<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
DEVELOPERS DIVERSIFIED REALTY CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Not
Applicable
(2) Aggregate number of securities to which transaction applies: Not
Applicable
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): Not
Applicable
(4) Proposed maximum aggregate value of transaction: Not Applicable
(5) Total fee paid: Not Applicable
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: Not Applicable
(2) Form, Schedule or Registration Statement No.: Not Applicable
(3) Filing Party: Developers Diversified Realty Corporation
(4) Date Filed: Not Applicable
================================================================================
<PAGE> 2
DEVELOPERS DIVERSIFIED REALTY CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------
Notice is hereby given that the annual meeting of shareholders of
Developers Diversified Realty Corporation, an Ohio corporation (the "Company"),
will be held at the Glenmoor Country Club, 4191 Glenmoor Road, N.W., Canton,
Ohio, on Monday, May 11, 1998, at 10:00 a.m., local time, for the following
purposes:
1. To elect seven directors, each to serve for a term of one year.
2. To consider a proposal to amend the Company's Amended and Restated
Articles of Incorporation to increase the number of authorized shares of
the Company from 59,000,000 to 109,000,000.
3. To vote on a proposal to approve the 1998 Developers Diversified
Realty Corporation Equity-Based Award Plan.
4. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on March 15, 1998,
will be entitled to notice of and to vote at said meeting or any adjournment
thereof. Shareholders are urged to complete, date and sign the enclosed proxy
and return it in the enclosed envelope.
By order of the Board of Directors,
JOAN U. ALLGOOD
Secretary
Dated: April , 1998
<PAGE> 3
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies to be used at the annual meeting of shareholders (the "Annual Meeting")
of Developers Diversified Realty Corporation, an Ohio corporation (the
"Company"), to be held at the Glenmoor Country Club, 4191 Glenmoor Road, N.W.,
Canton, Ohio, on Monday, May 11, 1998, at 10:00 a.m., local time. This proxy
statement and the accompanying notice and proxy will first be sent to
shareholders by mail on or about April , 1998.
Annual Report. A copy of the Company's Annual Report to Shareholders for
the fiscal year ended December 31, 1997, is enclosed with this proxy statement.
Solicitation and Revocation of Proxies. This solicitation of proxies is
made by and on behalf of the Board of Directors. The cost of the solicitation of
proxies will be borne by the Company. The Company has retained Corporate
Investor Communications, Inc. at an estimated cost of $6,000, plus reimbursement
of expenses, to assist in the solicitation of proxies from brokers, nominees,
institutions and individuals. In addition to the solicitation of proxies by
mail, Corporate Investor Communications, Inc. and regular employees of the
Company may solicit proxies by telephone or facsimile.
If the enclosed proxy is properly executed and returned, the Common Shares,
without par value (the "Common Shares"), represented thereby will be voted in
accordance with any specifications made therein by the shareholder. In the
absence of any such specification, they will be voted to elect the directors
listed in Proposal One and FOR Proposals Two and Three. A shareholder's presence
alone at the Annual Meeting will not operate to revoke such shareholder's proxy.
The proxy is revocable by a shareholder at any time insofar as it has not been
exercised by giving notice to the Company in writing at its principal executive
offices located at 34555 Chagrin Boulevard, Moreland Hills, Ohio 44022, or in
open meeting.
Outstanding Shares. The close of business on March 15, 1998, has been
fixed as the record date for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting. On such date, the Company's voting
securities outstanding consisted of Common Shares, each of which is
entitled to one vote at the Annual Meeting.
1
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Shares of the Company as of March 1, 1998 (except as
otherwise disclosed in the notes below), by (a) the Company's directors
(including nominees for directors), (b) each other person who is known by the
Company to own beneficially more than 5% of the outstanding Common Shares, (c)
the Company's Chief Executive Officer and the Company's other named executive
officers, and (d) the Company's executive officers and directors as a group.
Except as otherwise described in the notes below, the following beneficial
owners have sole voting power and sole investment power with respect to all
Common Shares set forth opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES PERCENTAGE
BENEFICIALLY OWNED OWNERSHIP
------------------ ----------
<S> <C> <C>
Bert L. Wolstein.......................................... 2,023,457(1) 7.3%
34555 Chagrin Boulevard
Moreland Hills, Ohio
FMR Corp.................................................. 1,218,000(2) 4.4%
82 Devonshire Street
Boston, Massachusetts
Cohen & Steers Capital Management, Inc.................... 3,517,600(3) 12.6%
757 Third Ave.
New York, New York
Scott A. Wolstein......................................... 285,077(4) 1%
James A. Schoff........................................... 141,157(5) *
John R. McGill............................................ 58,892(6) *
Joan U. Allgood........................................... 25,000(7) *
Loren F. Henry............................................ 68,721(8) *
William H. Schafer........................................ 5,888(9) *
Alan Bobman............................................... -- *
Steven M. Dorsky.......................................... --(10) *
Robin R. Walker........................................... --(11) *
Walter H. Teninga......................................... 7,000(12) *
William N. Hulett III..................................... 700(13) *
Ethan Penner.............................................. --(12) *
Albert T. Adams........................................... --(13) *
Dean S. Adler............................................. -- *
[NEW NOMINEE]............................................. -- *
All Executive Officers and Directors as a Group (15
persons)................................................ 592,435 2.1%
--------- ----
</TABLE>
- ---------------
* Less than 1%.
(1) Does not include 123,788 Common Shares owned by Iris S. Wolstein, Bert L.
Wolstein's wife, beneficial ownership of which is disclaimed by Mr.
Wolstein. Also does not include 233,333 Common Shares subject to options
currently exercisable or exercisable within 60 days.
(2) According to a report on Schedule 13G dated February 10, 1998, filed with
the Securities and Exchange Commission, FMR Corp. ("FMR"), an investment
advisory firm, beneficially owned 1,218,000 of the outstanding Common
Shares as of December 31, 1997. FMR disclosed in such Schedule 13G that it
has sole dispositive power with respect to all of such Common Shares and
sole voting power with respect to 282,100 of such Common Shares.
(3) According to a report on Schedule 13G dated February 6, 1998, filed with
the Securities and Exchange Commission, Cohen & Steers Capital Management,
Inc. ("Cohen"), an investment advisory firm, beneficially owned 3,517,600
of the outstanding Common Shares as of December 31, 1997. Cohen
2
<PAGE> 5
disclosed in such Schedule 13G that it has sole dispositive power with respect
to all of such Common Shares and sole voting power with respect to 3,079,600 of
such Common Shares.
(4) Does not include 865,976 Common Shares subject to options currently
exercisable or exercisable within 60 days.
(5) Does not include any of the following Common Shares, beneficial ownership
of which is disclaimed by Mr. Schoff: (a) 400 Common Shares owned by a
trust, the trustee of which is Mr. Schoff's wife and the beneficiary of
which is Mr. Schoff's daughter, (b) 300 Common Shares owned by Mr. Schoff's
wife, (c) 1,044 Common Shares owned by Mr. Schoff's son, (d) 100 Common
Shares owned by an individual retirement account held by Mr. Schoff's wife,
and (e) 1,000 Common Shares owned by a partnership in which Mr. Schoff owns
a one-half interest. Also does not include 120,757 Common Shares subject to
options currently exercisable or exercisable within 60 days.
(6) Does not include 38,333 Common Shares subject to options currently
exercisable or exercisable within 60 days.
(7) Does not include (a) 38,333 Common Shares subject to options currently
exercisable or exercisable within 60 days and (b) 1,000 Common Shares owned
by Mrs. Allgood's husband, beneficial ownership of which is disclaimed by
Mrs. Allgood.
(8) Does not include (a) 28,333 Common Shares subject to options currently
exercisable or exercisable within 60 days, (b) 1,512 Common Shares owned by
Mr. Henry's wife, beneficial ownership of which is disclaimed by Mr. Henry,
(c) 774 Common Shares subject to options currently exercisable or
exercisable within 60 days owned by Mr. Henry's wife, beneficial ownership
of which is disclaimed by Mr. Henry and (d) 1,600 Common Shares owned by
Mr. Henry's daughters, beneficial ownership of which is disclaimed by Mr.
Henry.
(9) Does not include 58,333 Common Shares subject to options currently
exercisable or exercisable within 60 days.
(10) Does not include 11,666 Common Shares subject to options currently
exercisable or exercisable within 60 days.
(11) Does not include 13,166 Common Shares subject to options currently
exercisable or exercisable within 60 days.
(12) Does not include 1,666 Common Shares subject to options currently
exercisable or exercisable within 60 days.
(13) Does not include 6,666 Common Shares subject to options currently
exercisable or exercisable within 60 days for each of Mr. Hulett and Mr.
Adams.
PROPOSAL ONE: ELECTION OF DIRECTORS
At the Annual Meeting, the Common Shares represented by proxy, unless
otherwise specified, will be voted for the election of the seven nominees
hereinafter named, each to serve for a term of one year and until his respective
successor is duly elected and qualified.
The nominees for director are Scott A. Wolstein, James A. Schoff, William
N. Hulett III, Ethan Penner, Albert T. Adams, Dean S. Adler and [NEW NOMINEE].
Messrs. Wolstein, Schoff, Hulett, Penner, Adams and Adler are presently
directors of the Company. Mr. [NEW NOMINEE] is a new nominee for director.
If notice in writing is given by any shareholder to the President or the
Secretary of the Company, not less than 48 hours before the time fixed for
holding the Annual Meeting, that such shareholder desires that the voting for
the election of directors shall be cumulative, and if an announcement of the
giving of such notice is made upon the convening of the Annual Meeting by the
President or the Secretary or by or on behalf of the shareholder giving such
notice, each shareholder shall have the right to cumulate such voting power as
such shareholder possesses at such election and to give one candidate an amount
of votes equal to the number of directors to be elected multiplied by the number
of such shareholder's Common Shares, or to distribute such shareholder's votes
on the same principle among two or more candidates, as such shareholder sees
fit.
3
<PAGE> 6
If voting for the election of directors is cumulative, the persons named in
the enclosed proxy will vote the Common Shares represented by proxies given to
them in such fashion so as to elect as many of the nominees as possible.
If for any reason any of the nominees is not a candidate (which is not
expected) when the election occurs, it is intended that proxies will be voted
for the election of a substitute nominee designated by management. The following
information is furnished with respect to each person nominated for election as a
director.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
<TABLE>
<CAPTION>
EXPIRATION
OF
PERIOD TERM FOR
OF SERVICE WHICH
NAME AND AGE PRINCIPAL OCCUPATION AS DIRECTOR PROPOSED
------------ -------------------- ----------- ----------
<S> <C> <C> <C>
Scott A. Wolstein Chairman of the Board of Directors of the 11/92-Present 1999
45 Company; President and Chief Executive
Officer of the Company
James A. Schoff Executive Vice President and Chief Operating 11/92-Present 1999
52 Officer of the Company
William N. Hulett III President and Chief Executive Officer of 2/93-Present 1999
54 BridgeStreet Accommodations, Inc.
(hotel and lodging company)
Ethan Penner President of Nomura Asset Capital 4/96-Present 1999
36 Corporation (real estate financing)
Albert T. Adams Partner, Baker & Hostetler LLP (law firm) 4/96-Present 1999
47
Dean S. Adler Principal, Lubert-Adler Partners, L.P. (real 5/97-Present 1999
41 estate investments)
[NEW NOMINEE] -- 1999
</TABLE>
Scott A. Wolstein has been the President, Chief Executive Officer and a
Director of the Company since its organization. Prior to the organization of the
Company, Mr. Wolstein was a principal and executive officer of Developers
Diversified Group ("DDG"). Mr. Wolstein is a graduate of the Wharton School at
the University of Pennsylvania and of the University of Michigan Law School. He
has served as President of the Board of Trustees of the United Cerebral Palsy
Association of Greater Cleveland and as a member of the Board of the Great Lakes
Theater Festival, Heartland PAC, Neighborhood Progress, Inc., The Park
Synagogue, the Convention and Visitors Bureau of Greater Cleveland and
Bellefaire.
James A. Schoff has been Executive Vice President, Chief Operating Officer
and a Director of the Company since its organization. Prior to the organization
of the Company, Mr. Schoff was a principal and executive officer of DDG. After
graduating from Hamilton College and Cornell University Law School, Mr. Schoff
practiced law with the firm of Thompson, Hine and Flory LLP in Cleveland, Ohio,
where he specialized in the acquisition and syndication of real estate
properties. Mr. Schoff serves as a member of the Board of Trustees of the
Western Reserve Historical Society, the Cleveland Ballet and the Children's Aid
Society.
William N. Hulett III is President and Chief Executive Officer of
BridgeStreet Accommodations, Inc. BridgeStreet, a publicly traded company on
NASDAQ, is a leader in the extended stay lodging industry. Prior to that time,
Mr. Hulett was the Co-Chairman and Chief Executive Officer of the Rock and Roll
Hall of Fame and Museum in Cleveland, Ohio. From 1981 to 1993, Mr. Hulett was
the President of Stouffer Hotel Company, the owner of a national hotel chain.
Prior to that time, Mr. Hulett served as Vice President of Operations for Westin
Hotels, based in Seattle, Washington. In December 1991, he completed a third
consecutive term as Chairman of
4
<PAGE> 7
the Convention and Visitors Bureau of Greater Cleveland. Mr. Hulett is Chairman
of the Northern Ohio Chapter of the American Red Cross, a director of Cuyahoga
Community College and a member of the Civic Vision 2000 Steering Committee. He
is also a director of the Greater Cleveland Growth Association, BridgeStreet
Accommodations, Inc. and Cleveland Development Advisors. Mr. Hulett was named
Business Executive of the year for 1995 by the Sales and Marketing Executive
Association.
Ethan Penner has been the President of Nomura Asset Capital Corporation
which was spun off from its parent company in 1997 to expand its finance
operations, as well as a member of Nomura's Operating Committee since 1994. Mr.
Penner has also been the Executive Managing Director of Nomura Securities
International, Inc. since 1994. From 1992 to 1994, Mr. Penner was President of
Magellan Financial Services, an investment banking firm which he founded in
1992. Prior to founding Magellan Financial Services, Mr. Penner was a Principal
at Morgan Stanley & Co., Inc. from 1987 to 1992. Mr. Penner serves as a member
of the Executive Committee and Board of Directors of the National Realty
Committee, a director of Nomura Asset Securities Corp., a director of Asset
Securitization Corp., a member of the Urban Land Institute, a member of the
Board of Trustees of the Simon Wiesenthal Center, a member of the Advisory Board
for the Elton John Aids Foundation, a member of the Advisory Board of the
Wharton School's Real Estate Center and a founding member and President of the
Board of The Walt Frazier Youth Foundation.
Albert T. Adams has been a partner with the law firm of Baker & Hostetler
LLP in Cleveland, Ohio since 1984, and has been affiliated with the firm since
1977. Mr. Adams is a graduate of Harvard College, Harvard Business School and
Harvard Law School. He serves as a member of the Board of Trustees of the
Greater Cleveland Roundtable and of the Western Reserve Historical Society and
is a Vice President of the Harvard Business School Club of Northeastern Ohio.
Mr. Adams also serves as a director of Associated Estates Realty Corporation and
Boykin Lodging Company.
Dean S. Adler is currently a principal with Lubert-Adler Partners, L.P., a
private equity real estate investment company. From 1987 to 1996, Mr. Adler was
a principal and co-head of the private equity group of CMS Companies,
specializing in acquiring operating businesses and real estate. Mr. Adler is a
graduate of the Wharton School and the University of Pennsylvania Law School. He
was formerly an instructor at the Wharton School between 1981 and 1983. He
currently serves as a member of the Board of Directors of The Lane Company, U.S.
Franchise Systems Inc. (USFS) and Trans World Entertainment Corporation. Mr.
Adler has served on such community boards as the UJA National Young Leadership
Cabinet and he is currently a member of the Alexis de Tocqueville Society.
[NEW NOMINEE BIOGRAPHY]
COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1997, the Board of Directors held
8 meetings. The Board of Directors has an Audit Committee, an Executive
Compensation Committee, a Dividend Declaration Committee and a Granting
Committee. The Board of Directors does not have a Nominating Committee.
Audit Committee. The Audit Committee, which consisted of Messrs. Teninga,
Hulett and Adams in 1997, makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the audit plans and results of the audit engagement, approves professional
services provided by the independent public accountants, reviews the
independence of the independent public accountants, considers the range of audit
and non-audit fees and reviews the adequacy of the Company's internal accounting
controls. The Audit Committee held 2 meetings in 1997.
5
<PAGE> 8
Executive Compensation Committee. The Executive Compensation Committee,
which consisted of Messrs. Teninga, Penner and Adams until May, 1997 and Messrs.
Adler, Penner and Adams from May, 1997 until the present, determines
compensation for the Company's executive officers and administers the Company's
stock option and equity-based award plans. The Executive Compensation Committee
held 6 meetings in 1997.
Dividend Declaration Committee. The Dividend Declaration Committee, which
consists of Messrs. Wolstein, Adams and Schoff, determines if and when the
Company should declare dividends on its capital stock and the amount thereof,
consistent with the dividend policy adopted by the Board of Directors. The
Dividend Declaration Committee held 5 meetings in 1997.
Granting Committee. The Granting Committee was established in order to
comply with amended Rule 16b-3 promulgated under the Securities Act of 1934. The
Granting Committee, which consisted of Messrs. Teninga, Adler and Penner in
1997, determines if and when the Company should grant stock options and other
equity-based awards to executive officers or employees, and the terms of such
awards, consistent with the policy adopted by the Board of Directors and
pursuant to the terms of the Developers Diversified Realty Corporation 1992
Employees' Share Option Plan and the 1996 Developers Diversified Realty
Corporation Equity-Based Award Plan. The Granting Committee held 3 meetings in
1997.
COMPENSATION OF DIRECTORS
The Company pays an annual fee of $16,000, plus a fee of $1,000 for
attending Board and/or committee meetings or $250 for participating in
telephonic meetings, to each of its directors who is not an employee or officer
of the Company. Employees and officers of the Company who are also directors are
not paid any such director fees. Each non-employee director is also reimbursed
for expenses incurred in attending meetings. With the exception of Ethan Penner
and Dean S. Adler, each director who is not an employee of the Company has also
been granted 10-year options to acquire 15,000 Common Shares, 5,000 Common
Shares of which may be acquired at an exercise price of $22 per Common Share
(the price at which the Common Shares were sold to the public in the Company's
initial public offering in February 1993), 5,000 Common Shares of which may be
acquired at an exercise price of $30.75 per Common Share and 5,000 Common Shares
of which may be acquired at an exercise price of $37.13 per Common Share,
subject to equitable adjustment for stock splits, combinations, stock dividends
and recapitalizations. Ethan Penner has been granted 10-year options to acquire
10,000 Common Shares, 5,000 Common Shares of which may be acquired at an
exercise price of $30.75 per Common Share and 5,000 Common Shares of which may
be acquired at an exercise price of $37.13 per Common Share. Dean Adler has been
granted a 10-year option to acquire 5,000 Common Shares at an exercise price of
$37.13 per Common Share. The optionees may elect to pay for the shares to be
received upon exercise of the options in cash or through a cashless exercise
procedure set forth in the agreement pursuant to which such options were
granted.
Non-employee directors are permitted to defer all or a portion of their
fees pursuant to the Company's Directors' Deferred Compensation Plan. The plan
is unfunded and participants' contributions are converted to units, the value of
which fluctuate according to the market value of the Company's Common Shares.
Messrs. Hulett and Adams elected to defer their 1997 fees pursuant to the plan.
During their terms as directors, Messrs. Hulett and Adams have deferred
compensation represented by 2,151 units and 978 units, respectively. As of
December 31, 1997, these units were valued at $82,275 for Mr. Hulett and $37,420
for Mr. Adams.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following information is set forth with respect to the Company's Chief
Executive Officer and the other four most highly compensated executive officers,
each of whom was serving as an executive officer at December 31, 1997 (the
"named executive officers").
I. SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------- -----------------------
RESTRICTED SECURITIES
STOCK UNDERLYING OTHER
FISCAL AWARD OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) (S)($) SARS(#) ($)(2)
--------------------------- ------ --------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Scott A. Wolstein............... 1997 500,000 625,000 -0- 750,000 52,648
President and Chief 1996 400,000 300,000 768,750(3) 100,000 49,380
Executive Officer 1995 400,000 100,000 -- -0- 33,886
James A. Schoff................. 1997 275,000 275,000 -0- -0- 41,345
Executive Vice President 1996 275,000 137,500 -- 120,000 46,609
and Chief Operating Officer 1995 275,000 50,000 -- 50,000 28,403
John R. McGill.................. 1997 175,000 105,000 -0- -0- -0-
Vice President and 1996 162,500 63,000 -- 55,000 -0-
Director of Development 1995 150,000 20,000 -- 10,000 -0-
Joan U. Allgood................. 1997 175,000 87,500 -0- -0- -0-
Vice President and 1996 162,500 43,750 -- 55,000 -0-
General Counsel 1995 150,000 20,000 -- 10,000 -0-
Loren F. Henry.................. 1997 175,000 87,500 -0- -0- 3,939
Vice President and 1996 162,500 35,000 -- 55,000 2,766
Director of Management 1995 150,000 20,000 -- 10,000 2,372
</TABLE>
- ---------------
(1) For a description of the method used in determining the bonuses paid to
Messrs. Wolstein and Schoff, see "Employment Agreements" and "Report of the
Executive Compensation Committee of the Board of Directors."
(2) Represents the dollar value, at December 31, 1997, of contributions of
Common Shares and Common Shares equivalents, respectively, made by the
Company pursuant to the Company's Profit Sharing Plan and Trust and the
Company's Elective Deferred Compensation Plan. The dollar value of the
Company's contributions made pursuant to the Company's Profit Sharing Plan
and Trust plan equalled $2,511, $2,131, $0, $0, and $3,039, respectively,
for Mr. Wolstein, Mr. Schoff, Mr. McGill, Mrs. Allgood and Mr. Henry. The
dollar value of contributions made pursuant to the Company's Elective
Deferred Compensation Plan equalled $9,000, $4,689, $0, $0, and $900,
respectively, for Mr. Wolstein, Mr. Schoff, Mr. McGill, Mrs. Allgood and Mr.
Henry. In addition, Messrs. Wolstein and Schoff each received $10,000
allowances relating to fiscal year 1996 tax and financial planning expenses
pursuant to their employment agreements. Messrs. Wolstein and Schoff also
received other compensation aggregating $31,137 and $24,525, respectively,
pursuant to their employment agreements.
(3) On July 17, 1996, Mr. Wolstein was granted 25,000 restricted Common Shares.
Pursuant to the terms of the restricted shares agreement between the Company
and Mr. Wolstein, 5,000 restricted shares vested immediately on the date of
the grant. The remaining restricted shares vest in 5,000 share increments on
each subsequent July 17th following the date of grant. Dividends on the
restricted shares are payable in additional restricted shares.
7
<PAGE> 10
II. OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the awarding of
stock options in 1997 to the named executive officers included in the Summary
Compensation Table.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED GRANT DATE
UNDERLYING TO EMPLOYEES EXERCISE PRESENT
OPTIONS/SARS IN FISCAL PRICE EXPIRATION VALUE
NAME (#) YEAR(3) ($/SH) DATE ($)(4)
---- ------------ ---------------- -------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Scott A. Wolstein......... 250,000(1) 26.3% $ 36.50 April 15, 2007 1,887,850
100,000(1) 10.5% $38.3125 May 12, 2007 720,340
100,000(1) 10.5% $ 40.25 May 12, 2007 729,930
100,000(2) 10.5% $ 42.25 May 12, 2007 739,440
100,000(2) 10.5% $ 44.375 May 12, 2007 747,890
100,000(2) 10.5% $46.5625 May 12, 2007 756,250
James A. Schoff........... -0- -- -- -- --
John R. McGill............ -0- -- -- -- --
Joan U. Allgood........... -0- -- -- -- --
Loren F. Henry............ -0- -- -- -- --
</TABLE>
- ---------------
(1) Options vest immediately and are therefore immediately exercisable.
(2) Options vest in one-third increments on each of the first three consecutive
anniversaries of the date of grant and may be exercised, if at all, only
with respect to those options which have vested.
(3) Based on options to purchase an aggregate of 951,180 Common Shares granted
to employees during 1997.
(4) Based on the Black-Scholes options pricing model, adapted for use in valuing
stock options granted to executives. The following assumptions were used in
determining the values set forth in the table: (a) expected volatilities of
31.5575 and 31.6868, which reflect the daily closing prices of the Common
Shares on the New York Stock Exchange for the twelve-month period ended
April 15, 1997 and May 12, 1997, (b) risk-free rates of return of 7.875% and
6.65% for the options which expire in April 2007 and May 2007, respectively
(the "Options") (which percentage represents the yield on a United States
Government Zero Coupon bond with a 10-year maturity prevailing on the date
on which the respective options were granted), (c) dividend yields ranging
from 5.4% to 6.9% for the Options (which percentage represents an annualized
distribution of $2.52 per Common Share divided by the exercise prices of the
Options) and (d) the exercise of the options at the end of their respective
10-year terms. No adjustments were made for nontransferability or risk of
forfeiture of the options. The calculations were made using prices per
Common Share and option exercise prices ranging from $36.50 to $46.5625 for
the Options. The estimated present values in the table are not intended to
provide, nor should they be interpreted as providing, any indication or
assurance concerning future values of the Common Shares.
8
<PAGE> 11
III. AGGREGATE OPTION EXERCISES IN 1997 AND 1997 YEAR-END OPTION VALUES
The following table sets forth information with respect to the value of
options held by the named executive officers included in the Summary
Compensation Table on December 31, 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 1997 OPTIONS AT 1997(1)
YEAR-END(#) YEAR-END($)
SHARES ---------------------- --------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Scott A. Wolstein............ 17,357 257,403 865,976/366,667 5,498,589/500,000
James A. Schoff.............. 34,242 471,556 104,091/96,667 1,039,818/781,250
John R. McGill............... -- -- 59,999/40,001 712,500/308,750
Joan U. Allgood.............. 25,000 427,866 34,999/40,001 347,134/308,750
Loren F. Henry............... 10,000 97,500 24,999/40,001 205,000/308,750
</TABLE>
- ---------------
(1) Based on the market price of $38.25 at the close of trading on December 31,
1997.
IV. LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OR OTHER NON-STICK PRICE-BASED PLANS
OF SHARES, PERIOD UNTIL -----------------------------------------------
UNITS OR MATURATION THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS OR PAYOUT (#) (#) (#)
---- ------------ ----------------- --------- ---------------- -------
<S> <C> <C> <C> <C> <C>
Scott A. Wolstein.... 15,000(1) December 31, 2000 15,000 15,000 -- 100,000 100,000
</TABLE>
- ---------------
(1) Mr. Wolstein entered into a Performance Unit Agreement with the Company
pursuant to the 1996 Developers Diversified Realty Corporation's
Equity-Based Award Plan. Under this agreement, Mr. Wolstein was granted
15,000 units (the "Performance Units"), which will be converted to between
15,000 and 100,000 of the Company's Common Shares based on annualized total
shareholder return over a five-year period beginning on January 1, 1996.
EMPLOYMENT AGREEMENTS
The Company has entered into separate employment agreements with Scott A.
Wolstein and James A. Schoff. Each of these agreements has an "evergreen"
provision which provides for an automatic extension of the agreement for an
additional year at the end of each calendar year, subject to the right of either
party to terminate by giving one year's prior written notice. Pursuant to their
respective agreements, Messrs. Wolstein and Schoff are required to devote to the
Company their entire business time. The agreements, as amended, provide for
current annual base salaries of $500,000 and $275,000 for Messrs. Wolstein and
Schoff, respectively, as well as the use of an automobile, membership in a golf
club and a business club, and an allowance of up to $10,000 annually for
financial planning and tax return preparation services. Pursuant to the
agreements, Mr. Wolstein is entitled to a bonus of from 50% to 125% of his
annual base salary, and Mr. Schoff is entitled to a bonus of from 25% to 100% of
his annual base salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until May, 1997, the members of the Executive Compensation Committee were
Walter H. Teninga, Ethan Penner and Albert T. Adams. From May, 1997 through the
present, the members of the Executive Compensation Committee were Dean S. Adler,
Ethan Penner and Albert T. Adams. For a discussion of certain transactions
between the Company and Mr. Adams, see "Certain Transactions."
9
<PAGE> 12
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return of a
hypothetical investment in the Common Shares with the cumulative total return of
a hypothetical investment in each of the Standard & Poor's Composite -- 500
Index and the NAREIT Equity REIT Total Return Index based on the respective
market prices of each such investment on the dates shown below, assuming an
initial investment of $100 on February 1, 1993 and the reinvestment of
dividends.
<TABLE>
<CAPTION>
Developers NAREIT
Diversified Equity REIT
Measurement Period Realty S&P 500 Total Return
(Fiscal Year Covered) Corporation Index Index
<S> <C> <C> <C>
2/1/93 100 100 100
12/31/93 137.59 107.74 106.70
12/31/94 158.50 116.34 110.08
12/31/95 163.71 150.00 126.89
12/31/96 218.12 183.35 176.06
12/31/97 239.64 249.04 219.33
</TABLE>
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
INTRODUCTION
The compensation of the Company's executive officers is currently
determined by the Executive Compensation Committee of the Company's Board of
Directors (the "Committee"). Until May, 1997, the Committee was comprised of
Walter H. Teninga, Ethan Penner and Albert T. Adams; and after May, 1997, the
Committee was comprised of Dean S. Adler, Ethan Penner and Albert T. Adams.
PHILOSOPHY
The primary objectives of the Committee in determining executive
compensation for 1997 were (i) to provide a competitive total compensation
package that enables the Company to attract and retain qualified executives and
align their compensation with the Company's overall business strategies and (ii)
to provide each executive officer with a significant equity stake in the Company
through stock options and, in the case of Scott A. Wolstein, through restricted
stock grants and performance units.
To this end, the Committee determined executive compensation consistent
with a philosophy of compensating executive officers based on their
responsibilities, the Company's performance and, with respect to Scott A.
Wolstein and James A. Schoff, the achievement of established annual goals. The
primary components of the Company's executive compensation program are (i) base
salaries and certain other annual compensation, (ii) bonuses for certain
executive officers and (iii) stock options and, in the case of Scott A.
Wolstein, restricted stock grants and performance units. Each of these elements
is discussed below.
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<PAGE> 13
COMPONENTS OF THE COMPENSATION PROGRAM
Base Salaries and Certain Other Annual Compensation. The base salaries and
certain other annual compensation for the Company's executive officers in 1997
were determined with reference to the experience of executives in the REIT
industry which include companies that comprise the NAREIT Equity REIT Total
Return Index, together with comparisons of compensation paid by companies of
similar size in the industry, after consulting with the Company's investment
advisors and the managing underwriters of certain public securities offerings of
the Company. Additionally, in 1996 the Company engaged an independent consultant
to assist in the design of a comprehensive executive compensation program for
the Company's officers and key employees. Fundamental requirements of the
program included the establishment of competitive compensation levels and the
setting of rewards consistent with individual contributions.
After analysis, and based upon the recommendation of the Company's
independent consultant, the Committee determined that for 1997 the base salary
of Mr. Wolstein should be increased to $500,000 per year in light of the
compensation being paid to other chief executive officers in the REIT industry
generally. Additionally, pursuant to their employment agreements, Messrs.
Wolstein and Schoff also receive the use of an automobile, membership in a golf
club and a business club and an allowance of up to $10,000 annually for
financial planning and tax return preparation services. The Board of Directors
believes that the annual compensation in addition to the base salary and
allowance benefits the Company by facilitating the development of important
relationships with members of the business community.
Bonuses. The employment agreements for Scott A. Wolstein and James A.
Schoff initially provided for annual bonuses based on the growth in the
Company's Distributable Cash Flow per Common Share (as defined in the
agreements). See "Employment Agreements." In 1995, the Committee elected to base
the annual bonuses of Messrs. Wolstein and Schoff on the growth of the Company's
Funds From Operations per Common Share. It was the Committee's belief that this
measure of growth, which is used consistently throughout the REIT industry,
better aligned the interests of the Company's key executive officers with the
interests of the shareholders of the Company. The new bonus arrangement entitled
Mr. Wolstein to a bonus of between 12.5% to 75% of his annual base salary, and
Mr. Schoff of a bonus of between 9% to 55% of his annual base salary, if Funds
From Operations per Common Share for any year exceeded, by 5% to 20% or more,
the Funds From Operations per Common Share for the immediately preceding year.
In 1995, Mr. Wolstein earned a bonus equal to 25% of his base salary, and Mr.
Schoff earned a bonus equal to 18.2% of his base salary. In 1995, four other
executive officers of the Company were also given bonus arrangements entitling
them to incentive payments of between $10,000 and $40,000 per year if Funds From
Operations per Common Share for such year exceeded, by 5%-20% or more, the Funds
From Operations per Common Share for the immediately preceding year. In 1995,
each of these executive officers earned a bonus of $20,000.
In 1996, based on the recommendation of the Company's independent
consultant, the Company amended its bonus arrangements with certain key
employees, including Messrs. Wolstein and Schoff, to provide for annual
performance bonuses based upon the participant's level of responsibility and
salary, overall corporate performance and individual or qualitative performance.
These bonus possibilities are in the form of target, minimum and maximum
incentive opportunities which are attained if the Company reaches certain
pre-determined performance benchmarks tied to Funds From Operations per Common
Share and if the participants are given a favorable qualitative assessment of
their individual contributions and efforts. In 1996, Mr. Wolstein earned a bonus
equal to 75% of his base salary, and Mr. Schoff earned a bonus equal to 50% of
his base salary. Additionally, in 1996, one other executive officer earned a
bonus of 36% of his current annualized base salary, two other executive officers
of the Company earned bonuses equal to 25% of their respective current
annualized base salaries and one executive officer earned a bonus of 20% of his
current annualized base salary.
In 1997, Mr. Wolstein earned a bonus equal to 125% of his base salary, and
Mr. Schoff earned a bonus equal to 100% of his base salary. Additionally, in
1997, one other executive officer earned a bonus of 60% of his current
annualized base salary and three other executive officers of the Company earned
bonuses equal to 50% of their respective current annualized base salaries.
11
<PAGE> 14
Restricted Shares and Performance Units. Mr. Wolstein has entered into a
Restricted Shares Agreement and a Performance Unit Agreement with the Company,
both pursuant to the 1996 Developers Diversified Realty Corporation's
Equity-Based Award Plan. Pursuant to the Restricted Shares Agreement, Mr.
Wolstein has been granted 25,000 Common Shares (the "Restricted Shares") which
vest in 20% increments. The first 5,000 Restricted Shares vested on July 17,
1996, the date of grant, and additional increments of 5,000 Restricted Shares
will vest each July 17th thereafter. Under the Performance Unit Agreement, Mr.
Wolstein was granted 15,000 units (the "Performance Units"), the value of which
will be determined by the performance of the Company's Common Shares over a
five-year period beginning on January 1, 1996.
Stock Options. All of the Company's executive officers are eligible to
receive options to purchase Common Shares of the Company pursuant to the
Developers Diversified Realty Corporation 1992 Employees' Share Option Plan (the
"Employees' Share Option Plan") and the 1996 Developers Diversified Realty
Corporation's Equity-Based Award Plan (the "1996 Award Plan"). The Company
believes that stock option grants are a valuable motivating tool and provide a
long-term incentive to management. Stock option grants reinforce long-term goals
by providing the proper nexus between the interests of management and the
interests of the Company's shareholders. Furthermore, due to an extraordinary
number of transactions being conducted by the Company in 1997, the Committee
granted options to purchase an aggregate of 750,000 Common Shares to Scott A.
Wolstein. Of the options granted, 300,000 were awarded under the 1992 Employees'
Share Option Plan and 100,000 were granted under the 1996 Award Plan. The
remaining 350,000 options were granted outside of either plan due to limitations
within those plans. The number of these options granted to Mr. Wolstein was
determined by the Board of Directors and was based on the recommendation of the
Company's independent consultant and the expected contribution of Mr. Wolstein
to the performance of the Company.
EXECUTIVE COMPENSATION COMMITTEE
Walter H. Teninga
Ethan Penner
Albert T. Adams
Dean S. Adler
PROPOSAL TWO: PROPOSED AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED ARTICLES
OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
THE COMPANY FROM 59,000,000 TO 109,000,000.
GENERAL
The Board of Directors of the Company has adopted a resolution recommending
that shareholders approve an amendment to the Company's Amended and Restated
Articles of Incorporation (the "Articles") that would increase the number of
authorized shares of the Company from 59,000,000 to 109,000,000 by increasing
the number of authorized Common Shares from 50,000,000 to 100,000,000. The
amendment would not change the authorized amount of the Company's preferred
shares.
If the amendment is approved by the stockholders, the first sentence of
Article FOURTH of the Articles would be amended to read as follows:
FOURTH: The authorized number of shares of the Corporation is
109,000,000, consisting of 100,000,000 Common Shares, without par
value (hereinafter called "Common Shares"), and 1,500,000 Class A
Cumulative Preferred Shares, without par value (hereinafter called
"Class A Shares"), 1,500,000 Class B Cumulative Preferred Shares,
without par value (hereinafter called "Class B Shares"), 1,500,000
Class C Cumulative Preferred Shares, without par value (hereinafter
called "Class C Shares"), 1,500,000 Class D Cumulative Preferred
Shares, without par value (hereinafter called "Class D Shares"),
1,500,000 Class E Cumulative Preferred Shares, without par value
(hereinafter called "Class E Shares"), and 1,500,000 Noncumulative
Preferred Shares, without par value (hereinafter called "Noncumulative
Shares").
As of March 1, 1998, the Company had approximately 27,814,000 Common
Shares, without par value (the "Common Shares"), issued and outstanding and had
reserved approximately 3,697,733 Common Shares for
12
<PAGE> 15
issuance upon the conversion of shares of preferred stock and other convertible
securities and in connection with the Company's various employee benefit and
compensation plans. This leaves approximately 24,116,267 authorized but unissued
Common Shares available for future use.
The Board of Directors believes that an increase in the number of
authorized Common Shares is necessary to provide the Company with additional
flexibility to meet its future business needs. If the proposed amendment is
approved by the shareholders, the Company will have additional shares available
for acquisitions, equity financings, equity compensation plans, stock dividends
or stock splits and other corporate purposes. The additional shares would be
available for issuance without further shareholder approval, except as may be
required by applicable law or the rules of the New York Stock Exchange. Although
the Company does not have any commitment or understanding at this time for the
issuance of additional Common Shares (other than as permitted or required under
the Company's employee benefit plans), the proposed amendment should enable the
Company to take timely advantage of favorable opportunities and market
conditions when they arise.
The additional 50,000,000 Common Shares for which authorization is sought
would be a part of the existing class of Common Shares and, if and when issued,
would have the same rights and privileges as the Common Shares presently
outstanding. Such additional Common Shares would not (and the Common Shares
currently outstanding do not) entitle holders thereof to preemptive rights.
The issuance of additional Common Shares could have a dilutive effect on
earnings per share of the Common Shares and on the equity and voting power of
those holding Common Shares at the time of issuance. In addition, the proposed
amendment could have an anti-takeover effect, as additional Common Shares could
be issued to dilute the stock ownership and voting power of, or increase the
cost to, a person seeking to obtain control of the Company. However, the
amendment is not being proposed in response to any known effort to accumulate
Common Shares or obtain control of the Company.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of Common Shares entitling such holders
to exercise a majority of the voting power of the Company is required to adopt
the proposed amendment to the Articles.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE AMENDMENT TO THE ARTICLES.
PROPOSAL THREE: TO APPROVE THE 1998 DEVELOPERS DIVERSIFIED REALTY CORPORATION
EQUITY-BASED AWARD PLAN.
GENERAL
The 1998 Developers Diversified Realty Corporation Equity-Based Award Plan
(the "Award Plan") was adopted by the Company's Board of Directors on March 2,
1998 subject to approval by the Company's shareholders. The description herein
is a summary of the Award Plan and is subject to and qualified by the complete
text of the Award Plan.
Although shareholder approval of the Award Plan is not otherwise required,
such approval is being sought in order that (i) the shares reserved for issuance
under the Award Plan may be listed on the New York Stock Exchange pursuant to
the rules of the exchange and (ii) compensation attributable to equity-based
awards will qualify as performance-based compensation, which would exempt such
grants from the limits on the deductibility contained in the Omnibus Budget
Reconciliation Act of 1993 (the "Act") for federal income tax purposes of
certain corporate payments to executive officers.
The rules of the New York Stock Exchange require shareholder approval of an
award plan if such plan will grant awards to directors and officers of a company
which has its shares listed on the exchange. Consequently, the Award Plan is
being submitted to the Company's shareholders so that the shares reserved for
issuance under the Award Plan may be listed on the New York Stock Exchange.
The Award Plan is also being submitted to the Company's shareholders, in
part, pursuant to the requirements of the Act. The Act amended the Internal
Revenue Code to limit to $1 million per year the deduction allowed for
13
<PAGE> 16
federal income tax purposes for compensation paid to the Chief Executive Officer
and the four other most highly compensated executive officers of a public
company (the "Deduction Limit"). The Deduction Limit, which was effective
beginning in 1994, applies to compensation which does not qualify for any of the
limited number of exceptions provided for in the Act ("Non-Qualified
Compensation"). Under the Act, the Deduction Limit does not apply to
compensation paid under a plan that meets certain requirements for
"performance-based compensation." Compensation attributable to a stock option is
deemed to satisfy the requirement that compensation be paid on account of the
attainment of one or more performance goals if (i) the grant is made by a
committee of directors which meets certain criteria, (ii) the plan under which
the option is granted states a maximum number of options which may be granted to
any individual during a specified period and (iii) the amount of compensation
the individual could receive is based solely on the increase in the value of the
Common Shares after the date of grant. It is the Company's intent to structure
the stock options and certain other awards granted under the Award Plan to
satisfy the requirements for the performance-based compensation exception to the
Deduction Limit and, thus, to preserve the full deductibility of all
compensation paid thereunder to the extent practicable. As a consequence, the
Board of Directors has directed that the Award Plan, as it applies to
participants, be submitted to the Company shareholders for approval in
accordance with the requirements for the performance-based compensation
exception to the Deduction Limit. If the Award Plan is approved by the Company
shareholders, stock options and certain other awards granted to participants
under the Award Plan will not be subject to the Deduction Limit. If shareholders
fail to approve the Award Plan, it will continue in effect; however,
compensation attributable to such stock options and certain other awards granted
pursuant to the Award Plan will be subject to the Deduction Limitation.
The Award Plan provides for the grant to officers and other employees of
the Company of options to purchase Common Shares of the Company ("Stock
Options"), rights to receive the appreciation in value of Common Shares ("Share
Appreciation Rights"), awards of Common Shares subject to restrictions on
transfer ("Restricted Shares"), awards of Common Shares issuable in the future
upon satisfaction of certain conditions ("Deferred Shares"), rights to purchase
Common Shares ("Share Purchase Rights"), and other awards based on Common Shares
("Other Share-Based Awards") (Stock Options, Share Appreciation Rights,
Restricted Shares, Deferred Shares, Share Purchase Rights and Other Share-Based
Awards are collectively referred to herein as "Awards"). Under the terms of the
Award Plan, Awards may be granted with respect to an aggregate of not more than
1,000,000 Common Shares (approximately 3.6% of the Common Shares outstanding),
and no participant may receive Awards with respect to more than 500,000 Common
Shares during any calendar year, subject to adjustment as described below. The
Common Shares reserved for issuance under the Award Plan are in addition to the
375,000 Common Shares still reserved for issuance under the 1996 Award Plan and
the 165,053 Common Shares still reserved for issuance under the 1992 Employees'
Share Option Plan. The closing price of the Common Shares on the New York Stock
Exchange on March 6, 1998 was $40.25. At that time, the aggregate market value
of the 1,000,000 Common Shares proposed to be reserved for purposes of the Award
Plan was $40,250,000.
The purpose of the Award Plan is to enable the Company to attract, retain
and reward key employees of the Company and strengthen the mutuality of
interests between such key employees and the Company's shareholders, by offering
such key employees equity or equity-based incentives. Currently, there are
approximately
employees eligible to participate in the Award Plan.
The Award Plan is administered by the Granting Committee of the Company's
Board of Directors (the "Committee"). The Committee consists of not less than
three Board members, all of whom are Outside Directors (within the meaning set
forth in Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code")).
The Committee has full power to interpret and administer the Award Plan and
full authority to select participants to whom Awards will be granted and to
determine the type and amount of Award(s) to be granted to each participant, the
terms and conditions of Awards granted and the terms and conditions of the
agreements evidencing Awards which will be entered into with participants. As to
the selection and grant of Awards to participants who are not subject to Section
16(b), the Committee may delegate its responsibilities to members of the
Company's management consistent with applicable law.
14
<PAGE> 17
The Committee has the authority to adopt, alter and repeal such rules,
guidelines and practices governing the Award Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Award Plan
and any Award issued under the Award Plan (and any agreements relating thereto);
and otherwise to supervise the administration of the Award Plan.
TERMS OF STOCK OPTIONS
The Committee may grant Stock Options that either (i) qualify as incentive
stock options ("Incentive Stock Options") under Section 422A of the Code, (ii)
do not so qualify ("Non-Qualified Stock Options"), or (iii) both. To qualify as
an Incentive Stock Option, an option must meet certain requirements set forth in
the Code. Options will be evidenced by the execution of a Stock Option Agreement
in the form approved by the Committee.
The option price per Common Share under a Stock Option will be determined
by the Committee at the time of grant and will be not less than 100% of the fair
market value of the Common Shares at the date of grant, or with respect to
Incentive Stock Options, 110% of the fair market value of the Common Shares at
the date of grant in the case of a participant who, at the date of grant, owns
shares possessing more than 10% of the total combined voting power of all
classes of stock of the Company.
The term of each Stock Option will be determined by the Committee and may
not exceed ten years from the date the option is granted or, with respect to
Incentive Stock Options, five years in the case of a participant who, at the
date of grant, owns shares possessing more than 10% of the total combined voting
power of all classes of stock of the Company.
The Committee will determine the time or times at which, and the conditions
under which, each Stock Option may be exercised. Generally, options will not be
exercisable prior to six months following the date of grant. No Stock Options
are transferable by the optionee other than by will or by the laws of descent
and distribution and all Stock Options are exercisable, during the optionee's
lifetime, only by or on behalf of the optionee.
Unless otherwise determined by the Committee at or after the time of grant,
after any termination of employment by reason of disability or death, a Stock
Option may be exercised (to the extent it was then exercisable, or would have
become exercisable within one year) for a period of one year from the time of
death or termination due to disability or on such accelerated basis as may be
determined by the Committee.
Unless otherwise determined by the Committee, if an optionee's employment
terminates for any reason other than disability or death, all Stock Options
shall terminate 90 days after the date employment terminates.
TERMS OF SHARE APPRECIATION RIGHTS
The Committee shall determine the participants to whom and the time or
times at which grants of Share Appreciation Rights ("SARs") will be made and the
other terms and conditions thereof. Any SAR granted under the Award Plan shall
be in such form as the Committee may from time to time approve. In the case of a
Non-Qualified Stock Option, an SAR may be granted either at or after the time of
the grant of the related Non-Qualified Stock Option. In the case of an Incentive
Stock Option, an SAR may be granted in connection with the Incentive Stock
Option at the time the Incentive Stock Option is granted and exercised at such
times and under such conditions as may be specified by the Committee in the
participant's Stock Option Agreement.
SARs generally entitle the holder to receive an amount in cash or Common
Shares (as determined by the Committee) equal in value to the excess of the fair
market value of a Common Share on the date of exercise of the SAR over the per
share exercise price of the related Stock Option. The Committee may limit the
amount that the participant will be entitled to receive upon exercise of any
SAR.
Upon exercise of an SAR and surrender of the related portion of the
underlying Stock Option, the related Stock Option is deemed to have been
exercised. SARs will be exercisable only to the extent that the Stock Options to
which they relate are exercisable; provided that an SAR granted to a participant
who is subject to Section 16(b) will not be exercisable at any time prior to six
months and one day from the date of grant, except in the event of death of the
holder.
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<PAGE> 18
SARs shall be transferable and exercisable to the extent and under the same
conditions as the underlying Stock Option.
TERMS OF AWARDS OF RESTRICTED SHARES
The Committee may grant Restricted Shares Awards and determine when and to
whom such grants will be made, the number of shares to be awarded, the date or
dates upon which Restricted Shares Awards will vest, the time or times within
which such Awards may be subject to forfeiture, and all other terms and
conditions of such Awards. The Committee may condition Awards of Restricted
Shares on the attainment of performance goals or such other factors as the
Committee may determine.
Subject to the provisions of the Award Plan and the applicable Restricted
Shares Award agreement, during a period set by the Committee commencing with the
date of the Award (the "Restriction Period"), the participant will not be
permitted to sell, transfer, pledge, assign or otherwise encumber such
Restricted Shares, except by will or by the laws of descent and distribution.
The Committee may permit such restrictions to lapse in installments within the
Restricted Period or may accelerate or waive such restrictions in whole or in
part, based on service, performance or such other factors and criteria as the
Committee may determine. Prior to the lapse of the restrictions on the
Restricted Shares, the participant will have all rights of a shareholder with
respect to the shares, including voting and dividend rights (except that the
Committee may permit or require the payment of cash dividends to be deferred and
reinvested in additional Restricted Shares or otherwise reinvested), subject to
the conditions and restrictions on transferability of such Restricted Shares or
such other restrictions as are enumerated specifically in the participant's
Restricted Shares Award agreement. Unless the Committee or Board determines
otherwise, share dividends issued with respect to Restricted Shares shall be
treated as additional Restricted Shares that are subject to the same
restrictions and other terms and conditions that apply to the Restricted Shares
with respect to which such dividends are issued.
If a participant's employment by the Company terminates by reason of death
or disability, any Restricted Shares held by such participant shall thereafter
vest or any restriction shall lapse, to the extent such Restricted Shares would
have become vested or no longer subject to restriction within one year from the
time of death or termination due to disability had the participant continued to
fulfill all of the conditions of the Restricted Shares Award during such period
(or on such accelerated basis as the Committee may determine at or after grant).
In the event that a participant who holds Restricted Shares terminates
employment for any reason other than death or disability, the participant will
forfeit such shares that are unvested or subject to restrictions in accordance
with the applicable provisions of the Award agreement and in accordance with the
terms and conditions established by the Committee.
TERMS OF AWARDS OF DEFERRED SHARES
The Committee may grant Awards of Deferred Shares under the Award Plan,
which will be evidenced by an agreement between the Company and the participant.
The Committee determines when and to whom Deferred Shares will be awarded, the
number of shares to be awarded, and the duration of the period during which, and
the conditions under which, receipt of shares will be deferred. The Committee
may condition an Award of Deferred Shares on the attainment of specified
performance goals or such other factors as the Committee may determine.
Deferred Shares Awards generally may not be sold, assigned, transferred,
pledged or otherwise encumbered during the deferral period. At the expiration of
the deferral period, share certificates shall be delivered to the participant in
a number equal to the shares covered by the Deferred Shares Award. Unless
otherwise determined by the Committee at grant, amounts equal to any dividends
declared during the deferral period with respect to the number of shares covered
by a Deferred Shares Award will be paid to the participant currently, or
deferred and deemed to be reinvested in additional Deferred Shares, or otherwise
reinvested, all as determined by the Committee.
If a participant's employment by the Company terminates by reason of death
or disability, any Deferred Shares held by such participant will thereafter vest
or any restriction lapse, to the extent such Deferred Shares would have become
vested or no longer subject to restriction within one year from the time of
death or
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<PAGE> 19
termination due to disability had the participant continued to fulfill all of
the conditions of the Deferred Shares Award during such period (or on such
accelerated basis as the Committee may determine at or after grant).
Unless otherwise determined by the Committee, if a participant's employment
by the Company terminates for any reason other than death or disability, the
Deferred Shares which are unvested or subject to restriction will thereupon be
forfeited. Any restrictions under a Deferred Shares Award may be accelerated or
waived by the Committee at any time.
TERMS OF AWARDS OF SHARE PURCHASE RIGHTS
The Committee may grant Share Purchase Rights which will enable a
participant to purchase Common Shares: (i) at the fair market value of such
shares on the date of grant, or (ii) at 85% of such fair market value on such
date if the grant of Share Purchase Rights is made in lieu of cash compensation.
The Committee determines when and to whom Share Purchase Rights will be made,
and the number of shares which may be purchased. The Committee may also impose
such deferral, forfeiture or other terms and conditions as it determines on such
Share Purchase Rights or the exercise thereof. Each Share Purchase Rights Award
will be confirmed by, and be subject to the terms of, a Share Purchase Rights
agreement, and payment upon exercise will be in such form as the Committee may
specify.
Share Purchase Rights may contain such additional terms and conditions as
the Committee shall deem desirable, and shall generally be exercisable for such
period as shall be determined by the Committee. However, the Committee may
provide, in its sole discretion, that the Share Purchase Rights of persons
potentially subject to Section 16(b) shall not become exercisable until six
months and one day after the grant date.
TERMS OF OTHER SHARE-BASED AWARDS
The Committee may grant other Awards of Common Shares and other Awards that
are valued in whole or in part by reference to, or are otherwise based on,
Common Shares (including, without limitation, performance shares, convertible
preferred shares, convertible debentures, exchangeable securities and Common
Share Awards or options valued by reference to book value or subsidiary
performance). Other Share-Based Awards may be granted either alone, in addition
to or in tandem with other Awards granted under the Award Plan or cash awards
made outside the Award Plan.
Generally, Common Shares awarded pursuant to Other Share-Based Awards may
not be sold, assigned, transferred, pledged or otherwise encumbered prior to the
date on which the shares are issued, or, if later, the date on which any
applicable restriction, performance or deferral period or requirement is
satisfied or lapses. In addition, the recipient of such an Award will usually be
entitled to receive, currently or on a deferred basis, interest or dividends or
interest or dividend equivalents with respect to the number of shares covered by
the Award, as determined at the time of the Award by the Committee, and the
Committee may provide that such amounts (if any) shall be deemed to have been
reinvested in additional Common Shares or otherwise reinvested. Common Shares
covered by any such Award shall vest or be forfeited to the extent so provided
in the Award agreement, as determined by the Committee. In the event of the
participant's disability or death, or in cases of special circumstances, the
Committee may, in its sole discretion, waive in whole or in part any or all of
the remaining limitations imposed with respect to any or all of such Award.
Each Other Share-Based Award shall be confirmed by, and subject to the
terms of, an agreement or other instrument between the Company and the
participant. Common Shares (including securities convertible into Common Shares)
issued on a bonus basis as Other Share-Based Awards shall be issued for no cash
consideration. Common Shares (including securities convertible into Common
Shares) purchased pursuant to Other Share-Based Awards shall bear a price of at
least 85% of the fair market value of the Common Shares on the date of grant.
CHANGE IN CONTROL
Certain acceleration and valuation provisions take effect with respect to
Awards upon the occurrence of a Change in Control or a Potential Change in
Control (as defined in the Award Plan) of the Company.
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In the event of a Change in Control or a Potential Change in Control, any
Stock Options, Restricted Shares, Deferred Shares, Share Purchase Rights and
Other Share-Based Awards awarded under the Award Plan shall become fully vested,
and SARs shall become immediately exercisable, on the date of the Change in
Control or Potential Change in Control. All outstanding Stock Options, SARs,
Restricted Shares, Deferred Shares, Share Purchase Rights and Other Share-Based
Awards, in each case to the extent vested, will, unless otherwise determined by
the Committee at or after grant, but prior to any Change in Control or Potential
Change in Control, be cashed out for the Change in Control Price (as defined in
the Award Plan).
ADJUSTMENTS FOR STOCK DIVIDENDS, MERGERS, ETC.
In the event of any merger, reorganization, consolidation,
recapitalization, stock split, stock dividend or other change in corporate
structure affecting the Common Shares, the Committee shall make such
substitution or adjustment in the aggregate number of shares reserved for
issuance under the Award Plan, in the number and option price of shares subject
to outstanding Stock Options, in the number and purchase price of shares subject
to outstanding Share Purchase Rights and in the number of shares subject to
other outstanding Awards under the Award Plan as it determines to be
appropriate, provided that the number of Common Shares subject to any Award
shall always be a whole number. Any fractional shares will be eliminated.
TERMINATION AND AMENDMENT OF THE AWARD PLAN
Options may be granted under the Award Plan at any time until and including
May 11, 2008, on which date the Award Plan will expire except as to options then
outstanding. Options outstanding at that time will remain in effect until they
have been exercised or have expired.
FEDERAL TAX CONSEQUENCES
With respect to Incentive Stock Options, in general, for federal income tax
purposes under present law:
(i) Neither the grant nor the exercise of an Incentive Stock Option,
by itself, results in income to the optionee; however, the excess of the
fair market value of the Common Shares at the time of exercise over the
option price is includable in alternative minimum taxable income (unless
there is a disposition of the Common Shares acquired upon exercise of the
Option in the taxable year of exercise) which may, under certain
circumstances, result in an alternative minimum tax liability to the
optionee.
(ii) If the Common Shares acquired upon exercise of an Incentive Stock
Option are disposed of in a taxable transaction after the later of two
years from the date on which the Option is granted or one year from the
date on which such Common Shares are transferred to the optionee, capital
gain or loss will be realized by the optionee in an amount equal to the
difference between the amount realized by the optionee and the optionee's
basis which, except as provided in (v) below, is the exercise price.
(iii) Except as provided in (v) below, if the Common Shares acquired
upon the exercise of an Incentive Stock Option are disposed of within the
two-year period from the date of grant or the one-year period after the
transfer of the Common Shares to the optionee (a "disqualifying
disposition"):
(a) Ordinary income will be realized by the optionee at the time of
such disposition in the amount of the excess, if any, of the fair market
value of the Common Shares at the time of such exercise over the option
price, but not in an amount exceeding the excess, if any, of the amount
realized by the optionee over the option price.
(b) Short-term, mid-term or long-term capital gain will be realized
by the optionee at the time of any such taxable disposition in an amount
equal to the excess, if any, of the amount realized over the fair market
value of the Common Shares at the time of such exercise.
(c) Short-term, mid-term or long-term capital loss will be realized
by the optionee at the time of any such taxable disposition in an amount
equal to the excess, if any, of the option price over the amount
realized.
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(iv) No deduction will be allowed to the Company with respect to
Incentive Stock Options granted or Common Shares transferred upon exercise
thereof, except that if a disposition is made by the optionee within the
two-year period or the one-year period referred to above, the Company will
be entitled to a deduction in the taxable year in which the disposition
occurred in an amount equal to the amount of ordinary income realized by
the optionee making the disposition.
(v) With respect to the exercise of an Incentive Stock Option and the
payment of the option price by the delivery of Common Shares, to the extent
that the number of Common Shares received does not exceed the number of
Common Shares surrendered, no taxable income will be realized by the
optionee at that time, the tax basis of the Common Shares received will be
the same as the tax basis of the Common Shares surrendered, and the holding
period (except for purposes of the one-year period referred to in (iii)
above) of the optionee in Common Shares received will include his holding
period in the Common Shares surrendered. To the extent that the number of
Common Shares received exceeds the number of Common Shares surrendered, no
taxable income will be realized by the optionee at that time; such excess
Common Shares will be considered Incentive Stock Option stock with a zero
basis; and the holding period of the optionee in such Common Shares will
begin on the date such Common Shares are transferred to the optionee. If
the Common Shares surrendered were acquired as the result of the exercise
of an Incentive Stock Option and the surrender takes place within two years
from the date the Option relating to the surrendered Common Shares was
granted or within one year from the date of such exercise, the surrender
will result in a disqualifying disposition and the optionee will realize
ordinary income at that time in the amount of the excess, if any, of the
fair market value at the time of exercise of the Common Shares surrendered
over the basis of such Common Shares. If any of the Common Shares received
are disposed of in a disqualifying disposition, the optionee will be
treated as first disposing of the Common Shares with a zero basis.
With respect to Nonqualified Stock Options, in general, for federal income
tax purposes under present law:
(i) The grant of a Nonqualified Stock Option, by itself, does not
result in income to the optionee.
(ii) Except as provided in (v) below, the exercise of a Nonqualified
Stock Option (in whole or in part, according to its terms) results in
ordinary income to the optionee at that time in an amount equal to the
excess (if any) of the fair market value of the Common Shares on the date
of exercise over the option price.
(iii) Except as provided in (v) below, the tax basis of the Common
Shares acquired upon exercise of a Nonqualified Stock Option, which is used
to determine the amount of any capital gain or loss on a future taxable
disposition of such shares, is the fair market value of the Common Shares
on the date of exercise.
(iv) No deduction is allowable to the Company upon the grant of a
Nonqualified Stock Option but, upon the exercise of a Nonqualified Stock
Option, a deduction is allowable to the Company at that time in an amount
equal to the amount of ordinary income realized by the optionee exercising
such Option if the Company deducts and withholds appropriate federal
withholding tax.
(v) With respect to the exercise of a Nonqualified Stock Option and
the payment of the option price by the delivery of Common Shares, to the
extent that the number of Common Shares received does not exceed the number
of Common Shares surrendered, no taxable income will be realized by the
optionee at that time, the tax basis of the Common Shares received will be
the same as the tax basis of the Common Shares surrendered, and the holding
period of the optionee in the Common Shares received will include his
holding period in the Common Shares surrendered. To the extent that the
number of Common Shares received exceeds the number of Common Shares
surrendered, ordinary income will be realized by the optionee at that time
in the amount of the fair market value of such excess Common Shares; the
tax basis of such excess Common Shares will be equal to the fair market
value of such Common Shares at the time of exercise; and the holding period
of the optionee in such Common Shares will begin on the date such Common
Shares are transferred to the optionee.
The Company is no longer entitled to deduct annual remuneration in excess
of $1 million (the "Deduction Limitation") paid to certain of its employees
unless such remuneration satisfies an exception to the Deduction Limitation,
including an exception for performance-based compensation. Thus, unless options
granted under the Award Plan satisfy an exception to the Deduction Limitation,
the Company's deduction with respect to
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Nonqualified Stock Options and Incentive Stock Options with respect to which the
holding periods set forth above are not satisfied will be subject to the
Deduction Limitation.
Under Treasury Regulations, compensation attributable to a stock option is
deemed to satisfy the performance-based compensation exception if:
"the grant is made by the compensation committee; the plan
under which the option . . . is granted states the maximum
number of shares which respect to which options may be granted
during a specified period to any employee; and, under the terms
of the option . . ., the amount of compensation the employee
could receive is based solely on an increase in the value of the
stock after the date of grant"
If Proposal Three is approved by the shareholders and a compensation
committee comprised solely of two or more "outside directors" within the meaning
of Section 162(m) of the Code makes the grants, the Company's deduction with
respect to options granted under the Award Plan would not be subject to the
Deduction Limitation.
The federal income tax information presented herein is only a general
summary of the applicable provisions of the Code and regulations promulgated
thereunder as in effect on the date of this Proxy Statement. The actual federal,
state, local, and foreign tax consequences to the optionee may vary depending
upon his particular circumstances.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of Common Shares entitling such holders
to exercise a majority of the voting power of the Company is required to adopt
this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE 1998 DEVELOPERS DIVERSIFIED REALTY CORPORATION
EQUITY-BASED AWARD PLAN.
CERTAIN TRANSACTIONS
MANAGEMENT FEES
The Company received management and leasing fee income of approximately
$127,268 in 1997 pursuant to management agreements with certain partnerships
owned by Mr. Bert L. Wolstein and one partnership owned by Messrs. B. Wolstein
and McGill.
LEASE OF CORPORATE HEADQUARTERS
The Company leases its corporate headquarters in Moreland Hills, Ohio, from
the spouse of Mr. B. Wolstein. Annual rental payments aggregating approximately
$312,390 were made in 1997 by the Company. Rental payments under the lease
include payment by the Company of all maintenance and insurance expenses, real
estate taxes and operating expenses. The Company currently occupies the space
pursuant to the terms of a lease which expires on December 31, 2009.
LEGAL REPRESENTATION
Albert T. Adams, a director of the Company, is a partner of the law firm
Baker & Hostetler LLP in Cleveland, Ohio. The Company retained that firm during
fiscal year 1997 to provide various legal services. The dollar amount of fees
that the Company paid to that firm did not exceed five percent of that firm's
gross revenue for the year. The Company expects that Baker & Hostetler LLP will
continue to provide such services during 1998.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and owners of more than 10% of a registered
class of the Company's equity securities, to file with the Securities and
Exchange Commission (the "SEC") and the New York Stock Exchange initial reports
of ownership and reports of changes in ownership of Common Shares and other
equity securities of the Company. Executive officers, directors and owners of
more than 10% of the Common Shares are required by SEC regulations to furnish
the Company with copies of all forms they file pursuant to Section 16(a).
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were complied with, except as
noted below.
Scott A. Wolstein filed one late report on Form 4 to report three
transactions that were not reported on a timely basis. Messrs. Adler and Penner
each failed to timely file a Form 3. Mr. Penner also failed to timely file a
Form 5.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Price Waterhouse LLP served as independent public accountants to the
Company in 1997 and is expected to do so in 1998. A representative of Price
Waterhouse LLP is expected to be present at the Annual Meeting.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any shareholder proposals intended to be presented at the Company's 1999
Annual Meeting of Shareholders must be received by the Company at 34555 Chagrin
Boulevard, Moreland Hills, Ohio, on or before December 12, 1998, for inclusion
in the Company's proxy statement and form of proxy relating to the 1999 Annual
Meeting of Shareholders.
OTHER MATTERS
If the enclosed proxy is properly executed and returned to the Company, the
persons named in it will vote the shares represented by such proxy at the
meeting. The form of proxy permits specification of a vote for the election of
directors as set forth under "Election of Directors," the withholding of
authority to vote in the election of directors, or the withholding of authority
to vote for one or more specified nominees. With respect to proposals TWO and
THREE, the form of proxy permits specification of vote for, against or in
abstention with respect to the respective proposals.
Where a choice has been specified in the proxy, the shares represented will
be voted in accordance with such specification. If no specification is made,
such shares will be voted at the meeting to elect directors as set forth under
"Election of Directors" above and FOR Proposals TWO and THREE, above. Under Ohio
law and the Company's Amended and Restated Articles of Incorporation, broker
non-votes and abstaining votes will not be counted in favor of or against any
nominee. Under Ohio law and the Company's Amended and Restated Articles of
Incorporation, broker non-votes and abstaining votes with respect to Proposal
TWO and THREE will in effect be votes against such proposals. If any other
matters shall properly come before the meeting, the persons named in the proxy
will vote thereon in accordance with their judgment. Management does not know of
any other matters which will be presented for action at the meeting.
By order of the Board of Directors,
JOAN U. ALLGOOD
Secretary
Dated: April , 1998
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<PAGE> 24
1998 DEVELOPERS DIVERSIFIED REALTY CORPORATION
EQUITY-BASED AWARD PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the 1998 Developers Diversified Realty
Corporation Equity-Based Award Plan (the "Plan") is to enable Developers
Diversified Realty Corporation (the "Company") and its Subsidiaries (as defined
below) to attract, retain and reward employees of the Company and its
Subsidiaries and strengthen the mutuality of interests between those employees
and the Company's shareholders by offering the employees equity or equity-based
incentives thereby increasing their proprietary interest in the Company's
business and enhancing their personal interest in the Company's success.
For purposes of the Plan, the following terms are defined as
follows:
(a) "Affiliate" means any entity (other than the Company and
any Subsidiary) that is designated by the Board as a participating
employer under the Plan.
(b) "Award" means any award of Stock Options, Share
Appreciation Rights, Restricted Shares, Deferred Shares, Share Purchase
Rights or Other Share-Based Awards under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" has the meaning set forth in Section
11(b).
(e) "Change in Control Price" has the meaning set forth in
Section 11(d).
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(g) "Committee" means the Granting Committee of the Board of
the Company.
(h) "Company" means Developers Diversified Realty Corporation,
an Ohio corporation, or any successor corporation.
(i) "Deferred Shares" means an Award of the right to receive
Shares at the end of a specified deferral period granted pursuant to
Section 8.
<PAGE> 25
(j) "Disability" means disability as determined under
procedures established by the Committee for purposes of the Plan.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Fair Market Value" means, as of a given date, (in order
of applicability): (i) the closing price of a Common Share on the
principal exchange on which the Common Shares are then trading, if any,
on the day immediately prior to such date, or if Common Shares were not
traded on the day previous to such date, then on the next preceding
trading day during which a sale occurred; or (ii) if Common Shares are
not traded on an exchange but are quoted on NASDAQ or a successor
quotation system, (A) the last sale price (if Common Shares are then
listed as a National Market Issue under the NASD National Market
System) or (B) if Common Shares are not then so listed, the mean
between the closing representative bid and asked prices for Common
Shares on the day previous to such date as reported by NASDAQ or such
successor quotation system; or (iii) if Common Shares are not publicly
traded on an exchange and not quoted on NASDAQ or a successor quotation
system, the mean between the closing bid and asked prices for Common
Shares, on the day previous to such date, as determined in good faith
by the Committee; or (iv) if Common Shares are not publicly traded, the
fair market value established by the Committee acting in good faith.
(m) "Incentive Stock Option" means any Stock Option intended
to be and designated as, and that otherwise qualifies as, an "Incentive
Stock Option" within the meaning of Section 422 of the Code or any
successor section thereto.
(n) "Non-Qualified Stock Option" means any Stock Option that
is not an Incentive Stock Option.
(o) "Other Share-Based Awards" means an Award granted pursuant
to Section 10 that is valued, in whole or in part, by reference to, or
is otherwise based on, Shares.
(p) "Outside Director" has the meaning set forth in Section
162(m) of the Code and the regulations promulgated thereunder.
(q) "Plan" means the 1998 Developers Diversified Realty
Corporation Equity-Based Award Plan, as amended from time to time.
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(r) "Potential Change in Control" has the meaning set forth in
Section 11(c).
(s) "Restricted Shares" means an Award of Shares that is
granted pursuant to Section 7 and is subject to restrictions.
(t) "Section 16 Participant" means a participant under the
Plan who is subject to Section 16 of the Exchange Act.
(u) "Share Appreciation Right" means an Award of a right to
receive an amount from the Company that is granted pursuant to Section
6.
(v) "Shares" means the Common Shares, without par value, of
the Company.
(w) "Stock Option" or "Option" means any option to purchase
Shares (including Restricted Shares and Deferred Shares, if the
Committee so determines) that is granted pursuant to Section 5.
(x) "Share Purchase Right" means an Award of the right to
purchase Shares that is granted pursuant to Section 9.
(y) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company if each of the corporations (other than the last corporation in
the unbroken chain) owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in that chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Committee. The
Committee shall consist of not less than three directors of the Company, all of
whom shall be Outside Directors. Those directors shall be appointed by the
Board and shall serve as the Committee at the pleasure of the Board. The
functions of the Committee specified in the Plan shall be exercised by the
Board if and to the extent that no Committee exists that has the authority to
so administer the Plan.
The Committee shall have full power to interpret and
administer the Plan and full authority to select the individuals to whom Awards
will be granted and to determine the type and amount of any Award to be granted
to each participant, the consideration, if
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any, to be paid for any Award, the timing of each Award, the terms and
conditions of any Award granted under the Plan and the terms and conditions of
the related agreements that will be entered into with participants. As to the
selection of and grant of Awards to participants who are not Executive Officers
or Section 16 Participants, the Committee may delegate its responsibilities to
members of the Company's management in any manner consistent with applicable
law.
The Committee shall have the authority to adopt, alter and
repeal such rules, guidelines and practices governing the Plan as it shall, from
time to time, deem advisable; to interpret the terms and provisions of the Plan
and any Award issued under the Plan (and any agreement relating thereto); to
direct employees of the Company or other advisors to prepare such materials or
perform such analyses as the Committee deems necessary or appropriate; and
otherwise to supervise the administration of the Plan.
Any interpretation or administration of the Plan by the
Committee, and all actions and determinations of the Committee, shall be final,
binding and conclusive on the Company, its shareholders, Subsidiaries,
Affiliates, all participants in the Plan, their respective legal
representatives, successors and assigns, and all persons claiming under or
through any of them. No member of the Board or of the Committee shall incur any
liability for any action taken or omitted, or any determination made, in good
faith in connection with the Plan.
SECTION 3. SHARES SUBJECT TO THE PLAN.
(a) Aggregate Shares Subject to the Plan. Subject to
adjustment as provided in Section 3(c), the total number of Shares
reserved and available for Awards under the Plan is 1,000,000. Any
Shares issued hereunder may consist, in whole or in part, of authorized
and unissued shares or treasury shares.
(b) Forfeiture or Termination of Awards of Shares. If any
Shares subject to any Award granted hereunder are forfeited or an
Award otherwise terminates or expires without the issuance of Shares,
the Shares subject to that Award shall again be available for
distribution in connection with future Awards under the Plan as set
forth in Section 3(a), unless the participant who had been awarded
those forfeited Shares or the expired or terminated Award has
theretofore received dividends or other benefits of ownership with
respect to those Shares. For purposes hereof, a participant shall not
be deemed to have received a benefit of ownership with respect to
those Shares by the exercise of voting rights, or by the accumulation
of dividends that are not realized because of the forfeiture of those
Shares or the expiration or termination of the related Award without
issuance of those Shares.
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<PAGE> 28
(c) Adjustment. In the event of any merger, reorganization,
consolidation, recapitalization, share dividend, share split,
combination of shares or other change in corporate structure of the
Company affecting the Shares, such substitution or adjustment shall be
made in the aggregate number of Shares reserved for issuance under the
Plan, in the number and option price of Shares subject to outstanding
options granted under the Plan in the number and purchase and purchase
price of Shares subject to outstanding Share Purchase Rights granted
under the Plan, in the number of Share Appreciation Rights granted
under the Plan and in the number of Shares subject to Restricted Share
Awards, Deferred Share Awards and any other outstanding Awards granted
under the Plan as may be approved by the Committee, in its sole
discretion, but the number of Shares subject to any Award shall always
be a whole number. Any fractional Shares shall be eliminated.
(d) Annual Award Limit. No participant may be granted Stock
Options or other Awards under the Plan with respect to an aggregate of
more than 500,000 Shares (subject to adjustment as provided in Section
3(c) hereof) during any calendar year.
SECTION 4. ELIGIBILITY.
Grants may be made from time to time to those officers and key
employees of the Company who are designated by the Committee in its sole and
exclusive discretion. Eligible persons may include, but shall not necessarily be
limited to, officers of the Company and any Subsidiary, excluding members of the
Committee; however, Stock Options intended to qualify as Incentive Stock Options
shall only be granted to eligible persons while actually employed by the Company
or a Subsidiary. The Committee may grant more than one Award to the same
eligible person. No Award shall be granted to any eligible person during any
period of time when such eligible person is on a leave of absence.
SECTION 5. STOCK OPTIONS.
(a) Grant. Stock Options may be granted alone, in addition to
or in tandem with other Awards granted under the Plan or cash awards
made outside the Plan. The Committee shall determine the individuals to
whom, and the time or times at which, grants of Stock Options will be
made, the number of Shares purchasable under each Stock Option and the
other terms and conditions of the Stock Options in addition to those
set forth in Sections 5(b) and 5(c). Any Stock Option granted under the
Plan shall be in such form as the Committee may from time to time
approve.
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Stock Options granted under the Plan may be of two types which
shall be indicated on their face: (i) Incentive Stock Options and (ii)
Non-Qualified Stock Options. Subject to Section 5(c), the Committee
shall have the authority to grant to any participant Incentive Stock
Options, Non-Qualified Stock Options or both types of Stock Options.
(b) Terms and Conditions. Options granted under the Plan shall
be evidenced by an agreement ("Option Agreements"), shall be subject to
the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as
the Committee shall deem desirable:
(1) Option Price. The option price per share of
Shares purchasable under a Non-Qualified Stock Option or an
Incentive Stock Option shall be determined by the Committee at
the time of grant and shall be not less than 100% of the Fair
Market Value of the Shares at the date of grant (or, with
respect to an Incentive Stock Option, 110% of the Fair Market
Value of the Shares at the date of grant in the case of a
participant who at the date of grant owns Shares possessing
more than ten percent of the total combined voting power of
all classes of stock of the Company or its parent or
Subsidiary corporations (as determined under Sections 424(d),
(e) and (f) of the Code)).
(2) Option Term. The term of each Stock Option shall
be determined by the Committee and may not exceed ten years
from the date the Option is granted (or, with respect to an
Incentive Stock Option, five years in the case of a
participant who at the date of grant owns Shares possessing
more than ten percent of the total combined voting power of
all classes of stock of the Company or its parent or
Subsidiary corporations (as determined under Sections 424(d),
(e) and (f) of the Code)).
(3) Exercise. Stock Options shall be exercisable at
such time or times and shall be subject to such terms and
conditions as shall be determined by the Committee at or after
grant; but, except as provided in Section 5(b)(6) and Section
11, unless otherwise determined by the Committee at or after
grant, no Stock Option shall be exercisable prior to six
months and one day following the date of grant. If any Stock
Option is exercisable only in installments or only after
specified exercise dates, the Committee may waive, in whole or
in part, such installment exercise provisions, and may
accelerate any exercise date or dates, at any time at or after
grant based on such factors as the Committee shall determine,
in its sole discretion.
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(4) Method of Exercise. Subject to any installment
exercise provisions that apply with respect to any Stock
Option, and the six month and one day holding period set forth
in Section 5(b)(3), that Stock Option may be exercised in
whole or in part, at any time during the Option period, by the
holder thereof giving to the Company written notice of
exercise specifying the number of Shares to be purchased.
That notice shall be accompanied by payment in full
of the Option price of the Shares for which the Option is
exercised, in cash or Shares or by check or such other
instrument as the Committee may accept. The value of each such
Share surrendered or withheld shall be 100% of the Fair Market
Value of the Shares on the date the option is exercised.
No Shares shall be issued on an exercise of an Option
until full payment has been made. A participant shall not have
rights to dividends or any other rights of a shareholder with
respect to any Shares subject to an Option unless and until
the participant has given written notice of exercise, has paid
in full for those Shares, has given, if requested, the
representation described in Section 14(a), and those Shares
have been issued to him.
(5) Non-Transferability of Options. No Stock Option
shall be transferable by any participant other than by will or
by the laws of descent and distribution or pursuant to a
qualified domestic relations order (as defined in the Code or
the Employment Retirement Income Security Act of 1974, as
amended) except that, if so provided in the Option Agreement,
the participant may transfer the Option, other than an
Incentive Stock Option, during his lifetime to one or more
members of his family, to one or more trusts for the benefit
of one or more of his family, or to a partnership or
partnerships of members of his family, provided that no
consideration is paid for the transfer and that the transfer
would not result in the loss of any exemption under Rule 16b-3
of the Exchange Act with respect to any Option. The transferee
of an Option will be subject to all restrictions, terms and
conditions applicable to the Option prior to its transfer,
except that the Option will not be further transferable by the
transferee other than by will or by the laws of descent and
distribution.
(6) Termination by Death. Subject to Section 5(c), if
any participant's employment with the Company or any
Subsidiary or Affiliate terminates by reason of death, any
Stock Option held by that participant may thereafter be
exercised, to the extent that Option was exercisable at the
time of death or would have become exercisable within one year
from the time of death had the
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participant continued to fulfill all conditions of the Option
during that period (or on such accelerated basis as the
Committee may determine at or after grant), by the estate of
the participant (acting through its fiduciary), for a period
of one year (or such other period as the Committee may specify
at or after grant) from the date of that death. The balance of
the Stock Option shall be forfeited.
(7) Termination by Reason of Disability. Subject to
Sections 5(b)(3) and 5(c), if a participant's employment with
the Company or any Subsidiary or Affiliate terminates by
reason of Disability, any Stock Option held by that
participant may thereafter be exercised, to the extent that
Option was exercisable at the time of termination or would
have become exercisable within one year from the time of
termination had the participant continued to fulfill all
conditions of the Option during that period (or on such
accelerated basis as the Committee may determine at or after
grant), by the participant or by the participant's duly
authorized legal representative if the participant is unable
to exercise the Option as a result of the participant's
Disability, for a period of one year (or such other period as
the Committee may specify at or after grant) from the date of
such termination of employment, but in no event may any such
Option be exercised prior to six months and one day from the
date of grant; and if the participant dies within that
one-year period (or such other period as the Committee shall
specify at or after grant), any unexercised Stock Option held
by that participant shall thereafter be exercisable by the
estate of the participant (acting through its fiduciary) to
the same extent to which it was exercisable at the time of
death, for a period of one year from the date of that
termination of employment. The balance of the Stock Option
shall be forfeited.
(8) Other Termination. Unless otherwise determined by
the Committee at or after the time of granting any Stock
Option, if a participant's employment with the Company or any
Subsidiary or Affiliate terminates for any reason other than
death or Disability, all Stock Options held by that
participant shall terminate 90 days after the date employment
terminates.
(c) Incentive Stock Options. Notwithstanding Sections 5(b)(6)
and (7), an Incentive Stock Option shall be exercisable by (i) a
participant's authorized legal representative (if the participant is
unable to exercise the Incentive Stock Option as a result of the
participant's Disability) only if, and to the extent, permitted by
Section 422 of the Code and (ii) by the participant's estate, in the
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case of death, or authorized legal representative, in the case of
Disability, no later than 10 years from the date the Incentive Stock
Option was granted (in addition to any other restrictions or
limitations that may apply). Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be exercised, so as to
disqualify the Plan under Section 422 of the Code, or, without the
consent of the participants affected, to disqualify any Incentive Stock
Option under that Section 422 or any successor Section thereto.
(d) Buyout Provisions. The Committee may at any time buy out
for a payment in cash, Shares, Deferred Shares or Restricted Shares an
Option previously granted, based on such terms and conditions as the
Committee shall establish and agree upon with the participant, but no
such transaction involving a Section 16 Participant shall be structured
or effected in a manner that would result in any liability on the part
of the participant under Section 16(b) of the Exchange Act or the rules
and regulations promulgated thereunder.
(e) Certain Reissuance of Stock Options. To the extent Common
Shares are surrendered by a participant in connection with the exercise
of a Stock Option in accordance with Section 5(b), the Committee may in
its sole discretion grant new Stock Options to such participant (to the
extent Common Shares remain available for Awards), subject to the
following terms and conditions:
(1) The number of Common Shares shall be equal to the
number of Common Shares being surrendered by the participant;
(2) The option price per Common Share shall be equal
to the fair market value of Common Shares, determined on the
date of exercise of the Stock Options whose exercise caused
such Award; and
(3) The terms and conditions of such Stock Options
shall in all other respects replicate such terms and
conditions of the Stock Options whose exercise caused such
Award, except to the extent such terms and conditions are
determined to not be wholly consistent with the general
provisions of this Section 5, or in conflict with the
remaining provisions of this Plan.
SECTION 6. SHARE APPRECIATION RIGHTS.
(a) Grant. Share Appreciation Rights may be granted in
connection with all or any part of an Option, either
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concurrently with the grant of the Option or, if the Option is a
Non-Qualified Stock Option, by an amendment to the Option at any time
thereafter during the term of the Option. Share Appreciation Rights may
be exercised in whole or in part at such times under such conditions as
may be specified by the Committee in the participant's Option
Agreement.
(b) Terms and Conditions. The following terms and conditions
will apply to all Share Appreciation Rights that are granted in
connection with Options:
(1) Rights. Share Appreciation Rights shall entitle
the participant, upon exercise of all or any part of the Share
Appreciation Rights, to surrender to the Company unexercised
that portion of the underlying Option relating to the same
number of Shares as is covered by the Share Appreciation
Rights (or the portion of the Share Appreciation Rights so
exercised) and to receive in exchange from the Company an
amount equal to the excess of (x) the Fair Market Value, on
the date of exercise, of the Shares covered by the surrendered
portion of the underlying Option over (y) the exercise price
of the Shares covered by the surrendered portion of the
underlying Option. The Committee may limit the amount that the
participant will be entitled to receive upon exercise of the
Share Appreciation Right.
(2) Surrender of Option. Upon the exercise of the
Share Appreciation Right and surrender of the related portion
of the underlying Option, the Option, to the extent
surrendered, will not thereafter be exercisable. The
underlying Option may provide that such Share Appreciation
Rights will be payable solely in cash. The terms of the
underlying Option shall provide a method by which an
alternative fair market value of the Shares on the date of
exercise shall be calculated based on one of the following:
(x) the closing price of the Shares on the national exchange
on which they are then traded on the business day immediately
preceding the day of exercise; (y) the highest closing price
of the Shares on the national exchange on which they have been
traded, during the 90 days immediately preceding the Change in
Control; or (z) the greater of (x) and (y).
(3) Exercise. In addition to any further conditions
upon exercise that may be imposed by the Committee, the Share
Appreciation Rights shall be exercisable only to the extent
that the related Option is exercisable, except that in no
event will a Share Appreciation Right held by a Section 16
Participant be exercisable within the first six months after
it is awarded even though the related Option is or becomes
exercisable, and each Share Appreciation Right will
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expire no later than the date on which the related Option
expires. A Share Appreciation Right may only be exercised at a
time when the Fair Market Value of the Shares covered by the
Share Appreciation Right exceeds the exercise price of the
Shares covered by the underlying Option. No Share Appreciation
Right held by a Section 16 Participant shall be exercisable by
its terms within the first six months after it is granted, and
a Section 16 Participant may only exercise a Share
Appreciation Right during a period beginning on the third
business day and ending on the twelfth business day following
the release for publication of quarterly or annual summary
statements of the Company's sales and earnings.
(4) Method of Exercise. Share Appreciation Rights may
be exercised by the participant's giving written notice of the
exercise to the Company, stating the number of Share
Appreciation Rights the participant has elected to exercise
and surrendering the portion of the underlying Option relating
to the same number of Shares as the number of Share
Appreciation Rights elected to be exercised.
(5) Payment. The manner in which the Company's
obligation arising upon the exercise of the Share Appreciation
Right will be paid will be determined by the Committee and
shall be set forth in the participant's Option Agreement. The
Committee may provide for payment in Shares or cash, or a
fixed combination of Shares or cash, or the Committee may
reserve the right to determine the manner of payment at the
time the Share Appreciation Right is exercised. Shares issued
upon the exercise of a Share Appreciation Right will be valued
at their Fair Market Value on the date of exercise.
SECTION 7. RESTRICTED SHARES.
(a) Grant. Restricted Shares may be issued alone, in addition
to or in tandem with other Awards under the Plan or cash awards made
outside of the Plan. The Committee shall determine the individuals to
whom, and the time or times at which, grants of Restricted Shares will
be made, the number of Restricted Shares to be awarded to each
participant, the price (if any) to be paid by the participant (subject
to Section 7(b)), the date or dates upon which Restricted Share Awards
will vest and the period or periods within which those Restricted Share
Awards may be subject to forfeiture, and the other terms and conditions
of those Awards in addition to those set forth in Section 7(b).
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The Committee may condition the grant of Restricted
Shares upon the attainment of specified performance goals or such other
factors as the Committee may determine in its sole discretion.
(b) Terms and Conditions. Restricted Shares awarded under the
Plan shall be subject to the following terms and conditions and such
additional terms and conditions, not inconsistent with the provisions
of the Plan, as the Committee shall deem desirable. A participant who
receives a Restricted Share Award shall not have any rights with
respect to that Award, unless and until the participant has executed an
agreement evidencing the Award in the form approved from time to time
by the Committee and has delivered a fully executed copy thereof to the
Company, and has otherwise complied with the applicable terms and
conditions of that Award.
(1) The purchase price (if any) for Restricted Shares
shall be determined by the Committee at the time of grant.
(2) Awards of Restricted Shares must be accepted by
executing a Restricted Share Award agreement and paying the
price (if any) that is required under Section 7(b)(1).
(3) Each participant receiving a Restricted Share
Award shall be issued a stock certificate in respect of those
Restricted Shares. The certificate shall be registered in the
name of the participant, and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable
to the Award.
(4) The Committee shall require that the stock
certificates evidencing the Restricted Shares be held in
custody by the Company until the restrictions thereon shall
have lapsed, and that, as a condition of any Restricted Shares
Award, the participant shall have delivered to the Company a
stock power, endorsed in blank, relating to the Shares covered
by that Award.
(5) Subject to the provisions of this Plan and the
Restricted Share Award agreement, during a period set by the
Committee commencing with the date of any Award (the
"Restriction Period"), the participant shall not be permitted
to sell, transfer, pledge, assign or otherwise encumber the
Restricted Shares covered by that Award. The Restriction
Period shall not be less than three years in duration
("Minimum Restriction Period") unless otherwise determined by
the Committee at the time of grant. Subject to these
limitations and the Minimum Restriction Period requirement,
the Committee, in its sole discretion, may provide for the
lapse of restrictions in installments and
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may accelerate or waive restrictions, in whole or in part,
based on service, performance or such other factors and
criteria as the Committee may determine in its sole
discretion.
(6) Except as provided in this Section 7(b)(6),
Section 7(b)(5) and Section 7(b)(7), the participant shall
have, with respect to the Restricted Shares awarded, all of
the rights of a shareholder of the Company, including the
right to vote the Shares, and the right to receive any
dividends. The Committee, in its sole discretion, as
determined at the time of Award, may permit or require the
payment of cash dividends to be deferred and subject to
forfeiture and, if the Committee so determines, reinvested,
subject to Section 14(f), in additional Restricted Shares to
the extent Shares are available under Section 3, or otherwise
reinvested. Unless the Committee or Board determines
otherwise, Share dividends issued with respect to Restricted
Shares shall be treated as additional Restricted Shares that
are subject to the same restrictions and other terms and
conditions that apply to the Shares with respect to which such
dividends are issued.
(7) No Restricted Shares shall be transferable by a
participant other than by will or by the laws of descent and
distribution.
(8) If a participant's employment with the Company or
any Subsidiary or Affiliate terminates by reason of death, any
Restricted Shares held by that participant shall thereafter
vest and any restriction shall lapse to the extent such
Restricted Shares would have become vested or no longer
subject to restriction within one year from the time of death
had the participant continued to fulfill all of the conditions
of the Restricted Share Award during that period (or on such
accelerated basis as the Committee may determine at or after
grant). The balance of the Restricted Shares shall be
forfeited.
(9) If a participant's employment with the Company or
any Subsidiary or Affiliate terminates by reason of
Disability, any Restricted Shares held by that participant
shall thereafter vest and any restriction shall lapse to the
extent such Restricted Shares would have become vested or no
longer subject to restriction within one year from the time of
termination had the participant continued to fulfill all of
the conditions of the Restricted Share Award during that
period (or on such accelerated basis as the Committee may
determine at or after grant), subject in all cases to the
Minimum Restriction Period requirement. The balance of the
Restricted Shares shall be forfeited.
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(10) Unless otherwise determined by the Committee at
or after the time of granting any Restricted Shares, if a
participant's employment with the Company or any Subsidiary or
Affiliate terminates for any reason other than death or
Disability, the Restricted Shares held by that participant
that are unvested or subject to restriction at the time of
termination shall thereupon be forfeited.
(c) Minimum Value. In order to better ensure that Award
payments actually reflect the performance of the Company and service of
the participant, the Committee may provide, in its sole discretion, for
a tandem performance-based or other award designed to guarantee a
minimum value, payable in cash or Shares, to the recipient of a
Restricted Share Award, subject to such performance, future service,
deferral and other terms and conditions as may be specified by the
Committee.
SECTION 8. DEFERRED SHARES.
(a) Grant. Deferred Shares may be awarded alone, in addition
to or in tandem with other Awards granted under the Plan or cash awards
made outside of the Plan. The Committee shall determine the individuals
to whom, and the time or times at which, Deferred Shares shall be
awarded, the number of Deferred Shares to be awarded to any
participant, the duration of the period (the "Deferral Period") during
which, and the conditions under which, receipt of the Shares will be
deferred, and the other terms and conditions of the Award in addition
to those set forth in Section 8(b).
The Committee may condition the grant of Deferred Shares upon
the attainment of specified performance goals or such other factors as
the Committee shall determine, in its sole discretion.
(b) Terms and Conditions. Deferred Share Awards shall be
subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable:
(1) The purchase price for Deferred Shares shall be
determined at the time of grant by the Committee. Subject to
the provisions of the Plan and the Award agreement referred to
in Section 8(b)(9), Deferred Share Awards may not be sold,
assigned, transferred, pledged or otherwise encumbered during
the Deferral Period. At the expiration of the Deferral Period
(or the Elective Deferral Period referred to in Section
8(b)(8), where applicable), stock certificates shall be
delivered to the participant, or his legal representative, for
the Shares covered by the
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Deferred Share Award. The Deferral Period applicable to
any Deferred Share Award shall not be less than six
months and one day ("Minimum Deferral Period").
(2) Unless otherwise determined by the Committee at
grant, amounts equal to any dividends declared during the
Deferral Period with respect to the number of Shares covered
by a Deferred Share Award will be paid to the participant
currently, or deferred and deemed to be reinvested in
additional Deferred Shares, or otherwise reinvested, all as
determined at or after the time of the Award by the Committee,
in its sole discretion.
(3) No Deferred Shares shall be transferable by a
participant other than by will or by the laws of descent and
distribution.
(4) If a participant's employment by the Company or
any Subsidiary or Affiliate terminates by reason of death, any
Deferred Shares held by such participant shall thereafter vest
or any restriction lapse, to the extent such Deferred Shares
would have become vested or no longer subject to restriction
within one year from the time of death had the participant
continued to fulfill all of the conditions of the Deferred
Share Award during such period (or on such accelerated basis
as the Committee may determine at or after grant). The balance
of the Deferred Shares shall be forfeited.
(5) If a participant's employment by the Company or
any Subsidiary or Affiliate terminates by reason of
Disability, any Deferred Shares held by such participant shall
thereafter vest or any restriction lapse, to the extent such
Deferred Shares would have become vested or no longer subject
to restriction within one year from the time of termination
had the participant continued to fulfill all of the conditions
of the Deferred Shares Award during such period (or on such
accelerated basis as the Committee may determine at or after
grant), subject in all cases to the Minimum Deferral Period
requirement. The balance of the Deferred Shares shall be
forfeited.
(6) Unless otherwise determined by the Committee at
or after the time of granting any Deferred Share Award, if a
participant's employment by the Company or any Subsidiary or
Affiliate terminates for any reason other than death or
Disability, all Deferred Shares held by such participant which
are unvested or subject to restriction shall thereupon be
forfeited.
(7) Based on service, performance or such other
factors or criteria as the Committee may determine, the
Committee may, at or after grant, accelerate the vesting
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of all or any part of any Deferred Share Award or waive a
portion of the Deferral Period for all or any part of such
Award, subject in all cases to the Minimum Deferral Period
requirement.
(8) A participant may elect to further defer receipt
of a Deferred Share Award (or an installment of an Award) for
a specified period or until a specified event (the "Elective
Deferral Period"), subject in each case to the Committee's
approval and the terms of this Section 8 and such other terms
as are determined by the Committee, all in its sole
discretion. Subject to any exceptions approved by the
Committee, such election must be made at least 12 months prior
to completion of the Deferral Period for such Deferred Share
Award (or such installment).
(9) Each such Award shall be confirmed by, and
subject to the terms of, a Deferred Share Award agreement
evidencing the Award in the form approved from time to time by
the Committee.
(c) Minimum Value Provisions. In order to better ensure that
Award payments actually reflect the performance of the Company and
service of the participant, the Committee may provide, in its sole
discretion, for a tandem performance-based or other Award designed to
guarantee a minimum value, payable in cash or Shares to the recipient
of a Deferred Share Award, subject to such performance, future service,
deferral and other terms and conditions as may be specified by the
Committee.
SECTION 9. SHARE PURCHASE RIGHTS.
(a) Grant. Share Purchase Rights may be granted alone, in
addition to or in tandem with other Awards granted under the Plan or
cash awards made outside the Plan. The Committee shall determine the
individuals to whom, and the time or times at which, grants of Share
Purchase Rights will be made, the number of Shares which may be
purchased pursuant to the Share Purchase Rights, and the other terms
and conditions of the Share Purchase Rights in addition to those set
forth in Section 9(b). The Shares subject to the Share Purchase Rights
may be purchased, as determined by the Committee at the time of grant:
(1) at the Fair Market Value of such Shares on the
date of grant; or
(2) at 85% of the Fair Market Value of such Shares on
the date of grant if the grant of Share Purchase Rights is
made in lieu of cash compensation.
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Subject to Section 9(b) hereof, the Committee may also impose
such deferral, forfeiture or other terms and conditions as it shall
determine, in its sole discretion, on such Share Purchase Rights or the
exercise thereof.
Each Share Purchase Right Award shall be confirmed by, and be
subject to the terms of, a Share Purchase Rights Agreement which shall
be in form approved by the Committee.
(b) Terms and Conditions. Share Purchase Rights may contain
such additional terms and conditions not inconsistent with the terms of
the Plan as the Committee shall deem desirable, and shall generally be
exercisable for such period as shall be determined by the Committee.
However, Share Purchase Rights granted to Section 16 Participants shall
not become exercisable earlier than six months and one day after the
grant date. Share Purchase Rights shall not be transferable by a
participant other than by will or by the laws of descent and
distribution.
SECTION 10. OTHER SHARE-BASED AWARDS.
(a) Grant. Other Awards of Shares and other Awards that are
valued, in whole or in part, by reference to, or are otherwise based
on, Shares, including, without limitation, performance shares,
convertible preferred shares, convertible debentures, exchangeable
securities and Share Awards or options valued by reference to Book
Value or Subsidiary performance, may be granted alone, in addition to
or in tandem with other Awards granted under the Plan or cash awards
made outside of the Plan.
At the time the Shares or Other Share-Based Awards are
granted, the Committee shall determine the individuals to whom and the
time or times at which such Shares or Other Share- Based Awards shall
be awarded, the number of Shares to be used in computing an Award or
which are to be awarded pursuant to such Awards, the consideration, if
any, to be paid for such Shares or Other Share-Based Awards, and all
other terms and conditions of the Awards in addition to those set forth
in Section 10(b).
The provisions of Other Share-Based Awards need not be the
same with respect to each participant.
(b) Terms and Conditions. Other Share-Based Awards shall be
subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable:
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(1) Subject to the provisions of this Plan and the
Award agreement referred to in Section 10(b)(5) below, Shares
awarded or subject to Awards made under this Section 10 may
not be sold, assigned, transferred, pledged or otherwise
encumbered prior to the date on which the Shares are issued,
or, if later, the date on which any applicable restriction,
performance, holding or deferral period or requirement is
satisfied or lapses. All Shares or Other Share-Based Awards
granted under this Section 10 shall be subject to a minimum
holding period (including any applicable restriction,
performance and/or deferral periods) of six months and one day
("Minimum Holding Period").
(2) Subject to the provisions of this Plan and the
Award agreement and unless otherwise determined by the
Committee at the time of grant, the recipient of an Other
Share-Based Award shall be entitled to receive, currently or
on a deferred basis, interest or dividends or interest or
dividend equivalents with respect to the number of Shares
covered by the Award, as determined at the time of the Award
by the Committee, in its sole discretion, and the Committee
may provide that such amounts (if any) shall be deemed to have
been reinvested in additional Shares or otherwise reinvested.
(3) Subject to the Minimum Holding Period, any Other
Share-Based Award and any Shares covered by any such Award
shall vest or be forfeited to the extent, at the times and
subject to the conditions, if any, provided in the Award
agreement, as determined by the Committee, in its sole
discretion.
(4) In the event of the participant's Disability or
death, or in cases of special circumstances, the Committee
may, in its sole discretion, waive, in whole or in part, any
or all of the remaining limitations imposed hereunder or under
any related Award agreement (if any) with respect to any part
or all of any Award under this Section 10, provided that the
Minimum Holding Period requirement may not be waived, except
in case of a participant's death.
(5) Each Award shall be confirmed by, and subject to
the terms of, an agreement or other instrument evidencing the
Award in the form approved from time to time by the Committee,
the Company and the participant.
(6) Shares (including securities convertible into
Shares) issued on a bonus basis under this Section 10 shall be
issued for no cash consideration. Shares (including securities
convertible into Shares) purchased pursuant to a purchase
right awarded under this Section
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10 shall bear a price of at least 85% of the Fair Market Value
of the Shares on the date of grant. The purchase price of such
Shares, and of any Other Share-Based Award granted hereunder,
or the formula by which such price is to be determined, shall
be fixed by the Committee at the time of grant.
(7) In the event that any "derivative security", as
defined in Rule 16a-1(c) (or any successor thereto)
promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act, is awarded pursuant to this
Section 10 to any Section 16 Participant, such derivative
security shall not be transferrable other than by will or by
the laws of descent and distribution.
SECTION 11. CHANGE IN CONTROL PROVISION.
(a) Impact of Event. In the event of: (1) a "Change in
Control" as defined in Section 11(b) or (2) a "Potential Change in
Control" as defined in Section 11(c), the following acceleration and
valuation provisions shall apply:
(1) Any Stock Options awarded under the Plan not
previously exercisable and vested shall become fully
exercisable and vested;
(2) Any Share Appreciation Rights shall become
immediately exercisable;
(3) The restrictions applicable to any Restricted
Share Awards, Deferred Shares, Share Purchase Rights and Other
Share-Based Awards shall lapse and such Shares and Awards
shall be deemed fully vested; and
(4) The value of all outstanding Awards, in each case
to the extent vested, shall, unless otherwise determined by
the Committee in its sole discretion at or after grant but
prior to any Change in Control or Potential Change in Control,
be cashed out on the basis of the "Change in Control Price" as
defined in Section 11(d) as of the date such Change in Control
or such Potential Change in Control is determined to have
occurred;
but the provisions of Sections 11(a)(l) through (3) shall not apply
with respect to Awards granted to any Section 16 Participant which have
been held by such participant for less than six months and one day as
of the date that such Change in Control or Potential Change in Control
is determined to have occurred.
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(b) Definition of Change in Control. For purposes of Section
11(a), a "Change in Control" means the occurrence of any of the
following: (i) the Board or shareholders of the Company approve a
consolidation or merger in which the Company is not the surviving
corporation, the sale of substantially all of the assets of the
Company, or the liquidation or dissolution of the Company; (ii) any
person or other entity (other than the Company or a Subsidiary or any
Company employee benefit plan (including any trustee of any such plan
acting in its capacity as trustee)) purchases any Shares (or securities
convertible into Shares) pursuant to a tender or exchange offer without
the prior consent of the Board of Directors, or becomes the beneficial
owner of securities of the Company representing 20% or more of the
voting power of the Company's outstanding securities; or (iii) during
any two-year period, individuals who at the beginning of such period
constitute the entire Board of Directors cease to constitute a majority
of the Board of Directors, unless the election or the nomination for
election of each new director is approved by at least two-thirds of the
directors then still in office who were directors at the beginning of
that period.
(c) Definition of Potential Change in Control. For purposes of
Section 11(a), a "Potential Change in Control" means the happening of
any one of the following:
(1) The approval by the shareholders of the Company
of an agreement by the Company, the consummation of which
would result in a Change in Control of the Company as defined
in Section 11(b); or
(2) The acquisition of beneficial ownership, directly
or indirectly, by any entity, person or group (other than the
Company or a Subsidiary or any Company employee benefit plan
(including any trustee of any such plan acting in its capacity
as trustee)) of securities of the Company representing 5% or
more of the combined voting power of the Company's outstanding
securities and the adoption by the Board of a resolution to
the effect that a Potential Change in Control of the Company
has occurred for purposes of this Plan.
(d) Change in Control Price. For purposes of this Section 11,
"Change in Control Price", means the highest price per share paid in
any transaction reported on the New York Stock Exchange Composite Index
(or, if the Shares are not then traded on the New York Stock Exchange,
the highest price paid as reported for any national exchange on which
the Shares are then traded) or paid or offered in any bona fide
transaction related to a Change in Control or Potential Change in
Control of the Company, at any time during the 60-day period
immediately preceding the occurrence of the Change in Control (or, when
applicable, the occurrence of the Potential Change
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<PAGE> 44
in Control event), in each case as determined by the
Committee.
SECTION 12. AMENDMENTS AND TERMINATION.
The Board may at any time, in its sole discretion, amend,
alter or discontinue the Plan, but no such amendment, alteration or
discontinuation shall be made that would impair the rights of a participant
under an Award theretofore granted, without the participant's consent. The
Company shall submit to the shareholders of the Company for their approval any
amendments to the Plan which would materially increase the benefits accruing to
participants under the Plan; so long as such approval is required by law or
regulation including any requirement pursuant to Section 162(m) of the Code.
The Committee may at any time, in its sole discretion, amend
the terms of any Award, but no such amendment shall be made that would impair
the rights of a participant under an Award theretofore granted, without the
participant's consent; nor shall any such amendment be made that would make the
applicable exemptions provided by Rule 16b-3 under the Exchange Act unavailable
to any Section 16 Participant holding the Award without the participant's
consent.
Subject to the above provisions, the Board shall have all
necessary authority to amend the Plan to take into account changes in applicable
securities and tax laws and accounting rules, as well as other developments.
SECTION 13. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any payment not yet made to
a participant by the Company, nothing contained herein shall give that
participant any rights that are greater than those of a general creditor of the
Company.
SECTION 14. GENERAL PROVISIONS.
(a) The Committee may require each participant acquiring
Shares pursuant to an Award under the Plan to represent to and agree
with the Company in writing that the participant is acquiring the
Shares without a view to distribution thereof. The certificates for any
such Shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.
All Shares or other securities delivered under the Plan shall
be subject to such stop-transfer orders and other
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<PAGE> 45
restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Shares are then listed,
and any applicable federal or state securities laws, and the Committee
may cause a legend or legends to be put on any certificate for any such
Shares to make appropriate reference to those restrictions.
(b) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required, and such
arrangements may be either generally applicable or applicable only in
specific cases.
(c) Neither the adoption of the Plan, nor its operation, nor
any document describing, implementing or referring to the Plan, or any
part thereof, shall confer upon any participant under the Plan any
right to continue in the employ, or as a director, of the Company or
any Subsidiary or Affiliate, or shall in any way affect the right and
power of the Company or any Subsidiary or Affiliate to terminate the
employment, or service as a director, of any participant under the Plan
at any time with or without assigning a reason therefor, to the same
extent as the Company or any Subsidiary or Affiliate might have done if
the Plan had not been adopted.
(d) For purposes of this Plan, a transfer of a participant
between the Company and any Subsidiary or Affiliate shall not be deemed
a termination of employment.
(e) No later than the date as of which an amount first becomes
includable in the gross income of the participant for federal income
tax purposes with respect to any Award under the Plan, the participant
shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any federal, state or local taxes
or other items of any kind required by law to be withheld with respect
to that amount. Subject to the following sentence, unless otherwise
determined by the Committee, withholding obligations may be settled
with Shares, including unrestricted Shares previously owned by the
participant or Shares that are part of the Award that gives rise to the
withholding requirement. Notwithstanding the foregoing, any election by
a Section 16 Participant to settle any tax withholding obligation with
Shares that are part of an Award shall be subject to approval by the
Committee, in its sole discretion. The obligations of the Company under
the Plan shall be conditional on those payment or arrangements and the
Company and its Subsidiaries and Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise payable to the participant.
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<PAGE> 46
(f) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Shares (or in Deferred Shares or
other types of Awards) at the time of any dividend payment shall only
be permissible if sufficient Shares are available under Section 3 for
reinvestment (taking into account then outstanding Stock Options).
(g) The Plan, all Awards made and actions taken thereunder and
any agreements relating thereto shall be governed by and construed in
accordance with the laws of the State of Ohio.
(h) All agreements entered into with participants pursuant to
the Plan shall be subject to the Plan.
(i) The provisions of Awards need not be the same with respect
to each participant.
SECTION 15. SHAREHOLDER APPROVAL; EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board on March 2, 1998 and is
subject to approval by a majority of the holders of the Company's outstanding
Shares, in accordance with applicable law. If the Plan is not so approved within
twelve (12) months after the date the Plan is adopted by the Board of Directors,
the Plan and any Grants made hereunder shall be null and void. However, if the
Plan is so approved, no further shareholder approval shall be required with
respect to the granting of Awards pursuant to the Plan.
SECTION 16. TERM OF PLAN.
No Award shall be granted pursuant to the Plan on or after May
11, 2008, but Awards granted prior to that date may extend beyond that date.
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<PAGE> 47
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joan U. Allgood and William H. Schafer
P and each of them, the attorneys and proxies of the undersigned with
R full power of substitution to vote as indicated herein, all the Common
O Shares of Developers Diversified Realty Corporation held of record by
X the undersigned on March 15, 1998, at the Annual Meeting of
Y Shareholders to be held on May 11, 1998, or any adjournment thereof,
with all the powers the undersigned would possess if then and there
personally present.
1. ELECTION OF DIRECTORS.
<TABLE>
<S> <C>
[ ]FOR all nominees listed below [ ]WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees listed below
below)
</TABLE>
Scott A. Wolstein, James A. Schoff, Walter H. Teninga, William N. Hulett III,
Ethan Penner, Albert T. Adams and [NEW NOMINEE].
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below)
----------------------------------------------------------------------
2. Proposal to amend Article Fourth of the Company's Amended and
Restated Articles of Incorporation to increase the number of
authorized shares of the Company from 59,000,000 to 109,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the 1998 Developers Diversified Realty
Corporation Equity-Based Award Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on reverse side)
4. In their discretion, to vote upon such other business as may
properly come before the meeting.
This proxy when properly executed will be voted as specified by
the shareholder. If no specifications are made, the proxy will be
voted to elect the nominees described in item 1 above and FOR item 2
and item 3, above.
Receipt of Notice of Annual Meeting of Shareholders and the
related Proxy Statement dated April , 1998, is hereby acknowledged.
Date , 1998
------------------------------
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Signature(s) of Shareholder(s)
PLEASE SIGN AS YOUR NAME
APPEARS HEREON. IF SHARES ARE
HELD JOINTLY, ALL HOLDERS MUST
SIGN. WHEN SIGNING AS
ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE YOUR
FULL TITLE. IF A CORPORATION,
PLEASE SIGN IN FULL CORPORATE
NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
PERSON.
Proxy Card
