Filed Pursuant To Rule 424(b)(5)
Registration No. 333-162451
CALCULATION OF REGISTRATION FEE
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Title of Each Class of
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Proposed Maximum
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Securities To Be Registered
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Aggregate Offering Price
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Amount of Registration Fee
(1)
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Common Shares
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$200,000,000
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$11,160.00
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(1)
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This filing fee is calculated in accordance with Rule 457(r) and relates to the Registration
Statement on Form S-3 (No. 333-162451) filed by Developers Diversified Realty Corporation on
October 13, 2009.
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PROSPECTUS
SUPPLEMENT
(To Prospectus Dated October 13, 2009)
Developers
Diversified Realty Corporation
Common
Shares
We may offer and sell up to $200,000,000 of our common shares
from time to time through BNY Mellon Capital Markets, LLC, or
BNYMCM, as our agent under a sales agency financing agreement.
The common shares will be offered at market prices prevailing at
the time of sale. We will pay BNYMCM a commission equal to 1.0%
of the sales price of all common shares sold through it as our
agent.
Our common shares are listed on the New York Stock Exchange
under the symbol DDR. The last reported sales price
of our common shares on November 6, 2009 was $7.91 per
share.
Investing in our common shares involves risks. Before
investing in our common shares, you should carefully read the
discussion of material risks of investing in our common shares
on
page S-1
of this prospectus supplement under the heading Risk
Factors, as well as the risk factors discussed in the
documents we file with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, and which we
incorporate into this prospectus supplement by reference.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
BNY
Mellon Capital Markets, LLC
The date of this prospectus supplement is November 9,
2009.
TABLE OF
CONTENTS
Prospectus Supplement
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Page
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ii
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ii
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S-1
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S-1
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S-1
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S-1
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S-9
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S-11
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S-25
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S-26
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S-26
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S-26
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S-26
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Prospectus
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We have not authorized any dealer, salesperson or other
person to give any information or to make any representation
other than those contained or incorporated by reference into
this prospectus supplement and the accompanying prospectus or in
any free writing prospectus that we may provide. You must not
rely upon any information or representation not contained or
incorporated by reference into this prospectus supplement, the
accompanying prospectus or in any free writing prospectus that
we may provide as if we had authorized it. This prospectus
supplement and the accompanying prospectus do not constitute an
offer to sell or the solicitation of an offer to buy any
securities other than the registered securities to which they
relate. Nor do this prospectus supplement and the accompanying
prospectus constitute an offer to sell or the solicitation of an
offer to buy securities in any jurisdiction to any person to
whom it is unlawful to make such offer or solicitation in such
jurisdiction. You should not assume that the information
contained in this prospectus supplement, the accompanying
prospectus and the documents incorporated herein and therein by
reference is correct on any date after their respective dates,
even though this prospectus supplement and the accompanying
prospectus are delivered or securities are sold on a later date.
Our business, financial condition and results of operations may
have changed since those dates.
ABOUT
THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of the offering of our
common shares under a sales agency financing agreement. The
second part is the accompanying prospectus, dated
October 13, 2009, which we refer to as the
accompanying prospectus. Generally, when we refer to
this prospectus, we are referring to both this prospectus
supplement and the accompanying prospectus combined. The
accompanying prospectus contains a description of our common
shares and gives more general information, some of which may not
apply to the common shares. To the extent there is a conflict
between the information contained in this prospectus supplement,
on the one hand, and the information contained in the
accompanying prospectus or any document that has previously been
filed and is incorporated into this prospectus by reference, on
the other hand, the information in this prospectus supplement
shall control.
Before you invest in our common shares, you should carefully
read the registration statement (including the exhibits thereto)
of which this prospectus forms a part, this prospectus and the
documents incorporated by reference into this prospectus. The
incorporated documents are described in this prospectus
supplement under Where You Can Find More Information
and Incorporation by Reference of Certain
Information.
Unless otherwise indicated or unless the context requires
otherwise, all references in this prospectus to we,
us, our, the Company or
DDR mean Developers Diversified Realty Corporation
and all entities owned or controlled by Developers Diversified
Realty Corporation.
FORWARD-LOOKING
INFORMATION
This prospectus and the documents we incorporate by reference
contain forward-looking information, as defined in
the Private Securities Litigation Reform Act of 1995, that is
based on current expectations, estimates and projections.
Forward-looking information includes, without limitation,
statements related to acquisitions (including any related pro
forma financial information) and other business development
activities, future capital expenditures, financing sources and
availability and the effects of environmental and other
regulations. Although we believe that the expectations reflected
in those forward-looking statements are based upon reasonable
assumptions, we can give no assurance that our expectations will
be achieved. For this purpose, any statements contained herein
that are not statements of historical fact should be deemed to
be forward-looking statements. Without limiting the foregoing,
the words will, believes,
anticipates, plans, expects,
seeks, estimates, projects,
intends, potential,
forecasts and similar expressions are intended to
identify forward-looking statements. You should exercise caution
in interpreting and relying on forward-looking statements
because they involve known and unknown risks, uncertainties and
other factors that are, in some cases, beyond our control and
that could cause actual results to differ materially from those
expressed or implied in the forward-looking statements and could
materially affect our actual results, performance or
achievements. You are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the
date on which they were made. We expressly state that we have no
current intention to update any forward-looking statements,
whether as a result of new information, future events or
otherwise, unless required by law.
Factors that could cause actual results, performance or
achievements to differ materially from those expressed or
implied by forward-looking statements include, but are not
limited to, the following:
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We are subject to general risks affecting the real estate
industry, including the need to enter into new leases or renew
leases on favorable terms to generate rental revenues, and the
current economic downturn may adversely affect the ability of
our tenants, or new tenants, to enter into new leases or the
ability of our existing tenants to renew their leases at rates
at least as favorable as their current rates;
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We could be adversely affected by changes in the local markets
where our properties are located, as well as by adverse changes
in national economic and market conditions;
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We may fail to anticipate the effects on our properties of
changes in consumer buying practices, including catalog sales
and sales over the Internet and the resulting retailing
practices and space needs of our tenants or a general downturn
in our tenants businesses, which may cause tenants to
close stores;
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We are subject to competition for tenants from other owners of
retail properties, and our tenants are subject to competition
from other retailers and methods of distribution. We are
dependent upon the successful operations and financial condition
of our tenants, in particular of our major tenants, and could be
adversely affected by the bankruptcy of those tenants;
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We rely on major tenants, which make us vulnerable to changes in
the business and financial condition of, or demand for our
space, by such tenants;
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We may fail to dispose of properties on favorable terms. In
addition, real estate investments can be illiquid, particularly
as prospective buyers may experience increased costs of
financing or difficulties obtaining financing, and could limit
our ability to promptly make changes to our portfolio to respond
to economic and other conditions;
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We may not realize the intended benefits of acquisition or
merger transactions. The acquired assets may not perform as well
as we anticipated, or we may not successfully integrate the
assets and realize the improvements in occupancy and operating
results that we anticipate. The acquisition of certain assets
may subject us to liabilities, including environmental
liabilities;
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We may fail to identify, acquire, construct or develop
additional properties that produce a desired yield on invested
capital, or may fail to effectively integrate acquisitions of
properties or portfolios of properties. In addition, we may be
limited in our acquisition opportunities due to competition, the
inability to obtain financing on reasonable terms or any
financing at all and other factors;
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We may abandon a development opportunity after expending
resources if we determine that the development opportunity is
not feasible due to a variety of factors, including a lack of
availability of construction financing on reasonable terms, the
impact of the current economic environment on prospective
tenants ability to enter into new leases or pay
contractual rent, or our inability to obtain all necessary
zoning and other required governmental permits and
authorizations;
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We may not complete development projects on schedule as a result
of various factors, many of which are beyond our control, such
as weather, labor conditions, governmental approvals, material
shortages or general economic downturn resulting in limited
availability of capital, increased debt service expense and
construction costs and decreases in revenue;
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Our financial condition may be affected by required debt service
payments, the risk of default and restrictions on our ability to
incur additional debt or enter into certain transactions under
our credit facilities and other documents governing our debt
obligations. In addition, we may encounter difficulties in
obtaining permanent financing or refinancing existing debt.
Borrowings under our revolving credit facilities are subject to
certain representations and warranties and customary events of
default, including any event that has had or could reasonably be
expected to have a material adverse effect on our business or
financial condition;
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Changes in interest rates could adversely affect the market
price of our common shares, as well as our performance and cash
flow;
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Debt
and/or
equity financing for us to continue to grow and operate our
business may not be available or may not be available on
favorable terms or at all;
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Recent disruptions in the financial markets could affect our
ability to obtain financing on reasonable terms and have other
adverse effects on us and the market price of our common shares;
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We are subject to complex regulations related to our status as a
real estate investment trust, or REIT, and would be adversely
affected if we failed to qualify as a REIT;
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We must make distributions to shareholders to continue to
qualify as a REIT, and if we must borrow funds to make
distributions, those borrowings may not be available on
favorable terms or at all;
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Joint venture investments may involve risks not otherwise
present for investments made solely by us, including the
possibility that a partner or co-venturer may become bankrupt,
may at any time have different interests or
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goals than ours and may take action contrary to our
instructions, requests, policies or objectives, including our
policy with respect to maintaining our qualification as a REIT.
In addition, a partner or co-venturer may not have access to
sufficient capital to satisfy its funding obligations to the
joint venture. The partner could default on the loans outside of
our control. Furthermore, if the current constrained credit
conditions in the capital markets persist or deteriorate
further, we could be required to reduce the carrying value of
our equity method investments if a loss in the carrying value of
the investment is an other than temporary decline;
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The outcome of pending or future litigation, including
litigation with tenants or joint venture partners, may adversely
effect our results of operations and financial condition;
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We may not realize anticipated returns from our real estate
assets outside the United States. We expect to continue to
pursue international opportunities that may subject us to
different or greater risks than those associated with our
domestic operations. We own assets in Puerto Rico, an interest
in an unconsolidated joint venture that owns properties in
Brazil and an interest in consolidated joint ventures that were
formed for the purpose of developing and owning properties in
Canada, Russia and Ukraine;
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International development and ownership activities carry risks
that are different from those we face with our domestic
properties and operations. These risks include:
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Adverse effects of changes in exchange rates for foreign
currencies;
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Changes in foreign political or economic environments;
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Challenges of complying with a wide variety of foreign laws
including tax laws and addressing different practices and
customs relating to corporate governance, operations and
litigation;
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Different lending practices;
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Cultural and consumer differences;
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Changes in applicable laws and regulations in the United States
that affect foreign operations;
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Difficulties in managing international operations; and
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Obstacles to the repatriation of earnings and cash;
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Although our international activities are currently a relatively
small portion of our business, to the extent we expand our
international activities, these risks could significantly
increase and adversely affect our results of operations and
financial condition;
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We are subject to potential environmental liabilities;
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We may incur losses that are uninsured or exceed policy coverage
due to our liability for certain injuries to persons, property
or the environment occurring on our properties; and
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We could incur additional expenses in order to comply with or
respond to claims under the Americans with Disabilities Act or
otherwise be adversely affected by changes in government
regulations, including changes in environmental, zoning, tax and
other regulations.
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iv
THE
COMPANY
We are a self-administered and self-managed REIT engaged in the
business of acquiring, expanding, owning, developing,
redeveloping, leasing, managing and operating shopping centers
and enclosed malls.
Our executive offices are located at 3300 Enterprise Parkway,
Beachwood, Ohio 44122, and our telephone number is
(216) 755-5500.
Our website is located at
http://www.ddr.com.
Information on or accessible through our website is not part of,
or incorporated by reference into, this prospectus.
RISK
FACTORS
An investment in our common shares involves a high degree of
risk. You should carefully consider the risks described in
Item 1A Risk Factors of our most
recent Annual Report on
Form 10-K
that has been filed with the Securities and Exchange Commission,
or SEC, and incorporated herein by reference in its entirety, as
well as other information in this prospectus and in any other
documents incorporated into this prospectus by reference before
purchasing any of our common shares. Each of the risks described
in these sections and documents could adversely affect our
business, financial condition and results of operations, and
could result in a complete loss of your investment. This
prospectus and the incorporated documents also contain
forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of
certain factors, including the risks mentioned above.
USE OF
PROCEEDS
We intend to use the net proceeds from the sale of our common
shares pursuant to the sales agency financing agreement for
working capital and general corporate purposes including, but
not limited to: the repayment of our indebtedness; the
redemption of outstanding securities; the acquisition or
development of properties (including using the net proceeds for
possible portfolio or asset acquisitions or in business
combinations or joint ventures) as suitable opportunities arise;
and the expansion and improvement of certain properties in our
portfolio.
DESCRIPTION
OF PREFERRED SHARES
Capitalization
Our articles of incorporation authorize us to issue up to:
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750,000 Class A Cumulative Preferred Shares, without par
value, or the Class A Shares, of which 460,000 shares
have been designated as
9
1
/
2
%
Class A Cumulative Redeemable Preferred Shares;
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750,000 Class B Cumulative Preferred Shares, without par
value, or the Class B Shares, of which 177,500 shares
have been designated as 9.44% Class B Cumulative Redeemable
Preferred Shares;
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750,000 Class C Cumulative Preferred Shares, without par
value, or the Class C Shares, of which 460,000 shares
have been designated as
8
3
/
8
%
Class C Cumulative Redeemable Preferred Shares;
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750,000 Class D Cumulative Preferred Shares, without par
value, or the Class D Shares, of which 230,000 shares
have been designated as 8.68% Class D Cumulative Redeemable
Preferred Shares;
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750,000 Class E Cumulative Preferred Shares, without par
value, or the Class E Shares, of which 750,000 shares
have been designated as Class E Series I Cumulative
Preferred Shares;
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750,000 Class F Cumulative Preferred Shares, without par
value, or the Class F Shares, of which 690,000 shares
have been designated as 8.60% Class F Cumulative Redeemable
Preferred Shares;
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750,000 Class G Cumulative Preferred Shares, without par
value, or the Class G Shares, of which 736,000 shares
have been designated as 8% Class G Cumulative Redeemable
Preferred Shares;
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750,000 Class H Cumulative Preferred Shares, without par
value, or the Class H Shares, of which 410,000 shares
have been designated as
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3
/
8
%
Class H Cumulative Redeemable Preferred Shares;
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S-1
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750,000 Class I Cumulative Preferred Shares, without par
value, or the Class I Shares, of which 345,000 shares
have been designated as 7.50% Class I Cumulative Redeemable
Preferred Shares;
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750,000 Class J Cumulative Preferred Shares, without par
value, or the Class J Shares, of which 450,000 shares
have been designated as 9% Class J Cumulative Redeemable
Preferred Shares;
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750,000 Class K Cumulative Preferred Shares, without par
value, or the Class K Shares, of which 350,000 shares
have been designated as
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7
/
8
%
Class K Cumulative Redeemable Preferred Shares;
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750,000 Noncumulative Preferred Shares, without par value, or
the noncumulative shares; and
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2,000,000 Cumulative Voting Preferred Shares, without par value,
or the cumulative voting preferred shares.
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General
We refer to the Class A Shares, the Class B Shares,
the Class C Shares, the Class D Shares, the
Class E Shares, the Class F Shares, the Class G
Shares, the Class H Shares, the Class I Shares, the
Class J Shares, the Class K Shares and the
noncumulative shares collectively as the nonvoting preferred
shares.
The outstanding nonvoting preferred shares are represented by
depositary shares. Each depositary share represents a fractional
interest in the respective preferred share. The preferred shares
have been deposited with a depositary, under a deposit agreement
between us, the depositary and the holders from time to time of
the depositary receipts issued under the deposit agreement. The
depositary receipts evidence the depositary shares. Each holder
of a depositary receipt evidencing a depositary share will be
entitled to all the rights and preferences of a fractional
interest in a corresponding preferred share, including dividend,
voting, redemption and liquidation rights and preferences.
The following description summarizes certain general terms and
provisions of each class of nonvoting preferred shares and the
cumulative voting preferred shares. This summary may not contain
all of the information that is important to you. For more
detail, you should refer to the applicable provisions of our
articles of incorporation and code of regulations that are filed
as exhibits to the registration statement of which this
prospectus forms a part.
Except as discussed below, the nonvoting preferred shares rank
on a parity with each other and are identical to each other. The
cumulative voting preferred shares rank equally, except with
respect to voting rights, with all of the nonvoting preferred
shares. Dividends on the Class A Shares, the Class B
Shares, the Class C Shares, the Class D Shares, the
Class E Shares, the Class F Shares, the Class G
Shares, the Class H Shares, the Class I Shares, the
Class J Shares, the Class K Shares and the cumulative
voting preferred shares will be cumulative, while dividends on
the noncumulative shares will not be cumulative.
Prior to the issuance of shares of each series of each class of
nonvoting preferred shares, our board of directors may, under
our articles of incorporation and Ohio law, fix:
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the designation of the series;
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the authorized number of shares of the series. Our board of
directors may, except when otherwise provided in the creation of
the series, increase or decrease the authorized number of shares
before or after issuance of the series (but not below the number
of shares of such series then outstanding);
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the dividend rate or rates of the series, including the means by
which such rates may be established;
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the date(s) from which dividends shall accrue and be cumulative
and, with respect to all nonvoting preferred shares, the date on
which and the period(s) for which dividends, if declared, shall
be payable, including the means by which such date(s) and
period(s) may be established;
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redemption rights and prices, if any;
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the terms and amounts of the sinking fund, if any;
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the amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or
winding-up
of our affairs;
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S-2
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whether the shares of the series shall be convertible into
common shares or shares of any other class;
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if the shares are convertible, the conversion rate(s) or
price(s), any adjustments to the rate or price and all other
terms and conditions upon which such conversion may be
made; and
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restrictions on the issuance of shares of the same or any other
class or series.
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Rank
All preferred shares will be equal to all other preferred shares
with respect to dividend rights (subject to dividends on
noncumulative shares being noncumulative) and rights upon our
liquidation, dissolution or
winding-up.
The preferred shares will:
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rank prior to all classes of common shares and to all other
equity securities ranking junior to such preferred shares with
respect to dividend rights and rights upon our liquidation,
dissolution or
winding-up;
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be equal to all of our equity securities the terms of which
specifically provide that such equity securities are equal to
the preferred shares with respect to dividend rights and rights
upon our liquidation, dissolution or
winding-up; and
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be junior to all of our equity securities the terms of which
specifically provide that such equity securities rank prior to
the preferred shares with respect to dividend rights and rights
upon our liquidation, dissolution or
winding-up.
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Dividends
The holders of each series of each class of preferred shares are
entitled to receive, if, when and as declared, out of funds
legally available for payment, dividends in cash at the rate
determined for such series in preference to the holders of
common shares and of any other class of shares ranking junior to
the preferred shares. Dividends shall be payable on the date
fixed for such series. Dividends with respect to each series of
Class A Shares, Class B Shares, Class C Shares,
Class D Shares, Class E Shares, Class F Shares,
Class G Shares, Class H Shares, Class I Shares,
Class J Shares, Class K Shares and the cumulative
voting preferred shares will be cumulative from the dates fixed
for the series. Dividends will be payable to holders of record
as they appear on our stock transfer books on the record dates
fixed by our board of directors. Any dividend payment made on
the preferred shares that have been designated under the
Class A Shares, Class B Shares, Class C Shares,
Class D Shares, Class E Shares, Class F Shares,
Class G Shares, Class H Shares, Class I Shares,
Class J Shares and Class K Shares, which we refer to
collectively as the designated preferred shares, will first be
credited against the earliest accumulated but unpaid dividend
due with respect to such shares which remains payable.
Dividends on our preferred shares will accumulate whether or not
we have earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not
such dividends are declared. Accumulated but unpaid dividends on
the designated preferred shares will not bear interest.
If preferred shares are outstanding, dividends may not be paid
or declared or set apart for any series of preferred shares for
any dividend period unless at the same time:
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a proportionate dividend for the dividend periods terminating on
the same or any earlier date for all issued and outstanding
shares of all series of such class entitled to receive such
dividend (but, if such series are series of noncumulative
shares, then only with respect to the current dividend period),
ratably in proportion to the respective annual dividend rates
fixed therefor, have been paid or declared or set apart; and
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the dividends payable for the dividend periods terminating on
the same or any earlier date for all other classes of issued and
outstanding preferred shares entitled to receive such dividends
(but, with respect to noncumulative shares, only with respect to
the then-current dividend period), ratably in proportion to the
respective dividend rates fixed therefor, have been paid or
declared and set apart.
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S-3
If any series of preferred shares is outstanding, a dividend
shall not be paid or declared or any distribution made in
respect of the common shares or any other shares ranking junior
to such series of preferred shares, and common shares or any
other shares ranking junior to such series of preferred shares
shall not be purchased, retired or otherwise acquired by us
unless:
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all accrued and unpaid dividends on all classes of outstanding
preferred shares, including the full dividends for all current
dividend periods for the nonvoting preferred shares (except,
with respect to noncumulative shares, for the then-current
dividend period only), have been declared and paid or a sum
sufficient for payment thereof set apart; and
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with respect to the nonvoting preferred shares, there are no
arrearages with respect to the redemption of any series of any
class of preferred shares from any sinking fund provided for
such class in accordance with our articles of incorporation.
However, common shares and any other shares ranking junior to
such series of preferred shares may be purchased, retired or
otherwise acquired using the proceeds of a sale of common shares
or other shares junior to such preferred shares received
subsequent to the first date of issuance of such preferred
shares. In addition, we may pay or declare or distribute
dividends payable in common shares or other shares ranking
junior to such preferred shares.
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The preceding restrictions on the payment of dividends or other
distributions on, or on the purchase, redemption, retirement or
other acquisition of, common shares or any other shares ranking
equal to or junior to any class of preferred shares generally
will be inapplicable to:
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any payments in lieu of issuance of fractional shares, upon any
merger, conversion, stock dividend or otherwise in the case of
the nonvoting preferred shares;
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the conversion of preferred shares into common shares; or
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the exercise of our rights to repurchase shares of capital stock
in order to preserve our status as a REIT under the Internal
Revenue Code of 1986, as amended, or the Code.
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When dividends are not paid in full (or a sum sufficient for
full payment is not set apart) upon the preferred shares of any
series and the shares of any other series of preferred shares
ranking on a parity as to dividends with such series, all
dividends declared upon preferred shares of such series and any
other series of preferred shares ranking on a parity as to
dividends with such preferred shares shall be declared pro rata
so that the amount of dividends declared per share on the shares
of such series of preferred shares shall in all cases bear to
each other the same ratio that accrued dividends per share on
the preferred shares of such series (which shall not include any
accumulation in respect of unpaid dividends for prior dividend
periods for noncumulative shares) and such other series bear to
each other.
Redemption
If our board of directors so provides, a series of preferred
shares will be subject to mandatory redemption or redemption at
our option, as a whole or in part, in each case upon the terms,
at the times and at the redemption prices determined by our
board of directors. The redemption price per share will include
an amount equal to all accrued and unpaid dividends on such
preferred shares as of the date of redemption; however, the
redemption price of noncumulative shares will include only
unpaid dividends for the current dividend period. The redemption
price may be payable in cash or other property.
We may not purchase or redeem, for sinking fund purposes or
otherwise, less than all of a class of outstanding preferred
shares except in accordance with a stock purchase offer made to
all holders of record of such class, unless all dividends on
that class of outstanding preferred shares for previous and
current dividend periods (except, in the case of noncumulative
shares, dividends for the current dividend period only) have
been declared and paid or funds set apart and all accrued
sinking fund obligations applicable thereto have been complied
with. However, we may repurchase shares of capital stock in
order to maintain our qualification as a REIT under the Code.
If fewer than all of our outstanding shares of any class of
preferred shares are to be redeemed, we will determine the
number of shares to be redeemed. Our board of directors will
determine the manner for selecting by lot the shares to be
redeemed.
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We will mail notice of redemption at least 30 days but not
more than 60 days before the redemption date to each holder
of record of a preferred share to be redeemed at the address
shown on our stock transfer books. If fewer than all the
preferred shares of any series are to be redeemed, the notice of
redemption will also specify the number of preferred shares to
be redeemed from each holder. If notice of redemption of any
preferred shares has been given and if the funds necessary for
such redemption have been set aside by us in trust for the
benefit of the holders of the preferred shares to be redeemed,
dividends will cease to accrue on such preferred shares. In
addition, the holders of preferred shares to be redeemed will
cease to be shareholders with respect to such shares and will
have no right or claim against us with respect to such shares as
of the redemption date. However, such holders will have the
right to receive the redemption price without interest or to
exercise before the redemption date any unexercised privileges
of conversion.
The terms of redemption, if any, for the existing classes of
preferred shares are included in our articles of incorporation
that are filed as an exhibit to the registration statement of
which this prospectus forms a part.
Liquidation
Preference
In the event of our voluntary liquidation, dissolution or
winding-up,
the holders of any series of any class of preferred shares shall
be entitled to receive in full out of our assets, including our
capital, before any amount shall be paid or distributed among
the holders of the common shares or any other shares ranking
junior to such series, the amounts fixed by our board of
directors with respect to such series. In addition, each holder
will receive an amount equal to all dividends accrued and unpaid
on that series of preferred shares to the date of payment of the
amount due pursuant to our liquidation, dissolution or
winding-up.
However, holders of noncumulative shares will only receive
dividends for the current dividend period. After holders of the
preferred shares are paid the full preferential amounts to which
they are entitled, they will have no right or claim to any of
our remaining assets.
If liquidating distributions are made in full to all holders of
preferred shares, our remaining assets will be distributed among
the holders of any other classes or series of capital stock
ranking junior to the preferred shares upon liquidation,
dissolution or
winding-up.
The distributions will be made according to the holders
respective rights and preferences and, in each case, according
to their respective number of shares. Our merger or
consolidation into or with any other corporation, or the sale,
lease or conveyance of all or substantially all of our assets,
shall not constitute a dissolution, liquidation or
winding-up.
Voting
Rights
Nonvoting
Preferred Shares
Holders of nonvoting preferred shares have only the voting
rights described below that apply to all preferred shares,
whether nonvoting or voting, and as from time to time required
by law.
If and when we are in default in the payment of (or, with
respect to noncumulative shares, have not paid or declared and
set aside a sum sufficient for the payment of) dividends on any
series of any class of outstanding nonvoting preferred shares,
for dividend payment periods, whether consecutive or not, which
in the aggregate contain at least 540 days, all holders of
shares of such class, voting separately as a class, together and
combined with all other preferred shares upon which like voting
rights have been conferred and are exercisable, will be entitled
to elect a total of two members to our board of directors. This
voting right shall be vested and any additional directors shall
serve until all accrued and unpaid dividends (except, with
respect to noncumulative shares, only dividends for the
then-current dividend period) on such outstanding preferred
shares have been paid or declared and a sufficient sum set aside
for payment thereof.
The affirmative vote of the holders of at least two-thirds of a
class of outstanding nonvoting preferred shares, voting
separately as a class, shall be necessary to effect either of
the following:
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The authorization, creation or increase in the authorized number
of any shares, or any security convertible into shares, ranking
prior to such class of nonvoting preferred shares; or
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Any amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of our
articles of incorporation or our code of regulations which
adversely and materially
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affects the preferences or voting or other rights of the holders
of such class of nonvoting preferred shares which are set forth
in our articles of incorporation. However, the amendment of our
articles of incorporation to authorize, create or change the
authorized or outstanding number of a class of such preferred
shares or of any shares ranking on a parity with or junior to
such class of preferred shares does not adversely and materially
affect preferences or voting or other rights of the holders of
such class of preferred shares. In addition, amending the code
of regulations to change the number or classification of our
directors does not adversely or materially affect preferences or
voting rights or other rights. Voting shall be done in person at
a meeting called for one of the above purposes or in writing by
proxy.
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The preceding voting provisions will not apply if, at or prior
to the time of the action with respect to which such vote would
be required, all outstanding shares of such series of preferred
shares have been redeemed or called for redemption and
sufficient funds shall have been deposited in trust to effect
such redemption.
Cumulative
Voting Preferred Shares.
If and when we are in default in the payment of dividends on the
cumulative voting preferred shares, for at least six dividend
payment periods, whether or not consecutive, all holders of
shares of such class, voting separately as a class, together and
combined with all other preferred shares upon which like voting
rights have been conferred and are exercisable, will be entitled
to elect a total of two members to our board of directors. This
voting right shall be vested and any additional directors shall
serve until all accrued and unpaid dividends (except, with
respect to noncumulative shares, only dividends for the
then-current dividend period) on such outstanding preferred
shares have been paid or declared and a sufficient sum set aside
for payment thereof.
The affirmative vote of the holders of at least two-thirds of
the outstanding cumulative voting preferred shares, voting
separately as a class, shall be necessary to effect either of
the following:
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Any amendment, alteration or repeal of any of the provisions of,
or the addition of any provisions to, our articles of
incorporation or code of regulations, whether by merger,
consolidation or otherwise, which we refer to as an event, that
materially adversely affects the voting powers, rights or
preferences of the holders of the cumulative voting preferred
shares; provided, however, that the amendment of the provisions
of the articles of incorporation (a) so as to authorize or
create, or to increase the authorized amount of, or issue, any
shares ranking junior to the cumulative voting preferred shares
or any shares of any class or series of shares ranking on a
parity with the cumulative voting preferred shares or
(b) with respect to the occurrence of any event, so long as
the cumulative voting preferred shares remain outstanding with
the terms thereof materially unchanged, taking into account that
upon the occurrence of the event, we may not be the surviving
entity, shall not in either case be deemed to materially
adversely affect the voting power, rights or preferences of the
holders of cumulative voting preferred shares; or
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the authorization, creation of, increase in the authorized
amount of, or issuance of any shares of any class or series of
shares ranking prior to the cumulative voting preferred shares
or any security convertible into shares of any class or series
of shares ranking prior to the cumulative voting preferred
shares (whether or not such class or series of shares ranking
prior to the cumulative voting preferred shares is currently
authorized).
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The preceding voting provisions will not apply, if at or prior
to the time of the action with respect to which such vote would
be required, all outstanding shares of such series of cumulative
voting preferred shares have been redeemed or called for
redemption and sufficient funds shall have been deposited in
trust to effect such redemption.
In addition to the foregoing, the holders of cumulative voting
preferred shares shall be entitled to vote on all matters on
which holders of our common shares may vote and shall be
entitled to one vote for each cumulative voting preferred share
entitled to vote at such meeting.
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General
Without limiting the provisions described above, under Ohio law,
holders of each class of preferred shares will be entitled to
vote as a class on any amendment to our articles of
incorporation, whether or not they are entitled to vote thereon
by our articles of incorporation, if the amendment would:
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increase or decrease the par value of the shares of such class;
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change the issued shares of such class into a lesser number of
shares of such class or into the same or different number of
shares of another class;
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change or add to the express terms of the shares of the class in
any manner substantially prejudicial to the holders of such
class;
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change the express terms of any class of issued shares ranking
prior to the particular class in any manner substantially
prejudicial to the holders of shares of the particular class;
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authorize shares of another class that are convertible into, or
authorize the conversion of shares of another class into, shares
of the particular class, or authorize the directors to fix or
alter conversion rights of shares of another class that are
convertible into shares of the particular class;
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reduce or eliminate our stated capital;
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substantially change our purposes; or
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change the Company into a nonprofit corporation.
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If, and only to the extent that,
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a class of preferred shares is issued in more than one
series and
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Ohio law permits the holders of a series of a class of capital
stock to vote separately as a class,
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the affirmative vote of the holders of at least two-thirds of
each series of such class of outstanding preferred shares,
voting separately as a class, shall be required for any
amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of our
articles of incorporation or our code of regulations which
adversely and materially affects the preferences or voting or
other rights of the holders of such series as set forth in our
articles of incorporation. However, the amendment of our
articles of incorporation so as to authorize, create or change
the authorized or outstanding number of a class of preferred
shares or of any shares ranking equal to or junior to such class
of preferred shares does not adversely and materially affect the
preference or voting or other rights of the holders of such
series. In addition, the amendment of our code of regulations to
change the number or classification of our directors does not
adversely and materially affect the preference or voting or
other rights of the holders of such series.
Restrictions
on Ownership
In order to qualify as a REIT under the Code, not more than 50%
in value of our outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals during the last half
of a taxable year. Individual is defined in the Code
to include certain entities. In addition, our capital stock must
be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. We also must
satisfy certain other requirements. For more information on
restrictions on ownership, see Description of Common
Shares Restrictions on Ownership.
To ensure that five or fewer individuals do not own more than
50% in value of our outstanding preferred shares, our articles
of incorporation provide that, subject to certain exceptions, no
one may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 9.8%, which we refer to as the
preferred shares ownership limit, of any series of any class of
our outstanding preferred shares. In addition, because rent from
a related party tenant (any tenant 10% of which is owned,
directly or constructively, by a REIT, including an owner of 10%
or more of a REIT) is not qualifying rent for purposes of the
gross income tests under the Code, our articles of incorporation
provide that no individual or entity may own, or be deemed to
own by virtue of the attribution provisions of the Code (which
differ from the attribution provisions applied to the preferred
shares ownership limit), in excess of 9.8%, which we refer to as
the preferred shares related party limit, of our outstanding
preferred shares. Our board of directors may exempt a person
from the preferred shares ownership limit if the person would
not be deemed an individual and may exempt a person
from the preferred shares related party limit. As a condition of
any
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exemption, our board of directors will require appropriate
representations and undertakings from the applicant with respect
to preserving our REIT status.
The preceding restrictions on transferability and ownership of
preferred shares may not apply if our board of directors
determines that it is no longer in our best interests to attempt
to qualify, or to continue to qualify, as a REIT. Even if the
REIT provisions of the Code are changed so as to no longer
contain any ownership concentration limitation or if the
ownership concentration limitation is increased, the preferred
shares ownership limit and the preferred shares related party
limit will not be automatically removed. Any change in the
preferred shares ownership limit or the preferred shares related
party limit would require an amendment to our articles of
incorporation, even if our board of directors determines that
maintenance of REIT status is no longer in our best interests.
Amendments to our articles of incorporation require the
affirmative vote of holders owning not less than a majority of
our outstanding common shares. If it is determined that an
amendment would materially and adversely affect the holders of
any class of preferred shares, such amendment would also require
the affirmative vote of holders of not less than two-thirds of
such class of preferred shares.
If preferred shares in excess of the preferred shares ownership
limit or the preferred shares related party limit are issued or
transferred to any person absent a waiver of such limit, such
issuance or transfer will be null and void to the intended
transferee, and the intended transferee will acquire no rights
to the shares. In addition, if an issuance or transfer would
cause our shares to be beneficially or constructively owned by
fewer than 100 persons or would result in our being
closely held within the meaning of
Section 856(h) of the Code, such issuance or transfer will
be null and void to the intended transferee, and the intended
transferee will acquire no rights to the shares. Preferred
shares transferred or proposed to be transferred in excess of
the preferred shares ownership limit or the preferred shares
related party limit or which would otherwise jeopardize our REIT
status will be subject to repurchase by us. The purchase price
of such preferred shares will be equal to the lesser of:
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the price in such proposed transaction; and
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the fair market value of such shares reflected in the last
reported sales price for the shares on the trading day
immediately preceding the date on which we or our designee
determine to exercise our repurchase right if the shares are
listed on a national securities exchange, or such price for the
shares on the principal exchange if the shares are then listed
on more than one national securities exchange.
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If the shares are not listed on a national securities exchange,
the purchase price will be equal to the lesser of:
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the price in such proposed transaction; and
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the latest bid quotation for the shares if the shares are then
traded over the counter, or, if such quotation is not available,
the fair market value as determined by our board of directors in
good faith, on the last trading day immediately preceding the
day on which notice of such proposed purchase is sent by us.
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From and after the date fixed for our purchase of such preferred
shares, the holder will cease to be entitled to distributions,
voting rights and other benefits with respect to such shares
except the right to payment of the purchase price for the
shares. Any dividend or distribution paid to a proposed
transferee on such preferred shares must be repaid to us upon
demand. If the foregoing transfer restrictions are determined to
be void or invalid by virtue of any legal decision, statute,
rule or regulation, then the intended transferee of any such
preferred shares may be deemed, at our option, to have acted as
our agent in acquiring such preferred shares and to hold such
preferred shares on our behalf.
All certificates for preferred shares will bear a legend
referring to the restrictions described above.
Our articles of incorporation provide that all persons who own,
directly or by virtue of the attribution provisions of the Code,
more than 5% of the preferred shares must give written notice to
us stating the name and address of such person, the number of
shares owned, and a description of how such shares are held each
year by January 31. In addition, each of those shareholders
must provide supplemental information that we may request, in
good faith, in order to determine our status as a REIT.
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DESCRIPTION
OF COMMON SHARES
Capitalization
Our articles of incorporation authorize us to issue up to
500,000,000 common shares, $0.10 par value per share.
General
The following description summarizes certain general terms and
provisions of our common shares. This summary may not contain
all of the information that is important to you. For more
detail, you should refer to the applicable provisions of our
articles of incorporation and our code of regulations that are
filed as exhibits to the registration statement of which this
prospectus forms a part.
Holders of our common shares are entitled to receive dividends
when, as and if declared by our board of directors, out of funds
legally available therefor. Any payment and declaration of
dividends by us on our common shares and purchases thereof will
be subject to certain restrictions if we fail to pay dividends
on any outstanding preferred shares. See Description of
Preferred Shares Dividends. If we are
liquidated, dissolved or involved in any
winding-up,
the holders of our common shares are entitled to receive ratably
any assets remaining after we have fully paid all of our
liabilities, including the preferential amounts we owe with
respect to any preferred shares. Holders of our common shares
possess ordinary voting rights, with each share entitling the
holder to one vote. Holders of our common shares have cumulative
voting rights in the election of directors. Holders of our
common shares do not have preemptive rights, which means that
they have no right to acquire any additional common shares that
we may subsequently issue.
Restrictions
on Ownership
In order for us to qualify as a REIT under the Code, not more
than 50% in value of our outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals during the
last half of a taxable year. Individual is defined
in the Code to include certain entities. In addition, our
capital stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of
12 months or during a proportionate part of a shorter
taxable year. Additionally, certain other requirements must be
satisfied.
To ensure that five or fewer individuals do not own more than
50% in value of our outstanding common shares, our articles of
incorporation provide that, subject to certain exceptions
(including those set forth below), no holder may own, or be
deemed to own by virtue of the attribution provisions of the
Code, more than 5%, which we refer to as the ownership limit, of
our outstanding common shares. The existing holder,
which includes, collectively, (a) Iris Wolstein
and/or
all
descendants of Iris Wolstein (which includes Scott A. Wolstein),
(b) trusts or family foundations established for the
benefit of the individuals named in (a) above and
(c) other entities controlled by the individuals named in
(a) above (or trusts or family foundations established for
the benefit of those individuals) may own, or be deemed to own
by virtue of the attribution provisions of the Code, no more
than 5.1% of our outstanding common shares. The exempt
holder, which includes, collectively, (x) Professor
Werner Otto, his wife Maren Otto
and/or
all
descendants of Professor Werner Otto, including, without
limitation, Alexander Otto, (y) trusts or family
foundations established for the benefit of the individuals named
in (x) above and (z) other entities controlled by the
individuals named in (x) above (or trusts or family
foundations established for the benefit of those individuals)
may own, or be deemed to own by virtue of the attribution
provisions of the Code, no more than 29.8% of our outstanding
common shares.
In addition, because rent from a related party tenant (any
tenant 10% of which is owned, directly or constructively, by a
REIT, including an owner of 10% or more of a REIT) is not
qualifying rent for purposes of the gross income tests under the
Code, our articles of incorporation provide that no individual
or entity may own, or be deemed to own by virtue of the
attribution provisions of the Code (which differ from the
attribution provisions applied to the ownership limit), in
excess of 9.8% of our outstanding common shares, which we refer
to as the related party limit. Our board of directors may exempt
a person from the ownership limit if the person would not be
deemed an individual and may exempt a person from
the related party limit if an opinion of counsel or a ruling
from the Internal Revenue Service, or IRS, is provided to our
board of directors to the effect that the ownership will not
then or in the future jeopardize our status as a REIT. Our board
of directors may also exempt the exempt holder
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and any person who would constructively own common shares
constructively owned by the exempt holder from the ownership
limit in its sole discretion. As a condition of any exemption,
our board of directors will require appropriate representations
and undertakings from the applicant with respect to preserving
our REIT status.
Additionally, our articles of incorporation prohibit any
transfer of common shares that would cause us to cease to be a
domestically controlled qualified investment entity
as defined in Section 897(h)(4)(B) of the Code.
The preceding restrictions on transferability and ownership of
common shares may not apply if our board of directors determines
that it is no longer in our best interests to continue to
qualify as a REIT. The ownership limit and the related party
limit will not be automatically removed even if the REIT
provisions of the Code are changed to no longer contain any
ownership concentration limitation or if the ownership
concentration limitation is increased. In addition to preserving
our status as a REIT, the effects of the ownership limit and the
related party limit are to prevent any person or small group of
persons from acquiring unilateral control of us. Any change in
the ownership limit, other than modifications that may be made
by our board of directors as permitted by our articles of
incorporation, requires an amendment to the articles of
incorporation, even if our board of directors determines that
maintenance of REIT status is no longer in our best interests.
Amendments to the articles of incorporation require the
affirmative vote of holders owning a majority of our outstanding
common shares. If it is determined that an amendment would
materially and adversely affect the holders of any class of
preferred shares, that amendment also would require the
affirmative vote of holders of two-thirds of the affected class
of preferred shares.
Our articles of incorporation provide that upon a transfer or
non-transfer event that results in a person beneficially or
constructively owning common shares in excess of the applicable
ownership limits or that results in us being closely
held within the meaning of Section 856(h) of the
Code, the person, which we refer to as a prohibited owner, will
not acquire or retain any rights or beneficial economic interest
in the shares that would exceed such applicable ownership limits
or result in us being closely held, which we refer to as excess
shares. Instead, the excess shares will be automatically
transferred to a person or entity unaffiliated with and
designated by us to serve as trustee of a trust for the
exclusive benefit of a charitable beneficiary to be designated
by us within five days after the discovery of the transaction
that created the excess shares. The trustee will have the
exclusive right to designate a person who may acquire the excess
shares without violating the applicable restrictions, which we
refer to as a permitted transferee, to acquire all of the shares
held by the trust. The permitted transferee must pay the trustee
an amount equal to the fair market value (determined at the time
of transfer to the permitted transferee) for the excess shares.
The trustee will pay to the prohibited owner the lesser of
(a) the value of the shares at the time they became excess
shares and (b) the price received by the trustee from the
sale of the excess shares to a permitted transferee. The
beneficiary will receive the excess of (x) the sale
proceeds from the transfer to a permitted transferee over
(y) the amount paid to the prohibited owner, if any, in
addition to any dividends paid with respect to the excess shares.
All certificates representing our common shares bear a legend
referring to the preceding restrictions.
Our articles of incorporation provide that all persons who own,
directly or by virtue of the attribution provisions of the Code,
more than 5% of our outstanding common shares must give written
notice to us stating the name and address of such person, the
number of shares owned, and a description of how such shares are
held each year by January 31. In addition, each of those
shareholders must provide supplemental information that we may
request, in good faith, in order to determine our status as a
REIT.
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CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material
U.S. federal income tax considerations relating to our
qualification and taxation as a REIT and the acquisition,
ownership and disposition of our common shares. The information
in this section is based on the Code, current, temporary and
proposed Treasury Regulations promulgated under the Code, the
legislative history of the Code, current administrative
interpretations and practices of the IRS (including its
practices and policies as expressed in certain private letter
rulings which are not binding on the IRS except with respect to
the particular taxpayers who requested and received such
rulings), and court decisions, all as of the date of this
prospectus supplement. Future legislation, Treasury Regulations,
administrative interpretations and practices and court decisions
may adversely affect, perhaps retroactively, the tax
considerations described herein. We have not requested, and do
not plan to request, any rulings from the IRS concerning our tax
treatment and the statements in this prospectus supplement are
not binding on the IRS or any court. Thus, we can provide no
assurance that these statements will not be challenged by the
IRS or sustained by a court if challenged by the IRS.
This summary is for general information only, and does not
purport to discuss all aspects of U.S. federal income
taxation that may be relevant to a particular holder in light of
its investment or tax circumstances, or to certain types of
holders subject to special tax rules, such as financial
institutions, insurance companies, tax-exempt organizations
(except to the extent discussed under the subheadings
Taxation of Tax-Exempt Shareholders,
below), broker-dealers, partnerships and other pass-through
entities, shareholders holding our common shares as part of a
conversion transaction, or a hedge or hedging transaction or as
a position in a straddle for tax purposes, and
Non-U.S. Shareholders
(as defined below) (except to the extent discussed under the
subheading Taxation of
Non-U.S. Shareholders,
below).
You are advised to consult your tax advisor regarding the
specific tax consequences to you of the acquisition, ownership
and sale of our common shares, including the federal, state,
local, foreign and other tax consequences of such acquisition,
ownership and sale and of potential changes in applicable tax
laws.
Taxation
of the Company
General.
We elected to be taxed as a REIT
under the Code, commencing with our taxable year ended
December 31, 1993. We believe we have been organized and
have operated in a manner which allows us to qualify for
taxation as a REIT under the Code, commencing with our taxable
year ended December 31, 1993. We intend to continue to
operate in this manner.
The law firm of Jones Day has acted as our tax counsel in
connection with the filing of this prospectus supplement. We
have received the opinion of Jones Day to the effect that we
have qualified as a REIT under the Code for our taxable years
ended December 31, 1993 through December 31, 2008, and
our current and proposed method of operation will enable us to
meet the requirements for qualification and taxation as a REIT
under the Code for our taxable year ending December 31,
2009 and for future taxable years. The opinion of Jones Day is
based on current law, which is subject to change, possibly with
retroactive effect. It must be emphasized that the opinion of
Jones Day is based upon certain assumptions and representations
as to factual matters made by us, including representations made
by us in a representation letter and certificate provided by one
of our officers and our factual representations set forth in
this prospectus supplement and in the accompanying prospectus.
Any variation from the factual statements set forth herein, in
the accompanying prospectus, or in the representation letter and
certificate we have provided to Jones Day may affect the
conclusions upon which its opinion is based.
Furthermore, an opinion of counsel is not binding on the IRS or
any court and no assurance can be given that the IRS will not
challenge our qualifications as a REIT. Moreover, our
qualification and taxation as a REIT depend upon our ability,
through actual annual operating results and methods of
operation, to meet the various qualification tests imposed under
the Code discussed below, including income types, asset
composition, distribution levels and diversity of share
ownership, the results of which have not been and will not be
reviewed or verified by Jones Day. In addition, our ability to
qualify as a REIT also depends in part upon the operating
results, organizational structure and entity classification for
federal income tax purposes of certain affiliated entities,
including affiliates that have made elections to be taxed as
REITs and for whom the actual results of the various REIT
qualification tests have not been and will not be reviewed by
Jones Day. Accordingly, no assurance can be given that our
actual results of operation
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for any particular year have satisfied or will satisfy those
requirements for qualification and taxation as a REIT.
Similarly, we have significant subsidiaries that have elected to
be taxed as REITs and are therefore subject to the same
qualification tests.
Provided we qualify for taxation as a REIT, we generally will
not be subject to U.S. federal corporate income taxes on
our taxable income that is distributed currently to our
shareholders. This treatment substantially eliminates the
double taxation (once at the corporate level when
earned and once again at the shareholder level when distributed)
that generally results from investment in a C corporation.
However, we will be subject to U.S. federal income tax as
follows:
First, we will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net
capital gains.
Second, we may be subject to the alternative minimum
tax on our items of tax preference under some
circumstances.
Third, if we have (a) net income from the sale or other
disposition of foreclosure property (defined
generally as property we acquired through foreclosure or after a
default on a loan secured by the property or a lease of the
property) which is held primarily for sale to customers in the
ordinary course of business or (b) other nonqualifying
income from foreclosure property, we will be subject to tax at
the highest U.S. federal corporate income tax rate on this
income.
Fourth, we will be subject to a 100% tax on any net income from
prohibited transactions (which are, in general, certain sales or
other dispositions of property (other than foreclosure property)
held primarily for sale to customers in the ordinary course of
business).
Fifth, if we fail to satisfy the 75% or 95% gross income tests
(as discussed below), but have maintained our qualification as a
REIT because we satisfied certain other requirements, we will be
subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amounts by which we
fail the 75% or 95% gross income tests multiplied by (b) a
fraction intended to reflect our profitability.
Sixth, if we fail to satisfy any of the REIT asset tests (as
described below) by more than a de minimis amount, due to
reasonable cause and we nonetheless maintain our REIT
qualification because of specified cure provisions, we will be
required to pay a tax equal to the greater of $50,000 or the
highest corporate tax rate multiplied by the net income
generated by the nonqualifying assets that caused us to fail
such test.
Seventh, if we fail to distribute during each calendar year at
least the sum of (a) 85% of our REIT ordinary income for
the year, (b) 95% of our REIT capital gain net income for
the year (other than certain long-term capital gains for which
we make a capital gains designation (described below) and on
which we pay the tax), and (c) any undistributed taxable
income from prior periods, we would be subject to a 4% excise
tax on the excess of the required distribution over the amounts
actually distributed.
Eighth, if we acquire any asset from a corporation which is or
has been a C corporation in a transaction in which the basis of
the asset in our hands is determined by reference to the basis
of the asset in the hands of the C corporation, and we
subsequently recognize gain on the disposition of the asset
during the ten-year period beginning on the date on which we
acquired the asset, then we will be subject to tax at the
highest regular corporate tax rate on the excess of (a) the
fair market value of the asset over (b) our adjusted basis
in the asset, in each case determined as of the date we acquired
the asset. The results described in this paragraph with respect
to the recognition of gain assume that we will not make an
election pursuant to existing Treasury Regulations to recognize
such gain at the time we acquire the asset.
Ninth, we will be required to pay a 100% tax on any
redetermined rents, redetermined
deductions or excess interest. In general,
redetermined rents are rents from real property that are
overstated as a result of services furnished to any of our
tenants by a taxable REIT subsidiary of ours.
Redetermined deductions and excess interest generally represent
amounts that are deducted by a taxable REIT subsidiary of ours
for amounts paid to us that are in excess of the amounts that
would have been deducted based on arms length negotiations.
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Tenth, if we fail to satisfy any provision of the Code that
would result in our failure to qualify as a REIT (other than a
violation of the REIT gross income tests or certain violations
of the asset tests described below) and the violation is due to
reasonable cause, we may retain our REIT qualification but we
will be required to pay a penalty of $50,000 for each such
failure.
Requirements for Qualification as a REIT.
The
Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable common shares or transferable
certificates to evidence its beneficial ownership;
(3) that would be taxable as a domestic corporation, but
for the special provisions of the Code applicable to REITs;
(4) that is not a financial institution or an insurance
company within the meaning of the Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of
which is owned, actually or constructively, by five or fewer
individuals (as defined in the Code to include certain entities)
during the last half of each taxable year;
(7) that meets certain other tests, described below,
regarding the nature of its income and assets and the amount of
its distributions;
(8) that elects to be a REIT, or has made such election for
a previous year, and satisfies the applicable filing and
administrative requirements to maintain qualification as a
REIT; and
(9) that adopts a calendar year accounting period.
The Code provides that conditions (1) to (4), inclusive,
must be met during the entire taxable year and that condition
(5) must be met during at least 335 days of a taxable
year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. Conditions
(5) and (6) do not apply until after the first taxable
year for which an election is made to be taxed as a REIT. For
purposes of condition (6), certain pension funds and other
tax-exempt entities are treated as individuals, subject to a
look-through exception with respect to certain
pension funds.
We believe that we have satisfied each of the above conditions.
In addition, our articles of incorporation and code of
regulations provide for restrictions regarding ownership and
transfer of common shares. These restrictions are intended to
assist us in continuing to satisfy the share ownership
requirements described in (5) and (6) above. These
restrictions, however, may not ensure that we will, in all
cases, be able to satisfy the share ownership requirements
described in (5) and (6) above. In general, if we fail
to satisfy these share ownership requirements, our status as a
REIT will terminate. However, if we comply with the rules in
applicable Treasury Regulations that require us to ascertain the
actual ownership of our common shares, and we do not know, or
would not have known through the exercise of reasonable
diligence, that we failed to meet the requirement described in
condition (6) above, we will be treated as having met this
requirement.
Ownership of Interests in Partnerships and Limited Liability
Companies.
In the case of a REIT that is a
partner in a partnership or a member in a limited liability
company treated as a partnership for U.S. federal income
tax purposes, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the
partnership or limited liability company, based on its capital
interest in the partnership or limited liability company,
subject to special rules relating to the 10% REIT asset test
(described below). Also, the REIT will be deemed to be entitled
to its proportionate share of the income of that entity. The
assets and items of gross income of the partnership or limited
liability company retain the same character in the hands of the
REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and the asset tests. Thus, our
proportionate share of the assets and items of income of
partnerships and limited liability companies taxed as
partnerships, in which we are, directly or indirectly through
other partnerships or limited liability companies taxed as
partnerships, a partner or member, are treated as our assets and
items of income for purposes of applying the REIT qualification
requirements described in this prospectus supplement (including
the income and asset tests described below).
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Ownership of Interests in Qualified REIT
Subsidiaries.
We own 100% of the stock of a
number of corporate subsidiaries that are qualified REIT
subsidiaries (each, a QRS) and may acquire stock of
one or more new subsidiaries. A corporation qualifies as a QRS
if 100% of its outstanding stock is held by us, and we do not
elect to treat the corporation as a taxable REIT subsidiary, as
described below. A QRS is not treated as a separate corporation,
and all assets, liabilities and items of income, deduction and
credit of a QRS are treated as our assets, liabilities and items
of income, deduction and credit for all purposes of the Code,
including the REIT qualification tests. For this reason,
references to our income and assets include the income and
assets of any QRS. A QRS is not subject to U.S. federal
income tax, and our ownership of the voting stock of a QRS is
ignored for purposes of determining our compliance with the
ownership limits described below under Asset
Tests.
Ownership of Interests in Taxable REIT
Subsidiaries.
For taxable years beginning after
December 1, 2000, REITs may own more than 10% of the voting
power and value of securities in a taxable REIT subsidiary
(TRS). A TRS is a corporation other than a REIT in
which a REIT directly or indirectly holds stock, and that has
made a joint election with the REIT to be treated as a TRS. A
TRS also includes any corporation other than a REIT with respect
to which a TRS owns securities possessing more than 35% of the
total voting power or value of the outstanding securities of
such corporation. Other than some activities relating to lodging
and health care facilities, a TRS may generally engage in any
business, including the provision of customary or non-customary
services to tenants of its parent REIT. A TRS is subject to
income tax as a regular C corporation. In addition, a TRS may be
prevented from deducting interest on debt funded directly or
indirectly by its parent REIT if certain tests regarding the
TRSs debt to equity ratio and interest expense are not
satisfied. A REITs ownership of securities of a TRS will
not be subject to the 10% or 5% asset tests described below, and
its operations will be subject to the provisions described above.
Income Tests.
We must satisfy two gross income
requirements annually to maintain our qualification as a REIT.
First, in each taxable year at least 75% of our gross income
(excluding gross income from prohibited transactions) must be
derived directly or indirectly from investments relating to real
property or mortgages secured by real property, including
rents from real property, dividends from other
REITs, interest income derived from mortgage loans secured by
real property and gains from the sale of real estate assets, as
well as certain types of temporary investment income. Second, in
each taxable year at least 95% of our gross income (excluding
gross income from prohibited transactions) must be derived
directly or indirectly from income from the real property
investments described above or dividends, interest and gain from
the sale or disposition of stock or securities (or from any
combination of the foregoing).
Rents we receive will qualify as rents from real
property for purposes of satisfying the gross income tests
for a REIT described above only if all of the following
conditions are met:
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The amount of rent must not be based in any way on the income or
profits of any person, although rents generally will not be
excluded solely because they are based on a fixed percentage or
percentages of gross receipts or gross sales.
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We, or an actual or constructive owner of 10% or more of our
outstanding common shares, must not actually or constructively
own 10% or more of the interests in the tenant, or, if the
tenant is a corporation, 10% or more of the voting power or
value of all classes of stock of the tenant. Rents received from
such tenant that is our TRS, however, will not be excluded from
the definition of rents from real property as a
result of this condition if at least 90% of the space at the
property to which the rents relate is leased to third parties,
and the rents paid by the TRS are comparable to rents paid by
our other tenants for comparable space. Whether rents paid by a
TRS are substantially comparable to rents paid by other tenants
is determined at the time the lease with the TRS is entered
into, extended, and modified, if such modification increases the
rents due under such lease. Notwithstanding the foregoing,
however, if a lease with a controlled taxable REIT
subsidiary is modified and such modification results in an
increase in the rents payable by such TRS, any such increase
will not qualify as rents from real property. For
purposes of this rule, a controlled taxable REIT
subsidiary is a TRS in which we own shares possessing more
than 50% of the voting power or more than 50% of the total value
of outstanding shares of such TRS.
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Rent attributable to personal property, leased in connection
with a lease of real property, is not greater than 15% of the
total rent received under the lease. If this condition is not
met, then the portion of the rent attributable to personal
property will not qualify as rents from real
property.
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For rents received to qualify as rents from real
property, the REIT generally must not operate or manage
the property or furnish or render services to the tenants of the
property (subject to a 1% de minimis exception), other than
through an independent contractor from whom the REIT derives no
revenue or through a TRS. The REIT may, however, directly
perform certain services that are usually or customarily
rendered in connection with the rental of space for
occupancy only and are not otherwise considered rendered
to the occupant of the property. Any amounts we receive
from a TRS with respect to the TRSs provision of
non-customary services will, however, be nonqualifying income
under the 75% gross income test and, except to the extent
received through the payment of dividends, the 95% gross income
test.
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We do not intend to charge rent for any property that is based
in whole or in part on the net income or profits of any person
(except by reason of being based on a percentage of gross
receipts or sales, as heretofore described), and we do not
intend to rent any personal property (other than in connection
with a lease of real property where less than 15% of the total
rent is attributable to personal property). We directly perform
services under certain of our leases, but such services are not
rendered to the occupant of the property. Furthermore, these
services are usual and customary management services provided by
landlords renting space for occupancy in the geographic areas in
which we own property. To the extent that the performance of any
services provided by us would cause amounts received from our
tenants to be excluded from rents from real property, we intend
to hire a TRS, or an independent contractor from whom we derive
no revenue, to perform such services.
On February 23, 2009, we entered into a stock purchase
agreement with Mr. Alexander Otto to issue and sell to him
and certain members of his family (collectively, the Otto
Family) our common shares representing in excess of 20% of
our outstanding common shares. In connection therewith, we
entered into a waiver agreement pursuant to which we agreed to
waive the related party limit contained in our articles of
incorporation that would otherwise have prohibited the Otto
Family (and other persons who may be deemed to have constructive
ownership of common shares owned by the Otto Family) from
constructively owning more than 9.8% of our outstanding common
shares. The waiver agreement contains provisions for monitoring
and restricting ownership by the Otto Family of our tenants.
These provisions, however, may not ensure that rents from our
tenants will qualify as rents from real property.
For purposes of these gross income tests, the term
interest generally does not include any amount
received or accrued (directly or indirectly) if the
determination of some or all of the amount depends in any way on
the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term
interest solely by reason of being based on a fixed
percentage or percentages of receipts or sales.
From time to time, we enter into hedging transactions with
respect to one or more of our assets or liabilities. Our hedging
activities may include entering into interest rate swaps, caps,
and floors, options to purchase these items, and futures and
forward contracts. Except to the extent determined by the IRS,
income from a hedging transaction, including gain from the sale
or disposition of such a transaction, that is clearly identified
as such as specified in the Code and that hedges indebtedness
incurred or to be incurred by us to acquire or carry real estate
as specified in the Code will not constitute gross income for
purposes of the 95% gross income test (for hedging transactions
entered into on or after January 1, 2005) and the 75%
gross income test (for hedging transactions entered into after
July 30, 2008) and therefore will be exempt from these
gross income tests. Gross income from such hedging transactions
entered into prior to July 30, 2008 is treated as
nonqualifying income for purposes of the 75% gross income test.
The term hedging transaction, as used above,
generally means any transaction we enter into in the normal
course of our business primarily to manage risk of interest rate
changes or fluctuations with respect to borrowings made or to be
made by us (and for transactions entered into after
July 30, 2008, it also includes a transaction entered into
to manage the risk of currency fluctuations with respect to any
item of income or gain that would be qualifying income under the
75% and 95% gross income tests). To the extent that we hedge
with other types of financial instruments, the income from those
transactions is not likely to be treated as qualifying income
for purposes of the gross income tests. We intend to structure
any hedging transactions in a manner that does not jeopardize
our status as a REIT.
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If we fail to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, we may nevertheless qualify as a
REIT for the year if we are entitled to relief under certain
provisions of the Code. Commencing with our taxable year
beginning January 1, 2005, we generally may make use of the
relief provisions if:
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following our identification of the failure to meet the 75% or
95% gross income tests for any taxable year, we file a schedule
with the IRS setting forth each item of our gross income for
purposes of the 75% or 95% gross income tests for such taxable
year in accordance with Treasury Regulations; and
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our failure to meet these tests was due to reasonable cause and
not due to willful neglect.
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For taxable years ending before January 1, 2005, we
generally may avail ourselves of the relief provisions if:
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our failure to meet the 75% and 95% gross income tests was due
to reasonable cause and not due to willful neglect;
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we attach a schedule of the sources of our income to our federal
income tax return; and
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any incorrect information on the schedule was not due to fraud
with intent to evade tax.
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It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of these
relief provisions. For example, if we fail to satisfy the gross
income tests because nonqualifying income that we intentionally
accrue or receive exceeds the limits on nonqualifying income,
the IRS could conclude that our failure to satisfy the tests was
not due to reasonable cause. If these relief provisions do not
apply to a particular set of circumstances, we will not qualify
as a REIT. As discussed above, even if these relief provisions
apply, and we retain our status as a REIT, a tax would be
imposed with respect to our nonqualifying income. We may not
always be able to comply with the gross income tests for REIT
qualification despite periodic monitoring of our income.
Prohibited Transaction Income.
Any gain we
realize on the sale of any property held primarily for sale to
customers in the ordinary course of business other than
foreclosure property will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Whether
property is held primarily for sale to customers in the ordinary
course of a trade or business depends on all the facts and
circumstances surrounding the particular transaction. We do not
intend to engage in prohibited transactions.
Penalty Tax.
Any redetermined rents,
redetermined deductions or excess interest we generate will be
subject to a 100% penalty tax. In general, redetermined rents
are rents from real property that are overstated as a result of
any services furnished to any of our tenants by one of our TRSs,
and redetermined deductions and excess interest represent any
amounts that are deducted by a TRS for amounts paid to us that
are in excess of the amounts that would have been deducted based
on arms-length negotiations. Rents we receive will not
constitute redetermined rents if they qualify for certain safe
harbor provisions contained in the Code. These determinations
are inherently factual, and the IRS has broad discretion to
assert that amounts paid between related parties should be
reallocated to clearly reflect their respective incomes. If the
IRS successfully made such an assertion, we would be required to
pay a 100% penalty tax on the excess of an arms-length fee
for tenant services over the amount actually paid.
Asset Tests.
At the close of each quarter of
our taxable year, we also must satisfy four tests relating to
the nature and diversification of our assets. First, at least
75% of the value of our total assets must be represented by real
estate assets, cash, cash items and government securities. For
purposes of this test, real estate assets include real property
(including interests in real property and interests in mortgages
on real property) and common stock (or transferable certificates
of beneficial interest) in other REITs, as well as any stock or
debt instruments that are purchased with the proceeds of a stock
offering or public offering of debt with a maturity date of at
least five years, but only for the one-year period beginning on
the date we receive such proceeds. Second, not more than 25% of
our total assets may be represented by securities, other than
those securities includable in the 75% asset test. Third, of the
investments included in the 25% asset class, and except for
investments in another REIT, a QRS or a TRS, the value of any
one issuers securities may not exceed 5% of the value of
our total assets, and we may not own more than 10% of the total
vote or value of the outstanding securities of any one issuer
except, in the case of the 10% value test, securities satisfying
the straight debt safe-harbor. Certain types of
securities we may own are disregarded as securities solely for
purposes of the 10% value test, including, but not limited to,
any loan to an individual or an estate, any obligation to pay
rents from real property and any security issued by a REIT. In
addition, commencing with our taxable year beginning
January 1, 2005, solely for purposes of the 10% value test,
the determination of our
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interest in the assets of a partnership or limited liability
company in which we own an interest will be based on our
proportionate interest in any securities issued by the
partnership or limited liability company, excluding for this
purpose certain securities described in the Code. Fourth, no
more than 25% (20% for taxable years beginning before
January 1, 2009) of the value of our assets may be
comprised of securities of one or more TRSs.
After initially meeting the asset tests at the close of any
quarter, we will not lose our status as a REIT for failure to
satisfy the asset tests at the end of a later quarter solely by
reason of changes in asset values. If we fail to satisfy an
asset test because we acquire securities or other property
during a quarter, we can cure this failure by disposing of
sufficient nonqualifying assets within 30 days after the
close of that quarter. We believe we have maintained and intend
to continue to maintain adequate records of the value of our
assets to ensure compliance with the asset tests. If we failed
to cure any noncompliance with the asset tests within the
30 day cure period, we would cease to qualify as a REIT
unless we are eligible for certain relief provisions discussed
below.
Commencing with our taxable year beginning January 1, 2005,
certain relief provisions may be available to us if we fail to
satisfy the asset tests described above after the 30 day
cure period. Under these provisions, we will be deemed to have
met the 5% and 10% REIT asset tests if the value of our
nonqualifying assets (i) does not exceed the lesser of
(a) 1% of the total value of our assets at the end of the
applicable quarter or (b) $10,000,000, and (ii) we
dispose of the nonqualifying assets or otherwise satisfy such
tests within six months after the last day of the quarter in
which the failure to satisfy the asset tests is discovered or
the period of time prescribed by Treasury Regulations to be
issued. For violations due to reasonable cause and not willful
neglect that are in excess of the de minimis exception described
above, we may avoid disqualification as a REIT under any of the
asset tests, after the 30 day cure period, by taking steps
including (i) the disposition of sufficient nonqualifying
assets, or the taking of other actions, which allow us to meet
the asset test within six months after the last day of the
quarter in which the failure to satisfy the asset tests is
discovered or the period of time prescribed by Treasury
Regulations to be issued, (ii) paying a tax equal to the
greater of (a) $50,000 or (b) the highest corporate
tax rate multiplied by the net income generated by the
nonqualifying assets and (iii) disclosing certain
information to the IRS.
Although we expect to satisfy the asset tests described above
and plan to take steps to ensure that we satisfy such tests for
any quarter with respect to which retesting is to occur, there
can be no assurance we will always be successful. If we fail to
cure any noncompliance with the asset tests in a timely manner,
and the relief provisions described above are not available, we
would cease to qualify as a REIT.
Annual Distribution Requirements.
To maintain
our qualification as a REIT, we are required to distribute
dividends (other than capital gain dividends) to our
shareholders in an amount at least equal to (i) the sum of
(a) 90% of our REIT taxable income (computed
without regard to the dividends paid deduction and our net
capital gain) and (b) 90% of our net income (after tax), if
any, from foreclosure property minus (ii) the excess of
(a) the sum of certain items of noncash income (i.e.,
income attributable to leveled stepped rents, original issue
discount on purchase money debt, or a like-kind exchange that is
later determined to be taxable) over (b) 5% of REIT
taxable income as described above.
In addition, if we dispose of any asset we acquired from a
corporation which is or has been a C corporation in a
transaction in which our basis in the asset is determined by
reference to the basis of the asset in the hands of that
C corporation, within the ten-year period following our
acquisition of such asset, we would be required to distribute at
least 90% of the after-tax gain, if any, we recognized on the
disposition of the asset, to the extent that gain does not
exceed the excess of (a) the fair market value of the asset
on the date we acquired the asset over (b) our adjusted
basis in the asset on the date we acquired the asset.
We must pay the distributions described above in the taxable
year to which they relate (current distributions),
or in the following taxable year if they are either
(i) declared before we timely file our tax return for such
year and paid on or before the first regular dividend payment
after such declaration (throwback distributions) or
(ii) paid during January to shareholders of record in
October, November or December of the prior year (deemed
current distributions). Throwback distributions are
taxable to our shareholders for the year in which they are paid,
even though the distributions relate to the prior year for
purposes of our 90% distribution requirement. Current
distributions are taxable for the year they are paid and deemed
current distributions, although distributed in January are
taxable for the year of their record date. The amount
distributed must not be preferential i.e., every
shareholder of the class of equity securities to which a
distribution is made must be treated the same as every other
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shareholder of that class, and no class of equity securities may
be treated otherwise than in accordance with its dividend rights
as a class. To the extent that we do not distribute all of our
net capital gain or distribute at least 90%, but less than 100%,
of our REIT taxable income, as adjusted, we will be
subject to tax thereon at regular ordinary and capital gain
corporate tax rates. We believe we have made and intend to
continue to make timely distributions sufficient to satisfy
these annual distribution requirements.
We generally expect that our REIT taxable income will be less
than our cash flow because of the allowance of depreciation and
other non-cash charges in computing REIT taxable income.
Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the
distribution requirements described above. However, from time to
time, we may not have sufficient cash or other liquid assets to
meet these distribution requirements because of timing
differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and
deduction of expenses in arriving at our taxable income. If
these timing differences occur, in order to meet the
distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay
dividends in the form of taxable share dividends.
Under certain circumstances, we may be able to rectify a failure
(due to, for example, an IRS adjustment such as an increase in
our taxable income or a reduction in reported expenses) to meet
the 90% distribution requirement for a year by paying
deficiency dividends to shareholders in a later
year, which may be included in our deduction for dividends paid
for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we will
be required to pay interest to the IRS based on the amount of
any deduction taken for deficiency dividends.
In addition, we would be subject to a 4% excise tax to the
extent we fail to distribute during each calendar year (or in
the case of distributions with declaration and record dates
falling in the last three months of the calendar year, by the
end of January immediately following such year) at least the sum
of 85% of our REIT ordinary income for such year, 95% of our
REIT capital gain income for the year (other than certain
long-term capital gains for which we make a Capital Gains
Designation (as defined below) and on which we pay the tax), and
any undistributed taxable income from prior periods. Any REIT
taxable income and net capital gain on which a REIT-level
corporate income tax is imposed for any year is treated as an
amount distributed during that year for purposes of calculating
the excise tax.
Earnings and Profits Distribution
Requirement.
In order to qualify as a REIT, we
cannot have at the end of any taxable year any undistributed
earnings and profits that are attributable to a
C corporation taxable year (
i.e.
, a year in
which a corporation is neither a REIT nor an S corporation).
We intend to make timely distributions to satisfy the annual
distribution requirements.
Failure
to Qualify
Commencing with our taxable year beginning January 1, 2005,
specified cure provisions are available to us in the event that
we violate a provision of the Code that would result in our
failure to qualify as a REIT. These cure provisions would reduce
the instances that could lead to our disqualification as a REIT
for violations due to reasonable cause and would instead
generally require the payment of a monetary penalty. If we fail
to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax
(including any applicable alternative minimum tax) on our
taxable income at regular corporate rates. Distributions to
shareholders in any year in which we fail to qualify will not be
deductible by us, and we will not be required to distribute any
amounts to our shareholders. As a result, our failure to qualify
as a REIT would reduce the cash available for distribution by us
to our shareholders. In addition, if we fail to qualify as a
REIT, all distributions to shareholders will be taxable as
ordinary income to the extent of our current and accumulated
earnings and profits, and, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends
received deduction. Unless entitled to relief under specific
statutory provisions, we would also be disqualified from
taxation as a REIT for the four taxable years following the year
during which we lost our qualification. It is not possible to
state whether in all circumstances we would be entitled to this
statutory relief.
S-18
Taxation
of Taxable U.S. Shareholders
The following summary describes certain U.S. federal income
tax consequences to taxable U.S. Shareholders (as defined
below) with respect to an investment in our common shares.
Certain U.S. federal income tax consequences applicable to
tax-exempt shareholders are described under the subheading
Taxation of Tax-Exempt Shareholders,
below and certain U.S. federal income tax consequences
applicable to
Non-U.S. Shareholders
are described under the subheading Taxation of
Non-U.S. Shareholders,
below.
As used herein, the term U.S. Shareholder means
a beneficial owner of common shares who, for U.S. federal
income tax purposes:
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is a citizen or resident of the United States;
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is a corporation or other entity classified as a corporation for
U.S. federal income tax purposes, created or organized in
or under the laws of the United States or of any state thereof
or in the District of Columbia;
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is an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
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is a trust whose administration is subject to the primary
supervision of a U.S. court and that has one or more
U.S. persons who have the authority to control all
substantial decisions of the trust. Notwithstanding the
preceding sentence, to the extent provided in Treasury
Regulations, certain trusts in existence on August 20,
1996, and treated as U.S. persons prior to this date that
elect to continue to be treated as U.S. persons, shall also
be considered U.S. Shareholders.
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If a partnership, including for this purpose any arrangement or
entity that is treated as a partnership for U.S. federal
income tax purposes, holds our common shares, the tax treatment
of a partner in the partnership will generally depend on the
status of the partner and the activities of the partnership. If
you are a partner in a partnership holding our common shares,
you are urged to consult your tax advisors about the
consequences of the purchase, ownership and disposition of our
common shares by the partnership.
Distributions Generally.
As long as we qualify
as a REIT, distributions out of our current or accumulated
earnings and profits, other than capital gain dividends
discussed below, generally will constitute dividends taxable to
our taxable U.S. Shareholders as ordinary income. For
purposes of determining whether distributions to holders of our
common shares are out of current or accumulated earnings and
profits, our earnings and profits will be allocated first to our
outstanding preferred shares and then to our common shares.
These distributions will not be eligible for the
dividends-received deduction in the case of
U.S. Shareholders that are corporations.
Because we generally are not subject to U.S. federal income
tax on the portion of our REIT taxable income distributed to our
shareholders, our ordinary dividends generally are not eligible
for the reduced 15% rate currently available to most
non-corporate taxpayers through 2010, and will continue to be
taxed at the higher tax rates applicable to ordinary income.
However, the reduced 15% rate does apply to our distributions:
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to the extent attributable to dividends received by us from
non-REIT corporations, such as a TRS; and
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to the extent attributable to income upon which we have paid
corporate income tax (for example, if we distribute taxable
income that we retained and paid tax on in the prior year).
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To the extent that we make distributions in excess of our
current and accumulated earnings and profits, these
distributions will be treated first as a tax-free return of
capital to each U.S. Shareholder. This treatment will
reduce the adjusted basis that each U.S. Shareholder has in
its common shares for tax purposes by the amount of the
distribution (but not below zero). Distributions in excess of a
U.S. Shareholders adjusted basis in its common shares
will be taxable as capital gains (provided that the common
shares have been held as a capital asset) and will be taxable as
long-term capital gain if the common shares have been held for
more than one year. Dividends we declare in October, November,
or December of any year and payable to a shareholder of record
on a specified date in any of these months shall be treated as
both paid by us and received by the shareholders on December 31
of that year, provided we actually pay the dividend on or before
January 31 of the following calendar year. Shareholders may not
include in their own income tax returns any of our net operating
losses or capital losses.
S-19
Stock Dividends.
The IRS recently issued a
revenue procedure regarding the tax treatment of stock
distributions paid by a REIT. Under that guidance, which only
applies to the 2009 taxable year unless extended, a REIT may pay
up to 90% of a distribution in common stock. No determination
has been made as to whether we will make future distributions in
a combination of cash and common shares that meet the IRS
requirements. Paying all or a portion of the 2009 dividend in a
combination of cash and common shares would allow us to satisfy
our REIT taxable income distribution requirement, while
enhancing our financial flexibility and balance sheet strength.
If we make a dividend distribution in a combination of cash and
common shares that satisfies the revenue procedure, a
U.S. Shareholder generally would include the sum of the
value of the common shares and the amount of cash received in
its gross income as dividend income to the extent that such
U.S. Shareholders share of the distribution is made
out of its share of the portion of our current and accumulated
earnings and profits allocable to such distribution. The value
of any common shares received as part of a distribution
generally is equal to the amount of cash that could have been
received instead of the common shares. Depending on the
circumstances of the U.S. Shareholder, the tax on the
distribution may exceed the amount of the distribution received
in cash, in which case such U.S. Shareholder would have to
pay the tax using cash from other sources. A
U.S. Shareholder that receives common shares pursuant to a
distribution generally has a tax basis in such common shares
equal to the amount of cash that could have been received
instead of such common shares as described above, and a holding
period in such common shares that begins on the day following
the payment date for the distribution.
Capital Gain Distributions.
Distributions that
we properly designate as capital gain dividends (and
undistributed amounts for which we properly make a capital gains
designation) will be taxable to U.S. Shareholders as gains
(to the extent that they do not exceed our actual net capital
gain for the taxable year) from the sale or disposition of a
capital asset. Depending on the period of time we have held the
assets which produced these gains, and on certain designations,
if any, which we may make, these gains may be taxable to
non-corporate U.S. Shareholders at either a 15% or a 25%
rate, depending on the nature of the asset giving rise to the
gain. Corporate U.S. Shareholders may, however, be required
to treat up to 20% of certain capital gain dividends as ordinary
income.
Passive Activity Losses and Investment Interest
Limitations.
Distributions we make and gain
arising from the sale or exchange by a U.S. Shareholder of
our common shares will be treated as portfolio income. As a
result, U.S. Shareholders generally will not be able to
apply any passive losses against this income or
gain. A U.S. Shareholder may elect to treat capital gain
dividends, capital gains from the disposition of common shares
and qualified dividend income as investment income for purposes
of computing the investment interest limitation, but in such
case, the shareholders will be taxed at ordinary income rates on
such amount. Other distributions we make (to the extent they do
not constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment
interest limitation. Gain arising from the sale or other
disposition of our common shares, however, will not be treated
as investment income under certain circumstances.
Retention of Net Long-Term Capital Gains.
We
may elect to retain, rather than distribute as a capital gain
dividend, our net long-term capital gains. If we make this
election (a Capital Gains Designation) we would pay
tax on our retained net long-term capital gains. In addition, to
the extent we make a Capital Gains Designation, a
U.S. Shareholder generally would:
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include its proportionate share of our undistributed long-term
capital gains in computing its long-term capital gains in its
income tax return for its taxable year in which the last day of
our taxable year falls (subject to certain limitations as to the
amount that is includable);
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be deemed to have paid the capital gains tax imposed on us on
the designated amounts included in the
U.S. Shareholders long-term capital gains;
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receive a credit or refund for the amount of tax deemed paid by
it;
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increase the adjusted basis of its common shares by the
difference between the amount of includable gains and the tax
deemed to have been paid by it; and
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in the case of a U.S. Shareholder that is a corporation,
appropriately adjust its earnings and profits for the retained
capital gains in accordance with Treasury Regulations to be
promulgated.
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S-20
Dispositions
of Common Shares
Generally, if you are a U.S. Shareholder and you sell or
dispose of your common shares, you will recognize gain or loss
for U.S. federal income tax purposes in an amount equal to
the difference between the amount of cash and the fair market
value of any property you receive on the sale or other
disposition and your adjusted basis in the common shares for tax
purposes. This gain or loss will be capital if you have held the
common shares as a capital asset and will be long-term capital
gain or loss if you have held the common shares for more than
one year. However, if you are a U.S. Shareholder and you
recognize loss upon the sale or other disposition of common
shares that you have held for six months or less (after applying
certain holding period rules), the loss you recognize will be
treated as a long-term capital loss, to the extent you received
distributions from us that were required to be treated as
long-term capital gains.
The maximum tax rate for individual taxpayers on net long-term
capital gains (i.e., the excess of net long-term capital gain
over net short-term capital loss) is currently 15% for most
assets. In the case of individuals whose ordinary income is
taxed at a 10% or 15% rate, the 15% rate is reduced to 5%.
Absent future legislation, the maximum tax rate on long-term
capital gains will return to 20% in 2011.
Backup
Withholding
We report to our U.S. Shareholders and the IRS the amount
of dividends paid during each calendar year, and the amount of
any tax withheld. Under the backup withholding rules, a
shareholder may be subject to backup withholding with respect to
dividends paid unless the holder is a corporation or comes
within certain other exempt categories and, when required,
demonstrates this fact, or provides a taxpayer identification
number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements
of the backup withholding rules. A U.S. Shareholder that
does not provide us with its correct taxpayer identification
number may also be subject to penalties imposed by the IRS.
Backup withholding is not an additional tax. Any amount paid as
backup withholding will be creditable against the
shareholders income tax liability. In addition, we may be
required to withhold a portion of capital gain distributions to
any shareholders who fail to certify their non-foreign status.
See Taxation of
Non-U.S. Shareholders.
Taxation
of Tax-Exempt Shareholders
The IRS has ruled that amounts distributed as dividends by a
qualified REIT do not constitute unrelated business taxable
income (UBTI) when received by a tax-exempt entity.
Based on that ruling, and provided that (i) a tax-exempt
U.S. shareholder has not held our common shares as
debt financed property within the meaning of the
Code (
i.e.
, where the acquisition or ownership of common
shares is financed through a borrowing by the tax-exempt
shareholder) and (ii) our common shares are not otherwise
used in an unrelated trade or business, dividend income from us
and income from the sale of our common shares generally will not
be UBTI to a tax-exempt shareholder.
Tax-exempt shareholders that are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit
trusts and qualified group legal services plans exempt from
U.S. federal income taxation under sections 501(c)(7),
(c)(9), (c)(17) and (c)(20) of the Code, respectively, are
subject to different UBTI rules, that generally will require
them to characterize distributions from us as UBTI.
Notwithstanding the above, a pension trust (i) that is
described in Section 401(a) of the Code and is tax-exempt
under Section 501(a) of the Code and (ii) that owns
more than 10% of the value of our common shares could be
required to treat a percentage of the dividends from us as UBTI
if we are a pension-held REIT. We will not be a
pension-held REIT unless (i) either (a) one pension
trust owns more than 25% of the value of our common shares or
(b) a group of pension trusts, each individually holding
more than 10% of the value of our common shares, collectively
owns more than 50% of our outstanding common shares and
(ii) we would not have qualified as a REIT without relying
upon the look through exemption for certain trusts
under Section 856(h)(3) of the Code to satisfy the
requirement that not more than 50% in value of our outstanding
common shares is owned by five or fewer individuals. We do not
expect to be classified as a pension held REIT, but
because our common shares are publicly traded, we cannot
guarantee this will always be the case.
Tax-exempt shareholders are encouraged to consult their own tax
advisors concerning the U.S. federal, state, local and
foreign tax consequences of an investment in our common shares.
S-21
Taxation
of
Non-U.S.
Shareholders
The following discussion addresses the rules governing
U.S. federal income taxation of the ownership and
disposition of common shares by persons that are
Non-U.S. Shareholders.
For purposes of this summary, a
Non-U.S. Shareholder
is a beneficial owner of our common shares that is not a
U.S. Shareholder and is not a partnership or other entity
that is treated as a partnership for U.S. federal income
tax purposes. The rules governing U.S. federal income
taxation of
Non-U.S. Shareholders
are complex and no attempt is made herein to provide more than a
brief summary of such rules.
Non-U.S. Shareholders
are urged to consult their own tax advisors concerning the
U.S. federal, state, local and foreign tax consequences to
them of an acquisition of our common shares, including tax
return filing requirements and the U.S. federal, state,
local and foreign tax treatment of dispositions of interests in,
and the receipt of distributions from, us.
Distributions Generally.
Distributions that
are neither attributable to gain from our sale or exchange of
U.S. real property interests nor designated by us as
capital gain dividends will be treated as dividends of ordinary
income to the extent that they are made out of our current or
accumulated earnings and profits. Such distributions ordinarily
will be subject to withholding of U.S. federal income tax
at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the distributions are
treated as effectively connected with the conduct by you of a
U.S. trade or business. Under some treaties, however, lower
withholding rates generally applicable to dividends do not apply
to dividends from REITs. Dividends that are treated as
effectively connected with the conduct of a U.S. trade or
business will be subject to tax on a net basis (that is, after
allowance for deductions) at graduated rates, in the same manner
as dividends paid to U.S. Shareholders are subject to tax,
and are generally not subject to withholding. Any such dividends
received by a
Non-U.S. Shareholder
that is a corporation may also be subject to an additional
branch profits tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
We expect to withhold U.S. income tax at the rate of 30% on
any distributions made to you unless:
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a lower treaty rate applies and you file with us an IRS Form
W-8BEN
evidencing eligibility for that reduced treaty rate; or
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you file an IRS
Form W-8ECI
with us claiming that the distribution is income effectively
connected with your U.S. trade or business.
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Distributions in excess of our current and accumulated earnings
and profits will not be taxable to you to the extent that such
distributions do not exceed your adjusted basis in our common
shares. Instead, the distribution will reduce the adjusted basis
of such common shares. To the extent that such distributions
exceed your adjusted basis in our common shares, they will give
rise to gain from the sale or exchange of such
common shares. The tax treatment of this gain is described
below. Because we generally cannot determine at the time we make
a distribution whether the distribution will exceed our current
and accumulated earnings and profits, we expect to treat all
distributions as made out of our current or accumulated earnings
and profits and we therefore expect to withhold tax on the
entire amount of any distribution at the same rate as we would
withhold on a dividend. However, amounts withheld should
generally be refundable if it is subsequently determined that
the distribution was, in fact, in excess of our current and
accumulated earnings and profits.
Capital Gain Dividends and Distributions Attributable to a
Sale or Exchange of U.S. Real Property
Interests.
Distributions to you that we properly
designate as capital gain dividends, other than those arising
from the disposition of a U.S. real property interest,
generally should not be subject to U.S. federal income
taxation, unless (1) the investment in our common shares is
treated as effectively connected with your U.S. trade or
business, in which case you will be subject to the same
treatment as U.S. Shareholders with respect to such gain,
except that a
Non-U.S. Shareholder
that is a foreign corporation may also be subject to the 30%
branch profits tax, as discussed above; or (2) you are a
nonresident alien individual who is present in the United States
for 183 days or more during the taxable year and certain
other conditions are met, in which case you will be subject to a
30% tax on your capital gains.
Distributions that are attributable to gain from sales or
exchanges of U.S. real property interests by us
are taxable to a
Non-U.S. Shareholder
under special provisions of the Code known as the Foreign
Investment in Real Property Tax Act (FIRPTA). The
term U.S. real property interests includes
interests in U.S. real property. Under
S-22
FIRPTA, subject to the 5% Exception (discussed below), a
distribution attributable to gain from sales of U.S. real
property interests is considered effectively connected with a
U.S. business of the
Non-U.S. Shareholder
and will be subject to U.S. federal income tax at the rates
applicable to U.S. Shareholders (subject to a special
alternative minimum tax adjustment in the case of nonresident
alien individuals), without regard to whether the distribution
is designated as a capital gain dividend. In addition, we will
be required to withhold tax equal to 35% of the amount of
distribution attributable to gain from the sale or exchange of
the U.S. real property interest.
However, any distribution with respect to any class of equity
securities which is regularly traded on an established
securities market located in the United States is not subject to
FIRPTA, and therefore, not subject to the 35%
U.S. withholding tax described above, if you did not own
more than 5% of such class of equity securities at any time
during the one-year period ending on the date of the
distribution (the 5% Exception). Instead, such
distributions will be treated as ordinary dividend distributions
and, as a result,
Non-U.S. Shareholders
generally would be subject to withholding tax on such
distributions in the same manner as they are subject to ordinary
dividends.
Stock Dividends.
The IRS recently issued a
revenue procedure regarding the tax treatment of stock
distributions paid by a REIT. Under that guidance, which only
applies to the 2009 taxable year unless extended, a REIT may pay
up to 90% of a distribution in common stock. No determination
has been made as to whether we will make future distributions in
a combination of cash and common shares that meet the IRS
requirements. Such distributions would, however, be subject to
withholding tax in the same manner as described herein under
Distributions Generally and
Capital Gain Dividends and Distributions
Attributable to a sale or Exchange of U.S. Real Property
Interests.
Retention of Net Capital Gains.
Although the
law is not clear on the matter, it appears that amounts
designated by us as retained capital gains in respect of the
common shares held by
Non-U.S. Shareholders
generally should be treated in the same manner as actual
distributions by us of capital gain dividends. Under this
approach, you would be able to offset as a credit against your
U.S. federal income tax liability resulting from your
proportionate share of the tax paid by us on such retained
capital gains, and to receive from the IRS a refund to the
extent your proportionate share of such tax paid by us exceeds
your actual United States federal income tax liability.
Sale of Common Shares.
Gain recognized by a
Non-U.S. Shareholder
upon the sale or exchange of our common shares generally will
not be subject to United States taxation unless such common
shares constitutes a U.S. real property interest. Our
common shares will not constitute a U.S. real property
interest if we are a domestically-controlled qualified
investment entity, which includes a REIT. A REIT is
domestically-controlled if, at all times during a specified
testing period, less than 50% in value of its common shares are
held directly or indirectly by
Non-U.S. Shareholders.
We believe that we are, and expect to continue to be, a
domestically-controlled REIT. However, because our common shares
are publicly traded, no assurance can be given that we are or
will be a domestically-controlled REIT.
Even if we do not qualify as a domestically-controlled REIT at
the time you sell or exchange our common shares, gain arising
from such a sale or exchange would not be subject to tax under
FIRPTA as a sale of a U.S. real property interest provided
that (i) such common shares are of a class of our
common shares that is regularly traded, as defined by
applicable Treasury Regulations, on an established securities
market such as the NYSE; and (ii) you owned, actually and
constructively, 5% or less in value of such class of our common
shares throughout the shorter of the period during which you
held such common shares or the five-year period ending on the
date of the sale or exchange.
If gain on the sale or exchange of our common shares were
subject to taxation under FIRPTA, you would be subject to
regular U.S. federal income tax with respect to such gain
in the same manner as a taxable U.S. Shareholder (subject
to any applicable alternative minimum tax and a special
alternative minimum tax adjustment in the case of nonresident
alien individuals) and the purchaser of the common shares would
be required to withhold and remit to the IRS 10% of the purchase
price.
Notwithstanding the foregoing, gain from the sale or exchange of
our common shares not otherwise subject to FIRPTA will be
taxable to you if either (i) the investment in our common
shares is effectively connected with your
S-23
U.S. trade or business or (ii) you are a nonresident
alien individual who is present in the United States for
183 days or more during the taxable year and certain other
conditions are met.
Backup Withholding Tax and Information
Reporting.
Generally, we must report annually to
the IRS the amount of dividends paid to you, your name and
address, and the amount of tax withheld, if any. A similar
report is sent to you. Pursuant to tax treaties or other
agreements, the IRS may make its reports available to tax
authorities in your country of residence.
Payments of dividends or of proceeds from the disposition of
common shares made to you may be subject to information
reporting and backup withholding unless you establish an
exemption, for example, by properly certifying your
Non-U.S. Shareholder
status on an IRS
Form W-8BEN
or another appropriate version of IRS
Form W-8.
Notwithstanding the foregoing, backup withholding and
information reporting may apply if either we have or our paying
agent has actual knowledge, or reason to know, that you are a
U.S. person.
Backup withholding is not an additional tax. Rather, the United
States income tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund or
credit may be obtained, provided that the required information
is furnished to the IRS.
State and
Local Tax Consequences
We may be subject to state or local taxation in various state or
local jurisdictions, including those in which we transact
business and our shareholders may be subject to state or local
taxation in various state or local jurisdictions, including
those in which they reside. Our state and local tax treatment
may not conform to the federal income tax treatment discussed
above. In addition, your state and local tax treatment may not
conform to the federal income tax treatment discussed above. You
are urged to consult your own tax advisors regarding the effect
of state and local tax laws on an investment in our common
shares.
S-24
PLAN OF
DISTRIBUTION
We have entered into a sales agency financing agreement, dated
as of November 9, 2009, with BNY Mellon Capital Markets,
LLC, or BNYMCM, under which we may issue and sell up to
$200,000,000 of our common shares from time to time through
BNYMCM, as our agent for the offer and sale of the common
shares. The sales, if any, of our common shares under the sales
agency financing agreement will be made in at the
market offerings as defined in Rule 415 of the
Securities Act of 1933, including sales made directly on the
NYSE, the principal existing trading market for our common
shares, to or through a market maker or through an electronic
communications network, or if we and BNYMCM agree in writing,
sales may be made in privately negotiated transactions.
From time to time during the term of the sales agency financing
agreement, and subject to the terms and conditions set forth
therein, we may deliver an issuance notice to BNYMCM specifying:
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the length of the selling period, which may not exceed 20
consecutive trading days;
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the aggregate sales price of our common shares to be sold, which
may not exceed $100,000,000 during any selling period without
BNYMCMs prior written consent; and
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the minimum price below which sales may not be made.
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Upon receipt of an issuance notice from us, and subject to the
terms and conditions of the sales agency financing agreement,
BNYMCM has agreed to use its commercially reasonable efforts
consistent with its normal trading and sales practices to sell
such common shares on such terms. We or BNYMCM may suspend the
offering of our common shares at any time upon proper notice to
the other, and the selling period will immediately terminate.
The settlement between us and BNYMCM of our common shares will
occur on the third trading day following the date on which the
sales were made or on or before the third trading day following
the selling period. The obligation of BNYMCM under the sales
agency financing agreement to sell common shares pursuant to any
issuance notice is subject to a number of conditions.
We will pay BNYMCM a commission equal to 1.0% of the sales price
of all common shares sold through it as agent under the sales
agency financing agreement. We have also agreed to reimburse
BNYMCM for its reasonable documented out-of-pocket expenses,
including fees and expenses of counsel (up to $30,000 in the
aggregate) as well as legal fees in connection with continuing
due diligence (up to $15,000 for any fiscal quarter) in
connection with its services under the sales agency financing
agreement.
In connection with the sale of our common shares as contemplated
in this prospectus supplement, BNYMCM may be deemed to be an
underwriter within the meaning of the Securities Act
of 1933, and the compensation paid to BNYMCM may be deemed to be
underwriting commissions or discounts. We have agreed to
indemnify BNYMCM against certain civil liabilities, including
liabilities under the Securities Act of 1933.
Sales of our common shares as contemplated in this prospectus
supplement will be settled through the facilities of The
Depository Trust Company or by such other means as we and
BNYMCM may agree upon.
The offering of our common shares pursuant to the sales agency
financing agreement will terminate upon the earliest of
(1) the sale of all of our common shares subject to the
sales agency financing agreement, (2) the third anniversary
of the date of the sales agency financing agreement and
(3) termination of the sales agency financing agreement by
either BNYMCM or us. BNYMCM may terminate the sales agency
financing agreement upon one trading days notice in
certain circumstances, including bankruptcy events relating to
us, our failure to maintain the listing of our common shares on
the NYSE, the occurrence of an event which has had or would
reasonably be expected to have a material adverse effect on us
or ten days notice of its election to terminate. We may
terminate the sales agency financing agreement upon one trading
days notice.
We have agreed not to directly or indirectly sell, offer to
sell, contract to sell, grant any option to sell or otherwise
dispose of, our common shares or securities convertible into or
exchangeable for our common shares, warrants or any rights to
purchase or acquire our common shares for a period beginning on
the first trading day immediately prior to the delivery of any
issuance notice to BNYMCM and ending on the first trading day
immediately following the settlement date for our common shares
sold pursuant to the applicable issuance notice,
S-25
without the prior written consent of BNYMCM. BNYMCM may give
this consent at any time without public notice. The restriction
described in this paragraph does not apply to sales of:
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our common shares that we offer or sell pursuant to the sales
agency financing agreement;
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our common shares that we issue as consideration in connection
with acquisitions of businesses, assets or securities of other
persons;
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our common shares that we issue upon conversion of convertible
securities, or the exercise of warrants, options or other
rights; or
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our common shares or options to purchase common shares that we
issue, in either case, pursuant to any employee or director
share option, incentive or benefit plan, any share purchase or
ownership plan, long-term incentive plan, distribution
reinvestment plan or other compensation plan.
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In the ordinary course of business, BNYMCM
and/or
its
affiliates have provided, and may in the future provide,
investment banking, commercial banking, corporate trust services
and other services for us from time to time for which they have
received, and will in the future receive, customary fees and
reimbursement of expenses.
LEGAL
MATTERS
The legality of the common shares offered hereby and certain
other legal matters will be passed upon for us by Jones Day.
Sidley Austin LLP will pass upon certain legal matters in
connection with this offering for BNYMCM.
EXPERTS
The consolidated financial statements incorporated in this
prospectus by reference to our Current Report on
Form 8-K
dated August 10, 2009 and managements assessment of
the effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal
Control over Financial Reporting) incorporated in this
prospectus by reference to our Annual Report on
Form 10-K
for the year ended December 31, 2008 have been so
incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any
document we file with the SEC at the SECs Public Reference
Room at 100 F Street, N.E., Washington, D.C.
20549. You may obtain information about the operation of the
SECs Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a website that contains reports, proxy
and information statements, and other information regarding
registrants that file electronically with the SEC
(http://www.sec.gov).
INCORPORATION
BY REFERENCE OF CERTAIN INFORMATION
The SEC allows us to incorporate by reference the
information contained in documents we file with the SEC, which
means that we can disclose important information to you by
referring to those documents. The information incorporated by
reference is an important part of this prospectus. Any statement
contained in a document which is incorporated by reference into
this prospectus is automatically updated and superseded if
information contained in this prospectus, or information that we
later file with the SEC, modifies or replaces that information.
Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a
part of this prospectus. We incorporate by reference the
following documents we filed, excluding any information
contained therein or attached as an exhibit thereto which has
been furnished, but not filed, with the SEC:
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Our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, as amended by
Form 10-K/A filed on April 29, 2009;
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Our Quarterly Report on
Form 10-Q
for the fiscal quarter ended March 31, 2009;
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Our Quarterly Report on
Form 10-Q
for the fiscal quarter ended June 30, 2009;
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Our Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 2009;
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Our Current Reports on
Form 8-K
filed on January 6, 2009; February 27, 2009;
March 11, 2009; April 7, 2009; May 11, 2009;
June 12, 2009; July 1, 2009; July 31, 2009;
August 3, 2009; August 10, 2009; August 14, 2009;
September 10, 2009; September 18, 2009;
September 21, 2009; September 25, 2009;
September 29, 2009; and November 9, 2009;
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The description of our common shares contained in our
Registration Statement on
Form 8-A
dated January 26, 1993 and all amendments or reports filed
with the SEC for the purpose of updating such description.
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The financial statements contained in our Annual Report on
Form 10-K for the year ended December 31, 2008 have
been superseded by those contained in our Current Report on
Form 8-K filed on August 10, 2009.
Any documents we file pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 after the date
of this prospectus and prior to the termination of the offering
of the common shares to which this prospectus relates will
automatically be deemed to be incorporated by reference into
this prospectus and be deemed a part of this prospectus from the
date of filing such documents, except to the extent any
information contained in or attached to such documents has been
furnished, but not filed, with the SEC.
To receive a free copy of any of the documents incorporated by
reference into this prospectus (other than exhibits, unless they
are specifically incorporated by reference in any such
documents), call or write Developers Diversified Realty
Corporation, 3300 Enterprise Parkway, Beachwood, Ohio 44122,
Attention: Investor Relations, telephone number
(216) 755-5500.
We also maintain a website that contains additional information
about us
(http://www.ddr.com).
Information on or accessible through our website is not part of,
or incorporated by reference into, this prospectus.
You should not assume that the information contained in this
prospectus and the documents incorporated into this prospectus
by reference is correct on any date after their respective
dates, even though this prospectus is delivered, or securities
are sold, on a later date.
S-27
PROSPECTUS
Developers Diversified Realty
Corporation
Debt Securities
Preferred Shares
Depositary
Shares Representing Preferred Shares
Common Shares
Common Share Warrants
We may offer and sell from time to time our debt securities,
preferred shares, depositary shares representing preferred
shares, common shares and common share warrants. We may sell any
combination of these securities in one or more offerings with an
indeterminate aggregate initial offering price.
We will provide the specific terms of the securities to be
offered in one or more supplements to this prospectus. You
should read this prospectus and the applicable prospectus
supplement carefully before you invest in our securities. This
prospectus may not be used to offer and sell our securities
unless accompanied by a prospectus supplement describing the
method and terms of the offering of those offered securities.
We may sell the securities directly or to or through
underwriters or dealers, and also to other purchasers or through
agents. The names of any underwriters or agents that are
included in a sale of securities to you, and any applicable
commissions or discounts, will be stated in an accompanying
prospectus supplement. In addition, the underwriters, if any,
may over-allot a portion of the securities.
Our common shares are listed on the New York Stock Exchange
under the symbol DDR. Our Class G Cumulative
Preferred Shares, Class H Cumulative Redeemable Preferred
Shares and Class I Cumulative Redeemable Preferred Shares
are listed on the New York Stock Exchange under the symbols
DDR-PG, DDR-PH and DDR-PI,
respectively.
Investing in any of our securities involves risks. Please
read carefully the section entitled Risk Factors
beginning on page 1 of this prospectus.
Our executive offices are located at 3300 Enterprise Parkway,
Beachwood, Ohio 44122, and our telephone number is
(216) 755-5500.
We impose certain restrictions on the ownership of our common
shares so that we can maintain our qualification as a real
estate investment trust. You should read the information under
the heading Description of Common Shares
Restrictions on Ownership in this prospectus for a
description of those restrictions.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is October 13, 2009.
We have not authorized any dealer, salesman or other person
to give any information or to make any representation other than
those contained in or incorporated by reference into this
prospectus, any applicable supplement to this prospectus or any
applicable free writing prospectus. You must not rely upon any
information or representation not contained in or incorporated
by reference into this prospectus, any applicable supplement to
this prospectus or any applicable free writing prospectus as if
we had authorized it. This prospectus and any applicable
prospectus supplement do not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the
registered securities to which they relate. Nor do this
prospectus and any accompanying prospectus supplement constitute
an offer to sell or the solicitation of an offer to buy
securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction. You should not assume that the information
contained in this prospectus or any applicable prospectus
supplement is correct on any date after their respective dates,
even though this prospectus or an applicable supplement is
delivered or securities are sold on a later date. Our business,
financial condition and results of operations may have changed
since those dates.
TABLE OF
CONTENTS
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ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the SEC using a shelf registration
process. Under this shelf process, we may from time to time sell
any combination of the securities described in this prospectus
in one or more offerings of an indeterminate number and amount
of securities.
This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities, we will
provide a prospectus supplement that will contain specific
information about the terms of that offering. For a more
complete understanding of the offering of the securities, you
should refer to the registration statement, including its
exhibits. The prospectus supplement may also add, update or
change information contained in this prospectus. You should read
both this prospectus and any prospectus supplement together with
additional information under the heading Where You Can
Find More Information and Information We Incorporate
By Reference.
You should rely only on the information contained or
incorporated by reference in this prospectus and in any
prospectus supplement or in any free writing prospectus that we
may provide you. We have not authorized anyone to provide you
with different information. You should not assume that the
information contained in this prospectus, any prospectus
supplement, any document incorporated by reference or any free
writing prospectus is accurate as of any date, other than the
date of the applicable document. We are not making offers to
sell the securities in any jurisdiction in which an offer or
solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to
anyone to whom it is unlawful to make an offer or solicitation.
Unless otherwise indicated or unless the context requires
otherwise, all references in this prospectus to we,
us, our, the Company or
DDR mean Developers Diversified Realty Corporation
and all wholly-owned and majority-owned subsidiaries and
consolidated joint ventures of Developers Diversified Realty
Corporation.
THE
COMPANY
We are an Ohio corporation and are a self-administered and
self-managed real estate investment trust, or a REIT, operating
as a fully integrated real estate company which acquires,
develops and leases shopping centers.
Our executive offices are located at 3300 Enterprise Parkway,
Beachwood, Ohio 44122, and our telephone number is
(216) 755-5500.
Our website is located at
http://www.ddr.com.
Information on, or accessible through, our website is not part
of, or incorporated by reference into, this prospectus other
than the documents that we file with the Securities and Exchange
Commission, or the SEC, and incorporate by reference into this
prospectus.
RISK
FACTORS
Investing in our securities involves risk. Prior to making a
decision about investing in our securities, you should carefully
consider the specific factors discussed under the heading
Risk Factors in our most recent Annual Report on
Form 10-K
and in our most recent Quarterly Reports on
Form 10-Q,
which are incorporated herein by reference and may be amended,
supplemented or superseded from time to time by other reports we
file with the SEC in the future. The risks and uncertainties we
have described are not the only ones we face. Additional risks
and uncertainties not presently known to us or that we currently
deem immaterial may also affect our operations. If any of these
risks actually occurs, our business, results of operations and
financial condition could suffer. In that case, the trading
price of our securities could decline, and you could lose all or
a part of your investment.
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents we incorporate by reference
contain forward-looking information, as defined in
the Private Securities Litigation Reform Act of 1995, that is
based on current expectations, estimates and projections.
Forward-looking information includes, without limitation,
statements related to acquisitions (including any related pro
forma financial information) and other business development
activities, future capital expenditures, financing sources and
availability and the effects of environmental and other
regulations. Although we believe that the expectations reflected
in those forward-looking statements are based upon reasonable
assumptions, we can give
1
no assurance that our expectations will be achieved. For this
purpose, any statements contained herein that are not statements
of historical fact should be deemed to be forward-looking
statements. Without limiting the foregoing, the words
will, believes, anticipates,
plans, expects, seeks,
estimates, projects,
intends, potential,
forecasts and similar expressions are intended to
identify forward-looking statements. You should exercise caution
in interpreting and relying on forward-looking statements
because they involve known and unknown risks, uncertainties and
other factors that are, in some cases, beyond our control and
that could cause actual results to differ materially from those
expressed or implied in the forward-looking statements and could
materially affect our actual results, performance or
achievements. You are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the
date on which they were made. We expressly state that we have no
current intention to update any forward-looking statements,
whether as a result of new information, future events or
otherwise, unless required by law.
Factors that could cause actual results, performance or
achievements to differ materially from those expressed or
implied by forward-looking statements include, but are not
limited to, the following:
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We are subject to general risks affecting the real estate
industry, including the need to enter into new leases or renew
leases on favorable terms to generate rental revenues, and the
current economic downturn may adversely affect the ability of
our tenants, or new tenants, to enter into new leases or the
ability of our existing tenants to renew their leases at rates
at least as favorable as their current rates;
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We could be adversely affected by changes in the local markets
where our properties are located, as well as by adverse changes
in national economic and market conditions;
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We may fail to anticipate the effects on our properties of
changes in consumer buying practices, including catalog sales
and sales over the Internet and the resulting retailing
practices and space needs of our tenants or a general downturn
in our tenants businesses, which may cause tenants to
close stores;
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We are subject to competition for tenants from other owners of
retail properties, and our tenants are subject to competition
from other retailers and methods of distribution. We are
dependent upon the successful operations and financial condition
of our tenants, in particular of our major tenants, and could be
adversely affected by the bankruptcy of those tenants;
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We rely on major tenants, which makes us vulnerable to changes
in the business and financial condition of, or demand for our
space, by such tenants;
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We may fail to dispose of properties on favorable terms. In
addition, real estate investments can be illiquid, particularly
as prospective buyers may experience increased costs of
financing or difficulties obtaining financing, and could limit
our ability to promptly make changes to our portfolio to respond
to economic and other conditions;
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We may not realize the intended benefits of acquisition or
merger transactions. The acquired assets may not perform as well
as we anticipated, or we may not successfully integrate the
assets and realize the improvements in occupancy and operating
results that we anticipate. The acquisition of certain assets
may subject us to liabilities, including environmental
liabilities;
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We may fail to identify, acquire, construct or develop
additional properties that produce a desired yield on invested
capital, or may fail to effectively integrate acquisitions of
properties or portfolios of properties;
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We may be limited in our acquisition opportunities due to
competition, the inability to obtain financing on reasonable
terms or any financing at all and other factors;
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We may abandon a development opportunity after expending
resources if we determine that the development opportunity is
not feasible due to a variety of factors, including a lack of
availability of construction financing on reasonable terms, the
impact of the current economic environment on prospective
tenants ability to enter into new leases or pay
contractual rent, or our inability to obtain all necessary
zoning and other required governmental permits and
authorizations;
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We may not complete development projects on schedule as a result
of various factors, many of which are beyond our control, such
as weather, labor conditions, governmental approvals, material
shortages or general
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economic downturn resulting in limited availability of capital,
increased debt service expense and construction costs and
decreases in revenue;
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Our financial condition may be affected by required debt service
payments, the risk of default and restrictions on our ability to
incur additional debt or enter into certain transactions under
our credit facilities and other documents governing our debt
obligations. In addition, we may encounter difficulties in
obtaining permanent financing or refinancing existing debt.
Borrowings under our credit facilities are subject to certain
representations and warranties and customary events of default,
including any event that has had or could reasonably be expected
to have a material adverse effect on our business or financial
condition;
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Changes in interest rates could adversely affect the market
price of our securities, as well as our performance and cash
flow;
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Debt
and/or
equity financing necessary for us to continue to grow and
operate our business may not be available or may not be
available on favorable terms or at all;
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Recent disruptions in the financial markets could affect our
ability to obtain financing on reasonable terms and have other
adverse effects on us and the market price of our securities;
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We are subject to complex regulations related to our status as a
real estate investment trust, or REIT, and would be adversely
affected if we failed to qualify as a REIT;
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We must make distributions to shareholders to continue to
qualify as a REIT, and if we must borrow funds to make
distributions, those borrowings may not be available on
favorable terms or at all;
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Joint venture investments may involve risks not otherwise
present for investments made solely by us, including the
possibility that a partner or co-venturer may become bankrupt,
may at any time have different interests or goals than our
interests or goals and may take action contrary to our
instructions, requests, policies or objectives, including our
policy with respect to maintaining our qualification as a REIT.
In addition, a partner or co-venturer may not have access to
sufficient capital to satisfy its funding obligations to the
joint venture. The partner could default on the loans outside of
our control. Furthermore, if the current constrained credit
conditions in the capital markets persist or deteriorate
further, we could be required to reduce the carrying value of
our equity method investments if a loss in the carrying value of
the investment is other than a temporary decline pursuant to
Accounting Principles Board No. 18, The Equity Method
of Accounting for Investments in Common Stock;
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We may not realize anticipated returns from our real estate
assets outside the United States. We expect to continue to
pursue international opportunities that may subject us to
different or greater risks than those associated with our
domestic operations. We own assets in Puerto Rico, an interest
in an unconsolidated joint venture that owns properties in
Brazil and an interest in consolidated joint ventures that will
develop and own properties in Canada, Russia and Ukraine;
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International development and ownership activities carry risks
that are different from those we face with our domestic
properties and operations. These risks include:
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Adverse effects of changes in exchange rates for foreign
currencies;
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Changes in foreign political or economic environments;
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Challenges of complying with a wide variety of foreign laws
including tax laws and addressing different practices and
customs relating to corporate governance, operations and
litigation;
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Different lending practices;
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Cultural and consumer differences;
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Changes in applicable laws and regulations in the United States
that affect foreign operations;
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Difficulties in managing international operations; and
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Obstacles to the repatriation of earnings and cash;
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Although our international activities are currently a relatively
small portion of our business, to the extent we expand our
international activities, these risks could significantly
increase and adversely affect our results of operations and
financial condition;
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We are subject to potential environmental liabilities;
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We may incur losses that are uninsured or exceed policy coverage
due to our liability for certain injuries to persons, property
or the environment occurring on our properties; and
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We could incur additional expenses in order to comply with or
respond to claims under the Americans with Disabilities Act or
otherwise be adversely affected by changes in government
regulations, including changes in environmental, zoning, tax and
other regulations.
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These factors and the other risk factors described in this
prospectus and any prospectus supplement, including the
documents incorporated by reference, are not necessarily all of
the important factors that could cause our actual results,
performance or achievements to differ materially from those
expressed in or implied by any of our
forward-looking
statements. Other unknown or unpredictable factors also could
harm our results. Consequently, there can be no assurance that
the actual results or developments anticipated by us will be
realized or, even if substantially realized, that they will have
the expected consequences to or effects on us.
USE OF
PROCEEDS
We intend to use the net proceeds from the sale of our
securities offered under this prospectus for working capital and
general corporate purposes including, but not limited to: the
repayment of our indebtedness; the redemption of outstanding
securities; the acquisition or development of properties
(including using the net proceeds for possible portfolio or
asset acquisitions or in business combinations or joint
ventures) as suitable opportunities arise; and the expansion and
improvement of certain properties in our portfolio.
Pending any specific application, we may initially invest funds
in short-term marketable securities or apply them to the
reduction of short-term indebtedness.
RATIO OF
EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE
DIVIDENDS
The following table sets forth our ratios of earnings to fixed
charges for the periods indicated. For this purpose,
earnings consist of earnings from continuing
operations, excluding income taxes, non-controlling interest
share in earnings and fixed charges, other than capitalized
interest, and fixed charges consist of interest on
borrowed funds, including amounts that have been capitalized,
and amortization of capitalized debt issuance costs, debt
premiums and debt discounts.
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Six Months
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Year Ended December 31,
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Ended June 30,
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2004
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2005
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2006(a)
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2007(a)
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2008(a)
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2009
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Ratio of Earnings to Fixed Charges
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2.9x
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2.3x
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2.0x
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1.7x
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(b)
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(b)
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Ratio of Earnings to Combined Fixed Charges and Preferred Share
Dividends
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2.05x
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1.79x
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1.58x
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1.52x
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(c)
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(c)
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(a)
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These periods have been adjusted to reflect the retroactive
adoption of FSP APB
14-1,
also
known as ASC
470-02,
for
interest expense related to our convertible debt.
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(b)
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Due to our loss from continuing operations for the six months
ended June 30, 2009 and the year ended December 31,
2008, the ratio coverage was less than 1:1. We would have needed
to generate additional earnings of $121.7 million and
$118.1 million to achieve a coverage of 1:1 for the six
months ended June 30, 2009 and the year ended
December 31, 2008.
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The loss from continuing operations for the six months ended
June 30, 2009 includes impairment charges, including
impairment of joint venture investments, of $159.1 million
that are discussed in our Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2009. The loss from
continuing operations for 2008 includes impairment charges,
including impairment of joint venture investments, of
$183.2 million that are discussed in our Current Report on
Form 8-K
filed August 10, 2009, which updates certain portions of
our Annual Report on
Form 10-K
for the year ended December 31, 2008.
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(c)
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Due to our loss from continuing operations for the six months
ended June 30, 2009 and the year ended December 31, 2008, the
ratio coverage was less than 1:1. We would have needed to
generate additional earnings of $142.8 million and
$160.4 million to achieve a coverage of 1:1 for the six
months ended June 30, 2009 and the year ended December 31, 2008.
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The loss from continuing operations for 2008 includes impairment
charges, including impairment of joint ventures, of
$183.2 million that are discussed in our Current Report of
Form 8-K
filed August 10, 2009, which updates certain portions of
our Annual Report on
Form 10-K
for the year ended December 31, 2008. The loss from
continuing operations for the six months ended June 30,
2009 includes impairment charges, including impairments of joint
ventures, of $159.1 million that are discussed in our
Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2009.
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DESCRIPTION
OF DEBT SECURITIES
Our senior securities will be issued under a senior indenture
dated as of May 1, 1994, as amended or supplemented from
time to time, between the Company and U.S. Bank National
Association, as Trustee. Our subordinated securities will be
issued under a subordinated indenture dated as of May 1,
1994, as amended or supplemented from time to time between the
Company and The Bank of New York Mellon, as Trustee.
The following description is a summary of the material
provisions of the indentures including references to the
applicable section of the indentures. It does not restate the
indentures in their entirety. We urge you to read the indentures
because they, and not this description, define the rights of
holders of debt securities. Except as otherwise defined herein,
terms used in this description but not otherwise defined herein
are used as defined in the indentures. When we refer to
DDR, we, our,
us, and the Company in this section, we
are referring to Developers Diversified Realty Corporation
excluding its subsidiaries, unless the context otherwise
requires or as otherwise expressly stated herein.
The indentures have been incorporated by reference as exhibits
to the Registration Statement of which this prospectus is a
part. The indentures are available for inspection at the
corporate trust offices of the applicable Trustee as follows:
(i) U.S. Bank National Association, 100 Wall Street,
Suite 1600, New York, NY 10005, and (ii) The Bank of
New York Mellon, 101 Barclay Street, Floor 8W, New York, New
York 10286. The indentures are subject to, and are governed by,
the Trust Indenture Act of 1939. All section references
appearing in this description are to sections of the applicable
indenture.
General
Our debt securities will be direct, unsecured obligations. The
debt securities issued under each indenture are not limited as
to aggregate principal amount and may be issued in one or more
series. The principal amount and series will be established from
time to time in or pursuant to authority granted by a resolution
of our board of directors. The principal amount and series also
may be established in one or more indentures supplemental to the
applicable indenture. All debt securities of one series need not
be issued at the same time (section 301 of the indentures).
Unless otherwise provided, a series may be reopened for
issuances of additional debt securities of such series without
the consent of the holders of the debt securities of such series
(section 301 of the indentures). Either Trustee may resign
or be removed with respect to one or more series of debt
securities issued under the applicable indenture, and a
successor Trustee may be appointed to act with respect to such
series.
Reference is made to each prospectus supplement for the specific
terms of the series of debt securities being offered thereby,
including:
(1) the title of such debt securities;
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(2) the aggregate principal amount of such debt securities
and any limit on such aggregate principal amount;
(3) the percentage of the principal amount at which such
debt securities will be issued and, if other than the principal
amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity of such
debt securities, or (if applicable) the portion of the principal
amount of such debt securities which is convertible into our
common shares or other equity securities, or the method by which
any such portion shall be determined;
(4) if such debt securities are convertible, any limitation
on the ownership or transferability of our common shares or
other equity securities into which such debt securities are
convertible in connection with the preservation of our status as
a REIT;
(5) the date(s), or the method for determining the date(s),
on which the principal of such debt securities will be payable;
(6) the rate(s) (which may be fixed or variable) at which
such debt securities will bear interest, if any, or the method
by which such rate(s) shall be determined;
(7) the date(s), or the method for determining the date(s),
from which interest, if any, will accrue;
(8) the date(s) on which any interest will be payable;
(9) the record date(s) for an interest payment, or the
method by which such record date(s) shall be determined (the
record date for an interest payment is the date on which a
Person must be a holder in order to receive the interest
payment);
(10) the Person to whom any interest shall be payable;
(11) the basis upon which any interest shall be calculated
if other than that of a
360-day
year
of twelve
30-day
months;
(12) the place(s) where:
a. the principal of (and premium, if any) or interest, if
any, on such debt securities will be payable,
b. such debt securities may be surrendered for conversion
or registration of transfer or exchange, and
c. notices or demands in respect of such debt securities
and the applicable indenture may be served;
(13) the period(s) within which, the price(s) at which, and
the terms and conditions upon which such debt securities may be
redeemed at our option, as a whole or in part, if we are to have
the option to redeem such debt securities;
(14) our obligation, if any, to redeem, repay or purchase
such debt securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the
period(s) within which, the price(s) at which, and the terms and
conditions upon which we are obligated, if at all, to redeem,
repay or purchase such debt securities, as a whole or in part,
pursuant to any sinking fund or analogous provision or at the
option of a holder thereof;
(15) if other than U.S. dollars, the currency or
currencies in which such debt securities are denominated and
payable, which may be a foreign currency or units of two or more
foreign currencies or a composite currency or currencies, and
the terms and conditions relating thereto;
(16) whether the amount of payments of principal of (and
premium, if any) or interest, if any, on such debt securities
may be determined with reference to an index, formula or other
method and the manner in which such amounts shall be determined
(the index, formula or method may, but need not be, based on a
currency, currencies, currency unit or units or composite
currency or currencies);
(17) any additions to, modifications of or deletions from
the terms of such debt securities with respect to the Events of
Default or covenants set forth in the applicable indenture;
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(18) whether such debt securities will be issued in
certificated or book-entry form;
(19) whether such debt securities will be in registered or
bearer form or both and, if and to the extent in registered
form, the denominations thereof if other than $1,000 and any
integral multiple thereof and, if and to the extent in bearer
form, the denominations thereof and terms and conditions
relating thereto;
(20) the applicability, if any, of the defeasance and
covenant defeasance provisions of the applicable indenture;
(21) the terms, if any, upon which such debt securities may
be convertible into our common shares or other equity securities
(and the class thereof) and the terms and conditions upon which
such conversion will be effected, including, without limitation,
the initial conversion price or rate and the conversion period;
(22) whether and under what circumstances we will pay
Additional Amounts on such debt securities in respect of any
tax, assessment or governmental charge and, if so, whether we
will have the option to redeem such debt securities in lieu of
making such payment; and
(23) any other terms of such debt securities not
inconsistent with the provisions of the applicable indenture.
The debt securities may provide for the payment of less than the
entire principal amount upon declaration of acceleration of the
maturity of the debt securities. Such debt securities are known
as Original Issue Discount Securities. Any material
U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities
will be described in the applicable prospectus supplement.
Except as set forth under the captions Material
Covenants Limitation on Incurrence of Debt and
Maintenance of Unencumbered Real Estate
Assets, which relate solely to the senior indenture and
the senior securities, or as may be contained in a supplemental
indenture relating to a series of debt securities, neither
indenture contains any additional provision that would limit our
ability to incur indebtedness or that would afford holders of
debt securities protection in a highly leveraged or similar
action involving DDR or in the event of a change of control of
DDR. However, certain restrictions on ownership and transfer of
our common shares and other equity securities designed to
preserve our status as a REIT may act to prevent or hinder a
change of control. See Description of Common Shares,
Description of Preferred Shares and
Description of Depositary Shares Representing
Preferred Shares. Reference is made to the applicable
prospectus supplement for information with respect to any
deletion from, modification of or addition to the Events of
Default or our covenants that are described below, including any
addition of a covenant or other provision providing event risk
or similar protection.
Denominations,
Interest, Registration and Transfer
Unless otherwise described in the applicable prospectus
supplement, the debt securities of any series will be issued in
denominations of $1,000 and integral multiples thereof
(section 302 of the indentures).
Unless otherwise specified in the applicable prospectus
supplement, principal, premium, if any, and interest payments on
any series of debt securities will be made at the corporate
trust office of the applicable Trustee as follows:
(i) U.S. Bank National Association, 100 Wall Street,
Suite 1600, New York, NY 10005 and (ii) The Bank of
New York Mellon, 101 Barclay Street, Floor 8W, New York, New
York 10286. However, we may elect to pay interest by check
mailed to the address of the holder as it appears in the
register for debt securities of such series or by wire transfer
of funds to the holder at an account maintained within the
United States (sections 301, 305, 306, 307 and 1002 of the
indentures).
Any interest with respect to a debt security that is not
punctually paid or duly provided for on the date the interest is
due and payable will cease to be payable thereafter to the
holder on the applicable record date. The interest may be paid
to the holder at the close of business on a special record date
fixed by the applicable Trustee for the payment of the interest.
Notice of such payment must be given to the holder of such debt
security not less than 10 days prior to the special record
date. Such interest may also be paid at any time in any other
lawful manner, all as more completely described in the
applicable indenture (section 307 of the indentures).
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Subject to certain limitations applicable to debt securities
issued in book-entry form, the debt securities of any series
will be exchangeable for other debt securities of the same
series and of a like aggregate principal amount and tenor of
different authorized denominations upon surrender of such debt
securities at the corporate trust office of the applicable
Trustee. In addition, subject to certain limitations applicable
to debt securities issued in book-entry form, the debt
securities of any series may be surrendered for conversion or
registration of transfer thereof at the corporate trust office
of the applicable Trustee. Every debt security surrendered for
conversion, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer. No
service charge will be incurred for any registration of transfer
or exchange of any debt securities, but we may require payment
of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (section 305 of the
indentures). If the applicable prospectus supplement refers to
any transfer agent (in addition to the Trustee) that we
initially designated with respect to any series of debt
securities, we may at any time rescind the designation of any
such transfer agent or approve a change in the location at which
any such transfer agent acts; however, we will be required to
maintain a transfer agent in each place where principal,
premium, if any, and interest payments on debt securities of
such series are payable. We may designate additional transfer
agents with respect to any series of debt securities at any time
(section 1002 of the indentures).
Neither DDR nor any Trustee will be required:
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to issue, register the transfer of or exchange debt securities
of any series during a period beginning at the opening of
business 15 days before any selection of debt securities of
that series to be redeemed and ending at the close of business
on the day of mailing of the relevant notice of redemption;
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to register the transfer of or exchange any debt security, or
portion thereof, called for redemption, except the unredeemed
portion of any debt security being redeemed in part; or
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to issue, register the transfer of or exchange any debt security
that has been surrendered for repayment at the option of the
holder, except the portion, if any, of such debt security not to
be repaid (section 305 of the indentures).
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Merger,
Consolidation or Sale
Each indenture provides that we may consolidate with, or sell,
lease or convey all or substantially all of our assets to, or
merge with or into, any other corporation, provided that:
(1) we are the continuing corporation, or the successor
corporation expressly assumes payment of the principal of (and
premium, if any), and interest on, all of the outstanding debt
securities and the due and punctual performance and observance
of all of the covenants and conditions contained in the
applicable indenture;
(2) immediately after giving effect to such transaction and
treating any indebtedness which becomes our or our
subsidiaries obligation as a result thereof as having been
incurred by us or our subsidiaries at the time of such
transaction, no Event of Default under the applicable indenture,
and no event which, after notice or the lapse of time, or both,
would become such an Event of Default, occurs and is
continuing; and
(3) an officers certificate and legal opinion
confirming the satisfaction of the conditions are delivered to
the applicable Trustee (sections 801 and 803 of the
indentures).
Material
Covenants
The subordinated indenture does not contain the covenants
described in this section. It also does not contain any
limitation on the amount of Debt (as defined below) of any kind
that we may incur or on the amount of dividends or other
distributions that we may pay our shareholders. The senior
indenture contains the following covenants:
Limitation on Incurrence of Debt.
We will not,
and will not permit any subsidiary to, incur any Debt if,
immediately after the incurrence of such additional Debt, the
aggregate principal amount of all our outstanding
8
Debt on a consolidated basis determined in accordance with
generally accepted accounting principles is greater than 65% of
the sum of:
(1) our Undepreciated Real Estate Assets (as defined below)
as of the end of the calendar quarter covered in our Annual
Report on
Form 10-K
or Quarterly Report on
Form 10-Q
most recently filed with the SEC (or, if such filing is not
permitted under the Exchange Act, filed with the applicable
Trustee) prior to the incurrence of such additional
Debt, and
(2) the purchase price of all real estate assets acquired
by us or our subsidiaries since the end of such calendar
quarter, including those obtained in connection with the
incurrence of such additional Debt (section 1004 of the
senior indenture).
We will not, and will not permit any subsidiary to, incur any
Debt if Consolidated Income Available for Debt Service (as
defined below) for any 12 consecutive calendar months within the
15 calendar months immediately preceding the date on which such
additional Debt is to be incurred shall have been less than 1.5
times the Maximum Annual Service Charge (as defined below) on
our consolidated Debt to be outstanding immediately after the
incurrence of such additional Debt (section 1004 of the
senior indenture).
In addition to the foregoing limitations on the incurrence of
Secured Debt, in connection with the issuance of our
4.625% Notes Due 2010, 3.875% Notes Due 2009,
5.25% Notes Due 2011, 5.0% Notes Due 2010,
5.5% Notes Due 2015, 5.375% Notes Due 2012 and 9.625%
Notes Due 2016, we have added a covenant providing that as long
as any of our 4.625% Notes Due 2010, 3.875% Notes Due
2009, 5.25% Notes Due 2011, 5.0% Notes Due 2010,
5.5% Notes Due 2015, 5.375% Notes Due 2012 and
9.625% Notes Due 2016 remain outstanding, we will not, and
will not permit any subsidiary to, incur any Secured Debt, if
immediately after giving effect to the incurrence of such
Secured Debt and the application of the proceeds from such
Secured Debt, the aggregate amount of all of our and our
subsidiaries outstanding Secured Debt on a consolidated
basis is greater than 40% of the sum of our Total Assets as of
the end of the calendar quarter covered in our Annual Report on
Form 10-K
or Quarterly Report on
Form 10-Q,
as the case may be, most recently filed with the SEC (or, if
such filing is not permitted under the Exchange Act, with the
Trustee) prior to the incurrence of such additional Secured Debt
and the increase, if any, in Total Assets from the end of such
quarter, including, without limitation, any increase in Total
Assets caused by the application of the proceeds of additional
Secured Debt.
Restrictions on Dividends and Other
Distributions.
We will not:
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declare or pay any dividends (other than dividends payable in
our capital stock) on any shares of our capital stock;
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apply any of our property or assets to the purchase, redemption
or other acquisition or retirement of any shares of our capital
stock;
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set apart any sum for the purchase, redemption or other
acquisition or retirement of any shares of our capital
stock; or
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make any other distribution on any shares of our capital stock,
by reduction of capital or otherwise
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if, immediately after such declaration or other such
action, the aggregate of all such declarations and other actions
since the date on which the indenture was originally executed
exceeds the sum of (a) Funds from Operations from
December 31, 1993 until the end of the latest calendar
quarter covered in our Annual Report on
Form 10-K
or Quarterly Report on
Form 10-Q
most recently filed with the SEC (or, if such filing is not
permitted under the Exchange Act, with the applicable Trustee)
prior to such declaration or other action and
(b) $20,000,000.
This limitation does not apply to any declaration or other
action referred to above which is necessary to maintain our
status as a REIT under the Code if the aggregate principal
amount of all our and our subsidiaries outstanding Debt at
such time is less than 65% of our Undepreciated Real Estate
Assets as of the end of the latest calendar quarter covered in
our Annual Report on
Form 10-K
or Quarterly Report on
Form 10-Q
most
9
recently filed with the SEC (or, if such filing is not permitted
under the Exchange Act, with the applicable Trustee) prior to
such declaration or other action (section 1005 of the
senior indenture).
Notwithstanding the provisions described above, we will not be
prohibited from making the payment of any dividend within
30 days after the declaration thereof if, at the date of
declaration, such payment would have complied with those
provisions (section 1005 of the senior indenture).
Existence.
Except as permitted under the
provisions of the senior indenture described under the caption
Merger, Consolidation or Sale, we must preserve and
keep in full force and effect our corporate existence, rights
(charter and statutory) and franchises. We will not be required
to preserve any right or franchise if we determine that the
preservation of that right or franchise is no longer desirable
in the conduct of our business and that the loss thereof is not
disadvantageous in any material respect to the holders of the
senior securities (section 1006 of the senior indenture).
Maintenance of Properties.
All of our
properties that are used or useful in the conduct of our
business or the business of our subsidiaries must be maintained
and kept in good condition, repair and working order and
supplied with all necessary equipment. We also are required to
make all necessary repairs, renewals, replacements, betterments
and improvements to our properties. We must do these things as
necessary in our judgment to conduct the business carried on in
connection therewith in a proper and advantageous manner at all
times. However, we and our subsidiaries will not be prevented
from selling or otherwise disposing of properties for value in
the ordinary course of business (section 1007 of the senior
indenture).
Insurance.
We will, and will cause each of our
subsidiaries to, keep all of our or their respective insurable
properties insured against loss or damage at least equal to the
properties then full insurable value with insurers of
recognized responsibility having a rating of at least A:VIII in
Bests Key Rating Guide (section 1008 of the senior
indenture).
Payment of Taxes and Other Claims.
We must pay
or discharge, or cause to be paid or discharged, before the same
become delinquent:
(1) all taxes, assessments and governmental charges levied
or imposed upon us or any of our subsidiaries or upon our or any
of our subsidiaries income, profits or property; and
(2) all lawful claims for labor, materials and supplies
that, if unpaid, might by law become a lien upon our property or
the property of any of our subsidiaries.
However, we will not be required to pay or discharge, or cause
to be paid or discharged, any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested
in good faith by appropriate proceedings (section 1009 of
the senior indenture).
Provision of Financial Information.
Whether or
not we are subject to Section 13 or 15(d) of the Exchange
Act, we must, to the extent permitted under the Exchange Act,
file with the SEC the annual reports, quarterly reports and
other documents which we would have been required to file with
the SEC pursuant to such Section 13 or 15(d) if we were so
subject, on or prior to the respective dates by which we would
have been required to file such documents. We must also in any
event:
(1) within 15 days after such document would have been
required to be filed:
a. mail to all holders of senior securities, as their names
and addresses appear in the register for debt securities of each
series, without cost to such holders, copies of such annual
reports and quarterly reports which we would have been required
to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act if we were subject to those sections, and
b. file with the applicable Trustee copies of such annual
reports, quarterly reports and other documents which we would
have been required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act if we were subject
to those Sections, and
(2) if we are not permitted to file such documents with the
SEC under the Exchange Act, we must supply copies of such
documents to any prospective holder of senior securities
promptly upon written
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request and payment of the reasonable cost of duplication and
delivery of such documents (section 1010 of the senior
indenture).
Maintenance of Unencumbered Real Estate
Assets.
We must maintain an Unencumbered Real
Estate Asset Value of not less than 135% of the aggregate
principal amount of all our and our subsidiaries
outstanding unsecured Debt (section 1011 of the senior
indenture).
Events of
Default, Notice and Waiver
Each indenture provides that the following events are
Events of Default with respect to any series of debt
securities issued thereunder:
(1) default for 30 days in the payment of any
installment of interest, Additional Amounts or coupons on any
debt security of such series;
(2) default in the payment of the principal of (or premium,
if any, on) any debt security of such series at the time such
payment becomes due and payable;
(3) default in making any sinking fund payment as required
for any debt security of such series;
(4) default in the performance, or breach, of any other
covenant or warranty contained in the applicable indenture
continued for 60 days after written notice as provided in
such indenture; however, default in the performance, or breach,
of a covenant or warranty added to such indenture solely for the
benefit of a series of debt securities issued thereunder other
than such series is not an Event of Default;
(5) default under any bond, debenture, note or other
evidence of indebtedness of the Company or under any mortgage,
indenture or other instrument of the Company under which there
may be issued or by which there may be secured or evidenced any
indebtedness of the Company (or by any subsidiary, the repayment
of which the Company has guaranteed or for which the Company is
directly responsible or liable as obligor or guarantor), which
results in the acceleration of indebtedness in an aggregate
principal amount exceeding $10,000,000, but only if such
indebtedness is not discharged or such acceleration is not
rescinded or annulled as provided in the applicable indenture;
(6) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator
or trustee, of the Company or of any significant subsidiary of
the Company as defined in
Regulation S-X
promulgated under the Securities Act or of the respective
property of either; and
(7) any other Event of Default provided with respect to
that series of debt securities (section 501 of the
indentures).
If an Event of Default occurs under either indenture with
respect to Outstanding debt securities of any series issued
thereunder and is continuing, then the Trustee or the holders of
not less than 25% in principal amount of the Outstanding debt
securities of that series may declare the principal amount of
all of the debt securities of that series to be due and payable
immediately by written notice to us. If the holders give notice
to us, they must also give notice to the applicable Trustee. If
the debt securities are Original Issue Discount Securities or
Indexed Securities, the amount declared to be due and payable
will be such portion of the principal amount as specified in the
terms thereof. However, at any time after a declaration of
acceleration with respect to debt securities of such series (or
of all debt securities then Outstanding under such indenture, as
the case may be) has been made, the holders of a majority in
principal amount of the debt securities of such series or of
each series of debt securities then Outstanding under such
indenture, as the case may be, may rescind and annul such
declaration and its consequences if:
(1) we have deposited with the applicable Trustee all
required payments of the principal of (and premium, if any) and
interest and Additional Amounts payable on the debt securities
of such series or of all debt securities then Outstanding under
such indenture, as the case may be, plus certain fees, expenses,
disbursements and advances of such Trustee, and
(2) all Events of Default have been cured or waived as
provided in such indenture (except for the nonpayment of
accelerated principal (or specified portion thereof) with
respect to debt securities of such series or of all debt
securities then Outstanding under such indenture)
(section 502 of the indentures).
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The indentures also provide that the holders of a majority in
principal amount of the debt securities of any series or of each
series of debt securities then Outstanding under the applicable
indenture, as the case may be, may waive any past default with
respect to such series and its consequences.
However, holders may not waive a default:
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in the payment of the principal of (or premium, if any) or
interest on any debt security of such series; or
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in respect of a covenant or provision contained in such
indenture that cannot be modified or amended without the consent
of the holder of each Outstanding debt security affected thereby
(section 513 of the indentures).
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Each indenture provides that the applicable Trustee is required
to give notice to the holders of debt securities issued
thereunder within 90 days of a default under such
indenture. However, the Trustee may withhold notice of any
default to the holders of any such series of debt securities if
certain officers of such Trustee consider such withholding to be
in the interest of the holders. The Trustee may not withhold
notice with respect to a default in the payment of the principal
of (or premium, if any) or interest on any debt security or in
the payment of any sinking installment in respect of any debt
security (section 601 of the indentures).
Each indenture provides that no holder of debt securities of any
series issued thereunder may institute any proceeding, judicial
or otherwise, with respect to such indenture or for any remedy
thereunder. However, a holder of debt securities may institute a
proceeding if the applicable Trustee fails to act for
60 days after it has received a written request to
institute proceedings in respect of an Event of Default from the
holders of not less than 25% in principal amount of the
Outstanding debt securities of such series, as well as an offer
of reasonable indemnity (section 507 of the indentures).
However, this provision will not prevent any holder of debt
securities from instituting suit for the enforcement of payment
of the principal of (and premium, if any) and interest on the
debt securities held by that holder at the respective due dates
thereof (section 508 of the indentures).
Subject to provisions in the applicable indenture relating to
its duties in case of default and unless holders of any series
of debt securities then Outstanding under such indenture have
offered reasonable security or indemnity to the Trustee, the
Trustee is under no obligation to exercise any of its rights or
powers under such indenture at the request or direction of the
holders (section 602 of the indentures). The holders of a
majority in principal amount of the Outstanding debt securities
of any series (or of each series of debt securities then
Outstanding under such indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any
proceeding for any remedy available to such Trustee. They also
have the right to direct the time, method and place of
exercising any trust or power conferred upon such Trustee.
However, such Trustee may refuse to follow any direction which
is in conflict with such indenture or any law which may involve
the Trustee in personal liability or which may be unduly
prejudicial to the holders of debt securities of such series not
joining therein (section 512 of the indentures).
Within 120 days after the close of each fiscal year, we
must deliver to each Trustee a certificate signed by one of
several specified officers. The certificate must state whether
such officer has knowledge of any default under the applicable
indenture and, if so, specify each such default and the nature
and status thereof (section 1012 of the senior indenture
and section 1004 of the subordinated indenture).
Modification
of the Indentures
Modifications and amendments to either indenture may be made
only with the consent of the holders of a majority in principal
amount of all Outstanding debt securities issued thereunder
which are affected by such modification or amendment. However,
unless the consent of the holder of each affected debt security
is obtained, no modification or amendment may:
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change the date specified in any such debt security as the fixed
date on which the principal thereof is due and payable;
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change the date specified in any such debt security as the fixed
date on which any installment of interest (or premium, if any)
is due and payable;
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reduce the principal amount of any such debt security;
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reduce the rate or amount of interest on any such debt security;
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reduce the premium payable on redemption of any such debt
security;
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reduce any Additional Amount payable in respect of any such debt
security;
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reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon declaration of
acceleration of the maturity thereof or would be provable in
bankruptcy, or adversely affect any right of repayment of the
holder of any such debt security;
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change the place of payment of principal of (or premium, if any)
or interest on any such debt security;
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change the currency or currencies for payment of principal of
(or premium, if any) or interest on such debt security;
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change our obligation to pay Additional Amounts;
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impair the right to institute suit for the enforcement of any
payment on or with respect to any such debt security;
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reduce the percentage of Outstanding debt securities of any
series necessary to modify or amend the applicable indenture, to
waive compliance with certain provisions thereof or certain
defaults and consequences thereunder, or to reduce the quorum or
voting requirements set forth in such indenture; or
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modify any of the foregoing provisions or any of the provisions
relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect
such action or to provide that certain other provisions may not
be modified or waived without the consent of the holder of such
debt security (section 902 of the indentures).
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The senior indenture provides that the holders of a majority in
principal amount of Outstanding debt securities issued
thereunder have the right to waive our compliance with certain
covenants in the senior indenture, including those described in
the section of this prospectus captioned Material
Covenants (section 1014 of the senior indenture).
DDR and the applicable Trustee may modify and amend either
indenture without the consent of any holder of debt securities
issued thereunder for any of the following purposes:
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to evidence the succession of another Person to our obligations
under such indenture;
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to add to our covenants for the benefit of the holders of all or
any series of debt securities issued thereunder or to surrender
any right or power conferred upon us in such indenture;
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to add Events of Default for the benefit of the holders of all
or any series of debt securities issued thereunder;
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to add or change any provisions of such indenture to facilitate
the issuance of, or to liberalize certain terms of, debt
securities issued thereunder in bearer form, or to permit or
facilitate the issuance of such debt securities in
uncertificated form, provided that such action shall not
adversely affect the interests of the holders of such debt
securities of any series in any material respect;
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to change or eliminate any provision of such indenture, provided
that any such change or elimination shall become effective only
when there are no debt securities Outstanding of any series
issued thereunder which are entitled to the benefit of such
provision;
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to secure the debt securities issued thereunder;
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to establish the form or terms of debt securities of any series
issued thereunder, including the provisions and procedures, if
applicable, for the conversion of such debt securities into our
common shares or preferred shares;
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to provide for the acceptance of appointment by a successor
Trustee;
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to facilitate the administration of the trusts under such
indenture by more than one Trustee;
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to cure any ambiguity, defect or inconsistency in such
indenture, provided that such action shall not adversely affect
in any material respect the interests of holders of debt
securities of any series issued thereunder; or
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to supplement any of the provisions of such indenture to the
extent necessary to permit or facilitate defeasance and
discharge of any series of debt securities issued thereunder;
however, such action shall not adversely affect in any material
respect the interests of the holders of the debt securities of
any series issued thereunder (section 901 of the
indentures).
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Each indenture provides that in determining whether the holders
of the requisite principal amount of Outstanding debt securities
of a series issued thereunder have given any request, demand,
authorization, direction, notice, consent or waiver thereunder
or whether a quorum is present at a meeting of holders of such
debt securities:
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the principal amount of an Outstanding Original Issue Discount
Security shall be the amount of the principal that would be due
and payable as of the date of such determination upon
declaration of acceleration of the maturity of the security;
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the principal amount of an Outstanding debt security denominated
in a foreign currency shall be the U.S. dollar equivalent,
determined on the issue date for such debt security, of the
principal amount (or, in the case of an Original Issue Discount
Security, the U.S. dollar equivalent on the issue date of
such debt security in the amount determined as provided above);
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the principal amount of an Outstanding Indexed Security shall be
the principal face amount of such Indexed Security at original
issuance, unless otherwise provided with respect to such Indexed
Security pursuant to section 301 of such indenture; and
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debt securities owned by us, any other obligor upon the debt
securities, any of our Affiliates or of such other obligor shall
be disregarded (section 101 of the indentures).
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Each indenture contains provisions for convening meetings of the
holders of an issued series of debt securities
(section 1501 of the indentures). The applicable Trustee
may call a meeting at any time. DDR or the holders of at least
10% in principal amount of the Outstanding debt securities of
such series may also call a meeting upon request. Notice of a
meeting must be given as provided in the applicable indenture
(section 1502 of the indentures). Except for any consent
that must be given by the holder of each debt security affected
by certain modifications and amendments of such indenture, any
resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the
affirmative vote of the holders of a majority in principal
amount of the Outstanding debt securities of that series.
However, except as referred to above, any resolution with
respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given
or taken by the holders of a specified percentage which is less
than a majority in principal amount of the Outstanding debt
securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in
principal amount of the Outstanding debt securities of that
series. Any resolution passed or decision taken at any duly held
meeting of holders of debt securities of any series will be
binding on all holders of debt securities of that series. The
quorum at any meeting called to adopt a resolution, and at any
reconvened meeting, will be the persons holding or representing
a majority in principal amount of the Outstanding debt
securities of a series.
However, if any action is to be taken at such meeting with
respect to a consent or waiver which may be given by the holders
of not less than a specified percentage in principal amount of
the Outstanding debt securities of a series, the persons holding
or representing such specified percentage in principal amount of
the Outstanding debt securities of such series will constitute a
quorum (section 1504 of the indentures).
Notwithstanding the provisions described above, if any action is
to be taken at a meeting of holders of debt securities of any
series with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that the
applicable indenture expressly provides may be made, given or
taken by the holders of a
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specified percentage in principal amount of all Outstanding debt
securities affected thereby, or of the holders of such series
and one or more additional series:
(1) there shall be no minimum quorum requirement for such
meeting and
(2) the principal amount of the Outstanding debt securities
of such series that vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other
action shall be taken into account in determining whether such
request, demand, authorization, direction, notice, consent,
waiver or other action has been made, given or taken under such
indenture (section 1504 of the indentures).
Discharge,
Defeasance and Covenant Defeasance
We may discharge certain obligations to holders of any series of
debt securities that have not already been delivered to the
applicable Trustee for cancellation and that either have become
due and payable or will become due and payable within one year
(or scheduled for redemption within one year) by irrevocably
depositing with such Trustee, in trust, funds in an amount
sufficient to pay the entire indebtedness on such debt
securities in respect of principal, premium, if any, and
interest to the date of such deposit if such debt securities
have become due and payable or to the date specified in such
debt securities as the fixed date on which the payment of
principal and interest on such debt securities is due and
payable or the date fixed for redemption of such debt
securities, as the case may be (section 401 of the
indentures). Funds shall be deposited in such currency or
currencies, currency unit(s) or composite currency or currencies
in which such debt securities are payable.
Each indenture provides that, if the provisions of
Article Fourteen thereof (relating to defeasance and
covenant defeasance) are made applicable to the debt securities
of or within any series issued thereunder, we may elect either:
(1) to defease and be discharged from any and all
obligations with respect to such debt securities. However, we
will not be discharged from the obligation to pay Additional
Amounts, if any, upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on
such debt securities. In addition, we will not be discharged
from the obligations to register the transfer or exchange of
such debt securities, to replace temporary or mutilated,
destroyed, lost or stolen debt securities, to maintain an office
or agency in respect of such debt securities and to hold moneys
for payment in trust (defeasance) (section 1402
of the indentures); or
(2) to be released from our obligations relating to
(a) sections 1004 to 1011, inclusive, of the senior
indenture (being the restrictions described under the caption
Material Covenants) and, if provided under the
senior indenture, our obligations with respect to any other
covenant contained in the senior indenture, and (b) if
provided under the subordinated indenture, our obligations with
respect to any covenant contained in the subordinated indenture,
and any omission to comply with such obligations shall not
constitute a default or an Event of Default with respect to such
debt securities (covenant defeasance)
(section 1403 of the indentures).
Defeasance or covenant defeasance will occur upon our
irrevocable deposit with the applicable Trustee, in trust, of an
amount sufficient to pay the principal of (and premium, if any)
and interest on such debt securities, and any mandatory sinking
fund or analogous payments, on their scheduled due dates. The
amount deposited will be in Government Obligations (as defined
below) or such currency or currencies, currency unit(s) or
composite currency or currencies in which such debt securities
are payable at maturity, or both.
Such a trust may be established only if, among other things, we
have delivered to the applicable Trustee an opinion of counsel
(as specified in the applicable indenture) to the effect that
the holders of such debt securities will not recognize income,
gain or loss for U.S. federal income tax purposes as a
result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in
the same manner and at the same times as would have been the
case if such defeasance or covenant defeasance had not occurred.
In the case of defeasance, the opinion of counsel must refer to
and be based upon a ruling of the Internal Revenue Service or a
change in applicable United States federal income tax law
occurring after the date of such indenture (section 1404 of
the indentures).
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Government Obligations
means securities that
are
(1) direct obligations of the United States of America or
the government which issued the foreign currency in which the
debt securities of a particular series are payable, and for
which the full faith and credit of the applicable government is
pledged, or
(2) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of
America or such government which issued the foreign currency in
which the debt securities of such series are payable. The
payment of these obligations must be unconditionally guaranteed
as a full faith and credit obligation by the United States of
America or such other government, and the obligations may not be
callable or redeemable at the option of the issuer thereof. Such
obligations also include a depository receipt issued by a bank
or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or
principal of any such Government Obligation held by such
custodian for the account of the holder of a depository receipt,
provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by
the custodian in respect of the Government Obligation or the
specific payment of interest on or principal of the Government
Obligation evidenced by such depository receipt
(section 101 of the indentures).
Unless otherwise provided in the applicable prospectus
supplement, if after we have deposited funds
and/or
Government Obligations to effect defeasance or covenant
defeasance with respect to debt securities of any series:
(1) the holder of a debt security of such series is
entitled to, and does, elect under the applicable indenture or
the terms of such debt security to receive payment in a
currency, currency unit or composite currency other than that in
which such deposit has been made in respect of such debt
security, or
(2) a Conversion Event (as defined below) occurs in respect
of the currency, currency unit or composite currency in which
such deposit has been made, the indebtedness represented by such
debt security shall be deemed to have been, and will be, fully
discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such debt security as they
become due out of the proceeds yielded by converting the amount
deposited in respect of such debt security into the currency,
currency unit or composite currency in which such debt security
becomes payable as a result of such election or such cessation
of usage based on the applicable market exchange rate
(section 1405 of the indentures). Conversion
Event means the cessation of use of:
a. a currency, currency unit or composite currency both by
the government of the country which issued such currency and for
the settlement of actions by a central bank or other public
institution of or within the international banking community,
b. the ECU both within the European Monetary System and for
the settlement of transactions by public institutions of or
within the European Communities, or
c. any currency unit or composite currency other than the
ECU for the purposes for which it was established
(section 101 of the indentures).
Unless otherwise described in the applicable prospectus
supplement, all payments of principal of (and premium, if any)
and interest on any debt security that is payable in a foreign
currency that ceases to be used by its government of issuance
shall be made in U.S. dollars.
In the event we effect covenant defeasance with respect to any
debt securities and such debt securities are declared due and
payable because of the occurrence of any Event of Default, other
than:
(1) with respect to senior securities, the Event of Default
described in clause (4) under Events of Default,
Notice and Waiver or
(2) with respect to all debt securities, the Event of
Default described in clause (7) under Events of
Default, Notice and Waiver with respect to any other
covenant as to which there has been covenant defeasance, the
amount in such currency, currency unit or composite currency in
which such debt securities are payable, and Government
Obligations on deposit with the applicable Trustee, will be
sufficient to pay amounts due on such debt securities at the
fixed date on which they become due and payable but may not be
sufficient to
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pay amounts due on such debt securities at the time of the
acceleration resulting from such Event of Default. In any such
event, we would remain liable to make payment of such amounts
due at the time of acceleration.
The applicable prospectus supplement may further describe the
provisions, if any, permitting such defeasance or covenant
defeasance, including any modifications to the provisions
described above, with respect to the debt securities of or
within a particular series.
Senior
Securities and Senior Indebtedness
Each series of senior securities will constitute Senior
Indebtedness (as described below) and will rank equally with
each other series of senior securities and other Senior
Indebtedness. All subordinated indebtedness will be subordinated
to the senior securities and other Senior Indebtedness.
Subordinated indebtedness includes, but is not limited to, all
subordinated securities issued under the subordinated indenture.
Senior Indebtedness is defined in the subordinated indenture to
mean:
(1) the principal of (and premium, if any) and unpaid
interest on indebtedness for money borrowed,
(2) purchase money and similar obligations,
(3) obligations under capital leases,
(4) guarantees, assumptions or purchase commitments
relating to indebtedness of others, or other transactions as a
result of which we are responsible for the payment of
indebtedness of others,
(5) renewals, extensions and refunding of any such
indebtedness,
(6) interest or obligations in respect of any indebtedness
accruing after the commencement of any insolvency or bankruptcy
proceedings, and
(7) obligations associated with derivative products such as
interest rate and currency exchange contracts, foreign exchange
contracts, commodity contracts, and similar arrangements.
The indebtedness or obligations described above are not Senior
Indebtedness to the extent the instrument by which we incurred,
assumed or guaranteed the indebtedness or obligations provides
that such indebtedness or obligation is subordinate or junior in
right of payment to any of our other indebtedness or obligations.
Subordination
of Subordinated Securities
Subordinated Indenture.
The principal of (and
premium, if any) and interest payments on the subordinated
securities will be subordinated as set forth in the subordinated
indenture to our Senior Indebtedness whether outstanding on the
date of the subordinated indenture or thereafter incurred
(section 1701 of the subordinated indenture).
Ranking.
No class of subordinated securities
is subordinated to any other class of subordinated debt
securities. See Subordination Provisions below.
Subordination Provisions.
In the event:
(1) of any distribution of our assets upon any dissolution,
winding-up,
liquidation or reorganization, whether in bankruptcy,
insolvency, reorganization or receivership proceeding or upon an
assignment for the benefit of creditors or any other marshalling
of our assets and liabilities or otherwise, except a
distribution in connection with a merger or consolidation or a
conveyance or transfer of all or substantially all of our
properties which complies with the requirements of
Article Eight of the subordinated indenture,
(2) that a default shall have occurred and be continuing
with respect to the payment of principal of (or premium, if any)
or interest on any Senior Indebtedness, or
(3) that the principal of the subordinated securities of
any series issued under the subordinated indenture (or in the
case of Original Issue Discount Securities, the portion of the
principal amount thereof referred to in
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(4) section 502 of the subordinated indenture) shall
have been declared due and payable pursuant to section 502
of the subordinated indenture, and such declaration has not been
rescinded and annulled, then:
a. in a circumstance described in clause (1) or
(2) above, the holders of all Senior Indebtedness, and in
the circumstance described in clause (3) above, the holders
of all Senior Indebtedness outstanding at the time the principal
of such issued subordinated securities (or in the case of
Original Issue Discount Securities, such portion of the
principal amount) has been declared due and payable, shall first
be entitled to receive payment of the full amount due thereon in
respect of principal, premium (if any) and interest, or
provision shall be made for such payment in money or
moneys worth, before the holders of any of the
subordinated securities are entitled to receive any payment on
account of the principal of (or premium, if any) or interest on
the subordinated securities;
b. any payment by us, or distribution of our assets, of any
kind or character, whether in cash, property or securities
(other than certain subordinated securities issued in a
reorganization or readjustment), to which the holder of any of
the subordinated securities would be entitled except for the
provisions of Article Seventeen of the subordinated
indenture shall be paid or delivered by the Person making such
payment or distribution directly to the holders of Senior
Indebtedness (as provided in clause (a) above), or on their
behalf, to the extent necessary to make payment in full of all
Senior Indebtedness (as provided in clause (a) above)
before any payment or distribution is made to or in respect of
the holders of the subordinated securities. Such payment or
distribution will be made ratably according to the aggregate
amount remaining unpaid on account of such Senior Indebtedness.
The amount of Senior Indebtedness remaining unpaid shall be
calculated after giving effect to any concurrent payment or
distribution (or provisions therefor) to the holders of Senior
Indebtedness; and
c. in the event that, notwithstanding the foregoing, any
payment by us, or distribution of our assets, of any kind or
character is received by the holders of any of the subordinated
securities issued under the subordinated indenture before all
Senior Indebtedness is paid in full, such payment or
distribution shall be paid over to the holders of such Senior
Indebtedness or on their behalf, ratably as stated above, for
application to the payment of all such Senior Indebtedness
remaining unpaid until all such Senior Indebtedness shall have
been paid in full. The amount of Senior Indebtedness remaining
unpaid shall be calculated after giving effect to any concurrent
payment or distribution (or provisions therefor) to the holders
of such Senior Indebtedness.
Because of subordination in favor of the holders of Senior
Indebtedness in the event of insolvency, certain of our general
creditors, including holders of Senior Indebtedness, may recover
more, ratably, than the holders of the subordinated securities.
Convertible
Debt Securities
The following provisions will apply to debt securities that will
be convertible into our common shares or other equity securities
(Convertible debt securities) unless otherwise
described in the prospectus supplement for such Convertible debt
securities.
Our board of directors will determine the terms and conditions
of any Convertible debt securities, if any, issued pursuant to
the senior indenture (Senior Convertible debt
securities). Such terms and conditions may include whether
the Senior Convertible debt securities are convertible into our
common or preferred shares (including, without limitation, the
initial conversion price or rate, the conversion period, any
adjustment of the applicable conversion price and any
requirements relative to the reservation of such shares for
purposes of conversion) (section 301 of the senior
indenture).
The holder of any Convertible debt securities issued pursuant to
the subordinated indenture (Subordinated Convertible debt
securities) will have the right to convert those
Subordinated Convertible debt securities into our common shares
or other equity securities at the conversion price or rate for
each $1,000 principal amount of Subordinated Convertible debt
securities set forth in the applicable prospectus supplement.
This conversion right is exercisable at any time during the time
period specified in the applicable prospectus supplement unless
the Subordinated Convertible debt security has been previously
redeemed. The holder of any Subordinated Convertible
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debt security may convert a portion thereof, which is $1,000 or
any integral multiple of $1,000 (section 1602 of the
subordinated indenture). In the case of Subordinated Convertible
debt securities called for redemption, conversion rights will
expire at the close of business on the date fixed for the
redemption specified in the prospectus supplement. However, in
the case of repayment at the option of the applicable holder,
conversion rights will terminate upon our receipt of written
notice of the exercise of such option (section 1602 of the
subordinated indenture).
In certain events, the conversion price or rate will be subject
to adjustment as contemplated in the subordinated indenture. For
debt securities convertible into common shares, such events
include:
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the issuance of our common shares as a dividend;
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subdivisions and combinations of common shares;
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the issuance to all holders of rights or warrants entitling such
holders of common shares to subscribe for a purchase of common
shares at a price per share less than the current market price
per common share; and
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the distribution to all holders of common shares of shares of
our capital stock (other than common shares), evidences of our
indebtedness or assets (excluding cash dividends or
distributions paid from our retained earnings or subscription
rights or warrants other than those referred to above).
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The conversion price or rate is not required to be adjusted if
the adjustment would require a cumulative increase or decrease
in price or rate of less than 1% (section 1605 of the
subordinated indenture). Fractional common shares will not be
issued upon conversion; instead, we will pay cash adjustments
(section 1606 of the subordinated indenture). Unless
otherwise specified in the applicable prospectus supplement,
Subordinated Convertible debt securities convertible into common
shares surrendered for conversion between any record date for an
interest payment and the related interest payment date (except
such Subordinated Convertible debt securities called for
redemption on a redemption date during such period) must be
accompanied by the interest payment that the holder thereof is
entitled to receive (section 1604 of the subordinated
indenture).
To protect our status as a REIT, a Person may not own or convert
any Subordinated Convertible debt security if as a result of
such ownership or upon such conversion such Person would then be
deemed to Beneficially Own more than 5.0% of our outstanding
capital stock (section 1601 of the subordinated indenture).
For purposes of determining the percentage ownership of our
common shares or other equity securities held by an investor,
common shares or other equity securities that may be acquired
upon the conversion of Convertible debt securities directly or
constructively held by such investor, but not common shares or
other equity securities issuable with respect to the conversion
of Convertible debt securities held by others, are deemed to be
outstanding (a) at the time of purchase of the Convertible
debt securities, and (b) prior to the conversion of the
Convertible debt securities. See Certain Federal Income
Tax Considerations.
The adjustment provisions for debt securities convertible into
our equity securities other than common shares will be
determined at the time of issuance of such debt securities and
will be set forth in the applicable prospectus supplement.
Except as set forth in the applicable prospectus supplement, any
Convertible debt securities called for redemption, unless
surrendered for conversion on or before the close of business on
the redemption date, are subject to being purchased from the
holder of such Convertible debt securities by one or more
investment bankers or other purchasers who may agree with us to
purchase such Convertible debt securities and convert them into
our common shares or other equity securities, as the case may be
(section 1108 of the indentures).
Reference is made to the sections captioned Description of
Common Shares, Description of Preferred Shares
and Description of Depositary Shares Representing
Preferred Shares for a general description of securities
to be acquired upon the conversion of Convertible debt
securities, including a description of certain restrictions on
the ownership of the common shares and the preferred shares.
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The
Trustees
U.S. Bank National Association serves as Trustee for our
senior securities pursuant to the senior indenture. The Bank of
New York Mellon serves as Trustee for our subordinated
securities pursuant to the subordinated indenture.
Definitions
Set forth below are defined terms used in the indentures.
Reference is made to the indentures for a full disclosure of all
such terms, as well as any other capitalized terms used herein
for which no definition is provided.
Additional Amounts
means any additional
amounts which are required by a debt security or by or pursuant
to a resolution of our board of directors, under circumstances
specified therein, to be paid by us in respect of certain taxes
imposed on certain holders and which are owing to such holders.
Affiliate
of any Person means any other
Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such Person.
Control means the power to direct the management and policies of
a Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise.
Beneficially Own
means the ownership of our
common shares by a Person who would be treated as an owner of
such common shares either directly or through the application of
Section 544 of the Code, as modified by
Section 856(b)(1)(B) of the Code.
Consolidated Income Available for Debt
Service
for any period means Consolidated Net Income
(as defined below) of DDR and its subsidiaries:
(1) plus amounts which have been deducted for
a. interest on our and our subsidiaries Debt,
b. provision for our and our subsidiaries taxes based
on income,
c. amortization of debt discount,
d. depreciation and amortization, and
(2) adjusted, as appropriate, for
a. the effect of any noncash charge resulting from a change
in accounting principles in determining Consolidated Net Income
for such period, and
b. the effect of equity in net income or loss of joint
ventures in which we own an interest to the extent not providing
a source of, or requiring a use of, cash, respectively.
Consolidated Net Income
for any period means
the amount of our and our subsidiaries net income (or
loss) for such period determined on a consolidated basis in
accordance with generally accepted accounting principles.
Debt
means any of our or our
subsidiaries indebtedness, whether or not contingent, in
respect of:
(1) borrowed money or evidenced by bonds, notes, debentures
or similar instruments;
(2) indebtedness secured by any mortgage, pledge, lien,
charge, encumbrance or any security interest existing on
property owned by us or our subsidiaries;
(3) letters of credit or amounts representing the balance
deferred and unpaid of the purchase price of any property except
any such balance that constitutes an accrued expense or trade
payable; or
(4) any lease of property by us or our subsidiaries as
lessee which is reflected on our Consolidated Balance Sheet as a
capitalized lease in accordance with generally accepted
accounting principles, in the case of items of indebtedness
under (1) through (3) above to the extent that any
such items (other than letters of credit) would appear as a
liability on our Consolidated Balance Sheet in accordance with
generally accepted accounting principles. Debt also includes, to
the extent not otherwise included, any obligation of ours or our
subsidiaries to be liable for, or to pay, as obligor, guarantor
or otherwise (other than for purposes of collection in the
ordinary course of business), indebtedness of another Person
(other than us or our
20
subsidiaries). Debt shall be deemed to be incurred by us or our
subsidiaries whenever we or any such subsidiary shall create,
assume, guarantee or otherwise become liable in respect thereof.
Funds from Operations
for any period means
the Consolidated Net Income of us and our subsidiaries for such
period without giving effect to depreciation and amortization,
gains or losses from extraordinary items, gains or losses on
sales of real estate (except for real estate sold through our or
our subsidiaries merchant building program), gains or
losses on investments in marketable securities and any
provision/benefit for income taxes for such period, plus funds
from operations of unconsolidated joint ventures, all determined
on a consistent basis in accordance with generally accepted
accounting principles.
Holder
means the Person in whose name a debt
security is registered in the register for each series of debt
securities.
Indexed Security
means a debt security for
which the principal amount payable on the date specified in such
debt security as the fixed date on which the principal of such
security is due and payable may be more or less than the
principal face amount thereof at original issuance.
Maximum Annual Service Charge
as of any date
means the maximum amount which may become payable in a period of
12 consecutive calendar months from such date for interest on,
and required amortization of, Debt. The amount payable for
amortization will include the amount of any sinking fund or
other analogous fund for the retirement of Debt. It will also
include the amount payable on account of principal of any such
Debt which matures serially other than at the final maturity
date of such Debt.
Outstanding,
when used with respect to debt
securities, means, as of the date of determination, all debt
securities theretofore authenticated and delivered under the
indenture, except:
(1) debt securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(2) debt securities, or portions thereof, for whose payment
or redemption or repayment at the option of the holder money in
the necessary amount has been deposited with the Trustee or any
paying agent (other than by us) in trust or set aside and
segregated in trust by us (if we shall act as our own paying
agent) for the holders of such debt securities and any coupons
appertaining thereto, provided that, if such debt securities are
to be redeemed, notice of such redemption has been duly given
pursuant to the indenture or provision therefor satisfactory to
the Trustee has been made;
(3) debt securities, except to the extent provided in
sections 1402 and 1403 of the indenture, with respect to
which we have effected defeasance
and/or
covenant defeasance;
(4) debt securities which have been paid pursuant to
section 306 or in exchange for or in lieu of which other
debt securities have been authenticated and delivered pursuant
to the indenture, other than any such debt securities in respect
of which there shall have been presented to the Trustee proof
satisfactory to it that such debt securities are held by a bona
fide purchaser in whose hands such debt securities are our valid
obligations; and
(5) debt securities converted into common shares or
preferred shares in accordance with or as contemplated by the
indenture, if the terms of such debt securities provide for
convertibility pursuant to section 301;
provided, however, that in determining whether the holders of
the requisite principal amount of the Outstanding securities
have given any request, demand, authorization, direction,
notice, consent of waiver hereunder or are present at a meeting
of holders for quorum purposes, and for the purpose of making
the calculations required by section 313 of the
Trust Indenture Act of 1939, as amended:
(1) the principal amount of an Original Issue Discount
Security that may be counted in making such determination or
calculation and that shall be deemed to be Outstanding for such
purpose shall be equal to the amount of principal that would be
(or shall have been declared to be) due and payable, at the time
of such determination, upon a declaration of acceleration of the
maturity thereof;
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(2) the principal amount of any debt security denominated
in a foreign currency that may be counted in making such
determination or calculation and that shall be deemed
Outstanding for such purpose shall be equal to the
U.S. dollar equivalent, determined pursuant to section 301
as of the date such debt security is originally issued by us, of
the principal amount (or, in the case of an Original Issue
Discount Security, the U.S. dollar equivalent as of such
date of original issuance of the amount determined as provided
in clause (1) above) of such debt security;
(3) the principal amount of any Indexed Security that may
be counted in making such determination or calculation and that
shall be deemed Outstanding for such purpose shall be equal to
the principal face amount of such Indexed Security at original
issuance, unless otherwise provided with respect to such Indexed
Security pursuant to section 301; and
(4) debt securities owned by us or any other obligor upon
the debt securities or any Affiliate of ours or of such other
obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be
protected in making such calculation or in relying upon any such
request, demand, authorization, direction, notice, consent or
waiver, only debt securities which the Trustee knows to be so
owned shall be so disregarded. Debt securities so owned which
have been pledged in good faith may be regarded as Outstanding
if the pledgee establishes to the satisfaction of the Trustee
the pledgees right so to act with respect to any such debt
securities and that the pledgee is not us or any other obligor
upon the debt securities or any Affiliate of ours or of such
other obligor.
Person
means any individual, corporation,
partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency
or political subdivision thereof.
Secured Debt
means, without duplication, Debt
that is secured by a mortgage, trust deed, deed of trust, deed
to secure Debt, security agreement, pledge, conditional sale or
other title retention agreement, capitalized lease, or other
like agreement granting or conveying security title to or a
security interest in real property or other tangible asset(s).
Secured Debt shall be deemed to be incurred (i) on the date
the obligor thereon creates, assumes, guarantees or otherwise
becomes liable in respect thereof if it is secured in the manner
described in the preceding sentence on such date or (ii) on
the date the obligor thereon first secures such Debt in the
manner described in the preceding sentence if such Debt was not
so secured on the date it was incurred.
Subsidiary
means an entity a majority of the
outstanding voting stock of which is owned, directly or
indirectly, by us or by one or more of our other subsidiaries.
For purposes of this definition, voting stock means
stock having voting power for the election of directors, whether
at all times or only so long as no senior class of stock has
such voting power by reason of any contingency.
Total Assets
as of any date means the sum of
(i) Undepreciated Real Estate Assets and (ii) all
other assets of the Company and its subsidiaries determined on a
consolidated basis in accordance with generally accepted
accounting principles (but excluding intangibles and trade
receivables related to rent and other charges derived from
leases with tenants) after eliminating intercompany accounts and
transactions.
Undepreciated Real Estate Assets
as of any
date means the amount of our and our subsidiaries real
estate assets on such date, before depreciation and amortization
and determined on a consolidated basis in accordance with
generally accepted accounting principles.
Unencumbered Real Estate Asset Value
as of
any date means the sum of:
(1) our Undepreciated Real Estate Assets, which are not
encumbered by any mortgage, lien, charge, pledge or security
interest, as of the end of the latest calendar quarter covered
in our Annual Report on Form
10-K
or
Quarterly Report on
Form 10-Q,
as the case may be, most recently filed with the SEC (or, if
that filing is not required under the Exchange Act, with the
Trustee) prior to such date; and
(2) the purchase price of any real estate assets that are
not encumbered by any mortgage, lien, charge, pledge, or
security interest and were acquired by us or any subsidiary
after the end of such calendar quarter.
22
Book-Entry
Debt Securities
We may issue debt securities of a series in whole or in part in
the form of one or more global securities. We will deposit such
global securities with, or on behalf of, a depository identified
in the applicable prospectus supplement. We may issue global
securities in either registered or bearer form and in either
temporary or permanent form. Unless we specify otherwise in the
applicable prospectus supplement, debt securities that are
represented by a global security will be issued in denominations
of $1,000 or any integral multiple thereof and will be issued in
registered form only, without coupons. We will make payments of
principal of, premium, if any, and interest on debt securities
represented by a global security to the applicable trustee under
the applicable indenture, which will then forward such payments
to the depository.
We anticipate that any global securities will be deposited with,
or on behalf of, The Depository Trust Company, New York,
New York (DTC), and that such global securities will
be registered in the name of Cede & Co., DTCs
nominee. We further anticipate that the following provisions
will apply to the depository arrangements with respect to any
such global securities. We will describe any additional or
differing terms of the depository arrangements in the applicable
prospectus supplement relating to a particular series of debt
securities issued in the form of global securities.
So long as DTC or its nominee is the registered owner of a
global security, DTC or its nominee, as the case may be, will be
considered the sole holder of the debt securities represented by
such global security for all purposes under the applicable
indenture. Except as described below, owners of beneficial
interests in a global security:
(1) will not be entitled to have debt securities
represented by such global security registered in their names;
(2) will not receive or be entitled to receive physical
delivery of debt securities in certificated form; and
(3) will not be considered the owners or holders thereof
under the applicable indenture.
The laws of some states require that certain purchasers of
securities take physical delivery of such securities in
certificated form; accordingly, such laws may limit the
transferability of beneficial interests in a global security.
Unless we specify otherwise in the applicable prospectus
supplement, each global security representing book-entry notes
will be exchangeable for certificated notes only if:
(1) DTC notifies us that it is unwilling or unable to
continue as depository or DTC ceases to be a clearing agency
registered under the Exchange Act (if so required by applicable
law or regulation) and, in either case, a successor depository
is not appointed by us within 90 days after we receive such
notice or become aware of such unwillingness, inability or
ineligibility;
(2) we, in our sole discretion, determine that the global
securities shall be exchangeable for certificated notes; or
(3) there shall have occurred and be continuing an event of
default under an indenture with respect to the notes and
beneficial owners representing a majority in aggregate principal
amount of the book-entry notes represented by global securities
advise DTC to cease acting as depository. Upon any such
exchange, owners of a beneficial interest in the global security
or securities representing book-entry notes will be entitled to
physical delivery of individual debt securities in certificated
form of like tenor and rank, equal in principal amount to such
beneficial interest, and to have such debt securities in
certificated form registered in the names of the beneficial
owners, which names shall be provided by DTCs relevant
participants (as identified by DTC) to the applicable trustee.
Unless we describe otherwise in the applicable prospectus
supplement, debt securities so issued in certificated form will
be issued in denominations of $1,000 or any integral multiple
thereof, and will be issued in registered form only, without
coupons.
DTC will act as securities depository for the debt securities.
The debt securities will be issued as fully registered
securities registered in the name of Cede & Co.
(DTCs partnership nominee) or such other name as may be
requested by an authorized representative of DTC. Except as
otherwise provided, one fully registered debt
23
security certificate will be issued with respect to each series
of the debt securities, each in the aggregate principal amount
of such series, and will be deposited with DTC. If, however, the
aggregate principal amount of any series exceeds
$500 million, one certificate will be issued with respect
to each $500 million of principal amount and an additional
certificate will be issued with respect to any remaining
principal amount of such series.
The following is based on information furnished to us by DTC:
DTC, the worlds largest securities depository, is a
limited-purpose trust company organized under the New York
Banking Law, a banking organization within the
meaning of the New York Banking Law, a member of the Federal
Reserve System, a clearing corporation within the
meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC holds
and provides asset servicing for over 2.2 million issues of
U.S. and
non-U.S. equity
issues, corporate and municipal debt issues, and money market
instruments from over 100 countries that DTCs participants
(Direct Participants) deposit with DTC. DTC also
facilitates the post-trade settlement among Direct Participants
of sales and other securities transactions in deposited
securities through electronic computerized book-entry transfers
and pledges between Direct Participants accounts. This
eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and
non-U.S. securities
brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. DTC is a
wholly-owned subsidiary of The Depository Trust &
Clearing Corporation (DTCC). DTCC, in turn, is owned
by a number of Direct Participants of DTC and members of the
National Securities Clearing Corporation, Fixed Income Clearing
Corporation, and Emerging Markets Clearing Corporation (NSCC,
FICC, and EMCC are also subsidiaries of DTCC), as well as by the
New York Stock Exchange, Inc., the American Stock Exchange LLC,
and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as both
U.S. and
non-U.S. securities
brokers and dealers, banks, trust companies, and clearing
corporations that clear through or maintain a custodial
relationship with a Direct Participant, either directly or
indirectly (Indirect Participants). DTC has
Standard & Poors highest rating: AAA. The DTC
rules applicable to its Participants are on file with the SEC.
More information about DTC can be found at
www.dtcc.com
and
www.dtc.org.
Purchases of debt securities under the DTC system must be made
by or through Direct Participants, which will receive a credit
for the debt securities on DTCs records. The ownership
interest of each actual purchaser of each debt security
(Beneficial Owner) is in turn to be recorded on the
Direct and Indirect Participants records. Beneficial
Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are, however, expected to
receive a written confirmation providing details of the
transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the
Beneficial Owner entered into the transaction. Transfers of
ownership interests in debt securities are to be accomplished by
entries made on the books of Direct and Indirect Participants
acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests
in debt securities, except in the event that use of the
book-entry system for the debt securities is discontinued.
To facilitate subsequent transfers, all debt securities
deposited by Direct Participants with DTC are registered in the
name of DTCs partnership nominee, Cede & Co, or
such other name as may be requested by an authorized
representative of DTC. The deposit of the debt securities with
DTC and their registration in the name of Cede & Co.
or such other DTC nominee do not effect any change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners
of the debt securities; DTCs records reflect only the
identities of the Direct Participants to whose accounts debt
securities are credited, which may or may not be the Beneficial
Owners. The Direct and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants,
and by Direct Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. (nor any other DTC nominee)
will consent or vote with respect to the debt securities unless
authorized by a Direct Participant in accordance with DTCs
procedures. Under its usual procedures, DTC mails a proxy (an
Omnibus Proxy) to the issuer as soon as possible
after the record date.
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The Omnibus Proxy assigns Cede & Co.s consenting
or voting rights to those Direct Participants to whose accounts
the debt securities are credited on the record date (identified
on a list attached to the Omnibus Proxy).
Principal, premium, if any, interest payments and redemption
proceeds on the debt securities will be made to Cede &
Co., or such other nominee, as may be requested by an authorized
representative of DTC. DTCs practice is to credit Direct
Participants accounts upon DTCs receipt of funds and
corresponding detail information from us or the trustee, on the
payment date in accordance with their respective holdings shown
on DTCs records. Payments by Participants to Beneficial
Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts
of customers in bearer form or registered in street
name and will be the responsibility of such Participant
and not of DTC, nor its nominee, the applicable Trustee or us,
subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal, premium, if any,
interest and redemption proceeds to Cede & Co. (or
such other nominee as may be requested by an authorized
representative of DTC) is our responsibility or the applicable
Trustees, disbursement of such payments to Direct
Participants will be the responsibility of DTC, and disbursement
of such payments to the Beneficial Owners will be the
responsibility of Direct and Indirect Participants.
If applicable, redemption notices shall be sent to DTC. If less
than all of the book-entry notes within an issue are being
redeemed, DTCs practice is to determine by lot the amount
of the interest of each Direct Participant in such issue to be
redeemed.
A Beneficial Owner shall give notice of any option to elect to
have its book-entry notes repaid by us, through its Participant,
to the applicable Trustee, and shall effect delivery of such
book-entry notes by causing the Direct Participant to transfer
the Participants interest in the global security or
securities representing such book-entry notes, on DTCs
records, to such Trustee. The requirement for physical delivery
of book-entry notes in connection with a demand for repayment
will be deemed satisfied when the ownership rights in the global
security or securities representing such book-entry notes are
transferred by Direct Participants on DTCs records and
followed by a book-entry credit of tendered securities to the
Trustees DTC account.
DTC may discontinue providing its services as securities
depository with respect to the debt securities at any time by
giving reasonable notice to the applicable Trustee or us. Under
such circumstances, in the event that a successor securities
depository is not appointed, debt security certificates are
required to be printed and delivered.
We may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In
that event, debt security certificates will be printed and
delivered to DTC.
The information in this section concerning DTC and DTCs
book-entry system has been obtained from sources that we believe
to be reliable, but we take no responsibility for the accuracy
thereof.
Unless stated otherwise in the prospectus supplement, the
underwriters or agents with respect to a series of debt
securities issued as global securities will be Direct
Participants in DTC.
Neither we, the applicable Trustee nor any applicable paying
agent will have any responsibility or liability for any aspect
of the records relating to or payments made on account of
beneficial interests in a global security, or for maintaining,
supervising or reviewing any records relating to such beneficial
interest.
DESCRIPTION
OF PREFERRED SHARES
Capitalization
Our articles of incorporation authorize us to issue up to:
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750,000 Class A Cumulative Preferred Shares, without par
value, or the Class A Shares, of which 460,000 shares
have been designated as
9
1
/
2
%
Class A Cumulative Redeemable Preferred Shares;
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750,000 Class B Cumulative Preferred Shares, without par
value, or the Class B Shares, of which 177,500 shares
have been designated as 9.44% Class B Cumulative Redeemable
Preferred Shares;
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750,000 Class C Cumulative Preferred Shares, without par
value, or the Class C Shares, of which 460,000 shares
have been designated as
8
3
/
8
%
Class C Cumulative Redeemable Preferred Shares;
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750,000 Class D Cumulative Preferred Shares, without par
value, or the Class D Shares, of which 230,000 shares
have been designated as 8.68% Class D Cumulative Redeemable
Preferred Shares;
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750,000 Class E Cumulative Preferred Shares, without par
value, or the Class E Shares, of which 750,000 shares
have been designated as Class E Series I Cumulative
Preferred Shares;
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750,000 Class F Cumulative Preferred Shares, without par
value, or the Class F Shares, of which 690,000 shares
have been designated as 8.60% Class F Cumulative Redeemable
Preferred Shares;
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750,000 Class G Cumulative Preferred Shares, without par
value, or the Class G Shares, of which 736,000 shares
have been designated as 8% Class G Cumulative Redeemable
Preferred Shares;
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750,000 Class H Cumulative Preferred Shares, without par
value, or the Class H Shares, of which 410,000 shares
have been designated as
7
3
/
8
%
Class H Cumulative Redeemable Preferred Shares;
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750,000 Class I Cumulative Preferred Shares, without par
value, or the Class I Shares, of which 345,000 shares
have been designated as 7.50% Class I Cumulative Redeemable
Preferred Shares;
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750,000 Class J Cumulative Preferred Shares, without par
value, or the Class J Shares, of which 450,000 shares
have been designated as 9% Class J Cumulative Redeemable
Preferred Shares;
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750,000 Class K Cumulative Preferred Shares, without par
value, or the Class K Shares, of which 350,000 shares
have been designated as
8
7
/
8
%
Class K Cumulative Redeemable Preferred Shares;
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750,000 Noncumulative Preferred Shares, without par value, or
the noncumulative shares; and
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2,000,000 Cumulative Voting Preferred Shares, without par value,
or the cumulative voting preferred shares.
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General
We refer to the Class A Shares, the Class B Shares,
the Class C Shares, the Class D Shares, the
Class E Shares, the Class F Shares, the Class G
Shares, the Class H Shares, the Class I Shares, the
Class J Shares, the Class K Shares and the
noncumulative shares collectively as the nonvoting preferred
shares.
The outstanding nonvoting preferred shares are represented by
depositary shares. Each depositary share represents a fractional
interest in the respective preferred share. The preferred shares
have been deposited with a depositary, under a deposit agreement
between us, the depositary and the holders from time to time of
the depositary receipts issued under the deposit agreement. The
depositary receipts evidence the depositary shares. Each holder
of a depositary receipt evidencing a depositary share will be
entitled to all the rights and preferences of a fractional
interest in a corresponding preferred share, including dividend,
voting, redemption and liquidation rights and preferences.
The following description summarizes certain general terms and
provisions of each class of nonvoting preferred shares and the
cumulative voting preferred shares. This summary may not contain
all of the information that is important to you. For more
detail, you should refer to the applicable provisions of our
articles of incorporation and code of regulations that are filed
as exhibits to the registration statement of which this
prospectus forms a part.
Except as discussed below, the nonvoting preferred shares rank
on a parity with each other and are identical to each other. The
cumulative voting preferred shares rank equally, except with
respect to voting rights, with all of the nonvoting preferred
shares. Dividends on the Class A Shares, the Class B
Shares, the Class C Shares, the Class D Shares, the
Class E Shares, the Class F Shares, the Class G
Shares, the Class H Shares, the Class I Shares, the
Class J Shares, the Class K Shares and the cumulative
voting preferred shares will be cumulative, while dividends on
the noncumulative shares will not be cumulative.
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Prior to the issuance of shares of each series of each class of
nonvoting preferred shares, our board of directors may, under
our articles of incorporation and Ohio law, fix:
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the designation of the series;
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the authorized number of shares of the series. Our board of
directors may, except when otherwise provided in the creation of
the series, increase or decrease the authorized number of shares
before or after issuance of the series (but not below the number
of shares of such series then outstanding);
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the dividend rate or rates of the series, including the means by
which such rates may be established;
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the date(s) from which dividends shall accrue and be cumulative
and, with respect to all nonvoting preferred shares, the date on
which and the period(s) for which dividends, if declared, shall
be payable, including the means by which such date(s) and
period(s) may be established;
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redemption rights and prices, if any;
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the terms and amounts of the sinking fund, if any;
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the amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or
winding-up
of our affairs;
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whether the shares of the series shall be convertible into
common shares or shares of any other class;
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if the shares are convertible, the conversion rate(s) or
price(s), any adjustments to the rate or price and all other
terms and conditions upon which such conversion may be
made; and
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restrictions on the issuance of shares of the same or any other
class or series.
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Rank
All preferred shares will be equal to all other preferred shares
with respect to dividend rights (subject to dividends on
noncumulative shares being noncumulative) and rights upon our
liquidation, dissolution or
winding-up.
The preferred shares will:
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rank prior to all classes of common shares and to all other
equity securities ranking junior to such preferred shares with
respect to dividend rights and rights upon our liquidation,
dissolution or
winding-up;
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be equal to all of our equity securities the terms of which
specifically provide that such equity securities are equal to
the preferred shares with respect to dividend rights and rights
upon our liquidation, dissolution or
winding-up; and
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be junior to all of our equity securities the terms of which
specifically provide that such equity securities rank prior to
the preferred shares with respect to dividend rights and rights
upon our liquidation, dissolution or
winding-up.
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Dividends
The holders of each series of each class of preferred shares are
entitled to receive, if, when and as declared, out of funds
legally available for payment, dividends in cash at the rate
determined for such series in preference to the holders of
common shares and of any other class of shares ranking junior to
the preferred shares. Dividends shall be payable on the date
fixed for such series. Dividends with respect to each series of
Class A Shares, Class B Shares, Class C Shares,
Class D Shares, Class E Shares, Class F Shares,
Class G Shares, Class H Shares, Class I Shares,
Class J Shares, Class K Shares and the cumulative
voting preferred shares will be cumulative from the dates fixed
for the series. Dividends will be payable to holders of record
as they appear on our stock transfer books on the record dates
fixed by our board of directors. Any dividend payment made on
the preferred shares that have been designated under the
Class A Shares, Class B Shares, Class C Shares,
Class D Shares, Class E Shares, Class F Shares,
Class G Shares, Class H Shares, Class I Shares,
Class J Shares and Class K Shares, which we refer to
collectively as the
27
designated preferred shares, will first be credited against the
earliest accumulated but unpaid dividend due with respect to
such shares which remains payable.
Dividends on our preferred shares will accumulate whether or not
we have earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not
such dividends are declared.
Accumulated but unpaid dividends on the designated preferred
shares will not bear interest.
If preferred shares are outstanding, dividends may not be paid
or declared or set apart for any series of preferred shares for
any dividend period unless at the same time:
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a proportionate dividend for the dividend periods terminating on
the same or any earlier date for all issued and outstanding
shares of all series of such class entitled to receive such
dividend (but, if such series are series of noncumulative
shares, then only with respect to the current dividend period),
ratably in proportion to the respective annual dividend rates
fixed therefor, have been paid or declared or set apart; and
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the dividends payable for the dividend periods terminating on
the same or any earlier date for all other classes of issued and
outstanding preferred shares entitled to receive such dividends
(but, with respect to noncumulative shares, only with respect to
the then-current dividend period), ratably in proportion to the
respective dividend rates fixed therefor, have been paid or
declared and set apart.
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If any series of preferred shares is outstanding, a dividend
shall not be paid or declared or any distribution made in
respect of the common shares or any other shares ranking junior
to such series of preferred shares, and common shares or any
other shares ranking junior to such series of preferred shares
shall not be purchased, retired or otherwise acquired by us
unless:
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all accrued and unpaid dividends on all classes of outstanding
preferred shares, including the full dividends for all current
dividend periods for the nonvoting preferred shares (except,
with respect to noncumulative shares, for the then-current
dividend period only), have been declared and paid or a sum
sufficient for payment thereof set apart; and
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with respect to the nonvoting preferred shares, there are no
arrearages with respect to the redemption of any series of any
class of preferred shares from any sinking fund provided for
such class in accordance with our articles of incorporation.
However, common shares and any other shares ranking junior to
such series of preferred shares may be purchased, retired or
otherwise acquired using the proceeds of a sale of common shares
or other shares junior to such preferred shares received
subsequent to the first date of issuance of such preferred
shares. In addition, we may pay or declare or distribute
dividends payable in common shares or other shares ranking
junior to such preferred shares.
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The preceding restrictions on the payment of dividends or other
distributions on, or on the purchase, redemption, retirement or
other acquisition of, common shares or any other shares ranking
equal to or junior to any class of preferred shares generally
will be inapplicable to:
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any payments in lieu of issuance of fractional shares, upon any
merger, conversion, stock dividend or otherwise in the case of
the nonvoting preferred shares;
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the conversion of preferred shares into common shares; or
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the exercise of our rights to repurchase shares of capital stock
in order to preserve our status as a REIT under the Internal
Revenue Code of 1986, as amended, or the Code.
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When dividends are not paid in full (or a sum sufficient for
full payment is not set apart) upon the preferred shares of any
series and the shares of any other series of preferred shares
ranking on a parity as to dividends with such series, all
dividends declared upon preferred shares of such series and any
other series of preferred shares ranking on a parity as to
dividends with such preferred shares shall be declared pro rata
so that the amount of dividends declared per share on the shares
of such series of preferred shares shall in all cases bear to
each other the same ratio that accrued dividends per share on
the preferred shares of such series (which shall not include any
accumulation in respect of unpaid dividends for prior dividend
periods for noncumulative shares) and such other series bear to
each other.
28
Redemption
If our board of directors so provides, a series of preferred
shares will be subject to mandatory redemption or redemption at
our option, as a whole or in part, in each case upon the terms,
at the times and at the redemption prices determined by our
board of directors. The redemption price per share will include
an amount equal to all accrued and unpaid dividends on such
preferred shares as of the date of redemption; however, the
redemption price of noncumulative shares will include only
unpaid dividends for the current dividend period. The redemption
price may be payable in cash or other property.
We may not purchase or redeem, for sinking fund purposes or
otherwise, less than all of a class of outstanding preferred
shares except in accordance with a stock purchase offer made to
all holders of record of such class, unless all dividends on
that class of outstanding preferred shares for previous and
current dividend periods (except, in the case of noncumulative
shares, dividends for the current dividend period only) have
been declared and paid or funds set apart and all accrued
sinking fund obligations applicable thereto have been complied
with. However, we may repurchase shares of capital stock in
order to maintain our qualification as a REIT under the Code.
If fewer than all of our outstanding shares of any class of
preferred shares are to be redeemed, we will determine the
number of shares to be redeemed. Our board of directors will
determine the manner for selecting by lot the shares to be
redeemed.
We will mail notice of redemption at least 30 days but not
more than 60 days before the redemption date to each holder
of record of a preferred share to be redeemed at the address
shown on our stock transfer books. If fewer than all the
preferred shares of any series are to be redeemed, the notice of
redemption will also specify the number of preferred shares to
be redeemed from each holder. If notice of redemption of any
preferred shares has been given and if the funds necessary for
such redemption have been set aside by us in trust for the
benefit of the holders of the preferred shares to be redeemed,
dividends will cease to accrue on such preferred shares. In
addition, the holders of preferred shares to be redeemed will
cease to be shareholders with respect to such shares and will
have no right or claim against us with respect to such shares as
of the redemption date. However, such holders will have the
right to receive the redemption price without interest or to
exercise before the redemption date any unexercised privileges
of conversion.
The terms of redemption, if any, for the existing classes of
preferred shares are included in our articles of incorporation
that are filed as an exhibit to the registration statement of
which this prospectus forms a part.
Liquidation
Preference
In the event of our voluntary liquidation, dissolution or
winding-up,
the holders of any series of any class of preferred shares shall
be entitled to receive in full out of our assets, including our
capital, before any amount shall be paid or distributed among
the holders of the common shares or any other shares ranking
junior to such series, the amounts fixed by our board of
directors with respect to such series. In addition, each holder
will receive an amount equal to all dividends accrued and unpaid
on that series of preferred shares to the date of payment of the
amount due pursuant to our liquidation, dissolution or
winding-up.
However, holders of noncumulative shares will only receive
dividends for the current dividend period. After holders of the
preferred shares are paid the full preferential amounts to which
they are entitled, they will have no right or claim to any of
our remaining assets.
If liquidating distributions are made in full to all holders of
preferred shares, our remaining assets will be distributed among
the holders of any other classes or series of capital stock
ranking junior to the preferred shares upon liquidation,
dissolution or
winding-up.
The distributions will be made according to the holders
respective rights and preferences and, in each case, according
to their respective number of shares. Our merger or
consolidation into or with any other corporation, or the sale,
lease or conveyance of all or substantially all of our assets,
shall not constitute a dissolution, liquidation or
winding-up.
29
Voting
Rights
Nonvoting
Preferred Shares
Holders of nonvoting preferred shares have only the voting
rights described below that apply to all preferred shares,
whether nonvoting or voting, and as from time to time required
by law.
If and when we are in default in the payment of (or, with
respect to noncumulative shares, have not paid or declared and
set aside a sum sufficient for the payment of) dividends on any
series of any class of outstanding nonvoting preferred shares,
for dividend payment periods, whether consecutive or not, which
in the aggregate contain at least 540 days, all holders of
shares of such class, voting separately as a class, together and
combined with all other preferred shares upon which like voting
rights have been conferred and are exercisable, will be entitled
to elect a total of two members to our board of directors. This
voting right shall be vested and any additional directors shall
serve until all accrued and unpaid dividends (except, with
respect to noncumulative shares, only dividends for the
then-current dividend period) on such outstanding preferred
shares have been paid or declared and a sufficient sum set aside
for payment thereof.
The affirmative vote of the holders of at least two-thirds of a
class of outstanding nonvoting preferred shares, voting
separately as a class, shall be necessary to effect either of
the following:
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The authorization, creation or increase in the authorized number
of any shares, or any security convertible into shares, ranking
prior to such class of nonvoting preferred shares; or
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Any amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of our
articles of incorporation or our code of regulations which
adversely and materially affects the preferences or voting or
other rights of the holders of such class of nonvoting preferred
shares which are set forth in our articles of incorporation.
However, the amendment of our articles of incorporation to
authorize, create or change the authorized or outstanding number
of a class of such preferred shares or of any shares ranking on
a parity with or junior to such class of preferred shares does
not adversely and materially affect preferences or voting or
other rights of the holders of such class of preferred shares.
In addition, amending the code of regulations to change the
number or classification of our directors does not adversely or
materially affect preferences or voting rights or other rights.
Voting shall be done in person at a meeting called for one of
the above purposes or in writing by proxy.
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The preceding voting provisions will not apply if, at or prior
to the time of the action with respect to which such vote would
be required, all outstanding shares of such series of preferred
shares have been redeemed or called for redemption and
sufficient funds shall have been deposited in trust to effect
such redemption.
Cumulative
Voting Preferred Shares.
If and when we are in default in the payment of dividends on the
cumulative voting preferred shares, for at least six dividend
payment periods, whether or not consecutive, all holders of
shares of such class, voting separately as a class, together and
combined with all other preferred shares upon which like voting
rights have been conferred and are exercisable, will be entitled
to elect a total of two members to our board of directors. This
voting right shall be vested and any additional directors shall
serve until all accrued and unpaid dividends (except, with
respect to noncumulative shares, only dividends for the
then-current dividend period) on such outstanding preferred
shares have been paid or declared and a sufficient sum set aside
for payment thereof.
The affirmative vote of the holders of at least two-thirds of
the outstanding cumulative voting preferred shares, voting
separately as a class, shall be necessary to effect either of
the following:
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Any amendment, alteration or repeal of any of the provisions of,
or the addition of any provisions to, our articles of
incorporation or code of regulations, whether by merger,
consolidation or otherwise, which we refer to as an event, that
materially adversely affects the voting powers, rights or
preferences of the holders of the cumulative voting preferred
shares; provided, however, that the amendment of the provisions
of the articles of incorporation (a) so as to authorize or
create, or to increase the authorized amount of, or issue, any
shares ranking junior to the cumulative voting preferred shares
or any shares of any class or series of shares ranking on a
parity with the cumulative voting preferred shares or
(b) with respect to the occurrence of any
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event, so long as the cumulative voting preferred shares remain
outstanding with the terms thereof materially unchanged, taking
into account that upon the occurrence of the event, we may not
be the surviving entity, shall not in either case be deemed to
materially adversely affect the voting power, rights or
preferences of the holders of cumulative voting preferred
shares; or
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the authorization, creation of, increase in the authorized
amount of, or issuance of any shares of any class or series of
shares ranking prior to the cumulative voting preferred shares
or any security convertible into shares of any class or series
of shares ranking prior to the cumulative voting preferred
shares (whether or not such class or series of shares ranking
prior to the cumulative voting preferred shares is currently
authorized).
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The preceding voting provisions will not apply, if at or prior
to the time of the action with respect to which such vote would
be required, all outstanding shares of such series of cumulative
voting preferred shares have been redeemed or called for
redemption and sufficient funds shall have been deposited in
trust to effect such redemption.
In addition to the foregoing, the holders of cumulative voting
preferred shares shall be entitled to vote on all matters on
which holders of our common shares may vote and shall be
entitled to one vote for each cumulative voting preferred share
entitled to vote at such meeting.
General
Without limiting the provisions described above, under Ohio law,
holders of each class of preferred shares will be entitled to
vote as a class on any amendment to our articles of
incorporation, whether or not they are entitled to vote thereon
by our articles of incorporation, if the amendment would:
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increase or decrease the par value of the shares of such class;
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change the issued shares of such class into a lesser number of
shares of such class or into the same or different number of
shares of another class;
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change or add to the express terms of the shares of the class in
any manner substantially prejudicial to the holders of such
class;
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change the express terms of any class of issued shares ranking
prior to the particular class in any manner substantially
prejudicial to the holders of shares of the particular class;
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authorize shares of another class that are convertible into, or
authorize the conversion of shares of another class into, shares
of the particular class, or authorize the directors to fix or
alter conversion rights of shares of another class that are
convertible into shares of the particular class;
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reduce or eliminate our stated capital;
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substantially change our purposes; or
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change the Company into a nonprofit corporation.
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If, and only to the extent that,
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a class of preferred shares is issued in more than one
series and
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Ohio law permits the holders of a series of a class of capital
stock to vote separately as a class,
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the affirmative vote of the holders of at least two-thirds of
each series of such class of outstanding preferred shares,
voting separately as a class, shall be required for any
amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of our
articles of incorporation or our code of regulations which
adversely and materially affects the preferences or voting or
other rights of the holders of such series as set forth in our
articles of incorporation. However, the amendment of our
articles of incorporation so as to authorize, create or change
the authorized or outstanding number of a class of preferred
shares or of any shares ranking equal to or junior to such class
of preferred shares does not adversely and materially affect the
preference or voting or other rights of the holders of such
series. In addition, the amendment of our code of regulations to
change the number or classification of our directors does not
adversely and materially affect the preference or voting or
other rights of the holders of such series.
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Restrictions
on Ownership
In order to qualify as a REIT under the Code, not more than 50%
in value of our outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals during the last half
of a taxable year. Individual is defined in the Code
to include certain entities. In addition, our capital stock must
be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. We also must
satisfy certain other requirements. For more information on
restrictions on ownership, see Description of Common
Shares Restrictions on Ownership.
To ensure that five or fewer individuals do not own more than
50% in value of our outstanding preferred shares, our articles
of incorporation provide that, subject to certain exceptions, no
one may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 9.8%, which we refer to as the
preferred shares ownership limit, of any series of any class of
our outstanding preferred shares. In addition, because rent from
a related party tenant (any tenant 10% of which is owned,
directly or constructively, by a REIT, including an owner of 10%
or more of a REIT) is not qualifying rent for purposes of the
gross income tests under the Code, our articles of incorporation
provide that no individual or entity may own, or be deemed to
own by virtue of the attribution provisions of the Code (which
differ from the attribution provisions applied to the preferred
shares ownership limit), in excess of 9.8%, which we refer to as
the preferred shares related party limit, of our outstanding
preferred shares. Our board of directors may exempt a person
from the preferred shares ownership limit if the person would
not be deemed an individual and may exempt a person
from the preferred shares related party limit. As a condition of
any exemption, our board of directors will require appropriate
representations and undertakings from the applicant with respect
to preserving our REIT status.
The preceding restrictions on transferability and ownership of
preferred shares may not apply if our board of directors
determines that it is no longer in our best interests to attempt
to qualify, or to continue to qualify, as a REIT.
Even if the REIT provisions of the Code are changed so as to no
longer contain any ownership concentration limitation or if the
ownership concentration limitation is increased, the preferred
shares ownership limit and the preferred shares related party
limit will not be automatically removed. Any change in the
preferred shares ownership limit or the preferred shares related
party limit would require an amendment to our articles of
incorporation, even if our board of directors determines that
maintenance of REIT status is no longer in our best interests.
Amendments to our articles of incorporation require the
affirmative vote of holders owning not less than a majority of
our outstanding common shares. If it is determined that an
amendment would materially and adversely affect the holders of
any class of preferred shares, such amendment would also require
the affirmative vote of holders of not less than two-thirds of
such class of preferred shares.
If preferred shares in excess of the preferred shares ownership
limit or the preferred shares related party limit are issued or
transferred to any person absent a waiver of such limit, such
issuance or transfer will be null and void to the intended
transferee, and the intended transferee will acquire no rights
to the shares. In addition, if an issuance or transfer would
cause our shares to be beneficially or constructively owned by
fewer than 100 persons or would result in our being
closely held within the meaning of
Section 856(h) of the Code, such issuance or transfer will
be null and void to the intended transferee, and the intended
transferee will acquire no rights to the shares. Preferred
shares transferred or proposed to be transferred in excess of
the preferred shares ownership limit or the preferred shares
related party limit or which would otherwise jeopardize our REIT
status will be subject to repurchase by us. The purchase price
of such preferred shares will be equal to the lesser of:
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the price in such proposed transaction; and
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the fair market value of such shares reflected in the last
reported sales price for the shares on the trading day
immediately preceding the date on which we or our designee
determine to exercise our repurchase right if the shares are
listed on a national securities exchange, or such price for the
shares on the principal exchange if the shares are then listed
on more than one national securities exchange.
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If the shares are not listed on a national securities exchange,
the purchase price will be equal to the lesser of:
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the price in such proposed transaction; and
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the latest bid quotation for the shares if the shares are then
traded over the counter, or, if such quotation is not available,
the fair market value as determined by our board of directors in
good faith, on the last trading day immediately preceding the
day on which notice of such proposed purchase is sent by us.
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From and after the date fixed for our purchase of such preferred
shares, the holder will cease to be entitled to distributions,
voting rights and other benefits with respect to such shares
except the right to payment of the purchase price for the
shares. Any dividend or distribution paid to a proposed
transferee on such preferred shares must be repaid to us upon
demand. If the foregoing transfer restrictions are determined to
be void or invalid by virtue of any legal decision, statute,
rule or regulation, then the intended transferee of any such
preferred shares may be deemed, at our option, to have acted as
our agent in acquiring such preferred shares and to hold such
preferred shares on our behalf.
All certificates for preferred shares will bear a legend
referring to the restrictions described above.
Our articles of incorporation provide that all persons who own,
directly or by virtue of the attribution provisions of the Code,
more than 5% of the preferred shares must give written notice to
us stating the name and address of such person, the number of
shares owned, and a description of how such shares are held each
year by January 31. In addition, each of those shareholders
must provide supplemental information that we may request, in
good faith, in order to determine our status as a REIT.
DESCRIPTION
OF DEPOSITARY SHARES REPRESENTING PREFERRED
SHARES
General
We may issue receipts for depositary shares representing
preferred shares, or depositary receipts. Each depositary
receipt will represent a fractional interest or a share of a
particular series of a class of nonvoting preferred shares, as
specified in the applicable prospectus supplement. Preferred
shares of each series of each class represented by depositary
shares will be deposited under a separate Deposit Agreement
among us, the depositary named therein and the holders from time
to time of the Depositary Receipts. Subject to the terms of the
Deposit Agreement, each owner of a Depositary Receipt will be
entitled to all the rights and preferences of the preferred
shares represented by such depositary shares including dividend,
voting, conversion, redemption and liquidation rights. Such
rights and preferences will be proportionate to the fractional
interest of a share of the particular series of preferred shares
represented by the depositary shares evidenced by such
Depositary Receipt. As of the date of this prospectus, there are
issued and outstanding:
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7,200,000 Depositary Shares each representing
1
/
10
of a share of 8% Class G Cumulative Redeemable Preferred
Shares;
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8,200,000 Depositary Shares each representing
1
/
20
of a share of the
73
/
8
%
Class H Cumulative Redeemable Preferred Shares; and
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6,800,000 Depositary Shares each representing
1
/
20
of a share of 7.50% Class I Redeemable Preferred Shares.
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See Description of Preferred Shares. These
depositary shares representing preferred shares are listed on
the New York Stock Exchange under the symbols DDR-PG, DDR-PH and
DDR-PI, respectively.
The depositary shares representing preferred shares will be
evidenced by Depositary Receipts issued pursuant to the
applicable Deposit Agreement. Immediately after we issue and
deliver the preferred shares to the depositary, we will cause
the depositary to issue the Depositary Receipts on our behalf.
Copies of the applicable form of Deposit Agreement and
Depositary Receipt may be obtained from us upon request.
Dividends
and Other Distributions
The depositary will distribute all cash dividends or other cash
distributions received on behalf of the preferred shares
proportionately to the record holders of the related Depositary
Receipts owned by such holder. Such distributions are subject to
certain obligations of holders to file proofs, certificates and
other information and to pay certain charges and expenses to the
depositary.
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In the event of a non-cash distribution, the depositary will
distribute property it receives to the record holders of
Depositary Receipts entitled to the property unless the
depositary determines that it is not feasible to make such
distribution, in which case the depositary may, with our
approval, sell such property and distribute the net proceeds of
such sale to holders. Such distributions by the depositary are
subject to certain obligations of holders to file proofs,
certificates and other information and to pay certain charges
and expenses to the depositary.
Withdrawal
of Shares
Unless the related depositary shares representing preferred
shares have previously been called for redemption, upon
surrender of the Depositary Receipts at the corporate trust
office of the depositary, the holders thereof will be entitled
to delivery at such office, to or upon such holders order,
of the number of whole or fractional preferred shares and any
money or other property represented by the depositary shares
evidenced by such Depositary Receipts. Holders of Depositary
Receipts will be entitled to receive whole or fractional shares
of the related preferred shares on the basis of the proportion
of preferred shares represented by each depositary share as
specified in the applicable prospectus supplement, but holders
of such preferred shares will not thereafter be entitled to
receive depositary shares representing preferred shares
therefor. If the Depositary Receipts delivered by the holder
evidence a number of depositary shares in excess of the number
of depositary shares representing the preferred shares to be
withdrawn, the depositary will deliver to such holder at the
same time a new Depositary Receipt evidencing such excess number
of depositary shares.
Redemption
of Depositary Shares Representing Preferred
Shares
Whenever we redeem preferred shares held by the depositary, the
depositary will redeem as of the same redemption date the number
of depositary shares representing the preferred shares so
redeemed, provided we have paid in full to the depositary the
redemption price of the preferred shares to be redeemed plus an
amount equal to any accrued and unpaid dividends thereon to the
date fixed for redemption. With respect to Noncumulative Shares,
dividends will be paid for the current dividend period only. The
redemption price per depositary share will be equal to the
redemption price and any other amounts per share payable with
respect to the preferred shares. If less than all the depositary
shares representing preferred shares are to be redeemed, the
depositary shares representing preferred shares to be redeemed
will be selected by the depositary by lot.
After the date fixed for redemption, the depositary shares
representing preferred shares called for redemption will no
longer be deemed to be outstanding and all rights of the holders
of the Depositary Receipts evidencing the depositary shares
representing preferred shares called for redemption will cease.
However, the holders will have the right to receive any moneys
payable upon redemption and any money or other property that the
holders of such Depositary Receipts were entitled to at the time
of redemption when they surrender their Depositary Receipts to
the depositary.
Voting of
the Underlying Preferred Shares
Upon receipt of notice of any meeting at which the holders of
the preferred shares are entitled to vote, the depositary will
mail the information contained in such notice to the record
holders of the Depositary Receipts related to such preferred
shares. Each record holder of Depositary Receipts on the record
date will be entitled to instruct the depositary as to the
exercise of the voting rights of the preferred shares related to
such holders Depositary Receipts. The record date for
Depositary Receipts will be the same date as the record date for
preferred shares. The depositary will vote the preferred shares
related to such Depositary Receipts in accordance with such
instructions, and we will agree to take all reasonable action
that the depositary deems necessary to enable it to vote the
preferred shares. The depositary will abstain from voting
preferred shares represented by such depositary shares to the
extent it does not receive specific instructions from the
holders of Depositary Receipts.
Liquidation
Preference
In the event of our liquidation, dissolution or
winding-up,
whether voluntary or involuntary, each holder of a Depositary
Receipt will be entitled to the fraction of the liquidation
preference accorded each preferred share
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represented by the depositary share evidenced by such Depositary
Receipt, as set forth in the applicable prospectus supplement.
Conversion
of Preferred Shares
The depositary shares representing preferred shares, as such,
are not convertible into common shares or any of our other
securities or property. Nevertheless, if so specified in the
applicable prospectus supplement relating to an offering of
depositary shares representing preferred shares, the Depositary
Receipts may be surrendered by holders thereof to the depositary
with written instructions to the depositary to instruct us to
cause conversion of the preferred shares represented by the
depositary shares into whole common shares, other preferred
shares or other shares of capital stock. We have agreed that
upon receipt of such instructions and any amounts payable in
respect thereof, we will cause the conversion thereof utilizing
the same procedures as those provided for delivery of preferred
shares to effect such conversion. If the depositary shares
representing preferred shares evidenced by a Depositary Receipt
are to be converted in part only, one or more new Depositary
Receipts will be issued for any depositary shares not to be
converted. No fractional common shares will be issued upon
conversion. If conversion will result in a fractional share
being issued, we will pay in cash an amount equal to the value
of the fractional interest based upon the closing price of the
common shares on the last business day prior to the conversion.
Amendment
and Termination of the Deposit Agreement
The form of Depositary Receipt evidencing the depositary shares
which represent the preferred shares and any provision of the
Deposit Agreement may at any time be amended by agreement
between the depositary and us. However, any amendment that
materially and adversely alters the rights of the holders of
Depositary Receipts will not be effective unless it has been
approved by the existing holders of at least a majority of the
depositary shares evidenced by outstanding Depositary Receipts.
We may terminate the Deposit Agreement upon not less than
30 days prior written notice to the depositary if
(1) such termination is to preserve our status as a REIT or
(2) a majority of each class of preferred shares affected
by such termination consents to such termination. Upon
termination of the Deposit Agreement, the depositary shall
deliver or make available to each holder of Depositary Receipts,
upon surrender of the Depositary Receipts held by such holder,
such number of whole or fractional preferred shares as are
represented by the depositary shares evidenced by such
Depositary Receipts. In addition, the Deposit Agreement will
automatically terminate if:
(1) all outstanding depositary shares have been redeemed,
(2) there has been a final distribution in respect of the
related preferred shares in connection with any liquidation,
dissolution or
winding-up
and such distribution has been distributed to the holders of
Depositary Receipts evidencing the depositary shares
representing such preferred shares, or
(3) each related preferred share shall have been converted
into capital stock that is not represented by depositary shares.
Charges
of Preferred Shares Depositary
We will pay all transfer and other taxes and governmental
charges arising solely from the existence of the Deposit
Agreement. In addition, we will pay the fees and expenses of the
depositary in connection with the performance of its duties
under the Deposit Agreement. However, holders of Depositary
Receipts will pay the depositarys fees and expenses for
any duties that holders request to be performed which are
outside those expressly provided for in the Deposit Agreement.
Resignation
and Removal of Depositary
The depositary may resign at any time by delivering to us notice
of its resignation, and we may remove the depositary at any
time. Any such resignation or removal will take effect upon the
appointment of a successor depositary. A successor depositary
must be appointed within 60 days after delivery of the
notice of resignation or removal. A successor depositary must be
a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at
least $100,000,000.
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Miscellaneous
The depositary will forward to holders of Depositary Receipts
any reports and communications from us which it receives with
respect to the related preferred shares.
Neither we nor the depositary will be liable if it is prevented
from or delayed, by law or any circumstances beyond its control,
in performing its obligations under the Deposit Agreement. The
obligations of the Company and the depositary under the Deposit
Agreement will be limited to performing our respective duties
thereunder in good faith and without negligence, gross
negligence or willful misconduct. DDR and the depositary will
not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, depositary shares or
preferred shares represented thereby unless satisfactory
indemnity is furnished. DDR and the depositary may rely on
written advice of counsel or accountants, or information
provided by persons presenting preferred shares represented
thereby for deposit, holders of Depositary Receipts or other
persons believed to be competent to give such information, and
on documents believed to be genuine and signed by a proper party.
If the depositary shall receive conflicting claims, requests or
instructions from any holders of Depositary Receipts, on the one
hand, and us, on the other hand, the depositary shall be
entitled to act on such claims, requests or instructions
received from us.
DESCRIPTION
OF COMMON SHARES
Capitalization
Our articles of incorporation authorize us to issue up to
500,000,000 common shares, $0.10 par value per share.
General
The following description summarizes certain general terms and
provisions of our common shares. This summary may not contain
all of the information that is important to you. For more
detail, you should refer to the applicable provisions of our
articles of incorporation and our code of regulations that are
filed as exhibits to the registration statement of which this
prospectus forms a part.
Holders of our common shares are entitled to receive dividends
when, as and if declared by our board of directors, out of funds
legally available therefor. Any payment and declaration of
dividends by us on our common shares and purchases thereof will
be subject to certain restrictions if we fail to pay dividends
on any outstanding preferred shares. See Description of
Preferred Shares Dividends. If we are
liquidated, dissolved or involved in any
winding-up,
the holders of our common shares are entitled to receive ratably
any assets remaining after we have fully paid all of our
liabilities, including the preferential amounts we owe with
respect to any preferred shares. Holders of our common shares
possess ordinary voting rights, with each share entitling the
holder to one vote. Holders of our common shares have cumulative
voting rights in the election of directors. Holders of our
common shares do not have preemptive rights, which means that
they have no right to acquire any additional common shares that
we may subsequently issue.
Restrictions
on Ownership
In order for us to qualify as a REIT under the Code, not more
than 50% in value of our outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals during the
last half of a taxable year. Individual is defined
in the Code to include certain entities. In addition, our
capital stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of
12 months or during a proportionate part of a shorter
taxable year. Additionally, certain other requirements must be
satisfied.
To ensure that five or fewer individuals do not own more than
50% in value of our outstanding common shares, our articles of
incorporation provide that, subject to certain exceptions
(including those set forth below), no holder may own, or be
deemed to own by virtue of the attribution provisions of the
Code, more than 5%, which we refer to as the ownership limit, of
our outstanding common shares. The existing holder,
which includes, collectively, (a) Iris Wolstein
and/or
all
descendants of Iris Wolstein (which includes Scott A. Wolstein),
(b) trusts or family
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foundations established for the benefit of the individuals named
in (a) above and (c) other entities controlled by the
individuals named in (a) above (or trusts or family
foundations established for the benefit of those individuals)
may own, or be deemed to own by virtue of the attribution
provisions of the Code, no more than 5.1% of our outstanding
common shares. The exempt holder, which includes,
collectively, (x) Professor Werner Otto, his wife Maren
Otto
and/or
all descendants of Professor Werner Otto, including, without
limitation, Alexander Otto, (y) trusts or family
foundations established for the benefit of the individuals named
in (x) above and (z) other entities controlled by the
individuals named in (x) above (or trusts or family
foundations established for the benefit of those individuals)
may own, or be deemed to own by virtue of the attribution
provisions of the Code, no more than 29.8% of our outstanding
common shares.
In addition, because rent from a related party tenant (any
tenant 10% of which is owned, directly or constructively, by a
REIT, including an owner of 10% or more of a REIT) is not
qualifying rent for purposes of the gross income tests under the
Code, our articles of incorporation provide that no individual
or entity may own, or be deemed to own by virtue of the
attribution provisions of the Code (which differ from the
attribution provisions applied to the ownership limit), in
excess of 9.8% of our outstanding common shares, which we refer
to as the related party limit. Our board of directors may exempt
a person from the ownership limit if the person would not be
deemed an individual and may exempt a person from
the related party limit if an opinion of counsel or a ruling
from the Internal Revenue Service, or IRS, is provided to our
board of directors to the effect that the ownership will not
then or in the future jeopardize our status as a REIT. Our board
of directors may also exempt the exempt holder and any person
who would constructively own common shares constructively owned
by the exempt holder from the ownership limit in its sole
discretion. As a condition of any exemption, our board of
directors will require appropriate representations and
undertakings from the applicant with respect to preserving our
REIT status.
Additionally, our articles of incorporation prohibit any
transfer of common shares that would cause us to cease to be a
domestically controlled qualified investment entity
as defined in Section 897(h)(4)(B) of the Code.
The preceding restrictions on transferability and ownership of
common shares may not apply if our board of directors determines
that it is no longer in our best interests to continue to
qualify as a REIT. The ownership limit and the related party
limit will not be automatically removed even if the REIT
provisions of the Code are changed to no longer contain any
ownership concentration limitation or if the ownership
concentration limitation is increased. In addition to preserving
our status as a REIT, the effects of the ownership limit and the
related party limit are to prevent any person or small group of
persons from acquiring unilateral control of us. Any change in
the ownership limit, other than modifications that may be made
by our board of directors as permitted by our articles of
incorporation, requires an amendment to the articles of
incorporation, even if our board of directors determines that
maintenance of REIT status is no longer in our best interests.
Amendments to the articles of incorporation require the
affirmative vote of holders owning a majority of our outstanding
common shares. If it is determined that an amendment would
materially and adversely affect the holders of any class of
preferred shares, that amendment also would require the
affirmative vote of holders of two-thirds of the affected class
of preferred shares.
Our articles of incorporation provide that upon a transfer or
non-transfer event that results in a person beneficially or
constructively owning common shares in excess of the applicable
ownership limits or that results in us being closely
held within the meaning of Section 856(h) of the
Code, the person, which we refer to as a prohibited owner, will
not acquire or retain any rights or beneficial economic interest
in the shares that would exceed such applicable ownership limits
or result in us being closely held, which we refer to as excess
shares. Instead, the excess shares will be automatically
transferred to a person or entity unaffiliated with and
designated by us to serve as trustee of a trust for the
exclusive benefit of a charitable beneficiary to be designated
by us within five days after the discovery of the transaction
that created the excess shares. The trustee will have the
exclusive right to designate a person who may acquire the excess
shares without violating the applicable restrictions, which we
refer to as a permitted transferee, to acquire all of the shares
held by the trust. The permitted transferee must pay the trustee
an amount equal to the fair market value (determined at the time
of transfer to the permitted transferee) for the excess shares.
The trustee will pay to the prohibited owner the lesser of
(a) the value of the shares at the time they became excess
shares and (b) the price received by the trustee from the
sale of the excess shares to a permitted transferee. The
beneficiary will receive the excess of (x) the sale
proceeds from the transfer to a permitted transferee over
(y) the amount paid to the prohibited owner, if any, in
addition to any dividends paid with respect to the excess shares.
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All certificates representing our common shares bear a legend
referring to the preceding restrictions.
Our articles of incorporation provide that all persons who own,
directly or by virtue of the attribution provisions of the Code,
more than 5% of our outstanding common shares must give written
notice to us stating the name and address of such person, the
number of shares owned, and a description of how such shares are
held each year by January 31. In addition, each of those
shareholders must provide supplemental information that we may
request, in good faith, in order to determine our status as a
REIT.
DESCRIPTION
OF COMMON SHARE WARRANTS
We may issue common share warrants for the purchase of common
shares. We may issue common share warrants independently or
together with any other securities offered by any prospectus
supplement. The common share warrants we issue may be attached
to or separate from such offered securities. Each series of
common share warrants will be issued under a separate warrant
agreement to be entered into between us and a warrant agent
specified in the applicable prospectus supplement. The warrant
agent will act solely as our agent in connection with the common
share warrants of such series and will not assume any obligation
or relationship of agency or trust for or with any holders or
beneficial owners of common share warrants. The following sets
forth certain general terms and provisions of the common share
warrants that may be offered under this Registration Statement.
Further terms of the common share warrants and the applicable
warrant agreements will be set forth in the applicable
prospectus supplement.
The applicable prospectus supplement will describe the terms of
the common share warrants in respect of which this prospectus is
being delivered, including, where applicable, the following:
(1) the title of such common share warrants;
(2) the aggregate number of such common share warrants;
(3) the price or prices at which such common share warrants
will be issued;
(4) the number of common shares purchasable upon exercise
of such common share warrants;
(5) the designation and terms of the other Offered
Securities with which such common share warrants are issued and
the number of such common share warrants issued with each such
Offered Security;
(6) the date, if any, on and after which such common share
warrants and the related common shares will be separately
transferable;
(7) the price at which each common share purchasable upon
exercise of such common share warrants may be purchased;
(8) the date on which the right to exercise such common
share warrants shall commence and the date on which such right
shall expire;
(9) the minimum or maximum amount of such common share
warrants which may be exercised at any one time;
(10) information with respect to book-entry procedures, if
any;
(11) a discussion of certain federal income tax
considerations; and
(12) any other terms of such common share warrants,
including terms, procedures and limitations relating to the
exchange and exercise of such common share warrants.
You should also read the section captioned Description of
Common Shares for a general description of the common
shares to be acquired upon the exercise of the common share
warrants, including a description of certain restrictions on the
ownership of common shares. We will treat as outstanding any
common shares that may be acquired upon the exercise of common
share warrants, directly or constructively held by an investor,
at the following times:
(1) at the time of acquisition of the common share
warrants, and
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(2) prior to the exercise of the common share warrants, for
purposes of determining the percentage ownership of common
shares held by such investor.
CERTAIN
ANTI-TAKEOVER PROVISIONS OF OHIO LAW
Certain provisions of Ohio law may have the effect of
discouraging or rendering more difficult an unsolicited
acquisition of a corporation or its capital stock to the extent
the corporation is subject to those provisions. We have opted
out of one such provision. We remain subject to the foregoing
provisions, which are described below.
Chapter 1704 of the Ohio Revised Code prohibits certain
transactions, including mergers, sales of assets, issuances or
purchases of securities, liquidation or dissolution, or
reclassifications of the then-outstanding shares of an Ohio
corporation with 50 or more shareholders involving, or for the
benefit of, certain holders of shares representing 10% or more
of the voting power of the corporation (any such shareholder, a
10% Shareholder), unless:
(1) the transaction is approved by the directors before the
10% Shareholder becomes a 10% Shareholder;
(2) the acquisition of 10% of the voting power is approved
by the directors before the 10% Shareholder becomes a 10%
Shareholder; or
(3) the transaction involves a 10% Shareholder who has been
a 10% Shareholder for at least three years and is approved by
the directors before the 10% Shareholder becomes a 10%
Shareholder, is approved by holders of two-thirds of our voting
power and the holders of a majority of the voting power not
owned by the 10% Shareholder, or certain price and form of
consideration requirements are met.
Chapter 1704 of the Ohio Revised Code may have the effect
of deterring certain potential acquisitions of us which might be
beneficial to shareholders.
Section 1707.041 of the Ohio Revised Code regulates certain
control bids for corporations in Ohio with fifty or
more shareholders that have significant Ohio contacts and
permits the Ohio Division of Securities to suspend a control bid
if certain information is not provided to offerees.
PLAN OF
DISTRIBUTION
We may sell the offered securities in and outside the United
States:
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through underwriters or dealers;
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directly to purchasers;
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in a rights offering;
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in at the market offerings, within the meaning of
Rule 415(a)(4) of the Securities Act, to or through a
market maker or into an existing trading market on an exchange
or otherwise;
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through agents; or
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through a combination of any of these methods.
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The prospectus supplement will include the following information:
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the terms of the offering;
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the names of any underwriters or agents;
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the name or names of any managing underwriter or underwriters;
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the purchase price or initial public offering price of the
securities;
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the net proceeds from the sale of the securities;
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any delayed delivery arrangements;
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any underwriting discounts, commissions and other items
constituting underwriters compensation;
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any discounts or concessions allowed or reallowed or paid to
dealers; and
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any commissions paid to agents.
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Sale
through Underwriters or Dealers
If underwriters are used in the sale, the underwriters will
acquire the securities for their own account. The underwriters
may resell the securities from time to time in one or more
transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the
time of sale. Underwriters may offer securities to the public
either through underwriting syndicates represented by one or
more managing underwriters or directly by one or more firms
acting as underwriters. Unless we inform you otherwise in the
prospectus supplement, the obligations of the underwriters to
purchase the securities will be subject to certain conditions,
and the underwriters will be obligated to purchase all the
offered securities if they purchase any of them. The
underwriters may change from time to time any initial public
offering price and any discounts or concessions allowed or
reallowed or paid to dealers.
If we offer securities in a subscription rights offering to our
existing security holders, we may enter into a standby
underwriting agreement with dealers, acting as standby
underwriters. We may pay the standby underwriters a commitment
fee for the securities they commit to purchase on a standby
basis. If we do not enter into a standby underwriting agreement,
we may retain a dealer-manager to manage a subscription rights
offering for us.
During and after an offering through underwriters, the
underwriters may purchase and sell the securities in the open
market. These transactions may include overallotment and
stabilizing transactions and purchases to cover syndicate short
positions created in connection with the offering. The
underwriters may also impose a penalty bid, which means that
selling concessions allowed to syndicate members or other
broker-dealers for the offered securities sold for their account
may be reclaimed by the syndicate if the offered securities are
repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or
otherwise affect the market price of the offered securities,
which may be higher than the price that might otherwise prevail
in the open market. If commenced, the underwriters may
discontinue these activities at any time.
Some or all of the securities that we offer though this
prospectus may be new issues of securities with no established
trading market. Any underwriters to whom we sell our securities
for public offering and sale may make a market in those
securities, but they will not be obligated to do so and they may
discontinue any market making at any time without notice.
Accordingly, we cannot assure you of the liquidity of, or
continued trading markets for, any securities that we offer.
If dealers are used in the sale of securities, we will sell the
securities to them as principals. They may then resell those
securities to the public at fixed prices or at varying prices
determined by the dealers at the time of resale. We will include
in the prospectus supplement the names of the dealers and the
terms of the transaction.
Direct
Sales and Sales through Agents
We may sell the securities directly. In this case, no
underwriters or agents would be involved. We may also sell the
securities through agents designated from time to time. In the
prospectus supplement, we will name any agent involved in the
offer or sale of the offered securities, and we will describe
any commissions payable to the agent. Unless we inform you
otherwise in the prospectus supplement, any agent will agree to
use its reasonable best efforts to solicit purchases for the
period of its appointment.
We may sell the securities directly to institutional investors
or others who may be deemed to be underwriters within the
meaning of the Securities Act with respect to any sale of those
securities. We will describe the terms of any sales of these
securities in the prospectus supplement.
Remarketing
Arrangements
Offered securities may also be offered and sold, if so indicated
in the applicable prospectus supplement, in connection with a
remarketing upon their purchase, in accordance with a redemption
or repayment pursuant to their terms, or otherwise, by one or
more remarketing firms, acting as principals for their own
accounts or as agents for
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us. Any remarketing firm will be identified and the terms of its
agreements, if any, with us and its compensation will be
described in the applicable prospectus supplement.
Delayed
Delivery Contracts
If we so indicate in the prospectus supplement, we may authorize
agents, underwriters or dealers to solicit offers from certain
types of institutions to purchase securities from us at the
public offering price under delayed delivery contracts. These
contracts would provide for payment and delivery on a specified
date in the future. The contracts would be subject only to those
conditions described in the prospectus supplement. The
prospectus supplement will describe the commission payable for
solicitation of those contracts.
General
Information
We may have agreements with the agents, dealers, underwriters
and remarketing firms to indemnify them against certain civil
liabilities, including liabilities under the Securities Act, or
to contribute with respect to payments that the agents, dealers,
underwriters or remarketing firms may be required to make.
Agents, dealers, underwriters and remarketing firms may be
customers of, engage in transactions with or perform services
for us in the ordinary course of their businesses.
LEGAL
MATTERS
Jones Day will pass upon the validity of the securities being
offered by this prospectus.
EXPERTS
The financial statements incorporated in this prospectus by
reference to Developers Diversified Realty Corporations
Current Report on
Form 8-K
filed August 10, 2009 and managements assessment of
the effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal
Control over Financial Reporting) incorporated in this
prospectus by reference to the Annual Report on
Form 10-K
of Developers Diversified Realty Corporation for the year ended
December 31, 2008 have been so incorporated in reliance on
the reports of PricewaterhouseCoopers LLP, an independent
registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any
document we file with the SEC at the SECs Public Reference
Room at 100 F Street, N.E., Washington, D.C.
20549. You may obtain information about the operation of the
SECs Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a website that contains reports, proxy
and information statements, and other information regarding
registrants that file electronically with the SEC
(http://www.sec.gov).
INFORMATION
WE INCORPORATE BY REFERENCE
The SEC allows us to incorporate by reference the information we
file with them, which means:
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incorporated documents are considered part of the prospectus;
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we can disclose important information to you by referring you to
those documents; and
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information that we file with the SEC after the date of this
prospectus will automatically update and supersede the
information contained in this prospectus and incorporated
filings.
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We incorporate by reference the documents listed below that we
filed with the SEC under the Exchange Act:
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our Annual Report on
Form 10-K
for the year ended December 31, 2008, as amended by
Form 10-K/A
filed on April 29, 2009;
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our Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2009 and June 30,
2009;
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our Current Reports on
Form 8-K
filed on January 6, 2009; February 27, 2009;
March 11, 2009; April 7, 2009; May 11, 2009;
June 12, 2009; July 1, 2009; July 31, 2009;
August 3, 2009; August 10, 2009; August 14, 2009;
September 10, 2009; September 18, 2009,
September 21, 2009; September 25, 2009 and
September 29, 2009; and
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the description of our common shares contained in our
Registration Statement on Form
8-A
dated
January 26, 1993 and all amendments or reports filed with
the SEC for the purpose of updating such description.
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Our Current Report on
Form 8-K
filed with SEC on August 10, 2009 for purposes of, among
other things, reflecting the impact of the classification of
discontinued operations of properties sold after January 1,
2009, pursuant to the requirements of Statement No. 144
Accounting for the Impairment or Disposal of Long-Lived
Assets, updates Items 6, 7, 7A, 15(a)(i) and 15(a)(2)
of our Annual Report on
Form 10-K
for the year ended December 31, 2008.
We also incorporate by reference each of the documents that we
file with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this prospectus until the
offering of the securities terminates. We will not, however,
incorporate by reference in this prospectus any documents or
portions of any documents that are not deemed filed
with the SEC, including any information furnished pursuant to
Item 2.02 or Item 7.01 of our current reports on
Form 8-K
unless, and except to the extent, specified in such current
reports.
We will provide you with a copy of any of these filings (other
than an exhibit to these filings, unless the exhibit is
specifically incorporated by reference into the filing
requested) at no cost if you submit a request to us by writing
or telephoning us at the following address and telephone number:
Developers Diversified Realty Corporation
3300 Enterprise Parkway
Beachwood, Ohio 44122
Telephone Number:
(216) 755-5500
Attn: Investor Relations
We also maintain a web site that contains additional information
about us
(http://www.ddr.com).
The information on, or accessible through, our web site is not
part of, or incorporated by reference into, this prospectus
other than the documents that we file with the SEC and
incorporate by reference into this prospectus.
Any statement contained or incorporated by reference in this
prospectus shall be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement
contained in this prospectus, or in any subsequently filed
document which also is incorporated herein by reference,
modifies or supersedes such earlier statement. Any statement so
modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus.
Any statement made in this prospectus concerning the contents of
any contract, agreement or other document is only a summary of
the actual contract, agreement or other document. If we have
filed or incorporated by reference any contract, agreement or
other document as an exhibit to the registration statement, you
should read the exhibit for a more complete understanding of the
document or matter involved. Each statement regarding a
contract, agreement or other document is qualified by reference
to the actual document.
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