FORM S-3/A
As
filed with the Securities and Exchange Commission on February 23,
2009
Registration
No. 333-155699
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Amendment
No. 1 to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ASSOCIATED ESTATES REALTY CORPORATION
(Exact name of registrant as specified in its charter)
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Ohio
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34-1747603 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
1 AEC Parkway
Richmond Heights, Ohio 44143-1467
(216) 261-5000
(Address, including zip code, and telephone number, including area code, of principal executive offices)
Jeffrey I. Friedman
Chairman of the Board, President and Chief Executive Officer
Associated Estates Realty Corporation
1 AEC Parkway
Richmond Heights, Ohio 44143-1467
(216) 261-5000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copy to:
Albert T. Adams, Esq.
Baker & Hostetler LLP
3200 National City Center
1900 East
9th Street
Cleveland, Ohio 44114-3485
(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. þ
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.
o
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. o
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, smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one):
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Large accelerated filer o
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Accelerated filer
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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The Registrants hereby amend this Registration Statement
on such date or dates as may be necessary to delay its effective date
until the Registrants shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. These securities may not be
sold until the registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS
Subject
to completion, dated February 23, 2009
$214,681,250
Associated Estates Realty Corporation
Debt Securities, Preferred Shares,
Depositary Shares, Common Shares and
Common Share Warrants
Associated Estates Realty Corporation (the Company) may from time to time offer in one or
more series (i) its unsecured debt securities (the Debt Securities), which may be senior debt
securities (Senior Securities) or subordinated securities (Subordinated Securities), (ii) whole
or fractional preferred shares (collectively, Preferred Shares) (iii) Preferred Shares
represented by depositary shares (Depositary Shares), (iv) common shares, without par value
(Common Shares), or (v) warrants to purchase Common Shares (Common Share Warrants), with an
aggregate public offering price of up to $214,681,250, on terms to be determined at the time or
times of offering. The Debt Securities, Preferred Shares, Depositary Shares, Common Shares and
Common Share Warrants (collectively, the Offered Securities) may be offered, separately or
together, in separate classes or series, in amounts, at prices and on terms to be set forth in a
supplement to this Prospectus (a Prospectus Supplement).
The specific terms of the Offered Securities to which this Prospectus relates will be set
forth in the applicable Prospectus Supplement and will include, when applicable: (i) in the case of
Debt Securities, the specific title, aggregate principal amount, currency, form (which may be
registered or bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, terms for redemption at the option
of the Company or repayment at the option of the holder thereof, terms for sinking fund payments,
terms for conversion into Preferred Shares or Common Shares, and any initial public offering price;
(ii) in the case of Preferred Shares, the specific class, series, title and stated value, any
dividend, liquidation, redemption, conversion, voting and other rights, and any initial public
offering price; (iii) in the case of Depositary Shares, the whole or fractional Preferred Shares
represented by each such Depositary Share; (iv) in the case of Common Shares, any initial public
offering price; and (v) in the case of Common Share Warrants, the duration, offering price,
exercise price and detachability features. In addition, such specific terms may include limitations
on direct or beneficial ownership and restrictions on transfer of the Offered Securities, in each
case as may be appropriate to preserve the status of the Company as a real estate investment trust
(REIT) for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, when applicable, about
certain United States federal income tax considerations relating to, and any listing on a
securities exchange of, the Offered Securities covered by that Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated from time to time by
the Company, or to or through underwriters or dealers. If any agents or underwriters are involved
in the sale of any of the Offered Securities, their names and any applicable purchase price, fee,
commission or discount arrangement will be set forth in or will be calculable from the information
set forth in the applicable Prospectus Supplement. No Offered Securities may be sold without
delivery of the applicable Prospectus Supplement describing the method and terms of the offering of
those Offered Securities. See Plan of Distribution for possible indemnification arrangements with
underwriters, dealers and agents.
These securities have not been approved or disapproved by the Securities and Exchange
Commission or any state securities commission nor has the securities and exchange commission or any
state securities commission passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
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The
date of this Prospectus is [____________], 2009
No person has been authorized to give any information or to make any representations in
connection with this offering other than those contained or incorporated by reference in this
Prospectus or an applicable Prospectus Supplement and, if given or made, such information or
representations must not be relied upon as having been authorized by the company or any
underwriter, dealer or agent. This Prospectus and any applicable Prospectus Supplement do not
constitute an offer to sell or a solicitation of an offer to buy any securities offered hereby in
any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus or any Prospectus Supplement nor any sale
made hereunder shall under any circumstances create any implication that there has been no change
in the affairs of the company since the date hereof or thereof.
TABLE OF CONTENTS
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus and the documents incorporated by reference herein contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. 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. You can identify forward-looking statements by the use of
forward-looking words, such as expects, projects, believes, plans, anticipates,
estimates, may, will or intends or the negative of those words or similar words.
Forward-looking statements involve inherent risks and uncertainties regarding events, conditions
and financial trends that may affect our future plans of operation, business strategy, results of
operations and financial position. For a discussion of factors that could cause actual results to
differ from those contemplated in the forward-looking statements, please see the discussion under
Risk Factors contained in this Prospectus and in other information contained in our publicly
available filings with the Securities and Exchange Commission, including our Annual Report on Form
10-K for the year ended December 31, 2007 and other reports we file under the Securities Exchange
Act of 1934. We do not undertake any responsibility to update any of these factors or to announce
publicly any revisions to forward-looking statements, whether as a result of new information,
future events or otherwise.
RISK FACTORS
You should carefully consider the risks described below and the documents we file with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, incorporated by
reference herein, before making an investment decision in our company. The risks and uncertainties
described below are not the only ones facing our company and there may be additional risks that we
do not presently know of or that we currently consider immaterial. All of these risks could
adversely affect our business, financial condition, results of operations and cash flows. As a
result, our ability to pay dividends on, and the market price of, our equity securities may be
adversely affected if any of such risks are realized.
We are subject to risks inherent in the ownership of real estate. We own and manage multifamily
apartment communities that are subject to varying degrees of risk generally incident to the
ownership of real estate. Our financial condition, the value of our properties and our ability to
make distributions to our shareholders will be dependent upon our ability to operate our properties
in a manner sufficient to generate income in excess of operating expenses and debt service charges,
which may be affected by the following risks, some of which are discussed in more detail below:
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changes in the economic climate in the markets in which we own and manage properties,
including interest rates, our ability to consummate the sale of properties pursuant to our
current plan, the overall level of economic activity, the availability of consumer credit
and mortgage financing, unemployment rates and other factors; |
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the ability to refinance debt on favorable terms at maturity; |
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the ability to defease or prepay debt pursuant to our current plan; |
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risks of a lessening of demand for the multifamily units that we own or manage; |
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competition from other available multifamily units and changes in market rental rates; |
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increases in property and liability insurance costs; |
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unanticipated increases in real estate taxes and other operating expenses (e.g.,
cleaning, utilities, repair and maintenance costs, insurance and administrative costs,
security, landscaping, staffing and other general costs); |
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weather conditions that adversely affect operating expenses; |
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expenditures that cannot be anticipated such as utility rate and usage increases,
unanticipated repairs and real estate tax valuation reassessments or millage rate
increases; |
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inability to control operating expenses or achieve increases in revenue; |
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the results of litigation filed or to be filed against us; |
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changes in tax legislation; |
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risks of personal injury claims and property damage related to mold claims because of
diminished insurance coverage; |
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catastrophic property damage losses that are not covered by our insurance; |
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risks associated with property acquisitions such as environmental liabilities, among others; |
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changes in or termination of contracts relating to our third party management and advisory
business; |
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risks related to the perception of residents and prospective residents as to the
attractiveness, convenience and safety of our properties or the neighborhoods in which they are
located; and |
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the ability to acquire properties at prices consistent with our investment criteria. |
We are dependent on rental income from our multifamily apartment communities. If we are unable to
attract and retain residents or if our residents are unable to pay their rental obligations, our
financial condition and funds available for distribution to our shareholders may be adversely
affected.
Our multifamily apartment communities are subject to competition. Our apartment communities are
located in developed areas that include other apartment communities and compete with other housing
alternatives, such as condominiums, single and multifamily rental homes and owner occupied single
and multifamily homes. In certain markets, such as Florida, failed condominium conversions are
reverting back to apartment rentals, creating increasing competition in those markets. Such
competition may affect our ability to
attract and retain residents and to increase or maintain rental rates.
The properties we own are concentrated in Ohio, Michigan, Georgia, Florida, Indiana, Virginia,
Maryland and Pennsylvania. As of September 30, 2008, 32%, 23%, 14%, 10%, 7%, 6%, 5% and 3% of the
units in properties we own are located in Ohio, Michigan, Georgia, Florida, Indiana, Virginia,
Maryland, and Pennsylvania, respectively. Our performance, therefore, is linked to economic
conditions and the market for available rental housing in the sub-markets in which we operate. The
decline in the market for
apartment housing in the various sub-markets in Ohio, or to a lesser extent, the sub-markets in the
other states, may adversely affect our financial condition, results of operations and ability to
make distributions to our shareholders.
Our insurance may not be adequate to cover certain risks. There are certain types of risks,
generally of a catastrophic nature, such as earthquakes, floods, windstorms, acts of war and
terrorist attacks that may be uninsurable, are not economically insurable, or are not fully covered
by insurance. Moreover, certain risks, such as mold and environmental exposures, generally are not
covered by our insurance. Other risks are subject to various sublimits, deductibles and self
insurance retentions, which help to control insurance costs, but which may result in increased
exposures to uninsured loss. Any such uninsured loss could have a material adverse effect on our
business, financial condition and results of operations.
Debt financing could adversely affect our performance. Thirty-two of our fifty properties are
currently encumbered by project specific, non-recourse, and, except for five properties,
non-cross-collateralized mortgage debt. There is a risk that these properties may not have
sufficient cash flow from operations to pay required principal and interest. We may not be able to
refinance these loans at an amount equal to the loan balance, and the terms of any refinancing may
not be as favorable as the terms of existing indebtedness. If we are unable to make required
payments on indebtedness that is secured by a mortgage, the property securing the mortgage may be
foreclosed with a consequent loss of income and value to us.
Real estate investments are generally illiquid, and we may not be able to sell our properties when
it is economically or strategically advantageous to do so. Real estate investments generally cannot
be sold quickly, and our ability to sell properties may be affected by market conditions. We may
not be able to diversify or vary our portfolio promptly in accordance with our strategies or in
response to economic or other conditions. In addition, provisions of the Internal Revenue Code of
1986, as amended, or the Code, limit the ability of a REIT to sell its properties in some
situations when it may be economically advantageous to do so, thereby potentially adversely
affecting our ability to make distributions to our shareholders.
Our access to public debt markets is limited. Substantially all of our current debt is either
secured or bank debt under our revolving credit facility because of our limited access to public
debt markets.
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Litigation may result in unfavorable outcomes. Like many real estate operators, we are frequently
involved in lawsuits involving premises liability claims, housing discrimination claims and alleged
violations of landlord-tenant laws, which may give rise to class action litigation or governmental
investigations. Any material litigation not covered by insurance, such as a class action, could
result in substantial costs being incurred.
Our financial results may be adversely impacted if we are unable to sell properties and employ the
proceeds in accordance with our strategic plan. Our ability to pay down debt, reduce our interest
costs and acquire properties is impacted by our ability to sell the properties we have selected for
disposition at the prices and within the deadlines established for each respective property.
Moreover, if we are unable to acquire properties at prices consistent with our investment criteria,
we may reduce or discontinue property sales.
The costs of complying with laws and regulations could adversely affect our cash flow. Our
properties must comply with Title III of the Americans with Disabilities Act, or the ADA, to the
extent that they are public accommodations or commercial facilities as defined in the ADA. The
ADA does not consider apartment communities to be public accommodations or commercial facilities,
except for portions of such communities that are open to the public. In addition, the Fair Housing
Amendments Act of 1988, or the FHAA, requires apartment communities first occupied after March 13,
1990 to be accessible to the handicapped. Other laws also require apartment communities to be
handicap accessible. Noncompliance with these laws could result in the imposition of fines or an
award of damages to private litigants. We have been subject to lawsuits alleging violations of
handicap design laws in connection with certain of our developments.
Under various federal, state and local laws, an owner or operator of real estate may be liable for
the costs of removal or remediation of certain hazardous or toxic substances on, under or in the
property. This liability may be imposed without regard to whether the owner or operator knew of, or
was responsible for, the presence of the substances. Other laws impose on owners and operators
certain requirements regarding conditions and activities that may affect human health or the
environment. Failure to comply with applicable requirements could complicate our ability to lease
or sell an affected property and could subject us to monetary penalties, costs required to achieve
compliance and potential liability to third parties. We are not aware of any material
noncompliance, liability or claim relating to hazardous or toxic substances or other environmental
matters in connection with any of our properties. Nonetheless, it is possible that material
environmental contamination or conditions exist, or could arise in the future in the apartment
communities or on the land upon which they are located.
We are subject to risks associated with development, acquisition and expansion of multifamily
apartment communities. Development projects, acquisitions and expansions of apartment communities
are subject to a number of risks, including:
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availability of acceptable financing; |
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competition with other entities for investment opportunities; |
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failure by our properties to achieve anticipated operating results; |
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construction costs of a property exceeding original estimates; |
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delays in construction; and |
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expenditure of funds on, and the devotion of management time to, transactions that may not
come to fruition. |
We may fail to qualify as a REIT and you may incur tax liability as a result. Commencing with our
taxable year ending December 31, 1993, we have operated in a manner so as to permit us to qualify
as a REIT under the Code, and we intend to continue to operate in such a manner. Although we
believe that we will continue to operate as a REIT, no assurance can be given that we will remain
qualified as a REIT. If we were to fail to qualify as a REIT in any taxable year, we would not be
allowed a deduction for distributions to our shareholders in computing our taxable income and would
be subject to federal income tax (including any applicable alternative minimum tax) on our taxable
income at regular corporate rates. Unless we are entitled to relief under certain Code provisions,
we also would be disqualified from treatment as a REIT for the four taxable years following the
year during which REIT qualification was lost. As a result, the cash available for distribution to
our shareholders could be reduced or eliminated for each of the years involved.
Our ownership limit, our shareholders rights plan and state anti-takeover laws may discourage
takeover attempts. With certain limited exceptions, our Second Amended and Restated Articles of
Incorporation, as amended and supplemented to date, prohibits the
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ownership of more than 4.0% of outstanding common shares and more than 9.8% of the shares of any
series of any class of our preferred shares by any person, unless we grant a waiver. Absent such a
waiver, any shares owned in excess of such ownership limit will be subject to repurchase by us and
to other consequences as set for in our Articles of Incorporation. Our shareholder rights plan will
be triggered if any person or group becomes the beneficial owner of, or announces an offer to
acquire, 15.0% or more of our common shares. We are domiciled in the State of Ohio, where various
state statutes place certain restrictions on takeover activity. These restrictions are likely to
have the effect of precluding acquisition of control of us without our consent even if a change in
control is in the interests of our shareholders.
We are subject to control by our directors and officers. Our directors and executive officers and
some members of their respective families owned approximately 19% of our outstanding common shares
as of September 30, 2008. Accordingly, those persons have substantial influence over us and the
outcome of matters submitted to our shareholders for approval.
We depend on our key personnel. Our success depends to a significant degree upon the continued
contribution of key members of our management team, who may be difficult to replace. The loss of
services of these executives could have a material adverse effect on us. There can be no assurance
that the services of such personnel will continue to be available to us. Our Chairman of the Board,
President and Chief Executive Officer, Mr. Jeffrey I. Friedman, is a party to an employment
agreement with us. Other than Mr. Friedman, we do not have employment agreements with key
personnel. We do not hold key-man life insurance on any of our key personnel.
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and special reports, proxy statements and other
information with the Commission. Those filings are available on the Internet at the Commissions
web site at http://www.sec.gov. You may also read and copy any document the Company files at the
Commissions public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the
Commission at 1-800-SEC-0330 for more information on the public reference room and its copy
charges. You may also inspect the Companys reports and other information at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. The Company also maintains a website at
http://www.aecrealty.com. Please note that all references to http://www.aecrealty.com in this
Prospectus are inactive textual references only and that the information contained on such website
is not incorporated by reference into this Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Information that we have previously filed with the Commission can be incorporated by
reference into this Prospectus. The process of incorporation by reference allows us to disclose
important information to you without duplicating that information in this Prospectus. The
information we incorporate by reference is considered a part of this Prospectus. The information
in this Prospectus, including any information that we incorporate by reference, will be updated and
superseded automatically by our filings with the Commission after the date of this Prospectus. We
are incorporating by reference the documents listed below:
a. Annual Report on Form 10-K for the fiscal year ended December 31, 2007;
b. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008, June 30, 2008 and
September 30, 2008;
c. Current Reports on Form 8-K and amendments thereto filed with the Commission on February
7, 2008, March 3, 2008, March 24, 2008, April 25,
2008, May 13, 2008, July 3, 2008, November
25, 2008, December 30, 2008 and January 14, 2009; and
d. The description of the Companys Common Shares contained in the Companys Form 8-A dated
October 14, 1993.
We are also incorporating by reference any filings we make with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Offered Securities.
We will furnish without charge to each person (including any beneficial owner) to whom a
Prospectus is delivered, upon written or oral request, a copy of any or all of the foregoing
documents incorporated herein by reference (other than certain exhibits). Requests for such
documents should be made to:
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Mail:
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Associated Estates Realty Corporation |
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Attention: Investor Relations |
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1 AEC Parkway |
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Richmond Heights, Ohio 44143 |
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Telephone:
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216-261-5000 |
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Website:
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http://www.aecrealty.com |
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(select Contact Us option) |
THE COMPANY
We are a fully-integrated, self-administered and self-managed real estate investment trust, or
REIT, focused primarily on the ownership, operation, management, acquisition and disposition of
apartment communities. As of September 30, 2008, our portfolio consisted of 54 apartment
communities containing 13,396 units primarily located in the Midwest, Mid-Atlantic and Southeast. We operate
as a REIT for federal income tax purposes and own two taxable REIT subsidiaries that provide
management and other services to us and to third parties.
As of September 30, 2008, our portfolio consisted of: (i) 50 apartment communities containing
12,672 units in eight states that are wholly owned, either directly or indirectly through
subsidiaries; (ii) one joint venture Affordable Housing property containing 108 units; (iii) three
apartment communities that we manage for third party owners consisting of 616 units and ancillary
commercial facilities; and (iv) a 186-unit apartment community and a commercial property containing
approximately 145,000 square feet that we asset manage for a government sponsored pension fund.
Our headquarters are located at 1 AEC Parkway, Richmond Heights, Ohio 44143 and our telephone
number is (216) 261-5000.
The foregoing information concerning us does not purport to be comprehensive. For additional
information concerning our business and affairs, including capital requirements and external
financing plans, pending legal and regulatory proceedings and descriptions of certain laws and
regulations to which we may be subject, please refer to the documents incorporated by reference
into this Prospectus.
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Our ratio of earnings to fixed charges for the nine-month period ended September 30, 2008 and
the fiscal years ended December 31, 2007, December 31, 2006, December 31, 2005, December 31, 2004
and December 31, 2003 were as follows:
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Time Period |
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December 31, 2003 |
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0.70 |
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December 31, 2004 |
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0.78 |
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December 31, 2005 |
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0.66 |
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December 31, 2006 |
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0.57 |
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December 31, 2007 |
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0.66 |
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Nine month period ended September 30, 2008 |
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0.73 |
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Our ratio of earnings to combined fixed charges and preferred stock dividends for the
nine-month period ended September 30, 2008 and the fiscal years ended December 31, 2007, December
31, 2006, December 31, 2005, December 31, 2004 and December 31, 2003 were as follows:
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Time Period |
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Ratio |
December 31, 2003 |
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0.62 |
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December 31, 2004 |
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0.69 |
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December 31, 2005 |
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0.59 |
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December 31, 2006 |
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0.52 |
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December 31, 2007 |
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0.59 |
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Nine month period ended September 30, 2008 |
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0.65 |
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For purposes of computing these ratios, earnings have been calculated by adding fixed charges
(excluding capitalized interest) to income from continuing operations before taxes and
extraordinary items. Fixed charges consist of preferred dividends accrued, interest costs, whether
expensed or capitalized, the interest component of rental expense, the interest component of ground
rent and the amortization of debt discounts and issue costs, whether expensed or capitalized.
During the nine months ended September 30, 2008, and the twelve months ended December 31, 2007,
2006, 2005, 2004 and 2003, the total dollar amount of the deficiency in the ratio of earnings to
fixed charges was $8.0 million, $14.7 million, $24.6 million, $15.1 million, $9.1 million and $12.5
million, respectively. During the nine months ended September 30, 2008, and the twelve months
ended December 31, 2007, 2006, 2005, 2004 and 2003, the total dollar amount of the deficiency in
the ratio of earnings to combined fixed charges and preferred dividends was $11.6 million, $19.6
million, $29.7 million, $20.2 million, $14.9 million and $18.0 million, respectively.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the Company intends to use
the net proceeds from the sale of the Offered Securities for general corporate purposes, which may
include the acquisition of properties, the expansion and improvement of certain properties in the
Companys portfolio and the repayment of indebtedness.
DESCRIPTION OF DEBT SECURITIES
The Senior Securities will be issued under an Indenture (the Senior Indenture) between the
Company and U.S. Bank National Association (successor to National City Bank), as Trustee, as
supplemented by the Supplemental Indenture, dated as of November 5, 1999. The Subordinated
Securities will be issued under an Indenture (the Subordinated Indenture) between the Company and
the successor to The Chase Manhattan Bank (formerly Chemical Bank),
as Trustee, dated as of March 31, 1995. The Senior
Indenture and the Subordinated Indenture are sometimes referred to herein collectively as the
Indentures and each individually as an Indenture. Currently the Company has no securities
issued under either the Senior Indenture or the Subordinated Indenture outstanding.
The Indentures have been filed as exhibits to the Registration Statement of which this
Prospectus is a part and are available for inspection at the respective corporate trust offices of
the Trustee. The Indentures are subject to, and are governed by, the Trust Indenture Act of 1939,
as amended. The statements made hereunder relating to the Indentures and the Debt Securities to be
issued thereunder are summaries of certain provisions thereof and do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all provisions of the
Indentures and such Debt Securities. All section references appearing in this section Description
of Debt Securities are to sections of the applicable Indenture, and capitalized terms used but not
defined herein have the respective meanings set forth in the applicable Indenture.
General
The Debt Securities will be direct, unsecured obligations of the Company. Each Indenture
provides that the Debt Securities issued thereunder may be issued without limit as to aggregate
principal amount, in one or more series, in each case as established from time to time in or
pursuant to authority granted by a resolution of the Board of Directors of the Company or as
established in one or more indentures supplemental to the applicable Indenture. All Debt Securities
of one series need not be issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the Holders of the Debt Securities of such series, for issuances
of additional Debt Securities of such series (Section 301 of the Indentures). Any Trustee under
either Indenture may resign or be removed with respect to one or more series of Debt Securities
issued under such Indenture, and a successor Trustee may be appointed to act with respect to such
series.
Reference is made to each Prospectus Supplement for the specific terms of the series of Debt
Securities being offered thereby, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any limit on such aggregate
principal amount;
(3) the percentage of the principal amount at which such Debt Securities will be issued and,
if other than the principal amount thereof, the portion of the principal amount thereof payable
upon declaration of acceleration of the maturity thereof, or (if applicable) the portion of the
principal amount of such Debt Securities which is convertible into Common Shares or other equity
securities of the Company, or the method by which any such portion shall be determined;
9
(4) if such Debt Securities are convertible, any limitation on the ownership or
transferability of the Common Shares or other equity securities of the Company into which they
are convertible in connection with the preservation of the Companys status as a REIT;
(5) the date or dates, or the method for determining the date or dates, on which the
principal of such Debt Securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the method by which such rate or
rates shall be determined, at which such Debt Securities will bear interest;
(7) the date or dates, or the method for determining the date or dates, from which any such
interest will accrue, the Interest Payment Dates on which any such interest will be payable, the
Regular Record Dates for such Interest Payment Dates, or the method by which such Regular Record
Dates shall be determined, the Person to whom such interest shall be payable, and the basis upon
which interest shall be calculated if other than that of a 360-day year of twelve 30-day months;
(8) the place or places where the principal of (and premium, if any) or interest on such
Debt Securities will be payable, such Debt Securities may be surrendered for conversion or
registration of transfer or exchange, and notices or demands to or upon the Company in respect of
such Debt Securities and the applicable Indenture may be served;
(9) the period or periods within which, the price or prices at which, and the terms and
conditions upon which, such Debt Securities may be redeemed, as a whole or in part, at the option
of the Company, if the Company is to have such an option;
(10) the obligation, if any, of the Company to redeem, repay or purchase such Debt
Securities pursuant to any sinking fund or analogous provision or at the option of a Holder
thereof, and the period or periods within which, the price or prices at which and the terms and
conditions upon which such Debt Securities will be redeemed, repaid or purchased, as a whole or
in part, pursuant to such obligation;
(11) if other than U.S. dollars, the currency or currencies in which such Debt Securities
are denominated and payable, which may be a foreign currency or units of two or more foreign
currencies or a composite currency or currencies, and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of (and premium, if any) or interest on
such Debt Securities may be determined with reference to an index, formula or other method (which
index, formula or method may, but need not be, based on a currency, currencies, currency unit or
units or composite currency or currencies) and the manner in which such amounts shall be
determined;
(13) any additions to, modifications of or deletions from the terms of such Debt Securities
with respect to the Events of Default or covenants set forth in the applicable Indenture;
(14) whether such Debt Securities will be issued in certificated or book-entry form;
(15) whether such Debt Securities will be in registered or bearer form or both and, if and
to the extent in registered form, the denominations thereof if other than $1,000 and any integral
multiple thereof and, if and to the extent in bearer form, the denominations thereof and terms
and conditions relating thereto;
(16) the applicability, if any, of the defeasance and covenant defeasance provisions of
Article XIV of the applicable Indenture;
(17) the terms, if any, upon which such Debt Securities may be convertible into Common
Shares or other equity securities of the Company (and the class thereof) and the terms and
conditions upon which such conversion will be effected, including, without limitation, the
initial conversion price or rate and the conversion period;
(18) whether and under what circumstances the Company will pay additional amounts on such
Debt Securities in respect of any tax, assessment or governmental charge and, if so, whether the
Company will have the option to redeem such Debt Securities in lieu of making such payment; and
(19) any other terms of such Debt Securities not inconsistent with the provisions of the
applicable Indenture.
10
The Debt Securities may provide for less than the entire principal amount thereof to be
payable upon declaration of acceleration of the maturity thereof (Original Issue Discount
Securities). Any special U.S. federal income tax, accounting and other considerations applicable
to Original Issue Discount Securities will be described in the applicable Prospectus Supplement.
Neither Indenture contains any provision that would limit the ability of the Company to incur
indebtedness or that would afford Holders of Debt Securities protection in the event of a highly
leveraged or similar transaction involving the Company or in the event of a change of control.
However, certain restrictions on ownership and transfers of the Companys Common Shares and the
Companys other equity securities designed to preserve its status as a REIT may act to prevent or
hinder a change of control. See Description of Common Shares, Description of Preferred Shares
and Description of Depositary Shares. Reference is made to the applicable Prospectus Supplement
for information with respect to any deletion from, modification of or addition to the Events of
Default or covenants of the Company that are described below, including any addition of a covenant
or other provision providing event risk or similar protection.
Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable Prospectus Supplement, the Debt Securities of any
series will be issuable in denominations of $1,000 and integral multiples thereof (Section 302 of
the Indentures).
Unless otherwise specified in the applicable Prospectus Supplement, the principal of (and
premium, if any) and interest on any series of Debt Securities will be payable at the corporate
trust office of the applicable Trustee, provided that, at the option of the Company, payment of
interest may be made by check mailed to the address of the Person entitled thereto as it appears in
the Security Register or by wire transfer of funds to such Person at an account maintained within
the United States (Sections 301, 305, 306, 307 and 1002 of the Indentures).
Any interest not punctually paid or duly provided for on any Interest Payment Date with
respect to a Debt Security (Defaulted Interest) will forthwith cease to be payable to the Holder
on the applicable Regular Record Date and may either be paid to the person in whose name such Debt
Security is registered at the close of business on a special record date (the Special Record
Date) for the payment of such Defaulted Interest to be fixed by the applicable Trustee, notice of
which shall be given to the Holder of such Debt Security not less than 10 days prior to such
Special Record Date, or may be paid at any time in any other lawful manner, all as more completely
described in the applicable Indenture (Section 307 of the Indentures).
Subject to certain limitations applicable to Debt Securities issued in book-entry form, the
Debt Securities of any series will be exchangeable for other Debt Securities of the same series and
of a like aggregate principal amount and tenor of different authorized denominations upon surrender
of such Debt Securities at the corporate trust office of the applicable Trustee. In addition,
subject to certain limitations applicable to Debt Securities issued in book-entry form, the Debt
Securities of any series may be surrendered for conversion or registration of transfer thereof at
the corporate trust office of the applicable Trustee. Every Debt Security surrendered for
conversion, registration of transfer or exchange must be duly endorsed or accompanied by a written
instrument of transfer. No service charge will be made for any registration of transfer or exchange
of any Debt Securities, but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith (Section 305 of the Indentures). If the
applicable Prospectus Supplement refers to any transfer agent (in addition to the Trustee)
initially designated by the Company with respect to any series of Debt Securities, the Company may
at any time rescind the designation of any such transfer agent or approve a change in the location
at which any such transfer agent acts, except that the Company will be required to maintain a
transfer agent in each Place of Payment for such series. The Company may at any time designate
additional transfer agents with respect to any series of Debt Securities (Section 1002 of the
Indentures).
Neither the Company nor any Trustee will be required (i) to issue, register the transfer of or
exchange Debt Securities of any series during a period beginning at the opening of business 15 days
before any selection of Debt Securities of that series to be redeemed and ending at the close of
business on the day of mailing of the relevant notice of redemption; (ii) to register the transfer
of or exchange any Debt Security, or portion thereof, called for redemption, except the unredeemed
portion of any Debt Security being redeemed in part; or (iii) to issue, register the transfer of or
exchange any Debt Security which has been surrendered for repayment at the option of the Holder,
except the portion, if any, of such Debt Security not to be so repaid (Section 305 of the
Indentures).
11
Certain Covenants
The Senior Indenture contains the following covenants:
Existence. The Company must do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence, rights (charter and statutory) and franchises;
provided, however, that the Company will not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the Holders of the Senior
Securities (Section 1006 of the Senior Indenture).
Maintenance of Properties. The Company must cause all of its properties used or useful in the
conduct of its business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment and must cause to be
made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided, however, that the
Company and its Subsidiaries are not prevented from selling or disposing of for value their
properties in the ordinary course of business (Section 1007 of the Senior Indenture).
Insurance. The Company must, and must cause each of its Subsidiaries to, keep all of its and
their insurable properties insured against loss or damage in amounts at least equal to their then
full insurable value with financially sound and reputable insurance companies (Section 1008 of the
Senior Indenture).
Payment of Taxes and Other Claims. The Company must pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental
charges levied or imposed upon it or any Subsidiary or upon the income, profits or property of the
Company or any Subsidiary, and (ii) all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided
however, that the Company is not required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings (Section 1009 of the Senior Indenture).
As used herein, Subsidiary means a corporation a majority of the outstanding voting stock of
which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries of the
Company. For the purposes of this definition, voting stock means stock having voting power for
the election of directors, whether at all times or only so long as no senior class of stock has
such voting power by reason of any contingency.
The Subordinated Indenture does not contain the covenants described in this section captioned
Certain Covenants.
Events of Default, Notice and Waiver
Each Indenture provides that the following events are Events of Default with respect to any
series of Debt Securities issued thereunder: (a) default for 30 days in the payment of any
installment of interest on any Debt Security of such series; (b) default in the payment of the
principal of (or premium, if any, on) any Debt Security of such series at its Maturity, (c) default
in making any sinking fund payment as required for any Debt Security of such series; (d) default in
the performance of any other covenant of the Company contained in the applicable Indenture (other
than a covenant added to such Indenture solely for the benefit of a series of Debt Securities
issued thereunder other than such series), continued for 60 days after written notice as provided
in such Indenture; (e) certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Company (and with respect to the
Subordinated Indenture only, of any Significant Subsidiary) or of the property of the Company (and
with respect to the Subordinated Indenture, or of the property of the respective Significant
Subsidiary), and (f) any other Event of Default provided with respect to that series of Debt
Securities (Section 501 of the Indentures). The term Significant Subsidiary means each
significant subsidiary (as defined in Regulation S-X promulgated under the Securities Act) of the
Company. In addition, a default under any evidence of indebtedness of the Company or any mortgage,
indenture or other instrument under which such indebtedness is issued or by which such indebtedness
is secured which results in the acceleration of indebtedness in an aggregate principal amount
exceeding $10,000,000, but only if such indebtedness is not discharged or such acceleration is not
rescinded or annulled as provided in the Subordinated Indenture, is an Event of Default with
respect to any series of Debt Securities issued under the Subordinated Indenture.
If an Event of Default under either Indenture with respect to Debt Securities of any series
issued thereunder at the time Outstanding occurs and is continuing, then in every such case the
applicable Trustee or the Holders of not less than 25% in principal
12
amount of the Outstanding Debt Securities of that series may declare the principal amount (or,
if the Debt Securities of that series are Original Issue Discount Securities or Indexed Securities,
such portion of the principal amount as may be specified in the terms thereof) of all of the Debt
Securities of that series to be due and payable immediately by written notice thereof to the
Company (and to such Trustee if given by the Holders). However, at any time after such a
declaration of acceleration with respect to Debt Securities of such series (or of all Debt
Securities then Outstanding under such Indenture, as the case may be) has been made, the Holders of
not less than a majority in principal amount of Debt Securities of such series (or of each series
of Debt Securities then Outstanding under such Indenture, as the case may be) may rescind and annul
such declaration and its consequences if (a) the Company shall have deposited with such Trustee all
required payments of the principal of (and premium, if any) and interest on the Debt Securities of
such series (or of all Debt Securities then Outstanding under such Indenture, as the case may be),
plus certain fees, expenses, disbursements and advances of such Trustee and (b) all Events of
Default, other than the nonpayment of accelerated principal (or specified portion thereof) with
respect to Debt Securities of such series (or of all Debt Securities then Outstanding under such
Indenture, as the case may be) have been cured or waived as provided in such Indenture (Section 502
of the Indentures). The Indentures also provide that the Holders of not less than a majority in
principal amount of the Debt Securities of any series (or of each series of Debt Securities then
Outstanding under the applicable Indenture, as the case may be) may waive any past default with
respect to such series and its consequences, except a default (x) in the payment of the principal
of (or premium, if any) or interest on any Debt Security of such series or (y) in respect of a
covenant or provision contained in such Indenture that cannot be modified or amended without the
consent of the Holder of each Outstanding Debt Security affected thereby (Section 513 of the
Indentures).
Each Indenture provides that the Trustee thereunder is required to give notice to the Holders
of Debt Securities issued thereunder within 90 days of a default under such Indenture; provided
however, that such Trustee may withhold notice to the Holders of any such series of Debt Securities
of any default with respect to such series (except a default in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or in the payment of any sinking
fund installment in respect of any Debt Security of such series) if the Responsible Officers of
such Trustee consider such withholding to be in the interest of such Holders (Section 601 of the
Indentures).
Each Indenture provides that no Holder of Debt Securities of any series issued thereunder may
institute any proceeding, judicial or otherwise, with respect to such Indenture or for any remedy
thereunder, except in the case of the failure of the applicable Trustee, for 60 days, to act after
it has received a written request to institute proceedings in respect of an Event of Default from
the Holders of not less than 25% in principal amount of the Outstanding Debt Securities of such
series, as well as an offer of reasonable indemnity (Section 507 of the Indentures). This provision
will not prevent, however, any Holder of Debt Securities from instituting suit for the enforcement
of payment of the principal of (and premium, if any) and interest on the Debt Securities held by
that Holder at the respective due dates thereof (Section 508 of the Indentures).
Subject to provisions in the applicable Indenture relating to its duties in case of default,
the Trustee thereunder is under no obligation to exercise any of its rights or powers under such
Indenture at the request or direction of any Holders of any series of Debt Securities then
Outstanding under such Indenture, unless such Holders shall have offered to such Trustee reasonable
security or indemnity (Section 602 of the Indentures). The Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any series (or of each series of Debt
Securities then Outstanding under such Indenture, as the case may be) shall have the right to
direct the time, method and place of conducting any proceeding for any remedy available to such
Trustee, or of exercising any trust or power conferred upon such Trustee. However, such Trustee may
refuse to follow any direction which is in conflict with any law or such Indenture, which may
involve such Trustee in personal liability or which may be unduly prejudicial to the Holders of
Debt Securities of such series not joining therein (Section 512 of the Indentures).
Within 120 days after the close of each fiscal year, the Company must deliver to each Trustee
under the Indentures a certificate, signed by one of several specified officers, stating whether
such officer has knowledge of any default under the applicable Indenture and, if so, specifying
each such default and the nature and status thereof (Section 1012 of the Senior Indenture and
Section 1004 of the Subordinated Indenture).
Modification of the Indentures
Modifications and amendments of either Indenture may be made only with the consent of the
Holders of not less than a majority in principal amount of all Outstanding Debt Securities issued
thereunder which are affected by such modification or amendment; provided however, that no such
modification or amendment may, without the consent of the Holder of each such Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any installment of
interest (or premium, if any) on, any such Debt Security, (b) reduce the principal amount of, or
the rate or amount of interest on, or any premium payable on redemption of, any such Debt Security,
or reduce the amount of principal of an Original Issue Discount Security that would be due and
payable upon
13
declaration of acceleration of the maturity thereof or would be provable in bankruptcy, or
adversely affect any right of repayment of the Holder of any such Debt Security, (c) change the
Place of Payment, or the currency or currencies, for payment of principal of, or premium, if any,
or interest on any such Debt Security, (d) impair the right to institute suit for the enforcement
of any payment on or with respect to any such Debt Security, (e) reduce the percentage of
Outstanding Debt Securities of any series necessary to modify or amend the applicable Indenture, to
waive compliance with certain provisions thereof or certain defaults and consequences thereunder or
to reduce the quorum or voting requirements set forth in such Indenture; or (f) modify any of the
foregoing provisions or any of the provisions relating to the waiver of certain past defaults or
certain covenants, except to increase the required percentage to effect such action or to provide
that certain other provisions may not be modified or waived without the consent of the Holder of
such Debt Security (Section 902 of the Indentures).
The Senior Indenture provides that the Holders of not less than a majority in principal amount
of Outstanding Debt Securities issued thereunder have the right to waive compliance by the Company
with certain covenants in the Senior Indenture, including those described in the section of this
Prospectus captioned Certain Covenants (Section 1014 of the Senior Indenture).
Modifications and amendments of either Indenture may be made by the Company and the applicable
Trustee without the consent of any Holder of Debt Securities issued thereunder for any of the
following purposes: (i) to evidence the succession of another Person to the Company as obligor
under such Indenture; (ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities issued thereunder or to surrender any right or power conferred
upon the Company in such Indenture; (iii) to add Events of Default for the benefit of the Holders
of all or any series of Debt Securities issued thereunder, (iv) to add or change any provisions of
such Indenture to facilitate the issuance of, or to liberalize certain terms of, Debt Securities
issued thereunder in bearer form, or to permit or facilitate the issuance of such Debt Securities
in uncertificated form, provided that such action shall not adversely affect the interests of the
Holders of such Debt Securities of any series in any material respect; (v) to change or eliminate
any provision of such Indenture, provided that any such change or elimination shall become
effective only when there are no Debt Securities Outstanding of any series issued thereunder
created prior thereto which are entitled to the benefit of such provision; (vi) to secure the Debt
Securities issued thereunder, (vii) to establish the form or terms of Debt Securities of any series
issued thereunder, including the provisions and procedures, if applicable, for the conversion of
such Debt Securities into Common Shares of the Company, (viii) to provide for the acceptance of
appointment by a successor Trustee or facilitate the administration of the trusts under such
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or inconsistency in such
Indenture, provided that such action shall not adversely affect the interests of Holders of Debt
Securities of any series issued thereunder in any material respect; or (x) to supplement any of the
provisions of such Indenture to the extent necessary to permit or facilitate defeasance and
discharge of any series of such Debt Securities issued thereunder, provided that such action shall
not adversely affect the interests of the Holders of the Debt Securities of any series issued
thereunder in any material respect (Section 901 of the Indentures).
Each Indenture provides that in determining whether the Holders of the requisite principal
amount of Outstanding Debt Securities of a series issued thereunder have given any request, demand,
authorization, direction, notice, consent or waiver thereunder or whether a quorum is present at a
meeting of Holders of such Debt Securities, (i) the principal amount of an Original Issue Discount
Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon declaration of acceleration of
the maturity thereof, (ii) the principal amount of a Debt Security denominated in a Foreign
Currency that shall be deemed outstanding shall be the U.S. dollar equivalent, determined on the
issue date for such Debt Security, of the principal amount (or, in the case of an Original Issue
Discount Security, the U.S. dollar equivalent on the issue date of such Debt Security of the amount
determined as provided in (i) above), (iii) the principal amount of an Indexed Security that shall
be deemed outstanding shall be the principal face amount of such Indexed Security at original
issuance, unless otherwise provided with respect to such Indexed Security pursuant to Section 301
of such Indenture, and (iv) Debt Securities owned by the Company or any other obligor upon the Debt
Securities or any Affiliate of the Company or of such other obligor shall be disregarded (Section
101).
Each Indenture contains provisions for convening meetings of the Holders of Debt Securities of
a series issued thereunder (Section 1501 of the Indentures). A meeting may be called at any time by
the applicable Trustee and also, upon request, by the Company or the Holders of at least 10% in
principal amount of the Outstanding Debt Securities of such series, in any such case upon notice
given as provided in the applicable Indenture (Section 1502 of the Indentures). Except for any
consent that must be given by the Holder of each Debt Security affected by certain modifications
and amendments of such Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote of the Holders of a
majority in principal amount of the Outstanding Debt Securities of that series; provided however,
that, except as referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be made, given or taken
by the Holders of a specified percentage which is less than a majority in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or adjourned meeting duly
reconvened at which a quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that series. Any resolution
passed or
14
decision taken at any meeting of Holders of Debt Securities of any series duly held in
accordance with the applicable Indenture will be binding on all Holders of Debt Securities of that
series. The quorum at any meeting called to adopt a resolution, and at any reconvened meeting, will
be Persons holding or representing a majority in principal amount of the Outstanding Debt
Securities of a series; provided however, that if any action is to be taken at such meeting with
respect to a consent or waiver which may be given by the Holders of not less than a specified
percentage in principal amount of the Outstanding Debt Securities of a series, the Persons holding
or representing such specified percentage in principal amount of the Outstanding Debt Securities of
such series will constitute a quorum (Section 1504 of the Indentures).
Notwithstanding the provisions described above, if any action is to be taken at a meeting of
Holders of Debt Securities of any series with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that the applicable Indenture expressly provides
may be made, given or taken by the Holders of a specified percentage in principal amount of all
Outstanding Debt Securities affected thereby, or of the Holders of such series and one or more
additional series: (i) there shall be no minimum quorum requirement for such meeting and (ii) the
principal amount of the Outstanding Debt Securities of such series that vote in favor of such
request, demand, authorization, direction, notice, consent, waiver or other action shall be taken
into account in determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under such Indenture (Section 1504 of
the Indentures).
Discharge, Defeasance and Covenant Defeasance
The Company may discharge certain obligations to Holders of any series of Debt Securities that
have not already been delivered to the applicable Trustee for cancellation and that either have
become due and payable or will become due and payable within one year (or scheduled for redemption
within one year) by irrevocably depositing with such Trustee, in trust, funds in such currency or
currencies, currency unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness on such Debt
Securities in respect of principal (and premium, if any) and interest to the date of such deposit
(if such Debt Securities have become due and payable) or to the Stated Maturity or Redemption Date,
as the case may be (Section 401 of the Indentures).
Each Indenture provides that, if the provisions of Article Fourteen thereof (relating to
defeasance and covenant defeasance) are made applicable to the Debt Securities of or within any
series issued thereunder pursuant to Section 301 of such Indenture, the Company may elect either
(a) to defease and be discharged from any and all obligations (except for the obligation to pay
Additional Amounts, if any, upon the occurrence of certain events of tax, assessment or
governmental charge with respect to payments on such Debt Securities and the obligations to
register the transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in respect of such Debt
Securities and to hold moneys for payment in trust) with respect to such Debt Securities
(defeasance) (Section 1402 of the Indentures) or (b) to be released from its obligations relating
to (i) with respect to Senior Securities, the obligations under Sections 1004 to 1011, inclusive,
of the Senior Indenture (being the restrictions described under the caption Certain Covenants)
and, if provided pursuant to Section 301 of the Senior Indenture, its obligations with respect to
any other covenant contained in the Senior Indenture, and (ii) with respect to Subordinated
Securities, if provided pursuant to Section 301 of the Subordinated Indenture, its obligations with
respect to any covenant contained in the Subordinated Indenture, and any omission to comply with
such obligations shall not constitute a default or an Event of Default with respect to such Debt
Securities (covenant defeasance), in either case upon the irrevocable deposit by the Company with
the applicable Trustee, in trust, of an amount, in such currency or currencies, currency unit or
units or composite currency or currencies in which such Debt Securities are payable at Stated
Maturity, or Government Obligations (as defined below), or both, applicable to such Debt Securities
which through the scheduled payment of principal and interest in accordance with their terms will
provide money in an amount sufficient to pay the principal of (and premium, if any) and interest on
such Debt Securities, and any mandatory sinking fund or analogous payments thereon, on the
scheduled due dates therefor (Section 1403 of the Indentures).
Such a trust may only be established if, among other things, the Company has delivered to the
applicable Trustee an Opinion of Counsel (as specified in the applicable Indenture) to the effect
that the Holders of such Debt Securities will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such defeasance or covenant defeasance and will be subject to
U.S. federal income tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance or covenant defeasance had not occurred, and such Opinion of
Counsel, in the case of defeasance, must refer to and be based upon a ruling of the Internal
Revenue Service or a change in applicable United States federal income tax law occurring after the
date of such Indenture (Section 1404 of the Indentures).
Government Obligations means securities which are (i) direct obligations of the United
States of America or the government which issued the Foreign Currency in which the Debt Securities
of a particular series are payable, for the payment of which its full
15
faith and credit is pledged, or (ii) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America or such government which
issued the Foreign Currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the United States of
America or such other government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such Government Obligation or a specific payment of
interest on or principal of any such Government Obligation held by such custodian for the account
of the holder of a depository receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government Obligation or the
specific payment of interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101 of the Indentures).
Unless otherwise provided in the applicable Prospectus Supplement, if after the Company has
deposited funds and/or Government Obligations to effect defeasance or covenant defeasance with
respect to Debt Securities of any series, (a) the Holder of a Debt Security of such series is
entitled to, and does, elect pursuant to Section 301 of the applicable Indenture or the terms of
such Debt Security to receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or (b) a Conversion
Event (as defined below) occurs in respect of the currency, currency unit or composite currency in
which such deposit has been made, the indebtedness represented by such Debt Security shall be
deemed to have been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on such Debt Security as they become due out of the
proceeds yielded by converting the amount so deposited in respect of such Debt Security into the
currency, currency unit or composite currency in which such Debt Security becomes payable as a
result of such election or such cessation of usage based on the applicable market exchange rate
(Section 1405 of the Indentures). Conversion Event means the cessation of use of (i) a currency,
currency unit or composite currency both by the government of the country which issued such
currency and for the settlement of actions by a central bank or other public institution of or
within the international banking community, (ii) the ECU both within the European Monetary System
and for the settlement of transactions by public institutions of or within the European Communities
or (iii) any currency unit or composite currency other than the ECU for the purposes for which it
was established. Unless otherwise described in the applicable Prospectus Supplement, all payments
of principal of (and premium, if any) and interest on any Debt Security that is payable in a
Foreign Currency that ceases to be used by its government of issuance shall be made in U.S. dollars
(Section 101 of the Indentures).
In the event the Company effects covenant defeasance with respect to any Debt Securities and
such Debt Securities are declared due and payable because of the occurrence of any Event of
Default, other than (i) with respect to Senior Securities, the Event of Default described in clause
(d) under Events of Default Notice and Waiver with respect to Sections 1004 to 1011, inclusive,
of the Senior Indenture (which Sections would no longer be applicable to such Debt Securities) or
(ii) with respect to all Debt Securities, the Event of Default described in clause (g) under
Events of Default, Notice and Waiver with respect to any other covenant as to which there has
been covenant defeasance, the amount in such currency, currency unit or composite currency in which
such Debt Securities are payable, and Government Obligations on deposit with the applicable
Trustee, will be sufficient to pay amounts due on such Debt Securities at the time of their Stated
Maturity but may not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. In any such event, the Company would remain
liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if any, permitting
such defeasance or covenant defeasance, including any modifications to the provisions described
above, with respect to the Debt Securities of or within a particular series.
Senior Securities and Senior Indebtedness
Each series of Senior Securities will constitute Senior Indebtedness (as described below) and
will rank equally with each other series of Senior Securities and other Senior Indebtedness. All
subordinated indebtedness (including, but not limited to, all Subordinated Securities issued under
the Subordinated Indenture) will be subordinated to the Senior Securities and other Senior
Indebtedness.
Senior Indebtedness is defined in the Subordinated Indenture to mean (i) the principal of and
premium, if any, and unpaid interest on indebtedness for money borrowed, (ii) purchase money and
similar obligations, (iii) obligations under capital leases, (iv) guarantees, assumptions or
purchase commitments relating to, or other transactions as a result of which the Company is
responsible for the payment of, such indebtedness of others, (v) renewals, extensions and refunding
of any such indebtedness, (vi) interest or obligations in respect of any such indebtedness accruing
after the commencement of any insolvency or bankruptcy proceedings, and
16
(vii) obligations associated with derivative products such as interest rate and currency
exchange contracts, foreign exchange contracts, commodity contracts, and similar arrangements,
unless, in each case, the instrument by which the Company incurred, assumed or guaranteed the
indebtedness or obligations described in clauses (i) through (vii) expressly provides that such
indebtedness or obligation is subordinate or junior in right of payment to any other indebtedness
or obligations of the Company.
Subordination of Subordinated Securities
Subordinated Indenture. The payment of the principal of (and premium, if any) and interest on
the Subordinated Securities will be subordinated as set forth in the Subordinated Indenture to the
Senior Indebtedness of the Company whether outstanding on the date of the Subordinated Indenture or
thereafter incurred (Section 1701 of the Subordinated Indenture).
Ranking. No class of Subordinated Securities is subordinated to any other class of
subordinated debt securities. See Subordination Provisions below.
Subordination Provisions. In the event (a) of any distribution of assets of the Company upon
any dissolution, winding up, liquidation or reorganization of the Company, whether in bankruptcy,
insolvency, reorganization or receivership proceedings or upon an assignment for the benefit of
creditors or any other marshaling of the assets and liabilities of the Company or otherwise, except
a distribution in connection with a merger or consolidation or a conveyance or transfer of all or
substantially all of the properties of the Company which complies with the requirements of Article
Eight of the Subordinated Indenture, or (b) that a default shall have occurred and be continuing
with respect to the payment of principal of (or premium, if any) or interest on any Senior
Indebtedness, or (c) that the principal of the Subordinated Securities of any series issued under
the Subordinated Indenture (or in the case of Original Issue Discount Securities, the portion of
the principal amount thereof referred to in Section 502 of the Subordinated Indenture) shall have
been declared due and payable pursuant to Section 502 of the Subordinated Indenture, and such
declaration shall not have been rescinded and annulled as provided in said Section 502, then:
(1) in a circumstance described in the foregoing clause (a) or (b), the holders of all
Senior Indebtedness and in the circumstance described in the foregoing clause (c), the holders of
all Senior Indebtedness outstanding at the time the principal of such Subordinated Securities
issued under the Subordinated Indenture (or in the case of Original Issue Discount Securities,
such portion of the principal amount) shall have been so declared due and payable, shall first be
entitled to receive payment of the full amount due thereon in respect of principal, premium (if
any) and interest, or provision shall be made for such payment in money or moneys worth, before
the Holders of any of the Subordinated Securities are entitled to receive any payment on account
of the principal of (or premium, if any) or interest on the indebtedness evidenced by the
Subordinated Securities;
(2) if upon any payment or distribution contemplated in clause (1) after giving effect to
the subordination provisions contemplated therein there shall remain any amounts of cash,
property or securities of the Company available for payment or distribution in respect of
Subordinated Securities, then the amount of such cash, property or securities shall be shared
ratably among the Holders of all Subordinated Securities issued under the Subordinated Indenture
and any subordinated indebtedness ranking on a parity therewith;
(3) any payment by, or distribution of assets of, the Company of any kind or character,
whether in cash, property or securities (other than certain subordinated securities of the
Company issued in a reorganization or readjustment), to which the Holder of any of the
Subordinated Securities would be entitled except for the provisions of Article XVII of the
Subordinated Indenture shall be paid or delivered by the person making such payment or
distribution directly to the holders of Senior Indebtedness (as provided in clause (1) above), or
on their behalf, ratably according to the aggregate amount remaining unpaid on account of such
Senior Indebtedness, to the extent necessary to make payment in full of all Senior Indebtedness
(as provided in clause (1) above) remaining unpaid after giving effect to any concurrent payment
or distribution (or provisions therefor) to the holders of such Senior Indebtedness, before any
payment or distribution is made to or in respect of the Holders of the Subordinated Securities;
and
(4) in the event that, notwithstanding the foregoing, any payment by, or distribution of
assets of, the Company of any kind or character is received by the Holders of any of the
Subordinated Securities issued under the Subordinated Indenture before all Senior Indebtedness is
paid in full such payment or distribution shall be paid over to the holders of such Senior
Indebtedness or on their behalf, ratably as aforesaid, for application to the payment of all such
Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall have been paid in
full, after giving effect to any concurrent payment or distribution (or provisions therefor) to
the holders of such Senior Indebtedness.
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By reason of such subordination in favor of the holders of Senior Indebtedness in the event of
insolvency, certain general creditors of the Company, including holders of Senior Indebtedness, may
recover more, ratably, than the Holders of the Subordinated Securities.
Convertible Debt Securities
The following provisions will apply to Debt Securities that will be convertible into Common
Shares or other equity securities of the Company (Convertible Debt Securities) unless otherwise
described in the Prospectus Supplement for such Convertible Debt Securities.
The Holder of any Convertible Debt Securities will have the right, exercisable at any time
during the time period specified in the applicable Prospectus Supplement, unless previously
redeemed by the Company, to convert such Convertible Debt Securities into Common Shares or other
equity securities of the Company at the conversion price or rate for each $1,000 principal amount
of Convertible Debt Securities set forth in such Prospectus Supplement. The Holder of any
Convertible Debt Security may convert a portion thereof which is $1,000 or any integral multiple of
$1,000 (Section 301 of the Senior Indenture and Section 1602 of the Subordinated Indenture). In the
case of Convertible Debt Securities called for redemption, conversion rights will expire at the
close of business on the date fixed for the redemption specified in the Prospectus Supplement,
except that, in the case of repayment at the option of the applicable Holder, such right will
terminate upon the Companys receipt of written notice of the exercise of such option (Section 301
of the Senior Indenture and Section 1602 of the Subordinated Indenture).
To protect the Companys status as a REIT, a person may not own or convert any Convertible
Debt Security if as a result of such ownership or upon such conversion such person would then be
deemed to Beneficially Own (as defined in the Indenture) more than 4.0% of the outstanding capital
stock of the Company (Section 1603 of the Subordinated Indenture). Pursuant to the terms of the
Indentures, Common Shares or other equity securities of the Company that may be acquired upon the
conversion of Convertible Debt Securities directly or constructively held by an investor, but not
Common Shares or other equity securities of the Company issuable with respect to the conversion of
Convertible Debt Securities held by others, are deemed to be outstanding (a) at the time of
purchase of the Convertible Debt Securities, and (b) prior to the conversion of the Convertible
Debt Securities, for purposes of determining the percentage ownership of Common Shares or other
equity securities of the Company held by such investor. See Federal Income Tax Considerations.
Fractional Common Shares will not be issued upon conversion, but, in lieu thereof, the Company will
pay a cash adjustment based upon the closing price per share of Common Shares on the day of
conversion (Section 1606 of the Subordinated Indenture).
The adjustment provisions for Debt Securities convertible into equity securities of the
Company other than Common Shares will be determined at the time of issuance of such Debt Securities
and will be set forth in the applicable Prospectus Supplement.
Except as set forth in the applicable Prospectus Supplement, any Convertible Debt Securities
called for redemption, unless surrendered for conversion on or before the close of business on the
redemption date, are subject to being purchased from the Holder of such Convertible Debt Securities
by one or more investment bankers or other purchasers who may agree with the Company to purchase
such Convertible Debt Securities and convert them into Common Stock or other equity securities of
the Company, as the case may be (Section 1108 of the Indentures).
Reference is made to the section captioned Description of Common Shares, Description of
Preferred Shares and Description of Depositary Shares, as applicable, for a general description
of the Common Shares or other equity securities of the Company to be acquired upon the conversion
of Convertible Debt Securities, including a description of certain restrictions on the ownership of
the Common Shares.
Book-Entry Debt Securities
The Debt Securities of a series may be issued in whole or in part in the form of one or more
global securities (each, a Global Security) that will be deposited with, or on behalf of, a
depository identified in the applicable Prospectus Supplement. Global Securities may be issued in
either registered or bearer form and in either temporary or permanent form. Unless otherwise
provided in such Prospectus Supplement, Debt Securities that are represented by a Global Security
will be issued in denominations of $1,000 or any integral multiple thereof and will be issued in
registered form only, without coupons. Payments of principal of, premium, if any, and interest on
Debt Securities represented by a Global Security will be made by the Company to the Trustee under
the applicable Indenture, and then forwarded to the depository.
The Company anticipates that any Global Securities will be deposited with, or on behalf of,
The Depository Trust Company, New York, New York (DTC), and that such Global Securities will be
registered in the name of Cede & Co., DTCs nominee. In any such
18
event, one fully registered Debt Security certificate will be issued with respect to each $200
million of principal amount of the Debt Securities of a series, and an additional certificate will
be issued with respect to any remaining principal amount of such series. The Company further
anticipates that the following provisions will apply to the depository arrangements with respect to
any such Global Securities. Any additional or differing terms of the depository arrangements will
be described in the Prospectus Supplement relating to a particular series of Debt Securities issued
in the form of Global Securities.
So long as DTC or its nominee is the registered owner of a Global Security, DTC or its
nominee, as the case may be, will be considered the sole Holder of the Debt Securities represented
by such Global Security for all purposes under the applicable Indenture. Except as described below,
owners of beneficial interests in a Global Security will not be entitled to have Debt Securities
represented by such Global Security registered in their names, will not receive or be entitled to
receive physical delivery of Debt Securities in certificated form and will not be considered the
owners or Holders thereof under the applicable Indenture. The laws of some states require that
certain purchasers of securities take physical delivery of such securities in certificated form;
accordingly, such laws may limit the transferability of beneficial interests in a Global Security.
If DTC is at any time unwilling or unable to continue as depository or if at any time DTC
ceases to be a clearing agency registered under the Securities Exchange Act of 1934 if so required
by applicable law or regulation, and, in either case, a successor depository is not appointed by
the Company within 90 days, the Company will issue individual Debt Securities in certificated form
in exchange for the Global Securities. In addition, the Company may at any time, and in its sole
discretion, determine not to have any Debt Securities represented by one or more Global Securities,
and, in such event, will issue individual Debt Securities in certificated form in exchange for the
relevant Global Securities. In any such instance, an owner of a beneficial interest in a Global
Security will be entitled to physical delivery of individual Debt Securities in certificated form
of like tenor and rank, equal in principal amount to such beneficial interest, and to have such
Debt Securities in certificated form registered in its name. Unless otherwise described in the
applicable Prospectus Supplement, Debt Securities so issued in certificated form will be issued in
denominations of $ 1,000 or any integral multiple thereof, and will be issued in registered form
only, without coupons.
The following is based on information furnished to the Company.
DTC is a limited purpose trust company organized under the New York Banking Law, a banking
organization within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants (Participants) deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in Participants accounts,
thereby eliminating the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations (Direct Participants). DTC is owned by a number of its Direct Participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also available to others, such
as securities brokers and dealers, and banks and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly (Indirect
Participants). The rules applicable to DTC and its Participants are on file with the Commission.
Purchases of Debt Securities under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Debt Securities on DTCs records. The ownership
interest of each actual purchaser of each Debt Security (Beneficial Owner) is in turn recorded on
the Direct and Indirect Participants records. A Beneficial Owner does not receive written
confirmation from DTC of its purchase, but is expected to receive a written confirmation providing
details of the transaction, as well as periodic statements of its holdings, from the Direct or
Indirect Participant through which such Beneficial Owner entered into the transaction. Transfers of
ownership interests in Debt Securities are accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners do not receive certificates
representing their ownership interests in Debt Securities, except in the event that use of the
book-entry system for the Debt Securities is discontinued.
To facilitate subsequent transfers, the Debt Securities are registered in the name of DTCs
partnership nominee, Cede & Co. The deposit of the Debt Securities with DTC and their registration
in the name of Cede & Co. will effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Debt Securities; DTC records reflect only the identity of the
Direct Participants to whose accounts Debt Securities are credited, which may or may not be the
Beneficial Owners. The Participants remain responsible for keeping account of their holdings on
behalf of their customers.
19
Delivery of notices and other communications by DTC to Direct Participants, by Direct
Participants to Indirect Participants, and by Direct Participants and Indirect Participants to
Beneficial Owners are governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither DTC nor Cede & Co. consents or votes with respect to the Debt Securities. Under its
usual procedures, DTC mails a proxy (an Omnibus Proxy) to the issuer as soon as possible after
the record date. The Omnibus Proxy assigns Cede & Co.s consenting or voting rights to those Direct
Participants to whose accounts the Debt Securities are credited on the record date (identified on a
list attached to the Omnibus Proxy).
Principal, premium, if any, and interest payments on the Debt Securities are made to Cede &
Co., as nominee of DTC. DTCs practice is to credit Direct Participants accounts upon DTCs
receipt of funds in accordance with their respective holdings as shown on DTCs records. Payments
by Participants to Beneficial Owners are governed by standing instructions and customary practices,
as is the case with securities held for the accounts of customers in bearer form or registered in
street name and are the responsibility of such Participant and not of DTC, the applicable Trustee
or the Company, subject to any statutory or regulatory requirements as may be in effect from time
to time. Payment of principal, premium, if any, and interest to DTC is the responsibility of the
Company or the applicable Trustee, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with respect to the Debt
Securities at any time by giving reasonable notice to the Company or the applicable Trustee. Under
such circumstances, in the event that a successor securities depository is not appointed, Debt
Security certificates are required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry transfers through DTC
(or a successor securities depository). In that event, Debt Security certificates will be printed
and delivered.
The information in this section concerning DTC and DTCs book-entry system has been obtained
from sources that the Company believes to be reliable, but the Company takes no responsibility for
the accuracy thereof.
Unless stated otherwise in the Prospectus Supplement, the underwriters or agents with respect
to a series of Debt Securities issued as Global Securities will be Direct Participants in DTC.
None of the Company, any underwriter or agent, the applicable Trustee or any applicable paying
agent will have any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in a Global Security, or for maintaining,
supervising or reviewing any records relating to such beneficial interest.
DESCRIPTION OF COMMON SHARES
General
The Second Amended and Restated Articles of Incorporation of the Company, as amended (the
Articles) authorize the issuance of up to 41,000,000 Common Shares, without par value. As of
September 30, 2008, there were 16,557,633 Common Shares issued and outstanding. In addition, up to
1,365,364 Common Shares have been reserved for issuance upon the exercise of options under the
Companys employee share option plans and 30,000 Common Shares have been reserved for issuance upon
the exercise of options granted to the Companys independent directors. The Common Shares are
listed on the NYSE and the Nasdaq Global Market under the symbol AEC. National City Bank,
Cleveland, Ohio, is the transfer agent and registrar of the Common Shares.
The following description of the Common Shares sets forth certain general terms and provisions
of the Common Shares to which any Prospectus Supplement may relate, including a Prospectus
Supplement providing that Common Shares will be issuable upon conversion of Debt Securities or
Preferred Shares of the Company or upon the exercise of Common Share Warrants issued by the
Company. The statements below describing the Common Shares are in all respects subject to and
qualified in their entirety by reference to the applicable provisions of the Articles and the
Companys Amended and Restated Code of Regulations (the Code of Regulations).
Holders of Common Shares are entitled to receive dividends, when, as and if declared by the
Board of Directors of the Company, out of funds legally available therefor. The payment and
declaration of dividends on the Common Shares and purchases thereof by the Company will be subject
to certain restrictions if the Company fails to pay dividends on any outstanding Preferred Shares.
See
20
Description of Preferred Shares. The holders of Common Shares, upon any liquidation,
dissolution or winding-up of, or any distribution of the assets of the Company, are entitled to
receive ratably any assets remaining after payment in full of all liabilities of the Company,
including the preferential amounts owing with respect to any Preferred Shares. The Common Shares
possess ordinary voting rights, with each share entitling the holder thereof to one vote. Holders
of Common Shares do not have cumulative voting rights in the election of directors and do not have
preemptive rights.
All of the Common Shares now outstanding are, and any Common Shares offered hereby when issued
will be, fully paid and nonassessable. The Companys Articles provide that except in certain
specified instances, no director of the Company will be personally liable to the Company or any of
its shareholders for monetary damages for breach of any fiduciary duty as a director. However, this
provision may not limit the availability of monetary relief for violations of securities laws and
does not limit the availability of non-monetary relief.
Restrictions on Ownership
For the Company to qualify as a REIT under the Code, not more than 50% in value of its
outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a taxable year, and its
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 the Companys
outstanding Common Shares, the Articles 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 4% (the
Ownership Limit) of the Companys outstanding Common Shares. Shareholders whose ownership
exceeded the Ownership Limit immediately after the IPO may continue to own Common Shares in excess
of the Ownership Limit and may acquire additional shares through the Stock Option Plan, any
dividend reinvestment plan hereafter adopted the Company (a Dividend Reinvestment Plan) or from
other existing shareholders who exceed the Ownership Limit, but may not acquire additional shares
from such sources such that the five largest beneficial owners of Common Shares hold more than
49.6% of the outstanding Common Shares, and in any event may not acquire additional shares from any
other source. In addition, since 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, the Articles 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 the outstanding Common Shares (the Related Party Limit). The Board of Directors may waive
the Ownership Limit and the Related Party Limit (such Related Party Limit has been waived with
respect to the shareholders who exceeded the Related Party Limit immediately after the IPO) if an
opinion of counsel or a ruling from the Internal Revenue Service is provided to the Board of
Directors and the Companys tax counsel to the effect that such ownership will not then or in the
future jeopardize the Companys status as a REIT. As a condition of such waiver, the Board of
Directors will require appropriate representations and undertakings from the applicant with respect
to preserving the REIT status of the Company.
The foregoing restrictions on transferability and ownership of Common Shares may not apply if
the Board of Directors determines that it is no longer in the best interests of the Company to
attempt to qualify, or 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 so as
to no longer contain any ownership concentration limitation or if the ownership concentration
limitation is increased. In addition to preserving the Companys 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 the Company. Any change in the Ownership Limit would require
an amendment to the Articles, even if the Board of Directors determines that maintenance of REIT
status is no longer in the best interests of the Company. Amendments to the Articles require the
affirmative vote of holders owning not less than a majority of the outstanding Common Shares. If it
is determined that an amendment would materially and adversely affect the holders of any class of
Preferred Shares, such amendment also would require the affirmative vote of holders of not less
than two-thirds of such 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 the Company being closely held within the meaning of Section 856(h) of the Code,
are issued or transferred to any person, such issuance or transfer will be null and void to the
intended transferee, and the intended transferee will acquire no
rights to the shares. In addition, the Board of Directors may
determine that the Common
Shares transferred or proposed to be transferred in excess of the Ownership Limit or the Related
Party Limit or which would otherwise jeopardize the Companys
REIT status (Excess Shares) may be
subject to repurchase by the Company. The purchase price of any Excess Shares will be equal to the
lesser of (i) the price in such proposed transaction and (ii) the fair market value of such shares
reflected in the last reported sale price for the Common Shares on the trading day immediately
preceding the date on which the Company or its designee determines to exercise its repurchase
right, if then listed on a national securities exchange, or such price for the shares on the
principal exchange, if
21
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 the Board of Directors in good faith, on the last trading day
immediately preceding the day on which notice of such proposed purchase is sent by the Company.
From and after the date fixed for purchase of Excess Shares by the Company, the holder of such
Excess Shares will cease to be entitled to distribution, voting rights and other benefits with
respect to such Excess Shares except the right to payment of the purchase price for the Excess
Shares. Any dividend or distribution paid to a proposed transferee on Excess Shares will be repaid
to the Company 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 the option of the Company, to have acted as an agent on
behalf of the Company in acquiring such Excess Shares and to hold such Excess Shares on behalf of
the Company.
All certificates representing Common Shares bear a legend referring to the restrictions
described above.
The Articles provide that all persons who own, directly or by virtue of the attribution
provisions of the Code, more than 5% of the outstanding Common Shares must file an affidavit with
the Company containing information specified in the Articles within 30 days after January 1 of each
year. In addition, each such shareholder will upon demand be required to disclose to the Company in
writing such information with respect to the direct, indirect and constructive ownership of shares
as the Board of Directors deems necessary 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.
Shareholder Rights Plan
Each Common Share trades with a preferred share purchase right pursuant to the shareholder
rights agreement and between the Company and National City Bank. Each preferred share purchase
right entitles the holder to purchase a unit consisting of one one-thousandth of a Class B Series I
Cumulative Preferred Share. The rights are not currently exercisable, but will become exercisable
if any person or group becomes the beneficial owner of, or announces an offer to acquire, 15.0% or
more of the Common Shares.
DESCRIPTION OF COMMON SHARE WARRANTS
The Company may issue Common Share Warrants for the purchase of Common Shares. Common Share
Warrants may be issued independently or together with any other Offered Securities offered by any
Prospectus Supplement and may be attached to or separate from such Offered Securities. Each series
of Common Share Warrants will be issued under a separate warrant agreement (each, a Warrant
Agreement) to be entered into between the Company and a warrant agent specified in the applicable
Prospectus Supplement (the Warrant Agent). The Warrant Agent will act solely as an agent of the
Company in connection with the Common Share Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any holders or beneficial owners of
Common Share Warrants. The following sets forth certain general terms and provisions of the Common
Share Warrants offered hereby. Further terms of the Common Share Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Common Share Warrants in
respect of which this Prospectus is being delivered, including, when applicable, the following: (1)
the title of such Common Share Warrants; (2) the aggregate number of such Common Share Warrants;
(3) the price or prices at which such Common Share Warrants will be issued; (4) the number of
Common Shares purchasable upon exercise of such Common Share Warrants; (5) the designation and
terms of the other Offered Securities with which such Common Share Warrants are issued and the
number of such Common Share Warrants issued with each such Offered Security; (6) the date, if any,
on and after which such Common Share Warrants and the related Common Shares will be separately
transferable; (7) the price at which each Common Share purchasable upon exercise of such Common
Shares Warrants may be purchased; (8) the date on which the right to exercise such Common Share
Warrants shall commence and the date on which such right shall expire; (9) the minimum or maximum
amount of such Common Share Warrants which may be exercised at any one time; (10) information with
respect to book-entry procedures, if any; (11) a discussion of certain federal income tax
considerations; and (12) any other terms of such Common Share Warrants, including terms, procedures
and limitations relating to the exchange and exercise of such Common Share Warrants.
Reference is made to the section captioned Description of Common Shares for a general
description of the Common Shares to be acquired upon the exercise of the Common Share Warrants,
including a description of certain restrictions on the ownership of the Common Shares. Common
Shares that may be acquired upon the exercise of Common Share Warrants directly or constructively
held by an investor, but not Common Shares issuable with respect to the exercise of Common Share
Warrants held by others, are deemed to be outstanding (a) at the time of acquisition of the Common
Share Warrants, and (b) prior to the exercise of the Common Share Warrants, for purposes of
determining the percentage ownership of Common Shares held by such investor.
DESCRIPTION OF PREFERRED SHARES
The Articles authorize the issuance of up to (i) 3,000,000 Class A Cumulative Preferred
Shares, without par value (the Class A Shares), (ii) 3,000,000 Class B Cumulative Preferred
Shares, without par value (the Class B Shares), and (iii) 3,000,000
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Noncumulative Preferred Shares, without par value (the Noncumulative Shares) (the Class A
Shares, the Class B Shares and the Noncumulative Shares,
collectively the Preferred Shares). Of the 3,000,000
Class B Shares, 400,000 have been designated as a series
designated as Class B Series I Cumulative Preferred
Shares. As
of November 24, 2008, there were 195,080 8.70% Class B Series II Cumulative Redeemable Preferred
Shares ($250 liquidation preference per share) issued and outstanding.
The following descriptions of the classes of Preferred Shares set forth certain general terms
and provisions of each class of Preferred Shares to which any Prospectus Supplement may relate. The
statements below describing each class of Preferred Shares are in all respects subject to and
qualified in their entirety by reference to the applicable provisions of the Articles, which will
be further amended by the Board of Directors in connection with the fixing by the Board of
Directors of certain terms of the Preferred Shares as provided below.
General
The Class A Shares, the Class B Shares and the Noncumulative Shares rank on a parity with each
other and are identical to each other, except (1) that dividends on the Class A Shares and the
Class B Shares will be cumulative, while dividends on the Noncumulative Shares will not be
cumulative, and (2) in respect of the following matters and the matters enumerated below that,
pursuant to the terms of the Articles and subject to Ohio law, such matters may be fixed by the
Board of Directors with respect to each series of each class of Preferred Shares prior to the
issuance thereof: (a) the designation of the series which may be by distinguishing number, letter
or title, (b) the authorized number of shares of the series, which number the Board of Directors
may (except when otherwise provided in the creation of the series) increase or decrease from time
to time before or after the issuance thereof (but not below the number of shares thereof then
outstanding), (c) the dividend rate or rates of the series, including the means by which such rates
may be established, (d) with respect to the Class A Shares and the Class B Shares, the date or
dates from which dividends shall accrue and be cumulative and, with respect to all Preferred
Shares, the date on which and the period or periods for which dividends, if declared, shall be
payable, including the means by which such dates and periods may be established, (e) redemption
rights and prices, if any, (f) the terms and amounts of the sinking fund, if any, (g) the amounts
payable on shares of the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, (h) whether the shares of the series shall
be convertible into Common Shares or shares of any other class and, if so, the conversion rate or
rates or price or prices, any adjustments thereof and all other terms and conditions upon which
such conversion may be made, and (i) restrictions on the issuance of shares of the same or any
other class or series.
Reference is made to the Prospectus Supplement relating to the Preferred Shares offered
thereby for specific terms, including:
(1) The class, series and title of such Preferred Shares;
(2) The number of shares of such Preferred Shares offered, the liquidation preference per
share and the offering price of such Preferred Shares;
(3) The dividend rate or rates, period or periods and payment date or dates or method of
calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares shall accumulate, if applicable;
(5) The procedures for any auction or remarketing of such Preferred Shares;
(6) The provision for any sinking fund for such Preferred Shares;
(7) The provision for redemption, if applicable, of such Preferred Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) Any terms and conditions upon which such Preferred Shares will be convertible into
Common Shares of the Company, including the conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Shares will be represented by Depositary Shares;
(11) Any other specific terms, preferences, rights, limitations or restrictions of or on
such Preferred Shares;
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(12) A discussion of federal income tax considerations applicable to such Preferred Shares;
(13) The relative ranking and preferences of such Preferred Shares as to dividend rights and
rights upon liquidation, dissolution or winding up of the affairs of the Company;
(14) Any limitations on issuance of securities ranking senior to or on a parity with such
Preferred Shares as to dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(15) Any limitations on direct or beneficial ownership and restrictions on transfer, in each
case as may be appropriate to preserve the status of the Company as a REIT.
The Preferred Shares will, when issued, be fully paid and nonassessable and will have no
preemptive rights.
Rank
All Preferred Shares will, when issued, rank (i) on a parity with all other Preferred Shares
with respect to dividend rights (subject to dividends on Noncumulative Shares being noncumulative)
and rights upon liquidation, dissolution or winding up of the Company, (ii) senior to all classes
of Common Shares of the Company and to all other equity securities ranking junior to such Preferred
Shares with respect to dividend rights and rights upon liquidation, dissolution or winding up of
the Company; (iii) on a parity with all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank on a parity with the Preferred Shares with
respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company;
and (iv) junior to all equity securities issued by the Company the terms of which specifically
provide that such equity securities rank senior to the Preferred Shares, with respect to dividend
rights and rights upon liquidation, dissolution or winding up of the Company.
Dividends
The holders of each series of each class of Preferred Shares are entitled to receive, if, when
and as declared, out of funds legally available therefor, dividends in cash at the rate determined
for such series and no more, payable on the dates fixed for such series, in preference to the
holders of Common Shares and of any other class of shares ranking junior to the Preferred Shares.
With respect to each series of Class A Shares and Class B Shares, such dividends will be cumulative
from the dates fixed for the series. With respect to each series of Noncumulative Preferred Shares,
dividends will not be cumulative (i.e., if the Board of Directors fails to declare a dividend
payable on a dividend payment date on any Noncumulative Shares, the holders of such series of
Noncumulative Shares will have no right to receive a dividend in respect of the dividend period
ending on such dividend payment date, and the Company will have no obligation to pay any dividend
for such period, whether or not dividends on such series of Noncumulative Shares would be declared
to be payable on any future dividend payment date). Each such dividend will be payable to holders
of record as they appear on the stock transfer books of the Company on such record dates as shall
be fixed by the Board of Directors of the Company.
If Preferred Shares of any series of any class are outstanding, no dividends may be paid upon
or declared or set apart for any series of Preferred Shares for any dividend period unless at the
same time (i) a like proportionate dividend for the dividend periods terminating on the same or any
earlier date for all shares of all series of such class then issued and outstanding and entitled to
receive such dividend (but, if such series are series of Noncumulative Shares, then only with
respect to the current dividend period), ratably in proportion to the respective annual dividend
rates fixed therefor, shall have been paid upon or declared or set apart and (ii) the dividends
payable for the dividend periods terminating on the same or any earlier date for all other classes
of Preferred Shares then issued and outstanding and entitled to receive such dividends (but, with
respect to Noncumulative Shares, only with respect to the then current dividend period), ratably in
proportion to the respective dividend rates fixed therefor, shall have been paid upon or declared
or set apart.
So long as any series of Preferred Shares is outstanding, no dividend, except a dividend
payable in Common Shares or other shares ranking junior to such series of Preferred Shares, shall
be paid or declared or any distribution made, except as aforesaid, in respect of the Common Shares
or any other shares ranking junior to such series of Preferred Shares, nor shall any Common Shares
or any other shares ranking junior to such series of Preferred Shares be purchased, retired or
otherwise acquired by the Company, except out of the proceeds of the sale of Common Shares or other
shares of the Company ranking junior to such series of Preferred Shares received by the Company
subsequent to the date of first issuance of such series of Preferred Shares, unless (i) all accrued
and unpaid dividends on all classes of Preferred Shares then outstanding, including the full
dividends for all current dividend periods (except, with respect to Noncumulative Shares, for the
then current dividend period only), shall have been declared and paid or a sum sufficient for
payment thereof set apart, and (ii) there shall be no arrearages with respect to the redemption of
any series of any class of Preferred Shares from any sinking fund provided for such class in
accordance with the Articles.
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The foregoing restrictions on the payment of dividends or other distributions on, or on the
purchase, redemption, retirement or other acquisition of, Common Shares or any other shares ranking
on a parity with or junior to any class of Preferred Shares will be inapplicable to (i) any
payments in lieu of issuance of fractional shares, whether upon any merger, conversion, stock
dividend or otherwise, (ii) the conversion of Preferred Shares into Common Shares, or (iii) the
exercise by the Company of its rights to repurchase shares of its capital stock in order to
preserve its status as a REIT under the Code. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Preferred Shares of any series and
the shares of any other series of Preferred Shares ranking on a parity as to dividends with such
series, all dividends declared upon Preferred Shares of such series and any other series of
Preferred Shares ranking on a parity as to dividends with such Preferred Shares shall be declared
pro rata so that the amount of dividends declared per share on the shares of such series of
Preferred Shares shall in all cases bear to each other the same ratio that accrued dividends per
share on the Preferred Shares of such series (which shall not include any accumulation in respect
of unpaid dividends for prior dividend periods for Noncumulative Shares) and such other series bear
to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any
dividend payment or payments on Preferred Shares of such series which may be in arrears.
Any dividend payment made on Preferred Shares will first be credited against the earliest
accrued but unpaid dividend due with respect to such shares which remains payable.
Redemption
If so described in the applicable Prospectus Supplement, a series of a class of Preferred
Shares will be subject to mandatory redemption or redemption at the option of the Company, as a
whole or in part, in each case upon the terms, at the times and at the redemption prices set forth
in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is subject to
mandatory redemption will specify the number of such Preferred Shares that shall be redeemed by the
Company in each year commencing after a date to be specified, at a redemption price per share to be
specified, together with an amount equal to all accrued and unpaid dividends thereon (which, in the
case of Noncumulative Shares, includes only unpaid dividends for the current dividend period) to
the date of redemption. The redemption price may be payable in cash or other property, as specified
in the applicable Prospectus Supplement.
Except in connection with the repurchase by the Company of shares of its capital stock in
order to maintain its qualification as a REIT for federal income tax purposes, the Company may not
purchase or redeem (for sinking fund purposes or otherwise) less than all of a class of Preferred
Shares then outstanding, except in accordance with a stock purchase offer made to all holders of
record of such class, unless all dividends on all Preferred Shares of that class then outstanding
for previous and current dividend periods (except, in the case of Noncumulative Shares, dividends
for the current dividend period only) shall have been declared and paid or funds therefor set apart
and all accrued sinking fund obligations applicable thereto shall have been complied with.
Notice of redemption will be mailed at least 30 days but not more than 60 days before the
redemption date to each holder of record of a Preferred Share to be redeemed at the address shown
on the stock transfer books of the Company. If fewer than all the Preferred Shares of any series
are to be redeemed, the notice mailed to each such holder thereof shall also specify the number of
Preferred Shares to be redeemed from each holder. If notice of redemption of any Preferred Shares
has been given and if the funds necessary for such redemption have been set aside by the Company in
trust for the benefit of the holders of the Preferred Shares so called for redemption, then from
and after the redemption date dividends will cease to accrue on such Preferred Shares, and such
holders will cease to be shareholders with respect to such shares and such holders shall have no
right or claim against the Company with respect to such shares, except only the right to receive
the redemption price without interest or to exercise before the redemption date any unexercised
privileges of conversion.
Liquidation Preference
In the event of any voluntary liquidation, dissolution or winding up of the affairs of the
Company, the holders of any series of any class of Preferred Shares shall be entitled to receive in
full out of the assets of the Company, including its capital, before any amount shall be paid or
distributed among the holders of the Common Shares or any other shares ranking junior to such
series, the amounts fixed by the Board of Directors with respect to such series and set forth in
the applicable Prospectus Supplement plus an amount equal to all dividends accrued and unpaid
thereon (except, with respect to Noncumulative Shares, dividends for the current dividend period
only) to the date of payment of the amount due pursuant to such liquidation, dissolution or winding
up the affairs of the Company. After payment to the holders of the Preferred Shares of the full
preferential amounts to which they are entitled, the holders of Preferred Shares, as such, shall
have no right or claim to any of the remaining assets of the Company.
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If liquidating distributions shall have been made in full to all holders of Preferred Shares,
the remaining assets of the Company shall be distributed among the holders of any other classes or
series of capital stock ranking junior to the Preferred Shares upon liquidation, dissolution or
winding up, according to their respective rights and preferences and in each case according to
their respective numbers of shares. The merger or consolidation of the Company into or with any
other corporation, or the sale, lease or conveyance of all or substantially all of the assets of
the Company, shall not constitute a dissolution, liquidation or winding up of the Company.
Voting Rights
Holders of Preferred Shares will not have any voting rights, except as set forth below and as
from time to time required by law.
If and when the Company is in default in the payment of (or, with respect to Noncumulative
Shares, has not paid or declared and set aside a sum sufficient for the payment of) dividends on
any series of any class of Preferred Shares at the time outstanding, for a number of consecutive
dividend payment periods which in the aggregate contain at least 540 days, all holders of shares of
such class, voting separately as a class, together and combined with all other Preferred Shares
upon which like voting rights have been conferred and are exercisable, will be entitled to elect a
total of two members of the Board of Directors, which voting right shall be vested (and any
additional directors shall serve) until all accrued and unpaid dividends (except, with respect to
Noncumulative Shares, only dividends for the then current dividend period) on such Preferred Shares
then outstanding shall have been paid or declared and a sum sufficient for the payment thereof set
aside for payment.
The affirmative vote of the holders of at least two-thirds of a class of Preferred Shares at
the time outstanding, voting separately as a class, given in person or by proxy either in writing
or at a meeting called for the purpose, shall be necessary to effect either of the following:
(1) The authorization, creation or increase in the authorized number of any shares, or any
security convertible into shares, in either case ranking prior to such class of Preferred Shares;
or
(2) Any amendment, alteration or repeal, whether by merger, consolidation or otherwise, of
any of the provisions of the Articles or the Code of Regulations which affects adversely and
materially the preferences or voting or other right of the holders of such class of Preferred
Shares which are set forth in the Articles; provided, however, neither the amendment of the
Articles so as to authorize, create or change the authorized or outstanding number of a class of
Preferred Shares or of any shares ranking on a parity with or junior to such class of Preferred
Shares nor the amendment of the provisions of the Code of Regulations so as to change the number
or classification of directors of the Company shall be deemed to affect adversely and materially
preferences or voting or other rights of the holders of such class of Preferred Shares.
Without limiting the provisions described above, under Ohio law, holders of each class of
Preferred Shares will be entitled to vote as a class on any amendment to the Articles, whether or
not they are entitled to vote thereon by the Articles, if the amendment would (i) increase or
decrease the par value of the shares of such class, (ii) change the issued shares of such class
into a lesser number of shares of such class or into the same or different number of shares of
another class, (iii) change the express terms or add express terms of the shares of the class in
any manner substantially prejudicial to the holders of such class, (iv) change the express terms of
issued shares of any class senior to the particular class in any manner substantially prejudicial
to the holders of shares of the particular class, (v) authorize shares of another class that are
convertible into, or authorize the conversion of shares of another class into, shares of the
particular class, or authorize the directors to fix or alter conversion rights of shares of another
class that are convertible into shares of the particular class, (vi) reduce or eliminate the stated
capital of the Company, (vii) substantially change the purposes of the Company, or (viii) change
the Company into a nonprofit corporation.
If, and only to the extent, that (i) a class of Preferred Shares is issued in more than one
series and (ii) Ohio law permits the holders of a series of a class of capital stock to vote
separately as a class, the affirmative vote of the holders of at least two-thirds of each series of
such class of Preferred Shares at the time outstanding, voting separately as a class, given in
person or by proxy either in writing or at a meeting called for the purpose of voting on such
matters, shall be required for any amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Articles or the Code of Regulations
which affects adversely and materially the preferences or voting or other rights of the holders of
such series which are set forth in the Articles; provided, however, neither the amendment of the
Articles so as to authorize, create or change the authorized or outstanding number of a class of
Preferred Shares or of any shares ranking on a parity with or junior to such class of Preferred
Shares nor the amendment of the provisions of the
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Code of Regulations so as to change the number or classification of directors of the Company
shall be deemed to affect adversely and materially the preference or voting or other rights of the
holders of such series.
The foregoing voting provisions will not apply if, at or prior to the time when the act with
respect to which such vote would be required shall be effected, all outstanding shares of such
series of Preferred Shares shall have been redeemed or called for redemption and sufficient funds
shall have been deposited in trust to effect such redemption.
Conversion Rights
The terms and conditions, if any, upon which shares of any series of any class of Preferred
Shares are convertible into Common Shares will be set forth in the applicable Prospectus Supplement
relating thereto. Such terms will include the number of Common Shares into which the Preferred
Shares are convertible, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the holders of such Preferred
Shares or the Company, the events requiring an adjustment of the conversion price, and provisions
affecting conversion upon the occurrence of certain events.
Restrictions on Ownership
As discussed above under Description of Common Shares Restrictions on Ownership, for the
Company to qualify as a REIT under the Code, not more than 50% in value of its outstanding capital
stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year, and the 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, and certain other requirements must be
satisfied.
To assure that five or fewer individuals do not own more than 50% in value of the Companys
outstanding Preferred Shares, the Articles 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 9.8%
(the Preferred Shares Ownership Limit) of any series of any class of the Companys outstanding
Preferred Shares. In addition, as discussed above under Description of Common Shares Restriction
on Ownership, 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, the Articles provide that no individual or
entity may own, or be deemed to own by virtue of the attribution provisions of the Code (which
differ from the attribution provisions applied to the Preferred Shares Ownership Limit), in excess
of 9.8% of the outstanding shares of any series of any class of Preferred Shares (the Preferred
Shares Related Party Limit). The Board of Directors may waive the Preferred Shares Ownership Limit
and the Preferred Shares Related Party Limit if the Board of Directors obtains such representations
and undertakings from the applicant with respect to preserving the REIT status of the Company as
are reasonably necessary to ascertain that such ownership will not jeopardize the Companys status
as a REIT.
The foregoing restrictions on transferability and ownership of Preferred Shares may not apply
if the Board of Directors determines that it is no longer in the best interests of the Company to
attempt to qualify, or to continue to qualify, as a REIT. The Preferred Shares Ownership Limit and
the Preferred Shares Related Party Limit will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership concentration
limitation or if the ownership concentration limitation is increased. Any change in the Preferred
Shares Ownership Limit would require an amendment to the Articles, even if the Board of Directors
determines that maintenance of REIT status is no longer in the best interests of the Company.
Amendments to the Companys Articles require the affirmative vote of holders owning not less than a
majority of the outstanding Common Shares. If it is determined that an amendment would materially
and adversely affect the holders of any class of Preferred Shares, such amendment would also
require the affirmative vote of holders of not less than two-thirds of such class of Preferred
Shares.
If Preferred Shares in excess of the Preferred Shares Ownership Limit or the Preferred Shares
Related Party Limit, or shares which would cause the REIT to be beneficially or constructively
owned by fewer than 100 persons or would result in the Company being closely held within the
meaning of Section 856(h) of the Code, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended transferee will acquire
no rights to the shares. In addition, the Board of Directors may
determine that the Preferred Shares transferred or proposed to be transferred in excess of
the Preferred Shares Ownership Limit or the Preferred Shares Related Party Limit or which would
otherwise jeopardize the Companys REIT status (Excess
Preferred Shares) may be subject to
repurchase by the Company. The purchase price of any Excess Preferred Shares will be equal to the
lesser of (i) the price in such proposed transaction and (ii) the fair market value of such shares
reflected in the last reported sales price for the shares on the trading day immediately preceding
the date on which the Company or its designee determines to exercise its repurchase right, if the
shares are then listed on a national securities exchange, or such price for the shares on the
principal exchange if the shares are then listed on more than one national
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securities exchange, or, if the shares are not then listed on a national securities exchange,
the latest bid quotation for the shares if the shares are then traded over-the-counter, or, if such
quotation is not available, the fair market value as determined by the Board of Directors in good
faith, on the last trading day immediately preceding the day on which notice of such proposed
purchase is sent by the Company. From and after the date fixed for purchase of such Excess
Preferred Shares by the Company, the holder thereof will cease to be entitled to distribution,
voting rights and other benefits with respect to such shares except the right to payment of the
purchase price for the shares. Any dividend or distribution paid to a proposed transferee on Excess
Preferred Shares must be repaid to the Company 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 Preferred Shares may be deemed, at the option of the
Company, to have acted as an agent on behalf of the Company in acquiring such Excess Preferred
Shares and to hold such Excess Preferred Shares on behalf of the Company.
Reference is made to the section captioned Description of Common Shares for a general
description of the Common Shares to be acquired upon the conversion of Preferred Shares convertible
into Common Shares (Convertible Preferred Shares), including a description of certain
restrictions on the ownership of the Common Shares. Common Shares that may be acquired upon the
conversion of Convertible Preferred Shares directly or constructively held by an investor, but not
Common Shares issuable with respect to the conversion of Convertible Preferred Shares held by
others, are deemed to be outstanding (a) at the time of purchase of the Convertible Preferred
Shares, and (b) prior to the conversion of the Convertible Preferred Shares, for purposes of
determining the percentage ownership of Common Shares held by such investor.
All certificates representing Preferred Shares will bear a legend referring to the
restrictions described above.
The Articles provide that all persons who own, directly or by virtue of the attribution
provisions of the Code, more than 5% of the outstanding shares of any series of Preferred Shares
shall upon demand be required to disclose to the Company in writing such information with respect
to the direct, indirect and constructive ownership of shares as the Board of Directors deems
necessary 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.
DESCRIPTION OF DEPOSITARY SHARES
General
The Company may issue receipts (Depositary Receipts) for Depositary Shares, each of which
will represent a fractional interest or a share of a particular series of a class of Preferred
Shares, as specified in the applicable Prospectus Supplement. Preferred Shares of each series of
each class represented by Depositary Shares will be deposited under a separate Deposit Agreement
(each, a Deposit Agreement) among the Company, the depositary named therein (such depositary or
its successor, the Preferred Shares Depositary) and the holders from time to time of the
Depositary Receipts. Subject to the terms of the Deposit Agreement, each owner of a Depositary
Receipt will be entitled, in proportion to the fractional interest of a share of the particular
series of a class of Preferred Shares represented by the Depositary Shares evidenced by such
Depositary Receipt, to all the rights and preferences of the Preferred Shares represented by such
Depositary Shares (including dividend, voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued pursuant to the
applicable Deposit Agreement. Immediately following the issuance and delivery of the Preferred
Shares by the Company to the Preferred Shares Depositary, the Company will cause the Preferred
Shares Depositary to issue, on behalf of the Company, the Depositary Receipts. Copies of the
applicable form of Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the following summary of the form thereof filed as an exhibit to the Registration
Statement of which this Prospectus is a part is qualified in its entirety by reference thereto. As
of November 24, 2008, the Company has issued Depositary Receipts representing 2,320,000 Depositary
Shares, each Depositary Share representing one-tenth of a share of 8.70% Class B Cumulative
Redeemable Preferred Shares and 1,950,800 of such Depositary Shares are outstanding.
Dividends and Other Distributions
The Preferred Shares Depositary will distribute all cash dividends or other cash distributions
received in respect of the Preferred Shares to the record holders of the Depositary Receipts
evidencing the related Depositary Shares in proportion to the number of such Depositary Receipts
owned by such holder, subject to certain obligations of holders to file proofs, certificates and
other information and to pay certain charges and expenses to the Preferred Shares Depositary.
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In the event of a distribution other than in cash, the Preferred Shares Depositary will
distribute property received by it to the record holders of Depositary Receipts entitled thereto,
subject to certain obligations of holders to file proofs, certificates and other information and to
pay certain charges and expenses to the Preferred Shares Depositary, unless the Preferred Shares
Depositary determines that it is not feasible to make such distribution, in which case the
Preferred Shares Depositary may, with the approval of the Company, sell such property and
distribute the net proceeds from such sale to such holders.
Withdrawal of Shares
Upon surrender of the Depositary Receipts at the corporate trust office of the Preferred
Shares Depositary (unless the related Depositary Shares have previously been called for
redemption), the holders thereof will be entitled to delivery at such office, to or upon such
holders order, of the number of whole or fractional Preferred Shares and any money or other
property represented by the Depositary Shares evidenced by such Depositary Receipts. Holders of
Depositary Receipts will be entitled to receive whole or fractional shares of the related Preferred
Shares on the basis of the proportion of Preferred Shares represented by each Depositary Share as
specified in the applicable Prospectus Supplement, but holders of such Preferred Shares will not
thereafter be entitled to receive Depositary Shares therefor. If the Depositary Receipts delivered
by the holder evidence a number of Depositary Shares in excess of the number of Depositary Shares
representing the number of Preferred Shares to be withdrawn, the Preferred Shares Depositary will
deliver to such holder at the same time a new Depositary Receipt evidencing such excess number of
Depositary Shares.
Redemption of Depositary Shares
Whenever the Company redeems Preferred Shares held by the Preferred Shares Depositary, the
Preferred Shares Depositary will redeem as of the same redemption date the number of Depositary
Shares representing the Preferred Shares so redeemed, provided the Company shall have paid in full
to the Preferred Shares Depositary the redemption price of the Preferred Shares to be redeemed plus
an amount equal to any accrued and unpaid dividends (except, with respect to Noncumulative Shares,
dividends for the current dividend period only) thereon to the date fixed for redemption. The
redemption price per Depositary Share will be equal to the redemption price and any other amounts
per share payable with respect to the Preferred Shares. If less than all the Depositary Shares are
to be redeemed, the Depositary Shares to be redeemed will be selected by the Preferred Shares
Depositary by lot.
After the date fixed for redemption, the Depositary Shares so called for redemption will no
longer be deemed to be outstanding and all rights of the holders of the Depositary Receipts
evidencing the Depositary Shares so called for redemption will cease, except the right to receive
any moneys payable upon such redemption and any money or other property to which the holders of
such Depositary Receipts were entitled upon such redemption upon surrender thereof to the Preferred
Shares Depositary.
Voting of the Underlying Preferred Shares
Upon receipt of notice of any meeting at which the holders of the Preferred Shares are
entitled to vote, the Preferred Shares Depositary will mail the information contained in such
notice of meeting to the record holders of the Depositary Receipts evidencing the Depositary Shares
which represent such Preferred Shares. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record date for the
Preferred Shares) will be entitled to instruct the Preferred Shares Depositary as to the exercise
of the voting rights pertaining to the amount of Preferred Shares represented by such holders
Depositary Shares. The Preferred Shares Depositary will vote the amount of Preferred Shares
represented by such Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the Preferred Shares
Depositary in order to enable the Preferred Shares Depositary to do so. The Preferred Shares
Depositary will abstain from voting the amount of Preferred Shares represented by such Depositary
Shares to the extent it does not receive specific instructions from the holders of Depositary
Receipts evidencing such Depositary Shares.
Liquidation Preference
In the event of liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, each holder of a Depositary Receipt will be entitled to the fraction of the
liquidation preference accorded each Preferred Share represented by the Depositary Share evidenced
by such Depositary Receipt, as set forth in the applicable Prospectus Supplement.
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Conversion of Preferred Shares
The Depositary Shares, as such, are not convertible into Common Shares or any other securities
or property of the Company. Nevertheless, if so specified in the applicable Prospectus Supplement
relating to an offering of Depositary Shares, the Depositary Receipts may be surrendered by holders
thereof to the Preferred Shares Depositary with written instructions to the Preferred Shares
Depositary to instruct the Company to cause conversion of the Preferred Shares represented by the
Depositary Shares evidenced by such Depositary Receipts into whole Common Shares, other Preferred
Shares of the Company or other shares of capital stock, and the Company has agreed that upon
receipt of such instructions and any amounts payable in respect thereof, it will cause the
conversion thereof utilizing the same procedures as those provided for delivery of Preferred Shares
to effect such conversion. If the Depositary Shares evidenced by a Depositary Receipt are to be
converted in part only, one or more new Depositary Receipts will be issued for any Depositary
Shares not to be converted. No fractional Common Shares will be issued upon conversion, and if such
conversion will result in a fractional share being issued, an amount will be paid in cash by the
Company equal to the value of the fractional interest based upon the closing price of the Common
Shares on the last business day prior to the conversion.
Amendment and Termination of the Deposit Agreement
The form of Depositary Receipt evidencing the Depositary Shares which represent the Preferred
Shares and any provision of the Deposit Agreement may at any time be amended by agreement between
the Company and the Preferred Shares Depositary. However, any amendment that materially and
adversely alters the rights of the holders of Depositary Receipts will not be effective unless such
amendment has been approved by the existing holders of at least a majority of the Depositary Shares
evidenced by the Depositary Receipts then outstanding.
The Deposit Agreement may be terminated by the Company upon not less than 30 days prior
written notice to the Preferred Shares Depositary if (i) such termination is to preserve the
Companys status as a REIT or (ii) a majority of each class of Preferred Shares affected by such
termination consents to such termination, whereupon the Preferred Shares Depositary shall deliver
or make available to each holder of Depositary Receipts, upon surrender of the Depositary Receipts
held by such holder, such number of whole or fractional Preferred Shares as are represented by the
Depositary Shares evidenced by such Depositary Receipts. In addition, the Deposit Agreement will
automatically terminate if (i) all outstanding Depositary Shares shall have been redeemed, (ii)
there shall have been a final distribution in respect of the related Preferred Shares in connection
with any liquidation, dissolution or winding up of the Company and such distribution shall have
been distributed to the holders of Depositary Receipts evidencing the Depositary Shares
representing such Preferred Shares or (iii) each related Preferred Share shall have been converted
into capital stock of the Company not so represented by Depositary Shares.
Charges of Preferred Shares Depositary
The Company will pay all transfer and other taxes and governmental charges arising solely from
the existence of the Deposit Agreement. In addition, the Company will pay the fees and expenses of
the Preferred Shares Depositary in connection with the performance of its duties under the Deposit
Agreement. However, holders of Depositary Receipts will pay the fees and expenses of the Preferred
Shares Depositary for any duties requested by such holders to be performed which are outside of
those expressly provided for in the Deposit Agreement.
Resignation and Removal of Depositary
The Preferred Shares Depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove the Preferred Shares Depositary, any
such resignation or removal to take effect upon the appointment of a successor Preferred Shares
Depositary. A successor Preferred Shares Depositary must be appointed within 60 days after delivery
of the notice of resignation or removal and must be a bank or trust company having its principal
office in the United States and having a combined capital and surplus of at least $50,000,000.
Miscellaneous
The Preferred Shares Depositary will forward to holders of Depositary Receipts any reports and
communications from the Company which are received by the Preferred Shares Depositary with respect
to the related Preferred Shares.
Neither the Preferred Shares Depositary nor the Company will be liable if it is prevented from
or delayed in, by law or any circumstances beyond its control, performing its obligations under the
Deposit Agreement. The obligations of the Company and the Preferred Shares Depositary under the
Deposit Agreement will be limited to performing their duties thereunder in good faith and
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without negligence, gross negligence or willful misconduct, and the Company and the Preferred
Shares Depositary will not be obligated to prosecute or defend any legal proceeding in respect of
any Depositary Receipts, Depositary Shares or Preferred Shares represented thereby unless
satisfactory indemnity is furnished. The Company and the Preferred Shares Depositary may rely on
written advice of counsel or accountants, or information provided by persons presenting Preferred
Shares represented thereby for deposit, holders of Depositary Receipts or other persons believed to
be competent to give such information, and on documents believed to be genuine and signed by a
proper party.
If the Preferred Shares Depositary shall receive conflicting claims, requests or instructions
from any holders of Depositary Receipts, on the one hand, and the Company, on the other hand, the
Preferred Shares Depositary shall be entitled to act on such claims, requests or instructions
received from the Company.
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 such provisions. The Company has opted out of one such provision. The provisions
remaining applicable to the Company are described below.
Chapter 1704 of the Ohio Revised Code prohibits certain transactions, including mergers, sales
of assets, issuances or purchases of securities, liquidation or dissolution, or reclassifications
of the then-outstanding shares of an Ohio corporation with fifty 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 the Companys 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.
Section 1704 of the Ohio Revised Code may have the effect of deterring certain potential
acquisitions of the Company which may be beneficial to shareholders.
Section 1707.041 of the Ohio Revised Code regulates certain tender offer control bids for
corporations in Ohio with fifty or more shareholders that have significant Ohio contacts (as
defined in that statute) 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.
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. 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 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.
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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 Our 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 that allows us to qualify for taxation as a REIT under the Code
commencing with our taxable year ending 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 ending 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
Commission. Any variation from the factual statements set forth herein, in registration statements
previously filed with the 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 us 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, gross income tests 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, 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 us. 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 the
requirements for qualification and taxation as a REIT.
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, and which includes certain foreign currency gains and
deductions recognized after July 30, 2008) 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).
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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.
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.
We may elect to retain and pay income tax on our net long-term capital gain. In that case, a
U.S. shareholder would be taxed on its proportionate share of our undistributed long-term capital
gain (to the extent that we make a timely designation of such gain to the shareholder) and would
receive a credit or refund for its proportionate share of the tax we paid.
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
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(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 (including the income and
asset tests described below).
A corporation qualifies as a qualified REIT subsidiary (a QRS) if 100% of its outstanding
stock is held by us, and we do not elect to treat the corporation as a taxable REIT subsidiary, as
described below. A QRS is not treated as a separate corporation, and all assets, liabilities and
items of income, deduction and credit of a QRS are treated as our assets, liabilities and items of
income, deduction and credit for all purposes of the Code, including the REIT qualification tests.
For this reason, references to our income and assets include the income and assets of any QRS. A
QRS is not subject to federal income tax, and our ownership of the voting stock of a QRS is ignored
for purposes of determining our compliance with the ownership limits described below under Asset
Tests.
A taxable REIT subsidiary (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 from Real Property. 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. |
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.
Interest. 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.
Hedging Transactions. From time to time, we may enter into hedging transactions with respect
to our assets or liabilities. Our hedging activities may include entering into interest rate swaps,
caps, and floors, options to purchase such items, and futures and forward contracts.
Commencing with our 2005 taxable year, income and gain from hedging transactions will be
excluded from gross income for purposes of the 95% gross income test, but not the 75% gross income
test. For hedging transactions entered into after July 30, 2008, income and gain from hedging
transactions will be excluded from gross income for purposes of both the 75% and 95% gross income
tests. A hedging transaction means either (1) any transaction entered into in the normal course
of our trade or business primarily to manage the risk of interest rate, price changes, or currency
fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to
be incurred, to acquire or carry real estate assets or (2) for transactions entered into after July
30, 2008, any transaction entered into primarily to manage the risk of currency fluctuations with
respect to any item of income or gain that would be qualifying income under the 75% or 95% gross
income test (or any property which generates such income or gain). We will be required to clearly
identify any such hedging transaction before the close of the day on which it was acquired,
originated, or entered into and to satisfy other identification requirements. We intend to
structure any hedging or similar transactions so as not to jeopardize our status as a REIT.
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Prohibited Transactions Income. A REIT will incur a 100% tax on the net income derived from
any sale or other disposition of property, other than foreclosure property, that the REIT holds
primarily for sale to customers in the ordinary course of a trade or business. We believe that none
of our assets are held primarily for sale to customers and that a sale of any of our assets will
not be in the ordinary course of our business. Whether a REIT holds an asset primarily for sale to
customers in the ordinary course of a trade or business depends, however, on the facts and
circumstances in effect from time to time, including those related to a particular asset. A safe
harbor to the characterization of the sale of property by a REIT as a prohibited transaction and
the 100% prohibited transaction tax is available if the following requirements are met:
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the REIT has held the property for not less than four years (or, for sales made after
July 30, 2008, two years); |
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the aggregate expenditures made by the REIT, or any partner of the REIT, during the
four-year period (or, for sales made after July 30, 2008, two-year period) preceding the
date of the sale that are includable in the basis of the property do not exceed 30% of the
selling price of the property; |
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either (1) during the year in question, the REIT did not make more than seven sales of
property other than foreclosure property or sales to which Code Section 1033 applies, (2)
the aggregate adjusted bases of all such properties sold by the REIT during the year did
not exceed 10% of the aggregate bases of all of the assets of the REIT at the beginning of
the year or (3) for sales made after July 30, 2008, the aggregate fair market value of all
such properties sold by the REIT during the year did not exceed 10% of the aggregate fair
market value of all of the assets of the REIT at the beginning of the year; |
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in the case of property not acquired through foreclosure or lease termination, the REIT
has held the property for at least four years (or, for sales made after July 30, 2008, two
years) for the production of rental income; and |
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if the REIT has made more than seven sales of non-foreclosure property during the
taxable year, substantially all of the marketing and development expenditures with respect
to the property were made through an independent contractor from whom the REIT derives no
income. |
We will attempt to comply with the terms of the safe-harbor provision in the federal income
tax laws prescribing when an asset sale will not be characterized as a prohibited transaction. We
cannot assure you, however, that we can comply with the safe-harbor provisions or that we will
avoid owning property that may be characterized as property held primarily for sale to customers
in the ordinary course of a trade or business. We may, however, form or acquire a taxable REIT
subsidiary to hold and dispose of those properties we conclude may not fall within the safe-harbor
provisions.
Foreign Currency Gain. Certain foreign currency gains recognized after June 30, 2008 will be
excluded from gross income for purposes of one or both of the gross income tests. Real estate
foreign exchange gain will be excluded from gross income for purposes of the 75% gross income
test. Real estate foreign exchange gain generally includes foreign currency gain attributable to
any item of income or gain that is qualifying income for purposes of the 75% gross income test,
foreign currency gain attributable to the acquisition or ownership of (or becoming or being the
obligor under) obligations secured by mortgages on real property or on interests in real property
and certain foreign currency gain attributable to certain qualified business units of a REIT.
Passive foreign exchange gain will be excluded from gross income for purposes of the 95% gross
income test. Passive foreign exchange gain generally includes real estate foreign exchange gain as
described above, and also includes foreign currency gain attributable to any item of income or gain
that is qualifying income for purposes of the 95% gross income test and foreign currency gain
attributable to the acquisition or ownership of (or becoming or being the obligor under)
obligations secured by mortgages on real property or on interests in real property. Because passive
foreign exchange gain includes real estate foreign exchange gain, real estate foreign exchange gain
is excluded from gross income for purposes of both the 75% and 95% gross income test. These
exclusions for real estate foreign exchange gain and passive foreign exchange gain do not apply to
any foreign currency gain derived from dealing, or engaging in substantial and regular trading, in
securities. Such gain is treated as nonqualifying income for purposes of both the 75% and 95% gross
income tests.
Failure to Satisfy Income Tests. 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:
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following our identification of the failure to meet the 75% or 95% gross income tests
for any taxable year, we file a schedule with the IRS setting forth each item of our gross
income for purposes of the 75% or 95% gross income tests for such taxable year in
accordance with Treasury Regulations to be issued; and |
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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.
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 each 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 having a maturity of at least five
years, but only for the one-year period beginning on the date we receive such proceeds. Second, not
more than 25% of our total assets may be represented by securities, other than those securities
includable in the 75% asset test. Third, of the investments included in the 25% asset class, and
except for investments in another REIT, a QRS or a TRS, the value of any one issuers securities
may not exceed 5% of the value of our total assets, and we may not own more than 10% of the total
vote or value of the outstanding securities of any one issuer except, in the case of the 10% value
test, securities satisfying the straight debt safe-harbor. Certain types of securities we may
own are disregarded as securities solely for purposes of the 10% value test, including, but not
limited to, any loan to an individual or an estate, any obligation to pay rents from real property
and any security issued by a REIT. In addition, 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 (or, beginning with our 2009
taxable year, 25% 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. 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, (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.
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Although we expect to satisfy the asset tests described above and plan to take steps to ensure
that we satisfy such tests for any quarter with respect to which retesting is to occur, there can
be no assurance we will always be successful. If we fail to cure any noncompliance with the asset
tests in a timely manner, and the relief provisions described above are not available, we would
cease to qualify as a REIT.
Annual Distribution Requirements. To maintain our qualification as a REIT, we are required to
distribute dividends (other than capital gain dividends) to our shareholders in an amount at least
equal to the sum of 90% of our REIT taxable income (computed without regard to the dividends paid
deduction and our net capital gain) and 90% of our net income (after tax), if any, from foreclosure
property; minus the excess of the sum of certain items of noncash income (i.e., income attributable
to leveled stepped rents, original issue discount on purchase money debt, or a like-kind exchange
that is later determined to be taxable) over 5% of REIT taxable income as described above.
In addition, if we dispose of any asset we acquired from a corporation which is or has been a
C corporation in a transaction in which our basis in the asset is determined by reference to the
basis of the asset in the hands of that C corporation, within the ten-year period following our
acquisition of such asset, we would be required to distribute at least 90% of the after-tax gain,
if any, we recognized on the disposition of the asset, to the extent that gain does not exceed the
excess of (a) the fair market value of the asset on the date we acquired the asset over (b) our
adjusted basis in the asset on the date we acquired the asset.
We must pay the distributions described above in the taxable year to which they relate, 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, in certain circumstances, 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 (as discussed below) and on which we pay the tax), and any undistributed taxable income
from prior periods. Any REIT taxable income and net capital gain on which this excise tax is
imposed for any year is treated as an amount distributed during that year for purposes of
calculating such tax.
Earnings and Profits Distribution Requirement. In order to qualify as a REIT, we cannot have
at the end of any taxable year any undistributed earnings and profits that are attributable to a
C corporation taxable year (i.e., a year in which a corporation is neither a REIT nor an S
corporation).
We intend to make timely distributions to satisfy the annual distribution requirements.
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Failure to Qualify
Specified cure provisions may 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:
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is a citizen or resident of the United States; |
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is a corporation or other entity classified as a corporation for 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; |
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is an estate the income of which is subject to United States federal income taxation
regardless of its source; or |
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is a trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the authority to
control all substantial decisions of the trust. Notwithstanding the preceding sentence, to
the extent provided in Treasury Regulations, certain trusts in existence on August 20,
1996, and treated as United States persons prior to this date that elect to continue to be
treated as United States persons, shall also be considered U.S. Shareholders. |
If a partnership is a beneficial owner of our shares, the tax treatment of a partner in the
partnership will generally depend upon the status of the partner and the activities of the
partnership. A beneficial owner that is a partnership and partners in such a partnership should
consult their tax advisors about the U.S. federal income tax consequences of the purchase,
ownership and disposition of our shares.
Distributions Generally. As long as we qualify as a REIT, distributions out of our current or
accumulated earnings and profits, other than capital gain dividends discussed below, generally will
constitute dividends taxable to our taxable U.S. Shareholders as ordinary income. For purposes of
determining whether distributions to holders of shares are out of current or accumulated earnings
and profits, our earnings and profits will be allocated first to our outstanding preferred shares
and then to our common shares. These distributions will not be eligible for the dividends-received
deduction in the case of U.S. Shareholders that are corporations.
Because we generally are not subject to federal income tax on the portion of our REIT taxable
income distributed to our shareholders, our ordinary dividends generally are not eligible for the
reduced 15% rate available to most non-corporate taxpayers through 2010, and will continue to be
taxed at the higher tax rates applicable to ordinary income. However, the reduced 15% rate does
apply to our distributions:
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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); |
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to the extent attributable to dividends received by us from non-REIT corporations or
other taxable REIT subsidiaries; and |
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to the extent attributable to income upon which we have paid corporate income tax (for
example, if we distribute taxable income that we retained and paid tax on in the prior
year). |
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, on a Capital
Gains Designation, we would pay tax on our retained net long-term capital gains. In addition, to
the extent we make a Capital Gains Designation, a U.S. Shareholder generally would:
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include its proportionate share of our undistributed long-term capital gains in
computing its long-term capital gains in its return for its taxable year in which the last
day of our taxable year falls (subject to certain limitations as to the amount that is
includable); |
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be deemed to have paid the capital gains tax imposed on us on the designated amounts
included in the U.S. Shareholders long-term capital gains; |
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receive a credit or refund for the amount of tax deemed paid by it; |
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increase the adjusted basis of its shares by the difference between the amount of
includable gains and the tax deemed to have been paid by it; and |
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in the case of a U.S. Shareholder that is a corporation, appropriately adjust its
earnings and profits for the retained capital gains in accordance with Treasury Regulations
to be promulgated. |
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 a portion of any loss a U.S.
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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.
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 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 foreign, 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
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income 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 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 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
hold, 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 purchaser of
the shares may be required to withhold and remit to the IRS 10% of the
42
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 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 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 timely 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.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for public offering
and sale by them or may sell the Offered Securities to investors directly or through agents. Any
such underwriter or agent involved in the offer and sale of the Offered Securities will be named in
the applicable Prospectus Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or prices, which may
be changed, at prices related to the prevailing market prices at the time of sale, or at negotiated
prices. The Company also may, from time to time, authorize underwriters acting as the Companys
agents to offer and sell the Offered Securities upon the terms and conditions set forth in an
applicable Prospectus Supplement. In connection with the sale of Offered Securities, underwriters
may be deemed to have received compensation from the Company in the form of underwriting discounts
or commissions and may also receive commissions from purchasers of Offered Securities for whom they
may act as agent. Underwriters may sell Offered Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions from the underwriters or commissions
from the purchasers for whom they may act as agent.
Any compensation paid by the Company to underwriters or agents in connection with the offering
of Offered Securities and any discounts, concessions or commissions allowed by underwriters to
participating dealers will be set forth in the applicable Prospectus Supplement. Underwriters,
dealers and agents participating in the distribution of the Offered Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit realized by them on
resale of the Offered Securities may be deemed to be underwriting discounts and commissions under
the Securities Act. Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company, to indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will authorize dealers
acting as the Companys agents to solicit offers by certain institutions to purchase Offered
Securities from the Company at the public offering price set forth in such Prospectus Supplement
pursuant to Delayed Delivery Contracts (Contracts) providing for payment and delivery on the date
or dates
43
stated in such Prospectus Supplement. Each Contract will be for an amount not less than, and
the aggregate principal amount of Securities sold pursuant to Contracts shall be not less or more
than, the respective amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks, insurance companies,
pension funds, investment companies, educational and charitable institutions, and other
institutions, but will in all cases be subject to the approval of the Company. Contracts will not
be subject to any conditions except (i) the purchase by an institution of the Offered Securities
covered by its Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject and (ii) if the Offered
Securities are being sold to underwriters, the Company shall have sold to such underwriters the
total principal amount of the Offered Securities less the principal amount thereof covered by
Contracts.
Certain of the underwriters and their affiliates may be customers of, engage in transactions
with and perform services for the Company and its subsidiaries in the ordinary course of business.
The Prospectus Supplement will explain whether or not the Offered Securities will be listed on
a national securities exchange. The Company cannot assure you that there will be a market for any
of the Offered Securities.
EXPERTS
The financial statements and financial statement schedules incorporated in this Prospectus by
reference to Associated Estates Realty Corporations Current Report on Form 8-K dated November 25,
2008, and managements assessment of the effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal Control over Financial Reporting)
incorporated in this Prospectus by reference to the Annual Report on Form 10-K of Associated
Estates Realty Corporation for the year ended December 31, 2007, have been so incorporated in
reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting
firm, given on the authority of said firm as experts in auditing and accounting.
The combined statements of revenue and certain expenses for The Belvedere and River Forest
incorporated in this Prospectus by reference to Associated Estates Realty Corporations Current
Report on Form 8-K filed with the Commission on July 3, 2008, have been so incorporated in reliance
on the report of Keiter, Stephens, Hurst, Gary & Shreaves, P.C., independent accountants, given on
the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the Offered Securities as well as certain legal matters described under
Federal Income Tax Considerations will be passed upon for the Company by Baker & Hostetler LLP,
Cleveland, Ohio. Albert T. Adams, a director of the Company, is a partner in Baker & Hostetler LLP.
Certain legal matters with respect to the Offered Securities may be passed upon by counsel for any
underwriters, dealers or agents, each of whom will be named in the related Prospectus Supplement.
44
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
|
|
|
|
|
|
|
Amount |
Filing fee Securities and Exchange Commission |
|
$ |
0 |
|
*Listing on New York Stock Exchange |
|
|
5,000 |
|
*Trustees expenses |
|
|
5,000 |
|
*Printing and engraving |
|
|
25,000 |
|
*Services of counsel |
|
|
100,000 |
|
*Services of independent public accountants |
|
|
100,000 |
|
*Rating agency fees |
|
|
50,000 |
|
*Blue Sky fees and expenses |
|
|
5,000 |
|
*Miscellaneous |
|
|
10,000 |
|
Total |
|
$ |
300,000 |
|
Item 15. Indemnification of Officers and Directors
Section 1701.13 of 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 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 person in his or her capacity,
or arising out of the status, as an officer or director, whether or not the corporation would have
the power to indemnify him against such liability under the Ohio Code.
Article 7 of the Companys Code of Regulations provides for the indemnification of its
officers and directors as authorized by the Ohio Code sections summarized above (with the exception
of liability that concerns certain unlawful distributions). The Companys Articles provide that no
person who is serving or has served as a director of the corporation shall be personally liable to
the corporation of any of its shareholders for monetary damages for breach of any fiduciary duty of
such person as a director by reason of any act or omission as a director, provided that the
foregoing does not eliminate or limit liability of any person (a) for any breach of such persons
duty of loyalty as a director to the corporation or its shareholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of law, (c) under
Section 1701.95 of the Ohio Code (related to certain unlawful distributions), (d) for any
transaction from which such person derived any improper personal benefit or (e) to the extent that
such liability may not be limited or eliminated by virtue of the provisions of Section 1701.13 of
the Ohio Code or any successor section or statute.
The Company maintains a directors and officers insurance policy which insures the directors
and officers of the Company from claims arising out of an alleged wrongful act by such persons in
their respective capacities as directors and officers of the Company, subject to certain
exceptions.
45
Item 16. Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
1
|
|
Proposed form of Underwriting Agreement (1) |
|
|
|
4.1
|
|
Indenture, dated as of March 31, 1995, between Associated Estates Realty Corporation and U.S.
Bank National Association (successor trustee to National City Bank),
as Trustee * |
|
|
|
4.2
|
|
Supplemental Indenture, dated as of November 5, 1999, between Associated Estates Realty
Corporation and U.S. Bank National Association (successor trustee to National City Bank), as
Trustee * |
|
|
|
4.3
|
|
Subordinated Indenture, dated as of
March 31, 1995, between Associated Estates Realty Corporation and
Chemical Bank, as Trustee (2) |
|
|
|
4.4
|
|
Associated Estates Realty Corporation Second Amended and Restated Articles of Incorporation (3) |
|
|
|
4.5
|
|
Amendment to Associated Estates Realty Corporation Second Amended and Restated Articles of Incorporation (4) |
|
|
|
4.6
|
|
Associated Estates Realty Corporation Amended and Restated Code of Regulations (5) |
|
|
|
4.7
|
|
Form of Senior Debt Securities (1) |
|
|
|
4.8
|
|
Form of Subordinated Debt Securities (1) |
|
|
|
4.9
|
|
Specimen of Certificate for Common Shares (6) |
|
|
|
4.10
|
|
Form of Common Share Warrant Agreement (1) |
|
|
|
4.11
|
|
Form of Certificate for Preferred Shares (1) |
|
|
|
4.12
|
|
Form of Deposit Agreement and Depositary Receipt (1) |
|
|
|
5
|
|
Opinion of Baker & Hostetler
LLP as to validity of the offered securities * |
|
|
|
8
|
|
Opinion of Baker & Hostetler
LLP as to tax matters * |
|
|
|
12
|
|
Computation of Ratio of Earnings to
Fixed Charges * |
|
|
|
23.1
|
|
Consent of PricewaterhouseCoopers
LLP ** |
|
|
|
23.2
|
|
Consent of Keiter, Stephens, Hurst,
Gary & Shreaves, P.C. ** |
|
|
|
23.3
|
|
Consent of Baker & Hostetler
LLP (included in Exhibit 5)* |
|
|
|
24
|
|
Powers of Attorney* |
|
|
|
25.1
|
|
Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of
U.S. Bank National Association (successor trustee to National City
Bank) * |
|
|
|
* |
|
Previously filed. |
|
** |
|
Filed herewith. |
|
(1) |
|
To be filed by amendment or as an exhibit to a document to be incorporated or deemed to be
incorporated by reference in the Registration Statement. |
|
(2) |
|
Incorporated by reference to the Registration Statement on Form S-3 (No. 33-80169) filed with
the Commission on December 7, 1995. |
46
|
|
|
(3) |
|
Included as Exhibit 3.2 to Form 10-Q filed July 31, 2007 and incorporated herein by
reference. |
|
(4) |
|
Included as Exhibit 3.1 to Form 8-K filed
December 8, 2004 and incorporated herein by
reference. |
|
(5) |
|
Included as Exhibit 3.3 to Form 10-Q filed August 1, 2006 and incorporated herein by
reference. |
|
(6) |
|
Included as Exhibit 3.1 to Form S-11 filed September 2, 1993 (File No. 33-68276 as amended)
and incorporated herein by reference. |
Item 17. Undertakings
|
(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; |
|
|
(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 (a)(1)(i), (a)(1)(ii) and (a)(1)(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, 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. |
|
|
(4) |
|
That, for the purpose of determining liability under the Securities Act to any
purchaser: |
|
(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 the
prospectus. As provided in Rule 430B, for liability purposes of the issuer and any
person that is at that date an underwriter, such |
47
|
|
|
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 |
(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.
48
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 Cleveland,
State of Ohio, on February 23, 2009.
|
|
|
|
|
|
ASSOCIATED ESTATES REALTY CORPORATION
|
|
|
By: |
/s/ Jeffrey I. Friedman |
|
|
|
Jeffrey I. Friedman, Chairman of the Board, President and Chief Executive Officer |
|
|
|
|
|
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities
indicated on February 23, 2009.
|
|
|
|
|
Name |
|
|
|
Title |
|
/s/ Jeffrey I. Friedman
Jeffrey I. Friedman
|
|
|
|
Chairman of the Board, President and Chief Executive
Officer (principal executive officer) |
|
|
|
|
|
/s/ Lou Fatica
Lou Fatica
|
|
|
|
Vice President, Treasurer and Chief Financial Officer (principal
financial officer and principal accounting officer) |
|
|
|
|
|
|
|
|
|
Director |
Albert T. Adams |
|
|
|
|
|
|
|
|
|
|
|
|
|
Director |
James M. Delaney |
|
|
|
|
|
|
|
|
|
|
|
|
|
Director |
Michael E. Gibbons |
|
|
|
|
|
|
|
|
|
|
|
|
|
Director |
Mark L. Milstein |
|
|
|
|
|
|
|
|
|
|
|
|
|
Director |
James A. Schoff |
|
|
|
|
|
|
|
|
|
|
|
|
|
Director |
Richard T. Schwarz |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lou
Fatica,
attorney in fact |
|
|
|
|
49
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
1
|
|
Proposed form of Underwriting Agreement (1) |
|
|
|
4.1
|
|
Indenture, dated as of March 31, 1995, between Associated Estates Realty Corporation and U.S.
Bank National Association (successor trustee to National City Bank),
as Trustee * |
|
|
|
4.2
|
|
Supplemental Indenture, dated as of November 5, 1999, between Associated Estates Realty
Corporation and U.S. Bank National Association (successor trustee to National City Bank), as
Trustee * |
|
|
|
4.3
|
|
Subordinated Indenture, dated as of
March 31, 1995, between Associated Estates Realty Corporation and
Chemical Bank, as Trustee (2) |
|
|
|
4.4
|
|
Associated Estates Realty Corporation Second Amended and Restated Articles of Incorporation (3) |
|
|
|
4.5
|
|
Amendment to Associated Estates Realty Corporation Second Amended and Restated Articles of Incorporation (4) |
|
|
|
4.6
|
|
Associated Estates Realty Corporation Amended and Restated Code of Regulations (5) |
|
|
|
4.7
|
|
Form of Senior Debt Securities (1) |
|
|
|
4.8
|
|
Form of Subordinated Debt Securities (1) |
|
|
|
4.9
|
|
Specimen of Certificate for Common Shares (6) |
|
|
|
4.10
|
|
Form of Common Share Warrant Agreement (1) |
|
|
|
4.11
|
|
Form of Certificate for Preferred Shares (1) |
|
|
|
4.12
|
|
Form of Deposit Agreement and Depositary Receipt (1) |
|
|
|
5
|
|
Opinion of Baker & Hostetler
LLP as to validity of the offered securities * |
|
|
|
8
|
|
Opinion of Baker & Hostetler
LLP as to tax matters * |
|
|
|
12
|
|
Computation of Ratio of Earnings to
Fixed Charges * |
|
|
|
23.1
|
|
Consent of PricewaterhouseCoopers
LLP ** |
|
|
|
23.2
|
|
Consent of Keiter, Stephens, Hurst,
Gary & Shreaves, P.C. ** |
|
|
|
23.3
|
|
Consent of Baker & Hostetler
LLP* |
|
|
|
24
|
|
Powers of Attorney* |
|
|
|
25.1
|
|
Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of
U.S. Bank National Association (successor trustee to National City Bank) |
|
|
|
* |
|
Previously filed. |
|
** |
|
Filed herewith. |
|
(1) |
|
To be filed by amendment or as an exhibit to a document to be incorporated or deemed to be
incorporated by reference in the Registration Statement. |
50
|
|
|
(2) |
|
Incorporated by reference to the Registration Statement on Form S-3 (No. 33-80169) filed with
the Commission on December 7, 1995. |
|
(3) |
|
Included as Exhibit 3.2 to Form 10-Q filed July 31, 2007 and incorporated herein by
reference. |
|
(4) |
|
Included as Exhibit 3.1 to Form 8-K filed
December 8, 2004 and incorporated herein by
reference. |
|
(5) |
|
Included as Exhibit 3.3 to Form 10-Q filed August 1, 2006 and incorporated herein by
reference. |
|
(6) |
|
Included as Exhibit 3.1 to Form S-11 filed September 2, 1993 (File No. 33-68276 as amended)
and incorporated herein by reference. |
51