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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 in 1999 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 36.
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, subject to
consummation 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 part of the year in
which termination occurs. 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 PGs that we issue to
employees under our long-term incentive compensation plans, upon
certain types of employment termination:
- Death or Disability. Upon death or disability, unvested stock
options and restricted shares will fully vest and Portfolio Grants
will vest pro rata. If the participant is age 60 or older with 10 or
more years of service, all or a portion of the remaining value of
Portfolio Grants will vest. Following death or disability, the
holder (or the holder's estate) will have up to five years to
exercise vested stock options.
- Retirement. Upon retirement (meaning age 55 or older with 10 or
more years of service), unvested restricted shares outstanding for
more than two years will fully or partially vest. Portfolio Grants
outstanding for more than one year will partially vest. If a
participant is age 60 or older with 10 or more years of service,
all or a portion of his or her unvested stock options, restricted
shares and Portfolio Grants that the participant would have lost
will also vest. Retirees may exercise vested stock options through
the end of their original term.
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