THE READER'S DIGEST ASSOCIATION, INC.
1989 KEY EMPLOYEE LONG TERM
INCENTIVE PLAN
As amended by Amendment No. 1, effective as of April 13, 2001
THE READER'S DIGEST ASSOCIATION, INC.
1989 KEY EMPLOYEE LONG TERM INCENTIVE PLAN
ARTICLE I
Purpose
The purpose of this 1989 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 indirectly, 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
5,420,000 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. 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, recapitalization, 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,
administrators, 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). To the extent that any Stock
Option does not qualify as an Incentive Stock Option (whether because
of its provisions or the time or manner of its exercise or otherwise),
such Stock Option or the portion thereof which does not qualify shall
constitute a separate Non-Qualified Stock Option.
6.3 Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term of this Plan relating to Incentive
Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as
to disqualify the Plan under Section 422A of the Code, or, without the
consent of the Participants affected, to disqualify any Incentive Stock
Option under such Section 422A.
6.4 Terms of Options. Options granted under this Plan shall be
subject to the following terms and conditions and shall be in such form
and contain such additional terms and conditions, not inconsistent with
the terms of this Plans, as the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock
purchasable under a Stock Option shall be determined by the
Committee at the time of grant but shall be not less than
100% of the Fair Market Value of the Common Stock at grant
if the Stock Option is intended to be an Incentive Stock
Option and shall not be less than 85% of the Fair Market
Value of the Common Stock at grant if the Stock Option is
intended to be a Non-Qualified Stock Option.
(b) Option Term. The term of each Stock Option shall be fixed
by the Committee, but no Incentive Stock Option shall be
exercisable more than ten years after the date the Option is
granted, and no Non-Qualified Stock Option shall be
exercisable more than ten years and one day after the date
the Option is granted.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as
shall be determined by the Committee at grant; provided,
however, that, except as provided in subsections (f), (g)
and (h) below and Article 3, unless otherwise determined by
the Committee at grant, no Stock Option shall be exercisable
prior to the first anniversary date of the granting of the
Option. If the Committee provides, in its discretion, that
any Stock Option is exercisable only in installments, the
Committee may waive such installment exercise provisions at
any time at or after grant in whole or in part, based on
such factors, if any, as the Committee shall determine, in
its sole discretion.
(d) Method of Exercise. Subject to whatever installment
exercise and waiting period provisions apply under
subsection (c) above, Stock Options may be exercised in
whole or in part at any time during the option term, by
giving written notice of exercise to the Company specifying
the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase price in such
form as the Committee may accept. If and to the extent
determined by the Committee in its sole discretion at or
after grant, payment in full or in part may also be made in
the form of Common Stock (other than Restricted Stock) owned
by the Participant (and for which the Participant has good
title free and clear of any liens and encumbrances) or
Restricted Stock, or by reduction in the number of shares
issuable upon such exercise based, in each case, on the Fair
Market Value of the Stock on the payment date as determined
by the Committee (without regard to any forfeiture
restrictions applicable to Restricted Stock). No shares of
Stock shall be issued until payment, as provided herein,
therefor has been made. A Participant shall generally have
the rights to dividends or other rights of a shareholder
with respect to shares subject to the Option when the
optionee has given written notice of exercise, has paid for
such shares as provided herein, and, if requested, has given
the representation described in Section 15.1.
Notwithstanding the foregoing, if payment in full or in part
has been made in the form of Restricted Stock, an equivalent
number of shares of Common Stock issued on exercise of the
Option shall be subject to the same restrictions and
conditions, and during the remainder of the Restriction
Period, applicable to the shares of Restricted Stock
surrendered therefor.
(e) Non-Transferability of Options.
(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.
(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 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 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 terminates 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 otherwise 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 limitations 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.
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") 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 Committee, 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 Performance 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. For the purposes of the Plan, a
"Change in Control" means:
(a) if the Company's equity capital structure consists of Class A
Non-Voting Common Stock and Class B Voting Common Stock, as in effect
on the date of adoption of this provision, then an acquisition (other
than directly from the Company) or holding by a Person or a Group
(other than a Permitted Holder) of Beneficial Ownership of shares
representing at least 35% of the combined voting power of the
outstanding voting securities of the Company entitled to vote generally
in the election of Directors (the "Outstanding Company Voting Power"),
if following such acquisition or at the time of such holding, the Funds
do not own, in the aggregate, at least 50% of the Outstanding Company
Voting Power; provided, however, that a Business Combination satisfying
clauses 12.2(d)(i) through (iii) below shall not constitute a Change in
Control;
(b) if the Company's equity capital structure is different from that
described in subsection 12.2(a) above, then an acquisition (other than
directly from the Company) or holding by a Person or a Group (other
than a Permitted Holder) of Beneficial Ownership of shares representing
20% or more of either (i) the then outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the outstanding voting securities of the
Company entitled to vote generally in the election of Directors (the
"Outstanding Company Voting Power"), if following such acquisition or
at the time of such holding, the Funds do not own, in the aggregate, at
least 30% of the Outstanding Company Voting Power; provided, however,
that a Business Combination satisfying clauses 12.2(d)(i) through (iii)
below shall not constitute a Change in Control;
(c) if the Directors who were members of the Board on the date of
adoption of this provision (the "Initial Directors") and any Directors
whose election by the Company's stockholders was approved by a majority
of the Company's Directors then still in office who were either
Incumbent Directors or whose election or nomination for election was
previously so approved, but excluding any such individual whose
election as a Director occurs as a result of an actual or threatened
proxy contest or consent solicitation by or on behalf of a person other
than the Company or the Board (the "Approved Directors, and together
with the Initial Directors, the "Incumbent Directors"), shall cease for
any reason to constitute at least a majority of the Board;
(d) consummation of a Business Combination, other than a transaction
(i) in which all or substantially all of the stockholders of the
Company receive Beneficial Ownership of more than 50% of the
voting securities of the company resulting from the Business
Combination,
(ii) in which at least a majority of the board of directors of the
resulting company were Incumbent Directors, and
(iii) after which no Person or Group has Beneficial Ownership of 35% or
more of the voting securities of the resulting company, who did
not own at least such percentage of stock of the Company
immediately before the Business Combination; or
(e) stockholder approval of a complete liquidation or dissolution of
the Company.
Notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because any Person or Group has Beneficial
Ownership of shares of Outstanding Company Common Stock or Outstanding
Company Voting Power equal to the 35% or 20% thresholds in subsections
12.2(a) and 12.2(b) above (as the case may be) as a result of the
acquisition by the Company of such common stock or other voting
securities which reduces the number of shares of Outstanding Company
Common Stock or reduces the Outstanding Company Voting Power; provided,
that if, after such acquisition by the Company, such Person or Group
obtains Beneficial Ownership of shares of common stock or other voting
securities that increases the percentage of Outstanding Company Common
Stock or Outstanding Company Voting Power Beneficially Owned by such
person while such Person or Group has met the 35% or 20% threshold in
subsections 12.2(a) and 12.2(b) above (as the case may be), a Change in
Control shall then be deemed to occur.
For purposes of this Section 12.2:
"Beneficial Ownership" shall have the meaning given to that
term under Rule 13d-3 under the Securities Exchange Act of 1934.
"Business Combination" shall mean a merger, consolidation or
reorganization involving the Company or its subsidiaries or a sale,
lease, exchange or other disposition of all or substantially all of the
Company's assets.
"Director" shall mean a member of the Board.
"Group" shall have the meaning given to that term under Rule
13d-5 under the Securities Exchange Act of 1934.
"Permitted Holder" shall mean (i) the DeWitt
Wallace-Reader's Digest Fund, Inc. and the Lila Wallace-Reader's Digest
Fund, Inc. (collectively, the "Funds") and (ii) the Company or an
employee benefit plan of the Company or a corporation controlled by the
Company.
"Person" shall have the meaning given to that term under
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934.
"Securities Exchange Act of 1934" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
ARTICLE XIII
Termination or Amendment of the Plan
13.1 Termination or Amendment. Notwithstanding any other
Provision of this Plan, the Board may at any time, and from time to
time, amend, in whole or in part, any or all of the provisions of the
Plan (including any amendment deemed necessary to ensure that the
Company may comply with any regulatory requirement referred to in
Article 15), or suspend or terminate it entirely, retroactively or
otherwise; provided, however, that, unless otherwise required by law,
the rights of a Participant with respect to Options or other Awards
granted prior to such amendment, suspension or termination, may not be
impaired without the consent of such Participant and, provided further,
without the approval of the holders of the Company's stock entitled to
vote, no amendment may be made which would (i) increase the aggregate
number of shares of Common Stock that may be issued under this Plan
(except by operation of Section 4.2); (ii) change the definition of
employees eligible to receive Stock Awards under this Plan; (iii)
decrease the option price of any Stock Option to less than 100% of the
Fair Market Value on the date of grant for a Stock Option intended to
be an Incentive Stock Option or to less than 85% of the Fair Market
Value on the date of grant for a Stock Option intended to be a
Non-Qualified Stock Option; or (iv) extend the maximum option period
under Section 6.4 of the Plan.
The Committee may amend the terms of any Stock Option or
other Award theretofore granted, prospectively or retroactively, but,
subject to Article 4 above, no such amendment or other action by the
Committee shall impair the rights of any holder without the holder's
consent. The Committee may also substitute new Stock Options for
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, 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.
15.10Other 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.
15.11Costs. The Company shall bear all expenses incurred in
administering this Plan, including expenses of issuing Common Stock
pursuant to any Awards hereunder.
15.12No 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. Key Employee Long Term Incentive Plan."