FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 1-10434
THE READER'S DIGEST ASSOCIATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1726769
(State or other jurisdiction of (I.R.S.
incorporation or organization) Employer
Identification
No.)
Pleasantville, New York 10570-7000
(Address of principal executive (Zip Code)
offices)
(914) 238-1000
(Registrant's telephone number, including area code)
______________________________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of April 30, 1998, the following shares of the registrant's
common stock were outstanding:
Class A Nonvoting Common Stock, $0.01 par value: 84,973,454 shares
Class B Voting Common Stock, $0.01 par value: 21,716,057 shares
Page 1 of 16 pages.
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
Index to Form 10-Q
March 31, 1998
Part I - Financial Information Page No.
The Reader's Digest Association, Inc. and Subsidiaries
Financial Statements (unaudited):
Consolidated Condensed Statements of Income
for the three and nine-month periods ended March 31,
1998 and 1997 3
Consolidated Condensed Balance Sheets
as of March 31, 1998 and June 30, 1997 4
Consolidated Condensed Statements of Cash Flows
for the nine-month periods ended March 31, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Part II - Other Information 14
<TABLE>
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three and nine-month periods ended March 31, 1998 and 1997
(In millions, except per share data)
(unaudited)
Three-month period ended Nine-month period ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $ 635.5 $ 684.3 $ 2,009.4 $ 2,202.9
Product,
distribution and 232.3 237.5 733.6 756.6
editorial expense
Promotion, marketing
and administrative 381.5 395.3 1,181.2 1,215.6
expense
Other operating items --- --- 70.0 ---
Operating profit 21.7 51.5 24.6 230.7
Other income, net 1.6 7.7 8.2 15.4
Income before provision 23.3 59.2 32.8 246.1
for income taxes
Provision for income
taxes 8.7 21.6 20.3 89.8
Net income 14.6 37.6 12.5 156.3
Earnings per share 0.13 0.35 0.11 1.45
Average common shares
outstanding 106.5 106.2 106.4 106.8
Dividends per common 0.225 0.45 0.675 1.35
share
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<TABLE>
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
As of March 31, 1998 and June 30, 1997
(In millions)
(unaudited)
March 31, June 30,
1998 1997
<S> <C> <C>
Assets
Cash and cash equivalents $ 100.0 $ 69.1
Receivables, net 489.4 426.3
Inventories 187.9 167.8
Prepaid expenses and other current assets 252.3 262.6
Total current assets 1,029.6 925.8
Property, plant and equipment, net 286.0 314.8
Other noncurrent assets 311.9 403.2
Total assets $ 1,627.5 $ 1,643.8
Liabilities and stockholders' equity
Accounts payable $ 184.6 $ 211.8
Accrued expenses 417.1 373.6
Short-term borrowings 16.8 30.3
Income taxes payable 31.5 22.1
Unearned revenue 398.4 356.5
Other current liabilities 19.0 18.8
Total current liabilities 1,067.4 1,013.1
Other noncurrent liabilities 285.8 284.7
Total liabilities 1,353.2 1,297.8
Capital stock 29.5 29.0
Paid-in capital 141.5 141.8
Retained earnings 863.9 924.2
Foreign currency translation adjustment (48.0) (33.4)
Net unrealized losses on certain investments --- (0.3)
Treasury stock, at cost (712.6) (715.3)
Total stockholders' equity 274.3 346.0
Total liabilities and stockholders' equity $ 1,627.5 $ 1,643.8
</TABLE>
See accompanying notes to consolidated condensed financial
statements.
<TABLE>
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine-month periods ended March 31, 1998 and 1997
(In millions)
(unaudited)
Nine-month period ended
March 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income $ 12.5 $ 156.3
Depreciation and amortization 35.1 34.4
Other, net 12.4 (118.6)
Net change in cash due to operating activities 60.0 72.1
Cash flows from investing activities
Proceeds from maturities and sales of
short-term investments and marketable 32.6 119.1
securities
Purchases of short-term investments and (1.2) (31.3)
marketable securities
Proceeds from other long-term investments, net 45.6 1.0
Other, net (19.2) (24.8)
Net change in cash due to investing activities 57.8 64.0
Cash flows from financing activities
Short-term borrowings, net (13.1) 6.7
Dividends paid (72.8) (145.3)
Common stock repurchased --- (66.3)
Other, net 2.9 8.6
Net change in cash due to financing activities (83.0) (196.3)
Effect of exchange rate changes on cash (3.9) (5.9)
Net change in cash and cash equivalents 30.9 (66.1)
Cash and cash equivalents at beginning of period 69.1 258.1
Cash and cash equivalents at end of period 100.0 192.0
</TABLE>
See accompanying notes to consolidated condensed financial
statements.
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In millions)
(unaudited)
(1) Basis of Presentation
The company reports on a fiscal year beginning July 1. The
three-month periods ended March 31, 1998 and 1997 are the third
fiscal quarters of fiscal year 1998 and fiscal year 1997,
respectively.
The accompanying consolidated condensed financial statements
have not been audited, but in the opinion of management, have
been prepared in conformity with generally accepted accounting
principles applying certain judgments and estimates which
include all adjustments (consisting only of normal recurring
adjustments) considered necessary to present fairly such
information. Operating results for any interim period are not
necessarily indicative of the results for an entire year due to
the seasonality of the company's business.
(2) Earnings Per Share
Earnings per share is computed by dividing net income, less
preferred stock dividend requirements of $0.3 in each of the
three-month periods ended March 31, 1998 and 1997, and $1.0 in
each of the nine-month periods ended March 31, 1998 and 1997 by
the weighted average number of common shares outstanding during
the period.
<TABLE>
(3) Inventories
March 31, June 30,
1998 1997
<S> <C> <C>
Raw materials $ 22.3 $ 17.4
Work-in-progress 24.0 26.5
Finished goods 141.6 123.9
187.9 167.8
</TABLE>
<TABLE>
(4) Revenues by Business Segments and Geographic Areas
Three-month period Nine-month period
ended ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
BUSINESS SEGMENTS
Reader's Digest Magazine $ 171.2 $ 178.3 $ 530.4 $ 540.8
Books and Home 413.0 461.1 1,241.5 1,449.3
Entertainment Products
Special Interest Magazines 22.7 17.8 69.0 55.5
Other Businesses 28.6 27.1 168.5 157.3
Total revenues 635.5 684.3 2,009.4 2,202.9
GEOGRAPHIC AREAS
United States 296.1 308.8 931.8 974.6
Europe 243.4 276.6 767.9 906.2
Pacific and Other Markets 96.0 98.9 309.7 322.1
Total revenues 635.5 684.3 2,009.4 2,202.9
</TABLE>
(5) Other Operating Items
In the first quarter of 1998, the company recorded charges of
$70.0 (the 1998 charges) ($51.8 after tax, or $0.49 per share)
composed primarily of severance costs associated with workforce
reductions in Europe, the United States and at the corporate
level; and other costs associated with the discontinuation of
certain businesses and the realignment of business processes and
operations. Businesses that were discontinued include a
children's book club in the United States, and the company's
investment in LookSmart, a World Wide Web navigation service.
The realignment of business processes and operations also relates
to certain vendor contracts in the United States and Europe. The
components of these charges are reported in the table below.
As described in Note 2 to the company's consolidated financial
statements included in its 1997 Annual Report to Stockholders,
the company recorded charges of $35.0 in the fourth quarter of
1997, and charges of $204.0 in the third quarter of 1996,
relating primarily to the realignment of the organization and
operations and to the streamlining of the company's
organizational structure and the strategic repositioning of
certain businesses, respectively. The components of these
charges, as well as reserve balances remaining at March 31, 1998,
were:
<TABLE>
Balance at 1998 Current Balance
June 30, 1997 Charges Activity Remaining
<S> <C> <C> <C> <C>
Employee retirement & $ 56.7 $ 39.5 $ 25.1 $ 71.1
severance benefits
Other items 23.6 23.1 9.7 37.0
Business repositioning 0.7 4.2 7.4 3.9
Total 81.0 70.0 39.0 112.0
</TABLE>
(6) Debt
As described in Note 13 to the company's consolidated financial
statements included in its 1997 Annual Report to Stockholders,
the company is a party to an agreement with The Chase Manhattan
Bank for a line of credit of $75.0 (the Chase line of credit)
which expired on April 30, 1998, and a Competitive Advance and
Revolving Credit Facility Agreement (the credit agreement) of up
to $400.0. Under the credit agreement, the company must comply
with certain financial covenants, including a minimum level of
consolidated tangible net worth. The company is in the process
of renegotiating the credit agreement. The amended credit
agreement, if finalized, is expected to provide for a necessary
reduction of the minimum required level of consolidated tangible
net worth, a reduction of credit available and an increase in
borrowing costs. Going forward the company intends to
consolidate the majority of its domestic borrowings under the
credit agreement. At March 31, 1998, no borrowings were
outstanding under the Chase line of credit or the credit
agreement. In addition, various international subsidiaries of
the company have available lines of credit totaling $77.3. At
March 31, 1998, loans in the amount of $9.2 were outstanding
under international lines of credit at a weighted average
interest rate of 5.0%.
In September 1997, the company entered into an agreement with
Morgan Guaranty Trust Company of New York for an uncommitted line
of credit of $50.0 (the Morgan line of credit) to be used for
general corporate purposes. The loans under the Morgan line of
credit are payable on demand and bear interest at a floating rate
based on the cost of funds of the bank plus a margin. At March
31, 1998, loans in the amount of $5.0 were outstanding under the
Morgan line of credit at a weighted average interest rate of
6.1%.
(7) Stock Option and Stock Appreciation Rights Repricing
On October 9, 1997, options and stock appreciation rights related
to 2.1 million shares of Class A common stock were granted to
eligible employees pursuant to the 1989 and 1994 Key Employee
Long Term Incentive Plans (October grant). The October grant was
never distributed to over 800 employees. The exercise price of
the October grant was $27.03 per share, the fair market value of
the company's common stock at October 9, 1997. These options
provided for vesting ratably over four years and could be
exercised over a period of ten years from the date of grant. On
November 18, 1997, the October grant was canceled and options and
stock appreciation rights related to 2.1 million shares of Class
A common stock were reissued to eligible employees at a price of
$21.47 per share, the fair market value of the company's stock at
November 18, 1997 (November grant). This reissuance was in
connection with a significant revision of the company's executive
compensation structure, involving the elimination of long-term
cash performance awards, the reduction of annual cash bonuses and
the greater reliance on equity incentive awards. The other terms
of the November grant were not changed from the terms of the
October grant.
The Reader's Digest Association, Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Dollars in millions, except per share data)
Results of Operations
Three-Month Period Ended March 31, 1998 Compared With Three-
Month Period Ended March 31, 1997
Worldwide revenues for the third quarter of 1998 decreased to
$635.5, or by 7%, compared with $684.3 in the third quarter of
1997. Excluding the adverse effect of changes in foreign
currency exchange rates, revenues decreased 3%. Revenues
declined primarily in the company's United States and developed
European operations. The decrease in revenues was due
primarily to lower unit sales within Books and Home
Entertainment Products as a result of lower mail quantities and
fewer profitably promotable customers as well as lower customer
response to promotional mailings primarily in major developed
markets. The company reported worldwide operating profit of
$21.7 in the third quarter of 1998, compared with $51.5 in the
third quarter of 1997. These operating results reflect lower
revenues in major developed markets, significant declines in
operating results in the United States, Germany and the U.K.,
and higher proportionate product costs and promotional
spending.
The company reported net income of $14.6, or $0.13 per share,
in the third quarter of 1998, compared with $37.6, or $0.35 per
share, in the third quarter of 1997.
Other Income, Net
Other income, net decreased in the third quarter of 1998 to
$1.6, compared with $7.7 in the prior year. This decrease was
primarily because of losses on foreign exchange transactions
and hedging activity, gains on sales of certain investments in
the prior year not recurring in the current year and lower
interest income, which were partially offset by a net gain on
the sale of certain assets in 1998.
Income Taxes
The overall effective tax rate was 37.5% for the third quarter
of 1998, compared with 36.5% for the third quarter of 1997.
The higher effective tax rate in 1998 was primarily due to
reduced utilization of foreign tax credits.
Geographic Areas
United States
Revenues in the United States decreased from $308.8 in 1997 to
$296.1, or by 4%, in 1998. This decrease was primarily
attributable to lower unit sales in the general books product
line, and, to a lesser extent, in the music product line within
Books and Home Entertainment Products. These declines were
partially offset by increased revenues in Special Interest
Magazines. The decline in general books was primarily caused
by lower customer response to promotional mailings, one fewer
mailing and lower mail quantities as well as fewer profitably
promotable customers in 1998. Music revenues decreased due to
a significant reduction in mail quantities in 1998, in addition
to the timing of music series shipments compared with the prior
year. Revenues for Special Interest Magazines increased
primarily due to the acquisition of Walking magazine in the
third quarter of 1997. Operating profit decreased
significantly in 1998, compared with 1997, due to the revenue
decrease, higher promotional spending in order to acquire and
renew subscribers to Reader's Digest Magazine and higher
product costs.
Europe
Revenues in Europe decreased from $276.6 in 1997 to $243.4, or
by 12%, in 1998. Excluding the adverse effect of changes in
foreign currency exchange rates, revenues decreased 4%. The
revenue decrease was primarily due to lower unit sales, and, to
a lesser extent, lower-priced product offerings and sales of a
lower-priced product mix of Books and Home Entertainment
Products. Within this segment, revenues declined in the series
books, and, to a lesser extent, in the video and Condensed
Books product lines. Product expansion in Eastern European
markets, principally in the general books and music product
lines, was offset by continued lower sales in major markets,
particularly in Germany and the U.K., where results have
declined more significantly than other markets. Lower sales
were as a result of a reduction in shipments due to fewer
customers carried into 1998 for series product lines, lower
mail quantities and fewer profitably promotable customers as
well as lower customer response to promotional mailings.
Mailings executed later in 1998 compared with the prior year
negatively affected revenues for video products for the
quarter. Revenues for Reader's Digest Magazine declined
slightly from the prior year as growth in Russia was offset by
circulation declines and a lower number of advertising pages
sold in major developed markets. Operating profit decreased
significantly in 1998, compared with 1997, as a result of lower
revenues, higher proportionate product costs and higher
proportionate promotional spending.
Pacific and Other Markets
Revenues in Pacific and Other Markets decreased from $98.9 in
1997 to $96.0, or by 3%, in 1998. Excluding the adverse effect
of changes in foreign currency exchange rates, revenues
increased 7%. Revenues increased primarily in the music
product line within Books and Home Entertainment Products, due
to a higher number of units sold, partially offset by a lower
number of Condensed Books sold in 1998. More mailings in this
product line compared with the prior year also benefited
revenues in the third quarter of 1998. Higher revenues in
Latin America, reflecting product expansion primarily in
Brazil, were partially offset by revenue declines in Canada,
due in part to the effects of severe ice storms which forced
closure of the business and adversely affected postal service
during the critical January mailing period. Operating results
improved in 1998, compared with 1997, primarily because of
reduced promotional spending and lower overhead costs.
Corporate Expense
Corporate Expense in the third quarter of 1998 increased
slightly to $8.5, compared with $8.2 in 1997.
Business Segments
Reader's Digest Magazine
Revenues for Reader's Digest Magazine decreased from $178.3 in
1997 to $171.2, or by 4%, in 1998. Excluding the adverse
effect of changes in foreign currency exchange rates, revenues
were about even with the prior year. Higher circulation
revenues were offset by lower advertising revenues. Growth in
subscriptions in Russia and Brazil were partially offset by
circulation declines in several major markets. A lower number
of advertising pages sold in the United States and Germany was
partially offset by a higher rate per page in the United
States. Operating profit for Reader's Digest Magazine declined
significantly in 1998, as a result of lower revenues and higher
promotional spending in the United States to acquire and renew
subscribers. Consistent with industry practice, the company
periodically evaluates the financial implications of the
circulation rate base of Reader's Digest Magazine worldwide.
In order to increase the efficiency of its promotional
spending, the company is presently reviewing possible rate base
reductions in selected major markets.
Books and Home Entertainment Products
Revenues for Books and Home Entertainment Products decreased
from $461.1 in 1997 to $413.0, or by 10%, in 1998. Excluding
the adverse effect of changes in foreign currency exchange
rates, revenues decreased 5%, principally attributable to the
company's United States, and, to a lesser extent, European
operations. The decrease in revenues was primarily due to
lower unit sales in the general books and series books product
lines, although revenues declined across most product lines.
In addition, a lower-priced mix of products overall was offered
in 1998, predominantly in major markets. Revenues for general
books declined primarily in the United States due to lower
customer response to promotional mailings, one fewer mailing
and a reduction in mail quantities as well as fewer profitably
promotable customers in 1998. The decline in series books
revenues was a result of a reduction in shipments in Europe due
to fewer series customers carried into 1998. In the United
States, series revenues declined due to the scaling back of a
book series in 1998. Across most product lines, reduced
revenues in certain major markets, particularly the United
States and Germany, were offset by expansion in Eastern Europe
and Latin America. Operating profit for Books and Home
Entertainment Products decreased significantly in 1998,
compared with 1997. These operating results were affected by
lower revenues and higher proportionate product costs.
Special Interest Magazines
Revenues for Special Interest Magazines increased from $17.8 in
1997 to $22.7, or by 27%, in 1998. This increase was primarily
attributable to the acquisition of Walking magazine in the
third quarter of 1997. Excluding Walking, revenues increased
2%, principally due to a higher-priced mix of advertising pages
sold in 1998. Operating results improved in 1998 compared with
1997 primarily due to the higher advertising revenues partially
offset by increased promotional spending associated with
Walking.
Nine-month Period Ended March 31, 1998 Compared With Nine-month
Period Ended March 31, 1997
Other Operating Items
In the first quarter of 1998, the company recorded charges of
$70.0 ($51.8 after tax, or $0.49 per share) composed primarily
of severance costs of $39.5 associated with workforce
reductions in Europe, the United States, and at the corporate
level; and other costs associated with the discontinuation of
certain businesses and the realignment of business processes
and operations. Businesses that were discontinued include a
children's book club in the United States, and the company's
investment in LookSmart, a World Wide Web navigation service.
The realignment of business processes and operations also
relates to certain vendor contracts in the United States and
Europe.
Management's discussion and analysis, as it pertains to
geographic and business segment information, has been written
excluding the effect of these charges.
Revenues/Operating Profit
Worldwide revenues for the nine-month period ended March 31,
1998 decreased to $2,009.4, or by 9%, compared with $2,202.9 in
the nine-month period ended March 31, 1997. Excluding the
adverse effect of changes in foreign currency exchange rates,
revenues decreased 4%. This decrease was due primarily to
lower unit sales, and, to a lesser extent, lower-priced product
offerings and sales of a lower-priced product mix within Books
and Home Entertainment Products. Revenues declined principally
in the company's developed European and United States
operations. The decrease in revenues was predominantly as a
result of lower mail quantities and fewer profitably promotable
customers as well as lower customer response to promotional
mailings in major developed markets. The company reported
worldwide operating profit of $24.6 in the nine-month period
ended March 31, 1998, compared with $230.7 in the nine-month
period ended March 31, 1997. Excluding the effect of other
operating items, operating profit was $94.6 in the nine-month
period ended March 31, 1998. These operating results reflect
lower revenues in major developed markets, significant declines
in operating results in Germany and the United States, higher
proportionate product costs, higher proportionate promotional
spending, and increased investment in product development,
testing and list development initiatives, partially offset by
the benefits of cost-containment initiatives.
The company reported net income of $12.5, or $0.11 per share,
in the nine-month period ended March 31, 1998, compared with
net income of $156.3, or $1.45 per share, in the nine-month
period ended March 31, 1997. Excluding the effect of other
operating items, earnings per share was $0.60 per share in the
nine-month period ended March 31, 1998.
Other Income, Net
Other income, net decreased in the nine-month period ended
March 31, 1998 to $8.2, compared with $15.4 in the prior year.
This decrease was primarily because of lower gains on sales of
certain investments, lower interest income and higher interest
expense in 1998, which were partially offset by a net gain on
the sale of certain assets in the third quarter of 1998.
Income Taxes
For the nine-month period ended March 31, 1998, the reported
tax rate was 62.0%. Excluding the effect of other operating
items, the overall effective tax rate was 37.5% for the nine-
month period ended March 31, 1998. For the nine-month period
ended March 31, 1997, the effective tax rate was 36.5%. The
higher effective tax rate in 1998 was primarily due to reduced
utilization of foreign tax credits.
Geographic Areas
United States
Revenues in the United States decreased from $974.6 in 1997 to
$931.8, or by 4%, in 1998. Revenues declined across most
product lines within Books and Home Entertainment Products, but
most significantly as a result of lower unit sales in the
general books, and, to a lesser extent, Condensed Books and
series books product lines. These declines were partially
offset by increased revenues in Special Interest Magazines and
at QSP. The decrease in general books was primarily a result
of lower customer response to promotional mailings, one fewer
mailing and lower mail quantities as well as fewer profitably
promotable customers in 1998. The decline in Condensed Books
was a result of the timing of shipments, as well as a reduction
in shipments due to fewer customers carried into 1998 who were
participating in the series. Series revenues decreased
primarily as a result of one fewer series mailing in 1998, and
the scaling back of another book series. The increase in
Special Interest Magazines was primarily a result of the
acquisition of Walking magazine in the third quarter of 1997.
Operating profit decreased significantly in 1998, compared with
1997, due to the revenue decrease, higher promotional spending
in order to acquire and renew subscribers to Reader's Digest
Magazine and spending on investment initiatives such as new
product development, testing and list development projects.
Europe
Revenues in Europe decreased from $906.2 in 1997 to $767.9, or
by 15%, in 1998. Excluding the adverse effect of changes in
foreign currency exchange rates, revenues decreased 6%. The
revenue decrease was almost equally due to lower-priced product
offerings and sales of a lower-priced product mix and lower
unit sales of Books and Home Entertainment Products. Within
this segment revenues declined in all product lines, most
significantly in the series books and Condensed Books product
lines. Product expansion in Eastern European markets,
particularly in general books, music and video product lines,
was more than offset by lower sales in major markets,
particularly in Germany, where sales and operating profit have
declined more significantly than other markets. Lower sales
were as a result of a reduction in shipments due to fewer
customers carried into 1998 for series books and Condensed
Books product lines, lower mail quantities and fewer profitably
promotable customers as well as lower customer response to
promotional mailings. Operating profit decreased significantly
in 1998, compared with 1997, as a result of lower revenues,
higher proportionate product costs and higher proportionate
promotional spending.
Pacific and Other Markets
Revenues in Pacific and Other Markets decreased from $322.1 in
1997 to $309.7, or by 4%, in 1998. Excluding the adverse
effect of changes in foreign currency exchange rates, revenues
increased 3%. Revenues increased primarily due to higher
circulation revenues for Reader's Digest Magazine, as well as
higher unit sales of Books and Home Entertainment Products.
Within Books and Home Entertainment Products, the increase in
revenues was due predominantly to higher unit sales of music
products, and, to a lesser extent, general books, which were
partially offset by lower unit sales of Condensed Books.
Higher revenues in Latin America, reflecting product expansion
and increased circulation levels primarily in Brazil, were
offset by significant revenue declines in Canada and Australia
because of lower customer response to promotional mailings and
lower mail quantities in 1998. In addition, revenues were
adversely impacted in Canada due to the effects of a postal
strike in November 1997 and severe ice storms which forced
closure of the business and adversely affected postal service
during the critical January mailing period. Operating results
declined significantly in 1998, compared with 1997, primarily
because of lower revenues, higher promotional spending and
higher proportionate product costs.
Corporate Expense
Corporate Expense in the nine-month period ended March 31, 1998
declined to $24.9, compared with $32.7 a year ago, primarily as
a result of savings in employee benefit costs and the benefit
of cost-containment initiatives.
Business Segments
Reader's Digest Magazine
Revenues for Reader's Digest Magazine decreased from $540.8 in
1997 to $530.4, or by 2%, in 1998. Excluding the adverse
effect of changes in foreign currency exchange rates, revenues
increased 3%. The increase in revenues was attributable to
higher circulation revenues. Increased circulation levels,
primarily in Russia and Brazil, were partially offset by
circulation declines in several major markets. In addition,
higher circulation revenues in the United States were
attributable to a higher-priced mix of subscriptions. A higher
number of advertising pages sold in the Pacific and Other
Markets was partially offset by a lower number of pages sold in
the United States and Europe. Rate per advertising page
increased due to a higher rate in the United States. Operating
profit for Reader's Digest Magazine decreased significantly in
the nine-month period ended March 31, 1998 compared with the
same period a year ago. The decrease reflects higher
promotional spending in the United States to acquire and renew
subscribers and spending on investment initiatives such as list
development projects, partially offset by the benefits of cost-
containment initiatives.
Books and Home Entertainment Products
Revenues for Books and Home Entertainment Products decreased
from $1,449.3 in 1997 to $1,241.5, or by 14%, in 1998.
Excluding the adverse effect of changes in foreign currency
exchange rates, revenues decreased 9%, principally attributable
to the company's United States and European operations. The
lower revenues were predominantly due to lower unit sales in
the Condensed Books, series books and general books product
lines, and, to a lesser extent, lower-priced product offerings
and sales of a lower-priced product mix in music and video
products. The decline in Condensed Books and series books
revenues was caused by a combination of lower customer response
to promotional mailings in major developed markets, reduced
mail quantities and fewer profitably promotable customers in
many markets as well as a reduction in shipments due to fewer
customers carried into 1998. In addition, the timing of
Condensed Books mailings, the number of series mailings and the
scaling back of a book series in the United States also
contributed to lower revenues. The decrease in general books
sales was primarily a result of lower customer response to
promotional mailings, one fewer mailing and lower mail
quantities and fewer profitably promotable customers in the
United States, which was partially offset by growth in Eastern
Europe and Latin America. Operating profit for Books and Home
Entertainment Products decreased significantly in 1998,
compared with 1997. These operating results were affected by
lower revenues, higher proportionate product costs, higher
proportionate promotional spending and increased spending on
investment initiatives such as new product development,
testing, and list development projects.
Special Interest Magazines
Revenues for Special Interest Magazines increased from $55.5 in
1997 to $69.0, or by 24%, in 1998. This increase was primarily
attributable to the acquisition of Walking magazine in the
third quarter of 1997. Excluding Walking, revenues increased
5%, principally due to a higher number of advertising pages
sold in the nine-month period ended March 31, 1998. Operating
results improved in 1998 compared with 1997 primarily as a
result of the higher advertising revenues, which were partially
offset by increased promotional spending associated with
Walking.
Forward-Looking Information
The company continues to believe that 1998 is a year of
stabilizing and rebuilding its core business.
Impact of the Year 2000 Issue
The year 2000 issue is the result of computer programs being
written using two digits rather than four to define the
applicable year, with the result that date-sensitive software
may recognize a date using "00" as the year 1900 rather than
the year 2000, potentially causing a system failure or
miscalculations that could disrupt operations.
The company has completed an assessment of the year 2000 issue
with respect to its computer systems and is currently executing
a plan to convert all affected systems. The company believes
that its plan will be completed in a timely manner and that the
total cost of its plan will not have a material effect on the
results of operations of the company. The company is in the
process of formal communications with its significant suppliers
to determine the extent to which it may be affected by those
third parties' plans to remediate their own year 2000 issue in
a timely manner.
*****
The statements contained in this report, if not historical, are
forward-looking statements, which involve risks and
uncertainties that could cause actual results to differ
materially from the financial results described in the forward-
looking statements. These risks and uncertainties include the
effect of increased market testing of the company's promotions
and products, the effect of modified and varied promotions, the
ability to identify customer trends, the ability to continue to
create a broadly appealing mix of new products, the ability to
attract and retain new and younger magazine subscribers and
product customers in view of the maturing of an important
portion of the U.S. customer base, the effect of selective
adjustments in pricing, the ability to expand and more
effectively utilize the company's customer database, the
ability to expand into new international markets and to
introduce new product lines into new and existing markets, the
ability to expand into new channels of distribution, the
ability to negotiate and implement productive strategic
alliances and joint ventures, the ability to contain and reduce
costs, especially through global efficiencies, the cost and
effectiveness of the realignment of business processes and
operations, the accuracy of management's assessment of the
current status of the company's business, the evolution of the
company's organizational and structural capabilities, including
the effect of the transition to its new chief executive
officer, the effect of privacy and other governmental
regulation, the ability of the company to respond to
competitive pressures within and outside of the direct mail
industry, the effect of worldwide paper and postage costs, the
effect of postal disruptions on deliveries, the effect of
foreign currency fluctuations, the effect of the year 2000
issue, and general economic conditions.
Liquidity and Capital Resources
Cash and cash equivalents, short-term investments and
marketable securities remained almost even at $101.8 at March
31, 1998, compared with $102.4 at June 30, 1997. Dividend
payments of $72.8, capital expenditures of $23.2 and net
payments of short-term borrowings of $13.1 were offset by cash
provided from operations of $60.0 and proceeds from the sale of
other long-term investments of $45.6.
In the third quarter of 1998, the company paid a $0.225 per
share dividend on its common stock, representing a 50% decrease
compared with $0.45 per share a year ago. At the current rate,
the annualized dividend is $0.90 per share in 1998 compared
with $1.80 in 1997.
The company did not repurchase any shares of Class A nonvoting
common stock in the third quarter of 1998.
The company is party to a Competitive Advance and Revolving
Credit Facility Agreement dated as of November 12, 1996, with a
syndicate of domestic and foreign banks (the credit agreement).
The credit agreement, which has a term of five years, currently
permits competitive advance and revolving credit borrowings of
up to $400.0 by the company and its designated subsidiaries.
Interest rates can be based on: the prime rate, the federal
funds rate, the London Interbank Offered Rate (LIBOR), and
money market rates. The proceeds of the borrowings are to be
used for general corporate purposes, including acquisitions,
share repurchases and commercial paper backup. At March 31,
1998, no borrowings were outstanding under the credit
agreement. The credit agreement contains certain restrictions
on incurrence of debt, liens and guarantees of indebtedness.
The company must also comply with certain financial covenants,
including a minimum level of consolidated tangible net worth.
The company is in the process of renegotiating the credit
agreement. The amended credit agreement, if finalized, is
expected to provide for a necessary reduction of the minimum
required level of consolidated tangible net worth, a reduction
of credit available and an increase in borrowing costs. Going
forward the company intends to consolidate the majority of its
domestic borrowings under the credit agreement.
The company was also party to an agreement with The Chase
Manhattan Bank for a line of credit of $75.0 (the Chase line of
credit) for a term of one year to be used for general corporate
purposes. The Chase line of credit expired on April 30, 1998.
The loans under the Chase line of credit were payable on demand
and bore interest at a floating rate based on the cost of funds
of the bank plus a margin. At March 31, 1998 there were no
borrowings outstanding under the Chase line of credit. In
addition, various international subsidiaries of the company
have available lines of credit totaling $77.3. At March 31,
1998, loans in the amount of $9.2 were outstanding under
international lines of credit, at a weighted average interest
rate of 5.0%.
In September 1997, the company entered into an agreement with
Morgan Guaranty Trust Company of New York for an uncommitted
line of credit of $50.0 (the Morgan line of credit) to be used
for general corporate purposes. The loans under the Morgan
line of credit are payable on demand and bear interest at a
floating rate based on the cost of funds of the bank plus a
margin. At March 31, 1998 loans in the amount of $5.0 were
outstanding under the Morgan line of credit at a weighted
average interest rate of 6.1%.
The company believes that its liquidity, capital resources,
cash flow and borrowing capacity are sufficient to fund normal
capital expenditures, working capital requirements, the payment
of dividends, and present plans to expand existing product
lines in existing markets, to identify and develop new products
and markets, and to enter into strategic alliances.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.31 The Reader's Digest Association, Inc. Director
Compensation Program.*
10.32 The Reader's Digest Association, Inc. Deferred
Compensation Plan for Directors (amended and restated
as of March 13, 1998).*
10.33 Employment Agreement dated as of April 28, 1998
between the registrant and Thomas O. Ryder.*
10.34 First Amendment Agreement dated as of April 28,
1998 between the registrant and George V. Grune.*
10.35 The Reader's Digest Association, Inc. 1994 Key
Employee Long Term Incentive Plan, as amended and
restated effective as of April 28, 1998.*
27 Financial Data Schedule.
(b) Reports on Form 8-K
The company filed a report on Form 8-K on April 28, 1998
which included a copy of a press release relating to senior
management changes.
_______________
*Denotes a management contract or compensatory plan.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
The Reader's Digest Association, Inc.
(Registrant)
Date: May 13, 1998 By: /s/GEORGE S. SCIMONE
George S. Scimone
Vice President and
Chief Financial Officer
(and authorized signatory)
EXHIBIT INDEX
Exhibit Page
10.31 The Reader's Digest Association, Inc. Director
Compensation Program.*
10.32 The Reader's Digest Association, Inc. Deferred
Compensation Plan for Directors (amended and restated
as of March 13, 1998).*
10.33 Employment Agreement dated as of April 28, 1998
between the registrant and Thomas O. Ryder.*
10.34 First Amendment Agreement dated as of April 28, 1998
between the registrant and George V. Grune.*
10.35 The Reader's Digest Association, Inc. 1994 Key
Employee Long Term Incentive Plan, as amended and
restated effective as of April 28, 1998.*
27 Financial Data Schedule
_______________
*Denotes a management contract or compensatory plan.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Registrant's Consolidated Condensed Statement of Income and Consolidated
Condensed Balance Sheet for the nine-month period ended March 31, 1998, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 100,000
<SECURITIES> 800
<RECEIVABLES> 671,800
<ALLOWANCES> 182,400
<INVENTORY> 187,900
<CURRENT-ASSETS> 1,029,600
<PP&E> 647,500
<DEPRECIATION> 361,500
<TOTAL-ASSETS> 1,627,500
<CURRENT-LIABILITIES> 1,067,400
<BONDS> 0
<COMMON> 700
0
28,800
<OTHER-SE> 244,800
<TOTAL-LIABILITY-AND-EQUITY> 1,627,500
<SALES> 2,009,400
<TOTAL-REVENUES> 2,009,400
<CGS> 1,984,800
<TOTAL-COSTS> 1,984,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,200
<INCOME-PRETAX> 32,800
<INCOME-TAX> 20,300
<INCOME-CONTINUING> 12,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,500
<EPS-PRIMARY> 1,100
<EPS-DILUTED> 1,100
</TABLE>
The Reader's Digest Association, Inc.
DIRECTOR COMPENSATION PROGRAM
(As Adopted March 13, 1998)
1. Purpose.
The purpose of The Reader's Digest Association, Inc.
Director Compensation Program (the "Program") is to attract and
retain qualified individuals to serve as non-employee directors
on the Board of Directors (the "Board") of The Reader's Digest
Association, Inc. (the "Company"). The Program is comprised of
both cash and equity components, with an emphasis on the latter
so as to strengthen the non-employee directors' equity
relationship with the Company and to more completely align their
interests with those of the stockholders generally.
2. Administration.
The Program shall be administered by the Vice
President, Human Resources of the Company.
3. Compensation.
a. Stock Retainer.
(i) Annual Grant. In lieu of an annual cash
retainer, the Company shall grant to each non-employee director
who is a director as of the beginning of the calendar year, on
the first trading day of each calendar year beginning with the
1999 calendar year, a number of shares of the Company's Class A
Nonvoting Common Stock (the "Class A Common Stock") equal to (A)
$32,000 divided by (B) the average per share closing price for
Class A Common Stock over the twenty (20) trading days
immediately preceding the date of grant, such number of shares to
be rounded to the nearest number of fifty (50) shares.
(ii) Pro-Rated Grant for Directors Beginning
Service Mid-Year. The Company shall grant to each non-employee
director who becomes a director during the calendar year other
than during the month of December, on the first trading day of
the month following the month during which such director begins
service, a number of shares of Class A Common Stock equal to (A)
the Pro-Rated Stock Retainer divided by (B) the average per share
closing price for Class A Common Stock over the twenty (20)
trading days immediately preceding the date of grant, such number
of shares to be rounded to the nearest number of fifty (50)
shares. For purposes of this Section 3(a)(ii), "Pro-Rated Stock
Retainer" shall mean $32,000, $24,000, $16,000 or $8,000 based on
whether the grant to the non-employee director is made during the
first, second, third or fourth calendar quarter, respectively.
b. Cash Retainer.
As compensation for attendance at meetings of the
Board or committees thereof, each non-employee director shall
receive quarterly $4,500 in cash. Each non-employee director who
serves as the Chairperson of a committee of the Company's Board
shall receive quarterly an additional $750 in cash. All cash
compensation relating to meetings of the Board and committees
thereof shall be payable at the end of each calendar quarter
during which the individual served in whole or in part as a
director or Chairperson, beginning with the April 1, 1998
calendar quarter.
4. Additional Benefits.
a. Directors Who Began Service Prior to April 1, 1998
- - Retirement Benefit. Each non-employee director who began
service prior to April 1, 1998 (a "Current Director") and who
serves for at least five (5) years shall remain eligible to
receive a retirement benefit equal to $32,000, payable in four
equal installments at the end of each calendar quarter, under the
non-employee director compensation program in effect immediately
prior to April 1, 1998.
b. Directors Who Begin Service After April 1, 1998 -
Equity Compensation. Each non-employee director who begins
service after April 1, 1998 (a "New Director") shall be entitled
to receive, beginning in 1999 and in lieu of any retirement
benefit, the following:
(i) Stock Grant.
(A) Annual Stock Grant. The Company shall
grant to each New Director who is a director as of the beginning
of the calendar year, on the first trading day of each calendar
year, a number of shares of Class A Common Stock equal to (1)
$20,000 divided by (2) the average per share closing price for
Class A Common Stock over the twenty (20) trading days
immediately preceding the date of grant, such number of shares to
be rounded to the nearest number of fifty (50) shares.
(B) Pro-Rated Stock Grant for Directors
Beginning Service Mid-Year. The Company shall grant to each New
Director who becomes a director during the calendar year other
than during the month of December, on the first trading day of
the month following the month during which such director begins
service, a number of shares of the Class A Common Stock equal to
(A) the Pro-Rated Stock Grant divided by (B) the average per
share closing price for Class A Common Stock over the twenty (20)
trading days immediately preceding the date of grant, such number
of shares to be rounded to the nearest number of fifty (50)
shares. For purposes of this Section 3(c)(ii)(A), "Pro-Rated
Stock Grant" shall mean $20,000, $15,000, $10,000 or $5,000 based
on whether the grant to New Director is made during the first,
second, third or fourth calendar quarter, respectively; and
(ii) Cash Award. Each New Director shall receive
quarterly $3,000 in cash, payable at the end of each calendar
quarter during which the New Director served in whole or in part.
5. Transition Provisions Relating to Calendar Year 1998.
a. First Quarter 1998.
In respect of the calendar quarter ending March
31, 1998, each Current Director shall receive in cash the
following pro-rated amounts earned under the non-employee
director compensation program existing prior to April 1, 1998:
(i) a retainer of $8,000 and (ii) $1,000 for each Board or
committee meeting attended during such quarter (with an
additional amount of $500 payable to each committee Chairperson
for each committee meeting attended during such quarter). Such
amounts shall be payable as soon as practicable after March 31,
1998. Any election made by a Current Director under the Deferred
Compensation Plan for Non-Employee Directors of The Reader's
Digest Association, Inc. (the "Deferred Compensation Plan")
relating to the annual retainer payable in respect of calendar
year 1998 shall be applied to the $8,000 pro-rated retainer
payment.
b. Second, Third and Fourth Quarters 1998.
In respect of the calendar quarters ending June
30, 1998, September 30, 1998 and December 31, 1998, each Current
Director shall receive: (i) on April 1, 1998, in lieu of a cash
retainer, a number of shares of Class A Common Stock equal to (A)
$24,000 divided by (B) the average per share closing price for
Class A Common Stock over the twenty (20) trading days
immediately preceding April 1, 1998, such number of shares to be
rounded to the nearest number of fifty (50) shares; and (ii) in
lieu of meeting and committee fees, at the end of each such
quarter, $4,500 in cash (with an additional amount of $750
payable to each committee Chairperson).
6. Expenses.
The Company shall reimburse each non-employee director
for all reasonable expenses relating to his or her attendance at
meetings and otherwise in connection with his or her duties as a
director.
7. Deferred Compensation.
Each non-employee director may elect to defer, under
the terms of the Deferred Compensation Plan, 50%, 75% or 100% of
the cash retainer and cash award described in Section 3(b),
Section 4(b)(ii) and Section 5(b)(ii) hereof for a designated
period following his or her termination from the Board. Under
the Deferred Compensation Plan, each director may chose to
receive deferred amounts in either a lump sum or in annual
installments. The Company shall send a deferral election form to
each director before the beginning of each calendar year.
8. Amendment and Termination of this Program.
This Program may be amended, modified, suspended or
terminated by the Board at any time; provided, however, that no
such amendment, modification, suspension or termination shall
adversely effect any benefit or compensation which either is
vested or accrued but unpaid as of the date of such amendment,
modification, suspension or termination.
9. Effective Date.
The effective date of this Program is April 1, 1998.
THE READER'S DIGEST ASSOCIATION, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(Amended and Restated as of March 13, 1998)
ARTICLE I
Purpose
The purpose of the Deferred Compensation Plan for
Directors (the "Plan") of The Reader's Digest Association, Inc.
(the "Company") is to offer non-employee members of the Company's
Board of Directors (the "Board"), the opportunity to defer
receipt of cash payments made under the Company's Director
Compensation Program (the "Program") which they may become
entitled to, under terms advantageous to both such Directors and
the Company, for the periods provided in the Plan. The Plan was
initially adopted effective September 7, 1990. The Board adopted
the Plan, as amended and restated, effective March 13, 1998.
ARTICLE II
Definitions
For purposes of this Plan, the following terms shall
have the following meanings:
2.1 "Account" shall have the meaning specified in
Section 4.1.
2.2 "Award" shall mean (a) prior to March 13, 1998,
the annual retainer but not meeting fees for attendance at Board
or Committee meetings to which a Participant may become entitled
as a non-employee Director of the Company and (b) after March 13,
1998, the cash payments made under Sections 3(b), 4(b)(ii) and
5(b)(ii) of the Program to which a Participant may become
entitled as a non-employee Director of the Company.
2.3 "Beneficiary" shall mean the person or persons
designated from time to time in a writing delivered to the
Committee by a Participant to receive payments under this Plan
after the death of such Participant or, in the absence of any
such designation or in the event that such designated person or
persons shall predecease such Participant, the Participant's
estate or legal representative.
2.4 "Committee" shall have the meaning specified in
Section 6.1.
2.5 "Deferred Amount" shall mean at any time the sum
of all of a Participant's Deferred Compensation plus all
Increments credited as of such date to the Account of such
Participant, as provided herein.
2.6 "Deferred Compensation" shall mean that portion of
each Award to which a Participant is entitled, the payment of
which he has elected to defer under this Plan.
2.7 "Designated Deferral Period" shall have the
meaning specified in Section 3.1.
2.8 "Designated Pay-Out Schedule" shall have the
meaning specified in Section 3.1.
2.9 "Designated Percentage" shall have the meaning
specified in Section 3.1.
2.10 "Election Date" shall have the meaning specified
in Section 3.2.
2.11 "Eligible Director" shall mean any non-employee
Director of the Company. A non-employee Director is any person
who is a member of the Board and who is not a full-time employee
of the Company or any of its subsidiaries.
2.12 "Increments" shall have the meaning specified in
Section 4.2.
2.13 "Measuring Year" shall have the meaning specified
in Section 3.2.
2.14 "Participant" shall mean any Eligible Director on
any date which is an Election Date for any Award which, if
thereafter made or earned, will be made or earned in respect of
the calendar year following the calendar year in which the
Election Date occurs or such other period as the Committee may
designate.
2.15 "Plan Interest Rate" shall have the meaning
specified in Section 4.3.
ARTICLE III
Deferral of Awards
3.1 Election. Each Participant may elect to have the
payment of a Designated Percentage of each Award for which he is
eligible deferred pursuant to this Plan for a Designated Deferral
Period with a Designated Pay-Out Schedule. A "Designated
Percentage" shall mean the percentage of 50%, 75% or 100%
selected by the Participant for a particular Award. A
"Designated Deferral Period" shall mean one of the following
periods following the date the Deferred Compensation would
otherwise have been payable, as selected by the Participant for a
particular Award: (i) until January 1 following the
Participant's termination of services as a Director or (ii) until
January 1 of the year following the expiration of a designated
number of years following the Participant's termination of
services as a Director as specified in the election form filed
with the Committee, which year shall not exceed five years from
the January 1 of the year following the date of termination. A
"Designated Pay-Out Schedule" shall mean one of the following, as
selected by the Participant for a particular Award: (i) a
lump-sum pay-out in the January following the end of the
Designated Deferral Period; or (ii) a pay-out in annual
installments of from one to ten years in the January of each such
year following the end of the Designated Deferral Period in
accordance with the following method with respect to each Award:
INSTALLMENT METHOD WITH RESPECT TO AN AWARD
For a multi-year installment election
where x is the number of years in the
Designated Deferral Period:
1st payment is 1/x times the Deferred Amount
then credited to such Participant's Account with
respect to such Award,
2nd payment is 1/x-1 times the Deferred
Amount then credited to such Participant's Account
with respect to such Award,
3rd payment is 1/x-2 times the Deferred
Amount then credited to such Participant's Account
with respect to such Award,
And so on, decreasing the denominator of the
fraction by one for each year until the final year
for which the payment is the balance of the
Deferred Amount then credited to such
Participant's Account with respect to such Award;
A numerical example of a Pay-Out Schedule over five years is
attached as Exhibit A. A separate election shall be made for
each Award and shall be delivered to the Committee on or before
the Election Date for such Award in accordance with Section 3.2.
3.2 Deferral Election. An election under Section 3.1
shall be in writing on a form prescribed by the Committee
delivered to the person designated by the Company on or before
the Election Date. The "Election Date" for an Award shall be the
December 31 prior to the calendar year of the Company in respect
of which such Award is earned (the "Measuring Year") even if the
Award would ordinarily be payable in the calendar year following
the Measuring Year; provided, however, in the year in which this
amended and restated Plan is adopted, an Eligible Director may
elect, on or prior to March 31, 1998 (the "Election Date"), to
defer the Award payable under Section 5(b)(ii) of the Program;
provided further, however, that in the case of a person who has
been advised that he will become an Eligible Director to assume
office after January 1 of any year, such person may elect, on or
prior to the last day of the month following his election as a
Director (the "Election Date"), to defer the Award earned or made
following such Election Date. Each written election shall
specify which Designated Percentage of the Award covered by the
election the Participant desires to have deferred and which
Designated Deferral Period and Designated Pay-Out Schedule will
apply. An election, once made, shall be irrevocable.
ARTICLE IV
Treatment of Deferred Amounts
4.1 Memorandum Account. The Company shall establish
on its books a memorandum account (the "Account") for each
Participant who has Deferred Compensation under this Plan.
Immediately following the date on which any Deferred Compensation
would otherwise be payable to a Participant as part of an Award,
the amount of such Deferred Compensation shall be credited to
such Participant's Account.
4.2 Increments. On the last day of each calendar
quarter, interest shall be credited to each Participant's Account
(an "Increment"), computed separately for each Account, on the
balance (if any ) of such Account as of such date, exclusive of
interest previously credited during such fiscal year, at the Plan
Interest Rate. Interest shall be compounded annually as of each
September 30.
4.3 Plan Interest Rate. The "Plan Interest Rate"
shall be designated by the Committee as of the last day of each
calendar quarter. Such interest rates may be designated by the
Committee on any reasonable basis and such designations made in
good faith shall be final.
4.4 Assets. No assets shall be segregated or
earmarked in respect of any Deferred Amount and no Participant
shall have any right to assign, transfer, pledge or hypothecate
his interest, or any portion thereof, in his Account. The Plan
and the crediting of Accounts hereunder shall not constitute a
trust and shall be merely for the purpose of recording an
unsecured contractual obligation.
4.5 Reports. Until the entire Deferred Amount in an
Account shall have been paid in full, the Company will furnish to
each Participant a report, at least annually, setting forth
transactions in such Account and the status of his Account.
ARTICLE V
Payment of Deferred Amounts
5.1 Form of Payment. All payments of Deferred Amounts
under this Plan shall be made in cash.
5.2 Payment of Deferred Amount. The Deferred Amount
credited to each Participant's Account with respect to any Award
(including all Increments attributable to such Award) shall be
payable to such Participant, in accordance with the Designated
Pay-Out Schedule, commencing the January immediately following
the end of the Designated Deferral Period elected with respect to
such Award. If a Participant dies prior to payment of all or any
portion of the Deferred Amount, the entire Deferred Amount
credited to such Participant's Account shall (if not sooner
payable) be payable to his Beneficiary in accordance with the
Designated Pay-Out Schedule commencing the January immediately
following the Participant's death; provided, however, that the
Committee may, in its sole discretion, accelerate the payment of
the entire Deferred Amount in a lump-sum in January of the year
immediately following the date of such death.
5.3 Acceleration of Payments. Notwithstanding any
other provision of this Plan to the contrary, the Committee or
the Company, in its sole discretion, is empowered to accelerate
the payment of Deferred Amounts to a Participant or to all
Participants, in the event of substantial hardship to a
Participant arising out of mental or physical disability of the
Participant or an immediate family member, death of an immediate
family member or such other cause as the Committee or the Company
shall in its sole discretion determine to constitute hardship.
Neither the Company nor the Committee shall have any obligation
to make any such acceleration for any such reason or any other
reason.
ARTICLE VI
Administration
6.1 Committee. The Plan shall be administered and
interpreted by a committee appointed from time to time by the
Board (the "Committee") and consisting of two or more Directors
who are not Eligible Directors. The Committee shall have full
authority to construe and interpret the terms and provisions of
the Plan, to adopt, alter and repeal such administrative rules,
guidelines and practices governing this Plan and to perform all
acts, including the delegation of its administrative
responsibilities as it shall, from time to time, deem advisable,
and to otherwise supervise the administration of this Plan. The
Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan, or in any election
hereunder, in the manner and to the extent it shall deem
necessary to carry the Plan into effect. Any decision,
interpretation or other action made or taken in good faith by or
at the direction of the Company, the Board, or the Committee (or
any of its members) arising out of or in connection with the Plan
shall be within the absolute discretion of all and each of them,
as the case may be, and shall be final, binding and conclusive on
the Company and all employees and Participants and their
respective heirs, executors, administrators, successors and
assigns.
6.2 Liability. No member of the Board, no employee of
the Company and no member of the Committee (nor the Committee
itself) shall be liable for any act or action hereunder, whether
of omission or commission, by any other member or employee or by
any agent to whom duties in connection with the administration of
the Plan have been delegated or, except in circumstances
involving his bad faith, gross negligence or fraud, for anything
done or omitted to be done by himself. The Company or the
Committee may consult with legal counsel, who may be counsel for
the Company or other counsel, with respect to its obligations or
duties hereunder, or with respect to any action or proceeding or
any question of law, and shall not be liable with respect to any
action taken or omitted by it in good faith pursuant to the
advice of such counsel.
ARTICLE VII
Miscellaneous
7.1 Amendment or Termination. Notwithstanding any
other provision of this Plan, the Board may at any time, and from
time to time, amend, in whole or in part, any or all of the
provisions of the Plan, or suspend or terminate it entirely,
retroactively or otherwise; provided, however, that any such
amendment, suspension or termination may not, without the
Participant's consent, adversely affect any Deferred Amount
credited to him for any calendar year ended prior to the
effective date of such amendment, suspension or termination.
Notwithstanding the foregoing, upon any termination of this Plan,
the Board may in its sole discretion accelerate the payment of
all Deferred Amounts credited as of the date of termination of
this Plan. The Plan shall remain in effect until terminated
pursuant to this Section.
7.2 Expenses. The Company will bear all expenses
incurred in administering this Plan.
7.3 Withholding. The Company shall have the right to
deduct from any payment to be made pursuant to this Plan, or to
otherwise require prior to the payment of any amount hereunder,
payment by the Participant of, Federal, state or local taxes, if
any, required by law to be withheld.
7.4 No Obligation. Neither this Plan nor any
elections hereunder shall create any obligation on the Company to
continue any existing Award plans or policies or to establish or
continue any other programs, plans or policies of any kind.
Neither this Plan nor any election made pursuant to this Plan
shall give any Participant any right with respect to continuance
as a Director by the Company, nor shall there be a limitation in
any way on the right of the Company to terminate the Director's
service with the Board in accordance with the Company's
Certificate of Incorporation and by-laws.
7.5 No Assignment. Except by will or the laws of
descent and distribution, no right or interest in any Account or
Deferred Amount under this Plan shall be assignable or
transferable, and no right or interest of any Participant in any
Account hereunder or to any Deferred Amount shall be subject to
any lien, obligation or liability of such Participant.
7.6 Applicable Law. This Plan and the obligations of
the Company hereunder shall be subject to all applicable Federal
and state laws, rules and regulations and to such approvals by
any governmental or regulatory agency as may from time to time be
required. The Board may make such changes in this Plan as may be
necessary or desirable, in the opinion of the Board, to comply
with the laws, rules and regulations of any governmental or
regulatory authority, or to be eligible for tax benefits under
the Internal Revenue Code of 1986, as amended, or any other laws
or regulations of any Federal, state, local or foreign
government.
7.7 Governing Law. This Plan and actions taken in
connection herewith shall be governed by and construed in
accordance with the laws of the State of New York (regardless of
the law that might otherwise govern under applicable New York
principles of conflict of laws).
7.8 Construction. Wherever any words are used in this
Plan in the masculine gender they shall be construed as though
they were also used in the feminine gender in all cases where
they would so apply, and wherever any words are used herein in
the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so
apply. The titles to sections of this Plan are intended solely
as a convenience and shall not be used as an aid in construction
of any provisions thereof.
7.9. Name. This Plan, as amended and restated, shall
be known as "The Reader's Digest Association, Inc. Deferred
Compensation Plan for Directors".
EXHIBIT A
Example of Pay-Out Over Five Years
Balance 01/05/92 50,000.00
Payment - January, 1992 -10,000.00
40,000.00
Increments to 01/05/93 3,600.00
(assumes 9%) 43,600.00
Payment - January, 1993 10,900.00
32,700.00
Increments to 01/05/94 2,616.00
(assumes 8%) 35,316.00
Payment - January, 1994 11,772.00
23,544.00
Increments to 01/05/95 2,236.68
(assumes 9.5%) 25,780.68
Payment - January, 1995 12,890.34
12,890.34
Increments to 01/05/96 1,031.23
(assumes 8%) 13,921.57
Payment - January, 1996 13,921.57
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of April 28, 1998, by
and between The Reader's Digest Association, Inc., a Delaware
corporation (the "Company"), and Thomas O. Ryder (the
"Executive") (hereinafter collectively referred to as "the
parties").
WHEREAS, the Executive has been a senior executive of a
Fortune 100 company; and
WHEREAS, the Board of Directors of the Company (the
"Board") has determined that it is in the best interests of the
Company and its stockholders to secure the services and
employment of the Executive and the Executive is willing to
render such services on the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
respective agreements of the parties, the parties agree as
follows:
1. Term. Unless terminated earlier as provided in
Section 10 hereof, the initial term of employment under this
Agreement shall be for the period commencing on the date first
above written (the "Commencement Date") and ending on the third
anniversary of the Commencement Date (the "Initial Term");
provided, however, that, upon the expiration of the Initial
Term, the term of employment under this Agreement automatically
shall be extended for a period of one (1) year and again for
successive one-year periods on each anniversary thereof (each a
"Renewal Term"), unless either the Company or the Executive
shall have given written notice to the other at least ninety
(90) days prior to the end of the Initial Term or a Renewal
Term that the term of employment under this Agreement shall not
be so extended or the term of employment under this Agreement
shall have expired earlier as provided in Section 10 hereof.
Executive's term of employment hereunder shall be defined as
the "Employment Term".
2. Employment.
(a) Positions. As of the Commencement Date, the
Executive shall be employed as the Chairman of the Board and
the Chief Executive Officer of the Company. In such positions,
the Executive shall perform the duties, undertake the
responsibilities and exercise the authority in accordance with
the By-laws of the Company, the Company's Guidelines on
Governance, as may be in effect from time to time, and under
the general supervision of the Board. A copy of the current
Guidelines on Governance (April 1998) has been provided to the
Executive. The Executive shall comply with the Company's
Proprietary Information Policy, subject to Section 14(a)
hereof, and the Company's Code of Conduct. The Executive shall
report directly to the Board. Subject to commencement of
employment hereunder, the Executive has been elected by the
Board as a director and, during the Employment Term, the
Company shall nominate the Executive as a member of the Board
for election at each of the Company's annual meetings of
stockholders.
(b) Obligations. The Executive agrees to devote his
full business time and attention to the business and affairs of
the Company and its subsidiaries. The foregoing, however,
shall not preclude the Executive from serving on corporate,
civil or charitable boards or committees or managing personal
or family investments or affairs, so long as these activities
do not interfere with the performance of the Executive's
responsibilities hereunder or, if they do, are otherwise
approved by the Board. The Executive shall notify the Board
prior to accepting any position as a director of a for-profit
corporate entity and may request formal Board approval of such
or any other activity.
3. Base Salary. The Company agrees to pay or cause to be
paid to the Executive during the term of this Agreement a base
salary at the rate of $700,000 per year or such larger amount
as the Board may from time to time determine (the "Base
Salary"); provided, however, that the Board shall not be
required to review the Base Salary until August 1999. The
Base Salary shall be payable in accordance with the Company's
customary practices applicable to its senior executives.
4. Annual Incentive Award. As of July 1, 1998, the
Executive shall be entitled to participate in the Company's
Management Incentive Compensation Plan (or any successor annual
incentive plan) and any other incentive plan (whether annual or
long term) adopted by the Company on terms and conditions at
least as favorable as those generally applying to other senior
executives of the Company. The Executive's target award under
any plan shall be determined in accordance with the Company's
policy generally applicable to its senior executives, but in no
event shall the target under the Management Incentive
Compensation Plan (or any successor annual incentive plan) for
the Company's 1999 fiscal year be less than six hundred sixty-
two thousand dollars ($662,000).
5. Equity Compensation.
(a) The Executive shall be entitled to
participate in the Company's 1994 Key Employee Long Term
Incentive Plan (the "KELTIP") (or any successor long-term
incentive plan) and any other equity plan adopted by the
Company on terms and conditions at least as favorable as those
generally applying to other senior executives of the Company.
Subject to Section 9(e) below, if applicable, as of the
Commencement Date, the Company has granted the Executive stock
options in respect of 250,000 shares of the Company's Class A
nonvoting common stock ("Common Stock") in respect of the
Company's fiscal year 1999 at an exercise price equal to the
"fair market value," as defined in Section 2.10 of the KELTIP,
of Common Stock on the New York Stock Exchange (the "Fair
Market Value") on the Commencement Date (the "Initial Grant").
This option is granted under the KELTIP and pursuant to the
terms and conditions set forth in Exhibit A. The Initial Grant
is not intended to be a "mega grant" and the number of shares
in respect of which this option is granted shall have no
bearing on the number of shares in respect of which stock
options are granted to the Executive in the future.
(b) The Executive shall not be entitled to
participate, through the Company's fiscal year 2001, in the
Company's ongoing retention program pursuant to which certain
executives receive grants of restricted stock.
6. Retirement Plans. The Executive shall be entitled to
participate in the Company's Retirement Plan, the Company's
Excess Benefit Retirement Plan and the Company's 1992 Executive
Retirement Plan (collectively, the "Retirement Plans") on terms
and conditions at least as favorable as those generally
applying to other senior executives of the Company and, in
addition, shall have the rights set forth in Section 12(c).
7. Employee Benefits. The Executive shall be entitled to
participate in all employee benefit and payroll plans,
practices and programs (including fringe benefits and
perquisites) maintained by the Company and generally made
available to senior executives as may be in effect from time to
time (collectively, "Benefit Plans"). The Executive's
participation in these Benefit Plans shall be on terms and
conditions at least as favorable as those generally applicable
to other senior executives of the Company or any of its
subsidiaries.
8. Other Benefits.
(a) Expenses. The Executive shall be entitled to
receive prompt reimbursement of all expenses reasonably
incurred by him in connection with the performance of his
duties or for promoting, pursuing or otherwise furthering the
business or interests of the Company and its subsidiaries.
(b) Office and Facilities. The Executive shall be
provided with an appropriate office and with such secretarial
and other support facilities as are commensurate with the
Executive's status with the Company and adequate for the
performance of his duties.
(c) Vacation. The Executive shall be entitled to
annual vacation in accordance with the policies as periodically
established by the Board for other senior executives of the
Company, but in no event less than four (4) weeks per year.
9. Replacement Compensation. To partially compensate the
Executive for the stock options, restricted stock and other
equity-based and cash compensation forfeited as a result of the
Executive's terminating his prior employment, the Executive
shall receive the following:
(a) Vested Stock Options. Subject to (e) below, if
applicable, as of the Commencement Date, the Company has
granted the Executive stock options in respect of 470,000
shares of the Company's Class A nonvoting common stock ("Common
Stock"). The stock options shall be granted at an exercise
price equal to Fair Market Value on the Commencement Date and
shall be immediately vested and fully exercisable. The stock
options shall be granted under the KELTIP and pursuant to the
terms and conditions set forth in Exhibit B.
(b) Unvested Stock Options. Subject to (e) below, if
applicable, as of the Commencement Date, the Company has
granted the Executive stock options in respect of 360,000
shares of Common Stock. The stock options shall be granted at
an exercise price equal to Fair Market Value on the
Commencement Date. The stock options shall be granted under
the KELTIP and pursuant to the terms and conditions set forth
in Exhibit C.
(c) Restricted Stock. As of the Commencement Date,
the Company has granted the Executive 358,000 shares of
restricted Common Stock. The restricted stock shall be granted
under the KELTIP and shall be issued pursuant to the terms and
conditions set forth in Exhibit D.
(d) Cash Payment. No later than September 30, 1998,
the Company shall pay to the Executive an amount in cash equal
to $350,000.
(e) Other Grant Related Provisions. The Company
represents that it has an adequate number of shares available
under the KELTIP to grant the stock options and restricted
stock provided in this Section 9 and the Initial Grant under
Section 5. The Company further represents that it has amended
the KELTIP: (i) subject to approval of its stockholders, to
increase the annual fiscal year limit on stock option grants to
any individual to a number adequate to make the grants provided
hereunder; and (ii) to permit, subject to the approval of the
Compensation and Nominating Committee, nonqualified stock
options to be transferable to members of an employee's
immediate family, to trusts solely for the benefit of such
immediate family members and to partnerships in which such
family members and/or trusts are the only partners. The
Company agrees to submit the amendment of the annual fiscal
year limit (the "Increased Limit") to the stockholders for
their approval pursuant to the requirements of Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"),
at a meeting to be held prior to December 31, 1998. To the
extent the grant of any stock options under this Section 9 or
the Initial Grant under Section 5 would exceed the current
annual fiscal year limit (prior to the amendment to the
Increased Limit), such grant shall be subject to approval of
the Increased Limit by the stockholders as provided in this
Section 9(e). The grants shall be deemed granted in the
following order for purposes of determining when the current
annual fiscal year limit shall be exceeded and which options
are subject to shareholder approval: Section 9(a), Section
9(b), the Initial Grant under Section 5. With regard to the
grants under the KELTIP, the Company agrees to file and
maintain effective a Form S-8 (or successor) registration
statement.
10. Employment Term. The "Employment Term" shall mean the
period beginning on the Commencement Date and ending on the
earliest of the following to occur:
(a) the death of the Executive;
(b) the Disability (as defined in Section 11(a)) of
the Executive;
(c) the termination of the Executive's employment by
the Company for Cause (as defined in Section 11(b));
(d) the termination of the Executive's employment by
the Executive for Good Reason (as defined in Section 11(c));
(e) the termination of the Executive's employment by
the Executive without Good Reason;
(f) the termination of the Executive's employment by
the Company other than a termination by the Company for Cause
or Disability;
(g) the termination of the Executive's employment by
mutual agreement of the Company and the Executive; and
(h) the expiration of the Initial Term or, in the
event the Initial Term is extended pursuant to Section 1 on any
one or more occasions, the expiration of the last of any
Renewal Terms.
11. Termination.
(a) Disability. The Company may terminate the
Executive's employment after having established the Executive's
Disability. For purposes of this Agreement, "Disability" means
a physical or mental infirmity which impairs the Executive's
ability to substantially perform his duties under this
Agreement which either (i) has continued for a period of at
least one hundred eighty (180) consecutive days or (ii) has
continued for a period of at least ninety (90) consecutive days
and with regard to which a doctor mutually agreeable in good
faith to the Company and the Executive has certified that such
infirmity is likely to continue to impair Executive's ability
to substantially perform his duties under this Agreement for
another ninety (90) consecutive days (provided that, if such
termination would in any manner impair Executive's right to
short term or long term disability benefits, Executive may then
be placed on paid leave upon such certification but not
terminated until the end of the aforesaid one hundred eighty
(180) day period).
(b) Cause. The Company may terminate the Executive's
employment for Cause or without Cause. "Cause" shall mean:
(i) for purposes of Exhibits B, C and D (x) an act or acts of
dishonesty or gross misconduct on the Executive's part which
result or are intended to result in material damage to the
Company's business or reputation or (y) repeated material
violations by the Executive of his obligations under Section 2
of this Agreement which violations are willful and deliberate
on the Executive's part and which result in material damage to
the Company's business or reputation and as to which material
violations the Board has notified the Executive in writing; and
(ii) for all other purposes (x) willful and continued failure
to attempt to adequately perform substantially all of the
Executive's duties with the Company (other than a failure
resulting from the Executive's incapacity due to physical or
mental illness) which failure has continued for a period of at
least twenty (20) days after a written notice of demand for
substantial performance has been delivered to the Executive
specifying the manner in which the Executive has failed to
substantially perform; (y) willful engagement in conduct with
regard to the Company or its business which is demonstrably and
materially injurious to the Company, monetarily or otherwise;
or (z) a conviction of, or pleading of nolo contendere by the
Executive to a felony (other than solely a traffic violation,
but not excluding other felonies resulting from such
violation). No act, nor failure to act, on the Executive's
part shall be considered "willful" unless he has acted or
failed to act, with an absence of good faith and without a
reasonable belief that his action or failure to act was in the
best interests of the Company. Any termination for Cause shall
procedurally be done as follows: a termination for Cause shall
be evidenced by a resolution adopted in good faith by two-
thirds (2/3) of the Board that the Executive performed one of
the acts specified above; provided, however, that no
termination of the Executive's employment shall be for Cause
unless (x) there shall have been delivered to the Executive a
copy of a written notice setting forth the acts (or failures to
act) by Executive that give rise to a finding of Cause and
(y) the Executive shall have been provided an opportunity on at
least seven (7) days' notice to be heard by the Board (with the
assistance of the Executive's counsel if the Executive so
desires). For purposes of this subparagraph (b), the term
"Company" shall include the Company and its subsidiaries.
(c) Good Reason. The Executive may terminate his
employment for Good Reason or without Good Reason. "Good
Reason" shall mean the occurrence of any of the following
without Executive's express written consent:
(i) the assignment to Executive of any duties
materially inconsistent with his current position, duties,
responsibilities and status with the Company, or a material
change or a substantial diminution in his then current
authority, reporting responsibilities, titles or offices (it
being acknowledged, without limiting in any manner the
foregoing, that being chairman and chief executive officer of a
nonpublic entity is a material diminution), or removal from or
failure to re-elect Executive to any such position or office,
except in the event of a termination of his employment for
Cause, death, Disability, written mutual agreement or mandatory
retirement in accordance with Company policies at or after age
sixty-five (65);
(ii) a reduction by the Company in
Executive's Base Salary, unless such reduction is part of and
consistent with a good faith management-wide or Company-wide
cost cutting program, and then only if the percentage of his
reduction is no greater than that of the other management
personnel;
(iii) a relocation of Executive to an office
located anywhere other than within fifty (50) miles of his
primary residence or away from the Company's executive offices,
except for required travel on the business of the Company or
any of its subsidiaries to an extent substantially consistent
with his then current business travel obligations;
(iv) the failure by the Company or any of
its subsidiaries to continue in effect any compensation plan or
Benefit Plan provided by the Company or any of its subsidiaries
in which Executive is then participating, unless there shall
have been instituted a replacement or substitute plan providing
comparable benefits or unless such failure is part of and
consistent with a good faith benefit discontinuance applicable
to all of the management personnel of the Company and then only
if the scope of the discontinuance with respect to Executive is
no greater than that of the other management personnel;
(v) the failure of the Company to obtain (and
deliver to Executive) an agreement satisfactory to Executive
from any successor to the Company to assume and agree to
perform this Agreement. The Company shall use its best efforts
to require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the businesses or assets of the Company to
expressly assume and agree to perform this Agreement;
(vi) the material breach by the Company of
any material provision of this Agreement which remains uncured
for thirty (30) days after written notice thereof has been
given by the Executive to the Company; or
(vii) the failure of the stockholders of the
Company to approve the Increased Limit prior to December 31,
1998.
Any notice of termination of employment by
Executive for "Good Reason" shall be given within one hundred
eighty (180) days after the occurrence of the "Good Reason."
(d) Nonextension. A termination without Cause for
purposes of this Agreement, any equity plan, any Benefit Plan or
any other arrangement or plan of the Company shall include
nonextension of the Employment Term as a result of a notice of
nonextension given by the Company at any time prior to the
Executive's sixty-fifth (65th) birthday; provided, however, that
a termination of the Executive's employment by the Company on or
after the date the Executive attains age sixty-five (65) shall
not be a termination without Cause.
(e) Notice of Termination. Any termination by the
Executive or the Company shall be communicated by written
Notice of Termination indicating the termination provision in
this Agreement relied upon, if any, and the Date of
Termination; provided, however, the Date of Termination shall
in no event be earlier than ten (10) business days after the
date on which such Notice of Termination is delivered pursuant
to Section 21 of this Agreement.
(f) Date of Termination. "Date of Termination" shall
mean in the case of the Executive's death, his date of death,
or in all other cases, the date specified in the Notice of
Termination.
(g) Executive's Obligation. For a period of three
(3) years following termination of the Employment Term for any
reason, the Executive agrees to use reasonable efforts to be
available to the Company on a mutually agreeable basis with
respect to providing information as to continuing and/or future
matters which arose during Executive's employment or any other
relationship with the Company and with which Executive was
involved or otherwise had information, whether such matters are
business-related or legal. Any such request by the Company
shall be done in such manner as to be as unburdensome as
reasonably possible on Executive.
(h) Other Arrangements. The definition of "Cause" or
"Good Reason" or the equivalencies of such terms under any
equity plan, Benefit Plan or other plan, agreement or
arrangement of the Company shall not be deemed to provide a
basis for a Cause determination unless such Cause determination
would exist and occur under this Agreement and Good Reason
shall be deemed to exist thereunder if it would exist under
this Agreement, provided that, other than with regard to the
grants referred to in Section 9 hereto (which are to be based
on the meaning of Cause as defined in Section 11(b)(i)), the
reference shall be to Cause as defined in Section 11(b)(ii).
The scope and definition of the non-competition clause under
any equity plan, Benefit Plan or other plan, agreement or
arrangement of the Company shall not be deemed to prohibit the
Executive's actions or serve as a basis for any reduction or
forfeiture of benefits or payments thereunder unless such
actions violate Section 14(b) of this Agreement.
12. Compensation and Benefits Upon Termination.
(a) Compensation Upon Termination.
(i) Termination of Employment Without Cause or
for Good Reason. Executive shall be entitled to the benefits
provided under this Section 12(a)(i) only if: (x) the
termination of his employment is by him for Good Reason, or the
termination of his employment is by the Company, unless such
termination is for Cause or Disability, as a result of the
Executive's death, or at or after his sixty-fifth (65th)
birthday; and (y) the Executive executes the General Waiver and
Release of Claims attached as Exhibit E:
(1) Promptly in a lump sum, any accrued
obligations, such as earned but unpaid salary, accrued but
unused vacation in accordance with Company policy and
unreimbursed expenses;
(2) When otherwise due to other executives,
any incentive payment earned for any completed measuring period
(with any requirement for any continued employment through the
date of payment or any other date after the measuring period
being disregarded or with any right of the Company to reduce
such amount being disregarded in determining the amount
earned);
(3) When otherwise due to other executives,
an incentive payment in respect of any measuring period that is
not completed as of the Date of Termination, determined as
follows: (x) the incentive payment payable in respect of the
full measuring period based on the Executive's target and
actual results for the full measuring period, multiplied by (y)
a fraction the numerator of which is the number of days that
elapsed during the measuring period through the Date of
Termination and the denominator of which is the number of days
in the full measuring period. For purposes of this Section
12(a)(i)(3), any requirement for continued employment through
the date of payment or any other date after the measuring
period or any right of the Company to reduce such amount shall
be disregarded in determining the amount payable;
(4) An amount equal to the sum of:
(A) three (3) times Executive's
highest annual rate of base salary in effect any time during
the 12-month period prior to the Date of Termination (the
"Severance Base Salary"), plus
(B) two (2) times the higher of the
following: (x) the highest amount paid to Executive under
the Company's Management Incentive Compensation Plan (or any
successor annual incentive plan) (the "Annual Incentive Plan")
for the three (3) plan years most recently ended prior to the
Date of Termination; or (y) the originally approved target
amount of the highest award under the Annual Incentive Plan
outstanding on the Date of Termination, as such target amount
may have been increased prior to the Date of Termination.
Any compensation received by Executive
or granted to Executive in lieu of an amount paid under the
Annual Incentive Plan for any one-year period (whether in the
form of restricted stock or otherwise) shall be deemed to be an
amount paid to Executive under the Annual Incentive Plan for
purposes of this Section 12(a)(i)(4). Any compensation
receivable by Executive in lieu of an amount payable under the
Annual Incentive Plan for any period shall be deemed to be an
additional target amount for purposes of this Section. The
amount of any non-cash compensation received or receivable
shall be the greater of the fair market value of such
compensation on the date of award or the cash amount that would
have been received by Executive in lieu of such non-cash
compensation.
One half of one year's Severance Base
Salary shall be paid to Executive in a lump sum within ten (10)
days after his termination of employment and one half of one
year's Severance Base Salary shall be paid to Executive in a
lump sum at the end of the Severance Period, as defined in the
next sentence. The aggregate remaining amount of severance
payable under this Section 12(a)(i)(4) shall be paid in equal
installments on a bi-weekly basis, commencing upon the Date of
Termination over a two (2) year period (the "Severance Period");
(5) The Company shall maintain in full
force and effect, for Executive's continued benefit during the
Severance Period, all welfare benefit plans and programs or
arrangements in which the Executive participated immediately
prior to the Date of Termination, provided that his continued
participation is possible under the general terms and
conditions of such welfare plans and programs. In the event
that Executive's participation in any such plan or program is
barred, the Company shall provide Executive with benefits
substantially equal to those which Executive would have been
entitled to receive under such plans and programs had his
participation not been barred; and
(6) As otherwise provided in this Section
12.
(ii) Termination by Company for Cause or
Voluntarily by Executive Without Good Reason. If Executive's
employment is terminated for Cause or he leaves voluntarily
without Good Reason, the Company shall pay Executive the
amounts under Sections 12(a)(i)(1) and (2) and the Company
shall have no further obligations to Executive under this
Agreement. Executive shall receive whatever rights, payments
or benefits that he is entitled to under any arrangement,
contract, plan or grant with the Company, including any equity
grant or Benefit Plan, and under the By-laws or Certificates of
Incorporation of the Company ("Other Benefits"), so long as
these rights, benefits or payments would be paid or provided
even if the Executive's employment was terminated by the
Company for Cause or voluntarily by the Executive without Good
Reason.
(iii) Termination by Death or Disability. If
Executive's employment is terminated by his death or as a
result of his Disability, the Company shall pay to the
Executive or his estate the amounts due under Sections
12(a)(i)(1), (2) and (3) and shall pay the cost of COBRA
continuation coverage for Executive (if a Disability
termination) and his spouse and dependents while they are
eligible for COBRA and the Company shall have no further
obligations to Executive under this Agreement, except for the
Other Benefits.
(b) Long-Term Incentive Plan Benefits.
(i) In the event of the termination of the
Executive's employment, Executive shall have the right to
exercise his outstanding stock options and stock appreciation
rights under the KELTIP or any successor long term incentive
plan (the "Long Term Incentive Plan"): (x) with respect to the
stock options granted pursuant to Sections 9(a), 9(b) and 5, in
the manner and to the extent provided in Exhibits A, B and C,
respectively; and (y) with respect to all other stock options
and stock appreciation rights, in the manner and to the extent
provided in the terms and conditions relating to such stock
options and stock appreciation rights, except that if the
Executive's employment is terminated by the Company without
Cause or by the Executive for Good Reason, such stock options
and stock appreciation rights shall continue to vest during the
Severance Period and, upon completion of the Severance Period,
shall vest and be exercisable as if the Executive's employment
was terminated at that time by the Company without Cause or by
the Executive with Good Reason.
(ii) In the event of the termination of the
Executive's employment, Executive's outstanding performance
units, restricted stock and awards (other than stock options
and stock appreciation rights) under the Long Term Incentive
Plan shall (x) in the case of the restricted stock granted
under Section 9(c), be treated in the manner provided in
Exhibit D and (y) in all other cases, be treated in accordance
with the terms and conditions relating to the performance unit,
restricted stock or award, except that if the Executive's
employment is terminated by the Company without Cause or by the
Executive for Good Reason, (1) such performance units,
restricted stock or awards (other than stock options and stock
appreciation rights) shall continue to be outstanding and
payable during the Severance Period as if the Executive's
employment with the Company continued during the Severance
Period and, if applicable, shall vest upon completion of the
Severance Period in accordance with the terms of the award as
if the Executive's employment was terminated at that time by
the Company without Cause or by the Executive with Good Reason
and (2) any such award that is based on a period of employment
shall be payable on a prorated basis as if the Executive's
employment had continued during the Severance Period.
(iii) If any benefits due under this Section
12(b) cannot be paid under the existing or amended terms of an
applicable plan or award agreement, the Company shall pay
Executive the value of such benefits at the time they would
otherwise be payable if they were payable under such terms.
(c) Retirement Benefits. The Executive is hereby
designated a participant in the Reader's Digest Association
Executive Retirement Plan (the "Executive Retirement Plan")
under Article 2 thereof and as eligible for the enhanced
severance benefit under such plan.
(i) In the event Executive's employment is
terminated on or after age sixty (60) for any reason other than
for Cause, the Company shall pay Executive an amount equal to
the difference between (x) the monthly retirement benefit
Executive would accrue under The Reader's Digest Association,
Inc. Retirement Plan (the "Retirement Plan"), the Excess
Benefit Retirement Plan of The Reader's Digest Association,
Inc. (the "Excess Benefit Retirement Plan") and the Executive
Retirement Plan or replacements therefor based on his actual
service with the Company plus, if the Executive's employment is
terminated either by the Company without Cause or by the
Executive for Good Reason, two (2) years, and (y) the amount
that he actually receives under such plans. Any amount payable
under this Section 12(c)(i) shall be payable at the same time,
in the same form and subject to the same actuarial adjustments
as such payments would have been made under the Retirement
Plan, but shall not be subject to any requirements of
eligibility, vesting, Board or other consents or any
forfeitures under the Executive Retirement Plan.
(ii) In the event the Executive's employment is
terminated prior to age sixty (60) either by the Company
without Cause or by the Executive for Good Reason, the
Executive shall be credited with two additional years of
credited service for all purposes (including eligibility and
vesting) under the Retirement Plan, the Excess Benefit
Retirement Plan and the Executive Retirement Plan. If, after
taking into consideration such additional credited service, the
Executive is not deemed to have been terminated after his Early
Retirement Date (as defined in the Executive Retirement Plan),
the Executive (or his beneficiary) shall receive a lump sum
payment in the amount of the equivalent actuarial value (as
determined under the Retirement Plan) of pension credits that
would have been earned under the Executive Retirement Plan
through the end of the Severance Period, without regard to
vesting, eligibility or Board or other consents, with any such
payment to be made within ninety (90) days of the end of the
Severance Period. If, after taking into consideration the two
additional years of credited service, the Executive is deemed
to have been terminated after his Early Retirement Date (and,
in fact, was terminated prior to age sixty (60)), the Executive
shall receive the enhanced benefit determined under Article 4
of the Executive Retirement Plan in the form of an annuity in
accordance with such plan rather than a lump sum. Any amount
payable under this Section 12(c)(ii) shall be payable at the
same time, in the same form and subject to the same actuarial
adjustments as such payments would have been made under the
Retirement Plan, but shall not be subject to any requirements
of eligibility, vesting, Board or other consents or any
forfeitures under the Executive Retirement Plan.
(iii) Subject to paragraph (iv) and (v)
below, in the event the Executive's employment is terminated
prior to age sixty (60) for any reason other than by the
Company without Cause or other than by the Executive for Good
Reason, the Executive shall be entitled to receive benefits, if
any, under the terms of the Retirement Plan, the Excess Benefit
Retirement Plan and the Executive Retirement Plan that
generally apply to other senior executives.
(iv) In the event of the Executive's death, his
spouse shall be entitled to the death benefit provided under
Article 6 of the Executive Retirement Plan (without regard to
the five-year period of service requirement).
(v) If the Executive's employment terminates by
reason of Disability, he shall be entitled to the benefits
provided under this Section 12(c) when the period of Disability
ends.
(d) Retiree Health Benefits. If the Executive's
employment is terminated (i) on or after he has attained age
sixty (60) for any reason other than for Cause or (ii) prior to
age sixty (60) by the Company without Cause, by the Executive
for Good Reason or as the result of Disability, the Executive
shall be entitled to retiree health benefits under the
Company's benefit plans. If the Executive's employment is
terminated under any other circumstance, the Executive shall be
entitled to retiree health benefits only as provided under the
terms of the Company's benefit plans.
(e) Profit-Sharing Plan. Executive's participation
in The Reader's Digest Employees Profit-Sharing Plan and the
Profit-Sharing Benefit Restoration Plan of The Reader's Digest
Association, Inc. or replacements therefor (the "Profit-Sharing
Plans") ceases upon his termination of employment with the
Company. However, if the Executive's employment is terminated
by the Company without Cause or by the Executive for Good
Reason, he shall receive cash payments equal to the amounts
that would have been contributed to his account had his
employment with the Company continued for the Severance Period,
with payments to be made to Executive by the Company at the
time any contributions have been made for participants in the
Profit-Sharing Plans and Executive shall be paid an amount in a
lump sum promptly at the end of the Severance Period as if he
was fully vested in the Profit-Sharing Plans (less any amount
vested in the Profit-Sharing Plans).
(f) Other Plans.
(i) The Reader's Digest Association, Inc.
Severance Plan for Senior Management shall not apply to
Executive. Any amounts under The Reader's Digest Association,
Inc. Income Continuation Plan for Senior Management shall be
adjusted so that, with regard to each type of payment or
benefit thereunder and hereunder, Executive receives the
greatest amount at the earliest time it would be made under
either that plan or this Agreement.
(ii) Any reference to a specific plan in this
Section 12 shall be deemed to include any similar plan or
program of the Company or any of its subsidiaries then in
effect that is the predecessor of, the successor to, or the
replacement for, such specific plan.
(g) Mitigation. All payments to Executive shall be
made without any obligation to mitigate and the amounts shall
not be offset or reduced by any amount Executive earns
elsewhere (except that the welfare benefits provided hereunder
shall be reduced by any similar benefits the Executive is
entitled to receive from a subsequent employer). Other than as
provided in Section 14(e) and if, and to the extent, the
Company obtains a court ordered judgment against the Executive,
no amount due to Executive nor any benefit under a Benefit
Plan, including stock options and restricted stock, shall be
reduced, suspended or offset as a result of any claim the
Company may have against Executive or of any action of the
Executive.
(h) Death. In case of Executive's death while any
amounts are still payable to him under this Section 12, the
Company shall pay all such amounts to his designated
beneficiary or, if none has been designated, to his estate as
if the Executive had continued to live.
13. Effect of a Change in Control.
(a) Treatment of Equity-Based Awards. In the event
of a Change in Control of the Company (as defined under the
KELTIP (or successor long-term incentive plan)) during the
Employment Term, the treatment of all stock options and
restricted stock held by the Executive shall be governed by the
terms of the plan under which the award was granted and the
grant, provided that, subject to (b) below, the Executive shall
immediately become fully vested in all stock options and
restricted stock granted as of the Commencement Date.
(b) Excise Tax. To the extent that the payments and
benefits provided under this Agreement and benefits provided
to, or for the benefit of, the Executive under any other
Company plan or agreement (such payments or benefits are
collectively referred to as the "Payments") would be subject to
the excise tax (the "Excise Tax") imposed under Section 4999 of
the Code, the Payments shall be reduced (but not below zero) if
and to the extent necessary so that no payment to be made or
benefit to be provided to the Executive shall be subject to the
Excise Tax. Payments shall be reduced or eliminated in a
manner that will result in the Executive receiving the largest
amount of value after the cutback as of the date of the
cutback. It is currently contemplated that this would be
accomplished by first reducing or eliminating the portion of
the Payments which are payable in cash and then by reducing,
eliminating, not fully accelerating or delaying acceleration of
vesting on options or other equity awards. The determination
as to whether the Payments must be reduced, and the extent of
any reduction, shall be made, at the expense of the Company, by
the Company's auditors immediately prior to the Change in
Control (or, if they are incapable of serving or decline to do
so, by a "Big Six" accounting firm or nationally recognized
compensation consulting firm), and such determination shall be
final and binding on both parties unless reflecting an
egregious and uncontestable error in interpretation or
calculation, in which case upon reconsideration, such
determination shall be final and binding. The foregoing
procedures shall be deemed the only manner of good faith
determination by the Company of any similar cutbacks under any
Company plan or arrangement with a similar type provision.
Notwithstanding the foregoing, in the event the Company revises
or modifies its plans and arrangements as they generally apply
to any other executive with regard to similar type of
provisions, and under such alternative the Executive would net
a greater amount after all taxes (including any income, payroll
or excise tax), the foregoing provision shall not apply and,
instead, such alternative provisions would apply.
14. Executive Covenants.
(a) Unauthorized Disclosure. The Executive shall
not, during the Employment Term and thereafter, make any
Unauthorized Disclosure. For purposes of this Agreement,
"Unauthorized Disclosure" shall mean disclosure by the
Executive without the prior written consent of the Board to any
person, other than an employee of the Company, any of its
subsidiaries or any of its affiliates or, during the Employment
Term and in the Executive's good faith judgment, to a person to
whom disclosure is reasonably necessary, appropriate or
desirable in connection with the performance by the Executive
of duties as an executive of the Company or as may be legally
required, of any confidential information relating to the
business or prospects of the Company or any of its subsidiaries
(including, but not limited to, any confidential information
with respect to any of the Company's or any of its subsidiary's
or affiliate's customers, products, methods of distribution,
strategies, business and marketing plans and business policies
and practices); provided, however, that the term shall not
include the use or disclosure by the Executive, without
consent, of any information known generally to the public or in
the industry (other than as a result of disclosure by him in
violation of this Section 14(a)). This confidentiality
covenant has no temporal, geographical or territorial
restriction. Except with regard to the entities covered by (b)
below, the Company agrees that it will not assert "inevitable
disclosure" of confidential information or a similar argument
to attempt to limit Executive's activities with any other
entity.
(b) Non-Competition. During the Employment Term and
for a period of (2) years thereafter, the Executive shall not,
directly or indirectly, without the prior written consent of
the Company, own, manage, operate, join, control, be employed
by, consult with or participate in the ownership, management,
operation or control of: (x) any of the companies identified on
the list of competitors furnished to the Executive on the
Commencement Date (the "List"); or (y) any entity that, after
the date of this agreement, (i) becomes engaged, or seeks to
become engaged, in a business that directly competes with a
line of business of the Company or its subsidiaries, which line
of business generated more than 15% of the consolidated
revenues of the Company and its subsidiaries in the preceding
fiscal year (the "15% Test") (If the Executive's employment
terminates, the 15% Test will be based upon the fiscal year
preceding such termination. Moreover, in the case of a Change
in Control of the Company followed by a termination of the
Executive's employment, the determination regarding the 15%
Test will be based on the Company and its subsidiaries without
regard to either the business or revenues of the acquiror.);
and (ii) is, or seeks to be, a significant competitor of any
material line of business of the Company or its subsidiaries (a
"Competitor"). In determining whether or not a particular
company hereafter is a Competitor, the companies specified on
the List are examples of a Competitor. The foregoing shall not
limit the Executive from serving as an executive of, or
otherwise providing services to, a company which is on the List
or is a Competitor so long as the Executive is not employed by,
provide services to or supervise the activities of the
Competitor or the Company that is on the List that directly
competes with the Company. Furthermore, the "beneficial
ownership" by the Executive of not more than one percent (1%)
of the stock or of the debt of any of the foregoing entities
shall not be a violation of this Section 14(b) and the
foregoing limitation shall not include interests of Executive
through mutual funds or investment partnerships, limited
liability entities or similar investment vehicles in which he
is a passive investor and owns less than five percent (5%) of
the fund or entity.
(c) Non-Solicitation. For a period of two (2) years
after the end of the Employment Term, the Executive shall not:
(i) solicit, hire or identify for hire by any entity with which
he is actively involved, any person who is, and at the time of
his termination of employment was, a nonclerical employee of
the Company or any of its subsidiaries; and (ii) either
directly or indirectly, alone or in conjunction with another
party, interfere with or harm, or attempt to interfere with or
harm, the relationship of the Company, any of its subsidiaries
or any of its affiliates, with any person who as of the end of
the Employment Term and during the two-year period thereafter
is a customer or supplier of the Company, any of its
subsidiaries or any of its affiliates; provided, however, the
foregoing shall not prohibit the Executive from conducting good
faith commercial activities in the normal course.
(d) Disparagement. For a period of one (1) year
after the end of the Employment Term, the Executive shall not
engage in a series of actions, including comments, materially
disparaging the Company or any of its subsidiaries or any of
their senior management, provided that the Executive may
respond to disparaging statements about himself.
(e) Remedies. The Executive agrees that any material
breach of the terms of this Section 14 would result in
irreparable injury and damage to the Company for which the
Company would have no adequate remedy at law. Accordingly, the
Executive agrees that, in the event of said material breach or
any threat of material breach, the Company shall be entitled to
an immediate injunction and restraining order to prevent such
material breach and/or threatened material breach and/or
continued material breach by the Executive, without having to
prove damages, in addition to any other remedies to which the
Company may be entitled at law or in equity. In addition, in
the event the Executive violates Section 14(b) during the period
specified therein, the Company shall be entitled to discontinue
all benefits or payments then being provided to Executive under
this Agreement or any other Benefit Plan, including terminating
the future exercisability of stock options or vesting of
restricted stock. The terms of this paragraph shall not prevent
the Company from pursuing any other available remedies for any
breach or threatened breach of this Agreement, including but not
limited to the recovery of damages from the Executive. The
Executive and the Company further agree that the provisions of
the covenants not to compete and solicit are reasonable and that
the Company would not have entered into this Agreement but for
the inclusion of these covenants. Should a court determine,
however, that any provision of the covenants is unreasonable,
either in period of time, geographical area, or otherwise, the
parties agree that the covenant should be interpreted and
enforced to the maximum extent which the court or arbitrator
deems reasonable.
The provisions of this Section 14 shall survive any
termination of the Employment Term, and the existence of any
claim or cause of action by the Executive against the Company,
whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of the
covenants and agreements of this Section 14; provided, however,
that this paragraph shall not, in and of itself, preclude the
Executive from defending himself against the enforceability of
the covenants and agreements of this Section 14.
15. Executive's Representation. The Executive represents
to the Company that he has delivered to the Company or its
representatives copies of the only agreements that he has
entered into that limit his competitive activities, as well as
a copy of the Code of Conduct (including a confidentiality
provision, but no non-competition provision) that he has agreed
to abide by. He further represents that, after discussions
with his previous employer and conversations with his counsel,
he believes, in good faith, that his execution and performance
of this Agreement shall not be in violation of any agreement or
obligation (whether or not written) that he may have with his
previous employer.
16. Legal Fees. The Company has required Executive to
obtain counsel to assist him in negotiating this Agreement and
believes it in the best interests of the Company that Executive
have counsel. Accordingly, the Company shall promptly pay the
legal fees and disbursements of counsel to Executive in
connection with negotiating this Agreement and related matters
(which fees shall be on a time charge basis at his counsel's
normal billing rates) up to a maximum of fifty thousand dollars
($50,000).
17. Withholding Taxes. The Company may withhold from any
benefits payable under this Agreement all federal, state, local
or other applicable taxes as shall be required pursuant to any
law or governmental regulation or ruling.
18. Duplicative Benefits. No benefit or payment provided
to the Executive under this Agreement shall be duplicative of
any other benefit or payment provided under this Agreement or
any other plan, agreement or arrangement of the Company or any
of its subsidiaries under which the Executive is a participant
or party.
19. Indemnification and Insurance. During the Employment
Term and thereafter while any claim can be made against the
Executive with regard to any action or inaction he took in
connection with being an officer or director of the Company or
any of its subsidiaries or in the service of the Company or any
of its subsidiaries, the Company shall continue to cover him
under the indemnity provision in the By-laws as they currently
exist or, if hereafter amended to provide greater rights to any
officer or director, as so amended and shall continue to cover
him under officers and directors insurance to the greatest
extent any other officer or director (either current or former)
is covered.
20. Successors and Assigns.
(a) This Agreement shall be binding upon and shall
inure to the benefit of the Company, its successors and assigns
and the Company shall require any successor or assign to
expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had
taken place. The term "Company" shall include any such
successors and assigns to the Company's business and/or assets.
The term "successors and assigns" shall only mean a corporation
or other entity acquiring or otherwise succeeding to, directly
or indirectly, all or substantially all the assets and business
of the Company (including this Agreement), whether by merger,
combination, operation of law or otherwise.
(b) Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Executive,
the Executive's beneficiaries or legal representatives, except
by will or by the laws of descent and distribution, or except
as may otherwise be provided with regard to equity grants.
This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal personal representative.
21. Notice. For the purposes of this Agreement, notices
and all other communications provided for in the Agreement
(including the Notice of Termination) shall be in writing and
shall be deemed to have been duly given when personally
delivered or three (3) days after being sent by registered or
certified mail, return receipt requested, postage prepaid, or
upon receipt if overnight delivery service or facsimile is
used, addressed as follows:
To the Executive:
Thomas Ryder
[Address]
To the Company:
The Reader's Digest Association, Inc.
Attn: Chairman, Compensation & Nominating Committee
Reader's Digest Road
Pleasantville, NY 10571
With a copy to:
The Reader's Digest Association, Inc.
Attn: General Counsel
Reader's Digest Road
Pleasantville, NY 10571
22. Legal Fees on Disputes. In the event that a claim for
payment or benefits under this Agreement or any other
arrangement between the Executive and the Company is disputed
or an action for injunctive relief or otherwise is brought in
connection with Section 14 hereof, the Company shall pay all
reasonable attorney fees and expenses incurred by Executive in
pursuing such claim or in connection with such matter, provided
that Executive is successful as to a meaningful part of the
disputed claim or matter by reason of litigation, arbitration
or settlement. The Company shall pay or reimburse Executive's
legal fees on an ongoing basis within ten (10) days of
submission of invoices, subject to an undertaking by Executive
to repay such amounts promptly if it is ultimately found by a
court or arbitrator that Executive was not entitled to such
reimbursement.
23. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by the
Executive and the Company. No waiver by either party at any
time of any breach by the other party of, or compliance with,
any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreement or representations, oral or
otherwise, express or implied, with respect to the subject
matter of this Agreement have been made by either party which
are not expressly set forth in this Agreement.
24. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of New York without giving effect to the conflict of law
principles thereof.
25. Severability. The provisions of this Agreement shall
be deemed severable and the invalidity or unenforceability of
any provision shall not affect the validity or enforceability
of the other provisions hereof.
26. Entire Agreement. This Agreement constitutes the
entire agreement between the parties with respect to the
subject matter of this Agreement and supersedes all prior
agreements, if any, understandings and arrangements, oral or
written, between the parties with respect to the subject matter
of this Agreement.
IN WITNESS WHEREOF, the Company has caused this
Agreement to be executed by its duly authorized officer and the
Executive has executed this Agreement as of the day and year
first above written.
THE READER'S DIGEST ASSOCIATION, INC.
By: /s/ GEORGE V. GRUNE
Name: George V. Grune
Title: Chairman and Chief Executive Officer
/s/ THOMAS O. RYDER
Thomas O. Ryder
EXHIBIT A
THE READER'S DIGEST ASSOCIATION, INC.
1994 KEY EMPLOYEE LONG TERM INCENTIVE PLAN
Annual Non-Qualified Stock Option Grant in Respect of Fiscal
1999
(unvested compensatory stock options)
TERMS AND CONDITIONS
This stock option grant (the "Option") from The Reader's
Digest Association, Inc. (the "Company") to purchase 250,000
shares of its Class A Nonvoting Common Stock, $.01 par value
(the "Common Stock"), is subject to the provisions of The
Reader's Digest Association, Inc. 1994 Key Employee Long Term
Incentive Plan (the "Plan") and the terms and conditions
detailed below, which terms and conditions the Company
represents are not in conflict with the Plan.
1. Option Terms. Except as provided in this Paragraph 1
and Paragraphs 2, 3, and 4, this Option may not be exercised
prior to April 28, 1999, and may not be exercised unless you
have remained in the continuous employ of the Company, or any
of its subsidiaries as designated by the Board of Directors of
the Company under the Plan ("Designated Subsidiaries"), from
the Grant Date until the date of exercise. This Option may be
exercised from time to time on or after April 28, 1999,
provided that the aggregate number of shares of Common Stock
acquired pursuant to exercise of this Option is not in excess
of:
(i) on and after April 28, 1999, but before April 28,
2000, 25 percent of the total number of shares which may be
purchased pursuant to this Option (62,500 shares);
(ii) on and after April 28, 2000, but before
April 28, 2001, 50 percent of the total number of shares which
may be purchased pursuant to this Option (125,000 shares);
(iii) on and after April 28, 2001, but before
April 28, 2002, 75 percent of the total number of shares which
may be purchased pursuant to this Option (187,500 shares); and
(iv) on and after April 28, 2002, 100 percent of
the total number of shares which may be purchased pursuant to
this Option (250,000 shares).
The "Grant Date" of the Option is April 28, 1998.
This Option expires at the close of business on April 28, 2008.
Notwithstanding the foregoing, the Committee in its
sole discretion after the grant may accelerate the
exercisability of all or part of this Option to a date or dates
no earlier than October 28, 1998.
2. Change in Control. Notwithstanding the foregoing, you
may exercise this Option, without regard to the percentage
limitations of Paragraph 1, upon the occurrence of a "Change in
Control" of the Company (as defined in the Plan), provided that
your right to exercise this Option pursuant to this Paragraph 2
shall be subject to limitation by the Company in accordance
with Section 12.3 of the Plan, as modified by Section 13(b) of
the Employment Agreement.
3. Termination of Employment.
(a) Retirement. If your employment terminates on or
after age fifty-five (55) after at least five (5) years of
employment by the Company and/or a Designated Subsidiary, this
Option shall be fully vested and may thereafter be exercised by
you for a period of three (3) years from the date of such
termination of employment or until the expiration of the stated
term of this Option, whichever period is shorter.
(b) Total Disability. If your employment by the
Company or a Designated Subsidiary terminates by reason of a
total disability as defined in the Company's Long Term
Disability Plan or by reason of your Disability as defined in
your Employment Agreement, this Option shall be fully vested
and may thereafter be exercised by you for a period of three
(3) years from the date of your termination of employment or
until the expiration of the stated term of this Option,
whichever period is shorter.
(c) Death While Employed. If your employment with
the Company or a Designated Subsidiary terminates by reason of
your death, this Option shall be fully vested and may
thereafter be exercised by the legal representative of your
estate for a period of one (1) year from the date of your death
or until the expiration of the stated term of this Option,
whichever period is shorter.
(d) Other Termination. If your employment by the
Company or its Designated Subsidiary terminates (as defined in
the Plan) for any reason other than as specified in
subparagraphs (a), (b) or (c) above, this Option shall
terminate on the date of your termination of employment, except
that, if you were involuntarily terminated by the Company or a
Designated Subsidiary without Cause (as defined in your
Employment Agreement) or if you terminate your employment for
Good Reason (as defined in your Employment Agreement), this
Option shall continue to vest during the two-year period
commencing on the date of such termination and, to the extent
exercisable, this Option may be exercised for a period ending
two (2) years and three (3) months after such termination of
employment or for a period ending five (5) years after such
termination of employment (if you meet the requirements of
Paragraph 3(a) at the end of the Severance Period (as defined
in your Employment Agreement) as if your employment with the
Company continued during the Severance Period) or, if less, the
balance of the stated term of this Option. Notwithstanding the
foregoing, the Company may terminate the post-employment future
vesting and future exercisability of this Option by written
notice to you pursuant to Section 14(e) of your Employment
Agreement because of a violation of Section 14(b) of your
Employment Agreement.
4. Death During the Extended Exercise Period. If you die
within either of the three (3) year periods mentioned in
Paragraphs 3(a) and (b) hereof, or within the period in
Paragraph 3(d) hereof, this Option, to the extent unexercised,
shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of twelve (12)
months from the date of your death or until the expiration of
the stated term of this Option, whichever period is shorter.
5. Exercise of Option.
(a) Procedure. Subject to whatever installment
exercise waiting periods apply hereunder, exercise of this
Option, in whole or in part, shall be made by submitting to the
Company written notice of exercise in the form of the exercise
letter provided by the Company herewith, specifying the number
of shares to be purchased, or by providing such telephonic or
other notice as the Company shall specify. The exercise of
this Option shall be effective on the first business date on
which the Company receives due notice of exercise at the
principal corporate offices of the Company in accordance with
the procedures established by the Company. Payment for the
shares of Common Stock may be made in cash and/or shares of
Common Stock (accompanied by a stock power with your signature
guaranteed) owned by you for at least six (6) months and for
which you have good title, free and clear of any liens or
encumbrances, by delivery of a properly executed exercise
notice, together with a copy of irrevocable instruction to a
New York Stock Exchange member brokerage firm to deliver
promptly to the Company the amount of sale proceeds in payment
of the purchase price or such other method as approved by the
Committee. No shares of Common Stock shall be issued until
payment therefor has been made.
(b) Tax Withholding. All applicable withholding
taxes either shall be paid by you directly to the Company in
cash or shall be collected by the Company's reduction of the
number of shares otherwise deliverable to you, in each case
prior to the issuance of the Common Stock to be acquired by you
upon exercise of this Option.
6. Adjustments. If there is any change in the capital
stock of the Company by reason of any stock dividend or
distribution, stock split, recapitalization, merger,
consolidation, split-up, combination or exchange of shares, or
any similar change affecting the capital stock of the Company
as provided under the Plan, the Committee of the Board of
Directors (as defined in the Plan) may make such adjustments as
it may determine to be appropriate in accordance with the Plan
and such determination shall be final and binding.
7. Registration of Shares. The obligation of the Company
to issue, sell and deliver shares under this Option shall be
subject to all applicable laws, rules and regulations, and such
approvals by governmental agencies as may be required,
including, without limitation, the effectiveness of a
registration statement under the Securities Act of 1933, as
amended, covering the shares to be so issued, and the receipt
by the Company of an acknowledgment of receipt of a prospectus.
Accordingly, shares will not be issued upon the exercise of the
Option unless the Company has taken the steps necessary to
comply with applicable law.
8. Nontransferability. This Option is not transferable
or assignable otherwise than by will or by the laws of descent
and distribution and may be exercised only during your lifetime
and only by you, except as provided in Paragraphs 3 and 4
hereof with respect to your death.
9. NOTWITHSTANDING ANY OTHER PROVISION CONTAINED HEREIN,
THIS OPTION SHALL NOT BE EXERCISABLE AFTER THE EXPIRATION OF
TEN YEARS FROM THE GRANT DATE.
10. Miscellaneous.
(a) The Company shall have no obligation to notify
you or your representative of the expiration of this Option.
(b) This Option is subject to the detailed provisions
of the Plan, a copy of which may be obtained from the office of
the Secretary of the Company.
(c) Nothing herein is intended to or shall give you
any right or status of any kind as a shareholder of the Company
in respect of any shares covered by this Option or entitle you
to any dividends or other distributions thereon unless and
until said shares shall have been registered in your name.
(d) The granting of this Option does not confer upon
you any right to continue in the employ of the Company or any
of its Designated Subsidiaries.
(e) This Option is not intended to be an incentive
stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
(f) Notwithstanding any other provision contained
herein, this Option may also be exercised to the extent
provided in any employee benefit plan of the Company.
EXHIBIT B
THE READER'S DIGEST ASSOCIATION, INC.
1994 KEY EMPLOYEE LONG TERM INCENTIVE PLAN
Non-Qualified Stock Option Grant: 1998
(vested replacement stock options)
TERMS AND CONDITIONS
This stock option grant (the "Option") from The Reader's
Digest Association, Inc. (the "Company") to purchase 470,000
shares of its Class A Nonvoting Common Stock, $.01 par value
(the "Common Stock"), is subject to the provisions of The
Reader's Digest Association, Inc. 1994 Key Employee Long Term
Incentive Plan (the "Plan") and the terms and conditions
detailed below, which terms and conditions the Company
represents are not in conflict with the Plan.
1. Option Terms. Except as provided in Paragraphs 2 and
3, this Option may be exercised at any time prior to its
expiration and may be exercised only if you have remained in
the continuous employ of the Company, or any of its
subsidiaries as designated by the Board of Directors of the
Company under the Plan ("Designated Subsidiaries"), from the
Grant Date until the date of exercise. The "Grant Date" of the
Option is April 28, 1998. This Option expires at the close of
business on April 28, 2006.
2. Termination of Employment.
(a) Retirement. If your employment terminates on or
after age 55 after at least five (5) years of employment by the
Company and/or a Designated Subsidiary, this Option may be
exercised by you for a period of three (3) years from the date
of such termination of employment or until the expiration of
the stated term of this Option, whichever period is shorter.
(b) Total Disability. If your employment by the
Company or a Designated Subsidiary terminates by reason of a
total disability as defined in the Company's Long Term
Disability Plan or by reason of your Disability as defined in
your Employment Agreement, this Option may be exercised by you
for a period of three (3) years from the date of your
termination of employment or until the expiration of the stated
term of this Option, whichever period is shorter.
(c) Death While Employed. If your employment with
the Company or a Designated Subsidiary terminates by reason of
your death, this Option may be exercised by the legal
representative of your estate for a period of one (1) year from
the date of your death or until the expiration of the stated
term of this Option, whichever period is shorter.
(d) Other Termination. If your employment by the
Company or its Designated Subsidiary terminates (as defined in
the Plan) for any reason other than as specified in
subparagraphs (a), (b) or (c) above, this Option shall
terminate on the date of your termination of employment, except
that, if you were involuntarily terminated by the Company or a
Designated Subsidiary without Cause (as defined in your
Employment Agreement) or if you terminated your employment for
Good Reason (as defined in your Employment Agreement), this
Option may be exercised for a period ending two (2) years and
three (3) months after such termination as an employee or for a
period ending five (5) years after such termination of
employment (if you meet the requirements of Paragraph 3(a) at
the end of the Severance Period (as defined in your Employment
Agreement) as if your employment with the Company continued
during the Severance Period) or, if less, the balance of the
stated term of this Option or the Company giving you notice
under Section 14(e) of your Employment Agreement that it is
terminating the exercisability of this Option because of a
violation of Section 14(b) of the Employment Agreement.
3. Death During the Extended Exercise Period. If you die
within either of the three (3) year periods mentioned in
Paragraphs 2(a) and (b) hereof or within the period in
Paragraph 2(d) hereof, this Option, to the extent unexercised,
shall thereafter be exercisable for a period of twelve (12)
months from the date of your death or until the expiration of
the stated term of this Option, whichever period is shorter.
4. Exercise of Option.
(a) Procedure. Exercise of this Option, in whole or
in part, shall be made by submitting to the Company written
notice of exercise in the form of the exercise letter provided
by the Company, specifying the number of shares to be
purchased, or by providing such telephonic or other notice as
the Company shall specify. The exercise of this Option shall
be effective on the first business date on which the Company
receives due notice of exercise at the principal corporate
offices of the Company in accordance with the procedures
established by the Company. Payment for the shares of Common
Stock may be made in cash and/or shares of Common Stock
(accompanied by a stock power with your signature guaranteed)
owned by you for at least six (6) months and for which you have
good title, free and clear of any liens or encumbrances, by
delivery of a properly executed exercise notice, together with
a copy of irrevocable instruction to a New York Stock Exchange
member brokerage firm to deliver promptly to the Company the
amount of sale proceeds in payment of the purchase price or
such other method as approved by the Committee. No shares of
Common Stock shall be issued until payment therefor has been
made.
(b) Tax Withholding. All applicable withholding
taxes either shall be paid by you directly to the Company in
cash or shall be collected by the Company's reduction of the
number of shares otherwise deliverable to you, in each case
prior to the issuance of the Common Stock to be acquired by you
upon exercise of this Option.
5. Adjustments. If there is any change in the capital
stock of the Company by reason of any stock dividend or
distribution, stock split, recapitalization, merger,
consolidation, split-up, combination or exchange of shares, or
any similar change affecting the capital stock of the Company
as provided under the Plan, the Committee of the Board of
Directors (as defined in the Plan) may make such adjustments as
it may determine to be appropriate in accordance with the Plan
and such determination shall be final and binding.
6. Registration of Shares. The obligation of the Company
to issue, sell and deliver shares under this Option shall be
subject to all applicable laws, rules and regulations, and such
approvals by governmental agencies as may be required,
including, without limitation, the effectiveness of a
registration statement under the Securities Act of 1933, as
amended, covering the shares to be so issued, and the receipt
by the Company of an acknowledgment of receipt of a prospectus.
Accordingly, shares will not be issued upon the exercise of the
Option unless the Company has taken the steps necessary to
comply with applicable law.
7. Nontransferability. This Option is not transferable
or assignable otherwise than by will or by the laws of descent
and distribution and may be exercised only during your lifetime
and only by you, except as provided in Paragraphs 2 and 3
hereof with respect to your death.
8. NOTWITHSTANDING ANY OTHER PROVISION CONTAINED HEREIN,
THIS OPTION SHALL NOT BE EXERCISABLE AFTER THE EXPIRATION OF
EIGHT YEARS FROM THE GRANT DATE.
9. Miscellaneous.
(a) The Company shall have no obligation to notify
you or your representative of the expiration of this Option.
(b) This Option is subject to the detailed provisions
of the Plan, a copy of which may be obtained from the office of
the Secretary of the Company.
(c) Nothing herein is intended to or shall give you
any right or status of any kind as a shareholder of the Company
in respect of any shares covered by this Option or entitle you
to any dividends or other distributions thereon unless and
until said shares shall have been registered in your name.
(d) The granting of this Option does not confer upon
you any right to continue in the employ of the Company or any
of its Designated Subsidiaries.
(e) This Option is not intended to be an incentive
stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
(f) Notwithstanding any other provision contained
herein, this Option may also be exercised to the extent
provided in any employee benefit plan of the Company.
EXHIBIT C
THE READER'S DIGEST ASSOCIATION, INC.
1994 KEY EMPLOYEE LONG TERM INCENTIVE PLAN
Non-Qualified Stock Option Grant: 1998
(unvested replacement stock option)
TERMS AND CONDITIONS
This stock option grant (the "Option") from The Reader's
Digest Association, Inc. (the "Company") to purchase 360,000
shares of its Class A Nonvoting Common Stock, $.01 par value
(the "Common Stock"), is subject to the provisions of The
Reader's Digest Association, Inc. 1994 Key Employee Long Term
Incentive Plan (the "Plan") and the terms and conditions
detailed below, which terms and conditions the Company
represents are not in conflict with the Plan.
1. Option Terms. Except as provided in this Paragraph 1
and Paragraphs 2, 3, and 4, this Option may not be exercised
prior to April 28, 1999, and may not be exercised unless you
have remained in the continuous employ of the Company, or any
of its subsidiaries as designated by the Board of Directors of
the Company under the Plan ("Designated Subsidiaries"), from
the Grant Date until the date of exercise. This Option may be
exercised from time to time on or after April 28, 1999,
provided that the aggregate number of shares of Common Stock
acquired pursuant to exercise of this Option is not in excess
of:
(i) on and after April 28, 1999, but before April 28,
2000, 33.33 percent of the total number of shares which may be
purchased pursuant to this Option (120,000 shares);
(ii) on and after April 28, 2000, but before
April 28, 2001, 66.67 percent of the total number of shares
which may be purchased pursuant to this Option (240,000
shares);
(iii) on and after April 28, 2001, 100 percent of
the total number of shares which may be purchased pursuant to
this Option (360,000 shares).
The "Grant Date" of the Option is April 28, 1998.
This Option expires at the close of business on April 28, 2008.
Notwithstanding the foregoing, the Committee in its
sole discretion after the grant may accelerate the
exercisability of all or part of this Option.
2. Change in Control. Notwithstanding the foregoing, you
may exercise this Option, without regard to the percentage
limitations of Paragraph 1, upon the occurrence of a "Change in
Control" of the Company (as defined in the Plan), provided that
your right to exercise this Option pursuant to this Paragraph 2
shall be subject to limitation by the Company in accordance
with Section 12.3 of the Plan, as modified by Section 13(b) of
the Employment Agreement.
3. Termination of Employment.
(a) Retirement. If your employment terminates on or
after age fifty-five (55) after at least five (5) years of
employment by the Company and/or a Designated Subsidiary, this
Option shall be fully vested and may thereafter be exercised by
you for a period of three (3) years from the date of such
termination of employment or until the expiration of the stated
term of this Option, whichever period is shorter.
(b) Total Disability. If your employment by the
Company or a Designated Subsidiary terminates by reason of a
total disability as defined in the Company's Long Term
Disability Plan or by reason of your Disability as defined in
your Employment Agreement, this Option shall be fully vested
and may thereafter be exercised by you for a period of three
(3) years from the date of your termination of employment or
until the expiration of the stated term of this Option,
whichever period is shorter.
(c) Death While Employed. If your employment with
the Company or a Designated Subsidiary terminates by reason of
your death, this Option shall be fully vested and may
thereafter be exercised by the legal representative of your
estate for a period of one (1) year from the date of your death
or until the expiration of the stated term of this Option,
whichever period is shorter.
(d) Other Termination. If your employment by the
Company or its Designated Subsidiary terminates (as defined in
the Plan) for any reason other than as specified in
subparagraphs (a), (b) or (c) above, this Option shall
terminate on the date of your termination of employment except
that, if you were involuntarily terminated by the Company or a
Designated Subsidiary without Cause (as defined in your
Employment Agreement) or if you terminate your employment for
Good Reason (as defined in your Employment Agreement), this
Option shall continue to vest during the two-year period
commencing on the date of such termination and, to the extent
not already vested, the portion of this Option that would have
vested on April 28, 2001 (120,000 shares) will be vested as of
the end of the two-year period, and this Option may be
exercised for the lesser of the period ending two (2) years and
three (3) months after such termination of employment or for a
period ending five (5) years after such termination of
employment (if you meet the requirements of Paragraph 3(a) at
the end of the Severance Period (as defined in your Employment
Agreement) as if your employment with the Company continued
during the Severance Period) or, if less, the balance of the
stated term of this Option or the Company giving you notice
under Section 14(e) of your Employment Agreement that it is
terminating the exercisability of this Option because of a
violation of Section 14(b) of the Employment Agreement.
4. Death During the Extended Exercise Period. If you die
within either of the three (3) year periods mentioned in
Paragraphs 3(a) and (b) hereof or within the period in
Paragraph 3(d) hereof, this Option, to the extent unexercised,
shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of twelve (12)
months from the date of your death or until the expiration of
the stated term of this Option, whichever period is shorter.
5. Exercise of Option.
(a) Procedure. Subject to whatever installment
exercise waiting periods apply hereunder, exercise of this
Option, in whole or in part, shall be made by submitting to the
Company written notice of exercise in the form of the exercise
letter provided by the Company herewith, specifying the number
of shares to be purchased, or by providing such telephonic or
other notice as the Company shall specify. The exercise of
this Option shall be effective on the first business date on
which the Company receives due notice of exercise at the
principal corporate offices of the Company in accordance with
the procedures established by the Company. Payment for the
shares of Common Stock may be made in cash and/or shares of
Common Stock (accompanied by a stock power with your signature
guaranteed) owned by you for at least six (6) months and for
which you have good title, free and clear of any liens or
encumbrances, by delivery of a properly executed exercise
notice, together with a copy of irrevocable instruction to a
New York Stock Exchange member brokerage firm to deliver
promptly to the Company the amount of sale proceeds in payment
of the purchase price or such other method as approved by the
Committee. No shares of Common Stock shall be issued until
payment therefor has been made.
(b) Tax Withholding. All applicable withholding
taxes either shall be paid by you directly to the Company in
cash or shall be collected by the Company's reduction of the
number of shares otherwise deliverable to you, in each case
prior to the issuance of the Common Stock to be acquired by you
upon exercise of this Option.
6. Adjustments. If there is any change in the capital
stock of the Company by reason of any stock dividend or
distribution, stock split, recapitalization, merger,
consolidation, split-up, combination or exchange of shares, or
any similar change affecting the capital stock of the Company
as provided under the Plan, the Committee of the Board of
Directors (as defined in the Plan) may make such adjustments as
it may determine to be appropriate in accordance with the Plan
and such determination shall be final and binding.
7. Registration of Shares. The obligation of the Company
to issue, sell and deliver shares under this Option shall be
subject to all applicable laws, rules and regulations, and such
approvals by governmental agencies as may be required,
including, without limitation, the effectiveness of a
registration statement under the Securities Act of 1933, as
amended, covering the shares to be so issued, and the receipt
by the Company of an acknowledgment of receipt of a prospectus.
Accordingly, shares will not be issued upon the exercise of the
Option unless the Company has taken the steps necessary to
comply with applicable law.
8. Nontransferability. This Option is not transferable
or assignable otherwise than by will or by the laws of descent
and distribution and may be exercised only during your lifetime
and only by you, except as provided in Paragraphs 3 and 4
hereof with respect to your death.
9. NOTWITHSTANDING ANY OTHER PROVISION CONTAINED HEREIN,
THIS OPTION SHALL NOT BE EXERCISABLE AFTER THE EXPIRATION OF
TEN YEARS FROM THE GRANT DATE.
10. Miscellaneous.
(a) The Company shall have no obligation to notify
you or your representative of the expiration of this Option.
(b) This Option is subject to the detailed provisions
of the Plan, a copy of which may be obtained from the office of
the Secretary of the Company.
(c) Nothing herein is intended to or shall give you
any right or status of any kind as a shareholder of the Company
in respect of any shares covered by this Option or entitle you
to any dividends or other distributions thereon unless and
until said shares shall have been registered in your name.
(d) The granting of this Option does not confer upon
you any right to continue in the employ of the Company or any
of its Designated Subsidiaries.
(e) This Option is not intended to be an incentive
stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
(f) Notwithstanding any other provision contained
herein, this Option may also be exercised to the extent
provided in any employee benefit plan of the Company.
EXHIBIT D
THE READER'S DIGEST ASSOCIATION, INC.
RESTRICTED STOCK
TERMS AND CONDITIONS
This grant of 358,000 shares (the "Restricted Stock")
of Class A Nonvoting Common Stock, $.01 par value ("Common
Stock") of The Reader's Digest Association, Inc. (the
"Company") is subject to the provisions of The Reader's Digest
Association, Inc. 1994 Key Employee Long Term Incentive Plan
(the "Plan") and the terms and conditions detailed below, which
terms and conditions the Company represents are not in conflict
with the Plan.
1. Grant of Shares Subject to Conditions and
Restrictions. This grant of Restricted Stock is subject to the
condition that you shall have delivered to the Company a duly
signed stock power, endorsed in blank, relating to the
Restricted Stock. The Restricted Stock is also granted to you
subject to the restrictions contained herein and in the Plan,
which shall lapse after the expiration of period or periods
described below (the "Restrictions").
2. Restrictions.
(a) Transfer. Until the Restrictions have lapsed, as
provided below, you may not anticipate, alienate, attach, sell,
assign, pledge, encumber, charge or otherwise transfer any of
the Restricted Stock still subject to Restrictions without the
written consent of the Company as authorized by its Board of
Directors or the Committee (as defined in the Plan) under the
Plan.
(b) Forfeiture. Upon your termination of employment
(as defined in the Plan) by the Company or any of its
subsidiaries as designated by the Board of Directors of the
Company under the Plan ("Designated Subsidiaries"), then except
as provided in Paragraph 5 hereof, all Restricted Stock still
subject to Restrictions shall be returned to or canceled by the
Company, appropriately adjusted by the Committee pursuant to
the Plan for any change in the capital stock of the Company by
reason of any stock dividend or distribution, stock split,
recapitalization, reorganization, merger, consolidation,
split-up, combination or exchange of shares, or any similar
change affecting the capital stock of the Company, as provided
under the Plan, which has occurred after the date hereof, and
shall be deemed to have been forfeited by you.
3. Lapse of Restrictions. Subject to prior lapse of
Restrictions pursuant to Paragraphs 4 or 5 hereof, the
Restrictions shall lapse with respect to one-sixth of the
Restricted Stock (59,666 shares) on each of September 30, 1998,
December 31, 1998 and December 31, 1999, and with respect to
one-fourth of the Restricted Stock (89,501 shares) on each of
June 30, 2000 and June 30, 2002, in each case provided that you
have remained in the continuous employ of the Company or any of
its Designated Subsidiaries through the relevant date.
Notwithstanding the foregoing, the Committee may, in its sole
discretion after the grant, accelerate the lapse of
Restrictions as to some or all of the Restricted Stock to a
date or dates no earlier than within six months from the date
hereof.
4. Change in Control. Notwithstanding the foregoing, the
Restrictions applicable to all of the Restricted Stock granted
hereunder shall lapse, without regard to the limitations of
Paragraph 3, upon a "Change in Control" of the Company (as
defined in the Plan), provided that the lapse of Restrictions
pursuant to this Paragraph 4 shall be subject to limitation by
the Company in accordance with Section 12.3 of the Plan, as
modified by Section 13(b) of your Employment Agreement.
5. Termination of Employment.
(a) Total Disability. If your employment by the
Company or a Designated Subsidiary terminates by reason of a
total disability as defined in the Company's Long Term
Disability Plan or by reason of your Disability as defined in
your Employment Agreement, the Restrictions shall lapse upon
such termination of employment.
(b) Death. If your employment by the Company or a
Designated Subsidiary terminates by reason of your death, the
Restrictions shall lapse upon your death.
(c) Other Termination. If your employment by the
Company or a Designated Subsidiary terminates for any reason
other than total disability/Disability or death as provided in
(a) and (b) above, respectively, the provisions of Paragraph
2(b) above shall apply, except that, if you were involuntarily
terminated by the Company or a Designated Subsidiary without
Cause (as defined in your Employment Agreement) or if you
terminate your employment for Good Reason (as defined in your
Employment Agreement), the Restrictions shall continue to lapse
in accordance with Paragraph 3 during the two-year period
commencing on the date of such termination and, to the extent
not already lapsed, the Restrictions that would have lapsed on
June 30, 2002 (with respect to 89,501 shares of Restricted
Stock) shall lapse as of the end of the two-year period.
Notwithstanding the foregoing, the Company may terminate the
post-employment future lapsing of Restrictions by written
notice to you pursuant to Section 14(e) of your Employment
Agreement because of a violation of Section 14(b) of your
Employment Agreement.
6. Adjustments. If there is any change in the capital
stock of the Company as described in Paragraph 2(b), the term
"Restricted Stock" shall include any shares or other securities
that you receive or become entitled to receive as a result of
your ownership of the original Restricted Stock, and the
Committee may make any other adjustments as it may determine to
be appropriate in accordance with the Plan, such determination
to be final and binding.
7. Restrictive Legend. Either a stock certificate will
be issued in your name in respect of the Restricted Stock or
the Restricted Stock will be issued in your name and maintained
in non-certificated form. Any certificate for Restricted
Stock will be inscribed with the following legend and such
additional legend as may be required to comply with the
Securities Act of 1933 or as otherwise permitted under the
Plan:
"The anticipation, alienation, attachment, sale,
transfer, assignment, pledge, encumbrance or charge of
the shares of stock represented hereby are subject to
the terms and conditions (including forfeiture) of The
Reader's Digest Association, Inc. 1994 Key Employee
Long Term Incentive Plan and an Agreement entered into
between the registered owner (the Employee) and the
Company dated April 28, 1998. Copies of such Plan and
Agreement are on file at the principal office of the
Company."
8. Custody and Tax Withholding. Any stock certificates
evidencing the Restricted Stock will be held in custody by the
Company until the Restrictions thereon have lapsed and all
applicable withholding taxes have been collected by (a)
withholding and re-transferring to the Company or a Designated
Subsidiary the appropriate number of shares necessary to cover
the withholding taxes, (b) lump sum payroll deduction or (c)
direct payment to the Company or a Designated Subsidiary. For
purposes of tax withholding, shares of Restricted Stock shall
be valued at their Fair Market Value (as defined in the Plan)
on the date of the taxable event that gives rise to the tax
withholding obligation.
9. Compliance With Laws. The obligation of the Company
to issue and deliver the Restricted Stock granted hereunder
shall be subject to all applicable laws, rules and regulations,
and such approvals by governmental agencies as may be required,
including, without limitation, if deemed advisable by the
Committee upon the advice of counsel, the effectiveness of a
registration statement under the Securities Act of 1933, as
amended, covering the shares to be so issued.
10. Miscellaneous.
(a) The Restricted Stock is subject to the detailed
provisions of the Plan, a copy of which may be obtained from
the Human Resources Department of the Company.
(b) You shall have all of the rights and status as a
stockholder of the Company in respect of the Restricted Stock,
including tender, proxy and the right to receive dividends or
other distributions thereon.
(c) The granting of the Restricted Stock does not
confer upon you any right to continue in the employ of the
Company or any of its Designated Subsidiaries.
EXHIBIT E
GENERAL WAIVER AND RELEASE OF CLAIMS
In consideration of my being granted severance
payments and certain other release based benefits to which I am
not otherwise entitled unless I execute this release, I do
hereby, for myself, my heirs, executors, and administrators,
waive, remise, release and forever discharge The Reader's
Digest Association, Inc., its subsidiaries and affiliates and
their shareholders, directors, officers, employees,
representatives, agents, partners, insurers and contractors
(collectively, "RDA") of and from all claims and demands
arising prior to this date of every name, type, act and nature
arising or existing by reason of any known or unknown, past or
present act or failure to act in connection with, arising out
of, or related to my employment with the Company or termination
of employment from the Company. This release is being provided
as part of an agreement dated April 28, 1998 (the "Agreement").
I understand that, nothing herein shall be deemed to waive or
release any of my rights or benefits as set forth in, or
preserved by, the Agreement or my rights of indemnification and
director and officer liability insurance under the Company's
Certificate of Incorporation, the Company's By-laws, any
agreement or at law.
This General Waiver and Release of Claims includes,
but is not limited to, any claims, demands, complaints,
actions, or suits, which have or might have been asserted under
federal, state or local statutes concerning civil rights,
unlawful employment practices, wrongful discharge, or
retaliatory discharge (including but not limited to claims
under the Employee Retirement Income Security Act of 1974, as
amended); Title VII of the Civil Rights Act of 1964, 42 U.S.C.
Section 1981; the Equal Pay Act of 1963; the Age Discrimination
in Employment Act, as amended by the Older Workers Benefit
Protection Act; the Rehabilitation Act of 1973 (Sections 503
and 504); the Americans With Disabilities Act; Executive Order
11246, as amended, and the regulations thereunder, the Civil
Rights Act of 1991; the Family and Medical Leave Act of 1993;
the New York State Human Rights Law; and Article 20-C, Section
740 of the N.Y. Labor Law, Retaliatory Action By Employers, and
any and all other claims which I now have regarding my
employment and separation from employment with RDA or its
affiliates.
I acknowledge that I have been advised by RDA to
consult an attorney prior to signing this General Waiver and
Release of Claims, that I have been afforded an opportunity to
be represented by counsel of my choice who has had an
opportunity to reviews this General Waiver and Release of
Claims and that I have had at least twenty-one (21) days to
consider this release. I warrant that I am executing this
document of my own free will, knowingly and voluntarily. I am
not relying on any promises or representations made to me other
than RDA's promises as set forth in the Agreement. In the
event that any provision of this General Waiver and Release of
Claims is held to be invalid, the remaining provisions shall
continue to be valid and binding. This document is not an
admission of liability or wrongdoing.
I understand that I have seven (7) days following the
signing of this General Waiver and Release of Claims to revoke
it and this General Waiver and Release of
Claims will not become effective or enforceable, and severance
payments will not be made, until after that seven (7) day
revocation period has elapsed.
WITNESS: Date:
(Witness' Signature (Employee's Signature)
(Printed Named) (Printed Name)
(Home Address) (Home Address)
HUMAN RESOURCES:
(Signature) (Represents Confirmation)
(Printed Name)
FIRST AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, made as of this 28th day of April,
1998, by and between The Reader's Digest Association, Inc., a
Delaware corporation (the "Company"), and George V. Grune (the
"Employee").
WHEREAS, on August 11, 1997, the parties entered into an
Employment Agreement (the "Agreement") under which the Employee
became employed by the Company; and
WHEREAS, the parties now desire to amend the Agreement as
set forth below pursuant to Section 15 of the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants of
the parties contained in the Agreement and for other good and
valuable consideration, the Employee and the Company hereby agree
as follows:
1. Section 1: Employment Term. The period of employment
shall not be extended beyond the Initial Term and shall terminate
as of the end of the Initial Term on July 31, 1998.
2. Section 2: Duties.
(a) The following two sentences are hereby added
to the end of the first paragraph of Section 2: "As of April 28,
1998, the Employee shall cease service as Chairman of the Board
and Chief Executive Officer of the Company. Until July 31, 1998,
the Employee shall remain available to the Company to assist the
Company with respect to matters related to the Company's
transition to a new Chief Executive Officer."
(b) The second paragraph of Section 2 is hereby
amended by changing the words "his full" to "reasonably
necessary".
3. Section 3: Compensation and Certain Benefits.
(a) Section 3(a). As a result of a Company-wide 60%
reduction in annual bonus targets for fiscal 1998, the dollar
figure "$990,000" in the second sentence of Section 3(a) is
hereby replaced by the dollar figure "$396,000".
(b) Section 3(b). The word "and" in Section 3(b) is
hereby replaced with a comma and the following is added to
Section 3(b) immediately after the word "housing":
"and prompt reimbursement for all expenses reasonably incurred by
the Employee (including, but not limited to, air and land travel
expenses) in connection with the Employee's travel between the
Company's offices and his primary residence."
(c) Section 3(c). The second and third sentences of
Section 3(c) are hereby deleted and a new second sentence is
added as follows: "100% of the SARs will vest on the last day of
the Initial Term."
4. Section 7: Termination Payments.
(a) Section 7(a), Clause (1)(ii). The words "$56,221
multiplied by the number of months for which the Employee was
employed hereunder prior to his termination" in Section 7(a)(1),
clause (1)(ii) are hereby replaced by "$674,652".
(b) Section 7(c). Section 7(c) is hereby deleted in
its entirety and is replaced by the following: "The Company will
pay to the Employee within 60 days after the end of fiscal 1998
the Annual Bonus applicable to fiscal 1998 as determined in
accordance with Section 3(a)."
5. Effectiveness. Except as herein modified, the
Agreement remains in full force and effect, unmodified and
unamended.
IN WITNESS WHEREOF, the Company has caused this Amendment
Agreement to be executed by authority of its Board of Directors,
and the Employee has hereunto set his hand, on the day and year
first above written.
THE READER'S DIGEST ASSOCIATION,INC.
/S/: SUZANNE K. PILNICK
Name: Suzanne K. Pilnick
Title: Acting Vice President, Human Resources
/S/: GEORGE V. GRUNE
Name: George V. Grune
The Reader's Digest Association, Inc.
1994 Key Employee Long Term
Incentive Plan
(Amended and Restated as of April 28, 1998)
THE READER'S DIGEST ASSOCIATION, INC.
1994 KEY EMPLOYEE LONG TERM INCENTIVE PLAN
ARTICLE I
Purpose
The purpose of this 1994 Key Employee Long Term
Incentive Plan (the "Plan") is to enable The Reader's Digest
Association, Inc. (the "Company") to offer key employees of
the Company and Designated Subsidiaries (defined below)
performance-based stock incentives and other equity
interests in the Company and other incentive awards, thereby
attracting, retaining and rewarding such key employees, and
strengthening the mutuality of interests between key
employees and the Company's shareholders.
ARTICLE II
Definitions
For purposes of this Plan, the following terms shall
have the following meanings:
2.1 "Award" shall mean any award under this Plan of
any Stock Option, Stock Appreciation Right, Restricted
Stock, Performance Shares, Performance Units or Other Stock-
Based Award. All Awards shall be granted by, confirmed by,
and subject to the terms of, a written agreement executed by
the Company and the Participant.
2.2 "Board" shall mean the Board of Directors of the
Company.
2.3 "Change in Control" shall have the meaning set
forth in Article 12.
2.4 "Code" shall mean the Internal Revenue Code of
1986, as amended.
2.5 "Committee" shall mean a committee of the Board
appointed from time to time by the Board consisting of three
or more Directors, none of whom shall be eligible to receive
any Award pursuant to this Plan.
2.6 "Common Stock" means the Class A non-voting Common
Stock, $.01 par value per share, of the Company.
2.7 "Designated Subsidiary" shall mean one of such
subsidiaries of the Company, 80 percent or more of the
voting capital stock of which is owned, directly or indi
rectly, by the Company, which are designated from time to
time by the Board.
2.8 "Disability" shall mean Total Disability as
defined in the Company's Long Term Disability Plan.
2.9 "Eligible employees" shall mean the employees of
the Company and the Designated Subsidiaries who are eligible
pursuant to Article 5 to be granted Awards under this Plan.
2.10 "Fair Market Value" for purposes of this Plan,
unless otherwise required by any applicable provision of the
Code or any regulations issued thereunder, shall mean, as of
any date, the mean between the high and low sales prices on
the applicable date, or if no sales price is available for
such date, the mean between the closing bid and asked prices
for such date, of a share of Common Stock (i) as reported by
the principal national securities exchange in the United
States on which it is then traded, or (ii) if not traded on
any such national securities exchange, as quoted on an
automated quotation system sponsored by the National
Association of Securities Dealers, or if the Common Stock
shall not have been reported or quoted on such date, on the
first day prior thereto on which the Common Stock was
reported or quoted. If the Common Stock is not readily
tradeable on a national securities exchange or any system
sponsored by the National Association of Securities Dealers,
its Fair Market Value shall be set by the Board on the
advice of an investment advisor in good faith.
2.11 "Incentive Stock Option" shall mean any Stock
Option awarded under this Plan intended to be and designated
as an "Incentive Stock Option" within the meaning of Section
422A of the Code.
2.12 "Non-Qualified Stock Option" shall mean any Stock
Option awarded under this Plan that is not an Incentive
Stock Option.
2.13 "Other Stock-Based Award" shall mean an Award
under Article 11 of this Plan that is valued in whole or in
part by reference to, or is payable in or otherwise based
on, Common Stock.
2.14 "Participant" shall mean an employee to whom an
Award has been made pursuant to this Plan.
2.15 "Performance Cycle" shall have the meaning set
forth in Section 10.1.
2.16 "Performance Period" shall have the meaning set
forth in Section 9.1.
2.17 "Performance Share" shall mean an Award made
pursuant to Article 9 of this Plan of the right to receive
Common Stock or cash of an equivalent value at the end of a
specified Performance Period.
2.18 "Performance Unit" shall mean an Award made
pursuant to Article 10 of this Plan of the right to receive
a fixed dollar amount, payable in cash or Common Stock or a
combination of both.
2.19 "Reference Stock Option" shall have the meaning
set forth in Section 7.1.
2.20 "Restricted Stock" shall mean an Award of shares
of Common Stock under this Plan that is subject to
restrictions under Article 8.
2.21 "Restriction Period" shall have the meaning set
forth in Subsection 8.3(a).
2.22 "Retirement" shall mean termination of employment
by an employee who is at least 55 years of age after at
least 5 years of employment by the Company and/or a
Designated Subsidiary.
2.23 "Stock Appreciation Right" shall mean the right
pursuant to an Award granted under Article 7. A Tandem
Stock Appreciation Right shall mean the right to surrender
to the Company all (or a portion) of a Stock Option in
exchange for an amount equal to the difference between (i)
the Fair Market Value, as of the date such Stock Option (or
such portion thereof) is surrendered, of the shares of
Common Stock covered by such Stock Option (or such portion
thereof), and (ii) the aggregate exercise price of such
Stock Option (or such portion thereof). A Non-Tandem Stock
Appreciation Right shall mean the right to receive an amount
equal to the difference between (x) the Fair Market Value of
a share of Common Stock as of the date such Right is
exercised, and (y) the Fair Market Value of a share of
Common Stock as of the date such Right is awarded, otherwise
than on surrender of a Stock Option.
2.24 "Stock Option" or "Option" shall mean any option
to purchase shares of Common Stock (including Restricted
Stock and Performance Shares, if the Committee so
determines) granted pursuant to Article 6.
2.25 "Termination of employment" shall mean a
termination of service for reasons other than military or
personal leave of absence granted by the Company or a
transfer of a Participant from the Company or a Designated
Subsidiary to another Designated Subsidiary or to the
Company or to any affiliate as defined in Section 414 of the
Code.
2.26 "Transfer" shall mean anticipate, alienate,
attach, sell, assign, pledge, encumber, charge or otherwise
transfer.
2.27 "Withholding Election" shall have the meaning set
forth in Section 15.4.
ARTICLE III
Administration
3.1 The Committee. The Plan shall be administered and
interpreted by the Committee.
3.2 Awards. The Committee shall have full authority
to grant, pursuant to the terms of this Plan, to eligible
employees: (i) Stock Options, (ii) Stock Appreciation
Rights, (iii) Restricted Stock, (iv) Performance Shares, (v)
Performance Units, and (vi) Other Stock-Based Awards. In
particular, the Committee shall have the authority:
(a) to select the eligible employees to whom
Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Shares, Performance
Units and Other Stock-Based Awards may from time
to time be granted hereunder;
(b) to determine whether and to what extent
Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Restricted
Stock, Performance Shares, Performance Units and
Other Stock-Based Awards, or any combination
thereof, are to be granted hereunder to one or
more eligible employees;
(c) to determine the number of shares of Common
Stock to be covered by each such Award granted
hereunder;
(d) to determine the terms and conditions, not
inconsistent with the terms of this Plan, of any
Award granted hereunder (including, but not
limited to, the share price, any restriction or
limitation, any vesting schedule or acceleration
thereof, or any forfeiture restrictions or waiver
thereof, regarding any Stock Option or other Award
and the shares of Common Stock relating thereto,
based on such factors, if any, as the Committee
shall determine, in its sole discretion);
(e) to determine whether, to what extent and
under what circumstances grants of Options and
other Awards under this Plan are to operate on a
tandem basis and/or in conjunction with or apart
from other awards made by the Company outside of
this Plan;
(f) to determine whether and under what
circumstances a Stock Option may be settled in
cash, Common Stock, Performance Shares and/or
Restricted Stock under Subsection 6.4(k); and
(g) to determine whether, to what extent and
under what circumstances Common Stock and other
amounts payable with respect to an Award under
this Plan shall be deferred either automatically
or at the election of the Participant.
3.3 Guidelines. Subject to Article 13 hereof, the
Committee shall have the authority to adopt, alter and
repeal such administrative rules, guidelines and practices
governing this Plan and perform all acts, including the
delegation of its administrative responsibilities, as it
shall, from time to time, deem advisable; to construe and
interpret the terms and provisions of this Plan and any
Award issued under this Plan (and any agreements relating
thereto); and to otherwise supervise the administration of
this Plan. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in this Plan or in
any agreement relating thereto in the manner and to the
extent it shall deem necessary to carry this Plan into
effect. Notwithstanding the foregoing, no action of the
Committee under this Section 3.3 shall impair the rights of
any Participant without the Participant's consent.
3.4 Decisions Final. Any decision, interpretation or
other action made or taken in good faith by or at the
direction of the Company, the Board, or the Committee (or
any of its members) arising out of or in connection with the
Plan shall be within the absolute discretion of all and each
of them, as the case may be, and shall be final, binding and
conclusive on the Company and all employees and Participants
and their respective heirs, executors, administrators,
successors and assigns.
3.5 Reliance on Counsel. The Company or the Committee
may consult with legal counsel, who may be counsel for the
Company or other counsel, with respect to its obligations or
duties hereunder, or with respect to any action or
proceeding or any question of law, and shall not be liable
with respect to any action taken or omitted by it in good
faith pursuant to the advice of such counsel.
ARTICLE IV
Share Limitation
4.1 Shares. The maximum aggregate number of shares of
Common Stock which may be issued under this Plan or with
respect to which Non-Tandem Stock Appreciation Rights may be
granted shall not exceed 10,800,000 shares (subject to any
increase or decrease pursuant to Section 4.2) which may be
either authorized and unissued Common Stock or outstanding
Common Stock reacquired by the Company. No more than 10% of
such maximum shall be issued under this Plan as Restricted
Stock. If any Option granted under this Plan shall expire,
terminate or be cancelled for any reason without having been
exercised in full, or payment shall have been made in other
than Common Stock, the number of unpurchased shares shall
again be available for the purposes of the Plan; provided,
however, that if such expired, terminated or cancelled
Option shall have been issued in tandem with a Stock
Appreciation Right or other Award, none of such unpurchased
shares shall again become available for purposes of this
Plan to the extent that the related Right or Award granted
under this Plan is exercised. Further, if any shares of
Common Stock granted hereunder are forfeited or such Award
otherwise terminates without the delivery of such shares
upon the lapse of restrictions, the shares subject to such
grant, to the extent of such forfeiture or termination,
shall again be available under this Plan.
4.2 Changes. In the event of any change in the
capital stock of the Company by reason of any stock dividend
or distribution, stock split or reverse stock split, recapi
talization, reorganization, merger, consolidation, split-up,
combination or exchange of shares, distribution with respect
to its outstanding Common Stock of capital stock other than
Common Stock, reclassification of its capital stock,
issuance of warrants or options to purchase any Common Stock
or securities convertible into Common Stock, or rights
offering to purchase capital stock at a price below fair
market value, or any similar change affecting the capital
stock of the Company; then the aggregate number and kind of
shares which thereafter may be issued under this Plan, the
number and kind of shares subject to outstanding Options
granted under this Plan and the purchase price thereof, and
the number and kind of shares subject to other outstanding
Awards (including but not limited to Awards of Restricted
Stock, Performance Shares and Other Stock-Based Awards)
granted under this Plan, shall be appropriately adjusted
consistent with such change in such manner as the Committee
may deem equitable to prevent substantial dilution or
enlargement of the rights granted to, or available for,
Participants under this Plan, and any such adjustment
determined by the Committee in good faith shall be binding
and conclusive on the Company and all Participants and
employees and their respective heirs, executors, administra
tors, successors and assigns. Any such adjusted Option
price shall also be used to determine the amount payable by
the Company upon the exercise of any Stock Appreciation
Right associated with any Stock Option.
4.3 Purchase Price. Notwithstanding any provision of
this Plan to the contrary, if authorized but previously
unissued shares of Common Stock are issued under this Plan,
such shares shall be issued for a consideration which shall
not be less than par value.
ARTICLE V
Eligibility
5.1 Senior officers, senior management and key
employees of the Company and its Designated Subsidiaries and
members of the Executive Committee of the Company's Board of
Directors are eligible to be granted Options and other
Awards under this Plan. Eligibility under this Plan shall
be determined by the Committee.
ARTICLE VI
Stock Options
6.1 Options. Stock Options may be granted alone or in
addition to other Awards granted under this Plan. Each
Stock Option granted under this Plan shall be one of two
types: (i) an Incentive Stock Option or (ii) a Non-
Qualified Stock Option.
6.2 Grants. The Committee shall have the authority to
grant to any Participant one or more Incentive Stock
Options, Non-Qualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation
Rights); provided, however, that no Participant shall be
granted Stock Options or Non-Tandem Stock Appreciation
Rights, or both, with respect to a total of more than
1,200,000 shares of Common Stock during any fiscal year of
the Company. To the extent that any Stock Option does not
qualify as an Incentive Stock Option (whether because of its
provisions or the time or manner of its exercise or
otherwise), such Stock Option or the portion thereof which
does not qualify shall constitute a separate Non-Qualified
Stock Option.
6.3 Incentive Stock Options. Anything in the Plan to
the contrary notwithstanding, no term of this Plan relating
to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under
the Plan be so exercised, so as to disqualify the Plan under
Section 422A of the Code, or, without the consent of the
Participants affected, to disqualify any Incentive Stock
Option under such Section 422A.
6.4 Terms of Options. Options granted under this Plan
shall be subject to the following terms and conditions and
shall be in such form and contain such additional terms and
conditions, not inconsistent with the terms of this Plans,
as the Committee shall deem desirable:
(a) Option Price. The option price per share of
Common Stock purchasable under a Stock Option
shall be determined by the Committee at the time
of grant but shall be not less than 100% of the
Fair Market Value of the Common Stock at grant if
the Stock Option is intended to be an Incentive
Stock Option and shall not be less than 85% of the
Fair Market Value of the Common Stock at grant if
the Stock Option is intended to be a Non-Qualified
Stock Option.
(b) Option Term. The term of each Stock Option
shall be fixed by the Committee, but no Incentive
Stock Option shall be exercisable more than ten
years after the date the Option is granted, and no
Non-Qualified Stock Option shall be exercisable
more than ten years and one day after the date the
Option is granted.
(c) Exercisability. Stock Options shall be
exercisable at such time or times and subject to
such terms and conditions as shall be determined
by the Committee at grant; provided, however,
that, except as provided in subsections (f), (g)
and (h) below and Article 3, unless otherwise
determined by the Committee at grant, no Stock
Option shall be exercisable prior to the first
anniversary date of the granting of the Option.
If the Committee provides, in its discretion, that
any Stock Option is exercisable only in
installments, the Committee may waive such
installment exercise provisions at any time at or
after grant in whole or in part, based on such
factors, if any, as the Committee shall determine,
in its sole discretion.
(d) Method of Exercise. Subject to whatever
installment exercise and waiting period provisions
apply under subsection (c) above, Stock Options
may be exercised in whole or in part at any time
during the option term, by giving written notice
of exercise to the Company specifying the number
of shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase
price in such form as the Committee may accept.
If and to the extent determined by the Committee
in its sole discretion at or after grant, payment
in full or in part may also be made in the form of
Common Stock (other than Restricted Stock) owned
by the Participant (and for which the Participant
has good title free and clear of any liens and
encumbrances) or Restricted Stock, or by reduction
in the number of shares issuable upon such
exercise based, in each case, on the Fair Market
Value of the Stock on the payment date as
determined by the Committee (without regard to any
forfeiture restrictions applicable to Restricted
Stock). No shares of Stock shall be issued until
payment, as provided herein, therefor has been
made. A Participant shall generally have the
rights to dividends or other rights of a
shareholder with respect to shares subject to the
Option when the optionee has given written notice
of exercise, has paid for such shares as provided
herein, and, if requested, has given the
representation described in Section 15.1.
Notwithstanding the foregoing, if payment in full
or in part has been made in the form of Restricted
Stock, an equivalent number of shares of Common
Stock issued on exercise of the Option shall be
subject to the same restrictions and conditions,
and during the remainder of the Restriction
Period, applicable to the shares of Restricted
Stock surrendered therefor.
(e) Transferability of Options.
(1) No Stock Option shall be
Transferable by the Participant otherwise
than by will or by the laws of descent and
distribution, and all Stock Options shall be
exercisable, during the Participant's
lifetime, only by the Participant.
Notwithstanding the foregoing, the Committee
may provide in the terms and conditions
governing any Stock Option other than an
Incentive Stock Option, at the time of grant
or thereafter, that the Stock Option may be
Transferred, to the extent vested, to members
of the Participant's immediate family, to
trusts solely for the benefit of such
immediate family members, and to partnerships
in which such immediate family members and/or
trusts are the only partners. For this
purpose "immediate family members" means the
Participant's spouse, parents, children,
stepchildren, grandchildren and other issue
and legal dependents. Any Transfer of Stock
Options made under this provision will not be
effective until notice of such Transfer is
received by the Company.
(2) Notwithstanding any thing to the
contrary herein, if a Stock Option has been
Transferred in accordance with this Section
6.4, the Stock Option shall be exercisable
solely by the Transferee. The Stock Option
shall remain subject to the provisions of the
Plan, including that it shall be exercisable
only to the extent that the Participant or
Participant's estate would have been entitled
to exercise it if the Participant had not
Transferred the Stock Option. In the event
of the death of the Participant prior to the
expiration of the right to exercise the
Transferred Stock Option, the period during
which the Stock Option shall be exercisable
shall terminate on the date one year
following the date of the Participant's
death. In the event of the death of the
Transferee prior to the expiration of the
right to exercise the Stock Option, the
period during which the Stock Option shall be
exercisable by the executors, administrators,
legatees and distributees of the Transferee's
estate, as the case may be, shall terminate
on the date one year following the date of
the Transferee's death. In no event,
however, shall the Stock Option be
exercisable after the expiration of the Stock
Option period set forth in the terms and
conditions of the Stock Option. The Stock
Option shall be subject to such other rules
as the Committee shall determine.
(f) Termination by Death. Subject to subsection
(j) below, if a Participant's employment by the
Company or a Designated Subsidiary terminates by
reason of death, any Stock Option held by such
Participant, unless otherwise determined by the
Committee at grant, shall be fully vested and may
thereafter be exercised by the legal
representative of the estate, for a period of one
year (or such other period as the Committee may
specify at grant) from the date of such death or
until the expiration of the stated term of such
Stock Option, whichever period is the shorter.
(g) Termination by Reason of Disability. Subject
to subsection (j) below, if a Participant's
employment by the Company or a Designated
Subsidiary terminates by reason of Disability, any
Stock Option held by such Participant, unless
otherwise determined by the Committee at grant,
shall be fully vested and may thereafter be
exercised by the Participant for a period of three
years (or such other period as the Committee may
specify at grant) from the date of such
termination of employment or until the expiration
of the stated term of such Stock Option, whichever
period is the shorter; provided, however, that, if
the Participant dies within such three-year period
(or such other period as the Committee shall
specify at grant), any unexercised Stock Option
held by such Participant shall thereafter be exer
cisable to the extent to which it was exercisable
at the time of death for a period of twelve months
from the date of such death or until the
expiration of the stated term of such Stock
Option, whichever period is the shorter. In the
event of termination of employment by reason of
Disability, if an Incentive Stock Option is
exercised after the expiration of the exercise
periods that apply for purposes of Section 422A of
the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. Subject
to subsection (j), if a Participant's employment
by the Company or a Designated Subsidiary termi
nates by reason of Retirement, any Stock Option
held by such Participant, unless otherwise
determined by the Committee at grant, shall be
fully vested and may thereafter be exercised by
the Participant for a period of three years (or
such other period as the Committee may specify at
grant) from the date of such termination of
employment or the expiration of the stated term of
such Stock Option, whichever period is the
shorter; provided, however, that, if the
Participant dies within such three-year period,
any unexercised Stock Option held by such
Participant shall thereafter be exercisable, to
the extent to which it was exercisable at the time
of death, for a period of twelve months from the
date of such death or until the expiration of the
stated term of such Stock Option, whichever period
is the shorter. In the event of termination of
employment by reason of Retirement, if an
Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for
purposes of Section 422A of the Code, such Stock
Option will thereafter be treated as a Non-
Qualified Stock Option.
(i) Other Termination. Unless otherwise
determined by the Committee at or after grant, if
a Participant's employment by the Company or a
Designated Subsidiary terminates for any reason
other than death, Disability or Retirement, the
Stock Option shall thereupon terminate, except
that such Stock Option may be exercised, to the
extent it was exercisable immediately preceding
such termination, for the lesser of three months
or the balance of such Stock Option's term if the
Participant is involuntarily terminated by the
Company or the Designated Subsidiary without
cause.
(j) Incentive Stock Option Limitations. To the
extent that the aggregate Fair Market Value
(determined as of the time of grant) of the Common
Stock with respect to which Incentive Stock
Options are exercisable for the first time by the
Participant during any calendar year under the
Plan and/or any other stock option plan of the
Company or any subsidiary or parent corporation
(within the meaning of Section 425 of the Code)
exceeds $100,000, such Options shall be treated as
Options which are not Incentive Stock Options.
To the extent (if any) permitted under
Section 422A of the Code, or the applicable
regulations thereunder or any applicable Internal
Revenue Service pronouncement, if (i) a
Participant's employment with the Company or a
Designated Subsidiary is terminated by reason of
death, Disability or Retirement and (ii) the
portion of any Incentive Stock Option that is oth
erwise exercisable during the post-termination
period specified under subsections (f), (g) or (h)
above, computed without regard to the $100,000
limitation currently contained in Section 422A(d)
of the Code, is greater than the portion of such
Stock Option that is immediately exercisable as an
"incentive stock option" during such post-
termination period under Section 422A, such excess
shall be treated as a Non-Qualified Stock Option.
If the exercise of an Incentive Stock Option is
accelerated by reason of a Change in Control, any
portion of such Option that is not exercisable as
an Incentive Stock Option by reason of the
$100,000 limitation contained in Section 422A(d)
of the Code shall be treated as a Non-Qualified
Stock Option.
Should any of the foregoing provisions not be
necessary in order for the Stock Options to
qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee
may amend the Plan accordingly, without the
necessity of obtaining the approval of the
shareholders of the Company.
(k) Buyout and Settlement Provisions. The
Committee may at any time offer to buy out an
Option previously granted, based on such terms and
conditions as the Committee shall establish and
communicate to the Participant at the time that
such offer is made.
In addition, if the Option agreement so
provides at grant or is amended (with the
Participant's consent) after grant and prior to
exercise to so provide, the Committee may require
that all or part of the shares to be issued with
respect to the spread value of an exercised Option
take the form of Performance Shares or Restricted
Stock, which shall be valued on the date of
exercise on the basis of the Fair Market Value of
such Performance Shares or Restricted Stock
determined without regard to the deferral limi
tations and/or forfeiture restrictions involved.
ARTICLE VII
Stock Appreciation Rights
7.1 Tandem Stock Appreciation Rights. Stock
Appreciation Rights may be granted in conjunction with all
or part of any Stock Option (a "Reference Stock Option")
granted under this Plan ("Tandem Stock Appreciation
Rights"). In the case of a Non-Qualified Stock Option, such
rights may be granted either at or after the time of the
grant of such Reference Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at
the time of the grant of such Reference Stock Option.
7.2 Terms and Conditions of Tandem Stock Appreciation
Rights. Tandem Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the
provisions of this Plan, as shall be determined from time to
time by the Committee, including the following:
(a) Term. A Tandem Stock Appreciation Right or
applicable portion thereof granted with respect to
a Reference Stock Option shall terminate and no
longer be exercisable upon the termination or
exercise of the Reference Stock Option, except
that, unless otherwise determined by the
Committee, in its sole discretion, at the time of
grant, a Tandem Stock Appreciation Right granted
with respect to less than the full number of
shares covered by the Reference Stock Option shall
not be reduced until and then only to the extent
the exercise or termination of the Reference Stock
Option causes the number of shares covered by the
Tandem Stock Appreciation Right to exceed the
number of shares remaining available and
unexercised under the Reference Stock Option.
(b) Exercisability. Tandem Stock Appreciation
Rights shall be exercisable only at such time or
times and to the extent that the Reference Stock
Options to which they relate shall be exercisable
in accordance with the provisions of Article 6 and
this Article 7; provided, however, that any Tandem
Stock Appreciation Right granted subsequent to the
grant of the Reference Stock Option shall not be
exercisable during the first six months of its
term, except that this special limitation shall
not apply in the event of death or Disability of
the Participant prior to the expiration of the six-
month period.
(c) Method of Exercise. A Tandem Stock
Appreciation Right may be exercised by an optionee
by surrendering the applicable portion of the
Reference Stock Option. Upon such exercise and
surrender, the Participant shall be entitled to
receive an amount determined in the manner
prescribed in this Section 7.2. Stock Options
which have been so surrendered, in whole or in
part, shall no longer be exercisable to the extent
the related Tandem Stock Appreciation Rights have
been exercised.
(d) Payment. Upon the exercise of a Tandem Stock
Appreciation Right a Participant shall be entitled
to receive up to, but no more than, an amount in
cash and/or shares of Common Stock equal in value
to the excess of the Fair Market Value of one
share of Common Stock over the option price per
share specified in the Reference Stock Option
multiplied by the number of shares in respect of
which the Tandem Stock Appreciation Right shall
have been exercised, with the Committee having the
right to determine the form of payment.
(e) Non-Transferability. Tandem Stock
Appreciation Rights shall be Transferable only
when and to the extent that the underlying Stock
Option would be Transferable under Subsection
6.4(e) of the Plan.
(f) Deemed Exercise of Reference Stock Option.
Upon the exercise of a Tandem Stock Appreciation
Right, the Reference Stock Option or part thereof
to which such Stock Appreciation Right is related
shall be deemed to have been exercised for the
purpose of the limitation set forth in Article 4
of the Plan on the number of shares of Common
Stock to be issued under the Plan.
7.3 Non-Tandem Stock Appreciation Rights. Non-Tandem
Stock Appreciation Rights may also be granted without
reference to any Stock Options granted under this Plan;
provided, however, that no Participant shall be granted
Stock Options or Non-Tandem Stock Appreciation Rights, or
both, with respect to a total of more than 500,000 shares of
Common Stock during any fiscal year of the Company.
7.4 Terms and Conditions of Non-Tandem Stock
Appreciation Rights. Non-Tandem Stock Appreciation Rights
shall be subject to such terms and conditions, not
inconsistent with the provisions of this Plan, as shall be
determined from time to time by the Committee, including the
following:
(a) Term. The term of each Non-Tandem Stock
Appreciation Right shall be fixed by the
Committee, but shall not be greater than ten years
and one day after the date the Right is granted.
(b) Exercisability. Non-Tandem Stock
Appreciation Rights shall be exercisable at such
time or times and subject to such terms and
conditions as shall be determined by the Committee
at grant; provided, however, that any Right shall
not be exercisable during the first six months of
its term, except that this special limitation
shall not apply in the event of death or
Disability of the Participant prior to expiration
of this six-month period. If the Committee
provides, in its discretion, that any such Right
is exercisable only in installments, the Committee
may waive such installment exercise provisions at
any time at or after grant in whole or in part,
based on such factors, if any, as the Committee
shall determine, in its sole discretion.
(c) Method of Exercise. Subject to whatever
installment exercise and waiting period provisions
apply under subsection (b) above, Non-Tandem Stock
Appreciation Rights may be exercised in whole or
in part at any time during the option term, by
giving written notice of exercise to the Company
specifying the number of Rights to be exercised.
(d) Payment. Upon the exercise of a Non-Tandem
Stock Appreciation Right a Participant shall be
entitled to receive, for each Right exercised, up
to, but no more than, an amount in cash and/or
shares of Common Stock equal in value to the
excess of the Fair Market Value of one share of
Common Stock on the date the Right is exercised
over the Fair Market Value of one share of Common
Stock on the date the Right was awarded to the
Participant, with the Committee having the right
to determine the form of payment.
(e) Non-Transferability. No Non-Tandem
Stock Appreciation Right shall be
Transferable by the Participant otherwise
than by will or by the laws of descent and
distribution, and all such Rights shall be
exercisable, during the Participant's
lifetime, only by the Participant.
(f) Termination by Death. If a Participant's
employment by the Company or a Designated
Subsidiary terminates by reason of death, any Non-
Tandem Stock Appreciation Right held by such
Participant, unless otherwise determined by the
Committee at grant, shall be fully vested and may
thereafter be exercised by the legal
representative of the estate, for a period of one
year (or such other period as the Committee may
specify at grant) from the date of such death or
until the expiration of the stated term of such
Right, whichever period is the shorter.
(g) Termination by Reason of Disability or
Retirement. If a Participant's employment by the
Company or a Designated Subsidiary terminates by
reason of Disability or Retirement, any Non-Tandem
Stock Appreciation Right held by such Participant,
unless otherwise determined by the Committee at
grant, shall be fully vested and may thereafter be
exercised by the Participant for a period of three
years (or such other period as the Committee may
specify at grant) from the date of such
termination of employment or until the expiration
of the stated term of such Right, whichever period
is the shorter; provided, however, that, if the
Participant dies within such three-year period (or
such other period as the Committee shall specify
at grant), any unexercised Non-Tandem Stock
Appreciation Right held by such Participant shall
thereafter be exercisable to the extent to which
it was exercisable at the time of death for a
period of twelve months from the date of such
death or until the expiration of the stated term
of such Right, whichever period is the shorter.
(h) Other Termination. Unless otherwise
determined by the Committee at or after grant, if
a Participant's employment by the Company or a
Designated Subsidiary terminates for any reason
other than death, Disability or Retirement, the
Non-Tandem Stock Appreciation Right shall
thereupon terminate, except that such Right may be
exercised, to the extent it was exercisable
immediately preceding such termination, for the
lesser of three months or the balance of the
stated term of such Right if the Participant is
involuntarily terminated by the Company or the
Designated Subsidiary without cause.
7.5 Cash Settlements of Tandem and Non-Tandem Stock
Appreciation Rights. A Participant required to file reports
under Section 16(a) of the Securities Exchange Act of 1934
with respect to securities of the Company may receive cash
in complete or partial settlement of a Tandem or Non-Tandem
Stock Appreciation Right only if any election by such
Participant to receive cash in full or partial settlement of
the Stock Appreciation Right, as well as any exercise by him
of his Stock Appreciation Right for such cash, is made (i)
during the period beginning on the third business day
following the date of release for publication of the
quarterly or annual summary statements of sales and earnings
of the Company and ending on the twelfth business day
following such date, or (ii) during any other period in
which such election or exercise may be made under the
provisions of Rule 16b-3 promulgated pursuant to the Act.
ARTICLE VIII
Restricted Stock
8.1 Awards of Restricted Stock. Shares of Restricted
Stock may be issued either alone or in addition to other
Awards granted under the Plan. The Committee shall
determine the eligible persons to whom, and the time or
times at which, grants of Restricted Stock will be made, the
number of shares to be awarded, the price (if any) to be
paid by the recipient (subject to Section 8.2), the time or
times within which such Awards may be subject to forfeiture,
the vesting schedule and rights to acceleration thereof, and
all other terms and conditions of the Awards.
The Committee may condition the grant of Restricted
Stock upon the attainment of specified performance goals or
such other factors as the Committee may determine, in its
sole discretion.
8.2 Awards and Certificates. The prospective
Participant selected to receive a Restricted Stock Award
shall not have any rights with respect to such Award, unless
and until such Participant has delivered a fully executed
copy of the agreement evidencing the Award to the Company
and has otherwise complied with the applicable terms and
conditions of such Award. Further, such Award shall be
subject to the following conditions:
(a) Purchase Price. Subject to Section 4.3, the
purchase price for shares of Restricted Stock may
be less than their par value and may be zero.
(b) Acceptance. Awards of Restricted Stock must
be accepted within a period of 60 days (or such
shorter period as the Committee may specify at
grant) after the Award date, by executing a
Restricted Stock Award agreement and by paying
whatever price (if any) the Committee has
designated thereunder.
(c) Legend. Each Participant receiving a
Restricted Stock Award shall be issued a stock
certificate in respect of such shares of
Restricted Stock. Such certificate shall be
registered in the name of such Participant, and
shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to
such Award, substantially in the following form:
"The anticipation, alienation, attachment,
sale, transfer, assignment, pledge, encumbrance or
charge of the shares of stock represented hereby
are subject to the terms and conditions (including
forfeiture) of The Reader's Digest Association,
Inc. (the "Company") 1994 Key Employee Long Term
Incentive Plan and an Agreement entered into
between the registered owner and the Company dated
. Copies of such Plan and Agreement are on file
at the principal office of the Company."
(d) Custody. The Committee shall require that
the stock certificates evidencing such shares be
held in custody by the Company until the
restrictions thereon shall have lapsed, and that,
as a condition of any Restricted Stock Award, the
Participant shall have delivered a duly signed
stock power, endorsed in blank, relating to the
Common Stock covered by such Award.
8.3 Restrictions and Conditions. The shares of
Restricted Stock awarded pursuant to this Plan shall be
subject to the following restrictions and conditions:
(a) Restriction Period. Subject to the
provisions of this Plan and the Award agreement,
during a period set by the Committee commencing
with the date of such Award (the "Restriction
Period"), the Participant shall not be permitted
to Transfer shares of Restricted Stock awarded
under this Plan. Within these limits, the
Committee, in its sole discretion, may provide for
the lapse of such restrictions in installments and
may accelerate or waive such restrictions in whole
or in part, based on service, performance and/or
such other factors or criteria as the Committee
may determine in its sole discretion.
(b) Rights as Shareholder. Except as provided in
this subsection (b) and subsection (a) above, the
Participant shall have, with respect to the shares
of Restricted Stock, all of the rights of a holder
of shares of Common Stock of the Company including
the right to receive any dividends. The Commit
tee, in its sole discretion, as determined at the
time of Award, may permit or require the payment
of dividends to be deferred.
(c) Termination of Employment. Subject to the
applicable provisions of the Award agreement and
this Plan, upon termination of a Participant's
employment with the Company or a Designated
Subsidiary for any reason during the Restriction
Period, all Restricted Shares still subject to
restriction will vest or be forfeited in
accordance with the terms and conditions
established by the Committee at grant.
(d) Hardship. In the event of hardship or other
special circumstances of a Participant whose
employment with the Company or a Designated
Subsidiary is involuntarily terminated (other than
for cause), the Committee may, in its sole
discretion, waive in whole or in part any or all
remaining restrictions with respect to such
Participant's shares of Restricted Stock, based on
such factors as the Committee may deem
appropriate.
(e) Lapse of Restrictions. If and when the
Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such
Restriction Period, the certificates for such
shares shall be delivered to the Participant. All
legends shall be removed from said certificates at
the time of delivery to the Participant.
ARTICLE IX
Performance Shares
9.1 Award of Performance Shares. Performance Shares
may be awarded either alone or in addition to other Awards
granted under this Plan. The Committee shall determine the
eligible persons to whom and the time or times at which
Performance Shares shall be awarded, the number of
Performance Shares to be awarded to any person, the duration
of the period (the "Performance Period") during which, and
the conditions under which, receipt of the Shares will be
deferred, and the other terms and conditions of the Award in
addition to those set forth in Section 9.2.
The Committee may condition the grant of
Performance Shares upon the attainment of specified
performance goals or such other factors or criteria as the
Committee shall determine, in its sole discretion.
9.2 Terms and Conditions. Performance Shares awarded
pursuant to this Article 9 shall be subject to the following
terms and conditions:
(a) Non-Transferability. Subject to the
applicable provisions of the Award agreement and
this Plan, Performance Share Awards may not be
Transferred during the Performance Period.
(b) Dividends. Unless otherwise determined by
the Committee at the time of Award, amounts equal
to any dividends declared during the Performance
Period with respect to the number of shares of
Common Stock covered by a Performance Share Award
will not be paid to the Participant.
(c) Payment. Subject to the provisions of the
Award agreement and this Plan, at the expiration
of the Performance Period, share certificates
and/or cash of an equivalent value (as the
Committee may determine in its sole discretion)
shall be delivered to the Participant, or his
legal representative, in a number equal to the
vested shares covered by the Performance Share
Award.
(d) Termination of Employment. Subject to the
applicable provisions of the Award agreement and
this Plan, upon termination of a Participant's
employment with the Company or a Designated
Subsidiary for any reason during the Performance
Period for a given Award, the Performance Shares
in question will vest or be forfeited in
accordance with the terms and conditions
established by the Committee at grant.
(e) Accelerated Vesting. Based on service,
performance and/or such other factors or criteria,
if any, as the Committee may determine, the
Committee may, at or after grant, accelerate the
vesting of all or any part of any Performance
Share Award and/or waive the deferral limitations
for all or any part of such Award.
(f) Hardship. In the event of hardship or other
special circumstances of a Participant whose
employment with the Company or a Designated
Subsidiary is involuntarily terminated (other than
for cause), the Committee may, in its sole
discretion, based on such factors as the Committee
may deem appropriate, waive in whole or in part
any or all of the remaining deferral limitations
imposed hereunder with respect to any or all of
the Participant's Performance Shares.
ARTICLE X
Performance Units
10.1 Award of Performance Units. Performance Units may
be awarded either alone or in addition to other Awards
granted under this Plan. The Committee shall determine the
eligible persons to whom and the time or times at which
Performance Units shall be awarded, the number of
Performance Units to be awarded to any person, the duration
of the period (the "Performance Cycle") during which, and
the conditions under which, a Participant's right to
Performance Units will be vested, the ability of
Participants to defer the receipt of payment of such Units,
and the other terms and conditions of the Award in addition
to those set forth in Section 10.2.
A Performance Unit shall have a fixed dollar value.
The Committee may condition the vesting of Performance
Units upon the attainment of specified performance goals or
such other factors or criteria as the Committee shall
determine, in its sole discretion.
10.2 Terms and Conditions. The Performance Units
awarded pursuant to this Article 10 shall be subject to the
following terms and conditions:
(a) Non-Transferability. Subject to the
applicable provisions of the Award agreement and
this Plan, Performance Unit Awards may not be
Transferred.
(b) Vesting. At the expiration of the
Performance Cycle, the Committee shall determine
the extent to which the performance goals have
been achieved, and the percentage of the
Performance Units of each Participant that have
vested.
(c) Payment. Subject to the applicable
provisions of the Award agreement and this Plan,
at the expiration of the Performance Cycle, cash
and/or share certificates of an equivalent value
(as the Committee may determine in its sole
discretion) shall be delivered to the Participant,
or his legal representative, in payment of the
vested Performance Units covered by the Per
formance Unit Award.
(d) Termination of Employment. Subject to the
applicable provisions of the Award agreement and
this Plan, upon termination of a Participant's
employment with the Company or a Designated
Subsidiary for any reason during the Performance
Cycle for a given Award, the Performance Units in
question will vest or be forfeited in accordance
with the terms and conditions established by the
Committee at grant.
(e) Accelerated Vesting. Based on service,
performance and/or such other factors or criteria,
if any, as the Committee may determine, the
Committee may, at or after grant, accelerate the
vesting of all or any part of any Performance Unit
Award and/or waive the deferral limitations for
all or any part of such Award.
(f) Hardship. In the event of hardship or other
special circumstances of a Participant whose
employment with the Company or a Designated
Subsidiary is involuntarily terminated (other than
for cause), the Committee may, in its sole
discretion, based on such factors as the Committee
may deem appropriate, waive in whole or in part
any or all of the remaining deferral limitations
imposed hereunder with respect to any or all of
the Participant's Performance Units.
ARTICLE XI
Other Stock-Based Awards
11.1 Other Awards. Other Awards of Common Stock and
other Awards that are valued in whole or in part by
reference to, or are payable in or otherwise based on,
Common Stock ("Other Stock-Based Awards"), including,
without limitation, Awards valued by reference to subsidiary
performance, may be granted either alone or in addition to
or in tandem with Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Shares or Performance Units.
Subject to the provisions of this Plan, the
Committee shall have authority to determine the persons to
whom and the time or times at which such Awards shall be
made, the number of shares of Common Stock to be awarded
pursuant to such Awards, and all other conditions of the
Awards. The Committee may also provide for the grant of
Common Stock under such Awards upon the completion of a
specified performance period.
11.2 Terms and Conditions. Other Stock-Based Awards
made pursuant to this Article 11 shall be subject to the
following terms and conditions:
(a) Non-Transferability. Subject to the
applicable provisions of the Award agreement and
this Plan, shares of Common Stock subject to
Awards made under this Article 11 may not be
Transferred prior to the date on which the shares
are issued, or, if later, the date on which any
applicable restriction, performance or deferral
period lapses.
(b) Dividends. Unless otherwise determined by
the Committee at the time of Award, subject to the
provisions of the Award agreement and this Plan,
the recipient of an Award under this Article 11
shall be entitled to receive, currently or on a
deferred basis, dividends or dividend equivalents
with respect to the number of shares of Common
Stock covered by the Award, as determined at the
time of the Award by the Committee, in its sole
discretion.
(c) Vesting. Any Award under this Article 11 and
any Common Stock covered by any such Award shall
vest or be forfeited to the extent so provided in
the Award agreement, as determined by the
Committee, in its sole discretion.
(d) Waiver of Limitation. In the event of the
Participant's Retirement, Disability or death, or
in cases of special circumstances, the Committee
may, in it sole discretion, waive in whole or in
part any or all of the limitations imposed
hereunder (if any) with respect to any or all of
an Award under this Article 11.
(e) Price. Common Stock issued on a bonus basis
under this Article 11 may be issued for no cash
consideration; Common Stock purchased pursuant to
a purchase right awarded under this Article 11
shall be priced as determined by the Committee.
ARTICLE XII
Change in Control Provisions
12.1 Benefits. In the event of a Change in Control of
the Company (as defined below), and except as otherwise
provided by the committee upon the grant of an Award, the
Participant shall be entitled to the following benefits:
(a) All outstanding Stock Options and Non-Tandem
Stock Appreciation Rights of such Participant
granted prior to the Change in Control shall be
fully vested and immediately exercisable in their
entirety. In its sole discretion, the Committee
may provide for the purchase of any such Stock
Options by the Company or Designated Subsidiary
for an amount of cash equal to the excess of the
Change in Control price (as defined below) of the
shares of Common Stock covered by such Stock
Options, over the aggregate exercise price of such
Stock Options. For purposes of this Section 12.1,
Change in Control price shall mean the higher of
(i) the highest price per share of Common Stock
paid in any transaction related to a Change in
Control of the Company, or (ii) the highest Fair
Market Value per share of Common Stock at any time
during the 60-day period preceding a Change in
Control.
(b) All Performance Share Awards and Performance
Unit Awards of such Participant granted prior to
the Change in Control shall vest, at a minimum, as
if the applicable Performance Period or
Performance Cycle had ended upon such Change in
Control and the determination of the extent to
which any specified performance goals or targets
had been achieved had been made at such time.
(c) The restrictions to which any shares of
Restricted Stock of such Participant granted prior
to the Change in Control are subject shall lapse
as if the applicable Restriction Period had ended
upon such Change in Control.
Any determination by the Committee made pursuant to
paragraph (a) of this Section 12.1 may be made as to all
outstanding Awards or only as to certain outstanding Awards
specified by the Committee and any such determination may be
made prior to or after a Change in Control.
12.2 Change in Control. A "Change in Control" shall be
deemed to occur if (1) there shall be consummated any
consolidation or merger of the Company with or into any
other corporation, any corporate reorganization involving
the Company, any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company, or any
sale or other disposition of shares of capital stock of the
Company, and (2) as a result of such consolidation, merger,
reorganization, sale, lease, exchange or other disposition,
(A) any person or group (as such terms are used in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), shall have become
the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of a majority of the Company's outstanding
voting stock, or (B) any person other than the Company shall
be the beneficial owner of the assets of the Company as
described above; provided, however, that the non-employee
members of the Board immediately prior to such transaction
may determine that a Change in Control for purposes of the
Plan has not occurred where control is to be acquired by:
(i) an employee stock ownership plan of the Company; (ii) a
group of persons who immediately prior to the transaction
were officers and senior employees of the Company; (iii) an
entity organized directly or indirectly by persons who
immediately prior to the transaction were officers and
senior employees of the Company and who upon consummation of
the transaction will be officers and employees of the
Company and of the acquiring entity, will have
representation on the Board of Directors of the acquiring
entity and will own at least 10% of the voting shares of the
acquiring entity; (iv) an entity or entities that acquire
shares of the Company in a corporate reorganization or
restructuring that involves no substantial change in the
effective beneficial ownership or control of the Company;
(v) any one or more non-profit organizations designated by
the Board of Directors pursuant to this Section 12.2(v) at
least 12 months prior to the Change in Control; (vi) a
person or persons who at the time of or prior to the
transaction announce their intention to make no substantial
change in the composition of the Board; provided, however,
that if during the 24 months after a transaction referred to
in this clause (vi) of Section 12.2, individuals who at the
beginning of such period constituted the entire Board shall
cease for any reason to constitute a majority thereof unless
the election of each new director who was not a director at
the beginning of such period was approved by a vote of at
least two-thirds of the directors then still in office who
were directors at the beginning of the period, a Change in
Control shall be deemed to have occurred as of the date the
composition of the Board is so changed.
12.3 Limitation. In the event that any benefits to a
Participant under this Plan, either alone or together with
any other payments or benefits otherwise owed to the Par
ticipant by the Company or a Designated Subsidiary on or
after a Change in Control would, in the Company's good faith
opinion, be deemed under Section 280G of the Code, or any
successor provision, to be parachute payments, the benefits
under this Plan shall be reduced to the extent necessary in
the Company's good faith opinion so that no portion of the
benefits provided herein shall be considered excess
parachute payments under Section 280G of the Code or any
successor provision. The Company's good faith opinion shall
be conclusive and binding upon the Participants.
ARTICLE XIII
Termination or Amendment of the Plan
13.1 Termination or Amendment. Notwithstanding any
other provision of this Plan, the Board may at any time, and
from time to time, amend, in whole or in part, any or all of
the provisions of the Plan (including any amendment deemed
necessary to ensure that the Company may comply with any
regulatory requirement referred to in Article 15), or
suspend or terminate it entirely, retroactively or
otherwise; provided, however, that, unless otherwise
required by law, the rights of a Participant with respect to
Options or other Awards granted prior to such amendment,
suspension or termination, may not be impaired without the
consent of such Participant and, provided further, without
the approval of the holders of the Company's stock entitled
to vote, no amendment may be made which would (i) increase
the aggregate number of shares of Common Stock that may be
issued under this Plan (except by operation of Section 4.2);
(ii) change the definition of employees eligible to receive
Stock Awards under this Plan; (iii) decrease the option
price of any Stock Option to less than 100% of the Fair
Market Value on the date of grant for a Stock Option
intended to be an Incentive Stock Option or to less than 85%
of the Fair Market Value on the date of grant for a Stock
Option intended to be a Non-Qualified Stock Option; or (iv)
extend the maximum option period under Section 6.4 of the
Plan.
The Committee may amend the terms of any Stock
Option or other Award theretofore granted, prospectively or
retroactively, but, subject to Article IV above, no such
amendment or other action by the Committee shall impair the
rights of any holder without the holder's consent.
Notwithstanding the foregoing, if a Stock Option has been
Transferred in accordance with the Plan, written consent of
the Transferee (and not the Participant) shall be necessary
to impair the rights of the holder under the Stock Option.
The Committee may also substitute new Stock Options for
previously granted Stock Options having higher option
exercise prices than the new Stock Options being substituted
therefor.
ARTICLE XIV
Unfunded Plan
14.1 Unfunded Status of Plan. This Plan is intended to
constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments as to which a
Participant has a fixed and vested interest but which are
not yet made to a Participant by the Company, nothing
contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the
Company.
ARTICLE XV
General Provisions
15.1 Legend. The Committee may require each person
purchasing shares pursuant to a Stock Option or other Award
under the Plan to represent to and agree with the Company in
writing that the Participant is acquiring the shares without
a view to distribution thereof. In addition to any legend
required by this Plan, the certificates for such shares may
include any legend which the Committee deems appropriate to
reflect any restrictions on Transfer.
All certificates for shares of Common Stock
delivered under the Plan shall be subject to such stock
transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any
stock exchange upon which the Stock is then listed or any
national securities exchange system upon whose system the
Stock is then quoted, any applicable Federal or state
securities law, and any applicable corporate law, and the
Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such
restrictions.
15.2 Other Plans. Nothing contained in this Plan shall
prevent the Board from adopting other or additional
compensation arrangements, subject to shareholder approval
if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific
cases.
15.3 No Right to Employment. Neither this Plan nor the
grant of any Option or other Award hereunder shall give any
Participant or other employee any right with respect to
continuance of employment by the Company or any subsidiary,
nor shall they be a limitation in any way on the right of
the Company or any subsidiary by which an employee is
employed to terminate his employment at any time.
15.4 Withholding of Taxes. The Company shall have the
right to deduct from any payment to be made pursuant to this
Plan, or to otherwise require, prior to the issuance or
delivery of any shares of Common Stock or the payment of any
cash hereunder, payment by the Participant of, any Federal,
state or local taxes required by law to be withheld.
The Committee may permit any such withholding
obligation to be satisfied by reducing the number of shares
of Common Stock otherwise deliverable. A person required to
file reports under Section 16(a) of the Securities Exchange
Act of 1934 with respect to securities of the Company may
elect to have a sufficient number of shares of Common Stock
withheld to fulfill such tax obligations (hereinafter a
"Withholding Election") only if the election complies with
such conditions as are necessary to prevent the withholding
of such shares from being subject to Section 16(b) of the
Securities Exchange Act of 1934. To the extent necessary
under then current law, such conditions shall include the
following: (x) the Withholding Election shall be subject to
the disapproval of the Committee and (y) the Withholding
Election is made (i) during the period beginning on the
third business day following the date of release for
publication of the quarterly or annual summary statements of
sales and earnings of the Company and ending on the twelfth
business day following such date, (ii) six months before the
Stock Award becomes taxable, or (iii) during any other
period in which a Withholding Election may be made under the
provisions of Rule 16b-3 promulgated pursuant to the Act.
Any fraction of a share of Common Stock required to satisfy
such tax obligations shall be disregarded and the amount due
shall be paid instead in cash by the Participant.
Notwithstanding the foregoing, if Stock Options
have been Transferred, the Participant shall provide the
Company with funds sufficient to pay such tax withholding
when such withholding is due. Furthermore, if such
Participant does not satisfy the applicable tax withholding
obligation, the Transferee may provide the funds sufficient
to enable the Company to pay the tax withholding. However,
if Stock Options have been Transferred, the Company shall
have no right to retain or sell without notice, or to demand
surrender from the Transferee of, shares of Common Stock in
order to pay such tax withholding.
15.5 No Assignment of Benefits. No Option, Award or
other benefit payable under this Plan shall, except as
otherwise specifically provided by law or by the Plan, be
Transferable in any manner, and any attempt to Transfer any
such benefit shall be void, and any such benefit shall not
in any manner be liable for or subject to the debts,
contracts, liabilities, engagements or torts of any person
who shall be entitled to such benefit, nor shall it be
subject to attachment or legal process for or against such
person.
15.6 Listing and Other Conditions.
(a) As long as the Common Stock is listed on a
national securities exchange or system sponsored
by a national securities association, the issue of
any shares of Common Stock pursuant to an Option
or other Award shall be conditioned upon such
shares being listed on such exchange or system.
The Company shall have no obligation to issue such
shares unless and until such shares are so listed,
and the right to exercise any Option or other
Award with respect to such shares shall be
suspended until such listing has been effected.
(b) If at any time counsel to the Company shall
be of the opinion that any sale or delivery of
shares of Common Stock pursuant to an Option or
other Award is or may in the circumstances be
unlawful or result in the imposition of excise
taxes under the statutes, rules or regulations of
any applicable jurisdiction, the Company shall
have no obligation to make such sale or delivery,
or to make any application or to effect or to
maintain any qualification or registration under
the Securities Act of 1933, as amended, or
otherwise with respect to shares of Common Stock
or Awards, and the right to exercise any Option or
other Award shall be suspended until, in the
opinion of said counsel, such sale or delivery
shall be lawful or will not result in the
imposition of excise taxes.
(c) Upon termination of any period of suspension
under this Section 15.6, any Award affected by
such suspension which shall not then have expired
or terminated shall be reinstated as to all shares
available before such suspension and as to shares
which would otherwise have become available during
the period of such suspension, but no such
suspension shall extend the term of any Option.
15.7 Governing Law. This Plan and actions taken in
connection herewith shall be governed and construed in
accordance with the laws of the State of New York
(regardless of the law that might otherwise govern under
applicable New York principles of conflict of laws).
15.8 Construction. Wherever any words are used in this
Plan in the masculine gender they shall be construed as
though they were also used in the feminine gender in all
cases where they would so apply, and wherever any words are
used herein in the singular form they shall be construed as
though they were also used in the plural form in all cases
where they would so apply.
15.9 Liability. No member of the Board, no employee of
the Company and no member of the Committee (nor the
Committee itself) shall be liable for any act or action
hereunder, whether of omission or commission, by any other
member or employee or by any agent to whom duties in
connection with the administration of the Plan have been
delegated or, except in circumstances involving his bad
faith, gross negligence or fraud, for anything done or
omitted to be done by himself.
15.10 Other Benefits. No Award payment under this
Plan shall be deemed compensation for purposes of computing
benefits under any retirement plan of the Company or its
subsidiaries nor affect any benefits under any other benefit
plan now or subsequently in effect under which the
availability or amount of benefits is related to the level
of compensation.
15.11 Costs. The Company shall bear all expenses
incurred in administering this Plan, including expenses of
issuing Common Stock pursuant to any Awards hereunder.
15.12 No Right to Same Benefits. The provisions of
Awards need not be the same with respect to each
Participant, and such Awards to individual Participants need
not be the same in subsequent years.
ARTICLE XVI
Effective Date of Plan
The Plan shall become effective upon the date specified
by the Board in its resolution adopting the Plan, subject to
the approval of the Plan by the holders of a majority of the
capital stock of the Company entitled to vote thereon within
one year after the Plan is adopted. Any grants of Awards
hereunder prior to such approval shall be effective when
made (unless otherwise specified by the Committee at the
time of grant), but shall be conditioned on, and subject to,
such approval of the Plan by shareholders.
ARTICLE XVII
Term of Plan
No Stock Option, Stock Appreciation Right, Restricted
Stock, Performance Shares, Performance Unit or Other Stock-
Based Award shall be granted pursuant to the Plan on or
after the tenth anniversary of the earlier of the date the
Plan is adopted or the date of shareholder approval but
Awards granted prior to such tenth anniversary may extend
beyond that date.
ARTICLE XVIII
Name of Plan
This Plan shall be known as "The Reader's Digest
Association, Inc. 1994 Key Employee Long Term Incentive
Plan."
ARTICLE XIX
Election to Receive Awards in Lieu of Other Compensation
The Committee, in its sole discretion, may permit a
Participant to elect pursuant to this Plan, on such terms
and conditions as shall be approved by the Committee, to
receive an Award under this Plan in lieu of receiving
payment of other compensation, under this Plan or otherwise,
from the Company or any Designated Subsidiary. The
Committee shall have sole discretion to consent to or
disapprove any such election by any Participant. The grant
of Awards pursuant to such election shall be subject to the
provisions and limitations of this Plan and applicable law.
