Execution Copy

 
THE READER’S DIGEST ASSOCIATION, INC.
 
Reader’s Digest Road
 
Pleasantville, NY 10570-7000
 
Todd C.
McCarty                                                                                 Telephone:  (914)
244-5175
Senior Vice
President                                                                                     Fax:  (914)
244-7944
Global Human
Resources                                                                                 todd_mccarty@rd.com
 
                                                                        August
17, 2009
 
Mr. Tom Williams
 
c/o The Reader’s Digest Association, Inc.
Reader’s Digest Road
Pleasantville, NY 10570-7000
 
You, Tom Williams, the Chief Financial Officer of The Reader’s Digest
Association, Inc. (the “Company”), will receive cash compensation from the
Company equal to $68,200 per month, payable pursuant to the Company’s normal
payroll procedures, for so long as you remain employed with the Company during
the Company’s Chapter 11 proceedings.
 
1)           If you are not offered continued employment following the effective
date of the Acceptable Plan (as such term is defined in the Restructuring
Support Agreement made and entered into on August 17, 2009 between the Company
and the other parties signatory thereto (the “RSA”)) (the “Effective Date”),
such that your employment with the Company terminates on such date, then the
following provisions will apply: (a) that certain Employment Agreement  entered
into by and between you and the Company dated November 19, 2008 (the “Employment
Agreement”) will be rejected under the Acceptable Plan; (b) you will continue to
be bound by the non-solicitation covenant of Paragraph 11 of your Employment
Agreement (except that you will be permitted to hire, without any delay, any
employee of the Company whose employment is terminated by the reorganized
Company (whether due to its failure to offer continued employment to such
employee through the rejection of his or her employment agreement in the Chapter
11 proceedings or otherwise) and you will be bound by a confidentiality covenant
in the same form as contained in Section 7 of the Employment Agreement between
the Company and Mary Berner (the “Berner Agreement”) and a nondisparagement
covenant in the same form as contained in Section 12 of the Berner Agreement
(which shall be deemed amended to cover the signatories of the RSA, including
their directors, employees and representatives), in each case following your
date of termination of employment with the Company for the applicable periods
provided for therein; (c) subject to your execution, without revocation, of a
Release of Claims in the form (as applicable) attached hereto as Exhibit A-1,
you will receive from the Company, in lieu of any other severance payments that
may otherwise be due to you, a one-time cash severance payment, in the amount of
$1.2 million (plus any accrued but unpaid salary, vacation pay or unreimbursed
business expenses) on the 53rd day after your separation from service with the
Company (within the meaning of Internal Revenue Code Section 409A); and (d)
subject to its receipt of your executed and irrevocable Release of Claims, the
Company shall execute and deliver to you a release of claims for your benefit in
the form attached to this letter agreement as Exhibit A-2.  For the avoidance of
doubt, if your employment is terminated by you or by the Company for any reason
(other than at the initiation of the signatories to the RSA) prior to the
Effective Date, none of the provisions contained in this Paragraph 1 shall
apply, and this letter agreement will become null and void on such date of
termination.
 
 
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2)           If you are provided the opportunity to execute an amended
employment agreement with the Company and to have that agreement assumed by the
reorganized Company under the Acceptable Plan, to be effective on and after the
Effective Date (the “Amended Employment Agreement”) and such Amended Employment
Agreement: (a) is in the form and upon the terms of your existing Employment
Agreement, except for the modifications outlined in this Paragraph 2 and in
Paragraph 3 below; (b) provides for a total annual rate of base cash
compensation (in lieu of any other base salary, sign-on or other bonus amounts
provided under Paragraphs 1 and 2 of your Employment Agreement) payable to you
by the Company of no less than $600,000; (c) provides you with the opportunity
(in all cases lieu of any other annual or long-term cash incentive opportunities
provided under Paragraphs 4 and 6 of your Employment Agreement), to participate
in the “Pay for Performance/Variable Comp Plan” and Enterprise Value
Maximization Plan (“EVMax Plan”), as described in Exhibits B and C attached
hereto, and to earn the level of cash bonus compensation under each such plan as
identified in the attached Annex 1, and otherwise to participate in such annual
cash bonus plan, and at such level of annual cash bonus compensation, as the
Company shall implement in accordance with the provisions of Paragraph 4 below
(except that if the Effective Date has not occurred prior to June 15, 2010, the
Company and you will negotiate reasonably and in good faith regarding an annual
bonus plan, and annual cash bonus compensation opportunity, in respect of the
Company’s fiscal year beginning July 1, 2010); and (d) provides you with equity
compensation opportunities as provided in Paragraph 4 below, and you decline
such opportunity to execute the Amended Employment Agreement, upon any
termination of your employment by you or by the Company following such decline,
you shall not be entitled to the $1.2 million payment described above (or any
other severance payments or benefits, other than any accrued but unpaid salary,
vacation pay or unreimbursed business expenses) from the Company, but you shall
continue to be bound by the covenants described in Paragraph 1(b), above.
 
3)           For purposes of confirming the terms of your Amended Employment
Agreement, if assumed by the reorganized Company under the Acceptable Plan, in
addition to the modifications to your Employment Agreement identified in
Paragraph 1, clauses (b), (c) and (d) above (and any provisions in your
Employment Agreement that are contrary to these clauses will be amended to be
consistent with such clauses), the Amended Employment Agreement will also
reflect the following changes to your current Employment Agreement: (1) all
references to any obligations of the Company relating to equity-based awards
(whether relating to the grant or vesting of any such awards) shall be removed;
(2) the severance calculation in Paragraph 10 of the Employment Agreement will
equal $1.2 million at all times (unless increased by the board of directors of
the reorganized Company (the “Board”)); (3) the reference to “annual target
bonus opportunity under the Company’s Management Incentive Compensation Plan”
(contained in the definition of “Good Reason” under your Employment
Agreement)  shall refer to your applicable annual bonus opportunity as set forth
in Paragraph 2(c) above, as applicable; and (4) you will be bound by the
restrictive covenants described in Paragraph 1(b) above.  By executing this
letter agreement, you acknowledge and agree that (x) none of the modifications
made to your current Employment Agreement as described anywhere in this letter
agreement constitute “Good Reason” as defined in your Employment Agreement (or
in the Amended Employment Agreement, as applicable) and (y) upon execution, the
Amended Employment Agreement will replace your current Employment Agreement and
supersedes any other agreements (oral or written) between you and the Company.
 
 
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4)           Following any assumption by the reorganized Company of your Amended
Employment Agreement and the empanelment of the Board, such Board and the Chief
Executive Officer of the Company shall promptly designate a mutually acceptable,
nationally recognized compensation consultant.  Such compensation consultant
shall analyze companies that are comparable to the reorganized Company and your
experience (including your performance with the Company prior to the Effective
Date) and market status, and recommend to the Board and you both the annual cash
bonus opportunity and structure to be made available to you and an allocation
and structure for equity compensation opportunities to be made available to you
out of the 7.5% equity pool described in Exhibit A to the RSA.  If you agree
with such consultant’s recommendation with respect to, and/or you and the Board
reach another agreement as to, your annual cash bonus and equity compensation
opportunities with the Company, such opportunities shall be implemented by the
Company.
 
5)           If you do not agree with the compensation consultant’s
recommendation, or if you and the Board do not reach another agreement, in
either case as described in Paragraph 4 above, you shall be entitled to promptly
resign without Good Reason (as defined in your Amended Employment Agreement)
from your positions with the Company and be relieved of any obligations under
the non-competition covenant of your Amended Employment Agreement and any other
non-competition covenants in any other agreement between you and the Company,
but (a) you shall not receive the $1.2 million payment (nor the release of
claims) from the Company described in Paragraph 1, clauses (c) and (d), above,
and (b) you shall continue to be bound by the covenants described in Paragraph
1(b), above, and shall receive any accrued but unpaid salary, vacation pay or
unreimbursed business expenses.
 
Any payments provided for in this letter agreement are intended to be made in
compliance with or be exempt from Internal Revenue Code Section 409A and shall
be interpreted accordingly.  This letter agreement and any dispute related
hereto will be governed by the laws of New York.
 
If the Acceptable Plan or such other Chapter 11 plan as may be acceptable to the
Required Consenting Lenders (as defined in the RSA) is confirmed, then the
Debtors (as defined in the RSA) shall assume the Amended Employment Agreement,
unless you are not offered continued employment as provided in Paragraph 1
above, in which case the provisions of such Paragraph 1 shall apply.
 
If the foregoing accurately describes your understanding and agreement with the
Company regarding the terms of your continued employment with the Company,
please sign where indicated below and return a signed copy of this letter
agreement to me by no later than 8:00 a.m. (EST) Monday, August 17, 2009.
 

 
[Signatures on next page.]
 
 
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Excecution Copy

[Signature Page to Tom Williams Letter Agreement]
 

 

 
Sincerely,
 

____/s/ Todd McCarty_____________
Todd McCarty,
Senior Vice President
Global Human Resources
The Reader’s Digest Association, Inc.
 

 
Accepted and agreed by:
 
/s/ Tom Williams_____________________
Tom Williams
 
and

 
Acknowledged and consented to for purposes of the Restructuring Support
Agreement by,
JP Morgan Chase Bank, N.A., in its capacity as the Administrative Agent,
as such term is defined in the DIP Commitment Letter

By: /s/ Elizabeth Kelley_________________
Name:  Elizabeth Kelley
Title:    Managing Director
 

 
 

 
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EXHIBIT A-1
 
RELEASE OF CLAIMS
 
1. Release.  For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the undersigned, with the intention of binding
himself, his heirs, executors, administrators and assigns, does hereby release
and forever discharge The Readers’ Digest Association, Inc., a Delaware
corporation (the “Company”), and its parents, subsidiaries, affiliates,
predecessors, successors, and/or assigns, and the Consenting Lenders (within the
meaning of that certain Restructuring Support Agreement made and entered into as
of August 17, 2009, solely with respect to their dealings with the Company and
the undersigned in connection therewith), past, present, and future, together
with its and their officers, directors, executives, agents, employees, and
employee benefits plans (and the trustees, administrators, fiduciaries and
insurers of such plans), past, present, and future (collectively, the “Released
Parties”), from any and all claims, actions, causes of action, demands, rights,
damages, debts, accounts, suits, expenses, attorneys’ fees and liabilities of
whatever kind or nature in law, equity, or otherwise, whether now known or
unknown (collectively, the “Claims”), which the undersigned now has, owns or
holds, or has at any time heretofore had, owned or held against any Released
Party, from the beginning of time to the date of the Executive’s execution of
this Release of Claims, including without limitation, any Claims arising out of
or in any way connected with the undersigned’s employment relationship with the
Company, its subsidiaries, predecessors or affiliated entities, or the
termination thereof, under any Federal, state or local statute, rule, or
regulation, or principle of common, tort or contract law, including but not
limited to, the Family and Medical Leave Act of 1993, as amended (the “FMLA”),
29 U.S.C. §§ 2601 et seq., Title VII of the Civil Rights Act of 1964, as
amended, 42 U.S.C. §§ 2000e et seq., the Age Discrimination in Employment Act of
1967, as amended, 29 U.S.C. §§ 621 et seq., the Americans with Disabilities. Act
of 1990, as amended, 42 U.S.C. §§ 12101 et seq., the Worker Adjustment and
Retraining Notification Act of 1988, as amended, 29 U.S.C. §§ 2101 et seq., the
Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001
et seq., and all other Federal, state, or local statutes, regulations or laws;
provided, however, that nothing herein shall release the Company of its
obligations under that certain [for release to be signed if Paragraph 1 of
Letter Agreement is triggered: Letter Agreement, dated as of August 17, 2009,
between the Executive and the Company] [for release to be signed as required
under Paragraph 10 of Employment Agreement, absent Paragraph 1 of Letter
Agreement being triggered: Employment Agreement, dated as of November 19, 2008,
between Executive and the Company (as the same may be amended from time to time
by written agreement of Executive and the Company, including, as applicable
pursuant to that certain Letter Agreement, dated as of August 17, 2009, between
the Executive and the Company)]; provided, further, that Executive does not
waive any right to be provided a defense or to be indemnified that he may have
under any indemnification agreement or the Company’s Articles of Incorporation
or Bylaws or any directors and officers insurance arrangement. Except as set
forth in Section II below, the undersigned understands that, as a result of
executing this Release of Claims, he will not have the right to assert that the
Company or any other Released Party unlawfully terminated his employment or
violated any of his rights in connection with his employment or otherwise.
 
        The undersigned affirms that he is not presently party to any Claim,
complaint or action against any Released Party in any forum or form and that he
knows of no facts which may lead to any Claim, complaint or action being filed
against any Released Party in any forum by the undersigned or by any agency,
group, etc. The undersigned further affirms that he has been paid and/or has
received all leave (paid or unpaid), compensation, wages, bonuses, commissions,
and/or benefits to which he may be entitled and that no other leave (paid or
unpaid), compensation, wages, bonuses, commissions and/or benefits are due to
him from the Company and its subsidiaries, except as specifically provided in
this Release of Claims. The undersigned furthermore affirms that he has no known
workplace injuries or occupational diseases and has been provided and/or has not
been denied any leave requested under the FMLA. If any agency or court assumes
jurisdiction of any such Claim, complaint or action against any Released Party
on behalf of the undersigned, the undersigned hereby waives any right to
individual monetary or other relief.
 
 
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        The undersigned further declares and represents that he has carefully
read and fully understands the terms of this Release of Claims and that, through
this document, he is hereby advised to consult with an attorney prior to
executing this Release of Claims, that he may take up to and including 21 days
from receipt of this Release of Claims, to consider whether to sign this Release
of Claims, that he may revoke this Release of Claims within seven calendar days
after signing it by delivering to the Company written notification of revocation
(and that this Release of Claims shall not become effective or enforceable until
the expiration of such revocation period), and that he knowingly and
voluntarily, of his own free will, without any duress, being fully informed and
after due deliberate action, accepts the terms of and signs the same as his own
free act.
 
2. Protected Rights.  The Company and the undersigned agree that nothing in this
Release of Claims is intended to or shall be construed to affect, limit or
otherwise interfere with any non-waivable right of the undersigned under any
Federal, state or local law, including the right to file a charge or participate
in an investigation or proceeding conducted by the Equal Employment Opportunity
Commission (“EEOC’) or to exercise any other right that cannot be waived under
applicable law. The undersigned is releasing, however, his right to any monetary
recovery or relief should the EEOC or any other agency pursue Claims on his
behalf. Further, should the EEOC or any other agency obtain monetary relief on
his behalf, the undersigned assigns to the Company all rights to such relief.
 
3. Third-Party Litigation.  The undersigned agrees to be available to the
Company and its affiliates on a reasonable basis in connection with any pending
or threatened claims, charges or litigation in which the Company or any of its
affiliates is now or may become involved, or any other claims or demands made
against or upon the Company or any of its affiliates, regardless of whether or
not the undersigned is a named defendant in any particular case.
 
4. Severability.  If any term or provision of this Release of Claims is invalid,
illegal or incapable of being enforced by any applicable law or public policy,
all other conditions and provisions of this Release of Claims shall nonetheless
remain in full force and effect so long as the economic and legal substance of
the transactions contemplated by this Release of Claims is not affected in any
manner materially adverse to any party.
 
 
 
 
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5. GOVERNING LAW.  THIS RELEASE OF CLAIMS SHALL BE DEEMED TO BE MADE IN THE
STATE OF NEW YORK. AND THE VALIDITY, INTERPRETATION, CONSTRUCTION AND
PERFORMANCE OF THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.
 
Effective on the eighth calendar day following the date set forth below.
 
    THE READERS’ DIGEST ASSOCIATION, INC.,
 
 
by:

 
 

 
Name:  __________________________________

 
Title: ___________________________________

    EMPLOYEE,
 
    __________________________________________
    Tom Williams

    Date
Signed:________________________________                                                                

 
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Exhibit A-2

RELEASE OF CLAIMS

The Reader’s Digest Association, Inc. (“RDA”) hereby agrees, in consideration of
the covenants and agreements referred to in that certain letter agreement dated
August 17, 2009 by and between RDA and Tom Williams (“Mr. Williams”) and RDA
(the “Letter Agreement”) and other good and valuable consideration, the receipt
and sufficiency of which is hereby irrevocably acknowledged, that RDA hereby,
fully and completely forever releases Mr. Williams (hereinafter referred to as
the “Releasee”, which term includes all heirs, executors, administrators, estate
trustees, assigns and attorneys of Mr. Williams) from any and all causes of
action, suits, agreements, promises, damages, disputes, controversies,
contentions, differences, judgments, claims, debts, dues, sums of money,
accounts, reckonings, bonds, bills, specialities, covenants, contracts,
variances, trespasses, extents, executions and demands of any kind whatsoever,
which RDA or any of its agents, assignees, attorneys, successors, assigns, heirs
and executors ever had, now have or may have against the Releasee, in law,
admiralty or equity, whether known or unknown to RDA, for, upon, or by reason
of, any matter, action, omission, course or thing whatsoever occurring up to the
date this Release is signed by RDA, provided  that the foregoing shall not
include any claims to enforce RDA’s rights or the Releasee’s obligations under,
or with respect to, the Letter Agreement (or any exhibits referenced therein),
nor from any actions against Mr. Williams as a result of any criminal or
willfully fraudulent acts engaged in by Mr. Williams in connection with his
duties to RDA.

RDA fully understands that this Release is a legally binding document and that
by signing this Release RDA is prevented from filing, commencing or maintaining
any action against any Releasee, other than to enforce RDA’s rights under the
Letter Agreement and the Release of Claims (within the meaning of the Letter
Agreement).

This Release is final and binding and may not be changed or modified, except by
written agreement by both of RDA and the Releasee.
 

 
Dated:
_____________________                                                                  THE
READER’S DIGEST ASSOCIATION, INC.
 
            By: ________________________________
                                            Name:
                                            Title:
 

 

 
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EXHIBIT B

Pay for Performance/Variable Comp Plan

Summary
Broad-based plan designed to incent delivery of short-term, financial goals
(incremental Cash EBITDA and Free Cash Flow)
Participants
Includes specified level employees which provides a consistent pay for
performance philosophy among all executives
Target Award Opportunities
Target award opportunity (expressed as a % of base salary) established for each
participant relative to employee grade level and criticality of role
Performance Measure
Cash flow and Cash EBITDA.  Executives have 100% of their opportunity based on
financial results.  Performance will  be measured at the corporate level with
CEO discretion of +/- 10% at the operating unit level, assuming no change in
total pool available.
Performance Award
Cash payment
Performance Measurement Period
Annual measure  to recognize short-term goals and provide strong retention
and  incentive value
Payout Frequency
Paid out annually based on audited results for 2010.

 
 
 
 
 
 

 
 
 
 
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Williams chart 1 [charta.jpg]
 
 

 
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EXHIBIT C
 

 
Reward for Increasing Enterprise Value/
 
Enterprise Value Maximization Plan (EVMax)
 
Summary
Incremental executive plan designed to incent the delivery of longer-term
financial goals
Group 1 -  To reward for the realization of maximum enterprise value
Group 2  - To reward executives for time to emergence
Participation
Participation limited to executives that have broad enterprise wide
responsibilities or those that can impact time to emergence.  Select group will
participate in both.  All EVMax participants are also participants in the
Variable Comp Plan.
Performance Measure
Group 1 - Enterprise wide Cash EBITDA as measured in accordance with approved
plan Cash EBITDA at end of each year in two-year performance period (June 2010
and June 2011)
Group 2 - Incremental savings not contemplated in plan (driven by time to
emergence)
Performance Award
Group 1 – Cash payment based on pro-rata share of Cash EBITDA improvement over
approved plan Cash EBITDA
Group 2 – Cash payment based on a portion of saved professional fees due to
early exit
Performance Measurement Period
Group 1 - One year at Fiscal Year End
Group 2 - Time to Emergence
Payout Frequency
Group 1 - Paid at the end of 2010 Fiscal Year
Group 2 - Paid in full at emergence with a 6 month claw back provision

 
 
 
 
 
 
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Williams chart 2 [chartb.jpg]
 
 

 
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Williams chart 3 [chartc.jpg]
 
 
 
 
 
 

 
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ANNEX 1

Executive Participation
   
2010
  Base Line EBITDA
133.2
  Plus Bonus Expense included (est. 2001)
37.1
Pre-Bonus EBITDA
170.3
  Plus Cost Savings Assumed 2010
37.0
  Plus Cost Savings Assumed 2011
 -
  Plus Additional EBITDA generation
3.9
Pre-Bonus EBITDA after Initiatives
211.2
   
  EBITDA Pre-Bonus
211.2
  EBITDA Post-Bonus
174.0
  EVMAX Value Date
Jun-10
  EVMAX Value EBITDA (approximates above)
174.6
  EVMAX Time to Exit Bonus – Date of Exit on or Before
Jan-10
     
2010
Mary Berner
 
Base Salary
$    1,100,000
Variable Comp Percent of Salary
50%
Variable Comp Bonus Dollars
$       550,000
EVMAX – Value Creation
$       259,128
EVMAX – Time to Exit
$       928,698
Total Bonus
$    1,737,826
Total Compensation (Base + Bonus)
$    2,837,826
   
Tom Williams
 
Base Salary
$       600,000
Variable Comp Percent of Salary
52%
Variable Comp Bonus Dollars
$       316,147
EVMAX – Value Creation
$       157,207
EVMAX – Time to Exit
$       807,410
Total Bonus
$    1,280,764
Total Compensation (Base + Bonus)
$    1,880,764

 

 
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