Severance Agreement - Reader's Digest Association Inc. and Gary S. Rich
THE READER'S DIGEST ASSOCIATION, INC.
READER'S DIGEST ROAD
PLEASANTVILLE, NY 10570-7000
April 23, 2001
Gary S. Rich
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570
Dear Gary:
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/THOMAS O. RYDER
Name: Thomas O. Ryder
Title: Chairman and
Chief Executive Officer
Agreed to and accepted as of May 10, 2001
By: /s/GARY S. RICH
Name: Gary S. Rich
Title: Senior Vice President,
Human Resources