Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Appointment of Paul Layne as Chief Executive Officer; Employment Agreement with Mr. Layne
On October 21, 2019, The Howard Hughes Corporation (the “Company”) entered into a new employment agreement with Paul Layne, in connection with Mr. Layne’s appointment by the Board of
Directors of the Company (the “Board”) as the Company’s Chief Executive Officer (the “Layne Employment Agreement”), effective as of October 21, 2019. As of such date, Mr. Layne was also appointed as a director on the Board.
Most recently, Mr. Layne served as President – Central Region of the Company, and from May 2012 through December 2017, Mr. Layne was the Company’s Executive Vice President, Master Planned
Communities, where he was responsible for overseeing the operation of the master planned communities of The Woodlands, Bridgeland and The Woodlands Hills in Houston, Texas, and the 110 N. Wacker office development in Chicago, Illinois. Prior to
joining the Company, Mr. Layne was Executive Vice President at Brookfield Properties Corporation where he oversaw a 9.7 million square-foot portfolio in Houston’s Central Business District. There are no arrangements or understandings between Mr.
Layne and any other persons, other than the Layne Employment Agreement, pursuant to which Mr. Layne was appointed to the offices described above, and Mr. Layne has no family relationships with any of the Company’s directors or other executive
officers and is not a party to any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
The Layne Employment Agreement has an initial term of five years, subject to earlier termination events described below. Upon the expiration of the initial term, the Layne Employment Agreement
will automatically renew for additional one-year periods, unless either party provides the other party with at least 60 days’ prior written notice that it does not wish to automatically renew the term.
Under the Layne Employment Agreement, Mr. Layne is entitled to an annual base salary of $750,000 and, commencing in 2020, eligible to earn a target annual cash bonus in the amount of $1,000,000
(the “Target Bonus Amount”) which is based upon the achievement of certain performance goals that will be established annually by the Compensation Committee (the “Compensation Committee”) of the Board of Directors of the Company. If
the Compensation Committee establishes a minimum overall performance goal that is required to be achieved for Mr. Layne to be eligible to receive an annual bonus in respect of a calendar year, and that minimum overall goal is achieved for such
calendar year, then the annual bonus for such year will be equal to at least 80%, but not more than 120%, of the Target Bonus Amount. For calendar year 2019, Mr. Layne shall be eligible to receive an annual bonus in accordance with the terms of the
bonus program established by the Company for Mr. Layne prior to his appointment as Chief Executive Officer, but with his target bonus for 2019 prorated between his target bonus in effect as of immediately prior to his appointment as Chief Executive
Officer ($460,000) and the Target Bonus Amount.
Commencing in 2020, and continuing during each subsequent calendar year of his employment, Mr. Layne will also be eligible to receive an annual equity award (the “Annual LTIP Award”), which
will be awarded each year by the Compensation Committee based upon its evaluation of performance measures and objectives established by the Compensation Committee from time to time. The Annual LTIP Award will be a long-term equity or equity-based
incentive award with an aggregate grant value (based on the achievement of the applicable performance metrics that cause the award to vest at the level of 100%) on the date of grant equal to $2,250,000 (except that the aggregate grant value for the
2020 Annual LTIP Award shall be prorated between Mr. Layne’s long-term incentive target in effect immediately prior to his appointment as Chief Executive Officer and the new Annual LTIP Award amount), with the number of shares of the
Company’s common stock (“Common Stock”) subject to such Annual LTIP Award determined by dividing the aggregate grant value by the closing price per share of the Common Stock on the date of
grant. Under the terms of the Layne Employment Agreement, 50% of each Annual LTIP Award granted to Mr. Layne will provide for pro rata time-based vesting over five years, and the remaining 50% shall be
subject to performance-based vesting based on performance metrics established by the Compensation Committee. Each Annual LTIP Award will be subject to the terms and conditions of The Howard Hughes Corporation Amended and Restated 2010 Incentive Plan
(the “Incentive Plan”) and any applicable award agreements thereunder.
The Layne Employment Agreement provides that, if Mr. Layne’s employment is terminated by the Company without cause (and other than due to non-renewal, death or permanent disability) or by Mr. Layne for good reason, in
each case, subject to his execution and non-revocation of a mutual release of claims, the Company will pay and provide Mr. Layne, in addition to his previously accrued benefits and compensation, the following: (1) a prorated portion of the Target
Bonus Amount, based upon the number of days elapsed during the applicable calendar year in which Mr. Layne was employed (the “Prorated Bonus”), (2) an amount equal to the sum of Mr. Layne’s annual base salary and the Target Bonus Amount and
(3) (x) all equity awards granted to Mr. Layne under the Incentive Plan pursuant to any agreements entered into prior to October 21, 2019 shall fully vest (except that any such awards subject to performance-based vesting conditions shall be treated
in accordance with clause (z) below), (y) all outstanding time-based Annual LTIP Awards will fully vest, and (z) all performance-based Annual LTIP Awards shall remain outstanding and eligible to vest based on actual achievement (the “Continued
Eligibility for Vesting”). Additionally, if Mr. Layne’s employment terminates due to the Company’s non-renewal of the Layne Employment Agreement after the expiration of the initial five-year term or any subsequent one-year renewal period, the
Company will pay and provide Mr. Layne, in addition to his previously accrued benefits and compensation, the following: (1) the Prorated Bonus, and (2) (x) full vesting of any time-based Annual LTIP Award, and (y) the Continued Eligibility for
Vesting. If Mr. Layne’s employment terminates because of death or as a result of permanent disability, the Company will pay and provide Mr. Layne (or his estate), in addition to previously accrued benefits and compensation, the following: (1) the
Prorated Bonus, and (2) the Continued Eligibility for Vesting. If Mr. Layne’s employment is terminated by the Company without cause (and other than upon death or permanent disability) or by Mr. Layne for good reason, in either case, in connection
with, or within twelve months following, a change in control, the Company will pay and provide Mr. Layne, in addition to his previously accrued benefits and compensation, the following: (1) the Prorated Bonus, (2) an amount equal to two times the
sum of Mr. Layne’s annual base salary and the Target Bonus Amount and (3) (x) all equity awards granted to Mr. Layne under the Incentive Plan pursuant to any agreements entered into prior to October 21, 2019 shall fully vest (except that any such
awards subject to performance-based vesting conditions shall be treated in accordance with clause (z) below), (y) any time-based Annual LTIP Awards will fully vest, and (z) all outstanding performance-based Annual LTIP Awards will vest at the greater
of (a) 100% of the number of shares of Common Stock granted pursuant to each such award and (b) the performance level achieved as of the date of termination.
The Layne Employment Agreement also provides that if Mr. Layne becomes entitled to receive or if he receives any payments and benefits that would become subject
to the excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the payments and benefits will be reduced such that the excise tax does not apply, unless he would be better off on an after-tax basis receiving all of the
payments and benefits (and paying the excise tax).
The Layne Employment Agreement requires Mr. Layne to maintain confidentiality of the Company’s proprietary information and includes a non-disparagement covenant. The Layne Employment Agreement also includes customary
non-solicit of employees and non-competition covenants, in each case, applicable during the term of Mr. Layne’s employment with the Company and for a 12-month period following his termination for any reason.
The foregoing summary of the Layne Employment Agreement is not intended to be complete and is qualified in its entirety by reference to the full text of the Layne Employment Agreement filed as Exhibit 10.1 to this
Current Report on Form 8-K and incorporated herein by reference.
Departure of Executive Officers
Also on October 21, 2019, Mr. Weinreb and Mr. Herlitz stepped down from their roles as Chief Executive Officer and President of the Company, respectively. Mr. Weinreb has also stepped down as a director on the Board.
The Company and each of Mr. Weinreb and Mr. Herlitz have agreed to treat their terminations of employment as terminations without “cause” under their respective Employment Agreements with the Company and the outstanding warrants to purchase Company
stock that each of Mr. Weinreb and Mr. Herlitz hold.
In lieu of a 60-day notice period required under the terms of each Employment Agreement, the Company will continue to pay each of Mr. Weinreb and Mr. Herlitz his respective base salary, and permit each to continue
participating in the Company’s health, medical, and dental plans, through December 31, 2019. In accordance with each of Mr. Weinreb’s and Mr. Herlitz’s Employment Agreements with the Company, each of Mr. Weinreb and Mr. Herlitz will be entitled to
the following severance payments and benefits: (i) a lump sum amount equal to the sum of (two times the sum of, for Mr. Herlitz) annual base salary and target annual cash bonus, (ii) a prorated target bonus for calendar year 2019 (except that, for
this purpose, each of Mr. Weinreb and Mr. Herlitz will be treated as continuing employment through December 31, 2019), and (iii) (A) for Mr. Weinreb, all outstanding shares of performance-based restricted stock will remain outstanding and eligible to
vest in accordance with their terms, and (B) for Mr. Herlitz, (x) 50% of his time-based restricted stock award granted on October 2, 2017, will vest, (y) all other outstanding time-based restricted stock awards will vest in full, and (z) all
outstanding shares of performance-based restricted stock will remain outstanding and eligible to vest in accordance with their terms. Each of Mr. Weinreb and Mr. Herlitz, in accordance with their respective Employment Agreements, have entered into a
Separation and Release Agreement with the Company (each, a “Release Agreement”), evidencing the above and which provides for, among other things, a mutual release of claims. Under Mr. Herlitz’s Release Agreement, the Company has further
agreed to reimburse up to $5,000 of Mr. Herlitz’s legal fees incurred in connection with negotiating the Release Agreement.
The foregoing summary of each Release Agreement is not intended to be complete and is qualified in its entirety by reference to the full text of each Release Agreement, filed as Exhibits 10.2 and 10.3, respectively, to
this Current Report on Form 8-K and incorporated herein by reference.