Exhibit
10.3


 


THE
MILLS CORPORATION


OPERATING
GUIDELINES FOR THE ADMINISTRATION OF


EXECUTIVE
LONG-TERM INCENTIVE AWARDS


 


Effective
January 1, 2002


 


I.              PURPOSE


 


The purpose of the
Executive Long-Term Incentive Program adopted by the Company and approved by stockholders
in 2002 (the “Program”) is to further the growth and profitability of The Mills
Corporation (the “Company”).  The Program provides for cash and/or equity
awards contingent on the achievement of long-term corporate performance goals,
long-term individual performance goals, or a combination of both.  The Program is designed to enable the Company
to attract new executives, to encourage current key executives to remain with
the Company and to provide a financial incentive for them to further the achievement
of the Company’s strategic and financial business objectives.  These Operating Guidelines set forth the rules and
regulations under which awards made from time to time to Grantees under the
Program will be administered.


 


II.            DEFINITIONS


 


The
terms defined in this Section II
shall, for purposes of these Operating Guidelines, have the meanings herein
specified, unless the context expressly or by necessary implication otherwise
requires:


 


A.            “Affiliate” means, with respect to the
Company, any company or other trade or business that controls, is controlled by
or is under common control with the Company within the meaning of Rule 405
of Regulation C under the Securities Act of 1933, including, without
limitation, any subsidiary of the Company.


 


B.            “Award” means the award granted to a Grantee hereunder that
provides the opportunity to earn cash and/or an Equity Award following the end
of a Performance Period, based on the level of attainment of one or more
Performance Targets during the Performance Period.


 


C.            “Award Valuation Schedule” means the schedule established
by the Committee on the Determination Date setting forth the Performance Goals,
Performance Targets and Target Incentive Percentages for each Grantee and or
class of Grantees and the method for calculating the ultimate Equity Award
and/or cash payments to be made to Grantees upon achievement of the various
benchmarks established as Performance Targets.


 


D.            “Base Salary” for any Performance Period means a Grantee’s
annual base salary determined as of April 1 of each Fiscal Year of the
applicable Performance Period.


 


E.             “Board” means the Board of Directors of The
Mills Corporation.


 





















 


F.             “Cause”
shall have the meaning such forth in Grantee’s employment agreement if
such agreement specifically provides that the definition of “Cause” contained
therein supersedes the definition of Cause set forth in the Company’s Operating
Guidelines for the Administration of Executive Long-Term Incentive Awards,
otherwise “Cause” means:


 


(1)           the
Grantee commits an act of fraud or embezzlement with respect to the Company or
any of its Affiliates;


 


(2)           the
Grantee is convicted of, or enters a plea of guilty or nolo  contendere
to, any felony;


 


(3)           the
Grantee commits any act of dishonesty, breach of fiduciary duty or misconduct (whether
in connection with the Grantee’s responsibilities as an employee or otherwise)
that, in the Company’s reasonable judgment, either materially impairs the
Company’s business, goodwill or reputation or materially compromises the
Grantee’s ability to perform the Grantee’s job duties or represent the Company
with the public;


 


(4)           the
Grantee fails to substantially perform his or her duties (other than any such
failure resulting from the Disability of the Grantee), which failure continues
for more than thirty (30) days after written notice by the Company or any
Affiliate, as applicable;


 


(5)           the
Grantee demonstrates such carelessness, lack of judgment, ineffectiveness or
inefficiency in the performance of his or her duties that he or she is determined
by the Company to be unfit to continue in service; or


 


(6)           the
Grantee materially violates any confidentiality, non-solicitation or
non-competition obligation owing to the Company or its Affiliates or materially
violates any policies of the Company or its Affiliates, including, but not
limited to, the Company’s Code of Business Conduct and Ethics.


 


G.            “Change in Control.” means the first day on
which any one or more of the following conditions shall have been satisfied:


 


(1)           The
acquisition of beneficial ownership, as such term is defined in the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), in a single transaction
or series of related transactions (by tender offer or otherwise), of more than
fifty percent (50%) of the voting securities of the Company, by a single person
or entity (other than the Company) or “group” within the meaning of Section 13(d)(3) of
the Exchange Act, whether through the acquisition of previously issued and
outstanding voting securities, or of voting securities that have not been
previously issued, or any combination thereof;


 


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(2)           There
shall be consummated any consolidation, merger, business combination or
reorganization involving the Company or the securities of the Company in which
holders of voting securities of the Company immediately prior to such
consummation own, as a group, immediately after such consummation, voting
securities of the Company (or, if the Company does not survive such
transaction, voting securities of the corporation surviving such transaction)
having less than fifty percent (50%) of the total voting power in an election
of directors of the Company (or such other surviving corporation);


 


(3)           The
individuals who constituted the Company’s Board of Directors as of the
effective date of the Program (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the directors of the Company; provided,
however, that any individual whose election, or whose nomination for election
by the Company’s stockholders, was approved by a vote of at least two-thirds
(2/3) of the persons then comprising the Incumbent Board shall be considered,
for purposes of these Operating Guidelines, members of the Incumbent Board; and
provided, further, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened “election contest” (as described in Rule 14a-11
promulgated under the Exchange Act) (an “Election Contest”) or other actual or
threatened solicitation of proxies or consents by or on behalf of a person or
entity other than the Company’s Board of Directors (a “Proxy Contest”),
including by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest;


 


(4)           There
shall be consummated any sale, lease, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company (on a
consolidated basis) to a party that is not a direct or indirect wholly-owned
subsidiary of the Company, including, without limitation, any sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Company (on a consolidated basis) that includes the assets of the Limited
Partnership; or


 


(5)           The
Company (or its successor) no longer serves as the sole general partner of the
Limited Partnership other than as a result of (i) the merger of the
Limited Partnership with the Company or a subsidiary of the Company, (ii) the
redemption of all limited partnership interests in the Limited Partnership by
the Limited Partnership or the purchase of all such limited partnership
interests by the Company, or (iii) the liquidation, dissolution or winding
up of the Limited Partnership.


 


Notwithstanding the
forgoing, a Change of Control shall be deemed not to have occurred (i) with
respect to a Grantee, if the Grantee is involved as an officer, director,
employee, agent, finder, consultant, partner, investor, creditor or principal, or
in any other individual or representative capacity whatsoever, with an entity
that acquires an interest in the


 


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Company in a transaction
that otherwise would constitute a Change in Control and, pursuant to written or
unwritten agreement or understanding with such entity entered into prior to or in
connection with such transaction, the Grantee receives or has the right to receive
a material economic benefit as a result of or in connection with such transaction
(other than compensation granted or awarded to Grantee by the Company in the
ordinary course of business consistent with past practice or solely as a result
of his or her then current ownership interest in the Company ), or (ii) if
any of the foregoing transactions occurs with any employee benefit plan of the Company
or with any trustee or fiduciary or committee of any employee benefit plan of
the Company, any Affiliate of the Company, any direct or indirect wholly owned
subsidiary of the Company, or any entity owned, directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company prior to the event that would otherwise
constitute a Change in Control.  For
purposes of this definition, a “material economic benefit” shall mean cash,
equity or other payments or benefits having a value equal to at least 40% of
the Grantee’s base salary immediately prior to the Change in Control, without
taking into account cash or equity-based compensation granted or awarded to
Grantee by the Company or its successor in interest in the ordinary course of
business consistent with the Company’s past practice, or as a result of his or
her then current ownership interest in the Company.


 


H.            “Committee” means the Executive Compensation
Committee of the Board.


 


I.              “Company” has the meaning set forth in Section I.


 


J.             “Common Stock” means the common stock, par value $0.01 per
share, of the Company.


 


K.            “Covered Employee” means:


 


(1)           any
Grantee who is, on the date of the grant of an Award, a “covered employee” with
respect to the Company within the meaning of Section 162(m); and


 


(2)           any
Grantee who the Committee determines, on the date of the grant of an Award,
could become a “covered employee” by the date of payment of such Award.


 


L.             “Determination Date” with respect to any Performance Period
means the date on which the Committee establishes the Award Valuation Schedule for
such Performance Period.  In the case of
Awards intended to qualify as Performance-Based Compensation, the Determination
Date shall be a date that is on or prior to the date that is 90 days following
the commencement of the respective Performance Period.


 


M.           “Disability”
means that (1) the
Grantee has been unable, notwithstanding such reasonable accommodations as may
be required by applicable law, to engage in the essential function of his
position with the Company due to a disability, as


 


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determined by the Company upon receipt of and in
reliance on independent competent medical advice, for more than one hundred
eighty (180) total calendar days during any period of twelve (12) consecutive
months, or (2) the Company has reasonably determined, upon receipt of the
and in reliance on independent competent medical advice, that the Grantee is
unlikely to be able, notwithstanding such reasonable accommodations as may be
required by applicable law, to engage in the essential functions of his
position with the Company due to a disability for more than one hundred eighty
(180) total calendar days during any period of twelve (12) consecutive months.


 


N.            “Equity Award” means any one or more of the following
equity-based awards: shares of Common Stock, options on Common Stock,
restricted shares of Common Stock, restricted Common Stock units, or Common
Stock appreciation rights.


 


O.            “Fiscal Year” means the 12-month period ending
on December 31 of each year, or such other 12-month period that is used by
the Company as its annual accounting period.


 


P.             “Funds From Operations Per Share” and “FFO Per Share” shall be calculated in the
same manner as that used by the Company in reporting fully diluted funds from
operations per common share in its Form 8-K furnished to the Securities
and Exchange Commission.


 


Q.            “Good Reason” means
the occurrence of any one or more of the following events without the express
written consent of the Grantee; provided, however, that any of the events
described in clauses 2, 3 or 4 below shall only constitute Good Reason if the
Company shall have failed to correct or remedy such event within thirty (30)
days following receipt of written notice from the Grantee describing in
reasonable detail such event and demanding correction or remedy:


 


(1)           the
relocation of the Grantee’s principal office to a location that is more than
fifty (50) miles from the Company’s headquarters as of the Grantee’s date of
hire or future Washington, D.C. area headquarters or a relocation of the
Grantee’s principal office location that results in an increase of fifty (50)
miles or more in the distance of the Grantee’s commute;


 


(2)           a
failure by the Company to pay or provide for any earned Base Salary, earned
annual bonus, earned LTIP award, or any other earned material compensation or
benefits required to be paid or provided for by the Company, in each case when
due;


 


(3)           a
reduction by the Company in the Grantee’s Base Salary, except as part of a
salary reduction program approved by the Board that is generally applicable to
executives of the Company in the same or similar positions as that of the
Grantee; or


 


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(4)           the
failure of the Company to obtain a satisfactory agreement from any successor to
the Company to assume and perform the obligations of the Company hereunder
(after taking into account any action of the Board pursuant to Section V.F. hereof).


 


R.            “Grantee” means a full-time executive of
the Company at or above the Vice President level, who has been designated by
the Committee to receive an Award under the Program.


 


S.             “Limited Partnership” means The Mills Limited Partnership, a
Delaware limited partnership.


 


T.            “Performance-Based Compensation” means an Award that is
intended to qualify as “other performance-based compensation” for purposes of Section 162(m).


 


U.            “Performance Goals” shall mean one or more
of the following performance measures:


 


(1)           growth
in funds from operations;


 


(2)           return
on invested capital;


 


(3)           tenant
sales;


 


(4)           total
shareholder return;


 


(5)           total
stockholder return (on a comparable basis) of a publicly available index, such
as, but not limited to the Standard & Poor’s 500 Stock Index;


 


(6)           return
on equity based upon cash flow (calculated as cash flow divided by equity
adjusted for non-recurring tenant capital and projects abandoned in excess of
$5 million);


 


(7)           pretax
earnings;


 


(8)           earnings
before interest expense, taxes, depreciation and amortization;


 


(9)           pretax
operating earnings after interest expense and before bonuses, service fees and
extraordinary or special items;


 


(10)         operating
margin;


 


(11)         earnings
per share;


 


(12)         return
on investment;


 


(13)         ratio
of debt to shareholder’s equity;


 


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(14)         such
other performance measures as may be selected by the Committee (including, but
not limited to, Sales per Square Feet and FFO Per Share); and/or


 


(15)         such
individual performance objectives, which may vary from Grantee to Grantee, as
may be set by the Company.


 


V.            “Performance Period” means the period of
three consecutive Fiscal Years, or such lesser period as determined by the
Committee, during which Awards may be earned under a Program, commencing on the
first day of the first Fiscal Year, or such other day as determined by the
Committee.


 


W.           “Performance Targets” means the specific
Performance Goals that are established by the Committee for a Performance
Period; provided, however, that Performance Targets that are intended to apply
to Performance-Based Compensation shall be objectively determinable and based
solely on one or more of the Performance Goals listed in clauses (1) through
(11) of the definition of Performance Goals.


 


X.            “Program” means a long term incentive
compensation program covering any one Performance Period with its respective
Awards, Performance Goals, Performance Targets, Target Incentive Percentages
and Grantees.


 


Y.            “Return on Equity” means the internal measure of the Company’s
return on equity, using: (1) for projects constructed by the Company
during the Performance Period that have been opened at least one year, an FFO
Yield (the Company’s share of funds from operations from the project divided by
the amount of capital contributed to the project by the Company) for the
current Fiscal Year compared against the board-approved, budgeted FFO Yield for
that project, (2) for properties acquired by the Company that are in their
first full year of ownership by the Company (except for those projects under
significant redevelopment, in which case the measurement period will be three
years), an FFO Yield for the current Fiscal Year compared against the
board-approved, budgeted FFO Yield for that project, (3) for tenant
capital, the aggregation of incremental revenues for new tenants divided by the
recurring and non-recurring capital spent on that tenant compared against the
board-approved, budgeted minimum rent and recurring and non-recurring capital,
and (4) for abandoned project capital, the amount of abandoned project
costs exceeding $5 million during the Performance Period.


 


Z.            “Sales per Square Feet” means, as determined
by the Committee, either (1) gross same store sales, or (2) comparable
same store sales, in either case calculated as total sales per square feet.


 


AA.        “Section 162(m)” means Section 162(m) of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder, as
amended from time to time.


 


BB.          “Target Incentive Percentage” means the
percentage of a Grantee’s Base Salary that may be earned for different levels
of achievement of the Performance
Targets for a Performance Period as part of the Grantee’s Award.  This percentage is fixed at the


 


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beginning of the Performance
Period consistent with Grantee’s position at the commencement of such period.


 


CC.          “Total Shareholder Return” means the total return
on the Common Stock to an investor consisting of share price appreciation per
share, plus dividends per share.


 


III.           PARTICIPATION


 


Participation
in the Program shall be limited to those full-time executives of the Company at
or above the Vice President level, who in the opinion of the Committee, are in
a position to make a significant contribution to the growth and profitability
of the Company.  On the Determination
Date for each Program, the Grantees and/or class of Grantees for such Program
will be chosen by the Committee.  Such
designation shall be made in writing.  To
the extent that any individual first becomes an employee of the Company at or
above the Vice President level after the Determination Date with respect to any
Performance Period but on or prior to the date that is twelve months prior to
the end of such Performance Period, the Committee may elect to include such
individual as a Grantee for such Performance Period on or prior to the date
that is twelve months prior to the end of such Performance Period and such
Grantee will receive an Award based on the Award Valuation Schedule previously
established for such class of Grantees, provided that any payment with respect
to any such Award attributable to such Grantee shall be prorated for the number
of months of actual participation over the total number of months in such
Performance Period.


 


IV.           AWARDS


 


A.            Each
Program shall be subject to the limitations and terms provided in these
Operating Guidelines.  A new Program may
commence as determined by the Committee at the beginning of any Fiscal Year or
as of such other date as may be determined by the Committee.


 


B.            The
Award Valuation Schedule shall be established by the Committee as of the
Determination Date for each Performance Period. 
Grantees will be notified of their individual Target Incentive
Percentages and the relevant Performance Goals and Performance Targets on or as
soon as practicable following the Determination Date for such Performance
Period.


 


C.            Awards
made for any Program and the Company-related performance criteria taken into
account in measuring attainment of such criteria shall be subject to adjustment
by the Committee under the same circumstances as are set forth in Section 17.1
of the Company’s Amended and Restated 2004 Stock Incentive Plan (as it may be
amended and/or amended and restated from time to time, the “2004 Stock
Incentive Plan”).  In addition, the
Committee may determine in its reasonable good faith discretion that equitable
adjustments should be made with respect to Performance Targets or to the method
of calculating whether such Performance Targets have been attained (including
any such adjustments as may be appropriate to avoid a windfall payment or undue
penalty, or to make comparisons of the Company’s performance against the
performance of peer


 


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companies valid), or both, in the event of
extraordinary events or occurrences of any nature, including, including, but
not limited to:


 


(1)           asset
write-downs;


 


(2)           litigation,
claims, judgments or settlements;


 


(3)           the
effect of changes in tax laws, accounting principles, or other laws or
provisions affecting reported results;


 


(4)           any
reorganization and restructuring programs, extraordinary nonrecurring items as
described in Accounting Principles Board Opinion No. 30;


 


(5)           acquisitions, divestitures, joint
ventures, or alliances; 


 


(6)           foreign
exchange gains and losses;


 


(7)           differences,
or changes, in peer group reporting practices with respect to any Performance
Target during a Performance Period that are necessary to make comparisons with
the Company’s performance with respect to such target comparable; 


 


(8)           an
external calamitous event, such as a natural disaster or terrorist attack,
which has a significant effect on the Company;


 


(9)           any
other extraordinary or unexpected occurrence or event that the Committee in its
sole discretion determines to be appropriate to give effect to the intended
purpose of the Awards: or


 


(10)         a
Change in Control.  


 


provided, however that any
such adjustments relating to Awards of Performance-Based Compensation must be
objectively determinable and shall otherwise be made at such time or times and
in such a manner as will not cause such Awards to fail to qualify as
Performance-Based Compensation.


 


D.            Individual
performance goals may be equitably adjusted by the Company as it determines to
be appropriate, in light of corporate events, changes in responsibilities, or
the events described in Sections IV.C (8), (9) or
(10) above.


 


E.             The
Company Performance Goals to be used for the initial Program shall be growth in
Funds from Operations Per Share, Return on Equity, Sales per Square Feet, and
Total Shareholder Return.  The Company Performance
Goals for subsequent Programs shall be set by the Committee, in its sole
discretion.


 


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V.            VALUATION AND
PAYMENT OF AWARDS


 


Except as otherwise provided in Section VI hereof, no Award shall be
earned and no payment of an Award shall be made to any Grantee prior to the end
of a Performance Period.


 


A.            As
soon as practicable following the completion of each Performance Period
(including such time as is necessary for the Committee to obtain all
information needed to determine the achievement of the relevant Performance
Targets), the Committee shall measure the achievement of the Performance
Targets for such Performance Period and calculate the value of each Award based
on the Award Valuation Schedule.


 


B.            In
the case of an Award that is not meant to qualify as Performance-Based
Compensation, the Committee may establish different Performance Targets or may
modify one or more previously established Performance Targets for one or more
years during any Performance Period, in which case the ultimate Award for such
Performance Period shall be based on the average of the results against the
Performance Targets set for each of the years during the Performance Period.


 


C.            With
respect to all Awards of Performance-Based Compensation granted for any
Performance Period, the Committee shall certify in writing the level of
achievement and value of such Awards. 
The maximum value of any Award for any Performance Period cannot exceed
$4 million.


 


D.            The
following example illustrates a calculation for a hypothetical Award made for a
Senior Vice President with a Target Incentive Percentage of 70% of Average Base
Salary for the Performance Period covering 2002, 2003 and 2004 (the “2002 Award”).


 


Assume:


 


(1)           The
Company Performance Targets for the 2002 Award are Total Shareholder Return,
growth in FFO Per Share, growth in Sales Per Square Feet and Return on Equity.


 


(2)           The
2002 Award is based 70% on the Company performance against the above referenced
Performance Targets and 30% on achievement of individual objectives.


 


(3)           The
2002 Award is based on Average Base Salary as of April 1 for each of 2002,
2003 and 2004, and that Base Salary of $200,000, $205,000 and $210,000 is paid in
each of 2002, 2003 and 2004 respectively.


 


(4)           The
Performance Targets are weighted for each Grantee relative to their expected
impact on the results of each Performance Target.  For illustration purposes, assume a weighting
of 10% for Total Shareholder


 


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Return and 30% for each of growth in FFO Per Share,
growth in Sales Per Square Feet and Return on Equity.


 


(5)           Actual
annual results for Total Shareholder Return, growth in FFO per Share, growth in
Sales Per Square Feet and Return on Equity are at target for each year in the
Performance Period.  Further, achievement
of individual Performance Goals is at target.


 


(6)           Then:


 


The 2002 Award for the Grantee payable in April 2005 would be
determined as shown below:


 


•      SVP


•      Average Base Salary for the Performance
Period is $205,000.


•      Target Incentive Percentage is 70% ($143,500)


•      The 2002 Award equals (i) Average Base
Salary, multiplied by (ii) the percentage of target achieved for each
Performance Target, multiplied by (iii) the weighting for such Performance
Target, multiplied by (iv) Target Incentive Percentage.


 


	
   

  	
   

  	
  (ii)

  	
   

  	
  (iii)

  	
   

  	
  (iv)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Performance

  Target

  	
   

  	
  Performance

  as % of

  Target

  	
   

  	
  Weighting

  	
   

  	
  Target

  %

  	
   

  	
  Payout Dollars

  	
   

  	
  Total Award

  	
   

  
	
  Total
  Shareholder Return

  	
   

  	
  Target(100%)

  	
   

  	
  10% of 70%

  	
   

  	
  70%

  	
   

  	
  10,045

  	
   

  	
  $

  	
  10,045

  	
   

  
	
  Sales/Square
  Feet

  	
   

  	
  Target(100%)

  	
   

  	
  30% of 70%

  	
   

  	
  70%

  	
   

  	
  30,135

  	
   

  	
  $

  	
  30,135

  	
   

  
	
  FFO/Share

  	
   

  	
  Target(100%)

  	
   

  	
  30% of 70%

  	
   

  	
  70%

  	
   

  	
  30,135

  	
   

  	
  $

  	
  30,135

  	
   

  
	
  Return
  on Equity

  	
   

  	
  Target(100%)

  	
   

  	
  30% of 70%

  	
   

  	
  70%

  	
   

  	
  30,135

  	
   

  	
  $

  	
  30,135

  	
   

  
	
  Individual
  Performance

  	
   

  	
  Target(100%)

  	
   

  	
  100% 0f 30%

  	
   

  	
  70%

  	
   

  	
  43,050

  	
   

  	
  $

  	
  43,050

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Total

  	
   

  	
  $

  	
  143,500

  	
   

  



 


Each
of the four Company Performance Targets shall have established target
performance objectives.  For example,
Total Shareholder Return and growth in FFO Per Share will be targeted at a
percentage of median performance as compared to an agreed-to peer group.  Return on Equity and growth in Sales Per
Square Feet will be targeted to reach a percentage of Board-approved
budgets.  Performance achievement below
established target levels will have a decelerated payout.  Achievement below 80% of the established
Performance Target will result in no payout for that Performance Target.  In addition, aggregate average


 


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achievement for all Company
Performance Targets over a Performance Period below 75% will result in no
payout for that Performance Period.


 


E.             Awards
that have been earned shall be payable in a cash lump sum, unless otherwise
determined by the Committee in its sole discretion on or prior to the
Determination Date of any Performance Period, in which case such Award may be
payable in the form of any Equity Award or any combination of an Equity Award
and a cash lump sum, as determined by the Committee.  The Committee, in its sole discretion, may
allow the Grantees to elect, on or prior to the Determination Date of any
Performance Period, to receive an Equity Award in lieu of cash and in that
event, such Equity Awards shall be valued as of the election date or payment date.  Any Equity Awards issued pursuant to the
Program shall be funded through the Company’s 2004 Stock Incentive Plan in
accordance with Committee’s authority to grant discretionary equity-based
awards thereunder.


 


F.             In
the event of a Change in Control, the Board may take any of the actions set
forth in Section 17.2 of the Company’s 2004 Stock Incentive Plan.  The manner of application of such provisions
shall be in the sole discretion of the Board and the Board may treat different
Awards and different classes of Awards differently.  The Board shall provide adequate prior notice
to Award holders of the action to be taken upon a Change in Control.


 


VI.           CHANGE OF EMPLOYMENT
STATUS 


 


A.            Notwithstanding
any payment provision set forth in this Section VI, no Grantee shall be
eligible for the payment of any Award, nor shall any such payment be made for a
Performance Period following any termination of employment with the Company
unless he or she has been a Grantee under the Program or any prior Program for
at least 12 months.  Employment with an
Affiliate of the Company shall be deemed employment with the Company for the
purpose of the Program.


 


B.            If
a Grantee’s employment with the Company terminates before the end of a
Performance Period for any reason other than death, Disability, termination by
the Company without Cause or by the Grantee for Good Reason, or early or normal
retirement with the consent of the Committee, the Grantee shall not be entitled
to the payment of any amounts under the Program with respect to that
Performance Period.  For purposes of
these Operating Guidelines, a Grantee who has at least five years of employment
with the Company and whose combined age and years
of employment with the Company add up to at least 55 at the time of termination
of employment, and whose termination occurs for any reason other than Cause,
death or Disability, shall be treated as having terminated employment at early
retirement with the consent of the Committee.


 


C.            If
a Grantee’s employment with the Company terminates after the end of a
Performance Period and prior to the date for settlement of the Award for any
reason other than as a result of a termination of the Grantee’s employment by
the


 


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Company pursuant to clause (1), (2), (3) or (6) of
the definition of “Cause” or if a Grantee’s employment agreement specifically
provides that the definition of “Cause” contained therein supersedes the
definition set forth in the Company’s Operating Guidelines for the
Administration of Executive Long-Term Incentive Awards, any substantially
similar clause, the Grantee shall be entitled to the payment of the full value
of the Award, based on the extent to which the performance criteria for such
Performance Period are satisfied.  Such
payment will be made at the same time as all other Awards are paid with respect
to such Performance Period.


 


D.            If
a Grantee’s employment with the Company terminates before the end of a
Performance Period on account of death, Disability, termination by the Company
without Cause or by the Grantee for Good Reason, or early or normal retirement
with the consent of the Committee, the Grantee shall be entitled to the payment
of a pro rata portion of the value of any Award, as specified below.  Such prorated portion will be paid following
the end of the applicable Performance Period at the same time as all other
Awards are paid and shall be determined as follows:


 


(1)           The
value of the Award shall be determined as of the end of the Performance Period
as provided in paragraphs (2) or (3) below.


 


(2)           The
prorated portion of the Award payable on account of death, Disability, or early
or normal retirement with the consent of the Committee, shall be equal to the
full value of the Award for the Program, (a) in the case of corporate
performance objectives, based on the extent to which the performance criteria
for such Performance Period are satisfied, for all years of the Performance
Period, and (b) in the case of individual performance objectives, based on
the extent to which such individual performance criteria were satisfied, for
years during the performance period that ended prior to the date of
termination, and assuming 100 percent achievement of such objectives, for all
other years during the Performance Period, and in each case multiplied by a
fraction, the numerator of which shall be the number of full months between the
inception of the Performance Period that the Grantee was employed with the
Company or an Affiliate and the termination of the Grantee’s employment, the
denominator of which shall be the number of months in the Performance Period.


 


(3)           The
prorated portion of the Award payable on account of termination by the Company
without Cause or by the Grantee for Good Reason shall be determined in the same
manner as set forth in the preceding paragraph, except that in determining the
pro-ration fraction, it shall be assumed that the Grantee was employed with the
Company or an Affiliate through the end of the Fiscal Year in which the
termination of the Grantee’s employment occurred.


 


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(4)           In
the case of a Grantee who has an employment agreement that is in effect during
any part of a Program, if such agreement expires prior to the end of the
Performance Period established with respect to such Program because the Company
has given a notice of non-renewal to the Grantee, and such Grantee’s employment
terminates within 90 days of the expiration of the term of such employment
agreement, such Grantee’s termination of employment shall be treated for all
purposes of this Program as a termination by the Company without Cause.


 


E.             The
Committee may allow for a voluntary deferral of payment of any Award at the
election of any Grantee and may set such rules and regulations relating to
such deferral as it deems appropriate.


 


VII.          ADMINISTRATION


 


A.            The
Program shall be administered by the Committee, whose decisions shall be final,
binding and conclusive on all Grantees. 
The Committee shall have the full power, subject to, and within the
limits of the Program, to:


 


(1)           Select
Grantees;


 


(2)           Make,
interpret, and approve all rules for the administration of the Program;


 


(3)           Exercise
all powers and perform such acts in connection with the Program as are deemed
necessary, appropriate or desirable to promote the best interests of the
Company; and


 


(4)           Establish
Performance Targets, Performance Goals, and Target Incentive Percentages and
make adjustments therein as may be appropriate under the then existing
conditions and allowed under the Program.


 


B.            The
Committee may authorize one or more members of the Board, or any officer of the
Company to execute and deliver documents on behalf of the Committee.  With respect to Awards that are not
Performance-Based Compensations, the Committee may delegate any or all of its
authority hereunder to one or more members of the Board, or any officer of the
Company.


 


C.            The
Committee may adopt such rules, take such actions and make such determinations
under the Program (including without limitation, the selection of the persons
to receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards, and the agreements evidencing same) as it deems
necessary or advisable for the proper administration of the Program.


 


D.            The
Committee shall cause written records of the Company’s calculation of the level
of attainment of each Performance Target for each Fiscal Year during a
Performance Period to be maintained by the Company and the Company shall


 


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deliver such calculations to the Committee on a
regular basis to enable it to make timely determinations of whether Awards have
been earned.


 


VIII.        MISCELLANEOUS
PROVISIONS


 


A.            Nothing
in these Operating Guidelines shall be construed as giving any Grantee any
right to remain in the employ of the Company. 
The receipt of an Award in one Program shall not give any Grantee a
right to receive an Award for any subsequent Program.


 


B.            No
right or interest of any Grantee under the Program shall be assigned or
transferable by the Grantee.  In the
event of a Grantee’s death, any payment to which the Grantee may be entitled
shall be made to the Grantee’s designated beneficiary, or in the absence of
such designation, to the Grantee’s estate.


 


C.            The
Company shall have the right to deduct from all payments under the Program any
federal, state and/or local taxes required by law to be withheld with respect
to such payments; provided, however,
that the maximum number of shares of Common Stock that may be withheld from any
Award to satisfy any federal, state or local tax withholding requirements upon
the exercise, vesting, lapse of restrictions applicable to such Award or
payment of shares pursuant to such Award, as applicable, may not exceed such
number of shares having a fair market value equal to the minimum statutory
amount required by the Company to be withheld and paid to any such federal,
state or local taxing authority with respect to such exercise, vesting, lapse
of restrictions or payment of shares.


 


D.            Payments
under the Program shall not constitute earnings for purposes of any retirement
plans, unless so specified in such retirement plan.


 


E.             The
Company shall have no obligation to reserve or otherwise fund in advance any
amounts that are or may in the future become payable under the Program.  Any funds which the Company, acting in its
sole discretion, determines to reserve for future payments under the Program
may be commingled with other funds of the Company and need not in any way be
segregated from other assets or funds held by the Company.


 


F.             As
the context of these Operating Guidelines may require, the singular may be read
as the plural and the plural as the singular. 
All pronouns and variations thereof shall be deemed to refer to the
masculine, feminine or neuter, as the identity of the person or persons may
require.


 


G.            The
captions to the articles, sections, and paragraphs of these Operating
Guidelines are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.


 


H.            These
Operating Guidelines shall be governed and construed in accordance with the
laws of the Commonwealth of Virginia without regard to the choice of law
provisions thereof.


 


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I.              Any
notice or filing required or permitted to be given to the Committee shall be
sufficient if in writing and hand delivered, or sent by registered or certified
mail, to the principal office of the Company, directed to the attention of the
Executive Compensation Committee of The
Mills Corporation.  Such notice
shall be deemed given as of the date of delivery or, if delivery is made by
mail, as of the date shown on the postmark on the receipt for registration or
certification.


 


J.             Any
notice or filing required or permitted to be given to a Grantee under the
Program shall be sufficient if in writing and sent through the U.S. Postal
Service, registered mail, return receipt requested, postage prepaid, to the
Grantee or his or her legal representatives at his or her last known mailing
address.


 


IX.           AMENDMENT AND
TERMINATION


 


A.            The
Board may at any time suspend, modify, or amend the Program in whole or in
part, provided, however, that no amendment shall be effective to decrease the
benefits payable to any Grantee as of the date of such action pursuant to a
Program that has previously commenced.


 


B.            The
Board may at any time terminate the Program as to future Programs and grants of
Awards.  The Board may only terminate a
Grantee’s participation in an ongoing Program pursuant to Section V.F., VI.B. or VI.D.
of these Operating Guidelines or pursuant to Section 17.2 of the 2004 Stock Incentive Plan.


 


X.            EFFECTIVE DATE OF
PROGRAM


 


The
Program shall be effective as of January 1, 2002 and, except as otherwise
provided in Section IX, shall remain in
effect until all Awards under the Program have been satisfied by payment to the
applicable Grantees.


 


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