As filed with the Securities and Exchange Commission on
July 2, 2008
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-3
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Developers Diversified Realty
Corporation
(Exact name of registrant as
specified in its charter)
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Ohio
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34-1723097
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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3300 Enterprise Parkway
Beachwood, Ohio 44122
(216) 755-5500
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
Scott A. Wolstein, Chief Executive Officer
Developers Diversified Realty Corporation
3300 Enterprise Parkway
Beachwood, Ohio 44122
(216) 755-5500
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
Albert T. Adams, Esq.
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114
(216) 621-0200
Approximate date of commencement of proposed sale to the
public:
From time to time after this Registration
Statement becomes effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following
box.
o
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or interest
reinvestment plans, check the following
box.
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If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering.
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If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this Form is a registration statement pursuant to General
Instruction I.D. or a post-effective amendment thereto that
shall become effective upon filing with the Commission pursuant
to Rule 462(e) under the Securities Act, check the
following
box.
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If this Form is a post-effective amendment to a registration
statement filed pursuant to General Instruction I.D. filed to
register additional securities or additional classes of
securities pursuant to Rule 413(b) under the Securities
Act, check the following
box.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2
of the
Exchange Act. (Check one):
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Large
accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller reporting
company
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(Do not check if a smaller
reporting company)
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Title of Each Class of
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Amount to be
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Offering Price per
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Aggregate Offering
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Amount of
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Securities to be Registered
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Registered
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Share(1)
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Price(1)
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Registration Fee
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Common Shares, $0.10 par value
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463,185
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$35.05
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$16,234,635
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$639
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(1)
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Estimated pursuant to Securities
Act Rule 457(c) solely for purposes of calculating the
amount of the registration fee, based upon the average of the
high and low prices of the registrants common shares on
June 30, 2008, as reported on the New York Stock Exchange.
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PROSPECTUS
Developers Diversified Realty
Corporation
463,185 Common Shares
This prospectus relates to resales of common shares previously
issued by Developers Diversified Realty Corporation to the
selling shareholders identified in this prospectus in private
placements on June 13, 2008 and June 17, 2008 pursuant
to an exemption from the registration requirements of the
Securities Act of 1933, as amended.
We will not receive any proceeds from the sale of these shares.
The selling shareholders identified in this prospectus, or their
pledgees, donees, transferees or other
successors-in-interest,
may offer the shares from time to time through public or private
transactions at prevailing market prices, at prices related to
prevailing market prices or at privately negotiated prices.
To the extent required, we will provide the specific terms of
transactions in these shares in supplements to this prospectus.
You should read this prospectus and the applicable supplement
carefully before you invest. See Plan of
Distribution.
Our common shares are listed on the New York Stock Exchange
under the symbol DDR. The last reported sale price
of our common shares on the New York Stock Exchange on
July 1, 2008 was $34.38 per share.
Investing in our common shares involves risks. Please see
Risk Factors in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007.
Our executive offices are located at 3300 Enterprise Parkway,
Beachwood, Ohio 44122, and our telephone number is
(216) 755-5500.
We impose certain restrictions on the ownership of our common
shares so that we can maintain our qualification as a real
estate investment trust. You should read the information under
the heading Description of Common Shares
Restrictions on Ownership in this prospectus for a
description of those restrictions.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is July 2, 2008
We have not authorized any dealer, salesman or other person
to give any information or to make any representation other than
those contained or incorporated by reference in this prospectus
or any applicable supplement to this prospectus. You must not
rely upon any information or representation not contained or
incorporated by reference in this prospectus or any applicable
supplement to this prospectus as if we had authorized it. This
prospectus and any applicable prospectus supplement do not
constitute an offer to sell or the solicitation of an offer to
buy any securities other than the registered securities to which
they relate. Nor do this prospectus and any accompanying
prospectus supplement constitute an offer to sell or the
solicitation of an offer to buy securities in any jurisdiction
to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. You should not assume that
the information contained in this prospectus or any applicable
prospectus supplement is correct on any date after their
respective dates, even though this prospectus or a supplement is
delivered or securities are sold on a later date.
TABLE OF
CONTENTS
Unless otherwise indicated or unless the context requires
otherwise, all references in this prospectus to we,
us, our, the Company or
DDR mean Developers Diversified Realty Corporation
and all entities owned or controlled by Developers Diversified
Realty Corporation. When we refer to our articles of
incorporation we mean Developers Diversified Realty
Corporations Second Amended and Restated Articles of
Incorporation.
RISK
FACTORS
Investing in our common shares involves various risks. You
should carefully consider, among other factors, the matters
described in the section entitled Risk Factors
included as Part I, Item 1a. of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007 before
purchasing common shares.
FORWARD-LOOKING
INFORMATION
This prospectus and any applicable prospectus supplement include
and incorporate by reference forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. We intend such forward-looking statements
to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform
Act of 1995. Forward-looking statements are generally
identifiable by use of the words believe,
expect, intend, anticipate,
plan, estimate, project or
similar expressions. Our ability to predict results or the
actual effect of future plans or strategies is inherently
uncertain. Actual results could differ materially from those in
forward-looking statements because of, among other reasons, the
factors described under the caption Risk Factors in
our Annual Report on
Form 10-K
for the year ended December 31, 2007 and in subsequent
reports that we file with the
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Securities and Exchange Commission (SEC). We
undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any
document we file with the SEC at the SECs Public Reference
Room at 100 F Street, N.E., Washington, D.C.
20549. You may obtain information about the operation of the
SECs Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a web site that contains reports, proxy
and information statements, and other information regarding
registrants that file electronically with the SEC
(http://www.sec.gov).
You can inspect reports and other information we file at the
offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
We have filed a registration statement of which this prospectus
is a part and related exhibits with the SEC under the Securities
Act of 1933, as amended. The registration statement contains
additional information about us and the shares. You may inspect
the registration statement and exhibits without charge at the
SECs Public Reference Room or at the SECs web site
listed above, and you may obtain copies from the SEC at
prescribed rates.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference the
information contained in documents we file with the SEC, which
means that we can disclose important information to you by
referring to those documents. The information incorporated by
reference is an important part of this prospectus. Any statement
contained in a document which is incorporated by reference in
this prospectus is automatically updated and superseded if
information contained in this prospectus, or information that we
later file with the SEC, modifies or replaces that information.
We incorporate by reference the following documents we filed,
excluding any information contained therein or attached as
exhibits thereto which has been furnished but not filed, with
the SEC:
a. Our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, filed on
February 29, 2008;
b. Our Quarterly Report on
Form 10-Q
for the fiscal quarter ended March 31, 2008, filed on
May 12, 2008;
c. Our Current Reports on
Form 8-K
filed on March 31, 2008, May 15, 2008 and July 2,
2008; and
d. The description of our common shares contained in our
Registration Statement on
Form 8-A
dated January 26, 1993 and all amendments or reports filed
with the SEC for the purpose of updating such description.
Any documents we file pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this prospectus
and prior to the termination of the offering of the shares to
which this prospectus relates will automatically be deemed to be
incorporated by reference in this prospectus and be deemed a
part of this prospectus from the date of filing such documents,
except to the extent any information contained in or attached to
such documents has been furnished but not filed with the SEC.
To receive a free copy of any of the documents incorporated by
reference in this prospectus (other than exhibits, unless they
are specifically incorporated by reference in any such
documents), call or write Developers Diversified Realty
Corporation, 3300 Enterprise Parkway, Beachwood, Ohio 44122,
Attention: Michelle M. Dawson, Vice President of Investor
Relations, telephone number
(216) 755-5500.
We also maintain a web site that contains additional information
about us
(http://www.ddrc.com).
The information on our web site is not part of, or incorporated
by reference into, this prospectus.
You should not assume that the information in this prospectus or
any applicable prospectus supplement is accurate as of any date
other than the dates on the front of these documents.
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THE
COMPANY
We are a self-administered and self-managed real estate
investment trust (REIT) in the business of acquiring,
developing, redeveloping, owning, leasing and managing shopping
centers. Our executive offices are located at 3300 Enterprise
Parkway, Beachwood, Ohio 44122, and our telephone number is
(216) 755-5500.
RECENT
EVENTS
In the first quarter of 2008, the Company sold one shopping
center asset aggregating approximately 0.1 million square
feet of Company-Owned GLA for a sales price of approximately
$1.7 million, resulting in a net loss of approximately
$0.1 million (the Property Sale). In accordance
with the provisions of SFAS No. 144, the loss on sale
and operations of this shopping center were classified as
discontinued operations in the Companys Quarterly Report
on
Form 10-Q
for the fiscal quarter ended March 31, 2008, filed on
May 12, 2008, and incorporated by reference in this
prospectus. Because the Property Sale was not considered a
fundamental change or material to any of the periods presented
in the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, filed on
February 29, 2008, and incorporated by reference in this
prospectus, the Company has not restated the financial
statements included in the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, but rather
will restate the information as required by
SFAS No. 144 in conjunction with the preparation of
the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, unless
required at an earlier date.
USE OF
PROCEEDS
The common shares offered hereby are being registered for the
account of the selling shareholders identified in this
prospectus. See Selling Shareholders. All net
proceeds from the sale of the common shares will go to the
selling shareholders. We will not receive any part of the
proceeds from such sale of shares.
DESCRIPTION
OF COMMON SHARES
General
Our articles of incorporation authorize us to issue up to
300,000,000 common shares, $0.10 par value per share. As of
June 30, 2008, we had 120,266,413 common shares
outstanding. In addition, as of June 30, 2008, we have
reserved 6,081,254 common shares for issuance under our
equity-based award plans and 31,666 common shares for issuance
upon the exercise of options granted to our directors. Our
common shares are listed on the New York Stock Exchange under
the symbol DDR. National City Bank, Cleveland, Ohio,
is the transfer agent and registrar of the common shares.
The following description of our common shares sets forth
certain of their general terms and provisions. The following
description of our common shares is in all respects subject to
and qualified by reference to the applicable provisions of our
articles of incorporation and our code of regulations.
Holders of our common shares are entitled to receive dividends
when, as and if declared by our board of directors, out of funds
legally available therefore. Any payment and declaration of
dividends by the Company on our common shares and purchases
thereof will be subject to certain restrictions if we fail to
pay dividends on any outstanding preferred shares. If we are
liquidated, dissolved or involved in any
winding-up,
the holders of our common shares are entitled to receive ratably
any assets remaining after we have fully paid all of our
liabilities, including the preferential amounts we owe with
respect to any preferred shares. Holders of our common shares
possess ordinary voting rights, with each share entitling the
holder to one vote. Holders of our common shares have cumulative
voting rights in the election of directors. Holders of our
common shares do not have preemptive rights, which means that
they have no right to acquire any additional common shares that
we may subsequently issue.
All of our common shares currently outstanding are fully paid
and nonassessable.
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Restrictions
on Ownership
In order for the Company to qualify as a REIT under the Internal
Revenue Code of 1986, as amended (the Code), not
more than 50% in value of our outstanding capital stock may be
owned, directly or indirectly, by five or fewer individuals
during the last half of a taxable year. Individual is defined in
the Code to include certain entities. In addition, our capital
stock must be beneficially owned by 100 or more persons during
at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year.
Additionally, certain other requirements must be satisfied.
To assure that five or fewer individuals do not own more than
50% in value of our outstanding common shares, our articles of
incorporation provide that, subject to certain exceptions, no
holder may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 5% (the ownership
limit) of our outstanding common shares. Shareholders
whose ownership exceeded the ownership limit immediately after
the initial public offering, or IPO, may continue to own common
shares in excess of the ownership limit and may acquire
additional shares through the share option plan, the
equity-based award plans, any dividend reinvestment plan adopted
by the Company or from other existing shareholders who exceed
the ownership limit, but may not acquire additional shares from
those sources if the result would be that the five largest
beneficial owners of common shares hold more than 49.6% of our
outstanding common shares. In addition, because rent from a
related party tenant (any tenant 10% of which is owned, directly
or constructively, by a REIT, including an owner of 10% or more
of a REIT) is not qualifying rent for purposes of the gross
income tests under the Code, our articles of incorporation
provide that no individual or entity may own, or be deemed to
own by virtue of the attribution provisions of the Code (which
differ from the attribution provisions applied to the ownership
limit), in excess of 9.8% of our outstanding common shares. Our
board of directors may waive the ownership limit and the related
party limit if an opinion of counsel or a ruling from the
Internal Revenue Service is provided to the board of directors
to the effect that that ownership will not then or in the future
jeopardize our status as a REIT. As a condition of any waiver,
our board of directors will require appropriate representations
and undertakings from the applicant with respect to preserving
our REIT status.
The preceding restrictions on transferability and ownership of
common shares may not apply if our board of directors determines
that it is no longer in our best interests to continue to
qualify as a REIT. The ownership limit and the related party
limit will not be automatically removed even if the REIT
provisions of the Code are changed to no longer contain any
ownership concentration limitation or if the ownership
concentration limitation is increased. In addition to preserving
our status as a REIT, the effects of the ownership limit and the
related party limit are to prevent any person or small group of
persons from acquiring unilateral control of us. Any change in
the ownership limit requires an amendment to the articles of
incorporation, even if our board of directors determines that
maintenance of REIT status is no longer in our best interests.
Amendments to the articles of incorporation require the
affirmative vote of holders owning a majority of our outstanding
common shares. If it is determined that an amendment would
materially and adversely affect the holders of any class of
preferred shares, that amendment also would require the
affirmative vote of holders of two-thirds of the affected class
of preferred shares.
If common shares in excess of the ownership limit or the related
party limit, or common shares which would cause the REIT to be
beneficially or constructively owned by less than
100 persons or would result in us being closely
held within the meaning of Section 856(h) of the
Code, are issued or transferred to any person, the issuance or
transfer will be null and void to the intended transferee. The
intended transferee will not acquire rights to the shares.
Common shares transferred or proposed to be transferred in
excess of the ownership limit or the related party limit or
which would otherwise jeopardize our REIT status (excess
shares) will be subject to repurchase by us. The purchase
price of any excess shares will be equal to the lesser of
(i) the price in the proposed transaction and (ii) the
fair market value of the shares reflected in the last reported
sale price for the common shares on the trading day immediately
preceding the date on which we or our designee determine to
exercise our repurchase right, if the shares are then listed on
a national securities exchange, or such price for the shares on
the principal exchange, if they are then listed on more than one
national securities exchange, or, if the common shares are not
then listed on a national securities exchange, the latest bid
quotation for the common shares if they are then traded
over-the-counter, or, if such quotation is not available, the
fair market value as determined by our board of directors in
good faith, on the last trading day immediately preceding the
day on which notice of the proposed purchase is sent by us. From
and after the date fixed for purchase of excess shares by us,
the holder of the excess shares will cease to be entitled to
distribution, voting rights and other benefits with respect to
the excess shares except the right to payment of the
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purchase price for the excess shares. Any dividend or
distribution paid to a proposed transferee on excess shares will
be repaid to us upon demand. If the foregoing transfer
restrictions are determined to be void or invalid by virtue of
any legal decision, statute, rule or regulation, then the
intended transferee of any excess shares may be deemed, at our
option, to have acted as an agent on our behalf in acquiring the
excess shares and to hold the excess shares on our behalf.
All certificates representing our common shares bear a legend
referring to the preceding restrictions.
Our articles of incorporation provide that all persons who own,
directly or by virtue of the attribution provisions of the Code,
more than 5% of our outstanding common shares must file an
affidavit with us containing information specified in our
articles of incorporation each year by January 31. In
addition, each of those shareholders will upon demand be
required to disclose to us in writing such information with
respect to the direct, indirect and constructive ownership of
shares as our board of directors deems necessary for us to
comply with the provisions of the Code as applicable to a REIT
or to comply with the requirements of any taxing authority or
governmental agency.
CERTAIN
ANTI-TAKEOVER PROVISIONS OF OHIO LAW
Certain provisions of Ohio law may have the effect of
discouraging or rendering more difficult an unsolicited
acquisition of a corporation or its capital stock to the extent
the corporation is subject to those provisions. We have opted
out of one such provision. We remain subject to the provisions
described below.
Chapter 1704 of the Ohio Revised Code prohibits certain
transactions, including mergers, sales of assets, issuances or
purchases of securities, liquidation or dissolution, or
reclassifications of the then-outstanding shares of an Ohio
corporation with 50 or more shareholders involving, or for the
benefit of, certain holders of shares representing 10% or more
of the voting power of the corporation (any such shareholder, a
10% Shareholder), unless:
(i) the transaction is approved by the directors before the
10% Shareholder becomes a 10% Shareholder;
(ii) the acquisition of 10% of the voting power is approved
by the directors before the 10% Shareholder becomes a 10%
Shareholder; or
(iii) the transaction involves a 10% Shareholder who has
been a 10% Shareholder for at least three years and is approved
by the directors before the 10% Shareholder becomes a 10%
Shareholder, is approved by holders of two-thirds of our voting
power and the holders of a majority of the voting power not
owned by the 10% Shareholder, or certain price and form of
consideration requirements are met.
Chapter 1704 of the Ohio Revised Code may have the effect
of deterring certain potential acquisitions of us which might be
beneficial to shareholders.
Section 1707.041 of the Ohio Revised Code regulates certain
control bids for corporations in Ohio with fifty or
more shareholders that have significant Ohio contacts and
permits the Ohio Division of Securities to suspend a control bid
if certain information is not provided to offerees.
CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of material federal income
tax considerations regarding the Company and the securities we
are registering. This summary is based on current law, is for
general information only and is not tax advice. The tax
treatment to holders of our securities will vary depending on a
holders particular situation, and this discussion does not
purport to deal with all aspects of taxation that may be
relevant to a holder of securities in light of his or her
personal investments or tax circumstances, or to certain types
of holders subject to special treatment under the federal income
tax laws except to the extent discussed under the subheadings
Taxation of Tax-Exempt Shareholders and
Taxation of
Non-U.S. Shareholders.
In addition, the summary below does not consider the effect of
any foreign, state, local or other tax laws that may be
applicable to holders of our securities.
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The information in this section is based on the Code, current,
temporary and proposed Treasury Regulations promulgated under
the Code, the legislative history of the Code, current
administrative interpretations and practices of the Internal
Revenue Service (the IRS) (including its practices
and policies as expressed in certain private letter rulings
which are not binding on the IRS except with respect to the
particular taxpayers who requested and received such rulings),
and court decisions, all as of the date of this prospectus
supplement. Future legislation, Treasury Regulations,
administrative interpretations and practices and court decisions
may adversely affect, perhaps retroactively, the tax
considerations described herein. We have not requested, and do
not plan to request, any rulings from the IRS concerning our tax
treatment and the statements in this prospectus supplement are
not binding on the IRS or any court. Thus, we can provide no
assurance that these statements will not be challenged by the
IRS or sustained by a court if challenged by the IRS.
You are advised to consult your tax advisor regarding the
specific tax consequences to you of the acquisition, ownership
and sale of our securities, including the federal, state, local,
foreign and other tax consequences of such acquisition,
ownership and sale and of potential changes in applicable tax
laws.
Taxation
of the Company
General.
We elected to be taxed as a REIT
under Sections 856 through 860 of the Code, commencing with
our taxable year ended December 31, 1993. We believe we
have been organized and have operated in a manner which allows
us to qualify for taxation as a REIT under the Code commencing
with our taxable year ended December 31, 1993. We intend to
continue to operate in this manner.
The law firm of Baker & Hostetler LLP has acted as our
tax counsel in connection with our election to be taxed as a
REIT. It is the opinion of Baker & Hostetler LLP that
we have qualified as a REIT under the Code for our taxable years
ended December 31, 1993 through December 31, 2007, we
are organized in conformity with the requirements for
qualification as a REIT, and our current and proposed method of
operation will enable us to meet the requirements for
qualification and taxation as a REIT under the Code for our
taxable year ended December 31, 2008 and for future taxable
years. It must be emphasized that the opinion of
Baker & Hostetler LLP is based upon certain
assumptions and representations as to factual matters made by
us, including representations made by us in a representation
letter and certificate provided by one of our officers and our
factual representations set forth herein and in registration
statements previously filed with the Securities and Exchange
Commission. Any variation from the factual statements set forth
herein, in registration statements previously filed with the
Securities and Exchange Commission, or in the representation
letter and certificate we have provided to Baker &
Hostetler LLP may affect the conclusions upon which its opinion
is based.
The opinions of Baker & Hostetler LLP are based on
existing law as contained in the Code and Treasury Regulations
promulgated thereunder, in effect on the date hereof, and the
interpretations of such provisions and Treasury Regulations by
the IRS and the courts having jurisdiction over such matters,
all of which are subject to change either prospectively or
retroactively, and to possibly different interpretations.
Baker & Hostetler LLP will have no obligation to
advise the Company or the holders of our securities of any
subsequent change in the matters stated, represented or assumed,
or of any subsequent change in the applicable law. You should be
aware that the opinion represents Baker & Hostetler
LLPs best judgment of how a court would decide if
presented with the issues addressed therein but, because
opinions of counsel are not binding upon the IRS or any court,
there can be no assurance that contrary positions may not
successfully be asserted by the IRS. Moreover, our qualification
and taxation as a REIT depends upon our ability, through actual
annual operating results and methods of operation, to satisfy
various qualification tests imposed under the Code, such as
distributions to shareholders, asset composition levels, and
diversity of stock ownership, the actual results of which have
not been and will not be reviewed by Baker & Hostetler
LLP. In addition, our ability to qualify as a REIT also depends
in part upon the operating results, organizational structure and
entity classification for federal income tax purposes of certain
affiliated entities, including affiliates that have made
elections to be taxed as REITs, the status of which may not have
been reviewed by Baker & Hostetler LLP. Our ability to
qualify as a REIT also requires that we satisfy certain asset
tests, some of which depend upon the fair market values of
assets directly or indirectly owned by the Company. Such values
may not be susceptible to a precise determination. Accordingly,
no assurance can be given that the actual results of our
operations for any particular taxable year will satisfy such
requirements for qualification and taxation as a REIT.
7
Similarly, we have significant subsidiaries that have elected to
be taxed as REITs and are therefore subject to the same
qualification tests.
If we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income taxes on our taxable income
that is distributed currently to our shareholders. This
treatment substantially eliminates the double
taxation (once at the corporate level when earned and once
again at the shareholder level when distributed) that generally
results from investment in a C corporation. However, we will be
subject to federal income tax as follows:
First, we will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net
capital gains.
Second, we may be subject to the alternative minimum
tax on our items of tax preference under certain
circumstances.
Third, if we have (a) net income from the sale or other
disposition of foreclosure property (defined
generally as property we acquired through foreclosure or after a
default on a loan secured by the property or a lease of the
property) which is held primarily for sale to customers in the
ordinary course of business or (b) other nonqualifying
income from foreclosure property, we will be subject to tax at
the highest U.S. federal corporate income tax rate on this
income.
Fourth, we will be subject to a 100% tax on any net income from
prohibited transactions (which are, in general, certain sales or
other dispositions of property (other than foreclosure property)
held primarily for sale to customers in the ordinary course of
business.
Fifth, if we fail to satisfy the 75% or 95% gross income tests
(as described below) due to reasonable cause and not due to
willful neglect, but have maintained our qualification as a REIT
because we satisfied certain other requirements, we will be
subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amounts by which we
fail the 75% or 95% gross income tests multiplied by (b) a
fraction intended to reflect our profitability.
Sixth, if we fail to distribute during each calendar year at
least the sum of (a) 85% of our REIT ordinary income for
the year, (b) 95% of our REIT capital gain net income for
the year (other than certain long-term capital gains for which
we make a Capital Gains Designation (defined below) and on which
we pay the tax), and (c) any undistributed taxable income
from prior periods, we would be subject to a 4% excise tax on
the excess of the required distribution over the amounts
actually distributed.
Seventh, if we acquire any asset from a corporation which is or
has been a C corporation in a transaction in which the basis of
the asset in our hands is determined by reference to the basis
of the asset in the hands of the C corporation, and we
subsequently recognize gain on the disposition of the asset
during the ten-year period beginning on the date on which we
acquired the asset, then we will be subject to tax at the
highest regular corporate tax rate on the excess of (a) the
fair market value of the asset over (b) our adjusted basis
in the asset, in each case determined as of the date we acquired
the asset. The results described in this paragraph with respect
to the recognition of gain assume that we will not make an
election pursuant to existing Treasury Regulations to recognize
such gain at the time we acquire the asset.
Eighth, we will be required to pay a 100% tax on any
redetermined rents, redetermined
deductions or excess interest. In general,
redetermined rents are rents from real property that are
overstated as a result of services furnished to any of our
tenants by a taxable REIT subsidiary of ours.
Redetermined deductions and excess interest generally represent
amounts that are deducted by a taxable REIT subsidiary of ours
for amounts paid to us that are in excess of the amounts that
would have been deducted based on arms length negotiations.
Ninth, if we fail to satisfy any of the REIT asset tests, as
described below, by more than a de minimis amount, due to
reasonable cause and not due to willful neglect and we
nonetheless maintain our REIT qualification because of specified
cure provisions, we will be required to pay a tax equal to the
greater of $50,000 or the highest corporate tax rate multiplied
by the net income generated by the nonqualifying assets that
caused us to fail such test.
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Tenth, if we fail to satisfy any provision of the Code that
would result in our failure to qualify as a REIT (other than a
violation of the REIT gross income tests or certain violations
of the asset tests described below) and the violation is due to
reasonable cause, we may retain our REIT qualification but we
will be required to pay a penalty of $50,000 for each such
failure.
Requirements for Qualification as a REIT.
The
Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable
certificates to evidence its beneficial ownership;
(3) that would be taxable as a domestic corporation, but
for Sections 856 through 860 of the Code;
(4) that is not a financial institution or an insurance
company within the meaning of certain provisions of the Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of
which is owned, actually or constructively, by five or fewer
individuals (as defined in the Code to include certain entities)
during the last half of each taxable year;
(7) that meets certain other tests, described below,
regarding the nature of its income and assets and the amount of
its distributions;
(8) that elects to be a REIT, or has made such election for
a previous year, and satisfies the applicable filing and
administrative requirements to maintain qualification as a
REIT; and
(9) that adopts a calendar year accounting period.
The Code provides that conditions (1) to (4), inclusive,
must be met during the entire taxable year and that condition
(5) must be met during at least 335 days of a taxable
year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. Conditions
(5) and (6) do not apply until after the first taxable
year for which an election is made to be taxed as a REIT. For
purposes of condition (6), pension funds and certain other
tax-exempt entities are treated as individuals, subject to a
look-through exception with respect to pension funds.
We believe that we have satisfied each of the above conditions.
In addition, our articles of incorporation and code of
regulations provide for restrictions regarding ownership and
transfer of shares. These restrictions are intended to assist us
in continuing to satisfy the share ownership requirements
described in (5) and (6) above. These restrictions,
however, may not ensure that we will, in all cases, be able to
satisfy the share ownership requirements described in
(5) and (6) above. In general, if we fail to satisfy
these share ownership requirements, our status as a REIT will
terminate. However, if we comply with the rules in applicable
Treasury Regulations that require us to ascertain the actual
ownership of our shares, and we do not know, or would not have
known through the exercise of reasonable diligence, that we
failed to meet the requirement described in condition
(6) above, we will be treated as having met this
requirement.
Ownership of Interests in Partnerships, Limited Liability
Companies and Qualified REIT Subsidiaries and Taxable REIT
Subsidiaries.
In the case of a REIT which is a
partner in a partnership, or a member in a limited liability
company treated as a partnership for federal income tax
purposes, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the
partnership or limited liability company, based on its interest
in partnership capital, subject to special rules relating to the
10% REIT asset test described below. Also, the REIT will be
deemed to be entitled to its proportionate share of the income
of that entity. The assets and items of gross income of the
partnership or limited liability company retain the same
character in the hands of the REIT for purposes of
Section 856 of the Code, including satisfying the gross
income tests and the asset tests. Thus, our proportionate share
of the assets and items of income of partnerships and limited
liability companies taxed as partnerships, in which we are,
directly or indirectly through other partnerships or limited
liability companies taxed as partnerships, a partner or member,
are treated as our assets and items of income for purposes of
applying the REIT qualification requirements described in this
prospectus supplement (including the income and asset tests
described below).
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We own 100% of the stock of a number of corporate subsidiaries
that are qualified REIT subsidiaries (each, a QRS)
and may acquire stock of one or more new subsidiaries. A
corporation qualifies as a QRS if 100% of its outstanding stock
is held by the Company, and we do not elect to treat the
corporation as a taxable REIT subsidiary, as described below. A
QRS is not treated as a separate corporation, and all assets,
liabilities and items of income, deduction and credit of a QRS
are treated as our assets, liabilities and items of income,
deduction and credit for all purposes of the Code, including the
REIT qualification tests. For this reason, references to our
income and assets include the income and assets of any QRS. A
QRS is not subject to federal income tax, and our ownership of
the voting stock of a QRS is ignored for purposes of determining
our compliance with the ownership limits described below under
Asset Tests.
For taxable years beginning after December 31, 2000, REITs
may own more than 10% of the voting power and value of
securities in a taxable REIT subsidiary (TRS). A TRS
is a corporation other than a REIT in which a REIT directly or
indirectly holds stock, and that has made a joint election with
the REIT to be treated as a TRS. A TRS also includes any
corporation other than a REIT with respect to which a TRS owns
securities possessing more than 35% of the total voting power or
value of the outstanding securities of such corporation. Other
than some activities relating to lodging and health care
facilities, a TRS may generally engage in any business,
including the provision of customary or non-customary services
to tenants of its parent REIT. A TRS is subject to income tax as
a regular C corporation. In addition, a TRS may be
prevented from deducting interest on debt funded directly or
indirectly by its parent REIT if certain tests regarding the
taxable REIT subsidiarys debt to equity ratio and interest
expense are not satisfied. A REITs ownership of securities
of a TRS will not be subject to the 10% or 5% asset tests
described below, and its operations will be subject to the
provisions described above.
Income Tests.
We must satisfy two gross income
requirements annually to maintain our qualification as a REIT.
First, in each taxable year at least 75% of our gross income
(excluding gross income from prohibited transactions) must be
derived directly or indirectly from investments relating to real
property or mortgages secured by real property, including
rents from real property and, in certain
circumstances, interest, or certain types of temporary
investment income. Second, in each taxable year at least 95% of
our gross income (excluding gross income from prohibited
transactions and certain real estate liability hedges) must be
derived directly or indirectly from income from the real
property investments described above or dividends, interest and
gain from the sale or disposition of stock or securities (or
from any combination of the foregoing).
Rents we receive will qualify as rents from real
property for purposes of satisfying the gross income tests
for a REIT described above only if all of the following
conditions are met:
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The amount of rent must not be based in any way on the income or
profits of any person, although rents generally will not be
excluded solely because they are based on a fixed percentage or
percentages of gross receipts or gross sales.
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We, or an actual or constructive owner of 10% or more of our
capital stock, must not actually or constructively own 10% or
more of the interests in the tenant, or, if the tenant is a
corporation, 10% or more of the voting power or value of all
classes of stock of the tenant. Rents received from such tenant
that is our TRS, however, will not be excluded from the
definition of rents from real property as a result
of this condition if either at least 90% of the space at the
property to which the rents relate is leased to third parties,
and the rents paid by the TRS are comparable to rents paid by
our other tenants for comparable space. Whether rents paid by a
TRS are substantially comparable to rents paid by other tenants
is determined at the time the lease with the TRS is entered
into, extended, and modified, if such modification increases the
rents due under such lease. Notwithstanding the foregoing,
however, if a lease with a controlled taxable REIT
subsidiary is modified and such modification results in an
increase in the rents payable by such TRS, any such increase
will not qualify as rents from real property. For
purposes of this rule, a controlled taxable REIT
subsidiary is a TRS in which we own stock possessing more
than 50% of the voting power or more than 50% of the total value
of outstanding stock of such TRS.
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Rent attributable to personal property, leased in connection
with a lease of real property, is not greater than 15% of the
total rent received under the lease. If this condition is not
met, then the portion of the rent attributable to personal
property will not qualify as rents from real
property.
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For rents received to qualify as rents from real
property, the REIT generally must not operate or manage
the property or furnish or render services to the tenants of the
property (subject to a 1% de minimis exception), other than
through an independent contractor from whom the REIT derives no
revenue or through a TRS. The REIT may, however, directly
perform certain services that are usually or customarily
rendered in connection with the rental of space for
occupancy only and are not otherwise considered rendered
to the occupant of the property. Any amounts we receive
from a TRS with respect to the TRSs provision of
non-customary services will, however, be nonqualifying income
under the 75% gross income test and, except to the extent
received through the payment of dividends, the 95% gross income
test.
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We do not intend to charge rent for any property that is based
in whole or in part on the net income or profits of any person
(except by reason of being based on a percentage of gross
receipts or sales, as heretofore described), and we do not
intend to rent any personal property (other than in connection
with a lease of real property where less than 15% of the total
rent is attributable to personal property). We directly perform
services under certain of our leases, but such services are not
rendered to the occupant of the property. Furthermore, these
services are usual and customary management services provided by
landlords renting space for occupancy in the geographic areas in
which we own property. To the extent that the performance of any
services provided by us would cause amounts received from our
tenants to be excluded from rents from real property, we intend
to hire a TRS, or an independent contractor from whom we derive
no revenue, to perform such services.
The term interest generally does not include any
amount received or accrued (directly or indirectly) if the
determination of some or all of the amount depends in any way on
the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term
interest solely by reason of being based on a fixed
percentage or percentages of receipts or sales.
If we fail to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, we may nevertheless qualify as a
REIT for the year if we are entitled to relief under certain
provisions of the Code. We generally may make use of the relief
provisions if:
(i) following our identification of the failure to meet the
75% or 95% gross income tests for any taxable year, we file a
schedule with the IRS setting forth each item of our gross
income for purposes of the 75% or 95% gross income tests for
such taxable year in accordance with Treasury Regulations to be
issued; and
(ii) our failure to meet these tests was due to reasonable
cause and not due to willful neglect.
It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of these
relief provisions. For example, if we fail to satisfy the gross
income tests because nonqualifying income that we intentionally
accrue or receive exceeds the limits on nonqualifying income,
the IRS could conclude that our failure to satisfy the tests was
not due to reasonable cause. If these relief provisions do not
apply to a particular set of circumstances, we will not qualify
as a REIT. As discussed above, even if these relief provisions
apply, and we retain our status as a REIT, a tax would be
imposed with respect to our nonqualifying income. We may not
always be able to comply with the gross income tests for REIT
qualification despite periodic monitoring of our income.
Hedging Transactions.
Except to the extent
provided by Treasury regulations, any income we derive from a
hedging transaction (which may include entering into interest
rate swaps, caps, and floors, options to purchase these items,
and futures and forward contracts) which is clearly identified
as such as specified in the Code, including gain from the sale
or disposition of such a transaction, will not constitute gross
income for purposes of the 95% gross income test, and therefore
will be exempt from this test, but only to the extent that the
transaction hedges indebtedness incurred or to be incurred by us
to acquire or carry real estate assets. Income from any hedging
transaction will, however, be nonqualifying for purposes of the
75% gross income test.
Prohibited Transaction Income.
Any gain we
realize on the sale of any property, other than foreclosure
property, held as inventory or otherwise held primarily for sale
to customers in the ordinary course of business will be treated
as income from a prohibited transaction that is subject to a
100% penalty tax. Whether property is held primarily for sale to
customers in the ordinary course of a trade or business depends
on all the facts and circumstances surrounding the particular
transaction. We do not intend to engage in prohibited
transactions.
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Penalty Tax.
Any redetermined rents,
redetermined deductions or excess interest we generate will be
subject to a 100% penalty tax. In general, redetermined rents
are rents from real property that are overstated as a result of
any services furnished to any of our tenants by one of our TRSs,
and redetermined deductions and excess interest represent any
amounts that are deducted by a TRS for amounts paid to us that
are in excess of the amounts that would have been deducted based
on arms-length negotiations. Rents we receive will not
constitute redetermined rents if they qualify for certain safe
harbor provisions contained in the Code. These determinations
are inherently factual, and the IRS has broad discretion to
assert that amounts paid between related parties should be
reallocated to clearly reflect their respective incomes. If the
IRS successfully made such an assertion, we would be required to
pay a 100% penalty tax on the excess of an arms-length fee
for tenant services over the amount actually paid.
Asset Tests.
At the close of each quarter of
our taxable year, we also must satisfy four tests relating to
the nature and composition of our assets. First, at least 75% of
the value of our total assets must be represented by real estate
assets, cash, cash items and government securities. For purposes
of this test, real estate assets include real property
(including interests in real property and interests in mortgages
on real property) and shares (or transferable certificates of
beneficial interest) in other REITs, as well as any stock or
debt instruments that are purchased with the proceeds of a stock
offering or public offering of debt at least five years, but
only for the one-year period beginning on the date we receive
such proceeds. Second, not more than 25% of our total assets may
be represented by securities, other than those securities
includable in the 75% asset test. Third, of the investments
included in the 25% asset class, and except for investments in
another REIT, a QRS or a TRS, the value of any one issuers
securities may not exceed 5% of the value of our total assets,
and we may not own more than 10% of the total vote or value of
the outstanding securities of any one issuer except, in the case
of the 10% value test, securities satisfying the straight
debt safe-harbor. Certain types of securities we may own
are disregarded as securities solely for purposes of the 10%
value test, including, but not limited to, any loan to an
individual or an estate, any obligation to pay rents from real
property and any security issued by a REIT. In addition,
commencing with out taxable year beginning January 1, 2005,
solely for purposes of the 10% value test, the determination of
our interest in the assets of a partnership or limited liability
company in which we own an interest will be based on our
proportionate interest in any securities issued by the
partnership or limited liability company, excluding for this
purpose certain securities described in the Code. Fourth, no
more than 20% of the value of our assets may be comprised of
securities of one or more TRSs.
After initially meeting the asset tests at the close of any
quarter, we will not lose our status as a REIT for failure to
satisfy the asset tests at the end of a later quarter solely by
reason of changes in asset values. If we fail to satisfy an
asset test because we acquire securities or other property
during a quarter, we can cure this failure by disposing of
sufficient nonqualifying assets within 30 days after the
close of that quarter. We believe we have maintained and intend
to continue to maintain adequate records of the value of our
assets to ensure compliance with the asset tests. If we failed
to cure any noncompliance with the asset tests within the
30 day cure period, we would cease to qualify as a REIT
unless we are eligible for certain relief provisions discussed
below.
Certain relief provisions may be available to us if we fail to
satisfy the asset tests described above after the 30 day
cure period. Under these provisions, we will be deemed to have
met the 5% and 10% REIT asset tests if the value of our
nonqualifying assets (i) does not exceed the lesser of
(a) 1% of the total value of our assets at the end of the
applicable quarter or (b) $10,000,000, and (ii) we
dispose of the nonqualifying assets or otherwise satisfy such
tests within six months after the last day of the quarter in
which the failure to satisfy the asset tests is discovered or
the period of time prescribed by Treasury Regulations to be
issued. For violations due to reasonable cause and not willful
neglect that are in excess of the de minimis exception described
above, we may avoid disqualification as a REIT under any of the
asset tests, after the 30 day cure period, by taking steps
including (i) the disposition of sufficient nonqualifying
assets, or the taking of other actions, which allow us to meet
the asset test within six months after the last day of the
quarter in which the failure to satisfy the asset tests is
discovered or the period of time prescribed by Treasury
Regulations to be issued, (ii) paying a tax equal to the
greater of (a) $50,000 or (b) the highest corporate
tax rate multiplied by the net income generated by the
nonqualifying assets and (iii) disclosing certain
information to the IRS.
Although we expect to satisfy the asset tests described above
and plan to take steps to ensure that we satisfy such tests for
any quarter with respect to which retesting is to occur, there
can be no assurance we will always be
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successful. If we fail to cure any noncompliance with the asset
tests in a timely manner, and the relief provisions described
above are not available, we would cease to qualify as a REIT.
Annual Distribution Requirements.
To maintain
our qualification as a REIT, we are required to distribute
dividends (other than capital gain dividends) to our
shareholders in an amount at least equal to the sum of 90% of
our REIT taxable income (computed without regard to
the dividends paid deduction and our net capital gain) and 90%
of our net income (after tax), if any, from foreclosure
property; minus the excess of the sum of certain items of
noncash income (i.e., income attributable to leveled stepped
rents, original issue discount on purchase money debt, or a
like-kind exchange that is later determined to be taxable) over
5% of REIT taxable income as described above.
In addition, if we dispose of any asset we acquired from a
corporation which is or has been a C corporation in a
transaction in which our basis in the asset is determined by
reference to the basis of the asset in the hands of that
C corporation, within the ten-year period following our
acquisition of such asset, we would be required to distribute at
least 90% of the after-tax gain, if any, we recognized on the
disposition of the asset, to the extent that gain does not
exceed the excess of (a) the fair market value of the asset
on the date we acquired the asset over (b) our adjusted
basis in the asset on the date we acquired the asset.
We must pay the distributions described above in the taxable
year to which they relate, or in the following taxable year if
they are declared before we timely file our tax return for such
year and if paid on or before the first regular dividend payment
after such declaration or are paid during January to
shareholders of record in October, November or December of the
prior year. These distributions are taxable to our shareholders
(other than tax-exempt entities) in the year in which they are
paid, even though the distributions relate to the prior year for
purposes of our 90% distribution requirement. The amount
distributed must not be preferential i.e., every
shareholder of the class of stock to which a distribution is
made must be treated the same as every other shareholder of that
class, and no class of stock may be treated otherwise than in
accordance with its dividend rights as a class. To the extent
that we do not distribute all of our net capital gain or
distribute at least 90%, but less than 100%, of our REIT
taxable income, as adjusted, we will be subject to tax
thereon at regular ordinary and capital gain corporate tax
rates. We believe we have made and intend to continue to make
timely distributions sufficient to satisfy these annual
distribution requirements.
We generally expect that our REIT taxable income will be less
than our cash flow because of the allowance of depreciation and
other non-cash charges in computing REIT taxable income.
Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the
distribution requirements described above. However, from time to
time, we may not have sufficient cash or other liquid assets to
meet these distribution requirements because of timing
differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and
deduction of expenses in arriving at our taxable income. If
these timing differences occur, in order to meet the
distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay
dividends in the form of taxable share dividends.
Under certain circumstances, we may be able to rectify a failure
to meet the 90% distribution requirement for a year by paying
deficiency dividends to shareholders in a later
year, which may be included in our deduction for dividends paid
for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we will
be required to pay interest to the IRS based on the amount of
any deduction taken for deficiency dividends.
In addition, we would be subject to a 4% excise tax to the
extent we fail to distribute during each calendar year (or in
the case of distributions with declaration and record dates
falling in the last three months of the calendar year, by the
end of January immediately following such year) at least the sum
of 85% of our REIT ordinary income for such year, 95% of our
REIT capital gain income for the year (other than certain
long-term capital gains for which we make a Capital Gains
Designation and on which we pay the tax), and any undistributed
taxable income from prior periods. Any REIT taxable income and
net capital gain on which this excise tax is imposed for any
year is treated as an amount distributed during that year for
purposes of calculating such tax.
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Earnings and Profits Distribution
Requirement.
In order to qualify as a REIT, we
cannot have at the end of any taxable year any undistributed
earnings and profits that are attributable to a
C corporation taxable year (i.e., a year in which a
corporation is neither a REIT nor an S corporation).
We intend to make timely distributions to satisfy the annual
distribution requirements.
Failure
to Qualify
Specified cure provisions will be available to us in the event
that we violate a provision of the Code that would result in our
failure to qualify as a REIT. These cure provisions would reduce
the instances that could lead to our disqualification as a REIT
for violations due to reasonable cause and would instead
generally require the payment of a monetary penalty. If we fail
to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax
(including any applicable alternative minimum tax) on our
taxable income at regular corporate rates. Distributions to
shareholders in any year in which we fail to qualify will not be
deductible by us, and we will not be required to distribute any
amounts to our shareholders. As a result, our failure to qualify
as a REIT would reduce the cash available for distribution by us
to our shareholders. In addition, if we fail to qualify as a
REIT, all distributions to shareholders will be taxable as
ordinary income to the extent of our current and accumulated
earnings and profits, and, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends
received deduction. Unless entitled to relief under specific
statutory provisions, we would also be disqualified from
taxation as a REIT for the four taxable years following the year
during which we lost our qualification. It is not possible to
state whether in all circumstances we would be entitled to this
statutory relief.
Taxation
of Taxable U.S. Shareholders
The following summary describes certain federal income tax
consequences to U.S. shareholders with respect to an
investment in our shares. This discussion does not address the
tax consequences to persons who receive special treatment under
the federal income tax law. Shareholders subject to special
treatment include, without limitation, insurance companies,
financial institutions or broker-dealers, tax-exempt
organizations, shareholders holding securities as part of a
conversion transaction, or a hedge or hedging transaction or as
a position in a straddle for tax purposes, foreign corporations
or partnerships and persons who are not citizens or residents of
the United States.
As used herein, the term U.S. Shareholder means
a holder of shares who, for United States federal income tax
purposes:
(i) is a citizen or resident of the United States;
(ii) is a corporation, partnership or other entity
classified as a corporation or partnership for United States
federal income tax purposes, created or organized in or under
the laws of the United States or of any state thereof or in the
District of Columbia, unless, in the case of a partnership,
Treasury Regulations provide otherwise;
(iii) is an estate the income of which is subject to United
States federal income taxation regardless of its source; or
(iv) is a trust whose administration is subject to the
primary supervision of a United States court and which has one
or more United States persons who have the authority to control
all substantial decisions of the trust. Notwithstanding the
preceding sentence, to the extent provided in Treasury
Regulations, certain trusts in existence on August 20,
1996, and treated as United States persons prior to this date
that elect to continue to be treated as United States persons,
shall also be considered U.S. Shareholders.
Distributions Generally.
As long as we qualify
as a REIT, distributions out of our current or accumulated
earnings and profits, other than capital gain dividends
discussed below, generally will constitute dividends taxable to
our taxable U.S. Shareholders as ordinary income. For
purposes of determining whether distributions to holders of
shares are out of current or accumulated earnings and profits,
our earnings and profits will be allocated first to our
outstanding preferred shares and then to our common shares.
These distributions will not be eligible for the
dividends-received deduction in the case of
U.S. Shareholders that are corporations.
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Because we generally are not subject to federal income tax on
the portion of our REIT taxable income distributed to our
shareholders, our ordinary dividends generally are not eligible
for the reduced 15% rate available to most non-corporate
taxpayers through 2010, and will continue to be taxed at the
higher tax rates applicable to ordinary income. However, the
reduced 15% rate does apply to our distributions:
(i) designated as long-term capital gain dividends (except
to the extent attributable to real estate depreciation, in which
case such distributions continue to be subject to tax at a 25%
rate);
(ii) to the extent attributable to dividends received by us
from non-REIT corporations or other taxable REIT
subsidiaries; and
(iii) to the extent attributable to income upon which we
have paid corporate income tax (for example, if we distribute
taxable income that we retained and paid tax on in the prior
year).
To the extent that we make distributions in excess of our
current and accumulated earnings and profits, these
distributions will be treated first as a tax-free return of
capital to each U.S. Shareholder. This treatment will
reduce the adjusted basis which each U.S. Shareholder has
in his shares of stock for tax purposes by the amount of the
distribution (but not below zero). Distributions in excess of a
U.S. Shareholders adjusted basis in his shares will
be taxable as capital gains (provided that the shares have been
held as a capital asset) and will be taxable as long-term
capital gain if the shares have been held for more than one
year. Dividends we declare in October, November, or December of
any year and payable to a shareholder of record on a specified
date in any of these months shall be treated as both paid by us
and received by the shareholder on December 31 of that year,
provided we actually pay the dividend on or before January 31 of
the following calendar year. Shareholders may not include in
their own income tax returns any of our net operating losses or
capital losses.
Capital Gain Distributions.
Distributions that
we properly designate as capital gain dividends (and
undistributed amounts for which we properly make a capital gains
designation) will be taxable to U.S. Shareholders as gains
(to the extent that they do not exceed our actual net capital
gain for the taxable year) from the sale or disposition of a
capital asset. Depending on the period of time we have held the
assets which produced these gains, and on certain designations,
if any, which we may make, these gains may be taxable to
non-corporate U.S. Shareholders at either a 15% or a 25%
rate, depending on the nature of the asset giving rise to the
gain. Corporate U.S. Shareholders may, however, be required
to treat up to 20% of certain capital gain dividends as ordinary
income.
Passive Activity Losses and Investment Interest
Limitations.
Distributions we make and gain
arising from the sale or exchange by a U.S. Shareholder of
our shares will be treated as portfolio income. As a result,
U.S. Shareholders generally will not be able to apply any
passive losses against this income or gain. A
U.S. shareholder may elect to treat capital gain dividends,
capital gains from the disposition of stock and qualified
dividend income as investment income for purposes of computing
the investment interest limitation, but in such case, the
shareholder will be taxed at ordinary income rates on such
amount. Other distributions we make (to the extent they do not
constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment
interest limitation. Gain arising from the sale or other
disposition of our shares, however, will not be treated as
investment income under certain circumstances.
Retention of Net Long-Term Capital Gains.
We
may elect to retain, rather than distribute as a capital gain
dividend, our net long-term capital gains. If we make this
election (a Capital Gains Designation) we would pay
tax on our retained net long-term capital gains. In addition, to
the extent we make a Capital Gains Designation, a
U.S. Shareholder generally would:
(i) include its proportionate share of our undistributed
long-term capital gains in computing its long-term capital gains
in its return for its taxable year in which the last day of our
taxable year falls (subject to certain limitations as to the
amount that is includable);
(ii) be deemed to have paid the capital gains tax imposed
on us on the designated amounts included in the
U.S. Shareholders long-term capital gains;
(iii) receive a credit or refund for the amount of tax
deemed paid by it;
15
(iv) increase the adjusted basis of its shares by the
difference between the amount of includable gains and the tax
deemed to have been paid by it; and
(v) in the case of a U.S. Shareholder that is a
corporation, appropriately adjust its earnings and profits for
the retained capital gains in accordance with Treasury
Regulations to be promulgated.
Dispositions
of Shares
Generally, if you are a U.S. Shareholder and you sell or
dispose of your shares, you will recognize gain or loss for
federal income tax purposes in an amount equal to the difference
between the amount of cash and the fair market value of any
property you receive on the sale or other disposition and your
adjusted basis in the shares for tax purposes. This gain or loss
will be capital if you have held the shares as a capital asset
and will be long-term capital gain or loss if you have held the
shares for more than one year. However, if you are a
U.S. Shareholder and you recognize loss upon the sale or
other disposition of shares that you have held for six months or
less (after applying certain holding period rules), the loss you
recognize will be treated as a long-term capital loss, to the
extent you received distributions from us which were required to
be treated as long-term capital gains. All or portion of any
loss a U.S. Shareholder realizes upon a taxable disposition
of our shares may be disallowed if the U.S. Shareholder
purchases substantially identical stock within the
61-day
period beginning 30 days before and ending 30 days
after the disposition.
The maximum tax rate for individual taxpayers on net long-term
capital gains (i.e., the excess of net long-term capital gain
over net short-term capital loss) is 15% for most assets. In the
case of individuals whose ordinary income is taxed at a 10% or
15% rate, the 15% rate is reduced to 5%. Absent future
legislation, the maximum tax rate on long-term capital gains
will return to 20% for tax years beginning after
December 31, 2010.
Redemption
of Shares
If we redeem any of your shares in us, the tax treatment of the
redemption can only be determined on the basis of particular
facts at the time of redemption. In general, you will recognize
gain or loss (as opposed to dividend income) equal to the
difference between the amount received by you in the redemption
and your adjusted tax basis in your shares redeemed if such
redemption results in a complete termination of your
interest in all classes of our equity securities, is a
substantially disproportionate redemption or is
not essentially equivalent to a dividend with
respect to you. In applying these tests, there must be taken
into account your ownership of all classes of our equity
securities. You also must take into account any equity
securities that are considered to be constructively owned by you.
If, as a result of a redemption by us of your shares, you no
longer own (either actually or constructively) any of our equity
securities or only own (actually and constructively) an
insubstantial percentage of our equity securities, then it is
likely that the redemption of your shares would be considered
not essentially equivalent to a dividend and, thus,
would result in gain or loss to you. Gain from the sale or
exchange of our shares held for more than one year is taxed at a
maximum long-term capital gain rate. However, whether a
distribution is not essentially equivalent to a
dividend depends on all of the facts and circumstances,
and if you rely on any of these tests at the time of redemption,
you should consult your tax advisor to determine their
application to the particular situation.
Generally, if the redemption does not meet the tests described
above, then the proceeds received by you from the redemption of
your shares will be treated as a distribution taxable as a
dividend to the extent of the allocable portion of current or
accumulated earnings and profits. If the redemption is taxed as
a dividend, your adjusted tax basis in the redeemed shares will
be transferred to any other shareholdings in us that you own. If
you own no other shareholdings in us, under certain
circumstances, such basis may be transferred to a related
person, or it may be lost entirely.
Information
Reporting and Backup Withholding
We report to our U.S. Shareholders and the IRS the amount
of dividends paid during each calendar year, and the amount of
any tax withheld. Under the backup withholding rules, a
shareholder may be subject to backup withholding with respect to
dividends paid unless the holder is a corporation or comes
within certain other exempt
16
categories and, when required, demonstrates this fact, or
provides a taxpayer identification number, certifies as to no
loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding
rules. A U.S. Shareholder that does not provide us with its
correct taxpayer identification number may also be subject to
penalties imposed by the IRS. Backup withholding is not an
additional tax. Any amount paid as backup withholding will be
creditable against the shareholders income tax liability.
In addition, we may be required to withhold a portion of capital
gain distributions to any shareholders who fail to certify their
non-foreign status. See Taxation of
Non-U.S. Shareholders.
Taxation
of Tax-Exempt Shareholders
The IRS has ruled that amounts distributed as dividends by a
qualified REIT do not constitute unrelated business taxable
income (UBTI) when received by a tax-exempt entity.
Based on that ruling, dividend income from us will not be UBTI
to a tax-exempt shareholder so long as the tax-exempt
shareholder (except certain tax-exempt shareholders described
below) has not held its shares as debt financed
property within the meaning of the Code (generally,
shares, the acquisition of which was financed through a
borrowing by the tax-exempt shareholder) and the shares are not
otherwise used in a trade or business. Similarly, income from
the sale of shares will not constitute UBTI unless a tax-exempt
shareholder has held its shares as debt financed
property within the meaning of the Code or has used the
shares in its trade or business.
For tax-exempt shareholders, which are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit
trusts and qualified group legal services plans exempt from
federal income taxation under Code Sections 501(c)(7),
(c)(9), (c)(17) and (c)(20), respectively, income from an
investment in our shares will constitute UBTI unless the
organization is able to properly deduct amounts set aside or
placed in reserve for certain purposes so as to offset the
income generated by its investment in our shares. These
prospective investors should consult their own tax advisors
concerning these set aside and reserve requirements.
Notwithstanding the above, however, a portion of the dividends
paid by a pension held REIT may be treated as UBTI
as to certain types of trusts that hold more than 10% (by value)
of the interests in the REIT.
A REIT will not be a pension held REIT if it is able
to satisfy the not closely held requirement without
relying upon the look-through exception with respect
to certain trusts. We do not expect to be classified as a
pension held REIT, but because our shares are
publicly traded, we cannot guarantee this will always be the
case.
Tax-exempt shareholders should consult their own tax advisors
concerning the U.S. federal, state, local and foreign tax
consequences of an investment in our shares.
Taxation
of
Non-U.S.
Shareholders
The rules governing U.S. federal income taxation of
non-U.S. Shareholders
(defined below) are complex. This section is only a summary of
such rules. We urge
non-U.S. Shareholders
to consult their own tax advisors to determine the impact of
federal, state, and local income tax laws on ownership of
shares, including any reporting requirements. As used herein,
the term
non-U.S. Shareholder
means any taxable beneficial owner of our shares (other than a
partnership or entity that is treated as a partnership for
U.S. federal income tax purposes) that is not a taxable
U.S. Shareholder.
Ordinary Dividends.
A
non-U.S. Shareholder
that receives a distribution that is not attributable to gain
from our sale or exchange of U.S. real property interests
(as defined below) and that we do not designate as a capital
gain dividend or retained capital gain will recognize ordinary
income to the extent that we pay such distribution out of our
current or accumulated earnings and profits. A withholding tax
equal to 30% of the gross amount of the distribution ordinarily
will apply to such distribution unless an applicable tax treaty
reduces or eliminates the tax. Under some treaties, however,
rates below 30% that are applicable to ordinary income dividends
from U.S. corporations may not apply to ordinary income
dividends from a REIT or may apply only if the REIT meets
certain additional conditions. If a distribution is treated as
effectively connected with the
non-U.S. Shareholders
conduct of a U.S. trade or business, however, the
non-U.S. Shareholder
generally will be subject to federal income tax on the
distribution at graduated rates, in the same manner as taxable
U.S. Shareholders are taxed with respect to such
17
distributions (and also may be subject to the 30% branch profits
tax in the case of a
non-U.S. Shareholder
that is a
non-U.S. corporation
unless the rate is reduced or eliminated by an applicable income
tax treaty).
Return of Capital.
A
non-U.S. Shareholder
will not incur tax on a distribution to the extent it exceeds
our current and accumulated earnings and profits if such
distribution does not exceed the adjusted basis of its shares.
Instead, such distribution in excess of earnings and profits
will reduce the adjusted basis of such shares. A
non-U.S. Shareholder
will be subject to tax to the extent a distribution exceeds both
our current and accumulated earnings and profits and the
adjusted basis of its shares, if the
non-U.S. Shareholder
otherwise would be subject to tax on gain from the sale or
disposition of its shares, as described below. Because we
generally cannot determine at the time we make a distribution
whether or not the distribution will exceed our current and
accumulated earnings and profits, we normally will withhold tax
on the entire amount of any distribution just as we would
withhold on a dividend. However, a
non-U.S. Shareholder
may obtain a refund of amounts that we withhold if we later
determine that a distribution in fact exceeded our current and
accumulated earnings and profits.
Capital Gain Dividends.
Provided that a
particular class of our shares is regularly traded
on an established securities market in the United States, and
the
non-U.S. Shareholder
does not own more than 5% of the shares of such class at any
time during the one-year period preceding the distribution, then
amounts distributed with respect to those shares that are
designated as capital gains from our sale or exchange of
U.S. real property interests (defined below) are treated as
ordinary dividends taxable as described above under
Ordinary Dividends.
If the foregoing exceptions do not apply, for example because
the
non-U.S. Shareholder
owns more than 5% of our shares, the
non-U.S. Shareholder
will incur tax on distributions that are attributable to gain
from our sale or exchange of U.S. real property interests
under the provisions of the Foreign Investment in Real Property
Tax Act of 1980 (FIRPTA). The term
U.S. real property interests includes certain
interests in real property and shares in corporations at least
50% of whose assets consists of interests in real property, but
excludes mortgage loans and mortgage-backed securities. Under
FIRPTA, a
non-U.S. Shareholder
is taxed on distributions attributable to gain from sales of
U.S. real property interests as if such gain were
effectively connected with a U.S. business of the
non-U.S. Shareholder.
A
non-U.S. Shareholder
thus would be taxed on such a distribution at the normal capital
gain rates applicable to taxable U.S. Shareholders (subject
to applicable alternative minimum tax and a special alternative
minimum tax in the case of a nonresident alien individual). A
corporate
non-U.S. Shareholder
not entitled to treaty relief or exemption also may be subject
to the 30% branch profits tax on distributions subject to
FIRPTA. We must withhold 35% of any distribution that we could
designate as a capital gain dividend. However, if we make a
distribution and later designate it as a capital gain dividend,
then (although such distribution may be taxable to a
non-U.S. Shareholder)
it is not subject to withholding under FIRPTA. Instead, we must
make up the 35% FIRPTA withholding from distributions made after
the designation, until the amount of distributions withheld at
35% equals the amount of the distribution designated as a
capital gain dividend. A
non-U.S. Shareholder
may receive a credit against its FIRPTA tax liability for the
amount we withhold.
Distributions to a
non-U.S. Shareholder
that we designate at the time of distribution as capital gain
dividends which are not attributable to or treated as
attributable to our disposition of a U.S. real property
interest generally will not be subject to U.S. federal
income taxation, except as described below under
Sale of Stock.
Sale of Stock.
A
non-U.S. Shareholder
generally will not incur tax under FIRPTA on gain from the sale
of its shares as long as we are a domestically controlled
REIT. A domestically controlled REIT is a REIT
in which at all times during a specified testing period
non-U.S. persons
held, directly or indirectly, less than 50% in value of the
shares. We believe that we are currently a domestically
controlled REIT. Because our common shares are publicly
traded, however, we cannot guarantee that we are or will
continue to be a domestically controlled REIT. In addition, a
non-U.S. Shareholder
that owns, actually or constructively, 5% or less of a class of
our outstanding shares at all times during a specified testing
period will not incur tax under FIRPTA on a sale of such shares
if the shares are regularly traded on an established
securities market.
If neither of these exceptions were to apply, the gain on the
sale of the shares would be taxed under FIRPTA, in which case a
non-U.S. Shareholder
would be required to file a U.S. federal income tax return
and would be taxed in the same manner as taxable
U.S. Shareholders with respect to such gain (subject to
applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals), and,
if the sold shares were not regularly traded on an established
securities market or we were not a domestically-controlled REIT,
the
18
purchaser of the shares may be required to withhold and remit to
the IRS 10% of the purchase price. Additionally, a corporate
non-U.S. Shareholder
may also be subject to the 30% branch profits tax on gains from
the sale of shares taxed under FIRPTA.
A
non-U.S. Shareholder
will incur tax on gain not subject to FIRPTA if (1) the
gain is effectively connected with the
non-U.S. Shareholders
U.S. trade or business, in which case the
non-U.S. Shareholder
will be subject to the same treatment as taxable
U.S. Shareholders with respect to such gain, or
(2) the
non-U.S. Shareholder
is a nonresident alien individual who was present in the
U.S. for 183 days or more during the taxable year, in
which case the
non-U.S. Shareholder
will incur a 30% tax on his capital gains. Capital gains
dividends not subject to FIRPTA will be subject to similar
rules. A
non-U.S. Shareholder
that is treated as a corporation for U.S. federal income
tax purposes and has effectively connected interest income (as
described in the first point above) may also, under certain
circumstances, be subject to an additional branch profits tax,
which is generally imposed on a foreign corporation on the
deemed repatriation from the United States of effectively
connected earnings and profits, at a 30% rate, unless the rate
is reduced or eliminated by an applicable income tax treaty.
Information Reporting and Backup
Withholding.
We must report annually to the IRS
and to each
non-U.S. Shareholder
the amount of distributions paid to such holder and the tax
withheld with respect to such distributions, regardless of
whether withholding was required. Copies of the information
returns reporting such distributions and withholding may also be
made available to the tax authorities in the country in which
the
non-U.S. Shareholder
resides under the provisions of an applicable income tax treaty.
Backup withholding (currently at the rate of 28%) and additional
information reporting will generally not apply to distributions
to a
non-U.S. Shareholder
provided that the
non-U.S. Shareholder
certifies under penalty of perjury that the Shareholder is a
non-U.S. Shareholder,
or otherwise establishes an exemption. Backup withholding is not
an additional tax and may be credited against a
non-U.S. Shareholders
U.S. federal income tax liability or refunded to the extent
excess amounts are withheld, provided that the required
information is supplied to the IRS.
State and
Local Tax Consequences
We may be subject to state or local taxation or withholding in
various state or local jurisdictions, including those in which
we transact business and our shareholders may be subject to
state or local taxation or withholding in various state or local
jurisdictions, including those in which they reside. Our state
and local tax treatment may not conform to the federal income
tax treatment discussed above. In addition, your state and local
tax treatment may not conform to the federal income tax
treatment discussed above. You should consult your own tax
advisors regarding the effect of state and local tax laws on an
investment in our shares.
SELLING
SHAREHOLDERS
We issued the common shares covered by this prospectus in
private placements to the selling shareholders in connection
with the redemption of their limited partnership interests in
our subsidiaries, DDR/Tech 29 Limited Partnership (Tech
29) and Developers Diversified Centennial Promenade LP
(Centennial Promenade). The following table sets
forth, to our knowledge, certain information about the selling
shareholders as of June 15, 2008.
Beneficial ownership is determined in accordance with the rules
of the SEC, and includes voting or investment power with respect
to shares. Common shares issuable under stock options that are
exercisable within 60 days after June 15, 2008 are
deemed outstanding for computing the percentage ownership of the
person holding the options but are not deemed outstanding for
computing the percentage ownership of any other person. Unless
otherwise indicated below, to our knowledge, the selling
shareholders named in the table have sole voting and investment
19
power with respect to their common shares. The inclusion of any
shares in this table does not constitute an admission of
beneficial ownership for the party named below.
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Number of
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Common Shares to be
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Common Shares Beneficially Owned Prior to Offering
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Common Shares
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Beneficially Owned After Offering(1)
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Name of Selling Shareholder
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Number
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Percentage
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Being Offered
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Number
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Percentage
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William Asbill
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4,270
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*
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4,270
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0
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*
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George Beuchert LLC
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211,685
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*
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211,685
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0
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*
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George H. Beuchert, III
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84,563
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*
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84,563
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0
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*
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The Beuchert Company
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1,281
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*
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1,281
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0
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*
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Barbara Kassap
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11,644
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*
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11,644
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0
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*
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KMGB Investment Corporation
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5,147
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*
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4,547
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0
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*
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Koelbel Promenade, LLC
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126,434
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*
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126,434
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0
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*
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Trust Under Agreement dated 12/29/78 with George H.
Beuchert, III, Margaret B. Jones and Maurice J. Montaldi,
Trustees
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7,917
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*
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7,117
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0
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*
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The 1987 Helman Trust with Jeffrey Helman, Trustee
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11,644
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*
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11,644
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0
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*
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*
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Less than one percent.
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(1)
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We do not know when or in what amounts the selling shareholders
may offer shares for sale. The selling shareholders might not
sell any or all of the shares offered by this prospectus.
Because the selling shareholders may offer any amount of the
shares pursuant to this offering, we cannot estimate the number
of shares that will be held by the selling shareholders after
completion of the offering. However, for purposes of this table,
we have assumed that, after completion of the offering, none of
the shares covered by this prospectus will be held by the
selling shareholders.
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The selling shareholders have not held any position or office
with, or had another material relationship with, us or any of
our subsidiaries within the past three years, except as follows:
In October 1997, Koelbel Promenade, LLC (Koelbel)
and another entity entered into an agreement of limited
partnership for Centennial Promenade with us. The agreement
provided for a right of redemption of Koelbels interest in
Centennial Promenade in exchange for cash or our common shares,
which was exercised in June 2008 and resulted in the issuance of
126,434 common shares to Koelbel on June 17, 2008. The
common shares offered by Koelbel hereby are being registered
pursuant to a registration rights agreement entered into in
October 1997 related to Centennial Promenade. Under the terms of
the agreement of limited partnership, Koelbel may not, during
any calendar quarter, sell, transfer or otherwise dispose of the
common shares if that sale, transfer or other disposition would
cause the aggregate number of common shares sold, transferred or
otherwise disposed of by all partners or former partners of
Centennial Promenade and their affiliates to exceed
25,000 shares.
In September 1998, the selling shareholders (other than Koelbel
Promenade, LLC) entered into an agreement of limited
partnership for Tech 29 with us and one of our subsidiaries. The
agreement provided for a right of redemption of each such
selling shareholders interest in Tech 29 in exchange for
cash or our common shares, which was exercised in May 2008 and
resulted in the issuance of 336,751 common shares to those
selling shareholders on June 13, 2008. The common shares
offered by those selling shareholders hereby are being
registered pursuant to a registration rights agreement entered
into in October 1998 related to Tech 29.
PLAN OF
DISTRIBUTION
The shares covered by this prospectus may be offered and sold
from time to time by the selling shareholders or the selling
shareholders pledgees, donees, transferees or other
successors-in-interest
who have received, after the date of this prospectus and from
the selling shareholders, shares as a gift, pledge, partnership
distribution or other non-sale related transfer. The selling
shareholders will act independently of us in making decisions
with respect to
20
the timing, manner and size of each sale. Such sales may be made
on one or more exchanges or in the over-the-counter market or
otherwise, at prices and under terms then prevailing or at
prices related to the then current market price or in negotiated
transactions. The selling shareholders may sell their shares by
one or more of, or a combination of, the following methods:
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purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this prospectus;
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ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
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crosses;
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block trades in which the broker-dealer so engaged will attempt
to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
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a transaction on any exchange or in the over-the-counter market;
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in privately negotiated transactions; or
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through the distribution of the shares to its partners, members
or shareholders.
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In addition, any shares that qualify for sale pursuant to
Rule 144 may be sold under Rule 144 rather than
pursuant to this prospectus.
To the extent required, this prospectus may be amended or
supplemented from time to time to describe a specific plan of
distribution. In connection with distributions of the shares or
otherwise, the selling shareholders may enter into hedging
transactions with broker-dealers or other financial
institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in
short sales of the common shares in the course of hedging the
positions they assume with the selling shareholders. The selling
shareholders may also sell the common shares short and redeliver
the shares to close out such short positions. The selling
shareholders may also enter into option or other transactions
with broker-dealers or other financial institutions which
require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares
such broker-dealer or other financial institution may resell
pursuant to this prospectus (as supplemented or amended to
reflect such transaction). The selling shareholders may also
pledge shares to a broker-dealer or other financial institution,
and, upon a default, such broker-dealer or other financial
institution, may effect sales of the pledged shares pursuant to
this prospectus (as supplemented or amended to reflect such
transaction).
In effecting sales, broker-dealers or agents engaged by the
selling shareholders may arrange for other broker-dealers to
participate. Broker-dealers or their agents may receive
commissions, discounts or concessions from the selling
shareholders in amounts to be negotiated immediately prior to
the sale.
In offering the shares covered by this prospectus, the selling
shareholders and any broker-dealers who execute sales for the
selling shareholders may be deemed to be
underwriters within the meaning of the Securities
Act in connection with such sales. Any profits realized by the
selling shareholders and the compensation of any broker-dealer
may be deemed to be underwriting discounts and commissions under
the Securities Act.
In order to comply with the securities laws of certain states,
if applicable, the shares must be sold in such jurisdictions
only through registered or licensed brokers or dealers. In
addition, in certain states the shares may not be sold unless
they have been registered or qualified for sale in the
applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
We have advised the selling shareholders that the
anti-manipulation rules of Regulation M under the Exchange
Act may apply to sales of shares in the market and to the
activities of the selling shareholders. In addition, we will
make copies of this prospectus available to the selling
shareholders for the purpose of satisfying the prospectus
delivery requirements of the Securities Act
,
which
may include delivery through the facilities of the New York
Stock Exchange pursuant to Rule 153 under the Securities
Act. The selling shareholders may indemnify any broker-dealer
that participates in transactions involving the sale of the
shares against certain liabilities, including liabilities
arising under the Securities Act.
21
At the time a particular offer of shares is made, if required, a
prospectus supplement will be distributed that will set forth
the number of shares being offered and the terms of the
offering, including the name of any underwriter, dealer or
agent, the purchase price paid by any underwriter, any discount,
commission and other item constituting compensation, any
discount, commission or concession allowed or reallowed or paid
to any dealer, and the proposed selling price to the public.
We have agreed to indemnify the selling shareholders against
certain liabilities, including certain liabilities under the
Securities Act.
We have agreed with the selling shareholders to keep the
registration statement of which this prospectus constitutes a
part effective until the earlier of (i) such time as all of
the shares covered by this prospectus have been disposed of
pursuant to and in accordance with the registration statement or
(ii) ten years after the effective date of the registration
statement of which this prospectus constitutes a part.
EXPERTS
The financial statements and managements assessment of the
effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal
Control over Financial Reporting) incorporated in this
prospectus by reference to the Annual Report on
Form 10-K
for the year ended December 31, 2007 have been so
incorporated in reliance on the report of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, given on
the authority of said firm as experts in auditing and accounting.
LEGAL
MATTERS
The validity of the common shares will be passed upon for us by
Baker & Hostetler LLP, Cleveland, Ohio.
22
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
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|
Item 14.
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Other
Expenses of Issuance and Distribution
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The following table sets forth the fees and expenses in
connection with the issuance and distribution of the shares
being registered hereunder, all of which will be borne by the
Company (except any underwriting discounts and commissions and
fees and disbursements of the selling shareholders
attorneys and any taxes relating to the sale or disposition of
the shares). Except for the SEC registration fee, all amounts
are estimates.
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|
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SEC registration fee
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$
|
639
|
|
NYSE listing fee
|
|
|
5,000
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|
Accounting fees and expenses
|
|
|
10,000
|
|
Legal fees and expenses (other than Blue Sky)
|
|
|
25,000
|
|
Blue Sky fees and expenses (including counsel fees)
|
|
|
1,000
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|
Printing and engraving expenses
|
|
|
2,000
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|
Transfer agents and registrars fees and expenses
|
|
|
500
|
|
Miscellaneous expenses
|
|
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361
|
|
|
|
|
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Total
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$
|
44,500
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|
|
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Item 15.
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Indemnification
of Directors and Officers
|
The Ohio Revised Code (the Ohio Code) authorizes
Ohio corporations to indemnify officers and directors from
liability if the officer or director acted in good faith and in
a manner reasonably believed by the officer or director to be in
or not opposed to the best interests of the corporation, and,
with respect to any criminal actions, if the officer or director
had no reason to believe his or her action was unlawful. In the
case of an action by or on behalf of a corporation,
indemnification may not be made (1) if the person seeking
indemnification is adjudged liable for negligence or misconduct,
unless the court in which such action was brought determines
such person is fairly and reasonably entitled to
indemnification, or (2) if liability asserted against such
person concerns certain unlawful distributions. The
indemnification provisions of the Ohio Code require
indemnification if a director or officer has been successful on
the merits or otherwise in defense of any action, suit or
proceeding that he or she was a party to by reason of the fact
that he or she is or was a director or officer of the
corporation. The indemnification authorized under Ohio law is
not exclusive and is in addition to any other rights granted to
officers and directors under the articles of incorporation or
code of regulations of the corporation or any agreement between
officers and directors and the corporation. A corporation may
purchase and maintain insurance or furnish similar protection on
behalf of any officer or director against any liability asserted
against such person and incurred by such person in his or her
capacity, or arising out of his or her status, as an officer or
director, whether or not the corporation would have the power to
indemnify him or her against such liability under the Ohio Code.
The registrants code of regulations provides for the
indemnification of directors and officers of the registrant to
the maximum extent permitted by Ohio law as authorized by the
board of directors of the registrant and for the advancement of
expenses incurred in connection with the defense of any action,
suit or proceeding that he or she was a party to by reason of
the fact that he or she is or was a director or officer of the
registrant upon the receipt of an undertaking to repay such
amount unless it is ultimately determined that the director or
officer is entitled to indemnification.
The registrant maintains a directors and officers
insurance policy which insures the directors and officers of the
registrant from claims arising out of an alleged wrongful act by
such persons in their respective capacities as directors and
officers of the registrant, subject to certain exceptions.
The registrant has entered into indemnification agreements with
its directors and officers which provide for indemnification to
the fullest extent permitted under Ohio law.
II-1
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Exhibit
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No.
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Exhibit Description
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4
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.1
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Second Amended and Restated Articles of Incorporation
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4
|
.2
|
|
Amended and Restated Code of Regulations(1)
|
|
4
|
.3
|
|
Specimen Certificate for Common Shares(2)
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5
|
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|
Opinion of Baker & Hostetler LLP regarding legality
|
|
8
|
|
|
Opinion of Baker & Hostetler LLP regarding tax matters
|
|
23
|
.1
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Consent of PricewaterhouseCoopers LLP
|
|
23
|
.2
|
|
Consent of Baker & Hostetler LLP (included in Exhibit 5)
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24
|
|
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Power of Attorney
|
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|
(1)
|
|
Incorporated by reference from the Companys Quarterly
Report on Form
10-Q
for the
fiscal quarter ended June 30, 2007 filed on August 9,
2007.
|
|
(2)
|
|
Incorporated by reference from the Companys Registration
Statement on
Form S-3
(No. 33-78778)
filed with the Commission on May 10, 1994.
|
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the
Calculation of Registration Fee
table in the
effective registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs (i), (ii) and
(iii) do not apply if the registration statement is on
Form S-3
and the information required to be included in a post-effective
amendment by those paragraphs is contained in reports filed with
or furnished to the Commission by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the
registration statement, or is contained in a form of prospectus
filed pursuant to Rule 424(b) that is part of the
registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
II-2
(4) That, for the purpose of determining liability under
the Securities Act of 1933 to any purchaser:
(i)(A) Each prospectus filed by the registrant pursuant to
Rule 424(b)(3) shall be deemed to be part of the
registration statement as of the date the filed prospectus was
deemed part of and included in the registration
statement; and
(B) Each prospectus required to be filed pursuant to Rule
424(b)(2), (b)(5) or (b)(7) as part of a registration statement
in reliance on Rule 430B relating to an offering made
pursuant to Rule 415(a)(1)(i), (vii) or (x) for the
purpose of providing the information required by
Section 10(a) of the Securities Act shall be deemed to be
part of and included in the registration statement as of the
earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of
securities in the offering described in prospectus. As provided
in Rule 430B, for liability purposes of the issuer and any
person that is at that date an underwriter, such date shall be
deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to
which the prospectus relates, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof. Provided, however, that no statement made
in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such
effective date, supersede or modify any statement that was made
in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such effective date; and
(5) That, for the purpose of determining liability of the
registrant under the Securities Act of 1933 to any purchaser in
the initial distribution of the securities, in a primary
offering of securities of the undersigned registrant pursuant to
this registration statement, regardless of the underwriting
method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any
of the following communications, the undersigned registrant will
be a seller to the purchaser and will be considered to offer or
sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of an undersigned registrant; and
(iv) Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
(b) The undersigned hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing
of the registrants annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act of
1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been informed that,
in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on
Form S-3
and has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
City of Beachwood, State of Ohio, on July 2, 2008.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
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|
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|
By:
|
/s/ Scott
A. Wolstein
|
Scott A. Wolstein
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Scott A. Wolstein, Daniel
B. Hurwitz and William H. Schafer, or any of them, his true and
lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration
Statement, and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that the attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities and on the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Scott
A. Wolstein
Scott
A. Wolstein
|
|
Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
|
|
July 2, 2008
|
|
|
|
|
|
/s/ William
H. Schafer
William
H. Schafer
|
|
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
|
July 2, 2008
|
|
|
|
|
|
/s/ Christa
A. Vesy
Christa
A. Vesy
|
|
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
|
|
July 2, 2008
|
|
|
|
|
|
/s/ Dean
S. Adler
Dean
S. Adler
|
|
Director
|
|
July 2, 2008
|
|
|
|
|
|
/s/ Terrance
R. Ahern
Terrance
R. Ahern
|
|
Director
|
|
July 2, 2008
|
|
|
|
|
|
Robert
H. Gidel
|
|
Director
|
|
July 2, 2008
|
|
|
|
|
|
/s/ Victor
B. MacFarlane
Victor
B. MacFarlane
|
|
Director
|
|
July 2, 2008
|
II-4
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Craig
Macnab
Craig
Macnab
|
|
Director
|
|
July 2, 2008
|
|
|
|
|
|
/s/ Scott
D. Roulston
Scott
D. Roulston
|
|
Director
|
|
July 2, 2008
|
|
|
|
|
|
/s/ Barry
A. Sholem
Barry
A. Sholem
|
|
Director
|
|
July 2, 2008
|
|
|
|
|
|
/s/ William
B. Summers, Jr.
William
B. Summers, Jr.
|
|
Director
|
|
July 2, 2008
|
II-5
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