DDR Ddr Corp.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

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

 

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Filed by a Party other than the Registrant  o

 

Check the appropriate box:

 

o   Preliminary Proxy Statement

o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ   Definitive Proxy Statement

o   Definitive Additional Materials

o   Soliciting Material Pursuant to Rule 14a-12

 

DEVELOPERS DIVERSIFIED REALTY CORPORATION

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

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o   Fee paid previously with preliminary materials.

 

 

 

 

 

 

 

 

 

 

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, which we refer to as the company, will be held at the company’s corporate offices, 3333 Richmond Road, Beachwood, Ohio 44122, on May 18, 2011, at 9:00 a.m., local time, for the following purposes:

 

1. To elect the following ten directors, each to serve until the next annual meeting of shareholders and until a successor has been duly elected and qualified: Terrance R. Ahern, James C. Boland, Thomas Finne, Robert H. Gidel, Daniel B. Hurwitz, Volker Kraft, Victor B. MacFarlane, Craig Macnab, Scott D. Roulston, and Barry A. Sholem;

 

2. To ratify the selection of PricewaterhouseCoopers LLP as the company’s independent accountants for the company’s fiscal year ending December 31, 2011;

 

3. To hold a shareholder advisory vote regarding the compensation of the company’s named executive officers;

 

4. To hold a shareholder advisory vote regarding the frequency for future shareholder advisory votes regarding the compensation of the company’s named executive officers; and

 

5. To transact such other business as may properly come before the meeting.

 

Only shareholders of record at the close of business on April 8, 2011 will be entitled to notice of and to vote at the Annual Meeting or any adjournment of the Annual Meeting. Shareholders are urged to complete, date and sign the enclosed proxy card and return it in the enclosed envelope or vote their shares by telephone or over the Internet as described in the attached proxy statement.

 

By order of the Board of Directors,

 

David E. Weiss
Secretary

 

Dated: April 18, 2011

 

YOUR VOTE IS IMPORTANT. PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 18, 2011

 

The Proxy Statement, Annual Report to Shareholders and Proxy Card are available free of charge at www.proxydocs.com/ddr.

 

TABLE OF CONTENTS

 

DEVELOPERS DIVERSIFIED REALTY CORPORATION

 

PROXY STATEMENT

 

 

Why did you send me this proxy statement?

 

Developers Diversified Realty Corporation, which is referred to as the “company,” “we,” “our” or “us,” sent you this proxy statement and the enclosed proxy card because our Board of Directors, which we refer to as our Board, is soliciting your proxy to vote at our 2011 Annual Meeting of Shareholders, which we refer to as the Annual Meeting. This proxy statement summarizes information you need to know in order to vote at the Annual Meeting. The Annual Meeting will be held at our corporate offices, 3333 Richmond Road, Beachwood, Ohio 44122, on May 18, 2011, at 9:00 a.m., local time. However, you do not need to attend the Annual Meeting to vote your shares. Instead, you may vote by telephone, over the Internet or by completing and mailing the enclosed proxy card.

 

We will begin mailing this proxy statement, the attached Notice of Annual Meeting of Shareholders and the enclosed proxy card on or about April 18, 2011 to all shareholders entitled to vote. Shareholders who owned our common shares at the close of business on April 8, 2011, the record date for the Annual Meeting, are entitled to vote. On the record date, there were approximately 276,592,862 common shares outstanding. We are also enclosing our 2010 annual report to shareholders, which includes our financial statements, with this proxy statement.

 

Who is soliciting my proxy?

 

This solicitation of proxies is made by and on behalf of our Board. We will bear the cost of the solicitation of proxies. In addition to the solicitation of proxies by mail, certain of our employees may solicit proxies by telephone, facsimile or email. Those employees will not receive any additional compensation for their participation in the solicitation. We retained Georgeson, Inc., at an estimated cost of $11,000, plus reimbursement of expenses, to assist in the solicitation of proxies from brokers, nominees, institutions and individuals.

 

How many votes do I have?

 

You are entitled to one vote for each of our common shares that you owned on the record date. The enclosed proxy card indicates the number of shares that you owned on the record date.

 

If written notice is given by any shareholder to our President, any Vice President or the Secretary 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 Chairman of the Board, the President or the Secretary or by or on behalf of the shareholder giving such notice, then each shareholder will have the right to cumulate the voting power that the shareholder possesses in the election of directors. This means that 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 common shares owned by such shareholder, or to distribute the shareholder’s votes on the same principle among two or more candidates, as the shareholder may elect.

 

If voting for the election of directors is cumulative, the persons named in the enclosed proxy card will vote the common shares represented by proxies given to them in such manner so as to elect as many of the nominees named in this proxy statement as possible.

 

How do I vote by proxy?

 

Shareholders may vote either by completing, properly signing and returning the accompanying proxy card via mail, by telephone or over the Internet, or by attending and voting at the Annual Meeting. If you properly

complete and timely return your proxy card or properly and timely follow the telephone or Internet voting instructions described below, your proxy (meaning 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 indicate specific choices as to your vote, your proxy will vote your shares as recommended by our Board:

 

 

Shareholders of record may vote by calling 1-866-540-5760 or over the Internet by accessing the following website: www.proxyvoting.com/ddr. Voting instructions, including your shareholder account number and personal proxy control number, are contained on the accompanying proxy card. Those shareholders of record who choose to vote by telephone or over the Internet must do so by not later than 11:59 p.m., Eastern Time, on May 17, 2011.

 

A number of banks and brokerage firms participate in a program that also permits shareholders whose shares are held in “street name” to direct their vote by telephone or over the Internet. If your shares are held in an account at a bank or brokerage firm that participates in such a program, you may direct the vote of these shares by telephone or over the Internet by following the voting instructions enclosed with the proxy card from the bank or brokerage firm. The Internet and telephone proxy procedures are designed to authenticate shareholders’ identities, to allow shareholders to give their proxy voting instructions and to confirm that those instructions have been properly recorded. Votes directed by telephone or over the Internet through such a program must be received by 11:59 p.m., Eastern Time, on May 17, 2011.

 

If any other matter is presented at the Annual Meeting, your proxy will vote your shares in accordance with his or her best judgment. As of the date of this proxy statement, we are not aware of any matter to be acted on at the Annual Meeting other than those matters described in this proxy statement.

 

May I revoke my proxy?

 

You may revoke your proxy at any time before it is exercised by giving written notice to us at our principal executive offices located at 3300 Enterprise Parkway, Beachwood, Ohio 44122, by submitting to us a duly executed proxy card bearing a later date or by giving us notice in open meeting. It is important to note that your presence at the Annual Meeting, without any further action on your part, will not revoke your previously granted proxy.

 

What constitutes a quorum?

 

The presence at the Annual Meeting, either in person or by proxy, of the holders of a majority of the aggregate number of common shares outstanding on the record date will represent a quorum permitting the conduct of business at the meeting. Proxy cards that we receive marked as abstentions or broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting for purposes of determining a quorum.

What vote is required to approve each proposal assuming that a quorum is present at the Annual Meeting?

 

 

The following table sets forth certain information regarding the beneficial ownership of our common shares as of March 18, 2011, except as otherwise disclosed in the notes below, by (1) each person who is known by us to own beneficially more than 5% of our outstanding common shares based on a review of filings with the Securities and Exchange Commission, or SEC, (2) our directors, (3) our named executive officers and (4) our executive officers and directors as a group. Except as otherwise described in the following notes, the following beneficial owners have sole voting power and sole investment power with respect to all common shares set forth opposite their respective names.

 

 

 

 

 

At the Annual Meeting, unless you specify otherwise, the common shares represented by your proxy will be voted to elect the following ten directors nominated herein to serve until the next annual meeting of shareholders and until a successor has been duly elected and qualified: Terrance R. Ahern, James C. Boland, Thomas Finne, Robert H. Gidel, Daniel B. Hurwitz, Volker Kraft, Victor B. MacFarlane, Craig Macnab, Scott D. Roulston, and Barry A. Sholem.

 

A majority vote standard applies in uncontested elections and a plurality vote standard applies in contested elections. An election is contested when the number of nominees for election as a director exceeds the number of directors to be elected. Under a majority vote standard, each vote is specifically counted “for” or “against” the director’s election. An affirmative majority of the total number of votes cast “for” or “against” a director nominee will be required for election. Shareholders are entitled to abstain with respect to the election of a director. Broker non-votes and abstentions will not be considered votes cast at the Annual Meeting and will be excluded in determining the number of votes cast at the Annual Meeting.

 

If written notice is given by any shareholder to our President, any Vice President or the Secretary 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 Chairman of the Board, the President or the Secretary or by or on behalf of the shareholder giving that notice, then each shareholder will have the right to cumulate the voting power that the shareholder possesses in the election of directors. This means that 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 common shares owned by such shareholder, or to distribute the shareholder’s votes on the same principle among two or more candidates, as the shareholder may elect. If voting for the election of directors is cumulative, the persons named in the enclosed proxy card will vote the common shares represented by proxies given to them in such manner 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), then our Board intends that proxies will be voted for the election of a substitute nominee designated by our Board as recommended by the Nominating and Corporate Governance Committee. The following information is furnished with respect to each person nominated for election as a director.

Nominees for Election at the Annual Meeting

 

 

Terrance R. Ahern is a Co-Founder and Principal of The Townsend Group, an institutional real asset advisory firm formed in 1986. The Townsend Group consults or advises domestic and offshore public and private pension plans, endowments and foundations, sovereign wealth funds and multi-manager funds. Mr. Ahern is a past member of the Board of Directors of the Pension Real Estate Association, or PREA, and the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT. Prior to founding The Townsend Group, Mr. Ahern was engaged in the private practice of law.

 

With his years of experience managing a firm whose core skill is analyzing real estate companies and real estate investment opportunities, Mr. Ahern brings valuable insight into the real estate markets in which we operate. In addition, through his past experience on the boards of some of the most influential organizations in the real estate industry, he has amassed an expansive knowledge of the opportunities, challenges and risks that face real estate companies, as well as the functions of a board of directors.

 

James C. Boland served as President and Chief Executive Officer of Cavs/Gund Arena Company, the Cleveland Cavaliers professional basketball team and Gund Arena, from January 1998 to January 2003 and Vice Chairman of the Cavaliers Operating Company, LLC (formerly known as Cavs/Gund Arena Company) from January 2003 to June 2007. Prior to his time with the Cavaliers, Mr. Boland was a partner of Ernst & Young LLP for 22 years serving in various roles including Vice Chairman and Regional Managing Partner as well as a member of the firm’s Management Committee from 1988 to 1996 and as Vice Chairman of National Accounts from 1997 until his retirement from the firm in 1998. Mr. Boland is also a Director of The Sherwin-Williams Company, The Goodyear Tire & Rubber Company and Invacare Corporation, and was a Director, from 2004 to 2005, of International Steel Group. He is also a Trustee of Bluecoats, Inc. and The Harvard Business School Club of Cleveland.

 

As a partner and member of the management committee of a major accounting firm for over 20 years, Mr. Boland has worked with hundreds of public and private companies and has a thorough understanding of complex accounting and auditing matters. Furthermore, his service on several public and private company boards of directors provides exposure to diverse industries with unique challenges enabling him to make

significant contributions to our Board, particularly in the areas of risk assessment, corporate governance and executive compensation.

 

Thomas Finne is the Managing Director of KG CURA Vermögensverwaltung G.m.b.H. & Co., a commercial real estate company located in Hamburg, Germany, that manages assets in North America and Europe. Prior to joining KG CURA Vermögensverwaltung G.m.b.H. & Co. in 1992, Dr. Finne was responsible for controlling, budgeting, accounting and finance for Bernhard Schulte KG, a ship owner and ship manager located in Hamburg, Germany. He is currently serving as a Managing Director of C.J. VOGEL Aktiengesellschaft für Beteiligungen. Dr. Finne graduated with an undergraduate degree in business administration and received his doctorate from the International Tax Institute at the University of Hamburg.

 

Dr. Finne’s experience in international commercial real estate enables him to contribute an international perspective on the issues impacting a real estate company facing today’s challenges and opportunities. His service on the boards of directors of several international real estate companies further provides him with business modeling experience and an appreciable awareness of the most effective and essential functions of a board of directors.

 

Robert H. Gidel has been the Managing Member of Liberty Partners, LLC, a company that invests in both private and publicly traded real estate and finance focused operating companies, since 1998. Mr. Gidel was President of Ginn Development Company, LLC, one of the largest privately held developers of resort communities and private clubs in the Southeast, from July 2007 until April 2009. Mr. Gidel was Chairman of the Board of Directors of LNR Property Holdings, a private multi-asset real estate company, from 2005 until 2007. Until January 2007, he was a member of the Board of Directors and lead director of Global Signal Inc., a real estate investment trust, which we refer to as a REIT. He has been a trustee of Fortress Registered Investment Trust and a director of Fortress Investment Fund II, LLC since 1999, both of which are registered investment companies. From 1998 until 2005, Mr. Gidel was the independent member of the investment committee of the Lone Star Funds I, II, III, IV and V. Mr. Gidel was also a member of the Board of Directors of U.S. Restaurant Properties, Inc. until 2005 and a member of the Board of Directors of American Industrial Properties REIT until 2001.

 

Through his leadership of two public REITs and five private REITs, as well as his service on the board of directors of several public REITs, Mr. Gidel provides our Board with extensive knowledge of the real estate industry, the development and implementation of corporate strategies, risk assessment, corporate finance and governance matters. His experience as a senior manager of several real estate companies enables him to make significant contributions to our Board.

 

Daniel B. Hurwitz was appointed as our President and Chief Executive Officer in January 2010. Mr. Hurwitz served as our President and Chief Operating Officer from May 2007 to January 2010, as our Senior Executive Vice President and Chief Investment Officer from May 2005 through May 2007 and as an Executive Vice President from June 1999 through April 2005. He was previously a member of our Board from May 2002 to May 2004. Prior to joining us, Mr. Hurwitz served as Senior Vice President and Director of Real Estate and Development for Boscov’s Department Store, Inc., a privately held department store chain. Prior to Boscov’s, Mr. Hurwitz served as Development Director for The Shopco Group, a New York City-based developer and acquirer of regional and super regional shopping malls. Mr. Hurwitz is a graduate of Colgate University and the Wharton School of Business Executive Management Program at the University of Pennsylvania. Mr. Hurwitz is a director of EDT Trust; a member of the Developers Diversified/Sonae Sierra Brasil Board of Directors; a member of ICSC, a member of the ICSC Board of Trustees, a member of the ICSC Executive Committee and a member of the ICSC Political Action Committee. He previously served as a director of U-Store-It Trust from January 2008 to January 2011 and currently is a member of ULI and serves as Vice Chairman of the CRC Blue Council. Additionally, Mr. Hurwitz is a member of the Colgate University Board of Trustees; a member of the Board of Trustees of Hawken School; a member of the Leadership Board for the Neurological Institute at the Cleveland Clinic; and a member of the Board of Directors of the Rock and Roll Hall of Fame. He has also served as a member of the Board of Regents for the University System of Ohio and the Board of Directors of the Colgate University Alumni Corporation, Colgate University Maroon

Council, Boscov’s Department Store, Inc., The Network, Applewood Centers and the Cleveland Children’s Museum.

 

During his more than 11 years of service to the company and as our President and Chief Executive Officer, Mr. Hurwitz has gained a comprehensive knowledge of the critical internal and external challenges facing the company and the real estate industry as a whole. His leadership within the company, his prior experience as a member of senior management of companies in the retail industry and his prior role as a member of the Board of Trustees of U-Store-It Trust, for which he served as a member of the audit committee and chairman of the executive compensation committee, make him an invaluable member of our Board. Mr. Hurwitz is also very active in many cultural, charitable and academic institutions, which provide an important diversity of perspective and link between our Board, the company and the community.

 

Volker Kraft is a Managing Director of ECE Real Estate Partners G.m.b.H., the institutional real estate fund management platform of ECE Projektmanagement G.m.b.H. & Co. KG, a fully integrated international developer, owner and manager of shopping centers based in Hamburg, Germany. Prior to joining ECE in 2008, Dr. Kraft was a Director of Allianz Capital Partners G.m.b.H., a private equity firm located in Munich, Germany, where he was a member of the management team and the internal investment committee since 2001. During that time, Dr. Kraft served as a member of the Advisory Board and Shareholders’ Committee of Bartec G.m.b.H., Bad Mergentheim, an electronic components company, and as a member of the Supervisory Board of Scandlines AG, Rostock, a ferry services company.

 

As a member of the board of directors of a major international retail real estate developer and as a manager of a leading German private equity company, Dr. Kraft brings to our Board the knowledge of the retail real estate industry on a global basis, corporate finance, funds management, corporate transactions and strategic planning. In addition, as a member of the supervisory boards of several international companies in various industries, Dr. Kraft contributes to our Board by drawing upon his extensive experience with corporate governance, leadership and risk management.

 

Victor B. MacFarlane is Managing Principal, Chairman and Chief Executive Officer of MacFarlane Partners, which he founded in 1987 to provide real estate investment management services to institutional investors. Mr. MacFarlane has more than 30 years of real estate experience. He sits on the Board of Directors of each of the Robert Toigo Foundation, the Real Estate Executive Council and the Initiative for a Competitive Inner City. He also serves on the Board of Advisors for UCLA School of Law and the board facilities committee of Stanford Hospital & Clinics. He is a member and trustee of ULI; a member and former director of PREA; and a member of ICSC, the Chief Executives Organization and the World Presidents’ Organization.

 

Mr. MacFarlane brings to our Board over two decades of experience as a chief executive officer of a real estate advisory firm and over 30 years of experience in the areas of real estate investment, corporate finance, portfolio management and risk management. His extensive managerial experience as well as his knowledge of the real estate and private capital industries provide our Board with an expansive view on issues impacting the company and our corporate strategy.

 

Craig Macnab has served as the Chief Executive Officer and a Director of National Retail Properties, Inc., a publicly traded REIT, since February 2004 and as Chairman of the Board since February 2008. Mr. Macnab was the Chief Executive Officer, President and a Director of JDN Realty Corporation from 2000 to 2003, when we acquired JDN Realty Corporation. Mr. Macnab was a director of Per-Se Technologies, Inc., now McKesson Corporation, from 2002 to 2007. He was also a Director of Eclipsys Corporation, a provider of clinical and financial software to the healthcare industry, prior to its merger with Allscripts in 2010. Mr. Macnab is a member of the Board of Governors of NAREIT.

 

As the current chief executive officer and director of a public company, as well as the former president, chief executive officer and director of a publicly held developer, owner and manager of shopping centers, Mr. Macnab has direct experience with the significant managerial matters arising from the business and financial issues pertaining to the company, particularly in the areas of corporate finance, capital markets and strategic planning. His current and former service on the board of directors of several public companies has

provided him with a comprehensive understanding of corporate governance issues facing a public company and its board of directors.

 

Scott D. Roulston is Managing Partner of High Road Partners, LLC, advisors to growth companies, both public and private, since 2002. From 1990 to 2010, he was Chief Executive Officer of Fairport Asset Management, a registered investment advisor, and its predecessor firm, Roulston & Company. He is a member of the World Presidents’ Organization and past Chapter Chairman for Young Presidents’ Organization. He is a Trustee and President of Bluecoats, Inc., and a Trustee of Policy Bridge. He is a former director of Defiance, Inc. where he served as chair of the Compensation Committee, several private companies, and advisory boards for Charles Schwab Institutional, TIAA-CREF, and the Weatherhead School of Management at Case Western Reserve University. Mr. Roulston is a graduate of Dartmouth College.

 

In addition to his past experience on the board of directors of both public and private companies, including on the audit committee of a public company, Mr. Roulston contributes his insights as a leader of an asset management and investment company. This experience has provided him with extensive knowledge of the issues involved with the review and analysis of financial statements, as well as capital markets and the development and implementation of corporate strategy.

 

Barry A. Sholem became a partner of MSD Capital, L.P., the family office of Michael and Susan Dell, and head of its real estate fund in July 2004. From 1995 until August 2000, Mr. Sholem was Chairman of DLJ Real Estate Capital Partners, a $2 billion real estate fund that he co-founded and that invested in a broad range of real estate-related assets, and a managing director at Credit Suisse First Boston. Prior to forming DLJ Real Estate Capital Partners, Mr. Sholem spent ten years at Goldman Sachs in its New York and Los Angeles offices. Mr. Sholem is currently active in ULI (CRC Silver Council), ICSC, the University of California, Berkeley Real Estate Advisory Board and the Business Roundtable.

 

Years of experience leading the real estate groups of investment firms gives Mr. Sholem a unique perspective on the business and operations of the company. In addition, he brings a broad understanding of the social and political issues facing the company through his involvement with ULI and ICSC.

Certain Transactions

 

On February 23, 2009, we entered into a stock purchase agreement with Mr. Alexander Otto, which we refer to as the Otto Stock Purchase Agreement. Pursuant to the Otto Stock Purchase Agreement, we issued and sold 30,000,000 common shares, which we refer to as the Purchased Shares, for gross proceeds of approximately $112.5 million and issued warrants to purchase 10,000,000 common shares at an exercise price of $6.00 per share to Mr. Otto and certain members of his family, whom we collectively refer to as the Otto Family. No additional consideration was paid for the warrants. Under the terms of the Otto Stock Purchase Agreement, we also issued to the Otto Family 2,858,732 common shares as a result of first and second quarter 2009 partial stock dividends associated with the Purchased Shares. On March 18, 2011, the Otto Family members exercised all of the warrants and purchased 10,000,000 common shares of the company at a price of $6.00 per share.

 

In connection with the sale of the Purchased Shares, we also entered into an investor rights agreement with Mr. Otto under which he has a right to nominate individuals for election to our Board depending on the Otto Family’s level of ownership in us. In accordance with the investor rights agreement, Dr. Kraft and Dr. Finne were nominated and elected to our Board. During such time as the Otto Family beneficially owns 17.5% or more of our outstanding common shares, our Board will nominate two persons recommended by the Otto Family who are suitable to us to become members of our Board at each annual election of directors, and during such time as the Otto Family beneficially owns less than 17.5% but more than 7.5% of our outstanding common shares, our Board will nominate one person recommended by the Otto Family who is suitable to us to become a member of our Board at each annual election of directors. Dr. Kraft and Dr. Finne are Mr. Otto’s current nominees pursuant to the investor rights agreement.

 

Our Board Recommends That Shareholders Vote FOR the Election of Each of the Director Nominees.

 

Our Board has adopted Corporate Governance Guidelines that guide our Board in the performance of its responsibilities to serve the best interests of the company and our shareholders. Our Corporate Governance Guidelines are posted on our website, www.ddr.com , under “Investor Relations.” Our Board reviews the Corporate Governance Guidelines periodically but not less than annually.

 

Code of Ethics for Senior Financial Officers.   We have a Code of Ethics for Senior Financial Officers that applies to the chief executive officer, chief operating officer, chief financial officer, chief accounting officer and other designated senior financial officers, which we collectively refer to as our senior financial officers. This code requires our senior financial officers:

 

 

Only the Audit Committee or our Board, including a majority of the independent directors, may waive any provision of this code with respect to a senior financial officer. Any such waiver or any amendment to this code will be promptly disclosed on our website or in a Current Report on Form 8-K as required by applicable rule or regulation. This code is posted on our website, www.ddr.com , under “Investor Relations.”

 

Code of Business Conduct and Ethics.   We also have a Code of Business Conduct and Ethics that addresses our commitment to honesty, integrity and the ethical behavior of our employees, officers and directors. This code governs the actions and working relationships of our employees, officers and directors with current and potential tenants, fellow employees, competitors, vendors, government and self-regulatory agencies, investors, the public, the media, and anyone else with whom we have or may have contact. Only our Board or the Nominating and Corporate Governance Committee may waive any provision of this code with respect to an executive officer or director. Any such waiver or any amendment to this code will be promptly disclosed on our website or in a Current Report on Form 8-K as required by applicable rule or regulation. The Corporate Compliance Officer may waive any provision of this code with respect to all other employees. This code is posted on our website, www.ddr.com , under “Investor Relations.”

 

We are committed to honesty, integrity and ethical behavior and have adopted a Reporting and Non-Retaliation Policy. The purpose of the policy is to encourage all employees to disclose any alleged wrongdoing that may adversely impact us, our tenants, shareholders, fellow employees, investors or the public at large without fear of retaliation. The policy sets forth procedures for the reporting of alleged financial (including auditing, accounting and internal control matters) and non-financial wrongdoing by employees on a confidential and anonymous basis and by other interested third parties, and a process for investigating such reported acts of alleged wrongdoing and retaliation. Reports concerning financial wrongdoing may be made

directly to our Corporate Compliance Officer, David E. Weiss, our Audit Committee Chairman, Scott D. Roulston, or to Global Compliance Services, an independent third-party service retained on our behalf. Reports concerning non-financial wrongdoing may be made directly to our Senior Vice President of Human Resources, Nan Zieleniec, the Corporate Compliance Officer, or to Global Compliance Services. An inquiry or investigation is then initiated by the Corporate Compliance Officer, Senior Vice President of Human Resources or the Audit Committee Chairman to determine if the report can be sustained or has merit. Results of investigations concerning financial wrongdoing are reviewed by the Chief Executive Officer and/or Chief Financial Officer and reported to the Audit Committee. Results of investigations concerning non-financial wrongdoing are reviewed by the Chief Executive Officer. This policy is posted on our website, www.ddr.com , under “Investor Relations.”

 

Our Board has affirmatively determined that all of the nominated directors, except for Dr. Finne, Mr. Hurwitz, and Dr. Kraft, are “independent directors” within the meaning of the listing standards of the New York Stock Exchange, or NYSE. Our Corporate Governance Guidelines provide that our Board will be comprised of a majority of independent directors and that only those directors or nominees who meet the listing standards of the NYSE will be considered independent. Our Board reviews annually the relationships that each director or nominee has with us (either directly or as a partner, shareholder or officer of an organization that has a relationship with us), and only those directors or nominees whom our Board affirmatively determines have no material relationship with us (either directly or as a partner, shareholder or officer of an organization that has a relationship with us) will be considered independent. With respect to our independent directors, there were no transactions, relationships or arrangements that occurred in 2010 that were considered by our Board in making its determination of such directors’ independence.

 

As of January 1, 2010, we separated the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. Daniel B. Hurwitz was appointed our Chief Executive Officer with responsibility for planning, formulating and coordinating the development and execution of our corporate strategy, policies, goals and objectives. He is accountable for company performance and reports directly to our Board.

 

On January 1, 2010, Scott A. Wolstein was appointed our Executive Chairman of the Board. Mr. Wolstein held a leadership role at the company and served on our Investment Committee. He also maintained his historic capital markets and tenant relationships to enhance his ability to implement our long-term corporate strategy. Our Executive Chairman of the Board also:

 

 

 

In February 2011, the company announced that Mr. Wolstein would no longer serve as Executive Chairman of the Board and that the position of Executive Chairman of the Board would not be filled. Effective April 11, 2011, Mr. Wolstein no longer serves as Executive Chairman of the Board and Mr. Wolstein resigned from the Board. The Board elected Mr. Ahern to serve as Chairman of the Board until his successor is duly appointed. The position of Chairman of the Board will be a non-executive officer position and will be held by an independent director. Any non-executive Chairman of the Board will have the following responsibilities, among others as determined by the Board:

 

 

In accordance with our Corporate Governance Guidelines, our Board has also maintained a lead director who was an independent director and was selected by a majority of the independent directors. Because Mr. Wolstein was an employee of the company during 2010 and therefore was not “independent,” our Board unanimously selected Mr. Ahern to serve as lead director. The lead director:

 

 

We believe this Board leadership structure recognizes the time, effort and commitment that our Chief Executive Officer is required to devote to his position in the current business environment, the commitment required for our Chief Executive Officer to fulfill his responsibilities and the independent oversight required by our Chairman of the Board and lead director.

 

This structure also enables our Board as a whole to fulfill its responsibility to oversee the company’s risks presented by its long-term strategy, business plan and model. With a Board comprised of management, independent directors and non-independent directors, members of our Board bring a variety of perspectives to address risks. Our Board’s role in enterprise risk management includes receiving regular reports from members of senior management on areas of material risk to the company, including operational, financial, strategic and

compliance risks. The company has an Enterprise Risk Management (ERM) Committee comprised of senior management which meets regularly to address risk and risk mitigation strategies. The chair of the Audit Committee is invited to attend and participate in ERM Committee meetings. The Audit Committee assists the Board in its oversight responsibilities by, among other matters, reviewing reports prepared by the ERM Committee, reviewing our policies and procedures with respect to risk assessment, risk management, risk monitoring and risk mitigation and works with the other committees of our Board to identify additional risks related to the committees’ respective areas of expertise. The Chairman of the relevant committee consults with the Audit Committee regarding the committee’s findings regarding the identified risks and the committee’s proposals to address such risks. The Audit Committee then reports, on at least an annual basis, to our full Board on the company’s enterprise risk program. This enables our Board and its committees to coordinate the risk oversight role, particularly with respect to interrelated risks.

 

The non-management directors meet in executive session in conjunction with each regularly scheduled Board meeting. These meetings are chaired by the lead director. In 2010, the non-management directors met either before or after each regularly scheduled Board meeting. In addition, as required by our Corporate Governance Guidelines, the independent directors meet at least once a year.

 

During the fiscal year ended December 31, 2010, our Board held six meetings and took written action on nine occasions. Each director attended at least 75% of the aggregate number of meetings of our Board and committees on which he served in 2010. As stated in our Corporate Governance Guidelines, all directors are expected to attend the Annual Meeting. All of our directors attended the annual meeting of shareholders in May 2010.

 

During 2010, the following committees of our Board existed: an Audit Committee, a Dividend Declaration Committee, an Executive Committee, an Executive Compensation Committee, a Nominating and Corporate Governance Committee, and a Pricing Committee. Our Board has approved the written charters of the Audit Committee, the Executive Compensation Committee and the Nominating and Corporate Governance Committee, which are posted on our website at www.ddr.com , under “Investor Relations.” Each of the Audit Committee, Executive Compensation Committee and Nominating and Corporate Governance Committee conducts a self-evaluation and review of its charter annually and reports the results of these evaluations and reviews to our Board, and our Board also conducts a self-evaluation annually.

The following table indicates the current members of each standing committee as of March 1, 2011:

 

Committee Membership (* Indicates Chair)

 

 

Audit Committee.   The Audit Committee assists our Board in overseeing the integrity of our financial statements, compliance with legal and regulatory requirements, our independent registered public accounting firm’s qualifications and independence, the performance of our internal audit function and those of our independent registered public accounting firm, our enterprise risk management policies and procedures, and prepares the Audit Committee Report included in our annual proxy statement. All of the members of the Audit Committee are independent as independence is currently defined in the rules and regulations of the SEC, and the NYSE listing standards in accordance with our Corporate Governance Guidelines. Our Board has determined that each member of the Audit Committee is a “financial expert” within the meaning of Item 407 of Regulation S-K under the federal securities laws. In addition, our Board has determined that Mr. Boland’s simultaneous service on the audit committees of three other public companies would not impair his ability to effectively serve on our Audit Committee and has, with respect to Mr. Boland, waived the limitations set forth in our Corporate Governance Guidelines and our Audit Committee Charter related to the number of other public company boards and audit committees on which members of our Board are allowed to serve. The Audit Committee held eight meetings in 2010.

 

Dividend Declaration Committee.   The Dividend Declaration Committee determines if and when we should declare dividends on our capital shares and the amount thereof, consistent with the dividend policy adopted by our Board. The Dividend Declaration Committee held no meetings and took written action on nine occasions in 2010.

 

Executive Committee.   The Executive Committee advises our Board on major strategic initiatives, business opportunities and policy issues for the company, provides assistance and advice to our Board with respect to any special matters that may arise before our Board from time to time, and takes action on behalf of the Board during intervals between meetings of the Board. However, the actions of the Executive Committee are subject to control, revision and alteration by the Board. The Executive Committee held three meetings in 2010.

 

Executive Compensation Committee.   The Executive Compensation Committee reviews and approves compensation for our executive officers, reviews and recommends to our Board compensation for directors, oversees the compensation and executive benefit plans under which such executive officers and directors receive benefits, reviews and discusses with management the Compensation Discussion and Analysis and produces the Compensation Committee Report in our annual proxy statement. The Executive Compensation Committee engages a compensation consultant to assist in the design of the compensation program and the review of its effectiveness, as further described below in the Compensation Discussion and Analysis section.

The President and Chief Executive Officer communicates to the Executive Compensation Committee decisions regarding compensation for executive officers other than himself and the Executive Chairman of the Board, and the Executive Compensation Committee delegates to senior management the authority to administer certain aspects of the compensation program for non-executive officers. In addition, the Executive Compensation Committee may form subcommittees of at least two members for any purpose it deems appropriate and may delegate to the subcommittees any of its power and authority that the Executive Compensation Committee deems appropriate. All of the members of the Executive Compensation Committee are independent as independence is currently defined in the NYSE listing standards in accordance with our Corporate Governance Guidelines. The Executive Compensation Committee held six meetings and took written action on one occasion in 2010.

 

Nominating and Corporate Governance Committee.   The Nominating and Corporate Governance Committee identifies individuals qualified to become members of our Board and recommends to our Board the persons to be nominated as directors at each annual meeting of shareholders; recommends to our Board qualified individuals to fill vacancies on our Board; reviews and recommends to our Board qualifications for committee membership and committee structure and operations; recommends directors to serve on each committee; develops and recommends to our Board corporate governance policies and procedures in compliance with the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act and other rules and regulations relating to our corporate governance; oversees compliance and approves any waivers of our Code of Business Conduct and Ethics with respect to officers and directors and leads our Board in its annual review of the performance of our Board. All of the members of the Nominating and Corporate Governance Committee are independent as independence is currently defined in the applicable federal securities laws and rules of the SEC and the NYSE listing standards in accordance with our Corporate Governance Guidelines. The Nominating and Corporate Governance Committee held four meetings and took written action on one occasion in 2010.

 

Pricing Committee.   The Pricing Committee is authorized to approve the timing, amount, price and terms of offerings of our debt and equity securities. The Pricing Committee held no meetings and took written action on eight occasions in 2010.

 

The Nominating and Corporate Governance Committee reviews annually with our Board the composition of our Board as a whole and recommends, if necessary, action to be taken so that our Board reflects the appropriate balance of knowledge, experience, skills, expertise and diversity required for our Board as a whole and contains at least the minimum number of independent directors required by applicable laws and regulations and our Corporate Governance Guidelines. The Nominating and Corporate Governance Committee is responsible for ensuring that the composition of our Board appropriately reflects the needs of our business and, in furtherance of this goal, proposing the addition of Directors and the necessary resignation of Directors for purposes of ensuring the requisite skill sets and commitment of the Directors to actively participate in Board and committee meetings. Directors should possess such attributes and experience as are necessary to provide a broad range of personal characteristics including diversity, management skills, and real estate and general business experience. Directors should commit the requisite time for preparation and attendance at regularly scheduled Board and committee meetings, as well as participate in other matters necessary to ensure we are well-positioned to engage in best corporate governance practices.

 

In evaluating a Director candidate, the Nominating and Corporate Governance Committee considers factors that are in the best interests of the company and its shareholders, including the knowledge, experience, integrity and judgment of each candidate; the potential contribution of each candidate to the diversity of backgrounds, experience and competencies that our Board desires to have represented; each candidate’s ability to devote sufficient time and effort to his or her duties as a director; independence and willingness to consider all strategic proposals; any other criteria established by our Board and any core competencies or real estate expertise necessary to staff Board committees. In addition, the Nominating and Corporate Governance Committee assesses whether a candidate possesses the integrity, judgment, knowledge, experience, skills and expertise that are likely to enhance our Board’s ability to oversee our affairs and business, including, when

applicable, to enhance the ability of committees of our Board to fulfill their duties. A description of the qualifications, skills and expertise that the Nominating and Corporate Governance Committee considered when nominating each of the director nominees nominated for election at the Annual Meeting is described above under ‘‘Proposal One: Election of Directors.”

 

The Nominating and Corporate Governance Committee will consider suggestions forwarded by shareholders to our Secretary concerning qualified candidates for election as directors. To recommend a prospective nominee for the Nominating and Corporate Governance Committee’s consideration, a shareholder may submit the candidate’s name and qualifications to our Secretary, David E. Weiss, at the following address: 3300 Enterprise Parkway, Beachwood, Ohio 44122. The Nominating and Corporate Governance Committee has not established specific minimum qualifications that a candidate must have to be recommended to our Board. However, in determining qualifications for new directors, the Nominating and Corporate Governance Committee will consider potential members’ qualifications to be independent under the NYSE listing standards in accordance with our Corporate Governance Guidelines, as well as integrity, judgment, knowledge, experience, skills and expertise as described above. The Nominating and Corporate Governance Committee will consider a pool of potential Board candidates established from recommendations from shareholders and third parties, including management and current directors. Although the Nominating and Corporate Governance Committee may retain a search consultant to supplement the pool of potential Board candidates, it has not engaged a consultant at this time.

 

In accordance with its written charter adopted by our Board, the Audit Committee assists our Board in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing and financial reporting practices. The Audit Committee meets at least quarterly to review quarterly or annual financial information prior to its release and inclusion in SEC filings. As part of each meeting, the Audit Committee has the opportunity to meet independently with management and our independent registered public accounting firm.

 

In discharging its oversight responsibility as to the audit process, the Audit Committee has received the written disclosures from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, has discussed with the independent registered public accounting firm any relationships that may impact its objectivity and independence, and has satisfied itself as to the independent registered public accounting firm’s independence.

 

The Audit Committee reviewed and discussed with the independent registered public accounting firm all communications required by generally accepted auditing standards, including the matters required to be discussed by the statement on Auditing Standards No. 114, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

 

The Audit Committee reviewed and discussed the audited financial statements of the company for the year ended December 31, 2010, with management and the independent registered public accounting firm. Management has the responsibility for the preparation of our financial statements, and the independent registered public accounting firm has the responsibility for the examination of those statements.

 

Based on the above-described review and discussions with management and the independent registered public accounting firm, the Audit Committee recommended to our Board that the company’s audited financial statements be included in its Annual Report on Form 10-K for the year ended December 31, 2010, for filing with the SEC.

 

Audit Committee
Scott D. Roulston, Chairman
James C. Boland
William B. Summers, Jr.

 

Executive Summary

 

The economic environment and U.S. retail real estate market of the past two years have presented our management and Board with significant challenges. We have responded to these challenges by placing greater strategic emphasis on operational excellence, which we describe as our new “prime” business strategy. Under our prime business strategy, we are focused on three primary objectives that position us to effectively compete: (1) maintaining a prime balance sheet relative to our peers, which means strengthening our credit metrics and reducing risk; (2) operating a prime portfolio, which means focusing on what we define as prime properties (in other words, market-dominant shopping centers populated by moderate- to budget-priced retailers with strong credit profiles and growing market share); and (3) maintaining a prime operating platform, which means improving property operating fundamentals such as increasing the cash flow from our properties.

 

To strengthen our balance sheet and reduce financial risk, we raised long-term capital, refinanced and extended the maturities of our remaining debt, and reduced our overall leverage ratios. To focus on our prime portfolio properties, our management and our Board completed a thorough strategic review of our portfolio, and reaffirmed our objective for the next several years to increase our ownership and operation of prime properties and to dispose of non-core assets that will not contribute to long-term earnings growth. To improve our operating platform, we have placed greater strategic emphasis on our operations by increasing the occupancy and revenue rates for our properties while controlling costs.

 

Implementing our prime business strategy has required changes in our company leadership, performance measurement processes and annual performance-based incentive compensation metrics. With respect to executive personnel, we promoted Daniel B. Hurwitz to the office of Chief Executive Officer, David J. Oakes to the office of Chief Financial Officer and John S. Kokinchak to the office of Chief Administrative Officer. In addition, Mr. Wolstein’s employment with the company will cease in July 2011 without cause. Effective April 11, 2011, Mr. Wolstein no longer serves as Executive Chairman of the Board and he resigned from the Board. Independent director Terrance R. Ahern will serve as Chairman of the Board, a non-executive officer position, until Mr. Ahern’s successor is duly appointed.

 

Our historical compensation philosophy has been to tie incentive pay to the performance we expect our management to achieve given the environment in which we compete for tenants and capital. In other words, we pay for performance. The Executive Compensation Committee of our Board, which we refer to as the Committee, sought to establish a key financial performance metric for 2010 for our annual performance-based incentive compensation program that would best define our success both externally to the investing community and internally to all of our employees. Based on an analysis prepared by the Committee’s compensation consultant, the measure selected was “Same Store EBITDA.”

 

During 2010, we made a significant change in how we measured performance by adopting a long-term annual growth target for our Same Store EBITDA performance metric included as part of our annual performance-based incentive compensation program. Going forward, all annual incentive-eligible employees will be measured, in large part, by our achievement with respect to Same Store EBITDA, as further discussed below. We also retained elements from our prior year’s annual performance-based incentive compensation program, including a relative total shareholder return performance metric (or Relative TSR) and the evaluation of clearly articulated individual performance goals. For 2010 comparative purposes, we evaluated our performance against a peer group of real estate investment trusts based on the dollar amount of assets under management. Going forward, beginning with 2011, we will modify our peer group to focus on retail real estate investment trusts with whom we most directly compete for talent, tenants, and capital.

 

We believe that we executed on our pay-for-performance philosophy for 2010. Based on a review of our named executive officers’ performance during 2010 against our Same Store EBITDA and relative total shareholder return performance metrics and the officers’ individual objectives, as explained in greater detail below, we paid annual performance-based cash incentives at the “target” level for Messrs. Hurwitz and

Wolstein, while Messrs. Oakes, Freddo and Kokinchak received annual performance-based cash incentives between the “target” and “maximum” levels.

 

Over the past 24 months, we have made substantial changes and improvements in our business strategy and our balance sheet, and have restructured our senior management team in order to serve the long-term interests of shareholders, customers, and employees. We also aligned our compensation programs with these strategic changes. In the remainder of this Compensation Discussion and Analysis below, we describe the philosophy and objectives that guide our approach to executive compensation and the design and implementation of our executive compensation program. We also describe and analyze our 2010 compensation decisions, including the decision to reward our named executive officers with annual performance-based incentives based on 2010 performance.

 

2010 Compensation Program Design

 

Compensation Philosophy and Objectives

 

The Committee believes our compensation packages should provide an incentive to our named executive officers to deliver a return to shareholders that, on average and over time, ranks among the highest delivered by our peers. Our compensation program rewards management for delivering superior returns and for improving the financial and non-financial measures of performance that enhance shareholder value.

 

Our goal is to attract and retain leading industry talent who will execute a strategy that provides opportunity to retailers, builds and sustains our core competencies and enables us to take advantage of new business opportunities. To that end, our annual performance-based incentive compensation program for our named executive officers is based primarily on three performance measures: growth in Same Store EBITDA; relative total shareholder return compared to our peer group of real estate investment trusts; and the achievement of strategic, business unit or individual objectives, as described further below.

 

Key Incentive Compensation Metrics

 

As discussed above, we selected Same Store EBITDA as our key operational performance metric for 2010. We believe Same Store EBITDA is an effective way to measure our performance both externally to the investment community and internally for all of our employees. EBITDA is earnings before interest, taxes, depreciation and amortization, which includes all overhead and administrative costs, but excludes interest expense and other non-operating items, such as the gain or loss on the sale of properties and asset impairments. Same Store EBITDA is further defined as profit from properties and other investments that we have owned for at least two consecutive years. Same Store EBITDA growth captures key property value drivers, such as occupancy rates, rental rates, and property expenses, and it also includes fee income and general and administrative expenses. At the same time, Same Store EBITDA is not impacted by financing decisions or current year acquisitions, and is a performance measure that is less prone to influence by financial engineering and strategies that rely on short-term debt and increased risk. Of further importance, every bonus-eligible employee can contribute to and is significantly focused on Same Store EBITDA growth through our incentive compensation program.

 

The Committee also adopted a long-term target annual growth rate for Same Store EBITDA. The target was set with the concurrence of management and was based on an analysis by Gressle & McGinley, LLC, the Committee’s compensation consultant. This annual long-term growth target reflects the economics of a retail-focused real estate investment trust such as our company. It is the Committee’s view that if management’s objective is to grow Same Store EBITDA year-over-year, it can produce strong annual performance while making decisions that are in the best long-term interest of the company and its shareholders.

 

In addition to Same Store EBITDA, the Committee also placed continued emphasis on delivering a high total shareholder return relative to our peers and achieving qualitative performance objectives established to execute the new business strategy. This is the basis of our annual performance-based incentive program. If management achieves the “target” level of performance on all metrics, an annual performance-based bonus equal to the “target” level will be awarded. At the same time, the Committee also adopted a performance level

for the “threshold” annual performance-based bonus award level and a performance level for the “maximum” annual performance-based bonus award level. If management achieves a performance level below the “threshold” level on all metrics, no annual performance-based bonuses will be awarded. Likewise, if achievement equals or exceeds the “maximum” level, annual performance-based bonuses equal to the “maximum” level will be paid.

 

Role of the Committee and Management in Executive Compensation

 

The Committee has overall responsibility for the compensation programs provided to our named executive officers. The Committee establishes financial performance metrics and targets used for annual performance-based bonuses, conducts an in-depth review of performance against objectives, reviews market pay practices as they relate to both cash-based and equity-based award programs and specifically approves compensation arrangements for Messrs. Wolstein and Hurwitz.

 

For the named executive officers other than Mr. Wolstein, Mr. Hurwitz sets the annual performance-based objectives and evaluates the performance against such objectives. Mr. Hurwitz makes a recommendation to the Committee for final awards of annual performance-based bonuses. Mr. Hurwitz also makes recommendations for base salary adjustments and awards under our equity-based compensation plans. Mr. Hurwitz’s recommendations to the Committee regarding the compensation for these named executive officers were based on his review of each officer’s individual role and performance.

 

Compensation Consultant

 

For 2010, the Committee retained Gressle & McGinley as its independent compensation consultant. Gressle & McGinley assisted the Committee in:

 

 

Peer Group

 

In 2010, the Committee continued to use the same 15 real estate investment trusts, or REITs, it used in prior years as its peer group for making compensation decisions. These particular REITs were originally chosen as the company’s peer group for comparison purposes based on their comparability in terms of real estate assets under management, or AUM, and included the principal REITs with whom we believed we compete for executive management talent. We refer to these 15 REITs as our peer group. The following are the public companies that comprised our peer group:

 

In 2010, we utilized our peer group for determining relative total shareholder return performance for purposes of our annual performance-based incentive compensation program. Relative total shareholder return is total shareholder return on an investment in our common shares compared to total shareholder return on an investment in the common shares of each company in our peer group. Total shareholder return is calculated for us and each REIT in our peer group by assuming a one-year hypothetical investment in the common shares of the respective entity. The value of the investment at the end of the one-year period, based on market value of the common shares and assuming the reinvestment of dividends, is compared to the value at the beginning of the period and expressed as a percentage return on the original investment. Based on the results, we determined our ranking relative to the peer group.

 

The Committee did not target a certain percentile of compensation provided by our peer group entities in making either total compensation decisions or decisions regarding individual compensation elements. However, the Committee used the AUM sample for comparative analysis in setting terms for the current employment agreements with Messrs. Hurwitz and Wolstein, which agreements were entered into during 2009 and will expire at the end of 2012, unless they are earlier terminated, as is the case with Mr. Wolstein. More specifically, in its deliberations, the Committee took into account the comparative analysis of total compensation as just one data point in its compensation decision-making process for those agreements. Further, the Committee’s decisions to set the ranges of total compensation at “threshold,” “target” and “maximum” levels for Messrs. Wolstein and Hurwitz were evaluated relative to total compensation levels of our peer group.

 

Principal Elements of Compensation

 

The following table summarizes the key elements of our executive compensation program for 2010:

 

 

Named Executive Officers

 

The following seven individuals are our named executive officers for 2010:

 

 

 

Analysis of Compensation Decisions and Actions

 

Annual Compensation

 

Base Salaries.   We pay salaries to our named executive officers to provide them with a base level of income for services rendered. For 2010, the named executive officers were parties to employment agreements with us that provided for minimum base salary amounts. The base salaries for 2010 for the named executive officers were determined in accordance with these contractual obligations and were originally established based on an analysis of the salaries paid to executives in comparable positions within our industry provided by Gressle & McGinley.

 

Upon his promotion to Chief Financial Officer in February 2010, Mr. Oakes received a promotional salary increase to $450,000 effective March 1, 2010, which compensated him for the added duties of being our Chief Financial Officer. Mr. Kokinchak’s base salary was increased to $280,000 effective March 1, 2010, in connection with his promotion and acceptance of additional responsibility as Senior Executive Vice President. The Committee and management determined that it was appropriate to provide no base salary increases to our other named executive officers for 2010. Mr. Schafer received his 2010 base salary only through February 15, 2010 due to his departure from the company.

 

The following table summarizes our named executive officers’ annual base salary rates for 2009 and 2010, and the year-over-year change in their base salary rates:

 

 

For more information on base salaries earned by our named executive officers, please refer to the 2010 Summary Compensation Table below.

 

Annual Performance-Based Incentive Compensation.   For 2010, we established annual performance-based incentive compensation opportunities for our named executive officers. These incentive compensation opportunities were linked to achievement against specific financial, strategic and operational metrics, and

those metrics were applied and weighted for the executives based upon their roles. The metrics and the applicable weightings for each executive were as follows:

 

 

Achievement against Same Store EBITDA and Relative TSR metrics was measured from a “threshold” level for performance below expectations to a “maximum” level for superior performance. We achieved Same Store EBITDA of $846.8 million, which was below both our “maximum” level of $872.6 million and “target” level of $855.5 million but above the “threshold” level of $838.4 million. We achieved Relative TSR performance that ranked 5th out of 16 REITs (including our company) in our peer group.

 

At the beginning of 2010, individual objectives were set for all named executive officers. The Committee set the objectives for Messrs. Hurwitz and Wolstein, the weighting of which is indicated in the 2010 Metric Weightings table above. For Mr. Hurwitz, the qualitative individual objectives included strategic planning and execution, leadership, management of human and capital resources, Board relations, and managing critical constituents such as investors and tenants. For Mr. Wolstein, the qualitative individual objectives included Board and CEO relations, international performance and the raising of private capital.

 

At the end of 2010, each Board member subjectively scored Messrs. Hurwitz and Wolstein in a blind survey on a scale of 1 (which meant “well below expectations”) to 5 (which meant “well above expectations”) for each qualitative objective. The weighted score yielded a qualitative assessment of Messrs. Hurwitz and Wolstein for annual performance-based bonus purposes. For example, a score of 3.0 (which meant “meets expectations”) would have equated to a “target” annual performance-based bonus, while a score of 1.0 (which meant “well below expectations”) would have resulted in no bonus. A score between 3.0 and 4.0 would be adjusted by interpolation to result in an annual performance-based bonus between “target” and “maximum” levels.

 

Based on an evaluation of Mr. Hurwitz’s 2010 performance as measured by relative total shareholder return, his individual objectives and Same Store EBITDA growth, the Committee recommended an annual performance-based bonus at the “target” level for Mr. Hurwitz. Based on an evaluation of Mr. Wolstein’s 2010 performance as measured by relative total shareholder return and his individual objectives, the Committee recommended an annual performance-based bonus at the “target” level for Mr. Wolstein.

 

Mr. Hurwitz set the individual objectives for the other eligible named executive officers at the beginning of 2010, as discussed below, and evaluated their performance against those objectives at the end of the year. This evaluation took place as part of the company’s year-end performance appraisal process. Messrs. Oakes, Freddo and Kokinchak were assessed to have achieved a “maximum” level of performance on their individual objectives. Ms. Allgood’s performance on individual objectives was established at the “target” level.

The individual objectives for the named executive officers reporting to Mr. Hurwitz at year-end were weighted as indicated in the 2010 Metric Weightings table above and consisted of the following:

 

 

Additionally for Messrs. Oakes, Freddo and Kokinchak and Ms. Allgood, a subjective assessment of overall performance by Mr. Hurwitz was performed at year-end. This assessment was undertaken as part of the company’s performance appraisal process. Individual assessments for 2010 were based upon our general business achievements during 2010, which included:

 

 

 

Mr. Hurwitz determined that Messrs. Oakes, Freddo and Kokinchak all performed at a superior level of performance in 2010 and therefore each achieved a “maximum” performance level on this metric. With regard to Ms. Allgood, her overall performance for the year was established at the “target” level. The weighting of this assessment for each executive is indicated above in the 2010 Metric Weightings table.

 

Payment for achievement of the four metrics described above was delivered in the form of cash or a mix of cash and equity awards. Below is a summary of the cash portion of the annual performance-based incentive compensation opportunities available and paid to each named executive officer for 2010:

 

 

After the annual performance-based cash incentive was calculated, the equity awards for eligible named executive officers were determined. Messrs. Oakes, Freddo and Kokinchak were eligible to receive equity awards. The value of their equity awards was calculated by taking the actual percentage achievement under the cash portion of the plan as a percentage of the “maximum” annual performance-based bonus potential available and applying it to the “maximum” bonus potential available under the equity portion of the annual incentive program. The resulting percentage is applied to the combined value of each executive’s annual performance-based cash incentive payment plus their base salaries at year-end. Messrs. Wolstein and Hurwitz do not receive such equity awards under the terms of their employment agreements. Due to their departures from the company in February 2010 and January 2011 respectively, Mr. Schafer and Ms. Allgood did not receive equity awards for 2010.

 

The table below summarizes the equity incentive opportunity available and granted for each of the eligible named executive officers (expressed both as a percentage of the sum of their annual performance-based bonus and salary and in actual dollars):

 

 

Consistent with past practice, 75% of the value of the annual equity award was awarded in the form of restricted shares and 25% of the value was awarded in the form of stock options, based on the value of our common shares as of the grant date. The first 20% of the restricted shares immediately vest at grant and the remainder of the restricted shares vests in equal annual installments over the next four years. The stock options vest in three equal annual installments beginning one year after the grant date. The following table

sets forth the number of restricted shares and stock options granted to each of Messrs. Oakes, Freddo and Kokinchak in February 2011 based on these equity incentive awards:

 

 

No restricted shares or stock options were granted to the named executive officers with respect to employment during 2010 other than the equity awards described above, the promotion awards, and the restricted shares received under the Value Sharing Equity Program, as further described below.

 

We believe that time-based vesting restricted shares provide significant retention incentives for our executive officers as they directly align the compensation interests of our executive officers with the investment interests of our shareholders. The holder of restricted shares has the right to receive dividends and to vote with respect to all restricted shares immediately upon their grant. We also believe that time-based vesting stock options are a valuable motivating tool and provide a long-term incentive to the executive officers because these officers will realize gain on their stock options only if our shareholders also recognize gain on their holdings of our shares. Prior to the exercise of an option, the holder has no rights as a shareholder with respect to the shares subject to such option, including voting rights and the right to receive dividends. Options are granted with an exercise price equal to the closing price of our common shares on the date of grant. We have never repriced any stock options or issued options with “reload” provisions. The number of options granted is determined by dividing the value of the annual equity incentive award earned by the value of an option based on the Black-Scholes valuation model.

 

Long-Term Equity Compensation

 

Promotion Equity Award to Mr. Hurwitz.   As of January 1, 2010, Mr. Hurwitz received a promotion equity award of 160,000 restricted shares upon assuming the duties of Chief Executive Officer, which award we refer to as his “promotion award.” Mr. Hurwitz did not receive an increase in base salary when assuming the duties of Chief Executive Officer, nor had he received an increase in base salary for the two years prior to this promotion. The promotion award continues to vest in annual 20% increments on each of January 1, 2012, 2013 and 2014, and 40% of the shares (64,000) have vested as of April 8, 2011. The promotion award is subject to accelerated vesting upon Mr. Hurwitz’s death, disability or the termination of his employment without cause within two years following a change in control of the company. The award is also subject to continued vesting upon a termination without cause and under certain other circumstances or at the end of the term of his employment agreement. This promotion equity award was negotiated between Mr. Hurwitz and the Committee during 2009 when the company entered into a revised employment agreement with Mr. Hurwitz.

 

Promotion Equity Award to Mr. Oakes.   As of February 22, 2010, Mr. Oakes received a promotion equity award of 50,000 restricted shares upon assuming the duties of Chief Financial Officer as part of our leadership succession plan. The promotion award continues to vest in annual 20% increments on each of February 22, 2012, 2013 and 2014, and 40% of the shares (20,000) have vested as of April 8, 2011. The promotion award is subject to accelerated vesting upon Mr. Oakes’s death, disability or the termination of his employment without cause within two years following a change in control of the company.

 

Value Sharing Equity Program.   In July 2009, our Board approved and adopted the Value Sharing Equity Program (which we refer to as the VSEP) and the grant of awards to our named executive officers under the VSEP and our equity-based award plans. The VSEP and the restricted shares granted under this program are subject to the terms of our 2008 equity plan. Under this program, we reward participants with a portion of the “value created” (in other words, the increase in our adjusted market capitalization over our market capitalization at the beginning of the program, as further described below) through periodic grants of restricted shares. The underlying principle of the VSEP is that management “shares” in the value it creates for shareholders. There are two design elements of this plan that are important to note. First, management shares in the “value creation” only if shareholders experience an increase in their investment, and second, if any increase in shareholder wealth is not sustainable over time, the value shared with management is diminished.

Each participant was assigned a “percentage share” of the value created. After the first measurement date of July 31, 2010, each participant received a number of restricted shares with an aggregate value equal to two-sevenths of the participant’s percentage share. After the second measurement date of January 31, 2011, each participant received a number of restricted shares that, when combined with the value of shares awarded on the first measurement date, had an aggregate value equal to three-sevenths of the participant’s percentage share. The percentage share assigned to each named executive officer, and the aggregate number of restricted shares granted to each named executive officer through the January 31, 2011 measurement date, are set forth in the table below:

 

 

On four future measurement dates (July 31, 2011; January 31, 2012; July 31, 2012; and December 31, 2012), we will measure the value created during the period between the start of the VSEP and the applicable measurement date. Value created will be measured as the increase in our market capitalization as adjusted for any equity issuances or equity repurchases between the start of the VSEP and the applicable measurement date.

 

After each of the next three measurement dates, each participant will receive a number of restricted shares with an aggregate value equal to four-sevenths, then five-sevenths and then six-sevenths, respectively, of the participant’s percentage share. After the final measurement date, each participant will receive a number of restricted shares with an aggregate value equal to the participant’s full percentage share. For each measurement date, however, the number of restricted shares awarded to a participant will be reduced by the number of restricted shares previously earned by the participant on the prior measurement dates. This will keep the participants from benefiting more than once for increases in our share price that occurred during earlier measurement periods.

 

The restricted shares granted to a participant are subject to an additional time-based vesting period during which the restricted shares granted on each measurement date will vest in 20% annual increments beginning on the date of grant and on each of the first four anniversaries of the date of grant.

 

Other Benefits and Information

 

Perquisites.   Pursuant to their employment agreements, the named executive officers received certain additional benefits during 2010. The Committee believes that these benefits are reasonable and consistent with its overall compensation program and better enable us to attract and retain superior executive talent.

 

Under their employment agreements, Messrs. Hurwitz, Oakes and Kokinchak and Ms. Allgood were entitled to the payment by us of their 2010 regular membership fees, assessments, and dues for, in the case of Messrs. Hurwitz, Oakes and Kokinchak, a local country club and, in the case of Ms. Allgood, a social club. Mr. Schafer was also entitled to similar payments under his employment agreement while he was employed by us during 2010 for a local country club. In addition, the employment agreements for each of our named executive officers provide for participation in health, life, disability and other insurance plans, sick leave, reasonable vacation time and other customary fringe benefits.

 

Retirement Benefits.   We have established a tax qualified 401(k) plan for our employees pursuant to which we, during 2010, made semi-monthly, matching contributions equal to 50% of each participant’s contribution, up to 6% of the sum of his or her base salary plus annual performance bonus, not to exceed the sum of 3% of the participant’s base salary plus annual performance bonus, subject to Internal Revenue Code limits.

 

Deferred Compensation Plan.   Our named executive officers are entitled to participate in our elective deferred compensation plan and our equity deferred compensation plan. Pursuant to the elective deferred compensation plan, executive officers can defer up to 100% of their base salaries and annual performance-based

bonuses, less applicable taxes and authorized benefits deductions. The elective deferred compensation plan is a non-qualified plan and is an unsecured, general obligation of the company and we have established and funded a “rabbi” trust to satisfy our payment obligations under this plan. We provide a matching contribution to any participant in a given year who has contributed the maximum permitted under our 401(k) plan. This matching contribution is equal to the difference between (1) 3% of the sum of the executive’s base salary and annual performance-based bonus deferred under the 401(k) plan and the elective deferred compensation plan, combined, and (2) the actual employer matching contribution provided under the 401(k) plan. Earnings on a participant’s deferred account are based on the results of the investment measurement options available in the plan that are selected by the participant. Settlement is generally made in cash at a date determined by the participant at the time a deferral election is made. Messrs. Hurwitz, Oakes, Freddo and Kokinchak and Ms. Allgood elected to defer a portion of their 2010 total annual cash compensation pursuant to the elective deferred compensation plan. For information on the value of annual cash compensation deferred by the named executive officers in 2010, please refer to the 2010 Summary Compensation Table and the 2010 Nonqualified Deferred Compensation Table below.

 

Equity Deferred Compensation Plan.   Pursuant to the equity deferred compensation plan, our executive officers, including the named executive officers, have the right to defer the receipt of restricted shares earned under any equity compensation plan. The value of a participant’s deferrals is converted into units, based on the market value of our common shares at the time of the deferral, so that each unit is equivalent in value to one common share. We have established and funded a “rabbi” trust, which holds our common shares, to satisfy our payment obligations under this plan. Common shares equal to the number of units credited to the participants’ accounts under the plans are placed in the rabbi trust. In the event of our insolvency, the assets of the rabbi trust are available to general creditors. Settlement of units is generally made in our common shares at a date determined by the participant at the time a deferral election is made. In 2010, Messrs. Hurwitz and Oakes deferred receipt of 57,121 and 19,174 restricted shares respectively.

 

Employment Agreements

 

During 2010, the company was a party to employment agreements with each of the named executive officers. The employment agreements with Mr. Schafer and Ms. Allgood terminated due to their departures from the company without cause in February 2010 and January 2011, respectively. In connection with these departures, we entered into a separation agreement and release with each of Mr. Schafer and Ms. Allgood under which we provided them with certain severance benefits and payments. In addition, Mr. Wolstein’s employment with the company will cease without cause in July 2011, and his employment agreement with the company will terminate, as further described below. More information concerning the terms of the employment agreements and the amounts payable pursuant to the employment agreements is provided in the narrative to the 2010 Grants of Plan-Based Awards Table below, and additional information concerning the separation arrangements and payments and benefits regarding these terminations is provided in the Potential Payments Upon Termination or Change in Control section below.

 

Change in Control Agreements

 

During 2010, the company was also a party to separate change in control agreements with Messrs. Oakes, Freddo, Kokinchak and Schafer and Ms. Allgood. Our change in control agreements with Mr. Schafer and Ms. Allgood terminated due to their departures from the company, and no payment was triggered under their change in control agreements. Under these agreements, certain benefits were payable by us if a “Triggering Event” occurs within two years after a “Change in Control” (each as defined in the agreements). In general, the Committee believes that the use of change in control agreements was appropriate because such agreements help insure a continuity of management during a potential change in control and help insure that management remains focused on completing a transaction that is likely to maximize shareholder value. Payments would only have been triggered if both a change in control occurred and the executive officer was terminated or effectively terminated, or if actions were taken that materially and adversely impacted the executive officer’s position with us or his or her compensation. The Committee believes that the payment of change in control compensation would be appropriate because the executive officer may have forgone other opportunities at the

time of the change in control. We are not a party to independent change in control agreements with Messrs. Wolstein and Hurwitz, as their employment agreements contain their change in control provisions, as further described below.

 

We continue to implement responsible pay practices. In 2011, we entered into new employment agreements with Messrs. Oakes, Freddo and Kokinchak that supersede, replace and combine their existing employment and change in control agreements. Consistent with best practices, these new employment agreements, among other revisions, removed certain provisions including historical excise tax gross-up provisions and replaced automatic renewal provisions with a fixed term. Additional information about the terms of the new employment agreements with these named executive officers and the amounts payable pursuant to the employment agreements is provided in the narrative to the 2010 Grants of Plan-Based Awards Table below.

 

Stock Ownership Guidelines

 

Under the stock ownership guidelines established by our Board, each named executive officer must own common shares or common share equivalents with an aggregate market value of no less than the sum of the officer’s annual salary and annual performance-based cash bonus for the immediately preceding year no later than the fourth anniversary of the March 15th on which the officer received his or her first grant of common share equivalents, and on each anniversary date thereafter. Our Board established this particular level of stock ownership for our executive officers because it is reasonable evidence of management’s continuing commitment to have the interests of our executive officers aligned with the investment interests of our shareholders. During an initial four-year phase-in period, each executive officer is expected to acquire 25% of the amount of required common shares or common share equivalents during each year in order to satisfy the stock ownership guidelines. Unvested restricted shares and shares deferred into our equity deferred compensation plan will count as common share equivalents toward satisfying the stock ownership guidelines. All of our named executive officers met the company’s established stock ownership guidelines as of March 15, 2011.

 

Margin Policy

 

In 2010, our Board adopted a policy prohibiting our directors and executive officers from (1) engaging in certain hedging transactions involving the company’s stock and (2) pledging company stock as collateral for a loan because the Board determined that such a policy is in the best interests of the company and our shareholders. The policy provides a phase-in period of five years, with regard to arrangements that existed at the time the policy became effective. Currently all named executive officers and directors are in compliance with the company’s policy. Mr. Wolstein and Mr. Macnab currently maintain certain margin arrangements that are subject to the policy’s phase-in provisions.

 

Tax and Accounting Implications

 

Impact of Section 162(m) of the Internal Revenue Code.   We have made an election to qualify as a real estate investment trust under the Internal Revenue Code, and as such generally will not be subject to federal income tax. Thus, the deduction limit for compensation paid to the chief executive officer and the three other most highly compensated executive officers, other than the chief financial officer, of a public company contained in Section 162(m) of the Internal Revenue Code is not material to the design and structure of our executive compensation program.

Compensation Committee Report

 

The Executive Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the Executive Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and the proxy statement for the 2011 Annual Meeting of Shareholders for filing with the Securities and Exchange Commission.

 

Executive Compensation Committee
Robert H. Gidel, Chairman
James C. Boland
Victor B. MacFarlane
Barry A. Sholem

Compensation Committee Interlocks and Insider Participation

 

None of our executive officers serves or has served on the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board or Executive Compensation Committee.

 

The senior management team, specifically through management’s compensation committee, regularly reviews the risks related to our compensation policies and practices across the company. This management compensation committee is regularly provided with information that allows it to review and discuss our policies and practices as they relate to company-wide compensation programs and the potential creation of any risks that are likely to have a material adverse impact on the company. The management compensation committee also reviews the specific performance measures relating to any of the company’s annual performance-based bonus metrics and our long-term incentive programs to assess any potential risks. In the process of conducting this internal review, the management compensation committee also considers best practice information from our peer companies, as provided by our human resources department or Gressle & McGinley.

 

The Committee has overall responsibility for overseeing the risks relating to compensation policies and practices affecting senior management. The Committee uses its consultant, Gressle & McGinley to independently consider and analyze the extent, if any, to which our compensation policies and practices might create risks for the company, and this review also focused on variable and incentive compensation elements, as well as policies and practices that could mitigate or balance any such incentives.

 

After conducting these reviews, including most recently in early 2011, both the Committee and management compensation committee have determined that none of our compensation policies and practices create any risks that are reasonably likely to have a material adverse effect on the company.

Executive Compensation Tables and Related Disclosure

 

2010 Summary Compensation Table

 

 

 

 

 

 

None of the amounts reported for the named executive officers for 2010 in column (h), if not a perquisite or personal benefit, exceeds $10,000 or, if a perquisite or personal benefit, exceeds the greater of $25,000 or 10% of the total amount of perquisites and personal benefits, except as disclosed in this footnote.

 

2010 Grants of Plan-Based Awards Table

 

 

 

 

Employment Agreements

 

Employment Agreements with Messrs. Hurwitz and Wolstein.   We are a party to employment agreements with Messrs. Hurwitz and Wolstein, and the terms of the employment agreements are described below. As announced in February 2011, Mr. Wolstein’s employment with the company will cease without cause in July 2011, and his employment agreement with the company will terminate.

 

The term of the employment agreements between each of Messrs. Hurwitz and Wolstein and us runs from July 29, 2009 through December 31, 2012, unless their employment is earlier terminated under the employment agreement, as is the case with Mr. Wolstein. The employment agreements provide for minimum base salaries, subject to increases approved by the Committee, of $616,000 for Mr. Hurwitz and $875,000 for Mr. Wolstein. Messrs. Hurwitz and Wolstein are entitled to participate in our broad-based retirement and other benefit plans, including our 401(k) plan and our deferred compensation program, and are also entitled to receive the medical and dental insurance coverage and benefits maintained by us during the term that are generally available to our other employees. We will also provide disability insurance coverage (or self-insure such coverage) for Mr. Hurwitz during the term while Mr. Hurwitz is employed by us of at least $25,000 per month through age 65 and for Mr. Wolstein during the term while Mr. Wolstein is employed by us of at least $46,500 per month through age 65.

 

Under the employment agreements, Messrs. Hurwitz and Wolstein are entitled to annual performance-based cash bonuses equal to a percentage of their year-end base salaries as determined by the Committee. The respective “threshold,” “target” and “maximum” annual cash bonus opportunities, as a percentage of year-end base salary, are: for Mr. Hurwitz, 200%, 300% and 400%; and for Mr. Wolstein, 250%, 375% and 500%. The Committee establishes the performance factors and criteria relevant for determination of such annual cash bonuses from time to time. There are no guaranteed annual cash bonuses under the employment agreements.

 

Each employment agreement may be terminated under a variety of circumstances, including Messrs. Hurwitz or Wolstein’s death. Our Board may terminate each employment agreement for “cause” if Messrs. Hurwitz or Wolstein engages in certain specified conduct, if he is disabled for a specified period of time or at any other time without cause by giving him at least 90 days’ prior written notice. Each of Messrs. Hurwitz or Wolstein may also terminate his employment agreement for “good reason” in certain specified circumstances or at any other time without good reason by giving us at least 90 days’ prior written notice.

 

Messrs. Hurwitz and Wolstein are entitled under the employment agreements to certain additional payments and benefits in the event of certain termination circumstances. If Messrs. Hurwitz or Wolstein is terminated by our Board without cause or he terminates his employment for good reason during the term (and the termination is not in connection with a change in control (as defined in the employment agreements)), he

is entitled to receive: (1) accrued but unpaid base salary and his prior year’s annual cash bonus to the extent not paid; (2) a lump sum amount equal to (A) if the termination occurred during 2010, two times the sum of his base salary as of the termination date plus his “target” annual cash bonus opportunity for the year in which the termination date occurs, (B) if the termination occurs during 2011, the sum of his base salary for the period after the termination date through the end of the term plus two times his “target” annual cash bonus opportunity for 2011 or (C) if the termination occurs during 2012, the sum of his base salary for the period after the termination date through the end of the term plus his “target” annual cash bonus opportunity for 2012; and (3) continued health and welfare benefits for him and his eligible dependents through the earlier of the first anniversary of the termination date and the end of the term. Additionally, in the event of such termination, subject to the terms of applicable equity plans, Messrs. Hurwitz or Wolstein’s unvested time-based equity awards and earned but unvested long-term equity incentive awards (including those under the VSEP) will remain outstanding and continue to vest according to their original vesting terms, subject to our Board’s discretion to cash-out such equity awards. Upon the termination of Mr. Wolstein’s employment agreement without cause in July 2011, he will be entitled to receive the amounts and benefits described above.

 

If either Mr. Hurwitz or Mr. Wolstein is terminated by reason of his death during the term, his estate or beneficiaries are entitled to receive his accrued but unpaid base salary and his prior year’s annual cash bonus to the extent not paid, and his eligible dependents are entitled to receive continued health and welfare benefits through the earlier of the first anniversary of the termination date and the end of the term. Additionally, Mr. Hurwitz’s estate or beneficiaries are entitled to receive a lump sum amount equal to $2.5 million either from us or as a life insurance payment. If Messrs. Hurwitz or Wolstein is terminated due to disability during the term, he is entitled to receive: (1) his accrued but unpaid based salary and his prior year’s annual cash bonus to the extent not paid; and (2) continued health and welfare benefits for him and his eligible dependents through the earlier of the first anniversary of the termination date and the end of the term. Certain of these termination payments and benefits described above are subject to execution of a general release of claims against us or our waiver of such release.

 

Under the employment agreements, the following payments and benefits are payable by us to Messrs. Hurwitz or Wolstein if a “Triggering Event” occurs during the term: (1) accrued but unpaid base salary and his prior year’s annual cash bonus to the extent not paid; (2) a lump sum amount equal to (A) if the termination occurs during either 2009 or 2010, two times the sum of his base salary as of the termination date plus his “target” annual cash bonus opportunity for the year in which the termination date occurs, (B) if the termination occurs during 2011, the sum of his base salary for the period after the termination date through the end of the term plus two times his “target” annual cash bonus opportunity for 2011, or (C) if the termination occurs during 2012, the sum of his base salary for the period after the termination date through the end of the term plus his “target” annual cash bonus opportunity for 2012; and (3) continued health and welfare benefits for him and his eligible dependents through the earlier of the first anniversary of the termination date and the end of the term. Additionally, under such circumstances, subject to the terms of applicable equity plans, Messrs. Hurwitz or Wolstein’s unvested time-based equity awards and earned but unvested long-term equity incentive awards (including those under the VSEP) will remain outstanding and continue to vest according to their original vesting terms, subject to our Board’s discretion to cash-out such equity awards. Under these circumstances, we will also be deemed to have waived any requirement for a general release of claims against us.

 

The terms “change in control” and “Triggering Event” are defined in the employment agreements. Change in control generally means the occurrence during the term of certain events including consummation of a merger or consolidation in which we are not the surviving entity, a sale of substantially all of our assets, or the liquidation or dissolution of the company and certain significant changes in the ownership of our outstanding securities or in the composition of our Board. For each of Messrs. Hurwitz and Wolstein, a Triggering Event means certain situations specified in his employment agreement and occurring during the term in which, within two years (for Mr. Hurwitz) or three years (for Mr. Wolstein) after a change in control, he is terminated or terminates his employment as a result of certain adverse impacts on his position with us or compensation.

The employment agreements also contain a confidentiality covenant regarding our proprietary information that runs for the duration of the term plus two years, a non-solicitation covenant that runs for the duration of the term and other provisions generally designed to ensure compliance with Section 409A of the Internal Revenue Code. Mr. Hurwitz is also subject to a noncompetition covenant for the duration of the term that covers the four largest real estate investment trusts (excluding us) based on market capitalization that focus primarily on neighborhood and community shopping centers (subject to a one percent public equity ownership exception). Additionally, under the terms of Mr. Wolstein’s employment agreement, if Mr. Wolstein’s employment is terminated during the term other than by our Board for cause, by Mr. Wolstein without good reason, or by reason of his death, he will be entitled to continued use of office space, office support and secretarial services at our expense until the earliest of the end of the term, his death, the date he begins other employment, or the third anniversary of his termination date. In connection with the termination without cause of Mr. Wolstein’s employment agreement, we have agreed to provide Mr. Wolstein a lump sum amount of $300,000 in satisfaction of this company obligation.

 

As a result of our termination of Mr. Wolstein’s employment under his employment agreement without “cause,” Mr. Wolstein will receive certain payments and other benefits from us pursuant to his employment agreement and certain benefits pursuant to our 2008 equity plan and our benefit and retirement plans. These payments and benefits include: $7,871,719 as his contractual severance payment; one year of health benefits; the vesting of 94,387 common shares previously earned and granted to Mr. Wolstein in accordance with our 2008 equity plan; a cash payment in lieu of common shares previously earned and granted to Mr. Wolstein in an amount equal to his statutory minimum termination withholding tax obligations for his equity awards; $160,000 in connection with his waiver to stand for re-election to the Board at the Annual Meeting; the continuing office support payment described above; and $30,000 for the fees of legal and other advisors.

 

Prior Employment Agreements with Messrs. Oakes, Freddo, Kokinchak and Schafer and Ms. Allgood.   During 2010, we were also a party to employment agreements with the other named executive officers. The employment agreements with Mr. Schafer and Ms. Allgood terminated due to their respective departures from the company in 2010 and 2011.

 

Until replaced by new employment agreements as described below, each of the employment agreements with Messrs. Oakes, Freddo, Kokinchak and Schafer and Ms. Allgood contained an “evergreen” provision that provided for an automatic extension of the agreement for an additional year at the end of each fiscal year, subject to the parties’ termination rights. We could terminate the agreements by giving each officer 90 days’ prior written notice. The agreements provided for minimum base salaries as disclosed in Compensation Discussion and Analysis section above. Messrs. Schafer and Oakes were entitled to the payment by us of regular membership fees, assessments, and dues for a local country club and Ms. Allgood was entitled to the payment by us of such fees for a social club. In addition, the employment agreements provided for participation in health, life, disability and other insurance plans, sick leave, reasonable vacation time and other customary fringe benefits.

 

Pursuant to their prior employment agreements, each of Messrs. Freddo, Oakes, Kokinchak and Schafer and Ms. Allgood was entitled to an annual performance-based bonus equal to a percentage of his or her base salary. See “Compensation Discussion and Analysis — Analysis of Compensation Decisions and Actions — Annual Compensation” above for a discussion of the methods used to determine these annual performance-based bonuses and each named executive officer’s “threshold,” “target” and “maximum” annual performance-based bonus opportunity. If the named executive officer’s employment was terminated by us without cause, or by the named executive officer for good reason, he or she was entitled to receive a payment equal to his or her annual salary plus a pro rata portion (through the date of termination) of the annual performance bonus he or she would have earned based on actual results for the applicable year and continued life, disability and medical insurance for a period of one year following such termination.

 

In the cases of Messrs. Oakes, Freddo, Kokinchak and Schafer and Ms. Allgood, the prior employment agreements also provided that, to the extent that any of the payments to be made under the employment agreements or the change in control agreements discussed below (together with all other payments of cash or property, whether pursuant to the agreements or otherwise), constituted “excess parachute payments” under certain tax laws, we would pay to the executive officer such additional amounts as were necessary to cause him or her to receive the same after-tax compensation that he or she would have received but for the

application of such tax laws. This provision was subsequently eliminated in the new employment agreements as described below.

 

Current Employment Agreements with Messrs. Oakes, Freddo and Kokinchak.   In April 2011, we entered into new employment agreements with Messrs. Oakes, Freddo and Kokinchak. The new employment agreements, among other things, eliminated the tax gross-up entitlements that these officers had under their prior employment and change in control agreements. The new employment agreements also increased the threshold for triggering a change in control as a result of the acquisition of beneficial ownership of our outstanding securities from 20% or more to 30% or more of the voting power of our outstanding securities without the prior consent of our Board, which threshold is now consistent with that under Mr. Hurwitz’s employment agreement. These new employment agreements are materially consistent with the terms of our employment agreement with Mr. Hurwitz, except that:

 

 

Outstanding Equity Awards at 2010 Fiscal Year-End Table