UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
October 15, 2008
DEVELOPERS DIVERSIFIED REALTY CORPORATION
(Exact Name of Registrant as Specified in Charter)
|
|
|
|
|
Ohio
|
|
1-11690
|
|
34-1723097
|
|
(State or Other Jurisdiction
|
|
(Commission
|
|
(IRS Employer
|
of Incorporation)
|
|
File Number)
|
|
Identification No.)
|
|
|
|
3300 Enterprise Parkway, Beachwood, Ohio
|
|
44122
|
|
(Address of Principal Executive Offices)
|
|
(Zip Code)
|
Registrants telephone number, including area code:
(216) 755-5500
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (
see
General Instruction
A.2.):
o
|
|
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
|
o
|
|
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
|
o
|
|
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
|
|
o
|
|
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
|
TABLE OF CONTENTS
|
|
|
Item 5.02.
|
|
Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
|
(e) During the past several years, Developers Diversified Realty Corporation, an Ohio
corporation (the
Company
), has adopted various policies and programs relating to executive
compensation. Since being adopted, many of those policies and programs have been modified, and the
Company has continued to implement additional compensation policies and programs. In early 2008,
the Company determined that its employment agreements with Scott A. Wolstein, the Companys
Chairman and Chief Executive Officer, and Daniel B. Hurwitz, the Companys President and Chief
Operating Officer, should be reviewed because of the number of changes the Company has implemented
regarding its executive compensation structure since those employment agreements were last revised
in 2001, in the case of Mr. Wolstein, and in 1999, in the case of Mr. Hurwitz. The Company
determined that it would be in the best interests of the Company to enter into new employment
agreements with Messrs. Wolstein and Hurwitz (the
Executives
) to document all applicable
modifications to their respective compensation structures, which were last set forth in their
existing employment agreements.
Following a period of extensive negotiations, and with the approval of both the Companys
Board of Directors (the
Board
) and the Executive Compensation Committee of the Board (the
Committee
) and under the advisement of an independent compensation consulting company for each of
the Company and the Executives, on October 15, 2008, the Company entered into an Employment
Agreement and a Change In Control Agreement with each of Messrs. Wolstein and Hurwitz. Mr.
Wolsteins Employment Agreement supersedes his prior Employment Agreement, dated as of December 6,
2001, and Mr. Hurwitzs Employment Agreement supersedes his prior Employment Agreement, dated as of
May 25, 1999 (Mr. Wolsteins Employment Agreement and Mr. Hurwitzs Employment Agreement together,
the
Employment Agreements
). Similarly, Mr. Wolsteins Change in Control Agreement supersedes his
prior Change in Control Agreement, dated as of March 24, 1999, and Mr. Hurwitzs Change of Control
Agreement supersedes his prior Change of Control Agreement, dated as of May 25, 1999 (Mr.
Wolsteins Change in Control Agreement and Mr. Hurwitzs Change in Control Agreement together, the
CIC Agreements
).
Employment Agreements
The Company entered into the Employment Agreements with the Executives to reflect the terms
pursuant to which the Executives will continue to serve the Company. The term of each Employment
Agreement initially runs through December 31, 2009, but the term is subject to a evergreen
provision that provides for an automatic extension of the remaining term for an additional year at
the end of each calendar year, subject to the parties termination rights or the earlier
termination of the Executive.
The Employment Agreements provide for minimum base salaries, subject to increases approved by
the Board, of $800,000 for Mr. Wolstein and $616,000 for Mr. Hurwitz. The Executives are entitled
to participate in the Companys broad-based retirement and other benefit plans, including the
Companys 401(k) plan and its deferred compensation program, and are also entitled to receive life,
medical, dental and other insurance coverage and benefits similar to that
provided to the Companys other executive officers. The Company will also provide disability
insurance coverage (or self-insure such coverage) for Mr. Wolstein during the employment term of at
least $46,500 per month through age 65, and for Mr. Hurwitz during the employment term of at least
$25,000 per month through age 65. The Executives are also entitled to reasonable vacation and sick
leave during the employment term and to reasonable expense reimbursement. The Company will also
pay Mr. Hurwitzs country club membership fees, assessments, dues and business expenses during the
term of his Employment Agreement.
Under the Employment Agreements, the Executives are entitled to annual performance-based
bonuses equal to a percentage of their base salaries as determined by the Committee. The
respective threshold and maximum annual bonus opportunities, as a percentage of base salary, for
the Executives are: Mr. Wolstein, 350% and 800%; and Mr. Hurwitz, 300% and 600%. Half of each
annual bonus will be paid in cash, with the remaining portion of each annual bonus paid in the form
of equity awards. Any restricted shares or stock options awarded in payment of a portion of each
annual bonus will be valued based on the fair market value of the Companys shares on the date of
grant using the same methodology and valuation assumptions used by the Company for financial
statement reporting purposes. The Committee will from time to time establish the performance
factors and criteria relevant for determination of such annual bonuses and will timely communicate
the applicable performance metrics and targets to the Executives. The Executives are also entitled
to participate in any equity or other employee benefit plan generally available to the Companys
senior executive officers, including outperformance award plans and supplemental equity award
plans.
Each Employment Agreement may be terminated under a variety of circumstances, including the
Executives death. The Company may terminate each Employment Agreement for cause if the
Executive engages in certain specified conduct, if the Executive is disabled for a specified period
of time or at any other time without cause by giving the Executive 90 days prior written notice.
Each Executive may also terminate his Employment Agreement for good reason in certain specified
circumstances or at any other time without good reason by giving the Company 90 days prior written
notice.
The Executives are entitled under the Employment Agreements to certain additional payments and
benefits in the event of certain termination circumstances. If an Executive is terminated by the
Company without cause or the Executive terminates his employment for good reason, he is entitled to
receive: (1) accrued but unpaid base salary and his prior years annual bonus to the extent not
paid; (2) for Mr. Wolstein, a lump sum amount equal to the greater of (A) $5 million or (B) the sum
of his base salary plus his prior years annual bonus (such lump sum amount, however, will be equal
to $5 million if such termination occurs before January 1, 2009), and for Mr. Hurwitz, a lump sum
amount equal to the greater of (X) $3 million or (Y) the sum of his base salary plus his prior
years annual bonus (such lump sum amount, however, will be equal to $3 million if such termination
occurs before January 1, 2009); (3) one year of continued health and welfare benefits for the
Executive and his family; and (4) immediate accelerated vesting of the Executives
non-performance-based equity awards (specifically excluding awards made under any outperformance
award plans and supplemental equity award plans). If an Executive dies during the term of the
Employment Agreement, his estate or beneficiaries are entitled to receive his accrued but unpaid
base salary and his prior years annual bonus to the extent not paid, and his family is entitled to
receive one year of continued health and welfare
benefits. Additionally, Mr. Hurwitzs estate or beneficiaries are entitled to receive a lump
sum amount equal to $2.5 million either from the Company or as a life insurance payment. If an
Executive is terminated due to disability, he is entitled to receive: (1) his accrued but unpaid
based salary and his prior years annual bonus to the extent not paid; (2) a lump sum amount equal
to two times his base salary; (3) a pro rata portion of his annual bonus for the year in which his
termination occurs; and (4) one year of continued health and welfare benefits for the Executive and
his family. Certain of these termination payments and benefits are subject to the Executives
execution of a general release of claims against the Company or the Companys waiver of such
release.
The Employment Agreements provide that, to the extent that any of the payments to be made
under the Employment Agreements or the CIC Agreements discussed below constitutes an excess
parachute payment under certain tax laws, rules and regulations, the Company will pay to the
Executive such additional cash amounts as are necessary to put him in the same after-tax position
as he would have been in had such payments (excluding any units or awards granted or vested
pursuant to any performance unit agreement with the Company or any equity awards granted under any
outperformance award plans or supplemental equity plans of the Company) not given rise to any
applicable excise tax, penalties or interest. Each Executive is also entitled to a similar
gross-up payment regarding any excise tax, penalties or interest to which he is subject under
Section 409A of the Internal Revenue Code. The Employment Agreements also contain a two-year
confidentiality covenant regarding the Companys proprietary information, a two-year
non-solicitation covenant and other provisions generally designed to ensure compliance with Section
409A of the Internal Revenue Code. Mr. Hurwitz is also subject to a one-year noncompetition
covenant that covers the four largest real estate investment trusts (excluding the Company) based
on market capitalization that focus primarily on neighborhood and community shopping centers
(subject to a one percent public equity ownership exception).
Additionally, Mr. Wolsteins Employment Agreement provides that:
|
|
|
Mr. Wolstein is entitled to personal use (on an as-available basis) of any airplane
leased by the Company or in which the Company owns an interest during each calendar
year, but will reimburse the Company for such use at Standard Industry Fare Level rates
then in effect. To the extent that the full cost of Mr. Wolsteins personal aircraft
use in a calendar year exceeds such Standard Industry Fare Level reimbursement by more
than $300,000, Mr. Wolstein will also reimburse the Company for the amount of such
excess cost;
|
|
|
|
|
Any transition by Mr. Wolstein to service as a non-executive Chairman of the Board
will not have an impact on the vesting and exercise provisions of any prior or
subsequent equity awards by the Company; and
|
|
|
|
|
If Mr. Wolstein is terminated other than by the Company for cause or by reason of
his death, he will be entitled to continued use of office space, office support and
secretarial services at the Companys expense until the earliest of his death, the date
he begins other employment, or the third anniversary of his termination date.
|
The summaries of the Employment Agreements described above are qualified in their entirety by
reference to the Employment Agreements, which are filed herewith as Exhibits 10.1 and 10.3 and
incorporated herein by reference.
Change in Control Agreements
The Company has also entered into the CIC Agreements with the Executives to promote the
stability and continuity of senior management in the event of a Change in Control of the Company.
Under each CIC Agreement, the following payments and benefits are payable by the Company to the
Executive if a Triggering Event occurs: (1) accrued but unpaid base salary and his prior years
annual bonus to the extent not paid; (2) for Mr. Wolstein, a lump sum amount equal to the greater
of (A) $5 million or (B) the sum of his base salary plus his prior years annual bonus (such lump
sum amount, however, will be equal to $5 million if the Triggering Event occurs before January 1,
2009), and for Mr. Hurwitz, a lump sum amount equal to the greater of (X) $3 million or (Y) the sum
of his base salary plus his prior years annual bonus (such lump sum amount, however, will be equal
to $3 million if the Triggering Event occurs before January 1, 2009); (3) three years of continued
health and welfare benefits for the Executive and his family; (4) immediate accelerated vesting of
the Executives non-performance-based equity awards (specifically excluding awards made under any
outperformance award plans and supplemental equity award plans); and (5) outplacement services at
an aggregate cost of up to $75,000 for Mr. Wolstein and up to $50,000 for Mr. Hurwitz for no more
than two years after the year in which the Triggering Event occurs. Additionally, the Company will
be deemed to have waived any requirement for a general release of claims against the Company. Each
CIC Agreement will be terminated if the Executive ceases to be a Board-elected officer, appointed
officer or key employee of the Company prior to a Change in Control.
The terms Change in Control and Triggering Event are defined in the CIC Agreements.
Change in Control generally means certain events including Board or shareholder approval of a
Company merger or consolidation in which the Company is not the surviving entity, a sale of
substantially all of the Companys assets, or a liquidation or dissolution of the Company, certain
significant changes in the ownership of the Companys outstanding securities or in the composition
of the Board, or the establishment of a record date in connection with shareholder approval of
certain proposed mergers, consolidations, sales of all or substantially all of the Companys assets
or a dissolution of the Company. For Mr. Wolstein, a Triggering Event means certain situations
specified in the CIC Agreement in which, within three years after a Change in Control, Mr. Wolstein
is terminated or terminates his employment as a result of certain adverse impacts on his position
with the Company or compensation. For Mr. Hurwitz, a Triggering Event means certain situations
specified in the CIC Agreement in which, within two years after a Change in Control, Mr. Hurwitz is
terminated or terminates his employment as a result of certain adverse impacts on his position with
the Company or compensation.
The summaries of the CIC Agreements described above are qualified in their entirety by
reference to the CIC Agreements, which are filed herewith as Exhibits 10.2 and 10.4 and
incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
|
|
|
Exhibit Number
|
|
Description
|
|
10.1
|
|
Employment Agreement, dated as of October 15, 2008, by and between Developers
Diversified Realty Corporation and Scott A. Wolstein
|
|
|
|
10.2
|
|
Change in Control Agreement, dated as of October 15, 2008, by and between
Developers Diversified Realty Corporation and Scott A. Wolstein
|
|
|
|
10.3
|
|
Employment Agreement, dated as of October 15, 2008, by and between Developers
Diversified Realty Corporation and Daniel B. Hurwitz
|
|
|
|
10.4
|
|
Change in Control Agreement, dated as of October 15, 2008, by and between
Developers Diversified Realty Corporation and Daniel B. Hurwitz
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
|
|
|
DEVELOPERS DIVERSIFIED REALTY
CORPORATION
|
|
|
By:
|
/s/ Christa A. Vesy
|
|
|
|
Name:
|
Christa A. Vesy
|
|
|
|
Title:
|
Senior Vice President and Chief Accounting Officer
|
|
|
Date: October 21, 2008
EXHIBIT INDEX
|
|
|
Exhibit No.
|
|
Description
|
|
10.1
|
|
Employment Agreement, dated as of October 15, 2008, by and between Developers Diversified
Realty Corporation and Scott A. Wolstein
|
|
|
|
10.2
|
|
Change in Control Agreement, dated as of October 15, 2008, by and between Developers
Diversified Realty Corporation and Scott A. Wolstein
|
|
|
|
10.3
|
|
Employment Agreement, dated as of October 15, 2008, by and between Developers Diversified
Realty Corporation and Daniel B. Hurwitz
|
|
|
|
10.4
|
|
Change in Control Agreement, dated as of October 15, 2008, by and between Developers
Diversified Realty Corporation and Daniel B. Hurwitz
|