Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

Form 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-11690

 

 

DDR Corp.

(Exact name of registrant as specified in its charter)

 

 

 

Ohio   34-1723097

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

3300 Enterprise Parkway, Beachwood, Ohio 44122

(Address of principal executive offices - zip code)

(216) 755-5500

(Registrant’s 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   x     No   ¨

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   x     No   ¨

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

As of August 1, 2013, the registrant had 320,121,734 outstanding common shares, $0.10 par value per share.

 

 

 

 


Table of Contents

PART I

FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS—Unaudited

  

Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012

     2   

Condensed Consolidated Statements of Operations for the Three-Month Periods Ended June  30, 2013 and 2012

     3   

Condensed Consolidated Statements of Operations for the Six-Month Periods Ended June 30, 2013 and 2012

     4   

Condensed Consolidated Statements of Comprehensive Loss for the Three- and Six-Month Periods Ended June 30, 2013 and 2012

     5   

Consolidated Statement of Equity for the Six-Month Period Ended June 30, 2013

     6   

Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2013 and 2012

     7   

Notes to Condensed Consolidated Financial Statements

     8   

 

1


Table of Contents

DDR Corp.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)

 

     June 30, 2013     December 31, 2012  

Assets

    

Land

   $ 1,887,999     $ 1,900,401  

Buildings

     5,868,717       5,773,961  

Fixtures and tenant improvements

     522,103       489,626  
  

 

 

   

 

 

 
     8,278,819       8,163,988  

Less: Accumulated depreciation

     (1,757,530     (1,670,717
  

 

 

   

 

 

 
     6,521,289       6,493,271  

Land held for development and construction in progress

     480,771       475,123  

Real estate held for sale, net

     1,852       —     
  

 

 

   

 

 

 

Total real estate assets, net

     7,003,912       6,968,394  

Investments in and advances to joint ventures

     597,182       613,017  

Cash and cash equivalents

     41,718       31,174  

Restricted cash

     23,524       23,658  

Notes receivable, net

     71,076       68,718  

Other assets, net

     395,307       350,876  
  

 

 

   

 

 

 
   $ 8,132,719     $ 8,055,837  
  

 

 

   

 

 

 

Liabilities and Equity

    

Unsecured indebtedness:

    

Senior notes

   $ 2,450,592     $ 2,147,097  

Unsecured term loan

     350,000       350,000  

Revolving credit facilities

     34,662       147,905  
  

 

 

   

 

 

 
     2,835,254       2,645,002  
  

 

 

   

 

 

 

Secured indebtedness:

    

Secured term loan

     400,000       400,000  

Mortgage indebtedness

     1,209,170       1,274,141  
  

 

 

   

 

 

 
     1,609,170       1,674,141  
  

 

 

   

 

 

 

Total indebtedness

     4,444,424       4,319,143  

Accounts payable and other liabilities

     310,048       326,024  

Dividends payable

     49,971       44,210  
  

 

 

   

 

 

 

Total liabilities

     4,804,443       4,689,377  
  

 

 

   

 

 

 

Commitments and contingencies (Note 9)

    

DDR Equity:

    

Class H—7.375% cumulative redeemable preferred shares, without par value, $500 liquidation value; 750,000 shares authorized; 110,000 and 410,000 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively

     55,000       205,000  

Class J—6.5% cumulative redeemable preferred shares, without par value, $500 liquidation value; 750,000 shares authorized; 400,000 shares issued and outstanding at June 30, 2013 and December 31, 2012

     200,000       200,000  

Class K—6.25% cumulative redeemable preferred shares, without par value, $500 liquidation value; 750,000 shares authorized; 300,000 shares issued and outstanding at June 30, 2013

     150,000       —     

Common shares, with par value, $0.10 stated value; 600,000,000 and 500,000,000 shares authorized; 320,055,468 and 315,239,299 shares issued at June 30, 2013 and December 31, 2012, respectively

     32,006       31,524  

Paid-in capital

     4,714,508       4,629,257  

Accumulated distributions in excess of net income

     (1,817,540     (1,694,822

Deferred compensation obligation

     16,442       15,556  

Accumulated other comprehensive loss

     (30,367     (27,925

Less: Common shares in treasury at cost: 849,960 and 977,673 shares at June 30, 2013 and December 31, 2012, respectively

     (15,362     (16,452
  

 

 

   

 

 

 

Total DDR shareholders’ equity

     3,304,687       3,342,138  

Non-controlling interests

     23,589       24,322  
  

 

 

   

 

 

 

Total equity

     3,328,276       3,366,460  
  

 

 

   

 

 

 
   $ 8,132,719     $ 8,055,837  
  

 

 

   

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

2


Table of Contents

DDR Corp.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE-MONTH PERIODS ENDED JUNE 30,

(Dollars in thousands, except per share amounts)

(Unaudited)

 

     2013     2012  

Revenues from operations:

    

Minimum rents

   $ 146,988     $ 130,803  

Percentage and overage rents

     720       613  

Recoveries from tenants

     46,813       41,284  

Fee and other income

     22,566       17,994  
  

 

 

   

 

 

 
     217,087       190,694  
  

 

 

   

 

 

 

Rental operation expenses:

    

Operating and maintenance

     34,290       30,151  

Real estate taxes

     27,677       24,883  

Impairment charges

     34,439       42,101  

General and administrative

     20,117       19,131  

Depreciation and amortization

     69,887       62,247  
  

 

 

   

 

 

 
     186,410       178,513  
  

 

 

   

 

 

 

Other income (expense):

    

Interest income

     5,797       2,328  

Interest expense

     (55,816     (53,685

Loss on debt retirement, net

     —          (7,892

Other income (expense), net

     1,895       (3,656
  

 

 

   

 

 

 
     (48,124     (62,905
  

 

 

   

 

 

 

Loss before earnings from equity method investments and other items

     (17,447     (50,724

Equity in net (loss) income of joint ventures

     (1,191     3,232  

Gain on change in control of interests

     1,066       39,348  
  

 

 

   

 

 

 

Loss before tax expense of taxable REIT subsidiaries and state franchise and income taxes

     (17,572     (8,144

Tax expense of taxable REIT subsidiaries and state franchise and income taxes

     (1,716     (367
  

 

 

   

 

 

 

Loss from continuing operations

     (19,288     (8,511

Loss from discontinued operations

     (2,305     (34,103
  

 

 

   

 

 

 

Loss before (loss) gain on disposition of real estate

     (21,593     (42,614

(Loss) gain on disposition of real estate, net of tax

     (1,525     5,234  
  

 

 

   

 

 

 

Net loss

   $ (23,118   $ (37,380

Non-controlling interests

     (195     (120
  

 

 

   

 

 

 

Net loss attributable to DDR

   $ (23,313   $ (37,500
  

 

 

   

 

 

 

Write-off of preferred share original issuance costs

     (5,246     —     

Preferred dividends

     (7,475     (6,967
  

 

 

   

 

 

 

Net loss attributable to DDR common shareholders

   $ (36,034   $ (44,467
  

 

 

   

 

 

 

Per share data:

    

Basic earnings per share data:

    

Loss from continuing operations attributable to DDR common shareholders

   $ (0.11   $ (0.04

Loss from discontinued operations attributable to DDR common shareholders

     —          (0.12
  

 

 

   

 

 

 

Net loss attributable to DDR common shareholders

   $ (0.11   $ (0.16
  

 

 

   

 

 

 

Diluted earnings per share data:

    

Loss from continuing operations attributable to DDR common shareholders

   $ (0.11   $ (0.04

Loss from discontinued operations attributable to DDR common shareholders

     —          (0.12
  

 

 

   

 

 

 

Net loss attributable to DDR common shareholders

   $ (0.11   $ (0.16
  

 

 

   

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

3


Table of Contents

DDR Corp.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30,

(Dollars in thousands, except per share amounts)

(Unaudited)

 

     2013     2012  

Revenues from operations:

    

Minimum rents

   $ 290,154     $ 257,671  

Percentage and overage rents

     2,469       1,994  

Recoveries from tenants

     93,711       83,300  

Fee and other income

     39,596       36,324  
  

 

 

   

 

 

 
     425,930       379,289  
  

 

 

   

 

 

 

Rental operation expenses:

    

Operating and maintenance

     67,567       62,750  

Real estate taxes

     55,146       49,412  

Impairment charges

     37,525       42,132  

General and administrative

     39,877       38,144  

Depreciation and amortization

     138,331       120,315  
  

 

 

   

 

 

 
     338,446       312,753  
  

 

 

   

 

 

 

Other income (expense):

    

Interest income

     13,674       4,168  

Interest expense

     (110,240     (108,722

Loss on debt retirement, net

     —          (13,495

Other income (expense), net

     (1,006     (5,233
  

 

 

   

 

 

 
     (97,572     (123,282
  

 

 

   

 

 

 

Loss before earnings from equity method investments and other items

     (10,088     (56,746

Equity in net income of joint ventures

     1,763       11,480  

Impairment of joint venture investments

     —          (560

Gain on change in control of interests

     1,066       39,348  
  

 

 

   

 

 

 

Loss before tax expense of taxable REIT subsidiaries and state franchise and income taxes

     (7,259     (6,478

Tax expense of taxable REIT subsidiaries and state franchise and income taxes

     (2,083     (544
  

 

 

   

 

 

 

Loss from continuing operations

     (9,342     (7,022

Loss from discontinued operations

     (5,700     (51,138
  

 

 

   

 

 

 

Loss before (loss) gain on disposition of real estate

     (15,042     (58,160

(Loss) gain on disposition of real estate, net of tax

     (1,582     5,899  
  

 

 

   

 

 

 

Net loss

   $ (16,624   $ (52,261

Non-controlling interests

     (386     (296
  

 

 

   

 

 

 

Net loss attributable to DDR

   $ (17,010   $ (52,557
  

 

 

   

 

 

 

Write-off of preferred share original issuance costs

     (5,246     —     

Preferred dividends

     (14,505     (13,934
  

 

 

   

 

 

 

Net loss attributable to DDR common shareholders

   $ (36,761   $ (66,491
  

 

 

   

 

 

 

Per share data:

    

Basic earnings per share data:

    

Loss from continuing operations attributable to DDR common shareholders

   $ (0.10   $ (0.06

Loss from discontinued operations attributable to DDR common shareholders

     (0.02     (0.18
  

 

 

   

 

 

 

Net loss attributable to DDR common shareholders

   $ (0.12   $ (0.24
  

 

 

   

 

 

 

Diluted earnings per share data:

    

Loss from continuing operations attributable to DDR common shareholders

   $ (0.10   $ (0.06

Loss from discontinued operations attributable to DDR common shareholders

     (0.02     (0.18
  

 

 

   

 

 

 

Net loss attributable to DDR common shareholders

   $ (0.12   $ (0.24
  

 

 

   

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

4


Table of Contents

DDR Corp.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30,

(Dollars in thousands)

(Unaudited)

 

     Three-Month Periods
Ended June 30,
    Six-Month Periods
Ended June 30,
 
     2013     2012     2013     2012  

Net loss

   $ (23,118   $ (37,380   $ (16,624   $ (52,261
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income:

        

Foreign currency translation

     (17,603     (22,546     (15,935     (18,419

Change in fair value of interest-rate contracts

     10,890       (12,273     12,644       (11,007

Amortization of interest-rate contracts

     118       (233     236       (180
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive loss

     (6,595     (35,052     (3,055     (29,606
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

     (29,713     (72,432     (19,679     (81,867
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to non-controlling interests:

        

Allocation of net income

     (195     (120     (386     (296

Foreign currency translation

     364       457       613       134  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) attributable to non-controlling interests

     169       337       227       (162
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss attributable to DDR

   $ (29,544   $ (72,095   $ (19,452   $ (82,029
  

 

 

   

 

 

   

 

 

   

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

5


Table of Contents

DDR Corp.

CONSOLIDATED STATEMENT OF EQUITY

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2013

(Dollars in thousands)

(Unaudited)

 

    DDR Equity              
    Preferred
Shares
    Common
Shares
    Paid-in
Capital
    Accumulated
Distributions
in Excess of
Net Income
    Deferred
Compensation
Obligation
    Accumulated
Other
Comprehensive
Loss
    Treasury
Stock at
Cost
    Non-
Controlling
Interests
    Total  

Balance, December 31, 2012

  $ 405,000     $ 31,524     $ 4,629,257     $ (1,694,822   $ 15,556     $ (27,925   $ (16,452   $ 24,322     $ 3,366,460  

Issuance of common shares related to stock plans

      9       1,220             125         1,354  

Issuance of common shares for cash offering

      473       82,060             1,237         83,770  

Issuance of preferred shares

    150,000         (5,271               144,729  

Issuance of restricted stock

        (3,118       937         2,181         —     

Vesting of restricted stock

        2,972         (51       (2,453       468  

Stock-based compensation

        2,142                 2,142  

Contributions from non-controlling interests

                  187       187  

Distributions to non-controlling interests

                  (693     (693

Redemption of preferred shares

    (150,000       5,246       (5,246             (150,000

Dividends declared-common shares

          (85,991             (85,991

Dividends declared-preferred shares

          (14,471             (14,471

Comprehensive loss

          (17,010       (2,442       (227     (19,679
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

  $ 405,000     $ 32,006     $ 4,714,508     $ (1,817,540   $ 16,442     $ (30,367   $ (15,362   $ 23,589     $ 3,328,276  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

6


Table of Contents

DDR Corp.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30,

(Dollars in thousands)

(Unaudited)

 

     2013     2012  

Net cash flow provided by operating activities:

   $ 163,518     $ 103,581  
  

 

 

   

 

 

 

Cash flow from investing activities:

    

Real estate developed or acquired, net of liabilities assumed

     (320,813     (166,490

Proceeds from disposition of real estate

     92,669       91,474  

Equity contributions to joint ventures

     (15,699     (29,992

Issuance of joint venture advances, net

     (11,000     (149,975

Distributions of proceeds from sale and refinancing of joint venture interests

     717       937  

Return of investments in joint ventures

     4,569       6,331  

Issuance of notes receivable

     (13,578     (246

Repayment of notes receivable

     11,596       975  

(Increase) decrease in restricted cash—capital improvements

     (1,207     4,900  
  

 

 

   

 

 

 

Net cash flow used for investing activities:

     (252,746     (242,086
  

 

 

   

 

 

 

Cash flow from financing activities:

    

Repayments of revolving credit facilities, net

     (111,840     (135,897

Proceeds from issuance of senior notes, net of underwriting commissions and offering expenses of $650 and $643 in 2013 and 2012, respectively

     295,591       291,570  

Repayment of senior notes

     —          (445,682

Proceeds from mortgages and other secured debt

     43,189       353,506  

Repayment of term loans and mortgage debt

     (104,416     (165,847

Payment of debt issuance costs

     (3,914     (2,501

Redemption of preferred shares

     (150,000     —     

Proceeds from issuance of preferred shares, net of underwriting commissions and offering expenses of $546 in 2013

     144,729       —     

Proceeds from issuance of common shares, net of underwriting commissions and offering expenses of $410 and $441 in 2013 and 2012, respectively

     83,770       300,086  

Repurchase of common shares in conjunction with equity award plans

     (2,082     (1,243

Contributions from non-controlling interests

     187       186  

Distributions to non-controlling interests and redeemable operating partnership units

     (688     (8,420

Dividends paid

     (94,700     (69,397
  

 

 

   

 

 

 

Net cash flow provided by financing activities:

     99,826       116,361  
  

 

 

   

 

 

 

Cash and cash equivalents

    

Increase (decrease) in cash and cash equivalents

     10,598       (22,144

Effect of exchange rate changes on cash and cash equivalents

     (54     (557

Cash and cash equivalents, beginning of period

     31,174       41,206  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 41,718     $ 18,505  
  

 

 

   

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

At June 30, 2013, dividends payable were $50.0 million. During the six months ended June 30, 2013, in conjunction with the acquisition of its partner’s interests in five shopping centers, the Company reversed its previously held equity interest by decreasing Investments in and Advances to Joint Ventures by $15.5 million and increased net assets by $1.0 million for its previously held proportionate share of the assets. In conjunction with the redemption of $150.0 million of the Company’s $205.0 million, 7.375% Class H cumulative redeemable preferred shares, the Company recorded a charge to net income attributable to common shareholders of $5.2 million related to the prorated write-off of the Class H Preferred Shares’ original issuance costs. At June 30, 2013, accounts payable included $22.7 million for accrued but not paid real estate asset expenditures. The foregoing transactions did not provide for or require the use of cash for the six-month period ended June 30, 2013.

At June 30, 2012, dividends payable were $40.9 million. During the six months ended June 30, 2012, the Company acquired $20.1 million of real estate which resulted in an increase in the non-controlling interests of $10.9 million. In addition, in conjunction with the acquisition of its partner’s interests in two shopping centers, the Company reversed its previously held equity interest by increasing Investments in and Advances to Joint Ventures by $21.0 million, as the investment basis was negative, increased net assets by $39.1 million for its previously held proportionate share of the assets and assumed debt of $103.8 million. The foregoing transactions did not provide for or require the use of cash for the six-month period ended June 30, 2012.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

7


Table of Contents

DDR Corp.

Notes to Condensed Consolidated Financial Statements

 

1.   NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION

DDR Corp. and its related real estate joint ventures and subsidiaries (collectively, the “Company” or “DDR”) are primarily engaged in the business of acquiring, owning, developing, redeveloping, expanding, leasing and managing shopping centers. In addition, the Company engages in the origination and acquisition of loans and debt securities, which are generally collateralized directly or indirectly by shopping centers. Unless otherwise provided, references herein to the Company or DDR include DDR Corp., its wholly-owned and majority-owned subsidiaries and its consolidated and unconsolidated joint ventures. The Company’s tenant base primarily includes national and regional retail chains and local retailers. Consequently, the Company’s credit risk is concentrated in the retail industry.

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the year. Actual results could differ from those 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, 2013 and 2012, 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 Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2012.

Principles of Consolidation

The condensed consolidated financial statements include the results of the Company and all entities in which the Company has a controlling interest or has been determined to be the primary beneficiary of a variable interest entity (“VIE”). Investments in joint ventures that the Company does not control are accounted for under the equity method of accounting.

At June 30, 2013 and December 31, 2012, the Company’s investments in consolidated real estate joint ventures in which the Company was deemed to be the primary beneficiary had total real estate assets of $185.9 million and $184.6 million, respectively, mortgages of $21.0 million and $21.5 million, respectively, and other liabilities of $1.5 million and $1.9 million, respectively.

 

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New Accounting Standards Implemented

Presentation of Other Comprehensive Income

In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance on the presentation of comprehensive income. This guidance requires presentation of reclassification adjustments from other comprehensive income to net income in a single note or on the face of the financial statements. This guidance was effective for the Company on January 1, 2013. This guidance did not materially impact the Company’s consolidated financial statements.

 

2.   INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

At June 30, 2013 and December 31, 2012, the Company had ownership interests in various unconsolidated joint ventures that had an investment in 199 and 206 shopping center properties, respectively. Condensed combined financial information of the Company’s unconsolidated joint venture investments is as follows (in thousands):

 

     June 30, 2013     December 31, 2012  

Condensed Combined Balance Sheets

    

Land

   $ 1,529,795     $ 1,569,548  

Buildings

     4,632,324       4,681,462  

Fixtures and tenant improvements

     266,917       244,293  
  

 

 

   

 

 

 
     6,429,036       6,495,303  

Less: Accumulated depreciation

     (881,857     (833,816
  

 

 

   

 

 

 
     5,547,179       5,661,487  

Land held for development and construction in progress

     277,314       348,822  
  

 

 

   

 

 

 

Real estate, net

     5,824,493       6,010,309  

Cash and restricted cash

     368,948       467,200  

Receivables, net

     101,938       99,098  

Other assets

     380,154       427,014  
  

 

 

   

 

 

 
   $ 6,675,533     $ 7,003,621  
  

 

 

   

 

 

 

Mortgage debt

   $ 4,141,601     $ 4,246,407  

Notes and accrued interest payable to DDR (A)

     153,042       143,338  

Other liabilities

     295,990       342,614  
  

 

 

   

 

 

 
     4,590,633       4,732,359  

Redeemable preferred equity

     167,060       154,556  

Accumulated equity

     1,917,840       2,116,706  
  

 

 

   

 

 

 
   $ 6,675,533     $ 7,003,621  
  

 

 

   

 

 

 

Company’s share of Accumulated Equity

   $ 399,551     $ 432,500  
  

 

 

   

 

 

 

 

(A) The Company has amounts receivable from several joint ventures aggregating $36.3 million and $34.3 million at June 30, 2013 and December 31, 2012, respectively, which are included in Investments in and Advances to Joint Ventures on the condensed consolidated balance sheets. The remaining amounts were fully reserved by the Company in prior years.

 

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     Three-Month Periods
Ended June 30,
    Six-Month Periods
Ended June 30,
 
     2013     2012     2013     2012  

Condensed Combined Statements of Operations

        

Revenues from operations

   $ 184,820     $ 163,694     $ 371,547     $ 322,908  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses (A)

     65,022       64,433       129,909       115,495  

Impairment charges

     44,563       —         44,563       840  

Depreciation and amortization

     59,045       41,863       124,345       81,550  

Interest expense

     60,059       58,860       122,258       113,978  
  

 

 

   

 

 

   

 

 

   

 

 

 
     228,689       165,156       421,075       311,863  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before tax expense and discontinued operations

     (43,869     (1,462     (49,528     11,045  

Income tax expense (primarily Sonae Sierra Brasil), net

     (7,238     (6,200     (13,853     (12,190
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

     (51,107     (7,662     (63,381     (1,145

Discontinued operations:

        

Loss from discontinued operations

     (87     (8,287     (62     (10,534

(Loss) gain on disposition of real estate, net of tax

     (369     247       (5,906     107  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before gain (loss) on disposition of real estate, net

     (51,563     (15,702     (69,349     (11,572

Gain (loss) on disposition of real estate, net

     164       (750     643       13,102  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (51,399   $ (16,452   $ (68,706   $ 1,530  

Non-controlling interests

     (6,695     (4,600     (13,914     (13,534
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to unconsolidated joint ventures

   $ (58,094   $ (21,052   $ (82,620   $ (12,004
  

 

 

   

 

 

   

 

 

   

 

 

 

Company’s share of equity in net (loss) income of joint ventures

   $ (1,522   $ 3,171     $ 1,528     $ 13,351  

Amortization of basis differentials (B)

     331       61       235       (1,871
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity in net (loss) income of joint ventures

   $ (1,191   $ 3,232     $ 1,763     $ 11,480  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(A) Operating expenses for the three- and six-month periods ended June 30, 2012, include transaction costs associated with the formation of the unconsolidated joint venture BRE DDR Retail Holdings, LLC.
(B) The difference between the Company’s 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 basis differentials, deferred gains and differences in gain (loss) on sale of certain assets due to the basis differentials and other than temporary impairment charges. The Company is not recording income or loss from those investments in which its investment basis is zero and the Company does not have the obligation or intent to fund any additional capital.

 

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Investments in and Advances to Joint Ventures include the following items, which represent the difference between the Company’s investment basis and its share of all of the unconsolidated joint ventures’ underlying net assets (in millions):

 

     June 30, 2013     December 31, 2012  

Company’s share of accumulated equity

   $ 399.6     $ 432.5  

Redeemable preferred equity and notes receivable from investments (A)

     167.5 (B)       155.0  

Basis differentials

     (3.3     (5.9

Deferred development fees, net of portion related to the Company’s interest

     (2.9     (2.9

Notes and accrued interest payable to DDR

     36.3 (B)       34.3  
  

 

 

   

 

 

 

Investments in and Advances to Joint Ventures

   $ 597.2     $ 613.0  
  

 

 

   

 

 

 

 

(A) Primarily relates to $167.1 million and $154.6 million preferred equity investment in BRE DDR Retail Holdings, LLC at June 30, 2013 and December 31, 2012, respectively.
(B) As discussed below, in conjunction with the Company’s pending acquisition of 30 assets, approximately $146 million is expected to be repaid upon closing.

Service fees and income earned by the Company through management, financing, leasing and development activities performed related to all of the Company’s unconsolidated joint ventures are as follows (in millions):

 

     Three-Month Periods
Ended June 30,
     Six-Month Periods
Ended June 30,
 
     2013      2012      2013      2012  

Management and other fees

   $ 7.8       $ 6.5       $ 15.3       $ 13.4   

Development fees and leasing commissions

     2.3         1.9         5.2         3.9   

Interest income

     4.6         0.5         9.1         0.5   

BRE DDR Retail Holdings, LLC

In May 2013, the Company entered into a purchase agreement with certain affiliates of The Blackstone Group L.P. (collectively, “Blackstone”) pursuant to which the Company will ultimately acquire sole ownership of a portfolio of 30 open-air, value-oriented power centers that are currently owned by BRE DDR Retail Holdings, LLC, the Company’s joint venture with Blackstone (the “BRE JV”). The Company expects to acquire Blackstone’s interest in the properties in a transaction valued at approximately $1.46 billion ($1.54 billion at 100%) (the “Blackstone Acquisition”). The transaction will include a cash payment of $566 million and the assumption of Blackstone’s 95% share of each of approximately $398 million of mortgage debt to be assumed by the Company at closing, approximately $146 million of the Company’s preferred equity interest and mezzanine loan previously funded by the Company to the BRE JV that will no longer be outstanding upon closing, and approximately $406 million of mortgage debt to be repaid at closing. The Blackstone Acquisition is subject to the satisfaction of customary closing conditions and is expected to close in the fourth quarter of 2013. The Company paid a $25 million deposit to Blackstone pursuant to the terms of the purchase agreement, which will reduce the final cash payment required upon closing. The deposit is recorded in Other Assets on the condensed consolidated balance sheet as of June 30, 2013.

 

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DDRTC Core Retail Fund LLC

In April 2013, the Company purchased its unconsolidated joint venture partner’s 85% ownership interest in five assets. The aggregate purchase price of these assets was $110.5 million. The Company recorded an aggregate Gain on Change in Control of Interests related to the difference between the Company’s carrying value and fair value of the previously held equity interest. At closing, $92.4 million of aggregate mortgage debt was repaid. Upon acquisition, these shopping centers were unencumbered and consolidated into the Company’s results from operations.

 

3.   ACQUISITIONS

In the six-month period ended June 30, 2013, the Company acquired the following operating shopping centers:

 

Location

   Date Acquired    Gross
Purchase
Price

(in  millions)
     Face Value of
Mortgage
Debt
Assumed
(in millions)
 

Tampa, FL, Atlanta, GA, Newport News, VA and Richmond, VA (2 assets) (A)

   April 2013    $ 110.5         N/A   

Parcels adjacent to existing shopping centers

   June 2013      11.7         N/A   

Dallas, TX

   March 2013      40.3         N/A   

Oakland, CA

   February 2013      41.1         N/A   

 

(A) Acquired from unconsolidated joint venture.

The Company accounted for these acquisitions utilizing the purchase method of accounting. The acquisition cost of the operating shopping centers was allocated as follows (in thousands):

 

           Weighted Average
Amortization Period
(in Years)
 

Land

   $ 31,120       N/A   

Buildings

     148,566       N/A   

Tenant improvements

     4,155       N/A   

In-place leases (including lease origination costs and fair market value of leases) (A)

     18,184       6.3   

Tenant relations

     10,478       5.6   
  

 

 

   
     212,503    

Less: Below-market leases

     (8,949     18.5   
  

 

 

   

Net assets acquired

   $ 203,554    
  

 

 

   

 

(A) Includes above-market value of leases of $2.4 million.

 

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Consideration:

  

Cash (including debt repaid at closing)

   $ 187,022  

Fair value of previously held equity interests

     16,532  
  

 

 

 

Total consideration

   $ 203,554  
  

 

 

 

The costs related to the acquisition of these assets, which were not material, were expensed as incurred and included in other income (expense), net.

The following unaudited supplemental pro forma operating data is presented for the three- and six-month periods ended June 30, 2013 and 2012, as if the acquisition of the interests in the properties acquired in 2013 and 2012 was completed on January 1, 2012 (in thousands, except per share amounts). The Gain on Change in Control related to the acquisitions from unconsolidated joint ventures was adjusted to the assumed acquisition date. The unaudited supplemental pro forma operating data is not necessarily indicative of what the actual results of operations of the Company would have been assuming the transactions had been completed as set forth above, nor do they purport to represent the Company’s results of operations for future periods.

 

     Three-Month Periods
Ended June 30,
    Six-Month Periods
Ended June 30,
 
     2013     2012     2013     2012  

Pro forma revenues

   $ 217,890     $ 205,357     $ 430,651     $ 412,307  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma loss from continuing operations

   $ (20,315   $ (47,320   $ (9,995   $ (44,930
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma loss from discontinued operations

   $ (2,305   $ (34,103   $ (5,700   $ (51,138
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss attributable to DDR common shareholders

   $ (37,061   $ (83,276   $ (37,414   $ (104,399
  

 

 

   

 

 

   

 

 

   

 

 

 

Per share data:

        

Basic earnings per share data:

        

Loss from continuing operations attributable to DDR common shareholders

   $ (0.11   $ (0.17   $ (0.10   $ (0.18

Loss from discontinued operations attributable to DDR common shareholders

     (0.01     (0.11     (0.02     (0.17
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to DDR common shareholders

   $ (0.12   $ (0.28   $ (0.12   $ (0.35
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share data:

        

Loss from continuing operations attributable to DDR common shareholders

   $ (0.11   $ (0.17   $ (0.10   $ (0.18

Loss from discontinued operations attributable to DDR common shareholders

     (0.01     (0.11     (0.02     (0.17
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to DDR common shareholders

   $ (0.12   $ (0.28   $ (0.12   $ (0.35
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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4.   NOTES RECEIVABLE

The Company has notes receivable, including accrued interest, that are collateralized by certain rights in development projects, partnership interests, sponsor guaranties and/or real estate assets, some of which are subordinate to other financings.

Notes receivable consist of the following (in thousands):

 

     June 30, 2013      December 31, 2012  

Loans receivable

   $ 62,862       $ 60,378   

Other notes

     3,065         3,093   

Tax Increment Financing Bonds (“TIF Bonds”) (A)

     5,149         5,247   
  

 

 

    

 

 

 
   $ 71,076       $ 68,718   
  

 

 

    

 

 

 

 

(A) Principal and interest are payable solely from the incremental real estate taxes, if any, generated by the respective shopping center and development project pursuant to the terms of the financing agreement.

As of June 30, 2013 and December 31, 2012, the Company had seven and six loans receivable outstanding, respectively. The following table reconciles the loans receivable on real estate for the six-month periods ended June 30, 2013 and 2012 (in thousands):

 

     2013     2012  

Balance at January 1

   $ 60,378     $ 84,541  

Additions:

    

New mortgage loans

     13,531       246  

Interest

     82       787  

Accretion of discount

     431       407  

Deductions:

    

Payments of principal and interest

     (11,560     —     

Other (A)

     —          (31,700
  

 

 

   

 

 

 

Balance at June 30

   $ 62,862     $ 54,281  
  

 

 

   

 

 

 

 

(A) Loan assumed by the Company’s unconsolidated joint venture BRE DDR Retail Holdings, LLC and reclassified into Investments in and Advances to Joint Ventures in the Company’s consolidated balance sheet at December 31, 2012, upon the Company’s acquisition of the equity interest.

In addition, at June 30, 2013, the Company had one loan outstanding aggregating $9.8 million that matured in September 2011 and was more than 90 days past due. The Company is no longer accruing interest income on this note as no payments have been received. A loan loss reserve of $4.3 million was established in 2012 based on the estimated value of the underlying real estate collateral.

 

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5.   OTHER ASSETS, NET

Other assets consist of the following (in thousands):

 

     June 30,
2013
     December 31,
2012
 

Intangible assets:

     

In-place leases (including lease origination costs and fair market value of leases), net

   $ 74,794       $ 67,105   

Tenant relations, net

     67,226         62,175   
  

 

 

    

 

 

 

Total intangible assets, net (A)

     142,020         129,280   

Other assets:

     

Accounts receivable, net (B)

     113,669         126,228   

Deferred charges, net

     41,221         42,498   

Prepaid expenses

     18,336         12,469   

Deposits

     14,550         10,580   

Other assets

     65,511         29,821   
  

 

 

    

 

 

 

Total other assets, net

   $ 395,307       $ 350,876   
  

 

 

    

 

 

 

 

(A) The Company recorded amortization expense of $7.1 million and $3.6 million for the three-month periods ended June 30, 2013 and 2012, and $13.8 million and $6.8 million for the six-month periods ended June 30, 2013 and 2012, respectively, related to these intangible assets.
(B) Includes straight-line rents receivable, net, of $60.6 million and $58.2 million at June 30, 2013 and December 31, 2012, respectively.

 

6.   REVOLVING CREDIT FACILITIES AND TERM LOANS

The following table discloses certain information regarding the Company’s Revolving Credit Facilities (as defined below) and term loans (in millions):

 

    Carrying Value at
June 30, 2013
    Weighted-Average
Interest Rate at
June 30, 2013
    Maturity Date

Unsecured indebtedness:

     

Unsecured Credit Facility

  $ 29.7        2.4   April 2017

PNC Facility

    5.0        1.6   April 2017

Unsecured Term Loan—Tranche 1

    50.0        2.3   January 2017

Unsecured Term Loan—Tranche 2

    300.0        3.4   January 2019

Secured indebtedness:

     

Secured Term Loan

    400.0        2.0   April 2017

 

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Revolving Credit Facilities

The Company maintains an unsecured revolving credit facility with a syndicate of financial institutions, arranged by JP Morgan Securities, LLC and Wells Fargo Securities, LLC (the “Unsecured Credit Facility”), which was last amended in January 2013. The Unsecured Credit Facility provides for borrowings of up to $750 million, if certain financial covenants are maintained, and an accordion feature for expansion of availability to $1.25 billion upon the Company’s request, provided that new or existing lenders agree to the existing terms of the facility and increase their commitment level and the ability to extend the maturity for one year to April 2018 at the Company’s option. The Unsecured Credit Facility includes a competitive bid option on periodic interest rates for up to 50% of the facility. The Unsecured Credit Facility also provides for an annual facility fee, which was 30 basis points on the entire facility at June 30, 2013. The Unsecured Credit Facility also allows for foreign currency-denominated borrowings. At June 30, 2013, the Company had US$4.8 million of Euro borrowings and US$24.9 million of Canadian dollar borrowings outstanding (Note 8). At June 30, 2013, the Company did not have any US$ borrowings outstanding.

The Company also maintains a $65 million unsecured revolving credit facility with PNC Bank, National Association, (the “PNC Facility” and, together with the Unsecured Credit Facility, the “Revolving Credit Facilities”). The PNC Facility was also amended in January 2013 to reflect terms consistent with those contained in the Unsecured Credit Facility.

The Company’s borrowings under the Revolving Credit Facilities bear interest at variable rates at the Company’s election, based on either (i) the prime rate plus a specified spread (0.40% at June 30, 2013), as defined in the respective facility, or (ii) LIBOR, plus a specified spread (1.40% at June 30, 2013). The specified spreads vary depending on the Company’s long-term senior unsecured debt rating from Moody’s Investors Service and Standard and Poor’s. 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, 2013.

Secured Term Loan

The Company maintains a collateralized term loan (the “Secured Term Loan”) with a syndicate of financial institutions, for which KeyBank National Association serves as the administrative agent, which was amended in January 2013. The Secured Term Loan includes an option to extend the maturity for one year to April 2018, at the Company’s option. Borrowings under the Secured Term Loan bear interest at variable rates based on LIBOR, as defined in the loan agreement, plus a specified spread based on the Company’s long-term senior unsecured debt rating (1.55% at June 30, 2013). The collateral for the Secured Term Loan is real estate assets, or investment interests in certain assets, that are already encumbered by first mortgage loans. The Company is required to comply with covenants similar to those contained in the Revolving Credit Facilities. The Company was in compliance with these covenants at June 30, 2013.

 

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Table of Contents
7.   SENIOR NOTES

In May 2013, the Company issued $300 million aggregate principal amount of 3.375% senior unsecured notes due May 2023. The Company expects to use the net proceeds to partially fund the Blackstone Acquisition (Note 2).

 

8.   FINANCIAL INSTRUMENTS

Measurement of Fair Value

At June 30, 2013, the Company used pay-fixed interest rate swaps to manage its exposure to changes in benchmark interest rates (the “Swaps”). The estimated fair values were determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk, including the Company’s own nonperformance risk and the respective counterparty’s nonperformance risk. The Company determined that the significant inputs used to value its derivatives fell within Level 2 of the fair value hierarchy.

Items Measured at Fair Value on a Recurring Basis

The following table presents information about the Company’s financial assets and liabilities, which consist of interest rate swap agreements (included in Other Liabilities) and marketable securities (included in Other Assets) from investments in the Company’s elective deferred compensation plan at June 30, 2013 and December 31, 2012, measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012, and indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions):

 

     Fair Value Measurements  

Assets (liabilities):

   Level 1      Level 2     Level 3      Total  

June 30, 2013

          

Derivative financial instruments

   $ —         $ (4.4   $ —        $ (4.4

Marketable securities

   $ 3.2       $ —       $ —        $ 3.2  

December 31, 2012

          

Derivative financial instruments

   $ —         $ (17.1   $ —        $ (17.1

Marketable securities

   $ 2.9       $ —       $ —        $ 2.9  

The unrealized gain of $12.6 million included in other comprehensive income (loss) (“OCI”) is attributable to the net change in fair value during the six-month period ended June 30, 2013, related to derivative financial instruments, none of which were reported in the Company’s condensed consolidated statements of operations because the swaps are documented and qualify as hedging instruments.

 

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Table of Contents

Other Fair Value Instruments

Investments in unconsolidated joint ventures are considered financial assets. See discussion of related fair value consideration in Note 13.

Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts Payable, Accrued Expenses and Other Liabilities

The carrying amounts reported in the condensed consolidated balance sheets for these financial instruments approximated fair value because of their short-term maturities. The fair value of cash and cash equivalents and restricted cash are classified as Level 1 in the fair value hierarchy.

Notes Receivable and Advances to Affiliates

The fair value is estimated using a discounted cash flow analysis, in which the Company used unobservable inputs such as market interest rates determined by the loan to value and market capitalization rates related to the underlying collateral at which management believes similar loans would be made and classified as Level 3 in the fair value hierarchy. The fair value of these notes was approximately $267.5 million and $250.7 million at June 30, 2013 and December 31, 2012, respectively, as compared to the carrying amounts of $265.4 million and $250.4 million, respectively. The carrying value of the TIF bonds, which was $5.1 million and $5.2 million at June 30, 2013 and December 31, 2012, respectively, approximated their fair value.

Debt

The fair market value of senior notes, except convertible senior notes, is determined using the trading price of the Company’s public debt. The fair market value for all other debt is estimated using a discounted cash flow technique that incorporates future contractual interest and principal payments and a market interest yield curve with adjustments for duration, optionality and risk profile including the Company’s nonperformance risk and loan to value. The Company’s senior notes, except convertible senior notes, and all other debt including convertible senior notes are classified as Level 2 and Level 3, respectively, in the fair value hierarchy.

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.

 

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Table of Contents

Debt instruments at June 30, 2013 and December 31, 2012, with carrying values that are different than estimated fair values, are summarized as follows (in thousands):

 

     June 30, 2013      December 31, 2012  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 

Senior notes

   $ 2,450,592      $ 2,692,996      $ 2,147,097      $ 2,503,127  

Revolving Credit Facilities and term loans

     784,662        786,667        897,905        903,210  

Mortgage indebtedness

     1,209,170        1,225,014        1,274,141        1,324,969  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,444,424      $ 4,704,677      $ 4,319,143      $ 4,731,306  
  

 

 

    

 

 

    

 

 

    

 

 

 

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks 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, from time to time, through 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 values of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

The Company has interests in 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. The Company uses non-derivative financial instruments to economically hedge a portion of this exposure. The Company manages its currency exposure related to the net assets of its Canadian and European subsidiaries through foreign currency-denominated debt agreements.

Cash Flow Hedges of Interest Rate Risk

The Company’s 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 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.

As of June 30, 2013 and December 31, 2012, the aggregate fair value of the Company’s $632.1 million and $632.8 million notional amount of Swaps was a liability of $4.4 million and $17.1 million, respectively, which is included in Other Liabilities in the condensed consolidated balance sheets. The following table discloses certain information regarding the Company’s ten outstanding interest rate swaps (not including the specified spreads):

 

Aggregate Notional
Amount (in millions)

    LIBOR Fixed
Rate
    Maturity Date
$ 100.0        1.0   June 2014
$ 50.0        0.6   June 2015
$ 100.0        0.5   July 2015
$ 82.1        2.8   September 2017
$ 100.0        0.9   January 2018
$ 100.0        1.6   February 2019
$ 100.0        1.5   February 2019

 

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All components of the Swaps were included in the assessment of hedge effectiveness. The Company expects that within the next 12 months it will reflect an increase to interest expense (and a corresponding decrease to earnings) of approximately $6.6 million, which includes amortization of previously settled interest rate contracts.

The effective portion of changes in the fair value of derivatives designated, and that qualify, as cash flow hedges is recorded in accumulated OCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2013, such derivatives were used to hedge the forecasted variable cash flows associated with existing or probable future obligations. The ineffective portion of the change in the fair value of derivatives is recognized directly in earnings. During the six-month periods ended June 30, 2013 and 2012, the amount of hedge ineffectiveness recorded was not material.

The table below presents the fair value of the Company’s Swaps as well as their classification on the condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012, as follows (in millions):

 

     Liability Derivatives  
     June 30, 2013      December 31, 2012  

Derivatives Designated as Hedging Instruments

   Balance Sheet
Location
   Fair
Value
     Balance Sheet
Location
   Fair
Value
 

Interest rate products

   Other liabilities    $ 4.4      Other liabilities    $ 17.1  

The effect of the Company’s derivative instruments on net income (loss) is as follows (in millions):

 

Derivatives in Cash Flow Hedging

   Amount of Gain (Loss) Recognized in
OCI on Derivatives
(Effective Portion)
    Location of Gain
(Loss) Reclassified
from Accumulated
OCI (Effective
Portion)
   Amount of Gain (Loss) Reclassified
from Accumulated OCI
(Effective Portion)
 
   Three-Month
Periods Ended
June 30
    Six-Month
Periods Ended
June 30
       Three-Month
Periods Ended
June 30
    Six-Month
Periods Ended
June 30
 
   2013      2012     2013      2012        2013     2012     2013     2012  

Interest rate products

   $ 10.9       $ (7.6   $ 12.6       $ (6.3   Interest expense    $ (0.1   $ (0.2   $ (0.2   $ (0.2

 

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The Company is exposed to credit risk in the event of non-performance by the counterparties to the Swaps if the derivative position has a positive balance. 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. The Company has not entered, 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 Swap counterparties that contain a provision whereby if the Company defaults on certain of its unsecured indebtedness, the Company could also be declared in default on its Swaps, resulting in an acceleration of payment under the Swaps.

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 that expose the Company to fluctuations in foreign exchange rates. The Company has designated these foreign currency borrowings as a hedge of its 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. Because the notional amount of the non-derivative instrument substantially matches the portion of the net investment designated as being hedged, and the non-derivative instrument is denominated in the functional currency of the hedged net investment, the hedge ineffectiveness recognized in earnings is not material.

The effect of the Company’s net investment hedge derivative instruments on OCI is as follows (in millions):

 

     Amount of Gain (Loss) Recognized in OCI on
Derivatives  (Effective Portion)
 
     Three-Month Periods
Ended June 30,
     Six-Month Periods
Ended June 30,
 

Derivatives in Net Investment Hedging Relationships

   2013     2012      2013      2012  

Euro-denominated revolving credit facilities designated as a hedge of the Company’s net investment in its subsidiary

   $ (0.1   $ 0.4       $ 0.1       $ 0.3   
  

 

 

   

 

 

    

 

 

    

 

 

 

Canadian dollar-denominated revolving credit facilities designated as a hedge of the Company’s net investment in its subsidiaries

   $ 0.9     $ 1.7       $ 1.3       $ 0.4   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

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9.   COMMITMENTS AND CONTINGENCIES

Legal Matters

Coventry II

The Company is a party to various joint ventures with the Coventry II Fund, through which 10 existing or proposed retail properties, along with a portfolio of former Service Merchandise locations, were acquired at various times from 2003 through 2006. The properties were acquired by the joint ventures as value-add investments, with major renovation and/or ground-up development contemplated for many of the properties. The Company was generally responsible for day-to-day management of the properties through December 2011. On November 4, 2009, Coventry Real Estate Advisors L.L.C., Coventry Real Estate Fund II, L.L.C. and Coventry Fund II Parallel Fund, L.L.C. (collectively, “Coventry”) filed suit against the Company and certain of its affiliates and officers in the Supreme Court of the State of New York, County of New York. The complaint alleges that the Company: (i) breached contractual obligations under a co-investment agreement and various joint venture limited liability company agreements, project development agreements and management and leasing agreements; (ii) breached its fiduciary duties as a member of various limited liability companies; (iii) fraudulently induced the plaintiffs to enter into certain agreements; and (iv) made certain material misrepresentations. The complaint also requests that a general release made by Coventry in favor of the Company in connection with one of the joint venture properties be voided on the grounds of economic duress. The complaint seeks compensatory and consequential damages in an amount not less than $500 million, as well as punitive damages.

In response to this action, the Company filed a motion to dismiss the complaint or, in the alternative, to sever the plaintiffs’ claims. In June 2010, the court granted the motion in part (which was affirmed on appeal), dismissing Coventry’s claim that the Company breached a fiduciary duty owed to Coventry. The Company also filed an answer to the complaint, and asserted various counterclaims against Coventry. On October 10, 2011, the Company filed a motion for summary judgment, seeking dismissal of all of Coventry’s remaining claims. On April 18, 2013, the court issued an order granting the majority of the Company’s motion. Among other findings, the order dismissed all claims of fraud and misrepresentation against the Company and its officers, dismissed all claims for breach of the joint venture agreements and development agreements, and dismissed Coventry’s claim of economic duress. The court’s decision denied the Company’s motion solely with respect to several claims for breach of contract under the Company’s prior management agreements in connection with certain assets. Coventry appealed the court’s ruling. The Company cross-appealed the ruling with respect to those limited aspects of the motion that were not granted.

The Company believes that the allegations in the lawsuit are without merit and that it has strong defenses against this lawsuit. The Company will continue to vigorously defend itself against the allegations contained in the complaint. This lawsuit is subject to the uncertainties inherent in the litigation process and, therefore, no assurance can be given as to its ultimate outcome and no loss provision has been recorded in the accompanying financial statements because a loss contingency is not deemed probable or estimable. However, based on the information presently available to the Company, the Company does not expect that the ultimate resolution of this lawsuit will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

 

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Contract Termination

In January 2008, the Company entered into a Services Agreement (the “Agreement”) with Oxford Building Services, Inc. (“Oxford”). Oxford’s obligations under the Agreement were guaranteed by Control Building Services, Inc. (“Control”), an affiliate of Oxford. The Agreement required that Oxford identify and contract directly with various service providers (“Vendors”) to provide maintenance, repairs, supplies and a variety of on-site services to certain properties in the Company’s portfolio, in exchange for which Oxford would pay such Vendors for the services. Under the Agreement, the Company remitted funds to Oxford to pay the Vendors under the Vendors’ contracts with Oxford.

On or about January 23, 2013, Oxford advised the Company that approximately $11 million paid by the Company to Oxford for the sole purpose of paying various Vendors had instead been used to repay commercial financing obligations incurred by Oxford and its affiliates to a third-party lender. As a result, Oxford had insufficient funds to pay the Vendors in accordance with the Agreement. On January 28, 2013, the Company terminated the Agreement based upon Oxford’s violations of the Agreement principally due to its insolvency. On February 26, 2013, Oxford and several affiliates filed petitions for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of New Jersey (Case No. 13-13821).

In its initial filings in the bankruptcy case, Oxford has claimed that the Company refused to pay Oxford approximately $5 million allegedly due and owing to Vendors for work performed at the Company’s properties prior to the termination of the Agreement. Further, Oxford threatened to commence litigation against the Company to recover the alleged amounts owed should a consensual resolution not be reached. The Company denies that any sums are due to Oxford, and if any such claim is asserted, the Company will vigorously defend against it. Furthermore, as a result of the funds previously paid by the Company to Oxford, the Company also denies that any sums are due from the Company to any Vendors and will vigorously defend against any such claims. On March 18, 2013, the Company filed suit in the Court of Common Pleas, Cuyahoga County, Ohio, against Control, Control Equity Group, Inc. (the non-bankrupt parent company of Oxford) and the individual principals of Oxford. The suit asserts claims for, among other things, breach of the Control guaranty, fraud, conversion and civil conspiracy.

Other

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 outcome of such legal proceedings and claims will not have a material adverse effect on the Company’s liquidity, financial position or results of operations.

 

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Table of Contents
10.   EQUITY

Common Shares

In May 2013, the Company entered into forward sale agreements with respect to 39.1 million of its common shares at an initial price to the Company of $18.21582 per share. Subject to the Company’s right to elect cash or net share settlement, the Company expects to physically settle the forward sale agreements no later than October 31, 2013. The Company expects to use the net proceeds received upon settlement of the forward sale agreements to partially fund the Blackstone Acquisition (Note 2).

From January 1, 2013 through June 30, 2013, the Company issued 4.8 million common shares, primarily through the use of its continuous equity program, at a weighted-average price of $17.71 per share, generating gross proceeds of $85.0 million. The net proceeds primarily were used to acquire shopping center assets (Note 3).

Common share dividends declared were as follows:

 

     Three-Month Periods
Ended June 30,
     Six-Month Periods
Ended June 30,
 
     2013      2012      2013      2012  

Common share dividends declared

   $ 0.135       $ 0.12       $ 0.27       $ 0.24   

Preferred Shares

In April 2013, the Company issued $150.0 million of its newly designated 6.250% Class K cumulative redeemable preferred shares (“Class K Preferred Shares”) at a price of $500.00 per share (or $25.00 per depositary share). In addition, in April 2013, the Company redeemed $150.0 million of its 7.375% Class H cumulative redeemable preferred shares (“Class H Preferred Shares”) at a redemption price of $25.1127 per Class H depositary share (the sum of $25.00 per depositary share and dividends per depositary share of $0.1127 prorated to the redemption date). The Company recorded a charge of $5.2 million to net loss attributable to common shareholders related to the write-off of the Class H Preferred Shares’ original issuance costs.

2013 Value Sharing Equity Program

On December 31, 2012, the Company adopted the 2013 Value Sharing Equity Program (“2013 VSEP”), which granted awards to certain officers of the Company on January 1, 2013. The 2013 VSEP awards, if earned, may result in the granting of common shares of the Company to participants on future measurement dates over three years, subject to an additional serviced-based vesting schedule. As a result, in general, the total compensation available to participants under the 2013 VSEP, if any, will be fully earned only after seven years (the three-year performance period and the final four-year service-based vesting period).

The 2013 VSEP is designed to allow DDR to reward participants for superior financial performance and allow them to share in “value created” (as defined below), based upon (1) increases in DDR’s adjusted market capitalization over pre-established periods of time and (2) increases in

 

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Table of Contents

relative total shareholder return of DDR as compared to the performance of the FTSE NAREIT Equity REITs Total Return Index for the FTSE International Limited NAREIT U.S. Real Estate Index Series (the “NAREIT Index”). Under the 2013 VSEP, participants are granted two types of performance-based awards – a “relative performance award” and an “absolute performance award” – that, if earned, are settled with DDR common shares that are generally subject to additional service-based vesting requirements for a period of four years.

Absolute Performance Awards. Under the absolute performance awards, on five specified measurement dates (occurring on December 31, 2013 and every six months thereafter through December 31, 2015), DDR will measure the “Value Created” during the period between the start of the 2013 VSEP and the applicable measurement date. Value Created is measured for each period for the absolute performance awards as the increase in DDR’s market capitalization (i.e. the product of DDR’s five-day trailing average share price as of each measurement date (price-only appreciation, not total shareholder return) and the number of shares outstanding as of the measurement date), as adjusted for equity issuances and/or equity repurchases, between the start of the 2013 VSEP and the applicable measurement date. The share price used for purposes of determining Value Created for the absolute performance awards during any measurement period is capped based on an 8.0% per year compound annual growth rate for DDR shares from the start of the 2013 VSEP through the end of 2015 (the “Maximum Ending Share Price”).

Each participant has been assigned a “percentage share” of the Value Created for the absolute performance awards, but the total share of Value Created for all participants for the absolute performance awards is capped at $18.0 million (the aggregate percentage share for all participants for the absolute performance awards is 1.4133%). As a result, each participant’s total share of Value Created for the absolute performance awards is capped at an individual maximum limit. After the first measurement date, each participant will earn DDR common shares with an aggregate value equal to two-sixths of the participant’s percentage share of the Value Created for this award. After each of the next three measurement dates, each participant will earn DDR common shares with an aggregate value equal to three-sixths, then four-sixths, and then five-sixths, respectively, of the participant’s percentage share of the Value Created for this award. After the final measurement date (or, if earlier, upon a change in control, as defined in the 2013 VSEP), each participant will earn DDR common shares with an aggregate value equal to the participant’s full percentage share of the Value Created. In addition, for each measurement date, the number of DDR common shares earned by a participant will be reduced by the number of DDR common shares previously earned by the participant for prior measurement periods.

Relative Performance Awards. Under the relative performance awards, on December 31, 2015 (or, if earlier, upon a change in control), DDR will compare its dividend-adjusted share price performance during the period between the start of the 2013 VSEP and December 31, 2015, to the performance of a comparable hypothetical investment in the NAREIT Index (in each case as adjusted for equity issuances and/or equity repurchases during the same period). No relative performance awards will be earned by participants unless and until the absolute performance awards have already been earned by DDR achieving its Maximum Ending Share Price, and thus achieving maximum performance for the absolute performance awards.

 

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Table of Contents

If DDR’s relative performance exceeds the NAREIT Index, then the relative performance awards may be earned provided certain conditions are met. First, DDR’s five-day trailing average share price as of December 31, 2015, must be equal to or exceed the Maximum Ending Share Price. Second, the participant must be employed with DDR on the measurement date for the relative performance awards. If, after satisfaction of those conditions, DDR’s relative performance exceeds the NAREIT Index performance (subject to a not-less-than-minimum level of NAREIT Index performance), then each participant will earn DDR common shares based on the participant’s full “percentage share” of the Value Created for the relative performance awards, which percentage shares have been assigned by DDR. The total share of Value Created for all participants for the relative performance awards is capped at $36.0 million (the aggregate percentage share for all participants for the relative performance awards is 1.9337%), and, as a result, each participant’s total share of Value Created for the relative performance awards is capped at an individual maximum limit.

Unless otherwise determined by DDR, the DDR shares earned under the absolute performance awards and relative performance awards will generally be subject to additional service-based restrictions that are expected to vest in 20% annual increments beginning on the date of grant and on each of the first four anniversaries of the date of grant. The fair value of the 2013 VSEP grants was estimated on the date of grant using a Monte Carlo approach model based on the following assumptions:

 

     Range

Risk-free interest rate

   0.36%

Weighted-average dividend yield

   4.0%

Expected life

   3 years

Expected volatility

   18-24%

As of June 30, 2013, $8.2 million of total unrecognized compensation costs are related to the two market metric components associated with the awards granted under the 2013 VSEP and are expected to be recognized over the 6.5-year term, which includes the vesting period.

 

11.   OTHER COMPREHENSIVE LOSS

The changes in accumulated other comprehensive loss by component are as follows (in thousands):

 

     Gains and
Losses on Cash
Flow Hedges
    Foreign
Currency
Items
    Total  

Balance, December 31, 2012

   $ (22,247   $ (5,678   $ (27,925
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before reclassifications

     12,644       (15,322     (2,678

Amounts reclassified from accumulated other comprehensive loss (A)

     236       —         236  
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     12,880       (15,322     (2,442
  

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

   $ (9,367   $ (21,000   $ (30,367
  

 

 

   

 

 

   

 

 

 

 

(A) Reflects amortization classified in Interest Expense of $0.3 million offset by amortization classified in Equity in Net Income of Joint Ventures of $0.1 million, which were previously recognized in Accumulated Other Comprehensive Income in the Company’s condensed consolidated statements of operations for the six months ended June 30, 2013.

 

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Table of Contents
12.   FEE AND OTHER INCOME

Fee and other income from continuing operations was composed of the following (in millions):

 

     Three-Month Periods
Ended June 30,
     Six-Month Periods
Ended June 30,
 
     2013      2012      2013      2012  

Management, development, financing and other fee income

   $ 10.2       $ 11.2       $ 20.9       $ 23.0   

Ancillary and other property income

     7.5         6.6         13.2         12.6   

Lease termination fees

     4.7         —          5.2         0.5   

Other miscellaneous

     0.2         0.2         0.3         0.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fee and other income

   $ 22.6       $ 18.0       $ 39.6       $ 36.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13.   IMPAIRMENT CHARGES AND IMPAIRMENT OF JOINT VENTURE INVESTMENTS

The Company recorded impairment charges during the three- and six-month periods ended June 30, 2013 and 2012, based on the difference between the carrying value of the assets or investments and the estimated fair market value as follows (in millions):

 

     Three-Month Periods
Ended June 30,
     Six-Month Periods
Ended June 30,
 
     2013      2012      2013      2012  

Land held for development

   $ —        $ 6.4       $ —        $ 6.4   

Undeveloped land

     2.6         19.1         2.6         19.1   

Assets marketed for sale (A)

     31.8         16.6         34.9         16.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total continuing operations

   $ 34.4       $ 42.1       $ 37.5       $ 42.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Sold assets or assets held for sale

     0.5         38.1         5.1         55.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total discontinued operations

   $ 0.5       $ 38.1       $ 5.1       $ 55.5   

Joint venture investments

     —          —          —          0.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impairment charges

   $ 34.9       $ 80.2       $ 42.6       $ 98.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(A) The impairment charges were triggered primarily due to the Company’s marketing of these assets for sale and management’s assessment of the likelihood and timing of a potential transaction.

Items Measured at Fair Value on a Non-Recurring Basis

For a description of the Company’s methodology on determining fair value, refer to Note 11 of the Company’s Financial Statements filed on its Annual Report on Form 10-K, as amended, for the year ended December 31, 2012.

 

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Table of Contents

The following table presents information about the Company’s impairment charges on both financial and nonfinancial assets that were measured on a fair value basis for the six-month period ended June 30, 2013 and the year ended December 31, 2012. The table also indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions):

 

     Fair Value Measurements  
     Level 1      Level 2      Level 3      Total      Total
Losses
 

June 30, 2013

              

Long-lived assets held and used and held for sale

   $ —        $ —        $ 93.3       $ 93.3       $ 42.6   

December 31, 2012

              

Long-lived assets held and used and held for sale

     —          —          180.7         180.7         126.5   

Unconsolidated joint venture investment

     —          —          4.7         4.7         26.7   

Deconsolidated joint venture investment

     —          —          56.1         56.1         9.3   

The following table presents quantitative information about the significant unobservable inputs used by the Company to determine the fair value of non-recurring items (in millions):

 

Quantitative Information about Level 3 Fair Value Measurements

     Fair Value      Valuation
Technique
  Unobservable
Input
   Range

June 30, 2013

          

Impairment of consolidated assets (A)

   $ 64.7       Indicative Bid /
Contracted Price
  Indicative Bid /
Contracted Price
   N/A

Impairment of consolidated assets

     26.6       Income
Capitalization
Approach
(B)
  Market
Capitalization
Rate
   7.5% - 16.1% (B)
        Price Per Square
Foot
   $12 to $49 per

square foot

Impairment of consolidated assets—Held for Sale (A)

     2.0       Contracted Price   Contracted Price    N/A

December 31, 2012

          

Impairment of consolidated assets (A)

   $ 136.6       Indicative Bid   Indicative Bid    N/A

Impairment of consolidated assets

     44.1       Income
Capitalization
Approach
(B)
  Market
Capitalization
Rate
   8% - 12% (B)
        Price Per Square
Foot
   $15 to $47 per

square foot

Impairment of joint venture investments (C)

     4.7       Income
Capitalization
Approach
  Market
Capitalization
Rate
   8%

Impairment of joint venture investments

     —        Discounted Cash
Flow
  Discount Rate    11%
        Terminal
Capitalization
Rate
   5.5% - 8.5%

Deconsolidated joint venture investment (D)

     56.1       Discounted Cash
Flow
  Discount Rate    8% - 15%

 

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(A) Fair value measurements based upon indicative bids were developed by third-party sources (including offers and comparable sales values), subject to the Company’s corroboration for reasonableness. The Company does not have access to certain unobservable inputs used by these third parties to determine these estimated fair values.
(B) Vacant space in certain assets was valued on a price per square foot.
(C) The fair value measurements also includes consideration of the fair market value of debt. These inputs are further described in the debt section of Note 8.
(D) Related to loss reported in Change in Control and Sale of Interests recorded in 2012.

 

14.   DISCONTINUED OPERATIONS

The Company sold 17 properties during the six-month period ended June 30, 2013, and had one property held for sale at June 30, 2013. In addition, the Company sold 29 properties in 2012. These asset sales are included in discontinued operations for the three- and six-month periods ended June 30, 2013 and 2012. The balance sheet related to the assets held for sale and the operating results related to assets sold or designated as held for sale as of June 30, 2013, are as follows (in thousands):

 

     June 30, 2013  

Land

   $ 1,151  

Buildings

     929  

Fixtures and tenant improvements

     10  
  

 

 

 
     2,090  

Less: Accumulated depreciation

     (238
  

 

 

 

Total assets held for sale

   $ 1,852  
  

 

 

 

 

     Three-Month Periods
Ended June 30,
    Six-Month Periods
Ended June 30,
 
     2013     2012     2013     2012  

Revenues

   $ 1,760     $ 5,721     $ 4,530     $ 13,868  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     613       1,903       1,408       5,439  

Impairment charges

     542       38,126       5,135       55,466  

Interest, net

     376       1,318       1,010       3,168  

Depreciation and amortization

     471       1,703       1,215       4,230  
  

 

 

   

 

 

   

 

 

   

 

 

 
     2,002       43,050       8,768       68,303  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations

     (242     (37,329     (4,238     (54,435

(Loss) gain on disposition of real estate, net of tax

     (2,063     3,226       (1,462     3,297  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations

   $ (2,305   $ (34,103   $ (5,700   $ (51,138
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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15.   EARNINGS PER SHARE

The following table calculates the Company’s earnings per share (“EPS”) and provides a reconciliation of net loss 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):

 

     Three-Month Periods
Ended June 30,
   

Six-Month Periods

Ended June 30,

 
     2013     2012     2013     2012  

Basic Earnings:

        

Continuing Operations:

        

Loss from continuing operations

   $ (19,288   $ (8,511   $ (9,342   $ (7,022

Plus: (Loss) gain on disposition of real estate

     (1,525     5,234       (1,582     5,899  

Plus: Loss attributable to non-controlling interests

     (195     (120     (386     (296
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations attributable to DDR

     (21,008     (3,397     (11,310     (1,419

Write-off of preferred share original issuance costs

     (5,246     —         (5,246     —    

Preferred dividends

     (7,475     (6,967     (14,505     (13,934
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic—Loss from continuing operations attributable to DDR common shareholders

     (33,729     (10,364     (31,061     (15,353

Less: Earnings attributable to unvested shares and operating partnership units

     (359     (308     (722     (600
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic—Loss from continuing operations

   $ (34,088   $ (10,672   $ (31,783   $ (15,953

Discontinued Operations:

        

Basic—Loss from discontinued operations

     (2,305     (34,103     (5,700     (51,138
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic—Net loss attributable to DDR common shareholders after allocation to participating securities

   $ (36,393   $ (44,775   $ (37,483   $ (67,091
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted Earnings:

        

Continuing Operations:

        

Basic—Loss from continuing operations

   $ (33,729   $ (10,364   $ (31,061   $ (15,353

Less: Earnings attributable to unvested shares and operating partnership units

     (359     (308     (722     (600
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted—Loss from continuing operations

     (34,088     (10,672     (31,783     (15,953

Discontinued Operations:

        

Basic—Loss from discontinued operations

     (2,305     (34,103     (5,700     (51,138
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted—Net loss attributable to DDR common shareholders after allocation to participating securities

   $ (36,393   $ (44,775   $ (37,483   $ (67,091
  

 

 

   

 

 

   

 

 

   

 

 

 

Number of Shares:

        

Basic and diluted—Average shares outstanding

     316,967        280,390       315,110        277,802  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic Earnings Per Share:

        

Loss from continuing operations attributable to DDR common shareholders

   $ (0.11   $ (0.04   $ (0.10   $ (0.06

Loss from discontinued operations attributable to DDR common shareholders

     —         (0.12     (0.02     (0.18
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to DDR common shareholders

   $ (0.11   $ (0.16   $ (0.12   $ (0.24
  

 

 

   

 

 

   

 

 

   

 

 

 

Dilutive Earnings Per Share:

        

Loss from continuing operations attributable to DDR common shareholders

   $ (0.11   $ (0.04   $ (0.10   $ (0.06

Loss from discontinued operations attributable to DDR common shareholders

     —         (0.12     (0.02     (0.18
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to DDR common shareholders

   $ (0.11   $ (0.16   $ (0.12   $ (0.24
  

 

 

   

 

 

   

 

 

   

 

 

 

The following potentially dilutive securities are considered in the calculation of EPS as described below:

Potentially dilutive Securities:

 

   

Options to purchase 2.7 million and 2.8 million common shares were outstanding at June 30, 2013 and 2012, respectively. These outstanding options were not considered in the computation of diluted EPS for all periods presented, as the options were anti-dilutive due to the Company’s loss from continuing operations.

 

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The exchange into common shares associated with operating partnership units was not included in the computation of diluted shares outstanding for all periods presented because the effect of assuming conversion was anti-dilutive.

 

   

The Company’s senior convertible notes due 2040, which are convertible into common shares of the Company with a conversion price of $15.55 at June 30, 2013, were not included in the computation of diluted EPS for all periods presented, because the Company’s common share price did not exceed 125% of the conversion price in these periods and would therefore be anti-dilutive. The Company’s senior convertible notes due 2012, which were convertible into common shares of the Company, were not included in the computation of diluted EPS for the six-month period ended June 30, 2012, because the Company’s common share price did not exceed the conversion price in this period and would therefore be anti-dilutive. The senior convertible notes due 2012 were repaid at maturity in March 2012. In addition, the purchase option related to this debt issuance was not included in the computation of diluted EPS for the six-month period ended June 30, 2012, as the purchase option was anti-dilutive.

 

   

Shares subject to issuance under the Company’s 2013 VSEP were not considered in the computation of diluted EPS for the three- and six-month periods ended June 30, 2013, as they were anti-dilutive due to the Company’s loss from continuing operations (Note 10). Shares subject to issuance under the Company’s 2009 VSEP were not considered in the computation of diluted EPS for the three- and six-month periods ended June 30, 2012, as they were anti-dilutive due to the Company’s loss from continuing operations. The final measurement date for the 2009 VSEP was December 31, 2012.

 

   

The 39.1 million common shares that were subject to the forward equity agreements entered into in May 2013 were not included in the computation of diluted EPS using the treasury stock method for the three- and six-month periods ended June 30, 2013, as they were anti-dilutive due to the Company’s loss from continuing operations. The Company expects to physically settle the forward sale agreements no later than October 31, 2013.

 

   

The 19.0 million common shares that were subject to the forward equity agreements entered into in January 2012 were not included in the computation of diluted EPS using the treasury stock method for the three- and six-month periods ended June 30, 2012, as they were anti-dilutive due to the Company’s loss from continuing operations. The Company settled the forward equity agreements in June 2012.

 

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16.   SEGMENT INFORMATION

The Company has three reportable operating segments: shopping centers, loan investments and Brazil equity investment. Each consolidated shopping center is considered a separate operating segment; however, each shopping center on a stand-alone basis represents 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 the applicable standard.

The tables below present information about the Company’s reportable operating segments and reflect the impact of discontinued operations (Note 14) (in thousands):

 

                                                                                                        
     Three-Month Period Ended June 30, 2013  
     Shopping
Centers
    Loan
Investments
    Brazil  Equity
Investment
(A)
     Other     Total  

Total revenues

   $   217,078     $ 9          $   217,087  

Operating expenses (B)

     (96,255     (151          (96,406
  

 

 

   

 

 

        

 

 

 

Net operating income (loss)

     120,823       (142          120,681  

Depreciation and amortization

     (69,887            (69,887

Interest income

           5,797            5,797  

Other income (expense), net

          $       1,895       1,895  

Gain on change in control of interests

     1,066              1,066  

Unallocated expenses (C)

            (77,649     (77,649

Equity in net (loss) income of joint ventures

     (5,687     $   4,496          (1,191
           

 

 

 

Loss from continuing operations

            $ (19,288
           

 

 

 

 

                                                                                                        
     Three-Month Period Ended June 30, 2012  
     Shopping
Centers
    Loan
Investments
    Brazil  Equity
Investment
(A)
     Other     Total  

Total revenues

   $   190,694     $ —            $   190,694  

Operating expenses (B)

     (96,985     (150          (97,135
  

 

 

   

 

 

        

 

 

 

Net operating income (loss)

     93,709       (150          93,559  

Depreciation and amortization

     (62,247            (62,247

Interest income

           2,328            2,328  

Other income (expense), net

          $ (3,656 )     (3,656

Gain on change in control of interests

     39,348              39,348  

Unallocated expenses (C)

            (81,075 )     (81,075

Equity in net (loss) income of joint ventures

     (2,383     $   5,615          3,232  
           

 

 

 

Loss from continuing operations

            $ (8,511
           

 

 

 

 

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     Six-Month Period Ended June 30, 2013  
     Shopping
Centers
    Loan
Investments
    Brazil  Equity
Investment
(A)
     Other     Total  

Total revenues

   $ 425,916     $ 14          $ 425,930  

Operating expenses (B)

     (159,937     (301          (160,238
  

 

 

   

 

 

        

 

 

 

Net operating income (loss)

     265,979       (287          265,692  

Depreciation and amortization

     (138,331            (138,331

Interest income

       13,674            13,674  

Other income (expense), net

          $ (1,006     (1,006

Gain on change in control on interests

     1,066              1,066  

Unallocated expenses (C)

            (152,200     (152,200

Equity in net (loss) income of joint ventures

     (7,017     $   8,780          1,763  
           

 

 

 

Loss from continuing operations

            $ (9,342
           

 

 

 

As of June 30, 2013:

           

Total gross real estate assets

   $ 8,761,681            $ 8,761,681  
  

 

 

          

 

 

 

Notes receivable, net

     $ 261,894 (D)        $ (190,818 ) (D)     $ 71,076  
    

 

 

      

 

 

   

 

 

 

 

                                                                                    
     Six-Month Period Ended June 30, 2012  
     Shopping
Centers
    Loan
Investments
    Brazil  Equity
Investment
(A)
     Other     Total  

Total revenues

   $ 379,281     $ 8          $ 379,289  

Operating expenses (B)

     (154,010     (284          (154,294
  

 

 

   

 

 

        

 

 

 

Net operating income (loss)

     225,271       (276          224,995  

Depreciation and amortization

     (120,315            (120,315

Interest income

       4,168            4,168  

Other income (expense), net

          $ (5,233     (5,233

Gain on change in control of interests

     39,348              39,348  

Unallocated expenses (C)

            (160,905 )     (160,905

Equity in net (loss) income of joint ventures

     (3,042     $ 14,522          11,480  

Impairment of joint venture investments

              (560
           

 

 

 

Loss from continuing operations

            $ (7,022
           

 

 

 

As of June 30, 2012:

           

Total gross real estate assets

   $ 8,241,982          $ 9,771     $ 8,251,753  
  

 

 

        

 

 

   

 

 

 

Notes receivable, net

     $ 236,433        $ (173,935 ) (D)     $ 62,498  
    

 

 

      

 

 

   

 

 

 

 

(A) The carrying value of the Brazil Equity Investment is not a measure used by executive management for purposes of decision making related to asset allocation or performance assessment of this segment.
(B) Includes impairment charges of $34.4 million and $42.1 million for the three-month periods ended June 30, 2013 and 2012, respectively, and $37.5 million and $42.1 million for the six-month periods ended June 30, 2013 and 2012, respectively.
(C) Unallocated expenses consist of general and administrative expenses, interest expense, loss/gain on debt retirement, and tax benefit/expense as listed in the condensed consolidated statements of operations.
(D) Amount includes loans to affiliates classified in Investments in and Advances to Joint Ventures on the condensed consolidated balance sheet.

 

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17.   SUBSEQUENT EVENTS

In July 2013, the Company acquired two power centers in Orlando, Florida and Atlanta, Georgia, with a combined gross leasable area of 1.4 million square feet for a gross purchase price of $258.5 million. The Company assumed a $139.4 million mortgage with the acquisition.

 

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Item 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides readers with a perspective from management on the Company’s financial condition, results of operations, liquidity and other factors that may affect the Company’s future results. The Company believes it is important to read the MD&A in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2012, as amended, as well as other publicly available information.

Executive Summary

The Company is a self-administered and self-managed Real Estate Investment Trust (“REIT”) in the business of acquiring, owning, developing, redeveloping, expanding, leasing and managing shopping centers. In addition, the Company engages in the origination and acquisition of loans and debt securities collateralized directly or indirectly by shopping centers. As of June 30, 2013, the Company’s portfolio consisted of 435 shopping centers (including 199 shopping centers owned through unconsolidated joint ventures and three shopping centers that are otherwise consolidated by the Company) in which the Company had an economic interest. These properties consist of shopping centers, lifestyle centers and enclosed malls owned in the United States, Puerto Rico and Brazil. At June 30, 2013, the Company owned more than 115 million total square feet of gross leasable area (“GLA”), which includes all of the aforementioned properties. These amounts do not include 28 assets that the Company has not managed since January 1, 2012. At June 30, 2013, the aggregate occupancy of the Company’s operating shopping center portfolio in which the Company has an economic interest was 91.7%, as compared to 90.5% at June 30, 2012. The Company owned 456 shopping centers (including 215 shopping centers owned through unconsolidated joint ventures and two that were otherwise consolidated by the Company) and one office property at June 30, 2012. The average annualized base rent per occupied square foot was $13.77 at June 30, 2013, as compared to $13.66 at December 31, 2012 and $13.80 at June 30, 2012.

Net loss attributable to DDR common shareholders for the three-month period ended June 30, 2013, was $36.0 million, or $0.11 per share (basic and diluted), compared to net loss attributable to DDR common shareholders of $44.5 million, or $0.16 per share (basic and diluted), for the prior-year comparable period. Net loss attributable to DDR common shareholders for the six-month period ended June 30, 2013, was $36.8 million, or $0.12 per share (basic and diluted), compared to net loss attributable to DDR common shareholders of $66.5 million, or $0.24 per share (basic and diluted), for the prior-year comparable period. Funds from operations attributable to DDR common shareholders (“FFO”) for the three-month period ended June 30, 2013, was $80.0 million, compared to $78.1 million for the prior-year comparable period. FFO attributable to DDR common shareholders for the six-month period ended June 30, 2013, was $162.5 million, compared to $137.8 million for the prior-year comparable period. The increase in FFO for the six-month period ended June 30, 2013, primarily was due to organic growth and shopping center acquisitions, a reduction in impairment charges of non-depreciable assets and the loss on debt retirement related to the Company’s repurchase of unsecured senior notes, partially offset by asset dispositions, the write-off of the original issuance costs from the redemption of the Company’s 7.375% Class H cumulative redeemable preferred shares (“Class H Preferred Shares”) in 2013 as well as the gain on change in control of interests recorded in 2012.

 

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Table of Contents

Second Quarter 2013 Operating Results

During the second quarter of 2013, the Company continued to pursue opportunities to position itself for long-term growth while also lowering the Company’s risk profile and cost of capital. The Company continued making progress on its balance sheet initiatives; strengthening the operations of its prime portfolio and recycling capital from non-prime asset sales into the acquisition of prime assets (i.e., market-dominant shopping centers with high-quality tenants located in attractive markets with strong demographic profiles, which are referred to as “Prime Portfolio” or “Prime Assets”) to improve portfolio quality. The Company continues to carefully consider opportunities that fit its selective acquisition requirements and remains prudent in its underwriting and bidding practices.

Significant second quarter 2013 and other recent transactional activity included the following:

 

   

Entered into an agreement to acquire 30 Prime Assets from its existing joint venture with an affiliate of The Blackstone Group L.P. (“Blackstone”), which is expected to close in the fourth quarter of 2013 (“Blackstone Acquisition”);

 

   

Issued $300.0 million aggregate principal amount of 3.375%, 10-year senior unsecured notes and entered into forward sale agreements to sell 39.1 million common shares for expected net proceeds of $712.2 million, or $18.21582 per share, to fund the Blackstone Acquisition. The Company expects to settle the forward sale agreements no later than October 31, 2013;

 

   

Acquired $110.5 million of Prime Assets, consisting of five assets from its unconsolidated joint venture partner;

 

   

Issued $45.0 million of common shares to fund the net investment in Prime Assets;

 

   

Completed the disposition of $64.4 million of non-Prime Assets, of which DDR’s pro-rata share of the proceeds was $59.8 million;

 

   

Opened Belgate Shopping Center, a 100% leased, 900,000-square-foot prime power center located in Charlotte, North Carolina and

 

   

Issued $150.0 million of newly designated 6.250% Class K Cumulative Redeemable Preferred Shares and redeemed $150.0 million of the Company’s 7.375% Class H Cumulative Redeemable Preferred Shares.

The Company continued its improvement in operating performance and internal growth in the first half of 2013 as evidenced by the number of leases executed during the quarter, the increase in the occupancy rate and the continued upward trend in the average annualized base rental rates.

 

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Table of Contents
   

The Company leased approximately 2.8 million square feet in the second quarter of 2013, including 190 new leases and 271 renewals for a total of 461 leases. The leasing volume in the first half of 2013 demonstrates significant progress against the 3.1 million square feet of total GLA expiring in 2013 determined as of December 31, 2012.

 

   

The Company continued to execute both new leases and renewals at positive rental spreads. At December 31, 2012, the Company had 1,466 leases expiring in 2013 with an average base rent per square foot of $16.94. For the comparable leases executed in the second quarter of 2013, the Company generated positive leasing spreads on a pro rata basis in the second quarter of 12.8% for new leases and 7.7% for renewals. The Company’s leasing spread calculation only includes deals that were executed within one year of the date the prior tenant vacated and, as a result, is a good benchmark to compare the average annualized base rent of expiring leases with the comparable executed market rental rates.

 

   

The aggregate occupancy of the Company’s operating shopping center portfolio increased to 91.7% at June 30, 2013, as compared to 91.5% at December 31, 2012 and 90.5% at June 30, 2012. In addition, the Company’s total portfolio average annualized base rent per square foot increased to $13.77 at June 30, 2013, as compared to $13.66 at December 31, 2012.

 

   

The weighted-average cost of tenant improvements and lease commissions estimated to be incurred for new leases executed during the second quarter of 2013 remained low at $4.17 per rentable square foot over the lease term. The Company generally does not expend a significant amount of capital on lease renewals.

Results of Operations

Continuing Operations

Shopping center properties owned as of January 1, 2012, but excluding properties under development or redevelopment and those classified in discontinued operations, are referred to herein as the “Comparable Portfolio Properties.”

Revenues from Operations (in thousands)

 

    

Three-Month Periods

Ended June 30,

        
     2013      2012      $ Change  

Base and percentage rental revenues

   $ 147,708       $ 131,416       $ 16,292   

Recoveries from tenants

     46,813         41,284         5,529   

Fee and other income

     22,566         17,994         4,572   
  

 

 

    

 

 

    

 

 

 

Total revenues

   $ 217,087       $ 190,694       $ 26,393   
  

 

 

    

 

 

    

 

 

 

 

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Six-Month Periods

Ended June 30,

        
     2013      2012      $ Change  

Base and percentage rental revenues (A)

   $ 292,623       $ 259,665       $ 32,958   

Recoveries from tenants (B)

     93,711         83,300         10,411   

Fee and other income (C)

     39,596         36,324         3,272   
  

 

 

    

 

 

    

 

 

 

Total revenues

   $ 425,930       $ 379,289       $ 46,641   
  

 

 

    

 

 

    

 

 

 

 

(A) The increase is due to the following (in millions):

 

     Increase  

Acquisition of shopping centers

   $ 24.3  

Comparable Portfolio Properties

     6.2  

Straight-line rents

     1.6  

Development or redevelopment properties

     0.9  
  

 

 

 
   $ 33.0  
  

 

 

 

The following tables present the statistics for the Company’s operating shopping center portfolio affecting base and percentage rental revenues summarized by the following portfolios: combined shopping center portfolio, wholly-owned shopping center portfolio and joint venture shopping center portfolio:

 

    

Shopping Center
Portfolio (1)

June 30,

 
     2013     2012  

Centers owned

     435       456  

Aggregate occupancy rate

     91.7     90.5

Average annualized base rent per occupied square foot

   $ 13.77 (2)     $ 13.80  

 

    

Wholly-Owned
Shopping Centers

June 30,

   

Joint Venture

Shopping Centers  (1)

June 30,

 
     2013     2012     2013     2012  

Centers owned

     233       239       199       215  

Centers owned through Consolidated joint ventures

     N/A       N/A       3       2  

Aggregate occupancy rate

     92.1     90.3     91.3     90.6

Average annualized base rent per occupied square foot

   $ 13.05     $ 12.83     $ 14.69 (2)     $ 14.85  

Comparable Portfolio Properties:

        

Aggregate occupancy rate

     93.1     91.2    

Average annualized base rent per occupied square foot

   $ 12.84     $ 12.68      

 

(1) Excludes shopping centers owned through the Company’s joint venture with Coventry Real Estate Fund II (“Coventry II Fund”), which are no longer managed by the Company and in which the Company’s investment basis is not material.
(2) Decrease within the joint venture portfolio primarily is due to sale of assets in Brazil in the fourth quarter of 2012.

 

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(B) The increase in Recoveries primarily was driven by the impact of Acquisition properties. Recoveries for all properties on a blended basis were approximately 89.0% of reimbursable operating expenses and real estate taxes for each of the six-month periods ended June 30, 2013 and 2012.
(C) Composed of the following (in millions):

 

    

Three-Month Periods

Ended June 30,

 
     2013      2012      Increase
(Decrease)
 

Management, development, financing and other fee income

   $ 10.2       $ 11.2       $ (1.0

Ancillary and other property income

     7.5         6.6         0.9  

Lease termination fees

     4.7         —           4.7  

Other miscellaneous

     0.2         0.2         —    
  

 

 

    

 

 

    

 

 

 
   $ 22.6       $ 18.0       $ 4.6  
  

 

 

    

 

 

    

 

 

 

 

    

Six-Month Periods

Ended June 30,

 
     2013      2012      Increase
(Decrease)
 

Management, development, financing and other fee income

   $ 20.9       $ 23.0       $ (2.1

Ancillary and other property income

     13.2         12.6         0.6  

Lease termination fees

     5.2         0.5         4.7  

Other miscellaneous

     0.3         0.2         0.1  
  

 

 

    

 

 

    

 

 

 
   $ 39.6       $ 36.3       $ 3.3  
  

 

 

    

 

 

    

 

 

 

The decrease in management, development, financing and other fee income in 2013 largely is the result of a decrease in the number of properties owned by the Company’s unconsolidated joint ventures. This fee income is expected to decrease as a result of the Blackstone Acquisition that is expected to close in the fourth quarter of 2013.

Expenses from Operations (in thousands)

 

    

Three-Month Periods

Ended June 30,

        
     2013      2012      $ Change  

Operating and maintenance

   $ 34,290       $ 30,151       $ 4,139  

Real estate taxes

     27,677         24,883         2,794  

Impairment charges

     34,439         42,101         (7,662

General and administrative

     20,117         19,131         986  

Depreciation and amortization

     69,887         62,247         7,640  
  

 

 

    

 

 

    

 

 

 
   $ 186,410       $ 178,513       $ 7,897  
  

 

 

    

 

 

    

 

 

 

 

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Six-Month Periods

Ended June 30,

        
     2013      2012      $ Change  

Operating and maintenance (A)

   $ 67,567       $ 62,750       $ 4,817  

Real estate taxes (A)

     55,146         49,412         5,734  

Impairment charges (B)

     37,525         42,132         (4,607

General and administrative (C)

     39,877         38,144         1,733  

Depreciation and amortization (A)

     138,331         120,315         18,016  
  

 

 

    

 

 

    

 

 

 
   $ 338,446       $ 312,753       $ 25,693  
  

 

 

    

 

 

    

 

 

 

 

(A) The changes for the six-month period ended June 30, 2013, compared to the same period in 2012, are due to the following (in millions):

 

     Operating
and
Maintenance
     Real Estate
Taxes
     Depreciation
and
Amortization
 

Acquisitions of shopping centers

   $ 3.5      $ 4.6      $ 17.1  

Comparable Portfolio Properties

     0.8        0.9        (0.9

Development or redevelopment properties

     0.5        0.2        1.8  
  

 

 

    

 

 

    

 

 

 
   $ 4.8      $ 5.7      $ 18.0  
  

 

 

    

 

 

    

 

 

 

The increase in depreciation expense for the development or redevelopment properties is attributable to accelerated depreciation charges related to changes in the estimated useful life of certain assets that are expected to be redeveloped in future periods.

(B) The Company recorded impairment charges during the three- and six-month periods ended June 30, 2013 and 2012, related to its shopping center assets marketed for sale. These impairments are more fully described in Note 13, “Impairment Charges and Impairment of Joint Venture Investments,” in the notes to the condensed consolidated financial statements included herein.
(C) General and administrative expenses were approximately 4.9% and 4.7% of total revenues, including total revenues of unconsolidated joint ventures, managed properties and discontinued operations, for the six-month periods ended June 30, 2013 and 2012, respectively. The Company continues to expense certain internal leasing salaries, legal salaries and related expenses associated with leasing and re-leasing of existing space.

Other Income and Expenses (in thousands)

 

    

Three-Month Periods

Ended June 30,

       
     2013     2012     $ Change  

Interest income

   $ 5,797     $ 2,328     $ 3,469  

Interest expense

     (55,816     (53,685     (2,131

Loss on retirement of debt, net

     —         (7,892     7,892  

Other income (expense), net

     1,895       (3,656     5,551  
  

 

 

   

 

 

   

 

 

 
   $ (48,124   $ (62,905   $ 14,781  
  

 

 

   

 

 

   

 

 

 

 

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Six-Month Periods

Ended June 30,

       
     2013     2012     $ Change  

Interest income (A)

   $ 13,674     $ 4,168     $ 9,506  

Interest expense (B)

     (110,240     (108,722     (1,518

Loss on retirement of debt, net (C)

     —         (13,495     13,495  

Other income (expense), net (D)

     (1,006     (5,233     4,227  
  

 

 

   

 

 

   

 

 

 
   $ (97,572   $ (123,282   $ 25,710  
  

 

 

   

 

 

   

 

 

 

 

(A) The weighted-average interest rate of loan receivables, including loans to affiliates, was 9.0% and 7.6% at June 30, 2013 and 2012, respectively. The increase in the amount of interest income recognized in the first six months of 2013 primarily is due to the preferred equity investment in the unconsolidated joint venture with Blackstone.
(B) The weighted-average debt outstanding and related weighted-average interest rates, including amounts allocated to discontinued operations, are as follows:

 

    

Six-Month Periods

Ended June 30,

 
     2013     2012  

Weighted-average debt outstanding (in billions)

   $ 4.4     $ 4.2  

Weighted-average interest rate

     5.1     5.4

The weighted-average interest rate (based on contractual rates and excluding convertible debt accretion and deferred financing costs) at June 30, 2013 and 2012 was 4.7% and 4.9%, respectively. The decrease in the weighted-average interest rate is a result of the repurchase of $60.0 million aggregate principal amount of 9.625% senior unsecured notes in 2012 and the issuance of senior unsecured notes at 3.375% and 4.625% in 2013 and 2012, respectively, as well as the refinancing of mortgage debt at lower rates.

Interest costs capitalized in conjunction with development and redevelopment projects and unconsolidated development and redevelopment joint venture interests were $2.1 million and $4.8 million for the three- and six-month periods ended June 30, 2013, respectively, as compared to $3.3 million and $6.4 million for the respective periods in 2012. The Company ceases the capitalization of interest as assets are placed in service or upon the suspension of construction activities.

(C) For the six-month period ended June 30, 2012, the Company repurchased $60.0 million aggregate principal amount of its 9.625% senior unsecured notes at a premium to par value.
(D) Other income (expense) was composed of the following (in millions):

 

    

Six-Month Periods

Ended June 30,

 
     2013     2012  

Transaction and other (expenses) income

   $ (0.6   $ (3.1

Litigation-related expenses

     (0.7     (1.5

Debt extinguishment gain (costs), net

     0.3       (0.6
  

 

 

   

 

 

 
   $ (1.0   $ (5.2
  

 

 

   

 

 

 

 

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Table of Contents

Other Items (in thousands)

 

    

Three-Month Periods

Ended June 30,

       
     2013     2012     $ Change  

Equity in net (loss) income of joint ventures

   $ (1,191   $ 3,232     $ (4,423

Gain on change in control of interests

     1,066       39,348       (38,282

Tax expense of taxable REIT subsidiaries and state franchise and income taxes

     (1,716     (367     (1,349

 

    

Six-Month Periods

Ended June 30,

       
     2013     2012     $ Change  

Equity in net income of joint ventures (A)

   $ 1,763     $ 11,480     $ (9,717

Impairment of joint venture investments

     —         (560     560  

Gain on change in control of interests (B)

     1,066       39,348       (38,282

Tax expense of taxable REIT subsidiaries and state franchise and income taxes

     (2,083     (544     (1,539

 

(A) The decrease in equity in net income of joint ventures for the six-month period ended June 30, 2013, compared to the prior-year period, primarily is a result of lower income from the Company’s investment in Sonae Sierra Brasil in 2013, as discussed below. In addition, for the three-month period ended June 30, 2013, impairment charges were recorded on assets that are in the process of being marketed for sale at two unconsolidated joint ventures of which the Company’s proportionate share was approximately $4.7 million.

At June 30, 2013 and 2012, the Company had an approximate 33% interest in an unconsolidated joint venture, Sonae Sierra Brasil, which owns real estate in Brazil and is headquartered in Sao Paulo, Brazil. This entity uses the functional currency of Brazilian Real. The Company has generally chosen not to mitigate any of the foreign currency risk through the use of hedging instruments for this entity. The operating cash flow generated by this investment has been generally retained by the joint venture and reinvested in the operation of the joint venture including ground-up developments and expansions in Brazil. The weighted-average exchange rate of the Brazilian Real to U.S. Dollar used for recording the equity in net income was 2.02 and 1.84 for the six-month periods ended June 30, 2013 and 2012, respectively, which represents a 10% increase. The overall decrease in equity in net income from the Sonae Sierra Brasil joint venture, net of the impact of foreign currency translation, for the six-month period ended June 30, 2013, as compared to the same period in 2012, primarily is due to the sale of three shopping centers in the fourth quarter of 2012 and a gain recognized on the strategic asset swap and partial sale of two assets in the portfolio in the first quarter of 2012, partially offset by expansion activity coming on line as well as increases in parking revenue and ancillary income.

(B) The Company acquired its partner’s 85% interest in five shopping centers in the second quarter of 2013 and acquired its partner’s 50% interest in two shopping centers in the second quarter of 2012. The Company accounted for these transactions as step acquisitions. Due to the change in control that occurred, the Company recorded an aggregate net gain associated with these transactions related to the difference between the Company’s carrying value and fair value of the previously held equity interests.

 

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Table of Contents

Discontinued Operations (in thousands)

 

    

Three-Month Periods

Ended June 30,

       
     2013     2012     $ Change  

Loss from discontinued operations

   $ (242   $ (37,329   $ 37,087  

(Loss) gain on disposition of real estate, net of tax

     (2,063     3,226       (5,289
  

 

 

   

 

 

   

 

 

 
   $ (2,305   $ (34,103   $ 31,798  
  

 

 

   

 

 

   

 

 

 

 

    

Six-Month Periods

Ended June 30,

       
     2013     2012     $ Change  

Loss from discontinued operations

   $ (4,238   $ (54,435   $ 50,197  

(Loss) gain on disposition of real estate, net of tax

     (1,462     3,297       (4,759
  

 

 

   

 

 

   

 

 

 
   $ (5,700   $ (51,138   $ 45,438  
  

 

 

   

 

 

   

 

 

 

The Company sold 17 shopping center properties during the six-month period ended June 30, 2013, and had one shopping center classified as held for sale at June 30, 2013, aggregating 0.9 million square feet. In addition, the Company sold 29 properties in 2012, aggregating 3.1 million square feet. Included in the reported loss from discontinued operations for the six-month periods ended June 30, 2013 and 2012, is $5.1 million and $55.5 million, respectively, of impairment charges.

(Loss) Gain on Disposition of Real Estate (in thousands)

 

    

Three-Month Periods

Ended June 30,

        
     2013     2012      $ Change  

(Loss) gain on disposition of real estate, net

   $ (1,525   $ 5,234       $ (6,759

 

    

Six-Month Periods

Ended June 30,

        
     2013     2012      $ Change  

(Loss) gain on disposition of real estate, net (A)

   $ (1,582   $ 5,899       $ (7,481

 

(A) Amounts are generally attributable to the sale of land. The sales of land did not meet the criteria for discontinued operations because the land did not have any significant operations prior to disposition.

Non-Controlling Interests (in thousands)

 

     Three-Month Periods
Ended June 30,
       
     2013     2012     $ Change  

Non-controlling interests

   $ (195   $ (120   $ (75

 

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Six-Month Periods

Ended June 30,

       
     2013     2012     $ Change  

Non-controlling interests

   $ (386   $ (296   $ (90

Net Loss (in thousands)

 

    

Three-Month Periods

Ended June 30,

       
     2013     2012     $ Change  

Net loss attributable to DDR

   $ (23,313   $ (37,500   $ 14,187  

 

    

Six-Month Periods

Ended June 30,

       
     2013     2012     $ Change  

Net loss attributable to DDR

   $ (17,010   $ (52,557   $ 35,547  

A summary of changes in net loss attributable to DDR in 2013 as compared to 2012 for the periods ended June 30 is as follows (in millions):

 

     Three-
Months
    Six-
Months
 

Increase in net operating revenues (total revenues in excess of operating and maintenance expenses and real estate taxes)

   $ 19.5     $ 36.1  

Decrease in consolidated impairment charges

     7.7       4.6  

Increase in general and administrative expenses

     (1.0     (1.7

Increase in depreciation expense

     (7.6     (18.0

Increase in interest income

     3.5       9.5  

Increase in interest expense

     (2.1     (1.5

Decrease in loss on retirement of debt, net

     7.9       13.5  

Change in other income (expense), net

     5.5       4.2  

Decrease in equity in net income of joint ventures

     (4.4     (9.7

Decrease in impairment of joint venture investments

     —         0.6  

Decrease in gain on change in control of interests

     (38.3     (38.3

Increase in income tax expense

     (1.4     (1.6

Decrease in loss from discontinued operations

     31.8       45.4  

Decrease in gain on disposition of real estate

     (6.8     (7.5

Change in non-controlling interests

     (0.1     (0.1
  

 

 

   

 

 

 

Decrease in net loss attributable to DDR

   $ 14.2     $ 35.5  
  

 

 

   

 

 

 

Funds From Operations

Definition and Basis of Presentation

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 as calculated in accordance with GAAP.

 

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FFO excludes GAAP historical cost depreciation and amortization of real estate and real estate investments, which assume 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 use different depreciable lives and methods. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from depreciable property dispositions and extraordinary items, it can provide a performance measure that, when compared year over year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, acquisition, disposition and development activities and interest costs. This provides a perspective of the Company’s 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 (loss), adjusted to exclude: (i) preferred share dividends, (ii) gains and losses from disposition of depreciable real estate property, which are presented net of taxes, (iii) impairment charges on depreciable real estate property and related investments, (iv) extraordinary items and (v) certain non-cash items. These non-cash items principally include real property depreciation and amortization of intangibles, equity income (loss) from joint ventures and equity income (loss) from non-controlling interests, and the Company’s proportionate share of FFO from its unconsolidated joint ventures and non-controlling interests, determined on a consistent basis. For the periods presented below, the Company’s calculation of FFO is consistent with the definition of FFO provided by the National Association of Real Estate Investment Trusts (“NAREIT”). Other real estate companies may calculate FFO in a different manner.

The Company believes that certain gains and charges recorded in its operating results are not reflective of its core operating performance. As a result, the Company also computes Operating FFO and discusses it with the users of its financial statements, in addition to other measures such as net income/loss determined in accordance with GAAP as well as FFO. Operating FFO is generally calculated by the Company as FFO excluding certain charges and gains that management believes are not indicative of the results of the Company’s operating real estate portfolio. The disclosure of these charges and gains is regularly requested by users of the Company’s financial statements.

Operating FFO is a non-GAAP financial measure, and, as described above, its use combined with the required primary GAAP presentations has been beneficial to management in improving the understanding of the Company’s operating results among the investing public and making comparisons of other REITs’ operating results to the Company’s more meaningful. The adjustments may not be comparable to how other REITs or real estate companies calculate their results of operations, and the Company’s calculation of Operating FFO differs from NAREIT’s definition of FFO. The Company will continue to evaluate the usefulness and relevance of the reported non-GAAP measures, and such reported measures could change. Additionally, the Company provides no assurances that these charges and gains are non-recurring. These charges and gains could be reasonably expected to recur in future results of operations.

These measures of performance are used by the Company for several business purposes and by other REITs. The Company uses FFO and/or Operating FFO in part: (i) as a measure of a real estate asset’s performance, (ii) to influence acquisition, disposition and capital investment strategies and (iii) to compare the Company’s performance to that of other publicly traded shopping center REITs.

 

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For the reasons described above, management believes that FFO and Operating FFO provide the Company and investors with an important indicator of the Company’s operating performance. They provide recognized measures of performance other than GAAP net income, which may include non-cash items (often significant). Other real estate companies may calculate FFO and Operating FFO in a different manner.

Management recognizes the limitations of FFO and Operating FFO when compared to GAAP’s income from continuing operations. FFO and Operating FFO do not represent amounts available for dividends, capital replacement or expansion, debt service obligations or other commitments and uncertainties. Management does not use FFO or Operating FFO as an indicator of the Company’s cash obligations and funding requirements for future commitments, acquisitions or development activities. Neither FFO nor Operating FFO represents cash generated from operating activities in accordance with GAAP, and neither is necessarily indicative of cash available to fund cash needs, including the payment of dividends. Neither FFO nor Operating FFO should 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 and Operating FFO are simply used as additional indicators of the Company’s operating performance. The Company believes that to further understand its performance, FFO and Operating FFO should be compared with the Company’s reported net income (loss) and considered in addition to cash flows in accordance with GAAP, as presented in its condensed consolidated financial statements.

Reconciliation Presentation

FFO and Operating FFO attributable to DDR common shareholders were as follows (in millions):

 

    

Three-Month Periods

Ended June 30,

        
     2013      2012      $ Change  

FFO attributable to DDR common shareholders

   $ 80.0       $ 78.1      $ 1.9   

Operating FFO attributable to DDR common shareholders

     86.1         71.6        14.5   

 

    

Six-Month Periods

Ended June 30,

        
     2013      2012      $ Change  

FFO attributable to DDR common shareholders (A)

   $ 162.5       $ 137.8      $ 24.7   

Operating FFO attributable to DDR common shareholders (B)

     172.1         138.4        33.7   

 

(A) The increase in FFO for the six-month period ended June 30, 2013, as compared to the same period in 2012, primarily was due to organic growth and shopping center acquisitions, a reduction in impairment charges of non-depreciable assets and the loss on debt retirement related to the Company’s repurchase of unsecured senior notes, partially offset by asset dispositions, the write-off of the original issuance costs from the redemption of the Company’s Class H Preferred Shares in 2013 as well as the gain on change in control of interests recorded in 2012.
(B) The increase in Operating FFO for the six-month period ended June 30, 2013, as compared to the same period in 2012, primarily was due to the same factors impacting FFO for the six-month period.

 

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The Company’s reconciliation of net loss attributable to DDR common shareholders to FFO attributable to DDR common shareholders and Operating FFO attributable to DDR common shareholders is as follows (in millions):

 

    

Three-Month Periods

Ended June 30,

   

Six-Month Periods

Ended June 30,

 
     2013     2012     2013     2012  

Net loss attributable to DDR common shareholders (A), (B)

   $ (36.0   $ (44.5   $ (36.8   $ (66.5

Depreciation and amortization of real estate investments

     68.1       61.7       135.1       120.1  

Equity in net loss (income) of joint ventures

     1.2       (3.2     (1.8     (11.5

Impairment of depreciable joint venture investments

     —         —         —         0.6  

Joint ventures’ FFO (C)

     12.1       12.6       24.4       26.6  

Non-controlling interests (OP Units)

     0.1       —         0.1       —    

Impairment of depreciable real estate assets, net of non-controlling interests

     32.4       54.7       40.1       72.1  

Loss (gain) on disposition of depreciable real estate

     2.1       (3.2     1.3       (3.6
  

 

 

   

 

 

   

 

 

   

 

 

 

FFO attributable to DDR common shareholders

   $ 80.0     $ 78.1     $ 162.4     $ 137.8  

Non-operating items (D)

     6.1       (6.5     9.7       0.6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating FFO attributable to DDR common shareholders

   $ 86.1     $ 71.6     $ 172.1     $ 138.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(A) Includes the following deductions from net income (in millions):

 

     Three-Month Periods
Ended June 30,
     Six-Month Periods
Ended June 30,
 
     2013      2012      2013      2012  

Write-off of preferred share original issuance costs

   $ 5.2       $ —        $ 5.2       $ —    

Preferred dividends

     7.5         7.0         14.5         13.9  

 

(B) Straight-line rental revenue and straight-line ground rent expense, including discontinued operations, for the three- and six-month periods were as follows (in millions):

 

    Three-Month Periods
Ended June 30,
    Six-Month Periods
Ended June 30,
 
    2013     2012     2013     2012  

Straight-line rents

  $ 1.7      $ 1.2      $ 3.1      $ 1.7   

Straight-line ground rent expense

    0.3        0.4        0.7        0.7   

 

(C) At June 30, 2013 and 2012, the Company had an economic investment in unconsolidated joint venture interests relating to 199 and 215 operating shopping center properties, respectively. These joint ventures represent the investments in which the Company was recording its share of equity in net income or loss and, accordingly, FFO and Operating FFO.

 

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Joint ventures’ FFO and Operating FFO is summarized as follows (in millions):

 

     Three-Month Periods
Ended June 30,
    Six-Month Periods
Ended June 30,
 
     2013     2012     2013     2012  

Net loss attributable to unconsolidated joint ventures (1)

   $ (58.1   $ (21.1   $ (82.6   $ (12.0

Depreciation and amortization of real estate investments

     57.5       44.1       122.3       89.4  

Impairment of depreciable real estate assets

     44.6       6.9       44.6       8.2  

Loss (gain) on disposition of depreciable real estate, net

     0.4       0.5       5.4       (13.2
  

 

 

   

 

 

   

 

 

   

 

 

 

FFO

   $ 44.4     $ 30.4     $ 89.7     $ 72.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

FFO at DDR’s ownership interests (2)

   $ 12.1     $ 12.6     $ 24.4     $ 26.6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating FFO at DDR’s ownership interests (D)

   $ 11.6     $ 13.5     $ 24.1     $ 27.6  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Revenues include the following (in millions):

 

     Three-Month Periods
Ended June 30,
     Six-Month Periods
Ended June 30,
 
     2013      2012      2013      2012  

Straight-line rents

   $ 0.3       $ 1.1       $ 1.9       $ 2.0   

DDR’s proportionate share

     0.1         0.2         0.3         0.4   

 

(2) FFO at DDR ownership interests considers the impact of basis differentials.
(D) Amounts are described in the Operating FFO Adjustments section below.

Operating FFO Adjustments

The Company’s adjustments to arrive at Operating FFO are composed of the following for the three- and six-month periods ended June 30, 2013 and 2012 (in millions). The Company provides no assurances that these charges and gains are non-recurring. These charges and gains could be reasonably expected to recur in future results of operations.

 

     Three-Month Periods
Ended June 30,
    Six-Month Periods
Ended June 30,
 
     2013     2012     2013     2012  

Impairment charges – non-depreciable consolidated assets

   $ 2.6     $ 25.5     $ 2.6     $ 25.5  

Loss on debt retirement, net (A)

     —         7.9       —         13.5  

Other (income) expense, net (B)

     (1.6     3.7       1.5       5.4  

Equity in net (income) loss of joint ventures – currency adjustments, debt extinguishment costs and other expenses

     (0.5     0.9       (0.3     1.0  

Loss (gain) on disposition of non-depreciable real estate, net

     1.5       (5.2     1.8       (5.5

Gain on change in control of interests (A)

     (1.1     (39.3     (1.1     (39.3

Write-off of preferred share original issuance costs

     5.2       —         5.2       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non–operating items

   $ 6.1     $ (6.5   $ 9.7     $ 0.6  

FFO attributable to DDR common shareholders

     80.0       78.1       162.4       137.8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating FFO attributable to DDR common shareholders

   $ 86.1     $ 71.6     $ 172.1     $ 138.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(A) Amount agrees to the face of the condensed consolidated statements of operations.
(B) Amounts included in other income/expense are detailed as follows:

 

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Table of Contents
     Three-Month Periods
Ended June 30,
     Six-Month Periods
Ended June 30,
 
     2013     2012      2013     2012  

Transaction and other expenses (income)

   $ 0.3     $ 2.5       $ 1.0     $ 3.1   

Litigation-related expenses, net of tax

     0.4       0.8         0.7       1.6   

Debt extinguishment (gain) costs, net

     (2.3     0.4         (0.2     0.7   
  

 

 

   

 

 

    

 

 

   

 

 

 
   $ (1.6   $ 3.7         1.5     $ 5.4   
  

 

 

   

 

 

    

 

 

   

 

 

 

Liquidity and Capital Resources

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. In the first six months of 2013, the Company continued to strategically manage cash flow from operating and financing activities. The Company also completed public equity and debt offerings in order to strengthen its balance sheet and improve its financial flexibility.

The Company’s consolidated and unconsolidated debt obligations generally require monthly or semi-annual payments of principal and/or interest over the term of the obligation. While the Company currently believes that it has several viable sources to obtain capital and fund its business, including capacity under its facilities described below, no assurance can be provided that these obligations will be refinanced or repaid as currently anticipated.

The Company maintains an unsecured revolving credit facility with a syndicate of financial institutions, arranged by JP Morgan Securities, LLC and Wells Fargo Securities, LLC (the “Unsecured Credit Facility”), which was last amended in January 2013. The Unsecured Credit Facility provides for borrowings of $750 million, and includes an accordion feature for expansion of availability to $1.25 billion upon the Company’s request, provided that new or existing lenders agree to the existing terms of the facility and increase their commitment level. The Company also maintains a $65 million unsecured revolving credit facility with PNC Bank, National Association (together with the Unsecured Credit Facility, the “Revolving Credit Facilities”), which was also amended in January 2013. The Company’s borrowings under these facilities bear interest at variable rates based on LIBOR plus 140 basis points at June 30, 2013, subject to adjustment based on the Company’s current corporate credit ratings from Moody’s Investors Service (“Moody’s”) and Standard and Poor’s (“S&P”).

The Revolving Credit Facilities and the indentures under which the Company’s senior and subordinated unsecured indebtedness is, or may be, issued contain certain financial and operating covenants including, among other things, leverage ratios and debt service coverage and fixed charge coverage ratios, as well as limitations on the Company’s ability to incur secured and unsecured indebtedness, sell all or substantially all of the Company’s assets and engage in mergers and certain acquisitions. These credit facilities and indentures also contain customary default provisions including the failure to make timely payments of principal and interest payable thereunder, the failure to comply with the Company’s financial and operating covenants, the occurrence of a material adverse effect on the Company and the failure of the Company or its majority-owned subsidiaries (i.e., entities in which the Company has a greater than 50% interest) to pay, when due, certain indebtedness in excess of certain thresholds beyond applicable grace and cure periods. In the event the Company’s lenders or note holders declare a default, as defined in the applicable agreements governing the debt, the

 

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Company may be unable to obtain further funding, and/or an acceleration of any outstanding borrowings may occur. As of June 30, 2013, the Company was in compliance with all of its financial covenants in the agreements governing its debt. 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. The Company believes it will continue to be able to operate in compliance with these covenants for the remainder of 2013 and beyond.

Certain of the Company’s credit facilities and indentures permit the acceleration of the maturity of the underlying debt in the event certain other debt of the Company has been accelerated. Furthermore, a default under a loan by 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 may have a negative impact on the Company’s financial condition, cash flows and results of operations. These facts, and an inability to predict future economic conditions, have led the Company to adopt a strict focus on lowering leverage and increasing financial flexibility.

The Company expects to fund its obligations from available cash, current operations and utilization of its Revolving Credit Facilities; however, the Company may issue long-term debt and/or equity securities in lieu of, or in addition to, borrowing under its Revolving Credit Facilities. The following information summarizes the availability under the Revolving Credit Facilities at June 30, 2013 (in millions):

 

Cash and cash equivalents

   $ 41.7  
  

 

 

 

Revolving Credit Facilities

   $ 815.0  

Less:

  

Amount outstanding

     (34.7

Letters of credit

     (10.9
  

 

 

 

Borrowing capacity available

   $ 769.4  
  

 

 

 

In June 2013, the Company entered into agreements for the future issuance of up to $250.0 million of common shares under a continuous equity program. This program replaces any previous continuous equity program maintained by the Company. As of August 1, 2013, the Company had $246.5 million of its common shares available for future issuance under its continuous equity program.

The Company intends to maintain a longer-term financing strategy and continue to reduce its reliance on short-term debt. The Company believes its Revolving Credit Facilities are sufficient for its liquidity strategy and longer-term capital structure needs. Part of the Company’s overall strategy includes scheduling future debt maturities in a balanced manner, including incorporating a healthy level of conservatism regarding possible future market conditions.

The Company has no debt maturing through the remainder of 2013. The Company has $356.2 million of mortgage debt maturing in 2014 and no other unsecured maturities until May 2015.

Management believes that the scheduled debt maturities in future years are manageable. The Company continually evaluates its debt maturities and, based on management’s assessment, believes it has viable financing and refinancing alternatives. The Company continues to look beyond 2014 to ensure that it executes its strategy to lower leverage, increase liquidity, improve the Company’s credit ratings and extend debt duration, with the goal of lowering the Company’s balance sheet risk and cost of capital.

 

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Unconsolidated Joint Ventures

At June 30, 2013, the Company’s unconsolidated joint venture mortgage debt maturing in 2013 or debt that had matured and is now past due was $179.2 million (of which the Company’s proportionate share was $15.6 million). Of this amount, $104.2 million (of which the Company’s proportionate share is $11.8 million) is attributable to the Coventry II Fund assets (see Off-Balance Sheet Arrangements). The remaining $75.0 million (of which the Company’s proportionate share is $3.8 million) is attributable to the joint venture with Blackstone and is expected to be repaid upon closing of the Blackstone Acquisition.

Cash Flow Activity

The Company’s core business of leasing space to well-capitalized retailers continues to generate consistent and predictable cash flow after expenses, interest payments and preferred share dividends. This capital is available for use at the Company’s discretion for investment, debt repayment and the payment of dividends on common shares.

The Company’s cash flow activities are summarized as follows (in thousands):

 

    

Six-Month Periods

Ended June 30,

 
     2013     2012  

Cash flow provided by operating activities

   $ 163,518     $ 103,581  

Cash flow used for investing activities

     (252,746     (242,086

Cash flow provided by financing activities

     99,826       116,361  

Operating Activities: The change in cash flow provided by operating activities for the six-month period ended June 30, 2013, as compared to the same period in 2012, primarily was due to additional cash flow from acquired properties and the decrease in settlement of accreted debt discount on the repayment of senior convertible notes, partially offset by changes in accounts receivable, accounts payable and accrued expenses.

Investing Activities: The change in cash flow used for investing activities for the six-month period ended June 30, 2013, as compared to the same period in 2012, primarily was due to an increase in asset acquisitions in 2013, partially offset by a reduction in the amount of advances to joint ventures in 2013 as compared to 2012.

Financing Activities: The change in cash flow provided by financing activities for the six-month period ended June 30, 2013, as compared to the same period in 2012, primarily was due to a decrease in proceeds from the issuance of secured debt and issuance of common shares, partially offset by a decrease in the repayment of unsecured senior notes.

 

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The Company satisfied its REIT requirement of distributing at least 90% of ordinary taxable income with declared common and preferred share cash dividends of $100.5 million for the six-month period ended June 30, 2013, as compared to $81.1 million for the same period in 2012. Because actual distributions were greater than 100% of taxable income, federal income taxes have not been incurred by the Company thus far during 2013.

The Company declared a quarterly dividend of $0.135 per common share for the first and second quarters of 2013. The Board of Directors of the Company will continue to monitor the 2013 dividend policy and provide for adjustments as determined to be in the best interests of the Company and its shareholders to maximize the Company’s free cash flow, while still adhering to REIT payout requirements.

Sources and Uses of Capital

The Company has a portfolio management strategy to recycle capital from lower quality, lower growth potential assets into Prime Assets with long-term growth potential.

Acquisitions

In July 2013, the Company acquired two power centers in Orlando, Florida and Atlanta, Georgia, with a combined GLA of 1.4 million square feet for a gross purchase price of $258.5 million. The Company assumed a $139.4 million mortgage with the acquisition.

In May 2013, the Company entered into a purchase agreement with its joint venture partner, an affiliate of Blackstone, pursuant to which the Company will ultimately acquire sole ownership of a portfolio of 30 open-air, value-oriented power centers that are currently owned by BRE DDR Retail Holdings, LLC, the Company’s joint venture with Blackstone (the “BRE JV”). The Company expects to acquire Blackstone’s interest in the properties in a transaction valued at approximately $1.46 billion ($1.54 billion at 100%). The Blackstone Acquisition will include a cash payment of $566 million and the assumption of Blackstone’s 95% share of each of approximately $398 million of mortgage debt to be assumed by the Company at closing, approximately $146 million of the Company’s preferred equity interest and mezzanine loan previously funded by the Company to the BRE JV that will no longer be outstanding upon closing and approximately $406 million of mortgage debt to be repaid at closing. The Blackstone Acquisition is subject to the satisfaction of customary closing conditions and is expected to close in the fourth quarter of 2013.

In April 2013, the Company acquired its partner’s 85% interest for $93.9 million in five prime power centers, aggregating 1.3 million of total square feet. The Company funded its investment primarily with proceeds from the issuance of common shares, proceeds from asset sales and corporate debt. These prime power centers are unencumbered. The Company acquired its partner’s interest in The Walk at Highwoods Preserve (Tampa, Florida), Douglasville Pavilion (Atlanta, Georgia), Commonwealth Center and Chesterfield Crossing (Richmond, Virginia) and Jefferson Plaza (Newport News, Virginia).

In the second quarter of 2013, the Company originated $28.5 million in mezzanine loans (of which $13.5 million was funded as of June 30, 2013). These loans are collateralized by a development project and a prime shopping center, both in Chicago, Illinois, and earn interest ranging between 9.0% and 9.5%.

 

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In the first quarter of 2013, the Company acquired Whole Foods at Bay Place in Oakland, California, and Marketplace at Highland Village in Dallas , Texas, for an aggregate purchase price of $81.4 million. No debt was assumed in these transactions, nor was debt placed on the properties at closing.

Dispositions

During the six-month period ended June 30, 2013, the Company sold 17 shopping center properties aggregating 0.9 million square feet and other consolidated non-income producing assets at an aggregate sales price of $91.0 million. The Company recorded a net loss of $3.0 million, which excludes the impact of an aggregate $56.0 million in related impairment charges that were recorded in prior periods related to the assets sold in 2013. During the six-month period ended June 30, 2013, the Company’s unconsolidated joint ventures sold assets generating gross proceeds of $19.9 million, of which the Company’s proportionate share was $3.7 million. The Company’s proportionate share of the loss on sale was not material.

As discussed above, a part of the Company’s portfolio management strategy is to recycle capital from lower quality, lower growth potential assets into Prime Assets with long-term growth potential. The Company has been marketing certain non-Prime Assets for sale and is focused on selling single-tenant assets and/or smaller shopping centers that do not meet the Company’s current business strategy. 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 Company’s balance sheet, in addition to the impact on operating results. As a result, if actual results differ from expectations, it is possible that additional assets could be sold in subsequent periods for a gain or loss.

Development Opportunities

The Company and its joint venture partners may commence construction on various developments only after substantial tenant leasing has occurred and acceptable construction financing is available.

As disclosed below, in May 2013, the Company opened Belgate Shopping Center, the Company’s first ground-up domestic development in over four years. Belgate is a 100% leased, 900,000-square-foot prime power center located in Charlotte, North Carolina, anchored by IKEA, Walmart and a complementary lineup of premier junior anchors.

The Company will continue to closely monitor its expected spending in 2013 for developments and redevelopments, both for consolidated and unconsolidated projects, as the Company considers this funding to be discretionary spending. The Company does not anticipate expending a significant amount of funds on joint venture development projects for the remainder of 2013, excluding projects through Sonae Sierra Brasil. The projects in Brazil are expected to be funded with operating cash flow generated by Sonae Sierra Brasil or proceeds from the local debt financing.

 

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One of the important benefits of the Company’s 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 Company’s de-leveraging strategy, the Company generally adheres to strict investment criteria thresholds. The revised underwriting criteria, generally followed for the past three years, includes a higher cash-on-cost project return threshold and incorporates a longer period before the leases commence and a higher stabilized vacancy rate. The Company applies this revised strategy to both its consolidated and certain unconsolidated joint ventures that own assets under development because the Company has significant influence and, in most cases, approval rights over decisions relating to significant capital expenditures.

The Company’s consolidated land holdings are classified in two separate line items on the condensed consolidated balance sheets included herein, Land and Land Held for Development and Construction in Progress. At June 30, 2013, the $1.9 billion of Land classified on the Company’s balance sheet primarily consists of land that is part of its operating shopping center portfolio. However, this amount also includes a small portion of vacant land comprised primarily of outlots or expansion pads adjacent to the shopping center properties. The Company believes that approximately 217 acres of this land which has a recorded cost basis of approximately $25 million is available for future development.

Included in Land Held for Development and Construction in Progress at June 30, 2013, are $261.8 million of recorded costs related to land and projects under development, for which active construction had temporarily ceased or had not yet commenced. The Company estimates that if it proceeded with the development of these sites, approximately 2.5 to 4.0 million square feet of GLA could be developed. Based on the Company’s intentions and business plans, the Company believes that the expected undiscounted cash flows exceed its current carrying value on each of these projects. However, if the Company were to dispose of certain of these assets in the market, the Company would likely incur a loss, which may be material. The Company evaluates its intentions with respect to these assets each reporting period and records an impairment charge equal to the difference between the current carrying value and fair value when the expected undiscounted cash flows are less than the asset’s carrying value.

Developments and Redevelopments (Wholly-Owned and Consolidated Joint Ventures)

As part of its portfolio management strategy to develop, expand, improve and re-tenant various consolidated properties, the Company has invested $219.0 million on various development and redevelopment projects and expects to expend an aggregate project cost of approximately $132.2 million on a net basis, after deducting sales proceeds from outlot sales, for the remainder of 2013. The current significant development projects are as follows:

 

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Location

   Estimated
Initial Owned
Anchor
Opening
     Estimated
Owned
GLA
(Thousands)
     Estimated
Gross Cost

($  Millions)
     Estimated
Net Cost

($ Millions)
     Cost
Incurred at
June 30, 2013

($ Millions)
 

Charlotte, NC (Belgate)

     2Q13         178.2       $ 54.6       $ 20.4       $ 45.5   

Seabrook, NH (Seabrook Town Center)

     2Q14         182.3         95.0         75.1         42.0   
     

 

 

    

 

 

    

 

 

    

 

 

 

Total

        360.5       $ 149.6       $ 95.5       $ 87.5   
     

 

 

    

 

 

    

 

 

    

 

 

 

The Company’s redevelopment projects are typically substantially complete within a year of the construction commencement date. At June 30, 2013, the Company’s significant redevelopment projects are as follows:

 

Location

   Estimated
Owned GLA
(Thousands)
     Estimated
Cost

($  Millions)
     Cost Incurred at
June 30, 2013

($ Millions)
 

Phoenix, AZ (Ahwatukee Foothills Town Centre)

     203.6       $ 14.4       $ 4.1   

Roswell, GA (Sandy Plains Village)

     142.6         14.3         5.4   

Tinley Park, IL (Brookside Marketplace)

     72.3         11.8         2.9   

Lansing, MI (Marketplace at Delta Township)

     38.6         6.6         2.4   

Charlotte, NC (Cotswold Village)

     52.0         3.1         0.6   

Columbus, OH (Easton Market)

     128.0         6.5         4.6   

Bayamon, PR (Plaza Del Sol)

     172.5         64.3         20.1   

Fajardo, PR (Plaza Fajardo)

     34.3         8.4         4.5   

Midvale, UT (Family Center at Ft. Union)

     78.7         13.2         12.5   
  

 

 

    

 

 

    

 

 

 

Total

     922.6       $ 142.6       $ 57.1   
  

 

 

    

 

 

    

 

 

 

For redevelopment assets completed in 2012 and in the first half of 2013, the assets placed in service were completed at $157 cost per square foot.

Development and Redevelopments (Unconsolidated Joint Ventures)

In addition, the Company’s unconsolidated joint ventures have projects being developed that have incurred $134.6 million in project costs in the first half of 2013, with projected expenditures of $129.8 million on a net basis in the remaining half of 2013. A significant amount of the projected expenditures is related to projects under development at the Company’s joint venture in Brazil as follows:

 

Location

   DDR’s
Effective
Ownership
Percentage
    Estimated
Initial Owned
Anchor
Opening
     Estimated
Owned
GLA
(Thousands)
     Estimated
Gross Cost

($  Millions)
     Estimated
Net Cost

($ Millions)
     Cost
Incurred at
June 30, 2013

($ Millions)
 

Goiania, Brazil

     33.3     4Q13         821.0       $ 232.3       $ 207.8       $ 176.3   

Londrina, Brazil

     29.5     2Q13         521.6         177.8         174.4         169.0   
       

 

 

    

 

 

    

 

 

    

 

 

 

Total

          1,342.6       $ 410.1       $ 382.2       $ 345.3   
       

 

 

    

 

 

    

 

 

    

 

 

 

 

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At June 30, 2013, the Company’s significant unconsolidated joint venture redevelopment projects are as follows:

 

Location

   DDR’s  Effective
Ownership
Percentage
    Estimated
Owned GLA
(Thousands)
     Estimated
Cost

($  Millions)
     Cost Incurred at
June 30, 2013

($ Millions)
 

Plant City, FL (Lake Walden Square)

     5     108.7       $ 14.0       $ 8.2   

Newnan, GA (Newnan Pavilion)

     15     110.3         9.6         3.8   

Greensboro, NC (Wendover Village)

     20     104.8         6.8         0.8   
    

 

 

    

 

 

    

 

 

 

Total

       323.8       $ 30.4       $ 12.8   
    

 

 

    

 

 

    

 

 

 

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, two management companies and one development company. Such arrangements are generally with institutional investors located throughout the United States and Brazil.

The unconsolidated joint ventures that have total assets greater than $250 million (based on the historical cost of acquisition by the unconsolidated joint venture) at June 30, 2013, are as follows (in order of gross asset book value):

 

Unconsolidated Real Estate Ventures

   Effective
Ownership
Percentage (A)
   

Assets Owned

   Company-
Owned Square
Feet (Millions)
     Total
Debt
(Millions)
 

DDRTC Core Retail Fund LLC

     15.0 %  

33 shopping centers in several states

     10.0       $ 945.7   

DDR Domestic Retail Fund I

     20.0 %  

59 shopping centers in several states

     8.2         929.4   

BRE DDR Retail Holdings, LLC

     5.0 % (B)    

44 shopping centers in several states

     10.6         922.1   

Sonae Sierra Brasil BV Sarl

     33.3 %  

Nine shopping centers, a management company and one development project in Brazil

     3.8         390.8   

DDR – SAU Retail Fund LLC

     20.0 %  

27 shopping centers in several states

     2.4         181.4   

 

(A) Ownership may be held through different investment structures. Percentage ownerships are subject to change, as certain investments contain promoted structures.
(B) Excludes interest owned through $161.0 million preferred equity investment.

Funding for Unconsolidated Joint Ventures

The Company has provided loans and advances to certain unconsolidated entities and/or related partners in the amount of $265.9 million at June 30, 2013, for which the Company’s joint venture partners have not funded their proportionate share. Included in this amount is the $167.1 million in preferred equity, including accrued interest, with a fixed distribution rate of 10% due from BRE DDR Retail Holdings, LLC. The Company expects to use approximately $121 million of the preferred equity as consideration to fund the Blackstone Acquisition. Also included in this amount is $66.9 million of financing that the Company advanced to one of its unconsolidated joint ventures, which accrued interest at the greater of LIBOR plus 700 basis points, or 12%, and a default rate of 16%, and had an initial maturity of July 2011 (the “Bloomfield Loan”). This advance is reserved in full (see Coventry II Fund discussion below).

 

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Coventry II Fund

At June 30, 2013, the Company maintained several investments with the Coventry II Fund. The Company co-invested approximately 20% in each joint venture. The Company’s management and leasing agreements with the joint ventures expired by their own terms on December 31, 2011, and the Company decided not to renew these agreements (see Part II, Item 1. Legal Proceedings).

As of June 30, 2013, the aggregate carrying amount of the Company’s net investment in the Coventry II Fund joint ventures was $2.7 million. The Service Holdings LLC joint venture sold 16 assets in the first half of 2013. The Company had previously written down its investment to zero in these assets. In addition to its existing equity and notes receivable, including the Bloomfield Loan, at June 30, 2013, the Company has provided for one partial payment guaranty to a third-party lender in connection with the financing of one of the Coventry II Fund projects that aggregates $0.1 million.

Although the Company will not acquire additional investments through the Coventry II Fund joint ventures, additional funds may be required to address ongoing operational needs and costs associated with the 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.

A summary of the Coventry II Fund investments as of June 30, 2013, is as follows (in millions):

 

Unconsolidated Real Estate Ventures

  

Shopping Center or

Development Owned

   Loan Balance
Outstanding  at
June 30, 2013
 

Coventry II DDR Bloomfield LLC

  

Bloomfield Hills, Michigan

   $ 39.8 (A), (B), (C),  (D)  

Coventry II DDR Buena Park LLC

  

Buena Park, California

     73.0 (B)  

Coventry II DDR Fairplain LLC

  

Benton Harbor, Michigan

     18.7 (B)  

Coventry II DDR Marley Creek Square LLC

  

Orland Park, Illinois

     10.5 (B), (C), (D),  (E)  

Coventry II DDR Phoenix Spectrum LLC

  

Phoenix, Arizona

     66.4   

Coventry II DDR Totem Lakes LLC

  

Kirkland, Washington

     27.5 (B), (D)  

Coventry II DDR Tri-County LLC

  

Cincinnati, Ohio

     149.6 (B), (D), (F)  

Coventry II DDR Westover LLC

  

San Antonio, Texas

     19.7 (B)  

Service Holdings LLC

  

21 retail sites in several states

     81.4 (B), (C), (D)  

 

(A) In 2009, the senior secured lender sent to the borrower a formal notice of default and filed a foreclosure action. The Company paid its 20% guaranty of this loan in 2009, and the senior secured lender initiated legal proceedings against the Coventry II Fund for its failure to fund its 80% payment guaranty. The senior secured lender and the Coventry II Fund subsequently entered into a settlement agreement in connection with the legal proceedings. In addition, the Bloomfield Loan from the Company is cross-defaulted with this third-party loan. The Bloomfield Loan is considered past due and has been fully reserved by the Company.
(B) As of August 1, 2013, lenders are managing the cash receipts and expenditures related to the assets collateralizing these loans.

 

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(C) As of August 1, 2013, these loans are in default, and the Coventry II Fund is exploring a variety of strategies with the lenders.
(D) The Company has written its investment basis in this joint venture down to zero and is no longer reporting an allocation of income or loss.
(E) As of August 1, 2013, the Company provided an interest payment guaranty that was not greater than the proportion of its investment interest.
(F) On July 18, 2013, the Hamilton County Sheriff conducted an auction for the sale of the property pursuant to a court order entered in the foreclosure action brought by the lender. Title to the property is expected to be transferred to the successful bidder in due course, subject to transfer of funds and court confirmation.

Other Joint Ventures

The Company is involved with overseeing the development activities for several of its unconsolidated joint ventures that are constructing or redeveloping shopping centers. The Company earns a fee for its services commensurate with the level of oversight provided. The Company generally provides a completion guaranty to the third-party lending institution(s) providing construction financing.

The Company’s unconsolidated joint ventures had aggregate outstanding indebtedness to third parties of $4.1 billion and $4.6 billion at June 30, 2013 and 2012, respectively (see Item 3. Quantitative and Qualitative Disclosures About Market Risk). Such mortgages 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 Company’s unconsolidated joint ventures, the Company agreed to fund any amounts due to the joint venture’s lender if such amounts are not paid by the joint venture based on the Company’s pro rata share of such amount, which aggregated $5.3 million at June 30, 2013, including guaranties associated with the Coventry II Fund joint ventures.

The Company has generally chosen not to mitigate any of the foreign currency risk through the use of hedging instruments for Sonae Sierra Brasil. The Company will continue to monitor and evaluate this risk and may enter into hedging agreements at a later date.

The Company has interests in consolidated and unconsolidated 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 non-derivative financial instruments to hedge this exposure. The Company manages currency exposure related to the net assets of the Company’s Canadian and European subsidiaries primarily through foreign currency-denominated debt agreements into which the Company enters. Gains and losses in the parent company’s net investments in its subsidiaries are economically offset by losses and gains in the parent company’s foreign currency-denominated debt obligations.

For the six months ended June 30, 2013, $1.4 million of net gains related to the foreign currency-denominated debt agreements were included in the Company’s cumulative translation adjustment. As the notional amount of the non-derivative instrument substantially matches the portion of the net investment designated as being hedged and the non-derivative instrument is denominated in the functional currency of the hedged net investment, the hedge ineffectiveness recognized in earnings was not material.

 

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Financing Activities

In May 2013, the Company issued $300 million aggregate principal amount of 3.375% senior unsecured notes due May 2023. Also in May 2013, the Company entered into forward sale agreements to issue 39.1 million of its common shares with expected proceeds at an initial net price of $18.21582 per share. Subject to the Company’s right to elect cash or net share settlement of the forward sale agreements, the Company expects to physically settle the forward sale agreements no later than October 31, 2013. The Company expects to use the net proceeds from the issuance of unsecured debt and the forward sale of common shares to fund the Blackstone Acquisition.

In the first six months of 2013, the Company issued 4.8 million common shares at a weighted-average price of $17.71 per share, primarily through the use of the Company’s continuous equity program, generating gross proceeds of $85.0 million, to partially fund the acquisition of Prime Assets (see Liquidity and Capital Resources and Sources and Uses of Capital).

Also, in April 2013, the Company issued $150.0 million of newly designated 6.250% Class K Preferred Shares at a price of $500.00 per preferred share (or $25.00 per depositary share). In addition, in May 2013, the Company redeemed $150.0 million of its Class H Preferred Shares at a redemption price of $25.1127 per depositary share (the sum of $25.00 per depositary share and dividends per depositary share of $0.1127 prorated to the redemption date). The Company recorded a non-cash charge of $5.2 million to net income attributable to common shareholders in the second quarter of 2013 related to the prorated write-off of Class H Preferred Shares’ original issuance costs.

Capitalization

At June 30, 2013, the Company’s capitalization consisted of $4.5 billion of debt, $405.0 million of preferred shares and $5.3 billion of market equity (market equity is defined as common shares and OP Units outstanding multiplied by $16.65, the closing price of the Company’s common shares on the New York Stock Exchange at June 30, 2013), resulting in a debt to total market capitalization ratio of 0.44 to 1.0, as compared to the ratio of 0.46 to 1.0 at June 30, 2012. The closing price of the common shares on the New York Stock Exchange was $14.64 at June 30, 2012. At June 30, 2013 and 2012, the Company’s total debt consisted of the following (in billions):

 

     At June 30,  
     2013      2012  

Fixed-rate debt (A)

   $ 4.1       $ 3.6   

Variable-rate debt

     0.3         0.5   
  

 

 

    

 

 

 
   $ 4.4       $ 4.1   
  

 

 

    

 

 

 

 

(A) Includes $632.1 million and $433.4 million of variable-rate debt that had been effectively swapped to a fixed rate through the use of interest rate derivative contracts at June 30, 2013 and 2012, respectively.

 

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It is management’s strategy to have access to the capital resources necessary to manage the Company’s balance sheet, to repay upcoming maturities and to consider making prudent opportunistic investments. 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 and to reduce the Company’s cost of capital by maintaining an investment grade rating with Moody’s, S&P and Fitch. 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. The Company may not be able to obtain financing on favorable terms, or at all, which may negatively affect future ratings.

The Company’s credit facilities and the indentures under which the Company’s 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 Company’s ability to incur secured and unsecured indebtedness, sell all or substantially all of the Company’s 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 addition, certain of the Company’s 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 Company’s financial condition and results of operations.

Contractual Obligations and Other Commitments

The Company has no remaining debt maturities in 2013, and, as such, has turned its focus to the timing and opportunities for the consolidated secured debt maturing in 2014 and beyond. In addition, there were no other unsecured maturities until May 2015.

At June 30, 2013, the Company had letters of credit outstanding of $27.0 million. The Company has not recorded any obligations associated with these letters of credit, the majority of which are collateral for existing indebtedness and other obligations of the Company.

In conjunction with the development of shopping centers, the Company had entered into commitments with general contractors aggregating approximately $19.0 million for its wholly-owned and consolidated joint venture properties at June 30, 2013. These obligations, composed principally of construction contracts, are generally due in 12 to 36 months, as the related construction costs are incurred, and are expected to be financed through operating cash flow, new or existing construction loans, asset sales or revolving credit facilities.

The Company routinely enters into contracts for the maintenance of its properties. These contracts typically can be cancelled upon 30 to 60 days’ notice without penalty. At June 30, 2013, the Company had purchase order obligations, typically payable within one year, aggregating approximately $6.9 million related to the maintenance of its properties and general and administrative expenses.

 

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Inflation

Most of the Company’s 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 Company’s leases are for terms of less than 10 years, permitting the Company to seek increased rents at market rates upon renewal. Most of the Company’s leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing the Company’s exposure to increases in costs and operating expenses resulting from inflation.

Economic Conditions

The Company believes there has been a favorable shift in the supply-and-demand dynamic for quality locations in well-positioned shopping centers. Many retailers have strong store opening plans for the remainder of 2013 and 2014. The Company continues to see strong demand from a broad range of retailers for its space, particularly in the off-price sector, which is a reflection of the general outlook of consumers who are demanding more value for their dollars. This is evidenced by the continued high volume of leasing activity, which was 4.8 million square feet of space for both new leases and renewals for the first six months of 2013. The Company also benefits from its real estate asset class (shopping centers) typically having a higher return on capital expenditures, as well as a diversified tenant base with only one tenant exceeding 3.0% of annualized consolidated revenues and the Company’s proportionate share of unconsolidated joint venture revenues (Walmart at 4.0%). Other significant tenants include Target, Lowe’s, Home Depot, Kohl’s, TJX Companies, PetSmart, Publix and Bed Bath & Beyond, all of which have relatively strong credit ratings, remain well-capitalized and have outperformed other retail categories on a relative basis over time. The Company believes these tenants should continue providing it 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 Company’s shopping centers provide day-to-day consumer necessities with a focus toward value and convenience versus high-priced discretionary luxury items, which the Company believes will enable many of the tenants to continue operating even in a challenging economic environment.

The retail shopping sector continues to be 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 can force some market share away from weaker retailers which could require them to downsize and close stores and/or declare bankruptcy. In many cases, the loss of a weaker tenant or downsizing of space creates a value-add opportunity to re-lease space at higher rents to a stronger retailer. Overall, the Company believes its portfolio remained stable at June 30, 2013, as evidenced by the increase in the occupancy rate. However, there can be no assurance that these events will not adversely affect the Company (see Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2012).

 

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Historically, the Company’s portfolio has performed consistently throughout many economic cycles, including downward cycles. Broadly speaking, national retail sales have grown since World War II, including during several recessions and housing slowdowns. In the past, the 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. 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 generally ranged from 92% to 96% since the Company’s initial public offering in 1993. The shopping center portfolio occupancy was at 91.7% at June 30, 2013 as compared to 90.5% at June 30, 2012. Notwithstanding the lower occupancy rate compared to historic levels, the Company continues to sign new leases at rental rates that have reflected consistent growth on an annual basis.

The total portfolio average annualized base rent per occupied square foot, including the results of Sonae Sierra Brasil, was $13.77 at June 30, 2013, as compared to $13.66 at December 31, 2012, and $13.80 at June 30, 2012. The decrease in the average annualized base rent per square foot from June 2012 primarily was due to the sale of assets in Brazil in the fourth quarter of 2012. Moreover, the Company has been able to achieve these results without significant capital investment in tenant improvements or leasing commissions. The weighted-average cost of tenant improvements and lease commissions estimated to be incurred over the expected lease term for new leases executed during the second quarter of 2013 for the U.S. portfolio was only $4.17 per rentable square foot. The Company generally does not expend a significant amount of capital on lease renewals. The Company is very conscious of and sensitive to the risks posed by the economy, but believes 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.

New Accounting Standards

New Accounting Standards are more fully described in Note 1, “Nature of Business and Financial Statement Presentation,” of the Company’s condensed consolidated financial statements.

FORWARD-LOOKING STATEMENTS

Management’s discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the notes thereto appearing elsewhere in this report. Historical results and percentage relationships set forth in the condensed 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 Company’s 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.

 

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Although the Company believes that the expectations reflected in these 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 “will,” “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 such statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company’s control and that could cause actual results to differ materially from those expressed or implied in the forward-looking statements and that could materially affect the Company’s actual results, performance or achievements. For additional factors that could cause the results of the Company to differ materially from those indicated in the forward looking statements, please refer to Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2012.

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 economic downturn may adversely affect the ability of the Company’s tenants, or new tenants, to enter into new leases or the ability of the Company’s 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 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 or default in payment of rent;

 

   

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, in particular 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 improvements in occupancy and operating results. The acquisition of certain assets may subject the Company to liabilities, including environmental liabilities;

 

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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 Company’s 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 economic environment on prospective tenants’ ability to enter into new leases or pay contractual rent, or the inability of 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 Company’s 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 Company’s financial condition may be affected by required debt service payments, the risk of default and restrictions on its ability to incur additional debt or to 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 Company’s 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 Company’s business or financial condition;

 

   

Changes in interest rates could adversely affect the market price of the Company’s 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;

 

   

Disruptions in the financial markets could affect the Company’s ability to obtain financing on reasonable terms and have other adverse effects on the Company and the market price of the Company’s common shares;

 

   

The Company is subject to complex regulations related to its status as a 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;

 

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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 interests or goals different from those of the Company and may take action contrary to the Company’s instructions, requests, policies or objectives, including the Company’s 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 cause a default under the joint venture loan for reasons outside the Company’s control. Furthermore, 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 other than temporary;

 

   

The Company’s decision to dispose of real estate assets, including land held for development and construction in progress, would change the holding period assumption in the undiscounted cash flow impairment analyses, which could result in material impairment losses and adversely affect the Company’s financial results;

 

   

The outcome of pending or future litigation, including litigation with tenants or joint venture partners, may adversely affect the Company’s results of operations and financial condition;

 

   

The Company may not realize anticipated returns from its real estate assets outside the United States. The Company may 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 to develop and own properties in Canada and Russia;

 

   

International development and ownership activities carry risks in addition to those the Company faces with its domestic properties and operations. Although the Company’s 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. These risks include the following:

 

   

Adverse effects of changes in exchange rates for foreign currencies;

 

   

Changes in foreign political or economic environments;

 

   

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;

 

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Difficulties in managing international operations and

 

   

Obstacles to the repatriation of earnings and cash.

 

   

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;

 

   

The Company could incur additional expenses to comply with or respond to claims under the Americans with Disabilities Act or otherwise be adversely affected by changes in government regulations, including changes in environmental, zoning, tax and other regulations and

 

   

The Company may be unable to successfully complete the Blackstone Acquisition.

 

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s primary market risk exposure is interest rate risk. The Company’s debt, excluding unconsolidated joint venture debt, is summarized as follows:

 

     June 30, 2013     December 31, 2012  
     Amount
(Millions)
     Weighted-
Average
Maturity
(Years)
     Weighted-
Average
Interest
Rate
    Percentage
of Total
    Amount
(Millions)
     Weighted-
Average
Maturity
(Years)
     Weighted-
Average
Interest
Rate
    Percentage
of Total
 

Fixed-Rate Debt (A)

   $ 4,112.5         5.3        5.0     92.5   $ 3,885.0        5.3        5.1     89.9

Variable-Rate Debt (A)

   $ 331.9         4.4        1.8     7.5   $ 434.1        3.0        1.9     10.1

 

(A) Adjusted to reflect the $632.1 million and $632.8 million of variable-rate debt that LIBOR was swapped to at a fixed-rate of 1.3% at June 30, 2013 and December 31, 2012, respectively.

The Company’s unconsolidated joint ventures’ indebtedness is summarized as follows:

 

     June 30, 2013     December 31, 2012  
     Joint
Venture
Debt
(Millions)
     Company’s
Proportionate
Share
(Millions)
     Weighted-
Average
Maturity
(Years)
     Weighted-
Average
Interest
Rate
    Joint
Venture
Debt
(Millions)
     Company’s
Proportionate
Share
(Millions)
     Weighted-
Average
Maturity
(Years)
     Weighted-
Average
Interest
Rate
 

Fixed-Rate Debt

   $ 2,974.7      $ 514.0        3.8        5.3   $ 3,083.7      $ 518.6        4.0        5.3

Variable-Rate Debt

   $ 1,166.9      $ 198.8        4.7        7.4   $ 1,162.7      $ 206.3        4.3        6.9

The Company intends to use retained cash flow, proceeds from asset sales, equity and debt financing and variable-rate indebtedness available under its Revolving Credit Facilities to repay indebtedness and fund capital expenditures of the Company’s shopping centers. Thus, to the extent the Company incurs additional variable-rate indebtedness, its exposure to increases in interest rates in an inflationary period could increase. The Company does not believe, however, that increases in interest expense as a result of inflation will significantly impact the Company’s distributable cash flow.

 

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The interest rate risk on a portion of the Company’s 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, 2013 and December 31, 2012, the interest rate on the Company’s $632.1 million and $632.8 million, respectively, consolidated floating rate debt was swapped to fixed rates. The Company is exposed to credit risk in the event of nonperformance by the counterparties to the Swaps. The Company believes it mitigates its credit risk by entering into Swaps with major financial institutions.

The carrying value of the Company’s fixed-rate debt is adjusted to include the $632.1 million and $632.8 million of variable-rate debt that was swapped to a fixed rate at June 30, 2013 and December 31, 2012, respectively. The fair value of the Company’s fixed-rate debt is adjusted to (i) include the swaps reflected in the carrying value and (ii) include the Company’s proportionate share of the joint venture fixed-rate debt. An estimate of the effect of a 100 basis-point increase at June 30, 2013 and December 31, 2012, is summarized as follows (in millions):

 

     June 30, 2013     December 31, 2012  
     Carrying
Value
     Fair
Value
    100 Basis
Point
Increase in
Market
Interest
Rates
    Carrying
Value
     Fair Value     100 Basis
Point
Increase in
Market
Interest
Rates
 

Company’s fixed-rate debt

   $ 4,112.5       $ 4,376.5 (A)     $ 4,195.6 (B)     $ 3,885.0       $ 4,311.8 (A)     $ 4,132.2 (B)  

Company’s proportionate share of joint venture fixed-rate debt

   $ 514.0       $ 516.8      $ 501.8      $ 518.6       $ 528.1      $ 510.2   

 

(A) Includes the fair value of interest rate swaps, which was a liability of $4.4 million and $17.1 million at June 30, 2013 and December 31, 2012, respectively.
(B) Includes the fair value of interest rate swaps, which was an asset of $17.3 million and $7.8 million at June 30, 2013 and December 31, 2012, respectively.

The sensitivity to changes in interest rates of the Company’s fixed-rate debt was determined using 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 on variable-rate debt at June 30, 2013, would result in an increase in interest expense of approximately $1.7 million for the Company and $1.0 million representing the Company’s proportionate share of the joint ventures’ interest expense relating to variable-rate debt outstanding for the six-month period. The estimated increase in interest expense for the year does not give effect to possible changes in the daily balance of the Company’s 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 Company’s access to capital markets will continue to be evaluated. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes. As of June 30, 2013, the Company had no other material exposure to market risk.

 

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ITEM 4.   CONTROLS AND PROCEDURES

Based on their evaluation as required by Securities Exchange Act Rules 13a-15(b) and 15d-15(b), the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have concluded that the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) were 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 in reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s 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, 2013, there were no changes in the Company’s internal control over financial reporting that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

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PART II

OTHER INFORMATION

 

ITEM 1.   LEGAL PROCEEDINGS

Coventry II

The Company is a party to various joint ventures with the Coventry II Fund, through which 10 existing or proposed retail properties, along with a portfolio of former Service Merchandise locations, were acquired at various times from 2003 through 2006. The properties were acquired by the joint ventures as value-add investments, with major renovation and/or ground-up development contemplated for many of the properties. The Company was generally responsible for day-to-day management of the properties through December 2011. On November 4, 2009, Coventry Real Estate Advisors L.L.C., Coventry Real Estate Fund II, L.L.C. and Coventry Fund II Parallel Fund, L.L.C. (collectively, “Coventry”) filed suit against the Company and certain of its affiliates and officers in the Supreme Court of the State of New York, County of New York. The complaint alleges that the Company: (i) breached contractual obligations under a co-investment agreement and various joint venture limited liability company agreements, project development agreements and management and leasing agreements; (ii) breached its fiduciary duties as a member of various limited liability companies; (iii) fraudulently induced the plaintiffs to enter into certain agreements; and (iv) made certain material misrepresentations. The complaint also requests that a general release made by Coventry in favor of the Company in connection with one of the joint venture properties be voided on the grounds of economic duress. The complaint seeks compensatory and consequential damages in an amount not less than $500 million, as well as punitive damages.

In response to this action, the Company filed a motion to dismiss the complaint or, in the alternative, to sever the plaintiffs’ claims. In June 2010, the court granted the motion in part (which was affirmed on appeal), dismissing Coventry’s claim that the Company breached a fiduciary duty owed to Coventry. The Company also filed an answer to the complaint, and asserted various counterclaims against Coventry. On October 10, 2011, the Company filed a motion for summary judgment, seeking dismissal of all of Coventry’s remaining claims. On April 18, 2013, the court issued an order granting the majority of the Company’s motion. Among other findings, the order dismissed all claims of fraud and misrepresentation against the Company and its officers, dismissed all claims for breach of the joint venture agreements and development agreements, and dismissed Coventry’s claim of economic duress. The court’s decision denied the Company’s motion solely with respect to several claims for breach of contract under the Company’s prior management agreements in connection with certain assets. Coventry appealed the court’s ruling. The Company cross-appealed the ruling with respect to those limited aspects of the motion that were not granted.

The Company believes that the allegations in the lawsuit are without merit and that it has strong defenses against this lawsuit. The Company will continue to vigorously defend itself against the allegations contained in the complaint. This lawsuit is subject to the uncertainties inherent in the litigation process and, therefore, no assurance can be given as to its ultimate outcome and no loss provision has been recorded in the accompanying financial statements because a loss contingency is not deemed probable or estimable. However, based on the information presently available to the Company, the Company does not expect that the ultimate resolution of this lawsuit will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

 

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Other

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 outcome of such legal proceedings and claims will not have a material adverse effect on the Company’s liquidity, financial position or results of operations.

 

ITEM 1A.   RISK FACTORS

None.

 

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

 

     (a) Total Number of
Shares  Purchased  (1)
     (b) Average Price
Paid per Share
     (c) Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs
     (d) Maximum Number
(or Approximate
Dollar Value) of
Shares that May Yet
Be Purchased Under
the Plans or Programs
(Millions)
 

April 1 – 30, 2013

     1,042       $ 17.42         —           —     

May 1 – 31, 2013

     —           —           —           —     

June 1 – 30, 2013

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,042       $ 17.42         —           —     

 

(1) Consists of common shares surrendered or deemed surrendered to the Company to satisfy statutory minimum tax withholding obligations in connection with the vesting and/or exercise of awards under the Company’s equity-based compensation plans.

 

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4.   MINE SAFETY DISCLOSURES

Not applicable.

 

ITEM 5.   OTHER INFORMATION

None.

 

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ITEM 6. EXHIBITS

 

2.1    Agreement of Purchase and Sale between the Parties listed on Schedule A attached thereto, as REIT Seller, BRE Pentagon Retail Holding B, LLC, as Homart Seller, JDN Real Estate – Lakeland, L.P., as REIT Buyer, and the Company, as Homart Buyer, dated as of May 15, 2013*
3.1    Second Amended and Restated Articles of Incorporation of the Company, as amended
3.2    Amended and Restated Code of Regulations of the Company
4.1    Deposit Agreement, among the Company Computershare Shareowner Services LLC, as Depositary, and all holders from time to time of depositary shares
4.2    Specimen certificate of 6.250% Class K Cumulative Redeemable Preferred Shares, without par value, of the Company
4.3    Sixteenth Supplemental Indenture by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (as successor to National City Bank))
31.1    Certification of principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2    Certification of principal financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1    Certification of chief executive officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 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 chief financial officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 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
101.INS    XBRL Instance Document 2
101.SCH    XBRL Taxonomy Extension Schema Document 2
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document 2
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document 2
101.LAB    XBRL Taxonomy Extension Label Linkbase Document 2
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document 2

 

71


Table of Contents
* Certain immaterial schedules and exhibits to this exhibit have been omitted pursuant to the provisions of Regulation S-K, Item 601(b)(2). A copy of any of the omitted schedules and exhibits will be furnished to the Securities and Exchange Commission upon request.
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.
2 Submitted electronically herewith.

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012, (ii) Condensed Consolidated Statements of Operations for the Three- and Six-Month Periods Ended June 30, 2013 and 2012, (iii) Condensed Consolidated Statements of Comprehensive Loss for the Three- and Six-Month Periods Ended June 30, 2013 and 2012, (iv) Consolidated Statement of Equity for the Six-Month Period Ended June 30, 2013, (v) Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2013 and 2012 and (vi) Notes to Condensed Consolidated Financial Statements.

 

72


Table of Contents

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.

 

    DDR CORP.
            August 8, 2013                   /s/ Christa A. Vesy
(Date)       Christa A. Vesy
      Executive Vice President and Chief Accounting Officer
(Authorized Officer)

 

73


Table of Contents

EXHIBIT INDEX

 

Exhibit No.

Under Reg. S-K

Item 601

    

Form 10-Q

Exhibit No.

    

Description

    

Filed Herewith or

Incorporated Herein by

Reference

2

     2.1      Agreement of Purchase and Sale between the Parties listed on Schedule A attached thereto, as REIT Seller, BRE Pentagon Retail Holding B, LLC, as Homart Seller, JDN Real Estate – Lakeland, L.P., as REIT Buyer, and the Company, as Homart Buyer, dated as of May 15, 2013*      Filed herewith

3

     3.1      Second Amended and Restated Articles of Incorporation of the Company, as amended      Filed herewith

3

     3.2      Amended and Restated Code of Regulations of the Company      Filed herewith

4

     4.1      Deposit Agreement, among the Company Computershare Shareowner Services LLC, as Depositary, and all holders from time to time of depositary shares      Current Report on Form 8-K (Filed with the SEC
on April 9, 2013; File No. 001-11690)

4

     4.2      Specimen certificate of 6.250% Class K Cumulative Redeemable Preferred Shares, without par value, of the Company      Current Report on Form 8-K (Filed with the SEC
on April 9, 2013; File No. 001-11690)

4

     4.3      Sixteenth Supplemental Indenture by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association(as successor to National City Bank))      Filed herewith

31

     31.1      Certification of principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934      Filed herewith

31

     31.2      Certification of principal financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934      Filed herewith

32

     32.1      Certification of chief executive officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of this report pursuant to the Sarbanes-Oxley Act of 2002      Filed herewith

32

     32.2      Certification of chief financial officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of this report pursuant to the Sarbanes-Oxley Act of 2002      Filed herewith

101

     101.INS      XBRL Instance Document      Submitted
electronically herewith

101

     101.SCH      XBRL Taxonomy Extension Schema Document      Submitted
electronically herewith

101

     101.CAL      XBRL Taxonomy Extension Calculation Linkbase Document      Submitted
electronically herewith

101

     101.DEF      XBRL Taxonomy Extension Definition Linkbase Document      Submitted
electronically herewith

101

     101.LAB      XBRL Taxonomy Extension Label Linkbase Document      Submitted
electronically herewith

101

     101.PRE      XBRL Taxonomy Extension Presentation Linkbase Document      Submitted
electronically herewith

 

* Certain immaterial schedules and exhibits to this exhibit have been omitted pursuant to the provisions of Regulation S-K, Item 601(b)(2). A copy of any of the omitted schedules and exhibits will be furnished to the Securities and Exchange Commission upon request.

 

74

Exhibit 2.1

AGREEMENT OF PURCHASE AND SALE

between

THE PARTIES LISTED ON SCHEDULE A ATTACHED HERETO, AS REIT SELLER,

BRE PENTAGON RETAIL HOLDINGS B LLC, AS HOMART SELLER,

JDN REAL ESTATE – LAKELAND, L.P., AS REIT BUYER,

and -

DDR CORP., AS HOMART BUYER

Dated as of May 15, 2013


Table of Contents

 

     Page  

ARTICLE I DEFINITIONS

     2   

SECTION 1.1. Defined Terms

     2   

ARTICLE II SALE, PURCHASE PRICE AND CLOSING

     10   

SECTION 2.1. Sale of the Interests

     10   

SECTION 2.2. Purchase Price

     10   

SECTION 2.3. The Closing

     12   

SECTION 2.4. Allocated Homart Purchase Price

     13   

ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLERS

     13   

SECTION 3.1. General Seller Representations and Warranties

     13   

SECTION 3.2. Representations and Warranties of the Sellers as to the Interests

     15   

SECTION 3.3. Amendments to Schedules; Limitations on Representations and Warranties of the Sellers

     19   

SECTION 3.4. Covenants of the Sellers Prior to Closing

     20   

SECTION 3.5. Tax Covenants of the Sellers Post Closing

     22   

ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BUYER

     22   

SECTION 4.1. Representations and Warranties of the Buyer

     22   

SECTION 4.2. Covenants of the Buyer Prior to Closing

     27   

SECTION 4.3. Limitations on Representations and Warranties of the Buyer

     28   

ARTICLE V CONDITIONS PRECEDENT TO CLOSING

     29   

SECTION 5.1. Conditions Precedent to the Sellers’ Obligations

     29   

SECTION 5.2. Conditions to the Buyer’s Obligations

     30   

SECTION 5.3. Waiver of Conditions Precedent

     31   

ARTICLE VI CLOSING DELIVERIES

     31   

SECTION 6.1. Buyer Closing Deliveries

     31   

SECTION 6.2. Seller Closing Deliveries

     32   

ARTICLE VII RELEASE

     33   

SECTION 7.1. Intentionally Omitted

     33   

SECTION 7.2. Intentionally Omitted

     33   

SECTION 7.3. Disclaimer

     33   

SECTION 7.4. Examination; No Contingencies

     34   

SECTION 7.5. Release

     34   

ARTICLE VIII MAINTENANCE OF REIT STATUS

     36   

 

i


SECTION 8.1. BRE REIT Status and Tax Returns

     36   

ARTICLE IX TRANSACTION COSTS

     36   

SECTION 9.1. Transaction Costs

     36   

ARTICLE X

     37   

ARTICLE XI INDEMNIFICATION

     37   

SECTION 11.1. Indemnification by the Sellers

     37   

SECTION 11.2. Indemnification by the Buyer

     37   

SECTION 11.3. Limitations on Indemnification

     38   

SECTION 11.4. Notification

     38   

SECTION 11.5. Survival

     38   

SECTION 11.6. Indemnification as Sole Remedy

     39   

ARTICLE XII INTENTIONALLY OMITTED

     39   

ARTICLE XIII DEFAULT

     39   

SECTION 13.1. The Buyer’s Default

     39   

SECTION 13.2. The Sellers’ Default; Failure of Conditions

     40   

ARTICLE XIV INTENTIONALLY OMITTED

     41   

ARTICLE XV MISCELLANEOUS

     41   

SECTION 15.1. Exculpation

     41   

SECTION 15.2. Brokers

     41   

SECTION 15.3. Confidentiality; Press Release; IRS Reporting Requirements

     42   

SECTION 15.4. Escrow Provisions

     43   

SECTION 15.5. Deposit Escrow Account

     43   

SECTION 15.6. Successors and Assigns; No Third-Party Beneficiaries

     44   

SECTION 15.7. Assignment

     44   

SECTION 15.8. Further Assurances

     44   

SECTION 15.9. Notices

     44   

SECTION 15.10. Entire Agreement

     46   

SECTION 15.11. Amendments

     46   

SECTION 15.12. No Waiver

     46   

SECTION 15.13. Governing Law

     46   

SECTION 15.14. Submission to Jurisdiction

     46   

SECTION 15.15. Severability

     46   

SECTION 15.16. Section Headings

     47   

SECTION 15.17. Counterparts

     47   

SECTION 15.18. Acceptance of Assignments

     47   

SECTION 15.19. Construction

     47   

SECTION 15.20. Recordation

     47   

SECTION 15.21. Books and Records

     47   

SECTION 15.22. Time is of the Essence

     48   

SECTION 15.23. Waiver of Jury Trial

     48   

 

ii


Schedules     
Schedule A   -    Sellers and Interests
Schedule B   -    Transaction Actions
Schedule C   -    Loans
Schedule D   -    Consent Loans
Schedule E   -    Subject Properties
Schedule 2.4   -    Allocated Homart Purchase Price
Schedule 3.2(a)   -    Litigation
Schedule 3.2(b)   -    BRE REIT Organizational Documents
Schedule 3.2(f)   -    Compliance with Law
Schedule 3.2(g)-1   -    Taxes
Schedule 3.2(g)-2   -    Specified Tax Representation and Tax Cap Limitation
Schedule 6.2(l)   -    Opinion
Exhibits     
Exhibit A   -    Form of Homart Assignment
Exhibit B   -    Form of BRE REIT Assignment
Exhibit C   -    Form of New JV Agreement
Exhibit D   -    Form of Registration Rights Agreement
Exhibit E   -    Form of FIRPTA Certificate
Exhibit F   -    Form of Guaranty

 

iii


AGREEMENT OF PURCHASE AND SALE

AGREEMENT OF PURCHASE AND SALE (this “ Agreement ”), is made and entered into as of May 15, 2013 (the “ Effective Date ”) by and among the seller parties set forth on Schedule A attached hereto, (collectively, the “ REIT Seller ”) and BRE PENTAGON RETAIL HOLDINGS B LLC, a Delaware limited liability company (the “ Homart Seller ”, together with REIT Seller, each, individually a “ Seller ” and collectively, the “ Sellers ”), and DDR Corp., an Ohio corporation (the “ Homart Buyer ”), and JDN Real Estate – Lakeland, L.P., a Georgia limited partnership (the “ REIT Buyer ”, together with Homart Buyer, the “ Buyer ”).

Background

A. BRE Pentagon Retail JV Member LLC, a Delaware limited liability company (“ BRE JV Member ”), and DDR BV Holdings LLC, a Delaware limited liability company (“ DDR JV Member ”), are members of BRE DDR Retail Holdings LLC, a Delaware limited liability company (the “ Retail Holdings ”), pursuant to the terms of that certain Amended and Restated Limited Liability Company Agreement of Retail Holdings dated as of January 10, 2012 (the “ Retail Holdings LLC Agreement ”).

B. As of the Effective Date, BRE Pentagon Retail Holdings A Inc., a Delaware corporation (the “ BRE REIT ”), and the Homart Seller directly own 100% of the ownership interests in BRE JV Member.

C. As of the Effective Date, Retail Holdings indirectly owns 100% of the ownership interests in BRE DDR Homart Holdings LLC, a Delaware limited liability company (“ Homart Holdings ”).

D. Immediately prior to the Closing under this Agreement, Sellers and Buyer desire to effectuate the transaction structuring actions more particularly described on Schedule B attached hereto (the “ Transaction Actions ”). Upon the completion of the Transaction Actions, immediately prior to the Closing, (i) BRE REIT shall be the direct owner of a 95% common interest in the Retail Holdings, (ii) Homart Seller shall be the direct owner of a 95% common interest in Homart Holdings, (iii) BRE Boomerang Holdings Inc., a Delaware corporation (“ BRE Boomerang REIT ”), shall be the direct owner of a 95% common interest in BRE DDR Boomerang Holdings LLC, a Delaware limited liability company (“ New JV ”), and DDR BV Holdings LLC, a Delaware limited liability company (“ DDR BV Holdings ”), shall be the direct owner of a 5% common interest in New JV and (iv) New JV shall be direct owner of 100% of the ownership interests in the Unencumbered Owners and in BRE DDR Bison Holdings LLC, a Delaware limited liability company (“ Bison Holdings ”).

E. REIT Seller desires to sell to REIT Buyer, and REIT Buyer desires to purchase from REIT Seller, all of common shares in BRE REIT (the “ REIT Shares ”), on the terms and conditions set forth in this Agreement. Homart Seller desires to sell to the Homart Buyer, and the Homart Buyer desires to purchase from the Homart Seller, all of its ownership interests in Homart Holdings (the “ Homart Interests ”, together with the REIT Shares, the “ Interests ”) on the terms and conditions hereinafter set forth.


AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.1. Defined Terms. The capitalized terms used herein will have the following meanings.

Agreement ” shall mean this Agreement of Purchase and Sale, together with the exhibits and schedules attached hereto, as the same may be amended, restated, supplemented or otherwise modified.

Allocated Homart Purchase Price ” shall have the meaning assigned thereto in Section 2.4.

Anti-Money Laundering and Anti-Terrorism Laws ” shall have the meaning assigned thereto in Section 3.1(g)(i).

Applicable Law ” means all statutes, laws, common law, rules, regulations, ordinances, codes or other legal requirements of any Governmental Authority, board of fire underwriters and similar quasi-governmental agencies or entities, and any judgment, injunction, order, directive, decree or other judicial or regulatory requirement of any court or Governmental Authority of competent jurisdiction affecting or relating to the Person or the Interests in question.

Asset ” shall mean Interests and the Interest Related Rights.

Balance of the Cash Consideration ” shall have the meaning assigned thereto in Section 2.2(a).

Basket Limitation ” shall mean an amount equal to $1,000,000.00.

Bison Amount ” shall have the meaning assigned thereto in Section 5.1(f).

Bison Assets ” means the assets owned as of the date hereof indirectly by BRE DDR Bison Holdings LLC.

Bison Holdings ” shall have the meaning assigned thereto in Background paragraph D.

Books and Records Period ” shall have the meaning assigned thereto in Section 15.21.

 

2


BRE JV Member ” shall have the meaning assigned thereto in the Background paragraph A.

BRE Boomerang REIT ” shall have the meaning assigned thereto in Background paragraph D.

BRE REIT ” shall have the meaning assigned thereto in Background paragraph B.

BRE REIT Organizational Documents ” shall have the meaning assigned thereto in Section 3.2(b).

Business Day ” shall mean any day other than a Saturday, Sunday or other day on which banks are authorized or required by law to be closed in the city of New York, New York.

Buyer ” shall have the meaning assigned thereto in the Preamble to this Agreement.

Buyer Material Adverse Effect ” shall mean any effect, event, development or change, which, individually or in the aggregate with all other effects, events, developments or changes, is or is reasonably likely to become materially adverse to the assets, business, condition (financial or otherwise) or results of operations of the Homart Buyer and its subsidiaries, taken as a whole; provided, however, that none of the following shall constitute or be considered in determining whether there has occurred a Buyer Material Adverse Effect: (A) changes in conditions in the U.S. or global economy or capital or financial markets generally, including changes in interest or exchange rates, or changes or effects that affect the commercial real estate REIT industry generally; (B) changes in Applicable Law or tax, regulatory, political or business conditions that, in each case, generally affect the geographic regions in which the Homart Buyer and its subsidiaries conduct their business or the retail center industry; (C) changes in GAAP or interpretation thereof after the date hereof; (D) acts of war, armed hostilities, sabotage or terrorism, or any escalation or worsening of any such acts of war, armed hostilities, sabotage or terrorism threatened or underway as of the date of this Agreement; or (E) earthquakes, hurricanes or other natural disasters; provided, that any effect, event, development or change referenced in clauses (B), (D) or (E) above shall be considered in determining whether there has been or is a Buyer Material Adverse Effect if such effect, event, development or change affects the Homart Buyer and its subsidiaries in a disproportionate manner as compared to other participants in the shopping center industry that operate in the geographic regions affected by such effect, event, development or change.

Buyer-Related Entities ” shall have the meaning assigned thereto in Section 11.1.

Buyer Reports ” shall have the meaning assigned thereto in Section 4.1(h).

Buyer Waived Breach ” shall have the meaning assigned thereto in Section 11.3.

Buyer’s Knowledge ” shall mean the actual knowledge of a Buyer based upon the actual collective knowledge of Luke Petherbridge and Kevin Kessinger, without any duty on the part of any other officer or other Person to conduct any independent investigation or make any inquiry of any Person.

 

3


Cap Limitation ” shall mean an amount equal to $15,000,000.

Cash Consideration ” shall have the meaning assigned thereto in Section 2.2(a).

Claim Notice ” shall have the meaning assigned thereto in Section 11.4.

Claims ” shall have the meaning assigned thereto in Section 7.5(a).

Class H Shares ” shall have the meaning assigned thereto in subsection 4.1(g)(i).

Class J Shares ” shall have the meaning assigned thereto in subsection 4.1(g)(i).

Class K Shares ” shall have the meaning assigned thereto in subsection 4.1(g)(i).

Closing ” shall have the meaning assigned thereto in Section 2.3(a).

Closing Date ” shall have the meaning assigned thereto in Section 2.3(a).

Closing Documents ” shall mean any certificate, assignment, instrument or other document delivered pursuant to this Agreement.

Closing Statement ” shall have the meaning assigned thereto in Section 6.1(i).

Code ” shall mean the Internal Revenue Code of 1986, as amended.

Common Shares ” shall have the meaning assigned thereto in subsection 4.1(g)(i).

Company ” shall mean, as the context requires, either BRE REIT, Homart Holdings or Retail Holdings.

Company Organizational Documents ” shall mean the Organizational Documents of the applicable Company.

Deposit ” shall have the meaning assigned thereto in Section 2.2(b).

Deposit Escrow Account ” shall have the meaning assigned thereto in Section 15.5(a).

DDR BV Holdings ” shall have the meaning assigned thereto in Background paragraph D.

DDR JV Member ” shall have the meaning assigned thereto in Background paragraph A.

Earnest Money ” shall have the meaning assigned thereto in Section 2.2(b).

 

4


Effective Date ” shall mean the date of this Agreement.

Escrow Agent ” shall have the meaning assigned thereto in Section 2.2(b).

Exchange Act ” shall have the meaning assigned thereto in Section 4.1(h).

Excluded Liabilities ” shall mean (a) any fraud, willful misconduct or knowing or intentional breach of any representation or warranty by Sellers under this Agreement or any Closing Document, (b) any breach by Sellers of Section 9.1 or Section 15.2(a), and (c) any breach by Sellers of the covenant to pay the BRE Liability prior to Closing pursuant to Section 3.2(g)(vi) and Section 3.2(i).

Executive Order ” shall have the meaning assigned thereto in Section 3.1(g)(i).

Financial Information ” shall have the meaning assigned thereto in Section 15.22.

GAAP ” shall mean generally accepted accounting principles in the United States of America in effect from time to time.

Governmental Authority ” shall mean any federal, state or local government or other political subdivision thereof, including, without limitation, any agency or entity exercising executive, legislative, judicial, regulatory or administrative governmental powers or functions, in each case to the extent the same has jurisdiction over the Person or property in question.

Government List ” shall mean any of (i) the two lists maintained by the United States Department of Commerce (Denied Persons and Entities), (ii) the list maintained by the United States Department of Treasury (Specially Designated Nationals and Blocked Persons), and (iii) the two lists maintained by the United States Department of State (Terrorist Organizations and Debarred Parties).

Guaranty ” shall have the meaning assigned thereto in Section 2.2(b).

Guaranteed Amount ” shall have the meaning assigned thereto in Section 2.2(b).

Hazardous Materials ” shall have the meaning assigned thereto in subparagraph 7.4(b)(i).

Homart Assignment ” shall have the meaning assigned thereto in Section 6.1(a).

Homart Buyer ” shall have the meaning assigned thereto in the Preamble.

Homart Holdings ” shall have the meaning assigned thereto in Background paragraph C.

Homart Interests ” shall have the meaning assigned thereto in Background paragraph E.

Homart Purchase Price ” shall have the meaning assigned thereto in Section 2.2(a).

 

5


Homart Seller ” shall have the meaning assigned thereto in the Preamble to this Agreement.

Indemnification Claim ” shall have the meaning assigned thereto in Section 11.4.

Indemnified Party ” shall have the meaning assigned thereto in Section 11.4.

Indemnifying Party ” shall have the meaning assigned thereto in Section 11.4.

Inspection Losses ” shall have the meaning assigned thereto in Section 7.1.

Interest-Related Rights ” shall have the meaning assigned thereto in Section 2.1(b).

Interests ” shall have the meaning assigned thereto in Background paragraph E.

Interim Distributions ” means all dividends or other distributions, whether involving cash, securities or other property, that would have been paid or payable in respect of the Share Consideration, assuming that such Share Consideration had been issued and outstanding on the date of this Agreement and remained issued and outstanding on the Closing Date.

IRS ” shall mean the Internal Revenue Service.

IRS Reporting Requirements ” shall have the meaning assigned thereto in Section 15.3(c).

Lender Consents ” shall mean the consents required from the applicable Lender Parties with respect to the Lender Consent Loans relating to (i) the transfers of the REIT Shares and the Homart Interests, (ii) the Transaction Actions, (iii) the replacement of Retail Holdings as the guarantor and indemnitor under the Bison Loan with Blackstone Real Estate Partners VII L.P. (“ BREP ”) and Homart Buyer or a creditworthy affiliate of each acceptable to the Lender Parties; provided that BREP or its creditworthy affiliate (as applicable) shall be responsible for 95% of all liability under such guaranty and Homart Buyer or its creditworthy affiliate (as applicable) shall be responsible for the remaining 5% of such liability (subject to the delivery of a joinder as contemplated by Section 7.3 of the New JV Agreement) and (iv) if required by the applicable Lender Parties, the replacement of Retail Holdings as the guarantor and indemnitor under the Loans other than the Bison Loan with Homart Buyer or a creditworthy affiliate of Homart Buyer acceptable to the Lender Parties.

Lender Consent Costs ” shall mean (i) any assumption or transfer fees charged by the Lender Parties in connection with obtaining the Lender Consents, (ii) all processing fees charged by the Lender Parties in order for the Buyer to submit application packages for each Lender Consent, (iii) any third-party, out-of-pocket costs and expenses, including reasonable attorneys’ fees, charged by the Lender Parties in connection with the Lender Consents and (iv) any title premiums and expenses related to any date down endorsements required by the Lender Parties as a condition to granting the Lender Consents.

 

6


Lender Consent Documents ” shall mean the assumption or consent documents required by the Lender Parties on connection with granting the Lender Consent.

Lender Consent Loans ” shall mean the Loans set forth on Schedule D attached hereto; provided , however , if any of such Loans are prepaid in full prior to or on the Closing, such Loan shall be deemed deleted from Schedule D and not considered a Lender Consent Loan.

Lender Parties ” shall mean all applicable lenders, servicers, special servicers, controlling holders and rating agencies with respect to the Loans.

Lien ” shall mean any security interest, pledge, mortgage, lien (including liens imposed by Applicable Law, such as but not limited to, mechanics’ liens), charge, hypothecation, option to purchase or lease or otherwise acquire any interest, conditional sales agreement, adverse claim of ownership or use, title defect, easement, right of first refusal, encumbrance, right of way or other encumbrance of any kind, other than those arising by reason of restrictions on transfers under federal, state and foreign securities laws.

Liquidated Damages Amount ” shall mean $50,000,000, but when all conditions set forth in Section 5.2(g) are satisfied, then such term shall mean $100,000,000.

Loans ” shall mean the existing loans more particularly described on Schedule C attached hereto.

Losses ” shall have the meaning assigned thereto in Section 11.1.

New JV Agreement ” shall have the meaning assigned thereto in Section 6.1(c).

Offering Price ” means the weighted average price to the public per Common Share sold in the Share Offering(s) as set forth in the final prospectus supplement(s) relating to the Share Offering(s) pursuant to Rule 424(b) under the Securities Act.

Offering Size ” means the Offering Price multiplied by the number of Common Shares sold in the Share Offering(s) (including any Common Shares sold pursuant to the underwriters’ option to purchase additional Common Shares).

Organizational Documents ” shall mean the operating agreement and certificate of formation, or the certificate of incorporation and bylaws, as applicable, and in each case, all amendments thereto as well as all foreign qualification documentation.

Outside Closing Date ” shall have the meaning assigned thereto in Section 2.3(a).

Payoff Loan Costs ” shall mean all costs to prepay the Payoff Loans in full, including, without limitation, all principal, interest, prepayment premiums, spread maintenance and other costs and amounts with respect to the payoff.

Payoff Loans ” shall mean the Loans which are identified as “Payoff Loans” on Schedule D hereto.

 

7


Person ” shall mean a natural person, partnership, limited partnership, limited liability company, corporation, trust, estate, association, unincorporated association or other entity.

Preferred Shares ” shall have the meaning assigned thereto in subsection 4.1(g)(i).

Purchase Price ” shall have the meaning assigned thereto in Section 2.2(a).

REIT Shares ” shall have the meaning assigned thereto in Background paragraph E.

Release Date ” shall have the meaning assigned thereto in Section 14.1(a).

Registration Rights Agreement ” shall have the meaning assigned thereto in Section 6.1(d).

REIT ” shall have the meaning assigned thereto in Section 4.1(j).

REIT Purchase Price ” shall have the meaning assigned thereto in Section 2.2(a).

Releases ” shall have the meaning assigned thereto in Section 7.5(a).

Reporting Person ” shall have the meaning assigned thereto in Section 15.3(c).

Retail Holdings ” shall have the meaning assigned thereto in Background paragraph A.

Retail Holdings LLC Agreement ” shall have the meaning assigned thereto in Background paragraph A.

Schedule Update ” shall have the meaning assigned thereto in Section 3.3(a).

Schedule Update Response Notice ” shall have the meaning assigned thereto in Section 3.3(a).

SEC ” means the Securities and Exchange Commission.

Securities Act ” means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

Seller ” shall have the meaning assigned thereto in the Preamble to this Agreement.

Seller-Related Entities ” shall have the meaning assigned thereto in Section 11.2.

Seller’s Knowledge ” shall mean the actual knowledge of a Seller based upon the actual collective knowledge of Nadeem Meghji and Phillip Solomond, without any duty on the part of any other officer or other Person to conduct any independent investigation or make any inquiry of any Person.

 

8


Share Consideration ” shall have the meaning assigned thereto in Section 2.2(a).

Share Consideration Value ” means the dollar amount of the Purchase Price which, at the election of the Homart Buyer, will be paid for with Common Shares; provided that the Share Consideration Value may not exceed an amount equal to (x) $250,000,000 less (y) the greater of (I) $0 and (II) the Offering Size less $400,000,000.

Share Offering ” means one or more of the following: (i) a bona fide underwritten public offering by the Homart Buyer of Common Shares and/or (ii) a bona fide underwritten public offering by the forward purchasers of Common Shares in connection with the entry by the Homart Buyer of forward sales agreements for Common Shares; provided, that , in order to constitute a Share Offering, (A) a firm commitment underwriting agreement must have been entered into with respect to any such offering not earlier than the Effective Date and not later than the fifth Business Day after the Effective Date and (B) such offerings must be consummated and must have an aggregate public offering price as set forth in the final prospectus supplements relating to such offerings of no less than $400,000,000.

Specified Tax Representation ” shall mean the representations and warranties made by the Sellers as described in Schedule 3.2(g)-2.

Subject Properties ” shall mean the retail shopping centers to be owned indirectly by Retail Holdings or Homart Holdings upon the Closing as set forth on Schedule E.

Survival Period ” shall have the meaning assigned thereto in Section 11.5.

Tax Cap Limitation ” shall mean the amount set forth on Schedule 3.2(g)-2.

Taxes ” shall mean any and all fees (including, without limitation, documentation, recording, license and registration fees), taxes (including, without limitation, net income, alternative, unitary, alternative minimum, minimum franchise, value added, ad valorem, income, receipts, capital, excise, sales, use, leasing, fuel, excess profits, turnover, occupation, property (including personal, real, tangible and intangible property taxes), transfer, recording and stamp taxes, levies, imposts, duties, charges, fees, assessments, or withholdings of any nature whatsoever, general or special, ordinary or extraordinary, and any transaction privileges or similar taxes) imposed by or on behalf of a Governmental Authority, together with any and all penalties, fines, additions to tax and interest thereon.

Transaction Actions ” shall have the meaning assigned thereto in Background paragraph D.

Transaction Action Documents ” shall mean the contribution and distribution agreements necessary to effectuate the Transaction Actions.

Unencumbered Assets ” means the assets owned as of the date hereof by the Unencumbered Owners.

Unencumbered Owners ” means BRE DDR Union Road Plaza LLC and BRE DDR Winter Park Palms LLC.

 

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ARTICLE II

SALE, PURCHASE PRICE AND CLOSING

SECTION 2.1. Sale of the Interests .

(a) Pursuant to the terms and subject to the conditions set forth in this Agreement, (i) the REIT Seller shall sell to the REIT Buyer, and the REIT Buyer shall purchase from the REIT Seller, all of the REIT Shares free and clear of all Liens, other than Liens created by the Buyer or any of its affiliates and (ii) the Homart Seller shall sell to the Homart Buyer, and the Homart Buyer shall purchase from the Homart Seller, all of the Homart Interests free and clear of all Liens, other than Liens created by the Homart Buyer or any of its affiliates

(b) The transfer of the Interests shall include the transfer of all Interest-Related Rights. For purposes of this Agreement, “Interest-Related Rights” shall mean all of such Seller’s right, title and interest in, to and under the applicable Company and the Company Organizational Documents including, without limitation, all of Seller’s right, title and interest in, to and under all (i) distributions after the Closing Date of profits and income of the Company, (ii) capital distributions after the Closing Date from the Company, (iii) distributions after the Closing Date of cash flow by the Company, (iv) property of the Company to which Seller now or in the future may be entitled, (v) other claims which Seller now has or may in the future acquire against the Company and its property, (vi) proceeds of any liquidation upon the dissolution of the Company and winding up of its affairs, (vii) other rights of Seller to receive any distributions or other payments of any kind whatsoever from or in respect of the Company or in any way derived from the Properties or from the ownership or operation thereof after the Closing Date, whether any of the above distributions consist of money or property, and (viii) all other rights, benefits and obligations of Seller as a member or shareholder (as applicable) in the Company including, without limitation, rights to reports and accounting, information; provided, however that the Interest-Related Rights shall not include the proceeds of the sale of the Interests contemplated hereby or any interests in Bison Holdings or the Unencumbered Assets.

SECTION 2.2. Purchase Price .

(a) The aggregate consideration to be paid by the Buyer to the Sellers for the Asset shall be $566,350,000 (as adjusted in accordance with paragraph 2.2(f) below, the “ Purchase Price ”), which Purchase Price (i) shall be allocated (A) 55.0953% to the REIT Shares (as reduced by the credit referred to in paragraph 2.2(f) below, the “ REIT Purchase Price ”) and (B) 44.9047% to the Homart Interests (the “ Homart Purchase Price ”) and (ii) shall consist of (X) cash in an amount equal to the Purchase Price less the Share Consideration Value (the “ Cash Consideration ”) and (Y) a number of shares, if any, of newly-issued Common Shares of the Homart Buyer (the “ Share Consideration ”), equal to (x) the Share Consideration Value divided by (y) the Offering Price (as appropriately adjusted in the case of any stock dividends, splits, combinations or similar events), with such result rounded up to the nearest whole number of Common Shares; provided that (1) the Homart Buyer and the REIT Buyer must notify Sellers in

 

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writing by 5:00 p.m. New York City time on the 5 th Business Day after the Effective Date of the preliminary Share Consideration Value and the Offering Price and (2) if the Homart Buyer and REIT Buyer do not notify Sellers of the preliminary Share Consideration Value within five Business Days of the Effective Date or the Share Offering does not occur, the Share Consideration Value will be deemed to be $0. The Homart Buyer and REIT Buyer must notify Seller of the final Offering Size (taking into account whether the applicable underwriters’ option to purchase additional Common Shares has been exercised) in writing by 5:00 p.m. New York City time on the 30 th calendar date following the date of the final prospectus supplement relating to the Share Offering pursuant to Rule 424(b) under the Securities Act of the final Share Consideration Value. The Purchase Price (including all Cash Consideration and any Share Consideration) shall be paid to the Sellers (pro rata in accordance with sub-clauses (A) and (B) of clause (i) above) as follows:

At the Closing, (A) the Buyer shall deposit with the Escrow Agent, by wire transfer of immediately available funds, an amount equal to the Balance of the Cash Consideration, and (B) the Homart Buyer shall register the Share Consideration in the name of the applicable Seller or its designee by book entry in an account or accounts with the Homart Buyer’s transfer agent, free and clear of all Liens (other than those imposed by the Homart Buyer’s Organizational Documents, created by the Homart Seller or any of its affiliates, the transfer restrictions imposed by the Registration Rights Agreement and federal and state securities laws); provided , however , that the Share Consideration shall be proportionately adjusted to reflect any share splits, combination of shares, stock dividends, recapitalizations, reorganizations or reclassifications with respect to the Common Shares of the Homart Buyer or any transaction in which the Common Shares are converted into other securities or cash, in each case, occurring between the Effective Date and the Closing Date. “ Balance of the Cash Consideration ” means (i) the Cash Consideration, minus (ii) the Earnest Money.

(b) Buyer shall (i) within two (2) Business Days after the Effective Date, deliver to Fidelity National Title Insurance Company, as escrow agent (in such capacity, “ Escrow Agent ”), cash in an amount equal to $25,000,000 (together with all accrued interest thereon, the “ Earnest Money ”) in immediately available funds by wire transfer to the Deposit Escrow Account and (ii) upon execution of this Agreement cause Homart Buyer to deliver an irrevocable guaranty in favor of Sellers in the form of Exhibit F attached hereto (the “ Guaranty ”) for an amount equal to the positive difference between the Liquidated Damages Amount and the amount of the Earnest Money (the “ Guaranteed Amount ” and together with the Earnest Money and any interest earned on the Earnest Money being collectively referred to as the “ Deposit ”). Sellers shall be entitled to make a claim for the Guaranteed Amount for all purposes for which Sellers would otherwise be entitled to the Deposit hereunder. Purchaser waives any right to challenge any suit brought under the Guaranty other than any rights of Purchaser herein to challenge the disposition of the Deposit. The Deposit shall be non-refundable to the Buyer except as expressly provided in this Agreement. The Deposit upon delivery by the Buyer to Escrow Agent will be deposited by Escrow Agent in the Deposit Escrow Account, and shall be held in escrow in accordance with the provisions of Section 15.5. All interest earned on the Deposit while held by Escrow Agent shall be paid to the party to whom the Deposit is paid, except that if the Closing occurs, the Buyer shall receive a credit for such interest in accordance with the terms of this Agreement.

 

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(c) Notwithstanding anything in this Agreement to the contrary, a portion of the Deposit in the amount of One Hundred and 00/100 Dollars ($100.00) will be non-refundable to Buyer and will be distributed to the Sellers (as directed by the Sellers) upon any termination of this Agreement as independent consideration for Sellers’ performance under this Agreement. If this Agreement is properly terminated by Buyer pursuant to a right of termination granted to Buyer by any provision of this Agreement, the $100.00 non-refundable portion of the Deposit will be promptly distributed to the Sellers (as directed by the Sellers) and, subject to the relevant provisions herein, the balance of the Earnest Money remaining after distribution of the independent consideration to the Sellers will be promptly returned to Buyer. In the event the Closing occurs, the entire Earnest Money (including the $100.00 independent consideration) shall be applicable to the Purchase Price.

(d) No adjustment shall be made to the Purchase Price except as explicitly set forth in this Agreement.

(e) Buyer shall be entitled to deduct and withhold from any payments required to be made pursuant to this Agreement such amounts that are required to be deducted and withheld with respect to the making of such payments under the Code or any provision of Applicable Law. To the extent amounts are so withheld and paid over to the appropriate Governmental Authority, the withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding was made. Buyer and Sellers acknowledge and agree that if Sellers deliver the certificates in the form attached hereto as Exhibit E in accordance with Section 6.2(f), then the parties hereto do not anticipate any such withholding.

(f) Buyer shall receive a credit against the portion of the Purchase Price allocable to the REIT Shares equal to $602,516 to reflect the Buyer’s redemption of Individual Shareholders after Closing. The Purchase Price shall be increased by the Interim Distributions, if any.

SECTION 2.3. The Closing .

(a) The closing of the sale and purchase of the Asset (the “ Closing ”) shall take place on the date that is the later of (1) the date that is seven (7) Business Days after receipt of the Lender Consents (other than those relating the Payoff Loans) or (2) October 1, 2013 (the “ Closing Date ”), TIME BEING OF THE ESSENCE with respect to the Buyer’s and each Seller’s obligations hereunder on the Closing Date , provided that the Closing Date shall be no later than October 31, 2013 unless the Lender Consents (other than those relating the Payoff Loans) have not been received by such date, in which case either Buyer or Sellers shall have the right to extend the Closing Date to any date on or before November 30, 2013 (the “ Outside Closing Date ”) by providing written notice to the other party on or before October 31, 2013.

(b) The Closing shall be held on the Closing Date at 12:00 P.M. (EST) by mutually acceptable escrow arrangements. There shall be no requirement that the Sellers and the Buyer physically attend the Closing, and all funds and documents to be delivered at the Closing shall be delivered to the Escrow Agent unless the parties hereto mutually agree otherwise. The Buyer and the Sellers hereby authorize their respective attorneys to execute and deliver to the

 

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Escrow Agent any additional or supplementary instructions as may be necessary or convenient to implement the terms of this Agreement and facilitate the closing of the transactions contemplated hereby, provided , however , that such instructions are consistent with and merely supplement this Agreement and shall not in any way modify, amend or supersede this Agreement.

SECTION 2.4. Allocated Homart Purchase Price . The Homart Seller and the Homart Buyer hereby agree that the Homart Purchase Price shall be allocated as set forth on Schedule 2.4 (the “ Allocated Homart Purchase Price ”) for federal, state and local tax purposes, and further allocated, as applicable, in accordance with the rules under Section 1060 of the Code and the Treasury Regulations promulgated thereunder and any similar provision of state, local or foreign law). The Homart Buyer and Homart Seller shall (i) cooperate in the filing of any forms (including Form 8594 under Section 1060 of the Code) with respect to the Allocated Homart Purchase Price, including any amendments to such forms required pursuant to this Agreement with respect to any adjustment to the Homart Purchase Price and (ii) file all federal, state and local tax returns and related tax documents consistent with such allocations, as the same may be adjusted pursuant to the terms of this Agreement, and not take any position (whether in audits, tax returns or otherwise) inconsistent with such allocations unless otherwise required by Applicable Law. Notwithstanding anything in this Agreement to the contrary, no amendment to the Allocated Homart Purchase Price shall be effective without the approval and consent of the Homart Buyer and the Homart Seller.

ARTICLE III

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLERS

SECTION 3.1. General Seller Representations and Warranties . Each Seller hereby represents and warrants to their respective Buyer (as to itself and not the other Sellers), as of the date hereof, as follows:

(a) Formation; Existence . Seller is a limited liability company or limited partnership duly formed, validly existing and in good standing under the laws of the State of Delaware.

(b) Power and Authority . It has all requisite power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the Closing Documents to which it is a party (or shall be a party on the Closing Date) and the consummation of the transactions provided for in this Agreement and the Closing Documents to which it is a party (or shall be a party on the Closing Date) have been duly authorized by all necessary action on its part. This Agreement has been duly executed and delivered by each Seller and constitutes such Seller’s legal, valid and binding obligation, enforceable against such Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights and by general principles of equity (whether applied in a proceeding at law or in equity).

 

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(c) No Consents . No consent, license, approval, order, permit or authorization of, or registration, filing or declaration with, any court, administrative agency or commission or other Governmental Authority or instrumentality, domestic or foreign, or any third party, is required to be obtained or made in connection with the execution, delivery and performance of this Agreement by the Seller or any of the transactions required or contemplated hereby.

(d) No Conflicts . The execution, delivery and compliance with, and performance of the terms and provisions of, this Agreement and the Closing Documents to which it is a party, and the sale of the Asset, will not (with notice or lapse of time or both) (i) conflict with or result in any violation of its Organizational Documents, (ii) conflict with or result in any violation of any provision of any bond, note or other instrument of indebtedness, contract, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Seller is a party in its individual capacity, or (iii) violate any existing term or provision of any order, writ, judgment, injunction, decree, statute, law, rule or regulation applicable to the Seller, its subsidiaries or their respective assets or properties in any material respect.

(e) Foreign Person . It is not a “foreign person” as defined in Section 1445 of the Code and the regulations issued thereunder.

(f) Bankruptcy . Seller has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by the Seller’s creditors (iii) suffered the appointment of a receiver to take possession of all, or substantially all, of the Seller’s assets, which remains pending or (iv) suffered the attachment or other judicial seizure of all, or substantially all of the Seller’s assets, which remains pending.

(g) Anti-Terrorism Law .

(i) None of the Seller or, to the Seller’s Knowledge, its affiliates, is in violation of any laws relating to terrorism, money laundering or the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Action of 2001, Public Law 107-56, as amended, and Executive Order No. 13224 (Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism) (the “ Executive Order ”) (collectively, the “ Anti-Money Laundering and Anti-Terrorism Laws ”).

(ii) None of the Seller or, to the Seller’s Knowledge, its affiliates, is acting, directly or indirectly, on behalf of terrorists, terrorist organizations or narcotics traffickers, including those persons or entities that appear on the Annex to the Executive Order, or are included on any relevant lists maintained by the Office of Foreign Assets Control of U.S. Department of Treasury, U.S. Department of State, or other U.S. government agencies, all as may be amended from time to time.

(iii) Neither the Seller, nor any person controlling or controlled by the Seller, is a country, territory, individual or entity named on a Government List, and the monies used in connection with this Agreement and amounts committed with respect thereto, were not and are not derived from any activities that contravene any applicable anti-money laundering or anti-bribery laws and regulations (including funds being derived from any person, entity, country or territory on a Government List or engaged in any unlawful activity defined under Title 18 of the United States Code, Section 1956(c)(7)).

 

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(h) Knowledge and Experience . The Seller has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the Homart Buyer and is able to bear such risks, and has obtained, in its judgment, sufficient information to evaluate the merits and risks of such investment. The Seller has evaluated the risks of investing in the Homart Buyer, understands there are substantial risks of loss incidental to the acquisition of the Share Consideration and has determined that it is a suitable investment for the Seller.

(i) Accredited Investor Status . The Seller is an “accredited investor” within the meaning of Rule 501(a) promulgated under Regulation D of the Securities Act. To the extent it is acquiring Share Consideration, the Seller is doing so without a view to any resale or distribution thereof; provided , however , that it reserves the right to sell or otherwise dispose of all or any portion of the Share Consideration pursuant to a registration statement or exemption under the Securities Act.

SECTION 3.2. Representations and Warranties of the Sellers as to the Interests . The REIT Seller (solely as to the REIT Shares) and the Homart Seller (solely as the Homart Interests) hereby represent and warrant to their respective Buyer, as of the date hereof, as follows:

(a) Litigation . Except as disclosed in Schedule 3.2(a) attached hereto, as of the date hereof, there is no litigation, actions, suits, arbitrations, orders, decrees, claims, writs, injunctions, government investigations, proceedings pending or, to the Seller’s Knowledge, threatened in writing against their respective Interests, the applicable Seller or affecting such Seller which, if determined adversely to such entity, would adversely affect the (i) ability of the Seller to perform its obligations hereunder or (ii) ownership of their respective Interests (other than as provided in Section 3.2(g)(vi)). The Seller is not a party to or subject to the provision of any judgment, order, writ, injunction, decree or award of any Governmental Authority which would adversely affect the ability of such Seller to perform its obligations hereunder.

(b) Organizational Documents . A true, correct and complete schedule of the Organizational Documents of BRE REIT is attached hereto on Schedule 3.2(b) (the “ BRE REIT Organizational Documents ”). REIT Seller has delivered to Buyer, true, correct and complete copies of the BRE REIT Organizational Documents.

(c) Ownership of the Interests. At the Closing, upon consummation of the Transaction Actions, the Interests of such Seller shall be legally and beneficially owned by such Seller as more particularly set forth on Schedule A, free and clear of all Liens, encumbrances, pledges, security interests or charges of any kind (other than pursuant to the Retail Holdings LLC Agreement). Other than pursuant to the Retail Holdings LLC Agreement, there is no outstanding right, subscription, warrant, call, unsatisfied preemptive right, option or other agreement of any kind to purchase, dispose of or encumber all or any portion of the Interests.

 

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(d) Capitalization of BRE REIT .

(i) All of the issued and outstanding REIT Shares are validly issued, fully paid and non-assessable and are free of preemptive (or similar) rights, and each such unit of the REIT Shares is owned by the applicable REIT Seller free and clear of all options, rights of first refusal, agreements, limitations on the applicable Seller’s voting, distribution, dividend or transfer rights, charges and other encumbrances or Liens of any nature whatsoever, the Securities Act of 1933, as amended (together with the rules and regulations promulgated thereunder, the “ Securities Act ”), and state securities Laws. There are no (i) options, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued membership interests or units or shares of capital stock of BRE REIT to issue or sell any membership interests or units or any shares of capital stock of, or other equity interests in BRE REIT, (ii) voting securities of BRE REIT or securities convertible, exchangeable or exercisable for membership interests or units or voting securities of BRE REIT, or (iii) equity equivalents, interests in the ownership or earnings of BRE REIT or similar rights. Except for the redemption of the shares in BRE REIT held by the Individual Shareholders, there are no outstanding contractual obligations of BRE REIT to repurchase, redeem or otherwise acquire any membership interests or units or shares of capital stock of any Company or any subsidiary of BRE REIT or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any subsidiary of BRE REIT or any other person. BRE REIT is not a party to any stockholders’ agreement, voting trust agreement or registration rights agreement relating to any equity securities of BRE REIT or any other contract relating to disposition, voting or dividends with respect to any equity securities of BRE REIT.

(ii) There is no outstanding indebtedness for borrowed money of the BRE REIT.

(e) Employees . No individuals have been or presently are employed by BRE REIT.

(f) Compliance with Law . Except as set forth on Schedule 3.2(f) , Seller has not received any written notice of a material violation of any Applicable Laws with respect to its Interests which has not been cured or dismissed.

(g) Taxes . Except as set forth on Schedule 3.2(g)-1 :

(i) BRE REIT (A) has timely filed or caused to be filed or will timely file or cause to be filed (taking into account any extension of time to file granted or obtained) all material tax returns required to be filed by BRE REIT; and (B) has timely paid or will timely pay all material Taxes due and payable except to the extent that such Taxes are being contested in good faith and for which BRE REIT has set aside adequate reserves in accordance with GAAP. All material amounts of Taxes required to have been withheld by or with respect to BRE REIT have been or will be timely withheld and remitted to the applicable taxing authority.

 

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(ii) Neither BRE REIT nor BRE JV Member has waived in writing any statute of limitations in respect of Taxes payable by either of them, which waiver is currently in effect.

(iii) For taxable years commencing with BRE REIT’s initial taxable year ending on December 31, 2012, BRE REIT, (A) has been subject to taxation as a “real estate investment trust” (“REIT”), as such term is described in Section 856 of the Code, and has satisfied all requirements to qualify as a REIT for such years, (B) has operated in a manner that will permit it to qualify as a REIT for the taxable year that includes the date hereof if BRE REIT continues to satisfy all of the requirements necessary for qualification as a REIT from and including the date hereof through December 31, 2013 and (C) has not been “closely held” within the meaning of Section 856(a)(6) of the Code. No challenge to BRE REIT’s status as a REIT is pending or has been threatened in writing.

(iv) BRE REIT does not have any earnings and profits attributable to any other corporation accumulated in any non-REIT year within the meaning of Section 857 of the Code.

(v) BRE REIT does not currently directly hold, and has never directly held, any assets other than interests in BRE JV Member, interests in New JV, shares in BRE Boomerang REIT, cash and cash equivalents or any asset transferred to BRE REIT in connection with the Transaction Actions. Other than (a) its direct interests in BRE JV Member, (b) its direct interests in New JV, (c) its interests in BRE Boomerang REIT (d) its interests in Retail Holdings and Retail Holdings’ Subsidiaries, and (e) any interest in an entity transferred in connection with the Transaction Actions, BRE REIT does not currently hold, and has never held, directly or indirectly, any interest in any other entity. BRE JV Member does not currently directly hold, and has never directly held, any assets other than the interests of Retail Holdings, cash and cash equivalents or any asset transferred to BRE REIT in connection with the Transaction Actions. Neither BRE REIT nor BRE JV Member has ever engaged in any business activity or has ever generated any income other than through Retail Holdings or with respect to the distribution of the stock of BRE Boomerang REIT or otherwise in connection with the Transaction Actions. Neither BRE REIT nor BRE JV Member has participated in a listed transaction as defined in Section 6707A of the Code or Treasury Regulation Section 1.6011-4(b) and (c)(3) (or any corresponding or similar provision of state or local law).

(vi) Neither BRE REIT nor BRE JV Member has directly incurred any indebtedness or is a borrower under any credit agreement, loan document or open-account indebtedness arrangement other than a liability in the amount of $1,636,633 (the “ BRE Liability ”) which shall be paid prior to the Closing.

(vii) Neither BRE REIT nor BRE JV Member holds any asset the disposition of which would be subject to rules similar to Section 1374 of the Code by reason of Treasury Regulation 1.337(d)-7.

(viii) BRE JV Member is and has always been classified as a partnership for U.S. federal income tax purposes.

 

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(ix) BRE REIT has not incurred any liability for taxes under sections 856(c)(7)(C), 857(b), 857(f), 860(c) or 4981 of the Code which have not been previously paid. BRE REIT has not engaged at any time in any “prohibited transactions” within the meaning of Section 857(b)(6) of the Code. All allocations made by BRE JV Member have been made in a manner consistent with Section 704(b) of the Code. BRE REIT has not engaged in any transaction that would give rise to “redetermined rents”, “redetermined deductions” and “excess interest” described in section 857(b)(7) of the Code.

(x) BRE REIT has not made any distributions that constitute “preferential dividends” within the meaning of Section 562(c) of the Code.

(xi) There are no pending audits, examinations, investigations or other proceedings in respect of any Tax or Tax matter of BRE REIT. No deficiency for any material amount of Tax has been asserted or assessed by any taxing authority in writing against BRE REIT, which deficiency has not been satisfied by payment, settled or been withdrawn or contested in good faith and for which BRE REIT has set aside adequate reserves in accordance with GAAP. There are no Tax liens on any assets of BRE REIT (other than any liens for Taxes not yet due and payable for which adequate reserves have been made in accordance with GAAP or for Taxes being contested in good faith). BRE REIT is not subject to any accumulated earnings tax or personal holding company tax.

(xii) There are no pending or, to Seller’s Knowledge, potential claims for indemnity (other than customary indemnity under credit or any other agreements or arrangements) against BRE REIT under any indemnification, allocation or sharing agreement with respect to income Taxes. Neither BRE REIT nor BRE JV Member is a party to any tax allocation or sharing agreement or arrangement.

(xiii) Neither BRE REIT nor BRE JV Member is subject to any private letter ruling of the IRS or comparable rulings of any Taxing Authority.

(xiv) BRE REIT is not and has not ever been a personal holding company within the meaning of Section 542(a).

(h) Contracts . Neither BRE REIT nor BRE JV Member is party to any agreement or contract that would reasonably be expected to require payment by BRE REIT or BRE JV Member of any amounts which would be binding upon Buyer after the Closing other than the BRE REIT Organizational Document and the Organizational Documents of BRE JV Member and Retail Holdings (“ Contracts ”).

(i) No Undisclosed Material Liabilities . There are no liabilities of BRE REIT of a nature that would be required under GAAP to be set forth on the financial statements of BRE REIT or the notes thereto (whether accrued, absolute, contingent or otherwise), other than: (i) liabilities adequately provided for on the balance sheet of BRE REIT dated as of April 30, 2013 (including the notes thereto) as required by GAAP, (ii) liabilities incurred in connection with the transactions contemplated by this Agreement, (iii) the BRE Liability, which shall be paid prior to the Closing, and (iv) liabilities incurred in the ordinary course of business consistent with past practice subsequent to April 30, 2013.

 

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(j) No Default . BRE REIT is not in default or violation (and to the Sellers’ Knowledge, no event has occurred which, with notice or the lapse of time or both, would constitute a default or violation) in any material respects of any term, condition or provision of (i) the BRE REIT Organizational Documents, (ii) any loan or credit agreement, note, or any bond, mortgage or indenture, to which BRE REIT is a party or by which BRE REIT or any of its properties or assets (other than those held by Retail Holdings directly or indirectly), is bound, or (iii) any order writ, injunction, decree, statute, rule or regulation applicable to BRE REIT (other than with respect to the Code).

SECTION 3.3. Amendments to Schedules; Limitations on Representations and Warranties of the Sellers .

(a) The Sellers shall have the right to amend and supplement the schedules to this Agreement from time to time prior to the Closing to reflect inaccuracies discovered by Sellers or changes since the Effective Date by providing to Buyer an update or modification to the applicable schedules or new exception schedules in writing in a “blackline comparison” or other manner which clearly identifies the specific change (each a “ Schedule Update ”); provided , however, that any Schedule Update shall have no effect for determining whether subsection 5.2(a) has been satisfied, but shall have effect only for the purposes of limiting the defense and indemnification obligations of the Sellers under Article XI for the inaccuracy or untruth of the representation or warranty qualified by such Schedule Update. Notwithstanding anything to the contrary in this Agreement, Sellers shall have no right to provide any Schedule Update with respect to Schedule 6.2(l). Within ten (10) Business Days after delivery of the Schedule Update, or if delivered less than ten (10) Business Days prior the Closing Date, at any time up to and including the Closing Date (said period, the “ Required Schedule Update Response Period ”), the Buyer shall provide the Sellers with written notice (each, a “ Schedule Update Response Notice ”) if the Buyer claims in the Buyer’s good faith judgment that (i) such Schedule Update is reasonably expected to result in Losses (other than Losses relating to matters described in Section 3.3(b)) and Buyer’s reasonable estimation of such Losses, and (ii) such Schedule Update (when taken together with the changes of all prior Schedule Updates delivered pursuant this Section 3.3) would reasonably be expected to result in the failure of the closing condition set forth in Section 5.2(a). If Buyer fails to deliver a Schedule Update Response Notice within the applicable Required Schedule Update Response Period, then the applicable schedule shall be deemed revised by the Schedule Update and Buyer shall not be entitled to claim any Losses with respect to such Schedule Update; provided such Losses (whether determined or calculated before or after Closing) shall be credited against the Basket Limitation set forth in Section 11.3 (other than Losses relating to matters described in Section 3.3(b)). Notwithstanding anything to the contrary contained herein, any Losses arising from a Schedule Update for which Buyer has delivered a Schedule Update Response Notice within the applicable Required Schedule Update Response Period shall be included in Losses for purposes of Section 5.2(a) and be credited against the Basket Limitation set forth in Section 11.3 (other than Losses relating to matters described in Section 3.3(b)).

 

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(b) The Buyer acknowledges and agrees that the Sellers’ representations and warranties (including all matters set forth on the schedules to this Agreement) as set forth in this Agreement are, by their nature, made as of Effective Date. To the extent that any such facts or circumstances change after the date hereof in connection with the Sellers making the representations and warranties (including all matters set forth on the schedules to this Agreement) as of the Closing Date due to any of the following shall not be factored into determining whether the closing condition set forth in Section 5.2(a) have been satisfied or be subject to indemnification by Seller (including, without limitation, under Article XI), so long as the Seller’s representations and warranties (including all matters set forth on the schedules to this Agreement), as the case may be, were true and correct in all material respects as of the Effective Date:

(i) changes to the schedule of litigation set forth on Schedule 3.2(a) with respect to any litigation commenced after the Effective Date and any threatened litigation of which the Sellers first obtained knowledge after the Effective Date;

(ii) any notice of non-compliance of, or default under, any Applicable Laws other than the Code with respect to the Interests which notices are received after the Effective Date by Sellers as of the Effective Date; and

(iii) any actions taken by Sellers that are expressly permitted by this Agreement or otherwise consented to or deemed consented to by Buyer after the Effective Date in accordance with this Agreement.

(c) If on the Effective Date, the schedules to this Agreement are inaccurate, untrue or incorrect in any way to Buyer’s Knowledge, then such representations and warranties shall be deemed modified to reflect such knowledge and the Buyer shall not have any claim (whether for indemnification or with respect to Section 5.2(a)) against the Sellers for such variance or inaccuracy (provided that such variance or inaccuracy was not the result of a knowing and intentional misrepresentation when made). If on the Closing Date, the schedules to this Agreement and/or a Schedule Update are inaccurate, untrue or incorrect in any way to Buyer’s Knowledge and the Closing occurs, then Buyer shall not have any claim (whether for indemnification or otherwise) against the Sellers for such variance or inaccuracy (provided that such variance or inaccuracy was not the result of a knowing and intentional misrepresentation when made).

SECTION 3.4. Covenants of the Sellers Prior to Closing . From the date hereof until Closing or earlier termination of this Agreement:

(a) Non-Redemption of the Individual Shareholders . REIT Seller shall cause BRE REIT not to redeem the issued and outstanding preferred shares of BRE REIT held by the 113 individuals who own such shares (“ Individual Shareholders ”).

(b) Lender Consents .

(i) Sellers shall continually make all commercially reasonable efforts to assist Buyer in its efforts to obtain the Lender Consents; and

 

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(ii) REIT Seller or a creditworthy affiliate of REIT Seller acceptable to Bison lender shall enter into a replacement guarantee with respect to the Bison Loan on substantially the same terms as the existing guarantee provided by Retail Holdings.

(c) Litigation; Violations . Sellers shall advise the Buyer promptly of any litigation, arbitration proceeding or administrative hearing before any Governmental Agency which affects the Asset.

(d) REIT Qualification; Tax Matters .

(i) REIT Seller shall (A) cause BRE REIT to continue to be owned, organized and operated in conformity with the requirements for qualification and taxation as a REIT (B) ensure that the ownership of BRE REIT meets the requirements of Sections 856(a)(5) and (6) of the Code, (C) ensure that BRE REIT does not incur any liability for Taxes under Sections 856(c)(7)(C), 857(b), 857(f), 860(c) or 4981 of the Code, and (D) ensure that BRE REIT does not make any distributions that are “preferential dividends” within the meaning of Section 562(c) of the Code.

(ii) REIT Seller shall cause BRE REIT to prepare its federal income tax return on IRS Form 1120-REIT for the tax year ended December 31, 2012 and shall deliver a draft of such tax return (and related workpapers) to REIT Buyer for its review and approval (which approval shall not be unreasonably withheld or delayed) no later than July 1, 2013. REIT Buyer shall review and provide comments to such tax return no later than July 15, 2013. If REIT Buyer does not submit comments by July 15, 2013, then REIT Buyer will be deemed to have approved such tax return as prepared by REIT Seller, and REIT Seller shall file or cause to be filed such tax return no later than August 1, 2013. If REIT Buyer timely notifies REIT Seller that it objects to any items in the tax return, REIT Buyer and REIT Seller shall negotiate and resolve in good faith any issue arising as a result of such review and mutually consent to the timely filing of such tax return as promptly as possible.

(iii) The Buyer and Sellers agree that the purchase of the Homart Interests and payment of the Homart Purchase Price is intended to be treated, for federal tax purposes, as a sale of the partnership interest by the Homart Seller to the Homart Buyer, and according to Revenue Ruling 99-6, the Homart Buyer will be treated as purchasing assets from Homart Seller. The obligations set forth in this Section 3.4(d)(iii) shall survive the Closing.

(iv) BRE REIT shall declare a consent dividend in such amount as is necessary to satisfy the distribution requirement for its tax year ended December 31, 2012 and shall deduct such consent dividend on its federal income tax return prepared in accordance with Section 3.4(d)(ii). Each REIT Seller shall agree to such consent dividend with respect to the tax year ended December 31, 2012 by completing and providing a signed IRS Form 972 to BRE REIT. Each REIT Seller shall report the consent dividend as taxable income on its own federal income tax return.

 

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(e) Actions under Retail Holdings LLC Agreement .

(i) Sellers shall cause BRE JV Member not to take any action under Sections 6.2.2, 6.2.3, 6.2.4, 6.2.8 and 6.2.10 of the Retail Holdings LLC Agreement without the prior written consent of DDR JV Member, other than with respect to the Bison Assets and Unencumbered Assets which are hereby expressly not subject to or affected by this provision.

(ii) DDR JV Member shall have the right, but not the obligation (unless specifically required pursuant to the terms of the Retail Holdings LLC Agreement), to fund any capital that is needed, in the reasonable discretion of DDR JV Member, in connection with the assets or operations of Retail Holdings or any of its subsidiaries, and to the extent DDR JV Member contributes such additional capital to Retail Holdings LLC Agreement, such capital shall be treated as a “Capital Contribution” under the Retail Holdings LLC Agreement; provided, DDR JV Member’s preferred equity investment in Retail Holdings in the amount of up to $11 million in connection with the Venice loan to ensure any shortfall is satisfied in connection with the payoff of such loan at maturity shall be a preferred equity investment for purposes of the Retail Holdings LLC Agreement under the same terms and conditions set forth therein (the “ Preferred Equity Investment ”). BRE JV Member shall have the right, in the event that Closing does not occur, to reimburse DDR JV Member under the Retail Holdings LLC Agreement for an amount equal to BRE JV Member’s proportionate share of any capital contributions made by DDR JV Member pursuant to the previous sentence (other than the Preferred Equity Investment) to the extent BRE JV Member did not contribute its proportionate share of capital at the time DDR JV Member made such capital contribution (other than the Preferred Equity Investment) to Retail Holdings.

(iii) Sellers shall cause BRE JV Member not to permit any distribution of any amounts to the “Common Members” under the Retail Holdings LLC Agreement on account of such Common Members’ common membership interest in Retail Holdings; provided funds generated by the operation of the Bison Assets, proceeds from the sale of the Unencumbered Assets to third parties or any distributions made to the “Preferred Member” under the Retail Holdings LLC Agreement shall continue to be permitted.

SECTION 3.5. Tax Covenants of the Sellers Post Closing . Seller shall timely elect for BRE Boomerang REIT to be a REIT for its initial tax year ended December 31, 2013.

ARTICLE IV

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BUYER

SECTION 4.1. Representations and Warranties of the Buyer . The Buyer hereby represents and warrants to the Sellers, as of the date hereof, as follows:

(a) Formation; Existence . The REIT Buyer is a limited partnership duly formed, validly existing and in good standing under the laws of Georgia. The Homart Buyer is a corporation duly formed, validly existing and in good standing under the laws of Ohio.

 

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(b) Power; Authority .

(i) The Buyer has all requisite power and authority to enter into this Agreement and the Closing Documents to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the Closing Documents to which it is a party, the sale of the Asset and the consummation of the transactions provided for herein and in the Closing Documents to which it is a party have been duly authorized by all necessary action on the part of the Buyer, and no vote or consent of any partner or shareholder of the Buyer is necessary to approve any of the transactions provided for in this Agreement and the Closing Documents to which it is a party. This Agreement has been duly executed and delivered by the Buyer and constitutes, and the Closing Documents to be executed and delivered by it, when executed and delivered at the Closing and assuming due authorization, execution and delivery by the Sellers, will constitute, the legal, valid and binding obligation of the Buyer enforceable against it in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights and by general principles of equity (whether applied in a proceeding at law or in equity).

(ii) The Homart Buyer has taken all actions required to be taken by it so that the execution and delivery of this Agreement and the Closing Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, including the issuance of the Share Consideration, if any, (A) will not result in Sellers being subject to the “Ownership Limit” or the “Related Party Limit” for purposes of Article Fourth, Division B of its articles of incorporation or otherwise subject Sellers or its Affiliates to the restrictions contained therein and (B) will be exempt from the requirements of any “fair price”, “moratorium”, “control share acquisition”, “affiliate transaction”, “business combination” or other anti-takeover statute of the State of Ohio.

(c) No Consents . No consent, license, approval, order, permit or authorization of, or registration, filing or declaration with, any court, administrative agency or commission or other Governmental Authority or instrumentality, domestic or foreign, is required to be obtained or made in connection with the execution, delivery and performance of this Agreement, the Closing Documents to which the Buyer is a party or any of the transactions required or contemplated hereby or thereby, except for an additional listing application in respect of the Share Consideration, if any, to be filed with the New York Stock Exchange and for filings to be made under the Securities Act or the Exchange Act.

(d) No Conflicts . The execution, delivery and compliance with, and performance of the terms and provisions of, this Agreement, the Closing Documents to which it is a party, and the purchase of the Asset, will not (with notice or lapse of time or both) (i) conflict with or result in any violation of its Organizational Documents, (ii) conflict with or result in any violation of any provision of any bond, note or other instrument of indebtedness, contract, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Buyer is a party in its individual capacity, (iii) violate any existing term or provision of any order, writ, judgment, injunction, decree, statute, law, rule or regulation applicable to the Buyer, its subsidiaries or their respective assets or properties in any material respect or (iv) result in the creation or imposition of any lien, charge or encumbrance on the Share Consideration, if any, that would have a material adverse effect on the Homart Buyer.

 

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(e) Bankruptcy . It has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by the Buyer’s creditors (iii) suffered the appointment of a receiver to take possession of all, or substantially all, of the Buyer’s assets, which remains pending or (iv) suffered the attachment or other judicial seizure of all, or substantially all of the Buyer’s assets, which remains pending.

(f) Anti-Terrorism Law .

(i) None of the Buyer or, to the Buyer’s Knowledge, its affiliates, is in violation of the Anti-Money Laundering and Anti-Terrorism Laws.

(ii) None of the Buyer or, to the Buyer’s Knowledge, its affiliates, is acting, directly or indirectly, on behalf of terrorists, terrorist organizations or narcotics traffickers, including those persons or entities that appear on the Annex to the Executive Order, or are included on any relevant lists maintained by the Office of Foreign Assets Control of U.S. Department of Treasury, U.S. Department of State, or other U.S. government agencies, all as may be amended from time to time.

(iii) Neither the Buyer, nor any person controlling or controlled by the Buyer, is a country, territory, individual or entity named on a Government List, and the monies used in connection with this Agreement and amounts committed with respect thereto, were not and are not derived from any activities that contravene any applicable anti-money laundering or anti-bribery laws and regulations (including funds being derived from any person, entity, country or territory on a Government List or engaged in any unlawful activity defined under Title 18 of the United States Code, Section 1956(c)(7)).

(g) Capitalization .

(i) As of the date hereof, the authorized capital stock of the Homart Buyer consists of (A) 500,000,000 common shares, par value $0.10 per share (the “ Common Shares ”), (B) 750,000 shares, without par value, of each of Class A Cumulative Preferred Shares, Class B Cumulative Preferred Shares, Class C Cumulative Preferred Shares, Class D Cumulative Preferred Shares, Class E Cumulative Preferred Shares, Class F Cumulative Preferred Shares, Class G Cumulative Preferred Shares, Class H Cumulative Preferred Shares (“ Class H Shares ”), Class I Cumulative Preferred Shares, Class J Cumulative Preferred Shares (“ Class J Shares ”), Class K Cumulative Preferred Shares (“ Class K Shares ”) and Noncumulative Preferred Shares, in each case without par value, and (C) 2,000,000 Cumulative Voting Preferred Shares, without par value (the shares in clauses (B) and (C) above, together, the “ Preferred Shares ”). As of the date hereof, 319,998,163 Common Shares are issued and outstanding, 110,000 Class H Shares are issued and outstanding, 400,000 Class J Shares are issued and outstanding, and 300,000 Class K Shares are issued and outstanding, all of which were validly issued, fully paid and non-assessable and were issued free of preemptive rights. As of the date hereof, other than the Class H Shares, the Class J Shares and the Class K Shares, there are no Preferred Shares issued and outstanding. Except as set forth in the three immediately

 

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preceding sentences, as of the date hereof, there are not outstanding or authorized any shares of capital stock of the Homart Buyer. Except for (A) the Homart Buyer’s outstanding convertible senior notes, (B) awards issued or to be issued under the Homart Buyer’s equity compensation plans, (C) the Homart Buyer’s OP units and (D) the Class J Shares and the Class K Shares, as of the date hereof, there are no outstanding securities of the Homart Buyer convertible or exchangeable for capital stock of the Homart Buyer or options or other rights to acquire capital stock from the Homart Buyer (other than the Share Consideration pursuant to this Agreement), and no obligation of the Homart Buyer to issue, any capital stock of the Homart Buyer (other than in connection with the Share Offering). Except as set forth in the Registration Rights Agreement, the Buyer has not granted or agreed to grant to any Person any rights (including “piggy-back” registration rights) to have any securities of the Homart Buyer registered with the SEC that have not been satisfied or that would not require the Homart Buyer to register such securities on the same registration statement with the resale of Share Consideration.

(ii) The Share Consideration has been duly authorized and, when issued and delivered pursuant to this Agreement, will be validly issued, fully paid and non-assessable, and free and clear of any preemptive rights, all liens and any other restrictions (other than restrictions imposed by the Homart Buyer’s Organizational Documents and federal and state securities laws, and restrictions imposed on the Share Consideration as set forth in the Registration Rights Agreement). Assuming the accuracy of the representations and warranties of the Sellers set forth in subsections 3.1(h) and 3.1(i) , the issuance and delivery of the Share Consideration is exempt from the registration requirements of the Securities Act and of applicable state securities and “blue sky” laws, and neither the Homart Buyer nor any authorized representative or agent acting on the Homart Buyer’s behalf has taken or will take any action hereafter that would cause the loss of such exemption. The Homart Buyer is eligible to register the Share Consideration for resale by the Sellers using Form S-3 promulgated under the Securities Act.

(iii) The Buyer does not have a “poison pill” or similar stockholder rights plan.

(h) Buyer Reports; Financial Statements .

(i) The Homart Buyer has filed or furnished, as applicable, on a timely basis, all forms, statements, certifications, reports and documents required to be filed or furnished by it with the SEC pursuant to the Securities Act or the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “ Exchange Act ”) since January 1, 2012 (the forms, statements, certifications, reports and documents filed or furnished since January 1, 2012 and those filed or furnished subsequent to the date hereof through and including the Closing Date, including any amendments thereto, the “ Buyer Reports ”). Each of the Buyer Reports, at the time of its filing or being furnished, complied or, if not yet filed or furnished, will comply, in all material respects with the applicable requirements of the Securities Act and the Exchange Act. As of their respective dates (or, if amended prior to the date hereof, as of the date of such amendment), the Buyer Reports did not, and any the Buyer Reports filed with or

 

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furnished to the SEC on or prior to the Closing Date will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading.

(ii) Each of the consolidated balance sheets included in or incorporated by reference into the Buyer Reports (including the related notes and schedules) fairly presents in all material respects, or, in the case of the Buyer Reports filed after the date hereof, will fairly present in all material respects, the consolidated financial position of the Homart Buyer and its consolidated subsidiaries as of its date and each of the statements of consolidated income, cash flows and stockholders’ equity included in or incorporated by reference into the Buyer Reports (including any related notes and schedules) fairly presents in all material respects, or in the case of the Buyer Reports filed after the date hereof, will fairly present in all material respects the financial position, results of operations and cash flows, as the case may be, of the Homart Buyer and its consolidated subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to notes and year-end adjustments), in each case in accordance with GAAP applied on a consistent basis throughout the periods indicated, except as may be noted therein and in compliance with, in all material respects, applicable accounting requirements and the rules and regulations of the SEC.

(iii) Neither the Homart Buyer nor any of its subsidiaries has any liabilities or obligations of any material nature (whether accrued, absolute, contingent or otherwise) other than liabilities and obligations (A) set forth in the Homart Buyer’s consolidated balance sheet as of December 31, 2012 included in its Form 10-K for the year ended December 31, 2012 or in the notes thereto or (B) incurred in the ordinary course of business consistent with past practice since December 31, 2012.

(i) Litigation . There are no litigations, actions, suits, arbitrations, orders, decrees, claims, writs, injunctions, government investigations, proceedings pending or, to Buyer’s Knowledge, threatened against the Buyer or its subsidiaries which, if determined adversely to such entity, would adversely affect the ability of the Buyer to perform its obligations hereunder. Neither the Buyer nor any of its subsidiaries is a party to or subject to the provisions of any judgment, order, writ, injunction, decree or award of any Governmental Authority which would adversely affect the ability of the Buyer to perform its obligations hereunder.

(j) REIT Status . The Homart Buyer (A) for all taxable years commencing with the taxable year ended December 31, 1993, through December 31, 2012, has been subject to taxation as a real estate investment trust within the meaning of Section 856 of the Code (a “ REIT ”) and has satisfied all requirements to qualify as a REIT for such years; (B) has operated since December 31, 2012 in a manner consistent with the requirements for qualification and taxation as a REIT; and (C) intends to continue to operate in such a manner as to qualify as a REIT for the current taxable year. None of the transactions contemplated by this Agreement will prevent the Homart Buyer or any of its REIT Subsidiaries from so qualifying.

 

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(k) Compliance with Laws . The business of each of the Buyer and its subsidiaries have not been since December 31, 2012, and are not being, conducted in violation of any Applicable Law, including the FCPA and any OFAC regulations, and none of the Buyer or its subsidiaries is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Buyer or any of its subsidiaries under), nor has the Buyer or its subsidiaries received written notice of a claim that it is in default under or that it is in violation of, any agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), in each case except for defaults or violations that would not reasonably be likely to have a Buyer Material Adverse Effect.

(l) Absence of Certain Changes . Except as disclosed in the Buyer Reports filed prior to the date hereof, since December 31, 2012 and through the Effective Date, (i) the Homart Buyer and its subsidiaries have conducted their respective businesses in the ordinary and usual course of such businesses consistent with past practice and (ii) there has not been an effect, event, development or change that, individually or in the aggregate with all other effects, events, developments or changes, has had or would reasonably be likely to have a Buyer Material Adverse Effect.

(m) Financial Capacity of the Buyer . As of the Closing, the Buyer shall have the financial capacity to pay the Cash Consideration Amount and complete the transactions contemplated by this Agreement.

SECTION 4.2. Covenants of the Buyer Prior to Closing .

(a) Lender Consent Approvals .

(i) The Buyer shall use commercially reasonable efforts to submit the request for Lender Consents, if applicable, to all Lender Parties for the Lender Consents within ten (10) Business Days following the Effective Date;

(ii) The Buyer shall as soon as reasonably practical supply to the Lender Parties, to the extent applicable (A) all financial information with respect to Buyer, as may be reasonably requested by the Lender Parties, (B) documentation, supporting information and other items required by the Lender Parties in connection with each Lender Consent and (C) at the Closing, to the extent required by the Lender Parties, opinions of counsel with respect to the valid formation, due authority and good standing of the applicable Buyer, the enforceability of the Lender Consent Documents, non-consolidation matters and such other matters reasonably requested by the Lender Parties;

(iii) The Buyer shall continually make all commercially reasonable efforts to obtain all Lender Consents, provided, however, that with respect to the Payoff Loans, in the event that a Lender Consent is not obtained on or prior to October 1, 2013, the Buyer shall cause the applicable Payoff Loan to be prepaid in full at the Closing;

(iv) Without limiting the generality of the foregoing, the Buyer shall use commercially reasonable efforts to perform and satisfy all assumption requirements and conditions reasonably imposed by the Lender Parties (including the execution of replacement guarantees and indemnities as described in the definition of Lender Consents);

 

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(v) The Buyer shall use commercially reasonable efforts to keep the Sellers reasonably informed of the progress of obtaining the Lender Consents, including using commercially reasonable efforts to provide the Sellers status updates from time to time upon the Sellers’ reasonable request, deliver to the Sellers copies of draft Lender Consent Documents received from the Lender Parties and provide the Sellers with notice of, and an opportunity to participate in, scheduled material conversations with the Lender Parties. The Buyer shall also provide the Sellers with written notice of any requirements or conditions for the Lender Consents that the Buyer cannot satisfy, in which case the Sellers shall have the right, but not the obligation, at its election to satisfy such requirements or conditions.

(vi) The Buyer shall not request any material changes or any changes to the Loans that are not commercially reasonably necessary to evidence the Lender Consent.

(vii) If Buyer satisfies the covenants set forth in Section 4.2(a)(i)-(vi), but is not able to obtain the Lender Consents (other than those relating the Payoff Loans) prior to the Closing Date (as it may be extended pursuant to Section 2.3(a)), then this Agreement shall automatically terminate, in which event the Earnest Money (less the independent consideration described in Section 2.2(c)) shall be returned to the Buyer and the Guaranty shall be terminated and, thereafter, the parties shall have no further rights or obligations hereunder except for those obligations which expressly survive the termination of this Agreement.

(b) NYSE Listing . The Homart Buyer shall use reasonable efforts to cause the Share Consideration, if any, to be approved for listing on the New York Stock Exchange prior to the Closing Date.

SECTION 4.3. Limitations on Representations and Warranties of the Buyer .

(a) The Sellers acknowledge and agree that the Buyer’s representations and warranties as set forth in this Agreement are, by their nature, made as of Effective Date. To the extent that any such facts or circumstances change after the date hereof in connection with the Buyer making the representations and warranties as of the Closing Date due to any of the following shall not be factored into determining whether the closing condition set forth in Section 5.1(a) have been satisfied or be subject to indemnification by Buyer (including, without limitation, under Article XI), so long as the Buyer’s representations and warranties were true and correct in all material respects as of the Effective Date:

(i) changes to the representation made in Section 4.1(i) with respect to any litigation commenced after the Effective Date and any threatened litigation of which the Buyer first obtained knowledge after the Effective Date; and

(ii) any actions taken by Buyer that are expressly permitted by this Agreement or otherwise consented to or deemed consented to by Sellers after the Effective Date in accordance with this Agreement.

 

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(b) If on the Effective Date, the representations under this Agreement are inaccurate, untrue or incorrect in any way to Sellers’ Knowledge, then such representations and warranties shall be deemed modified to reflect such knowledge and the Sellers shall not have any claim (whether for indemnification or with respect to Section 5.1(a)) against the Buyer for such variance or inaccuracy (provided that such variance or inaccuracy was not the result of a knowing and intentional misrepresentation when made). If on the Closing Date, the representations under this Agreement are inaccurate, untrue or incorrect in any way to Sellers’ Knowledge and the Closing occurs, then Sellers shall not have any claim (whether for indemnification or otherwise) against the Buyer for such variance or inaccuracy (provided that such variance or inaccuracy was not the result of a knowing and intentional misrepresentation when made).

ARTICLE V

CONDITIONS PRECEDENT TO CLOSING

SECTION 5.1. Conditions Precedent to the Sellers’ Obligations . The obligation of the Sellers to consummate the transfer of the Asset to the Buyer on the Closing Date is subject to the satisfaction (or waiver by the Sellers) as of the Closing of the following conditions:

(a) Each of the representations and warranties made by the Buyer in this Agreement shall be true and correct in all material respects when made and on and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date (unless such representation or warranty is made on and as of a specific date, in which case it shall be true and correct in all material respects as of such date).

(b) The Buyer shall have performed or complied in all material respects with each obligation and covenant required by this Agreement to be performed or complied with by the Buyer on or before the Closing.

(c) The Sellers shall have received a duly executed officer’s certificate from the Buyer certifying as to the matters set forth in clauses (a) and (b) above.

(d) No order or injunction of any court or administrative agency of competent jurisdiction nor any statute, rule, regulation or executive order promulgated by any Governmental Authority of competent jurisdiction shall be in effect as of the Closing which restrains or prohibits the transfer of the Asset or the consummation of any other transaction contemplated hereby.

(e) The Sellers shall have received all of the documents required to be delivered by the Buyer under Section 6.1.

(f) An amount of cash, escrows and reserves held by Retail Holdings and its subsidiaries which arise out of the properties and assets of Bison Holdings, which amount shall equal $1,087,000 plus an amount equal to the positive difference (or less an amount equal to the negative difference, if applicable), if any, of (i) $2,500,000, which is the amount included in the applicable Bison Holdings approved budget for capital expenditures for the period commencing on May 1, 2013 and ending September 30, 2013, less (ii) the amount actually spent by Bison

 

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Holdings on such capital expenditures during such period (collectively, the “ Bison Amount ”), shall be distributed or contributed, as applicable, to Bison Holdings or its subsidiaries (and no amount of cash, escrows and reserves in excess of the Bison Amount shall be distributed or contributed, as applicable, to Bison Holdings or its subsidiaries).

(g) The Sellers shall have received the Cash Consideration and the Share Consideration, if any, in accordance with Section 2.2 and all other amounts due to the Sellers hereunder.

(h) All of the Transaction Actions have occurred and been properly authorized.

(i) The Buyer shall have obtained all Lender Consents, if applicable, other than with respect to the Payoff Loans which if not obtained shall result in Buyer causing such Payoff Loans to be repaid in full on the Closing.

SECTION 5.2. Conditions Precedent to the Buyer’s Obligations . The obligation of the Buyer to purchase and pay for the Asset is subject to the satisfaction (or waiver by the Buyer) as of the Closing of the following conditions:

(a) Each of the representations and warranties (including all matters set forth on the schedules to this Agreement as of the Effective Date but without giving effect to any Schedule Update other than with respect to matters described in Section 3.3(b)) made by the Sellers in this Agreement shall be true and correct in all material respects when made and on and as of the Closing Date as though such representations and warranties (including all matters set forth on the schedules to this Agreement but without giving effect to any Schedule Update other than with respect to matters described in Section 3.3(b)) were made on and as of Closing Date (unless such representation or warranty is made on and as of a specific date, in which case it shall be true and correct in all material respects as of such date, it being understood and agreed that all representations made with respect to REIT and tax matters shall be made on and as of the Closing Date), except where the failures of the representations and warranties (including all matters set forth on the schedules to this Agreement as of the Effective Date but without giving effect to any Schedule Updates other than with respect to matters described in Section 3.3(b)) to be true and correct would not, individually or in the aggregate, reasonably be expected to result in a material Loss (excluding, for the avoidance of doubt, any Loss relating to the matters described in Section 3.3(b)) to the Buyer.

(b) The Sellers shall have performed or complied in all material respects with each obligation and covenant required by this Agreement to be performed or complied with by the Seller on or before the Closing.

(c) The Buyer shall have received a duly executed officer’s certificate from the Sellers certifying as to the matters set forth in clauses (a) and (b) above.

(d) No order or injunction of any court or administrative agency of competent jurisdiction nor any statute, rule, regulation or executive order promulgated by any Governmental Authority of competent jurisdiction shall be in effect as of the Closing which restrains or prohibits the transfer of the Asset or the consummation of any other transaction contemplated hereby.

 

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(e) The Buyer shall have received all of the documents required to be delivered by the Sellers under Section 6.2.

(f) All of the Transaction Actions shall have occurred and been properly authorized.

(g) The Buyer shall have obtained all Lender Consents, if applicable, other than with respect to the Payoff Loans, provided, however, with respect to the Payoff Loans, in the event that a Lender Consent with respect to a Payoff Loan is not obtained, it shall not be a failure of this Section 5.2(g) to be satisfied and the Buyer shall cause the repayment of such Payoff Loan on or prior to the Closing.

(h) Sellers shall have paid in full the BRE Liability.

SECTION 5.3. Waiver of Conditions Precedent . The Closing shall constitute conclusive evidence that the Sellers and the Buyer have respectively waived any conditions which are not satisfied as of the Closing.

ARTICLE VI

CLOSING DELIVERIES

SECTION 6.1. Buyer Closing Deliveries . The Buyer shall deliver the following documents in accordance with Section 2.3 at Closing:

(a) an assignment and assumption of the Homart Interests in substantially the form of Exhibit A hereto (the “ Homart Assignment ”), duly executed by Homart Buyer;

(b) an assignment and assumption of the REIT Shares in substantially the form of Exhibit B hereto (the “ REIT Assignment ”), duly executed by REIT Buyer;

(c) a limited liability company agreement of New JV in substantially the form of Exhibit C hereto (the “ New JV Agreement ”), duly executed by DDR BV Holdings LLC;

(d) the Registration Rights and Lock-Up Agreement attached hereto as Exhibit D (the “ Registration Rights Agreement ”), duly executed by the Homart Buyer;

(e) the Transaction Action Documents to which it is a party, duly executed by Buyer;

(f) a duly executed and sworn officer’s certificate from the Buyer (or the general partner or manager member of the Buyer, where appropriate) certifying that the Buyer has taken all necessary action to authorize the execution of all documents being delivered hereunder and the consummation of all of the transactions contemplated hereby and that such authorization has not been revoked, modified or amended;

 

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(g) an executed and acknowledged incumbency certificate from the Buyer (or the general partner or manager member of the Buyer, where appropriate) certifying the authority of the officers of the Buyer (or the general partner of the Buyer, where appropriate) to execute this Agreement and the other documents delivered by the Buyer to the Sellers at the Closing

(h) all transfer tax returns which are required by law and the regulations issued pursuant thereto in connection with the payment of all state or local real property transfer taxes that are payable or arise as a result of the consummation of the transactions contemplated by this Agreement, in each case, as prepared by the Sellers and duly executed by the Buyer;

(i) a closing statement agreed upon by Buyer and Sellers setting forth the Purchase Price and the amount of the Cash Consideration and Share Consideration (the “ Closing Statement ”);

(j) evidence that the Share Consideration has been issued and delivered to the applicable Seller or its designee as provided in Section 2.2;

(k) by wire transfer of immediately available federal funds, the Balance of the Cash Consideration; and

(l) such other assignments, instruments of transfer, and other documents as the Sellers may reasonably require in order to complete the transactions contemplated hereunder, in each case, duly executed by the Buyer;

SECTION 6.2. Seller Closing Deliveries . The Sellers shall deliver the following documents in accordance with Section 2.3 at Closing, or such other date as specified below:

(a) the Homart Assignment, duly executed by Homart Seller;

(b) the REIT Assignment, duly executed by REIT Seller;

(c) the New JV Agreement, duly executed by BRE Boomerang REIT;

(d) the Registration Rights Agreement, duly executed by the applicable Seller or its designee;

(e) the Transaction Action Documents to which it is a party, duly executed by the applicable Seller or its applicable affiliate;

(f) an affidavit, in substantially the form of Exhibit E attached hereto, from each of the Sellers that each such person is not a “foreign person” within the meaning of Section 1445(f) of the Code;

(g) A certificate duly executed by the Sellers certifying that all representations and warranties (as may have been updated from time to time pursuant to this Agreement) made by Sellers in this Agreement are true and correct in all material respects as of the Closing Date;

 

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(h) the Closing Statement;

(i) a duly executed and sworn officer’s certificate from the Sellers certifying that the Sellers have taken all necessary action to authorize the execution of all documents being delivered hereunder and the consummation of all of the transactions contemplated hereby and that such authorization has not been revoked, modified or amended;

(j) an executed and acknowledged incumbency certificate from the Sellers certifying the authority of the officers of the Sellers to execute this Agreement and the other documents delivered by the Sellers to the Buyer at the Closing;

(k) all transfer tax returns which are required by law and the regulations issued pursuant thereto in connection with the payment of all state or local real property transfer taxes that are payable or arise as a result of the consummation of the transactions contemplated by this Agreement, in each case, as prepared by the Sellers and the Buyer and duly executed by the Sellers;

(l) Simpson Thacher & Bartlett LLP shall have issued an opinion to the REIT Buyer dated as of the Closing Date, substantially similar to the form of opinion shown in Schedule 6.2(l), together with copies of any supporting representation letters delivered in connection with such opinion; and

(m) such other assignments, instruments of transfer, and other documents as the Buyer may reasonably require in order to complete the transactions contemplated hereunder, in each case, duly executed by the Sellers (to the extent Seller’s signature is required by law).

ARTICLE VII

RELEASE

SECTION 7.1. Intentionally Omitted .

SECTION 7.2. Intentionally Omitted .

SECTION 7.3. Disclaimer . Any information provided or to be provided with respect to the Interests is solely for the Buyer’s convenience and was or will be obtained from a variety of sources. The Sellers have not made any independent investigation or verification of any materials or information provided by third parties and makes no (and expressly disclaims all) representations as to the accuracy or completeness of any information provided by such third parties. The Sellers shall not be liable for any mistakes, omissions, misrepresentation or any failure to investigate the Interests by any third party nor shall the Sellers be bound in any manner by any verbal or written statements, representations, appraisals, environmental assessment reports or other information pertaining to the Interests made by any third party and furnished by the Sellers, their representatives or other Person or entity acting on the Sellers’ behalf. Nothing contained in this Section 7.3 shall be deemed to limit, qualify or have any effect on any representation, warranty, covenant or indemnity made by Sellers under this Agreement or any right or remedy available to Buyer for breach thereof or in connection therewith.

 

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SECTION 7.4. Examination; No Contingencies .

(a) In entering into this Agreement, the Buyer has not been induced by and has not relied upon any written or oral representations, warranties or statements, whether express or implied, made by the Sellers, or any partner of the Sellers, or any affiliate, agent, employee, or other representative of any of the foregoing or by any broker or any other person representing or purporting to represent the Sellers with respect to the Asset, or any other matter affecting or relating to the transactions contemplated hereby, other than those expressly set forth in this Agreement. The Buyer’s obligations under this Agreement shall not be subject to any contingencies, diligence or conditions except as expressly set forth in this Agreement. The Buyer acknowledges and agrees that, except as expressly set forth herein or in the documents executed and delivered by the Sellers at Closing, the Sellers make no representations or warranties whatsoever, whether express or implied or arising by operation of law, with respect to the Asset. THE BUYER AGREES THAT THE ASSET WILL BE SOLD AND CONVEYED TO (AND ACCEPTED BY) THE BUYER AT THE CLOSING IN THE THEN EXISTING CONDITION OF THE ASSET, AS IS, WHERE IS, WITH ALL FAULTS, AND WITHOUT ANY WRITTEN OR VERBAL REPRESENTATIONS OR WARRANTIES WHATSOEVER, WHETHER EXPRESS OR IMPLIED OR ARISING BY OPERATION OF LAW, OTHER THAN AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN THE DOCUMENTS EXECUTED AND DELIVERED BY THE SELLERS AT CLOSING. Without limiting the generality of the foregoing, except as set forth in this Agreement or in the documents executed and delivered by the Sellers at Closing, the transactions contemplated by this Agreement are without statutory, express or implied warranty, representation, agreement, statement or expression of opinion of or with respect to the Asset or any aspect thereof, including, without limitation, (i) any and all statutory, express or implied representations or warranties related to the suitability for habitation, merchantability, or fitness for a particular purpose, (ii) any statutory, express or implied representations or warranties created by any affirmation of fact or promise, by any description of the Asset or by operation of law, and (iii) all other statutory, express or implied representations or warranties by the Sellers whatsoever. The Buyer acknowledges that the Buyer has knowledge and expertise in financial and business matters that enable the Buyer to evaluate the merits and risks of the transactions contemplated by this Agreement.

SECTION 7.5. Release .

(a) The Buyer hereby agrees that the Sellers, and each of their partners, members, trustees, directors, officers, employees, representatives, property managers, asset managers, agents, attorneys, affiliates and related entities, heirs, successors, and assigns (collectively, the “ Releasees ”) shall be, and are hereby, fully and forever released and discharged from any and all liabilities, losses, claims (including third party claims), demands, damages (of any nature whatsoever), causes of action, costs, penalties, fines, judgments, reasonable attorneys’ fees, consultants’ fees and costs and experts’ fees (collectively, the “ Claims ”) with respect to any and all Claims, whether direct or indirect, known or unknown, foreseen or unforeseen, that may arise on account of or in any way be connected with the Asset or the Subject Properties including, without limitation, the physical, environmental and structural condition of the Subject Properties or any law or regulation applicable thereto, including, without limitation, any Claim or matter (regardless of when it first appeared) relating to or arising from (a) the presence of any environmental problems, or the use, presence, storage, release, discharge, or migration of

 

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Hazardous Materials on, in, under or around the Subject Properties regardless of when such Hazardous Materials were first introduced in, on or about the Subject Properties (b) any patent or latent defects or deficiencies with respect to the Subject Properties, (c) any and all matters related to the Subject Properties or any portion thereof, including without limitation, the condition and/or operation of the Property and each part thereof, (d) any and all matters related to the current or future zoning or use of the Subject Properties, (e) the presence, release and/or remediation of asbestos and asbestos containing materials in, on or about the Subject Properties regardless of when such asbestos and asbestos containing materials were first introduced in, on or about the Subject Properties and (f) the Company Organizational Documents; provided, however, that in no event shall Releasees be released from any Claims arising pursuant to the provisions of this Agreement, any breach of any representation or warranty that was caused by Sellers or which breach was known to Sellers at the time of making such representation or warranty, or the Sellers’ obligations, if any, under the Closing Documents. The Buyer hereby waives and agrees not to commence any action, legal proceeding, cause of action or suits in law or equity, of whatever kind or nature, including, but not limited to, a private right of action under the federal Superfund laws, 42 U.S.C. Sections 9601 et seq. and similar state environmental laws (as such laws and statutes may be amended, supplemented or replaced from time to time), directly or indirectly, against the Releasees or their agents in connection with Claims described above.

(b) In this connection and to the greatest extent permitted by law, the Buyer hereby agrees, represents and warrants that the Buyer realizes and acknowledges that factual matters now known to it may have given or may hereafter give rise to causes of action, claims, demands, debts, controversies, damage, costs, losses and expenses which are presently unknown, unanticipated and unsuspected, and the Buyer further agrees, represents and warrants that the waivers and releases herein have been negotiated and agreed upon in light of that realization and that the Buyer nevertheless hereby intends to release, discharge and acquit the Sellers from any such unknown Claims, debts, and controversies which might in any way be included as a material portion of the consideration given to the Sellers by the Buyer in exchange for the Sellers’ performance hereunder.

(c) The Sellers have given the Buyer material concessions regarding this transaction in exchange for the Buyer agreeing to the provisions of this Section 7.5. The provisions of this Section 7.5 shall survive the Closing and shall not be deemed merged into any instrument or conveyance delivered at the Closing.

(d) Notwithstanding anything to the contrary contained in this Section 7.5, nothing in this Section 7.5 shall be deemed to limit, qualify, release, waive or have any effect on any representation or warranty, covenant or indemnity expressly made by Seller under this Agreement or any right or remedy available to Buyer for breach thereof or in connection therewith.

 

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ARTICLE VIII

MAINTENANCE OF REIT STATUS

SECTION 8.1. BRE REIT Status and Tax Returns .

Buyer shall cause BRE REIT to continue at all times to be subject to taxation as REIT (including satisfying the requirements to qualify as a REIT) for the taxable year ending December 31, 2013 and shall cause BRE REIT to continue at all times to be treated as a corporation for U.S. federal income tax purposes for at least one year following the Closing Date; provided, however, that Buyer shall not be subject to the foregoing if it reasonably determines that BRE REIT failed to qualify as a REIT as a result of conditions existing or actions taken (or failed to have been taken) on or prior to the Closing Date. Buyer shall cause BRE REIT to file its tax returns for the taxable year ending December 31, 2013 to be consistent with the valuation of the shares of BRE Boomerang REIT on the date such shares are distributed by BRE REIT being equal to the excess of (i) the initial capital account of BRE Boomerang REIT in New JV (as shown on Schedule B of the in New JV LLC agreement), minus (ii) BRE Boomerang REIT’s allocable share of liabilities of New JV and its subsidiaries. Buyer shall cause BRE REIT to not designate any portion of any distribution made to the REIT Sellers by BRE REIT as a capital gains dividend within the meaning of Section 857(b) of the Code without the prior consent of the REIT Sellers. REIT Buyer and REIT Sellers acknowledge that the pro rata distribution of the shares of BRE Boomerang REIT to the holders of the common shares of BRE REIT in consideration for a pro rata redemption of a portion of such common shareholders’ BRE REIT shares and the sale by the REIT Sellers of the REIT Shares are part of the same overall plan and are intended to be treated for U.S. federal income tax purposes together as a transaction in complete redemption of the REIT Sellers’s interests in BRE REIT within the meaning of Section 302(b)(3) of the Code. REIT Sellers shall, and REIT Buyer shall cause BRE REIT to, file all tax returns consistent with such treatment.

ARTICLE IX

TRANSACTION COSTS

SECTION 9.1. Transaction Costs .

(a) The Buyer and the Sellers agree to comply with all real estate transfer tax Laws applicable to the sale of the Interests. At Closing, all transfer, documentary, sales, use, stamp, registration and other such transfer taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest), if any, incurred in connection with the consummation of the transactions contemplated by this Agreement (except as provided in the following sentence) shall be paid by the Buyer when due, and the Buyer shall, at its own expense, file all necessary Tax Returns and other documentation with respect to all such taxes, fees and charges. In addition to the foregoing and their respective apportionment obligations hereunder, (i) the Sellers and the Buyer shall each be responsible for the payment of the costs of their respective legal counsel, advisors and other professionals employed thereby in connection with the transactions contemplated by this Agreement, and (ii) the Buyer shall be responsible for all costs and expenses associated with (A) the Buyer’s due diligence, (B) any title insurance

 

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premiums, including the costs of any endorsements, survey costs or similar expenses, (C) the Lender Consents (including all Lender Consent Costs) but specifically excluding any costs associated with Bison Holdings (including, without limitation, all Lender Consent Costs associated with (or required by the Lender Party granting) the Lender Consent for the Bison Loan) and any Transaction Actions and any Transaction Action Documents involving or related to Bison Holdings which shall be expenses of New JV and (D) any Payoff Loan Costs.

(b) Each party to this Agreement shall indemnify the other parties and their respective successors and assigns from and against any and all loss, damage, cost, charge, liability or expense (including court costs and reasonable attorneys’ fees) which such other party may sustain or incur as a result of the failure of either party to timely pay any of the aforementioned Taxes, fees or other charges for which it has assumed responsibility under this Section. The provisions of this Section 9.1 shall survive the Closing or the termination of this Agreement indefinitely.

ARTICLE X

[INTENTIONALLY OMITTED]

ARTICLE XI

INDEMNIFICATION

SECTION 11.1. Indemnification by the Sellers . Following the Closing and subject to Sections 11.3 and 11.4, the Homart Seller and the REIT Sellers shall indemnify and hold their respective Buyer, its affiliates, members and partners, and the partners, shareholders, officers, directors, employees, representatives and agents of each of the foregoing (collectively, “ Buyer-Related Entities ”) harmless from and against any and all costs, fees, expenses, damages, deficiencies, interest and penalties (including, without limitation, reasonable attorneys’ fees and disbursements) suffered or incurred by any such indemnified party in connection with any and all losses, liabilities, claims, damages and expenses (“ Losses ”), arising out of, or in any way relating to, (a) any breach of any representation or warranty (including all matters set forth on the schedules to this Agreement) of such Seller contained in Article III (other than the Specified Tax Representation), (b) any breach of any covenant in Section 3.4, (c) any breach of the Specified Tax Representation, or (d) any breach by such Seller of Section 9.1 or Section 15.2(a).

SECTION 11.2. Indemnification by the Buyer . Following the Closing and subject to Sections 11.3 and 11.4, the applicable Buyer shall indemnify and hold its respective Seller, its affiliates, members and partners, and the partners, shareholders, officers, directors, employees, representatives and agents of each of the foregoing (collectively, “ Seller-Related Entities ”) harmless from any and all Losses arising out of, or in any way relating to, (a) any breach of any representation or warranty by such Buyer contained in Article IV, and (b) any breach by such Buyer of Section 8.1, Section 9.1 or Section 15.2(b).

 

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SECTION 11.3. Limitations on Indemnification .

(a) Notwithstanding the foregoing provisions of Section 11.1, (i) the Sellers shall not be required to indemnify the Buyer or any Buyer-Related Entities under Sections 11.1(a), 11.1(b) or 11.1(c) unless the aggregate of all amounts for which an indemnity would otherwise be payable by the Sellers under Sections 11.1(a), 11.1(b) and 11.1(c) exceeds the Basket Limitation; provided, however, if such Losses equal or exceed the Basket Limitation, then Sellers’ liability for Losses under (A) Sections 11.1(a) and 11.1(b) shall be for the entire amount thereof, subject to the Cap Limitation, and (B) Section 11.1(c) shall be for the entire amount thereof, subject to the Tax Cap Limitation and (ii) in no event shall the liability of the Seller with respect to the indemnification provided for in (A) Sections 11.1(a) and 11.1(b) exceed in the aggregate the Cap Limitation and (B) Section 11.1(c) exceed in the aggregate the Tax Cap Limitation, (iii) in the event the Buyer obtains knowledge of any inaccuracy or breach of any representation, warranty, or covenant of the Seller contained in this Agreement (a “ Buyer Waived Breach ”) after the date hereof but prior to the Closing, and nonetheless proceeds with and consummates the Closing, then the Buyer and any Buyer-Related Entities shall be deemed to have waived and forever renounced any right to assert a claim for indemnification under this Article XI for, or any other claim or cause of action under this Agreement, at law or in equity on account of any such Buyer Waived Breach. Notwithstanding anything herein to the contrary, the Basket Limitation, the Cap Limitation, the Tax Cap Limitation and the Survival Period shall not apply to the Excluded Liabilities.

(b) In no event shall the Buyer be entitled to seek or obtain consequential, special, punitive or exemplary damages against the Sellers. In no event shall the Sellers be entitled to seek or obtain consequential, special, indirect, punitive or exemplary damages against the Buyer.

SECTION 11.4. Notification . In the event that any indemnified party (“ Indemnified Party ”) becomes aware of any claim or demand for which an indemnifying party (an “ Indemnifying Party ”) may have liability to such Indemnified Party hereunder (an “ Indemnification Claim ”), such Indemnified Party shall promptly, but in no event more than 30 days following such Indemnified Party’s having become aware of such Indemnification Claim, notify the Indemnifying Party in writing of such Indemnification Claim, the amount or the estimated amount of damages sought thereunder to the extent then ascertainable (which estimate shall not be conclusive of the final amount of such Indemnification Claim), any other remedy sought thereunder, any relevant time constraints relating thereto and, to the extent practicable, any other material details pertaining thereto (a “ Claim Notice ”); provided , that no delay on the part of the Indemnified Party in giving any such notice of a Indemnification Claim shall relieve the Indemnifying Party of any indemnification obligations hereunder except to the extent that the Indemnifying Party is prejudiced by such delay.

SECTION 11.5. Survival . The representations and warranties contained in this Agreement shall survive for a period of one (1) year after the Closing unless a longer or shorter survival period is expressly provided for in this Agreement (the “ Survival Period ”). Notwithstanding the previous sentence, the Specified Tax Representation shall survive until March 15, 2018. No claim for indemnification under this Article XI and no action or proceeding with respect to such claim shall be valid or enforceable, at law or in equity, unless (A) a Claim Notice is delivered prior to the expiration of the Survival Period and (B) a legal proceeding is commenced thereon within thirty (30) days after the expiration of the Survival Period.

 

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SECTION 11.6. Indemnification as Sole Remedy . If the Closing has occurred, the sole and exclusive remedy available to a party in the event of a breach by the other party to this Agreement of any representation, warranty, covenant or other provision of this Agreement or any Closing Document which survives the Closing shall be the indemnifications provided for under this Article XI.

ARTICLE XII

INTENTIONALLY OMITTED

ARTICLE XIII

DEFAULT

SECTION 13.1. The Buyer’s Default .

(a) This Agreement may be terminated by the Sellers prior to the Closing if (i) any of the conditions precedent to the Sellers’ obligations set forth in Section 5.1 have not been satisfied or waived by the Sellers on or prior to the Closing Date or (ii) there is a material breach or default by the Buyer in the performance of any of its obligations under this Agreement of which the Sellers have provided the Buyer written notice of and the Buyer has failed to cure within fifteen (15) Business Days of such notice (but in all events such material breach or default is not cured prior to the Closing Date, if earlier), provided that the Buyer shall not be entitled to such notice and opportunity to cure for failure to purchase the Asset on the Closing Date and provided further that the Sellers may not terminate this Agreement if, on the Closing Date, there exists a material default by Sellers under this Agreement.

(b) In the event this Agreement is terminated pursuant to Section 13.1(a), this Agreement shall be null and void and of no further force or effect and neither party shall have any rights or obligations against or to the other except (i) for those provisions hereof which by their terms expressly survive the termination of this Agreement and (ii) as set forth in Section 13.1(c).

(c) In the event the Sellers terminate this Agreement pursuant to Section 13.1(a) as a result of a material breach or default by the Buyer in any of its obligations under this Agreement, the Escrow Agent shall immediately disburse the Deposit (including any portion of the Deposit delivered pursuant to the Guaranty) to the Sellers (as directed by the Sellers), and so long as Homart Buyer has satisfied its funding obligations under the Guaranty, then upon such disbursement the Sellers and the Buyer shall have no further obligations under this Agreement, except those which expressly survive such termination. The Buyer and the Sellers hereby acknowledge and agree that it would be impractical and/or extremely difficult to fix or establish the actual damage sustained by the Sellers as a result of such default by the Buyer, and agree that the Liquidated Damages Amount is a reasonable approximation thereof. Accordingly, in the event that the Buyer breaches this Agreement by defaulting in the completion of the purchase of the Asset, as Sellers’ sole and exclusive remedy hereunder, (i) the Deposit (including any portion of the Deposit delivered pursuant to the Guaranty) shall constitute and be deemed to be the agreed and liquidated damages of the Sellers, and shall be paid by the Escrow Agent to the

 

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Sellers (as directed by the Sellers) and (ii) the DDR JV Member shall no longer have any rights under Section 6.11 of the Retail Holdings LLC Agreement with respect to the ROFO Designated Properties (as defined in the Retail Holdings LLC Agreement).

SECTION 13.2. The Sellers’ Default; Failure of Conditions .

(a) This Agreement may be terminated by the Buyer prior to the Closing if (i) any of the conditions precedent to the Buyer’s obligations set forth in Section 5.2 have not been satisfied or waived by the Buyer on or prior to the Closing Date or (ii) there is a material breach or default by the Seller in the performance of its obligations under this Agreement of which the Buyer has provided the Sellers written notice of and the Sellers have failed to cure within fifteen (15) Business Days of such notice (but in all events such material breach or default is not cured prior to the Closing Date, if earlier), provided that the Sellers shall not be entitled to such notice and opportunity to cure for failure to cause the sale of the Asset on the Closing Date and provided further that the Buyer may not terminate this Agreement if, on the Closing Date, there exists a material default by Buyer under this Agreement.

(b) Upon termination of this Agreement by the Buyer pursuant to Section 13.2(a), the Guaranty shall automatically terminate and the Escrow Agent shall disburse the Earnest Money to the Buyer, and upon such disbursement the Sellers and the Buyer shall have no further obligations under this Agreement, except those which expressly survive such termination and as set forth in Section 13.2(c).

(c) If the Sellers shall materially default in the performance of their obligations under this Agreement to cause the sale of the Asset on the Closing Date, the Buyer, at its option, as its sole and exclusive remedy, may (i) terminate this Agreement, direct the Escrow Agent to deliver the Earnest Money to the Buyer, at which time this Agreement shall be terminated and of no further force and effect except for the provisions which explicitly survive such termination or (ii) specifically enforce the terms and conditions of this Agreement; provided that such specific enforcement action must be initiated no later than ninety (90) days following such default. In addition, in the event the Buyer elects the remedy set forth in clause (ii) in the previous sentence, the Sellers shall be obligated to reimburse Buyer for all costs incurred by Buyer in connection with exercising such remedy.

(d) In addition to terminating this Agreement and receiving the Earnest Money (and the termination of the Guaranty), in the event this Agreement is terminated as a result of a material default by Seller of its material obligation under this Agreement to cause the sale of the Asset on the Closing Date, the Sellers shall be obligated to reimburse Buyer for its actual out-of-pocket expenses incurred in negotiating this Agreement and conducting due diligence activities contemplated hereunder, and pursuing the consummation of the transactions contemplated by this Agreement (including any payments or reimbursements made by Buyer pursuant to the terms hereunder) as well as all costs incurred by Homart Buyer in connection with the Share Offering and all costs incurred by Buyer to exercise any remedies hereunder; provided in no event shall such reimbursement exceed $5,000,000. The provisions of this Section 13.2(d) shall survive the termination of this Agreement for a period of one (1) year; provided such time period will be satisfied with respect to any and all claims that Buyer asserts (including any conditional claims that may depend on whether Buyer receives specific performance under Section 13.2(c), if applicable) by providing written notice to Sellers within such one (1) year period.

 

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ARTICLE XIV

INTENTIONALLY OMITTED

ARTICLE XV

MISCELLANEOUS

SECTION 15.1. Exculpation . (a) Notwithstanding anything to the contrary contained herein, the Sellers’ shareholders, partners, members, the partners or members of such partners or members, the shareholders of such partners or members, and the trustees, officers, directors, employees, agents and security holders of the Sellers and the partners or members of the Sellers assume no personal liability for any obligations entered into on behalf of the Sellers and their individual assets of the shall not be subject to any claims of any person relating to such obligations. The foregoing shall govern any direct and indirect obligations of the Seller under this Agreement.

(b) Notwithstanding anything to the contrary contained herein, the Buyer’s shareholders, partners, members, the partners or members of such partners or members, the shareholders of such partners or members, and the trustees, officers, directors, employees, agents and security holders of the Buyer and the partners or members of the Buyer assume no personal liability for any obligations entered into on behalf of the Buyer and its individual assets of the shall not be subject to any claims of any person relating to such obligations. The foregoing shall govern any direct and indirect obligations of the Buyer under this Agreement.

SECTION 15.2. Brokers .

(a) The Sellers represent and warrant to the Buyer that it has dealt with no broker, salesman, finder or consultant with respect to this Agreement or the transactions contemplated hereby. The Sellers agrees to indemnify, protect, defend and hold the Buyer harmless from and against all claims, losses, damages, liabilities, costs, expenses (including reasonable attorneys’ fees and disbursements) and charges resulting from the Sellers’ breach of the foregoing representation in this Section 15.2(a). The provisions of this Section 15.2(a) shall survive the Closing or any termination of this Agreement indefinitely.

(b) The Buyer represents and warrants to the Sellers that it has dealt with no broker, salesman, finder or consultant with respect to this Agreement or the transactions contemplated hereby. The Buyer agrees to indemnify, protect, defend and hold the Sellers harmless from and against all claims, losses, damages, liabilities, costs, expenses (including reasonable attorneys’ fees and disbursements) and charges resulting from the Buyer’s breach of the foregoing representations in this Section 15.2(b). The provisions of this Section 15.2(b) shall survive the Closing or any termination of this Agreement indefinitely.

 

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SECTION 15.3. Confidentiality; Press Release; IRS Reporting Requirements .

(a) Prior to Closing, the Buyer and the Sellers, and each of their respective affiliates, shall hold as confidential all information disclosed in connection with the transaction contemplated hereby and concerning each other, the Asset, this Agreement and the transactions contemplated hereby and shall not release any such information to third parties without the prior written consent of the other parties hereto, except (i) any information which was previously or is hereafter publicly disclosed (other than in violation of this Agreement or other confidentiality agreements to which affiliates of the Buyer are parties), (ii) to their partners, advisers, underwriters, analysts, employees, affiliates, officers, directors, consultants, lenders, accountants, legal counsel, title companies or other advisors of any of the foregoing, provided that they are advised as to the confidential nature of such information and are instructed to maintain such confidentiality and (iii) to comply with any law, rule or regulation. Without limiting the generality of the preceding sentence, the Sellers acknowledge that Buyer may be required to attach this Agreement to filings with the Securities and Exchange Commission as a result of an affiliate of Buyer being a publicly traded company in the United States and that such disclosures may be made by Buyer (and its affiliates) without the Sellers’ prior written consent. The foregoing shall constitute a modification of any prior confidentiality agreement that may have been entered into by the parties. The provisions of this Section 15.3(a) shall survive any termination of this Agreement for a period of one year.

(b) The Sellers or the Buyer may issue a press release with respect to this Agreement and the transactions contemplated hereby, provided that the content of any such press release shall be subject to the prior written consent of the other party hereto unless such press release is required to be made to comply with any Applicable Law and in no event shall any such press release issued by the Buyer disclose the identity of the Sellers’ direct or indirect beneficial owners by name or the consideration paid to the Sellers for the Asset. Without limiting the generality of the preceding sentence, the Sellers acknowledges that Buyer is required to issue certain press releases with respect to this Agreement as a result of an affiliate of Buyer being a publicly traded company and that such press releases may be made by Buyer (and its affiliates) without the Sellers’ prior written consent; provided that the Sellers are provided a reasonable opportunity to review and comment on such release to the extent reasonably practicable given the requirement to make such disclosure.

(c) For the purpose of complying with any information reporting requirements or other rules and regulations of the IRS that are or may become applicable as a result of or in connection with the transaction contemplated by this Agreement, including, but not limited to, any requirements set forth in proposed Income Tax Regulation Section 1.6045-4 and any final or successor version thereof (collectively, the “ IRS Reporting Requirements ”), the Sellers and the Buyer hereby designate and appoint the Escrow Agent to act as the “ Reporting Person ” (as that term is defined in the IRS Reporting Requirements) to be responsible for complying with any IRS Reporting Requirements. The Escrow Agent hereby acknowledges and accepts such designation and appointment and agrees to fully comply with any IRS Reporting Requirements that are or may become applicable as a result of or in connection with the transaction contemplated by this Agreement. Without limiting the responsibility and obligations of the Escrow Agent as the Reporting Person, the Sellers and the Buyer hereby agree to comply with any provisions of the IRS Reporting Requirements that are not identified therein as the responsibility of the Reporting Person, including, but not limited to, the requirement that the Sellers and the Buyer each retain an original counterpart of this Agreement for at least four years following the calendar year of the Closing.

 

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SECTION 15.4. Escrow Provisions .

(a) The parties acknowledge that the Escrow Agent: (i) is acting solely as a stakeholder at the parties’ request and for the parties’ convenience, (ii) shall not be deemed to be the agent of either of the parties, (iii) is not responsible for levies by taxing authorities based upon the taxpayer identification number used to establish the interest bearing account, (iv) has no liability in the event of failure, insolvency, or inability of the depositary to pay said funds, or accrued interest upon demand of withdrawal and (v) shall not be liable to either of the parties for any act or omission on its part, other than for its gross negligence or willful misconduct. The Sellers and the Buyer shall jointly and severally indemnify and hold the Escrow Agent harmless from and against all costs, claims and expenses, including attorneys’ fees and disbursements, incurred in connection with the performance of the Escrow Agent’s duties hereunder.

(b) The Escrow Agent has acknowledged its agreement to these provisions by signing this Agreement in the place indicated following the signatures of the Sellers and the Buyer.

SECTION 15.5. Deposit Escrow Account .

(a) The Escrow Agent shall hold the Deposit (including any portion of the Deposit delivered pursuant to the Guaranty) in escrow in an interest-bearing bank account approved by the Sellers and the Buyer (the “ Deposit Escrow Account ”). All funds held by the Escrow Agent hereunder shall be in a segregated (non-commingled) account established on behalf of and in trust for the Buyer and Sellers, as their interests may appear. The Deposit Escrow Account shall expressly not be a part of the estate of the Escrow Agent and the Escrow Agent hereby disclaims any right to claim that the Deposit (including any portion of the Deposit delivered pursuant to the Guaranty) is a part of the estate of the Escrow Agent.

(b) The Escrow Agent shall hold the Deposit (including any portion of the Deposit delivered pursuant to the Guaranty) in escrow in the Deposit Escrow Account until the Closing or sooner termination of this Agreement and shall hold or apply such proceeds in accordance with the terms of this Section 15.5(b). The Sellers and the Buyer understand that no interest is earned on the Deposit during the time it takes to transfer into and out of the Deposit Escrow Account. At the Closing, the Deposit shall be paid by the Escrow Agent to, or at the direction of, the Sellers. If for any reason the Closing does not occur and either party makes a written demand upon the Escrow Agent for payment of such amount, the Escrow Agent shall, within 24 hours give written notice to the other party of such demand. If the Escrow Agent does not receive a written objection within five Business Days after the giving of such notice, the Escrow Agent is hereby authorized to make such payment. If the Escrow Agent does receive such written objection within such five Business Day period or if for any other reason the Escrow Agent in good faith shall elect not to make such payment, the Escrow Agent shall continue to hold such amount until otherwise directed by joint written instructions from the parties to this Agreement or a final judgment of a court of competent jurisdiction. The Escrow Agent shall give written notice of such deposit to the Sellers and the Buyer. Upon such deposit the Escrow Agent shall be relieved and discharged of all further obligations and responsibilities hereunder.

 

43


SECTION 15.6. Successors and Assigns; No Third-Party Beneficiaries . The stipulations, terms, covenants and agreements contained in this Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective permitted successors and assigns (including any successor entity after a public offering of stock, merger, consolidation, purchase or other similar transaction involving a party hereto) and nothing herein expressed or implied shall give or be construed to give to any person or entity, other than the parties hereto and such assigns, any legal or equitable rights hereunder.

SECTION 15.7. Assignment . This Agreement may not be assigned by the Buyer without the prior written consent of the Sellers. Any transfer of direct interests in the Buyer shall be deemed to be an assignment of this Agreement by the Buyer. The Buyer may designate an affiliate that is majority owned and controlled by the Buyer to which the Asset will be assigned at the Closing, provided that the Buyer will continue to remain primarily liable under this Agreement notwithstanding any such designation.

SECTION 15.8. Further Assurances . From time to time, as and when requested by any party hereto, the other party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as such other party may reasonably deem necessary or desirable to consummate the transactions contemplated by this Agreement.

SECTION 15.9. Notices . All notices, demands or requests made pursuant to, under or by virtue of this Agreement must be in writing and shall be (i) personally delivered, (ii) delivered by express mail, Federal Express or other comparable overnight courier service, (iii) mailed to the party to which the notice, demand or request is being made by certified or registered mail, postage prepaid, return receipt requested, or (iv) sent by electronic mail, with telephone or written confirmation within one Business Day, as follows:

 

  (a) To the Sellers:

BRE Pentagon Retail JV Member LLC

c/o The Blackstone Group

345 Park Avenue

New York, New York 10154

Attention: Nadeem Meghji

Telephone: (212) 583-5293

Email: meghji@Blackstone.com

And

Blackstone Real Estate Partners VII L.P.

c/o The Blackstone Group

345 Park Avenue

New York, New York 10154

Attention: Nadeem Meghji

Telephone: (212) 583-5293

Email: meghji@Blackstone.com

 

44


with copies thereof to:

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Attention: Erik Quarfordt

Telephone: (212) 455-2459

Email: equarfordt@stblaw.com

 

  (b) To the Buyer:

JDN Real Estate – Lakeland, L.P.

c/o DDR Corp.

3300 Enterprise Parkway

Beachwood, OH 44122

Attention: General Counsel

Telephone: (216) 755-5650

Email: dweiss@ddr.com

with copies thereof to:

DDR Corp.

3300 Enterprise Parkway

Beachwood, OH 44122

Attention: Luke Petherbridge

Telephone: (216) 755-5827

Email: lpetherbridge@ddr.com

and

Jones Day

901 Lakeside Avenue

Cleveland, Ohio 44114

Attention: Zachary T. Paris

Telephone: (216) 586-7275

Email: ztparis@jonesday.com

 

  (c) To the Escrow Agent:

Fidelity National Title Insurance Company

1 Park Avenue, Suite 1402

Attention: Ken Cohen

Telephone: (212) 845-3135

Email: kcohen@fnf.com

 

45


All notices (i) shall be deemed to have been given on the date that the same shall have been delivered in accordance with the provisions of this Section and (ii) may be given either by a party or by such party’s attorneys. Any party may, from time to time, specify as its address for purposes of this Agreement any other address upon the giving of ten (10) days’ prior notice thereof to the other parties.

SECTION 15.10. Entire Agreement . This Agreement, along with the Exhibits and Schedules hereto contains all of the terms agreed upon between the parties hereto with respect to the subject matter hereof, and all understandings and agreements heretofore had or made among the parties hereto are merged in this Agreement which alone fully and completely expresses the agreement of the parties hereto.

SECTION 15.11. Amendments . This Agreement may not be amended, modified, supplemented or terminated, nor may any of the obligations of the Sellers or the Buyer hereunder be waived, except by written agreement executed by the party or parties to be charged.

SECTION 15.12. No Waiver . No waiver by either party of any failure or refusal by the other party to comply with its obligations hereunder shall be deemed a waiver of any other or subsequent failure or refusal to so comply.

SECTION 15.13. Governing Law . This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with, the laws of the State of New York.

SECTION 15.14. Submission to Jurisdiction . The Buyer and the Sellers each irrevocably submits to the jurisdiction of (a) the Supreme Court of the State of New York and (b) the United States District Court for the Southern District of New York for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. The Buyer and the Sellers each further agree that service of any process, summons, notice or document by U.S. registered mail to such party’s respective address set forth above shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction as set forth above in the immediately preceding sentence. The Buyer and the Sellers each irrevocably and unconditionally waive trial by jury and irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (x) the Supreme Court of the State of New York and (y) the United States District Court for the Southern District of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

SECTION 15.15. Severability . If any term or provision of this Agreement or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

 

46


SECTION 15.16. Section Headings . The headings of the various Sections of this Agreement have been inserted only for purposes of convenience, are not part of this Agreement and shall not be deemed in any manner to modify, explain, expand or restrict any of the provisions of this Agreement.

SECTION 15.17. Counterparts . This Agreement may be executed in two or more counterparts and by facsimile signatures or other electronic means, which taken together still constitute collectively one agreement. In making proof of this Agreement it shall not be necessary to produce or account for more than one such counterpart with each party’s counterpart or facsimile signature or other electronic means.

SECTION 15.18. Acceptance of Assignments . The acceptance of the Homart Assignment and the REIT Assignment by the Buyer shall be deemed full compliance by the Sellers of all of the Sellers’ obligations under this Agreement except for those obligations of the Sellers which are specifically stated to survive the delivery of the Homart Assignment and the REIT Assignment or the Closing hereunder and all indemnity obligations of Sellers under this Agreement.

SECTION 15.19. Construction . The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any exhibits or amendments hereto.

SECTION 15.20. Recordation . Neither this Agreement nor any memorandum or notice of this Agreement may be recorded by any party hereto without the prior written consent of the other party hereto. The provisions of this Section shall survive the Closing or any termination of this Agreement. In furtherance of the foregoing, the Buyer hereby indemnifies the Sellers from and against any and all liabilities, damages, losses, costs or expenses (including without limitation attorneys’ fees and expenses) arising out of a breach of this Section 15.20. The provisions of this Section 15.20 shall survive the Closing or any termination of this Agreement.

SECTION 15.21. Books and Records . Buyer has advised Sellers that Buyer may be required to file, in compliance with certain laws and regulations (including, without limitation, Regulation S-X of the Securities and Exchange Commission), audited financial statements, pro forma financial statements and other financial information related to the Property for up to three (3) fiscal years prior to the Closing Date and any interim period during the fiscal year in which the Closing Date occurs (the “ Financial Information ”). During the period commencing on the Closing Date and ending on the date three hundred sixty five (365) days after the Closing Date (the “Books and Records Period”), Sellers agree to use commercially reasonably efforts to cooperate with Buyer and its representatives and agents (at Buyer’s sole cost and expense) in the preparation of the Financial Information. During the Books and Records Period, Sellers shall maintain and allow Buyer (upon no less then twenty-four (24) hours prior notice, which notice may be given via email), reasonable access to, during normal business hours, such books and records of Sellers and Sellers’ managers of the Property reasonably related to the Property. In furtherance of the above, Sellers agree to make employees with knowledge of the Property (such employees chosen by Sellers in their sole discretion),

 

47


available for interview by Buyer, provided, that all costs and expenses thereof are borne by Buyer. Buyer acknowledges Buyer may not use the results of its review under this Section 15.21 to pursue any claim against Sellers under the terms of this Agreement. Notwithstanding anything contained in this Section 15.21 to the contrary, in no event shall Sellers be obligated to (i) make any representations or certifications regarding such Financial Information or any certificates from an affiliate of Sellers or any of Sellers’ affiliates’ auditors, or (ii) disclose any confidential or non-public financial information with respect to any affiliate of Sellers or any property of any such affiliate.

SECTION 15.22. Time is of the Essence . The Sellers and the Buyer agree that time is of the essence with respect to the obligations of the Buyer and Seller under this Agreement. If performance of any obligations under this Agreement is scheduled or required to occur on a day that is not a Business Day, then the scheduled or required date shall be the next Business Day.

SECTION 15.23. Waiver of Jury Trial .

THE SELLER AND THE BUYER HEREBY IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ONE PARTY AGAINST ANOTHER PARTY ON ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT.

 

48


IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the day and year first above written.

 

  HOMART SELLER:
  BRE PENTAGON RETAIL HOLDINGS B LLC
  By:  

/s/ A.J.Agarwal

Name: A.J. Agarwal

Title: Senior Managing Director

  REIT SELLER:
  BLACKSTONE REAL ESTATE PARTNERS VII.TE.1 L.P.
  By:  

BLACKSTONE REAL ESTATE

ASSOCIATES VII L.P., its General Partner

    By:    BREA VII L.L.C., its General Partner
    By:   

/s/ A.J.Agarwal

       Name: A.J. Agarwal
       Title: Senior Managing Director
  BLACKSTONE REAL ESTATE PARTNERS VII.TE.2 L.P.
  By:  

BLACKSTONE REAL ESTATE

ASSOCIATES VII L.P., its General Partner

    By:    BREA VII L.L.C., its General Partner
    By:   

/s/ A.J.Agarwal

      

Name: A.J. Agarwal

Title: Senior Managing Director


  BLACKSTONE REAL ESTATE PARTNERS VII.TE.3 L.P.
  By:   BLACKSTONE REAL ESTATE
  ASSOCIATES VII L.P., its General Partner
    By:    BREA VII L.L.C., its General Partner
    By:   

/s/ A.J.Agarwal

       Name: A.J. Agarwal
       Title: Senior Managing Director
  BLACKSTONE REAL ESTATE PARTNERS VII.F L.P.
  By:  

BLACKSTONE REAL ESTATE

ASSOCIATES VII L.P., its General Partner

    By:    BREA VII L.L.C., its General Partner
    By:   

/s/ A.J.Agarwal

       Name: A.J. Agarwal
       Title: Senior Managing Director
  BLACKSTONE REAL ESTATE HOLDINGS VII – ESC L.P.
  By:   BREP VII SIDE-BY-SIDE GP L.L.C., its General Partner
    By:   

/s/ A.J.Agarwal

       Name: A.J. Agarwal
       Title: Senior Managing Director


  BLACKSTONE REAL ESTATE HOLDINGS VII L.P.
  By:   BREP VII SIDE-BY-SIDE GP L.L.C., its
  General Partner
    By:   

/s/ A.J.Agarwal

       Name: A.J. Agarwal
       Title: Senior Managing Director
  BLACKSTONE FAMILY REAL ESTATE PARTNERSHIP VII-SMD L.P.
  By:   BLACKSTONE FAMILY GP L.L.C., its
  General Partner
    By:   

/s/ A.J.Agarwal

       Name: A.J. Agarwal
       Title: Senior Managing Director
  BLACKSTONE REAL ESTATE PARTNERS VII L.P.
  By:   BLACKSTONE REAL ESTATE
  ASSOCIATES VII L.P., its General Partner
    By:    BREA VII L.L.C., its General Partner
    By:   

/s/ A.J.Agarwal

      

Name: A.J. Agarwal

Title: Senior Managing Director


  BLACKSTONE REAL ESTATE PARTNERS VII.TE.4 L.P.
  By:   BLACKSTONE REAL ESTATE
  ASSOCIATES VII L.P., its General Partner
    By:    BREA VII L.L.C., its General Partner
    By:   

/s/ A.J.Agarwal

       Name: A.J. Agarwal
       Title: Senior Managing Director
  BLACKSTONE REAL ESTATE PARTNERS VII.TE.5 L.P.
  By:   BLACKSTONE REAL ESTATE
  ASSOCIATES VII L.P., its General Partner
    By:    BREA VII L.L.C., its General Partner
    By:   

/s/ A.J.Agarwal

       Name: A.J. Agarwal
       Title: Senior Managing Director
  BLACKSTONE REAL ESTATE PARTNERS VII.TE.6 L.P.
  By:   BLACKSTONE REAL ESTATE
  ASSOCIATES VII L.P., its General Partner
    By:    BREA VII L.L.C., its General Partner
    By:   

/s/ A.J.Agarwal

       Name: A.J. Agarwal
       Title: Senior Managing Director


  REIT BUYER:
  JDN REAL ESTATE – LAKELAND, L.P.
  By:   

JDN Development Company, Inc., its General

Partner

  By:   

/s/ Daniel B. Hurwitz

     Name: Daniel B. Hurwitz
     Title: Chief Executive Officer
  HOMART BUYER :
  DDR CORP.
  By:   

/s/ Daniel B. Hurwitz

     Name: Daniel B. Hurwitz
     Title: Chief Executive Officer


JOINDER BY ESCROW AGENT

Fidelity National Title Insurance Company, referred to in this Agreement as the “Escrow Agent,” hereby acknowledges that it received this Agreement executed by the Seller and the Buyer as of the 15th of May, 2013, and accepts the obligations of the Escrow Agent as set forth herein. Escrow Agent further acknowledges that it received the Earnest Money on the             day of May, 2013. The Escrow Agent hereby agrees to hold and distribute the Earnest Money in accordance with the terms and provisions of the Agreement.

 

FIDELITY NATIONAL TITLE INSURANCE COMPANY
By:   /s/ Kenneth C. Cohen
  Name: Kenneth C. Cohen
  Title: Senior Vice President


JOINDER BY BRE REIT

BRE Pentagon Retail Holdings A Inc., referred to in this Agreement as “BRE REIT” hereby acknowledges and agrees to take all actions to cause all of its subsidiaries to take all actions to complete all applicable Transaction Actions and to execute, deliver and perform all applicable Transaction Action Documents in each case prior to the Closing Date.

 

BRE PENTAGON RETAIL HOLDINGS A INC.
By:   /s/ A.J.Agarwal
  Name: A.J. Agarwal
  Title: Senior Managing Director

Exhibit 3.1

CERTIFICATE OF AMENDMENT NO. 6

TO

SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

DDR CORP.

DANIEL B. HURWITZ, Chief Executive Officer, and DAVID E. WEISS, Secretary, of DDR Corp., an Ohio corporation (the “Corporation”), do hereby certify that a meeting of the shareholders of the Corporation was duly called and held on May 14, 2013, 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 a proposal to amend the Corporation’s Second Amended and Restated Articles of Incorporation (the “Articles”), resolutions approving the amendment of Article FOURTH of the Articles attached hereto as Exhibit A (the “Amendment”) was 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, Daniel B. Hurwitz, Chief Executive Officer, and David E. Weiss, Secretary, of the Corporation acting for and on its behalf, do hereunto subscribe their names on this 15th day of May, 2013.

 

/s/ Daniel B. Hurwitz

Daniel B. Hurwitz, Chief Executive Officer

 

/s/ David E. Weiss

David E. Weiss, Secretary


Amendment No. 6

to the

Second Amended and Restated Articles of Incorporation

of

DDR Corp.

RESOLVED, that the Corporation’s Second Amended and Restated Articles of Incorporation will be amended as set forth below:

FOURTH:  The authorized number of shares of the Corporation is 611,000,000, consisting of 600,000,000 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.”


Amendment No. 5

to the

Second Amended and Restated Articles of Incorporation

of

DDR Corp.

RESOLVED, that DDR Corp.’s Second Amended and Restated Articles of Incorporation, as amended, will be further amended and restated as set forth below:

ARTICLE FOURTH, Division A, Item XI, Section 6 shall be amended and restated as follows:

Section 6. 6.250% Class K Cumulative Redeemable Preferred Shares . Of the 750,000 authorized Class K Shares, 345,000 shares are designated as a series entitled “6.250% Class K Cumulative Redeemable Preferred Shares” (hereinafter called “6.250% Class K Preferred Shares”). The 6.250% Class K Preferred Shares shall have the express terms set forth in this Division as being applicable to all Class K Shares as a class and, in addition, the following express terms applicable to all 6.250% Class K Preferred Shares as a series of Class K Shares:

 

(a) The annual dividend rate of the 6.250% Class K Preferred Shares shall be 6.250% of the liquidation preference of $500.00 per share.

 

(b) Dividends on the 6.250% Class K Preferred Shares shall be payable, if declared, quarterly in arrears on the fifteenth day of each January, April, July and October or, if not a Business Day (as defined in clause (h) of this Section 6), the next succeeding Business Day (each a “Dividend Payment Date”), the first quarterly dividend being payable, if declared, on July 15, 2013 (the “First Dividend Payment Date”). The dividends payable for each full quarterly dividend period on each 6.250% Class K Preferred Share shall be $7.8125.

Dividends for the initial dividend period on the 6.250% Class K Preferred Shares, or for any period shorter or longer than a full dividend period on the 6.250% 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 6.250% 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 as of the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Dividend Payment Date falls or on such other date as shall be fixed by the Corporation’s Board of Directors that is no less than ten nor more than 30 days preceding the applicable Dividend Payment Date (the “Dividend Record Date”), in each case whether or not such day is a Business Day.

 

(c) Dividends on 6.250% Class K Preferred Shares shall be cumulative as follows:

 

  (1) with respect to shares included in the initial issue of 6.250% Class K Preferred Shares and shares issued any time thereafter up to and including the Dividend Record Date for the First Dividend Payment Date, dividends shall be cumulative from the date of the initial issue of 6.250% Class K Preferred Shares; and


  (2) with respect to shares issued any time after the aforesaid Dividend 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 Dividend Record Date for the payment of a dividend on 6.250% Class K Preferred Shares and ending on the Dividend Payment Date of that dividend, dividends with respect to such shares shall be cumulative from that Dividend Payment Date.

Accrued but unpaid dividends on 6.250% Class K Preferred Shares shall not bear interest. Any dividend payment made on the 6.250% Class K Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due with respect to such shares which remains payable.

 

(d) Except as required to preserve the Corporation’s status as a real estate investment trust under the Internal Revenue Code of 1986, as amended, and except pursuant to the Special Optional Redemption Right (as defined in this Section 6(d)), the 6.250% Class K Preferred Shares may not be redeemed prior to April 9, 2018.

At any time or from time to time on and after April 9, 2018, the Corporation, at its option upon not less than 30 nor more than 60 days’ written notice, may redeem the 6.250% Class K Preferred Shares, in whole or in part, at a redemption price of $500.00 per share plus, in each case, an amount equal to all dividends accrued and unpaid thereon to, but not including, the redemption date, without interest (the “Optional Redemption Right”). Upon the occurrence of a Change of Control (as defined in clause (h) of this Section 6), the Corporation, at its option upon not less than 30 nor more than 60 days’ written notice, may redeem the 6.250% Class K Preferred Shares, in whole or in part, within 120 days after the first date on which such Change of Control occurred, at a redemption price of $500.00 per share plus, in each case, an amount equal to all dividends accrued and unpaid thereon to, but not including, the redemption date, without interest (the “Special Optional Redemption Right”).

If, prior to the Change of Control Conversion Date (as defined in clause (h) of this Section 6), the Corporation has provided or provides notice of its exercise of any of its redemption rights with respect to the 6.250% Class K Preferred Shares (whether pursuant to the Optional Redemption Right or the Special Optional Redemption Right), the holders of 6.250% Class K Preferred Shares will not have the Change of Control Conversion Right (as defined in clause (e) of this Section 6) in respect of the 6.250% Class K Preferred Shares called for redemption.

If less than all of the outstanding 6.250% Class K Preferred Shares are to be redeemed, the 6.250% Class K Preferred Shares to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares), or by any other equitable method determined by the Corporation that will not result in the issuance of any 6.250% Class K Preferred Shares in excess of the Ownership Limit (as defined in Section (a) of Item XIV of this Division A of this Article FOURTH).

 

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Notice of redemption shall be mailed, postage prepaid, as of a date set by the Corporation not less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the 6.250% Class K Preferred Shares to be redeemed at their respective addresses then appearing on the books of the Corporation.

 

  (1) No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any 6.250% Class K Preferred Shares except as to the holder to whom such notice was defective or not given.

 

  (2) A redemption notice which has been mailed in the manner provided herein shall be conclusively presumed to have been duly given on the date mailed whether or not the holder received the redemption notice.

In addition to any information required by the applicable rules of any securities exchange upon which the 6.250% Class K Preferred Shares may be listed or admitted to trading, each such notice shall state (i) the redemption date; (ii) the redemption price; (iii) the number of 6.250% Class K Preferred Shares to be redeemed; (iv) the place or places where certificates, if any, for the 6.250% Class K Preferred Shares to be redeemed are to be surrendered for payment of the redemption price; and (v) that dividends in respect of the 6.250% Class K Preferred Shares to be redeemed will cease to accrue on such redemption date. If less than all of the 6.250% Class K Preferred Shares held by any holder are to be redeemed, the notice shall state the number of such 6.250% Class K Preferred Shares held by such holder to be so redeemed.

 

  (3) In the event the Corporation is exercising the Special Optional Redemption Right, the notice referred to above shall also state: (i) that the 6.250% Class K Preferred Shares are being redeemed pursuant to the Special Optional Redemption Right in connection with the occurrence of a Change of Control and a brief description of the transaction(s) constituting such Change of Control; and (ii) that the 6.250% Class K Preferred Shares to which such notice relates may not be tendered for conversion in connection with the Change of Control by the holder thereof and that each 6.250% Class K Preferred Share so tendered for conversion that is selected, prior to the Change of Control Conversion Date, for redemption will be redeemed on the related redemption date instead of converted on the Change of Control Conversion Date.

Anything herein to the contrary notwithstanding and except as otherwise required by law, the holders of 6.250% Class K Preferred Shares at the close of business on a Dividend Record Date will be entitled to receive the dividend payable with respect to their 6.250% Class K Preferred Shares on the corresponding Dividend Payment Date notwithstanding the redemption thereof after such Dividend Record Date and on or prior to such Dividend Payment Date or the Corporation’s default in the payment of the dividend due on such Dividend Payment Date. Except as provided in this Section 6, the Corporation will make no payment or allowance for unpaid dividends, whether or not in arrears, on 6.250% Class K Preferred Shares called for redemption.

 

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(e) 6.250% Class K Preferred Shares shall not be convertible into or exchangeable for any other property or securities of the Corporation, except as provided in this Section 6(e) and/or except in connection with the exercise of the Corporation’s rights pursuant to Section (d) of Item XIV of this Division A of this Article FOURTH, Section 4(d) of Division B of this Article FOURTH, or any similar Section hereafter contained in these Amended and Restated Articles of Incorporation, as amended.

Upon the occurrence of a Change of Control, each holder of 6.250% Class K Preferred Shares shall have the right, unless, prior to the Change of Control Conversion Date, the Corporation has provided or provides notice of its election to redeem the 6.250% Class K Preferred Shares pursuant to the Optional Redemption Right or Special Optional Redemption Right, to convert some or all of the 6.250% Class K Preferred Shares held by such holder (the “Change of Control Conversion Right”) on the Change of Control Conversion Date into a number of Common Shares (or equivalent value of Alternative Conversion Consideration (as defined in this Section 6(e)) per 6.250% Class K Preferred Share to be converted (the “Common Shares Conversion Consideration”) equal to the lesser of (i) the quotient obtained by dividing (1) the sum of $500.00 per share plus the amount of any accrued and unpaid dividends to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case no additional amount for such accrued and unpaid dividends will be included in this sum) by (2) the Common Share Price (as defined in clause (h) of this Section 6); and (ii) 57.1102 (the “Share Cap”), subject to the adjustments described in the following paragraph.

Anything herein to the contrary notwithstanding and except as otherwise required by law, the persons who are holders of record of 6.250% Class K Preferred Shares at the close of business on a Dividend Record Date will be entitled to receive the dividend payable on the corresponding Dividend Payment Date notwithstanding the conversion of those shares after such Dividend Record Date and on or prior to such Dividend Payment Date and, in such case, the full amount of such dividend shall be paid on such Dividend Payment Date to the persons who were the holders of record of 6.250% Class K Preferred Shares at the close of business on such Dividend Record Date.

The Share Cap is subject to pro rata adjustments for any share splits (including those effected pursuant to a distribution of Common Shares), subdivisions or combinations (in each case, a “Share Split”) with respect to Common Shares as follows: the adjusted Share Cap as the result of a Share Split will be the number of Common Shares that is equivalent to the product obtained by multiplying (i) the Share Cap in effect immediately prior to such Share Split by (ii) a fraction, the numerator of which is the number of Common Shares outstanding after giving effect to such Share Split and the denominator of which is the number of Common Shares outstanding immediately prior to such Share Split.

 

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For the avoidance of doubt, subject to the immediately succeeding sentence, the aggregate number of Common Shares (or equivalent Alternative Conversion Consideration, as applicable) issuable in connection with the exercise of the Change of Control Conversion Right shall not exceed 17,133,000 Common Shares (or equivalent Alternative Conversion Consideration, as applicable), subject to increase to the extent the underwriters’ over-allotment option to purchase additional 6.250% Class K Preferred Shares in the initial public offering of 6.250% Class K Preferred Shares is exercised, not to exceed 19,702,950 Common Shares in total (or equivalent Alternative Conversion Consideration, as applicable) (the “Exchange Cap”). The Exchange Cap is subject to pro rata adjustments for any Share Splits on the same basis as the corresponding adjustment to the Share Cap and is subject to increase in the event that additional 6.250% Class K Preferred Shares are designated and issued in the future pursuant to an amendment to these Amended and Restated Articles of Incorporation, as amended.

In the case of a Change of Control pursuant to which Common Shares will be converted into cash, securities or other property or assets (including any combination thereof) (the “Alternative Form Consideration”), a holder of 6.250% Class K Preferred Shares will receive upon conversion of such 6.250% Class K Preferred Shares the kind and amount of Alternative Form Consideration that such holder would have owned or been entitled to receive upon the Change of Control had such holder held a number of Common Shares equal to the Common Shares Conversion Consideration immediately prior to the effective time of the Change of Control (the “Alternative Conversion Consideration”; the Common Shares Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Change of Control, is referred to as the “Conversion Consideration”).

If the holders of Common Shares have the opportunity to elect the form of consideration to be received in the Change of Control, the consideration that the holders of the 6.250% Class K Preferred Shares will receive will be in the form and proportion of the aggregate consideration elected by the holders of Common Shares who participate in the determination (based on the weighted average of elections) and will be subject to any limitations to which all holders of Common Shares are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in the Change of Control.

No fractional Common Shares will be issued upon the conversion of the 6.250% Class K Preferred Shares. In lieu of fractional shares, holders shall be entitled to receive the cash value of such fractional shares based on the Common Share Price.

Within 15 days following the occurrence of a Change of Control, the Corporation shall deliver a notice of occurrence of the Change of Control, describing the resulting Change of Control Conversion Right, to the holders of record of the 6.250% Class K Preferred Shares at their respective addresses then appearing on the books of the Corporation.

 

  (1) No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the conversion of any 6.250% Class K Preferred Shares except as to the holder to whom notice was defective or not given.

 

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  (2) Each such notice shall state (i) the events constituting the Change of Control; (ii) the date of the Change of Control; (iii) the last date on which the holders of the 6.250% Class K Preferred Shares may exercise their Change of Control Conversion Right; (iv) the method and period for calculating the Common Share Price; (v) the Change of Control Conversion Date; (vi) that if, prior to the Change of Control Conversion Date, the Corporation has provided or provides notice of its election to redeem all or any portion of the 6.250% Class K Preferred Shares, holders of such shares will not be able to convert such shares and such shares will be redeemed on the related redemption date, even if such shares have already been tendered for conversion pursuant to the Change of Control Conversion Right; (vii) if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per 6.250% Class K Preferred Share; (viii) the name and address of the paying agent and the conversion agent; (ix) the procedures that the holders of the 6.250% Class K Preferred Shares must follow to exercise the Change of Control Conversion Right; and (x) the last date on which the holders of the 6.250% Class K Preferred Shares may withdraw shares surrendered for conversion and the procedures that such holders must follow to effect such a withdrawal.

The Corporation shall issue a press release for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business News (or, if these organizations are not in existence at the time of issuance of the press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public), or post notice on the Corporation’s website, in any event prior to the opening of business on the first Business Day following any date on which the Corporation provides the Change of Control notice described above to the holders of the 6.250% Class K Preferred Shares.

In order to exercise the Change of Control Conversion Right, a holder of 6.250% Class K Preferred Shares shall be required to deliver, on or before the close of business on the Change of Control Conversion Date, the certificates, if any, evidencing the 6.250% Class K Preferred Shares to be converted, duly endorsed for transfer, together with a written conversion notice completed, to the Corporation’s transfer agent.

 

  (1) Such notice shall state (i) the relevant Change of Control Conversion Date; (ii) the number of 6.250% Class K Preferred Shares to be converted; and (iii) that the 6.250% Class K Preferred Shares are to be converted pursuant to the applicable provisions of the 6.250% Class K Preferred Shares.

 

  (2) Notwithstanding the foregoing, if the 6.250% Class K Preferred Shares are held in global form, such notice shall comply with applicable procedures of The Depository Trust Company or any other organization acting as depositary for the 6.250% Class K Preferred Shares (the “Depositary”).

Holders of 6.250% Class K Preferred Shares may withdraw any notice of exercise of a Change of Control Conversion Right (in whole or in part) by a written notice of withdrawal delivered to the Corporation’s transfer agent prior to the close of business on the Business Day prior to the Change of Control Conversion Date.

 

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  (1) The notice of withdrawal must state: (i) the number of withdrawn 6.250% Class K Preferred Shares; (ii) if certificated 6.250% Class K Preferred Shares have been issued, the certificate numbers of the withdrawn 6.250% Class K Preferred Shares; and (iii) the number of 6.250% Class K Preferred Shares, if any, which remain subject to the conversion notice.

 

  (2) Notwithstanding the foregoing, if the 6.250% Class K Preferred Shares are held in global form, such notice of withdrawal shall comply with applicable procedures of the Depositary.

6.250% Class K Preferred Shares as to which the Change of Control Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn shall be converted into the applicable Conversion Consideration in accordance with the Change of Control Conversion Right on the Change of Control Conversion Date, unless, prior to the Change of Control Conversion Date, the Corporation has provided or provides notice of its election to redeem such 6.250% Class K Preferred Shares, whether pursuant to the Optional Redemption Right or Special Optional Redemption Right. If the Corporation elects to redeem 6.250% Class K Preferred Shares that would otherwise be converted into the applicable Conversion Consideration on a Change of Control Conversion Date, such 6.250% Class K Preferred Shares shall not be so converted and the holders of such shares shall be entitled to receive on the applicable redemption date $500.00 per share, plus accrued and unpaid dividends to, but not including, the redemption date.

The Corporation shall deliver the applicable Conversion Consideration to the applicable holders of 6.250% Class K Preferred Shares no later than the third Business Day following the Change of Control Conversion Date.

Notwithstanding anything to the contrary contained herein, no holder of 6.250% Class K Preferred Shares will be entitled to convert such shares to the extent that receipt of Common Shares upon conversion of the 6.250% Class K Preferred Shares would cause such holder (or any other person) to exceed either of the ownership limits described in Section (a) of Item XIV of this Division A of this Article FOURTH and Section 4(a) of Division B of this Article FOURTH, unless the Corporation provides an exemption from such ownership limits for such holder.

Notwithstanding the foregoing restrictions on the ability to convert the 6.250% Class K Preferred Shares, any conversion of 6.250% Class K Preferred Shares in violation of the ownership limits described in Section (a) of Item XIV of this Division A of this Article FOURTH and Section 4(a) of Division B of this Article FOURTH, or that causes another person to be in violation of such ownership limits, including as a result of the effect of the operation of this provision, shall be construed as causing any 6.250% Class K Preferred Shares that exceed such ownership limits to be deemed Excess Preferred Shares and subject to the provisions applicable to Excess Preferred Shares set forth in these Amended and Restated Articles of Incorporation, as amended.

 

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(f) The amount payable per 6.250% 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 $500.00, plus an amount equal to all dividends accrued and unpaid thereon to, but not including, the date of payment.

 

(g) All dividend payments made on the 6.250% Class K Preferred Shares, at any time during which the Corporation is in default in the payment of dividends on such 6.250% Class K Preferred Shares for any dividend period, shall, for the purposes of Section 5(b)(1) of this Item X, be deemed to be made in respect of the earliest dividend period with respect to which the Corporation is in default.

 

(h) Definitions . For the purposes of this Section 6 of Item X of Division A of this Article FOURTH, the following terms shall have the following meanings:

“Business Day” shall mean any day other than a Saturday, Sunday or a day on which banking institutions in The City of New York, New York are authorized or required by law, regulation or executive order to close.

“Change of Control” is when, after the original issuance of the 6.250% Class K Preferred Shares, the following have occurred and are continuing:

 

  (i) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of shares of the Corporation entitling that person to exercise more than 50% of the total voting power of all shares of the Corporation entitled to vote generally in elections of directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and

 

  (ii) following the closing of any transaction referred to in the foregoing clause (i), neither the Corporation nor the acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE MKT or NASDAQ, or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE MKT or NASDAQ.

“Change of Control Conversion Date” shall mean the date the 6.250% Class K Preferred Shares are to be converted which shall be a Business Day that is no fewer than 20 days nor more than 35 days after the date on which the Corporation provides notice of the occurrence of a Change of Control (as provided for in clause (e) of this Section 6) to the holders of the 6.250% Class K Preferred Shares.

 

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“Common Share Price” shall mean: (i) if the consideration to be received in the Change of Control by the holders of Common Shares is solely cash, the amount of cash consideration per Common Share or (ii) if the consideration to be received in the Change of Control by holders of Common Shares is other than solely cash (x) the average of the closing sale prices per Common Share (or, if no closing sale price is reported, the average of the closing bid and ask prices per Common Share or, if more than one in either case, the average of the average closing bid and the average closing ask prices per Common Share) for the ten consecutive trading days immediately preceding, but not including, the date on which such Change of Control occurred as reported on the principal U.S. securities exchange on which the Common Shares are then traded, or (y) the average of the last quoted bid prices for the Common Shares in the over-the-counter market as reported by OTC Markets Group Inc. or similar organization for the ten consecutive trading days immediately preceding, but not including, the date on which such Change of Control occurred, if the Common Shares are not then listed for trading on a U.S. securities exchange.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“NASDAQ” shall mean the NASDAQ Stock Market.

“NYSE” shall mean the New York Stock Exchange.

“NYSE MKT” shall mean the NYSE MKT (formerly known as the NYSE Amex Equities).

 

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Amendment No. 4

to the

Second Amended and Restated Articles of Incorporation

of

DDR Corp.

RESOLVED, that DDR Corp.’s Second Amended and Restated Articles of Incorporation, as amended, will be further amended and restated as set forth below:

ARTICLE FOURTH, Division A, Item X, Section 6 shall be amended and restated as follows:

Section 6. 6.50% Class J Cumulative Redeemable Preferred Shares . Of the 750,000 authorized Class J Shares, 400,000 shares are designated as a series entitled “6.50% Class J Cumulative Redeemable Preferred Shares” (hereinafter called “6.50% Class J Preferred Shares”). The 6.50% Class J Preferred Shares shall have the express terms set forth in this Division as being applicable to all Class J Shares as a class and, in addition, the following express terms applicable to all 6.50% Class J Preferred Shares as a series of Class J Shares:

 

(a) The annual dividend rate of the 6.50% Class J Preferred Shares shall be 6.50% of the liquidation preference of $500.00 per share.

 

(b) Dividends on the 6.50% Class J Preferred Shares shall be payable, if declared, quarterly in arrears on the fifteenth day of each January, April, July and October or, if not a Business Day (as defined in clause (h) of this Section 6), the next succeeding Business Day (each a “Dividend Payment Date”), the first quarterly dividend being payable, if declared, on October 15, 2012 (the “First Dividend Payment Date”). The dividends payable for each full quarterly dividend period on each 6.50% Class J Preferred Share shall be $8.125.

 

     Dividends for the initial dividend period on the 6.50% Class J Preferred Shares, or for any period shorter or longer than a full dividend period on the 6.50% 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 6.50% Class J 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 as of the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Dividend Payment Date falls or on such other date as shall be fixed by the Corporation’s Board of Directors that is no less than ten nor more than 30 days preceding the applicable Dividend Payment Date (the “Dividend Record Date”), in each case whether or not such day is a Business Day.

 

(c) Dividends on 6.50% Class J Preferred Shares shall be cumulative as follows:

 

  (1) with respect to shares included in the initial issue of 6.50% Class J Preferred Shares and shares issued any time thereafter up to and including the Dividend Record Date for the First Dividend Payment Date, dividends shall be cumulative from the date of the initial issue of 6.50% Class J Preferred Shares; and


  (2) with respect to shares issued any time after the aforesaid Dividend 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 Dividend Record Date for the payment of a dividend on 6.50% Class J Preferred Shares and ending on the Dividend Payment Date of that dividend, dividends with respect to such shares shall be cumulative from that Dividend Payment Date.

 

     Accrued but unpaid dividends on 6.50% Class J Preferred Shares shall not bear interest. Any dividend payment made on the 6.50% Class J Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due with respect to such shares which remains payable.

 

(d) Except as required to preserve the Corporation’s status as a real estate investment trust under the Internal Revenue Code of 1986, as amended, and except pursuant to the Special Optional Redemption Right (as defined in this Section 6(d)), the 6.50% Class J Preferred Shares may not be redeemed prior to August 1, 2017.

 

     At any time or from time to time on and after August 1, 2017, the Corporation, at its option upon not less than 30 nor more than 60 days’ written notice, may redeem the 6.50% Class J Preferred Shares, in whole or in part, at a redemption price of $500.00 per share plus, in each case, an amount equal to all dividends accrued and unpaid thereon to, but not including, the redemption date, without interest (the “Optional Redemption Right”). Upon the occurrence of a Change of Control (as defined in clause (h) of this Section 6), the Corporation, at its option upon not less than 30 nor more than 60 days’ written notice, may redeem the 6.50% Class J Preferred Shares, in whole or in part, within 120 days after the first date on which such Change of Control occurred, at a redemption price of $500.00 per share plus, in each case, an amount equal to all dividends accrued and unpaid thereon to, but not including, the redemption date, without interest (the “Special Optional Redemption Right”).

 

     If, prior to the Change of Control Conversion Date (as defined in clause (h) of this Section 6), the Corporation has provided or provides notice of its exercise of any of its redemption rights with respect to the 6.50% Class J Preferred Shares (whether pursuant to the Optional Redemption Right or the Special Optional Redemption Right), the holders of 6.50% Class J Preferred Shares will not have the Change of Control Conversion Right (as defined in clause (e) of this Section 6) in respect of the 6.50% Class J Preferred Shares called for redemption.

 

     If less than all of the outstanding 6.50% Class J Preferred Shares are to be redeemed, the 6.50% Class J Preferred Shares to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares), or by any other equitable method determined by the Corporation that will not result in the issuance of any 6.50% Class J Preferred Shares in excess of the Ownership Limit (as defined in Section (a) of Item XIV of this Division A of this Article FOURTH).

 

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     Notice of redemption shall be mailed, postage prepaid, as of a date set by the Corporation not less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the 6.50% Class J Preferred Shares to be redeemed at their respective addresses then appearing on the books of the Corporation.

 

  (1) No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any 6.50% Class J Preferred Shares except as to the holder to whom such notice was defective or not given.

 

  (2) A redemption notice which has been mailed in the manner provided herein shall be conclusively presumed to have been duly given on the date mailed whether or not the holder received the redemption notice.

 

       In addition to any information required by the applicable rules of any securities exchange upon which the 6.50% Class J Preferred Shares may be listed or admitted to trading, each such notice shall state (i) the redemption date; (ii) the redemption price; (iii) the number of 6.50% Class J Preferred Shares to be redeemed; (iv) the place or places where certificates, if any, for the 6.50% Class J Preferred Shares to be redeemed are to be surrendered for payment of the redemption price; and (v) that dividends in respect of the 6.50% Class J Preferred Shares to be redeemed will cease to accrue on such redemption date. If less than all of the 6.50% Class J Preferred Shares held by any holder are to be redeemed, the notice shall state the number of such 6.50% Class J Preferred Shares held by such holder to be so redeemed.

 

  (3) In the event the Corporation is exercising the Special Optional Redemption Right, the notice referred to above shall also state: (i) that the 6.50% Class J Preferred Shares are being redeemed pursuant to the Special Optional Redemption Right in connection with the occurrence of a Change of Control and a brief description of the transaction(s) constituting such Change of Control; and (ii) that the 6.50% Class J Preferred Shares to which such notice relates may not be tendered for conversion in connection with the Change of Control by the holder thereof and that each 6.50% Class J Preferred Share so tendered for conversion that is selected, prior to the Change of Control Conversion Date, for redemption will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date.

 

    

Anything herein to the contrary notwithstanding and except as otherwise required by law, the holders of 6.50% Class J Preferred Shares at the close of business on a Dividend Record Date will be entitled to receive the dividend payable with respect to their 6.50% Class J Preferred Shares on the corresponding Dividend Payment Date notwithstanding the redemption thereof after such Dividend Record Date and on or prior to such Dividend Payment Date or the Corporation’s default in the payment of the dividend due on such

 

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  Dividend Payment Date. Except as provided in this Section 6, the Corporation will make no payment or allowance for unpaid dividends, whether or not in arrears, on 6.50% Class J Preferred Shares called for redemption.

 

(e) 6.50% Class J Preferred Shares shall not be convertible into or exchangeable for any other property or securities of the Corporation, except as provided in this Section 6(e) and/or except in connection with the exercise of the Corporation’s rights pursuant to Section (d) of Item XIV of this Division A of this Article FOURTH, Section 4(d) of Division B of this Article FOURTH, or any similar Section hereafter contained in these Amended and Restated Articles of Incorporation, as amended.

 

     Upon the occurrence of a Change of Control, each holder of 6.50% Class J Preferred Shares shall have the right, unless, prior to the Change of Control Conversion Date, the Corporation has provided or provides notice of its election to redeem the 6.50% Class J Preferred Shares pursuant to the Optional Redemption Right or Special Optional Redemption Right, to convert some or all of the 6.50% Class J Preferred Shares held by such holder (the “Change of Control Conversion Right”) on the Change of Control Conversion Date into a number of Common Shares (or equivalent value of Alternative Conversion Consideration (as defined in this Section 6(e)) per 6.50% Class J Preferred Share to be converted (the “Common Shares Conversion Consideration”) equal to the lesser of (i) the quotient obtained by dividing (1) the sum of $500.00 per share plus the amount of any accrued and unpaid dividends to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case no additional amount for such accrued and unpaid dividends will be included in this sum) by (2) the Common Share Price (as defined in clause (h) of this Section 6); and (ii) 66.8896 (the “Share Cap”), subject to the adjustments described in the following paragraph.

 

     Anything herein to the contrary notwithstanding and except as otherwise required by law, the persons who are holders of record of 6.50% Class J Preferred Shares at the close of business on a Dividend Record Date will be entitled to receive the dividend payable on the corresponding Dividend Payment Date notwithstanding the conversion of those shares after such Dividend Record Date and on or prior to such Dividend Payment Date and, in such case, the full amount of such dividend shall be paid on such Dividend Payment Date to the persons who were the holders of record of 6.50% Class J Preferred Shares at the close of business on such Dividend Record Date.

 

     The Share Cap is subject to pro rata adjustments for any share splits (including those effected pursuant to a distribution of Common Shares), subdivisions or combinations (in each case, a “Share Split”) with respect to Common Shares as follows: the adjusted Share Cap as the result of a Share Split will be the number of Common Shares that is equivalent to the product obtained by multiplying (i) the Share Cap in effect immediately prior to such Share Split by (ii) a fraction, the numerator of which is the number of Common Shares outstanding after giving effect to such Share Split and the denominator of which is the number of Common Shares outstanding immediately prior to such Share Split.

 

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     For the avoidance of doubt, subject to the immediately succeeding sentence, the aggregate number of Common Shares (or equivalent Alternative Conversion Consideration, as applicable) issuable in connection with the exercise of the Change of Control Conversion Right shall not exceed 26,756,000 Common Shares (or equivalent Alternative Conversion Consideration, as applicable) (the “Exchange Cap”). The Exchange Cap is subject to pro rata adjustments for any Share Splits on the same basis as the corresponding adjustment to the Share Cap and is subject to increase in the event that additional 6.50% Class J Preferred Shares are designated and issued in the future pursuant to an amendment to these Amended and Restated Articles of Incorporation, as amended.

 

     In the case of a Change of Control pursuant to which Common Shares will be converted into cash, securities or other property or assets (including any combination thereof) (the “Alternative Form Consideration”), a holder of 6.50% Class J Preferred Shares will receive upon conversion of such 6.50% Class J Preferred Shares the kind and amount of Alternative Form Consideration that such holder would have owned or been entitled to receive upon the Change of Control had such holder held a number of Common Shares equal to the Common Shares Conversion Consideration immediately prior to the effective time of the Change of Control (the “Alternative Conversion Consideration”; the Common Shares Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Change of Control, is referred to as the “Conversion Consideration”).

 

     If the holders of Common Shares have the opportunity to elect the form of consideration to be received in the Change of Control, the consideration that the holders of the 6.50% Class J Preferred Shares will receive will be in the form and proportion of the aggregate consideration elected by the holders of Common Shares who participate in the determination (based on the weighted average of elections) and will be subject to any limitations to which all holders of Common Shares are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in the Change of Control.

 

     No fractional Common Shares will be issued upon the conversion of the 6.50% Class J Preferred Shares. In lieu of fractional shares, holders shall be entitled to receive the cash value of such fractional shares based on the Common Share Price (as defined in clause (h) of this Section 6).

 

     Within 15 days following the occurrence of a Change of Control, the Corporation shall deliver a notice of occurrence of the Change of Control, describing the resulting Change of Control Conversion Right, to the holders of record of the 6.50% Class J Preferred Shares at their respective addresses then appearing on the books of the Corporation.

 

  (1) No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the conversion of any 6.50% Class J Preferred Shares except as to the holder to whom notice was defective or not given.

 

- 5 -


  (2) Each such notice shall state (i) the events constituting the Change of Control; (ii) the date of the Change of Control; (iii) the last date on which the holders of the 6.50% Class J Preferred Shares may exercise their Change of Control Conversion Right; (iv) the method and period for calculating the Common Share Price; (v) the Change of Control Conversion Date; (vi) that if, prior to the Change of Control Conversion Date, the Corporation has provided or provides notice of its election to redeem all or any portion of the 6.50% Class J Preferred Shares, holders of such shares will not be able to convert such shares and such shares will be redeemed on the related redemption date, even if such shares have already been tendered for conversion pursuant to the Change of Control Conversion Right; (vii) if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per 6.50% Class J Preferred Share; (viii) the name and address of the paying agent and the conversion agent; (ix) the procedures that the holders of the 6.50% Class J Preferred Shares must follow to exercise the Change of Control Conversion Right; and (x) the last date on which the holders of the 6.50% Class J Preferred Shares may withdraw shares surrendered for conversion and the procedures that such holders must follow to effect such a withdrawal.

 

     The Corporation shall issue a press release for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business News (or, if these organizations are not in existence at the time of issuance of the press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public), or post notice on the Corporation’s website, in any event prior to the opening of business on the first Business Day following any date on which the Corporation provides the Change of Control notice described above to the holders of the 6.50% Class J Preferred Shares.

 

     In order to exercise the Change of Control Conversion Right, a holder of 6.50% Class J Preferred Shares shall be required to deliver, on or before the close of business on the Change of Control Conversion Date, the certificates, if any, evidencing the 6.50% Class J Preferred Shares to be converted, duly endorsed for transfer, together with a written conversion notice completed, to the Corporation’s transfer agent.

 

  (1) Such notice shall state (i) the relevant Change of Control Conversion Date; (ii) the number of 6.50% Class J Preferred Shares to be converted; and (iii) that the 6.50% Class J Preferred Shares are to be converted pursuant to the applicable provisions of the 6.50% Class J Preferred Shares.

 

  (2) Notwithstanding the foregoing, if the 6.50% Class J Preferred Shares are held in global form, such notice shall comply with applicable procedures of The Depository Trust Company or any other organization acting as depositary for the 6.50% Class J Preferred Shares (the “Depositary”).

 

     Holders of 6.50% Class J Preferred Shares may withdraw any notice of exercise of a Change of Control Conversion Right (in whole or in part) by a written notice of withdrawal delivered to the Corporation’s transfer agent prior to the close of business on the Business Day prior to the Change of Control Conversion Date.

 

- 6 -


  (1) The notice of withdrawal must state: (i) the number of withdrawn 6.50% Class J Preferred Shares; (ii) if certificated 6.50% Class J Preferred Shares have been issued, the certificate numbers of the withdrawn 6.50% Class J Preferred Shares; and (iii) the number of 6.50% Class J Preferred Shares, if any, which remain subject to the conversion notice.

 

  (2) Notwithstanding the foregoing, if the 6.50% Class J Preferred Shares are held in global form, such notice of withdrawal shall comply with applicable procedures of the Depositary.

 

     6.50% Class J Preferred Shares as to which the Change of Control Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn shall be converted into the applicable Conversion Consideration in accordance with the Change of Control Conversion Right on the Change of Control Conversion Date, unless, prior to the Change of Control Conversion Date, the Corporation has provided or provides notice of its election to redeem such 6.50% Class J Preferred Shares, whether pursuant to the Optional Redemption Right or Special Optional Redemption Right. If the Corporation elects to redeem 6.50% Class J Preferred Shares that would otherwise be converted into the applicable Conversion Consideration on a Change of Control Conversion Date, such 6.50% Class J Preferred Shares shall not be so converted and the holders of such shares shall be entitled to receive on the applicable redemption date $500.00 per share, plus accrued and unpaid dividends to, but not including, the redemption date.

 

     The Corporation shall deliver the applicable Conversion Consideration to the applicable holders of 6.50% Class J Preferred Shares no later than the third Business Day following the Change of Control Conversion Date.

 

     Notwithstanding anything to the contrary contained herein, no holder of 6.50% Class J Preferred Shares will be entitled to convert such shares to the extent that receipt of Common Shares upon conversion of the 6.50% Class J Preferred Shares would cause such holder (or any other person) to exceed either of the ownership limits described in Section (a) of Item XIV of this Division A of this Article FOURTH and Section 4(a) of Division B of this Article FOURTH, unless the Corporation provides an exemption from such ownership limits for such holder.

 

     Notwithstanding the foregoing restrictions on the ability to convert the 6.50% Class J Preferred Shares, any conversion of 6.50% Class J Preferred Shares in violation of the ownership limits described in Section (a) of Item XIV of this Division A of this Article FOURTH and Section 4(a) of Division B of this Article FOURTH, or that causes another person to be in violation of such ownership limits, including as a result of the effect of the operation of this provision, shall be construed as causing any 6.50% Class J Preferred Shares that exceed such ownership limits to be deemed Excess Preferred Shares and subject to the provisions applicable to Excess Preferred Shares set forth in these Amended and Restated Articles of Incorporation, as amended.

 

- 7 -


(f) The amount payable per 6.50% 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 $500.00, plus an amount equal to all dividends accrued and unpaid thereon to, but not including, the date of payment.

 

(g) All dividend payments made on the 6.50% Class J Preferred Shares, at any time during which the Corporation is in default in the payment of dividends on such 6.50% Class J Preferred Shares for any dividend period, shall, for the purposes of Section 5(b)(1) of this Item X, be deemed to be made in respect of the earliest dividend period with respect to which the Corporation is in default.

 

(h) Definitions . For the purposes of this Section 6 of Item X of Division A of this Article FOURTH, the following terms shall have the following meanings:

“Business Day” shall mean any day other than a Saturday, Sunday or a day on which banking institutions in The City of New York, New York are authorized or required by law, regulation or executive order to close.

“Change of Control” is when, after the original issuance of the 6.50% Class J Preferred Shares, the following have occurred and are continuing:

 

  (i) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act (as defined in this Section 6(h)), of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of shares of the Corporation entitling that person to exercise more than 50% of the total voting power of all shares of the Corporation entitled to vote generally in elections of directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and

 

  (ii) following the closing of any transaction referred to in the foregoing clause (i), neither the Corporation nor the acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE MKT or NASDAQ, or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE MKT or NASDAQ.

“Change of Control Conversion Date” shall mean the date the 6.50% Class J Preferred Shares are to be converted which shall be a Business Day that is no fewer than 20 days nor more than 35 days after the date on which the Corporation provides notice of the occurrence of a Change of Control (as provided for in clause (e) of this Section 6) to the holders of the 6.50% Class J Preferred Shares.

 

- 8 -


“Common Share Price” shall mean: (i) if the consideration to be received in the Change of Control by the holders of Common Shares is solely cash, the amount of cash consideration per Common Share or (ii) if the consideration to be received in the Change of Control by holders of Common Shares is other than solely cash (x) the average of the closing sale prices per Common Share (or, if no closing sale price is reported, the average of the closing bid and ask prices per Common Share or, if more than one in either case, the average of the average closing bid and the average closing ask prices per Common Share) for the ten consecutive trading days immediately preceding, but not including, the date on which such Change of Control occurred as reported on the principal U.S. securities exchange on which the Common Shares are then traded, or (y) the average of the last quoted bid prices for the Common Shares in the over-the-counter market as reported by Pink OTC Markets Inc. or similar organization for the ten consecutive trading days immediately preceding, but not including, the date on which such Change of Control occurred, if the Common Shares are not then listed for trading on a U.S. securities exchange.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“NASDAQ” shall mean the NASDAQ Stock Market.

“NYSE” shall mean the New York Stock Exchange.

“NYSE MKT” shall mean the NYSE MKT (formerly known as the NYSE Amex Equities).

 

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LOGO    Prescribed by:   

Expedite this Form: (Select One)

 

  

The Ohio Secretary of State

Central Ohio: (614) 466-3910

Toll Free: 1-877-SOS-FILE (1-877-767-3453)

   Mail Form to one of the  Following:
      LOGO    PO Box 1390
         Columbus, OH 43216
     

*** Requires an additional fee of $100 ***

 

www.sos.state.oh.us    LOGO    PO Box 1329
e-mail: busserv@sos.state.oh.us       Columbus, OH 43216

Certificate of Amendment by Directors

or Incorporators to Articles

(Domestic)

Filing Fee $50.00

 

     RECEIVED
     SECRETARY OF STATE
     2011 SEPT 13 PM 12:24
     CLIENT SERVICE CENTER

(CHECK ONLY ONE (1) BOX)

 

(1)   þ   Amendment by Directors        (2)    ¨   Amendment by Incorporators     
   

¨   Amended by Directors

   (123-AMDD)       ¨   Amended by Incorporators                         (124-AMDI)

 

Complete the general information in this section for the box checked above.
   
Name of Corporation    Developers Diversified Realty Corporation
   
Charter Number    831795
 

¨     Please check if additional provisions attached hereto are incorporated herein and made a part of these articles of organization.

 

 

Complete the information in this section if box (1) is checked.
   
Name and Title of Officer   

David E. Weiss

     

Secretary

     (name)       (title)
 
(CHECK ONLY ONE (1) BOX)

þ   A meeting of the directors was duly called and held on

  

September 13, 2011

       

(Date)

 

¨   In an writing signed by all the Directors pursuant to section 1701.54 of the ORC

   
The following resolution was adopted pursuant to section 1701.70(B)             (6)                      of the ORC:
        (Insert proper paragraph number)
 

RESOLVED, that the First Article of the Second Amended and Restated Articles of Incorporation of Developers Diversified Realty Corporation be deleted and restated to read in its entirety as follows: The name of the Corporation shall be DDR Corp.

 

 

540    Page 1 of 2    Last Revised: May 2002


Complete the information in this section if box (2) is checked.
 

WE, the undersigned, being all of the incorporators of the above named corporation, do certify that the subscriptions to shares have not been received and the initial directors are not named in the articles. We hereby have elected to amend the articles as follows:

 

     
   
     
   
     
   
     
   
     
   
     
     

 

REQUIRED   

Must be authenticated (signed)

by an authorized representative

  

/s/ David E. Weiss

      9/13/2011
(See Instructions)    Authorized Representative       Date
  

David E. Weiss

     
   (Print Name)      
  

 

     
  

 

     
  

 

     

 

   Authorized Representative       Date
  

 

     
   (Print Name)      
  

 

     
  

 

     
  

 

     

 

   Authorized Representative       Date
  

 

     
   (Print Name)      
  

 

     
  

 

     

 

540    Page 2 of 2    Last Revised: May 2002


CERTIFICATE OF AMENDMENT NO. 2

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 June 25, 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 a proposal to amend the Corporation’s Second Amended and Restated Articles of Incorporation (the “Articles”), resolutions approving the amendment of Article FOURTH of the Articles attached hereto as Exhibit A (the “Amendment”) was 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 25th day of June, 2009.

 

/s/ Scott A. Wolstein
Scott A. Wolstein, Chief Executive Officer
/s/ Joan U. Allgood
Joan U. Allgood, Secretary


Amendment No. 2

to the

Second Amended and Restated Articles of Incorporation

of

Developers Diversified Realty Corporation

RESOLVED , that the Corporation’s Second Amended and Restated Articles of Incorporation will be amended as set forth below:

FOURTH: The authorized number of shares of the Corporation is 511,000,000, consisting of 500,000,000 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.”


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 Corporation’s 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 Company’s 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:

S ECTION  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.

S ECTION  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.

S ECTION  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.

S ECTION  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.

 

3


“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.

 

  (i) 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.

 

  (ii) 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.

 

  (iii) 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.

 

  (iv) 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 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) 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.

 

  (vi) 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.

 

  (vii) 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.

 

  (viii) 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.

(c) Transfers in Trust.

 

  (i) 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.

 

  (ii) 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.

 

  (iii) 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.

(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

 

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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 Corporation’s status as a REIT.

(f) Owners Required to Provide Information.

 

  (i) 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 Corporation’s 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 Corporation’s status as a REIT.

 

  (iii) 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 Trust’s 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.

(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 Corporation’s status as a REIT.

 

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(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 .

 

  (i) 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.

 

  (ii) 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.

(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:

 

  (i) 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) 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 Corporation’s status as a REIT.

 

  (iii) The Exempt Holder Limit shall not be reduced to a percentage which is less than the Ownership Limit.

 

  (iv) 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 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 individual’s 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.

 

  (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 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.

 

  (iii) 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 Corporation’s 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.

 

  (iv)

The Exempt Holder will not be deemed to have violated the Exempt Holder Limit if the Exempt Holder’s 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).

S ECTION  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 Corporation’s 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 Corporation’s 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 Corporation’s 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.”

S ECTION  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.

 

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(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 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 Corporation’s 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

 

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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.

 

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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;

 

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(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.

 

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(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 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.

 

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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 bank or trust company and the Corporation shall be relieved of all responsibility in respect thereof and to such holders.

 

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(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 Corporation’s 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 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 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.

 

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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:

 

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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 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:

 

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(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 Corporation’s 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 Corporation’s 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 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.

 

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(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);

 

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(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

 

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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.

 

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(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 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.

 

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(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 Corporation’s 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 outstanding Cumulative Shares and Noncumulative Shares in proportion to the full preferential amount to which each such share is entitled.

 

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(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,

 

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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 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.

 

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(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.

 

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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 Corporation’s 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 Corporation’s 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,

 

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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:

 

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(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

 

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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

 

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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

 

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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 Corporation’s 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

 

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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 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.

 

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(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

 

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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

 

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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 Corporation’s 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

 

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(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 Corporation’s 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,

 

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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 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.

 

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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

 

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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 Corporation’s 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.

 

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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 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

 

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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, 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.

 

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(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.

 

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(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 Corporation’s Board of Directors.

 

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(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 Corporation’s 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.

 

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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;

 

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(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 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:

 

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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 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

 

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(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.

 

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(d) Except in connection with the exercise of the Corporation’s 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,

 

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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

 

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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

 

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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 of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Company.

 

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(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

 

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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

 

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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.

 

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(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 holder’s 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);

 

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(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

 

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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.

 

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(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 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.

 

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(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 Corporation’s 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 outstanding Cumulative Shares and Noncumulative Shares in proportion to the full preferential amount to which each such share is entitled.

 

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(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

 

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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

 

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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 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.

 

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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 Corporation’s 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.

 

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(d) Except as required to preserve the Corporation’s 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 prior to the issuance thereof (and thereafter, to the extent provided in clause (b) of this Section) the following:

 

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(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.

 

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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 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

 

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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

 

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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 Corporation’s 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

 

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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 Corporation’s 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 Preferred Shares, dividends shall be cumulative from the date of the initial issue of 8% Class G Preferred Shares; and

 

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(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 Corporation’s 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.

 

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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 provided for shares of such series in accordance with the provisions of Section 1 of this Item VIII.

 

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(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

 

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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 Corporation’s 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

 

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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.

 

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(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

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 Company’s 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 Company’s 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.

 

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(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 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 Corporation’s 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 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 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

 

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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 Company’s 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 Company’s 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 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.

 

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(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 Corporation’s 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 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.

 

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(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 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

 

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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 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 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 Corporation’s Board of Directors.

 

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(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 Preferred Shares in dividends, distributions or rights upon liquidation, dissolution or winding up.

 

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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;

 

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(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.

 

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(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

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:

 

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(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.

 

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(c) Any Class K 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 K Shares without serial designation.

(d) Except in connection with the exercise of the Corporation’s 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

 

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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

 

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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 87/8% 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 87/8% Class K Preferred Shares shall be 87/8% of the liquidation preference of $250.00 per share.

 

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(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 Corporation’s 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 87/8% 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.

 

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(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;

 

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(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.

 

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(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.

 

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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 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.

 

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(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 Corporation’s 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 by Section 856(d)(5) of the Code. The terms “Constructive Owner,” “Constructively Owns” and “Constructively Owned” shall have the correlative meanings.

 

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“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 Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s 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 individual’s 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 corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s 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 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.

 

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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 Corporation’s 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 holder’s 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 Corporation’s 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 Corporation’s 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, and the intended transferee shall acquire no rights in such Common Shares.

 

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(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 Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s 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.

 

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(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 Corporation’s 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 individual’s 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 Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s 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, 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.

 

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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 Company’s 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 Corporation’s existing Amended and Restated Articles of Incorporation, as amended.

 

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Exhibit 3.2

AMENDED AND RESTATED CODE OF REGULATIONS

OF

DEVELOPERS DIVERSIFIED REALTY CORPORATION

ARTICLE I

Meetings of Shareholders

Section 1. Annual Meetings . The annual meeting of shareholders shall be held at such time and on such date as may be fixed by the Board of Directors and stated in the notice of the meeting, for the election of directors, the consideration of reports to be laid before such meeting and the transaction of such other business as may properly come before the meeting.

Section 2. Special Meetings . Special meetings of the shareholders shall be called upon the written request of the president, the directors by action at a meeting, a majority of the directors acting without a meeting, or of the holders of shares entitling them to exercise twenty-five percent (25%) of the voting power of the Corporation entitled to vote thereat. Calls for such meetings shall specify the purposes thereof. No business other than that specified in the call shall be considered at any special meeting.

Section 3. Notices of Meetings . Unless waived, written notice of each annual or special meeting stating the time, place, and the purposes thereof shall be given by personal delivery, by mail, or by other means of communication authorized by the shareholder to whom the notice is given, to each shareholder of record entitled to vote at or entitled to notice of the meeting, not more than sixty (60) days nor less than seven (7) days before any such meeting. If mailed, such notice shall be directed to the shareholder at his address as the same appears upon the records of the Corporation. If sent by any other means of communication authorized by the shareholder, the notice shall be sent to the address furnished by the shareholder for those transmissions. Any shareholder, either before or after any meeting, may waive any notice required to be given by law or under these Regulations.

Section 4. Place of Meetings . Meetings of shareholders shall be held at the principal office of the Corporation unless the Board of Directors determines that a meeting shall be held at some other place within or without the State of Ohio and causes the notice thereof to so state.

Section 5. Quorum . The holders of shares entitling them to exercise a majority of the voting power of the Corporation entitled to vote at any meeting, present in person or by proxy, shall constitute a quorum for the transaction of business to be considered at such meeting; provided, however, that no action required by law or by the Articles of Incorporation or these Regulations to be authorized or taken by the holders of a designated proportion of the shares of any particular class or of each class may be authorized or taken by a lesser proportion. The holders of a majority of the voting shares represented at a meeting, whether or not a quorum is present, may adjourn such meeting from time to time, until a quorum shall be present.

Section 6. Record Date . The Board of Directors may fix a record date for any lawful purpose, including without limiting the generality of the foregoing, the determination of shareholders entitled to (i) receive notice of or to vote at any meeting, (ii) receive payment of any dividend or distribution, (iii) receive or exercise rights of purchase of or subscription for, or exchange or conversion of, shares or other securities, subject to any contract right with respect thereto, or (iv) participate in the execution of written consents, waivers or releases. Said record date shall not be more than sixty (60) days preceding the date of such meeting, the date fixed for the payment of any dividend or distribution or the date fixed for the receipt or the exercise of rights, as the case may be.

If a record date shall not be fixed, the record date for the determination of shareholders who are entitled to notice of, or who are entitled to vote at, a meeting of shareholders, shall be the close of business on the date next preceding the day on which notice is given, or the close of business on the date next preceding the day on which the meeting is held, as the case may be.

Section 7. Proxies . A person who is entitled to attend a shareholders’ meeting, to vote thereat, or to execute consents, waivers or releases, may be represented at such meeting or vote thereat, and execute consents, waivers and releases, and exercise any of his other rights, by proxy or proxies appointed by a writing signed by such person or appointed by a verifiable communication authorized by the person.


ARTICLE II

Directors

Section 1. Number of Directors . Until changed in accordance with the provisions of this section, the number of directors of the Corporation, none of whom need be shareholders, shall be seven (7). The number of directors may be fixed or changed, but in no case shall the number be fewer than three (3) or more than fifteen (15), at any annual meeting or at any special meeting called for that purpose by the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the Corporation on such proposal. In addition to the authority of the shareholders to fix or change the number of directors as described above, the directors of the Corporation may fix or change the number of directors by a majority vote of the directors then in office and may fill any vacancy that is created by an increase in the number of directors. Notwithstanding the foregoing, the aggregate number of members of the Board of Directors shall automatically increase by the number of directors elected pursuant to Section 5(b) of Item 1, Section 5(b) of Item II, Section 5(b) of Item III, Section 5(b) of Item IV, Section 5(b) of Item V, Section 5(b) of Item VI, Section 5(b) of Item VII, Section 5(b) of Item VIII, Section 5(b) of Item IX, Section 5(b) of Item X, Section 5(b) of Item XI and/or Section 5(b) of Item XII of Division A of Article FOURTH of the Amended and Restated Articles of Incorporation of the Corporation, as amended, such directors to be elected and hold office in accordance with such provisions of the Amended and Restated Articles of Incorporation of the Corporation, as amended, notwithstanding any other provision of this Code of Regulations.

Section 2. Election of Directors . Directors shall be elected at the annual meeting of shareholders, but when the annual meeting is not held or directors are not elected thereat, they may be elected at a special meeting called and held for that purpose. Such election shall be by ballot whenever requested by any shareholder entitled to vote at such election; but, unless such request is made, the election may be conducted in any manner approved at such meeting.

At each meeting of shareholders for the election of directors, the persons receiving the greatest number of votes shall be directors.

Section 3. Term of Office . Each director shall hold office until the annual meeting next succeeding his election and until his successor is elected and qualified, or until his earlier resignation, removal from office or death.

Section 4. Removal . All the directors or any individual director may be removed from office, without assigning any cause, by the vote of the holders of a majority of the voting power entitling them to elect directors in place of those to be removed, provided that unless all the directors are removed, no individual director shall be removed in case the votes of a sufficient number of shares are cast against his removal which, if cumulatively voted at an election of all the directors would be sufficient to elect at least one director. In case of any such removal, a new director may be elected at the same meeting for the unexpired term of each director removed.

Section 5. Vacancies . Vacancies in the Board of Directors may be filled by a majority vote of the remaining directors until an election to fill such vacancies is had. Shareholders entitled to elect directors shall have the right to fill any vacancy in the board (whether the same has been temporarily filled by the remaining directors or not) at any meeting of the shareholders called for that purpose, and any directors elected at any such meeting of shareholders shall serve until the next annual election of directors and until their successors are elected and qualified.

Section 6. Quorum and Transaction of Business . A majority of the whole authorized number of directors shall constitute a quorum for the transaction of business, except that a majority of the directors in office shall constitute a quorum for filling a vacancy on the board. Whenever less than a quorum is present at the time and place appointed for any meeting of the board, a majority of those present may adjourn the meeting from time to time until a quorum shall be present. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board.

Section 7. Annual Meeting . Annual meetings of the Board of Directors shall be held immediately following annual meetings of the shareholders, or as soon thereafter as is practicable. If no annual meeting of the shareholders is held, or if directors are not elected thereat, then the annual meeting of the Board of Directors shall be held immediately following any special meeting of the shareholders at which directors are elected, or as soon thereafter as is practicable. If such annual meeting of directors is held immediately following a meeting of the shareholders, it shall be held at the same place at which such shareholders’ meeting was held.

 

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Section 8. Regular Meetings . Regular meetings of the Board of Directors shall be held at such times and places, within or without the State of Ohio, as the Board of Directors may, by resolution or by-law, from time to time, determine. The secretary shall give notice of each such resolution or by-law to any director who was not present at the time the same was adopted, but no further notice of such regular meeting need be given.

Section 9. Special Meetings . Special meetings of the Board of Directors may be called by the chairman of the board, the president, any vice president, or any two members of the Board of Directors, and shall be held at such times and places, within or without the State of Ohio, as may be specified in such call.

Section 10. Notice of Annual or Special Meetings . Notice of the time and place of each annual or special meeting shall be given to each director by the secretary or by the person or persons calling such meeting. Such notice need not specify the purpose or purposes of the meeting and may be given in any manner or method and at such time so that the director receiving it may have reasonable opportunity to participate in the meeting. Such notice shall, in all events, be deemed to have been properly and duly given if mailed at least forty-eight (48) hours prior to the meeting and directed to the residence of each director as shown upon the secretary’s records and, in the event of a meeting to be held through the use of communications equipment, if the notice sets forth the telephone number at which each director may be reached for purposes of participation in the meeting as shown upon the secretary’s records and states that the secretary must be notified if a director desires to be reached at a different telephone number. The giving of notice shall be deemed to have been waived by any director who shall participate in such meeting and may be waived, in a writing, by any director either before or after such meeting.

Section 11. Compensation . The directors, as such, shall be entitled to receive such reasonable compensation for their services as may be fixed from time to time by resolution of the board, and expenses of attendance, if any, may be allowed for attendance at each annual, regular or special meeting of the board. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the executive committee or of any standing or special committee may by resolution of the board be allowed such compensation for their services as the board may deem reasonable, and additional compensation may be allowed to directors for special services rendered.

Section 12. By-Laws . For the government of its actions, the Board of Directors may adopt by-laws consistent with the Articles of Incorporation and these Regulations.

ARTICLE III

Committees

Section 1. Executive Committee . The Board of Directors may from time to time, by resolution passed by a majority of the whole board, create an executive committee of three or more directors, the members of which shall be elected by the Board of Directors to serve during the pleasure of the board. If the Board of Directors does not designate a chairman of the executive committee, the executive committee shall elect a chairman from its own number. Except as otherwise provided herein and in the resolution creating an executive committee, such committee shall, during the intervals between the meetings of the Board of Directors, possess and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, other than that of filling vacancies among the directors or in any committee of the directors. The executive committee shall keep full records and accounts of its proceedings and transactions. All action by the executive committee shall be reported to the Board of Directors at its meeting next succeeding such action and shall be subject to control, revision and alteration by the Board of Directors, provided that no rights of third persons shall be prejudicially affected thereby. Vacancies in the executive committee shall be filled by the directors, and the directors may appoint one or more directors as alternate members of the committee who may take the place of any absent member or members at any meeting.

Section 2. Meetings of Executive Committee . Subject to the provisions of these Regulations, the executive committee shall fix its own rules of procedure and shall meet as provided by such rules or by resolutions of the Board of Directors, and it shall also meet at the call of the president, the chairman of the executive committee or any two members of the committee. Unless otherwise provided by such rules or by such resolutions, the provisions of

 

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Section 10 of Article II relating to the notice required to be given of meetings of the Board of Directors shall also apply to meetings of the executive committee. A majority of the executive committee shall be necessary to constitute a quorum. The executive committee may act in a writing, or by telephone with written confirmation, without a meeting, but no such action of the executive committee shall be effective unless concurred in by all members of the committee.

Section 3. Other Committees . The Board of Directors may by resolution provide for such other standing or special committees as it deems desirable, and discontinue the same at pleasure. Each such committee shall have such powers and perform such duties, not inconsistent with law, as may be delegated to it by the Board of Directors. The provisions of Section l and Section 2 of this Article shall govern the appointment and action of such committees so far as the same are consistent with such appointment and unless otherwise provided by the Board of Directors. Vacancies in such committees shall be filled by the Board of Directors or as the Board of Directors may provide.

ARTICLE IV

Officers

Section 1. General Provisions . The Board of Directors shall elect a president, such number of vice presidents as the board may from time to time determine, a secretary and a treasurer and, in its discretion, a chairman of the Board of Directors. The Board of Directors may from time to time create such offices and appoint such other officers, subordinate officers and assistant officers as it may determine. The president, any vice president who succeeds to the office of the president, and the chairman of the board shall be, but the other officers need not be, chosen from among the members of the Board of Directors. Any two of such offices, other than that of president and vice president, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity.

Section 2. Term of Office . The officers of the Corporation shall hold office during the pleasure of the Board of Directors, and, unless sooner removed by the Board of Directors, until the organization meeting of the Board of Directors following the date of their election and until their successors are chosen and qualified. The Board of Directors may remove any officer at any time, with or without cause. A vacancy in any office, however created, shall be filled by the Board of Directors.

ARTICLE V

Duties of Officers

Section 1. Chairman of the Board . The chairman of the board, if one be elected, shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may be prescribed by the Board of Directors.

Section 2. President . The president shall be the chief executive officer of the Corporation and shall exercise supervision over the business of the Corporation and over its several officers, subject, however, to the control of the Board of Directors. He shall preside at all meetings of shareholders and, in the absence of the chairman of the board, or if a chairman of the board shall not have been elected, shall also preside at meetings of the Board of Directors. He shall have authority to sign all certificates for shares and all deeds, mortgages, bonds, agreements, notes, and other instruments requiring his signature; and shall have all the powers and duties prescribed by Chapter 1701 of the Revised Code of Ohio and such others as the Board of Directors may from time to time assign to him.

Section 3. Vice Presidents . The vice presidents shall have such powers and duties as may from time to time be assigned to them by the Board of Directors or the president. At the request of the president, or in the case of his absence or disability, the vice president designated by the president (or in the absence of such designation, the vice president designated by the board) shall perform all the duties of the president and, when so acting, shall have all the powers of the president. The authority of vice presidents to sign in the name of the Corporation certificates for shares and deeds, mortgages, bonds, agreements, notes and other instruments shall be coordinate with like authority of the president.

Section 4. Secretary . The secretary shall keep minutes of all the proceedings of the shareholders and Board of Directors and shall make proper record of the same, which shall be attested by him; shall have authority to

 

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execute and deliver certificates as to any of such proceedings and any other records of the Corporation; shall have authority to sign all certificates for shares and all deeds, mortgages, bonds, agreements, notes and other instruments to be executed by the Corporation which require his signature; shall give notice of meetings of shareholders and directors; shall produce on request at each meeting of shareholders a certified list of shareholders arranged in alphabetical order; shall keep such books and records as may be required by law or by the Board of Directors; and, in general, shall perform all duties incident to the office of secretary and such other duties as may from time to time be assigned to him by the Board of Directors or the president.

Section 5. Treasurer . The treasurer shall have general supervision of all finances; he shall receive and have in charge all money, bills, notes, deeds, leases, mortgages and similar property belonging to the Corporation, and shall do with the same as may from time to time be required by the Board of Directors. He shall cause to be kept adequate and correct accounts of the business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, stated capital and shares, together with such other accounts as may be required, and upon the expiration of his term of office shall turn over to his successor or to the Board of Directors all property, books, papers and money of the Corporation in his hands; and shall have such other powers and duties as may from time to time be assigned to him by the Board of Directors or the president.

Section 6. Assistant and Subordinate Officers . The Board of Directors may appoint such assistant and subordinate officers as it may deem desirable. Each such officer shall hold office during the pleasure of the Board of Directors, and perform such duties as the Board of Directors or the president may prescribe.

The Board of Directors may, from time to time, authorize any officer to appoint and remove subordinate officers, to prescribe their authority and duties, and to fix their compensation.

Section 7. Duties of Officers May Be Delegated . In the absence of any officer of the Corporation, or for any other reason the Board of Directors may deem sufficient, the Board of Directors may delegate, for the time being, the powers or duties, or any of them, of such officers to any other officer or to any director.

ARTICLE VI

Transactions with Certain Affiliates

Following the consummation of the sale of Common Shares, without par value, of the Corporation pursuant to the Corporation’s first effective registration statement for such shares filed under the Securities Act of 1933, as amended (the “Securities Act”) the Corporation shall not, nor shall it permit its subsidiaries to, (i) lend money to, or borrow money from, any employee of the Corporation or any “affiliate” (as defined in Rule 405 under the Securities Act) 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, an Ohio corporation, or (ii) enter into any other transaction or agreement with any such affiliate, unless such other transaction or agreement is approved by a majority of the Directors of the Corporation who are “Independent Directors” (as defined in the Corporation’s Articles of Incorporation).

ARTICLE VII

Indemnification and Insurance

Section 1. Indemnification in Non-Derivative Actions . The Corporation shall indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Corporation, by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys’ fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful.

 

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Section 2. Indemnification in Derivative Actions . The Corporation shall indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless, and only to the extent that the Court of Common Pleas, or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the Court of Common Pleas or such court shall deem proper.

Section 3. Indemnification as Matter of Right . To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in Sections 1 and 2 of this Article VII, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection therewith.

Section 4. Determination of Conduct . Any indemnification under Sections 1 and 2 of this Article VII, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 and 2 of this Article VII. Such determination shall be made (a) by a majority vote of a quorum consisting of directors of the Corporation who were not and are not parties to or threatened with any such action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel, other than an attorney or a firm having associated with it an attorney who has been retained by or who has performed services for the Corporation or any person to be indemnified within the past five years, or (c) by the shareholders or (d) by the Court of Common Pleas or the court in which such action, suit, or proceeding was brought. Any determination made by the disinterested directors under Section 4(a) or by independent legal counsel under Section 4(b) of this Article VII shall be promptly communicated to the person who threatened or brought the action or suit, by or in the right of the Corporation under Section 2 of this Article VII, and within ten days after receipt of such notification, such person shall have the right to petition the Court of Common Pleas or the court in which such action or suit was brought to review the reasonableness of such determination.

Section 5. Advance Payment of Expenses . Expenses, including attorneys’ fees, incurred in defending any action, suit, or proceeding referred to in Sections 1 and 2 of this Article VII, may be paid by the Corporation in advance of the final disposition of such action, suit, or proceeding as authorized by the directors in the specific case upon receipt of an undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article VII.

Section 6. Nonexclusivity . The indemnification provided by this Article VII shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under the Articles of Incorporation or the Code of Regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

Section 7. Liability Insurance . The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VII or of Chapter 1701 of the Ohio Revised Code.

 

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ARTICLE VIII

Certificates for Shares; Uncertificated Shares

Section 1. Form and Execution of Certificates . Certificates for shares, certifying the number of fully paid shares owned, may be, but are not required to be, issued to each shareholder in such form as shall be approved by the Board of Directors. Such certificates shall be signed by the president or a vice president and by the secretary or an assistant secretary or the treasurer or an assistant treasurer; provided, however, that if such certificates are countersigned by a transfer agent and/or registrar, the signatures of any of said officers and the seal of the Corporation upon such certificates may be facsimiles, engraved, stamped or printed. If any officer or officers, who shall have signed, or whose facsimile signature shall have been used, printed or stamped on any certificate or certificates for shares, shall cease to be such officer or officers, because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates, if authenticated by the endorsement thereon of the signature of a transfer agent or registrar, shall nevertheless be conclusively deemed to have been adopted by the Corporation by the use and delivery thereof and shall be as effective in all respects as though signed by a duly elected, qualified and authorized officer or officers, and as though the person or persons who signed such certificate or certificates, or whose facsimile signature or signatures shall have been used thereon, had not ceased to be an officer or officers of the Corporation.

Section 2. Uncertificated Shares . The Board of Directors may provide by resolution that some or all of any or all classes and series of shares of the Corporation shall be uncertificated shares, provided that the resolution shall not apply to shares represented by a certificate until the certificate is surrendered to the Corporation and the resolution shall not apply to a certificated security issued in exchange for an uncertificated security. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner of the shares a written notice containing the information that would be required to be set forth or stated on a share certificate in accordance with applicable law. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing shares of the same class and series shall be identical.

Section 3. Transfer and Registration of Certificates . The Board of Directors shall have authority to make such rules and regulations, not inconsistent with law, the Articles of Incorporation or this Code of Regulations, as it deems expedient concerning the issuance, transfer and registration of certificates for shares and the shares represented thereby and of uncertificated shares.

Section 4. Lost, Destroyed or Stolen Certificates . A new share certificate or certificates may be issued in place of any certificate theretofore issued by the Corporation which is alleged to have been lost, destroyed or wrongfully taken upon (i) the execution and delivery to the Corporation by the person claiming the certificate to have been lost, destroyed or wrongfully taken of an affidavit of that fact, specifying whether or not, at the time of such alleged loss, destruction or taking, the certificate was endorsed, and (ii) the furnishing to the Corporation of indemnity and other assurances satisfactory to the Corporation and to all transfer agents and registrars of the class of shares represented by the certificate against any and all losses, damages, costs, expenses or liabilities to which they or any of them may be subjected by reason of the issue and delivery of such new certificate or certificates or in respect of the original certificate.

Section 5. Registered Shareholders . A person in whose name shares are of record on the books of the Corporation shall conclusively be deemed the unqualified owner and holder thereof for all purposes and to have capacity to exercise all rights of ownership. Neither the Corporation nor any transfer agent of the Corporation shall be bound to recognize any equitable interest in or claim to such shares on the part of any other person, whether disclosed upon a certificate or otherwise, nor shall they be obliged to see to the execution of any trust or obligation.

ARTICLE IX

Fiscal Year

The fiscal year of the Corporation shall end on December 31, of each year, or on such other date as may be fixed from time to time by the Board of Directors.

 

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ARTICLE X

Seal

The Board of Directors may provide a suitable seal containing the name of the Corporation. If deemed advisable by the Board of Directors, duplicate seals may be provided and kept for the purposes of the Corporation.

ARTICLE XI

Amendments

This Code of Regulations may be amended, or new regulations may be adopted, (i) at any meeting of shareholders called for such purpose by the affirmative vote of, or without a meeting by the written consent of, the holders of shares entitling them to exercise a majority of the voting power of the Corporation on such proposal or (ii) by the Board of Directors, to the extent permitted by Chapter 1701 of the Ohio Revised Code.

Approved: April 9, 2009

Last Amended: May 14, 2013

 

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Exhibit 4.3

SIXTEENTH SUPPLEMENTAL INDENTURE

THIS SIXTEENTH SUPPLEMENTAL INDENTURE is entered into as of May 23, 2013, by and between DDR Corp., an Ohio corporation (the “Company”), and U.S. Bank National Association (the “Trustee”), a national banking association organized and existing under the laws of the United States, as successor trustee to U.S. Bank Trust National Association, as successor to National City Bank.

WHEREAS, the Company and the Trustee entered into the Indenture dated as of May 1, 1994 (as supplemented by a First Supplemental Indenture dated as of May 10, 1995, by a Second Supplemental Indenture dated as of July 18, 2003, by a Third Supplemental Indenture dated as of January 23, 2004, by a Fourth Supplemental Indenture dated as of April 22, 2004, by a Fifth Supplemental Indenture dated as of April 28, 2005, by a Sixth Supplemental Indenture dated as of October 7, 2005, by a Seventh Supplemental Indenture dated as of August 28, 2006, by an Eighth Supplemental Indenture dated as of March 13, 2007, by a Ninth Supplemental Indenture dated as of September 30, 2009, by a Tenth Supplemental Indenture dated as of March 19, 2010, by an Eleventh Supplemental Indenture dated as of August 12, 2010, by a Twelfth Supplemental Indenture dated as of November 5, 2010, by a Thirteenth Supplemental Indenture dated as of March 7, 2011, by a Fourteenth Supplemental Indenture dated as of June 22, 2012 and by a Fifteenth Supplemental Indenture dated as of November 27, 2012, the “Indenture”), relating to the Company’s senior debt securities;

WHEREAS, the Company has made a request to the Trustee that the Trustee join with it, in accordance with Section 901 of the Indenture, in the execution of this Sixteenth Supplemental Indenture to include the Company’s $300,000,000 principal amount of 3.375% Notes Due 2023 (the “Notes”) in the definition of Designated Securities such that the covenant in Section 1015 of the Indenture will inure to their benefit;

WHEREAS, the Company desires to establish the form and terms of the Notes;

WHEREAS, the Company and the Trustee are authorized to enter into this Sixteenth Supplemental Indenture; and

NOW, THEREFORE, the Company and the Trustee agree as follows:

Section 1. Relation to Indenture . This Sixteenth Supplemental Indenture supplements the Indenture and shall be a part and subject to all the terms thereof. Except as supplemented hereby, the Indenture and the Securities issued thereunder shall continue in full force and effect.

Section 2. Capitalized Terms . Capitalized terms used herein and not otherwise defined herein are used as defined in the Indenture.

Section 3. Definitions .

The definition of “Consolidated Income Available for Debt Service” is hereby amended in its entirety as follows:


“Consolidated Income Available for Debt Service” for any period means Consolidated Net Income of the Company and its Subsidiaries (a) plus amounts which have been deducted for (i) interest on Debt of the Company and its Subsidiaries, (ii) provision for taxes of the Company and its Subsidiaries based on income, (iii) amortization of debt discount, and (iv) depreciation and amortization, and (b) excluding (i) any extraordinary, non-recurring and other unusual noncash charge, (ii) any gains and losses on sale of real estate, and (iii) the equity in net income or loss of joint ventures in which the Company or its Subsidiaries owns an interest to the extent not providing a source of, or requiring a use of, cash, respectively.

The amendment of the definition of “Consolidated Income Available for Debt Service” relates solely to the rights of the Holders of the Notes and shall not affect the rights under the Indenture of the Holders of Securities of any other series.

The definition of “Designated Securities” is hereby amended in its entirety as follows:

“Designated Securities” means the Company’s $300,000,000 principal amount of 4.625% Notes Due 2010, the Company’s $275,000,000 principal amount of 3.875% Notes Due 2009, the Company’s $250,000,000 principal amount of 5.25% Notes Due 2011, the Company’s $200,000,000 principal amount of 5.0% Notes Due 2010, the Company’s $200,000,000 principal amount of 5.5% Notes Due 2015, the Company’s $350,000,000 principal amount of 5.375% Notes Due 2012, the Company’s $300,000,000 principal amount of 9.625% Notes Due 2016, the Company’s $300,000,000 principal amount of 7.50% Notes Due 2017, the Company’s $300,000,000 principal amount of 7.875% Notes Due 2020, the Company’s $300,000,000 principal amount of 4.75% Notes due 2018, the Company’s $450,000,000 principal amount of 4.625% Notes due 2022 and the Company’s $300,000,000 principal amount of 3.375% Notes due 2023.

The definition of “Maximum Annual Service Charge” is hereby amended in its entirety as follows:

“Maximum Annual Service Charge” as of any date means the maximum amount payable during the Company’s four consecutive fiscal quarters most recently ended before such date for interest on, and required amortization of, Debt (including, in the case of the additional Debt being incurred, the pro forma effect of the Debt and intended application of the proceeds thereof as if such Debt had been outstanding for such four-quarter period). The amount payable for amortization shall include the amount of any sinking fund or other analogous fund for the retirement of Debt and the amount payable on account of principal of any such Debt that matures serially other than at the final maturity date of such Debt.

 

2


The amendment of the definition of “Maximum Annual Service Charge” relates solely to the rights of the Holders of the Notes and shall not affect the rights under the Indenture of the Holders of Securities of any other series.

The definition of “Total Assets” is hereby amended in its entirety as follows:

“Total Assets” as of any date means the sum of (i) Undepreciated Real Estate Assets and (ii) all other assets of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP (but excluding goodwill and unamortized debt costs) after eliminating intercompany accounts and transactions.

The amendment of the definition of “Total Assets” relates solely to the rights of the Holders of the Notes and shall not affect the rights under the Indenture of the Holders of Securities of any other series.

The definition of “Unencumbered Real Estate Asset Value” is hereby amended in its entirety as follows:

“Unencumbered Real Estate Asset Value” as of any date means the sum of: (a) the Undepreciated Real Estate Assets, which are not encumbered by any mortgage, lien, charge, pledge or security interest, as of the end of the Company’s latest fiscal quarter covered in the Company’s Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Commission (or, if that filing is not required under the Securities Exchange Act of 1934, as amended, with the Trustee) prior to such date; provided, however, that all investments in unconsolidated limited partnerships, unconsolidated limited liability companies and other unconsolidated entities shall be excluded from Unencumbered Real Estate Asset Value; and (b) the purchase price of any real estate assets that are not encumbered by any mortgage, lien, charge, pledge, or security interest and were acquired by the Company or any Subsidiary after the end of such quarter; provided however, that all investments in unconsolidated limited partnerships, unconsolidated limited liability companies and other unconsolidated entities shall be excluded from Unencumbered Real Estate Asset Value.

The amendment of the definition of “Unencumbered Real Estate Asset Value” relates solely to the rights of the Holders of the Notes and shall not affect the rights under the Indenture of the Holders of Securities of any other series.

Section 4. Form and Terms of the Notes .

The Notes and the Trustee’s certificate of authentication shall be substantially in the form of Exhibit A attached hereto. The aggregate principal amount of the Notes that may be authenticated and delivered under the Indenture, as amended hereby, shall be $300,000,000. The Company may, without the consent of the Holders,

 

3


create and issue additional securities ranking pari passu with the Notes in all respects and so that such additional Notes shall be consolidated and form a single series having the same terms as to status, redemption or otherwise as the Notes initially issued.

The terms of the Notes are established as set forth in Exhibit A attached hereto and this Sixteenth Supplemental Indenture. The terms and notations contained in the Notes shall constitute, and are hereby expressly made, a part of the Indenture as supplemented by this Sixteenth Supplemental Indenture, and the Company and the Trustee, by their execution and delivery of this Sixteenth Supplemental Indenture, expressly agree to such terms and provisions and to be bound thereby.

Clause five of Section 501 of the Indenture is hereby amended in its entirety as follows:

“If any event of default under any bond, debenture, note or other evidence of indebtedness of the Company (including any event of default with respect to any other series of Securities), or under any mortgage, indenture or other instrument of the Company under which there may be issued or by which there may be secured or evidenced any indebtedness of the Company (or by any Subsidiary, the repayment of which the Company has guaranteed or for which the Company is directly responsible or liable as obligor or guarantor), whether such indebtedness now exists or shall hereafter be created, shall happen and shall result in an aggregate principal amount exceeding $25,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been waived, rescinded or annulled, within a period of 10 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 10% in principal amount of the Notes a written notice specifying such event of default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a “Notice of Default” hereunder. Subject to the provisions of Section 601, the Trustee shall not be deemed to have knowledge of such event of default unless either (A) a Responsible Officer of the Trustee shall have actual knowledge of such event of default or (B) the Trustee shall have received written notice thereof from the Company, from any Holder, from the holder of any such indebtedness or from the trustee under any such mortgage, indenture or other instrument; or”.

The amendment to clause five of Section 501 of the Indenture relates solely to the rights of the Holders of the Notes and shall not affect the rights under the Indenture of the Holders of Securities of any other series.

Section 1004 of the Indenture is hereby amended in its entirety as follows:

“Section 1004. Limitations on Incurrence of Debt. (a) The Company will not, and will not permit any Subsidiary to, incur any Debt if, immediately after giving effect to the incurrence of such additional Debt, the aggregate principal amount of all outstanding Debt of the Company

 

4


and its Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 65% of the sum of (i) the Undepreciated Real Estate Assets as of the end of the Company’s fiscal quarter covered in the Company’s Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Commission (or, if such filing is not permitted under the Securities Exchange Act of 1934, with the Trustee) prior to the incurrence of such additional Debt and (ii) the increase, if any, in the Undepreciated Real Estate Assets from the end of such quarter, including, without limitation, any increase in the Undepreciated Real Estate Assets caused by the application of the proceeds of additional Debt.

(b) In addition to the limitation set forth in subsection (a) of this Section 1004, the Company will not, and will not permit any Subsidiary to, incur any Debt if Consolidated Income Available for Debt Service for the Company’s four consecutive fiscal quarters most recently ended before the date on which such additional Debt is to be incurred shall have been less than 1.5 times the Maximum Annual Service Charge on the Debt of the Company and all Subsidiaries on a consolidated basis determined in accordance with GAAP to be outstanding immediately after the incurrence of such additional Debt.

(c) For purposes of this Section 1004, Debt shall be deemed to be “incurred” by the Company or a Subsidiary whenever the Company or such Subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof.”

The amendment of Section 1004 of the Indenture relates solely to the rights of the Holders of the Notes and shall not affect the rights under the Indenture of the Holders of Securities of any other series.

Section 1005 of the Indenture is hereby amended in its entirety as follows:

“Section 1005. Restrictions on Dividends and Other Distributions.

The Company will not, in respect of any shares of any class of its capital stock, (a) declare or pay any dividends (other than dividends payable in capital stock of the Company) thereon, (b) apply any of its property or assets to the purchase, redemption or other acquisition or retirement thereof, (c) set apart any sum for the purchase, redemption or other acquisition or retirement thereof, or (d) make any other distribution thereon, by reduction of capital or otherwise if, immediately after such declaration or other action referred to above, the aggregate of all such declarations and other actions since the date on which this Indenture was originally executed shall exceed the sum of (i) Funds from Operations from December 31, 1993 until the end of the Company’s latest fiscal

 

5


quarter covered in the Company’s Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Commission (or, if such filing is not permitted under the Securities Exchange Act of 1934, with the Trustee) prior to such declaration or other action and (ii) $20,000,000; PROVIDED, HOWEVER, that the foregoing limitation shall not apply to any declaration or other action referred to above which is necessary to maintain the Company’s status as a “real estate investment trust” under the Internal Revenue Code of 1986, as amended, if the aggregate principal amount of all outstanding Debt of the Company and its Subsidiaries on a consolidated basis determined in accordance with GAAP at such time is less than 65% of the Undepreciated Real Estate Assets as of the end of the Company’s latest fiscal quarter covered in the Company’s Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Commission (or, if such filing is not permitted under the Securities Exchange Act of 1934, with the Trustee) prior to such declaration or other action.

Notwithstanding the foregoing, the provisions of this Section 1005 will not prohibit the payment of any dividend within 30 days of the declaration thereof if at such date of declaration such payment would have complied with the provisions hereof.”

The amendment of Section 1005 of the Indenture relates solely to the rights of the Holders of the Notes and shall not affect the rights under the Indenture of the Holders of Securities of any other series.

Section 1015 of the Indenture is hereby amended in its entirety as follows:

“Section 1015. Limitations on Incurrence of Secured Debt. So long as any of the Designated Securities remain outstanding, the Company will not, and will not permit any Subsidiary to, incur any Secured Debt, if immediately after giving effect to the incurrence of such Secured Debt and the application of the proceeds from such Secured Debt, the aggregate amount of all of the Company’s and its Subsidiaries’ outstanding Secured Debt on a consolidated basis is greater than 40% of the sum of (i) the Total Assets as of the end of the Company’s fiscal quarter covered in the Company’s Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Commission (or, if such filing is not permitted under the Securities Exchange Act of 1934, with the Trustee) prior to the incurrence of such additional Secured Debt and (ii) the increase, if any, in Total Assets from the end of such quarter including, without limitation, any increase in Total Assets caused by the application of the proceeds of additional Debt.”

 

6


The amendment of Section 1015 of the Indenture relates solely to the rights of the Holders of the Notes and shall not affect the rights under the Indenture of the Holders of Securities of any other series.

Section 5. Counterparts . This Sixteenth Supplemental Indenture may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument.

Section 6. Governing Law . THIS SIXTEENTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF OHIO (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF).

Section 7. Concerning the Trustee . The Trustee shall not be responsible for any recital herein (other than the fourth recital as it appears as it applies to the Trustee) as such recitals shall be taken as statements of the Company, or the validity of the execution by the Company of this Sixteenth Supplemental Indenture. The Trustee makes no representations as to the validity or sufficiency of this Sixteenth Supplemental Indenture.

 

7


IN WITNESS WHEREOF, the parties hereto have caused this Sixteenth Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.

 

Attest:       DDR CORP.
/s/ David E. Weiss     By:   /s/ David J. Oakes

Name: David E. Weiss

Title:   Executive Vice President, General Counsel and             Secretary

     

Name: David J. Oakes

Title:   President and Chief Financial Officer

Attest:      

U.S. BANK NATIONAL ASSOCIATION,

as Trustee

/s/ Millie Rolla     By:   /s/ K. Wendy Kumar

Name: Millie Rolla

Title:   Vice President

     

Name: K. Wendy Kumar

Title:   Vice President

 

8


EXHIBIT A

 

REGISTERED   REGISTERED
NO. 001   PRINCIPAL AMOUNT
CUSIP NO. 23317H AB8   $300,000,000

[FACE OF NOTE]

DDR CORP.

3.375% Notes Due 2023

UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO DDR CORP. OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

UNLESS AND UNTIL THIS NOTE IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY DTC TO A NOMINEE THEREOF OR BY A NOMINEE THEREOF TO DTC OR ANOTHER NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR OF DTC OR A NOMINEE OF SUCH SUCCESSOR.

DDR CORP., an Ohio corporation (herein referred to as the “Company,” which term includes any successor corporation under the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to CEDE & CO., c/o The Depository Trust Company, 55 Water Street, New York, New York 10041, or registered assigns, the principal sum of THREE HUNDRED MILLION Dollars ($300,000,000) on May 15, 2023 (the “Stated Maturity Date”), unless redeemed prior to such date in accordance with the provisions referred to on the reverse hereof (the Stated Maturity Date or date of earlier redemption, as the case may be, is referred to herein as the “Maturity Date” with respect to the principal payable on such date), and to pay interest on the outstanding principal amount hereof from May 23, 2013 or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, on May 15 and November 15, of each year, commencing November 15, 2013 (each, an “Interest Payment Date”), and on the Maturity Date, at a rate of 3.375% per annum, computed on the basis of a 360-day year consisting of twelve 30-day months, until the principal hereof is paid or duly provided for.

 

A-1


The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date and on the Maturity Date will, as provided in the Indenture, be paid to the Holder in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the Regular Record Date for such interest, which shall be fifteen calendar days (whether or not a Business Day, as defined below) next preceding such Interest Payment Date or the Maturity Date, as the case may be (each, a “Regular Record Date”). Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may be paid to the Holder in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee referred to on the reverse hereof, notice whereof shall be given to Holders of Notes of this series not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture.

The principal of this Note payable on the Maturity Date will be paid against presentation and surrender of this Note at either of the offices or agencies of the Company maintained for that purpose in the Borough of Manhattan, The City of New York and Cleveland, Ohio. The Company hereby appoints U.S. Bank National Association as Paying Agent for the Notes where Notes of the series may be presented and surrendered for payment and where notices, designations or requests in respect of payments with respect to the Notes may be served.

Interest payable on this Note on any Interest Payment Date and on the Maturity Date, as the case may be, will include interest accrued from and including the next preceding Interest Payment Date in respect of which interest has been paid or duly provided for (or from and including May 23, 2013, if no interest has been paid on this Note) to but excluding such Interest Payment Date or the Maturity Date, as the case may be. If any Interest Payment Date or the Maturity Date falls on a day that is not a Business Day, principal, premium, if any, and/or interest payable with respect to such Interest Payment Date or Maturity Date, as the case may be, will be paid on the next succeeding Business Day with the same force and effect as if it were paid on the date such payment was due, and no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date or Maturity Date, as the case may be. “Business Day” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York City, New York, are authorized or required by law, regulation or executive order to close.

All payments of principal, premium, if any, and interest by the Company in respect of this Note will be made by wire transfer of immediately available funds.

Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

Unless the Certificate of Authentication hereon has been executed by the Trustee by manual signature of one of its authorized signatories, this Note shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose.

 

A-2


IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.

Date:

 

DDR CORP.
By:    
  Name:
  Title:

 

Attest:
 
Name:
Title:

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

Dated:

 

U.S. BANK NATIONAL ASSOCIATION, as

Trustee

By:    

 

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[REVERSE OF NOTE]

DDR CORP.

3.375% Notes Due 2023

This Note is one of a duly authorized issue of securities of the Company (herein called the “Securities”), issued and to be issued in one or more series under an Indenture, dated as of May 1, 1994, as supplemented by the First Supplemental Indenture dated as of May 10, 1995, the Second Supplemental Indenture dated as of July 18, 2003, the Third Supplemental Indenture dated as of January 23, 2004, the Fourth Supplemental Indenture dated as of April 22, 2004, the Fifth Supplemental Indenture dated as of April 28, 2005, the Sixth Supplemental Indenture dated as of October 7, 2005, the Seventh Supplemental Indenture dated as of August 28, 2006, the Eighth Supplemental Indenture dated as of March 13, 2007, the Ninth Supplemental Indenture dated as of September 30, 2009, the Tenth Supplemental Indenture dated as of March 19, 2010, the Eleventh Supplemental Indenture dated as of August 12, 2010, the Twelfth Supplemental Indenture dated as of November 5, 2010, the Thirteenth Supplemental Indenture dated as of March 7, 2011, the Fourteenth Supplemental Indenture dated as of June 22, 2012, the Fifteenth Supplemental Indenture dated as of November 27, 2012 and the Sixteenth Supplemental Indenture dated as of May 23, 2013 (herein called the “Indenture”), between the Company and U.S. Bank National Association, as successor trustee to U.S. Bank Trust National Association, as successor to National City Bank (herein called the “Trustee,” which term includes any successor trustee under the Indenture with respect to the series of which this Note is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Note is one of the duly authorized series of Securities designated as “3.375% Notes Due 2023” (collectively, the “Notes”), and the aggregate principal amount of the Notes to be issued under such series is limited to $300,000,000 (except for Notes authenticated and delivered upon transfer of, or in exchange for, or in lieu of other Notes). The Company may, without the consent of the Holders of any Securities, create and issue additional notes in the future having the same terms other than the date of original issuance, the issue price and the date on which interest begins to accrue so as to form a single series with the Notes. No additional notes may be issued if an Event of Default has occurred with respect to the Notes. The Notes are the unsecured and unsubordinated obligations of the Company and rank equally with all existing and future unsecured and unsubordinated indebtedness of the Company. All terms used but not defined in this Note shall have the meanings assigned to such terms in the Indenture.

If an Event of Default shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.

The Company may redeem the Notes at its option, at any time prior to the Maturity Date, in whole or from time to time in part, at a Redemption Price equal to the greater of (a) 100% of the principal amount of the Notes being redeemed and (b) the sum of the present values of the remaining scheduled payments of principal and interest through the Maturity Date on the Notes

 

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being redeemed (not including the portion of any payments of interest accrued to the Redemption Date) discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points, plus, in each case, any interest accrued but not paid to the Redemption Date; provided however, that if the Company redeems the Notes 90 days or fewer prior to the Stated Maturity Date, the Redemption Price will equal 100% of the principal amount of the Notes being redeemed plus any interest accrued but not paid to the Redemption Date. For the avoidance of doubt, any calculation of the remaining scheduled payments of principal and interest pursuant to the preceding sentence shall not include interest accrued as of the applicable Redemption Date.

“Treasury Rate” means, with respect to any Redemption Date for the Notes, (i) the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated “H.15(519)” or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which established yields on actively traded United States Treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities,” for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the Maturity Date, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month) or (ii) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be calculated by the Independent Investment Banker on the third Business Day preceding the Redemption Date.

“Comparable Treasury Issue” means the United States Treasury security selected by the Independent Investment Banker as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes.

“Independent Investment Banker” means one of the Reference Treasury Dealers that has been appointed by the Company.

“Comparable Treasury Price” means with respect to any Redemption Date for the Notes (i) the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (ii) if the Trustee obtains fewer than five such Reference Treasury Dealer Quotations, the average of all such quotations.

“Reference Treasury Dealer” means UBS Securities LLC, Jefferies LLC, RBS Securities Inc. and Scotia Capital (USA) Inc., or one of their affiliates, and one nationally recognized investment banking firm that is a primary U.S. Government securities dealer in the United States (a “Primary Treasury Dealer”) appointed by U.S. Bancorp Investments, Inc., and their respective successors, and two other Primary Treasury Dealers appointed by the Company, provided that prior written

 

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notice of the Company’s appointment of such other Primary Treasury Dealers shall be provided to the Trustee; provided, further, that if any of the foregoing shall cease to be a Primary Treasury Dealer, the Company shall substitute in its place another Primary Treasury Dealer.

“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such Redemption Date.

Notice of any redemption will be mailed by first-class mail at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed. If the Company redeems less than all of the Notes, the Trustee will select the particular Notes to be redeemed pro rata, by lot or by another method the Trustee deems fair and appropriate.

This Note is not subject to any sinking fund.

The Indenture contains provisions for defeasance of (i) the entire indebtedness of the Notes or (ii) certain covenants and Events of Default with respect to the Notes, in each case upon compliance with certain conditions set forth therein, which provisions apply to the Notes.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority of the aggregate principal amount of all Securities issued under the Indenture at the time Outstanding and affected thereby. The Indenture also contains provisions permitting the Holders of not less than a majority of the aggregate principal amount of the Outstanding Securities, on behalf of the Holders of all such Securities, to waive compliance by the Company with certain provisions of the Indenture. Furthermore, provisions in the Indenture permit the Holders of not less than a majority of the aggregate principal amount of the Outstanding Securities of any series, in certain instances, to waive, on behalf of all of the Holders of Securities of such series, certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and other Notes issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note.

No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note at the times, places and rate, and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain limitations therein and herein set forth, the transfer of this Note is registrable in the Security Register of the Company upon surrender of this Note for registration of transfer at the office or agency of the Company in any place where the principal of, premium, if any, and interest on this Note are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the

 

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Company and the Security Registrar duly executed by, the Holder hereof or by his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.

As provided in the Indenture and subject to certain limitations therein and herein set forth, this Note is exchangeable for a like aggregate principal amount of Notes of different authorized denominations but otherwise having the same terms and conditions, as requested by the Holder hereof surrendering the same.

The Notes are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof.

No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

The Indenture and the Notes shall be governed by and construed in accordance with the laws of the State of Ohio applicable to agreements made and to be performed entirely in such State.

 

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Exhibit 31.1

CERTIFICATIONS

I, Daniel B. Hurwitz, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of DDR Corp.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 8, 2013

Date

 

/s/ Daniel B. Hurwitz

Daniel B. Hurwitz
Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, David J. Oakes, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of DDR Corp.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 8, 2013

Date

 

/s/ David J. Oakes

David J. Oakes
President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel B. Hurwitz, Chief Executive Officer of DDR Corp. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2013, as filed with the Securities and Exchange Commission (the “Report”), which this certification accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

 

/s/ Daniel B. Hurwitz

Daniel B. Hurwitz
Chief Executive Officer
August 8, 2013

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, David J. Oakes, President and Chief Financial Officer of DDR Corp. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2013, as filed with the Securities and Exchange Commission (the “Report”), which this certification accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

 

/s/ David J. Oakes

David J. Oakes
President and Chief Financial Officer
August 8, 2013