Exhibit 10.10
REALTY INCOME CORPORATION
MANAGEMENT INCENTIVE PLAN
I. INTRODUCTION
The Realty Income Corporation Management Incentive Plan is an annual,
stock and cash-based incentive plan that is designed to ensure that
Realty Income Corporation (Realty Income) is managed in keeping with
the best short- and long-term interests of its shareholders and
employees. In light of this objective, the plan rewards certain
executives for the achievement of key corporate and individual-
specific performance objectives. A participant's total award shall be
determined on the basis of annual performance and shall be made in the
form of restricted stock, stock options and cash, which encourage
executives to focus on Realty Income Corporation's long-term success
and shareholder interests. This document sets forth all terms and
conditions of the plan as approved by the Board of Directors.
II. DEFINITIONS
For the purposes of the Plan, the following terms shall have the
meaning set forth below:
"Board" means the Board of Directors of Realty Income.
"CEO" means the Chief Executive Officer of Realty Income.
"Change in Control" means the acquisition of shares of Realty
Income Common Stock by any person, entity or group in a
transaction or series of transactions, resulting in the
beneficial ownership of more than thirty percent of the
outstanding Common Stock of Realty Income; a merger,
consolidation or sale of substantially all the assets of Realty
Income; a contested election of directors of Realty Income
resulting in a majority of the nominees recommended by the Board
of Directors of Realty Income not being elected; a change in
composition within a sixty day period of a majority of Realty
Income's Board of Directors; or any other event which results in
a change of voting power sufficient to elect a majority of the
Board of Directors of Realty Income.
"Committee" means the Compensation Committee of the Board of
Directors of Realty Income.
"Date of Grant" means December 31 of the year for which
performance is being measured.
"Exercise Price" of a Realty Income stock option means the price
at which a share of Realty Income common stock can be purchased
over a specified option term.
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"Funds from Operations" or "FFO" means net income excluding gain
or loss from sales of properties, plus provision for impairment
losses, plus depreciation and amortization. FFO per share means
total FFO for a Performance Period divided by the average number
of Common Shares outstanding for the Performance Period.
"Grant Price" means the per share market value of Realty Income
common stock on the date a Total Award is made.
"Individual-Specific" means individual performance measures
and/or objectives that can determine a portion of a
Participant's Total Award.
"Maximum Award" means a Participant's maximum award for a
certain portion of the Plan for a Performance Period. Maximum
Award is determined by the Committee under the Plan and
typically is expressed as a percentage of a Participant's Target
Award.
"Maximum Performance" means the performance objective at or
above which a Maximum Award is made for a certain portion of the
Plan.
"Minimum Award" means a Participant's minimum award for a
certain portion of the Plan for a Performance Period. Minimum
Award is determined by the Committee under the Plan and
typically is expressed as a percentage of a Participant's Target
Award.
"Minimum Performance" means the performance objective at which a
Minimum Award is made for a certain portion of the Plan and
below which no award is made for that portion of the Plan.
"Participant" means any executive or key employee of Realty
Income selected by the Committee to participate in the Plan.
"Peer Group" means the group of peer companies used in Realty
Income's proxy statement performance graph.
"Performance Period" means a Realty Income fiscal year for which
Total Awards under the Plan are made.
"Plan" means the Realty Income Corporation Management Incentive
Plan.
"President" means the President of Realty Income.
"Target Award" means a Participant's target award for a certain
portion of the Plan for a Performance Period. Target Award for
each portion of the Plan is determined on the basis of the
weight assigned to that portion of the Plan (i.e., a certain
performance measure) and a Participant's Target Total Award.
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"Target Total Award" means a Participant's target Total Award
for a Performance Period, as determined by the Committee under
the Plan. Target Total Award typically is expressed as a
percentage of a Participant's base salary.
"Target Performance" means the performance objective at which a
Target Award is made for a certain portion of the Plan.
"Total Award" means a stock and cash-based award made by the
Board to any Plan Participant for performance on FFO, TSR, and
Individual-Specific objectives for a Performance Period.
"Total Shareholder Return" or "TSR" means a shareholder's annual
percentage return on an investment in stock, including stock
appreciation and dividends. TSR is calculated by adding Realty
Income's stock price on the last day of a Performance Period to
total dividends for that Performance Period, dividing the
resulting value by Realty Income's stock price on the last day
of the preceding Performance Period, and subtracting one from
the resulting value.
III. BASIC APPROACH
The Plan rewards Participants for the achievement of three performance
objectives:
A predetermined FFO per share objective
A predetermined measure of TSR relative to the Peer Group
Individual-Specific objectives.
The Committee shall set a Target Total Award for each Participant that
is expressed as a percentage of the Participant's base salary. A
Target Total Award is set on the basis of competitive pay practices
and the scope of a Participant's responsibilities. Each performance
objective carries a certain weight in determining a Participant's
actual Total Award. FFO performance carries a weight of 60%, TSR
performance carries a weight of 20%, and Individual-Specific
performance carries a weight of 20% of the Total Award.
FFO PER SHARE PERFORMANCE. FFO per share performance shall be
measured by the amount of increase in FFO per share for the
Performance Period over the previous Performance Period. Performance
awards for percentage FFO growth shall be determined as set forth on
Exhibit "1," attached hereto and incorporated herein.
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RELATIVE TSR PERFORMANCE. TSR performance shall be measured as
follows:
Performance Level
------------------------------
TSR Performance
TSR Objective (e.g., TSR Rank
Relative to Peer Group) Third Second First
Percentage of Target Award Made
for TSR Performance 50% 100% 150%
No award shall be made to Participants for the relative TSR
portion of the Plan if actual TSR is zero or negative, regardless of
TSR performance vis-a-vis the Peer Group for the Performance Period.
INDIVIDUAL-SPECIFIC PERFORMANCE. At the beginning of a
Performance Period, the CEO and the Board shall work with the
Participants to develop their Individual-Specific objectives.
Following the end of each Performance Period, the CEO shall make
recommendations to the Committee on the percentage of Target Award
that should be paid to a Participant on the basis of whether
individual performance is below expectations, meets expectations, or
exceeds expectations. The individual portion of the award shall be
between 0% and 150%, which percentage shall be determined by the
Committee.
After actual performance and corresponding awards for each portion of
the Plan are determined, a Participant's Total Award shall be
calculated as the sum of awards from each portion of the Plan.
Straight-line interpolation shall be used to determine award levels
for actual performance between performance increments for FFO
performance. A Participant shall receive no award on a performance
measure if actual performance for that measure is below the Minimum
Performance objective. A Participant shall receive the Maximum Award
on a performance measure if actual performance for that measure is at
or above the Maximum Performance objective.
After a Participant's Total Award (up to 100% of the Target Total
Award) is calculated, 25% of the Participant's Total Award shall be
paid in cash, 25% shall be in the form of restricted stock and 50%
shall be made in the form of stock options. All awards above the
Target Total Award level shall be in the form of stock options. The
number of underlying shares that is granted in the form of restricted
stock shall be determined by dividing 25% of the Total Award (up to
the Target Total Award level) by Realty Income's stock price (the
Grant Price) on the Date of Grant. The number of underlying shares
that is granted in the form of stock options shall be determined by
dividing the balance of the Total Award, less the amount paid in cash,
by the expected value of a Realty Income stock option on the Date of
Grant (using the same Grant Price). The expected value of a Realty
Income stock option shall be estimated using the binomial option
valuation formula, a widely accepted formula for determining the
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expected value of stock options. The Exercise Price of stock options
shall equal the Grant Price.
The number of restricted stock and stock option shares granted shall
be rounded to the nearest 100. The Table below provides an example of
how the number of underlying shares granted in the form of restricted
stock and stock options is determined for a Participant who earns an
assumed Total Award of $40,000. Assuming the Total Award does not
exceed the Target Award, $10,000 (25%) would be paid in cash, and the
balance would be computed as follows:
TABLE
HOW THE NUMBER OF UNDERLYING SHARES FOR A TOTAL AWARD IS DETERMINED -
EXAMPLE (ASSUMING TOTAL AWARD OF $40,000)
Number of Underlying Shares Made in Restricted Stock
- ----------------------------------------------------------------------
Number of
25% of Total RS Shares
Award Made in Assumed Number of (Rounded to
Restricted Stock Grant Price RS Shares Nearest 100)
---------------- ----------- --------- ------------
$10,000 $22.00 455 500
Number of Underlying Shares Made in Stock Options
- ----------------------------------------------------------------------
Number of
50% of Total Assumed SO Shares
Award Made in Assumed Binomial Number of (Rounded to
Stock Options Grant Price Value (1) SO Shares Nearest 100)
------------- ----------- -------- --------- ------------
$20,000 $22.00 $5.76 3,472 3,500
RS: restricted stock; SO: stock option.
(1) Assumed binomial option value of $5.76 was determined using
assumptions for interest rate, stock volatility, dividend yield,
and option term.
All restricted stock and stock option grants made pursuant to the Plan
shall be made in accordance with the provisions of Realty Income's
Stock Incentive Plan.
IV. ASSESSMENT OF PERFORMANCE
Actual performance for FFO, TSR, and Individual-Specific measures
shall be determined as of the last day of a Performance Period.
Actual performance shall be assessed as soon as feasible after the end
of a Performance Period.
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V. ADJUSTMENT OF PERFORMANCE OBJECTIVES
The Committee shall have the authority to change performance
objectives from one Performance Period to another or in the event of
special circumstances (e.g., in the event that a company is added to
or omitted from the Peer Group that is used to determine relative TSR
performance).
At the beginning of each Performance Period (i.e., within the first
three months of the Performance Period), the Board and/or CEO shall
work with other Participants to develop their Individual-Specific
objectives. The Board and/or CEO shall have the authority to change
performance objectives from one Performance Period to another or in
the event of special circumstances (e.g., in the event that a
Participant's position or scope of responsibilities change).
VI. ADJUSTMENT OF AWARDS LEVELS
The Committee shall set Participants' Target Total Award, Minimum
Award, Target Award, and Maximum Award levels under the Plan and shall
have the authority to adjust award levels on the basis of competitive
practices and/or Realty Income's business objectives.
VII. TIMING OF TOTAL AWARD PAYMENTS
All Total Awards shall be made as soon as feasible after all
performance results for the Performance Period are available. The
number of underlying shares for restricted stock and stock options
that are granted shall be determined on the basis of Realty Income's
stock price (the Grant Price) on the Date of Grant.
VIII. VESTING OF TOTAL AWARDS
Restricted stock and stock options that comprise a Total Award shall
vest over three years, with one-third of the Total Award vesting one
year after the Date of Grant, one-third vesting two years after the
Date of Grant, and one-third vesting three years after the Date of
Grant. Dividends on the restricted stock portion of a Total Award
shall be payable from the Date of Grant.
IX. PARTICIPATION
Participation in the Plan shall be limited to executives and key
employees who have a significant impact on the growth and
profitability of Realty Income. The CEO shall make recommendations to
the Committee on which executives and key employees should participate
in the Plan. The Committee shall have the authority to approve
employees for participation in the Plan.
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X. SEPARATION OF EMPLOYMENT
Payment of a Total Award under the Plan shall be conditioned on a
Participant's continued employment with Realty Income during the
entire Performance Period.
SEPARATION OF EMPLOYMENT FOR CAUSE. In the event that a Participant's
employment with Realty Income is terminated for a reason other than
death, disability, retirement, or a Change in Control, any Total Award
for the current, incomplete Performance Period shall be forfeited.
SEPARATION OF EMPLOYMENT WITHOUT CAUSE. If employment ends by reason
of death, disability, retirement, or a Change in Control, a Total
Award shall be paid subject to the conditions of the Plan and
Committee approval, except that the Total Award shall be prorated on
the basis of the number of months in the Performance Period actually
completed prior to said death, disability, retirement, or Change in
Control.
TIMING AND FORM OF PAYMENT. If employment ends by reason of
death, disability, or retirement, such a Total Award shall be
payable in cash at the same time as those paid to Participants
who complete the Performance Period (as described in Section VII
above).
If employment ends by reason of a Change in Control, a prorated
Target Total Award shall be payable in cash immediately. The
prorated Target Total Award shall be made on the basis of the
number of months in the Performance Period actually completed
prior to the Change in Control.
NONVESTED STOCK AWARDS EARNED FROM PRECEDING PERFORMANCE
PERIODS. If employment ends by reason of death, disability,
retirement, or a Change in Control, all nonvested restricted
stock and stock options earned in preceding Performance Periods
shall vest in accordance with the provisions of Realty Income's
Stock Incentive Plan.
XI. MISCELLANEOUS
(a) Term and Adoption of the Plan - The Plan, as set forth herein,
shall become effective on January 1, 1998. The Plan shall
remain in effect until it is terminated pursuant to subsection
(b) below. The adoption of this Plan or any modification hereof
does not imply any commitment to continue the Plan, or any
modification thereof, or adopt any other plan for incentive
compensation for any succeeding year. Neither the Plan nor any
Total Award made under the Plan shall create any employment
contract or relationship between Realty Income and any
Participant. Furthermore, no person has any rights with respect
to a Total Award until it is payable to such person after the
expiration of the applicable Performance Period and verification
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of actual performance on FFO, TSR, and applicable Individual-
Specific measures.
(b) Right to Amend or Terminate the Plan - The Board can amend,
suspend, or terminate the Plan at any time and for any reason,
except that the provisions of the Plan pertaining to the amount
and timing of a Total Award shall not be amended more than once
in any 12-month period.
(c) Liens on Company Assets - No Participant shall hold a lien on
any assets of Realty Income by reason of any Total Award made
under the Plan.
(d) Payment of Awards - Payment of Total Awards under the Plan for a
particular Performance Period shall be made as soon as feasible
following the end of that Performance Period. All Total Awards
shall be made in the form of restricted stock and stock options
and cash.
(e) Deductions - Realty Income retains the right to deduct from all
amounts paid in restricted stock and stock options any taxes
required by law to be withheld from such payments.
(f) Plan Agreement - Each Participant must sign the Realty Income
Corporation Management Incentive Plan Agreement (Exhibit 2) to
confirm his or her participation in the Plan under the terms and
conditions set forth herein. A new agreement must be signed
within the first four months of each Performance Period.
Exhibit 2
Realty Income Corporation
Management Incentive Plan Agreement
This document shall constitute the agreement between Realty Income
Corporation (Realty Income) and (the
Participant), which confirms participation in the Realty Income
Corporation Management Incentive Plan (the Plan).
Subject to the terms and conditions of the Plan, you are a Participant
in the Performance Period beginning January 1, 1998 and ending
December 31, 1998. Your Target Total Award for the Performance Period
shall be % of your base salary, or $ , as shown in Table 1
below.
Table 1
Target Total Award
Base Salary as a % of Base Salary Target Total Award
----------- --------------------- ------------------
$ % $
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Your actual Total Award shall be calculated on the basis of the
achievement of the performance objectives specified pursuant to the
terms of the Plan and as described in this agreement. Realty Income
reserves the right to amend performance objectives and targets on the
basis of factors beyond the control of the Participant. The
performance objectives, the weight each objective carries in
determining your Total Award, and the award levels for the Performance
Period are shown in Table 2 below and further described on the
attached schedule of Management Awards.
Table 2
1998 Performance Objectives and Award Levels -
(Name of Participant)
- ----------------------------------------------------------------------
Performance Objectives Performance Level
and Award Levels ---------------------------------------
Minimum Target Maximum
Performance Performance Performance
- ---------------------------------------------------------------------
FFO PERFORMANCE
Carries Weight of 60%
of Total Award
FFO Per Share Objective $ $ $
Percentage of Target
Award Made for
FFO Performance 20% 100% 300%
- ---------------------------------------------------------------------
TSR PERFORMANCE
Carries Weight of 20%
of Total Award
TSR Ranking Objective
(Relative to Proxy
Performance Graph
Peer Group) Third Second First
Percentage of Target
Award Made for TSR
Performance 50% 100% 150%
- ---------------------------------------------------------------------
INDIVIDUAL-SPECIFIC PERFORMANCE
Carries Weight of 20%
of Total Award
Performance on Individual
-Specific Objectives Below Meets Exceeds
Percentage of Target
Award Made for Individual
Performance 0% 100% 150%
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Pursuant to the provisions of the Plan, your Total Award, up to the
Target Award, shall be made in the form of cash (25%), restricted
stock (25%) and stock options (50%). The amount of your Total Award
that exceeds the Target Award shall be in the form of stock options.
The number of underlying shares that is granted to you in the form of
restricted stock and stock options shall be determined on the basis of
Realty Income's stock price (the Grant Price) on the Date of Grant.
The Exercise Price on stock options shall equal the Grant Price. Your
Total Award shall be made as soon as feasible after the end of the
Performance Period.
Restricted stock and stock options that comprise a Total Award shall
vest over three years, with one-third of the Total Award vesting one
year after the Date of Grant, one-third vesting two years after the
Date of Grant, and one-third vesting three years after the Date of
Grant. Dividends on the restricted stock portion of a Total Award
shall be payable from the Date of Grant.
In the event that your employment with the Company is terminated for
reasons other than death, disability, retirement, or a Change in
Control, any Total Award for the current, incomplete Performance
Period or nonvested restricted shares or stock options from preceding
Performance Periods shall be forfeited. (See Section X of the Realty
Income Corporation Management Incentive Plan.)
Please read the Realty Income Corporation Management Incentive Plan
carefully and retain a copy of the plan document and a copy of the
plan agreement for your reference. Indicate your acceptance of the
terms of this agreement by signing in the space provided below.
Accepted: REALTY INCOME CORPORATION Accepted: (Name of Participant)
By:
------------------------------- -------------------------------
Thomas A. Lewis
Chief Executive Officer
Date: Date:
------------------------------ --------------------------
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Exhibit 1
Proration of Incentive Awards
Percentage FFO Percentage
Growth per Share of Award
- ------------------- ----------
0-4% 0.00%
4.00% 20.00%
4.25% 26.67%
4.50% 33.33%
4.75% 40.00%
5.00% 46.67%
5.25% 53.33%
5.50% 60.00%
5.75% 66.67%
6.00% 73.33%
6.25% 80.00%
6.50% 86.67%
6.75% 93.33%
7.00% 100.00%
7.25% 105.00%
7.50% 110.00%
7.75% 115.00%
8.00% 120.00%
8.25% 125.00%
8.50% 130.00%
8.75% 135.00%
9.00% 140.00%
9.25% 145.00%
9.50% 150.00%
9.75% 155.00%
10.00% 160.00%
10.25% 165.00%
10.50% 170.00%
10.75% 175.00%
11.00% 180.00%
11.25% 185.00%
11.50% 190.00%
11.75% 195.00%
12.00% 200.00%
12.25% 208.33%
12.50% 216.67%
12.75% 225.00%
13.00% 233.33%
13.25% 241.67%
13.50% 250.00%
13.75% 258.33%
14.00% 266.67%
14.25% 275.00%
14.50% 283.33%
14.75% 291.67%
15.00% 300.00%
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