating Committee."
(8)Mr. Wilson, who joined the Company in April 1995, left the
Company effective September 5, 1997. See "Severance
Arrangements."
(9)Represents 9,000 shares of restricted stock granted in
connection with the commencement of Mr. Wilson's employment.
20% of the shares vest on each successive anniversary of the
date of grant. Mr. Wilson receives dividends on such shares.
The restricted stock shown in the table is valued at the
closing market price of the Class A Nonvoting Common Stock on
the NYSE on the date of grant. As of June 30, 1997, Mr.
Wilson held an aggregate of 5,400 shares of restricted stock,
valued at $161,663, based on the closing price of the Class A
Nonvoting Common Stock on the NYSE on that date. See
"Severance Arrangements."
(10) Includes $360,000, $340,000 and
$300,000 for 1997, 1996 and 1995, respectively, paid in lieu
of a long term incentive payment. Also includes $7,000 for
1995 paid in lieu of a contribution to the Profit-Sharing Plan
and $3,500 for 1996 contributed to the Profit-Sharing Plan for
the account of Mr. Wilson.
(11) Mr. Soden, who joined the Company
in February 1995, left the Company effective September 5,
1997. See "Severance Arrangements."
(12) Mr. Pearson was President, Reader's
Digest Pacific prior to September 1995. Mr. Pearson left the
Company effective June 30, 1997. See "Severance
Arrangements."
Stock Options and SARs Granted in Last Fiscal Year
The following table sets forth information concerning stock
options and stock appreciation rights granted during the fiscal
year ended June 30, 1997 to the Named Executive Officers.
<TABLE>
Potential realizable
Individual grants value at assumed annual
Percent rates of stock price
of total appreciation for options/SAR term(2)
options/ Exercise
Options/ SARs or base
SARs granted price Expira-
granted to em- ($/sh) tion
Name (#)(1) ployees date 0% 5%(3) 10%(4)
in
fiscal
year
<C> <S> <S> <S> <S> <S> <S>
Paul A. Soden 990 0.05% 47.31 9/7/05 $25,819 $63,598
6,000(5) 0.35% 41.31 8/8/05 $155,887 $395,049
All Common -- -- -- -- $2,762,093,775 $6,999,687,930(6)
Stockholders
</TABLE>
(1) All options and SARs are granted
with respect to Class A Nonvoting Common Stock. Except as
noted in footnote 5 below, the options granted are recovery
stock options. Up to 50% of these options become exercisable
at the end of the 1996-1998 and 1997-1999 performance periods
only if the applicable performance goals relating to corporate
earnings growth are met; the balance of the options becomes
exercisable in 2004. See "Report of the Compensation &
Nominating Committee."
(2) The values shown are based on the
assumed hypothetical compound annual appreciation rates of 5%
and 10% prescribed by Securities and Exchange Commission
rules. These hypothetical rates are not intended to forecast
either the future appreciation, if any, of the price of Class
A Nonvoting Common Stock or the values, if any, that may
actually be realized upon such appreciation, and there can be
no assurance that the hypothetical rates will be achieved.
The actual value realized upon exercise of an option or SAR
will be measured by the difference between the price of the
Class A Nonvoting Common Stock and the exercise price on the
date the option or SAR is exercised.
(3) For the values stated in this
column to be realized, the price of the Class A Nonvoting
Common Stock would have to appreciate from $41.31 to $67.29
during the 10-year option term and from $47.31 to $73.39
during the nine-year option/SAR term.
(4) For the values stated in this
column to be realized, the price of the Class A Nonvoting
Common Stock would have to appreciate from $41.31 to $107.15
during the 10-year option term and from $47.31 to $111.55
during the nine-year option/SAR term.
(5) The options consist of awards of
three-year options granted in connection with a promotion.
The options become exercisable as to 8.33%, 25% and 100% on
the first three respective anniversaries of the grant date.
These awards supplement four-year options previously granted
to Mr. Soden.
(6) For "All Common Stockholders," the
potential realizable values have been calculated on the basis
of the same price ($41.31) at which stock options and SARs
were granted to the Named Executive Officers and on the basis
of the total number of shares of Class A Nonvoting Common
Stock and Class B Voting Common Stock outstanding on June 30,
1997. An increase in the price of the Class A Nonvoting
Common Stock will benefit all holders of such stock and all
option holders commensurately.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values
The following table sets forth information concerning stock
options and SARs exercised during the fiscal year ended June 30,
1997 and the fiscal year-end value of unexercised options and
SARs for the Named Executive Officers.
<TABLE>
Number of Value of
unexercised unexercised in-the-
options/SARs at money options/SARs
fiscal year end at fiscal year end
Un- Un-
Shares Exer- exer- Exer- exer-
acquired on Value cise- cise- cise- cise-
exercise realized able able able able
<C> <S> <S> <S> <S> <S> <S>
James P. Schadt -- -- 113,000 269,200 $0 $0
Stephen R. Wilson -- -- 23,750 112,550 $0 $0
Paul A. Soden -- -- 13,750 67,840 $0 $0
Martin J. Pearson -- -- 39,650 87,050 $65,040 $0
Melvin R. Laird 45,000 47,200 $0 $0
</TABLE>
Long-Term Incentive Plans - Awards in Last Fiscal Year
The following table sets forth information concerning long-
term incentive plan ("LTIP") awards during the fiscal year ended
June 30, 1997 to each of the Named Executive Officers.
<TABLE>
Performance
Number of or other
shares, period until Estimated future payouts under
units maturation non-stock price-based plans
or other or Thresh- Target(2) Maximum(2)
Name rights(1) payout old(2)
<C> <S> <S> <S> <S> <S>
James P. Schadt 1,028,000 7/1/96 - $257,000 $1,028,000 $1,542,000
6/30/99
Stephen R. Wilson 374,000 7/1/96 - $93,500 $374,000 $561,000
6/30/99
Paul A. Soden 250,000 7/1/96 - $62,500 $250,000 $375,000
6/30/99
Martin J. Pearson 305,000 7/1/96 - $76,250 $305,000 $457,500
6/30/99
Melvin R. Laird 98,000 7/1/96 - $24,500 $98,000 $147,000
6/30/99
</TABLE>
(Footnotes on following page)
(Footnotes to table on preceding page)
(1) Each unit entitles the participant to one dollar at the end
of the performance cycle, if performance target is met.
Payment of performance units may be made, as determined by the
Compensation & Nominating Committee, in any combination of
cash and shares of Class A Nonvoting Common Stock valued at
their fair market value on the date of payment.
(2) Threshold, target and maximum amounts are based on the
Company's earnings during the performance period.
Retirement Plans
The following table shows the estimated annual retirement
benefit to employees in specified compensation and years of
service classifications under The Reader's Digest Association,
Inc. Retirement Plan (the "Qualified Retirement Plan") based on
the retirement formula effective July 1, 1992. Amounts
calculated under the retirement formula which exceed the limits
under the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), will be paid under the Excess Benefit
Retirement Plan of The Reader's Digest Association, Inc. (the
"Excess Benefit Plan") from the Company's assets and are included
in the amounts shown below.
<TABLE>
Highest Estimated Annual Retirement Benefit for
Consecutive Representative Years of Credited Service
Three Year
Average
Compensation 15 20 25 30 35
<C> <S> <S> <S> <S> <S>
$ 300,000 91,722 122,296 152,870 183,444 214,018
$ 400,000 123,008 164,010 205,013 246,016 287,018
$ 500,000 154,294 205,725 257,156 308,587 360,018
$ 600,000 185,579 247,439 309,299 371,159 433,018
$ 700,000 216,865 289,153 361,442 433,730 506,018
$ 800,000 248,151 330,868 413,585 496,301 579,018
$ 900,000 279,436 372,582 465,727 558,873 652,018
$1,000,000 310,722 414,296 517,870 621,444 725,018
Compensation covered by the Qualified Retirement Plan is
based on salary. At June 30, 1997, the Named Executive Officers
were credited with approximately the following years of service
under the Qualified Retirement Plan: Mr. Schadt, 6; Mr. Wilson,
2; Mr. Soden, 2; Mr. Pearson, 24; and Mr. Laird, 23. The amounts
shown in the table reflect the effect of social security
integration. The estimated amounts in the table are based on the
assumption that payments under the Qualified Retirement Plan and
the Excess Benefit Plan will commence upon retirement at age 65,
that the Qualified Retirement Plan and the Excess Benefit Plan
will continue in force in their present form and that benefits
will be paid in the form of a single life annuity. Messrs.
Schadt, Wilson, Soden and Pearson are no longer employed by the
Company. See "Severance Arrangements."
Effective July 1, 1992, the Company adopted The Reader's
Digest Executive Retirement Plan (the "1992 Executive Retirement
Plan"). Benefits under the 1992 Executive Retirement Plan are
based on compensation (consisting of salary and bonus) and years
of service. Benefits are reduced by benefits payable under the
Qualified Retirement Plan, the Excess Benefit Retirement Plan and
certain other Company-provided retirement benefits. Because of
the nature of the interdependency among the 1992 Executive
Retirement Plan, the Qualified Retirement Plan and the Excess
Benefit Plan, it is not possible to present estimated benefits
under the 1992 Executive Retirement Plan in tabular format.
Benefits payable under the 1992 Executive Retirement Plan, after
the reductions for benefits payable under other plans, are
currently estimated at $138,634 for Mr. Wilson, $112,815 for Mr.
Soden, $42,597 for Mr. Pearson; and $56,092 for Mr. Laird. These
amounts are based on the assumption that payment under the 1992
Executive Retirement Plan will commence upon retirement at Mr.
Laird's current age of 75 (because he is currently eligible for
retirement), that the 1992 Executive Retirement Plan will
continue in force in its present form and that benefits will be
paid in the form of a single life annuity. Mr. Schadt's
retirement benefits are discussed below under "Severance
Arrangements."
The Company is a party to supplemental retirement benefit
agreements with certain key employees, including Messrs. Schadt
and Pearson, pursuant to which they may defer currently a certain
amount of their income to fund supplemental retirement benefits.
The Company has agreed to pay death benefits under such
agreements regardless of whether the supplemental retirement
benefits have yet been fully funded by the employees.
Severance Arrangements
Under The Reader's Digest Association, Inc. Severance Plan
for Senior Management (the "Severance Plan"), senior officers and
key executives of the Company, including the Named Executive
Officers, whose employment is terminated by the Company other
than for "cause" (as defined in the Severance Plan) or for
reasons of death, disability or sale by the Company of the
division which employs the employee (provided a comparable
position is offered to the employee by the new owner), will be
entitled to receive severance payments computed at a rate of one
month of base annual salary at the time of termination for each
year of service, but in any event, no less than 12 and no more
than 24 months' pay. A participant will also be entitled to
receive certain additional benefits, including a supplemental
payment in an amount equal to the difference between the
participant's monthly retirement benefits under the Qualified
Retirement Plan, the Excess Benefit Plan and the 1992 Executive
Retirement Plan and the amounts that would have been payable if
the participant's credited service under such plans had included
the number of months of severance payments made under the
Severance Plan. In addition, a participant will be entitled to
receive credited service equal to the severance period for
purposes of certain welfare benefits.
The Company has entered into termination agreements with
Messrs. Schadt, Wilson, Soden and Pearson and certain other key
employees of the Company each of which provides generally that,
if the employee's employment is terminated by the employee for
"good reason" or by the Company except for "cause" (as such terms
are defined in the agreement), the employee will be entitled to
receive for a severance period of two years from termination (1)
bi-weekly severance payments at the rate of the employee's
highest annual base salary within 12 months plus the higher of
the highest annual bonus within three years of termination or the
current annual bonus target and (2) benefits equivalent to
continued participation in the Profit-Sharing Plan and all
welfare employee benefit plans. Each agreement also provides for
the inclusion of the severance period for purposes of credited
service and age under the Qualified Retirement Plan, the Excess
Benefit Retirement Plan and the 1992 Executive Retirement Plan
and for the continued vesting of stock option, stock appreciation
rights, restricted stock, performance units and other awards
under the Company's long-term incentive plans during the
severance period, exercisability of options and stock
appreciation rights thereafter consistent with termination by
mutual agreement or retirement, and prorated performance unit
payments (to the extent performance goals are met) based on
service through the end of the severance period. Benefits paid
under the Severance Plan and under the Income Continuation Plan
discussed below will be credited against benefits payable under
each agreement.
In connection with the September 5, 1997 departure of
Messrs. Wilson and Soden and the June 30, 1997 departure of Mr.
Pearson, each is entitled to receive benefits pursuant to the
above-referenced agreement between him and the Company, subject
to receipt of Company-provided releases. A separate agreement
was entered into between the Company and Mr. Pearson as of August
1, 1997 that provides for additional benefits. The benefits
under those agreements include bi-weekly severance payments over
a two-year period totaling $1,452,000 for Mr. Wilson, $1,098,000
for Mr. Soden and $1,188,000 for Mr. Pearson.
In addition, the Company entered into an agreement with Mr.
Schadt on June 18, 1997 providing for an employment term until
September 30, 2000 at an annual base salary at least equal to Mr.
Schadt's then current annual base salary and continuance of
participation in the Company's employee benefit plans and
programs on at least substantially the same basis as his then
current participation. Further, the severance period for Mr.
Schadt under the previously described termination agreement was
to continue until September 30, 2000.
In connection with Mr. Schadt's retirement as the Company's
Chairman of the Board and Chief Executive Officer on August 11,
1997, he entered into additional agreements with the Company that
provide him with those rights and benefits that he would have
been entitled to under the terms of the original termination
agreement, as amended by the June 18, 1997 agreement, as well as
certain additional benefits. The rights and benefits include (i)
monthly payments totaling $1,563,792 per year from August 11,
1997 through September 30, 2000; (ii) continued participation in
the Company's healthcare program, reimbursement account plan,
long-term disability plan and life insurance program until
September 30, 2000; (iii) a 100 percent joint and survivor life
annuity with his spouse commencing at age 62 in the amount of
$300,000 per year, inclusive of benefits under the Qualified
Retirement Plan and Excess Benefit Plan, and a supplemental
retirement benefit of $53,442 per year for 15 years commencing at
age 65; (iv) cash payments equal to amounts that would have been
contributed had he been a participant in the Profit-Sharing Plan
during the severance period; (iv) continued vesting of 210,000
stock appreciation rights and continued vesting of 122,200 stock
options, subject to achieving certain performance goals, with
exercisability of all vested outstanding options for three years
following September 30, 2000; (vi) amounts specified under
performance units for three-year periods ended June 30, 1998 and
June 30, 1999, but only to the extent the performance goals are
met; and (vii) continued vesting of 20,540 shares of performance-
based restricted stock, but only to the extent the performance
goals are met. In addition, stock options, performance units and
performance-based restricted stock described in items (v), (vi)
and (vii) vest upon a change of control in accordance with the
terms of the grants. The agreements also provide Mr. Schadt with
reimbursement of certain expenses equal to $100,000, paintings
with a value up to $10,000, matching charitable contributions of
$60,000 and reasonable legal fees. The agreements also contain
certain other provision regarding non-competition, non-disclosure
of proprietary information and prohibition of performance of acts
detrimental to the Company, its senior management or its
products.
Income Continuation Plan
Under The Reader's Digest Association, Inc. Income
Continuation Plan for Senior Management (the "Income Continuation
Plan"), each of certain officers and key employees of the
Company, including the Named Executive Officers, whose employment
is terminated involuntarily (other than for cause, disability,
retirement or death) within 24 months following a change in
control of the Company, or who terminates employment within 90
days following constructive termination and within 24 months
following a change in control of the Company, will be entitled to
receive a payment of three full years' base annual salary in
effect immediately prior to termination or, if higher,
immediately prior to the change in control. Any benefits payable
under the Income Continuation Plan will be reduced by any
payments made under the Severance Plan and any monthly retirement
benefit actually paid under the Qualified Retirement Plan. A
participant will also be entitled to certain additional benefits,
including a supplemental payment equal to the difference between
the participant's monthly retirement benefits under the Qualified
Retirement Plan, the Excess Benefit Plan and the 1992 Executive
Retirement Plan and the amounts that would have been payable if
the participant's credited service under such plans had included
the number of months of benefit payments under the Income
Continuation Plan (reduced by any months of benefit under the
Severance Plan). In addition, the participant will be entitled
to receive a lump-sum payment equal to three times the average of
the three highest of the five preceding annual cash bonuses
awarded to the participant. Benefits under the Income
Continuation Plan will be reduced to the extent necessary to
prevent any portion of such benefits from being considered
"excess parachute payments" under Section 280G of the Internal
Revenue Code, when considered alone or in combination with any
payments otherwise payable to the participant upon a change in
control.
Stock options, SARs, performance units, restricted stock and
other awards under The Reader's Digest Association, Inc. Key
Employee Long Term Incentive Plans also generally become
immediately vested upon a change in control.
Miscellaneous
In connection with Mr. Pearson's relocation to the United
States, the Company guaranteed a bank residential financing loan
to Mr. Pearson in the amount of $304,000, which was outstanding
during fiscal 1997.
REPORT OF THE COMPENSATION & NOMINATING COMMITTEE
Executive Compensation Philosophy
The Company's executive compensation program is designed to
offer market competitive compensation opportunities which are
tied to individual, financial and stock performance. The
purposes of the program are to:
Continue to retain and attract high caliber executive talent
critical to the success of the Company.
Direct executive attention on performance measures that are
important to stockholders.
Reward executives for performance improvement in financial
measures which lead to increases
in the return to stockholders.
Promote stock ownership to foster commonality of interests
between executives and stockholders.
The Company's executive compensation philosophy is to
provide compensation at levels competitive with those provided in
the markets in which the Company competes for business and for
executive resources. The Company is committed to placing a
majority of total compensation at risk by linking incentives to
stock performance and to the achievement of operational and
strategic goals including earnings per share growth, operating
profit growth and customer growth. In addition, the program
attempts to recognize and reward exceptional individual
contributions.
The Company's incentive compensation programs for executive
officers are designed to reward participants on the basis of
individual and corporate performance that benefit the Company and
its stockholders. The Committee believes that it is desirable
for executive compensation to be deductible for federal income
tax purposes, but only to the extent that achieving deductibility
is practicable, consistent with the Company's overall
compensation objectives, and in the best interests of the Company
and its stockholders. Accordingly, although the Committee
retains discretion to provide compensation programs intended to
achieve corporate goals regardless of tax deductibility, the
Committee may from time to time take appropriate action intended
to qualify compensation as "performance based" for tax
deductibility as within the meaning of Section 162(m) of the
Internal Revenue Code or action that results in the
disqualification of compensation.
Compensation Components
The executive compensation program for fiscal 1997 consists
of three elements: base salary, annual incentive bonus and long-
term incentive compensation. The Company annually reports to the
Compensation & Nominating Committee (the "Committee") on the
competitiveness of the level and structure of total annual
executive compensation, specifically, as it compares to that of a
selected group of peer companies with which the Company competes
for business and for executive talent. These peer companies
include but are not limited to those media and publishing
companies reflected in the performance graph appearing elsewhere
in this Proxy Statement, and in addition, selected consumer
product and direct marketing companies. The Company regularly
receives advice from an independent compensation consultant in
structuring compensation plans and setting compensation levels.
Periodically, the Committee meets with an outside consultant to
assess the competitiveness of the executive compensation program
and its effectiveness in linking pay to total stockholder return.
Base salaries are targeted at the 50th percentile of
competitive market data. Salary opportunities are set by annual
comparison to external rates of pay for comparable positions
within competitive companies. Annually, the Committee reviews
and approves individual salary adjustments for corporate officers
and senior group executives earning $200,000 or more based on
individual performance, and changes in responsibility, as well as
general movement in external salary levels. Decisions regarding
salary adjustments for executive officers and senior management
are consistent with the salary increase guidelines in effect for
all employees, which are established each year by the Company and
which are consistent with competitive salary management
practices.
In fiscal 1997, the Committee approved salary increases for
executive officers which were in accordance with the Company's
fiscal 1997 salary increase guidelines established for all
employees.
Annual incentive bonus targets are set at the 50th
percentile of competitive practice of peer companies. Annual
bonus targets vary by position and level of responsibility. The
purpose of these awards is to deliver competitive compensation
for the attainment of Company financial objectives and individual
performance goals, which the Committee believes are primary
determinants of share price over time. The Committee establishes
an annual incentive pool equal to the sum of all individual
target awards. The amount available for the purpose of funding
the incentive pool is determined after consideration of the
annual performance of the Company and individual business units
measured against the operating profit goal (on a currency neutral
basis) and the customer growth goal established by the Committee
at the start of the fiscal year. If the Company and individual
business units achieve or exceed the goals, the incentive pool
increases up to 130% of the sum of the individual target awards.
If Company and individual business unit performance falls below a
performance threshold, no pool of funds is available for awards.
Once the overall pool is determined, individual awards are
decided based upon a review of individual performance against
annual goals which include financial, operational and strategic
management objectives. Individual awards may range from 0% -
150% of targeted levels and are made in the sole discretion of
the Committee. After reviewing the Company's overall performance
against goals established for fiscal 1997, the Committee
determined that Company performance was below appropriate levels
to support payment of annual incentive awards to executive
officers.
Long-term incentive compensation consists of an annual grant
of stock options or stock appreciation rights, and performance
units which are typically based on earnings-per-share growth over
a three-year performance cycle. The amounts of individual grants
are based on position and level of responsibility. Participation
in the long-term incentive program is limited to those executives
who are responsible for implementing operational plans designed
to achieve the Company's long-term strategic objectives as
approved by the Board of Directors. Guidelines for annual grants
are set by regular comparison to general industry long-term
incentive competitive practices. The purpose of the long-term
incentive component is to tie compensation to the long-term
financial performance of the Company and to align the long-term
interests of executives with those of stockholders by providing
executives with an equity interest in the Company. The long-term
incentive compensation program is designed to deliver to
executives the majority of long-term incentive through stock
options or stock appreciation rights in order to closely align
the executive's interests with stockholder interests. The
combination of stock options or stock appreciation rights and
performance units is designed to deliver long-term incentive
compensation approximately equal to the median long-term
incentive compensation levels at peer companies, with an
opportunity to earn above market long-term compensation when
superior financial performance is achieved.
Stock option and stock appreciation rights grant guidelines
were established in 1990 at the time of the Company's initial
public offering, and were based on a review of competitive long-
term incentive values and were recommended by an independent
compensation consultant. The number of stock options or stock
appreciation rights awarded to executives varies by position and
level of responsibility. Neither the number nor the value of
stock options or stock appreciation rights held by an executive
is considered when determining individual awards. The guidelines
for grants to executive officers are reviewed annually by an
independent compensation consultant. In fiscal 1997, following a
competitive review by the Company's outside compensation
consultants, eligibility criteria for stock option grants was
extended to include middle level managerial positions, and
adjustments were made to the annual grant guidelines for some
levels in order for the Company to continue to maintain its long-
term competitive position. Additionally, in an effort to more
closely link compensation and performance, stock options are now
awarded based on individual performance.
Three years ago, executive officers received the equivalent
of five annual stock option/stock appreciation rights grants,
intended to replace annual grants for a five-year period. Since
then, individuals who were hired as or promoted to the level of
executive officer were awarded first-time or incremental four-
year or three-year stock option grants, in lieu of subsequent
annual grants. These subsequent multi-year grants to new hires
and recently promoted executives are designed to conclude vesting
concurrently with the special five-year grant awarded two years
ago. The fiscal 1997 stock option or stock appreciation rights
grant guidelines for executive officers continue to be consistent
with the fixed share grant guidelines established in 1991.
The performance unit program generally pays cash awards at
the end of three-year performance cycles, with a new cycle
beginning each year. Performance targets are based on cumulative
earnings-per-share growth (determined before the effect of
accounting changes and special or extraordinary charges). Cash
awards range from 0% - 150% of individual target awards, and are
based on earnings-per-share growth (determined before the effect
of accounting changes and special or extraordinary charges)
relative to the growth goal established by the Committee at the
start of the cycle. If cumulative growth is below a
predetermined performance threshold, then no awards are paid.
If the targeted growth is achieved, then 100% of the target
awards are paid. Depending upon the extent to which performance
exceeds goal, up to 150% of the target awards may be paid.
The Committee recognized that the Company had commenced in
fiscal 1995 a period of strategically restaging the Company for
sustainable long-term growth and that this strategic restaging
was expected to continue throughout fiscal 1996 and 1997. The
Committee determined that the financial performance projected
during the restaging would result in no performance unit awards
being earned for the three-year performance cycles ending in
fiscal 1996 and 1997 under the long-term incentive plan.
Accordingly, in order to retain and motivate senior executives
during the restaging period, the Committee approved the award of
recovery stock options that were intended to replace the long-
term incentive opportunity that was foregone in the restaging
decision. The options were granted at full market value and will
not vest until 2004 unless the financial goals for the
performance unit plan cycles ending in fiscal 1998 and 1999 are
met, thereby resulting in early vesting of part or all of the
options. Those options are intended to provide incentives to
accomplish the goals of the restaging of the Company and link the
value of the incentive directly to the enhancement of shareholder
value through stock price appreciation.
During fiscal 1997, the Committee reviewed the financial
projections associated with the restaging and re-examined the
performance targets for the long-term incentive cycle ending with
fiscal 1998, which determine the earning of performance units for
that cycle and the potential early vesting of up to one-half of
the recovery stock option grant. To maintain some of the
intended incentive value under the existing programs and conform
the performance standards to the strategic goals determined
during the early stages of the implementation of the Company's
growth strategy, the Committee approved restating the applicable
performance targets. Additionally, the Committee established the
performance targets for the three-year performance period ending
fiscal 1999 applicable to the earning of performance units and
the potential vesting of the remainder of the recovery stock
option grant.
For fiscal 1997, executives officers were able to elect to
defer receipt of 20-100% of annual incentive bonuses and
performance unit payments either until January 1 of a designated
year not later than attainment of age 50 or until January 1 after
the year of retirement or other termination of employment.
Deferred amounts earn quarterly interest at the prime rate,
compounded annually.
Fiscal 1997 Chief Executive Officer Compensation
The compensation of the Company's Chief Executive Officer is
based on the same factors as compensation for other executive
officers. In setting the Chief Executive Officer's target annual
compensation, the Committee seeks to be competitive with chief
executive officer compensation in peer companies, and to place at
least 60% of the Chief Executive Officer's compensation at risk
by linking pay to the achievement of the Company's annual and
long-term financial and operating goals and the performance of
the Company's Class A Nonvoting Common Stock.
Mr. Schadt served as Chief Executive Officer of the Company
during fiscal 1997 and until his resignation on August 11, 1997.
See "Executive Compensation--Severance Arrangements." Mr.
Schadt's compensation during fiscal 1997 is described below.
The Committee approved an annual salary increase for Mr.
Schadt which took effect in July 1996. The increase was
consistent with the Company's annual salary increase guidelines,
and the new salary was competitive with salaries paid to chief
executive officers within the Company's competitive peer group.
The Company believes in and promotes employee stock
ownership through a number of savings, investment and
compensation programs currently in place including the Profit-
Sharing Plan, the Employee Stock Purchase Plan and the stock
option program. Within the spirit of the Company's stock
ownership philosophy, the Company determined that Mr. Schadt
would receive part of his annual bonus target, previously paid
entirely in cash, in the form of performance-based restricted
stock. In September 1995, Mr. Schadt received a grant, under the
1994 Key Employee Long Term Incentive Plan, of 51,347 shares of
performance-based restricted stock, which represented a
significant portion of the succeeding five years' worth of annual
bonus targets divided by the fair market value of the Class A
Nonvoting Common Stock on the date of grant. Under the terms of
the performance-based restricted stock, 20% of these shares vest
on September 15 of each year beginning in 1995, contingent on the
Company's achieving the pre-established performance goal, which
is consistent with the performance criteria used for funding the
Company's annual bonus pool. The Committee will certify the
attainment of the performance threshold after each fiscal year as
a condition to the annual vesting of shares. In the event the
Company does not achieve the threshold, the shares due to vest
will be entirely forfeited.
After the end of fiscal 1997, the Committee reviewed the
performance of the Company and determined that the performance
goal for purposes of vesting Mr. Schadt's performance-based
restricted stock was not met. Consequently, the 10,269 shares of
performance-based restricted stock due to vest on September 15,
1997 were forfeited.
The Compensation & Nominating
Committee:
C.J. Silas, Chairman
Lynne V. Cheney
Walter V. Shipley
PERFORMANCE GRAPH
The following graph compares the total return to
stockholders (stock price plus reinvested dividends) on a $100
investment in each of the following: the Company's Class A
Nonvoting Common Stock, the S&P 500 Stock Index and the Dow Jones
Media-Publishing Group Index from June 30, 1992 through June 30,
1997.
Comparison of Cumulative Total Return:
The Reader's Digest Association, Inc.
vs. S&P 500 and Dow Jones Media-Publishing Group
June 30, June 30, June 30, June 30, June 30, June 30,
1992 1993 1994 1995 1996 1997
The Reader's Digest 100.00 93.15 94.72 104.40 104.41 74.58
Association, Inc.
Dow Jones Media- 100.00 103.66 108.35 123.65 155.74 198.00
Publishing Group
S&P 500 100.00 113.61 115.18 145.16 182.87 246.30
PROPOSAL NO. 2--APPROVAL OF AMENDMENT OF THE 1994 KEY EMPLOYEE
LONG TERM INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES
AVAILABLE FOR AWARDS
In October 1997, the Compensation & Nominating Committee and
the Board of Directors approved the amendment, subject to
stockholder approval, of the 1994 Long Term Incentive Plan to
increase the number of shares of Class A Nonvoting Common Stock
available for stock-based awards from 6,000,000 shares to
10,800,000, since only 278,700 shares currently remain available
for awards prior to this amendment. The purpose of the amended
1994 Long Term Incentive Plan is to enable the Company to offer
key employees of the Company and its designated subsidiaries
performance-based stock and cash incentives and other equity
interests in the Company and other incentive awards, thereby
attracting, retaining and rewarding such key employees, and
strengthening the mutuality of interests between key employees
and the Company's stockholders. This proposal is being submitted
to stockholders by the Board of Directors of the Company.
Types of Awards
Awards under the amended 1994 Long Term Incentive Plan
("Awards") may consist of Stock Options (which may be Incentive
Stock Options or Non-Qualified Stock Options), Stock Appreciation
Rights (which may be Tandem Stock Appreciation Rights or Non-
Tandem Stock Appreciation Rights), Restricted Stock, Performance
Shares, Performance Units and Other Stock-Based Awards. No
Awards may be made under the amended 1994 Long Term Incentive
Plan after February 11, 2004.
Administration; Amendment and Termination
The amended 1994 Long Term Incentive Plan is administered
and interpreted by a committee of the Company's Directors (the
"Committee"), currently comprised of the members of the Company's
Compensation & Nominating Committee. The Committee's broad
powers include authority, within the limitations provided in the
amended 1994 Long Term Incentive Plan, to select the eligible
employees to receive Awards, to determine the type, amount and
terms and conditions of Awards and to construe and interpret and
correct defects, omissions and inconsistencies in the amended
1994 Long Term Incentive Plan and agreements relating thereto.
The Board of Directors may at any time and from time to time
amend, suspend or terminate the amended 1994 Long Term Incentive
Plan in whole or in part, provided, however, that, unless
required by law, no amendment may impair the rights of a
participant with respect to outstanding Awards without the
participant's consent. Moreover, without the approval of the
stockholders, no amendment may be made that would (i) increase
the aggregate number of shares of Class A Nonvoting Common Stock
that may be issued, (ii) change the definition of eligible
employees, (iii) decrease the option price of any Stock Option to
less than 100% of the fair market value on the date of grant for
an Incentive Stock Option or to less than 85% of the fair market
value on the date of grant for a Non-Qualified Stock Option, or
(iv) extend the maximum option period under the amended 1994 Long
Term Incentive Plan.
Eligibility
Key employees of the Company and its designated subsidiaries
as determined by the Committee, including the Company's executive
officers, are eligible to be granted Awards under the amended
1994 Long Term Incentive Plan. Currently, approximately 1,076
employees are eligible to receive Awards under the amended 1994
Long Term Incentive Plan.
Shares Reserved
The maximum number of shares that may be issued under the
amended 1994 Long Term Incentive Plan, as amended, or with
respect to which Non-Tandem Stock Appreciation Rights may be
granted is 10,800,000 shares of the Company's Class A Nonvoting
Common Stock, of which 5,436,753 shares have been issued and
224,200 shares are subject to Non-Tandem Stock Appreciation
Rights as of October 22, 1997. Unexercised Options (except those
that relate to another Right or Award under the amended 1994 Long
Term Incentive Plan that is exercised) that expire, terminate or
are canceled, or are settled other than in Class A Nonvoting
Common Stock, become again available for Awards under the amended
1994 Long Term Incentive Plan.
The number and kind of shares to which Awards under the
amended 1994 Long Term Incentive Plan, and the purchase price
thereof, are subject to appropriate adjustment in the event of
certain changes in the capital stock of the Company, including
stock dividends and splits, recapitalizations, reorganizations,
mergers, consolidations, split-ups, combinations or exchanges of
shares, and certain distributions, reclassifications and
warrants, options and rights offerings.
Stock Options
Stock Options may be Incentive Stock Options, which are
intended to qualify under Section 422 of the Internal Revenue
Code, or Non-Qualified Stock Options, which are not intended to
so qualify. The exercise price of an Incentive Stock Option may
not be less than 100% of the Fair Market Value of the Class A
Nonvoting Common Stock at grant and its term may not exceed 10
years from the date of grant. The exercise price of a Non-
Qualified Stock Option may not be less than 85% of the Fair
Market Value at grant and its term may not exceed 10 years and
one day from the date of grant. The Company intends that
compensation attributable to Stock Options with an exercise price
no less than 100% of the Fair Market Value of the underlying
stock on the date of grant will not be subject to the deduction
limitation of Section 162(m) of the Internal Revenue Code. See
"U.S. Federal Income Tax Consequences." So long as the Class A
Nonvoting Common Stock remains listed on the New York Stock
Exchange, "Fair Market Value" is the mean between the high and
low sales prices on the New York Stock Exchange on the applicable
date. The closing price of the Class A Nonvoting Common Stock on
the New York Stock Exchange (Composite Transactions) on October
22, 1997 was $26.75. Unless determined by the Committee at
grant, no Stock Option may be exercised prior to the first
anniversary of the date of grant. The Committee may substitute
new Stock Options for previously granted Stock Options having
higher exercise prices.
A Stock Appreciation Right is the right to receive the
difference, either in cash or in Class A Nonvoting Common Stock,
between the fair market value of a share of Class A Nonvoting
Common Stock as of the date of exercise and as of the date of
award. Tandem Stock Appreciation Rights are granted in
conjunction with all or part of a Stock Option and Non-Tandem
Stock Appreciation Rights are granted without reference to all or
part of a Stock Option.
Generally, the term and exercisability of a Tandem Stock
Appreciation Right are the same as the related Stock Option, and
the Tandem Stock Appreciation Right may be exercised only by
surrendering the applicable portion of the related Stock Option.
The term and exercisability of a Non-Tandem Stock Appreciation
Right are determined by the Committee, but the term shall not
exceed 10 years and one day from the date of grant.
The Committee may provide for Stock Options and Stock
Appreciation Rights to be exercisable in installments. No Stock
Option or Stock Appreciation Right may be transferred by the
recipient otherwise than by will or the laws of descent and
distribution. A Stock Option agreement may provide that the
Stock Option be settled upon exercise by the delivery of
Performance Shares or Restricted Stock valued at fair market
value.
No employee may be granted either Stock Options or Non-
Tandem Stock Appreciation Rights, or both, with respect to a
total of more than 500,000 shares of Class A Nonvoting Common
Stock during any fiscal year of the Company.
If the participant's employment terminates by reason of
death, disability or retirement, generally any outstanding Stock
Option or Stock Appreciation Right will vest fully and be
exercisable until the first anniversary of the date of death or
the third anniversary of the date of termination by disability or
retirement, or until expiration of the Award, if earlier. Upon
termination for any other reason, any Stock Option or Stock
Appreciation Right will immediately terminate, except that a
previously vested Award will be exercisable for the lesser of
three months or the balance of the Award's term if the
participant is terminated involuntarily without cause.
Restricted Stock
Restricted Stock are shares of Class A Nonvoting Common
Stock awarded under the amended 1994 Long Term Incentive Plan
subject to such transferability restrictions and other terms and
conditions as the Committee may determine, including purchase
price (if any), restriction period, vesting schedule (including
whether restrictions lapse upon termination of employment) and
requirement of attainment of performance goals. The Committee
may, in its discretion, provide for the lapse, acceleration or
waiver of any restrictions, in whole or in part. The participant
has all the rights of a stockholder with respect to the shares of
Restricted Stock, including the right to receive dividends. As
of October 22, 1997, 50,078 shares of Class A Nonvoting Common
Stock have been issued and are outstanding under the amended 1994
Long Term Incentive Plan as Restricted Stock.
No more than 600,000 shares of Class A Nonvoting Common
Stock may be issued under the amended 1994 Long Term Incentive
Plan as Restricted Stock.
The material terms of performance-based restricted stock
awarded under the 1994 Long Term Incentive Plan, including the
relevant business criteria, maximum amount and eligible
employees, which have not been amended, were approved by
stockholders on November 11, 1994.
Performance Units and Performance Shares
A Performance Unit is the right to receive a fixed dollar
amount in cash or Class A Nonvoting Common Stock based on the
attainment during a Performance Cycle (determined by the
Committee) of such performance goals or other factors or criteria
as the Committee determines. A Performance Share is the right to
receive Class A Nonvoting Common Stock or cash of an equivalent
value at the end of a specified Performance Period (determined by
the Committee) based on the attainment during the Performance
Period of such performance goals or other factors or criteria as
the Committee determines. Unless otherwise determined by the
Committee, a participant is not entitled to receive dividends on
the Class A Nonvoting Common Stock covered by a Performance Share
Award.
Generally, neither Performance Units nor Performance Shares
may be transferred by the participant. At the end of the
Performance Cycle or Performance Period, the Committee determines
the extent to which any pertinent performance goals have been
achieved and the percentage of Performance Units or number of
Performance Shares that have vested. The Committee may, in its
discretion, provide for accelerated vesting of Performance Units
and Performance Shares.
The material terms of performance units awarded under the
1994 Long Term Incentive Plan, including the relevant business
criteria, maximum amount and eligible employees, which have not
been amended, were approved by stockholders on November 10, 1995.
Other Stock-Based Awards and Exchanges
Other Awards of Class A Nonvoting Common Stock and other
Awards that are valued in whole or in part by reference to, or
are payable in or otherwise based on, Class A Nonvoting Common
Stock may be granted under the amended 1994 Long Term Incentive
Plan subject to such terms and conditions, including price,
dividend entitlement, vesting and transferability, as the
Committee determines. In addition, the Committee may, in its
discretion, permit a participant to elect to receive an Award
under the amended Long Term Incentive Plan in lieu of any other
compensation from the Company.
Change in Control
Generally, in the event of a change in control of the
Company, all outstanding Stock Options and Stock Appreciation
Rights become fully vested and immediately exercisable in their
entirety, all Performance Units and Performance Shares become
vested, at a minimum, as if the applicable Performance Cycle or
Performance Period had ended upon the change in control, with
performance goals measured at such time, and all restrictions on
Restricted Stock lapse. Benefits under the amended 1994 Long
Term Incentive Plan will be reduced to the extent necessary to
prevent any portion of such benefits from being considered
"excess parachute payments" under Section 280G of the Internal
Revenue Code, when considered alone or in combination with any
payments otherwise payable to the participant upon a change in
control.
U.S. Federal Income Tax Consequences
The following summary describes the U.S. federal income tax
consequences of the amended 1994 Long Term Incentive Plan.
Stock Options. No income will be recognized by the holder
and the Company will not be entitled to a deduction at the time
of grant of either a Non-Qualified Stock Option or an Incentive
Stock Option.
On exercise of a Non-Qualified Stock Option, the amount by
which the fair market value of the Class A Nonvoting Common Stock
on the date of exercise exceeds the option exercise price will be
taxable to the holder as ordinary income and, subject to
satisfying applicable withholding requirements and any deduction
limitation under Section 162(m), deductible by the Company. The
subsequent disposition of shares acquired upon exercise of a Non-
Qualified Stock Option will ordinarily result in capital gain or
loss.
On exercise of an Incentive Stock Option, the holder will
not recognize any income and the Company will not be entitled to
a deduction. However, for purposes of the alternative minimum
tax, the exercise of an Incentive Stock Option will be treated as
an exercise of a Non-Qualified Stock Option. Accordingly, the
exercise of an Incentive Stock Option may result in an
alternative minimum tax liability.
The disposition of shares acquired upon exercise of an
Incentive Stock Option will ordinarily result in capital gain or
loss. However, if the holder disposes of shares acquired upon
exercise of an Incentive Stock Option within two years after the
date of grant or one year after the date of exercise (a
"disqualifying disposition"), the holder will recognize ordinary
income, in the amount of the excess of the fair market value of
the shares of Class A Nonvoting Common Stock on the date the
option was exercised over the option exercise price (or, in
certain circumstances, the gain on sale, if less). Any excess of
the amount realized by the holder on the disqualifying
disposition over the fair market value of the shares on the date
of exercise of the Option will generally be capital gain.
Subject to any deduction limitation under Section 162(m), the
Company will be entitled to a deduction equal to the amount of
ordinary income recognized by a holder.
If an Option is exercised through the use of Class A
Nonvoting Common Stock previously owned by the holder, such
exercise generally will not be considered a taxable disposition
of the previously owned shares and thus no gain or loss will be
recognized with respect to such shares upon such exercise.
However, if the option is an Incentive Stock Option, and the
previously owned shares were acquired on the exercise of an
Incentive Stock Option or other tax-qualified stock option (such
as shares received under the Company's Employee Stock Purchase
Plan), and the holding period requirement for those shares is not
satisfied at the time they are used to exercise the Option, such
use will constitute a disqualifying disposition of the previously
owned shares resulting in the recognition of ordinary income
(but, under proposed Treasury Regulations, not any additional
capital gain) in the amount described above.
Stock Appreciation Rights. The amount of any cash (or the
fair market value of any Class A Nonvoting Common Stock) received
upon the exercise of a stock appreciation right under the amended
1994 Long Term Incentive Plan will be includible in the
employee's ordinary income and, subject to satisfying applicable
withholding requirements and any deduction limitation under
Section 162(m), deductible by the Company.
Other Awards. Under Section 83(b) of the Internal Revenue
Code, an employee may elect to include in ordinary income, as
compensation at the time Restricted Stock is first issued, the
excess of the fair market value of such shares at the time of
issuance over the amount paid, if any, by the employee for such
shares. Unless a Section 83(b) election is made, no taxable
income will generally be recognized by the recipient of a
Restricted Stock award until such shares are no longer subject to
the restrictions or the risk of forfeiture. When either the
restrictions or the risk of forfeiture lapses, the employee will
recognize ordinary income and, subject to satisfying applicable
withholding requirements and any deduction limitation under
Section 162(m), the Company will be entitled to a deduction in an
amount equal to the excess of the fair market value of the Class
A Nonvoting Common Stock on the date of lapse over the amount
paid, if any, by the employee for such shares. Absent a Section
83(b) election, any cash dividends or other distributions paid
with respect to the Restricted Stock prior to the lapse of the
restrictions or risk of forfeiture will be included in the
employee's ordinary income as compensation at the time of
receipt.
Generally, an employee will not recognize any taxable income
and the Company will not be entitled to a deduction upon the
award of Performance Shares or Performance Units. At the time
the employee receives the distribution in respect to the
Performance Shares or the Performance Units, the fair market
value of shares of Class A Nonvoting Common Stock or the amount
of any cash received in payment for such Awards generally is
taxable to the employee as ordinary income and, subject to the
deduction limitation under Section 162(m), deductible by the
Company.
Section 162(m). Section 162(m) of the Internal Revenue Code
generally disallows a federal income tax deduction to any
publicly held corporation for compensation paid in excess of $1
million in any taxable year to the chief executive officer or any
of the four other most highly compensated executive officers who
are employed by the Company on the last day of the taxable year,
but does not disallow a deduction for qualified "performance-
based compensation" the material terms of which are disclosed to
and approved by stockholders. The Company has structured and
intends to implement the amended 1994 Long Term Incentive Plan
(except with respect to Awards of Restricted Stock, Performance
Shares and Stock Options with an exercise price less than the
Fair Market Value of the underlying shares on the date of grant)
so that compensation resulting therefrom would be qualified
"performance-based compensation." To allow the Company to so
qualify such compensation, the Company is seeking stockholder
approval of the amendment to the 1994 Long Term Incentive Plan.
Effect on Earnings
Currently, neither the grant nor the exercise of a Stock
Option will result in any charge to pretax earnings. Grants of
Restricted Stock result in a charge to pretax earnings over the
restriction period for the fair market value of the stock at the
date of issuance. All other Awards provided for under the
amended 1994 Long Term Incentive Plan will require a pretax
charge to earnings accrued over an appropriate period of time,
based on the difference between fair market value of the shares
or Award and the grant price.
New Plan Benefits
Because the benefits that will be received under the amended
1994 Long Term Incentive Plan by the individuals listed below are
not determinable, the table below shows the Awards that were made
during fiscal 1997 under the amended 1994 Long Term Incentive
Plan.
</TABLE>
<TABLE>
Number
Number of Dollar Value of Performance Units
of Perform-
Options/ ance Thres-
Name SARs Units hold(1) Target(1) Maximum(1)
<C> <S> <S> <S> <S> <S>
James P. Schadt 0 1,028,000 $257,000 $1,028,000 $1,542,000
Stephen R. Wilson 0 374,000 $93,500 $374,000 $561,000
Paul A. Soden 6,990 250,000 $62,500 $250,000 $375,000
Martin J. Pearson 0 305,000 $76,250 $305,000 $457,500
Melvin R. Laird 0 98,000 $24,500 $98,000 $147,000
All executive 77,900 1,232,000 $308,000 $1,232,000 $1,848,000
officers
All Directors who N/A N/A N/A N/A N/A
are not executive
officers
All employees, 1,500,463 3,399,350 $849,838 $3,399,350 $5,099,025
excluding
executive
officers
</TABLE>
(1) Represents amounts that could be paid out at the end of the
fiscal year 1997-1999 Performance Cycle, based on the
Company's performance in relation to the pertinent performance
goals.
Vote Required for Approval
The affirmative vote of a majority of the shares of Class B
Voting Common Stock present in person or represented by proxy and
entitled to vote on Proposal No. 2 at the Meeting is required for
approval of Proposal
No. 2.
Stockholder approval of the amended 1994 Long Term Incentive
Plan is being sought in order to allow the Company to qualify
certain compensation received under the amended 1994 Long Term
Incentive Plan for tax deductibility under Section 162(m) of the
Internal Revenue Code and to comply with applicable requirements
of the New York Stock Exchange. If no contrary indication is
made, proxy cards in the accompanying form are to be voted for
approval of Proposal No. 2.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL OF PROPOSAL NO. 2.
SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS
Pursuant to Securities and Exchange Commission rules and the
Company's By-Laws, proposals of stockholders intended to be
submitted at the 1998 Annual Meeting of Stockholders must be
received by the Company at its principal executive offices on or
before June 24, 1998 to be eligible for inclusion in the
Company's notice of meeting, proxy statement and accompanying
proxy card for such meeting or to be introduced from the floor at
such meeting.
The Company's By-Laws also provide that notice of proposed
stockholder nominations for election of directors must be given
to the Corporate Secretary of the Company not less than 14 or
more than 50 days prior to a meeting called to elect directors.
Such notice must contain certain information about each proposed
nominee including age, business and residence addresses,
principal employment, number of shares of Class B Voting Common
Stock beneficially owned (with evidence of such ownership) and
such other information as would be required in a proxy statement
soliciting proxies for the election of such proposed nominee, and
a signed consent of the nominee to serve as a director if
elected.
MISCELLANEOUS
The Board of Directors is not aware at the date hereof of
any matter proposed to be presented at the Meeting other than
Proposals Nos. 1 and 2. If any other matter is properly
presented, the persons named in the accompanying proxy card will
have discretionary authority to vote thereon according to their
best judgment.
It is expected that a member of KPMG Peat Marwick LLP, the
Company's independent auditors, will attend the Annual Meeting to
respond to any appropriate questions that may be asked by
stockholders.
The Company's Annual Report to Stockholders has been mailed
to stockholders separately. It is not to be deemed a part of the
proxy solicitation material and is not incorporated herein by
reference.
A copy of the Company's 1997 annual report on Form 10-K
filed with the Securities and Exchange Commission (without
exhibits) will be made available to stockholders without charge
upon written request to the Director, Investor Relations, The
Reader's Digest Association, Inc., Pleasantville, NY 10570-7000.
By Order of the Board of
Directors:
/s/C.H.R. DUPREE
C.H.R. DuPree
Vice President,
Associate General Counsel
and Acting Secretary
October 27, 1997
Map of route to Sheraton Stamford Hotel Appears Here
Sheraton Stamford Hotel
One First Stamford Place
Stamford, Connecticut 06902
203-967-2222
From Manhattan, Southern Connecticut and Westchester: Follow New
England Thruway (I-95) North to Exit 7 (Greenwich Avenue). At
end of ramp turn right, then make another quick, sharp right into
First Stamford Place. Hotel is at the end of road.
From Northern Connecticut on New England Thruway: Follow I-95
South to Stamford, Exit 6 (West Avenue). At the end of the ramp,
turn left at the light. Go under the I-95 overpass. Go to the
next light and turn left onto the entrance ramp of I-95 North.
Go to the next exit which is Exit 7 (Greenwich Avenue). At the
end of the ramp turn right, then make another quick, sharp right
turn into First Stamford Place. Hotel is at the end of the road.
From Northern or Southern Connecticut on the Merritt Parkway:
Follow Merritt Parkway to Exit 34 (Long Ridge Road, Rte. 104).
At the end of the exit ramp take Rte. 104 South for 2-1/4 miles.
At a very large merging intersection turn right onto Rte. 137
(Cold Spring Road). Bear left onto Washington Boulevard.
Continue on Rte. 137 straight to Tresser Boulevard intersection.
Turn right onto Tresser Boulevard (Rte. 1). Then take second
left onto Greenwich Avenue. Go straight, under I-95 overpass.
Turn right at second set of lights into First Stamford Place.
Hotel is at end of road.
Reader's Digest and the Pegasus logo are registered trademarks of
The Reader's Digest Association, Inc.
[Logo] Printed on recycled paper.
Appendix 3
The Reader's Digest Association, Inc.
1994 Key Employee Long Term
Incentive Plan
(Amended and Restated as of October 10, 1997)
THE READER'S DIGEST ASSOCIATION, INC.
1994 KEY EMPLOYEE LONG TERM INCENTIVE PLAN
ARTICLE I
Purpose
The purpose of this 1994 Key Employee Long Term
Incentive Plan (the "Plan") is to enable The Reader's Digest
Association, Inc. (the "Company") to offer key employees of
the Company and Designated Subsidiaries (defined below)
performance-based stock incentives and other equity
interests in the Company and other incentive awards, thereby
attracting, retaining and rewarding such key employees, and
strengthening the mutuality of interests between key
employees and the Company's shareholders.
ARTICLE II
Definitions
For purposes of this Plan, the following terms shall
have the following meanings:
2.1 "Award" shall mean any award under this Plan of
any Stock Option, Stock Appreciation Right, Restricted
Stock, Performance Shares, Performance Units or Other Stock-
Based Award. All Awards shall be granted by, confirmed by,
and subject to the terms of, a written agreement executed by
the Company and the Participant.
2.2 "Board" shall mean the Board of Directors of the
Company.
2.3 "Change in Control" shall have the meaning set
forth in Article 12.
2.4 "Code" shall mean the Internal Revenue Code of
1986, as amended.
2.5 "Committee" shall mean a committee of the Board
appointed from time to time by the Board consisting of three
or more Directors, none of whom shall be eligible to receive
any Award pursuant to this Plan.
2.6 "Common Stock" means the Class A non-voting Common
Stock, $.01 par value per share, of the Company.
2.7 "Designated Subsidiary" shall mean one of such
subsidiaries of the Company, 80 percent or more of the
voting capital stock of which is owned, directly or indi
rectly, by the Company, which are designated from time to
time by the Board.
2.8 "Disability" shall mean Total Disability as
defined in the Company's Long Term Disability Plan.
2.9 "Eligible employees" shall mean the employees of
the Company and the Designated Subsidiaries who are eligible
pursuant to Article 5 to be granted Awards under this Plan.
2.10 "Fair Market Value" for purposes of this Plan,
unless otherwise required by any applicable provision of the
Code or any regulations issued thereunder, shall mean, as of
any date, the mean between the high and low sales prices on
the applicable date, or if no sales price is available for
such date, the mean between the closing bid and asked prices
for such date, of a share of Common Stock (i) as reported by
the principal national securities exchange in the United
States on which it is then traded, or (ii) if not traded on
any such national securities exchange, as quoted on an
automated quotation system sponsored by the National
Association of Securities Dealers, or if the Common Stock
shall not have been reported or quoted on such date, on the
first day prior thereto on which the Common Stock was
reported or quoted. If the Common Stock is not readily
tradeable on a national securities exchange or any system
sponsored by the National Association of Securities Dealers,
its Fair Market Value shall be set by the Board on the
advice of an investment advisor in good faith.
2.11 "Incentive Stock Option" shall mean any Stock
Option awarded under this Plan intended to be and designated
as an "Incentive Stock Option" within the meaning of Section
422A of the Code.
2.12 "Non-Qualified Stock Option" shall mean any Stock
Option awarded under this Plan that is not an Incentive
Stock Option.
2.13 "Other Stock-Based Award" shall mean an Award
under Article 11 of this Plan that is valued in whole or in
part by reference to, or is payable in or otherwise based
on, Common Stock.
2.14 "Participant" shall mean an employee to whom an
Award has been made pursuant to this Plan.
2.15 "Performance Cycle" shall have the meaning set
forth in Section 10.1.
2.16 "Performance Period" shall have the meaning set
forth in Section 9.1.
2.17 "Performance Share" shall mean an Award made
pursuant to Article 9 of this Plan of the right to receive
Common Stock or cash of an equivalent value at the end of a
specified Performance Period.
2.18 "Performance Unit" shall mean an Award made
pursuant to Article 10 of this Plan of the right to receive
a fixed dollar amount, payable in cash or Common Stock or a
combination of both.
2.19 "Reference Stock Option" shall have the meaning
set forth in Section 7.1.
2.20 "Restricted Stock" shall mean an Award of shares
of Common Stock under this Plan that is subject to
restrictions under Article 8.
2.21 "Restriction Period" shall have the meaning set
forth in Subsection 8.3(a).
2.22 "Retirement" shall mean termination of employment
by an employee who is at least 55 years of age after at
least 5 years of employment by the Company and/or a
Designated Subsidiary.
2.23 "Stock Appreciation Right" shall mean the right
pursuant to an Award granted under Article 7. A Tandem
Stock Appreciation Right shall mean the right to surrender
to the Company all (or a portion) of a Stock Option in
exchange for an amount equal to the difference between (i)
the Fair Market Value, as of the date such Stock Option (or
such portion thereof) is surrendered, of the shares of
Common Stock covered by such Stock Option (or such portion
thereof), and (ii) the aggregate exercise price of such
Stock Option (or such portion thereof). A Non-Tandem Stock
Appreciation Right shall mean the right to receive an amount
equal to the difference between (x) the Fair Market Value of
a share of Common Stock as of the date such Right is
exercised, and (y) the Fair Market Value of a share of
Common Stock as of the date such Right is awarded, otherwise
than on surrender of a Stock Option.
2.24 "Stock Option" or "Option" shall mean any option
to purchase shares of Common Stock (including Restricted
Stock and Performance Shares, if the Committee so
determines) granted pursuant to Article 6.
2.25 "Termination of employment" shall mean a
termination of service for reasons other than military or
personal leave of absence granted by the Company or a
transfer of a Participant from the Company or a Designated
Subsidiary to another Designated Subsidiary or to the
Company or to any affiliate as defined in Section 414 of the
Code.
2.26 "Transfer" shall mean anticipate, alienate,
attach, sell, assign, pledge, encumber, charge or otherwise
transfer.
2.27 "Withholding Election" shall have the meaning set
forth in Section 15.4.
ARTICLE III
Administration
3.1 The Committee. The Plan shall be administered and
interpreted by the Committee.
3.2 Awards. The Committee shall have full authority
to grant, pursuant to the terms of this Plan, to eligible
employees: (i) Stock Options, (ii) Stock Appreciation
Rights, (iii) Restricted Stock, (iv) Performance Shares, (v)
Performance Units, and (vi) Other Stock-Based Awards. In
particular, the Committee shall have the authority:
(a) to select the eligible employees to whom
Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Shares, Performance
Units and Other Stock-Based Awards may from time
to time be granted hereunder;
(b) to determine whether and to what extent
Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Restricted
Stock, Performance Shares, Performance Units and
Other Stock-Based Awards, or any combination
thereof, are to be granted hereunder to one or
more eligible employees;
(c) to determine the number of shares of Common
Stock to be covered by each such Award granted
hereunder;
(d) to determine the terms and conditions, not
inconsistent with the terms of this Plan, of any
Award granted hereunder (including, but not
limited to, the share price, any restriction or
limitation, any vesting schedule or acceleration
thereof, or any forfeiture restrictions or waiver
thereof, regarding any Stock Option or other Award
and the shares of Common Stock relating thereto,
based on such factors, if any, as the Committee
shall determine, in its sole discretion);
(e) to determine whether, to what extent and
under what circumstances grants of Options and
other Awards under this Plan are to operate on a
tandem basis and/or in conjunction with or apart
from other awards made by the Company outside of
this Plan;
(f) to determine whether and under what
circumstances a Stock Option may be settled in
cash, Common Stock, Performance Shares and/or
Restricted Stock under Subsection 6.4(k); and
(g) to determine whether, to what extent and
under what circumstances Common Stock and other
amounts payable with respect to an Award under
this Plan shall be deferred either automatically
or at the election of the Participant.
3.3 Guidelines. Subject to Article 13 hereof, the
Committee shall have the authority to adopt, alter and
repeal such administrative rules, guidelines and practices
governing this Plan and perform all acts, including the
delegation of its administrative responsibilities, as it
shall, from time to time, deem advisable; to construe and
interpret the terms and provisions of this Plan and any
Award issued under this Plan (and any agreements relating
thereto); and to otherwise supervise the administration of
this Plan. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in this Plan or in
any agreement relating thereto in the manner and to the
extent it shall deem necessary to carry this Plan into
effect. Notwithstanding the foregoing, no action of the
Committee under this Section 3.3 shall impair the rights of
any Participant without the Participant's consent.
3.4 Decisions Final. Any decision, interpretation or
other action made or taken in good faith by or at the
direction of the Company, the Board, or the Committee (or
any of its members) arising out of or in connection with the
Plan shall be within the absolute discretion of all and each
of them, as the case may be, and shall be final, binding and
conclusive on the Company and all employees and Participants
and their respective heirs, executors, administrators,
successors and assigns.
3.5 Reliance on Counsel. The Company or the Committee
may consult with legal counsel, who may be counsel for the
Company or other counsel, with respect to its obligations or
duties hereunder, or with respect to any action or
proceeding or any question of law, and shall not be liable
with respect to any action taken or omitted by it in good
faith pursuant to the advice of such counsel.
ARTICLE IV
Share Limitation
4.1 Shares. The maximum aggregate number of shares of
Common Stock which may be issued under this Plan or with
respect to which Non-Tandem Stock Appreciation Rights may be
granted shall not exceed 10,800,000 shares (subject to any
increase or decrease pursuant to Section 4.2) which may be
either authorized and unissued Common Stock or outstanding
Common Stock reacquired by the Company. No more than 10% of
such maximum shall be issued under this Plan as Restricted
Stock. If any Option granted under this Plan shall expire,
terminate or be cancelled for any reason without having been
exercised in full, or payment shall have been made in other
than Common Stock, the number of unpurchased shares shall
again be available for the purposes of the Plan; provided,
however, that if such expired, terminated or cancelled
Option shall have been issued in tandem with a Stock
Appreciation Right or other Award, none of such unpurchased
shares shall again become available for purposes of this
Plan to the extent that the related Right or Award granted
under this Plan is exercised. Further, if any shares of
Common Stock granted hereunder are forfeited or such Award
otherwise terminates without the delivery of such shares
upon the lapse of restrictions, the shares subject to such
grant, to the extent of such forfeiture or termination,
shall again be available under this Plan.
4.2 Changes. In the event of any change in the
capital stock of the Company by reason of any stock dividend
or distribution, stock split or reverse stock split, recapi
talization, reorganization, merger, consolidation, split-up,
combination or exchange of shares, distribution with respect
to its outstanding Common Stock of capital stock other than
Common Stock, reclassification of its capital stock,
issuance of warrants or options to purchase any Common Stock
or securities convertible into Common Stock, or rights
offering to purchase capital stock at a price below fair
market value, or any similar change affecting the capital
stock of the Company; then the aggregate number and kind of
shares which thereafter may be issued under this Plan, the
number and kind of shares subject to outstanding Options
granted under this Plan and the purchase price thereof, and
the number and kind of shares subject to other outstanding
Awards (including but not limited to Awards of Restricted
Stock, Performance Shares and Other Stock-Based Awards)
granted under this Plan, shall be appropriately adjusted
consistent with such change in such manner as the Committee
may deem equitable to prevent substantial dilution or
enlargement of the rights granted to, or available for,
Participants under this Plan, and any such adjustment
determined by the Committee in good faith shall be binding
and conclusive on the Company and all Participants and
employees and their respective heirs, executors, administra
tors, successors and assigns. Any such adjusted Option
price shall also be used to determine the amount payable by
the Company upon the exercise of any Stock Appreciation
Right associated with any Stock Option.
4.3 Purchase Price. Notwithstanding any provision of
this Plan to the contrary, if authorized but previously
unissued shares of Common Stock are issued under this Plan,
such shares shall be issued for a consideration which shall
not be less than par value.
ARTICLE V
Eligibility
5.1 Senior officers, senior management and key
employees of the Company and its Designated Subsidiaries and
members of the Executive Committee of the Company's Board of
Directors are eligible to be granted Options and other
Awards under this Plan. Eligibility under this Plan shall
be determined by the Committee.
ARTICLE VI
Stock Options
6.1 Options. Stock Options may be granted alone or in
addition to other Awards granted under this Plan. Each
Stock Option granted under this Plan shall be one of two
types: (i) an Incentive Stock Option or (ii) a Non-
Qualified Stock Option.
6.2 Grants. The Committee shall have the authority to
grant to any Participant one or more Incentive Stock
Options, Non-Qualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation
Rights); provided, however, that no Participant shall be
granted Stock Options or Non-Tandem Stock Appreciation
Rights, or both, with respect to a total of more than
500,000 shares of Common Stock during any fiscal year of the
Company. To the extent that any Stock Option does not
qualify as an Incentive Stock Option (whether because of its
provisions or the time or manner of its exercise or
otherwise), such Stock Option or the portion thereof which
does not qualify shall constitute a separate Non-Qualified
Stock Option.
6.3 Incentive Stock Options. Anything in the Plan to
the contrary notwithstanding, no term of this Plan relating
to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under
the Plan be so exercised, so as to disqualify the Plan under
Section 422A of the Code, or, without the consent of the
Participants affected, to disqualify any Incentive Stock
Option under such Section 422A.
6.4 Terms of Options. Options granted under this Plan
shall be subject to the following terms and conditions and
shall be in such form and contain such additional terms and
conditions, not inconsistent with the terms of this Plans,
as the Committee shall deem desirable:
(a) Option Price. The option price per share of
Common Stock purchasable under a Stock Option
shall be determined by the Committee at the time
of grant but shall be not less than 100% of the
Fair Market Value of the Common Stock at grant if
the Stock Option is intended to be an Incentive
Stock Option and shall not be less than 85% of the
Fair Market Value of the Common Stock at grant if
the Stock Option is intended to be a Non-Qualified
Stock Option.
(b) Option Term. The term of each Stock Option
shall be fixed by the Committee, but no Incentive
Stock Option shall be exercisable more than ten
years after the date the Option is granted, and no
Non-Qualified Stock Option shall be exercisable
more than ten years and one day after the date the
Option is granted.
(c) Exercisability. Stock Options shall be
exercisable at such time or times and subject to
such terms and conditions as shall be determined
by the Committee at grant; provided, however,
that, except as provided in subsections (f), (g)
and (h) below and Article 3, unless otherwise
determined by the Committee at grant, no Stock
Option shall be exercisable prior to the first
anniversary date of the granting of the Option.
If the Committee provides, in its discretion, that
any Stock Option is exercisable only in
installments, the Committee may waive such
installment exercise provisions at any time at or
after grant in whole or in part, based on such
factors, if any, as the Committee shall determine,
in its sole discretion.
(d) Method of Exercise. Subject to whatever
installment exercise and waiting period provisions
apply under subsection (c) above, Stock Options
may be exercised in whole or in part at any time
during the option term, by giving written notice
of exercise to the Company specifying the number
of shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase
price in such form as the Committee may accept.
If and to the extent determined by the Committee
in its sole discretion at or after grant, payment
in full or in part may also be made in the form of
Common Stock (other than Restricted Stock) owned
by the Participant (and for which the Participant
has good title free and clear of any liens and
encumbrances) or Restricted Stock, or by reduction
in the number of shares issuable upon such
exercise based, in each case, on the Fair Market
Value of the Stock on the payment date as
determined by the Committee (without regard to any
forfeiture restrictions applicable to Restricted
Stock). No shares of Stock shall be issued until
payment, as provided herein, therefor has been
made. A Participant shall generally have the
rights to dividends or other rights of a
shareholder with respect to shares subject to the
Option when the optionee has given written notice
of exercise, has paid for such shares as provided
herein, and, if requested, has given the
representation described in Section 15.1.
Notwithstanding the foregoing, if payment in full
or in part has been made in the form of Restricted
Stock, an equivalent number of shares of Common
Stock issued on exercise of the Option shall be
subject to the same restrictions and conditions,
and during the remainder of the Restriction
Period, applicable to the shares of Restricted
Stock surrendered therefor.
(e) Non-Transferability of Options. No Stock
Option shall be Transferable by the Participant
otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be
exercisable, during the Participant's lifetime,
only by the Participant.
(f) Termination by Death. Subject to subsection
(j) below, if a Participant's employment by the
Company or a Designated Subsidiary terminates by
reason of death, any Stock Option held by such
Participant, unless otherwise determined by the
Committee at grant, shall be fully vested and may
thereafter be exercised by the legal
representative of the estate, for a period of one
year (or such other period as the Committee may
specify at grant) from the date of such death or
until the expiration of the stated term of such
Stock Option, whichever period is the shorter.
(g) Termination by Reason of Disability. Subject
to subsection (j) below, if a Participant's
employment by the Company or a Designated
Subsidiary terminates by reason of Disability, any
Stock Option held by such Participant, unless
otherwise determined by the Committee at grant,
shall be fully vested and may thereafter be
exercised by the Participant for a period of three
years (or such other period as the Committee may
specify at grant) from the date of such
termination of employment or until the expiration
of the stated term of such Stock Option, whichever
period is the shorter; provided, however, that, if
the Participant dies within such three-year period
(or such other period as the Committee shall
specify at grant), any unexercised Stock Option
held by such Participant shall thereafter be exer
cisable to the extent to which it was exercisable
at the time of death for a period of twelve months
from the date of such death or until the
expiration of the stated term of such Stock
Option, whichever period is the shorter. In the
event of termination of employment by reason of
Disability, if an Incentive Stock Option is
exercised after the expiration of the exercise
periods that apply for purposes of Section 422A of
the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. Subject
to subsection (j), if a Participant's employment
by the Company or a Designated Subsidiary termi
nates by reason of Retirement, any Stock Option
held by such Participant, unless otherwise
determined by the Committee at grant, shall be
fully vested and may thereafter be exercised by
the Participant for a period of three years (or
such other period as the Committee may specify at
grant) from the date of such termination of
employment or the expiration of the stated term of
such Stock Option, whichever period is the
shorter; provided, however, that, if the
Participant dies within such three-year period,
any unexercised Stock Option held by such
Participant shall thereafter be exercisable, to
the extent to which it was exercisable at the time
of death, for a period of twelve months from the
date of such death or until the expiration of the
stated term of such Stock Option, whichever period
is the shorter. In the event of termination of
employment by reason of Retirement, if an
Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for
purposes of Section 422A of the Code, such Stock
Option will thereafter be treated as a Non-
Qualified Stock Option.
(i) Other Termination. Unless otherwise
determined by the Committee at or after grant, if
a Participant's employment by the Company or a
Designated Subsidiary terminates for any reason
other than death, Disability or Retirement, the
Stock Option shall thereupon terminate, except
that such Stock Option may be exercised, to the
extent it was exercisable immediately preceding
such termination, for the lesser of three months
or the balance of such Stock Option's term if the
Participant is involuntarily terminated by the
Company or the Designated Subsidiary without
cause.
(j) Incentive Stock Option Limitations. To the
extent that the aggregate Fair Market Value
(determined as of the time of grant) of the Common
Stock with respect to which Incentive Stock
Options are exercisable for the first time by the
Participant during any calendar year under the
Plan and/or any other stock option plan of the
Company or any subsidiary or parent corporation
(within the meaning of Section 425 of the Code)
exceeds $100,000, such Options shall be treated as
Options which are not Incentive Stock Options.
To the extent (if any) permitted under
Section 422A of the Code, or the applicable
regulations thereunder or any applicable Internal
Revenue Service pronouncement, if (i) a
Participant's employment with the Company or a
Designated Subsidiary is terminated by reason of
death, Disability or Retirement and (ii) the
portion of any Incentive Stock Option that is oth
erwise exercisable during the post-termination
period specified under subsections (f), (g) or (h)
above, computed without regard to the $100,000
limitation currently contained in Section 422A(d)
of the Code, is greater than the portion of such
Stock Option that is immediately exercisable as an
"incentive stock option" during such post-
termination period under Section 422A, such excess
shall be treated as a Non-Qualified Stock Option.
If the exercise of an Incentive Stock Option is
accelerated by reason of a Change in Control, any
portion of such Option that is not exercisable as
an Incentive Stock Option by reason of the
$100,000 limitation contained in Section 422A(d)
of the Code shall be treated as a Non-Qualified
Stock Option.
Should any of the foregoing provisions not be
necessary in order for the Stock Options to
qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee
may amend the Plan accordingly, without the
necessity of obtaining the approval of the
shareholders of the Company.
(k) Buyout and Settlement Provisions. The
Committee may at any time offer to buy out an
Option previously granted, based on such terms and
conditions as the Committee shall establish and
communicate to the Participant at the time that
such offer is made.
In addition, if the Option agreement so
provides at grant or is amended (with the
Participant's consent) after grant and prior to
exercise to so provide, the Committee may require
that all or part of the shares to be issued with
respect to the spread value of an exercised Option
take the form of Performance Shares or Restricted
Stock, which shall be valued on the date of
exercise on the basis of the Fair Market Value of
such Performance Shares or Restricted Stock
determined without regard to the deferral limi
tations and/or forfeiture restrictions involved.
ARTICLE VII
Stock Appreciation Rights
7.1 Tandem Stock Appreciation Rights. Stock
Appreciation Rights may be granted in conjunction with all
or part of any Stock Option (a "Reference Stock Option")
granted under this Plan ("Tandem Stock Appreciation
Rights"). In the case of a Non-Qualified Stock Option, such
rights may be granted either at or after the time of the
grant of such Reference Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at
the time of the grant of such Reference Stock Option.
7.2 Terms and Conditions of Tandem Stock Appreciation
Rights. Tandem Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the
provisions of this Plan, as shall be determined from time to
time by the Committee, including the following:
(a) Term. A Tandem Stock Appreciation Right or
applicable portion thereof granted with respect to
a Reference Stock Option shall terminate and no
longer be exercisable upon the termination or
exercise of the Reference Stock Option, except
that, unless otherwise determined by the
Committee, in its sole discretion, at the time of
grant, a Tandem Stock Appreciation Right granted
with respect to less than the full number of
shares covered by the Reference Stock Option shall
not be reduced until and then only to the extent
the exercise or termination of the Reference Stock
Option causes the number of shares covered by the
Tandem Stock Appreciation Right to exceed the
number of shares remaining available and
unexercised under the Reference Stock Option.
(b) Exercisability. Tandem Stock Appreciation
Rights shall be exercisable only at such time or
times and to the extent that the Reference Stock
Options to which they relate shall be exercisable
in accordance with the provisions of Article 6 and
this Article 7; provided, however, that any Tandem
Stock Appreciation Right granted subsequent to the
grant of the Reference Stock Option shall not be
exercisable during the first six months of its
term, except that this special limitation shall
not apply in the event of death or Disability of
the Participant prior to the expiration of the six-
month period.
(c) Method of Exercise. A Tandem Stock
Appreciation Right may be exercised by an optionee
by surrendering the applicable portion of the
Reference Stock Option. Upon such exercise and
surrender, the Participant shall be entitled to
receive an amount determined in the manner
prescribed in this Section 7.2. Stock Options
which have been so surrendered, in whole or in
part, shall no longer be exercisable to the extent
the related Tandem Stock Appreciation Rights have
been exercised.
(d) Payment. Upon the exercise of a Tandem Stock
Appreciation Right a Participant shall be entitled
to receive up to, but no more than, an amount in
cash and/or shares of Common Stock equal in value
to the excess of the Fair Market Value of one
share of Common Stock over the option price per
share specified in the Reference Stock Option
multiplied by the number of shares in respect of
which the Tandem Stock Appreciation Right shall
have been exercised, with the Committee having the
right to determine the form of payment.
(e) Non-Transferability. Tandem Stock
Appreciation Rights shall be Transferable only
when and to the extent that the underlying Stock
Option would be Transferable under Subsection
6.4(e) of the Plan.
(f) Deemed Exercise of Reference Stock Option.
Upon the exercise of a Tandem Stock Appreciation
Right, the Reference Stock Option or part thereof
to which such Stock Appreciation Right is related
shall be deemed to have been exercised for the
purpose of the limitation set forth in Article 4
of the Plan on the number of shares of Common
Stock to be issued under the Plan.
7.3 Non-Tandem Stock Appreciation Rights. Non-Tandem
Stock Appreciation Rights may also be granted without
reference to any Stock Options granted under this Plan;
provided, however, that no Participant shall be granted
Stock Options or Non-Tandem Stock Appreciation Rights, or
both, with respect to a total of more than 500,000 shares of
Common Stock during any fiscal year of the Company.
7.4 Terms and Conditions of Non-Tandem Stock
Appreciation Rights. Non-Tandem Stock Appreciation Rights
shall be subject to such terms and conditions, not
inconsistent with the provisions of this Plan, as shall be
determined from time to time by the Committee, including the
following:
(a) Term. The term of each Non-Tandem Stock
Appreciation Right shall be fixed by the
Committee, but shall not be greater than ten years
and one day after the date the Right is granted.
(b) Exercisability. Non-Tandem Stock
Appreciation Rights shall be exercisable at such
time or times and subject to such terms and
conditions as shall be determined by the Committee
at grant; provided, however, that any Right shall
not be exercisable during the first six months of
its term, except that this special limitation
shall not apply in the event of death or
Disability of the Participant prior to expiration
of this six-month period. If the Committee
provides, in its discretion, that any such Right
is exercisable only in installments, the Committee
may waive such installment exercise provisions at
any time at or after grant in whole or in part,
based on such factors, if any, as the Committee
shall determine, in its sole discretion.
(c) Method of Exercise. Subject to whatever
installment exercise and waiting period provisions
apply under subsection (b) above, Non-Tandem Stock
Appreciation Rights may be exercised in whole or
in part at any time during the option term, by
giving written notice of exercise to the Company
specifying the number of Rights to be exercised.
(d) Payment. Upon the exercise of a Non-Tandem
Stock Appreciation Right a Participant shall be
entitled to receive, for each Right exercised, up
to, but no more than, an amount in cash and/or
shares of Common Stock equal in value to the
excess of the Fair Market Value of one share of
Common Stock on the date the Right is exercised
over the Fair Market Value of one share of Common
Stock on the date the Right was awarded to the
Participant, with the Committee having the right
to determine the form of payment.
(e) Non-Transferability. No Non-Tandem Stock
Appreciation Right shall be Transferable by the
Participant otherwise than by will or by the laws
of descent and distribution, and all such Rights
shall be exercisable, during the Participant's
lifetime, only by the Participant.
(f) Termination by Death. If a Participant's
employment by the Company or a Designated
Subsidiary terminates by reason of death, any Non-
Tandem Stock Appreciation Right held by such
Participant, unless otherwise determined by the
Committee at grant, shall be fully vested and may
thereafter be exercised by the legal
representative of the estate, for a period of one
year (or such other period as the Committee may
specify at grant) from the date of such death or
until the expiration of the stated term of such
Right, whichever period is the shorter.
(g) Termination by Reason of Disability or
Retirement. If a Participant's employment by the
Company or a Designated Subsidiary terminates by
reason of Disability or Retirement, any Non-Tandem
Stock Appreciation Right held by such Participant,
unless otherwise determined by the Committee at
grant, shall be fully vested and may thereafter be
exercised by the Participant for a period of three
years (or such other period as the Committee may
specify at grant) from the date of such
termination of employment or until the expiration
of the stated term of such Right, whichever period
is the shorter; provided, however, that, if the
Participant dies within such three-year period (or
such other period as the Committee shall specify
at grant), any unexercised Non-Tandem Stock
Appreciation Right held by such Participant shall
thereafter be exercisable to the extent to which
it was exercisable at the time of death for a
period of twelve months from the date of such
death or until the expiration of the stated term
of such Right, whichever period is the shorter.
(h) Other Termination. Unless otherwise
determined by the Committee at or after grant, if
a Participant's employment by the Company or a
Designated Subsidiary terminates for any reason
other than death, Disability or Retirement, the
Non-Tandem Stock Appreciation Right shall
thereupon terminate, except that such Right may be
exercised, to the extent it was exercisable
immediately preceding such termination, for the
lesser of three months or the balance of the
stated term of such Right if the Participant is
involuntarily terminated by the Company or the
Designated Subsidiary without cause.
7.5 Cash Settlements of Tandem and Non-Tandem Stock
Appreciation Rights. A Participant required to file reports
under Section 16(a) of the Securities Exchange Act of 1934
with respect to securities of the Company may receive cash
in complete or partial settlement of a Tandem or Non-Tandem
Stock Appreciation Right only if any election by such
Participant to receive cash in full or partial settlement of
the Stock Appreciation Right, as well as any exercise by him
of his Stock Appreciation Right for such cash, is made (i)
during the period beginning on the third business day
following the date of release for publication of the
quarterly or annual summary statements of sales and earnings
of the Company and ending on the twelfth business day
following such date, or (ii) during any other period in
which such election or exercise may be made under the
provisions of Rule 16b-3 promulgated pursuant to the Act.
ARTICLE VIII
Restricted Stock
8.1 Awards of Restricted Stock. Shares of Restricted
Stock may be issued either alone or in addition to other
Awards granted under the Plan. The Committee shall
determine the eligible persons to whom, and the time or
times at which, grants of Restricted Stock will be made, the
number of shares to be awarded, the price (if any) to be
paid by the recipient (subject to Section 8.2), the time or
times within which such Awards may be subject to forfeiture,
the vesting schedule and rights to acceleration thereof, and
all other terms and conditions of the Awards.
The Committee may condition the grant of Restricted
Stock upon the attainment of specified performance goals or
such other factors as the Committee may determine, in its
sole discretion.
8.2 Awards and Certificates. The prospective
Participant selected to receive a Restricted Stock Award
shall not have any rights with respect to such Award, unless
and until such Participant has delivered a fully executed
copy of the agreement evidencing the Award to the Company
and has otherwise complied with the applicable terms and
conditions of such Award. Further, such Award shall be
subject to the following conditions:
(a) Purchase Price. Subject to Section 4.3, the
purchase price for shares of Restricted Stock may
be less than their par value and may be zero.
(b) Acceptance. Awards of Restricted Stock must
be accepted within a period of 60 days (or such
shorter period as the Committee may specify at
grant) after the Award date, by executing a
Restricted Stock Award agreement and by paying
whatever price (if any) the Committee has
designated thereunder.
(c) Legend. Each Participant receiving a
Restricted Stock Award shall be issued a stock
certificate in respect of such shares of
Restricted Stock. Such certificate shall be
registered in the name of such Participant, and
shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to
such Award, substantially in the following form:
"The anticipation, alienation, attachment,
sale, transfer, assignment, pledge, encumbrance or
charge of the shares of stock represented hereby
are subject to the terms and conditions (including
forfeiture) of The Reader's Digest Association,
Inc. (the "Company") 1994 Key Employee Long Term
Incentive Plan and an Agreement entered into
between the registered owner and the Company dated
. Copies of such Plan and Agreement are on file
at the principal office of the Company."
(d) Custody. The Committee shall require that
the stock certificates evidencing such shares be
held in custody by the Company until the
restrictions thereon shall have lapsed, and that,
as a condition of any Restricted Stock Award, the
Participant shall have delivered a duly signed
stock power, endorsed in blank, relating to the
Common Stock covered by such Award.
8.3 Restrictions and Conditions. The shares of
Restricted Stock awarded pursuant to this Plan shall be
subject to the following restrictions and conditions:
(a) Restriction Period. Subject to the
provisions of this Plan and the Award agreement,
during a period set by the Committee commencing
with the date of such Award (the "Restriction
Period"), the Participant shall not be permitted
to Transfer shares of Restricted Stock awarded
under this Plan. Within these limits, the
Committee, in its sole discretion, may provide for
the lapse of such restrictions in installments and
may accelerate or waive such restrictions in whole
or in part, based on service, performance and/or
such other factors or criteria as the Committee
may determine in its sole discretion.
(b) Rights as Shareholder. Except as provided in
this subsection (b) and subsection (a) above, the
Participant shall have, with respect to the shares
of Restricted Stock, all of the rights of a holder
of shares of Common Stock of the Company including
the right to receive any dividends. The Commit
tee, in its sole discretion, as determined at the
time of Award, may permit or require the payment
of dividends to be deferred.
(c) Termination of Employment. Subject to the
applicable provisions of the Award agreement and
this Plan, upon termination of a Participant's
employment with the Company or a Designated
Subsidiary for any reason during the Restriction
Period, all Restricted Shares still subject to
restriction will vest or be forfeited in
accordance with the terms and conditions
established by the Committee at grant.
(d) Hardship. In the event of hardship or other
special circumstances of a Participant whose
employment with the Company or a Designated
Subsidiary is involuntarily terminated (other than
for cause), the Committee may, in its sole
discretion, waive in whole or in part any or all
remaining restrictions with respect to such
Participant's shares of Restricted Stock, based on
such factors as the Committee may deem
appropriate.
(e) Lapse of Restrictions. If and when the
Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such
Restriction Period, the certificates for such
shares shall be delivered to the Participant. All
legends shall be removed from said certificates at
the time of delivery to the Participant.
ARTICLE IX
Performance Shares
9.1 Award of Performance Shares. Performance Shares
may be awarded either alone or in addition to other Awards
granted under this Plan. The Committee shall determine the
eligible persons to whom and the time or times at which
Performance Shares shall be awarded, the number of
Performance Shares to be awarded to any person, the duration
of the period (the "Performance Period") during which, and
the conditions under which, receipt of the Shares will be
deferred, and the other terms and conditions of the Award in
addition to those set forth in Section 9.2.
The Committee may condition the grant of
Performance Shares upon the attainment of specified
performance goals or such other factors or criteria as the
Committee shall determine, in its sole discretion.
9.2 Terms and Conditions. Performance Shares awarded
pursuant to this Article 9 shall be subject to the following
terms and conditions:
(a) Non-Transferability. Subject to the
applicable provisions of the Award agreement and
this Plan, Performance Share Awards may not be
Transferred during the Performance Period.
(b) Dividends. Unless otherwise determined by
the Committee at the time of Award, amounts equal
to any dividends declared during the Performance
Period with respect to the number of shares of
Common Stock covered by a Performance Share Award
will not be paid to the Participant.
(c) Payment. Subject to the provisions of the
Award agreement and this Plan, at the expiration
of the Performance Period, share certificates
and/or cash of an equivalent value (as the
Committee may determine in its sole discretion)
shall be delivered to the Participant, or his
legal representative, in a number equal to the
vested shares covered by the Performance Share
Award.
(d) Termination of Employment. Subject to the
applicable provisions of the Award agreement and
this Plan, upon termination of a Participant's
employment with the Company or a Designated
Subsidiary for any reason during the Performance
Period for a given Award, the Performance Shares
in question will vest or be forfeited in
accordance with the terms and conditions
established by the Committee at grant.
(e) Accelerated Vesting. Based on service,
performance and/or such other factors or criteria,
if any, as the Committee may determine, the
Committee may, at or after grant, accelerate the
vesting of all or any part of any Performance
Share Award and/or waive the deferral limitations
for all or any part of such Award.
(f) Hardship. In the event of hardship or other
special circumstances of a Participant whose
employment with the Company or a Designated
Subsidiary is involuntarily terminated (other than
for cause), the Committee may, in its sole
discretion, based on such factors as the Committee
may deem appropriate, waive in whole or in part
any or all of the remaining deferral limitations
imposed hereunder with respect to any or all of
the Participant's Performance Shares.
ARTICLE X
Performance Units
10.1 Award of Performance Units. Performance Units may
be awarded either alone or in addition to other Awards
granted under this Plan. The Committee shall determine the
eligible persons to whom and the time or times at which
Performance Units shall be awarded, the number of
Performance Units to be awarded to any person, the duration
of the period (the "Performance Cycle") during which, and
the conditions under which, a Participant's right to
Performance Units will be vested, the ability of
Participants to defer the receipt of payment of such Units,
and the other terms and conditions of the Award in addition
to those set forth in Section 10.2.
A Performance Unit shall have a fixed dollar value.
The Committee may condition the vesting of Performance
Units upon the attainment of specified performance goals or
such other factors or criteria as the Committee shall
determine, in its sole discretion.
10.2 Terms and Conditions. The Performance Units
awarded pursuant to this Article 10 shall be subject to the
following terms and conditions:
(a) Non-Transferability. Subject to the
applicable provisions of the Award agreement and
this Plan, Performance Unit Awards may not be
Transferred.
(b) Vesting. At the expiration of the
Performance Cycle, the Committee shall determine
the extent to which the performance goals have
been achieved, and the percentage of the
Performance Units of each Participant that have
vested.
(c) Payment. Subject to the applicable
provisions of the Award agreement and this Plan,
at the expiration of the Performance Cycle, cash
and/or share certificates of an equivalent value
(as the Committee may determine in its sole
discretion) shall be delivered to the Participant,
or his legal representative, in payment of the
vested Performance Units covered by the Per
formance Unit Award.
(d) Termination of Employment. Subject to the
applicable provisions of the Award agreement and
this Plan, upon termination of a Participant's
employment with the Company or a Designated
Subsidiary for any reason during the Performance
Cycle for a given Award, the Performance Units in
question will vest or be forfeited in accordance
with the terms and conditions established by the
Committee at grant.
(e) Accelerated Vesting. Based on service,
performance and/or such other factors or criteria,
if any, as the Committee may determine, the
Committee may, at or after grant, accelerate the
vesting of all or any part of any Performance Unit
Award and/or waive the deferral limitations for
all or any part of such Award.
(f) Hardship. In the event of hardship or other
special circumstances of a Participant whose
employment with the Company or a Designated
Subsidiary is involuntarily terminated (other than
for cause), the Committee may, in its sole
discretion, based on such factors as the Committee
may deem appropriate, waive in whole or in part
any or all of the remaining deferral limitations
imposed hereunder with respect to any or all of
the Participant's Performance Units.
ARTICLE XI
Other Stock-Based Awards
11.1 Other Awards. Other Awards of Common Stock and
other Awards that are valued in whole or in part by
reference to, or are payable in or otherwise based on,
Common Stock ("Other Stock-Based Awards"), including,
without limitation, Awards valued by reference to subsidiary
performance, may be granted either alone or in addition to
or in tandem with Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Shares or Performance Units.
Subject to the provisions of this Plan, the
Committee shall have authority to determine the persons to
whom and the time or times at which such Awards shall be
made, the number of shares of Common Stock to be awarded
pursuant to such Awards, and all other conditions of the
Awards. The Committee may also provide for the grant of
Common Stock under such Awards upon the completion of a
specified performance period.
11.2 Terms and Conditions. Other Stock-Based Awards
made pursuant to this Article 11 shall be subject to the
following terms and conditions:
(a) Non-Transferability. Subject to the
applicable provisions of the Award agreement and
this Plan, shares of Common Stock subject to
Awards made under this Article 11 may not be
Transferred prior to the date on which the shares
are issued, or, if later, the date on which any
applicable restriction, performance or deferral
period lapses.
(b) Dividends. Unless otherwise determined by
the Committee at the time of Award, subject to the
provisions of the Award agreement and this Plan,
the recipient of an Award under this Article 11
shall be entitled to receive, currently or on a
deferred basis, dividends or dividend equivalents
with respect to the number of shares of Common
Stock covered by the Award, as determined at the
time of the Award by the Committee, in its sole
discretion.
(c) Vesting. Any Award under this Article 11 and
any Common Stock covered by any such Award shall
vest or be forfeited to the extent so provided in
the Award agreement, as determined by the
Committee, in its sole discretion.
(d) Waiver of Limitation. In the event of the
Participant's Retirement, Disability or death, or
in cases of special circumstances, the Committee
may, in it sole discretion, waive in whole or in
part any or all of the limitations imposed
hereunder (if any) with respect to any or all of
an Award under this Article 11.
(e) Price. Common Stock issued on a bonus basis
under this Article 11 may be issued for no cash
consideration; Common Stock purchased pursuant to
a purchase right awarded under this Article 11
shall be priced as determined by the Committee.
ARTICLE XII
Change in Control Provisions
12.1 Benefits. In the event of a Change in Control of
the Company (as defined below), and except as otherwise
provided by the committee upon the grant of an Award, the
Participant shall be entitled to the following benefits:
(a) All outstanding Stock Options and Non-Tandem
Stock Appreciation Rights of such Participant
granted prior to the Change in Control shall be
fully vested and immediately exercisable in their
entirety. In its sole discretion, the Committee
may provide for the purchase of any such Stock
Options by the Company or Designated Subsidiary
for an amount of cash equal to the excess of the
Change in Control price (as defined below) of the
shares of Common Stock covered by such Stock
Options, over the aggregate exercise price of such
Stock Options. For purposes of this Section 12.1,
Change in Control price shall mean the higher of
(i) the highest price per share of Common Stock
paid in any transaction related to a Change in
Control of the Company, or (ii) the highest Fair
Market Value per share of Common Stock at any time
during the 60-day period preceding a Change in
Control.
(b) All Performance Share Awards and Performance
Unit Awards of such Participant granted prior to
the Change in Control shall vest, at a minimum, as
if the applicable Performance Period or
Performance Cycle had ended upon such Change in
Control and the determination of the extent to
which any specified performance goals or targets
had been achieved had been made at such time.
(c) The restrictions to which any shares of
Restricted Stock of such Participant granted prior
to the Change in Control are subject shall lapse
as if the applicable Restriction Period had ended
upon such Change in Control.
Any determination by the Committee made pursuant to
paragraph (a) of this Section 12.1 may be made as to all
outstanding Awards or only as to certain outstanding Awards
specified by the Committee and any such determination may be
made prior to or after a Change in Control.
12.2 Change in Control. A "Change in Control" shall be
deemed to occur if (1) there shall be consummated any
consolidation or merger of the Company with or into any
other corporation, any corporate reorganization involving
the Company, any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company, or any
sale or other disposition of shares of capital stock of the
Company, and (2) as a result of such consolidation, merger,
reorganization, sale, lease, exchange or other disposition,
(A) any person or group (as such terms are used in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), shall have become
the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of a majority of the Company's outstanding
voting stock, or (B) any person other than the Company shall
be the beneficial owner of the assets of the Company as
described above; provided, however, that the non-employee
members of the Board immediately prior to such transaction
may determine that a Change in Control for purposes of the
Plan has not occurred where control is to be acquired by:
(i) an employee stock ownership plan of the Company; (ii) a
group of persons who immediately prior to the transaction
were officers and senior employees of the Company; (iii) an
entity organized directly or indirectly by persons who
immediately prior to the transaction were officers and
senior employees of the Company and who upon consummation of
the transaction will be officers and employees of the
Company and of the acquiring entity, will have
representation on the Board of Directors of the acquiring
entity and will own at least 10% of the voting shares of the
acquiring entity; (iv) an entity or entities that acquire
shares of the Company in a corporate reorganization or
restructuring that involves no substantial change in the
effective beneficial ownership or control of the Company;
(v) any one or more non-profit organizations designated by
the Board of Directors pursuant to this Section 12.2(v) at
least 12 months prior to the Change in Control; (vi) a
person or persons who at the time of or prior to the
transaction announce their intention to make no substantial
change in the composition of the Board; provided, however,
that if during the 24 months after a transaction referred to
in this clause (vi) of Section 12.2, individuals who at the
beginning of such period constituted the entire Board shall
cease for any reason to constitute a majority thereof unless
the election of each new director who was not a director at
the beginning of such period was approved by a vote of at
least two-thirds of the directors then still in office who
were directors at the beginning of the period, a Change in
Control shall be deemed to have occurred as of the date the
composition of the Board is so changed.
12.3 Limitation. In the event that any benefits to a
Participant under this Plan, either alone or together with
any other payments or benefits otherwise owed to the Par
ticipant by the Company or a Designated Subsidiary on or
after a Change in Control would, in the Company's good faith
opinion, be deemed under Section 280G of the Code, or any
successor provision, to be parachute payments, the benefits
under this Plan shall be reduced to the extent necessary in
the Company's good faith opinion so that no portion of the
benefits provided herein shall be considered excess
parachute payments under Section 280G of the Code or any
successor provision. The Company's good faith opinion shall
be conclusive and binding upon the Participants.
ARTICLE XIII
Termination or Amendment of the Plan
13.1 Termination or Amendment. Notwithstanding any
other provision of this Plan, the Board may at any time, and
from time to time, amend, in whole or in part, any or all of
the provisions of the Plan (including any amendment deemed
necessary to ensure that the Company may comply with any
regulatory requirement referred to in Article 15), or
suspend or terminate it entirely, retroactively or
otherwise; provided, however, that, unless otherwise
required by law, the rights of a Participant with respect to
Options or other Awards granted prior to such amendment,
suspension or termination, may not be impaired without the
consent of such Participant and, provided further, without
the approval of the holders of the Company's stock entitled
to vote, no amendment may be made which would (i) increase
the aggregate number of shares of Common Stock that may be
issued under this Plan (except by operation of Section 4.2);
(ii) change the definition of employees eligible to receive
Stock Awards under this Plan; (iii) decrease the option
price of any Stock Option to less than 100% of the Fair
Market Value on the date of grant for a Stock Option
intended to be an Incentive Stock Option or to less than 85%
of the Fair Market Value on the date of grant for a Stock
Option intended to be a Non-Qualified Stock Option; or (iv)
extend the maximum option period under Section 6.4 of the
Plan.
The Committee may amend the terms of any Stock
Option or other Award theretofore granted, prospectively or
retroactively, but, subject to Article 4 above, no such
amendment or other action by the Committee shall impair the
rights of any holder without the holder's consent. The
Committee may also substitute new Stock Options for previ
ously granted Stock Options having higher option exercise
prices than the new Stock Options being substituted
therefor.
ARTICLE XIV
Unfunded Plan
14.1 Unfunded Status of Plan. This Plan is intended to
constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments as to which a
Participant has a fixed and vested interest but which are
not yet made to a Participant by the Company, nothing
contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the
Company.
ARTICLE XV
General Provisions
15.1 Legend. The Committee may require each person
purchasing shares pursuant to a Stock Option or other Award
under the Plan to represent to and agree with the Company in
writing that the Participant is acquiring the shares without
a view to distribution thereof. In addition to any legend
required by this Plan, the certificates for such shares may
include any legend which the Committee deems appropriate to
reflect any restrictions on Transfer.
All certificates for shares of Common Stock
delivered under the Plan shall be subject to such stock
transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any
stock exchange upon which the Stock is then listed or any
national securities exchange system upon whose system the
Stock is then quoted, any applicable Federal or state
securities law, and any applicable corporate law, and the
Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such
restrictions.
15.2 Other Plans. Nothing contained in this Plan shall
prevent the Board from adopting other or additional
compensation arrangements, subject to shareholder approval
if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific
cases.
15.3 No Right to Employment. Neither this Plan nor the
grant of any Option or other Award hereunder shall give any
Participant or other employee any right with respect to
continuance of employment by the Company or any subsidiary,
nor shall they be a limitation in any way on the right of
the Company or any subsidiary by which an employee is
employed to terminate his employment at any time.
15.4 Withholding of Taxes. The Company shall have the
right to deduct from any payment to be made pursuant to this
Plan, or to otherwise require, prior to the issuance or
delivery of any shares of Common Stock or the payment of any
cash hereunder, payment by the Participant of, any Federal,
state or local taxes required by law to be withheld.
The Committee may permit any such withholding
obligation to be satisfied by reducing the number of shares
of Common Stock otherwise deliverable. A person required to
file reports under Section 16(a) of the Securities Exchange
Act of 1934 with respect to securities of the Company may
elect to have a sufficient number of shares of Common Stock
withheld to fulfill such tax obligations (hereinafter a
"Withholding Election") only if the election complies with
such conditions as are necessary to prevent the withholding
of such shares from being subject to Section 16(b) of the
Securities Exchange Act of 1934. To the extent necessary
under then current law, such conditions shall include the
following: (x) the Withholding Election shall be subject to
the disapproval of the Committee and (y) the Withholding
Election is made (i) during the period beginning on the
third business day following the date of release for
publication of the quarterly or annual summary statements of
sales and earnings of the Company and ending on the twelfth
business day following such date, (ii) six months before the
Stock Award becomes taxable, or (iii) during any other
period in which a Withholding Election may be made under the
provisions of Rule 16b-3 promulgated pursuant to the Act.
Any fraction of a share of Common Stock required to satisfy
such tax obligations shall be disregarded and the amount due
shall be paid instead in cash by the Participant.
15.5 No Assignment of Benefits. No Option, Award or
other benefit payable under this Plan shall, except as
otherwise specifically provided by law, be Transferable in
any manner, and any attempt to Transfer any such benefit
shall be void, and any such benefit shall not in any manner
be liable for or subject to the debts, contracts,
liabilities, engagements or torts of any person who shall be
entitled to such benefit, nor shall it be subject to
attachment or legal process for or against such person.
15.6 Listing and Other Conditions.
(a) As long as the Common Stock is listed on a
national securities exchange or system sponsored
by a national securities association, the issue of
any shares of Common Stock pursuant to an Option
or other Award shall be conditioned upon such
shares being listed on such exchange or system.
The Company shall have no obligation to issue such
shares unless and until such shares are so listed,
and the right to exercise any Option or other
Award with respect to such shares shall be
suspended until such listing has been effected.
(b) If at any time counsel to the Company shall
be of the opinion that any sale or delivery of
shares of Common Stock pursuant to an Option or
other Award is or may in the circumstances be
unlawful or result in the imposition of excise
taxes under the statutes, rules or regulations of
any applicable jurisdiction, the Company shall
have no obligation to make such sale or delivery,
or to make any application or to effect or to
maintain any qualification or registration under
the Securities Act of 1933, as amended, or
otherwise with respect to shares of Common Stock
or Awards, and the right to exercise any Option or
other Award shall be suspended until, in the
opinion of said counsel, such sale or delivery
shall be lawful or will not result in the
imposition of excise taxes.
(c) Upon termination of any period of suspension
under this Section 15.6, any Award affected by
such suspension which shall not then have expired
or terminated shall be reinstated as to all shares
available before such suspension and as to shares
which would otherwise have become available during
the period of such suspension, but no such
suspension shall extend the term of any Option.
15.7 Governing Law. This Plan and actions taken in
connection herewith shall be governed and construed in
accordance with the laws of the State of New York
(regardless of the law that might otherwise govern under
applicable New York principles of conflict of laws).
15.8 Construction. Wherever any words are used in this
Plan in the masculine gender they shall be construed as
though they were also used in the feminine gender in all
cases where they would so apply, and wherever any words are
used herein in the singular form they shall be construed as
though they were also used in the plural form in all cases
where they would so apply.
15.9 Liability. No member of the Board, no employee of
the Company and no member of the Committee (nor the
Committee itself) shall be liable for any act or action
hereunder, whether of omission or commission, by any other
member or employee or by any agent to whom duties in
connection with the administration of the Plan have been
delegated or, except in circumstances involving his bad
faith, gross negligence or fraud, for anything done or
omitted to be done by himself.
15.10 Other Benefits. No Award payment under this
Plan shall be deemed compensation for purposes of computing
benefits under any retirement plan of the Company or its
subsidiaries nor affect any benefits under any other benefit
plan now or subsequently in effect under which the
availability or amount of benefits is related to the level
of compensation.
15.11 Costs. The Company shall bear all expenses
incurred in administering this Plan, including expenses of
issuing Common Stock pursuant to any Awards hereunder.
15.12 No Right to Same Benefits. The provisions of
Awards need not be the same with respect to each
Participant, and such Awards to individual Participants need
not be the same in subsequent years.
ARTICLE XVI
Effective Date of Plan
The Plan shall become effective upon the date specified
by the Board in its resolution adopting the Plan, subject to
the approval of the Plan by the holders of a majority of the
capital stock of the Company entitled to vote thereon within
one year after the Plan is adopted. Any grants of Awards
hereunder prior to such approval shall be effective when
made (unless otherwise specified by the Committee at the
time of grant), but shall be conditioned on, and subject to,
such approval of the Plan by shareholders.
ARTICLE XVII
Term of Plan
No Stock Option, Stock Appreciation Right, Restricted
Stock, Performance Shares, Performance Unit or Other Stock-
Based Award shall be granted pursuant to the Plan on or
after the tenth anniversary of the earlier of the date the
Plan is adopted or the date of shareholder approval but
Awards granted prior to such tenth anniversary may extend
beyond that date.
ARTICLE XVIII
Name of Plan
This Plan shall be known as "The Reader's Digest
Association, Inc. 1994 Key Employee Long Term Incentive
Plan."
ARTICLE XIX
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.
APPENDIX 1
THE READER'S DIGEST ASSOCIATION, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of GEORGE V. GRUNE, JAMES E.
PRESTON AND ROBERT G. SCHWARTZ as attorney and proxy, with power of
substitution, to represent the undersigned and vote as designated below
all the shares of Class B Voting Common Stock that the undersigned may
be entitled to vote at the Annual Meeting of Stockholders of THE
READER'S DIGEST ASSOCIATION, INC. to be held December 12, 1997, and at
any adjournments thereof, with all powers the undersigned would possess
if personally present, on the proposals described in the Notice of
Meeting and Proxy Statement of the Board of Directors and in accordance
with their discretion of the Board of Directors on any other business
that may come before the meeting.
Please mark, date and sign your name exactly as it appears on this
proxy card and return this proxy card in the enclosed envelope. For
shares registered jointly, each joint owner should sign. Persons
signing in a representative capacity (e.g., attorney, executor,
administrator, trustee, guardian, etc.) or as an officer of a
corporation should indicate their capacity, title or office.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
(Back of Card)
Please
[X] mark your
votes as
this
CLASS B COMMON
The Board of Directors recommends a vote FOR Proposals 1 and 2.
WITHHELD
1ELECTION OF DIRECTORS FOR FOR ALL
Nominees: George V. Grune, [ ] [ ]
Melvin R. Laird, Lynne V. Cheney,
M. Christine DeVita,
James E. Preston, Robert G. Schwartz,
C.J. Silas, William J. White
FOR Against Abstain
2-Amendment of the 1994 Key Employee [ ] [ ] [ ]
Long Term Incentive Plan to increase the
number of shares.
WITHHELD FOR: (Write that nominee's name in the
space provided below).
Receipt is hereby acknowledged of The Reader's Digest Association, Inc.
Notice of Meeting and Proxy Statement.
Signature(s) Date
NOTE: Please sign as name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
APPENDIX 2
THE READER'S DIGEST EMPLOYEES PROFIT-SHARING PLAN
THE READER'S DIGEST ASSOCIATION, INC.
CONFIDENTIAL VOTING DIRECTION TO THE TRUSTEE, SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
I hereby direct State Street Bank and Trust Company, as Trustee
under The Reader's Digest Employee Profit-Sharing Plan, to vote as
directed on the reverse side my proportionate interest in the shares of
Class B Voting Common Stock of THE READER'S DIGEST ASSOCIATION, INC.
held in the Stock Fund under that Plan at the Annual Meeting of
Stockholders of THE READER'S DIGEST ASSOCIATION, INC. to be held
December 12, 1997, and at any adjournments thereof, on the election of
directors as described in the Notice of Meeting and Proxy Statement of
the Board of Directors.
(Please note any change of address below.)
Proportionate interest in shares-
shares of
a total of 1,716,057 shares of
Class B Voting Common Stock
in the Stock Fund
To be completed, signed and dated on the reverse side.
(Back of Card)
Please
[X] mark your
votes as
this
CLASS B COMMON
The Board of Directors recommends a vote FOR Proposals 1 and 2.
WITHHELD
1 ELECTION OF DIRECTORS FOR FOR ALL
Nominees: George V. Grune, [ ] [ ]
Melvin R. Laird, Lynne V. Cheney,
M. Christine DeVita, James E. Preston,
Robert G. Schwartz, C.J. Silas,
William J. White
WITHHELD FOR: (Write that nominee's name in the
space provided below).
2 Amendment of the 1994 Key Employee FOR AGAINST ABSTAIN
Long Term Incentive Plan to increase [ ] [ ] [ ]
the number of shares
The Trustee will vote your proportionate interest in the shares of
Class B Voting Common Stock in the Stock Fund as you direct. IF YOU
SIGN BELOW, BUT DO NOT GIVE ANY INSTRUCTIONS, THE TRUSTEE WILL VOTE
YOUR PROPORTIONATE INTEREST IN THOSE SHARES `FOR' THE PROPOSAL LISTED
HEREIN.
Date
Signature of Participant (Please date and sign exactly as name is
printed herein.)
