Severance Agreement - Reader's Digest Association Inc. and Peter J.C. Davenport
September 8, 1997
Peter J.C. Davenport
10 Tall Timber Road
Mt. Kisco, NY 10549
Dear Peter:
This letter serves to confirm those payments and benefits that you will receive,
subject to and in accordance with the terms and conditions of this Agreement in
connection with a termination of your employment with the Company.
1. Termination of Employment
1.1 The Company may terminate your employment at any time, with or without
stated reason. You shall receive the benefits provided hereunder upon the
termination of your employment by you for "Good Reason," as defined in
Section 1.2, or the termination of your employment by the Company, unless
such termination is for "Cause," as defined in Section 3.1 of the
Severance Plan. In addition, if you terminate employment for any reason
after September 1, 2000 you will also be entitled to the benefits
hereunder. Any termination by you shall be communicated by written Notice
of Termination indicating the termination provision in this Agreement
relied upon, if any, and the Date of Termination; provided that the Date
of Termination shall in no event be earlier than 10 business days after
the date on which such Notice of Termination is effective pursuant to
Section 15 hereof.
1.2 For purposes of this Agreement, "Good Reason" shall mean the occurrence of
any of the following without your express written consent:
1.2.1 the assignment to you without your written consent of any duties
materially inconsistent with your then current position, duties,
responsibilities and status with the Company, or a material change
or a substantial diminution in your then current authority,
reporting responsibilities, titles or offices, or removal from or
failure to re-elect you to any such position or office except in
the event of a termination of your employment for Cause, death,
total disability (as defined in The Reader's Digest Association,
Inc. Retirement Plan) or mandatory retirement;
1.2.2 a reduction by the Company in your annual base salary as in effect
on the date of this Agreement or as the same may be increased from
time to time, unless such reduction is part of and consistent with
a good faith management-wide or Company-wide cost cutting program,
and then only if the percentage of your reduction is no greater
than that of the other management personnel;
1.2.3 a relocation without your written consent to an office located
anywhere other than within 50 miles of your primary residence,
except for required travel on Company business to an extent
substantially consistent with your then current business travel
obligations;
1.2.4 the failure by the Company to continue in effect any compensation
plan or other fringe benefit provided by the Company in which you
participate on the date of this Agreement that, by itself or in the
aggregate, is material to your total compensation from the Company,
unless there shall have been instituted a replacement or substitute
plan or fringe benefit providing comparable benefits or unless such
failure is part of and consistent with a good faith benefit
discontinuance applicable to all of the management personnel of the
Company and then only if the scope of the discontinuance with
respect to you is no greater than that of the other management
personnel; or
1.2.5 the failure of the Company to obtain a satisfactory agreement from
any successor to the Company to assume and agree to perform this
Agreement. The Company shall use its best efforts to require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
businesses or assets of the Company to expressly assume and agree
to perform this Agreement.
1.3 Any termination of your employment by you for "Good Reason" shall be made
within 180 days after the occurrence of the "Good Reason."
2. Compensation Upon Termination
2.1 If your employment shall be terminated and you are entitled to benefits
under Section 1 of this Agreement then, except as provided in Section 2.2
and 2.3, you shall receive the following benefits for each year of the
Severance Period (as defined below):
2.1.1 the Company shall pay to you as severance pay a total amount
equal to the sum of
(a) your highest annual base salary in effect any time during the
12-month period prior to the Date of Termination plus
(b) the higher of the following:
(i) the highest amount paid to you under The Reader's Digest
Association, Inc. Management Incentive Compensation Plan
(the "Annual Incentive Plan") during the three plan
years most recently ended prior to the Date of
Termination; or
(ii) the originally approved target amount of the highest
award, if any, under the Annual Incentive Plan
outstanding on the Date of Termination, as such target
amount may have been increased prior to the Date of
Termination.
Any compensation received by you or granted to you in lieu of
an amount paid under the Annual Incentive Plan for any
one-year period (whether in the form of restricted stock or
otherwise) shall be deemed to be an amount paid to you under
the Annual Incentive Plan for purposes of this Section. Any
compensation receivable by you in lieu of an amount payable
under the Annual Incentive Plan for any period shall be deemed
to be an additional target amount for purposes of this
Section. The amount of any non-cash compensation received or
receivable shall be the greater of the fair market value of
such compensation on the date of award or the cash amount that
would have been received by you in lieu of such non-cash
compensation.
The aggregate amount of severance payable under this Section shall
be paid in equal installments on a bi-weekly basis, commencing upon
the Date of Termination.
2.1.2 the Company shall maintain in full force and effect, for your
continued benefit for the Severance Period, all welfare benefit
plans and programs or arrangements in which you participated
immediately prior to the Date of Termination, provided that your
continued participation is possible under the general terms and
conditions of such welfare plans and programs. In the event that
your participation in any such plan or program is barred, the
Company shall provide you with benefits substantially similar to
those which you would have been entitled to receive under such
welfare plans and programs had your participation not been barred.
2.2 If your employment is terminated by you for "Good Reason" or if your
employment is terminated by the Company other than for "Cause," then the
Severance Period shall be the period of two years immediately following
the Date of Termination.
2.3 If your employment is terminated for Cause, the Company shall pay you your
base salary through the Date of Termination, and the Company shall have no
further obligations to you under this Agreement.
3. Long-Term Incentive Plan Benefits
3.1 You shall have the right to exercise your outstanding stock options and
stock appreciation rights under the 1989 and 1994 Key Employee Long-Term
Incentive Plans (the "Long Term Incentive Plans") to the extent they are
exercisable or would become exercisable during the Severance Period as if
your employment with the Company continued during the Severance Period.
Such stock options and stock appreciation rights shall continue to vest
during the Severance Period as if your employment with the Company
continued during the Severance Period and, upon completion of the
Severance Period, shall vest and be exercisable as if your employment
terminated at that time by reason of either (a) an involuntary termination
without cause or a mutual agreement (within the terms of the particular
award) or (b) retirement (within the terms of the particular award), if
applicable.
3.2 Your outstanding performance units, restricted stock and awards (other
than stock options and stock appreciation rights) under the Long Term
Incentive Plans shall continue to be outstanding and payable during the
Severance Period as if your employment with the Company continued during
the Severance Period and, if applicable, shall vest upon completion of the
Severance Period in accordance with the terms of the award as if your
employment terminated at that time by reason of either (a) an involuntary
termination without cause or a mutual agreement (within the terms of the
particular award) or (b) retirement (within the terms of the particular
award), if applicable. Any such award that is based on a period of
employment shall be payable on a prorated basis as if your employment had
continued during the Severance Period.
3.2.1 If any such award is subject to specific performance goals and your
employment is terminated by you for "Good Reason" or your
employment is terminated by the Company other than for "Cause,"
then the award shall be payable to the extent such performance
goals are attained.
3.3 If any benefits due under Section 3 cannot be paid under the existing or
amended terms of an applicable plan or award agreement, the Company shall
pay you the value of such benefits at the time they would otherwise be
payable if they were payable under such terms.
4. Retirement Plan Benefits
4.1 The Company shall pay to you an amount equal to the difference between
your monthly retirement benefit payable under The Reader's Digest
Association, Inc. Retirement Plan (the "Retirement Plan"), the Excess
Benefit Retirement Plan of The Reader's Digest Association, Inc. (the
"Excess Benefit Retirement Plan") and The Reader's Digest Executive
Retirement Plan (the "Executive Retirement Plan") and the amount that
would have been payable if your age and aggregate periods of service under
those plans included the Severance Period. In addition, the Severance
Period shall be considered to be additional Credited Service for all
purposes (including vesting) under the Executive Retirement Plan. Any
amount payable under this Section 4.1 shall be payable at the same time
and in the same form as such payments would have been made under the
Retirement Plan.
4.2 Upon completion of the Severance Period, if you are not vested under the
Retirement Plan, the Excess Retirement Plan or the Executive Retirement
Plan, you will receive a lump sum payment in the amount of the equivalent
actuarial value (as determined under the Retirement Plan) of pension
credits that would have been earned through the end of the Severance
Period, without regard to vesting, with any such payment to be made within
90 days of the end of the Severance Period.
5. Your participation in The Reader's Digest Employees Profit-Sharing Plan
and the Profit Sharing Benefit Restoration Plan of The Reader's Digest
Association, Inc. (the "Profit Sharing Plans") ceases upon your
termination of employment with the Company. However, you shall receive
cash payments equal to the amounts that would have been computed to
your account had your employment with the Company continued for the
Severance Period, with payments to be made to you by the Company at the
time any contributions have been made for participants in the
Profit-Sharing Plans. In addition, the Severance Period shall be
considered to be additional Credited Service for purposes of your
vesting in any amounts previously contributed to your account under the
Profit Sharing Plans.
6. Any benefits payable under this Agreement shall be reduced by the amount
of any benefits paid under The Reader's Digest Association, Inc. Severance
Plan for Senior Management or The Reader's Digest Association, Inc. Income
Continuation Plan for Senior Management. Any benefits payable under this
agreement shall be reduced by benefits paid under the July 18, 1996
agreement.
7. The payment of any amounts or benefits under this Agreement is expressly
conditioned on the receipt by the Company from you of a duly executed
General Waiver and Release of Claims in the form specified under the
Severance Plan, the repayment by you of any outstanding advances or loans
due the Company and the return by you of all Company property.
8. Any reference to a specific plan in this Agreement shall be deemed to
include any similar plan or program of the Company then in effect that is
the predecessor of, the successor to, or the replacement for, such
specific plan.
9. The Company may withhold from any benefits payable under this Agreement
all federal, state, local or other applicable taxes as shall be required
pursuant to any law or governmental regulation or ruling.
10. In case of your death while any amounts are still payable to you under
this Agreement, the Company shall pay all such amounts to your designated
beneficiary or, if none has been designated, to your estate as if your
employment had continued until the end of the Severance Period.
11. The Company shall indemnify you and hold you harmless from any and all
liabilities, losses, costs or damages, including defense costs and
expenses (including, without limitation, fees and disbursements of counsel
incurred by you in any action or proceeding between the parties to this
Agreement or between you and any third party or otherwise) in connection
with all claims, suits or proceeding relating to or arising from a breach
or alleged breach of this Agreement by the Company.
12. You acknowledge that (i) prior to executing this Agreement, you had an
opportunity to consult with an attorney of your choosing and review this
Agreement with such counsel, (ii) you are executing this Agreement
knowingly and voluntarily and (iii) you understand all of the terms set
forth herein.
13. In the event the Company terminates your employment for Cause and you
dispute the Company's right to do so or you claim that you are entitled
to terminate your employment for Good Reason and the Company disputes
your right to do so, a mediator acceptable to you and the Company will
be appointed within 10 days to assist in reaching a mutually
satisfactory resolution, but will have no authority to issue a binding
decision. Such mediation must be concluded within 60 days of the date
of termination or claim to termination for Good Reason. You agree that
you will not institute any legal proceeding relating to the matter
until the conclusion of such mediation. Should such mediation fail to
reach an acceptable conclusion and you are successful in any litigation
or settlement that issues from such dispute, you shall be entitled to
receive from the Company all of the expenses incurred by you in
connection with any such dispute, including reasonable attorney's fees.
14. Acts Detrimental to the Company
14.1 You agree that you will not do any of the following during the
Severance Period:
14.1.1 commit any criminal act against the Company or any act that
would constitute "Cause";
14.1.2 disclose any information likely to be regarded as confidential
and relating to the Company's business;
14.1.3 solicit the Company's employees to work for a competitor of the
Company; or
14.1.4 perform any act detrimental to the Company or its employees,
including, but not limited to, disparaging the Company, its senior
management or its products.
14.2 You agree that any breach or threatened breach of Section 14.1 shall
entitle the Company to apply for and to obtain injunctive relief, which
shall be in addition to any and all other rights and remedies available to
the company at law or in equity.
14.3 All of your rights and benefits under this Agreement shall cease upon any
breach by you of Section 14.1 of this Agreement.
15. Miscellaneous
15.1 Notices and other communications provided for herein shall be in writing
and shall be effective upon delivery addressed as follows:
if to the Company:
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: Senior Vice President, Human Resources
with a copy to
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: General Counsel
or if to you, at the address set forth above,
or to such other address as to which either party shall give notice in
accordance with the foregoing.
15.2 This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns; provided,
however, that this Agreement may not be assigned by either party without
the consent of the other party.
15.3 Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability
of such provision in any other jurisdiction.
15.4 This Agreement constitutes the entire understanding of the parties hereto
with respect to the subject matter hereof and supersedes any prior
agreements, written or oral, with respect thereto.
15.5 This Agreement may be amended or modified only by a written agreement duly
executed by both of the parties hereto.
15.6 This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York applicable to contracts executed in and to
be wholly performed within that State.
Very truly yours,
THE READER'S DIGEST ASSOCIATION, INC.
/S/GEORGE V. GRUNE
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George V. Grune
Chairman and Chief Executive Officer
Agreed to and accepted as of December 1, 1997
/S/ PETER J.C. DAVENPORT
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Peter J.C. Davenport