THE READER’S DIGEST ASSOCIATION, INC.
 
2006 INCOME CONTINUATION PLAN
FOR SENIOR MANAGEMENT
 
 
ARTICLE I
Purpose of Plan
 
1.1 The purpose of The Reader’s Digest Association, Inc. 2006 Income
Continuation Plan for Senior Management (the “Plan”) is to provide certain
officers and key employees of The Reader’s Digest Association, Inc. (the
“Company”) with appropriate assurances of continued income and other benefits
for a reasonable period of time in the event that the participant’s employment
with the Company terminates under any of the circumstances described herein,
thereby encouraging the continued attention and dedication of the participants
to ensure the continued success of the Company.
 
ARTICLE II
Eligibility for Participation
 
2.1 Each of the following positions at the Company shall be eligible to
participate in the Plan, in the absolute discretion of, and as of the respective
dates determined by, the Compensation and Nominating Committee (the “Committee”)
of the Board of Directors of the Company (the “Board”), with the respective
Severance Multipliers (as defined in Section 2.4) stated below:
 
 
Position
Severance Multiplier
Chairman (executive)
3
Chief Executive Officer
3
Executive Vice President
3
Chief Financial Officer
3
Chief Human Resources Officer
2
Chief Legal Officer
2
President, U.S. Magazines
2
President, North American Consumer Marketing and U.S. Books and Home
Entertainment
2

2.2 The Committee shall in its absolute discretion select the additional
positions, if any, that shall be eligible to participate in the Plan from time
to time and the respective Severance Multipliers that shall be applicable to
such positions.
 
2.3 The Committee shall in its absolute discretion select any executives that
formerly participated in The Reader’s Digest Association, Inc. 2001 Income
Continuation Plan for Senior Management that shall be eligible to participate in
the Plan and the respective Severance Multipliers that shall be applicable to
such positions.
 

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2.4 The level of participation of any position in the Plan shall be reflected as
a number, which shall be applied in Sections 5.1(b) and 5.1(c) below (the
“Severance Multiplier”). Subject to Section 3.2 below, the Committee shall have
the authority to change the Severance Multiplier for any position.
 
2.5 Participation in the Plan shall not in any respect be deemed to grant the
participant either a right to continued participation in the Plan or a right to
continued employment and such employment remains terminable at will by either
the Company or the participant at any time for any reason or for no reason.
 
ARTICLE III
Term
 
3.1 The Plan shall have an indefinite term.
 
3.2 The Board may not terminate or reduce the level of the participation of a
participant in the Plan, suspend or terminate the Plan, or amend the Plan so as
to impair the rights of any participant in the Plan unless the Board has
provided written notice to any participant whose participation in the Plan is
affected by such suspension, termination or amendment at least twelve (12)
months in advance of such suspension, termination or amendment.
 
3.3 Subject to Section 3.2 above, the Board may, at any time and from time to
time, modify or amend, in whole or in part, any or all of the provisions of the
Plan, or suspend or terminate it entirely.
 
ARTICLE IV
Causes of Termination
 
4.1 If the Company terminates a participant’s employment involuntarily, other
than for reasons described in Section 4.5 below, during the twenty-four (24)
months following a Change in Control (as defined below), the benefits described
in Article V hereof shall become payable to the participant.
 
4.2 Subject to the provisions of Section 4.3 below, if a participant terminates
his employment due to Constructive Termination (as defined below) during the
twenty-four (24) months following a Change in Control, and within 120 days of
the participant’s knowledge of the event constituting Constructive Termination,
the benefits described in Article V hereof shall become payable to the
participant. For the purposes of the Plan, “Constructive Termination” means any
of the following events, without the written consent of the participant:
 

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(a) the assignment to a participant of any duties inconsistent in any respect
with his position (including status, offices, titles and reporting
requirements), duties, responsibilities and authority with the Company
immediately prior to the Change in Control, or an adverse and material change or
a substantial diminution in his authority, reporting responsibilities, titles or
offices as in effect immediately prior to the Change in Control, or the removal
from or failure to re-elect the participant to any such position or office;
provided that termination of the participant’s employment for Cause (as defined
below), death, Total Disability (as defined in the Company’s Long Term
Disability Plan) or mandatory retirement pursuant to the Company’s retirement
policy shall not constitute a Constructive Termination event under the Plan;
 
(b) a reduction in the participant’s base salary;
 
(c) a reduction in the participant’s target incentive opportunities under the
Management Incentive Compensation Plan or the Senior Management Incentive Plan,
as applicable (each, as applicable, the “Incentive Compensation Plan”), or the
Company’s 1994, 2002 and 2005 Key Employee Long Term Incentive Plans (the
“KELTIPs”);
 
(d) a relocation of the participant to an office located anywhere other than
within seventy-five (75) miles of a participant’s primary office immediately
prior to the Change in Control, except for required travel on Company business
to an extent substantially consistent with the participant’s business travel
obligations immediately prior to the Change in Control;
 
(e) any failure by the Company to continue in effect any employee benefit plan
or fringe benefit program provided by the Company in which a participant
participates (or the Company’s elimination or material reduction of the
participant’s participation in such plan or program) that, by itself or in the
aggregate, is material to a participant’s total compensation and benefits from
the Company, unless there shall have been instituted a replacement or substitute
plan or fringe benefit program providing comparable benefits or compensation
providing comparable value;
 
(f) any failure by the Company to comply with and satisfy Section 6.1 below; or
 
(g) any failure by the Company to permit the participant to participate in any
new or additional compensation, incentive, employee benefit or fringe benefit
plan or program that is made generally available to senior management of the
Company or its successor, if such plan or program would be material to the
participant’s total compensation and benefits.
 
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4.3 A termination of employment by a participant shall not constitute a
Constructive Termination unless the participant provides notice to the Board
stating that in the participant’s opinion an event constituting Constructive
Termination has occurred and setting forth in reasonable detail the relevant
facts and circumstances. If such event is isolated, inadvertent and
insubstantial in nature, during the ten (10) business day-period after receipt
of such notice (the “10-day cure period”), the Company may remedy or otherwise
cure the situation to the participant’s satisfaction or persuade the participant
that the facts and circumstances do not constitute an event constituting
Constructive Termination, and, in such case, the event shall not be treated as a
Constructive Termination event under the Plan. If the Company shall, within such
10-day cure period, remedy or otherwise cure the situation, a recurrence thereof
or another occurrence constituting Constructive Termination shall constitute a
new event for purposes of Section 4.2 above.
 
Nothing herein shall require the participant to remain in the Company’s employ
beyond the expiration of the 10-day cure period in order to qualify for the
benefits described in Article V hereof. Any good-faith determination made by the
participant of an event constituting Constructive Termination shall be
conclusive.
 
4.4 For the purposes of the Plan, a “Change in Control” means:
 
(a) 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”); provided, however, that a Business Combination
satisfying clauses 4.4(c)(i) through (iii) below shall not constitute a Change
in Control;
 
(b) 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;
 
(c) 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 60% 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 are 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
 
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(d) 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 greater
than or equal to the 20% threshold in subsection 4.4(a) above as a result of the
acquisition by the Company of 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 20%
threshold in subsection 4.4(a) above, a Change in Control shall then be deemed
to occur.
 
For purposes of this Section 4.4:
 
“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 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.
 
4.5     (a) If the Company shall terminate a participant’s employment
involuntarily by reason of: (i) Cause; (ii) Total Disability (as defined in the
Company’s Long Term Disability Plan); (iii) mandatory retirement pursuant to the
Company’s retirement policy; or (iv) death, then no benefits shall become
payable to a participant under the Plan.
 
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(b) For the purposes of the Plan, “Cause” shall mean:
 
(i) the willful and continued failure of the participant to perform
substantially the participant’s duties with the Company (other than any such
failure resulting from incapacity due to physical or mental illness or following
the participant’s delivery of a notice of termination for Constructive
Termination), after a written demand for substantial performance is delivered to
the participant by the Board that specifically identifies the manner in which
the Board believes that the participant has not substantially performed the
participant’s duties;
 
(ii) the willful engaging by the participant in illegal conduct or gross
misconduct either of which is materially and demonstrably injurious to the
Company; or
 
(iii) the participant’s conviction of, or plea of guilty or nolo contendere to,
a felony.
 
(c) For purposes of this Section 4.5, no act, or failure to act, on the part of
the participant shall be considered “willful” unless it is done, or omitted to
be done, by the participant in bad faith or without reasonable belief that the
participant’s action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer of
the Company or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the participant in good faith and in the best interests of the
Company. The cessation of employment of the participant shall not be deemed to
be for Cause unless and until there shall have been delivered to the participant
a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board (excluding the participant,
if the participant is a member of the Board) at a meeting of the Board called
and held for such purpose (after reasonable notice is provided to the
participant and the participant is given an opportunity, together with counsel
for the participant, to be heard before the Board), finding that, in the good
faith opinion of the Board, the participant is guilty of any of the conduct
described in Section 4.5(b), and specifying the particulars thereof in detail.
 
4.6 Notice of any termination of employment by the Company or by a participant
pursuant to this Article IV shall be given in writing and shall specify the
effective date of termination.
 
4.7 In no event shall a voluntary resignation or retirement by a participant
give rise to any benefits under the Plan; provided, that a termination of
employment under Section 4.2 shall not be treated as a voluntary resignation or
retirement.
 
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ARTICLE V
Benefits
 
5.1 In the event of a participant’s termination of employment covered by Section
4.1 or 4.2 above, the Company shall provide to the participant:
 
(a) within ten (10) days following the participant’s date of termination of
employment, a lump sum payment of (i) the participant’s annual base salary
earned through the date of termination of employment to the extent not
theretofore paid and (ii) the product of (x) the higher of (A) the participant’s
annual target bonus under the Incentive Compensation Plan in the Company’s
fiscal year in which the participant’s date of termination of employment occurs
and (B) the average of the three (3) annual cash bonuses earned by the
participant under the Incentive Compensation Plan immediately preceding the
Company’s fiscal year in which the participant’s date of termination of
employment occurs (such higher amount of (A) and (B), hereinafter referred to as
the “Severance Bonus Amount”) and (y) a fraction, the numerator of which is the
number of days in the fiscal year in which the date of termination of employment
occurs through the date of termination of employment and the denominator of
which is 365 (for purposes of determining the Severance Bonus Amount, (a) any
bonus awarded for any fiscal year in which the participant was employed for less
than twelve (12) full months shall be annualized, (b) any bonus earned by a
participant for a fiscal year shall be treated as earned in such fiscal year,
notwithstanding whether payment is deferred, and (c) if a participant was not
employed by the Company (or a successor to the Company) for the entire
three-year period preceding the Company’s fiscal year in which the date of
termination of employment occurs, only the years during which the participant
was so employed shall be considered for purposes of determining the average in
clause (B) above; Annex A to the Plan sets forth illustrative examples of the
calculation of the Severance Bonus Amount);
 
(b) within ten (10) days following the participant’s date of termination of
employment, a lump sum payment equal to the product of (i) the Severance
Multiplier and (ii) the participant’s annual base salary at the rate of pay in
effect immediately prior to the participant’s date of termination of employment
or, if higher, immediately prior to the Change in Control;
 
(c) within ten (10) days following the participant’s date of termination of
employment, a lump sum payment equal to the product of (i) the Severance
Multiplier and (ii) the Severance Bonus Amount; and
 
(d) outplacement counseling services at the Company’s sole expense commensurate
with the participant’s position and as customarily provided by the Company
immediately prior to the Change in Control, or, if greater, after the Change in
Control.
 

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Notwithstanding the foregoing, in the event that a participant is a “key
employee” (a “§409A Key Employee”) for purposes of Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”) on the participant’s date of
termination of employment, payments of benefits under this Section 5.1 (other
than with respect to payments under Section 5.1(a)(i)) shall be made within ten
(10) days following (x) the date that is six months after the date of the
participant’s date of termination of employment or (ii) the date of the
participant’s death, if earlier.
 
5.2 In addition to the severance payments described in Section 5.1 above, in the
event of a termination of employment covered by Section 4.1 or 4.2 above, all
outstanding performance share awards, restricted stock units and similar
long-term incentive awards previously granted to the participant under the
KELTIP or under a similar plan maintained by the Company or any successor to the
Company (“Performance Awards”) shall immediately vest in the participant and
such Performance Awards shall be paid out in cash in a lump sum within ten (10)
days following the participant’s date of termination of employment either (a) as
if the applicable performance goals had been achieved at target (100%), with the
payment prorated for the number of months completed in the applicable
performance period at the time of such termination of employment or (b) in such
greater amount as the Committee shall determine, if at least half of the
performance period will have been completed at the time of such termination of
employment; provided, however, that if the participant is a §409A Key Employee,
payment may not be made before (x) the date that is six months after the date of
the participant’s termination of employment or (y) the date of the participant’s
death, if earlier).
 
5.3     (a) In the event of a participant’s termination of employment covered by
Section 4.1 or 4.2 above, the Company shall in lieu of continued participation
in all medical, dental and group life insurance plans provided by the Company to
active employees, pay to the participant, in a single cash lump sum, an amount
equal to the cost that the Company would have incurred to provide such benefits
to the participant as an active employee under the applicable welfare plan, as
if the participant had continued as an active employee during the period
following the participant’s date of termination of employment for a number of
years equal to the Severance Multiplier; provided, however, that if the
participant is a §409A Key Employee, payment may not be made before (x) the date
that is six months after the date of the participant’s termination of employment
or (y) the date of the participant’s death, if earlier).
 
(b) The lump sum payment required to be provided under this Section 5.3 shall
apply to each of the participant’s eligible dependents who was receiving such
benefits under the applicable welfare plan as of the participant’s date of
termination of employment to the extent such dependent remains eligible.
 
(c) In the event of a participant’s termination of employment covered by Section
4.1 or 4.2 above, “COBRA” continuation coverage under Section 4980B of the Code
shall begin on the date such coverage under the Company’s healthcare programs
ceases to be provided and shall be available for the greater of (i) the number
of years equal to the Severance Multiplier applicable to the participant or (ii)
the minimum period required under the Code.
 

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5.4 The provisions of this Section 5.4 shall govern the treatment of a
participant who experiences a termination of employment covered by Section 4.1
or 4.2 above for purposes of the participant’s benefits under such of the
Nonqualified Plans (as defined in the next sentence) in which the participant is
a participant immediately before such termination of employment, notwithstanding
any provision to the contrary in the Nonqualified Plans. The “Nonqualified
Plans” means The Reader’s Digest Association, Inc. Executive Cash Balance Plan
(the “Executive Cash Balance Plan”) and the Excess Benefit Retirement Plan of
The Reader’s Digest Association, Inc. (the “Excess Cash Balance Plan”).
 
(a) Executive Cash Balance Plan. In the event of a participant’s termination of
employment covered by Section 4.1 or 4.2 above, if the participant is a
participant in the Executive Cash Balance Plan immediately prior to such
termination of employment, the participant’s entire account balance under such
plan shall immediately vest as of the participant’s date of termination of
employment. In addition, the Company shall pay to any participant who was also a
participant in the Executive Cash Balance Plan before January 1, 2005 within ten
(10) days following the participant’s date of termination of employment a cash
lump sum amount equal to 1.5 times the Contribution Credits (as defined in the
Executive Cash Balance Plan) that would have been made to the participant’s
account under the Executive Cash Balance Plan, assuming that: (i) the
participant had remained an active employee during the one-year period following
the participant’s termination of employment and (ii) the participant’s
Compensation (as defined in the Executive Cash Balance Plan) for such period was
equal to the sum of (1) the participant’s annual base salary at the rate
described in Section 5.1(b)(ii) hereof and (2) the Severance Bonus Amount
provided, however, that if the participant is a §409A Key Employee, payment may
not be made before (x) the date that is six months after the date of the
participant’s termination of employment or (y) the date of the participant’s
death, if earlier.
 
(b) Excess Cash Balance Plan and Qualified Retirement Plan. In the event of a
participant’s termination of employment covered by Section 4.1 or 4.2 above, if
the participant is a participant in the Excess Cash Balance Plan immediately
prior to such termination of employment, the participant’s benefit under the
Excess Cash Balance Plan shall be adjusted so that the participant’s combined
retirement benefits under the Excess Cash Balance Plan and The Reader’s Digest
Association, Inc. Retirement Plan (the “Qualified Retirement Plan”) are equal to
the retirement benefits to which the participant would have been entitled if the
participant’s entire account balance under each plan had vested as of the
participant’s date of termination of employment.
 
5.5 The Company may withhold from any benefits payable under the Plan all
federal, state, local or other taxes as shall be required to be withheld
pursuant to any law or governmental regulation or ruling.
 
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5.6 Each participant shall enter into an agreement (in the form set forth as
Exhibit A to the Agreement) not to solicit employees of the Company or its
subsidiaries against the interests of the Company during the two-year period
following a termination of employment, without the prior written consent of the
Board or a committee thereof appointed to administer the Plan, and not to
disclose any confidential information relating to the Company’s business at any
time, except as may be provided in the agreement. Such agreement shall be
subject to exclusive jurisdiction in the federal or state courts of Westchester
County in New York State. Notwithstanding the foregoing, any provisions
providing for the forfeiture of awards or the recovery of gains from the
exercise of awards under the 1989 Key Employee Long Term Incentive Plan or the
KELTIPs (or applicable award agreements under such plans) shall no longer apply
upon and following a Change in Control.
 
5.7  (a) No participant shall be required to mitigate the amount of any benefits
provided for in this Article V by seeking other employment or otherwise, nor
shall the amount of any monthly or lump sum benefits provided for in the Plan be
reduced by any compensation earned by the participant as a result of employment
after the date of termination of employment by the Company.
 
   (b) The Company’s obligation to make the payments provided for in the Plan
and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense, or other claim, right or action that
the Company may have against a participant or a third party.

5.8 Except as otherwise provided herein, no provision of the Plan or any benefit
provided hereunder shall reduce any amounts otherwise payable, or in any way
diminish a participant’s existing rights, or rights which may accrue to the
participant solely as a result of the passage of time, under any pension or
welfare plan, incentive plan or other contract, plan or arrangement maintained
by the Company.
 
5.9  (a) Anything in the Plan or any other plan, agreement or arrangement to the
contrary notwithstanding, in the event it shall be determined that any Payment
to a participant would be subject to the Excise Tax, then the participant shall
be entitled to receive an additional payment (the “Gross-Up Payment”) in an
amount such that, after payment by the participant of all taxes (and any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes and employment taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, the participant retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions
of this Section 5.9(a), if it shall be determined that the participant is
entitled to a Gross-Up Payment, but the Parachute Value of the Payments does not
exceed 110% of the Safe Harbor Amount, then no Gross-Up Payment shall be made to
the Participant and the Plan Payments, in the aggregate, shall be reduced (but
not below zero) such that the Parachute Value of all Payments equals the Safe
Harbor Amount, determined in such a manner as to maximize the Value of all
Payments actually made to the Participant. The Company’s obligation to make
Gross-Up Payments under this Section 5.9 shall not be conditioned upon the
participant’s termination of employment. If the participant is a §409A Key
Employee, a Gross-Up Payment may not be made before (x) the date that is six
months after the date of the participant’s termination of employment or (y) the
date of the participant’s death, if earlier.
 

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(b) Subject to the provisions of Section 5.9(c), all determinations required to
be made under this Section 5.9, including whether and when a Gross-Up Payment is
required, the amount of such Gross-Up Payment and the assumptions to be utilized
in arriving at such determination, shall be made by Ernst & Young LLP, or such
other nationally recognized certified public accounting firm as may be
designated by the participant (the “Accounting Firm”). The Accounting Firm shall
provide detailed supporting calculations both to the Company and the participant
within fifteen (15) business days of the receipt of notice from the participant
that there has been a Payment or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change in Control, the
participant may appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 5.9, shall be paid by the Company to the
participant within five (5) days of the receipt of the Accounting Firm’s
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the participant. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments that
will not have been made by the Company should have been made (the
“Underpayment”), consistent with the calculations required to be made hereunder.
In the event the Company exhausts its remedies pursuant to Section 5.9(c), and
the participant thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the participant.
 
(c) The participant shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable, but no later than ten (10) business days after the participant is
informed in writing of such claim. The participant shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The participant shall not pay such claim prior to the expiration of the
10-day period following the date on which the participant gives such notice to
the Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the participant in
writing prior to the expiration of such period that the Company desires to
contest such claim, the participant shall:
 
(i) give the Company any information reasonably requested by the Company
relating to such claim,
 
(ii) take such action in connection with contesting such claim as the Company
shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company,
 
(iii) cooperate with the Company in good faith in order effectively to contest
such claim, and
 

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(iv) permit the Company to participate in any proceedings relating to such
claim;
 
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest, and shall indemnify and hold the participant harmless, on an
after-tax basis, for any Excise Tax or income tax and employment tax (including
interest and penalties) imposed as a result of such representation and payment
of costs and expenses. Without limitation on the foregoing provisions of this
Section 5.9(c), the Company shall control all proceedings taken in connection
with such contest, and, at its sole discretion, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
applicable taxing authority in respect of such claim and may, at its sole
discretion, either direct the participant to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the participant
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that, if the Company
directs the participant to pay such claim and sue for a refund, the Company
shall advance the amount of such payment to the participant, on an interest-free
basis, and shall indemnify and hold the participant harmless, on an after-tax
basis, from any Excise Tax or income tax and employment tax (including interest
or penalties) imposed with respect to such advance or with respect to any
imputed income in connection with such advance; and provided, further, that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the participant with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company’s control of the contest shall be limited to issues with respect to
which the Gross-Up Payment would be payable hereunder, and the participant shall
be entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
 
(d) If, after the receipt by the participant of an amount advanced by the
Company pursuant to Section 5.9(c), the participant becomes entitled to receive
any refund with respect to such claim, the participant shall (subject to the
Company’s complying with the requirements of Section 5.9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
participant of an amount advanced by the Company pursuant to Section 5.9(c), a
determination is made that the participant shall not be entitled to any refund
with respect to such claim and the Company does not notify the participant in
writing of its intent to contest such denial of refund prior to the expiration
of ten (10) days after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.
 
(e) Notwithstanding any other provision of this Section 5.9, the Company may, in
its sole discretion, withhold and pay over to the Internal Revenue Service or
any other applicable taxing authority, for the benefit of the participant, all
or any portion of any Gross-Up Payment, and the participant hereby consents to
such withholding; provided, that such withholding and payment shall in no event
place the participant in a less favorable tax position than had such payments
been made to the participant by the Company.
 

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(f) Definitions. The following terms shall have the following meanings for
purposes of this Section 5.9.
 
(i) “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code,
together with any interest or penalties imposed with respect to such excise tax.
 
(ii) “Parachute Value” of a Payment shall mean the present value as of the date
of the Change of Control for purposes of Section 280G of the Code of the portion
of such Payment that constitutes a "parachute payment" under Section 280G(b)(2),
as determined by the Accounting Firm for purposes of determining whether and to
what extent the Excise Tax will apply to such Payment.
 
(iii) A “Payment” shall mean any payment or distribution in the nature of
compensation (within the meaning of Section 280G(b)(2) of the Code) to or for
the benefit of the participant, whether paid or payable pursuant to the Plan or
otherwise.
 
(iv) “Plan Payment” shall mean a Payment paid or payable pursuant to the Plan
(disregarding this Section 5.9).
 
(v) “Safe Harbor Amount” shall mean the maximum Parachute Value of all Payments
that the participant can receive without any Payments being subject to the
Excise Tax.
 
(vi) “Value” of a Payment shall mean the economic present value of a Payment as
of the date of the Change in Control for purposes of Section 280G of the Code,
as determined by the Accounting Firm using the discount rate required by Section
280G(d)(4) of the Code.
 
ARTICLE VI
General Provisions
 
6.1 The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
businesses or assets of the Company to expressly assume and adopt the Plan.
 
6.2 If any participant entitled to receive benefits under Article V of the Plan
as a result of a termination of employment covered by Section 4.1 or 4.2 above
should die while any amounts are still payable to the participant hereunder, all
unpaid benefits under the Plan with respect to such participant shall be paid to
the participant’s designated beneficiary or, if no designation has been made, to
the participant’s estate.
 

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6.3 The Company agrees to pay as incurred (within ten (10) days following the
Company’s receipt of an invoice from the participant), to the fullest extent
permitted by law, all legal fees and expenses that the participant may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the participant or others of the validity or enforceability of,
or liability under, any provision of the Plan or any guarantee of performance
thereof (including as a result of any contest by the participant about the
amount of any payment pursuant to the Plan), plus, in each case, interest on any
delayed payment at the applicable federal rate provided for in Section
7872(f)(2)(A) of the Code.
 
6.4 Nothing contained in the Plan shall be construed as a contract of employment
between the Company and any participant, or as a right of any participant to
continue in the employ of the Company, or as a limitation of the right of the
Company to discharge any participant, with or without Cause.
 
6.5 The Plan shall be administered as an unfunded plan designed primarily for
the purpose of providing benefits to a select group of management or highly
compensated employees of the Company. Payments under the Plan shall at all times
be made solely from the general assets of the Company. No assets shall be
segregated or earmarked in respect of any amount due hereunder. The Plan and the
amounts due hereunder shall not constitute a trust. The Plan is intended to
comply with the requirements of Section 409A of the Code and the regulations
promulgated thereunder.
 
6.6 Any notice or other communication pursuant to the Plan intended for a
participant shall be deemed given when personally delivered to such participant
or sent to such participant by registered or certified mail, return receipt
requested, at such participant’s residence address as it appears on the records
of the Company, or at such other address as such participant shall have
specified by notice to the Company in the manner herein provided. Any notice or
other communication pursuant to the Plan intended for the Company shall be
deemed given when personally delivered to the Secretary by registered or
certified mail, return receipt requested, at its headquarters in Pleasantville,
New York 10570, or at such other address as the Company shall have specified by
notice to the participants in the manner herein provided.
 
6.7 Except as provided in Section 6.2, a participant may not assign, anticipate,
transfer, pledge, hypothecate or alienate in any manner any interest arising
under the Plan, nor shall any such interest be subject to attachment, bankruptcy
proceedings or to any other legal processes or to the interference or control of
creditors or others.
 
6.8 Except as specifically provided otherwise herein, determinations under the
Plan shall be made by the Board. If any body of law should be used or applied in
determining the meaning or effect of the Plan, it shall be the law of the State
of New York. Any dispute under this Plan shall be subject to the exclusive
jurisdiction in the federal or state courts of Westchester County in New York
State, and by becoming a participant in the Plan, each participant shall be
treated as having consented to such exclusive jurisdiction.
 
6.9 Any reference to a specific policy, plan or program in this Plan shall be
deemed to include any similar policy, plan or program of the Company then in
effect that is the predecessor of, the successor to, or the replacement for,
such specific policy, plan or program.
 

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6.10 In the construction of the Plan, the masculine shall include the feminine
and the singular the plural, and vice-versa, in all cases where such meaning
would be appropriate.
 
6.11 In the event any provision of the Plan, if challenged, would be declared
invalid, illegal or unenforceable, such provision shall be construed and
enforced as if it had been more narrowly drawn so as not to be illegal, invalid
or unenforceable and the validity, legality and enforceability of the remaining
provisions shall not be affected or impaired thereby.
 
6.12 In the event a participant receives severance benefits under Article V of
the Plan, such participant shall not be entitled to severance or termination
benefits under any other severance plan of the Company or its affiliates,
including, without limitation, the Company’s Income Continuation Plan for Senior
Management, the Company’s 2001 Income Continuation Plan for Senior Management,
or under any individual employment or severance agreement, unless such
individual agreement otherwise specifies for certain payments to be made
thereunder in addition to, or in lieu of, the severance benefits under Article
V.
 

 

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ANNEX A - Examples of Severance Bonus Amount
 
Set forth below are illustrative examples of calculations of the Severance Bonus
Amount under Section 5.1(a):
 
A. Target Bonus Exceeds Average Bonus
 

·  Target Bonus
 
=
 
$350,000
 
·  Bonuses In Last Three Years
 
=
 
$500,000
 
 
 
=
 
$200,000
 
 
 
=
 
$200,000
 
·  Average Bonuses
 
=
 
$300,000
 
·  Severance Bonus Amount
 
=
 
$350,000
 

 
B. Average Bonus (one year annualized) Exceeds Target Bonus
 

·  Target Bonus
 
=
 
$200,000
 
·  Bonuses In Last Three Years
 
=
 
$300,000 (employed six months)
 
 
=
 
$200,000
 
 
=
 
$400,000
 
·  Average Bonuses
 
=
 
$300,000
 
·  Severance Bonus Amount
 
=
 
$300,000
 

 
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C. Average Highest Bonuses (employed two years) Exceeds Largest Bonus
 
·  Target Bonus
 
=
 
$250,000
 
·  Bonuses In Last Three Years (only employed 2 years)
 
 
=
 
$300,000
 
 
=
 
$400,000
 
·  Average Bonuses
 
=
 
$350,000
 
·  Severance Bonus Amount
 
=
 
$350,000
 

 

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ANNEX B - Determination of Gross-up on Excise Tax Under Section 5.9(a)
 
A.
Parachute Value of Payments[1]
Base Amount
Safe Harbor Amount
Parachute Value of Payments in Excess of Safe Harbor Amount
Parachute Value of Payments as a Percent of Safe Harbor Amount
$2,000,000
$680,000
$2,039,999
$0
98%
 
5-year Average W2 Income
2.99 x Base Amount
 
 

·  
Parachute value of payments does not exceed “safe harbor” amount and therefore
no excise tax is triggered.

 
B.
Parachute Value of Payments[1]
Base Amount
Safe Harbor Amount
Parachute Value of Payments in Excess of Safe Harbor Amount
Parachute Value of Payments as a Percent of Safe Harbor Amount
$2,100,000
$650,000
$1,949,999
$150,001
108%
 
5-year Average W2 Income
2.99 x Base Amount
 
 

·  
Parachute value of payments does not exceed 110% of “safe harbor” amount and
therefore no gross-up payment is made and the participant’s parachute value of
payments is capped at the “safe harbor” amount of $1,949,999.

 
C.
Parachute Value of Payments[1]
Base Amount
Safe Harbor Amount
Parachute Value of Payments in Excess of Safe Harbor Amount
Parachute Value of Payments as a Percent of Safe Harbor Amount
$2,500,000
$700,000
$2,099,999
$400,001
119%
 
5-year Average W2 Income
2.99 x Base Amount
 
 

·  
Parachute Value of payments does exceed 110% of “safe harbor” amount and
therefore a gross-up payment is made to the participant.

 
[1] Parachute value of payments calculated according to Section 280G of the
Internal Revenue Code.

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EXHIBIT A - Non Solicitation Agreement

[Name of Participant]
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570

Dear [Name of Participant]:

Under Section 5.6 of The Reader’s Digest Association, Inc. (the “Company”) 2006
Income Continuation Plan for Senior Management (the “Plan”), each participant in
the Plan is required to enter into a non-solicitation and confidentiality
agreement. In consideration of your participation in the Plan, you agree as
follows:

1.
You will not, without the written consent of the Company signed by the Chief
Human Resources Officer or the General Counsel of the Company, during the
two-year period following your termination of employment with the Company,
attempt, directly or indirectly, to solicit, induce or hire (or identify for
solicitation, inducement or hire) any non-clerical employee of the Company or
its affiliates to be employed by, or to perform services for, you or any person
or entity with which you are associated (including, but not limited to, due to
your employment by, consultancy for, equity interest in, or creditor
relationship with such person or entity) or any person or entity from which you
receive direct or indirect compensation or fees as a result of such
solicitation, inducement or hire (or the identification for solicitation,
inducement or hire).

2.
You will not, without the written consent of the Chief Human Resources Officer
or the General Counsel of the Company, at any time following your termination of
employment with the Company, disclose to anyone outside the Company or its
affiliates, or use in other than the Company’s or its affiliate’s business, any
confidential information or proprietary information relating to the business of
the Company or its affiliates, acquired by you during employment with the
Company or its affiliates.

3.
This letter agreement shall be governed by and interpreted in accordance with
the laws of the State of New York applicable to contracts executed in and to be
wholly performed within that State. I hereby agree and consent to exclusive
jurisdiction of any dispute under this letter agreement in the federal or state
courts of Westchester County in New York State.

If the foregoing represents your understanding, please indicate your agreement
and acceptance by executing below and returning one fully executed copy of this
agreement to the undersigned.
 

   
Very truly yours,
         
THE READER’S DIGEST ASSOCIATION, INC.
         
By ______________________________
   
Name: Lisa A. Cribari
   
Vice President, Global Human Resources
Agreed to and accepted as of ____________
         
_______________________________
   
Name: [Names of Executive]