exhibit10_4.htm


    Execution Copy

      


       

      THE
READER’S DIGEST ASSOCIATION, INC.

       

      Reader’s
Digest Road

       

      Pleasantville,
NY 10570-7000

       

      Todd C.
McCarty                                                                                 Telephone:  (914)
244-5175

      Senior Vice
President                                                                                     Fax:  (914)
244-7944

      Global Human
Resources                                                                                 todd_mccarty@rd.com

       

                                                                              August 17,
2009

       

      Mr. Tom
Williams

       

      c/o The
Reader’s Digest Association, Inc.

      Reader’s
Digest Road

      Pleasantville,
NY 10570-7000

       

      You, Tom
Williams, the Chief Financial Officer of The Reader’s Digest Association, Inc.
(the “Company”), will
receive cash compensation from the Company equal to $68,200 per month, payable
pursuant to the Company’s normal payroll procedures, for so long as you remain
employed with the Company during the Company’s Chapter 11
proceedings.

       

      1)           If
you are not offered continued employment following the effective date of the
Acceptable Plan (as such term is defined in the Restructuring Support Agreement
made and entered into on August 17, 2009 between the Company and the other
parties signatory thereto (the “RSA”)) (the “Effective Date”),
such that your employment with the Company terminates on such date, then the
following provisions will apply: (a) that certain Employment
Agreement  entered into by and between you and the Company dated
November 19, 2008 (the “Employment
Agreement”) will be rejected under the Acceptable Plan; (b) you will
continue to be bound by the non-solicitation covenant of Paragraph 11 of your
Employment Agreement (except that you will be permitted to hire, without any
delay, any employee of the Company whose employment is terminated by the
reorganized Company (whether due to its failure to offer continued employment to
such employee through the rejection of his or her employment agreement in the
Chapter 11 proceedings or otherwise) and you will be bound by a confidentiality
covenant in the same form as contained in Section 7 of the Employment Agreement
between the Company and Mary Berner (the “Berner Agreement”)
and a nondisparagement covenant in the same form as contained in Section 12 of
the Berner Agreement (which shall be deemed amended to cover the signatories of
the RSA, including their directors, employees and representatives), in each case
following your date of termination of employment with the Company for the
applicable periods provided for therein; (c) subject to your execution, without
revocation, of a Release of Claims in the form (as applicable) attached hereto
as Exhibit A-1, you will
receive from the Company, in lieu of any other severance payments that may
otherwise be due to you, a one-time cash severance payment, in the amount of
$1.2 million (plus any accrued but unpaid salary, vacation pay or unreimbursed
business expenses) on the 53rd day after your separation from service with the
Company (within the meaning of Internal Revenue Code Section 409A); and (d)
subject to its receipt of your executed and irrevocable Release of Claims, the
Company shall execute and deliver to you a release of claims for your benefit in
the form attached to this letter agreement as Exhibit A-2.  For the
avoidance of doubt, if your employment is terminated by you or by the Company
for any reason (other than at the initiation of the signatories to the RSA)
prior to the Effective Date, none of the provisions contained in this Paragraph
1 shall apply, and this letter agreement will become null and void on such date
of termination.

       

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      2)           If
you are provided the opportunity to execute an amended employment agreement with
the Company and to have that agreement assumed by the reorganized Company under
the Acceptable Plan, to be effective on and after the Effective Date (the “Amended Employment
Agreement”) and such Amended Employment Agreement: (a) is in the form and
upon the terms of your existing Employment Agreement, except for the modifications
outlined in this Paragraph 2 and in Paragraph 3 below; (b) provides for a total
annual rate of base cash compensation (in lieu of any other base salary, sign-on
or other bonus amounts provided under Paragraphs 1 and 2 of your Employment
Agreement) payable to you by the Company of no less than $600,000; (c) provides
you with the opportunity (in all cases lieu of any other annual or long-term
cash incentive opportunities provided under Paragraphs 4 and 6 of your
Employment Agreement), to participate in the “Pay for Performance/Variable Comp
Plan” and Enterprise Value Maximization Plan (“EVMax Plan”), as described in
Exhibits B and C attached hereto, and to earn the level of cash bonus
compensation under each such plan as identified in the attached Annex 1, and
otherwise to participate in such annual cash bonus plan, and at such level of
annual cash bonus compensation, as the Company shall implement in accordance
with the provisions of Paragraph 4 below (except that if the Effective Date has
not occurred prior to June 15, 2010, the Company and you will negotiate
reasonably and in good faith regarding an annual bonus plan, and annual cash
bonus compensation opportunity, in respect of the Company’s fiscal year
beginning July 1, 2010); and (d) provides you with equity compensation
opportunities as provided in Paragraph 4 below, and you decline such
opportunity to execute the Amended Employment Agreement, upon any termination of
your employment by you or by the Company following such decline, you shall not
be entitled to the $1.2 million payment described above (or any other severance
payments or benefits, other than any accrued but unpaid salary, vacation pay or
unreimbursed business expenses) from the Company, but you shall continue to be
bound by the covenants described in Paragraph 1(b), above.

       

      3)           For
purposes of confirming the terms of your Amended Employment Agreement, if
assumed by the reorganized Company under the Acceptable Plan, in addition to the
modifications to your Employment Agreement identified in Paragraph 1, clauses
(b), (c) and (d) above (and any provisions in your Employment Agreement that are
contrary to these clauses will be amended to be consistent with such clauses),
the Amended Employment Agreement will also reflect the following changes to your
current Employment Agreement: (1) all references to any obligations of the
Company relating to equity-based awards (whether relating to the grant or
vesting of any such awards) shall be removed; (2) the severance calculation in
Paragraph 10 of the Employment Agreement will equal $1.2 million at all times
(unless increased by the board of directors of the reorganized Company (the
“Board”)); (3)
the reference to “annual target bonus opportunity under the Company’s Management
Incentive Compensation Plan” (contained in the definition of “Good Reason” under
your Employment Agreement)  shall refer to your applicable annual
bonus opportunity as set forth in Paragraph 2(c) above, as applicable; and (4)
you will be bound by the restrictive covenants described in Paragraph 1(b)
above.  By executing this letter agreement, you acknowledge and agree
that (x) none of the modifications made to your current Employment Agreement as
described anywhere in this letter agreement constitute “Good Reason” as defined
in your Employment Agreement (or in the Amended Employment Agreement, as
applicable) and (y) upon execution, the Amended Employment Agreement will
replace your current Employment Agreement and supersedes any other agreements
(oral or written) between you and the Company.

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      4)           Following
any assumption by the reorganized Company of your Amended Employment Agreement
and the empanelment of the Board, such Board and the Chief Executive Officer of
the Company shall promptly designate a mutually acceptable, nationally
recognized compensation consultant.  Such compensation consultant
shall analyze companies that are comparable to the reorganized Company and your
experience (including your performance with the Company prior to the Effective
Date) and market status, and recommend to the Board and you both the annual cash
bonus opportunity and structure to be made available to you and an allocation
and structure for equity compensation opportunities to be made available to you
out of the 7.5% equity pool described in Exhibit A to the RSA.  If you
agree with such consultant’s recommendation with respect to, and/or you and the
Board reach another agreement as to, your annual cash bonus and equity
compensation opportunities with the Company, such opportunities shall be
implemented by the Company.

       

      5)           If
you do not agree with the compensation consultant’s recommendation, or if you
and the Board do not reach another agreement, in either case as described in
Paragraph 4 above, you shall be entitled to promptly resign without Good Reason
(as defined in your Amended Employment Agreement) from your positions with the
Company and be relieved of any obligations under the non-competition covenant of
your Amended Employment Agreement and any other non-competition covenants in any
other agreement between you and the Company, but (a) you shall not receive the
$1.2 million payment (nor the release of claims) from the Company described in
Paragraph 1, clauses (c) and (d), above, and (b) you shall continue to be bound
by the covenants described in Paragraph 1(b), above, and shall receive any
accrued but unpaid salary, vacation pay or unreimbursed business
expenses.

       

      Any
payments provided for in this letter agreement are intended to be made in
compliance with or be exempt from Internal Revenue Code Section 409A and shall
be interpreted accordingly.  This letter agreement and any dispute
related hereto will be governed by the laws of New York.

       

      If the
Acceptable Plan or such other Chapter 11 plan as may be acceptable to the
Required Consenting Lenders (as defined in the RSA) is confirmed, then the
Debtors (as defined in the RSA) shall assume the Amended Employment Agreement,
unless you are not offered continued employment as provided in Paragraph 1
above, in which case the provisions of such Paragraph 1 shall
apply.

       

      If the
foregoing accurately describes your understanding and agreement with the Company
regarding the terms of your continued employment with the Company, please sign
where indicated below and return a signed copy of this letter agreement to me by
no later than 8:00 a.m. (EST) Monday, August 17, 2009.

       

      


       

      [Signatures on next
page.]

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      


      

Excecution Copy

      [Signature
Page to Tom Williams Letter Agreement]

       

      


       

      


       

      Sincerely,

       

      


      


      ____/s/ Todd
McCarty_____________

      Todd McCarty,

      Senior Vice President

      Global Human Resources

      The Reader’s Digest Association,
Inc.

       

      


       

      Accepted
and agreed by:

       

      /s/ Tom
Williams_____________________

      Tom
Williams

       

      and

      
 

      Acknowledged
and consented to for purposes of the Restructuring Support Agreement
by,

      JP Morgan
Chase Bank, N.A., in its capacity as the Administrative Agent,

      as such
term is defined in the DIP Commitment Letter

      


      


      By: /s/ Elizabeth
Kelley_________________

      Name:  Elizabeth
Kelley

      Title:   
Managing Director

       

      
 

       


      
        
           


        

        
          4

          
            

          

        

        
           


        

      


      EXHIBIT
A-1

       

      RELEASE OF
CLAIMS

       

      1. Release.  For
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the undersigned, with the intention of binding himself, his heirs,
executors, administrators and assigns, does hereby release and forever discharge
The Readers’ Digest Association, Inc., a Delaware corporation (the “Company”), and its
parents, subsidiaries, affiliates, predecessors, successors, and/or assigns, and
the Consenting Lenders (within the meaning of that certain Restructuring Support
Agreement made and entered into as of August 17, 2009, solely with respect to
their dealings with the Company and the undersigned in connection therewith),
past, present, and future, together with its and their officers, directors,
executives, agents, employees, and employee benefits plans (and the trustees,
administrators, fiduciaries and insurers of such plans), past, present, and
future (collectively, the “Released Parties”),
from any and all claims, actions, causes of action, demands, rights, damages,
debts, accounts, suits, expenses, attorneys’ fees and liabilities of whatever
kind or nature in law, equity, or otherwise, whether now known or unknown
(collectively, the “Claims”), which the
undersigned now has, owns or holds, or has at any time heretofore had, owned or
held against any Released Party, from the beginning of time to the date of the
Executive’s execution of this Release of Claims, including without limitation,
any Claims arising out of or in any way connected with the undersigned’s
employment relationship with the Company, its subsidiaries, predecessors or
affiliated entities, or the termination thereof, under any Federal, state or
local statute, rule, or regulation, or principle of common, tort or contract
law, including but not limited to, the Family and Medical Leave Act of 1993, as
amended (the “FMLA”), 29 U.S.C. §§
2601 et seq., Title VII of
the Civil Rights Act of 1964, as amended, 42 U.S.C. §§
2000e et seq., the Age
Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§
621 et seq., the Americans
with Disabilities. Act of 1990, as amended, 42 U.S.C. §§
12101 et seq., the Worker
Adjustment and Retraining Notification Act of 1988, as amended, 29 U.S.C. §§
2101 et seq., the Employee
Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§
1001 et seq., and all other
Federal, state, or local statutes, regulations or laws; provided, however, that nothing
herein shall release the Company of its obligations under that certain [for release to be signed if
Paragraph 1 of Letter Agreement is triggered: Letter Agreement, dated as
of August 17, 2009, between the Executive and the Company] [for release to be signed as required
under Paragraph 10 of Employment Agreement, absent Paragraph 1 of Letter
Agreement being triggered: Employment Agreement, dated as of November 19,
2008, between Executive and the Company (as the same may be amended from time to
time by written agreement of Executive and the Company, including, as applicable
pursuant to that certain Letter Agreement, dated as of August 17, 2009, between
the Executive and the Company)]; provided, further, that
Executive does not waive any right to be provided a defense or to be indemnified
that he may have under any indemnification agreement or the Company’s Articles
of Incorporation or Bylaws or any directors and officers insurance arrangement.
Except as set forth in Section II below, the undersigned understands that, as a
result of executing this Release of Claims, he will not have the right to assert
that the Company or any other Released Party unlawfully terminated his
employment or violated any of his rights in connection with his employment or
otherwise.

       

              The undersigned
affirms that he is not presently party to any Claim, complaint or action against
any Released Party in any forum or form and that he knows of no facts which may
lead to any Claim, complaint or action being filed against any Released Party in
any forum by the undersigned or by any agency, group, etc. The undersigned
further affirms that he has been paid and/or has received all leave (paid or
unpaid), compensation, wages, bonuses, commissions, and/or benefits to which he
may be entitled and that no other leave (paid or unpaid), compensation, wages,
bonuses, commissions and/or benefits are due to him from the Company and its
subsidiaries, except as specifically provided in this Release of Claims. The
undersigned furthermore affirms that he has no known workplace injuries or
occupational diseases and has been provided and/or has not been denied any leave
requested under the FMLA. If any agency or court assumes jurisdiction of any
such Claim, complaint or action against any Released Party on behalf of the
undersigned, the undersigned hereby waives any right to individual monetary or
other relief.

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

              The undersigned
further declares and represents that he has carefully read and fully understands
the terms of this Release of Claims and that, through this document, he is
hereby advised to consult with an attorney prior to executing this Release of
Claims, that he may take up to and including 21 days from receipt of this
Release of Claims, to consider whether to sign this Release of Claims, that he
may revoke this Release of Claims within seven calendar days after signing it by
delivering to the Company written notification of revocation (and that this
Release of Claims shall not become effective or enforceable until the expiration
of such revocation period), and that he knowingly and voluntarily, of his own
free will, without any duress, being fully informed and after due deliberate
action, accepts the terms of and signs the same as his own free
act.

       

      2. Protected
Rights.  The Company and the undersigned agree that nothing in
this Release of Claims is intended to or shall be construed to affect, limit or
otherwise interfere with any non-waivable right of the undersigned under any
Federal, state or local law, including the right to file a charge or participate
in an investigation or proceeding conducted by the Equal Employment Opportunity
Commission (“EEOC’) or to exercise
any other right that cannot be waived under applicable law. The undersigned is
releasing, however, his right to any monetary recovery or relief should the EEOC
or any other agency pursue Claims on his behalf. Further, should the EEOC or any
other agency obtain monetary relief on his behalf, the undersigned assigns to
the Company all rights to such relief.

       

      3. Third-Party
Litigation.  The undersigned agrees to be available to the
Company and its affiliates on a reasonable basis in connection with any pending
or threatened claims, charges or litigation in which the Company or any of its
affiliates is now or may become involved, or any other claims or demands made
against or upon the Company or any of its affiliates, regardless of whether or
not the undersigned is a named defendant in any particular case.

       

      4. Severability.  If
any term or provision of this Release of Claims is invalid, illegal or incapable
of being enforced by any applicable law or public policy, all other conditions
and provisions of this Release of Claims shall nonetheless remain in full force
and effect so long as the economic and legal substance of the transactions
contemplated by this Release of Claims is not affected in any manner materially
adverse to any party.

       

       

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

       

      5. GOVERNING
LAW.  THIS RELEASE OF CLAIMS SHALL BE DEEMED TO BE MADE IN THE
STATE OF NEW YORK. AND THE VALIDITY, INTERPRETATION, CONSTRUCTION AND
PERFORMANCE OF THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF
LAW.

       

      Effective
on the eighth calendar day following the date set forth below.

       

          THE READERS’
DIGEST ASSOCIATION, INC.,

       

      
        	
                 
      

              	
                by:

              


      

      


      
        	
                 
      

              	 


      

      
        	
                 
      

              	
                Name: 
      __________________________________

              


      

      
        	
                 
      

              	
                Title:
      ___________________________________

              


      

      


          EMPLOYEE,

       

          __________________________________________

          Tom
Williams

      


          Date
Signed:________________________________                                                                


      
        
           


        

        
          7

          
            

          

        

        
           


        

      


      Exhibit
A-2

      


      RELEASE
OF CLAIMS

      


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

      


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

      


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

       

      


       

      Dated:
_____________________                                                                  THE READER’S DIGEST
ASSOCIATION, INC.

       

                  By:
________________________________

                                                  Name:

                                                  Title:

       

      


       

      



      
        
           


        

        
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      EXHIBIT
B

      


      


      


      Pay
for Performance/Variable Comp Plan

      


      
        	
                Summary

              	
                Broad-based
      plan designed to incent delivery of short-term, financial goals
      (incremental Cash EBITDA and Free Cash Flow)

              
	
                Participants

              	
                Includes
      specified level employees which provides a consistent pay for performance
      philosophy among all executives

              
	
                Target
      Award Opportunities

              	
                Target
      award opportunity (expressed as a % of base salary) established for each
      participant relative to employee grade level and criticality of
      role

              
	
                Performance
      Measure

              	
                Cash
      flow and Cash EBITDA.  Executives have 100% of their opportunity
      based on financial results.  Performance will  be
      measured at the corporate level with CEO discretion of +/- 10% at the
      operating unit level, assuming no change in total pool
      available.

              
	
                Performance
      Award

              	
                Cash
      payment

              
	
                Performance
      Measurement Period

              	
                Annual
      measure  to recognize short-term goals and provide strong
      retention and  incentive value

              
	
                Payout
      Frequency

              	
                Paid
      out annually based on audited results for
2010.

              


      

       

       

       

       

       

       

      
 

       

       

      
        
           

        

        
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          10

          
            

          

        

        
           


        

      


      


       

      EXHIBIT
C

       

      


       

      Reward
for Increasing Enterprise Value/

       

      Enterprise
Value Maximization Plan (EVMax)

       

      
        	
                Summary

              	
                Incremental
      executive plan designed to incent the delivery of longer-term financial
      goals

                Group
      1 -  To reward for the realization of maximum enterprise
      value

                Group
      2  - To reward executives for time to
  emergence

              
	
                Participation

              	
                Participation
      limited to executives that have broad enterprise wide responsibilities or
      those that can impact time to emergence.  Select group will
      participate in both.  All EVMax participants are also
      participants in the Variable Comp Plan.

              
	
                Performance
      Measure

              	
                Group
      1 - Enterprise wide Cash EBITDA as measured in accordance with approved
      plan Cash EBITDA at end of each year in two-year performance period (June
      2010 and June 2011)

                Group
      2 - Incremental savings not contemplated in plan (driven by time to
      emergence)

              
	
                Performance
      Award

              	
                Group
      1 – Cash payment based on pro-rata share of Cash EBITDA improvement over
      approved plan Cash EBITDA

                Group
      2 – Cash payment based on a portion of saved professional fees due to
      early exit

              
	
                Performance
      Measurement Period

              	
                Group
      1 - One year at Fiscal Year End

                Group
      2 - Time to Emergence

              
	
                Payout
      Frequency

              	
                Group
      1 - Paid at the end of 2010 Fiscal Year

                Group
      2 - Paid in full at emergence with a 6 month claw back
      provision

              


      

      


       

       

       

       

       

      
        
           

        

        
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      ANNEX
1

      


      


      
        	
                Executive Participation

              	 
      
	 
      	
                2010

              
	
                  Base
      Line EBITDA

              	
                133.2

              
	
                  Plus
      Bonus Expense included (est. 2001)

              	
                37.1

              
	
                Pre-Bonus
      EBITDA

              	
                170.3

              
	
                  Plus
      Cost Savings Assumed 2010

              	
                37.0

              
	
                  Plus
      Cost Savings Assumed 2011

              	
                 -

              
	
                  Plus
      Additional EBITDA generation

              	
                3.9

              
	
                Pre-Bonus
      EBITDA after Initiatives

              	
                211.2

              
	 
      	 
      
	
                  EBITDA
      Pre-Bonus

              	
                211.2

              
	
                  EBITDA
      Post-Bonus

              	
                174.0

              
	
                  EVMAX
      Value Date

              	
                Jun-10

              
	
                  EVMAX
      Value EBITDA (approximates above)

              	
                174.6

              
	
                  EVMAX
      Time to Exit Bonus – Date of Exit on or Before

              	
                Jan-10

              
	 
      	 
      
	 
      	
                2010

              
	
                Mary Berner

              	 
      
	
                Base
      Salary

              	
                $    1,100,000

              
	
                Variable
      Comp Percent of Salary

              	
                50%

              
	
                Variable
      Comp Bonus Dollars

              	
                $       550,000

              
	
                EVMAX
      – Value Creation

              	
                $       259,128

              
	
                EVMAX
      – Time to Exit

              	
                $       928,698

              
	
                Total
      Bonus

              	
                $    1,737,826

              
	
                Total
      Compensation (Base + Bonus)

              	
                $    2,837,826

              
	 
      	 
      
	
                Tom Williams

              	 
      
	
                Base
      Salary

              	
                $       600,000

              
	
                Variable
      Comp Percent of Salary

              	
                52%

              
	
                Variable
      Comp Bonus Dollars

              	
                $       316,147

              
	
                EVMAX
      – Value Creation

              	
                $       157,207

              
	
                EVMAX
      – Time to Exit

              	
                $       807,410

              
	
                Total
      Bonus

              	
                $    1,280,764

              
	
                Total
      Compensation (Base + Bonus)

              	
                $    1,880,764

              


      

      


      


       

      



      
        
           


        

        
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