Exhibit 10.3
INCENTIVE COMPENSATION AGREEMENT
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(RETAIL VALUE MANAGEMENT, LTD.)
This INCENTIVE COMPENSATION AGREEMENT (this "AGREEMENT") is made
effective as of February 11, 1998 (the "Effective Date"), by and among
Developers Diversified Realty Corporation, an Ohio corporation (the "COMPANY"),
and Xxxxx X. Xxxxxxxx (the "EXECUTIVE"). Capitalized terms not defined when
first used herein are defined in SECTION 3 hereof.
RECITALS:
A. On October 14, 1997, the Company entered into an agreement with The
Prudential Life Insurance Company of America ("PRUDENTIAL") and Retail Value
Management, Ltd. ("RETAIL VALUE MANAGEMENT"), to form the Retail Value
Investment Program (the "PROGRAM").
B. The Program was formed to invest nationally in retail properties
that are in need of substantial re-tenanting and marketing repositioning.
C. Retail Value Management will act as the general partner of limited
partnerships to be formed for the purpose of acquiring the retail properties
targeted by the Program (collectively, the "PROGRAM LIMITED PARTNERSHIPS").
D. Pursuant to the terms of the partnership agreements for the Program
Limited Partnerships (collectively, the "PROGRAM PARTNERSHIP AGREEMENTS"),
Retail Value Management is entitled to receive 33% of the distributions from
each Program Limited Partnership after the limited partners of the Program
Limited Partnerships have received a return of their capital together with a
10% per annum return on their investment (collectively, the "GENERAL PARTNER
PROGRAM DISTRIBUTIONS").
E. At the time of its formation, the Executive was the sole member of
Retail Value Management.
F. The Executive has assigned his entire interest in Retail Value
Management to the Company (the "ASSIGNMENT").
G. Under the terms of the Program Partnership Agreements, the
Executive was required to own at least 25% of the equity interests in Retail
Value Management (the "OWNERSHIP REQUIREMENT").
H. As a condition to granting its consent to the Assignment and
termination of the Ownership Requirement, Prudential required that the
Executive retain a significant economic interest in the Program (the
"SIGNIFICANT ECONOMIC INTEREST REQUIREMENT").
I. In order to satisfy the Significant Economic Interest Requirement,
the Executive Compensation Committee of the Company has approved, and by this
Agreement desires to implement, the following incentive compensation plan
pursuant to which the Executive is entitled to earn up to 25% of the General
Partner Program Distributions.
NOW, THEREFORE, based on the foregoing premises and intending to be
legally bound, the parties to this Agreement hereby agree as follows:
1. DETERMINATION AND PAYMENT OF INCENTIVE COMPENSATION. (a) For each
Performance Period during the Term the Executive shall be entitled to incentive
compensation as follows:
(a) if the Total Shareholder Return is 6% or less AND the FFO
Increase is 5% or less, the Executive shall not be entitled
to any incentive compensation under this Agreement for the
Performance Period in question; or
(b) if the Total Shareholder Return is 12% or greater OR the FFO
Increase is 10% or greater, the Executive shall be entitled to
incentive compensation under this Agreement for the
Performance Period in question equal to 25% of all General
Partner Program Distributions for the Performance Period in
question; or
(c) if the Total Shareholder Return is greater than 6% but less
than 12% OR the FFO Increase is greater than 5% but less than
10%, the Executive shall be entitled to incentive compensation
under this Agreement for the Performance Period in question
equal to the greater of: (i) the product of all General
Partner Program Distributions for the Performance Period in
question MULTIPLIED by the Applicable Total Shareholder Return
Percentage for the Performance Period in question and (ii) the
product of all General Partner Program Distribution for the
Performance Period in question MULTIPLIED BY the Applicable
FFO Increase Percentage for the Performance Period in
question.
2. TIMING AND MANNER OF PAYMENT OF INCENTIVE PAYMENT AMOUNT. No later
than the forty-fifth (45th) day following the determination by the Company of
Total Shareholder Return and FFO Increase for a Performance Period, which
determination shall be made at least once each calendar year or partial
calendar year, as the case may be, during the Term of this Agreement consistent
with the Company's historic practice, the Company shall pay to the Executive
any incentive compensation due for the Performance Period in question as
determined under Section 1 of this Agreement. The Company shall deliver to the
Executive a certificate signed by the Chief Financial Officer of the Company
that sets forth in reasonable detail the Total Shareholder Return and the FFO
Increase for the Performance Period in question as well as the Company's
determination of the incentive compensation due to the Executive under Section
1 of this Agreement for the Peformance Period in question. Any dispute
between the Executive and the Company with respect to the Total Shareholder
Return, the FFO Increase or the amount
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of incentive compensation due to the Executive under Section 1 of this
Agreement shall be submitted for resolution to the independent certified public
accountants of the Company (the "Accountants"). The Accountants' determination
of the matters in dispute shall be final and binding on the parties. The
Company shall bear the costs of the Accountants relating to any such dispute.
Any incentive compensation payable under this Agreement shall be paid in
immediately available funds.
3. DEFINITIONS.
"APPLICABLE FFO INCREASE PERCENTAGE" shall be determined by
multiplying 25 by the quotient of (a) the FFO Increase minus .05 DIVIDED BY (b)
..05, and shall be expressed as a percentage.
"APPLICABLE TOTAL SHAREHOLDER RETURN PERCENTAGE" shall be
determined by multiplying 25 by the quotient of (a) the Total Shareholder
Return minus .06 DIVIDED BY (b) .06, and shall be expressed as a percentage.
"COMMON SHARES" means shares of common stock of the Company,
without par value.
"FFO" means funds from operations calculated in accordance with the
method of calculation used from time to time by the Company and the National
Association of Real Estate Investment Trusts, before deducting any incentive
compensation expense resulting from distributions received from the Program
that are not characterized as funds from operations.
"FFO INCREASE" means the average annual increase in FFO for the
period commencing on the Effective Date and ending on the last day of the
calendar month of the Performance Period in question, expressed as a
percentage.
"PERFORMANCE PERIOD" means each calendar year or partial calendar
year during the Term of this Agreement.
"TERM" means the period beginning on the Effective Date and ending
on the day that the last of the Program Limited Partnerships is dissolved.
"TOTAL SHAREHOLDER RETURN" means the average annual return on
Common Shares for the period commencing on the Effective Date and ending on the
last day of the calendar month of the Performance Period in question, expressed
as a percentage. The annual return to shareholders shall be determined by
taking into account all dividends and interest paid on account of Common Shares
as well as the per share appreciation in the per share price of Common Shares.
4. AMENDMENT AND WAIVER. No modification, amendment or waiver of any
provision of this Agreement shall be effective (x) against the Executive unless
such modification,
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amendment or waiver is approved in writing by the Executive or (y) against the
Company unless such modification, amendment or waiver is approved in writing by
the Company. The failure of any party to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of such provisions and shall
not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
5. SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
6. ENTIRE AGREEMENT. This document embodies the complete agreement
and understanding among the parties hereto with respect to the subject matter
hereof and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may relate to
the subject matter hereof in any way.
7. SUCCESSORS AND ASSIGNS; DEATH AND DISABILITY. This Agreement shall
inure to the benefit of and be enforceable by the Executive and his successors
and assigns. The death or disability of the Executive during the Term of this
Agreement shall not affect the Company's obligations hereunder. Following the
Executive's death or during any period of the Executive's disability, the
Company shall make any payments of incentive compensation required hereunder to
the Executive's estate, heirs, trustees, personal representatives or legal
guardians, as the case may be.
8. COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
9. NOTICES. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the parties at the addresses set forth below, or at such address or
to the attention of such other person as the recipient party has specified by
prior written notice to the sending party. Notices will be deemed to have been
given hereunder when delivered personally, three days after deposit in the U.S.
mail and one day after deposit with a reputable overnight courier service.
Xxxxx X. Xxxxxxxx
c/o Developers Diversified Realty Corporation
0000 Xxxxxxxxxx Xxxxxxx
Xxxxxxxxx, Xxxx 00000
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Developers Diversified Realty Corporation
0000 Xxxxxxxxxx Xxxxxxx
Xxxxxxxxx, Xxxx 00000
10. GOVERNING LAW. The construction, validity and interpretation of
this Agreement shall be governed by the internal law of the State of Ohio.
11. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
DEVELOPERS DIVERSIFIED REALTY
CORPORATION
By /s/ Xxxxx X. Xxxxxxxxxx
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Its President
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/s/ Xxxxx X. Xxxxxxxx
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XXXXX X. XXXXXXXX
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