EXHIBIT 10.6
COMBINED SERVICE AND SPECIAL
DISTRIBUTION AND ALLOCATION AGREEMENT
(XXXXXXX X. XXXXXXXXX, XX.)
(AS AMENDED EFFECTIVE JANUARY 1, 1998)
THIS AMENDMENT OF THE COMBINED SERVICE AND SPECIAL DISTRIBUTION AND
ALLOCATION AGREEMENT (the "Agreement") is made and entered into as of this 19th
day of March, 1998, effective as of January 1, 1998, by and between Prime
Retail, Inc., a Maryland corporation ("Prime") and the sole general partner of
Prime Retail, L.P., a Delaware limited partnership (the "Operating
Partnership"), the Operating Partnership, (Prime and the Operating Partnership
are sometimes hereinafter together referred to as the "Company"), and Xxxxxxx X.
Xxxxxxxxx, Xx., an individual domiciled in the State of Maryland ("Executive").
WITNESSETH
WHEREAS, Prime, the Operating Partnership and Executive entered into a
Combined Service and Special Distribution and Allocation Agreement effective
January 1, 1996 (the "Original Agreement"); and
WHEREAS, pursuant to the power reserved to the parties by Section 12 of
the Original Agreement, Prime, the Operating Partnership and Executive wish to
amend and completely restate the Original Agreement, effective January 1, 1998.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by each of the parties
hereto, Prime and Executive hereby agree as follows:
1. DUTIES. During the Term hereof (as defined in Section 2 hereof), the
Company agrees to retain Executive, and Executive agrees to be retained by the
Company, as the President and Chief Operating Officer of the Company on the
terms and conditions provided in this Agreement. Executive shall conduct,
operate, manage and promote the business and business concept of the Company,
and exercise such other powers and authority as are customarily inherent in a
similar position in a comparable publicly-held entity or as provided by the
By-laws of Prime ("By-laws") and the Agreement of Limited Partnership of the
Operating Partnership (the "Partnership Agreement"). Prime, in its capacity as
sole general partner of the Operating Partnership, may, from time to time, in
its sole discretion, by action of its Board of Directors (the "Board") further
define and clarify Executive's duties and services hereunder or under the
By-laws or Partnership Agreement in a manner consistent with the office for
which he has been retained hereunder and the scope of work set forth herein.
Executive agrees to devote his best efforts and substantially all of his
business time, attention, energy, and skill to performing his duties to the
Company under this Agreement. Further, Prime agrees to nominate Executive as a
director of Prime until such time as Executive is no longer performing services
for the Company.
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2. TERM. The Term of this Agreement shall commence as of January 1, 1998
and, unless earlier terminated in accordance with the terms of this Agreement or
extended pursuant to the next sentence, will terminate on the third anniversary
of such date. On such third anniversary and each succeeding anniversary, the
Term of this Agreement shall automatically be extended for an additional one
year period unless, not later than one hundred eighty (180) days prior to any
such anniversary, either party to this Agreement gives notice to the other that
the Term of this Agreement shall not be extended or further extended beyond its
then automatically extended Term.
3. COMPENSATION AND RELATED MATTERS.
(a) BASE DISTRIBUTIONS. During the Term of this Agreement, the
Operating Partnership agrees to distribute to Executive (as "guaranteed
payments" within the meaning of Section 707(c) of the Internal Revenue Code of
1986, as amended from time to time (the "Code")) cash distributions from the
Operating Partnership in an aggregate amount of Four Hundred Thousand Dollars
($400,000) per calendar year in addition to any other distributions that
Executive is otherwise entitled to receive from the Operating Partnership, such
distributions to be payable in accordance with the general policies and
procedures for payment of salaries to any other executive personnel of the
Company but in all events to be distributable no less frequently than monthly.
The yearly base distributions payable to Executive pursuant to the provisions of
this Section 3(a) shall be subject to periodic review by the Executive
Compensation and Stock Incentive Plan Committee of the Board of Directors of
Prime (the "Committee") based upon periodic review of the Executive's
performance conducted on at least an annual basis and may be periodically
increased or decreased as a result thereof; provided, however, that the yearly
base distributions payable to the Executive pursuant to the provisions of this
Section 3(a) shall in no event be less than Four Hundred Thousand Dollars
($400,000). The then applicable amount of yearly base distributions payable to
the Executive pursuant to the provisions of this Section 3(a) shall herein be
referred to as the "Base Distribution."
(b) PERFORMANCE BONUS DISTRIBUTIONS. In addition to the Base
Distribution, the Executive shall have the right to receive, and the Operating
Partnership agrees to distribute to the Executive, a performance bonus
distribution for each calendar year during the Term of this Agreement, in such
amounts as determined by the five point formula delineated hereinbelow
(collectively, a yearly "Performance Bonus Distribution"); provided, however,
that the Committee, in its sole discretion, may determine that the Executive
shall receive a Performance Bonus Distribution under this Section 2(b) that is
greater (but not less) than the Performance Bonus Distribution that would be
indicated by application of the five point formula delineated below. The
aggregate Performance Bonus Distribution for a calendar year distributable in
accordance with the provisions of this Section 3(b) shall in no event exceed
100% of the Base Distribution for such calendar year. Further, the Executive
shall only be entitled to receive a Performance Bonus Distribution for a
calendar year if the Executive has been and continues to be retained by the
Company as an Executive Officer of the Company for the full calendar year or if
the Company terminates Executive's employment without cause (as defined below)
or Executive terminates his employment for good reason (as defined below).
Notwithstanding
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anything to the contrary contained herein, including the application of the
following five point formula provided for hereinbelow, for the calendar year
ending December 31, 1997, the Executive shall receive a Performance Bonus
Distribution equal to $250,000, such distribution to be made on or before March
31, 1998.
The amount of a Performance Bonus Distribution for a calendar year after
1997, distributable to the Executive hereunder shall be determined by the
Committee based upon the results of the operations of the Operating Partnership
for such calendar year as reflected in the audited financial statements of the
Operating Partnership prepared in accordance with generally accepted accounting
principles and auditing standards and practices, consistently applied ("Audited
Statements"). The Executive shall in all events have the right to review and
approve or challenge any calculation or determination of an amount of a
Performance Bonus Distribution distributable for any such calendar year but
shall not be able to take any position inconsistent or in conflict with any
information contained in the Audited Statements for such calendar year. Any
amount of Performance Bonus Distribution required to be distributed to the
Executive for a calendar year during the Term of this Agreement shall be
distributed by the Company to the Executive during the pay period of the Company
following finalization of the audit for such calendar year and final review and
approval of the bonus calculation by the Committee, and, in all events, on or
before March 31 of the year immediately following the end of the calendar year
for which such Performance Bonus Distribution is attributable.
The five point formula to determine a Performance Bonus Distribution for
any calendar year during the Terms of this Agreement shall be as follows:
(1) FFO GROWTH PER SHARE. Up to fifty percent (50%) of the
Executive's Performance Bonus Distribution shall be based on the Company's Funds
from Operations per share growth percentage (as defined below) ("FFO%") for the
applicable calendar year, calculated according to the following formula:
(FFO% - 10%) x 50% x Base Distribution
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(5%)
In calculating the initial fraction above, in no event shall the fraction
be less than zero or exceed one. For example, if the FFO% for a calendar year
was 15%, and the Base Distribution was $250,000, then the Executive would be
entitled to a Performance Bonus Distribution under this subsection (1) of
$125,000, determined as follows:
(15% - 10%) x 50% x $250,000
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(5%)
For purposes of this subsection (1), "Funds from Operations per share
growth percentage" shall mean the percentage determined by dividing (i) the
Adjusted FFO per common share outstanding - fully diluted (as set forth in the
Form 10-K as filed with the SEC) for the applicable calendar year minus the
Adjusted FFO per common share outstanding - fully diluted (as set forth in the
Form 10-K as filed with the SEC) for the immediately preceding calendar year by
(ii) the Adjusted FFO per common share outstanding - fully
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diluted (as set forth in the Form 10-K as filed with the SEC) for the
immediately preceding calendar year.
(2) RETURN ON COST.
Up to twenty percent (20%) of Executive's Performance Bonus Distribution
shall be based on the Company's Return on Cost percentage (as defined below)
("DY %") for each applicable calendar year, calculated according to the
following formula:
(DY% - 12.0%) x (20% x Base Distribution)
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3%
In calculating the initial fraction above, in no event shall the fraction
be less than zero or exceed one. For purposes of this subsection (2), "Return on
Cost" shall mean the definition thereof set forth on Exhibit A attached hereto.
(3) AVERAGE SALES PER SQUARE FOOT. Up to ten percent (10%) of
Executive's Performance Bonus Distribution shall be based on the Company's
Average Sales per Square Foot (as defined below) ("ASSF") for each applicable
calendar year, calculated according to the following formula:
(ASSF - $220) x (10% x Base Distribution)
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In calculating the initial fraction above, in no event shall the fraction
be less than zero or exceed one. For purposes of this subsection (3), "Average
Sales Per Square Foot" shall mean sales per square foot of the Company's outlet
shopping center portfolio as is included as part of "Comparable Centers," as
published by the International Council of Shopping Centers.
(4) PERCENTAGE OF SPACE LEASED. Up to ten percent (10%) of the
Executive's Performance Bonus Distribution shall be based on the Company's
Percentage of Space Leased (as defined below) ("PSL") for each applicable
calendar year, calculated according to the following formula:
(PSL - 93%) x (10% x the Base Distribution)
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5%
In calculating the initial fraction above, in no event shall the fraction
be less than zero or exceed one. For purposes of this subsection (4),
"Percentage of Space Leased" shall mean the percentage determined by dividing
(i) the gross leasable area of operating outlet shopping center space subject to
executed leases of terms of one year or more and where the tenant is obligated
to commence the payment of rent no later than April 1st of the year following by
(ii) the gross
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leasable area of operating outlet shopping center space as of December 31 of the
applicable calendar year.
(5) NEW CONCEPTS BONUS. Up to ten percent (10%) of the
Executive's Performance Bonus Distribution shall be determined by the Committee
in its sole discretion, based on the Executive's participation in the
development of new concepts to be defined by the Committee and communicated to
the Executive no later than March 31 of the applicable year for an applicable
calendar year.
(c) Intentionally deleted.
(d) HEALTH INSURANCE AND OTHER BENEFITS.
(1) During the Term of this Agreement and subject to the
limitations and affirmative rights set forth in this Section 3(d), Executive and
his eligible dependents shall have the right to participate in any health,
dental, vision and other medical insurance benefit plans or programs that have
been or are hereafter adopted or maintained by the Company (or in which the
Company participates) according to the terms of such plan or program with all of
the benefits, rights and privileges as are enjoyed by any other senior executive
officer of the Company.
(2) During the Term of this Agreement and subject to the
limitations and affirmative rights set forth in this Section 3(d), Executive and
his eligible dependents shall have the right to participate in any retirement,
pension, or other similar benefit plan or program that has been or is hereafter
adopted by the Company (or in which the Company participates) according to the
terms of such plan or program with all the benefits, rights and privileges as
are enjoyed by any other senior executive officer of the Company.
(3) If the participation of Executive under a plan described in
subsection (2) above would adversely affect the qualification of a plan intended
to be qualified under the Code as the same may be amended from time to time, the
Company shall have the right to exclude Executive from that plan in return for
his participation in (x) a non-qualified deferred compensation plan or (y) an
arrangement providing substantially comparable benefits under a plan that is
either a qualified or non-qualified plan under the Code at the Company's option.
(e) VACATION AND LEAVES OF ABSENCE. Executive shall be entitled to
four (4) weeks of paid vacation leave during each twelve (12) month calendar
period and paid holidays in accordance with the Company's established policies.
Executive may accrue unused vacation time if not used in any calendar year or
years, however, the maximum cumulative amount of vacation time that Executive
may accrue and carry over to the next year is four weeks. In addition to the
foregoing, Executive may be granted leaves of absence with or without pay for
such other reasons as shall be mutually agreed upon by the Board and Executive.
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(f) EXPENSES. Executive shall be reimbursed, subject to the Company's
receipt of invoices or similar records as the Company may reasonably request in
accordance with its policy and procedures, for all reasonable and necessary
expenses incurred by the Executive in the performance of his duties hereunder.
(g) LIFE INSURANCE. The Company shall provide $2,000,000 of term life
insurance for the benefit of the Executive during the Term of this Agreement.
(h) In the event of a disagreement with regard to the calculation of
the Performance Bonus Distribution amounts, the Executive Compensation Committee
of the Board of Directors of the Company shall be the final arbiters of such
amounts, and their determination shall be final and binding on the Company and
the Executive.
4. STOCK OPTION PLAN.
(a) GRANT OF OPTIONS. Subject to shareholder approval, Prime has
established the Prime Retail, Inc. 1998 Long-Term Stock Incentive Plan (the
"1998 Stock Incentive Plan") under which Prime may award options to acquire
shares of common stock of Prime (the "Common Stock"). On March 19, 1998, Prime
granted to Executive, subject to shareholder approval, an Option to acquire up
to 300,000 shares of Common Stock (the "1998 Grant"), which will vest one-third
on the date of grant and one-third on each anniversary of the date of grant, and
which may be exercised in a "cashless exercise."
(b) STATUS AND EXERCISE OF OPTIONS UPON TERMINATION OF EMPLOYMENT. If
Executive's services with the Company are terminated for any reason set forth in
Sections 5(a)(i), 5(b)(i) or 5(e), all his unvested Options shall automatically
and fully vest. If Executive's services with the Company are terminated for any
reason other than as set forth in 5(a)(i), 5(b)(i) or 5(e), all granted but
unvested Options shall be forfeited on such termination. Upon Executive's
termination of his services with the Company, Executive (or in the case of his
death, Executive's personal representative or heirs) shall be entitled to
exercise all Options vested as of the date of termination of his services with
the Company at any time during the applicable unexpired exercise period set
forth in the 1998 Stock Incentive Plan (or any applicable predecessor stock
incentive plan).
(c) GENERAL PROVISIONS. It is acknowledged and agreed that the terms
and conditions of any Options issued to Executive shall be governed by the 1998
Stock Incentive Plan (or any applicable predecessor stock incentive plan),
except to the extent any provisions thereof are inconsistent with any provisions
of this Agreement, in which case the provisions of this Agreement shall control;
provided, however, that in the case of any incentive stock options, any
provisions of this Agreement shall be subject to any other applicable limitation
or requirement under the Code. The grant of the Options contemplated by this
Section 4 shall not preclude Executive's participation in or under any other
incentive compensation program applicable to senior executive offers of Company,
and Executive shall participate in any incentive compensation program uniformly
applicable to all senior executive offers of Company (as
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opposed to individually negotiated arrangements). The Options granted under
Section 4(a) hereof shall be for terms of ten years from the respective dates of
grant.
5. TERMINATION AND TERMINATION BENEFITS.
(a) TERMINATION BY PRIME.
(i) WITHOUT CAUSE. The Company may terminate this Agreement and
Executive's services at any time for any reason or for no reason at all upon
thirty (30) days' prior written notice to Executive. In connection with the
termination of Executive's services pursuant to this Section 5(a)(i), Executive
shall be entitled to receive (A) all accrued but undistributed amounts of the
Base Distribution through the effective date of termination, distributable in
accordance with the provisions of Section 3(a) above; (B) a termination
distribution in an amount equal to the sum of (x) one (1) times the amount of
the Base Distribution then applicable, plus (y) one (1) times the average of the
amounts distributable to the Executive pursuant to the provisions of Section
3(b) hereof for the two (2) calendar years immediately preceding the calendar
year in which the effective date of the termination of this Agreement occurs
(the sum of the amounts determined by adding subsection (x) and (y) is in the
aggregate hereinafter referred to as the "Normal Termination Distribution"), and
the Normal Termination Distribution shall be distributable within thirty (30)
days of the effective date of termination; and (C) any vested benefits or
amounts pursuant to Sections 3(d), 3(e), 3(f), 3(g) and 4 hereof through the
effective date of termination, distributable in accordance with the provisions
of any such plan(s). In addition, the Executive and his eligible dependents
shall be entitled to receive (x) the health insurance benefits specified in
Section 3(d)(1) above for a period of twelve (12) months following the effective
date of termination (the "Company Continuation Period"), and following such time
period, the Executive shall be entitled to all rights afforded to him under the
federal Consolidated Omnibus Budget Reconciliation Act ("COBRA") to purchase
continuation coverage of such health insurance benefits for himself and his
dependents for the maximum period permitted by law and (y) the life insurance
benefits specified in Section 3(g) above for a period of twelve (12) months
following the effective date of termination. With respect to subsection (x) of
the preceding sentence, to the extent required by applicable law, Executive
shall be deemed to have elected to exercise his rights under COBRA as of the
first day of the Company Continuation Period. In the event that Executive is
terminated without cause pursuant to this Section 5(a)(i) and within twelve
months from the effective date of such termination there is a "Change in
Control" of the Company (as defined below), then Executive shall be entitled to
receive the benefits set forth in Section 5(e) hereof to the extent and in the
amount that such benefits exceed the amounts paid or received by Executive
pursuant to this Section 5(a)(i).
(ii) WITH CAUSE. The Company may terminate this Agreement with
"cause" immediately upon written notice to Executive. In connection with the
termination of Executive's services pursuant to this Section 5(a)(ii), Executive
shall (A) be entitled to receive all accrued but undistributed amounts of the
Base Distribution through the effective date of termination, distributable in
accordance with the provisions of Section 3(a) above; (B) forfeit his
entitlement
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to any bonuses or other distributions otherwise distributable to him in
accordance with Section 3(b) hereof; and (C) be entitled to the vested
benefits or amounts pursuant to Sections 3(d), 3(e), 3(f), 3(g) and 4 hereof
through the effective date of termination, distributable as otherwise
provided in such Sections; provided, however, notwithstanding the foregoing
to the contrary, the Executive and his eligible dependents shall be entitled
to receive (x) the health insurance benefits specified in Section 3(d)(1)
above for a period of three (3) months (the "Company Continuation Period")
following the effective date of termination, and following such time period,
the Executive shall be entitled to all rights afforded to him under COBRA to
purchase continuation coverage of such health insurance benefits for himself
and his dependents for the maximum period permitted by law and (y) the life
insurance benefits specified in Section 3(g) above for a period of three (3)
months following the effective date of termination. With respect to
subsection (x) of the preceding sentence, to the extent required by
applicable law, Executive shall be deemed to have elected to exercise his
rights under COBRA as of the first day of the Company Continuation Period.
For purposes of this Agreement, "cause" shall mean a finding by the Board (A)
that the Executive has materially harmed the Company through an act of
dishonesty or material conflict of interest that relates to the performance
of Executive's duties hereunder, (B) of Executive's conviction of a felony
involving moral turpitude, fraud or embezzlement, (C) that Executive's
failure to perform in any material respect his duties under this Agreement
(other than a failure due to disability) after written notice specifying the
failure and a reasonable opportunity to cure (it being understood that if
Executive's failure to perform is not of a type requiring a single action to
fully cure, then Executive may commence the cure promptly after such written
notice and thereafter diligently prosecute such cure to completion) or (D) of
a material breach by Executive of any of his obligations hereunder and the
failure of Executive to cure such breach within thirty (30) days after
receipt by the Executive of a written notice of the Company specifying in
reasonable detail the nature of the breach.
(iii) DISABILITY. If due to illness, physical or mental
disability, or other incapacity, Executive shall fail to perform the duties
required by this Agreement during any four (4) consecutive months during the
Term of this Agreement, the Company may terminate this Agreement upon thirty
(30) days written notice to Executive. In such event, Executive shall receive
(A) all accrued but undistributed amounts of the Base Distribution through the
effective date of termination, distributable in accordance with the provisions
of Section 3(a) above; (B) a termination distribution in an amount equal to the
sum of (x) one (1) times the amount of the Base Distribution then applicable,
plus (y) one (1) times the average of the amounts distributable to the Executive
pursuant to the provisions of Section 3(b) hereof for the two (2) calendar years
immediately preceding the calendar year in which the effective date of the
termination of this Agreement occurs (the sum of the amounts determined by
adding subsection (x) and (y) is in the aggregate hereinafter referred to as the
"Normal Termination Distribution"), and the Normal Termination Distribution
shall be distributable within thirty (30) days of the effective date of
termination; and (C) any vested benefits or amounts pursuant to Sections 3(d),
3(e), 3(f), 3(g) and 4 hereof through the effective date of termination,
distributable in accordance with the provisions of any such plan(s). In
addition, the Executive and his eligible dependents shall be entitled to receive
(x) the health insurance benefits specified in Section 3(d)(1) above for a
period of twelve (12) months (the "Company Continuation Period") following the
effective
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date of termination and following such time period, the Executive shall be
entitled to all rights afforded to him under COBRA to purchase continuation
coverage of such health insurance benefits for himself and his dependents for
the maximum period permitted by law and (y) the life insurance benefits
specified in Section 3(g) above for a period of twelve (12) months following the
date of termination. With respect to subsection (x) of the preceding sentence,
to the extent required by applicable law, Executive shall be deemed to have
elected to exercise his rights under COBRA as of the first day of the Company
Continuation Period. This Section 5(a)(iii) shall not limit the entitlement of
the Executive, his estate or beneficiaries to any disability or other benefits
available to Executive under any disability insurance or other benefits plan or
policy that is maintained by the Company for Executive's benefit.
(b) TERMINATION BY EXECUTIVE.
(i) WITH GOOD REASON. Executive may terminate this Agreement
with "good reason" upon written notice to the Company. In connection with the
termination of this Agreement pursuant to this Section 5(b)(i), Executive shall
be entitled to receive (A) all accrued but undistributed amounts of the Base
Distribution through the effective date of termination, distributable in
accordance with the provisions of Section 3(a) above; (B) any earned and unpaid
bonus(es) otherwise distributable to him in accordance with Sections 3(b) and
any vested benefits or amounts pursuant to Sections 3(d), 3(e), 3(f), 3(g) and 4
hereof through the effective date of termination, distributable as otherwise
provided in such Sections. In addition, the Executive and his eligible
dependents shall be entitled to receive (x) the health insurance benefits
specified in Section 3(d)(1) above for a period of twelve (12) months following
the effective date of termination (the "Company Continuation Period") and
following such time period, the Executive shall be entitled to all rights
afforded to him under COBRA to purchase continuation coverage of such health
insurance benefits for himself and his dependents for the maximum period
permitted by law and (y) the life insurance benefits specified in Section 3(g)
above for a period of twelve (12) months following the date of termination. With
respect to subsection (x) of the preceding sentence, to the extent required by
applicable law, Executive shall be deemed to have elected to exercise his rights
under COBRA as of the first day of the Company Continuation Period. Further, in
connection with the termination of Executive's services pursuant to this
paragraph 5(b)(i), Executive shall be entitled to receive a termination
distribution in an amount equal to one (1) time the amount of the Base
Distribution, distributable within thirty (30) days of the effective date of
termination.
(ii) WITHOUT GOOD REASON. Executive may terminate this Agreement
at any time for any reason or for no reason at all upon sixty (60) days' written
notice to Company, during which period Executive shall continue to perform his
duties under this Agreement if Prime so elects. In connection with the
termination of Executive's services pursuant to this Section 5(b)(ii), Executive
shall be entitled to receive (A) all accrued but undistributed amounts of the
Base Distribution through the effective date of termination, distributed in
accordance with the provisions of Section 3(a) above; and (B) the vested
benefits and amounts set forth in Sections 3(d), 3(e), 3(f), 3(g) and 4 hereof
through the effective date of termination, distributable in accordance with the
provisions of such Sections. In addition, the Executive and
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his eligible dependents shall be entitled to receive (x) the health insurance
benefits specified in Section 3(d)(1) above for a period of six (6) months (the
"Company Continuation Period") following the effective date of termination and
following such time period, the Executive shall be entitled to all rights
afforded to him under COBRA to purchase continuation coverage of such health
insurance benefits for himself and his dependents for the maximum period
permitted by law and (y) the life insurance benefits specified in Section 3(g)
above for a period of three (3) months following the date of termination. With
respect to subsection (x) of the preceding sentence, to the extent required by
applicable law, Executive shall be deemed to have elected to exercise his rights
under COBRA as of the first day of the Company Continuation Period.
(iii) GOOD REASON. For purposes of this Agreement, "good reason"
shall mean (A) the material breach by the Company of any of its obligations
hereunder (a bona fide dispute regarding the Performance Bonus Distribution
shall not be a material breach by the Company) and the failure of the Company to
cure such breach within thirty (30) days after receipt by the Company of a
written notice from the Executive specifying in reasonable detail the nature of
the breach, unless such breach requires a longer period to cure, then the
Company shall have the right to cure such breach within such additional period
of time not to exceed ninety (90) days, (B) the Executive is no longer a member
of the Board of Directors of Prime (the "Board") or is no longer a member of the
Executive Committee of the Board, or the scope of responsibilities of the
Executive Committee of the Board, as they existed immediately prior to such
event, are diminished, or the Executive's voting percentage on the Executive
Committee of the Board, as it existed immediately prior to such event, is
reduced, (C) Executive's title or scope of responsibilities and duties are
diminished as they existed and as provided in this Agreement immediately prior
to such event, or the Company fails to provide Executive with adequate office
facilities and support services to perform such responsibilities and duties, (D)
the amounts distributable to the Executive as existed and as provided in this
Agreement immediately prior to such event have been materially reduced in any
way, or (E) the Company fails to continue in effect any cash or stock-based
incentive or bonus plan, retirement plan, welfare benefit plan, or other benefit
plan, program or arrangement, unless the aggregate value (as computed by an
independent employee benefits consultant) of all such compensation, retirement
and benefit plans, programs and arrangements provided to Executive is not
materially less than their aggregate value as of the date of this Agreement (or
as of the Change of Control, if greater).
(c) DEATH. Notwithstanding any other provision of this Agreement,
this Agreement shall terminate on the date of Executive's death. In this event,
Executive's estate shall be entitled to receive all accrued but undistributed
amounts of the Executive's Base Distribution through the date of Executive's
death, distributable in accordance with the provisions of Section 3(a) above.
In addition, the Executive's eligible dependents shall be entitled to receive
the health insurance benefits specified in Section 3(d)(1) above for a period of
twelve (12) months (the "Company Continuation Period") following the effective
date of termination and following such time period, such eligible decedents
shall be entitled to all rights afforded to them under COBRA to purchase
continuation coverage of such health insurance benefits for the maximum period
permitted by law. With respect to the preceding sentence, to the extent
required by applicable law, the Executive's dependents shall be deemed to have
elected to exercise their
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rights under COBRA as of the first day of the Company Continuation Period. This
Section 5(c) shall not limit the entitlement of Executive under any insurance or
other benefits plan or policy that is maintained by Prime for Executive's
benefit.
(d) PURCHASE OF LIFE INSURANCE. Notwithstanding anything to the
contrary contained herein, in the event that the services of the Executive with
the Company terminate for any reason other than death, the Executive shall have
the right to acquire any life insurance policies maintained by the Company on
the life of the Executive by (i) notifying the Company in writing of his desire
to so purchase such life insurance policy or policies and (ii) tendering to the
Company a cashier's check in an amount equal to the interpolated surrender cash
value of such life insurance policy or policies together with any unearned
portion of any current year premium thereof, both within sixty (60) days of the
effective date of such termination.
(e) TERMINATION FOLLOWING A CHANGE OF CONTROL. If, within twenty-four
(24) months following a Change of Control, the Company terminates this Agreement
and Executive's services other than for cause or Executive terminates this
Agreement with good reason, in either case, by giving thirty (30) days' prior
written notice, Executive shall be entitled to receive the following benefits
and payments:
(i) all accrued but undistributed amounts of the Base
Distribution through the effective date of termination, distributable in
accordance with the provisions of Section 3(a) above;
(ii) a termination distribution in an amount equal to
$1,600,000, distributable within thirty (30) days of the effective date of
termination; and
(iii) any vested benefits or amounts pursuant to Sections 3(d),
3(e), 3(f), 3(g) and 4 hereof through the effective date of termination,
distributable in accordance with the provisions of any such plan(s). In
addition, the Executive and his eligible dependents shall be entitled to receive
(x) the health insurance benefits specified in Section 3(d)(1) above for a
period of twenty-four (24) months following the effective date of termination
(the "Company Continuation Period"), and following such time period, the
Executive shall be entitled to all rights afforded to him under COBRA to
purchase continuation coverage of such health insurance benefits for himself and
his dependents for the maximum period permitted by law and (y) the life
insurance benefits specified in Section 3(g) above for a period of twenty-four
(24) months following the effective date of termination. With respect to
subsection (x) of the preceding sentence, to the extent required by applicable
law, Executive shall be deemed to have elected to exercise his rights under
COBRA as of the first day of the Company Continuation Period.
(iv) Executive shall be fully vested in all amounts accrued or
accumulated on behalf of Executive under any non-qualified retirement plan
established or maintained by the Company, and the Company will promptly pay or
distribute all such amounts to Executive in accordance with the terms of such
plan as in effect on the date of this Agreement (or as of
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Executive's employment termination, if more favorable to Executive). If
Executive is not fully vested in his accounts or benefits under the Company's
qualified retirement plan at his employment termination pursuant to this
Section, the Company will make a cash payment to Executive, within 30 days of
Executive's employment termination, equal to the amount of such account or
benefit that is forfeited.
(v) All stock awards or grants under the 1998 Stock Incentive
Plan shall be fully vested any exercisable as of Executive's employment
termination.
For purposes of this Agreement, a "Change of Control" shall be deemed to have
occurred if (1) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended), other than a trustee or
other fiduciary holding securities under an employee benefit plan of Prime, a
corporation owned directly or indirectly by the stockholders of Prime
(immediately prior to the initial public offering of Prime) in substantially the
same proportions as their ownership of stock of Prime (immediately prior to the
initial public offering of Prime), Executive, Xxxxxxx X. Xxxxxxx or Xxxxxxx
Xxxxxxxxx or any of their respective affiliates, becomes the "beneficial owner"
(as defined in Rule 13d-3 under said Act), directly or indirectly, of securities
of Prime representing 50% or more of the total voting power represented by
Prime's then outstanding securities that vote generally in the election of
directors (referred to herein as "Voting Securities"); (2) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board and any new directors whose election by the Board or
nomination for election by Prime's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of the Board; (3) the stockholders of Prime approve a merger or
consolidation of Prime with any other corporation, other than a merger or
consolidation that (i) would result in the Voting Securities of Prime
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 50% of the total voting power represented by the
Voting Securities of Prime or such surviving entity outstanding immediately
after such merger or consolidation or (ii) 50% or more of the Board of Directors
of the surviving entity is composed of members from the Board of Directors of
Prime; (4) the stockholders of Prime approve a plan of complete liquidation of
Prime or an agreement for the sale or disposition by Prime of (in one
transaction or a series of transactions) all or substantially all of Prime's
assets. Notwithstanding the foregoing, in no event will the merger of Prime
into Sky Merger Corp. and the successor to Horizon Group, Inc., or any other
transaction contemplated by that Amended and Restated Agreement and Plan of
Merger dated as of February 1, 1998 (the "Merger Agreement"), constitute a
Change of Control, as long as such merger or other transactions are consumated
on terms substantially similar to those in the Merger Agreement. If the Company
requires Executive to relocate Executive's principal business office or his
principal place of residence outside the greater Baltimore, Maryland
metropolitan area, or assigns to Executive duties that would reasonably require
such relocation, then it shall constitute a Change of Control.
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6. COVENANTS OF EXECUTIVE.
(a) NO CONFLICTS. Executive represents and warrants that he is not
personally subject to any agreement, order or decree that restricts his
acceptance of this Agreement and performance of his duties with the Company
hereunder.
(b) NON-COMPETITION. In return for the performance of the management
duties described in Section 1 hereof, during the Term of the Agreement and for a
period of two years thereafter in the event of the termination of this Agreement
pursuant to the provisions of Sections 5(a)(i), 5(a)(ii), 5(b)(i), 5(b)(ii), or
5(e) hereof (the "Restrictive Period"), Executive shall not, directly or
indirectly, in any capacity whatsoever, either on his own behalf or on behalf of
any other person or entity with whom he may be employed or associated, compete
with the Business (as hereinafter defined) in any of the following described
manners: (i) perform services of the types that Executive performs on behalf of
the Group (as hereinafter defined) for himself, or any affiliate of himself or
for any competitor of the Group if such competitor engages in the Business
within the United States and any other geographic area or territory wherein the
Group is engaged in the Business at the time of Executive's termination of
services hereunder ("Restrictive Geographic Area"); or (ii) solicit or accept
any Business (or help any other person solicit or accept any Business) from any
person or entity that on the date of this Agreement is a vendor, customer or
tenant of the Group or at the time of termination of this Agreement any vendor,
customer or tenant that is actively being pursued by the Group and that
Executive knows is being pursued. For purposes hereof, "Group" shall mean Prime
and the Operating Partnership and any of their respective subsidiaries or
affiliates, and the term "Business" means any interest in any real property
within the retail business that is within the primary business of the Company,
as determined from time to time, by a majority vote of the independent directors
of the Company. Furthermore, during the Restrictive Period, Executive shall
not, directly or indirectly, induce or attempt to persuade any employee or
customer, vendor or tenant of the Group or any such entity being actively
pursued by the Group to terminate its business relationship with the Group or
not proceed with a business relationship with the Group. Notwithstanding the
foregoing, nothing herein shall prohibit Executive from owning 5% or less of any
securities of a competitor engaged in the same Business if such securities are
listed on a nationally recognized securities exchange or traded over-the-counter
on the National Association of Securities Dealers Automated Quotation System or
otherwise. So long as the Executive is in compliance with the provisions of
this Section 6(b), and in addition to the payments required under any other
Section of this Agreement, the Company will pay the Executive an amount equal to
$66,666.66 per calendar month in arrears for a period of two (2) years beginning
with the first calendar month after termination of this Agreement pursuant to
the provisions of Sections 5(a)(i), 5(b)(i), or 5(e) hereof. Upon written
notice at any time prior to thirty (30) days before the expiration of the first
year after termination, the Company or the Executive may elect to limit the
Restrictive Period relating to a termination of this Agreement pursuant to
Sections 5(a)(i), 5(b)(i) or 5(e) to one year; whereupon, the $66,666.66 monthly
payments shall cease at the end of said first year. If this Agreement is
terminated pursuant to the provisions of Sections 5(a)(ii) or 5(b)(ii) hereof,
then the Executive shall not be entitled to receive any amounts during the
Restrictive Period.
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(c) NON-DISCLOSURE. During the Restrictive Period and in the
Restrictive Geographic Area, Executive shall not disclose or use, except in the
pursuit of the Business for or on behalf of the Group, any Trade Secret (as
hereinafter defined) of the Group, whether such Trade Secret is in Executive's
memory or embodied in writing or other physical form. For purposes of this
Section 6(c), "Trade Secret" means any information that derives independent
economic value, actual or potential, with respect to the Company from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use and is
the subject of efforts to maintain its secrecy that are reasonable under the
circumstances, including, but not limited to, trade secrets, customer lists,
sales records and other proprietary commercial information. Said term, however,
shall not include general "know-how" information acquired by Executive during
the course of his service which could have been obtained by him from public
sources without the expenditure of significant time, effort and expense that
does not relate to the Company.
(d) RETURN OF DOCUMENTS. Upon termination of his services with the
Company, Executive shall return all originals and copies of books, records,
documents, customer lists, sales materials, tapes, keys, credit cards and other
tangible property of the Company within Executive's possession or under his
control.
(e) EQUITABLE RELIEF. In the event of any breach by Executive of any
of the covenants contained in this Section 6, it is specifically understood and
agreed that Company shall be entitled, in addition to any other remedy that it
may have, to equitable relief by way of injunction, an accounting or otherwise
and to notify any employer or prospective employer of Executive as to the terms
and conditions hereof.
(f) ACKNOWLEDGMENT. Executive acknowledges that he will be directly
and materially involved as a senior executive in all important policy and
operational decisions of Company. Executive further acknowledges that the scope
of the foregoing restrictions has been specifically bargained between Company
and Executive, each being fully informed of all relevant facts. Accordingly,
Executive acknowledges that the foregoing restrictions of Section 6 are fair and
reasonable, are minimally necessary to protect the Company, its other
stockholders and the public from the unfair competition of Executive who, as a
result of his performance of services on behalf of the Company, will have had
unlimited access to the most confidential and important information of the
Company, its business and future plans. Executive furthermore acknowledges that
no unreasonable harm or injury will be suffered by him from enforcement of the
covenants contained herein and that he will be able to earn a reasonable
livelihood following termination of his services notwithstanding enforcement of
the covenants contained herein.
(g) INDEMNIFICATION. Subject to the provisions of this Agreement,
Executive shall indemnify the Company for any and all consequential damages,
costs and expenses (including legal fees) resulting from any of his acts or
omissions that constitute bad faith, willful or intentional conduct that cause
harm to the Company's business or reputation. Executive also shall indemnify the
Company for any and all consequential damages, costs and expenses
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resulting from his acts of omission constituting reckless disregard of his
duties to the Company following notice thereof by either Prime or the Operating
Partnership after either becomes aware of such conduct and Executive's failure
to so cure within 30 days.
7. GROSS UP PAYMENTS. Anything in this Agreement to the contrary
notwithstanding, in the event that any payment or distribution by or on behalf
of the Company to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section) (the "Payments") is determined to be an "excess parachute
payment" pursuant to Code Section 280G or any successor or substitute provision
of the Code, with the effect that Executive is liable for the payment of the
excise tax described in Code Section 4999 or any successor or substitute
provision of the Code, or any interest or penalties are incurred by Executive
with respect to such Payments (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise Tax"),
then Executive shall be entitled to receive an additional payment (the "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes imposed
upon the Gross-Up Payment, including, without limitation, federal, state, local
or other income taxes, FICA taxes, and additional Excise Tax (and any interest
and penalties imposed with respect to such taxes), Executive retains a portion
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(a) DETERMINATION OF GROSS-UP. Subject to the provisions of paragraph
(b) below, all determinations required to be made under this Section, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by the public accounting firm that serves as the Company's
auditors (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and Executive within 15 business days of the
receipt of notice from the Company or Executive that there have been Payments,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, Executive shall designate another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section, shall be paid by the Company to Executive within five days after the
receipt by the Company and Executive of the Accounting firm's determination. If
the Accounting Firm determines that no Excise Tax is payable by Executive, it
shall furnish Executive with a written opinion that failure to report the Excise
Tax on Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and Executive, except as
provided in paragraph (b) below.
(b) IRS CLAIMS. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that the Internal Revenue Service or
other agency will claim that a greater Excise Tax is due, and thus a greater
amount of Gross-Up Payment should have been made by the Company than
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that determined pursuant to paragraph (a) above (an "Underpayment"). In the
event that Executive is required to make a payment of any such Excise Tax, the
Accounting Firm shall determine the amount of the additional Gross-Up Payment
due to the Executive based on the Underpayment, and such additional Gross-Up
Payment shall be promptly paid by the Company to or for the benefit of the
Executive. Executive shall notify the Company in writing of any claim by the
Internal Revenue Service or other agency that, if successful, would require the
payment by the Company of the Gross-Up Payment or an Underpayment.
8. PRIOR AGREEMENT. This Agreement supersedes and is in lieu of any and all
other employment or service arrangements between Executive, on the one hand, and
Prime and/or the Operating Partnership or its predecessors or any subsidiaries,
on the other hand, and any and all such employment or service agreements and
arrangements are hereby terminated and deemed of no further force or effect.
9. ASSIGNMENT. Neither this Agreement nor any rights or duties of Executive
hereunder shall be assignable by Executive and any such purported assignment by
him shall be void. Prime may assign all or any of its right hereunder provided
that substantially all of the assets of the Company are also transferred to the
same party; provided, however, that Prime and the Operating Partnership, jointly
and severally shall remain primarily liable to Executive to fulfill all of the
Company's obligations under this Agreement and that any such assignee also
agrees to be primarily liable to Executive jointly and severally with the
Company to fulfil all of the Company's obligations under this Agreement as
provided in Section 10 below.
10. SUCCESSORS. This Agreement shall inure to the benefit of and be
enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees and the
Company's successors and assigns. If Executive should die while any amounts are
still payable to Executive hereunder, 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. The Company will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of the Company, as the case
may be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. Any
failure of the Company to obtain such agreement prior to the effectiveness of
any such succession or assignment shall be a material breach of this Agreement.
11. ALLOCATIONS. Any distributions made to the Executive pursuant to the
provisions of this Agreement shall be treated as so-called guaranteed payments
within the meaning of Section 707(c) of the Code. To the maximum extent to
which the Executive can utilize on his individual federal or state income tax
return for any calendar year the corresponding deductions that are available to
the Operating Partnership as a result of such distributions being guaranteed
payments, then the Operating Partnership will specifically allocate such
available deductions
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to the Executive in accordance with the provisions of Section 704(c) of the
Code. The provisions of this Section 11 shall supersede any provisions in the
Operating Partnership's Partnership Agreement which are contrary hereto.
12. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if delivered in person or sent
by any national overnight delivery service or by certified mail to the following
addresses (or to any other address that any party may designate by notice to the
other parties hereto):
(h) if to Executive, to:
Xxxxxxx X. Xxxxxxxxx, Xx.
000 Xxxx Xxxx Xxxx
Xxxxxxx Xxxx, Xxxxxxxx 00000
(i) if to Prime or to the Operating Partnership, to:
Prime Retail, Inc.
000 Xxxx Xxxxx Xxxxxx
00xx Xxxxx
Xxxxxxxxx, Xxxxxxxx 00000
General Counsel
with a copy to:
Xx. Xxxxxxx X. Xxxxxxx
Chairman of the Board of Prime Retail, Inc.
c/o The Prime Group, Inc.
00 Xxxx Xxxxxx Xx., Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
13. AMENDMENT. This Agreement may not be changed, modified or amended except
in writing signed by all of the parties hereto.
14. WAIVER OF BREACH. The waiver by any of the parties hereto of the breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by any part.
15. SEVERABILITY. The Company and Executive each expressly agree and
contract that it is not the intention of any of the parties hereto to violate
any public policy, statutory or common law, and that if any sentence, paragraph,
clause or combination of the same of this agreement is in violation of the law
of any state where applicable, such sentence, paragraph, clause or combination
of the same shall be void in the jurisdictions where it is unlawful, and the
remainder of such paragraph and this Agreement shall remain binding on the
panics to make the
-17-
covenants of this Agreement binding only to the extent that it may be lawfully
done under existing applicable laws. In the event that any part of any covenant
of this Agreement is determined by a court of competent jurisdiction to be
overly broad thereby making the covenant unenforceable, the parties hereto
agree, and it is their desire that such court shall substitute a judicially
enforceable limitation in its place, and that as so modified the covenant shall
be binding upon the parties as if originally set forth herein.
16. OPPORTUNITY TO EMPLOY COUNSEL. Executive acknowledges receipt of a copy
of this Agreement prior to his execution of this Agreement with the Company and
also acknowledges that he has had ample time and opportunity to employ counsel
of his choice to provide advice concerning the terms and conditions of this
Agreement.
17. LEGAL FEES. If the Company materially breaches any of its obligations to
Executive under this Agreement and the Executive brings any action, claim,
demand, suit or proceeding against the Company to enforce his rights under this
Agreement, the Company agrees that it will pay all reasonable legal fees and
related legal costs (collectively "Legal Fees") incurred by Executive no later
than thirty (30) days following a judgment by a court of competent jurisdiction
that the Company materially breached its obligations to the Executive under this
Agreement; provided, however, that if it is determined by a final judgment or
other final adjudication by a court of competent jurisdiction that the Company
did not materially breach any of its obligations to Executive under this
Agreement, Executive will pay to Company within thirty (30) days from such final
judgment or adjudication the aggregate amount of legal fees and expenses
incurred by Company with respect to such action and the amount of any Legal Fees
that were previously paid to Executive by the Company pursuant to this Section
17. The Company acknowledges the indemnification obligations of Prime to the
Executive and the other officers of Prime as set forth in its By-laws, as they
may be amended from time to time.
18. GOVERNING LAW. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Maryland,
exclusive of the conflict of laws provisions of the State of Maryland.
19. NOTICE OF FUTURE EMPLOYMENT. Executive agrees that during the
twenty-four (24) consecutive months immediately following the termination of
this Agreement, Executive will within fourteen (14) days of each instance of new
employment notify Prime in writing of the identity of his new employer and the
job title associated with such employment.
20. BINDING EFFECT. This Agreement shall be binding and legally enforceable
against the parties hereto and their respective heirs, personal representatives,
successors and assigns, as the case may be.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PRIME RETAIL, L.P. COMPANY:
By: Prime Retail, Inc. PRIME RETAIL, INC.
Its: General Partner
By: /s/ C. Xxxx Xxxxxxxxx By: /s/ C. Xxxx Xxxxxxxxx
---------------------------- ----------------------------
Name: C. Xxxx Xxxxxxxxx Name: C. Xxxx Xxxxxxxxx
---------------------------- ----------------------------
Title: Executive Vice President Title: Executive Vice President
and General Counsel and General Counsel
EXECUTIVE:
/s/ Xxxxxxx X. Xxxxxxxxx, Xx.
-------------------------------
Xxxxxxx X. Xxxxxxxxx, Xx.
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