Document:

exv10w64

 

Exhibit 10.64

ARDEN REALTY, INC.

2005 – 2009 OUTPERFORMANCE PROGRAM

(Established Under the Third Amended and Restated 1996 Stock Option and Incentive

Plan of Arden Realty, Inc. and Arden Realty Limited Partnership)

(Effective as of April 1, 2005)

 

 

Table of Contents

	 	 	 	 	 
	 	 	Page	 
	1.     Purposes
	 	 	1	 
	 
	 	 	 	 
	2.     Definitions
	 	 	1	 
	 
	 	 	 	 
	3.     Determination of Participant; Award Agreement
	 	 	4	 
	 
	 	 	 	 
	4.     Corporate Goal: Delivery of Performance Shares; Restriction on Transfer
	 	 	4	 
	 
	 	 	 	 
	5.     Source of Shares
	 	 	6	 
	 
	 	 	 	 
	6.     Capital Adjustment
	 	 	6	 
	 
	 	 	 	 
	7.     Additional Programs
	 	 	6	 
	 
	 	 	 	 
	8.     Administration
	 	 	6	 
	 
	 	 	 	 
	9.     Amendment and Termination
	 	 	6	 
	 
	 	 	 	 
	10.   Headings
	 	 	7	 
	 
	 	 	 	 
	11.   Incorporation of Plan by Reference
	 	 	7	 
	 
	 	 	 	 
	Appendix A
	 	 	 	 
	 
	 	 	 	 
	Appendix B
	 	 	 	 

 

 

ARDEN REALTY, INC.

2005 – 2009 OUTPERFORMANCE PROGRAM

(Established Under the Third Amended and Restated 1996 Stock Option and Incentive Plan of Arden

Realty, Inc. and Arden Realty Limited Partnership)

(Effective as of April 1, 2005)

PREAMBLE

     WHEREAS, Arden Realty, Inc, (the “Company”) established, and its shareholders approved, the
Third Amended and Restated 1996 Stock Option and Incentive Plan of Arden Realty, Inc. and Arden
Realty Limited Partnership (the “Plan”), to award equity-based benefits to officers and key
employees of the Company and the Partnership;

     WHEREAS, the Plan provides that Performance Shares may be awarded to such officers and
employees;

     WHEREAS, the Company’s Compensation Committee (the “Committee”) is responsible for the
administration of the Plan, and may, pursuant to the powers granted to it thereunder, adopt rules
and regulations for the administration of the Plan and determine the terms and conditions of each
award granted thereunder;

     WHEREAS, the Committee is hereby establishing an outperformance program for 2005-2009 (the
“Program”) whereby certain designated officers and key employees will be awarded Performance Shares
under the Plan, as set forth in the Program, following the attainment of the corporate goals set
forth in the Program;

     NOW, THEREFORE, effective as of April 1, 2005, the Arden Realty Group, Inc. 2005-2009
Outperformance Program is hereby established by the Committee under the Plan with the following
terms and conditions:

     1. Purpose. The purpose of the Program is to motivate designated officers and
employees of the Company and the Partnership to attain the highest levels of profitability and
growth for the Company and maximize the total return for its shareholders and to appropriately
award such officers and employees for outstanding performance in meeting such goals.

     2. Definitions.

          (a) “Award” means an award of Performance Shares to a Participant following the
Company’s attainment of the Corporate Goal.

          (b) “Award Agreement” means a written document evidencing the grant to a Participant
of an opportunity to receive an Award, as described in Section 3 of the Plan.

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          (c) “Board” means the Board of Directors of the Company

          (d) “Cause” means “Cause” as such term is defined in a Participant’s Employment
Agreement.

          (e) “Change in Control” means “Change in Control” as such term is defined in a
Participant’s Employment Agreement or, if the Participant and the Company or Partnership are not
parties to an Employment Agreement, as defined in the Plan.

          (f) “Committee” means the Compensation Committee of the Board, which Committee has
developed the Program and has the responsibility to administer the Program.

          (g) “Common Stock” means “Common Stock” as such term is defined in the Plan.

          (h) “Company” means Arden Realty, Inc., a Maryland corporation.

          (i) “Corporate Goal” means the specific performance goal, set forth in Section 4
hereunder, which must be achieved in order for a Participant to receive an Award.

          (j) “Disability” means an inability of a Participant to perform duties resulting in a
termination of employment under the Participant’s Employment Agreement.

          (k) “Director” means a member of the Board of Directors of the Company.

          (l) “Employment Agreement” means the written agreement (if any) entered into by a
Participant and the Company or the Partnership setting forth the terms and conditions of a
Participant’s employment, as amended from time to time.

          (m) “Good Reason” means “Good Reason” as such term is defined in a Participant’s
Employment Agreement.

          (n) “Measurement Period” means the period beginning on April 1, 2005 and ending on the
earlier of (x) March 31, 2009 and (y) the date of a Change in Control.

          (o) “Participant” means each of the individuals whose names are set forth in Appendix
A attached hereto as designated to receive an Award Agreement under the Plan.

          (p) “Partnership” means Arden Realty Limited Partnership, a Maryland limited
partnership.

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          (q) “Performance Share” means “Performance Share” as such term is defined in the Plan.

          (r) “Plan” means the Third Amended and Restated 1996 Stock Option and Incentive Plan
of Arden Realty, Inc. and Arden Realty Limited Partnership as it may be amended from time to time.

          (s) “Program” means the Arden Realty, Inc. 2005-2009 Outperformance Program
(established under the Plan), effective as of April 1, 2005, and as it may be amended from time to
time.

          (t) “Share” means a share of the common stock of the Company, par value $.01 per
share.

          (u) “Bonus Pool” mean an amount (if any) equal to six percent (6.0%) multiplied by (i)
the amount by which TRS exceeds the Performance Threshold, which product shall be (ii) multiplied
by the number of Weighted Average Outstanding Shares.

If TRS does not exceed the Performance Threshold, the Bonus Pool shall be zero.
Further, in no event shall the Bonus Pool be greater than one and one-half percent
(1.5%) of the aggregate Shareholder Value of the Shares outstanding (which for such
purposes shall include the number of Shares which would be issued upon the
redemption for Shares of all Operating Units outstanding and owned by persons and
entities other than the Company and or any subsidiary) determined as of the last
day of the Measurement Period.

          (v) “Morgan Stanley REIT Index” means the Morgan Stanley REIT Index or, in the event
such index shall cease to be published, such other index as the Committee shall determine to be
comparable thereto.

          (w) “Shareholder Value” means the average of the closing prices of one Share on the
New York Stock Exchange (the “NYSE”) (or, if not then listed on the NYSE, on the principal market
or quotation system on which it is then traded) for the 20 days on which Shares were traded prior
to April 1, 2005 or the 20 days on which Shares were traded prior to and including the last day of
the Measurement Period, as applicable. Notwithstanding the foregoing, for purposes of any
Measurement Period ending on the date of a Change in Control, Shareholder Value shall mean the
final price per Share agreed upon by the parties to the Change in Control.

          (x) “Operating Units” means limited partnership interests in Arden Realty Limited
Partnership, a Maryland limited partnership.

          (y) “Performance Threshold” means the greater of (i) an amount equal to a deemed
increase in Shareholder Value determined as of April 1, 2005 through the
end of the Measurement Period that equates to a 12% annual rate compounded as of the last day
of each calendar year that ends during the Measurement Period (e.g., Shareholder Value determined
as April 1, 2005 times 57.33% if the last day of the Measurement Period is March 31, 2009) and (ii)
an amount equal to a deemed increase in Shareholder Value determined as of April 1, 2005 through
the end of the Measurement

3

 

Period that equates to a rate equal to 115% of the total return of the
Morgan Stanley REIT Index (expressed as a percentage) over the Measurement Period (i.e.,
Shareholder Value determined as of April 1, 2005 times 115% of the percentage increase in such
index (if any) over the Measurement Period).

          (z) “TRS” means total return to shareholders of the Company – a dollar amount, not
less than 0, equal to (i)(A) Shareholder Value determined as of the last day of the Measurement
Period plus (B) the sum of all cash dividends paid on a Share during the Measurement Period with
each such dividend deemed reinvested, on the ex-dividend date for the dividend, in a fractional
Share and at the opening price of a Share on such ex-dividend date, minus (ii) Shareholder Value
determined as of April 1, 2005. Any fractional Share in which a dividend is deemed reinvested
shall be subject to the adjustments described in Section 6. The Committee shall give effect to a
dividend treated as special or extraordinary by the Morgan Stanley REIT Index in such manner as the
Committee shall determine to be comparable to the methodology used in constructing such Index.

          (aa) “Weighted Average Outstanding Shares” means the weighted average of (i) the
Shares outstanding during the Measurement Period (which, for such purposes shall include the number
of Shares which would be issued upon the redemption by issuance of Shares of all Operating Units
outstanding and owned by persons and entities other than the Company and any subsidiary),
calculated as of the last day of the Measurement Period. Such weighted average shall be
appropriately adjusted by the Committee to reflect any adjustment events described in Section 6
hereunder.

     3. Determination of Participant; Award Agreement.

          (a) The Committee shall designate certain employees of the Company and the Partnership to
participate in the Program and the percentage of the Bonus Pool to which each Participant shall be
entitled. The Compensation Committee has considered the recommendations of the Company’s
Management in determining the Participants and their respective percentage allocations as set forth
in Appendix A.

          (b) Each Participant shall be issued an Award Agreement setting forth the number of
Performance Shares to which he or she shall be entitled under Section 4 hereunder if the Company
achieves the Corporate Goal set forth therein. Each Award Agreement and the Performance Shares
which may be awarded thereunder are subject to the terms of this Program and the Plan.

     4. Corporate Goal: Delivery of Performance Shares; Restriction on Transfer.

          (a) If, for the Measurement Period, the Company’s per-share TRS exceeds the Performance
Threshold, the Company shall deliver to each Participant the number of shares (rounded down to the
nearest whole number) determined by (i) first multiplying the Bonus Pool by the percentage (but in
no event may the percentage set

4

 

forth next to any one Participant’s name on Appendix A exceed 33
1/3%) and (ii) then dividing such product by the last average closing price for the Company’s
common stock for the 20 trading days ending on the last day of the Measurement Period (or by the
final price per Share agreed upon by the parties to the Change in Control, in the case of a
Measurement Period ending on the date of a Change in Control). If there are insufficient Shares
then available under the Plan, the Participant shall receive his or her Award as set forth in
Section 5(b). Except as provided in subsection (c) below, a Participant must be employed by the
Company or the Partnership on the last day of the Measurement Period in order to receive any
Performance Shares under this Program. In the Committee’s sole discretion it may determine that a
Participant’s termination of employment followed by his or her simultaneous entry into a consulting
relationship with the Company or the Partnership constitutes continuous employment with the Company
or the Partnership, as applicable for purposes of this Plan.

          (b) Notwithstanding the provisions in subsection (a) above, a Participant’s Award Agreement
shall provide that if, prior to the last day of the Measurement Period, the Participant (i) dies or
terminates employment as a result of Disability, the Participant (or his estate) shall be entitled
to receive Performance Shares under the Program (if any) as if the Participant had remained
employed by the Company or the Partnership through the end of the Measurement Period. In
addition, if a Participant is employed by the Company or the Partnership pursuant to an Employment
Agreement under which the Participant is entitled to the vesting of incentive compensation upon his
or her termination for Good Reason or upon termination without Cause, such Participant shall be
entitled to receive Performance Shares (if any) as if the Participant had remained employed by the
Company or the Partnership through the end of the Measurement Period.

          (c) Within thirty (30) days following the end of the Measurement Period, the Committee shall
provide each Participant with a written determination of whether the Company has or has not
attained the Corporate Goal for the Measurement Period. Any Performance Shares earned by each
Participant shall be delivered to such Participant on, or as soon as administratively practicable
after, May 15, 2009 (and in any event prior to August 1, 2009), unless if the Measurement Period
ends earlier than March 31, 2009, in which case the Performance Shares shall be delivered within
thirty (30) days following the last day of the Measurement Period. At the time of delivery of the
Performance Shares the Participant shall be entitled to any dividends that would have been payable
if the Participant had held such shares as of record on April 1, 2009 or if earlier, the day
following the end of the Measurement Period.

          (d) The Performance Shares shall be fully vested upon delivery; provided, however, that a
Participant may not sell, transfer or otherwise dispose of more
than fifty percent (50%) of the aggregate Performance Shares awarded to such Participant
hereunder during each twelve month period beginning on April 1, 2009 or, if earlier, the day
following the end of the Measurement Period. In the event that the Participant sells, transfers or
otherwise disposes of less the maximum amount allowable in any twelve month period, the limitation
of each subsequent twelve month period shall be increased by the difference between the number of
shares that the Participant was entitled to sell,

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transfer or otherwise dispose of in all such
prior twelve months periods and the number of shares that the Participant actually sold,
transferred or disposed of during such periods. Nothing set forth herein shall prohibit any
Participant from transferring such Shares (i) to a trust or other entity established for the
benefit of such Participant’s family or a private charitable foundation, provided, however, that
such trust, entity or foundation shall be bound by the limitations set forth above or (ii) in
connection with, and as required by the terms of, a merger, reorganization, acquisition of all or
substantially all of the assets of the Company or a liquidation of the Company.

     5. Source of Shares.

          (a) This Program shall be unfunded, and the delivery of Performance Shares shall be pursuant
to the Plan. Each Participant and beneficiary shall be a general and unsecured creditor of the
Company to the extent of the Performance Shares determined hereunder, and the Participant shall
have no right, title or interest in any specific asset that the Company may set aside, earmark or
identify as for the delivery of Performance Shares under the Program. The Company obligation under
the Program shall be merely that of an unfunded and unsecured promise to deliver Performance Shares
in the future, provided the Corporate Goal is met.

          (b) In the event that, at the time delivery of the Performance Shares is due hereunder, there
shall not be sufficient shares then available under the Plan, the Committee, in its sole
discretion, may pay one or more of the Participants an amount of cash equal to the value of the
Performance Shares to which the Participant was entitled, provided that each Participant shall
receive an amount (whether in shares or cash) equal to the value of his or her Award.

     6. Capital Adjustment. Calculations required under the Program and the number of
shares that may be delivered under the Program shall be adjusted, as may be deemed appropriate by
the Committee and in the manner set forth in the Plan, to reflect any increase or decrease in the
number of issued Shares resulting from a recapitalization (including a stock split or reverse stock
split), share dividend, or other change in the capitalization of the Company during the Measurement
Period.

     7. Additional Programs. In the event that the Company or the Partnership employ one
or more executives after this Program is established, and the Committee determines that it will
benefit the
Company or the Partnership to allow such executive or executives to participate in a similar
plan to the Program, the Compensation Committee may establish a new program or a program that
tracks this Program for such executive or executives, provided that such new program shall not
reduce the amount to which any Participant is entitled hereunder.

     8. Administration. This Program shall be administered by the Committee, which shall
have final interpretive and discretionary authority to resolve any questions arising hereunder.

6

 

     9. Amendment and Termination. The Committee may amend or terminate the Program, by
written resolution, from time to time, as it shall determine, provided that no amendment or
termination of the Program shall adversely affect any Award Agreement already issued under the
Program without the written consent of any affected Participant.

     10. Headings. The headings of the Sections and subsections of the Program are for
reference only. In the event of a conflict between a heading and the content of a Section or
subsection, the content of the Section or subsection shall control.

     11. Incorporation of Plan by Reference. The terms and conditions of the Plan are
hereby incorporated by reference and made a part of this Program. If any terms of the Program
conflict with the terms of the Plan, the terms of the Plan shall control.

IN WITNESS WHEREOF, the Compensation Committee of Arden Realty, Inc. has executed this agreement
effective as of April 1, 2005.

	 	 	 	 	 
	 	COMPENSATION COMMITTEE OF

ARDEN REALTY, INC.

 	 
	 	By:  	/s/ Carl D. Covitz
 	 
	 	 	Compensation Committee Chairman 	 
	 	 	Arden Realty, Inc. 	 

7

 

APPENDIX A

ARDEN REALTY, INC.

2005 -2009 OUTPERFORMANCE PROGRAM

(Established Under the Third Amended and Restated

1996 Stock Option and Incentive Plan of Arden Realty, Inc. and Arden Realty Limited

Partnership)

	 	 	 	 	 
	Name	 	Percentage	 
	Richard S. Ziman
	 	 	20.0	 
	Victor J. Coleman
	 	 	20.0	 
	Robert C. Peddicord
	 	 	10.0	 
	Richard S. Davis
	 	 	10.0	 
	David Swartz
	 	 	10.0	 
	Howard Stern
	 	 	10.0	 
	Others
	 	 	20.0	 
	 
	 	 	 
	Total
	 	 	100.0	%
	 
	 	 	 

1

 

APPENDIX B

ARDEN REALTY, INC.

2005 -2009 OUTPERFORMANCE PROGRAM

(Established Under the Third Amended and Restated

1996 Stock Option and Incentive Plan of Arden Realty, Inc. and Arden Realty

Partnership)

EXAMPLES 1

Example 1. Performance Threshold Is a 12% Share Increase

A participates in the Arden Realty, Inc. 2005 – 2009 Outperformance Program (the “Program”). As of
April 1, 2005, Arden Realty, Inc. (the “Company”) has 68,416,938 outstanding shares, calculated as
follows:

	 	 	 	 	 
	Outstanding Company Shares
	 	 	66,695,239	 
	Outstanding Partnership Units
	 	 	+1,721,699	 
	 
	 	 	 
	Total “Shares” Outstanding
	 	 	68,416,938	 
	 
	 	 	 	 
	Total “Shares” Outstanding
	 	 	68,300,000	 

For the 4-year period from April 1, 2005 through March 31, 2009 (the “Measurement Period”), the
dividends paid by the Company equal $8.39 per share. The average closing price per share for the
20 trading days ending April 1, 2005 is $34.97 and the average closing price per share for the 20
trading days ending March 31, 2009 is $60.00.

Total Return to Shareholder (“TRS”) on one share over the Measurement Period is calculated as
follows:

	 	 	 	 	 
	3/31/09 Value of One Share2
	 	$	60.00	 
	+ Dividend over Measurement Period on One Share
	 	 	+8.39	 
	- 4/1/05 Value of One Share
	 	 	-34.97	 
	 
	 	 	 
	 
	 	 	 	 
	TRS
	 	$	33.42	 

 

			
	1	 	THE EXAMPLES SET FORTH IN THIS APPENDIX B DO
NOT SHOW THE FULL CALCULATION OF “TRS” BECAUSE, FOR PURPOSES OF
ILLUSTRATION, THEY DO NOT REFLECT THAT EACH CASH DIVIDEND PAID DURING THE
“MEASUREMENT PERIOD” IS DEEMED TO BE REINVESTED IN A FRACTIONAL
NOTIONAL SHARE OF THE COMPANY WHEN ACTUALLY CALCULATING TRS.
	 
	2	 	AVERAGE CLOSING PRICE FOR THE 20 TRADING DAYS
ENDING MARCH 31, 2009.

1

 

In order for the participants in the Program to receive an award of “Performance Shares” in 2009,
the Company must have TRS for the Measurement Period that exceeds the greater of (i) an amount
equal to the increase in the value of a share over the Measurement Period if it appreciates at 12%
annual rate compounded as of the last day of each calendar year ending in the Measurement Period
(“12% Share Increase”), or (ii) an amount equal to the increase in the value of a share over the
Measurement Period if it appreciates at a rate equal to 115% of the total return of the Morgan
Stanley REIT Index (the “MSRI”) over the Measurement Period (“115% MSRI Share Increase”). In this
example, a 12% Share Increase is greater than a 115% MSRI Share Increase.

A 12% Share Increase equals the initial value of the share ($34.97) times 57.3519% (1) or $20.056.
Thus, TRS for the Measurement Period of $33.42 exceeds a 12% Share Increase and Participants are
entitled to receive Performance Shares under the Program.

The bonus pool from which the awards to the participants are determined is calculated as follows:

Because TRS for the Measurement Period exceeds a 12% Share Increase, the calculation of the bonus
pool equals 6% times the TRS for the Measurement Period that is greater than a 12% Performance
Threshold Amount, multiplied by Weighted Average Outstanding Shares (the number of outstanding
shares did not change during the Measurement Period):

     Initial Bonus Pool Amount = $0.80184 x 68,416,938 shares = $54,859,438

However, the dilution cap is 1.5% of the capitalization of the Company at the time that the award
is made. The market capitalization is $4,105,016,280 and the dilution cap is $54,859,438.

The Bonus Pool Amount is $61,575,244.

A is entitled to 15% of the bonus pool or 15% x $54,859,438 = $8,228,915. This amount is converted
to shares by dividing it by the average closing price of a share for the 20 trading days ending
March 31, 2009 and rounding down to the nearest whole share. In this example, the Shareholder
Value is $60.00. Thus A will be awarded 153,675 Performance Shares ($8,228,915/$60.00/share =
137,149 shares).

Example 2. When Performance Threshold is 115% MSRI Share Increase

A participates in the Program. All of the facts in Example 1 are unchanged in this example except
that a 115% MSRI Share Increase exceeds a 12% Share Increase. The MSRI was 600 as of April 1, 2005
and 960 as of March 31, 2009.

In order for the participants in the Program to receive an award of Performance Shares in 2009, the
Company must have TRS for the Measurement Period that exceeds the greater

2

 

of (i) a 12% Share Increase or (ii) a 115% MSRI Share Increase, both for the Measurement Period.

As calculated in Example 1, a 12% Share Increase equals $20.056. The percentage increase in the
MSRI is 60% (the 360-point increase in the MSRI divided by its 600-point level as of April 1, 2005
equals 60%). 115% of the percentage increase in the MSRI during the Measurement Period is 60% x
115% = 69%. The initial share price of $34.97 multiplied by 69% to obtain a 115% MSRI Share
Increase of $24.13. Since a 115% MSRI Share Increase is greater than a 12% Share Increase, the
Company must have TRS of greater than $24.13 for participants to receive an allocation of
Performance Shares.

The Company’s TRS on one share of $33.42 exceeds $24.13 and therefore participants will receive an
allocation of Performance Shares.

The bonus pool from which the awards to the participants are determined is calculated as follows:

The bonus pool equals 6% times TRS for the Measurement Period that is greater than a 115% MSRI
Share Increase times (iii) 68,416,938 shares:

     Initial Bonus Pool Amount = $0.5574 x 68,416,938 shares = $38,135,600.

The dilution cap is 1.5% of the capitalization of the Company at the time that the award is made.
The market capitalization is $4,105,016,280 and the dilution cap is $61,575,244 which is greater
than the $38,135,600 figure determined above.

The Bonus Pool Amount is $38,135,600.

A is entitled to 15% of the bonus pool or 15% x $38,135,600 = $5,720,340. This amount is converted
to shares by dividing it by the March 31, 2009 value of one share of $60.00 and rounding down to
the nearest whole share. Thus, A will be awarded 95,339 Performance Shares
($5,720,340/$60.00/share = 95,339 shares).

Example 3. When Change in Control Occurs

A participates in the Program. The total shares outstanding and the value of one share at April 1,
2005 are the same as in Examples 1 and 2. However, a change in control occurs when the Company is
acquired on March 31, 2008. Because of the change in control, the Measurement Period will end on
March 31, 2008 rather than March 31, 2009. The Company has paid dividends of $6.20 during the
shortened Measurement Period.

The final price per share agreed upon by the parties to the business combination is $55.00.

TRS over the Measurement Period on one share is calculated as follows:

3

 

	 	 	 	 	 
	3/31/08 Value of One Share
	 	$	55.00	 
	+ Dividends over Measurement Period on One Share
	 	 	6.20	 
	- 4/1/05 Value of One Share
	 	 	-34.97	 
	 
	 	 	 
	 
	 	 	 	 
	TRS
	 	$	26.23	 

In order for the participants in the Program to receive an award of Performance Shares in 2008, the
Company must have TRS for the Measurement Period that exceeds the greater of (i) the 12% Share
Increase or (ii) the 115% MSRI Share Increase, both for the Measurement Period.

The 12% Share Increase equals the initial value of a share ($34.97) times 40.4928% (5) or $14.1603.
For this example, the MSRI was 600 at January 1, 2005 and 780 at December 31, 2007. The
percentage increase in the MSRI is 30% (the 180-point increase in the MSRI divided by its 600-point
level as of January 1, 2005). 115% MSRI is therefore 30% times 115% = 34.5%. The initial share
price of $34.97 is multiplied by 34.5% to obtain a 115% MSRI Share Increase of $12.06, which is
less than the 12% Share Increase. Thus, TRS must be equal to or greater than the 12% Share
Increase of $14.1603. Because TRS is $26.23, participants are entitled to a performance award
under the Program. The excess of TRS over the 12% Share Increase for the Measurement Period is
$12.0697.

The bonus pool equals 6.0% times the amount by which TRS for the Measurement Period that exceeds
the 12% Share Increase times 68,416,938 shares:

     Initial Bonus Pool Amount = $0.7242 x 68,416,938 shares = $49,547,546

The dilution cap is 1.5% times market capitalization of $3,762,931,590 or $56,443,974. The bonus
pool amount is less than the cap.

A is entitled to 15% of the bonus pool or 15% x $49,547,546 = $7,432,132. The amount is converted
to shares by dividing it by the value of one share at the time of the Change in Control is
effective on March 31, 2008, and rounding down to the nearest whole share. As stated above, that
price is $55. Thus A will be awarded 135,130 Performance Shares ($7,432,132/$55.00 share = 135,130
shares).

Example 4. When Buy Back and Public Offering Occur

A participates in the Program. As in all prior examples, the Company has 68,416,938 outstanding
shares on April 1, 2005. The Company buys back 5,000,000 shares on October 1, 2005, and then sells
10,000,000 newly issued shares on October 1, 2007 through a public offering which does not result
in a change in control.

For the 4-year Measurement Period, dividends equal $8.39 per share. The average closing price per
share for the 20 trading days ending April 1, 2005 is $34.97 and the average closing price per
share for the 20 trading days ending March 31, 2009 is $64.00.

4

 

The TRS over the Measurement Period on one share is calculated as follows:

	 	 	 	 	 
	3/31/09 Value of One Share
	 	$	64.00	 
	+ Dividends over Measurement Period on One Share
	 	 	+8.39	 
	- 1/1/04 Value of One Share
	 	 	-34.97	 
	 
	 	 	 
	 
	 	 	 	 
	TRS
	 	$	37.42	 

In order for the participants in the Program to receive an award of Performance Shares in 2009, TRS
for the Measurement Period must exceed the greater of (i) the 12% Share Increase or (ii) the 115%
MSRI Share Increase. In this example, the 12% Share Increase is greater than the 115% MSRI Share
Increase.

The 12% Share Increase is $20.056 ($34.97 times 57.3519%). The TRS for the Measurement Period of
$37.42 exceeds the 12% Share Increase test and participants are entitled to receive Performance
Shares under the Program.
Because TRS for the Measurement Period exceeds the 12% Share Increase, the calculation of the bonus
pool equals 6.0% times TRS for the Measurement Period that is greater than a 12% Share Increase the
sum times the number of Weighted Average Outstanding Shares for the Measurement Period. In this
case, 6% of the amount per share by which the TRS for the Measurement Period is $1.0418.

Because the number of shares did not remain constant throughout the Measurement Period, the number
of shares used to calculate the bonus pool amount must be weighted to reflect the fluctuation. In
this example, only two changes occurred during the Measurement Period: The Company’s buy back of
5,000,000 shares on October 1, 2005 and the Company’s sale of 10,000,000 shares on October 1, 2007
through a public offering.

The weighted number of shares for the determination of the bonus pool is calculated as follows:

The number of outstanding shares at the beginning of the Measurement Period on April 1, 2005 is
multiplied by the number of days during which there were 68,416,938 outstanding shares (January 1,
2005 through June 30, 2005) and then divided by the total number of days in the entire Measurement
Period:

68,416,938 shares x 181 days = 8,476,020 shares

1,461 days

The buy back on October 1, 2005 reduced the number of outstanding shares to 63,416,938 shares.
This number is multiplied by the number of days from October 1, 2005 through September 30, 2007,
the day before the sale of 10,000,000 shares, and then divided by the total number of days in the
entire Measurement Period:

5

 

63,416,938 shares x 730 days = 31,686,766 shares

1,461 days

The sale of 10,000,000 shares on October 1, 2007 increased the number of shares to 73,416,938.
This number is multiplied by the number days from October 1, 2007 through the end of the
Measurement Period (March 31, 2009) and then divided by the total number of days in the Measurement
Period (2008 is a leap year):

73,416,938 shares x 550 days = 27,638,135 shares

1,461 days

The number of shares (Weighted Average Outstanding Shares for the Measurement Period) to be used to
calculate the bonus pool is the sum of these three numbers or 67,800,917 shares. This number is
multiplied by $1.0418 to determine the bonus pool amount of $70,634,995.

The actual number of outstanding shares on December 31, 2008 is 73,416,938. The total value of the
outstanding shares is determined by multiplying that number by $64.00, which results in
$4,698,684,032. The cap on the bonus pool is 1.5% of that value or $70,480,260. The bonus pool
amount is greater than that cap.

A is entitled to 15% of the bonus pool or 15% x $70,480,260 = $10,572,039. This amount is
converted to shares by dividing it by the average closing price of a share for the 20 trading days
ending March 31, 2009 ($64.00) and rounding down to the nearest whole share. Thus A will be
awarded 165,188 shares ($10,572,039/$64.00/share = 165,550 shares).

6exv10w61

 

EXHIBIT 10.61

PROMISSORY NOTE

	 	 	 
	$5,000,000.00
	 	September 14, 2004

     FOR VALUE RECEIVED, the undersigned, CITADEL CINEMAS, INC., a Nevada corporation, having an
office at c/o Reading International, Inc., 189 Second Avenue, Suite 2S, New York, NY 10003 (the
“Borrower”), hereby agrees to pay to the order of SUTTON HILL CAPITAL L.L.C., its successors or
assigns (the “Lender”) at Lender’s office at 120 North Robertson Blvd., 3rd Floor, Los
Angeles, CA 90048, or to such other address as Lender may from time-to-time designate, the sum of
Five Million and 00/100 ($5,000,000.00) Dollars, on or before July 28, 2007 together with interest
thereon, payable in arrears, at the rate of 8.98% per annum, such rate to be adjusted each July 28
for increase in Consumer Price Index — All Urban Consumers — Northeast, March 2000 base, as
follows:

     Except as set forth below in the event of any partial prepayment of this Note, payments of
accrued interest shall be due and payable commencing on October 1, 2004 and on the first day of
each and every month thereafter, to and including July 1, 2007. The entire principal balance of
this Note, together with all accrued and unpaid interest thereon, shall be due and payable on July
28, 2007 (the “Due Date”).

     In the event any payment due under this Note is not paid when due, and such failure continues
for five (5) days after notice to Borrower (provided that no such notice shall be required more
than once in any twelve-month period) then, without limiting any of Lender’s other rights and
remedies, Borrower shall pay to Lender (a) a late payment charge in an amount equal to one and
one-half percent (1-1/2%) of any such payment not received by the due date, and (b) interest upon
any such late payment, from the date such payment was due until the date payment is made, at a rate
equal to the lesser of (a) 16% per annum or (b) the highest rate of interest then allowed by
applicable law (such lesser rate is defined as the “Default Rate”). All computation of interest
shall be calculated on the basis of the actual number of days elapsed over a year of 360 days.

     In the event any payment due under this Note is not paid when due and such failure continues
for ten (10) days after notice to Borrower, Lender may declare the principal amount of this Note
and all accrued but unpaid interest thereon to be immediately payable.

     If Borrower defaults under this Note after notice and expiration of applicable grace period
and Lender obtains a money judgment against Borrower with respect thereto, Lender shall have the
right, on notice to Borrower, to offset against any monetary obligations owed by Lender to Borrower
all or any portion of the amount of said judgment. Any such offset shall reduce Borrower’s
liability under said judgment to the extent of said offset.

     Borrower has the right to pay any or all principal or interest at any time prior to the Due
Date at Borrower’s sole discretion, without incurring any prepayment penalty. Borrower may elect
to prepay the entire balance due by paying the entire unpaid balance of the principal and any
interest then currently due at the time of prepayment, including the interest for a partial month,
if applicable, prorated daily.

     Borrower’s obligations to the Lender under this Note have been guaranteed by Reading
International, Inc.

     Borrower agrees to pay all reasonable costs and expenses incurred by Lender in order to
enforce the obligations of Borrower hereunder including, but not limited to, reasonable attorneys’
fees and expenses, whether or not litigation is commenced.

     This Note may not be amended, and compliance with its terms may not be waived, orally or by
course of dealing, but only by a writing signed by Lender and Borrower. Any extension of time
granted by Lender shall not release Borrower or constitute a waiver of any payment obligation, or
otherwise diminish the rights and remedies of Lender.

 

 

     No failure on the part of Lender to exercise, and no delay in exercising, any right, remedy or
power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by
Lender of any right, remedy or power hereunder preclude any other or future exercise thereof or the
exercise of any other right, remedy or power.

     Each and every right, remedy and power hereby granted to Lender or allowed it by law or other
agreement shall be cumulative and not exclusive of any other right, remedy or power and may be
exercised by Lender at any time and from time to time.

     Every provision of this Note is intended to be severable; if any term or provision of this
Note shall be invalid, illegal or unenforceable for any reason, the validity, legality and
enforceability of the remaining provisions hereof shall not in any way be affected or impaired
thereby.

     The Borrower hereby waives presentment, demand, protest and notice of protest, non-payment or
dishonor of this Note and any other notices unless specifically provided for herein.

     The provisions of this Note shall be construed and interpreted, and all rights and obligations
hereunder determined, in accordance with the laws of the State of New York.

     Borrower waives the right to trial by jury in any action or proceeding based upon, arising out
of or in any way connected to this Note or the transaction in connection with which this Note is
executed.

	 	 	 
	 

	 	CITADEL CINEMAS, INC.

A Nevada corporation

	 	 	 	 	 	 	 
	 

	 	By:
	 	/s/
	 	Andrzej Matyczynski
	 	 	 	 	 
	 	 	Name:	 	Andrzej Matyczynski
	 	 	Title:	 	Chief Financial Officer and Treasurer

     This note is guaranteed by Reading International, Inc.

	 	 	 
	 

	 	READING INTERNATIONAL, INC.
	 

	 	A Nevada corporation

	 	 	 	 	 
	 

	 	By:
	 	/s/ Andrzej Matyczynski
	 

	 	 	 	 
	 

	 	Name:
	 	Andrzej Matyczynski
	 

	 	Title:
	 	Chief Financial Officer

2

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