UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2009
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number
1-11690
DEVELOPERS DIVERSIFIED REALTY CORPORATION
(Exact name of registrant as specified in its charter)
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Ohio
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34-1723097
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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3300 Enterprise Parkway, Beachwood, Ohio 44122
(Address of principal executive offices zip code)
(216) 755-5500
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act) Yes
o
No
þ
As of August 3, 2009, the registrant had 161,349,653 outstanding common shares, $0.10 par
value.
PART I
FINANCIAL INFORMATION
- 2 -
DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
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December 31, 2008
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June 30, 2009
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(As Adjusted)
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Assets
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Real estate rental property:
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Land
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$
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2,013,216
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$
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2,073,947
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Buildings
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5,623,674
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5,890,332
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Fixtures and tenant improvements
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270,353
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262,809
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7,907,243
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8,227,088
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Less: Accumulated depreciation
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(1,282,375
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)
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(1,208,903
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)
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6,624,868
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7,018,185
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Construction in progress and land under development
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908,121
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882,478
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Real estate held for sale
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51,781
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7,584,770
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7,900,663
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Investments in and advances to joint ventures
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560,112
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583,767
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Cash and cash equivalents
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28,745
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29,494
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Restricted cash
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112,802
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111,792
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Notes receivable
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74,691
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75,781
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Deferred charges, net
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23,182
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25,579
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Other assets, net
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267,688
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293,146
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$
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8,651,990
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$
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9,020,222
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Liabilities and Equity
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Unsecured indebtedness:
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Senior notes
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$
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1,821,209
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$
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2,402,032
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Revolving credit facilities
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1,169,503
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1,027,183
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2,990,712
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3,429,215
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Secured indebtedness:
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Term debt
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800,000
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800,000
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Mortgage and other secured indebtedness
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1,773,990
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1,637,440
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2,573,990
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2,437,440
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Total indebtedness
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5,564,702
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5,866,655
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Accounts payable and accrued expenses
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143,298
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169,014
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Dividends payable
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37,703
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6,967
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Other liabilities
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137,341
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112,165
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5,883,044
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6,154,801
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Redeemable operating partnership units
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627
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627
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Commitments and contingencies
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Developers Diversified Realty Corporation equity:
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Class G 8.0% cumulative redeemable preferred
shares, without par value, $250 liquidation value;
750,000 shares authorized; 720,000 shares issued
and outstanding at June 30, 2009 and December 31,
2008, respectively
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180,000
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180,000
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Class H 7.375% cumulative redeemable preferred
shares, without par value, $500 liquidation value;
750,000 shares authorized; 410,000 shares issued
and outstanding at June 30, 2009 and December 31,
2008, respectively
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205,000
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205,000
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Class I 7.5% cumulative redeemable preferred
shares, without par value, $500 liquidation value;
750,000 shares authorized; 340,000 shares issued
and outstanding at June 30, 2009 and December 31,
2008, respectively
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170,000
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170,000
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Common shares, $0.10 par value; 300,000,000 shares
authorized; 153,845,024 and 128,642,765 shares
issued at June 30, 2009 and December 31, 2008,
respectively
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15,385
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12,864
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Paid-in-capital
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2,973,140
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2,849,364
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Accumulated distributions in excess of net income
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(852,168
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)
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(635,239
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)
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Deferred compensation obligation
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15,045
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13,882
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Accumulated other comprehensive loss
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(24,645
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)
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(49,849
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)
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Less: Common shares in treasury at cost: 451,092
and 224,063 shares at June 30, 2009 and December
31, 2008, respectively
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(9,660
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)
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(8,731
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)
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Total DDR
shareholders equity
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2,672,097
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2,737,291
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Non-controlling interests
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96,222
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127,503
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Total equity
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2,768,319
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2,864,794
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$
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8,651,990
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$
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9,020,222
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED JUNE 30,
(Dollars in thousands, except per share amounts)
(Unaudited)
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2008
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2009
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(As Adjusted)
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Revenues from operations:
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Minimum rents
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$
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137,696
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$
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151,743
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Percentage and overage rents
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1,038
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|
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1,145
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Recoveries from tenants
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|
44,829
|
|
|
|
46,162
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Ancillary and other property income
|
|
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4,974
|
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|
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6,256
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Management fees, development fees and other fee income
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|
|
14,040
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|
|
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15,637
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Other
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1,732
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1,691
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|
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|
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204,309
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222,634
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Rental operation expenses:
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Operating and maintenance
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35,292
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33,373
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Real estate taxes
|
|
|
27,671
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|
|
|
26,884
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Impairment charges
|
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|
107,014
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|
|
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General and administrative
|
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|
28,412
|
|
|
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21,333
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Depreciation and amortization
|
|
|
58,641
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|
|
|
55,886
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|
|
|
|
|
|
|
|
|
|
|
257,030
|
|
|
|
137,476
|
|
|
|
|
|
|
|
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Other income (expense):
|
|
|
|
|
|
|
|
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Interest income
|
|
|
3,228
|
|
|
|
547
|
|
Interest expense
|
|
|
(59,962
|
)
|
|
|
(62,362
|
)
|
Gain on repurchases of senior notes
|
|
|
45,901
|
|
|
|
200
|
|
Loss on equity derivative instruments
|
|
|
(80,025
|
)
|
|
|
|
|
Other expense, net
|
|
|
(6,913
|
)
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
(97,771
|
)
|
|
|
(61,717
|
)
|
|
|
|
|
|
|
|
(Loss) income before equity in net (loss) income of joint ventures, impairment of
joint venture investments, tax expense of taxable REIT subsidiaries
and state franchise
and income taxes, discontinued operations and gain on disposition of real estate, net of tax
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|
(150,492
|
)
|
|
|
23,441
|
|
Equity in net (loss) income of joint ventures
|
|
|
(9,153
|
)
|
|
|
12,555
|
|
Impairment of joint venture investments
|
|
|
(40,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before tax expense of taxable REIT
subsidiaries and state franchise and income taxes,
discontinued operations and gain on disposition of real estate, net of tax
|
|
|
(199,911
|
)
|
|
|
35,996
|
|
Tax expense of taxable REIT
subsidiaries and state franchise and income taxes
|
|
|
(920
|
)
|
|
|
(286
|
)
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(200,831
|
)
|
|
|
35,710
|
|
|
|
|
|
|
|
|
Discontinued operations:
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|
|
|
|
|
|
|
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(Loss) income from discontinued operations
|
|
|
(24,798
|
)
|
|
|
992
|
|
(Loss) gain on disposition of real estate, net of tax
|
|
|
(36,023
|
)
|
|
|
1,078
|
|
|
|
|
|
|
|
|
|
|
|
(60,821
|
)
|
|
|
2,070
|
|
|
|
|
|
|
|
|
(Loss) income before gain on disposition of real estate, net of tax
|
|
|
(261,652
|
)
|
|
|
37,780
|
|
Gain on disposition of real estate, net of tax
|
|
|
648
|
|
|
|
908
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(261,004
|
)
|
|
$
|
38,688
|
|
|
|
|
|
|
|
|
Non-controlling interests:
|
|
|
|
|
|
|
|
|
Loss (income) attributable to non-controlling interests
|
|
|
34,425
|
|
|
|
(2,005
|
)
|
Income attributable to redeemable operating partnership units
|
|
|
(6
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
34,419
|
|
|
|
(2,025
|
)
|
|
|
|
|
|
|
|
Net (loss) income attributable to DDR
|
|
$
|
(226,585
|
)
|
|
$
|
36,663
|
|
|
|
|
|
|
|
|
Preferred dividends
|
|
|
10,567
|
|
|
|
10,567
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to DDR common shareholders
|
|
$
|
(237,152
|
)
|
|
$
|
26,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Per share data:
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|
|
|
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|
|
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Basic earnings per share data:
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to DDR common shareholders
|
|
$
|
(1.22
|
)
|
|
$
|
0.20
|
|
(Loss) income from discontinued operations attributable to DDR common shareholders
|
|
|
(0.42
|
)
|
|
|
0.02
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to DDR common shareholders
|
|
$
|
(1.64
|
)
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
Diluted earnings per share data:
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to DDR common shareholders
|
|
$
|
(1.22
|
)
|
|
$
|
0.20
|
|
(Loss) income from discontinued operations attributable to DDR common shareholders
|
|
|
(0.42
|
)
|
|
|
0.02
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to DDR common shareholders
|
|
$
|
(1.64
|
)
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
0.20
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30,
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
Revenues from operations:
|
|
|
|
|
|
|
|
|
Minimum rents
|
|
$
|
278,692
|
|
|
$
|
303,818
|
|
Percentage and overage rents
|
|
|
3,641
|
|
|
|
3,909
|
|
Recoveries from tenants
|
|
|
92,714
|
|
|
|
97,403
|
|
Ancillary and other property income
|
|
|
10,012
|
|
|
|
10,866
|
|
Management fees, development fees and other fee income
|
|
|
28,502
|
|
|
|
31,924
|
|
Other
|
|
|
4,982
|
|
|
|
4,728
|
|
|
|
|
|
|
|
|
|
|
|
418,543
|
|
|
|
452,648
|
|
|
|
|
|
|
|
|
Rental operation expenses:
|
|
|
|
|
|
|
|
|
Operating and maintenance
|
|
|
70,805
|
|
|
|
68,289
|
|
Real estate taxes
|
|
|
56,112
|
|
|
|
53,205
|
|
Impairment charges
|
|
|
117,919
|
|
|
|
|
|
General and administrative
|
|
|
47,583
|
|
|
|
42,047
|
|
Depreciation and amortization
|
|
|
119,900
|
|
|
|
109,669
|
|
|
|
|
|
|
|
|
|
|
|
412,319
|
|
|
|
273,210
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
6,257
|
|
|
|
1,115
|
|
Interest expense
|
|
|
(119,219
|
)
|
|
|
(125,612
|
)
|
Gain on repurchases of senior notes
|
|
|
118,479
|
|
|
|
200
|
|
Loss on equity derivative instruments
|
|
|
(80,025
|
)
|
|
|
|
|
Other expense, net
|
|
|
(10,575
|
)
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
(85,083
|
)
|
|
|
(124,897
|
)
|
|
|
|
|
|
|
|
(Loss) income before equity in net (loss) income of joint ventures, impairment of
joint venture investments, tax benefit (expense) of taxable REIT subsidiaries and
state franchise and income taxes, discontinued operations and gain on disposition of real estate, net
of tax
|
|
|
(78,859
|
)
|
|
|
54,541
|
|
Equity in net (loss) income of joint ventures
|
|
|
(8,801
|
)
|
|
|
19,943
|
|
Impairment of joint venture investments
|
|
|
(41,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before tax benefit (expense) of taxable REIT
subsidiaries and state franchise
and income taxes, discontinued operations and gain on disposition of real estate, net of tax
|
|
|
(128,800
|
)
|
|
|
74,484
|
|
Tax benefit (expense) of taxable REIT
subsidiaries and state franchise and income taxes
|
|
|
110
|
|
|
|
(1,317
|
)
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(128,690
|
)
|
|
|
73,167
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations
|
|
|
(24,218
|
)
|
|
|
3,891
|
|
(Loss) gain on disposition of real estate, net of tax
|
|
|
(24,416
|
)
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
|
(48,634
|
)
|
|
|
4,777
|
|
|
|
|
|
|
|
|
(Loss) income before gain on disposition of real estate, net of tax
|
|
|
(177,324
|
)
|
|
|
77,944
|
|
Gain on disposition of real estate, net of tax
|
|
|
1,096
|
|
|
|
3,275
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(176,228
|
)
|
|
$
|
81,219
|
|
|
|
|
|
|
|
|
Non-controlling interests:
|
|
|
|
|
|
|
|
|
Loss (income) attributable to non-controlling interests
|
|
|
37,056
|
|
|
|
(4,356
|
)
|
Income attributable to redeemable operating partnership units
|
|
|
(12
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
37,044
|
|
|
|
(4,396
|
)
|
|
|
|
|
|
|
|
Net (loss) income attributable to DDR
|
|
$
|
(139,184
|
)
|
|
$
|
76,823
|
|
|
|
|
|
|
|
|
Preferred dividends
|
|
|
21,134
|
|
|
|
21,134
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to DDR common shareholders
|
|
$
|
(160,318
|
)
|
|
$
|
55,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
Basic earnings per share data:
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to DDR common shareholders
|
|
$
|
(0.82
|
)
|
|
$
|
0.42
|
|
(Loss) income from discontinued operations attributable to DDR common shareholders
|
|
|
(0.36
|
)
|
|
|
0.04
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to DDR common shareholders
|
|
$
|
(1.18
|
)
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
Diluted earnings per share data:
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to DDR common shareholders
|
|
$
|
(0.82
|
)
|
|
$
|
0.42
|
|
(Loss) income from discontinued operations attributable to DDR common shareholders
|
|
|
(0.36
|
)
|
|
|
0.04
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to DDR common shareholders
|
|
$
|
(1.18
|
)
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
0.40
|
|
|
$
|
1.38
|
|
|
|
|
|
|
|
|
- 5 -
DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30,
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
Net cash flow provided by operating activities:
|
|
$
|
139,879
|
|
|
$
|
194,437
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
Real estate developed or acquired, net of liabilities assumed
|
|
|
(113,647
|
)
|
|
|
(220,740
|
)
|
Equity contributions to joint ventures
|
|
|
(8,915
|
)
|
|
|
(43,889
|
)
|
(Issuance) repayment of joint venture advances, net
|
|
|
(5,561
|
)
|
|
|
1,544
|
|
Proceeds from sale and refinancing of joint venture interests
|
|
|
158
|
|
|
|
736
|
|
Return of investments in joint ventures
|
|
|
10,207
|
|
|
|
14,873
|
|
Issuance of notes receivable, net
|
|
|
(4,316
|
)
|
|
|
(12,766
|
)
|
(Increase) decrease in restricted cash
|
|
|
(1,011
|
)
|
|
|
9,779
|
|
Proceeds from disposition of real estate
|
|
|
138,167
|
|
|
|
22,897
|
|
|
|
|
|
|
|
|
Net cash flow provided by (used for) investing activities
|
|
|
15,082
|
|
|
|
(227,566
|
)
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facilities, net
|
|
|
135,952
|
|
|
|
165,976
|
|
Repayment of senior notes
|
|
|
(456,918
|
)
|
|
|
(103,425
|
)
|
Proceeds from mortgage and other secured debt
|
|
|
319,389
|
|
|
|
408,708
|
|
Principal payments on mortgage debt
|
|
|
(182,839
|
)
|
|
|
(253,992
|
)
|
Payment of deferred finance costs
|
|
|
(2,783
|
)
|
|
|
(4,307
|
)
|
Proceeds from issuance of common shares, net of issuance
costs of $524
|
|
|
52,966
|
|
|
|
|
|
(Payment) proceeds from issuance of common shares in
conjunction with the exercise of stock options and dividend
reinvestment plan
|
|
|
(1,046
|
)
|
|
|
994
|
|
Redemption of redeemable operating partnership units
|
|
|
|
|
|
|
(46
|
)
|
Contributions from non-controlling interests
|
|
|
5,504
|
|
|
|
4,548
|
|
Return of investment non-controlling interest
|
|
|
(850
|
)
|
|
|
(5,341
|
)
|
Distributions to redeemable operating partnership units
|
|
|
(80
|
)
|
|
|
(1,175
|
)
|
Dividends paid
|
|
|
(23,914
|
)
|
|
|
(182,658
|
)
|
|
|
|
|
|
|
|
Net cash flow (used for) provided by financing activities
|
|
|
(154,619
|
)
|
|
|
29,282
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
883
|
|
|
|
(3,847
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,091
|
)
|
|
|
2,147
|
|
Cash and cash equivalents, beginning of period
|
|
|
29,494
|
|
|
|
49,547
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
28,745
|
|
|
$
|
47,847
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
At June 30, 2009, other liabilities included approximately $21.5 million, which represents the
fair value of the Companys interest rate swaps. At June 30, 2009, dividends payable were $37.7
million of which $3.1 million will be paid in cash in July 2009. The foregoing transactions did
not provide for or require the use of cash for the six-month period ended June 30, 2009.
For the six-month period ended June 30, 2008, non-controlling interests with a book value of
approximately $14.3 million were converted into approximately 0.5 million common shares of the
Company. In addition, the Company received a note receivable of $9.1 million in connection with the
sale of one asset in June 2008. Other liabilities included approximately $18.3 million, which
represented the fair value of the Companys interest rate swaps. At June 30, 2008, dividends
payable were $90.0 million. In 2008, in accordance with the terms of the outperformance unit
plans, the Company issued 107,879 of its common shares. The foregoing transactions did not provide
for or require the use of cash for the six-month period ended June 30, 2008.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 6 -
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Notes to Condensed Consolidated Financial Statements
1. NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION
Developers Diversified Realty Corporation and its related real estate joint ventures and
subsidiaries (collectively, the Company or DDR) owns, manages and develops an international
portfolio of shopping centers.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Unaudited Interim Financial Statements
These financial statements have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial information and the applicable rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, the interim financial statements
include all adjustments, consisting of only normal recurring adjustments, necessary for a fair
statement of the results of the periods presented. The results of operations for the three- and
six-month periods ended June 30, 2009 and 2008, are not necessarily indicative of the results that
may be expected for the full year. These condensed consolidated financial statements should be
read in conjunction with the Companys audited financial statements and notes thereto included in
the Companys Form 10-K for the year ended December 31, 2008.
The Company consolidates certain entities in which it owns less than a 100% equity interest if
the entity is a variable interest entity (VIE), as defined in Financial Accounting Standards
Board (FASB) Interpretation No. 46(R) Consolidation of Variable Interest Entities (FIN
46(R)), and the Company is deemed to be the primary beneficiary in the VIE. The Company also
consolidates certain entities that are not VIEs as defined in FIN 46(R) in which it has effective
control. The Company consolidates one entity pursuant to the provisions of Emerging Issues Task
Force (EITF) 04-05, Investors Accounting for an Investment in a Limited Partnership When the
Investor Is the Sole General Partner and the Limited Partners Have Certain Rights. The equity
method of accounting is applied to entities in which the Company is not the primary beneficiary as
defined by FIN 46(R), or does not have effective control, but can exercise significant influence
over the entity with respect to its operations and major decisions.
- 7 -
Comprehensive (Loss) / Income
Comprehensive (loss) / income is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
Six-Month Periods
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
2008
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
2009
|
|
|
(As Adjusted)
|
|
Net (loss) income
|
|
$
|
(261,004
|
)
|
|
$
|
38,688
|
|
|
$
|
(176,228
|
)
|
|
$
|
81,219
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest-rate
contracts
|
|
|
(1,501
|
)
|
|
|
16,935
|
|
|
|
3,222
|
|
|
|
(4,504
|
)
|
Amortization of interest-rate contracts
|
|
|
(93
|
)
|
|
|
(93
|
)
|
|
|
(186
|
)
|
|
|
(457
|
)
|
Foreign currency translation
|
|
|
16,516
|
|
|
|
14,724
|
|
|
|
22,168
|
|
|
|
18,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
14,922
|
|
|
|
31,566
|
|
|
|
25,204
|
|
|
|
13,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$
|
(246,082
|
)
|
|
$
|
70,254
|
|
|
$
|
(151,024
|
)
|
|
$
|
95,086
|
|
Comprehensive (loss) income attributable
to non-controlling interests
|
|
|
2,586
|
|
|
|
1,276
|
|
|
|
1,268
|
|
|
|
1,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$
|
(243,496
|
)
|
|
$
|
71,530
|
|
|
$
|
(149,756
|
)
|
|
$
|
96,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Accounting Standards Implemented
Business Combinations SFAS 141(R)
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement No. 141
(revised 2007), Business Combinations (SFAS 141(R)). The objective of this statement is to
improve the relevance, representative faithfulness and comparability of the information that a
reporting entity provides in its financial reports about a business combination and its effects. To
accomplish that, this statement establishes principles and requirements for how the acquirer: (i)
recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest of the acquiree, (ii) recognizes and measures
the goodwill acquired in the business combination or a gain from a bargain purchase and (iii)
determines what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. This statement applies prospectively to
business combinations for which the acquisition date is on or after the first annual reporting
period beginning on or after December 15, 2008. Early adoption was not permitted. The Company
adopted SFAS 141(R) on January 1, 2009. To the extent that the Company enters into acquisitions
that qualify as businesses, this standard will require that acquisition costs and certain fees,
which were previously capitalized and allocated to the basis of the acquired assets, be expensed as
these costs are incurred. Because of this change in accounting for costs, the Company expects that
the adoption of this standard could have a negative impact on the Companys results of operations
depending on the size of a transaction and the amount of costs incurred. The Company will assess
the impact of significant transactions, if any, as they are contemplated.
- 8 -
Non-Controlling Interests in Consolidated Financial Statements an Amendment of ARB No. 51
SFAS 160
In December 2007, the FASB issued Statement No. 160, Non-Controlling Interest in Consolidated
Financial Statements an Amendment of ARB No. 51 (SFAS 160). A non-controlling interest,
sometimes referred to as minority equity interest, is the portion of equity in a subsidiary not
attributable, directly or indirectly, to a parent. The objective of this statement is to improve
the relevance, comparability, and transparency of the financial information that a reporting entity
provides in its consolidated financial statements by establishing accounting and reporting
standards that require: (i) the ownership interest in subsidiaries held by other parties other than
the parent be clearly identified, labeled, and presented in the consolidated statement of financial
position within equity, but separate from the parents equity; (ii) the amount of consolidated net
income attributable to the parent and to the non-controlling interest be clearly identified and
presented on the face of the consolidated statement of operations; (iii) changes in a parents
ownership interest while the parent retains its controlling financial interest in a subsidiary be
accounted for consistently and requires that they be accounted for similarly, as equity
transactions; (iv) when a subsidiary is deconsolidated, any retained non-controlling equity
investment in the former subsidiary be initially measured at fair value (the gain or loss on the
deconsolidation of the subsidiary is measured using the fair value of any non-controlling equity
investments rather than the carrying amount of that retained investment) and (v) entities provide
sufficient disclosures that clearly identify and distinguish between the interest of the parent and
the interest of the non-controlling owners. This statement was effective for fiscal years, and
interim reporting periods within those fiscal years, beginning on or after December 15, 2008, and
applied on a prospective basis, except for the presentation and disclosure requirements, which have
been applied on a retrospective basis. Early adoption was not permitted. The Company adopted SFAS
160 on January 1, 2009. As required by SFAS 160, the Company adjusted the presentation of
non-controlling interests, as appropriate, in both the condensed consolidated balance sheet as of
December 31, 2008 and the condensed consolidated statements of operations for the three-and
six-month periods ended June 30, 2008. The Companys condensed consolidated balance sheets no
longer have a line item referred to as Minority Interests. Equity at December 31, 2008 was
adjusted to include $127.5 million attributable to non-controlling interests, and the Company
reflected approximately $0.6 million as redeemable operating partnership units. In connection with
the Companys adoption of SFAS 160, the Company also adopted the recent revisions to EITF Topic
D-98, Classification and Measurement of Redeemable Securities (D-98). As a result of the
Companys adoption of these standards, amounts previously reported as minority equity interests and
operating partnership minority interests on the Companys condensed consolidated balance sheets are
now presented as non-controlling interests within equity. There has been no change in the
measurement of these line items from amounts previously reported except due to certain redemption
features, certain operating partnership minority interests in the amount of approximately $0.6
million are reflected as redeemable operating partnership units in the temporary equity section
(between liabilities and equity). These units are exchangeable, at the election of the operating
partnership unit holder, and under certain circumstances at the option of the Company, into an
equivalent number of the Companys common shares or for the equivalent amount of cash. Based on
the requirements of D-98, the measurement of the redeemable operating partnership units are now
presented at the greater of their carrying amount or redemption value at the end of each reporting
period.
- 9 -
Disclosures about Derivative Instruments and Hedging Activities SFAS 161
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instrument and
Hedging Activities (SFAS 161), which is intended to help investors better understand how
derivative instruments and hedging activities affect an entitys financial position, financial
performance and cash flows through enhanced disclosure requirements. The enhanced disclosures
primarily surround disclosing the objectives and strategies for using derivative instruments by
their underlying risk as well as a tabular format of the fair values of the derivative instruments
and their gains and losses. SFAS 161 is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008, with early application encouraged. The
Company adopted the financial statement disclosures required by SFAS 161 in the Companys first
quarter Form on 10-Q.
Subsequent Events SFAS 165
In May 2009, the FASB issued Statement No. 165, Subsequent Events (SFAS 165), which
provides guidance to establish general standards of accounting for and disclosures of events that
occur after the balance sheet date but before financial statements are issued or are available to
be issued. SFAS 165 also requires entities to disclose the date through which subsequent events
were evaluated as well as the rationale for why that date was selected. This disclosure should
alert all users of financial statements that an entity has not evaluated subsequent events after
that date in the set of financial statements being presented. SFAS 165 is effective for interim and
annual periods ending after June 15, 2009. The adoption of SFAS 165 did not have a material impact
on the Companys financial position, results of operations or cash flows. The Company has
evaluated subsequent events through August 6, 2009, the date that the Companys condensed
consolidated financial statements were available to be issued, for this Quarterly Report on Form
10-Q for the quarter ended June 30, 2009.
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including
Partial Cash Settlement) FSP APB 14-1
In May 2008, the FASB issued the FSP, Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1). The FSP
prohibits the classification of convertible debt instruments that may be settled in cash upon
conversion, including partial cash settlement, as debt instruments within the scope of FSP APB 14-1
and requires issuers of such instruments to separately account for the liability and equity
components by allocating the proceeds from the issuance of the instrument between the liability
component and the embedded conversion option (i.e., the equity component). The liability component
of the debt instrument is accreted to par using the effective yield method; accretion is reported
as a component of interest expense. The equity component is not subsequently re-valued as long as
it continues to qualify for equity treatment. FSP APB 14-1 must be applied retrospectively to
issued cash-settleable convertible instruments as well as prospectively to newly issued
instruments. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years.
FSP APB 14-1 was adopted by the Company as of January 1, 2009 with retrospective application
to prior periods. As a result of the adoption, the initial debt proceeds from the
- 10 -
$250 million aggregate principal amount of 3.5% convertible notes, due in 2011, and $600 million
aggregate principal amount of 3.0% convertible notes, due in 2012, were required to be allocated
between a liability component and an equity component. This allocation was based upon what the
assumed interest rate would have been if the Company had issued similar nonconvertible debt.
Accordingly, the Companys condensed consolidated balance sheet at December 31, 2008 was adjusted
to reflect a decrease in unsecured debt of approximately $50.7 million, reflecting the unamortized
discount. In addition, at December 31, 2008, real estate assets increased by $2.9 million relating
to the impact of capitalized interest and deferred charges decreased by $1.0 million relating to
the reallocation of original issuance costs to reflect such amounts as a reduction of proceeds from
the reclassification of the equity component. In connection with, FSP APB 14-1, the
guidance under D-98, was also amended
whereas the equity component related to the convertible debt would need to be evaluated in
accordance with D-98 if the convertible debt were currently redeemable at the balance sheet date.
As the Companys convertible debt is not currently redeemable, no evaluation is required as of June
30, 2009.
For the three- and six-month periods ended June 30, 2008, the Company adjusted the condensed
consolidated statements of operations to reflect additional non-cash interest expense of $3.3
million and $6.5 million, respectively, net of the impact of capitalized interest, pursuant to the
provisions of FSP APB 14-1. The condensed consolidated statements of operations for the three- and
six-month periods ended June 30, 2009, reflects additional non-cash interest expense of $3.3
million and $7.1 million, respectively. In addition, the Companys gain on the repurchase of
unsecured debt during the three- and six-month periods ended June 30, 2009 was reduced by
approximately $7.2 million and $14.7 million, respectively, due to the reduction in the amount
allocated to the senior unsecured notes as a result of the adoption of this FSP.
Interim Disclosures about Fair Value of Financial Instruments FSP SFAS 107-1 and APB Opinion
28-1
In April 2009, the FASB issued FSP and APB Interim Disclosures about Fair Value of Financial
Instruments (FSP SFAS 107-1 and APB Opinion 28-1), which require fair value disclosures for
financial instruments that are not reflected in the Condensed Consolidated Balance Sheets at fair
value. Prior to the issuance of FSP SFAS 107-1 and APB Opinion 28-1, the fair values of those
assets and liabilities were only disclosed annually. With the issuance of FSP SFAS 107-1 and APB
Opinion No. 28-1, the Company will be required to disclose this information on a quarterly basis,
providing quantitative and qualitative information about fair value estimates for all financial
instruments not measured in the Condensed Consolidated Balance Sheets at fair value. FSP SFAS 107-1
and APB Opinion 28-1 will be effective for interim reporting periods that end after June 15, 2009.
Early adoption is permitted for periods ending after March 15, 2009. The Company adopted FSP SFAS
107-1 and APB Opinion 28-1 in the second quarter of 2009.
- 11 -
Determination of the Useful Life of Intangible Assets FSP SFAS 142-3
In April 2008, the FASB issued the FSP Determination of the Useful Life of Intangible Assets
(FSP SFAS 142-3), which amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized intangible asset under SFAS
142. FSP SFAS 142-3 is intended to improve the consistency between the useful life of an intangible
asset determined under SFAS 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS 141(R) and other U.S. Generally Accepted Accounting Principles. The
guidance for determining the useful life of a recognized intangible asset in this FSP shall be
applied prospectively to intangible assets acquired after the effective date. The disclosure
requirements in this FSP shall be applied prospectively to all intangible assets recognized as of,
and subsequent to, the effective date. FSP SFAS 142-3 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.
Early adoption was not permitted. The adoption of this standard did not have a material impact on
the Companys financial position and results of operations.
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly FSP SFAS 157-4
In April 2009, the FASB issued the FSP Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly (FSP SFAS 157-4), which clarifies the methodology used to determine fair value
when there is no active market or where the price inputs being used represent distressed sales. FSP
SFAS 157-4 also reaffirms the objective of fair value measurement, as stated in SFAS 157, which is
to reflect how much an asset would be sold for in an orderly transaction. It also reaffirms the
need to use judgment to determine if a formerly active market has become inactive, as well as to
determine fair values when markets have become inactive. FSP SFAS 157-4 should be applied
prospectively and will be effective for interim and annual reporting periods ending after June 15,
2009. The adoption of FSP SFAS 157-4 did not have a material impact on the Companys financial
position and results of operations.
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock EITF
07-5
In June 2008, the FASB issued the EITF, Determining Whether an Instrument (or Embedded
Feature) Is Indexed to an Entitys Own Stock (EITF 07-5). This EITF provides guidance on
determining whether an equitylinked financial instrument (or embedded feature) can be considered
indexed to an entitys own stock, which is a key criterion for determining if the instrument may be
classified as equity. There is a provision in this EITF that provides new guidance regarding how
to account for certain anti-dilution provisions that provide downside price protection to an
investor. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. Early
adoption was not permitted. Due to certain downward price protection provisions within the Otto
Transaction, the
- 12 -
impact of this EITF resulted in a charge to earnings of approximately $80 million, but did not
have a material impact on the Companys financial position or cash flow. Refer to the discussion of
the Otto Transaction described further in Note 10.
Equity Method Investment Accounting Considerations EITF 08-6
In November 2008, the FASB issued EITF Issue No. 08-6, Equity Method Investment Accounting
Considerations (EITF 08-6). EITF 08-6 clarifies the accounting for certain transactions and
impairment considerations involving equity method investments. EITF 08-6 applies to all investments
accounted for under the equity method. EITF 08-6 is effective for fiscal years and interim periods
beginning on or after December 15, 2008. The adoption of this standard did not have a material
impact on the Companys financial position and results of operations.
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities FSP EITF 03-6-1
In June 2008, the FASB issued the FSP Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (FSP EITF 03-6-1), which addresses whether
instruments granted in share-based payment transactions are participating securities prior to
vesting and, therefore, need to be included in the earnings allocation in computing earnings per
share under the two-class method as described in Statement No. 128, Earnings per Share. Under the
guidance in FSP EITF 03-6-1, unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities
and shall be included in the computation of earnings per share pursuant to the two-class method.
The FSP is effective for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. All prior-period earnings per share data
presented was adjusted retrospectively. Early adoption was not permitted. The adoption of this
standard did not have a material impact on the Companys financial position and results of
operations.
New Accounting Standards to be Implemented
The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles a replacement of SFAS No. 162 SFAS 168
In June 2009, the FASB approved the FASB Accounting Standards Codification (the
Codification) as the single source of authoritative nongovernmental U.S. GAAP to be launched on
July 1, 2009. The Codification does not change current U.S. GAAP, but is intended to simplify user
access to all authoritative U.S. GAAP by providing all the authoritative literature related to a
particular topic in one place. All existing accounting standard documents will be superseded and
all other accounting literature not included in the Codification will be considered
nonauthoritative. The Codification is effective for interim and annual periods ending after
September 15, 2009. The Company does not expect the adoption of the Codification to have a material
impact on its financial position, results of operations or cash flows.
- 13 -
Amendments to FASB Interpretation No. 46(R) SFAS 167
In June 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R)
(SFAS167), which is effective for fiscal years beginning after November 15, 2009 and introduces a
more qualitative approach to evaluating VIEs for consolidation. SFAS 167 requires a company to
perform an analysis to determine whether its variable interests gives it a controlling financial
interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the entity that has
(a) the power to direct the activities of the VIE that most significantly impact the VIEs economic
performance, and (b) the obligation to absorb losses or the right to receive benefits that could
potentially be significant to the VIE. In determining whether it has the power to direct the
activities of the VIE that most significantly affect the VIEs performance, SFAS 167 requires a
company to assess whether it has an implicit financial responsibility to ensure that a VIE operates
as designed. SFAS 167 requires continuous reassessment of primary beneficiary status rather than
periodic, event-driven assessments as previously required, and incorporates expanded disclosure
requirements. The Company is currently assessing the impact, if any, that the adoption of SFAS 167
will have on its consolidated financial statements.
2. EQUITY INVESTMENTS IN JOINT VENTURES
At June 30, 2009 and December 31, 2008, the Company had ownership interests in various
unconsolidated joint ventures which, as of the respective dates, owned 324 shopping center
properties and 329 shopping center properties.
- 14 -
Condensed combined financial information of the Companys unconsolidated joint venture
investments is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Combined Balance Sheets:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
2,368,888
|
|
|
$
|
2,378,033
|
|
Buildings
|
|
|
6,443,218
|
|
|
|
6,353,985
|
|
Fixtures and tenant improvements
|
|
|
153,654
|
|
|
|
131,622
|
|
|
|
|
|
|
|
|
|
|
|
8,965,760
|
|
|
|
8,863,640
|
|
Less: Accumulated depreciation
|
|
|
(706,457
|
)
|
|
|
(606,530
|
)
|
|
|
|
|
|
|
|
|
|
|
8,259,303
|
|
|
|
8,257,110
|
|
Construction in progress
|
|
|
309,156
|
|
|
|
412,357
|
|
|
|
|
|
|
|
|
|
|
|
8,568,459
|
|
|
|
8,669,467
|
|
Receivables, net
|
|
|
150,797
|
|
|
|
136,410
|
|
Leasehold interests
|
|
|
12,035
|
|
|
|
12,615
|
|
Other assets
|
|
|
358,344
|
|
|
|
315,591
|
|
|
|
|
|
|
|
|
|
|
$
|
9,089,635
|
|
|
$
|
9,134,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage debt
|
|
$
|
5,768,969
|
|
|
$
|
5,776,897
|
|
Amounts payable to DDR
|
|
|
73,272
|
|
|
|
64,967
|
|
Other liabilities
|
|
|
252,800
|
|
|
|
237,363
|
|
|
|
|
|
|
|
|
|
|
|
6,095,041
|
|
|
|
6,079,227
|
|
Accumulated equity
|
|
|
2,994,594
|
|
|
|
3,054,856
|
|
|
|
|
|
|
|
|
|
|
$
|
9,089,635
|
|
|
$
|
9,134,083
|
|
|
|
|
|
|
|
|
Companys share of accumulated equity (1)
|
|
$
|
620,519
|
|
|
$
|
622,569
|
|
|
|
|
|
|
|
|
- 15 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Six-Month Periods Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Combined Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from operations
|
|
$
|
216,639
|
|
|
$
|
233,416
|
|
|
$
|
445,205
|
|
|
$
|
468,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental operation (a)
|
|
|
101,196
|
|
|
|
78,631
|
|
|
|
188,274
|
|
|
|
158,627
|
|
Depreciation and amortization
|
|
|
62,402
|
|
|
|
59,126
|
|
|
|
125,788
|
|
|
|
115,008
|
|
Interest
|
|
|
83,511
|
|
|
|
71,360
|
|
|
|
153,820
|
|
|
|
148,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247,109
|
|
|
|
209,117
|
|
|
|
467,882
|
|
|
|
421,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax
expense, other income, net and
discontinued operations
|
|
|
(30,470
|
)
|
|
|
24,299
|
|
|
|
(22,677
|
)
|
|
|
46,823
|
|
Income tax expense
|
|
|
(2,562
|
)
|
|
|
(2,865
|
)
|
|
|
(4,552
|
)
|
|
|
(6,645
|
)
|
Other (expense) income, net
|
|
|
(2,241
|
)
|
|
|
50,100
|
|
|
|
9,437
|
|
|
|
56,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(35,273
|
)
|
|
|
71,534
|
|
|
|
(17,792
|
)
|
|
|
96,717
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued
operations (a)
|
|
|
(13,131
|
)
|
|
|
826
|
|
|
|
(12,324
|
)
|
|
|
1,332
|
|
(Loss) gain on disposition of real
estate, net of tax (b)
|
|
|
(6,048
|
)
|
|
|
|
|
|
|
(6,077
|
)
|
|
|
340
|
|
Loss on disposition of real estate (2)
|
|
|
|
|
|
|
(11
|
)
|
|
|
(26,741
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(54,452
|
)
|
|
$
|
72,349
|
|
|
$
|
(62,934
|
)
|
|
$
|
98,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companys share of equity in net (loss)
income of joint ventures (4)
|
|
$
|
(11,876
|
)
|
|
$
|
12,740
|
|
|
$
|
(11,073
|
)
|
|
$
|
20,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The DDR Macquarie Fund reported impairment losses for the three- and six-month
periods ended June 30, 2009, on three assets under contract to be sold of $33.9
million. Of this amount, approximately $20.2 million was reported as a component of
operating expenses and $13.7 million was reported as a component of discontinued
operations relating to the one asset classified as held for sale pursuant to SFAS No.
144.
|
|
(b)
|
|
In the second quarter of 2009 the loss on disposition of discontinued
operations consists of the sale of four properties by two separate unconsolidated joint
ventures resulting in a loss of $6.0 million of which the Companys proportionate share
was $1.4 million for the three- and six-month periods ended June 30, 2009. The results
for the six-month period also include the sale of an additional property by an
unconsolidated joint venture resulting in a nominal loss.
|
- 16 -
Investments in and advances to joint ventures include the following items, which represent the
difference between the Companys investment and its share of all of the unconsolidated joint
ventures underlying net assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
Companys share of accumulated equity
|
|
$
|
620.5
|
|
|
$
|
622.6
|
|
Basis differentials (3)
|
|
|
(36.4
|
)
|
|
|
(4.6
|
)
|
Deferred development fees, net of portion relating to
the Companys interest
|
|
|
(5.3
|
)
|
|
|
(5.2
|
)
|
Basis differential upon transfer of assets (3)
|
|
|
(93.3
|
)
|
|
|
(95.4
|
)
|
Notes receivable from investments
|
|
|
1.3
|
|
|
|
1.4
|
|
Amounts payable to DDR
|
|
|
73.3
|
|
|
|
65.0
|
|
|
|
|
|
|
|
|
Investments in and advances to joint ventures (1)
|
|
$
|
560.1
|
|
|
$
|
583.8
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The difference between the Companys share of accumulated equity and the investments in
and advances to joint ventures recorded on the Companys condensed consolidated balance
sheets primarily results from basis differentials, as described below, including deferred
development fees, net of the portion relating to the Companys interest, notes and amounts
receivable from the unconsolidated joint venture investments and amounts payable to DDR.
|
|
(2)
|
|
For the Kansas City, Missouri (Ward Parkway) project owned by the Coventry II joint
venture in which the Company has a 20% interest, a $35.0 million loan matured on January 2,
2009, and on January 6, 2009, the lender sent to the borrower a formal notice of default
(the Company did not provide a payment guaranty with respect to such loan). On March 26,
2009, the Coventry II joint venture transferred its ownership of this property to the
lender in a friendly foreclosure arrangement. The joint venture recorded a loss of $26.7
million on the transfer. The Company recorded a $5.8 million
loss in March 2009 related to the write-off
of the book value of its equity investment, which is included within equity in net (loss)
income of joint ventures in the condensed consolidated statements of operations. Pursuant
to the agreement with the lender, the Company initially managed the shopping center while
DDRs partner, the Coventry II Fund marketed the property for sale. Although the Coventry
II Fund continues to market the property, the Company terminated the property management
agreement effective June 30, 2009. The joint venture has the ability to receive excess
sale proceeds, if any, depending upon the timing and terms of a future sale arrangement.
|
|
(3)
|
|
Basis differentials occur primarily when the Company has purchased interests in
existing unconsolidated joint ventures at fair market values, which differ from their
proportionate share of the historical net assets of the unconsolidated joint ventures. In
addition, certain acquisition, transaction and other costs, including capitalized interest,
and impairments of the Companys investments that were other than temporary may not be
reflected in the net assets at the joint venture level. Basis differentials recorded upon
transfer of assets are primarily associated with assets previously owned by the Company
that have been transferred into an unconsolidated joint venture at fair value. This amount
represents the aggregate difference between the Companys historical cost basis and the
basis reflected at the joint venture level. Certain basis differentials indicated above are
amortized over the life of the related assets.
|
|
(4)
|
|
Differences in income also occur when the Company acquires assets from unconsolidated
joint ventures. The difference between the Companys share of net (loss) income, as
reported above, and the amounts included in the condensed consolidated statements of
operations is attributable to the amortization of such basis differentials, deferred gains
and differences in gain on sale of certain assets due to the basis differentials. For the
three-month periods ended June 30, 2009 and 2008, the difference between the $11.9 million
loss and $12.7 million income, respectively, of the Companys share of equity in net (loss)
income of joint ventures reflected above and the $9.2 million loss and $12.6 million
income, respectively, of equity in net (loss) income of joint ventures reflected in the
Companys condensed consolidated statements of operations is primarily attributable to
amortization associated with the basis differentials and differences in the recognition of
gains (losses) on asset sales and impairments. The Companys share of joint venture net
loss was decreased by approximately $2.6 million and the equity in net income was decreased
by approximately $0.2 million for the three-month periods ended June 30, 2009 and 2008,
respectively, to reflect additional basis depreciation and basis differences in assets
sold. For the six-month periods ended June 30, 2009 and 2008, the difference between the
$11.1 million loss and $20.2 million income, respectively, of the Companys share of equity
in net (loss) income of joint ventures reflected above and the $8.8 million loss and $19.9
million income, respectively, of equity in net (loss) income of joint ventures reflected in
the Companys condensed consolidated statements of operations is primarily attributable to
amortization associated with the basis differentials and differences in the recognition of
gains (losses) on asset sales and impairments. The Companys share of joint venture net
loss was decreased by approximately $2.2 million and the equity in net income was decreased
by approximately $0.3 million for the six-month periods ended June 30, 2009 and 2008,
respectively.
|
- 17 -
|
|
|
|
|
their proportionate share of the historical net assets of the joint venture. Basis
differentials upon transfer of assets are primarily associated with assets previously owned
by the Company that have been transferred into a joint venture at fair value.
|
Service fees earned by the Company through management, acquisition, financing, leasing
and development activities performed related to all of the Companys unconsolidated joint ventures
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
Six-Month Periods Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Management and other fees
|
|
$
|
12.1
|
|
|
$
|
12.6
|
|
|
$
|
24.3
|
|
|
$
|
25.5
|
|
Acquisition, financing, guarantee and other fees
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
0.1
|
|
Development fees and leasing commissions
|
|
|
1.7
|
|
|
|
2.9
|
|
|
|
3.7
|
|
|
|
6.1
|
|
Interest income
|
|
|
2.0
|
|
|
|
0.1
|
|
|
|
3.9
|
|
|
|
0.2
|
|
Impairment of Joint Venture Investments
During the three- and six-month periods ended June 30, 2009, the Company recorded impairment
charges of $40.3 million and $41.1 million, respectively, associated with several unconsolidated
joint venture investments pursuant to the provisions of APB No. 18, The Equity Method of
Accounting for Investments in Common Stock (APB 18). The provisions of this opinion require
that a loss in value of an investment under the equity method of accounting that is an other than
temporary decline must be recognized. The impairments recognized primarily related to the
Companys joint ventures with the Coventry Real Estate Fund II (Coventry II Fund). The
estimated fair value of each investment was determined pursuant to the provisions of SFAS 157 (Note
12). In December 2008, the Company recorded $107.0 million of impairment charges associated with
seven unconsolidated joint venture investments pursuant to the provisions of APB 18. These
impairment charges create a basis difference between the Companys share of accumulated equity as
compared to the investment balance of the respective unconsolidated joint venture. The Company
allocates the aggregate impairment charge to each of the respective properties owned by a joint
venture on a relative fair value basis and, where appropriate, amortizes this basis differential as an adjustment to
the equity in net income recorded by the Company over the estimated remaining useful lives of the
underlying assets.
3. RESTRICTED CASH
Restricted Cash is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
DDR MDT MV LLC (1)
|
|
$
|
31,167
|
|
|
$
|
31,806
|
|
DDR MDT MV LLC (2)
|
|
|
33,000
|
|
|
|
33,000
|
|
Bond fund (3)
|
|
|
46,006
|
|
|
|
46,986
|
|
Other
|
|
|
2,629
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted cash
|
|
$
|
112,802
|
|
|
$
|
111,792
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
DDR MDT MV LLC (MV LLC), which is consolidated by the Company, owns 32 and 37
locations formerly occupied by Mervyns at June 30, 2009 and December 31, 2008,
respectively. The terms of the original acquisition contained a contingent refundable
purchase price adjustment secured by a letter of credit (LOC) from the seller of the real
estate portfolio, which was owned in part by an affiliate of one of the members of the
Companys board of directors. In addition, MV LLC held a
|
- 18 -
|
|
|
|
|
Security Deposit Letter of Credit (SD LOC) from Mervyns. These LOCs were drawn in full in
2008 due to Mervyns filing for protection under Chapter 11 of the United States Bankruptcy
Code. Although the funds are required to be placed in escrow with MV LLCs lender to secure
the entitys mortgage loan, these funds are available for re-tenanting expenses or to fund
debt service. The funds will be released as the related leases are either assumed or
released, or the debt is repaid.
|
|
(2)
|
|
In connection with MV LLCs draw of the LOC, MV LLC was required under the loan
agreement to provide an additional $33.0 million as collateral security for MV LLCs
mortgage loan. DDR and its partner funded the escrow requirement with proportionate
capital contributions.
|
|
(3)
|
|
Under the terms of a bond issue by the Mississippi Business Finance Corporation, the
proceeds of approximately $60.0 million from the sale of bonds were placed in a trust in
connection with a Company development project in Mississippi. As construction is completed
on the Companys project in Mississippi, the Company receives disbursement of these funds.
|
4. OTHER ASSETS, NET
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
In-place leases (including lease
origination costs and fair market value
of leases), net
|
|
$
|
17,586
|
|
|
$
|
21,721
|
|
Tenant relations, net
|
|
|
12,350
|
|
|
|
15,299
|
|
|
|
|
|
|
|
|
Total intangible assets (1)
|
|
|
29,936
|
|
|
|
37,020
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Accounts receivable, net (2)
|
|
|
149,452
|
|
|
|
164,356
|
|
Prepaids, deposits and other assets
|
|
|
88,300
|
|
|
|
91,770
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
267,688
|
|
|
$
|
293,146
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Company recorded amortization expense of $1.7 million and $2.7 million for the
three-month periods ended June 30, 2009 and 2008, respectively, and $3.6 million and $4.9
million for the six-month periods ended June 30, 2009 and 2008, respectively, related to
these intangible assets. The amortization period of the in-place leases and tenant
relations is approximately two to 31 years and ten years, respectively.
|
|
(2)
|
|
Includes straight-line rent receivables, net, of $53.9 million and $53.8 million at
June 30, 2009 and December 31, 2008, respectively.
|
5. REVOLVING CREDIT FACILITIES
The Company maintains an unsecured revolving credit facility with a syndicate of financial
institutions, for which JP Morgan serves as the administrative agent (the Unsecured Credit
Facility). The Unsecured Credit Facility provides for borrowings of $1.25 billion, if certain
financial covenants are maintained, and an accordion feature for a future expansion to $1.4 billion
upon the Companys request, provided that new or existing lenders agree to the existing terms of
the facility and increase their commitment level, and a maturity date of June 2010, with a one-year
extension option at the option of the Company subject to certain customary closing conditions. The
Unsecured Credit Facility includes a competitive bid option on periodic interest rates for up to
50% of the facility. The Companys borrowings under the Unsecured Credit Facility bear interest at
variable rates at the Companys election, based on either (i) the prime rate less a specified
spread (-0.125% at June 30, 2009), as defined in the facility or (ii) LIBOR, plus a specified
spread (0.75% at June 30, 2009). The specified spreads vary depending on the Companys long-term
senior unsecured debt rating from Standard and Poors and Moodys Investors Service. The Company is
required to comply with certain covenants relating to total outstanding indebtedness, secured
indebtedness, maintenance of unencumbered real estate assets and fixed charge coverage. The
Unsecured Credit Facility is used to
- 19 -
finance the acquisition, development and expansion of shopping center properties, to provide
working capital and for general corporate purposes. The Company was in compliance with these
covenants at June 30, 2009. The facility also provides for an annual facility fee of 0.175% on the
entire facility. At June 30, 2009, total borrowings under the Unsecured Credit Facility aggregated
$1,169.5 million with a weighted average interest rate of 1.5%.
The Company also maintains a $75 million unsecured revolving credit facility with National City
Bank (together with the Unsecured Credit Facility, the Revolving Credit Facilities). This
facility has a maturity date of June 2010, with a one-year extension option at the option of the
Company subject to certain customary closing conditions, and reflects terms consistent with those
contained in the Unsecured Credit Facility. Borrowings under this facility bear interest at
variable rates based on (i) the prime rate less a specified spread (-0.125% at June 30, 2009), as
defined in the facility or (ii) LIBOR, plus a specified spread (0.75% at June 30, 2009). The
specified spreads are dependent on the Companys long-term senior unsecured debt rating from
Standard and Poors and Moodys Investors Service. The Company is required to comply with certain
covenants relating to total outstanding indebtedness, secured indebtedness, maintenance of
unencumbered real estate assets and fixed charge coverage. The Company was in compliance with these
covenants at June 30, 2009. At June 30, 2009, there were no amounts outstanding under the National
City Bank facility.
6. FIXED-RATE NOTES
In March 2007, the Company issued $600 million aggregate principal amount of 3.0% senior
convertible notes due in 2012 (the 2007 Senior Convertible Notes). In August 2006, the Company
issued $250 million aggregate principal amount of 3.5% senior convertible notes due in 2011 (the
2006 Senior Convertible Notes and, together with the 2007 Senior Convertible Notes, the Senior
Convertible Notes). The Senior Convertible Notes are senior unsecured obligations and rank equally
with all other senior unsecured indebtedness. For further description of the Companys Senior
Convertible Notes see Note 8, Fixed-Rate Debt in the
Companys 2008 Annual Report.
[Effective
January 1, 2009, the Company retrospectively adopted the provisions of FSP APB 14-1 (Note 1).]
Concurrent with the issuance of the Senior Convertible Notes, the Company purchased an option on
its common shares in a private transaction in order to effectively increase the conversion price of
the notes to a specified option price (Option Price). This purchase option allows the Company to
receive a number of the Companys common shares (Maximum Common Shares) from counterparties equal
to the amounts of common shares and/or cash related to the excess conversion value that it would
pay to the holders of the Senior Convertible Notes upon conversion. The option cost was recorded as
a reduction of shareholders equity at issuance.
The following table summarizes the information related to the Senior Convertible Notes (shares
and dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
Conversion Price (1)
|
|
Option Price
|
|
Common Shares
|
|
Option Cost
|
2007 Senior Convertible Notes
|
|
$
|
74.56
|
|
|
$
|
82.71
|
|
|
|
1.1
|
|
|
$
|
32.6
|
|
2006 Senior Convertible Notes
|
|
$
|
64.23
|
|
|
$
|
65.17
|
|
|
|
0.5
|
|
|
$
|
10.3
|
|
|
|
|
(1)
|
|
At June 30, 2009 and December 31, 2008.
|
- 20 -
The following tables reflects the Companys previously reported amounts, along with the
adjusted amounts as required by FSP APB 14-1 as adjusted to reflect the impact of discontinued
operations in accordance with SFAS 144 (Note 13) (in thousands, except per share).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended June 30, 2008
|
|
Six-Month Periods Ended June 30, 2008
|
|
|
As Previously
|
|
As
|
|
Effect of
|
|
As Previously
|
|
As
|
|
Effect of
|
|
|
Reported
|
|
Adjusted
|
|
Change
|
|
Reported
|
|
Adjusted
|
|
Change
|
Condensed
Consolidated
Statements of
Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing
operations
|
|
$
|
38,140
|
(1)
|
|
$
|
35,710
|
|
|
$
|
2,430
|
|
|
$
|
79,459
|
(1)
|
|
$
|
73,167
|
|
|
$
|
6,292
|
|
Net income
attributable to DDR
|
|
|
39,927
|
|
|
|
36,663
|
|
|
|
3,264
|
|
|
|
83,351
|
|
|
|
76,823
|
|
|
|
6,528
|
|
Net income
attributable to DDR
per share, basic
and diluted
|
|
$
|
0.25
|
|
|
$
|
0.22
|
|
|
$
|
0.03
|
|
|
$
|
0.52
|
|
|
$
|
0.46
|
|
|
$
|
0.06
|
|
|
|
|
(1)
|
|
Adjusted to reflect the impact of discontinued operations in accordance with SFAS
144 (Note 13).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
As
Previously
|
|
As
|
|
Effect of
|
|
|
Reported
|
|
Adjusted
|
|
Change
|
Condensed Consolidated Balance
Sheets (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
in progress and land under development
|
|
$
|
879,547
|
|
|
$
|
882,478
|
|
|
$
|
2,931
|
|
Deferred
charges, net
|
|
|
26,613
|
|
|
|
25,579
|
|
|
|
(1,034
|
)
|
Senior unsecured notes
|
|
|
2,452,741
|
|
|
|
2,402,032
|
|
|
|
50,709
|
|
Paid-in-capital
|
|
|
2,770,194
|
|
|
|
2,849,364
|
|
|
|
(79,170
|
)
|
Accumulated distributions in
excess of net income
|
|
|
(608,675
|
)
|
|
|
(635,239
|
)
|
|
|
26,564
|
|
The effect of this accounting change on the carrying amounts of the Companys debt and
equity balances, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
Carrying value of equity component
|
|
$
|
53,689
|
|
|
$
|
79,170
|
|
|
|
|
|
|
|
|
Stated principal amount of convertible debt
|
|
$
|
564,903
|
|
|
$
|
833,000
|
|
Remaining unamortized debt discount
|
|
|
(28,884
|
)
|
|
|
(50,709
|
)
|
|
|
|
|
|
|
|
Net carrying value of convertible debt
|
|
$
|
536,019
|
|
|
$
|
782,291
|
|
|
|
|
|
|
|
|
As of June 30, 2009, the remaining amortization period for the debt discount was approximately
26 and 33 months for the 2006 Senior Convertible Notes and the 2007 Senior Convertible Notes,
respectively.
The adjusted effective interest rates for the liability components of the 2006 Senior
Convertible Notes and the 2007 Senior Convertible Notes were 5.7% and 5.2%, respectively. The
impact of this accounting change required the Company to adjust its interest expense and record a
non-cash interest-related charge of $3.3 million and $6.5 million, net of capitalized interest, for
the three- and six-month periods ended June 30, 2008, respectively. The Company recorded non-cash
interest expense of approximately $3.3 million and $7.1 million for the three- and six-month
periods ended June 30, 2009, respectively. The Company recorded contractual interest expense of
approximately $5.1 million and
- 21 -
$11.6 million for the three- and six-month periods ended June 30, 2009, respectively, and $6.7
million and $13.4 million for the three- and six-month periods ended June 30, 2008, respectively.
During the six months ended June 30, 2009, the Company purchased approximately $376.2 million
aggregate principal amount of its outstanding senior unsecured notes
(of which $268.1 million related to convertible notes) at a discount to par resulting
in a net GAAP gain of approximately $118.5 million. As required by
FSP APB 14-1, the Company allocated the consideration paid between the liability component and
equity component based on the fair value of those components immediately prior to the purchases.
7. FINANCIAL INSTRUMENTS
Cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accruals and
other liabilities
The carrying amounts reported in the balance sheet for these financial instruments
approximated fair value because of their short-term maturities. The carrying amount of
straight-line rents receivable does not materially differ from its fair market value.
Notes receivable and advances to affiliates
The fair value is estimated by discounting the current rates at which management believes
similar loans would be made. The fair value of these notes was
approximately $139.8 million and
$134.0 million at June 30, 2009 and December 31, 2008, respectively, as compared to the carrying
amounts of $139.8 million and $134.0 million, respectively. The carrying value of the TIF Bonds
(Note 4) approximated its fair value at June 30, 2009 and December 31, 2008. The fair value of
loans to affiliates is not readily determinable and has been estimated by management based upon its
assessment of the interest rate, credit risk and performance risk.
Debt
The fair market value of debt is determined using the trading price of public debt, or a
discounted cash flow technique that incorporates a market interest yield curve with adjustments for
duration, optionality, and risk profile including the Companys non-performance risk.
Considerable judgment is necessary to develop estimated fair values of financial instruments.
Accordingly, the estimates presented herein are not necessarily indicative of the amounts the
Company could realize on disposition of the financial instruments.
- 22 -
Financial instruments at June 30, 2009 and December 31, 2008, with carrying values that are
different than estimated fair values, based on the valuation method of SFAS 157 at June 30, 2009
and December 31, 2008 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
Senior notes
|
|
$
|
1,821,209
|
|
|
$
|
1,455,480
|
|
|
$
|
2,402,032
|
|
|
$
|
1,442,264
|
|
Revolving Credit Facilities and Term Debt
|
|
|
1,969,503
|
|
|
|
1,934,582
|
|
|
|
1,827,183
|
|
|
|
1,752,260
|
|
Mortgages payable and other indebtedness
|
|
|
1,773,990
|
|
|
|
1,668,204
|
|
|
|
1,637,440
|
|
|
|
1,570,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,564,702
|
|
|
$
|
5,058,266
|
|
|
$
|
5,866,655
|
|
|
$
|
4,765,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurement of Fair Value
At June 30, 2009, the Company used pay-fixed interest rate swaps to manage its exposure to
changes in benchmark interest rates. The valuation of these instruments is determined using
widely accepted valuation techniques including discounted cash flow analysis on the expected cash
flows of each derivative.
Although the Company has determined that the significant inputs used to value its derivatives
fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with
the Companys counterparties and its own credit risk utilize Level 3 inputs, such as estimates of
current credit spreads, to evaluate the likelihood of default by itself and its counterparties. As
of June 30, 2009, the Company has assessed the significance of the impact of the credit valuation
adjustments on the overall valuation of its derivative positions and has determined that the credit
valuation adjustments are significant to the overall valuation of all of its derivatives. As a
result, the Company has determined that its derivative valuations in their entirety are classified
in Level 3 of the fair value hierarchy.
Items Measured at Fair Value on a Recurring Basis
The following table presents information about the Companys financial assets and liabilities
(in millions), which consists of interest rate swap agreements that are included in other
liabilities at June 30, 2009, measured at fair value on a recurring basis as of June 30, 2009, and
indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine
such fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
|
|
|
June 30, 2009
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Derivative Financial Instruments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21.5
|
|
|
$
|
21.5
|
|
- 23 -
The table presented below presents a reconciliation of the beginning and ending balances of
interest rate swap agreements that are included in other liabilities having fair value measurements
based on significant unobservable inputs (Level 3).
|
|
|
|
|
|
|
Derivative
|
|
|
|
Financial
|
|
|
|
Instruments
|
|
Balance of Level 3 at December 31, 2008
|
|
$
|
(21.7
|
)
|
Total unrealized gain included in other comprehensive
(loss) income
|
|
|
0.2
|
|
|
|
|
|
Balance of Level 3 at June 30, 2009
|
|
$
|
(21.5
|
)
|
|
|
|
|
The unrealized gain of $0.2 million above included in other comprehensive (loss) income is
attributable to the change in unrealized gains or losses relating to derivative liabilities that
are still held at June 30, 2009, none of which were reported in the Companys condensed
consolidated statements of operations as they are documented and qualify as hedging instruments
pursuant to FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS 133).
Accounting Policy for Derivative Instruments and Hedging Activities
SFAS 161 amends and expands the disclosure requirements of SFAS 133 with the intent to provide
users of financial statements with an enhanced understanding of: (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items are accounted for
under SFAS 133 and its related interpretations, and (c) how derivative instruments and related
hedged items affect an entitys financial position, financial performance and cash flows. SFAS 161
requires qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about the fair value of and gains and losses on derivative instruments and
disclosures about credit-risk-related contingent features in derivative instruments.
As required by SFAS 133, the Company records all derivatives on the balance sheet at fair
value. The accounting for changes in the fair value of derivatives depends on the intended use of
the derivative, whether the Company has elected to designate a derivative in a hedging relationship
and apply hedge accounting and whether the hedging relationship has satisfied the criteria
necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the
exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a
particular risk, such as interest rate risk, are considered fair value hedges. Derivatives
designated and qualifying as a hedge of the exposure to variability in expected future cash flows,
or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be
designated as hedges of the foreign currency exposure of a net investment in a foreign operation.
Hedge accounting generally provides for the matching of the timing of gain or loss recognition on
the hedging instrument with the recognition of the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of
the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative
contracts that are intended to economically hedge certain of its risk, even though hedge accounting
does not apply or the Company elects not to apply hedge accounting under SFAS 133.
- 24 -
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and economic
conditions. The Company principally manages its exposures to a wide variety of business and
operational risks through management of its core business activities. The Company manages economic
risks, including interest rate, liquidity, and credit risk primarily by managing the amount,
sources, and duration of its debt funding and the use of derivative financial instruments.
Specifically, the Company enters into derivative financial instruments to manage exposures that
arise from business activities that result in the receipt or payment of future known and uncertain
cash amounts, the value of which are determined by interest rates. The Companys derivative
financial instruments are used to manage differences in the amount, timing, and duration of the
Companys known or expected cash receipts and its known or expected cash payments principally
related to the Companys investments and borrowings.
The Company entered into consolidated joint ventures that own real estate assets in Canada and
Russia. The net assets of these subsidiaries are exposed to volatility in currency exchange rates.
As such, the Company effectively uses non-derivative financial
instruments to economically hedge a portion of this exposure. The Company
manages currency exposure related to the net assets of its Canadian and European subsidiaries
primarily through foreign currency-denominated debt agreements.
Cash Flow Hedges of Interest Rate Risk
The Companys objectives in using interest rate derivatives are to manage its exposure to
interest rate movements. To accomplish this objective, the Company generally uses interest rate
swaps (Swaps) as part of its interest rate risk management strategy. Swaps designated as cash
flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the
Company making fixed-rate payments over the life of the agreements without exchange of the
underlying notional amount. The Company has six Swaps with notional amounts aggregating $600
million ($200 million of which expires in 2009, $300 million of which expires in 2010 and $100
million of which expires in 2012). Swaps aggregating $500 million effectively convert term loan
floating rate debt into a fixed rate of approximately 5.7%. Swaps aggregating $100 million
effectively convert Revolving Credit Facilities floating rate debt into a fixed rate of
approximately 5.5%.
The effective portion of changes in the fair value of derivatives designated and that qualify
as cash flow hedges is recorded in Accumulated Other Comprehensive Loss and is subsequently
reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
During 2009, such derivatives were used to hedge the variable cash flows associated with existing
obligations. The ineffective portion of the change in fair value of derivatives is recognized
directly in earnings. All components of the interest rate swaps were included in the assessment of
hedge effectiveness. During the six months ended June 30, 2009 and June 30, 2008, the amount of
hedge ineffectiveness recorded was not material.
Amounts reported in accumulated other comprehensive income related to derivatives will be
reclassified to interest expense as interest payments are made on the Companys variable-rate debt.
The Company expects that within the next 12 months, it will reflect as an increase to interest
expense (and a corresponding decrease to earnings) approximately $19.8 million. As of June 30,
2009, the
- 25 -
Company had the following outstanding interest rate derivatives that were designated as cash
flow hedges of interest rate risk:
|
|
|
|
|
|
|
Number of
|
|
Notional
|
Interest Rate Derivative
|
|
Instruments
|
|
(in Millions)
|
Interest rate swaps
|
|
Six
|
|
$600.0
|
The table below presents the fair value of the Companys derivative financial instruments as
well as their classification on the condensed consolidated balance sheets as of June 30, 2009 and
December 31, 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
Derivatives designated as
|
|
June 30, 2009
|
|
December 31, 2008
|
hedging instruments under
|
|
Balance Sheet
|
|
Fair
|
|
Balance Sheet
|
|
|
SFAS 133
|
|
Location
|
|
Value
|
|
Location
|
|
Fair Value
|
Interest rate products
|
|
Other liabilities
|
|
$
|
21.5
|
|
|
Other liabilities
|
|
$
|
21.7
|
|
The effect of the Companys derivative instruments on net (loss) and income is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
Amount of Gain (Loss) Reclassified
|
|
|
Amount of Gain (Loss) Recognized in
|
|
Reclassified
|
|
from Accumulated OCI into Income
|
|
|
OCI on Derivative (Effective Portion)
|
|
from
|
|
(Effective Portion)
|
Derivatives
|
|
Three-Month
|
|
Six-Month
|
|
Accumulated
|
|
Three-Month
|
|
Six-Month
|
in SFAS 133
|
|
Periods Ended
|
|
Periods Ended
|
|
OCI into Income
|
|
Periods Ended
|
|
Periods Ended
|
Cash Flow
|
|
June 30
|
|
June 30
|
|
(Effective
|
|
June 30
|
|
June 30
|
Hedging
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Portion)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Interest rate products
|
|
$
|
(4.3
|
)
|
|
$
|
14.4
|
|
|
$
|
0.2
|
|
|
$
|
(0.5
|
)
|
|
Interest expense
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
$
|
0.5
|
|
The Company is exposed to credit risk in the event of non-performance by the
counterparties to the Swaps. The Company believes it mitigates its credit risk by entering into
Swaps with major financial institutions. The Company continually monitors and actively manages
interest costs on its variable-rate debt portfolio and may enter into additional interest rate swap
positions or other derivative interest rate instruments based on market conditions. In addition,
the Company continually assesses its ability to obtain funds through additional equity and/or debt
offerings, including the issuance of medium term notes and joint venture capital. Accordingly, the
cost of obtaining interest rate protection agreements in relation to the Companys access to
capital markets will continue to be evaluated. The Company has not, and does not plan to, enter
into any derivative financial instruments for trading or speculative purposes.
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision
whereby if the Company defaults on certain of its unsecured indebtedness, then the
- 26 -
Company could
also be declared in default on its derivative obligations resulting in an acceleration of payment.
Net Investment Hedges
The Company is exposed to foreign exchange risk from its consolidated and unconsolidated
international investments. The Company has foreign currency-denominated debt agreements, which
exposes the Company to fluctuations in foreign exchange rates. The Company has designated these
foreign currency borrowings as a hedge to the net investment in its Canadian and European
subsidiaries. Changes in the spot rate value are recorded as adjustments to the debt balance with
offsetting unrealized gains and losses recorded in OCI. As the notional amount of the
nonderivative instrument substantially matches the portion of the net investment designated as
being hedged and the nonderivative instrument is denominated in the functional currency of the
hedged net investment, the hedge ineffectiveness recognized in earnings was not material.
The effect of the Companys net investment hedge derivative instrument on OCI is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in OCI on
|
|
|
|
Derivatives (Effective Portion)
|
|
|
|
Three-Month Periods
|
|
|
Six-Month Periods
|
|
Derivatives in SFAS 133 Net Investment Hedging
|
|
Ended June 30
|
|
|
Ended June 30
|
|
Relationships
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Euro denominated
revolving credit
facilities
designated as
hedge of the
Companys net
investment in
its subsidiary
|
|
$
|
(5.3
|
)
|
|
$
|
|
|
|
$
|
(0.7
|
)
|
|
$
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian
denominated
revolving credit
facilities
designated as
hedge of the
Companys net
investment in
its subsidiaries
|
|
$
|
(7.8
|
)
|
|
$
|
(1.2
|
)
|
|
$
|
(5.7
|
)
|
|
$
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See discussion of equity derivative instruments in Note 10.
8. COMMITMENTS AND CONTINGENCIES
Business Risks and Uncertainties
The retail and real estate markets have been significantly impacted by the continued
deterioration of the global credit markets and other macro economic factors including, among
others, rising unemployment and a decline in consumer confidence leading to a decline in consumer
spending. Although a majority of the Companys tenants (especially the anchor tenants) remain in
relatively strong financial standing, the current has resulted in tenant bankruptcies affecting the
Companys real estate portfolio, including Mervyns, Linens N Things, Steve and Barrys, Goodys
and Circuit City, which occurred primarily in the second half of 2008. In addition, certain other
tenants may be experiencing financial difficulties. The decrease in occupancy and the projected
timing associated with re-leasing these vacated spaces has resulted in downward pressure on the
Companys 2009 projected operating results. The reduced occupancy will likely have a negative
impact on the Companys consolidated cash flows, results of operations, financial position and
financial ratios that are integral to
- 27 -
the continued compliance with the covenants on the Companys
revolving credit facilities as further described below. Offsetting some of the current challenges
within the retail environment, the Company has a low occupancy cost relative to other retail
formats and historical averages, as well as a diversified tenant base with only one tenant
exceeding 2.5% of total consolidated revenues, Walmart at 5.5%. Other significant tenants include
Target, Lowes Home Improvement, Home Depot, Kohls,
T.J. Maxx/Marshalls, Publix Supermarkets, PetSmart and Bed Bath & Beyond, all of which have
relatively strong credit ratings. Management believes these tenants should continue providing the
Company with a stable revenue base for the foreseeable future given the long-term nature of these
leases. Moreover, the majority of the tenants in the Companys shopping centers provide day-to-day
consumer necessities with a focus toward value and convenience versus high-priced discretionary
luxury items, which should enable many tenants to continue operating within this challenging
economic environment.
The Companys Revolving Credit Facilities and the indentures under which the Companys senior
and subordinated unsecured indebtedness is, or may be, issued contain certain financial and
operating covenants, including, among other things, leverage ratios, debt service coverage and
fixed charge coverage ratios, as well as limitations on the Companys ability to incur secured and
unsecured indebtedness, sell all or substantially all of the Companys assets and engage in mergers
and certain acquisitions. These Revolving Credit Facilities and indentures also contain customary
default provisions including the failure to timely pay principal and interest issued thereunder,
the failure to comply with the Companys financial and operating covenants, the occurrence of a
material adverse effect on the Company, and the failure to pay when due any other Company
consolidated indebtedness (including non-recourse obligations) in excess of certain specified
levels. In the event the Companys lenders declare a default, as defined in the applicable loan
documentation, this could result in the inability to obtain further funding and/or an acceleration
of any outstanding borrowings.
As of June 30, 2009, the Company was in compliance with all of its financial covenants.
However, due to the economic environment, the Company has less financial flexibility than desired
given the current market dislocation. The Companys current business plans indicate that it will be
able to operate in compliance with these covenants in 2009 and beyond; however, the current
economic downturn along with the dislocation in the global credit markets has significantly
impacted the projected cash flows, financial position and effective leverage of the Company. If
there is a continued decline in the retail and real estate industries and/or the Company is unable
to successfully execute its plans as further described below, the Company could violate these
covenants, and as a result may be subject to higher finance costs and fees and/or accelerated
maturities. In addition, certain of the Companys credit facilities and indentures permit the
acceleration of the maturity of debt issued thereunder in the event certain other debt of the
Company has been accelerated. Furthermore, a default under a loan to the Company or its affiliates,
a foreclosure on a mortgaged property owned by the Company or its affiliates or the inability to
refinance existing indebtedness would have a negative impact on the Companys financial condition,
cash flows and results of operations. These facts and an inability to predict future economic
conditions have encouraged the Company to adopt a strict focus on lowering leverage and increasing
its financial flexibility.
The Company is committed to prudently managing and minimizing discretionary operating and
capital expenditures and raising the necessary equity and debt capital to maximize its liquidity,
repay its outstanding borrowings as they mature and comply with its financial covenants in 2009 and
- 28 -
beyond. As discussed below, the Company has already implemented several steps integral to the
successful execution of its plans to raise additional equity and debt capital through a combination
of retained capital, the issuance of common shares, debt financing and refinancing and asset sales.
In addition, the Company will continue to strategically utilize proceeds from the above sources to
repay
outstanding borrowings on its credit facilities and strategically repurchase publicly traded
debt at a discount to par to further improve its leverage ratios.
|
|
|
Retained Equity With regard to retained capital, the Company has adjusted its
dividend policy to the minimum required to maintain its REIT status. The Company did not
pay a dividend in January 2009 as it had already distributed sufficient funds to comply
with its 2008 tax requirements. Moreover, the Company funded its first and second
quarter 2009 dividends in a combination of 90% DDR common shares and 10% cash. Dividend
distributions are expected to be determined on a quarterly basis. The changes to the
Companys 2009 dividends policy to date have resulted in additional free cash flow, which
has been applied primarily to reduce leverage. This change in the Companys quarterly
dividend payments, including the elimination of a quarterly payment
of a dividend in January 2009, is expected to save approximately $300 million of retained capital in
2009 relative to the Companys 2008 dividend policy.
|
|
|
|
Issuance of Common Shares The Company has several alternatives to raise equity
through the sale of its common shares. In May 2009, the Company issued common shares as
part of the transaction with Mr. Alexander Otto (the Investor) and certain members of
the Otto family (collectively with the Investor, the Otto Family), resulting in gross
equity proceeds of approximately $52.5 million (Note 10). The Company expects to close
on the sale of the remaining common shares no later than the fourth quarter of 2009 for
estimated gross proceeds of approximately $60 million, subject to certain closing
conditions. The Company intends to use the total estimated $112.5 million in gross
proceeds received from this strategic investment in 2009 to reduce leverage. The Company
also intends to evaluate other alternatives to raise equity, including its
ability to issue additional shares in 2009 under the continuous equity
program.
|
|
|
|
Debt Financing and Refinancing As of June 30, 2009, the Company had
approximately $88.1 million of consolidated debt maturing during
the remainder of 2009,
including regular principal amortization, excluding obligations where the
Company has an
extension option. These maturities are related to various loans secured by certain
shopping centers. The Company repaid approximately $45.7 million of this indebtedness in
July 2009. The remaining $42.4 million is expected to be repaid through the use of retained cash flows from
operations, the Companys Revolving Credit Facilities, financings discussed below and/or
extensions currently under negotiation with certain existing lenders.
|
|
|
|
In May 2009, the Company closed on two secured loans for aggregate proceeds of
approximately $125 million. In addition, a $60 million six-month bridge loan funded by
the Otto Family in March 2009 was converted in May 2009 into a five-year fixed-rate term
loan with a 9% interest rate. In July 2009, the Company obtained $17 million of mortgage
debt from a life insurance company on two shopping centers at a 6% interest rate and
maturing in 2017.
|
- 29 -
|
|
|
Asset Sales For the six months ended June 2009, the Company and both its
consolidated and unconsolidated joint ventures sold numerous assets generating nearly
$180 million in estimated total proceeds. In July 2009, an
additional $55.2 million in
estimated gross proceeds were generated. The Company and its joint ventures are also in
various stages of
discussions with third parties for the sale of additional assets.
|
|
|
|
Debt Repurchases Because of the current economic environment, the Companys
publicly traded debt securities have been trading at discounts to par. During the first
and second quarters of 2009, the Company repurchased approximately $376.2 million
aggregate principal amount of its outstanding senior unsecured notes at a cash discount
to par aggregating $135.5 million. Although the Company will evaluate all of its
alternatives to optimize its use of cash generated from the sources above to achieve the
strategic goal of de-leveraging, the Company expects that it will continue to
opportunistically repurchase its debt securities at a discount to par to further improve
its leverage ratios.
|
As further described above, although the Company believes it has made considerable progress in
implementing the steps to address its objectives of reducing leverage and continuing to comply with
its covenants and repay obligations as they become due, certain transactions may not close as
anticipated, or at all, and therefore, there can be no assurances that the Company will be able to
execute these plans, which could adversely impact the Companys operations including its ability to
remain compliant with its covenants and repay the Companys obligations as they become due.
Legal Matters
The Company is a party to litigation filed in November 2006 by a tenant in a Company property
located in Long Beach, California. The tenant filed suit against the Company and certain
affiliates, claiming the Company and its affiliates failed to provide adequate valet parking at the
property pursuant to the terms of the lease with the tenant. After a six-week trial, the jury
returned a verdict in October 2008, finding the Company liable for compensatory damages in the
amount of approximately $7.8 million. In addition, the trial court awarded the tenant attorneys
fees and expenses in the amount of approximately $1.5 million. The Company filed motions for a new
trial and for judgment notwithstanding the verdict, both of which were denied. The Company strongly
disagrees with the verdict, as well as the denial of the post-trial motions. As a result, the
Company plans to pursue an appeal of the verdict. Included in other liabilities on the condensed
consolidated balance sheet is a provision which represents managements best estimate of loss based
upon a range of liability pursuant to SFAS 5, Accounting for Contingencies. The Company will
continue to monitor the status of the litigation and revise the estimate of loss as appropriate.
Although the Company believes it has a meritorious basis for reversing the trial court verdict, there
can be no assurance that the Company will be successful in appealing the verdict.
In addition to the litigation discussed above, the Company and its subsidiaries are subject to
various legal proceedings, which, taken together, are not expected to have a material adverse
effect on the Company. The Company is also subject to a variety of legal actions for personal
injury or property damage arising in the ordinary course of its business, most of which are covered
by insurance. While the resolution of all matters cannot be predicted with certainty, management
believes that the final
- 30 -
outcome of such legal proceedings and claims will not have a material
adverse effect on the Companys liquidity, financial position or results of operations.
9. REDEEMABLE OPERATING PARTNERSHIP UNITS
At June 30, 2009 and December 31, 2008, the Company had 29,524 operating partnership units
(OP Units) outstanding, which are classified as redeemable operating partnership units on the
condensed consolidated balance sheets. These OP Units, issued to different partnerships, are
exchangeable, at the election of the OP Unit holder, and under certain circumstances at the option
of the Company, into an equivalent number of the Companys common shares or for the equivalent
amount of cash. The OP Unit holders are entitled to receive distributions, per OP Unit, generally
equal to the per share distributions on the Companys common shares. Redeemable OP Units are
accounted for in accordance with D-98 and are presented at the
greater of their carrying amount (June 30, 2009) or
redemption value (June 30, 2008) at the end of each reporting period. Changes in the value from period to period
are charged to paid in capital in the Companys condensed consolidated balance sheets. Below is a
table reflecting the activity of the redeemable OP units (in thousands):
|
|
|
|
|
|
|
June 30, 2008
|
|
Balance at December 31, 2007
|
|
$
|
1,163
|
|
Net income
|
|
|
40
|
|
Distributions
|
|
|
(40
|
)
|
Adjustment to redeemable operating partnership units
|
|
|
(91
|
)
|
|
|
|
|
Balance at June 30, 2008
|
|
$
|
1,072
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
Balance at December 31, 2008
|
|
$
|
627
|
|
Net income
|
|
|
12
|
|
Distributions
|
|
|
(12
|
)
|
|
|
|
|
Balance at June 30, 2009
|
|
$
|
627
|
|
|
|
|
|
- 31 -
10. EQUITY
The following table summarizes the changes in equity since December 31, 2007 as
adjusted (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developers Diversified Realty Corporation Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Distributions
|
|
|
|
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
($0.10
|
|
|
Paid-in
|
|
|
in Excess of
|
|
|
Deferred
|
|
|
Other
|
|
|
Stock
|
|
|
Non-Controlling
|
|
|
|
|
|
|
Shares
|
|
|
Par Value)
|
|
|
Capital
|
|
|
Net Income
|
|
|
Obligation
|
|
|
Comprehensive Income
|
|
|
at Cost
|
|
|
Interests
|
|
|
Total
|
|
Balance, December 31,
2007
|
|
$
|
555,000
|
|
|
$
|
12,679
|
|
|
$
|
3,107,809
|
|
|
$
|
(272,428
|
)
|
|
$
|
22,862
|
|
|
$
|
8,965
|
|
|
$
|
(369,839
|
)
|
|
$
|
128,254
|
|
|
$
|
3,193,302
|
|
Issuance of common
shares related to
exercise of stock
options, dividend
reinvestment plan,
performance plan and
director compensation
|
|
|
|
|
|
|
1
|
|
|
|
(2,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,378
|
|
|
|
|
|
|
|
6,241
|
|
Contributions from
non-controlling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,710
|
|
|
|
30,710
|
|
Issuance of restricted
stock
|
|
|
|
|
|
|
|
|
|
|
(5,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,074
|
|
|
|
|
|
|
|
897
|
|
Vesting of restricted
stock
|
|
|
|
|
|
|
|
|
|
|
7,436
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
(5,270
|
)
|
|
|
|
|
|
|
2,168
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
4,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,375
|
|
Redemption of 463,185
operating partnership
units in exchange for
common shares
|
|
|
|
|
|
|
|
|
|
|
(14,268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,327
|
|
|
|
(9,104
|
)
|
|
|
(45
|
)
|
Dividends
declaredcommon
shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165,623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165,623
|
)
|
Dividends
declaredpreferred
shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,134
|
)
|
Distributions to
non-controlling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,461
|
)
|
|
|
(7,461
|
)
|
Adjustment to
redeemable partnership
units
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,356
|
|
|
|
81,179
|
|
Other comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
of interest rate
contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,504
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,504
|
)
|
Amortization of
interest rate
contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(457
|
)
|
|
|
|
|
|
|
|
|
|
|
(457
|
)
|
Foreign currency
translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,828
|
|
|
|
|
|
|
|
1,276
|
|
|
|
20,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,823
|
|
|
|
|
|
|
|
13,867
|
|
|
|
|
|
|
|
5,632
|
|
|
|
96,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008
|
|
$
|
555,000
|
|
|
$
|
12,680
|
|
|
$
|
3,098,128
|
|
|
$
|
(382,362
|
)
|
|
$
|
22,864
|
|
|
$
|
22,832
|
|
|
$
|
(337,330
|
)
|
|
$
|
148,031
|
|
|
$
|
3,139,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 32 -
The following table summarizes the changes in equity since December 31, 2008 as adjusted (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developers Diversified Realty Corporation Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Distributions
|
|
|
|
|
|
|
Other
|
|
|
Treasury
|
|
|
Non-
|
|
|
|
|
|
|
Preferred
|
|
|
($0.10 Par
|
|
|
Paid-in
|
|
|
in Excess of
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
Stock at
|
|
|
Controlling
|
|
|
|
|
|
|
Shares
|
|
|
Value)
|
|
|
Capital
|
|
|
Net Income
|
|
|
Obligation
|
|
|
Income
|
|
|
Cost
|
|
|
Interests
|
|
|
Total
|
|
Balance, December 31,
2008
|
|
$
|
555,000
|
|
|
$
|
12,864
|
|
|
$
|
2,849,364
|
|
|
$
|
(635,239
|
)
|
|
$
|
13,882
|
|
|
$
|
(49,849
|
)
|
|
$
|
(8,731
|
)
|
|
$
|
127,503
|
|
|
$
|
2,864,794
|
|
Issuance of common
shares related to
dividend reinvestment
plan and director
compensation
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
45
|
|
Issuance of common
shares for cash
offering
|
|
|
|
|
|
|
25
|
|
|
|
964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
989
|
|
Otto Transaction
|
|
|
|
|
|
|
1,607
|
|
|
|
50,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,976
|
|
Equity derivative
instruments
|
|
|
|
|
|
|
|
|
|
|
38,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,865
|
|
Contributions from
non-controlling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,504
|
|
|
|
5,504
|
|
Issuance of
restricted stock
|
|
|
|
|
|
|
59
|
|
|
|
1,962
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
(629
|
)
|
|
|
|
|
|
|
1,490
|
|
Vesting of restricted
stock
|
|
|
|
|
|
|
|
|
|
|
2,126
|
|
|
|
|
|
|
|
1,065
|
|
|
|
|
|
|
|
(421
|
)
|
|
|
|
|
|
|
2,770
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
7,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,301
|
|
Dividends
declaredcommon
shares
|
|
|
|
|
|
|
830
|
|
|
|
22,265
|
|
|
|
(56,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,516
|
)
|
Dividends
declaredpreferred
shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,134
|
)
|
Distributions to
non-controlling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(997
|
)
|
|
|
(997
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(139,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,056
|
)
|
|
|
(176,240
|
)
|
Other comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
of interest rate
contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,222
|
|
|
|
|
|
|
|
|
|
|
|
3,222
|
|
Amortization of
interest rate
contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
|
(186
|
)
|
Foreign currency
translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,168
|
|
|
|
|
|
|
|
1,268
|
|
|
|
23,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(139,184
|
)
|
|
|
|
|
|
|
25,204
|
|
|
|
|
|
|
|
(35,788
|
)
|
|
|
(149,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
$
|
555,000
|
|
|
$
|
15,385
|
|
|
$
|
2,973,140
|
|
|
$
|
(852,168
|
)
|
|
$
|
15,045
|
|
|
$
|
(24,645
|
)
|
|
$
|
(9,660
|
)
|
|
$
|
96,222
|
|
|
|
2,768,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Otto Transaction
On February 23, 2009, the Company entered into a stock purchase agreement (the Stock Purchase
Agreement) with the Investor to issue and sell 30 million common shares for aggregate gross
proceeds of approximately $112.5 million to the members of the Otto Family. The agreement allows
for the issuance of warrants to purchase up to 10.0 million common shares with an exercise price of
$6.00 per share to the Otto Family. No separate consideration was paid for the warrants. The
share issuances, together with the warrant issuances are collectively referred to as the Otto
Transaction. Under the terms of the Stock Purchase Agreement, the Company will also issue
additional common shares to the Otto Family in an amount equal to any dividend declared by the
Company after February 23, 2009 and prior to the applicable closing. The purchase price for the
first 15 million common shares was $3.50 per share, and the purchase price for the second 15
million
- 33 -
common shares is $4.00 per share. No separate consideration will be paid for the dividend
shares. The purchase price for the common shares will be subject to downward adjustment if the
weighted average purchase price of all additional common shares sold, as defined, from February 23,
2009 until the applicable closing is less than $2.94 per share. The exercise price of the warrants
is also subject to downward adjustment if the weighted average purchase price of all additional
common shares sold, as defined, from the date of issuance of the applicable warrant is less than
$6.00 per share (herein, along with the share issuances, referred to as Downward Price Protection
Provisions). Each warrant may be exercised at any time on or after the issuance thereof for a
five-year term.
On April 9, 2009, the Companys shareholders approved the sale of the common shares and
warrants to the Otto Family pursuant to the Otto Transaction. The transaction will occur in two
closings. On May 11, 2009, the Company issued and sold 15.0 million common shares and warrants to
purchase 5.0 million common shares to the Otto Family for a purchase price of $52.5 million. The
stock purchase agreement provides that the second closing with the Otto Family is scheduled to
close on or about October 9, 2009, subject to the satisfaction or waiver of certain closing
conditions. The Company also issued 1,071,428 common shares as a result of the first quarter 2009
dividend to the Otto Family associated with the initial 15.0 million common shares. The Otto
Family earned the right to receive an additional 1,787,304 common
shares relating to the 2009 dividends upon second closing of 15.0 million common
shares, should the second closing occur.
Equity Derivative Instruments Otto Transaction
The Downward Price Protection Provisions resulted in the equity forward commitments and
warrants not qualifying for the scope exception under SFAS 133 as they were
deemed to be not indexed to the Companys own stock as defined in EITF 07-5. As a result, both
instruments were required to be recorded at fair value as of the shareholder approval date of April
9, 2009, and marked-to-market through earnings as of each balance sheet date thereafter until
exercise or expiration.
These equity instruments were issued as part of the Companys overall deleveraging strategy
and were not issued in connection with any speculative trading activity or to mitigate any market
risks.
The table below presents the fair value of the Companys equity derivative instruments as well
as their classification on the condensed consolidated balance sheet as follows (in millions):
|
|
|
|
|
|
|
Derivatives not designated as
|
|
|
|
hedging instruments under
|
|
June 30, 2009
|
|
SFAS 133
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Equity
forward yet to be issued
|
|
Other liabilities
|
|
$
|
21.7
|
|
Warrants
|
|
Other liabilities
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41.2
|
|
|
|
|
|
|
|
- 34 -
The effect of the Companys equity derivative instruments on net loss is as follows (in
millions):
|
|
|
|
|
|
|
Derivatives not designated as
|
|
|
|
hedging instruments under SFAS
|
|
Three-Month Period Ended June 30, 2009
|
|
133
|
|
Income Statement Location
|
|
Gain (Loss)
|
|
Equity
forward issued shares
|
|
Loss on equity derivative instruments
|
|
$
|
(38.0
|
)
|
Equity
forward yet to be issued
|
|
Loss on equity derivative instruments
|
|
|
(31.7
|
)
|
Warrants
|
|
Loss on equity derivative instruments
|
|
|
(10.3
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
(80.0
|
)
|
|
|
|
|
|
|
The loss above for these contracts was derived principally from the increase of the Companys
stock price from April 9, 2009, the shareholder approval date, to the market price on June 30,
2009.
Measurement of Fair Value Equity Derivative Instruments Valued on a Recurring Basis
The valuation of these instruments is determined using a Bloomberg pricing model. The Company
has determined that the significant inputs used to value its equity forwards fall within Level 2 of
the fair value hierarchy. However, the Company has determined that the warrants fall within Level
3 of the fair value hierarchy due to the significance of the volatility and dividend yield
assumptions in the overall valuation. The Company utilized historical volatility assumptions as it
believes this better reflects the true valuation of the instruments. Although the Company
considered using an implied volatility based upon certain short-term publicly traded options on its
common stock, it instead utilized its historical share price volatility when determining an
estimate of fair value of its five year warrants. The Company
believes that the
long-term
historic
volatility better represents long-term future volatility and is more consistent with how an
investor would view the value of these securities. The Company will continually evaluate its
significant assumptions to determine what it believes provides the most relevant measurements of
fair value at each reporting date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
|
|
|
June 30, 2009
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Equity
Forward yet to be issued
|
|
$
|
|
|
|
$
|
21.7
|
|
|
$
|
|
|
|
$
|
21.7
|
|
Warrants
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19.5
|
|
|
$
|
19.5
|
|
The table presented below presents a reconciliation of the beginning and ending balances of
the equity derivative instruments that are included in other liabilities as noted above having fair
value measurements based on significant unobservable inputs (Level 3).
|
|
|
|
|
|
|
Equity Derivative
|
|
|
|
Instruments
|
|
|
|
Asset (Liability)
|
|
Balance of Level 3 at March 31, 2009
|
|
$
|
|
|
Initial Valuation
|
|
|
(9.2
|
)
|
Unrealized loss
|
|
|
(10.3
|
)
|
|
|
|
|
Balance of Level 3 at June 30, 2009
|
|
$
|
(19.5
|
)
|
|
|
|
|
- 35 -
Adoption
of SFAS 160 and FSP APB 14-1
The Companys balance sheet was adjusted as of December 31, 2008 to include $127.5 million in
non-controlling interests as a component of equity pursuant to the provisions of SFAS 160. In
addition, paid-in capital as of December 31, 2008 was increased by $52.6 million relating to the
retrospection adoption of FSP APB 14-1 relating to the allocated value of the equity component of
certain of the Companys senior convertible unsecured notes (Note 1).
Stock-Based
Compensation
In May 2009, the Otto Transaction was approved by the Companys shareholders in April 2009
resulting in a potential change in control under the Companys equity-based award plans. In
accordance with the equity-based award plans, all unvested stock options which were not subject to
deferral elections became fully exercisable and all restrictions on unvested restricted shares
lapsed. As such, in April 2009, the Company recorded an accelerated non-cash charge in accordance
with FASB Statement No. 123(R), Share-Based Payment (SFAS 123(R)) of approximately $10.5
million related to these equity awards.
Dividends
The Company declared a dividend in each of the first quarter and second quarter dividend on
March 2, 2009 and May 28, 2009 respectively, on its common shares of $0.20 per share that was paid
in a combination of cash and the Companys common shares. The aggregate amount of cash paid to
shareholders was limited to 10% of the total dividend paid. In connection with the first and
second quarter dividends, the Company issued approximately 8.3 million and 6.1 million common
shares, respectively, based on the volume weighted average trading price of $2.80 and $4.49 per
share, respectively, and paid $2.6 million and $3.1 million, respectively, in cash. This new
payout initiative is a part of the Companys strategy to further enhance liquidity and maximize
free cash flow while continuing to maintain its REIT status. Common share dividends declared, per
share, were $0.69 and $1.38 for the three- and six-month periods ended June 30, 2008.
Share Repurchase Program
In June 2007, the Companys Board of Directors authorized a common share repurchase program.
Under the terms of the program, the Company may purchase up to a maximum value of $500 million of
its common shares over a two-year period. As of June 30, 2009, the Company had repurchased under
this program 5.6 million of its common shares for an aggregate cost of $261.9 million at a weighted
average cost of $46.66 per share. The Company has not repurchased any of its shares pursuant to
this program in 2008 or 2009.
Deferred Obligations
During the six-month period ended June 30, 2009, the vesting of restricted stock grants to
certain officers and directors of the Company, approximating 0.1 million common shares of the
Company, was deferred through the Companys non-qualified deferred compensation plans and,
- 36 -
accordingly, the Company recorded approximately $3.0 million in deferred obligations. Also,
in the first quarter of 2009, in accordance with the transition rules under Section 409A of the
Internal Revenue Code, certain officers elected to have their deferrals distributed, which resulted
in a reduction of the deferred obligation and a corresponding increase in paid in capital of
approximately $1.8 million.
11. OTHER REVENUE
Other revenue for the three- and six-month periods ended June 30, 2009 and 2008, was comprised
of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
Six-Month Periods Ended
|
|
|
|
Ended June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Lease termination fees
|
|
$
|
1.1
|
|
|
$
|
1.4
|
|
|
$
|
2.6
|
|
|
$
|
4.2
|
|
Financing fees
|
|
|
0.3
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
Other
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
1.8
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.7
|
|
|
$
|
1.7
|
|
|
$
|
5.0
|
|
|
$
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. IMPAIRMENT CHARGES
During the three- and six- month periods ended June 30, 2009, the Company recorded impairment
charges of $107.0 million and $117.9 million, respectively, on its consolidated real estate
investments determined pursuant to the provisions of SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). Of the aggregate amount, approximately $56.9
million in asset impairments were triggered primarily due to the Companys marketing of these
assets for sale combined with the overall economic downturn in the
retail real estate environment during the six months ended June 30, 2009. These assets were not classified as
held for sale as of June 30, 2009, due to outstanding
contingencies. The remaining $61.0 million for the three and six
months ended June 30, 2009 of impairment charges related to 13 assets formerly occupied by Mervyns, of which the Companys
proportionate share was $29.7 million after adjusting for the allocation of the loss to the
non-controlling interest in this consolidated joint venture. An
additional $25.1 million was reported for the three and six
months ended June 30, 2009 as a component of discontinued operations relating to five assets classified as held for
sale pursuant to SFAS 144 as of June 30, 2009.
During the three- and six-month periods ended June 30, 2009, the Company recorded impairment
charges of $40.3 million and $41.1 million, respectively, on several of its unconsolidated joint
venture investments, primarily those investments with the Coventry II Fund, as these investments
incurred an other than temporary impairment. The major factors contributing to the timing of
the second quarter impairment charges were the communication by the Coventry II Fund investors
indicating they would not contribute any additional capital for any of the projects and the
Coventry II Funds inability, to date, to reach an agreement with the first mortgage lender as to
the Bloomfield project and the related defaults under several loan
obligations of the joint ventures. The Company continues to maintain the position that it does not intend to
fund any of its joint venture partners capital contributions or their share of debt maturities.
The Company believed the value of the investments in the current environment was
other than temporarily impaired.
- 37 -
Measurement of Fair Value
The Company is required to assess the value of both impaired consolidated assets and
unconsolidated joint venture investments in accordance with SFAS 157. The valuation of impaired
real estate assets and investments is determined using widely accepted valuation techniques
including discounted cash flow analysis on the expected cash flows, the income capitalization
approach considering prevailing market capitalization rates, analysis of recent comparable sales
transactions, actual sales negotiations and bona fide purchase offers received from third parties
and/or consideration of the amount that currently would be required to replace the asset, as
adjusted for obsolescence. In general, the Company considers multiple valuation techniques when
measuring fair value of an investment. However, in certain circumstances, a single valuation
technique may be appropriate.
Items Measured at Fair Value on a Non-Recurring Basis
The following table presents information about the Companys impairment charges that were
measured on a fair value basis for the six months ended June 30, 2009. The table indicates the
fair value hierarchy of the valuation techniques utilized by the Company to determine such fair
value (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Losses
|
Long-lived assets held and used
|
|
$
|
|
|
|
$
|
|
|
|
$
|
182.9
|
|
|
$
|
182.9
|
|
|
$
|
117.9
|
|
Unconsolidated joint venture investments
|
|
|
0.8
|
|
|
|
|
|
|
|
25.5
|
|
|
|
26.3
|
|
|
|
41.1
|
|
Assets held for sale pursuant to SFAS 144
|
|
|
|
|
|
|
|
|
|
|
51.8
|
|
|
|
51.8
|
|
|
|
25.1
|
|
13. DISCONTINUED OPERATIONS
Pursuant to the definition of a component of an entity in SFAS 144, all earnings of
discontinued operations sold or held for sale, assuming no significant continuing involvement, have
been reclassified in the condensed consolidated statements of operations for the three- and
six-month periods ended June 30, 2009 and 2008. The Company considers assets held for sale when the
transaction has been approved by the appropriate levels of management and there are no known
significant contingencies relating to the sale such that the property sale within one year is
considered probable. Included in discontinued operations for the three- and six-month periods
ended June 30, 2009 and 2008, are 21 properties in 2009 (including six properties considered as
held for sale at June 30, 2009) aggregating 2.4 million square feet, and 22 shopping centers sold
in 2008 (including one business center and one property held for sale at December 31, 2007)
aggregating 1.3 million square
- 38 -
feet. The balance sheet relating to the assets held for sale and the operating results
relating to assets sold or designated as assets held for sale at June 30, 2009, are as follows (in
thousands):
|
|
|
|
|
|
|
June 30, 2009
|
|
Land
|
|
$
|
21,156
|
|
Building
|
|
|
40,881
|
|
Other real estate assets
|
|
|
2,991
|
|
|
|
|
|
|
|
|
65,028
|
|
Less: Accumulated depreciation
|
|
|
(13,247
|
)
|
|
|
|
|
Total assets held for sale
|
|
$
|
51,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Six-Month Periods Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenues
|
|
$
|
4,347
|
|
|
$
|
10,426
|
|
|
$
|
10,020
|
|
|
$
|
22,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
1,116
|
|
|
|
3,222
|
|
|
|
2,748
|
|
|
|
6,677
|
|
Impairment charges
|
|
|
25,091
|
|
|
|
|
|
|
|
25,091
|
|
|
|
|
|
Interest, net
|
|
|
1,439
|
|
|
|
2,169
|
|
|
|
3,079
|
|
|
|
4,393
|
|
Depreciation
and amortization
|
|
|
1,499
|
|
|
|
4,043
|
|
|
|
3,320
|
|
|
|
7,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
|
29,145
|
|
|
|
9,434
|
|
|
|
34,238
|
|
|
|
18,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before (loss)
gain on disposition of real
estate
|
|
|
(24,798
|
)
|
|
|
992
|
|
|
|
(24,218
|
)
|
|
|
3,891
|
|
(Loss) gain
on disposition of real estate
|
|
|
(36,023
|
)
|
|
|
1,078
|
|
|
|
(24,416
|
)
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(60,821
|
)
|
|
$
|
2,070
|
|
|
$
|
(48,634
|
)
|
|
$
|
4,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. EARNINGS PER SHARE
Earnings per share (EPS) have been computed pursuant to the provisions of SFAS
128, Earnings Per Share. Effective January 1, 2009, the Company adopted FSP EITF 03-6-1. The
Companys unvested restricted share units contain rights to receive nonforfeitable dividends, and
thus, are participating securities requiring the two-class method of computing EPS. Under the
two-class method, EPS are computed by dividing the sum of distributed earnings to common
shareholders and undistributed earnings allocated to common shareholders by the weighted average
number of common shares outstanding for the period. In applying the two-class method, undistributed
earnings are allocated to both common shares and participating securities based on the weighted
average shares outstanding during the period. The following table provides a reconciliation of net
(loss) income from continuing operations and the number of common shares used in the computations
of basic EPS, which utilizes the weighted average number of common shares outstanding without
regard to dilutive potential common shares, and diluted EPS, which includes all such shares (in
thousands, except per share amounts):
- 39 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
Six-Month Periods
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
2008
|
|
|
|
2009
|
|
|
(As Adjusted)
|
|
|
2009
|
|
|
(As Adjusted)
|
|
Basic and Diluted Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$
|
(200,831
|
)
|
|
$
|
35,710
|
|
|
$
|
(128,690
|
)
|
|
$
|
73,167
|
|
Add: Gain on disposition of real estate
|
|
|
648
|
|
|
|
908
|
|
|
|
1,096
|
|
|
|
3,275
|
|
Less: (loss) income attributable to
non-controlling interests
|
|
|
34,419
|
|
|
|
(2,025
|
)
|
|
|
37,044
|
|
|
|
(4,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
attributable to DDR common shareholders
|
|
|
(165,764
|
)
|
|
|
34,593
|
|
|
|
(90,550
|
)
|
|
|
72,046
|
|
Less: Preferred share dividends
|
|
|
(10,567
|
)
|
|
|
(10,567
|
)
|
|
|
(21,134
|
)
|
|
|
(21,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
attributable to DDR common shareholders
|
|
|
(176,331
|
)
|
|
|
24,026
|
|
|
|
(111,684
|
)
|
|
|
50,912
|
|
Less: Earnings attributable to unvested shares
and operating partnership units
|
|
|
(73
|
)
|
|
|
(405
|
)
|
|
|
(146
|
)
|
|
|
(811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations Basic
|
|
|
(176,404
|
)
|
|
|
23,621
|
|
|
|
(111,830
|
)
|
|
|
50,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Average shares outstanding
|
|
|
144,227
|
|
|
|
119,390
|
|
|
|
136,514
|
|
|
|
119,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
attributable to DDR common shareholders
|
|
$
|
(1.22
|
)
|
|
$
|
0.20
|
|
|
$
|
(0.82
|
)
|
|
$
|
0.42
|
|
(Loss) income from discontinued operations
attributable to DDR common shareholders
|
|
|
(0.42
|
)
|
|
|
0.02
|
|
|
|
(0.36
|
)
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to DDR common
shareholders
|
|
$
|
(1.64
|
)
|
|
$
|
0.22
|
|
|
$
|
(1.18
|
)
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Average shares outstanding
|
|
|
144,227
|
|
|
|
119,390
|
|
|
|
136,514
|
|
|
|
119,269
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
171
|
|
|
|
|
|
|
|
161
|
|
Operating partnership units
|
|
|
|
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Average shares outstanding
|
|
|
144,227
|
|
|
|
120,342
|
|
|
|
136,514
|
|
|
|
119,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
attributable to DDR common shareholders
|
|
$
|
(1.22
|
)
|
|
$
|
0.20
|
|
|
$
|
(0.82
|
)
|
|
$
|
0.42
|
|
(Loss) income from discontinued operations
attributable to DDR common shareholders
|
|
|
(0.42
|
)
|
|
|
0.02
|
|
|
|
(0.36
|
)
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to DDR common
shareholders
|
|
$
|
(1.64
|
)
|
|
$
|
0.22
|
|
|
$
|
(1.18
|
)
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 3.5 million and 2.3 million common shares were outstanding at June
30, 2009 and 2008, respectively, a portion of which has been reflected above in diluted per share
amounts using the treasury stock method. Options aggregating 3.5 million and 1.0 million common
shares, respectively, were anti-dilutive at June 30, 2009 and 2008. Accordingly, the anti-dilutive
options were excluded from the computations.
The Companys two issuances of Senior Convertible Notes, which are convertible into common
shares of the Company with conversion prices of approximately $74.56 and $64.23 at June 30, 2009
and $74.75 and $65.11 at June 30, 2008, were not included in the computation of diluted EPS for the
three- and six-month periods ended June 30, 2009 and 2008 as the Companys stock price did
- 40 -
not exceed the conversion price of the conversion feature of the Senior Convertible Notes in these
periods. In addition, the purchased option related to the convertible notes will not be included
in the computation of diluted EPS as the purchase option is anti-dilutive.
The Company has excluded from its basic and diluted EPS approximately 6.1 million common
shares relating to the stock dividend that was declared during the three-month period ended June
30, 2009, but not issued until July 2009 as the determination of the number of common shares that would be
issued had not occurred as of June 30, 2009. Additionally, the Company has also excluded from its basic and diluted EPS warrants to
purchase 5.0 million common shares, issued in May 2009, as the average market price of the
Companys common stock did not exceed the exercise price of the
warrants and according are anti-dilutive. Approximately 15.0
million common shares and warrants to purchase 5.0 million common shares relating to the Otto
Transaction were also excluded due to the contingencies that existed at June 30, 2009. The 15.0
million common shares issued in May 2009 relating to the Otto Transaction were included in basic
and diluted EPS from the date of issuance.
15. SEGMENT INFORMATION
The Company has two reportable segments, shopping centers and other investments, determined in
accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information
(SFAS 131). Each shopping center is considered a separate operating segment; however, each
shopping center on a stand-alone basis is less than 10% of the revenues, profit or loss, and assets
of the combined reported operating segment and meets the majority of the aggregation criteria under
SFAS 131.
At June 30, 2009, the shopping center segment consisted of 682 shopping centers (including 324
owned through unconsolidated joint ventures and 35 that are otherwise consolidated by the Company)
in 45 states, Puerto Rico and Brazil. At June 30, 2008, the shopping center segment consisted of
708 shopping centers (including 318 owned through unconsolidated joint ventures and 40 that are
otherwise consolidated by the Company) in 45 states, Puerto Rico and Brazil. At June 30, 2009 the
Company also owned six business centers in four states and at June 30, 2008, the Company owned
seven business centers in five states.
The table below presents information about the Companys reportable segments for the three-
and six-month periods ended June 30, 2009 and 2008 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended June 30, 2009
|
|
|
|
Other
|
|
|
Shopping
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
Centers
|
|
|
Other
|
|
|
Total
|
|
Total revenues
|
|
$
|
1,285
|
|
|
$
|
203,024
|
|
|
|
|
|
|
$
|
204,309
|
|
Operating expenses
|
|
|
(894
|
)
|
|
|
(169,083
|
)
|
|
|
|
|
|
|
(169,977
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
|
|
391
|
|
|
|
33,941
|
|
|
|
|
|
|
|
34,332
|
|
Unallocated expenses (1)
|
|
|
|
|
|
|
|
|
|
$
|
(185,744
|
)
|
|
|
(185,744
|
)
|
Equity in net loss of joint
ventures and impairment of
joint venture interests
|
|
|
|
|
|
|
(49,419
|
)
|
|
|
|
|
|
|
(49,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(200,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 41 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended June 30, 2008
|
|
|
|
Other
|
|
|
Shopping
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
Centers
|
|
|
Other
|
|
|
Total
|
|
Total revenues
|
|
$
|
1,533
|
|
|
$
|
221,101
|
|
|
|
|
|
|
$
|
222,634
|
|
Operating expenses
|
|
|
(323
|
)
|
|
|
(59,934
|
)
|
|
|
|
|
|
|
(60,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
|
|
1,210
|
|
|
|
161,167
|
|
|
|
|
|
|
|
162,377
|
|
Unallocated expenses (1)
|
|
|
|
|
|
|
|
|
|
$
|
(139,222
|
)
|
|
|
(139,222
|
)
|
Equity in net income of joint
ventures
|
|
|
|
|
|
|
12,555
|
|
|
|
|
|
|
|
12,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2009
|
|
|
|
Other
|
|
|
Shopping
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
Centers
|
|
|
Other
|
|
|
Total
|
|
Total revenues
|
|
$
|
2,808
|
|
|
$
|
415,735
|
|
|
|
|
|
|
$
|
418,543
|
|
Operating expenses
|
|
|
(1,433
|
)
|
|
|
(243,403
|
)
|
|
|
|
|
|
|
(244,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
|
|
1,375
|
|
|
|
172,332
|
|
|
|
|
|
|
|
173,707
|
|
Unallocated expenses (1)
|
|
|
|
|
|
|
|
|
|
$
|
(252,456
|
)
|
|
|
(252,456
|
)
|
Equity in net loss of joint
ventures and impairment of
joint venture interests
|
|
|
|
|
|
|
(49,941
|
)
|
|
|
|
|
|
|
(49,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(128,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate assets
|
|
$
|
49,485
|
|
|
$
|
8,817,660
|
|
|
|
|
|
|
$
|
8,867,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2008
|
|
|
|
Other
|
|
|
Shopping
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
Centers
|
|
|
Other
|
|
|
Total
|
|
Total revenues
|
|
$
|
2,935
|
|
|
$
|
449,713
|
|
|
|
|
|
|
$
|
452,648
|
|
Operating expenses
|
|
|
(827
|
)
|
|
|
(120,667
|
)
|
|
|
|
|
|
|
(121,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
|
|
2,108
|
|
|
|
329,046
|
|
|
|
|
|
|
|
331,154
|
|
Unallocated expenses (1)
|
|
|
|
|
|
|
|
|
|
$
|
(277,930
|
)
|
|
|
(277,930
|
)
|
Equity in net income of joint
ventures
|
|
|
|
|
|
|
19,943
|
|
|
|
|
|
|
|
19,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
73,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate assets
|
|
$
|
103,657
|
|
|
$
|
9,114,079
|
|
|
|
|
|
|
$
|
9,217,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Unallocated expenses consist of general and administrative, interest income,
interest expense, tax benefit/expense, other income/expense and depreciation and
amortization as listed in the condensed consolidated statements of operations.
|
- 42 -
|
|
|
Item 2.
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion should be read in conjunction with the consolidated financial
statements, the notes thereto and the comparative summary of selected financial data appearing
elsewhere in this report. Historical results and percentage relationships set forth in the
consolidated financial statements, including trends that might appear, should not be taken as
indicative of future operations. The Company considers portions of this information to be
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the Companys
expectations for future periods. Forward-looking statements include, 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 the Company believes that the expectations
reflected in those forward-looking statements are based upon reasonable assumptions, it can give no
assurance that its 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 believes, anticipates, plans, expects, seeks,
estimates and similar expressions are intended to identify forward-looking statements. Readers
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
the Companys control and that could cause actual results to differ materially from those expressed
or implied in the forward-looking statements and could materially affect the Companys actual
results, performance or achievements.
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:
|
|
|
The Company is 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 the Companys tenants, or new tenants, to enter into new leases or the ability
of the Companys existing tenants to renew their leases at rates at least as favorable as
their current rates;
|
|
|
|
The Company could be adversely affected by changes in the local markets where its
properties are located, as well as by adverse changes in national economic and market
conditions;
|
|
|
|
The Company may fail to anticipate the effects on its properties of changes in
consumer buying practices, including catalog sales and sales over the Internet and the
resulting retailing practices and space needs of its tenants or a general downturn in its
tenants businesses, which may cause tenants to close stores;
|
|
|
|
The Company is subject to competition for tenants from other owners of retail
properties, and its tenants are subject to competition from other retailers and methods
of distribution. The Company is dependent upon the successful operations and financial
condition of its tenants,
|
- 43 -
|
|
|
in particular of its major tenants, and could be adversely affected by the bankruptcy of
those tenants;
|
|
|
|
The Company relies on major tenants, which makes it vulnerable to changes in the
business and financial condition of, or demand for its space, by such tenants;
|
|
|
|
The Company may not realize the intended benefits of acquisition or merger
transactions. The acquired assets may not perform as well as the Company anticipated, or
the Company may not successfully integrate the assets and realize the improvements in
occupancy and operating results that the Company anticipates. The acquisition of certain
assets may subject the Company to liabilities, including environmental liabilities;
|
|
|
|
The Company 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, the
Company may be limited in its acquisition opportunities due to competition, the inability
to obtain financing on reasonable terms or any financing at all and other factors;
|
|
|
|
The Company 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 the
Companys ability to promptly make changes to its portfolio to respond to economic and
other conditions;
|
|
|
|
The Company may abandon a development opportunity after expending resources if it
determines 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 the inability by the Company to obtain all
necessary zoning and other required governmental permits and authorizations;
|
|
|
|
The Company may not complete development projects on schedule as a result of
various factors, many of which are beyond the Companys 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;
|
|
|
|
The Companys financial condition may be affected by required debt service
payments, the risk of default and restrictions on its ability to incur additional debt or
enter into certain transactions under its credit facilities and other documents governing
its debt obligations. In addition, the Company may encounter difficulties in obtaining
permanent financing or refinancing existing debt. Borrowings under the Companys
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 the Companys business or financial
condition;
|
- 44 -
|
|
|
Changes in interest rates could adversely affect the market price of the Companys
common shares, as well as its performance and cash flow;
|
|
|
|
Debt and/or equity financing necessary for the Company to continue to grow and
operate its business may not be available or may not be available on favorable terms or
at all;
|
|
|
|
Recent disruptions in the financial markets could affect the Companys ability to
obtain financing on reasonable terms and have other adverse effects on us and the market
price of the Companys common shares;
|
|
|
|
The Company is subject to complex regulations related to its status as a real
estate investment trust (REIT), and would be adversely affected if it failed to qualify
as a REIT;
|
|
|
|
The Company must make distributions to shareholders to continue to qualify as a
REIT, and if the Company must borrow funds to make distributions, those borrowings may
not be available on favorable terms or at all;
|
|
|
|
Joint venture investments may involve risks not otherwise present for investments
made solely by the Company, including the possibility that a partner or co-venturer may
become bankrupt, may at any time have different interests or goals than those of the
Company and may take action contrary to the Companys instructions, requests, policies or
objectives, including the Companys policy with respect to maintaining its 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 the Companys control. Furthermore, if the current
constrained credit conditions in the capital markets persist or deteriorate further, the
Company could be required to reduce the carrying value of its equity method investments
if a loss in the carrying value of the investment is an other than temporary decline
pursuant to Accounting Principles Board (APB) No. 18, The Equity Method of Accounting
for Investments in Common Stock (APB 18);
|
|
|
|
The Company may not realize anticipated returns from its real estate assets outside
the United States. The Company expects to continue to pursue international opportunities
that may subject the Company to different or greater risks than those associated with its
domestic operations. The Company owns assets in Puerto Rico, an interest in an
unconsolidated joint venture that owns properties in Brazil and an interest in
consolidated joint ventures that were formed for the purpose to develop and own
properties in Canada, Russia and Ukraine;
|
|
|
|
International development and ownership activities carry risks that are different
from those the Company faces with the Companys domestic properties and operations. These
risks include:
|
|
|
|
Adverse effects of changes in exchange rates for foreign currencies;
|
|
|
|
Changes in foreign political or economic environments;
|
- 45 -
|
|
|
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;
|
|
|
|
|
Different lending practices;
|
|
|
|
|
Cultural and consumer differences;
|
|
|
|
|
Changes in applicable laws and regulations in the United States that affect
foreign operations;
|
|
|
|
|
Difficulties in managing international operations and
|
|
|
|
|
Obstacles to the repatriation of earnings and cash;
|
|
|
|
Although the Companys international activities are currently a relatively small
portion of its business, to the extent the Company expands its international activities,
these risks could significantly increase and adversely affect its results of operations
and financial condition;
|
|
|
|
|
The Company is subject to potential environmental liabilities;
|
|
|
|
|
The Company may incur losses that are uninsured or exceed policy coverage due to
its liability for certain injuries to persons, property or the environment occurring on
its properties and
|
|
|
|
|
The Company 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.
|
Executive Summary
The Company is a self-administered and self-managed REIT, in the business of owning, managing
and developing a portfolio of shopping centers. As of June 30, 2009, the Companys portfolio
consisted of 682 shopping centers and six business centers (including 324 owned through
unconsolidated joint ventures and 35 that are otherwise consolidated by the Company). These
properties consist of shopping centers, lifestyle centers and enclosed malls owned in the United
States, Puerto Rico and Brazil. At June 30, 2009, the Company owned and/or managed approximately
147 million total square feet of Gross Leasable Area (GLA), which includes all of the
aforementioned properties and one property owned by a third party.
The Company has assets in
Canada and Russia at which the development was suspended at June
30, 2009. At June 30, 2009, the aggregate occupancy of the Companys
shopping center portfolio was 87.4%, as compared to 94.2% at June 30, 2008. Excluding the impact
of the Mervyns vacancy, the aggregate occupancy of the Companys shopping center portfolio was
89.4% at June 30, 2009. The Company owned 708 shopping centers and seven business centers at June
30, 2008. The average annualized base rent per occupied square foot was $12.52 at June 30, 2009,
as compared to $12.47 at June 30, 2008.
- 46 -
Net loss applicable to DDR common shareholders for the three-month period ended June 30, 2009
was $237.2 million, or $1.64 per share (diluted and basic), compared to revised net income
applicable to DDR common shareholders of $26.1 million, or $0.22 per share (diluted and basic), for
the prior-year comparable period. Net loss applicable to DDR common shareholders for the six-month
period ended June 30, 2009 was $160.3 million, or $1.18 per share (diluted and basic), as compared
to revised net income applicable to DDR commons shareholders of $55.7 million, or $0.46 per share
(diluted and basic), for the prior-year period. Funds from operations (FFO) applicable to DDR
common shareholders for the three-month period ended June 30, 2009 was a loss of $166.5 million
compared to revised FFO income of $95.9 million for the three-month period ended June 30, 2008.
FFO applicable to DDR common shareholders for the six-month period ended June 30, 2009 was a loss
of $26.5 million as compared to revised FFO income of $192.2 million for the six-month period ended
June 30, 2008. The decrease in net income and reported loss as well as FFO applicable to common
shareholders for the three- and six-month periods ended June 30, 2009 is primarily related to
impairment charges, loss on sale of assets, a potential change in control charge and equity
derivative related charges, partially offset by gains on debt repurchases in addition to several
major tenant bankruptcies in late 2008 and early 2009.
Second quarter 2009 operating results
The Companys second quarter operating results were consistent with managements expectations
based on the current operating metrics of the Companys portfolio. The second quarters leasing
levels were significant with approximately three million square feet of space leased
consisting of approximately 2.1 million of renewal and 0.9 million of
new deals. While the Company recorded several
non-cash charges during the quarter and given the challenges of the current operating environment,
the Company is generally pleased with the overall performance of the portfolio.
The Company has progressed on its de-leveraging plan and intends to continue to move in this
direction. The Company is accessing a wide variety of capital sources, including retained free
cash flow, asset sales, new financing proceeds and newly issued equity to achieve its objectives.
As the Company considers various asset sales, the Company must determine which assets it wants to
retain and which assets it is willing to sell or even considering for sale. Given the underlying
opportunities that the current environment creates, the Company has reviewed the existing portfolio
to create a list of its prime assets (those assets that the Company intends to hold for a long term
and not offer for sale to a third party). As the Company continues to focus on its prime portfolio
of properties, to align itself with the optimum strategic partners in the industry and to operate
the Company with a lower leverage, the Company believes it will continue to enhance its position
within the retail shopping center sector.
In the second quarter of 2009, the Company repurchased $212.7 million aggregate principal
amount of its senior unsecured notes at a gross discount of $54.1 million. In addition, the
Company sold nine properties generating gross proceeds of $82.4 million in the second quarter of
2009. The Company recorded an aggregate loss on sale of approximately $36.3 million related to
these assets. During this same period, the Companys unconsolidated joint ventures also sold four
properties, generating gross proceeds of $30.8 million of which the Companys proportionate share
was $5.0 million. From July 1st through August 4, 2009, the Company sold four assets, bringing the
Companys total asset sales, including its joint ventures, for 2009 to over $230 million. Several
of
- 47 -
these sales are generating accounting losses, but the Company believes that selling these
non-prime assets is the appropriate strategy to achieve the
Companys goal of deleveraging. The
Company also believes that the Companys historic accounting cost basis should not be a driver or
deterrent to appropriate transactional activity, particularly in the current economic environment.
The Company has substantially addressed all of its consolidated debt maturities in 2009. As
the Company intends to raise capital from a variety of sources, although no assurances can be made
that it will be successful, the Company believes it has an achievable plan that if successfully
executed will address its 2010, 2011 and 2012 debt maturities. Additionally, the Company continues
to make progress on several new debt capital transactions. Leverage and liquidity continue to be a
primary focus.
The
Companys cash and capacity on its unsecured revolving credit facilities at June 30, 2009 was
approximately $170 million. The Company has intentionally and temporarily chosen to operate with
reduced availability on these facilities in order to take advantage of repurchasing its near term unsecured
debt maturities at a discount to par. The Company anticipates that in the fourth quarter of 2009,
the Company will utilize proceeds generated from its recent and anticipated capital initiatives to
reduce borrowings under its unsecured revolving credit facilities.
Despite a strong volume of leasing transaction results and tenant feedback, the Company is
still experiencing the effects of the retail bankruptcies that occurred in late 2008 and early 2009
as well as the general retail fallout that has and will likely continue to flow through the system.
The Company has made significant leasing progress and continues to creatively re-tenant
the Companys portfolio; however, the Company does not discount the challenges of the current
operating environment. Leasing deals are challenging, retailers and landlords alike are under
pressure, and the consumer continues to lack confidence resulting in a reduction in consumer
spending. However, this change in spending pattern can provide for a benefit to several of the
Companys tenants which typically provide value, convenience and day-to-day necessities. The
Company continues to monitor weaker retailers, meet with key retailers, and stay apprised of
industry-wide issues that may potentially cause systemic risks and disrupt retailer operations.
Despite the challenges of backfilling space formerly
occupied by bankrupt retailers, the expansion of certain retailers
presents some opportunity.
While the Company is aware of the fact that many retailers are facing unprecedented sales declines,
there continues to be several retailers considering expanding store count to capture market share
from their current and former competitors.
For the remainder of 2009, the Company intends to focus its efforts on enhancing its
liquidity, strengthen the balance sheet, and increase the long-term growth profile of the
portfolio.
- 48 -
Results of Operations
Revenues from Operations (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Base and
percentage rental
revenues
|
|
$
|
138,734
|
|
|
$
|
152,888
|
|
|
$
|
(14,154
|
)
|
|
|
(9.3
|
)%
|
Recoveries from tenants
|
|
|
44,829
|
|
|
|
46,162
|
|
|
|
(1,333
|
)
|
|
|
(2.9
|
)
|
Ancillary and other
property income
|
|
|
4,974
|
|
|
|
6,256
|
|
|
|
(1,282
|
)
|
|
|
(20.5
|
)
|
Management fees,
development fees and
other fee income
|
|
|
14,040
|
|
|
|
15,637
|
|
|
|
(1,597
|
)
|
|
|
(10.2
|
)
|
Other
|
|
|
1,732
|
|
|
|
1,691
|
|
|
|
41
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
204,309
|
|
|
$
|
222,634
|
|
|
$
|
(18,325
|
)
|
|
|
(8.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Base and
percentage rental
revenues
|
|
$
|
282,333
|
|
|
$
|
307,727
|
|
|
$
|
(25,394
|
)
|
|
|
(8.3
|
)%
|
Recoveries from tenants
|
|
|
92,714
|
|
|
|
97,403
|
|
|
|
(4,689
|
)
|
|
|
(4.4
|
)
|
Ancillary and other
property income
|
|
|
10,012
|
|
|
|
10,866
|
|
|
|
(854
|
)
|
|
|
(7.9
|
)
|
Management fees,
development fees and
other fee income
|
|
|
28,502
|
|
|
|
31,924
|
|
|
|
(3,422
|
)
|
|
|
(10.7
|
)
|
Other
|
|
|
4,982
|
|
|
|
4,728
|
|
|
|
254
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
418,543
|
|
|
$
|
452,648
|
|
|
$
|
(34,105
|
)
|
|
|
(7.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base and percentage rental revenues of the core portfolio properties (shopping center
properties owned as of January 1, 2008, but excluding properties under development/redevelopment
and those classified in discontinued operations) (Core Portfolio Properties) decreased
approximately $21.9 million, or 7.8%, for the six-month period ended June 30, 2009, as compared to
the same period in 2008. The decrease in overall base and percentage rental revenues was due to
the following (in millions):
|
|
|
|
|
|
|
Increase
|
|
|
|
(Decrease)
|
|
Core Portfolio Properties
|
|
$
|
(21.9
|
)
|
Development/redevelopment of shopping center properties
|
|
|
(0.4
|
)
|
Business center properties
|
|
|
(0.2
|
)
|
Straight-line rents
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
$
|
(25.4
|
)
|
|
|
|
|
At June 30, 2009, the aggregate occupancy rate of the Companys shopping center portfolio was
87.4%, as compared to 94.2% at June 30, 2008. The Company owned 682 shopping centers at June 30,
2009, as compared to 708 shopping centers at June 30, 2008. The average annualized base rent per
occupied square foot was $12.52 at June 30, 2009, as compared to $12.47 at June 30, 2008.
- 49 -
The base and percentage rental revenue decrease within the Core Portfolio is due almost
exclusively to the impact of the major tenant bankruptcies including Mervyns, Goodys, Linens N
Things, Circuit City and Steve and Barrys. These bankruptcies have also driven the Companys
current historically low occupancy level.
At June 30, 2009, the aggregate occupancy rate of the Companys wholly-owned shopping centers
was 90.0%, as compared to 93.2% at June 30, 2008. The Company had 323 wholly-owned shopping
centers at June 30, 2009, as compared to 350 shopping centers at June 30, 2008. The average
annualized base rent per occupied square foot for wholly-owned shopping centers was $11.74 at June
30, 2009, as compared to $11.63 at June 30, 2008. The decrease in occupancy rate is primarily a
result of the bankruptcies discussed above, excluding Mervyns.
At June 30, 2009, the aggregate occupancy rate of the Companys joint venture shopping centers
was 85.2%, as compared to 95.0% at June 30, 2008. The Companys joint ventures owned 359 shopping
centers including 35 consolidated centers primarily owned through a joint venture which owns sites
previously occupied by Mervyns at June 30, 2009, as compared to 358 shopping centers including 40
consolidated centers primarily owned through the Mervyns Joint Venture at June 30, 2008. The
average annualized base rent per occupied square foot was $13.22 at June 30, 2009, as compared to
$13.20 at June 30, 2008. The decrease in the occupancy rate is primarily a result of the
bankruptcies discussed above as well as the impact of the vacancy of the Mervyns sites in 2009.
At June 30, 2009, the aggregate occupancy rate of the Companys business centers was 71.6%, as
compared to 71.2% at June 30, 2008. The business center portfolio includes six assets in four
states at June 30, 2009. The business center portfolio consisted of seven assets in five states at
June 30, 2008.
Recoveries from tenants decreased $4.7 million, or 4.8%, for the six-month period ended June
30, 2009, as compared to the same period in 2008. Recoveries were approximately 73.1% and 80.2% of
operating expenses and real estate taxes including bad debt expense for the six-months ended June
30, 2009 and 2008, respectively. This decrease in recoveries from tenants was primarily a result
of the decrease in occupancy of the Companys portfolio as discussed above due to major tenant
bankruptcies.
The decrease in ancillary and other property income is primarily attributable to a $1.0
million nonrecurring fee recognized in 2008. Ancillary revenue opportunities have in the
past included short-term and seasonal leasing programs, outdoor advertising programs, wireless
tower development programs, energy management programs, sponsorship programs and various other
programs.
- 50 -
The decrease in management, development and other fee income for the six-month period ended
June 30, 2009, is primarily due to the following (in millions):
|
|
|
|
|
|
|
Increase
|
|
|
|
(Decrease)
|
|
Development fee income
|
|
$
|
(1.9
|
)
|
Leasing commissions
|
|
|
(0.4
|
)
|
Decrease in property and asset management fee income at
various unconsolidated joint ventures
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
$
|
(3.4
|
)
|
|
|
|
|
The decrease in development fee income was primarily the result of the reduced construction
activity and the redevelopment of joint venture assets that are owned through the Companys
investments with the Coventry II Fund discussed below. In light of current market conditions,
development fees may continue to decline if development or redevelopment projects are delayed
and/or cancelled. The reduction in management fess was primarily attributed to tenant bankruptcies
previously discussed and joint venture asset sales and disposals.
Other revenue was comprised of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
|
|
|
Six-Month Periods
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Lease termination fees
|
|
$
|
1.1
|
|
|
$
|
1.4
|
|
|
$
|
2.6
|
|
|
$
|
4.2
|
|
Financing fees
|
|
|
0.3
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
Other
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
1.8
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.7
|
|
|
$
|
1.7
|
|
|
$
|
5.0
|
|
|
$
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses from Operations (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Operating and maintenance
|
|
$
|
35,292
|
|
|
$
|
33,373
|
|
|
$
|
1,919
|
|
|
|
5.8
|
%
|
Real estate taxes
|
|
|
27,671
|
|
|
|
26,884
|
|
|
|
787
|
|
|
|
2.9
|
|
Impairment charges
|
|
|
107,014
|
|
|
|
|
|
|
|
107,014
|
|
|
|
100.0
|
|
General and administrative
|
|
|
28,412
|
|
|
|
21,333
|
|
|
|
7,079
|
|
|
|
33.2
|
|
Depreciation and amortization
|
|
|
58,641
|
|
|
|
55,886
|
|
|
|
2,755
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
257,030
|
|
|
$
|
137,476
|
|
|
$
|
119,554
|
|
|
|
87.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 51 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Operating and maintenance
|
|
$
|
70,805
|
|
|
$
|
68,289
|
|
|
$
|
2,516
|
|
|
|
3.7
|
%
|
Real estate taxes
|
|
|
56,112
|
|
|
|
53,205
|
|
|
|
2,907
|
|
|
|
5.5
|
|
Impairment charges
|
|
|
117,919
|
|
|
|
|
|
|
|
117,919
|
|
|
|
100.0
|
|
General and administrative
|
|
|
47,583
|
|
|
|
42,047
|
|
|
|
5,536
|
|
|
|
13.2
|
|
Depreciation and amortization
|
|
|
119,900
|
|
|
|
109,669
|
|
|
|
10,231
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
412,319
|
|
|
$
|
273,210
|
|
|
$
|
139,109
|
|
|
|
50.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and maintenance expenses include the Companys provision for bad debt expense, which
approximated 1.4% of total revenues for the six-month periods ended June 30, 2009 and 2008 (see
Economic Conditions).
The increase in rental operation expenses, excluding general and administrative and impairment
charges, for the six-month period ended June 30, 2009 compared to 2008, is due to the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Real
|
|
|
Depreciation
|
|
|
|
and
|
|
|
Estate
|
|
|
and
|
|
|
|
Maintenance
|
|
|
Taxes
|
|
|
Amortization
|
|
Core Portfolio Properties
|
|
$
|
1.9
|
|
|
$
|
1.3
|
|
|
$
|
4.7
|
(1)
|
Development/redevelopment of shopping center properties
|
|
|
1.0
|
|
|
|
1.6
|
|
|
|
5.2
|
|
Provision for bad debt expense
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
Business center properties
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Personal property
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.5
|
|
|
$
|
2.9
|
|
|
$
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Primarily relates to accelerated depreciation due to changes in estimate
regarding asset useful lives and additional assets placed in service.
|
The majority of the increase in operating expenses is related to increased landlord
expenses primarily relating to the vacancies as a result of tenant
bankruptcies, particular the sites formerly
occupied by Mervyns which were generally triple net leased space. The Company is in the process of
appealing numerous real estate tax charges given the current economic environment and increased
vacancy resulting from these tenant bankruptcies.
The Company recorded impairment charges of $117.9 million for the six-month period ended June
30, 2009 on various of its consolidated real estate investments determined pursuant to the
provisions of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144). Of the aggregate amount, approximately $56.9 million in asset impairments
were triggered primarily due to the Companys marketing of these assets for sale combined with the overall economic downturn in the retail real estate environment during the
six-months ended June 30, 2009. The remaining $61.0 million of impairment charges related to 13
assets formerly occupied by Mervyns, of which the Companys proportionate share was $29.7 million
after adjusting for the allocation of the loss to the non-controlling interest in this consolidated
joint venture.
The increase in general and administrative expenses is primarily attributable to the
potential change in control charge discussed below, partially offset by the termination of a
supplemental equity
- 52 -
award program in December 2008, lower headcount and a reduction in general corporate expenses.
Total general and administrative expenses were approximately 5.4% and 4.4% of total revenues,
including total revenues of unconsolidated joint ventures and discontinued operations, for the
six-month periods ended June 30, 2009 and 2008, respectively.
In May 2009, the Company issued common shares as part of the transaction with Mr. Alexander
Otto (the Investor) and certain members of the Otto family (collectively with the Investor, the
Otto Family). The share issuances and forward commitment, together with the warrants, are
collectively referred to as the Otto Transaction was approved by the Companys shareholders in
April 2009 resulting in a potential change in control under the Companys equity-based award
plans. In addition, when the members of the Otto Family beneficially own 20% or more of the
Companys outstanding common shares as a result of the second closing of the Otto Transaction as
expected, a change in control will be deemed to have occurred under the Companys equity deferred
compensation plans. In accordance with the equity-based award plans, all unvested stock options are
fully exercisable and all restrictions on unvested restricted shares lapsed, and in accordance with
the equity deferred compensation plans, it is expected that all unvested deferred stock units will
become vested and no longer subject to forfeiture at the second closing of the Otto Transaction, as
expected on or before October 9, 2009. As such, in April 2009, the Company recorded an accelerated
non-cash charge in accordance with FASB Statement No. 123(R), Share-Based Payment (SFAS 123(R))
of approximately $10.5 million related to these equity awards as a result of the Companys
shareholders approving a potential change in control. The Company expects to record a non-cash
charge $4.7 million upon change in control later in 2009 upon the second closing and the
issuance of additional common shares in connection with the Otto Transaction should the transaction occur.
The Company continues to expense internal leasing salaries, legal salaries and related
expenses associated with certain leasing and re-leasing of existing space. In addition, the Company
capitalized certain direct and incremental internal construction and software development and
implementation costs consisting of direct wages and benefits, travel expenses and office overhead
costs of $6.0 million and $7.9 million for the six months ended June 30, 2009 and 2008,
respectively. The Company will cease the capitalization of these items as assets are placed in
service or upon the temporary suspension of construction. Because the Company has suspended certain
construction activities, the amount of capitalized costs will be reduced. In connection with the
anticipated reduced level of development spending, the Company has taken steps to reduce overhead
costs, such as reducing head count, in this area.
Other Income and Expenses (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Interest income
|
|
$
|
3,228
|
|
|
$
|
547
|
|
|
$
|
2,681
|
|
|
|
490.1
|
%
|
Interest expense
|
|
|
(59,962
|
)
|
|
|
(62,362
|
)
|
|
|
2,400
|
|
|
|
(3.8
|
)
|
Gain on repurchases of senior notes
|
|
|
45,901
|
|
|
|
200
|
|
|
|
45,701
|
|
|
|
22,850.5
|
|
Loss on equity derivative instruments
|
|
|
(80,025
|
)
|
|
|
|
|
|
|
(80,025
|
)
|
|
|
100.0
|
|
Other expense, net
|
|
|
(6,913
|
)
|
|
|
(102
|
)
|
|
|
(6,811
|
)
|
|
|
6,677.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(97,771
|
)
|
|
$
|
(61,717
|
)
|
|
$
|
(36,054
|
)
|
|
|
58.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 53 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Interest income
|
|
$
|
6,257
|
|
|
$
|
1,115
|
|
|
$
|
5,142
|
|
|
|
461.2
|
%
|
Interest expense
|
|
|
(119,219
|
)
|
|
|
(125,612
|
)
|
|
|
6,393
|
|
|
|
(5.1
|
)
|
Gain on repurchases of senior notes
|
|
|
118,479
|
|
|
|
200
|
|
|
|
118,279
|
|
|
|
59,139.5
|
|
Loss on equity derivative
instruments
|
|
|
(80,025
|
)
|
|
|
|
|
|
|
(80,025
|
)
|
|
|
100.0
|
|
Other expense, net
|
|
|
(10,575
|
)
|
|
|
(600
|
)
|
|
|
(9,975
|
)
|
|
|
1,662.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(85,083
|
)
|
|
$
|
(124,897
|
)
|
|
$
|
39,814
|
|
|
|
(31.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income increased primarily due to interest earned from financing receivables which
aggregated $121.0 million at June 30, 2009. There were no financing receivables at June 30, 2008.
Interest expense decreased primarily due to the decrease in short-term interest rates partially offset by a decline in capitalized interest. The
weighted-average debt outstanding and related weighted-average interest rates are as follows (as
adjusted):
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods
|
|
|
Ended June 30,
|
|
|
2009
|
|
2008
|
Weighted average debt outstanding (billions)
|
|
$
|
5.7
|
|
|
$
|
5.7
|
|
Weighted average interest rate
|
|
|
4.5
|
%
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
2009
|
|
2008
|
Weighted average interest rate
|
|
|
4.2
|
%
|
|
|
4.7
|
%
|
The reduction in weighted-average interest rates in 2009 is primarily related to the decline
in short-term interest rates. Interest costs capitalized in conjunction with development and
expansion projects and unconsolidated development joint venture interests were $5.8 million and
$11.6 million for the three- and six-month periods ended June 30, 2009, respectively, as compared
to $9.8 million and $19.4 million for the same periods in 2008. The Company will cease the
capitalization of interest as assets are placed in service or upon the temporary suspension of
construction. Because the Company has suspended certain construction activities, the amount of
capitalized interest may be reduced in future periods.
Gains on the repurchases of senior notes relates to the Companys purchase of approximately
$376.2 million aggregate principal amount of its outstanding senior unsecured notes at a discount
to par during the six-months ended June 30, 2009, resulting in a net GAAP gain of $118.5 million.
Other expense primarily related to a reserve associated with a mezzanine note receivable of
$5.4 million as well as litigation-related expenditures, the write-off of costs associated with
abandoned development projects and costs incurred for transactions that are not expected to close.
- 54 -
Other items (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
% Change
|
Equity in net
(loss) income of
joint ventures
|
|
$
|
(9,153
|
)
|
|
$
|
12,555
|
|
|
$
|
(21,708
|
)
|
|
|
(172.9
|
)%
|
Tax expense of
taxable REIT
subsidiaries and state
franchise and income taxes
|
|
|
(920
|
)
|
|
|
(286
|
)
|
|
|
(634
|
)
|
|
|
221.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
% Change
|
Equity in net
(loss) income of
joint ventures
|
|
$
|
(8,801
|
)
|
|
$
|
19,943
|
|
|
$
|
(28,744
|
)
|
|
|
(144.1
|
)%
|
Tax benefit
(expense) of
taxable REIT
subsidiaries and state
franchise and income taxes
|
|
|
110
|
|
|
|
(1,317
|
)
|
|
|
1,427
|
|
|
|
(108.4
|
)
|
A summary of the change in equity in net (loss) income of joint ventures for the six-month
period ended June 30, 2009, is composed of the following (in millions):
|
|
|
|
|
|
|
Increase
|
|
|
|
(Decrease)
|
|
Decrease in income from existing joint ventures, primarily due to
lower occupancy levels and ceasing of capitalized interest on joint
ventures under development due to a reduction in construction activity
|
|
$
|
(10.0
|
)
|
Decrease in income at certain joint ventures primarily attributable to
loss on sale or impairment charges on unconsolidated assets
|
|
|
(12.6
|
)
|
Disposition
of joint venture assets (see Off-Balance Sheet Arrangements)
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
$
|
(28.7
|
)
|
|
|
|
|
Impairment of joint venture investments is a result of the Companys determination that
several of the Companys unconsolidated joint venture investments suffered an other than temporary
impairment. For the three and six months ended June 30, 2009, the Company recorded impairment
charges of approximately $40.3 million and $41.1 million, respectively, primarily related to the
Companys investments with Coventry Real Estate Fund II, in accordance with Accounting Principles
Board Opinion No. 18, The Equity Method of Accounting For Investments in Common Stock (APB 18).
The provisions of this opinion require that a loss in value of an investment under the equity
method of accounting that is an other than temporary decline must be
recognized. The major factors contributing to the timing of the
second quarter impairment charges were the communication by Coventry
II Fund investors indicating they would not contribute any additional
capital for any of the projects.
Discontinued Operations (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
% Change
|
(Loss) income
from discontinued
operations
|
|
$
|
(24,798
|
)
|
|
$
|
992
|
|
|
$
|
(25,790
|
)
|
|
|
(2,599.8
|
)%
|
(Loss) gain on
disposition of real
estate, net of tax
|
|
|
(36,023
|
)
|
|
|
1,078
|
|
|
|
(37,101
|
)
|
|
|
(3,441.7
|
)
|
- 55 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
% Change
|
(Loss) income
from discontinued
operations
|
|
$
|
(24,218
|
)
|
|
$
|
3,891
|
|
|
$
|
(28,109
|
)
|
|
|
(722.4
|
)%
|
(Loss) gain on
disposition of real
estate, net of tax
|
|
|
(24,416
|
)
|
|
|
886
|
|
|
|
(25,302
|
)
|
|
|
(2,855.8
|
)
|
Included in discontinued operations for the three- and six-month periods ended June 30, 2009
and 2008, are 21 properties in 2009 (including six properties classified as held for sale at June
30, 2009), aggregating 2.4 million square feet, and 22 shopping centers sold in 2008 (including one
business center and one property classified as held for sale at December 31, 2007) aggregating 1.3
million square feet. In addition, included in the reported loss for both the three- and six-month
periods ended June 30, 2009 is $25.1 million of impairment charges associated with assets held for
sale pursuant to SFAS 144.
Gain on Disposition of Real Estate (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
% Change
|
Gain on
disposition of real
estate, net of tax
|
|
$
|
648
|
|
|
$
|
908
|
|
|
$
|
(260
|
)
|
|
|
(28.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
% Change
|
Gain on
disposition of real
estate, net of tax
|
|
$
|
1,096
|
|
|
$
|
3,275
|
|
|
$
|
(2,179
|
)
|
|
|
(66.5
|
)%
|
The Company recorded net gains on disposition of real estate and real estate investments as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Six-Month Periods Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Land sales (1)
|
|
$
|
|
|
|
$
|
0.6
|
|
|
$
|
|
|
|
$
|
2.7
|
|
Previously deferred
gains and other
gains and losses on
dispositions (2)
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
1.1
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.6
|
|
|
$
|
0.9
|
|
|
$
|
1.1
|
|
|
$
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
These dispositions did not meet the criteria for discontinued operations as the
land did not have any significant operations prior to disposition.
|
|
(2)
|
|
These gains and losses are primarily attributable to the subsequent leasing of
units subject to master leases and other obligations originally established on disposed
properties, which are no longer required.
|
- 56 -
Non-controlling interests (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
% Change
|
Non-controlling interests
|
|
$
|
34,419
|
|
|
$
|
(2,025
|
)
|
|
$
|
36,444
|
|
|
|
(1,799.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
% Change
|
Non-controlling interests
|
|
$
|
37,044
|
|
|
$
|
(4,396
|
)
|
|
$
|
41,440
|
|
|
|
(942.7
|
)%
|
Non-controlling interests expense decreased for the six-month period ended June 30, 2009,
primarily due to the following (in millions):
|
|
|
|
|
|
|
Increase
|
|
|
|
(Decrease)
|
|
DDR MDT MV LLC (owned approximately 50% by the Company)
(1)
|
|
$
|
(40.6
|
)
|
Net loss from consolidated joint venture investments
|
|
|
(0.1
|
)
|
Conversion of 0.5 million operating partnership units to common shares
|
|
|
(0.3
|
)
|
Decrease in the quarterly distribution to operating partnership units investments
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
$
|
(41.4
|
)
|
|
|
|
|
|
|
|
(1)
|
|
The joint venture owns 32 locations formerly occupied by Mervyns, who
declared bankruptcy in 2008 and vacated all sites as of December 31, 2008. This amount is a
result of the $61.0 million in impairment charges recorded on 13 of the assets during the
three- and six-month periods ended June 30, 2009.
|
Net Income (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Net (loss)
income attributable
to DDR
|
|
$
|
(226,585
|
)
|
|
$
|
36,663
|
|
|
$
|
(263,248
|
)
|
|
|
(718.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
Net (loss)
income attributable
to DDR
|
|
$
|
(139,184
|
)
|
|
$
|
76,823
|
|
|
$
|
(216,007
|
)
|
|
|
(281.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in net
(loss) income for the three- and six-month periods ended June 30, 2009 is
primarily related to impairment charges, loss on sale of assets, a potential change in control charge and
equity derivative related charges, partially offset by gains on debt repurchases in addition to
several major tenant bankruptcies in late 2008 and early 2009. A summary of changes in 2009 as
compared to 2008 is as follows (in millions):
- 57 -
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period
|
|
|
Six-Month Period
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
Decrease in net operating revenues (total revenues
in excess of operating and maintenance expenses and
real estate taxes)
|
|
$
|
(21.0
|
)
|
|
$
|
(39.5
|
)
|
Increase in impairment charges
|
|
|
(107.0
|
)
|
|
|
(117.9
|
)
|
Increase in general and administrative expenses
|
|
|
(7.1
|
)
|
|
|
(5.5
|
)
|
Increase in depreciation expense
|
|
|
(2.7
|
)
|
|
|
(10.2
|
)
|
Increase in interest income
|
|
|
2.7
|
|
|
|
5.1
|
|
Decrease in interest expense
|
|
|
2.4
|
|
|
|
6.4
|
|
Increase in gain on repurchases of senior notes
|
|
|
45.7
|
|
|
|
118.3
|
|
Change in equity derivative instruments
|
|
|
(80.0
|
)
|
|
|
(80.0
|
)
|
Change in other expense
|
|
|
(6.8
|
)
|
|
|
(10.0
|
)
|
Decrease in equity in net income of joint ventures
|
|
|
(21.7
|
)
|
|
|
(28.7
|
)
|
Increase in impairment of joint ventures investments
|
|
|
(40.3
|
)
|
|
|
(41.2
|
)
|
Change in income tax benefit/expense
|
|
|
(0.6
|
)
|
|
|
1.4
|
|
Decrease in income from discontinued operations
|
|
|
(25.8
|
)
|
|
|
(28.1
|
)
|
Decrease in gain on disposition of real estate of
discontinued operations properties
|
|
|
(37.1
|
)
|
|
|
(25.3
|
)
|
Decrease in gain on disposition of real estate
|
|
|
(0.3
|
)
|
|
|
(2.2
|
)
|
Decrease in non-controlling interest expense
|
|
|
36.4
|
|
|
|
41.4
|
|
|
|
|
|
|
|
|
Increase in net loss attributable to DDR
|
|
$
|
(263.2
|
)
|
|
$
|
(216.0
|
)
|
|
|
|
|
|
|
|
Funds From Operations
The Company believes that FFO, which is a non-GAAP financial measure, provides an additional
and useful means to assess the financial performance of REITs. FFO is frequently used by securities
analysts, investors and other interested parties to evaluate the performance of REITs, most of
which present FFO along with net income attributable to DDR as calculated in accordance with GAAP.
FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate
and real estate investments, which assumes that the value of real estate assets diminishes ratably
over time. Historically, however, real estate values have risen or fallen with market conditions,
and many companies utilize different depreciable lives and methods. Because FFO excludes
depreciation and amortization unique to real estate, gains and certain losses from depreciable
property dispositions and extraordinary items, it provides a performance measure that, when
compared year over year, reflects the impact on operations from trends in occupancy rates, rental
rates, operating costs, acquisition and development activities and interest costs. This provides a
perspective of the Companys financial performance not immediately apparent from net income
determined in accordance with GAAP.
FFO is generally defined and calculated by the Company as net income, adjusted to exclude: (i)
preferred share dividends, (ii) gains from disposition of depreciable real estate property, except
for those sold through the Companys merchant building program, which are presented net of taxes,
(iii) extraordinary items and (iv) certain non-cash items. These non-cash items principally include
real property depreciation, equity income from joint ventures and equity income from minority
equity investments and adding the Companys proportionate share of FFO from its unconsolidated
joint ventures and minority equity investments, determined on a consistent basis.
- 58 -
For the reasons described above, management believes that FFO provides the Company and
investors with an important indicator of the Companys operating performance. It provides a
recognized measure of performance other than GAAP net income, which may include non-cash items
(often significant). Other real estate companies may calculate FFO in a different manner.
This measure of performance is used by the Company for several business purposes and by other
REITs. The Company uses FFO in part (i) to determine incentives for executive compensation based on
the Companys performance, (ii) as a measure of a real estate assets performance, (iii) to shape
acquisition, disposition and capital investment strategies and (iv) to compare the Companys
performance to that of other publicly traded shopping center REITs.
Management recognizes FFOs limitations when compared to GAAPs income from continuing
operations. FFO does not represent amounts available for needed capital replacement or expansion,
debt service obligations, or other commitments and uncertainties. Management does not use FFO as an
indicator of the Companys cash obligations and funding requirements for future commitments,
acquisitions or development activities. FFO does not represent cash generated from operating
activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash
needs, including the payment of dividends. FFO should not be considered an alternative to net
income (computed in accordance with GAAP) or as an alternative to cash flow as a measure of
liquidity. FFO is simply used as an additional indicator of the Companys operating performance.
For the three-month period ended June 30, 2009, FFO applicable to DDR common shareholders was
a loss of $166.5 million, as compared to an adjusted FFO income of $95.9 million for the same
period in 2008. For the six-month period ended June 30, 2009, FFO applicable to DDR common
shareholders was a loss of $26.5 million, as compared to an adjusted FFO income of $192.2 million
for the same period in 2008. The decrease in FFO, for the six-month period ended June 30, 2009, is
primarily related to impairment charges, loss on sale of assets, a potential change in control
charge and equity derivative related charges, partially offset by gains on debt repurchases in
addition to several major tenant bankruptcies in late 2008 and early 2009. The Companys
calculation of FFO is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Six-Month Periods Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net (loss) income
applicable to DDR
common shareholders
(1)
|
|
$
|
(237,152
|
)
|
|
$
|
26,096
|
|
|
$
|
(160,318
|
)
|
|
$
|
55,689
|
|
Depreciation and
amortization of real
estate investments
|
|
|
57,565
|
|
|
|
57,279
|
|
|
|
118,601
|
|
|
|
111,641
|
|
Equity in net loss
(income) of joint
ventures
|
|
|
9,153
|
|
|
|
(12,555
|
)
|
|
|
8,374
|
|
|
|
(19,943
|
)
|
Joint ventures FFO (2)
|
|
|
3,809
|
|
|
|
25,908
|
|
|
|
18,968
|
|
|
|
45,088
|
|
Non-controlling
interests (OP Units)
|
|
|
80
|
|
|
|
290
|
|
|
|
159
|
|
|
|
884
|
|
Loss (gain) on
disposition of
depreciable real
estate (3)
|
|
|
60
|
|
|
|
(1,133
|
)
|
|
|
(12,274
|
)
|
|
|
(1,151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO applicable to DDR
common shareholders
|
|
|
(166,485
|
)
|
|
|
95,885
|
|
|
|
(26,490
|
)
|
|
|
192,208
|
|
Preferred dividends
|
|
|
10,567
|
|
|
|
10,567
|
|
|
|
21,134
|
|
|
|
21,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFO
|
|
$
|
(155,918
|
)
|
|
$
|
106,452
|
|
|
$
|
(5,356
|
)
|
|
$
|
213,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 59 -
|
|
|
(1)
|
|
Includes straight-line rental revenues of approximately $0.4 million and $2.1
million for the three-month periods ended June 30, 2009 and 2008, respectively, and
$1.4 million and $4.9 million for the six-month periods ended June 30, 2009 and
2008, respectively.
|
|
(2)
|
|
Joint ventures FFO is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Six-Month Periods Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net (loss) income (a)
|
|
$
|
(54,452
|
)
|
|
$
|
72,349
|
|
|
$
|
(62,934
|
)
|
|
$
|
98,376
|
|
Gain on disposition of real estate, net
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
13
|
|
Depreciation and amortization of real
estate investments
|
|
|
62,947
|
|
|
|
59,845
|
|
|
|
127,037
|
|
|
|
116,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,495
|
|
|
$
|
132,205
|
|
|
$
|
64,103
|
|
|
$
|
214,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DDR ownership interest (b)
|
|
$
|
3,809
|
|
|
$
|
25,908
|
|
|
$
|
18,968
|
|
|
$
|
45,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Includes straight-line rental revenue of approximately $0.9 million and
$1.8 million for the three-month periods ended June 30, 2009 and 2008,
respectively, of which the Companys proportionate share was $0.1 million
and $0.3 million, respectively. For the six-month periods ended June 30,
3009 and 2008, includes straight-line rental revenue of approximately $1.7
million and $4.1 million, respectively, of which the Companys proportionate
share was $0.1 million and $0.5 million respectively.
|
|
(b)
|
|
The Companys share of joint venture net income (loss) has been
reduced by $2.6 million and $0.2 million for the three-month periods ended
June 30, 2009 and 2008, respectively, and $2.2 million and $0.3 million for
the six-month periods ended June 30, 2009 and 2008, respectively, related to
basis differences in depreciation and adjustments to gain on sales.
|
|
|
|
At June 30, 2009 and 2008, the Company owned unconsolidated joint venture
interests relating to 324 and 318 operating shopping center properties,
respectively.
|
|
|
|
|
(3)
|
|
The amount reflected as gain on disposition of real estate and real
estate investments from continuing operations in the condensed consolidated
statements of operations includes residual land sales, which management considers
to be the disposition of non-depreciable real property and the sale of newly
developed shopping centers. These dispositions are included in the Companys FFO
and therefore are not reflected as an adjustment to FFO. For the three- and
six-month periods ended June 30, 2008, net gains resulting from residual land sales
aggregated $0.6 million and $2.7 million, respectively. For the three-month
periods ended June 30, 2009 and 2008, merchant building gains, net of tax,
aggregated $0.7 million and $0.2 million, respectively. For the six-month periods
ended June 30, 2009 and 2008, merchant building gains, net of tax, aggregated $0.8
million and $0.3 million, respectively.
|
Liquidity and Capital Resources
The Company relies on capital to buy, develop and improve its shopping center properties, as
well as repay its obligations as they become due. Events in 2008 and continuing into 2009,
including recent failures and near failures of a number of large financial services companies, have
made the capital markets volatile. The Company periodically evaluates opportunities to issue and
sell additional debt or equity securities, obtain credit facilities from lenders, or repurchase,
refinance or otherwise restructure long-term debt for strategic reasons, or to further strengthen
the financial position of the Company and anticipates utilizing a combination of these capital
sources to achieve its goal of deleveraging.
- 60 -
The Company maintains an unsecured revolving credit facility with a syndicate of financial
institutions, for which JP Morgan serves as the administrative agent (the Unsecured Credit
Facility). The Unsecured Credit Facility provides for borrowings of $1.25 billion if certain
financial covenants are maintained and an accordion feature for a future expansion to $1.4 billion
upon the Companys request, provided that new or existing lenders agree to the existing terms of
the facility and increase their commitment level, and a maturity date of June 2010, with a one-year
extension option. The Company also maintains a $75 million unsecured revolving credit facility with
National City Bank (together with the Unsecured Credit Facility, the Revolving Credit
Facilities). This facility has a maturity date of June 2010, with a one-year extension option at
the option of the Company subject to certain customary closing conditions.
The Companys Revolving Credit Facilities and the indentures under which the Companys senior
and subordinated unsecured indebtedness is, or may be, issued, contain certain financial and
operating covenants, including, among other things, leverage ratios, debt service coverage and
fixed charge coverage ratios, as well as limitations on the Companys ability to incur secured and
unsecured indebtedness, sell all or substantially all of the Companys assets and engage in mergers
and certain acquisitions. The Revolving Credit Facilities and indentures also contain customary
default provisions including the failure to timely pay principal and interest issued thereunder,
the failure to comply with the Companys financial and operating covenants, the occurrence of a
material adverse effect on the Company, and the failure to pay when due any other Company
consolidated indebtedness (including non-recourse obligations) in excess of certain specified
levels. In the event the Companys lenders declare a default, as defined in the applicable loan
documentation, this could result in the inability to obtain further funding and/or an acceleration
of any outstanding borrowings.
As of June 30, 2009, the Company was in compliance with all of its financial covenants.
However, due to the economic environment, the Company has less financial flexibility than desired
given the current market dislocation. The Companys current business plans indicate that it will be
able to operate in compliance with these covenants in 2009 and beyond; however, the current
economic downturn along with the dislocation in the global credit markets has significantly
impacted the projected cash flows, financial position and effective leverage of the Company. If
there is a continued decline in the retail and real estate industries and/or the Company is unable
to successfully execute its plans as further described below, the Company could violate these
covenants, and as a result may be subject to higher finance costs and fees and/or accelerated
maturities. In addition, certain of the Companys credit facilities and indentures permit the
acceleration of the maturity of debt issued thereunder in the event certain other debt of the
Company has been accelerated. Furthermore, a default under a loan to the Company or its affiliates,
a foreclosure on a mortgaged property owned by the Company or its affiliates or the inability to
refinance existing indebtedness would have a negative impact on the Companys financial condition,
cash flows and results of operations. These facts and an inability to predict future economic
conditions have encouraged the Company to adopt a strict focus on lowering leverage and increasing
its financial flexibility.
- 61 -
At June 30, 2009, the following information summarizes the availability of the Revolving
Credit Facilities (in billions):
|
|
|
|
|
Revolving Credit Facilities
|
|
$
|
1.325
|
|
Less:
|
|
|
|
|
Amount outstanding
|
|
|
(1.170
|
)
|
Unfunded Lehman Brothers Holdings Commitment
|
|
|
(0.008
|
)
|
Letters of credit
|
|
|
(0.005
|
)
|
|
|
|
|
Amount Available
|
|
$
|
0.142
|
|
|
|
|
|
As of June 30, 2009, the Company had cash of $28.7 million. As of June 30, 2009, the Company
also had 264 unencumbered consolidated operating properties
generating $210.3 million, or 49.0%, of
the total revenue of the Company for the six months ended June 30, 2009, thereby providing a
potential collateral base for future borrowings or to sell to generate cash proceeds, subject to
consideration of the financial covenants on unsecured borrowings.
In 2008, Lehman Brothers Holdings Inc. (Lehman Holdings) filed for protection under Chapter
11 of the United States Bankruptcy Code. Subsequently, Lehman Commercial Paper Inc. (Lehman CPI),
a subsidiary of Lehman Holdings, also filed for protection under Chapter 11 of the United States
Bankruptcy Code. Lehman CPI had a $20.0 million credit commitment under the Unsecured Credit
Facility and, at the time of the filing of this quarterly report, approximately $7.6 million of
Lehman CPIs commitment was undrawn. The Company was notified that Lehman CPIs commitment would
not be assumed. As a result, the Companys availability under the Unsecured Credit Facility was
effectively reduced by approximately $7.6 million. The Company does not believe that this reduction
of credit has a material effect on the Companys liquidity and capital resources.
The Company anticipates that cash flow from operating activities will continue to provide
adequate capital for all scheduled interest and monthly principal payments on outstanding
indebtedness, recurring tenant improvements and dividend payments in accordance with REIT
requirements.
The retail and real estate markets have been significantly impacted by the continued
deterioration of the global credit markets and other macro economic factors including, among
others, rising unemployment and a decline in consumer confidence leading to a decline in consumer
spending. Although a majority of the Companys tenants (especially the anchor tenants) remain in
relatively strong financial standing, the current environment has resulted in tenant bankruptcies affecting the
Companys real estate portfolio, including Mervyns, Linens N Things, Steve and Barrys, Goodys
and Circuit City, which occurred primarily in the second half of 2008. In addition, certain other
tenants may be experiencing financial difficulties. The decrease in occupancy and the projected
timing associated with re-leasing these vacated spaces has resulted in downward pressure on the
Companys 2009 projected operating results. The reduced occupancy will likely have a negative
impact on the Companys consolidated cash flows, results of operations, financial position and
financial ratios that are integral to the continued compliance with the covenants on the Companys
revolving credit facilities as further described above. Offsetting some of the current challenges
within the retail environment, the Company has a low occupancy cost relative to other retail
formats and historical averages, as well as a
- 62 -
diversified tenant base with only one tenant
exceeding 2.5% of total consolidated revenues, Walmart at 5.5%. Other significant tenants include Target, Lowes Home Improvement, Home Depot,
Kohls, T.J. Maxx/Marshalls, Publix Supermarkets, PetSmart and Bed Bath & Beyond, all of which have
relatively strong credit ratings. Management believes these tenants should continue providing the
Company with a stable revenue base for the foreseeable future given the long-term nature of these
leases. Moreover, the majority of the tenants in the Companys shopping centers provide day-to-day
consumer necessities with a focus toward value and convenience versus high-priced discretionary
luxury items, which should enable many tenants to continue operating within this challenging
economic environment.
The Company is committed to prudently managing and minimizing discretionary operating and
capital expenditures and raising the necessary equity and debt capital to maximize its liquidity,
repay its outstanding borrowings as they mature and comply with its financial covenants in 2009 and
beyond. As discussed below, the Company has already implemented several steps integral to the
successful execution of its plans to raise additional equity and debt capital through a combination
of retained capital, the issuance of common shares, debt financing and refinancing and asset sales.
In addition, the Company will continue to strategically utilize proceeds from the above sources to
repay outstanding borrowings on the Companys credit facilities and strategically repurchase the
Companys publicly traded debt at a discount to par to further improve leverage ratios.
|
|
|
Retained Equity With regard to retained capital, the Company has adjusted its
dividend policy to the minimum required to maintain its REIT status. The Company did not
pay a dividend in January 2009 as it had already distributed sufficient funds to comply
with its 2008 tax requirements. Moreover, the Company funded its first and second quarter
2009 dividends in a combination of 90% DDR common shares and 10% cash. Dividend
distributions are expected to be determined on a quarterly basis. The changes to the
Companys 2009 dividends policy to date have resulted in additional free cash flow, which
has been applied primarily to reduce leverage. This change in the Companys quarterly
dividend payments; including the elimination of a quarterly of a
dividend in January 2009, is expected to save approximately $300 million of retained capital in
2009 relative to the Companys 2008 dividend policy.
|
|
|
|
|
Issuance of Common Shares The Company has several alternatives to raise equity
through the sale of its common shares. In May 2009, the Company issued common shares as
part of the Otto Transaction resulting in gross equity proceeds of approximately $52.5
million. The Company expects to close on the sale of the remaining common shares no
later than the fourth quarter of 2009 for estimated gross proceeds of approximately $60
million, subject to certain closing conditions. The Company intends to use the total
estimated $112.5 million in gross proceeds received from this strategic investment in
2009 to reduce leverage. The Company also intends to evaluate other alternatives to raise
equity, including its ability to issue additional common shares in 2009
under the continuous equity program.
|
|
|
|
|
Debt Financing and Refinancing As of June 30, 2009, the Company had
approximately $88.1 million of consolidated debt maturing during
the remainder of 2009,
including regular principal amortization, excluding obligations where
the Company has an
extension option. These maturities are related to various loans secured by certain
shopping centers. The Company repaid approximately $45.7 million of this indebtedness in
July 2009. The remaining $42.4
|
- 63 -
|
|
|
million is expected to be repaid through
the use of retained cash flows from operations, the Companys Revolving Credit Facilities,
financings discussed below and/or extensions currently under negotiation with certain
existing lenders.
|
|
|
|
|
In May 2009, the Company closed on two secured loans for aggregate proceeds of
approximately $125 million. In addition, a $60 million six-month bridge loan funded by
the Otto Family in March 2009 was converted in May 2009 into a five-year fixed-rate term
loan with a 9% interest rate. In July 2009, the Company obtained $17 million of mortgage
debt from a life insurance company on two shopping centers at a 6% interest rate and
maturing in 2017.
|
|
|
|
|
Asset Sales For the six months ended June 2009, the Company and its consolidated
and unconsolidated joint ventures sold numerous assets generating nearly $180 million in
estimated total proceeds. In July 2009, an additional $55.2 million in estimated gross
proceeds was generated. The Company and its joint ventures are also in various stages of
discussions with third parties for the sale of additional assets.
|
|
|
|
|
Debt Repurchases Because of the current economic environment, the Companys
publicly traded debt securities have been trading at discounts to par. During the first
and second quarters of 2009, the Company repurchased approximately $376.2 million
aggregate principal amount of its outstanding senior unsecured notes at a cash discount
to par aggregating $135.5 million. Although the Company will evaluate all of its
alternatives to optimize its use of cash generated from the sources above to achieve the
strategic goal of de-leveraging, the Company expects that it will continue to
opportunistically repurchase its debt securities at a discount to par to further improve
its leverage ratios.
|
As further described above, although the Company believes it has made considerable progress in
implementing the steps to address its objectives of reducing leverage and continuing to comply with
its covenants and repay obligations as they become due, certain
transactions may not close as anticipated, or at
all, and therefore, there can be no assurances that the Company will be able to execute these
plans, which could adversely impact the Companys operations including its ability to remain
compliant with its covenants and repay the Companys obligations as they become due.
Part of the Companys overall strategy includes actively addressing debt maturing after 2009,
and considering alternative courses of action in the event that the capital markets continue to be
volatile. The Company has been very careful to balance the amount and timing of its debt
maturities. In the first six months of 2009, the Company purchased an additional
$376.2 million of aggregate principal amount of its outstanding senior unsecured notes at a
discount to par. Following the repayment of $227.0 million of senior notes in January 2009, the
Company has no major maturities until May 2010, providing time to address the larger maturities
(including the Companys credit facilities) which occur in 2010 through 2012. The Company
continually evaluates its debt maturities, and based on managements current assessment, believes
it has viable financing and refinancing alternatives that may materially impact its expected
financial results as interest rates in the future will likely be at levels higher than the amounts
it is presently incurring. Although the credit environment has become much more difficult since the
third quarter of 2008, the Company continues to pursue opportunities with the largest U.S. banks,
select life insurance companies, certain local banks,
- 64 -
some
international lenders and the United States Term Asset Backed
Securities Loan Facility program.
The approval
process from the lenders has slowed, but lenders are
continuing to execute financing agreements. While pricing and loan-to-value ratios remain
dependent on specific deal terms pricing spreads, in general, are higher and loan-to-values ratios
are lower. Moreover, the Company continues to look beyond 2009 to ensure that the Company is
prepared if the current credit market dislocation continues (See Contractual Obligations and Other
Commitments).
The Companys 2010 debt maturities consist of: $454.2 million of unsecured notes, of which
$193.5 million mature in May 2010 and $260.7 million mature in August 2010; $643.8 million of
consolidated mortgage debt; $23.1 million of construction loans; $1.2 billion of unsecured
revolving credit facilities and $1.6 billion of unconsolidated joint venture mortgage debt (of
which the Companys proportionate share is $0.4 billion). The Companys unsecured Revolving Credit
Facilities allow for a one-year extension option at the option of the
Company to June 2011. Of the 2010
unconsolidated joint venture mortgage debt, the Company or the joint venture has the option to
extend approximately $585.5 million at existing terms. In the first six months of 2009, the Company
repurchased approximately $43.8 million of the senior unsecured notes maturing in 2010 with
proceeds from its Unsecured Credit Facilities. Also, in the first six months of 2009, the Company
repurchased approximately $151.5 million aggregate principal amount of senior unsecured notes
maturing in 2011 and approximately $180.9 million aggregate principal amount of senior unsecured
notes maturing in 2012 with proceeds from its Unsecured Revolving Credit Facilities. The Company
may repurchase additional unsecured notes as operating cash and/or cash from
equity and debt financings becomes available.
These obligations generally require monthly payments of principal and/or interest over the
term of the obligation. In light of the current economic conditions, no assurance can be provided
that the aforementioned obligations will be refinanced or repaid as currently anticipated. Also,
additional financing may not be available at all or on terms favorable to the Company (See
Contractual Obligations and Other Commitments).
The Companys core business of leasing space to well-capitalized retailers continues to
perform well, as the Companys primarily discount-oriented tenants gain market share from retailers
offering higher price points and offering more discretionary goods. These long-term leases generate
consistent and predictable cash flow after expenses, interest payments and preferred share
dividends. This capital is available for use at the Companys discretion for investment, debt
repayment, share repurchases and the payment of dividends on the common shares.
The Companys cash flow activities are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended
|
|
|
June 30,
|
|
|
2009
|
|
2008
|
Cash flow provided by operating activities
|
|
$
|
139,879
|
|
|
$
|
194,437
|
|
Cash flow provided by (used for) investing activities
|
|
|
15,082
|
|
|
|
(227,566
|
)
|
Cash flow (used for) provided by financing activities
|
|
|
(154,619
|
)
|
|
|
29,282
|
|
Operating Activities:
The decrease in operating activities in the six-months ended June 30,
2009 as compared to the same period in 2008, was primarily due to a decrease in the level of
- 65 -
distributions from the Companys unconsolidated joint ventures and the impact from the previously
discussed bankruptcies.
Investing Activities:
The change in investing
activities for the six months ended June 30,
2009 as compared to the same period in 2008, was primarily due to a reduction in capital
expenditure spending for the completion of redevelopment and
ground-up development projects as well as more asset dispositions.
Financing
Activities:
The change in cash used for financing activities
for the six months ended June 30,
2009 as compared to the same period in 2008, is primarily due to debt
repurchases partially offset by a reduction in the cash dividends paid
in 2009 and increased proceeds from the issuance of stock.
During 2007, the Companys Board of Directors authorized a common share repurchase program.
Under the terms of the program, the Company may purchase up to a maximum value of $500 million of
its common shares over a two-year period. Through December 31, 2007, the Company had repurchased
5.6 million of its common shares under this program in open market transactions at an aggregate
cost of approximately $261.9 million. The Company has not repurchased any of its common shares in
2008 or 2009.
The Company satisfied its REIT requirement of distributing at least 90% of ordinary taxable
income with declared common and preferred share dividends of $77.7 million for the second quarter
of 2009, as compared to $186.8 million of cash dividends for the same period in 2008. Accordingly,
federal income taxes have not been incurred at the corporate level for 2009.
The Company declared a quarterly dividend of $0.20 per common share for the first and second
quarters of 2009, payable in either cash or common shares at the election of shareholders, provided
that the dividends payable in cash could not exceed 10% of the aggregate dividend. Based upon the
Companys current results of operations and debt maturities, the Companys Board of Directors
approved a 2009 dividend policy that will maximize the Companys free cash flow, while still
adhering to REIT payout requirements. This payout policy will result in a 2009 annual dividend at
or near the minimum distribution required to maintain REIT status. The Company will continue to
monitor the 2009 dividend policy and provide for adjustments as determined in the best interest of
the Company and its shareholders. The 2009 payout policy should result in additional free cash
flow, which is expected to be applied primarily to reduce leverage (see Off-Balance Sheet
Arrangements and Contractual Obligations and Other Commitments for further discussion of capital
resources).
- 66 -
Current Strategies
Strategic Transactions
Otto Transaction
On February 23, 2009, the Company entered into a stock purchase agreement (the Stock Purchase
Agreement) with the Investor to issue and sell 30 million
common shares to the members of the Otto Family for aggregate gross
proceeds of approximately $112.5 million. In addition, the
Company will issue warrants to purchase up to 10 million common shares with an exercise price of
$6.00 per share to the Otto Family. Under the terms of the Stock Purchase Agreement, the Company
will also issue additional common shares to the Otto Family in an amount equal to any dividends
declared by the Company after February 23, 2009 and prior to the applicable closing of the stock
purchase to the extent payable in common shares which the dividend is payable to all shareholders
all or in part with Company stock.
On April 9, 2009, the Companys shareholders approved the sale of the common shares and
warrants to the Otto Family pursuant to the Otto Transaction. The transaction will occur in two
closings. On May 11, 2009, the Company issued and sold 15.0 million shares and warrants to
purchase 5.0 million common shares to the Otto Family for a purchase price of $52.5 million. The
second closing with the Otto Family is expected to occur on or before October 9, 2009, subject to
the satisfaction or waiver of certain closing conditions. The Company also issued an additional
1,071,428 common shares as a result of the first quarter 2009 dividend to the member of the Otto
Family associated with the initial 15.0 million common shares. The Otto Family earned the right to
receive an additional 1,787,304 common shares relating to the 2009
dividends upon the second closing of 15.0 million common shares.
The shareholders approval of the Otto Transaction in April 2009 resulted in a potential
change in control under the Companys equity-based award plans. In addition, when the Otto Family
acquires beneficial ownership of 20% or more of the Companys outstanding common shares upon the
second closing as expected, a change in control will be deemed to have occurred under the
Companys equity deferred compensation plans. In accordance with the equity-based award plans, all
unvested stock options became fully exercisable and all restrictions on unvested shares lapsed upon
the shareholder approval of the Otto Transaction, and, in accordance with the equity deferred
compensation plans, it is expected that all unvested deferred stock units will become vested and no
longer subject to forfeiture upon the second closing of the Otto
Transaction which is expected to close on
or before October 9, 2009. As such, in April 2009, the Company recorded an accelerated non-cash
charge of approximately $10.5 million in accordance with SFAS 123(R) related to these equity
awards. The Company expects to record an additional non-cash charge of $4.7 million upon the
occurrence of the change in control later in 2009 upon the second closing and the issuance of
additional common shares in connection with the Otto Transaction
should the transaction occur.
The equity forward commitments and warrants are considered derivatives pursuant to FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133).
However, the equity forward commitments and warrants did not qualify for equity treatment pursuant to EITF 07-5,
- 67 -
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock,
due to the existence of downward price protection provisions. As a result, both instruments were required
to be recorded at fair value as of the shareholder approval date of April 9, 2009, and
marked-to-marked through earnings as of each balance sheet date thereafter until exercise or
expiration. Accordingly, the Company reported an aggregate non-cash loss of $80.0 million,
relating to the valuation adjustments associated with these instruments in the second quarter of
2009.
In March 2009, the Company entered into a secured bridge loan agreement with an affiliate of
the Investor for $60 million (the Bridge Loan). The Bridge Loan bore interest at a rate of 10.0%
per annum and was repaid in May 2009 with the proceeds from a $60.0 million five-year secured loan,
also provided by an affiliate of the Investor, which bears a 9.0% interest rate.
Dispositions
The Company and its joint ventures sold seven properties, aggregating 0.7 million square feet,
in the first quarter of 2009 generating gross proceeds of $65.8 million. The Company sold nine
properties, aggregating 1.0 million square feet, in the second quarter of 2009, generating gross
proceeds of $82.4 million. For the six months ended June 30, 2009, the Company recorded an
aggregate loss on sale of approximately $24.4 million related to these consolidated assets. The
Companys joint ventures sold four properties, aggregating 0.4 million square feet in the second
quarter of 2009, generating gross proceeds of $30.8 million.
As part of the Companys deleveraging strategy, the Company is actively marketing assets for
sale. Opportunities for large portfolio asset sales are not occurring as frequently; therefore,
the Company is also focusing on selling single tenant assets and smaller shopping centers. For
certain real estate assets in which the Company has entered into agreements that the contingencies
were released subsequent to June 30, 2009, a loss of approximately $10 million could be recorded if
all such sales were consummated on the terms currently being negotiated. The Company evaluates
all potential sale opportunities taking into account the long-term growth prospects of assets being
sold, the use of proceeds and the impact to the Companys balance sheet including financial
covenants, in addition to the impact on operating results. As a result, it is possible that
additional assets could be sold for a loss after taking into account the above considerations.
Developments, Redevelopments and Expansions
During the six-month period ended June 30, 2009, the Company and its unconsolidated joint
ventures expended an aggregate of approximately $252.0 million ($106.1 million by the Company and
$145.9 million by its unconsolidated joint ventures), before deducting sales proceeds, to acquire,
develop, expand, improve and re-tenant various properties. The Companys acquisition, development,
redevelopment and expansion activity is summarized below.
The Company expects to significantly reduce its anticipated spending in 2009 for its
developments and redevelopments, both for consolidated and unconsolidated projects, as the Company
considers this funding to be discretionary spending. One of the important benefits of the
Companys asset class is the ability to phase development projects over time until appropriate
leasing levels can be achieved. To maximize the return on capital spending and balance the
Companys de-leveraging
- 68 -
strategy, the Company has revised its investment criteria thresholds. The revised
underwriting criteria includes a higher cash-on-cost project return threshold, a longer lease-up
period and a higher stabilized vacancy rate. The Company applies this revised strategy to both
its consolidated and certain unconsolidated joint ventures which own assets under development as
the Company has significant influence and, in some cases, approval rights over decisions relating
to capital expenditures.
Development (Wholly-Owned and Consolidated Joint Ventures)
The Company currently has the following wholly-owned and consolidated joint venture shopping
center projects under construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
Location
|
|
Owned GLA
|
|
|
($ Millions)
|
|
|
Description
|
Miami (Homestead), Florida (1)
|
|
|
272,610
|
|
|
$
|
(3.1
|
)
|
|
Community Center
|
Boise (Nampa), Idaho
|
|
|
431,689
|
|
|
|
37.4
|
|
|
Community Center
|
Boston (Norwood), Massachusetts
|
|
|
56,343
|
|
|
|
7.9
|
|
|
Community Center
|
Elmira (Horseheads), New York
|
|
|
350,987
|
|
|
|
10.9
|
|
|
Community Center
|
Raleigh (Apex), North Carolina
(Promenade)
|
|
|
72,830
|
|
|
|
5.3
|
|
|
Community Center
|
Austin (Kyle), Texas (2)
|
|
|
443,092
|
|
|
|
25.4
|
|
|
Community Center
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,627,551
|
|
|
$
|
83.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes a reduction in costs from future land sales
|
|
(2)
|
|
Consolidated 50% Joint Venture
|
In addition to these current developments, several of which will be developed in phases,
the Company and its joint venture partners intend to commence construction on various other
developments, including several international projects, only after substantial tenant leasing has
occurred and acceptable construction financing is available.
The wholly-owned and consolidated joint venture development estimated funding schedule, net of
reimbursements, as of June 30, 2009, is as follows (in millions):
|
|
|
|
|
Funded as of June 30, 2009
|
|
$
|
300.0
|
|
Projected net funding during 2009
|
|
|
17.3
|
|
Projected net funding thereafter
|
|
|
66.5
|
|
|
|
|
|
Total
|
|
$
|
383.8
|
|
|
|
|
|
Development (Unconsolidated Joint Ventures)
The Companys unconsolidated joint ventures have the following shopping center projects under
construction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
|
|
|
|
|
|
DDRs
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Effective
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
Ownership
|
|
|
Owned
|
|
|
Cost
|
|
|
|
Location
|
|
Percentage
|
|
|
GLA
|
|
|
($ Millions)
|
|
|
Description
|
Kansas City (Merriam), Kansas (1)
|
|
|
20.0
|
%
|
|
|
158,632
|
|
|
$
|
(1.8
|
)
|
|
Community Center
|
Dallas (Allen), Texas (1)
|
|
|
10.0
|
%
|
|
|
797,665
|
|
|
|
(0.3
|
)
|
|
Lifestyle Center
|
Manaus, Brazil
|
|
|
47.4
|
%
|
|
|
502,529
|
|
|
|
13.4
|
|
|
Enclosed Mall
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
1,458,826
|
|
|
$
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 69 -
|
|
|
(1)
|
|
Includes a reduction in costs from future land sales
|
The unconsolidated joint venture development estimated funding schedule, net of
reimbursements, as of June 30, 2009, is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anticipated
|
|
|
|
|
|
|
DDRs
|
|
|
JV Partners
|
|
|
Proceeds from
|
|
|
|
|
|
|
Proportionate
|
|
|
Proportionate
|
|
|
Construction
|
|
|
|
|
|
|
Share
|
|
|
Share
|
|
|
Loans
|
|
|
Total
|
|
Funded as of June 30, 2009
|
|
$
|
57.8
|
|
|
$
|
100.2
|
|
|
$
|
202.1
|
|
|
$
|
360.1
|
|
Projected net funding
during 2009
|
|
|
7.2
|
|
|
|
8.8
|
|
|
|
4.2
|
|
|
|
20.2
|
|
Projected net funding
(reimbursements)
thereafter
|
|
|
0.6
|
|
|
|
2.4
|
|
|
|
(11.9
|
)
|
|
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
65.6
|
|
|
$
|
111.4
|
|
|
$
|
194.4
|
|
|
$
|
371.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopments and Expansions (Wholly-Owned and Consolidated Joint Ventures)
The Company is currently expanding/redeveloping the following wholly-owned and consolidated
joint venture shopping centers at a projected aggregate net cost of approximately $109.4 million.
At June 30, 2009, approximately $82.4 million of costs had been incurred in relation to these
projects.
|
|
|
Property
|
|
Description
|
Miami (Plantation), Florida
|
|
Redevelop shopping center to include Kohls and additional junior tenants
|
Chesterfield, Michigan
|
|
Construct 25,400 sf of small shop space and retail space
|
Fayetteville, North Carolina
|
|
Redevelop 18,000 sf of small shop space and construct an outparcel building
|
Redevelopments and Expansions (Unconsolidated Joint Ventures)
The Companys unconsolidated joint ventures are currently expanding/redeveloping the following
shopping centers at a projected net cost of $154.3 million, which includes original acquisition
costs related to assets acquired for redevelopment. At June 30, 2009, approximately $118.9 million
of costs had been incurred in relation to these projects.
|
|
|
|
|
|
|
DDRs
|
|
|
|
|
Effective
|
|
|
|
|
Ownership
|
|
|
Property
|
|
Percentage
|
|
Description
|
Buena Park, California
|
|
20%
|
|
Large-scale redevelopment of enclosed mall to open-air format
|
Los Angeles (Lancaster), California
|
|
21%
|
|
Relocate Walmart and redevelop former Walmart space
|
Benton Harbor, Michigan
|
|
20%
|
|
Construct 89,000 square feet of anchor space and retail shops
|
Off-Balance Sheet Arrangements
The Company has a number of off-balance sheet joint ventures and other unconsolidated entities
with varying economic structures. Through these interests, the Company has investments in operating
properties, development properties and two management and development companies. Such
- 70 -
arrangements are generally with institutional investors and various developers located
throughout the United States.
The unconsolidated joint ventures that have total assets greater than $250 million (based on
the historical cost of acquisition by the unconsolidated joint venture) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-
|
|
|
|
|
Effective
|
|
|
|
Owned
|
|
|
|
|
Ownership
|
|
|
|
Square Feet
|
|
Total Debt
|
Unconsolidated Real Estate Ventures
|
|
Percentage (1)
|
|
Assets Owned
|
|
(Thousands)
|
|
(Millions)
|
|
Sonae Sierra Brazil BV Sarl
|
|
|
47.4
|
%
|
|
Ten
shopping centers and a management company in Brazil
|
|
|
3,717
|
|
|
$
|
102.9
|
|
Domestic Retail Fund
|
|
|
20.0
|
|
|
63 shopping center assets in several states
|
|
|
8,255
|
|
|
|
967.4
|
|
DDR SAU Retail Fund LLC
|
|
|
20.0
|
|
|
29 shopping center assets located in several states
|
|
|
2,375
|
|
|
|
226.2
|
|
DDRTC Core Retail Fund LLC
|
|
|
15.0
|
|
|
66 assets in several states
|
|
|
15,746
|
|
|
|
1,769.6
|
|
DDR Macquarie Fund
|
|
|
25.0
|
|
|
47 shopping centers in several states
|
|
|
11,468
|
|
|
|
1,081.6
|
|
|
|
|
(1)
|
|
Ownership may be held through different investment structures. Percentage ownerships are
subject to change, as certain investments contain promoted structures.
|
DDR Macquarie Fund
In December 2008, MDT, DDRs partner in the DDR Macquarie Fund joint venture, announced that
it was undergoing a strategic review. This strategic review could result in asset sales, bringing
in a new capital partner or other strategic initiative. During December 2008, the Company and MDT
modified certain terms of its investment that provide for the redemption of the Companys interest
with properties in the US LLC in lieu of cash or MDT shares. On July 9, 2009, the Company entered
into an agreement with MDT to redeem the Companys interest in
the US LLC in exchange for certain high
quality assets. The Company believes this transaction will simplify the ownership structure of the
joint venture and enhance flexibility for both DDR and MDT and lower the Companys leverage. The
Company expects to close on the redemption later in 2009, subject to the satisfaction of certain
closing conditions. The Company expects that it will continue to receive fees for leasing
and managing all the remaining assets owned by MDT and the DDR Macquarie Fund joint venture.
In addition, in April 2009, the Company reduced its direct ownership of MDTs units to below
10% but remains the trusts largest unit holder. The Company incurred a $0.8 million loss on the
security sale, which is classified as an impairment of joint venture investment in the condensed
consolidated statement of operations for the six months ended June 30, 2009.
Funding for Joint Ventures
In connection with the development of shopping centers owned by certain affiliates, the
Company and/or its equity affiliates have agreed to fund its pro rate share of the required capital
associated with approved development projects aggregating approximately $63.1 million at June 30,
2009. These obligations, comprised principally of construction contracts, are generally due in 12
to 18 months as the related construction costs are incurred and are expected to be financed through
new or existing construction loans, revolving credit facilities and retained capital.
- 71 -
The Company has provided loans and advances to certain unconsolidated entities and/or related
partners in the amount of $4.2 million at June 30, 2009, for which the Companys joint venture
partners have not funded their proportionate share. These entities are current on all debt service
owed to DDR. In addition to these loans, the Company has advanced $63.5 million of financing to
one of its unconsolidated joint ventures with Coventry II (the Bloomfield Loan), which accrued
interest at the greater of LIBOR plus 700 basis points or 12% through February 28, 2009. As of
March 1, 2009, the interest in the Bloomfield Loan began accruing at the default rate of 16%, due
to the joint ventures default under a third party secured land loan on the project as discussed
below. The loan has an initial maturity date of July 2011.
Coventry II
The Coventry II Fund and the Company, through a series of joint ventures, acquired 11
value-added retail properties and own 43 sites formerly occupied by Service Merchandise in the
United States. The Company co-invested approximately 20% in each joint venture and is generally
responsible for day-to-day management of the properties. Pursuant to the terms of the joint
venture, the Company earns fees for property management, leasing and construction management. The
Company also could earn a promoted interest, along with the Coventry II Fund, above a preferred
return after return of capital to fund investors.
As of June 30, 2009, the aggregate amount of the Companys net investment in the Coventry II
joint ventures is $25.5 million. As discussed above, the Company has also advanced $63.5 million of
financing to one of the Coventry II joint ventures. In addition to its existing equity and note
receivable, the Company has provided partial payment guaranties to third-party lenders in
connection with the financing for seven of the projects. The amount of each such guaranty is not
greater than the proportion to the Companys investment percentage in the underlying project, and
the aggregate amount of the Companys guaranties is approximately $36.7 million.
Although
the Company will not acquire additional assets through the Coventry
II joint ventures,
additional funds may be required to address ongoing operational needs
and costs associated with the five joint ventures undergoing development or redevelopment. The Coventry II Fund is exploring a variety of
strategies to obtain such funds, including potential dispositions and financings. The Company
continues to maintain the position that it does not intend to fund any of its joint venture
partners capital contributions or their share of debt maturities. This position led to the Ward
Parkway Center in Kansas City, Missouri being transferred to the lender in March 2009 as indicated
below.
Four
of the Coventry II joint ventures third-party credit facilities have matured. For the Bloomfield
Hills, Michigan project, a $48.0 million land loan matured on December 31, 2008 and on February 24,
2009, the lender sent to the borrower a formal notice of default (the Company provided a payment
guaranty in the amount of $9.6 million with respect to such loan and on July 8, 2009, paid such
guaranty in full in exchange for a complete release from the lender). The above referenced $63.5
million Bloomfield Loan from the Company relating to the Bloomfield Hills, Michigan project is
cross defaulted with this third party loan. As a result, on March 3, 2009, the Company sent the
borrower a formal notice of default relating to its loan. For the Kansas City, Missouri project, a
$35.0 million loan matured on January 2, 2009, and on January 6, 2009, the lender sent to the
borrower a formal notice of default (the Company did not provide a payment guaranty with respect to
- 72 -
such loan). On March 26, 2009, the Coventry II joint venture transferred its ownership of this property to
the lender. The Company recorded a $5.8 million loss related to the write off of the book value of
its equity investment. Pursuant to the agreement with the lender, the Company initially managed
the shopping center while the Coventry II Fund marketed the property for sale. Although the
Coventry II Fund continues to market the property, the Company
elected to terminate its management
agreement for the shopping center, effective on June 30, 2009. The joint venture has the ability to
receive excess sale proceeds depending upon the timing and terms of a future sale arrangement. For
the Merriam, Kansas project, a $17.0 million land loan matured on January 20, 2009, and on February
17, 2009, the lender sent to the borrower a formal notice of default (the Company provided a
payment guaranty in the amount of $2.2 million with respect to such loan). On July 21, 2009, the
Company closed on a three-party transaction with the lender and the Coventry II Fund, pursuant to
which the Coventry II Fund transferred to the Company its entire interest in the project, the
lender released the Coventry II Fund from its payment guaranty and the lender extended the loan. As
a result, the Merriam, Kansas project now is wholly owned by DDR, and the debt matures May 31,
2011. For the San Antonio, Texas project, a $20.9 million loan matured on July 7, 2009. The
Company and the Coventry II Fund have received from the lender (and are reviewing) a proposed term
sheet outlining the terms required by the lender in order to extend the loan through July 7, 2011.
The Company did not provide a payment guaranty with respect to such loan.
On April 8, 2009, the lender of the Service Merchandise portfolio sent to the borrower a
formal notice of default based upon the Coventry II Funds failure to satisfy certain net worth
covenants. The Company provided a payment guaranty in the amount of $1.8 million with respect to
such loan. The Coventry II Fund is exploring a variety of strategies to pay-down the outstanding
obligation and the current violation and negotiating forbearance terms with the lender. On April
16, 2009, the lender for the Kirkland, Washington and Benton Harbor, Michigan projects sent to the
borrower formal notices of default based on the Coventry II Funds failure to satisfy certain net
worth covenants. The Company provided payment guaranties in the
amounts of $5.9 million and $3.2 million,
respectively, with respect to such loans. The Coventry II Fund is negotiating forbearance terms
with the lender for both loans.
Other Joint Ventures
The Company is involved with overseeing the development activities for several of its
unconsolidated joint ventures that are constructing, redeveloping or expanding shopping centers.
The Company earns a fee for its services commensurate with the level of oversight provided. The
Company generally provides a completion guarantee to the third party lending institution(s)
providing construction financing.
The Companys unconsolidated joint ventures have aggregate outstanding indebtedness to third
parties of approximately $5.8 billion and $5.7 billion at June 30, 2009 and 2008, respectively (see
Item 3. Quantitative and Qualitative Disclosures About Market Risk). Such mortgages and
construction loans are generally non-recourse to the Company and its partners; however, certain
mortgages may have recourse to the Company and its partners in certain limited situations, such as
misuse of funds and material misrepresentations. In connection with certain of the Companys
unconsolidated joint ventures, the Company and its joint venture partners have agreed to fund any
amounts due the joint ventures lender if such amounts are not paid by the joint venture based on
the Companys pro rata share of such amount aggregating $41.5 million at June 30, 2009.
- 73 -
The Company entered into an unconsolidated joint venture that owns real estate assets in
Brazil. The Company has generally chosen not to hedge any of the residual foreign currency risk
through the use of hedging instruments for this entity. The Company will continue to monitor and
evaluate this risk and may enter into hedging agreements at a later date.
The Company entered into consolidated joint ventures that own real estate assets in Canada and
Russia. The net assets of these subsidiaries are exposed to volatility in currency exchange rates.
As such, the Company uses nonderivative financial instruments to hedge this exposure. The Company
manages currency exposure related to the net assets of the Companys Canadian and European
subsidiaries primarily through foreign currency-denominated debt agreements that the Company enters
into. Gains and losses in the parent companys net investments in its subsidiaries are economically
offset by losses and gains in the parent companys foreign currency-denominated debt obligations.
For
the six-months ended June 30, 2009, $6.4 million of net losses related to the foreign
currency-denominated debt agreements was included in the Companys cumulative translation
adjustment. As the notional amount of the nonderivative instrument substantially matches the
portion of the net investment designated as being hedged and the nonderivative instrument is
denominated in the functional currency of the hedged net investment, the hedge ineffectiveness
recognized in earnings was not material.
Financing Activities
The Company has historically accessed capital sources through both the public and private
markets. The Companys acquisitions, developments, redevelopments and expansions are generally
financed through cash provided from operating activities, revolving credit facilities, mortgages
assumed, construction loans, secured debt, unsecured public debt, common and preferred equity
offerings, joint venture capital, preferred OP Units and asset sales.
Total consolidated debt outstanding at
June 30, 2009, was approximately $5.6 billion, as compared to approximately $5.8 billion at June
30, 2008 and $5.9 billion at December 31, 2008.
In the first six months of 2009, the Company purchased approximately $376.2 million aggregate
principal amount of its outstanding senior unsecured notes (of which
$268.1 million related to convertible notes) at a discount to par resulting in GAAP
gains of approximately $118.5 million. These gains were reduced by approximately $14.7 million due
to the adoption of FSP APB 14-1, Accounting for Convertible Debt That May Be Settled in Cash Upon
Conversion (FSP APB 14-1), in the first quarter of 2009. This standard requires that debt
issuers separately recognize the liability and equity components of convertible instruments that
may be settled in cash upon conversion. As a result of the adoption, the initial debt proceeds
from the offering of the Companys $250 million aggregate principal amount of 3.5% convertible
notes, due in 2011, and $600 million aggregate principal amount of 3.0% convertible notes, due in
2012, were required to be allocated between a liability and equity component. This allocation was
based upon what the assumed interest rate would have been if the Company had issued traditional
senior unsecured notes. Accordingly, the debt balances on the Companys balance sheet relating to
the convertible debt were reduced such that non-cash interest expense would be recognized with a
corresponding increase to the convertible debt balance.
- 74 -
As discussed under Strategic Transactions, the Company entered into a $60 million secured
Bridge Loan with an affiliate of the Otto Family. This was repaid on May 6, 2009 with the proceeds
of a $60 million secured loan also obtained from an affiliate of
the Otto Family. In May 2009, the first
tranche of common shares were sold to the members of the Otto Family. In May 2009, the
Company closed on $125 million of new secured financings comprised of two loans. The first is an $85 million, 10-year loan secured by four assets in Puerto
Rico with an interest rate of 7.59%. The second financing is a $40 million, two-year loan with a
one-year extension option secured by a shopping center in New Jersey. The loan has a floating
interest rate of LIBOR plus 600 basis points with a LIBOR floor of 2.5% which increases to 3.0% in
January 2010 and is pre-payable at any time.
Capitalization
At June 30, 2009, the Companys capitalization consisted of $5.6 billion of debt, $555 million
of preferred shares, and $0.8 billion of market equity (market equity is defined as common shares
and OP Units outstanding multiplied by the closing price of the common shares on the New York Stock
Exchange at June 30, 2009, of $4.88), resulting in a debt to total market capitalization ratio of
0.8 to 1.0. At June 30, 2009, the Companys total debt consisted of $3.9 billion of fixed-rate
debt and $1.7 billion of variable-rate debt, including $600 million of variable-rate debt that was
effectively swapped to a fixed rate. At June 30, 2008, the Companys total debt consisted of $4.5
billion of fixed-rate debt and $1.3 billion of variable-rate debt, including $600 million of
variable-rate debt that was effectively swapped to a fixed rate.
It is managements current strategy to have access to the capital resources necessary to
manage its balance sheet, to repay upcoming maturities and to consider making prudent investments
should such opportunities arise. Accordingly, the Company may seek to obtain funds through
additional debt or equity financings and/or joint venture capital in a manner consistent with its
intention to operate with a conservative debt capitalization policy. In 2009, the
Companys rating agencies, Moodys Investors
Service and Standard and Poors, reduced the Companys debt ratings. The security rating is not a
recommendation to buy, sell or hold securities, as it may be subject to revision or withdrawal at
any time by the rating organization. Each rating should be evaluated independently of any other
rating. In light of the current economic conditions, the Company may not be able to obtain
financing on favorable terms, or at all, which may negatively impact future ratings. The interest spread over LIBOR on
the Companys Revolving Credit Facilities, term loans, letters of credit and certain construction
debt are determined based upon the Companys credit ratings. The Companys interest rate on its
Revolving Credit Facilities was increased from 60 basis points over LIBOR to 75 basis points over
LIBOR and the facility fee increased from 15 basis points to 17.5 basis points. The Companys
interest rate on its term loans was increased from 70 basis points to 87.5 basis points.
The Companys credit facilities and the indentures under which the Companys senior and
subordinated unsecured indebtedness is, or may be, issued contain certain financial and operating
covenants, including, among other things, debt service coverage and fixed charge coverage ratios,
as well as limitations on the Companys ability to incur secured and unsecured indebtedness, sell
all or substantially all of the Companys assets and engage in mergers and certain acquisitions.
Although the Company intends to operate in compliance with these covenants, if the Company were to
violate these covenants, the Company may be subject to higher finance costs and fees or accelerated
maturities. In
- 75 -
addition, certain of the Companys credit facilities and indentures may permit the
acceleration of maturity in the event certain other debt of the Company has been accelerated.
Foreclosure on mortgaged properties or an inability to refinance existing indebtedness would have a
negative impact on the Companys financial condition and results of operations.
Contractual Obligations and Other Commitments
The Companys maturities for the remainder of 2009 consist of $88.5 million in consolidated
mortgage loans, of which $45.7 million was repaid in July 2009 and the remaining $42.8 million is
expected to be refinanced or repaid from operating cash flow, the Companys Revolving Credit
Facilities, assets sales and/or new financings. No assurance can be provided that the
aforementioned obligations will be refinanced or repaid as anticipated (see Liquidity and Capital
Resources).
At June 30, 2009, the Company had letters of credit outstanding of approximately $87.8 million
on its consolidated assets. The Company has not recorded any obligation associated with these
letters of credit. The majority of letters of credit are collateral for existing indebtedness and
other obligations of the Company.
In conjunction with the development of shopping centers, the Company has entered into
commitments aggregating approximately $70.7 million with general contractors for its wholly-owned
and consolidated joint venture properties at June 30, 2009. These obligations, comprised
principally of construction contracts, are generally due in 12 to 18 months as the related
construction costs are incurred and are expected to be financed through operating cash flow and/or
new or existing construction loans, assets sales or revolving credit facilities.
The Company routinely enters into contracts for the maintenance of its properties which
typically can be cancelled upon 30 to 60 days notice without penalty. At June 30, 2009, the
Company had purchase order obligations, typically payable within one year, aggregating
approximately $10.5 million related to the maintenance of its properties and general and
administrative expenses.
The Company continually monitors its obligations and commitments. There have been
no other material items entered into by the Company since December 31, 2003, through June 30, 2009,
other than as described above. See discussion of commitments relating to the Companys joint
ventures and other unconsolidated arrangements in Off-Balance Sheet Arrangements.
Inflation
Substantially all of the Companys long-term leases contain provisions designed to mitigate
the adverse impact of inflation. Such provisions include clauses enabling the Company to receive
additional rental income from escalation clauses that generally increase rental rates during the
terms of the leases and/or percentage rentals based on tenants gross sales. Such escalations are
determined by negotiation, increases in the consumer price index or similar inflation indices. In
addition, many of the Companys leases are for terms of less than 10 years, permitting the Company
to seek increased rents at market rates upon renewal. Most of the Companys leases require the
tenants to pay their share of operating expenses, including common area maintenance, real estate
taxes, insurance and utilities, thereby reducing the Companys exposure to increases in costs and
operating expenses resulting from inflation.
- 76 -
Economic Conditions
The retail market in the United States significantly weakened in 2008 and continues to be
challenged in 2009. Consumer spending has declined in response to erosion in housing values and
stock market investments, more stringent lending practices and job losses. Retail sales have
declined and tenants have become more selective in new store openings. Some retailers have closed
existing locations and as a result, the Company has experienced a loss in occupancy. The reduced
occupancy will likely have a negative impact on the Companys consolidated cash flows, results of
operations and financial position in 2009. Offsetting some of the current challenges within the
retail environment, the Company has a low occupancy cost relative to other retail formats and
historic averages as well as a diversified tenant base with only one tenant exceeding 2.5% of total
second quarter 2009 consolidated revenues (Walmart at 5.5%). Other significant tenants include
Target, Lowes Home Improvement, Home Depot, Kohls, T.J. Maxx/Marshalls, Publix Supermarkets,
PetSmart and Bed Bath & Beyond, all which have relatively strong credit ratings, remain
well-capitalized, and have outperformed other retail categories on a relative basis. The Company
believes these tenants should continue providing us with a stable revenue base for the foreseeable
future, given the long-term nature of these leases. Moreover, the majority of the tenants in the
Companys shopping centers provide day-to-day consumer necessities with a focus towards value and
convenience versus high priced discretionary luxury items, which the Company believes will enable
many of the tenants to continue operating within this challenging economic environment.
The Company monitors potential credit issues of its tenants, and analyzes the possible effects
to the financial statements of the Company and its unconsolidated joint ventures. In addition to
the collectibility assessment of outstanding accounts receivable, the Company evaluates the related
real estate for recoverability pursuant to the provisions of SFAS 144, as well as any tenant
related deferred charges for recoverability, which may include straight-line rents, deferred lease
costs, tenant improvements, tenant inducements and intangible assets (Tenant Related Deferred
Charges). The Company routinely evaluates its exposure relating to tenants in financial distress.
Where appropriate, the Company has either written off the unamortized balance or accelerated
depreciation and amortization expense associated with the Tenant Related Deferred Charges for such
tenants.
The retail shopping sector has been affected by the competitive nature of the retail business
and the competition for market share as well as general economic conditions where stronger
retailers have out-positioned some of the weaker retailers. These shifts have forced some market
share away from weaker retailers and required them, in some cases, to declare bankruptcy and/or
close stores. Certain retailers have announced store closings even though they have not filed for
bankruptcy protection. However, these store closings often represent a relatively small percentage
of the Companys overall gross leasable area and therefore, the Company does not expect these
closings to have a material adverse effect on the Companys overall long-term performance. Overall,
the Companys portfolio remains stable. However, there can be no
assurance that these events will
not adversely affect the Company (see Risk Factors).
Historically, the Companys portfolio has performed consistently throughout many economic
cycles, including downward cycles. Broadly speaking, national retail sales have grown consistently
since World War II, including during several recessions and housing slowdowns. In the past the
- 77 -
Company has not experienced significant volatility in its long-term portfolio occupancy rate.
The Company has experienced downward cycles before and has made the necessary adjustments to
leasing and development strategies to accommodate the changes in the operating environment and
mitigate risk. In many cases, the loss of a weaker tenant creates an opportunity to re-lease space
at higher rents to a stronger retailer. More importantly, the quality of the property revenue
stream is high and consistent, as it is generally derived from retailers with good credit profiles
under long-term leases, with very little reliance on overage rents generated by tenant sales
performance. The Company believes that the quality of its shopping center portfolio is strong, as
evidenced by the high historical occupancy rates, which have previously ranged from 92% to 96%
since the Companys initial public offering in 1993. Although the Company experienced a decline in
the second quarter of 2009 occupancy, the shopping center portfolio occupancy, excluding the impact
of the Mervyns vacancy, is at 89.4% at June 30, 2009. Notwithstanding the recent
decline in occupancy, the Company continues to sign a large number of new leases, with overall
leasing spreads that continue to trend positively, as new leases and renewals have historically.
Moreover, the Company has been able to achieve these results without significant capital investment
in tenant improvements or leasing commissions. In 2008, the Company assembled an Anchor Store
Redevelopment Department staffed with seasoned leasing professionals dedicated to releasing vacant
anchor space created by recent bankruptcies and store closings. While tenants may come and go over
time, shopping centers that are well-located and actively managed are expected to perform well. The
Company is very conscious of, and sensitive to, the risks posed to the economy, but is currently
comfortable that the position of its portfolio and the general diversity and credit quality of its
tenant base should enable it to successfully navigate through these challenging economic times.
Legal Matters
The Company is a party to litigation filed in November 2006 by a tenant in a Company property
located in Long Beach, California. The tenant filed suit against the Company and certain
affiliates, claiming the Company and its affiliates failed to provide adequate valet parking at the
property pursuant to the terms of the lease with the tenant. After a six-week trial, the jury
returned a verdict in October 2008, finding the Company liable for compensatory damages in the
amount of approximately $7.8 million. In addition, the trial court awarded the tenant attorneys
fees and expenses in the amount of approximately $1.5 million. The Company filed motions for a new
trial and for judgment notwithstanding the verdict, both of which were denied. The Company strongly
disagrees with the verdict, as well as the denial of the post-trial motions. As a result, the
Company plans to pursue an appeal of the verdict. Included in other liabilities on the condensed
consolidated balance sheet is a provision which represents managements best estimate of loss based
upon a range of liability pursuant to SFAS 5, Accounting for Contingencies. The Company will
continue to monitor the status of the litigation and revise the estimate of loss as appropriate.
Although the Company believes it has a meritorious basis for
reversing the trial court verdict, there can
be no assurance that the Company will be successful in appealing the verdict.
In addition to the litigation discussed above, the Company and its subsidiaries are subject to
various legal proceedings, which, taken together, are not expected to have a material adverse
effect on the Company. The Company is also subject to a variety of legal actions for personal
injury or property damage arising in the ordinary course of its business, most of which are covered
by insurance. While the resolution of all matters cannot be predicted with certainty, management
believes that the final
- 78 -
outcome of such legal proceedings and claims will not have a material adverse effect on the
Companys liquidity, financial position or results of operations.
New Accounting Standards Implemented
Business Combinations SFAS 141(R)
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement No. 141
(revised 2007), Business Combinations (SFAS 141(R)). The objective of this statement is to
improve the relevance, representative faithfulness and comparability of the information that a
reporting entity provides in its financial reports about a business combination and its effects. To
accomplish that, this statement establishes principles and requirements for how the acquirer: (i)
recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest of the acquiree, (ii) recognizes and measures
the goodwill acquired in the business combination or a gain from a bargain purchase and (iii)
determines what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. This statement applies prospectively to
business combinations for which the acquisition date is on or after the first annual reporting
period beginning on or after December 15, 2008. Early adoption was not permitted. The Company
adopted SFAS 141(R) on January 1, 2009. To the extent that the Company enters into acquisitions
that qualify as businesses, this standard will require that acquisition costs and certain fees,
which were previously capitalized and allocated to the basis of the acquired assets, be expensed as
these costs are incurred. Because of this change in accounting for costs, the Company expects that
the adoption of this standard could have a negative impact on the Companys results of operations
depending on the size of a transaction and the amount of costs incurred. The Company will assess
the impact of significant transactions, if any, as they are contemplated.
Non-Controlling Interests in Consolidated Financial Statements an Amendment of ARB No. 51 SFAS 160
In December 2007, the FASB issued Statement No. 160, Non-Controlling Interest in Consolidated
Financial Statements an Amendment of ARB No. 51 (SFAS 160). A non-controlling interest,
sometimes referred to as minority equity interest, is the portion of equity in a subsidiary not
attributable, directly or indirectly, to a parent. The objective of this statement is to improve
the relevance, comparability, and transparency of the financial information that a reporting entity
provides in its consolidated financial statements by establishing accounting and reporting
standards that require: (i) the ownership interest in subsidiaries held by other parties other than
the parent be clearly identified, labeled, and presented in the consolidated statement of financial
position within equity, but separate from the parents equity; (ii) the amount of consolidated net
income attributable to the parent and to the non-controlling interest be clearly identified and
presented on the face of the consolidated statement of operations; (iii) changes in a parents
ownership interest while the parent retains its controlling financial interest in a subsidiary be
accounted for consistently and requires that they be accounted for similarly, as equity
transactions; (iv) when a subsidiary is deconsolidated, any retained non-controlling equity
investment in the former subsidiary be initially measured at fair value (the gain or loss on the
deconsolidation of the subsidiary is measured using the fair value of any non-controlling equity
investments rather than the carrying amount of that retained
- 79 -
investment) and (v) entities provide sufficient disclosures that clearly identify and
distinguish between the interest of the parent and the interest of the non-controlling owners.
This statement was effective for fiscal years, and interim reporting periods within those fiscal
years, beginning on or after December 15, 2008, and applied on a prospective basis, except for the
presentation and disclosure requirements, which have been applied on a retrospective basis. Early
adoption was not permitted. The Company adopted SFAS 160 on January 1, 2009. As required by SFAS
160, the Company adjusted the presentation of non-controlling interests, as appropriate, in both
the condensed consolidated balance sheet as of December 31, 2008 and the condensed consolidated
statement of operations for three- and six-month periods ended June 30, 2008. The Companys
condensed consolidated balance sheets no longer have a line item referred to as Minority Interests.
Equity at December 31, 2008 was adjusted to include $127.5 million attributable to non-controlling
interests, and the Company reflected approximately $0.6 million as redeemable operating partnership
units. In connection with the Companys adoption of SFAS 160, the Company also adopted the recent
revisions to EITF Topic D-98, Classification and Measurement of Redeemable Securities (D-98).
As a result of the Companys adoption of these standards, amounts previously reported as minority
equity interests and operating partnership minority interests on the Companys condensed
consolidated balance sheets are now presented as non-controlling interests within equity. There
has been no change in the measurement of these line items from amounts previously reported except
due to certain redemption features, certain operating partnership minority interests in the amount
of approximately $0.6 million are reflected as redeemable operating partnership units in the
temporary equity section (between liabilities and equity). These units are exchangeable, at the
election of the operating partnership unit holder, and under certain circumstances at the option of
the Company, into an equivalent number of the Companys common shares or for the equivalent amount
of cash. Based on the requirements of D-98, the measurement of the redeemable operating
partnership units are now presented at the greater of their carrying amount or redemption value at
the end of each reporting period.
Disclosures about Derivative Instruments and Hedging Activities SFAS 161
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments
and Hedging Activities (SFAS 161), which is intended to help investors better understand how
derivative instruments and hedging activities affect an entitys financial position, financial
performance and cash flows through enhanced disclosure requirements. The enhanced disclosures
primarily surround disclosing the objectives and strategies for using derivative instruments by
their underlying risk as well as a tabular format of the fair values of the derivative instruments
and their gains and losses. SFAS 161 is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008, with early application encouraged. The
Company adopted the financial statement disclosures required by SFAS 161 in the Companys first
quarter Form on 10-Q.
Subsequent Events SFAS 165
In May 2009, the FASB issued statement No. 165, Subsequent Events (SFAS 165), which
provides guidance to establish general standards of accounting for and disclosures of events that
occur after the balance sheet date but before financial statements are issued or are available to
be issued. SFAS 165 also requires entities to disclose the date through which subsequent events
were evaluated as well as the rationale for why that date was selected. This disclosure should
alert all users of
- 80 -
financial statements that an entity has not evaluated subsequent events after that date in the
set of financial statements being presented. SFAS 165 is effective for interim and annual periods
ending after June 15, 2009. The adoption of SFAS 165 did not have a material impact on the
Companys financial position, results of operations or cash flows. The Company has evaluated
subsequent events through August 6, 2009, the date that the Companys condensed consolidated
financial statements were available to be issued, for this Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009.
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) FSP APB 14-1
In May 2008, the FASB issued the FSP, Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1). The FSP
prohibits the classification of convertible debt instruments that may be settled in cash upon
conversion, including partial cash settlement, as debt instruments within the scope of FSP APB 14-1
and requires issuers of such instruments to separately account for the liability and equity
components by allocating the proceeds from the issuance of the instrument between the liability
component and the embedded conversion option (i.e., the equity component). The liability component
of the debt instrument is accreted to par using the effective yield method; accretion is reported
as a component of interest expense. The equity component is not subsequently re-valued as long as
it continues to qualify for equity treatment. FSP APB 14-1 must be applied retrospectively to
issued cash-settleable convertible instruments as well as prospectively to newly issued
instruments. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years.
FSP APB 14-1 was adopted by the Company as of January 1, 2009 with retrospective application
to prior periods. As a result of the adoption, the initial debt proceeds from the $250 million
aggregate principal amount of 3.5% convertible notes, due in 2011, and $600 million aggregate
principal amount of 3.0% convertible notes, due in 2012, were required to be allocated between a
liability component and an equity component. This allocation was based upon what the assumed
interest rate would have been if the Company had issued similar nonconvertible debt. Accordingly,
the Companys condensed consolidated balance sheet at December 31, 2008 was adjusted to reflect a
decrease in unsecured debt of approximately $50.7 million, reflecting the unamortized discount. In
addition, at December 31, 2008, real estate assets increased by $2.9 million relating to the impact
of capitalized interest and deferred charges decreased by $1.0 million relating to the reallocation
of original issuance costs to reflect such amounts as a reduction of proceeds from the
reclassification of the equity component. In connection with, FSP APB
14-1, the guidance under D-98 was also amended,
whereas the equity component related to the convertible debt would need to be evaluated in
accordance with D-98 if the convertible debt were currently redeemable at the balance sheet date.
As the Companys convertible debt is not currently redeemable no evaluation is required as of June
30, 2009.
For the three- and six-month periods ended June 30, 2008, the Company adjusted the condensed
consolidated statements of operations to reflect additional non-cash interest expense of $3.3
million and $6.5 million, respectively, net of the impact of capitalized interest, pursuant to the
provisions of FSP APB 14-1. The condensed consolidated statement of operations for the three- and
six-month periods ended June 30, 2009, reflects additional non-cash interest expense of $3.3
million
- 81 -
and $7.1 million, respectively. In addition, the Companys gains on the repurchase of
unsecured debt during the three- and six-month periods ending June 30, 2009 was reduced by
approximately $7.2 million and $14.7 million, respectively, due to the reduction in the amount
allocated to the senior unsecured notes as a result of the adoption of this FSP.
Interim Disclosures about Fair Value of Financial Instruments FSP SFAS 107-1 and APB Opinion 28-1
In April 2009, the FASB issued FSP and APB Interim Disclosures about Fair Value of Financial
Instruments (FSP SFAS 107-1 and APB Opinion 28-1), which require fair value disclosures for
financial instruments that are not reflected in the Condensed Consolidated Balance Sheets at fair
value. Prior to the issuance of FSP SFAS 107-1 and APB Opinion 28-1, the fair values of those
assets and liabilities were only disclosed annually. With the issuance of FSP SFAS 107-1 and APB
Opinion No. 28-1, the Company will be required to disclose this information on a quarterly basis,
providing quantitative and qualitative information about fair value estimates for all financial
instruments not measured in the Condensed Consolidated Balance Sheets at fair value. FSP SFAS 107-1
and APB Opinion 28-1 will be effective for interim reporting periods that end after June 15, 2009.
Early adoption is permitted for periods ending after March 15, 2009. The Company adopted FSP SFAS
107-1 and APB Opinion 28-1 in the second quarter of 2009.
Determination of the Useful Life of Intangible Assets FSP SFAS 142-3
In April 2008, the FASB issued the FSP Determination of the Useful Life of Intangible Assets
(FSP SFAS 142-3), which amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized intangible asset under SFAS
142. FSP SFAS 142-3 is intended to improve the consistency between the useful life of an intangible
asset determined under SFAS 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS 141(R) and other U.S. Generally Accepted Accounting Principles. The
guidance for determining the useful life of a recognized intangible asset in this FSP shall be
applied prospectively to intangible assets acquired after the effective date. The disclosure
requirements in this FSP shall be applied prospectively to all intangible assets recognized as of,
and subsequent to, the effective date. FSP SFAS 142-3 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.
Early adoption was not permitted. The adoption of this standard did not have a material impact on
the Companys financial position and results of operations.
- 82 -
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly FSP SFAS 157-4
In April 2009, the FASB issued the FSP Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly (FSP SFAS 157-4), which clarifies the methodology used to determine fair value
when there is no active market or where the price inputs being used represent distressed sales. FSP
SFAS 157-4 also reaffirms the objective of fair value measurement, as stated in SFAS 157, Fair
Value Measurements (SFAS 157), which is to reflect how much an asset would be sold for in an
orderly transaction. It also reaffirms the need to use judgment to determine if a formerly active
market has become inactive, as well as to determine fair values when markets have become inactive.
FSP SFAS 157-4 should be applied prospectively and will be effective for interim and annual
reporting periods ending after June 15, 2009. The adoption of this standard did not have a
material impact on the Companys financial position and results of operations.
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock EITF 07-5
In June 2008, the FASB issued the EITF, Determining Whether an Instrument (or Embedded
Feature) Is Indexed to an Entitys Own Stock (EITF 07-5). This EITF provides guidance on
determining whether an equitylinked financial instrument (or embedded feature) can be considered
indexed to an entitys own stock, which is a key criterion for determining if the instrument may be
classified as equity. There is a provision in this EITF that provides new guidance regarding how
to account for certain anti-dilution provisions that provide downside price protection to an
investor. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. Early
adoption was not permitted. Due to certain downward price protection provisions within the Otto
Transaction, the impact of this EITF resulted in a charge to earnings of approximately $80 million,
but did not have a material impact on the Companys financial position or cash flow. The Company
evaluated this EITF in connection with the transactions involving the issuance of common shares and
warrants (See Strategic Transactions).
Equity Method Investment Accounting Considerations EITF 08-6
In November 2008, the FASB issued EITF Issue No. 08-6, Equity Method Investment Accounting
Considerations (EITF 08-6). EITF 08-6 clarifies the accounting for certain transactions and
impairment considerations involving equity method investments. EITF 08-6 applies to all investments
accounted for under the equity method. EITF 08-6 is effective for fiscal years and interim periods
beginning on or after December 15, 2008. The adoption of this standard did not have a material
impact on the Companys financial position and results of operations.
- 83 -
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities FSP EITF 03-6-1
In June 2008, the FASB issued the FSP Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (FSP EITF 03-6-1), which addresses whether
instruments granted in share-based payment transactions are participating securities prior to
vesting and, therefore, need to be included in the earnings allocation in computing earnings per
share under the two-class method as described in FASB Statement No. 128, Earnings per Share.
Under the guidance in FSP EITF 03-6-1, unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings per share pursuant to
the two-class method. The FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal years. All prior-period
earnings per share data presented was adjusted retrospectively. Early adoption was not permitted.
The adoption of this standard did not have a material impact on the Companys financial position
and results of operations.
New Accounting Standards to be Implemented
The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of SFAS No. 162 SFAS 168
In June 2009, the FASB approved the FASB Accounting Standards Codification (the
Codification) as the single source of authoritative nongovernmental U.S. GAAP to be launched on
July 1, 2009. The Codification does not change current U.S. GAAP, but is intended to simplify user
access to all authoritative U.S. GAAP by providing all the authoritative literature related to a
particular topic in one place. All existing accounting standard documents will be superseded and
all other accounting literature not included in the Codification will be considered
nonauthoritative. The Codification is effective for interim and annual periods ending after
September 15, 2009. The Company does not expect the adoption of the Codification to have a material
impact on its financial position, results of operations or cash flows.
Amendments to FASB Interpretation No. 46(R) SFAS 167
In June 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R)
(SFAS167), which is effective for fiscal years beginning after November 15, 2009 and introduces a
more qualitative approach to evaluating VIEs for consolidation. SFAS 167 requires a company to
perform an analysis to determine whether its variable interests gives it a controlling financial
interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the entity that has
(a) the power to direct the activities of the VIE that most significantly impact the VIEs economic
performance, and (b) the obligation to absorb losses or the right to receive benefits that could
potentially be significant to the VIE. In determining whether it has the power to direct the
activities of the VIE that most significantly affect the VIEs performance, SFAS 167 requires a
company to assess whether it has an implicit financial responsibility to ensure that a VIE operates
as designed. SFAS 167 requires continuous reassessment of primary beneficiary status rather than
periodic, event-driven assessments as previously required, and incorporates expanded disclosure
requirements. The Company is currently assessing the impact, if any, that the adoption of SFAS 167
will have on its consolidated financial statements.
- 84 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys primary market risk exposure is interest rate risk. The Companys debt,
excluding unconsolidated joint venture debt, is summarized as follows:
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June 30, 2009
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December 31, 2008
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|
|
|
|
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Weighted
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|
Weighted
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|
|
|
|
|
Weighted
|
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Weighted
|
|
|
|
|
|
|
|
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Average
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Average
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Average
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Average
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Amount
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Maturity
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Interest
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Percentage of
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Amount
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Maturity
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Interest
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Percentage of
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(Millions)
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(Years)
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Rate
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Total
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(Millions)
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(Years)
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Rate
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Total
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Fixed-Rate Debt (1)
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$
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3,899.7
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3.0
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5.4
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%
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70.1%
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$4,375.4
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3.0
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5.1%
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74.6%
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Variable-Rate Debt (1)
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$
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1,665.0
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2.1
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1.4
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%
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29.9%
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$1,491.2
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2.7
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1.7%
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25.2%
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(1)
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Adjusted to reflect the $600 million of variable-rate debt that LIBOR was swapped to a
fixed-rate of 5.0% at June 30, 2009 and December 31, 2008. At June 30, 2009 and December 31,
2008, LIBOR was 0.31% and 0.43%, respectively.
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The Companys unconsolidated joint ventures indebtedness is summarized as follows:
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June 30, 2009
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December 31, 2008
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Joint
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Companys
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Weighted
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Weighted
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Joint
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|
Companys
|
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Weighted
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Weighted
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Venture
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Proportionate
|
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Average
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Average
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Venture
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Proportionate
|
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Average
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Average
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|
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Debt
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Share
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Maturity
|
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Interest
|
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Debt
|
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Share
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Maturity
|
|
Interest
|
|
|
(Millions)
|
|
(Millions)
|
|
(Years)
|
|
Rate
|
|
(Millions)
|
|
(Millions)
|
|
(Years)
|
|
Rate
|
|
|
|
|
|
Fixed-Rate Debt
|
|
$
|
4,552.0
|
|
|
$
|
968.8
|
|
|
|
5.0
|
|
|
|
5.5
|
%
|
|
$
|
4,581.6
|
|
|
$
|
982.3
|
|
|
|
5.3
|
|
|
|
5.5
|
%
|
Variable-Rate
Debt
|
|
$
|
1,217.0
|
|
|
$
|
241.1
|
|
|
|
0.7
|
|
|
|
2.5
|
%
|
|
$
|
1,195.3
|
|
|
$
|
233.8
|
|
|
|
1.2
|
|
|
|
2.2
|
%
|
The Company intends to utilize retained cash flow, proceeds from asset sales, financing
and variable-rate indebtedness available under its Revolving Credit Facilities, to repay
indebtedness and fund capital expenditures of the Companys shopping centers. Thus, to the extent
the Company incurs additional variable-rate indebtedness, its exposure to increases in interest
rates in an inflationary period would increase. The Company does not believe, however, that
increases in interest expense as a result of inflation will significantly impact the Companys
distributable cash flow.
The interest rate risk on a portion of the Companys variable-rate debt described above has
been mitigated through the use of interest rate swap agreements (the Swaps) with major financial
institutions. At June 30, 2009 and December 31, 2008, the
interest rate on $600 million of the Companys
consolidated variable-rate debt was swapped to fixed rates. The Company is exposed to
credit risk in the event of non-performance by the counterparties to the Swaps. The Company
believes it mitigates its credit risk by entering into Swaps with a diversified group of major
financial institutions.
The fair value of the Companys fixed-rate debt adjusted to: (i) include the $600 million that
was swapped to a fixed-rate at June 30, 2009 and December 31, 2008; and (ii) include the Companys
proportionate share of the joint venture fixed-rate debt and an estimate of the effect of a 100
basis point increase in market interest rates, is summarized as follows:
- 85 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
100 Basis Point
|
|
|
|
|
|
|
|
|
|
100 Basis Point
|
|
|
Carrying
|
|
|
|
|
|
Increase in
|
|
Carrying
|
|
|
|
|
|
Increase in
|
|
|
Value
|
|
Fair Value
|
|
Market Interest
|
|
Value
|
|
Fair Value
|
|
Market Interest
|
|
|
(Millions)
|
|
(Millions)
|
|
Rates
|
|
(Millions)
|
|
(Millions)
|
|
Rates
|
|
|
|
|
|
Companys fixed-rate debt
|
|
$
|
3,899.7
|
|
|
$
|
3,519.8
|
(1)
|
|
$
|
3,467.9
|
(2)
|
|
$
|
4,375.4
|
|
|
$
|
3,439.0
|
(1)
|
|
$
|
3,381.3
|
(2)
|
Companys proportionate
share of joint venture
fixed-rate debt
|
|
$
|
968.8
|
|
|
$
|
901.5
|
|
|
$
|
870.8
|
|
|
$
|
982.3
|
|
|
$
|
911.0
|
|
|
$
|
878.8
|
|
|
|
|
(1)
|
|
Includes the fair value of interest rate swaps, which was a liability of $21.5
million and $21.7 million at June 30, 2009 and December 31, 2008, respectively.
|
|
(2)
|
|
Includes the fair value of interest rate swaps, which was a
liability of $15.2
million and $12.4 million at June 30, 2009 and December 31, 2008, respectively.
|
The sensitivity to changes in interest rates of the Companys fixed-rate debt was
determined utilizing a valuation model based upon factors that measure the net present value of
such obligations that arise from the hypothetical estimate as discussed above.
Further, a 100 basis point increase in short-term market interest rates at June 30, 2009 and
2008, would result in an increase in interest expense of approximately $8.3 million and $6.4
million, respectively, for the Company and $1.2 million and $1.1 million, respectively,
representing the Companys proportionate share of the joint ventures interest expense relating to
variable-rate debt outstanding for the six-month and year end periods. The estimated increase in
interest expense for the year does not give effect to possible changes in the daily balance for the
Companys or joint ventures outstanding variable-rate debt.
The Company and its joint ventures intend to continually monitor and actively manage interest
costs on their variable-rate debt portfolio and may enter into swap positions based on market
fluctuations. In addition, the Company believes that it has the ability to obtain funds through
additional equity and/or debt offerings and joint
venture capital. Accordingly, the cost of obtaining such protection agreements in relation to the
Companys access to capital markets will continue to be evaluated. The Company has not, and does
not plan to, enter into any derivative financial instruments for trading or speculative purposes.
As of June 30, 2009, the Company had no other material exposure to market risk.
- 86 -
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation as required by Securities Exchange Act Rules 13a-15(b) and
15d-15(b), the Companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have
concluded that the Companys disclosure controls and procedures (as defined in Securities Exchange
Act Rule 13a-15(e)) are effective as of the end of the period covered by this quarterly report on
Form 10-Q to ensure that information required to be disclosed by the Company in reports that it
files or submits under the Securities Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules and forms and were
effective as of the end of such period to ensure that information required to be disclosed by the
Company issuer in reports that it files or submits under the Securities Exchange Act is accumulated
and communicated to the Companys management, including its CEO and CFO, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure.
During the three-month period ended June 30, 2009, there were no changes in the Companys
internal control over financial reporting that materially affected or are reasonably likely to
materially affect the Companys internal control over financial reporting.
- 87 -
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than routine litigation and administrative proceedings arising in the ordinary course of
business, the Company is not presently involved in any litigation nor, to its knowledge, is any
litigation threatened against the Company or its properties, which is reasonably likely to have a
material adverse effect on the liquidity or results of operations of the Company.
ITEM 1A. RISK FACTORS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On June 26, 2007, the Board of Directors authorized a common share repurchase program, which
was announced on June 28, 2007. Under the terms of the program, the Company may purchase up to a
maximum value of $500 million of its common shares over a two-year period. At September 30, 2008,
the Company had repurchased under this program 5.6 million of its common shares at a gross cost of
approximately $261.9 million at a weighted-average price per share of $46.66. The Company made no
repurchases during the quarter ended June 30, 2009.
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number
|
|
|
(d) Maximum Number
|
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
(or Approximate
|
|
|
|
|
|
|
|
|
|
|
|
Purchased as Part
|
|
|
Dollar Value) of
|
|
|
|
|
|
|
|
|
|
|
|
of Publicly
|
|
|
Shares that May Yet
|
|
|
|
(a) Total number of
|
|
|
(b) Average Price
|
|
|
Announced Plans
|
|
|
Be Purchased Under
|
|
|
|
shares purchased
(1)
|
|
|
Paid per Share
|
|
|
or Programs
|
|
|
the Plans or Programs
|
|
April 1
30, 2009
|
|
|
71,148
|
|
|
$
|
3.11
|
|
|
|
|
|
|
|
|
|
May 1 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
71,148
|
|
|
$
|
3.11
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists of common shares surrendered or deemed surrendered to the Company
to satisfy tax withholding obligations in connection with the vesting and/or exercise of awards
under the Companys equity-based compensation plans and the payment of the first quarter dividend
in common shares by the Company in the second quarter of 2009 with respect to outstanding shares of
restricted stock.
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
- 88 -
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 9, 2009, the Company held a special meeting of shareholders. The matters presented
to shareholders for vote and the vote on such matters were as follows:
1. The issuance of common shares and warrants pursuant to the terms and conditions of the stock
purchase agreement, dated as of February 23, 2009, between Mr. Alexander Otto and the Company was
approved by the following vote;
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
87,967,075
|
|
3,463,538
|
|
163,903
|
2. An amendment to the Companys Second Amended and Restated Articles of Incorporation, required as
conditions precedent to the completion of the transaction contemplated by the stock purchase
agreement dated as of February 23, 2009,
between Mr. Alexander Otto and the Company was approved by
the following vote;
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
87,844,192
|
|
3,469,910
|
|
280,414
|
3. An amendment to the Companys Second Amended and Restated Articles of Incorporation, to update
the transfer restriction and excess share provisions was approved by the following vote;
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
98,473,173
|
|
5,674,035
|
|
496,254
|
4. An amendment to the Companys Amended and Restated Code of Regulations to grant the Board of
Directors the authority to fix the number of members of the Board of
Directors was approved by the
following vote;
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
86,407,990
|
|
17,950,680
|
|
284,792
|
5. To approve adjournment of the Special Meeting, if necessary, to solicit additional proxies if
there are not sufficient votes at the time of the Special Meeting or any adjournment thereof to
approve the proposal;
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
94,094,677
|
|
10,313,903
|
|
234,886
|
On June 25, 2009, the Company held its annual meeting of shareholders. The matters presented
to shareholders for vote and the vote on such matters were as follows:
1. Eleven directors, each to serve until the next annual meeting of shareholders and until a
successor has been duly elected and qualified, were elected the following vote;
- 89 -
|
|
|
|
|
|
|
|
|
|
|
For
|
|
Withheld
|
Dean S. Adler
|
|
|
99,855,305
|
|
|
|
11,389,502
|
|
Terrance R. Ahern
|
|
|
100,475,100
|
|
|
|
10,769,707
|
|
Robert H. Gidel
|
|
|
100,578,368
|
|
|
|
10,666,439
|
|
Daniel B. Hurwitz
|
|
|
98,858,910
|
|
|
|
12,385,897
|
|
Volker Kraft
|
|
|
100,172,805
|
|
|
|
11,072,002
|
|
Victor B. MacFarlane
|
|
|
100,374,587
|
|
|
|
10,870,220
|
|
Craig Macnab
|
|
|
97,101,491
|
|
|
|
14,143,316
|
|
Scott D. Roulston
|
|
|
96,130,880
|
|
|
|
15,113,927
|
|
Barry A. Sholem
|
|
|
100,327,536
|
|
|
|
10,917,271
|
|
William B. Summers, Jr.
|
|
|
96,025,128
|
|
|
|
15,219,679
|
|
Scott A. Wolstein
|
|
|
99,146,337
|
|
|
|
12,098,470
|
|
2. An amendment to the Companys Amended and Restated Articles of Incorporation, as
Amended to increase the number of authorized common shares from 300,000,000 to 500,000,000 was
approved the following vote;
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
97,272,240
|
|
13,559,735
|
|
412,824
|
3. An amendment and restatement to the Companys 2008 Developers Diversified Realty Corporation
Equity-Based Award Plan was approved by the following vote;
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
83,510,104
|
|
11,025,151
|
|
284,861
|
4. The ratification of the
selection of PricewaterhouseCoopers LLP as the Companys independent
accountants for the Companys fiscal year ending December 31, 2009
was approved by the following vote;
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
105,239,875
|
|
5,772,916
|
|
232,015
|
ITEM 5. OTHER INFORMATION
None
- 90 -
ITEM 6. EXHIBITS
|
|
|
3.1
|
|
Second Amended and Restated Articles of Incorporation of Developers Diversified
Realty Corporation, as amended as of May 8, 2009
|
|
|
|
10.1
|
|
Amended and Restated 2002 Developers Diversified Realty Corporation Equity-Based Award
Plan
|
|
|
|
10.02
|
|
Amended and Restated 2004 Developers Diversified Realty Corporation Equity-Based Award
Plan
|
|
|
|
10.3
|
|
Amended and Restated 2008 Developers Diversified Realty Corporation Equity-Based Award
Plan (Amended and Restated as of June 25, 2009)
|
|
|
|
10.4
|
|
Form Restricted Shares Agreement
|
|
|
|
10.5
|
|
Form Stock Option Agreement for Incentive stock option grants to executive officers
|
|
|
|
10.6
|
|
Form Stock Option Agreement for non-qualified stock option grants to executive officers
|
|
|
|
10.7
|
|
Investors Right Agreement, dated as of May 11, 2009, by and between Developers Diversified Realty Corporation and Alexander Otto
|
|
|
|
10.8
|
|
Waiver Agreement, dated as of May 11, 2009, by and between Developers Diversified Realty Corporation and Alexander Otto
|
|
|
|
31.1
|
|
Certification of principal financial officer pursuant to Rule 13a-14(a) of the Exchange
Act pf 1934
|
|
|
|
31.2
|
|
Certification of principal financial officer pursuant to Rule 13a-14(a) of the Exchange Act
of 1934
|
|
|
|
32.1
|
|
Certification of CEO pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of this report pursuant to the Sarbanes-Oxley Act of
2002 1
|
|
|
|
32.2
|
|
Certification of CFO pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of this report pursuant to the Sarbanes-Oxley Act of
2002 1
|
|
|
|
1
|
|
Pursuant to SEC Release No. 34-4751, these exhibits are deemed to
accompany this report and are not filed as part of this report.
|
- 91 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
|
|
|
|
|
|
|
/s/ William H. Schafer
William H. Schafer, Executive Vice President and
Chief Financial Officer (Duly Authorized Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Christa A. Vesy
Christa A. Vesy, Senior Vice President and Chief Accounting Officer
(Chief Accounting Officer)
|
|
|
- 92 -
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
Exhibit No.
|
|
|
|
|
|
|
|
Filed Herewith or
|
Under Reg. S-K
|
|
Form 10-Q
|
|
|
|
Incorporated Herein
|
Item 601
|
|
Exhibit No.
|
|
Description
|
|
by Reference
|
3
|
|
|
3.1
|
|
|
Second Amended and
Restated Articles of
Incorporation of Developers
Diversified Realty Corporation,
as amended as of May 8, 2009
|
|
Filed herewith
|
|
|
|
|
|
|
|
|
|
10
|
|
|
10.1
|
|
|
Amended and Restated 2002
Developers Diversified Realty
Corporation Equity-Based Award
Plan
|
|
Filed herewith
|
|
|
|
|
|
|
|
|
|
10
|
|
|
10.02
|
|
|
Amended and Restated 2004
Developers Diversified Realty
Corporation Equity-Based Award
Plan
|
|
Filed herewith
|
|
|
|
|
|
|
|
|
|
10
|
|
|
10.3
|
|
|
Amended and Restated 2008
Developers Diversified Realty
Corporation Equity-Based Award
Plan (Amended and Restated as
of June 25, 2009)
|
|
Filed herewith
|
|
|
|
|
|
|
|
|
|
10
|
|
|
10.4
|
|
|
Form Restricted Shares Agreement
|
|
Filed herewith
|
|
|
|
|
|
|
|
|
|
10
|
|
|
10.5
|
|
|
Form Stock Option Agreement for
Incentive stock option grants
to executive officers
|
|
Filed herewith
|
|
|
|
|
|
|
|
|
|
10
|
|
|
10.6
|
|
|
Form Stock Option Agreement for
non-qualified stock option
grants to executive officers
|
|
Filed herewith
|
|
|
|
|
|
|
|
|
|
10
|
|
|
10.7
|
|
|
Investors Right Agreement, dated as of May 11, 2009, by and between Developers Diversified Realty Corporation and Alexander Otto
|
|
Current Report on Form 8-K (filed with the SEC on May 11, 2009)
|
|
|
|
|
|
|
|
|
|
10
|
|
|
10.8
|
|
|
Waiver Agreement, dated as of May 11, 2009, by and between Developers Diversified Realty Corporation and Alexander Otto
|
|
Current Report on Form 8-K (filed with the SEC on May 11, 2009)
|
|
|
|
|
|
|
|
|
|
31
|
|
|
31.1
|
|
|
Certification of principal
executive officer pursuant to
Rule 13a-14(a) of the Exchange
Act of 1934
|
|
Filed herewith
|
|
|
|
|
|
|
|
|
|
31
|
|
|
31.2
|
|
|
Certification of principal
financial officer pursuant to
Rule 13a-14(a) of the Exchange
Act of 1934
|
|
Filed herewith
|
|
|
|
|
|
|
|
|
|
32
|
|
|
32.1
|
|
|
Certification of CEO pursuant
to Rule 13a-14(b) of the
Exchange Act and 18 U.S.C.
Section 1350, as adopted
pursuant to Section 906 of this
report pursuant to the
Sarbanes-Oxley Act of 2002 1
|
|
Filed herewith
|
|
|
|
|
|
|
|
|
|
32
|
|
|
32.2
|
|
|
Certification of CFO pursuant
to Rule 13a-14(b) of the
Exchange Act and 18 U.S.C.
Section 1350, as adopted
pursuant to Section 906 of this
report pursuant to the
Sarbanes-Oxley Act of 2002 1
|
|
Filed herewith
|
- 93 -
Exhibit
3.1
CERTIFICATE OF AMENDMENT
TO
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
DEVELOPERS DIVERSIFIED REALTY CORPORATION
SCOTT A. WOLSTEIN, Chief Executive Officer, and JOAN U. ALLGOOD, Secretary, of
Developers Diversified Realty Corporation, an Ohio corporation (the Corporation), do hereby
certify that a meeting of the shareholders of the Corporation was duly called and held on April 9,
2009, at which meeting a quorum of the shareholders was present in person or by proxy, and by the
affirmative vote of the holders of shares entitling them to exercise a majority of the voting power
of the Corporation on proposals to amend the Corporations Second Amended and Restated Articles of
Incorporation (the Articles), resolutions approving the amendment of Article FOURTH, Division B
of the Articles attached hereto as
Exhibit A
(the Amendments) were duly approved; and
that said resolutions are valid and binding, have not been amended, modified or rescinded, and are
in full force and effect on the date hereof.
IN WITNESS WHEREOF, Scott A. Wolstein, Chief Executive Officer, and Joan U. Allgood,
Secretary, of the Corporation acting for and on its behalf, do hereunto subscribe their names on
this 8th day of May, 2009.
|
|
|
|
|
/s/ Scott A. Wolstein
|
|
|
|
|
|
Scott A. Wolstein, Chief Executive Officer
|
|
|
|
|
|
/s/ Joan U. Allgood
|
|
|
|
|
|
Joan U. Allgood, Secretary
|
Amendment
to the
Second Amended and Restated Articles of Incorporation
of
Developers Diversified Realty Corporation
RESOLVED
, that the Companys Second Amended and Restated Articles of Incorporation will be
amended as set forth below:
ARTICLE FOURTH,
Division B, shall be amended as follows:
DIVISION B
Subject to the terms of the Cumulative Shares and the Noncumulative Preferred Shares, the
Common Shares shall have the following express terms:
Section 1.
Dividend Rights.
The holders of Common Shares shall be entitled to
receive, when, as and if declared by the Board of Directors of the Corporation, out of the assets
of the Corporation which are by law available therefor, dividends or distributions payable in cash,
in property or in securities of the Corporation.
Section 2.
Rights Upon Liquidation.
In the event of any voluntary or involuntary
liquidation, dissolution or winding up of, or any distribution of the assets of, the Corporation,
each holder of Common Shares shall be entitled to receive, ratably with each other holder of Common
Shares, that portion of the assets of the Corporation available for distribution to its
shareholders as the number of Common Shares held by such holder bears to the total number of Common
Shares then outstanding.
Section 3.
Voting Rights.
The holders of Common Shares shall be entitled to vote on
all matters (for which holders of Common Shares shall be entitled to vote thereon) at all meetings
of the shareholders of the Corporation, and shall be entitled to one vote for each Common Share
entitled to vote at such meeting.
Section 4.
Restrictions on Transfer to Preserve Tax Benefit; Common Shares Subject
to Redemption
.
(a) Definitions.
For the purposes of this Section 4 of this Division B of this Article
FOURTH, the following terms shall have the following meanings:
Beneficial Ownership
shall mean ownership of Common Shares by a Person who would be treated
as an owner of such Common Shares either directly or constructively through the application of
Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms Beneficial
Owner, Beneficially Owns and Beneficially Owned shall have the correlative meanings.
Beneficiary
shall mean, with respect to any Trust, one or more organizations described in
Section 501(c)(3) of the Code (contributions to which must be eligible for deduction under each of
Sections 170(b)(1)(A), 2055 and 2522 of the Code which are named by the Corporation as the
beneficiary or beneficiaries of such Trust, in accordance with the provisions of Section 7(a) of
this Division B of this Article FOURTH.
Code
shall mean the Internal Revenue Code of 1986, as amended from time to time.
Constructive Ownership
shall mean ownership of Common Shares by a Person who would be
treated as an owner of such Common Shares either directly or Constructively through the application
of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms Constructive
Owner, Constructively Owns and Constructively Owned shall have the correlative meanings.
Effective Date
shall mean May 8, 2009.
Exempt Holder
shall mean, collectively, (i) Professor Werner Otto, his wife Maren Otto
and/or all descendants of Professor Werner Otto (illegitimate descendants only if they have
obtained the status of a legitimate descendant by legitimation or adoption by Professor Werner Otto
or one of his legitimate descendants, or if they are children of a female legitimate descendant of
Professor Werner Otto), (ii) any trust or any family foundation that has exclusively been
established in favor of one or several of the individuals named under (i) above, and (iii) any
partnership, firm, corporation, association, trust, unincorporated organization, joint venture,
limited liability company or other legal entity, in which the individuals or entities named under
(i) and (ii) hold (either directly or indirectly) more than 50% of the voting rights or more than
50% of the equity capital of such any such partnership, firm, corporation, association, trust,
unincorporated organization, joint venture, limited liability company or other legal entity.
Exempt Holder Limit
shall initially mean 29.8% of the outstanding Common Shares of the
Corporation, and after any adjustment pursuant to Section (4)(i)(i) of this Division B of this
Article FOURTH, shall mean such percentage of the outstanding Common Shares as so adjusted.
Existing Holder
shall mean, collectively, Iris Wolstein and/or all descendants of Iris
Wolstein, including, without limitation, Scott A. Wolstein, (ii) any trust or any family foundation
that has exclusively been established in favor of one or several of the individuals named under (i)
above, and (iii) any partnership, firm, corporation, association, trust, unincorporated
organization, joint venture, limited liability company or other legal entity, in which the
individuals or entities named under (i) and (ii) hold (either directly or indirectly) more than 50%
of the voting rights as well as more than 50% of the equity capital of such any such partnership,
firm, corporation, association, trust, unincorporated organization, joint venture, limited
liability company or other legal entity.
Existing Holder Limit
shall initially mean 5.1% of the outstanding Common Shares of the
Corporation, and after any adjustment pursuant to Section 4(i)(ii) of this Division B of this
Article FOURTH, shall mean such percentage of the outstanding Common Shares as so adjusted.
2
Market Price
shall mean the last reported sales price of Common Shares reported on the New
York Stock Exchange on the trading day immediately preceding the relevant date or, if the Common
Shares are not then traded on the New York Stock Exchange, the last reported sales price of the
Common Shares on the trading day immediately preceding the relevant date as reported on any
exchange or quotation system over which the Common Shares may be traded, or if the Common Shares
are not then traded over any exchange or quotation system, then the market price of the Common
Shares on the relevant date as determined in good faith by the Board of Directors of the
Corporation.
Non-Transfer Event
shall mean an event other than a purported Transfer that would cause any
Person to Beneficially Own or Constructively Own Common Shares in excess of the Ownership Limit (in
the case of any Person other than the Exempt Holder) or the Exempt Holder Limit (in the case of the
Exempt Holder), including, but not limited to, the acquisition, directly or indirectly, of any
Person that Beneficially Owns or Constructively Owns Common Shares.
Non-U.S. Person
shall mean a Person other than a U.S. Person.
Ownership Limit
shall initially mean 5.0% of the outstanding Common Shares of the
Corporation , and after any adjustment pursuant to Section (4)(j) of this Division B of this
Article FOURTH, shall mean such percentage of the outstanding Common Shares as so adjusted.
Person
shall mean an individual, corporation, partnership, estate, trust (including a trust
qualified under Section 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, an
association, a private foundation within the meaning of Section 509(a) of the Code, a joint stock
company, other entity or a group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended; provided, however, that a Person does not mean an
underwriter which participates in a public offering of the Common Shares, for a period of 35 days
following the purchase by such underwriter of the Common Shares.
Prohibited Owner
shall mean, with respect to any purported Transfer or Non-Transfer Event,
any Person who, but for the provisions of Section 4(c) of this Division B of this Article FOURTH,
would own record title to Common Shares.
REIT
shall mean a real estate investment trust within the meaning of Section 856 of the
Code.
Related Party Limit
shall mean 9.8% of the outstanding Common Shares of the Corporation.
Transfer
shall mean any sale, transfer, gift, assignment, devise or other disposition of
Common Shares (including, without limitation, (i) the granting of any option or entering into any
agreement for the sale, transfer or other disposition of Common Shares or (ii) the sale, transfer,
assignment or other disposition of any securities or rights convertible into or exchangeable for
Common Shares), whether voluntary or involuntary, whether of record or beneficially and whether by
operation of law or otherwise.
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Trust
shall mean any separate trust created pursuant to Section 4(c) of this Division B of
this Article FOURTH and administered in accordance with the terms of Section 7 of this Division B
of this Article FOURTH, for the exclusive benefit of any Beneficiary.
Trustee
shall mean any person or entity unaffiliated with both the Corporation and any
Prohibited Owner, such Trustee to be designated by the Corporation to act as trustee of any Trust,
or any successor trustee thereof.
U.S. Person
shall mean (i) a citizen or resident of the United States, (ii) a partnership
created or organized in the United States or under the laws of the United States or any state
therein (including the District of Columbia), (iii) a corporation created or organized in the
United States or under the laws of the United States or any state therein (including the District
of Columbia), and (iv) any estate or trust (other than a foreign estate or foreign trust, within
the meaning of Section 7701(a)(31) of the Code).
(b)
Restrictions on Transfers.
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(i)
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Except as provided in Section 4(l) of this Division B of this Article FOURTH,
from and after the date of the Initial Public Offering, (A) no Person (other than the
Exempt Holder and the Existing Holder) shall Beneficially Own Common Shares in excess
of the Ownership Limit, (B) the Exempt Holder shall not Beneficially Own Common Shares
in excess of the Exempt Holder Limit and (C) the Existing Holder shall not Beneficially
Own Common Shares in excess of the Existing Holder Limit.
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(ii)
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Except as provided in Section 4(l) of this Division B of this Article FOURTH,
any Transfer that, if effective, would result in any Person (other than the Exempt
Holder or the Existing Holder) Beneficially Owning Common Shares in excess of the
Ownership Limit shall be void
ab initio
as to the Transfer of such Common Shares which
would be otherwise Beneficially Owned by such Person in excess of the Ownership Limit,
and the intended transferee shall acquire no rights in such Common Shares.
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(iii)
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Except as provided in Section 4(l) of this Division B of this Article FOURTH,
any Transfer that, if effective, would result in the Exempt Holder Beneficially Owning
Common Shares in excess of the Exempt Holder Limit shall be void
ab initio
as to the
Transfer of such Common Shares which would be otherwise Beneficially Owned by the
Exempt Holder in excess of the Exempt Holder Limit, and the Exempt Holder shall acquire
no rights in such Common Shares.
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(iv)
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Except as provided in Section 4(l) of this Division B of this Article FOURTH,
any Transfer that, if effective, would result in the Existing Holder Beneficially
Owning Common Shares in excess of the Existing Holder Limit shall be void
ab initio
as
to the Transfer of such Common Shares which would be otherwise
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Beneficially Owned by the Existing Holder in excess of the Existing Holder Limit,
and the Existing Holder shall acquire no rights in such Common Shares.
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(v)
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Except as provided in Section 4(l) of this Division B of this Article FOURTH,
any Transfer that, if effective, would result in any Person Constructively Owning
Common Shares in excess of the Related Party Limit shall be void
ab initio
as to the
Transfer of such Common Shares which would be otherwise Constructively Owned by such
Person in excess of such amount, and the intended transferee shall acquire no rights in
such Common Shares.
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(vi)
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Except as provided in Section 4(l) of this Division B of this Article FOURTH,
any Transfer that, if effective, would result in the Common Shares being beneficially
owned by less than 100 Persons (determined without reference to any rules of
attribution) shall be void
ab initio
as to the Transfer of such Common Shares which
would be otherwise beneficially owned by the transferee, and the intended transferee
shall acquire no rights in such Common Shares.
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(vii)
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Any Transfer that, if effective, would result in the Corporation being
closely held within the meaning of Section 856(h) of the Code shall be void
ab initio
as to the Transfer of the Common Shares which would cause the Corporation to be
closely held within the meaning of Section 856(h) of the Code, and the intended
transferee shall acquire no rights in such Common Shares.
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(viii)
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No Person shall acquire Beneficial Ownership of any Common Shares after the Effective
Date if, as a result of such acquisition of Beneficial Ownership, the fair market value
of the Common Shares owned directly and indirectly by Non-U.S. Persons for purposes of
Section 897(h)(4)(B) of the Code would comprise 49% or more of the fair market value of
the issued and outstanding Common Shares.
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(c)
Transfers in Trust.
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(i)
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If, notwithstanding the other provisions contained in this Division B of this
Article FOURTH, there is a purported Transfer or Non-Transfer Event such that any
Person would Beneficially Own Common Shares in excess of (A) the Ownership Limit (in
the case of any Person other than the Exempt Holder or the Existing Holder), (B) the
Exempt Holder Limit (in the case of the Exempt Holder), or (C) the Existing Holder
Limit (in the case of the Existing Holder), then, (1) except as otherwise provided in
Section 4(l) of this Division B of this Article FOURTH, the purported transferee shall
acquire no right or interest (or, in the case of a Non-Transfer Event, the person
holding record title to the Common Shares Beneficially Owned by such Beneficial Owner,
shall cease to own any right or interest) in such number of Common Shares which would
cause such Beneficial Owner to Beneficially Own Common Shares in excess of the
Ownership Limit, the Exempt Holder Limit or the Existing Holder Limit, as the case may
be, and (2) such number of Common Shares in excess of the Ownership
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Limit, the Exempt
Holder Limit or the Existing Holder Limit (rounded up to the
nearest whole share) shall be designated Shares-in-Trust and, in accordance with
Section 7 of this Division B of this Article FOURTH, transferred automatically and
by operation of law to a Trust. Such transfer to a Trust and the designation of the
shares as Shares-in-Trust shall be effective as of the close of business on the
business day prior to the date of the purported Transfer or Non-Transfer Event, as
the case may be.
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(ii)
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If, notwithstanding the other provisions contained in this Division B of this
Article FOURTH, there is a purported Transfer or Non-Transfer Event such that any
Person would Constructively Own Common Shares in excess of the Related Party Limit,
then, (A) except as otherwise provided in Section 4(l) of this Division B of this
Article FOURTH, the purported transferee shall acquire no right or interest (or, in the
case of a Non-Transfer Event, the person holding record title to the Common Shares
Constructively Owned by such Constructive Owner, shall cease to own any right or
interest) in such number of Common Shares which would cause such Constructive Owner to
Constructively Own Common Shares in excess of the Related Party Limit, and (B) such
number of Common Shares in excess of the Related Party Limit (rounded up to the nearest
whole share) shall be designated Shares-in-Trust and, in accordance with Section 7 of
this Division B of this Article FOURTH, transferred automatically and by operation of
law to a Trust. Such transfer to a Trust and the designation of the shares as
Shares-in-Trust shall be effective as of the close of business on the business day
prior to the date of the purported Transfer or Non-Transfer Event, as the case may be.
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(iii)
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If, notwithstanding the other provisions contained in this Article FOURTH,
there is a purported Transfer or Non-Transfer Event that, if effective, would cause the
Corporation to become closely held within the meaning of Section 856(h) of the Code,
then (A) the purported transferee shall not acquire any right or interest (or, in the
case of a Non-Transfer Event, the person holding record title of the Common Shares with
respect to which such Non-Transfer Event occurred, shall cease to own any right or
interest) in such number of Common Shares, the ownership of which by such purported
transferee or record holder would cause the Corporation to be closely held within the
meaning of Section 856(h) of the Code, and (B) such number of Common Shares (rounded up
to the nearest whole share) shall be designated Shares-in-Trust and, in accordance with
the provisions of Section 7 of this Division B of this Article FOURTH, transferred
automatically and by operation of law to a Trust. Such transfer to a Trust and the
designation of shares as Shares-in-Trust shall be effective as of the close of business
on the business day prior to the date of the Transfer or Non-Transfer Event, as the
case may be.
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(d)
Remedies for Breach.
If the Board of Directors or its designees shall at any time
determine in good faith that a Transfer has taken place in violation of Section 4(b) of this
Division B of this Article FOURTH or that a Person intends to acquire or has attempted to
6
acquire
beneficial ownership (determined without reference to any rules of attribution),
Beneficial Ownership or Constructive Ownership of any Common Shares of the Corporation in
violation of Section 4(b) of this Division B of this Article FOURTH, or that any such Transfer,
intended or attempted acquisition or acquisition would jeopardize the status of the Corporation as
a REIT under the Code, the Board of Directors or its designees shall take such actions as it deems
advisable to refuse to give effect or to prevent such Transfer, including, but not limited to,
refusing to give effect to such Transfer on the books of the Corporation or instituting proceedings
to enjoin such Transfer.
(e)
Notice of Restricted Transfer.
Any Person who acquires or intends to acquire shares in
violation of Section 4(b) of this Division B of this Article FOURTH, or any Person who owned Common
Shares that were transferred to a Trust pursuant to the provisions of Section 4(c) of this Division
B of this Article FOURTH, shall immediately give written notice to the Corporation of such event
and shall provide to the Corporation such other information as the Corporation may request in order
to determine the effect, if any, of such Transfer, intended Transfer or Non-Transfer Event, as the
case may be, on the Corporations status as a REIT.
(f)
Owners Required to Provide Information.
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(i)
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Every Beneficial Owner of more than 5.0% (or such other percentage
provided in the regulations promulgated pursuant to the Code) of the outstanding
Common Shares of the Corporation shall, within 30 days after January 1 of each
year, give written notice to the Corporation stating the name and address of such
Beneficial Owner, the number of shares Beneficially Owned, and description of how
such shares are held. Each such Beneficial Owner shall provide to the Corporation
such additional information as the Corporation may request in order to determine
the effect, if any, of such Beneficial Ownership on the Corporations status as a
REIT.
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(ii)
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Each Person who is a Beneficial Owner or Constructive Owner of Common
Shares and each Person (including the shareholder of record) who is holding Common
Shares for a Beneficial Owner or Constructive Owner shall provide to the
Corporation such information that the Corporation may request, in good faith, in
order to determine the Corporations status as a REIT.
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(iii)
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Each Person who is a Beneficial or Constructive Owner of Common
Shares and each Person (including the shareholder of record) who is holding Common
Shares for a Beneficial or Constructive Owner shall provide to the Corporation
such information as the Corporation may require, in good faith, in order to
determine the Trusts status as a REIT or a domestically controlled qualified
investment entity (within the meaning of Section 897(h)(4)(B) of the Code) and to
comply with the requirements of any taxing authority or to determine such
compliance.
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(g)
Remedies Not Limited.
Nothing contained in this Division B of this Article FOURTH shall
limit the authority of the Board of Directors to take such other action as it deems necessary
7
or advisable to protect the Corporation and the interests of its shareholders by preservation
of the Corporations status as a REIT.
(h)
Ambiguity.
In the case of an ambiguity in the application
of any of the provisions of
Section 4 of this Division B of this Article FOURTH, including any definition contained in Section
4(a), the Board of Directors shall have the power to determine the application of the provisions of
this Section 4 with respect to any situation based on the facts known to it.
(i)
Modification of Exempt Holder Limit and Existing Holder Limit
.
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(i)
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Subject to the limitations provided in Section 4(k) of this Division
B of this Article FOURTH, the Board of Directors may reduce the Exempt Holder
Limit if: (A) based on the annual written notice delivered to the Corporation
pursuant to Section 4(f)(i) of this Division B of this Article FOURTH, the
Beneficial Ownership of the Exempt Holder is less than 17.5% of the outstanding
Common Shares, then the Board of Directors may reduce the Exempt Holder Limit to
17.5%; (B) based on the annual written notice delivered to the Corporation
pursuant to Section 4(f)(i) of this Division B of this Article FOURTH, the
Beneficial Ownership of the Exempt Holder is 7.5% or less of the outstanding
Common Shares, then the Board of Directors may reduce the Exempt Holder Limit to
7.5%; or (C) after the Exempt Holder Limit has been reduced to 7.5%, the Board of
Directors may further reduce the Exempt Holder Limit to reflect the Beneficial
Ownership of the Exempt Holder as set forth on the annual written notice delivered
to the Corporation pursuant to Section 4(f)(i) of this Division B of this Article
FOURTH.
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(ii)
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Subject to the limitations provided in Section 4(k), this Division B
of this Article FOURTH, the Board of Directors may increase the Existing Holder
Limit if the Board of Directors reduces the Exempt Holder Limit pursuant to
Section 4(i)(i) of this Division B of this Article FOURTH.
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(j)
Modification of Ownership Limit.
Subject to the limitations provided in Section 4(k) of
this Division B of this Article FOURTH, the Board of Directors may from time to time increase the
Ownership Limit.
(k)
Limitations on Modifications.
Notwithstanding any other provision of this Division B of
this Article FOURTH:
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(i)
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Neither the Ownership Limit nor the Existing Holder Limit may be
increased if, after giving effect to such increase, five Beneficial Owners of
Common Shares (including the Exempt Holder and the Existing Holder) could
Beneficially Own, in the aggregate, more than 49.9% of the outstanding Common
Shares.
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(ii)
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Prior to the modification of any Exempt Holder Limit, Existing Holder
Limit or Ownership Limit pursuant to Section 4(i) or Section 4(j) of this Division
B of this Article FOURTH, the Board of Directors of the Corporation may require
such opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the Corporations status as
a REIT.
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(iii)
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The Exempt Holder Limit shall not be reduced to a percentage which
is less than the Ownership Limit.
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(iv)
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The Related Party Limit may not be increased to a percentage which is
greater than 9.8%.
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(l)
Exceptions
.
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(i)
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The Board of Directors, with a ruling from the Internal Revenue
Service or an opinion of counsel, may exempt a Person from the Ownership Limit,
the Exempt Holder Limit or the Existing Holder Limit, as the case may be, if such
Person is not an individual for purposes of Section 542(a)(2) of the Code and the
Board of Directors obtains such representations and undertakings from such Person
as are reasonably necessary to ascertain that no individuals Beneficial Ownership
of such Common Shares will violate the Ownership Limit, the Exempt Holder Limit or
the Existing Holder Limit, as the case may be, and agrees that any violation or
attempted violation will result in such Common Shares in excess of the Ownership
Limit, the Exempt Holder Limit or the Existing Holder Limit, as applicable, being
transferred to a Trust in accordance with Section 4(c) of this Division B of this
Article FOURTH.
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(ii)
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The Board of Directors, with a ruling from the Internal Revenue
Service or an opinion of counsel, may exempt a Person from the limitation on such
Person Constructively Owning Common Shares in excess of the Related Party Limit if
such Person does not own and represents that it will not own, directly or
constructively (by virtue of the application of Section 318 of the Code, as
modified by Section 856(d)(5) of the Code), more than a 9.9% interest (as set
forth in Section 856(d)(2)(B) in a tenant of any real property owned or leased by
the Corporation, and the Corporation obtains such representations and undertakings
from such Person as are reasonably necessary to ascertain this fact and agrees
that any violation or attempted violation will result in such Common Shares in
excess of 9.8% being transferred to a Trust in accordance with Section 4(c) of
this Division B of this Article FOURTH.
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(iii)
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The Board of Directors may exempt the Exempt Holder, and any Person
who would Constructively Own Common Shares Constructively Owned by the Exempt
Holder, from the limitation on the Exempt Holder (or such other
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Person who would Constructively Own Common Shares Constructively Owned by the
Exempt Holder) Constructively Owning Common Shares in excess of the Related
Party Limit in its sole discretion based on the facts and circumstances
existing at the time of such proposed exemption and the information provided by
the Exempt Holder, including, without limitation, information regarding a
tenant of any real property owned or leased by the Corporation, of which tenant
the Exempt Holder (or such other Person who would Constructively Own Common
Shares Constructively Owned by the Exempt Holder) owns, directly or
constructively (by virtue of the application of Section 318 of the Code, as
modified by Section 856(d)(5) of the Code), more than a 9.9% interest (as set
forth in Section 856(d)(2)(B) of the Code). As a condition to the granting of
any such exemption, the Corporation may require that the Exempt Holder provide
representations and undertakings as are reasonably necessary to ascertain
information regarding the ownership by the Exempt Holder (or such other Person
who would Constructively Own Common Shares Constructively Owned by the Exempt
Holder) of any interest in a tenant of any real property owned or leased by the
Corporation and may impose conditions upon any such exemption as the Board of
Directors deems necessary or advisable in order to determine or ensure the
Corporations status as a REIT, including that any exemption may terminate upon
any violation or attempted violation of any such representations, undertakings,
conditions or other terms of any agreement between the Company and the Exempt
Holder. If, upon any termination of an exemption granted under this Section
4(l)(iii) of this Division B of this Article FOURTH, the Exempt Holder (or such
other Person who would Constructively Own Common Shares Constructively Owned by
the Exempt Holder) would Constructively Own Common Shares in excess of the
Related Party Limit, then the number of Common Shares actually owned by the
Exempt Holder (and such other Person who would Constructively Own Common Shares
Constructively Owned by the Exempt Holder) in excess of the Related Party Limit
will be transferred to a Trust in accordance with Section 4(c) of this Division
B of this Article FOURTH such that the Exempt Holder (and such other Person who
would Constructively Own Common Shares Constructively Owned by the Exempt
Holder) will not Constructively Own Common Shares in excess of the Related
Party Limit.
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(iv)
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The Exempt Holder will not be deemed to have violated the Exempt
Holder Limit if the Exempt Holders Beneficial Ownership in excess of the Exempt
Holder Limit is solely the result of (A) a stock dividend, stock split or similar
transaction effected by the Corporation in which all holders of Common Shares are
treated equally or (B) a reduction in the number of Common Shares outstanding,
unless and until, in case of either clause (A) or (B) above, such time as the
Exempt Holder thereafter becomes the Beneficial Owner of any additional Common
Shares (other than as a result of a stock dividend, stock split or similar
transaction effected by the Corporation in which all holders of Common Shares are
treated equally). In addition, the
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Board of Directors may exempt the Exempt Holder from the Exempt Holder Limit
should it determine that the Beneficial Ownership of the Exempt Holder does not
result in the Corporation being closely held within the meaning of Section
856(h) of the Code; provided, however, that notwithstanding the foregoing, this
paragraph (iv) shall not be interpreted as a waiver of, or exemption from, the
restriction in Section 4(b)(vi).
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Section 5.
Legend.
Each certificate for Common Shares shall bear the following
legend:
The Common Shares represented by this certificate are subject to restrictions on transfer for
the purpose of the Corporations maintenance of its status as a Real Estate Investment Trust under
the Internal Revenue Code of 1986, as amended. Subject to certain provisions of the Corporations
Articles of Incorporation, no Person may Beneficially Own Common Shares in excess of 5.0% of the
outstanding Common Shares of the Corporation (unless such Person is an Exempt Holder or an Existing
Holder), no Person may Constructively Own Common Shares in excess of 9.8% of the outstanding Common
Shares of the Corporation and no Person may acquire Beneficial Ownership of any Common Shares after
the Effective Date if, as a result of such acquisition, the fair market value of the Shares owned
directly and indirectly by Non-U.S. Persons would comprise more than 49% of the fair market value
of the issued and outstanding Common Shares. Any Person who attempts to Beneficially Own or
Constructively Own Common Shares in excess of the above limitations must immediately notify the
Corporation. All capitalized items in this legend have the meanings defined in the Corporations
Articles of Incorporation, a copy of which, including the restrictions on transfer, will be sent
without charge to each shareholder who so requests. If the restrictions on transfer are violated,
certain of the Common Shares represented hereby will be transferred automatically and by operation
of law to a Trust and shall be designated Shares-in-Trust.
Section 7.
Shares-in-Trust
.
(a)
Trust
. Any Common Shares transferred to a Trust and designated Shares-in-Trust pursuant
to Section 4(c) of Division B of this Article FOURTH shall be held for the exclusive benefit of the
Beneficiary. The Corporation shall name a beneficiary of each Trust within five (5) days after
discovery of the existence of such Shares-in-Trust. Any transfer to a Trust, and subsequent
designation of Common Shares as Shares-in-Trust, pursuant to Section 4(c) of Division B of this
Article FOURTH shall be effective as of the close of business on the business day prior to the date
of the Transfer or Non-Transfer Event that results in the transfer to the Trust. Shares-in-Trust
shall remain issued and outstanding Common Shares and shall be entitled to the same rights and
privileges on identical terms and conditions as are all other issued and outstanding Common Shares.
When transferred to the Permitted Transferee in accordance with the provisions of Section 7(e) of
Division B of this Article FOURTH, such Shares-in-Trust shall cease to be designated as
Shares-in-Trust.
(b)
Dividend Rights
. The Trustee, as record holder of Shares-in-Trust, shall be entitled to
receive all dividends and distributions as may be declared by the Board of Directors of the
11
Corporation on such Common Shares and shall hold such dividends or distributions in trust for
the benefit of the Beneficiary. The Prohibited Owner with respect to Shares-in-Trust shall repay to
the Trustee the amount of any dividends or distributions received by it that (i) are attributable
to any Common Shares designated as Shares-in-Trust and (ii) the record date of which was on or
after the date that such Common Shares became Shares-in-Trust. The Corporation shall take all
measures that it determines reasonably necessary to recover the amount of any such dividend or
distribution paid to a Prohibited Owner, including, if necessary, withholding any portion of future
dividends or distributions payable on Common Shares Beneficially Owned or Constructively Owned by
the Person who, but for the provisions of Section 4(c) of Division B of this Article FOURTH, would
Beneficially Own or Constructively Own the Shares-in-Trust; and, as soon as reasonably practicable
following the Corporations receipt or withholding thereof, shall pay over to the Trustee for the
benefit of the Beneficiary the dividends so received or withheld, as the case may be.
(c)
Rights Upon Liquidation
. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of, or any distribution of the assets of, the Corporation, each holder of
Shares-in-Trust shall be entitled to receive, ratably with each other holder of Common Shares, that
portion of the assets of the Corporation which is available for distribution to the holders of
Common Shares. The Trustee shall distribute to the Prohibited Owner the amounts received upon such
liquidation, dissolution, or winding up, or distribution; provided, however, that the Prohibited
Owner shall not be entitled to receive amounts pursuant to this Section 7(c) of Division B of this
Article FOURTH in excess of, in the case of a purported Transfer in which the Prohibited Owner gave
value for Common Shares and which Transfer resulted in the transfer of the shares to the Trust, the
price per share, if any, such Prohibited Owner paid for the Common Shares and, in the case of a
Non-Transfer Event or Transfer in which the Prohibited Owner did not give value for such shares
(e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or
Transfer, as the case may be, resulted in the transfer of shares to the Trust, the price per share
equal to the Market Price on the date of such Non-Transfer Event or Transfer. Any remaining amount
in such Trust shall be distributed to the Beneficiary.
(d)
Voting Rights
. The Trustee shall be entitled to vote all Shares-in-Trust. Any vote by a
Prohibited Owner as a holder of Common Shares prior to the discovery by the Corporation that the
Common Shares are Shares-in-Trust shall, subject to applicable law, be rescinded and shall be void
ab initio
with respect to such Shares-in-Trust, and the Prohibited Owner shall be deemed to have
given, as of the close of business on the business day prior to the date of the purported Transfer
or Non-Transfer Event that results in the transfer to the Trust of the Common Shares Section 4(c)
of Division B of this Article FOURTH, an irrevocable proxy to the Trustee to vote the
Shares-in-Trust in the manner in which the Trustee, in its sole and absolute discretion, desires.
(e)
Designation of Permitted Transferee
. The Trustee shall have the exclusive and absolute
right to designate a Permitted Transferee of any and all Shares-in-Trust. As reasonably practicable
as possible, in an orderly fashion so as not to materially adversely affect the Market Price of the
Shares-in-Trust, the Trustee shall designate any Person as Permitted Transferee, provided, however,
that (i) the Permitted Transferee so designated purchases for valuable consideration (whether in a
public or private sale) the Shares-in-Trust and (ii) the Permitted Transferee so designated may
acquire such Shares-in-Trust without such acquisition resulting in
12
a transfer to a Trust and the redesignation of such Common Shares so acquired as
Shares-in-Trust under Section 4(c) of Division B of this Article FOURTH. Upon the designation by
the Trustee of a Permitted Transferee in accordance with the provisions of this subparagraph, the
Trustee of a Trust shall (i) cause to be transferred to the Permitted Transferee that number of
Shares-in-Trust acquired by the Permitted Transferee, (ii) cause to be recorded on the books of the
Corporation that the Permitted Transferee is the holder of record of such number of Common Shares,
and (iii) distribute to the Beneficiary any and all amounts held with respect to the
Shares-in-Trust after making that payment to the Prohibited Owner pursuant to Section 7(f) of
Division B of this Article FOURTH.
(f)
Compensation to Record Holder of Common Shares that Become Shares-In-Trust
. Any
Prohibited Owner shall be entitled (following discovery of the Shares-In-Trust and subsequent
designation of the Permitted Transferee in accordance with Section 4(e) of Division B of this
Article FOURTH) to receive from the Trustee the lesser of (i) in the case of (A) a purported
Transfer in which the Prohibited Owner gave value for Common Shares and which Transfer resulted in
the transfer of the Common Shares to the Trust, the price per share, if any, such Prohibited Owner
paid for the Common Shares, or (b) a Non-Transfer Event or Transfer in which the Prohibited Owner
did not give value for such Common Shares (e.g., if the shares were received through a gift or
devise) and which Non-Transfer Event or Transfer, as the case may be, resulted in the transfer of
Common Shares to the Trust, the price per share equal to the Market Price on the date of such
Non-Transfer Event or Transfer, and (ii) the price per share received by the Trustee of the Trust
from the sale or other disposition of such Shares-in-Trust in accordance with Section 7(e) of
Division B of this Article FOURTH. Any amounts received by the Trustee in respect of such
Shares-in-Trust and in excess of such amounts to be paid the Prohibited Owner pursuant to this
Section 7(f) of Division B of this Article FOURTH shall be distributed to the Beneficiary in
accordance with the provisions of Section 7(e) of Division B of this Article FOURTH. Each
Beneficiary and Prohibited Owner waive any and all claims that they may have against the Trustee
and the Corporation arising out of the disposition of Shares-in-Trust, except for claims arising
out of the gross negligence or willful misconduct of, or any failure to make payments in accordance
with Section 7 of Division B of this Article FOURTH by, such Trustee or the Corporation.
(g)
Purchase Right in Shares-in-Trust
. Shares-in-Trust shall be deemed to have been offered
for sale to the Corporation, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in the case of devise,
gift or Non-Transfer Event, the Market Price at the time of such devise, gift or Non-Transfer
Event) and (ii) the Market Price on the date the Corporation, or its designee, accepts such offer.
The Corporation shall have the right to accept such offer for a period of ninety days after the
later of (i) the date of the Non-Transfer Event or purported Transfer which resulted in such
Shares-in-Trust and (ii) the date the Corporation determines in good faith that a Transfer or
Non-Transfer Event resulting in Shares-in-Trust has occurred, if the Corporation does not receive a
notice of such Transfer or Non-Transfer Event pursuant to Section 4(e) of Division B of this
Article FOURTH. Prompt payment of the purchase price shall be made in such reasonable manner as may
be determined by the Corporation.
13
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DEVELOPERS DIVERSIFIED REALTY CORPORATION
The undersigned, desiring to form a corporation for profit under Sections 1701.01 to 1701.98,
inclusive, of the Ohio Revised Code, does hereby certify:
FIRST: The name of the Corporation shall be Developers Diversified Realty Corporation.
SECOND: The place in the State of Ohio where the principal office of the Corporation is
located is Beachwood, Cuyahoga County.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which
corporations may be formed under Sections 1701.01 to 1701.98, inclusive of the Ohio Revised Code.
FOURTH: The authorized number of shares of the Corporation is 311,000,000, consisting of
300,000,000 common shares, $0.10 par value per share (hereinafter called Common Shares), 750,000
Class A Cumulative Preferred Shares, without par value (hereinafter called Class A Shares),
750,000 Class B Cumulative Preferred Shares, without par value (hereinafter called Class B
Shares), 750,000 Class C Cumulative Preferred Shares, without par value (hereinafter called Class
C Shares), 750,000 Class D Cumulative Preferred Shares, without par value (hereinafter called
Class D Shares), 750,000 Class E Cumulative Preferred Shares, without par value (hereinafter
called Class E Shares), 750,000 Class F Cumulative Preferred Shares, without par value
(hereinafter called Class F Shares), 750,000 Class G Cumulative Preferred Shares, without par
value (hereinafter called Class G Shares), 750,000 Class H Cumulative Preferred Shares, without
par value (hereinafter called Class H Shares), 750,000 Class I Cumulative Preferred Shares,
without par value (hereinafter called Class I Shares), 750,000 Class J Cumulative Preferred
Shares, without par value (hereinafter called Class J Shares), 750,000 Class K Cumulative
Preferred Shares, without par value (hereinafter called Class K Shares), 750,000 Noncumulative
Preferred Shares, without par value (hereinafter called Noncumulative Shares), and 2,000,000
Cumulative Voting Preferred Shares, without par value (hereinafter called Voting Preferred
Shares). 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, Class K Shares and Voting
Preferred Shares are sometimes collectively referred to herein as the Cumulative Shares.
DIVISION A
I.
The Class A Cumulative Preferred Shares.
The Class A Shares shall have the following
express terms:
Section 1.
Series.
The Class A Shares may be issued from time to time in one or more
series. All Class A Shares shall be of equal rank and shall be identical, except in respect
of the matters that may be fixed by the Board of Directors as hereinafter provided, and each
share of a series shall be identical with all other shares of such series, except as to the
dates from which dividends shall accrue and be cumulative. All Class A Shares shall rank on
a parity with the 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
Noncumulative Shares and shall be identical to all 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 Noncumulative Shares except (1) in respect of the matters
that may be fixed by the Board of Directors as provided in clauses (a) through (i),
inclusive, of this Section 1 and (2) only dividends on the Cumulative Shares shall be
cumulative as set forth herein. Subject to the provisions of Sections 2 through 5, both
inclusive, and Item XIII of this Division, which provisions shall apply to all Class A
Shares, the Board of Directors hereby is authorized to cause such shares to be issued in one
or more series and, with respect to each such series to determine and fix prior to the
issuance thereof (and thereafter, to the extent provided in clause (b) of this Section), the
following:
(a) The designation of the series, which may be by distinguishing number,
letter or title;
(b) The authorized number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase or decrease from time to time before or after the issuance thereof (but
not below the number of shares thereof then outstanding);
(c) The dividend rate or rates of the series, including the means by which
such rates may be established;
(d) The date or dates from which dividends shall accrue and be cumulative and
the dates on which and the period or periods for which dividends, if declared,
shall be payable, including the means by which such dates and periods may be
established;
(e) The redemption rights and price or prices, if any, for shares of the
series;
(f) The terms and amount of the sinking fund, if any, for the purchase or
redemption of shares of the series;
2
(g) The amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(h) Whether the shares of the series shall be convertible into Common Shares
or shares of any other class and, if so, the conversion rate or rates or price or
prices, any adjustments thereof and all other terms and conditions upon which such
conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection 5(d) or 5(e) of
this Item I) on the issuance of shares of the same series or of any other class or
series.
The Board of Directors is authorized to adopt from time to time amendments to the Amended and
Restated Articles of Incorporation, as amended, fixing, with respect to each such series, the
matters described in clauses (a) through (i), inclusive, of this Section and is authorized to take
such actions with respect thereto as may be required by law in order to effect such amendments.
Section 2.
Dividends.
(a) The holders of Class A Shares of each series, in preference to the holders
of Common Shares and of any other class of shares ranking junior to the Class A
Shares, shall be entitled to receive out of any funds legally available therefor,
and when and as declared by the Board of Directors, dividends in cash at the rate
or rates for such series fixed in accordance with the provisions of Section 1 above
and no more, payable on the dates fixed for such series. Such dividends shall
accrue and be cumulative, in the case of shares of each particular series, from and
after the date or dates fixed with respect to such series. No dividends shall be
paid upon or declared or set apart for any series of the Class A Shares for any
dividend period unless at the same time (i) a like proportionate dividend for the
dividend periods terminating on the same or any earlier date, ratably in proportion
to the respective annual dividend rates fixed therefor, shall have been paid upon
or declared or set apart for all Class A Shares of all series then issued and
outstanding and entitled to receive such dividend and (ii) the dividends payable
for the dividend periods terminating on the same or any earlier date (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,
shall have been paid upon or declared or set apart for all 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 Noncumulative Shares
then issued and outstanding and entitled to receive such dividends.
(b) So long as any Class A Shares shall be outstanding no dividend, except a
dividend payable in Common Shares or other shares ranking junior to the Class A
Shares, shall be paid or declared or any distribution be made, except
3
as aforesaid, in respect of the Common Shares or any other shares ranking
junior to the Class A Shares, nor shall any Common Shares or any other shares
ranking junior to the Class A Shares be purchased, retired or otherwise acquired by
the Corporation, except out of the proceeds of the sale of Common Shares or other shares of the Corporation ranking junior to the Class A Shares received by the
Corporation subsequent to the date of first issuance of Class A Shares of any
series, unless:
(1) All accrued and unpaid dividends on Cumulative Shares, including the full
dividends for all current dividend periods, shall have been declared and paid or a
sum sufficient for payment thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the then current dividend
period shall have been declared and paid or a sum sufficient for payment therefor
set apart; and
(3) There shall be no arrearages with respect to the redemption of Cumulative
Shares or Noncumulative Shares of any series from any sinking fund provided for shares of such series in accordance with the provisions of Section 1 of this Item I.
(c) The foregoing 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 on a parity with or junior to the
Class A Shares shall be inapplicable to (i) any payments in lieu of issuance of
fractional shares thereof, whether upon any merger, conversion, stock dividend or
otherwise, (ii) the conversion of Cumulative Shares or Noncumulative Shares into
Common Shares, or (iii) the exercise by the Corporation of its rights pursuant to
Item XIV(d) of this Division A, Section 4(d) of Division B or any similar Section
hereafter contained in these Amended and Restated Articles of Incorporation, as
amended, with respect to any other class or series of capital stock hereafter
created or authorized.
(d) If, for any taxable year, the Corporation elects to designate as capital
gain dividends (as defined in Section 857 of the Code) any portion (the Capital
Gains Amount) of the dividends paid or made available for the year to holders of
all classes of stock (the Total Dividends), then, to the extent permissible under
the Code and to the extent it does not cause any dividends to fail to qualify for
the dividends paid deduction under Section 561 of the Code, the portion of the
Capital Gains Amount that shall be allocable to holders of the Class A Shares shall
be the amount that the total dividends paid or made available to the holders of the
Class A Shares for the year bears to the Total Dividends.
4
Section 3.
Redemption.
(a) Subject to the express terms of each series, the Corporation:
(1) May, from time to time at the option of the Board of Directors, redeem all
or any part of any redeemable series of Class A Shares at the time outstanding at
the applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Item I; and
(2) Shall, from time to time, make such redemptions of each series of Class A
Shares as may be required to fulfill the requirements of any sinking fund provided
for shares of such series at the applicable sinking fund redemption price fixed in
accordance with the provisions of Section 1 of this Item I; and shall in each case
pay all accrued and unpaid dividends to the redemption date.
(b) (1) Notice of every such redemption shall be mailed, postage prepaid, to
the holders of record of the Class A Shares to be redeemed at their respective
addresses then appearing on the books of the Corporation, not less than 30 days nor
more than 60 days prior to the date fixed for such redemption, or such other time
prior thereto as the Board of Directors shall fix for any series pursuant to
Section 1 of this Item I prior to the issuance thereof. At any time after notice
as provided above has been deposited in the mail, the Corporation may deposit the
aggregate redemption price of Class A Shares to be redeemed, together with accrued
and unpaid dividends thereon to the redemption date, with any bank or trust company
in Cleveland, Ohio, or New York, New York, having capital and surplus of not less
than $100,000,000 named in such notice and direct that there be paid to the
respective holders of the Class A Shares so to be redeemed amounts equal to the
redemption price of the Class A Shares so to be redeemed, together with such
accrued and unpaid dividends thereon, on surrender of the share certificate or
certificates held by such holders; and upon the deposit of such notice in the mail
and the making of such deposit of money with such bank or trust company, such
holders shall cease to be shareholders with respect to such shares; and from and
after the time such notice shall have been so deposited and such deposit of money
shall have been so made, such holders shall have no rights or claim against the
Corporation with respect to such shares, except only the right to receive such
money from such bank or trust company without interest or to exercise before the
redemption date any unexpired privileges of conversion. In the event less than all
of the outstanding Class A Shares are to be redeemed, the Corporation shall select
by lot the shares so to be redeemed in such manner as shall be prescribed by the
Board of Directors.
(2) If the holders of Class A Shares which have been called for redemption
shall not within six years after such deposit claim the amount deposited for the
redemption thereof, any such bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon such
5
bank or trust company and the Corporation shall be relieved of all
responsibility in respect thereof and to such holders.
(c) Any Class A Shares which are (1) redeemed by the Corporation pursuant to
the provisions of this Section, (2) purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series, (3) converted in
accordance with the express terms thereof, or (4) otherwise acquired by the
Corporation shall resume the status of authorized but unissued Class A Shares
without serial designation.
(d) Except in connection with the exercise of the Corporations rights
pursuant to Section (d) of Item XIV of this Division A, Section 4(d) of Division B
or any similar Section hereafter contained in these Amended and Restated Articles
of Incorporation, as amended, with respect to any other class or series of capital
stock hereafter created or authorized, the Corporation may not purchase or redeem
(for sinking fund purposes or otherwise) less than all of the Class A Shares then
outstanding except in accordance with a stock purchase offer made to all holders of
record of Class A Shares, unless all dividends on all Class A Shares then
outstanding for all previous and current dividend periods shall have been declared
and paid or funds therefor set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
Section 4.
Liquidation.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of Class A
Shares of any series shall be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or distributed
among the holders of the Common Shares or any other shares ranking junior to the
Class A Shares, the amounts fixed with respect to shares of such series in
accordance with Section 1 of this Item I, plus an amount equal to all dividends
accrued and unpaid thereon to the date of payment of the amount due pursuant to
such liquidation, dissolution or winding up of the affairs of the Corporation. In
the event the net assets of the Corporation legally available therefor are
insufficient to permit the payment upon all outstanding Cumulative Shares and
Noncumulative Shares of the full preferential amount to which they are respectively
entitled, then such net assets shall be distributed ratably upon all outstanding
Cumulative Shares and Noncumulative Shares in proportion to the full preferential
amount to which each such share is entitled.
(2) After payment to the holders of Class A Shares of the full preferential
amounts as aforesaid, the holders of Class A Shares, as such, shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any other
Corporation, the merger of any other Corporation into it, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation shall not be
6
deemed to be a dissolution, liquidation or winding up for the purposes of this
Section.
Section 5.
Voting.
(a) The holders of Class A Shares shall have no voting rights, except as
provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in default in the
payment of dividends on any series of Class A Shares at the time outstanding,
whether or not earned or declared, for a number of dividend payment periods,
whether consecutive or not, which in the aggregate contain at least 540 days, all
holders of such Class A Shares, voting separately as a class, together with all
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
Noncumulative Shares upon which like voting rights have been conferred and are
exercisable under the circumstances described in Subsection 5(c), shall be entitled
to elect, as herein provided, a total of two members of the Board of Directors of
the Corporation; provided, however, that the holders of such Class A Shares shall
not exercise such special class voting rights except at meetings of such
shareholders for the election of directors at which the holders of not less than
50% of such Class A Shares are present in person or by proxy; and provided further
that the special class voting rights provided for in this paragraph when the same
shall have become vested shall remain so vested until all accrued and unpaid
dividends on such Class A Shares then outstanding shall have been paid or declared
and a sum sufficient for the payment thereof set aside for payment, whereupon the
holders of such Class A Shares shall be divested of their special class voting
rights in respect of subsequent elections of directors, subject to the revesting of
such special class voting rights in the event above specified in this paragraph.
(2) In the event of default entitling holders of Class A Shares to elect two
directors as specified in paragraph (1) of this Subsection, a special meeting of
such holders for the purpose of electing such directors shall be called by the
Secretary of the Corporation upon written request of, or may be called by, the
holders of record of at least 10% of the Class A Shares upon which such default in
the payment of dividends exists and notice thereof shall be given in the same manner
as that required for the annual meeting of shareholders; provided, however, that the
Corporation shall not be required to call such special meeting if the annual meeting
of shareholders shall be called to be held within 90 days after the date of receipt
of the foregoing written request from the holders of Class A Shares. At any meeting
at which such holders of Class A Shares shall be entitled to elect directors,
holders of 50% of such Class A Shares, present in person or by proxy, shall be
sufficient to constitute a quorum, and the vote of the holders of a majority of such shares so present at any such meeting at which there shall be such a quorum shall be
sufficient to elect the members of the Board of Directors which such holders of
Class A Shares are entitled to elect as herein provided.
7
Notwithstanding any provision of these Amended and Restated Articles of
Incorporation, as amended, or the Code of Regulations of the Corporation or any
action taken by the holders of any class of shares fixing the number of directors of
the Corporation, the two directors who may be elected by such holders of Class A
Shares pursuant to this Subsection shall serve in addition to any other directors
then in office or proposed to be elected otherwise than pursuant to this Subsection.
Nothing in this Subsection shall prevent any change otherwise permitted in the
total number of or classifications of directors of the Corporation or require the
resignation of any director elected otherwise than pursuant to this Subsection.
Notwithstanding any classification of the other directors of the Corporation, the
two directors elected by such holders of Class A Shares shall be elected annually
for terms expiring at the next succeeding annual meeting of shareholders.
(3) Upon any divesting of the special class voting rights of the holders of the
Class A Shares in respect of elections of directors as provided in this Subsection,
the terms of office of all directors then in office elected by such holders shall
terminate immediately thereupon. If the office of any director elected by such
holders voting as a class becomes vacant by reason of death, resignation, removal
from office or otherwise, the remaining director elected by such holders voting as a
class may elect a successor who shall hold office for the unexpired term in respect
of which such vacancy occurred.
(c) If at any time when the holders of Class A Shares are entitled to elect
directors pursuant to the foregoing provisions of this Section the holders of any
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 or
Noncumulative Shares are entitled to elect directors pursuant hereto by reason of
any default in the payment of dividends thereon, then the voting rights of the
Cumulative Shares and Noncumulative Shares then entitled to vote shall be combined
(with each class of shares having a number of votes proportional to the aggregate
liquidation preference of its outstanding shares). In such case, the holders of
Class A Shares and of all such other shares then entitled so to vote, voting as a
class, shall elect such directors. If the holders of any such other shares have
elected such directors prior to the happening of the default or event permitting
the holders of Class A Shares to elect directors, or prior to a written request for
the holding of a special meeting being received by the Secretary of the Corporation
as required above, then a new election shall be held with all such other shares and
the Class A Shares voting together as a single class for such directors, resulting
in the termination of the term of such previously elected directors upon the
election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds of the Class A
Shares at the time outstanding, voting separately as a class, given in person or by
proxy either in writing or at a meeting called for the purpose, shall be necessary
to effect either of the following:
8
(1) Any amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the Amended and Restated Articles of
Incorporation, as amended, or of the Code of Regulations of the Corporation which
affects adversely and materially the preferences or voting or other rights of the
holders of Class A Shares which are set forth in these Amended and Restated Articles
of Incorporation, as amended; provided, however, neither the amendment of these
Amended and Restated Articles of Incorporation, as amended, so as to authorize,
create or change the authorized or outstanding number of Class A Shares or of any shares ranking on a parity with or junior to the Class A Shares nor the amendment of
the provisions of the Code of Regulations so as to change the number or
classification of directors of the Corporation shall be deemed to affect adversely
and materially preferences or voting or other rights of the holders of Class A
Shares; or
(2) The authorization, creation or increase in the authorized number of any shares, or any security convertible into shares, in either case ranking prior to
such series of Class A Shares.
(e) In the event, and only to the extent, that (1) Class A Shares are issued
in more than one series and (2) Ohio law permits the holders of a series of a class
of capital stock to vote separately as a class, the affirmative vote of the holders
of at least two-thirds of each series of Class A Shares at the time outstanding,
voting separately as a class, given in person or by proxy either in writing or at a
meeting called for the purpose of voting on such matters, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or otherwise, of
any of the provisions of these Amended and Restated Articles of Incorporation, as
amended, or of the Code of Regulations of the Corporation which affects adversely
and materially the preferences or voting or other rights of the holders of such
series which are set forth in these Amended and Restated Articles of Incorporation,
as amended; provided, however, neither the amendment of these Amended and Restated
Articles of Incorporation, as amended, so as to authorize, create or change the
authorized or outstanding number of Class A Shares or of any shares ranking on a
parity with or junior to the Class A Shares nor the Amendment of the provisions of
the Code of Regulations so as to change the number or classification of directors
of the Corporation shall be deemed to affect adversely and materially the
preferences or voting or other rights of the holders of such series.
Section 6.
9
1
/
2
% Class A Cumulative Redeemable Preferred Shares.
Of the 750,000
authorized Class A Shares, 460,000 shares are designated as a series entitled 9
1
/
2
% Class A
Cumulative Redeemable Preferred Shares (hereinafter called 9
1
/
2
% Class A Preferred Shares).
The 9
1
/
2
% Class A Preferred Shares shall have the express terms set forth in this Item I as
being applicable to all Class A Shares as a class and, in addition, the following express
terms applicable to all 9
1
/
2
% Class A Preferred Shares as a series of Class A Shares:
9
(a) The annual dividend rate of the 9
1
/
2
% Class A Preferred Shares shall be 9
1
/
2
%
of the liquidation preference of $250.00 per share.
(b) Dividends on the 9
1
/
2
% Class A Preferred Shares shall be payable, if
declared, quarterly on or about the 15th day of March, June, September, and
December each year, the first quarterly dividend being payable, if declared, on
December 15, 1995. The dividends payable for each full quarterly dividend period
on each 9
1
/
2
% Class A Preferred Share shall be $5.94.
Dividends for the initial dividend period on the 9
1
/
2
% Class A Preferred Shares,
or for any period shorter or longer than a full dividend period on the 9
1
/
2
% Class A
Preferred Shares, shall be computed on the basis of a 360-day year consisting of
twelve 30-day months. The aggregate dividend payable quarterly to each holder of
9
1
/
2
% Class A Preferred Shares shall be rounded to the nearest one-hundredth of one
cent with $.00005 being rounded upward. Each dividend shall be payable to the
holders of record on such record date, no less than 10 nor more than 30 days
preceding the payment date thereof, as shall be fixed from time to time by the
Corporations Board of Directors.
(c) Dividends on 9
1
/
2
% Class A Preferred Shares shall be cumulative as follows:
(1) With respect to shares included in the initial issue of 9
1
/
2
% Class A
Preferred Shares and shares issued any time thereafter up to and including the
record date for the payment of the first dividend on the initial issue of 9
1
/
2
% Class
A Preferred Shares, dividends shall be cumulative from the date of the initial issue
of 9
1
/
2
% Class A Preferred Shares; and
(2) With respect to shares issued any time after the aforesaid record date,
dividends shall be cumulative from the dividend payment date next preceding the date
of issue of such shares, except that if such shares are issued during the period
commencing the day after the record date for the payment of a dividend on 9
1
/
2
% Class
A Preferred Shares and ending on the payment date of that dividend, dividends with
respect to such shares shall be cumulative from that dividend payment date.
(d) Except as required to preserve the Corporations status as a real estate
investment trust under the Internal Revenue Code of 1986, as amended, the 9
1
/
2
% Class
A Preferred Shares may not be redeemed prior to November 15, 2000. At any time or
from time to time on and after November 15, 2000 the Corporation, at its option
upon not less than thirty (30) nor more than sixty (60) days written notice, may
redeem all or any part of the 9
1
/
2
% Class A Preferred Shares at a redemption price of
$250.00 per share plus, in each case, an amount equal to all dividends accrued and
unpaid thereon to the redemption date, without interest. The redemption price
(other than the portion thereof consisting of accrued and unpaid dividends) is
payable solely out of the sale proceeds of other capital shares of the Corporation,
which may include any equity securities (including
10
common shares and preferred shares), shares, interests, participation or other
ownership interests (however designated) and any rights (other than debt securities
convertible into or exchangeable for equity securities), or options to purchase any
of the foregoing.
(e) The amount payable per 9
1
/
2
% Class A Preferred Share in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs of
the Corporation shall be $250.00, plus an amount equal to all dividends accrued and
unpaid thereon to the date of payment.
(f) All dividend payments made on the 9
1
/
2
% Class A Preferred Shares, at any
time during which the Corporation is in default in the payment of dividends on such
9
1
/
2
% Class A Preferred Shares for any dividend period, shall, for the purposes of
Section 5(b)(1) of this Item I, be deemed to be made in respect of the earliest
dividend period with respect to which the Corporation is in default.
II.
The Class B Cumulative Preferred Shares.
The Class B Cumulative Preferred Shares shall
have the following express terms:
Section 1.
Series.
The Class B Shares may be issued from time to time in one or more
series. All Class B Shares shall be of equal rank and shall be identical, except in respect
of the matters that may be fixed by the Board of Directors as hereinafter provided, and each
share of a series shall be identical with all other shares of such series, except as to the
dates from which dividends shall accrue and be cumulative. All Class B Shares shall rank on
a parity with the Class A 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
Noncumulative Shares and shall be identical to all Class A 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 Noncumulative Shares except (1) in respect of the matters
that may be fixed by the Board of Directors as provided in clauses (a) through (i),
inclusive, of this Section 1 and (2) only dividends on the Cumulative Shares are cumulative
as set forth herein. Subject to the provisions of Sections 2 through 5, both inclusive, and
Item XIII of this Division, which provisions shall apply to all Class B Shares, the Board of
Directors hereby is authorized to cause such shares to be issued in one or more series and
with respect to each such series to determine and fix prior to the issuance thereof (and
thereafter, to the extent provided in clause (b) of this Section), the following:
(a) The designation of the series, which may be by distinguishing number,
letter or title;
(b) The authorized number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase or decrease from time to time before or after the issuance thereof (but
not below the number of shares thereof then outstanding);
11
(c) The dividend rate or rates of the series, including the means by which
such rates may be established;
(d) The date or dates from which dividends shall accrue and be cumulative and
the dates on which and the period or periods for which dividends, if declared,
shall be payable, including the means by which such dates and periods may be
established;
(e) The redemption rights and price or prices, if any, for shares of the
series;
(f) The terms and amount of the sinking fund, if any, for the purchase or
redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(h) Whether the shares of the series shall be convertible into Common Shares
or shares of any other class and, if so, the conversion rate or rates or price or
prices, any adjustments thereof and all other terms and conditions upon which such
conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection 5(d) or 5(e) of
this Item II) on the issuance of shares of the same series or of any other class or
series.
The Board of Directors is authorized to adopt from time to time amendments to the Amended and
Restated Articles of Incorporation, as amended, fixing, with respect to each such series, the
matters described in clauses (a) through (i), both inclusive, of this Section and is authorized to
take such actions with respect thereto as may be required by law in order to effect such
amendments.
Section 2.
Dividends.
(a) The holders of Class B Shares of each series, in preference to the holders
of Common Shares and of any other class of shares ranking junior to the Class B
Shares, shall be entitled to receive out of any funds legally available therefor,
and when and as declared by the Board of Directors, dividends in cash at the rate
or rates for such series fixed in accordance with the provisions of Section 1 above
and no more, payable on the dates fixed for such series. Such dividends shall
accrue and be cumulative, in the case of shares of each particular series, from and
after the date or dates fixed with respect to such series. No dividends shall be
paid upon or declared or set apart for any series of the Class B Shares for any
dividend period unless at the same time (i) a like proportionate dividend for the
dividend periods terminating on the same or any earlier date, ratably in proportion
to the respective annual dividend rates fixed therefor, shall have been paid upon
or declared or set apart for all Class B Shares of all series
12
then issued and outstanding and entitled to receive such dividend and (ii) the
dividends payable for the dividend periods terminating on the same or any earlier
date (but, with respect to the Noncumulative Shares, only with respect to the then
current dividend period), ratably in proportion to the respective dividend rates
fixed therefor, shall have been paid upon or declared or set apart for all Class A
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
Noncumulative Shares then issued and outstanding and entitled to receive such
dividends.
(b) So long as any Class B Shares shall be outstanding no dividend, except a
dividend payable in Common Shares or other shares ranking junior to the Class B
Shares, shall be paid or declared or any distribution be made, except as aforesaid,
in respect of the Common Shares or any other shares ranking junior to the Class B
Shares, nor shall any Common Shares or any other shares ranking junior to the Class
B Shares be purchased, retired or otherwise acquired by the Corporation, except out
of the proceeds of the sale of Common Shares or other shares of the Corporation
ranking junior to the Class B Shares received by the Corporation subsequent to the
date of first issuance of Class B Shares of any series, unless:
(1) All accrued and unpaid dividends on Cumulative Shares, including the full
dividends for all current dividend periods, shall have been declared and paid or a
sum sufficient for payment thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the then current dividend
period shall have been declared and paid or a sum sufficient for payment thereof set
apart; and
(3) There shall be no arrearages with respect to the redemption of Cumulative
Shares or Noncumulative Shares of any series from any sinking fund provided for shares of such series in accordance with the provisions of Section 1 of this Item
II.
(c) The foregoing 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 on a parity with or junior to the
Class B Shares shall be inapplicable to (i) any payments in lieu of issuance of
fractional shares thereof, whether upon any merger, conversion, stock dividend or
otherwise, (ii) the conversion of Cumulative Shares or Noncumulative Shares into
Common Shares or (iii) the exercise by the Corporation of its rights pursuant to
Item XIV(d) of this Division A, Section 4(d) of Division B or any similar Section
hereafter contained in these Amended and Restated Articles of Incorporation, as
amended, with respect to any other class or series of capital stock hereafter
created or authorized.
13
(d) If, for any taxable year, the Corporation elects to designate as capital
gain dividends (as defined in Section 857 of the Code) any portion (the Capital
Gains Amount) of the dividends paid or made available for the year to holders of
all classes of stock (the Total Dividends), then, to the extent permissible under
the Code and to the extent that it does not cause any dividends to fail to qualify
for the dividends paid deduction under Section 561 of the Code, the portion of the
Capital Gains Amount that shall be allocable to holders of the Class B Shares shall
be the amount that the total dividends paid or made available to the holders of the
Class B Shares for the year bears to the Total Dividends.
Section 3.
Redemption.
(a) Subject to the express terms of each series, the Corporation:
(1) May, from time to time at the option of the Board of Directors, redeem all
or any part of any redeemable series of Class B Shares at the time outstanding at
the applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Item II; and
(2) Shall, from time to time, make such redemptions of each series of Class B
Shares as may be required to fulfill the requirements of any sinking fund provided
for shares of such series at the applicable sinking fund redemption price fixed in
accordance with the provisions of Section 1 of this Item II; and shall in each case
pay all accrued and unpaid dividends to the redemption date.
(b) (1) Notice of every such redemption shall be mailed, postage prepaid,
to the holders of record of the Class B Shares to be redeemed at their respective
addresses then appearing on the books of the Corporation, not less than 30 days nor
more than 60 days prior to the date fixed for such redemption, or such other time
prior thereto as the Board of Directors shall fix for any series pursuant to
Section 1 of this Item II prior to the issuance thereof. At any time after notice
as provided above has been deposited in the mail, the Corporation may deposit the
aggregate redemption price of Class B Shares to be redeemed, together with accrued
and unpaid dividends thereon to the redemption date, with any bank or trust company
in Cleveland, Ohio, or New York, New York, having capital and surplus of not less
than $100,000,000 named in such notice and direct that there be paid to the
respective holders of the Class B Shares so to be redeemed amounts equal to the
redemption price of the Class B Shares so to be redeemed, together with such
accrued and unpaid dividends thereon, on surrender of the share certificate or
certificates held by such holders; and upon the deposit of such notice in the mail
and the making of such deposit of money with such bank or trust company, such
holders shall cease to be shareholders with respect to such shares; and from and
after the time such notice shall have been so deposited and such deposit of money
shall have been so made, such holders shall have no rights or claim against the
Corporation with respect to such shares, except only the right to receive such
money from such bank or trust
14
company without interest or to exercise before the redemption date any
unexpired privileges of conversion. In the event less than all of the outstanding
Class B Shares are to be redeemed, the Corporation shall select by lot the shares
so to be redeemed in such manner as shall be prescribed by the Board of Directors.
(2) If the holders of Class B Shares which have been called for redemption
shall not within six years after such deposit claim the amount deposited for the
redemption thereof, any such bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon such bank or trust company and
the Corporation shall be relieved of all responsibility in respect thereof and to
such holders.
(c) Any Class B Shares which are (1) redeemed by the Corporation pursuant to
the provisions of this Section, (2) purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series, (3) converted in
accordance with the express terms thereof, or (4) otherwise acquired by the
Corporation shall resume the status of authorized but unissued Class B Shares
without serial designation.
(d) Except in connection with the exercise of the Corporations rights
pursuant to Section (d) of Item XIV of this Division A, Section 4(d) of Division B
or any similar Section hereafter contained in these Amended and Restated Articles
of Incorporation, as amended, with respect to any other class or series of capital
stock hereafter created or authorized, the Corporation may not purchase or redeem
(for sinking fund purposes or otherwise) less than all of the Class B Shares then
outstanding except in accordance with a stock purchase offer made to all holders of
record of Class B Shares, unless all dividends on all Class B Shares then
outstanding for all previous and current dividend periods shall have been declared
and paid or funds therefor set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
Section 4.
Liquidation.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of Class B
Shares of any series shall be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or distributed
among the holders of the Common Shares or any other shares ranking junior to the
Class B Shares, the amounts fixed with respect to shares of such series in
accordance with Section 1 of this Item II, plus an amount equal to all dividends
accrued and unpaid thereon to the date of payment of the amount due pursuant to
such liquidation, dissolution or winding up of the affairs of the Corporation. In
the event the net assets of the Corporation legally available therefor are
insufficient to permit the payment upon all outstanding Cumulative Shares and
Noncumulative Shares of the full preferential amount to which they are respectively
entitled, then such net assets shall be distributed ratably upon all
15
outstanding Cumulative Shares and Noncumulative Shares in proportion to the
full preferential amount to which each such share is entitled.
(2) After payment to the holders of Class B Shares of the full preferential
amounts as aforesaid, the holders of Class B Shares, as such, shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any other
Corporation, the merger of any other corporation into it, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation shall not be
deemed to be a dissolution, liquidation or winding up for the purposes of this
Section.
Section 5.
Voting.
(a) The holders of Class B Shares shall have no voting rights, except as
provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in default in the
payment of dividends on any series of Class B Shares at the time outstanding,
whether or not earned or declared, for a number of dividend payment periods,
whether consecutive or not, which in the aggregate contain at least 540 days, all
holders of Class B Shares, voting separately as a class, together with all Class A
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
Noncumulative Shares upon which like voting rights have been conferred and are
exercisable under the circumstances described in Subsection 5(c), shall be entitled
to elect, as herein provided, a total of two members of the Board of Directors of
the Corporation; provided, however, that the holders of such Class B Shares shall
not exercise such special class voting rights except at meetings of such
shareholders for the election of directors at which the holders of not less than
50% of such Class B Shares are present in person or by proxy; and provided further
that the special class voting rights provided for in this paragraph when the same
shall have become vested shall remain so vested until all accrued and unpaid
dividends on such Class B Shares then outstanding shall have been paid or declared
and a sum sufficient therefor set aside for payment, whereupon the holders of such
Class B Shares shall be divested of their special class voting rights in respect of
subsequent elections of directors, subject to the revesting of such special class
voting rights in the event above specified in this paragraph.
(2) In the event of default entitling holders of Class B Shares to elect two
directors as specified in paragraph (1) of this Subsection, a special meeting of
such holders for the purpose of electing such directors shall be called by the
Secretary of the Corporation upon written request of, or may be called by, the
holders of record of at least 10% of the Class B Shares upon which such default in
the payment of dividends exists and notice thereof shall be given in the same manner
as that required for the annual meeting of shareholders; provided,
16
however, that the Corporation shall not be required to call such special
meeting if the annual meeting of shareholders shall be called to be held within 90
days after the date of receipt of the foregoing written request from the holders of
Class B Shares. At any meeting at which such holders of Class B Shares shall be
entitled to elect directors, holders of 50% of such Class B Shares, present in
person or by proxy, shall be sufficient to constitute a quorum, and the vote of the
holders of a majority of such shares so present at any such meeting at which there
shall be such a quorum shall be sufficient to elect the members of the Board of
Directors which such holders of Class B Shares are entitled to elect as herein
provided. Notwithstanding any provision of these Amended and Restated Articles of
Incorporation, as amended, or the Code of Regulations of the Corporation or any
action taken by the holders of any class of shares fixing the number of directors of
the Corporation, the two directors who may be elected by such holders of Class B
Shares pursuant to this Subsection shall serve in addition to any other directors
then in office or proposed to be elected otherwise than pursuant to this Subsection.
Nothing in this Subsection shall prevent any change otherwise permitted in the
total number of or classifications of directors of the Corporation nor require the
resignation of any director elected otherwise than pursuant to this Subsection.
Notwithstanding any classification of the other directors of the Corporation, the
two directors elected by such holders of Class B Shares shall be elected annually
for terms expiring at the next succeeding annual meeting of shareholders.
(3) Upon any divesting of the special class voting rights of the holders of the
Class B Shares in respect of elections of directors as provided in this Subsection,
the terms of office of all directors then in office elected by such holders shall
terminate immediately thereupon. If the office of any director elected by such
holders voting as a class becomes vacant by reason of death, resignation, removal
from office or otherwise, the remaining director elected by such holders voting as a
class may elect a successor who shall hold office for the unexpired term in respect
of which such vacancy occurred.
(c) If at any time when the holders of Class B Shares are entitled to elect
directors pursuant to the foregoing provisions of this Section the holders of any
Class A 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 or
Noncumulative Shares are entitled to elect directors pursuant hereto by reason of
any default in the payment of dividends thereon, then the voting rights of the
Cumulative Shares and the Noncumulative Shares then entitled to vote shall be
combined (with class of shares having a number of votes proportional to the
aggregate liquidation preference of its outstanding shares). In such case, the
holders of Class B Shares and of all such other shares then entitled so to vote,
voting as a class, shall elect such directors. If the holders of any such other shares have elected such directors prior to the happening of the default or event
permitting the holders of Class B Shares to elect directors, or prior to a written
request for the holding of a special meeting being received by the Secretary of the
Corporation as required above, then a new election shall be held with all such
17
other shares and the Class B Shares voting together as a single class for such
directors, resulting in the termination of the term of such previously elected
directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds of the Class B
Shares at the time outstanding, voting separately as a class, given in person or by
proxy either in writing or at a meeting called for the purpose, shall be necessary
to effect either of the following:
(1) Any amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the Amended and Restated Articles of
Incorporation, as amended, or of the Code of Regulations of the Corporation which
affects adversely and materially the preferences or voting or other rights of the
holders of Class B Shares which are set forth in these Amended and Restated Articles
of Incorporation, as amended; provided, however, neither the amendment of these
Amended and Restated Articles of Incorporation, as amended, so as to authorize,
create or change the authorized or outstanding number of Class B Shares or of any shares ranking on a parity with or junior to the Class B Shares nor the amendment of
the provisions of the Code of Regulations so as to change the number or
classification of directors of the Corporation shall be deemed to affect adversely
and materially preferences or voting or other rights of the holders of Class B
Shares; or
(2) The authorization, creation or increase in the authorized number of any shares, or any security convertible into shares, in either case ranking prior to
such Class B Shares.
(e) In the event, and only to the extent, that (1) Class B Shares are issued
in more than one series and (2) Ohio law permits the holders of a series of a class
of capital stock to vote separately as a class, the affirmative vote of the holders
of at least two-thirds of each series of Class B Shares at the time outstanding,
voting separately as a class, given in person or by proxy either in writing or at a
meeting called for the purpose of voting on such matters, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or otherwise, of
any of the provisions of these Amended and Restated Articles of Incorporation, as
amended, or of the Code of Regulations of the Corporation which affects adversely
and materially the preferences or voting or other rights of the holders of such
series which are set forth in these Amended and Restated Articles of Incorporation,
as amended; provided, however, neither the amendment of these Amended and Restated
Articles of Incorporation, as amended, so as to authorize, create or change the
authorized or outstanding number of Class B Shares or of any shares remaining on a
parity with or junior to the Class B Shares nor the amendment of the provisions of
the Code of Regulations so as to change the number or classification of directors
of the Corporation shall be deemed to affect adversely and materially preferences
or voting or other rights of the holders of such series.
18
Section 6.
9.44% Class B Cumulative Redeemable Preferred Shares.
Of the 750,000
authorized Class B Shares, 177,500 shares are designated as a series entitled 9.44% Class B
Cumulative Redeemable Preferred Shares (hereinafter called 9.44% Class B Preferred
Shares). The 9.44% Class B Preferred Shares shall have the express terms set forth in this
Item II as being applicable to all Class B Shares as a class and, in addition, the following
express terms applicable to all 9.44% Class B Preferred Shares as a series of Class B
Shares:
(a) The annual dividend rate of the 9.44% Class B Preferred Shares shall be
9.44% of the liquidation preference of $250.00 per share.
(b) Dividends on the 9.44% Class B Preferred Shares shall be payable, if
declared, quarterly on or about the 15th day of March, June, September, and
December each year, the first quarterly dividend being payable, if declared, on
March 15, 1996. The dividends payable for each full quarterly dividend period on
each 9.44% Class B Preferred Share shall be $5.90.
Dividends for the initial dividend period on the 9.44% Class B Preferred
Shares, or for any period shorter or longer than a full dividend period on the 9.44%
Class B Preferred Shares, shall be computed on the basis of a 360-day year
consisting of twelve 30-day months. The aggregate dividend payable quarterly to
each holder of 9.44% Class B Preferred Shares shall be rounded to the nearest
one-hundredth of one cent with $.00005 being rounded upward. Each dividend shall be
payable to the holders of record on such record date, no less than 10 nor more than
30 days preceding the payment date thereof, as shall be fixed from time to time by
the Corporations Board of Directors.
(c) Dividends on 9.44% Class B Preferred Shares shall be cumulative as
follows:
(1) With respect to shares included in the initial issue of 9.44% Class B
Preferred Shares and shares issued any time thereafter up to and including the
record date for the payment of the first dividend on the initial issue of 9.44%
Class B Preferred Shares, dividends shall be cumulative from the date of the initial
issue of 9.44% Class B Preferred Shares; and
(2) With respect to shares issued any time after the aforesaid record date,
dividends shall be cumulative from the dividend payment date next preceding the date
of issue of such shares, except that if such shares are issued during the period
commencing the day after the record date for the payment of a dividend on 9.44%
Class B Preferred Shares and ending on the payment date of that dividend, dividends
with respect to such shares shall be cumulative from that dividend payment date.
(d) Except as required to preserve the Corporations status as a real estate
investment trust under the Internal Revenue Code of 1986, as amended, the 9.44%
Class B Preferred Shares may not be redeemed prior to December 26,
19
2000. At any time or from time to time on and after December 26, 2000 the
Corporation, at its option upon not less than thirty (30) nor more than sixty (60)
days written notice, may redeem all or any part of the 9.44% Class B Preferred
Shares at a redemption price of $250.00 per share plus, in each case, an amount
equal to all dividends accrued and unpaid thereon to the redemption date, without
interest. The redemption price (other than the portion thereof consisting of
accrued and unpaid dividends) is payable solely out of the sale proceeds of other
capital shares of the Corporation, which may include any equity securities
(including common shares and preferred shares), shares, interests, participation or
other ownership interests (however designated) and any rights (other than debt
securities convertible into or exchangeable for equity securities), or options to
purchase any of the foregoing.
(e) The amount payable per 9.44% Class B Preferred Share in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs of
the Corporation shall be $250.00, plus an amount equal to all dividends accrued and
unpaid thereon to the date of payment.
(f) All dividend payments made on the 9.44% Class B Preferred Shares, at any
time during which the Corporation is in default in the payment of dividends on such
9.44% Class B Preferred Shares for any dividend period, shall, for the purposes of
Section 5(b)(1) of this Item II, be deemed to be made in respect of the earliest
dividend period with respect to which the Corporation is in default.
III.
The Class C Cumulative Preferred Shares.
The Class C Shares shall have the following
express terms:
Section 1.
Series.
The Class C Shares may be issued from time to time in one or more
series. All Class C Shares shall be of equal rank and shall be identical, except in respect
of the matters that may be fixed by the Board of Directors as hereinafter provided, and each
share of a series shall be identical with all other shares of such series, except as to the
dates from which dividends shall accrue and be cumulative. All Class C Shares shall rank on
a parity with the Class A Shares, Class B 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
Noncumulative Shares and shall be identical to all Class A Shares, Class B 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 Noncumulative Shares except (1) in respect of the matters
that may be fixed by the Board of Directors as provided in clauses (a) through (i),
inclusive, of this Section 1 and (2) only dividends on Cumulative Shares shall be cumulative
as set forth herein. Subject to the provisions of Sections 2 through 5, both inclusive, and
Item XIII of this Division, which provisions shall apply to all Class C Shares, the Board of
Directors hereby is authorized to cause such shares to be issued in one or more series and,
with respect to each such series to determine and fix prior to the issuance thereof (and
thereafter, to the extent provided in clause (b) of this Section), the following:
20
(a) The designation of the series, which may be by distinguishing number,
letter or title;
(b) The authorized number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase or decrease from time to time before or after the issuance thereof (but
not below the number of shares thereof then outstanding);
(c) The dividend rate or rates of the series, including the means by which
such rates may be established;
(d) The date or dates from which dividends shall accrue and be cumulative and
the dates on which and the period or periods for which dividends, if declared,
shall be payable, including the means by which such dates and periods may be
established;
(e) The redemption rights and price or prices, if any, for shares of the
series;
(f) The terms and amount of the sinking fund, if any, for the purchase or
redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(h) Whether the shares of the series shall be convertible into Common Shares
or shares of any other class and, if so, the conversion rate or rates or price or
prices, any adjustments thereof and all other terms and conditions upon which such
conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection 5(d) or 5(e) of
this Item III) on the issuance of shares of the same series or of any other class
or series.
The Board of Directors is authorized to adopt from time to time amendments to the Amended and
Restated Articles of Incorporation, as amended, fixing, with respect to each such series, the
matters described in clauses (a) through (i), inclusive, of this Section and is authorized to take
such actions with respect thereto as may be required by law in order to effect such amendments.
Section 2.
Dividends.
(a) The holders of Class C Shares of each series, in preference to the holders
of Common Shares and of any other class of shares ranking junior to the Class C
Shares, shall be entitled to receive out of any funds legally available therefor,
and when and as declared by the Board of Directors, dividends in cash at the rate
or rates for such series fixed in accordance with the provisions of
21
Section 1 above and no more, payable on the dates fixed for such series. Such
dividends shall accrue and be cumulative, in the case of shares of each particular
series, from and after the date or dates fixed with respect to such series. No
dividends shall be paid upon or declared or set apart for any series of the Class C
Shares for any dividend period unless at the same time (i) a like proportionate
dividend for the dividend periods terminating on the same or any earlier date,
ratably in proportion to the respective annual dividend rates fixed therefor, shall
have been paid upon or declared or set apart for all Class C Shares of all series
then issued and outstanding and entitled to receive such dividend and (ii) the
dividends payable for the dividend periods terminating on the same or any earlier
date (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, shall have been paid upon or declared or set apart for all Class A
Shares, Class B 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
Noncumulative Shares then issued and outstanding and entitled to receive such
dividends.
(b) So long as any Class C Shares shall be outstanding no dividend, except a
dividend payable in Common Shares or other shares ranking junior to the Class C
Shares, shall be paid or declared or any distribution be made, except as aforesaid,
in respect of the Common Shares or any other shares ranking junior to the Class C
Shares, nor shall any Common Shares or any other shares ranking junior to the Class
C Shares be purchased, retired or otherwise acquired by the Corporation, except out
of the proceeds of the sale of Common Shares or other shares of the Corporation
ranking junior to the Class C Shares received by the Corporation subsequent to the
date of first issuance of Class C Shares of any series, unless:
(1) All accrued and unpaid dividends on Cumulative Shares, including the full
dividends for all current dividend periods, shall have been declared and paid or a
sum sufficient for payment thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the then current dividend
period shall have been declared and paid or a sum sufficient for payment therefor
set apart; and
(3) There shall be no arrearages with respect to the redemption of Cumulative
Shares or Noncumulative Shares of any series from any sinking fund provided for
shares of such series in accordance with the provisions of Section 1 of this Item
III.
(c) The foregoing 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 on a parity with or junior to the
Class C Shares shall be inapplicable to (i) any payments in lieu of issuance of
fractional shares thereof, whether upon any merger, conversion, stock dividend
22
or otherwise, (ii) the conversion of Cumulative Shares or Noncumulative Shares
into Common Shares, or (iii) the exercise by the Corporation of its rights pursuant
to Item XIV(d) of this Division A, Section 4(d) of Division B or any similar
Section hereafter contained in these Amended and Restated Articles of
Incorporation, as amended, with respect to any other class or series of capital
stock hereafter created or authorized.
(d) If, for any taxable year, the Corporation elects to designate as capital
gain dividends (as defined in Section 857 of the Code) any portion (the Capital
Gains Amount) of the dividends paid or made available for the year to holders of
all classes of stock (the Total Dividends), then, to the extent permissible under
the Code and to the extent it does not cause any dividends to fail to qualify for
the dividends paid deduction under Section 561 of the Code, the portion of the
Capital Gains Amount that shall be allocable to holders of the Class C Shares shall
be the amount that the total dividends paid or made available to the holders of the
Class C Shares for the year bears to the Total Dividends.
Section 3.
Redemption.
(a) Subject to the express terms of each series, the Corporation:
(1) May, from time to time at the option of the Board of Directors, redeem all
or any part of any redeemable series of Class C Shares at the time outstanding at
the applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Item III; and
(2) Shall, from time to time, make such redemptions of each series of Class C
Shares as may be required to fulfill the requirements of any sinking fund provided
for shares of such series at the applicable sinking fund redemption price fixed in
accordance with the provisions of Section 1 of this Item III; and shall in each case
pay all accrued and unpaid dividends to the redemption date.
(b) (1) Notice of every such redemption shall be mailed, postage prepaid,
to the holders of record of the Class C Shares to be redeemed at their respective
addresses then appearing on the books of the Corporation, not less than 30 days nor
more than 60 days prior to the date fixed for such redemption, or such other time
prior thereto as the Board of Directors shall fix for any series pursuant to
Section 1 of this Item III prior to the issuance thereof. At any time after notice
as provided above has been deposited in the mail, the Corporation may deposit the
aggregate redemption price of Class C Shares to be redeemed, together with accrued
and unpaid dividends thereon to the redemption date, with any bank or trust company
in Cleveland, Ohio, or New York, New York, having capital and surplus of not less
than $100,000,000 named in such notice and direct that there be paid to the
respective holders of the Class C Shares so to be redeemed amounts equal to the
redemption price of the Class C Shares so to be redeemed, together with such
accrued and unpaid dividends thereon, on surrender of the share certificate or
certificates held by such holders; and upon
23
the deposit of such notice in the mail and the making of such deposit of money
with such bank or trust company, such holders shall cease to be shareholders with
respect to such shares; and from and after the time such notice shall have been so
deposited and such deposit of money shall have been so made, such holders shall
have no rights or claim against the Corporation with respect to such shares, except
only the right to receive such money from such bank or trust company without
interest or to exercise before the redemption date any unexpired privileges of
conversion. In the event less than all of the outstanding Class C Shares are to be
redeemed, the Corporation shall select by lot the shares so to be redeemed in such
manner as shall be prescribed by the Board of Directors.
(2) If the holders of Class C Shares which have been called for redemption
shall not within six years after such deposit claim the amount deposited for the
redemption thereof, any such bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon such bank or trust company and
the Corporation shall be relieved of all responsibility in respect thereof and to
such holders.
(c) Any Class C Shares which are (1) redeemed by the Corporation pursuant to
the provisions of this Section, (2) purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series, (3) converted in
accordance with the express terms thereof, or (4) otherwise acquired by the
Corporation shall resume the status of authorized but unissued Class C Shares
without serial designation.
(d) Except in connection with the exercise of the Corporations rights
pursuant to Section (d) of Item XIV of this Division A, Section 4(d) of Division B
or any similar Section hereafter contained in these Amended and Restated Articles
of Incorporation, as amended, with respect to any other class or series of capital
stock hereafter created or authorized, the Corporation may not purchase or redeem
(for sinking fund purposes or otherwise) less than all of the Class C Shares then
outstanding except in accordance with a stock purchase offer made to all holders of
record of Class C Shares, unless all dividends on all Class C Shares then
outstanding for all previous and current dividend periods shall have been declared
and paid or funds therefor set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
Section 4.
Liquidation.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of Class C
Shares of any series shall be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or distributed
among the holders of the Common Shares or any other shares ranking junior to the
Class C Shares, the amounts fixed with respect to shares of such series in
accordance with Section 1 of this Item III, plus an amount equal to all dividends
24
accrued and unpaid thereon to the date of payment of the amount due pursuant
to such liquidation, dissolution or winding up of the affairs of the Corporation.
In the event the net assets of the Corporation legally available therefor are
insufficient to permit the payment upon all outstanding Cumulative Shares and
Noncumulative Shares of the full preferential amount to which they are respectively
entitled, then such net assets shall be distributed ratably upon all outstanding
Cumulative Shares and Noncumulative Shares in proportion to the full preferential
amount to which each such share is entitled.
(2) After payment to the holders of Class C Shares of the full preferential
amounts as aforesaid, the holders of Class C Shares, as such, shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any other
Corporation, the merger of any other Corporation into it, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation shall not be
deemed to be a dissolution, liquidation or winding up for the purposes of this
Section.
Section 5.
Voting.
(a) The holders of Class C Shares shall have no voting rights, except as
provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in default in the
payment of dividends on any series of Class C Shares at the time outstanding,
whether or not earned or declared, for a number of dividend payment periods,
whether consecutive or not, which in the aggregate contain at least 540 days, all
holders of such Class C Shares, voting separately as a class, together with all
Class A Shares, Class B 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
Noncumulative Shares upon which like voting rights have been conferred and are
exercisable under the circumstances described in Subsection 5(c), shall be entitled
to elect, as herein provided, a total of two members of the Board of Directors of
the Corporation; provided, however, that the holders of such Class C Shares shall
not exercise such special class voting rights except at meetings of such
shareholders for the election of directors at which the holders of not less than
50% of such Class C Shares are present in person or by proxy; and provided further
that the special class voting rights provided for in this paragraph when the same
shall have become vested shall remain so vested until all accrued and unpaid
dividends on such Class C Shares then outstanding shall have been paid or declared
and a sum sufficient for the payment thereof set aside for payment, whereupon the
holders of such Class C Shares shall be divested of their special class voting
rights in respect of subsequent elections of directors, subject to the revesting of
such special class voting rights in the event above specified in this paragraph.
All dividend payments made on the Class C Shares, at any time during which the
Corporation is in default in the payment of dividends on such
25
Class C Shares for any dividend period, shall be deemed to be made in respect
of the earliest dividend period with respect to which the Corporation is in
default.
(2) In the event of default entitling holders of Class C Shares to elect two
directors as specified in paragraph (1) of this Subsection, a special meeting of
such holders for the purpose of electing such directors shall be called by the
Secretary of the Corporation upon written request of, or may be called by, the
holders of record of at least 10% of the Class C Shares upon which such default in
the payment of dividends exists and notice thereof shall be given in the same manner
as that required for the annual meeting of shareholders; provided, however, that the
Corporation shall not be required to call such special meeting if the annual meeting
of shareholders shall be called to be held within 90 days after the date of receipt
of the foregoing written request from the holders of Class C Shares. At any meeting
at which such holders of Class C Shares shall be entitled to elect directors,
holders of 50% of such Class C Shares, present in person or by proxy, shall be
sufficient to constitute a quorum, and the vote of the holders of a majority of such
shares so present at any such meeting at which there shall be such a quorum shall be
sufficient to elect the members of the Board of Directors which such holders of
Class C Shares are entitled to elect as herein provided. Notwithstanding any
provision of these Amended and Restated Articles of Incorporation, as amended, or
the Code of Regulations of the Corporation or any action taken by the holders of any
class of shares fixing the number of directors of the Corporation, the two directors
who may be elected by such holders of Class C Shares pursuant to this Subsection
shall serve in addition to any other directors then in office or proposed to be
elected otherwise than pursuant to this Subsection. Nothing in this Subsection
shall prevent any change otherwise permitted in the total number of or
classifications of directors of the Corporation or require the resignation of any
director elected otherwise than pursuant to this Subsection. Notwithstanding any
classification of the other directors of the Corporation, the two directors elected
by such holders of Class C Shares shall be elected annually for terms expiring at
the next succeeding annual meeting of shareholders.
(3) Upon any divesting of the special class voting rights of the holders of the
Class C Shares in respect of elections of directors as provided in this Subsection,
the terms of office of all directors then in office elected by such holders shall
terminate immediately thereupon. If the office of any director elected by such
holders voting as a class becomes vacant by reason of death, resignation, removal
from office or otherwise, the remaining director elected by such holders voting as a
class may elect a successor who shall hold office for the unexpired term in respect
of which such vacancy occurred.
(c) If at any time when the holders of Class C Shares are entitled to elect
directors pursuant to the foregoing provisions of this Section the holders of any
Class A Shares, Class B 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 or
Noncumulative Shares are entitled to elect directors pursuant hereto by reason
26
of any default in the payment of dividends thereon, then the voting rights of
the Cumulative Shares and the Noncumulative Shares then entitled to vote shall be
combined (with each class of shares having a number of votes proportional to the
aggregate liquidation preference of its outstanding shares). In such case, the
holders of Class C Shares and of all such other shares then entitled so to vote,
voting as a class, shall elect such directors. If the holders of any such other
shares have elected such directors prior to the happening of the default or event
permitting the holders of Class C Shares to elect directors, or prior to a written
request for the holding of a special meeting being received by the Secretary of the
Corporation as required above, then a new election shall be held with all such
other shares and the Class C Shares voting together as a single class for such
directors, resulting in the termination of the term of such previously elected
directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds of the Class C
Shares at the time outstanding, voting separately as a class, given in person or by
proxy either in writing or at a meeting called for the purpose, shall be necessary
to effect either of the following:
(1) Any amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the Amended and Restated Articles of
Incorporation, as amended, or of the Code of Regulations of the Corporation which
affects adversely and materially the preferences or voting or other rights of the
holders of Class C Shares which are set forth in these Amended and Restated Articles
of Incorporation, as amended; provided, however, neither the amendment of these
Amended and Restated Articles of Incorporation, as amended, so as to authorize,
create or change the authorized or outstanding number of Class C Shares or of any
shares ranking on a parity with or junior to the Class C Shares nor the amendment of
the provisions of the Code of Regulations so as to change the number or
classification of directors of the Corporation shall be deemed to affect adversely
and materially preferences or voting or other rights of the holders of Class C
Shares; or
(2) The authorization, creation or increase in the authorized number of any
shares, or any security convertible into shares, in either case ranking prior to
such series of Class C Shares.
(e) In the event, and only to the extent, that (1) Class C Shares are issued
in more than one series and (2) Ohio law permits the holders of a series of a class
of capital stock to vote separately as a class, the affirmative vote of the holders
of at least two-thirds of each series of Class C Shares at the time outstanding,
voting separately as a class, given in person or by proxy either in writing or at a
meeting called for the purpose of voting on such matters, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or otherwise, of
any of the provisions of these Amended and Restated Articles of Incorporation, as
amended, or of the Code of Regulations of the Corporation which affects adversely
and materially the preferences or voting or other rights
27
of the holders of such series which are set forth in these Amended and
Restated Articles of Incorporation, as amended; provided, however, neither the
amendment of these Amended and Restated Articles of Incorporation, as amended, so
as to authorize, create or change the authorized or outstanding number of Class C
Shares or of any shares ranking on a parity with or junior to the Class C Shares
nor the Amendment of the provisions of the Code of Regulations so as to change the
number or classification of directors of the Corporation shall be deemed to affect
adversely and materially the preferences or voting or other rights of the holders
of such series.
Section 6.
8
3
/
8
% Class C Cumulative Redeemable Preferred Shares
.
Of the 750,000 authorized Class C Shares, 460,000 shares are designated as a series entitled
8
3
/
8
% Class C Cumulative Redeemable Preferred Shares (hereinafter
called 8
3
/
8
% Class C Preferred Shares). The
8
3
/
8
% Class C Preferred Shares shall have the express terms set forth
in this Division as being applicable to all Class C Shares as a class and, in addition, the
following express terms applicable to all 8
3
/
8
% Class C Preferred
Shares as a series of Class C Shares:
(a) The annual dividend rate of the 8
3
/
8
% Class C
Preferred Shares shall be 8
3
/
8
% of the liquidation preference
of $250.00 per share.
(b) Dividends on the 8
3
/
8
% Class C Preferred Shares
shall be payable, if declared, quarterly on or about the fifteenth day of March,
June, September, and December each year, the first quarterly dividend being
payable, if declared, on September 15, 1998. The dividends payable for each full
quarterly dividend period on each 8
3
/
8
% Class C Preferred
Share shall be $5.234375.
Dividends for the initial dividend period on the 8
3
/
8
%
Class C Preferred Shares, or for any period shorter or longer than a full dividend
period on the 8
3
/
8
% Class C Preferred Shares, shall be
computed on the basis of a 360-day year consisting of twelve 30-day months. The
aggregate dividend payable quarterly to each holder of 8
3
/
8
%
Class C Preferred Shares shall be rounded to the nearest one-hundredth of one cent
with $.00005 being rounded upward. Each dividend shall be payable to the holders of
record on such record date, no less than 10 nor more than 30 days preceding the
payment date thereof, as shall be fixed from time to time by the Corporations Board
of Directors.
(c) Dividends on 8
3
/
8
% Class C Preferred Shares shall be
cumulative as follows:
(1) With respect to shares included in the initial issue of
8
3
/
8
% Class C Preferred Shares and shares issued any time
thereafter up to and including the record date for the payment of the first dividend
on the initial issue of 8
3
/
8
% Class C Preferred Shares,
dividends shall be cumulative from the date of the initial issue of
8
3
/
8
% Class C Preferred Shares; and
28
(2) With respect to shares issued any time after the aforesaid record date,
dividends shall be cumulative from the dividend payment date next preceding the date
of issue of such shares, except that if such shares are issued during the period
commencing the day after the record date for the payment of a dividend on
8
3
/
8
% Class C Preferred Shares and ending on the payment date
of that dividend, dividends with respect to such shares shall be cumulative from
that dividend payment date.
(d) Except as required to preserve the Corporations status as a real estate
investment trust under the Internal Revenue Code of 1986, as amended, the
8
3
/
8
% Class C Preferred Shares may not be redeemed prior to
July 7, 2003. At any time or from time to time on and after July 7, 2003 the
Corporation, at its option upon not less than thirty (30) nor more than sixty (60)
days written notice, may redeem all or any part of the 8
3
/
8
%
Class C Preferred Shares at a redemption price of $250.00 per share plus, in each
case, an amount equal to all dividends accrued and unpaid thereon to the redemption
date, without interest. The redemption price (other than the portion thereof
consisting of accrued and unpaid dividends) is payable solely out of the sale
proceeds of other capital shares of the Corporation, which may include any equity
securities (including common shares and preferred shares), shares, interests,
participation or other ownership interests (however designated) and any rights
(other than debt securities convertible into or exchangeable for equity
securities), or options to purchase any of the foregoing.
(e) The amount payable per 8
3
/
8
% Class C Preferred Share
in the event of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation shall be $250.00, plus an amount equal to all
dividends accrued and unpaid thereon to the date of payment.
(f) All dividend payments made on the 8
3
/
8
% Class C
Preferred Shares, at any time during which the Corporation is in default in the
payment of dividends on such 8
3
/
8
% Class C Preferred Shares
for any dividend period, shall, for the purposes of Section 5(b)(1) of this
Division A-III, be deemed to be made in respect of the earliest dividend period
with respect to which the Corporation is in default.
IV.
The Class D Cumulative Preferred Shares.
The Class D Shares shall have the following
express terms:
Section 1.
Series.
The Class D Shares may be issued from time to time in one or more
series. All Class D Shares shall be of equal rank and shall be identical, except in respect
of the matters that may be fixed by the Board of Directors as hereinafter provided, and each
share of a series shall be identical with all other shares of such series, except as to the
dates from which dividends shall accrue and be cumulative. All Class D Shares shall rank on
a parity with the Class A Shares, Class B Shares, Class C Shares, Class E Shares, Class F
Shares, Class G Shares, Class H Shares, Class I Shares, Class J Shares, Class K Shares and
Noncumulative Shares and shall be identical to all Class A Shares,
29
Class B Shares, Class C Shares, Class E Shares, Class F Shares, Class G Shares, Class H
Shares, Class I Shares, Class J Shares, Class K Shares and Noncumulative Shares except (1)
in respect of the matters that may be fixed by the Board of Directors as provided in clauses
(a) through (i), inclusive, of this Section 1 and (2) only dividends on Cumulative Shares
shall be cumulative as set forth herein. Subject to the provisions of Sections 2 through 5,
both inclusive, and Item XIII of this Division, which provisions shall apply to all Class D
Shares, the Board of Directors hereby is authorized to cause such shares to be issued in one
or more series and, with respect to each such series to determine and fix prior to the
issuance thereof (and thereafter, to the extent provided in clause (b) of this Section), the
following:
(a) The designation of the series, which may be by distinguishing number,
letter or title;
(b) The authorized number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase or decrease from time to time before or after the issuance thereof (but
not below the number of shares thereof then outstanding);
(c) The dividend rate or rates of the series, including the means by which
such rates may be established;
(d) The date or dates from which dividends shall accrue and be cumulative and
the dates on which and the period or periods for which dividends, if declared,
shall be payable, including the means by which such dates and periods may be
established;
(e) The redemption rights and price or prices, if any, for shares of the
series;
(f) The terms and amount of the sinking fund, if any, for the purchase or
redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(h) Whether the shares of the series shall be convertible into Common Shares
or shares of any other class and, if so, the conversion rate or rates or price or
prices, any adjustments thereof and all other terms and conditions upon which such
conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection 5(d) or 5(e) of
this Item IV) on the issuance of shares of the same series or of any other class or
series.
The Board of Directors is authorized to adopt from time to time amendments to the Amended and
Restated Articles of Incorporation, as amended, fixing, with respect to each
30
such series, the matters described in clauses (a) through (i), inclusive, of this Section and
is authorized to take such actions with respect thereto as may be required by law in order to
effect such amendments.
Section 2.
Dividends.
(a) The holders of Class D Shares of each series, in preference to the holders
of Common Shares and of any other class of shares ranking junior to the Class D
Shares, shall be entitled to receive out of any funds legally available therefor,
and when and as declared by the Board of Directors, dividends in cash at the rate
or rates for such series fixed in accordance with the provisions of Section 1 above
and no more, payable on the dates fixed for such series. Such dividends shall
accrue and be cumulative, in the case of shares of each particular series, from and
after the date or dates fixed with respect to such series. No dividends shall be
paid upon or declared or set apart for any series of the Class D Shares for any
dividend period unless at the same time (i) a like proportionate dividend for the
dividend periods terminating on the same or any earlier date, ratably in proportion
to the respective annual dividend rates fixed therefor, shall have been paid upon
or declared or set apart for all Class D Shares of all series then issued and
outstanding and entitled to receive such dividend and (ii) the dividends payable
for the dividend periods terminating on the same or any earlier date (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,
shall have been paid upon or declared or set apart for all Class A Shares, Class B
Shares, Class C Shares, Class E Shares, Class F Shares, Class G Shares, Class H
Shares, Class I Shares, Class J Shares, Class K Shares and Noncumulative Shares
then issued and outstanding and entitled to receive such dividends.
(b) So long as any Class D Shares shall be outstanding no dividend, except a
dividend payable in Common Shares or other shares ranking junior to the Class D
Shares, shall be paid or declared or any distribution be made, except as aforesaid,
in respect of the Common Shares or any other shares ranking junior to the Class D
Shares, nor shall any Common Shares or any other shares ranking junior to the Class
D Shares be purchased, retired or otherwise acquired by the Corporation, except out
of the proceeds of the sale of Common Shares or other shares of the Corporation
ranking junior to the Class D Shares received by the Corporation subsequent to the
date of first issuance of Class D Shares of any series, unless:
(1) All accrued and unpaid dividends on Cumulative Shares, including the full
dividends for all current dividend periods, shall have been declared and paid or a
sum sufficient for payment thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the then current dividend
period shall have been declared and paid or a sum sufficient for payment therefor
set apart; and
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(3) There shall be no arrearages with respect to the redemption of Cumulative
Shares or Noncumulative Shares of any series from any sinking fund provided for
shares of such series in accordance with the provisions of Section 1 of this Item
IV.
(c) The foregoing 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 on a parity with or junior to the
Class D Shares shall be inapplicable to (i) any payments in lieu of issuance of
fractional shares thereof, whether upon any merger, conversion, stock dividend or
otherwise, (ii) the conversion of Cumulative Shares or Noncumulative Shares into
Common Shares, or (iii) the exercise by the Corporation of its rights pursuant to
Item XIV(d) of this Division A, Section 4(d) of Division B or any similar Section
hereafter contained in these Amended and Restated Articles of Incorporation, as
amended, with respect to any other class or series of capital stock hereafter
created or authorized.
(d) If, for any taxable year, the Corporation elects to designate as capital
gain dividends (as defined in Section 857 of the Code) any portion (the Capital
Gains Amount) of the dividends paid or made available for the year to holders of
all classes of stock (the Total Dividends), then, to the extent permissible under
the Code and to the extent it does not cause any dividends to fail to qualify for
the dividends paid deduction under Section 561 of the Code, the portion of the
Capital Gains Amount that shall be allocable to holders of the Class D Shares shall
be the amount that the total dividends paid or made available to the holders of the
Class D Shares for the year bears to the Total Dividends.
Section 3.
Redemption.
(a) Subject to the express terms of each series, the Corporation:
(1) May, from time to time at the option of the Board of Directors, redeem all
or any part of any redeemable series of Class D Shares at the time outstanding at
the applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Item IV; and
(2) Shall, from time to time, make such redemptions of each series of Class D
Shares as may be required to fulfill the requirements of any sinking fund provided
for shares of such series at the applicable sinking fund redemption price fixed in
accordance with the provisions of Section 1 of this Item IV; and shall in each case
pay all accrued and unpaid dividends to the redemption date.
(b) (1) Notice of every such redemption shall be mailed, postage prepaid,
to the holders of record of the Class D Shares to be redeemed at their respective
addresses then appearing on the books of the Corporation, not less than 30 days nor
more than 60 days prior to the date fixed for such redemption, or such other time
prior thereto as the Board of Directors shall fix for any series
32
pursuant to Section 1 of this Item IV prior to the issuance thereof. At any
time after notice as provided above has been deposited in the mail, the Corporation
may deposit the aggregate redemption price of Class D Shares to be redeemed,
together with accrued and unpaid dividends thereon to the redemption date, with any
bank or trust company in Cleveland, Ohio, or New York, New York, having capital and
surplus of not less than $100,000,000 named in such notice and direct that there be
paid to the respective holders of the Class D Shares so to be redeemed amounts
equal to the redemption price of the Class D Shares so to be redeemed, together
with such accrued and unpaid dividends thereon, on surrender of the share
certificate or certificates held by such holders; and upon the deposit of such
notice in the mail and the making of such deposit of money with such bank or trust
company, such holders shall cease to be shareholders with respect to such shares;
and from and after the time such notice shall have been so deposited and such
deposit of money shall have been so made, such holders shall have no rights or
claim against the Corporation with respect to such shares, except only the right to
receive such money from such bank or trust company without interest or to exercise
before the redemption date any unexpired privileges of conversion. In the event
less than all of the outstanding Class D Shares are to be redeemed, the Corporation
shall select by lot the shares so to be redeemed in such manner as shall be
prescribed by the Board of Directors.
(2) If the holders of Class D Shares which have been called for redemption
shall not within six years after such deposit claim the amount deposited for the
redemption thereof, any such bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon such bank or trust company and
the Corporation shall be relieved of all responsibility in respect thereof and to
such holders.
(c) Any Class D Shares which are (1) redeemed by the Corporation pursuant to
the provisions of this Section, (2) purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series, (3) converted in
accordance with the express terms thereof, or (4) otherwise acquired by the
Corporation shall resume the status of authorized but unissued Class D Shares
without serial designation.
(d) Except in connection with the exercise of the Corporations rights
pursuant to Section (d) of Item XIV of this Division A, Section 4(d) of Division B
or any similar Section hereafter contained in these Amended and Restated Articles
of Incorporation, as amended, with respect to any other class or series of capital
stock hereafter created or authorized, the Corporation may not purchase or redeem
(for sinking fund purposes or otherwise) less than all of the Class D Shares then
outstanding except in accordance with a stock purchase offer made to all holders of
record of Class D Shares, unless all dividends on all Class D Shares then
outstanding for all previous and current dividend periods shall have been declared
and paid or funds therefor set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
33
Section 4.
Liquidation.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of Class D
Shares of any series shall be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or distributed
among the holders of the Common Shares or any other shares ranking junior to the
Class D Shares, the amounts fixed with respect to shares of such series in
accordance with Section 1 of this Item IV, plus an amount equal to all dividends
accrued and unpaid thereon to the date of payment of the amount due pursuant to
such liquidation, dissolution or winding up of the affairs of the Corporation. In
the event the net assets of the Corporation legally available therefor are
insufficient to permit the payment upon all outstanding Cumulative Shares and
Noncumulative Shares of the full preferential amount to which they are respectively
entitled, then such net assets shall be distributed ratably upon all outstanding
Cumulative Shares and Noncumulative Shares in proportion to the full preferential
amount to which each such share is entitled.
(2) After payment to the holders of Class D Shares of the full preferential
amounts as aforesaid, the holders of Class D Shares, as such, shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any other
Corporation, the merger of any other Corporation into it, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation shall not be
deemed to be a dissolution, liquidation or winding up for the purposes of this
Section.
Section 5.
Voting.
(a) The holders of Class D Shares shall have no voting rights, except as
provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in default in the
payment of dividends on any series of Class D Shares at the time outstanding,
whether or not earned or declared, for a number of dividend payment periods,
whether consecutive or not, which in the aggregate contain at least 540 days, all
holders of such Class D Shares, voting separately as a class, together with all
Class A Shares, Class B Shares, Class C Shares, Class E Shares, Class F Shares,
Class G Shares, Class H Shares, Class I Shares, Class J Shares, Class K Shares and
Noncumulative Shares upon which like voting rights have been conferred and are
exercisable under the circumstances described in Subsection 5(c), shall be entitled
to elect, as herein provided, a total of two members of the Board of Directors of
the Corporation; provided, however, that the holders of such Class D Shares shall
not exercise such special class voting rights except at meetings of such
shareholders for the election of directors at which the holders of not less than
50% of such Class D Shares are present in person or by proxy; and provided
34
further that the special class voting rights provided for in this paragraph
when the same shall have become vested shall remain so vested until all accrued and
unpaid dividends on such Class D Shares then outstanding shall have been paid or
declared and a sum sufficient for the payment thereof set aside for payment,
whereupon the holders of such Class D Shares shall be divested of their special
class voting rights in respect of subsequent elections of directors, subject to the
revesting of such special class voting rights in the event above specified in this
paragraph. All dividend payments made on the Class D Shares, at any time during
which the Corporation is in default in the payment of dividends on such Class D
Shares for any dividend period, shall be deemed to be made in respect of the
earliest dividend period with respect to which the Corporation is in default.
(2) In the event of default entitling holders of Class D Shares to elect two
directors as specified in paragraph (1) of this Subsection, a special meeting of
such holders for the purpose of electing such directors shall be called by the
Secretary of the Corporation upon written request of, or may be called by, the
holders of record of at least 10% of the Class D Shares upon which such default in
the payment of dividends exists and notice thereof shall be given in the same manner
as that required for the annual meeting of shareholders; provided, however, that the
Corporation shall not be required to call such special meeting if the annual meeting
of shareholders shall be called to be held within 90 days after the date of receipt
of the foregoing written request from the holders of Class D Shares. At any meeting
at which such holders of Class D Shares shall be entitled to elect directors,
holders of 50% of such Class D Shares, present in person or by proxy, shall be
sufficient to constitute a quorum, and the vote of the holders of a majority of such
shares so present at any such meeting at which there shall be such a quorum shall be
sufficient to elect the members of the Board of Directors which such holders of
Class D Shares are entitled to elect as herein provided. Notwithstanding any
provision of these Amended and Restated Articles of Incorporation, as amended, or
the Code of Regulations of the Corporation or any action taken by the holders of any
class of shares fixing the number of directors of the Corporation, the two directors
who may be elected by such holders of Class D Shares pursuant to this Subsection
shall serve in addition to any other directors then in office or proposed to be
elected otherwise than pursuant to this Subsection. Nothing in this Subsection
shall prevent any change otherwise permitted in the total number of or
classifications of directors of the Corporation or require the resignation of any
director elected otherwise than pursuant to this Subsection. Notwithstanding any
classification of the other directors of the Corporation, the two directors elected
by such holders of Class D Shares shall be elected annually for terms expiring at
the next succeeding annual meeting of shareholders.
(3) Upon any divesting of the special class voting rights of the holders of the
Class D Shares in respect of elections of directors as provided in this Subsection,
the terms of office of all directors then in office elected by such holders shall
terminate immediately thereupon. If the office of any director elected by such
holders voting as a class becomes vacant by reason of death,
35
resignation, removal from office or otherwise, the remaining director elected
by such holders voting as a class may elect a successor who shall hold office for
the unexpired term in respect of which such vacancy occurred.
(c) If at any time when the holders of Class D Shares are entitled to elect
directors pursuant to the foregoing provisions of this Section the holders of any
Class A Shares, Class B Shares, Class C Shares, Class E Shares, Class F Shares,
Class G Shares, Class H Shares, Class I Shares, Class J Shares, Class K Shares or
Noncumulative Shares are entitled to elect directors pursuant hereto by reason of
any default in the payment of dividends thereon, then the voting rights of the
Cumulative Shares and the Noncumulative Shares then entitled to vote shall be
combined (with each class of shares having a number of votes proportional to the
aggregate liquidation preference of its outstanding shares). In such case, the
holders of Class D Shares and of all such other shares then entitled so to vote,
voting as a class, shall elect such directors. If the holders of any such other
shares have elected such directors prior to the happening of the default or event
permitting the holders of Class D Shares to elect directors, or prior to a written
request for the holding of a special meeting being received by the Secretary of the
Corporation as required above, then a new election shall be held with all such
other shares and the Class D Shares voting together as a single class for such
directors, resulting in the termination of the term of such previously elected
directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds of the Class D
Shares at the time outstanding, voting separately as a class, given in person or by
proxy either in writing or at a meeting called for the purpose, shall be necessary
to effect either of the following:
(1) Any amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the Amended and Restated Articles of
Incorporation, as amended, or of the Code of Regulations of the Corporation which
affects adversely and materially the preferences or voting or other rights of the
holders of Class D Shares which are set forth in these Amended and Restated Articles
of Incorporation, as amended; provided, however, neither the amendment of these
Amended and Restated Articles of Incorporation, as amended, so as to authorize,
create or change the authorized or outstanding number of Class D Shares or of any
shares ranking on a parity with or junior to the Class D Shares nor the amendment of
the provisions of the Code of Regulations so as to change the number or
classification of directors of the Corporation shall be deemed to affect adversely
and materially preferences or voting or other rights of the holders of Class D
Shares; or
(2) The authorization, creation or increase in the authorized number of any
shares, or any security convertible into shares, in either case ranking prior to
such series of Class D Shares.
36
(e) In the event, and only to the extent, that (1) Class D Shares are issued
in more than one series and (2) Ohio law permits the holders of a series of a class
of capital stock to vote separately as a class, the affirmative vote of the holders
of at least two-thirds of each series of Class D Shares at the time outstanding,
voting separately as a class, given in person or by proxy either in writing or at a
meeting called for the purpose of voting on such matters, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or otherwise, of
any of the provisions of these Amended and Restated Articles of Incorporation, as
amended, or of the Code of Regulations of the Corporation which affects adversely
and materially the preferences or voting or other rights of the holders of such
series which are set forth in these Amended and Restated Articles of Incorporation,
as amended; provided, however, neither the amendment of these Amended and Restated
Articles of Incorporation, as amended, so as to authorize, create or change the
authorized or outstanding number of Class D Shares or of any shares ranking on a
parity with or junior to the Class D Shares nor the Amendment of the provisions of
the Code of Regulations so as to change the number or classification of directors
of the Corporation shall be deemed to affect adversely and materially the
preferences or voting or other rights of the holders of such series.
Section 6.
8.68% Class D Cumulative Redeemable Preferred Shares
. Of the 750,000
authorized Class D Shares, 230,000 shares are designated as a series entitled 8.68% Class D
Cumulative Redeemable Preferred Shares (hereinafter called 8.68% Class D Preferred
Shares). The 8.68% Class D Preferred Shares shall have the express terms set forth in this
Division as being applicable to all Class D Shares as a class and, in addition, the
following express terms applicable to all 8.68% Class D Preferred Shares as a series of
Class D Shares:
(a) The annual dividend rate of the 8.68% Class D Preferred Shares shall be
8.68% of the liquidation preference of $250.00 per share.
(b) Dividends on the 8.68% Class D Preferred Shares shall be payable, if
declared, quarterly on or about the fifteenth day of March, June, September, and
December each year, the first quarterly dividend being payable, if declared, on
December 15, 1998. The dividends payable for each full quarterly dividend period
on each 8.68% Class D Preferred Share shall be $5.425.
Dividends for the initial dividend period on the 8.68% Class D Preferred
Shares, or for any period shorter or longer than a full dividend period on the 8.68%
Class D Preferred Shares, shall be computed on the basis of a 360-day year
consisting of twelve 30-day months. The aggregate dividend payable quarterly to
each holder of 8.68% Class D Preferred Shares shall be rounded to the nearest
one-hundredth of one cent with $.00005 being rounded upward. Each dividend shall be
payable to the holders of record on such record date, no less than 10 nor more than
30 days preceding the payment date thereof, as shall be fixed from time to time by
the Corporations Board of Directors.
37
(c) Dividends on 8.68% Class D Preferred Shares shall be cumulative as
follows:
(1) With respect to shares included in the initial issue of 8.68% Class D
Preferred Shares and shares issued any time thereafter up to and including the
record date for the payment of the first dividend on the initial issue of 8.68%
Class D Preferred Shares, dividends shall be cumulative from the date of the initial
issue of 8.68% Class D Preferred Shares; and
(2) With respect to shares issued any time after the aforesaid record date,
dividends shall be cumulative from the dividend payment date next preceding the date
of issue of such shares, except that if such shares are issued during the period
commencing the day after the record date for the payment of a dividend on 8.68 %
Class D Preferred Shares and ending on the payment date of that dividend, dividends
with respect to such shares shall be cumulative from that dividend payment date.
(d) Except as required to preserve the Corporations status as a real estate
investment trust under the Internal Revenue Code of 1986, as amended, the 8.68%
Class D Preferred Shares may not be redeemed prior to August 20, 2003. At any time
or from time to time on and after August 20, 2003 the Corporation, at its option
upon not less than thirty (30) nor more than sixty (60) days written notice, may
redeem all or any part of the 8.68% Class D Preferred Shares at a redemption price
of $250.00 per share plus, in each case, an amount equal to all dividends accrued
and unpaid thereon to the redemption date, without interest. The redemption price
(other than the portion thereof consisting of accrued and unpaid dividends) is
payable solely out of the sale proceeds of other capital shares of the Corporation,
which may include any equity securities (including common shares and preferred
shares), shares, interests, participation or other ownership interests (however
designated) and any rights (other than debt securities convertible into or
exchangeable for equity securities), or options to purchase any of the foregoing.
(e) The amount payable per 8.68% Class D Preferred Share in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs of
the Corporation shall be $250.00, plus an amount equal to all dividends accrued and
unpaid thereon to the date of payment.
(f) All dividend payments made on the 8.68% Class D Preferred Shares, at any
time during which the Corporation is in default in the payment of dividends on such
8.68% Class D Preferred Shares for any dividend period, shall, for the purposes of
Section 5(b)(1) of this Division A-IV, be deemed to be made in respect of the
earliest dividend period with respect to which the Corporation is in default.
38
V.
The Class E Cumulative Preferred Shares.
The Class E Shares shall have the following
express terms:
Section 1.
Series.
The Class E Shares may be issued from time to time in one or more
series. All Class E Shares shall be of equal rank and shall be identical, except in respect
of the matters that may be fixed by the Board of Directors as hereinafter provided, and each
share of a series shall be identical with all other shares of such series, except as to the
dates from which dividends shall accrue and be cumulative. All Class E Shares shall rank on
a parity with the Class A Shares, Class B Shares, Class C Shares, Class D Shares, Class F
Shares, Class G Shares, Class H Shares, Class I Shares, Class J Shares, Class K Shares and
Noncumulative Shares and shall be identical to all Class A Shares, Class B Shares, Class C
Shares, Class D Shares, Class F Shares, Class G Shares, Class H Shares, Class I Shares,
Class J Shares, Class K Shares and Noncumulative Shares except (1) in respect of the matters
that may be fixed by the Board of Directors as provided in clauses (a) through (i),
inclusive, of this Section 1 and (2) only dividends on Cumulative Shares shall be cumulative
as set forth herein. Subject to the provisions of Sections 2 through 5, both inclusive, and
Item XIII of this Division, which provisions shall apply to all Class E Shares, the Board of
Directors hereby is authorized to cause such shares to be issued in one or more series and,
with respect to each such series to determine and fix prior to the issuance thereof (and
thereafter, to the extent provided in clause (b) of this Section), the following:
(a) The designation of the series, which may be by distinguishing number,
letter or title;
(b) The authorized number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase or decrease from time to time before or after the issuance thereof (but
not below the number of shares thereof then outstanding);
(c) The dividend rate or rates of the series, including the means by which
such rates may be established;
(d) The date or dates from which dividends shall accrue and be cumulative and
the dates on which and the period or periods for which dividends, if declared,
shall be payable, including the means by which such dates and periods may be
established;
(e) The redemption rights and price or prices, if any, for shares of the
series;
(f) The terms and amount of the sinking fund, if any, for the purchase or
redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
39
(h) Whether the shares of the series shall be convertible into Common Shares
or shares of any other class and, if so, the conversion rate or rates or price or
prices, any adjustments thereof and all other terms and conditions upon which such
conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection 5(d) or 5(e) of
this Item V) on the issuance of shares of the same series or of any other class or
series.
The Board of Directors is authorized to adopt from time to time amendments to the Amended and
Restated Articles of Incorporation, as amended, fixing, with respect to each such series, the
matters described in clauses (a) through (i), inclusive, of this Section and is authorized to take
such actions with respect thereto as may be required by law in order to effect such amendments.
Section 2.
Dividends.
(a) The holders of Class E Shares of each series, in preference to the holders
of Common Shares and of any other class of shares ranking junior to the Class E
Shares, shall be entitled to receive out of any funds legally available therefor,
and when and as declared by the Board of Directors, dividends in cash at the rate
or rates for such series fixed in accordance with the provisions of Section 1 above
and no more, payable on the dates fixed for such series. Such dividends shall
accrue and be cumulative, in the case of shares of each particular series, from and
after the date or dates fixed with respect to such series. No dividends shall be
paid upon or declared or set apart for any series of the Class E Shares for any
dividend period unless at the same time (i) a like proportionate dividend for the
dividend periods terminating on the same or any earlier date, ratably in proportion
to the respective annual dividend rates fixed therefor, shall have been paid upon
or declared or set apart for all Class E Shares of all series then issued and
outstanding and entitled to receive such dividend and (ii) the dividends payable
for the dividend periods terminating on the same or any earlier date (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,
shall have been paid upon or declared or set apart for all Class A Shares, Class B
Shares, Class C Shares, Class D Shares, Class F Shares, Class G Shares, Class H
Shares, Class I Shares, Class J Shares, Class K Shares and Noncumulative Shares
then issued and outstanding and entitled to receive such dividends.
(b) So long as any Class E Shares shall be outstanding no dividend, except a
dividend payable in Common Shares or other shares ranking junior to the Class E
Shares, shall be paid or declared or any distribution be made, except as aforesaid,
in respect of the Common Shares or any other shares ranking junior to the Class E
Shares, nor shall any Common Shares or any other shares ranking junior to the Class
E Shares be purchased, retired or otherwise acquired by the Corporation, except out
of the proceeds of the sale of Common Shares or other
40
shares of the Corporation ranking junior to the Class E Shares received by the
Corporation subsequent to the date of first issuance of Class E Shares of any
series, unless:
(1) All accrued and unpaid dividends on Cumulative Shares, including the full
dividends for all current dividend periods, shall have been declared and paid or a
sum sufficient for payment thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the then current dividend
period shall have been declared and paid or a sum sufficient for payment therefor
set apart; and
(3) There shall be no arrearages with respect to the redemption of Cumulative
Shares or Noncumulative Shares of any series from any sinking fund provided for
shares of such series in accordance with the provisions of Section 1 of this Item V.
(c) The foregoing 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 on a parity with or junior to the
Class E Shares shall be inapplicable to (i) any payments in lieu of issuance of
fractional shares thereof, whether upon any merger, conversion, stock dividend or
otherwise, (ii) the conversion of Cumulative Shares or Noncumulative Shares into
Common Shares, or (iii) the exercise by the Corporation of its rights pursuant to
Item XIV(d) of this Division A, Section 4(d) of Division B or any similar Section
hereafter contained in these Amended and Restated Articles of Incorporation, as
amended, with respect to any other class or series of capital stock hereafter
created or authorized.
(d) If, for any taxable year, the Corporation elects to designate as capital
gain dividends (as defined in Section 857 of the Code) any portion (the Capital
Gains Amount) of the dividends paid or made available for the year to holders of
all classes of stock (the Total Dividends), then, to the extent permissible under
the Code and to the extent it does not cause any dividends to fail to qualify for
the dividends paid deduction under Section 561 of the Code, the portion of the
Capital Gains Amount that shall be allocable to holders of the Class E Shares shall
be the amount that the total dividends paid or made available to the holders of the
Class E Shares for the year bears to the Total Dividends.
Section 3.
Redemption.
(a) Subject to the express terms of each series, the Corporation:
(1) May, from time to time at the option of the Board of Directors, redeem all
or any part of any redeemable series of Class E Shares at the time outstanding at
the applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Item V; and
41
(2) Shall, from time to time, make such redemptions of each series of Class E
Shares as may be required to fulfill the requirements of any sinking fund provided
for shares of such series at the applicable sinking fund redemption price fixed in
accordance with the provisions of Section 1 of this Item V; and shall in each case
pay all accrued and unpaid dividends to the redemption date.
(b) (1) Notice of every such redemption shall be mailed, postage prepaid,
to the holders of record of the Class E Shares to be redeemed at their respective
addresses then appearing on the books of the Corporation, not less than 30 days nor
more than 60 days prior to the date fixed for such redemption, or such other time
prior thereto as the Board of Directors shall fix for any series pursuant to
Section 1 of this Item V prior to the issuance thereof. At any time after notice
as provided above has been deposited in the mail, the Corporation may deposit the
aggregate redemption price of Class E Shares to be redeemed, together with accrued
and unpaid dividends thereon to the redemption date, with any bank or trust company
in Cleveland, Ohio, or New York, New York, having capital and surplus of not less
than $100,000,000 named in such notice and direct that there be paid to the
respective holders of the Class E Shares so to be redeemed amounts equal to the
redemption price of the Class E Shares so to be redeemed, together with such
accrued and unpaid dividends thereon, on surrender of the share certificate or
certificates held by such holders; and upon the deposit of such notice in the mail
and the making of such deposit of money with such bank or trust company, such
holders shall cease to be shareholders with respect to such shares; and from and
after the time such notice shall have been so deposited and such deposit of money
shall have been so made, such holders shall have no rights or claim against the
Corporation with respect to such shares, except only the right to receive such
money from such bank or trust company without interest or to exercise before the
redemption date any unexpired privileges of conversion. In the event less than all
of the outstanding Class E Shares are to be redeemed, the Corporation shall select
by lot the shares so to be redeemed in such manner as shall be prescribed by the
Board of Directors.
(2) If the holders of Class E Shares which have been called for redemption
shall not within six years after such deposit claim the amount deposited for the
redemption thereof, any such bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon such bank or trust company and
the Corporation shall be relieved of all responsibility in respect thereof and to
such holders.
(c) Any Class E Shares which are (1) redeemed by the Corporation pursuant to
the provisions of this Section, (2) purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series, (3) converted in
accordance with the express terms thereof, or (4) otherwise acquired by the
Corporation shall resume the status of authorized but unissued Class E Shares
without serial designation.
42
(d) Except in connection with the exercise of the Corporations rights
pursuant to Section (d) of Item XIV of this Division A, Section 4(d) of Division B
or any similar Section hereafter contained in these Amended and Restated Articles
of Incorporation, as amended, with respect to any other class or series of capital
stock hereafter created or authorized, the Corporation may not purchase or redeem
(for sinking fund purposes or otherwise) less than all of the Class E Shares then
outstanding except in accordance with a stock purchase offer made to all holders of
record of Class E Shares, unless all dividends on all Class E Shares then
outstanding for all previous and current dividend periods shall have been declared
and paid or funds therefor set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
Section 4.
Liquidation.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of Class E
Shares of any series shall be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or distributed
among the holders of the Common Shares or any other shares ranking junior to the
Class E Shares, the amounts fixed with respect to shares of such series in
accordance with Section 1 of this Item V, plus an amount equal to all dividends
accrued and unpaid thereon to the date of payment of the amount due pursuant to
such liquidation, dissolution or winding up of the affairs of the Corporation. In
the event the net assets of the Corporation legally available therefor are
insufficient to permit the payment upon all outstanding Cumulative Shares and
Noncumulative Shares of the full preferential amount to which they are respectively
entitled, then such net assets shall be distributed ratably upon all outstanding
Cumulative Shares and Noncumulative Shares in proportion to the full preferential
amount to which each such share is entitled.
(2) After payment to the holders of Class E Shares of the full preferential
amounts as aforesaid, the holders of Class E Shares, as such, shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any other
Corporation, the merger of any other Corporation into it, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation shall not be
deemed to be a dissolution, liquidation or winding up for the purposes of this
Section.
Section 5.
Voting.
(a) The holders of Class E Shares shall have no voting rights, except as
provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in default in the
payment of dividends on any series of Class E Shares at the time outstanding,
43
whether or not earned or declared, for a number of dividend payment periods,
whether consecutive or not, which in the aggregate contain at least 540 days, all
holders of such Class E Shares, voting separately as a class, together with all
Class A Shares, Class B Shares, Class C Shares, Class D Shares, Class F Shares,
Class G Shares, Class H Shares, Class I Shares, Class J Shares, Class K Shares and
Noncumulative Shares upon which like voting rights have been conferred and are
exercisable under the circumstances described in Subsection 5(c), shall be entitled
to elect, as herein provided, a total of two members of the Board of Directors of
the Corporation; provided, however, that the holders of such Class E Shares shall
not exercise such special class voting rights except at meetings of such
shareholders for the election of directors at which the holders of not less than
50% of such Class E Shares are present in person or by proxy; and provided further
that the special class voting rights provided for in this paragraph when the same
shall have become vested shall remain so vested until all accrued and unpaid
dividends on such Class E Shares then outstanding shall have been paid or declared
and a sum sufficient for the payment thereof set aside for payment, whereupon the
holders of such Class E Shares shall be divested of their special class voting
rights in respect of subsequent elections of directors, subject to the revesting of
such special class voting rights in the event above specified in this paragraph.
All dividend payments made on the Class E Shares, at any time during which the
Corporation is in default in the payment of dividends on such Class E Shares for
any dividend period, shall be deemed to be made in respect of the earliest dividend
period with respect to which the Corporation is in default.
(2) In the event of default entitling holders of Class E Shares to elect two
directors as specified in paragraph (1) of this Subsection, a special meeting of
such holders for the purpose of electing such directors shall be called by the
Secretary of the Corporation upon written request of, or may be called by, the
holders of record of at least 10% of the Class E Shares upon which such default in
the payment of dividends exists and notice thereof shall be given in the same manner
as that required for the annual meeting of shareholders; provided, however, that the
Corporation shall not be required to call such special meeting if the annual meeting
of shareholders shall be called to be held within 90 days after the date of receipt
of the foregoing written request from the holders of Class E Shares. At any meeting
at which such holders of Class E Shares shall be entitled to elect directors,
holders of 50% of such Class E Shares, present in person or by proxy, shall be
sufficient to constitute a quorum, and the vote of the holders of a majority of such
shares so present at any such meeting at which there shall be such a quorum shall be
sufficient to elect the members of the Board of Directors which such holders of
Class E Shares are entitled to elect as herein provided. Notwithstanding any
provision of these Amended and Restated Articles of Incorporation, as amended, or
the Code of Regulations of the Corporation or any action taken by the holders of any
class of shares fixing the number of directors of the Corporation, the two directors
who may be elected by such holders of Class E Shares pursuant to this Subsection
shall serve in addition to any other directors then in office or proposed to be
elected otherwise than pursuant to this Subsection. Nothing in this Subsection
shall prevent any change otherwise
44
permitted in the total number of or classifications of directors of the
Corporation or require the resignation of any director elected otherwise than
pursuant to this Subsection. Notwithstanding any classification of the other
directors of the Corporation, the two directors elected by such holders of Class E
Shares shall be elected annually for terms expiring at the next succeeding annual
meeting of shareholders.
(3) Upon any divesting of the special class voting rights of the holders of the
Class E Shares in respect of elections of directors as provided in this Subsection,
the terms of office of all directors then in office elected by such holders shall
terminate immediately thereupon. If the office of any director elected by such
holders voting as a class becomes vacant by reason of death, resignation, removal
from office or otherwise, the remaining director elected by such holders voting as a
class may elect a successor who shall hold office for the unexpired term in respect
of which such vacancy occurred.
(c) If at any time when the holders of Class E Shares are entitled to elect
directors pursuant to the foregoing provisions of this Section the holders of any
Class A Shares, Class B Shares, Class C Shares, Class D Shares, Class F Shares,
Class G Shares, Class H Shares, Class I Shares, Class J Shares, Class K Shares or
Noncumulative Shares are entitled to elect directors pursuant hereto by reason of
any default in the payment of dividends thereon, then the voting rights of the
Cumulative Shares and the Noncumulative Shares then entitled to vote shall be
combined (with each class of shares having a number of votes proportional to the
aggregate liquidation preference of its outstanding shares). In such case, the
holders of Class E Shares and of all such other shares then entitled so to vote,
voting as a class, shall elect such directors. If the holders of any such other
shares have elected such directors prior to the happening of the default or event
permitting the holders of Class E Shares to elect directors, or prior to a written
request for the holding of a special meeting being received by the Secretary of the
Corporation as required above, then a new election shall be held with all such
other shares and the Class E Shares voting together as a single class for such
directors, resulting in the termination of the term of such previously elected
directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds of the Class E
Shares at the time outstanding, voting separately as a class, given in person or by
proxy either in writing or at a meeting called for the purpose, shall be necessary
to effect either of the following:
(1) Any amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the Amended and Restated Articles of
Incorporation, as amended, or of the Code of Regulations of the Corporation which
affects adversely and materially the preferences or voting or other rights of the
holders of Class E Shares which are set forth in these Amended and Restated Articles
of Incorporation, as amended; provided, however, neither the amendment of these
Amended and Restated Articles of Incorporation, as
45
amended, so as to authorize, create or change the authorized or outstanding
number of Class E Shares or of any shares ranking on a parity with or junior to the
Class E Shares nor the amendment of the provisions of the Code of Regulations so as
to change the number or classification of directors of the Corporation shall be
deemed to affect adversely and materially preferences or voting or other rights of
the holders of Class E Shares; or
(2) The authorization, creation or increase in the authorized number of any
shares, or any security convertible into shares, in either case ranking prior to
such series of Class E Shares.
(e) In the event, and only to the extent, that (1) Class E Shares are issued
in more than one series and (2) Ohio law permits the holders of a series of a class
of capital stock to vote separately as a class, the affirmative vote of the holders
of at least two-thirds of each series of Class E Shares at the time outstanding,
voting separately as a class, given in person or by proxy either in writing or at a
meeting called for the purpose of voting on such matters, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or otherwise, of
any of the provisions of these Amended and Restated Articles of Incorporation, as
amended, or of the Code of Regulations of the Corporation which affects adversely
and materially the preferences or voting or other rights of the holders of such
series which are set forth in these Amended and Restated Articles of Incorporation,
as amended; provided, however, neither the amendment of these Amended and Restated
Articles of Incorporation, as amended, so as to authorize, create or change the
authorized or outstanding number of Class E Shares or of any shares ranking on a
parity with or junior to the Class E Shares nor the Amendment of the provisions of
the Code of Regulations so as to change the number or classification of directors
of the Corporation shall be deemed to affect adversely and materially the
preferences or voting or other rights of the holders of such series.
Section 6.
Class E Series I Cumulative Preferred Shares
.
(a) DESIGNATION AND AMOUNT. Of the 750,000 authorized Class E Cumulative
Preferred Shares, without par value, 750,000 are designated as a series designated
as Class E Series I Cumulative Preferred Shares (the Series I Preferred
Shares). The Series I Preferred Shares have the express terms set forth in this
Division as being applicable to all Preferred Shares as a class and, in addition,
the following express terms applicable to all Series I Preferred Shares as a series
of Preferred Shares. The number of Series I Preferred Shares may be increased or
decreased by resolution of the Board of Directors and by the filing of a
certificate of amendment pursuant to the provisions of the General Corporation Law
of the State of Ohio stating that such increase or reduction has been so
authorized; however, no decrease shall reduce the number of Series I Preferred
Shares to a number less than that of the Series I Preferred Shares then outstanding
plus the number of Series I Preferred Shares issuable upon exercise
46
of outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Company.
(b) DIVIDENDS AND DISTRIBUTIONS.
(1) (i) Subject to the rights of the holders of any series of preferred shares
(or any similar shares) ranking prior to the Series I Preferred Shares with respect
to dividends, the holders of Series I Preferred Shares, in preference to the holders
of Common Shares and of any other junior shares, will be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the fifteenth day of March, June,
September and December in each year (each such date being referred to herein as a
Quarterly Dividend Payment Date), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a Series I Preferred Share or fraction
thereof, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $10.00 or (b) subject to the provisions for adjustment hereinafter set forth,
10,000 times the aggregate per share amount of all cash dividends, and 10,000 times
the aggregate per share amount (payable in kind) of all noncash dividends or other
distributions other than a dividend payable in Common Shares or a subdivision of the
outstanding Common Shares (by reclassification or otherwise), declared on the Common
Shares after the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, after the first issuance of
any Series I Preferred Share or fraction thereof. The multiple of cash and noncash
dividends declared on the Common Shares to which holders of the Series I Preferred
Shares are entitled, which is 10,000 initially but which will be adjusted from time
to time as hereinafter provided, is hereinafter referred to as the Dividend
Multiple. If the Company at any time after May 26, 1999 (the Rights Declaration
Date): (i) declares or pays any dividend on the Common Shares payable in Common
Shares, or (ii) effects a subdivision or combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise than by payment of a
dividend in Common Shares) into a greater or lesser number of Common Shares, then in
each such case the Dividend Multiple thereafter applicable to the determination of
the amount of dividends that holders of Series I Preferred Shares are entitled to
receive will be the Dividend Multiple applicable immediately prior to that event
multiplied by a fraction, the numerator of which is the number of Common Shares
outstanding immediately after that event and the denominator of which is the number
of Common Shares that were outstanding immediately prior to that event.
(ii) Notwithstanding anything else contained in this paragraph
(1), the Company shall, out of funds legally available for that
purpose, declare a dividend or distribution on the Series I Preferred
Shares as provided in this paragraph (1) immediately after it
declares a dividend or distribution on the Common Shares (other than
a dividend payable in Common Shares); but if no dividend or
distribution has been declared on the Common Shares
47
during the period between any Quarterly Dividend Payment Date
and the next subsequent Quarterly Dividend Payment Date, a dividend
of $10.00 per share on the Series I Preferred Shares shall
nevertheless accrue on such subsequent Quarterly Dividend Payment
Date.
(2) Dividends will begin to accrue and be cumulative on outstanding Series I
Preferred Shares from the Quarterly Dividend Payment Date next preceding the date of
issue of such Series I Preferred Shares, unless the date of issue of such shares is
prior to the record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares will begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of Series I Preferred
Shares entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends will begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends
will not bear interest. Dividends paid on the Series I Preferred Shares in an
amount less than the total amount of such dividends at the time accrued and payable
on such shares will be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix in accordance with
applicable law a record date for the determination of holders of Series I Preferred
Shares entitled to receive payment of a dividend or distribution declared thereon,
which record date will be not more than such number of days prior to the date fixed
for the payment thereof as may be allowed by applicable law.
(c) REACQUIRED SHARES. Any Series I Preferred Shares purchased or otherwise
acquired by the Company in any manner whatsoever will be retired and canceled
promptly after the acquisition thereof. All such shares will upon their
cancellation become authorized but unissued preferred shares and may be reissued as
part of a new series of Preferred Shares to be created by resolution or resolutions
of the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein.
(d) LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation (voluntary or
otherwise), dissolution or winding up of the Company, no distribution may be made
(x) to the holders of shares ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series I Preferred Shares unless,
prior thereto, the holders of Series I Preferred Shares shall have received an
amount equal to accrued and unpaid dividends and distributions thereon, whether or
not declared, to the date of such payment, plus an amount equal to the greater of
(1) $10,000.00 per share or (2) an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 10,000 times the aggregate
amount to be distributed per share to holders of Common Shares, or (y) to the
holders of shares ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series I Preferred Shares, except distributions
made ratably on the Series I Preferred
48
Shares and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. If the Company at any time after the Rights Declaration
Date (i) declares or pays any dividend on Common Shares payable in Common Shares,
or (ii) effects a subdivision or combination or consolidation of the outstanding
Common Shares (by reclassification or otherwise than by payment of a dividend in
Common Shares) into a greater or lesser number of Common Shares, then in each such
case the aggregate amount per share to which holders of Series I Preferred Shares
were entitled immediately prior to such event under clause (x) of the preceding
sentence will be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of Common Shares outstanding immediately after such event
and the denominator of which is the number of Common Shares that were outstanding
immediately prior to such event.
Neither the consolidation of nor merging of the Company with or into any other
corporation or corporations, nor the sale or other transfer of all or substantially
all of the assets of the Company, will be considered to be a liquidation,
dissolution or winding up of the Company within the meaning of this paragraph (d).
(e) CONSOLIDATION, MERGER, ETC. If the Company shall enter into any
consolidation, merger, combination or other transaction in which the Common Shares
are exchanged for or changed into other shares, stock or securities, cash or any
other property, then in any such case the Series I Preferred Shares will at the
same time be similarly exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 10,000 times the aggregate
amount of shares, stock, securities, or other property, as the case may be, into
which or for which each Common Share is changed or exchanged, plus accrued and
unpaid dividends, if any, payable with respect to the Series I Preferred Shares. If
the Company at any time after the Rights Declaration Date (i) declares or pays any
dividend on Common Shares payable in Common Shares, or (ii) effects a subdivision
or combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise than by payment of a dividend in Common Shares) into
a greater or lesser number of Common Shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of Series I
Preferred Shares will be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of Common Shares outstanding immediately after
such event and the denominator of which is the number of Common Shares that were
outstanding immediately prior to such event.
(f) REDEMPTION. The Series I Preferred Shares are not redeemable, but the
foregoing does not limit the ability of the Company to purchase or otherwise deal
in the Series I Preferred Shares to the extent otherwise permitted hereby and by
law.
49
(g) AMENDMENT. The Amended and Restated Articles of Incorporation of the
Company, as amended, may not be amended in any manner that would materially alter
or change the powers, preferences or special rights of the Series I Preferred
Shares so as to affect them adversely without the affirmative vote of the holders
of at least two-thirds of the outstanding Series I Preferred Shares, voting
separately as a class.
(h) FRACTIONAL SHARES. Series I Preferred Shares may be issued in whole shares
or in any fraction of a share that is one ten-thousandth (1/10,000th) of a share or
any integral multiple of such fraction, which will entitle the holder, in
proportion to such holders fractional shares, to exercise voting rights, receive
dividends, participate in distributions and have the benefit of all other rights of
holders of Series I Preferred Shares. In lieu of fractional shares, the Company may
elect to make a cash payment as provided in that certain Rights Agreement dated as
of May 26, 1999, between the Company and National City Bank, a national banking
association, as rights agent, for fractions of a share smaller than one
ten-thousandth (1/10,000th) of a share or any integral multiple thereof.
VI.
The Class F Cumulative Preferred Shares.
The Class F Shares shall have the following
express terms:
Section 1.
Series.
The Class F Shares may be issued from time to time in one or more
series. All Class F Shares shall be of equal rank and shall be identical, except in respect
of the matters that may be fixed by the Board of Directors as hereinafter provided, and each
share of a series shall be identical with all other shares of such series, except as to the
dates from which dividends shall accrue and be cumulative. All Class F Shares shall rank on
a parity with the Class A Shares, Class B Shares, Class C Shares, Class D Shares, Class E
Shares, Class G Shares, Class H Shares, Class I Shares, Class J Shares, Class K Shares and
Noncumulative Shares and shall be identical to all Class A Shares, Class B Shares, Class C
Shares, Class D Shares, Class E Shares, Class G Shares, Class H Shares, Class I Shares,
Class J Shares, Class K Shares and Noncumulative Shares except (1) in respect of the matters
that may be fixed by the Board of Directors as provided in clauses (a) through (i),
inclusive, of this Section 1 and (2) only dividends on Cumulative Shares shall be cumulative
as set forth herein. Subject to the provisions of Sections 2 through 5, both inclusive, and
Item XIII of this Division, which provisions shall apply to all Class F Shares, the Board of
Directors hereby is authorized to cause such shares to be issued in one or more series and,
with respect to each such series to determine and fix prior to the issuance thereof (and
thereafter, to the extent provided in clause (b) of this Section), the following:
(a) The designation of the series, which may be by distinguishing number,
letter or title;
(b) The authorized number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase or decrease from time to time before or after the issuance thereof (but
not below the number of shares thereof then outstanding);
50
(c) The dividend rate or rates of the series, including the means by which
such rates may be established;
(d) The date or dates from which dividends shall accrue and be cumulative and
the dates on which and the period or periods for which dividends, if declared,
shall be payable, including the means by which such dates and periods may be
established;
(e) The redemption rights and price or prices, if any, for shares of the
series;
(f) The terms and amount of the sinking fund, if any, for the purchase or
redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(h) Whether the shares of the series shall be convertible into Common Shares
or shares of any other class and, if so, the conversion rate or rates or price or
prices, any adjustments thereof and all other terms and conditions upon which such
conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection 5(d) or 5(e) of
this Item VI) on the issuance of shares of the same series or of any other class or
series.
The Board of Directors is authorized to adopt from time to time amendments to the
Amended and Restated Articles of Incorporation, as amended, fixing, with respect to each
such series, the matters described in clauses (a) through (i), inclusive, of this Section
and is authorized to take such actions with respect thereto as may be required by law in
order to effect such amendments.
Section 2.
Dividends.
(a) The holders of Class F Shares of each series, in preference to the holders
of Common Shares and of any other class of shares ranking junior to the Class F
Shares, shall be entitled to receive out of any funds legally available therefor,
and when and as declared by the Board of Directors, dividends in cash at the rate
or rates for such series fixed in accordance with the provisions of Section 1 above
and no more, payable on the dates fixed for such series. Such dividends shall
accrue and be cumulative, in the case of shares of each particular series, from and
after the date or dates fixed with respect to such series. No dividends shall be
paid upon or declared or set apart for any series of the Class F Shares for any
dividend period unless at the same time (i) a like proportionate dividend for the
dividend periods terminating on the same or any earlier date, ratably in proportion
to the respective annual dividend rates fixed therefor, shall have been paid upon
or declared or set apart for all Class F Shares of all series
51
then issued and outstanding and entitled to receive such dividend and (ii) the
dividends payable for the dividend periods terminating on the same or any earlier
date (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, shall have been paid upon or declared or set apart for all Class A
Shares, Class B Shares, Class C Shares, Class D Shares, Class E Shares, Class G
Shares, Class H Shares, Class I Shares, Class J Shares, Class K Shares and
Noncumulative Shares then issued and outstanding and entitled to receive such
dividends.
(b) So long as any Class F Shares shall be outstanding no dividend, except a
dividend payable in Common Shares or other shares ranking junior to the Class F
Shares, shall be paid or declared or any distribution be made, except as aforesaid,
in respect of the Common Shares or any other shares ranking junior to the Class F
Shares, nor shall any Common Shares or any other shares ranking junior to the Class
F Shares be purchased, retired or otherwise acquired by the Corporation, except out
of the proceeds of the sale of Common Shares or other shares of the Corporation
ranking junior to the Class F Shares received by the Corporation subsequent to the
date of first issuance of Class F Shares of any series, unless:
(1) All accrued and unpaid dividends on Cumulative Shares, including the full
dividends for all current dividend periods, shall have been declared and paid or a
sum sufficient for payment thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the then current dividend
period shall have been declared and paid or a sum sufficient for payment therefor
set apart; and
(3) There shall be no arrearages with respect to the redemption of Cumulative
Shares or Noncumulative Shares of any series from any sinking fund provided for
shares of such series in accordance with the provisions of Section 1 of this Item
VI.
(c) The foregoing 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 on a parity with or junior to the
Class F Shares shall be inapplicable to (i) any payments in lieu of issuance of
fractional shares thereof, whether upon any merger, conversion, stock dividend or
otherwise, (ii) the conversion of Cumulative Shares or Noncumulative Shares into
Common Shares, or (iii) the exercise by the Corporation of its rights pursuant to
Item XIV(d) of this Division A, Section 4(d) of Division B or any similar Section
hereafter contained in these Amended and Restated Articles of Incorporation, as
amended, with respect to any other class or series of capital stock hereafter
created or authorized.
52
(d) If, for any taxable year, the Corporation elects to designate as capital
gain dividends (as defined in Section 857 of the Code) any portion (the Capital
Gains Amount) of the dividends paid or made available for the year to holders of
all classes of stock (the Total Dividends), then, to the extent permissible under
the Code and to the extent it does not cause any dividends to fail to qualify for
the dividends paid deduction under Section 561 of the Code, the portion of the
Capital Gains Amount that shall be allocable to holders of the Class F Shares shall
be the amount that the total dividends paid or made available to the holders of the
Class F Shares for the year bears to the Total Dividends.
Section 3.
Redemption.
(a) Subject to the express terms of each series, the Corporation:
(1) May, from time to time at the option of the Board of Directors, redeem all
or any part of any redeemable series of Class F Shares at the time outstanding at
the applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Item VI; and
(2) Shall, from time to time, make such redemptions of each series of Class F
Shares as may be required to fulfill the requirements of any sinking fund provided
for shares of such series at the applicable sinking fund redemption price fixed in
accordance with the provisions of Section 1 of this Item VI; and shall in each case
pay all accrued and unpaid dividends to the redemption date.
(b) (1) Notice of every such redemption shall be mailed, postage prepaid,
to the holders of record of the Class F Shares to be redeemed at their respective
addresses then appearing on the books of the Corporation, not less than 30 days nor
more than 60 days prior to the date fixed for such redemption, or such other time
prior thereto as the Board of Directors shall fix for any series pursuant to
Section 1 of this Item VI prior to the issuance thereof. At any time after notice
as provided above has been deposited in the mail, the Corporation may deposit the
aggregate redemption price of Class F Shares to be redeemed, together with accrued
and unpaid dividends thereon to the redemption date, with any bank or trust company
in Cleveland, Ohio, or New York, New York, having capital and surplus of not less
than $100,000,000 named in such notice and direct that there be paid to the
respective holders of the Class F Shares so to be redeemed amounts equal to the
redemption price of the Class F Shares so to be redeemed, together with such
accrued and unpaid dividends thereon, on surrender of the share certificate or
certificates held by such holders; and upon the deposit of such notice in the mail
and the making of such deposit of money with such bank or trust company, such
holders shall cease to be shareholders with respect to such shares; and from and
after the time such notice shall have been so deposited and such deposit of money
shall have been so made, such holders shall have no rights or claim against the
Corporation with respect to such shares, except only the right to receive such
money from such bank or trust company without interest or to exercise before the
redemption date any
53
unexpired privileges of conversion. In the event less than all of the
outstanding Class F Shares are to be redeemed, the Corporation shall select by lot
the shares so to be redeemed in such manner as shall be prescribed by the Board of
Directors.
(2) If the holders of Class F Shares which have been called for redemption
shall not within six years after such deposit claim the amount deposited for the
redemption thereof, any such bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon such bank or trust company and
the Corporation shall be relieved of all responsibility in respect thereof and to
such holders.
(c) Any Class F Shares which are (1) redeemed by the Corporation pursuant to
the provisions of this Section, (2) purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series, (3) converted in
accordance with the express terms thereof, or (4) otherwise acquired by the
Corporation shall resume the status of authorized but unissued Class F Shares
without serial designation.
(d) Except in connection with the exercise of the Corporations rights
pursuant to Section (d) of Item XIV of this Division A, Section 4(d) of Division B
or any similar Section hereafter contained in these Amended and Restated Articles
of Incorporation, as amended, with respect to any other class or series of capital
stock hereafter created or authorized, the Corporation may not purchase or redeem
(for sinking fund purposes or otherwise) less than all of the Class F Shares then
outstanding except in accordance with a stock purchase offer made to all holders of
record of Class F Shares, unless all dividends on all Class F Shares then
outstanding for all previous and current dividend periods shall have been declared
and paid or funds therefor set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
Section 4.
Liquidation.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of Class F
Shares of any series shall be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or distributed
among the holders of the Common Shares or any other shares ranking junior to the
Class F Shares, the amounts fixed with respect to shares of such series in
accordance with Section 1 of this Item VI, plus an amount equal to all dividends
accrued and unpaid thereon to the date of payment of the amount due pursuant to
such liquidation, dissolution or winding up of the affairs of the Corporation. In
the event the net assets of the Corporation legally available therefor are
insufficient to permit the payment upon all outstanding Cumulative Shares and
Noncumulative Shares of the full preferential amount to which they are respectively
entitled, then such net assets shall be distributed ratably upon all
54
outstanding Cumulative Shares and Noncumulative Shares in proportion to the
full preferential amount to which each such share is entitled.
(2) After payment to the holders of Class F Shares of the full preferential
amounts as aforesaid, the holders of Class F Shares, as such, shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any other
Corporation, the merger of any other Corporation into it, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation shall not be
deemed to be a dissolution, liquidation or winding up for the purposes of this
Section.
Section 5.
Voting.
(a) The holders of Class F Shares shall have no voting rights, except as
provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in default in the
payment of dividends on any series of Class F Shares at the time outstanding,
whether or not earned or declared, for a number of dividend payment periods,
whether consecutive or not, which in the aggregate contain at least 540 days, all
holders of such Class F Shares, voting separately as a class, together with all
Class A Shares, Class B Shares, Class C Shares, Class D Shares, Class E Shares,
Class G Shares, Class H Shares, Class I Shares, Class J Shares, Class K Shares and
Noncumulative Shares upon which like voting rights have been conferred and are
exercisable under the circumstances described in Subsection 5(c), shall be entitled
to elect, as herein provided, a total of two members of the Board of Directors of
the Corporation; provided, however, that the holders of such Class F Shares shall
not exercise such special class voting rights except at meetings of such
shareholders for the election of directors at which the holders of not less than
50% of such Class F Shares are present in person or by proxy; and provided further
that the special class voting rights provided for in this paragraph when the same
shall have become vested shall remain so vested until all accrued and unpaid
dividends on such Class F Shares then outstanding shall have been paid or declared
and a sum sufficient for the payment thereof set aside for payment, whereupon the
holders of such Class F Shares shall be divested of their special class voting
rights in respect of subsequent elections of directors, subject to the revesting of
such special class voting rights in the event above specified in this paragraph.
All dividend payments made on the Class F Shares, at any time during which the
Corporation is in default in the payment of dividends on such Class F Shares for
any dividend period, shall be deemed to be made in respect of the earliest dividend
period with respect to which the Corporation is in default.
(2) In the event of default entitling holders of Class F Shares to elect two
directors as specified in paragraph (1) of this Subsection, a special meeting of
such holders for the purpose of electing such directors shall be called by the
55
Secretary of the Corporation upon written request of, or may be called by, the
holders of record of at least 10% of the Class F Shares upon which such default in
the payment of dividends exists and notice thereof shall be given in the same manner
as that required for the annual meeting of shareholders; provided, however, that the
Corporation shall not be required to call such special meeting if the annual meeting
of shareholders shall be called to be held within 90 days after the date of receipt
of the foregoing written request from the holders of Class F Shares. At any meeting
at which such holders of Class F Shares shall be entitled to elect directors,
holders of 50% of such Class F Shares, present in person or by proxy, shall be
sufficient to constitute a quorum, and the vote of the holders of a majority of such
shares so present at any such meeting at which there shall be such a quorum shall be
sufficient to elect the members of the Board of Directors which such holders of
Class F Shares are entitled to elect as herein provided. Notwithstanding any
provision of these Amended and Restated Articles of Incorporation, as amended, or
the Code of Regulations of the Corporation or any action taken by the holders of any
class of shares fixing the number of directors of the Corporation, the two directors
who may be elected by such holders of Class F Shares pursuant to this Subsection
shall serve in addition to any other directors then in office or proposed to be
elected otherwise than pursuant to this Subsection. Nothing in this Subsection
shall prevent any change otherwise permitted in the total number of or
classifications of directors of the Corporation or require the resignation of any
director elected otherwise than pursuant to this Subsection. Notwithstanding any
classification of the other directors of the Corporation, the two directors elected
by such holders of Class F Shares shall be elected annually for terms expiring at
the next succeeding annual meeting of shareholders.
(3) Upon any divesting of the special class voting rights of the holders of the
Class F Shares in respect of elections of directors as provided in this Subsection,
the terms of office of all directors then in office elected by such holders shall
terminate immediately thereupon. If the office of any director elected by such
holders voting as a class becomes vacant by reason of death, resignation, removal
from office or otherwise, the remaining director elected by such holders voting as a
class may elect a successor who shall hold office for the unexpired term in respect
of which such vacancy occurred.
(c) If at any time when the holders of Class F Shares are entitled to elect
directors pursuant to the foregoing provisions of this Section the holders of any
Class A Shares, Class B Shares, Class C Shares, Class D Shares, Class E Shares,
Class G Shares, Class H Shares, Class I Shares, Class J Shares, Class K Shares or
Noncumulative Shares are entitled to elect directors pursuant hereto by reason of
any default in the payment of dividends thereon, then the voting rights of the
Cumulative Shares and the Noncumulative Shares then entitled to vote shall be
combined (with each class of shares having a number of votes proportional to the
aggregate liquidation preference of its outstanding shares). In such case, the
holders of Class F Shares and of all such other shares then entitled so to vote,
voting as a class, shall elect such directors. If the holders of any such other
56
shares have elected such directors prior to the happening of the default or
event permitting the holders of Class F Shares to elect directors, or prior to a
written request for the holding of a special meeting being received by the
Secretary of the Corporation as required above, then a new election shall be held
with all such other shares and the Class F Shares voting together as a single class
for such directors, resulting in the termination of the term of such previously
elected directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds of the Class F
Shares at the time outstanding, voting separately as a class, given in person or by
proxy either in writing or at a meeting called for the purpose, shall be necessary
to effect either of the following:
(1) Any amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the Amended and Restated Articles of
Incorporation, as amended, or of the Code of Regulations of the Corporation which
affects adversely and materially the preferences or voting or other rights of the
holders of Class F Shares which are set forth in these Amended and Restated Articles
of Incorporation, as amended; provided, however, neither the amendment of these
Amended and Restated Articles of Incorporation, as amended, so as to authorize,
create or change the authorized or outstanding number of Class F Shares or of any
shares ranking on a parity with or junior to the Class F Shares nor the amendment of
the provisions of the Code of Regulations so as to change the number or
classification of directors of the Corporation shall be deemed to affect adversely
and materially preferences or voting or other rights of the holders of Class F
Shares; or
(2) The authorization, creation or increase in the authorized number of any
shares, or any security convertible into shares, in either case ranking prior to
such series of Class F Shares.
(e) In the event, and only to the extent, that (1) Class F Shares are issued
in more than one series and (2) Ohio law permits the holders of a series of a class
of capital stock to vote separately as a class, the affirmative vote of the holders
of at least two-thirds of each series of Class F Shares at the time outstanding,
voting separately as a class, given in person or by proxy either in writing or at a
meeting called for the purpose of voting on such matters, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or otherwise, of
any of the provisions of these Amended and Restated Articles of Incorporation, as
amended, or of the Code of Regulations of the Corporation which affects adversely
and materially the preferences or voting or other rights of the holders of such
series which are set forth in these Amended and Restated Articles of Incorporation,
as amended; provided, however, neither the amendment of these Amended and Restated
Articles of Incorporation, as amended, so as to authorize, create or change the
authorized or outstanding number of Class F Shares or of any shares ranking on a
parity with or junior to the Class F Shares nor the Amendment of the provisions of
the Code of
57
Regulations so as to change the number or classification of directors of the
Corporation shall be deemed to affect adversely and materially the preferences or
voting or other rights of the holders of such series.
Section 6.
8.60% Class F Cumulative Redeemable Preferred Shares.
Of the 750,000
authorized Class F Shares, 690,000 shares are designated as a series entitled 8.60% Class F
Cumulative Redeemable Preferred Shares (hereinafter called 8.60% Class F Preferred
Shares). The 8.60% Class F Preferred Shares shall have the express terms set forth in this
Division as being applicable to all Class F Shares as a class and, in addition, the
following express terms applicable to all 8.60% Class F Preferred Shares as a series of
Class F Shares:
(a) The annual dividend rate of the 8.60% Class F Preferred Shares shall be
8.60% of the liquidation preference of $250.00 per share.
(b) Dividends on the 8.60% Class F Preferred Shares shall be payable, if
declared, quarterly on or about the fifteenth day of March, June, September, and
December each year, the first quarterly dividend being payable, if declared, on
June 15, 2002. The dividends payable for each full quarterly dividend period on
each 8.60% Class F Preferred Shares shall be $0.5375. Dividends for the initial
dividend period on the 8.60% Class F Preferred Shares, or for any period shorter or
longer than a full dividend period on the 8.60% Class F Preferred Shares, shall be
computed on the basis of a 360-day year consisting of twelve 30-day months. The
aggregate dividend payable quarterly to each holder of 8.60% Class F Preferred
Shares shall be rounded to the nearest one one-hundredth of one cent with $.00005
being rounded upward. Each dividend shall be payable to the holders of record on
such record date, no less than 10 nor more than 30 days preceding the payment date
thereof, as shall be fixed from time to time by the Corporations Board of
Directors.
(c) Dividends on 8.60% Class F Preferred Shares shall be cumulative as
follows:
(1) With respect to shares included in the initial issue of 8.60% Class F
Preferred Shares and shares issued any time thereafter up to and including the
record date for the payment of the first dividend on the initial issue of 8.60%
Class F Preferred Shares, dividends shall be cumulative from the date of the initial
issue of 8.60% Class F Preferred Shares; and
(2) With respect to shares issued any time after the aforesaid record date,
dividends shall be cumulative from the dividend payment date next preceding the date
of issue of such shares, except that if such shares are issued during the period
commencing the day after the record date for the payment of a dividend on 8.60%
Class F Preferred Shares and ending on the payment date of that dividend, dividends
with respect to such shares shall be cumulative from that dividend payment date.
58
(d) Except as required to preserve the Corporations status as a real estate
investment trust under the Internal Revenue Code of 1986, as amended, the 8.60%
Class F Preferred Shares may not be redeemed prior to March 27, 2007. At any time
or from time to time on and after March 27, 2007 the Corporation, at its option
upon not less than thirty (30) nor more than sixty (60) days written notice, may
redeem all or any part of the 8.60% Class F Preferred Shares at a redemption price
of $250.00 per share plus, in each case, an amount equal to all dividends accrued
and unpaid thereon to the redemption date, without interest. The redemption price
(other than the portion thereof consisting of accrued and unpaid dividends) is
payable solely out of the sale proceeds of other capital shares of the Corporation,
which may include any equity securities (including common shares and preferred
shares), shares, interests, participation or other ownership interests (however
designated) and any rights (other than debt securities convertible into or
exchangeable for equity securities), or options to purchase any of the foregoing.
(e) The amount payable per 8.60% Class F Preferred Share in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs of
the Corporation shall be $250.00, plus an amount equal to all dividends accrued and
unpaid thereon to the date of payment.
(f) All dividend payments made on the 8.60% Class F Preferred Shares, at any
time during which the Corporation is in default in the payment of dividends on such
8.60% Class F Preferred Shares for any dividend period, shall, for the purposes of
Section 5(b)(1) of this Division A-VI, be deemed to be made in respect of the
earliest dividend period with respect to which the Corporation is in default.
VII.
The Class G Cumulative Preferred Shares.
The Class G Shares shall have the following
express terms:
Section 1.
Series.
The Class G Shares may be issued from time to time in one or more
series. All Class G Shares shall be of equal rank and shall be identical, except in respect
of the matters that may be fixed by the Board of Directors as hereinafter provided, and each
share of a series shall be identical with all other shares of such series, except as to the
dates from which dividends shall accrue and be cumulative. All Class G Shares shall rank on
a parity with the Class A Shares, Class B Shares, Class C Shares, Class D Shares, Class E
Shares, Class F Shares, Class H Shares, Class I Shares, Class J Shares, Class K Shares and
Noncumulative Shares and shall be identical to all Class A Shares, Class B Shares, Class C
Shares, Class D Shares, Class E Shares, Class F Shares, Class H Shares, Class I Shares,
Class J Shares, Class K Shares and Noncumulative Shares except (1) in respect of the matters
that may be fixed by the Board of Directors as provided in clauses (a) through (i),
inclusive, of this Section 1 and (2) only dividends on Cumulative Shares shall be cumulative
as set forth herein. Subject to the provisions of Sections 2 through 5, both inclusive, and
Item XIII of this Division, which provisions shall apply to all Class G Shares, the Board of
Directors hereby is authorized to cause such shares to be issued in one or more series and,
with respect to each such series to determine and fix
59
prior to the issuance thereof (and thereafter, to the extent provided in clause (b) of
this Section) the following:
(a) The designation of the series, which may be by distinguishing number,
letter or title;
(b) The authorized number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase or decrease from time to time before or after the issuance thereof (but
not below the number of shares thereof then outstanding);
(c) The dividend rate or rates of the series, including the means by which
such rates may be established;
(d) The date or dates from which dividends shall accrue and be cumulative and
the dates on which and the period or periods for which dividends, if declared,
shall be payable, including the means by which such dates and periods may be
established;
(e) The redemption rights and price or prices, if any, for shares of the
series;
(f) The terms and amount of the sinking fund, if any, for the purchase or
redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(h) Whether the shares of the series shall be convertible into Common Shares
or shares of any other class and, if so, the conversion rate or rates or price or
prices, any adjustments thereof and all other terms and conditions upon which such
conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection 5(d) or 5(e) of
this Item VII) on the issuance of shares of the same series or of any other class
or series.
The Board of Directors is authorized to adopt from time to time amendments to the Amended and
Restated Articles of Incorporation, as amended, fixing, with respect to each such series, the
matters described in clauses (a) through (i), inclusive, of this Section and is authorized to take
such actions with respect thereto as may be required by law in order to effect such amendments.
Section 2.
Dividends.
(a) The holders of Class G Shares of each series, in preference to the holders
of Common Shares and of any other class of shares ranking junior to the
60
Class G Shares, shall be entitled to receive out of any funds legally
available therefor, and when and as declared by the Board of Directors, dividends
in cash at the rate or rates for such series fixed in accordance with the
provisions of Section 1 above and no more, payable on the dates fixed for such
series. Such dividends shall accrue and be cumulative, in the case of shares of
each particular series, from and after the date or dates fixed with respect to such
series. No dividends shall be paid upon or declared or set apart for any series of
the Class G Shares for any dividend period unless at the same time (i) a like
proportionate dividend for the dividend periods terminating on the same or any
earlier date, ratably in proportion to the respective annual dividend rates fixed
therefor, shall have been paid upon or declared or set apart for all Class G Shares
of all series then issued and outstanding and entitled to receive such dividend and
(ii) the dividends payable for the dividend periods terminating on the same or any
earlier date (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, shall have been paid upon or declared or set apart for all
Class A Shares, Class B Shares, Class C Shares, Class D Shares, Class E Shares,
Class F Shares, Class H Shares, Class I Shares, Class J Shares, Class K Shares and
Noncumulative Shares then issued and outstanding and entitled to receive such
dividends.
(b) So long as any Class G Shares shall be outstanding no dividend, except a
dividend payable in Common Shares or other shares ranking junior to the Class G
Shares, shall be paid or declared or any distribution be made, except as aforesaid,
in respect of the Common Shares or any other shares ranking junior to the Class G
Shares, nor shall any Common Shares or any other shares ranking junior to the Class
G Shares be purchased, retired or otherwise acquired by the Corporation, except out
of the proceeds of the sale of Common Shares or other shares of the Corporation
ranking junior to the Class G Shares received by the Corporation subsequent to the
date of first issuance of Class G Shares of any series, unless:
(1) All accrued and unpaid dividends on Cumulative Shares, including the full
dividends for all current dividend periods, shall have been declared and paid or a
sum sufficient for payment thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the then current dividend
period shall have been declared and paid or a sum sufficient for payment therefor
set apart; and
(3) There shall be no arrearages with respect to the redemption of Cumulative
Shares or Noncumulative Shares of any series from any sinking fund provided for shares of such series in accordance with the provisions of Section 1 of this Item
VII.
(c) The foregoing restrictions on the payment of dividends or other
distributions on, or on the purchase, redemption retirement or other acquisition
61
of, Common Shares or any other shares ranking on a parity with or junior to
the Class G Shares shall be inapplicable to (i) any payments in lieu of issuance of
fractional shares thereof, whether upon any merger, conversion, stock dividend or
otherwise, (ii) the conversion of Cumulative Shares or Noncumulative Shares into
Common Shares, or (iii) the exercise by the Corporation of its rights pursuant to
Item XIV(d) of this Division A, Section 4(d) of Division B or any similar Section
hereafter contained in these Amended and Restated Articles of Incorporation, as
amended, with respect to any other class or series of capital stock hereafter
created or authorized.
(d) If, for any taxable year, the Corporation elects to designate as capital
gain dividends (as defined in Section 857 of the Code) any portion (the Capital
Gains Amount) of the dividends paid or made available for the year to holders of
all classes of stock (the Total Dividends), then, to the extent permissible under
the Code and to the extent it does not cause any dividends to fail to qualify for
the dividends paid deduction under Section 561 of the Code, the portion of the
Capital Gains Amount that shall be allocable to holders of the Class G Shares shall
be the amount that the total dividends paid or made available to the holders of the
Class G Shares for the year bears to the Total Dividends.
Section 3.
Redemption.
(a) Subject to the express terms of each series, the Corporation:
(1) May, from time to time at the option of the Board of Directors, redeem all
or any part of any redeemable series of Class G Shares at the time outstanding at
the applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Item VII; and
(2) Shall, from time to time, make such redemptions of each series of Class G
Shares as may be required to fulfill the requirements of any sinking fund provided
for shares of such series at the applicable sinking fund redemption price fixed in
accordance with the provisions of Section 1 of this Item VII; and shall in each case
pay all accrued and unpaid dividends to the redemption date.
(b) (1) Notice of every such redemption shall be mailed, postage prepaid,
to the holders of record of the Class G Shares to be redeemed at their respective
addresses then appearing on the books of the Corporation, not less than 30 days nor
more than 60 days prior to the date fixed for such redemption, or such other time
prior thereto as the Board of Directors shall fix for any series pursuant to
Section 1 of this Item VII prior to the issuance thereof. At any time after notice
as provided above has been deposited in the mail, the Corporation may deposit the
aggregate redemption price of Class G Shares to be redeemed, together with accrued
and unpaid dividends thereon to the redemption date, with any bank or trust company
in Cleveland, Ohio, or New York, New York, having capital and surplus of not less
than $100,000,000 named in such notice and direct that there be paid to the
respective holders of the Class G Shares so to be
62
redeemed amounts equal to the redemption price of the Class G Shares so to be
redeemed, together with such accrued and unpaid dividends thereon, on surrender of
the share certificate or certificates held by such holders; and upon the deposit of
such notice in the mail and the making of such deposit of money with such bank or
trust company, such holders shall cease to be shareholders with respect to such
shares; and from and after the time such notice shall have been so deposited and
such deposit of money shall have been so made, such holders shall have no rights or
claim against the Corporation with respect to such shares, except only the right to
receive such money from such bank or trust company without interest or to exercise
before the redemption date any unexpired privileges of conversion. In the event
less than all of the outstanding Class G Shares are to be redeemed, the Corporation
shall select by lot the shares so to be redeemed in such manner as shall be
prescribed by the Board of Directors.
(2) If the holders of Class G Shares which have been called for redemption
shall not within six years after such deposit claim the amount deposited for the
redemption thereof, any such bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon such bank or trust company and
the Corporation shall be relieved of all responsibility in respect thereof and to
such holders.
(c) Any Class G Shares which are (1) redeemed by the Corporation pursuant to
the provisions of this Section, (2) purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series, (3) converted in
accordance with the express terms thereof, or (4) otherwise acquired by the
Corporation shall resume the status of authorized but unissued Class G Shares
without serial designation.
(d) Except in connection with the exercise of the Corporations rights
pursuant to Section (d) of Item XIV of this Division A, Section 4(d) of Division B
or any similar Section hereafter contained in these Amended and Restated Articles
of Incorporation, as amended, with respect to any other class or series of capital
stock hereafter created or authorized, the Corporation may not purchase or redeem
(for sinking fund purposes or otherwise) less than all of the Class G Shares then
outstanding except in accordance with a stock purchase offer made to all holders of
record of Class G Shares, unless all dividends on all Class G Shares then
outstanding for all previous and current dividend periods shall have been declared
and paid or funds therefor set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
Section 4.
Liquidation.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of Class G
Shares of any series shall be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or distributed
63
among the holders of the Common Shares or any other shares ranking junior to
the Class G Shares, the amounts fixed with respect to shares of such series in
accordance with Section 1 of this Item VII, plus an amount equal to all dividends
accrued and unpaid thereon to the date of payment of the amount due pursuant to
such liquidation, dissolution or winding up of the affairs of the Corporation. In
the event the net assets of the Corporation legally available therefor are
insufficient to permit the payment upon all outstanding Cumulative Shares and
Noncumulative Shares of the full preferential amount to which they are respectively
entitled, then such net assets shall be distributed ratably upon all outstanding
Cumulative Shares and Noncumulative Shares in proportion to the full preferential
amount to which each such share is entitled.
(2) After payment to the holders of Class G Shares of the full preferential
amounts as aforesaid, the holders of Class G Shares, as such, shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any other
Corporation, the merger of any other Corporation into it, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation shall not be
deemed to be a dissolution, liquidation or winding up for the purposes of this
Section.
Section 5.
Voting.
(a) The holders of Class G Shares shall have no voting rights, except as
provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in default in the
payment of dividends on any series of Class G Shares at the time outstanding,
whether or not earned or declared, for a number of dividend payment periods,
whether consecutive or not, which in the aggregate contain at least 540 days, all
holders of such Class G Shares, voting separately as a class, together with all
Class A Shares, Class B Shares, Class C Shares, Class D Shares, Class E Shares,
Class F Shares, Class H Shares, Class I Shares, Class J Shares, Class K Shares and
Noncumulative Shares upon which like voting rights have been conferred and are
exercisable under the circumstances described in Subsection 5(c), shall be entitled
to elect, as herein provided, a total of two members of the Board of Directors of
the Corporation; provided, however, that the holders of such Class G Shares shall
not exercise such special class voting rights except at meetings of such
shareholders for the election of directors at which the holders of not less than
50% of such Class G Shares are present in person or by proxy; and provided further
that the special class voting rights provided for in this paragraph when the same
shall have become vested shall remain so vested until all accrued and unpaid
dividends on such Class G Shares then outstanding shall have been paid or declared
and a sum sufficient for the payment thereof set aside for payment, whereupon the
holders of such Class G Shares shall be divested of their special class voting
rights in respect of subsequent elections of directors, subject to the
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revesting of such special class voting rights in the event above specified in
this paragraph. All dividend payments made on the Class G Shares, at any time
during which the Corporation is in default in the payment of dividends on such
Class G Shares for any dividend period, shall be deemed to be made in respect of
the earliest dividend period with respect to which the Corporation is in default.
(2) In the event of default entitling holders of Class G Shares to elect two
directors as specified in paragraph (1) of this Subsection, a special meeting of
such holders for the purpose of electing such directors shall be called by the
Secretary of the Corporation upon written request of, or may be called by, the
holders of record of at least 10% of the Class G Shares upon which such default in
the payment of dividends exists and notice thereof shall be given in the same manner
as that required for the annual meeting of shareholders; provided, however, that the
Corporation shall not be required to call such special meeting if the annual meeting
of shareholders shall be called to be held within 90 days after the date of receipt
of the foregoing written request from the holders of Class G Shares. At any meeting
at which such holders of Class G Shares shall be entitled to elect directors,
holders of 50% of such Class G Shares, present in person or by proxy, shall be
sufficient to constitute a quorum, and the vote of the holders of a majority of such
shares so present at any such meeting at which there shall be such a quorum shall be
sufficient to elect the members of the Board of Directors which such holders of
Class G Shares are entitled to elect as herein provided. Notwithstanding any
provision of these Amended and Restated Articles of Incorporation, as amended, or
the Code of Regulations of the Corporation or any action taken by the holders of any
class of shares fixing the number of directors of the Corporation, the two directors
who may be elected by such holders of Class G Shares pursuant to this Subsection
shall serve in addition to any other directors then in office or proposed to be
elected otherwise than pursuant to this Subsection. Nothing in this Subsection
shall prevent any change otherwise permitted in the total number of or
classifications of directors of the Corporation or require the resignation of any
director elected otherwise than pursuant to this Subsection. Notwithstanding any
classification of the other directors of the Corporation, the two directors elected
by such holders of Class G Shares shall be elected annually for terms expiring at
the next succeeding annual meeting of shareholders.
(3) Upon any divesting of the special class voting rights of the holders of
the Class G Shares in respect of elections of directors as provided in this
Subsection, the terms of office of all directors then in office elected by such
holders shall terminate immediately thereupon. If the office of any director
elected by such holders voting as a class becomes vacant by reason of death,
resignation, removal from office or otherwise, the remaining director elected by
such holders voting as a class may elect a successor who shall hold office for the
unexpired term in respect of which such vacancy occurred.
(c) If at any time when the holders of Class G Shares are entitled to elect
directors pursuant to the foregoing provisions of this Section the holders of any
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Class A Shares, Class B Shares, Class C Shares, Class D Shares, Class E
Shares, Class F Shares, Class H Shares, Class I Shares, Class J Shares, Class K
Shares or Noncumulative Shares are entitled to elect directors pursuant hereto by
reason of any default in the payment of dividends thereon, then the voting rights
of the Cumulative Shares and the Noncumulative Shares then entitled to vote shall
be combined (with each class of shares having a number of votes proportional to the
aggregate liquidation preference of its outstanding shares). In such case, the
holders of Class G Shares and of all such other shares then entitled so to vote,
voting as a class, shall elect such directors. If the holders of any such other
shares have elected such directors prior to the happening of the default or event
permitting the holders of Class G Shares to elect directors, or prior to a written
request for the holding of a special meeting being received by the Secretary of the
Corporation as required above, then a new election shall be held with all such
other shares and the Class G Shares voting together as a single class for such
directors, resulting in the termination of the term of such previously elected
directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds of the Class G
Shares at the time outstanding, voting separately as a class, given in person or by
proxy either in writing or at a meeting called for the purpose, shall be necessary
to effect either of the following:
(1) Any amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the Amended and Restated Articles of
Incorporation, as amended, or of the Code of Regulations of the Corporation which
affects adversely and materially the preferences or voting or other rights of the
holders of Class G Shares which are set forth in these Amended and Restated Articles
of Incorporation, as amended; provided, however, neither the amendment of these
Amended and Restated Articles of Incorporation, as amended, so as to authorize,
create or change the authorized or outstanding number of Class G Shares or of any
shares ranking on a parity with or junior to the Class G Shares nor the amendment of
the provisions of the Code of Regulations so as to change the number or
classification of directors of the Corporation shall be deemed to affect adversely
and materially preferences or voting or other rights of the holders of Class G
Shares; or
(2) The authorization, creation or increase in the authorized number of any
shares, or any security convertible into shares, in either case ranking prior to
such series of Class G Shares.
(e) In the event, and only to the extent, that (1) Class G Shares are issued
in more than one series and (2) Ohio law permits the holders of a series of a class
of capital stock to vote separately as a class, the affirmative vote of the holders
of at least two-thirds of each series of Class G Shares at the time outstanding,
voting separately as a class, given in person or by proxy either in writing or at a
meeting called for the purpose of voting on such matters, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or
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otherwise, of any of the provisions of these Amended and Restated Articles of
Incorporation, as amended, or of the Code of Regulations of the Corporation which
affects adversely and materially the preferences or voting or other rights of the
holders of such series which are set forth in these Amended and Restated Articles
of Incorporation, as amended; provided, however, neither the amendment of these
Amended and Restated Articles of Incorporation, as amended, so as to authorize,
create or change the authorized or outstanding number of Class G Shares or of any
shares ranking on a parity with or junior to the Class G Shares nor the Amendment
of the provisions of the Code of Regulations so as to change the number or
classification of directors of the Corporation shall be deemed to affect adversely
and materially the preferences or voting or other rights of the holders of such
series.
Section 6. 8%
Class G Cumulative Redeemable Preferred Shares
. Of the 750,000 authorized
Class G Shares, 736,000 shares are designated as a series entitled 8% Class G Cumulative
Redeemable Preferred Shares (hereinafter called 8% Class G Preferred Shares). The 8%
Class G Preferred Shares shall have the express terms set forth in this Division as being
applicable to all Class G Shares as a class and, in addition, the following express terms
applicable to all 8% Class G Preferred Shares as a series of Class G Shares:
(a) The annual dividend rate of the 8% Class G Preferred Shares shall be 8% of
the liquidation preference of $250.00 per share.
(b) Dividends on the 8% Class G Preferred Shares shall be payable, if
declared, quarterly in arrears on or about the fifteenth day of each March, June,
September, and December or, if not a business day, the next succeeding business
day, the first quarterly dividend being payable, if declared, on June 16, 2003. The
dividends payable for each full quarterly dividend period on each 8% Class G
Preferred Shares shall be $5.00.
Dividends for the initial dividend period on the 8% Class G Preferred Shares,
or for any period shorter or longer than a full dividend period on the 8% Class G
Preferred Shares, shall be computed on the basis of a 360-day year consisting of
twelve 30-day months. The aggregate dividend payable quarterly to each holder of 8%
Class G Preferred Shares shall be rounded to the nearest one one-hundredth of one
cent with $.00005 being rounded upward. Each dividend shall be payable to the
holders of record on such record date, no less than 10 nor more than 30 days
preceding the payment date thereof, as shall be fixed from time to time by the
Corporations Board of Directors.
(c) Dividends on 8% Class G Preferred Shares shall be cumulative as follows:
(1) With respect to shares included in the initial issue of 8% Class G
Preferred Shares and shares issued any time thereafter up to and including the
record date for the payment of the first dividend on the initial issue of 8% Class G
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Preferred Shares, dividends shall be cumulative from the date of the initial
issue of 8% Class G Preferred Shares; and
(2) With respect to shares issued any time after the aforesaid record date,
dividends shall be cumulative from the dividend payment date next preceding the date
of issue of such shares, except that if such shares are issued during the period
commencing the day after the record date for the payment of a dividend on 8% Class G
Preferred Shares and ending on the payment date of that dividend, dividends with
respect to such shares shall be cumulative from that dividend payment date.
(d) Except as required to preserve the Corporations status as a real estate
investment trust under the Internal Revenue Code of 1986, as amended, the 8% Class
G Preferred Shares may not be redeemed prior to March 28, 2008. At any time or from
time to time on and after March 28, 2008 the Corporation, at its option upon not
less than thirty (30) nor more than sixty (60) days written notice, may redeem all
or any part of the 8% Class G Preferred Shares at a redemption price of $250.00 per
share plus, in each case, an amount equal to all dividends accrued and unpaid
thereon to the redemption date, without interest.
(e) The amount payable per 8% Class G Preferred Share in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs of
the Corporation shall be $250.00, plus an amount equal to all dividends accrued and
unpaid thereon to the date of payment.
(f) All dividend payments made on the 8% Class G Preferred Shares, at any time
during which the Corporation is in default in the payment of dividends on such 8%
Class G Preferred Shares for any dividend period, shall, for the purposes of
Section 5(b)(1) of this Division A-VII, be deemed to be made in respect of the
earliest dividend period with respect to which the Corporation is in default.
VIII.
The Class H Cumulative Preferred Shares.
The Class H Shares shall have the following
express terms:
Section 1.
Series.
The Class H Shares may be issued from time to time in one or more
series. All Class H Shares shall be of equal rank and shall be identical, except in respect
of the matters that may be fixed by the Board of Directors as hereinafter provided, and each
share of a series shall be identical with all other shares of such series, except as to the
dates from which dividends shall accrue and be cumulative. All Class H Shares shall rank on
a parity with the Class A Shares, Class B Shares, Class C Shares, Class D Shares, Class E
Shares, Class F Shares, Class G Shares, Class I Shares, Class J Shares, Class K Shares and
Noncumulative Shares and shall be identical to all Class A Shares, Class B Shares, Class C
Shares, Class D Shares, Class E Shares, Class F Shares, Class G Shares, Class I Shares,
Class J Shares, Class K Shares and Noncumulative Shares except (1) in respect of the matters
that may be fixed by the Board of Directors as provided in clauses (a) through (i),
inclusive, of this Section 1 and (2) only dividends on Cumulative
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Shares shall be cumulative as set forth herein. Subject to the provisions of Sections
2 through 5, both inclusive, and Item XIII of this Division, which provisions shall apply to
all Class H Shares, the Board of Directors hereby is authorized to cause such shares to be
issued in one or more series and, with respect to each such series to determine and fix
prior to the issuance thereof (and thereafter, to the extent provided in clause (b) of this
Section), the following:
(a) The designation of the series, which may be by distinguishing number,
letter or title;
(b) The authorized number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase or decrease from time to time before or after the issuance thereof (but
not below the number of shares thereof then outstanding);
(c) The dividend rate or rates of the series, including the means by which
such rates may be established;
(d) The date or dates from which dividends shall accrue and be cumulative and
the dates on which and the period or periods for which dividends, if declared,
shall be payable, including the means by which such dates and periods may be
established;
(e) The redemption rights and price or prices, if any, for shares of the
series;
(f) The terms and amount of the sinking fund, if any, for the purchase or
redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(h) Whether the shares of the series shall be convertible into Common Shares
or shares of any other class and, if so, the conversion rate or rates or price or
prices, any adjustments thereof and all other terms and conditions upon which such
conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection 5(d) or 5(e) of
this Item VIII) on the issuance of shares of the same series or of any other class
or series.
The Board of Directors is authorized to adopt from time to time amendments to the Amended and
Restated Articles of Incorporation, as amended, fixing, with respect to each such series, the
matters described in clauses (a) through (i), inclusive, of this Section and is authorized to take
such actions with respect thereto as may be required by law in order to effect such amendments.
69
Section 2.
Dividends.
(a) The holders of Class H Shares of each series, in preference to the holders
of Common Shares and of any other class of shares ranking junior to the Class H
Shares, shall be entitled to receive out of any funds legally available therefor,
and when and as declared by the Board of Directors, dividends in cash at the rate
or rates for such series fixed in accordance with the provisions of Section 1 above
and no more, payable on the dates fixed for such series. Such dividends shall
accrue and be cumulative, in the case of shares of each particular series, from and
after the date or dates fixed with respect to such series. No dividends shall be
paid upon or declared or set apart for any series of the Class H Shares for any
dividend period unless at the same time (i) a like proportionate dividend for the
dividend periods terminating on the same or any earlier date, ratably in proportion
to the respective annual dividend rates fixed therefor, shall have been paid upon
or declared or set apart for all Class H Shares of all series then issued and
outstanding and entitled to receive such dividend and (ii) the dividends payable
for the dividend periods terminating on the same or any earlier date (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,
shall have been paid upon or declared or set apart for all Class A Shares, Class B
Shares, Class C Shares, Class D Shares, Class E Shares, Class F Shares, Class G
Shares, Class I Shares, Class J Shares, Class K Shares and Noncumulative Shares
then issued and outstanding and entitled to receive such dividends.
(b) So long as any Class H Shares shall be outstanding no dividend, except a
dividend payable in Common Shares or other shares ranking junior to the Class H
Shares, shall be paid or declared or any distribution be made, except as aforesaid,
in respect of the Common Shares or any other shares ranking junior to the Class H
Shares, nor shall any Common Shares or any other shares ranking junior to the Class
H Shares be purchased, retired or otherwise acquired by the Corporation, except out
of the proceeds of the sale of Common Shares or other shares of the Corporation
ranking junior to the Class H Shares received by the Corporation subsequent to the
date of first issuance of Class H Shares of any series, unless:
(1) All accrued and unpaid dividends on Cumulative Shares, including the full
dividends for all current dividend periods, shall have been declared and paid or a
sum sufficient for payment thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the then current dividend
period shall have been declared and paid or a sum sufficient for payment therefor
set apart; and
(3) There shall be no arrearages with respect to the redemption of Cumulative
Shares or Noncumulative Shares of any series from any sinking fund
70
provided for shares of such series in accordance with the provisions of Section
1 of this Item VIII.
(c) The foregoing 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 on a parity with or junior to the
Class H Shares shall be inapplicable to (i) any payments in lieu of issuance of
fractional shares thereof, whether upon any merger, conversion, stock dividend or
otherwise, (ii) the conversion of Cumulative Shares or Noncumulative Shares into
Common Shares, or (iii) the exercise by the Corporation of its rights pursuant to
Item XIV(d) of this Division A, Section 4(d) of Division B or any similar Section
hereafter contained in these Amended and Restated Articles of Incorporation, as
amended, with respect to any other class or series of capital stock hereafter
created or authorized.
(d) If, for any taxable year, the Corporation elects to designate as capital
gain dividends (as defined in Section 857 of the Code) any portion (the Capital
Gains Amount) of the dividends paid or made available for the year to holders of
all classes of stock (the Total Dividends), then, to the extent permissible under
the Code and to the extent it does not cause any dividends to fail to qualify for
the dividends paid deduction under Section 561 of the Code, the portion of the
Capital Gains Amount that shall be allocable to holders of the Class H Shares shall
be the amount that the total dividends paid or made available to the holders of the
Class H Shares for the year bears to the Total Dividends.
Section 3.
Redemption.
(a) Subject to the express terms of each series, the Corporation:
(1) May, from time to time at the option of the Board of Directors, redeem all
or any part of any redeemable series of Class H Shares at the time outstanding at
the applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Item VIII; and
(2) Shall, from time to time, make such redemptions of each series of Class H
Shares as may be required to fulfill the requirements of any sinking fund provided
for shares of such series at the applicable sinking fund redemption price fixed in
accordance with the provisions of Section 1 of this Item VIII; and shall in each
case pay all accrued and unpaid dividends to the redemption date.
(b) (1) Notice of every such redemption shall be mailed, postage prepaid,
to the holders of record of the Class H Shares to be redeemed at their respective
addresses then appearing on the books of the Corporation, not less than 30 days nor
more than 60 days prior to the date fixed for such redemption, or such other time
prior thereto as the Board of Directors shall fix for any series pursuant to
Section 1 of this Item VIII prior to the issuance thereof. At any time after
notice as provided above has been deposited in the mail, the Corporation
71
may deposit the aggregate redemption price of Class H Shares to be redeemed,
together with accrued and unpaid dividends thereon to the redemption date, with any
bank or trust company in Cleveland, Ohio, or New York, New York, having capital and
surplus of not less than $100,000,000 named in such notice and direct that there be
paid to the respective holders of the Class H Shares so to be redeemed amounts
equal to the redemption price of the Class H Shares so to be redeemed, together
with such accrued and unpaid dividends thereon, on surrender of the share
certificate or certificates held by such holders; and upon the deposit of such
notice in the mail and the making of such deposit of money with such bank or trust
company, such holders shall cease to be shareholders with respect to such shares;
and from and after the time such notice shall have been so deposited and such
deposit of money shall have been so made, such holders shall have no rights or
claim against the Corporation with respect to such shares, except only the right to
receive such money from such bank or trust company without interest or to exercise
before the redemption date any unexpired privileges of conversion. In the event
less than all of the outstanding Class H Shares are to be redeemed, the Corporation
shall select by lot the shares so to be redeemed in such manner as shall be
prescribed by the Board of Directors.
(2) If the holders of Class H Shares which have been called for redemption
shall not within six years after such deposit claim the amount deposited for the
redemption thereof, any such bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon such bank or trust company and
the Corporation shall be relieved of all responsibility in respect thereof and to
such holders.
(c) Any Class H Shares which are (1) redeemed by the Corporation pursuant to
the provisions of this Section, (2) purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series, (3) converted in
accordance with the express terms thereof, or (4) otherwise acquired by the
Corporation shall resume the status of authorized but unissued Class H Shares
without serial designation.
(d) Except in connection with the exercise of the Corporations rights
pursuant to Section (d) of Item XIV of this Division A, Section 4(d) of Division B
or any similar Section hereafter contained in these Amended and Restated Articles
of Incorporation, as amended, with respect to any other class or series of capital
stock hereafter created or authorized, the Corporation may not purchase or redeem
(for sinking fund purposes or otherwise) less than all of the Class H Shares then
outstanding except in accordance with a stock purchase offer made to all holders of
record of Class H Shares, unless all dividends on all Class H Shares then
outstanding for all previous and current dividend periods shall have been declared
and paid or funds therefor set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
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Section 4.
Liquidation.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of Class H
Shares of any series shall be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or distributed
among the holders of the Common Shares or any other shares ranking junior to the
Class H Shares, the amounts fixed with respect to shares of such series in
accordance with Section 1 of this Item VIII, plus an amount equal to all dividends
accrued and unpaid thereon to the date of payment of the amount due pursuant to
such liquidation, dissolution or winding up of the affairs of the Corporation. In
the event the net assets of the Corporation legally available therefor are
insufficient to permit the payment upon all outstanding Cumulative Shares and
Noncumulative Shares of the full preferential amount to which they are respectively
entitled, then such net assets shall be distributed ratably upon all outstanding
Cumulative Shares and Noncumulative Shares in proportion to the full preferential
amount to which each such share is entitled.
(2) After payment to the holders of Class H Shares of the full preferential
amounts as aforesaid, the holders of Class H Shares, as such, shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any other
Corporation, the merger of any other Corporation into it, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation shall not be
deemed to be a dissolution, liquidation or winding up for the purposes of this
Section.
Section 5.
Voting.
(a) The holders of Class H Shares shall have no voting rights, except as
provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in default in the
payment of dividends on any series of Class H Shares at the time outstanding,
whether or not earned or declared, for a number of dividend payment periods,
whether consecutive or not, which in the aggregate contain at least 540 days, all
holders of such Class H Shares, voting separately as a class, together with all
Class A Shares, Class B Shares, Class C Shares, Class D Shares, Class E Shares,
Class F Shares, Class G Shares, Class I Shares, Class J Shares, Class K Shares and
Noncumulative Shares upon which like voting rights have been conferred and are
exercisable under the circumstances described in Subsection 5(c), shall be entitled
to elect, as herein provided, a total of two members of the Board of Directors of
the Corporation; provided, however, that the holders of such Class H Shares shall
not exercise such special class voting rights except at meetings of
73
such shareholders for the election of directors at which the holders of not
less than 50% of such Class H Shares are present in person or by proxy; and
provided further that the special class voting rights provided for in this
paragraph when the same shall have become vested shall remain so vested until all
accrued and unpaid dividends on such Class H Shares then outstanding shall have
been paid or declared and a sum sufficient for the payment thereof set aside for
payment, whereupon the holders of such Class H Shares shall be divested of their
special class voting rights in respect of subsequent elections of directors,
subject to the revesting of such special class voting rights in the event above
specified in this paragraph. All dividend payments made on the Class H Shares, at
any time during which the Corporation is in default in the payment of dividends on
such Class H Shares for any dividend period, shall be deemed to be made in respect
of the earliest dividend period with respect to which the Corporation is in
default.
(2) In the event of default entitling holders of Class H Shares to elect two
directors as specified in paragraph (1) of this Subsection, a special meeting of
such holders for the purpose of electing such directors shall be called by the
Secretary of the Corporation upon written request of, or may be called by, the
holders of record of at least 10% of the Class H Shares upon which such default in
the payment of dividends exists and notice thereof shall be given in the same manner
as that required for the annual meeting of shareholders; provided, however, that the
Corporation shall not be required to call such special meeting if the annual meeting
of shareholders shall be called to be held within 90 days after the date of receipt
of the foregoing written request from the holders of Class H Shares. At any meeting
at which such holders of Class H Shares shall be entitled to elect directors,
holders of 50% of such Class H Shares, present in person or by proxy, shall be
sufficient to constitute a quorum, and the vote of the holders of a majority of such
shares so present at any such meeting at which there shall be such a quorum shall be
sufficient to elect the members of the Board of Directors which such holders of
Class H Shares are entitled to elect as herein provided. Notwithstanding any
provision of these Amended and Restated Articles of Incorporation, as amended, or
the Code of Regulations of the Corporation or any action taken by the holders of any
class of shares fixing the number of directors of the Corporation, the two directors
who may be elected by such holders of Class H Shares pursuant to this Subsection
shall serve in addition to any other directors then in office or proposed to be
elected otherwise than pursuant to this Subsection. Nothing in this Subsection
shall prevent any change otherwise permitted in the total number of or
classifications of directors of the Corporation or require the resignation of any
director elected otherwise than pursuant to this Subsection. Notwithstanding any
classification of the other directors of the Corporation, the two directors elected
by such holders of Class H Shares shall be elected annually for terms expiring at
the next succeeding annual meeting of shareholders.
(3) Upon any divesting of the special class voting rights of the holders of
the Class H Shares in respect of elections of directors as provided in this
Subsection, the terms of office of all directors then in office elected by such
74
holders shall terminate immediately thereupon. If the office of any director
elected by such holders voting as a class becomes vacant by reason of death,
resignation, removal from office or otherwise, the remaining director elected by
such holders voting as a class may elect a successor who shall hold office for the
unexpired term in respect of which such vacancy occurred.
(c) If at any time when the holders of Class H Shares are entitled to elect
directors pursuant to the foregoing provisions of this Section the holders of any
Class A Shares, Class B Shares, Class C Shares, Class D Shares, Class E Shares,
Class F Shares, Class G Shares, Class I Shares, Class J Shares, Class K Shares or
Noncumulative Shares are entitled to elect directors pursuant hereto by reason of
any default in the payment of dividends thereon, then the voting rights of the
Cumulative Shares and the Noncumulative Shares then entitled to vote shall be
combined (with each class of shares having a number of votes proportional to the
aggregate liquidation preference of its outstanding shares). In such case, the
holders of Class H Shares and of all such other shares then entitled so to vote,
voting as a class, shall elect such directors. If the holders of any such other
shares have elected such directors prior to the happening of the default or event
permitting the holders of Class H Shares to elect directors, or prior to a written
request for the holding of a special meeting being received by the Secretary of the
Corporation as required above, then a new election shall be held with all such
other shares and the Class H Shares voting together as a single class for such
directors, resulting in the termination of the term of such previously elected
directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds of the Class H
Shares at the time outstanding, voting separately as a class, given in person or by
proxy either in writing or at a meeting called for the purpose, shall be necessary
to effect either of the following:
(1) Any amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the Amended and Restated Articles of
Incorporation, as amended, or of the Code of Regulations of the Corporation which
affects adversely and materially the preferences or voting or other rights of the
holders of Class H Shares which are set forth in these Amended and Restated Articles
of Incorporation, as amended; provided, however, neither the amendment of these
Amended and Restated Articles of Incorporation, as amended, so as to authorize,
create or change the authorized or outstanding number of Class H Shares or of any
shares ranking on a parity with or junior to the Class H Shares nor the amendment of
the provisions of the Code of Regulations so as to change the number or
classification of directors of the Corporation shall be deemed to affect adversely
and materially preferences or voting or other rights of the holders of Class H
Shares; or
(2) The authorization, creation or increase in the authorized number of any
shares, or any security convertible into shares, in either case ranking prior to
such series of Class H Shares.
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(e) In the event, and only to the extent, that (1) Class H Shares are issued
in more than one series and (2) Ohio law permits the holders of a series of a class
of capital stock to vote separately as a class, the affirmative vote of the holders
of at least two-thirds of each series of Class H Shares at the time outstanding,
voting separately as a class, given in person or by proxy either in writing or at a
meeting called for the purpose of voting on such matters, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or otherwise, of
any of the provisions of these Amended and Restated Articles of Incorporation, as
amended, or of the Code of Regulations of the Corporation which affects adversely
and materially the preferences or voting or other rights of the holders of such
series which are set forth in these Amended and Restated Articles of Incorporation,
as amended; provided, however, neither the amendment of these Amended and Restated
Articles of Incorporation, as amended, so as to authorize, create or change the
authorized or outstanding number of Class H Shares or of any shares ranking on a
parity with or junior to the Class H Shares nor the Amendment of the provisions of
the Code of Regulations so as to change the number or classification of directors
of the Corporation shall be deemed to affect adversely and materially the
preferences or voting or other rights of the holders of such series.
Section 6.
7 3/8% Class H Cumulative Redeemable Preferred Shares
. Of the 750,000
authorized Class H Shares, 410,000 shares are designated as a series entitled 7 3/8% Class
H Cumulative Redeemable Preferred Shares (hereinafter called 7 3/8% Class H Preferred
Shares). The 7 3/8% Class H Preferred Shares shall have the express terms set forth in this
Division as being applicable to all Class H Shares as a class and, in addition, the
following express terms applicable to all 7 3/8% Class H Preferred Shares as a series of
Class H Shares:
(a) The annual dividend rate of the 7 3/8% Class H Preferred Shares shall be 7
3/8% of the liquidation preference of $500.00 per share.
(b) Dividends on the 7 3/8% Class H Preferred Shares shall be payable, if
declared, quarterly in arrears on or about the fifteenth day of each January,
April, July, and October or, if not a business day, the next succeeding business
day, the first quarterly dividend being payable, if declared, on October 15, 2003.
The dividends payable for each full quarterly dividend period on each 7 3/8% Class
H Preferred Shares shall be $9.21875.
Dividends for the initial dividend period on the 7 3/8% Class H Preferred
Shares, or for any period shorter or longer than a full dividend period on the 7
3/8% Class H Preferred Shares, shall be computed on the basis of a 360-day year
consisting of twelve 30-day months. The aggregate dividend payable quarterly to each
holder of 7 3/8% Class H Preferred Shares shall be rounded to the nearest one
one-hundredth of one cent with $.00005 being rounded upward. Each dividend shall be
payable to the holders of record on such record date, no less than 10 nor more than
30 days preceding the payment date thereof, as shall be fixed from time to time by
the Companys Board of Directors.
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(c) Dividends on 7 3/8% Class H Preferred Shares shall be cumulative as
follows:
(1) With respect to shares included in the initial issue of 7 3/8% Class H
Preferred Shares and shares issued any time thereafter up to and including the
record date for the payment of the first dividend on the initial issue of 7 3/8%
Class H Preferred Shares, dividends shall be cumulative from the date of the initial
issue of 7 3/8% Class H Preferred Shares; and
(2) With respect to shares issued any time after the aforesaid record date,
dividends shall be cumulative from the dividend payment date next preceding the date
of issue of such shares, except that if such shares are issued during the period
commencing the day after the record date for the payment of a dividend on 7 3/8%
Class H Preferred Shares and ending on the payment date of that dividend, dividends
with respect to such shares shall be cumulative from that dividend payment date.
(d) Except as required to preserve the Companys status as a real estate
investment trust under the Internal Revenue Code of 1986, as amended, the 7 3/8%
Class H Preferred Shares may not be redeemed prior to July 28, 2008. At any time or
from time to time on and after July 28, 2008 the Company, at its option upon not
less than thirty (30) nor more than sixty (60) days written notice, may redeem all
or any part of the 7 3/8% Class H Preferred Shares at a redemption price of $500.00
per share plus, in each case, an amount equal to all dividends accrued and unpaid
thereon to the redemption date, without interest.
(e) The amount payable per 7 3/8% Class H Preferred Share in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs of
the Company shall be $500.00, plus an amount equal to all dividends accrued and
unpaid thereon to the date of payment.
(f) All dividend payments made on the 7 3/8% Class H Preferred Shares, at any
time during which the Company is in default in the payment of dividends on such 7
3/8% Class H Preferred Shares for any dividend period, shall, for the purposes of
Section 5(b)(1) of this Division A-VIII, be deemed to be made in respect of the
earliest dividend period with respect to which the Company is in default.
IX.
The Class I Cumulative Preferred Shares.
The Class I Shares shall have the following
express terms:
Section 1.
Series.
The Class I Shares may be issued from time to time in one or more
series. All Class I Shares shall be of equal rank and shall be identical, except in respect
of the matters that may be fixed by the Board of Directors as hereinafter provided, and each
share of a series shall be identical with all other shares of such series, except as to the
dates from which dividends shall accrue and be cumulative. All Class I Shares shall rank on
a parity with the Class A Shares, Class B Shares, Class C Shares, Class D
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Shares, Class E Shares, Class F Shares, Class G Shares, Class H Shares, Class J Shares,
Class K Shares and Noncumulative Shares and shall be identical to all 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 J Shares, Class K Shares and Noncumulative Shares except (1) in
respect of the matters that may be fixed by the Board of Directors as provided in clauses
(a) through (i), inclusive, of this Section 1 and (2) only dividends on Cumulative Shares
shall be cumulative as set forth herein. Subject to the provisions of Sections 2 through 5,
both inclusive, and Item XIII of this Division, which provisions shall apply to all Class I
Shares, the Board of Directors hereby is authorized to cause such shares to be issued in one
or more series and, with respect to each such series to determine and fix prior to the
issuance thereof (and thereafter, to the extent provided in clause (b) of this Section), the
following:
(a) The designation of the series, which may be by distinguishing number,
letter or title;
(b) The authorized number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase or decrease from time to time before or after the issuance thereof (but
not below the number of shares thereof then outstanding);
(c) The dividend rate or rates of the series, including the means by which
such rates may be established;
(d) The date or dates from which dividends shall accrue and be cumulative and
the dates on which and the period or periods for which dividends, if declared,
shall be payable, including the means by which such dates and periods may be
established;
(e) The redemption rights and price or prices, if any, for shares of the
series;
(f) The terms and amount of the sinking fund, if any, for the purchase or
redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(h) Whether the shares of the series shall be convertible into Common Shares
or shares of any other class and, if so, the conversion rate or rates or price or
prices, any adjustments thereof and all other terms and conditions upon which such
conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection 5(d) or 5(e) of
this Item IX) on the issuance of shares of the same series or of any other class or
series.
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The Board of Directors is authorized to adopt from time to time amendments to the Amended and
Restated Articles of Incorporation, as amended, fixing, with respect to each such series, the
matters described in clauses (a) through (i), inclusive, of this Section and is authorized to take
such actions with respect thereto as may be required by law in order to effect such amendments.
Section 2.
Dividends.
(a) The holders of Class I Shares of each series, in preference to the holders
of Common Shares and of any other class of shares ranking junior to the Class I
Shares, shall be entitled to receive out of any funds legally available therefor,
and when and as declared by the Board of Directors, dividends in cash at the rate
or rates for such series fixed in accordance with the provisions of Section 1 above
and no more, payable on the dates fixed for such series. Such dividends shall
accrue and be cumulative, in the case of shares of each particular series, from and
after the date or dates fixed with respect to such series. No dividends shall be
paid upon or declared or set apart for any series of the Class I Shares for any
dividend period unless at the same time (i) a like proportionate dividend for the
dividend periods terminating on the same or any earlier date, ratably in proportion
to the respective annual dividend rates fixed therefor, shall have been paid upon
or declared or set apart for all Class I Shares of all series then issued and
outstanding and entitled to receive such dividend and (ii) the dividends payable
for the dividend periods terminating on the same or any earlier date (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,
shall have been paid upon or declared or set apart for all 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 J Shares, Class K Shares and Noncumulative Shares
then issued and outstanding and entitled to receive such dividends.
(b) So long as any Class I Shares shall be outstanding no dividend, except a
dividend payable in Common Shares or other shares ranking junior to the Class I
Shares, shall be paid or declared or any distribution be made, except as aforesaid,
in respect of the Common Shares or any other shares ranking junior to the Class I
Shares, nor shall any Common Shares or any other shares ranking junior to the Class
I Shares be purchased, retired or otherwise acquired by the Corporation, except out
of the proceeds of the sale of Common Shares or other shares of the Corporation
ranking junior to the Class I Shares received by the Corporation subsequent to the
date of first issuance of Class I Shares of any series, unless:
(1) All accrued and unpaid dividends on Cumulative Shares, including the full
dividends for all current dividend periods, shall have been declared and paid or a
sum sufficient for payment thereof set apart;
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(2) All unpaid dividends on Noncumulative Shares for the then current dividend
period shall have been declared and paid or a sum sufficient for payment therefor
set apart; and
(3) There shall be no arrearages with respect to the redemption of Cumulative
Shares or Noncumulative Shares of any series from any sinking fund provided for
shares of such series in accordance with the provisions of Section 1 of this Item
IX.
(c) The foregoing 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 on a parity with or junior to the
Class I Shares shall be inapplicable to (i) any payments in lieu of issuance of
fractional shares thereof, whether upon any merger, conversion, stock dividend or
otherwise, (ii) the conversion of Cumulative Shares or Noncumulative Shares into
Common Shares, or (iii) the exercise by the Corporation of its rights pursuant to
Item XIV(d) of this Division A, Section 4(d) of Division B or any similar Section
hereafter contained in these Amended and Restated Articles of Incorporation, as
amended, with respect to any other class or series of capital stock hereafter
created or authorized.
(d) If, for any taxable year, the Corporation elects to designate as capital
gain dividends (as defined in Section 857 of the Code) any portion (the Capital
Gains Amount) of the dividends paid or made available for the year to holders of
all classes of stock (the Total Dividends), then, to the extent permissible under
the Code and to the extent it does not cause any dividends to fail to qualify for
the dividends paid deduction under Section 561 of the Code, the portion of the
Capital Gains Amount that shall be allocable to holders of the Class I Shares shall
be the amount that the total dividends paid or made available to the holders of the
Class I Shares for the year bears to the Total Dividends.
Section 3.
Redemption.
(a) Subject to the express terms of each series, the Corporation:
(1) May, from time to time at the option of the Board of Directors, redeem all
or any part of any redeemable series of Class I Shares at the time outstanding at
the applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Item IX; and
(2) Shall, from time to time, make such redemptions of each series of Class I
Shares as may be required to fulfill the requirements of any sinking fund provided
for shares of such series at the applicable sinking fund redemption price fixed in
accordance with the provisions of Section 1 of this Item IX; and shall in each case
pay all accrued and unpaid dividends to the redemption date.
(b) (1) Notice of every such redemption shall be mailed, postage prepaid,
to the holders of record of the Class I Shares to be redeemed at their
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respective addresses then appearing on the books of the Corporation, not less
than 30 days nor more than 60 days prior to the date fixed for such redemption, or
such other time prior thereto as the Board of Directors shall fix for any series
pursuant to Section 1 of this Item IX prior to the issuance thereof. At any time
after notice as provided above has been deposited in the mail, the Corporation may
deposit the aggregate redemption price of Class I Shares to be redeemed, together
with accrued and unpaid dividends thereon to the redemption date, with any bank or
trust company in Cleveland, Ohio, or New York, New York, having capital and surplus
of not less than $100,000,000 named in such notice and direct that there be paid to
the respective holders of the Class I Shares so to be redeemed amounts equal to the
redemption price of the Class I Shares so to be redeemed, together with such
accrued and unpaid dividends thereon, on surrender of the share certificate or
certificates held by such holders; and upon the deposit of such notice in the mail
and the making of such deposit of money with such bank or trust company, such
holders shall cease to be shareholders with respect to such shares; and from and
after the time such notice shall have been so deposited and such deposit of money
shall have been so made, such holders shall have no rights or claim against the
Corporation with respect to such shares, except only the right to receive such
money from such bank or trust company without interest or to exercise before the
redemption date any unexpired privileges of conversion. In the event less than all
of the outstanding Class I Shares are to be redeemed, the Corporation shall select
by lot the shares so to be redeemed in such manner as shall be prescribed by the
Board of Directors.
(2) If the holders of Class I Shares which have been called for redemption
shall not within six years after such deposit claim the amount deposited for the
redemption thereof, any such bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon such bank or trust company and
the Corporation shall be relieved of all responsibility in respect thereof and to
such holders.
(c) Any Class I Shares which are (1) redeemed by the Corporation pursuant to
the provisions of this Section, (2) purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series, (3) converted in
accordance with the express terms thereof, or (4) otherwise acquired by the
Corporation shall resume the status of authorized but unissued Class I Shares
without serial designation.
(d) Except in connection with the exercise of the Corporations rights
pursuant to Section (d) of Item XIV of this Division A, Section 4(d) of Division B
or any similar Section hereafter contained in these Amended and Restated Articles
of Incorporation, as amended, with respect to any other class or series of capital
stock hereafter created or authorized, the Corporation may not purchase or redeem
(for sinking fund purposes or otherwise) less than all of the Class I Shares then
outstanding except in accordance with a stock purchase offer made to all holders of
record of Class I Shares, unless all dividends on all Class I
81
Shares then outstanding for all previous and current dividend periods shall
have been declared and paid or funds therefor set apart and all accrued sinking
fund obligations applicable thereto shall have been complied with.
Section 4.
Liquidation.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of Class I
Shares of any series shall be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or distributed
among the holders of the Common Shares or any other shares ranking junior to the
Class I Shares, the amounts fixed with respect to shares of such series in
accordance with Section 1 of this Item IX, plus an amount equal to all dividends
accrued and unpaid thereon to the date of payment of the amount due pursuant to
such liquidation, dissolution or winding up of the affairs of the Corporation. In
the event the net assets of the Corporation legally available therefor are
insufficient to permit the payment upon all outstanding Cumulative Shares and
Noncumulative Shares of the full preferential amount to which they are respectively
entitled, then such net assets shall be distributed ratably upon all outstanding
Cumulative Shares and Noncumulative Shares in proportion to the full preferential
amount to which each such share is entitled.
(2) After payment to the holders of Class I Shares of the full preferential
amounts as aforesaid, the holders of Class I Shares, as such, shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any other
Corporation, the merger of any other Corporation into it, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation shall not be
deemed to be a dissolution, liquidation or winding up for the purposes of this
Section.
Section 5.
Voting.
(a) The holders of Class I Shares shall have no voting rights, except as
provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in default in the
payment of dividends on any series of Class I Shares at the time outstanding,
whether or not earned or declared, for a number of dividend payment periods,
whether consecutive or not, which in the aggregate contain at least 540 days, all
holders of such Class I Shares, voting separately as a class, together with all
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 J Shares, Class K Shares and
Noncumulative Shares upon which like voting rights have been conferred and are
exercisable under the circumstances described in Subsection 5(c), shall be entitled
to elect, as herein provided, a total of two members of the Board of
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Directors of the Corporation; provided, however, that the holders of such
Class I Shares shall not exercise such special class voting rights except at
meetings of such shareholders for the election of directors at which the holders of
not less than 50% of such Class I Shares are present in person or by proxy; and
provided further that the special class voting rights provided for in this
paragraph when the same shall have become vested shall remain so vested until all
accrued and unpaid dividends on such Class I Shares then outstanding shall have
been paid or declared and a sum sufficient for the payment thereof set aside for
payment, whereupon the holders of such Class I Shares shall be divested of their
special class voting rights in respect of subsequent elections of directors,
subject to the revesting of such special class voting rights in the event above
specified in this paragraph. All dividend payments made on the Class I Shares, at
any time during which the Corporation is in default in the payment of dividends on
such Class I Shares for any dividend period, shall be deemed to be made in respect
of the earliest dividend period with respect to which the Corporation is in
default.
(2) In the event of default entitling holders of Class I Shares to elect two
directors as specified in paragraph (1) of this Subsection, a special meeting of
such holders for the purpose of electing such directors shall be called by the
Secretary of the Corporation upon written request of, or may be called by, the
holders of record of at least 10% of the Class I Shares upon which such default in
the payment of dividends exists and notice thereof shall be given in the same manner
as that required for the annual meeting of shareholders; provided, however, that the
Corporation shall not be required to call such special meeting if the annual meeting
of shareholders shall be called to be held within 90 days after the date of receipt
of the foregoing written request from the holders of Class I Shares. At any meeting
at which such holders of Class I Shares shall be entitled to elect directors, holders of 50% of such Class I Shares, present in person or by proxy, shall be sufficient to constitute a quorum,
and the vote of the holders of a majority of such shares so present at any such meeting at which there shall be such a quorum shall be sufficient to elect the members of the Board of Directors
which such holders of
Class I Shares are entitled to elect as herein provided. Notwithstanding any
provision of these Amended and Restated Articles of Incorporation, as amended, or
the Code of Regulations of the Corporation or any action taken by the holders of any
class of shares fixing the number of directors of the Corporation, the two directors
who may be elected by such holders of Class I Shares pursuant to this Subsection
shall serve in addition to any other directors then in office or proposed to be
elected otherwise than pursuant to this Subsection. Nothing in this Subsection
shall prevent any change otherwise permitted in the total number of or
classifications of directors of the Corporation or require the resignation of any
director elected otherwise than pursuant to this Subsection. Notwithstanding any
classification of the other directors of the Corporation, the two directors elected
by such holders of Class I Shares shall be elected annually for terms expiring at
the next succeeding annual meeting of shareholders.
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(3) Upon any divesting of the special class voting rights of the holders of the
Class I Shares in respect of elections of directors as provided in this Subsection,
the terms of office of all directors then in office elected by such holders shall
terminate immediately thereupon. If the office of any director elected by such
holders voting as a class becomes vacant by reason of death, resignation, removal
from office or otherwise, the remaining director elected by such holders voting as a
class may elect a successor who shall hold office for the unexpired term in respect
of which such vacancy occurred.
(c) If at any time when the holders of Class I Shares are entitled to elect
directors pursuant to the foregoing provisions of this Section the holders of any
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 J Shares, Class K Shares or
Noncumulative Shares are entitled to elect directors pursuant hereto by reason of
any default in the payment of dividends thereon, then the voting rights of the
Cumulative Shares and the Noncumulative Shares then entitled to vote shall be
combined (with each class of shares having a number of votes proportional to the
aggregate liquidation preference of its outstanding shares). In such case, the
holders of Class I Shares and of all such other shares then entitled so to vote, voting as a
class, shall elect such directors. If the holders of any such other shares have elected such directors prior to the happening of the default or event
permitting the holders of Class I Shares to elect directors, or prior to a written
request for the holding of a special meeting being received by the Secretary of the
Corporation as required above, then a new election shall be held with all such
other shares and the Class I Shares voting together as a single class for such
directors, resulting in the termination of the term of such previously elected
directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds of the Class I
Shares at the time outstanding, voting separately as a class, given in person or by
proxy either in writing or at a meeting called for the purpose, shall be necessary
to effect either of the following:
(1) Any amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the Amended and Restated Articles of
Incorporation, as amended, or of the Code of Regulations of the Corporation which
affects adversely and materially the preferences or voting or other rights of the
holders of Class I Shares which are set forth in these Amended and Restated Articles
of Incorporation, as amended; provided, however, neither the amendment of these
Amended and Restated Articles of Incorporation, as amended, so as to authorize,
create or change the authorized or outstanding number of Class I Shares or of any
shares ranking on a parity with or junior to the Class I Shares nor the amendment of
the provisions of the Code of Regulations so as to change the number or
classification of directors of the Corporation shall be deemed to affect adversely
and materially preferences or voting or other rights of the holders of Class I
Shares; or
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(2) The authorization, creation or increase in the authorized number of any
shares, or any security convertible into shares, in either case ranking prior to
such series of Class I Shares.
(e) In the event, and only to the extent, that (1) Class I Shares are issued
in more than one series and (2) Ohio law permits the holders of a series of a class
of capital stock to vote separately as a class, the affirmative vote of the holders
of at least two-thirds of each series of Class I Shares at the time outstanding,
voting separately as a class, given in person or by proxy either in writing or at a
meeting called for the purpose of voting on such matters, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or otherwise, of
any of the provisions of these Amended and Restated Articles of Incorporation, as
amended, or of the Code of Regulations of the Corporation which affects adversely
and materially the preferences or voting or other rights of the holders of such
series which are set forth in these Amended and Restated Articles of Incorporation,
as amended; provided, however, neither the amendment of these Amended and Restated
Articles of Incorporation, as amended, so as to authorize, create or change the
authorized or outstanding number of Class I Shares or of any shares ranking on a
parity with or junior to the Class I Shares nor the Amendment of the provisions of
the Code of Regulations so as to change the number or classification of directors
of the Corporation shall be deemed to affect adversely and materially the
preferences or voting or other rights of the holders of such series.
Section 6.
7.50% Class I Cumulative Redeemable Preferred Shares.
Of the 750,000
authorized Class I Shares, 345,000 shares are designated as a series entitled 7.50% Class I
Cumulative Redeemable Preferred Shares (hereinafter called 7.50% Class I Preferred
Shares). The 7.50% Class I Preferred Shares shall have the express terms set forth in this
Division as being applicable to all Class I Shares as a class and, in addition, the
following express terms applicable to all 7.50% Class I Preferred Shares as a series of
Class I Shares:
(a) The annual dividend rate of the 7.50% Class I Preferred Shares shall be
7.50% of the liquidation preference of $500.00 per share.
(b) Dividends on the 7.50% Class I Preferred Shares shall be payable, if
declared, quarterly in arrears on or about the fifteenth day of each January,
April, July, and October or, if not a business day, the next succeeding business
day, the first quarterly dividend being payable, if declared, on July 15, 2004. The
dividends payable for each full quarterly dividend period on each 7.50% Class I
Preferred Share shall be $9.375.
Dividends for the initial dividend period on the 7.50% Class I Preferred
Shares, or for any period shorter or longer than a full dividend period on the 7.50%
Class I Preferred Shares, shall be computed on the basis of a 360-day year
consisting of twelve 30-day months. The aggregate dividend payable quarterly to each
holder of 7.50% Class I Preferred Shares shall be rounded to the nearest one
85
one-hundredth of one cent with $.00005 being rounded upward. Each dividend shall be
payable to the holders of record on such record date, no less than 10 nor more than
30 days preceding the payment date thereof, as shall be fixed from time to time by
the Companys Board of Directors.
(c) Dividends on 7.50% Class I Preferred Shares shall be cumulative as follows:
(1) With respect to shares included in the initial issue of 7.50% Class I
Preferred Shares and shares issued any time thereafter up to and including the
record date for the payment of the first dividend on the initial issue of 7.50%
Class I Preferred Shares, dividends shall be cumulative from the date of the initial
issue of 7.50% Class I Preferred Shares; and
(2) With respect to shares issued any time after the aforesaid record date,
dividends shall be cumulative from the dividend payment date next preceding the date
of issue of such shares, except that if such shares are issued during the period
commencing the day after the record date for the payment of a dividend on 7.50%
Class I Preferred Shares and ending on the payment date of that dividend, dividends
with respect to such shares shall be cumulative from that dividend payment date.
(d) Except as required to preserve the Companys status as a real estate
investment trust under the Internal Revenue Code of 1986, as amended, the 7.50%
Class I Preferred Shares may not be redeemed prior to May 7, 2009. At any time or
from time to time on and after May 7, 2009 the Company, at its option upon not less
than thirty (30) nor more than sixty (60) days written notice, may redeem all or
any part of the 7.50% Class I Preferred Shares at a redemption price of $500.00 per
share plus, in each case, an amount equal to all dividends accrued and unpaid
thereon to the redemption date, without interest.
(e) The amount payable per 7.50% Class I Preferred Share in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs of
the Company shall be $500.00, plus an amount equal to all dividends accrued and
unpaid thereon to the date of payment.
(f) All dividend payments made on the 7.50% Class I Preferred Shares, at any
time during which the Company is in default in the payment of dividends on such
7.50% Class I Preferred Shares for any dividend period, shall, for the purposes of
Section 5(b)(1) of this Division A-IX, be deemed to be made in respect of the
earliest dividend period with respect to which the Company is in default.
X.
The Class J Cumulative Preferred Shares.
The Class J Shares shall have the following
express terms:
Section 1.
Series.
The Class J Shares may be issued from time to time in one or more
series. All Class J Shares shall be of equal rank and shall be identical, except in
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respect of the matters that may be fixed by the Board of Directors as hereinafter
provided, and each share of a series shall be identical with all other shares of such
series, except as to the dates from which dividends shall accrue and be cumulative. All
Class J Shares shall rank on a parity with 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 K Shares and Noncumulative Shares and shall be identical to all 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 K Shares and Noncumulative Shares
except (1) in respect of the matters that may be fixed by the Board of Directors as provided
in clauses (a) through (i), inclusive, of this Section 1 and (2) only dividends on
Cumulative Shares shall be cumulative as set forth herein. Subject to the provisions of
Sections 2 through 5, both inclusive, and Item XIII of this Division, which provisions shall
apply to all Class J Shares, the Board of Directors hereby is authorized to cause such
shares to be issued in one or more series and, with respect to each such series to determine
and fix prior to the issuance thereof (and thereafter, to the extent provided in clause (b)
of this Section), the following:
(a) The designation of the series, which may be by distinguishing number,
letter or title;
(b) The authorized number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase or decrease from time to time before or after the issuance thereof (but
not below the number of shares thereof then outstanding);
(c) The dividend rate or rates of the series, including the means by which
such rates may be established;
(d) The date or dates from which dividends shall accrue and be cumulative and
the dates on which and the period or periods for which dividends, if declared,
shall be payable, including the means by which such dates and periods may be
established;
(e) The redemption rights and price or prices, if any, for shares of the
series;
(f) The terms and amount of the sinking fund, if any, for the purchase or
redemption of shares of the series;
(g) The amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(h) Whether the shares of the series shall be convertible into Common Shares
or shares of any other class and, if so, the conversion rate or rates or price or
prices, any adjustments thereof and all other terms and conditions upon which such
conversion may be made; and
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(i) Restrictions (in addition to those set forth in Subsection 5(d) or 5(e) of
this Item X) on the issuance of shares of the same series or of any other class or
series.
The Board of Directors is authorized to adopt from time to time amendments to the Amended and
Restated Articles of Incorporation, as amended, fixing, with respect to each such series, the
matters described in clauses (a) through (i), inclusive, of this Section and is authorized to take
such actions with respect thereto as may be required by law in order to effect such amendments.
Section 2.
Dividends.
(a) The holders of Class J Shares of each series, in preference to the holders
of Common Shares and of any other class of shares ranking junior to the Class J
Shares, shall be entitled to receive out of any funds legally available therefor,
and when and as declared by the Board of Directors, dividends in cash at the rate
or rates for such series fixed in accordance with the provisions of Section 1 above
and no more, payable on the dates fixed for such series. Such dividends shall
accrue and be cumulative, in the case of shares of each particular series, from and
after the date or dates fixed with respect to such series. No dividends shall be
paid upon or declared or set apart for any series of the Class J Shares for any
dividend period unless at the same time (i) a like proportionate dividend for the
dividend periods terminating on the same or any earlier date, ratably in proportion
to the respective annual dividend rates fixed therefor, shall have been paid upon
or declared or set apart for all Class J Shares of all series then issued and
outstanding and entitled to receive such dividend and (ii) the dividends payable
for the dividend periods terminating on the same or any earlier date (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,
shall have been paid upon or declared or set apart for all 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 K Shares and Noncumulative Shares
then issued and outstanding and entitled to receive such dividends.
(b) So long as any Class J Shares shall be outstanding no dividend, except a
dividend payable in Common Shares or other shares ranking junior to the Class J
Shares, shall be paid or declared or any distribution be made, except as aforesaid,
in respect of the Common Shares or any other shares ranking junior to the Class J
Shares, nor shall any Common Shares or any other shares ranking junior to the Class
J Shares be purchased, retired or otherwise acquired by the Corporation, except out
of the proceeds of the sale of Common Shares or other shares of the Corporation
ranking junior to the Class J Shares received by the Corporation subsequent to the
date of first issuance of Class J Shares of any series, unless:
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(1) All accrued and unpaid dividends on Cumulative Shares, including the full
dividends for all current dividend periods, shall have been declared and paid or a
sum sufficient for payment thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the then current dividend
period shall have been declared and paid or a sum sufficient for payment therefor
set apart; and
(3) There shall be no arrearages with respect to the redemption of Cumulative
Shares or Noncumulative Shares of any series from any sinking fund provided for
shares of such series in accordance with the provisions of Section 1 of this Item X.
(c) The foregoing 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 on a parity with or junior to the
Class J Shares shall be inapplicable to (i) any payments in lieu of issuance of
fractional shares thereof, whether upon any merger, conversion, stock dividend or
otherwise, (ii) the conversion of Cumulative Shares or Noncumulative Shares into
Common Shares, or (iii) the exercise by the Corporation of its rights pursuant to
Item XIV(d) of this Division A, Section 4(d) of Division B or any similar Section
hereafter contained in these Amended and Restated Articles of Incorporation, as
amended, with respect to any other class or series of capital stock hereafter
created or authorized.
(d) If, for any taxable year, the Corporation elects to designate as capital
gain dividends (as defined in Section 857 of the Code) any portion (the Capital
Gains Amount) of the dividends paid or made available for the year to holders of
all classes of stock (the Total Dividends), then, to the extent permissible under
the Code and to the extent it does not cause any dividends to fail to qualify for
the dividends paid deduction under Section 561 of the Code, the portion of the
Capital Gains Amount that shall be allocable to holders of the Class J Shares shall
be the amount that the total dividends paid or made available to the holders of the
Class J Shares for the year bears to the Total Dividends.
Section 3.
Redemption.
(a) Subject to the express terms of each series, the Corporation:
(1) May, from time to time at the option of the Board of Directors, redeem all
or any part of any redeemable series of Class J Shares at the time outstanding at
the applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Item X; and
(2) Shall, from time to time, make such redemptions of each series of Class J
Shares as may be required to fulfill the requirements of any sinking fund provided
for shares of such series at the applicable sinking fund redemption price
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fixed in accordance with the provisions of Section 1 of this Item X; and shall
in each case pay all accrued and unpaid dividends to the redemption date.
(b) (1) Notice of every such redemption shall be mailed, postage prepaid,
to the holders of record of the Class J Shares to be redeemed at their respective
addresses then appearing on the books of the Corporation, not less than 30 days nor
more than 60 days prior to the date fixed for such redemption, or such other time
prior thereto as the Board of Directors shall fix for any series pursuant to
Section 1 of this Item X prior to the issuance thereof. At any time after notice
as provided above has been deposited in the mail, the Corporation may deposit the
aggregate redemption price of Class J Shares to be redeemed, together with accrued
and unpaid dividends thereon to the redemption date, with any bank or trust company
in Cleveland, Ohio, or New York, New York, having capital and surplus of not less
than $100,000,000 named in such notice and direct that there be paid to the
respective holders of the Class J Shares so to be redeemed amounts equal to the
redemption price of the Class J Shares so to be redeemed, together with such
accrued and unpaid dividends thereon, on surrender of the share certificate or
certificates held by such holders; and upon the deposit of such notice in the mail
and the making of such deposit of money with such bank or trust company, such
holders shall cease to be shareholders with respect to such shares; and from and
after the time such notice shall have been so deposited and such deposit of money
shall have been so made, such holders shall have no rights or claim against the
Corporation with respect to such shares, except only the right to receive such
money from such bank or trust company without interest or to exercise before the
redemption date any unexpired privileges of conversion. In the event less than all
of the outstanding Class J Shares are to be redeemed, the Corporation shall select
by lot the shares so to be redeemed in such manner as shall be prescribed by the
Board of Directors.
(2) If the holders of Class J Shares which have been called for redemption
shall not within six years after such deposit claim the amount deposited for the
redemption thereof, any such bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon such bank or trust company and
the Corporation shall be relieved of all responsibility in respect thereof and to
such holders.
(c) Any Class J Shares which are (1) redeemed by the Corporation pursuant to
the provisions of this Section, (2) purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series, (3) converted in
accordance with the express terms thereof, or (4) otherwise acquired by the
Corporation shall resume the status of authorized but unissued Class J Shares
without serial designation.
(d) Except in connection with the exercise of the Corporations rights
pursuant to Section (d) of Item XIV of this Division A, Section 4(d) of Division B
or any similar Section hereafter contained in these Amended and Restated
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Articles of Incorporation, as amended, with respect to any other class or
series of capital stock hereafter created or authorized, the Corporation may not
purchase or redeem (for sinking fund purposes or otherwise) less than all of the
Class J Shares then outstanding except in accordance with a stock purchase offer
made to all holders of record of Class J Shares, unless all dividends on all Class
J Shares then outstanding for all previous and current dividend periods shall have
been declared and paid or funds therefor set apart and all accrued sinking fund
obligations applicable thereto shall have been complied with.
Section 4.
Liquidation.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of Class J
Shares of any series shall be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or distributed
among the holders of the Common Shares or any other shares ranking junior to the
Class J Shares, the amounts fixed with respect to shares of such series in
accordance with Section 1 of this Item X, plus an amount equal to all dividends
accrued and unpaid thereon to the date of payment of the amount due pursuant to
such liquidation, dissolution or winding up of the affairs of the Corporation. In
the event the net assets of the Corporation legally available therefor are
insufficient to permit the payment upon all outstanding Cumulative Shares and
Noncumulative Shares of the full preferential amount to which they are respectively
entitled, then such net assets shall be distributed ratably upon all outstanding
Cumulative Shares and Noncumulative Shares in proportion to the full preferential
amount to which each such share is entitled.
(2) After payment to the holders of Class J Shares of the full preferential
amounts as aforesaid, the holders of Class J Shares, as such, shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any other
Corporation, the merger of any other Corporation into it, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation shall not be
deemed to be a dissolution, liquidation or winding up for the purposes of this
Section.
Section 5.
Voting.
(a) The holders of Class J Shares shall have no voting rights, except as
provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in default in the
payment of dividends on any series of Class J Shares at the time outstanding,
whether or not earned or declared, for a number of dividend payment periods,
whether consecutive or not, which in the aggregate contain at least 540 days, all
holders of such Class J Shares, voting separately as a class, together with all
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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 K
Shares and Noncumulative Shares upon which like voting rights have been conferred
and are exercisable under the circumstances described in Subsection 5(c), shall be
entitled to elect, as herein provided, a total of two members of the Board of
Directors of the Corporation; provided, however, that the holders of such Class J
Shares shall not exercise such special class voting rights except at meetings of
such shareholders for the election of directors at which the holders of not less
than 50% of such Class J Shares are present in person or by proxy; and provided
further that the special class voting rights provided for in this paragraph when
the same shall have become vested shall remain so vested until all accrued and
unpaid dividends on such Class J Shares then outstanding shall have been paid or
declared and a sum sufficient for the payment thereof set aside for payment,
whereupon the holders of such Class J Shares shall be divested of their special
class voting rights in respect of subsequent elections of directors, subject to the
revesting of such special class voting rights in the event above specified in this
paragraph. All dividend payments made on the Class J Shares, at any time during
which the Corporation is in default in the payment of dividends on such Class J
Shares for any dividend period, shall be deemed to be made in respect of the
earliest dividend period with respect to which the Corporation is in default.
(2) In the event of default entitling holders of Class J Shares to elect two
directors as specified in paragraph (1) of this Subsection, a special meeting of
such holders for the purpose of electing such directors shall be called by the
Secretary of the Corporation upon written request of, or may be called by, the
holders of record of at least 10% of the Class J Shares upon which such default in
the payment of dividends exists and notice thereof shall be given in the same manner
as that required for the annual meeting of shareholders; provided, however, that the
Corporation shall not be required to call such special meeting if the annual meeting
of shareholders shall be called to be held within 90 days after the date of receipt
of the foregoing written request from the holders of Class J Shares. At any meeting
at which such holders of Class J Shares shall be entitled to elect directors,
holders of 50% of such Class J Shares, present in person or by proxy, shall be
sufficient to constitute a quorum, and the vote of the holders of a majority of such shares so present at any such meeting at which there shall be such a quorum shall be
sufficient to elect the members of the Board of Directors which such holders of
Class J Shares are entitled to elect as herein provided. Notwithstanding any
provision of these Amended and Restated Articles of Incorporation, as amended, or
the Code of Regulations of the Corporation or any action taken by the holders of any
class of shares fixing the number of directors of the Corporation, the two directors
who may be elected by such holders of Class J Shares pursuant to this Subsection
shall serve in addition to any other directors then in office or proposed to be
elected otherwise than pursuant to this Subsection. Nothing in this Subsection
shall prevent any change otherwise permitted in the total number of or
classifications of directors of the Corporation or require the resignation of any
director elected otherwise than pursuant to this Subsection. Notwithstanding any
classification of the other directors of the
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Corporation, the two directors elected by such holders of Class J Shares shall
be elected annually for terms expiring at the next succeeding annual meeting of
shareholders.
(3) Upon any divesting of the special class voting rights of the holders of the
Class J Shares in respect of elections of directors as provided in this Subsection,
the terms of office of all directors then in office elected by such holders shall
terminate immediately thereupon. If the office of any director elected by such
holders voting as a class becomes vacant by reason of death, resignation, removal
from office or otherwise, the remaining director elected by such holders voting as a
class may elect a successor who shall hold office for the unexpired term in respect
of which such vacancy occurred.
(c) If at any time when the holders of Class J Shares are entitled to elect
directors pursuant to the foregoing provisions of this Section the holders of any
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 K Shares or
Noncumulative Shares are entitled to elect directors pursuant hereto by reason of
any default in the payment of dividends thereon, then the voting rights of the
Cumulative Shares and the Noncumulative Shares then entitled to vote shall be
combined (with each class of shares having a number of votes proportional to the
aggregate liquidation preference of its outstanding shares). In such case, the
holders of Class J Shares and of all such other shares then entitled so to vote,
voting as a class, shall elect such directors. If the holders of any such other
shares have elected such directors prior to the happening of the default or event
permitting the holders of Class J Shares to elect directors, or prior to a written
request for the holding of a special meeting being received by the Secretary of the
Corporation as required above, then a new election shall be held with all such
other shares and the Class J Shares voting together as a single class for such
directors, resulting in the termination of the term of such previously elected
directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds of the Class J
Shares at the time outstanding, voting separately as a class, given in person or by
proxy either in writing or at a meeting called for the purpose, shall be necessary
to effect either of the following:
(1) Any amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the Amended and Restated Articles of
Incorporation, as amended, or of the Code of Regulations of the Corporation which
affects adversely and materially the preferences or voting or other rights of the
holders of Class J Shares which are set forth in these Amended and Restated Articles
of Incorporation, as amended; provided, however, neither the amendment of these
Amended and Restated Articles of Incorporation, as amended, so as to authorize,
create or change the authorized or outstanding number of Class J Shares or of any shares ranking on a parity with or junior to the Class J Shares nor the amendment of
the provisions of the Code of Regulations so
93
as to change the number or classification of directors of the Corporation shall
be deemed to affect adversely and materially preferences or voting or other rights
of the holders of Class J Shares; or
(2) The authorization, creation or increase in the authorized number of any shares, or any security convertible into shares, in either case ranking prior to
such series of Class J Shares.
(e) In the event, and only to the extent, that (1) Class J Shares are issued
in more than one series and (2) Ohio law permits the holders of a series of a class
of capital stock to vote separately as a class, the affirmative vote of the holders
of at least two-thirds of each series of Class J Shares at the time outstanding,
voting separately as a class, given in person or by proxy either in writing or at a
meeting called for the purpose of voting on such matters, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or otherwise, of
any of the provisions of these Amended and Restated Articles of Incorporation, as
amended, or of the Code of Regulations of the Corporation which affects adversely
and materially the preferences or voting or other rights of the holders of such
series which are set forth in these Amended and Restated Articles of Incorporation,
as amended; provided, however, neither the amendment of these Amended and Restated
Articles of Incorporation, as amended, so as to authorize, create or change the
authorized or outstanding number of Class J Shares or of any shares ranking on a
parity with or junior to the Class J Shares nor the Amendment of the provisions of
the Code of Regulations so as to change the number or classification of directors
of the Corporation shall be deemed to affect adversely and materially the
preferences or voting or other rights of the holders of such series.
Section 6.
9% Class J Cumulative Redeemable Preferred Shares
. Of the 750,000
authorized Class J Shares, 450,000 shares are designated as a series entitled 9% Class J
Cumulative Redeemable Preferred Shares (hereinafter called 9% Class J Preferred Shares).
The 9% Class J Preferred Share shall have the express terms set forth in this Division as
being applicable to all Class J Preferred Shares as a class and, in addition, the following
express terms applicable to all 9% Class J Preferred Shares as a series of Class J Shares:
(a) The annual dividend rate of the 9% Class J Preferred Shares shall be 9% of
the liquidation preference of $250.00 per share.
(b) Dividends on the 9% Class J Preferred Shares shall be payable, if
declared, quarterly on or about the fifteenth day of January, April, July and
October. The dividends payable for each full quarterly dividend period on each 9%
Class J Preferred Share shall be $5.625. Dividends for any period shorter or
longer than a full dividend period on the 9% Class J Preferred Shares, shall be
computed on the basis of a 360-day year consisting of twelve 30-day months. The
aggregate dividend payable quarterly to each holder of 9% Class J Preferred Shares
shall be rounded to the nearest one-hundredth of one cent with $.00005
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being rounded upward. Each dividend shall be payable to the holders of record
on such record date, no less than 10 nor more than 30 days preceding the payment
date thereof, as shall be fixed from time to time by the Corporations Board of
Directors.
(c) Dividends on 9% Class J Preferred Shares shall be cumulative as follows:
(1) With respect to shares included in the initial issue of 9% Class J
Preferred Shares and shares issued any time thereafter up to and including the
record date for the payment of the first dividend on the initial issue of 9% Class J
Preferred Shares, dividends shall be cumulative from the date of the initial issue
of 9% Class J Preferred Shares; and
(2) With respect to shares issued any time after the aforesaid record date,
dividends shall be cumulative from the dividend payment date next preceding the date
of issue of such shares, except that if such shares are issued during the period
commencing the day after the record date for the payment of a dividend on 9% Class J
Preferred Shares and ending on the payment date of that dividend, dividends with
respect to such shares shall be cumulative from that dividend payment date.
(d) The Corporation may, at any time or from time to time on, at its option
upon not less than thirty (30) nor more than sixty (60) days written notice, may
redeem all or any part of the 9% Class J Preferred Shares at a redemption price of
$250.00 per share plus, in each case, an amount equal to all dividends accrued and
unpaid thereon to the redemption date, without interest. The redemption price
(other than the portion thereof consisting of accrued and unpaid dividends) is
payable solely out of the sale proceeds of other capital shares of the Corporation,
which may include any equity securities (including common shares and preferred
shares), shares, interests, participation or other ownership interests (however
designated) and any rights (other than debt securities convertible into or
exchangeable for equity securities), or options to purchase any of the foregoing.
(e) The amount payable per 9% Class J Preferred Share in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs of
the Corporation shall be $250.00, plus an amount equal to all dividends accrued and
unpaid thereon to the date of payment.
(f) The affirmative vote of the holders of at least two-thirds of the Class J
Preferred Shares at the time outstanding, voting separately as a class, given in
person or by proxy either in writing or at a meeting called for the purpose, shall
be necessary to effect the authorization, creation, increase in the authorized
number of or issuance of any shares, or any security convertible into or
exchangeable for shares, in any such case ranking prior to such series of Class J
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Preferred Shares in dividends, distributions or rights upon liquidation,
dissolution or winding up.
XI.
The Class K Cumulative Preferred Shares.
The Class K Shares shall have the following
express terms:
Section 1.
Series.
The Class K Shares may be issued from time to time in one or more
series. All Class K Shares shall be of equal rank and shall be identical, except in respect
of the matters that may be fixed by the Board of Directors as hereinafter provided, and each
share of a series shall be identical with all other shares of such series, except as to the
dates from which dividends shall accrue and be cumulative. All Class K Shares shall rank on
a parity with 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
Noncumulative Shares and shall be identical to all 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 Noncumulative Shares except (1) in respect of the matters
that may be fixed by the Board of Directors as provided in clauses (a) through (i),
inclusive, of this Section 1 and (2) only dividends on Cumulative Shares shall be cumulative
as set forth herein. Subject to the provisions of Sections 2 through 5, both inclusive, and
Item XIII of this Division, which provisions shall apply to all Class K Shares, the Board of
Directors hereby is authorized to cause such shares to be issued in one or more series and,
with respect to each such series to determine and fix prior to the issuance thereof (and
thereafter, to the extent provided in clause (b) of this Section), the following:
(a) The designation of the series, which may be by distinguishing number,
letter or title;
(b) The authorized number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase or decrease from time to time before or after the issuance thereof (but
not below the number of shares thereof then outstanding);
(c) The dividend rate or rates of the series, including the means by which
such rates may be established;
(d) The date or dates from which dividends shall accrue and be cumulative and
the dates on which and the period or periods for which dividends, if declared,
shall be payable, including the means by which such dates and periods may be
established;
(e) The redemption rights and price or prices, if any, for shares of the
series;
(f) The terms and amount of the sinking fund, if any, for the purchase or
redemption of shares of the series;
96
(g) The amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(h) Whether the shares of the series shall be convertible into Common Shares
or shares of any other class and, if so, the conversion rate or rates or price or
prices, any adjustments thereof and all other terms and conditions upon which such
conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection 5(d) or 5(e) of
this Item XI) on the issuance of shares of the same series or of any other class or
series.
The Board of Directors is authorized to adopt from time to time amendments to the Amended and
Restated Articles of Incorporation, as amended, fixing, with respect to each such series, the
matters described in clauses (a) through (i), inclusive, of this Section and is authorized to take
such actions with respect thereto as may be required by law in order to effect such amendments.
Section 2.
Dividends.
(a) The holders of Class K Shares of each series, in preference to the holders
of Common Shares and of any other class of shares ranking junior to the Class K
Shares, shall be entitled to receive out of any funds legally available therefor,
and when and as declared by the Board of Directors, dividends in cash at the rate
or rates for such series fixed in accordance with the provisions of Section 1 above
and no more, payable on the dates fixed for such series. Such dividends shall
accrue and be cumulative, in the case of shares of each particular series, from and
after the date or dates fixed with respect to such series. No dividends shall be
paid upon or declared or set apart for any series of the Class K Shares for any
dividend period unless at the same time (i) a like proportionate dividend for the
dividend periods terminating on the same or any earlier date, ratably in proportion
to the respective annual dividend rates fixed therefor, shall have been paid upon
or declared or set apart for all Class K Shares of all series then issued and
outstanding and entitled to receive such dividend and (ii) the dividends payable
for the dividend periods terminating on the same or any earlier date (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,
shall have been paid upon or declared or set apart for all 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 Noncumulative Shares
then issued and outstanding and entitled to receive such dividends.
(b) So long as any Class K Shares shall be outstanding no dividend, except a
dividend payable in Common Shares or other shares ranking junior to the Class K
Shares, shall be paid or declared or any distribution be made, except
97
as aforesaid, in respect of the Common Shares or any other shares ranking
junior to the Class K Shares, nor shall any Common Shares or any other shares
ranking junior to the Class K Shares be purchased, retired or otherwise acquired by
the Corporation, except out of the proceeds of the sale of Common Shares or other
shares of the Corporation ranking junior to the Class K Shares received by the
Corporation subsequent to the date of first issuance of Class K Shares of any
series, unless:
(1) All accrued and unpaid dividends on Cumulative Shares, including the full
dividends for all current dividend periods, shall have been declared and paid or a
sum sufficient for payment thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the then current dividend
period shall have been declared and paid or a sum sufficient for payment therefor
set apart; and
(3) There shall be no arrearages with respect to the redemption of Cumulative
Shares or Noncumulative Shares of any series from any sinking fund provided for
shares of such series in accordance with the provisions of Section 1 of this Item
XI.
(c) The foregoing 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 on a parity with or junior to the
Class K Shares shall be inapplicable to (i) any payments in lieu of issuance of
fractional shares thereof, whether upon any merger, conversion, stock dividend or
otherwise, (ii) the conversion of Cumulative Shares or Noncumulative Shares into
Common Shares, or (iii) the exercise by the Corporation of its rights pursuant to
Item XIV(d) of this Division A, Section 4(d) of Division B or any similar Section
hereafter contained in these Amended and Restated Articles of Incorporation, as
amended, with respect to any other class or series of capital stock hereafter
created or authorized.
(d) If, for any taxable year, the Corporation elects to designate as capital
gain dividends (as defined in Section 857 of the Code) any portion (the Capital
Gains Amount) of the dividends paid or made available for the year to holders of
all classes of stock (the Total Dividends), then, to the extent permissible under
the Code and to the extent it does not cause any dividends to fail to qualify for
the dividends paid deduction under Section 561 of the Code, the portion of the
Capital Gains Amount that shall be allocable to holders of the Class K Shares shall
be the amount that the total dividends paid or made available to the holders of the
Class K Shares for the year bears to the Total Dividends.
Section 3.
Redemption.
(a) Subject to the express terms of each series, the Corporation:
98
(1) May, from time to time at the option of the Board of Directors, redeem all
or any part of any redeemable series of Class K Shares at the time outstanding at
the applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Item XI; and
(2) Shall, from time to time, make such redemptions of each series of Class K
Shares as may be required to fulfill the requirements of any sinking fund provided
for shares of such series at the applicable sinking fund redemption price fixed in
accordance with the provisions of Section 1 of this Item XI; and shall in each case
pay all accrued and unpaid dividends to the redemption date.
(b) (1) Notice of every such redemption shall be mailed, postage prepaid,
to the holders of record of the Class K Shares to be redeemed at their respective
addresses then appearing on the books of the Corporation, not less than 30 days nor
more than 60 days prior to the date fixed for such redemption, or such other time
prior thereto as the Board of Directors shall fix for any series pursuant to
Section 1 of this Item XI prior to the issuance thereof. At any time after notice
as provided above has been deposited in the mail, the Corporation may deposit the
aggregate redemption price of Class K Shares to be redeemed, together with accrued
and unpaid dividends thereon to the redemption date, with any bank or trust company
in Cleveland, Ohio, or New York, New York, having capital and surplus of not less
than $100,000,000 named in such notice and direct that there be paid to the
respective holders of the Class K Shares so to be redeemed amounts equal to the
redemption price of the Class K Shares so to be redeemed, together with such
accrued and unpaid dividends thereon, on surrender of the share certificate or
certificates held by such holders; and upon the deposit of such notice in the mail
and the making of such deposit of money with such bank or trust company, such
holders shall cease to be shareholders with respect to such shares; and from and
after the time such notice shall have been so deposited and such deposit of money
shall have been so made, such holders shall have no rights or claim against the
Corporation with respect to such shares, except only the right to receive such
money from such bank or trust company without interest or to exercise before the
redemption date any unexpired privileges of conversion. In the event less than all
of the outstanding Class K Shares are to be redeemed, the Corporation shall select
by lot the shares so to be redeemed in such manner as shall be prescribed by the
Board of Directors.
(2) If the holders of Class K Shares which have been called for redemption
shall not within six years after such deposit claim the amount deposited for the
redemption thereof, any such bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon such bank or trust company and
the Corporation shall be relieved of all responsibility in respect thereof and to
such holders.
(c) Any Class K Shares which are (1) redeemed by the Corporation pursuant to
the provisions of this Section, (2) purchased and delivered in
99
satisfaction of any sinking fund requirements provided for shares of such
series, (3) converted in accordance with the express terms thereof, or (4)
otherwise acquired by the Corporation shall resume the status of authorized but
unissued Class K Shares without serial designation.
(d) Except in connection with the exercise of the Corporations rights
pursuant to Section (d) of Item XIV of this Division A, Section 4(d) of Division B
or any similar Section hereafter contained in these Amended and Restated Articles
of Incorporation, as amended, with respect to any other class or series of capital
stock hereafter created or authorized, the Corporation may not purchase or redeem
(for sinking fund purposes or otherwise) less than all of the Class K Shares then
outstanding except in accordance with a stock purchase offer made to all holders of
record of Class K Shares, unless all dividends on all Class K Shares then
outstanding for all previous and current dividend periods shall have been declared
and paid or funds therefor set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
Section 4.
Liquidation.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of Class K
Shares of any series shall be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or distributed
among the holders of the Common Shares or any other shares ranking junior to the
Class K Shares, the amounts fixed with respect to shares of such series in
accordance with Section 1 of this Item XI, plus an amount equal to all dividends
accrued and unpaid thereon to the date of payment of the amount due pursuant to
such liquidation, dissolution or winding up of the affairs of the Corporation. In
the event the net assets of the Corporation legally available therefor are
insufficient to permit the payment upon all outstanding Cumulative Shares and
Noncumulative Shares of the full preferential amount to which they are respectively
entitled, then such net assets shall be distributed ratably upon all outstanding
Cumulative Shares and Noncumulative Shares in proportion to the full preferential
amount to which each such share is entitled.
(2) After payment to the holders of Class K Shares of the full preferential
amounts as aforesaid, the holders of Class K Shares, as such, shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any other
Corporation, the merger of any other Corporation into it, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation shall not be
deemed to be a dissolution, liquidation or winding up for the purposes of this
Section.
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Section 5.
Voting
.
(a) The holders of Class K Shares shall have no voting rights, except as
provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in default in the
payment of dividends on any series of Class K Shares at the time outstanding,
whether or not earned or declared, for a number of dividend payment periods,
whether consecutive or not, which in the aggregate contain at least 540 days, all
holders of such Class K Shares, voting separately as a class, together with all
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
Noncumulative Shares upon which like voting rights have been conferred and are
exercisable under the circumstances described in Subsection 5(c), shall be entitled
to elect, as herein provided, a total of two members of the Board of Directors of
the Corporation; provided, however, that the holders of such Class K Shares shall
not exercise such special class voting rights except at meetings of such
shareholders for the election of directors at which the holders of not less than
50% of such Class K Shares are present in person or by proxy; and provided further
that the special class voting rights provided for in this paragraph when the same
shall have become vested shall remain so vested until all accrued and unpaid
dividends on such Class K Shares then outstanding shall have been paid or declared
and a sum sufficient for the payment thereof set aside for payment, whereupon the
holders of such Class K Shares shall be divested of their special class voting
rights in respect of subsequent elections of directors, subject to the revesting of
such special class voting rights in the event above specified in this paragraph.
All dividend payments made on the Class K Shares, at any time during which the
Corporation is in default in the payment of dividends on such Class K Shares for
any dividend period, shall be deemed to be made in respect of the earliest dividend
period with respect to which the Corporation is in default.
(2) In the event of default entitling holders of Class K Shares to elect two
directors as specified in paragraph (1) of this Subsection, a special meeting of
such holders for the purpose of electing such directors shall be called by the
Secretary of the Corporation upon written request of, or may be called by, the
holders of record of at least 10% of the Class K Shares upon which such default in
the payment of dividends exists and notice thereof shall be given in the same manner
as that required for the annual meeting of shareholders; provided, however, that the
Corporation shall not be required to call such special meeting if the annual meeting
of shareholders shall be called to be held within 90 days after the date of receipt
of the foregoing written request from the holders of Class K Shares. At any meeting
at which such holders of Class K Shares shall be entitled to elect directors,
holders of 50% of such Class K Shares, present in person or by proxy, shall be
sufficient to constitute a quorum, and the vote of the holders of a majority of such shares so present at any such meeting at which there shall be such a quorum shall be
sufficient to elect the members of the Board of Directors which such holders of
Class K Shares are entitled to elect as herein provided. Notwithstanding any
provision of these Amended and Restated Articles of Incorporation, as amended, or
the Code of Regulations of the Corporation or any
101
action taken by the holders of any class of shares fixing the number of
directors of the Corporation, the two directors who may be elected by such holders
of Class K Shares pursuant to this Subsection shall serve in addition to any other
directors then in office or proposed to be elected otherwise than pursuant to this
Subsection. Nothing in this Subsection shall prevent any change otherwise permitted
in the total number of or classifications of directors of the Corporation or require
the resignation of any director elected otherwise than pursuant to this Subsection.
Notwithstanding any classification of the other directors of the Corporation, the
two directors elected by such holders of Class K Shares shall be elected annually
for terms expiring at the next succeeding annual meeting of shareholders.
(3) Upon any divesting of the special class voting rights of the holders of the
Class K Shares in respect of elections of directors as provided in this Subsection,
the terms of office of all directors then in office elected by such holders shall
terminate immediately thereupon. If the office of any director elected by such
holders voting as a class becomes vacant by reason of death, resignation, removal
from office or otherwise, the remaining director elected by such holders voting as a
class may elect a successor who shall hold office for the unexpired term in respect
of which such vacancy occurred.
(c) If at any time when the holders of Class K Shares are entitled to elect
directors pursuant to the foregoing provisions of this Section the holders of any
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 or
Noncumulative Shares are entitled to elect directors pursuant hereto by reason of
any default in the payment of dividends thereon, then the voting rights of the
Cumulative Shares and the Noncumulative Shares then entitled to vote shall be
combined (with each class of shares having a number of votes proportional to the
aggregate liquidation preference of its outstanding shares). In such case, the
holders of Class K Shares and of all such other shares then entitled so to vote,
voting as a class, shall elect such directors. If the holders of any such other
shares have elected such directors prior to the happening of the default or event
permitting the holders of Class K Shares to elect directors, or prior to a written
request for the holding of a special meeting being received by the Secretary of the
Corporation as required above, then a new election shall be held with all such
other shares and the Class K Shares voting together as a single class for such
directors, resulting in the termination of the term of such previously elected
directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds of the Class K
Shares at the time outstanding, voting separately as a class, given in person or by
proxy either in writing or at a meeting called for the purpose, shall be necessary
to effect either of the following:
(1) Any amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the Amended and Restated
102
Articles of Incorporation, as amended, or of the Code of Regulations of the
Corporation which affects adversely and materially the preferences or voting or
other rights of the holders of Class K Shares which are set forth in these Amended
and Restated Articles of Incorporation, as amended; provided, however, neither the
amendment of these Amended and Restated Articles of Incorporation, as amended, so as
to authorize, create or change the authorized or outstanding number of Class K
Shares or of any shares ranking on a parity with or junior to the Class K Shares nor
the amendment of the provisions of the Code of Regulations so as to change the
number or classification of directors of the Corporation shall be deemed to affect
adversely and materially preferences or voting or other rights of the holders of
Class K Shares; or
(2) The authorization, creation or
increase in the authorized number of any shares, or any security convertible into shares, in either case ranking prior to
such series of Class K Shares.
(e) In the event, and only to the extent, that (1) Class K Shares are issued
in more than one series and (2) Ohio law permits the holders of a series of a class
of capital stock to vote separately as a class, the affirmative vote of the holders
of at least two-thirds of each series of Class K Shares at the time outstanding,
voting separately as a class, given in person or by proxy either in writing or at a
meeting called for the purpose of voting on such matters, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or otherwise, of
any of the provisions of these Amended and Restated Articles of Incorporation, as
amended, or of the Code of Regulations of the Corporation which affects adversely
and materially the preferences or voting or other rights of the holders of such
series which are set forth in these Amended and Restated Articles of Incorporation,
as amended; provided, however, neither the amendment of these Amended and Restated
Articles of Incorporation, as amended, so as to authorize, create or change the
authorized or outstanding number of Class K Shares or of any shares ranking on a
parity with or junior to the Class K Shares nor the Amendment of the provisions of
the Code of Regulations so as to change the number or classification of directors
of the Corporation shall be deemed to affect adversely and materially the
preferences or voting or other rights of the holders of such series.
Section 6.
8
7
/
8
% Class K Cumulative Redeemable Preferred Shares
.
Of the 750,000 authorized Class K Shares, 350,000 shares are designated as a series entitled
8
7
/
8
% Class K Cumulative Redeemable Preferred Shares (hereinafter
called 8
7
/
8
% Class K Preferred Shares). The
8
7
/
8
% Class K Preferred Shares shall have the express terms set forth
in this Division as being applicable to all Class K Preferred Shares as a class and, in
addition, the following express terms applicable to all 8
7
/
8
% Class K
Preferred Shares as a series of Class K Shares:
(a) The annual dividend rate of the 8
7
/
8
% Class K
Preferred Shares shall be 8
7
/
8
% of the liquidation preference
of $250.00 per share.
103
(b) Dividends on the 8
7
/
8
% Class K Preferred Shares
shall be payable, if declared, quarterly on or about the fifteenth day of January,
April, July and October. The dividends payable for each full quarterly dividend
period on each 8
7
/
8
% Class K Preferred Share shall be
$5.546875. Dividends for any period shorter or longer than a full dividend period
on the 8
7
/
8
% Class K Preferred Shares, shall be computed on
the basis of a 360-day year consisting of twelve 30-day months. The aggregate
dividend payable quarterly to each holder of 8
7
/
8
% Class K
Preferred Shares shall be rounded to the nearest one-hundredth of one cent with
$.00005 being rounded upward. Each dividend shall be payable to the holders of
record on such record date, no less than 10 nor more than 30 days preceding the
payment date thereof, as shall be fixed from time to time by the Corporations
Board of Directors.
(c) Dividends on 8
7
/
8
% Class K Preferred Shares shall be
cumulative as follows:
(1) With respect to shares included in the initial issue of
8
7
/
8
% Class K Preferred Shares and shares issued any time
thereafter up to and including the record date for the payment of the first dividend
on the initial issue of 8
7
/
8
% Class K Preferred Shares,
dividends shall be cumulative from the date of the initial issue of
8
7
/
8
% Class K Preferred Shares; and
(2) With respect to shares issued any time after the aforesaid record date,
dividends shall be cumulative from the dividend payment date next preceding the date
of issue of such shares, except that if such shares are issued during the period
commencing the day after the record date for the payment of a dividend on
8
7
/
8
% Class K Preferred Shares and ending on the payment date
of that dividend, dividends with respect to such shares shall be cumulative from
that dividend payment date.
(d) The Corporation may, at any time or from time to time on, at its option
upon not less than thirty (30) nor more than sixty (60) days written notice,
redeem all or any part of the 8
7
/
8
% Class K Preferred Shares
at a redemption price of $250.00 per share plus, in each case, an amount equal to
all dividends accrued and unpaid thereon to the redemption date, without interest.
The redemption price (other than the portion thereof consisting of accrued and
unpaid dividends) is payable solely out of the sale proceeds of other capital
shares of the Corporation, which may include any equity securities (including
common shares and preferred shares), shares, interests, participation or other
ownership interests (however designated) and any rights (other than debt securities
convertible into or exchangeable for equity securities), or options to purchase any
of the foregoing.
(e) The amount payable per 8
7
/
8
% Class K Preferred Share
in the event of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation shall be $250.00, plus an amount equal to all
dividends accrued and unpaid thereon to the date of payment.
104
(f) The affirmative vote of the holders of at least two-thirds of the Class K
Preferred Shares at the time outstanding, voting separately as a class, given in
person or by proxy either in writing or at a meeting called for the purpose, shall
be necessary to effect the authorization, creation, increase in the authorized
number of or issuance of any shares, or any security convertible into or
exchangeable for shares, in any such case ranking prior to such series of Class K
Preferred Shares in dividends, distributions or rights upon liquidation,
dissolution or winding up.
XII.
The Noncumulative Preferred Shares.
The Noncumulative Preferred Shares shall have the
following express terms:
Section 1.
Series.
The Noncumulative Shares may be issued from time to time in one or
more series. All Noncumulative Shares shall be of equal rank and shall be identical, except
in respect of the matters that may be fixed by the Board of Directors as hereinafter
provided, and each share of a series shall be identical with all other shares of such
series, except as to the dates on which and the periods for which dividends may be payable.
All Noncumulative Shares shall rank on a parity with the Cumulative Shares, and shall be
identical to all Cumulative Shares, except (1) in respect of the matters that may be fixed
by the Board of Directors as provided in clauses (a) through (i), inclusive, of this Section
1 and (2) only dividends on the Noncumulative Shares are noncumulative as set forth herein.
Subject to the provisions of Sections 2 through 5, inclusive, and Item XIII of this
Division, which provisions shall apply to all Noncumulative Shares, the Board of Directors
hereby is authorized to cause such shares to be issued in one or more series, and with
respect to each such series, to determine and fix prior to the issuance thereof (and
thereafter, to the extent provided in clause (b) of this Section) the following:
(a) The designation of the series, which may be by distinguishing number,
letter or title;
(b) The authorized number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase or decrease from time to time before or after the issuance thereof (but
not below the number of shares thereof then outstanding);
(c) The dividend rate or rates of the series, including the means by which
such rates may be established;
(d) The dates on which and the period or periods for which dividends, if
declared, shall be payable, including the means by which such dates and periods may
be established;
(e) The redemption rights and price or prices, if any, for shares of the
series;
(f) The terms and amount of the sinking fund, if any, for the purchase or
redemption of shares of the series;
105
(g) The amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(h) Whether the shares of the series shall be convertible into Common Shares
or shares of any other class and, if so, the conversion rate or rates or price or
prices, any adjustments thereof and all other terms and conditions upon which such
conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection 5(d) or 5(e) of
this Item XII) on the issuance of shares of the same series or of any other class
or series.
The Board of Directors is authorized to adopt from time to time amendments to the Amended and
Restated Articles of Incorporation, as amended, fixing, with respect to each such series, the
matters described in clauses (a) through (i), both inclusive, of this Section and is authorized to
take such actions with respect thereto as may be required by law in order to effect such
amendments.
Section 2.
Dividends.
(a) The holders of Noncumulative Shares of each series, in preference to the
holders of Common Shares and of any other class of shares ranking junior to the
Noncumulative Shares, shall be entitled to receive out of any funds legally
available therefor, if, when and as declared by the Board of Directors, dividends
in cash at the rate or rates for such series fixed in accordance with the
provisions of Section 1 above and no more, payable on the dates fixed for such
series. Such dividends shall accrue, in the case of shares of each particular
series, from and after the date or dates fixed with respect to such series;
provided, however, that if the Board of Directors fails to declare a dividend
payable on a dividend payment date on any Noncumulative Shares, the holders of the
Noncumulative Shares shall have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Corporation shall
have no obligation to pay the dividend accrued for such period, whether or not
dividends on such Noncumulative Shares are declared payable on any future dividend
payment date. No dividends shall be paid upon or declared or set apart for any
series of the Noncumulative Shares for any dividend period unless at the same time
(i) a like proportionate dividend for the then current dividend period, ratably in
proportion to the respective annual dividend rates fixed therefor, shall have been
paid upon or declared or set apart for all Noncumulative Shares of all series then
issued and outstanding and entitled to receive such dividend and (ii) the dividends
payable for the dividend periods terminating on the same or any earlier date,
ratably in proportion to the respective dividend rates fixed therefor, shall have
been paid upon or declared or set apart for all 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 then issued and
outstanding and entitled to receive such dividends.
106
(b) So long as any Noncumulative Shares shall be outstanding no dividend,
except a dividend payable in Common Shares or other shares ranking junior to the
Noncumulative Shares, shall be paid or declared or any distribution be made, except
as aforesaid, in respect of the Common Shares or any other shares ranking junior to
the Noncumulative Shares, nor shall any Common Shares or any other shares ranking
junior to the Noncumulative Shares be purchased, retired or otherwise acquired by
the Corporation, except out of the proceeds of the sale of Common Shares or other
shares of the Corporation ranking junior to the Noncumulative Shares received by
the Corporation subsequent to the date of first issuance of Noncumulative Shares of
any series, unless:
(1) All accrued and unpaid dividends on Cumulative Shares, including the full
dividends for all current dividend periods, shall have been declared and paid or a
sum sufficient for payment thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the then current dividend
period shall have been declared and paid or a sum sufficient for payment therefor
set apart; and
(3) There shall be no arrearages with respect to the redemption of Cumulative
Shares or Noncumulative Shares of any series from any sinking fund provided for
shares of such series in accordance with the provisions of Section 1 of this Item
XII.
(c) The foregoing 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 on a parity with or junior to the
Noncumulative Shares shall be inapplicable to (i) any payments in lieu of issuance
of fractional shares thereof, whether upon any merger, conversion, stock dividend
or otherwise, (ii) the conversion of Cumulative Shares or Noncumulative Shares into
Common Shares or (iii) the exercise by the Corporation of its rights pursuant to
Item XIV(d) of this Division A, Section 4(d) of Division B or any similar Section
hereafter contained in these Amended and Restated Articles of Incorporation with
respect to any other class or series of capital stock hereafter created or
authorized.
(d) If, for any taxable year, the Corporation elects to designate as capital
gain dividends (as defined in Section 857 of the Code) any portion (the Capital
Gains Amount) of the dividends paid or made available for the year to holders of
all classes of stock (the Total Dividends), then, to the extent permissible under
the Code and to the extent it does not cause any dividends to fail to qualify for
the dividends paid deduction under Section 561 of the Code, the portion of the
Capital Gains Amount that shall be allocable to holders of the Noncumulative Shares
shall be the amount that the total dividends paid or made available to the holders
of the Noncumulative Shares for the year bears to the Total Dividends.
107
Section 3.
Redemption.
(a) Subject to the express terms of each series, the Corporation:
(1) May, from time to time at the option of the Board of Directors, redeem all
or any part of any redeemable series of Noncumulative Shares at the time outstanding
at the applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Item XII; and
(2) Shall, from time to time, make such redemptions of each series of
Noncumulative Shares as may be required to fulfill the requirements of any sinking
fund provided for shares of such series at the applicable sinking fund redemption
price fixed in accordance with the provisions of Section 1 of this Item XII; and
shall, in each case, pay all unpaid dividends for the then current dividend period
to the redemption date.
(b) (1) Notice of every such redemption shall be mailed, postage prepaid,
to the holders of record of the Noncumulative Shares to be redeemed at their
respective addresses then appearing on the books of the Corporation, not less than
30 days nor more than 60 days prior to the date fixed for such redemption, or such
other time prior thereto as the Board of Directors shall fix for any series
pursuant to Section 1 of this Item XII prior to the issuance thereof. At any time
after notice as provided above has been deposited in the mail, the Corporation may
deposit the aggregate redemption price of Noncumulative Shares to be redeemed,
together with accrued and unpaid dividends thereon for the then current dividend
period to the redemption date, with any bank or trust company in Cleveland, Ohio,
or New York, New York, having capital and surplus of not less than $100,000,000
named in such notice and direct that there be paid to the respective holders of the
Noncumulative Shares so to be redeemed amounts equal to the redemption price of the
Noncumulative Shares so to be redeemed together with such accrued and unpaid
dividends thereon for the then current dividend period, on surrender of the share
certificate or certificates held by such holders; and upon the deposit of such
notice in the mail and the making of such deposit of money with such bank or trust
company, such holders shall cease to be shareholders with respect to such shares;
and from and after the time such notice shall have been so deposited and such
deposit of money shall have been so made, such holders shall have no rights or
claim against the Corporation with respect to such shares, except only the right to
receive such money from such bank or trust company without interest or to exercise
before the redemption date any unexpired privileges of conversion. In the event
less than all of the outstanding Noncumulative Shares are to be redeemed, the
Corporation shall select by lot the shares so to be redeemed in such manner as
shall be prescribed by the Board of Directors.
(2) If the holders of Noncumulative Shares which have been called for
redemption shall not within six years after such deposit claim the amount deposited
for the redemption thereof, any such bank or trust company shall, upon
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demand, pay over to the Corporation such unclaimed amounts and thereupon such
bank or trust company and the Corporation shall be relieved of all responsibility in
respect thereof and to such holders.
(c) Any Noncumulative Shares which are (1) redeemed by the Corporation
pursuant to the provisions of this Section, (2) purchased and delivered in
satisfaction of any sinking fund requirements provided for shares of such series,
(3) converted in accordance with the express terms thereof, or (4) otherwise
acquired by the Corporation shall resume the status of authorized but unissued
Noncumulative Shares without serial designation.
(d) Except in connection with the exercise of the Corporations rights
pursuant to Section (d) of Item XIV of this Division A, Section 4(d) of Division B
or any similar Section hereafter contained in these Amended and Restated Articles
of Incorporation, as amended, with respect to any other class or series of capital
stock hereafter created or authorized, the Corporation may not purchase or redeem
(for sinking fund purposes or otherwise) of less than all of the Noncumulative
Shares then outstanding except in accordance with a stock purchase offer made to
all holders of record of Noncumulative Shares, unless all dividends on all
Noncumulative Shares then outstanding for the then current dividend period shall
have been declared and paid or funds therefor set apart and all accrued sinking
fund obligations applicable thereto shall have been complied with.
Section 4.
Liquidation.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
Noncumulative Shares of any series shall be entitled to receive in full out of the
assets of the Corporation, including its capital, before any amount shall be paid
or distributed among the holders of the Common Shares or any other shares ranking
junior to the Noncumulative Shares, the amounts fixed with respect to shares of
such series in accordance with Section 1 of this Item XII, plus an amount equal to
all dividends accrued and unpaid thereon for the then current dividend period to
the date of payment of the amount due pursuant to such liquidation, dissolution or
winding up of the affairs of the Corporation. In the event the net assets of the
Corporation legally available therefor are insufficient to permit the payment upon
all outstanding Cumulative Shares and Noncumulative Shares of the full preferential
amount to which they are respectively entitled, then such net assets shall be
distributed ratably upon all outstanding Noncumulative Shares in proportion to the
full preferential amount to which each such share is entitled.
(2) After payment to the holders of Noncumulative Shares of the full
preferential amounts as aforesaid, the holders of Noncumulative Shares, as such,
shall have no right or claim to any of the remaining assets of the Corporation.
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(b) The merger or consolidation of the Corporation into or with any other
Corporation, the merger of any other Corporation into it, or the sale, lease or
conveyance of all or substantially all the assets of the Corporation shall not be
deemed to be a dissolution, liquidation or winding up for the purposes of this
Section.
Section 5.
Voting.
(a) The holders of Noncumulative Shares shall have no voting rights, except as
provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall not have fully paid, or
shall not have declared and set aside a sum sufficient for the payment of,
dividends on any series of Noncumulative Shares at the time outstanding, for a
number of dividend payment periods, whether consecutive or not, which in the
aggregate contain at least 540 days, the holders of such Noncumulative Shares,
voting separately as a class, together with all Cumulative Shares upon which like
voting rights have been conferred and are exercisable, shall be entitled to elect,
as herein provided, two members of the Board of Directors of the Corporation;
provided, however, that the holders of such Noncumulative Shares shall not exercise
such special class voting rights except at meetings of such shareholders for the
election of directors at which the holders of not less than 50% of such
Noncumulative Shares are present in person or by proxy; and provided further, that
the special class voting rights provided for in this paragraph when the same shall
have become vested shall remain so vested until the Corporation shall have fully
paid, or shall have set aside a sum sufficient for the payment of, dividends on
such Noncumulative Shares then outstanding for a number of consecutive dividend
payment periods which in the aggregate contain at least 360 days, whereupon the
holders of such Noncumulative Shares shall be divested of their special class
voting rights in respect of subsequent elections of directors, subject to the
revesting of such special class voting rights in the event above specified in this
paragraph.
(2) In the event of default entitling holders of Noncumulative Shares to elect
two directors as specified in paragraph (1) of this Subsection, a special meeting of
such holders for the purpose of electing such directors shall be called by the
Secretary of the Corporation upon written request of, or may be called by, the
holders of record of at least 10% of the Noncumulative Shares upon which such
default in the payment of dividends exists and notice thereof shall be given in the
same manner as that required for the annual meeting of shareholders; provided,
however, that the Corporation shall not be required to call such special meeting if
the annual meeting of shareholders shall be called to be held within 90 days after
the date of receipt of the foregoing written request from the holders of
Noncumulative Shares. At any meeting at which such holders of Noncumulative Shares
shall be entitled to elect directors, holders of 50% of such Noncumulative Shares,
present in person or by proxy, shall be sufficient to constitute a quorum, and the
vote of the holders of a majority of such shares so present at any such
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meeting at which there shall be such a quorum shall be sufficient to elect the
members of the Board of Directors which such holders of Noncumulative Shares are
entitled to elect as herein provided. Notwithstanding any provision of these
Amended and Restated Articles of Incorporation, as amended, or the Code of
Regulations of the Corporation or any action taken by the holders of any class of shares fixing the number of directors of the Corporation, the two directors who may
be elected by such holders of Noncumulative Shares pursuant to this Subsection shall
serve in addition to any other directors then in office or proposed to be elected
otherwise than pursuant to this Subsection. Nothing in this Subsection shall
prevent any change otherwise permitted in the total number of or classifications of
directors of the Corporation nor require the resignation of any director elected
otherwise than pursuant to this Subsection. Notwithstanding any classification of
the other directors of the Corporation, the two directors elected by such holders of
Noncumulative Shares shall be elected annually for terms expiring at the next
succeeding annual meeting of shareholders.
(3) Upon any divesting of the special class voting rights of the holders of the
Noncumulative Shares in respect of elections of directors as provided in this
Subsection, the terms of office of all directors then in office elected by such
holders shall terminate immediately thereupon. If the office of any director
elected by such holders voting as a class becomes vacant by reason of death,
resignation, removal from office or otherwise, the remaining director elected by
such holders voting as a class may elect a successor who shall hold office for the
unexpired term in respect of which such vacancy occurred.
(c) If at any time when the holders of Noncumulative Shares are entitled to
elect directors pursuant to the foregoing provisions of this Section the holders of
any Cumulative Shares are entitled to elect directors pursuant hereto by reason of
any default in the payment of dividends thereon, then the voting rights of the
Cumulative Shares and Noncumulative Shares then entitled to vote shall be combined
(with class of shares having a number of votes proportional to the aggregate
liquidation preference of its outstanding shares). In such case, the holders of
Noncumulative Shares and of all such other shares then entitled so to vote, voting
as a class, shall elect such directors. If the holders of any such other shares
have elected such directors prior to the happening of the default or event
permitting the holders of Noncumulative Shares to elect directors, or prior to a
written request for the holding of a special meeting being received by the
Secretary of the Corporation as required above, then a new election shall be held
with all such other shares and the Noncumulative Shares voting together as a single
class for such directors, resulting in the termination of the term of such
previously elected directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds of the
Noncumulative Shares at the time outstanding, voting separately as a class, given
in person or by proxy either in writing or at a meeting called for the purpose,
shall be necessary to effect either of the following:
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(1) Any amendment, alteration or repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the Amended and Restated Articles of
Incorporation, as amended, or of the Code of Regulations of the Corporation which
affects adversely and materially the preferences or voting or other rights of the
holders of Noncumulative Shares which are set forth in these Amended and Restated
Articles of Incorporation, as amended; provided, however, neither the amendment of
these Amended and Restated Articles of Incorporation, as amended, so as to
authorize, create or change the authorized or outstanding number of Noncumulative
Shares or of any shares ranking on a parity with or junior to the Noncumulative
Shares nor the amendment of the provisions of the Code of Regulations so as to
change the number or classification of directors of the Corporation shall be deemed
to affect adversely and materially preferences or voting or other rights of the
holders of Noncumulative Shares; or
(2) The authorization, creation or increase in the authorized number of any
shares, or any security convertible into shares, in either case ranking prior to
such Noncumulative Shares.
(e) In the event, and only to the extent, that (1) Noncumulative Shares are
issued in more than one series and (2) Ohio law permits the holders of a series of
a class of capital stock to vote separately as a class, the affirmative vote of the
holders of at least two-thirds of each series of the Noncumulative Shares at the
time outstanding, voting separately as a class, given in person or by proxy either
in writing or at a meeting called for the purpose of voting on such matters, shall
be required for any amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of these Amended and Restated
Articles of Incorporation, as amended, or of the Code of Regulations of the
Corporation which affects adversely and materially the preferences or voting or
other rights of the holders of such series which are set forth in these Amended and
Restated Articles of Incorporation, as amended; provided, however, neither the
amendment of these Amended and Restated Articles of Incorporation, as amended, so
as to authorize, create or change the authorized or outstanding number of
Noncumulative Shares or of any shares remaining on a parity with or junior to the
Noncumulative Shares nor the amendment of the provisions of the Code of Regulations
so as to change the number or classification of directors of the Corporation shall
be deemed to affect adversely and materially preferences or voting or other rights
of the holder of such series.
XIII.
Definitions.
For the purposes of this Division:
(a) Whenever reference is made to shares ranking prior to 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,
Noncumulative Shares or Voting Preferred Shares, such reference shall mean and
include all shares of the Corporation in respect of which the rights of the holders
thereof as to the payment of dividends or as to distributions in the event of a
voluntary or involuntary liquidation, dissolution or winding up of the
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affairs of the Corporation are given preference over the rights of the holders
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, Noncumulative Shares or Voting Preferred Shares, as the case may
be; and
(b) Whenever reference is made to shares on a parity with 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,
Noncumulative Shares or Voting Preferred Shares, such reference shall mean and
include all shares of the Corporation in respect of which the rights of the holders
thereof as to the payment of dividends or as to distributions in the event of a
voluntary or involuntary liquidation, dissolution or winding up of the affairs of
the Corporation rank equally (except as to the amounts fixed therefor) with the
rights of the holders 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, Noncumulative Shares or Voting Preferred
Shares, as the case may be; and
(c) Whenever reference is made to shares ranking junior to 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,
Noncumulative Shares or Voting Preferred Shares, such reference shall mean and
include all shares of the Corporation other than those defined under Subsections
(a) and (b) of this Section as shares ranking prior to or on a parity with
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, Noncumulative Shares or Voting Preferred Shares, as the case may
be.
XIV.
Restrictions on Transfer to Preserve Tax Benefit; Shares Subject to Redemption
.
(a)
Definitions.
For the purposes of this Item XIV of this Division A of this
Article FOURTH, the following terms shall have the following meanings:
Beneficial Ownership shall mean ownership of Preferred Shares by a Person who
would be treated as an owner of such Preferred Shares either directly or
constructively through the application of Section 544 of the Code, as modified by
Section 856(h) of the Code. The terms Beneficial Owner, Beneficially Owns and
Beneficially Owned shall have the correlative meanings.
Code shall mean the Internal Revenue Code of 1986, as amended from time to
time.
Constructive Ownership shall mean ownership of Preferred Shares by a Person
who would be treated as an owner of such Preferred Shares either directly or
constructively through the application of Section 318 of the Code, as modified
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by Section 856(d)(5) of the Code. The terms Constructive Owner,
Constructively Owns and Constructively Owned shall have the correlative
meanings.
Excess Preferred Shares shall mean any Preferred Shares (i) acquired or
proposed to be acquired by any Person pursuant to a Transfer to the extent that, if
effective, such Transfer would result in the transferee either Beneficially Owning
Preferred Shares or Constructively Owning Preferred Shares in excess of the
Ownership Limit, or (ii) which are the subject of a Transfer that, if effective,
which would result in the Corporation being closely held within the meaning of
Section 856(h) of the Code.
Market Price shall mean, with respect to any series of any class of Preferred
Shares, the last reported sales price of such series reported on the New York Stock
Exchange on the trading day immediately preceding the relevant date or, if shares of
such series are not then traded on the New York Stock Exchange, the last reported
sales price of shares of such series on the trading day immediately preceding the
relevant date as reported on any exchange or quotation system over which the shares
of such series may be traded, or if shares of such series are not then traded over
any exchange or quotation system, then the market price of shares of such series on
the relevant date as determined in good faith by the Board of Directors of the
Corporation.
Ownership Limit shall mean, with respect to each series of each class of
Preferred Shares, 9.8% of the outstanding shares of such series.
Person shall mean an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, an association, a private
foundation within the meaning of Section 509(a) of the Code, a joint stock company,
other entity or a group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended; provided, however, that a person does
not mean an underwriter which participates in a public offering of Preferred Shares,
for a period of 35 days following the purchase by such underwriter of such Preferred
Shares.
Preferred Shares shall mean, collectively, 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, Noncumulative Shares
and Voting Preferred Shares.
REIT shall mean a Real Estate Investment Trust under Section 856 of the Code.
Transfer shall mean any sale, transfer, gift, assignment, devise or other
disposition of Preferred Shares (including, without limitation, (i) the granting of
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any option or entering into any agreement for the sale, transfer or other
disposition of Preferred Shares or (ii) the sale, transfer, assignment or other
disposition of any securities or rights convertible into or exchangeable for
Preferred Shares), whether voluntary or involuntary, whether of record or
beneficially and whether by operation of law or otherwise.
(b)
Restrictions on Transfers
.
(i) Except as provided in Section (i) of this Item XIV of this
Division A of this Article FOURTH, no Person shall Beneficially Own
or Constructively Own shares of any series of any class of Preferred
Shares in excess of the Ownership Limit applicable to such series.
(ii) Except as provided in Section (i) of this Item XIV of this
Division A of this Article FOURTH, any Transfer that, if effective,
would result in any Person Beneficially Owning shares of any series
of any class of Preferred Shares in excess of the Ownership Limit
applicable to such series shall be void
ab initio
as to the Transfer
of such Preferred Shares which would be otherwise Beneficially Owned
by such Person in excess of such Ownership Limit, and the intended
transferee shall acquire no rights in such Preferred Shares.
(iii) Except as provided in Section (i) of this Item XIV of this
Division A of this Article FOURTH, any Transfer that, if effective,
would result in any Person Constructively Owning shares of any series
of any class of Preferred Shares in excess of the Ownership Limit
applicable to such series shall be void
ab initio
as to the Transfer
of such Preferred Shares which would be otherwise Constructively
Owned by such Person in excess of such amount, and the intended
transferee shall acquire no rights in such Preferred Shares.
(iv) Notwithstanding any other provisions contained in this Item
XIV, any Transfer (whether or not such Transfer is the result of a
transaction entered into through the facilities of the New York Stock
Exchange) or other event that, if effective, would result in the
Corporation being closely held within the meaning of Section 856(h)
of the Code, or would otherwise result in the Corporation failing to
qualify as a REIT (including, but not limited to, a Transfer or other
event that would result in the Corporation owning (directly or
Constructively) an interest in a tenant that is described in Section
856(d)(2)(B) of the Code if the income derived by the Corporation
from such tenant would cause the Corporation to fail to satisfy any
of the gross income requirement of Section 856(c) of the Code) shall
be void
ab initio
as to the
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Transfer of the Preferred Shares or other event which would
cause the Corporation to be closely held within the meaning of
Section 856(h) of the Code or would otherwise result in the
Corporation failing to qualify as a REIT; and the intended transferee
or owner or Constructive or Beneficial Owner shall acquire or retain
no rights in such Preferred Shares.
(v) For purposes of construing the foregoing provisions, any
attempt to transfer Preferred Shares in violation of the Ownership
Limit applicable to the series of the class of such Preferred Shares
(as such Ownership Limit may be modified by the Board of Directors
pursuant to Section (h) of Item XIV) shall be construed as causing
such Preferred Shares to be transferred by operation of law to the
Corporation as trustee of a trust for the exclusive benefit of the
person or persons to whom such Preferred Shares can ultimately be
transferred without violating the Ownership Limit and any Excess
Preferred Shares while held in such trust shall not have any voting
rights, shall not be considered for purposes of any shareholder vote
or for determining a quorum for such a vote, and shall not be
entitled to any dividends or other distributions.
(c)
Remedies for Breach.
If the Board of Directors or its designees shall at
any time determine in good faith that a Transfer has taken place in violation of
Section (b) of this Item XIV of this Division A of this Article FOURTH or that a
Person intends to acquire or has attempted to acquire beneficial ownership
(determined without reference to any rules of attribution), Beneficial Ownership or
Constructive Ownership of any Preferred Shares of the Corporation in violation of
Section (b) of this Item XIV of this Division A of this Article FOURTH, or that any
such Transfer, intended or attempted acquisition or acquisition would jeopardize
the status of the Corporation as a REIT under the Code, the Board of Directors or
its designees shall take such actions as it deems advisable to refuse to give
effect or to prevent such Transfer, including, but not limited to, refusing to give
effect to such Transfer on the books of the Corporation or instituting proceedings
to enjoin such Transfer and, in addition, exercising its rights under Section (d)
of this Item XIV of this Division A of this Article FOURTH.
(d)
Purchase Right in Excess Preferred Shares.
Beginning on the date of the
occurrence of a Transfer which, if consummated, in the good faith judgment of the
Board of Directors of the Corporation, could result in Excess Preferred Shares, the
Excess Preferred Shares, subject to such transfer shall be deemed to have been
offered for sale to the Corporation, or its designee, at a price per share equal to
the lesser of (i) the price per share in the transaction that created such Excess
Preferred Shares (or, in the case of a devise or gift, the Market Price at the time
of such devise or gift) and (ii) the Market Price on the date the Corporation, or
its designee, accepts such offer. The Corporation shall have the
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right to accept such offer for a period of 90 days after the later of (i) the
date of such Transfer and (ii) if the Corporation does not receive a notice of such
Transfer pursuant to Section (e) of this Item XIV of this Division A of this
Article FOURTH, the date the Board of Directors determines in good faith that such
Transfer has occurred. Prompt payment of the purchase price shall be made in such
reasonable manner as may be determined by the Corporation. From and after the date
fixed for purchase by the Corporation, and so long as payment of the purchase price
for the Excess Preferred Shares to be so purchased shall have been made or duly
provided for, the holder of any Excess Preferred Shares so called for purchase
shall cease to be entitled to dividends, distributions, voting rights and other
benefits with respect to such Excess Preferred Shares, excepting only the right to
payment of the purchase price fixed as aforesaid. Any dividend or distribution
paid to a proposed transferee of Excess Preferred Shares prior to the discovery by
the Corporation that the Excess Preferred Shares have been transferred in violation
of Section (b) of this Item XIV of this Division A of this Article FOURTH shall be
repaid to the Corporation upon demand. If the foregoing provisions are determined
to be void or invalid by virtue of any legal decision, statute, rule or regulation,
then the intended transferee of such Excess Preferred Shares shall be deemed, at
the option of the Corporation, to have acted as agent on behalf of the Corporation
in acquiring such Excess Preferred Shares and to hold such Excess Preferred Shares
on behalf of the Corporation.
(e)
Notice of Restricted Transfer.
Any Person who acquires or attempts to
acquire Preferred Shares or other securities in violation of subparagraph (b) of
this Item XIV, or any Person who owns or will own Excess Preferred Shares as a
result of an event under subparagraph (b) of this Item XIV, shall immediately give
written notice to the Corporation of such event and shall provide to the
Corporation such other information as the Corporation may request in order to
determine the effect, if any, of such Transfer or attempted Transfer or other event
on the Corporations status as a REIT.
(f)
Owners Required to Provide Information.
From and after the date of the
Initial Public Offering:
(i) every Beneficial Owner of more than 5.0% (or such other
percentage, between 0.5% and 5.0%, as provided in the regulations
promulgated pursuant to the Code) of the outstanding Preferred Shares
of the Corporation shall, within 30 days after January 1 of each
year, give written notice to the Corporation stating the name and
address of such Beneficial Owner, the number of shares Beneficially
Owned, and description of how such shares are held. Each such
Beneficial Owner shall provide to the Corporation such additional
information as the Corporation may request in order to determine the
effect, if any, of such Beneficial Ownership on the Corporations
status as a REIT.
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(ii) each Person who is a Beneficial Owner or Constructive Owner
of Preferred Shares and each Person (including the shareholder of
record) who is holding Preferred Shares for a Beneficial Owner or
Constructive Owner shall provide to the Corporation such information
that the Corporation may request, in good faith, in order to
determine the Corporations status as a REIT.
(g)
Remedies Not Limited.
Nothing contained in this Division A of this
Article FOURTH shall limit the authority of the Board of Directors to take such
other action as it deems necessary or advisable to protect the Corporation and the
interests of its shareholders by preservation of the Corporations status as a
REIT.
(h)
Ambiguity.
In the case of an ambiguity in the application of any of the
provisions of this Item XIV of this Division A of this Article FOURTH, including
any definition contained in Section (a) of this Item XIV, the Board of Directors
shall have the power to determine the application of the provisions of this Item
XIV with respect to any situation based on the facts known to it.
(1)
Exceptions.
(i) Subject to Section (b)(iv) of this Item XIV of this Division
A, the Board of Directors may exempt a Person from the Ownership
Limit applicable to a series of a class of Preferred Shares if such
Person is not an individual (other than pension plans described in
Section 856(h)(3)) for purposes of Section 542(a)(2) of the Code if
the Board of Directors obtains such representations and undertakings
from such Person as are reasonably necessary to ascertain that no
individuals Beneficial Ownership of such Preferred Shares will
violate the Ownership Limit, and agrees that any violation or
attempted violation will result in such Preferred Shares in excess of
the Ownership Limit being subject to repurchase by the Corporation as
set forth in Section (d) of this Item XIV of this Division A of this
Article FOURTH.
(ii) The Board of Directors may exempt a Person from the
limitation on such Person Constructively Owning Preferred Shares in
excess of the Ownership Limit applicable to a series of a class of
such Preferred Shares if such Person does not own and represents that
it will not own, directly or constructively (by virtue of the
application of Section 318 of the Code, as modified by Section
856(d)(5) of the Code), more than a 9.8% interest (as set forth in
Section 856(d)(2)(B)) in a tenant of any real property owned or
leased by the Corporation, if the Board of Directors obtains such
representations and undertakings from such Person as are reasonably
necessary to ascertain this fact and agrees that any
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violation or attempted violation will result in such Preferred
Shares in excess of the Ownership Limit being deemed to be Excess
Preferred Shares and subject to repurchase by the Corporation as set
forth in Section (d) of this Item XIV of this Division A of this
Article FOURTH.
XV.
Legend.
Each certificate for Preferred Shares shall bear the following legend:
The Preferred Shares represented by this certificate are subject to restrictions on transfer
for the purpose of the corporations maintenance of its status as a Real Estate Investment Trust
under the Internal Revenue Code of 1986, as amended. Subject to certain provisions of the
Corporations Articles of Incorporation, no Person may Beneficially Own or Constructively Own
shares of any series of any class of Preferred Shares in excess of 9.8% of the outstanding
Preferred Shares of such series. Any Person who attempts to Beneficially Own or Constructively Own
shares of any series of any class of Preferred Shares in excess of the above limitations must
immediately notify the Corporation. All capitalized terms in this legend have the meanings defined
in the Corporations Articles of Incorporation, a copy of which, including the restrictions on
transfer, will be sent without charge to each shareholder who so requests. If the restrictions on
transfer are violated, certain of the Preferred Shares represented hereby may be subject to
repurchase by the Corporation on the terms and conditions set forth in the Corporations Articles
of Incorporation.
XVI.
The Voting Preferred Shares
. The Voting Preferred Shares shall have the following
express terms:
Section 1.
General
. The Voting Preferred Shares shall rank on a parity with 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, Class K Shares and
Noncumulative Shares and shall be identical to all 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 Noncumulative Shares except as set forth
in the provisions of Sections 2 through 10, both inclusive, which provisions shall apply to
all of the Voting Preferred Shares.
Section 2.
Definitions
. For purposes of the Voting Preferred Shares, the following
terms shall have the meanings indicated:
Board of Directors shall mean the Board of Directors of the Corporation or any
committee authorized by such Board of Directors to perform any of its responsibilities with
respect to the Voting Preferred Shares; provided that, for purposes of paragraph (a) of
Section 8, the term Board of Directors shall not include any such committee.
Business Day shall mean any day other than a Saturday, Sunday or a day on which state
or federally chartered banking institutions in New York, New York are not required to be
open.
Code shall mean the Internal Revenue Code of 1986, as amended from time to time.
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Dividend Payment Date shall mean March 31, June 30, September 30 and December 31 of
each year; provided, that if any Dividend Payment Date falls on any day other than a
Business Day, the dividend payment payable on such Dividend Payment Date shall be paid on
the Business Day immediately following such Dividend Payment Date and no interest shall
accrue on such dividend from such Dividend Payment Date to the date such dividend is paid.
Dividend Periods shall mean each quarterly dividend period commencing on and
including March 31, June 30, September 30 and December 31 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend Period, other than
the Dividend Period during which any Voting Preferred Shares shall be redeemed pursuant to
Section 5, which shall end on and include the Redemption Date with respect to the Voting
Preferred Shares being redeemed.
Event shall have the meaning set forth in paragraph (b) (i) of Section 8.
Liquidation Preference shall have the meaning set forth in paragraph (a) of Section 4.
REIT shall mean a Real Estate Investment Trust under Section 856 of the Code.
set apart for payment shall be deemed to include, without any action other than the
following, the recording by the Corporation in its accounting ledgers of any accounting or
bookkeeping entry which indicates, pursuant to a declaration of dividends or other
distribution by the Board of Directors, the allocation of funds to be so paid on any series
or class of capital stock of the Corporation; provided, however, that if any funds for any
class or series of shares ranking junior to the Voting Preferred Shares or any class or
series of shares ranking on a parity with the Voting Preferred Shares are placed in a
separate account of the Corporation or delivered to a disbursing, paying or other similar
agent, then set apart for payment with respect to the Voting Preferred Shares shall mean
placing such funds in a separate account or delivering such funds to a disbursing, paying or
other similar agent.
Section 3.
Dividends
. (a) The holders of Voting Preferred Shares shall be entitled to
receive, when and as declared by the Board of Directors out of funds legally available for
that purpose, cumulative dividends payable in cash in an amount per Voting Preferred Share
equal to $2.3438 per annum (equivalent to 9 3/8% of the per share Liquidation Preference per
annum). Such dividends shall be cumulative from the first day of the Dividend Period in
which the Closing Date (as defined in that certain Agreement and Plan of Merger dated as of
October 4, 2002 by and among the Corporation, JDN Realty Corporation and DDR Transitory Sub,
Inc.) shall occur, whether or not in any Dividend Period or Periods such dividends shall be
declared or there shall be funds of the Corporation legally available for the payment of
such dividends, and shall be payable quarterly in arrears on each Dividend Payment Date.
Each such dividend shall be payable in arrears to the holders of record of the Voting
Preferred Shares, as they appear on the stock records of the Corporation at the close of
business on the fifteenth day of the calendar month in which the applicable Dividend Payment
Date falls on or such other
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date designated by the Board of Directors for the payment of dividends that is not
more than 45 nor less than 10 days prior to such Dividend Payment Date, as the case may
be, immediately preceding such Dividend Payment Date. No dividends on the Voting
Preferred Shares shall be declared by the Board of Directors or be paid or set apart
for payment by the Corporation at such time as any agreement of the Corporation,
including any agreement relating to the Corporations indebtedness, prohibits such
declaration, payment or setting apart for payment or provides that such declaration,
payment or setting apart for payment would constitute a breach thereof or a default
thereunder, or if such declaration, payment or setting apart for payment shall be
restricted or prohibited by law. Accumulated, accrued and unpaid dividends for any past
Dividend Periods may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to holders of record on such date, which date shall not precede
by more than 45 days the payment date thereof, as may be fixed by the Board of
Directors.
(b) Any dividend payable on the Voting Preferred Shares for any partial dividend period
shall be computed ratably on the basis of twelve 30-day months and a 360-day year. Holders
of Voting Preferred Shares shall not be entitled to any dividends, whether payable in cash,
property or stock, in excess of full cumulative dividends, as herein provided, on the Voting
Preferred Shares. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Voting Preferred Shares that may be in
arrears. Any dividend payment made on the Voting Preferred Shares shall first be credited
against the earliest accrued but unpaid dividend due with respect to such shares which
remains payable.
(c) If, for any taxable year, the Corporation elects to designate as capital gain
dividends (as defined in Section 857 of the Code) any portion (the Capital Gains Amount)
of the total distributions (as determined for federal income tax purposes) paid or made
available for the year to holders of all classes of capital stock (the Total Dividends),
then the portion of the Capital Gains Amount that shall be allocable to holders of Voting
Preferred Shares shall be in the same proportion that the Total Dividends paid or made
available to the holders of Voting Preferred Shares for the year bears to the Total
Dividends. If, for any taxable year, the Corporation elects, as provided in Section
857(b)(3)(D) of the Code, to designate as undistributed capital gains any portion of the
Corporations total net capital gains for the taxable year, then such undistributed capital
gains shall be allocated between the holders of the Voting Preferred Shares and the holders
of other classes or series of capital stock of the Corporation in a manner that is
consistent with such allocations being considered other than a preferential dividend
within the meaning of Section 562(c) of the Code.
(d) So long as any of the Voting Preferred Shares are outstanding, except as described
in the immediately following sentence, no dividends shall be declared or paid or set apart
for payment by the Corporation and no other distribution of cash or other property shall be
declared or made, directly or indirectly, by the Corporation with respect to any shares
ranking on a parity unless, in each case, dividends equal to the full amount of accumulated,
accrued and unpaid dividends on all outstanding Voting Preferred Shares have been or
contemporaneously are declared and paid or declared and a sum sufficient for the payment
thereof has been or contemporaneously is set apart for payment of such
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dividends on the Voting Preferred Shares for all Dividend Periods ending on or prior to the
date such dividend or distribution is declared, paid, set apart for payment or made, as the
case may be, with respect to such shares ranking on a parity. When dividends are not paid in
full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends
declared upon the Voting Preferred Shares and all dividends declared upon any shares ranking
on a parity shall be declared ratably in proportion to the respective amounts of dividends
accumulated, accrued and unpaid on the Voting Preferred Shares and accumulated, accrued and
unpaid on such shares ranking on a parity.
(e) So long as any of the Voting Preferred Shares are outstanding, no dividends (other
than dividends or distributions paid in shares, or options, warrants or rights to subscribe
for or purchase shares, ranking junior to the Voting Preferred Shares) shall be declared or
paid or set apart for payment by the Corporation and no other distribution of cash or other
property shall be declared or made, directly or indirectly, by the Corporation with respect
to any shares ranking junior to the Voting Preferred Shares, nor shall any shares ranking
junior to the Voting Preferred Shares be redeemed, purchased or otherwise acquired (other
than a redemption, purchase or other acquisition of Common Shares made for purposes of an
employee incentive, benefit or stock purchase plan of the Corporation or any subsidiary) for
any consideration (or any monies be paid to or made available for a sinking fund for the
redemption of any shares of any such stock), directly or indirectly, by the Corporation
(except by conversion into or exchange for shares, or options, warrants or rights to
subscribe for or purchase shares, ranking junior to the Voting Preferred Shares), nor shall
any other cash or other property otherwise be paid or distributed to or for the benefit of
any holder of shares ranking junior to the Voting Preferred Shares in respect thereof,
directly or indirectly, by the Corporation unless, in each case, dividends equal to the full
amount of all accumulated, accrued and unpaid dividends on all outstanding Voting Preferred
Shares have been declared and paid, or such dividends have been declared and a sum
sufficient for the payment thereof has been set apart for such payment, on all outstanding
Voting Preferred Shares for all Dividend Periods ending on or prior to the date such
dividend or distribution is declared, paid, set apart for payment or made with respect to
such shares ranking junior to the Voting Preferred Shares, or the date such shares ranking
junior to the Voting Preferred Shares are redeemed, purchased or otherwise acquired or
monies paid to or made available for any sinking fund for such redemption, or the date any
such cash or other property is paid or distributed to or for the benefit of any holders of
shares ranking junior to the Voting Preferred Shares in respect thereof, as the case may be.
(f) In determining the extent to which a distribution with respect to the Voting
Preferred Shares constitutes a dividend for tax purposes, the earnings and profits of the
Corporation will be allocated, on a pro rata basis, in accordance with the ranking of the
class of capital stock or series of capital stock, constituting a class within the meaning
of Code Section 562(c), of the Corporation, as described in Section 7.
Notwithstanding the provisions of this Section 3, the Corporation shall not be
prohibited from (i) declaring or paying or setting apart for payment any dividend or
distribution on any shares ranking junior to or on a parity with the Voting Preferred Shares
or (ii) redeeming, purchasing or otherwise acquiring any shares ranking junior to
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or on a parity with the Voting Preferred Shares, in each case, if such declaration, payment,
redemption, purchase or other acquisition is necessary in order to assist in maintaining the
continued qualification of the Corporation as a REIT under Section 856 of the Code.
Section 4.
Liquidation Preference
. (a) In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, before any payment or
distribution by the Corporation (whether of capital, surplus or otherwise) shall be made to
or set apart for the holders of shares ranking junior to the Voting Preferred Shares, the
holders of Voting Preferred Shares shall be entitled to receive Twenty-Five Dollars ($25.00)
per Voting Preferred Share (the Liquidation Preference), plus an amount equal to all
dividends accumulated, accrued and unpaid thereon to the date of final distribution to such
holders; but such holders shall not be entitled to any further payment. Until the holders of
the Voting Preferred Shares have been paid the Liquidation Preference in full, plus an
amount equal to all dividends accumulated, accrued and unpaid thereon to the date of final
distribution to such holders, no payment will be made to any holder of shares ranking junior
to the Voting Preferred Shares upon the liquidation, dissolution or winding up of the
Corporation. If, upon any liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation, or proceeds thereof, distributable among the holders of Voting
Preferred Shares shall be insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other shares ranking on a parity with the Voting Preferred
Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of
Voting Preferred Shares and any such other shares ranking on a parity with the Voting
Preferred Shares ratably in the same proportion as the respective amounts that would be
payable on such Voting Preferred Shares and any such other shares ranking on a parity with
the Voting Preferred Shares if all amounts payable thereon were paid in full. For the
purposes of this Section 4, (i) a consolidation or merger of the Corporation with or into
one or more other entities, (ii) a sale, lease, transfer or conveyance of all or
substantially all of the Corporations assets, or (iii) a statutory share exchange shall not
be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the
Corporation.
(b) Upon any liquidation, dissolution or winding up of the Corporation, after payment
shall have been made in full to the holders of Voting Preferred Shares and any shares
ranking on a parity with the Voting Preferred Shares, as provided in this Section 4, any
other shares ranking junior to the Voting Preferred Shares shall, subject to the respective
terms thereof, be entitled to receive any and all assets remaining to be paid or
distributed, and the holders of the Voting Preferred Shares and any shares ranking on a
parity with the Voting Preferred Shares shall not be entitled to share therein.
Section 5.
Redemption at the Option of the Corporation
. (a) Shares of Voting Preferred
Shares shall not be redeemable by the Corporation prior to September 15, 2003. On and after
September 15, 2003, the Corporation, at its option, may redeem Voting Preferred Shares, in
whole or from time to time in part, at a redemption price payable in cash equal to $25.00
per share, plus all accumulated, accrued and unpaid dividends to the date fixed for
redemption (the Redemption Date); provided, however, that in the event of a redemption of
Voting Preferred Shares, if the Redemption Date occurs after a
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dividend record date and on or prior to the related Dividend Payment Date, the dividend
payable on such Dividend Payment Date in respect of such shares called for redemption shall
be payable on such Dividend Payment Date to the holders of record at the close of business
on such dividend record date, and shall not be payable as part of the redemption price for
such shares. In connection with any redemption pursuant to this Section 5(a), the redemption
price of the Voting Preferred Shares (other than any portion thereof consisting of
accumulated, accrued and unpaid dividends) shall be payable solely with the proceeds from
the sale by the Corporation of other capital shares of the Corporation (whether or not such
sale occurs concurrently with such redemption). For purposes of the preceding sentence,
capital shares means any common shares, preferred shares, depositary shares,
participations or other ownership interests (however designated) and any rights (other than
debt securities convertible into or exchangeable at the option of the holder for equity
securities (unless and to the extent such debt securities are subsequently converted into
capital shares)) or options to purchase any of the foregoing of or in the Corporation.
(b) The Redemption Date shall be selected by the Corporation, shall be specified in the
notice of redemption and shall be not less than 30 days nor more than 60 days after the date
notice of redemption is sent by the Corporation.
(c) If full cumulative dividends on all outstanding Voting Preferred Shares have not
been declared and paid, or declared and set apart for payment, no Voting Preferred Shares
may be redeemed unless all outstanding Voting Preferred Shares are simultaneously redeemed,
and neither the Corporation nor any affiliate of the Corporation may purchase or acquire
Voting Preferred Shares other than pursuant to a purchase or exchange offer made on the same
terms to all holders of Voting Preferred Shares.
(d) If the Corporation shall redeem Voting Preferred Shares pursuant to paragraph (a)
of this Section 5, notice of such redemption shall be given to each holder of record of the
shares to be redeemed. Such notice shall be provided by first class mail, postage prepaid,
at such holders address as the same appears on the stock records of the Corporation.
Neither the failure to mail any notice required by this paragraph (d), nor any defect
therein or in the mailing thereof to any particular holder, shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect to the other
holders. Any notice which was mailed in the manner herein provided shall be conclusively
presumed to have been duly given on the date mailed whether or not the holder receives the
notice. Each such notice shall state, as appropriate: (1) the Redemption Date; (2) the
number of Voting Preferred Shares to be redeemed and, if fewer than all such shares held by
such holder are to be redeemed, the number of such shares to be redeemed from such holder;
(3) the place or places at which certificates for such shares are to be surrendered for
cash; and (4) the redemption price payable on such Redemption Date, including, without
limitation, a statement as to whether or not accumulated, accrued and unpaid dividends will
be (x) payable as part of the redemption price, or (y) payable on the next Dividend Payment
Date to the record holder at the close of business on the relevant record date as described
in the next succeeding sentence.
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Notice having been mailed as aforesaid, from and after the Redemption Date (unless the
Corporation shall fail to make available the amount of cash necessary to effect such
redemption), (i) dividends on the Voting Preferred Shares so called for redemption shall
cease to accumulate or accrue on the Voting Preferred Shares called for redemption, (ii)
said shares shall no longer be deemed to be outstanding, and (iii) all rights of the holders
thereof as holders of Voting Preferred Shares of the Corporation shall cease except the
rights to receive the cash payable upon such redemption, without interest thereon, upon
surrender and endorsement of their certificates if so required; provided, however, that if
the Redemption Date for any Voting Preferred Shares occurs after any dividend record date
and on or prior to the related Dividend Payment Date, the full dividend payable on such
Dividend Payment Date in respect of such Voting Preferred Shares called for redemption shall
be payable on such Dividend Payment Date to the holders of record of such shares at the
close of business on the corresponding dividend record date notwithstanding the prior
redemption of such shares. The Corporations obligation to make available the redemption
price in accordance with the preceding sentence shall be deemed fulfilled if, on or before
the applicable Redemption Date, the Corporation shall irrevocably deposit in trust with a
bank or trust company (which may not be an affiliate of the Corporation) that has, or is an
affiliate of a bank or trust company that has, a capital and surplus of at least
$50,000,000, such amount of cash as is necessary for such redemption plus, if such
Redemption Date occurs after any dividend record date and on or prior to the related
Dividend Payment Date, such amount of cash as is necessary to pay the dividend payable on
such Dividend Payment Date in respect of such Voting Preferred Shares called for redemption,
with irrevocable instructions that such cash be applied to the redemption of the Voting
Preferred Shares so called for redemption and, if applicable, the payment of such dividend.
No interest shall accrue for the benefit of the holders of Voting Preferred Shares to be
redeemed on any cash so set aside by the Corporation. Subject to applicable escheat laws,
any such cash unclaimed at the end of two years from the Redemption Date shall revert to the
general funds of the Corporation, after which reversion the holders of Voting Preferred
Shares so called for redemption shall look only to the general funds of the Corporation for
the payment of such cash.
As promptly as practicable after the surrender in accordance with such notice of the
certificates for any such Voting Preferred Shares to be so redeemed (properly endorsed or
assigned for transfer, if the Corporation shall so require and the notice shall so state),
such certificates shall be exchanged for cash (without interest thereon) for which such
shares have been redeemed in accordance with such notice. If fewer than all the outstanding
Voting Preferred Shares are to be redeemed, shares to be redeemed shall be selected by the
Corporation from outstanding Voting Preferred Shares not previously called for redemption by
lot or, with respect to the number of Voting Preferred Shares held of record by each holder
of such shares, pro rata (as nearly as may be) or by any other method as may be determined
by the Board of Directors in its discretion to be equitable. If fewer than all the shares of
Voting Preferred Shares represented by any certificate are redeemed, then a new certificate
representing the unredeemed shares shall be issued without cost to the holders thereof.
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Section 6.
Status of Reacquired Shares
. All Voting Preferred Shares which shall have
been issued and reacquired in any manner by the Corporation shall be deemed retired.
Section 7.
Ranking
. The Voting Preferred Shares rank prior to, on a parity with, or
junior to other shares of capital stock of the Corporation in accordance with Item XIII of
this Division A.
Section 8.
Voting
. (a) If and whenever six quarterly dividends (whether or not
consecutive) payable on the Voting Preferred Shares or any series or class of shares ranking
on a parity with the Voting Preferred Shares shall be in arrears (which shall, with respect
to any such quarterly dividend, mean that any such dividend has not been paid in full), the
number of directors then constituting the Board of Directors shall be increased by two (if
not already increased by reason of similar types of provisions with respect to shares
ranking on a parity with the Voting Preferred Shares of any other class or series which is
entitled to similar voting rights (the Arrearage Voting Preferred Shares)) and the holders
of Voting Preferred Shares, together with the holders of shares of all other Arrearage
Voting Preferred Shares then entitled to exercise similar voting rights, voting as a single
class regardless of class or series, shall be entitled to elect the two additional directors
to serve on the Board of Directors at any annual meeting of shareholders or special meeting
held in place thereof, or at a special meeting of the holders of the Voting Preferred Shares
and the Arrearage Voting Preferred Shares called as hereinafter provided. Whenever all
arrearages in dividends on the Voting Preferred Shares and the Arrearage Voting Preferred
Shares then outstanding shall have been paid and dividends thereon for the current quarterly
dividend period shall have been declared and paid, or declared and set apart for payment,
then the right of the holders of the Voting Preferred Shares and the Arrearage Voting
Preferred Shares to elect such additional two directors shall cease (but subject always to
the same provision for the vesting of such voting rights in the case of any similar future
arrearages), and the terms of office of all persons elected as directors by the holders of
the Voting Preferred Shares and the Arrearage Voting Preferred Shares shall forthwith
terminate and the number of directors constituting the Board of Directors shall be reduced
accordingly. At any time after such voting power shall have been so vested in the holders of
Voting Preferred Shares and the Arrearage Voting Preferred Shares, if applicable, the
Secretary of the Corporation may, and upon the written request of any holder of at least ten
percent (10%) of Voting Preferred Shares (addressed to the Secretary at the principal office
of the Corporation) shall, call a special meeting of the holders of the Voting Preferred
Shares and of the Arrearage Voting Preferred Shares for the election of the two directors to
be elected by them as herein provided, such call to be made by notice similar to that
provided in the Code of Regulations of the Corporation for a special meeting of the
shareholders or as required by law. If any such special meeting required to be called as
above provided shall not be called by the Secretary within 20 days after receipt of any such
request, then any holder of Voting Preferred Shares may call such meeting, upon the notice
above provided, and for that purpose shall have access to the stock books of the
Corporation. The directors elected at any such special meeting shall hold office until the
next annual meeting of the shareholders or special meeting held in lieu thereof if such
office shall not have previously terminated as above provided. If any vacancy shall occur
among the directors
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elected by the holders of the Voting Preferred Shares and the Arrearage Voting Preferred
Shares, a successor shall be elected by the Board of Directors, upon the nomination of the
then-remaining director elected by the holders of the Voting Preferred Shares and the
Arrearage Voting Preferred Shares or the successor of such remaining director, to serve
until the next annual meeting of the shareholders or special meeting held in place thereof
if such office shall not have previously terminated as provided above.
(b) So long as any Voting Preferred Shares are outstanding, in addition to any other
vote or consent of shareholders required by law or by the Amended and Restated Articles of
Incorporation of the Corporation, the affirmative vote of at least 66-2/3% of the votes
entitled to be cast by the holders of the Voting Preferred Shares voting as a single class
with the holders of all other classes or series of shares ranking on a parity with the
Voting Preferred Shares entitled to vote on such matters, given in person or by proxy,
either in writing without a meeting or by vote at any meeting called for the purpose, shall
be necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any of the provisions of, or the addition of
any provision to, the Amended and Restated Articles of Incorporation or the Code of
Regulations of the Corporation, whether by merger, consolidation or otherwise (an Event),
that materially adversely affects the voting powers, rights or preferences of the holders of
the Voting Preferred Shares; provided, however, that the amendment of the provisions of the
Amended and Restated 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 Voting
Preferred Shares or any shares of any class or series of shares ranking on a parity with the
Voting Preferred Shares or (B) with respect to the occurrence of any Event, so long as the
Voting Preferred Shares remains outstanding with the terms thereof materially unchanged,
taking into account that upon the occurrence of the Event, the Corporation may not be the
surviving entity, shall not in either case be deemed to materially adversely affect the
voting powers, rights or preferences of the holders of Voting Preferred Shares; or
(ii) 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 Voting Preferred Shares
or any security convertible into shares of any class or series of shares ranking prior to
the Voting Preferred Shares (whether or not such class or series of shares ranking prior to
the Voting Preferred Shares is currently authorized); provided, however, that no such vote
of the holders of Voting Preferred Shares shall be required if, at or prior to the time when
such amendment, alteration or repeal is to take effect, or when the issuance of any such
shares ranking prior to the Voting Preferred Shares or convertible or exchangeable security
is to be made, as the case may be, provision is made for the redemption of all shares of
Voting Preferred Shares at the time outstanding to the extent such redemption is authorized
by Section 5.
(c) In addition to the foregoing, the holders of Voting Preferred Shares shall be
entitled to vote on all matters (for which holders of Common Shares shall be entitled to
vote thereon) at all meetings of the shareholders of the Corporation, and shall be entitled
to one vote for each Voting Preferred Share entitled to vote at such meeting.
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Section 9.
Record Holders
. The Corporation and its transfer agent may deem and treat
the record holder of any Voting Preferred Shares as the true and lawful owner thereof for
all purposes, and neither the Corporation nor such transfer agent shall be affected by any
notice to the contrary.
Section 10.
Restrictions on Ownership and Transfers
. The Voting Preferred Shares are
subject to the provisions of Article XIV of this Division A pertaining to restrictions on
ownership and transfers, including without limitation the provisions relative to Excess
Preferred Shares (as defined in Item XIV).
DIVISION B
Subject to the terms of the Cumulative Shares and the Noncumulative Preferred Shares, the
Common Shares shall have the following express terms:
Section 1.
Dividend Rights.
The holders of Common Shares shall be entitled to receive,
when, as and if declared by the Board of Directors of the Corporation, out of the assets of
the Corporation which are by law available therefor, dividends or distributions payable in
cash, in property or in securities of the Corporation.
Section 2.
Rights Upon Liquidation.
In the event of any voluntary or involuntary
liquidation, dissolution or winding up of, or any distribution of the assets of, the
Corporation, each holder of Common Shares shall be entitled to receive, ratably with each
other holder of Common Shares, that portion of the assets of the Corporation available for
distribution to its shareholders as the number of Common Shares held by such holder bears to
the total number of Common Shares then outstanding.
Section 3.
Voting Rights.
The holders of Common Shares shall be entitled to vote on all
matters (for which holders of Common Shares shall be entitled to vote thereon) at all
meetings of the shareholders of the Corporation, and shall be entitled to one vote for each
Common Share entitled to vote at such meeting.
Section 4.
Restrictions on Transfer to Preserve Tax Benefit; Common Shares Subject to
Redemption
.
(a)
Definitions.
For the purposes of this Section 4 of this Division B of this
Article FOURTH, the following terms shall have the following meanings:
Beneficial Ownership shall mean ownership of Common Shares by a Person who
would be treated as an owner of such Common Shares either directly or constructively
through the application of Section 544 of the Code, as modified by Section
856(h)(1)(B) of the Code. The terms Beneficial Owner, Beneficially Owns and
Beneficially Owned shall have the correlative meanings.
Code shall mean the Internal Revenue Code of 1986, as amended from time to
time.
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Constructive Ownership shall mean ownership of Common Shares by a Person who
would be treated as an owner of such Common Shares either directly or Constructively
through the application of Section 318 of the Code, as modified by Section 856(d)(5)
of the Code. The terms Constructive Owner, Constructively Owns and
Constructively Owned shall have the correlative meanings.
Excess Shares shall mean any Common Shares (i) acquired or proposed to be
acquired by any Person (other than an Existing Holder) pursuant to a Transfer to the
extent that, if effective, such Transfer would result in the transferee either (A)
Beneficially Owning Common Shares in excess of the Ownership Limit or (B)
Constructively Owning Common Shares in excess of the Related Party Limit, (ii)
acquired or proposed to be acquired by an Existing Holder pursuant to a Transfer to
the extent that, if effective, such Transfer would result in such Existing Holder
Beneficially Owning Common Shares in excess of the Existing Holder Limit for such
Existing Holder, or (iii) which are the subject of a Transfer that, if effective,
which would result in (A) the Common Shares being owned by fewer than 100 Persons
(determined without reference to any rules of attribution), or (B) the Corporation
being closely held within the meaning of Section 856(h) of the Code.
Existing Holder shall mean (i) Bert L. Wolstein, (ii) Scott A. Wolstein,
(iii) James A. Schoff, and (iv) any Person to whom an Existing Holder Transfers
Beneficial Ownership of Common Shares causing such transferee to Beneficially Own
Common Shares in excess of the Ownership Limit.
Existing Holder Limit (i) for any Existing Holder who is an Existing Holder
by virtue of clause (i), (ii) or (iii) of the definition thereof, shall mean,
initially, the percentage of the outstanding Common Shares Beneficially Owned by
such Existing Holder upon the consummation of the Initial Public Offering, and after
any adjustment pursuant to Section (4)(i) of this Division B of this Article FOURTH,
shall mean such percentage of the outstanding Common Shares as so adjusted; and (ii)
for any Existing Holder who becomes an Existing Holder by virtue of clause (iv) of
the definition thereof, shall mean, initially, the percentage of the outstanding
Common Shares Beneficially Owned by such Existing Holder at the time that such
Existing Holder becomes an Existing Holder, and after any adjustment pursuant to
Section 4(i) of this Division B of this Article FOURTH, shall mean such percentage
of the outstanding Common Shares as so adjusted. From and after the date of the
Initial Public Offering, the secretary of the Corporation shall maintain and, upon
request, make available to each Existing Holder, a schedule which sets forth the
then current Existing Holder Limits for each Existing Holder.
Initial Public Offering means the sale of Common Shares pursuant to the
Corporations first effective registration statement for such Common Shares filed
under the Securities Act of 1933, as amended.
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Market Price shall mean the last reported sales price of Common Shares
reported on the New York Stock Exchange on the trading day immediately preceding the
relevant date or, if the Common Shares are not then traded on the New York Stock
Exchange, the last reported sales price of the Common Shares on the trading day
immediately preceding the relevant date as reported on any exchange or quotation
system over which the Common Shares may be traded, or if the Common Shares are not
then traded over any exchange or quotation system, then the market price of the
Common Shares on the relevant date as determined in good faith by the Board of
Directors of the Corporation.
Ownership Limit shall mean 5.0% of the outstanding Common Shares of the
Corporation.
Person shall mean an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, an association, a private
foundation within the meaning of Section 509(a) of the Code, a joint stock company,
other entity or a group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended; provided, however, that a Person does
not mean an underwriter which participates in a public offering of the Common
Shares, for a period of 35 days following the purchase by such underwriter of the
Common Shares.
REIT shall mean a Real Estate Investment Trust under Section 856 of the Code.
Related Party Limit shall mean 9.8% of the outstanding Common Shares of the
Corporation.
Transfer shall mean any sale, transfer, gift, assignment, devise or other
disposition of Common Shares (including, without limitation, (i) the granting of any
option or entering into any agreement for the sale, transfer or other disposition of
Common Shares or (ii) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Common Shares), whether
voluntary or involuntary, whether of record or beneficially and whether by operation
of law or otherwise.
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(b) Restrictions on Transfers.
(i) Except as provided in Section 4(i) of this Division B of
this Article FOURTH, from and after the date of the Initial Public
Offering, no Person (other than an Existing Holder) shall
Beneficially Own Common Shares in excess of the Ownership Limit and
no Existing Holder shall Beneficially Own Common Shares in excess of
the Existing Holder Limit for such Existing Holder.
(ii) Except as provided in Section 4(i) of this Division B of
this Article FOURTH, from and after the date of the Initial Public
Offering, any Transfer that, if effective, would result in any Person
(other than an Existing Holder) Beneficially Owning Common Shares in
excess of the Ownership Limit shall be void
ab initio
as to the
Transfer of such Common Shares which would be otherwise Beneficially
Owned by such Person in excess of the Ownership Limit, and the
intended transferee shall acquire no rights in such Common Shares.
(iii) Except as provided in Section 4(i) of this Division B of
this Article FOURTH, from and after the date of the Initial Public
Offering, any Transfer that, if effective, would result in any
Existing Holder Beneficially Owning Common Shares in excess of the
applicable Existing Holder Limit shall be void
ab initio
as to the
Transfer of such Common Shares which would be otherwise Beneficially
Owned by such Existing Holder in excess of the applicable Existing
Holder Limit, and such Existing Holder shall acquire no rights in
such Common Shares.
(iv) Except as provided in Section 4(i) of this Division B of
this Article FOURTH, from and after the date of the Initial Public
Offering, any Transfer that, if effective, would result in any Person
Constructively Owning Common Shares in excess of the Related Party
Limit shall be void
ab initio
as to the Transfer of such Common
Shares which would be otherwise Constructively Owned by such Person
in excess of such amount, and the intended transferee shall acquire
no rights in such Common Shares.
(v) Except as provided in Section 4(i) of this Division B of
this Article FOURTH, from and after the date of the Initial Public
Offering, any Transfer that, if effective, would result in the Common
Shares being beneficially owned by less than 100 Persons (determined
without reference to any rules of attribution) shall be void
ab
initio
as to the Transfer of such Common Shares which would be
otherwise beneficially owned by the transferee,
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and the intended transferee shall acquire no rights in such
Common Shares.
(vi) From and after the date of the Initial Public Offering, any
Transfer that, if effective, would result in the Corporation being
closely held within the meaning of Section 856(h) of the Code shall
be void
ab initio
as to the Transfer of the Common Shares which would
cause the Corporation to be closely held within the meaning of
Section 856(h) of the Code, and the intended transferee shall acquire
no rights in such Common Shares.
(c)
Remedies for Breach.
If the Board of Directors or its designees shall at
any time determine in good faith that a Transfer has taken place in violation of
Section 4(b) of this Division B of this Article FOURTH or that a Person intends to
acquire or has attempted to acquire beneficial ownership (determined without
reference to any rules of attribution), Beneficial Ownership or Constructive
Ownership of any Common Shares of the Corporation in violation of Section 4(b) of
this Division B of this Article FOURTH, or that any such Transfer, intended or
attempted acquisition or acquisition would jeopardize the status of the Corporation
as a REIT under the Code, the Board of Directors or its designees shall take such
actions as it deems advisable to refuse to give effect or to prevent such Transfer,
including, but not limited to, refusing to give effect to such Transfer on the
books of the Corporation or instituting proceedings to enjoin such Transfer and, in
addition, exercising its rights under Section 4(d) of this Division B of this
Article FOURTH.
(d)
Purchase Right in Excess Shares.
Beginning on the date of the occurrence
of a Transfer which, if consummated, in the good faith judgment of the Board of
Directors of the Corporation, could result in Excess Shares, such Excess Shares
shall be deemed to have been offered for sale to the Corporation, or its designee,
at a price per share equal to the lesser of (i) the price per share in the
transaction that created such Excess Shares (or, in the case of a devise or gift,
the Market Price at the time of such devise or gift) and (ii) the Market Price on
the date the Corporation, or its designee, accepts such offer. The Corporation
shall have the right to accept such offer for a period of ninety days after the
later of (i) the date of such Transfer and (ii) if the Corporation does not receive
a notice of such Transfer pursuant to Section 4(e) of this Division B of this
Article FOURTH, the date the Board of Directors determines in good faith that such
Transfer has occurred. Prompt payment of the purchase price shall be made in such
reasonable manner as may be determined by the Corporation. From and after the date
fixed for purchase by the Corporation, and so long as payment of the purchase price
for the Excess Shares to be so purchased shall have been made or duly provided for,
the holder of any Excess Shares so called for purchase shall cease to be entitled
to dividends, distributions, voting rights and other benefits with respect to such
Excess Shares, excepting only the right to payment of the purchase price fixed as
aforesaid. Any dividend or distribution paid to a proposed transferee of Excess
Shares prior to the discovery by the Corporation
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that the Excess Shares have been transferred in violation of Section 4(b) of
this Division B of this Article FOURTH shall be repaid to the Corporation upon
demand. If the foregoing provisions are determined to be void or invalid by virtue
of any legal decision, statute, rule or regulation, then the intended transferee of
such Excess Shares shall be deemed, at the option of the Corporation, to have acted
as agent on behalf of the Corporation in acquiring such Excess Shares and to hold
such Excess Shares on behalf of the Corporation.
(e)
Notice of Restricted Transfer.
Any Person who acquires or intends to
acquire shares in violation of Section 4(b) of this Division B of this Article
FOURTH or any Person who is a transferee of Excess Shares shall immediately give
written notice to the Corporation of such event and shall provide to the
Corporation such other information as the Corporation may request in order to
determine the effect, if any, of such Transfer or intended Transfer on the
Corporations status as a REIT.
(f)
Owners Required to Provide Information.
From and after the date of the
Initial Public Offering:
(i) every Beneficial Owner of more than 5.0% (or such other
percentage, between 0.5% and 5.0%, as provided in the regulations
promulgated pursuant to the Code) of the outstanding Common Shares of
the Corporation shall, within 30 days after January 1 of each year,
give written notice to the Corporation stating the name and address
of such Beneficial Owner, the number of shares Beneficially Owned,
and description of how such shares are held. Each such Beneficial
Owner shall provide to the Corporation such additional information as
the Corporation may request in order to determine the effect, if any,
of such Beneficial Ownership on the Corporations status as a REIT.
(ii) each Person who is a Beneficial Owner or Constructive Owner
of Common Shares and each Person (including the shareholder of
record) who is holding Common Shares for a Beneficial Owner or
Constructive Owner shall provide to the Corporation such information
that the Corporation may request, in good faith, in order to
determine the Corporations status as a REIT.
(g)
Remedies Not Limited.
Nothing contained in this Division B of this Article
FOURTH shall limit the authority of the Board of Directors to take such other
action as it deems necessary or advisable to protect the Corporation and the
interests of its shareholders by preservation of the Corporations status as a
REIT.
(h)
Ambiguity.
In the case of an ambiguity in the application of any of the
provisions of Section 4 of this Division B of this Article FOURTH, including
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any definition contained in Section 4(a), the Board of Directors shall have
the power to determine the application of the provisions of this Section 4 with
respect to any situation based on the facts known to it.
(i)
Modification of Existing Holder Limits.
Subject to the provisions of
Section 4(k) of this Division B, the Existing Holder Limits may be modified as
follows:
(i) Subject to the limitations provided in Section 4(k), any
Existing Holder may Transfer Common Shares to a Person who is already
an Existing Holder up to the number of Common Shares Beneficially
Owned by such transferor Existing Holder in excess of the Ownership
Limit. Any such Transfer will decrease the Existing Holder Limit for
such transferor Existing Holder and increase the Existing Holder
Limit for such transferee Existing Holder by the percentage of the
outstanding Common Shares so Transferred. The transferor Existing
Holder shall give the Board of Directors of the Corporation prior
written notice of any such Transfer.
(ii) Any grant of a stock option pursuant to a stock option plan
approved by the shareholders of the Corporation shall increase the
Existing Holder Limit for the affected Existing Holder to the maximum
extent possible under Section 4(k) to permit the Beneficial Ownership
of the Common Shares issuable upon the exercise of such stock option.
(iii) The Board of Directors may reduce the Existing Holder
Limit for any Existing Holder, with the written consent of such
Existing Holder, after any Transfer permitted in this Section 4 by
such Existing Holder to a Person other than an Existing Holder or
after the lapse (without exercise) of a stock option described in
Section 4(i)(ii).
(iv) Any Common Shares issued to an Existing Holder pursuant to
a dividend reinvestment plan adopted by the Corporation shall
increase the Existing Holder Limit for the Existing Holder to the
maximum extent possible under Section 4(k) to permit the Beneficial
Ownership of such Common Shares.
(j)
Modification of Ownership Limit.
Subject to the limitations provided in
Section 4(k) of this Division B, the Board of Directors may from time to time
increase the Ownership Limit.
(k)
Limitations on Modifications.
Notwithstanding any other provision of this
Division B of this Article FOURTH:
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(i) Neither the Ownership Limit nor any Existing Holder Limit
may be increased (nor may any additional Existing Holder Limit be
created) if, after giving effect to such increase (or creation), five
Beneficial Owners of Common Shares (including all of the then
Existing Holders) could Beneficially Own, in the aggregate, more than
49.6% of the outstanding Common Shares.
(ii) Prior to the modification of any Existing Holder Limit or
Ownership Limit pursuant to Section 4(i) or Section 4(j) of this
Division B of this Article FOURTH, the Board of Directors of the
Corporation may require such opinions of counsel, affidavits,
undertakings or agreements as it may deem necessary or advisable in
order to determine or ensure the Corporations status as a REIT.
(iii) No Existing Holder Limit shall be reduced to a percentage
which is less than the Ownership Limit.
(iv) The Ownership Limit may not be increased to a percentage
which is greater than 9.8%.
(v) The Related Party Limit may not be increased to a percentage
which is greater than 9.8%.
(l)
Exceptions
.
(i) The Board of Directors, with a ruling from the Internal
Revenue Service or an opinion of counsel, may exempt a Person from
the Ownership Limits or the Existing Holder Limits, as the case may
be, if such Person is not an individual for purposes of Section
542(a)(2) of the Code and the Board of Directors obtains such
representations and undertakings from such Person as are reasonably
necessary to ascertain that no individuals Beneficial Ownership of
such Common Shares will violate the Ownership Limit or the applicable
Existing Holder Limit, as the case may be, and agrees that any
violation or attempted violation will result in such Common Shares in
excess of 5.0% of the outstanding Common Shares being deemed to be
Excess Shares and subject to repurchase by the Corporation as set
forth in Section 4(d) of this Division B of this Article FOURTH.
(ii) The Board of Directors, with a ruling from the Internal
Revenue Service or an opinion of counsel, may exempt a Person from
the limitation on such Person Constructively Owning Common Shares in
excess of the Related Party Limit if such Person does not own and
represents that it will not own, directly or constructively (by
virtue of the application of Section 318 of the
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Code, as modified by Section 856(d)(5) of the Code), more than a
9.9% interest (as set forth in Section 856(d)(2)(B) in a tenant of
any real property owned or leased by the Corporation, and the
Corporation obtains such representations and undertakings from such
Person as are reasonably necessary to ascertain this fact and agrees
that any violation or attempted violation will result in such Common
Shares in excess of 9.8% being deemed to be Excess Shares and subject
to repurchase by the Corporation as set forth in Section 4(d) of this
Division B of this Article FOURTH.
Section 5.
Legend.
Each certificate for Common Shares shall bear the following legend:
The Common Shares represented by this certificate are subject to restrictions
on transfer for the purpose of the Corporations maintenance of its status as a Real
Estate Investment Trust under the Internal Revenue Code of 1986, as amended.
Subject to certain provisions of the Corporations Articles of Incorporation, no
Person may Beneficially Own Common Shares in excess of 5.0% of the outstanding
Common Shares of the Corporation (unless such Person is an Existing Holder) and no
Person (other than an Existing Holder who Constructively Owns in excess of 9.8% of
the Common Shares immediately following the consummation of the Initial Public
Offering) may Constructively Own Common Shares in excess of 9.8% of the outstanding
Common Shares of the Corporation. Any Person who attempts to Beneficially Own or
Constructively Own Common Shares in excess of the above limitations must immediately
notify the Corporation. All capitalized items in this legend have the meanings
defined in the Corporations Articles of Incorporation, a copy of which, including
the restrictions on transfer, will be sent without charge to each shareholder who so
requests. If the restrictions on transfer are violated, certain of the Common
Shares represented may be subject to repurchase by the Corporation on the terms and
conditions set forth in the Corporations Articles of Incorporation.
Section 6.
Securities Exchange Transactions.
Notwithstanding any provision contained
herein to the contrary, nothing in these Amended and Restated Articles of Incorporation
shall preclude the settlement of any transaction entered into through the facilities of the
New York Stock Exchange.
FIFTH: At all times following the consummation of the Initial Public Offering (as defined in
Article FOURTH), at least a majority of the members of the Board of Directors shall, except during
the period of a vacancy or vacancies therein, be Independent Directors. An Independent Director
shall mean a person who is not (i) employed by the Corporation or (ii) an affiliate (as defined
in Rule 405 under the Securities Act of 1933, as amended) of (A) any entity which is part of the
Developers Diversified Group, including, without limitation, Developers Diversified Limited
Partnership, an Ohio limited partnership, Developers Diversified, Ltd., an Ohio limited
partnership, W & M Properties, an Ohio general partnership, W & Z Properties, Ltd., an Ohio limited
partnership, and DE Properties Corporation,
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an Ohio corporation, or (B) any partnership which is an affiliate (as defined above) of any
entity listed in clause (A) of this Article FIFTH.
SIXTH: No holder of shares of the corporation of any class shall be entitled as such, as a
matter of right, to subscribe for or purchase shares of any class, now or hereafter authorized, or
to subscribe for or purchase securities convertible into or exchangeable for shares of the
corporation or to which shall be attached or appertain any warrants or rights entitling the holder
thereof to subscribe for or purchase shares, except such rights of subscription or purchase, if
any, for such considerations and upon such terms and conditions as its Board of Directors from time
to time may determine.
SEVENTH: Notwithstanding any provision of Sections 1701.01 to 1701.98, inclusive, of the Ohio
Revised Code, or any successor statutes now or hereafter in force, requiring for the authorization
or taking of any action the vote or consent of the holders of shares entitling them to exercise
two-thirds or any other proportion of the voting power of the corporation or of any class or
classes of shares thereof, such action, unless otherwise expressly required by law or these
Articles of Incorporation, may be authorized or taken by the vote or consent of the holders of
shares entitling them to exercise a majority of the voting power of the corporation or of such
class or classes of shares thereof.
Except as provided in the Companys code of regulations with respect to the election of a
director to fill a vacancy in the Board of Directors, each director shall be elected by the vote of
the majority of the votes cast with respect to the director at any shareholder meeting held for the
election of directors at which a quorum is present; provided, however, that if as of the date that
is ten days in advance of the date the Company files its definitive proxy statement (regardless of
whether or not thereafter revised or supplemented) with the Securities and Exchange Commission with
respect to a shareholder meeting the number of nominees for election as a director is greater than
the number of directors to be elected, then the directors shall be elected at the meeting by the
vote of a plurality of the shares represented in person or by proxy at that meeting and entitled to
vote on the election of directors. For purposes of this Section, a majority of the votes cast means
the number of shares voted for a director exceeds the number of votes cast against the
director. Broker non-votes and abstentions will not be considered votes cast at the shareholder
meeting and will be excluded in determining the number of votes cast at the shareholder meeting.
EIGHTH: To the extent permitted by law, the corporation, by action of its Board of Directors,
may purchase or otherwise acquire shares of any class issued by it at such times, for such
consideration and upon such terms and conditions as its Board of Directors may determine.
NINTH: The provisions of Chapter 1701.831 of the Ohio Revised Code shall not apply to the
Corporation.
TENTH: The provisions of Chapter 1707.043 of the Ohio Revised Code shall not apply to the
Corporation.
ELEVENTH: If any provision (or portion thereof) of these Articles of Incorporation shall be
found to be invalid, prohibited, or unenforceable for any reason, the
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remaining provisions (or portions thereof) of these Articles of Incorporation shall be deemed
to remain in full force and effect, and shall be construed as if such invalid, prohibited, or
unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the
intent of the Corporation and its shareholders that each such remaining provision (or portion
thereof) of these Articles of Incorporation remain, to the fullest extent permitted by law,
applicable and enforceable as to all shareholders, notwithstanding any such finding.
TWELFTH: The Corporation reserves the right to amend, alter, change or repeal any provision
contained in these Articles of Incorporation, in the manner now or hereafter prescribed by statute,
and all rights conferred upon shareholders herein are granted subject to this reservation.
THIRTEENTH: These Second Amended and Restated Articles of Incorporation shall take the place
of and supersede the Corporations existing Amended and Restated Articles of Incorporation, as
amended.
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