Exhibit 10.7
XXXXXXX PACIFIC PROPERTIES, INC.
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT made as of this 30th day of June, 1999 by and among
BurnhamPacific Properties, Inc., a Maryland corporation with its principal
place of business in San Diego, California (the "Corporation" and together
with its subsidiaries and affiliates, the "Employers") and J. Xxxxx Xxxxxx of
San Francisco, California (the "Executive"), an individual presently employed
as President and Chief Executive Officer of the Corporation.
1. PURPOSE. The Corporation considers it essential to the best
interests of its stockholders to xxxxxx the continuous employment of key
management personnel. The Board of Directors of the Corporation (the "Board")
recognizes, however, that, as is the case with many publicly held corporations,
the possibility of a Change in Control (as defined in Section 2 hereof) exists
and that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Corporation and its stockholders. Therefore,
the Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Employers'
management, including the Executive, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a Change in Control. Nothing in this Agreement shall be construed
as creating an express or implied contract of employment and, except as
otherwise agreed in writing between the Executive and the Employers, the
Executive shall not have any right to be retained in the employ of the
Employers.
2. CHANGE IN CONTROL. For purposes of this Plan, a "Change in Control"
shall mean the occurrence of any one of the following events:
(a) any "PERSON," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Act")
(other than the Corporation, any of its subsidiaries, or any trustee,
fiduciary or other person or entity holding securities under any
employee benefit plan or trust of the Corporation or any of its
subsidiaries), together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Act) of such person, shall
become the "beneficial owner" (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the
Corporation representing thirty percent (30%) or more of either (A) the
combined voting power of the Corporation's then outstanding securities
having the right to vote in an election of the Corporation's Board of
Directors ("Voting Securities") or (B) the then outstanding shares of
the Corporation's no par common stock ("Common Stock") (in either case
other than as a result of an acquisition of securities directly from
the Corporation); or
(b) persons who, as of June 19, 1999, constitute the
Corporation's Board of Directors (the "Incumbent Directors") cease for
any reason, including, without limitation, as a result of a tender
offer, proxy contest, merger or similar transaction, to constitute at
least a majority of the Board, provided that any person becoming a
director of the
Corporation subsequent to June 19, 1999 shall be considered an
Incumbent Director if such person's election was approved by or such
person was nominated for election by a vote of at least a majority of
the Incumbent Directors; but provided further, that any such person
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of members of the
Board of Directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a PERSON other than the Board,
including by reason of agreement intended to avoid or settle any such
actual or threatened contest or solicitation, shall not be considered
an Incumbent Director; or
(c) the stockholders of the Corporation shall approve (A) any
consolidation or merger of the Corporation where the stockholders of
the Corporation, immediately prior to the consolidation or merger,
would not, immediately after the consolidation or merger, beneficially
own (as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, shares representing in the aggregate fifty percent (50%) or
more of the voting shares of the corporation issuing cash or securities
in the consolidation or merger (or of its ultimate parent corporation,
if any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of
the Corporation or (C) any plan or proposal for the liquidation or
dissolution of the Corporation.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (a) solely as the
result of an acquisition of securities by the Corporation which, by reducing the
number of shares of Common Stock or other Voting Securities outstanding,
increases the proportionate number of shares beneficially owned by any person to
thirty percent (30%) or more of the combined voting power of all then
outstanding Voting Securities; PROVIDED, HOWEVER, that if any person referred to
in this sentence shall thereafter become the beneficial owner of any additional
shares of Voting Securities (other than pursuant to a stock split, stock
dividend, or similar transaction or as a result of an acquisition of securities
directly from the Corporation), then a "CHANGE OF CONTROL" shall be deemed to
have occurred for purposes of the foregoing clause (a).
3. TERMINATING EVENT. A "Terminating Event" shall mean any of the
events provided in this Section 3 occurring:
(a) within twelve (12) months following a Change in Control,
termination by the Employers of the employment of the Executive with
the Employers for any reason other than for Cause or the death or
disability (as determined under the Employers' then existing long-term
disability coverage) of the Executive. "Cause" shall mean, and shall be
limited to, the occurrence of any one or more of the following events:
(i) a willful act of dishonesty by the Executive
with respect to any matter involving any of the Employers; or
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(ii) conviction of the Executive of a crime
involving moral turpitude; or
(iii) the deliberate or willful failure by the
Executive (other than by reason of the Executive's physical or
mental illness, incapacity or disability) to substantially
perform the Executive's duties with the Employers and the
continuation of such failure for a period of 30 days after
delivery by the Employers to the Executive of written notice
specifying the scope and nature of such failure and their
intention to terminate the Executive for Cause.
A Terminating Event shall not be deemed to have occurred
pursuant to this Section 3(a) solely as a result of the Executive being
an employee of any direct or indirect successor to the business or
assets of any of the Employers, rather than continuing as an employee
of the Employers following a Change in Control. For purposes of clauses
(i) and (iii) of this Section 3(a), no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted to
be done, by the Executive without reasonable belief that the
Executive's act, or failure to act, was in the best interest of the
Employers; or
(b) within twelve (12) months following a Change in Control,
termination by the Executive of the Executive's employment with the
Employers for Good Reason. "Good Reason" shall mean the occurrence of
any of the following events:
(i) a material diminution in the nature or scope of
the Executive's responsibilities, authorities, title, powers,
functions, or duties from the responsibilities, authorities,
powers, functions, or duties exercised by the Executive
immediately prior to the Change in Control; or
(ii) a change in reporting relationship such that the
Executive is required to report to someone other than the
Board; or
(iii) a reduction in the Executive's annual base
salary as in effect on June 19, 1999 or as the same may be
increased from time to time; or
(iv) the relocation of the Employers' offices at
which the Executive is principally employed immediately prior
to the date of a Change in Control to a location more than
fifty (50) miles from such offices, or the requirement by the
Employers for the Executive to be based anywhere other than
the Employers' offices at such location, except for required
travel on the Employers' business to an extent substantially
consistent with the Executive's business travel obligations
immediately prior to the Change in Control; or
(v) the failure by the Employers to obtain an
effective agreement from any successor to assume and agree to
perform this Agreement; or
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(c) after twelve (12) months following a Change in Control but
within thirteen (13) months following a Change in Control, termination
by the Executive of the Executive's employment with the Employers for
any reason or for no reason.
4. SPECIAL TERMINATION PAYMENTS. In the event a Terminating
Event occurs,
(a) the Employers shall pay to the Executive an amount
equal to the sum of the following:
(i) three (3) times the amount of the then current
annual base salary of the Executive, determined prior to any
reductions for pre-tax contributions to a cash or deferred
arrangement or a cafeteria plan; and
(ii) three (3) times the then current target annual
bonus of the Executive.
For purposes of (ii) above, the Executive's current target annual bonus
shall in no event be deemed to be less than the Executive's current
annual base salary as used for purposes of (i) above.
The foregoing amount shall be paid in one lump sum payment no
later than thirty-one (31) days following the Date of Termination; and
(b) the Employers shall continue to provide health, dental and
life insurance to the Executive, on the same terms and conditions as
though the Executive had remained an active employee, for thirty-six
(36) months after the Terminating Event; and
(c) the Employers shall provide COBRA benefits to the
Executive following the end of the period referred to in Section 4(b)
above, such benefits to be determined as though the Executive's
employment had terminated at the end of such period; and
(d) the Employers shall pay to the Executive all reasonable
legal and mediation fees and expenses incurred by the Executive in
obtaining or enforcing any right or benefit provided by this Agreement,
except in cases involving frivolous or bad faith litigation initiated
by the Executive.
Notwithstanding the foregoing, the special termination benefits
required by Section 4(a) shall be offset by any amount paid or payable to the
Executive by the Employers under the terms of any other plan.
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5. ADDITIONAL BENEFITS.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
compensation payment or distribution by the Employers to or for the
benefit of the Executive (the "Severance Payments"), whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, excluding, however, any payment or distribution
made in connection with the Phantom Shares Award granted by the
Corporation to the Executive by agreement dated as of August 1, 1999
covering the right of the Executive to receive 237,037 Phantom Shares
(the "Long-Term Retention Award"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled
to receive an additional payment (a "Gross-Up Payment") such that the
net amount retained by the Executive, after deduction of any Excise Tax
on the Severance Payments, any Federal, state, and local income tax,
employment tax and Excise Tax upon the payment provided by this
subsection, and any interest and/or penalties assessed with respect to
such Excise Tax and not after the deduction of any other taxes or
amounts, shall be equal to the Severance Payments. The Gross-Up Payment
shall be calculated as if the Executive did not receive any payments or
distributions in connection with the Long-Term Retention Award. In
particular, if no Excise Tax is payable by the Executive in connection
with the Severance Payments alone, but an Excise Tax is payable by the
Executive when the Severance Payments are considered in conjunction
with payments or distributions made in connection with the Long-Term
Retention Award, the Employers shall not be required to make any
gross-up payment to the Executive with respect to the Severance
Payments or any other payments. (The Gross-Up Payment is not intended
to compensate the Executive for any income taxes payable with respect
to the Severance Payments or any income or excise taxes payable with
respect to payments or distributions made in connection with the
Long-Term Retention Award.)
(b) Subject to the provisions of Section 5(c), all
determinations required to be made under this Section 5, including
whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment, shall be made by Deloitte & Touche LLP or any other nationally
recognized accounting firm selected by the Employers (the "Accounting
Firm"), which shall provide detailed supporting calculations both to
the Employers and the Executive within 15 business days of the Date of
Termination, if applicable, or at such earlier time as is reasonably
requested by the Employers or the Executive. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be
deemed to pay federal income taxes at the highest marginal rate of
federal income taxation applicable to individuals for the calendar year
in which the Gross-Up Payment is to be made, and state and local income
taxes at the highest marginal rates of individual taxation in the state
and locality of the Executive's
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residence on the Date of Termination, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such
state and local taxes. The initial Gross-Up Payment, if any, as
determined pursuant to this Section 5(b), shall be paid to the
Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive in connection with the Severance Payments, the
Employers shall furnish the Executive with an opinion of counsel that
failure to report any Excise Tax on the Executive's applicable federal
income tax return with respect to the Severance Payments (without
regard to any payments or distributions made in connection with the
Long-Term Retention Award) would not result in the imposition of a
negligence or similar penalty. However, notwithstanding the foregoing,
it shall be the responsibility of the Executive to determine whether
any Excise Tax is payable by the Executive in connection with or as a
result of any payments or distributions made in connection with the
Long-Term Retention Award. Any determination by the Accounting Firm
shall be binding upon the Employers and the Executive. As a result of
the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments will not have been made by the
Employers which should have been made with respect to the Severance
Payments (the "Underpayment"). In the event that the Employers exhaust
their remedies pursuant to Section 5(c) and the Executive thereafter is
required to make a payment of any Excise Tax in connection with the
Severance Payments, the Accounting Firm shall determine the amount of
the Underpayment that has occurred, consistent with the calculations
required to be made hereunder, and any such Underpayment, and any
interest and penalties imposed on the Underpayment and required to be
paid by the Executive in connection with the proceedings described in
Section 5(c), shall be promptly paid by the Employers to or for the
benefit of the Executive.
(c) The Executive shall notify the Employers in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Employers of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than 10
business days after the Executive knows of such claim and shall apprise
the Employers of the nature of such claim and the date on which such
claim is requested to be paid. The Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on
which he gives such notice to the Employers (or such shorter period
ending on the date that any payment of taxes with respect to such claim
is due). If the Employers notify the Executive in writing prior to the
expiration of such period that they desire to contest such claim,
provided that the Employers have set aside adequate reserves to cover
the Underpayment and any interest and penalties thereon that may
accrue, the Executive shall:
(i) give the Employers any information
reasonably requested by the Employers relating to such claim,
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(ii) take such action in connection with contesting
such claim as the Employers shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney selected by the Employers,
(iii) cooperate with the Employers in good faith in
order effectively to contest such claim, and
(iv) permit the Employers to participate in any
proceedings relating to such claim; provided, however, that
the Employers shall bear and pay directly all costs and
expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify
and hold the Executive harmless, on an after-tax basis, for
any Excise Tax or income tax, including interest and penalties
with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 5(c),
the Employers shall control all proceedings taken in
connection with such contest and, at their sole option, may
pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at their sole
option, either direct the Executive to pay the tax claimed and
xxx for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Employers shall determine; provided, however, that if
the Employers direct the Executive to pay such claim and xxx
for a refund, the Employers shall advance the amount of such
payment to the Executive on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax, including interest
or penalties with respect thereto, imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Employers'
control of the contest shall be limited to issues with respect
to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case
may be, any other issues raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Employers pursuant to Section 5(c), the Executive
becomes entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Employers' complying with the
requirements of Section 5(c)) promptly pay to the Employers the amount
of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the
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Employers pursuant to Section 5(c), a determination is made that the
Executive shall not be entitled to any refund with respect to such
claim and the Employers do not notify the Executive in writing of their
intent to contest such denial of refund prior to the expiration of 30
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required
to be paid.
6. TERM. This Agreement shall take effect on the date first set forth
above and shall terminate upon the earliest of (a) the termination by the
Employers of the employment of the Executive for Cause; (b) the termination by
the Employers of the employment of the Executive for any reason other than for
Cause, unless such termination occurs after a Change in Control; (c) the
resignation or voluntary termination of the Executive for any reason prior to a
Change in Control; or (d) the resignation of the Executive within twelve (12)
months after a Change in Control for any reason other than the occurrence of any
of the events enumerated in Section 3(b) of this Agreement.
7. WITHHOLDING. All payments made by the Employers under this
Agreement shall be net of any tax or other amounts required to be withheld by
the Employers under applicable law.
8. NOTICE AND DATE OF TERMINATION; DISPUTES; ETC.
(a) NOTICE OF TERMINATION. After a Change in Control and
during the term of this Agreement, any purported termination of the
Executive's employment (other than by reason of death) shall be
communicated by written Notice of Termination from one party hereto to
the other party hereto in accordance with this Section 8. For purposes
of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement
relied upon and the Date of Termination. Further, a Notice of
Termination for Cause is required to include a copy of a resolution
duly adopted by the affirmative vote of not less than two-thirds (2/3)
of the entire membership of the Board at a meeting of the Board (after
reasonable notice to the Executive and an opportunity for the
Executive, accompanied by the Executive's counsel, to be heard before
the Board) finding that, in the good faith opinion of the Board, the
termination met the criteria for Cause set forth in Section 3(a)
hereof.
(b) DATE OF TERMINATION. "Date of Termination," with respect
to any purported termination of the Executive's employment after a
Change in Control and during the term of this Agreement, shall mean the
date specified in the Notice of Termination. In the case of a
termination by the Employers other than a termination for Cause (which
may be effective immediately), the Date of Termination shall not be
less than 30 days after the Notice of Termination is given. In the case
of a termination by the Executive, the Date of Termination shall not be
less than 15 days from the date such Notice of Termination is given.
Notwithstanding Section 3(a) of this Agreement,
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in the event that the Executive gives a Notice of Termination to the
Employers, the Employers may unilaterally accelerate the Date of
Termination and such acceleration shall not result in a second
Terminating Event for purposes of Section 3(a) of this Agreement.
(c) NO MITIGATION. The Employers agree that, if the
Executive's employment by the Employers is terminated during the term
of this Agreement, the Executive is not required to seek other
employment or to attempt in any way to reduce any amounts payable to
the Executive by the Employers pursuant to Sections 4 and 5 hereof.
Further, the amount of any payment provided for in this Agreement shall
not be reduced by any compensation earned by the Executive as the
result of employment by another employer, by retirement benefits, by
offset against any amount claimed to be owed by the Executive to the
Employers, or otherwise.
(d) MEDIATION OF DISPUTES. The parties shall endeavor in good
faith to settle within 90 days any controversy or claim arising out of
or relating to this Agreement or the breach thereof through mediation
with JAMS, Endispute or similar organizations. If the controversy or
claim is not resolved within 90 days, the parties shall be free to
pursue other legal remedies in law or equity.
9. ASSIGNMENT; PRIOR AGREEMENTS. Neither the Employers nor the
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party, and without such consent any attempted transfer shall be null and void
and of no effect. This Agreement shall inure to the benefit of and be binding
upon the Employers and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns. In the event of the Executive's
death after a Terminating Event but prior to the completion by the Employers of
all payments due him under Sections 4 and 5 of this Agreement, the Employers
shall continue such payments to the Executive's beneficiary designated in
writing to the Employers prior to his death (or to his estate, if the Executive
fails to make such designation).
10. ENFORCEABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
11. WAIVER. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
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12. NOTICES. Any notices, requests, demands, and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Employers, or to the Employers at their main office, attention of the Board of
Directors.
13. EFFECT ON OTHER PLANS. Nothing in this Agreement shall be construed
to limit the rights of the Executive under the Employers' benefit plans,
programs or policies.
14. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Employers.
15. GOVERNING LAW. This contract shall be construed under and be
governed in all respects by the laws of the State of Maryland.
16. OBLIGATIONS OF SUCCESSORS. In addition to any obligations imposed
by law upon any successor to the Employers, the Employers will use their best
efforts to require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
or assets of the Employers to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Employers would be
required to perform if no such succession had taken place.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Employers by their duly authorized officers and by the
Executive, as of the date first above written.
XXXXXXX PACIFIC PROPERTIES, INC.
By:/s/ Xxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxx X. Xxxxx
Title: Chief Financial Officer
/s/ J. XXXXX XXXXXX
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J. Xxxxx Xxxxxx
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