Exhibit
10.12


 


THIRD
AMENDED AND RESTATED

EMPLOYMENT AGREEMENT


 


THIRD
AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) dated as of
May 26, 2010 (the “Effective Date”), between The Reader’s Digest
Association, Inc., a Delaware corporation (the “Company”), and Mary G.
Berner (“Executive”).


 


WHEREAS,
the Company and the Executive entered into the Second Amended and Restated
Employment Agreement dated as of February 19, 2010 (the “Prior Agreement”);


 


WHEREAS,
the Company and the Executive desire to enter into the Agreement to set forth
the terms of her continuing employment;


 


WHEREAS,
except as otherwise expressly provided herein, this Agreement shall supersede
any prior written agreement entered into between the Executive and the Company
prior to the Effective Date with respect to the subject matter hereof,
including, without limitation, the Prior Agreement; and


 


WHEREAS
the Company desires to continue to employ Executive as its Chief Executive
Officer and Executive continues to be willing to serve the Company in such
capacity for the period and upon such other terms and conditions of this
Agreement.


 


NOW,
THEREFORE, in consideration of the mutual agreements, provisions and covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as set forth below:


 


1.                                       Term.  (a)  Duration.  The term of Executive’s employment under this
Agreement shall continue until the fifth anniversary of the Effective Date (the
“Expiration Date”).  The period of
time from the Effective Date through the termination of Executive’s employment
under this Agreement is herein referred to as the “Term.”


 


(b)                                 No Obligation.  The
parties agree and acknowledge that, should Executive and the Company choose to
continue Executive’s employment for any period of time following the Expiration
Date without extending the term of Executive’s employment under this Agreement
or entering into a new written employment agreement, Executive’s employment
with the Company shall be “at will,” such that the Company may terminate
Executive’s employment at any time, with or without reason and with or without
notice, and Executive may resign at any time, with or without reason and with
or without notice.


 


(c)                                  Definitions.  For
purposes of this Agreement, the following terms, as used herein, shall have the
definitions set forth below.


 


“Affiliate(s)” means, with respect to any specified Person, any
other Person that directly or indirectly, through one or more intermediaries,
Controls, is Controlled by, or 


 

















 


is
under common Control with, such specified Person, provided that, in any
event, any business in which the Company has any direct or indirect ownership
interest shall be treated as an Affiliate of the Company.


 


“Control” (including, with correlative meanings, the terms “Controlled
by” and “under common Control with”), as used with respect to any
Person, means the direct or indirect possession of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.


 


“Limited Affiliate(s)” means, with respect to any specified
Person, any other Person that directly or indirectly, through one or more
intermediaries, Controls, is Controlled by, or with respect to Persons in the
publishing or media business, is under common Control with, such specified
Person, provided that, in any event, any business in which the Company
has any direct or indirect ownership interest shall be treated as an Affiliate
of the Company.


 


“Person” means any individual, firm, corporation, partnership,
limited liability company, trust, joint venture, association, governmental
entity, unincorporated entity or other entity.


 


2.                                       Duties and Responsibilities. 
(a)  During the Term, Executive agrees to be employed and devote
substantially all of Executive’s business time, attention and efforts to the
Company and the promotion of its interests and the performance of Executive’s
duties and responsibilities hereunder, upon the terms and conditions of this
Agreement.  Executive shall render
Executive’s services hereunder as Chief Executive Officer of the Company, with
the duties, responsibilities and authority commensurate with Executive’s
status, including any duties and responsibilities as directed from time to time
by the Board of Directors of the Company (the “Board”) consistent with
Executive’s position hereunder. 
Executive shall report to the Board. 
As of the Effective Date and during the Term, Executive shall be
appointed or elected (and re-elected, as applicable) as a member of the Board.


 


(b)                                 Place of Employment; Business Travel. 
During the Term, Executive’s principal place of employment shall be at
the Company’s Pleasantville, New York office, provided that upon such office
relocating as contemplated to New York City, New York City shall be Executive’s
principal place of employment.  Executive
acknowledges that Executive’s duties and responsibilities shall require
Executive to travel on business to the extent reasonably necessary to fully
perform Executive’s duties and responsibilities hereunder.


 


(c)                                  Board Membership; No Conflict. 
During the Term, Executive shall not be permitted to be a member of the
board of directors of any for-profit company without the consent of the Company
(such consent not to be unreasonably withheld) (for all purposes under this
Agreement, any required consent of the Company shall be evidenced by the
written approval of the Chairman of the Board), provided that Executive
may serve, without approval, on the boards of directors of not-for-profit
entities; provided that such activities do not interfere with the
performance of the Executive’s duties and responsibilities hereunder.


 


2

















 


3.                                       Compensation and Related Matters.  (a)  Base
Salary.  During the Term, for all
services rendered under this Agreement, Executive shall receive an aggregate
annual base salary (“Base Salary”) at an initial rate of $1.1 million,
payable in accordance with the Company’s applicable payroll practices.  Base Salary shall be subject to review by the
Board for increases, but not decrease, in its sole discretion and references in
this Agreement to “Base Salary” shall be deemed to refer to the most
recently effective annual base salary rate.


 


(b)                                 Bonus Opportunities.  During
the Term, Executive shall be eligible to receive an annual cash bonus under the
Company’s annual management incentive plan (the “Annual Bonus”) based on
the Executive’s achievement of the financial goals (“Goals”) established by the
Board after consultation with Executive, provided, that the Annual Bonus
payable to Executive upon achievement of the applicable annual Goals shall be
$1.2 million (the “Target Bonus”), and payment in the case of
overachievement or underachievement of the Goals shall be adjusted from the
Target Bonus consistent with the formula applied to other senior executives of
the Company for similar performance.


 


Any
Annual Bonus that Executive shall actually become entitled to receive pursuant
to the arrangements described above, will be payable by the Company at such
time and in such manner that bonuses are paid to other senior executives of the
Company in accordance with the terms of the applicable Annual Bonus plan, and
is in any event intended to be paid as “short-term deferral” income, within the
meaning of Section 409A (as such term is defined in Section 16 below).


 


(c)                                  Benefits and Perquisites. 
During the Term, Executive shall be entitled to participate in the
benefit and perquisite plans and programs, commensurate with Executive’s
position, that are established by the Company from time to time for executive
employees generally, subject to the terms and conditions of such plans.  Executive shall also be entitled to the use
of a car service when traveling between New York, NY and Pleasantville,
NY.  All amounts payable to Executive
under this Section 3(c) shall be reimbursed as soon as practicable after
Executive incurs such expense and submits documentation thereof (which shall be
submitted within ninety (90) days of the incurrence of the expense), but, to
the extent taxable income to Executive, in no event later than the “Short-Term
Deferral Date” (as defined below).  The “Short-Term
Deferral Date” shall mean, with respect to any fee or expense, the 15th day of
the third month following the later of the end of the calendar year or the end
of the Company’s fiscal year in which the fee or expense is incurred.


 


(d)                                 Vacation.  During the
Term, Executive shall be entitled to paid vacation in accordance with the
Company’s vacation policies applicable to senior executives of the Company, but
in no event less than four (4) weeks per year.


 


(e)                                  Business Expense Reimbursements. 
During the Term, the Company shall promptly reimburse Executive for
Executive’s reasonable business expenses incurred in connection with performing
Executive’s duties hereunder in accordance with its then-prevailing policies
and procedures for expense reimbursement, which shall provide for travel and
entertainment at a level commensurate with Executive’s position.  All amounts payable to Executive under this
Section 3(e) shall be reimbursed as soon as practicable after Executive


 


3

















 


incurs
such expense and submits documentation thereof (which shall be submitted within
ninety (90) days of the incurrence of the expense), but, to the extent taxable
income to Executive, in no event later than the Short-Term Deferral Date.


 


(f)                                    Equity Compensation Opportunities.  The
Company shall grant to Executive equity awards under the RDA Holding Co. 2010
Equity Incentive Plan in the form of the grant agreement attached hereto as
Exhibits A and B, at the later of (i) the second business day after receipt of
a per share valuation report (as of March 31, 2010) being conducted by an
independent third party valuation firm, and (ii) the Effective Date, but in no
event more than 45 days after the Effective Date.


 


(g)                                 Legal Fees.  The
Company shall pay all reasonable attorneys’ fees and disbursements incurred by
Executive prior to the expiration of the Term in connection with (i) any
negotiations of this Agreement or modifications to this Agreement, and (ii) the
negotiation of any other agreements documenting Executive’s equity arrangements
with the Company and concomitant revisions of this Agreement.  Any reimbursement pursuant to this Section
3(g) shall be paid to Executive promptly upon remittance of documentation of
such fees and in no event later than the Short-Term Deferral Date.


 


4.                                       Separation from Service with the Company.


 


(a)                                  Death or Disability.


 


(i)                                     Executive’s employment shall automatically terminate upon Executive’s
death.  The Company may terminate
Executive’s employment hereunder in the event of Executive’s “Disability”
(as defined below) upon 30 days’ written notice to Executive.  In the event of a termination of Executive’s
employment hereunder by reason of death or by reason of Disability, the Company
shall pay to Executive or her estate, as applicable, any accrued but unpaid
Base Salary, accrued but unused vacation time, unreimbursed business expenses,
and unpaid Annual Bonus for any completed performance period prior to the year
of termination, and Executive or her estate shall be entitled to receive
employee benefits pursuant to the terms of the benefit plans and programs
applicable to terminated employees (collectively, the “Accrued Rights”).  The Accrued Rights shall be payable on their
normal payment dates; provided that accrued but unused vacation time
shall be paid within 30 days following the date of termination of Executive’s
employment.  In addition, Executive shall
be entitled to a pro-rata portion of the Annual Bonus that relates to the
performance period in which the termination of employment occurs, based on
actual results of the Company, which amount shall be calculated based upon a
formula, the denominator of which shall be 365 and the numerator of which shall
be the number of days during the applicable performance period during which
Executive was employed by the Company, and shall be paid at such time as annual
bonuses are ordinarily paid to other senior executives of the Company in
respect of such performance period in accordance with the terms of the
applicable Annual Bonus plan (the “Pro-Rata Bonus”).


 


4

















 


(ii)                                  For purposes of this Agreement, “Disability” means Executive has
been physically or mentally incapable for 6 consecutive months to perform her
material duties hereunder.  Any question
as to the existence of the Disability of Executive as to which the Company and
Executive shall not agree shall be determined in writing by a qualified
independent physician mutually acceptable to Executive and the Company (and if
Executive and the Company cannot agree as to a qualified independent physician,
each shall appoint a physician and those two physicians shall select a third
physician who shall make such determination in writing, which shall be final
and conclusive for all purposes of this Agreement).  In connection therewith, Executive agrees to
submit to any medical examination(s) as may be reasonably requested by the
Company for such purpose.


 


(b)                                 By the Company for Cause or By Executive
Without Good Reason.


 


(i)                                     The Company may terminate Executive’s employment hereunder for “Cause”
(as defined below) at any time upon 30 days’ written notice to Executive and
Executive may terminate her employment hereunder without “Good Reason” (as
defined below) at any time upon 30 days’ written notice to the Company.  In the event the Company terminates Executive’s
employment hereunder for Cause or Executive terminates her employment hereunder
without Good Reason, Executive shall be entitled to her Accrued Rights and the
Company shall have no further obligations to Executive under this
Agreement.  The Accrued Rights shall be
payable on their normal payment dates; provided that accrued but unused
vacation time shall be paid within 30 days following the date of termination of
Executive’s employment.


 


(ii)                                  For purposes of this Agreement, “Cause” means: (A) Executive’s
willful failure to substantially perform Executive’s duties hereunder (other
than due to physical or mental illness) after written notice of such failure to
Executive, (B) Executive’s conviction of, or plea of guilty or nolo contendere
to a felony (or the equivalent of a felony in a jurisdiction other than the
United States) other than, in any case, vicarious liability or traffic
violations, (C) Executive’s willful material breach of Sections 6, 7, or 9
hereof that, to the extent curable, is uncured by Executive promptly following
receipt of written notice given by the Company of such breach, (D) Executive’s
willful material violation of the Company’s written policies of a material
nature that has a detrimental impact on the Company and that, to the extent
curable, is uncured by Executive promptly following receipt of written notice
given by the Company of such breach; (E) Executive’s fraud or embezzlement with
respect to the Company; (F) Executive’s misappropriation or misuse of funds or
property belonging to the Company that is done in bad faith and is more than de
minimis in nature; (F) Executive’s use of illegal drugs that interferes with
the performance of Executive’s duties hereunder; or (G) Executive’s gross
misconduct, whether or not done in connection with employment, other than an action
done in the good faith belief that it was in the best interests of the Company,
that materially adversely affects the business or reputation of the Company,
its subsidiaries or Affiliates.


 


5

















 


(iii)                               For purposes of this Agreement, “Good Reason” means (A) any
diminution in Executive’s title or position or a material diminution in
Executive’s duties, authorities or responsibilities (excluding for this purpose
an insubstantial or inadvertent action taken in good faith and which is
remedied by the Company promptly after receipt of notice thereof given by
Executive); (B) the assignment to Executive of duties inconsistent with her
position (excluding for this purpose an insubstantial or inadvertent action taken
in good faith and which is remedied by the Company promptly after receipt of
notice thereof given by Executive); (C) any material breach by the Company of
this Agreement, any Exhibit hereto or any other agreement or letter executed
between the Company and the Executive simultaneously with or following the date
of this Agreement that specifically provides that such agreement or letter is
intended to modify or supplement this Agreement, in each case that, to the
extent curable, is uncured by the Company promptly following receipt of written
notice thereof from Executive; (D) any reduction of Executive’s Base Salary or
Target Bonus; (E) the transfer or relocation of Executive’s principal place of
employment to a location further in miles and/or travel time from New York, New
York than is Pleasantville, New York; (F) any failure to re-elect Executive to
the Board if the Company is not public, or to nominate Executive for election
to the Board if the Company is public, or the removal of Executive from the
Board other than for cause in accordance with the Company’s by-laws or in
connection with a termination for “Cause” under the terms of this agreement; or
(G) the failure of the Company to obtain the assumption of this Agreement by
any person, firm, corporation or other business entity which at any time,
whether by purchase, merger or otherwise, directly or indirectly acquires all
or substantially all of the assets or business of the Company and the failure
to deliver a copy of the document effecting such assumption to the Executive
upon Executive’s written request.


 


(c)                                  By the Company Other Than for Cause or by
Executive for Good Reason.  The Company may terminate
Executive’s employment hereunder other than for Cause (and other than due to
Disability) at any time upon thirty (30) days’ advance written notice to
Executive and Executive may terminate her employment hereunder at any time upon
thirty (30) days’ advance written notice to the Company.  In the event of a termination of Executive’s
employment hereunder by the Company other than for Cause or by Executive for
Good Reason, Executive shall be entitled to her Accrued Rights (payable on
their normal payment dates; provided that accrued but unused vacation
time shall be paid within thirty (30) days following the date of termination of
Executive’s employment) plus the following benefits (collectively, the “Separation
Benefits”):  (i) a severance payment
equal to three times Executive’s then current Base Salary, which amount shall
be paid, subject to the provisions of Section 16 hereof, in a lump-sum on the
53rd day following the date of termination; (ii) continuation of access to the
Company’s life, health, dental and vision benefits for Executive and her
dependents, for twenty-four (24) months following termination of employment at
the full cost therefor, which, in connection with the medical health, dental
and vision, the parties acknowledge is the applicable COBRA rate therefor
unless there is guidance to the contrary from the U.S. Treasury Department;
(iii) subject to the provisions of Section 16, hereof, monthly payments to
Executive of an amount equal to the sum of (x) in the case of life insurance,
the premiums due to maintain the then existing basic coverage that had been
provided at employer cost while Executive was employed, (y) in the case of
health, dental and vision coverage, the difference between such full cost and
the active employee monthly contribution for such coverage and (z) an
additional 


 


6

















 


amount
so that Executive is no worse off on an after tax basis than she would be as an
employee receiving such coverages, for twenty-four (24) months following
termination of employment(provided that any such payments otherwise
payable to Executive within the first 52 days following such termination
shall not be paid on the otherwise scheduled payment date but shall instead
accumulate and be paid on the 53rd day following the date of termination, and
provided further that the Company and Executive may, to and only to the extent
permitted by Code Section 409A, mutually agree to alter the mechanics of the
payments hereunder); and (iv) an additional twelve (12) months of vesting
credit with respect to any outstanding equity awards held by Executive on the
date of termination.  Notwithstanding the
foregoing, unless, on or prior to the 52nd day following the date of
termination of employment, Executive shall have signed the Release of Claims in
the form attached hereto as Exhibit C and such Release of Claims shall
have become effective in accordance with its terms, (1) no payment shall be
paid or made available to Executive under clause (i) or (iii) of this Section
4(c), (2) the Company shall be relieved of all obligations to provide or make
available any further benefits to Executive pursuant to clause (ii) of this
Section 4(c), (3) Executive shall be required to repay the Company, in cash,
within five (5) business days after written demand is made therefor by the
Company, an amount equal to the value of any payments or benefits received by
Executive pursuant to clause (ii) of this Section 4(c) and (4) Executive shall
forfeit any portion of any equity award that vested pursuant to clause (iv) of
Section 4(c).  Notwithstanding anything
in this Agreement to the contrary, payment of any or all of the Separation
Benefits is expressly contingent upon the Executive’s continued substantial
compliance with the terms and conditions of Sections 6, 7, 8 and 9 of this
Agreement; provided Executive had received notice thereof and failed promptly
to cure any such breach to the extent curable. 
Executive recognizes that, except as expressly provided in this Section
4 or pursuant to the terms of Executive’s equity grant agreements, no
compensation is owed to her after termination of her employment.


 


(d)                                 Expiration of Term.  If
Executive’s employment shall terminate by reason of the expiration of the Term
as a result of either party giving notice of non-extension of the Term to the
other party pursuant to Section 1(a), Executive shall be entitled to the
Accrued Rights.  The Accrued Rights shall
be payable on their normal payment dates; provided that accrued but
unused vacation time shall be paid within 30 days following the date of
termination of Executive’s employment.


 


(e)                                  Resignation from Board.  Upon
termination of Executive’s employment for any reason, and regardless of whether
Executive continues as a consultant to the Company, upon the Company’s request
Executive agrees to resign, as of the date of such termination of employment or
such other date requested, from the Board and any committees thereof (and, if
applicable, from the board of directors (and any committees thereof) of any
subsidiary or Affiliate of the Company) to the extent Executive is then serving
thereon.


 


(f)                                    Amounts Due Under Plans. 
Subject to the provisions hereof, the payment of any amounts accrued
under any benefit plan, program or arrangement in which Executive participates
shall be subject to the terms of the applicable plan, program or arrangement,
and any elections Executive has made thereunder.


 


7

















 


(g)                                 Waiver of Notice.  The
Board may waive any notice required of Executive and Executive may waive any
notice required of the Company under this Section 4 without liability, penalty
or cost.


 


5.                                       Acknowledgments. 
(a)  Executive acknowledges that the Company has expended and
shall continue to expend substantial amounts of time, money and effort to
develop business strategies, employee and customer relationships and goodwill and
build an effective organization. 
Executive acknowledges that Executive is and shall become familiar with
the Company’s Confidential Information (as defined below), including trade
secrets, and that Executive’s services are of special, unique and extraordinary
value to the Company, its subsidiaries and Affiliates.  Executive acknowledges that the Company has a
legitimate business interest and right in protecting its Confidential
Information, business strategies, employee and customer relationships and goodwill,
and that the Company would be seriously damaged by the disclosure of
Confidential Information and the loss or deterioration of its business
strategies, employee and customer relationships and goodwill.  The Company acknowledges that Executive is a long
serving executive in the industry and has acquired significant industry
experience and knowledge during her career.


 


(b)                                 Executive acknowledges (i) that the business
of the Company, its subsidiaries and Affiliates is national in scope and
without geographical limitation within the United States and (ii)
notwithstanding the jurisdiction of formation or principal office of the
Company, its subsidiaries and Affiliates, or the location of any of their
respective executives or employees (including, without limitation, Executive),
it is expected that the Company and its subsidiaries and Affiliates will have
business activities and have valuable business relationships within their
respective industries throughout the United States.  Executive also agrees and acknowledges that
the potential harm to the Company of the non-enforcement of Sections 6, 7, 8, 9
and 12 outweighs any potential harm to Executive of its enforcement by
injunction or otherwise.  In addition,
the Company agrees and acknowledges that the potential harm to the Executive of
the non-enforcement of Section 12 outweighs any potential harm to the Company
of its enforcement by injunction or otherwise.


 


(c)                                  Executive acknowledges that she has carefully
read this Agreement and has given careful consideration to the restraints
imposed upon Executive by this Agreement, and is in full accord as to the
necessity of such restraints for the reasonable and proper protection of the
Confidential Information, business strategies, employee and customer relationships
and goodwill of the Company and its subsidiaries and Affiliates now existing or
to be developed in the future.  Executive
expressly acknowledges and agrees that each and every restraint imposed by this
Agreement is reasonable with respect to subject matter, time period and
geographical area.  Executive further
acknowledges that although Executive’s compliance with the covenants contained
in Sections 6 and 7 may prevent Executive from earning a livelihood in a
business similar to the business of the Company, Executive’s experience and
capabilities are such that Executive has other opportunities to earn a
livelihood and adequate means of support for Executive and Executive’s
dependents.


 


8

















 


6.                                       Restrictive Covenants.  (a)  Noncompetition
and Nonsolicitation.  Executive
agrees that Executive shall not, while an employee of the Company and during
the one-year period following termination of employment (such one-year period,
the “Restriction Period”), directly or indirectly, without the prior
written consent of the Company:


 


(i)                                     engage in activities or businesses within the United States on behalf of
any Person that is in competition with a portion of the Company’s business from
which the Company derives at least 15% of its revenues based on the Company’s
fiscal prior to the earlier of the activity or termination (“Competitive
Activities”), including (A) selling goods or services of the type sold by
the Company or any of its subsidiaries; (B) soliciting or attempting to solicit
any customer or client or prospective customer or client of the Company or any
of its subsidiaries or Limited Affiliates including, without limitation,
actively sought prospective customers or clients, to purchase any goods or
services of the specific type sold by the Company or any of its subsidiaries
from anyone other than the Company or any of its subsidiaries; and
(C) assisting any Person in any way to do, or attempt to do, anything
prohibited by (A) or (B) above; provided, however, that the
foregoing shall not prevent or be violated by Executive’s service in a
non-competitive portion of a company or business enterprise which is engaged in
Competitive Activities with the Company or, as a result thereof, owning
compensatory equity in such a company or business enterprise engaged in
Competitive Activities; or (A) solicit, recruit or hire any employees of the
Company or any of its subsidiaries or Limited Affiliates or Persons who have
worked for the Company or any of its subsidiaries or Limited Affiliates in the
prior 6 months; (B) solicit or encourage any employee of the Company or any of
its subsidiaries or Limited Affiliates to leave the employment of the Company
or any of its subsidiaries or Limited Affiliates; or (C) intentionally
interfere with the relationship of the Company or any of its subsidiaries or
Limited Affiliates with any Person who or which is employed by or otherwise
engaged to perform services for the Company or any of its subsidiaries or
Limited Affiliates.  The restrictions in
this Section 6(a)(ii) shall not apply to (x) general solicitations that are not
specifically directed to employees of the Company or any Limited Affiliate, (y)
serving as a reference at the request of an employee or (z) actions taken in
the good faith performance of her duties for the Company.


 


(ii)                                  Notwithstanding the foregoing provisions of this Section 6(a), in the
event Executive’s employment hereunder terminates due to the expiration of the
Term, the Restriction Period shall not apply unless the Company provides
Executive with at least 60 days advance written notice prior to the date of
such expiration of its election to have the Restriction Period apply and in
connection therewith agrees to pay the Executive two times (2X) the then Base
Salary, payable ratably over the Restriction Period in equal monthly
installments.


 


The
Restriction Period shall be tolled during (and shall be deemed automatically
extended by) any period in which Executive is determined to be in violation of
the provisions of this Section 6 by a relevant trier of fact, but only with
respect to specific provisions to which the breach relates.


 


9

















 


(b)                                 Notwithstanding anything to the contrary
contained in this Agreement, the provisions of Section 6 (a) shall not be
deemed breached as a result of Executive’s passive ownership of:  (i) less than an aggregate of 3% of any class
of securities of a Person engaged, directly or indirectly, in Competitive
Activities; provided, however, that such stock is listed on a
national securities exchange, is quoted on the National Market System of NASDAQ
or is otherwise publicly traded; (ii) less than an aggregate of 3% in value of
any instrument of indebtedness of a Person engaged, directly or indirectly, in
Competitive Activities; or (iii) less than 3% in interest in mutual funds,
private equity funds, hedge funds and similar pooled entities that have
interests in or are engaged, directly or indirectly, in Competitive Activities,
so long as such investments are totally passive.


 


(c)                                  If a final and non-appealable judicial
determination is made that any of the provisions of this Section 6 constitutes
an unreasonable or otherwise unenforceable restriction against Executive, the
provisions of this Section 6 will not be rendered void but will be deemed to be
modified to the minimum extent necessary to remain in force and effect for the
longest period and largest geographic area that would not constitute such an
unreasonable or unenforceable restriction. 
Moreover, notwithstanding the fact that any provision of this
Section 6 is determined not to be specifically enforceable, the Company
will nevertheless be entitled to recover monetary damages as a result of
Executive’s breach of such provision to the extent permitted by applicable law.


 


7.                                       Nondisclosure of Confidential Information. 
(a)  Executive acknowledges that the Confidential Information
obtained by Executive while employed by the Company and its subsidiaries and
Affiliates is the property of the Company or its subsidiaries and Affiliates,
as applicable.  Therefore, Executive
agrees that other than in connection with the good faith performance of her
duties, Executive shall not disclose to any unauthorized Person or use for Executive’s
own purposes any Confidential Information without the prior written consent of
the Company, unless and to the extent that the aforementioned matters (i)
become generally known in the relevant trade or industry or the public domain
other than as a result of Executive’s acts or omissions in violation of this
Agreement, (ii) become available to Executive on a nonconfidential basis or
(iii) were within Executive’s possession prior to its being obtained by
Executive in the course of Executive’s employment with the Company; provided,
however, that if Executive receives a request to disclose Confidential
Information pursuant to a deposition, interrogation, request for information or
documents in legal proceedings, subpoena, civil investigative demand,
governmental or regulatory process or similar process, (A) Executive shall
promptly notify in writing the Company, and reasonably consult with and
reasonably assist the Company in seeking a protective order or request for
other appropriate remedy, (B) in the event that such protective order or remedy
is not obtained, or if the Company waives compliance with the terms hereof,
Executive shall disclose only that portion of the Confidential Information
that, according to Executive’s counsel, is legally required to be disclosed and
(C) to the extent possible, the Company shall be given an opportunity to review
the Confidential Information prior to disclosure thereof.


 


(b)                                 For purposes of this Agreement, “Confidential
Information” means information and data concerning the business or affairs
of the Company and its subsidiaries and Affiliates, including, without
limitation, all business information (whether or not in written form) which
relates to the Company, its subsidiaries or Affiliates, or their customers,
suppliers or 


 


10

















 


contractors
or any other third parties in respect of which the Company or its subsidiaries
or Affiliates has a business relationship or owes a duty of confidentiality, or
their respective businesses or products, and which is not known to the public
generally or within the industry other than as a result of Executive’s breach
of this Agreement, including but not limited to:  technical information or reports; trade
secrets; unwritten knowledge and “know-how”; operating instructions; training
manuals; customer lists; customer buying records and habits; product sales
records and documents, and product development, marketing and sales strategies;
market surveys; marketing plans; profitability analyses; product cost;
long-range plans; information relating to pricing, competitive strategies and
new product development; information relating to any forms of compensation or
other personnel-related information; contracts; and supplier lists.  Confidential Information will not include
such information known to Executive prior to Executive’s involvement with the
Company or its subsidiaries or Affiliates or information rightfully obtained
from a third party (other than pursuant to a breach by Executive of this
Agreement).  Without limiting the
foregoing, Executive and the Company agree to keep confidential the existence
of, and any information concerning, any dispute between Executive and the
Company or its subsidiaries and Affiliates, except that Executive and the
Company may disclose information concerning such dispute to the court that is
considering such dispute or to Executive’s or the Company’s legal counsel or
related advisors and experts (provided that such Persons may not
disclose any such information other than as necessary to the prosecution or
defense of such dispute)


 


(c)                                  Except as expressly set forth otherwise in
this Agreement or to the extent previously disclosed by the Company, Executive
agrees that Executive shall not disclose the terms of this Agreement, except
(i) to Executive’s family and Executive’s financial and legal advisors, (ii) as
may be required by law or ordered by a court or other governmental entity with
subpoena power or (iii) as may be reasonably necessary for the Company to
implement the terms of this Agreement. 
Executive further agrees that any disclosure to Executive’s financial
and legal advisors will only be made after such advisors acknowledge and agree
to maintain the confidentiality of this Agreement and its terms to the extent
such advisors are not otherwise bound by a duty of non-disclosure; provided
that if Executive has obtained such agreement and acknowledgement or to the
extent the advisor is otherwise so bound, Executive shall have no liability for
disclosure of such information by Executive’s financial and legal advisors that
is made without Executive’s knowledge or involvement.


 


(d)                                 Executive further agrees that Executive will
not improperly use or disclose any confidential information or trade secrets,
if any, of any former employers or any other Person to whom Executive has an
obligation of confidentiality, and will not bring onto the premises of the
Company, its subsidiaries or Affiliates any unpublished documents or any
property belonging to any former employer or any other Person to whom Executive
has an obligation of confidentiality unless consented to in writing by the
former employer or other Person.


 


8.                                       Return of Property.  Executive
acknowledges that all notes, memoranda, specifications, devices, formulas,
records, files, lists, drawings, documents, models, equipment, property,
computer, software or intellectual property relating to the businesses of the
Company and its subsidiaries and Affiliates, in whatever form (including
electronic), and all copies thereof, that are received or created by Executive
while an employee of the Company or its subsidiaries 


 


11

















 


or
Affiliates (including but not limited to Confidential Information) are and
shall remain the property of the Company and its subsidiaries and Affiliates,
and Executive shall immediately return such property to the Company upon the
termination of Executive’s employment and, in any event, at the Company’s
request.  Executive further agrees that
any property situated on the premises of, and owned by, the Company or its
subsidiaries or Affiliates, including disks and other storage media, filing
cabinets or other work areas, is subject to inspection by Company’s personnel
at any time with or without notice. 
Notwithstanding the foregoing, Executive shall be permitted to retain
her rolodex and similar address books, including those in electronic form and
the parties agree that the names and contact information therein are not
Confidential Information.


 


9.                                       Intellectual Property Rights. 
(a)  Executive agrees that the results and proceeds of
Executive’s services for the Company or its subsidiaries or Affiliates
(including, but not limited to, any trade secrets, products, services,
processes, know-how, designs, developments, techniques, formulas, methods, developmental
or experimental work, improvements, discoveries, inventions, ideas, source and
object codes, programs, matters of a literary, musical, dramatic or otherwise
creative nature, writings and other works of authorship) resulting from
services performed while an employee of the Company and any works in progress,
whether or not patentable or registrable under copyright or similar statutes,
that were made or conceived or reduced to practice or learned by Executive,
either alone or jointly with others (collectively, “Inventions”), shall
be works-made-for-hire and the Company (or, if applicable or as directed by the
Company, any of its subsidiaries or Affiliates) shall be deemed the sole owner
throughout the universe of any and all trade secret, patent, copyright and
other intellectual property rights (collectively, “Proprietary Rights”)
of whatsoever nature therein, whether or not now or hereafter known, existing,
contemplated, recognized or developed, with the right to use the same in
perpetuity in any manner the Company determines in its sole discretion, without
any further payment to Executive whatsoever. 
If, for any reason, any of such results and proceeds shall not legally
be a work-made-for-hire and/or there are any Proprietary Rights which do not
accrue to the Company (or, as the case may be, any of its subsidiaries or
Affiliates) under the immediately preceding sentence, then Executive hereby
irrevocably assigns and agrees to assign any and all of Executive’s right,
title and interest thereto, including any and all Proprietary Rights of
whatsoever nature therein, whether or not now or hereafter known, existing,
contemplated, recognized or developed, to the Company (or, if applicable or as
directed by the Company, any of its subsidiaries or Affiliates), and the
Company or such subsidiaries or Affiliates shall have the right to use the same
in perpetuity throughout the universe in any manner determined by the Company
or such subsidiaries or Affiliates without any further payment to Executive
whatsoever.  As to any Invention that
Executive is required to assign, Executive shall promptly and fully disclose to
the Company all information known to Executive concerning such Invention.


 


(b)                                 Executive agrees that, from time to time, as
may be reasonably requested by the Company and at the Company’s sole cost and
expense, Executive shall do any and all things that the Company may reasonably
deem useful or desirable to establish or document the Company’s exclusive
ownership throughout the United States of America or any other country of any
and all Proprietary Rights in any such Inventions, including the execution of
appropriate copyright and/or patent applications or assignments.  To the extent Executive has any Proprietary Rights
in the Inventions that cannot be assigned in the manner described above,
Executive unconditionally and irrevocably waives the enforcement of such
Proprietary Rights.  This


 


12














 


Section 9(b) is
subject to and shall not be deemed to limit, restrict or constitute any waiver
by the Company of any Proprietary Rights of ownership to which the Company may
be entitled by operation of law by virtue of the Company’s being Executive’s
employer.  Executive shall reasonably
assist the Company in every proper and lawful way to obtain and from time to
time enforce Proprietary Rights relating to Inventions in any and all
countries.  To this end, Executive shall
execute, verify and deliver such documents and perform such other reasonable
acts (including appearances as a witness) as the Company may reasonably request
for use in applying for, obtaining, perfecting, evidencing, sustaining, and
enforcing such Proprietary Rights and the assignment thereof.  In addition, Executive shall execute, verify,
and deliver assignments of such Proprietary Rights to the Company or its
designees.  Executive’s obligation to
assist the Company with respect to Proprietary Rights relating to such
Inventions in any and all countries shall continue beyond the termination of
Executive’s employment with the Company, provided that the Company shall
compensate Executive at a reasonable rate after such termination for the time
actually spent by Executive at the Company’s request on such assistance.


 


(c)           In the event the Company is unable for any
reason, after reasonable effort, to secure Executive’s signature on any
document required in connection with the actions specified in Section 9(b),
Executive hereby irrevocably designates and appoints the Company and its duly
authorized officers and agents as Executive’s agent and attorney in fact, to
act for and in Executive’s behalf to execute, verify and deliver any such
documents and to do all other lawfully permitted acts to further the purposes
of Section 9(b) with the same legal force and effect as if executed
by Executive.  Executive hereby waives
and quitclaims to the Company any and all claims, of any nature whatsoever,
that Executive now or may hereafter have for infringement of any Proprietary
Rights assigned hereunder to the Company.


 


10.           Notification of Subsequent Employer.  Executive
hereby agrees that prior to accepting employment with any other Person during
any period during which Executive remains subject to any of the covenants set
forth in Section 6, Executive shall provide such prospective employer with
written notice of such provisions of this Agreement, with a copy of such notice
delivered to the Company within a reasonable time thereafter.


 


11.           Remedies and Injunctive Relief.  The parties
acknowledges that a violation by Executive or the Company of any of the
covenants applicable to Executive or the Company and contained in Section 6,
7, 8, 9 or 12 would cause irreparable damage to Executive or the Company in an
amount that would be material but not readily ascertainable, and that any
remedy at law (including the payment of damages) would be inadequate.  Accordingly, the parties agree that,
notwithstanding any provision of this Agreement to the contrary, each party
shall be entitled (without the necessity of showing economic loss or other
actual damage) to injunctive relief (including temporary restraining orders,
preliminary injunctions and/or permanent injunctions) in any court of competent
jurisdiction for any actual or threatened breach of any of the covenants set
forth in Section 6, 7, 8, 9 or 12 in addition to any other legal or
equitable remedies either may have.  The
preceding sentence shall not be construed as a waiver of the rights that the
parties may have for damages under this Agreement or otherwise, and all of the
rights held by either Executive or the Company shall be unrestricted.


 


13

















 


12.           Nondisparagement.  Executive shall not,
whether in writing or orally, directly or indirectly, criticize, denigrate or
disparage the Company, its subsidiaries or Affiliates or any party who is a
signatory to the RSA or their respective predecessors and successors, or any of
the current or former directors, officers, employees, or, in their capacity as
such, any of the current or former shareholders, partners, members, agents or
representatives of any of the foregoing, with respect to any of their
respective past or present activities, or otherwise publish (whether in writing
or orally) statements that tend to portray any of the aforementioned parties in
an unfavorable light; provided that the foregoing shall only apply with
respect to persons that Executive knows or reasonably should know are covered
thereby and shall not apply to statements made by Executive in the reasonable
good faith performance of her duties while employed by the Company; provided
further than nothing herein shall create any right or cause of action with
respect to any third party.  The Company’s
directors, its chief executive officer and his or her direct reports shall not,
and the Company shall take all reasonable measures to ensure that the
directors, officers and employees of the Company and its subsidiaries and
Affiliates shall not, whether in writing or orally, directly or indirectly,
criticize, denigrate or disparage Executive with respect to her respective past
or present activities, or otherwise publish (whether in writing or orally)
statements that tend to portray her in an unfavorable light; provided
that the foregoing shall not apply to statements made by the foregoing persons
in the reasonable good faith performance of their duties while rendering
services with respect to the Company while Executive is in the employ of the
Company.  The foregoing provisions of
this Section 12 shall cease to apply 2 years after the end of Executive’s
employment with the Company and shall not apply to truthful testimony, normal
competitive-type statements, statements not made with an intent to damage the
other party or statements made in rebuttal of statements made by the other
party.


 


13.           Representations of Executive. 
(a)  Executive represents, warrants and covenants that (i) Executive
has the full right, authority and capacity to enter into this Agreement and
perform Executive’s obligations hereunder, (ii) Executive is not bound by
any agreement that conflicts with or prevents or restricts the full performance
of Executive’s duties and obligations to the Company hereunder during or after
the Term and (iii) the execution and delivery of this Agreement shall not
result in any breach or violation of, or a default under, any existing
obligation, commitment or agreement to which Executive is subject.


 


(b)           Prior to execution of this Agreement,
Executive was advised by the Company of Executive’s right to seek independent
advice from an attorney of Executive’s own selection regarding this
Agreement.  Executive acknowledges that
Executive has entered into this Agreement knowingly and voluntarily and with
full knowledge and understanding of the provisions of this Agreement after
being given the opportunity to consult with counsel.  Executive further represents that in entering
into this Agreement, Executive is not relying on any statements or
representations made by any of the Company’s directors, officers, employees or
agents which are not expressly set forth herein, and that Executive is relying
only upon Executive’s own judgment and any advice provided by Executive’s
attorney.


 


14.           Cooperation.  Executive agrees that,
upon reasonable notice and without the necessity of the Company obtaining a
subpoena or court order, Executive shall provide reasonable cooperation in
connection with any suit, action or proceeding (or any appeal from any suit,
action or proceeding), and any investigation and/or defense of any claims
asserted against 


 


14

















 


the
Company or any of its subsidiaries or Affiliates, which relates to events
occurring during Executive’s employment with the Company, its subsidiaries and
Affiliates as to which Executive may have relevant information (including but
not limited to furnishing relevant information and materials to the Company or
its designee and/or providing testimony at depositions and at trial).  With respect to such cooperation occurring
following termination of employment, the Company shall compensate Executive at
a reasonable per diem rate to be mutually agreed (other than with regard to
actual testimony), as well as reimburse Executive, on an after-tax basis, for
expenses reasonably incurred in connection therewith, including legal fees, provided
that any such cooperation occurring after the termination of Executive’s
employment shall be scheduled to the extent reasonably practicable so as not to
unreasonably interfere with Executive’s business or personal affairs.


 


15.           Withholding.  The Company may
deduct and withhold from any amounts payable under this Agreement such Federal,
state, local, foreign or other taxes as are required or permitted to be withheld
pursuant to any applicable law or regulation.


 


16.           Section 409A of the Code.  (a)  It is
intended that the provisions of this Agreement comply with Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”), and the
regulations and Treasury guidance thereunder as in effect from time to time
(collectively hereinafter, “Section 409A”).  Section 409A, and all provisions of this
Agreement shall be construed in a manner consistent with the requirements for
avoiding taxes or penalties under Section 409A.  If any provision of this Agreement (or of any
award of compensation, including equity compensation or benefits) would cause
Executive to incur any additional tax or interest under Section 409A, the
Company shall, after consulting with Executive, reform such provision to comply
with Section 409A, provided that the Company agrees to maintain, to
the maximum extent practicable, the original intent and economic benefit to
Executive of the applicable provision without violating the provisions of Section 409A.  The Company shall timely amend any plan or
program in which Executive participates to bring it in compliance with Section 409A.


 


(b)           A termination of employment shall not be
deemed to have occurred for purposes of any provision of this Agreement
providing for the payment of any amounts or benefits upon or following a
termination of employment unless such termination is also a “separation from
service” (within the meaning of Section 409A) and, for purposes of any
such provision of this Agreement, references to a “termination” or “termination
of employment” shall mean separation from service.  If Executive is deemed on the date of
termination of her employment to be a “specified employee”, within the meaning
of that term under Section 409A(a)(2)(B) of the Code and using the
identification methodology selected by the Company from time to time (or if
none, the default methodology), then with regard to any payment or the
providing of any benefit made subject to this Section 16, and any other
payment or the provision of any other benefit that is required to be delayed in
compliance with Section 409A(a)(2)(B) of the Code, such payment or
benefit shall not be made or provided prior to the earlier of (i) the
expiration of the six-month period measured from the date of Executive’s
separation from service or (ii) the date of Executive’s death.  On the first day of the seventh month
following the date of Executive’s separation from service or, if earlier, on
the date of her death, all payments delayed pursuant to this Section 16(b) (whether
they would have otherwise been payable in a single sum or in installments in
the absence of such delay) shall be paid or reimbursed to 


 


15

















 


Executive
in a lump sum, and any remaining payments and benefits due under this Agreement
shall be paid or provided in accordance with the normal payment dates specified
for them herein.  In addition to the
foregoing, to the extent required by Section 409A(a)(2) (B) of
the Code, the payment of any compensation (other than amounts accrued as of the
date of SFS Disability (as defined below) that are paid at such time as they
otherwise would have been paid) to Executive under this Agreement shall be
suspended for a period of six months commencing at such time that Executive
shall be deemed to have had, prior to the occurrence of a Disability
termination as provided in Section 4(a)(i) hereof, a separation from
service because either (A) a sick leave ceases to be a bona fide sick
leave of absence, or (B) the permitted time period for a sick leave of
absence expires (an “SFS Disability”), without regard to whether such
SFS Disability actually results in a Disability termination.  Promptly following the expiration of such
six-month period, all compensation suspended pursuant to the foregoing sentence
(whether it would have otherwise been payable in a single sum or in
installments in the absence of such suspension) shall be paid or reimbursed to
Executive in a lump sum.


 


(c)           If any action on the part of the Board
relating to any award of compensation, including equity compensation or
benefits, causes Executive to incur any additional tax or interest under Section 409A,
the Company shall indemnify and hold harmless, on an after-tax basis, Executive
from and against any accelerated or additional tax (including interest and
penalties with respect thereto) that may be imposed on Executive by reason
thereof; provided that Executive shall not compromise or settle any
claim relating to Section 409A without the Company’s written consent.  Any payment or reimbursement for taxes made
pursuant this Section 16(c) shall be paid to Executive no later than
the end of the calendar year next following the calendar year in which the
applicable tax is paid by Executive.


 


(d)           Notwithstanding anything to the contrary
herein, Executive’s rights under this Section 16 shall survive the
termination of her employment for any reason and the termination or expiration
of this Agreement for any reason.


 


(e)           With regard to any provision herein that
provides for reimbursement of expenses or in-kind benefits, except as permitted
by Section 409A, (i) the right to reimbursement or in-kind benefits
is not subject to liquidation or exchange for another benefit, (ii) the
amount of expenses eligible for reimbursement, or in-kind benefits, provided
during any taxable year shall not affect the expenses eligible for
reimbursement, or in-kind benefits to be provided, in any other taxable year, provided
that the foregoing clause (ii) shall not be violated with regard to
expenses reimbursed under any arrangement covered by Section 105(b) of
the Code solely because such expenses are subject to a limit related to the
period the arrangement is in effect.


 


17.           Parachute Payments and Excise Taxes.  (a)  So
long as the Company is described in Section 280G(b) (5)(A)(ii)(I) of
the Code, if any payment or benefit (within the meaning of Section 280G(b)(2) of
the Code), to Executive or for Executive’s benefit paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, Executive’s employment with
the Company or a change in ownership or effective control of the Company or of
a substantial portion of its assets (any such payment or benefit, a “Parachute
Payment”), would be subject to the excise tax imposed by Section 4999
of the Code, or if any interest or penalties are incurred by Executive with
respect to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively 


 


16

















 


referred
to as the “Excise Tax”), then Executive will be entitled to receive
additional payments (a “Gross-Up Payment”) in an amount equal to the
Excise Taxes imposed upon the Parachute Payment and the Gross-Up Payment.  Except as expressly provided in this Section 17(a),
Executive shall not be entitled to any additional payments in connection with
any Parachute Payments or Gross-Up Payments, including any reimbursement for
the income tax thereon, so long as the Company is described in Section 280G(b)(5)(A)(ii)(I).


 


(b)           If the Company is not described in Section 280G(b)(5)(A)(ii)(I) of
the Code, and if Executive shall become entitled to a Parachute Payment, which
Parachute Payment will be subject to the Excise Tax, subject to Section 17
(e) below, then the Company shall pay to Executive at the time specified
below (i) a Gross-Up Payment such that the net amount retained by
Executive, after deduction of any Excise Tax on the Parachute Payment and any
Federal, state, and local income or payroll tax upon the Gross-Up Payment
provided for by this paragraph, but before deduction for any Federal, state,
and local income or payroll tax on the Parachute Payment, shall be equal to the
Parachute Payment, and (ii) an amount equal to the product of any
deductions disallowed for Federal, state or local income tax purposes because
of the inclusion of the Gross-Up Payment in Executive’s adjusted gross income
multiplied by the highest applicable marginal rate of Federal, state or local
income taxation, respectively, for the calendar year in which the Gross-Up
Payment is to be made.


 


(c)           Notwithstanding the foregoing, if it shall be
determined that Executive is entitled to a Gross-Up Payment, but that if the
Parachute Payment (other than that portion valued under Treasury Regulation Section 1.280G,
Q&A 24(c)) (the “Cash Payment”) is reduced by the amount necessary
such that the receipt of the Cash Payment would not give rise to any Excise Tax
(the “Reduced Payment”) and the Reduced Payment would not be less than
90% of the Cash Payment, then no Gross-Up Payment shall be made to Executive
and the Cash Payments, in the aggregate, shall be reduced to the Reduced
Payments.  If the Reduced Payment is to
be effective, payments shall be reduced in the following order (i) any
cash severance based on a multiple of Base Salary or Annual Bonus, (ii) any
other cash amounts payable to Executive, (iii) any benefits valued as
parachute payments, (iv) acceleration of vesting of any Stock Options for
which the exercise price exceeds the then fair market value, and (v) acceleration
of vesting of any equity not covered by subsection (iv) above, unless
Executive elects another method of reduction by written notice to the Company
prior to the change of ownership or effective control.


 


(d)           In the event that the Internal Revenue Service
or court ultimately makes a determination that the excess parachute payments
plus the base amount is an amount other than as determined initially, an
appropriate adjustment shall be made with regard to the Gross-Up Payment or
Reduced Payment, as applicable to reflect the final determination and the
resulting impact on whether the preceding Section 17(c) applies.


 


(e)           For purposes of determining whether any of the
Parachute Payments and Gross-Up Payments (collectively the “Total Payments”)
will be subject to the Excise Tax and the amount of such Excise Tax, (i) the
Total Payments shall be treated as “parachute payments” within the meaning of Section 280G(b)(2) of
the Code, and all “parachute payments” in excess of the “base amount” (as
defined under Section 280G(b)(3) of the Code) shall be treated as
subject to the Excise Tax, unless and except to the extent that, in the opinion
of the Company’s independent certified public accountants appointed prior to
any change in ownership (as defined 


 


17

















 


under
Section 280G(b)(2) of the Code) or tax counsel selected by such
accountants or the Company (the “Accountants”), there is a reasonable
reporting position that such Total Payments (in whole or in part) either do not
constitute “parachute payments,” including giving effect to the recalculation
of stock options in accordance with Treasury Regulation Section 1.280G-1,
Q&A 33, represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess of the
“base amount” or are otherwise not subject to the Excise Tax, and (ii) the
value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Accountants in accordance with the principles of Section 280G
of the Code.  To the extent permitted
under Revenue Procedure 2003-68, the value determination shall be recalculated
to the extent it would be beneficial to Executive.  All determinations hereunder shall be made by
the Accountants which shall provide detailed supporting calculations both to
the Company and Executive at such time as they are requested by the Company or
Executive.  If the Accountants determine
that payments under this Agreement must be reduced pursuant to this paragraph,
they shall furnish Executive with a written opinion to such effect.  The determination of the Accountants shall be
final and binding upon the Company and Executive.


 


(f)            For purposes of determining the amount of the
Gross-Up Payment, Executive’s marginal blended rates of Federal, state and
local income taxation in the calendar year in which the change in ownership or
effective control that subjects Executive to the Excise Tax occurs shall be
used.  In the event that the Excise Tax
is subsequently determined by the Accountants to be less than the amount taken
into account hereunder at the time the Gross-Up Payment is made, Executive
shall repay to the Company, at the time that the amount of such reduction in
Excise Tax is finally determined, the portion of the prior Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up Payment
attributable to the Excise Tax and Federal, state and local income tax imposed
on the portion of the Gross-up Payment being repaid by Executive if such
repayment results in a reduction in Excise Tax or a Federal, state and local
income tax deduction), plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code.  Notwithstanding the foregoing, in the event
any portion of the Gross-Up Payment to be refunded to the Company has been paid
to any Federal, state and local tax authority, repayment thereof (and related
amounts) shall not be required until actual refund or credit of such portion
has been made to Executive, and interest payable to the Company shall not
exceed the interest received or credited to Executive by such tax authority for
the period it held such portion. 
Executive and the Company shall mutually agree upon the course of action
to be pursued (and the method of allocating the expense thereof) if Executive’s
claim for refund or credit from such tax authority is denied.


 


(g)           In the event that the Excise Tax is later
determined by the Accountants or the Internal Revenue Service to exceed the
amount taken into account hereunder at the time the Gross-Up Payment is made
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest or
penalties payable with respect to such excess) at the time that the amount of
such excess is finally determined.


 


(h)           The Gross-up Payment or portion thereof
provided for above shall be paid not later than the sixtieth day following a
change in ownership or effective control covered by Section 280G(b)(2) of
the Code that subjects Executive to the Excise Tax; provided, however,
that if the amount of such Gross-up Payment or portion thereof cannot be
finally determined on 


 


18

















 


or
before such day, the Company shall pay to Executive on such day an estimate, as
determined in good faith by the Accountant, of the minimum amount of such
payments and shall pay the remainder of such payments, subject to further
payments pursuant to Section 17(d), as soon as the amount thereof can
reasonably be determined, but in no event later than the ninetieth day after
the occurrence of the event subjecting Executive to the Excise Tax.  In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, subject
to Section 17(1), such excess shall constitute a loan by the Company to
Executive, payable on the fifth day after demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code).


 


(i)            In the event of any controversy with the
Internal Revenue Service (or other taxing authority) with regard to the Excise
Tax, Executive shall permit the Company to control issues related to the Excise
Tax (at its expense), but Executive shall control any other issues unrelated to
the Excise Tax.  In the event that the
issues are interrelated, Executive and the Company shall cooperate in good
faith.  In the event of any conference
with any taxing authority as to the Excise Tax or associated income taxes,
Executive shall permit the representative of the Company to accompany
Executive, and Executive and her representative shall cooperate with the
Company and its representative.


 


(j)            The Company shall be responsible for all
charges of the Accountant.


 


(k)           The Company and Executive shall promptly
deliver to each other copies of any written communications, and summaries of
any verbal communications, with any taxing authority regarding the Excise Tax
covered by this provision.


 


(l)            Nothing in this Section 17 is intended to
violate the Sarbanes-Oxley Act and to the extent that any advance or repayment
obligation hereunder would do so, such obligation shall be modified so as to
make the advance a nonrefundable payment to Executive and the repayment
obligation null and void.


 


(m)          Notwithstanding the foregoing, any payment or
reimbursement made pursuant to Section 17(a), 17(b), 17(d), 17(f) or
17(g) shall be paid to the Executive promptly and in no event later than
the end of the calendar year next following the calendar year in which the
related tax is paid by the Executive.


 


18.           Assignment.  (a) This
Agreement is personal to Executive and without the prior written consent of the
Company shall not be assignable by Executive, except for the assignment by will
or the laws of descent and distribution of any accrued pecuniary interest of
Executive, and any assignment in violation of this Agreement shall be void.


 


(b)           This Agreement shall be binding on, and shall
inure to the benefit of, the parties to it and their respective heirs, legal
representatives, successors and permitted assigns (including, without
limitation, in the event of Executive’s death, Executive’s estate and heirs in
the case of any payments due to Executive hereunder).


 


19

















 


(c)           Executive acknowledges and agrees that all of
Executive’s covenants and obligations to the Company, as well as the rights of
the Company hereunder, shall run in favor of and shall be enforceable by the
Company and its successors and assigns, provided that the successor or
assignee is the successor to all or substantially all of the assets of the
Company and such assignee or successor assumes the rights and duties of the
Company as contained in this Agreement, either contractually or as a matter of
law.


 


19.           Indemnification and Insurance; Legal Expenses.  During the Term
and for so long thereafter as liability exists with regard to Executive’s
activities during the Term on behalf of the Company, its Affiliates, or as a
fiduciary of any benefit plan of any of them, the Company shall indemnify Executive
to the fullest extent permitted by applicable law (other than in connection
with Executive’s gross negligence or willful misconduct), and shall pay, or
reimburse Executive for, reasonable attorneys’ fees and expenses as such fees
and expenses are incurred, which amounts shall be paid or reimbursed as soon as
practicable after Executive incurs such fees and expenses and submits
documentation thereof (which shall be submitted within ninety (90) days of the
incurrence of the fees or expenses), but in no event later than the Short-Term
Deferral Date (subject to an undertaking from Executive to repay such advances
if it shall be finally determined by a judicial decision which is not subject
to further appeal that Executive was not entitled to the reimbursement of such
fees and expenses).  During the Term and
thereafter while liability exists, Executive shall be entitled to the
protection of any insurance policies the Company shall elect to maintain
generally for the benefit of its directors and officers (“Directors and
Officers Insurance”) against all costs, charges and expenses incurred or
sustained by her in connection with any action, suit or proceeding to which she
may be made a party by reason of her being or having been a director, officer
or employee of the Company or any of its Affiliates or her serving or having
served any other enterprise or benefit plan as a director, officer, fiduciary
or employee at the request of the Company (other than any dispute, claim or
controversy arising under or relating to this Agreement), provided that
Executive shall, in all cases, be entitled to Directors and Officers Insurance
coverage no less favorable than that (if any) then currently provided to any
other present or former director or officer of the Company.


 


20.           No Mitigation; No Offset.  Executive shall not
be required to seek other employment or otherwise mitigate the amount of any
payments to be made by the Company pursuant to this Agreement.  The payments provided pursuant to this
Agreement shall not be reduced by any compensation earned by Executive as the
result of employment by another employer after the termination of Executive’s
employment or otherwise.  Except as
specifically provided in this Agreement, the Company’s obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any setoff, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against Executive or others.


 


21.           Governing Law.  This Agreement shall
be deemed to be made in the State of New York, and the validity,
interpretation, construction, and performance of this Agreement in all respects
shall be governed by the laws of the State of New York without regard to its
principles of conflicts of law.  No
provision of this Agreement or any related document will be construed against
or interpreted to the disadvantage of any party hereto by any court or other
governmental or judicial authority by reason of such party having or being deemed
to have structured or drafted such provision.


 


20

















 


22.           Consent to Jurisdiction. 
(a)  Except as otherwise specifically provided herein,
Executive and the Company each hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court for the Southern District of
New York (or, if subject matter jurisdiction in that court is not available, in
any state court located within the Borough of Manhattan, New York) over any
dispute arising out of or relating to this Agreement.  Except as otherwise specifically provided in
this Agreement, the parties undertake not to commence any suit, action or
proceeding arising out of or relating to this Agreement in a forum other than a
forum described in this Section 22(a); provided, however, that
nothing herein shall preclude the Company from bringing any suit, action or
proceeding in any other court for the purposes of enforcing the provisions of
this Section 22 or enforcing any judgment obtained by the Company.


 


(b)           The agreement of the parties to the forum
described in Section 22(a) is independent of the law that may be
applied in any suit, action, or proceeding and the parties agree to such forum
even if such forum may under applicable law choose to apply non-forum law.  The parties hereby waive, to the fullest
extent permitted by applicable law, any objection which they now or hereafter
have to personal jurisdiction or to the laying of venue of any such suit,
action or proceeding brought in an applicable court described in Section 22(a),
and the parties agree that they shall not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such
court.  The parties agree that, to the
fullest extent permitted by applicable law, a final and non-appealable judgment
in any suit, action or proceeding brought in any applicable court described in Section 22(a) shall
be conclusive and binding upon the parties and may be enforced in any other
jurisdiction.


 


(c)           The parties hereto irrevocably consent to the
service of any and all process in any suit, action or proceeding arising out of
or relating to this Agreement by the mailing of copies of such process to such
party at such party’s address specified herein. 
In addition, Executive irrevocably appoints the General Counsel of the
Company as Executive’s agent for service of process in connection with any
suit, action or proceeding, who shall promptly advise Executive of any such
service of process.


 


(d)           The prevailing party in an action hereunder,
as determined by the applicable court, shall be entitled to recover reasonable
legal fees and related costs from the other party; provided that such
fees and costs are incurred prior to the fifth anniversary of the expiration of
the Term, and that in the event the Company is entitled to recover such fees
and costs from Executive, the amount of such recovery shall be limited to
$150,000.  In the event that Executive is
entitled to recover such fees and costs all such amounts shall be paid to her
within thirty (30) days after the award of such fees and costs by the
applicable court.


 


23.           Amendment; No Waiver.  No provisions of
this Agreement may be amended, modified, waived or discharged except by a
written document signed by Executive and a duly authorized officer of the
Company (other than Executive).  The
failure of a party to insist upon strict adherence to any term of this
Agreement on any occasion shall not be considered a waiver of such party’s
rights or deprive such party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.  No failure or delay by either party in
exercising any right or power hereunder will operate as a waiver thereof, nor
will any single or


 


21

















 


partial
exercise of any such right or power, or any abandonment of any steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power.


 


24.           Severability.  If any term or
provision of this Agreement is invalid, illegal or incapable of being enforced
by any applicable law or public policy, all other conditions and provisions of
this Agreement shall nonetheless remain in full force and effect so long as the
economic and legal substance of the transactions contemplated by this Agreement
is not affected in any manner materially adverse to any party.  Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated hereby be
consummated as originally contemplated to the fullest extent possible.


 


25.           Entire Agreement.  This Agreement
(including the Exhibits hereto and any other agreements or side letters entered
into simultaneously with or following the date hereof that specifically provide
that they are intended to modify or supplement this Agreement) constitutes the
entire agreement and understanding between the Company and Executive with
respect to the subject matter hereof and supersedes all prior agreements and
understandings (whether written or oral), between Executive and the Company,
relating to such subject matter.  None of
the parties shall be liable or bound to any other party in any manner by any
representations and warranties or covenants relating to such subject matter
except as specifically set forth herein.


 


26.           Survival.  The rights and
obligations of the parties under the provisions of this Agreement shall
survive, and remain binding and enforceable, notwithstanding the expiration of
the Term, the termination of this Agreement, the termination of Executive’s
employment hereunder or any settlement of the financial rights and obligations
arising from Executive’s employment hereunder, to the extent necessary to
preserve the intended benefits of such provisions.


 


27.           Notices.  All notices or other communications required
or permitted to be given hereunder shall be in writing and shall be delivered
by hand or sent by facsimile or sent, postage prepaid, by registered, certified
or express mail or overnight courier service and shall be deemed given when so
delivered by hand or facsimile, or if mailed, three days after mailing (one
business day in the case of express mail or overnight courier service) to the
parties at the following addresses or facsimiles (or at such other address for
a party as shall be specified by like notice):


 


If to the Company:               The Reader’s Digest Association, Inc.

Roaring Brook Road

Pleasantville, New York 10570

Attention:  Board of Directors and
General Counsel

Fax:  914-244-5644


 


If to Executive:                      To the address last shown on
the records of the

Company


 


Notices
delivered by facsimile shall have the same legal effect as if such notice had
been delivered in person.


 


22

















 


28.           Headings and References.  The headings of this
Agreement are inserted for convenience only and neither constitutes a part of
this Agreement nor affect in any way the meaning or interpretation of this
Agreement.  When a reference in this
Agreement is made to a Section, such reference shall be to a Section of
this Agreement unless otherwise indicated.


 


29.           Counterparts.  This Agreement may
be executed in one or more counterparts (including via facsimile and electronic
image scan (pdf)), each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.


 


23

















 


IN
WITNESS WHEREOF, this Agreement has been executed by the parties as of the date
first written above.


 


	
   

  	
  THE
  READER’S DIGEST ASSOCIATION, INC.,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Brad Thomas

  
	
   

  	
   

  	
  Name:
  Brad Thomas

  
	
   

  	
   

  	
  Title:
  Senior Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MARY
  BERNER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mary Berner

  



 


24