Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
On December 10, 2020, AvalonBay Communities, Inc. (the "Company" or "AvalonBay")
announced that Benjamin W. Schall will become President of the Company and a
member of its Board of Directors ("Board"), effective as of a mutually agreeable
date on or before February 1, 2021 (the "Start Date"). Timothy J. Naughton will
retain the titles and positions of Chairman of the Board and Chief Executive
Officer after Mr. Schall's start of employment.
The Company also announced that Mr. Naughton plans to retire as Chief Executive
Officer at the end of 2021 and that at such time Mr. Schall will be appointed as
CEO and Mr. Naughton will remain on the Board in the position of Executive
Chairman. Mr. Naughton's role as Executive Chairman has yet to be defined,
including whether it will be a full time or part time role.
Mr. Schall, age 45, is currently the Chief Executive Officer and President and a
trustee of Seritage Growth Properties ("Seritage") but will be leaving that
position and trusteeship to join AvalonBay. Seritage is a publicly traded real
estate investment trust ("REIT") principally engaged in owning, developing and
managing a diversified portfolio of retail and mixed-use properties throughout
the United States. Prior to becoming CEO and President of Seritage in May 2015,
Mr. Schall served as Chief Operating Officer of Rouse Properties, Inc. ("Rouse")
from 2012 to 2015; Rouse was a publicly-traded REIT (since acquired) that owned
and managed regional malls and retail centers in 21 states. Prior to that,
Mr. Schall was Senior Vice President with Vornado Realty Trust, a publicly
traded REIT that owns, manages and develops office and retail assets
concentrated in New York City with additional assets in Chicago and San
Francisco.
In connection with his appointment as President, the Company entered into an
employment agreement with Mr. Schall (the "Employment Agreement") with a term
that begins with the Start Date and expires on the third anniversary thereof
automatically without need for notice. Mr. Schall's initial annual total target
compensation is set under the Employment Agreement to be $7.5 million,
consisting of base salary of $1.0 million, an annual target cash bonus of $1.5
million, an annual restricted stock award with a target value of $1.25 million,
and a multiyear performance-based restricted stock unit award with a target
value of $3.75 million. Under the Company's compensation programs, the actual
cash bonus, restricted stock bonus, and multiyear performance-based restricted
stock unit award achievement can each range between 0% and 200% of the target
value, with 100% representing target achievement.
The Employment Agreement also provides that the Company shall pay and award the
following to Mr. Schall, on or promptly after the Start Date, on account of
unvested equity and performance awards and a cash bonus that Mr. Schall will
forfeit, or not earn, on account of leaving his prior employer before vesting or
payment of such items: a $1.5 million cash payment and a restricted stock grant
with a value of $4.5 million (with the number of shares determined by dividing
such dollar amount by the average closing stock price of the Company's common
stock over the last 20 trading days of 2020, and with the vesting of such shares
to occur in three equal annual installments on the first three anniversaries of
the grant date). Mr. Schall will also be awarded, on or promptly after the Start
Date, a multiyear performance-based restricted stock award of 17,813 target
units associated with the Company's January 1, 2020 to December 31, 2022
performance period with the same vesting terms as apply to the Company's other
officers.
The restricted stock awards and multiyear performance-based restricted stock
unit awards that Mr. Schall will receive as part of his compensation will have
the same terms as for other officers, except that in Mr. Schall's case, for
awards granted during the term of the Employment Agreement, (i) he will have
certain rights to notice and cure before a termination for "Cause" and
forfeiture of the awards, and (ii) he will have the right to leave for "Good
Reason" and accelerate (x) full vesting of his restricted stock awards, and (y)
after the first year of the three year performance cycle of a performance award,
a pro rata portion of the performance award that is earned based on actual
performance at the end of the performance period. "Good Reason" is defined to
include, among other things, the failure of the Board to appoint Mr. Schall as
sole CEO on or before March 31, 2022; the failure of the Board to renominate Mr.
Schall to the Board; a material adverse change in Mr. Schall's functions,
duties, reporting line and responsibilities, including if Mr. Schall is no
longer the CEO of the successor entity in a transaction to which the Company is
a participant; a diminution in Mr. Schall's total target compensation, base
salary or annual target cash bonus below the initially set amounts or other
material breach by the Company of the Employment Agreement or the other
agreements referred to therein; or the failure of the Company to obtain an
agreement from any successor or assign of the Company to assume and agree to
perform the Employment Agreement.
Under the terms of the Employment Agreement, Mr. Schall has agreed to relocate
to within daily commuting distance of the Company's current headquarters in
Arlington, Virginia no later than August 1, 2021 and, in connection with such
relocation and generally consistent with the Company's relocation policy for
officers, the Company has agreed to provide Mr. Schall with various moving and
relocation benefits and to provide a "tax gross up" of any reimbursed amounts so
that Mr. Schall effectively is not burdened by tax on the reimbursed amounts.
Mr. Schall is required to repay any such reimbursements and benefits, or a pro
rata amount thereof, if his employment is terminated by the Company for Cause or
if he terminates his employment without Good Reason during the first two years
following his Start Date.
In the event that Mr. Schall's employment is terminated by the Company without
Cause or by Mr. Schall for Good Reason during the term of the Employment
Agreement but not in connection with or within two years following a "Sale
Event" as discussed below, Mr. Schall will be entitled to various severance
benefits, including (x) payment in cash of an amount representing his pro rata
target annual bonus and target restricted stock bonus for the portion of the
year worked (a "Pro Rata Bonus"), (y) accelerated vesting of restricted stock
and pro rata vesting of multiyear performance-based restricted stock unit awards
that are more than one year into their three year performance cycle and that are
earned based on actual performance at the end of the performance period
("Accelerated Vesting"), (z) an amount of cash ("Severance Payment") equal to
two times the sum of Mr. Schall's base salary and annual target bonus ("Covered
Compensation"), and (d) payment of Mr. Schall's COBRA insurance premiums for six
months (the "COBRA Subsidy"). If the termination without Cause or for Good
Reason occurs in connection with or within two years of a Sale Event (as defined
in the Company's Officer Severance Plan) that occurred before expiration of the
Employment Agreement, then the Severance Payment will be three times Mr.
Schall's Covered Compensation and the COBRA subsidy will be paid for eighteen
months, and Mr. Schall will be entitled to the Pro Rata Bonus and Accelerated
Vesting as described above. In the event Mr. Schall's employment terminates due
to death or Disability (as defined in the Company's standard form of restricted
stock agreement), Mr. Schall or his estate will be entitled to receive the
benefits described in the first sentence of this paragraph other than the
Severance Payment. In all events, to qualify for the payments and benefits
described above Mr. Schall will be required to enter into an effective release
agreement with the Company that provides, among other terms, for a full release
of claims against the Company.
Mr. Schall has agreed that, for a period of two years following his departure
from the Company for any reason before the expiration of the Employment
Agreement, he will not, directly or indirectly, solicit the employees of the
Company for employment at another organization. In addition, if Mr. Schall
terminates his employment without Good Reason before the Employment Agreement
expires, he will not serve in an executive, managerial, directorial or
supervisory position with any "Competing Enterprise" for one year. "Competing
Enterprise" is defined as an organization for whom more than 50% of the gross
fair market value of, or net operating income from, its United States assets is
on account of multifamily residential rental assets (real property assets for
which 70% of the net operating income is on account of residential units).
Attached as an exhibit to this Report on Form 8-K is the Employment Agreement
between the Company and Mr. Schall and the summary above is qualified in its
entirety by reference to the full Employment Agreement.
Item 7.01 Regulation FD Disclosure
On December 10, 2020, the Company issued the press release furnished herewith
addressing the matters described above.
ITEM 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. Description
10.1 Employment Agreement between the Company and Benjamin W. Schall,
dated as of December 4, 2020 (filed herewith)
99.1 Press Release of the Company issued on December 10, 2020
© Edgar Online, source Glimpses