Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made at Cleveland, Ohio,
this 19th day of July, 2004, between PARAGON REAL ESTATE EQUITY AND INVESTMENT
TRUST, a Maryland business trust (the "Trust"), and XXXX X. XXXX, 0000 Xxxxx
Xxxxx Xxxxxx Xxxxx, Xxxx, Xxxx 00000 ("Xxxx").
WITNESSETH:
WHEREAS, at the time set forth herein, Xxxx will hold the office of Senior
Vice President and Chief Property Management & Development Officer of the Trust;
WHEREAS, Xxxx is expected to make major contributions toward the business
of the Trust;
WHEREAS, the Trust and Xxxx desire to enter into this Agreement pursuant
to which the Trust will employ Xxxx and Xxxx will serve the Trust; and
WHEREAS, the Trust desires to acquire the leadership, experience and
talent of Xxxx by providing him with an initial stock allocations as an
incentive ownership in the Trust;
NOW, THEREFORE, the Trust and Xxxx, in consideration of the premises and
the mutual covenants herein contained, agree as follows:
1. EMPLOYMENT, CONTRACT PERIOD. During the period specified in this
Section 1, the Trust shall employ Xxxx, and Xxxx shall serve the Trust, on the
terms and subject to the conditions set forth herein. The initial term of Xxxx'x
employment hereunder shall commence as of the date specified in the first
sentence of this Agreement (the "Effective Date") and, subject to prior
termination as provided in Section 8, shall continue through the first
anniversary of the Effective Date. The term of Xxxx'x employment hereunder shall
be automatically renewed on the first anniversary of the Effective Date and on
each succeeding anniversary of the Effective Date thereafter for succeeding
terms of one year each, unless either party shall have given, at least 90 days
prior to the expiration of any term, written notice of his or its intention not
to renew the term of Xxxx'x employment hereunder, except that no extension of
the term of Xxxx'x employment hereunder shall extend beyond the date of Xxxx'x
70th birthday. The term of Xxxx'x employment hereunder is sometimes hereinafter
referred to as the "Contract Period."
2. POSITION, DUTIES, RESPONSIBILITIES.
(a) Except as set forth in Section 2(b), at all times during the
Contract Period, Xxxx shall have the title of Senior Vice President and Chief
Property Management & Development Officer of the Trust and shall have and
perform the duties and responsibilities of that office (the "Office"), subject
to the authority of the Board of Trustees of the Trust (the "Board of
Trustees"). In addition, Xxxx may hold such other offices as may be designated
from time to time by the Board of Trustees.
(b) At all times during the Contract Period, Xxxx shall devote
substantially all of his business time, energy, and talent to the business of
and to the furtherance of the purposes and objectives of the Trust, and neither
directly nor indirectly render any business, commercial, or professional
services to any other person, firm, or organization for compensation without the
prior approval of the Board of Trustees. Nothing in this Agreement shall
preclude Xxxx from devoting reasonable periods of time to charitable and
community activities, service on boards of other companies (public or private)
not in competition with the Trust, undertaken after consultation with the Chief
Executive Officer of Paragon; or the management of his personal investment
assets provided:
(i) such activities do not interfere with the performance by
Xxxx of his duties hereunder;
(ii) Xxxx does not make any single investment in excess of
$500,000 in the outstanding securities of a publicly
owned equity real estate investment trust or of any
other entity engaged primarily in the ownership and/or
management of real estate, other than the Trust. This
limitation shall not apply to the continued holding by
Xxxx of any investments that were held by him on January
1, 2004 and have been held by him continuously
thereafter and any holding by Xxxx that is approved by
the independent Trustees of the Board of Trustees; and
(iii) Xxxx does not advise, assist, or render any services,
either directly or indirectly, to a publicly-owned
equity real estate investment trust or in any other
entity engaged primarily in the ownership and/or
management of real estate that competes with the Trust
(except that this limitation shall not apply to the
continued holding by Xxxx of any investments that were
held by him on January 1, 2004 and have been held by him
continuously thereafter), other than the Trust.
(c) The duties to be performed by Xxxx under this Agreement shall
be performed primarily in Cuyahoga County at the offices of the Trust, and he
shall not be required to perform services elsewhere except for travel incident
to his performance of services hereunder.
3. BASE SALARY, PLAN COMPENSATION AND BENEFITS.
(a) The rate of Xxxx'x base salary hereunder as of the Effective
Date shall be $60,000 per year. The rate of Xxxx'x base salary is considered to
be below the market rate for executives with similar experience and shall be
reviewed at least annually during the Contract Period and may be adjusted from
time to time, based upon such standards as the Board of Trustees may determine
to be appropriate, except that no such adjustment shall result in a reduction of
Xxxx'x base salary below $60,000 per year during the Contract Period.
(b) After the first anniversary of the Effective Date, Xxxx shall
be eligible to participate in any annual incentive bonus program which is
offered collectively to the executive members of the Trust and approved by the
Management, Organization and Compensation Committee of the Board of Trustees and
receive the awards and any other compensation that
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have been earned after the first anniversary of the Contract Period and that he
is entitled to receive under any of the Trust's present or future share option,
incentive compensation, or executive bonus plan in which he is entitled to
participate (such awards and other compensation are hereinafter referred to as
"Plan Compensation").
(c) During the Contract Period, the Trust shall provide Xxxx (a)
health and welfare benefits, including health insurance, travel accident
insurance, life and accidental death insurance, and long term disability upon
the same terms and conditions as to the other executives, (b) directors and
officers liability insurance, (c) a parking space, (d) memberships in a business
club in downtown Cleveland, if any, as may be deemed necessary by Xxxx, (e)
three weeks of vacation time, and (f) such other benefits as the Board of
Trustees may from time to time authorize.
4. RESTRICTED SHARE AWARDS.
(a) GRANT. The Trust will issue to Xxxx 125,000 restricted common
shares of beneficial interest, par value $0.01 per share, of the Trust ("Common
Shares"), on each of July 19, 2005, 2006, 2007 and 2008, so long as Xxxx remains
employed by the Trust on those dates, each grant of which will vest after four
years and be subject to a restricted stock agreement. In addition, the Trust
hereby awards 500,000 Common Shares (the "Award Shares") to Xxxx, subject to all
of the terms and conditions contained in this Agreement. The Trust shall issue
the Award Shares to Xxxx as soon as practicable after his execution of this
Agreement. The Award Shares will be subject to forfeiture under Section 4(b)
hereof.
(b) VESTING. 250,000 Award Shares shall vest, and such Award
Shares shall cease to be subject to the risk of forfeiture, on each of July 19,
2008 and 2009, provided, however, that the risk of forfeiture shall lapse for
all of Award Shares, and the Award Shares shall vest immediately if a "Shift of
Ownership" (as defined in Section 11) is deemed to have occurred. The vesting
schedule will not be affected if Xxxx dies or becomes "Disabled" (as defined
below). Xxxx shall automatically and without notice cease to have any right,
title or interest in or to any of the Award Shares that remain subject to
forfeiture upon the occurrence of any of the following events: (i) the Trust
terminates Xxxx'x employment for "Cause" (as defined in Section 8(b)); or (ii)
Xxxx terminates his employment with the Trust without "Good Reason" (as defined
in Section 8(d)).
(c) XXXX'X REPRESENTATIONS. Xxxx understands that the issuance of
the Award Shares is intended to be exempt from registration under the Securities
Act of 1933, as amended (the "Act"), by virtue of Section 4(2) of the Act and
Rule 506 promulgated under the Act and Xxxx represents and warrants that:
(i) Xxxx is aware that the Award Shares are not registered
under the Act or the securities or "blue sky" laws of
any state or jurisdiction (the "Blue Sky Laws") as of
the date of this Agreement, and the Trust is under no
obligation to cause the Award Shares to be registered
under the Act or the Blue Sky Laws.
(ii) Xxxx has been advised that the Award Shares cannot be
resold unless they are registered under the Act or the
Blue Sky Laws or unless an exemption from registration
is available and that the certificates representing the
Award Shares will be legended
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accordingly. Xxxx is acquiring the Award Shares for his
own account for long-term investment and not with a view
to, or for resale in connection with, the distribution
thereof, and Xxxx has no present intention of
distributing or reselling the Award Shares. Xxxx
represents and warrants that Xxxx has such knowledge and
experience in financial and business matters that he is
capable of evaluating the merits and risks of investment
in the Award Shares and is able to bear the economic
risk of holding the Award Shares indefinitely.
(iii) Xxxx has made a complete and thorough investigation of
the affairs and prospects of the Trust and has had a
reasonable opportunity to ask questions of and receive
answers from a person or persons acting on behalf of the
Trust concerning the Award Shares, and all such
questions have been answered to the full satisfaction of
Xxxx.
(iv) Xxxx acknowledges that the Award Shares will be treated
as taxable income to him under the Internal Revenue Code
of 1986, as amended (the "Code"). Xxxx is not relying on
the advice of the Trust or its affiliates in connection
with the tax consequences of Xxxx'x receipt of the Award
Shares.
(v) Xxxx is aware that no federal or state agency has made
any finding or determination as to the fairness for
public or private investment in, nor any recommendation
or endorsement of, the Award Shares.
(vi) Xxxx acknowledges that the Trust is entering into this
Agreement in reliance upon Xxxx'x representations and
warranties in this Agreement, including, without
limitation, those set forth in this Section.
(d) RESTRICTIONS ON AWARD SHARES.
(i) Other than the right to vote the Award Shares and to
receive any dividends that are declared on the Common
Shares, Xxxx shall not have any rights as a shareholder
with respect to any Award Shares prior to the date that
they vest as provided in Section 4(b) hereof, provided
that the foregoing shall not diminish or affect any
rights Xxxx may have under this Agreement.
(ii) Xxxx shall not have the power or right to sell,
exchange, pledge, transfer, assign or otherwise encumber
or dispose of the Award Shares prior to the date they
vest as provided in Section 4(b) hereof, provided that
the foregoing shall not diminish or affect any rights
Xxxx may have under this Agreement.
(e) TAXES.
(i) Under the general rule of Section 83 of the Code, Xxxx
will not be treated as receiving the Award Shares until
such time as Xxxx
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becomes substantially vested in the Award Shares. Xxxx
will become substantially vested in the Award Shares
upon the expiration of any forfeiture period described
in Section 4(b) above. At that time, Xxxx will be taxed
on the value of the Award Shares as ordinary
compensation income. For the purposes of determining the
taxable compensation to Xxxx, the value of the Award
Shares will be determined without regard to the
"investment letter" restrictions on transferability set
forth in this Agreement. As an exception to this rule,
Section 83 of the Code permits Xxxx to elect to be taxed
on the value of the Award Shares as of the date of the
grant of the Award Shares. The Section 83(b) election
must be filed by Xxxx within 30 days of the grant of the
Award Shares. While there is no official Internal
Revenue Service form for a Section 83(b) election, a
sample form is attached as EXHIBIT A. The filing must be
made with the Internal Revenue Service Center with which
Xxxx files his federal income tax returns and a copy of
the election must be submitted (i) with Xxxx'x income
tax return for the taxable year in which Xxxx receives
the Award Shares, and (ii) to the Trust. XXXX IS
STRONGLY URGED TO CONSULT WITH HIS TAX ADVISOR WITH
RESPECT TO THE CONSEQUENCES AND ADVISABILITY OF MAKING A
SECTION 83(B) ELECTION IN CONNECTION WITH HIS RECEIPT OF
THE AWARD SHARES AND OTHER TAX ASPECTS OF HIS RECEIPT
AND HOLDING OF THE AWARD SHARES.
(ii) Xxxx will be responsible for all federal and state taxes
payable by Xxxx with respect to the issuance of the
Award Shares based upon their fair market value on the
date of issuance if a Section 83(b) election is made, or
on the date the Award Shares become vested if a Section
83(b) election is not made.
(f) GENERAL. The Trust shall reserve and keep available such
number of Common Shares as will be sufficient to satisfy the requirements of
this Agreement in respect of the issuance of the Award Shares, shall pay all
fees and expenses necessarily incurred by the Trust in connection therewith, and
shall use its best efforts to comply with all laws and regulations that, in the
reasonable opinion of counsel for the Trust, are applicable thereto.
5. SPLIT DOLLAR LIFE INSURANCE. Before the end of the Contract Period,
the Board of Trustees will consider whether it would be appropriate for the
Trust to enter into a split-dollar agreement with respect to an insurance policy
on the life of Xxxx with a death benefit for a specific amount payable to Xxxx'x
designated beneficiary, provided, however, that such benefits or payments shall
at all times be subject to the Xxxxxxxx-Xxxxx Act of 2002, as may be amended
from time to time, and to the rules issued by the SEC thereunder.
6. REIMBURSEMENT FOR EXPENSES. Subject to such limitations as may be
reasonably imposed by the Board of Trustees from time to time, the Trust shall
reimburse Xxxx for all reasonable, ordinary, and necessary expenses incurred by
him in the performance of his duties hereunder, provided, however, that such
benefits or payments shall at all times be subject to the Xxxxxxxx-Xxxxx Act of
2002, as may be amended from time to time, and to the rules issued by the SEC
thereunder; and provided, further, that Xxxx accounts to the Trust therefor in a
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manner sufficient to substantiate deductions with respect to those expenses by
the Trust for federal income tax purposes.
7. EFFECT OF DISABILITY DURING CONTRACT PERIOD. If, during the Contract
Period, Xxxx becomes disabled as determined by a physician acceptable to Xxxx
and the Trust, by reason of physical or mental impairment, to such an extent
that he is unable to substantially perform his duties under this Agreement
("Disabled"):
(a) The Trust may relieve Xxxx of his duties under this Agreement
for as long as Xxxx is Disabled.
(b) So long as Xxxx remains Disabled, the Trust shall continue to
pay Xxxx the base salary and bonus (cash and stock) at the rate in effect
immediately before he became Disabled, net of any other disability benefits paid
to him by the Trust or any insurance funded by the Trust, the Trust shall
continue to provide those health and welfare benefits, including contribution to
any pension plan, that were being provided to Xxxx immediately before he became
Disabled, and Xxxx shall continue to earn the Plan Compensation (other than
bonus) to which he would have been entitled under Section 3(b) had he continued
to be actively employed, until the earliest of (i) the first date on which he is
no longer Disabled, (ii) the date of his death, (iii) the date on which Xxxx
attains age 70, or (iv) the first anniversary of the date on which he became
Disabled. If Xxxx becomes Disabled, thereafter recovers sufficiently to be able
to substantially perform his duties, and later becomes Disabled again, the
combined period in which Xxxx is entitled to receive disability benefits under
this Section 7(b) shall not exceed one year.
8. TERMINATION.
(a) DEATH OR DISABILITY. Xxxx'x employment hereunder will
terminate immediately upon Xxxx'x death and the Trust shall not be obligated to
pay Xxxx any further compensation hereunder except through the date of death.
The Trust may terminate Xxxx'x employment hereunder immediately upon giving
notice of termination if Xxxx is Disabled for an aggregate of 90 days (whether
business or non-business days and whether or not consecutive) during any period
of twelve consecutive calendar months; in the event of any such termination, the
disability benefits payable under Section 7(b) shall be in lieu of any payments
upon termination under Section 9.
(b) FOR CAUSE. The Trust may terminate Xxxx'x employment under
this Agreement for "Cause" if:
(i) Except by reason of being Disabled, Xxxx fails
substantially to devote the time and effort required for
him to perform his duties hereunder;
(ii) Except by reason of being Disabled, Xxxx fails to follow
directions from the Board of Trustees that are
appropriate in the context of his status as an executive
officer of the Trust;
(iii) Xxxx is convicted of a felony involving moral turpitude;
(iv) Xxxx engages in acts in violation of the provisions of
Section 2(b), the confidentiality provisions of Section
13 or otherwise breaches
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the terms of this Agreement in any material respect; or
(v) Xxxx willfully, wantonly, voluntarily, and without
approval of the Board of Trustees takes any action that
he knows to be materially adverse to the interest of the
Trust and its shareholders, collectively.
Any termination of Xxxx'x employment for Cause shall be effective immediately
upon the Trust giving Xxxx 30 days' notice of termination of employment and the
grounds therefore. However, if any failure on Xxxx'x part referred to in clause
(i), (ii) or (iv) of this Section 8(b) is curable, the Trust may not terminate
Xxxx'x employment unless the Board of Trustees first gives him written notice
specifying the nature of the failure and the steps that he must take to cure the
failure, and Xxxx fails to take those steps within 30 days after the notice is
given.
(c) BY THE TRUST WITHOUT CAUSE. The Trust may terminate Xxxx'x
employment hereunder without Cause at any time upon 30 days' notice from the
Board of Trustees to Xxxx.
(d) BY XXXX FOR GOOD REASON. Xxxx may terminate his employment
hereunder for "Good Reason" if one or more of the events listed in clauses (i)
through (vi) of this Section 8(d) occurs, provided, however, that for
termination under any of subsections (i) - (vi) below, Xxxx must provide the
Trust with a written notice of termination, specifying with particularity the
events constituting Good Reason and the Trust shall have a period of 30 days to
cure such events:
(i) Xxxx'x base salary is reduced from the amount in effect
for the preceding year;
(ii) The Trust fails to provide the Plan Compensation
contemplated by Section 3(b) (after such Plan
Compensation has been adopted by the Board of Trustees
or a committee thereof);
(iii) The Trust fails in any material respect to provide
benefits in accordance with Section 3(c) or to consider
the appropriateness of the split-dollar insurance in
accordance with Section 5, in either case after Xxxx has
given the Trust written notice of the failure, and the
Trust has failed to effect a cure within 30 days after
the notice is given;
(iv) Xxxx is removed from any of his Offices or
responsibilities or his duties with the Trust are
otherwise reduced to such an extent that he no longer
has authority commensurate with an executive officer of
the Trust (except as such removal and termination is
permitted under this Agreement);
(v) Xxxx'x principal place of employment for the Trust is
relocated outside of the Cleveland metropolitan area
and, as a result, he is required to relocate outside the
Cleveland metropolitan area; or
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(vi) After a Shift in Ownership (as defined in Section 11),
the Board of Trustees fundamentally changes its
strategic plan in a manner opposed by Xxxx. Xxxx may not
terminate his employment under this clause (vi) unless
he first gives the Board of Trustees written notice of
specifying the change or changes that he opposes and the
steps that the Board of Trustees must take to rectify
the strategic plan, and the Board of Trustees fails to
take those steps within 30 days after the notice is
given.
(e) BY XXXX WITHOUT GOOD REASON. Xxxx may terminate his employment
hereunder without Good Reason at any time upon 30 days' advance notice from Xxxx
to the Board of Trustees and upon such termination the Trust shall be obligated
to pay Xxxx only as set forth in Section 9 (a) of this Agreement.
9. PAYMENTS UPON TERMINATION. Following any termination of Xxxx'x
employment with the Trust, the Trust shall pay and provide to Xxxx, after the
date of the termination (the "Termination Date"), the amounts and benefits
provided in this Section 9.
(a) TERMINATION BY THE TRUST OR BY XXXX FOR ANY REASON. Upon any
termination of Xxxx'x employment for any reason, the Trust (i) shall pay to Xxxx
all unpaid base salary and other benefits (e.g., accrued vacation) with respect
to periods ending on or before the Termination Date and (ii) shall provide to
Xxxx all Plan Compensation that has been earned and vested prior to the
Termination Date, subject to the terms and provisions of the applicable plans.
(b) TERMINATION BY THE TRUST WITHOUT CAUSE, OR BY XXXX FOR GOOD
REASON. If Xxxx'x employment hereunder is terminated by the Trust without Cause
or by Xxxx for Good Reason, in addition to (but not in duplication of) the
salary and Plan Compensation under Section 9(a), Trust shall pay and provide to
Xxxx the following amounts and benefits through the first anniversary of the
Termination Date (the "Benefit Termination Date") at the same times as those
amounts and benefits would have been paid and provided if Xxxx had continued in
the active employ of the Trust through the Benefit Termination Date:
(i) Base salary and bonus (cash and stock) at the rate in
effect immediately before the Termination Date.
(ii) Those health and welfare benefits including contribution
to any pension plan that were being provided to Xxxx
immediately before the Termination Date through the
Benefit Termination Date.
(iii) In addition to any benefits Xxxx is or may be entitled
to under any retirement plan or program in which he
participates, if after a Shift in Ownership an amount
equal to one (1) times the total amount contributed by
the Trust to Xxxx'x account under the pension plan and
any excess benefit plan related thereto, with respect to
the plan year immediately prior to the Termination Date
provided such payment shall not be duplicative of any
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payment made or to be made under subsection (ii) above.
(iv) Continued vesting of share options held by Xxxx through
the Benefit Termination Date and the ability to exercise
vested options through the later to occur of the
expiration date of the share options or the Benefit
Termination Date, as if Xxxx had remained employed by
the Trust.
(v) Continued earning of any restricted shares held by Xxxx.
After the Termination Date, against delivery to the
Trust of the certificate or certificates representing
all of the restricted shares, the Trust will issue to
Xxxx an unlegended certificate or certificates for the
shares whose restrictions have lapsed. If the market
price of the shares at the Benefit Termination Date
exceeds the market price of the shares at the
Termination Date, the Trust will promptly issue to Xxxx
an unlegended certificate for the balance of the shares
due to him.
(vi) Continued accrual and vesting through the Benefit
Termination Date of any Plan Compensation not referred
to above and the ability to exercise vested awards
through the later to occur of the expiration date of the
awards or the Benefit Termination Date, as if Xxxx had
remained employed by the Trust.
(vii) If termination occurs six months before or six months
after a Shift of Ownership, the Trust shall pay to Xxxx
the base salary and bonus in Section 9(b)(i) immediately
in a lump sum; continue health and welfare benefits in
Section 9(b)(ii) through the Benefit Termination Date;
pay any pension or retirement plan payments in clause
(ii) and (iii) of Section 9(b) immediately in a lump
sum; all unvested share options in Section 9(b)(iv)
shall become vested; all restrictions on restricted
shares in Section 9(b)(v) shall lapse and an unlegended
certificate for the shares whose restriction has lapsed
shall be issued to Xxxx; and immediate accrual, vesting,
and payment of all items under Section 9(b)(vi).
(c) FULL SATISFACTION. Payment and provision of the salary and
benefits to which Xxxx is entitled under this Section 9 shall constitute full
satisfaction of all obligations of the Trust to Xxxx arising under this
Agreement and/or in connection with the termination of his employment. The Plan
Compensation and any other benefits or compensation provided to Xxxx under this
Section 9 shall not be subject to mitigation under any circumstances.
10. EFFECT OF FAILURE TO EXTEND TERM. If either the Trust or Xxxx gives
notice to the other of an intention not to extend the term of Xxxx'x employment
hereunder for an additional year, as contemplated in Section 1, that notice
shall be treated as a notice of intended termination of Xxxx'x employment as of
the end of then term. Accordingly, the termination of his employment will be
treated as a termination by the Trust or by Xxxx, as the case may be, with or
without Cause, and for or not for Good Reason, as the case may be. This Section
10 is not intended to abrogate the specific notice requirements applicable to a
termination for Cause
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under clause (i) or (ii) of Section 8(b) or to a termination for Good Reason
under Section 8(d).
11. SHIFT IN OWNERSHIP.
(a) A "Shift in Ownership" shall be deemed to have occurred if at any
time before the Termination Date any Person (other than the Trust, any
subsidiary of the Trust, any employee benefit plan or employee share ownership
plan of the Trust or any subsidiary of the Trust, or any person organized,
appointed, or established by the Trust or any subsidiary of the Trust for or
pursuant to the terms of any such plan), alone or together with any of its
affiliates or associates:
(i) causes Xxxx not to be appointed as Senior Vice President and
Chief Property Management & Development Officer, in accordance
with the intent herein;
(ii) or, if Xxxx is appointed as Senior Vice President and Chief
Property Management & Development Officer, causes Xxxx to be
removed as Senior Vice President and Chief Property Management
& Development Officer, and such change is not supported by
Xxxx.
(b) In the event of a Shift in Ownership of the Trust, (i) all share
options then outstanding will become fully exercisable as of the date of the
Shift in Ownership, (ii) all restrictions and conditions applicable to
restricted stock and other stock awards will be deemed to have been satisfied as
of the date of the Shift in Ownership, and (iii) all cash awards will be deemed
to have been fully earned as of the date of the Shift in Ownership.
12. EXCESS PARACHUTE PAYMENT REDUCTION.
(a) Anything in this Agreement to the contrary notwithstanding, if
it is determined that any payment or distribution by the Trust to or for the
benefit of Xxxx (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise) (a "Payment") would be
nondeductible by the Trust for Federal income tax purposes because of Section
280G of the Internal Revenue Code and applicable regulations promulgated
thereunder, then the aggregate present value of amounts payable or distributable
to or for the benefit of Xxxx pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced (but not below zero) to the Reduced
Amount. The "Reduced Amount" shall be an amount expressed in present value which
maximizes the aggregate present value of Agreement Payments without causing any
Payment to be nondeductible by the Trust because of Section 280G of the Internal
Revenue Code and applicable regulations promulgated thereunder. For purposes of
this Section 12, present value shall be determined in accordance with Section
280G(d)(4) of the Internal Revenue Code and applicable regulations promulgated
thereunder. All determinations required to be made under this Section 12 shall
be made by the Accounting Firm (as defined in Section 12(b)) which shall provide
detailed supporting calculations both to the Trust and Xxxx within 30 days after
the Termination Date or such earlier time as is requested by the Trust. The
Trust and Xxxx shall cooperate with each other and the Accounting Firm and will
provide necessary information so that the Accounting Firm may make all such
determinations. All such determinations by the Accounting Firm shall be final
and binding upon the Trust and Xxxx. Xxxx shall determine which of the Agreement
Payments (or, at the election of Xxxx, other payments) shall be eliminated or
reduced consistent with the requirements of this Section 12, provided that, if
Xxxx
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does not make such determination within 20 days of the receipt of the
calculations made by the Accounting Firm, the Trust shall elect which of the
Agreement Payments shall be eliminated or reduced consistent with the
requirements of this Section 12, and shall notify Xxxx promptly of such
election. All costs and expenses relating to the determinations to be made
hereunder shall be borne solely by the Trust.
(b) The term "Accounting Firm" means the independent auditors of
the Trust for the fiscal year preceding the year in which the Shift in Ownership
occurred and such firm's successor or successors; provided, however, if such
firm is unable or unwilling to serve and perform in the capacity contemplated by
this Agreement, Xxxx shall select another national or regional accounting firm
of recognized standing to serve and perform in that capacity under this
Agreement, except that such other accounting firm shall not be the then
independent auditors for the Trust.
13. CONFIDENTIALITY. Xxxx acknowledges that the business in which the
Trust is engaged is competitive and that his employment with the Trust has
required and will require that he have access to and knowledge of confidential
and proprietary information pertaining to the Trust's operations and its
properties ("Confidential Information"). Xxxx shall not, during the term of his
employment hereunder or at any time thereafter, except in connection with the
performance of services hereunder or in furtherance of the business of the
Trust, communicate, divulge, or disclose to any other person not a Trustee,
officer, employee, or affiliate of, or not engaged to render services to or for,
the Trust or use for his own benefit or purposes any Confidential Information
that he has obtained from the Trust during the Contract Period, except that this
provision shall not preclude Xxxx from communication or use of Confidential
Information made known generally to the public by any party unrelated to Xxxx,
or from making any disclosure required by applicable law, rules, regulations, or
court or governmental or regulatory authority order or decree provided that, if
practicable, Xxxx shall not disclose any Confidential Information without first
giving the Trust notice of intention to make that disclosure and an opportunity
to interpose an objection to the disclosure.
14. DEFERRAL OF PAYMENT OF COMPENSATION UNDER CERTAIN CIRCUMSTANCES.
(a) SECTION 162(M). For purposes of this Section 14, the term
"Section 162(m)" shall mean Section 162(m) of the Internal Revenue Code (which,
as amended by the Revenue Reconciliation Act of 1993, prescribes rules
disallowing deductions for certain "applicable employee remuneration" to any of
five specified "covered employees" of a publicly held corporation in excess of
$1,000,000 per year), as from time to time amended, and the corresponding
provisions of any similar law subsequently enacted, and to all regulations
issued under that section and any such provisions.
(b) DEFERRAL. For purposes of this Section 14, "Excess
Compensation" as determined by the Accounting Firm, as defined in Section 12(b)
shall mean the amount of compensation (including base salary, bonus and the
lapse of restrictions on restricted shares granted to Xxxx) otherwise paid or
provided to Xxxx by the Trust under this Agreement at any particular time (the
"Scheduled Time") that, after giving effect to all elective deferrals of
compensation, (i) would not be deductible by the Trust if paid at the Scheduled
Time by reason of the disallowance rules of Section 162(m), and (ii) would be
deductible by the Trust if deferred until and paid during a later year.
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(c) RESTRICTED SHARES. Except as provided in Section 14(e) or
Section 14(f), if and to the extent that the lapse of restrictions on restricted
shares at the Scheduled Time would result in Excess Compensation, Xxxx will
forfeit the restricted shares immediately prior to the Scheduled Time.
Thereafter, the Trust will deliver to Xxxx a number of unrestricted shares equal
to the number of restricted shares forfeited, together with an amount equal to
any and all dividends that would have been paid on those shares from the
Scheduled Time through the date of delivery, during the year that is determined
by the Accounting Firm to be the first year following the Scheduled Time during
which the unrestricted shares and dividends can be delivered without
disallowance of the deduction for payment of the compensation by reason of
Section 162(m). If the Accounting Firm determines that in any such year a
portion, but not all, of the unrestricted shares and dividends can be delivered
without disallowance of the deduction, the Trust will deliver to Xxxx the
portion that can be so delivered, and, except as provided in Section 14(e) or
Section 14(f), the remainder of the unrestricted shares and dividends will be
delivered at a later date.
(d) DEFERRED CASH COMPENSATION. Except as provided in Section
14(e) or Section 14(f), if and to the extent that the payment of cash
compensation would result in Excess Compensation, after the forfeiture of any
restricted shares under Section 14(c), payment of the cash compensation will be
deferred. Thereafter, the Trust will pay to Xxxx the amount of the deferred
compensation, together with accrued interest, during the year that is determined
by the Accounting Firm to be the first year following the Scheduled Time during
which the compensation can be paid without disallowance of the deduction for
payment of the compensation by reason of Section 162(m). If the Accounting Firm
determines that in any such year a portion, but not all, of the deferred
compensation and interest can be paid without disallowance of the deduction, the
Trust will pay to Xxxx the portion that can be so paid, and, except as provided
in Section 14(e) or Section 14(f), the remainder of the deferred compensation
and interest will be paid at a later date. For purposes hereof, interest will
accrue from the date on which the compensation would have been paid but for this
Section 14(d) through the date of payment at a rate equal to prime plus 1%
quoted by Xxxxxxxx Xxxx Xxxx, Xxxxxxxxx, Xxxx, compounded quarterly.
(e) EARLY DELIVERY OF UNRESTRICTED SHARES OR PAYMENT OF DEFERRED
COMPENSATION. If the Accounting Firm determines that the delivery to Xxxx of the
unrestricted shares and dividends under Section 14(c), or the payment to Xxxx of
the deferred compensation and interest under Section 14(d), will not result in a
deduction to the Trust, even if paid in a later year, the Trust will, within
three months of the date on which that determination is made, deliver to Xxxx
those unrestricted shares and dividends, or pay to Xxxx that deferred
compensation and interest, as the case may be.
(f) DELIVERY OR PAYMENT FOLLOWING TERMINATION OF EMPLOYMENT IN ALL
EVENTS. Within three months of the date on which Xxxx ceases to be employed as
an officer by the Trust, the Trust will deliver to Xxxx all of the unrestricted
shares and dividends not previously delivered to him under Section 14(c) and pay
to Xxxx, in a single lump sum, all of the deferred compensation and interest not
previously paid to him under Section 14(d), whether or not the Trust is entitled
to a deduction with respect thereto.
(g) MISCELLANEOUS. In addition to all other payments provided for
in this Section 14 the Trust shall also pay to Xxxx an amount, if any, equal to
the additional taxes payable by Xxxx on account of any deferral, due to higher
marginal income tax rates payable by
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Xxxx when the deferred compensation becomes payable. Xxxx'x rights with respect
to the delivery of unrestricted shares and dividends, and the payment of
deferred compensation and interest, under this Section 14 may not be assigned by
him unless approved by the Board of Trustees. If Xxxx dies before all
unrestricted shares and dividends, and all deferred compensation and interest,
under this Section 14 has been paid to him, any such unrestricted shares,
dividends, deferred compensation, and interest shall be delivered and paid, at
the same time it would have been paid if Xxxx had not died but had merely ceased
to be an employee of the Trust on the date of his death (or, if earlier, on the
last date he actually was an employee of the Trust), to his estate or, if Xxxx
so directs the Trust in writing, to his wife or to a trust created by Xxxx. The
obligations of the Trust to deliver unrestricted shares and dividends, and to
pay deferred compensation and interest, under this Section 14 constitute
unsecured promises of the Trust, and neither Xxxx nor any person claiming
through him shall have, as a result of this Section 14, any lien or claim on any
assets of the Trust that is superior to the claims of the general creditors of
the Trust.
15. PAYMENTS FOR TAXES. During the Contract Period, any payments that
are made on behalf of Xxxx by the Trust, other than for salary (including
deferred compensation), cash bonuses, and restricted shares, that are required
by the independent auditors of the Trust to be included in his income, for
federal, state, and local income tax will be paid to him on a "grossed-up" basis
equal to his federal, state, and local tax liabilities resulting therefrom.
16. MERGER OR TRANSFER OF ASSETS OF THE TRUST. The Trust will not
consolidate with or merge into any other entity, or transfer all or
substantially all of its assets or shares to another entity, unless such other
entity assumes this Agreement in a signed writing and delivers a copy thereof to
Xxxx. Upon such assumption the successor entity shall become obligated to
perform the obligations of the Trust under this Agreement, and the term "the
Trust" as used in this Agreement shall be deemed to refer to such successor
entity.
17. NOTICES. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered in person (to the Secretary of the Trust in the case of notices to the
Trust and to Xxxx in the case of notices to Xxxx) or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Trust:
Paragon Real Estate Equity and Investment Trust
0000 Xxxxx Xxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
If to Xxxx:
Xx. Xxxx X. Xxxx
0000 Xxxxx Xxxxx Xxxxxx Xxxxx
Xxxx, Xxxx 00000
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
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18. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall remain in full force and effect.
19. MISCELLANEOUS. This Agreement may only be modified, waived, or
discharged by the Board of Trustees and agreed to in writing signed by Xxxx and
the Trust. This Agreement shall inure to the benefit of Xxxx and his heirs and
legal representatives. No waiver by either party hereto at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time or at any prior
or subsequent time. No agreement or representation, oral or otherwise, express
or implied, with respect to the subject matter hereof has been made by either
party which is not set forth expressly in this Agreement. This Agreement shall
be governed by and construed in accordance with the laws of the State of Ohio.
In the event legal action is instituted to enforce any provision of this
Agreement, each party shall pay its own cost and expense thereof. This Agreement
constitutes the entire agreement between the parties with the subject matter
hereof and all prior negotiations, discussions, and agreements on that subject
matter are hereby superseded. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together, when executed and delivered,
will constitute one and the same instrument.
20. NO PERSONAL LIABILITY. Notwithstanding anything herein to the
contrary, this Agreement is made and executed on behalf of the Trust, a real
estate investment trust organized under the laws of the State of Maryland, by
its officers thereof on behalf of the trustees thereof, and none of the trustees
or any additional or successor trustees hereinafter appointed, nor any
beneficiary, officer, employee or agent of the Trust shall have any liability
hereunder in his personal or individual capacity, but, instead, all parties
shall look solely to the property and assets of the Trust for satisfaction of
claims of any nature arising under or in connection with this Agreement.
IN WITNESS WHEREOF, this Agreement has been signed by the Trust and Xxxx
as of the date first above written.
PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
By: /s/ Xxxxx X. Xxxxxxxxxx
--------------------------------------------
Title: Xxxxx X. Xxxxxxxxxx,
Chairman of Board of Trustees
By: /s/ Xxxx X. Xxxx
--------------------------------------------
XXXX X. XXXX
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EXHIBIT A
ELECTION PURSUANT TO SECTION 83(b) OF
THE INTERNAL REVENUE CODE
The undersigned, being a service-provider to Paragon Real Estate Equity
and Investment Trust (the "Company"), hereby makes an election pursuant to
Section 83(b) of the Internal Revenue Code with respect to the property
described below and supplies the following information in accordance with the
provisions of Treasury Regulation Section 1.83(e):
1. The name, address and taxpayer identification number of the undersigned are:
Name: Xxxx X. Xxxx
Address: 0000 Xxxxx Xxxxx Xxxxxx Xxxxx
Xxxx, Xxxx 00000-0000
Taxpayer I.D. No.:____________________________
2. Description of the property with respect to which the election is being
made: _________ common shares of the Company.
3. Date on which the property was transferred is: _______________
4. The taxable year of the taxpayer in which the property was transferred is:
___________
5. Nature of restrictions to which the property is subject:
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
6. The fair market value at the time of transfer (determined without regard
to any restrictions other than restrictions which by their terms will
never lapse) of the property with respect to which this election is being
made is $______________.
7. The taxpayer did not provide any consideration for the transfer of said
property.
8. A copy of this statement has been furnished to the Company.
Dated: _________________, 2004 ____________________________________
Xxxx X. Xxxx
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