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SEVERANCE, CHANGE IN CONTROL, AND OTHER ARRANGEMENTS
We have in place three types of compensation arrangements that we describe in this section of the Proxy Statement: a uniform severance policy, change in control policies and arrangements relating to death, disability and retirement.
Uniform Severance Policy. We have a uniform severance policy that applies to senior officers, including the named executives. Severance for executive officers is subject to the approval of the Compensation and Benefits Committee. If we terminate the employment of the participating officer for any reason generally other than misconduct or we and the officer terminate such employment by mutual agreement, we will pay the officer severance over a period of two years or less. To receive these payments, the officer must sign a severance agreement that prohibits the officer from working for certain competitors, soliciting business from our customers, attempting to hire our employees and disclosing our confidential information. The officer must also agree to release any claims against us.
The amount of severance that we would pay to each named executive is two times base salary plus two times the amount of the last bonus the Committee approves before the executive signs a severance agreement. During all or a part of the severance period, the officer’s long-term incentive awards continue to vest and we will continue to provide coverage under our welfare and benefit plans.
We entered into a separate arrangement with Mr. Golub relating to the Chief Executive Officer succession that could impact his eligibility for, and amount of, severance we would pay him. We describe this on page 42.
Change in Control Policies. We have designed our change in control policies to help keep employees focused on their jobs during the uncertainty that accompanies a change in control, to preserve benefits after a change in control transaction and to help us attract and retain key talent. We originally adopted these policies in 1994 and updated them in 2000. A change in control generally includes these events: (1) any person acquires 25% or more of our common shares or all voting securities, (2) a majority of our Directors are replaced, (3) certain mergers, reorganizations, consolidations, or sales of our assets or (4) shareholder approval of a liquidation or dissolution of the Company.
- Severance. We will pay the amount of severance that we would pay under the uniform severance policy in a lump sum to senior officers, including the named executives, if the officer’s employment is terminated under certain conditions within two years after a change in control. These conditions include (1) a termination by us for any reason generally other than willful misconduct or conviction of a felony or (2) a termination by the officer for good reason. The officer would have good reason to terminate his or her employment if we impose a reduction in base salary or position, material reduction in the total value of annual incentive and long-term incentive award opportunities, certain relocations of the officer’s workplace or duties materially inconsistent with prior duties. We refer to any of these employment terminations as a "Covered Termination."
- Pro Rata Bonus. If a Covered Termination occurs within two years after a change in control, we will pay senior officers, including the named executives, a bonus for the part of the year before termination. We will base the amount of the pro rata bonus on the average of the prior two annual incentive awards.
- Key Executive Life. If a Covered Termination occurs within two years after a change in control, we will transfer to senior officers, including the named executives, policies under our Key Executive Life Insurance Plan. Each policy provides life insurance coverage equal to four times annual base salary up to a maximum of $1,500,000. The officers may retain the life insurance coverage or cash out any value in the policy.
- Supplemental Retirement Plan. We do not fund benefits under our Supplemental Retirement Plan or the separate arrangement we have with Mr. Golub for additional service credit toward the Retirement Plan. Upon a change in control, we will fully fund benefits that participants have earned under the Supplemental Retirement Plan and that Mr. Golub has earned under his separate pension arrangement.
If a Covered Termination occurs within one year after a change in control, we will provide senior officers, including the named executives, with an additional benefit under the Supplemental Retirement Plan. This benefit will equal the additional amount we would provide to the officers under the Retirement Plan if the officers had two additional years of service and age under that plan. If a Covered Termination occurs between one and two years after a change in control, we will use one additional year of service and age to calculate the additional benefits.
If a Covered Termination occurs within one year after a change in control, we will add two years of service to participants’ actual service when we determine whether profit sharing contributions we made to the Supplemental Retirement Plan have vested. If the termination occurs between one and two years after a change in control, we will add one year of service.
- Deferred Compensation Plans. Upon a change in control, we will credit to participants’ accounts under our deferred compensation plans (including the Pay for Performance Deferral Program) two years of interest based on the rate in effect for the year before the change in control. We will also pay out all balances in these plans.
- Stock Options and Restricted Shares. Stock option and restricted share awards that we issued to employees under our long-term incentive compensation plans will immediately vest upon a change in control. If an employee is terminated for reasons other than misconduct within two years after a change in control, the employee will have an additional 90 days from termination to exercise stock options granted on and after February 28, 2000.
- Portfolio Grants. If a Covered Termination occurs within two years after a change in control, Portfolio Grant awards under these plans will immediately vest and we will pay a pro rata portion of the value of the awards.
- Benefits. We will continue for up to two years our subsidy of medical and dental benefits for officers who are terminated within two years after a change in control.
- Excise Tax Gross Up. Current U.S. tax laws generally (1) do not allow companies to deduct from income certain compensation provided in connection with a change in control that exceeds specified limits and (2) impose a 20% excise tax on the individuals who receive such compensation. We generally will pay to members of senior management, including the named executives, an amount in cash if necessary to make them whole for this excise tax.
Death, Disability and Retirement. These policies generally apply to stock options, restricted share awards and PG’s that we issue to employees under our long-term incentive compensation plans:
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