FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 1-10434
THE READER'S DIGEST ASSOCIATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1726769
(State or other jurisdiction of (I.R.S.
incorporation or organization) Employer
Identification
No.)
Pleasantville, New York 10570-7000
(Address of principal executive (Zip Code)
offices)
(914) 238-1000
(Registrant's telephone number, including area code)
______________________________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
As of October 31, 1997, the following shares of the registrant's
common stock were outstanding:
Class A Nonvoting Common Stock, $0.01 par value: 84,596,818 shares
Class B Voting Common Stock, $0.01 par value:21,716,057 shares
Page 1 of 14 pages.
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
Index to Form 10-Q
September 30, 1997
Part I - Financial Information Page No.
The Reader's Digest Association, Inc. and Subsidiaries
Financial Statements (unaudited):
Consolidated Condensed Statements of Income
for the three-month periods ended September 30, 1997 and 1996 3
Consolidated Condensed Balance Sheets
as of September 30, 1997 and June 30, 1997 4
Consolidated Condensed Statements of Cash Flows
for the three-month periods ended September 30, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Part II - Other Information 12
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three-month periods ended September 30, 1997 and 1996
(In millions, except per share data)
(unaudited)
Three-month period ended
September 30,
1997 1996
Revenues $ 561.4 $ 644.0
Product, distribution and editorial expense 203.5 221.7
Promotion, marketing and administrative 371.4 375.7
expense
Other operating items 70.0 ---
Operating (loss) profit (83.5) 46.6
Other income, net 6.2 8.0
(Loss) income before (benefit) provision (77.3) 54.6
for income taxes
(Benefit) provision for income taxes (20.9) 20.0
Net (loss) income $ (56.4) $ 34.6
(Loss) earnings per share $ (0.53) $ 0.32
Average common shares outstanding 106.3 107.4
Dividends per common share $0.225 $ 0.45
See accompanying notes to consolidated condensed financial statements.
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
As of September 30, 1997 and June 30, 1997
(In millions)
(unaudited)
September 30, June 30,
1997 1997
Assets
Cash and cash equivalents $ 54.1 $ 69.1
Receivables, net 480.7 426.3
Inventories 204.1 167.8
Prepaid expenses and other current assets 290.7 262.6
Total current assets 1,029.6 925.8
Marketable securities 20.8 30.7
Property, plant and equipment, net 301.7 314.8
Other noncurrent assets 336.4 372.5
Total assets $1,688.5 $1,643.8
Liabilities and stockholders' equity
Accounts payable $ 193.4 $ 211.8
Accrued expenses 435.2 373.6
Income taxes payable 12.3 22.1
Unearned revenue 387.5 356.5
Other current liabilities 92.7 49.1
Total current liabilities 1,121.1 1,013.1
Other noncurrent liabilities 308.5 284.7
Total liabilities 1,429.6 1,297.8
Capital stock 29.2 29.0
Paid-in capital 141.5 141.8
Retained earnings 843.6 924.2
Foreign currency translation adjustment (39.9) (33.4)
Net unrealized losses on certain (0.1) (0.3)
investments
Treasury stock, at cost (715.4) (715.3)
Total stockholders' equity 258.9 346.0
Total liabilities and stockholders' equity $1,688.5 $1,643.8
See accompanying notes to consolidated condensed financial statements.
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three-month periods ended September 30, 1997 and 1996
(In millions)
(unaudited)
Three-month period ended
September 30,
1997 1996
Cash flows from operating activities
Net (loss) income $ (56.4) $ 34.6
Depreciation and amortization 11.2 11.9
Other, net (43.3) (112.8)
Net change in cash due to operating (88.5) (66.3)
activities
Cash flows from investing activities
Proceeds from maturities and sales of
short-term investments and marketable 10.0 13.9
securities
Purchases of short-term investments and (0.2) (6.4)
marketable securities
Proceeds from other long-term investments, 46.1 9.0
net
Other, net (0.9) (3.5)
Net change in cash due to investing 55.0 13.0
activities
Cash flows from financing activities
Short-term borrowings, net 43.2 (3.1)
Dividends paid (24.2) (48.7)
Common stock repurchased --- (27.7)
Other, net (0.2) 1.7
Net change in cash due to financing 18.8 (77.8)
activities
Effect of exchange rate changes on cash (0.3) 0.1
Net change in cash and cash equivalents (15.0) (131.0)
Cash and cash equivalents at beginning of 69.1 258.1
period
Cash and cash equivalents at end of period $ 54.1 $ 127.1
See accompanying notes to consolidated condensed financial statements.
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In millions)
(unaudited)
(1) Basis of Presentation
The company reports on a fiscal year beginning July 1. The three-
month periods ended September 30, 1997 and 1996 are the first fiscal
quarters of fiscal year 1998 and fiscal year 1997, respectively.
The accompanying consolidated condensed financial statements have
not been audited, but in the opinion of management, have been
prepared in conformity with generally accepted accounting principles
applying certain judgments and estimates which include all
adjustments (consisting only of normal recurring adjustments)
considered necessary to present fairly such information. Operating
results for any interim period are not necessarily indicative of the
results for an entire year due to the seasonality of the company's
business.
(2) (Loss) Earnings Per Share
(Loss) earnings per share is computed by dividing net (loss) income,
less preferred stock dividend requirements, of $0.3 in each of the
three-month periods ended September 30, 1997 and 1996 by the
weighted average number of common shares outstanding during the
period.
(3) Inventories
September 30, June 30,
1997 1997
Raw materials $ 20.8 $ 17.4
Work-in-progress 25.8 26.5
Finished goods 157.5 123.9
$ 204.1 $167.8
(4) Revenues by Business Segments and Geographic Areas
Three-month period ended
September 30,
1997 1996
BUSINESS SEGMENTS
Reader's Digest Magazine $ 172.1 $ 174.9
Books and Home Entertainment Products 352.0 439.2
Special Interest Magazines 21.3 15.7
Other Businesses 16.0 14.2
Total revenues $ 561.4 $ 644.0
GEOGRAPHIC AREAS
United States $ 248.5 $ 269.5
Europe 217.7 275.6
Pacific and Other Markets 95.2 98.9
Total revenues $ 561.4 $ 644.0
(5) Other Operating Items
In the first quarter of 1998, the company recorded charges of $70.0
(the 1998 charges) ($51.8 after tax, or $0.49 per share) composed
primarily of severance costs associated with workforce reductions in
Europe, the United States and at the corporate level; and other costs
associated with the discontinuation of certain businesses and the
realignment of business processes and operations. Businesses to be
discontinued include a children's book club in the United States, and
the company's investment in LookSmart, a World Wide Web navigation
service. The realignment of business processes and operations also
relates to certain vendor contracts in the United States and Europe.
The components of these charges are reported in the table below.
As described in Note 2 to the company's consolidated financial
statements included in its 1997 Annual Report to Stockholders, the
company recorded charges of $35.0 in the fourth quarter of 1997, and
charges of $204.0 in the third quarter of 1996, relating primarily to
the realignment of the organization and operations and to the
streamlining of the company's organizational structure and the
strategic repositioning of certain businesses, respectively. The
components of these charges, as well as reserve balances remaining at
September 30, 1997, were:
Balance at 1998 Current Balance
June 30, Charges Activity Remaining
1997
Employee retirement & $ 56.7 $39.5 $ 5.9 $ 90.3
severance benefits
Other items 23.6 23.1 9.5 37.2
Business repositioning 0.7 7.4 --- 8.1
Total $ 81.0 $70.0 $ 15.4 $135.6
(6) Debt
In September 1997, the company entered into an agreement with Morgan
Guaranty Trust Company of New York for an uncommitted line of credit
of $50.0 (the Morgan line of credit) to be used for general corporate
purposes. The loans under the Morgan line of credit are payable on
demand and bear interest at a floating rate based on the cost of funds
of the bank plus a margin. At September 30, 1997, no borrowings were
outstanding under the Morgan line of credit.
As described in Note 13 to the company's consolidated financial
statements included in its 1997 Annual Report to Stockholders, the
company is a party to an agreement with The Chase Manhattan Bank for a
line of credit of $75.0 (the Chase line of credit) and a Competitive
Advance and Revolving Credit Facility Agreement (the credit agreement)
of up to $400.0. Under the credit agreement, the company must comply
with certain financial covenants, including a calculation of
consolidated tangible net worth, which calculation was recently
modified. At September 30, 1997, no borrowings were outstanding under
the credit agreement and borrowings in the amount of $32.7 were
outstanding under the Chase line of credit at a weighted average
interest rate of 5.8%. In addition, various international
subsidiaries of the company have lines of credit. At September 30,
1997, loans in the amount of $40.6 were outstanding under
international lines of credit.
The Reader's Digest Association, Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Dollars in millions, except per share data)
Results of Operations
Three-Month Period Ended September 30, 1997 Compared With Three-
Month Period Ended September 30, 1996
Other Operating Items
In the first quarter of 1998, the company recorded charges of $70.0
($51.8 after tax, or $0.49 per share) composed primarily of
severance costs of $39.5 associated with workforce reductions in
Europe, the United States, and at the corporate level; and other
costs associated with the discontinuation of certain businesses and
the realignment of business processes and operations. Businesses to
be discontinued include a children's book club in the United States,
and the company's investment in LookSmart, a World Wide Web
navigation service. The realignment of business processes and
operations also relates to certain vendor contracts in the United
States and Europe.
Management's discussion and analysis, as it pertains to geographic
and business segment information, has been written excluding the
effect of these charges.
Revenues/Operating Profit
Worldwide revenues for the first quarter of 1998 decreased to
$561.4, or by 13%, compared with $644.0 in the first quarter of
1997. Excluding the adverse effect of changes in foreign currency
exchange rates, revenues decreased 8%. Revenues declined primarily
in the company's European and United States operations. The
decrease in revenues was predominantly due to lower unit sales in
certain product lines within Books and Home Entertainment Products
as a result of a combination of lower mail quantities and lower
customer response to promotional mailings in major markets. The
lower customer response reflects a reduction in testing and the use
of less effective promotional offers. The revenue decline in the
United States was primarily a result of the timing and lower
quantity of promotional mailings in the first quarter of 1998
compared with the first quarter of 1997. The company reported a
worldwide operating loss of $83.5 in the first quarter of 1998,
compared with operating profit of $46.6 in the first quarter of
1997. Excluding the effect of other operating items, the operating
loss was $13.5 in the first quarter of 1998. These operating
results reflect lower revenues in major markets, higher
proportionate overhead and promotional spending, and increased
investment in product development, testing and list development
initiatives.
The company reported a net loss of $56.4, or $0.53 per share, in the
first quarter of 1998, compared with net income of $34.6, or $0.32
per share, in the first quarter of 1997. Excluding the effect of
other operating items, the loss was $0.05 per share in the first
quarter of 1998.
Other Income, Net
Other income, net decreased in the first quarter of 1998 to $6.2,
compared with $8.0 in the prior year. This decrease was primarily
because of lower interest income and lower gains on sales of certain
investments in 1998, which were partially offset by favorable
effects of foreign exchange transactions and hedging activity.
Income Taxes
For the first quarter of 1998, the reported tax rate was 27.1%.
Excluding the effect of other operating items, the overall effective
tax rate was 37.5% for the first quarter of 1998. For the first
quarter of 1997, the effective tax rate was 36.5%. The higher
effective tax rate in 1998 was primarily due to reduced utilization
of foreign tax credits.
Geographic Areas
United States
Revenues in the United States decreased from $269.5 in 1997 to
$248.5, or by 8%, in 1998. This decrease was primarily attributable
to lower unit sales in the general books and Condensed Books product
lines within Books and Home Entertainment Products, which were
partially offset by increased revenues in Special Interest
Magazines. The decrease in general books was primarily a result of
differences in the timing of scheduled promotional mailings and
lower mail quantities in 1998; there was one fewer general book
mailing in the first quarter of 1998 than in the prior year. In
addition, the decrease was due to better customer response last year
to a stronger general books title. The decline in Condensed Books
was a result of timing of promotional mailings, as well as a
reduction in paid shipments due to fewer customers carried into 1998
who were participating in the series. The increase in Special
Interest Magazines was primarily a result of the acquisition of
Walking magazine in the third quarter of 1997. Operating results
decreased significantly in 1998, compared with 1997, due to the
revenue decrease and spending on investment initiatives such as new
product development, testing and list development projects.
Europe
Revenues in Europe decreased from $275.6 in 1997 to $217.7, or by
21%, in 1998. Excluding the adverse effect of changes in foreign
currency exchange rates, revenues decreased 10%. The revenue
decrease was primarily due to lower unit sales, and, to a lesser
extent, lower-priced product offerings and sales of a lower-priced
product mix of Books and Home Entertainment Products. Within this
segment revenues declined in the series books, general books and
Condensed Books product lines. Lower sales in major markets were a
result of lower customer response to promotional mailings, reduced
mail quantities and lower paid shipments due to fewer customers
carried into 1998 for Condensed Books and series books product
lines. These revenue declines were partially offset by product
expansion in Eastern European markets. Operating profit decreased
significantly in 1998, compared with 1997, as a result of lower
revenues, higher proportionate overhead and promotional spending and
increased spending on investment initiatives such as list
development projects.
Pacific and Other Markets
Revenues in Pacific and Other Markets decreased from $98.9 in 1997
to $95.2, or by 4%, in 1998. Excluding the adverse effect of
changes in foreign currency exchange rates, revenues decreased 2%.
Lower Books and Home Entertainment Products revenues were partially
offset by increased Reader's Digest magazine circulation revenues in
new countries. Within Books and Home Entertainment Products, the
decline in revenues was due to lower unit sales of Condensed Books,
and, to a lesser extent, lower-priced product offerings and sales of
a lower-priced product mix in the general books product line.
Higher revenues in Latin America, reflecting product expansion
primarily in Brazil, were more than offset by significant revenue
declines in Australia and Canada, because of lower customer response
to promotional mailings. Operating results declined significantly
in 1998, compared with 1997, primarily because of lower revenues and
higher proportionate promotional spending.
Corporate Expense
Corporate expense in the first quarter of 1998 was about even with
the first quarter of 1997 at $10.9.
Business Segments
Reader's Digest Magazine
Revenues for Reader's Digest Magazine decreased from $174.9 in 1997
to $172.1, or by 2%, in 1998. Excluding the adverse effect of
changes in foreign currency exchange rates, revenues increased 3%.
The increase in revenues was attributable to higher circulation
revenues, and, to a lesser extent, higher advertising revenues.
Circulation declines in several European countries and lower paid
copies in the United States were more than offset by increased
circulation levels in Brazil, Eastern Europe and Thailand. In
addition, higher circulation revenues in the United States were
attributable to a more expensive mix of subscriptions. A lower
number of advertising pages in Europe was more than offset by higher
pages in the United States, as a result of the special anniversary
edition of the magazine in 1998, and in Pacific and Other Markets.
Rate per advertising page decreased due to a lower average price per
page in the United States relating to the anniversary edition, which
was offset by a higher negotiated rate per page on the regular U.S.
editions. Circulation declines in certain European markets,
including the company's major markets, and the decline of print
advertising's share of the overall European advertising market
negatively impacted advertising revenue. Operating profit for
Reader's Digest Magazine decreased in the first quarter of 1998
compared with the same period a year ago. The decrease reflects
higher promotional spending to acquire and renew subscribers who
purchase the company's other products, and spending on investment
initiatives such as list development projects.
Books and Home Entertainment Products
Revenues for Books and Home Entertainment Products decreased from
$439.2 in 1997 to $352.0, or by 20%, in 1998. Excluding the adverse
effect of changes in foreign currency exchange rates, revenues
decreased 14%, principally attributable to the company's United
States and European operations. The lower revenues were
predominantly due to lower unit sales in the general books,
Condensed Books and series books product lines. The decrease in
general books sales was primarily a result of one fewer promotional
mailing in the United States in the first quarter of 1998 than in
the prior year and better customer response last year to a stronger
general books title. The decline in Condensed Books and series
books revenues was caused by a combination of lower customer
response to promotional mailings in major markets, reduced mail
quantities in many markets, and lower paid shipments due to fewer
customers carried into 1998, as well as the timing of Condensed
Books mailings in the United States. Reduced revenues in certain
major markets caused by lower customer response to promotional
mailings, were offset by expansion in Eastern Europe and Latin
America. Operating profit for Books and Home Entertainment Products
decreased significantly in 1998, compared with 1997. These
operating results were affected by lower revenues, higher
proportionate promotional spending and increased spending on
investment initiatives such as new product development, testing, and
list development projects.
Special Interest Magazines
Revenues for Special Interest Magazines increased from $15.7 in 1997
to $21.3, or by 35%, in 1998. This increase was primarily
attributable to the acquisition of Walking magazine in the third
quarter of 1997. Excluding Walking, revenues increased 9%,
principally due to a higher number of advertising pages sold in the
first quarter of 1998. Operating results improved in 1998 compared
with 1997 primarily as a result of the higher advertising revenues.
Forward-Looking Information
The first priority for the company is to stabilize the results of
its existing product lines, which, in turn, would provide the
resources to fund future growth. The company's strategy to
stabilize its business includes the restoration of disciplined
techniques of testing promotions and products and the return to the
use of more effective sweepstakes promotions, as well as continued
investment in new product development and list development
initiatives. The company's growth strategy includes expanding
offerings of new products through new markets and new marketing
channels. Due to the long lead time nature of the company's
business, the effects of this strategy are expected to impact
results starting in fiscal 1999.
The company continues to evaluate its long-term strategy and expects
to make significant investments in its existing core product lines.
The company is formulating a new investment strategy on an annual
basis to supersede the $400.0 program previously announced. The
company is also evaluating its alliances for strategic fit and
return on investment and expects to renegotiate or terminate certain
alliances.
The statements contained in this report, if not historical, are
forward-looking statements, which involve risks and uncertainties
that could cause actual results to differ materially from the
financial results described in the forward-looking statements.
These risks and uncertainties include the effect of increased market
testing of the company's promotions and products, the effect of
modified and varied promotions, the ability to identify customer
trends, the ability to continue to create a broadly appealing mix of
new products, the ability to attract and retain new and younger
magazine subscribers and product customers, the effect of selective
adjustments in pricing, the ability to expand and more effectively
utilize the company's customer database, the effect of privacy and
other governmental regulation, the ability to expand into new
international markets and to introduce new product lines into new
and existing markets, the ability to expand into new channels of
distribution, the ability of the company to respond to competitive
pressures within and outside of the direct mail industry, the
ability to negotiate and implement productive strategic alliances
and joint ventures, the ability to contain and reduce costs,
especially through global efficiencies, the cost and effectiveness
of the realignment of business processes and operations, the
evolution of the company's organizational and structural
capabilities, the accuracy of management's assessment of the current
status of the company's business, the effect of worldwide paper and
postage costs, and general economic conditions.
Liquidity and Capital Resources
Cash and cash equivalents, short-term investments and marketable
securities decreased $24.8 to $77.6 at September 30, 1997 compared
with June 30, 1997. The decrease was primarily due to dividend
payments of $24.2 and cash used by operations of $88.5, which were
partially offset by proceeds from the sale of other long-term
investments of $46.1 and net proceeds from short-term borrowings of
$43.2.
In the first quarter of 1998, the company paid a $0.225 per share
dividend on its common stock, representing a 50% decrease compared
with $0.45 per share a year ago. At the current rate, the
annualized dividend is $0.90 per share in 1998 compared with $1.80
in 1997.
The company did not repurchase any shares of Class A nonvoting
common stock in the first quarter of 1998.
In September 1997, the company entered into an agreement with Morgan
Guaranty Trust Company of New York for an uncommitted line of credit
of $50.0 (the Morgan line of credit) to be used for general
corporate purposes. The loans under the Morgan line of credit are
payable on demand and bear interest at a floating rate based on the
cost of funds of the bank plus a margin. There were no borrowings
outstanding under the Morgan line of credit.
The company is a party to an agreement with The Chase Manhattan Bank
for a line of credit of $75.0 (the Chase line of credit) for a term
of one year to be used for general corporate purposes. The loans
under the Chase line of credit are payable on demand and bear
interest at a floating rate based on the cost of funds of the bank
plus a margin. At September 30, 1997, loans in the amount of $32.7
were outstanding under the Chase line of credit at a weighted
average interest rate of 5.8%. In addition, various international
subsidiaries of the company have lines of credit. At September 30,
1997, loans in the amount of $40.6 were outstanding under
international lines of credit.
The company is also a party to a Competitive Advance and Revolving
Credit Facility Agreement dated as of November 12, 1996, with a
syndicate of domestic and foreign banks (the credit agreement). The
credit agreement, which has a term of five years, permits
competitive advance and revolving credit borrowings of up to $400.0
by the company and its designated subsidiaries. Interest rates can
be based on: the prime rate, the federal funds rate, the London
Interbank Offered Rate (LIBOR), and money market rates. The
proceeds of the borrowings are to be used for general corporate
purposes, including acquisitions, share repurchases and commercial
paper backup. The credit agreement contains certain restrictions on
incurrence of debt, liens and guarantees of indebtedness. The
company must also comply with certain financial covenants, including
a calculation of consolidated tangible net worth, which calculation
was recently modified. There were no borrowings outstanding under
the credit agreement.
The company believes that its liquidity, capital resources, cash
flow and borrowing capacity are sufficient to fund normal capital
expenditures, working capital requirements, the payment of
dividends, the company's share repurchase program, and present plans
to expand existing product lines in existing markets, to identify
and develop new products and markets, and to enter into strategic
alliances and make small acquisitions.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.28 Agreement dated as of August 11, 1997 between the
registrant and George V. Grune.*
10.29 First Amendment dated as of September 17, 1997 to the
$400,000,000 Competitive Advance and Revolving Credit Facility
Agreement dated as of November 12, 1996 among the registrant,
the Borrowing Subsidiaries, The Chase Manhattan Bank and J.P.
Morgan Securities Inc.
10.30 The Reader's Digest Assocation, Inc. 1994 Key Employee
Long Term Incentive Plan, as amended and restated effective as
of October 10, 1997.*
27 Financial Data Schedule.
(b) Reports on Form 8-K
The company filed a report on Form 8-K on July 11, 1997 which
included a copy of a press release announcing a reduction in the
company's quarterly dividend, expected earnings for fiscal 1997
and senior management organization changes.
The company filed a report on Form 8-K on August 11, 1997 which
included a copy of a press release announcing a senior management
change.
The company filed a report on Form 8-K on September 8, 1997 which
included a copy of a press release announcing senior management
changes.
The company filed a report on Form 8-K on October 6, 1997 which
included a copy of a press release announcing expected earnings.
_____________
* Denotes a management contract or compensatory plan.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
The Reader's Digest Association, Inc.
(Registrant)
Date: November 13, 1997 By: George S. Scimone
George S. Scimone
Vice President and
Chief Financial Officer
(and authorized signatory)
EXHIBIT INDEX
Exhibit Page
10.28 Agreement dated as of August 11, 1997 between the
registrant and George V. Grune.*
10.29 First Amendment dated as of September 17, 1997 to the
$400,000,000 Competitive Advance and Revolving Credit
Facility Agreement dated as of November 12, 1996
among the registrant, the Borrowing Subsidiaries, The
Chase Manhattan Bank and J.P. Morgan Securities Inc.
10.30 The Reader's Digest Assocation, Inc. 1994 Key
Employee Long Term Incentive Plan, as amended and
restated effective as of October 10, 1997.*
27 Financial Data Schedule
* Denotes a management contract or compensatory plan.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's Consolidated Statement of Income and Consolidated
Balance Sheet for the three-month period ended September 30, 1997, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 54,100
<SECURITIES> 2,700
<RECEIVABLES> 645,000
<ALLOWANCES> 164,300
<INVENTORY> 204,100
<CURRENT-ASSETS> 1,029,600
<PP&E> 661,600
<DEPRECIATION> 359,900
<TOTAL-ASSETS> 1,688,500
<CURRENT-LIABILITIES> 1,121,100
<BONDS> 0
<COMMON> 400
0
28,800
<OTHER-SE> 229,700
<TOTAL-LIABILITY-AND-EQUITY> 1,688,500
<SALES> 561,400
<TOTAL-REVENUES> 561,400
<CGS> 644,900
<TOTAL-COSTS> 644,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,800
<INCOME-PRETAX> (77,300)
<INCOME-TAX> (20,900)
<INCOME-CONTINUING> (56,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (56,400)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
AGREEMENT made as of this 11th day of August, 1997, by
and between The Reader's Digest Association, Inc., a Delaware
corporation (the "Company"), and George V. Grune (the
"Employee").
WHEREAS, the Employee was formerly an employee of the
Company prior to his original retirement;
WHEREAS, the Employee possesses an intimate knowledge
of the business and affairs of the Company and its policies,
procedures, methods and personnel; and
WHEREAS, the Company desires to secure the services
and employment of the Employee on behalf of the Company and the
Employee is willing to render such services on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual
covenants contained herein, the parties hereto agree as
follows:
1. Employment Term. Subject to the terms and
provisions of this Agreement, the Company hereby agrees to
employ the Employee and Employee hereby agrees to be employed
by the Company for the period commencing on the date hereof and
ending on July 31, 1998 (the "Initial Term"), provided, however
that the period of employment shall automatically be extended
for a six month period on each of August 1, 1998 and February
1, 1999 (each an "Extension Term") (the Initial Term and each
Extension Term in effect, the "Employment Term") unless one of
the parties gives written notice to the other, not less than
forty five days prior to the proposed date of extension,
notifying the recipient that the notifying party does not wish
to extend the term of employment. The term of this Agreement
shall be coincident with the Employment Term.
2. Duties. During the Employment Term the Employee
shall serve as Chairman and Chief Executive Officer of the
Company or such other position as may be agreed upon by Company
and the Employee and shall perform such duties, services and
responsibilities incident to such position(s) as determined
from time to time by the Board of Directors of the Company (the
"Board").
The Employee shall devote his full business time,
attention and skill to the performance of such duties, services
and responsibilities, and will use his best efforts to promote
the interests of the Company. The Employee will not, without
the prior written approval of the Board, engage in any other
business activity which would interfere with the performance of
his duties, services and responsibilities hereunder or which is
in violation of policies established from time to time by the
Company.
However, the Employee shall be entitled to serve on
corporate, civic or charitable boards or committees and to
manage personal investments, so long as such activities do not
interfere with the performance of Employee's duties or
responsibilities pursuant to this Agreement.
3. Compensation and Certain Benefits. (a) In
consideration of the performance by the Employee of the
Employee's obligations during the Employment Term (including
any services as an officer, director, employee, member of any
committee of the Company, or otherwise) the Company will,
during the Employment Term, pay the Employee a salary (the
"Salary") at an annual rate of not less than $660,000. In
addition, the Employee will have an annual bonus target of
$990,000 with a range of opportunity of from 0% to 150% of the
annual bonus target, depending on Company results and
individual performance (the "Annual Bonus"). The Annual Bonus
shall be payable to the Employee only (i) to the extent the
Company achieves the performance goals for the applicable
fiscal year as set by the Company's Compensation & Nominating
Committee or (ii) if such performance goals are not met, with
the consent of the Company's Compensation & Nominating
Committee, taking into account such factors as cost reduction,
product development/marketing initiatives, organizational
changes, customer expansion and such other factors as the
Committee determines to be relevant.
(b) The Employee will be entitled to the use of a
Company automobile, use of the Company's airplane and use of on-
site housing during the Employment Term (collectively, the
"Perquisites").
(c) The Company will grant to the Employee in the
Initial Term stock appreciation rights ("SARs") relating to
212,000 shares of the Company's Class A common stock. 50% of
the SARs will vest on the last day of the Initial Term and a
further 25% of the SARs will vest on the last day of each
Extension Term, if in effect. If the Employment Term is not
extended beyond the Initial Term or the Employee is terminated
for any reason other than Cause (as defined below), all of the
SARs granted to the Employee or which, absent the Employee's
termination would have been granted to the Employee during the
Initial Term, shall vest immediately.
(d) With respect to any income imputed to the
Employee in connection with the Perquisites (the "Perquisite
Income"), the Employee will be entitled to receive an
additional amount (the "Perquisite Gross-Up Payment") so that
after payment of all taxes imposed on the Perquisite Gross-Up
Payment, the Employee retains an amount sufficient to pay all
taxes on the Perquisite Income.
(e) With respect to any investment income of the
Employee and any retirement income of the Employee arising out
of his original retirement from the Company (collectively, the
"Other Income"), the Employee will be entitled to receive an
additional amount (the "Other Income Gross-Up Payment" and,
together with the Perquisite Gross-Up Payment, the "Gross-Up
Payment") so that, after payment of all taxes on the Other
Income Gross-Up Payment, the Employee retains an amount
sufficient to pay all taxes imposed by the State and City of
New York on the Other Income.
(f) The Salary and the Perquisite Gross-Up Payment
shall be payable in accordance with the normal payroll
practices of the Company then in effect.
(g) At least thirty days prior to the due date of any
estimated tax payment by the Employee, the Employee shall
deliver to the Company's independent auditors (the "Auditors")
with a copy to the Company's Vice President, Tax a statement
(the "Quarterly Statement") setting forth the amount of the
Employee's Other Income to which the estimated tax payment
relates and his calculation of the Other Income Gross-Up
Payment with respect thereto. The Auditors shall determine and
report to the Company the amount of the applicable Other Income
Gross-Up Payment within fifteen days of their receipt of the
Quarterly Statement. Promptly following receipt of the
Auditor's report, the Company shall pay to the Employee the
amount of the Other Income Gross-Up Payment as determined by
the Auditors.
(h) Within thirty days after the filing by the
Employee of his federal, state and city tax returns for any tax
year, the Employee will deliver to the Auditors with a copy to
the Company's Vice President, Tax a statement (the "Annual
Statement") setting forth (i) the Employee's Other Income and
Perquisite Income (collectively, the "Gross-Up Income") for
that year, (ii) his calculation of the amount of the Gross-Up
Payment with respect thereto, and (iii) the difference between
(x) the Gross-Up Payment set forth on the Annual Statement and
(y) the sum of payments made to the Employee for that year
pursuant to Sections 3(d) and 3(g) (the "Residual Gross-Up
Payment"). The Auditors shall determine and report to the
Company the amount of the applicable Residual Gross-Up Payment
within fifteen days of their receipt of the Annual Statement.
If the Residual Gross-Up Payment amount as determined by the
Auditors is a positive number reflecting an under payment by
the Company of the applicable Gross-Up Payment, the Company
shall promptly following receipt of the Auditors report pay to
the Employee that amount or, if the Residual Gross-Up Payment
amount as determined by the Auditors is a negative number
reflecting an overpayment by the Company of the applicable
Gross-Up Payment, the Employee shall promptly following receipt
of the Auditors report pay to the Company that amount.
(i) If, at any time, the Internal Revenue Service or
any other taxing authority determines upon audit or issues an
assessment that additional tax is due with respect to the
Employee's Gross-Up Income, the Company shall pay to the
Employee the shortfall in the amount of the applicable Gross-Up
Payment. The Employee shall have the right to represent his
own interests in any such audit or in any proceeding with
respect to any such assessment (a "Tax Matter"), provided that
the Employee shall not be permitted to agree to a settlement of
any such Tax Matter without the consent of the Company, which
consent shall not be unreasonably withheld.
(j) Any determination made by the Auditors pursuant
to Sections 3(g) or 3(h) shall be final and binding on the
Company and the Employee.
(k) Except as expressly set forth herein, the
Employee shall be solely responsible for taxes imposed on the
Employee by reason of any compensation and benefits provided
hereunder and the Company shall be entitled to withhold from
all such compensation and benefits all applicable taxes
required to be withheld pursuant to federal, state or local
law.
4. Benefits. In addition to the payments and
benefits described above, during the Employment Term, the
Employee shall be entitled to participate in any employee
benefit plans then in effect for senior management and receive
any other programs or benefits that the Company then provides
to senior management to the extent the Employee meets the
eligibility requirements for any such plan or benefit;
provided, however, that the Employee shall not be eligible to
participate in the Severance Plan for Senior Management and the
Income Continuation Plan for Senior Management. Any SARs
granted to the Employee prior to his employment hereunder shall
continue to be outstanding and exercisable, in accordance with
their terms, during the Employment Term. All SARs granted to
the Employee during the Employment Term shall vest and become
fully exercisable upon a Change in Control pursuant to the
terms of the Key Employee Long Term Incentive Plan.
5. Vacations. During the Employment Term, the
Employee shall be entitled to the number of paid vacation days
in each calendar year determined by the applicable Company
policy from time to time, but not at the rate of less than 20
business days in any calendar year.
6. Termination. The Employee's employment with the
Company and the Employment Term shall terminate upon the
expiration of the Employment Term or upon the earlier
occurrence of any of the following events:
(a) The death of the Employee.
(b) The mutual agreement between the Company and
the Employee.
(c) The termination of employment by the Company
for Cause. Termination of employment for "Cause" shall mean
termination based on the Employee's breach of this Agreement,
conduct by the Employee that is dishonest, fraudulent or
unlawful, gross negligence, or willful misconduct by the
Employee, in any case, which discredits or damages the Company.
(d) The termination of employment by the Company
for Disability.
(e) The termination of employment by the Company
other than for Cause, Disability or Death.
In the event of termination of this Agreement pursuant
to Sections 6(b), (c) (d) or (e) hereof, the Employee agrees to
cooperate with the Company and to be reasonably available to
the Company with respect to continuing and/or future matters
arising out of the Employee's employment or any other
relationship with the Company, whether such matters are
business-related, legal or otherwise. The provisions of this
paragraph shall survive termination of this Agreement.
7. Termination Payments.
(a) If the Employee's employment with the
Company terminates for whatever reason, (1) the Company will
promptly pay the Employee (i) any portion of the Salary and
Gross-Up Payment accrued hereunder on or prior to the date of
termination but not paid to the Employee and (ii) an amount
equal to $56,221 multiplied by the number of months for which
the Employee was employed hereunder prior to his termination
payable in three equal annual installments, beginning on
January 1 in the year following the date of the Employee's
termination of employment, it being understood and agreed that
any amount payable to the Employee pursuant to this clause (ii)
shall bear interest from the date of this Agreement to the date
of payment thereof at the prime rate of The Chase Manhattan
Bank, New York and (2) the Employee shall be entitled to
exercise any outstanding options or SARs granted to him by the
Company, both prior to his employment hereunder and during the
Employment Term, at any time during the three-year period
following termination of his Employment with the Company.
(b) If the Employee's employment with the
Company terminates pursuant to Section 6(a) hereof, (i) the
Employee's wife shall be entitled to receive an amount, payable
as a life annuity, equal to the difference (if any) between the
amount of the annuity which the Employee had been receiving
prior to his employment hereunder as a result of his original
retirement, and any amount payable to the Employee's wife under
any Company retirement plan following the Employee's death so
that the Employee's wife receives a 100% survivor annuity and
(ii) the Company shall indemnify and hold harmless the
Employee's beneficiaries against any New York State or City
estate tax liability arising as a result of the Employee's
death. In the event that the taxing authority of New York
State or New York City determines upon audit or issues an
assessment that additional estate tax is due, the Employee's
beneficiaries shall not be permitted to agree to a settlement
with respect to such audit or assessment or proceeding without
the consent of the Company, which consent shall not be
unreasonably withheld.
(c) If the Employee's employment with the
Company terminates pursuant to Section 6(e) hereof, (i) the
Company will continue to pay the Employee an amount equal to
the Employee's Salary (at the rate in effect at the time of
termination of employment), in the case of termination prior to
the end of the Initial Term, for the balance of the Initial
Term, and, in the case of termination during either Extension
Term, for the balance of the applicable Extension Term and (ii)
the Company will, in the case of termination prior to the end
of the Initial Term , pay to the Employee within 60 days after
the end of fiscal 1998 the Annual Bonus applicable to fiscal
1998, whether or not the applicable performance goals have been
met and, in the case of termination during either Extension
Term, pay to the Employee within 60 days after the end of the
applicable Extension Term the Annual Bonus applicable to fiscal
1999 whether or not performance goals have been met, provided
that, if the termination is during the first Extension Term,
the Employee shall only be entitled to half of the Annual Bonus
for fiscal 1999.
(d) If the Employee's employment with the Company
terminates pursuant to Sections 6(a) or 6(d) hereof, the
Company will pay to the Employee or his designated
beneficiaries, within 60 days after the end of the fiscal year
in which termination occurred, the Annual Bonus applicable to
that fiscal year, to the extent that Annual Bonus is payable
pursuant to Section 3(a) hereof. The amount of the Annual
Bonus shall be pro-rated for that portion of the fiscal year
during which he was employed.
8. Employee Covenants.
(a) During the terms of this Agreement and for a
period of two years thereafter, the Employee shall not (i)
commit any criminal act against the Company or any act that
would constitute "Cause", (ii) disclose any information likely
to be regarded as confidential and relating to the Company's
business, (iii) solicit the Company's employees to work for a
competitor of the Company, or (iv) perform any act detrimental
to the Company or its employees, including, but not limited to,
disparaging the Company, its senior management or its products.
(b) The Employee agrees that any breach or
threatened breach of Section 8(a) shall entitle the Company to
apply for and to obtain injunctive relief, which shall be in
addition to any and all other rights and remedies available to
the Company at law or in equity.
(c) All of the Employee rights and benefits
under this Agreement shall cease upon any breach by the
Employee 8(a) of this Agreement.
9. Non-Waiver of Rights. The failure to enforce at
any time the provisions of this Agreement or to require at any
time performance by the other party of any of the provisions
hereof shall in no way be construed to be a waiver of such
provisions or to affect either the validity of this Agreement
or any part hereof, or the right of either party to enforce
each and every provision in accordance with its terms.
10. Notices. Every notice relating to this Agreement
shall be in writing and shall be given by personal delivery or
by registered or certified mail, postage prepaid, return
receipt requested.
11. Binding Effect/Assignment. This Agreement shall
inure to the benefit of and be binding upon the parties hereto
and their respective heirs, executors, personal
representatives, estates, successors (including, without
limitation, by way of merger) and assigns. Notwithstanding the
provisions or the immediately preceding sentence, the Employee
shall not assign all or any portion of this Agreement without
the prior written consent of the Company.
12. Entire Agreement. This Agreement sets forth the
entire understanding of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements,
written or oral, between them as to such subject matter. This
Agreement may not be amended, nor may any provision hereof be
modified or waived, except by an instrument in writing duly
signed by the party to be charged.
13. Severability. If any provision of this
Agreement, or any application thereof to any circumstances, is
invalid, in whole or in part, such provision or application
shall to that extent be severable and shall not affect other
provisions or applications of this Agreement.
14. Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of New York, without reference to the principles of
conflict of laws.
15. Modifications and Waivers. No provision of this
Agreement may be modified, altered or amended except by an
instrument in writing executed by the parties hereto. No
waiver by either party hereto of any breach by the other party
hereto of any provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or
dissimilar provisions at the time or at any prior or subsequent
time.
16. Headings. The headings contained herein are
solely for the purposes of reference, are not part of this
Agreement and shall not in any way affect the meaning or
interpretation of this Agreement.
17. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be
an original but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the Company has caused this
Agreement to be executed by authority of its Board of
Directors, and the Employee has hereunto set his hand, the day
and year first above written.
THE READER'S DIGEST ASSOCIATION,
INC.
By: SUZANNE K. PILNICK
Name:Suzanne K. Pilnick
Title: Vice President, Human
Resources
BY: GEORGE V. GRUNE
George V. Grune
CONFORMED COPY
FIRST AMENDMENT dated as of
September 17, 1997 (the "Amendment"), to the
US$400,000,000 Competitive Advance and
Revolving Credit Facility Agreement dated as
of November 12, 1996 (the "Agreement"), among
THE READER'S DIGEST ASSOCIATION, INC., as a
Borrower and as the Guarantor (each as
defined therein), the Borrowing Subsidiaries
(as defined therein), the Lenders (as defined
therein), THE CHASE MANHATTAN BANK, as
Administrative Agent, and J.P. MORGAN
SECURITIES INC., as Syndication Agent.
The Borrowers (as defined in the Agreement) have
requested that the Lenders amend the net worth covenant of
the Agreement, and pursuant to Section 10.02(b) of the
Agreement, the Required Lenders are willing, on the terms
and subject to the conditions set forth below, to amend such
covenant as provided herein. Accordingly, in consideration
of the mutual agreements herein contained and other good and
valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. Definitions. Capitalized terms used
and not otherwise defined herein shall have the meanings
assigned to them in the Agreement.
SECTION 2. Amendments. Section 6.07 of the
Agreement is hereby amended by deleting such section in its
entirety and substituting, as of the Effective Date (as
defined in Section 4 herein), the following:
"SECTION 6.07. Consolidated Tangible Net Worth.
The Company will not permit Consolidated Tangible Net
Worth at any time to be less than the amount set forth
below for the time period set forth below:
Consolidated
Tangible
Time Period Net Worth
Until June 30, 1998: $175,000,000
On and after June 30, 1998
until December 31, 1998: $200,000,000
On and after December 31,
1998 until and on December
31, 1999: $250,000,000
After December 31, 1999: $300,000,000".
SECTION 3. Representations and Warranties. The
Company represents and warrants to each of the Lenders that:
(a) This Amendment has been duly authorized,
executed and delivered by it and constitutes a legal, valid
and binding obligation of the Company, enforceable in
accordance with its terms, except as enforcement thereof may
be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting
the enforceability of creditors' rights generally and by
general principles of equity.
(b) The representations and warranties set forth
in Article IV of the Agreement are true and correct with the
same effect as if made on the date hereof, except to the
extent such representations and warranties expressly relate
to an earlier date, in which case they were true and correct
in all material respects on and as of such earlier date.
(c) Before and after giving effect to this
Amendment, no Default has occurred and is continuing.
SECTION 4. Conditions to Effectiveness. This
Amendment shall become effective when each of the following
conditions is satisfied:
(a) The Administrative Agent (or its counsel)
shall have received counterparts of the Amendment signed by
each of the Company and the Required Lenders (such date
being herein called the "Effective Date").
(b) The Administrative Agent shall have received,
on behalf of itself and the Lenders, a favorable written
opinion of Clifford H.R. DuPree, Associate General Counsel
of the Company, addressed to the Administrative Agent and
the Lenders, dated the Effective Date and covering such
matters relating to the Company, this Amendment and the
Transactions as the Administrative Agent may reasonably
request.
(c) The Administrative Agent shall have received a
certificate, dated the Effective Date, signed by a Financial
Officer of the Company to the effect set forth in
clauses (b) and (c) of Section 3.
(d) The Administrative Agent shall have received
all documents it may reasonably request relating to the
existence or good standing of the Company or any other
Borrower or the Guarantor, the corporate power and authority
of the Company and any such other Borrower or the Guarantor
to enter into and the validity of this Amendment and the
other Loan Documents, and any other matters relevant hereto,
all in form and substance satisfactory to the Administrative
Agent.
(e) The Lenders shall have received the upfront
fees referred to in clause (a) of Section 7 below.
SECTION 5. Applicable Law. THIS AMENDMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
SECTION 6. Counterparts. This Amendment may be
executed in any number of counterparts, each of which shall
constitute an original but all of which when taken together
shall constitute but one agreement. Counterparts of this
Amendment may be delivered via telecopy transmission with
the same effect as the delivery of a manually executed
counterpart.
SECTION 7. Fees and Expenses. The Company shall
pay (a) upfront fees to all the Lenders in connection with
this Amendment, allocated pro rata among the Lenders in
accordance with their respective Commitments, as previously
agreed upon by the Lenders and the Company and (b) all
reasonable out-of-pocket expenses incurred by the
Administrative Agent in connection with the preparation,
execution and delivery of this Amendment, including but not
limited to the reasonable fees, charges and disbursements of
Cravath, Swaine & Moore, counsel for the Administrative
Agent.
SECTION 8. Agreement. Except as specifically
amended or modified hereby, the Agreement shall continue in
full force and effect in accordance with the provisions
thereof. As used therein, the terms "Agreement", "herein",
"hereunder", "hereinafter", "hereto", "hereof" and words of
similar import shall, unless the context otherwise requires,
refer to the Amendment.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed by their duly authorized
officers, all as of the date first above written.
THE READER'S DIGEST
ASSOCIATION, INC.
By
/s/: Craig T. Monaghan
Name: Craig T. Monaghan
Title: Vice President &
Treasurer
Guarantor:
THE READER'S DIGEST ASSOCIATION, INC.
By
/s/: Craig T. Monaghan
Name: Craig T. Monaghan
Title: Vice President &
Treasurer
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent
By
/s/: Carol A. Ulmer
Name: Carol A. Ulmer
Title: Vice President
J. P. MORGAN SECURITIES INC.,
as Syndication Agent
By
/s/: Stephen Kenneally
Name: Stephen Kenneally
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
By
/s/: Deborah A. Brodheim
Name: Deborah A. Brodheim
Title: Vice President
BARCLAYS BANK PLC
By
/s/: Terance Bullock
Name: Terrance Bullock
Title: Associate Director
CITIBANK, N.A.
By
/s/: Theodore J. Beck
Name: Theodore J. Beck
Title: Attorney in Fact
COMMERZBANK AG, New York
and/or Grand Cayman Branches
By
/s/: Subash R. Viswanathan
Name: Subash R. Viswanathan
Title: Vice President
By
/s/: Peter T. Doyle
Name: Peter T. Doyle
Title: Assitant Treasurer
MELLON BANK, N.A.
By
/s/: David McGowan
Name: David McGowan
Title: Vice President
ISTITUTO BANCARIO SAN PAOLO DI TORINO
By
/s/: Gerard M. McKenna
Name: Gerard M. McKenna
Title: Vice President
By
/s/: Robert Wurster
Name: Robert Wurster
Title: 1st Vice President
NATIONAL WESTMINSTER BANK PLC, NEW YORK BRANCH
By /s/: Christopher Fahey
Name: Christopher Fahey
Title: Assistant Vice President
By/s/: Angela Bozorgmir
Name: Angela Bozorgmir
Title: Vice President
THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH
By/s/: John C. Kissinger
Name: John C. Kissinger
Title: Joint General Manager
SVENSKA HANDELSBANKEN
By/s/: Geoffrey Walker
Name: Geoffrey Walker
Title: Senior Vice President
By/s/: Karl Forsman
Name: Karl Forsman
Title: Vice President
UNION BANK OF SWITZERLAND, NEW YORK BRANCH
By/s/: Eduardo Salazar
Name: Eduardo Salazar
Title: Director
By/s/: Stephen A. Cayer
Name: Stephen A. Cayer
Title: Assitant Vice President
ABN AMRO BANK N.V., NEW YORK BRANCH
By /s/: Frances OR Logan
Name: Frances OR Logan
Title: Group Vice President
By /s/: R. Scott Boras
Name: R. Scott Boras
Title: Assistant Vice President
THE FUJI BANK, LIMITED, NEW YORK BRANCH
By /s/: Raymond Ventura
Name: Raymond Ventura
Title: Vice President & Manager
ING BANK N.V.
By /s/: F.J. Dubbe
Name: F.J. Dubbe
Title: Legal Counsel
By /s/: W.E.J. Stut
Name: W.E.J. Stut
Title: Head Legal Department
CIBC INC.
By /s/: Pamela H. Friedman
Name: Pamela H. Friedman
Title: Director
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.
