SCHEDULE 13D

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lfve/T8u0MWsjnJ1O1UV4SHpi/Yk1OhWToqVx5ykgarOlqxOq6iycAfq/6SrkcUB p6VPywPyb29UXsWIdcRqYg== 0001193125-03-008246.txt : 20030604 0001193125-03-008246.hdr.sgml : 20030604 20030604164417 ACCESSION NUMBER: 0001193125-03-008246 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20030604 GROUP MEMBERS: HIGHFIELDS CAPITAL II LP GROUP MEMBERS: HIGHFIELDS CAPITAL LTD. GROUP MEMBERS: HIGHFIELDS GP LLC GROUP MEMBERS: JONATHON S. JACOBSON GROUP MEMBERS: RICHARD L. GRUBMAN SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: READERS DIGEST ASSOCIATION INC CENTRAL INDEX KEY: 0000858558 STANDARD INDUSTRIAL CLASSIFICATION: BOOKS: PUBLISHING OR PUBLISHING AND PRINTING [2731] IRS NUMBER: 131726769 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-43188 FILM NUMBER: 03732876 BUSINESS ADDRESS: STREET 1: READERS DIGEST ROAD CITY: PLEASANTVILLE STATE: NY ZIP: 10570 BUSINESS PHONE: 9142381000 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: HIGHFIELDS CAPITAL MANAGEMENT LP CENTRAL INDEX KEY: 0001079563 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 200 CLARENDON STREET 51ST FLOOR CITY: BOSTON STATE: MA ZIP: 02117 BUSINESS PHONE: 6178507500 SC 13D 1 dsc13d.htm SCHEDULE 13D SCHEDULE 13D

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 13D

Under the Securities Exchange Act of 1934

(Amendment No. )*

The Reader’s Digest Association, Inc.

(Name of Issuer)

Common Stock, Par Value $.01 Per Share

(Title of Class of Securities)

755267101

(CUSIP Number)

Highfields Capital Management LP

Attention: Joseph F. Mazzella

200 Clarendon Street, 51st Floor

Boston, MA 02116

(617) 850-7500

(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)

June 4, 2003

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box [X].

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.

*The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the notes).

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1.	NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) Highfields Capital Management LP

2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) ¨ (b) ¨

3.	SEC USE ONLY

4.	SOURCE OF FUNDS (SEE INSTRUCTIONS) AF

5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)	¨

6.	CITIZENSHIP OR PLACE OF ORGANIZATION Delaware

NUMBER OF

BENEFICIALLY

OWNED BY

EACH

REPORTING

PERSON

WITH

7. SOLE VOTING POWER

8,327,431

8. SHARED VOTING POWER

None

9. SOLE DISPOSITIVE POWER

8,327,431

10. SHARED DISPOSITIVE POWER

None

11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,327,431

12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS)	¨

13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.5%

14.	TYPE OF REPORTING PERSON (SEE INSTRUCTIONS) PN

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1.	NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) Highfields GP LLC

2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) ¨ (b) ¨

3.	SEC USE ONLY

4.	SOURCE OF FUNDS (SEE INSTRUCTIONS) AF

5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)	¨

6.	CITIZENSHIP OR PLACE OF ORGANIZATION Delaware

NUMBER OF

BENEFICIALLY

OWNED BY

EACH

REPORTING

PERSON

WITH

7. SOLE VOTING POWER

8,327,431

8. SHARED VOTING POWER

None

9. SOLE DISPOSITIVE POWER

8,327,431

10. SHARED DISPOSITIVE POWER

None

11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,327,431

12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS)	¨

13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.5%

14.	TYPE OF REPORTING PERSON (SEE INSTRUCTIONS) PN

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1.	NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) Highfields Capital Ltd.

2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) ¨ (b) ¨

3.	SEC USE ONLY

4.	SOURCE OF FUNDS (SEE INSTRUCTIONS) WC

5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)	¨

6.	CITIZENSHIP OR PLACE OF ORGANIZATION Cayman Islands, B.W.I.

NUMBER OF

BENEFICIALLY

OWNED BY

EACH

REPORTING

PERSON

WITH

7. SOLE VOTING POWER

6,099,072

8. SHARED VOTING POWER

None

9. SOLE DISPOSITIVE POWER

6,099,072

10. SHARED DISPOSITIVE POWER

None

11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,099,072

12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS)	¨

13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 6.2%

14.	TYPE OF REPORTING PERSON (SEE INSTRUCTIONS) CO

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1.	NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) Jonathon S. Jacobson

2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) ¨ (b) ¨

3.	SEC USE ONLY

4.	SOURCE OF FUNDS (SEE INSTRUCTIONS) AF

5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)	¨

6.	CITIZENSHIP OR PLACE OF ORGANIZATION United States

NUMBER OF

BENEFICIALLY

OWNED BY

EACH

REPORTING

PERSON

WITH

7. SOLE VOTING POWER

8,327,431

8. SHARED VOTING POWER

None

9. SOLE DISPOSITIVE POWER

8,327,431

10. SHARED DISPOSITIVE POWER

None

11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,327,431

12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS)	¨

13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.5%

14.	TYPE OF REPORTING PERSON (SEE INSTRUCTIONS) IN

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1.	NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) Richard L. Grubman

2.	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) ¨ (b) ¨

3.	SEC USE ONLY

4.	SOURCE OF FUNDS (SEE INSTRUCTIONS) AF

5.	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e)	¨

6.	CITIZENSHIP OR PLACE OF ORGANIZATION United States

NUMBER OF

BENEFICIALLY

OWNED BY

EACH

REPORTING

PERSON

WITH

7. SOLE VOTING POWER

8,327,431

8. SHARED VOTING POWER

None

9. SOLE DISPOSITIVE POWER

8,327,431

10. SHARED DISPOSITIVE POWER

None

11.	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,327,431

12.	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS)	¨

13.	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.5%

14.	TYPE OF REPORTING PERSON (SEE INSTRUCTIONS) IN

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Item 1. Security and Issuer.

The securities to which this statement relates are shares of Common Stock, par value $.01 per share (the “Shares”), of The Reader’s Digest Association, Inc., a Delaware corporation (the “Issuer”). The principal executive offices of the Issuer are located at Reader’s Digest Road, Pleasantville, New York 10570-7000.

Item 2. Identity and Background.

(a), (b) and (c) This statement is being filed by the following persons: Highfields Capital Management LP, a Delaware limited partnership (“Highfields Capital Management”), Highfields GP LLC, a Delaware limited liability company (“Highfields GP”), Highfields Capital Ltd., an exempted limited company organized under the laws of the Cayman Islands, B.W.I. (“Highfields Ltd.”), Jonathon S. Jacobson and Richard L. Grubman. Highfields Capital Management, Highfields GP, Highfields Ltd., Mr. Jacobson and Mr. Grubman are sometimes individually referred to herein as a “Reporting Person” and collectively as the “Reporting Persons” or “Highfields.”

Highfields Capital Management is principally engaged in the business of providing investment management services to the following investment funds: Highfields Capital I LP, a Delaware limited partnership (“Highfields I”), and Highfields Capital II LP, a Delaware limited partnership (“Highfields II”) and Highfields Ltd. (together with Highfields I and Highfields II, the “Funds”). The business address and principal executive offices of Highfields Capital Management are 200 Clarendon Street, 51st Floor, Boston, Massachusetts 02116.

Highfields GP is the General Partner of Highfields Capital Management. Highfields GP’s principal business is serving as General Partner of Highfields Capital Management. The business address and principal executive offices of Highfields GP are 200 Clarendon Street, 51st Floor, Boston, Massachusetts 02116.

Highfields Ltd. is principally engaged in the business of buying, selling and owning securities and those activities incidental to buying, selling and owning securities. The business address and principal executive offices of Highfields Ltd. are c/o Goldman Sachs (Cayman) Trust, Limited, Second Floor, Harbour Centre, P.O. Box 896 GT, George Town, Grand Cayman, Cayman Islands, B.W.I.

Mr. Jacobson is a Managing Member of Highfields GP and his business address is 200 Clarendon Street, 51st Floor, Boston, Massachusetts 02116. Mr. Jacobson also is a Managing Director of Highfields Capital Management and in such capacity acts as a portfolio manager of the Funds.

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Mr. Grubman is a Managing Member of Highfields GP and his business address is 200 Clarendon Street, 51st Floor, Boston, Massachusetts 02116. Mr. Grubman also is a Managing Director of Highfields Capital Management and in such capacity acts as a portfolio manager of the Funds.

The Shares to which this Schedule 13D relates are owned beneficially by the Funds.

(d) and (e) During the last five years, none of the persons identified in this Item 2 has been convicted in any criminal proceeding (excluding traffic violations or similar misdemeanors), or has been a party to any civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violations with respect to such laws.

(f) Each natural person identified in this Item 2 is a citizen of the United States.

Item 3. Source and Amount of Funds or Other Consideration.

The aggregate purchase price of the 719,907 Shares owned by Highfields I was $18,740,695.77, inclusive of brokerage commissions.

The aggregate purchase price of the 1,508,452 Shares owned by Highfields II was $39,340,196.18, inclusive of brokerage commissions.

The aggregate purchase price of the 6,099,072 Shares owned by Highfields Ltd. was $160,509,933.14, inclusive of brokerage commissions.

Each of Highfields I, Highfields II and Highfields Ltd. used its own assets to purchase such Shares, which may at any given time include funds borrowed in the ordinary course in their margin accounts.

Item 4. Purpose of Transaction.

From time to time, each of the Funds has acquired Shares in the ordinary course of business for investment purposes and has held the Shares in such capacity.

As further described below, this Schedule 13D is being filed to report that the Reporting Persons have entered into an agreement with the Issuer (the “Agreement”) respecting among other things, the election of directors, and other matters to be considered at the Issuer’s next annual meeting of shareholders to be held in November 2003 (the “2003 Annual Meeting”).

Highfields has in the past raised concerns with Issuer’s management regarding its business operations, and certain other issues of corporate governance. As a result,

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Highfields and the Issuer have recently discussed a range of governance matters, including potential additions to the Board of Directors.

On June 2, 2003, in discussions between Highfields and two of the independent directors of the Issuer’s Board, it was agreed that the Issuer would elect to the Board, William E. Mayer, an independent director candidate suggested by Highfields, and that Mr. Mayer would be appointed to the Issuer’s Compensation and Nominating Committee and Corporate Governance Committee. It was also agreed that a second new independent director would be elected not later than at the 2003 Annual Meeting, and that, as a member of the Compensation and Nominating Committee, Mr. Mayer would take part in the consideration of candidates for such position, including persons suggested by Highfields.

Also in those discussions, Highfields agreed, among other things, that it would vote all its Shares in favor of the Issuer’s nominees at the 2003 Annual Meeting, as well as in favor of other business expected to be presented at such meeting, and agreed that for at least one year it would not participate in any proxy contests, participate in a group with other shareholders or increase its ownership above 10% of the Issuer’s outstanding securities, without the consent of the Issuer. Such agreements were formalized in an agreement on June 4, 2003, a copy of such Agreement is appended hereto as Exhibit A.

Except as set forth herein, no contract, arrangement, relationship or understanding (either oral or written) exists among the Reporting Persons as to the acquisition, disposition, voting or holding of Shares. Except as set forth herein, no Reporting Person has any present plan or proposal that would result in or relate to any of the transactions required to be described in Item 4 of Schedule 13D.

Item 5. Interest in Securities of the Issuer.

(a) and (b) As of June 3, 2003, Highfields I, Highfields II and Highfields Ltd. owned beneficially 719,907, 1,508,452 and 6,099,072 Shares, respectively, representing approximately 0.7%, 1.5% and 6.2%, respectively, of the 98,084,482 shares of the Issuer’s Common Stock outstanding as reported in publicly available information.

As of June 3, 2003, Highfields Capital Management, in its capacity as investment manager of the Funds, had sole voting and dispositive power with respect to all 8,327,431 Shares owned beneficially by the Funds, representing approximately 8.5% of the 98,084,482 shares of the Issuer’s Common Stock outstanding as reported in publicly available information.

As of June 3, 2003, Highfields GP, through its control of Highfields Capital Management, had sole voting and dispositive power with respect to all 8,327,431 Shares owned beneficially by Highfields Capital Management, representing approximately 8.5% of the 98,084,482 shares of the Issuer’s Common Stock outstanding as reported in publicly available information.

As of June 3, 2003, Mr. Jacobson, in his capacity of a Managing Member of Highfields GP and Managing Director of Highfields Capital Management, had sole voting and dispositive

CUSIP No. 755267101

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power with respect to all 8,327,431 Shares owned beneficially by Highfields GP, representing approximately 8.5% of the 98,084,482 shares of the Issuer’s Common Stock outstanding as reported in publicly available information.

As of June 3, 2003, Mr. Grubman, in his capacity of a Managing Member of Highfields GP and Managing Director of Highfields Capital Management, had sole voting and dispositive power with respect to all 8,327,431 Shares owned beneficially by Highfields GP, representing approximately 8.5% of the 98,084,482 shares of the Issuer’s Common Stock outstanding as reported in publicly available information.

(c) There have been no transactions in the Shares beneficially owned by the Reporting Persons effected during the past sixty days.

(d) None.

(e) Not applicable.

Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer.

Each of the Funds from time to time may enter into and unwind, cash settled equity swap or other similar derivative transactions with respect to the Shares. These arrangements do not and will not give the Reporting Persons voting or investment control over underlying Shares and, accordingly, the Reporting Persons disclaim beneficial ownership of any such Shares.

Except as set forth in Item 4 of this Schedule 13D, none of the Reporting Persons has any contract, arrangement, understanding or relationship (legal or otherwise) with any person with respect to any securities of the Issuer, including but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or voting of any securities of the Issuer, finder’s fees, joint ventures, loan or option arrangements, puts or calls, guaranties of profits, division of profits or loss or the giving or withholding of proxies.

Item 7. Material to be Filed as Exhibits.

The following document is filed as an exhibit to this Schedule 13D:

Exhibit A

Agreement, dated June 4, 2003, by and among The Reader’s Digest Association, Inc., Highfields Capital Management LP, Highfields GP LLC, Highfields Capital Ltd., Highfields Capital I LP, Highfields Capital II LP, and Highfields Associates LLC.

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SIGNATURES

After reasonable inquiry and to the best of his, her or its knowledge and belief, each of the persons signing below certifies that the information set forth in this statement is true, complete and correct.

Date: June 4, 2003	HIGHFIELDS CAPITAL MANAGEMENT LP

	By:	HIGHFIELDS GP LLC, ITS GENERAL PARTNER

		/s/ KENNETH H. COLBURN
		Signature

		KENNETH H. COLBURN, AUTHORIZED SIGNATORY
		Name/Title

	HIGHFIELDS GP LLC

		/s/ KENNETH H. COLBURN
		Signature

		KENNETH H. COLBURN, AUTHORIZED SIGNATORY
		Name/Title

	HIGHFIELDS CAPITAL LTD.

	By:	HIGHFIELDS CAPITAL MANAGEMENT LP, ITS INVESTMENT MANAGER

	By:	HIGHFIELDS GP LLC, ITS GENERAL PARTNER

		/s/ KENNETH H. COLBURN
		Signature

		KENNETH H. COLBURN, AUTHORIZED SIGNATORY
		Name/Title

CUSIP No. 755267101

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						JONATHON S. JACOBSON

								/s/ KENNETH H. COLBURN
								Signature

								KENNETH H. COLBURN, ATTORNEY-IN-FACT
								Name/Title

						RICHARD L. GRUBMAN

								/s/ KENNETH H. COLBURN
								Signature

								KENNETH H. COLBURN, ATTORNEY-IN-FACT
								Name/Title

EX-99.1 3 dex991.htm AGREEMENT DATED JUNE 4, 2003 AGREEMENT DATED JUNE 4, 2003

Exhibit A

AGREEMENT

This AGREEMENT, dated as of June 4, 2003 (the “Agreement”), is by and among The Reader’s Digest Association, Inc., a Delaware corporation (the “Company”), and the entities listed on Schedule A hereto (collectively, the “H Entities”).

WHEREAS, the H Entities are the beneficial owners of shares of common stock, par value $0.01 per share, of the Company (the “Common Stock”); and

WHEREAS, the Company has agreed, among other matters, to (1) increase the size of the Board of Directors of the Company (the “Board”) initially from nine (9) to ten (10) members, (2) appoint William E. Mayer to the Board to fill the vacancy resulting therefrom and (3) thereafter, add one other new director to the Board to be selected by the Compensation and Nominating Committee (the “Nominating Committee”) of the Board; and

WHEREAS, the H Entities have agreed to refrain from submitting any stockholder proposal or director nominations at the Company’s 2003 Annual Meeting of Stockholders (“2003 Annual Meeting”) and, among other things, to vote for the election of the Company’s nominees for directors for a specified period; and

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

REPRESENTATIONS

1.1 Authority; Binding Agreement. The Company hereby represents that this Agreement has been duly authorized, executed and delivered by it, and is a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. Each of the H Entities represents and warrants that this Agreement has been duly authorized, executed and delivered by such H Entity, and is a valid and binding obligation of such H Entity, enforceable against such H Entity in accordance with its terms.

1.2 Share Ownership. The H Entities hereby represent and warrant that, as of the date hereof, they and their Affiliates and Associates (as such terms are hereinafter defined) are, collectively, the “beneficial owners” (as such term is hereinafter defined) of an aggregate of 8,327,431 shares of Common Stock (the “Shares”), and that neither they nor their Affiliates or Associates beneficially own, or have any rights, options or agreements to acquire or vote, any other shares of Common Stock.

1.3 Defined Terms.

For purposes of this Agreement:

(a) “Affiliate” and “Associate” have the respective meanings set forth in Rule 12b-2 promulgated by the Securities and Exchange Commission (the “SEC”) under the

Securities Exchange Act of 1934, as amended (the “Exchange Act”). For purposes of this Agreement, the H Entities acknowledge that Richard L. Grubman and Jonathon S. Jacobson are Affiliates.

(b) The terms “beneficial owner” and “beneficially own” have the same meanings as set forth in Rule 13d-3 promulgated by the SEC under the Exchange Act, except that a person will also be deemed to be the beneficial owner of all shares of Common Stock which such person has the right to acquire pursuant to the exercise of any rights in connection with any securities or any agreement, regardless of when such rights may be exercised and whether they are conditional.

(c) The “Standstill Period” means the period from the date of this Agreement through June 4, 2004. If the Company (1) amends its By-laws or (2) advances the date of the Company’s 2004 Annual Meeting of Stockholders, and either of such actions has the effect of advancing the final date by which a notice of director nomination or other business must be submitted to the Company under the Company’s By-laws to be considered at the Company’s 2004 Annual Meeting of Stockholders (the “Notice Deadline”) to a date earlier than July 4, 2004, then the Company shall (A) give written notice to the H Entities of such amendment or advancement no later than two business days following the approval of the action by the Board and (B) extend the Notice Deadline for the H Entities to submit a notice of nomination or other business that otherwise meets the requirements under the Company’s By-laws to July 4, 2004.

II.

COVENANTS

2.1 Directors.

(a) Appointment of New Director. The Company agrees that at the next regularly scheduled meeting of the Board on June 13, 2003, the Board will:

(1)

increase the size of the Board to ten (10) members and appoint William E. Mayer to fill the newly created directorship on the Board as a member of the class of directors with terms expiring at the 2003 Annual Meeting (each, a “Class 1 Director”); and

(2)

appoint Mr. Mayer to the Corporate Governance Committee and the Nominating Committee of the Board.

Mr. Mayer’s appointment to the Board and these Committees will be effective from and after June 13, 2003. At such time as Mr. Mayer becomes a director of the Company, he will agree to be bound by the terms and conditions of the Company’s policies applicable to directors including, without limitation, the Company’s Ethical, Legal and Business Conduct Policies; Guidelines on Governance; Guidelines for Compliance With Responsibilities Under the United States Federal Securities Laws—Transactions in Securities by Directors and Reporting Officers; and the policy for reimbursement of expenses.

(b) Nomination. The Company agrees to nominate Mr. Mayer for election as a Class 1 Director at its 2003 Annual Meeting and to solicit votes for his election in the same manner as votes are solicited for other Class 1 Directors.

(c) Additional Director. The Nominating Committee will undertake a search for, and no later than the 2003 Annual Meeting, will appoint, one director to the Board in addition to Mr. Mayer (the “Additional Director”). In reviewing candidates, the Nominating Committee will take into account the candidates suggested by the H Entities. The Nominating Committee will undertake the search promptly, but will take no formal action with respect to a candidate before Mr. Mayer becomes a member of the Nominating Committee. The Additional Director may be appointed to any one of the three classes of the Board, as deemed appropriate by the Nominating Committee and in light of the requirement that no classes vary in size by more than one director.

2.2 Voting.

(a) 2003 Annual Meeting. The H Entities, together with their Affiliates and Associates, will not submit any stockholder proposal (pursuant to Rule 14a-8 or otherwise), or any notice of nomination or other business under the Company’s By-laws, and will not nominate or oppose directors for election at the 2003 Annual Meeting. The H Entities will cause all shares of Common Stock beneficially owned by them, and their Affiliates or Associates, as of the record date for the 2003 Annual Meeting, to be present for quorum purposes and to be voted, at the 2003 Annual Meeting or at any adjournments or postponements thereof, in favor of (1) the directors nominated by the Board for election at the 2003 Annual Meeting and (2) any other matter brought before the 2003 Annual Meeting upon the recommendation of the Board by a unanimous vote of those members voting; provided, however, that this provision will not restrict the H Entities from voting as they deem appropriate in the exercise of their fiduciary duty with respect to a merger, tender offer, reorganization, recapitalization, sale of assets or other similar transaction which is submitted for stockholder approval at such meeting (it being understood that to the extent any such proposal includes the proposed election of an alternate slate of directors in lieu of those nominated by the Company, the H Entities, together with their Affiliates and Associates, will in all events be required to vote in favor of the Company’s nominees).

(b) Other Meetings. During the Standstill Period, the H Entities will cause all of the shares of Common Stock beneficially owned by them, and/or their Affiliates or Associates, as of the record date for any other meeting of stockholders of the Company, to be present for quorum purposes and to be voted, at such meeting or at any adjournments or postponements thereof, in favor of any matter brought before such meeting upon the recommendation of the Board by a unanimous vote of those members voting; provided, however, that this provision will not restrict the H Entities from voting as they deem appropriate in the exercise of their fiduciary duty with respect to a merger, tender offer, reorganization, recapitalization, sale of assets or other similar transaction which is submitted for stockholder approval at such meeting (it being understood that to the extent any such proposal includes the proposed election of an alternate slate of directors in lieu of directors nominated by the Company, the H Entities, together with their Affiliates and Associates, will in all events be required to vote in favor of the Company’s nominees).

2.3 Limit on Stock Ownership.

Each of the H Entities covenants and agrees that until the expiration of the Standstill Period, neither it nor any of its Affiliates or Associates will, without the prior written consent of the Company, directly or indirectly, purchase or cause to be purchased or otherwise acquire or agree to acquire, or become or agree to become the beneficial owner of, any Common Stock or other securities issued by the Company, or any securities convertible into or exchangeable for Common Stock or any other equity securities of the Company, if in any such case immediately after the taking of such action the H Entities, together with their Affiliates and Associates, would, in the aggregate, beneficially own more than 10% of the then outstanding shares of Common Stock.

2.4 Other Actions by the H Entities.

Each of the H Entities agrees that, during the Standstill Period, neither it nor any of its Affiliates or Associates will, without the written consent of the Company, directly or indirectly:

(a) form, join in or in any other way participate in a “partnership, limited partnership, syndicate or other group” within the meaning of Section 13(d)(3) of the Exchange Act with respect to the Common Stock or deposit any shares of Common Stock in a voting trust or similar arrangement or subject any shares of Common Stock to any voting agreement or pooling arrangement, other than solely with other H Entities or one or more Affiliates of an H Entity with respect to the Shares or pursuant to this Agreement;

(b) solicit proxies or written consents of stockholders, or otherwise conduct any nonbinding referendum with respect to Common Stock, or make, or in any way participate in, any “solicitation” of any “proxy” to vote any shares of Common Stock with respect to any matter, or become a “participant” in any contested solicitation for the election of directors with respect to the Company (as such terms are defined or used under the Exchange Act);

(c) seek to call, or to request the call of, a special meeting of the stockholders of the Company, or seek to make, or make, a stockholder proposal at any meeting of the stockholders of the Company or make a request for a list of the Company’s stockholders; or

(d) publicly disclose, or cause or facilitate the public disclosure (including without limitation the filing of any document or report with the SEC or any other governmental agency or any disclosure to any journalist, member of the media or securities analyst) of any intent, purpose, plan or proposal to obtain any waiver, or consent under, or any amendment of, any provision of this Agreement, or otherwise seek (in any manner that would require public disclosure by any of the H Entities or its Affiliates or Associates) to obtain any waiver, or consent under, or any amendment of, any provision of this Agreement.

2.5 Publicity.

(a) Promptly after the execution of this Agreement, the Company will issue a press release in the form attached hereto as Schedule B.

(b) Neither the Company nor any of the H Entities, nor any of their respective Affiliates or Associates will, directly or indirectly, make or issue or cause to be made or issued any disclosure, announcement or statement (including without limitation the filing of any document or report with the SEC or any other governmental agency or any disclosure to any journalist, member of the media or securities analyst) concerning the other party or any of its respective past, present or future general partners, directors, officers or employees, which disparages any of such party’s respective past, present or future general partners, directors, officers or employees as individuals (recognizing that each party will be free to comment in good faith regarding the business of the other party, provided any such comment shall not otherwise violate the terms of this Agreement).

III.

OTHER PROVISIONS

3.1 Remedies.

(a) Each party hereto hereby acknowledges and agrees, on behalf of itself and its Affiliates and Associates, that irreparable harm would occur in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties will be entitled to specific relief hereunder, including, without limitation, an injunction or injunctions to prevent and enjoin breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any state or federal court in the State of Delaware, in addition to any other remedy to which they may be entitled at law or in equity. Any requirements for the securing or posting of any bond with such remedy are hereby waived.

(b) Each party hereto agrees, on behalf of itself and its Affiliates and Associates, that any actions, suits or proceedings arising out of or relating to this Agreement or the transactions contemplated hereby will be brought solely and exclusively in the courts of the State of Delaware and/or the courts of The United States of America located in the State of Delaware (and the parties agree not to commence any action, suit or proceeding relating thereto except in such courts), and further agrees that service of any process, summons, notice or document by U.S. registered mail to the respective addresses set forth in Section 3.3 will be effective service of process for any such action, suit or proceeding brought against any party in any such court. Each party, on behalf of itself and its Affiliates and Associates, irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby, in the courts of the State of Delaware or The United States of America located in the State of Delaware, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in any inconvenient forum.

3.2 Entire Agreement.

This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and may be amended only by an agreement in writing executed by the parties hereto.

3.3 Notices.

All notices, consents, requests, instructions, approvals and other communications provided for herein and all legal process in regard hereto shall be in writing and shall be deemed validly given, made or served, if (a) given by telecopy, when such telecopy is transmitted to the telecopy number set forth below and the appropriate confirmation is received or (b) if given by any other means, when actually received during normal business hours at the address specified in this subsection:

if to the Company:		The Reader’s Digest Association, Inc. Reader’s Digest Road Pleasantville, NY 10570 Facsimile: (914) 244-5644 Attention: Michael A. Brizel, Senior Vice President and General Counsel

with a copy to:		Wachtell, Lipton, Rosen & Katz 51 W. 52^nd Street New York, NY 10019 Attention: Patricia A. Vlahakis

if to the H Entities:		Highfields Capital Management LP 200 Clarendon Street 51^st Floor Boston, MA 02493 Facsimile: (617) 850-7501 Attention: Joseph F. Mazzella, General Counsel

with a copy to:		Goodwin Procter LLP Exchange Place Boston, Massachusetts 02109 Facsimile: (617) 523-1231 Attention: Joseph L. Johnson III, P.C.

3.4 Governing Law.

This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware, without regard to any conflict of laws provisions thereof.

3.5 Counterparts.

This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, or caused the same to be executed by its duly authorized representative as of the date first above written.

						THE READER’S DIGEST ASSOCIATION, INC.

						By:		/s/ Michael A. Brizel

								Name: Michael A. Brizel Title: Senior Vice President & General Counsel

						HIGHFIELDS CAPITAL I LP By: Highfields Associates LLC, its General Partner

						By:		/s/ Richard L. Grubman

								By: Richard L. Grubman Title: Managing Member

						HIGHFIELDS CAPITAL II LP By: Highfields Associates LLC, its General Partner

						By:		/s/ Richard L. Grubman

								By: Richard L. Grubman Title: Managing Member

						HIGHFIELDS CAPITAL LTD By: Highfields Capital Management LP, its Investment Manager

						By:		/s/ Richard L. Grubman

								By: Highfields GP LLC By: Richard L. Grubman Title: Managing Member

						HIGHFIELDS ASSOCIATES LLC

						By:		/s/ Richard L. Grubman

								By: Richard L. Grubman Title: Managing Member

						HIGHFIELDS CAPITAL MANAGEMENT LP By: Highfields GP LLC, its General Partner

						By:		/s/ Richard L. Grubman

								By: Richard L. Grubman Title: Managing Member

SCHEDULE A

Highfields Capital I LP

Highfields Capital II LP

Highfields Capital Ltd.

Highfields Associates LLC

Highfields Capital Management LP

Highfields GP LLC

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