Exhibit 10.18

 

[CEO THREE YEAR CLIFF VESTING]

 

HEALTH CARE PROPERTY INVESTORS, INC.

2006 PERFORMANCE INCENTIVE PLAN

PERFORMANCE RESTRICTED STOCK UNIT AGREEMENT

 

James F. Flaherty III[                            ], Grantee:

 

As of the [            ] day of [               2007] (the “Grant Date”),
HCP, Inc. (formerly known as Health Care Property Investors, Inc.), a Maryland
corporation (the “Company”), pursuant to the Health Care Property
Investors, Inc. 2006 Performance Incentive Plan, as amended and/or restated from
time to time (the “Plan”), has granted to you, the Grantee named above,
[              ] performance restricted stock units (the “Units”) with respect
to [            ] shares of Common Stock on the terms and conditions set forth
in this Performance Restricted Stock Unit Agreement (this “Agreement”) and the
Plan.  The Units are subject to adjustment as provided in Section 7.1 of the
Plan.  Capitalized terms not defined herein shall have the meanings assigned to
such terms in the Plan.  The Compensation Committee (the “Committee”) of the
Board of Directors of the Company (the “Board”) is the administrator of the Plan
for purposes of your Units.

 

I.                               Forfeiture of Units.

 

(a)                                  Forfeiture Based Upon Company Performance. 
Your Units will be paid only to the extent your Units are not forfeited pursuant
to this Section I and only to the extent such non-forfeited Units vest pursuant
to this Section I or Section II below.  Your Units are subject to forfeiture if
the Company’s Funds From Operations Per Share for the 2007 calendar year (the
“Performance Period”) is less than [$      ].  If the Company’s Funds From
Operations Per Share for the Performance Period is less than [$      ], the
aggregate percentage of Units that you will forfeit will be determined in
accordance with Exhibit A hereto.  For purposes of this Agreement, “Funds From
Operations Per Share” means the Company’s funds from operations per share during
the Performance Period, as prescribed by the National Association of Real Estate
Investment Trusts (“NAREIT”) as in effect on the first day of the Performance
Period, and shall be calculated on a fully diluted basis using the weighted
average of diluted shares of Common Stock outstanding during the Performance
Period.  Funds From Operations Per Share shall be calculated before taking into
account any non-recurring charges incurred by the Company with respect to the
Performance Period for (i) material strategic or financing transactions approved
by the Board of Directors and (ii) impairments.  The determination as to whether
the Company has attained the performance goals with respect to the Performance
Period shall be made by the Committee acting in good faith.  The Committee’s
determination regarding whether the Company has attained the performance goals
(the “Committee Determination”) shall be made no later than the March 15
following the end of the Performance Period.  Your Units shall not be deemed
vested pursuant to any other provision of this Agreement earlier than the date
that the Committee makes such determination, as required by Section 162(m) of
the Code and the regulations promulgated thereunder.  Any Units forfeited
pursuant to this Section I(a) shall be deemed to have been forfeited as of the
last day of the Performance Period.

 

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(b)                                 Forfeiture of Units Upon Termination of
Employment.  Except as provided in Section I(c), if at any time during the
Performance Period your employment with the Company is terminated, all of your
Units shall be automatically forfeited and cancelled in full effective as of
such termination of employment and this Agreement shall be null and void and of
no further force and effect.

 

(c)                                  Certain Terminations during the Performance
Period.  This Section I(c) applies in the event your employment with the Company
is terminated as a result of (i) your death, Disability or Retirement, (ii) a
Termination Other Than For Cause, (iii) a Termination For Good Reason, or (iv) a
Termination Upon a Change in Control (including a Covered Resignation).  In the
event of any such termination during the Performance Period, your Units will
remain outstanding during the remainder of the Performance Period and will be
subject to forfeiture in the manner set forth in subsection (a) upon completion
of the Performance Period.  In such a case, any Units not so forfeited pursuant
to subsection (a) shall fully vest as of the date of the Committee
Determination.  For purposes of this Agreement, the terms “Covered Resignation,”
“Disability,” “Termination Other Than For Cause,” “Termination For Good Reason,”
and “Termination Upon a Change in Control” shall have the meanings ascribed to
such terms in your Employment Agreement with the Company dated October 26, 2005
(the “Employment Agreement”).  Such meanings shall continue to apply for
purposes of this Agreement notwithstanding any termination of the “Employment
Period” (as such term is defined in the Employment Agreement) in accordance with
the Employment Agreement.

 

II.                                     Vesting.

 

(a)                                Vesting of Non-Forfeited Units.  You will
have no further rights with respect to any Units that are forfeited in
accordance with Section I.  Subject to the terms and conditions of this
Agreement, your Units that (i) are not forfeited in accordance with Section I
and (ii) do not otherwise vest in accordance with Section I, if any, shall vest
upon the third anniversary of the Grant Date (the “Vesting Date”), subject to
your continuous service to the Company until the Vesting Date.

 

The vesting schedule requires continued employment through the Vesting Date as a
condition to vesting of the Units and the rights and benefits under this
Agreement.  Unless otherwise expressly provided herein with respect to
accelerated vesting of the Units under certain circumstances, employment for
only a portion of the vesting period, even if a substantial portion, will not
entitle you to any proportionate vesting or avoid or mitigate a termination of
rights and benefits upon or following a termination of employment as provided in
this Agreement.

 

(b)                               Acceleration on Certain Terminations Following
Performance Period.  If at any time following the completion of the Performance
Period and prior to the Vesting Date, your employment with the Company is
terminated as a result of (i) your death, Disability or Retirement, (ii) a
Termination Other Than For Cause (iii) a Termination For Good Reason, or (iv) a
Termination Upon a Change in Control (including a Covered Resignation), your
then outstanding Units (to the extent not previously forfeited and otherwise
unvested) shall fully vest immediately upon such termination of employment.

 

(c)                                No Acceleration or Vesting Upon Other
Terminations.  Except as otherwise provided in the Plan, if at any time your
employment with the Company is terminated (i) by the Company, or (ii) by you,
under any circumstances (other than as a result of your death,

 

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Disability or Retirement, a Termination Other Than For Cause, a Termination For
Good Reason, or a Termination Upon a Change in Control, including a Covered
Resignation), any of your Units that remain outstanding and otherwise unvested
at the time of such termination of employment shall be automatically forfeited
and cancelled in full, effective as of such termination of employment.

 

(d)                               Employment Termination Date.  If the
Employment Period is in effect, the date of your termination of employment for
purposes of this Agreement shall be no earlier than the “Date of Termination,”
as such term is defined in the Employment Agreement.  If the Employment Period
is not then in effect, the date of termination of your termination of employment
for purposes of this Agreement shall be your actual date of termination of
employment.

 

III.                                 Timing and Form of Payment.

 

(a)                                Distribution Date.  Unless you elect
otherwise on or before the Grant Date, the distribution date (the “Distribution
Date”) for your Units that become vested pursuant to this Agreement will be the
date that such Units vest; provided that in no event shall the Distribution Date
occur earlier than the date of the Committee Determination.  Distribution of
your vested Units will be made by the Company in shares of Common Stock (on a
one-to-one basis) on or as soon as practicable after the Distribution Date with
respect to such vested Units, but in no event later than two and one-half (2 ½)
months after the year in which such Units became vested.  You will only receive
distributions in respect of your vested Units and will have no right to
distribution of your unvested Units unless and until such Units vest (and are
not otherwise forfeited pursuant to Section I(a)).  Once a vested Unit has been
paid pursuant to this Agreement, you will have no further rights with respect to
that Unit.  You may, however, elect (a “Distribution Election”) to (A) defer
your Distribution Date with respect to some or all of your vested Units and/or
(B) have your vested Units distributed to you in annual installments as provided
in Section IV(b), provided that such election complies with this Section IV. 
You may change your Distribution Election up to three times without the approval
of the Committee, provided such Distribution Election is made in a timely
manner.  Any Distribution Elections with respect to your vested Units in
addition to the three provided in the preceding sentence may only be made with
the approval of the Committee, in its sole discretion.  In order for a
Distribution Election to be valid, it must be made at least one year prior to
the then-existing Distribution Date, the new Distribution Date must be at least
five years after the then-existing Distribution Date, and the election must
otherwise be consistent with the “subsequent election” rules of
Section 409A(a)(4)(C) of the Code so as to prevent application of the penalty
and interest provisions of Section 409A(a)(1)(B) of the Code.  Your Distribution
Date with respect to any portion of your Units may not be prior to the earlier
of the Vesting Date for such vested Units or the date of the Committee
Determination.  Distribution Elections may only be made by delivering a written
election to the Company care of its General Counsel in the form attached as
Exhibit B hereto.

 

(b)                               Form of Distribution.  Unless you elect
otherwise on or before the Grant Date, distribution of your vested Unitswill be
made in a lump sum on or as soon as practicable after your Distribution Date,
but in no event later than two and one-half (2 ½) months after the year in which
such Units became vested.  You may, however, elect to have vested Units

 

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distributed in the form of two or more annual installments over a fixed number
of years, provided that each installment payment must be for a minimum of 1,000
shares of Common Stock.  If you elect to have your vested Units distributed in
annual installments, the first installment will be paid on or within 90 days
after the Distribution Date and subsequent installments will be paid on or
within 90 days after each of the anniversaries of the Distribution Date during
your elected installment period, with each such payment date during such time
period within the Company’s sole discretion.  You may change an election you
make pursuant to this Section IV(b) (or you may make an initial election in the
event that you did not elect a form of payment at the time of your award and,
accordingly, your Units were subject to the lump sum default payment rule) by
filing a new written election with the Committee; provided that you must also
elect a later Distribution Date pursuant to Section IV(a) as to any Units that
are subject to such election and in no event may such an election result in an
acceleration of distributions within the meaning of Section 409A of the Code so
as to prevent application of the penalty and interest provisions of
Section 409A(a)(1)(B) of the Code.  Distribution Elections may only be made by
delivering a written election to the Company care of its General Counsel in the
form attached as Exhibit B hereto.

 

(c)                                Hardship Distribution.  If you experience an
Unforeseeable Emergency (as defined below) you may elect to receive immediate
distribution of some or all or your vested Units upon such Unforeseeable
Emergency.  Distribution upon an Unforeseeable Emergency shall be made no later
than thirty (30) days following written notice to the Company care of its
General Counsel of the Unforeseeable Emergency.  For purposes of this Agreement,
an “Unforeseeable Emergency” shall mean a severe financial hardship resulting
from (i) an illness or accident of you, your spouse, or your dependent (as
defined in Section 152(a) of the Code without regard to Section 152(b)(1),
(b)(2) and (d)(1)(B)), (ii) loss of your property due to casualty, or (iii) any
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond your control, all as reasonably determined by the Committee in
good faith.  No distribution shall be made in respect of an Unforeseeable
Emergency to the extent that such Unforeseeable Emergency is or may be relieved
through reimbursement or compensation by insurance or otherwise or by
liquidation of your assets (to the extent such liquidation would not itself
cause a severe financial hardship).  Any distribution of your vested Units as a
result of an Unforeseeable Emergency shall be limited to the amount reasonably
necessary to relieve the Unforeseeable Emergency (which may include amounts
necessary to pay any federal, state or local income taxes or penalties
reasonably anticipated to result from the distribution).

 

IV.                                 Dividend Equivalent Rights.  During such
time as each Unit remains outstanding and prior to the distribution of such Unit
in accordance with Section IV, you will have the right to receive, in cash, with
respect to such Unit, the amount of any cash dividend paid on a share of Common
Stock (a “Dividend Equivalent Right”).  You will have a Dividend Equivalent
Right with respect to each Unit that is outstanding on the record date of such
dividend.  Dividend Equivalent Rights will be paid to you at the same time or
within 30 days after dividends are paid to stockholders of the Company. 
Dividend Equivalent Rights will not be paid to you with respect to any Units
that are forfeited pursuant to Sections I and II, effective as of the date such
 Units are forfeited.  You will have no Dividend Equivalent Rights as of the
record date of any such cash dividend in respect of any Units that have been
paid in Common Stock; provided that you are the record holder of such Common
Stock on or before such record date.

 

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V.                                     Transferability.  No benefit payable
under, or interest in, the Units or this Agreement shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge and any such attempted action shall be void and no such
benefit or interest shall be, in any manner, liable for, or subject to, your or
your beneficiary’s debts, contracts, liabilities or torts; provided, however,
nothing in this Section VI shall prevent transfer of your Units by will or by
applicable laws of descent and distribution.  You may designate a beneficiary to
receive distribution of your vested Units upon your death by submitting a
written beneficiary designation to the Committee in the form attached hereto as
Exhibit B.  You may revoke a beneficiary designation by submitting a new
beneficiary designation.

 

VI.                                 Withholding.  Subject to Section 8.1 of the
Plan and such rules and procedures as the Committee may impose, upon any
distribution of shares of Common Stock in respect of your Units, the Company
shall automatically reduce the number of shares to be delivered by (or otherwise
reacquire) the appropriate number of whole shares, valued at their then fair
market value (with the “fair market value” of such shares determined in
accordance with the applicable provisions of the Plan), to satisfy any
withholding obligations of the Company or its Subsidiaries with respect to such
distribution of shares at the minimum applicable withholding rates; provided,
however, that the foregoing provision shall not apply in the event that you have
made other provision in advance of the date of such distribution for the
satisfaction of such withholding obligations.  In the event that the Company
cannot legally satisfy such withholding obligations by such reduction of shares,
or in the event of a cash payment or any other withholding event in respect of
your Units, the Company (or a Subsidiary) shall be entitled to require a cash
payment by you or on your behalf and/or to deduct from other compensation
payable to you any sums required by federal, state or local tax law to be
withheld with respect to such distribution or payment.

 

VII.                             No Contract for Employment.  This Agreement is
not an employment or service contract and nothing in this Agreement shall be
deemed to create in any way whatsoever any obligation on your part to continue
in the employ or service of the Company, or of the Company to continue your
employment or service with the Company.

 

VIII.                         Notices.  Any notices provided for in this
Agreement or the Plan, including a Distribution Election, shall be given in
writing and shall be deemed effectively given upon receipt if delivered by hand
or, in the case of notices delivered by United States mail, five (5) days after
deposit in the United States mail, postage prepaid, addressed, as applicable, to
the Company or if to you, at such address as is currently maintained in the
Company’s records or at such other address as you hereafter designate by written
notice to the Company.

 

IX.                                Plan.  The provisions of the Plan are hereby
made a part of this Agreement.  In the event of any conflict between the
provisions of this Agreement and those of the Plan, the provisions of this
Agreement shall control.

 

X.                                    Entire Agreement.  This Agreement,
together with the Employment Agreement, contains the entire understanding of the
parties in respect of the Units and supersedes upon its effectiveness all other
prior agreements and understandings between the parties with respect to the
Units.  In the event of any discrepancy between this Agreement and the
Employment Agreement, the Employment Agreement shall control, except the
definition of “Distribution Date” in this Agreement shall always control.

 

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XI.                                Amendment.  This Agreement may be amended by
the Committee; provided, however that no such amendment shall, without your
prior written consent, alter, terminate, impair or adversely affect your rights
under this Agreement.

 

XII.                            Governing Law.  This Agreement shall be
construed and interpreted, and the rights of the parties shall be determined, in
accordance with the laws of the State of Maryland, without regard to conflicts
of law provisions thereof.

 

XIII.                        Tax Consequences.  You may be subject to adverse
tax consequences as a result of the issuance, vesting and/or distribution of
your Units.  YOU ARE ENCOURAGED TO CONSULT A TAX ADVISOR AS TO THE TAX
CONSEQUENCES OF YOUR UNITS AND SUBSEQUENT DISTRIBUTION OF COMMON STOCK.

 

XIV.                        Construction.  To the extent that this Agreement is
subject to Section 409A of the Code, you and the Company agree to cooperate and
work together in good faith to timely amend this Agreement to prevent
application of the penalty and interest provisions of Section 409A(a)(1)(B) of
the Code.  In the event that you and the Company do not agree as to the
necessity, timing or nature of a particular amendment intended to prevent
application of the penalty and interest provisions of Section 409A(a)(1)(B) of
the Code, reasonable deference will be given to your reasonable interpretation
of such provisions.  Notwithstanding anything to the contrary contained in this
Agreement or the Plan, in the event that you are to receive a payment hereunder
in connection with your termination of employment (other than due to your death)
which constitutes a “deferral of compensation” pursuant to Section 409A of the
Code at a time when you are a “specified employee” (within the meaning of
Section 409A of the Code), the Company shall delay the making of such payment to
a date that is not earlier than the first to occur of six months and one day
after your “separation from service” (within the meaning of Section 409A of the
Code) or the date of your death.

 

[Remainder of page intentionally left blank]

 

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Very truly yours,

 

 

HCP, INC.

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

Accepted and Agreed,

effective as of the date first written above.

 

 

By:

 

 

Name: James F. Flaherty III

 

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[CEO THREE YEAR CLIFF VESTING]

 

EXHIBIT A

 

PERFORMANCE GOALS

 

Funds From Operations Per Share

 

Aggregate Percentage Forfeited

 

[$    ] or greater

 

0

%

Equal to or greater than [$     ] but less than [$     ]

 

2

%

Equal to or greater than [$     ] but less than [$     ]

 

4

%

Equal to or greater than [$     ] but less than [$     ]

 

6

%

Equal to or greater than [$     ] but less than [$     ]

 

8

%

Equal to or greater than [$     ] but less than [$     ]

 

10

%

Equal to or greater than [$     ] but less than [$     ]

 

12

%

Equal to or greater than [$     ] but less than [$     ]

 

14

%

Equal to or greater than [$     ] but less than [$     ]

 

16

%

Equal to or greater than [$     ] but less than [$     ]

 

18

%

Equal to or greater than [$     ] but less than [$     ]

 

20

%

Equal to or greater than [$     ] but less than [$     ]

 

22

%

Equal to or greater than [$     ] but less than [$     ]

 

24

%

Equal to or greater than [$     ] but less than [$     ]

 

26

%

Equal to or greater than [$     ] but less than [$     ]

 

28

%

Equal to or greater than [$     ] but less than [$     ]

 

30

%

Equal to or greater than [$     ] but less than [$     ]

 

32

%

Equal to or greater than [$     ] but less than [$     ]

 

34

%

Equal to or greater than [$     ] but less than [$     ]

 

36

%

Equal to or greater than [$     ] but less than [$     ]

 

38

%

Equal to or greater than [$     ] but less than [$     ]

 

40

%

Equal to or greater than [$     ] but less than [$     ]

 

50

%

Equal to or greater than [$     ] but less than [$     ]

 

60

%

Equal to or greater than [$     ] but less than [$     ]

 

70

%

Equal to or greater than [$     ] but less than [$     ]

 

80

%

Equal to or greater than [$     ] but less than [$     ]

 

90

%

Equal to or greater than [$     ] but less than [$     ]

 

100

%

 

A-1

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EXHIBIT B

 

HEALTH CARE PROPERTY INVESTORS, INC.

2006 PERFORMANCE INCENTIVE PLAN

 

RESTRICTED STOCK UNITS

DISTRIBUTION ELECTION AND BENEFICIARY DESIGNATION FORM

 

Name: James F. Flaherty III

 

Social Security No.:

 

 

In connection with your award of Performance Restricted Stock Units on
[                , 2007] under the Health Care Property Investors, Inc. 2006
Performance Incentive Plan, as amended and/or restated from time to time (the
“Plan”), you have the option of selecting the timing and form of payment of the
shares of Common Stock underlying your vested Units.

 

Please complete this election form and return it to Edward J. Henning, the
Company’s General Counsel and Corporate Secretary.

 

Deferral of Distribution Date

 

Unless you elect otherwise, the Distribution Date for your Units that vest will
be the vesting date of such Units; provided that in no event shall the
Distribution Date occur earlier than the date of the Committee Determination
with respect to such Units.  You may elect a new Distribution Date with respect
to your Units that vest by completing the information request below.  Please
note that, subject to the restrictions set forth below and in the Agreement,
your new Distribution Date can take any of the following forms:

 

·                                          You may elect a date certain for your
Distribution Date (e.g., January 1, 2011),

 

·                                          You may elect that your Distribution
Date will be the date of your death or termination of employment, or

 

·                                          You may elect a Distribution Date
that is the earlier of two dates/events (e.g., the earlier of January 1, 2011,
or termination of your employment).

 

If you do not elect a Distribution Date on or before the Grant Date, you will be
deemed to have elected distribution of your vested Units on or as soon as
administratively practical after the vesting date of your Units, but in no event
later than two and one-half (2 ½) months after the year in which such Units
became vested.  If, after the Grant Date, you want to change the Distribution
Date with respect to any of your vested Units, your new election must be made at
least one year prior to the then-existing Distribution Date, the new
Distribution Date you elect must be at least five years after the then-existing
Distribution Date, and the change must otherwise satisfy the “subsequent
election” rules of Section 409A(a)(4)(C) of the Code.  If your election to defer
your Distribution Date is not timely, it will not be valid.

 

B-1

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You acknowledge and understand that by electing a new Distribution Date, you are
hereby revoking the then-existing Distribution Date.  You further acknowledge
and agree that the distribution of the shares of Common Stock underlying your
Units may coincide with a period during which you are prohibited from selling,
disposing or otherwise transferring such shares pursuant to the Company’s
Insider Trading Policy, or by law, and therefore, you may not be able to sell,
dispose or otherwise transfer such shares to pay any sums required by federal,
state or local tax law to be withheld with respect to the issuance of such
shares.

 

I elect the following Distribution Date with respect to the shares of Common
Stock underlying my Units:  (Specify “Vesting Date” if you desire payment of the
vested Units on or as soon as administratively practical after the vesting date
of the Units.  Otherwise, indicate the Distribution Date you elect.  In all
events your election is subject to the rules stated above (including, without
limitation, the 5-year deferral requirement set forth above if you are electing
a change after the Grant Date).

 

Form of Payment

 

Distribution of all of your vested Units will be made in shares of Common Stock
in a lump sum on or as soon as practicable after the Distribution Date with
respect to such Units, but in no event later than two and one-half (2 ½) months
after the year in which such Units became vested.  You may, however, elect at
the time of your award to have vested Units distributed in the form of two or
more annual installments over a fixed number of years.  For example, if you
elect to have your vested Units distributed in five installments, your vested
Units will be distributed to you in five equal payments on or as soon as
practicable after the Distribution Date and each of the first four anniversaries
of the Distribution Date.

 

If you elect to have your vested Units distributed in installments, you must
elect a number of equal annual installments which will result in a distribution
of at least 1,000 shares of Common Stock per installment (otherwise, the number
of installments you elected will be reduced by the Company to produce a
distribution of at least 1,000 shares of Common Stock per installment).  If you
would like to change a form of distribution election you have made (or if you
would like to make an initial form of distribution election in the event that
you did not make such an election at the time of the award), your election must
be made at least one year prior to the then-existing Distribution Date, and you
must elect a new Distribution Date that is at least five years after the
then-existing Distribution Date.  If your election to defer your Distribution
Date is not timely, it will not be valid.  Furthermore, if you are changing an
existing form of distribution election, your election change cannot result in an
acceleration (within the meaning of Section 409A of the Code) of payments, and
the change must otherwise satisfy the “subsequent election” rules of
Section 409A(a)(4)(C) of the Code.

 

I elect the following number of annual installments with respect to the
distribution of the shares of Common Stock underlying my Units:
                                      .

 

B-2

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Beneficiary Designation

 

I hereby designate the following individual as beneficiary to receive
distribution of my vested Units, if any, in the event of my death.  Distribution
of such vested Units will be in the form, and on the Distribution Date(s), in
effect with respect to such vested Units as of the date of my death.

 

Beneficiary Information

 

Name:

 

(Please print)

Last

First

 

Middle Initial

 

Sex:

 

Relationship to Participant: 

 

 

 

 

 

Social Security No.:

 

Date of Birth:

 

 

Address:

 

 

City:

 

State:

 

Zip Code:

 

 

Please retain a copy of this Distribution Election Form for your records.

 

 

 

 

Signature:  James F. Flaherty III

Date Signed

 

B-3

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