READER'S DIGEST OFFERS REWORKED STOCK PLAN

Wallace Funds to Lose Voting Power, Give up Seats on Board

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NEW YORK (AdAge.com) -- The Reader's Digest Association announced today a reworked recapitalization plan that reduces the payments to the Lila and Dewitt Wallace Reader's Digest Funds and is expected to satisfy non-voting shareholders who had sued to stop the original plan.

Under the new plan, the company will buy out the bulk of the funds' holdings at $21.75 per share and exchange the remainder for new shares at a ratio of 1.22 of the new stock per each share of existing stock. The initial proposal had offered $27.50 per share and a 1.24-to-one exchange on the remainder.

Reduces funds' voting rights
The plan aims to

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replace Class A shares with no voting rights and Class B shares with voting rights with a single class of shares with voting rights. The plan will reduce the funds' voting power from 50% to 13% and give Class A shareholders 79% of the vote. Additionally, the funds will surrender their two seats on the company's board of directors.

The initial recapitalization, announced in April, was challenged in court by several shareholders, who filed suits claiming the plan unfairly benefitted the Wallace Funds and company directors and would burden the company with additional debt. The company has settlement agreements in principle with plaintiffs in three of the four pending suits.

The new plan will be put to a vote at a special shareholders meeting to be announced. The funds have agreed to vote in favor.

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