EXHIBIT 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made as of the 10th day of
January, 2003 (the "Effective Date") by and between Xxxxx Xxxxx ("Executive")
and AvalonBay Communities, Inc., a Maryland corporation (the "Company").
WHEREAS, Executive and the Company have previously entered into an
employment agreement dated as of March 9, 1998 (as amended, the "Prior
Agreement"); and
WHEREAS, Executive and the Company desire to enter into a new
employment agreement, effective as of the Effective Date indicated above, to
replace the Prior 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 November 30, 2006 (the "Original Term"), unless earlier
terminated as provided in Section 7. The Original Term shall be extended
automatically for additional two year periods measured from December 1, 2006
(each a "Renewal Term"), unless notice that this Agreement will not be extended
is given by either party to the other at least 180 days prior to, but not more
than 270 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 (but only if such date is later than the then current expiration date).
(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 serve as the Chief
Executive Officer and President of the Company. In this capacity, Executive
shall have such duties, authorities and responsibilities commensurate with the
duties, authorities and responsibilities of persons in similar capacities in
similarly sized companies, and such other duties and responsibilities as the
Board of Directors of the Company (the "Board") shall designate that are
consistent with Executive's position as Chief Executive Officer and President of
the Company. Executive shall report exclusively to the Board. In addition to
Chief Executive Officer and President, Executive currently serves as Chairman of
the Board. The appointment by the Board of Directors, from among the independent
directors, of a "lead director" with certain defined duties or oversight
responsibilities that are of a type that may traditionally be performed by a
"chairman of the board" and that overlap with current duties or oversight
responsibilities of Executive in his role as Chairman of the Board, shall not be
a violation of this Agreement provided the role of such lead director is
consistent with the proviso in Section 7(b)(4)(ix) (definition of "Constructive
Termination without Cause").
(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. The Company consents to
Executive's status as a "former partner" with a current financial interest in
certain projects of Xxxxxxxx Xxxx Residential ("TCR"), and such activity shall
not be treated as a Competing Enterprise.
(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, if such headquarters office shall move, to a
headquarters office of the Company that is within 50 miles of Alexandria,
Virginia). The Company acknowledges that Executive's principal residence is
currently in Massachusetts, and it shall not be a violation of this agreement
for Executive to maintain a principal residence in Massachusetts and to utilize
on a regular basis the Company's current Quincy, Massachusetts office (or a
successor Massachusetts office within 50 miles of Quincy, Massachusetts or other
office facilities provided by the Company in or near Quincy, Massachusetts). The
Company agrees to reimburse Executive for travel to and from the Alexandria
office from Massachusetts and for reasonable related lodging, including, at the
Company's option, at a nearby community owned by the Company.
(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
$543,490. 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 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 (i) 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 (ii) 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) (the "Base
Disability Policy") and a supplemental disability policy (the "Supplemental
Policy") providing for coverage mutually reasonably acceptable to the Company
and Executive. 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.
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(d) Split Dollar Life Insurance. Subject to Section 12(b), 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 (or Avalon Properties, Inc., a predecessor) 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.
(f) Office/Secretary, etc. During the Employment Period, Executive
shall be entitled to secretarial services and a private office in each of the
Alexandria, Virginia and Quincy, Massachusetts offices (or in successor offices
or office facilities as permitted hereunder) commensurate with his title and
duties.
(g) Annual Allowance. The Company will provide the Executive with an
annual allowance of up to $10,000 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 be forfeited (i.e., not carried
over from year to year or paid out in cash). For purposes of this Section 3(g),
a new year shall be deemed to commence on each January 1. Payments under this
annual allowance will not be grossed up to reflect any income taxes that may be
due thereon. Executive shall be entitled to a full Allowance for 2002.
(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 bonus program (which program
will provide for a reasonable Cash Bonus and/or reasonable LT Equity Bonus on an
annual basis to compensate Executive for the achievement by the Company and/or
Executive of reasonable goals and objectives) such that the Executive's total
compensation, in light of the Company's performance and his performance and
service as CEO and President and Chairman of the Board, 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.
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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. 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.
(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.
(c) SEC Certifications. Executive's duties shall include taking such
actions as are necessary so that Executive is in a position to give, and does
give, all certifications that a Chief Executive Officer, under federal law or
regulations, is required to give with the submission by the Company of reports
or other filings to the Securities and Exchange Commission ("SEC filings"),
provided, however, that Executive shall not have violated this Agreement if
Executive is not in a position to give or does not give any such certification
because (i) Executive determines that he cannot make such certification
truthfully or with sufficient certainty due to the existence of conditions or
information, or the inability to confirm such conditions or information, and
(ii) the existence of such conditions or information or the inability to confirm
such conditions or information, or the failure to have properly reported in an
SEC filing in a timely and appropriate fashion such conditions or information,
was in each case not due to the gross negligence or willful misconduct of
Executive while serving in his capacity as Chief Executive Officer.
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.
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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);
(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.
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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)(vi).
(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 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
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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 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:
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(i) a material adverse change in the functions, duties or
responsibilities of Executive's position which would reduce the level,
importance or scope of such position, 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 other participants, as existed during the
last completed fiscal year of the Company prior to the Change in
Control;
(vi) (a) the relocation of the Company's Alexandria,
Virginia headquarters to a new location more than 50 miles away from
Alexandria, Virginia or the failure to locate Executive's own office
at the Alexandria office or at a successor office which is not more
than 50 miles away from Alexandria, Virginia or (b) the relocation of
the Company's Quincy, Massachusetts offices to a new location more
than 50 miles away from Quincy, Massachusetts unless other office
facilities, which need not be a formal office of the Company, in or
near the Quincy, Massachusetts area are made available by the Company
for Executive's use;
(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;
(viii) the failure of the Board to take action as may be
necessary to re-elect Executive to the Board, provided, however, that
it will not be a Constructive Termination Without Cause if Executive
shall fail to be re-elected by the stockholders, or if the Board's
failure to take action is 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; or
(ix) the failure of the Board of Directors, following each
annual meeting of stockholders, to re-appoint Executive as Chairman of
the Board or to maintain such appointment, provided, however, that it
shall not be a Constructive Termination without Cause if the Board
fails to appoint Executive as Chairman of the Board (or removes such
title) and instead appoints a non-executive Chairman of the Board if
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(a) there is a law, rule or regulation, or a listing
requirement of the New York Stock Exchange, that
provides that the Chairman and CEO shall not be the
same person, or
(b) the Board, in its good faith judgment following a
shareholder vote, or in its good faith judgment in
light of then evolving and well-publicized standards
of good corporate governance, determines that it is
in the best interest of the Company that Executive
not serve as Chairman and that a non-executive
Chairman be appointed,
provided further, however, that in such event,
(x) the non-executive Chairman shall not serve in a
full time or executive capacity, and
(y) Executive shall continue to report directly and
exclusively to the full Board and not to the
non-executive Chairman, and (without limiting the
Board's or any Board committee's right to meet or
confer with any individual officer and to take
actions as are customary for a Board of Directors and
consistent with its fiduciary duties) all other
officers shall continue to report directly or
indirectly to Executive.
In addition, under no circumstances will a Constructive
Termination without Cause be deemed to occur solely on account
of the appointment by the Board of Directors, and public
announcement thereof, of a "lead independent director" so long
as the same limitations as apply immediately above in the case
of a non-executive Chairman apply to such lead independent
director.
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) Covered Average Compensation. "Covered Average Compensation"
shall mean the sum of Executive's Covered 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.
(6) Covered Compensation. "Covered Compensation," for any
calendar year, shall mean an amount equal to the sum of (i) Executive's Base
Salary for the calendar year, (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, the value of any
such mid-year, special, or additional equity based compensation shall not be
included in clause (iii) of the preceding sentence and therefore shall not
be included in the calculation of
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Covered Compensation or Covered Average Compensation, and the value of such
equity shall have no impact on any cash payments made under Section 7(c) of
the Agreement.
Covered Compensation shall be calculated according to the
following rules:
(A) In valuing awards for purposes of clause (iii)
above, 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 by the
Compensation Committee of the Board of Directors. Reference is
made to Section 7(c)(vii) 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 of the
calendar years taken into account in determining Covered Average
Compensation.
(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.
(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(c) 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
10
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 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 a period of (a) two
years following death (or such greater exercise period as may be
provided in the applicable award agreement for awards that are vested
and exercisable at the time of death) or (b) if less, the end of the
original term of the options.
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(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 two
times Covered Average 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 24 months following the Date of
Termination or until such earlier date as Executive obtains
comparable benefits through other employment;
(B) Subject to Section 12(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 in the Base Disability
Policy and the Supplemental Policy prior to the Date of
Termination then, until that date that is 24 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) such amount as may be paid, prior to the Date of
Termination, by Executive in respect of a portion of the
premiums on the Base Disability Policy provided by Company
prior to the Date of Termination.
(iv) Non-Renewal. In the event the Company gives Executive
a notice of non-renewal pursuant to Section 1 above, the Company
shall, in addition to paying the amounts set forth in Section
7(c)(i), commencing upon the Date of Termination:
(A) Pay to Executive, for 12 consecutive months,
commencing with the first day of the month immediately
following the Date of Termination, a monthly amount equal to
the result obtained by dividing Covered Average Compensation
by twelve;
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(B) 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 following the Date of
Termination or until such earlier date as Executive obtains
comparable benefits through other employment; 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 in the Base Disability
Policy and the Supplemental Policy prior to the Date of
Termination then, until that date that is 24 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) such amount as may be paid, prior to the Date of
Termination, by Executive in respect of a portion of the
premiums on the Base Disability Policy provided by Company
prior to the Date of Termination; and
(E) Subject to Section 12(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)(iv)(E) 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; Constructive Termination
Without Cause. 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, the Company shall, in addition to paying the amounts
provided under Section 7(c)(i), pay to Executive, in one lump sum no
later than 31 days following the Date of Termination, an amount equal
to three times Covered Average 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) Subject to Section 12(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
13
(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 in the Base Disability
Policy and the Supplemental Policy 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 premium for such disability policy, less (ii)
such amount as may be paid, prior to the Date of Termination,
by Executive in respect of a portion of the premiums on the
Base Disability Policy provided by Company prior to the Date
of Termination.
(vi) 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) or (v) 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.
(vii) Clarification Regarding Treatment of Options and
Restricted Stock. The stock option and restricted stock agreements
(the "Equity Award Agreements") 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)(C) and 7(c)(v)(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.
14
(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 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 original
term). The Company represents that the stock options awarded
to Executive in February 2002 have a provision to the same
effect. This covenant of the Company shall not apply to any
stock options issued prior to 2002 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
15
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 a nationally recognized
accounting firm reasonably mutually acceptable to Executive and the
Company (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.
(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
16
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 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
17
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, 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
18
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. During the Employment Period, and for a period
of one year following the Date of Termination, 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 Massachusetts. Executive and the Company 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
Financial 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. As of the
Effective Date, this Agreement supersedes the Prior Agreement which will have
not further force or effect. 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
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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.
(a) General. 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.
(b) Split-Dollar Insurance Policy. If at any time, including as a
result of the Xxxxxxxx-Xxxxx Act of 2002, the Company is not permitted to make
premium payments pursuant to the split-dollar insurance policy arrangement
contemplated in any provision of this Agreement, then such provision (but only
insofar as it pertains to the split-dollar insurance policy) shall be
ineffective and unenforceable, provided, however, that if the Company provides
to any other officer a program or arrangement that is intended to be a
replacement or substitute for the split-dollar insurance policy arrangements in
effect at the beginning of 2002 (a "Substitute Arrangement"), then the
Substitute Arrangement shall also be provided to Executive and references herein
to a split-dollar insurance policy (including requirements to maintain such
policy following termination of employment under certain circumstances) shall be
read as references to the Substitute Arrangement.
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 Massachusetts 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 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
20
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(a) (to the
extent described below), 8(b) 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)).
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 other than Executive then on
the Board 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.
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IN WITNESS WHEREOF, this Agreement is entered into as of the date and
year first above written.
AVALONBAY COMMUNITIES, INC.
By: /s/ Xxxxxxxx Xxxxxxxx
-----------------------------------------
Name: Xxxxxxxx Xxxxxxxx
Title: Senior Vice President - Human
Resources
By: /s/ Xxxxxx X. Xxxxxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Vice President - General Counsel
EXECUTIVE
/s/ Xxxxx Xxxxx
----------------------------------------------
Xxxxx Xxxxx
Acknowledgment:
/s/ Xxxxx X. Xxxxxx
----------------------------------
Xxxxx X. Xxxxxx,
Chairman of Compensation Committee
of the Board of Directors
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