THE READER’S DIGEST ASSOCIATION, INC. READER’S DIGEST ROAD PLEASANTVILLE, NY 10570-7000
THE
READER’S DIGEST ASSOCIATION, INC.
READER’X
XXXXXX XXXX
XXXXXXXXXXXXX,
XX 00000-0000
March
24,
2003
Xxxxxxx
X. Xxxxxxx
The
Reader’s Digest Association, Inc.
Reader’s
Xxxxxx Xxxx
Xxxxxxxxxxxxx,
XX 00000
Dear
Xxxx:
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”).
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1.
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Termination
of Employment
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1.1
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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”).
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1.2
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For
purposes of this Agreement, “Good Reason” shall mean the occurrence of
either of the following without your express written
consent:
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(a)
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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
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(b)
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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.
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Mandatory
retirement under the Company’s retirement policies shall not constitute a
termination for Good Reason hereunder.
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1.3
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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.
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2.
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Compensation
Upon Termination
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2.1
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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”):
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(a)
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your
highest annual base salary in effect at any time during the 12-month
period immediately prior to the Date of Termination,
plus
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(b)
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the
higher of the following:
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(i)
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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
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(ii)
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your
annual target bonus award, if any, under the Annual Incentive Plan
for the
fiscal year in which the Date of Termination
occurs.
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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.
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2.2
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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.
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2.3
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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.
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2.4
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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:
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(a)
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embezzlement;
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(b)
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chronic
unexcused absence;
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(c)
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proven
dishonesty;
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(d)
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fraud;
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(e)
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conviction
of, or plea of guilty or nolo contendere
to, a felony or another charge involving moral turpitude;
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(f)
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improper
communication of confidential information obtained in the course
of
employment; or
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(g)
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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.
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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.
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3.
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Long-Term
Incentive Plan Benefits
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3.1
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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.
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3.2
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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.
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4.
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Pension
Benefits and Retiree Medical
Benefits
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4.1
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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”).
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4.2
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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.
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4.3
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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.
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4.4
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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.
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4.5
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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.
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4.6
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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.
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5.
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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.
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6.
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Other
Severance Arrangements
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6.1
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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.
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6.2
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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.
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7.
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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.
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8.
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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.
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9.
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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.
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10.
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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.
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11.
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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.
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12.
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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.
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13.
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Acts
Detrimental to the Company
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13.1 You
agree
that you will not engage in any Detrimental Activity during the period specified
in Section 13.2 below.
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(a)
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For
purposes of this Agreement, Detrimental Activity shall mean:
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(i)
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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;
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(ii)
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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;
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(iii)
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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;
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(iv)
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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;
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(v)
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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;
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(vi)
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without
written authorization from the Company, the rendering of services,
at any
time during the period of one (1) year after your termination of
employment with the Company and its Designated Subsidiaries, 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
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(vii)
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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.
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For
purposes of subsections (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.
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(b)
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“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.
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(c)
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“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.
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13.2
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In
the event you engage in a Detrimental Activity prior to, or during
the
two- (2) year period after, your termination of employment with the
Company and its Designated Subsidiaries, 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 such termination
of employment, and you shall pay over to the Company, the full amount
of
any payment made hereunder during the period of two (2) years after
your
termination of employment, 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.
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13.3
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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.
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13.4
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All
of your rights and benefits under this Agreement shall cease upon
any
breach by you of Section 13.1 of this
Agreement.
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14.
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Miscellaneous
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14.1
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Notices
and other communications provided for herein shall be in writing
and shall
be effective upon delivery addressed as
follows:
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if
to the
Company:
The
Reader’s Digest Association, Inc.
Reader’s
Xxxxxx Xxxx
Xxxxxxxxxxxxx,
XX 00000-0000
Attention:
Senior Vice President, Human Resources
with
a
copy to:
The
Reader’s Digest Association, Inc.
Reader’s
Xxxxxx Xxxx
Xxxxxxxxxxxxx,
XX 00000-0000
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.
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14.2
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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.
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14.3
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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.
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14.4
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This
Agreement may be amended or modified only by a written agreement
duly
executed by both of the parties
hereto.
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14.5
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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.
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Very
truly yours,
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The
Reader’s Digest Association, Inc.
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By: /s/
Xxxx X Xxxx
Xxxx
X. Xxxx
Senior
Vice President,
Global
Human Resources
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Agreed
to and accepted as of July 24, 2003
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By:
/s/ Xxxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxx
Senior
Vice President and President,
Latin
America and Asia-Pacific
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