Severance Agreement - Reader's Digest Association Inc. and Thomas D. Gardner
THE READER'S DIGEST ASSOCIATION, INC.
READER'S DIGEST ROAD
PLEASANTVILLE, NY 10570-7000
April 23, 2001
Thomas D. Gardner
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570
Dear Tom:
This letter (the "Agreement") 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 Reader's Digest Association, Inc. (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 one of the following terminations
(each, a "Qualifying Termination"): (a) the termination of your
employment by you for Good Reason (as defined in Section 1.2),
or (b) the termination of your employment by the Company,
unless such termination is for Cause (as defined in Section
2.4) or as a result of Total Disability (as defined in the
Company's Long-Term Disability Plan) or death. Any termination
by you shall be communicated by written notice 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 ten (10) business
days after the date on which such notice of termination is
effective pursuant to Section 14.1 hereof (the "Date of
Termination").
1.2 For purposes of this Agreement, "Good Reason" shall mean
the occurrence of either of the following without your express
written consent:
(a) a reduction by the Company in your annual base
salary or your annual target bonus opportunity
under the Company's Management Incentive
Compensation Plan or the Company's Senior
Management Incentive Plan, as applicable (each,
as applicable, the "Annual Incentive Plan"), each
as in effect on the date of this Agreement or as
each may be increased from time to time, unless
such reduction is part of and consistent with a
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; or
(b) a relocation to an office located anywhere other
than within seventy-five (75) miles of your
current primary office, except for required
travel on Company business to an extent
substantially consistent with your then current
business travel obligations.
Mandatory retirement under the Company's retirement policies
shall not constitute a termination for Good Reason hereunder.
1.3 Any termination of your employment by you for Good
Reason shall be made within ninety (90) days after your
knowledge of the occurrence of the event constituting Good
Reason.
2. Compensation Upon Termination
2.1 If your employment shall be terminated pursuant to a
Qualifying Termination, you shall receive the following
payments and benefits for the one-year period following the
Date of Termination, if your grade level is 19 or 20 (or the
equivalent) as of your Date of Termination, and for the
two-year period following the Date of Termination, if your
grade level is 21 or above (or the equivalent) as of your Date
of Termination (in each case, such period, as applicable, shall
be referred to as the "Severance Period"):
(a) your highest annual base salary in effect at any
time during the 12-month period immediately prior
to the Date of Termination, plus
(b) the higher of the following:
(i) the highest amount paid to you under the
Annual Incentive Plan, during the three
(3) plan years most recently ended prior
to the Date of Termination; or
(ii) your annual target bonus award, if any,
under the Annual Incentive Plan for the
fiscal year in which the Date of
Termination occurs.
The aggregate amount of severance payable under this
Section 2.1 shall be paid in equal installments on a
bi-weekly basis, commencing upon the Date of Termination.
2.2 If your employment shall be terminated pursuant to a
Qualifying Termination, the Company shall maintain in full
force and effect, for your continued benefit for the Severance
Period, all medical, dental and group life insurance plans in
which you participated immediately prior to the Date of
Termination, provided that your continued participation is
permissible under the general terms and conditions of such
welfare plans, and that you continue to make all required
employee contributions under each such plan; provided, that any
amendment or termination of such plans during the Severance
Period with respect to the active employees may, in the
Company's discretion, modify your continued benefit under such
plans. In the event that your participation in any such
welfare plan is barred or in the event that your participation
in any such plan would have adverse consequences for you, the
Company shall provide you with benefits substantially similar
to those which you would have been entitled to receive under
such welfare plans had your participation not been barred or
had you not potentially suffered such adverse consequences.
The continued coverage under this Section 2.2 shall apply to
each of your eligible dependents who are participating in such
welfare plans as of the Date of Termination, unless such
dependents cease to remain eligible. Benefits under this
Section 2.2 shall cease if and to the extent, by virtue of your
employment with another employer, you become eligible under
another employer's plan or plans for medical, dental or group
life insurance benefits, as the case may be. Your eligibility
for "COBRA" continuation coverage under Section 4980B of the
Internal Revenue Code of 1986, as amended (the "Code") shall
commence immediately following the end of the Severance Period
or upon the cessation of your medical benefits from the Company
pursuant to the preceding sentence, as applicable.
2.3 If your employment shall be terminated pursuant to a
Qualifying Termination, then you shall receive a lump sum
payment within ten (10) business days following the Date of
Termination equal to the product of (a) your annual target
bonus for the fiscal year in which your Date of Termination
occurs and (b) a fraction, the numerator of which is the number
of days in the fiscal year in which the Date of Termination
occurs through the Date of Termination and the denominator of
which is 365.
2.4 If your employment shall be terminated for Cause, the
Company shall pay you your base salary earned through the Date
of Termination, and the Company shall have no further
obligations to you under this Agreement. In addition, if your
employment shall be terminated for Cause and you are a
participant in The Reader's Digest Association, Inc. Executive
Cash Balance Plan (the "Executive Cash Balance Plan")
immediately prior to your Date of Termination, you will not be
entitled to and will forfeit any benefits under Executive Cash
Balance Plan. For purposes of this Agreement, "Cause" shall
mean termination of your employment occurring by reason of
your:
(a) embezzlement;
(b) chronic unexcused absence;
(c) proven dishonesty;
(d) fraud;
(e) conviction of, or plea of guilty or nolo
contendere to, a felony or another charge
involving moral turpitude;
(f) improper communication of confidential
information obtained in the course of employment;
or
(g) material violation of Company rules, including
but not limited to a material violation of the
Company's Proprietary and Confidential
Information Policy or a material violation of the
Company's Ethical, Legal and Business Conduct
Policies or an action that would have constituted
a material violation of such Policy or Ethical,
Legal and Business Conduct Policies if you had
continued to be employed by the Company.
The determination of whether Cause has occurred shall be solely
in the discretion of the Company's Chief Executive Officer,
with the advice of the Company's Senior Vice President, Human
Resources and the Company's General Counsel.
3. Long-Term Incentive Plan Benefits
3.1 If your employment shall be terminated pursuant to a
Qualifying Termination, you shall have the right to exercise
your outstanding stock options and stock appreciation rights
under the Company's 1989 and 1994 Key Employee Long Term
Incentive Plans or any successor plans (the "Long Term
Incentive Plans") to the extent they are exercisable as of the
Date of Termination. Such stock options and stock appreciation
rights shall remain exercisable following the Date of
Termination pursuant to the terms of the applicable Long Term
Incentive Plan and award agreement.
3.2 If your employment shall be terminated pursuant to a
Qualifying Termination, your outstanding awards (other than
stock options and stock appreciation rights) under the Long
Term Incentive Plans shall vest or be forfeited (and be
payable, if not forfeited) upon or following the Date of
Termination in accordance with the terms of the applicable Long
Term Incentive Plan and award agreement.
4. Pension Benefits and Retiree Medical Benefits
4.1 The provisions of this Section 4 shall govern your
benefits under any of the Nonqualified Plans (as defined in the
next sentence) in which you are a participant immediately
before a Qualifying Termination of your employment,
notwithstanding any provision to the contrary in the
Nonqualified Plans. The "Nonqualified Plans" means The Readers
Digest Association, Inc. Executive Retirement Plan (the
"Executive Retirement Plan"), The Reader's Digest Association,
Inc. Executive Cash Balance Plan (the "Executive Cash Balance
Plan") and the Excess Benefit Retirement Plan of The Reader's
Digest Association, Inc. (the "Excess Cash Balance Plan").
4.2 If your employment shall be terminated pursuant to a
Qualifying Termination and you are a participant in the
Executive Retirement Plan immediately before the Qualifying
Termination, you shall be treated, for purposes of eligibility
for and vesting of benefits (but not for purposes of benefit
accrual) under the Executive Retirement Plan, as if you had
remained an active employee during the Severance Period;
however, if you meet the early retirement conditions under
Section 4.2 of the Executive Retirement Plan, but do not
receive the consent of the Compensation Committee of the Board,
your accrued Normal Retirement Benefit (as defined in the
Executive Retirement Plan) shall vest in full.
4.3 If your employment shall be terminated pursuant to a
Qualifying Termination and you are a participant in the Excess
Cash Balance Plan immediately before the Qualifying
Termination, your benefit under the Excess Cash Balance Plan
shall be adjusted so that your combined benefits under the
Excess Cash Balance Plan and The Reader's Digest Association,
Inc. Retirement Plan (the "Qualified Retirement Plan") are
equal to the benefits to which you would have been entitled if,
for purposes of eligibility for and vesting of benefits (but
not for purposes of benefit accrual), you were treated as if
you had remained an active employee of the Company during the
Severance Period.
4.4 Notwithstanding the foregoing, if your employment shall
be terminated pursuant to a Qualifying Termination and you are
then entitled to any retirement benefits under any of the
Nonqualified Plans, the Company shall have the right, in its
sole discretion, to pay you such benefits in a single lump sum
cash payment within ten (10) days after the end of your
Severance Period, such lump sum amount to be calculated using
the actuarial assumptions specified in the second paragraph of
the definition of "Equivalent Actuarial Value" under the
Qualified Retirement Plan, as in effect at the time of the
calculation.
4.5 Except as specifically provided above, the time and form
of payment of any retirement benefits to which you may be
entitled under any Nonqualified Plan shall be as provided in
such Nonqualified Plan; provided that if your employment shall
be terminated pursuant to a Qualifying Termination, in no event
shall any such benefits be payable to you during the Severance
Period.
4.6 If your employment shall be terminated pursuant to a
Qualifying Termination and you are a participant in the
Executive Retirement Plan immediately before the Qualifying
Termination you shall be treated, for purposes of eligibility
for any retiree medical benefits under the Executive Retirement
Plan, as if you had remained an active employee of the Company
during the Severance Period. In the event that your
participation in such retiree medical plan is barred, or if
your participation in such plan would have adverse consequences
for you, the Company shall provide you with benefits
substantially similar to those which you would have been
entitled to receive under such retiree medical plan had your
participation not been barred or had you not suffered such
adverse consequences.
5. If your employment shall be terminated pursuant to a
Qualifying Termination, you shall be entitled to outplacement
counseling services at the Company's sole expense commensurate
with your position as customarily provided by the Company.
6. Other Severance Arrangements
6.1 This Agreement constitutes the entire contract between
the parties relating to the subject matter hereof and
supersedes any and all prior agreements or understandings,
written or oral, regarding the subject matter hereof, including
the termination agreement entered into between you and the
Company, dated as of October 29, 1998 (the "Prior Termination
Agreement"). You hereby acknowledge and agree that you have
been selected as a participant in the Company's 2001 Income
Continuation Plan for Senior Management (the "Income
Continuation Plan") in consideration for the relinquishment of
your rights under the Prior Termination Agreement and the
replacement of the Prior Termination Agreement with this
Agreement and the relinquishment of your rights under the
Company's Income Continuation Plan for Senior Management.
6.2 Severance payments and benefits hereunder shall be in
lieu of other severance or termination payments and benefits
under any other severance plan, policy, agreement or
arrangement of the Company or its affiliates or under any
individual agreement, other than the 2001 Income Continuation
Plan or Income Continuation Plan, in each case, if applicable.
Any severance payments and benefits under this Agreement shall
be reduced by the amount of any payments and benefits payable
to you under the Income Continuation Plan.
7. The payment of any amounts or benefits under this
Agreement are expressly conditioned on the receipt by the
Company from you of a duly executed General Waiver and Release
of Claims in the form satisfactory to the Company, 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 policy, plan or program in
this Agreement shall be deemed to include any similar policy,
plan or program of the Company then in effect that is the
predecessor of, the successor to, or the replacement for, such
specific policy, plan or program.
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 the event of your death while any amounts are still
payable to you under this Agreement, the Company shall pay all
such unpaid amounts to your designated beneficiary or, if none
has been designated, to your estate.
11. You acknowledge that (a) prior to executing this
Agreement, you had an opportunity to consult with an attorney
of your choosing and review this Agreement with such counsel,
(b) you are executing this Agreement knowingly and voluntarily
and (c) you understand all of the terms set forth herein.
12. 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 ten
(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 sixty (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.
13. Acts Detrimental to the Company
13.1 You agree that you will not engage in any Detrimental
Activity during the Severance Period.
(a) For purposes of this Agreement, Detrimental
Activity shall mean: (i) the disclosure to anyone
outside the Company or its affiliates, or the use
in other than the Company's or its affiliate's
business, without written authorization from the
Company, of any confidential information or
proprietary information, relating to the business
of the Company or its affiliates, acquired by you
during employment with the Company or its
affiliates; (ii) activity while employed that
results, or if known could result, in termination
of your employment that is classified by the
Company as a termination for Cause as provided in
Section 2.4 above; (iii) any attempt, directly or
indirectly, to solicit, induce or hire (or the
identification for solicitation, inducement or
hire) any non-clerical employee of the Company or
its affiliates to be employed by, or to perform
services for, you or any person or entity with
which you are associated (including, but not
limited to, due to your employment by,
consultancy for, equity interest in, or creditor
relationship with such person or entity) or any
person or entity from which you receive direct or
indirect compensation or fees as a result of such
solicitation, inducement or hire (or the
identification for solicitation, inducement or
hire) without, in all cases, written
authorization from the Company; (iv) any attempt,
directly or indirectly, to solicit in a
competitive manner any current or prospective
customer (other than the ultimate consumer) or
advertiser of the Company or its affiliates
without, in all cases, written authorization from
the Company; (v) your Disparagement (as defined
below), or inducement of others to do so, of the
Company or its affiliates or their past and
present officers, directors, employees or
products; (vi) without written authorization from
the Company, the rendering of services for any
organization, or engaging, directly or
indirectly, in any business, which is competitive
with the Company or its affiliates, or which
organization or business, or the rendering of
services to such organization or business, is
otherwise prejudicial to or in conflict with the
interests of the Company or its affiliates,
provided, however, that the only organizations
and businesses which shall be covered by this
subsection (vi) shall be those set forth on
Exhibit A hereto (which list may be changed or
expanded by the Company at any time on 90 days'
written notice to you which notice shall become
effective 90 days after the giving of such
notice, if you are then employed by the Company
or any Designated Subsidiaries (as defined
below)); or (vii) any other conduct or act
determined by the Committee in its sole
discretion, to be injurious, detrimental or
prejudicial to any interest of the Company or its
affiliates. For purposes of subparagraphs (i),
(iii), (iv) and (vi) above, the Chief Executive
Officer, the most senior Human Resources officer
and the most senior legal officer of the Company
shall each have authority to provide you with
written authorization to engage in the activities
contemplated thereby and no other person shall
have authority to provide you with such
authorization.
(b) "Disparagement" includes, without limitation,
comments or statements to the press, the
Company's or its affiliates' employees or any
individual or entity with whom the Company or its
affiliates has a business relationship which
would adversely affect in any manner: (i) the
conduct of the business of the Company or its
affiliates (including, without limitation, any
products or business plans or prospects), or (ii)
the business reputation of the Company or its
affiliates, or any of their products, or their
past or present officers, directors or employees.
(c) "Designated Subsidiary" shall mean one of such
subsidiaries of the Company, 80 percent or more
of the voting capital stock of which is owned,
directly or indirectly, by the Company, which are
designated from time to time by the Board.
13.2 In the event you engage in a Detrimental Activity prior
to, or during the one (1) year period following the payment of
any amount hereunder, the Company shall be entitled to (a) not
make any such payment otherwise required to be made hereunder
following the Company's knowledge of your Detrimental Activity
and (b) recover from you at any time within two (2) years after
any payment made hereunder prior to the Company's knowledge of
your Detrimental Activity, and you shall pay over to the
Company, the full amount of any such payment made, and the
Company shall be entitled to set-off against the amount of any
such payment any amount owed to you by the Company or its
affiliates. Furthermore, if you do not pay over to the Company
within twenty (20) days of demand any payment hereunder, such
amount shall thereafter bear interest at the maximum rate
permitted by law and you shall be liable for all of the
Company's costs of collection, including but not limited to,
reasonable legal fees.
13.3 In addition, you agree that any breach or threatened
breach of Section 13.1 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.
13.4 All of your rights and benefits under this Agreement
shall cease upon any breach by you of Section 13.1 of this
Agreement.
14. Miscellaneous
14.1 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.
14.2 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.
14.3 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.
14.4 This Agreement may be amended or modified only by a
written agreement duly executed by both of the parties hereto.
14.5 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. The parties hereby agree and consent to exclusive
jurisdiction of any dispute under this Agreement in the federal
or state courts of Westchester County in New York State.
Very truly yours,
The Reader's Digest Association, Inc.
By:/s/GARY S. RICH
Name: Gary S. Rich
Title: Senior Vice President,
Human Resources
Agreed to and accepted as of May 20, 2001
By: /s/ THOMAS D. GARDNER
Name: Thomas D. Gardner
Title: Senior Vice President and
President, North American Books
& Home Entertainment and Global
Marketing