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."