Employment Agreement - Reader's Digest Association Inc. and George V. Grune
AGREEMENT made as of this 11th day of August, 1997, by
and between The Reader's Digest Association, Inc., a Delaware
corporation (the "Company"), and George V. Grune (the
"Employee").
WHEREAS, the Employee was formerly an employee of the
Company prior to his original retirement;
WHEREAS, the Employee possesses an intimate knowledge
of the business and affairs of the Company and its policies,
procedures, methods and personnel; and
WHEREAS, the Company desires to secure the services
and employment of the Employee on behalf of the Company and the
Employee is willing to render such services on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual
covenants contained herein, the parties hereto agree as
follows:
1. Employment Term. Subject to the terms and
provisions of this Agreement, the Company hereby agrees to
employ the Employee and Employee hereby agrees to be employed
by the Company for the period commencing on the date hereof and
ending on July 31, 1998 (the "Initial Term"), provided, however
that the period of employment shall automatically be extended
for a six month period on each of August 1, 1998 and February
1, 1999 (each an "Extension Term") (the Initial Term and each
Extension Term in effect, the "Employment Term") unless one of
the parties gives written notice to the other, not less than
forty five days prior to the proposed date of extension,
notifying the recipient that the notifying party does not wish
to extend the term of employment. The term of this Agreement
shall be coincident with the Employment Term.
2. Duties. During the Employment Term the Employee
shall serve as Chairman and Chief Executive Officer of the
Company or such other position as may be agreed upon by Company
and the Employee and shall perform such duties, services and
responsibilities incident to such position(s) as determined
from time to time by the Board of Directors of the Company (the
"Board").
The Employee shall devote his full business time,
attention and skill to the performance of such duties, services
and responsibilities, and will use his best efforts to promote
the interests of the Company. The Employee will not, without
the prior written approval of the Board, engage in any other
business activity which would interfere with the performance of
his duties, services and responsibilities hereunder or which is
in violation of policies established from time to time by the
Company.
However, the Employee shall be entitled to serve on
corporate, civic or charitable boards or committees and to
manage personal investments, so long as such activities do not
interfere with the performance of Employee's duties or
responsibilities pursuant to this Agreement.
3. Compensation and Certain Benefits. (a) In
consideration of the performance by the Employee of the
Employee's obligations during the Employment Term (including
any services as an officer, director, employee, member of any
committee of the Company, or otherwise) the Company will,
during the Employment Term, pay the Employee a salary (the
"Salary") at an annual rate of not less than $660,000. In
addition, the Employee will have an annual bonus target of
$990,000 with a range of opportunity of from 0% to 150% of the
annual bonus target, depending on Company results and
individual performance (the "Annual Bonus"). The Annual Bonus
shall be payable to the Employee only (i) to the extent the
Company achieves the performance goals for the applicable
fiscal year as set by the Company's Compensation & Nominating
Committee or (ii) if such performance goals are not met, with
the consent of the Company's Compensation & Nominating
Committee, taking into account such factors as cost reduction,
product development/marketing initiatives, organizational
changes, customer expansion and such other factors as the
Committee determines to be relevant.
(b) The Employee will be entitled to the use of a
Company automobile, use of the Company's airplane and use of on-
site housing during the Employment Term (collectively, the
"Perquisites").
(c) The Company will grant to the Employee in the
Initial Term stock appreciation rights ("SARs") relating to
212,000 shares of the Company's Class A common stock. 50% of
the SARs will vest on the last day of the Initial Term and a
further 25% of the SARs will vest on the last day of each
Extension Term, if in effect. If the Employment Term is not
extended beyond the Initial Term or the Employee is terminated
for any reason other than Cause (as defined below), all of the
SARs granted to the Employee or which, absent the Employee's
termination would have been granted to the Employee during the
Initial Term, shall vest immediately.
(d) With respect to any income imputed to the
Employee in connection with the Perquisites (the "Perquisite
Income"), the Employee will be entitled to receive an
additional amount (the "Perquisite Gross-Up Payment") so that
after payment of all taxes imposed on the Perquisite Gross-Up
Payment, the Employee retains an amount sufficient to pay all
taxes on the Perquisite Income.
(e) With respect to any investment income of the
Employee and any retirement income of the Employee arising out
of his original retirement from the Company (collectively, the
"Other Income"), the Employee will be entitled to receive an
additional amount (the "Other Income Gross-Up Payment" and,
together with the Perquisite Gross-Up Payment, the "Gross-Up
Payment") so that, after payment of all taxes on the Other
Income Gross-Up Payment, the Employee retains an amount
sufficient to pay all taxes imposed by the State and City of
New York on the Other Income.
(f) The Salary and the Perquisite Gross-Up Payment
shall be payable in accordance with the normal payroll
practices of the Company then in effect.
(g) At least thirty days prior to the due date of any
estimated tax payment by the Employee, the Employee shall
deliver to the Company's independent auditors (the "Auditors")
with a copy to the Company's Vice President, Tax a statement
(the "Quarterly Statement") setting forth the amount of the
Employee's Other Income to which the estimated tax payment
relates and his calculation of the Other Income Gross-Up
Payment with respect thereto. The Auditors shall determine and
report to the Company the amount of the applicable Other Income
Gross-Up Payment within fifteen days of their receipt of the
Quarterly Statement. Promptly following receipt of the
Auditor's report, the Company shall pay to the Employee the
amount of the Other Income Gross-Up Payment as determined by
the Auditors.
(h) Within thirty days after the filing by the
Employee of his federal, state and city tax returns for any tax
year, the Employee will deliver to the Auditors with a copy to
the Company's Vice President, Tax a statement (the "Annual
Statement") setting forth (i) the Employee's Other Income and
Perquisite Income (collectively, the "Gross-Up Income") for
that year, (ii) his calculation of the amount of the Gross-Up
Payment with respect thereto, and (iii) the difference between
(x) the Gross-Up Payment set forth on the Annual Statement and
(y) the sum of payments made to the Employee for that year
pursuant to Sections 3(d) and 3(g) (the "Residual Gross-Up
Payment"). The Auditors shall determine and report to the
Company the amount of the applicable Residual Gross-Up Payment
within fifteen days of their receipt of the Annual Statement.
If the Residual Gross-Up Payment amount as determined by the
Auditors is a positive number reflecting an under payment by
the Company of the applicable Gross-Up Payment, the Company
shall promptly following receipt of the Auditors report pay to
the Employee that amount or, if the Residual Gross-Up Payment
amount as determined by the Auditors is a negative number
reflecting an overpayment by the Company of the applicable
Gross-Up Payment, the Employee shall promptly following receipt
of the Auditors report pay to the Company that amount.
(i) If, at any time, the Internal Revenue Service or
any other taxing authority determines upon audit or issues an
assessment that additional tax is due with respect to the
Employee's Gross-Up Income, the Company shall pay to the
Employee the shortfall in the amount of the applicable Gross-Up
Payment. The Employee shall have the right to represent his
own interests in any such audit or in any proceeding with
respect to any such assessment (a "Tax Matter"), provided that
the Employee shall not be permitted to agree to a settlement of
any such Tax Matter without the consent of the Company, which
consent shall not be unreasonably withheld.
(j) Any determination made by the Auditors pursuant
to Sections 3(g) or 3(h) shall be final and binding on the
Company and the Employee.
(k) Except as expressly set forth herein, the
Employee shall be solely responsible for taxes imposed on the
Employee by reason of any compensation and benefits provided
hereunder and the Company shall be entitled to withhold from
all such compensation and benefits all applicable taxes
required to be withheld pursuant to federal, state or local
law.
4. Benefits. In addition to the payments and
benefits described above, during the Employment Term, the
Employee shall be entitled to participate in any employee
benefit plans then in effect for senior management and receive
any other programs or benefits that the Company then provides
to senior management to the extent the Employee meets the
eligibility requirements for any such plan or benefit;
provided, however, that the Employee shall not be eligible to
participate in the Severance Plan for Senior Management and the
Income Continuation Plan for Senior Management. Any SARs
granted to the Employee prior to his employment hereunder shall
continue to be outstanding and exercisable, in accordance with
their terms, during the Employment Term. All SARs granted to
the Employee during the Employment Term shall vest and become
fully exercisable upon a Change in Control pursuant to the
terms of the Key Employee Long Term Incentive Plan.
5. Vacations. During the Employment Term, the
Employee shall be entitled to the number of paid vacation days
in each calendar year determined by the applicable Company
policy from time to time, but not at the rate of less than 20
business days in any calendar year.
6. Termination. The Employee's employment with the
Company and the Employment Term shall terminate upon the
expiration of the Employment Term or upon the earlier
occurrence of any of the following events:
(a) The death of the Employee.
(b) The mutual agreement between the Company and
the Employee.
(c) The termination of employment by the Company
for Cause. Termination of employment for "Cause" shall mean
termination based on the Employee's breach of this Agreement,
conduct by the Employee that is dishonest, fraudulent or
unlawful, gross negligence, or willful misconduct by the
Employee, in any case, which discredits or damages the Company.
(d) The termination of employment by the Company
for Disability.
(e) The termination of employment by the Company
other than for Cause, Disability or Death.
In the event of termination of this Agreement pursuant
to Sections 6(b), (c) (d) or (e) hereof, the Employee agrees to
cooperate with the Company and to be reasonably available to
the Company with respect to continuing and/or future matters
arising out of the Employee's employment or any other
relationship with the Company, whether such matters are
business-related, legal or otherwise. The provisions of this
paragraph shall survive termination of this Agreement.
7. Termination Payments.
(a) If the Employee's employment with the
Company terminates for whatever reason, (1) the Company will
promptly pay the Employee (i) any portion of the Salary and
Gross-Up Payment accrued hereunder on or prior to the date of
termination but not paid to the Employee and (ii) an amount
equal to $56,221 multiplied by the number of months for which
the Employee was employed hereunder prior to his termination
payable in three equal annual installments, beginning on
January 1 in the year following the date of the Employee's
termination of employment, it being understood and agreed that
any amount payable to the Employee pursuant to this clause (ii)
shall bear interest from the date of this Agreement to the date
of payment thereof at the prime rate of The Chase Manhattan
Bank, New York and (2) the Employee shall be entitled to
exercise any outstanding options or SARs granted to him by the
Company, both prior to his employment hereunder and during the
Employment Term, at any time during the three-year period
following termination of his Employment with the Company.
(b) If the Employee's employment with the
Company terminates pursuant to Section 6(a) hereof, (i) the
Employee's wife shall be entitled to receive an amount, payable
as a life annuity, equal to the difference (if any) between the
amount of the annuity which the Employee had been receiving
prior to his employment hereunder as a result of his original
retirement, and any amount payable to the Employee's wife under
any Company retirement plan following the Employee's death so
that the Employee's wife receives a 100% survivor annuity and
(ii) the Company shall indemnify and hold harmless the
Employee's beneficiaries against any New York State or City
estate tax liability arising as a result of the Employee's
death. In the event that the taxing authority of New York
State or New York City determines upon audit or issues an
assessment that additional estate tax is due, the Employee's
beneficiaries shall not be permitted to agree to a settlement
with respect to such audit or assessment or proceeding without
the consent of the Company, which consent shall not be
unreasonably withheld.
(c) If the Employee's employment with the
Company terminates pursuant to Section 6(e) hereof, (i) the
Company will continue to pay the Employee an amount equal to
the Employee's Salary (at the rate in effect at the time of
termination of employment), in the case of termination prior to
the end of the Initial Term, for the balance of the Initial
Term, and, in the case of termination during either Extension
Term, for the balance of the applicable Extension Term and (ii)
the Company will, in the case of termination prior to the end
of the Initial Term , pay to the Employee within 60 days after
the end of fiscal 1998 the Annual Bonus applicable to fiscal
1998, whether or not the applicable performance goals have been
met and, in the case of termination during either Extension
Term, pay to the Employee within 60 days after the end of the
applicable Extension Term the Annual Bonus applicable to fiscal
1999 whether or not performance goals have been met, provided
that, if the termination is during the first Extension Term,
the Employee shall only be entitled to half of the Annual Bonus
for fiscal 1999.
(d) If the Employee's employment with the Company
terminates pursuant to Sections 6(a) or 6(d) hereof, the
Company will pay to the Employee or his designated
beneficiaries, within 60 days after the end of the fiscal year
in which termination occurred, the Annual Bonus applicable to
that fiscal year, to the extent that Annual Bonus is payable
pursuant to Section 3(a) hereof. The amount of the Annual
Bonus shall be pro-rated for that portion of the fiscal year
during which he was employed.
8. Employee Covenants.
(a) During the terms of this Agreement and for a
period of two years thereafter, the Employee shall not (i)
commit any criminal act against the Company or any act that
would constitute "Cause", (ii) disclose any information likely
to be regarded as confidential and relating to the Company's
business, (iii) solicit the Company's employees to work for a
competitor of the Company, or (iv) perform any act detrimental
to the Company or its employees, including, but not limited to,
disparaging the Company, its senior management or its products.
(b) The Employee agrees that any breach or
threatened breach of Section 8(a) 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.
(c) All of the Employee rights and benefits
under this Agreement shall cease upon any breach by the
Employee 8(a) of this Agreement.
9. Non-Waiver of Rights. The failure to enforce at
any time the provisions of this Agreement or to require at any
time performance by the other party of any of the provisions
hereof shall in no way be construed to be a waiver of such
provisions or to affect either the validity of this Agreement
or any part hereof, or the right of either party to enforce
each and every provision in accordance with its terms.
10. Notices. Every notice relating to this Agreement
shall be in writing and shall be given by personal delivery or
by registered or certified mail, postage prepaid, return
receipt requested.
11. Binding Effect/Assignment. This Agreement shall
inure to the benefit of and be binding upon the parties hereto
and their respective heirs, executors, personal
representatives, estates, successors (including, without
limitation, by way of merger) and assigns. Notwithstanding the
provisions or the immediately preceding sentence, the Employee
shall not assign all or any portion of this Agreement without
the prior written consent of the Company.
12. Entire Agreement. This Agreement sets forth the
entire understanding of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements,
written or oral, between them as to such subject matter. This
Agreement may not be amended, nor may any provision hereof be
modified or waived, except by an instrument in writing duly
signed by the party to be charged.
13. Severability. If any provision of this
Agreement, or any application thereof to any circumstances, is
invalid, in whole or in part, such provision or application
shall to that extent be severable and shall not affect other
provisions or applications of this Agreement.
14. Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of New York, without reference to the principles of
conflict of laws.
15. Modifications and Waivers. No provision of this
Agreement may be modified, altered or amended except by an
instrument in writing executed by the parties hereto. No
waiver by either party hereto of any breach by the other party
hereto of any provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or
dissimilar provisions at the time or at any prior or subsequent
time.
16. Headings. The headings contained herein are
solely for the purposes of reference, are not part of this
Agreement and shall not in any way affect the meaning or
interpretation of this Agreement.
17. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be
an original but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the Company has caused this
Agreement to be executed by authority of its Board of
Directors, and the Employee has hereunto set his hand, the day
and year first above written.
THE READER'S DIGEST ASSOCIATION,
INC.
By: SUZANNE K. PILNICK
Name:Suzanne K. Pilnick
Title: Vice President, Human
Resources
BY: GEORGE V. GRUNE
George V. Grune