Exhibit 99.1
THIRD AMENDMENT
OF THE
EMPLOYMENT AGREEMENT
BETWEEN
XXXXXX X. XXXXXXXXXXX
AND
HERITAGE PROPERTY INVESTMENT TRUST, INC.
This agreement (the "Agreement"), dated this 24th day of July, 2002, is by
and between Heritage Property Investment Trust, Inc., a corporation organized
under the laws of the State of Maryland and having its principal place of
business at 000 Xxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000 (the "Company"),
and Xxxxxx X. Xxxxxxxxxxx, an individual currently residing at 00 Xxxx Xxxx
Xxxxx, Xxxxxxx, Xxxxxxxxxxxxx 00000 (the "Executive"):
WITNESSETH THAT:
WHEREAS, the Executive and the Company have heretofore entered into an
employment agreement, dated as of July 9, 1999 (the "Employment Agreement");
WHEREAS, the Employment Agreement may be amended by a written instrument
signed by the Executive and a duly authorized representative of the Board of
Directors of the Company;
WHEREAS, the Company and the Executive have previously amended the
Employment Agreement by their written agreements dated April 3, 2000 and
February 1, 2001;
WHEREAS, the Company and the Executive desire and intend to further amend
the Employment Agreement as provided herein, to reflect and document certain
additional agreements of the parties relating to the compensation of the
Executive and other terms of his employment which are based on the decisions of
the Company's Board of Directors upon the recommendation of the Compensation
Committee of the Board and the advice of the Company's consultants, FPL
Associates Consulting, following the initial public offering of the Company's
Common Stock;
WHEREAS, the parties agree that such initial public offering constitutes a
"Public Market Event" as defined in Section 7(b) of the Employment Agreement;
NOW, THEREFORE, the Company and the Executive hereby agree that the
Employment Agreement shall be and is hereby amended to include new provisions or
modify provisions thereof as follows. The provisions of this instrument shall
supersede and take precedence over any provision of the Employment Agreement, as
heretofore amended, which is in conflict therewith.
1. Section 3 of the Employment Agreement is amended to delete the second
sentence thereof and to substitute therefor the following sentence: "Commencing
June 14, 2002, the Executive's base salary shall be Five Hundred Eighty-Five
Thousand Dollars ($585,000) per year."
2. Section 4(c) of the Employment Agreement is amended to insert at the end
thereof the following paragraph:
Notwithstanding the foregoing provisions of this Section 4(c), from
and after April 29, 2002, the date of completion of the initial public
offering of the Company's Common Stock (the "IPO Date"), every grant or
award of stock options, restricted stock, annual stock options and
performance shares or any other grant or award under this Agreement which
is denominated in shares of stock of the Company shall consist solely of
Common Stock, unless the Company and the Executive shall agree with respect
to any specific grant or award, and the Company shall specify in writing at
the time of any such grant or award, that the grant or award is for
Preferred Stock or Common Stock or some combination thereof. Furthermore,
every grant or award of stock options, restricted stock, annual stock
options and annual performance shares or any other grant or award hereunder
prior to the IPO Date which was denominated in whole or in part in shares
of Preferred Stock shall be changed and converted to all Common Stock
effective as of the IPO Date; the parties agree that all ancillary
agreements and documents heretofore delivered with respect to the grant or
award of such options or shares shall be amended or superseded by
documentation to reflect the change or conversion thereof to all Common
Stock.
3. Section 4 of the Employment Agreement is amended, effective as of the
date set forth above, to insert after subsection (d) the following new
subsection (e):
(e) AWARDS OF STOCK OPTIONS AND RESTRICTED STOCK AFTER IPO. The
Executive shall be awarded options and restricted stock on the terms and
conditions set forth in Appendix E to this Agreement.
4. Section 5(a) of the Employment Agreement is amended to delete the second
sentence thereof and to substitute therefor the following sentence: "Effective
for the fiscal years of the Company ending on and after December 31, 2002, the
threshold bonus award shall not be less than 40% of Base Salary, the target
bonus amount shall be 100% of Base Salary, and the maximum bonus amount shall be
160% of Base Salary."
5. Section 5(d) of the Employment Agreement is amended to delete the
paragraph containing the schedules of Company performance component objectives
and to substitute therefor the following paragraph and schedules:
The Executive and the Company agree that, effective for the fiscal
year of the Company ending December 31, 2002, the overall Company
performance component of each year's incentive award opportunities shall be
based on the combination of 75% FFO Per Share Growth and 25% Same Store NOI
Growth as follows:
FFO Per Share Growth Over Prior Year:
Threshold: 2.0%
Target: 4.0%
High: 6.0%
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Same Store NOI Growth Over Prior Year:
Threshold: 0.50%
Target: 0.75%
High: 1.00%
6. Section 9(c) of the Employment Agreement is amended to include at the
end thereof the following sentence: "Furthermore, upon the expiration of this
Agreement at the end of a Public Market Event Extended Term, all of the
Executive's annual stock options awarded under Section 5(b) hereof and his
annual performance shares awarded under Section 5(c) hereof shall immediately
vest."
7. Appendix B of the Employment Agreement is amended to include at the end
of the first paragraph thereof the following sentence: "Notwithstanding the
foregoing, effective as of the IPO Date (April 29, 2002), the options for all
400,000 of such shares became vested and exercisable by the Executive."
8. The Employment Agreement is amended to include Appendix E in the form
attached hereto.
9. Except as hereinabove specifically amended, all provisions of the
Employment Agreement, as heretofore amended, shall continue in full force and
effect.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed under seal as of the date
first above written.
HERITAGE PROPERTY INVESTMENT XXXXXX X. XXXXXXXXXXX
TRUST, INC.
By:/S/XXXXXXX XXXXXXXXX /S/XXXXXX X. XXXXXXXXXXX
--------------------------------- -----------------------------------
Xxxxxxx Xxxxxxxxx
Chairman, Compensation Committee
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APPENDIX E
As bonus compensation intended in part to reward the Executive for his past
services to the Company and in part to provide incentives for his further
performance after the initial public offering of the Company's Common Stock on
April 29, 2002 (the "IPO Date"), the Company shall award to the Executive
non-qualified options to purchase 250,000 shares of the Company's Common Stock
and an aggregate of 600,000 shares of restricted stock subject to the terms set
forth in this Appendix E.
1. STOCK OPTION AWARD. Effective as of April 29, 2002, the Company hereby
grants to the Executive a non-qualified option to purchase 250,000 shares of the
Company's Common Stock at an option price of $25.00 per share (the "IPO
Options"). Subject to customary provisions regarding the effect of termination
of employment (provided that such IPO Options shall remain exercisable by the
Executive until the end of any applicable Severance Period as defined herein and
otherwise until at least 90 days following any termination of employment by the
Executive not resulting in any such Severance Period), such IPO Options shall
have a term of 10 years from the IPO Date and shall become vested and
exercisable by the Executive as follows: Subject to the Executive's remaining an
employee of the Company until the applicable date, options for 50,000 of such
shares shall become vested and exercisable on each of the first, second, third,
fourth and fifth anniversaries of the IPO Date. Notwithstanding the foregoing,
if there is a Change of Control, or if the employment of the Executive should
terminate by reason of (A) Disability, (B) termination by the Company for any
reason other than Cause, or (C) by the Executive for Good Reason, then all IPO
Options granted pursuant to this Appendix E shall immediately become vested and
exercisable.
2. RESTRICTED STOCK AWARDS. The Company has reserved for possible future
issuance 600,000 shares for awards of restricted stock to the Executive subject
to the following terms and conditions:
(a) DEFINITIONS. For purposes of this Appendix E the following terms shall
have the meanings indicated below:
The "ADJUSTED DIVIDEND PERCENTAGE" for any year is the Concurrent Year
Dividend Percentage for such year increased by the amount of any Extra Dividend
Percentage that the Executive elects to carry back or carry forward to such
year.
The "ANNUAL PERFORMANCE MEASURES" shall be the following objective measures
of the Executive's performance in the 12-month period ending on each of March 1,
2003, 2004, 2005 and 2006: (a) Transactional goals - explored at least $100
million of acquisition or disposition opportunities per year; (b) diverse tenant
base - maintained portfolio with a diverse tenant base with a minimum of either
1,000 tenant leases or properties collectively totaling not less than 10 million
square feet of leased space, unless a sale or other disposition of Company
assets makes the achievement of such an objective impracticable; (c) tenant
relationships - maintained and supported activities whose primary purpose is to
develop relationships with national accounts; (d) community development -
supported activities that promote the Company's relationship with local
communities and/or charities; (e) organizational development - developed and
reviewed a succession plan with the Compensation Committee on an annual basis.
Such objective Annual
Performance Measures may be modified or revised from time to time by mutual
agreement of the Executive and the Compensation Committee.
"AWARDED SHARES" is defined in Subsection (d) below.
The "CONCURRENT FISCAL YEAR" is the last fiscal year of the Company ending
prior to each of March 1, 2003, 2004, 2005, 2006, and 2007.
"CONCURRENT YEAR DIVIDEND PERCENTAGE" with respect to a Concurrent Fiscal
Year is the per share amount of dividends declared and paid to shareholders of
the Company with respect to such Concurrent Fiscal Year divided by the Standard
Dividend in effect for such year expressed as a percentage.
An "EXTRA DIVIDEND PERCENTAGE" is the amount (expressed as a percentage) by
which the dividends declared and paid to shareholders of the Company with
respect to a Concurrent Fiscal Year exceeds the Standard Dividend in effect for
such year. (For example, if the Standard Dividend for the fiscal year 2004 is
$2.10 and the Company pays dividends of $2.20 per share, the Extra Dividend
Percentage for the fiscal year 2004 is 4.76% (i.e., ($2.20 / $2.10) - 100% =
4.76%).) If an Extra Dividend Percentage arises in any fiscal year, then as of
any subsequent March 1 (but not after March 1, 2007), assuming that the other
conditions to an issuance of shares are met, the Executive may elect that any
portion or all of the Extra Dividend Percentage shall be carried back, without
duplication, to a prior fiscal year or years or carried forward, without
duplication, to a subsequent fiscal year or years (provided that the sum of all
such carrybacks and carryforwards shall not exceed the amount of the Extra
Dividend Percentage). The amount of Extra Dividend Percentage carried to any
prior or subsequent fiscal year shall be added to that year's Concurrent Year
Dividend Percentage to establish the Adjusted Dividend Percentage for such prior
or subsequent fiscal year; provided, however, that in no event shall the
Adjusted Dividend Percentage for any such prior or subsequent year exceed 100%.
The "STANDARD DIVIDEND" shall be total dividends of $2.10 per share of
Common Stock declared and paid to shareholders of the Company with respect to
the Company's fiscal year; provided that the amount of the Standard Dividend
will be proportionately adjusted from time to time for any increase or decrease
after July 1, 2002 in the number of issued shares of Common Stock resulting from
a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock or any other increase or decrease in the
number of issued shares of Common Stock effected without the receipt of
consideration by the Company, and the amount of the Standard Dividend shall also
be adjusted, by mutual agreement of the Executive and Compensation Committee, as
appropriate to reflect any changes in the issued Common Stock resulting from any
mergers, consolidations, acquisitions, dispositions, reorganizations,
recapitalizations or other similar transactions.
(b) INITIAL AWARD. The Company hereby awards and issues 120,000 shares of
restricted stock to the Executive.
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(c) ANNUAL AWARDS.
(1) BASED ON CONCURRENT YEAR DIVIDEND PERCENTAGE. The Company shall
award and issue to the Executive 120,000 restricted shares on each of March 1,
2003, 2004, 2005 and 2006, provided that, as of each such date, the following
conditions are satisfied: (i) the Executive shall have remained continuously as
an employee of the Company through such date; AND (ii) the Executive shall have
satisfied the Annual Performance Measures during the 12-month period ending on
such date as determined by the Compensation Committee of the Board; AND (iii)
the Concurrent Year Dividend Percentage is at least 100%. If the Concurrent Year
Dividend Percentage is less than 100% but greater than 75%, a portion of the
120,000 shares for the year shall nevertheless be awarded; in that case, the
percentage of such 120,000 shares to be awarded shall be the same as the
Concurrent Year Dividend Percentage. (For example, if the Company actually pays
dividends equal to 91% of the Standard Dividend for the fiscal year ending
December 31, 2003, then 91% of 120,000 shares would be awarded to the Executive
on March 1, 2004 under this Subsection (c)(1).) If the Concurrent Year Dividend
Percentage for any year is greater than 100%, the Executive shall be entitled to
cause the Concurrent Year Dividend Percentage for any prior or subsequent fiscal
year in which the Concurrent Year Dividend Percentage is less than 100% to be
increased (but not in excess of 100%), in which case, the Concurrent Year
Dividend Percentage for each prior or subsequent year shall be the "Adjusted
Dividend Percentage" for such prior or subsequent year. Subsections (c)(2) and
(c)(3) below shall govern the extent to which additional shares may be awarded
as the result of the immediately preceding sentence.
(2) BASED ON ADJUSTED DIVIDEND PERCENTAGE - CARRYFORWARD. If less than
100% of the 120,000 shares are awarded on any March 1 under Subsection (c)(1)
above because the Concurrent Year Dividend Percentage for that year was less
than 100%, some or all of the 120,000 shares not awarded shall nevertheless be
awarded on such March 1 if the following conditions are satisfied as of such
March 1: (i) the Executive shall have remained continuously as an employee of
the Company through such date; AND (ii) the Executive shall have satisfied the
Annual Performance Measures during the 12-month period ending on such date as
determined by the Compensation Committee of the Board; AND (iii) the Adjusted
Dividend Percentage exceeds 75%; AND (iv) the Adjusted Dividend Percentage
exceeds the Concurrent Year Dividend Percentage. If those conditions are
satisfied, the percentage of such 120,000 shares to be awarded under this
Subsection (c)(2) shall be the same as the Adjusted Dividend Percentage (reduced
by the percentage of shares, if any, awarded pursuant to Subsection (c)(1)
above). (For example, if the Concurrent Year Dividend Percentage for the fiscal
year ending December 31, 2004 is 79% and the Adjusted Dividend Percentage for
such year is 85% (because the Executive elected to carry forward some or all of
an Extra Dividend Percentage that arose in the 2003 fiscal year because the
Company paid dividends to its shareholders in excess of the Standard Dividend
for the 2003 fiscal year), then of the 120,000 shares available for award on
March 1, 2005, 79% of such shares would be awarded pursuant to Subsection (c)(1)
above and an additional 6% of such shares would be awarded pursuant to this
Subsection (c)(2).)
(3) BASED ON ADJUSTED DIVIDEND PERCENTAGE - CARRYBACK. If less than
120,000 shares were awarded under Subsection (c)(1) and (c)(2) above as of any
of March 1, 2003, 2004, 2005, or 2006 because the applicable Concurrent Year
Dividend Percentage for that year was less than 100% and any Adjusted Dividend
Percentage applied to that year was less than 100%
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(the "Unawarded Shares"), such Unawarded Shares for any such year shall
nevertheless be awarded on any subsequent March 1 (but not after March 1, 2007),
if and to the extent that the following conditions are satisfied as of the
subsequent March 1: (i) the Executive shall have remained continuously as an
employee of the Company through such March 1; AND (ii) the Executive shall have
satisfied the Annual Performance Measures during the 12-month period ending on
such March 1 as determined by the Compensation Committee of the Board; AND (iii)
the Adjusted Dividend Percentage exceeds 75%; AND (iv) the Adjusted Dividend
Percentage exceeds the prior Concurrent Year Dividend Percentage and any prior
Adjusted Dividend Percentage applied under Subsection (c)(1) or (c)(2) or this
Subsection (c)(3) with respect to the Unawarded Shares. If these conditions are
satisfied, then any or all of the Unawarded Shares (but not more than 100% of
such shares) shall be awarded as of the current March 1, but no such shares
shall be awarded under this Subsection (c)(3) after March 1, 2007. (For example,
if none of the 120,000 shares were awarded on March 1, 2003 (the "2003 Shares")
because the Concurrent Year Dividend Percentage was only 72%, but after the
fiscal year ending December 31, 2004, the Adjusted Dividend Percentage for 2003
has become 80% (because the Executive elected to carry back some or all of an
Extra Dividend Percentage arising in the 2004 fiscal year because the Company
paid dividends to its shareholders in excess of the Standard Dividend for the
2004 fiscal year), then 80% of the 120,000 2003 Shares would be awarded on March
1, 2005 under this Subsection (c)(3), and such Awarded Shares would be
restricted until March 1, 2006 as provided in Subsection (d); if after the 2005
fiscal year the Adjusted Dividend Percentage for 2003 has become 95% (because
the Executive elected to carry back some or all of an Extra Dividend Percentage
arising in the 2005 fiscal year because the Company paid dividends to its
shareholders in excess of the Standard Dividend for the 2005 fiscal year), an
additional 15% of the 120,000 2003 Shares would be awarded on March 1, 2006
under this Subsection (c)(3), and such additional Awarded Shares would be
restricted until March 1, 2007 as provided in Subsection (d).)
(d) VESTING. Such shares as have been awarded to the Executive pursuant to
Subsection (b) or (c) above ("Awarded Shares") shall be restricted shares in
that the Executive shall not be permitted to transfer such Awarded Shares and
such Awarded Shares shall be forfeited to the Company if the vesting conditions
specified in this Subsection (d) are not satisfied with respect to such shares.
However, dividends shall be paid, and the Executive shall be entitled to
exercise all voting rights, with respect to all Awarded Shares whether such
shares are vested or unvested. The transfer restrictions and forfeiture
provisions shall lapse with respect to the Awarded Shares as follows:
(1) As to the 120,000 shares awarded pursuant to Subsection (b) above,
the transfer restrictions and forfeiture provisions shall lapse on March 1,
2003, IF the Executive shall have remained continuously as an employee of the
Company until March 1, 2003.
(2) As to each award of shares on March 1, 2003, 2004, 2005 and 2006
pursuant to Subsection (c)(1), (c)(2) or (c)(3) above, the transfer restrictions
and forfeiture provisions shall lapse on the first anniversary of the date of
the award (for example, the restrictions will lapse on March 1, 2005 with
respect to all shares awarded on March 1, 2004), IF the Executive shall have
remained continuously as an employee of the Company until such first
anniversary.
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(3) As to any award of shares on March 1, 2007 pursuant to Subsection
(c)(3) above, the transfer restrictions and forfeiture provisions shall lapse on
March 1, 2007, IF the Executive shall have remained continuously as an employee
of the Company until March 1, 2007.
(4) Notwithstanding the foregoing provisions of this Subsection (d),
if there is a Change of Control, or if the employment of the Executive should
terminate by reason of (A) Disability, (B) termination by the Company for any
reason other than Cause, or (C) by the Executive for Good Reason, then the
transfer restrictions and forfeiture provisions shall immediately lapse as to
all of the Awarded Shares.
(5) The Awarded Shares as to which the transfer restrictions and
forfeiture provisions have lapsed shall be registered under the Securities Act
of 1933, shall be fully paid and nonassessable shares, and shall be fully vested
in the Executive and not subject to any transfer restrictions or forfeiture
provisions.
(e) CHANGE OF CONTROL. Notwithstanding the foregoing provisions of this
Section 2, if there is a Change of Control, or if the employment of the
Executive should terminate by reason of (A) Disability, (B) termination by the
Company for any reason other than Cause, or (C) by the Executive for Good
Reason, then the Company shall thereupon immediately award and issue to the
Executive a number of shares equal to the difference between 600,000 and the
number of shares previously awarded pursuant to this Section 2, and all such
shares shall be registered under the Securities Act of 1933, shall be fully paid
and nonassessable shares, and shall be fully vested in the Executive and not
subject to any transfer restrictions or forfeiture provisions.
(f) TAX MATTERS. Notwithstanding Appendix B to the contrary, the parties
hereto agree that the Executive shall not be entitled to receive, and the
Company shall not be required to pay, any Tax Offset Payments with respect to
the issuance or exercise of the IPO Options or the restricted shares issued
pursuant to (b) and (c) above. The parties also understand that the lapse of the
transfer restrictions and forfeiture provisions with respect to shares awarded
pursuant to this Section 2 shall result in the inclusion of the value of such
shares at that time in the gross income of the Executive for federal and state
income tax purposes. The parties expect that an amount equal to the value of the
shares when they become vested will be subject to withholding of applicable
federal and state income taxes and Social Security payroll and withholding
taxes. The parties agree that such withholding taxes shall be provided for, at
the election of the Executive at the time any shares become vested, by
withholding from the shares becoming vested a number of shares having a value
equal to the aggregate withholding tax liability.
3. AWARDS PURSUANT TO PLAN AND AGREEMENTS. The awards of stock options and
restricted shares under this Appendix E shall be made by the Company to the
Executive pursuant to the Company's Amended and Restated 2000 Stock Option Plan
and pursuant to written stock option and restricted stock agreements, each such
agreement containing customary terms and conditions, provided that the terms of
such agreements shall not contain any terms or limitations with respect to these
awards to the Executive that are inconsistent with the foregoing provisions of
this Appendix E.
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