<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14a-101)
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))
[ ] Definitive Proxy Statement
[X] 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)
NOT APPLICABLE
(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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<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 Bertram Inn & Conference Center, 600 North Aurora Road,
Aurora, Ohio 44202-0870, on Monday, May 15, 2000, at 10:00 a.m., local time, for
the following purposes:
1. To fix the number of directors at ten.
2. To elect ten directors, each to serve for a term of one year.
3. To transact such other business as may properly come before the
meeting.
IF PROPOSAL ONE IS NOT APPROVED, MESSRS. JACOBSTEIN, AHERN AND GIDEL, THE
THREE NEW DIRECTOR NOMINEES, WILL NOT BE PRESENTED FOR ELECTION.
Only shareholders of record at the close of business on March 20, 2000 will
be entitled to notice of and to vote at the meeting or any adjournment of the
meeting. 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, 2000
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND RETURN YOUR PROXY.
<PAGE> 3
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PROXY STATEMENT
WHY DID YOU SEND ME THIS PROXY STATEMENT?
The Company sent you this proxy statement and the enclosed proxy card
because the Company's Board of Directors is soliciting your proxy to vote at the
2000 Annual Meeting of Shareholders. This proxy statement summarizes information
you need to know to vote at the Annual Meeting. The Annual Meeting will be held
at The Bertram Inn & Conference Center, 600 North Aurora Road, Aurora, Ohio
44202-0870, on Monday, May 15, 2000, at 10:00 a.m., local time. However, you do
not need to attend the Annual Meeting to vote your shares. Instead, you may
simply complete, sign and return the enclosed proxy card.
The Company will begin sending this proxy statement, the attached Notice of
Annual Meeting of Shareholders and the enclosed proxy card on April 12, 2000 to
all shareholders entitled to vote. Shareholders who owned the Company's Common
Shares at the close of business on March 20, 2000, the record date for the
Annual Meeting, are entitled to vote. On that record date, there were 58,216,446
Common Shares outstanding. We are also sending the Company's 1999 Annual Report,
which includes financial statements for the Company, with this proxy statement.
WHO IS SOLICITING MY PROXY?
This solicitation of proxies is made by and on behalf of the Company's
Board of Directors. The cost of any solicitation of proxies will be borne by the
Company. The Company has not retained a proxy solicitor in connection with the
Annual Meeting, but may do so if management determines that it is necessary.
HOW MANY VOTES DO I HAVE?
Each of the Company's Common Shares entitles you to one vote. The proxy
card indicates the number of Common Shares that you owned on the record date.
In connection with Proposal Two only, cumulative voting may be invoked if
written notice is given by any shareholder to the President, a vice president or
the Secretary of the Company at least 48 hours before the Annual Meeting that
the shareholder desires that cumulative voting be used for the election of
directors, and if an announcement of the giving of that notice is made when the
Annual Meeting is convened by the President or the Secretary or by or on behalf
of the shareholder giving that notice, each shareholder will have the right to
cumulate the voting power the shareholder possesses in the election of
directors. Each shareholder will be able to give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of the
shareholder's Common Shares, or to distribute the shareholder's votes on the
same principle among two or more candidates, as the shareholder sees fit.
HOW DO I VOTE BY PROXY?
Whether or not you plan to attend the Annual Meeting, the Company urges you
to complete, sign and date the enclosed proxy card and to return it in the
envelope provided. Returning the proxy card will not affect your right to attend
the Annual Meeting.
If you properly complete your proxy card and send it to the Company in time
to vote, your "proxy" (one of the individuals named in the proxy card) will vote
your shares as you have directed. If you sign and return the proxy card but do
not make specific choices, your proxy will vote your shares as recommended by
the Board of Directors to fix the number of directors at ten and to elect the
director nominees listed in Proposal Two.
If any other matter is presented, your proxy will vote in accordance with
his or her best judgment. As of the date of this proxy statement, the Company is
not aware of other matters to be acted on at the Annual Meeting other than those
matters described in this proxy statement.
<PAGE> 4
MAY I REVOKE MY PROXY?
If you give a proxy, you may revoke it at any time before it is exercised
by filing a proxy bearing a later date, by giving written notice to the Company
at its principal executive offices located at 3300 Enterprise Parkway,
Beachwood, Ohio 44122, attention: Secretary or by giving notice to the Company
in open meeting. It is important to note that your presence at the Annual
Meeting, without more, will not revoke your previously granted proxy.
WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSALS ASSUMING THAT A QUORUM IS PRESENT
AT THE ANNUAL MEETING?
<TABLE>
<S> <C>
PROPOSAL ONE: FIX NUMBER OF DIRECTORS AT TEN The affirmative vote of a majority of the
issued and outstanding common shares of the
Company is required for approval of this
proposal.
PROPOSAL TWO: ELECT TEN DIRECTORS If Proposal One is approved, the ten
director nominees receiving the greatest
number of votes "FOR" election will be
elected as directors. If Proposal One is not
approved, Messrs. Jacobstein, Ahern and
Gidel, the three new director nominees, will
not be presented for election. In any event,
if you do not vote for a particular nominee,
or if you indicate "Withhold Authority" for
a particular nominee on your proxy card,
your vote will not count either for or
against the nominee.
BROKER NON-VOTES The Company has been advised that under the
rules of the New York Stock Exchange, if
your broker holds your shares in its name,
the broker will be entitled to vote your
shares on the proposals even if it does not
receive instructions from you.
</TABLE>
2
<PAGE> 5
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 February 29, 2000, except as
otherwise disclosed in the notes below, by (a) the Company's directors and
director nominees, (b) each other person who is known by the Company to own
beneficially more than 5% of the outstanding Common Shares based on a review of
filings with the Securities and Exchange Commission, (c) the Company's Chief
Executive Officer and the Company's executive officers named in the Summary
Compensation Table, and (d) the Company's current 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. and Iris S. Wolstein................................ 5,377,790(1) 8.9%
34555 Chagrin Boulevard
Moreland Hills, Ohio 44022
LaSalle Investment Management (Securities), LP.............. 3,312,851(2) 5.9%
200 East Randolph Drive
Chicago, Illinois 60601
LaSalle Investment Management, Inc.......................... 945,100(2) 1.6%
200 East Randolph Drive
Chicago, Illinois 60601
CRA Real Estate Securities, LP.............................. 3,103,400(3) 5.2%
259 North Radnor Chester Road, Suite 205
Radnor, Pennsylvania 19807
Scott A. Wolstein........................................... 2,843,257(4) 4.7%
James A. Schoff............................................. 689,591(5) 1.2%
David M. Jacobstein......................................... 500 *
Daniel B. Hurwitz........................................... 500 *
Joan U. Allgood............................................. 182,682(6) *
William H. Schafer.......................................... 192,625(7) *
Eric M. Mallory............................................. 36,033(8) *
William N. Hulett III....................................... 30,166(9) *
Ethan Penner................................................ 16,816(10) *
Albert T. Adams............................................. 26,816(9) *
Dean S. Adler............................................... 6,816(11) *
Barry A. Sholem............................................. 3,483(12) *
Terrance R. Ahern........................................... 0 *
Robert H. Gidel............................................. 3,000(13) *
Richard J. Kaplan........................................... 54,422 *
All Current Executive Officers, Directors and
Director Nominees as a Group (14 persons)................. 4,032,285 6.7%
</TABLE>
- ---------------
* Less than 1%.
3
<PAGE> 6
(1) According to a report on Schedule 13G filed with the Securities and
Exchange Commission on February 14, 2000, Bert L. and Iris S. Wolstein
beneficially owned 5,377,790 of the Common Shares outstanding as of the
date of that filing. In that Schedule 13G, Bert L. and Iris S. Wolstein
disclosed that they have shared voting and dispositive power over 5,377,790
Common Shares consisting of 4,330,214 Common Shares owned by Bert L.
Wolstein, 247,576 Common Shares owned by Iris S. Wolstein and 800,000
Common Shares subject to currently exercisable options held by Bert L.
Wolstein.
(2) According to a report on Schedule 13G filed with the Securities and
Exchange Commission on February 10, 2000, LaSalle Investment Management,
Inc. ("LaSalle Investment"), a registered investment adviser, beneficially
owned 945,100 of the Common Shares outstanding as of December 31, 2000 and
LaSalle Investment Management (Securities), L.P. ("LaSalle Securities"), a
registered investment adviser, beneficially owned 3,510,351 Common Shares
as of December 31, 2000. In that Schedule 13G (i) LaSalle Investment
disclosed that it has sole voting power over 385,600 of those Common
Shares, sole dispositive power over 385,600 of those Common Shares and
shared dispositive power over 559,500 of those Common Shares; and (ii)
LaSalle Securities disclosed that it has sole voting power over 244,600 of
those Common Shares, shared voting power over 3,131,555 of those Common
Shares, sole dispositive power over 197,500 of those Common Shares and
shared dispositive power over 3,312,851 of those Common Shares. In that
Schedule 13G LaSalle Investment and LaSalle Securities disclosed that they
are a "group" for federal securities law purposes.
(3) According to a report on Schedule 13G filed with the Securities and
Exchange Commission on February 14, 2000, CRA Real Estate Securities, LP
("CRA"), a registered investment advisor, beneficially owned 3,103,400 of
the Common Shares outstanding as of December 31, 1999. In that Schedule 13G
CRA disclosed that it has sole voting power over 2,624,500 of those Common
Shares, sole dispositive power over 3,008,800 of those Common Shares and
shared dispositive power over 94,600 of those Common Shares.
(4) Includes 1,756,285 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) 804 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) 1,996 Common Shares owned by Mr.
Schoff's son, (c) 816 Common Shares owned by an individual retirement
account held by Mr. Schoff's wife, and (d) 2,000 Common Shares owned by a
partnership in which Mr. Schoff owns a one-half interest. Includes 111,700
Common Shares subject to options currently exercisable or exercisable
within 60 days.
(6) Does not include 2,000 Common Shares owned by Mrs. Allgood's husband,
beneficial ownership of which is disclaimed by Mrs. Allgood. Includes
102,167 Common Shares subject to options currently exercisable or
exercisable within 60 days.
(7) Includes 149,250 Common Shares subject to options currently exercisable or
exercisable within 60 days.
(8) Includes 33,333 Common Shares subject to options currently exercisable or
exercisable within 60 days.
(9) Includes 26,666 Common Shares subject to options currently exercisable or
exercisable within 60 days for each of Mr. Hulett and Mr. Adams.
(10) Includes 16,666 Common Shares subject to options currently exercisable or
exercisable within 60 days.
(11) Includes 6,666 Common Shares subject to options currently exercisable or
exercisable within 60 days.
(12) Includes 3,333 Common Shares subject to options currently exercisable or
exercisable within 60 days.
(13) Includes 3,000 shares owned by a partnership in which Mr. Gidel and his
wife have a one-half interest.
4
<PAGE> 7
PROPOSAL ONE: TO FIX THE NUMBER OF DIRECTORS AT TEN
The Company's Code of Regulations provides that the number of directors
shall be fixed by the shareholders at no fewer than three nor more than 15. The
number of directors has been fixed at seven and there are currently seven
directors on the Board. All seven current members of the Board are nominated for
re-election. The Board of Directors is proposing that the number of directors be
increased to ten. The Board believes that David M. Jacobstein, Terrence R. Ahern
and Robert H. Gidel could make significant contributions as directors and has
nominated them for election if the proposal to increase the size of the Board is
approved.
The affirmative vote of a majority of the issued and outstanding Common
Shares is required for approval of this proposal.
The Board of Directors recommends that the shareholders vote FOR this
proposal.
PROPOSAL TWO: ELECTION OF DIRECTORS
If Proposal One is adopted, the number of directors will be fixed at ten.
At the Annual Meeting, unless you specify otherwise, the Common Shares
represented by your proxy will be voted to re-elect Messrs. Wolstein, Schoff,
Hulett, Penner, Adams, Adler and Sholem and, if Proposal One is adopted, to
elect Messrs. Jacobstein, Ahern and Gidel. The ten nominees, or seven nominees
if Proposal One is not approved, receiving the most votes will be elected as
directors. If elected, each nominee will serve as a director until the next
annual meeting of shareholders and until his successor is duly elected and
qualified.
If notice in writing is given by any shareholder to the President, a vice
president or the Secretary of the Company, not less than 48 hours before the
time fixed for holding the Annual Meeting, that the shareholder desires that
cumulative voting be used for the election of directors, 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 will have the right to cumulate the voting power the
shareholder possesses in the election of directors. Each shareholder will be
able to give one candidate an amount of votes equal to the number of directors
to be elected multiplied by the number of the shareholder's Common Shares, or to
distribute the shareholder's votes on the same principle among two or more
candidates, as the shareholder sees fit.
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 when the election
occurs (which is not expected), 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.
5
<PAGE> 8
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
<TABLE>
<CAPTION>
PERIOD
OF SERVICE
NAME AND AGE PRINCIPAL OCCUPATION AS DIRECTOR
------------ -------------------- -------------
<S> <C> <C>
Scott A. Wolstein Chairman of the Board of Directors of the Company and 11/92-Present
47 Chief Executive Officer of the Company
James A. Schoff Vice Chairman of the Board of Directors of the Company 11/92-Present
54 and Chief Investment Officer of the Company
David M. Jacobstein 53 President and Chief Operating Officer of the Company Director
Nominee
William N. Hulett III Managing member of Fame Development, Ltd. (real estate 2/93-Present
56 industry)
Ethan Penner 37 Founder of The Penner Group (financial industry) 4/96-Present
Albert T. Adams 49 Partner, Baker & Hostetler LLP (law firm) 4/96-Present
Dean S. Adler 43 Principal, Lubert-Adler Partners, L.P. (real estate 5/97-Present
investments)
Barry A. Sholem 44 Co-Chairman and Managing Director, Donaldson, Lufkin & 5/98-Present
Jenrette, Inc. Real Estate Capital Partners (real
estate investments)
Terrance R. Ahern Principal, The Townsend Group (institutional real Director
44 estate consulting) Nominee
Robert H. Gidel Managing Partner, Liberty Partners, LP (real estate Director
48 investments) Nominee
</TABLE>
Scott A. Wolstein has been the Chief Executive Officer and a Director of
the Company since its organization. Mr. Wolstein has been Chairman of the Board
of Directors of the Company since May 1997 and was President of the Company from
its organization until May 1999, when Mr. Jacobstein joined the Company. Prior
to the organization of the Company, Mr. Wolstein was a principal and executive
officer of Developers Diversified Group ("DDG"), the Company's predecessor. Mr.
Wolstein is a graduate of the Wharton School at the University of Pennsylvania
and of the University of Michigan Law School. He is currently a member of the
Board of Trustees of the National Association of Real Estate Investment Trusts
("NAREIT") and the International Council of Shopping Centers and serves as the
General Co-Chairman of the Cleveland Campaign for the State of Israel Bonds. He
is also a member of the Young Presidents Organization, The Urban Land Institute,
The Real Estate Roundtable and the Wharton Real Estate Center. Mr. Wolstein also
serves as Chairman of the Board of Trust Managers of American Industrial
Properties REIT ("AIP"), a New York Stock Exchange listed REIT in which the
Company has a significant investment, as a representative of the Company.
James A. Schoff has been the Vice Chairman of the Board of Directors and
Chief Investment Officer of the Company since March 1998. From the organization
of the Company until March 1998, Mr. Schoff served as Executive Vice President,
Chief Operating Officer and a Director of the Company. 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 Executive Committee and Board
of Trustees of the Western Reserve Historical Society and the National Committee
for Community and Justice. Mr. Schoff also serves as a director of AIP as a
representative of the Company.
David M. Jacobstein has been the President and Chief Operating Officer of
the Company since May 1999. From 1986 until the time he joined the Company, Mr.
Jacobstein was employed by Wilmorite, Inc., a Rochester, New York based shopping
center developer where most recently he served as Vice Chairman and Chief
Operating
6
<PAGE> 9
Officer. Mr. Jacobstein is a graduate of Colgate University and George
Washington University Law School. Prior to joining Wilmorite, Mr. Jacobstein
practiced law with the firms of Thompson, Hine & Flory LLP in Cleveland, Ohio
and Harris, Beach & Wilcox in Rochester, New York where he specialized in
corporate and securities law. He is a member of the International Council of
Shopping Centers and has served as a Vice-President of the Colgate University
Alumni Corporation and as President of the Allendale Columbia School (Rochester,
NY) Board of Trustees.
William N. Hulett III has been managing member of Fame Development, Ltd., a
residential real estate developer since June 1999. Mr. Hulett has been a
Director of BridgeStreet Accommodations, Inc. ("BridgeStreet"), an American
Stock Exchange listed company in the extended stay lodging industry, since June
1997. From June 1997 to June 1998, Mr. Hulett served as President and Chief
Executive Officer of BridgeStreet and from June 1998 to June 1999 he served as
Vice Chairman of the Board of Directors of BridgeStreet. From September 1995 to
May 1997, Mr. Hulett was the Co-Chairman and Chief Executive Officer of the Rock
and Roll Hall of Fame and Museum in Cleveland, Ohio. From May 1981 to May 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 and Cleveland Development Advisors. Mr.
Hulett was named Business Executive of the Year for 1995 by the Sales and
Marketing Executives Association.
Ethan Penner founded The Penner Group, a firm involved in the financial
industry, in September 1998. Mr. Penner was the President and Chief Executive
Officer of The Capital Company of America, and its predecessor Nomura Asset
Capital Corporation, from 1997 until September 1998. In addition, he was a
member of Nomura's Operating Committee and the Executive Managing Director of
Nomura Securities International, Inc. from 1994 until September 1998. 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 is an Advisor to the Wharton School's Real Estate Center,
serves as a Trustee of the Simon Wiesenthal Center, the Elton John AIDS
Foundation and the California Pacific Medical Center and is the founder and
current President 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 associated with the firm since
1977. Mr. Adams has been Chairman of the Cleveland office of Baker & Hostetler
LLP since January 1997. 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. Mr. Adams also serves as a director of AIP as a
representative of the Company, and is a director of Associated Estates Realty
Corporation, Boykin Lodging Company, Captec Net Lease Realty, Inc. and Dairy
Mart Convenience Stores, Inc.
Dean S. Adler is currently a principal with Lubert-Adler Partners, L.P., a
private equity real estate investment company which he founded in 1997. From
1987 through 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 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, Electronics Boutique, Inc., U.S. Franchise Systems Inc. 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 and is co-chairman of The Walt Frazier Youth Foundation.
Barry A. Sholem is currently the Co-Chairman and Managing Director 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,
which he joined in January 1995. 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
7
<PAGE> 10
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.
Terrance R. Ahern is a co-founder and principal of The Townsend Group, an
institutional real estate consulting firm formed in 1986 which represents
primarily tax-exempt clients such as public and private pension plans,
endowment, foundation and multi-manager investments. Mr. Ahern is a member of
the Board of Directors of the Pension Real Estate Association ("PREA"). He was
formerly a member of the Board of Governors of NAREIT. Prior to founding The
Townsend Group, Mr. Ahern was a Vice President of a New York based real estate
investment firm and was engaged in the private practice of law. Mr. Ahern
received a B.A. and J.D. from Cleveland State University.
Robert H. Gidel is the managing partner of Liberty Partners, LP, an
investment partnership formed to purchase securities interests in private and
public real estate companies. From 1997 through 1998, he was President and Chief
Executive Officer of Meridian Point VIII, an industrial REIT based in San
Francisco. Prior to Meridian, he was President and Chief Operating Officer of
Paragon Group, a multi-family property REIT based in Dallas, Texas, from 1995
through 1997. During 1993 through 1995, he was President and Chief Executive
Officer of Brazos Partners based in Dallas, Texas. Prior to this, Mr. Gidel was
a managing director and member of the board of directors of Alex. Brown
Kleinwort Benson Realty Advisors, a real estate investment management firm
formed in 1990 as a result of the merger of Alex. Brown Realty Advisors ("ABRA")
and Financial Investment Advisors. Mr. Gidel had been president of ABRA since
1986. From 1981 through 1985, Mr. Gidel served in a wide range of positions at
Heller Financial and its subsidiary, Abacus Real Estate Finance. He is a
graduate of the University of Florida's Warrington College of Business with a
major in real estate. Mr. Gidel is currently the chairman of the Real Estate
Advisory Board at the Warrington College of Business and a Hoyt Fellow at the
Homer Hoyt Institute. Mr. Gidel currently serves as a director of AIP as a
representative of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1999, the Board of Directors held
eight meetings. The Board of Directors has an Audit Committee, a Dividend
Declaration Committee, an Executive Compensation Committee and a Granting
Committee. The Board of Directors does not have a Nominating Committee. Each
director attended more than 75% of the aggregate number of meetings of the Board
of Directors and committees on which he served in 1999.
Audit Committee. The Audit Committee, which consists of Messrs. Adams,
Penner and Sholem, 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 and reviews the adequacy of
the Company's internal accounting controls. The Audit Committee held two
meetings in 1999.
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 four meetings in 1999.
Executive Compensation Committee. The Executive Compensation Committee,
which consists of Messrs. Adams, Adler and Hulett, determines compensation for
the Company's executive officers and administers the Company's stock option and
equity-based award plans. The Executive Compensation Committee held six meetings
in 1999.
Granting Committee. The Granting Committee was established in order to
comply with Rule 16b-3 promulgated under the Securities Exchange Act of 1934.
The Granting Committee, which consists of
8
<PAGE> 11
Messrs. Adler, Hulett and Sholem, determines if and when the Company should
grant stock options and other equity-based awards to executive officers, 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, the 1996 Developers Diversified
Realty Corporation Equity-Based Award Plan and the 1998 Developers Diversified
Realty Corporation Equity-Based Award Plan. The Granting Committee held two
meetings in 1999.
COMPENSATION OF DIRECTORS
In 1999, the Company paid an annual fee of $16,000, plus a fee of $1,000
for each Board meeting attended, $500 for each committee meeting attended and
$250 for each telephonic meeting held, to its directors who are not employees or
officers of the Company. Based on the recommendations of the Company's outside
compensation consultant, in 2000 this compensation has been increased to an
annual fee of $20,000, plus a fee of $1,000 for each Board and committee meeting
attended or $500 for each telephonic meeting attended. Effective January 1,
2000, each non-employee director who has been a director for at least one year
will receive options to purchase 1,000 Common Shares and each non-employee
director who has been a director for at least one year will receive a grant of
150 restricted Common Shares vesting one-half on the date of the grant and
one-half on the first anniversary of the grant. Directors are also reimbursed
for expenses incurred in attending meetings. No options were granted to
non-employee directors in 1999.
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 fluctuates according to the market value of the Common Shares. Messrs.
Adams, Adler and Hulett elected to defer their 1999 fees pursuant to the plan.
During their terms as directors, Messrs. Adams, Adler and Hulett have deferred
compensation represented by 4,976, 1,519 and 7,624 units, respectively. As of
December 31, 1999, those units were valued at $64,068 for Mr. Adams, $19,556 for
Mr. Adler and $98,160 for Mr. Hulett.
9
<PAGE> 12
EXECUTIVE COMPENSATION
The following information is set forth with respect to the Company's Chief
Executive Officer, the other four most highly compensated executive officers,
each of whom was serving as an executive officer at December 31, 1999, and one
executive officer who resigned in 1999 (the "named executive officers").
I. SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------ ------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING OTHER
FISCAL AWARD OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) (S)($)(2) SARS(#) ($)(3)
- --------------------------- ------ --------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Scott A. Wolstein........ 1999 511,458 383,594 432,677 164,063 62,441
Chairman and Chief 1998 500,000 425,000 -0- -0- 47,132
Executive Officer 1997 500,000 625,000 1,564,500 1,500,000 52,648
James A. Schoff.......... 1999 336,458 168,299 123,622 46,875 37,520
Vice Chairman and 1998 312,500 175,000 -0- -0- 38,101
Chief Investment
Officer............. 1997 275,000 275,000 -0- -0- 41,345
David M. Jacobstein...... 1999 203,125 101,563 -0- 300,000 39,879
President and Chief
Operating Officer(4)
Daniel B. Hurwitz........ 1999 164,808 107,404(5) -0- 200,000 19,215
Executive Vice
President(4)
Joan U. Allgood.......... 1999 197,917 49,479 47,101 17,857 4,245
Vice President and 1998 175,000 50,000 -0- -0- 1,969
General Counsel 1997 175,000 87,500 -0- -0- -0-
Richard J. Kaplan........ 1999 852,500(5) -0- -0- -0- 540
Executive Vice
President........... 1998 225,000 -0- -0- 200,000 3,375
and Chief Operating
Officer(6)
</TABLE>
- ---------------
(1) For a description of the method used in determining the bonuses paid to
executive officers, see "Employment Agreements" and "Report of the Executive
Compensation Committee of the Board of Directors."
(2) On July 17, 1996, Mr. Wolstein was granted 50,000 restricted Common Shares.
Pursuant to the terms of the restricted shares agreement between the Company
and Mr. Wolstein, 10,000 restricted shares vested immediately on the date of
the grant. The remaining restricted shares vest in 10,000 share increments
on each subsequent July 17th following the date of grant. Dividends on the
restricted shares are payable in additional restricted shares. On November
29, 1999, Mr. Wolstein was granted 31,325 restricted Common Shares, Mr.
Schoff was granted 8,950 restricted Common Shares and Mrs. Allgood was
granted 3,410 restricted Common Shares. One-fifth of each grant vested on
the date of the grant and an additional one-fifth vests on each November
29th following the date of grant. Dividends on these restricted shares are
paid to the individuals in cash.
(3) The dollar value, at December 31, 1999, of contributions of Common Shares
made pursuant to the Company's Profit Sharing Plan and Trust Plan equaled
$1,966 and $1,848, respectively, for Mr. Wolstein and Mr. Schoff. The dollar
value of contributions made pursuant to the Company's Elective Deferred
Compensation Plan equaled $5,897, $3,104 and $2,625, respectively, for Mr.
Wolstein, Mr. Schoff and Mrs. Allgood. Messrs. Wolstein and Schoff each
received $10,000 allowances relating to fiscal year 1999 tax and financial
planning expenses, and $10,896 and $3,377, respectively, for taxable
payments on split dollar life insurance pursuant to their employment
agreements and Messrs. Wolstein, Schoff, Jacobstein and Hurwitz received
$16,927, $13,691, $10,227 and $7,272, respectively, relating to automobile
lease payments pursuant to their employment agreements. Messrs. Jacobstein
and Hurwitz received $25,650 and $9,273, respectively, for the
10
<PAGE> 13
payment of various moving related expenses pursuant to their employment
agreements. Messrs. Wolstein, Schoff, Jacobstein, Hurwitz and Mrs. Allgood
received $16,755, $5,500, $4,002, $2,670 and $1,620, respectively, for the
payment of country club dues.
(4) Mr. Jacobstein joined the Company in May 1999 and Mr. Hurwitz joined the
Company in June 1999.
(5) Includes a $25,000 signing bonus paid to Mr. Hurwitz when he joined the
Company.
(6) Mr. Kaplan joined the Company April 1, 1998 and resigned effective March 1,
1999. All of his options were forfeited on that date. The amounts paid
include amounts paid pursuant to the agreement described under the heading
"Resignation of Richard J. Kaplan."
II. OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the awarding of
options to purchase Common Shares in 1999 to the executive officers named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED GRANT DATE
UNDERLYING TO EMPLOYEES EXERCISE PRESENT
OPTIONS/SARS IN FISCAL PRICE EXPIRATION VALUE
NAME (#)(1) YEAR (2) ($/SH) DATE ($)
---- ------------ ---------------- -------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Scott A. Wolstein 164,063 15.1% $13.8125 November 29, 2009 $152,349(3)
James A. Schoff 46,875 4.3 13.8125 November 29, 2009 43,528(3)
David M. Jacobstein 300,000 27.7 16.5625 May 17, 2009 619,110(4)
Daniel B. Hurwitz 200,000 18.5 16.25 June 14, 2009 426,180(5)
Joan U. Allgood 17,857 1.6 13.8125 November 29, 2009 16,582(3)
Richard J. Kaplan -0- -0- -0- -0- -0-
</TABLE>
- ---------------
(1) Options vest in one-third increments on each of the first three consecutive
anniversaries of the date of grant and may be exercised once vested. Mr.
Kaplan resigned from the Company effective as of March 1, 1999 and all of
his options were forfeited on that date.
(2) Based on options to purchase an aggregate of 1,082,977 Common Shares granted
to employees during 1999.
(3) 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 volatility of
24.6608% which reflects the daily closing prices of the Common Shares on the
New York Stock Exchange for the 12-month period ended November 29, 1999, (b)
risk-free rates of return of 6.42% for the options which expire in November
2009 (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
options were granted), (c) dividend yield of 10.1% for the options (which
percentage represents an annualized distribution of $1.40 per Common Share
divided by the exercise price of the options), and (d) the exercise of the
options at the end of their 10-year term. No adjustments were made for
nontransferability or risk of forfeiture of the options. The calculations
were made using a price per Common Share and option exercise price of
$13.8125 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.
(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 volatility of
31.1332% which reflects the daily closing prices of the Common Shares on the
New York Stock Exchange for the 12-month period ended May 17, 1999, (b)
risk-free rates of return of 5.65% for the options which expire in May 2009
(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
options were granted), (c) dividend yield of 8.5% for the options (which
percentage represents an annualized distribution of $1.40 per Common Share
divided by the exercise price of the options), and (d) the exercise of the
options at the end of their 10-
11
<PAGE> 14
year term. No adjustments were made for nontransferability or risk of forfeiture
of the options. The calculations were made using a price per Common Share and
option exercise price of $16.563 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.
(5) 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 volatility of
31.7514% which reflects the daily closing prices of the Common Shares on the
New York Stock Exchange for the 12-month period ended June 14, 1999, (b)
risk-free rates of return of 5.96% for the options which expire in June 2009
(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
options were granted), (c) dividend yield of 8.6% for the options (which
percentage represents an annualized distribution of $1.40 per Common Share
divided by the exercise price of the options), and (d) the exercise of the
options at the end of their 10-year term. No adjustments were made for
nontransferability or risk of forfeiture of the options. The calculations
were made using a price per Common Share and option exercise price of $16.25
for the options. The estimated present values in the table are not intended
to provide, nor should they be interpreted as providing, any indication or
assurance concerning future values of the Common Shares.
III. AGGREGATE OPTION EXERCISES IN 1999 AND 1999 YEAR-END OPTION VALUES
The following table sets forth information with respect to the value of
options held by the executive officers named in the Summary Compensation Table
on December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 1999 OPTIONS AT 1999
YEAR-END(#) YEAR-END($)(1)
SHARES ---------------------- --------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Scott A. Wolstein............. -0- -0- 1,756,285/364,064 -0-/-0-
James A. Schoff............... -0- -0- 111,700/46,875 -0-/-0-
David M. Jacobstein........... -0- -0- -0-/300,000 -0-/-0-
Daniel B. Hurwitz............. -0- -0- -0-/200,000 -0-/-0-
Joan U. Allgood............... -0- -0- 102,167/17,857 1,568/-0-
Richard J. Kaplan (2)......... -0- -0- -0-/-0- -0-/-0-
</TABLE>
- ---------------
(1) Based on the market price at $12.875 per Common Share at the close of
trading on December 31, 1999.
(2) Mr. Kaplan resigned from the Company effective as of March 1, 1999 and all
of his options were forfeited on that date.
EMPLOYMENT AGREEMENTS
The Company has entered into separate employment agreements with five of
its executive officers, including each of the named executive officers other
than Mrs. Allgood. The agreements with Messrs. Wolstein and Schoff were amended
and restated in April 1999. Each of the employment agreements contains 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 in the case
of Messrs. Wolstein and Schoff, or by the Company giving 90 days' prior written
notice in the case of Messrs. Jacobstein and Hurwitz. Pursuant to their
respective agreements, each of the named executive officers are, and Mr. Kaplan
was, required to devote their entire business time to the Company. The
agreements provide for a current annual base salaries of $525,000, $350,000,
$325,000, and $300,000 for Messrs. Wolstein, Schoff, Jacobstein and Hurwitz,
respectively. Messrs. Wolstein, Schoff, Jacobstein and Hurwitz's agreements
provide, and Mr. Kaplan's agreement provided, for the use of an automobile and
membership in a golf club and, in the case of Messrs. Wolstein and Schoff,
membership in a business club. In addition, the Company paid certain
12
<PAGE> 15
expenses in connection with Mr. Jacobstein's relocation to Cleveland, including
commissions, expenses and fees related to the sale of his house and purchase of
a new house and his moving expenses. The agreements of Messrs. Wolstein, Schoff
and Jacobstein include an allowance of $10,000 for each of Messrs. Wolstein and
Schoff, and $5,000 for Mr. Jacobstein, for tax return preparation and financial
planning services. Pursuant to the agreements, Mr. Wolstein is entitled to a
bonus of from 50% to 125% of his annual base salary, Mr. Schoff is entitled to a
bonus of from 25% to 100% of his annual base salary, Mr. Jacobstein is entitled
to a bonus of from 25% to 100% of his annual base salary, Mr. Hurwitz is
entitled to a bonus of from 25% to 75% of his base salary, and Mr. Kaplan was
entitled to a bonus of 25% to 75% of his annual base salary. See "Report of the
Executive Compensation Committee of the Board of Directors -- Components of the
Compensation Plan -- Bonuses" for a discussion of the methods used to determine
these bonuses.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into Change In Control Agreements with all of its
executive officers including each of the named executive officers (excluding Mr.
Kaplan). Under the agreements, certain benefits are payable by the Company if a
"Triggering Event" occurs within two years (or three years for Messrs. Wolstein
and Schoff) after a "Change in Control."
A "Triggering Event" occurs if within two years (or three years in the case
of Messrs. Wolstein and Schoff) after a Change of Control (a) the Company
terminates the employment of the named executive officer, other than in the case
of a "Termination For Cause" (as defined in the applicable Change in Control
Agreement); (b) the Company reduces the named executive officer's title,
responsibilities, power or authority in comparison with his or her title,
responsibilities, power or authority at the time of the Change in Control; (c)
the Company assigns the named executive officer duties which are inconsistent
with the duties assigned to the named executive officer on the date on which the
Change in Control occurred and which duties the Company persists in assigning to
the named executive officer despite the prior written objection of that officer;
(d) the Company reduces the named executive officer's base compensation, his or
her group health, life, disability or other insurance programs (including any
such benefits provided to such executive's family), his or her pension,
retirement or profit-sharing benefits or any benefits provided by one of the
Company's equity-based award plans, or any substitute therefor, or excludes him
or her from any plan, program or arrangement in which the other executive
officers of the Company are included; or (e) the Company requires the named
executive officer to be based at or generally work from any location more than
fifty miles from the geographical center of Cleveland, Ohio.
A "Change in Control" occurs if (a) any person or group of persons, acting
alone or together with any of its affiliates or associates, acquires a legal or
beneficial ownership interest, or voting rights, in 20% or more of the
outstanding Common Shares; (b) at any time during a period of 24 consecutive
months, individuals who were directors of the Company at the beginning of the
period no longer constitute a majority of the members of the Board of Directors
unless the election, or the nomination for election by the Company's
shareholders, of each director who was not a director at the beginning of the
period is approved by at least a majority of the directors who are in office at
the time of the election or nomination and were directors at the beginning of
the period; or (c) a record date is established for determining shareholders of
the Company entitled to vote upon (i) a merger or consolidation of the Company
with another real estate investment trust, partnership, corporation or other
entity in which the Company is not the surviving or continuing entity or in
which all or a substantial part of the outstanding shares are to be converted
into or exchanged for cash, securities, or other property, (ii) a sale or other
disposition of all or substantially all of the assets of the Company or (iii)
the dissolution of the Company. The agreements of Messrs. Hurwitz and Mallory
each provide that if certain conditions are met, a spin-off of the Company's
real estate development business is not a Change in Control.
Within 30 days after the occurrence of a Triggering Event, the Company must
pay the named executive officer an amount equal to the sum of two times (or
three times in the case of Messrs. Wolstein and Schoff) the maximum annual
salary and bonus then payable to the officer. In addition, the Company agreed to
continue to provide life and health insurance benefits that are comparable to or
better than those provided to the named executive officer at the time of the
Change in Control until the earlier of two years from the date of the Triggering
13
<PAGE> 16
Event and the date the named executive officer becomes eligible to receive
comparable or better benefits from a new employer. The Company also agreed to
continue its guarantees of loans described under the caption "Certain
Transactions--Guarantees of Loans" until the time such loans are repaid and not
to direct or take any action to cause those loans to be accelerated or called
prior to the maturity of the loans.
RESIGNATION OF RICHARD J. KAPLAN
Richard J. Kaplan, the Company's former Executive Vice President and Chief
Operating Officer, resigned from the Company effective as of March 1, 1999. In
connection with his resignation, Mr. Kaplan and the Company entered into an
Agreement and Release. Under this agreement, Mr. Kaplan received a one-time,
lump-sum payment of $802,500 and an additional $1,000 per month for consulting
services through December 31, 1999. These amounts are reflected in the Summary
Compensation Table. Mr. Kaplan agreed to continue the noncompetition and
confidentiality provisions of his employment agreement through December 31,
2000, and his employment agreement was otherwise terminated. In addition, he
released any and all claims that he may have had against the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, the members of the Executive Compensation Committee were
Albert T. Adams, Dean S. Adler and William N. Hulett. For a discussion of
certain transactions between the Company and Mr. Adams, see "Certain
Transactions."
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 Russell 2000 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 January 1, 1994 and the reinvestment of dividends.
GRAPH
<TABLE>
<S> <C> <C> <C>
Developers Diversified Realty Corporation Russell 2000 Index NAREIT Equity Total Return Index
1/1/95 $100.00 $100.00 $100.00
12/31/95 $103.29 $128.44 $115.27
12/31/96 $137.61 $149.63 $155.92
12/31/97 $151.19 $183.08 $187.51
12/31/98 $150.27 $178.42 $154.69
12/31/99 $120.01 $216.35 $147.54
</TABLE>
14
<PAGE> 17
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"). In 1999, the Committee was comprised of Mr. Adler,
Chairman of the Committee, Mr. Adams and Mr. Hulett.
PHILOSOPHY
The primary objectives of the Committee in determining executive
compensation for 1999 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 grants of restricted Common Shares. The Committee
determines compensation for those officers considered "executive officers" under
the rules and regulations of the Securities and Exchange Commission.
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 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 and (iii) stock options, grants of restricted Common Shares and
performance units. Each of these elements is discussed below.
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 1999
were determined with reference to the experience of the officers as compared to
other executives in the REIT industry, the Company's past practice and
comparisons of compensation paid by companies in two peer groups: REITs of
similar size to the Company and REITs with retail assets as their primary focus.
The Company has engaged an outside consultant to assess the competitiveness of
the Company's existing compensation plan and to explore the development of a new
long-term incentive plan, which will assist the Company in rewarding and
retaining key officers and employees. Fundamental requirements of the program
include 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 outside
consultant, the Committee determined that for 1999 the base salary of Mr.
Wolstein should be increased to $525,000 per year in light of the compensation
being paid to other chief executive officers in the REIT industry generally.
Pursuant to their employment agreements, Messrs. Wolstein, Schoff, Jacobstein
and Hurwitz receive certain additional benefits described under the heading
"Executive Compensation--Employment Agreements." The Committee believes that
these benefits assist the Company by facilitating the development of important
relationships between officers and 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 those
agreements). 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
15
<PAGE> 18
threshold, target 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.
The Committee determined that although the Company achieved its Funds From
Operations targets, the decline in the price of the Common Shares mandated that
long-term incentive compensation, including bonuses, be awarded to executives at
the target level and not at the higher maximum level. In 1999, Mr. Wolstein
earned a bonus equal to 75% of his 1999 base salary, and each of Messrs. Schoff,
Jacobstein and Hurwitz earned a bonus equal to 50% of his 1999 base salary and
Mrs. Allgood earned a bonus equal to 25% of her 1999 base salary. Additionally,
in 1999, three other executive officers earned bonuses equal to 25% of their
1999 base salaries.
Restricted Shares and Performance Units. Mr. Wolstein has received two
awards of restricted Common Shares and one award of performance units from the
Company. Mr. Wolstein was granted 50,000 restricted Common Shares on July 17,
1996. The shares vest annually in 20% increments with the first 10,000 shares
vesting on the date of the award. Mr. Wolstein was granted 31,325 restricted
Common Shares on November 29, 1999. The shares vest annually in 20% increments
with the first 6,265 shares vesting on the date of the award. In 1996, Mr.
Wolstein was granted 30,000 performance units, the value of which will be
determined by the performance of the Common Shares over a five-year period
beginning on January 1, 1996. The grant of performance units to Mr. Wolstein was
recommended by the Company's outside compensation consultant. Based on the
recommendations of the Company's outside compensation consultant, in 1999 the
Company granted an aggregate of 15,770 restricted Common Shares to certain
executive officers of the Company in addition to Mr. Wolstein. Grants of
performance units and restricted Common Shares reinforce the long-term goal of
increasing shareholder value by providing the proper nexus between the interests
of management and the interests of the Company's shareholders.
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
1996 Developers Diversified Realty Corporation Equity-Based Award Plan and the
1998 Developers Diversified Realty Corporation Equity-Based 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 the
long-term goal of increasing shareholder value by providing the proper nexus
between the interests of management and the interests of the Company's
shareholders.
EXECUTIVE COMPENSATION COMMITTEE
Dean S. Adler, Chairman
Albert T. Adams
William N. Hulett
16
<PAGE> 19
CERTAIN TRANSACTIONS
GUARANTEES OF LOANS
In November 1998, the Company guaranteed obligations of certain of its
executive officers under a personal loan program provided to those executive
officers by The First National Bank of Chicago, as agent, and certain other
banks. The executive officers used proceeds of the loans to purchase Common
Shares from the Company and to exercise options to purchase Common Shares. Each
loan is an unsecured obligation of the respective officer. Each executive
officer has agreed to reimburse the Company for any amounts paid by the Company
to satisfy that executive officer's obligations under the loan program as a
result of the Company's guarantee.
The Company guaranteed loans, in the amount listed after the executive
officer's name, for the following: Scott A. Wolstein -- $7,500,000, James A.
Schoff -- $3,750,000, Richard J. Kaplan -- $1,000,000, Joan U.
Allgood -- $750,000, Loren F. Henry -- $750,000, William H. Schafer -- $550,000,
John R. McGill -- $500,000. Messrs. Kaplan, Henry and McGill are no longer
employed by the Company. In addition, the Company guaranteed loans, in amounts
ranging from $25,250 to $50,000, for three other executive officers. The amounts
guaranteed have not changed since the date of the loan.
LOAN TO EXECUTIVE OFFICERS
In August 1998, the Board of Directors authorized the Company to from time
to time lend Scott A. Wolstein an amount not to exceed $350,000 to reduce the
outstanding principal balance of, and to prevent the sale of Common Shares from,
a margin account loan secured by Common Shares owned by Mr. Wolstein. A loan is
payable 90 days from the date of the loan, is evidenced by a promissory note and
bears interest at an annual rate of 0.85% over LIBOR (7.34% as of December 31,
1999), which approximates the Company's borrowing cost. The largest principal
amount outstanding during 1999 was $90,000. As of the date of this proxy
statement, no such loans were outstanding.
In connection with his joining the Company, the Company loaned Mr. Hurwitz
approximately $115,550 at an annual interest rate of 6.2% to assist him with
certain expenses incurred in connection with his relocation. The loan is payable
in equal annual installments over five years.
MANAGEMENT FEES
The Company received management and leasing fee income of approximately
$182,470 in 1999 pursuant to management agreements with certain partnerships
owned by Mr. Bert L. Wolstein, the founder of the Company and the father of Mr.
Scott A. Wolstein.
LEASE OF CORPORATE HEADQUARTERS
As a result of its rapid growth and expansion, the Company moved to new
headquarters in 1999. However, the Company continues to make payments required
under the lease of its prior corporate headquarters in Moreland Hills, Ohio,
which was leased from Mrs. Iris S. Wolstein, the mother of Mr. Scott A.
Wolstein. Annual rental payments aggregating approximately $701,279 were made in
1999 by the Company; however, the Company subleases a portion of this space and
as a result the Company received $446,354 in payments from third parties. Rental
payments made by the Company under the lease include the payment of all
maintenance and insurance expenses, real estate taxes and operating expenses
over a base year amount. The Company occupied the space pursuant to the terms of
a lease which expires on December 31, 2009.
PROPERTY ACQUISITIONS AND TRANSFERS
In September 1999, the Company transferred its interest in a shopping
center under development in Coon Rapids, Minnesota, a suburb of Minneapolis, to
a joint venture in which the Company retained an initial 25% economic interest.
The remaining 75% initial economic interest is held by private equity funds
controlled by Dean S. Adler, a director of the Company. If certain performance
thresholds are met, the Company's economic interest increases to a 47.5%
interest and the private equity funds' economic interest decreases to 52.5%.
These
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funds reimbursed the Company for $2.5 million of costs previously incurred in
connection with the development and also paid the Company a development fee of
approximately $509,810.
In February 1998, the Company acquired a shopping center from a limited
partnership in which Messrs. Bert L. Wolstein, Scott A. Wolstein and James A.
Schoff collectively owned a 1% general partnership interest. The initial
purchase price of the property was approximately $6,496,087. In January 1999, in
accordance with the purchase agreement, the Company paid approximately $588,329
following the lease of certain vacant space in the shopping center.
LEASING AND SALES COMMISSIONS
In 1999, the Company paid approximately $101,975 to a company owned by Mr.
Eugene Faigus, the brother-in-law of Mr. Scott A. Wolstein, for fees and
commissions related to the acquisition of several shopping centers in 1998.
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
1999 to provide various legal services. The Company expects that Baker &
Hostetler LLP will continue to provide such services during 2000.
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, 1999, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were complied with, except with
respect to Eric M. Mallory who filed one late Form 4 in 1999.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP served as independent public accountants to the
Company in 1999 and is expected to do so in 2000. A representative of
PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting and
will have an opportunity to make a statement if he or she so desires. The
representative will also be available to respond to appropriate questions from
shareholders.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Any shareholder proposals intended to be presented at the Company's 2001
Annual Meeting of Shareholders must be received by the Corporate Secretary of
the Company at 3300 Enterprise Parkway, Beachwood, Ohio 44122, on or before
December 14, 2000 for inclusion in the Company's proxy statement and form of
proxy relating to the 2001 Annual Meeting of Shareholders. As to any proposal
that a shareholder intends to present to shareholders other than by inclusion in
the Company's proxy statement for the 2001 Annual Meeting of Shareholders, the
proxies named in management's proxy for that meeting will be entitled to
exercise their discretionary voting authority on that proposal unless the
Company receives notice of the matter to be proposed not later than February 27,
2001. Even if proper notice is received on or prior to February 27, 2001 the
proxies named in the Company's proxy for that meeting may nevertheless exercise
their discretionary authority with respect to such matter by advising
shareholders of that proposal and how they intend to exercise their discretion
to vote on such matter, unless the shareholder making the proposal solicits
proxies with respect to the proposal to the extent required by Rule 14a4(c)(2)
under the Securities Exchange Act of 1934, as amended.
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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 a shareholder to vote for or against Proposal
One or to abstain from voting on the proposal. With respect to Proposal Two, a
shareholder may specify 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.
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 in favor of Proposal One and to elect the director
nominees listed in Proposal Two. Because approval of Proposal One requires the
affirmative vote of a majority of the issued and outstanding Common Shares,
broker non-votes and abstaining votes will have the same effect as a vote
against Proposal One. Under Ohio law and the Company's Amended and Restated
Articles of Incorporation, broker non-votes and abstaining votes will not be
counted in favor of or against any nominee. 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, 2000
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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 full power of substitution to vote as indicated
herein, all of the Common Shares of Developers Diversified Realty
Corporation held of record by the undersigned on March 20, 2000, at
the Annual Meeting of Shareholders to be held on May 15, 2000, or any
adjournment thereof, with all the powers the undersigned would possess
if then and there personally present.
1. TO FIX THE NUMBER OF DIRECTORS AT TEN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. ELECTION OF DIRECTORS.
<TABLE>
<S> <C>
[ ]to vote FOR the election of each of [ ]WITHHOLD AUTHORITY
the nominees for Director listed
below:
(except as marked to the contrary
below)
</TABLE>
Scott A. Wolstein, James A. Schoff, William N. Hulett, III, Ethan
Penner, Albert T. Adams, Dean S. Adler, Barry A. Sholem,
David M. Jacobstein, Terrance R. Ahern and Robert H. Gidel
(the election of Messrs. Jacobstein, Ahern and Gidel is contingent on
the approval of item 1 above)
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space provided below)
----------------------------------------------------------------------
3. In their discretion, to vote upon such other business as may
properly come before the meeting.
(Continued on reverse side)
P
R
O
X
Y
(Continued from other side)
THIS PROXY WHEN PROPERLY EXECUTED AND RETURNED WILL BE VOTED AS
SPECIFIED BY THE SHAREHOLDER. IF NO SPECIFICATIONS ARE MADE ON THE
SIGNED CARD, THE PROXY WILL BE VOTED FOR THE PROPOSAL TO FIX THE
NUMBER OF DIRECTORS AT TEN IN ITEM 1 ABOVE AND TO ELECT THE NOMINEES
DESCRIBED IN ITEM 2 ABOVE.
Receipt of the Notice of Annual Meeting of Shareholders and the
related Proxy Statement dated April 10, 2000, is hereby acknowledged.
Date , 2000
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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
