Exhibit 10.1
CHANGE OF CONTROL
AGREEMENT
This Change of Control Agreement
(the “Agreement”) is entered into effective as of
December 8, 2006 by and between STANCORP FINANCIAL GROUP,
INC., an Oregon corporation (the “Company”), having
its principal place of business at 1100 SW Sixth Avenue, Portland,
Oregon 97204, and <<NAME>> (“Executive”),
whose address is <<ADDRESS>>.
RECITALS
A. The Company is a public company.
The Company recognizes that, as is the case with many publicly held
corporations, the possibility of a change of control may exist, and
that such possibility, and the uncertainty and questions it may
raise among management, may result in the departure or distraction
of key management personnel to the detriment of the
Company.
B. It is in the best interests of
the Company that key management personnel, including Executive,
continue to be employed by the Company or a subsidiary of the
Company, perform the responsibilities of their positions without
undue distraction and exercise their judgment without bias or
concern due to their personal circumstances.
C. Accordingly, the Company has
determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of key members of
the Company’s management to their assigned duties without
distraction resulting from the possibility of a change of control
of the Company.
D. To induce Executive to remain
employed by the Company or a subsidiary of the Company in the face
of uncertainties and a possible change of control, this Agreement,
which has been approved by the Board of Directors of the Company
(the “Board”), sets forth the severance benefits that
the Company will provide to Executive in the event that
Executive’s employment is terminated subsequent to a
“Change of Control” under the circumstances described
below. Capitalized terms not otherwise defined in this Agreement
have the meanings given to such terms in
Section 10.
AGREEMENT
THEREFORE,
in consideration of the foregoing
recitals and the mutual covenants and agreements set forth below,
the parties agree as follows:
1. Employment Relationship .
Executive is currently employed by the Company or by a subsidiary
of the Company, as <<TITLE>>. Executive and the Company
acknowledge that the Company or the subsidiary of the Company
employing Executive (the “Employing Subsidiary”) may
terminate Executive’s employment for any or no reason at any
time, subject to the obligation (if any) of the Company to provide
the severance benefits specified in this Agreement in accordance
with the terms hereof.
2. Release of Claims . In
consideration for and as a condition precedent to receiving the
severance benefits outlined in this Agreement, Executive agrees to
execute a Release in the form attached as Exhibit A (the
“Release”). Executive promises to execute and deliver
the Release to the Company within the later of (a) 45 days
after the date Executive receives the Release or (b) the last
day of Executive’s active employment. Any payments required
under this Agreement will be payable only after receipt by the
Company of a signed Release from Executive.
3. Term and Termination of
Agreement. This Agreement shall commence effective as of
December 8, 2006 (the “Effective Date”) and shall
continue in effect through December 31, 2007 (the
“Expiration Date”); provided, however, that
commencing on January 1, 2008, and each January 1
thereafter, the term of this Agreement shall automatically be
extended for one additional year unless, not later than
September 30 of the preceding year, the Company shall have
given notice that it does not wish to extend this Agreement;
further provided, that no such notice may be given during
the pendency of a potential Change of Control, as defined in
Section 10.2; further provided, that if a Change of
Control shall have occurred during the original or extended term of
this Agreement, this Agreement shall continue in effect for a
period of 24 months beyond the month in which such Change of
Control occurred.
3.1 Notwithstanding the foregoing,
this Agreement shall terminate immediately if:
3.1.1 Executive voluntarily
terminates employment with the Company or the Employing Subsidiary
other than for Good Reason;
3.1.2 Executive’s employment
by the Company or the Employing Subsidiary is terminated by reason
of Executive’s death, Disability or voluntary retirement
under any of the Company’s retirement plans; or
3.1.3 the Company or the Employing
Subsidiary terminates Executive’s employment prior to a
Change of Control.
3.2 The Company may terminate this
Agreement during Executive’s employment, if, prior to a
Change of Control, Executive ceases to hold Executive’s
current position with the Company or the Employing Subsidiary
(other than as a result of a promotion).
3.3 If a Change of Control shall
have occurred at any time after the first anniversary of the
Effective Date, this Agreement shall continue in effect for a
period of 24 months beyond the month in which such Change of
Control occurred.
3.4 If on or before the Expiration
Date, the Company has entered into an agreement or announced
publicly its intent to enter into an agreement the consummation of
which would constitute a Change of Control, this Agreement shall
continue in effect for 24 months beyond the effective date of the
Change of Control.
4. Duties. The Executive
shall cooperate with the Company and the Employing Subsidiary and
shall promptly and fully perform such duties and discharge such
responsibilities on a full-time basis as may reasonably be assigned
by the Company or the Employing Subsidiary to Executive from time
to time.
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5. Termination Following Change
of Control . If any of the events described in
Section 10.2 constituting a Change of Control of the Company
shall have occurred, Executive shall be entitled to the benefits
provided for in this Section 5 upon the subsequent termination
of Executive’s employment within 24 months after a Change of
Control unless such termination is (a) because of
Executive’s death, Disability or voluntary retirement under
any of the Company’s retirement plans, (b) by the
Company or the Employing Subsidiary for Cause, or (c) by
Executive other than for Good Reason. If Executive’s
employment with the Company or the Employing Subsidiary is
terminated for any reason and subsequently a Change of Control of
the Company occurs, Executive shall not be entitled to any benefits
under this Agreement.
5.1 As severance pay and in lieu of
any other compensation for periods subsequent to the Termination
Date, as defined in Section 10.5, the Company shall pay
Executive an amount in cash equal to three times the sum of
(a) Executive’s annual base salary in effect at the time
the Change of Control occurs and (b) the incentive
compensation payable to Executive under the Company’s Short
Term Incentive Plan at the target bonus for the year in which the
Change of Control occurs; provided , however, that for this
purpose the sum of annual base salary and incentive compensation
shall not exceed the greater of (x) the sum of
Executive’s annual base salary for 2006 plus
Executive’s target bonus for 2006, or
(y) $500,000.
5.2 For the eighteen-month period
commencing with the Termination Date, the Company shall arrange to
provide Executive with group health, dental and life insurance
benefits substantially similar to those which Executive was
receiving immediately prior to the Change of Control, and paid for
by the Company or the Employing Subsidiary and the Executive in the
same manner as immediately prior to the Change of Control.
Notwithstanding the foregoing, the Company or the Employing
Subsidiary shall not provide any benefit otherwise receivable by
Executive pursuant to this Section 5.2 to the extent that a
similar benefit is actually received by Executive from a subsequent
employer during such eighteen-month period, and any such benefit
actually received by Executive shall be promptly reported by
Executive to the Company.
5.3 All benefits to which Executive
is entitled under the Company’s Defined Benefit Retirement
Plan, the Senior Officers Deferred Compensation Plan, Senior
Officers Supplemental Retirement Plan and any other retirement or
deferred compensation plan shall immediately vest.
5.4 All outstanding stock options
held by Executive under all stock option and stock incentive plans
of the Company shall become immediately vested and exercisable in
full and all outstanding stock options shall remain exercisable
until the earlier of (a) the first anniversary of the
Termination Date (or, with respect to any incentive stock option,
the date that is three months after the Termination Date) or
(b) the option expiration date as set forth in the applicable
option agreement.
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5.5 The Company shall pay Executive
an amount in cash equal to the target bonus payable to Executive
under any cash long term incentive plan in operation immediately
prior to the Change of Control, which amount shall be prorated
based on the number of months of operation prior to the Change of
Control ; except, that if Executive received payment under
such plan before the Termination Date, then Executive shall not
receive any payment under this Section 5.5.
5.6 Notwithstanding anything in this
Agreement to the contrary, whether or not Executive becomes
entitled to any benefits under this Section 5, if any of the
benefits under this Section 5 or any other payment or benefit
received or to be received by Executive in connection with a Change
of Control of the Company (collectively, “Severance
Payments”) will be subject to the tax (the “Excise
Tax”) imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the “Code”) (or any similar
tax that may hereafter be imposed), and if the total Severance
Payments are less than or equal to 115% of the Capped Benefit (as
defined below), the benefits payable under this Section 5
shall be reduced by an amount equal to the difference between the
Capped Benefit and the total Severance Payments. The “Capped
Benefit” shall equal the total Severance Payments, reduced by
the amount necessary to prevent any portion of the Severance
Payments from being a “parachute payment” as defined in
Section 280G(b)(2) of the Code. The Capped Benefit would
therefore equal 2.99 multiplied by Executive’s applicable
“base amount” as defined in Section 280G(b)(3) of
the Code. If the Capped Benefit applies, the Company shall provide
Executive with a reasonable opportunity to request which of the
benefits payable under this Section 5 shall be reduced. If the
total Severance Payments are more than 115% of the Capped Benefit,
the benefits payable under this Section 5 shall not be reduced
and the Company shall pay to Executive at the time specified in
Section 8 an additional amount (the “Gross-Up
Payment”) such that the net amount retained by Executive,
after deduction of any Excise Tax on the Severance Payments and any
federal, state and local income tax and Excise Tax upon the payment
provided for by this subsection (i.e., upon the components of the
Gross-Up Payment), shall be equal to the Severance
Payments.
For purposes of determining whether
any amounts will be subject to the Excise Tax and the amount of
such Excise Tax, (a) all amounts representing the Severance
Payments shall be treated as “parachute payments”
within the meaning of Section 280G(b)(2) of the Code, and all
“excess parachute payments” within the meaning of
Section 280G(b)(1) of the Code shall be treated as subject to
the Excise Tax, unless in the opinion of tax counsel selected by
the Company’s independent auditors and acceptable to
Executive, the Severance Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of
Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax, (b) the amount of the
Severance Payments which shall be treated as subject to the Excise
Tax shall be equal to the lesser of (1) the total amount of
the Severance Payments or (2) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) of the Code
(after applying clause (a), above), and (c) the value of any
non-cash benefits or any deferred payment or benefit shall be
determined by the Company’s independent auditors in
accordance with the principles of Sections 280G(d)(3) and
(4) of the Code. For purposes of determining whether the
Capped Benefit applies, any non-cash benefits or deferred payments
or benefits included in the total Severance Payments shall be given
the same values as provided for in the immediately preceding
sentence.
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For purposes of determining the
amount of the Gross-Up Payment, Executive shall be deemed to pay
federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to
be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of Executive’s
residence on the Termination Date, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such
state and local taxes.
In the event that the Excise Tax is
subsequently determined to be less than the amount taken into
account hereunder at the time of termination of Executive’s
employment, Executive shall repay to the Company at the time that
the amount of such reduction in Excise Tax is finally determined
the portion of the Gross-Up Payment attributable to such reduction
(plus the portion of the Gross-Up Payment attributable to the
Excise Tax and federal and state and local income tax imposed on
the Gross-Up Payment being repaid by Executive if such repayment
results in a reduction in Excise Tax and/or a federal and state and
local income tax deduction) plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder at the time of the termination
of Executive’s employment (including by reason of any payment
the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional
gross-up payment in respect of such excess (plus any interest
payable with respect to such excess) at the time that the amount of
such excess is finally determined.
6. Conditions on Eligibility for
Severance Benefits. Executive shall not be eligible to receive
the benefits provided for in Section 5 if any of the following
applies:
6.1 Executive fails to execute and
deliver the Release in the time period set forth in Section 2,
or, if applicable, Executive executes and later revokes the Release
within the revocation period; or
6.2 Executive fails to comply with
Section 12 hereof.
7. Tax Withholding; Subsequent
Employment .
7.1 All compensation, benefits and
payments provided for in this Agreement shall be paid after any
withholding for taxes or other charges and authorized deductions
required (or permitted) to be withheld by the Company or the
Employing Subsidiary, including but not limited to any federal
income taxes, any applicable state taxes, FICA, Medicare and any
similar state or federal taxes or required state or federal
withholdings.
7.2 Except as provided in
Section 5.2, the amount of any payment or benefit provided for
in this Agreement shall not be reduced, offset or subject to
recovery by the Company by reason of any compensation earned by
Executive as the result of employment by another employer after
termination.
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8. Payments. All amounts to
be paid by the Company to Executive pursuant to Section 5
shall be made not later than thirty days following the Termination
Date; provided, however, that if the amounts of such
payments cannot be fully determined on
