Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Adoption of New Form of Performance Restricted Unit Award Agreement
On January 27, 2020, each of the Board of Directors (the “Board”) of City Office REIT, Inc. (the “Company”) and the Compensation Committee of the Board (the “Compensation Committee”) approved a new form of performance-based restricted unit award agreement (the “Performance RSU Award Agreement”) that will be used to grant performance-based restricted stock unit awards (“Performance RSU Awards”) pursuant to the Company’sEquity Incentive Plan, as amended (the “Plan”). The Performance RSU Awards are based upon the total stockholder return (“TSR”) of the Company’s common stock, par value $0.01 per share (“Common Stock”), over a three-year measurement period beginning January 1, 2020 and ending on December 31, 2022 (the “Measurement Period”) relative to the TSR of the companies in the SNL US REIT Office Index as of January 2, 2020 (the “2020 RSU Peer Group”). The payouts under the Performance RSU Awards are evaluated on a sliding scale as follows: TSR below the 30th percentile of the 2020 RSU Peer Group would result in a 50% payout; TSR at the 50th percentile of the 2020 RSU Peer Group would result in a 100% payout; and TSR at or above the 75th percentile of the 2020 RSU Peer Group would result in a 150% payout. Payouts are mathematically interpolated between these stated percentile targets, subject to the 150% maximum.
Subject to the terms of any applicable employment agreement, payouts of the Performance RSU Awards will vest, if at all, upon the completion of the Measurement Period, provided that the awardee remains continuously employed with the Company through the end of the applicable Measurement Period, except in certain cases of Changes of Control or a Covered Termination (as defined in the Performance RSU Award Agreement). Unless otherwise set forth in an awardee’s employment agreement, if applicable, upon the occurrence of a Covered Termination the awardee will continue to hold the Performance RSU Award through the last day of the Measurement Period, and the Performance RSU Award will vest and payout as of such last day, if at all, based upon the above TSR sliding scale. To the extent earned, the payouts of the Performance RSU Awards will be settled in the form of shares of Common Stock, pursuant to the Plan, or if approved by the Compensation Committee, in cash of equivalent value. Performance RSU Awards do not entitle the recipient the rights of a holder of Common Stock until shares are issued in settlement of the vested Performance RSU Awards. The Compensation Committee retains the discretion to remove or make adjustments to performance goals and vesting conditions under the Performance RSU Awards.
Upon satisfaction of the vesting conditions, dividend equivalents in an amount equal to all regular and special dividends declared with respect to the Common Stock during each annual measurement period during the Measurement Period are determined and paid on a cumulative, reinvested basis over the term of the applicable Performance RSU Award, at the time such award vests and based on the number of shares of Common Stock that are earned. For example, if at the time of vesting TSR of the Common Stock is at the 50th percentile of the 2020 RSU Peer Group, the payout of 100% of the Performance RSU Award would include dividend equivalents on all of the shares Common Stock paid out on a reinvested basis over the Measurement Period. Dividend equivalents are not paid on Performance RSU Awards prior to full vesting.
The foregoing description of the form of Performance RSU Award Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the form of Performance RSU Award Agreement that is attached hereto as Exhibit 10.1 and incorporated herein by reference.
Approval of Restricted Stock Unit Awards and Performance RSU Awards
On January 27, 2020, the Board and the Compensation Committee approved grants of restricted stock unit awards (“RSU Awards”) and Performance RSU Awards to its executive officers as listed below. The RSU Awards and Performance RSU Awards were made pursuant to the existing form of restricted stock unit award agreement (“RSU Award Agreement”) and form of Performance RSU Award Agreement, as applicable, between the Company and each of its executive officers. The Performance RSU Awards are subject to the terms and conditions described above.
The RSU Awards are subject to vesting over a three-year period. Restricted stock units granted pursuant to the RSU Award Agreements vest in three equal installments on each of the first three anniversaries of the grant date and shall vest in full upon the termination of employment without Cause (as defined in the applicable RSU Award Agreement). If earned, the RSU Awards will be settled in the form of shares of Common Stock, pursuant to the Plan, or if approved by the Compensation Committee, in cash of equivalent value. RSU Awards do not entitle the recipient the rights of a holder of Common Stock until shares are issued in settlement of the vested units. As dividends are paid on the shares of Common Stock, additional RSU Awards will be issued covering that number of shares of Common Stock with a value equivalent to the total dividends that would be paid on the number of shares of Common Stock underlying the RSU Awards. Dividend equivalents are not paid on RSU Awards prior to full vesting.
