SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
240.14a-11(c) or 240.14a-12
The Reader's Digest Association, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Investment Company Act Rule 20a-1(c).
[ ]$500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[ ]Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
1) Title of each class of securities
to which transaction applies:
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which transaction applies:
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value of transaction computed pursuant to Exchange Act
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is calculated and state how it was determined:
4) Proposed maximum aggregate value of
transaction:
[ ]Fee paid previously with preliminary materials.
[ ]Check the box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form
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RD LOGO APPEARS
October 1, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of The Reader's Digest Association, Inc. to be held
at 10:00 a.m. on Friday, November 13, 1998, at the Company's
DeWitt Wallace Auditorium, Reader's Digest Road, Chappaqua, New
York. Driving directions to the Wallace Auditorium appear on the
last page of the Proxy Statement.
The accompanying Notice of Meeting and Proxy Statement
describe the matters to be considered and voted upon at the
Meeting. In addition to consideration of these matters, there
will be a report to stockholders on the affairs of the Company,
and stockholders will have an opportunity to discuss matters of
interest concerning the Company.
Although only holders of record of the Company's Class B
Voting Common Stock at the close of business on September 23,
1998 are entitled to vote at the Meeting, we invite all
stockholders of the Company, including the holders of the
Company's Class A Nonvoting Common Stock, to attend.
If you are entitled to vote at the Meeting, it is important
that your shares be represented, whether or not you plan to
attend the Meeting personally. To ensure that your vote will be
received and counted, please promptly complete, date and return
your proxy in the enclosed return envelope, whether or not you
plan to attend the meeting in person.
Sincerely yours,
THOMAS O. RYDER
Thomas O. Ryder
Chairman and Chief Executive Officer
RD LOGO APPEARS
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
The Annual Meeting of Stockholders of The Reader's Digest
Association, Inc. (the "Company") will be held at the Company's
DeWitt Wallace Auditorium, Reader's Digest Road, Chappaqua, New
York, on Friday, November 13, 1998 at 10:00 a.m., New York time,
to consider and take action on the following matters:
(1) election of Directors of the Company;
(2) amendment of the 1994 Key Employee Long Term
Incentive Plan to increase the number of shares of
Class A Nonvoting Common Stock that may be made the
subject of stock options granted to any individual
in any fiscal year and to provide for
transferability of stock options awarded under that
plan;
(3) certain stockholder proposals submitted by
stockholders of the Company; and
(4) such other business as may properly come before
the Meeting.
The record date for the Meeting is September 23, 1998. The
Company is required to send notice of the Meeting only to record
holders of the Company's Class B Voting Common Stock at the close
of business on the record date. Only those stockholders are
entitled to attend Meeting and to vote those shares at the
Meeting. Holders of the Company's Class A Nonvoting Common Stock
on the record date are also welcome to attend the Meeting.
By Order of the Board of Directors:
C.H.R. DUPREE
C.H.R. DuPree
Vice President and Corporate Secretary
October 1, 1998
PROXY STATEMENT
GENERAL INFORMATION
Annual Meeting Time and Location
The Annual Meeting of Stockholders of The Reader's Digest
Association, Inc. (the "Company") will be held at the Company's
Wallace Auditorium, Reader's Digest Road, Chappaqua, New York, on
Friday, November 13, 1998 at 10:00 a.m., New York time. Driving
directions to the Wallace Auditorium appear on the last page of
the Proxy Statement.
Principal Executive Offices of the Company
The principal mailing address of the executive offices of
the Company is Pleasantville, New York 10570.
Record Date; Securities Entitled to be Voted at the Meeting
The record date for the Meeting is September 23, 1998. Only
shares of the Company's Class B Voting Common Stock (the "Class B
Voting Common Stock") held by holders of record at the close of
business on the record date are entitled to vote at the Meeting.
Each share of Class B Voting Common Stock is entitled to one
vote. On September 23, 1998, 21,716,057 shares of Class B Voting
Common Stock were outstanding.
The Class A Nonvoting Common Stock is not entitled to be
voted at the Meeting. Holders of Class A Nonvoting Common Stock
are receiving this Proxy Statement for information purposes only
and will not receive a proxy card.
Meeting Admittance Procedures
Only stockholders of record on the record date, or their
duly appointed proxy holders (not to exceed one per stockholder),
may attend the Meeting. If you or your proxy holder plans to
attend the Meeting, please return the longer portion of the
enclosed admission card. We will then place your name on an
admission list held at the entrance to the Meeting. Please save
the shorter portion of the admission card. You will have to
present the shorter portion of the admission card to gain
entrance to the Meeting.
If you plan to attend the Meeting and vote your shares in
person, but your shares are held in the name of a broker, trust,
bank or other nominee, you should also bring with you a proxy or
letter from the broker, trustee, bank or nominee confirming that
you beneficially own the shares.
Proxies Solicited by the Board of Directors
This Proxy Statement, and the proxy card that accompanies
the Proxy Statement to the holders of the Class B Voting Common
Stock, are first being sent or given to stockholders on or about
October 1, 1998.
The accompanying proxy card is solicited by the Board of
Directors of the Company. You may revoke your proxy by giving
written notice to the Corporate Secretary of the Company at any
time before your proxy is voted. The Board of Directors will
vote valid proxies that it receives in favor of the election of
the Board's nominees (except to the extent that authority is
withheld). The Board will vote those proxies on the management
proposals and on the stockholder proposals as stated in the
instructions in the proxy. Your presence at the meeting does not
of itself revoke the proxy.
The Company will bear the cost of the solicitation of
proxies through use of this Proxy Statement, including
reimbursement of brokers and other persons holding stock in their
names, or in the names of nominees, at approved rates, for their
expenses for sending proxy material to principals and obtaining
their proxies. The Company has retained Morrow & Co., Inc. to
solicit proxies on behalf of management for an estimated fee of
$3,500, plus reimbursement of reasonable out-of-pocket expenses.
In addition, regular employees of the Company may solicit proxies
personally, or by mail, telephone or electronic transmission,
without additional compensation.
Vote Tabulation
Abstentions and "broker non-votes" are counted as "present"
in determining whether the quorum requirement is satisfied.
Abstentions have the same effect as votes against proposals
presented to stockholders other than election of directors.
"Broker non-votes" would have no effect on any matter considered
at the Annual Meeting because they are not considered "shares
present" for voting purposes. A "broker non-vote" occurs when a
nominee holding shares for a beneficial owner votes on one
proposal, but does not vote on another proposal because the
nominee does not have discretionary voting power and has not
received instructions from the beneficial owner.
As a matter of Company practice, stockholder votes at the
Annual Meeting are tabulated on a confidential basis by
independent third parties and certain employees of the Company
involved in the tabulation process. Each stockholder proxy card
and ballot are kept confidential until the final vote is
tabulated. Disclosure may be made, however, if applicable law
requires, if the proxy card contains a stockholder comment or
question or if the proxy solicitation is contested.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
Nominees
The Board of Directors currently consists of 10 members who
are elected annually to hold office until the next Annual Meeting
or until their successors are duly elected and qualified.
Consistent with the Company's retirement policy, Melvin R. Laird
and Robert G. Schwartz will not stand for re-election at the 1998
Annual Meeting. Consequently, the number of Directors to be
elected will be eight.
The affirmative vote of a plurality of the votes cast by the
holders of the Class B Voting Common Stock present in person or
represented by proxy and entitled to vote thereon is necessary to
elect a Director. If no contrary indication is made, proxies are
to be voted for the nominees named below or, in the event any
such nominee is not a candidate or is unable to serve as a
Director at the time of the election (which is not now expected),
for any nominee who shall be designated by the Board of Directors
to fill such vacancy. All nominees named below are incumbent
members of the Board of Directors.
Set forth below opposite the name and age of each nominee
are the nominee's present positions and offices with the Company,
the year in which the nominee was first elected a Director of the
Company and the nominee's principal occupations during the past
five years.
Positions and Offices With the Company and
Name and Age Principal Occupations During the Past Five Years
Thomas O. Ryder (54) Mr. Ryder has been Chairman of the Board and
Chief Executive Officer and a Director of
the Company since April 28, 1998. Mr. Ryder
was President, American Express Travel
Related Services International, a division
of American Express Company, from October
1995 to April 1998. Prior thereto, he
served as President, Establishment Services-
-Worldwide of American Express Travel
Related Services. Mr. Ryder is also a
director of StarTek, Inc.
Lynne V. Cheney (57) Dr. Cheney joined the Board of Directors in
1993. She is an author and lecturer and has
been a senior fellow of the American
Enterprise Institute for Public Policy
Research since January 1993. Prior thereto,
she served as Chairman of the National
Endowment for the Humanities. Dr. Cheney is
also a director of IDS Mutual Fund Group,
Lockheed-Martin Corporation and Union
Pacific Resources Group, Inc.
M. Christine DeVita (48) Ms. DeVita has been a member of the Board of
Directors of the Company since 1993. She
has been President of the DeWitt Wallace-
Reader's Digest Fund, Inc. and the Lila
Wallace-Reader's Digest Fund, Inc. since
June 1989.
George V. Grune (69) Mr. Grune is the Chairman of the DeWitt
Wallace-Reader's Digest Fund, Inc. and the
Lila Wallace-Reader's Digest Fund, Inc. Mr.
Grune, who first joined the Company in 1960,
retired as Chairman of the Board and Chief
Executive Officer of the Company in August
1995 and August 1994, respectively. He
returned to the Company in those capacities
from August 1997 to April 1998 and remained
an employee until July 1998. He served as a
Director from 1976 to his retirement in
1995, and returned to the Board in August
1997. Mr. Grune is also a director of Avon
Products, Inc., Bestfoods, The Chase
Manhattan Corporation and Federated
Department Stores, Inc.
James E. Preston (65) Mr. Preston has been a member of the Board
of Directors of the Company since 1994. He
has been Chairman of the Board of Avon
Products, Inc. (beauty and related products)
since January 1989 and was Chief Executive
Officer prior to July 1998, and President
prior to November 1993. Mr. Preston also
serves on the board of directors of Aramark,
Inc. and Venator Group, Inc.
Lawrence R. Ricciardi (58) Mr. Ricciardi has been a member of the Board
of Directors of the Company since August 14,
1998. He is Senior Vice President and
General Counsel of International Business
Machines Corporation, a position he has held
since May 1995. Prior thereto, Mr.
Ricciardi was President and General Counsel
of RJR Nabisco Holdings Corp.
C.J. Silas (66) Mr. Silas has been a member of the Board of
Directors of the Company since 1992. He
retired in May 1994 as Chairman and Chief
Executive Officer of Phillips Petroleum
Company, positions he had held since 1985.
Mr. Silas is also a director of Halliburton
Company.
William J. White (60) Mr. White has been a member of the Board of
Directors of the Company since 1996. He has
been a professor at the Robert R. McCormick
School of Engineering and Applied Sciences at
Northwestern University since January 1998.
He retired as Chairman of the Board of Bell &
Howell Company (information access and mail
processing systems) in December 1997, a
position he had held since 1990. Mr. White
also served as Chief Executive Officer of
Bell & Howell Company until March 1997 and as
President until February 1995. Mr. White is
also a director of Bell & Howell Company,
Ivex Packaging Corporation and TJ
International, Inc.
Corporate Governance Guidelines
The Board of Directors of the Company believes that the
responsibility of Directors is to oversee the management of the
Company. That responsibility includes:
Promoting the best interests of the Company and its
stockholders in directing the Company's business and
affairs;
Evaluating the performance of the Company and the Chief
Executive Officer and taking appropriate action, including
removal, when warranted;
Selecting, evaluating and fixing the compensation of the
Chief Executive Officer and senior management of the Company and
establishing policies regarding the compensation of members of
management;
Reviewing succession plans and management development
programs for members of senior management;
Reviewing and regularly approving long-term strategic and
business plans and monitoring corporate performance against such
plans;
Adopting policies of corporate conduct, including compliance
with applicable laws and regulations and maintenance of
accounting, financial and other controls, and reviewing the
adequacy of compliance systems and controls;
Evaluating periodically the overall effectiveness of the
Board; and
Deciding on matters of corporate governance.
The Board has adopted guidelines to assist it in the
exercise of its responsibilities, which are summarized below.
The Board believes that, under normal circumstances, the
Chief Executive Officer of the Company should also serve as the
Chairman of the Board. The Chairman of the Board and Chief
Executive Officer is responsible to the Board for the overall
management and functioning of the Company.
It is the policy of the Board that the Chairmen of the
standing Board Committees each act as the chairman at meetings or
executive sessions of the outside Directors at which the
principal items to be considered are within the scope of the
authority of the Committee. This Board believes that this
practice provides for leadership at all of the meetings or
executive sessions of outside directors, other than the Corporate
Governance Committee, without the need to designate a "lead"
director.
The Corporate Governance Committee is composed of all of the
outside Directors and meets in executive session outside the
presence of the Chief Executive Officer and other Company
personnel during a portion of each of the Board's regular
meetings. In addition, any member of the Corporate Governance
Committee may request the Committee Chairman to call an executive
session of such Committee at any time. The Chairman of the
Corporate Governance Committee serves as the interface between
that Committee and the Chief Executive Officer in communicating
the matters discussed during outside Directors' executive
sessions.
Annually, the Corporate Governance Committee meets in
executive session to evaluate the performance of the Chief
Executive Officer. In evaluating the Chief Executive Officer,
such Committee takes into consideration the executive's
performance in both qualitative and quantitative areas, such as:
leadership and vision; integrity; keeping the Board informed on
matters affecting the Company and its operating units;
performance of the business (including such measurements as total
stockholder return and achievement of financial objectives and
goals); development and implementation of initiatives to provide
long-term economic benefit to the Company; accomplishment of
strategic objectives and development of management.
Directors have open access to the Company's management,
subject to reasonable time constraints. Senior management of the
Company routinely attend Board and Committee meetings and they
and other managers frequently brief the Board and the Committees
on particular topics. Long-term strategic and business plans are
reviewed annually at one of the Board's regularly scheduled
meetings.
The Board plans for succession to the position of Chairman
and Chief Executive Officer, and reviews and approves succession
plans for other senior management positions. The Chairman and
Chief Executive Officer annually presents to the Compensation and
Nominating Committee and the Board a report on the Company's
senior management resources, development program and succession
plan.
The Chairman and Chief Executive Officer establishes the
agenda for each Board meeting, although Board members are free to
suggest items for inclusion on the agenda. Each Director is free
to raise at any Board meeting subjects that are not on the agenda
for that meeting or future meetings. A forward agenda of matters
requiring focused attention by the Board and each Committee is
prepared and distributed prior to the beginning of each calendar
year in order to ensure that all required actions are taken in a
timely manner and are given adequate consideration. In advance
of each Board or Committee meeting, a proposed agenda is
distributed to each member. In addition, information and data
important to the members' understanding of the matters to be
considered, including background summaries of presentations to be
made at the meeting, is distributed prior to the meeting.
Directors routinely receive monthly financial statements,
earnings reports, press releases, analyst reports and other
information designed to keep them informed of the material
aspects of the Company's business, performance and prospects.
It is the general policy of the Board that all major
decisions be considered by the Board as a whole. As a
consequence, the Committee structure of the Board is limited to
those Committees considered to be basic to the operation of a
publicly owned company. A substantial portion of the analysis
and work of the Board is done by standing Board Committees. A
Director is expected to participate actively in the meetings of
each Committee to which he or she is appointed. The Board has
established the following standing Committees: Audit;
Compensation and Nominating; Finance; and Corporate Governance.
The Compensation and Nominating Committee, with direct input
from the Chief Executive Officer, recommends to the Board the
membership of the various Committees and their Chairmen, and the
Board approves the Committee assignments. The Chairmen of the
standing Committees are to be rotated at least every three-to-
four years. In making its recommendations to the Board, such
Committee takes into consideration the need for continuity,
subject matter expertise, tenure and the desires of individual
Board members. It is the policy for the Board that only non-
employee Directors serve on the standing Committees. A Director
who is part of an interlocking directorate (i.e., one in which
the Chief Executive Officer or another executive officer of the
Company serves on the board of another corporation that employs
the Director) may not serve on the Compensation and Nominating
Committee. The composition of the Compensation and Nominating
Committee is reviewed annually to ensure that each of its members
meet the criteria set forth in applicable Securities and Exchange
Commission and Internal Revenue Service rules and regulations.
Board of Directors and Committees; Responsibilities and Meetings
During the Company's fiscal year ended June 30, 1998, its
Board of Directors held 15 meetings. The Board of Directors of
the Company has an Audit Committee, a Compensation and Nominating
Committee, a Corporate Governance Committee and a Finance
Committee.
The Audit Committee, which met twice during the 1998 fiscal
year, is composed of Mr. Preston (Chairman), Dr. Cheney, Ms.
DeVita and Mr. White. Its functions include: recommending
annually to the Board of Directors a firm of independent
accountants to audit and review the Company's books and records
and approving the scope of such firm's audit; reviewing the
adequacy of the Company's internal controls and auditing
procedures; reviewing the appropriateness of and effect of
changes in the Company's accounting principles and auditing
procedures; reviewing the Company's ethics policies and
procedures; and reviewing, approving and recommending to the
Board the Company's annual financial statements.
The Corporate Governance Committee, which was established in
May 1998, met once during the 1998 fiscal year. The Committee is
composed of all of the non-employee Directors. Its functions
include: reviewing governance matters; evaluating the performance
of the Chief Executive Officer; reviewing succession planning and
management development activities; and reviewing other internal
matters of broad corporate significance.
The Compensation and Nominating Committee, which met 15
times during the last fiscal year, consists of Mr. Silas
(Chairman), Dr. Cheney and Mr. Schwartz. The Committee's
functions include administering certain employee benefit plans;
recommending the amount and form of any contribution to The
Reader's Digest Employees Profit-Sharing and 401(k) Savings Plan;
reviewing the compensation levels and programs for officers and
key personnel and determining incentive compensation for
employees of the Company and its subsidiaries; and reviewing and
recommending candidates and nominees for election to the Board of
Directors.
The Finance Committee, which met once during the 1998 fiscal
year, is comprised of Ms. DeVita (Chairman) and Messrs. Laird,
Preston and Schwartz. The Finance Committee's functions include
overseeing the financial affairs of the Company, such as the
Company's investment policies and programs and those of its
employee benefit plans; and advising the Board with respect to
corporate financial policies and procedures, dividend policy,
financing plans and budgets, foreign exchange management, tax
planning and insurance coverage.
All members of the Board attended at least 75% of the
aggregate of (1) the total number of meetings of the Board held
during the period in the 1998 fiscal year that he or she was a
Director and (2) the total number of meeting held by all
committees of the Board on which he or she served during the
period in the fiscal 1998 year that he or she served.
Compensation of Directors
Effective April 1, 1998, the Board approved several changes
in the compensation program for non-employee Directors. The
changes, which were recommended by an independent compensation
consultant, were intended to increase the stock-based portion of
Directors' compensation, thereby more closely aligning their
interests with those of the Company's stockholders, while
maintaining the same approximate total amount of compensation.
The changes included the replacement of the annual cash retainer,
meeting attendance fees and phantom stock options with a retainer
paid two thirds in the form of Company stock and one third in
cash. In addition, the Board eliminated retirement payments for
new Directors and froze the calculation of retirement payments
for then-incumbent Directors.
Prior to the April 1, 1998 restructuring of Board
compensation, non-employee Directors received an annual cash
retainer of $32,000, payable quarterly, and meeting attendance
fees of $1,000 for each Board or Committee meeting attended
($1,500 for a Committee chairman). Also, each non-employee
Director was granted 1,000 phantom stock options on the date of
the Company's Annual Meeting of Stockholders. The options were
granted at the fair market value of the Class A Nonvoting Common
Stock on the date of grant, have a term of 10 years and vest with
respect to 25% of the total number of shares covered thereby on
each of the first four anniversaries of the date of grant. Any
unvested options vest when the Director ceases to be a member of
the Board.
Effective April 1, 1998, non-employee Directors receive an
annual retainer in stock and cash. The stock retainer consists
of the number of shares of Class A Nonvoting Common Stock equal
to $32,000, valued at the average of the closing price on the 20
trading days preceding the first trading day of each calendar
year and paid on that date. A cash retainer of $18,000 for non-
employee Directors, with an additional $3,000 for each Committee
Chairman, is paid in quarterly installments. In connection with
the revised compensation program, awards under the Directors'
Phantom Stock Option Plan were discontinued. Each individual who
became a non-employee Director prior to April 1, 1998 and who
serves as a non-employee Director for more than five years will,
upon retirement from the Board, continue to receive annual
compensation in the amount of $32,000. Individuals who became
non-employee Directors on or after April 1, 1998 receive
additional stock and cash while serving as a non-employee
Director in lieu of retirement payments. The stock consists of
the number of shares of Class A Nonvoting Common Stock equal to
$20,000, valued at the average of the closing price on the 20
trading days preceding the first trading day of each calendar
year and paid on that date. The cash amount equals $12,000 and
is paid in quarterly installments.
Under the Deferred Compensation Plan for Non-Employee
Directors of The Reader's Digest Association, Inc., non-employee
Directors are eligible to defer payment of 50%, 75% or 100% of
their cash compensation for certain established deferral periods.
Deferred compensation is credited to an unfunded account for each
participant, on which interest accrues at a rate determined by a
committee comprised of Directors who are not eligible to
participate in the plan. Payment of the deferred amounts will be
made, at the election of the participant, in a lump sum or in
annual installments of from one to 10 years.
Active and retired Directors and their spouses are eligible
to participate in the Reader's Digest Foundation Matching Gift
Program whereby contributions up to $5,000 a year to eligible
organizations are double matched by the Foundation. In fiscal
1998, the Company terminated a program that offered non-employee
Directors $100,000 of group term life insurance.
EQUITY SECURITY OWNERSHIP
Principal Stockholders
The following table shows, based on information reported to
the Company by or on behalf of such persons, the ownership, as of
September 23, 1998, of the Company's voting securities by the
only persons known to the Company to be the beneficial owners of
more than five percent of the Class B Voting Common Stock, the
only class of voting securities of the Company outstanding:
Amount and
Name and address of nature Percent of
beneficial owner of class
beneficial
ownership
DeWitt Wallace-Reader's 7,750,000 35.69%
Digest Fund, Inc. shares
Two Park Avenue (sole voting
New York, NY 10016 (1) and
investment
power)
Lila Wallace-Reader's 7,750,000 35.69%
Digest Fund, Inc. shares
Two Park Avenue (sole voting
New York, NY 10016 (1) and
investment
power)
State Street Bank and Trust 1,716,057 7.90%
Company, shares
as trustee of The Reader's (shared
Digest Employees voting and
Profit-Sharing and 401(k) investment
Savings Plan (2) power)
___________
(1) As of September 23, 1998, the DeWitt Wallace-Reader's Digest
Fund, Inc. also owned 6,117,240 shares of Class A Nonvoting
Common Stock, which, together with its holding of Class B
Voting Common Stock, represented 12.94% of the total
outstanding common stock of the Company. The Lila Wallace-
Reader's Digest Fund, Inc. also owned 2,439,558 shares of
Class A Nonvoting Common Stock, which, together with its
holding of Class B Voting Common Stock, represented 9.51% of
the total outstanding common stock of the Company.
(2) State Street Bank and Trust Company ("State Street") is
trustee of the Trust created by the Trust Agreement amended
and restated as of July 1, 1992 between The Reader's Digest
Association, Inc. and State Street, as trustee, relating to
The Reader's Digest Employees Profit-Sharing and 401(k)
Savings Plan (the "Profit-Sharing/401(k) Savings Plan).
According to the Schedule 13G filed by State Street in such
capacity and received by the Company, State Street may be
deemed to have shared voting and shared dispositive power over
the shares listed, but has disclaimed beneficial ownership of
all such shares.
Each of the DeWitt Wallace-Reader's Digest Fund, Inc. and
the Lila Wallace-Reader's Digest Fund, Inc. (collectively, the
"Funds") has five members and a board consisting of five
directors. Ms. DeVita and Messrs. Grune and Silas, who are
Directors of the Company, are also members and directors of each
of the Funds.
It has been the Company's objective since fiscal 1990 that
the Company's employee benefit plans, including the Profit-
Sharing/401(k) Plan, would hold up to 20% of the Class B Voting
Common Stock, or approximately 4% of the equity in common stock
of the Company, by the end of fiscal 1999. As of September 23,
1998, approximately 7.90% of the outstanding Class B Voting
Common Stock is held by the Profit-Sharing/401(k) Plan, which is
the only employee benefit plan that holds such stock.
In order to avoid the imposition of excise taxes, commencing
in the year 2000, the Funds together may not own more than 50% of
the voting stock or value of the Company. Accordingly, the Funds
must reduce their aggregate holdings of Class B Voting Common
Stock to 50% by the year 2000. The Funds presently own
approximately 71% of the outstanding Class B Voting Common Stock.
The Funds will be required to dispose of between 3-to-4.5 million
shares of Class B Voting Common Stock by the year 2000 (depending
on the amount of Class B Voting Common Stock outstanding,
including the amount held by the Company's employee benefit
plans), in order to avoid the imposition of excise taxes. No
determination has been made at this time as to the manner in
which, or the time during which, further reductions in ownership
of Class B Voting Common Stock will be effected. The Funds
intend to retain 50% of the Class B Voting Common Stock as long-
term investors.
Directors, Nominees and Executive Officers
The following table shows, as to the current Directors and
nominees individually, the Named Executive Officers (as listed in
the Summary Compensation Table) and the current Directors and
executive officers of the Company as a group, the equity
securities of the Company that were beneficially owned by them as
of September 23, 1998 (except as otherwise noted below).
Shares of
Class A
Name of beneficial Nonvoting
owner(1)(2) Common
Stock
Thomas O. Ryder 828,000(3)
Lynne V. Cheney 2,080
M. Christine DeVita 1,900
George V. Grune 191,000(4)
Melvin R. Laird 6,750(5)
James E. Preston 2,900
Lawrence R. Ricciardi 1,150
Robert G. Schwartz 7,900
C.J. Silas 1,900
William J. White 4,900
M. John Bohane 22,000(3)
Gregory G. Coleman 55,943(3)
Marcia M. Lefkowitz 56,050(3)
George S. Scimone 35,843(3)
James P. Schadt 165,493(3)
All current Directors,
nominees and executive 1,260,506(3)(4)(5)
officers as a group
(21 persons)
______________
(1) "Beneficial ownership" has been determined in accordance
with rule 13d-3 under the Securities Exchange Act of 1934.
Each Director, nominee or officer had sole voting and
investment power over the shares shown, except as noted below.
Each Director, nominee or Named Executive Officer
individually, and the Directors and executive officers as a
group, beneficially owned less than one percent of the total
issued and outstanding shares of Class A Nonvoting Common
Stock.
(2) Other than as indicated in footnote 3 below, no Director,
nominee or officer holds any shares of Class B Voting Common
Stock or any shares of preferred stock of the Company. Ms.
DeVita and Messrs. Grune and Silas are members and directors
of the Funds, which together beneficially own 10.01% of the
Class A Nonvoting Common Stock and 71.38% of the outstanding
Class B Voting Common Stock. See "Principal Stockholders."
(3) Includes shares of Class A Nonvoting Common Stock underlying
presently exercisable stock options as follows: Mr. Ryder,
470,000; Mr. Bohane, 12,500; Mr. Coleman, 47,450; Ms. Lefkowitz,
39,950; Mr. Scimone, 26,250; Mr. Schadt, 155,000; and all
Directors, nominees and current executive officers, 634,325.
Includes restricted shares of Class A Nonvoting Common Stock as
follows: Mr. Ryder, 358,000; Mr. Bohane, 9,500; Mr. Coleman,
6,700; Ms. Lefkowitz, 7,600; Mr. Scimone, 7,000; Mr. Schadt,
10,270; and all Directors, nominees and current executive
officers, 416,200. See "Executive Compensation_Summary
Compensation Table." Does not include 23,679 shares of Class B
Voting Common Stock over which members of the group have voting
authority as a result of their participation in the Profit-
Sharing/401(k) Plan.
(4) Includes 25,000 shares owned by the Grune Family Foundation,
as to which Mr. Grune disclaims beneficial ownership.
(5) Does not include 10,000 shares previously beneficially owned
by Mr. Laird that have been placed in trusts for the benefit
of Mr. Laird's grandchildren.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information for each of the
fiscal years ended June 30, 1998, 1997 and 1996 concerning the
compensation of the individuals whose compensation is required to
be disclosed pursuant to Securities and Exchange Commission
regulations (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-term compensation Pay-
Awards(1) outs
Annual compensation
Fiscal All
Name and Year Restricted Options LTIP other
principal Ended stock / pay- compens
position June 30 Salary Bonus Other award SARs # outs ation(2) )
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas O. Ryder 1998 $131,923 $ 0 $9,218,500(4) 1,080,000 $0 $350,000(5)
Chairman and
Chief
Executive
Officer(3)
George V. Grune 1998 $596,538 $178,200 $223,999(7) 414,000(8) $0 $6,084(9)
Former
Chairman and
Chief Executive
Officer(6)
M.John Bohane 1998 $330,769 $142,000 $255,906(11) 100,000(8) $0 $6,084
President,
International
Operations
and Senior
Vice President(10)
Gregory G.Coleman 1998 $347,923 $165,500 $180,481(11) 60,000(8) $0 $6,084
Senior Vice
President and
Worldwide
Publisher,
Reader's Digest
Magazine (12)
Marcia M. Lefkowitz 1998 $359,923 $ 34,200 $204,725(11) 92,000(8) $0 $6,084
President,
Reader's
Digest
U.S.A. and
Senior Vice
President (13)
George S. Scimone 1998 $330,538 $ 89,200 $188,563(11) 84,000(8) $0 $6,084
Vice President 1997 $271,808 $0 0(15) $0 $75,838(16)
and Chief 1996 $181,096 $ 85,000 0(15) $0 $202,496(16)
Financial
Officer (14)
James P. Schadt 1998 $160,192 $0(18) $82,830(19) (20) 0 $0 $1,513,427(21)
Former Chairman 1997 $850,000 $0(18) $122,327(19) (20) 0(14) $0 $0
and Chief 1996 $800,000 $588,327(18) $101,440(19) (20) 122,200(14) $0 $7,000
Executive
Officer (17)
</TABLE>
(1) All awards are made in or with respect to shares of Class A
Nonvoting Common Stock.
(2) Includes amounts contributed by the
Company to the Profit-Sharing/401(k) Plan for the accounts of
the Named Executive Officers except as otherwise noted below.
(3) Mr. Ryder joined the Company as
Chairman of the Board and Chief Executive Officer on April 28,
1998.
(4) Represents 358,000 shares of restricted stock granted in
connection with the commencement of Mr. Ryder's employment.
These shares vest as follows: 59,666 shares on September 30,
1998, 59,666 shares on each of December 31, 1998 and 1999, and
89,501 shares on each of June 30, 2000 and 2002. Mr. Ryder is
entitled to retain dividends paid on these shares. The
restricted stock shown in the table is valued at the closing
price of the Class A Nonvoting Common Stock on the NYSE on
April 28, 1998, the date of grant. As of June 30, 1998, Mr.
Ryder held an aggregate of 358,000 shares of restricted stock,
valued at $9,710,750, based on the closing price of the Class
A Nonvoting Common Stock on the NYSE on that date. See
"Employment Agreements."
(5)Includes a $350,000 payment made on September 14, 1998 to
replace a forfeited bonus opportunity from Mr. Ryder's
previous employer. See "Employment Agreements."
(6)Mr. Grune returned to the Company to serve as Chairman of the
Board and Chief Executive Officer from August 11, 1997 to
April 28, 1998, after having previously served as Chairman of
the Board until his retirement in August 1995 and as Chief
Executive Officer until August 1994. Mr. Grune was employed
by the Company until July 31, 1998 to assist with the
transition to his successor.
(7) Includes $198,852 for Mr. Grune's
use of corporate transportation primarily in connection with
his travel between the Company's offices and his primary
residence in Florida and related tax reimbursement provided
pursuant to Mr. Grune's employment agreement. See "Employment
Agreements."
(8) See "Stock Options and SARs Granted in Last Fiscal Year."
(9) See "Employment Agreements."
(10) Mr. Bohane, who served as
President, Direct Marketing of the Company until April 1991,
returned to the Company as Senior Vice President and
President, International Operations on September 8, 1997. Mr.
Bohane became President, Global Books and Home Entertainment
on July 27, 1998.
(11) Represents shares of restricted
stock as described in the "Report of the Compensation and
Nominating Committee." These shares vest on April 9, 2000,
the second anniversary of their grant. See "Severance
Arrangements." Holders of these shares are entitled to retain
dividends paid on these shares. The restricted stock shown in
the table is valued at the closing market price of the Class A
Nonvoting Common Stock on the NYSE on the date of grant. As
of June 30, 1998, the Named Executive Officers held the shares
of restricted stock shown in the table, which were valued as
follows, based on the closing price of the Class A Nonvoting
Common Stock on the NYSE on that date: Mr. Bohane, $257,688;
Mr. Coleman, $181,738; Ms. Lefkowitz, $206,150; and Mr.
Scimone, $189,875.
(12) Mr. Coleman, who is currently
Senior Vice President of the Company and President, U.S.
Magazine Publishing, was Senior Vice President and Worldwide
Publisher from October 10, 1997 to July 27, 1998.
(13) Ms. Lefkowitz was Senior Vice
President of the Company and President, Reader's Digest U.S.A.
from September 8, 1997 until August 7, 1998, when she left the
Company.
(14) Mr. Scimone, who is currently
Senior Vice President and Chief Financial Officer, was Vice
President and Chief Financial Officer from September 8, 1997
to July 27, 1998, Vice President of the Company and President
of Reader's Digest U.S.A. from November 1996 to September
1997, and Vice President and Corporate Controller from
September 1995, when he joined the Company, to November 1996.
(15) No options or SARs were awarded in
1996 or 1997 to executive officers who had previously received
multi-year grants.
(16) For 1997, consists of $63,333 in
incentive compensation paid in connection with Mr. Scimone's
commencement of employment and $12,505 in tax reimbursement
related to relocation. For 1996, consists of $80,000 in
incentive compensation paid in connection with Mr. Scimone's
commencement of employment and $122,496 in relocation benefits
and related tax reimbursement.
(17) Mr. Schadt served as President and
Chief Executive Officer until August 1995, as Chairman,
President and Chief Executive Officer thereafter until
September 1995 and as Chairman and Chief Executive Officer
thereafter until his resignation effective August 11, 1997.
See "Severance Arrangements."
(18) Mr. Schadt's annual bonuses reflect
the fact that a significant portion of his target annual bonus
was granted as performance-based restricted stock. In fiscal
1996, Mr. Schadt was awarded shares of performance-based
restricted stock under the 1994 Key Employee Long Term
Incentive Plan. 20% of the shares granted vested on September
15, 1995 and September 15, 1996, respectively, and an
additional 20% are scheduled to vest on September 15th of each
year, subject to the satisfaction of Company performance
goals. Mr. Schadt's 1996 bonus includes $413,327 representing
the value of shares of performance-based restricted stock that
vested on September 15, 1996, after certification of the
attainment of the Company performance goal relating to fiscal
1996. The value of the vested shares reported is based on the
closing market price of the Class A Nonvoting Common Stock on
the NYSE on that date. Because of the failure to attain the
Company performance goals relating to fiscal 1997 and fiscal
1998, the 10,269 and 10,270 shares of performance-based
restricted stock relating to those years were forfeited on
September 15, 1997 and 1998, respectively.
(19) Includes for Mr. Schadt $65,621 in
1997 and $38,063 in 1996 for personal use of corporate
transportation and related tax reimbursement.
(20) As of June 30, 1998, Mr. Schadt
held an aggregate of 20,540 shares of restricted stock, valued
at $557,148, based on the closing price of the Class A
Nonvoting Common Stock on the NYSE on that date. Because of
the failure to attain the fiscal 1998 Company performance
goals, Mr. Schadt forfeited 10,270 of these shares on
September 15, 1998. See Footnote 18 above.
(21) Reflects payments made in fiscal 1998 to Mr. Schadt pursuant
to agreements described under "Severance Arrangements."
Stock Options and SARs Granted in Last Fiscal Year
The following table sets forth information concerning stock
options and stock appreciation rights granted during the fiscal
year ended June 30, 1998 to the Named Executive Officers.
<TABLE>
<CAPTION>
Individual grants Potential realizable
Percent value at assumed
of annual rates of stock
total price appreciation for
options/ option/SAR term(2)
SARs Exer-
granted cise
Options/ to or Expir-
SARs employees base ation 0% 5%(3) 10%(4)
granted in fis- price date
Name (#)(1) cal year ($/sh)
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas O. Ryder 470,000(5) 14.66% 25.66 4/28/06 $0 $5,755,604 $13,788,132
360,000(5) 11.23% 25.66 4/28/08 $0 $5,807,278 $14,718,854
250,000(5) 7.80% 25.66 4/28/08 $0 $4,032,832 $10,221,426
George V. Grune(6) 212,000(7) 6.61% 27.03 11/18/97 n/a n/a
212,000(8) 6.61% 21.47 10/09/07 $0 $2,822,536 $ 7,130,793
M.John Bohane 50,000(7) 1.56% 27.03 11/18/97 n/a n/a
50,000(9) 1.56% 21.47 10/09/07 $0 $665,692 $ 1,681,791
Gregory G.Coleman 30,000(7) 0.93% 27.03 11/18/97 n/a n/a
30,000(9) 0.93% 21.47 10/09/07 $0 $399,415 $ 1,009,074
Marcia M.
Lefkowitz(10) 46,000(7) 1.43% 27.03 11/18/97 n/a n/a
46,000(9) 1.43% 21.47 10/09/07 $0 $612,437 $ 1,547,247
George S. Scimone 42,000(7) 1.31% 27.03 11/18/97 n/a n/a
42,000(9) 1.31% 21.47 10/09/07 $0 $599,182 $ 1,412,704
All Common -- -- -- -- $0 $1,447,166,534(8) $3,667,404,132(8) $3,667,4
Stockholders(11)
</TABLE>
(1) All options and SARs are granted with respect to Class A Nonvoting
Common Stock.
(2) The values shown are based on the
assumed hypothetical compound annual appreciation rates of 5%
and 10% prescribed by Securities and Exchange Commission
rules. These hypothetical rates are not intended to forecast
either the future appreciation, if any, of the price of Class
A Nonvoting Common Stock or the values, if any, that may
actually be realized upon such appreciation, and there can be
no assurance that the hypothetical rates will be achieved.
The actual value realized upon exercise of an option or SAR
will be measured by the difference between the price of the
Class A Nonvoting Common Stock and the exercise price on the
date the option or SAR is exercised.
(3) For the values stated in this
column to be realized, the price of the Class A Nonvoting
Common Stock would have to appreciate with respect to Mr.
Ryder's options from $25.66 to $37.91 during the eight-year
option term and from $25.66 to $41.80 during the 10-year
option term. With respect to all other options/SARs, the
stock price would have to appreciate from $21.47 to $34.78
during the 10-year option/SAR term.
(4) For the values stated in this
column to be realized, the price of the Class A Nonvoting
Common Stock would have to appreciate with respect to Mr.
Ryder's options from $25.66 to $55.00 during the eight-year
option term and from $25.66 to $66.55 during the 10-year
option term. With respect to all other options/SARs, the
stock price would have to appreciate from $21.47 to $55.11
during the 10-year option/SAR term.
(5) The vesting terms of these options are described under
"Employment Agreements. "
(6) Mr. Grune left the Company on July31, 1998. See "Employment Agreements."
(7) These options and SARs, which were granted on October 9, 1997
at an option price of $27.03 per share, were canceled and
replaced by options and SARs granted on November 18, 1997 at an
option price of $21.47 per share. The vesting, original expiration
and other terms of the replacement grant were not changed from
those of the prior grant. See "Employment Agreements" and
"Report of the Compensation and Nominating Committee."
(8) These SARs became fully vested on July 31, 1998.
(9) The options vest with respect to 25% of the related shares on each
of October 9, 1998,1999, 2000 and 2001.
(10) Ms. Lefkowitz left the Company on August 7, 1998. See "Severance
Arrangements."
(11) For "All Common Stockholders," the potential realizable values have
been calculated on the basis of the same price ($21.47) at which stock
options and SARs were granted on November 18, 1997 to the Named
Executiv Officers and on the basis of the total number of shares of
Class A Nonvoting Common Stock and Class B Voting Common Stock
outstanding on June 30, 1998. An increase in the price of the
Class A Nonvoting Common Stock will benefit all holders of
such stock and all option holders commensurately.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values
The following table sets forth information concerning stock
options and SARs exercised during the fiscal year ended June 30,
1998 and the fiscal year-end value of unexercised options and
SARs for the Named Executive Officers.
Number of Value of
unexercised unexercised
options/SARs in-the-money
at fiscal options/SARs
Shares year end at fiscal year
acquired end
on Value
Name exercise Realized Exer- Unexer- Exercis- Unexer-
cisable cisable isable cisable
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Thomas O. Ryder -- -- 470,000 610,000 $688,550 $893,650
George V. Grune -- -- 168,000 212,000 $0 $1,198,860
M.John Bohane -- -- 0 50,000 $0 $282,750
Gregory G. Coleman -- -- 38,825 70,375 $0 $169,650
Marcia M. Lefkowitz -- -- 28,450 64,750 $0 $260,130
George S. Scimone -- -- 7,750 89,450 $0 $237,510
James P. Schadt -- -- 155,000 227,200 $0 $0
</TABLE>
Ten-Year Option/SAR Repricings
The following table sets forth information concerning the
award of repriced options/SARs during the fiscal year ended June
30, 1998 for executive officers during the last ten fiscal years.
Number
of
Secur- Market Exercise Length of
ities Price Price New Original
Underly- of at Time Exer- Option Term
Name Date ing Stock of cise Remaining
Options at Time Repricing Price at Date of
/SARs of or ($) Repricing
Repriced Repriced Amendment or
or or Amendment
Amended Amendment
(#)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
M. John Bohane 11/18/97 50,000 21.47 27.03 21.47 9 years, 11 months
Senior Vice President
Gregory G. Coleman 11/18/97 30,000 21.47 27.03 21.47 9 years, 11 months
Senior Vice President
Peter J.C. Daveport 11/18/97 34,000 21.47 27.03 21.47 9 years, 11 months
Senior Vice President
Richard A. Garvey 11/18/97 42,000 21.47 27.03 21.47 9 years, 11 months
Former Sr. Vice Pres.
George V. Grune 11/18/97 212,000 21.47 27.03 21.47 9 years, 11 months
Former Chairman and CEO
Melvin R. Laird 11/18/97 7,000 21.47 27.03 21.47 9 years, 11 months
Vice President
Marcia M. Lefkowitz 11/18/97 46,000 21.47 27.03 21.47 9 years, 11 months
Former Sr. Vice Pres.
Barbara J. Morgan 11/18/97 42,000 21.47 27.03 21.47 9 years, 11 months
Former Sr. Vice Pres.
George S. Scimone 11/18/97 42,000 21.47 27.03 21.47 9 years, 11 months
Senior Vice President
Christopher P. 11/18/97 42,000 21.47 27.03 21.47 9 years, 11 months
Willcox
Senior Vice President
</TABLE>
The repricing of options and SARs is described under the caption
"Report of the Compensation and Nominating Committee."
Retirement Plans
The following table shows the estimated annual retirement
benefit to employees in specified compensation and years of
service classifications under The Reader's Digest Association,
Inc. Retirement Plan (the "Qualified Retirement Plan") based on
the retirement formula effective July 1, 1992. Amounts
calculated under the retirement formula which exceed the limits
under the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), will be paid under the Excess Benefit
Retirement Plan of The Reader's Digest Association, Inc. (the
"Excess Benefit Plan") from the Company's assets and are included
in the amounts shown below.
<TABLE>
Highest Estimated Annual Retirement Benefit for
Consecutive Representative Years of Credited Service
Three Year
Average
Compensation 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 400,000 122,875 163,833 204,792 245,750 286,708
$ 500,000 154,161 205,548 256,934 308,321 359,708
$ 600,000 185,446 247,262 309,077 370,893 432,708
$ 700,000 216,732 288,976 361,220 433,464 505,708
$ 800,000 248,018 330,690 413,363 496,036 578,708
$ 900,000 279,304 372,405 465,506 558,607 651,708
$ 1,000,000 310,589 414,119 517,649 621,178 724,708
$ 1,100,000 341,875 455,833 569,792 683,750 797,708
$ 1,200,000 373,161 497,548 621,934 746,321 870,708
</TABLE>
Compensation covered by the Qualified Retirement Plan is
based on salary. At June 30, 1998, the Named Executive Officers
were credited with approximately the following years of service
under the Qualified Retirement Plan: Mr. Ryder, -0-; Mr. Grune,
37; Mr. Bohane, 27, Mr. Coleman, 7, Ms. Lefkowitz, 30, Mr.
Scimone, 2, and Mr. Schadt, 6. The amounts shown in the table
reflect the effect of social security integration. The estimated
amounts in the table are based on the assumption that payments
under the Qualified Retirement Plan and the Excess Benefit Plan
will commence upon retirement at age 65, that the Qualified
Retirement Plan and the Excess Benefit Plan will continue in
force in their present form and that benefits will be paid in the
form of a single life annuity. Messrs. Grune and Schadt and Ms.
Lefkowitz are no longer employed by the Company. See "Employment
Agreements" and "Severance Arrangements."
Effective July 1, 1992, the Company adopted The Reader's
Digest Executive Retirement Plan (the "1992 Executive Retirement
Plan"). Benefits under the 1992 Executive Retirement Plan are
based on compensation (consisting of salary and bonus) and years
of service. Benefits are reduced by benefits payable under the
Qualified Retirement Plan, the Excess Benefit Retirement Plan and
certain other Company-provided retirement benefits. Because of
the nature of the interdependency among the 1992 Executive
Retirement Plan, the Qualified Retirement Plan and the Excess
Benefit Plan, it is not possible to present estimated benefits
under the 1992 Executive Retirement Plan in tabular format.
Benefits payable under the 1992 Executive Retirement Plan, after
the reductions for benefits payable under other plans, will be
$206,304 for Mr. Grune, and are currently estimated at $180,055
for Mr. Ryder, $37,478 for Mr. Bohane, $58,700 for Mr. Coleman,
$-0- for Ms. Lefkowitz and $72,314 for Mr. Scimone. Mr. Schadt's
retirement benefits are discussed below under "Severance
Arrangements." These amounts are based on the assumption that
payment under the 1992 Executive Retirement Plan will commence
upon retirement at age 65, that the 1992 Executive Retirement
Plan will continue in force in its present form and that benefits
will be paid in the form of a single life annuity. Mr. Grune's
benefit is based on the continuation of payment in connection
with his retirement on July 31, 1998 at age 69. Mr. Schadt's
retirement benefits are discussed below under "Severance
Agreements."
The Company is a party to supplemental retirement benefit
agreements with certain key employees. The agreements with
Messrs. Coleman and Schadt and Ms. Lefkowitz provide that they
will receive, respectively, supplemental retirement benefits of
$75,926, $53,442 and $73,000 per year for 15 years. Pursuant to
the agreement with Mr. Grune, he is receiving a benefit of
$52,300 for 15 years from his original retirement date of August
1995. Pursuant to the agreement with Mr. Bohane, he is receiving
a benefit of $38,360 for 15 years from his original early
retirement date of August 1991. The Company has agreed to pay
death benefits under such agreements. In addition, pursuant to a
separate supplemental retirement agreement with the Company dated
May 15, 1985, Mr. Grune is receiving a supplemental retirement
benefit of $68,500 per year for 15 years or until he dies, if
earlier. The supplemental agreement also provides for certain
death and disability benefits.
Employment Agreements
On April 28, 1998, the Company entered into an employment
agreement with Mr. Ryder as Chairman of the Board and Chief
Executive Officer of the Company (the "Ryder Agreement"). The
Ryder Agreement has an initial term of three years, which may be
terminated earlier under certain circumstances. At the end of
the initial three-year period, the term is subject each year to
an automatic extension of one year unless one party notifies the
other of its intent to terminate the Ryder Agreement.
As reimbursement for the compensation and benefits that Mr.
Ryder forfeited upon termination of his employment with his
previous employer, Mr. Ryder received the following upon
execution of the Ryder Agreement: (i) stock options in respect
of 470,000 shares of Class A Nonvoting Common Stock, which were
fully vested and exercisable as of the date of grant; (ii) stock
options in respect of 360,000 shares of Class A Nonvoting Common
Stock, which become vested and exercisable with respect to one-
third of such shares on each of the first three anniversaries of
the grant date; and (iii) 358,000 shares of restricted Class A
Nonvoting Common Stock, of which 59,666 shares will vest on
September 30, 1998, 59,666 shares will vest on each of December
31, 1998 and December 31, 1999 and 89,501 shares will vest on
each of June 30, 2000 and June 30, 2001 (collectively, the
"Replacement Equity Compensation"). All of the stock options
have an exercise price of $25.66 per share, the fair market value
for such shares on April 28, 1998, the date of grant. Mr. Ryder
also received a cash payment of $350,000 on September 14, 1998 to
replace the bonus opportunity he forfeited in respect of the
first six months of calendar 1998.
Pursuant to the Ryder Agreement, Mr. Ryder will receive an
annual base salary of $700,000 and an annual bonus under the
Company's Management Incentive Compensation Plan. Mr. Ryder's
annual target award for fiscal 1999 may be no lower than
$662,000. With respect to subsequent fiscal years, Mr. Ryder's
annual target will be determined in accordance with Company
policy. As provided for under the Ryder Agreement, on April 28,
1998, Mr. Ryder received stock options in respect of 250,000
shares of Class A Nonvoting Common Stock at an exercise price of
$25.66 per share, the fair market value for such shares on the
date of grant. In accordance with the Company's current policy,
the stock options become vested and exercisable with respect to
one-fourth of such shares on each of the first four anniversaries
of the date of grant. Future awards of stock options will be
granted to Mr. Ryder at the discretion of the Compensation and
Nominating Committee as part of the Company's annual stock option
program. Under the Ryder Agreement, Mr. Ryder is entitled to all
of the employee benefits, fringe benefits and perquisites
provided by the Company to other senior executives.
The Agreement provides that in the event Mr. Ryder's
employment is terminated by the Company without "cause" or by Mr.
Ryder with "good reason" (a "Qualifying Termination"), the
Company will pay to Mr. Ryder an amount in cash equal to three
times base salary plus two times annual bonus. The latter
component of the severance payment must equal the greater of (i)
the highest annual bonus paid to Mr. Ryder during the three years
preceding his termination and (ii) the originally approved target
amount of the highest award under the Management Incentive
Compensation Plan outstanding on the date of termination. In the
event Mr. Ryder's employment is terminated as the result of his
death or "disability," all of his outstanding and unvested stock
options and restricted stock shall become immediately vested. In
the event of a Qualifying Termination, all of his stock options
and shares of restricted stock that are unvested as of the date
of such termination will continue to vest during the two-year
period immediately following the date of termination. In
addition, to the extent unvested, the last tranche of the
Replacement Equity Compensation shall vest as of the last day of
such two-year period. If Mr. Ryder's employment is terminated
other than by the Company for cause or by Mr. Ryder without good
reason, Mr. Ryder and his beneficiaries will be entitled to
continued welfare benefits for a period of two years.
Under the Ryder Agreement, if Mr. Ryder's employment is
terminated on or after age 60 for any reason other than for
cause, the Company must pay Mr. Ryder (or, if the event of
termination is his death, his estate) an amount equal to the
difference between (x) the monthly retirement benefit Mr. Ryder
would accrue (without regard to vesting) under the Qualified
Retirement Plan, the Excess Benefit Retirement Plan and the
Executive Retirement Plan, or replacements for those plans, based
on his actual service with the Company plus, if Mr. Ryder's
employment is terminated either by the Company without cause or
by him for good reason, two years, and (y) the amount that he (or
his beneficiary) actually receives under such plans. Any such
amount will be payable at the same time and in the same form as
such payments would have been made under the Qualified Retirement
Plan, but will not be subject to any requirements of vesting or
any forfeitures. In the event Mr. Ryder's employment is
terminated prior to age 60 either by the Company without cause or
by Mr. Ryder for good reason, Mr. Ryder will be credited with two
additional years of credited service for all purposes (including
eligibility and vesting) under the Executive Retirement Plan.
If, after taking into consideration such additional credited
service, Mr. Ryder is not deemed to have been terminated after
the date on which his age plus years of service equals at least
65 (the "Early Retirement Date"), Mr. Ryder (or his beneficiary)
will receive a lump sum payment in the amount of the equivalent
actuarial value (as determined under the Qualified Retirement
Plan) of pension credits that would have been earned under the
Executive Retirement Plan through the end of the two-year
severance period. If after taking into consideration the two
additional years of credited service, Mr. Ryder is deemed to have
been terminated after his Early Retirement Date (and, in fact,
was terminated prior to age 60), Mr. Ryder will receive a benefit
under the terms of the Executive Retirement Plan in the form of a
life annuity. In the event Mr. Ryder's employment is terminated
prior to age 60 for any reason other than by the Company without
cause or by Mr. Ryder for good reason, Mr. Ryder will be entitled
to receive benefits under the terms of the Qualified Retirement
Plan, the Excess Benefit Retirement Plan and the Executive
Retirement Plan that generally apply to other senior executives.
The Ryder Agreement also provides that Mr. Ryder will be a
participant in the Severance Plan and the Income Continuation
Plan described below under "Severance Arrangements" and "Income
Continuation Plan." Benefits paid under those plans will be
credited against termination benefits payable under the Ryder
Agreement.
Under the terms of The Reader's Digest Association, Inc.
1989 Key Employee Long Term Incentive Plan and The Reader's
Digest Association, Inc. 1994 Key Employee Long Term Incentive
Plan (the "1994 Long Term Incentive Plan"), in the event of a
"change in control" of the Company, all unvested stock options
held by Mr. Ryder will become immediately vested and exercisable
and all restrictions on shares of restricted stock held by Mr.
Ryder will immediately lapse. All of the stock options and
restricted stock held by Mr. Ryder as of the record date were
granted under the 1994 Long Term Incentive Plan. Under both the
1994 Long Term Incentive Plan and the Ryder Agreement, benefits
to which Mr. Ryder becomes entitled in connection with a change
in control will be reduced to the extent necessary to prevent any
portion of those benefits from being considered "excess parachute
payments" under Section 280G of the Internal Revenue Code, when
considered alone or in combination with any payments otherwise
payable to Mr. Ryder upon a change in control.
On August 11, 1997, the Company entered into an employment
agreement with Mr. Grune, which was subsequently amended on April
28, 1998 (the "Grune Agreement"). Under the Grune Agreement, Mr.
Grune was employed as Chairman of the Board and Chief Executive
Officer of the Company until April 28, 1998, after which date Mr.
Grune remained in the Company's employ until July 31, 1998, in
order to assist the Company with respect to matters related to
the Company's transition to a new Chief Executive Officer.
Pursuant to the Grune Agreement, Mr. Grune received an
annual base salary of $660,000 and an annual incentive award in
respect of fiscal 1998 of $178,200. Mr. Grune is entitled to
receive a cash payment of $674,652, payable in three equal
installments beginning January 1, 1999 in lieu of the retirement
benefits foregone during Mr. Grune's re-employment. On November
18, 1997, Mr. Grune received 212,000 stock appreciation rights,
all of which vested on July 31, 1998. During his employment, Mr.
Grune was entitled to Company-provided housing and transportation
and reimbursement of all expenses reasonably incurred in
connection with his travel between the Company's officer and his
primary residence in Florida. The Grune Agreement also provides
that the Company will make Mr. Grune financially whole after his
payment of the income taxes imposed on the foregoing perquisites
and on any New York City and New York State taxable investment
income and retirement income arising out of Mr. Grune's original
retirement. Mr. Grune was entitled to participate in all of the
Company's benefit plans (other than the Severance Plan and the
Income Continuation Plan described below) to the same extent as
other senior executives of the Company.
Also pursuant to the Grune Agreement, Mr. Grune is entitled
to exercise any outstanding option and stock appreciation rights
granted to him by the Company, both prior to and during his re-
employment, until July 31, 2001 (subject to the earlier
expiration of the maximum 10-year terms of the awards). The
Grune Agreement also contains certain other provisions regarding
non-competition, non-disclosure of proprietary information and
prohibition of performance of acts detrimental to the Company,
its senior management or its products. See "Report of the
Compensation and Nominating Committee Fiscal 1998 Chief Executive
Officer Compensation."
Severance Arrangements
Under The Reader's Digest Association, Inc. Severance Plan
for Senior Management (the "Severance Plan"), senior officers and
key executives of the Company, including the Named Executive
Officers, whose employment is terminated by the Company other
than for "cause" (as defined in the Severance Plan) or for
reasons of death, disability or sale by the Company of the
division which employs the employee (provided a comparable posi
tion is offered to the employee by the new owner), will be
entitled to receive severance payments computed at a rate of one
month of base annual salary at the time of termination for each
year of service, but in any event, no less than 12 and no more
than 24 months' pay. A participant will also be entitled to
receive certain additional benefits, including a supplemental
payment in an amount equal to the difference between the
participant's monthly retirement benefits under the Qualified
Retirement Plan, the Excess Benefit Plan and the 1992 Executive
Retirement Plan and the amounts that would have been payable if
the participant's credited service under such plans had included
the number of months of severance payments made under the
Severance Plan. In addition, a participant will be entitled to
receive credited service equal to the severance period for
purposes of certain welfare benefits.
The Company has entered into termination agreements with
Messrs. Bohane, Coleman and Scimone and Ms. Lefkowitz and certain
other key employees of the Company each of which provides
generally that, if the employee's employment is terminated by the
employee for "good reason" or by the Company except for "cause"
(as such terms are defined in the agreement), the employee will
be entitled to receive for a severance period of two years from
termination (1) bi-weekly severance payments at the rate of the
employee's highest annual base salary within 12 months plus the
higher of the highest annual bonus within three years of
termination or the current annual bonus target and (2) benefits
equivalent to continued participation in the Profit-
Sharing/401(k) Plan and all welfare employee benefit plans. Each
agreement also provides for the inclusion of the severance period
for purposes of credited service and age under the Qualified
Retirement Plan, the Excess Benefit Retirement Plan and the 1992
Executive Retirement Plan and for the continued vesting of stock
option, stock appreciation rights, restricted stock, performance
units and other awards under the Company's long-term incentive
plans during the severance period, exercisability of options and
stock appreciation rights thereafter consistent with termination
by mutual agreement or retirement, and prorated performance unit
payments (to the extent performance goals are met) based on
service through the end of the severance period. Benefits paid
under the Severance Plan and under the Income Continuation Plan
discussed below will be credited against benefits payable under
each agreement.
In connection with the August 7, 1998 departure of Ms.
Lefkowitz, she is entitled to receive benefits pursuant to the
above-referenced agreement between her and the Company. The
benefits under that agreement includes bi-weekly severance
payments over a two-year period totaling $1,140,000.
The Company entered into an agreement with Mr. Schadt on
June 18, 1997 providing for an employment term until September
30, 2000 at an annual base salary at least equal to Mr. Schadt's
then current annual base salary and continuance of participation
in the Company's employee benefit plans and programs on at least
substantially the same basis as his then current participation.
Further, the severance period for Mr. Schadt under the previously
described termination agreement was to continue until September
30, 2000.
In connection with Mr. Schadt's retirement as the Company's
Chairman of the Board and Chief Executive Officer on August 11,
1997, he entered into additional agreements with the Company that
provide him with those rights and benefits that he would have
been entitled to under the terms of the original termination
agreement, as amended by the June 18, 1997 agreement, as well as
certain additional benefits. The rights and benefits include (i)
monthly payments totaling $1,563,792 per year from August 11,
1997 through September 30, 2000; (ii) continued participation in
the Company's healthcare program, reimbursement account plan,
long-term disability plan and life insurance program until
September 30, 2000; (iii) a 100 percent joint and survivor life
annuity with his spouse commencing at age 62 in the amount of
$300,000 per year, inclusive of benefits under the Qualified
Retirement Plan and Excess Benefit Plan, and a supplemental
retirement benefit of $53,442 per year for 15 years commencing at
age 65; (iv) cash payments equal to amounts that would have been
contributed had he been a participant in the Profit-
Sharing/401(k) Plan during the severance period; (iv) continued
vesting of 210,000 stock appreciation rights and continued
vesting of 122,200 stock options, subject to achieving certain
performance goals, with exercisability of all vested outstanding
options for three years following September 30, 2000; (vi)
amounts specified under performance units for three-year periods
ended June 30, 1998 and June 30, 1999, but only to the extent the
performance goals are met; and (vii) continued vesting of 20,540
shares of performance-based restricted stock, but only to the
extent the performance goals are met. In addition, stock
options, performance units and performance-based restricted stock
described in items (v), (vi) and (vii) vest upon a change of
control in accordance with the terms of the grants. The
agreements also provide Mr. Schadt with reimbursement of certain
expenses equal to $100,000, paintings with a value up to $10,000,
matching charitable contributions of $60,000 and reasonable legal
fees. The agreements also contain certain other provision
regarding non-competition, non-disclosure of proprietary
information and prohibition of performance of acts detrimental to
the Company, its senior management or its products.
Income Continuation Plan
Under The Reader's Digest Association, Inc. Income
Continuation Plan for Senior Management (the "Income Continuation
Plan"), each of certain officers and key employees of the
Company, including the Named Executive Officers, whose employment
is terminated involuntarily (other than for cause, disability,
retirement or death) within 24 months following a change in
control of the Company, or who terminates employment within 90
days following constructive termination and within 24 months
following a change in control of the Company, will be entitled to
receive a payment of three full years' base annual salary in
effect immediately prior to termination or, if higher,
immediately prior to the change in control. Any benefits payable
under the Income Continuation Plan will be reduced by any
payments made under the Severance Plan and any monthly retirement
benefit actually paid under the Qualified Retirement Plan. A
participant will also be entitled to certain additional benefits,
including a supplemental payment equal to the difference between
the participant's monthly retirement benefits under the Qualified
Retirement Plan, the Excess Benefit Plan and the 1992 Executive
Retirement Plan and the amounts that would have been payable if
the participant's credited service under such plans had included
the number of months of benefit payments under the Income
Continuation Plan (reduced by any months of benefit under the
Severance Plan). In addition, the participant will be entitled
to receive a lump-sum payment equal to three times the average of
the three highest of the five preceding annual cash bonuses
awarded to the participant. Benefits under the Income
Continuation Plan will be reduced to the extent necessary to
prevent any portion of such benefits from being considered
"excess parachute payments" under Section 280G of the Internal
Revenue Code, when considered alone or in combination with any
payments otherwise payable to the participant upon a change in
control.
Stock options, SARs, performance units, restricted stock and
other awards under The Reader's Digest Association, Inc. Key
Employee Long Term Incentive Plans also generally become
immediately vested upon a change in control.
REPORT OF THE COMPENSATION AND NOMINATING COMMITTEE
Executive Compensation Philosophy
The Company's executive compensation program is designed to
offer market competitive compensation opportunities, which are
tied to individual, financial and stock performance. The
purposes of the program are to:
Continue to retain and attract high caliber executive talent
critical to the success of the Company.
Direct executive attention on performance measures that are
important to stockholders.
Reward executives for performance improvement in financial
measures, which lead to increases in the return to stockholders.
Promote stock ownership to foster commonality of interests
between executives and stockholders.
The Company's executive compensation philosophy is to
provide compensation at levels competitive with those provided in
the markets in which the Company competes for business and for
executive resources. The Company is committed to placing a
majority of total compensation at risk by linking incentives to
stock performance and to the achievement of operational and
strategic goals including operating profit and revenue
performance. In addition, the program attempts to recognize and
reward exceptional individual contributions.
The Company's incentive compensation programs for executive
officers are designed to reward participants on the basis of
individual and corporate performance that benefit the Company and
its stockholders. The Compensation and Nominating Committee (the
"Committee") believes that it is desirable for executive
compensation to be deductible for federal income tax purposes,
but only to the extent that achieving deductibility is
practicable, consistent with the Company's overall compensation
objectives, and in the best interests of the Company and its
stockholders. Accordingly, although the Committee retains
discretion to provide compensation programs intended to achieve
corporate goals regardless of tax deductibility, the Committee
may from time to time take appropriate action intended to qualify
compensation as "performance based" for tax deductibility as
within the meaning of Section 162(m) of the Internal Revenue Code
or action that results in the disqualification of compensation.
Compensation Components
The executive compensation program for fiscal 1998 consists
of three elements: base salary, annual incentive bonus and long-
term incentive compensation. The Company annually reports to the
Committee on the competitiveness of the level and structure of
total annual executive compensation, specifically, as it compares
to that of a selected group of peer companies with which the
Company competes for business and for executive talent. These
peer companies include but are not limited to those media and
publishing companies reflected in the performance graph appearing
elsewhere in this Proxy Statement, and in addition, selected
consumer product and direct marketing companies. The Company
regularly receives advice from an independent compensation
consultant in structuring compensation plans and setting
compensation levels. Periodically, the Committee meets with an
outside consultant to assess the competitiveness of the executive
compensation program and its effectiveness in linking pay to
total stockholder return.
Base salaries are targeted at the 50th percentile of
competitive market data. Salary opportunities are set by annual
comparison to external rates of pay for comparable positions.
Annually, the Committee reviews and approves individual salary
adjustments for corporate officers and senior group executives
earning $200,000 or more based on individual performance, and
changes in responsibility, as well as general movement in
external salary levels. Decisions regarding salary adjustments
for executive officers and senior management are consistent with
the salary increase guidelines in effect for all employees, which
are established each year by the Company and which are consistent
with competitive salary management practices.
Following a competitive review of senior management total
compensation, and taking into account the Company's financial
situation, the Committee determined that there would be no salary
increases for fiscal 1998 for certain executive officers, except
for some executive officers with increased responsibilities.
These increases were in accordance with the Company's annual
salary management guidelines.
Annual incentive bonus targets are set at the 50th
percentile of competitive practice of peer companies. Annual
bonus targets vary by position and level of responsibility. The
purpose of these awards is to deliver competitive compensation
for the attainment of Company financial objectives and individual
performance goals, which the Committee believes are primary
determinants of share price over time. The Committee establishes
an annual incentive pool equal to the sum of all individual
target awards. The amount available for the purpose of funding
the incentive pool is determined after consideration of the
annual performance of the Company and individual business units
measured against the operating profit goal (on a currency neutral
basis) and the revenue goal established by the Committee at the
start of the fiscal year. If the Company and individual business
units achieve or exceed the goals, the incentive pool increases
up to 130% of the sum of the individual target awards. If
Company and individual business unit performance falls below a
performance threshold, no pool of funds is available for awards.
Once the overall pool is determined, individual awards are
decided based upon a review of individual performance against
annual goals, which include financial, operational and strategic
management objectives. Individual awards may range from 0% -
150% of targeted levels and are made in the sole discretion of
the Committee. For fiscal 1998, as described below, annual bonus
opportunities were reduced given the Company's financial
situation. After reviewing the Company's overall performance
against goals established for fiscal 1998, the Committee
determined that Company performance was below targeted levels but
above the performance threshold required for funding a portion of
the bonus pool. Therefore, the Committee approved annual bonuses
under the Management Incentive Compensation Plan for executive
officers reflecting below-target Company performance.
Additionally, the Committee approved discretionary awards for
certain executive officers and members of senior management in
recognition of their outstanding individual efforts during fiscal
1998. The Committee believes these discretionary awards were
necessary in light of the difficult financial situation the
Company faces and its impact on retaining and recruiting critical
talent needed to effect the turnaround.
In response to the Company's continued declining financial
and operating performance, the Company asked George V. Grune to
return and replace James P. Schadt as Chairman and Chief
Executive Officer. Mr. Grune served as Chief Executive Officer
of the Company from 1984 to 1994 and retired as its Chairman in
1995. Under Mr. Grune, the Company commenced a strategy to
stabilize and strengthen its core business and revitalize growth.
In connection with this strategy, the Company revised its
executive compensation structure for fiscal 1998. The Committee
recognized the need to provide competitive overall compensation
in order to recruit and retain the senior management talent that
could effectuate the strategy, the need to provide appropriate
incentives to motivate senior management to accomplish the
Company's goals, and the decreased availability of cash resources
for incentive compensation purposes. The resulting revised
compensation structure principally involved significantly
reducing annual cash bonus opportunities for fiscal 1998, in
recognition of the Company's disappointing financial situation,
replacing the three-year cash-based Performance Unit Plan for
senior worldwide management with increased future reward
opportunities tied to stock performance, and advancing the next
scheduled stock option grant from fiscal 2000 to fiscal 1998 for
those executives who had previously received multi-year stock
option awards.
Although the Performance Unit Plan was discontinued, there
are two remaining performance periods with outstanding
performance unit award opportunities: the fiscal 1996-1998 and
fiscal 1997-1999 performance cycles. Payout of awards is tied to
attaining a cumulative earnings per share growth target
established for each three-year performance period. Financial
performance during the 1996-1998 performance cycle resulted in no
performance unit awards being earned. Projections for the 1997-
1999 cycle indicate that there will no payout under the plan for
that cycle.
The purpose of the long-term incentive component is to
closely align the long-term interests of executives with those of
shareholders. The long-term incentive program is designed to
deliver long-term incentive compensation approximately equal to
median general industry long-term incentive compensation levels,
with an opportunity to earn above market long-term compensation
when superior performance is achieved. The guidelines for 1998
annual stock option grants for executive officers and senior
management were increased to account for the fact that the total
long-term incentive opportunity in fiscal 1998 is delivered
solely in an annual stock option grant, and to ensure the Company
continues to maintain its long-term competitive position. The
size of individual grants is based on position and level of
responsibility, as well as individual performance. Top
management and other senior executives responsible for
implementing operational plans designed to achieve the Company's
long-term strategic objectives as approved by the Board of
Directors are entitled to participate in the plan.
In November 1997, the Compensation and Nominating Committee
canceled stock options and stock appreciation rights relating to
shares of Class A Nonvoting Common Stock that had been granted on
October 9, 1997 to executive officers and other key employees of
the Company at the fair market value on that date of $27.03 (the
"October Options"). These October Options were never
distributed. On November 18, 1997, the Committee granted stock
options and stock appreciation rights in lieu of the October
Options at the fair market value on that date of $21.47 (the
"November Options"). The vesting, expiration and other terms of
the November Options were not changed from those of the October
Options.
In repricing the October Options, the Committee recognized
that the motivation and retention of its key employees is
paramount to the successful execution of Management's strategy to
stabilize and restore growth to the Company's operations, which
would benefit all stockholders. The Committee's decision to take
the above-mentioned actions was based on a number of factors,
including that (1) the October Options had not yet been announced
or delivered to the recipients because the Committee and the new
management of the Company were reviewing in depth the fiscal 1998
budget and the cash incentive program and because the program of
the related annual and long-term incentive compensation measures
was to be communicated as an integrated incentive compensation
award to employees; (2) the Company's strategy to invest its
limited cash resources in its operations had led to a decision to
suspend the award of long-term cash incentive compensation awards
in favor of granting more substantial equity awards through stock
options; and (3) the Company's projected results for fiscal 1998,
as determined in November 1997, would not justify the payment of
competitive cash incentive compensation under the Company's
annual bonus program, thus reducing the total incentive
compensation opportunity.
To address concerns regarding retention and motivation of
executives critical to the turnaround, the Committee approved
awards of restricted stock for selected executive officers,
members of senior management, and certain key employees of the
Company. The restricted stock awards were intended to supplement
below competitive compensation and, thereby, to aid in the
retention of high-performing individuals with in-depth business
knowledge. Restrictions lapse on the shares after two years from
the grant date or in April 2000.
Fiscal 1998 Chief Executive Officer Compensation
The compensation of the Company's Chief Executive Officer is
based on the same factors as compensation for other executive
officers. In setting the Chief Executive Officer's target annual
compensation, the Committee seeks to be competitive with chief
executive officer compensation in peer companies, and to place at
least 60% of the Chief Executive Officer's compensation at risk
by linking pay to the achievement of the Company's annual and
long-term financial and operating goals and the performance of
the Company's Class A Nonvoting Common Stock.
In response to a decline in recent years in the Company's
financial performance, on August 11, 1997, the Board asked Mr.
Grune to return to the Company as Chairman and Chief Executive
Officer. At the recommendation of the Committee, the Board
established Mr. Grune's compensation arrangement with the help of
an independent compensation consultant. In determining the terms
of Mr. Grune's reemployment, the Committee considered an analysis
conducted by an external compensation consultant, which included
competitive data on pay levels for chief executive officers of
companies similar in size and business to the Company, including
those companies reflected in the performance graph appearing
elsewhere in this Proxy Statement. Mr. Grune's reemployment
compensation arrangement included (1) an annual base salary of
$660,000, which was significantly below competitive salary levels
for chief executive officers of comparable organizations; (2) an
annual bonus opportunity of $396,000, which had been reduced as
part of the Company's overall reduction in annual cash bonus
opportunities for fiscal 1998, and which was tied to achieving
the same performance goals established by the Committee under the
Company's annual Management Incentive Compensation Plan; (3) a
long-term incentive award of 212,000 stock appreciation rights,
all of which vested upon the termination of Mr. Grune's period of
reemployment on July 31, 1998, and all of which are exercisable
for a period of up to three years, consistent with the Company's
retirement vesting and exercise schedule; and (4) certain
perquisites and compensation for foregone retirement income and
additional tax exposure resulting from Mr. Grune's reemployment
by the Company. Further details concerning the Grune Agreement
appear under "Executive Compensation -- Employment Agreements."
After the close of fiscal 1998, the Committee reviewed the
extent to which the financial goals established for the year were
attained, and assessed Mr. Grune's contributions in leading the
stabilization effort and taking the necessary steps to stabilize
the core business, reduce costs, properly focus product
development and marketing initiatives for future growth and
expansion, and strengthen direct marketing expertise and global
sharing of best practices. The Committee approved an annual
bonus to Mr. Grune which reflected the Company's below target financial
performance in fiscal 1998.
Mr. Ryder became Chairman and Chief Executive Officer on
April 28, 1998, succeeding Mr. Grune. The Committee approved
certain aspects of Mr. Ryder's compensation after being advised
by a compensation consultant as to the level of compensation that
is necessary to attract a top-level chief executive officer. The
Committee believes that Mr. Ryder's salary and target annual
incentive award, which were approved by the Board of Directors,
are competitive with salary and annual target awards provided to
chief executive officers at peer companies. Details of the
employment terms and compensation arrangement with Mr. Ryder
appear under "Executive Compensation -- Employment Agreements."
Mr. Schadt served as Chief Executive Officer of the Company
during fiscal 1997 and until his resignation on August 11, 1997.
See "Executive Compensation--Severance Arrangements." The
compensation paid to Mr. Schadt was based on the same factors as
compensation for other executive officers.
After the end of fiscal 1998, the Committee reviewed the
performance of the Company and determined that the performance
goal for purposes of vesting Mr. Schadt's performance-based
restricted stock was not met. Consequently, the 10,269 shares of
performance-based restricted stock due to vest on September 15,
1998 were forfeited.
The Compensation and Nominating
Committee:
C.J. Silas, Chairman
Lynne V. Cheney
Robert G. Schwartz
PERFORMANCE GRAPH
The following graph compares the total return to
stockholders (stock price plus reinvested dividends) on a $100
investment in each of the following: the Company's Class A
Nonvoting Common Stock, the S&P 500 Stock Index and the Dow Jones
Media-Publishing Group Index from June 30, 1993 through June 30,
1998.
Comparison of Cumulative Total Return:
The Reader's Digest Association, Inc. vs. Dow Jones Media-
Publishing Group and S&P 500
GRAPH APPEARS HERE
June June June June June June
30, 30, 30, 30, 30, 30,
1993 1994 1995 1996 1997 1998
The Reader's Digest 100.00 101.68 112.08 112.09 80.07 78.35
Association, Inc.
Dow Jones Media- 100.00 107.98 130.25 153.62 182.98 297.05
Publishing Group
S&P 500 100.00 101.38 127.77 160.97 216.80 282.16
PROPOSAL NO. 2--APPROVAL OF AMENDMENT OF THE 1994 KEY EMPLOYEE
LONG TERM INCENTIVE PLAN TO PROVIDE FOR TRANSFERABILITY OF STOCK OPTIONS
In April 1998, the Compensation and Nominating Committee and
the Board of Directors approved the amendment of The Reader's
Digest Association, Inc. 1994 Key Employee Long Term Incentive
Plan (the "1994 Long Term Incentive Plan"), subject to
stockholder approval (i) to increase from 500,000 to 1,200,000
the number of shares of Class A Nonvoting Common Stock that may
be made the subject of stock options and/or non-tandem stock
appreciation rights granted to an individual in any fiscal year
of the Company (the "Maximum Share Amendment") and (ii) to
provide that the Compensation and Nominating Committee may
determine that any stock option granted under the 1994 Long Term
Incentive Plan may be transferred to members of the participant's
immediate family members, trusts solely for the benefit of
immediate family members and partnerships in which immediate
family members and/or trusts are the only partners (the
"Transferability Amendment"). The purpose of the 1994 Long Term
Incentive Plan is to enable the Company to offer key employees of
the Company and its designated subsidiaries performance-based
stock and cash incentives and other equity interests in the
Company and other incentive awards, thereby attracting, retaining
and rewarding such key employees, and strengthening the mutuality
of interests between key employees and the Company's
stockholders. This proposal is being submitted to stockholders
by the Board of Directors of the Company.
The Compensation and Nominating Committee and the Board of
Directors approved the Maximum Share Amendment in connection with
the hiring of Mr. Ryder. Pursuant to the Ryder Agreement (see
"Employment Agreements"), stock options in respect of 1,080,000
shares of Class A Nonvoting Common Stock were granted to Mr.
Ryder. 580,000 options were granted subject to stockholder
approval of the Maximum Share Amendment. The grant of these
options was made subject to stockholder approval of the Maximum
Share Amendment so that compensation attributable to the stock
options will be deductible by the Company under Section 162(m) of
the Internal Revenue Code. On April 28, 1998, the DeWitt Wallace-
Reader's Digest Fund and the Lila Wallace-Reader's Digest Fund,
each a stockholder of 35.69% of the Class B Voting Common Stock,
agreed to vote in favor of the Maximum Share Amendment at the
annual meeting of stockholders. In the absence of stockholder
approval of the Maximum Share Amendment, stock options in respect
of 580,000 shares granted to Mr. Ryder will not take effect.
Although the Company does not presently anticipate granting to
any individual stock options in excess of the current fiscal year
limit under the 1994 Long Term Incentive Plan (with the exception
of the grant to Mr. Ryder described above), the Company believes
that it is in the best interests of the Company to increase the
maximum number of shares that may be made subject to stock
options in any fiscal year in order to (i) continue to attract
and retain key employees and (ii) provide additional incentive
and reward opportunities to current employees to encourage them
to enhance the profitability of the Company.
The purpose of the Transferability Amendment is to allow
increased flexibility with respect to the transfer of stock
options now available under applicable law.
Types of Awards
Awards under the amended 1994 Long Term Incentive Plan
("Awards") may consist of Stock Options (which may be Incentive
Stock Options or Non-Qualified Stock Options), Stock Appreciation
Rights (which may be Tandem Stock Appreciation Rights or Non-
Tandem Stock Appreciation Rights), Restricted Stock, Performance
Shares, Performance Units and Other Stock-Based Awards. No
Awards may be made under the amended 1994 Long Term Incentive
Plan after February 11, 2004.
Administration; Amendment and Termination
The amended 1994 Long Term Incentive Plan is administered
and interpreted by a committee of the Company's Directors (the
"Committee"), currently comprised of the members of the Company's
Compensation and Nominating Committee. The Committee's broad
powers include authority, within the limitations provided in the
amended 1994 Long Term Incentive Plan, to select the eligible
employees to receive Awards, to determine the type, amount and
terms and conditions of Awards and to construe and interpret and
correct defects, omissions and inconsistencies in the amended
1994 Long Term Incentive Plan and agreements relating thereto.
The Board of Directors may at any time and from time to time
amend, suspend or terminate the amended 1994 Long Term Incentive
Plan in whole or in part, provided, however, that, unless
required by law, no amendment may impair the rights of a
participant with respect to outstanding Awards without the
participant's consent. Moreover, without the approval of the
stockholders, no amendment may be made that would (i) increase
the aggregate number of shares of Class A Nonvoting Common Stock
that may be issued, (ii) change the definition of eligible
employees, (iii) decrease the option price of any Stock Option to
less than 100% of the fair market value on the date of grant for
an Incentive Stock Option or to less than 85% of the fair market
value on the date of grant for a Non-Qualified Stock Option, or
(iv) extend the maximum option period under the amended 1994 Long
Term Incentive Plan.
Eligibility
Key employees of the Company and its designated subsidiaries
as determined by the Committee, including the Company's executive
officers, are eligible to be granted Awards under the amended
1994 Long Term Incentive Plan. Currently, approximately 1,050
employees are eligible to receive Awards under the amended 1994
Long Term Incentive Plan.
Shares Reserved
The maximum number of shares that may be issued under the
amended 1994 Long Term Incentive Plan, as amended, or with
respect to which Non-Tandem Stock Appreciation Rights may be
granted is 10,800,000 shares of the Company's Class A Nonvoting
Common Stock, of which 8,087,556 shares have been issued and
224,200 shares are subject to Non-Tandem Stock Appreciation
Rights as of September 23, 1998. Unexercised Options (except
those that relate to another Right or Award under the amended
1994 Long Term Incentive Plan that is exercised) that expire,
terminate or are canceled, or are settled other than in Class A
Nonvoting Common Stock, become again available for Awards under
the amended 1994 Long Term Incentive Plan.
The number and kind of shares to which Awards under the
amended 1994 Long Term Incentive Plan, and the purchase price
thereof, are subject to appropriate adjustment in the event of
certain changes in the capital stock of the Company, including
stock dividends and splits, recapitalizations, reorganizations,
mergers, consolidations, split-ups, combinations or exchanges of
shares, and certain distributions, reclassifications and
warrants, options and rights offerings.
Stock Options
Stock Options may be Incentive Stock Options, which are
intended to qualify under Section 422 of the Internal Revenue
Code, or Non-Qualified Stock Options, which are not intended to
so qualify. The exercise price of an Incentive Stock Option may
not be less than 100% of the Fair Market Value of the Class A
Nonvoting Common Stock at grant and its term may not exceed 10
years from the date of grant. The exercise price of a Non-
Qualified Stock Option may not be less than 85% of the Fair
Market Value at grant and its term may not exceed 10 years and
one day from the date of grant. The Company intends that
compensation attributable to Stock Options with an exercise price
no less than 100% of the Fair Market Value of the underlying
stock on the date of grant will not be subject to the deduction
limitation of Section 162(m) of the Internal Revenue Code. See
"U.S. Federal Income Tax Consequences." So long as the Class A
Nonvoting Common Stock remains listed on the New York Stock
Exchange, "Fair Market Value" is the mean between the high and
low sales prices on the New York Stock Exchange on the applicable
date. Unless determined by the Committee at grant, no Stock
Option may be exercised prior to the first anniversary of the
date of grant. The Committee may substitute new Stock Options
for previously granted Stock Options having higher exercise
prices.
A Stock Appreciation Right is the right to receive the
difference, either in cash or in Class A Nonvoting Common Stock,
between the fair market value of a share of Class A Nonvoting
Common Stock as of the date of exercise and as of the date of
award. Tandem Stock Appreciation Rights are granted in
conjunction with all or part of a Stock Option and Non-Tandem
Stock Appreciation Rights are granted without reference to all or
part of a Stock Option.
Generally, the term and exercisability of a Tandem Stock
Appreciation Right are the same as the related Stock Option, and
the Tandem Stock Appreciation Right may be exercised only by
surrendering the applicable portion of the related Stock Option.
The term and exercisability of a Non-Tandem Stock Appreciation
Right are determined by the Committee, but the term shall not
exceed 10 years and one day from the date of grant.
The Committee may provide for Stock Options and Stock
Appreciation Rights to be exercisable in installments. Except as
provided above, no Stock Option or Stock Appreciation Right may
be transferred by the recipient otherwise than by will or the
laws of descent and distribution. A Stock Option agreement may
provide that the Stock Option be settled upon exercise by the
delivery of Performance Shares or Restricted Stock valued at fair
market value.
If stockholders approve the Maximum Share Amendment, no
employee may be granted either Stock Options or Non-Tandem Stock
Appreciation Rights, or both, with respect to a total of more
than 1,200,000 shares of Class A Nonvoting Common Stock during
any fiscal year of the Company.
If the participant's employment terminates by reason of
death, disability or retirement, generally any outstanding Stock
Option or Stock Appreciation Right will vest fully and be
exercisable until the first anniversary of the date of death or
the third anniversary of the date of termination by disability or
retirement, or until expiration of the Award, if earlier. Upon
termination for any other reason, any Stock Option or Stock
Appreciation Right will immediately terminate, except that a
previously vested Award will be exercisable for the lesser of
three months or the balance of the Award's term if the
participant is terminated involuntarily without cause.
Restricted Stock
Restricted Stock are shares of Class A Nonvoting Common
Stock awarded under the amended 1994 Long Term Incentive Plan
subject to such transferability restrictions and other terms and
conditions as the Committee may determine, including purchase
price (if any), restriction period, vesting schedule (including
whether restrictions lapse upon termination of employment) and
requirement of attainment of performance goals. The Committee
may, in its discretion, provide for the lapse, acceleration or
waiver of any restrictions, in whole or in part. The participant
has all the rights of a stockholder with respect to the shares of
Restricted Stock, including the right to receive dividends. As
of September 23, 1998, 631,678 shares of Class A Nonvoting Common
Stock have been issued and are outstanding under the amended 1994
Long Term Incentive Plan as Restricted Stock.
No more than 10% of the shares of Class A Nonvoting Common
Stock issuable under the 1994 Long Term Incentive Plan may be
issued under the amended 1994 Long Term Incentive Plan as
Restricted Stock.
The material terms of performance-based restricted stock
awarded under the 1994 Long Term Incentive Plan, including the
relevant business criteria, maximum amount and eligible
employees, which have not been amended, were approved by
stockholders on November 11, 1994.
Performance Units and Performance Shares
A Performance Unit is the right to receive a fixed dollar
amount in cash or Class A Nonvoting Common Stock based on the
attainment during a Performance Cycle (determined by the
Committee) of such performance goals or other factors or criteria
as the Committee determines. A Performance Share is the right to
receive Class A Nonvoting Common Stock or cash of an equivalent
value at the end of a specified Performance Period (determined by
the Committee) based on the attainment during the Performance
Period of such performance goals or other factors or criteria as
the Committee determines. Unless otherwise determined by the
Committee, a participant is not entitled to receive dividends on
the Class A Nonvoting Common Stock covered by a Performance Share
Award.
Generally, neither Performance Units nor Performance Shares
may be transferred by the participant. At the end of the
Performance Cycle or Performance Period, the Committee determines
the extent to which any pertinent performance goals have been
achieved and the percentage of Performance Units or number of
Performance Shares that have vested. The Committee may, in its
discretion, provide for accelerated vesting of Performance Units
and Performance Shares.
The material terms of Performance Units awarded under the
1994 Long Term Incentive Plan, including the relevant business
criteria, maximum amount and eligible employees, which have not
been amended, were approved by stockholders on November 10, 1995.
Other Stock-Based Awards and Exchanges
Other Awards of Class A Nonvoting Common Stock and other
Awards that are valued in whole or in part by reference to, or
are payable in or otherwise based on, Class A Nonvoting Common
Stock may be granted under the amended 1994 Long Term Incentive
Plan subject to such terms and conditions, including price,
dividend entitlement, vesting and transferability, as the
Committee determines. In addition, the Committee may, in its
discretion, permit a participant to elect to receive an Award
under the amended 1994 Long Term Incentive Plan in lieu of any
other compensation from the Company.
Change in Control
Generally, in the event of a change in control of the
Company, all outstanding Stock Options and Stock Appreciation
Rights become fully vested and immediately exercisable in their
entirety, all Performance Units and Performance Shares become
vested, at a minimum, as if the applicable Performance Cycle or
Performance Period had ended upon the change in control, with
performance goals measured at such time, and all restrictions on
Restricted Stock lapse. Benefits under the amended 1994 Long
Term Incentive Plan will be reduced to the extent necessary to
prevent any portion of such benefits from being considered
"excess parachute payments" under Section 280G of the Internal
Revenue Code, when considered alone or in combination with any
payments otherwise payable to the participant upon a change in
control.
U.S. Federal Income Tax Consequences
The following summary describes the U.S. federal income tax
consequences of the amended 1994 Long Term Incentive Plan.
Stock Options. No income will be recognized by the holder
and the Company will not be entitled to a deduction at the time
of grant of either a Non-Qualified Stock Option or an Incentive
Stock Option.
On exercise of a Non-Qualified Stock Option, the amount by
which the fair market value of the Class A Nonvoting Common Stock
on the date of exercise exceeds the option exercise price will be
taxable to the holder as ordinary income and, subject to
satisfying applicable withholding requirements and any deduction
limitation under Section 162(m), deductible by the Company. The
subsequent disposition of shares acquired upon exercise of a Non-
Qualified Stock Option will ordinarily result in capital gain or
loss.
On exercise of an Incentive Stock Option, the holder will
not recognize any income and the Company will not be entitled to
a deduction. However, for purposes of the alternative minimum
tax, the exercise of an Incentive Stock Option will be treated as
an exercise of a Non-Qualified Stock Option. Accordingly, the
exercise of an Incentive Stock Option may result in an
alternative minimum tax liability.
The disposition of shares acquired upon exercise of an
Incentive Stock Option will ordinarily result in capital gain or
loss. However, if the holder disposes of shares acquired upon
exercise of an Incentive Stock Option within two years after the
date of grant or one year after the date of exercise (a
"disqualifying disposition"), the holder will recognize ordinary
income, in the amount of the excess of the fair market value of
the shares of Class A Nonvoting Common Stock on the date the
option was exercised over the option exercise price (or, in
certain circumstances, the gain on sale, if less). Any excess of
the amount realized by the holder on the disqualifying
disposition over the fair market value of the shares on the date
of exercise of the Option will generally be capital gain.
Subject to any deduction limitation under Section 162(m), the
Company will be entitled to a deduction equal to the amount of
ordinary income recognized by a holder.
If an Option is exercised through the use of Class A
Nonvoting Common Stock previously owned by the holder, such
exercise generally will not be considered a taxable disposition
of the previously owned shares and thus no gain or loss will be
recognized with respect to such shares upon such exercise.
However, if the option is an Incentive Stock Option, and the
previously owned shares were acquired on the exercise of an
Incentive Stock Option or other tax-qualified stock option (such
as shares received under the Company's Employee Stock Purchase
Plan), and the holding period requirement for those shares is not
satisfied at the time they are used to exercise the Option, such
use will constitute a disqualifying disposition of the previously
owned shares resulting in the recognition of ordinary income
(but, under proposed Treasury Regulations, not any additional
capital gain) in the amount described above.
Stock Appreciation Rights. The amount of any cash (or the
fair market value of any Class A Nonvoting Common Stock) received
upon the exercise of a stock appreciation right under the amended
1994 Long Term Incentive Plan will be includible in the
employee's ordinary income and, subject to satisfying applicable
withholding requirements and any deduction limitation under
Section 162(m), deductible by the Company.
Other Awards. Under Section 83(b) of the Internal Revenue
Code, an employee may elect to include in ordinary income, as
compensation at the time Restricted Stock is first issued, the
excess of the fair market value of such shares at the time of
issuance over the amount paid, if any, by the employee for such
shares. Unless a Section 83(b) election is made, no taxable
income will generally be recognized by the recipient of a
Restricted Stock award until such shares are no longer subject to
the restrictions or the risk of forfeiture. When either the
restrictions or the risk of forfeiture lapses, the employee will
recognize ordinary income and, subject to satisfying applicable
withholding requirements and any deduction limitation under
Section 162(m), the Company will be entitled to a deduction in an
amount equal to the excess of the fair market value of the Class
A Nonvoting Common Stock on the date of lapse over the amount
paid, if any, by the employee for such shares. Absent a Section
83(b) election, any cash dividends or other distributions paid
with respect to the Restricted Stock prior to the lapse of the
restrictions or risk of forfeiture will be included in the
employee's ordinary income as compensation at the time of
receipt.
Generally, an employee will not recognize any taxable income
and the Company will not be entitled to a deduction upon the
award of Performance Shares or Performance Units. At the time
the employee receives the distribution in respect to the
Performance Shares or the Performance Units, the fair market
value of shares of Class A Nonvoting Common Stock or the amount
of any cash received in payment for such Awards generally is
taxable to the employee as ordinary income and, subject to the
deduction limitation under Section 162(m), deductible by the
Company.
Section 162(m). Section 162(m) of the Internal Revenue Code
generally disallows a federal income tax deduction to any
publicly held corporation for compensation paid in excess of $1
million in any taxable year to the chief executive officer or any
of the four other most highly compensated executive officers who
are employed by the Company on the last day of the taxable year,
but does not disallow a deduction for qualified "performance-
based compensation" the material terms of which are disclosed to
and approved by stockholders. The Company has structured and
intends to implement the amended 1994 Long Term Incentive Plan
(except with respect to Awards of Restricted Stock, Performance
Shares and Stock Options with an exercise price less than the
Fair Market Value of the underlying shares on the date of grant)
so that compensation resulting therefrom would be qualified
"performance-based compensation." To allow the Company to so
qualify such compensation, the Company is seeking stockholder
approval of the amendment to the 1994 Long Term Incentive Plan.
Effect on Earnings
Currently, neither the grant nor the exercise of a Stock
Option will result in any charge to pretax earnings. Grants of
Restricted Stock result in a charge to pretax earnings over the
restriction period for the fair market value of the stock at the
date of issuance. All other Awards provided for under the
amended 1994 Long Term Incentive Plan will require a pretax
charge to earnings accrued over an appropriate period of time,
based on the difference between fair market value of the shares
or Award and the grant price.
New Plan Benefits
The following table shows the benefits, to the extent
currently determinable, that will be received in fiscal 1999 by
the individuals listed below. The closing price of the Class A
Nonvoting Common Stock on the New York Stock Exchange (Composite
Transactions) on September 23, 1998 was $19.1875
1999-2000 and 1999-2001
Number of Performance Shares
Name Options/SARs Threshold(1) Target(1) Maximum(1)
Thomas O. Ryder 0 8,945 17,889 53,667
8,945 17,889 53,667
George V. Grune(2) 0 0 0 0
0 0 0
M. John Bohane 68,000 5,367 10,733 32,199
5,367 10,733 32,199
Gregory G. Coleman 44,100 2,791 5,581 16,743
2,791 5,581 16,743
Marcia M. Lefkowitz(2) 0 0 0 0
0 0 0
George S. Scimone 44,100 2,791 5,581 16,743
2,791 5,581 16,743
All executive 450,600 35,531 71,062 213,186
officers 35,531 71,062 213,186
All Directors who are N/A N/A N/A N/A
not executive officers
All employees, 1,912,50 13,916 27,831 83,493
excluding executive 0 13,916 27,831 83,493
officers
(1) In fiscal 1999, the Company reintroduced long term incentive
awards under the 1994 Long Term Incentive Plan pursuant to
which participants will receive at the end of the fiscal year
1999-2000 and 1999-2001 Performance Periods the value of the
number of Performance Shares shown, respectively, based on the Company's
performance in relation to the achievement of performance
goals relating to reengineering, operating income and earnings
per share objectives.
(2) Mr. Grune and Ms. Lefkowitz are no longer employed by the
Company.
Vote Required for Approval
The affirmative vote of a majority of the shares of Class B
Voting Common Stock present in person or represented by proxy and
entitled to vote on Proposal No. 2 at the Meeting is required for
approval of Proposal No. 2.
Stockholder approval of the amended 1994 Long Term Incentive
Plan is being sought in order to allow the Company to qualify
certain compensation received under the amended 1994 Long Term
Incentive Plan for tax deductibility under Section 162(m) of the
Internal Revenue Code. If no contrary indication is made, proxy
cards in the accompanying form are to be voted for approval of
Proposal No. 2.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL OF PROPOSAL NO. 2.
STOCKHOLDER PROPOSALS
Certain stockholders have notified the Company that they
intend to present the following proposals at the Annual Meeting.
The proposals and related supporting statements have been
provided by the respective proponents and the Company is not
responsible for the statements contained therein. The proposals
may include certain assertions that the Company believes are
inaccurate. Rather than addressing each of those assertions,
however, the Board of Directors has recommended a vote against
the proposals for the reasons set forth following each proposal.
PROPOSAL NO. 3
Waterside Partners, G.P., 20 Waterside Plaza, Suite 26F, New
York, New York, the owner of 5,600 shares of Class B Voting
Common Stock, has submitted the following proposal:
"Resolved, that the shareholders suggest that the board of
directors have at all times no more than two directors who are in
any way affiliated with the foundations which control Reader's
Digest, including board positions on the foundations or on any
entity to which the foundations contribute.
"Supporting Statement:
"Recent studies show a stock price premium of up to 16
percent for companies whose board is considered "independent".
Directors whose duty to all of the shareholders is not hindered
by relationships with the company, the management, or its
affiliates create a level of credibility that shareholders
recognize. The board's credibility--and this company's
performance--have been hampered by too close a connection between
the for-profit corporation and the non-profit foundations. Even
if this resolution were adopted, it would still permit two out of
the nine seats on the board to be filled by directors affiliated
with the foundations, giving them 22 percent of the seats for
their 23 percent of ownership of the company's stock. The
directors should be those who are best qualified by virtue of
experience and expertise directly relevant to the strategic and
competitive issues faced by the company, not those whose
experience and expertise are better suited for stewardship and
distribution of an endowment."
Statement by the Board of Directors in Opposition to Proposal No.
3
Individuals are selected for nomination to serve as
Directors of the Company based on their experience, competence
and integrity. The Board believes that a proposal that would
limit the number of Directors of the Company who are affiliated
with foundations would establish an unduly rigid and restrictive
requirement that is not in the best interests of the Company and
its stockholders. The Board is concerned that adoption of
Proposal No. 3 would require the resignation of existing
Directors and prevent highly competent individuals from serving
as Directors merely because they are trustees of the multitude of
charities that receive contributions from foundations that
control the Company.
Furthermore, Proposal No. 3 is vague, indefinite and
ambiguous in that it does not provide any guidance as to what
would be required for Directors to be "in any way affiliated"
with foundations that control the Company. Additionally,
Proposal No. 3 does not provide a method for determining which of
the entities to which foundations contribute are to be considered
"affiliates" of the foundations. Among other things, Proposal
No. 3 does not specify (1) a minimum contribution amount, (2) a
time limit for attributing a specific contribution to the
foundation, or (3) a means to police the proposed restriction.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL
NO. 3.
PROPOSAL NO. 4
Nell Minow and David B. Apatoff, 4102 N. River St., McLean,
VA, the owners of 600 shares of Class B Voting Common Stock, have
submitted the following proposal:
"Resolved, that shareholders ask the board to retain an
investment banker to develop a plan for a recapitalization to
result in one share, one vote for all outstanding stock of the
company.
"Supporting statement:
"More than ninety percent of the nation's 1500 largest
companies have just one class of shares with each share having
one vote. Many of those with dual classes have been sharply
criticized for giving preferential treatment to holders of the
voting (or super-voting) shares, as with the Times Mirror's $2.8
billion spin-off that gave one group of shareholders cash
dividends while the other got shares in a highly speculative
cable venture, or for poor performance attributable to poor
corporate governance, as at Dow Jones. Marriott's controversial
recent attempt to create a preferred class of stock was
resoundingly defeated by its shareholders. On the other hand,
companies like Bergen Brunswig and Cannon Express have
recapitalized to move from dual class stock to a single class,
recognizing that it provides the best assurance of stability and
growth over the long term.
"RDA's current dual class system is filled with inherent
conflicts of interest. It cannot be best for the competitiveness
of the company to have a majority of its voting stock held
indefinitely by an institution that is by law and nature risk
averse. The board should retain an investment-banking firm to
determine an appropriate control premium so that the foundations
can realize the true value of their voting shares, and then make
one class of stock available to all investors."
Statement by the Board of Directors in Opposition to Proposal No.
4
The Board recommends a vote AGAINST this proposal for the
following reasons:
The common equity of the Company has consisted of two
classes of Common Stock, nonvoting Common Stock and voting Common
Stock, since the Company was formed. Shares of both classes
currently represent identical equity interests in the Company,
except that shares of the Class A Nonvoting Common Stock are not
entitled to vote and Class B Voting Common Stock are the only
shares entitled to vote.
Holders of nonvoting shares bought their shares of the
Company knowing that such shares are nonvoting. No holder of
nonvoting shares has any basis for anticipating a change in the
voting structure of the Company. The Company has never given any
indication that a change in the capitalization was being
considered.
The recapitalization of the Company contemplated by the
stockholders' proposal would require the approval of at least a
majority of the shares of each of the Class A Nonvoting Common
Stock and the Class B Voting Common Stock, voting as separate
classes. Since each of the Funds own an excess of 35% of the
Class B Voting Stock, the support of at least one of the Funds to
effect the recapitalization would be required. The Board of
Directors have been advised by the Funds that they would not at
this time approve any recapitalization of the Company.
Accordingly, the retention of an investment banker to develop a
recapitalization plan is a moot issue, if the proposal is adopted
and implemented, would require the expenditure of Company funds
for no valid business purpose.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL
NO. 4.
SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS
Pursuant to Securities and Exchange Commission rules and the
Company's By-Laws, proposals of stockholders intended to be
submitted at the 1999 Annual Meeting of Stockholders must be
received by the Company at its principal executive offices on or
before June 3, 1999 to be eligible for inclusion in the Company's
notice of meeting, proxy statement and accompanying proxy card
for such meeting or to be introduced from the floor at such
meeting.
The Company's By-Laws also provide that notice of proposed
stockholder nominations for election of directors must be given
to the Corporate Secretary of the Company not less than 14 or
more than 50 days prior to a meeting called to elect directors.
Such notice must contain certain information about each proposed
nominee including age, business and residence addresses,
principal employment, number of shares of Class B Voting Common
Stock beneficially owned (with evidence of such ownership) and
such other information as would be required in a proxy statement
soliciting proxies for the election of such proposed nominee, and
a signed consent of the nominee to serve as a director if
elected.
MISCELLANEOUS
The Board of Directors is not aware at the date hereof of
any matter proposed to be presented at the Meeting other than
Proposals contained in this Proxy Statement. If any other matter
is properly presented, the persons named in the accompanying
proxy card will have discretionary authority to vote thereon
according to their best judgment.
It is expected that a member of KPMG Peat Marwick LLP, the
Company's independent auditors, will attend the Annual Meeting to
respond to any appropriate questions that may be asked by
stockholders.
The Company's Annual Report to Stockholders has been mailed
to stockholders separately. It is not to be deemed a part of the
proxy solicitation material and is not incorporated herein by
reference.
A copy of the Company's 1998 annual report on Form 10-K
filed with the Securities and Exchange Commission (without
exhibits) will be made available to stockholders without charge
upon written request to the Vice President, Investor Relations,
The Reader's Digest Association, Inc., Pleasantville, NY 10570-
7000.
By Order of the Board of
Directors:
C.H.R. DUPREE
C.H.R. DuPree
Vice President and Corporate
Secretary
October 1, 1998
Driving Directions to Reader's Digest Global Headquarters
From Manhattan
From East Side, take I-87 north (Major Deegan Thruway) into
Yonkers to exit 5, "Central Park Avenue, Route 100." Proceed on
Route 100 north for 1 mile to entrance to Sprain Brook Parkway
(left turn). Continue on Sprain Brook Parkway north
approximately 12 miles to exit for Saw Mill River Parkway north.
Take Saw Mill River Parkway north approximately 7 miles to the
traffic light at the Reader's Digest Road exit (Exit 33). Turn right at
the exit and bear right to the top of the hill proceeding around
the Reader's Digest headquarters. At the traffic light, turn
left onto Route 117 and make another immediate left into the
Reader's Digest main entrance.
From West Side, take the West Side Highway north to the Henry
Hudson Parkway north to the Saw Mill River Parkway north.
Continue on the Saw Mill River Parkway north approximately 20
miles to the traffic light at the Reader's Digest Road exit (Exit 33).
Turn right at the exit and bear right to the top of the hill
proceeding around the Reader's Digest headquarters. At the
traffic light, turn left onto Route 117 and make another
immediate left into the Reader's Digest main entrance.
From Dutchess or Putnam County
Take I-84 south to the I-684 south approximately 10 miles to Saw
Mill River Parkway south. Bear right onto Exit 5 entering Saw
Mill River Parkway south and continue approximately 7 miles to
traffic light at Reader's Digest Road exit (Exit 33). Turn left at exit
and bear right to top of hill proceeding around the Reader's
Digest headquarters. At the traffic light, turn left onto Route
117 and make another immediate left into the Reader's Digest main
entrance.
From New Jersey
Take the I-287 east (Tappan Zee Bridge) to Exit 1 for Saw Mill
River Parkway north. Take Saw Mill River Parkway north
approximately 7 miles to the traffic light at the Reader's Digest
Road exit (Exit 33). Turn right at the exit and bear right to the top of
the hill proceeding around the Reader's Digest headquarters. At
the traffic light, turn left onto Route 117 and make another
immediate left into the Reader's Digest main entrance.
From Connecticut
Take I-95 south to Exit 21 to I-287. Proceed on I-287 to Exit 3
for Sprain Brook Parkway north. Take Sprain Brook Parkway north
approximately 4 miles to exit for Saw Mill River Parkway north.
Take Saw Mill River Parkway north approximately 7 miles to the
traffic light at the Reader's Digest Road exit (Exit 33). Turn right at
the exit and bear right to the top of the hill proceeding around
the Reader's Digest headquarters. At the traffic light, turn
left onto Route 117 and make another immediate left into the
Reader's Digest main entrance.
Reader's Digest and the Pegasus logo are registered trademarks of
The Reader's Digest Association, Inc.
[Logo] Printed on recycled paper.
PROXY
THE READER'S DIGEST ASSOCIATION, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of Lynne V.
Cheney, James E. Preston and Thomas O. Ryder as attorney and
proxy, with full power of substitution, to represent the
undersigned and vote as designated below all the shares of
Class B Voting Common Stock that the undersigned may be
entitled to vote at the Annual Meeting of Stockholders of
THE READER'S DIGEST ASSOCIATION, INC. to be held November
13, 1998, and at any adjournments thereof, with all powers
the undersigned would possess if personally present, on the
proposals described in the Notice of Meeting and Proxy
Statement of the Board of Directors and in accordance with
the discretion of the Board of Directors on any other
business that may come before the meeting.
Please mark, date and sign your name exactly as it
appears on this proxy card and return this proxy card in the
enclosed envelope. For shares registered jointly, each
joint owner should sign. Persons signing in a
representative capacity (e.g., attorney, executor,
administrator, trustee, guardian, etc.) or as an officer of
a corporation should indicate their capacity, title or
office.
THE PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
____________________________________________________________
(back of card)
The Board of Directors recommends a vote FOR
Proposals 1 and 2.
WITHHELD
FOR FOR ALL
1. ELECTION OF DIRECTORS
Nominees: Thomas O. Ryder, Lynne V. Cheney,
M. Christine DeVita, George V. Grune,
James E. Preston, Lawrence R. Ricciardi,
C.J. Silas, William J. White
WITHHELD FOR: (Write that nominee's name in the
space provided below.)
_______________________________________________
2. Amendment of the 1994 Key Employee Long FOR AGAINST ABSTAIN
Term Incentive Plan to increase the number of stock
options awardable to a participant and to provide
for transferable stock options.
The Board of Directors recommends a vote AGAINST
Proposals 3 and 4.
3. Stockholder proposal to limit to two the number FOR AGAINST ABSTAIN
of Company Directors affiliated with foundations.
4. Stockholder proposal to retain an investment FOR AGAINST ABSTAIN
banker to develop a plan for recapitalization of
voting rights.
Receipt is hereby acknowledged
of The Reader's Digest
Association, Inc. Notice of
Meeting and Proxy Statement.
Signature(s) Date
NOTE: Please sign as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
PLEASE SIGN, DATE AND MAIL THIS VOTING INSTRUCTION CARD
PROMPTLY
IN THE ENVELOPE PROVIDED
AFTER DETACHING AT THE PERFORATION BELOW
THE READER'S DIGEST EMPLOYEES PROFIT-SHARING AND 401(K)
SAVINGS PLAN
THE READER'S DIGEST ASSOCIATION, INC.
CONFIDENTIAL VOTING DIRECTION TO THE TRUSTEE, SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS
I hereby direct State Street Bank and Trust Company, as
Trustee under The Reader's Digest Employee Profit-Sharing
and 401(K) Savings Plan, to vote as directed on the reverse
side my proportionate interest in the shares of Class B
Voting Common Stock of THE READER'S DIGEST ASSOCIATION, INC.
held in the Stock Fund under that Plan at the Annual Meeting
of Stockholders of THE READER'S DIGEST ASSOCIATION, INC. to
be held November 13, 1998, and at any adjournments thereof,
on the proposals as described in the Notice of Meeting and
Proxy Statement of the Board of Directors.
(Please note any change of address below.)
xxx-xx-xxx
[NAME and ADDRESS] Proportionate interest in shares-
xxx.xx shares of a total of shares of 1,716,057
Class B Voting Common Stock
in the Stock Fund
To be completed, signed and dated on the reverse side.
(Back of Card)
Please
[X] mark your
votes as
this
CLASS B COMMON
The Board of Directors recommends a vote FOR
Proposals 1 and 2.
WITHHELD
FOR FOR ALL
1. ELECTION OF DIRECTORS
Nominees: Thomas O. Ryder, Lynne V. Cheney,
M. Christine DeVita, George V. Grune, James E. Preston,
Lawrence R. Ricciardi, C. J. Silas, William J. White
WITHHELD FOR: (Write that nominee's name in the
space provided below.)
__________________________________________
2. Amendment of the 1994 Key Employee Long FOR AGAINST ABSTAIN
Term Incentive Plan to increase the number
of stock options awardable to a participant
and to provide for transferable stok options.
The Board of Directors recommends a vote AGAINST
proposals 3 and 4.
3. Stockholder proposal to limit to two the FOR AGAINST ABSTAIN
number of Company Directors affiliated
with foundations.
4. Stockholder proposal to retain an FOR AGAINST ABSTAIN
investment banker to develop a plan for
recapitalization of voting rights.
Receipt is hereby acknowledged
of The Reader's Digest
Association, Inc. Notice of
Meeting and Proxy Statement.
The Trustee will vote your proportionate interest in the shares of Class B
Voting Common Stock in the Stock Fund as you direct. IF YOU SIGN BELOW, BUT DO
NOT GIVE ANY INSTRUCTIONS, THE TRUSTEE WILL VOTE YOUR PROPORTIONATE INTEREST IN
THOSE SHARES AS RECOMMENDED BY THE BOARD OF DIRECTORS ON THE PROPOSALS LISTED
HEREIN.
Date
Signature of Participant (Please date and sign exactly as name is printed
herein.)
