<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER: 0-23616
PRIME RETAIL, INC
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
MARYLAND 52-1836258
- ---------------------------------------- ---------------------------------
(State or other jurisdiction of (IRS employer identification no.)
incorporation of organization)
100 EAST PRATT STREET
BALTIMORE, MD 21202 (410)234-0782
- ---------------------------------------- ---------------------------------
(Address of principal executive offices, (Registrant's telephone number,
including zip code) including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
-----------------------------------------------------------
Common Stock, $0.01 par value
8.5% Series B Cumulative Participating Convertible Preferred Stock,
$0.01 par value
10.5% Series A Cumulative Preferred Stock, $0.01 par value
-------------------------------------------------------------------
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant was approximately $383,835,248 on March 13, 1998 (based on the
closing price per share as reported on the New York Stock Exchange - Composite
Transactions).
The number of shares of the registrant's Common Stock outstanding as of
March 13, 1998 was 27,294,951.
<PAGE>
PRIME RETAIL, INC.
FORM 10-K/A
DECEMBER 31, 1997
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PART III PAGE
- -------- ----
<S> <C> <C>
Item 10. Directors and Executive Officers of the Registrant .................. 3
Item 11. Executive Compensation .............................................. 5
Item 12. Security Ownership of Certain Beneficial Owners and Management ...... 10
Item 13. Certain Relationships and Related Transactions ...................... 11
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .... 13
Signatures .......................................................... 14
</TABLE>
-i-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, positions and, as of December
31, 1997, ages of certain of the directors of the Company (except for
information regarding certain of the directors set forth in Item 10 that is
contained in Part I).
<TABLE>
<CAPTION>
NAME POSITION AGE
- ---------------------------- ------------------------------------------------------ ---------
<S> <C> <C>
Terence C. Golden Director (term expires 2000) 53
Kenneth A. Randall Director (term expires 2001) 70
James R. Thompson Director (term expires 1999) 61
Marvin S. Traub Director (term expires 1999) 72
Sharon Sharp Director (term expires 2001) 58
</TABLE>
The following is a biographical summary as of December 31, 1997 of the
experience of certain directors of the Company.
TERENCE C. GOLDEN. Terence C. Golden, a Director of the Company since
the Initial Public Offering, has been Chief Executive Officer and President
of Host Marriott Corporation, Bethesda, Maryland since September 1995 as well
as Chairman of the Board of Bailey Realty Corporation (BRC) in Washington,
D.C. since 1991. Prior to forming BRC, Mr. Golden held the position of Chief
Financial Officer of The Oliver Carr Company from 1989 to 1991. From 1985 to
1988, Mr. Golden was appointed by President Reagan and confirmed by the U.S.
Senate to the office of Administrator of General Services Administration.
From 1984 through 1985, Mr. Golden was Assistant Secretary at the U.S.
Department of Treasury. Mr. Golden was one of the founding partners of
Trammell Crow Residential Companies and was its Managing Partner from 1976
through 1984. Mr. Golden also serves as a director of D.R. Horton, Inc. and
Cousins Properties, Inc. Mr. Golden received an M.B.A. degree from Harvard
Business School (1970), an M.S. degree in Nuclear Engineering at the
Massachusetts Institute of Technology (1967), and a B.S. degree in Mechanical
Engineering from the University of Notre Dame (1966).
KENNETH A. RANDALL. Kenneth A. Randall, a Director of the Company since
the Initial Public Offering, was the Chairman of ICL Inc. from 1980 to 1982,
Vice Chairman of Northeast Bancorp, Inc. from 1977 to 1987, the Chairman and
Chief Executive Officer of United Virginia Bankshares Incorporated from 1970
to 1976 and the Chairman of the FDIC from 1965 to 1970. Mr. Randall was
President and Chief Executive Officer of The Conference Board, Inc. from 1976
to 1982. Mr. Randall currently serves on the Board of Directors of Dominion
Resources, Inc., Dominion Energy, Inc., Lumbermans Mutual Casualty Company,
American Motorist Insurance Company, American Manufacturers Mutual Insurance
Company and Virginia Electric and Power Company. Mr. Randall also serves as
trustee of the principal Oppenheimer mutual funds. Mr. Randall attended Weber
State University and received a B.A. degree and an M.S. degree from Brigham
Young University.
GOVERNOR JAMES R. THOMPSON. James R. Thompson, a Director of the Company
since the Initial Public Offering, is the Chairman of the law firm of Winston
& Strawn and has been a partner with the firm since 1991. Prior to joining
Winston & Strawn, Governor Thompson served as the Governor of Illinois from
1977-1991. Governor Thompson serves on the Board of Directors of FMC
Corporation, the Chicago Board of Trade, Jefferson Smurfit Group plc,
Pechiney International, Wackenhut Corrections Corporation, Union Pacific
Resources Company, Prime Group Realty Trust and Hollinger International, Inc.
Governor Thompson received his Juris Doctorate degree from the Northwestern
University Law School.
MARVIN S. TRAUB. Marvin S. Traub, a Director of the Company since the
Initial Public Offering, has been President of Marvin Traub Associates, Inc.
since 1992. In addition, Mr. Traub joined Financo, Inc. in 1994 as Senior
Advisor. Prior to establishing Marvin Traub Associates, Inc., Mr. Traub was
Chairman of Bloomingdales from 1978-1992 and was Vice Chairman of Federated
Department Stores from 1988-1992. Mr. Traub was a director and Chairman of
the Executive Committee of The Conran Stores, Inc. The Conran Stores, Inc.
filed a petition for protection under U.S. bankruptcy laws on January 10,
1994. Mr. Traub received an M.B.A. degree (with distinction) from Harvard
Business School after receiving a B.A. degree (magna cum laude) from Harvard
University.
<PAGE>
SHARON SHARP. Sharon Sharp, a Director of the Company since November
1997, currently is a director of the Public Gaming Research Institute
("PGRI"), where she serves as publisher of Public Gaming International, the
leading magazine of the worldwide lottery industry and manages their
international career placement service specializing in lottery and gaming
personnel. Prior to joining PGRI, Ms. Sharp served as director of the
Illinois and California Lotteries from 1987-1993. Ms. Sharp attended Holy
Cross Central School of Nursing, and received an A.A.S. in Journalism from
Harper College.
INFORMATION REGARDING MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee, an Executive
Committee, a Compensation Committee, an Executive Compensation and Stock
Incentive Plan Committee and an Independent Directors Committee.
AUDIT COMMITTEE. The functions of the Audit Committee, which consists of
Messrs. Golden and Randall, include making recommendations concerning the
engagement of independent public accountants, reviewing with the independent
accountants the plans and results of the audit engagement, approving
professional services provided by the independent public accountants,
reviewing the independence of the independent public accountants, considering
the range of audit and non-audit fees, and reviewing the adequacy of the
Company's internal accounting controls.
EXECUTIVE COMMITTEE. The Executive Committee, which consists of Messrs. M.
Reschke, Rosenthal and Carpenter, has certain authority to acquire and
dispose of real property and the power to authorize, on behalf of the Board
of Directors, the execution of certain contracts and agreements, including
those related to certain financings by the Company. The Executive Committee
meets monthly (or more frequently if necessary) and all actions by the
committee are reported at the next meeting of the Board of Directors.
COMPENSATION COMMITTEE. The Compensation Committee, which consists of Messrs.
Golden, Randall and Traub and Governor Thompson and Ms. Sharp, has
responsibility for determining the compensation for the Company's employees.
EXECUTIVE COMPENSATION AND STOCK INCENTIVE PLAN COMMITTEE. The Executive
Compensation and Stock Incentive Plan Committee (the "Executive Compensation
Committee"), which consists of Messrs. Golden and Randall and Ms. Sharp, has
responsibility for determining the compensation of the Company's executive
officers and implementing and administering the Company's Stock Incentive
Plans.
INDEPENDENT DIRECTORS COMMITTEE. The Independent Directors Committee, which
consists of Messrs. Golden, Randall, Traub and Governor Thompson and Ms.
Sharp has the responsibility to (i) consider and approve any proposed action
or transaction involving the Company and PGI; (ii) consider and take such
actions and make such approvals and recommendations as are required to be
considered, taken or made by the Company's independent directors under either
the Amended and Restated Agreement of Limited Partnership of Prime Retail,
L.P. dated as of September 8, 1997 or corporate governance documents relating
to the Company, or otherwise; and (iii) consider and take such actions and
make such approvals as are appropriate to reduce or eliminate any potential
or apparent conflict of interest which may arise in connection with any
proposed action or transaction involving the Company.
During the fiscal year ended December 31, 1997, the Audit Committee held one
meeting, the Compensation Committee held two meetings and the Board of
Directors held seven meetings.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation
for services in all capacities to the Company for the years ended December
31, 1995, 1996 and 1997 with respect to the Chairman of the Board of
Directors, the Chief Executive Officer and the four other persons who are the
most highly compensated executive officers of the Company (the "Named
Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
AWARDS PAYOUTS
ANNUAL ------------- --------------
COMPENSATION SECURITIES LTIP
------------- UNDERLYING PAYOUTS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS # $
- ----------------------------------------------- --------- ------------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Michael W. Reschke, ........................... 1997 $ 150,000 $ 500,000 75,000(3) --
Chairman of the Board 1996 150,000 --(2) 50,000(3) --
1995 150,000 --(2) --
Abraham Rosenthal, ............................ 1997 257,420 250,000 75,000(4) 1,261,150(5)
Chief Executive Officer 1996 257,420 200,833 50,000(3) --
1995 257,385 125,000 --
William H. Carpenter, Jr., .................... 1997 257,420 250,000 75,000(4) 1,261,150(5)
President, Chief Operating Officer 1996 257,420 200,833 50,000(3)
1995 257,385 125,000 --
Glenn D. Reschke .............................. 1997 175,000 175,000 10,000(3) --
Executive Vice President--Development and 1996 168,269 140,583 20,000(3) --
Acquisitions 1995 150,000 125,000 --
David G. Phillips, ............................ 1997 175,000 175,000 10,000(3) --
Executive Vice President--Operations and 1996 168,269 140,583 20,000(3) --
Marketing 1995 150,000 100,000 -- --
Robert P. Mulreaney, .......................... 1997 175,000 175,000 10,000(3) --
Executive Vice President--Chief Financial 1996 168,269 140,583 10,000(3) --
Officer and Treasurer 1995 136,539 25,000 -- --
</TABLE>
- ------------------------
Notes:
(1) Reflects bonus paid for performance in year indicated.
(2) At his request, Mr. M. Reschke was not considered for a discretionary bonus
for the years ended December 31, 1995 and 1996. See "Report of Compensation
Committee."
(3) Options granted pursuant to the 1995 Stock Incentive Plan.
(4) Reflects (i) 25,000 options to purchase shares of Common Stock granted
pursuant to the 1995 Stock Incentive Plan and (ii) 50,000 options to
purchase Common Units of the Operating Partnership granted by PGI pursuant
to Executive Indemnification and Option Agreements. See Item 13. Certain
Relationships and Related Transactions.
(5) Reflects a special distribution from the Operating Partnership to certain
limited liability companies controlled by Messrs. Rosenthal and
Carpenter (the "Executive LLCs"). See Item 13. Certain Relationships and
Related Transactions.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to options
granted in 1997 to the Named Executives by the Company and PGI.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED ANNUAL
----------------------------------------------------------- RATES OF STOCK PRICE
NUMBER OF APPRECIATION FOR OPTION
SECURITIES PERCENT OF TOTAL EXERCISE OR TERM BASED ON GRANT DATE
UNDERLYING OPTIONS GRANTED BASE PRICE STOCK PRICE
OPTIONS(1) TO EMPLOYEES IN ($/SH) EXPIRATION ------------------------
NAME GRANTED(#) FISCAL YEAR(2) (3) DATE 5%($) 10%($)
- ------------------------------- --------------- ---------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Reschke............. 75,000 30.0% $ 12.53 5/29/07 $ 590,768 $ 1,497,122
Abraham Rosenthal.............. 75,000(4) 10.0 (5) (6) 605,705 1,534,974
William H. Carpenter, Jr....... 75,000(4) 10.0 (5) (6) 605,705 1,534,974
Glenn D. Reschke............... 10,000 4.0 12.53 5/29/07 84,677 214,587
David G. Phillips.............. 10,000 4.0 12.53 5/29/07 78,769 199,616
Robert P. Mulreaney............ 10,000 4.0 12.53 5/29/07 78,769 199,616
</TABLE>
- ------------------------
Notes:
(1) Options are fully vested. Except as otherwise noted, the exercise price for
the options is generally payable in cash or, in certain circumstances, by
the surrender, at the fair market value on the date on which the option is
exercised, of shares of Common Stock.
(2) Reflects the percent of total options to purchase shares of Common Stock
granted to employees in the last fiscal year pursuant to the 1995 Stock
Incentive Plan. A total of 246,250 options were granted to employees on May
29, 1997 pursuant to the 1995 Stock Incentive Plan. Excludes options granted
by PGI to Messrs. Rosenthal and Carpenter pursuant to the Executive
Indemnification and Option Agreements. See Item 13. Certain Relationships
and Related Transactions.
(3) Based on average closing price for the five business days preceding the
grant date.
(4) Reflects (i) 25,000 options to purchase shares of Common Stock granted
pursuant to the 1995 Stock Incentive Plan and (ii) 50,000 options to
purchase Common Units of the Operating Partnership granted by PGI pursuant
to the Executive Indemnification and Option Agreements. See Item 13.
Certain Relationships and Related Transactions.
(5) Options to purchase shares of Common Stock granted pursuant to the 1995
Stock Incentive Plan have an exercise price of $12.53 per share of Common
Stock. Options to purchase Common Units of the Operating Partnership
granted by PGI pursuant to the Executive Indemnification and Option
Agreements have an exercise price of $13.00 per Common Unit of the
Operating Partnership. See Item 13. Certain Relationships and Related
Transactions.
(6) Options granted pursuant to the 1995 Stock Incentive Plan have an
expiration date of May 29, 2007. Options granted by PGI pursuant to the
Executive Indemnification and Option Agreements have an expiration date
of December 31, 2000. See Item 13. Certain Relationships and Related
Transactions.
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the number of
shares of Common Stock underlying Stock Options held by each of the Named
Executives and the value of such officers' exercisable and unexercisable
options on December 31, 1997. None of the Named Executives exercised any
Stock Options during 1997.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF OPTIONS AT
UNEXERCISED OPTIONS 1997
AT 1997 YEAR-END YEAR-END
SHARES (#) ($)(1)
ACQUIRED ON ------------------- -------------
EXERCISE VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------------- ------------- ----------------- ------------------- -------------
<S> <C> <C> <C> <C>
Michael W. Reschke................................. -- -- 237,501/37,499 $240,313/0
Abraham Rosenthal.................................. -- -- 237,501/37,499(2) 216,563/0
William H. Carpenter, Jr........................... -- -- 237,501/37,499(2) 216,563/0
Glenn D. Reschke................................... -- -- 68,250/12,500 64,122/0
David G. Phillips.................................. -- -- 67,500/12,500 62,875/0
Robert P. Mulreaney................................ -- -- 20,000/0 39,750/0
</TABLE>
- ------------------------
Note:
(1) Based on the market price of $14.19 per share, which was the closing selling
price per share of Common Stock on the NYSE on December 31, 1997, less the
option exercise price of unexercised, in-the-money options held by the
Named Executives at December 31, 1997.
(2) Includes 50,000 options to purchase Common Units of the Operating
Partnership granted by PGI pursuant to the Executive Indemnification and
Option Agreements. See Item 13. Certain Relationships and Related
Transactions.
<PAGE>
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL AGREEMENTS
The Company has entered into agreements (the "Employment Agreements")
with each of the Named Executives other than Messrs. Mulreaney and G.
Reschke. The agreements with Messrs. M. Reschke, Rosenthal, Carpenter and
Phillips generally provide that such executive officers shall devote
substantially all of their business time to the operation of the Company,
except that Mr. M. Reschke is required to devote only such time as he deems
necessary to fulfill his duties and obligations to the Company as Chairman of
the Board of Directors. The Employment Agreements for each of Mr. M. Reschke
and Mr. Phillips provide for terms expiring on March 22, 1999, which terms
are automatically extended for successive one year periods unless either the
Company or the executive officer provides the other with prior written notice
that such term shall not be extended. The Employment Agreements for Messrs.
Rosenthal and Carpenter provide for a term expiring on the third anniversary
of January 1, 1998, which terms are automatically extended for successive one
year periods unless either the Company or the executive officer provides the
other with prior written notice that such term shall not be extended.
The Employment Agreements with Messrs. M. Reschke and Phillips provide that
the employees covered thereby are eligible to receive discretionary bonuses
based on the achievement of performance goals established by the Company. The
Employment Agreements with Messrs. Rosenthal and Carpenter provide for annual
performance based bonuses of not more than the executive's base salary
determined by a formula based on the following financial factors: annual growth
in FFO on a fully diluted per share basis, first year return on total
development cost for all new centers and expansions which open during the year,
average sales per square foot, percentage of space leased, and a discretionary
component of not more than 10% of the total bonus paid based on the executive's
participation in the development of new concepts. The Executive Compensation
Committee may, in its sole discretion, pay an annual performance bonus that is
greater than that indicated by application of the formula.
If the Employment Agreements are terminated by the Company "without
cause" or are terminated by the executive after a "change in control" or for
"good reason" (as such terms are defined in the Employment Agreements), the
executive will be entitled to a lump sum payment. With regard to Messrs. M.
Reschke and Phillips, such payment will be an amount equal to the greater of
such executive's annual base salary or 50% of the remaining aggregate base
salary due the executive over the remaining term of his Employment Agreement.
With regard to Messrs. Rosenthal and Carpenter, such amount for termination
by the Company "without cause" or for termination by the executive for "good
reason" will be equal to the executive's annual base salary plus the average
annual performance bonus paid to the executive for the two years preceding
the termination.
<PAGE>
The Employment Agreements with Messrs. Rosenthal and Carpenter provide
that if, within twenty-four months following a "change of control" of the
Company, the Company terminates the executive's employment "without cause" or
the executive terminates his employment with "good reason," such executive
will be entitled to receive any bonuses accrued but undistributed, other
vested benefits through the effective date of the termination and health and
life insurance benefits for a period of two years, plus a termination
distribution in the amount of $1.6 million. Additionally, if the Employment
Agreements are so terminated, certain restrictions on the transfer of stock
held by Messrs. Rosenthal and Carpenter (or obtained by such persons upon
exercise of Common Units of the Operating Partnership) may terminate, and any
stock awards under the Company's 1998 Stock Incentive Plan will be vested.
Finally, if the Employment Agreements are terminated, Messrs. Rosenthal and
Carpenter will be fully vested in any amount accrued on their behalf under
any qualified or nonqualified retirement plans of the Company. With regard to
Messrs. Rosenthal and Carpenter, the Employment Agreements contain certain
non-compete provisions restricting the executives from developing, acquiring
or operating retail properties similar to those properties developed or
operated by the Company for a period of up to two years following termination
of employment, which period may be limited to four quarters by either party
at any time prior to 30 days before the end of the fourth quarter. The
Employment Agreements provide that if the Company terminates the executive's
employment without cause or the executive terminates his employment with good
reason then, so long as the executive is in compliance with these non-compete
provisions, the Company will pay the executive an amount equal to $66,666.66
per calendar month for a period of 2 years, beginning with the first calendar
month after termination of the executive's employment; provided that, either
the Company or the executive may elect to limit the non-compete period, and
the $66,666.66 monthly payments, to one year.
The Employment Agreements provide for a base salary of $250,000 for Mr. M.
Reschke, $400,000 for Messrs. Rosenthal and Carpenter and $225,000 for Mr.
Phillips. The current terms of compensation for Messrs. G. Reschke and Mulreaney
include a base salary of $225,000.
EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Compensation Committee of the Board of Directors, which is
required to have a majority of outside Directors who are neither employees
nor officers of the Company, is charged with determining compensation for the
Company's executive officers. Messrs. Terence C. Golden and Kenneth A.
Randall and Ms. Sharon Sharp currently serve on the Executive Compensation
Committee.
No executive officer of the Company served as a director or member of (i)
the compensation committee of another entity, an executive officer of which
entity is a director of the Company or member of the Executive Compensation
Committee, (ii) the Board of Directors of another entity in which one of the
executive officers of such entity served on the Company's Executive
Compensation Committee, or (iii) the compensation committee of any other
entity in which one of the executive officers of such entity served as a
member of the Company's Board of Directors, during the year ended December
31, 1997.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding the
beneficial ownership of shares of Common Stock and of Common Units of the
Operating Partnership as of April 1, 1998 for (a) each person known by the
Company to be the beneficial owner of more than five percent of the voting
securities of the Company, (b) each named executive officer of the
Company listed in the Summary Compensation Table presented below (the "Named
Executives"), (c) each director of the Company and (d) the directors and
officers of the Company as a group. Unless otherwise indicated in the
footnotes, all of such interests are owned directly, and the indicated person
or entity has sole voting and investment power. The number of shares
represents the number of shares of Common Stock the person holds, the number
of shares of Common Stock the person has the right to acquire upon exercise
of certain options to purchase shares of Common Stock ("Stock Options"), the
number of shares of Common Stock into which shares of Common Units of the
Operating Partnership held by the person are exchangeable (if, as discussed
below, the Company elects to issue shares of Common Stock rather than pay
cash upon such exchange) and the number of shares of Common Stock into which
shares of Series B Convertible Preferred Stock, held by the person are
convertible. The extent to which a person directly holds shares of Common
Stock, Stock Options, Common Units of the Operating Partnership or Series B
Convertible Preferred Stock is set forth in the notes.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK/ PERCENT OF PERCENT OF ALL
COMMON UNITS ALL COMMON STOCK/
NAME AND ADDRESS OF BENEFICIALLY OWNED COMMON STOCK COMMON UNITS
BENEFICIAL OWNER(1) (2) (3) (4)
- ----------------------------------------------------- ------------------------ ----------------- -----------------
<S> <C> <C> <C>
The Prime Group, Inc.(5)............................. 7,594,629 21.9% 18.8%
Michael W. Reschke(6)................................ 8,008,771 22.8 19.7
Abraham Rosenthal(7)................................. 625,091 2.2 1.5
William H. Carpenter, Jr.(8)......................... 625,375 2.2 1.5
Glenn D. Reschke(9).................................. 325,217 1.2 (10)
David G. Phillips(11)................................ 72,787 (10) (10)
Robert P. Mulreaney(12).............................. 23,441 (10) (10)
Terence C. Golden.................................... 12,500 (10) (10)
Kenneth A. Randall................................... 10,000 (10) (10)
James R. Thompson.................................... 10,500 (10) (10)
Marvin S. Traub(13).................................. 56,293 (10) (10)
Sharon J. Sharp...................................... -- -- --
Longleaf Partners Realty Fund(14).................... 2,442,100 8.9 6.0
Merrill Lynch Asset Management(15)................... 1,936,777 7.1 4.8
Becker Capital Management, Inc.(16).................. 1,730,200 6.3 4.3
Directors and officers of Prime as a group (21
persons)........................................... 9,860,551 26.9 24.4
</TABLE>
- ------------------------
Notes:
(1) All of the directors of the Company and the Named Executives may be
contacted c/o Prime Retail, Inc., 100 East Pratt Street, Baltimore,
Maryland 21202.
(2) The beneficial ownership of shares of Common Stock and Series B
Convertible Preferred Stock reported herein is based upon filings with
the Commission and is subject to confirmation by the Company that such
ownership did not violate the ownership restrictions in the Charter. The
ownership of Common Units of the Operating Partnership reported herein
is derived from the transfer records maintained by the Operating
Partnership based on information provided by the Limited Partners.
Information presented includes shares issuable upon exercise of Stock
Options which have vested or will vest within 60 days of April 1, 1998
as follows: Mr. M. Reschke 250,001; Mr. Rosenthal 250,001; Mr. Carpenter
250,001; Mr. Golden 10,000; Mr. Randall 10,000; Governor Thompson
10,000; Mr. Traub, including Marvin Traub Associates, Inc. ("MTA"),
55,000; Mr. G. Reschke 73,917 (2,250 of which are held by Ms. Tina
Reschke, wife of Mr. G. Reschke); Mr. Mulreaney 20,000; and Mr. Phillips
71,667.
(3) Information presented assumes exchange or conversion only of Common
Units the Operating Partnership and Series B Convertible Preferred Stock
owned by such beneficial owner for shares of Common Stock. Information
presented also includes Common Stock issuable upon exercise of Stock
Options of such beneficial owner which have vested or will vest within
60 days of April 1, 1998.
(4) Information presented assumes exchange or conversion of all outstanding
Common Units of the Operating Partnership and Series B Convertible
Preferred Stock for Common Stock and also includes Common Stock issuable
upon exercise of Stock Options which have vested or will vest within 60
days of April 1, 1998. The Common Units of the Operating Partnership may
be exchanged on a one-for-one basis for shares of Common Stock (or, at
the Company's election, cash of an equivalent value) at any time.
(5) Information presented includes 7,344,629 Common Units of the Operating
Partnership and 250,000 shares of Common Stock owned by PGI and certain
limited partnerships affiliated with PGI. The address of PGI is 77 West
Wacker Drive, Suite 3900, Chicago, Illinois 60601. Certain of the Common
Units of the Operating Partnership and Common Stock held by PGI have
been pledged to certain unaffiliated third parties to secure certain
indebtedness of PGI and its affiliates (collectively, the "Pledgees").
Unless and until the Pledgees foreclose on the pledged Common Units of
the Operating Partnership or have given notice of an event of default
under the operative pledge or loan agreement, such entities will not
have the direct or indirect power to vote or dispose of the Common Units
of the Operating Partnership so pledged. The Pledgees disclaim
beneficial ownership of these pledged Common Units of the Operating
Partnership.
(6) Information presented includes 7,344,629 Common Units of the Operating
Partnership and 250,000 shares of Common Stock held by PGI (Mr. M. Reschke
is the Chairman and Chief Executive Officer of PGI) and certain limited
partnerships affiliated with PGI, 152,717 shares of Common Stock owned by
Mr. M. Reschke, 11,424 shares of Common Stock issuable to Mr. M. Reschke
upon conversion of the 9,552 shares of Series B Convertible Preferred
Stock owned by him, and 250,001 shares of Common Stock which Mr. M.
Reschke has the right to acquire upon exercise of Stock Options. Mr. M.
Reschke's address is 77 West Wacker Drive, Suite 3900, Chicago, Illinois
60601.
(7) Information presented includes 371,090 Common Units of the Operating
Partnership, 125,000 of which are held by a limited liability company
controlled by Mr. Rosenthal and 18,198 of which are held in trust for
Mr. Rosenthal's children, 4,000 shares of Common Stock owned by Mr.
Rosenthal, 200,001 shares of Common Stock which Mr. Rosenthal has the
right to acquire upon exercise of Stock Options and 50,000 Common Units
of the Operating Partnership which Mr. Rosenthal has the right to
acquire upon exercise of certain options granted by PGI.
(8) Information presented includes 371,090 Common Units of the Operating
Partnership, 125,000 of which are held by a limited liability company
controlled by Mr. Carpenter, 4,284 shares of Common Stock owned by Mr.
Carpenter's children, 200,001 shares of Common Stock which Mr. Carpenter
has the right to acquire upon exercise of Stock Options and 50,000
Common Units of the Operating Partnership which Mr. Carpenter has the
right to acquire upon exercise of certain options granted by PGI.
(9) Information presented includes 251,300 Common Units of the Operating
Partnership which are held by Reschke I LLC, 71,667 shares of Common
Stock which Mr. G. Reschke has the right to acquire upon the exercise of
Stock Options and 2,250 shares of Common Stock which Ms. Tina M.
Reschke, Mr. G. Reschke's wife, has the right to acquire upon the
exercise of Stock Options. Mr. G. Reschke disclaims beneficial ownership
of such shares pursuant to Section 13d-4 of the Exchange Act.
(10) Amount represents less than 1%.
(11) Information presented includes 71,667 shares of Common Stock which Mr.
Phillips has the right to acquire upon exercise of Stock Options, 1,000
shares of Common Stock owned by Mr. Phillips and 120 shares of Common
Stock issuable to Mr. Phillips upon conversion of the 100 shares of
Series B Convertible Preferred Stock owned by him.
(12) Information presented includes 2,425 shares of Common Stock owned by Mr.
Mulreaney, 1,016 shares of Common Stock issuable to Mr. Mulreaney upon
conversion of the 850 shares of Series B Convertible Preferred Stock
owned by him, and 20,000 shares of Common Stock which Mr. Mulreaney has
the right to acquire upon exercise of Stock Options.
(13) Information presented includes 45,000 shares of Common Stock which MTA,
an affiliate of Mr. Traub, has the right to acquire upon exercise of
Stock Options.
(14) Information presented is based on a Schedule 13G filed with the
Commission on February 13, 1998 on behalf of (i) Longleaf Partners
Realty Fund, a series of Longleaf Partners Funds Trust, an open-end
management investment company registered under the Investment Company
Act of 1940 ("Longleaf"), (ii) Southeastern Asset Management, Inc., a
registered investment adviser ("Southeastern") and (iii) Mr. O. Mason
Hawkins, the Chairman of the Board and C.E.O. of Southeastern. The
Schedule 13G indicates that all the securities covered by this statement
are owned by Longleaf and none are owned directly or indirectly by
Southeastern. Southeastern and Mr. Hawkins disclaim beneficial ownership
of the shares of Common Stock pursuant to Section 13d-4 of the Exchange
Act. The address of each of Longleaf, Southeastern and Mr. Hawkins is
Southeastern Asset Management, Inc., 6410 Poplar Ave., Suite 900,
Memphis, Tennessee 38119.
(15) Information presented is based on a Schedule 13G filed with the
Commission on February 5, 1998 on behalf of Princeton Services, Inc.
("PSI"), Merrill Lynch Asset Management ("MLAM") and Merrill Lynch
Global Allocation Fund ("MLGA"). The Schedule 13G indicates that (i) PSI
may be deemed to be the beneficial owner of 1,936,777 shares of Common
Stock by virtue of its being the general partner of MLAM, (ii) MLAM may
be deemed to be the beneficial owner of 1,936,777 shares of Common Stock as
a result of acting as investment advisor to one or more investment
companies registered under Section 8 of the Investment Company Act of
1940 and/or to one or more private accounts and (iii) MLGA, a registered
investment company advised by MLAM, is the beneficial owner of 1,839,825
shares of Common Stock. The Schedule 13G further indicates that PSI
disclaims beneficial ownership of the shares of Common Stock pursuant to
Section 13d-4 of the Exchange Act. The address of each of PSI, MLAM and
MLGA is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
(16) Information presented is based on a Schedule 13G filed on February 13,
1998 on behalf of Becker Capital Management, Inc. ("Becker"). All
securities reported on this statement are owned by advisory clients of
Becker. Becker disclaims beneficial ownership of all such securities.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONSULTING AGREEMENTS WITH AFFILIATES OF MR. TRAUB
The Company has entered into a consulting agreement with MTA, an entity
owned and controlled by Mr. Traub. The consulting agreement provides that for
so long as Mr. Traub remains a director of the Company, MTA will provide
consulting and advisory services in connection with the Company's merchant
relations and MTA will receive a monthly fee of $8,333 for such services.
The Company has entered into a consulting agreement with Financo, Inc.
("Financo"), an affiliate of Mr. Traub, pursuant to which Financo will advise
and assist the Company in developing certain discount retailing concepts (the
"Concepts"). In connection with this agreement, the Company paid Financo a
retainer of $50,000. In addition, in the event that the Company either
develops or makes an investment in a business relating to the Concepts, the
Company will pay Financo a fee of $250,000 and grant Financo options to
acquire certain equity interests in such business. This agreement is
terminable by either party upon ten days' prior written notice.
LOANS TO MESSRS. ROSENTHAL AND CARPENTER
In connection with the Initial Public Offering, the Operating Partnership
made recourse loans of $2.375 million for the benefit of each of Messrs.
Rosenthal and Carpenter. Messrs. Rosenthal and Carpenter used such loan
proceeds to acquire 125,000 Common Units of the Operating Partnership at a
price of $19.00 per unit, reflecting the Initial Public Offering price per
share of Common Stock. Each of Messrs. Rosenthal and Carpenter incurred such
loans and made such purchases through the Executive LLC that he controls and
which is the borrower under each such loan. Each of the loans is secured by a
pledge of 125,000 Common Units of the Operating Partnership acquired with the
proceeds thereof (the "Pledged Common Units") and is guaranteed by Messrs.
Rosenthal and Carpenter, respectively. On January 1, 1996, the Company and
Messrs. Rosenthal and Carpenter, respectively, modified the loans to add
accrued and unpaid interest of $187,500 to the principal amount thereof and
to amend the interest rate applicable to the loan from 6.55% per annum to the
lesser of (i) the amount of the distributions paid by the Operating
Partnership with respect to such Pledged Common Units or (ii) 6.55% per
annum. Interest of $129,443.75 accrued and was paid on the principal balance
of each such loan for the year ended December 31, 1996. Each loan matures on
the earlier to occur of (i) March 22, 2004 or (ii) the first anniversary of
the termination of the individual's employment with the Company for any
reason. The Executive LLCs holding the Pledged Common Units are subject to
the same limitations on transfer and exchange applicable to Messrs. Rosenthal
and Carpenter personally.
Pursuant to Special Distribution Agreements entered into between the
Company, the Operating Partnership and each of the Executive LLCs on January
1, 1996, the Executive LLCs were entitled to receive on or before March 31,
1999, cash distributions ("Special Distributions") from the Operating
Partnership equal to the product of (a)(i) the average annual growth in
the Company's FFO per share (expressed as a percentage) during the three year
period ending December 31, 1998 minus 10% (ii) divided by 5%, and (b)
one-half of the outstanding amount of the recourse loans that such Executive
LLCs incurred to purchase Common Units of the Operating Partnership in
connection with the Initial Public Offering, provided that such individuals
remained employed by the Company throughout such a period. In 1998, the
Special Distribution Agreements were amended with the approval of the
Executive Compensation Committee to eliminate the performance criteria
contained in such agreements, fix the amount of the Special Distributions at
$1,261,150 and accelerate the payment of such distributions to the Executive
LLCs to March 19, 1998. Upon receipt, the Executive LLCs each immediately
applied the full amount of the Special Distribution to repay, in part, their
obligations under the recourse loans.
<PAGE>
INDEMNIFICATION AND OPTION AGREEMENTS WITH MESSRS. ROSENTHAL AND
CARPENTER AND THE EXECUTIVE LLCS.
On January 1, 1996, PGI entered into the Executive Indemnification and
Option Agreements with Messrs. Rosenthal and Carpenter and the Executive
LLCs. Pursuant to these agreements, subject to Messrs. Rosenthal and
Carpenter's continued employment by the Company and certain other conditions,
PGI has agreed to indemnify Messrs. Rosenthal and Carpenter and the Executive
LLCs against 50% of any Loss (as hereinafter defined). "Loss" means an amount
equal to the Note Balance less the sum of (i) the value of the Pledged Common
Units (which shall be deemed to equal the market value of an identical number
of shares of Common Stock on the date at which the Executive LLC must repay
the Note Balance, and (ii) any distributions paid in respect of the Pledged
Common Units (other than distributions used to pay interest on the Note
Balance), including any special distributions received by the Executive LLCs
pursuant to the Special Distribution Agreements.
PGI also agreed, subject to Messrs. Rosenthal and Carpenter's continued
employment by the Company, to grant to each of Messrs. Rosenthal and
Carpenter options to purchase (i) up to 50,000 Common Units of the Operating
Partnership at $13.00 per Common Unit of the Operating Partnership upon the
first date on which the regular cash distribution for each of four successive
calendar quarters of the Operating Partnership distributable with respect to
Common Units of the Operating Partnership is equal to or greater than the
regularly quarterly (calendar) dividend on a per share basis for the
outstanding shares of Common Stock for the same calendar quarters, and (ii)
up to 50,000 Common Units of the Operating Partnership at $13.00 per Common
Unit of the Operating Partnership upon the first date on which the regular
quarterly (calendar) dividend per share of Series B Convertible Preferred
Stock exceeds $.53125 based on the ability of such class of stock to
participate in dividends declared and paid in respect of the shares of Common
Stock. Any options so granted will expire on December 31, 2000. On August 15,
1997, PGI granted each of Messrs. Rosenthal and Carpenter 50,000 options to
purchase Common Units of the Operating Partnership as a result of the
satisfaction of the conditions set forth in (i) of this paragraph.
OTHER TRANSACTIONS.
Governor James R. Thompson, a Director of the Company, is Chairman of the
law firm of Winston & Strawn, which has provided, and continues to provide,
legal services to the Company.
<PAGE>
ITEM 14. EXHIBITS
(a) 3. Exhibits
Exhibit
Numbers
-------
10.5 Combined Service and Special Distribution and Allocation
Agreement (Abraham Rosenthal)
10.6 Combined Service and Special Distribution and Allocation
Agreement (William H. Carperter, Jr.)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PRIME RETAIL, INC.
Dated: April 30, 1998 /s/ Robert P. Mulreaney
-----------------------
Robert P. Mulreaney
Executive Vice President, Chief
Financial Officer and Treasurer
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<PAGE>
EXHIBIT 10.5
COMBINED SERVICE AND SPECIAL
DISTRIBUTION AND ALLOCATION AGREEMENT
(ABRAHAM ROSENTHAL)
(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 Abraham
Rosenthal, 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 Chief Executive 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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<PAGE>
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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<PAGE>
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
------------
(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
-----------
(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
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<PAGE>
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 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)
-------------
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)
-------------
50
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)
-----------
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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<PAGE>
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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<PAGE>
(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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<PAGE>
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, Michael W. Reschke or William H.
Carpenter, Jr. 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:
Abraham Rosenthal
3111 Blendon Road
Owings Mills, Maryland 21117
(i) if to Prime or to the Operating Partnership, to:
Prime Retail, Inc.
100 East Pratt Street
19th Floor
Baltimore, Maryland 21202
General Counsel
with a copy to:
Mr. Michael W. Reschke
Chairman of the Board of Prime Retail, Inc.
c/o The Prime Group, Inc.
77 West Wacker Dr., Suite 3900
Chicago, Illinois 60601
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
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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. Alan Schroeder By: /s/ C. Alan Schroeder
---------------------------- ----------------------------
Name: C. Alan Schroeder Name: C. Alan Schroeder
---------------------------- ----------------------------
Title: Executive Vice President Title: Executive Vice President
and General Counsel and General Counsel
EXECUTIVE:
/s/ Abraham Rosenthal
-----------------------------------
Abraham Rosenthal
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EXHIBIT 10.6
COMBINED SERVICE AND SPECIAL
DISTRIBUTION AND ALLOCATION AGREEMENT
(WILLIAM H. CARPENTER, JR.)
(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 William H.
Carpenter, Jr., 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
------------
(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
-----------
(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)
-------------
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)
-------------
50
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)
-----------
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, Michael W. Reschke or Abraham
Rosenthal 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:
William H. Carpenter, Jr.
659 Rock Cove Lane
Severna Park, Maryland 21146
(i) if to Prime or to the Operating Partnership, to:
Prime Retail, Inc.
100 East Pratt Street
19th Floor
Baltimore, Maryland 21202
General Counsel
with a copy to:
Mr. Michael W. Reschke
Chairman of the Board of Prime Retail, Inc.
c/o The Prime Group, Inc.
77 West Wacker Dr., Suite 3900
Chicago, Illinois 60601
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
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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. Alan Schroeder By: /s/ C. Alan Schroeder
---------------------------- ----------------------------
Name: C. Alan Schroeder Name: C. Alan Schroeder
---------------------------- ----------------------------
Title: Executive Vice President Title: Executive Vice President
and General Counsel and General Counsel
EXECUTIVE:
/s/ William H. Carpenter, Jr.
-------------------------------
William H. Carpenter, Jr.
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