SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of Commission Only (as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[x] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
The Reader's Digest Association, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Investment Company Act Rule 20a-1(c).
[ ]$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: (Set forth the
amount on which the filing fee is calculated and state how it was
determined:
4) Proposed maximum aggregate value of transaction:
[ ]Fee paid previously with preliminary materials.
[ ]Check the box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
[LOGO APPEARS HERE]
October 5, 1999
Dear Stockholder:
You are cordially invited to attend the Annual
Meeting of Stockholders of The Reader's Digest
Association, Inc. to be held at 9:00 a.m. on Friday,
November 12, 1999, at the Company's DeWitt Wallace
Auditorium, Reader's Digest Road, Chappaqua, New York.
Driving directions to the Wallace Auditorium appear on the
last page of the Proxy Statement.
The accompanying Notice of Meeting and Proxy
Statement describe the matters to be considered and voted
upon at the Meeting. In addition to consideration of
these matters, there will be a report to stockholders on
the affairs of the Company, and stockholders will have an
opportunity to discuss matters of interest concerning the
Company.
Although only holders of record of the Company's
Class B Voting Common Stock at the close of business on
September 21, 1999 are entitled to vote at the Meeting, we
invite all stockholders of the Company, including the
holders of the Company's Class A Nonvoting Common Stock,
to attend.
If you are entitled to vote at the Meeting, it is
important that your shares be represented, whether or not
you plan to attend the Meeting personally. To ensure that
your vote will be received and counted, please promptly
complete, date and return your proxy in the enclosed
return envelope, whether or not you plan to attend the
meeting in person.
Sincerely yours,
/s/THOMAS O. RYDER
Thomas O. Ryder
Chairman and Chief Executive
Officer
[LOGO APPEARS HERE]
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
The Annual Meeting of Stockholders of The Reader's Digest
Association, Inc. (the "Company") will be held at the
Company's DeWitt Wallace Auditorium, Reader's Digest Road,
Chappaqua, New York, on Friday, November 12, 1999 at 9:00
a.m., New York time, to consider and take action on the
following matters:
(1) election of Directors of the Company;
(2) a proposal to amend the 1994 Key Employee Long Term
Incentive Plan to increase the number of shares of Class A
Nonvoting Common Stock available for awards under that
plan;
(3) a proposal to approve the business criteria, maximum
amount and eligible employees for performance shares under
the 1994 Key Employee Long Term Incentive Plan;
(4) a proposal to approve the business criteria, maximum
amount and eligible employees for awards under the Senior
Management Incentive Plan;
(5) a proposal to amend the Company's Certificate of
Incorporation so that the issuance or sale of Class B
Voting Common Stock to any employee benefit plan will
require approval by vote of the Class B Voting Common
Stock holders; and
(6) such other business as may properly come before the
meeting.
The record date for the Meeting is September 21, 1999.
The Company is required to send notice of the Meeting only
to record holders of the Company's Class B Voting Common
Stock at the close of business on the record date. Only
those stockholders are entitled to attend the Meeting and
to vote those shares at the Meeting. Holders of the
Company's Class A Nonvoting Common Stock on the record
date are also welcome to attend the Meeting.
By Order of the Board of Directors:
/s/ C.H.R. DUPREE
C.H.R. DuPree
Vice President and Corporate Secretary
October 5, 1999
PROXY STATEMENT
GENERAL INFORMATION
Annual Meeting Time and Location
The Annual Meeting of Stockholders of The Reader's Digest
Association, Inc. (the "Company") will be held at the Company's
Wallace Auditorium, Reader's Digest Road, Chappaqua, New York, on
Friday, November 12, 1999 at 9:00 a.m., New York time. Driving
directions to the Wallace Auditorium appear on the last page of
the Proxy Statement.
Principal Executive Offices of the Company
The mailing address of the principal executive offices of
the Company is Pleasantville, New York 10570.
Record Date; Securities Entitled to be Voted at the Meeting
The record date for the Meeting is September 21, 1999. Only
shares of the Company's Class B Voting Common Stock (the "Class B
Voting Common Stock") held by holders of record at the close of
business on the record date are entitled to vote at the Meeting.
Each share of Class B Voting Common Stock is entitled to one
vote. On September 21, 1999, 21,716,057 shares of Class B Voting
Common Stock were outstanding.
The Class A Nonvoting Common Stock is not entitled to be
voted at the Meeting. Holders of Class A Nonvoting Common Stock
are receiving this Proxy Statement for information purposes only
and will not receive a proxy card.
Meeting Admittance Procedures
Only stockholders of record on the record date, or their
duly appointed proxy holders (not to exceed one per stockholder),
may attend the Meeting. If you or your proxy holder plans to
attend the Meeting, please return the longer portion of the
enclosed admission card. We will then place your name on an
admission list held at the entrance to the Meeting. Please save
the shorter portion of the admission card. You will have to
present the shorter portion of the admission card to gain
entrance to the Meeting.
If you plan to attend the Meeting and vote your shares in
person, but your shares are held in the name of a broker, trust,
bank or other nominee, you should also bring with you a proxy or
letter from the broker, trustee, bank or nominee confirming that
you beneficially own the shares.
Proxies Solicited by the Board of Directors
This Proxy Statement, and the proxy card that accompanies
the Proxy Statement to the holders of the Class B Voting Common
Stock, are first being sent or given to stockholders on or about
October 8, 1999.
The accompanying proxy card is solicited by the Board of
Directors of the Company. You may revoke your proxy by giving
written notice to the Corporate Secretary of the Company at any
time before your proxy is voted. The Board of Directors will
vote valid proxies that it receives in favor of the election of
the Board's nominees (except to the extent that authority is
withheld). The Board will vote those proxies on the management
proposals and on the stockholder proposals as stated in the
instructions in the proxy. Your presence at the meeting does not
of itself revoke the proxy.
The Company will bear the cost of the solicitation of
proxies through use of this Proxy Statement, including
reimbursement of brokers and other persons holding stock in their
names, or in the names of nominees, at approved rates, for their
expenses for sending proxy material to principals and obtaining
their proxies. The Company has retained Morrow & Co., Inc. to
solicit proxies on behalf of management for an estimated fee of
$3,500, plus reimbursement of reasonable out-of-pocket expenses.
In addition, regular employees of the Company may solicit proxies
personally, or by mail, telephone or electronic transmission,
without additional compensation.
Vote Tabulation
Abstentions and "broker non-votes" are counted as "present"
in determining whether the quorum requirement is satisfied.
Abstentions have the same effect as votes against proposals
presented to stockholders other than election of directors.
"Broker non-votes" would have no effect on any matter considered
at the Annual Meeting because they are not considered "shares
present" for voting purposes. A "broker non-vote" occurs when a
nominee holding shares for a beneficial owner votes on one
proposal, but does not vote on another proposal because the
nominee does not have discretionary voting power and has not
received instructions from the beneficial owner.
As a matter of Company practice, stockholder votes at the
Annual Meeting are tabulated on a confidential basis by
independent third parties and certain employees of the Company
involved in the tabulation process. Each stockholder proxy card
and ballot are kept confidential until the final vote is
tabulated. Disclosure may be made, however, if applicable law
requires, if the proxy card contains a stockholder comment or
question or if the proxy solicitation is contested.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
Nominees
The Board of Directors currently consists of nine members
who are elected annually to hold office until the next Annual
Meeting or until their successors are duly elected and qualified.
George V. Grune, who is currently a Director, has reached the
mandatory retirement age and is not eligible to stand for re-
election at the 1999 Annual Meeting. Consequently, the number of
Directors will be eight.
The affirmative vote of a plurality of the votes cast by the
holders of the Class B Voting Common Stock present in person or
represented by proxy and entitled to vote thereon is necessary to
elect a Director. If no contrary indication is made, proxies
will be voted for the nominees named below or, in the event any
such nominee is not a candidate or is unable to serve as a
Director at the time of the election (which is not now expected),
for any nominee who is designated by the Board of Directors to
fill such vacancy. All nominees named below are incumbent
members of the Board of Directors.
Set forth below opposite the name and age of each nominee
are the nominee's present positions and offices with the Company,
the year in which the nominee was first elected a Director of the
Company and the nominee's principal occupations during the past
five years.
Positions and Offices With the Company and
Name and Age Principal Occupations During the Past Five
Years
Thomas O. Ryder (55) Mr. Ryder has been Chairman of the Board
and Chief Executive Officer and a Director
of the Company since April 1998. Mr. Ryder
was President, American Express Travel
Related Services International, a division
of American Express Company, from October
1995 to April 1998. Prior to October 1995,
he served as President, Establishment
Services--Worldwide of American Express
Travel Related Services.
Lynne V. Cheney (58) Dr. Cheney joined the Board of Directors in
1993. She is an author and lecturer and
has been a senior fellow of the American
Enterprise Institute for Public Policy
Research since January 1993. Prior to
January 1993, she served as Chairman of the
National Endowment for the Humanities. Dr.
Cheney is also a director of IDS Mutual
Fund Group, Lockheed-Martin Corporation and
Union Pacific Resources Group, Inc.
M. Christine DeVita (49) Ms. DeVita has been a member of the Board
of Directors of the Company since 1993.
She has been President of the DeWitt
Wallace-Reader's Digest Fund, Inc. and the
Lila Wallace-Reader's Digest Fund, Inc.
since June 1989.
James E. Preston (66) Mr. Preston has been a member of the Board
of Directors of the Company since 1994. He
retired as Chairman of the Board of Avon
Products, Inc. (beauty and related
products) in May 1999, a position he had
held since January 1989; he was Chief
Executive Officer prior to July 1998, and
President prior to November 1993. Mr.
Preston also serves on the board of
directors of Aramark, Inc., Cyberian
Outpost, Inc. and Venator Group, Inc.
Lawrence R. Ricciardi (59) Mr. Ricciardi has been a member of the
Board of Directors of the Company since
1998. He is Senior Vice President and
General Counsel of International Business
Machines Corporation, a position he has
held since May 1995. Prior to May 1995,
Mr. Ricciardi was President and General
Counsel of RJR Nabisco Holdings Corp.
C.J. Silas (67) Mr. Silas has been a member of the Board of
Directors of the Company since 1992. He
retired in May 1994 as Chairman and Chief
Executive Officer of Phillips Petroleum
Company, positions he had held since 1985.
Mr. Silas is also a director of Halliburton
Company.
William J. White (61) Mr. White has been a member of the Board of
Directors of the Company since 1996. He
has been a professor at the Robert R.
McCormick School of Engineering and Applied
Sciences at Northwestern University since
January 1998. He retired as Chairman of
the Board of Bell & Howell Company
(information access and mail processing
systems) in December 1997, a position he
had held since 1990. Mr. White also served
as Chief Executive Officer of Bell & Howell
Company until March 1997 and as President
until February 1995. Mr. White is also a
director of Bell & Howell Company, Ivex
Packaging Corporation and TJ International,
Inc.
Ed Zschau (59) Mr. Zschau has been a member of the Board
of Directors of the Company since January
1999. He is a professor of management at
the Graduate School of Business
Administration of Harvard University, where
he joined the faculty in 1996. He is also
a Visiting Professor at Princeton
University. Mr. Zschau was General
Manager, IBM Corporation Storage Systems
Division of International Business Machines
Corporation from April 1993 to July 1995
and was Chairman and Chief Executive
Officer of Censtor Corp. from July 1988 to
April 1993. Mr. Zschau is also a director
of GenRad, Inc. and StarTek, Inc.
Corporate Governance Guidelines
The Board of Directors of the Company believes that the
responsibility of Directors is to oversee the management of the
Company. That responsibility includes:
- - Promoting the best interests of the Company and its
stockholders in directing the Company's business and affairs;
- - Evaluating the performance of the Company and the Chief
Executive Officer and taking appropriate action, including
removal, when warranted;
- - Selecting, evaluating and fixing the compensation of the Chief
Executive Officer and senior management of the Company and
establishing policies regarding the compensation of members of
management;
- - Reviewing succession plans and management development programs
for members of senior management;
- - Reviewing and regularly approving long-term strategic and
business plans and monitoring corporate performance against such
plans;
- - Adopting policies of corporate conduct, including compliance
with applicable laws and regulations and maintenance of
accounting, financial and other controls, and reviewing the
adequacy of compliance systems and controls;
- - Evaluating periodically the overall effectiveness of the Board;
and
- - Deciding on matters of corporate governance.
The Board has adopted guidelines to assist it in the exercise of
its responsibilities, which are summarized below.
The Board believes that, under normal circumstances, the
Chief Executive Officer of the Company should also serve as the
Chairman of the Board. The Chairman of the Board and Chief
Executive Officer is responsible to the Board for the overall
management and functioning of the Company.
It is the policy of the Board that the Chairmen of the standing
Board Committees each act as the chairman at meetings or
executive sessions of the outside Directors at which the
principal items to be considered are within the scope of the
authority of the Committee. This Board believes that this
practice provides for leadership at all of the meetings or
executive sessions of outside directors, other than the Corporate
Governance Committee, without the need to designate a "lead"
director.
The Corporate Governance Committee is composed of all of the
outside Directors and meets in executive session outside the
presence of the Chief Executive Officer and other Company
personnel during a portion of each of the Board's regular
meetings. In addition, any member of the Corporate Governance
Committee may request the Committee Chairman to call an executive
session of such Committee at any time. The Chairman of the
Corporate Governance Committee serves as the interface between
that Committee and the Chief Executive Officer in communicating
the matters discussed during outside Directors' executive
sessions.
Annually, the Corporate Governance Committee meets in executive
session to evaluate the performance of the Chief Executive
Officer. In evaluating the Chief Executive Officer, such
Committee takes into consideration the executive's performance in
both qualitative and quantitative areas, such as: leadership and
vision; integrity; keeping the Board informed on matters
affecting the Company and its operating units; performance of the
business (including such measurements as total stockholder return
and achievement of financial objectives and goals); development
and implementation of initiatives to provide long-term economic
benefit to the Company; accomplishment of strategic objectives
and development of management.
Directors have open access to the Company's management, subject
to reasonable time constraints. Senior management of the Company
routinely attend Board and Committee meetings and they and other
managers frequently brief the Board and the Committees on
particular topics. Long-term strategic and business plans are
reviewed annually at one of the Board's regularly scheduled
meetings.
The Board plans for succession to the position of Chairman and
Chief Executive Officer, and reviews and approves succession
plans for other senior management positions. The Chairman and
Chief Executive Officer annually presents to the Compensation and
Nominating Committee and the Board a report on the Company's
senior management resources, development program and succession
plan.
The Chairman and Chief Executive Officer establishes the agenda
for each Board meeting, although Board members are free to
suggest items for inclusion on the agenda. Each Director is free
to raise at any Board meeting subjects that are not on the agenda
for that meeting or future meetings. A forward agenda of matters
requiring focused attention by the Board and each Committee is
prepared and distributed prior to the beginning of each calendar
year in order to ensure that all required actions are taken in a
timely manner and are given adequate consideration. In advance
of each Board or Committee meeting, a proposed agenda is
distributed to each member. In addition, information and data
important to the members' understanding of the matters to be
considered, including background summaries of presentations to be
made at the meeting, is distributed prior to the meeting.
Directors routinely receive monthly financial statements,
earnings reports, press releases, analyst reports and other
information designed to keep them informed of the material
aspects of the Company's business, performance and prospects.
It is the general policy of the Board that all major decisions
be considered by the Board as a whole. As a consequence, the
Committee structure of the Board is limited to those Committees
considered to be basic to the operation of a publicly owned
company. A substantial portion of the analysis and work of the
Board is done by standing Board Committees. A Director is
expected to participate actively in the meetings of each
Committee to which he or she is appointed. The Board has
established the following standing Committees: Audit;
Compensation and Nominating; Finance; and Corporate Governance.
The Compensation and Nominating Committee, with direct input
from the Chief Executive Officer, recommends to the Board the
membership of the various Committees and their Chairmen, and the
Board approves the Committee assignments. The Chairmen of the
standing Committees are to be rotated at least every three-to-
four years. In making its recommendations to the Board, such
Committee takes into consideration the need for continuity,
subject matter expertise, tenure and the desires of individual
Board members. It is the policy for the Board that only non-
employee Directors serve on the standing Committees. A Director
who is part of an interlocking directorate (i.e., one in which
the Chief Executive Officer or another executive officer of the
Company serves on the board of another corporation that employs
the Director) may not serve on the Compensation and Nominating
Committee. The composition of the Compensation and Nominating
Committee is reviewed annually to ensure that each of its members
meet the criteria set forth in applicable Securities and Exchange
Commission and Internal Revenue Service rules and regulations.
Board of Directors and Committees; Responsibilities and Meetings
During the Company's fiscal year ended June 30, 1999, its
Board of Directors held 10 meetings. The Board of Directors of
the Company has an Audit Committee, a Compensation and Nominating
Committee, a Corporate Governance Committee and a Finance
Committee.
The Audit Committee, which met four times during the 1999
fiscal year, is composed of Dr. Cheney (Chairman), Mr. Grune, Mr.
Ricciardi and Mr. White. Its functions include: recommending
annually to the Board of Directors a firm of independent
accountants to audit and review the Company's books and records
and approving the scope of such firm's audit; reviewing the
adequacy of the Company's internal controls and auditing
procedures; reviewing the appropriateness of and effect of
changes in the Company's accounting principles and auditing
procedures; reviewing the Company's ethics policies and
procedures; and reviewing, approving and recommending to the
Board the Company's annual financial statements.
The Corporate Governance Committee met nine times during the
1999 fiscal year. The Committee is composed of all of the non-
employee Directors. Its functions include: reviewing governance
matters; evaluating the performance of the Chief Executive
Officer; reviewing succession planning and management development
activities; and reviewing other internal matters of broad
corporate significance.
The Compensation and Nominating Committee, which met eight
times during the 1999 fiscal year, consists of Messrs. Silas
(Chairman), Preston and White. The Committee's functions include
administering certain employee benefit plans; recommending the
amount and form of any contribution to The Reader's Digest
Employee Ownership Plan and the 401(k) Partnership; reviewing the
compensation levels and programs for officers and key personnel
and determining incentive compensation for employees of the
Company and its subsidiaries; and reviewing and recommending
candidates and nominees for election to the Board of Directors.
The Finance Committee, which met twice during the 1999
fiscal year, is comprised of Ms. DeVita (Chairman) and Messrs.
Grune, Ricciardi and Zschau. The Finance Committee's functions
include overseeing the financial affairs of the Company, such as
the Company's investment policies and programs and those of its
employee benefit plans; and advising the Board with respect to
corporate financial policies and procedures, dividend policy,
financing plans and budgets, foreign exchange management, tax
planning and insurance coverage.
All members of the Board attended at least 75% of the
aggregate of (1) the total number of meetings of the Board held
during the period in the 1999 fiscal year that he or she was a
Director and (2) the total number of meetings held by all
committees of the Board on which he or she served during the
period in the fiscal 1999 year that he or she served.
Compensation of Directors
Non-employee Directors receive an annual retainer in stock
and cash. The stock retainer consists of shares of Class A
Nonvoting Common Stock equal to $32,000, valued at the average of
the closing price on the 20 trading days preceding the first
trading day of each calendar year and paid on that date. A cash
retainer of $18,000 for non-employee Directors, with an
additional $3,000 for each Committee Chairman, is paid in
quarterly installments. Each individual who became a non-
employee Director prior to April 1, 1998 and who serves as a non-
employee Director for more than five years will, upon retirement
from the Board, continue to receive annual compensation in the
amount of $32,000. Individuals who became non-employee Directors
on or after April 1, 1998 receive additional stock and cash while
serving as a non-employee Director in lieu of retirement
payments. The additional stock consists of shares of Class A
Nonvoting Common Stock equal to $20,000, valued at the average of
the closing price on the 20 trading days preceding the first
trading day of each calendar year and paid on that date. The
additional cash amount equals $12,000 and is paid in quarterly
installments.
Under the Deferred Compensation Plan for Non-Employee
Directors of The Reader's Digest Association, Inc., non-employee
Directors are eligible to defer payment of 50%, 75% or 100% of
their cash compensation for certain established deferral periods.
Deferred compensation is credited to an unfunded account for each
participant, on which interest accrues at a rate determined by a
committee comprised of Directors who are not eligible to
participate in the plan. Payment of the deferred amounts will be
made, at the election of the participant, in a lump sum or in
annual installments of from one to 10 years.
Active and retired Directors and their spouses are eligible
to participate in the Reader's Digest Foundation Matching Gift
Program whereby contributions up to $5,000 a year to eligible
organizations are double matched by the Foundation.
EQUITY SECURITY OWNERSHIP
Principal Stockholders
The following table shows, based on information reported to
the Company by or on behalf of such persons, the ownership, as of
September 21, 1999, of the Company's voting securities by the
only persons known to the Company to be the beneficial owners of
more than five percent of the Class B Voting Common Stock, the
only class of voting securities of the Company outstanding:
Amount and nature
Name and address of beneficial owner of beneficial Percent of
ownership class
DeWitt Wallace-Reader's Digest Fund, Inc. 7,750,000 shares 35.69%
Two Park Avenue (sole voting and
New York, NY 10016 (1) investment power)
Lila Wallace-Reader's Digest Fund, Inc. 7,750,000 shares 35.69%
Two Park Avenue (sole voting and
New York, NY 10016 (1) investment power)
State Street Bank and Trust Company, 1,716,057 shares 7.90%
as trustee of The Reader's Digest Employee (shared voting and
Ownership Plan and the 401(k) Partnership investment power)
(2)
Gabelli Funds, LLC (3) 754,000 shares 3.47%
One Corporate Center (sole voting and
Rye, NY 10580 investment power)
GAMCO Investors Inc. (3) 610,900 shares 2.81%
One Corporate Center (sole voting and
Rye, NY 10580 investment power)
Gemini Capital Management Ltd. (3) 35,500 shares 0.17%
c/o Appleby, Spurling & Kempe (sole voting and
Cedar House, 41 Cedar Avenue investment power)
Hamilton HM12 Bermuda
(1) As of September 21, 1999, the DeWitt Wallace-Reader's Digest
Fund, Inc. (the "DeWitt Wallace Fund") also owned 5,942,240
shares of Class A Nonvoting Common Stock, which, together with
its holding of Class B Voting Common Stock, represented 12.71%
of the total outstanding common stock of the Company. The
Lila Wallace-Reader's Digest Fund, Inc. (the "Lila Wallace
Fund" and, together with the DeWitt Wallace Fund, the "Funds")
also owned 2,314,558 shares of Class A Nonvoting Common Stock,
which, together with its holding of Class B Voting Common
Stock, represented 9.35% of the total outstanding common stock
of the Company. The Company and the Funds have completed an exchange
of shares pursuant to a Share Exchange Agreement dated as of
September 24, 1999 as described in Proposal No. 5 below.
(2) State Street Bank and Trust Company ("State Street") is
trustee of the Trust created by the Trust Agreement amended
and restated as of July 1, 1992 between The Reader's Digest
Association, Inc. and State Street, as trustee, relating to
The Reader's Digest Employee Ownership Plan and the 401(k)
Partnership (the "Employee Ownership/401(k) Plan"). According
to the Schedule 13G filed with the Securities and Exchange
Commission by State Street in such capacity, State Street may
be deemed to have shared voting and shared dispositive power
over the shares listed, but has disclaimed beneficial
ownership of all such shares.
(3) As reported on a Schedule 13D filed with the Securities
and Exchange Commission by Mario J. Gabelli, Marc J. Gabelli
and various entities that either one directly or indirectly
controls or for which either one acts as chief investment
officer.
Each of the Funds has five members and a board consisting of
five directors. Ms. DeVita and Messrs. Grune and Silas, who are
Directors of the Company, are also members and directors of each
of the Funds.
Directors, Nominees and Executive Officers
The following table shows, as to the current Directors and
nominees individually, the Named Executive Officers (as listed in
the Summary Compensation Table) and the current Directors and
executive officers of the Company as a group, the equity
securities of the Company that were beneficially owned by them as
of September 21, 1999 (except as otherwise noted below).
Shares of
Class A Nonvoting
Name of beneficial owner(1)(2) Common Stock
Thomas O. Ryder 1,010,500(3)(4)
Lynne V. Cheney 3,380
M. Christine DeVita 3,200
George V. Grune 193,100(5)
James E. Preston 6,200
Lawrence R. Ricciardi 3,250
C.J. Silas 3,200
William J. White 6,200
Ed Zschau 1,950
M. John Bohane 52,477(3)
Gregory G. Coleman 90,414(3)
George S. Scimone 85,564(3)
Christopher P. Willcox 79,350(3)
All current Directors, nominees and
executive officers as a group
(20 persons) 1,694,837(3)(4)(5)
(1)"Beneficial ownership" has been determined in accordance
with rule 13d-3 under the Securities Exchange Act of 1934.
Each Director, nominee or officer had sole voting and
investment power over the shares shown, except as noted below.
Mr. Ryder beneficially owned 1.17% of the total outstanding
shares of Class A Nonvoting Common Stock. Each other
Director, nominee or Named Executive Officer beneficially
owned less than 1% of the total outstanding shares of Class A
Nonvoting Common Stock. All Directors, nominees and executive
officers as a group owned 1.97% of the total outstanding
shares of Class A Nonvoting Common Stock.
(2) Other than as indicated in footnote 3 below, no Director,
nominee or executive officer holds any shares of Class B
Voting Common Stock or any shares of preferred stock of the
Company. Ms. DeVita and Messrs. Grune and Silas are members
and directors of the Funds, which together beneficially own
10.01% of the Class A Nonvoting Common Stock and 71.38% of the
outstanding Class B Voting Common Stock. See "Principal
Stockholders."
(3) Includes shares of Class A Nonvoting Common Stock underlying
presently exercisable stock options as follows: Mr. Ryder,
652,500; Mr. Bohane, 42,000; Mr. Coleman, 80,975; Mr. Scimone,
75,025; Mr. Willcox, 72,650; and all Directors, nominees and
current executive officers, 1,051,775. Includes restricted
shares of Class A Nonvoting Common Stock as follows: Mr. Ryder,
238,668; Mr. Bohane, 9,500; Mr. Coleman, 6,700; Mr. Scimone,
7,000; Mr. Willcox, 6,700; and all Directors, nominees and
current executive officers, 287,168. See "Executive
Compensation-Summary Compensation Table." Does not include
22,003 shares of Class B Voting Common Stock over which members
of the group have voting authority as a result of their
participation in the Employee Ownership/401(k) Plan.
(4) Includes 470,000 shares underlying options held by The
Thomas O. Ryder 1998 Family Trusts.
(5) Includes 25,000 shares owned by the Grune Family
Foundation, as to which Mr. Grune disclaims beneficial
ownership.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information for each of the
fiscal years ended June 30, 1999, 1998 and 1997 concerning the
compensation of the individuals whose compensation is required to
be disclosed pursuant to Securities and Exchange Commission
regulations (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual compensation Long-term compensation Pay-
Awards(1) outs
Fiscal
Year Restricted Options/ LTIP All
Name and principal position Ended stock SARs pay- Other
June 30 Salary Bonus awards # outs Compensation(2)
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas O. Ryder 1999 $700,000 $1,328,750 $0 0 $0 $354,550(5)
Chairman and Chief Executive 1998 $131,923 $0 $9,218,500(4) 1,080,000 $0 $0
M. John Bohane 1999 $483,077 $409,450 $0 680,000 $0 $4,550
President, Global Books and 1998 $330,769 $142,000 $255,906(7) 100,000 $0 $6,084
Home Entertainment and Senior
Gregory G. Coleman 1999 $381,231 $292,600 $0 44,100 $0 $4,550
President, U.S. Magazine 1998 $347,923 $165,500 $180,481(7) 60,000 $0 $6,084
Publishing and Senior Vice
George S. Scimone 1999 $349,000 $292,600 $0 44,100 $0 $4,550
Senior Vice President and 1998 $330,538 $89,200 $188,563(7) 84,000 $0 $6,084
Chief Financial Officer (9) 1997 $271,808 $0 0(10) $0 $75,838(11)
Christopher P. Willcox 1999 $315,769 $280,800 $0 44,100 $0 $4,550
Senior Vice President and 1998 $265,000 $83,100 $180,481(7) 84,000 $0 $6,084
Editor-in-Chief, Reader's 1997 $265,000 $0 0(10) $0 $7,000
Digest Magazine
</TABLE>
(1) All awards are made in or with respect to shares of Class A
Nonvoting Common Stock.
(2) Consists of amounts contributed by the Company to the
Employee Ownership/401(k) Plan for the accounts of the Named
Executive Officers, except as otherwise noted below.
(3) Mr. Ryder joined the Company as Chairman of the Board and
Chief Executive Officer in April 1998.
(4) Represents 358,000 shares of restricted stock granted in
connection with the commencement of Mr. Ryder's employment.
These shares vest as follows: 59,666 shares on September 30,
1998, 59,666 shares on each of December 31, 1998 and 1999, and
89,501 shares on each of June 30, 2000 and 2002. Mr. Ryder is
entitled to retain dividends paid on these shares. The
restricted stock shown in the table is valued at the closing
price of the Class A Nonvoting Common Stock on the NYSE on April
28, 1998, the date of grant. As of June 30, 1999, Mr. Ryder held
an aggregate of 238,668 shares of restricted stock, valued at
$9,487,053, based on the closing price of the Class A Nonvoting
Common Stock on the NYSE on that date. See "Employment
Agreements."
(5) Includes a $350,000 payment made on September 14, 1998 to
replace a forfeited bonus opportunity from Mr. Ryder's previous
employer. See "Employment Agreements."
(6) Mr. Bohane, who served as President, Direct Marketing of
the Company until April 1991, returned to the Company as a Senior
Vice President of the Company and President, International
Operations in September 1997. Mr. Bohane became President,
Global Books and Home Entertainment in July 1998.
(7) Represents shares of restricted stock. These shares vest
on April 9, 2000, the second anniversary of their grant. Holders
of these shares are entitled to retain dividends paid on these
shares. The restricted stock shown in the table is valued at the
closing market price of the Class A Nonvoting Common Stock on the
NYSE on the date of grant. As of June 30, 1999, the Named
Executive Officers held the shares of restricted stock shown in
the table, which were valued as follows, based on the closing
price of the Class A Nonvoting Common Stock on the NYSE on that
date: Mr. Bohane, $377,625; Mr. Coleman, $266,325; Mr. Scimone,
$278,250; and Mr. Willcox, $266,325.
(8) Mr. Coleman, who is currently a Senior Vice President of
the Company and President, U.S. Magazine Publishing, was Senior
Vice President and Worldwide Publisher from October 1997 to July
1998.
(9) Mr. Scimone, who is currently Senior Vice President and
Chief Financial Officer, was Vice President and Chief Financial
Officer from September 1997 to July 1998, Vice President of the
Company and President of Reader's Digest U.S.A. from November
1996 to September 1997, and Vice President and Corporate
Controller from September 1995, when he joined the Company, to
November 1996.
(10) No options or SARs were awarded in 1997 to executive
officers who had previously received multi-year grants.
(11) Consists of $63,333 in incentive compensation paid in
connection with Mr. Scimone's commencement of employment and
$12,505 in tax reimbursement related to relocation.
Stock Options and SARs Granted in Last Fiscal Year
The following table sets forth information concerning stock
options and stock appreciation rights granted during the fiscal
year ended June 30, 1999 to the Named Executive Officers.
<TABLE>
<CAPTION>
Individual grants
Potential realizable
Percent value at assumed annual rates of stock
of total price appreciation for option/SAR term(2)
options/
Option SARs Exercise
s/ granted to or
SARs employees Base Expiration
Name granted in fiscal price Date 0% 5%(3) 10%(4)
(#)(1) year ($/sh)
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas O. Ryder 0(5) $0 $0
M. John Bohane 68,000 2.68% 18.97 9/20/08 $0 $811,240 $2,055,640
Gregory G. Coleman 44,100 1.74% 18.97 9/20/08 $0 $526,113 $1,333,143
George S. Scimone 44,100 1.74% 18.97 9/20/08 $0 $526,113 $1,333,143
Christopher P. Willcox 44,100 1.74% 18.97 9/20/08 $0 $526,113 $1,333,143
All Common -- -- -- -- $0 $1,284,779,639 $3,255,883,857
Stockholders(6)
</TABLE>
(1) All options and SARs are granted with respect to Class A
Nonvoting Common Stock. The options vest with respect to 25% of
the related shares on each of the first four anniversaries of
the grant date.
(2) The values shown are based on the assumed hypothetical
compound annual appreciation rates of 5% and 10% prescribed by
Securities and Exchange Commission rules. These hypothetical
rates are not intended to forecast either the future
appreciation, if any, of the price of Class A Nonvoting Common
Stock or the values, if any, that may actually be realized upon
such appreciation, and there can be no assurance that the
hypothetical rates will be achieved. The actual value realized
upon exercise of an option or SAR will be measured by the
difference between the price of the Class A Nonvoting Common
Stock and the exercise price on the date the option or SAR is
exercised.
(3) For the values stated in this column to be realized, the
price of the Class A Nonvoting Common Stock would have to
appreciate from $18.97 to $30.90 during the 10-year option term.
(4) For the values stated in this column to be realized, the
price of the Class A Nonvoting Common Stock would have to
appreciate from $18.97 to $49.20 during the 10-year option term.
(5) No stock options were granted to Mr. Ryder during fiscal
1999 as a result of the grants he received in April 1998 in
connection with his employment.
(6) For "All Common Stockholders," the potential realizable values
have been calculated on the basis of the same price at which
stock options and SARs were granted to the Named Executive
Officers and on the basis of the total number of shares of
Class A Nonvoting Common Stock and Class B Voting Common
Stock outstanding on June 30, 1999. An increase in the price
of the Class A Nonvoting Common Stock will benefit all
holders of such stock and all option holders commensurately.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values
The following table sets forth information concerning stock
options and SARs exercised during the fiscal year ended June 30,
1999 and the fiscal year-end value of unexercised options and
SARs for the Named Executive Officers.
<TABLE>
<CAPTION>
Number of unexercised Value of unexercised
options/SARs at fiscal in-the-money options/SARs
Shares year end at fiscal year end
acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Thomas O. Ryder -- -- 652,500 427,500 $9,193,725 $6,023,475
M. John Bohane -- -- 12,500 105,500 $228,500 $2,098,540
Gregory G. Coleman -- -- 62,450 90,850 $185,557 $1,327,698
George S. Scimone -- -- 26,250 115,050 $210,784 $1,548,749
Christopher P. Willcox -- -- 51,125 88,200 $191,940 $1,492,218
</TABLE>
Long-Term Incentive Plans - Awards in Last Fiscal Year
The following table sets forth information concerning long-term
incentive plan awards made during the fiscal year ended June 30,
1999 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
Performance Estimated future payouts under non-stock
Number of or other price- based plans
shares, period until
units maturation or
Name or other payout Threshold(2) Target(2) Maximum(2)
rights(1)
<S> <C> <C> <C> <C> <C>
Thomas O. Ryder 17,889 7/1/98 - 6/30/00 8.945 17,889 53,667
17,889 7/1/98 - 6/30/01 8.945 17,889 53,667
M. John Bohane 10,733 7/1/98 - 6/30/00 5,367 10,733 32,199
10,733 7/1/98 - 6/30/01 5,367 10,733 32,199
Gregory G. Coleman 5,581 7/1/98 - 6/30/00 2,791 5,581 16,743
5,581 7/1/98 - 6/30/01 2,791 5,581 16,743
George S. Scimone 5,581 7/1/98 - 6/30/00 2,791 5,581 16,743
5,581 7/1/98 - 6/30/01 2,791 5,581 16,743
Christopher P. Willcox 5,581 7/1/98 - 6/30/00 2,791 5,581 16,743
5,581 7/1/98 - 6/30/01 2,791 5,581 16,743
</TABLE>
(1) Represents awards of Performance Shares under the 1994 Key
Employee Long Term Incentive Plan. Performance Shares are
awards of shares of Class A Nonvoting Common Stock (subject to
such transfer restrictions and other restrictions as the
Compensation and Nominating Committee may determine) or the
value of such shares based on the average closing price of the
Class A Nonvoting Common Stock over the last 20 trading days
of the applicable Performance Cycle.
(2) Threshold, target or maximum award payouts are based on the
Company's achievement during the Performance Cycle of
performance goals relating to reengineering, operating income
and earnings per share objectives.
Retirement Plans
The Company maintains The Reader's Digest Association, Inc.
Retirement Plan (the "Qualified Retirement Plans"), which
provides benefits for eligible employees. Through June 30, 1999,
the Qualified Retirement Plan was structured as a traditional
defined benefit plan with benefits determined primarily by
average final compensation and years of service. Effective July
1, 1999, the Qualified Retirement Plan was amended so that the
present value of accrued benefits under the Qualified Retirement
Plan was converted to a cash balance account.
Under the amended Qualified Retirement Plan, each
participant's account is credited with a percentage of the
participant's base pay paid in that month. The percentage is
determined by the age of the participant. The following table
shows the percentages used to determine credits at the ages
indicated.
Age Percentage
Under 30 3%
30-34 4%
35-39 5%
40-44 6%
45-49 8%
50-54 10%
Over 54 12%
As of July 1, 1999 the ages of the Named Executive Officers were
the following: Mr. Ryder, 55; Mr. Bohane, 63; Mr. Coleman, 45;
Mr. Scimone, 52; and Mr. Willcox, 52.
In addition, each participant's cash balance account is credited
with interest on a monthly basis. The amount of interest is
computed by multiplying the value of the cash balance account as
of the beginning of the month by the average yield on one-year
Treasury Constant Maturities during the thirteen weeks ending
with the last Friday of the preceding calendar quarter plus 100
basis points divided by 12. For the second calendar quarter of
1999, the monthly interest credit is 0.4883 percent.
Amounts calculated under the retirement formula that exceed the
limits under the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), will be paid under the Excess Benefit
Retirement Plan of The Reader's Digest Association, Inc. (the
"Excess Benefit Plan") from the Company's assets.
At retirement or other termination of employment, an amount
equal to the vested balance then credited to the account is
payable to the participant in the form of an immediate or
deferred lump sum or an equivalent annuity. The estimated annual
benefits payable under the Qualified Retirement Plan and the
Excess Benefit Plan at normal retirement age for each of the
Named Executive Officers is as follows: Mr. Ryder, $130,541; Mr.
Bohane, $276,150; Mr. Coleman, $211,941; Mr. Scimone, $104,018
and Mr. Willcox, $151,481.
Effective July 1, 1992, the Company adopted The Reader's Digest
Executive Retirement Plan (the "1992 Executive Retirement Plan").
Benefits under the 1992 Executive Retirement Plan are based on
compensation (consisting of salary and bonus) and years of
service. Benefits are reduced by benefits payable under the
Qualified Retirement Plan, the Excess Benefit Retirement Plan and
certain other Company-provided retirement benefits. Because of
the nature of the interdependency among the 1992 Executive
Retirement Plan, the Qualified Retirement Plan and the Excess
Benefit Plan, it is not possible to present estimated benefits
under the 1992 Executive Retirement Plan in tabular format.
Benefits payable under the 1992 Executive Retirement Plan, after
the reductions for benefits payable under other plans, are
currently estimated at $755,210 for Mr. Ryder, $29,133 for Mr.
Bohane, $70,769 for Mr. Coleman, $107,935 for Mr. Scimone, and
$55,789 for Mr. Willcox. These amounts are based on the
assumption that payment under the 1992 Executive Retirement Plan
will commence upon retirement at age 65, that the 1992 Executive
Retirement Plan will continue in force in its present form and
that benefits will be paid in the form of a single life annuity.
The Company is a party to supplemental retirement benefit
agreements with certain key employees. Pursuant to the agreement
with Mr. Bohane, he is receiving a benefit of $38,360 for 15
years from his original early retirement date of August 1991.
The Company has agreed to pay death benefits under such
agreements. The agreement with Mr. Coleman provides that he will
receive supplemental retirement benefits of $75,926 per year for
15 years at age 65.
Employment Agreements
On April 28, 1998, the Company entered into an employment
agreement with Mr. Ryder as Chairman of the Board and Chief
Executive Officer of the Company (the "Ryder Agreement"). The
Ryder Agreement has an initial term of three years, which may be
terminated earlier under certain circumstances. At the end of
the initial three-year period, the term is subject each year to
an automatic extension of one year unless one party notifies the
other of its intent to terminate the Ryder Agreement.
As reimbursement for the compensation and benefits that Mr.
Ryder forfeited upon termination of his employment with his
previous employer, Mr. Ryder received the following upon
execution of the Ryder Agreement: (i) stock options in respect
of 470,000 shares of Class A Nonvoting Common Stock, which were
fully vested and exercisable as of the date of grant; (ii) stock
options in respect of 360,000 shares of Class A Nonvoting Common
Stock, which become vested and exercisable with respect to one-
third of such shares on each of the first three anniversaries of
the grant date; and (iii) 358,000 shares of restricted Class A
Nonvoting Common Stock, of which 59,666 shares will vest on
September 30, 1998, 59,666 shares will vest on each of December
31, 1998 and December 31, 1999 and 89,501 shares will vest on
each of June 30, 2000 and June 30, 2001 (collectively, the
"Replacement Equity Compensation"). All of the stock options
have an exercise price of $25.66 per share, the fair market value
for such shares on April 28, 1998, the date of grant. Mr. Ryder
also received a cash payment of $350,000 on September 14, 1998 to
replace the bonus opportunity he forfeited in respect of the
first six months of calendar 1998.
Pursuant to the Ryder Agreement, Mr. Ryder will receive an
annual base salary of $700,000 and an annual bonus under the
Company's annual incentive compensation plan. As provided for
under the Ryder Agreement, on April 28, 1998, Mr. Ryder received
stock options in respect of 250,000 shares of Class A Nonvoting
Common Stock at an exercise price of $25.66 per share, the fair
market value for such shares on the date of grant. In accordance
with the Company's current policy, the stock options become
vested and exercisable with respect to one-fourth of such shares
on each of the first four anniversaries of the date of grant.
Future awards of stock options will be granted to Mr. Ryder at
the discretion of the Compensation and Nominating Committee as
part of the Company's annual stock option program. Under the
Ryder Agreement, Mr. Ryder is entitled to all of the employee
benefits, fringe benefits and perquisites provided by the Company
to other senior executives.
The Agreement provides that in the event Mr. Ryder's employment
is terminated by the Company without "cause" or by Mr. Ryder with
"good reason" (a "Qualifying Termination"), the Company will pay
to Mr. Ryder an amount in cash equal to three times base salary
plus two times annual bonus. The latter component of the
severance payment must equal the greater of (i) the highest
annual bonus paid to Mr. Ryder during the three years preceding
his termination and (ii) the originally approved target amount of
the highest award under the Management Incentive Compensation
Plan outstanding on the date of termination. In the event Mr.
Ryder's employment is terminated as the result of his death or
"disability," all of his outstanding and unvested stock options
and restricted stock shall become immediately vested. In the
event of a Qualifying Termination, all of his stock options and
shares of restricted stock that are unvested as of the date of
such termination will continue to vest during the two-year period
immediately following the date of termination. In addition, to
the extent unvested, the last tranche of the Replacement Equity
Compensation shall vest as of the last day of such two-year
period. If Mr. Ryder's employment is terminated other than by
the Company for cause or by Mr. Ryder without good reason, Mr.
Ryder and his beneficiaries will be entitled to continued welfare
benefits for a period of two years.
Under the Ryder Agreement, if Mr. Ryder's employment is
terminated on or after age 60 for any reason other than for
cause, the Company must pay Mr. Ryder (or, if the event of
termination is his death, his estate) an amount equal to the
difference between (x) the monthly retirement benefit Mr. Ryder
would accrue (without regard to vesting) under the Qualified
Retirement Plan, the Excess Benefit Retirement Plan and the
Executive Retirement Plan, or replacements for those plans, based
on his actual service with the Company plus, if Mr. Ryder's
employment is terminated either by the Company without cause or
by him for good reason, two years, and (y) the amount that he (or
his beneficiary) actually receives under such plans. Any such
amount will be payable at the same time and in the same form as
such payments would have been made under the Qualified Retirement
Plan, but will not be subject to any requirements of vesting or
any forfeitures. In the event Mr. Ryder's employment is
terminated prior to age 60 either by the Company without cause or
by Mr. Ryder for good reason, Mr. Ryder will be credited with two
additional years of credited service for all purposes (including
eligibility and vesting) under the Executive Retirement Plan.
If, after taking into consideration such additional credited
service, Mr. Ryder is not deemed to have been terminated after
the date on which his age plus years of service equals at least
65 (the "Early Retirement Date"), Mr. Ryder (or his beneficiary)
will receive a lump sum payment in the amount of the equivalent
actuarial value (as determined under the Qualified Retirement
Plan) of pension credits that would have been earned under the
Executive Retirement Plan through the end of the two-year
severance period. If after taking into consideration the two
additional years of credited service, Mr. Ryder is deemed to have
been terminated after his Early Retirement Date (and, in fact,
was terminated prior to age 60), Mr. Ryder will receive a benefit
under the terms of the Executive Retirement Plan in the form of a
life annuity. In the event Mr. Ryder's employment is terminated
prior to age 60 for any reason other than by the Company without
cause or by Mr. Ryder for good reason, Mr. Ryder will be entitled
to receive benefits under the terms of the Qualified Retirement
Plan, the Excess Benefit Retirement Plan and the Executive
Retirement Plan that generally apply to other senior executives.
The Ryder Agreement also provides that Mr. Ryder will be a
participant in the Severance Plan and the Income Continuation
Plan described below under "Severance Arrangements" and "Income
Continuation Plan." Benefits paid under those plans will be
credited against termination benefits payable under the Ryder
Agreement.
Under the terms of The Reader's Digest Association, Inc. 1989
Key Employee Long Term Incentive Plan and The Reader's Digest
Association, Inc. 1994 Key Employee Long Term Incentive Plan (the
"1994 Long Term Incentive Plan"), in the event of a "change in
control" of the Company, all unvested stock options held by Mr.
Ryder will become immediately vested and exercisable and all
restrictions on shares of restricted stock held by Mr. Ryder will
immediately lapse. All of the stock options and restricted stock
held by Mr. Ryder as of the record date were granted under the
1994 Long Term Incentive Plan. Under both the 1994 Long Term
Incentive Plan and the Ryder Agreement, benefits to which Mr.
Ryder becomes entitled in connection with a change in control
will be reduced to the extent necessary to prevent any portion of
those benefits from being considered "excess parachute payments"
under Section 280G of the Internal Revenue Code, when considered
alone or in combination with any payments otherwise payable to
Mr. Ryder upon a change in control.
Severance Arrangements
The Company's Severance Plan covers all U.S. corporate employees
and the amount of the benefits is dependent upon the employee's
grade level and years of service. Under the Severance Plan, any
of the Named Executive Officers whose employment is terminated by
the Company other than for "cause" (as defined), for death or
disability or in connection with certain change-of-control
events, will be entitled to receive severance payments in the
amount of four weeks of base pay for each completed year of
service up to a maximum of 78 weeks of base pay with a minimum of
52 weeks of base pay.
The Company has entered into termination agreements with Messrs.
Bohane, Coleman, Scimone and Willcox and certain other key
employees of the Company. Each agreement provides generally
that, if the employee's employment is terminated by the employee
for "good reason" or by the Company except for "cause" (as such
terms are defined in the agreement), the employee will be
entitled to receive for a severance period of two years from
termination (1) bi-weekly severance payments at the rate of the
employee's highest annual base salary within 12 months plus the
higher of the highest annual bonus within three years of
termination or the current annual bonus target and (2) benefits
equivalent to continued participation in the Employee
Ownership/401(k) Plan and all welfare employee benefit plans.
Each agreement also provides for the inclusion of the severance
period for purposes of credited service and age under the
Qualified Retirement Plan, the Excess Benefit Retirement Plan and
the 1992 Executive Retirement Plan and for the continued vesting
of stock option, stock appreciation rights, restricted stock,
performance units and other awards under the Company's long-term
incentive plans during the severance period, exercisability of
options and stock appreciation rights thereafter consistent with
termination by mutual agreement or retirement, and prorated
performance unit payments (to the extent performance goals are
met) based on service through the end of the severance period.
Benefits paid under the Severance Plan and under the Income
Continuation Plan discussed below will be credited against
benefits payable under each agreement.
Income Continuation Plan
Under The Reader's Digest Association, Inc. Income Continuation
Plan for Senior Management (the "Income Continuation Plan"), each
of certain officers and key employees of the Company, including
the Named Executive Officers, whose employment is terminated
involuntarily (other than for cause, disability, retirement or
death) within 24 months following a change in control of the
Company, or who terminates employment within 90 days following
constructive termination and within 24 months following a change
in control of the Company, will be entitled to receive a payment
of three full years' base annual salary in effect immediately
prior to termination or, if higher, immediately prior to the
change in control. Any benefits payable under the Income
Continuation Plan will be reduced by any payments made under the
Severance Plan and any monthly retirement benefit actually paid
under the Qualified Retirement Plan. A participant will also be
entitled to certain additional benefits, including a supplemental
payment equal to the difference between the participant's monthly
retirement benefits under the Qualified Retirement Plan, the
Excess Benefit Plan and the 1992 Executive Retirement Plan and
the amounts that would have been payable if the participant's
credited service under such plans had included the number of
months of benefit payments under the Income Continuation Plan
(reduced by any months of benefit under the Severance Plan). In
addition, the participant will be entitled to receive a lump-sum
payment equal to three times the average of the three highest of
the five preceding annual cash bonuses awarded to the
participant. Benefits under the Income Continuation Plan will be
reduced to the extent necessary to prevent any portion of such
benefits from being considered "excess parachute payments" under
Section 280G of the Internal Revenue Code, when considered alone
or in combination with any payments otherwise payable to the
participant upon a change in control.
Stock options, SARs, performance units, performance shares,
restricted stock and other awards under The Reader's Digest
Association, Inc. Key Employee Long Term Incentive Plans also
generally become immediately vested upon a change in control.
REPORT OF THE COMPENSATION AND NOMINATING COMMITTEE
Executive Compensation Philosophy
The Company's executive compensation program is designed to
offer market competitive compensation opportunities, which are
tied to individual, financial and stock performance. The
purposes of the program are to:
- - Retain and attract high caliber executive talent critical to
the success of the Company.
- - Direct executive attention on performance measures that are
important to stockholders.
- - Reward executives for performance improvement in financial
measures, which lead to increases in the return to stockholders.
- - Promote stock ownership to foster commonality of interests
between executives and stockholders.
The Company's executive compensation philosophy is to
provide total compensation opportunities competitive with those
provided in the markets in which the Company competes for
business and for executive resources. The principal objective of
the executive compensation program is to attract and retain top
caliber executive talent and to motivate and reward the
achievement of exceptional performance results. The Company is
committed to placing a majority of total compensation at risk by
linking incentives to stock performance and to the achievement of
financial, operational and strategic goals. In addition, the
program attempts to recognize and reward exceptional individual
contributions.
The Company's incentive compensation programs for executive
officers are designed to reward participants on the basis of
individual and corporate performance that benefit the Company and
its stockholders. The Compensation and Nominating Committee (the
"Committee") believes that it is desirable for executive
compensation to be deductible for federal income tax purposes,
but only to the extent that achieving deductibility is
practicable, consistent with the Company's overall compensation
objectives, and in the best interests of the Company and its
stockholders. Accordingly, although the Committee retains
discretion to provide compensation programs intended to achieve
corporate goals regardless of tax deductibility, the Committee
may from time to time take appropriate action intended to qualify
compensation as "performance based" for tax deductibility as
within the meaning of Section 162(m) of the Internal Revenue Code
or action that results in the disqualification of compensation.
Executive Compensation Program Components
The principal components of the executive compensation
program are: base salary, annual incentive bonus and long-term
incentive compensation. The Company annually reports to the
Committee on the competitiveness of the level and structure of
total annual executive compensation, specifically, as it compares
to that of a selected group of peer companies with which the
Company competes for business and for executive talent. These
peer companies include but are not limited to those media and
publishing companies reflected in the performance graph appearing
elsewhere in this Proxy Statement. The Company regularly
receives advice from an independent compensation consultant in
structuring compensation plans and setting compensation levels.
Periodically, the Committee meets with an outside consultant to
assess the competitiveness of the executive compensation program
and its effectiveness in linking pay to total stockholder return.
Base Salary
Base salaries are targeted at the 50th percentile of
competitive market data. Salary opportunities are set by annual
comparison to external rates of pay for comparable positions.
Annually, the Committee reviews and approves individual salary
adjustments for executive officers and members of senior
management. Salary increases are based on a consideration of
individual performance and competence, value-added contributions,
changes in responsibility, as well as general movement in
external salary levels. Decisions regarding salary adjustments
for executive officers and senior management are consistent with
the salary increase guidelines in effect for all employees,
established each year by the Company. The annual salary increase
guidelines are consistent with competitive salary management
practices. It is the Committee's belief that base salary
increases should not be the primary source of compensation growth
for senior executives.
Following a competitive review of senior management total
compensation, and taking into account performance and individual
contributions, the Committee approved base salary adjustments for
fiscal 1999 for executive officers and certain members of senior
management. The increases were in line with competitive salary
movement and were in accordance with the Company's annual salary
increase guidelines.
Annual Bonus
Annual performance incentives are designed to reinforce the
Company's risk/reward orientation, and to focus the attention of
participants on achieving performance targets. Annual bonus
targets under the Management Incentive Compensation Plan (MIP)
are set at the 50th percentile of competitive practice of peer
companies. Annual bonus targets vary by position and level of
responsibility. The primary purpose of these awards is to
deliver competitive compensation for achieving Company and
business unit financial objectives and individual performance
goals, which the Committee believes are primary determinants of
share price over time. Incentive opportunity under the MIP has
both upside potential and downside risk. The upside potential -
up to 150% of target - can be attained if performance goals are
substantially outperformed. The downside risk is that no
payments are made for performance results that fall below an
acceptable threshold. In addition, a total Company performance
threshold must be met for any awards to be made under the MIP.
The corporate performance threshold ensures that an acceptable
level of operating results is achieved before any awards are paid
to participants.
The Committee establishes an annual incentive pool equal to
aggregate incentive targets. The amount available for the
purpose of funding the incentive pool is determined after
consideration of the annual performance of the Company and
individual business units measured against the operating income
goals (on a currency neutral basis) established by the Committee
at the start of the fiscal year. If the Company and individual
business units achieve or exceed the goals, the incentive pool
increases up to 150% of aggregate target awards. If Company and
business unit performance fall below the performance threshold,
no awards are funded. Once the overall pool is determined,
individual awards are decided based upon a combination of
business unit financial performance and a review of individual
performance against annual goals, which include financial,
operational and strategic management objectives. Individual
awards may range from 0% - 150% of targeted levels and are made
in the sole discretion of the Committee.
For fiscal 1999, payout of target annual bonus opportunities
was dependent upon achieving significant operating income and
earnings per share targets. After reviewing the Company's
overall performance in relation to the goals established by the
Committee at the start of the year, the Committee determined that
total Company performance was considerably above targeted
performance levels. The Committee, therefore, approved annual
bonuses under the MIP for executive officers and members of
senior management that reflected the strong performance results
achieved. Individual award determinations also took into account
the significance and impact of individual contributions to the
Company's overall performance results in 1999.
Long-Term Incentive
The purpose of the long-term incentive component is to
closely align the long-term interests of executives with those of
shareholders. The long-term incentive program is designed to
deliver long-term incentive compensation at the top of the third
quartile of general industry long-term incentive compensation
levels, with an opportunity to earn superior long-term
compensation when exceptional performance is achieved. The long-
term incentive component consists of two elements: stock options
and the Long-Term Incentive Plan (LTIP), a new multi-year
performance plan for senior executives, which is discussed in
more detail later in this Report. Stock options make up the
majority of the total long-term incentive component for senior
executives; the LTIP closes the gap between median and upper
quartile competitive long-term incentive opportunities.
The annual Stock Option Program reinforces the Company's
long-term performance orientation and provides the opportunity
for participants to share in the value created for stockholders.
The annual stock option grant, in combination with base salary
and the annual bonus, reflects the Company's philosophy of
targeting these elements of compensation at the 50th percentile
of the competitive market, with an opportunity to exceed this
targeted competitive pay position if stock performance exceeds
expectations.
The annual stock option guidelines for executive officers
and senior management were increased in 1999 to ensure the
Company continues to maintain its long-term competitive position.
Individual grants are based on position and level of
responsibility, as well as individual performance. Eligible
participants include top management and other senior managers
responsible for implementing operational plans designed to
achieve the Company's long-term strategic objectives as approved
by the Board of Directors.
In 1999, the Committee approved the new LTIP for a limited
group of top executives. Performance shares or share
equivalents, are awarded at the beginning of multi-year
performance cycles. Awards for the 1999-2000 performance cycle
are tied to achieving two-year reengineering milestones,
critically important to achieving a turnaround in the Company's
performance. Awards for the 1999-2001 cycle are tied to
achieving cumulative operating income and earnings per share
goals. Payouts at the completion of a cycle will be made in cash
and will be based on the extent to which the performance goals
are achieved. The value of awards will be based on the stock
price at the end of the performance cycle, further strengthening
the linkage between executive incentives and shareholder value
creation. The Committee believes that the LTIP, in combination
with stock options, comprise a total long-term incentive
component that underscores the Company's commitment to aligning
management incentives with the return delivered to stockholders.
Fiscal 1999 Chief Executive Officer Compensation
The compensation of the Company's Chief Executive Officer is
based on the same factors as compensation for other executive
officers. In setting the Chief Executive Officer's target annual
compensation, the Committee seeks to be competitive with chief
executive officer compensation in peer companies, and to place at
least 60% of the Chief Executive Officer's compensation at risk
by linking pay to the achievement of the Company's annual and
long-term financial and operating goals and the performance of
the Company's Class A Nonvoting Common Stock.
After the close of fiscal 1999, the Committee reviewed the
extent to which the financial goals established for the year were
attained, and assessed Mr. Ryder's personal contributions to the
year's strong performance results. In determining Mr. Ryder's
fiscal 1999 annual bonus, the Committee considered a number of
important accomplishments including, but not limited to, the
significant operating profit improvement, and the substantial
progress made in pursuing new business opportunities designed to
expand the core business and grow the customer base. In
recognition of Mr. Ryder's efforts in restoring financial and
operational health, and his outstanding leadership in positioning
the Company for future growth and profitability, the Committee
awarded Mr. Ryder a bonus slightly above the guideline range
provided for under the Management Incentive Plan.
No stock options were awarded to Mr. Ryder during fiscal
1999 because of the grants he received upon his employment in
April 1998. The Committee awarded Mr. Ryder performance shares
for the 1999-2000 and 1999-2001 performance cycles under the new
Long-Term Incentive Plan. The number of shares granted is
consistent with the award guidelines established for participants
in the new Long-Term Incentive Plan.
The Compensation and Nominating
Committee:
C.J. Silas, Chairman
James E. Preston
William J. White
PERFORMANCE GRAPHS
The following graph compares the total return to stockholders
(stock price plus reinvested dividends) on a $100 investment in
each of the following: the Company's Class A Nonvoting Common
Stock, the S&P 500 Stock Index and the Dow Jones Media-Publishing
Group Index for the year ended June 30, 1999.
[PERFORMANCE GRAPH APPEARS HERE]
June 30, June 30,
1998 1999
The Reader's Digest Association, Inc. 100.00 148.52
Dow Jones Media-Publishing Group 100.00 103.60
S&P 500 100.00 122.76
The following graph compares the total return to stockholders
(stock price plus reinvested dividends) on a $100 investment in
each of the following: the Company's Class A Nonvoting Common
Stock, the S&P 500 Stock Index and the Dow Jones Media-Publishing
Group Index from June 30, 1994 through June 30, 1999.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
June 30, June 30, June 30, June 30, June 30, June 30,
1994 1995 1996 1997 1998 1999
The Reader's Digest Association, Inc. 100.00 110.22 110.24 78.74 77.05 114.44
Dow Jones Media-Publishing Group 100.00 114.12 143.74 182.74 250.03 259.03
S&P 500 100.00 126.03 158.77 213.84 278.31 341.66
</TABLE>
PROPOSAL NO. 2--APPROVAL OF AMENDMENT OF THE 1994 KEY EMPLOYEE
LONG TERM INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES
AVAILABLE FOR AWARDS
In August 1999, the Compensation and Nominating Committee
and the Board of Directors approved the amendment, subject to
stockholder approval, of The Reader's Digest Association, Inc.
1994 Key Employee Long Term Incentive Plan (the "1994 Long Term
Incentive Plan") to increase the number of shares of Class A
Nonvoting Common Stock available for stock-based awards from
10,800,000 shares to 17,300,000, since only 854,320 shares
currently remain available for awards prior to this amendment.
The purpose of the amended 1994 Long Term Incentive Plan is to
enable the Company to offer key employees of the Company and its
designated subsidiaries performance-based stock and cash
incentives and other equity interests in the Company and other
incentive awards, thereby attracting, retaining and rewarding
such key employees, and strengthening the mutuality of interests
between key employees and the Company's stockholders. This
proposal is being submitted to stockholders by the Board of
Directors of the Company.
Types of Awards
Awards under the amended 1994 Long Term Incentive Plan
("Awards") may consist of Stock Options (which may be Incentive
Stock Options or Non-Qualified Stock Options), Stock Appreciation
Rights (which may be Tandem Stock Appreciation Rights or Non-
Tandem Stock Appreciation Rights), Restricted Stock, Performance
Shares, Performance Units and Other Stock-Based Awards. No
Awards may be made under the amended 1994 Long Term Incentive
Plan after February 11, 2004.
Administration; Amendment and Termination
The amended 1994 Long Term Incentive Plan is administered
and interpreted by a committee of the Company's Directors (the
"Committee"), currently comprised of the members of the Company's
Compensation and Nominating Committee. The Committee's broad
powers include authority, within the limitations provided in the
amended 1994 Long Term Incentive Plan, to select the eligible
employees to receive Awards, to determine the type, amount and
terms and conditions of Awards and to construe and interpret and
correct defects, omissions and inconsistencies in the amended
1994 Long Term Incentive Plan and agreements relating thereto.
The Board of Directors may at any time and from time to time
amend, suspend or terminate the amended 1994 Long Term Incentive
Plan in whole or in part, provided, however, that, unless
required by law, no amendment may impair the rights of a
participant with respect to outstanding Awards without the
participant's consent. Moreover, without the approval of the
stockholders, no amendment may be made that would (i) increase
the aggregate number of shares of Class A Nonvoting Common Stock
that may be issued, (ii) change the definition of eligible
employees, (iii) decrease the option price of any Stock Option to
less than 100% of the fair market value on the date of grant for
an Incentive Stock Option or to less than 85% of the fair market
value on the date of grant for a Non-Qualified Stock Option, or
(iv) extend the maximum option period under the amended 1994 Long
Term Incentive Plan.
Eligibility
Key employees of the Company and its designated subsidiaries
as determined by the Committee, including the Company's executive
officers, are eligible to be granted Awards under the amended
1994 Long Term Incentive Plan. Currently, approximately 900
employees are eligible to receive Awards under the amended 1994
Long Term Incentive Plan.
Shares Reserved
The maximum number of shares that may be issued under the
amended 1994 Long Term Incentive Plan, as amended, or with
respect to which Non-Tandem Stock Appreciation Rights may be
granted is 17,300,000 shares of the Company's Class A Nonvoting
Common Stock, of which 9,945,680 shares have been issued and
208,100 shares are subject to Non-Tandem Stock Appreciation
Rights as of September 21, 1999. Unexercised Options (except
those that relate to another Right or Award under the amended
1994 Long Term Incentive Plan that is exercised) that expire,
terminate or are canceled, or are settled other than in Class A
Nonvoting Common Stock, become again available for Awards under
the amended 1994 Long Term Incentive Plan.
The number and kind of shares to which Awards under the
amended 1994 Long Term Incentive Plan, and the purchase price
thereof, are subject to appropriate adjustment in the event of
certain changes in the capital stock of the Company, including
stock dividends and splits, recapitalizations, reorganizations,
mergers, consolidations, split-ups, combinations or exchanges of
shares, and certain distributions, reclassifications and
warrants, options and rights offerings.
Stock Options
Stock Options may be Incentive Stock Options, which are
intended to qualify under Section 422 of the Internal Revenue
Code, or Non-Qualified Stock Options, which are not intended to
so qualify. The exercise price of an Incentive Stock Option may
not be less than 100% of the Fair Market Value of the Class A
Nonvoting Common Stock at grant and its term may not exceed 10
years from the date of grant. The exercise price of a Non-
Qualified Stock Option may not be less than 85% of the Fair
Market Value at grant and its term may not exceed 10 years and
one day from the date of grant. The Company intends that
compensation attributable to Stock Options with an exercise price
no less than 100% of the Fair Market Value of the underlying
stock on the date of grant will not be subject to the deduction
limitation of Section 162(m) of the Internal Revenue Code. See
"U.S. Federal Income Tax Consequences." So long as the Class A
Nonvoting Common Stock remains listed on the New York Stock
Exchange, "Fair Market Value" is the mean between the high and
low sales prices on the New York Stock Exchange on the applicable
date. Unless determined by the Committee at grant, no Stock
Option may be exercised prior to the first anniversary of the
date of grant. The Committee may substitute new Stock Options
for previously granted Stock Options having higher exercise
prices.
A Stock Appreciation Right is the right to receive the
difference, either in cash or in Class A Nonvoting Common Stock,
between the fair market value of a share of Class A Nonvoting
Common Stock as of the date of exercise and as of the date of
award. Tandem Stock Appreciation Rights are granted in
conjunction with all or part of a Stock Option and Non-Tandem
Stock Appreciation Rights are granted without reference to all or
part of a Stock Option.
Generally, the term and exercisability of a Tandem Stock
Appreciation Right are the same as the related Stock Option, and
the Tandem Stock Appreciation Right may be exercised only by
surrendering the applicable portion of the related Stock Option.
The term and exercisability of a Non-Tandem Stock Appreciation
Right are determined by the Committee, but the term shall not
exceed 10 years and one day from the date of grant.
The Committee may provide for Stock Options and Stock
Appreciation Rights to be exercisable in installments. Except as
provided above, no Stock Option or Stock Appreciation Right may
be transferred by the recipient otherwise than by will or the
laws of descent and distribution. A Stock Option agreement may
provide that the Stock Option be settled upon exercise by the
delivery of Performance Shares or Restricted Stock valued at fair
market value.
No employee may be granted either Stock Options or Non-
Tandem Stock Appreciation Rights, or both, with respect to a
total of more than 1,200,000 shares of Class A Nonvoting Common
Stock during any fiscal year of the Company.
If the participant's employment terminates by reason of
death, disability or retirement, generally any outstanding Stock
Option or Stock Appreciation Right will vest fully and be
exercisable until the first anniversary of the date of death or
the third anniversary of the date of termination by disability or
retirement, or until expiration of the Award, if earlier. Upon
termination for any other reason, any Stock Option or Stock
Appreciation Right will immediately terminate, except that a
previously vested Award will be exercisable for the lesser of
three months or the balance of the Award's term if the
participant is terminated involuntarily without cause.
Restricted Stock
Restricted Stock are shares of Class A Nonvoting Common
Stock awarded under the amended 1994 Long Term Incentive Plan
subject to such transferability restrictions and other terms and
conditions as the Committee may determine, including purchase
price (if any), restriction period, vesting schedule (including
whether restrictions lapse upon termination of employment) and
requirement of attainment of performance goals. The Committee
may, in its discretion, provide for the lapse, acceleration or
waiver of any restrictions, in whole or in part. The participant
has all the rights of a stockholder with respect to the shares of
Restricted Stock, including the right to receive dividends. As
of September 21, 1999, 620,908 shares of Class A Nonvoting Common
Stock have been issued and are outstanding under the amended 1994
Long Term Incentive Plan as Restricted Stock.
No more than 10% of the shares of Class A Nonvoting Common
Stock issuable under the 1994 Long Term Incentive Plan may be
issued under the amended 1994 Long Term Incentive Plan as
Restricted Stock.
Performance Units and Performance Shares
A Performance Unit is the right to receive a fixed dollar
amount in cash or Class A Nonvoting Common Stock based on the
attainment during a Performance Cycle (determined by the
Committee) of such performance goals or other factors or criteria
as the Committee determines. A Performance Share is the right to
receive Class A Nonvoting Common Stock or cash of an equivalent
value at the end of a specified Performance Period (determined by
the Committee) based on the attainment during the Performance
Period of such performance goals or other factors or criteria as
the Committee determines. Unless otherwise determined by the
Committee, a participant is not entitled to receive dividends on
the Class A Nonvoting Common Stock covered by a Performance Share
Award.
Generally, neither Performance Units nor Performance Shares
may be transferred by the participant. At the end of the
Performance Cycle or Performance Period, the Committee determines
the extent to which any pertinent performance goals have been
achieved and the percentage of Performance Units or number of
Performance Shares that have vested. The Committee may, in its
discretion, provide for accelerated vesting of Performance Units
and Performance Shares.
The material terms of Performance Shares awarded under the
1994 Long Term Incentive Plan, including the relevant business
criteria, maximum amount and eligible employees, are being
submitted to stockholders at this Annual Meeting.
Other Stock-Based Awards and Exchanges
Other Awards of Class A Nonvoting Common Stock and other
Awards that are valued in whole or in part by reference to, or
are payable in or otherwise based on, Class A Nonvoting Common
Stock may be granted under the amended 1994 Long Term Incentive
Plan subject to such terms and conditions, including price,
dividend entitlement, vesting and transferability, as the
Committee determines. In addition, the Committee may, in its
discretion, permit a participant to elect to receive an Award
under the amended 1994 Long Term Incentive Plan in lieu of any
other compensation from the Company.
Change in Control
Generally, in the event of a change in control of the
Company, all outstanding Stock Options and Stock Appreciation
Rights become fully vested and immediately exercisable in their
entirety, all Performance Units and Performance Shares become
vested, at a minimum, as if the applicable Performance Cycle or
Performance Period had ended upon the change in control, with
performance goals measured at such time, and all restrictions on
Restricted Stock lapse. Benefits under the amended 1994 Long
Term Incentive Plan will be reduced to the extent necessary to
prevent any portion of such benefits from being considered
"excess parachute payments" under Section 280G of the Internal
Revenue Code, when considered alone or in combination with any
payments otherwise payable to the participant upon a change in
control.
U.S. Federal Income Tax Consequences
The following summary describes the U.S. federal income tax
consequences of the amended 1994 Long Term Incentive Plan.
Stock Options. No income will be recognized by the holder
and the Company will not be entitled to a deduction at the time
of grant of either a Non-Qualified Stock Option or an Incentive
Stock Option.
On exercise of a Non-Qualified Stock Option, the amount by
which the fair market value of the Class A Nonvoting Common Stock
on the date of exercise exceeds the option exercise price will be
taxable to the holder as ordinary income and, subject to
satisfying applicable withholding requirements and any deduction
limitation under Section 162(m), deductible by the Company. The
subsequent disposition of shares acquired upon exercise of a Non-
Qualified Stock Option will ordinarily result in capital gain or
loss.
On exercise of an Incentive Stock Option, the holder will
not recognize any income and the Company will not be entitled to
a deduction. However, for purposes of the alternative minimum
tax, the exercise of an Incentive Stock Option will be treated as
an exercise of a Non-Qualified Stock Option. Accordingly, the
exercise of an Incentive Stock Option may result in an
alternative minimum tax liability.
The disposition of shares acquired upon exercise of an
Incentive Stock Option will ordinarily result in capital gain or
loss. However, if the holder disposes of shares acquired upon
exercise of an Incentive Stock Option within two years after the
date of grant or one year after the date of exercise (a
"disqualifying disposition"), the holder will recognize ordinary
income, in the amount of the excess of the fair market value of
the shares of Class A Nonvoting Common Stock on the date the
option was exercised over the option exercise price (or, in
certain circumstances, the gain on sale, if less). Any excess of
the amount realized by the holder on the disqualifying
disposition over the fair market value of the shares on the date
of exercise of the Option will generally be capital gain.
Subject to any deduction limitation under Section 162(m), the
Company will be entitled to a deduction equal to the amount of
ordinary income recognized by a holder.
If an Option is exercised through the use of Class A
Nonvoting Common Stock previously owned by the holder, such
exercise generally will not be considered a taxable disposition
of the previously owned shares and thus no gain or loss will be
recognized with respect to such shares upon such exercise.
However, if the option is an Incentive Stock Option, and the
previously owned shares were acquired on the exercise of an
Incentive Stock Option or other tax-qualified stock option (such
as shares received under the Company's Employee Stock Purchase
Plan), and the holding period requirement for those shares is not
satisfied at the time they are used to exercise the Option, such
use will constitute a disqualifying disposition of the previously
owned shares resulting in the recognition of ordinary income
(but, under proposed Treasury Regulations, not any additional
capital gain) in the amount described above.
Stock Appreciation Rights. The amount of any cash (or the
fair market value of any Class A Nonvoting Common Stock) received
upon the exercise of a stock appreciation right under the amended
1994 Long Term Incentive Plan will be includible in the
employee's ordinary income and, subject to satisfying applicable
withholding requirements and any deduction limitation under
Section 162(m), deductible by the Company.
Other Awards. Under Section 83(b) of the Internal Revenue
Code, an employee may elect to include in ordinary income, as
compensation at the time Restricted Stock is first issued, the
excess of the fair market value of such shares at the time of
issuance over the amount paid, if any, by the employee for such
shares. Unless a Section 83(b) election is made, no taxable
income will generally be recognized by the recipient of a
Restricted Stock award until such shares are no longer subject to
the restrictions or the risk of forfeiture. When either the
restrictions or the risk of forfeiture lapses, the employee will
recognize ordinary income and, subject to satisfying applicable
withholding requirements and any deduction limitation under
Section 162(m), the Company will be entitled to a deduction in an
amount equal to the excess of the fair market value of the Class
A Nonvoting Common Stock on the date of lapse over the amount
paid, if any, by the employee for such shares. Absent a Section
83(b) election, any cash dividends or other distributions paid
with respect to the Restricted Stock prior to the lapse of the
restrictions or risk of forfeiture will be included in the
employee's ordinary income as compensation at the time of
receipt.
Generally, an employee will not recognize any taxable income
and the Company will not be entitled to a deduction upon the
award of Performance Shares or Performance Units. At the time
the employee receives the distribution in respect to the
Performance Shares or the Performance Units, the fair market
value of shares of Class A Nonvoting Common Stock or the amount
of any cash received in payment for such Awards generally is
taxable to the employee as ordinary income and, subject to the
deduction limitation under Section 162(m), deductible by the
Company.
Section 162(m). Section 162(m) of the Internal Revenue Code
generally disallows a federal income tax deduction to any
publicly held corporation for compensation paid in excess of $1
million in any taxable year to the chief executive officer or any
of the four other most highly compensated executive officers who
are employed by the Company on the last day of the taxable year,
but does not disallow a deduction for qualified "performance-
based compensation" the material terms of which are disclosed to
and approved by stockholders. The Company has structured and
intends to implement the amended 1994 Long Term Incentive Plan
(except with respect to Awards of Restricted Stock, Performance
Shares and Stock Options with an exercise price less than the
Fair Market Value of the underlying shares on the date of grant)
so that compensation resulting therefrom would be qualified
"performance-based compensation." To allow the Company to so
qualify such compensation, the Company is seeking stockholder
approval of the amendment to the 1994 Long Term Incentive Plan.
Effect on Earnings
Currently, neither the grant nor the exercise of a Stock
Option will result in any charge to pretax earnings. Grants of
Restricted Stock result in a charge to pretax earnings over the
restriction period for the fair market value of the stock at the
date of issuance. All other Awards provided for under the
amended 1994 Long Term Incentive Plan will require a pretax
charge to earnings accrued over an appropriate period of time,
based on the difference between fair market value of the shares
or Award and the grant price.
New Plan Benefits
The following table shows the benefits, to the extent
currently determinable, that will be received in fiscal 2000 by
the individuals listed below. The closing price of the Class A
Nonvoting Common Stock on the New York Stock Exchange (Composite
Transactions) on September 21, 1999 was $00.0000. The
Performance Shares that were awarded in 1999 under the 1994 Long
Term Incentive Plan, subject to stockholder approval, are shown
in the table under "Long Term Incentive Plans-Awards in the Last
Fiscal Year" above.
<TABLE>
<CAPTION>
Number of 2000-2002 Performance Shares
Name Options/SARs Threshold(1) Target(1) Maximum(1)
<S> <C> <C> <C> <C>
Thomas O. Ryder 160,000 9,856 19,711 59,133
M. John Bohane 55,000 3,865 7,730 23,190
Gregory G. Coleman 38,500 2,809 5,617 16,851
George S. Scimone 38,500 2,809 5,617 16,851
Christopher P. Willcox 30,000 2,809 5,617 16,851
All executive officers 541,800 35,559 71,118 213,354
All Directors who are not N/A N/A N/A N/A
executive officers
All employees, excluding 1,363,700 16,515 33,030 99,090
executive officers
(1)In fiscal 2000, the Company granted long term incentive
awards under the 1994 Long Term Incentive Plan pursuant to
which participants will receive at the end of the fiscal year
2000-2002 Performance Cycle the value of the number of
Performance Shares shown, respectively, based on the Company's
performance in relation to the achievement of performance
goals relating to operating income, earnings per share, and
total shareholder return relative to peers.
Vote Required for Approval
The affirmative vote of a majority of the shares of Class B
Voting Common Stock present in person or represented by proxy and
entitled to vote on Proposal No. 2 at the Meeting is required for
approval of Proposal No. 2.
Stockholder approval of the amended 1994 Long Term Incentive
Plan is being sought in order to allow the Company to qualify
certain compensation received under the amended 1994 Long Term
Incentive Plan for tax deductibility under Section 162(m) of the
Internal Revenue Code. If no contrary indication is made, proxy
cards in the accompanying form are to be voted for approval of
Proposal No. 2.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL OF PROPOSAL NO. 2.
PROPOSAL NO. 3--APPROVAL OF BUSINESS CRITERIA, MAXIMUM AMOUNT AND
ELIGIBLE EMPLOYEES FOR PERFORMANCE SHARES UNDER THE 1994 KEY
EMPLOYEE LONG TERM INCENTIVE PLAN
In September 1998 and August 1999, the Compensation and
Nominating Committee (the "Committee") approved the material
terms of the performance goals applicable to Performance Shares
awarded under The Reader's Digest Association, Inc. 1994 Key
Employee Long Term Incentive Plan (the "1994 Long Term Incentive
Plan"). The Board of Directors of the Company is soliciting
stockholder approval of the material terms of the performance
goals so that awards of Performance Shares may comply with the
requirements of Section 162(m) of the Code for deductibility of
compensation paid to certain executive officers. Amounts payable
or shares deliverable to participants relating to Performance
Shares will not be paid or delivered unless and until the
material terms are approved by the Company's stockholders.
Performance Shares are awards of shares of Class A Nonvoting
Common Stock awarded under the 1994 Long Term Incentive Plan
(subject to such transfer restrictions and other restrictions as
the Committee may determine) or the value of such shares based on
the average closing price of the Class A Nonvoting Common Stock
over the last 20 trading days of the Performance Cycle. The
payment or delivery of Performance Shares is subject to the
attainment of specified performance goals with respect to
Performance Cycles of two or more years. The provisions of the
1994 Long Term Incentive Plan were previously approved by the
Board of Directors and the stockholders of the Company.
Performance Shares are an integral part of the Company's
executive compensation program, designed to attract, retain and
reward key employees and to provide an incentive for participants
to perform in a way that directly benefits stockholders. The
material terms of the performance goals applicable to Performance
Shares are the following:
1. Business Criteria. The performance goals applicable to
Performance Shares will be based on any one or more of the
following business criteria relating to the Company or any
subsidiary, division or other unit of the Company: revenue, net
income, net income per share, operating income, earnings per
share, cash flow, EBITDA, total shareholder return, total
shareholder return relative to peers, financial returns
(including without limitation; return on assets, return on equity
and return on investment), cost reduction targets, customer
satisfaction, customer growth and employee satisfaction. The
formula for any such award may include or exclude items to
measure the specific objectives, such as losses from discontinued
operations, extraordinary, unusual or nonrecurring gains and
losses, the cumulative effect of accounting changes, acquisitions
or divestitures, core process redesigns, structural
changes/outsourcing, and foreign exchange impacts.
2. Maximum Amount. Performance Cycles will be two to five
years, as specified by the Committee. Two or more Performance
Cycles may overlap, but no two Performance Cycles may consist
entirely of the same period. The aggregate amount paid to any
employee with respect to awards of Performance Shares with
respect to a Performance Cycle, will not exceed 400,000
Performance Shares. This maximum amount is a limitation and does
not represent a target award of Performance Shares.
3. Eligible Employees. The employees eligible to receive
awards of Performance Shares under the 1994 Long Term Incentive
Plan will be the executive officers of the Company and such other
key employees of the Company and its designated subsidiaries as
are determined by the Committee. Approximately 19 executive
officers and key employees of the Company are eligible to receive
awards of Performance Shares.
Prior to any payments being made or shares delivered with
respect to Performance Shares, the Committee will certify in
writing that all of the applicable performance goals relating to
the award have been met. A participant's award may be reduced by
the Committee at any time before payment or delivery of shares.
Nothing in these terms precludes the Committee from making
any payments or granting any awards whether or not such payments
or awards qualify for tax deductibility under Section 162(m).
New Plan Benefits
The benefits, to the extent currently determinable, that
will be received in fiscal 2000 by the individuals are shown
under Proposal No. 2.
Vote Required for Approval
The affirmative vote of a majority of the shares of Class B
Voting Common Stock present in person or represented by proxy and
entitled to vote on Proposal No. 3 at the Meeting is required for
approval of Proposal No. 3. Any shares not voted on Proposal No.
3, whether by abstention, broker non-vote or otherwise, will have
the effect of a negative vote.
Stockholder approval of the material terms of the performance
goals of Performance Shares is being sought in order to qualify
certain compensation thereunder as "performance based" under
Section 162(m) of the Internal Revenue Code. Section 162(m)
generally disallows a federal income tax deduction to any
publicly held corporation for compensation paid in excess of
$1 million in any taxable year to the chief executive officer or
any of the four other most highly compensated executive officers
who are employed by the Company on the last day of the taxable
year, but does not disallow a deduction for qualified
"performance-based compensation" the material terms of whose
performance goals are disclosed to and approved by stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL OF PROPOSAL NO. 3.
PROPOSAL NO. 4--APPROVAL OF BUSINESS CRITERIA, MAXIMUM AMOUNT
AND ELIGIBLE EMPLOYEES
FOR THE SENIOR MANAGEMENT INCENTIVE PLAN
In August 1999, the Compensation and Nominating Committee
(the "Committee") approved the Senior Management Incentive Plan
(the "SMIP"). A copy of the SMIP is included at the end of this
Proposal. The Board of Directors of the Company is soliciting
stockholder approval of the material terms of the performance
goals of awards under the SMIP so that they may comply with the
requirements of Section 162(m) of the Internal Revenue Code for
deductibility of compensation paid to certain executive officers.
Amounts payable to participants under the SMIP will not be paid
unless and until the material terms of the performance goals of
awards under the SMIP are approved by the Company's stockholders.
Pursuant to the SMIP, participants will receive annual
incentive compensation awards in cash, based on the achievement
of specified performance goals. The SMIP is an integral part of
the Company's executive compensation program, designed to
attract, retain and reward key employees and to provide an
incentive for participants to perform in a way that directly
benefits stockholders. The material terms of the performance
goals applicable to the SMIP are as follows.
1. Business Criteria. The performance goals applicable to
awards under the SMIP will be based on any one or more of the
following business criteria relating to the Company or any
subsidiary, division or other unit of the Company: revenue, net
income, net income per share, operating income, earnings per
share, cash flow, EBITDA, total shareholder return, total
shareholder return relative to peers, financial returns
(including without limitation; return on assets, return on
equity, return on investment), cost reduction targets, customer
satisfaction, employee satisfaction and customer growth. The
formula for any such award may include or exclude items to
measure the specific objectives, such as losses from discontinued
operations, extraordinary, unusual or nonrecurring gains and
losses, the cumulative effect of accounting changes, acquisitions
or divestitures, core process redesigns, structural
changes/outsourcing, and foreign exchange impacts.
2. Maximum Amount. The amount paid to any employee with
respect to any award will not exceed $2,500,000. This maximum
amount is a limitation and does not represent a target award.
3. Eligible Employees. The employees eligible to receive
awards under the SMIP will be the executive officers and other
key employees of the Company and its designated subsidiaries as
are determined by the Committee. Although it is intended that
the persons receiving awards under the SMIP will be the Company's
Chief Executive Officer and its four other most highly
compensated executive officers, other executive officers and key
employees are also eligible under the SMIP to receive awards.
Approximately 10 executive officers and other key employees of
the Company are eligible to receive awards under the SMIP.
A participant's award may be reduced by the Committee at any
time before payment. Prior to any payments being made, the
Committee will certify in writing that all of the applicable
performance goals relating to the pertinent award have been met.
Nothing in these terms precludes the Committee from making
any payments or granting any awards whether or not such payments
or awards qualify for tax deductibility under Section 162(m).
New Plan Benefits
The following table shows the benefits, to the extent
currently determinable, that will be received under the SMIP in
fiscal 2000 by the individuals listed below.
Fiscal 2000 SMIP Awards (dollars)
Name Threshold(1) Target(1) Maximum(1)
Thomas O. Ryder 585,000 780,000 1,560,000
M. John Bohane 207,750 277,000 554,000
Gregory G. Coleman 146,250 195,000 390,000
George S. Scimone 146,250 195,000 390,000
Christopher P. Willcox 146,250 195,000 390,000
All executive officers 1,618,500 2,158,000 4,316,000
All Directors who are not N/A N/A N/A
executive officers
All employees, excluding 129,000 172,000 344,000
executive officers
(1)In fiscal 2000, the Company granted awards under the SMIP
pursuant to which participants will receive at the end of the
fiscal year 2000 an amount dependent upon the achievement of
the performance goals relating to operating income.
Vote Required for Approval
The affirmative vote of a majority of the shares of Class B
Voting Common Stock present in person or represented by proxy and
entitled to vote on Proposal No. 4 at the Meeting is required for
approval of Proposal No. 4. Any shares not voted on Proposal No.
4, whether by abstention, broker non-vote or otherwise, will have
the effect of a negative vote.
Stockholder approval of the material terms of the
performance goals of awards under the SMIP is being sought in
order to qualify certain compensation thereunder as "performance
based" under Section 162(m) of the Internal Revenue Code.
Section 162(m) generally disallows a federal income tax deduction
to any publicly held corporation for compensation paid in excess
of $1 million in any taxable year to the chief executive officer
or any of the four other most highly compensated executive
officers who are employed by the Company on the last day of the
taxable year, but does not disallow a deduction for qualified
"performance-based compensation" the material terms of whose
performance goals are disclosed to and approved by stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL OF PROPOSAL NO. 4.
EXHIBIT 1 TO PROPOSAL NO. 4
THE READER'S DIGEST ASSOCIATION, INC.
SENIOR MANAGEMENT INCENTIVE PLAN
ARTICLE I
Purpose of the Plan
1.1 The purpose of the Senior Management Incentive Plan
(the "Plan") of The Reader's Digest Association, Inc. (the
"Company") is to advance the interests of the Company by
providing executive officers and other key employees of the
Company and its designated Subsidiaries (defined below) with
additional incentive to promote the success of the business and
to increase their vested interest in the success of the business
and to increase their vested interest in the success of the
Company, and to encourage them to remain employees, through the
making of certain incentive cash bonus awards ("awards") linked
to performance goals.
ARTICLE II
Administration of the Plan
2.1 The Plan shall be administered and interpreted by a
committee (the "Committee") appointed from time to time by the
Board of Directors of the Company (the "Board") and consisting of
three or more Directors. Members of the Committee shall not be
eligible to participate in the Plan.
2.2 The Committee shall have full authority to make or
withhold awards, to construe and interpret the terms and
provisions of the Plan and any award made hereunder, 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, and to otherwise supervise the
administration of this Plan.
2.3 The Committee may correct any defect, supply any omission
or reconcile any inconsistency in the Plan, or in any award made
hereunder, in the manner and to the extent it shall deem
necessary to carry the Plan into effect.
2.4 Any decision, interpretation or other action made or taken
in good faith by or at the direction of the Board or the
Committee 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.
2.5 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.
2.6 For purposes of this Plan, "designated Subsidiaries" shall
mean such subsidiaries of the Company, 80 percent or more of the
voting capital stock of which is owned, directly or indirectly,
by the Company, which are designated from time to time by the
Committee.
ARTICLE III
Eligibility
3.1 Eligible employees include employees of the Company and
the designated Subsidiaries who are executive officers and other
key employees. "Participants" shall mean all such eligible
employees designated by the Committee.
3.2 A Participant who ceases to be employed by the Company or
a designated Subsidiary by reason of:
(i) transfer at the Company's request to an Affiliate (as
defined in Section 414 of the Internal Revenue Code of 1986,
as amended);
(ii) death;
(iii) disability (as defined under the terms of The
Reader's Digest Association, Inc. Long Term Disability
Plan); or
(iv) "early" or "normal" retirement (as defined under the
terms of The Reader's Digest Association, Inc. Retirement
Plan) (in each case, whether or not such Participant is
covered by such plan);
shall be eligible for an award (or portion thereof) for the
fiscal year in which the transfer, death or disability occurs,
only if and to the extent the goals described in Article IV have
been met and the Committee shall decide in its sole discretion;
provided, however, that the award will be for the portion of the
year the Participant was employed determined by multiplying the
final award by a fraction the numerator or which is the number of
months the Participant is employed and the denominator of which
is the number of months in the applicable performance cycle.
3.3 A Participant who ceases to be employed by the Company or
a designated Subsidiary for any reason other than those
enumerated in Section 3.2 above, shall not be eligible for an
award in respect of the fiscal year in which such termination of
employment by the Company or a designated Subsidiary occurs. For
the purposes of this Section, it shall not be considered a
termination of employment when a Participant is transferred 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 Internal Revenue Code of 1986, as amended.
ARTICLE IV
Awards Under the Plan
4.1 For each fiscal year, the Committee shall establish a
performance threshold based on one or more of the performance
goals set forth in Section 4.3 which must be attained in order
for any awards to be paid.
4.2 For each fiscal year, the Committee shall establish
individual incentive targets for awards under the Plan and shall
establish performance goals relating to (a) financial performance
based on one or more of the performance goals set forth in
Section 4.3, and (b) individual performance during that fiscal
year.
4.3 For purposes of Sections 4.1 and 4.2, the performance
goals shall be based on any one or more of the following business
criteria relating to the Company or any subsidiary, division or
other unit of the Company: revenue, net income, net income per
share, operating income, earnings per share, cash flow, EBITDA,
total shareholder return, total shareholder return relative to
peers, financial returns (including without limitation, return on
assets, return on equity and return on investment), cost
reduction targets, customer satisfaction, customer growth and
employee satisfaction. The formula for any such award may
include or exclude items to measure the specific objectives, such
as losses from discontinued operations, extraordinary, unusual or
nonrecurring gains and losses, the cumulative effect of
accounting changes, acquisitions or divestitures, core process
redesigns, structural changes/outsourcing, foreign exchange
impacts.
4.4 For each fiscal year, the Committee shall establish a
formula for funding an incentive pool consisting of the maximum
aggregate awards that would be available to all Participants
under the Plan pursuant to the individual award targets.
4.5 No later than 90 days after the commencement of the fiscal
year, the Committee shall establish the individual awards targets
(by grade level) and performance goals pursuant to Sections 4.1,
4.2, and 4.3 and shall, in its discretion, approve an incentive
pool based on the funding formula pursuant to Section 4.2.
4.6 Promptly after the end of a fiscal year, the Committee
shall determine the extent to which performance goals for that
fiscal year have been achieved and shall determine the allocation
of individual awards to Participants, with the amount based on
Section 4.2(a) above; provided that 50% of such amount may be
reduced by the Committee in its discretion based on Section
4.2(b).
4.7 The Committee shall review and, in its discretion, shall
certify the achievement of the applicable financial performance
goals and the individual performance goals of each executive
officer of the Company who is a Participant.
4.8 The Committee may, but need not, pay out the full amount
of the incentive pool for any fiscal year. Any reduction of any
award to an executive officer will not result in an increase in
the amount payable to another executive officer.
4.9 Each award made under the Plan shall be paid or allocated
as soon as practicable after the close of the fiscal year, except
as provided in Article V and unless otherwise determined by the
Committee. The Committee, in its sole discretion, may permit a
Participant to defer payment of his award under The Reader's
Digest Association, Inc. Deferred Compensation Plan, as such plan
may be modified from time to time, or any other plan applicable
to the Participant.
4.10 In the event of the death of a Participant after the
making of the award but prior to the payment of his award
hereunder, payment shall be made to such beneficiary or
beneficiaries as the Participant shall have previously designated
in writing. Such designation shall not be effective unless filed
with the Company. If there is no effective designation of a
beneficiary at the time of the Participant's death, or in the
event that the designated person or persons shall predecease such
Participant, any such award payable shall be made to the
Participant's estate or legal representative.
4.11 The amount paid to any employee with respect to any award
shall not exceed $2,500,000.
ARTICLE V
Amendment or Termination of the Plan
5.1 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 of
the awards theretofore made to him under the Plan.
ARTICLE VI
Miscellaneous
6.1 No person shall have any claim or right to be made an
award under the Plan, and neither this Plan, the establishment of
any goals or standards nor the making of an award under this Plan
shall give any Participant or other employee any right with
respect to continuance of employment by the Company or any
subsidiary, nor shall there 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.
6.2 Except by will or the laws of descent and distribution, no
right or interest in any award made under this Plan shall be
assignable or transferable, and no right or interest of any
Participant hereunder shall be subject to any lien, obligation or
liability of such Participant.
6.3 The Company will bear all expenses incurred in
administering this Plan.
6.4 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 Code, or
any other laws or regulations of any Federal, state, local or
foreign government.
6.5 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, any Federal, state or local taxes required by law
to be withheld.
6.6 No assets shall be segregated or earmarked in respect of
any award hereunder and no Participant shall have any right to
assign, transfer, pledge or hypothecate his interest, or any
portion thereof, in his award. The Plan and the making of awards
hereunder shall not constitute a trust.
6.7 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).
6.8 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
Articles of this Plan are intended solely as a convenience and
shall not be used as an aid in construction of any provisions
thereof.
6.9 This Plan shall be known as "The Reader's Digest
Association, Inc. Senior Management Incentive Plan."
6.10 The material terms consisting of the business criteria,
maximum amount, and eligible employees shall be subject to the
approval of the stockholders before payments may be made.
PROPOSAL NO. 5-AMENDMENT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION SO THAT THE ISSUANCE OR SALE OF CLASS B VOTING
COMMON STOCK TO ANY EMPLOYEE BENEFIT PLAN WILL REQUIRE
APPROVAL BY VOTE OF THE CLASS B VOTING COMMON STOCKHOLDERS
On September 24, 1999, the Company entered into a Share
Exchange Agreement with the DeWitt Wallace-Reader's Digest Fund,
Inc. and the Lila Wallace Reader's Digest Fund, Inc. Under the
terms of the Share Exchange Agreement, on September 24, 1999, the
Company transferred 4,015,283 shares of Class A Nonvoting Common
Stock to the DeWitt Wallace Fund in exchange for 4,641,946 shares
of Class B Voting Common Stock held by the DeWitt Wallace Fund
and transferred 4,015,284 shares of Class A Nonvoting Common
Stock to the Lila Wallace Fund in exchange for 4,641,947 shares
of Class B Voting Common Stock held by the Lila Wallace Fund.
After the exchanges, each of the Funds owns approximately 25% of
the outstanding Class B Voting Common Stock. The exchanges were
effected by the Funds in accordance with their previously
disclosed intnetion to reduce their aggregate holdings of Class B
Voting Common Stock to 50% by January 2000, in order to avoid the
imposition of excise taxes.
Under the terms of the Share Exchange Agreement, the Company
was required to confirm that the Company's Board of Directors had
adopted a resolution proposing and declaring advisable amendments
to the Company's Certificate of Incorporation in the following
form.
RESOLVED, that subparagraph (2) of paragraph
(b) of Article V of the Restated Certificate of
Incorporation of The Reader's Digest Association,
Inc. (the "Corporation") be, and it hereby is,
amended and restated in its entirety to read as
follows:
(a) To provide for the
issuance, from time to time, of the shares of
stock of the Corporation, whether now or
hereafter authorized, for such consideration
and on such terms and conditions as it may
lawfully fix from time to time; and all
shares so issued, the full consideration for
which has been paid, shall be deemed fully
paid and nonassessable; provided, however,
that (i) authorized but unissued shares of
capital stock of the Corporation having any
voting rights in addition to those prescribed
by law shall only be issued if such issuance
is approved by vote of the holders of shares
of Class B Voting Common Stock and (ii)
issued shares of capital stock of the
Corporation having any voting rights in
addition to those prescribed by law which are
owned by the Corporation shall only be sold,
assigned, transferred or otherwise disposed
of by the Corporation if such sale,
assignment, transfer or other disposition is
approved by vote of the holders of shares of
Class B Voting Common Stock, except that no
such approval shall be required in the case
of either clause (i) or (ii) for (A) the
issuance or sale, assignment, transfer or
other disposition of shares of Class B Voting
Common Stock to the holders of shares of
Class B Voting Common Stock in payment of a
dividend or other distribution declared by
the Board of Directors upon the common stock
of the Corporation that is payable in common
stock of the Corporation, or (B) the issuance
or sale, assignment, transfer or other
disposition of Preference Stock having only
the voting rights described in paragraph
(k)(B)(ii) of Article IV.
The Company also agreed to submit the amendment to its
stockholders, along with the recommendation of the Board of
Directors, for approval at the 1999 Annual Meeting. Accordingly,
the Board of Directors is soliciting the adoption by stockholders
of the resolution described above.
The proposed amendment ensures that the Funds' ownership of Class B
Voting Common Stock cannot be diluted below 50% without the consent
of holders of a majority of the shares of Class B Voting Common Stock.
The Company agreed to recommend the amendment and to submit the amendment
to its stockholders at the Annual Meeting because the Company believes
that the terms of the Share Exchange Agreement (including the proposed
amendment) are beneficial to the Company. The Company believes that, among
other things, the terms of the Share Exchange Agreement facilitated an
orderly reduction by the Funds of their shares of Class B Voting Common
Stock without unduly affecting the market price of such shares.
Vote Required for Approval
The affirmative vote of a majority of the shares of Class B
Voting Common Stock present in person or represented by proxy and
entitled to vote on Proposal No. 5 at the Meeting is required for
approval of Proposal No. 5. Any shares not voted on Proposal No.
5, whether by abstention, broker non-vote or otherwise, will have
the effect of a negative vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL OF PROPOSAL NO. 5.
SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS
Pursuant to Securities and Exchange Commission rules and the
Company's By-Laws, proposals of stockholders intended to be
submitted at the 2000 Annual Meeting of Stockholders must be
received by the Company at its principal executive offices on or
before June 2, 2000 to be eligible for inclusion in the Company's
notice of meeting, proxy statement and accompanying proxy card
for such meeting or to be introduced from the floor at such
meeting.
The Company's By-Laws also provide that notice of proposed
stockholder nominations for election of directors must be given
to the Corporate Secretary of the Company not less than 14 or
more than 50 days prior to a meeting called to elect directors.
Such notice must contain certain information about each proposed
nominee including age, business and residence addresses,
principal employment, number of shares of Class B Voting Common
Stock beneficially owned (with evidence of such ownership) and
such other information as would be required in a proxy statement
soliciting proxies for the election of such proposed nominee, and
a signed consent of the nominee to serve as a director if
elected.
MISCELLANEOUS
The Board of Directors is not aware at the date hereof of
any matter proposed to be presented at the Meeting other than
Proposals contained in this Proxy Statement. If any other matter
is properly presented, the persons named in the accompanying
proxy card will have discretionary authority to vote thereon
according to their best judgment.
It is expected that a member of KPMG LLP, the Company's
independent auditors, will attend the Annual Meeting to respond
to any appropriate questions that may be asked by stockholders.
The Company's Annual Report to Stockholders has been mailed
to stockholders separately. It is not to be deemed a part of the
proxy solicitation material and is not incorporated herein by
reference.
A copy of the Company's 1999 annual report on Form 10-K
filed with the Securities and Exchange Commission (without
exhibits) will be made available to stockholders without charge
upon request to the Vice President, Investor Relations, The
Reader's Digest Association, Inc., Pleasantville, NY 10570-7000.
This report is also available to the public at the SEC's Web site
at http://www.sec.gov. A copy of an equal opportunity report
prepared by the Company will be made available without charge
upon request to the Vice President, Strategy and Staffing, The
Reader's Digest Association, Inc., Pleasantville, NY 10570-7000.
This report is also available to the public at the Company's Web
site at http://www.readersdigest.com.
By Order of the Board of
Directors:
/s/C.H.R. DUPREE
C.H.R. DuPree
Vice President and Corporate
Secretary
October 5, 1999
Driving Directions to Reader's Digest Global Headquarters
From Manhattan
From East Side, take I-87 north (Major Deegan Thruway) into
Yonkers to exit 5, "Central Park Avenue, Route 100." Proceed on
Route 100 north for 1 mile to entrance to Sprain Brook Parkway
(left turn). Continue on Sprain Brook Parkway north
approximately 12 miles to exit for Saw Mill River Parkway north.
Take Saw Mill River Parkway north approximately 7 miles to the
traffic light at the Reader's Digest Road exit (Exit 33). Turn
right at the exit and bear right to the top of the hill
proceeding around the Reader's Digest headquarters. At the
traffic light, turn left onto Route 117 and make another
immediate left into the Reader's Digest main entrance.
From West Side, take the West Side Highway north to the Henry
Hudson Parkway north to the Saw Mill River Parkway north.
Continue on the Saw Mill River Parkway north approximately 20
miles to the traffic light at the Reader's Digest Road exit (Exit
33). Turn right at the exit and bear right to the top of the
hill proceeding around the Reader's Digest headquarters. At the
traffic light, turn left onto Route 117 and make another
immediate left into the Reader's Digest main entrance.
From Dutchess or Putnam County
Take I-84 south to the I-684 south approximately 10 miles to Saw
Mill River Parkway south. Bear right onto Exit 5 entering Saw
Mill River Parkway south and continue approximately 7 miles to
traffic light at Reader's Digest Road exit. Turn left at exit
and bear right to top of hill proceeding around the Reader's
Digest headquarters. At the traffic light, turn left onto Route
117 and make another immediate left into the Reader's Digest main
entrance.
From New Jersey
Take the I-287 east (Tappan Zee Bridge) to Exit 1 for Saw Mill
River Parkway north. Take Saw Mill River Parkway north
approximately 7 miles to the traffic light at the Reader's Digest
Road exit (Exit 33). Turn right at the exit and bear right to
the top of the hill proceeding around the Reader's Digest
headquarters. At the traffic light, turn left onto Route 117 and
make another immediate left into the Reader's Digest main
entrance.
From Connecticut
Take I-95 south to Exit 21 to I-287. Proceed on I-287 to Exit 3
for Sprain Brook Parkway north. Take Sprain Brook Parkway north
approximately 4 miles to exit for Saw Mill River Parkway north.
Take Saw Mill River Parkway north approximately 7 miles to the
traffic light at the Reader's Digest Road exit (Exit 33). Turn
right at the exit and bear right to the top of the hill
proceeding around the Reader's Digest headquarters. At the
traffic light, turn left onto Route 117 and make another
immediate left into the Reader's Digest main entrance.
Reader's Digest and the Pegasus logo are registered trademarks of
The Reader's Digest Association, Inc.
[Recycling Logo] Printed on recycled paper.
</TABLE>
PROXY
THE READER'S DIGEST ASSOCIATION, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of Lynne V. Cheney, James E. Preston
and Thomas O. Ryder as attorney and proxy, with full power of substitution, to
represent the undersigned and vote as designated below all the shares of Class B
Voting Common Stock that the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of THE READER'S DIGEST ASSOCIATION, INC. to be held
November 12, 1999, and at any adjournments thereof, with all powers the
undersigned would possess if personally present, on the proposals described in
the Notice of Meeting and Proxy Statement of the Board of Directors and in
accordance with the discretion of the Board of Directors on any other business
that may come before the meeting.
Please mark, date and sign your name exactly as it appears on this proxy
card and return this proxy card in the enclosed envelope. For shares registered
jointly, each joint owner should sign. Persons signing in a representative
capacity (e.g., attorney, executor, administrator, trustee, guardian, etc.) or
as an officer of a corporation should indicate their capacity, title or office.
THE PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
(Back of Card)
Please
[X] mark your
votes as
this
CLASS B COMMON
The Board of Directors recommends a vote FOR
Proposals 1, 2, 3, 4 and 5.
WITHHELD
FOR FOR ALL
1. ELECTION OF DIRECTORS
Nominees: Thomas O. Ryder, Lynne V. Cheney,
M. Christine DeVita, James E. Preston,
Lawrence R. Ricciardi, C. J. Silas, William J. White,
Ed Zschau
WITHHELD FOR: (Write that nominee's name in the
Space provided below.)
__________________________________________
2. Amendment of the 1994 Key Employee Long Term FOR AGAINST ABSTAIN
Incentive Plan to increase the number of shares of
Class A Nonvoting Common Stock available
for awards under the plan.
3. Approval of the business criteria, maximum
amount and eligible for performance shares
under the1994 Key Employee Long Term Incentive Plan.
4. Approval of the business criteria, maximum
amount and eligible employees for awards under
the Senior Management Incentive Plan.
5. Amendment of the Company's Certificate of
Incorporation so that the issuance or sale
of Class B Voting stock to any employee benefit
plan will require approval by vote of the Class B
Voting Common Stock holders.
Receipt is hereby acknowledged of The Reader's Digest Association, Inc. Notice
of Meeting and Proxy Statement.
Signature(s)_____________________________________________________ Date
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
PLEASE SIGN, DATE AND MAIL THIS VOTING INSTRUCTION CARD
PROMPTLY
IN THE ENVELOPE PROVIDED
AFTER DETACHING AT THE PERFORATION BELOW
THE READER'S DIGEST EMPLOYEE OWNERSHIP PLAN AND THE 401(K)
PARTNERSHIP
THE READER'S DIGEST ASSOCIATION, INC.
CONFIDENTIAL VOTING DIRECTION TO THE TRUSTEE, SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS
I hereby direct State Street Bank and Trust Company, as
Trustee under The Reader's Digest Employee Ownership Plan
and the 401(K) Partnership, to vote as directed on the
reverse side my proportionate interest in the shares of
Class B Voting Common Stock of THE READER'S DIGEST
ASSOCIATION, INC. held in the Stock Fund under that Plan at
the Annual Meeting of Stockholders of THE READER'S DIGEST
ASSOCIATION, INC. to be held November 12, 1999, and at any
adjournments thereof, on the proposals as described in the
Notice of Meeting and Proxy Statement of the Board of
Directors.
(Please note any change of address below.)
xxx-xx-xxx
[NAME and ADDRESS] Proportionate interest in shares-
xxx.xx shares of a total of shares of 1,716,057
Class B Voting Common Stock
in the Stock Fund
To be completed, signed and dated on the reverse side.
(Back of Card)
Please
[X] mark your
votes as
this
CLASS B COMMON
The Board of Directors recommends a vote FOR
Proposals 1, 2, 3 and 4.
WITHHELD
FOR FOR ALL
1. ELECTION OF DIRECTORS
Nominees: Thomas O. Ryder, Lynne V. Cheney,
M. Christine DeVita, James E. Preston,
Lawrence R. Ricciardi, C. J. Silas, William J. White,
Ed Zschau
WITHHELD FOR: (Write that nominee's name in the
Space provided below.)
__________________________________________
2. Amendment of the 1994 Key Employee Long Term FOR AGAINST ABSTAIN
Incentive Plan to increase the number of shares
of Class A Nonvoting Common Stock available
for awards under the plan.
3. Approval of the business criteria, maximum
amount and eligible employees for performance
shares under the1994 Key Employee Long Term
Incentive Plan.
4. Approval of the business criteria, maximum amount
and eligible employees for awards under the Senior
Management Incentive Plan.
5. Amendment of the Company's Certificate of
Incorporation so that the issuance or sale
of Class B Voting stock to any employee benefit
plan will require approval by vote of the Class B
Voting Common Stock holders.
Receipt is hereby acknowledged of The Reader's Digest Association, Inc. Notice
of Meeting and Proxy Statement.
The Trustee will vote your proportionate interest in the shares of Class B
Voting Common Stock in the Stock Fund as you direct. IF YOU SIGN BELOW, BUT DO
NOT GIVE ANY INSTRUCTIONS, THE TRUSTEE WILL VOTE YOUR PROPORTIONATE INTEREST IN
THOSE SHARES AS RECOMMENDED BY THE BOARD OF DIRECTORS ON THE PROPOSALS LISTED
HEREIN.
Date
Signature of Participant (Please date and sign exactly as name is printed
herein.)
The Reader's Digest Association, Inc.
1994 Key Employee Long Term
Incentive Plan
(Amended and Restated as of August 13, 1999)
As amended by Amendment No. 1, effective as of July 1, 1997
As amended by Amendment No. 2, effective as of April 28, 1998
As amended by Amendment No. 3, effective as of April 28, 1998
As amended by Amendment No. 4, effective as of August 13, 1999
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 17,300,000 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.
