<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>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.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 10, 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 10, 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 27,819,716 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 director), (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............................................. -- *
Barry A. Sholem........................................... -- *
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 333,333 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 Barry A. Sholem.
Messrs. Wolstein, Schoff, Hulett, Penner, Adams and Adler are presently
directors of the Company. Mr. Sholem 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 11/92-4/98 1999
52 Officer of the Company
Vice Chairman of the Board of Directors of 4/98-Present
the Company and Chief Investment Officer
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)
Barry A. Sholem Co-Chairman, Donaldson, Lufkin & Jenrette, -- 1999
42 Inc. Real Estate Capital Partners (real
estate investments)
</TABLE>
Scott A. Wolstein has been the President, Chief Executive Officer and a
Director of the Company since its organization and Chairman of the Board of
Directors since February, 1997. 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.
4
<PAGE> 7
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 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.
Barry A. Sholem is currently the Co-Chairman of Donaldson, Lufkin &
Jenrette, Inc. Real Estate Capital Partners, a $750 million real estate fund
which invests in a broad range of real estate related assets. Prior to joining
Donaldson, Lufkin & Jenrette, Inc., Mr. Sholem was with Goldman, Sachs & Co. for
fifteen years and was head of the Real Estate Principal Investment Area for
Goldman, Sachs & Co. on the West Coast. Mr. Sholem is a graduate of Brown
University and Northwestern University's J.L. Kellogg Graduate School of
Management. Mr. Sholem is currently active in the Urban Land Institute (RCMF
Council), the International Council of Shopping Centers, the U.C. Berkeley Real
Estate Advisory Board and the Business Roundtable.
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.
5
<PAGE> 8
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.
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 oversees administration of
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- -0- 33,886
James A. Schoff................. 1997 275,000 275,000 -0- -0- 41,345
Executive Vice President 1996 275,000 137,500 -0- 120,000 46,609
and Chief Operating Officer(4) 1995 275,000 50,000 -0- 50,000 28,403
John R. McGill.................. 1997 175,000 105,000 -0- -0- -0-
Vice President and 1996 162,500 63,000 -0- 55,000 -0-
Director of Development 1995 150,000 20,000 -0- 10,000 -0-
Joan U. Allgood................. 1997 175,000 87,500 -0- -0- -0-
Vice President and 1996 162,500 43,750 -0- 55,000 -0-
General Counsel 1995 150,000 20,000 -0- 10,000 -0-
Loren F. Henry.................. 1997 175,000 87,500 -0- -0- 3,939
Vice President and 1996 162,500 35,000 -0- 55,000 2,766
Director of Management 1995 150,000 20,000 -0- 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 $24,525, respectively,
pursuant to their employment agreements.
(3) On July 17, 1996, Mr. Wolstein was granted 25,000 restricted Common Shares.
Pursuant to the terms of the restricted shares agreement between the Company
and Mr. Wolstein, 5,000 restricted shares vested immediately on the date of
the grant. The remaining restricted shares vest in 5,000 share increments on
each subsequent July 17th following the date of grant. Dividends on the
restricted shares are payable in additional restricted shares.
(4) As of April 1, 1998, Mr. Schoff was promoted to the position of Vice
Chairman of the Board of Directors of the Company and Chief Investment
Officer of the Company.
7
<PAGE> 10
II. OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the awarding of
stock options in 1997 to the named executive officers included in the Summary
Compensation Table.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED GRANT DATE
UNDERLYING TO EMPLOYEES EXERCISE PRESENT
OPTIONS/SARS IN FISCAL PRICE EXPIRATION VALUE
NAME (#) YEAR(3) ($/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 694,550
100,000(1) 10.5% $ 40.25 May 12, 2007 665,680
100,000(2) 10.5% $ 42.25 May 12, 2007 637,020
100,000(2) 10.5% $ 44.375 May 12, 2007 607,740
100,000(2) 10.5% $46.5625 May 12, 2007 578,790
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 6.8% 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.
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 and based upon the
recommendation of the Company's independent consultant, 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").
12
<PAGE> 15
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 4,798,368 Common Shares for 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 17,387,632 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.
13
<PAGE> 16
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 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 (the "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.
The Award Plan provides for the grant to officers and other employees of
the Company of options to purchase Common Shares of the Company (the "Stock
Options"), rights to receive the appreciation in value of Common Shares (the
"Share Appreciation Rights"), awards of Common Shares subject to restrictions on
transfer (the "Restricted Shares"), awards of Common Shares issuable in the
future upon satisfaction of certain conditions (the "Deferred Shares"), rights
to purchase Common Shares (the "Share Purchase Rights"), and other awards based
on Common Shares (the "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 the
"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 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
135 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 executive officers
or subject to Section 16(b), the Committee may delegate its responsibilities to
members of the Company's management consistent with applicable law.
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<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 transfers to an optionee's family
members in certain circumstances) 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 or permitted transferees.
Unless otherwise determined by the Committee at or after the time of grant,
after any termination of an optionee's employment by reason of disability or
death, a Stock Option held by that optionee will become immediately and
automatically vested and may be exercised 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. In no event, however, will any Stock Option be
exercisable after the expiration of the option period for such Option.
Unless otherwise determined by the Committee at or after the time of grant,
if an optionee's employment terminates due to normal or early retirement, a
Stock Option held by that optionee will become immediately and automatically
vested and may be exercised for a period of one year from the time of
retirement. In no event, however, will any Stock Option be exercisable after the
expiration of the option period for such Option. Unless otherwise determined by
the Committee at or after the time of grant, if an optionee's employment
terminates for any reason other than retirement, disability or death, any Stock
Option held by that optionee may thereafter be exercised, to the extent that
Option was exercisable at the date of such termination, for a period of 30 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
15
<PAGE> 18
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.
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
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<PAGE> 19
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 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.
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<PAGE> 20
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.
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
March 1, 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.
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<PAGE> 21
(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.
(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
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<PAGE> 22
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 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"
With respect to SARs, no income will be realized by an optionee in
connection with the grant of an SAR. When the SAR is exercised, the optionee
will generally be required to recognize as ordinary income in the year of
exercise an amount equal to the sum of the cash and the fair market value of any
shares received. The optionee's employer will be entitled to a deduction at the
time in an amount equal to the amount included in such optionee's ordinary
income by reason of the exercise, provided applicable withholding and reporting
requirements are satisfied. If the optionee receives shares upon the exercise of
an SAR, the post-exercise appreciation (or depreciation) will be treated as a
capital gain (or loss) in the same manner as discussed above with respect to
Nonqualified Stock Options.
A recipient of a Restricted Stock Award generally will recognize ordinary
income in an amount equal to the excess of the fair market value of the
Restricted Stock at the time such shares are transferable or not subject to a
substantial risk of forfeiture over the consideration, if any, paid for the
stock. However, within thirty days of the date of grant, a recipient may elect
under Section 83(b) of the Code to recognize taxable ordinary income on the date
of grant equal to the excess of the fair market value of the shares of
Restricted Stock on such date (determined without regard to any restrictions
other than restrictions which will never lapse) over the consideration paid for
such Restricted Stock. With respect to the sale of shares after they have become
transferable or no longer subject to a substantial risk of forfeiture, unless
the recipient makes an election under Section 83(b), the holding period to
determine whether the recipient has long-term, mid-term or short-term capital
gain or loss generally begins when the shares are transferable or no longer
subject to a substantial risk of forfeiture, and the tax basis for such shares
generally will be equal to the fair market value of the shares on such date
(determined without regard to the restrictions). If the recipient makes an
election under Section 83(b) of the Code, the holding period will begin on the
date the shares are received and the tax basis will be equal to the fair market
value of the shares on such date. The recipient's employer generally will be
entitled to a deduction equal to the amount that is taxable as ordinary income
to the recipient, provided applicable withholding and reporting requirements are
satisfied.
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.
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<PAGE> 23
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 expense to the Company in 1997
aggregated approximately $0.6 million. 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.
RETAIL VALUE INVESTMENT PROGRAM
On October 14, 1997, the Company entered into an agreement with The
Prudential Insurance Company of America ("Prudential") and Retail Value
Management, Ltd., an Ohio limited liability company ("Retail Value Management"),
to form the Retail Value Investment Program (the "Program"). The Program will
invest nationally in retail properties that are in need of substantial
re-tenanting and market repositioning. Retail Value Management will act as the
general partner of limited partnerships to be formed for the purpose of
acquiring the retail properties targeted by the Program. Pursuant to the terms
of the partnership agreements for these limited partnerships, Retail Value
Management will receive 33% of the distributions from each limited partnership
after the limited partners (including the Company) of such limited partnership
have received a return of their capital together with a 10% per annum return on
their investment. The Company may manage, develop and monitor the retail
properties that are purchased for the Program.
At the time of its formation, Scott A. Wolstein was the sole member of
Retail Value Management. It was Mr. Wolstein's intention to assign a substantial
portion of his interest to the Company's senior executives and key employees of
Retail Value Management. However, Mr. Wolstein has since assigned all of his
interest in Retail Value Management to the Company and the Company will, in
turn, assign up to 30% of the interests in Retail Value Management to key
employees of Retail Value Management, none of whom is currently affiliated with
or employed by the Company. Pursuant to the terms of the limited partnership
agreements among the parties to the Program, Mr. Wolstein was required by
Prudential to own at least 25% of the equity interests in Retail Value
Management. In connection with approving Mr. Wolstein's assignment of his
interest in Retail Value Management to the Company, Prudential consented to the
termination of this requirement on the condition that Mr. Wolstein retain a
significant economic interest in the Program. In response to the foregoing, the
Executive Compensation Committee has created an incentive plan pursuant to which
Mr. Wolstein will earn between 0% and 25% of any distributions to Retail Value
Management described in the immediately preceding paragraph, based on the
attainment of certain objectives, including the Company achieving during the
period commencing on the date the Program was organized and ending on the last
day of the month immediately preceding the month in which the applicable
distribution was received by the Company (i) an average annual total shareholder
return of 6% to 12% or more or (ii) an average increase in per share Funds From
Operations ("FFO") of 5% to 10% or more before deducting any incentive
compensation expense resulting from distributions received from the Program that
are not characterized as FFO (i.e. capital gain income). FFO will be calculated
in accordance with
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<PAGE> 24
the method of calculation currently used by the Company and the National
Association of Real Estate Investment Trusts. Mr. Wolstein did not receive any
economic benefit from the Program during 1997.
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.
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
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<PAGE> 25
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 10, 1998
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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
and each of them, the attorneys and proxies of the undersigned with
P full power of substitution to vote as indicated herein, all the Common
R Shares of Developers Diversified Realty Corporation held of record by
O the undersigned on March 15, 1998, at the Annual Meeting of
X Shareholders to be held on May 11, 1998, or any adjournment thereof,
Y 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, William N. Hulett III,
Ethan Penner, Albert T. Adams, Dean S. Adler and Barry A. Sholem.
(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 10, 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
