EMPLOYMENT AGREEMENT
FOR
XXXXX X. XXXXX
TABLE OF CONTENTS
PAGE
1. EMPLOYMENT. 2
2. SERVICES. 3
3. COMPENSATION AND BENEFITS. 3
4. TERMINATION OF EMPLOYMENT. 9
5. CONFIDENTIAL INFORMATION AND NON-SOLICITATION. 18
6. RETURN OF DOCUMENTS. 19
7. NONCOMPETE. 20
8. REMEDIES. 21
9. SUCCESSORS AND ASSIGNS. 21
10. TIMING OF AND NO DUPLICATION OF PAYMENTS. 22
11. MODIFICATION OR WAIVER. 23
12. NOTICES. 24
13. EXECUTIVE REPRESENTATION. 24
14. TAX LIABILITY. 24
15. GOVERNING LAW AND RESOLUTION OF DISPUTES. 24
16. SEVERABILITY. 25
17. COUNTERPARTS. 25
18. HEADINGS. 26
19. ENTIRE AGREEMENT. 26
20. SURVIVAL OF AGREEMENTS. 26
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of
September 2, 1997 by and between Xxxxx X. Petra, an individual residing at 0
Xxxxxxxx Xxxxx, Xxxxx Xxxxxxxxxx, Xxx Xxxx 00000 ("Executive"), and Philips
International Realty Corp., a Maryland corporation with offices at c/o Philips
International, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 ("New Reit").
RECITALS
WHEREAS, as set forth in the Contribution and Exchange Agreement by and
between the Property Partnerships (as defined therein), National Properties
Investment Trust, a Massachusetts business trust ("National"), Philips
International Realty, L.P., a Delaware limited partnership ("PRLP") and New Reit
dated August 11, 1997, the Property Partnerships, National and PRLP have
determined that it is in the best interests of the parties' long term strategic
growth to combine their respective properties and related assets;
WHEREAS, in order to effectuate this combination, the Property
Partnerships and National have agreed to contribute certain properties and other
assets located throughout the States of New York, New Jersey, Connecticut,
Massachusetts and Florida and owned or controlled by the Property Partnerships
or National (the "Property") to New Reit and New Reit has agreed to contribute
such Property to PRLP in exchange for a general partnership interest therein,
all as of the closing (the "Closing");
2
WHEREAS, it is anticipated that the Closing shall occur and New Reit
shall begin operations in December 1997; and
WHEREAS, it is anticipated that New Reit will raise $100,000,000 in
equity on or before June 1, 1998, through the initial sale to the public of its
Common Stock par value $.01 per share (the "New Reit Common Stock") for cash,
with such level, timing and manner of equity raise collectively considered for
purposes of this Agreement to constitute and hereinafter are referred to as, the
initial public offering (the "IPO"); and
WHEREAS, New Reit desires to employ Executive, and Executive desires to
be employed by New Reit, pursuant to the terms set forth herein.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the adequacy and receipt of which are hereby acknowledged, the
parties hereto agree as follows:
1. Employment.
New Reit hereby agrees to employ Executive, and Executive hereby
agrees to be employed by New Reit, on a full-time basis for a term commencing
September 2, 1997 and expiring on December 31, 2002, unless this Agreement shall
be either (i) extended thereafter by mutual agreement of the parties, or (ii)
terminated earlier pursuant to the terms hereof. The term of this Agreement
during which Executive shall be employed on a full-time basis is referred to
herein as the "Employment Period."
2
2. Services.
During the Employment Period, Executive shall hold the position
of President and shall serve as a member of the Board of Directors of New Reit
(the "Board"). Executive shall devote his best efforts and substantially all of
his business time, skill and attention to the business of New Reit, and shall
perform such duties and have such powers as are customarily performed by similar
executive officers and/or as set forth on Exhibit A, and as may be more
specifically enumerated from time to time by the Board or the Executive
Committee of the Board, if any; provided, however, that the foregoing is not
intended to preclude Executive from (a) owning and managing personal
investments, including real estate investments, subject to the restrictions set
forth in Paragraph 7 hereof or (b) engaging in charitable activities and
community affairs, provided that the performance of these activities referred to
in clauses (a) and (b) does not prevent Executive from devoting substantially
all of his business time to New Reit.
Executive shall be based in New York, New York, subject to
reasonable travel requirements.
3. Compensation and Benefits.
During the Employment Period, New Reit shall pay Executive the
following annual base salary which shall be payable in accordance with New
Reit's normal payroll practices ("Annual Base Salary): $175,000 beginning
September 2, 1997 through December 31, 2000; $200,000 beginning on January 1,
2001 through December 31, 2001; and $225,000 beginning on January 1, 2002
through December 31, 2002 and thereafter, if applicable, as may be mutually
agreed by the parties.
3
Executive shall be eligible to participate in the annual bonus
program for key executives pursuant to which Executive shall receive a bonus
based upon a formula and subject to certain performance goals having been
achieved, with such formula and performance goals to be determined by the Board,
in its sole discretion, and provided to Executive by the end of the first
quarter of each year. It is anticipated, but not guaranteed, that the bonus
program hurdle will be a fifteen (15%) percent year-to-year increase in the
Funds from Operations of New Reit.
New Reit shall deduct and withhold from compensation payments all
social security and other federal, state and local taxes and charges in the
minimum amounts (or such greater amounts as the Executive may from time to time
request) which currently are or which hereafter may be required by law to be so
deducted and withheld, including withholding pursuant to bonus withholding
rates, as applicable. In addition to the compensation specified above, Executive
shall be entitled to the following benefits:
(a) health and hospitalization (family), life insurance,
disability, business travel accident, paid vacation and
any other compensated absences and any other plans made
generally available to other similarly situated executive
officers of New Reit; provided, however that during the
months of August, 1997 through February, 1998 (or such
later month during which Executive first becomes eligible
for enrollment in New Reit's health and hospitalization
programs), Executive shall be reimbursed for the cost of
his COBRA premium;
(b) a $500 monthly reimbursement for local travel expenses;
and
(c) reimbursement for substantiated reasonable business
expenses including out-of-town travel expenses incurred by
Executive in furtherance of the interests of New Reit.
In addition, the Board, in its sole discretion, may (i) grant Executive
restricted share awards and options to purchase shares of New Reit Common Stock,
in addition to the
4
Options discussed hereinafter and (ii) offer Executive participation in any
other bonus, stock based compensation or other executive compensation plans or
programs made generally available to executives of New Reit.
As further consideration for Executive agreeing to serve as
President and entering into this Agreement upon the terms set forth herein,
including, without limitation, the terms relating to non-competition set forth
in Paragraph 7 below, New Reit shall:
(d) at the Closing, issue to Executive options to purchase
40,000 shares of Common Stock pursuant to the New Reit
1997 Stock Option and Long-Term Incentive Plan (the
"Plan") which Plan will be adopted by New Reit and
approved by shareholders concurrently with the Closing) at
an exercise price equal to $50 per share of Common Stock
which is the price of Common Stock at the Closing (the
"Options") provided, however, that after taking into
account the Options and any adjustment in the number or
exercise price of such Options which may occur as a result
of the IPO with respect to the underlying shares of Common
Stock, upon the consummation of the IPO, Executive shall
have an option to purchase at least 100,000 shares of New
Reit Common Stock at an exercise price equal to the price
to the public for shares of New Reit Common Stock sold in
the IPO. Executive's Options shall be evidenced by an
option grant agreement dated as of the date of the Closing
which agreement shall include, but not be limited to, the
following provisions: vesting, subject to Executive's
continued employment with New Reit and the provisions of
Paragraphs 4(c), 4(e) and 4(f) below, over a five (5) year
period with twenty-five (25%) percent of the Options
vesting on each of December 31, 1999, December 31, 2000,
December 31, 2001 and December 31, 2002 (unless vesting is
otherwise accelerated pursuant to the terms and conditions
of this Agreement or the option grant agreement);
non-transferability and anti-dilution provisions; and,
provisions relating to the use of the Options together
with the underlying stock to collateralize any funds
necessary for exercise; and
(e) concurrently with the IPO or as soon as practicable
thereafter, loan on a non-recourse basis to Executive
$1,000,000 (the "Stock Acquisition Loan"), with the loan
proceeds to be used by Executive simultaneously to
purchase as many newly issued shares of New
5
Reit Common Stock, at the price to the public for shares
of New Reit Common Stock sold in the IPO, as such Stock
Acquisition Loan amount will permit. Interest shall accrue
on the Stock Acquisition Loan at six (6%) percent per
annum and shall be payable, on the outstanding balance
thereof from time to time, quarterly in arrears. Dividends
on the New Reit Common Stock acquired by Executive,
subject to reduction for interest repayment (interest
payments shall first be made by the withholding of
dividends), shall be payable to Executive at such times
and in such amounts as may generally be declared by the
Board with respect to all shares of New Reit Common Stock
then outstanding without regard to whether the Stock
Acquisition Loan has been repaid or forgiven and shall not
serve as collateral. The Stock Acquisition Loan is being
granted and secured pursuant to the terms and conditions
of this Agreement, with the New Reit Common Stock
purchased with the proceeds of the Stock Acquisition Loan
and a Secured Non-Recourse Promissory Note and Stock
Pledge Agreement evidencing and securing such Stock
Acquisition Loan as executed between New Reit and
Executive. In the event of a conflict between the
aforementioned documents and this Agreement, the terms of
this Agreement shall control.
Notwithstanding any other provision of this Section 3(e),
in the event a tax is imposed on Executive with respect to
the principal of the Stock Acquisition Loan including,
without limitation, any tax liability which may arise with
respect to the forgiveness in whole or in part of the
Stock Acquisition Loan, Executive shall be entitled to
sell shares of New Reit Common Stock which otherwise
secure the Stock Acquisition Loan in an amount necessary
to satisfy such tax liability or in such greater amount as
Executive in his sole discretion desires to sell (with
excess proceeds, if any, to be held by New Reit as
security for the Stock Acquisition Loan and invested, with
such earnings to be credited to Executive). Proceeds in
excess of Executive's tax liability and Collateral Value
(defined below) shall be released to Executive. The
Secured Non-Recourse Promissory Note and the Stock Pledge
Agreement shall reflect this right of Executive. It is the
intention of the parties that New Reit Common Stock
purchased with the Stock Acquisition Loan constitute the
sole asset of Executive from which Executive's tax
liability shall be paid, and in recognition of this
intent, New Reit shall assist Executive in any manner
Executive reasonably requests to effectuate such sale.
Executive shall be entitled to direct that the shares of
New Reit Common Stock or cash, if applicable, held as
collateral for the Stock Acquisition Loan shall be used to
satisfy the amount owed
6
with respect to such loan on or after notice of his
termination of employment. In the event the Executive's
employment terminates for any reason other than Cause (as
defined in Section 4(g) below), and Executive incurs
cancellation of indebtedness income with respect to the
principal amount due on such loan as a result of such
directed sale, New Reit shall pay Executive an amount on
an after-tax basis equal to the tax liability incurred by
Executive as a result of such cancellation of indebtedness
income and such payment.
It is the intention of the parties that the dividends
received by Executive on the New Reit Common Stock
purchased with the proceeds of the Stock Acquisition Loan
will equal or exceed the interest payable thereon.
Accordingly, New Reit hereby agrees to timely pay
Executive such additional cash compensation as may be
necessary for Executive to maintain cash neutrality,
giving appropriate consideration to the taxability of any
such additional cash compensation, should the timing
and/or amount of dividends received by the Executive be
insufficient to fund interest payable on the Stock
Acquisition Loan.
The Stock Acquisition Loan shall be forgiven as follows:
subject to the provisions of either Paragraph 4(e) or 4(f)
below, $500,000 of the principal shall be forgiven on
December 31, 2000 provided Executive is employed by New
Reit on the day immediately preceding that date, and the
other $500,000 of the principal shall be forgiven ratably
pursuant to the provisions of Paragraph 4(c) below, and
subject to the provisions of Paragraph 4(f) below, with
the entire outstanding balance forgiven as of December 31,
2002 (the "Forgiven Amount") provided Executive is
employed by New Reit on the day immediately preceding that
date.
The Stock Acquisition Loan shall be initially secured by
the shares of New Reit Common Stock purchased by Executive
from New Reit with the proceeds of the Stock Acquisition
Loan. On December 31, 2000, the outstanding balance of the
Stock Acquisition Loan shall be secured only by shares of
New Reit Common Stock having a ten (10) day Fair Market
Value of one hundred twenty-five (125%) percent of the
outstanding principal amount of the Stock Acquisition
Loan. On December 31, 2000 ( the "Determination Date"),
New Reit shall determine the aggregate Fair Market Value
of the collateral (the "Collateral Value") being held by
averaging the Fair Market Value for the ten (10) business
days immediately preceding the Determination Date (the
"Ten Day Fair Market Value"). If on such Determination
Date the Collateral Value exceeds one hundred twenty-five
(125%) percent of the outstanding balance of
7
the Stock Acquisition Loan on such Determination Date
after giving effect to any loan forgiveness, as applicable
(the "Secured Loan Amount "), New Reit shall automatically
release to Executive such portion of the collateral the
aggregate Ten Day Fair Market Value of which equals the
Collateral Value less the Secured Loan Amount, free and
clear of any and all encumbrances under the Stock Pledge
Agreement.
Executive shall be required to execute the aforementioned
Stock Pledge Agreement and Secured Non-Recourse Promissory
Note. New Reit shall then issue shares of New Reit Common
Stock to Executive in exchange for the Stock Acquisition
Loan. New Reit shall, upon receipt from Executive of the
Stock Pledge Agreement and Secured Non-Recourse Promissory
Note for New Reit Common Stock purchased with the proceeds
of the Stock Acquisition Loan, make prompt delivery of the
certificates evidencing ownership of the shares of New
Reit Common Stock to Executive, subject to any
requirements set forth in the Stock Pledge Agreement;
provided, however, that if any law or regulation requires
New Reit to take any action with respect to such shares
prior to the delivery thereof, then the date of the
delivery of the shares shall be extended for the period
necessary to complete such action. As soon as practicable
following such time as New Reit is eligible to use Form
S-3 (or any successor form thereof) to register such
shares of New Reit Common Stock, New Reit shall register
the resale of such shares through a shelf registration
statement under the Securities Act of 1933, as amended
(the "Act") which shall be filed by December 31 1998,
unless prohibited by applicable law, in which case, New
Reit shall use its reasonable best efforts to file as soon
as practicable thereafter but in any event shall register
such shares no later than June 30, 1999 and shall keep
such registration effective all times thereafter at which
Executive owns any such shares. The Company agrees that if
at any time after the IPO and prior to such registration,
the Company authorizes the filing of a registration
statement under the Act in connection with the proposed
offer of any of its securities by the Company or any of
its shareholders or to facilitate the conversion of Units
in PRLP into New Reit Common Stock ("Subsequent
Registration Statement"), New Reit shall use its
reasonable best efforts to register the shares of New Reit
Common Stock purchased by Executive with the proceeds of
the Stock Acquisition Loan via the Subsequent Registration
Statement. Certificates for shares of New Reit Common
Stock, when released to Executive, shall have restrictive
legends applicable to the Stock Pledge Agreement and any
statements of other applicable restrictions with respect
thereto removed.
8
4. Termination of Employment.
(a) Either New Reit or Executive may terminate this Agreement
after June 1, 1998 and before September 1, 1998 if the IPO has not occurred,
provided, however, that if New Reit is currently marketing a preliminary
prospectus or "red xxxxxxx" with respect to a public offering by June 1, 1998,
the June 1, 1998 termination date shall be extended to July 1, 1998 for purposes
of this Paragraph. Regardless of the party electing termination of this
Agreement, New Reit shall pay Executive a single-sum payment on date of
termination equal to the product of $7,500 multiplied by each month which has
elapsed from August 1, 1997 through the date of termination, pro-rated for any
portion of a month. Except as otherwise required by law, in the event of a
termination of Executive's employment under this Paragraph, neither New Reit nor
Executive shall have any further obligations under this Agreement or otherwise.
(b) In the event New Reit terminates Executive's employment for
any reason other than Cause, prior to June 1, 1998 and the IPO occurs prior to
June 1, 1998, in lieu of any payment under Paragraph 4(a) above, New Reit shall
pay Executive a single sum payment of $350,000 on June 1, 1998. In the event
Executive's employment terminates prior to June 1, 1998 for any reason other
than Cause, and the IPO does not occur prior to June 1, 1998, New Reit shall pay
Executive the amount to which Executive would be entitled had termination
occurred pursuant to Paragraph 4(a) above. Except as otherwise required by law,
in the event of a termination of Executive's employment under this paragraph,
neither New Reit nor Executive shall have any further obligation under this
Agreement or otherwise.
9
(c) Either New Reit or Executive may terminate this Agreement
effective December 31, 2000 or at any time thereafter. Regardless of the party
electing termination, the balance of the Options issued hereunder shall
immediately vest and may be exercised within the Option Exercise Period
described in Section 4(e) below. In the event this Agreement is terminated at
any time after December 31, 2000 and prior to December 31, 2002, an additional
principal amount of the Stock Acquisition Loan shall be forgiven, which amount
will be equal to the outstanding principal balance of the Stock Acquisition Loan
multiplied by a fraction, the numerator of which shall be the number of days
Executive is employed by New Reit after December 31, 2000 and the denominator of
which shall be 730. The balance of the Stock Acquisition Loan shall be
accelerated and all amounts outstanding thereunder (both principal and interest)
shall become due and owing on Executive's date of termination. In the event
Executive does not pay the full balance due under the Stock Acquisition Loan on
date of termination of this Agreement, and the Collateral Value equals or
exceeds the unpaid balance due, that portion of the collateral necessary to
repay the Stock Acquisition Loan shall be sold by New Reit and the proceeds of
such sales shall be used to satisfy the balance due thereon. Any remaining
shares of New Reit Common Stock ("the Excess Collateral") shall be released to
Executive as soon as practicable after Executive's date of termination and such
sales. New Reit shall pay Executive any unpaid salary accrued through and
including the date of termination (the "Accrued Amount"). In addition, Executive
shall be entitled (i) to exercise any warrants and options, including the
Options granted hereunder, which have vested and are exercisable in accordance
with the terms of this Agreement, any applicable stock option plan or agreement,
or warrant
10
agreement, and (ii) to retain any shares awarded to Executive which are fully
vested on the date of termination. Except for any rights Executive may have
under this Paragraph 4(c) or as otherwise required by law, New Reit shall have
no further obligations hereunder following such termination.
(d) In the event after June 1, 1998 but before December 31, 2000
(i) New Reit terminates Executive's employment for Cause (as hereinafter
defined) or (ii) Executive terminates his employment without Good Reason (as
hereinafter defined), New Reit shall pay Executive the Accrued Amount
immediately upon termination of employment. In addition, in such event,
Executive shall be entitled (i) to exercise any warrants and options, including
the Options granted hereunder, which have vested and are exercisable in
accordance with the terms of this Agreement and within the Option Exercise
Period described in Section 4(e) below, any applicable stock option plan or
agreement, or warrant agreement, and (ii) to retain any shares awarded to
Executive which are fully vested on the date of termination. Except as provided
in Paragraph 4(f) below, the Stock Acquisition Loan shall be accelerated and all
amounts outstanding thereunder (both principal and interest) shall become due
and owing on Executive's date of termination. In the event Executive does not
pay the full balance due under the Stock Acquisition Loan on date of termination
of this Agreement, and the Collateral Value equals or exceeds the unpaid balance
due, that portion of the collateral necessary to pay the Stock Acquisition Loan
shall be sold by New Reit and the proceeds of such sales shall be used to
satisfy the balance due thereon. Any Excess Collateral shall be released to
Executive as soon as practicable following the Executive's date of termination
and such sales. Except for any rights which Executive
11
may have under this Paragraph 4(d) or as otherwise required by law, New Reit
shall have no further obligations hereunder following such termination.
(e) In the event of termination of Executive's employment after
June 1, 1998 but before December 31, 2000 as a result of either (i) Executive's
death or Disability (as hereinafter defined), (ii) termination by New Reit for
any reason other than Cause or (iii) termination by Executive of his employment
for Good Reason, New Reit shall pay to Executive (A) the Accrued Amount (B) any
unpaid salary, at the rate then in effect without reduction, from the date of
termination through December 31, 2000 (as if no such termination occurred) and
(C) a pro-rata portion, based upon the number of days of employment in the
period beginning with January 1 of the calendar year in which such termination
occurred divided by the full calendar year multiplied by the cash bonus payments
paid to Executive for the immediately preceding calendar year (the "Pro-Rata
Bonus"). The aforesaid amounts shall be payable in full immediately upon such
termination. In addition, Executive shall have a fully-vested non-forfeitable
right to the Options , and any options or restricted stock awards previously
granted to him as of the date the applicable event listed in the first sentence
of this Paragraph 4(e) occurs. Furthermore, and except as provided in Paragraph
4(f) below, $500,000 of the principal of the Stock Acquisition Loan shall be
forgiven on the date of termination and all other amounts outstanding under the
Stock Acquisition Loan shall become due and owing on the date of termination. In
the event Executive does not pay the full balance due under the Stock
Acquisition Loan on date of termination of this Agreement, and the Collateral
Value equals or exceeds the unpaid balance due, that portion of the collateral
necessary to repay the Stock Acquisition Loan shall be sold by New Reit and the
12
proceeds of such sales shall be used to satisfy the balance due thereon. Any
Excess Collateral shall be released to Executive as soon as practicable
following the Executive's date of termination and such sales. Executive shall be
entitled, at the option of Executive, his estate or his personal representative,
within ninety (90) days (one (1) year in the case of termination as a result of
Executive's death or Disability) of the date of such termination, (i) to
exercise any options including the Options granted herein, to purchase shares of
New Reit Common Stock that have vested (including, without limitation, by
acceleration in accordance with the terms of this Agreement) ("Option Exercise
Period") and are exercisable in accordance with the terms of either this
Agreement, any stock option plan or agreement, and (ii) to retain any shares of
New Reit Common Stock awarded to Executive which are vested on the date of
termination. Except for any rights which Executive may have under this Paragraph
4(e) or as otherwise required by law, New Reit shall have no further obligations
hereunder following such termination.
(f) In the event a Change in Control occurs during the Employment
Period, and the Executive is actively employed on the day immediately preceding
the date of a Change in Control, notwithstanding any other provision of this
Agreement the entire outstanding balance of the Stock Acquisition Loan shall be
forgiven, Executive shall have a fully vested non-forfeitable right to the
Options and any options or restricted stock awards previously granted to him as
of the date of the Change in Control and the Excise Tax Gross-Up, if applicable,
pursuant to the provisions of Paragraph 4(j) below. In addition, the provisions
of Paragraph 7 of this Agreement shall no longer apply to Executive after the
date of the Change in Control. In the event a
13
Change in Control occurs after June 1, 1998 but before December 31, 2000 and the
Executive's employment is terminated by New Reit or any successor thereto for
any reason on or after the date a Change in Control occurs, Executive shall also
be entitled to receive payment of (i) the Accrued Amount, (ii) any unpaid
salary, at the rate then in effect without reduction, through December 31, 2000,
if applicable (as if no such termination occurred) and (iii) the Pro-Rata Bonus.
The aforesaid amounts shall be payable in full immediately upon such
termination.
(g) For purposes of this Agreement:
(i) "Cause" shall mean (A) the willful and continued
failure by Executive to substantially perform his
duties hereunder (other than any such failure
resulting from Executive's incapacity due to
physical or mental illness) for a period of thirty
(30) days after written demand for substantial
performance is delivered by New Reit specifically
identifying the manner in which New Reit believes
Executive has not substantially performed his
duties, or (B) willful misconduct by Executive
which is materially injurious to New Reit,
monetarily or otherwise, or (C) the willful
violation by Executive of the provisions of
Paragraph 5 or 7 hereof. For purposes of this
Paragraph 4(e)(i), no act, or failure to act, on
Executive's part shall be considered "willful"
unless done, or omitted to be done, by him not in
good faith and without reasonable belief that his
action or omission was in furtherance of the
interests of New Reit.
(ii) "Disability" shall mean the determination by New
Reit, upon the advice of an independent qualified
physician, reasonably acceptable to Executive, that
Executive has become physically or mentally
incapable of performing his duties under this
Agreement and such disability has disabled
Executive for a cumulative period of one hundred
eighty (180) days within a twelve (12) month
period.
(iii) "Fair Market Value" shall mean the closing price on
the New York Stock Exchange of the New Reit Common
Stock (or such other exchange on which the New Reit
Common Stock is traded) on the trading day
immediately preceding the date
14
for which there is to be a determination of value
under this Agreement;
(iv) "Good Reason" shall mean (A) any assignment to
Executive of any duties materially different from
those contemplated by Paragraph 2 hereof, or any
limitation on the powers of Executive in any
respect not contemplated by Paragraph 2 hereof or
other material breach of this Agreement by New
Reit, (B) a reduction in Executive's Annual Base
Salary as in effect at the time in question, or any
other material failure by New Reit to comply with
Paragraph 3 hereof, provided, however, that in the
event Executive is not awarded a bonus as a result
of the Board not approving a bonus pool for a
particular year or Executive is not awarded any
other discretionary payment or award described in
Paragraph 3 it shall not be deemed a failure, or
(C) failure of New Reit to obtain the assumption of
the obligation to perform this Agreement by any
successor as contemplated in Paragraph 9(a) hereof.
(v) "Change in Control" shall mean, exclusive of the
IPO that any of the following events has occurred:
(a) any "person" or "group" of persons, as such
terms are used in Sections 13 and 14 of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than any employee benefit
plan sponsored by New Reit, becomes the "beneficial
owner", as such term is used in Section 13 of the
Exchange Act, of thirty (30%) percent or more of
either (i) the New Reit Common Stock or (ii) the
units of limited partnership interests in PRLP
("Units") issued and outstanding immediately prior
to such acquisition; (b) any New Reit Common Stock
is purchased pursuant to a tender or exchange offer
other than an offer by New Reit; or (c) the
dissolution or liquidation of New Reit or the
consummation of any merger or consolidation of New
Reit or any sale or other disposition of all or
substantially all of its assets, if the
shareholders of New Reit immediately before such
transaction own, immediately after consummation of
such transaction, equity securities (other than
options and other rights to acquire equity
securities) possessing less than thirty (30%)
percent of the voting power of the surviving or
acquiring company.
(h) In connection with any sale of New Reit Common Stock
necessary to satisfy the Stock Acquisition Loan, in the event the sale price
which New Reit can
15
obtain on any day is less than ninety-five (95%) percent of the average closing
price of the Common Stock for the ten (10) business days immediately preceding
Executive's termination of employment, New Reit shall not cause New Reit Common
Stock which serves as collateral for the Stock Acquisition Loan with an
aggregate market value in excess of $50,000 to be sold on any one (1) day.
(i) Any termination of Executive's employment by New Reit or any
such termination by Executive (other than on account of death) shall be
communicated by written Notice of Termination to the other party hereto. Prior
to the IPO, for purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated. After the IPO, (i) New Reit must
give Executive thirty (30) days advance notice in writing of his termination and
(ii) Executive must give New Reit ninety (90) days advance notice in writing of
his termination. Upon receipt of notice from Executive under (ii) above, New
Reit, in its sole discretion, may establish an earlier date of termination which
shall not be less than thirty (30) days after the date of Executive's notice.
New Reit must pay Executive for the applicable thirty (30) day period, but, in
its sole discretion, may require that Executive no longer actively work,
provided however, that for purposes of this Agreement the date of termination
under (i) or (ii) above shall be the thirtieth (30th) day immediately following
the date of notice.
(j) Excise Tax Gross Up. In addition, if it is determined by an
independent accountant mutually acceptable to New Reit and Executive (a
"Determination") that as a
16
result of any payment in the nature of compensation made by New Reit to (or for
the benefit of) Executive pursuant to this Agreement or otherwise, an excise tax
may be imposed on Executive pursuant to Section 4999 of the Code (or any
successor provisions) or in the event such determination is not made and the
Internal Revenue Service ("IRS") subsequently issues a notice imposing such
excise tax on Executive ("Subsequent IRS Assessment"), New Reit shall pay
Executive in cash an amount equal to X determined under the following formula:
(the "Excise Tax Gross Up"):
E x P
X = ----------------------------------
1-[(FI x (1-SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under
Section 4999 of the Code (or any successor
provisions);
P = the amount with respect to which such excise tax is
assessed, determined without regard to the Excise
Tax Gross Up;
FI = the highest effective marginal rate of income tax
applicable to Executive under the Code for the
taxable year in question (taking into account any
phase-out or loss of deductions, personal
exemptions or other similar adjustments);
SLI = the sum of the highest effective marginal rates of
income tax applicable to Executive under all
applicable state and local laws for the taxable
year in question (taking into account any phase-out
or loss of deductions, personal exemptions and
other similar adjustments); and
M = the highest marginal rate of Medicare tax
applicable to Executive under the Code for the
taxable year in question.
In the event a Determination is made, with respect to any payment in the nature
of compensation that is made to (or for the benefit of) Executive under the
terms of this Agreement or otherwise and on which an excise tax under Section
4999 of the Code (or
17
any successor provisions) may be assessed, the payment determined under this
Paragraph 4(j) shall be paid to Executive at the time of the Change in Control
but prior to the consummation of the transaction with any successor. In the
event of a Subsequent IRS Assessment, the payment determined under this
Paragraph 4(j) shall be paid to Executive as such time as Executive provides New
Reit with a copy of the Subsequent IRS Assessment. It is the intention of the
parties that New Reit provide Executive with a full tax gross-up under the
provisions of this Paragraph, so that on a net after-tax basis, the result to
Executive shall be the same as if the excise tax under Section 4999 of the Code
(or any successor provisions) had not been imposed. The Excise Tax Gross Up
shall be adjusted to achieve a full gross up if alternative minimum tax rules
are applicable to Executive.
5. Confidential Information and Non-Solicitation.
(a) Executive understands and acknowledges that during his
employment with New Reit, he will be exposed to Confidential Information (as
defined below), all of which is proprietary and which will rightfully belong to
New Reit. Executive shall hold in a fiduciary capacity for the benefit of New
Reit such Confidential Information obtained by Executive during his employment
with New Reit and shall not, directly or indirectly, at any time, either during
or after his employment with New Reit, without New Reit's prior written consent,
use any of such Confidential Information or disclose any of such Confidential
Information to any individual or entity other than New Reit or its employees,
except as required in the performance of his duties for New Reit or as otherwise
required by law. Executive shall take all reasonable steps to safeguard
18
such Confidential Information and to protect such Confidential Information
against disclosure, misuse, loss or theft.
(b) The term "Confidential Information" shall mean any
information not generally known in the relevant trade or industry or otherwise
not generally available to the public, which was obtained by Executive from New
Reit, the Partnership Properties, National or PRLP, or which was learned,
discovered, developed, conceived, originated or prepared by Executive during or
as a result of the performance of any services by Executive on behalf of New
Reit. For purposes of this Paragraph 5, New Reit shall be deemed to include any
entity which is controlled, directly or indirectly, by New Reit and any entity
of which a majority of the economic interest is owned, directly or indirectly,
by New Reit.
(c) The Executives agrees that for a period of two (2) years
following his termination of employment with New Reit, the Executive will not
directly or indirectly, solicit, recruit, hire or cause to be hired for
employment, any individual or individuals who are employed by New Reit or its
subsidiaries/affiliates on or after his date of termination.
6. Return of Documents.
Except for such items which are of a personal nature to Executive
(e.g., daily business planner), all writings, records, and other documents and
things containing any Confidential Information shall be the exclusive property
of New Reit, shall not be copied, summarized, extracted from, or removed from
the premises of New Reit, except in pursuit of the business of New Reit or at
the direction of New Reit, and
19
shall be delivered to New Reit, without retaining any copies, upon the
termination of Executive's employment or at any time thereafter as requested by
New Reit.
7. Noncompete.
Executive agrees that:
(a) During the Employment Period and in the event (i) New Reit
terminates Executive's employment for Cause, or (ii) Executive terminates his
employment hereunder without Good Reason, for a one (1) year period thereafter,
Executive shall not, directly or indirectly, within the States of New York, New
Jersey, Connecticut, Massachusetts or Florida engage in, or own, invest in,
manage, control, derive any compensation, or provide consulting services either
directly or indirectly with respect to any venture or enterprise engaged in any
development, acquisition or management activities with respect to retail
shopping center properties, without regard to whether or not such activities
compete with New Reit. Nothing herein shall prohibit Executive from being a
passive owner of not more than one (1%) percent of the outstanding stock of any
class of securities of a corporation or other entity engaged in such business
which is publicly traded, so long as he has no active participation in the
business of such corporation or other entity.
(b) If, at the time of enforcement of this Paragraph 7, a court
shall hold that the duration, scope, area or other restrictions stated herein
are unreasonable, the parties agree that without further action on their parts
reasonable maximum duration, scope, area or other restrictions shall be
substituted by such court for the stated duration, scope, area or other
restrictions.
20
(c) For purposes of this Paragraph 7, New Reit shall be deemed to
include any entity which is controlled, directly or indirectly, by New Reit and
any entity of which a majority of the economic interest is owned, directly or
indirectly, by New Reit.
8. Remedies.
The parties hereto agree that New Reit would suffer irreparable
harm from a breach by Executive of any of the covenants or agreements contained
in Paragraph 5, 6 or 7 of this Agreement. Therefore, in the event of the actual
or threatened breach by Executive of any of the provisions of Paragraph 5, 6 or
7 of this Agreement, New Reit may, in addition and supplementary to other rights
and remedies existing in its favor, apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violation of the provisions thereof.
9. Successors and Assigns.
(a) Prior to December 31, 2000, New Reit shall 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 New
Reit, by agreement in form and substance reasonably satisfactory to Executive,
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that New Reit would be required to perform it if no such
succession had taken place. Failure of New Reit to obtain such agreement prior
to the effectiveness of a succession shall be a breach of this Agreement and
shall entitle Executive to compensation from New Reit in the same amount and on
the same terms as he would be entitled to hereunder if he
21
terminated his employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date of termination. In the event of such a breach
of this Agreement, the Notice of Termination shall specify such date as the date
of termination. As used in this Paragraph, "New Reit" shall mean New Reit as
hereinbefore defined and any successor to all or substantially all of its
business and/or its assets as aforesaid which executes and delivers the
agreement provided for in this Paragraph 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law. Any cash
payments owed to Executive pursuant to this Paragraph 9 shall be paid to
Executive in a single sum, without discount for early payment, immediately prior
to the consummation of the transaction with such successor.
(b) This Agreement and all rights of Executive hereunder shall
inure to the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die while any amounts would still be
payable to him hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee, or other designee or, if there be no
such designee, to Executive's estate.
10. Timing of and No Duplication of Payments.
All payments payable to Executive pursuant to this Agreement
shall be paid as soon as practicable after such amounts have become fully vested
and determinable. In the event any amount becomes vested or payable under more
than
22
one provision of this Agreement, Executive shall not be entitled to receive a
duplicate payment of any such amount.
11. Modification or Waiver.
No amendment, modification, waiver, termination or cancellation
of this Agreement shall be binding or effective for any purpose unless it is
made in a writing signed by the party against whom enforcement of such
amendment, modification, waiver, termination or cancellation is sought. No
course of dealing between or among the parties to this Agreement shall be deemed
to affect or to modify, amend or discharge any provision or term of this
Agreement. No delay on the part of New Reit or Executive in the exercise of any
of their respective rights or remedies shall operate as a waiver thereof, and no
single or partial exercise by New Reit or Executive of any such right or remedy
shall preclude other or further exercise thereof. A waiver of right or remedy on
any one occasion shall not be construed as a bar to or waiver of any such right
or remedy on any other occasion.
23
12. Notices.
All notices or other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand or delivered by a recognized delivery service or mailed,
postage prepaid, by express, certified or registered mail, return receipt
requested, and addressed to New Reit or Executive, as applicable, at the address
set forth above (or to such other address as shall have been previously provided
in accordance with this Paragraph 12).
13. Executive Representation.
By executing this Agreement, Executive hereby warrants and
represents that he is not bound by any other agreement or subject to any other
restriction which would either prevent him from entering into this Agreement or
from performing his duties as contemplated hereunder.
14. Tax Liability.
Each party to this Agreement shall be responsible for their own
tax liability with respect to any payments made, forgiveness of debt or
otherwise pursuant to the terms of this Agreement.
15. Governing Law and Resolution of Disputes.
This agreement will be governed by and construed in accordance
with the laws of the State of New York, without regard to principles of
conflicts of laws thereunder. Any claim for damages arising out of or related to
this Agreement except for any claims arising out of or related to Paragraphs 5,
6 and 7 hereof shall be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American
24
Arbitration Association, provided, however, that the arbitration shall take
place in New York and the arbitrators shall apply New York law. Each party to
the Agreement may select one arbitrator. The selected arbitrators shall in turn
appoint a third arbitrator, and the three so chosen shall comprise the
arbitration panel. All arbitrators shall be independent third parties. The
decision of the arbitration panel shall be final and binding on the parties, and
judgment upon the award rendered by the arbitration panel may be entered by any
court having jurisdiction thereof. This Paragraph shall not be construed to
prevent New Reit from seeking injunctive relief as provided in Paragraph 8
hereof with respect to any and all disputes arising out of or related to
Paragraphs 5, 6 and 7 which shall be adjudicated by a court of competent
jurisdiction.
16. Severability.
Whenever possible, each provision and term of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision or term of this Agreement shall be held to
be prohibited by or invalid under such applicable law, then, subject to the
provisions of Paragraph 7(b) above, such provision or term shall be ineffective
only to the extent of such prohibition or invalidity, without invalidating or
affecting in any manner whatsoever the remainder of such provisions or term or
the remaining provisions or terms of this Agreement.
17. Counterparts.
This Agreement may be executed in separate counterparts, each of
which is deemed to be an original and both of which taken together shall
constitute one and the same agreement.
25
18. Headings.
The headings of the Paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute a part hereof and shall
not affect the construction or interpretation of this Agreement.
19. Entire Agreement.
This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all other prior
agreements and undertakings, both written and oral, among the parties with
respect to the subject matter hereof.
20. Survival of Agreements.
The covenants made in Paragraphs 4, 5, 6 and 7 each shall survive
the termination of this Agreement.
26
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
PHILIPS INTERNATIONAL REALTY CORP.
By: /s/ Xxxxxx Xxxxxxxx
--------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Chairman of the Board
and Chief Executive Officer
EXECUTIVE
/s/ Xxxxx X. Xxxxx
--------------------------------
Xxxxx X. Petra
27
