CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Amount To Be
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Offering Price
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Proposed Maximum
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Amount of
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Title of Each Class of Securities To Be Registered
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Registered
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Per Unit
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Offering Price
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Registration Fee
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1.75% Convertible
Senior Notes due
2040
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$
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350,000,000
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(1)
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$
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1,000
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$
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350,000,000
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(1)
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$
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24,955.00
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(2)
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Common Shares, $0.10 par value per share
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(3
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)
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(3
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)
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(3
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)
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(3
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)
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(1)
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Includes 1.75% Convertible Senior Notes due 2040 that may be purchased by the underwriters
pursuant to their option to purchase additional 1.75% Convertible Senior Notes due 2040 to cover
over-allotments.
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(2)
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Calculated in accordance with Rule 457(o) and Rule 457(r) under the Securities Act and
relates to the Registration Statement on Form S-3 (File No. 333-162451) filed by Developers
Diversified Realty Corporation on October 13, 2009.
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(3)
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There are also being registered hereby an indeterminate
number of common shares into
which the 1.75% Convertible Senior Notes due 2040 may be converted. Pursuant to Rule 457(i) under
the Securities Act, no separate registration fee is payable where convertible securities and the
securities into which conversion is offered are registered at the same time and no additional
consideration is to be received in connection with the exercise of the conversion privilege.
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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-162451
PROSPECTUS SUPPLEMENT
(To prospectus dated October 13, 2009)
$305,000,000
Developers Diversified Realty
Corporation
1.75% Convertible Senior
Notes due 2040
Our notes will bear interest at the rate of 1.75% per year,
payable on May 15 and November 15 of each year, beginning
May 15, 2011. The notes will mature on November 15,
2040. On or after November 20, 2015, we may redeem the
notes in whole or in part for cash at 100% of the principal
amount of the notes to be redeemed plus accrued and unpaid
interest. We may also redeem the notes prior to
November 20, 2015 in order to preserve our status as a real
estate investment trust, or REIT. On November 15, 2015,
November 15, 2020, November 15, 2025,
November 15, 2030 and November 15, 2035 as well as
following the occurrence of certain change in control
transactions, holders may require us to repurchase notes in
whole or in part for cash at 100% of the principal amount of the
notes to be repurchased plus accrued and unpaid interest. We
will issue the notes only in registered form in denominations of
$1,000.
Holders may convert their notes at their option prior to the
close of business on the business day preceding May 15,
2040 only under the following circumstances: (i) if the
closing sale price of our common shares reaches a specified
threshold over a specified time period; (ii) if the trading
price of the notes is below a specified threshold for a
specified time period; (iii) if those notes have been
called for redemption; (iv) upon the occurrence of the
specified transactions described in this prospectus supplement;
or (v) if our common shares cease to be listed on a
U.S. national or regional securities exchange for 30
consecutive trading days. On or after May 15, 2040 until
the close of business on the second business day preceding the
stated maturity date, holders may convert their notes at any
time, regardless of the foregoing circumstances. Upon
conversion, we will deliver cash up to the aggregate principal
amount of the notes to be converted, and cash, our common shares
or a combination thereof (at our election) in respect of the
remainder, if any, of our conversion obligation in excess of the
aggregate principal amount of the notes being converted.
The initial conversion rate for each $1,000 principal amount of
notes will be 61.0361 of our common shares. This is equivalent
to an initial conversion price of approximately $16.38 per
common share. For a discussion of the circumstances in which the
conversion rate will be subject to adjustment, see
Description of the Notes Conversion Rate
Adjustments in this prospectus supplement. In addition, if
certain change in control transactions occur prior to
November 20, 2015 and a holder elects to convert notes in
connection with any such transaction, we will increase the
conversion rate in connection with such conversion.
The notes will be our senior unsecured obligations and will rank
equally with all of our other senior unsecured indebtedness and
be effectively subordinated to our secured indebtedness and to
all liabilities and preferred equity of our subsidiaries.
The notes will not be listed on any securities exchange. Our
common shares are listed on the New York Stock Exchange, or the
NYSE, under the symbol DDR. On November 1,
2010, the last reported sales price for our common shares on the
NYSE was $12.85 per share.
Investing in the notes involves risks. See Risk
Factors beginning on
page S-8
of this prospectus supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the notes
or determined if this prospectus supplement or the accompanying
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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Per Note
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Total
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Public offering
price
(1)
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|
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100
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%
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$
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305,000,000
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Underwriting discount
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2
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%
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$
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6,100,000
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Proceeds, before expenses, to us
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|
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98
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%
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$
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298,900,000
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|
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(1)
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Plus accrued interest from
November 5, 2010, if settlement occurs after that date.
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The underwriters may also purchase up to an additional
$45,000,000 principal amount of notes at the public offering
price, less the underwriting discount, to cover over-allotments,
if any, within the
30-day
period beginning on the date of this prospectus supplement.
We expect that delivery of the notes will be made to investors
in book-entry form through the facilities of The Depository
Trust Company, or DTC, on or about November 5, 2010.
Joint Book-Running Managers
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J.P.
Morgan
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Goldman, Sachs & Co.
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Deutsche
Bank Securities
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UBS Investment Bank
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Senior Co-Managers
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KeyBanc
Capital Markets
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RBC
Capital Markets
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Scotia
Capital
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U.S.
Bancorp Investments, Inc.
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Co-Managers
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Daiwa
Capital Markets
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FBR
Capital Markets
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ING
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RBS
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The date of this Prospectus Supplement is November 1, 2010.
TABLE OF
CONTENTS
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Page
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Prospectus Supplement
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S-ii
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S-ii
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S-ii
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S-iii
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S-1
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S-8
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S-15
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S-16
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S-17
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S-18
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S-42
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S-61
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S-63
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S-68
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S-68
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Prospectus
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About This Prospectus
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1
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The Company
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1
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Risk Factors
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1
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Disclosure Regarding Forward-Looking Statements
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1
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Use of Proceeds
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4
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Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Share Dividends
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4
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Description of Debt Securities
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5
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Description of Preferred Shares
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25
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Description of Depositary Shares Representing Preferred
Shares
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33
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Description of Common Shares
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36
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Description of Common Share Warrants
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38
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Certain Anti-Takeover Provisions of Ohio Law
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39
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Plan of Distribution
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39
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Legal Matters
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41
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Experts
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41
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Where You Can Find More Information
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41
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Information We Incorporate By Reference
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41
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We have not, and the underwriters have not, authorized any
dealer, salesperson or other person to give any information or
to make any representation other than those contained in or
incorporated by reference into this prospectus supplement, the
accompanying prospectus or any free writing prospectus that we
may provide to you. You must not rely upon any information or
representation not contained in or incorporated by reference
into this prospectus supplement, the accompanying prospectus or
any free writing prospectus that we may provide to you. This
prospectus supplement, the accompanying prospectus and any such
free writing 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, the accompanying prospectus and any such
free writing 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, the documents incorporated herein and
therein by reference and any such free writing prospectus is
correct on any date after their respective dates, even though
this prospectus supplement, the accompanying prospectus and any
such free writing prospectus are delivered or securities are
sold on a later date. Our business, financial condition, results
of operations and cash flows may have changed since those
dates.
S-i
ABOUT
THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of the offering and the
notes offered hereby. 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 general description of
our debt securities and gives more general information, some of
which may not apply to the notes offered hereby. 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 securities, 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 wholly-owned and majority-owned subsidiaries and
consolidated joint ventures of Developers Diversified Realty
Corporation.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission, or the SEC. You may read and copy any document we
file with the SEC at the SECs Public Reference Room,
100 F Street, NE, 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 on or accessible through the SECs website is
not part of, or incorporated by reference into, this prospectus,
other than documents filed with the SEC that we incorporate by
reference.
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 that 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 year ended December 31, 2009;
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Our Quarterly Reports on
Form 10-Q
for the quarterly periods ended March 31, 2010 and
June 30, 2010; and
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Our Current Reports on
Form 8-K
filed with the SEC on January 5, 2010; January 13,
2010 (as to Item 8.01 only); January 26, 2010;
February 8, 2010; February 10, 2010; February 22,
2010; March 16, 2010; March 19, 2010; May 13,
2010; August 9, 2010; August 12, 2010; and
October 21, 2010.
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Any documents we file pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, or the Exchange
Act, after the date of this prospectus and prior to the
termination of the offering of the notes 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,
including any
S-ii
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.
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 to Developers Diversified Realty
Corporation, 3300 Enterprise Parkway, Beachwood, Ohio 44122,
Attention: Kate Deck, Investor Relations Director, at 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, other than
documents filed with the SEC that we incorporate by reference.
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.
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 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
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 or default in payment of rent;
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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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S-iii
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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 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 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 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 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 necessary for us to continue to grow and
operate our business may not be available or may not be
available on favorable terms;
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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
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 cause a default under the joint
venture loan for reasons outside of our
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S-iv
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control. Furthermore, 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 temporary;
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The outcome of pending or future litigation, including
litigation with tenants or joint venture partners, may adversely
affect 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 to develop and own properties in Canada and Russia;
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International development and ownership activities carry risks
in addition to 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 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;
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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; and
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We may have to restate certain financial statements as a result
of changes in, or the adoption of new, accounting rules and
regulations to which we are subject, including accounting rules
and regulations affecting our accounting policies with respect
to the deconsolidation of certain variable interest entities.
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We also disclose important factors that could cause our actual
results, performance or achievements to differ materially from
those expressed or implied by forward-looking statements under
Item 1A. Risk Factors in our Annual Report on
Form 10-K
for the year ended December 31, 2009, which is incorporated
by reference herein.
S-v
PROSPECTUS
SUPPLEMENT SUMMARY
This summary highlights information contained elsewhere in
this prospectus. It does not contain all of the information that
you should consider before making an investment decision. We
encourage you to carefully read this entire prospectus and the
documents that are incorporated herein, especially the
Risk Factors and the financial statements included
elsewhere herein or incorporated herein by reference to our
Annual Report on
Form 10-K
for the year ended December 31, 2009 filed with the SEC,
before making an investment decision.
The
Company
We are a self-administered and self-managed REIT engaged in the
business of owning, managing and developing a portfolio of
shopping centers and, to a lesser extent, business centers.
Recent
Developments
We have not yet filed our financial statements for the period
ended September 30, 2010 with the SEC. The following
summarizes the financial results for the three- and nine-month
periods ended September 30, 2010 as reported by us on
October 25, 2010.
Our net loss for the three- and nine-month periods ended
September 30, 2010 was $24.9 million and
$156.8 million, respectively. Our third quarter operating
funds from operations, or FFO, was $63.2 million before
$26.1 million of net charges. For the nine-month period
ended September 30, 2010, we reported operating FFO of
$193.4 million before $160.7 million of net charges. A
reconciliation of net loss to FFO and operating FFO is presented
in the following table:
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Three-Month
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Nine-Month
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Period Ended
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Period Ended
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September 30,
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September 30,
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2010
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2010
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(in millions)
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FFO:
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|
|
Net loss applicable to common shareholders
|
|
$
|
(24.9
|
)
|
|
$
|
(156.8
|
)
|
Depreciation and amortization of real estate investments
|
|
|
53.0
|
|
|
|
161.8
|
|
Equity in net loss of joint ventures
|
|
|
4.8
|
|
|
|
3.8
|
|
Joint ventures FFO
|
|
|
10.5
|
|
|
|
32.3
|
|
Gain on disposition of depreciable real estate
|
|
|
(6.3
|
)
|
|
|
(8.4
|
)
|
|
|
|
|
|
|
|
|
|
FFO applicable to common shareholders
|
|
$
|
37.1
|
|
|
$
|
32.7
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends
|
|
|
10.6
|
|
|
|
31.7
|
|
|
|
|
|
|
|
|
|
|
FFO
|
|
$
|
47.7
|
|
|
$
|
64.4
|
|
|
|
|
|
|
|
|
|
|
S-1
|
|
|
|
|
|
|
|
|
|
|
Three-Month
|
|
|
Nine-Month
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Non-operating net charges and gains:
|
|
|
|
|
|
|
|
|
Impairment charges consolidated assets
|
|
$
|
5.1
|
|
|
$
|
78.2
|
|
Less portion of impairment charges allocated to non-controlling
interests
|
|
|
|
|
|
|
(31.2
|
)
|
Executive separation charge
|
|
|
|
|
|
|
2.1
|
|
Gain on debt retirement, net
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
Loss on equity derivative instruments related to Otto investment
|
|
|
11.3
|
|
|
|
14.6
|
|
Litigation, debt extinguishment costs and other expenses, net of
tax
|
|
|
3.9
|
|
|
|
16.0
|
|
Loss on asset sales and impairment charges equity
method investments
|
|
|
3.0
|
|
|
|
6.4
|
|
Consolidated loss on sales and impairment charges
discontinued operations
|
|
|
7.3
|
|
|
|
75.3
|
|
Gain on deconsolidation of interests, net
|
|
|
(5.2
|
)
|
|
|
(5.2
|
)
|
FFO associated with DDR MDT MV LLC, net of non-controlling
interest
|
|
|
1.0
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26.1
|
|
|
$
|
160.7
|
|
|
|
|
|
|
|
|
|
|
FFO applicable to common shareholders
|
|
$
|
37.1
|
|
|
$
|
32.7
|
|
|
|
|
|
|
|
|
|
|
Operating FFO
|
|
$
|
63.2
|
|
|
$
|
193.4
|
|
|
|
|
|
|
|
|
|
|
FFO and operating FFO weighted average common shares and OP
Units diluted
|
|
|
257.9
|
|
|
|
250.2
|
|
|
|
|
|
|
|
|
|
|
FFO is a supplemental non-GAAP financial measurement used as a
standard in the real estate industry and a widely accepted
measure of REIT performance. Operating FFO is also a
supplemental non-GAAP financial measure and management believes
that FFO and operating FFO provide additional indicators of the
financial performance of a REIT. We also believe that FFO and
operating FFO more appropriately measure our core operations and
provide benchmarks to our peer group. We do not use FFO or
operating FFO as an indicator of our cash obligations and fund
requirements for future commitments, acquisitions or development
activities. Neither FFO nor operating FFO represents cash
generated from operating activities in accordance with generally
accepted accounting principles, or GAAP, is necessarily
indicative of cash available to fund cash needs and should be
considered as an alternative to net income computed in
accordance with GAAP as an indicator of our operating
performance or as an alternative to cash flow as a measure of
liquidity.
We define and calculate FFO as net income, adjusted to exclude:
(i) preferred share dividends, (ii) gains from
disposition of depreciable real estate property, except for
those sold through our merchant building program, which are
presented net of taxes, and those gains that represent the
recapture of a previously recognized impairment charge,
(iii) extraordinary items and (iv) certain non-cash
items. These non-cash items principally include real property
depreciation and amortization of intangibles, equity income from
joint ventures and equity income from non-controlling interests
and adding our proportionate share of FFO from our
unconsolidated joint ventures and non-controlling interests,
determined on a consistent basis. We calculate operating FFO by
excluding the non-operating charges and gains described above.
We provide no assurances that these charges and gains are
non-recurring. These charges and gains could be reasonably
expected to recur in future results of operations. Other real
estate companies may calculate FFO and operating FFO in a
different manner. FFO excluding the net non-operating
S-2
items detailed above, or operating FFO, is useful to investors
as we remove these charges and gains to analyze the results of
our operations and assess performance of the core operating real
estate portfolio.
Selected
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in millions)
|
|
|
Real estate, net
|
|
$
|
7,013.5
|
|
|
$
|
7,490.4
|
|
|
|
|
|
|
|
|
|
|
Investments in and advances to joint ventures
|
|
$
|
417.8
|
|
|
$
|
420.5
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
21.3
|
|
|
$
|
26.2
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,877.1
|
|
|
$
|
8,426.6
|
|
|
|
|
|
|
|
|
|
|
Indebtedness:
|
|
|
|
|
|
|
|
|
Revolving credit facilities
|
|
$
|
483.1
|
|
|
$
|
775.0
|
|
Unsecured debt
|
|
|
1,746.4
|
|
|
|
1,689.9
|
|
Mortgage and other secured debt
|
|
|
2,165.8
|
|
|
|
2,713.8
|
|
|
|
|
|
|
|
|
|
|
Total indebtedness
|
|
$
|
4,395.3
|
|
|
$
|
5,178.7
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
$
|
3,169.2
|
|
|
$
|
2,952.3
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation
In August 2010, the 25 assets owned by DDR MDT MV LLC, or MV, a
joint venture in which we have a 50% interest, were placed in
the control of a court appointed receiver and as a result, the
entity that holds the assets and non-recourse mortgage loan was
deconsolidated for accounting purposes pursuant to the
provisions of Accounting Standards Codification No. 810,
Consolidation, or ASC 810. Upon
deconsolidation, we recorded a gain of approximately
$5.6 million because the carrying value of the non-recourse
debt exceeded the carrying value of the collateralized assets.
Following the deconsolidation, we will no longer have any
economic rights or obligations in MV. The revenues and expenses
associated with MV for the current and prior periods, including
the $5.6 million gain, will be classified within
discontinued operations in our consolidated statements of
operations.
Dispositions
We sold 11 consolidated shopping centers, aggregating
approximately 0.7 million square feet, in the third quarter
of 2010, generating gross proceeds of approximately
$48.9 million. We recorded an aggregate net gain of
approximately $0.9 million related to asset sales in the
third quarter of 2010.
In the third quarter of 2010, one of our joint ventures sold a
shopping center, aggregating approximately 0.4 million
square feet, generating gross proceeds of approximately
$27.2 million. The joint venture recorded an aggregate net
loss of approximately $13.3 million related to the asset
sale in the third quarter of 2010 of which our proportionate
share was approximately $2.8 million.
For certain real estate assets for which we have entered into
agreements that are subject to contingencies, including
contracts executed subsequent to September 30, 2010, a loss
of approximately $15 million could be recorded if all such
sales were consummated on the terms currently being negotiated.
Capital
Markets Activities
In October 2010, we entered into a new unsecured revolving
credit facility arranged by JPMorgan Chase Bank, N.A. and Wells
Fargo Bank, N.A. Available borrowings under the facility were
reduced to $950 million from our prior unsecured revolving
credit facility, with an accordion feature up to
$1.2 billion. In addition, we also entered into a new
$65 million unsecured revolving credit facility with PNC
Bank, N.A. Both facilities mature in February 2014. Our
borrowings under these facilities currently bear interest at
variable rates based on the London Interbank Offered Rate, or
LIBOR, plus 275 basis points and may be adjusted as
determined by our corporate credit ratings from Moodys
Investors Service, Inc. and Standard & Poors
Ratings Group.
S-3
In October 2010, we also amended our secured term loan agented
by KeyBank National Association to conform the covenants to the
new unsecured revolving credit facility provisions and repaid
$200 million of the outstanding balance.
The
Offering
This summary is not a complete description of the notes. You
should read the full text and more specific details contained
elsewhere in this prospectus supplement. For a more detailed
description of the notes, see the section entitled
Description of the Notes in this prospectus
supplement.
In this portion of the summary, the terms we,
us and our refer only to Developers
Diversified Realty Corporation and not to any of its
subsidiaries or entities in which it has an interest through
joint ventures.
|
|
|
Issuer
|
|
Developers Diversified Realty Corporation.
|
|
Notes Offered
|
|
$305 million aggregate principal amount (plus up to an
additional $45 million principal amount to cover
over-allotments, if any).
|
|
Ranking of Notes
|
|
The notes will be our senior unsecured obligations and will rank
equally with all of our other senior unsecured indebtedness.
However, the notes will be effectively subordinated to all of
our secured indebtedness (to the extent of the collateral
securing the same) and to all liabilities and preferred equity
of our subsidiaries.
|
|
Interest
|
|
The notes will bear interest at a rate of 1.75% per year.
Interest will be payable semi-annually in arrears on May 15 and
November 15 of each year, beginning May 15, 2011.
|
|
Maturity
|
|
The notes will mature on November 15, 2040 unless
previously redeemed, repurchased or converted in accordance with
their terms prior to such date.
|
|
Redemption of Notes at Our Option
|
|
Prior to November 20, 2015, we may only redeem the notes in
order to preserve our status as a REIT. On or after
November 20, 2015, we may, at our option, redeem the notes,
in whole or in part, upon not less than 30 nor more than
60 days prior notice to holders of the notes. The
redemption price for any notes to be redeemed will equal 100% of
the principal amount of the notes to be redeemed plus any unpaid
interest accrued to but excluding the redemption date.
|
|
Repurchase of Notes at Each Holders Option on Certain Dates
|
|
Holders of notes may require us to repurchase their notes in
whole or in part on November 15, 2015, November 15,
2020, November 15, 2025, November 15, 2030 and
November 15, 2035 for cash equal to 100% of the principal
amount of the notes to be repurchased plus any unpaid interest
accrued to but excluding the repurchase date.
|
|
Repurchase of Notes at Each Holders Option upon Certain
Change in Control Transactions
|
|
If we undergo certain change in control transactions, holders of
notes may require us to repurchase their notes in whole or in
part for cash equal to 100% of the principal amount of the notes
to be repurchased plus any unpaid interest accrued to but
excluding the repurchase date.
|
|
Conversion Rights
|
|
Holders may convert their notes based on the applicable
conversion rate (described below) prior to the close of business
on the business day preceding May 15, 2040 only under the
following circumstances:
|
S-4
|
|
|
|
|
during any fiscal quarter beginning after
December 31, 2010 (and only during such fiscal quarter),
if, and only if, the closing sale price of our common shares for
at least 20 trading days (whether or not consecutive) in the
period of 30 consecutive trading days ending on the last trading
day of the preceding fiscal quarter is greater than 125% of the
conversion price per common share in effect on the applicable
trading day;
|
|
|
|
during the five consecutive
trading-day
period following any five consecutive
trading-day
period in which the trading price of the notes was less than 98%
of the product of the closing sale price of our common shares
multiplied by the applicable conversion rate;
|
|
|
|
if those notes have been called for redemption, at
any time prior to the close of business on the second business
day prior to the redemption date;
|
|
|
|
upon the occurrence of specified transactions
described under Description of the Notes
Conversion Rights; or
|
|
|
|
if our common shares are not listed on a U.S.
national or regional securities exchange for 30 consecutive
trading days.
|
|
|
|
On or after May 15, 2040 until the close of business on the
second business day preceding the stated maturity date, holders
may convert their notes at any time, regardless of the foregoing
circumstances.
|
|
|
|
By delivering to the holder cash and common shares, if any, we
will satisfy our obligation with respect to the notes tendered
for conversion. Accordingly, upon conversion of a note, accrued
and unpaid interest will be deemed to be paid in full, rather
than cancelled, extinguished or forfeited.
|
|
Conversion Rate
|
|
The initial conversion rate for each $1,000 principal amount of
notes is 61.0361 of our common shares. This is equivalent to an
initial conversion price of approximately $16.38 per common
share. In addition, if certain change in control transactions
occur prior to November 20, 2015 and a holder elects to
convert notes in connection with any such transaction, we will
increase the conversion rate in connection with such conversion
by a number of additional common shares based on the date such
transaction becomes effective and the price paid per common
share in such transaction as described under Description
of the Notes Conversion Rights Make
Whole Upon Certain Change in Control Transactions. The
conversion rate may also be adjusted under certain other
circumstances, including the payment of cash dividends in excess
of our current regular quarterly common share cash dividend of
$0.02 per share, but will not be adjusted for accrued and unpaid
interest on the notes. See Description of the
Notes Conversion Rate Adjustments.
|
|
Conversion Settlement
|
|
Upon conversion, we will deliver cash up to the aggregate
principal amount of the notes to be converted, and cash, our
common shares or a combination thereof (at our election) in
respect of the remainder, if any, of our conversion obligation
in excess of the aggregate principal amount of the notes being
converted as described under Description of the
Notes Conversion Settlement.
|
S-5
|
|
|
Restrictions on Ownership
|
|
In order to assist us in maintaining our qualification as a REIT
for U.S. federal income tax purposes, our articles of
incorporation provide that no person may own, or be deemed to
own by virtue of certain attribution rules of the Internal
Revenue Code of 1986, as amended, which we refer to as the
Internal Revenue Code or the Code, more than 5% of our
outstanding common shares, subject to certain exceptions.
Notwithstanding any other provision of the notes, no holder of
notes will be entitled to convert such notes for our common
shares to the extent that receipt of such common shares would
cause such holder (together with such holders affiliates)
to exceed the ownership limit contained in our articles of
incorporation. See Certain Federal Income Tax
Considerations.
|
|
No Shareholder Rights for Holders of Notes
|
|
Holders of notes, as such, will not have any rights as our
shareholders (including, without limitation, voting rights and
rights to receive dividends or other distributions on our common
shares).
|
|
Trading
|
|
The notes are a new issue of securities, and there is currently
no established trading market for the notes. An active or liquid
market may not develop for the notes or, if developed, be
maintained. We have not applied, and do not intend to apply, for
the listing of the notes on any securities exchange. Our common
shares are listed on the NYSE under the symbol DDR.
|
|
Book-Entry Form
|
|
The notes will be issued in book-entry only form and will be
represented by one or more permanent global certificates
deposited with a custodian for, and registered in the name of a
nominee of, DTC in New York, New York. Beneficial interests in a
global certificate representing the notes will be shown on, and
transfers will be effected only through, records maintained by
DTC and its direct and indirect participants and such interests
may not be exchanged for certificated notes, except in limited
circumstances described in Description of the
Notes Book-Entry System.
|
|
Use of Proceeds
|
|
The net proceeds from the sale of the notes are estimated to be
approximately $298.6 million (or approximately
$342.7 million if the underwriters over-allotment
option is exercised in full) after deducting the underwriting
discount and estimated offering expenses.
|
|
|
|
We intend to use the net proceeds from this offering to repay
debt and for general corporate purposes. See Use of
Proceeds.
|
|
Tax
|
|
The notes and common shares that may be deliverable upon
conversion of the notes will be subject to special and complex
U.S. federal income tax rules. Prospective investors are
strongly urged to consult their own tax advisors with respect to
the U.S. federal, state, local and foreign tax consequences of
purchasing, owning and disposing of the notes and common shares
into which the notes, in certain circumstances, are convertible.
See Certain Federal Income Tax Considerations.
|
|
Risk Factors
|
|
You should read carefully the Risk Factors beginning
on page S-8 of this prospectus supplement, as well as the
risk factors relating to our business that are incorporated by
reference in this prospectus supplement, for certain
|
S-6
|
|
|
|
|
considerations relevant to an investment in the notes and common
shares into which the notes, in certain circumstances, are
convertible.
|
|
Trustee
|
|
U.S. Bank National Association.
|
|
Governing Law
|
|
Ohio.
|
S-7
RISK
FACTORS
An investment in our securities involves a high degree of
risk. You should carefully consider the following risks
regarding the notes and this offering, as well as the risk
factors described in Item 1A. Risk Factors of
our Annual Report on
Form 10-K
for the year ended December 31, 2009 that was filed with
the SEC and incorporated herein by reference in their entirety,
including, without limitation, those risk factors relating to
our liquidity, debt financing, financial covenants and current
economic conditions, as well as other information in this
prospectus supplement and in any other documents incorporated
into this prospectus by reference, before purchasing any of our
securities. 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 supplement 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.
Risks
Related to the Offering
The
notes are subject to prior claims of any secured creditors and
the creditors of our subsidiaries and if a default occurs we may
not have sufficient funds to fulfill our obligations under the
notes.
The notes are our unsecured general obligations, ranking equally
with our other senior unsecured indebtedness but below any
secured indebtedness and effectively below the debt and other
liabilities of our subsidiaries. The indenture under which the
notes will be issued permits us and our subsidiaries to incur
secured debt. If we incur any secured debt, our assets and the
assets of our subsidiaries will be subject to prior claims by
our secured creditors. As of September 30, 2010, our total
consolidated mortgage indebtedness and other secured
indebtedness aggregated approximately $2,165.8 million. In
the event of our bankruptcy, liquidation, reorganization or
other winding up, assets that secure debt will be available to
pay obligations on the notes only after all debt secured by
those assets has been repaid in full. Holders of the notes will
participate in our remaining assets ratably with all of our
unsecured and unsubordinated creditors, including our trade
creditors.
If we incur any additional obligations that rank equally with
the notes, including trade payables, the holders of those
obligations will be entitled to share ratably with the holders
of the notes in any proceeds distributed upon our insolvency,
liquidation, reorganization, dissolution or other winding up.
This may have the effect of reducing the amount of proceeds paid
to you. If there are not sufficient assets remaining to pay all
these creditors, all or a portion of the notes then outstanding
would remain unpaid.
We
depend on cash flow of our subsidiaries to make payments on our
securities. The notes will not be guaranteed by any of our
subsidiaries.
Developers Diversified Realty Corporation is, in part, a holding
company. Our subsidiaries conduct a significant percentage of
our consolidated operations and own a significant percentage of
our consolidated assets. Consequently, our cash flow and our
ability to meet our debt service obligations depend in large
part upon the cash flow of our subsidiaries and the payment of
funds by the subsidiaries to us in the form of loans, dividends
or otherwise. The notes will be obligations of ours exclusively,
and will not be guaranteed by any of our subsidiaries. Our
subsidiaries are not obligated to make funds available to us for
payment of the notes or otherwise. In addition, their ability to
make any payments will depend on their earnings, the terms of
their indebtedness, business and tax considerations and legal
restrictions. Our subsidiaries may be able to incur substantial
additional indebtedness and other liabilities in the future. The
terms of the indenture under which the notes will be issued and
that governs our existing indebtedness do not prohibit our
subsidiaries from doing so. In the event of a bankruptcy,
liquidation or dissolution of a subsidiary and following payment
of its liabilities, the subsidiary may not have sufficient
assets remaining to make payments to us as a shareholder or
otherwise.
Our
existing and future indebtedness may limit cash flow available
to invest in the ongoing needs of our business, which could
prevent us from fulfilling our obligations under the
notes.
As of September 30, 2010, our total indebtedness
outstanding was approximately $4,395.3 million. The
provisions of the indenture governing the notes do not prohibit
us from incurring additional indebtedness in the
S-8
future. We also have the ability under our existing revolving
credit facilities to incur substantial additional indebtedness,
and any such additional indebtedness would rank equally with the
notes. Our level of indebtedness could restrict our operations
and make it more difficult for us to satisfy our obligations
under the notes. For example, it could, among other things:
|
|
|
|
|
require us to dedicate a substantial portion of our cash flow
from operations to the payment of debt service, reducing the
availability of our cash flow to fund working capital, capital
expenditures, acquisitions and other general corporate purposes;
|
|
|
|
increase our vulnerability to adverse economic or industry
conditions;
|
|
|
|
limit our ability to obtain additional financing for working
capital, capital expenditures and acquisitions, or make such
financing more costly;
|
|
|
|
make it more difficult for us to satisfy our financial
obligations, including those related to the notes;
|
|
|
|
limit our flexibility in planning for or reacting to changes in
the markets in which we compete; and
|
|
|
|
place us at a competitive disadvantage compared to businesses in
our industry that have less indebtedness.
|
Additionally, any failure to meet required payments on our
indebtedness, or failure to comply with any covenants in the
instruments governing our indebtedness, could result in an event
of default under the terms of those instruments. In the event of
such default, the holders of such indebtedness could elect to
declare all the amounts outstanding under such instruments to be
due and payable. Any default under the agreements governing our
indebtedness and the remedies sought by the holders of such
indebtedness could render us unable to pay principal and
interest on the notes and substantially decrease their value.
We currently have existing debt obligations relating to our
revolving credit facilities, term loan, fixed-rate senior notes
and mortgages payable. As of September 30, 2010, our debt
maturities for the next five years and thereafter are as follows
(in millions):
|
|
|
|
|
Year
|
|
Debt
(1)
|
|
|
2010
|
|
$
|
7.1
|
|
2011
|
|
|
1,192.3
|
|
2012
|
|
|
549.9
|
|
2013
|
|
|
439.1
|
|
2014
|
|
|
868.5
|
|
Thereafter
|
|
|
1,338.4
|
|
|
|
|
|
|
|
|
$
|
4,395.3
|
|
|
|
|
|
|
|
|
|
(1)
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Included in principal payments is
$800.0 million in 2011 associated with the maturing of our
$800.0 million collateralized term loan, which has a
one-year option to extend the maturity to 2012. In October 2010,
we repaid $200.0 million of this facility with proceeds
from our unsecured credit facilities. Included in principal
payments is $35.2 million in 2011 associated with the
maturing of our loan for our headquarters, which has two
one-year extension options to extend the maturity to 2013.
Included in principal payments is $483.1 million in 2014
associated with the maturing of our unsecured revolving credit
facilities. We entered into new agreements for these facilities
in October 2010 (see Prospectus Supplement
Summary The Company Recent
Developments).
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Our ability to satisfy our debt and other obligations as they
become due will depend on our future operating performance and
financial results, which will be subject, in part, to factors
beyond our control, including interest rates and general
economic, financial and business conditions. We intend to
continue to repay our indebtedness and to fund capital
expenditures through a combination of retained capital, the
issuance of common shares, debt financing and refinancing and
asset sales. However, no assurance can be given, especially in
light of current economic conditions, that any of these sources
of capital will be available to us on favorable terms or at all
or that such sources will enable us to be able to continue to
satisfy our obligations. As a result, we can provide no
assurance that we will be able to refinance or repay our debt
obligations as we currently anticipate or at all. Our failure to
S-9
refinance or repay our debt obligations as they become due would
have a material adverse impact on our financial condition, cash
flows and results of operations.
We may
not have the cash necessary to pay cash amounts owing upon
conversions of notes or to repurchase the notes on specified
dates or following certain change in control
transactions.
Upon the conversion of notes in accordance with their terms, we
will be required to make cash payments of up to $1,000 (and
possibly more than $1,000 if we elect to satisfy the remainder
of our conversion obligation over the principal amount of the
notes converted in cash in lieu of our common shares) for each
$1,000 principal amount of notes converted. Holders of notes
also have the right to require us to repurchase the notes for
cash on November 15, 2015, November 15, 2020,
November 15, 2025, November 15, 2030 and
November 15, 2035 and upon the occurrence of certain change
in control transactions. We may not have sufficient funds to pay
the cash amounts owing upon conversions of notes or to make the
required repurchase of notes, as the case may be, at the
applicable time and, in such circumstances, may not be able to
arrange the necessary financing on favorable terms. In addition,
our ability to pay cash amounts owing upon conversion of notes
or to make the required repurchase, as the case may be, may be
limited by law or the terms of other debt agreements or
securities. However, our failure to pay cash amounts owing upon
conversion of notes or make the required repurchase, as the case
may be, would constitute an event of default under the indenture
governing the notes which, in turn, could constitute an event of
default under other debt agreements or securities, thereby
resulting in their acceleration and required prepayment and
further restrict our ability to make such payments and
repurchases.
Ratings
of our unsecured debt could be lowered or withdrawn in the
future.
Any downgrade or withdrawal of a rating by a rating agency that
rates our outstanding indebtedness could have an adverse effect
on us. In light of current economic conditions, we may not be
able to obtain additional financing on favorable terms, or at
all, which may negatively impact our ratings. The interest
spread over LIBOR on our variable rate debt, including amounts
outstanding under our revolving credit facilities, is determined
based upon our credit ratings. As a result of the reduction in
2009 of our debt ratings by two rating agencies, the interest
rate on our variable rate debt increased.
There
is currently no trading market for the notes, and an active
liquid trading market for the notes may not develop or, if it
develops, be maintained.
The notes are a new issue of securities, and there is currently
no existing trading market for the notes. We do not intend to
apply for listing of the notes on any securities exchange or for
quotation of the notes on any automated dealer quotation system.
Although the underwriters have advised us that they intend to
make a market in the notes, they are not obligated to do so and
may discontinue any market-making at any time without notice.
Accordingly, an active public trading market may not develop for
the notes and, even if one develops, may not be maintained. If
an active public trading market for the notes does not develop
or is not maintained, the market price and liquidity of the
notes is likely to be adversely affected and holders may not be
able to sell their notes at desired times and prices or at all.
If any of the notes are traded after their purchase, they may
trade at a discount from their purchase price.
The liquidity of the trading market, if any, and future trading
prices of the notes will depend on many factors, including,
among other things, the market price of our common shares,
prevailing interest rates, our financial condition, results of
operations, business, prospects and credit quality relative to
our competitors, the market for similar securities and the
overall securities market, and may be adversely affected by
unfavorable changes in any of these factors, some of which are
beyond our control and others of which would not affect debt
that is not convertible or exchangeable into capital shares.
Historically, the market for convertible or exchangeable debt
has been volatile. Market volatility could materially and
adversely affect the notes, regardless of our financial
condition, results of operations, business, prospects or credit
quality.
The notes have a number of features that may adversely affect
the value and trading prices of the notes, including conversion
conditions and the lack of financial covenants. Furthermore,
even if the conversion conditions are met, volatile or depressed
market prices for our common shares are likely to have a similar
effect on the trading
S-10
prices of the notes. It is impossible to assure holders of notes
that the trading price of our common shares in the future will
not have an adverse effect on the trading price of the notes.
Holders
of notes will not be entitled to any rights with respect to our
common shares, but will be subject to all changes made with
respect to them.
Holders of notes as such will not be entitled to any rights with
respect to our common shares (including, without limitation,
voting rights and rights to receive any dividends or other
distributions on our common shares), but holders of notes will
be subject to all changes affecting our common shares. Holders
of notes will be entitled to the rights afforded our common
shares only if and when our common shares are delivered to them
upon the conversion of their notes. For example, in the event
that an amendment is proposed to our articles of incorporation
or code of regulations requiring shareholder approval and the
record date for determining the shareholders of record entitled
to vote on the amendment occurs prior to a holders receipt
of our common shares upon the conversion of notes, such holder
will not be entitled to vote on the amendment, although such
holder will nevertheless be subject to any changes affecting our
common shares.
The
price of our common shares may fluctuate
significantly.
The market price of our common shares may fluctuate
significantly in response to many factors, including:
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actual or anticipated changes in operating results or business
prospects;
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changes in financial estimates by securities analysts;
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an inability to meet or exceed securities analysts
estimates or expectations;
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conditions or trends in our industry or sector;
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the performance of other REITs in our sector and related market
valuations;
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announcements by us or our competitors of significant
acquisitions, strategic partnerships, divestitures, joint
ventures or other strategic initiatives;
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hedging or arbitrage trading activity in our common shares,
including with respect to the capped call transactions that we
entered into in connection with the sale of our other
outstanding series of convertible notes;
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changes in interest rates;
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capital commitments;
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additions or departures of key personnel; and
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future sales of our common shares or securities convertible
into, or exchangeable or exercisable for, our common shares.
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Holders who receive our common shares upon the conversion of
their notes will be subject to the risk of volatile and
depressed market prices of our common shares. In addition, many
of the factors listed above are beyond our control. These
factors may cause the market price of our common shares to
decline, regardless of our financial condition, results of
operations, business or prospects. It is impossible to assure
converting holders that the market price of our common shares
will not fall in the future.
Recent
regulatory actions may adversely affect the trading price and
liquidity of the notes.
Governmental actions that interfere with the ability of
equity-linked and convertible securities investors to effect
short sales of the underlying shares of common stock could
significantly affect the market value of the tangible equity
units. Such government actions could make the convertible
arbitrage strategy that many equity-linked and convertible
securities investors employ difficult to execute for outstanding
equity-linked or convertible securities of any company whose
shares of common stock are subject to such actions. At an open
meeting on February 24, 2010, the SEC adopted Rule 201
of Regulation SHO, which restricts short selling when the
price of a
S-11
covered security has triggered a circuit
breaker by falling at least 10% from the prior days
closing price, at which point short sale orders can be displayed
or executed only if the order price is above the current
national best bid. This restriction on short sales is in effect
for the remainder of the day and the next day, subject to
certain limited exceptions. Compliance with Rule 201 is
required by November 10, 2010. If such new price test
precludes, or is perceived to preclude, equity-linked and
convertible securities investors from executing the convertible
arbitrage strategy that they employ or other limitations are
instituted by the SEC or any other regulatory agencies, the
market value of the tangible equity units could be adversely
affected.
In addition, national securities exchanges and the Financial
Industry Regulatory Authority, or FINRA, have begun pilot
programs to halt trading in certain individual stocks if the
price moves 10% or more from a sale in a five-minute period.
These pilot programs include issuers whose common stock is
included in the S&P 500 and the Russell 1000. Because our
common shares are included in the Russell 1000, these
limitations will remain in effect with respect to trading in our
common shares for the duration of such pilot period (unless the
pilot programs are extended or become permanent), and such
limitations may decrease, or prevent an increase in, the market
price
and/or
liquidity of our common shares
and/or
interfere with the ability of investors in, and potential
purchasers of, the notes, to effect hedging transactions in or
relating to our common shares and conduct the convertible
arbitrage strategy that we believe they will employ, or will
seek to employ, with respect to the notes.
Although the direction and magnitude of the effect that the
amendments to Regulation SHO and rules of the national
securities exchanges and FINRA may have on the trading price and
the liquidity of the notes will depend on a variety of factors,
many of which cannot be determined at this time, past regulatory
actions have had a significant impact on the trading prices and
liquidity of convertible debt instruments. For example, in
September 2008, the SEC issued emergency orders generally
prohibiting short sales in the common stock of a variety of
financial services companies while Congress worked to provide a
comprehensive legislative plan to stabilize the credit and
capital markets. The orders made the convertible arbitrage
strategy that many convertible debt investors employ difficult
to execute and adversely affected both the liquidity and trading
price of convertible notes issued by many of the financial
services companies subject to the prohibition. Any governmental
actions that restrict the ability of investors in, or potential
purchasers of, the notes to effect short sales in our common
shares or to implement hedging strategies, including the
recently adopted amendments to Regulation SHO and the
national securities exchange and FINRA rule changes, could
similarly adversely affect the trading price and the liquidity
of the notes.
The
conditional conversion feature of the notes may prevent the
conversion of notes prior to May 15, 2040. In addition, upon
conversion of notes we will pay the lesser of the conversion
value and the principal amount of such notes in cash and may, at
our election, pay the remainder of our conversion obligation in
cash in lieu of our common shares.
The notes are convertible prior to the close of business on the
second business day prior to the stated maturity date, at any
time on or after May 15, 2040 and also if the closing sale
price of our common shares reaches a specified threshold over a
specified time period, if the trading price of the notes is
below a specified threshold for a specified time period or if
certain specified transactions or events occur and then only at
prescribed times. See Description of the Notes
Conversion Rights. If these conditions are not met,
holders of notes will not be able to convert their notes prior
to May 15, 2040 and therefore may not be able to receive
the value of the consideration into which the notes would
otherwise be convertible prior to that date. In addition, even
if such conditions are met, upon the conversion of notes, we are
required to pay the lesser of the conversion value and the
principal amount of such notes in cash and may elect to satisfy
the remainder of our conversion obligation with cash in lieu of
our common shares. As a result, upon conversion of a note, a
holder will not be able to obtain the benefit of future
ownership of our common shares beyond the number of common
shares, if any, deliverable upon such conversion and, in order
to do so, would be required to incur the related transaction
costs to purchase our common shares for cash including a
sufficient number of our common shares that the holder may
require in order to cover any related short position.
S-12
The
premium payable on notes converted in connection with certain
change in control transactions may not adequately compensate
holders for the lost option time value of their notes as a
result of any such change in control.
If certain transactions that constitute a change in control
occur prior to November 20, 2015, under certain
circumstances, we will increase the conversion rate by a number
of additional common shares. This increased conversion rate will
apply only to holders who convert their notes in connection with
any such transaction. The number of the additional common shares
will be determined based on the date on which the transaction
becomes effective and the price paid per common share in such
transaction, as described under Description of the
Notes Conversion Rights Make Whole Upon
Certain Change in Control Transactions. While the number
of additional common shares is designed to compensate holders
for the lost option time value of the notes as a result of such
transaction, the amount of the premium payable is only an
approximation of such lost value and may not adequately
compensate holders for such loss. In addition, notwithstanding
the foregoing, if the transaction occurs on or after
November 20, 2015 or if the price paid per common share in
the transaction is less than $12.85 or equal to or in excess of
$50.00, the conversion rate will not be increased. In no event
will the number of common shares deliverable upon the conversion
of notes exceed 77.8210 per $1,000 principal amount of
notes, subject to adjustment under certain circumstances,
regardless of when the transaction becomes effective or the
price paid per common share in the transaction.
The
conversion rate of the notes may not be adjusted for all
dilutive events.
The conversion rate of the notes is subject to adjustment for
certain events, including, but not limited to, certain dividends
on our common shares, the issuance of certain rights, options or
warrants to holders of our common shares, subdivisions or
combinations of our common shares, certain distributions of
assets, debt securities, capital shares or cash to holders of
our common shares and certain tender or exchange offers as
described under Description of the Notes
Conversion Rate Adjustments. The conversion rate will not
be adjusted for other events, such as an issuance of our common
shares for cash, that may adversely affect the trading price of
the notes and our common shares. There can be no assurance that
an event will not occur that is adverse to the interests of the
holders of the notes and their value but does not result in an
adjustment to the conversion rate.
The
definition of a change in control requiring us to repurchase
notes is limited and therefore the market price of the notes may
decline if we enter into a transaction that is not a change in
control under the indenture.
The term change in control, as used in the notes and
the indenture governing the notes, is limited and does not
include every event that might cause the market price of the
notes to decline. As a result, our obligation to repurchase the
notes upon a change in control may not preserve the value of the
notes in the event of a highly leveraged transaction,
reorganization, merger or similar transaction.
Upon
conversion of their notes, holders may receive less
consideration than expected because the value of our common
shares may decline during the observation period.
The conversion value that holders will receive upon conversion
of their notes will be determined based on a daily conversion
value calculated on a proportionate basis for each trading day
of the relevant 30 trading day observation period. Accordingly,
if the price of our common shares decreases after the conversion
right is exercised, the conversion value will be adversely
affected.
The
net share settlement feature of the notes may have adverse
consequences.
The net share settlement feature of the notes, as described
under Description of the Notes Conversion
Settlement, may:
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result in holders receiving no shares upon conversion or fewer
shares relative to the conversion value of the notes;
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S-13
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reduce our liquidity because we will be required to pay the
lesser of the conversion value and the principal amount of notes
converted in cash;
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delay holders receipt of the proceeds upon
conversion; and
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subject holders to market risk with respect to our common shares.
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Ownership
limitations in our articles of incorporation may impair the
ability of holders to convert notes into our common
shares.
In order to assist us in maintaining our qualification as a REIT
for U.S. federal income tax purposes, our articles of
incorporation provide that no person may own, or be deemed to
own by virtue of the attribution rules of the Internal Revenue
Code, more than 5% of our outstanding common shares, subject to
certain exceptions. Notwithstanding any other provision of the
notes, no holder of notes will be entitled to convert such notes
into our common shares to the extent that receipt of such common
shares would cause such holder (together with such holders
affiliates) to exceed the ownership limit contained in our
articles of incorporation. See Certain Federal Income Tax
Considerations.
U.S.
Federal Income Tax Risks Related to the Notes
Certain
of the possible adjustments to the conversion rate (or the
absence of certain adjustments to the conversion rate) may
result in a deemed distribution from us to a holder of a
note.
The conversion rate of the notes is subject to adjustment under
certain circumstances. If certain of the possible adjustments to
the conversion rate of the notes are made (or, in certain other
circumstances, no adjustments to the conversion rate are made),
a holder may be deemed to have received a distribution from us.
See Certain Federal Income Tax Considerations.
Although
we believe that currently we would not be required to do so,
there can be no assurance that we will not be required to
withhold on payments to
Non-U.S.
Holders (as defined under Certain Federal Income Tax
Considerations) of notes in connection with a sale,
redemption, repurchase, conversion or retirement of notes based
on the facts and circumstances at the time.
Although we believe that currently the notes do not constitute
U.S. real property interests and that we
therefore would not currently be required to withhold under the
Foreign Investment in Real Property Tax Act, or FIRPTA, there
can be no assurance that the notes will not constitute
U.S. real property interests depending on the facts in
existence at the time of any sale, redemption, repurchase,
conversion or retirement of a note. If the notes were to
constitute U.S. real property interests, we would be
required to withhold on payments to
Non-U.S. Holders
in connection with such a sale, redemption, repurchase,
conversion or retirement of notes regardless of whether such
Non-US. Holders provided certification documenting their
non-U.S. status.
See Certain Federal Income Tax Considerations.
The
conversion of notes for cash and any of our common shares may be
taxable for holders.
Upon any conversion of notes for cash and, if applicable, our
common shares (or cash in lieu of such common shares at our
election), a U.S. Holder may recognize gain or loss. See
Certain Federal Income Tax Considerations.
S-14
RATIO OF
EARNINGS TO FIXED CHARGES
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, minority 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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2009
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2008(a)
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2007(a)
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2006(a)
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2005
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2010
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2009
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Ratio Earnings to Fixed Charges
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(b
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(c
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1.70
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x
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1.99
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x
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2.35
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x
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(d
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(e
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(a)
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These periods have been adjusted to
reflect the retrospective application of
ASC 470-02,
previously referred to as FSP APB
14-1,
for
interest expense related to our convertible debt.
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(b)
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Due to the pretax loss from
continuing operations for the year ended December 31, 2009,
the ratio coverage was less than 1:1. We would have needed to
generate additional earnings of $306.7 million to achieve a
coverage of 1:1 for the year ended December 31, 2009.
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The pretax loss from continuing
operations for the year ended December 31, 2009 includes
consolidated impairment charges of $80.6 million,
impairment charges of joint venture investments of
$184.6 million and losses on equity derivative instruments
of $199.8 million, which together aggregate
$465.0 million, that are discussed in our Annual Report on
Form 10-K
for the year ended December 31, 2009.
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(c)
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Due to the pretax loss from
continuing operations for the year ended December 31, 2008,
the ratio coverage was less than 1:1. We would have needed to
generate additional earnings of $138.0 million to achieve a
coverage of 1:1 for the year ended December 31, 2008.
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The pretax loss from continuing
operations for the year ended December 31, 2008 includes
consolidated impairment charges of $75.3 million and
impairment charges of joint venture investments of
$107.0 million, which together aggregate
$182.3 million, that are discussed in our Annual Report on
Form 10-K
for the year ended December 31, 2009.
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(d)
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Due to the pretax loss from
continuing operations for the six month period ended
June 30, 2010, the ratio coverage was less than 1:1. We
would have needed to generate additional earnings of
$141.8 million to achieve a coverage of 1:1 for the six
months ended June 30, 2010.
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The pretax loss from continuing
operations for the six months ended June 30, 2010 includes
consolidated impairment charges of $131.8 million, and
losses on equity derivative instruments of $3.3 million,
which together aggregate $135.1 million, that are discussed
in our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2010.
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(e)
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Due to the pretax loss from
continuing operations for the six month period ended
June 30, 2009, the ratio coverage was less than 1:1. We
would have needed to generate additional earnings of
$60.6 million to achieve a coverage of 1:1 for the six
months ended June 30, 2009.
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The pretax loss from continuing
operations for the six months ended June 30, 2009 includes
consolidated impairment charges of $55.6 million,
impairment charges of joint venture investments of
$40.4 million and losses on equity derivative instruments
of $80.0 million, which together aggregate
$176.0 million, that are discussed in our Quarterly Report
on
Form 10-Q
for the quarter ended June 30, 2009.
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S-15
USE OF
PROCEEDS
We expect to receive net proceeds from the offering of notes of
approximately $298.6 million (or approximately
$342.7 million if the underwriters overallotment
option is exercised in full) after deducting the underwriting
discount and estimated offering expenses. We intend to use the
net proceeds of this offering to repay debt, including, without
limitation, one or both of the following unsecured credit
facilities and for general corporate purposes:
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borrowings under our $950 million unsecured revolving
credit facility maturing February 28, 2014; as of
October 29, 2010, total borrowings under our
$950 million unsecured revolving credit facility aggregated
$710.0 million with a weighted average interest rate of
3.0%; and
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borrowings under our $65 million unsecured revolving credit
facility maturing February 28, 2014; as of October 29,
2010, total borrowings under our $65 million unsecured
revolving credit facility aggregated $8.0 million with a
weighted average interest rate of 3.0%.
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Certain of the underwriters or their respective affiliates are
lenders under our $950 million unsecured revolving credit
facility. Upon any application of the net proceeds from this
offering to repay amounts outstanding under this facility, each
of the foregoing lenders will receive their proportionate share
of the amount being repaid.
S-16
PRICE
RANGE FOR OUR COMMON SHARES
The high and low sale prices per share of our common shares and
declared dividends per share for the quarterly periods indicated
were as follows:
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High
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Low
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Dividends
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2010
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Fourth (through November 1, 2010)
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$
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13.59
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$
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11.15
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Third
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12.01
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8.84
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$
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0.02
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Second
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13.73
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9.78
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0.02
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First
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13.16
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8.11
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0.02
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2009
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Fourth
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$
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10.66
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$
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7.64
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$
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0.02
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Third
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10.47
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4.09
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0.02
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Second
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5.78
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1.91
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0.20
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First
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7.58
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1.25
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0.20
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2008
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Fourth
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$
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28.46
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$
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1.56
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Third
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37.54
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24.93
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$
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0.69
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Second
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41.25
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31.1
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0.69
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First
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40.03
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29.09
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0.69
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(1)
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As of November 1, 2010, no
dividends had been declared on our common shares for the fourth
quarter of 2010.
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In the third quarter of 2010, we issued 5.1 million common
shares for gross proceeds of $58.3 million.
S-17
DESCRIPTION
OF THE NOTES
The following information regarding the notes supplements,
and to the extent inconsistent with, replaces the statements
under Description of Debt Securities in the
accompanying prospectus. The following description summarizes
certain terms and provisions of the notes and the indenture and
is qualified in its entirety by reference to the actual terms
and provisions of the notes and the indenture which are
incorporated herein by reference. We will provide copies of
these documents to you upon request.
Capitalized terms used but not otherwise defined herein shall
have the meanings given to them in the notes and the indenture.
As used in this section, the terms we,
us and our refer only to Developers
Diversified Realty Corporation and not to any of its
subsidiaries or entities in which it has an interest through
joint ventures. Unless the context otherwise requires, the term
interest includes special interest, if any, due in
the manner described under Events of Default,
Notice and Waiver.
General
The notes will be issued pursuant to an indenture, dated as of
May 1, 1994, between us and U.S. Bank National
Association, as trustee, as supplemented. We refer to the
indenture as amended or supplemented from time to time as the
indenture.
The terms of the notes include those provisions contained in the
notes and the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939 (the
Trust Indenture Act). The notes are subject to
all such terms, and holders of notes are referred to the notes,
the indenture and the Trust Indenture Act for a statement
thereof. Copies of the indenture and the form of the notes are
available for inspection at the corporate trust office of the
trustee, currently located at 100 Wall Street
Suite 1600, New York, New York 10005.
The notes will be our senior unsecured obligations and will rank
equally with each other and with all of our other senior
unsecured indebtedness. However, the notes will be effectively
subordinated to our mortgages and other secured indebtedness (to
the extent of the value of the collateral securing the same) and
to all preferred equity and liabilities, whether secured or
unsecured, of our subsidiaries. As of September 30, 2010,
our total consolidated mortgage indebtedness and other secured
indebtedness aggregated approximately $2,165.8 million, and
we had approximately $2,229.5 million of unsecured debt
outstanding. The provisions of the indenture governing the notes
do not prohibit us or any of our subsidiaries from incurring
additional indebtedness or issuing preferred equity in the
future. See Risk Factors The notes are subject
to prior claims of any secured creditors and the creditors of
our subsidiaries and if a default occurs we may not have
sufficient funds to fulfill our obligations under the
notes.
The notes will initially be limited to the aggregate principal
amount of $305 million (or up to $350 million if the
underwriters exercise their over-allotment option in full). We
may, without the consent of holders of the notes, increase the
principal amount of the notes by issuing additional senior debt
securities in the future on the same terms and conditions,
except for any difference in the issue price and interest
accrued prior to the issue date of the additional senior debt
securities, and with the same CUSIP number as the notes offered
hereby, provided that such additional senior debt securities
constitute part of the same issue as the notes offered hereby
for U.S. federal income tax purposes. The notes offered by
this prospectus supplement and the accompanying prospectus and
any such additional senior debt securities would rank equally
and ratably and would be treated as a single series of debt
securities for all purposes under the indenture.
The notes will be issued only in fully registered, book-entry
form, in denominations of $1,000 and integral multiples thereof,
except under the limited circumstances described below under
Book-Entry System.
Holders may present their notes for conversion at the office of
the conversion agent, present notes for registration of transfer
at the office of the registrar for the notes and present notes
for payment at maturity at the office of the paying agent. We
have appointed the trustee as the initial conversion agent,
registrar and paying agent for the notes.
If any interest payment date, stated maturity date, redemption
date or repurchase date is not a business day, the payment
otherwise required to be made on such date will be made on the
next business day without any additional payment as a result of
such delay. The term business day means, with
respect to any note, any day, other than a
S-18
Saturday, Sunday or any other day on which banking institutions
in The City of New York are authorized or obligated by law,
regulation or executive order to close. All payments will be
made in U.S. dollars.
The terms of the notes provide that we are permitted to reduce
interest payments and payments upon a redemption, repurchase or
conversion of notes otherwise payable to a holder for any
amounts we are required to withhold by law. For example,
Non-U.S. Holders
of notes may, under some circumstances, be subject to
U.S. federal withholding tax with respect to payments of
interest on the notes. Moreover, holders of convertible or
exchangeable debt instruments such as the notes may, in certain
circumstances, be deemed to have received distributions of
shares if the conversion price of such instruments is adjusted
(or, in certain other circumstances, if the conversion price is
not adjusted) even though such holders have not received any
cash or property as a result of such adjustments, which deemed
distribution (in the case of a
Non-U.S. Holder)
will be subject to a U.S. federal withholding tax. See
Certain Federal Income Tax Considerations. We will
set-off any such withholding tax that we are required to pay
against payments of interest payable on the notes and payments
upon a redemption, repurchase or conversion of notes.
The indenture does not contain any provisions that would
necessarily protect holders of notes if we become involved in a
highly leveraged transaction, reorganization, merger or other
similar transaction that adversely affects us or them.
Furthermore, the notes contain certain features that could deter
or discourage third-party acquisition proposals that could be
beneficial to holders.
We or one of our affiliates may, to the extent permitted by
applicable law, at any time purchase notes in the open market,
by tender at any price or by private agreement.
Interest
Interest on the notes will accrue at the rate of 1.75% per year
from and including November 5, 2010 or the most recent
interest payment date to which interest has been paid or
provided for, and will be payable semi-annually in arrears on
May 15 and November 15 of each year, beginning May 15,
2011. The interest so payable will be paid to each holder in
whose name a note is registered at the close of business on the
May 1 or November 1 (whether or not a business day) preceding
the applicable interest payment date. Interest on the notes will
be computed on the basis of a
360-day
year
consisting of twelve
30-day
months.
If we redeem the notes, or if a holder surrenders a note for
repurchase by us in accordance with the terms of such note, we
will pay accrued and unpaid interest to the holder that
surrenders such note for redemption or repurchase, as the case
may be. However, if an interest payment date falls on or prior
to the redemption date or repurchase date for a note, we will
pay the accrued and unpaid interest due on that interest payment
date instead to the record holder of such note at the close of
business on the related record date.
Maturity
If not previously redeemed, repurchased or converted, the notes
will mature on November 15, 2040 and will be paid against
presentation and surrender thereof at the corporate trust office
of the trustee unless
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earlier redeemed by us at our option or repurchased by us at a
holders option at certain times as described under
Optional Redemption by Us,
Repurchase at Option of Holders on Certain
Dates or Repurchase at Option of Holders
upon a Change in Control below, or
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converted at a holders option as permitted under
Conversion Rights below.
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The notes will not be entitled to the benefits of, or be subject
to, any sinking fund.
Optional
Redemption by Us
Prior to November 20, 2015, we may only redeem the notes in
order to preserve our status as a REIT. If, at any time prior to
November 20, 2015 we determine it is necessary to redeem
the notes in order to preserve our status as a REIT, we will
have the right to redeem the notes, in whole or in part, for
cash equal to 100% of the principal amount of the notes plus
unpaid interest accrued to but excluding the redemption date. In
addition, on or after November 20, 2015, we may redeem the
notes in whole or in part, at any time or from time to time, for
cash equal to 100% of the
S-19
principal amount of the notes to be redeemed plus unpaid
interest accrued to but excluding the redemption date. Written
notice of redemption must be delivered to holders of the notes
not less than 30 nor more than 60 days prior to the
redemption date.
If the paying agent holds money sufficient to pay the redemption
price due on a note on the redemption date in accordance with
the terms of the indenture, then, on and after the redemption
date, that note will cease to be outstanding and interest on
that note will cease to accrue, whether or not the holder
effects a book-entry transfer of that note or delivers that note
to the paying agent. Thereafter, all other rights of the holder
of that note terminate, other than the right to receive the
redemption price due on the redemption date.
If we decide to redeem the notes in part, the trustee will
select the notes to be redeemed (in principal amounts of $1,000
and integral multiples thereof) on a pro rata basis, by lot or
such other method it deems fair and appropriate subject to the
rules and procedures of DTC. If the trustee selects a portion of
a note for partial redemption and a holder converts a portion of
the same note, the converted portion will be deemed to be from
the portion selected for redemption.
If we call notes for redemption, a holder may convert its notes
only until the close of business on the second business day
preceding the redemption date, unless we fail to pay the
redemption price. See Conversion Rights
Conversion upon Notice of Redemption below.
Repurchase
at Option of Holders on Certain Dates
Holders of notes may require us to repurchase their notes in
whole or in part (in principal amounts of $1,000 and integral
multiples thereof) on November 15, 2015, November 15,
2020, November 15, 2025, November 15, 2030 and
November 15, 2035 for cash equal to 100% of the principal
amount of the notes to be repurchased plus unpaid interest
accrued to but excluding the repurchase date. To exercise its
repurchase right, a holder must deliver a written repurchase
notice to the paying agent, which initially is the trustee,
during the period beginning at any time from the opening of
business on the date that is 25 business days prior to the
repurchase date until the close of business on the fourth
business day prior to the repurchase date. Our repurchase
obligation will be subject to certain additional conditions.
On or before the 25th business day prior to each repurchase
date, we will provide to the trustee, any paying agent and to
all holders of the notes, and to beneficial owners as required
by applicable law, a notice stating, among other things:
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the repurchase price;
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the name and address of the trustee and any paying agent;
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that notes with respect to which the holder has delivered a
repurchase notice may be converted, if otherwise convertible,
only if the holder withdraws the repurchase notice in accordance
with the terms of the indenture; and
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the procedures that holders must follow to require us to
repurchase their notes.
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We will also disseminate a press release containing the
information specified in such notice or publish that information
in a newspaper of general circulation in New York City or on our
web site, or through such other public medium as we deem
appropriate at that time.
A holders notice electing to require us to repurchase
notes must specify:
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if such notes are in certificated form, the certificate
number(s) of the notes to be repurchased;
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the principal amount of notes to be repurchased, in integral
multiples of $1,000, provided that the remaining principal
amount of notes is in an authorized denomination; and
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that the notes are to be repurchased by us pursuant to the
applicable provisions of the indenture and the notes.
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Holders may withdraw any repurchase notice in whole or in part
by a written notice of withdrawal delivered to the paying agent
prior to the close of business on the fourth business day prior
to the repurchase date. If a holder of
S-20
notes delivers a repurchase notice, it may not thereafter
surrender such notes for conversion unless such repurchase
notice is properly withdrawn. The notice of withdrawal must
specify:
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the name of the holder;
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the principal amount of notes in respect of which the repurchase
notice is being withdrawn, which must be an integral multiple of
$1,000;
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if the notes subject to the withdrawal notice are in
certificated form, the certificate number(s) of all notes
subject to the withdrawal notice; and
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the principal amount of notes, if any, that remains subject to
the repurchase notice, which must be an integral multiple of
$1,000.
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If the notes are in book-entry form, the above notices must also
comply with the appropriate procedures of DTC.
Holders electing to require us to repurchase notes must either
effect book-entry transfer of notes in book-entry form in
compliance with appropriate DTC procedures or deliver the notes
in certificated form, together with necessary endorsements, to
the paying agent prior to the repurchase date to receive payment
of the repurchase price on the repurchase date. Holders will
receive payment of the repurchase price promptly following the
later of the repurchase date or the time of book-entry transfer
or the delivery of the notes.
If the paying agent holds funds sufficient to pay the repurchase
price of the notes on the repurchase date, then on and after
such date:
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such notes will cease to be outstanding;
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interest on such notes will cease to accrue; and
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all rights of holders of such notes will terminate except the
right to receive the repurchase price.
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Such will be the case whether or not book-entry transfer of the
notes in book-entry form is made and whether or not notes in
certificated form, together with the necessary endorsements, are
delivered to the paying agent.
No notes may be repurchased by us at the option of the holders
thereof if there has occurred and is continuing an event of
default with respect to the notes (other than a default in the
payment of the repurchase price for those notes). In addition,
we may also be unable to repurchase the notes in accordance with
their terms. See Risk Factors We may not have
the cash necessary to pay cash amounts owing upon conversions of
notes or to repurchase the notes on specified dates or following
certain change in control transactions.
To the extent legally required in connection with a repurchase
of notes, we will comply with the provisions of
Rule 13e-4
and other tender offer rules under the Exchange Act then
applicable, if any, and will file a Schedule TO or any
other schedule required under the Exchange Act. We will comply
with all other federal and state securities laws in connection
with any offer by us to repurchase the notes. To the extent the
then applicable requirements under any federal or state
securities laws, including
Rule 13e-4
and the other tender offer rules under the Exchange Act,
conflict with the terms of the notes, the applicable
requirements under such federal and state securities laws shall
control.
We may arrange for a third party to purchase any notes for which
we receive a valid repurchase notice that is not withdrawn, in
the manner and otherwise in compliance with the requirements set
forth in the terms of the notes applicable to the offer to
repurchase the notes. If a third party purchases any notes under
these circumstances, then interest will continue to accrue on
those notes and those notes will continue to be outstanding
after the repurchase date and will be fungible with all other
notes then outstanding. The third party subsequently may resell
those purchased notes to other investors.
S-21
Repurchase
at Option of Holders upon a Change in Control
If a change in control occurs prior to the stated maturity date
of the notes, holders of notes may require us to repurchase
their notes in whole or in part for cash equal to 100% of the
principal amount of the notes to be repurchased plus unpaid
interest accrued to but excluding the repurchase date.
Within 20 days after the occurrence of a change in control,
we are obligated to give to the holders of the notes notice of
the change in control and of the repurchase right arising as a
result of the change in control and the repurchase date (which
may be no earlier than 15 days and no later than
35 days after the date of such notice). We must also
deliver a copy of this notice to the trustee. We will also
disseminate a press release announcing the occurrence of the
change in control or publish that information in a newspaper of
general circulation in The City of New York, or on our web site,
or through such other public medium as we deem appropriate at
that time.
To exercise its repurchase right, a holder of notes must deliver
to the trustee prior to the close of business on the fourth
business day prior to the repurchase date written notice of such
holders exercise of its repurchase right. Such notice must
state:
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if such notes are in certificated form, the certificate
number(s) of the notes to be repurchased;
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the portion of the principal amount of notes to be repurchased,
in multiples of $1,000, provided that the remaining principal
amount of notes is in an authorized denomination; and
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that the notes are to be repurchased by us pursuant to the
applicable provisions of the notes and the indenture.
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Holders may withdraw any repurchase notice in whole or in part
by a written notice of withdrawal delivered to the paying agent
prior to the close of business on the fourth business day prior
to the repurchase date. If a holder of notes delivers a
repurchase notice, it may not thereafter surrender such notes
for conversion unless such repurchase notice is properly
withdrawn. The notice of withdrawal must specify:
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the name of the holder;
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the principal amount of notes in respect of which the repurchase
notice is being withdrawn, which must be an integral multiple of
$1,000;
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if the notes subject to the withdrawal notice are in
certificated form, the certificate number(s) of all notes
subject to the withdrawal notice; and
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the principal amount of notes, if any, that remains subject to
the repurchase notice, which must be an integral multiple of
$1,000.
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If the notes are in book-entry form, the above notices must also
comply with the appropriate procedures of DTC.
Holders electing to require us to repurchase notes must either
effect book-entry transfer of notes in book-entry form in
compliance with appropriate DTC procedures or deliver the notes
in certificated form, together with necessary endorsements, to
the paying agent prior to the repurchase date to receive payment
of the repurchase price on the repurchase date. Holders will
receive payment of the repurchase price promptly following the
later of the repurchase date or the time of book-entry transfer
or the delivery of the notes.
If the paying agent holds funds sufficient to pay the repurchase
price of the notes on the repurchase date, then on and after
such date:
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such notes will cease to be outstanding;
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interest on such notes will cease to accrue; and
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all rights of holders of such notes will terminate except the
right to receive the repurchase price.
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Such will be the case whether or not book-entry transfer of the
notes in book-entry form is made and whether or not notes in
certificated form, together with the necessary endorsements, are
delivered to the paying agent.
S-22
A change in control will be deemed to have occurred
at the time that any of the following occurs:
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consummation of any transaction or event (whether by means of a
share exchange or tender offer applicable to our common shares,
a liquidation, consolidation, recapitalization,
reclassification, combination or merger of us or a sale, lease
or other transfer of all or substantially all of our
consolidated assets) or a series of related transactions or
events pursuant to which all of our outstanding common shares
are exchanged for, converted into or constitute solely the right
to receive cash, securities or other property;
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any person or group (as such terms are
used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable), other than us or any
majority-owned subsidiary of ours or any employee benefit plan
of ours or such subsidiary, is or becomes the beneficial
owner, directly or indirectly, of more than 50% of the
total voting power in the aggregate of all classes of our
capital shares then outstanding entitled to vote generally in
elections of directors; or
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during any period of 12 consecutive months after the date of
original issuance of the notes, persons who at the beginning of
such
12-month
period constituted our board of directors, together with any new
persons whose election was approved by a vote of a majority of
the persons then still comprising the board of directors who
were either members of the board of directors at the beginning
of such period or whose election, designation or nomination for
election was previously so approved, cease for any reason to
constitute a majority of our board of directors.
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However, the occurrence of an event specified in the first
bullet point above will not be deemed to constitute a change in
control if at least 90% of the consideration (excluding cash
payments for fractional shares and cash payments made pursuant
to dissenters appraisal rights) in the transaction or
transactions consists of common shares (or depositary receipts
or other certificates representing common equity interests)
traded on a national securities exchange in the United States
(or will be so traded immediately following such merger,
consolidation or other transaction) and as a result of the
merger, consolidation or other transaction the notes become
convertible into such common shares (or depositary receipts or
other certificates representing common equity interests).
For purposes of these provisions, person includes
any syndicate or group that would be deemed to be a
person under Section 13(d)(3) of the Exchange
Act.
The definition of change in control includes a
phrase relating to the sale, lease or other transfer of
all or substantially all of our consolidated assets.
There is no precise, established definition of the phrase
substantially all under applicable law. Accordingly,
the ability of a holder of notes to require us to repurchase its
notes as a result of the sale, lease or other transfer of less
than all of our consolidated assets may be uncertain.
No notes may be repurchased by us at the option of the holders
thereof if there has occurred and is continuing an event of
default with respect to the notes (other than a default in the
payment of the repurchase price for those notes). In addition,
we may also be unable to repurchase the notes in accordance with
their terms. See Risk Factors We may not have
the cash necessary to pay cash amounts owing upon conversions of
notes or to repurchase the notes on specified dates or following
certain change in control transactions.
To the extent legally required in connection with a repurchase
of notes, we will comply with the provisions of
Rule 13e-4
and other tender offer rules under the Exchange Act then
applicable, if any, and will file a Schedule TO or any
other required schedule under the Exchange Act. We will comply
with all other federal and state securities laws in connection
with any offer by us to repurchase the notes. To the extent the
then applicable requirements under any federal or state
securities laws, including
Rule 13e-4
and the other tender offer rules under the Exchange Act,
conflict with the terms of the notes, the applicable
requirements under such federal and state securities laws shall
control.
We may arrange for a third party to purchase any notes for which
we receive a valid repurchase notice that is not withdrawn, in
the manner and otherwise in compliance with the requirements set
forth in the terms of the notes applicable to the offer to
repurchase the notes. If a third party purchases any notes under
these circumstances, then interest will continue to accrue on
those notes and those notes will continue to be outstanding
after the repurchase date and will be fungible with all other
notes then outstanding. The third party subsequently may resell
those purchased notes to other investors.
S-23
No
Shareholder Rights for Holders of Notes
Holders of notes, as such, will not have any rights as our
shareholders (including, without limitation, voting rights and
rights to receive any dividends or other distributions on our
common shares).
Conversion
Rights
Subject to the restrictions on ownership of our common shares
and the conditions described below, holders may convert their
notes at a conversion rate of 1.75 of our common shares per
$1,000 principal amount of notes (equivalent to an initial
conversion price of approximately $16.38 per common share). Upon
conversion of a note, we will pay cash up to the principal
amount of the note and, to the extent that the conversion value
(calculated as described below) exceeds the principal amount of
the note, cash, common shares or a combination thereof (at our
election) in respect of the excess. The conversion rate and the
equivalent conversion price in effect at any given time are
referred to in this prospectus supplement as the
conversion rate and the conversion
price, respectively, and will be subject to adjustment as
described herein.
Upon conversion of a note, a holder will not receive any cash
payment of interest (unless such conversion occurs after a
record date and on or prior to the interest payment date to
which it relates) and we will not adjust the conversion rate to
account for accrued and unpaid interest. Our delivery to the
holder of cash and common shares, if any, will be deemed to
satisfy our obligation with respect to notes tendered for
conversion. Accordingly, upon the conversion of notes, any
accrued but unpaid interest will be deemed to be paid in full,
rather than cancelled, extinguished or forfeited.
Upon the conversion of notes, accrued interest thereon will be
deemed to be paid by delivery of the consideration due to the
converting holder upon such conversion, except that holders of
notes on a record date will be entitled to receive interest
payable on the related interest payment date even if such notes
are converted after such record date and on or prior to such
interest payment date. Notes tendered for conversion by a holder
after the close of business on any record date for an interest
payment and on or prior to the corresponding interest payment
date must be accompanied by payment of an amount equal to the
interest that the holder is to receive on the notes; provided,
however, that no such payment will be required to be made
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if we have specified a redemption date that is after such record
date and on or prior to such interest payment date, or
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with respect to overdue interest, if any overdue interest exists
at the time of conversion with respect to such notes.
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If a holder converts its notes and we have not elected to
deliver cash in lieu of common shares, if any, otherwise
deliverable, we will pay any documentary, stamp or similar issue
or transfer tax due on the issue or delivery of our common
shares upon the conversion unless the tax is due because the
holder requests the shares to be issued or delivered to a person
other than the holder, in which case the holder will pay that
tax prior to receipt of such common shares.
If a holder wishes to exercise its conversion right, such holder
must deliver an irrevocable duly completed and manually signed
conversion notice, together, if the notes are in certificated
form, with the certificated security, to the conversion agent
along with appropriate endorsements and transfer documents, if
required or, if the notes are in book-entry form, comply with
appropriate procedures of DTC, and pay any transfer or similar
tax, if required. The conversion agent will, on the
holders behalf, convert the notes into cash and common
shares, if any. Holders may obtain copies of the required form
of the conversion notice from the conversion agent. We refer to
the date on which a holder fully complies with the relevant
procedures for conversion described above as the
conversion date.
If a holder has already delivered a repurchase notice as
described under either Repurchase at Option of
Holders on Certain Dates or Repurchase
at Option of Holders upon a Change in Control above, with
respect to a note, that holder may not tender that note for
conversion until the holder has properly withdrawn the
repurchase notice.
Upon surrender of a note for conversion, the holder shall
deliver to us cash equal to the amount that we are required to
deduct and withhold under applicable law in connection with such
conversion;
provided
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however
, that if
S-24
the holder does not deliver such cash, we may deduct and
withhold from the consideration otherwise deliverable to such
holder the amount required to be deducted and withheld under
applicable law.
Holders may surrender their notes for conversion for cash and,
if applicable, our common shares (or, at our election, cash in
lieu of such common shares) at the applicable conversion rate
prior to the close of business on the business day preceding
May 15, 2040 only under any of the following circumstances:
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during any fiscal quarter beginning after December 31, 2010
(and only during such fiscal quarter) if, and only if, the
closing sale price of our common shares for at least 20 trading
days (whether or not consecutive) in the period of 30
consecutive trading days ending on the last trading day of the
preceding fiscal quarter is more than 125% of the conversion
price per common share in effect on the applicable trading day;
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during the five consecutive
trading-day
period following any five consecutive
trading-day
period in which the trading price of the notes was less than 98%
of the product of the closing sale price of our common shares
multiplied by the applicable conversion rate;
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if such notes have been called for redemption, at any time prior
to the close of business on the second business day prior to the
redemption date;
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during prescribed periods upon the occurrence of specified
transactions discussed below; or
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if our common shares are not listed on a U.S. national or
regional securities exchange for 30 consecutive trading days.
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On or after May 15, 2040 until the close of business on the
second business day preceding the stated maturity date, holders
may convert their notes at any time, regardless of the foregoing
circumstances.
Closing sale price
of our common shares on
any date means the closing sale price per share (or if no
closing sale price is reported, the average of the bid and ask
prices or, if more than one in either case, the average of the
average bid and the average ask prices) on that date as reported
in composite transactions for the principal U.S. securities
exchange on which our common shares are traded. If our common
shares are not listed for trading on a U.S. national or
regional securities exchange on the relevant date, the
closing sale price will be the last quoted bid price
for our common shares in the
over-the-counter
market on the relevant date as reported by Pink Sheets LLC or
similar organization. If our common shares are not so quoted,
the closing sale price will be the average of the
mid-point of the last bid and ask prices for our common shares
on the relevant date from each of at least three nationally
recognized independent investment banking firms selected by us
for this purpose.
Trading day
means a day during which trading
in securities generally occurs on the NYSE or, if our common
shares are not then listed on the NYSE, on the principal other
U.S. national or regional securities exchange on which our
common shares are then listed or, if our common shares are not
then listed on a U.S. national or regional securities
exchange, on the principal other market on which our common
shares are then traded. If our common shares are not so listed
or traded, trading day means a business
day.
Make
Whole Upon Certain Change in Control Transactions
If the effective date of a change in control occurs prior to
November 20, 2015 as a result of a transaction described in
the first or second bullets of the definition of change in
control (as set forth above under Repurchase
at Option of Holders upon a Change in Control) and a
holder elects to convert its notes in connection with such
change in control as described below under
Conversion Rights Conversion upon
Specified Transactions, we will increase the applicable
conversion rate for the notes surrendered for conversion by a
number of additional common shares (the additional change
in control shares) as described below. A conversion of
notes will be deemed for these purposes to be in
connection with such a change in control if the notice of
conversion of the notes is received by the conversion agent from
and including the effective date of the change in control up to
and including the 30th business day following the effective
date of the change in control.
The number of additional change in control shares will be
determined by reference to the table below and is based on the
date on which such change in control transaction becomes
effective (the effective date) and the price (the
share price) paid per common share of ours in such
transaction. If the holders of our common shares receive
S-25
only cash in the change in control transaction, the share price
shall be the cash amount paid per our common share. Otherwise,
the share price shall be the average of the closing sale prices
of our common shares on the 10 consecutive trading days up to
but excluding the effective date.
The share prices set forth in the first row of the table
(
i.e.
, the column headers) will be adjusted as of any
date on which the conversion rate of the notes is adjusted. The
adjusted share prices will equal the share prices applicable
immediately prior to such adjustment multiplied by a fraction,
the numerator of which is the conversion rate immediately prior
to the adjustment giving rise to the share price adjustment and
the denominator of which is the conversion rate as so adjusted.
In addition, the number of additional change in control shares
will be subject to adjustment in the same manner as the
conversion rate as set forth below under
Conversion Rate Adjustments.
The following table sets forth the share price and number of
additional change in control shares of ours to be received per
$1,000 principal amount of notes:
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Effective Date
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$12.85
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$14.00
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$15.00
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$16.00
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$18.00
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$20.00
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$22.00
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$25.00
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$30.00
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$35.00
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$40.00
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$45.00
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$50.00
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November 5, 2010
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16.7849
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14.1925
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11.5928
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9.6160
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6.7117
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4.7654
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3.4339
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2.1480
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1.0203
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0.4862
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0.2162
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0.0761
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0.0085
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November 15, 2011
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16.7849
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14.1773
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11.5456
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9.4437
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6.3981
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4.4045
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3.0771
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1.8405
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0.8165
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0.3640
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0.1481
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0.0416
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0.0000
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November 15, 2012
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16.7849
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13.9524
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11.1382
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8.9151
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5.7620
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3.7732
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2.5064
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1.3943
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0.5564
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0.2249
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0.0789
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0.0116
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0.0000
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November 15, 2013
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16.7849
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13.1027
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10.1071
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7.7848
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4.6136
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2.7479
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1.6575
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0.8061
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0.2727
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0.0979
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0.0257
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0.0000
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0.0000
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November 15, 2014
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16.7849
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11.7547
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8.4396
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5.9557
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2.8345
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1.2932
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0.5858
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0.1987
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0.0594
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0.0232
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0.0016
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0.0000
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0.0000
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November 20, 2015
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16.7849
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10.3925
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5.6306
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1.4620
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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The exact share prices and effective dates may not be set forth
in the table, in which case:
(1) if the share price is between two share price amounts
in the table or the effective date is between two dates in the
table, the additional change in control shares will be
determined by straight-line interpolation between the number of
additional change in control shares set forth for the higher and
lower share price amounts and the two dates, as applicable,
based on a
365-day
year;
(2) if the share price is equal to or in excess of $50.00
per common share of ours (subject to adjustment), no additional
change in control shares will be delivered upon
conversion; and
(3) if the share price is less than $12.85 per common share
of ours (subject to adjustment), no additional change in control
shares will be delivered upon conversion.
Notwithstanding the foregoing, in no event will the total number
of common shares deliverable upon conversion exceed 77.8210 per
$1,000 principal amount of notes, subject to adjustment in the
same manner as the conversion rate as set forth below under
Conversion Rate Adjustments.
Conversion
upon Satisfaction of Market Price Condition
A holder may surrender any of its notes for conversion during
any fiscal quarter beginning after December 31, 2010 (and
only during such fiscal quarter) if, and only if, the closing
sale price of our common shares for at least 20 trading
days (whether or not consecutive) in the period of 30
consecutive trading days ending on the last trading day of the
preceding fiscal quarter is more than 125% of the conversion
price per common share in effect on the applicable trading day.
Our board of directors will make appropriate adjustments, in its
good faith determination, to account for any adjustment to the
conversion rate that becomes effective, or any event requiring
an adjustment to the conversion rate where the ex-dividend date
of the event occurs, during that 30 consecutive
trading-day
period.
Conversion
upon Satisfaction of Trading Price Condition
A holder may surrender any of its notes for conversion during
the five consecutive
trading-day
period following any five consecutive
trading-day
period in which the trading price per $1,000 principal amount of
notes (as determined following a reasonable request by a holder
of the notes) was less than 98% of the product of the closing
sale price of our common shares multiplied by the applicable
conversion rate.
S-26
The trading price of the notes on any date of
determination means the average of the secondary market bid
quotations per $1,000 principal amount of notes obtained by the
trustee for a $5,000,000 principal amount of notes at
approximately 3:30 p.m., New York City time, on such
determination date from two independent nationally recognized
securities dealers we select, which may include the
underwriters; provided that if at least two such bids cannot
reasonably be obtained by the trustee, but one such bid can
reasonably be obtained by the trustee, then one bid shall be
used. If the trustee cannot reasonably obtain at least one bid
for a $5,000,000 principal amount of notes from a nationally
recognized securities dealer or, in our reasonable judgment, the
bid quotations are not indicative of the secondary market value
of the notes, then the trading price per $1,000 principal amount
of notes will be deemed to be less than 98% of the product of
the closing sale price of our common shares and the conversion
rate on such determination date.
The trustee shall have no obligation to determine the trading
price of the notes unless we have requested such determination,
and we shall have no obligation to make such request unless a
holder provides us with reasonable evidence that the trading
price per $1,000 principal amount of notes would be less than
98% of the product of the closing sale price of our common
shares and the conversion rate, whereupon we shall instruct the
trustee to determine the trading price of the notes beginning on
the next trading day and on each successive trading day until
the trading price is greater than or equal to 98% of the product
of the closing sale price of our common shares and the
conversion rate.
Conversion
upon Notice of Redemption
A holder may surrender for conversion any of the notes called
for redemption at any time prior to the close of business on the
second business day prior to the redemption date, even if the
notes are not otherwise convertible at such time. The right to
convert notes will expire at the close of business on the second
business day prior to the redemption date unless we default in
making the payment due upon redemption. A holder may convert
fewer than all of its notes so long as the notes converted are
an integral multiple of $1,000 principal amount and the
remaining principal amount of notes is in an authorized
denomination. However, if a holder has already delivered a
repurchase notice with respect to a note, such holder may not
surrender that note for conversion until it has withdrawn such
notice in accordance with the terms of the notes.
Conversion
upon Specified Transactions
If we elect to:
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distribute to all holders of our common shares certain rights
entitling them to purchase, for a period expiring within
45 days, our common shares at less than the closing sale
price of our common shares on the trading day preceding the
declaration date of such distribution; or
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distribute to all holders of our common shares assets, debt
securities or certain rights to purchase our securities, which
distribution has a per share value exceeding 10% of the closing
sale price of our common shares on the trading day preceding the
declaration date of such distribution,
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we must notify the holders of notes at least 45 days prior
to the ex-dividend date for such distribution. Once we have
given that notice, holders may surrender their notes for
conversion at any time until the earlier of the close of
business on the business day prior to the ex-dividend date or an
announcement that such distribution will not take place;
provided
,
however
, that a holder may not exercise
this conversion right if the holder may participate, on an
as-converted basis, in the distribution without conversion of
the notes. The ex-dividend date is the first date upon which a
sale of our common shares does not automatically transfer the
right to receive the relevant distribution from the seller of
our common shares to its buyer.
In addition, if we are a party to a consolidation, merger or
binding share exchange pursuant to which all of our common
shares would be exchanged for cash, securities or other property
that is not otherwise a change in control, a holder may
surrender its notes for conversion at any time from and
including the date that is 15 business days prior to the
anticipated effective time of the transaction up to and
including five business days after the actual date of such
transaction. We will notify holders as promptly as practicable
following the date we publicly announce such transaction (but in
no event less than 15 business days prior to the anticipated
effective time of such transaction).
S-27
If a change in control occurs as a result of a transaction
described in the first or second bullets of the definition of
change in control (as set forth under
Repurchase at Option of Holders upon a Change
in Control), a holder will have the right to convert its
notes at any time from and including the effective date of such
transaction up to and including the 30th business day
following the effective date of the transaction, subject to
expiration of a holders conversion right with respect to
any notes submitted for repurchase. We will notify holders as
promptly as practicable following the date we publicly announce
such change in control (but in no event later than five business
days prior to the effective date of such change in control).
Conversion
Upon Delisting of our Common Shares
A holder may surrender any of its notes for conversion at any
time beginning on the first business day after our common shares
have ceased to be listed on a U.S. national or regional
securities exchange for a 30 consecutive
trading-day
period.
Conversion
Settlement
Upon conversion of a note, we will pay cash up to the principal
amount of the note and, to the extent that the conversion value
(calculated as described below) exceeds the principal amount of
the note, cash, common shares or a combination thereof (at our
election) in respect of the excess, all as described below.
Upon conversion, we will deliver to holders in respect of each
$1,000 principal amount of notes being converted, a
settlement amount equal to the sum of the daily
settlement amounts for each of the 30 trading days during the
observation period.
The daily settlement amount, for each of the 30
trading days during the observation period, shall consist of:
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cash equal to the lesser of (i) one-thirtieth of $1,000 and
(ii) the daily conversion value; and
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to the extent the daily conversion value exceeds one-thirtieth
of $1,000, a number of common shares (the daily share
amount), subject to our right to pay cash in lieu of all
or a portion of such common shares as described below, equal to
(i) the difference between the daily conversion value and
one-thirtieth of $1,000, divided by (ii) the daily VWAP for
such trading day.
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By the close of business on the scheduled trading day prior to
the first scheduled trading day of the applicable observation
period, we may specify a percentage of the daily share amount
that will be settled in cash (the cash percentage)
and we will notify holders of notes of such cash percentage by
notifying the trustee (the cash percentage notice).
If we elect to specify a cash percentage, the amount of cash
that we will deliver in lieu of all or the applicable portion of
the daily share amount in respect of each trading day in the
applicable observation period will equal (i) the cash
percentage,
multiplied by
(ii) the daily share
amount for such trading day (assuming we had not specified a
cash percentage),
multiplied by
(iii) the daily VWAP
for such trading day. The number of common shares deliverable in
respect of each trading day in the applicable observation period
will be a percentage of the daily share amount (assuming we had
not specified a cash percentage) equal to 100%
minus
the
cash percentage. If we do not specify a cash percentage, we must
settle the entire daily share amount for each trading day in
such observation period in our common shares (plus cash in lieu
of fractional shares). We may, at our option, revoke any cash
percentage notice in respect of any observation period by
notifying the trustee;
provided
that we revoke such
notice by the close of business on the scheduled trading day
prior to the first scheduled trading day of such observation
period.
Daily conversion value
means, for each of the
30 consecutive trading days during the observation period,
one-thirtieth of the product of (i) the applicable
conversion rate and (ii) the daily VWAP of our common
shares on such trading day.
Daily VWAP
means, for each of the 30
consecutive trading days during the observation period, the per
share volume-weighted average price as displayed under the
heading Bloomberg VWAP on Bloomberg page DDR.N
<equity> AQR (or its equivalent successor if
such page is not available) in respect of the period from
9:30 a.m. to 4:00 p.m. (New York City time) on such
trading day (or if such volume-weighted average price is
unavailable, the market value of one DDR common share on such
trading day determined, using a volume-weighted average
S-28
method, by a nationally recognized independent investment
banking firm retained for this purpose by us). Daily VWAP will
be determined without regard to after hours trading or any other
trading outside of the regular trading session trading hours.
Observation period
with respect to any note
means:
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if the relevant conversion date occurs prior to May 15,
2040 (other than in the case of a conversion following a notice
of redemption as described in the following bullet), the 30
consecutive trading day period beginning on and including the
second trading day after the conversion date;
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if the relevant conversion date occurs on or after the date of
issuance of a notice of redemption as described under
Optional Redemption by Us, but prior to the
relevant redemption date, the 30 consecutive trading days
beginning on and including the 32nd scheduled trading day
preceding such redemption date; and
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if the conversion date occurs on or after May 15, 2040, the
30 consecutive trading days beginning on and including the
32nd scheduled trading day preceding November 15, 2040.
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For the purposes of determining payment upon conversion,
trading day means a day during which
(i) trading in our common shares generally occurs on the
principal U.S. national or regional securities exchange or
market on which our common shares are listed or admitted for
trading and (ii) there is no market disruption event.
Scheduled trading day
means a day that is
scheduled to be a trading day on the principal
U.S. national or regional securities exchange or market on
which our common shares are listed or admitted for trading.
For the purposes of determining payment upon conversion,
market disruption event means (i) a failure by
the principal U.S. national or regional securities exchange
or market on which our common shares are listed or admitted to
trading to open for trading during its regular trading session
or (ii) the occurrence or existence prior to 1:00 p.m.
on any trading day for our common shares for an aggregate one
half hour period of any suspension or limitation imposed on
trading (by reason of movements in price exceeding limits
permitted by the stock exchange or otherwise) in our common
shares or in any options, contracts or future contracts relating
to our common shares.
We will deliver the settlement amount to converting holders on
the third business day following the last day of the observation
period.
We will deliver cash in lieu of any fractional common share
deliverable in connection with payment of the settlement amount
(based on the closing sale price of our common shares on the
last day of the applicable observation period).
Conversion
Rate Adjustments
The conversion rate shall be adjusted from time to time as
follows:
(i) If we issue common shares as a dividend or distribution
on our common shares to all holders of our common shares, or if
we effect a share split or share combination, the conversion
rate will be adjusted based on the following formula:
where
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CR
0
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=
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the conversion rate in effect immediately prior to the
adjustment relating to such event
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CR
1
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=
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the new conversion rate in effect taking such event into account
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OS
0
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=
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the number of our common shares outstanding immediately prior to
such event
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OS
1
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=
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the number of our common shares outstanding immediately after
such event.
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Any adjustment made pursuant to this paragraph (i) shall
become effective on the date that is immediately after
(x) the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution or
(y) the date on which such split or combination becomes
effective, as applicable. If any dividend or distribution
S-29
described in this paragraph (i) is declared but not so paid
or made, the new conversion rate shall be readjusted to the
conversion rate that would then be in effect if such dividend or
distribution had not been declared.
(ii) If we issue to all holders of our common shares any
rights, warrants, options or other securities entitling them for
a period of not more than 45 days after the date of
issuance thereof to subscribe for or purchase our common shares,
or if we issue to all holders of our common shares securities
convertible into our common shares for a period of not more than
45 days after the date of issuance thereof, in either case
at an exercise price per common share or a conversion price per
common share less than the closing sale price of our common
shares on the business day preceding the time of announcement of
such issuance, the conversion rate will be adjusted based on the
following formula:
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CR
1
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=
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CR
0
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x
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OS
0
+ X
OS
0
+ Y
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where
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CR
0
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=
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the conversion rate in effect immediately prior to the
adjustment relating to such event
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CR
1
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=
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the new conversion rate taking such event into account
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OS
0
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=
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the number of our common shares outstanding immediately prior to
such event
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X
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=
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the total number of our common shares issuable pursuant to such
rights, warrants, options, other securities or convertible
securities
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Y
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=
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the number of our common shares equal to the quotient of
(A) the aggregate price payable to exercise such rights,
warrants, options, other securities or convertible securities
and (B) the average of the closing sale prices of our
common shares for the 10 consecutive trading days prior to the
business day preceding the date of announcement for the issuance
of such rights, warrants, options, other securities or
convertible securities.
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For purposes of this paragraph (ii), in determining whether any
rights, warrants, options, other securities or convertible
securities entitle the holders to subscribe for or purchase, or
exercise a conversion right for, our common shares at less than
the applicable closing sale price of our common shares, and in
determining the aggregate exercise or conversion price payable
for such common shares, there shall be taken into account any
consideration we receive for such rights, warrants, options,
other securities or convertible securities and any amount
payable on exercise or conversion thereof, with the value of
such consideration, if other than cash, to be determined by our
board of directors. If any right, warrant, option, other
security or convertible security described in this paragraph
(ii) is not exercised or converted prior to the expiration
of the exercisability or convertibility thereof, the new
conversion rate shall be readjusted to the conversion rate that
would then be in effect if such right, warrant, option, other
security or convertible security had not been so issued.
(iii) If we distribute capital shares, evidences of
indebtedness or other assets or property of ours to all holders
of our common shares, excluding:
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(A)
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dividends, distributions, rights, warrants, options, other
securities or convertible securities referred to in paragraph
(i) or (ii) above,
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(B) dividends or distributions paid exclusively in
cash, and
(C) Spin-Offs described below in this paragraph (iii),
then the conversion rate will be adjusted based on the following
formula:
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CR
1
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=
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CR
0
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x
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SP
0
SP
0
− FMV
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S-30
where
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CR
0
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=
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the conversion rate in effect immediately prior to the
adjustment relating to such event
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CR
1
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=
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the new conversion rate taking such event into account
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SP
0
|
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=
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the closing sale price of our common shares on the trading day
preceding the ex-dividend date for such distribution
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FMV
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=
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the fair market value (as determined in good faith by our board
of directors) of the capital shares, evidences of indebtedness,
assets or property distributed with respect to each outstanding
common share of ours on the earlier of the record date or the
ex-dividend date for such distribution.
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An adjustment to the conversion rate made pursuant to the
immediately preceding paragraph shall be made successively
whenever any such distribution is made and shall become
effective on the ex-dividend date for such distribution.
If we distribute to all holders of our common shares capital
shares of any class or series, or similar equity interest, of or
relating to a subsidiary or other business unit of ours (a
Spin-Off ), the conversion rate in effect
immediately before the close of business on the date fixed for
determination of holders of our common shares entitled to
receive such distribution will be adjusted based on the
following formula:
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|
|
|
|
|
CR
1
|
|
=
|
|
CR
0
|
|
x
|
|
FMV
0
+ MP
0
MP
0
|
|
|
where
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|
|
|
|
CR
0
|
|
=
|
|
the conversion rate in effect immediately prior to the
adjustment relating to such event
|
CR
1
|
|
=
|
|
the new conversion rate taking such event into account
|
FMV
0
|
|
=
|
|
the average of the closing sale prices of the capital shares or
similar equity interest distributed to holders of our common
shares applicable to one common share over the first 10
consecutive trading days after the effective date of the Spin-Off
|
MP
0
|
|
=
|
|
the average of the closing sale prices of our common shares over
the first 10 consecutive trading days after the effective date
of the Spin-Off.
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An adjustment to the conversion rate made pursuant to the
immediately preceding paragraph will occur on the
10th trading day from and including the effective date of
the Spin-Off.
If any such dividend or distribution described in this paragraph
(iii) is declared but not paid or made, the new conversion
rate shall be readjusted to be the conversion rate that would
then be in effect if such dividend or distribution had not been
declared.
(iv) If we pay or make any cash dividend or distribution in
respect of any of our quarterly fiscal periods (without regard
to when paid) to all holders of our common shares in an
aggregate amount that, together with other cash dividends or
distributions paid or made in respect of such quarterly fiscal
period, exceeds the product of $0.02 (the Reference
Dividend) multiplied by the number of our common shares
outstanding on the record date for such distribution, the
conversion rate will be adjusted based on the following formula:
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|
|
|
|
|
|
|
|
|
|
|
CR
1
|
|
=
|
|
CR
0
|
|
x
|
|
SP
0
SP
0
− C
|
|
|
where
|
|
|
|
|
CR
0
|
|
=
|
|
the conversion rate in effect immediately prior to the
adjustment relating to such event
|
CR
1
|
|
=
|
|
the new conversion rate taking such event into account
|
SP
0
|
|
=
|
|
the closing sale price of our common shares on the trading day
preceding the ex-dividend date for such distribution
|
C
|
|
=
|
|
the amount in cash per share that we distribute to holders of
our common shares in respect of such quarterly fiscal period
that exceeds the Reference Dividend.
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S-31
An adjustment to the conversion rate made pursuant to this
paragraph (iv) shall become effective on the ex-dividend
date for such dividend or distribution. If any dividend or
distribution described in this paragraph (iv) is declared
but not so paid or made, the new conversion rate shall be
readjusted to the conversion rate that would then be in effect
if such dividend or distribution had not been declared.
The Reference Dividend shall be subject to adjustment on account
of any of the events set forth in paragraphs (i), (ii) and
(iii) above and paragraph (v) below. Any such
adjustment will be effected by multiplying the Reference
Dividend by a fraction, the numerator of which will equal the
conversion rate in effect immediately prior to the adjustment on
account of such event and the denominator of which will equal
the conversion rate as adjusted.
(v) If we or any of our subsidiaries make a payment in
respect of a tender offer or exchange offer for our common
shares to the extent that the cash and value of any other
consideration included in the payment per common share exceeds
the closing sale price per common share on the trading day next
succeeding the last date on which tenders or exchanges may be
made pursuant to such tender or exchange offer (the
Expiration Time), the conversion rate will be
adjusted based on the following formula:
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|
|
|
|
|
|
|
|
|
|
|
|
CR
1
|
|
=
|
|
CR
0
|
|
x
|
|
AC +
(SP
1
x
OS
1
)
SP
1
x
OS
0
|
|
|
where
|
|
|
|
|
CR
0
|
|
=
|
|
the conversion rate in effect immediately prior to the
adjustment relating to such event
|
CR
1
|
|
=
|
|
the new conversion rate taking such event into account
|
AC
|
|
=
|
|
the aggregate value of all cash and any other consideration (as
determined by our board of directors) paid or payable for our
common shares purchased in such tender or exchange offer
|
OS
0
|
|
=
|
|
the number of our common shares outstanding immediately prior to
the date such tender or exchange offer expires
|
OS
1
|
|
=
|
|
the number of our common shares outstanding immediately after
such tender or exchange offer expires (after giving effect to
the purchase or exchange of shares pursuant to such tender or
exchange offer)
|
SP
1
|
|
=
|
|
the average of the closing sale prices of our common shares for
the 10 consecutive trading days commencing on the trading day
next succeeding the date such tender or exchange offer expires.
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If the application of the foregoing formula would result in a
decrease in the conversion rate, no adjustment to the conversion
rate will be made.
Any adjustment to the conversion rate made pursuant to this
paragraph (v) shall become effective on the date
immediately following the determination of the average of the
closing sale prices of our common shares for purposes of
SP
1
above. If we or one of our subsidiaries is obligated to purchase
our common shares pursuant to any such tender or exchange offer
but is permanently prevented by applicable law from effecting
any such purchase or all such purchases are rescinded, the new
conversion rate shall be readjusted to be the conversion rate
that would be in effect if such tender or exchange offer had not
been made.
If we have in effect a rights plan while any notes remain
outstanding, holders of notes will receive, upon a conversion of
notes in respect of which we are required to deliver common
shares, in addition to such common shares, rights under our
shareholder rights agreement unless, prior to such conversion,
the rights have expired, terminated or been redeemed or unless
the rights have separated from our common shares. If the rights
provided for in our rights plan have separated from our common
shares in accordance with the provisions of the applicable
shareholder rights agreement so that holders of notes would not
be entitled to receive any rights in respect of our common
shares, if any, that we are required to deliver upon conversion
of notes, the conversion rate will be adjusted at the time of
separation as if we had distributed to all holders of our common
shares capital shares, evidences of indebtedness or other assets
or property pursuant to paragraph (iii) above, subject to
readjustment upon the subsequent expiration, termination or
redemption of the rights.
In addition to the adjustments pursuant to paragraphs
(i) through (v) above, we may increase the conversion
rate in order to avoid or diminish any income tax to holders of
our common shares resulting from any dividend or distribution of
capital shares (or rights to acquire our common shares) or from
any event treated as such for income
S-32
tax purposes. We may also, from time to time, to the extent
permitted by applicable law, increase the conversion rate by any
amount for any period if we have determined that such increase
would be in our best interests. If we make such determination,
it will be conclusive and we will mail to holders of the notes a
notice of the increased conversion rate and the period during
which it will be in effect at least 15 days prior to the
date the increased conversion rate takes effect in accordance
with applicable law.
We will not make any adjustment to the conversion rate if
holders of the notes are permitted to participate, on an
as-converted basis, in the transactions described above.
The applicable conversion rate will not be adjusted upon certain
events, including but not limited to:
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the issuance of any of our common shares pursuant to any present
or future plan providing for the reinvestment of dividends or
interest payable on our securities and the investment of
additional optional amounts in our common shares under any plan;
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the issuance of any of our common shares or options or rights to
purchase those shares pursuant to any present or future
employee, trustee or consultant benefit plan, employee agreement
or arrangement or program of ours;
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the issuance of any of our common shares pursuant to any option,
warrant, right, or exercisable, exchangeable or convertible
security outstanding as of the date the notes were first issued;
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a change in the par value of our common shares;
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accumulated and unpaid dividends or distributions; and
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as a result of a tender offer solely to holders of fewer than
100 of our common shares.
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Adjustments to the applicable conversion rate will be calculated
to the nearest 1/10,000th of a share. No adjustment in the
conversion rate will be required unless the adjustment would
require an increase or decrease of at least 1% of the conversion
rate. If the adjustment is not made because the adjustment does
not change the conversion rate by at least 1%, then the
adjustment that is not made will be carried forward and taken
into account in any future adjustment. Notwithstanding the
foregoing, all adjustments not previously made will be given
effect with respect to any conversion of notes.
If certain of the possible adjustments to the conversion rate of
the notes are made (or, in certain other circumstances, if no
adjustments are made), a holder may be deemed to have received a
distribution with respect to our shares even though such holder
has not received any cash or property as a result of such
adjustments. We intend to withhold federal income tax (in the
case of a
Non-U.S. Holder)
with respect to any deemed distribution from us, from cash
payments of interest and payments in redemption, repurchase or
conversion of the notes. See Certain Federal Income Tax
Considerations.
Recapitalizations,
Reclassifications and Changes of Our Common Shares
In the case of:
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any recapitalization, reclassification or change of our common
shares (other than changes resulting from a subdivision or
combination or a change in par value);
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any consolidation, merger or combination involving us;
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any sale, lease or other transfer to a third party of the
consolidated assets of ours and our subsidiaries substantially
as an entirety; or
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any statutory share exchange,
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in each case, as a result of which all of our common shares
would be converted into, or exchanged for, stock, other
securities, other property or assets (including cash or any
combination thereof), then, at and after the effective time of
the transaction, the right to convert each $1,000 principal
amount of notes into cash and, if applicable, common shares (or
cash in lieu of such common shares) based on a number of our
common shares equal to the applicable conversion rate will be
changed into the right to convert each $1,000 principal amount
of notes into cash and units of
S-33
reference property (as defined below) based on the kind and
amount of shares of stock, other securities or other property or
assets (including cash or any combination thereof) that a holder
of a number of our common shares equal to the conversion rate
immediately prior to such transaction would have owned or been
entitled to receive upon the occurrence of such transaction
(such shares of stock, other securities or other property or
assets, reference property, and the amount and kind
of reference property that a holder of one of our common shares
would have received in such transaction, a unit of
reference property). In particular, at and after the
effective time of the transaction (x) the amount otherwise
payable in cash upon conversion of the notes as set forth under
Conversion Settlement above will
continue to be payable in cash, (y) the number of our
common shares otherwise deliverable upon conversion of the notes
as set forth under Conversion Settlement
above will instead be deliverable in units of reference property
(or cash in lieu of such units of reference property) and
(z) the daily VWAP and the last reported sale price will,
to the extent possible, be calculated based on the value of a
unit of reference property. If the transaction causes our common
shares to be converted into, or exchanged for, the right to
receive more than a single type of consideration (determined
based in part upon any form of shareholder election), a unit of
reference property will be deemed to be the weighted per share
average of the types and amounts of consideration received by
the holders of our common shares that affirmatively make such an
election. We will notify holders of the weighted average as soon
as practicable after such determination is made. We will agree
in the indenture not to become a party to any such transaction
unless its terms are consistent with the foregoing.
Ownership
Limit
In order to assist us in maintaining our qualification as a REIT
for U.S. federal income tax purposes, our articles of
incorporation provide that no person may own, or be deemed to
own by virtue of the attribution rules of the Internal Revenue
Code, more than 5% of our outstanding common shares, subject to
certain exceptions. Notwithstanding any other provision of the
notes, no holder of notes will be entitled to convert such notes
for our common shares to the extent that receipt of such common
shares would cause such holder (together with such holders
affiliates) to exceed the ownership limit contained in our
articles of incorporation. See Certain Federal Income Tax
Considerations.
Calculations
in Respect of the Notes
Except as explicitly specified otherwise herein, we will be
responsible for making all calculations required under the
notes. These calculations include, but are not limited to,
determinations of the conversion price and conversion rate
applicable to the notes. We will make all these calculations in
good faith and, absent manifest error, our calculations will be
final and binding on holders of the notes. We will provide a
schedule of our calculations to the trustee, and the trustee is
entitled to rely upon the accuracy of our calculations without
independent verification. The trustee will forward our
calculations to any holder of notes upon request within 20
business days of the effective date of any adjustment.
Merger,
Consolidation or Sale
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:
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we are the continuing entity, or the successor corporation
expressly assumes payment of the principal of and interest on
all of the outstanding notes and the due and punctual
performance and observance of all of the covenants and
conditions contained in the indenture;
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if as a result of such transaction the notes become convertible
into common shares or other securities issued by a third party,
such third party assumes or fully and unconditionally guarantees
all obligations under the notes and the indenture;
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immediately after giving effect to the transaction and treating
any indebtedness that becomes our obligation or our
subsidiaries obligation as a result thereof as having been
incurred by us or our subsidiaries at the time of the
transaction, no event of default under the indenture, and no
event which, after notice or the lapse of time, or both, would
become an event of default, shall have occurred and be
continuing; and
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S-34
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an officers certificate and legal opinion covering those
conditions shall be delivered to the trustee.
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Events of
Default, Notice and Waiver
The following events are events of default with
respect to the notes:
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default for 30 days in the payment of any installment of
interest on any note;
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default in the payment of the principal of any note at the time
such payment becomes due and payable;
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default in the delivery when due of amounts owing upon
conversion, on the terms set forth in the indenture and the
notes, upon exercise of a holders conversion right in
accordance with the indenture and the continuation of such
default for 10 days;
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our failure to provide notice of the occurrence of a change in
control when required under the indenture;
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default in the performance, or breach, of any other covenant or
warranty contained in the indenture continued for 60 days
after written notice as provided in the indenture;
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default under any bond, debenture, note or other evidence of
indebtedness of ours or under any mortgage, indenture or other
instrument of ours under which there may be issued or by which
there may be secured or evidenced any indebtedness of ours (or
by any subsidiary, the repayment of which we have guaranteed or
for which we are directly responsible or liable as obligor or
guarantor), which results in the acceleration of indebtedness in
an aggregate principal amount exceeding $25,000,000, but only if
such indebtedness is not discharged or such acceleration is not
rescinded or annulled as provided in the indenture; and
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certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of us or
of any significant subsidiary (as defined in
Regulation S-X
promulgated under the Securities Act of 1933, or the Securities
Act) of ours or of our or such significant
subsidiarys property.
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If an event of default occurs and is continuing, then the
trustee or the holders of not less than 25% in principal amount
of the notes outstanding may declare the principal amount of all
of the notes 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 trustee. However, at any time after a declaration
of acceleration with respect to the notes has been made, the
holders of a majority in principal amount of the notes then
outstanding may rescind and annul such declaration and its
consequences if:
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we have deposited with the trustee all required payments of the
principal of and interest payable on the notes plus certain
fees, expenses, disbursements and advances of the
trustee; and
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all events of default have been cured or waived as provided in
the indenture (except for the nonpayment of accelerated
principal of the notes).
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The indenture also provides that the holders of a majority in
principal amount of the notes then outstanding may waive any
past default with respect to the notes and its consequences.
However, holders may not waive a default:
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in the payment of the principal of or interest on any note;
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our failure to convert any note in accordance with its
terms; or
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in respect of a covenant or provision contained in the indenture
that cannot be modified or amended without the consent of the
holder of each note outstanding affected thereby.
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The indenture provides that the trustee is required to give
notice to the holders of notes within 90 days of a default
under the indenture. However, the trustee may withhold notice of
any default to the holders of notes if certain officers of the
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 interest on any
note.
The indenture provides that no holder of notes may institute any
proceeding, judicial or otherwise, with respect to the indenture
or for any remedy thereunder. However, a holder of notes may
institute a proceeding if the trustee
S-35
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 notes outstanding as well as an offer of
reasonable indemnity. However, this provision will not prevent
any holder of notes from instituting suit for the enforcement of
payment of the principal of and interest on the notes, or for
the delivery of amounts owing upon conversion of notes, in each
case held by that holder at the respective due dates thereof.
Subject to provisions of the indenture relating to its duties in
case of default and unless holders of notes then outstanding
have offered reasonable security or indemnity to the trustee,
the trustee is under no obligation to exercise any of its rights
or powers under the indenture at the request or direction of the
holders. The holders of a majority in principal amount of the
notes outstanding shall have the right to direct the time,
method and place of conducting any proceeding for any remedy
available to the trustee. They also have the right to direct the
time, method and place of exercising any trust or power
conferred upon the trustee. However, the trustee may refuse to
follow any direction which is in conflict with the indenture or
any law which may involve the trustee in personal liability or
which may be unduly prejudicial to the holders of notes not
joining therein.
Notwithstanding the foregoing, the indenture will provide that,
to the extent elected by us, the sole remedy for an event of
default relating to the failure to comply with the reporting
obligations in the indenture, which are described below under
the caption Provision of Financial
Information, and for any failure to comply with the
requirements of Section 314(a)(1) of the
Trust Indenture Act, will for the first 365 days after
the occurrence of such an event of default consist exclusively
of the right to receive special interest on the notes at an
annual rate equal to 0.50% of the principal amount of the notes.
This special interest will be paid semi-annually in arrears,
with the first semi-annual payment due on the first interest
payment date following the date on which the special interest
began to accrue on any notes. The special interest will accrue
on all outstanding notes from and including the date on which an
event of default relating to a failure to comply with the
reporting obligations in the indenture first occurs to but not
including the 365th day thereafter (or such earlier date on
which the event of default shall have been cured or waived). On
such 365th day (or earlier, if the event of default
relating to the reporting obligations is cured or waived prior
to such 365th day), such special interest will cease to
accrue and, if the event of default relating to reporting
obligations has not been cured or waived prior to such
365th day, the notes will be subject to acceleration as
provided above. The provisions of the indenture described in
this paragraph will not affect the rights of holders in the
event of the occurrence of any other event of default. In the
event we do not elect to pay special interest upon an event of
default in accordance with this paragraph, the notes will be
subject to acceleration as provided above.
If we elect to pay special interest in connection with an event
of default relating to the failure to comply with reporting
obligations in the indenture, which are described below under
Provision of Financial Information, and
for any failure to comply with the requirements of
Section 314(a)(1) of the Trust Indenture Act in
accordance with the preceding paragraph, we will notify all
holders of notes and the trustee and paying agent of such
election on or before the close of business on the date on which
such event of default first occurs.
Within 120 days after the close of each fiscal year, we
must deliver to the trustee a certificate signed by one of
several specified officers. The certificate must state whether
such officer has knowledge of any default under the indenture
and, if so, specify each such default and the nature and status
thereof.
Modification
of the Indenture
Modifications and amendments to the indenture may be made only
with the consent of the holders of a majority in principal
amount of all notes outstanding which are affected by such
modification or amendment. However, unless the consent of the
holder of each affected note is obtained, no modification or
amendment may:
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change the date specified in the notes as the fixed date on
which the principal is due and payable;
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change the date specified in the notes as the fixed date on
which any installment of interest is due and payable;
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reduce the principal amount of any note;
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reduce the rate or amount of interest on any note;
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change the place of payment of principal or interest on any note;
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S-36
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change the currency for payment of principal of or interest on
the notes;
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impair the right to institute suit for the enforcement of any
payment on or with respect to notes or the delivery of amounts
owing upon conversion as required by the indenture upon the
conversion of notes;
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make any change that impairs or adversely affects the rights of
a holder to convert notes in accordance with the indenture;
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reduce the percentage of outstanding notes necessary to modify
or amend the 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 the 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 the
notes.
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The indenture provides that the holders of a majority in
principal amount of outstanding notes have the right to waive
compliance by us with specified covenants in the indenture in
respect of the notes.
We and the trustee may modify and amend the indenture without
the consent of any holder of notes for any of the following
purposes:
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to evidence the succession of another person to our obligations
under the indenture;
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to add to our covenants for the benefit of the holders of the
notes or to surrender any of our rights or powers;
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to add any additional event of default for the benefit of the
holders of all the notes;
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to secure the notes;
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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 the
indenture by more than one trustee;
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to provide for conversion rights of holders of notes if any
reclassification or change of our common shares or any
consolidation, merger or sale of all or substantially all of our
property or assets occurs; or
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to cure any ambiguity, defect or inconsistency in the indenture,
provided that such action shall not adversely affect in any
material respect the interests of holders of notes.
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The indenture provides that in determining whether the holders
of the requisite principal amount of notes outstanding have
given any request, demand, authorization, direction, notice,
consent or waiver thereunder or whether a quorum is present at a
meeting of holders of notes, notes owned by us, any other
obligor upon the notes, any of our affiliates or of such other
obligor shall be disregarded.
The indenture contains provisions for convening meetings of the
holders of notes. The trustee may call a meeting at any time. We
or the holders of at least 10% in principal amount of the notes
outstanding may also call a meeting upon request. Notice of a
meeting must be given as provided in the indenture. Except for
any consent that must be given by the holder of each note
affected by certain modifications and amendments of the
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 notes outstanding. 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 notes 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
notes. Any resolution passed or decision taken at any duly held
meeting of holders of notes will be binding on all holders of
notes. 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
notes. 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 notes, the
S-37
persons holding or representing such specified percentage in
principal amount of the outstanding notes will constitute a
quorum.
Notwithstanding the provisions described above, if any action is
to be taken at a meeting of holders of notes with respect to any
request, demand, authorization, direction, notice, consent,
waiver or other action that the indenture expressly provides may
be made, given or taken by the holders of a specified percentage
in principal amount of all outstanding notes affected thereby:
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there shall be no minimum quorum requirement for such
meeting and
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the principal amount of the notes outstanding 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 the indenture.
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Certain
Inapplicable Provisions of the Base Indenture
The provisions of the base indenture described in the
accompanying prospectus under the heading Description of
Debt Securities Material Covenants will not be
applicable to the notes.
Discharge
The provisions of Article Four of the base indenture
described in the accompanying prospectus under the heading
Description of Debt Securities Discharge,
Defeasance and Covenant Defeasance will not be applicable
to the notes. Instead, we may satisfy and discharge our
obligations under the indenture by delivering to the trustee for
cancellation all outstanding notes or by depositing with the
trustee, the paying agent or the exchange agent, if applicable,
after the notes have become due and payable, whether on the
stated maturity date, any redemption date or any repurchase
date, or upon conversion or otherwise, cash or common shares (as
applicable under the terms of the indenture) sufficient to pay
all of the outstanding notes and paying all other sums payable
by us under the indenture. Such discharge is subject to the
terms of the indenture.
Provision
of Financial Information
We will file with the trustee, within 15 days after we are
required to file the same with the SEC, copies of the annual
reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the SEC may
prescribe) that we are required to file with the SEC pursuant to
Section 13 or Section 15(d) of the Exchange Act. If we
are not required to file information, documents or reports
pursuant to either of those sections, then we will file with the
trustee and the SEC such reports as may be prescribed by the SEC
at such time. Notwithstanding anything to the contrary in the
foregoing, the trustee agrees that we will be deemed to have
furnished such information referred to in this paragraph to the
trustee if we have filed such reports with the SEC via the EDGAR
filing system (or any successor system) and such reports and
other information are publicly available.
Governing
Law
The indenture and the notes are governed by, and construed in
accordance with, the laws of the State of Ohio.
Trustee
U.S. Bank National Association will be the trustee,
registrar, conversion agent, bid solicitation agent and paying
agent. If an event of default occurs and is continuing, the
trustee will be required to use the degree of care and skill of
a prudent man in the conduct of his own affairs. The trustee
will become obligated to exercise any of its powers under the
indenture at the request of any of the holders of any notes only
after those holders have offered the trustee indemnity
satisfactory to it.
If the trustee becomes one of our creditors, it will be subject
to limitations on its rights to obtain payment of claims or to
realize on some property received for any such claim, as
security or otherwise. The trustee is permitted
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to engage in other transactions with us. If, however, it
acquires any conflicting interest, it must eliminate that
conflict or resign.
Book-Entry
System
The notes will be issued in the form of one or more
fully-registered global notes in book-entry form, which will be
deposited with, or on behalf of, DTC and registered in the name
of DTCs nominee, Cede & Co. Except as set forth
below, the global notes may not be transferred except as a whole
by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any such nominee to a
successor of DTC or a nominee of such successor.
So long as DTC or its nominee is the registered owner of a
global note, DTC or its nominee, as the case may be, will be
considered the sole holder of the notes represented by such
global note for all purposes under the indenture and the
beneficial owners of the notes will be entitled only to those
rights and benefits afforded to them in accordance with
DTCs regular operating procedures. Upon specified written
instructions of a participant in DTC, DTC will have its nominee
assist participants in the exercise of certain holders
rights, such as demand for acceleration of maturity or an
instruction to the trustee. Except as provided below, owners of
beneficial interests in a global note will not be entitled to
have notes registered in their names, will not receive or be
entitled to receive physical delivery of notes in certificated
form and will not be considered the registered owners or holders
thereof under the indenture.
If (i) DTC is at any time unwilling or unable to continue
as depositary or if at any time DTC ceases to be a clearing
agency registered under the Exchange Act and a successor
depositary is not appointed by us within 90 days,
(ii) an event of default under the indenture relating to
the notes has occurred and is continuing or (iii) we, in
our sole discretion, determine at any time that the notes shall
no longer be represented by a global note, we will issue
individual notes in certificated form of the same series and
like tenor and in the applicable principal amount in exchange
for the notes represented by the global note. In any such
instance, an owner of a beneficial interest in a global note
will be entitled to physical delivery of individual notes in
certificated form of the same series and like tenor, equal in
principal amount to such beneficial interest and to have the
notes in certificated form registered in its name. Notes 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 depositary for the notes. The notes
will be issued as fully-registered notes registered in the name
of Cede & Co. (DTCs partnership nominee) or such
other name as may be requested by an authorized representative
of DTC.
The following is based on information furnished by DTC. DTC is:
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a limited-purpose trust company organized under the New York
Banking Law;
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a banking organization within the meaning of the New
York Banking Law;
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a member of the Federal Reserve System;
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a clearing corporation within the meaning of the New
York Uniform Commercial Code; and
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a clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act.
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DTC holds securities that its participants deposit with DTC. DTC
also facilitates the settlement among its participants of
securities transactions, including transfers and pledges, in
deposited securities through electronic computerized book-entry
changes in participants accounts, which eliminates the
need for physical movement of securities certificates. Direct
participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and other organizations.
DTC is a wholly-owned subsidiary of The Depository
Trust & Clearing Corporation (DTCC). DTCC
is the holding company for DTC, National Securities Clearing
Corporation and Fixed Income Clearing Corporation, all of which
are registered clearing agencies. DTCC is owned by the users of
its regulated subsidiaries. Access to the DTC system is also
available to others, sometimes referred to in this prospectus as
indirect participants, that clear transactions through or
maintain a custodial relationship with a direct participant
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either directly or indirectly. Indirect participants include
securities brokers and dealers, banks and trust companies. The
rules applicable to DTC and its participants are on file with
the SEC.
Purchases of the notes under the DTC system must be made by or
through direct participants, which will receive a credit for the
notes on DTCs records. The beneficial interest of each
actual purchaser of each note 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. Beneficial owners are, however, expected to receive
written confirmations 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 beneficial interests
in the notes 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 beneficial interests in notes,
except in the event that use of the book-entry system for the
notes is discontinued. The laws of some states require that
certain persons take physical delivery in definitive form of
securities which they own. Such limits and such laws may impair
the ability of such persons to own, transfer or pledge
beneficial interests in a global note.
To facilitate subsequent transfers, all notes deposited by
direct participants with DTC will be 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 notes with DTC and their registration
in the name of Cede & Co. or such other nominee do not
effect any change in beneficial ownership. DTC has no knowledge
of the actual beneficial owners of the notes; DTCs records
reflect only the identity of the direct participants to whose
accounts the notes will be 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. Beneficial owners of the notes may
wish to take certain steps to augment the transmission to them
of notices of significant events with respect to the notes, such
as redemption, tenders, defaults, and proposed amendments to the
security documents. For example, beneficial owners of the notes
may wish to ascertain that the nominee holding the notes for
their benefit has agreed to obtain and transmit notices to
beneficial owners. In the alternative, beneficial owners may
wish to provide their names and addresses to the registrar of
the notes and request that copies of the notices be provided to
them directly. Any such request may or may not be successful.
Neither DTC nor Cede & Co. (nor any other DTC nominee)
will consent or vote with respect to the notes unless authorized
by a direct participant in accordance with DTCs
procedures. Under its usual procedures, DTC mails an Omnibus
Proxy to us as soon as possible after the regular record date.
The Omnibus Proxy assigns Cede & Co.s consenting
or voting rights to those direct participants to whose accounts
the notes are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
We will pay principal of and interest on the notes in
same-day
funds to the trustee and from the trustee to DTC, or such other
nominee as may be requested by an authorized representative of
DTC. DTCs practice is to credit direct participants
accounts on the applicable payment date in accordance with their
respective holdings shown on DTCs records upon DTCs
receipt of funds and corresponding detail information from us or
the trustee. 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 these participants and not of us,
the trustee, DTC, or any other party, subject to any statutory
or regulatory requirements that may be in effect from time to
time. Payment of principal and interest to Cede & Co.,
or such other nominee as may be requested by an authorized
representative of DTC, is the responsibility of us or the
trustee, disbursement of such payments to direct participants is
the responsibility of DTC, and disbursement of such payments to
the beneficial owners is the responsibility of the direct or
indirect participants.
We will send any redemption notices to DTC. If less than all of
the notes 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 of notes shall give notice to elect to have
its notes purchased or tendered, through its participant, to the
conversion agent and shall effect delivery of such notes by
causing the direct participant to
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transfer the participants interest in notes, on DTCs
records, to the conversion agent. The requirement for physical
delivery of notes in connection with an optional tender or a
mandatory purchase will be deemed satisfied when the ownership
rights in the notes are transferred by direct participants on
DTCs records and followed by a book-entry credit of
tendered notes to the conversion agents DTC account.
DTC may discontinue providing its services as securities
depositary for the notes at any time by giving us reasonable
notice. Under such circumstances, if a successor securities
depositary is not obtained, we will print and deliver
certificated notes. We may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor
securities depositary). In that event, we will print and deliver
certificated notes.
We, the underwriters and the trustee will have no responsibility
or liability for any aspect of the records relating to or
payments made on account of the beneficial interests in a global
note, or for maintaining, supervising or reviewing any records
relating to such beneficial interests.
The information in this section concerning DTC and DTCs
system has been obtained from sources that we believe to be
reliable, but we take no responsibility for its accuracy.
S-41
CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income
tax considerations relating to the acquisition, ownership and
disposition of the notes, our qualification and taxation as a
REIT and the acquisition, ownership and disposition of common
shares into which the notes may be converted, but does not
purport to be a complete analysis of all the potential tax
considerations relating thereto. This summary is based upon the
provisions of the Code, Treasury Regulations promulgated under
the Code, administrative rulings and pronouncements and judicial
decisions. These authorities may be changed, perhaps with
retroactive effect, so as to result in U.S. federal income
tax consequences materially and adversely different from those
set forth below.
This summary is limited to beneficial owners of notes that
purchase the notes in this offering for a price equal to the
issue price of the notes (
i.e.
, the first
price at which a substantial amount of the notes is sold to
investors, excluding sales to bond houses, brokers, or similar
persons or persons acting in the capacity of underwriters,
placement agents or wholesalers) and that will hold the notes as
capital assets within the meaning of Section 1221 of the
Code. This summary does not address the tax considerations
arising under other U.S. federal tax laws (such as estate
and gift tax laws) or the tax laws of any foreign, state or
local jurisdiction. In addition, this discussion does not
address any U.S. federal alternative minimum tax consequences or
all of the tax considerations that may be applicable to
holders particular circumstances and does not deal with
holders that may be subject to special tax rules under the
U.S. federal income tax laws, such as, for example:
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banks, insurance companies, or other financial institutions;
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real estate investment trusts and regulated investment companies
and their shareholders;
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tax-exempt organizations;
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brokers and dealers in securities or currencies;
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persons who have ceased to be citizens or residents of the
United States for U.S. federal income tax purposes;
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traders in securities that elect to use a
mark-to-market
method of tax accounting for their securities holdings;
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U.S. Holders (as defined below) whose functional
currency is not the U.S. dollar or who hold notes
through a foreign entity or foreign account;
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holders that will hold the notes as a position in a hedging
transaction, straddle, conversion transaction or other risk
reduction transaction;
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holders deemed to sell the notes under the constructive sale
provisions of the Code or that acquire notes as part of a wash
sale transaction;
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partnerships (or other entities or arrangements classified as
partnerships for U.S. federal income tax purposes) and
other pass-through entities, or investors in such
entities; or
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holders that acquire the notes for a price other than their
issue price.
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This summary of certain U.S. federal income tax
considerations is for general information only and is not tax
advice. This summary is not binding on the Internal Revenue
Service, which we refer to as the IRS. We have not sought, and
will not seek, any ruling from the IRS with respect to the
statements made in this summary, and there can be no assurance
that the IRS will not take a position contrary to these
statements or that a contrary position taken by the IRS would
not be sustained by a court. If you are considering purchasing
the notes, you are urged to consult your own tax advisor with
respect to the application of the U.S. federal income tax
laws to your particular situation, as well as any tax
considerations arising under other U.S. federal tax laws,
the laws of any state, local or foreign taxing jurisdiction or
any applicable income tax treaty.
Consequences
to U.S. Holders of the Notes
The following is a summary of the general U.S. federal
income tax consequences that will apply to you if you are a
U.S. Holder of the notes. Certain consequences
to
Non-U.S. Holders
of the notes are described under
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Consequences to
Non-U.S. Holders
of the Notes, below. For purposes of this discussion, a
U.S. Holder means a beneficial owner of a note
that is, for U.S. federal income tax purposes:
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an individual who is a citizen or resident of the United States;
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a corporation created or organized in or under the laws of the
United States, a state thereof or the District of Columbia;
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust (a) if a court within the United States is able to
exercise primary supervision over its administration and one or
more United States persons have authority to control all
substantial decisions of the trust or (b) that has a valid
election in effect under applicable Treasury Regulations to be
treated as a United States person.
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If an entity or arrangement classified as a partnership for
U.S. federal income tax purposes holds notes, the
U.S. federal income tax treatment of a partner in the
partnership will generally depend upon the status of the
partner, the activities of the partnership and certain
determinations made at the partner level. If you are an entity
or arrangement treated as a partnership for U.S. federal
income tax purposes (or if you are a partner in such a
partnership), you are urged to consult your tax advisor
regarding the tax consequences of the purchase, ownership and
disposition of the notes to you.
Interest.
Stated interest on the notes will
generally be taxable to you as ordinary income at the time it is
paid or accrued in accordance with your method of accounting for
U.S. federal income tax purposes.
Sale, Exchange, Redemption or Repurchase of the
Notes.
You will generally recognize gain or loss
upon the sale, exchange, redemption, repurchase or other taxable
disposition of a note (other than a conversion into a
combination of cash or common shares as further described below)
equal to the difference (if any) between the amount realized on
such disposition (other than amounts attributable to accrued but
unpaid stated interest, which, if not previously taxed, will be
taxable as ordinary interest income) and your tax basis in the
note. Your tax basis in a note generally will be the purchase
price paid therefor. Gain or loss recognized on the disposition
of a note generally will be capital gain or loss, and will be
long-term capital gain or loss if, at the time of such
disposition, your holding period for the note is more than one
year. Certain non-corporate U.S. holders (including
individuals) are eligible for reduced rates of taxation in
respect of long-term capital gain, which rates are scheduled to
increase on January 1, 2011. The deductibility of capital
losses is subject to certain limitations.
Conversion of the Notes for Cash.
A conversion
of a note in exchange solely for cash will be treated as a
taxable sale or exchange of the note, as described above under
Sale, Exchange, Redemption or Repurchase of
the Notes.
Conversion of the Notes for Cash and Common
Shares.
The tax treatment of a conversion of a
note into cash and common shares is uncertain. You are urged to
consult with your tax advisors regarding the consequences of
such a conversion. If we satisfy the conversion obligation in
part cash and part common shares, we intend to take the position
that the notes are securities for U.S. federal income tax
purposes and that, as a result, the exchange would be treated as
a recapitalization. In such case, you will recognize as taxable
income any gain realized in the conversion to the extent of the
cash received, but no loss (except in the case of cash received
in lieu of a fractional common share) will be recognized on such
conversion. Your adjusted tax basis in the common shares
received tax-free will equal your tax basis in the corresponding
note (reduced by any tax basis allocable to a fractional share),
less the amount of cash received (excluding cash received in
lieu of a fractional share), plus the amount of taxable gain
recognized on the conversion. Your holding period for the common
shares received will include the holding period for the
corresponding note that is surrendered upon conversion. Cash
received in lieu of a fractional common share upon conversion of
the notes will generally be treated as a payment in exchange for
the fractional share. Accordingly, the receipt of cash in lieu
of a fractional share generally will result in capital gain or
loss measured by the difference between the cash received for
the fractional share and your tax basis allocable to the
fractional share.
If the notes are not treated as securities for U.S. federal
income tax purposes, the treatment of a conversion in which a
U.S. Holder receives a combination of common shares and
cash is unclear. The transaction might be viewed
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as consisting of a nontaxable exchange of a portion of each note
for common shares and a taxable exchange of the remaining
portion of each note for cash (with the consequences described
above under Conversion of the Notes for
Cash). Alternatively, the transaction might be viewed as a
fully taxable exchange of the entire note for a combination of
cash and common shares. U.S. Holders are encouraged to
consult their own advisors concerning the tax treatment to them
if the notes are converted for a combination of our common
shares and cash. To the extent that the receipt of common shares
upon conversion of a note is treated as a taxable exchange, a
U.S. Holders tax basis in the common shares received
generally will equal the fair market value of such common shares
on the date of receipt and a U.S. Holders holding
period for the common shares will not include the period during
which the U.S. Holder held the note so converted.
Constructive Distributions.
The conversion
rate of the notes is subject to adjustment under certain
circumstances as described above in Description of the
Notes Conversion Rights. Certain adjustments
(or the absence of such adjustments) to the conversion rate of
the notes that increase a noteholders proportionate
interest in our assets or earnings and profits may result in a
taxable constructive distribution to the holder, whether or not
the holder ever converts the notes. Any such taxable deemed
distribution would not be eligible for a dividends-received
deduction or the preferential tax rates applicable to dividends
discussed below. A deemed distribution would arise, for example,
if the conversion price were adjusted to compensate you for
certain distributions of cash or property to our shareholders.
However, a change in conversion price that simply prevents the
dilution of your interests upon a share split or other change in
capital structure, if made under a bona fide, reasonable
adjustment formula, would not be treated as a taxable deemed
distribution. Any taxable deemed distribution will be taxable as
a dividend to the extent of our current or accumulated earnings
and profits, with any excess treated as a tax-free return of
capital or as capital gains. You are urged to consult your own
tax advisor with respect to the tax consequences of any
adjustment (or the absence of any adjustment) to the conversion
rate and any resulting deemed distribution.
Ownership and Disposition of Shares Received Upon
Conversion.
The tax consequences of owning and
disposing of common shares received upon conversion of the notes
are described below under Taxation of Taxable
U.S. Shareholders and Taxation of
Tax-Exempt Shareholders.
Consequences
to
Non-U.S.
Holders of the Notes
The following is a summary of the general U.S. federal
income tax consequences that will apply to you if you are a
Non-U.S. Holder
of the notes. As used in this prospectus supplement, the term
Non-U.S. Holder
means a beneficial owner of a note (other than an entity or
arrangement treated as a partnership for U.S. federal
income tax purposes) that is not a U.S. Holder.
If a partnership, including any entity or arrangement treated as
a partnership for U.S. federal income tax purposes, is a
holder of a note, the U.S. federal income tax treatment of
a partner in such a partnership will generally depend on the
status of the partner and the activities of the partnership.
Partners in such a partnership are urged to consult their tax
advisors as to the particular U.S. federal income tax
consequences applicable to them of acquiring, holding or
disposing of the notes.
Payments of Interest.
Subject to the
discussion of backup withholding below, if you are a
Non-U.S. Holder,
you will generally not be subject to U.S. federal income
tax or the 30% U.S. federal withholding tax on interest
paid on the notes so long as that interest is not effectively
connected with your conduct of a trade or business within the
United States, provided that:
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you do not actually or constructively own 10% or more of the
total combined voting power of all classes of our shares that
are entitled to vote within the meaning of Section 871(h)(3) of
the Code and the Treasury Regulations thereunder;
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you are not a controlled foreign corporation for
U.S. federal income tax purposes that is actually or
constructively related to us through sufficient stock ownership
(as provided in the Code);
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you are not a bank whose receipt of interest on a note is
described in Section 881(c)(3)(A) of the Code; and
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you provide the applicable withholding agent with, among other
things, your name and address, and certify, under penalties of
perjury, that you are not a U.S. person within the meaning
of the Code (which certification may be made on an IRS
Form W-8BEN
(or other applicable form)).
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The applicable Treasury Regulations provide alternative methods
for satisfying the certification requirement described in this
section. In addition, under these Treasury Regulations, special
rules apply to pass-through entities and this certification
requirement may also apply to beneficial owners of pass-through
entities.
If you cannot satisfy the requirements described above, payments
of interest will generally be subject to the 30%
U.S. federal withholding tax, unless you provide the
applicable withholding agent with a properly executed
(1) IRS
Form W-8BEN
(or other applicable form) claiming an exemption from or
reduction in withholding under an applicable income tax treaty
or (2) IRS
Form W-8ECI
(or other applicable form) stating that interest paid on the
notes is not subject to U.S. federal withholding tax
because it is effectively connected with your conduct of a trade
or business in the United States (as discussed below under
Interest or Gain Effectively Connected with a
U.S. Trade or Business).
Sale, Exchange, Redemption or Repurchase of the
Notes.
Subject to the discussion of backup
withholding below, you will generally not be subject to
U.S. federal income or withholding tax on any gain
recognized on the sale or other taxable disposition of a note
(including a retirement or redemption), unless:
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you are an individual
non-U.S. holder,
you are present in the United States for at least 183 days
in the taxable year of such disposition and certain other
conditions are met;
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that gain is effectively connected with the conduct by you of a
trade or business within the United States, except as otherwise
provided by an applicable income tax treaty; or
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the notes constitute a U.S. real property interest within
the meaning of FIRPTA.
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If you are described in the first bullet point above, you will
generally be subject to U.S. federal income tax at a rate
of 30% on the amount by which your capital gains allocable to
U.S. sources, including gain from such disposition, exceed
any
U.S.-source
capital losses recognized in the same taxable year, except as
otherwise required by an applicable income tax treaty. If you
are described in the second bullet point, see
Interest or Gain Effectively Connected with a
U.S. Trade or Business, below. If the notes were to
constitute a U.S. real property interest under FIRPTA, a
sale or exchange of a note would generally be subject to the
rules regarding taxation and withholding of U.S. federal
income tax on sales of common shares under FIRPTA, as described
below under Taxation of
Non-U.S. Shareholders
Sale of Shares. Although we believe that currently the
notes do not constitute U.S. real property interests, and
that we therefore would not currently be required to withhold
under FIRPTA, there can be no assurance that the notes will not
constitute U.S. real property interests depending on the
facts in existence at the time of any redemption, repurchase,
conversion or retirement of a note (as more fully described
below), in which case we may be required to withhold 10% of any
amounts payable on the redemption, repurchase, conversion or
retirement by us of a note.
Non-U.S. Holders
are urged to consult their tax advisors as to whether the sale,
redemption, repurchase or conversion of a note for our common
shares is exempt from U.S. federal income tax under FIRPTA,
which may be exempt, if (i) our common shares are part of a
class of shares that is regularly traded on an established
securities market and such
Non-U.S. Holders
held notes that, on the date of their acquisition, had a fair
market value equal to or less than the fair market value on that
date of 5% of the common shares, or (ii) we are a
domestically-controlled REIT. We will be a
domestically-controlled REIT if at all times during a specified
testing period we are a REIT and less than 50% in value of our
shares is held directly or indirectly by
non-U.S. persons.
We believe that we currently are a domestically-controlled REIT,
but because our common shares are publicly traded, there can be
no assurance that we in fact are qualified or will continue to
qualify as a domestically-controlled REIT. If a sale,
redemption, repurchase or conversion of a note for our common
shares is exempt from U.S. federal income tax under FIRPTA,
any amounts withheld from such payments to a
Non-U.S. Holder
may be refunded or credited against such
Non-U.S. Holders
federal income tax liability, if any, if such
Non-U.S. Holder
files with the IRS, on a timely basis, the required IRS forms.
To the extent that the amount realized on any disposition of
notes is attributable to accrued but unpaid interest, such
amount generally will be treated in the same manner as payments
of interest as described under the heading
Payments of Interest above.
S-45
Interest or Gain Effectively Connected with a U.S. Trade
or Business.
If you are engaged in a trade or
business in the United States and interest on a note or gain
recognized from the sale, exchange, redemption or other taxable
disposition of a note is effectively connected with the conduct
of that trade or business (and, if an income tax treaty applies,
is attributable to a permanent establishment maintained by you
in the United States), you will generally be subject to
U.S. federal income tax (but not the 30% U.S. federal
withholding tax if you provide an IRS
Form W-8ECI
with respect to interest, as described above) on that interest
or gain on a net income basis in the same manner as if you were
a U.S. person as defined under the Code. In addition, if
you are a foreign corporation, you may be subject to a
branch profits tax equal to 30% (or lower applicable
income tax treaty rate) of your earnings and profits for the
taxable year, subject to adjustments, that are effectively
connected with your conduct of a trade or business in the United
States. For this purpose, interest or gain effectively connected
with your trade or business in the United States will be
included in your earnings and profits.
Conversion of the Notes for Solely Cash or for a combination
of Common Shares and Cash.
To the extent you
recognize any gain as a result of the receipt of cash in the
conversion (including the receipt of cash in lieu of a
fractional share upon conversion), such gain would be subject to
the rules with respect to the sale or exchange of a note
described above under Sale, Exchange,
Redemption or Repurchase of the Notes.
Constructive Distributions.
The conversion
rate is subject to adjustment in certain circumstances. Any such
adjustment could, in certain circumstances, give rise to a
deemed distribution to
Non-U.S. Holders
of the notes. See Consequences to
U.S. Holders of the Notes Constructive
Distributions, above. In such case, the deemed
distribution would be subject to the rules described under,
respectively, Taxation of
Non-U.S. Shareholders,
below. Because such deemed distributions will not give rise to
any cash from which any applicable U.S. federal withholding
tax can be satisfied, the indenture provides that we may set off
any withholding tax that we are required to collect with respect
to any such deemed distribution against cash payments of
interest or from cash or common shares otherwise deliverable to
a holder upon a conversion of notes or a redemption or
repurchase of a note. Until such time as judicial, legislative,
or regulatory guidance becomes available that would, in our
reasonable determination, permit us to treat such deemed
distributions as other than deemed dividend distributions
treated as ordinary income, we in general intend to withhold on
such distributions at a 30% rate or whatever treaty rate is
applicable to ordinary income dividends from REITs, to the
extent such dividends are made out of our current or accumulated
earnings and profits. A
Non-U.S. Holder
who is subject to withholding tax under such circumstances is
urged to consult its own tax advisor as to whether it can obtain
a refund for all or a portion of the withholding tax.
Ownership and Disposition of Shares Received Upon
Conversion.
The tax consequences of owning and
disposing of common shares received upon conversion of the notes
are described below under Taxation of
Non-U.S. Shareholders.
Information Reporting and Backup
Withholding.
Generally, information returns will
be filed with the IRS in connection with payments of interest on
the notes and proceeds from the sale or other taxable
disposition (including a retirement or redemption) of the notes.
Copies of applicable information returns reporting such payments
and any withholding may also be made available to the tax
authorities in the country in which you reside under the
provisions of an applicable treaty or agreement.
You may be subject to backup withholding of tax (currently at a
rate of 28%, but which rate is scheduled to increase to 31% for
taxable years beginning on or after January 1,
2011) on payments of interest and, depending on the
circumstances, the proceeds of a sale or other taxable
disposition (including a retirement or redemption) unless you
comply with certain certification procedures to establish that
you are not a U.S. person. The certification procedures
required to claim an exemption from withholding of tax on
interest described above generally will satisfy the
certification requirements necessary to avoid backup withholding
as well. Backup withholding is not an additional tax. The amount
of any backup withholding from a payment to you will be allowed
as a credit against your U.S. federal income tax liability
and may entitle you to a refund, provided that the required
information is timely furnished to the IRS.
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
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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, 2009, 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,
2010 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
monitored by Jones Day on a continuing basis. 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 are not being monitored
by Jones Day on a continuing basis. Accordingly, no assurance
can be given that our actual results of operation 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,
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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.
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 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 shares. These restrictions are
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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 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 which is a
partner in a partnership or a member in a limited liability
company treated as a partnership for 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 (including the income
and asset tests described below).
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 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).
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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
capital stock, 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 stock possessing more than 50% of the voting power
or more than 50% of the total value of outstanding stock 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
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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. We may invest
from time to time in mortgage debt and mezzanine loans when we
believe the investment will allow us to acquire control of the
underlying property. Interest on debt secured by a mortgage on
real property or on interests in real property generally is
qualifying income for purposes of the 75% gross income test.
However, if a loan is secured by real property and other
property and the highest principal amount of a loan outstanding
during a taxable year exceeds the fair market value of the real
property securing the loan as of the date the REIT agreed to
originate or acquire the loan, a portion of the interest income
from such loan will not be qualifying income for purposes of the
75% gross income test, but will be qualifying income for
purposes of the 95% gross income test. The portion of the
interest income that will not be qualifying income for purposes
of the 75% gross income test will be equal to the interest
income attributable to the portion of the principal amount of
the loan that is not secured by real property that
is, the amount by which the loan exceeds the value of the real
estate that is security for the loan. Mezzanine loans are loans
secured by equity interests in an entity that directly or
indirectly owns real property, rather than by a direct mortgage
of the real property. IRS Revenue Procedure
2003-65
provides a safe harbor pursuant to which a mezzanine loan, if it
meets each of the requirements contained in the Revenue
Procedure, will be treated by the IRS as a real estate asset for
purposes of the REIT asset tests described below, and interest
derived from it will be treated as qualifying mortgage interest
for purposes of the 75% gross income test. Although the Revenue
Procedure provides a safe harbor on which taxpayers may rely, it
does not prescribe rules of substantive tax law. Moreover, we
anticipate that the mezzanine loans we may acquire typically
will not meet all of the requirements for reliance on this safe
harbor. We intend to invest in mezzanine loans in a manner that
will enable us to continue to satisfy the gross income and asset
tests.
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.
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:
(i) 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
(ii) our failure to meet these tests was due to reasonable
cause and not due to willful neglect.
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
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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 other than foreclosure
property held primarily for sale to customers in the ordinary
course of business 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 shares (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 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 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.
We believe that our holdings of securities and other assets will
comply with the foregoing REIT asset requirements, and we intend
to monitor compliance on an ongoing basis. Certain mezzanine
loans we make or acquire may qualify for the safe harbor in
Revenue Procedure
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(discussed above) pursuant to which certain loans secured by a
first priority security interest in ownership interests in a
partnership, including an entity classified as a partnership for
federal income tax purposes, such as a limited liability
company, or an entity classified as a disregarded entity for
federal income tax purposes will be treated as qualifying real
estate assets for purposes of the 75% asset test. We may make
some mezzanine loans that do not qualify for that safe harbor.
We intend to make such investments in such a manner so as not to
fail the asset tests described above.
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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 the sum of 90% of
our REIT taxable income (computed without regard to
the dividends paid deduction and our net capital gain) and 90%
of our net income (after tax), if any, from foreclosure
property; minus the excess of 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
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
shareholders of the class of stock to which a distribution is
made must be treated the same as every other shareholders of
that class, and no class of stock 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
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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. Additionally, the IRS has recently
issued a revenue procedure in which it provided that certain
stock distributions declared by a publicly-traded REIT with
respect to a taxable year ending on or before December 31,
2011 may qualify as dividends for purposes of the
distribution requirements so long as shareholders are given the
choice of receiving stock or cash distributions, the aggregate
amount of cash distributions are not limited to less than 10% of
the aggregate distribution, and certain other requirements are
satisfied.
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 under Retention of Net
Long-Term Capital Gains 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.
We intend to make timely distributions to satisfy the annual
distribution requirements.
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).
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.
Taxation
of Taxable U.S. Shareholders
The following summary describes certain U.S. federal income
tax consequences to taxable U.S. Shareholders 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 holder of shares who, for United States federal income tax
purposes:
(i) is a citizen or resident of the United States;
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(ii) is a corporation or other entity classified as a
corporation for United States 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;
(iii) is an estate the income of which is subject to United
States federal income taxation regardless of its source; or
(iv) is a trust whose administration is subject to the
primary supervision of a United States court and which has one
or more United States 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 United States persons prior to this date
that elect to continue to be treated as United States persons,
shall also be considered U.S. Shareholders.
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 partnership or a partner 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
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 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
(1) to the extent attributable to dividends received by us
from non-REIT corporations, such as a TRS; and (2) 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).
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. Shareholders. This treatment will
reduce the adjusted basis which each U.S. Shareholder has
in his 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 his shares will
be taxable as capital gains (provided that the shares have been
held as a capital asset) and will be taxable as long-term
capital gain if the 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.
Stock Dividends.
The IRS recently issued a
revenue procedure regarding the tax treatment of stock
distributions paid by a REIT. Under that guidance, which
currently applies through the 2011 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 a 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
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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 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 stock 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 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:
(i) 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);
(ii) 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;
(iii) receive a credit or refund for the amount of tax
deemed paid by it;
(iv) increase the adjusted basis of its shares by the
difference between the amount of includable gains and the tax
deemed to have been paid by it; and
(v) 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.
Dispositions of Shares.
Generally, if you are
a U.S. Shareholder and you sell or dispose of your shares,
you will recognize gain or loss for 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 shares
for tax purposes. This gain or loss will be capital if you have
held the shares as a capital asset and will be long-term capital
gain or loss if you have held the 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 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 which 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
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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 (1) a tax-exempt
U.S. shareholder has not held our common stock as
debt financed property within the meaning of the
Code (
i.e.
, where the acquisition or ownership of shares
is financed through a borrowing by the tax-exempt shareholder)
and (2) 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, which generally will require
them to characterize distributions from us as UBTI.
Notwithstanding the above, a pension trust (1) that is
described in Section 401(a) of the Code and is tax-exempt
under Section 501(a) of the Code and (2) that owns
more than 10% of the value of our 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 (1) either (a) one pension trust owns more
than 25% of the value of our shares or (b) a group of
pension trusts, each individually holding more than 10% of the
value of our shares, collectively owns more than 50% of our
shares and (2) 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 shares are owned by five or fewer individuals. We do
not expect to be classified as a pension held REIT,
but because our 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 shares.
Taxation
of
Non-U.S.
Shareholders
The following discussion addresses the rules governing United
States federal income taxation of the ownership and disposition
of shares by persons that
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 United States 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 shares 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
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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 United States
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 United States 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 United States 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 provide us an IRS
Form W-8BEN
evidencing eligibility for that reduced treaty rate; or
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you provide us an IRS
Form W-8ECI
claiming that the distribution is income effectively connected
with your 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 shares.
Instead, the distribution will reduce the adjusted basis of such
shares. To the extent that such distributions exceed your
adjusted basis in our shares, they will give rise to gain from
the sale or exchange of such 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 United States federal income
taxation, unless (1) the investment in our shares is
treated as effectively connected with your United States 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 FIRPTA. The term U.S. real property interests
includes interests in U.S. real property. Under FIRPTA,
subject to the 5% Exception (discussed below), a distribution
attributable to gain from sales of United States 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 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 United States real property interest.
However, any distribution with respect to any class of stock
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% United States withholding tax
described above, if you did not own more than 5% of such class
of stock 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.
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Stock Dividends.
Under a revenue procedure
issued by the IRS regarding the tax treatment of stock
distributions paid by a REIT, which currently applies through
the 2011 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
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
United States 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 Shares.
Gain recognized by a
Non-U.S. Shareholder
upon the sale or exchange of our shares generally will not be
subject to United States taxation unless such shares constitute
a U.S. real property interest. Our 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 stock is 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 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 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
(1) such shares are of a class of our shares that is
regularly traded, as defined by applicable Treasury regulations,
on an established securities market such as the NYSE; and
(2) you owned, actually and constructively, 5% or less in
value of such class of our shares throughout the shorter of the
period during which you held such shares or the five-year period
ending on the date of the sale or exchange.
If gain on the sale or exchange of our shares were subject to
taxation under FIRPTA, you would be subject to regular United
States 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 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 shares not otherwise subject to FIRPTA will be taxable to
you if either (1) the investment in our shares is
effectively connected with your United States trade or business
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.
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
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. Holder
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.
S-59
Recent
Legislation
Recently enacted legislation regarding foreign account tax
compliance, effective for payments made after December 31,
2012, imposes a withholding tax of 30% on dividend payments and
the payment of gross proceeds from the disposition of our common
shares paid to certain foreign financial institutions,
investment funds and other
non-U.S. persons
unless various information reporting and certain other
requirements are satisfied. Prospective investors should consult
their own tax advisors regarding the possible implications of
this recently enacted legislation on their investment in our
common shares.
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.
Medicare
Tax
Recently enacted health care legislation, effective for taxable
years beginning after December 31, 2012, imposes a new 3.8%
Medicare tax on certain U.S. Holders who are individuals,
estates or trusts and whose income exceeds certain thresholds.
This new tax will apply to interest on, and gain from the
disposition of, the notes as well as dividends paid with respect
to, and any gain from the disposition of, our common shares.
Prospective investors are encouraged to consult their own tax
advisors regarding the possible implications of this recently
enacted legislation on their investment in the notes.
S-60
CERTAIN
ERISA CONSIDERATIONS
The following summary regarding certain aspects of the
U.S. Employee Retirement Income Security Act of 1974, as
amended (ERISA), and the Code is based on ERISA and
the Code, judicial decisions and U.S. Department of Labor
and IRS regulations and rulings that are in existence on the
date of this prospectus supplement. This summary is general in
nature and does not address every issue pertaining to ERISA that
may be applicable to us, the notes or a particular investor.
Accordingly, each prospective investor should consult with his,
her or its own counsel in order to understand the ERISA-related
issues that affect or may affect the investor with respect to
this investment.
ERISA and the Code impose certain requirements on employee
benefit plans that are subject to Title I of ERISA and
plans subject to Section 4975 of the Code (each such
employee benefit plan or plan, a Plan) and on those
persons who are fiduciaries with respect to Plans.
In considering an investment of the assets of a Plan subject to
Title I of ERISA in the notes, a fiduciary must, among
other things, discharge its duties solely in the interest of the
participants of such Plan and their beneficiaries and for the
exclusive purpose of providing benefits to such participants and
beneficiaries and defraying reasonable expenses of administering
the Plan. A fiduciary must act prudently and must diversify the
investments of a Plan subject to Title I of ERISA so as to
minimize the risk of large losses, as well as discharge its
duties in accordance with the documents and instruments
governing such Plan. In addition, ERISA generally requires
fiduciaries to hold all assets of a Plan subject to Title I
of ERISA in trust and to maintain the indicia of ownership of
such assets within the jurisdiction of the district courts of
the United States. A fiduciary of a Plan subject to Title I
of ERISA should consider whether an investment in the notes
satisfies these requirements.
An investor who is considering acquiring the notes with the
assets of a Plan must consider whether the acquisition and
holding of the notes will constitute or result in a non-exempt
prohibited transaction. Section 406(a) of ERISA and
Sections 4975(c)(1)(A), (B), (C) and (D) of the
Code prohibit certain transactions that involve a Plan and a
party in interest as defined in Section 3(14)
of ERISA or a disqualified person as defined in
Section 4975(e)(2) of the Code with respect to such Plan.
Examples of such prohibited transactions include, but are not
limited to, sales or exchanges of property (such as the notes)
or extensions of credit between a Plan and a party in interest
or disqualified person. Section 406(b) of ERISA and
Sections 4975(c)(1)(E) and (F) of the Code generally
prohibit a fiduciary with respect to a Plan from dealing with
the assets of the Plan for its own benefit (for example when a
fiduciary of a Plan uses its position to cause the Plan to make
investments in connection with which the fiduciary (or a party
related to the fiduciary) receives a fee or other consideration).
ERISA and the Code contain certain exemptions from the
prohibited transactions described above, and the Department of
Labor has issued several exemptions, although certain exemptions
do not provide relief from the prohibitions on self-dealing
contained in Section 406(b) of ERISA and
Sections 4975(c)(1)(E) and (F) of the Code. Exemptions
include Section 408(b)(17) of ERISA and
Section 4975(d)(20) of the Code pertaining to certain
transactions with non-fiduciary service providers; Department of
Labor Prohibited Transaction Class Exemption (PTCE)
95-60,
applicable to transactions involving insurance company general
accounts;
PTCE 90-1,
regarding investments by insurance company pooled separate
accounts;
PTCE 91-38,
regarding investments by bank collective investment funds;
PTCE 84-14,
regarding investments effected by a qualified professional asset
manager; and
PTCE 96-23,
regarding investments effected by an in-house asset manager.
There can be no assurance that any of these exemptions will be
available with respect to the acquisition of the notes. Under
Section 4975 of the Code, excise taxes are imposed on
disqualified persons who participate in non-exempt prohibited
transactions (other than a fiduciary acting only as such).
As a general rule, a governmental plan, as defined in
Section 3(32) of ERISA (a Governmental Plan), a
church plan, as defined in Section 3(33) of ERISA, that has
not made an election under Section 410(d) of the Code (a
Church Plan) and
non-U.S. plans
are not subject to the requirements of ERISA or
Section 4975 of the Code. Accordingly, assets of such plans
may be invested without regard to the fiduciary and prohibited
transaction considerations described above. Although a
Governmental Plan, a Church Plan or a
non-U.S. plan
is not subject to ERISA or Section 4975 of the Code, it may
be subject to other U.S. federal, state or local laws or
non-U.S. laws
that regulate its investments (a Similar Law). A
fiduciary of a Government Plan, a Church Plan or a
non-U.S. plan
S-61
should make its own determination as to the requirements, if
any, under any Similar Law applicable to the acquisition of the
notes.
The notes may be acquired by a Plan or an entity whose
underlying assets include the assets of a Plan or by a
Governmental Plan, a Church Plan or a
non-U.S. plan,
but only if the acquisition will not result in a non-exempt
prohibited transaction under ERISA or Section 4975 of the
Code or a violation of Similar Law. Therefore, any investor in
the notes will be deemed to represent and warrant to us and the
trustee that (1)(a) it is not (i) a Plan, (ii) an
entity whose underlying assets include the assets of a Plan,
(iii) a Governmental Plan, (iv) a Church Plan or
(v) a
non-U.S. plan,
(b) it is a Plan or an entity whose underlying assets
include the assets of a Plan and the acquisition and holding of
the notes will not result in a non-exempt prohibited transaction
under Section 406 of ERISA or Section 4975 of the
Code, or (c) it is a Governmental Plan, a Church Plan or a
non-U.S. plan
that is not subject to (i) ERISA,
(ii) Section 4975 of the Code or (iii) any
Similar Law that prohibits or taxes (in terms of an excise or
penalty tax) the acquisition or holding of the notes; and
(2) it will notify us and the trustee immediately if, at
any time, it is no longer able to make the representations
contained in clause (1) above. Any purported transfer of
the notes to a transferee that does not comply with the
foregoing requirements shall be null and void ab initio.
This offer is not a representation by us or the underwriters
that an acquisition of the notes meets all legal requirements
applicable to investments by Plans, entities whose underlying
assets include assets of a Plan, Governmental Plans, Church
Plans or
non-U.S. plans
or that such an investment is appropriate for any particular
Plan, entities whose underlying assets include assets of a Plan,
Governmental Plan, Church Plan or
non-U.S. plan.
S-62
UNDERWRITING
We intend to offer the notes through the underwriters. J.P.
Morgan Securities LLC, Goldman, Sachs & Co., Deutsche
Bank Securities Inc. and UBS Securities LLC are acting as the
representatives of the underwriters named below. Subject to the
terms and conditions contained in an underwriting agreement
among us and the underwriters, we have agreed to sell to the
underwriters, and the underwriters severally have agreed to
purchase from us, the principal amount of the notes listed
opposite their names below.
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Principal Amount
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Underwriter
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of Notes
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J.P. Morgan Securities LLC
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$
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57,950,000
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Goldman, Sachs & Co.
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57,950,000
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Deutsche Bank Securities Inc.
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51,850,000
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UBS Securities LLC
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51,850,000
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KeyBanc Capital Markets Inc.
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15,250,000
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RBC Capital Markets Corporation
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15,250,000
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Scotia Capital (USA) Inc.
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15,250,000
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U.S. Bancorp Investments, Inc.
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15,250,000
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Daiwa Capital Markets America Inc.
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6,100,000
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FBR Capital Markets & Co.
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6,100,000
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ING Financial Markets LLC
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6,100,000
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RBS Securities Inc.
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6,100,000
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Total
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$
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305,000,000
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The underwriters have agreed to purchase all of the notes sold
pursuant to the underwriting agreement if any of these notes are
purchased. If an underwriter defaults, the underwriting
agreement provides that the purchase commitments of the
non-defaulting underwriters may be increased or the underwriting
agreement may be terminated.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to
make in respect of those liabilities.
The underwriters are offering the notes, subject to prior sale,
when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the
validity of the notes, and other conditions contained in the
underwriting agreement, such as the receipt by the underwriters
of officers certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
Commissions
and Discounts
The underwriters have advised us that they propose to initially
offer the notes at a price of 100% of the principal amount of
the notes, plus accrued interest, if any, from the original
issue date of the notes, and to dealers at that price less a
concession not in excess of 1.2% of the principal amount of the
notes, plus accrued interest, if any, from the original issue
date of the notes. After the initial public offering, the public
offering price, concession and discount may be changed.
The following table shows the public offering price,
underwriting discount and proceeds before expenses to us. The
information assumes either no exercise or full exercise by the
underwriters of their over-allotment option.
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Per Note
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Without Option
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With Option
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Public offering price
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$
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1,000
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$
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305,000,000
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$
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350,000,000
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Underwriting discount
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$
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20
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$
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6,100,000
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$
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7,000,000
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Proceeds, before expenses, to us
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$
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980
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$
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298,900,000
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$
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343,000,000
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The expenses of this offering, not including the underwriting
discount, are estimated to be approximately $345,000 and
are payable by us.
S-63
Over-Allotment
Option
We have granted an option to the underwriters to purchase up to
an additional $45,000,000 principal amount of the notes at the
public offering price less the underwriting discount, plus
accrued interest, if any, from the original issue date of the
notes. The underwriters may exercise this option within the
30-day
period beginning on the date of this prospectus supplement
solely to cover any over-allotments. If the underwriters
exercise this option, each will be obligated, subject to
conditions contained in the underwriting agreement, to purchase
a number of additional notes proportionate to that
underwriters initial amount reflected in the above table.
New Issue
of Notes
The notes are a new issue of securities with no established
trading market. We do not intend to apply for listing of the
notes on any national securities exchange or for inclusion of
the notes on any automated dealer quotation system. We have been
advised by the underwriters that they presently intend to make a
market in the notes after completion of this offering. However,
they are under no obligation to do so and may discontinue any
market-making activities at any time without any notice. We
cannot assure the liquidity of the trading market for the notes
or that an active public market for the notes will develop. If
an active public trading market for the notes does not develop,
the market price and liquidity of the notes may be adversely
affected. If the notes are traded, they may trade at a discount
from their initial public offering price, depending on
prevailing interest rates, the market for similar securities,
our performance and other factors.
No Sales
of Similar Securities
We have agreed that, for a period of 60 days from the date
of this prospectus supplement, and our directors and executive
officers have agreed that, for a period of 45 days from the
date of this prospectus supplement, and subject to certain
exceptions (including sales of common shares by our directors
and executive officers to satisfy tax obligations in connection
with the granting or vesting of equity awards acquired pursuant
to one or more of our equity incentive plans and sales by Scott
A. Wolstein, our Executive Chairman of the Board, pursuant to
his existing 10b5-1 plan), we and they will not, without the
prior written consent of J.P. Morgan Securities LLC and
Goldman, Sachs & Co., offer, sell, contract to sell,
pledge, grant any option to purchase, make any short sale or
otherwise dispose of any of our common shares, or any options or
warrants to purchase any of our common shares, or any securities
convertible into, exchangeable for or that represent the right
to receive our common shares. In the event that either
(x) during the last 17 days of this restricted period,
we issue an earnings release or a press release announcing a
significant event or (y) prior to the expiration of this
restricted period, we announce that we will release earnings
results or a press release announcing a significant event during
the
17-day
period beginning on the last day of the restricted period, the
restrictions described under this caption shall continue to
apply until the expiration of the
17-day
period beginning on the first day following the date of the
earnings release or press release. However, such extension will
not apply if, within three business days prior to the 15th
calendar day before the last day of the restricted period, we
deliver a certificate signed by our Chief Executive Officer or
Chief Financial Officer, certifying that our common shares are
actively traded securities as defined in
Regulation M.
None of our significant shareholders have agreed, in connection
with this offering, to any limitation on their ability to sell
or otherwise dispose of common shares owned or held by them.
Price
Stabilization and Short Positions
In connection with this offering, the underwriters are permitted
to engage in transactions that stabilize the market price of the
notes. Such transactions consist of bids or purchases to peg,
fix or maintain the price of the notes.
If the underwriters create a short position in the notes in
connection with this offering, i.e., if they sell more notes
than are on the cover page of this prospectus supplement, the
underwriters may reduce that short position by purchasing notes
in the open market. The underwriters may also elect to reduce
any short position by exercising all or part of the
over-allotment option described above. Purchases of the notes to
stabilize the price or to reduce a short position could cause
the price of the notes to be higher than it might be in the
absence of such purchases.
S-64
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because a
representative has repurchased notes sold by or for the account
of such underwriter in stabilizing or short covering
transactions.
Neither we nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the notes or our common shares. In addition, neither we nor any
of the underwriters makes any representation that the
underwriters will engage in these transactions or that these
transactions, once commenced, will not be discontinued without
notice. These transactions may be effected in the
over-the-counter
market or otherwise.
Electronic
Offer, Sale and Distribution of Securities
In connection with this offering, the underwriters or securities
dealers may distribute this prospectus supplement and the
accompanying prospectus by electronic means, such as
e-mail.
In
addition, the underwriters will be facilitating Internet
distribution for this offering to certain of their Internet
subscription customers. The underwriters intend to allocate a
limited number of notes for sale to their online brokerage
customers. An electronic prospectus supplement and accompanying
prospectus is available on the Internet web sites maintained by
the underwriters. Other than the prospectus supplement and
accompanying prospectus in electronic format, the information on
the underwriters web sites is not part of this prospectus
supplement or the accompanying prospectus.
Other
Relationships
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment
research, principal investment, hedging, financing and brokerage
activities. The underwriters and their respective affiliates
have in the past provided, and may in the future provide,
investment banking, commercial banking, derivative transactions
and financial advisory services to us and our affiliates in the
ordinary course of business, for which they have received
customary fees and expenses. In the ordinary course of their
various business activities, the underwriters and their
respective affiliates may make or hold a broad array of
investments and actively trade debt and equity securities (or
related derivative securities) and financial instruments
(including bank loans) for their own account and for the
accounts of their customers, and such investment and securities
activities may involve our securities and/or instruments. The
underwriters and their respective affiliates may also make
investment recommendations and/or publish or express independent
research views in respect of such securities or instruments and
may at any time hold, or recommend to clients that they acquire,
long and/or short positions in such securities and instruments.
Certain of the underwriters or their respective affiliates are
lenders under our $950 million unsecured revolving credit
facility. Upon any application of the net proceeds from this
offering to repay amounts under this facility, each of the
foregoing lenders will receive their proportionate share of the
amount being repaid. See Use of Proceeds.
Daiwa Capital Markets America Inc., or DCMA, one of the
underwriters in this offering, has entered into an agreement
with SMBC Securities, Inc., or SMBCSI, pursuant to which SMBCSI
provides certain advisory and/or other services to DCMA,
including services with respect to this offering. In return for
the provision of such services by SMBCSI to DCMA, DCMA will pay
to SMBCSI a mutually agreed-upon fee.
Selling
Restrictions
Other than in the United States, no action has been taken by us
or the underwriters that would permit a public offering of the
securities offered by this prospectus supplement in any
jurisdiction where action for that purpose is required. The
securities offered by this prospectus supplement may not be
offered or sold, directly or indirectly, nor may this prospectus
supplement or any other offering material or advertisements in
connection with the offer and sale of any such securities be
distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable
rules and regulations of that jurisdiction. Persons into whose
possession this prospectus supplement comes are advised to
inform themselves about and to observe any restrictions relating
to the offering and the distribution of this prospectus
supplement. This prospectus supplement does not constitute an
offer
S-65
to sell or a solicitation of an offer to buy any securities
offered by this prospectus supplement in any jurisdiction in
which such an offer or a solicitation is unlawful.
Each of the underwriters may arrange to sell securities offered
hereby in certain jurisdictions outside the United States,
either directly or through affiliates, where they are permitted
to do so.
This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom,
(ii) to investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(iii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons). The
securities are only available to, and any invitation, offer or
agreement to subscribe, purchase or otherwise acquire such
securities will be engaged in only with, relevant persons. Any
person who is not a relevant person should not act or rely on
this document or any of its contents.
In relation to each Member State of the European Economic Area,
the EU plus Iceland, Norway and Liechtenstein, which has
implemented the Prospectus Directive (each, a Relevant
Member State), from and including the date on which the
European Union Prospectus Directive (the EU Prospectus
Directive) is implemented in that Relevant Member State
(the Relevant Implementation Date) an offer of
securities described in this prospectus supplement may not be
made to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the securities which
has been approved by the competent authority in that Relevant
Member State or, where appropriate, approved in another Relevant
Member State and notified to the competent authority in that
Relevant Member State, all in accordance with the EU Prospectus
Directive, except that it may, with effect from and including
the Relevant Implementation Date, make an offer of securities to
the public in that Relevant Member State at any time:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the EU Prospectus Directive) subject to
obtaining the prior consent of the representatives for any such
offer; or
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in any other circumstances which do not require the publication
by the Issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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For the purposes of this provision, the expression an
offer of securities to the public in relation to any
securities in any Relevant Member State means the communication
in any form and by any means of sufficient information on the
terms of the offer and the securities to be offered so as to
enable an investor to decide to purchase or subscribe for the
securities, as the same may be varied in that Member State by
any measure implementing the EU Prospectus Directive in that
Member State and the expression EU Prospectus Directive means
Directive
2003/71/EC
and includes any relevant implementing measure in each Relevant
Member State.
This prospectus supplement, as well as any other material
relating to the notes which are the subject of the offering
contemplated by this prospectus supplement, do not constitute an
issue prospectus pursuant to Article 652a of the Swiss Code
of Obligations. The notes will not be listed on the SWX Swiss
Exchange and, therefore, the documents relating to the notes,
including, but not limited to, this prospectus supplement and
the accompanying prospectus, do not claim to comply with the
disclosure standards of the listing rules of SWX Swiss Exchange
and corresponding prospectus schemes annexed to the listing
rules of the SWX Swiss Exchange. The notes are being offered in
Switzerland by way of a private placement, that is to a small
number of selected investors only, without any public offer and
only to investors who do not purchase the notes with the
intention to distribute them to the public. The investors will
be individually approached by us from time to time. This
prospectus supplement and the accompanying prospectus, as well
as any other material relating to the notes, are personal and
confidential and does not constitute an offer to any other
person. This prospectus supplement and the accompanying
prospectus may only be used by those investors to whom it has
been handed out in connection with the offering described herein
and may neither directly nor indirectly be distributed or made
available to other persons without our express consent. It may
S-66
not be used in connection with any other offer and shall in
particular not be copied
and/or
distributed to the public in (or from) Switzerland.
This prospectus supplement and the accompanying prospectus
relate to an exempt offer in accordance with the Offered
Securities Rules of the Dubai Financial Services Authority. This
prospectus supplement and the accompanying prospectus are
intended for distribution only to persons of a type specified in
those rules. It must not be delivered to, or relied on by, any
other person. The Dubai Financial Services Authority has no
responsibility for reviewing or verifying any documents in
connection with exempt offers. The Dubai Financial Services
Authority has not approved this prospectus supplement or the
accompanying prospectus nor taken steps to verify the
information set out in them, and has no responsibility for them.
The notes which are the subject of the offering contemplated by
this prospectus supplement and the accompanying prospectus may
be illiquid
and/or
subject to restrictions on their resale. Prospective purchasers
of the notes offered should conduct their own due diligence on
the notes. If you do not understand the contents of this
prospectus supplement you should consult an authorized financial
adviser.
S-67
LEGAL
MATTERS
The validity of the notes offered hereby will be passed upon for
us by Jones Day. Certain legal matters with respect to the notes
will be passed upon for the underwriters by Sidley Austin LLP.
EXPERTS
The financial statements 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
for the year ended December 31, 2009, have been so
incorporated in reliance on the report of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, given on
the authority of said firm as experts in auditing and accounting.
S-68
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
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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
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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
14
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
16
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
18
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.
19
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.
24
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.
26
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.
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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.
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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.
31
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.
42
$305,000,000
Developers Diversified Realty
Corporation
1.75% Convertible Senior
Notes due 2040
PROSPECTUS SUPPLEMENT
Joint Book-Running Managers
J.P. Morgan
Goldman, Sachs &
Co.
Deutsche Bank
Securities
UBS Investment Bank
Senior Co-Managers
KeyBanc Capital Markets
RBC Capital Markets
Scotia Capital
U.S. Bancorp Investments, Inc.
Co-Managers
Daiwa Capital Markets
FBR Capital Markets
ING
RBS
November 1, 2010
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