EXHIBIT 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "AGREEMENT") made as of the 26th day of
February, 2001 (the "EFFECTIVE DATE") by and between Xxxxxxx X. Xxxxxxxx and
AvalonBay Communities, Inc., a Maryland corporation (the "COMPANY").
WHEREAS, Executive has been performing services for the Company; and
WHEREAS, Executive and the Company desire to enter into an employment
agreement, effective as of the date of execution of this Agreement.
NOW, THEREFORE, the parties hereto do hereby agree as follows.
1. TERM. The Company hereby agrees to employ Executive, and Executive
hereby agrees to remain in the employ of the Company subject to the terms and
conditions of this Agreement for the period commencing on the Effective Date and
terminating on February 25, 2004 (the "ORIGINAL TERM"), unless earlier
terminated as provided in Section 7. The Original Term shall be extended
automatically for additional one year periods measured from February 26, 2004
(each a "RENEWAL TERM"), unless notice that this Agreement will not be extended
is given by either party to the other ninety (90) days prior to the expiration
of the Original Term or any Renewal Term. Notwithstanding the foregoing, upon a
Change in Control, the Employment Period shall be extended automatically to
three years from the date of such Change in Control. (The period of Executive's
employment hereunder within the Original Term and any Renewal Terms is herein
referred to as the "EMPLOYMENT PERIOD.")
2. EMPLOYMENT DUTIES.
(a) During the Employment Period, Executive shall be employed
in the business of the Company and its affiliates. Executive shall serve as a
corporate officer of the Company with the title of CHIEF OPERATING OFFICER. In
the performance of his duties, Executive shall be subject to the direction of
the Board of Directors of the Company (the "Board"), including any committee of
the Board designated by the Board, if any, and the President and/or Chief
Executive Officer of the Company ("CEO", which term refers to the President
and/or Chief Executive Officer, each with authority acting alone to give
direction hereunder in the event that both titles are not held by the same
person) and shall not be required to take direction from or report to any other
person. Executive's duties, title and/or authority, as assigned by the Board or
CEO, shall include responsibility for overseeing the Company's overall (i)
development activities, (ii) construction activities, (iii) investment
activities, (iv) marketing activities, and (v) property operations activities
(in each case, to the extent the same relate to the multifamily rental
business), PROVIDED, HOWEVER, that it will not be a violation of this Section
2(a), or otherwise be a breach by the Company under any term of this Agreement,
if (a) the Company modifies Executive's duties so that they include only three
out of the aforementioned five functional areas, or (b) the Executive's duties
are modified from time to time as Executive and Company mutually reasonably
agree.
(b) Executive agrees to his employment as described in this
Section 2 and agrees to devote substantially all of his working time and efforts
to the performance of his duties under this Agreement; provided that nothing in
this Section 2(b) shall be interpreted to preclude Executive from (i)
participating with the prior written consent of the Board as an officer or
director of, or advisor to, any other entity or organization that is not a
customer or material service provider to the Company or a Competing Enterprise,
as defined in Section 8, so long as such participation does not interfere with
the performance of
Executive's duties hereunder, whether or not such entity or organization is
engaged in religious, charitable or other community or non-profit activities,
(ii) investing in any entity or organization which is not a customer or material
service provider to the Company or a Competing Enterprise, so long as such
investment does not interfere with the performance of Executive's duties
hereunder, or (iii) delivering lectures or fulfilling speaking engagements so
long as such lectures or engagements do not interfere with the performance of
Executive's duties hereunder.
(c) In performing his duties hereunder, Executive shall be
available for reasonable travel as the needs of the business require. Executive
shall be based in Alexandria, Virginia (or otherwise in the Washington
Baltimore, DC-MD-VA-WV Consolidated Metropolitan Statistical Area as defined by
the U.S. Census Bureau ("Metropolitan D.C.")).
(d) Breach by either party of any of his or its respective
obligations under this Section 2 shall be deemed a material breach of that
party's obligations hereunder.
3. COMPENSATION/BENEFITS. In consideration of Executive's services
hereunder, the Company shall provide Executive the following:
(a) BASE SALARY. During the Employment Period, the Executive
shall receive an annual rate of base salary ("BASE SALARY") in an amount not
less than $350,000. Executive's Base Salary will be reviewed by the Company
annually and may be adjusted upward (but not downward) at such time. Base Salary
shall be payable in accordance with the Company's normal business practices, but
in no event less frequently than monthly.
(b) BONUSES. Commencing at the close of each fiscal year
during the Employment Period, the Company shall review the performance of the
Company and of Executive during the prior fiscal year, and the Company may
provide Executive with additional compensation in the form of a cash bonus
("CASH BONUS") and/or in the form of long term equity incentives such as stock
options and restricted stock grants ("LT EQUITY BONUS") if the Board, or any
compensation committee thereof, in its discretion, determines that the
performance of the Company and Executive's contribution to the Company warrants
such additional payment and the Company's anticipated financial performance of
the present period permits such payment. Any Cash Bonuses hereunder shall be
paid as a lump sum not later than 75 days after the end of the Company's
preceding fiscal year.
(c) MEDICAL AND DISABILITY INSURANCE/PHYSICAL. During the
Employment Period, the Company shall provide to Executive and Executive's
immediate family a comprehensive policy of health insurance in accordance with
the Company's general practice applicable to officers (including payment of all
or a portion of the premiums due thereon) and shall provide to Executive a
disability policy in accordance with the Company's general practice applicable
to officers (including payment of all or a portion of the premiums due thereon).
During the Employment Period, Executive shall be entitled to a comprehensive
annual physical performed, at the expense of the Company (but not including any
related travel expense), by the physician or medical group of Executive's
choosing.
(d) SPLIT DOLLAR LIFE INSURANCE. During the Employment Period,
the Company shall keep in force and pay the premiums on the split-dollar life
insurance policy referenced in the Split Dollar Insurance Agreement between the
Company and Executive, subject to reimbursement by Executive as provided in such
Split Dollar Insurance Agreement. Executive agrees to submit to such medical
examinations as may be required in order to maintain such policy of insurance.
(e) VACATIONS. Executive shall be entitled to reasonable paid
vacations during the Employment Period in accordance with the then regular
procedures of the Company governing officers.
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(f) OFFICE/SECRETARY, ETC. During the Employment Period,
Executive shall be entitled to secretarial services and a private office
commensurate with his title and duties.
(g) ANNUAL ALLOWANCE. The Company will provide the Executive
with an annual allowance of up to $5,000 per year (the "ALLOWANCE"). The
Executive may draw on the Allowance for expenses incurred in his discretion for
items such as country club membership, financial counseling or tax preparation.
Payment of the Allowance shall be subject to substantiation of expenses in
accordance with the Company's policies in effect from time to time for executive
officers of the Company. Unused portions of the Allowance shall not be carried
over from year to year. For purposes of this Section 3(g), a new year shall be
deemed to commence on each January 1.
(h) AUTOMOBILE. The Company shall provide Executive with a
monthly car allowance during the Employment Period in accordance with the
Company's current practices but in no event less than Executive's current
monthly car allowance.
(i) OTHER BENEFITS. During the Employment Period, the Company
shall provide to Executive such other benefits, excluding severance benefits,
but including the right to participate in such retirement or pension plans, as
are made generally available to officers of the Company from time to time.
Executive shall be given credit for purposes of eligibility and vesting of
employee benefits and benefit accrual for service prior to the Effective Date
with Avalon Properties, Inc. and its affiliates ("AVALON"), and Xxxxxxxx Xxxx
Residential ("TCR") under each benefit plan of the Company and its subsidiaries
to the extent such service had been credited under employee benefit plans of
Avalon or TCR, provided that no such crediting of service results in duplication
of benefits.
(j) TOTAL COMPENSATION. The Company acknowledges that the
Executive's Cash Bonus and LT Equity Bonus awarded to the Executive by the Board
or Compensation Committee of the Board in its discretion from time-to-time, are
a material part of total compensation for the Executive. The Company will
endeavor to provide Executive with a reasonable Cash Bonus and/or reasonable LT
Equity Bonus on an annual basis such that the Executive's total compensation, in
light of the Company's performance and his performance in his role of COO, is
reasonable under the circumstances and reasonable relative to the Cash Bonuses
and LT Equity Bonuses awarded other officers of the Company. The Company shall
not be in breach of this provision unless it can be demonstrated that the
Company acted in bad faith in determining whether to award (or the size of an
award of) a Cash Bonus or LT Equity Bonus, which determination of bad faith
shall specifically be made with reference to the target awards set for other
officers and the actual awards paid other officers.
4. EXPENSES/INDEMNIFICATION.
(a) During the Employment Period, the Company shall reimburse
Executive for the reasonable business expenses incurred by Executive in the
course of performing his duties for the Company hereunder, upon submission of
invoices, vouchers or other appropriate documentation, as may be required in
accordance with the policies in effect from time to time for executive employees
of the Company.
(b) To the fullest extent permitted by law, the Company shall
indemnify Executive with respect to any actions commenced against Executive in
his capacity as an officer or director or former officer or director of the
Company, or any affiliate thereof for which he may render service in such
capacity, whether by or on behalf of the Company, its shareholders or third
parties, and the Company shall advance to Executive on a timely basis an amount
equal to the reasonable fees and expenses incurred in defending such actions,
after receipt of an itemized request for such advance, and an undertaking from
Executive to repay the amount of such advance, with interest at a reasonable
rate from the date of the request, as determined by the Company, if it shall
ultimately be determined that he is not entitled to be indemnified against such
expenses. Notwithstanding the foregoing, the Company shall not indemnify
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Executive with respect to any acts or omissions attributable, directly or
indirectly, to Executive's gross negligence, willful misconduct or material
breach of this Agreement. The Company agrees that it shall use reasonable best
efforts to secure and maintain officers' and directors' liability insurance that
shall include coverage with respect to Executive.
5. EMPLOYER'S AUTHORITY/POLICIES.
(a) GENERAL. Executive agrees to observe and comply with the
rules and regulations of the Company as adopted by its Board respecting the
performance of his duties and to carry out and perform orders, directions and
policies communicated to him from time to time by the Board or the CEO.
(b) ETHICS POLICIES. Executive agrees to comply with and be
bound by the Ethics Policies of the Company, as reflected in the attachment at
ANNEX A hereto and made a part hereof. Executive agrees to comply with and be
bound by the Company's xxxxxxx xxxxxxx policies and procedures that are
generally applicable to employees and/or senior officers.
6. RECORDS/NONDISCLOSURE/COMPANY POLICIES.
(a) GENERAL. All records, manuals, financial statements and
similar documents obtained, reviewed or compiled by Executive in the course of
the performance by him of services for the Company, whether or not confidential
information or trade secrets, shall be the exclusive property of the Company.
Executive shall have no rights in such documents upon any termination of this
Agreement.
(b) NONDISCLOSURE AGREEMENT. Without limitation of the
Company's rights under Section 6(a), Executive agrees to abide by and be bound
by the Nondisclosure Agreement of the Company executed by Executive and the
Company as reflected in the attachment at ANNEX B and made a part hereof.
7. TERMINATION; SEVERANCE AND RELATED MATTERS.
(a) AT-WILL EMPLOYMENT. Executive's employment hereunder is
"at will" and, therefore, may be terminated at any time, with or without Cause,
at the option of the Company, subject only to the severance obligations under
this Section 7. Upon any termination hereunder, the Employment Period shall
expire.
(b) DEFINITIONS. For purposes of this Section 7, the following
terms shall have the indicated definitions:
(1) CAUSE. "Cause" shall mean:
(i) Executive is convicted of or enters a
plea of nolo contendere to an act which is defined as
a felony under any federal, state or local law, not
based upon a traffic violation, which conviction or
plea has or can be expected to have, in the good
faith opinion of the Board, a material adverse impact
on the business or reputation of the Company;
(ii) any one or more acts of theft, larceny,
embezzlement, fraud or material intentional
misappropriation from or with respect to the Company;
(iii) a breach by Executive of his fiduciary
duties under Maryland law as an officer; or material
breach by Executive of any rule, regulation, policy
or procedure, the Company (including, without
limitation, as described in Section 5 hereof);
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(iv) Executive's commission of any one or
more acts of gross negligence or willful misconduct
which in the good faith opinion of the Board has
resulted in material harm to the business or
reputation of the Company; or
(v) default by Executive in the performance
of his material duties under this Agreement, without
correction of such action within 15 days of written
notice thereof.
Notwithstanding the foregoing, no termination of Executive's employment
by the Company shall be treated as for Cause or be effective until and unless
all of the steps described in subparagraphs (A) through (C) below have been
complied with:
(A) Notice of intention to
terminate for Cause has been given by the
Company within 120 days after the Board
learns of the act, failure or event (or
latest in a series of acts, failures or
events) constituting "Cause";
(B) The Board has voted (at a
meeting of the Board duly called and held as
to which termination of Executive is an
agenda item) to terminate Executive for
Cause after Executive has been given notice
of the particular acts or circumstances
which are the basis for the termination for
Cause and has been afforded at least 20 days
notice of the meeting and an opportunity to
present his position in writing; and
(C) The Board has given a Notice of
Termination to Executive within 20 days
after such Board meeting.
The Company may suspend Executive with pay at any time during the
period commencing with the giving of notice to Executive under clause (A) above
until final Notice of Termination is given under clause (C) above. Upon the
giving of notice as provided in clause (C) above, no further payments shall be
due Executive except as provided in Section 7(c)(vii).
(2) CHANGE IN CONTROL. A "Change in Control" shall mean the
occurrence of any one or more of the following events following the
Effective Date:
(i) Any individual, entity or group (a "Person")
within the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Act") (other than the
Company, any corporation, partnership, trust or other entity
controlled by the Company (a "Subsidiary"), or any trustee,
fiduciary or other person or entity holding securities under
any employee benefit plan or trust of the Company 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) of
securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding
securities having the right to vote generally in an election
of the Company's Board of Directors ("Voting Securities"),
other than as a result of (A) an acquisition of securities
directly from the Company or any Subsidiary or (B) an
acquisition by any corporation pursuant to a reorganization,
consolidation or merger if, following such reorganization,
consolidation or merger the conditions described in clauses
(A), (B) and (C) of subparagraph (iii) of this Section 7(b)(2)
are satisfied; or
(ii) Individuals who, as of the Effective Date,
constitute the Company's Board (the "Incumbent Directors")
cease for any reason to constitute at least a
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majority of the Board, provided, however, that any individual
becoming a director of the Company subsequent to the date
hereof (excluding, for this purpose, (A) any such individual
whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election
of members of the Board 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, and (B) any individual whose initial
assumption of office is in connection with a reorganization,
merger or consolidation, involving an unrelated entity and
occurring during the Employment Period), whose election or
nomination for election by the Company's shareholders was
approved by a vote of at least a majority of the persons then
comprising Incumbent Directors shall for purposes of this
Agreement be considered an Incumbent Director; or
(iii) Consummation of a reorganization, merger or
consolidation of the Company, unless, following such
reorganization, merger or consolidation, (A) more than 50% of,
respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding Voting
Securities immediately prior to such reorganization, merger or
consolidation, (B) no Person (excluding the Company, any
employee benefit plan (or related trust) of the Company, a
Subsidiary or the corporation resulting from such
reorganization, merger or consolidation or any subsidiary
thereof, and any Person beneficially owning, immediately prior
to such reorganization, merger or consolidation, directly or
indirectly, 30% or more of the outstanding Voting Securities),
beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors, and (C) at least
a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time
of the execution of the initial agreement providing for such
reorganization, merger or consolidation;
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company; or
(v) The sale, lease, exchange or other disposition of
all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such
sale, lease, exchange or other disposition (A) more than 50%
of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners of the outstanding Voting Securities
immediately prior to such sale, lease, exchange or other
disposition, (B) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company or a
Subsidiary or such corporation or a subsidiary thereof and any
Person beneficially owning, immediately prior to such sale,
lease, exchange or other disposition, directly or indirectly,
30% or more of the outstanding Voting Securities),
beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of
such corporation and the combined voting
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power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the
board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial
agreement or action of the Board of Directors providing for
such sale, lease, exchange or other disposition of assets of
the Company.
Notwithstanding the foregoing, a "Change in Control" shall not
be deemed to have occurred for purposes of this Agreement
solely as the result of an acquisition of securities by the
Company which, by reducing the number of shares of Voting
Securities outstanding, increases the proportionate voting
power represented by the Voting Securities beneficially owned
by any Person to 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 Stock or other Voting Securities (other than
pursuant to a stock split, stock dividend, or similar
transaction), then a "Change in Control" shall be deemed to
have occurred for purposes of this Agreement.
(3) COMPLETE CHANGE IN CONTROL. A "Complete Change in Control"
shall mean that a Change in Control has occurred, after modifying the
definition of "Change in Control" by deleting clause (i) from Section
7(b)(2) of this Agreement.
(4) CONSTRUCTIVE TERMINATION WITHOUT CAUSE. "Constructive
Termination Without Cause" shall mean a termination of Executive's
employment initiated by Executive not later than 12 months following
the occurrence (not including any time during which an arbitration
proceeding referenced below is pending), without Executive's prior
written consent, of one or more of the following events (or the latest
to occur in a series of events), and effected after giving the Company
not less than 10 working days' written notice of the specific act or
acts relied upon and right to cure:
(i) a material adverse change in the functions,
duties or responsibilities of Executive's position which is
inconsistent with Section 2(a), except in connection with the
termination of Executive's employment for Disability, Cause,
as a result of Executive's death or by Executive other than
for a Constructive Termination Without Cause;
(ii) any material breach by the Company of this
Agreement;
(iii) any purported termination of Executive's
employment for Cause by the Company which does not comply with
the terms of Section 7(b)(1) of this Agreement;
(iv) the failure of the Company to obtain an
agreement, satisfactory to the Executive, from any successor
or assign of the Company, to assume and agree to perform this
Agreement, as contemplated in Section 10 of this Agreement;
(v) the failure by the Company to continue in effect
any compensation plan in which Executive participates
immediately prior to a Change in Control which is material to
Executive's total compensation, unless comparable alternative
arrangements (embodied in ongoing substitute or alternative
plans) have been implemented with respect to such plans, or
the failure by the Company to continue Executive's
participation therein (or in such substitute or alternative
plans) on a basis not materially less favorable, in terms of
the amount of benefits provided and the level of Executive's
participation relative to
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other participants, as existed during the last completed
fiscal year of the Company prior to the Change in Control;
(vi) the relocation of the Company's Alexandria
offices to a new location outside of Metropolitan D.C. or the
failure to locate Executive's own office at the Alexandria
office (or at the office to which such office is relocated
which is within Metropolitan D.C.) ("RELOCATION TERMINATION");
or
(vii) any voluntary termination of employment by the
Executive for any reason during the 12-month period
immediately following a Complete Change in Control of the
Company if such Complete Change in Control occurs during the
Employment Period.
Notwithstanding the foregoing, a Constructive Termination
Without Cause shall not be treated as having occurred unless Executive
has given a final Notice of Termination delivered after expiration of
the Company's cure period. Executive or the Company may, at any time
after the expiration of the Company's cure period and either prior to
or up until three months after giving a final Notice of Termination,
commence an arbitration proceeding to determine the question of
whether, taking into account the actions complained of and any efforts
made by the Company to cure such actions, a termination by Executive of
his employment should be treated as a Constructive Termination Without
Cause for purposes of this Agreement. If the Executive or the Company
commences such a proceeding prior to delivery by Executive of a final
Notice of Termination, the commencement of such a proceeding shall be
without prejudice to either party and Executive's and the Company's
rights and obligations under this Agreement shall continue unaffected
unless and until the arbitrator has determined such question in the
affirmative, or, if earlier, the date on which Executive or the Company
has delivered a Notice of Termination in accordance with the provisions
of this Agreement.
(5) AVERAGE COVERED TOTAL COMPENSATION. "Average Covered Total
Compensation" shall mean the sum of Executive's Covered Total
Compensation as calculated for the calendar year in which the Date of
Termination occurs and for each of the two preceding calendar years,
divided by three, PROVIDED, HOWEVER, that if the Date of Termination
occurs before the second anniversary of the Effective Date, then
"Average Covered Total Compensation" shall mean the sum of Executive's
Covered Total Compensation as calculated for the calendar year in which
the Date of Termination occurs and for the preceding calendar year,
divided by two. "Average Covered Base And Cash Bonus Compensation,"
"Average Covered Cash Bonus Compensation" and "Average Covered LT
Equity Compensation" shall have analogous meanings but with reference
to Covered Base And Cash Bonus Compensation, Covered Cash Bonus
Compensation and Covered LT Equity Compensation, respectively.
(6) COVERED COMPENSATION DEFINITIONS. "Covered Total
Compensation," for any calendar year, shall mean an amount equal to the
sum of (i) Executive's Base Salary for the calendar year (disregarding
any decreases made effective during the Employment Period), (ii) the
cash bonus actually earned by Executive with respect to such calendar
year, and (iii) the value of all stock and other equity-based
compensation awards made to Executive during such calendar year. In the
event that the Company has or hereafter makes any special, mid-year or
other non-routine grant of equity outside of the Company's recurring
annual equity compensation programs, or in the event that the Company
grants, outside of the current recurring annual equity compensation
programs, any equity based compensation pursuant to any long-term plan
under which equity grants may be made based on multi-year Company
results, the value of any such mid-year, special, or long-term plan
equity based compensation shall not be included in clause (iii) of the
preceding sentence and therefore shall not be included in the
calculation of Covered Compensation definitions,
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and the value of such equity shall have no impact on any cash payments
made under Section 7(c) of the Agreement.
"Covered Base And Cash Bonus Compensation" for any
calendar year shall mean Covered Total Compensation for such
year but without the inclusion of amounts attributable to
clause (iii) of the definition of Covered Total Compensation.
"Covered Cash Bonus Compensation" for any calendar
year shall mean Covered Total Compensation for such year but
without the inclusion of amounts attributable to clauses (i)
and (iii) of the definition of Covered Total Compensation.
"Covered LT Equity Compensation" for any calendar
year shall mean Covered Total Compensation for such year but
without the inclusion of clauses (i) and (ii) of the
definition of Covered Total Compensation.
For purposes of applying the Covered Compensation definitions
set forth above, the following rules shall apply:
(A) In valuing awards for purposes of clause
(iii) of the definition of Covered Total
Compensation, all such awards shall be treated as if
fully vested when granted, stock grants shall be
valued by reference to the fair market value on the
date of grant of the Company's common stock, par
value $.01 per share, and other equity-based
compensation awards shall be valued at the value
established in good faith by the Compensation
Committee of the Board. Reference is made to Section
7(c)(viii) for further clarification regarding this
matter.
(B) In determining the cash bonus actually
paid with respect to a calendar year, if no cash
bonus has been paid with respect to the calendar year
in which the Date of Termination occurs, the cash
bonus paid with respect to the immediately preceding
calendar year shall be assumed to have been paid in
each of the current and immediately preceding
calendar years, and if no cash bonus has been paid by
the Date of Termination with respect to the
immediately preceding calendar year, the cash bonus
paid with respect to the second preceding calendar
year shall be assumed to have been paid in all three
(or two, as applicable) of the calendar years taken
into account in determining Average Covered Total
Compensation (or any of the derivative definitions
under Section 7(b)(5)).
(C) If (i) any cash bonus paid with respect
to the current or immediately preceding calendar year
was paid within three months of Executive's Date of
Termination, (ii) such cash bonus is lower than the
last cash bonus paid more than three months from the
Date of Termination, and (iii) it is determined that
the Board acted in bad faith in setting such cash
bonus (which determination of bad faith shall
specifically be made with reference to the target
cash bonuses set for other officers and the actual
cash bonuses paid other officers), then in such event
any such cash bonus paid within three months of the
Date of Termination shall be disregarded and the last
cash bonus paid more than three months from the Date
of Termination shall be substituted for each cash
bonus so disregarded.
(D) In determining the amount of stock and
other equity-based compensation awards made during a
calendar year during the averaging period, rules
similar to those set forth in subparagraphs (B) and
(C) of this Section 7(b)(6) shall be followed except
that all awards made in connection with the Company's
initial public offering shall be disregarded.
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(7) DISABILITY. "Disability" shall mean Executive has been
determined to be disabled and to qualify for long-term disability
benefits under the long-term disability insurance policy obtained
pursuant to Section 3(d) of this Agreement.
(C) RIGHTS UPON TERMINATION.
(i) PAYMENT OF BENEFITS EARNED THROUGH DATE OF TERMINATION.
Upon any termination of Executive's employment during the Employment
Period, Executive, or his estate, shall in all events be paid (I) all
accrued but unpaid Base Salary and (II) (except in the case of a
termination by the Company for Cause or a voluntary termination by
Executive which is not due to a Constructive Termination Without Cause,
in either of which cases this clause (II) shall not apply) a pro rata
portion of the Executive's Cash Bonus and LT Equity Bonus. For purposes
of fulfilling the requirements of clause (II) of the prior sentence,
the following shall apply:
(a) In all events, any stock options issued will be issued prior
to Executive's Date of Termination so that such stock options
are employee stock options. Such stock options shall have an
exercise price equal to the closing price of the Company's
stock on the date of grant of such options, and such options
shall expire one year after the date of grant.
(b) The Company and Executive shall work in good faith to
determine an appropriate Cash Bonus and LT Equity Bonus for
the year in which the Date of Termination occurs. Such
determination shall be based in good faith on an evaluation of
Executive's and the Company's performance. If the Company and
Executive cannot agree on appropriate amounts, then:
(A) The Company may defer the determination of the Cash
Bonus and the restricted stock portion of the LT
Equity Bonus until such bonuses in respect of such
year are determined for other officers, and at such
time the amounts to be used for determining
Executive's pro rata bonuses shall be a percentage of
his target Cash Bonus and a percentage of his target
number of restricted shares with such percentages
being equal to the average of the percentages that
apply to the Cash Bonus and restricted shares,
respectively, of other officers ranked Senior Vice
President or higher; and
(B) The Company may grant to Executive a number of stock
options based on the assumption that the percentage
of the target number of options Executive would have
received in respect of the year in which the Date of
Termination occurs would equal the average of the
percentage realization applied to options granted
with respect to the prior three calendar years.
(c) Once the determination in the preceding paragraph is made, the
pro rata portion of such amounts shall equal such amounts
multiplied by a fraction, the numerator of which is the number
of days from January 1 to the Date of Termination in the year
of termination and the denominator of which is 365.
Executive shall also retain all such rights with respect to vested
equity-based awards as are provided under the circumstances under the
applicable grant or award agreement, and shall
10
be entitled to all other benefits which are provided under the
circumstances in accordance with the provisions of the Company's
generally applicable employee benefit plans, practices and policies,
other than severance plans.
(ii) DEATH. In the event of Executive's death during the
Employment Period, the Company shall, in addition to paying the amounts
set forth in Section 7(c)(i), take whatever action is necessary to
cause all of Executive's unvested equity-based awards to become fully
vested as of the date of death and, in the case of equity-based awards
which have an exercise schedule, to become fully exercisable and
continue to be exercisable for such period as is provided in the case
of vested and exercisable awards in the event of death under the terms
of the applicable award agreements.
(iii) DISABILITY. In the event the Company elects to terminate
Executive's employment during the Employment Period on account of
Disability, the Company shall, in addition to paying the amounts set
forth in Section 7(c)(i) and subject to Executive first entering into a
separation agreement, including a general release of all claims, in a
form reasonably acceptable to the Company ("SEPARATION AGREEMENT"), pay
to Executive, in one lump sum, no later than the later of the effective
date of said Separation Agreement or 31 days following the Date of
Termination, an amount equal to one times Average Covered Total
Compensation. The Company shall also, commencing upon the Date of
Termination and subject to Executive entering into a Separation
Agreement:
(A) Continue, without cost to Executive, benefits
comparable to the medical benefits provided to Executive
immediately prior to the Date of Termination under Section
3(c) for a period of 12 months following the Date of
Termination or until such earlier date as Executive obtains
comparable benefits through other employment;
(B) Continue to pay, or reimburse Executive, for all
premiums then due or thereafter payable on the whole-life
portion of the split-dollar insurance policy referenced under
Section 3(d) for so long as such payments are due; PROVIDED,
that the Company's obligations under this Section 7(c)(iii)(B)
are contingent on Executive's timely payment of the premiums
then due or thereafter payable on the term portion of said
split-dollar insurance policy; and
(C) Take whatever action is necessary to cause
Executive to become vested as of the Date of Termination in
all stock options, restricted stock grants, and all other
equity-based awards and be entitled to exercise and continue
to exercise all stock options and all other equity-based
awards having an exercise schedule and to retain such grants
and awards to the same extent as if they were vested upon
termination of employment in accordance with their terms.
(D) If Executive obtains a disability policy on
commercially reasonable terms with the same or similar
coverage as provided by the Company prior to the Date of
Termination then, until that date that is 12 months following
the Date of Termination (or, if earlier, until Executive
obtains comparable benefits through other employment),
reimburse Executive for an amount equal to the difference
between (i) the monthly premiums for such disability policy,
less (ii) the amount paid by Executive in respect of a portion
of the premiums on the disability policy provided by Company
prior to the Date of Termination.
11
(iv) NON-RENEWAL BY THE COMPANY. In the event the
Company gives Executive a notice of non-renewal pursuant to
Section 1 above, and either (I) within one year after
expiration of the Employment Period the Executive voluntarily
terminates his employment ("POST-EXPIRATION RESIGNATION") or
(II) within two years after expiration of the Employment
Period the Executive's employment is terminated by the Company
without Cause or Constructively Terminated without Cause
("POST-EXPIRATION TERMINATION"), then, in either such case,
the Company shall, in addition to paying the amounts set forth
in Section 7(c)(i), and subject to Executive first entering
into a Separation Agreement, pay to Executive, for 12
consecutive months beginning with the first business day of
the calendar month following the Effective Date of said
Separation Agreement, a monthly amount equal to one-twelfth (
1/12) of the sum of one times his then applicable Base Salary
plus one times Average Covered Cash Bonus Compensation. The
Company shall also, commencing upon the Date of Termination
and subject to Executive entering into a Separation Agreement,
continue, without cost to Executive, benefits comparable to
the medical benefits provided to Executive immediately prior
to the Date of Termination under Section 3(c) for a period of
12 months following the Date of Termination or until such
earlier date as Executive obtains comparable benefits through
other employment. In addition, if Executive obtains a
disability policy on commercially reasonable terms with the
same or similar coverage as provided by the Company prior to
the Date of Termination then, until that date that is 12
months following the Date of Termination (or, if earlier,
until Executive obtains comparable benefits through other
employment), reimburse Executive for an amount equal to the
difference between (i) the monthly premiums for such
disability policy, less (ii) the amount paid by Executive in
respect of a portion of the premiums on the disability policy
provided by Company prior to the Date of Termination.
In addition to the above, in the case of a Post-Expiration
Termination the Company additionally shall:
I. Take whatever action is necessary to cause
Executive to become vested as of the Date of
Termination in all stock options, restricted
stock grants, and all other equity-based
awards and be entitled to exercise and
continue to exercise all stock options and
all other equity-based awards having an
exercise schedule and to retain such grants
and awards to the same extent as if they
were vested upon termination of employment
in accordance with their terms; and
II. Continue to pay, or reimburse Executive for,
all premiums then due or thereafter payable
on the whole-life portion of the
split-dollar insurance policy referenced
under Section 3(d) for so long as such
payments are due; PROVIDED, that the
Company's obligations under this Section
7(c)(iv)(B)(II) are contingent on
Executive's timely payment of the premiums
then due or thereafter payable on the term
portion of said split-dollar insurance
policy;
(V) TERMINATION WITHOUT CAUSE OR CONSTRUCTIVE
TERMINATION WITHOUT CAUSE PRIOR TO CHANGE IN CONTROL OF
COMPANY. In the event the Company or any successor to the
Company terminates Executive's employment without Cause, or if
Executive terminates his employment in a Constructive
Termination without Cause, in either case prior to the
effective time of any Change in Control of the Company or at
any time after two years after a Change in Control of the
Company, the Company shall, in addition to paying the amounts
provided under Section 7(c)(i), and subject to Executive first
entering
12
into a Separation Agreement, pay to Executive, in one lump sum
no later than the later of the Effective Date of said
Separation Agreement or 31 days following the Date of
Termination, an amount equal to the sum of (x) two times
Average Covered Base And Cash Bonus Compensation PLUS (y) one
times Average Covered LT Equity Compensation (such sum, the
"SECTION 7(c)(v) PAYMENT"); PROVIDED, HOWEVER, that in the
event that the Constructive Termination Without Cause is a
Relocation Termination, the payment shall be in an amount
equal to one times Average Covered Total Compensation. The
Company shall also, commencing upon the Date of Termination
and subject to the Executive entering into a Separation
Agreement:
(A) Continue, without cost to Executive,
benefits comparable to the medical benefits
provided to Executive immediately prior to
the Date of Termination under Section 3(c)
for a period of 24 months (12 months in the
case of a Relocation Termination) following
the Date of Termination or until such
earlier date as Executive obtains comparable
benefits through other employment;
(B) Continue to pay, or reimburse Executive, for
so long as such payments are due, all
premiums then due or payable on the
whole-life portion of the split-dollar
insurance policy referenced under Section
3(d); PROVIDED that the Company's
obligations under this Section 7(c)(v)(B)
are contingent on Executive's timely payment
of the premiums then due or thereafter
payable on the term portion of said
split-dollar insurance policy; and
(C) Take whatever action is necessary to cause
Executive to become vested as of the Date of
Termination in all stock options, restricted
stock grants, and all other equity-based
awards and be entitled to exercise and
continue to exercise all stock options and
all other equity-based awards having an
exercise schedule and to retain such grants
and awards to the same extent as if they
were vested upon termination of employment
in accordance with their terms.
(D) If Executive obtains a disability policy on
commercially reasonable terms with the same
or similar coverage as provided by the
Company prior to the Date of Termination
then, until that date that is 24 months (12
months in the case of a Relocation
Termination) following the Date of
Termination (or, if earlier, until Executive
obtains comparable benefits through other
employment), reimburse Executive for an
amount equal to the difference between (i)
the premium for such disability policy, less
(ii) the amount paid by Executive in respect
of a portion of the premiums on the
disability policy provided by Company prior
to the Date of Termination.
In the event that, within six months after the Notice of
Termination which gave rise to the termination of Executive's
employment under this Section 7(c)(v), a Change in Control of
the Company occurs, then (provided Executive previously signed
a Separation Agreement), Executive shall be entitled to
receive the payments and benefits under Section 7(c)(vi)
rather than this Section 7(c)(v). To effect this increase in
payments and benefits, within 31 days of the Change in Control
the Company shall pay to Executive, in one lump sum, an amount
equal to the difference between (A) three times Average
Covered Total Compensation (calculated as of the Date of
Termination) less (B) the Section 7(c)(v) Payment. No payment
in the nature of interest or for the time value of money shall
be paid by the Company. In addition, the benefits described in
Section 7(c)(v)(A) shall continue for 36 months following the
Date of Termination (or until such earlier date as Executive
obtains comparable benefits through other employment) rather
than 24 months.
13
(VI) TERMINATION WITHOUT CAUSE WITHIN TWO YEARS
FOLLOWING A CHANGE IN CONTROL. In the event the Company or any
successor to the Company terminates Executive's employment
without Cause (or Executive's employment is Constructively
Terminated without Cause) within two years following the
effective time of a Change in Control of the Company, the
Company shall, in addition to paying the amounts provided
under Section 7(c)(i), and subject to the Executive first
entering into a Separation Agreement, pay to the Executive, in
one lump sum no later than the later of the effective date of
said Separation Agreement or 31 days following the Date of
Termination, an amount equal to three times Average Covered
Total Compensation. The Company shall also, commencing upon
the Date of Termination:
(A) Continue, without cost to Executive,
benefits comparable to the medical benefits provided
to Executive immediately prior to the Date of
Termination under Section 3(c) for a period of 36
months following the Date of Termination or until
such earlier date as Executive obtains comparable
benefits through other employment;
(B) Continue to pay, or reimburse Executive,
for so long as such payments are due, all premiums
then due or payable on the whole-life portion of the
split-dollar insurance policy referenced under
Section 3(d); ); PROVIDED that the Company's
obligations under this Section 7(c)(vi)(B) are
contingent on Executive's timely payment of the
premiums then due or thereafter payable on the term
portion of said split-dollar insurance policy; and
(C) Take whatever action is necessary to
cause Executive to become vested as of the Date of
Termination in all stock options, restricted stock
grants, and all other equity-based awards and be
entitled to exercise and continue to exercise all
stock options and all other equity-based awards
having an exercise schedule and to retain such grants
and awards to the same extent as if they were vested
upon termination of employment in accordance with
their terms.
(D) If Executive obtains a disability policy
on commercially reasonable terms with the same or
similar coverage as provided by the Company prior to
the Date of Termination then, until that date that is
36 months following the Date of Termination (or, if
earlier, until Executive obtains comparable benefits
through other employment), reimburse Executive for an
amount equal to the difference between (i) the
monthly premiums for such disability policy, less
(ii) the amount paid by Executive in respect of a
portion of the premiums on the disability policy
provided by Company prior to the Date of Termination.
(vii) TERMINATION FOR CAUSE; VOLUNTARY RESIGNATION. In the
event Executive's employment terminates during the Employment Period
other than in connection with a termination meeting the conditions of
subparagraphs (ii), (iii), (iv), (v) or (vi) of this Section 7(c),
Executive shall receive the amounts set forth in Section 7(c)(i) in
full satisfaction of all of his entitlements from the Company. All
equity-based awards not vested as of the Date of Termination shall
terminate (unless otherwise provided in the applicable award agreement)
and Executive shall have no further entitlements with respect thereto.
(viii) CLARIFICATION REGARDING TREATMENT OF OPTIONS AND
RESTRICTED STOCK. The stock option and restricted stock agreements (the
"EQUITY AWARD AGREEMENTS")
14
that Executive has or may receive may contain language regarding the
effect of a termination of Executive's employment under certain
circumstances.
(A) Notwithstanding such language in the Equity Award
Agreements, for so long as this Agreement is in effect, the
Company will be obligated, if the terms of this Agreement are
more favorable in this regard than the terms of the Equity
Award Agreements, to take the actions required under Sections
7(c)(ii), 7(c)(iii)(C), 7(c)(iv)(for a Post-Expiration
Termination), 7(c)(v)(C) and 7(c)(vi)(C) hereof upon the
happening of the circumstances described therein. Those
sections provide that in certain situations the Company will
cause the Executive to become vested as of the Date of
Termination in all or certain equity-based awards, and that
such equity-based awards will thereafter be subject to the
provisions of the applicable Equity Award Agreement as it
applies to vested awards upon a termination. For purposes of
clarification, although an option grant may VEST in accordance
with these above-referenced Sections, such option will
thereafter be EXERCISABLE only for so long as the related
option agreement provides, except that the Compensation
Committee of the Board of Directors may, in its sole
discretion, elect to extend the expiration date of such
option. For example, in general Executive's option agreements
granted prior to the date hereof provide that (in the absence
of an extension by the Compensation Committee) upon a
termination of employment for any reason other than death,
disability, retirement or cause, any vested options will only
be exercisable for three months from the date of termination
or, if earlier, the expiration date of the option.
(B) Notwithstanding the definition of "Cause" which
may appear in the Equity Award Agreements, for so long as this
Agreement is in effect (X) any "for Cause" termination must be
in compliance with the terms of this Agreement, including the
definition of "Cause" set forth herein, and (Y) only in the
event of a "for Cause" termination that meets both the
definition in this Agreement and the definition in the Equity
Award Agreement will the disposition of options and restricted
stock under such Equity Award Agreement be treated in the
manner described in such Equity Award Agreement in the case of
a termination "for Cause."
(C) For purposes of Section 7(b)(6)(A), the value of
any option may be determined by the Compensation Committee of
the Board at any time after its grant date by setting such
value at the value determined by a nationally recognized
accounting firm or employee benefits compensation firm,
selected by such Committee, that calculates such value in
accordance with a Black-Scholes formula or variations thereof
using such parameters and procedures (including, without
limitation, parameters and procedures used to measure the
historical volatility of the Company's common stock as of the
relevant grant date) as the Compensation Committee and/or such
firm deems reasonably appropriate. In all events, if the
parameters used for valuing any option for purposes of Section
7(b)(6)(A) are the same as the parameters used for valuing any
other options for purposes of disclosure or inclusion in the
Company's financial statements or financial statement
footnotes, then such parameters shall be deemed reasonable.
(D) During the Employment Period any stock options
issued to Executive shall provide that if Executive's
employment is terminated in any manner which gives rise to an
obligation under this Agreement (or any successor Agreement or
other severance arrangement) to cause the acceleration of
vesting of
15
stock options, then in such event such stock options shall not
expire until one year after the Date of Termination (or, if
earlier, the expiration of their ordinary term). The Company
represents that the stock options awarded to Executive in
February 2001 have a provision to the same effect. This
covenant of the Company shall not apply to any stock options
issued prior to 2001 or to any stock options issued after the
expiration of the Employment Period.
(d) ADDITIONAL BENEFITS.
(i) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of Executive,
whether paid or payable or distributed or distributable (1) pursuant to
the terms of Section 7 of this Agreement, (2) pursuant to or in
connection with any compensatory or employee benefit plan, agreement or
arrangement, including but not limited to any stock options, restricted
or unrestricted stock grants issued to or for the benefit of Executive
and forgiveness of any loans by the Company to Executive or (3)
otherwise (collectively, "Severance Payments"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), and any interest or penalties are
incurred by 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 Executive shall be
entitled to receive an additional payment from the Company (a "Partial
Gross-Up Payment"), such that the net amount retained by Executive,
before accrual or payment of any Federal, state or local income tax or
employment tax, but after accrual or payment of the Excise Tax
attributable to the Partial Gross-Up Payment, is equal to the Excise
Tax on the Severance Payments.
(ii) Subject to the provisions of Section 7(d)(iii), all
determinations required to be made under this Section 7, including
whether a Partial Gross-Up Payment is required and the amount of such
Partial Gross-Up Payment, shall be made by Xxxxxx Xxxxxxxx LLP or such
other nationally recognized accounting firm as may at that time be the
Company's independent public accountants immediately prior to the
Change in Control (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and Executive as soon as
practicable after the Date of Termination, if applicable. The initial
Partial Gross-Up Payment, if any, as determined pursuant to this
Section 7(d)(ii), shall be paid to 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 Executive, the Company
shall furnish Executive with an opinion of counsel that failure to
report the Excise Tax on Executive's applicable federal income tax
return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon
the Company and 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
Partial Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"). In the event that the
Company exhausts its remedies pursuant to Section 7(d)(iii) and
Executive thereafter is required to make a payment of any Excise Tax,
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 Executive in
connection with the proceedings described in Section 7(d)(iii), and any
related legal and accounting expenses, shall be promptly paid by the
Company to or for the benefit of Executive.
16
(iii) Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Partial Gross-Up Payment.
Such notification shall be given as soon as practicable but no later
than 10 business days after Executive acquires actual knowledge of such
claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. 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 Company (or such shorter
period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies Executive in writing prior
to the expiration of such period that it desires to contest such claim,
Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to such claim,
(B) take such action in connection with contesting
such claim as the Company 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 Company,
(C) cooperate with the Company in good faith in order
effectively to contest such claim, and
(D) permit the Company to participate in any
proceedings relating to such claim; provided, however that the
Company shall bear and pay directly all costs and expenses
attributable to the failure to pay the Excise Tax (including
related additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold
Executive harmless, for any Excise Tax up to an amount not
exceeding the Partial Gross-Up Payment, including interest and
penalties with respect thereto, imposed as a result of such
representation, and payment of related legal and accounting
costs and expenses (the "Indemnification Limit"). Without
limitation on the foregoing provisions of this Section
7(d)(iii), the Company shall control all proceedings taken in
connection with such contest and, at its 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 its sole
option, either direct Executive to pay the tax claimed and xxx
for a refund or contest the claim in any permissible manner,
and 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 Company shall determine; provided, however, that if the
Company directs Executive to pay such claim and xxx for a
refund, the Company shall advance so much of the amount of
such payment as does not exceed the Excise Tax, and related
interest and penalties, to Executive on an interest-free basis
and shall indemnify and hold Executive harmless, from any
related legal and accounting costs and expenses, and from any
Excise Tax, including related interest or penalties imposed
with respect to such advance or with respect to any imputed
income with respect to such advance up to an amount not
exceeding the Indemnification Limit; and further provided that
any extension of the statute of limitations relating to
payment of taxes for the taxable year of Executive with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues
with respect to which a Partial Gross-Up Payment would be
payable hereunder and Executive shall be entitled to settle or
contest, as the case
17
may be, any other issues raised by the Internal Revenue
Service or any other taxing authority.
(iv) If, after the receipt by Executive of an amount advanced
by the Company pursuant to Section 7(d)(iii), Executive becomes
entitled to receive any refund with respect to such claim, Executive
shall (subject to the Company's complying with the requirements of
Section 7(d)(iii)) promptly pay to the Company so much of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto) (the "Refund") as is equal to (A) if the Company
advanced or paid the entire amount required to be so advanced or paid
pursuant to Section 7(d)(iii) hereof (the "Required Section 7(d)
Advance"), the aggregate amount advanced or paid by the Company
pursuant to this Section 7(d) less the portion of such amount advanced
to Executive to reimburse him for related legal and accounting costs,
or (B) if the Company advanced or paid less than the Required Section
7(d) Advance, so much of the aggregate amount so advanced or paid by
the Company pursuant to this Section 7(d) as is equal to the
difference, if any, between (C) the amount refunded to Executive with
respect to such claim and (D) the sum of the portion of the Required
Section 7(d) Advance that was paid by Executive and not paid or
advanced by the Company plus Executive's related legal and accounting
fees, as applicable. If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 7(d)(iii), a determination
is made that Executive shall not be entitled to any refund with respect
to such claim and the Company does not notify Executive in writing of
its 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 Partial Gross-Up
Payment required to be paid.
(e) NOTICE OF TERMINATION. Notice of non-renewal of this Agreement
pursuant to Section 1 hereof or of any termination of Executive's employment
(other than by reason of death) shall be communicated by written notice (a
"Notice of Termination") from one party hereto to the other party hereto in
accordance with this Section 7 and Section 9.
(f) DATE OF TERMINATION. "Date of Termination," with respect to any
termination of Executive's employment during the Employment Period, shall mean
(i) if Executive's employment is terminated for Disability, 30 days after Notice
of Termination is given (provided that Executive shall not have returned to the
full-time performance of Executive's duties during such 30 day period), (ii) if
Executive's employment is terminated for Cause, the date on which a Notice of
Termination is given which complies with the requirements of Section 7(b)(1)
hereof, and (iii) if Executive's employment is terminated for any other reason,
the date specified in the Notice of Termination. In the case of a termination by
the Company other than for Cause, 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 Executive, the Date of Termination shall not be less than 15 days from the
date such Notice of Termination is given. Notwithstanding the foregoing, in the
event that Executive gives a Notice of Termination to the Company, the Company
may unilaterally accelerate the Date of Termination and such acceleration shall
not result in the termination being treated as a termination without Cause. Upon
any termination of his employment, Executive will concurrently resign his
membership as a director and/or officer of the Company and all subsidiaries of
the Company, to the extent applicable.
(g) NO MITIGATION. The Company agrees that, if Executive's employment
by the Company is terminated during the term of this Agreement, Executive is not
required to seek other employment, or to attempt in any way to reduce any
amounts payable to Executive by the Company pursuant to Section 7(d)(i) hereof.
Further, the amount of any payment provided for in this Agreement shall not be
reduced by any compensation earned by Executive as the result of employment by
another employer,
18
by retirement benefits, or, except for amounts then due and payable in
accordance with the terms of any promissory notes given by Executive in favor of
the Company, by offset against any amount claimed to be owed by Executive to the
Company or otherwise.
(h) NATURE OF PAYMENTS. The amounts due under this Section 7 are in the
nature of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty. Such amounts are in full satisfaction of all
claims Executive may have in respect of his employment by the Company or its
affiliates and are provided as the sole and exclusive benefits to be provided to
Executive, his estate, or his beneficiaries in respect of his termination of
employment from the Company or its affiliates.
8. NON-COMPETITION; NON-SOLICITATION; SPECIFIC ENFORCEMENT.
(a) NON-COMPETITION. Because Executive's services to the Company are
special and because Executive has access to the Company's confidential
information, Executive covenants and agrees that, during the Employment Period
and, for a period of one year following the Date of Termination by the Company
for Cause or Disability, or a termination by Executive (other than a
Constructive Termination Without Cause) prior to a Change in Control, Executive
shall not, without the prior written consent of the Board of Directors, become
associated with, or engage in any "Restricted Activities" with respect to any
"Competing Enterprise," as such terms are hereinafter defined, whether as an
officer, employee, principal, partner, agent, consultant, independent contractor
or shareholder. "Competing Enterprise," for purposes of this Agreement, shall
mean any person, corporation, partnership, venture or other entity which is
engaged in the business of managing, owning, leasing or joint venturing
multifamily rental real estate within 30 miles of multifamily rental real estate
owned or under management by the Company or its affiliates. "Restricted
Activities," for purposes of this Agreement, shall mean executive, managerial,
directorial, administrative, strategic, business development or supervisory
responsibilities and activities relating to all aspects of multifamily rental
real estate ownership, management, multifamily rental real estate franchising,
and multifamily rental real estate joint-venturing.
(b) NON-SOLICITATION. For so long as the Executive remains employed by
the Company (or any successor thereto) and for one year following termination of
employment, regardless of reason, Executive shall not, without the prior written
consent of the Company, except in the course of carrying out his duties
hereunder, solicit or attempt to solicit for employment with or on behalf of any
corporation, partnership, venture or other business entity, any employee of the
Company or any of its affiliates or any person who was formerly employed by the
Company or any of its affiliates within the preceding six months, unless such
person's employment was terminated by the Company or any of such affiliates.
(c) SPECIFIC ENFORCEMENT. Executive and the Company agree that the
restrictions, prohibitions and other provisions of this Section 8 are
reasonable, fair and equitable in scope, terms, and duration, are necessary to
protect the legitimate business interests of the Company and are a material
inducement to the Company to enter into this Agreement. Should a decision be
made by a court of competent jurisdiction that the character, duration or
geographical scope of the provisions of this Section 8 is unreasonable, the
parties intend and agree that this Agreement shall be construed by the court in
such a manner as to impose all of those restrictions on Executive's conduct that
are reasonable in light of the circumstances and as are necessary to assure to
the Company the benefits of this Agreement. The Company and Executive further
agree that the services to be rendered under this Agreement by Executive are
special, unique and of extraordinary character, and that in the event of the
breach by Executive of the terms and conditions of this Agreement or if
Executive, without the prior consent of the Board of Directors, shall take any
action in violation of this Section 8, the Company will suffer irreparable harm
for which there is no adequate remedy at law. Accordingly, Executive hereby
consents to the entry of a temporary restraining order or ex parte injunction,
in addition to any other remedies available at law or in equity, to enforce the
provisions hereof. Any proceeding or action seeking equitable relief for
violation of this Section 8 must be commenced in the federal or state courts, in
either case in Virginia. Executive and the Company
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irrevocably and unconditionally submit to the jurisdiction of such courts and
agree to take any and all future action necessary to submit to the jurisdiction
of and venue in such courts.
9. NOTICE. Any notice required or permitted hereunder shall be in
writing and shall be deemed sufficient when given by hand or by nationally
recognized overnight courier or by Express, registered or certified mail,
postage prepaid, return receipt requested, and addressed, if to the Company at
0000 Xxxxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxxx, XX 00000, Attention: Chief
Executive Officer (with a second copy, sent by the same means and to the same
address, Attention: General Counsel), and if to Executive at the address set
forth in the Company's records (or to such other address as may be provided by
notice).
10. MISCELLANEOUS. This Agreement, together with Annex A and Annex B
and the Split Dollar Insurance Agreement and any Equity Award Agreements now or
hereafter in effect, constitutes the entire agreement between the parties
concerning the subjects hereof and supersedes any and all prior agreements or
understandings, including, without limitation, any plan or agreement providing
benefits in the nature of severance, but excluding benefits provided under other
Company plans or agreements, except to the extent this Agreement provides
greater rights than are provided under such other plans or agreements. This
Agreement may not be assigned by Executive without the prior written consent of
the Company, and may be assigned by the Company and shall be binding upon, and
inure to the benefit of, the Company's successors and assigns. The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise. Headings herein are for convenience
of reference only and shall not define, limit or interpret the contents hereof.
11. AMENDMENT. This Agreement may be amended, modified or supplemented
by the mutual consent of the parties in writing, but no oral amendment,
modification or supplement shall be effective. No waiver by either party of any
breach by the other party of any condition or provision contained in this
Agreement to be performed by such other party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or any prior or
subsequent time. Any waiver must be in writing and signed by Executive or an
authorized officer of the Company, as the case may be.
12. SEVERABILITY. The provisions of this Agreement are severable. The
invalidity of any provision shall not affect the validity of any other
provision, and each provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
13. RESOLUTION OF DISPUTES.
(a) PROCEDURES AND SCOPE OF ARBITRATION. Except for any controversy or
claim seeking equitable relief pursuant to Section 8 of this Agreement, all
controversies and claims arising under or in connection with this Agreement or
relating to the interpretation, breach or enforcement thereof and all other
disputes between the parties, shall be resolved by expedited, binding
arbitration, to be held in the District of Columbia metropolitan area in
accordance with the applicable rules of the American Arbitration Association
governing employment disputes (the "National Rules"). In any proceeding relating
to the amount owed to Executive in connection with his termination of
employment, it is the contemplation of the parties that the only remedy that the
arbitrator may award in such a proceeding is an amount equal to the termination
payments, if any, required to be provided under the applicable provisions of
Section 7(c) and, if applicable, Section 7(d) hereof, to the extent not
previously paid, plus the costs of arbitration and Executive's reasonable
attorneys fees and expenses as provided below. Any award made by such arbitrator
shall be
20
final, binding and conclusive on the parties for all purposes, and judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
(b) ATTORNEYS FEES.
(i) REIMBURSEMENT AFTER EXECUTIVE PREVAILS. Except as
otherwise provided in this paragraph, each party shall pay the cost of
his or its own legal fees and expenses incurred in connection with an
arbitration proceeding. Provided an award is made in favor of Executive
in such proceeding, all of his reasonable attorneys fees and expenses
incurred in pursuing or defending such proceeding shall be promptly
reimbursed to Executive by the Company within five days of the entry of
the award. Any award of reasonable attorneys' fees shall take into
account any offer of the Company, such that an award of attorneys' fees
to the Executive may be limited or eliminated to the extent that the
final decision in favor of the Executive does not represent a material
increase in value over the offer that was made by the Company during
the course of such proceeding. However, any elimination or limitation
on attorneys' fees shall only apply to those attorneys' fees incurred
after the offer by the Company.
(ii) REIMBURSEMENT IN ACTIONS TO STAY, ENJOIN OR COLLECT. In
any case where the Company or any other person seeks to stay or enjoin
the commencement or continuation of an arbitration proceeding, whether
before or after an award has been made, or where Executive seeks
recovery of amounts due after an award has been made, or where the
Company brings any proceeding challenging or contesting the award, all
of Executive's reasonable attorneys fees and expenses incurred in
connection therewith shall be promptly reimbursed by the Company to
Executive, within five days of presentation of an itemized request for
reimbursement, regardless of whether Executive prevails, regardless of
the forum in which such proceeding is brought, and regardless of
whether a Change in Control has occurred.
(iii) REIMBURSEMENT AFTER A CHANGE IN CONTROL. Without
limitation on the foregoing, solely in a proceeding commenced by the
Company or by Executive after a Change in Control has occurred, the
Company shall advance to Executive, within five days of presentation of
an itemized request for reimbursement, all of Executive's legal fees
and expenses incurred in connection therewith, regardless of the forum
in which such proceeding was commenced, subject to delivery of an
undertaking by Executive to reimburse the Company for such advance if
he does not prevail in such proceeding (unless such fees are to be
reimbursed regardless of whether Executive prevails as provided in
clause (ii) above).
14. SURVIVORSHIP. The provisions of Sections 4(b), 6, 8 (to the extent
described below) and 13 of this Agreement shall survive Executive's termination
of employment. Other provisions of this Agreement shall survive any termination
of Executive's employment to the extent necessary to the intended preservation
of each party's respective rights and obligations. The provisions of Section
8(a) shall in no event apply if Executive's employment terminates for any reason
after the expiration of the Employment Period (for clarification, this means
that if Executive's employment terminates on or prior to the expiration of the
Original Term or any later Renewal Term then the one year post-termination
non-compete set forth in Section 8(a) will apply if the termination is for one
of the reasons set forth in Section 8(a)). The provisions of Section 8(b) shall
apply during the Employment Period, and shall also apply with respect to any
termination of Executive's employment for any reason during the two year period
following the expiration of the Employment Period (for clarification, this means
that if Executive's employment terminates for any reason on or prior to the
second anniversary of the expiration of the Original Term or any later Renewal
Term, then the non-solicitation requirement of Section 8(b) shall apply to
Executive for one year following
21
termination of employment).
15. BOARD ACTION. Where an action called for under this Agreement is
required to be taken by the Board of Directors, such action shall be taken by
the vote of not less than a majority of the members then in office and
authorized to vote on the matter.
16. WITHHOLDING. All amounts required to be paid by the Company shall
be subject to reduction in order to comply with applicable federal, state and
local tax withholding requirements.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
18. GOVERNING LAW. This Agreement shall be construed and regulated in
all respects under the laws of the State of Maryland.
IN WITNESS WHEREOF, this Agreement is entered into as of the date and
year first above written.
AVALONBAY COMMUNITIES, INC.
By: /s/ XXXXX XXXXX
------------------------------------
Xxxxx Xxxxx
Its: Chief Executive Officer
/s/ XXXXXXX X. XXXXXXXX
-----------------------------------------
Xxxxxxx X. Xxxxxxxx
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