Severance Agreement - Reader's Digest Association Inc. and Eric W. Schrier
THE READER'S DIGEST ASSOCIATION, INC.
READER'S DIGEST ROAD
PLEASANTVILLE, NY 10570-7000
April 23, 2001
Eric W. Schrier
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570
Dear Eric:
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 January 24, 2000 (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:
Name: Gary S. Rich
Title: Senior Vice President,
Human Resources
Agreed to and accepted as of ________,
2001
By:
Name: Eric W. Schrier
Title: Senior Vice President,
Editor-in-Chief
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