As Filed Pursuant to Rule 424B2
Registration No. 333-47041
Prospectus Supplement to Prospectus dated March 23, 1998.
2,915,452 Shares
[LOGO]
Common Stock
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The common stock is listed on the New York Stock Exchange under the symbol
"CBL." The last reported sale price of the common stock on March 11, 2002 was
$36.23 per share.
The shares of common stock are subject to certain restrictions on ownership
designed to preserve our qualification as a real estate investment trust for
federal income tax purposes. See "Description of Capital Stock--Description of
Common Stock" in the accompanying prospectus for more information about these
restrictions.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THE ACCOMPANYING PROSPECTUS TO
READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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Per Share Total
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Initial price to public..................................... $34.55 $100,728,866.60
Underwriting discount(1).................................... $ 0.25 $ 728,863.00
Proceeds, before expenses, to CBL........................... $34.30 $100,000,003.60
(1) In addition, Goldman, Sachs & Co. may receive from purchasers of the shares
normal brokerage commissions in amounts agreed with the purchasers.
To the extent that the underwriter sells more than 2,915,452 shares of
common stock, the underwriter has the option to purchase up to an additional
437,318 shares from CBL at the initial price to public less the underwriting
discount.
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The underwriter expects to deliver the shares against payment in New York,
New York on March 14, 2002.
GOLDMAN, SACHS & CO.
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Prospectus Supplement dated March 11, 2002.
WHEN USED IN THIS PROSPECTUS SUPPLEMENT, EXCEPT WHERE THE CONTEXT OTHERWISE
REQUIRES, THE TERMS "WE", "OUR", "US" AND "CBL" REFER TO CBL & ASSOCIATES
PROPERTIES, INC. AND ITS SUBSIDIARIES, INCLUDING OUR OPERATING PARTNERSHIP,
CBL & ASSOCIATES LIMITED PARTNERSHIP, A DELAWARE LIMITED PARTNERSHIP.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
Certain information included or incorporated by reference in this prospectus
supplement or the accompanying prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and, as such,
involves known and unknown risks, uncertainties and other factors which may
cause our actual results, performance or achievements to be materially different
from future results, performance or achievements expressed or implied by these
forward-looking statements. Forward-looking statements, which are based on
certain assumptions and describe our future plans, strategies and expectations,
are generally identifiable by use of the words "may", "will", "should",
"expect", "anticipate", "estimate", "believe", "intend", "project", or the
negative of these words, or other similar words or terms. Factors which could
materially and adversely affect us include, but are not limited to, changes in
economic conditions generally and the real estate market specifically,
legislative/regulatory changes including changes to laws governing the taxation
of real estate investment trusts, which we call "REITs", to availability of debt
and equity capital, interest rate fluctuations, competition, supply and demand
for properties in our current and proposed market areas, accounting principles,
policies and guidelines applicable to REITs, environmental risks, tenant
bankruptcies and the other matters described under the heading "Risk Factors"
beginning on page 6 of the accompanying prospectus. All of these factors should
be considered in evaluating any forward-looking statements included or
incorporated by reference in this prospectus supplement or the accompanying
prospectus.
We undertake no obligation to publicly update or revise any forward-looking
statements included or incorporated by reference in this prospectus supplement
or the accompanying prospectus, whether as a result of new information, future
events or otherwise. In light of the factors referred to above, the future
events discussed in or incorporated by reference in this prospectus supplement
or the accompanying prospectus may not occur and actual results, performance or
achievement could differ materially from that anticipated or implied in the
forward-looking statements.
ii
CBL & ASSOCIATES PROPERTIES, INC.
We are a self-managed, self-administered, fully integrated real estate
company. We own, operate, market, manage, lease, expand, develop, redevelop,
acquire and finance regional malls and community and neighborhood shopping
centers. We have elected to be taxed as a REIT. We currently own interests in 52
enclosed regional malls, 18 associated centers, each of which is part of a
regional shopping mall complex, and 68 independent community and neighborhood
shopping centers. Additionally, we own one regional mall and one mall expansion
which are undergoing construction. We also own options to acquire certain
shopping center development sites.
We conduct substantially all of our business through our subsidiary
operating partnership, CBL & Associates Limited Partnership, a Delaware limited
partnership. We currently own an indirect 51.17% interest in the operating
partnership, and one of our wholly owned subsidiaries is its sole general
partner. Our property management and development activities, sales of peripheral
land and maintenance operations are carried out through a separate management
company. Currently, our operating partnership owns 100% of the preferred stock
of the management company, which entitles the operating partnership to
substantially all of the management company's earnings, and our operating
partnership also owns 5% of the management company's common stock. Certain of
our executive officers and their children hold the remaining 95% of the
management company's common stock.
In order to maintain our qualification as a REIT for federal income tax
purposes, we must distribute each year at least 90% of our taxable income,
computed without regard to net capital gains or the dividends-paid deduction.
We were organized on July 13, 1993 as a Delaware corporation to acquire
substantially all of the real estate properties owned by our predecessor
company, CBL & Associates, Inc., and its affiliates. Our principal executive
offices are located at 2030 Hamilton Place Blvd., Suite 500, CBL Center,
Chattanooga, Tennessee 37421, and our telephone number is (423) 885-0001.
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock offered
by this prospectus supplement and the accompanying prospectus, after deducting
estimated fees and expenses related to this offering of $350,000, are
approximately $99,650,000. We intend to use the net proceeds from this
offering (i) to repay amounts outstanding under certain of our lines of credit
as follows: $50 million, $16 million and $12 million, maturing in 2003, 2006 and
2004, respectively, all with an interest rate of 100 basis points over LIBOR,
(ii) to repay amounts outstanding under certain of our mortgages as follows:
$8.5 million and $0.5 million, both maturing in 2003 with interest rates of 200
basis points over LIBOR and 10%, respectively, and (iii) for our general
corporate use.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain U.S. federal income tax considerations is
based on current law, is for general information only, and is not tax advice.
The tax treatment of a holder of any of the offered securities will depend on
the holder's particular situation, and this discussion does not attempt to
address all aspects of federal income tax considerations that may be relevant to
holders of the offered securities in light of their personal investment or tax
circumstances, or to certain types of stockholders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States), except to the extent discussed herein. This summary assumes that the
stockholder holds the stock as a capital asset. No assurance can be given that
current law will not change, possibly with retroactive effect.
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EACH PROSPECTIVE PURCHASER OF THE OFFERED SECURITIES IS ADVISED TO CONSULT
HIS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO SUCH PURCHASER OF
THE PURCHASE, OWNERSHIP AND SALE OF THE OFFERED SECURITIES AND OF OUR ELECTION
TO BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS. IN PARTICULAR, FOREIGN INVESTORS SHOULD CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF AN INVESTMENT IN OUR
COMPANY, INCLUDING THE POSSIBILITY OF UNITED STATES INCOME TAX WITHHOLDING ON
OUR DISTRIBUTIONS.
TAXATION OF CBL
We have elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code and applicable Treasury Regulations, which set forth the
requirements for qualifying as a REIT, commencing with our taxable year ending
December 31, 1993. We believe that, commencing with our taxable year ending
December 31, 1993, we have been organized and have operated, and are operating,
in such a manner so as to qualify for taxation as a REIT under the Code. We
intend to continue to operate in such a manner, but no assurance can be given
that we have operated or that we will operate in a manner so as to qualify or
remain qualified.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material aspects
of the Code sections that govern the federal income tax treatment of a REIT.
This summary is qualified in its entirety by the applicable Code provisions and
Treasury Regulations, and administrative and judicial interpretations thereof.
Willkie Farr & Gallagher has acted as our special tax counsel in connection with
our election to be taxed as a REIT.
In the opinion of Willkie Farr & Gallagher, commencing with our taxable year
ending December 31, 1993, we were organized and have operated in conformity with
the REIT requirements, and our proposed method of operation will enable us to
continue to meet REIT requirements. Willkie Farr & Gallagher's opinion is based
on certain factual representations and assumptions and methods of operations
which are beyond its control and which it will not monitor on an ongoing basis.
In particular, this opinion is based upon our factual representations concerning
our business and properties and certain factual representations and legal
conclusions of Shumacker & Thompson, P.C. Moreover, such qualification and
taxation as a REIT depend upon our ability to meet, through actual annual
operating results, certain distribution levels, a specified diversity of stock
ownership, and the various other qualification tests imposed under the Code as
discussed below. The annual operating results will not be reviewed by Willkie
Farr & Gallagher. Accordingly, no assurance can be given that the actual results
of our operations for any particular taxable year will satisfy such
requirements. Further, the anticipated income tax treatment described in this
prospectus supplement may be changed, perhaps retroactively, by legislative,
administrative or judicial action at any time. For a discussion of the tax
consequences of failure to qualify as a REIT, see "U.S. Federal Income Tax
Considerations--Failure to Qualify" below.
For as long as we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income taxes on our income that is currently
distributed to stockholders. The REIT requirements generally allow a REIT to
deduct dividends paid to its stockholders. This treatment substantially
eliminates the "double taxation" (once at the corporate level and again at the
stockholder level) that generally results from investment in a corporation.
Even if we qualify for taxation as a REIT, we may be subject to federal
income tax as follows:
First, we will be taxed at regular corporate rates on any undistributed
"real estate investment trust taxable income", including undistributed net
capital gains. (However, we can elect to "pass
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through" any of our taxes paid on our undistributed net capital gains income to
our stockholders on a pro rata basis.)
Second, under certain circumstances, we may be subject to the "alternative
minimum tax" on our items of tax preference, if any.
Third, if we have (i) net income from the sale or other disposition of
"foreclosure property" (generally, property acquired by reason of a default on a
lease or an indebtedness held by a REIT) that is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying net
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income.
Fourth, if we have net income from "prohibited transactions" (which are, in
general, certain sales or other dispositions of property, held primarily for
sale to customers in the ordinary course of business other than sales of
foreclosure property and sales that qualify for a statutory safe harbor), such
income will be subject to a 100% tax.
Fifth, if we should fail to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), and have nonetheless maintained our
qualification as a REIT because certain other requirements have been met, we
will be subject to a 100% tax on an amount equal to the greater of (1) the
excess of (a) 90% of our gross income less (b) the amount of our gross income
that is qualifying income for purposes of the 95% test or (2) the excess of
(a) 75% of our gross income less (b) the amount of our gross income that is
qualifying income for purposes of the 75% test, multiplied by a fraction
intended to reflect our profitability.
Sixth, if we should fail to distribute with respect to each calendar year at
least the sum of (i) 85% of our REIT ordinary income for such year, (ii) 95% of
our REIT capital gain net income for such year, and (iii) any undistributed
taxable income from prior periods, we will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Seventh, if we acquire in the future any asset from a "C" corporation (i.e.,
generally a corporation subject to full corporate-level tax) in a carryover
basis transaction (or if we held assets beginning on the first day of the first
taxable year for which we qualified as a REIT) and we subsequently recognize
gain on the disposition of such asset during the 10-year period beginning on the
date on which we acquired the asset (or we first qualified as a REIT), then the
excess of (a) the fair market value of the asset as of the beginning of the
period, over (b) our adjusted basis in such asset as of the beginning of such
period will generally be subject to tax at the highest regular corporate rate.
Eighth, for taxable years beginning after December 31, 2000, if we receive
non-arms length income as a result of services provided by a taxable REIT
subsidiary to our tenants, or if we receive certain other non-arms length income
from a taxable REIT subsidiary, we will be subject to a 100% tax on the amount
of such non-arms length income.
REQUIREMENTS FOR QUALIFICATION
ORGANIZATIONAL REQUIREMENTS
In order to remain qualified as a REIT, we must continue to meet certain
requirements, discussed below, relating to our organization, sources of income,
nature of assets, and distributions of income to our stockholders.
The Code defines a REIT as a corporation, trust or association (1) that is
managed by one or more trustees or directors, (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest, (3) that would be taxable as a domestic corporation but for
the REIT requirements, (4) that is neither a financial institution nor an
insurance
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company subject to certain provisions of the Code, (5) the beneficial ownership
of which is held by 100 or more persons, (6) during the last half of each
taxable year not more than 50% in value of the outstanding stock of which is
owned, directly or indirectly, by five or fewer individuals, and (7) that meets
certain other tests, described below, regarding the nature of its income and
assets. The REIT requirements provide 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. For purposes of
condition (6), certain tax-exempt entities are generally treated as individuals.
However, a pension trust generally will not be considered an individual for
purposes of condition (6). Instead, beneficiaries of the pension trust will be
treated as holding stock of a REIT in proportion to their actuarial interests in
the trust.
We have satisfied the requirements of conditions (1) through (4) and (7),
and we believe that the requirements of conditions (5) and (6) have been and are
currently satisfied. In addition, our certificate of incorporation provides for
restrictions regarding transfer of our shares in order to assist us in
continuing to satisfy the share ownership requirements described in conditions
(5) and (6) above. Such transfer restrictions are described under the captions
"Description of Capital Stock--Description of Preferred Stock--Restrictions on
Transfer" and "--Description of Common Stock--Restrictions on Transfer" in the
accompanying prospectus.
We currently have three "qualified REIT subsidiaries", CBL Holdings I, CBL
Holdings II and CBL/North Haven, Inc., and may have additional such subsidiaries
in the future. A corporation that is a "qualified REIT subsidiary" (defined in
the Code as a corporation wholly owned by a REIT) will not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a qualified REIT subsidiary shall be treated as assets,
liabilities, and items of the REIT. Thus, in applying these requirements, the
separate existence of our "qualified REIT subsidiaries" will be ignored, and all
assets, liabilities, and items of income, deduction, and credit of such
subsidiaries will be treated as our assets, liabilities and items.
In the case of a REIT that is a direct or indirect partner in a partnership,
Treasury Regulations provide that the REIT will be deemed to own its
proportionate share of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership shall
retain the same character in the hands of the REIT for purposes of the REIT
requirements, including satisfying the gross income tests and the asset tests,
described below. Thus, our proportionate share of the assets, liabilities and
items of income of the operating partnership and the property partnerships will
be treated as our assets, liabilities and items of income for purposes of
applying the requirements described herein, provided that the operating
partnership and property partnerships are treated as partnerships for federal
income tax purposes.
Finally, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. Our taxable year is the calendar year.
INCOME TESTS
In order for us to maintain our qualification as a REIT, there are two gross
income requirements that must be satisfied annually. First, at least 75% of our
gross income (excluding gross income from prohibited transactions) for each
taxable year must consist of defined types of income derived directly or
indirectly from investments relating to real property or mortgages on real
property (including "rents from real property", as described below, and, in
certain circumstances, interest) or from certain types of temporary investments.
Second, at least 95% of our gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments, dividends, other types of interest, gain from the sale or
disposition of stock or
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securities that do not constitute dealer property, or from any combination of
the foregoing. Dividends that we receive on our indirect ownership interest in
the management company, as well as interest that we receive on our loan to the
management company and other interest income that is not secured by real estate,
generally will be includable under the 95% test but not under the 75% test.
Rents received or deemed to be received by us will qualify as "rents from
real property" for purposes of the gross income tests only if several conditions
are met:
First, the amount of rent must not be based, in whole or in part, on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "rents from real property" solely
by reason of being based on a fixed percentage or percentages of receipts or
sales.
Second, rents received from a tenant will not qualify as "rents from real
property" if the REIT, or a direct or indirect owner of 10% or more of the REIT,
owns, directly or constructively, 10% or more of such tenant, except that for
tax years beginning after December 31, 2000, rents received from a taxable REIT
subsidiary under certain circumstances qualify as rents from real property even
if we own more than a 10% interest in the subsidiary.
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property".
Fourth, a REIT may provide services to its tenants and the income will
qualify as "rents from real property" if the services are of a type that a tax
exempt organization can provide to its tenants without causing its rental income
to be unrelated business taxable income under the Code. Services that would give
rise to unrelated business taxable income if provided by a tax exempt
organization must be provided either by the management company or by an
"independent contractor" who is adequately compensated and from whom the REIT
does not derive any income; otherwise, all of the rent received from the tenant
for whom such services are provided will fail to qualify as "rents from real
property" if the services income exceeds a DE MINIMIS amount. However, rents
will not be disqualified if a REIT provides DE MINIMIS impermissible services.
For this purpose, services provided to tenants of a property are considered DE
MINIMIS where income derived from the services rendered equals 1% or less of all
income derived from the property (threshold determined on a property-by-property
basis). For purposes of the 1% threshold, the amount treated as received for any
service shall not be less than 150% of the direct cost incurred in furnishing or
rendering the service. Also note, however, that receipts for services furnished
(whether or not rendered by an independent contractor) which are not customarily
provided to tenants in properties of a similar class in the geographic market in
which our property is located will in no event qualify as "rents from real
property".
Substantially all of our income is derived from our partnership interest in
the operating partnership. The operating partnership's real estate investments,
including those held through the property partnerships, give rise to income that
enables us to satisfy all of the income tests described above. The operating
partnership's income is largely derived from its interests, both direct and
indirect, in the properties, which income, for the most part, qualifies as
"rents from real property" for purposes of the 75% and the 95% gross income
tests. The operating partnership also derives dividend income from its interest
in the management company.
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None of us, the operating partnership or any of the property partnerships
currently pursuant to existing leases (nor will any of them in the future in
connection with new leases) (i) charge rent for any property that is based in
whole or in part on the income or profits of any person (except by reason of
being based on a percentage of receipts or sales, as described above) other than
relatively minor amounts which do not affect compliance with the above tests;
(ii) rent any property to a tenant of which we, or an owner of 10% or more of
our stock, directly or indirectly, own 10% or more (other than pursuant to
leases with CBL & Associates, Inc., certain of our affiliates and officers and
certain affiliates of those persons which produce a relatively minor amount of
non-qualifying income and which we believe will not, either singly or when
combined with other non-qualifying income, exceed the limits on non-qualifying
income); (iii) derive rent attributable to personal property leased in
connection with property that exceeds 15% of the total rents other than
relatively minor amounts which do not affect compliance with the above tests; or
(iv) directly perform any services that would give rise to income derived from
services that give rise to "unrelated business taxable income" as defined in
Section 512(a) of the Code, and none of them will in the future enter into new
leases that would, either singly or in the aggregate, result in our
disqualification as a REIT.
We have obtained from the IRS a ruling that direct performance of the
services and the undertaking of the activities described above by the management
company with respect to properties owned by us or by the operating partnership
or the property partnerships, and the management company's other services to
third parties, will not cause the amounts received directly or through
partnerships by us from the rental of our properties and of properties of the
partnerships to be treated as something other than rents from real property for
purposes of the Code.
The management company receives fees in exchange for the performance of
certain management and administrative services. Such fees will not accrue to us,
but we will receive dividends and interest from the management company, which
qualify under the 95% gross income test. We believe that the aggregate amount of
any nonqualifying income in any taxable year will not exceed the limits on
nonqualifying income under the 75% and 95% gross income tests.
For purposes of the gross income tests, the term "interest" generally does
not include any amount received or accrued (directly or indirectly) if the
determination of such amount depends in whole or in part 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 percentage of receipts or sales. Although the operating
partnership or the property owners may advance money from time to time to
tenants for the purpose of financing tenant improvements, we and the operating
partnership do not intend to charge interest in any transaction that will depend
in whole or in part on the income or profits of any person or to make loans that
are not secured by mortgages or real estate in amounts that could jeopardize our
compliance with the 5% asset test described below.
Any net income derived from a prohibited transaction is subject to a 100%
tax. We believe that no asset owned by us, the operating partnership or the
property partnerships is held for sale to customers, and that the sale of any
property will not be in the ordinary course of our business, or that of the
operating partnership or the relevant property partnership. Whether property is
held "primarily for sale to customers in the ordinary course of a trade or
business" and, therefore, is subject to the 100% tax, depends on the facts and
circumstances in effect from time to time, including those related to a
particular property. We and the operating partnership will attempt to comply
with the terms of safe-harbor provisions in the Code prescribing when asset
sales will not be characterized as prohibited transactions. Complete assurance
cannot be given, however, that we can comply with the safe-harbor provisions of
the Code or avoid owning property that may be characterized as property held
"primarily for sale to customers in the ordinary course of business".
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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 such year if we are
entitled to relief under certain provisions of the Code. These relief provisions
generally will be available if our failure to meet such tests is due to
reasonable cause and not willful neglect, we attach a schedule of our sources of
income to our return, and any incorrect information on the schedule was not due
to fraud with intent to evade tax. It is not possible to state whether in all
circumstances we would be entitled to the benefit of these relief provisions. As
discussed above in "--Taxation of CBL", even if these relief provisions apply, a
tax would be imposed with respect to the excess net income.
In addition to the two income tests described above, we were subject to a
third income test for our taxable years before 1998. Under this test, short-term
gains from the sale or other disposition of stock or securities, gain from
prohibited transactions and gain on the sale or other disposition of real
property held for less than four years, apart from involuntary conversions and
sales of foreclosure property, were required to represent less than 30% of our
gross income, including gross income from prohibited transactions, for each of
these taxable years.
ASSET TESTS
In order for us to maintain our qualification as a REIT, we, at the close of
each quarter of our taxable year, must also satisfy three tests relating to the
nature of our assets. First, at least 75% of the value of our total assets must
be represented by real estate assets (including (i) our allocable share of real
estate assets held by partnerships in which we own an interest or held by
qualified REIT subsidiaries and (ii) stock or debt instruments held for not more
than one year purchased with the proceeds of our stock offering or long-term (at
least five years) debt offering), cash items and government securities. Second,
although the remaining 25% of our assets generally may be invested without
restriction, securities in this class may not exceed either (1) 5% of the value
of our total assets as to any one issuer, or (2) 10% of the outstanding voting
securities of any one issuer.
In addition to the asset tests described above, we are prohibited, in
taxable years beginning after December 31, 2000, from owning more than 10% of
the value of the outstanding debt and equity securities of any subsidiary other
than a qualified REIT subsidiary, subject to an exception. The exception is that
we and a non-qualified REIT subsidiary may make a joint election for such
subsidiary to be treated as a "taxable REIT subsidiary". The securities of a
taxable REIT subsidiary are not subject to the 10% value test and the 10% voting
securities test, and also are exempt from the 5% asset test. However, no more
than 20% of the total value of a REIT's assets can be represented by securities
of one or more taxable REIT subsidiaries. The management company is a taxable
REIT subsidiary.
It should be noted that the 20% value limitation must be satisfied at the
end of any quarter in which we increase our interest in the management company.
In this respect, if any partner of the operating partnership exercises its
option to exchange interests in the operating partnership for shares of common
stock (or we otherwise acquire additional interests in the operating
partnership), we will thereby increase our proportionate (indirect) ownership
interest in the management company, thus requiring us to recalculate our ability
to meet the 20% test in any quarter in which such exchange option is exercised.
Although we plan to take steps to ensure that we satisfy the 20% value test for
any quarter with respect to which retesting is to occur, there can be no
assurance that such steps will always be successful or will not require a
reduction in the operating partnership's overall interest in the management
company.
The new rules regarding taxable REIT subsidiaries contain provisions
generally intended to insure that transactions between a REIT and its taxable
REIT subsidiary occur "at arm's length" and on commercially reasonable terms.
These requirements include a provision that prevents a taxable REIT subsidiary
from deducting interest on direct or indirect indebtedness to its parent REIT
if,
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under a specified series of tests, the taxable REIT subsidiary is considered to
have an excessive interest expense level or debt to equity ratio. In some cases,
a 100% tax is imposed on the REIT with respect to certain items attributable to
any of its rental, service or other agreements with its taxable REIT subsidiary
that are not on arm's length terms.
We believe that we are in compliance with the asset tests. Substantially all
of our investments are in properties that are qualifying real estate assets.
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 the failure
to satisfy the asset tests results from an acquisition of securities or other
property during a quarter, the failure can be cured by disposition of sufficient
nonqualifying assets within 30 days after the close of that quarter. We intend
to maintain adequate records of the value of our assets to ensure compliance
with the asset tests and to take such other actions within 30 days after the
close of any quarter as may be required to cure any noncompliance.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to remain qualified as a REIT, we are required to distribute
dividends (other than capital gain dividends) to our stockholders in an amount
at least equal to (A) the sum of (i) 90% of our "real estate investment trust
taxable income" (computed without regard to the dividends paid deduction and our
net capital gain) and (ii) 90% of the net income (after tax), if any, from
foreclosure property, minus (B) the sum of certain items of noncash income. In
addition, if we dispose of any asset with built-in gain during the ten-year
period beginning on the date we acquired the property from a "C" corporation (or
became a REIT), we will be required, pursuant to guidance issued by the IRS, to
distribute at least 90% of the built-in gain (after tax), if any, recognized on
the disposition of such asset. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if 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. For taxable years beginning on
or before December 31, 2000, the 90% distribution requirement was a 95%
distribution requirement.
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 "real estate investment trust
taxable income", as adjusted, we will be subject to tax on the undistributed
amount at ordinary and capital gains corporate tax rates, as the case may be.
If we so choose, we may retain, rather than distribute, our net long-term
capital gains and pay the tax on such gains. In such a case, our stockholders
would include their proportionate share of the undistributed long-term capital
gains in income. However, our stockholders would then be deemed to have paid
their share of the tax, which would be credited or refunded to them. In
addition, our stockholders would be able to increase their basis in our shares
they hold by the amount of the undistributed long-term capital gains (less the
amount of capital gains tax we paid) included in the stockholder's long-term
capital gains.
Furthermore, if we should fail to distribute during each calendar year at
least the sum of (i) 85% of our REIT ordinary income for such year, (ii) 95% of
our REIT capital gain income for such year, and (iii) any undistributed taxable
income from prior periods, we would be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed. We intend
to make timely distributions sufficient to satisfy all annual distribution
requirements.
Our taxable income consists substantially of our distributive share of the
income of the operating partnership. It is expected that our taxable income will
be less than the cash flow we receive from the operating partnership, due to the
allowance of depreciation and other non-cash
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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
90% distribution requirement.
It is possible that, from time to time, we may experience timing differences
between (i) the actual receipt of income and actual payment of deductible
expenses and (ii) the inclusion of such income and deduction of such expenses in
arriving at our taxable income. Further, it is possible that, from time to time,
we may be allocated a share of net capital gain attributable to the sale of
depreciated property which exceeds our allocable share of cash attributable to
that sale. In such case, we may have less cash available for distribution than
is necessary to meet our annual 90% distribution requirement. To meet the 90%
distribution requirement, we may find it appropriate to arrange for short-term
(or possibly long-term) borrowings or to pay distributions in the form of
taxable stock dividends. Any such borrowings for the purpose of making
distributions to stockholders are required to be arranged through the operating
partnership.
Under certain circumstances, we may be able to rectify a failure to meet the
distribution requirement for a year by paying "deficiency dividends" to
stockholders 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 penalties and interest to the IRS based upon the amount of any deduction
taken for deficiency dividends.
Pursuant to applicable Treasury Regulations, we must maintain certain
records and request certain information from our stockholders designed to
disclose the actual ownership of its stock. We have complied with such
requirements.
FAILURE TO QUALIFY
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 stockholders in any year in which we fail to qualify
will not be deductible by us nor will they be required to be made. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations of the Code, corporate distributees may be eligible for
the dividends-received deduction. Unless we are entitled to relief under
specific statutory provisions, we will also be disqualified from taxation as a
REIT for the four taxable years following the year in which our qualification
was lost. It is not possible to state whether in all circumstances we would be
entitled to such statutory relief.
TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. stockholder" means a holder of offered
securities that (for United States federal income tax purposes) is (i) a citizen
or resident of the United States, (ii) a corporation, partnership, or other
entity created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate the income of which is subject to
United States federal income taxation regardless of its source, (iv) a trust if
a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust or (v) a person or
entity otherwise subject to U.S. federal income taxation on a net income basis.
For any taxable year for which we qualify for taxation as a REIT, amounts
distributed to taxable U.S. stockholders will be taxed as follows.
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DISTRIBUTIONS GENERALLY
Distributions to U.S. stockholders, other than capital gain dividends
discussed below, will constitute dividends to such holders up to the amount of
our current or accumulated earnings and profits and are taxable to such
stockholders as ordinary income. Such distributions are not eligible for the
dividends-received deduction for corporations. To the extent that we make
distributions in excess of our current or accumulated earnings and profits, such
distributions will first be treated as a tax-free return of capital, reducing
the tax basis in the U.S. stockholder's shares, and distributions in excess of
the U.S. stockholder's tax basis in its shares are taxable as capital gain
realized from the sale of such shares. Dividends declared by us in October,
November or December of any year payable to a U.S. stockholder of record on a
specified date in any such month shall be treated as both paid by us and
received by the U.S. stockholder on December 31 of such year, provided that we
actually paid the dividend during January of the following calendar year. U.S.
stockholders may not include on their own income tax returns any of our tax
losses.
We will be treated as having sufficient earnings and profits to treat as a
dividend any distribution we make up to the amount required to be distributed in
order to avoid imposition of the 4% excise tax discussed in "--Taxation of CBL"
above. As a result, our stockholders may be required to treat certain
distributions that would otherwise result in a tax-free return of capital as
taxable dividends. Moreover, any "deficiency dividend" will be treated as a
"dividend" (an ordinary dividend or a capital gain dividend, as the case may
be), regardless of our earnings and profits.
CAPITAL GAIN DIVIDENDS
Dividends to U.S. stockholders that we properly designate as capital gain
dividends will be treated as long-term capital gain (to the extent they do not
exceed our actual net capital gain) for the taxable year without regard to the
period for which the stockholder has held his stock. Capital gain dividends are
not eligible for the dividends-received deduction for corporations; however,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. If we elect to retain capital gains rather
than distribute them, a U.S. stockholder will be deemed to receive a capital
gain dividend equal to the amount of its proportionate share of such retained
capital gains. In such a case, a U.S. stockholder will receive certain tax
credits and basis adjustments reflecting the deemed distribution and deemed
payment of taxes by the U.S. stockholder.
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS
Our distributions and gain from the disposition of the offered securities
will not be treated as passive activity income and, therefore, U.S. stockholders
may not be able to apply any "passive losses" against such income. Our dividends
(to the extent they do not constitute a return of capital) will generally be
treated as investment income for purposes of the investment income limitation.
Net capital gain from the disposition of offered securities and capital gains
generally will be eliminated from investment income unless the taxpayer elects
to have the gain taxed at ordinary income rates.
CERTAIN DISPOSITIONS OF OFFERED SECURITIES
A U.S. stockholder will recognize gain or loss on the sale or exchange of
offered securities to the extent of the difference between the amount realized
on such sale or exchange and the holder's tax basis in such securities. Such
gain or loss generally will constitute long-term capital gain or loss if the
holder held such securities for more than one year. Losses incurred on the sale
or exchange of offered securities held for six months or less will be deemed
long-term capital loss to the extent of any capital gain dividends received by
the U.S. stockholder with respect to such securities.
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TREATMENT OF TAX-EXEMPT STOCKHOLDERS
The IRS has ruled that amounts we distribute to a tax-exempt employees'
pension trust do not constitute "unrelated business taxable income". Based upon
this ruling and the analysis therein, our distributions to a stockholder that is
a tax-exempt entity generally should not constitute such "unrelated business
taxable income", provided that the tax-exempt entity has not financed the
acquisition of its offered securities with "acquisition indebtedness" within the
meaning of the Code and that the offered securities are not otherwise used in an
unrelated trade or business of the tax-exempt entity. Revenue rulings, however,
are interpretive in nature and subject to revocation or modification by the IRS.
In addition, certain pension trusts owning more than 10% of a REIT may be
required to report a portion of any dividends they receive from us as unrelated
business taxable income.
SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS
The rules governing United States income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships and foreign trusts and
estates (referred to collectively as "non-U.S. stockholders") are complex, and
the following discussion is intended only as a summary of such rules.
Prospective non-U.S. stockholders should consult with their own tax advisors to
determine the impact of federal, state and local income tax laws on an
investment in the company, including any reporting requirements.
In general, a non-U.S. stockholder will be subject to regular United States
income tax with respect to its investment in our company if such investment is
"effectively connected" with the non-U.S. stockholder's conduct of a trade or
business in the United States. A corporate non-U.S. stockholder that receives
income that is (or is treated as) effectively connected with a U.S. trade or
business may also be subject to the branch profits tax under Section 884 of the
Code, which is payable in addition to regular United States corporate income
tax.
THE FOLLOWING DISCUSSION WILL APPLY TO NON-U.S. STOCKHOLDERS WHOSE INVESTMENT IN
OUR COMPANY IS NOT EFFECTIVELY CONNECTED, AS DISCUSSED ABOVE.
A distribution that we made that is not attributable to gain from our sale
or exchange of a United States real property interest and that we did not
designate as a capital gain dividend will be treated as an ordinary income
dividend to the extent that it is made out of current or accumulated earnings
and profits. Generally, unless the dividend is effectively connected with the
non-U.S. stockholder's conduct of a United States trade or business, such a
dividend will be subject to a United States withholding tax equal to 30% of the
gross amount of the dividend unless such withholding is reduced by an applicable
tax treaty. A distribution of cash in excess of our earnings and profits will be
treated first as a nontaxable return of capital that will reduce a non-U.S.
stockholder's basis in its shares (but not below zero) and then as gain from the
disposition of such shares, the tax treatment of which is described under the
rules discussed below with respect to disposition of shares. A distribution in
excess of our earnings and profits will be subject to 30% dividend withholding
if at the time of the distribution it cannot be determined whether the
distribution will be in an amount in excess of our current and accumulated
earnings and profits. If it is subsequently determined that such distribution
is, in fact, in excess of current and accumulated earnings and profits, the
non-U.S. stockholder may seek a refund from the IRS. We expect to withhold
United States income tax at the rate of 30% on the gross amount of any such
distributions made to a non-U.S. stockholder unless (i) a lower tax treaty rate
applies and the required form evidencing eligibility for that reduced rate is
filed with us or (ii) the non-U.S. stockholder files IRS Form W-8ECI with us
claiming that the distribution is "effectively connected" income.
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For any year in which we qualify as a REIT, our distributions that are
attributable to gain from the sale or exchange of a United States real property
interest will be taxed to a non-U.S. stockholder in accordance with the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, such
distributions are taxed to a non-U.S. stockholder as if such distributions were
gains "effectively connected" with a United States trade or business.
Accordingly, a non-U.S. stockholder will be taxed at the normal capital gain
rates applicable to a U.S. stockholder (subject to any applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Distributions subject to FIRPTA may also be subject to a 30%
branch profits tax in the hands of a foreign corporate stockholder that is not
entitled to treaty exemption. We will be required to withhold from distributions
to non-U.S. stockholders, and remit to the IRS, 35% of the amount of any
distribution that could be designated as capital gain dividends. This amount is
creditable against the non-U.S. stockholder's tax liability. It should be noted
that the 35% withholding tax rate on capital gain dividends is higher than the
maximum rate on long-term capital gains of individuals. Capital gain dividends
not attributable to gain on the sale or exchange of United States real property
interests are not subject to United States taxation if there is no requirement
of withholding.
Tax treaties may reduce our withholding obligations. If the amount of tax we
withheld with respect to a distribution to a non-U.S. stockholder exceeds the
stockholder's United States liability with respect to such distribution, the
non-U.S. stockholder may file for a refund of such excess from the IRS.
If the offered securities fail to constitute a "United States real property
interest" within the meaning of FIRPTA, a sale of the offered securities by a
non-U.S. stockholder generally will not be subject to United States taxation
unless (i) investment in the offered securities is effectively connected with
the non-U.S. stockholder's United States trade or business, in which case, as
discussed above, the non-U.S. stockholder would be subject to the same treatment
as U.S. stockholders on such gain (or is attributable to a permanent
establishment that the non-U.S. stockholder maintains in the United States if
that is required by an applicable income tax treaty as a condition for
subjecting the non-U.S. stockholder to U.S. taxation on a net income basis, in
which case the same treatment would apply to the non-U.S. stockholder as to U.S.
stockholders with respect to the gain) or (ii) the non-U.S. stockholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and who has a "tax home" in the United States,
in which case the nonresident alien individual will be subject to a 30% tax on
the individual's capital gains.
The offered securities will not constitute a United States real property
interest if we are a "domestically controlled REIT". A domestically controlled
REIT is a real estate investment trust in which at all times during a specified
testing period less than 50% in value of its shares is held directly or
indirectly by non-U.S. stockholders. We believe we are a domestically controlled
REIT, and therefore that the sale of the offered securities will not be subject
to taxation under FIRPTA. However, because we are publicly traded, no assurance
can be given that we will continue to be a domestically controlled REIT.
If we did not constitute a domestically controlled REIT, whether a non-U.S.
stockholder's sale of offered securities would be subject to tax under FIRPTA as
sale of a United States real property interest would depend on whether the
offered securities were "regularly traded" (as defined by applicable Treasury
Regulations) on an established securities market (e.g., the New York Stock
Exchange, on which the offered securities will be listed) and on the size of the
selling stockholder's interest in our company. If the gain on the sale of our
offered securities were subject to taxation under FIRPTA, the non-U.S.
stockholder would be subject to the same treatment as a U.S. stockholder with
respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals).
In any event, a purchaser of
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offered securities from a non-U.S. stockholder will not be required under FIRPTA
to withhold on the purchase price if the purchased offered securities are
"regularly traded" on an established securities market or if we are a
domestically controlled REIT. Otherwise, under FIRPTA, the purchaser of offered
securities may be required to withhold 10% of the purchase price and remit such
amount to the IRS.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
U.S. STOCKHOLDERS
Under certain circumstances, U.S. stockholders may be subject to backup
withholding on payments made with respect to, or on cash proceeds of a sale or
exchange of, offered securities. Backup withholding will apply only if the
holder (i) fails to furnish its taxpayer identification number (which, for an
individual, would be his social security number), (ii) furnishes an incorrect
taxpayer identification number, (iii) is notified by the IRS that it has failed
to report properly payments of interest and dividends or (iv) under certain
circumstances, fails to certify, under penalty of perjury, that it has furnished
a correct taxpayer identification number and has not been notified by the IRS
that it is subject to backup withholding for failure to report interest and
dividend payments. Backup withholding generally will not apply with respect to
payments made to certain exempt recipients, such as corporations and tax-exempt
organizations. U.S. stockholders should consult their own tax advisors regarding
their qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
NON-U.S. STOCKHOLDERS
Proceeds from a disposition of the offered securities will not be subject to
information reporting and backup withholding if the beneficial owner of the
offered securities is a non-U.S. stockholder. However, if the proceeds of a
disposition are paid by or through a United States office of a broker, the
payment may be subject to backup withholding or information reporting if the
broker cannot document that the beneficial owner is a non-U.S. person. In order
to document the status of a non-U.S. stockholder, a broker may require the
beneficial owner of the offered securities to provide it with a completed,
executed IRS Form W-8BEN, certifying under penalty of perjury to the beneficial
owner's non-U.S. status.
REFUNDS
Backup withholding is not an additional tax. Rather, the amount of any
backup withholding with respect to a payment to a stockholder will be allowed as
a credit against any United States federal income tax liability of such
stockholder. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the United
States.
STATE AND LOCAL TAXATION
We and our stockholders may be subject to state or local taxation in various
state or local jurisdictions, including those in which it or they transact
business or reside. The state and local tax treatment of us and our stockholders
may not conform to the federal income tax consequences discussed above.
Consequently, prospective stockholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in our
company.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable solely to our investment in the operating partnership
(through CBL Holdings I and CBL Holdings
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II) and represents the view of Willkie Farr & Gallagher. The discussion does not
cover state or local tax laws or any federal tax laws other than income tax
laws.
INCOME TAXATION OF THE OPERATING PARTNERSHIP AND ITS PARTNERS
PARTNERS, NOT THE OPERATING PARTNERSHIP, SUBJECT TO TAX. A partnership is
not a taxable entity for federal income tax purposes. Rather, we will be
required to take into account its allocable share of the operating partnership's
income, gains, losses, deductions and credits for any taxable year of the
operating partnership ending within or with our taxable year, without regard to
whether we have received or will receive any direct or indirect distribution
from the operating partnership.
OPERATING PARTNERSHIP ALLOCATIONS. Although a partnership agreement will
generally determine the allocation of income and losses among partners, such
allocations will be disregarded for tax purposes under Section 704(b) of the
Code if they do not comply with the provisions of that Section and the Treasury
Regulations promulgated thereunder.
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The operating partnership's allocations of
taxable income and loss, and those of the property partnerships, are intended to
comply with the requirements of Section 704(b) of the Code and the Treasury
Regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Pursuant to
Section 704(c) of the Code, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal income
tax purposes in a manner such that the contributor is charged with, or benefits
from, the unrealized gain or unrealized loss that is generally equal to the
difference between the fair market value of the contributed property at the time
of contribution and the adjusted tax basis of such property at that time. The
partnership agreement for the operating partnership requires allocations of
income, gain, loss and deduction attributable to contributed property to be made
by the operating partnership in a manner that is consistent with Section 704(c)
of the Code.
The allocation methods proposed to be applied by the operating partnership
are described below.
BASIS IN OPERATING PARTNERSHIP INTEREST. Our adjusted tax basis in our
indirect partnership interest in the operating partnership generally (i) will be
equal to the amount of cash and the basis of any other property that we
contribute to the operating partnership, (ii) will be increased by (a) our
allocable share of the operating partnership's income and (b) our allocable
share of certain indebtedness of the operating partnership and of the property
partnerships and (iii) will be reduced, but not below zero, by our allocable
share of (a) the operating partnership's loss and (b) the amount of cash
distributed directly or indirectly to us, and by constructive distributions
resulting from a reduction in our share of certain indebtedness of the operating
partnership and of the property partnerships. With respect to increases in our
adjusted tax basis in our indirect partnership interest in the operating
partnership resulting from certain indebtedness of the operating partnership,
Section 752 of the Code and the regulations promulgated thereunder provide that
a partner may include its share of partnership liabilities in its adjusted tax
basis of its interest in the partnership to the extent said partner bears the
"economic risk of loss" with respect to the liability. Generally, a
partnership's non-recourse debt is shared pro rata by the partners. However, if
a partner guarantees partnership debt or is personally liable for all or any
portion of such debt, such partner will be deemed to bear the economic risk of
loss for the amount of such debt for which it is
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personally liable. Thus, such partner may include such amount in its adjusted
tax basis of its interest in the partnership.
By virtue of our status as the sole stockholder of CBL Holdings I, which is
the sole general partner of the operating partnership, we will be deemed to bear
the economic risk of loss with respect to indebtedness of the operating
partnership that is not nonrecourse debt as defined in the Code. As a result,
our adjusted tax basis in our indirect partnership interest in the operating
partnership may exceed our pro rata share of the total indebtedness of the
operating partnership.
If the allocation of our distributive share of the operating partnership's
loss would reduce the adjusted tax basis of our partnership interest in the
operating partnership below zero, the recognition of such loss will be deferred
until such time as the recognition of such loss would not reduce our adjusted
tax basis below zero. To the extent that the operating partnership's
distributions, or any decrease in our share of the nonrecourse indebtedness of
the operating partnership or of a property partnership (each such decrease being
considered a constructive cash distribution to the partners), would reduce our
adjusted tax basis below zero, such distributions and constructive distributions
will normally be characterized as capital gain, and if our partnership interest
in the operating partnership has been held for longer than the long-term capital
gain holding period (currently, one year), the distributions and constructive
distributions will constitute long-term capital.
DEPRECIATION DEDUCTIONS AVAILABLE TO THE OPERATING PARTNERSHIP. The
operating partnership was formed in 1993 principally by way of contributions of
certain properties or appreciated interests in property partnerships owning
properties. Accordingly, the operating partnership's depreciation deductions
attributable to the properties will be based on the contributing partners'
depreciation schedules and in some cases on new schedules pursuant to which such
property will be depreciated on depreciation schedules of up to 40 years, using,
initially, the adjusted basis of the contributed assets in the hands of the
contributing partners. The operating partnership has estimated that the
aggregate, adjusted basis of its assets was approximately $430 million as of the
date of the formation.
SECTION 704(C) ALLOCATIONS. Section 704(c) of the Code requires that
depreciation as well as gain and loss be allocated in a manner so as to take
into account the variation between the fair market value and tax basis of the
property contributed by a partner to a partnership. See "--Operating Partnership
Allocations". Applicable Treasury Regulations provide a choice of several
methods of taking such differences between value and tax basis into account. The
operating partnership will apply the "traditional method", without special or
curative allocations, giving effect to the ceiling rule.
SALE OF THE OPERATING PARTNERSHIP'S PROPERTY
Generally, any gain realized by the operating partnership on the sale of
property held by the operating partnership or a property partnership or on the
sale of a partnership interest in a property partnership will be capital gain,
except for any portion of such gain that is treated as depreciation or cost
recovery recapture. Any unrealized gain attributable to the excess of the fair
market value of the properties over their adjusted tax bases at the time of
contribution to the operating partnership must, when recognized by the operating
partnership, generally be allocated to the limited partners (including CBL &
Associates, Inc.) under Section 704 (c) of the Code and Treasury Regulations
promulgated thereunder.
In the event of the disposition of any of the properties which have
pre-contribution gain, all income attributable to such undepreciated gain will
be allocated to the limited partners of the operating partnership (including to
us), and we generally will be allocated only our share of capital gains
attributable to depreciation deductions we enjoyed and appreciation, if any,
occurring since
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the acquisition of our interest in the operating partnership. Any decision
relating to the potential sale of any property that would result in recognition
of such gain will be made by the independent directors of our board of
directors. The operating partnership will be required in such case to distribute
to its partners all of the net cash proceeds from such sale up to an amount
reasonably believed necessary to enable the limited partners (including us) to
pay any income tax liability arising from such sale.
Our share of any gain realized by the operating partnership on the sale of
any property held by the operating partnership or property partnership as
inventory or other property held primarily for sale to customers in the ordinary
course of the operating partnership's or property partnership's trade or
business will be treated as income from a prohibited transaction that is subject
to a 100% penalty tax. See "--Requirements for Qualification--Income Tests"
above. Such prohibited transaction income will also have an adverse effect upon
our ability to satisfy the gross income tests for real estate investment trust
status. See "--Requirements for Qualification--Income Tests" above. Under
existing law, whether property is held as inventory or primarily for sale to
customers in the ordinary course of a trade or business is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. The operating partnership and the property partnerships intend to
hold their properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning and operating the
properties (and other shopping centers) and to make such occasional sales of the
properties, including peripheral land, as are consistent with the operating
partnership's and the property partnerships' investment objectives.
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UNDERWRITING
We have entered into an underwriting agreement and a pricing agreement with
Goldman, Sachs & Co. with respect to the shares being offered. Subject to
certain conditions, Goldman, Sachs & Co. has agreed to purchase all of the
2,915,452 shares offered hereby.
The underwriter is committed to take and pay for all of the shares being
offered, if any are taken, other than the shares covered by the option described
below unless and until this option is exercised.
If the underwriter sells more shares than the total number stated above, the
underwriter has an option to buy up to an additional 437,318 shares from us to
cover those sales. It may exercise that option for 30 days.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriter by us. These amounts are shown
assuming both no exercise and full exercise of the underwriter's option to
purchase 437,318 additional shares.
Paid by CBL No Exercise Full Exercise
----------- ----------- -------------
Per Share............................................... $ 0.25 $ 0.25
Total................................................... $728,863.00 $838,192.50
Shares sold by Goldman, Sachs & Co. to the public will initially be offered
at the initial price to public set forth on the cover of this prospectus. In
addition, Goldman, Sachs & Co. may receive from purchasers of the shares normal
brokerage commissions in amounts agreed with the purchasers. If all the shares
are not sold at the initial price to public, Goldman, Sachs & Co. may change the
offering price and the other selling terms.
We have agreed with the underwriter not to dispose of or hedge any of our
common stock or securities convertible into or exchangeable for shares of common
stock during the period from the date of this prospectus supplement continuing
through the date 90 days after the date of this prospectus supplement, except
with the prior written consent of the underwriter. This agreement does not apply
to any existing employee benefit plans.
In connection with the offering, the underwriter may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Shorts sales involve the sale by the underwriter of a greater
number of shares than it is required to purchase in the offering. "Covered"
short sales are sales made in an amount not greater than the underwriter's
option to purchase additional shares from us in the offering. The underwriter
may close out any covered short position by either exercising its option to
purchase additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short position, the
underwriter will consider, among other things, the price of shares available for
purchase in the open market as compared to the price at which it may purchase
additional shares pursuant to the option granted to the underwriter. "Naked"
short sales are any sales in excess of such option. The underwriter must close
out any naked short position by purchasing shares in the open market. A naked
short position is more likely to be created if the underwriter is concerned that
there may be downward pressure on the price of the common stock in the open
market after pricing that could adversely affect investors who purchase in the
offering. Stabilizing transactions consist of various bids for or purchases of
common stock made by the underwriter in the open market before the completion of
the offering.
Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of our
common stock, and may stabilize, maintain or otherwise affect the market price
of the common stock. As a result, the price of the
S-17
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued at any time.
These transactions may be effected on the New York Stock Exchange, in the
over-the-counter market or otherwise.
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $350,000.
We have agreed to indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act of 1933.
VALIDITY OF THE COMMON STOCK
Certain legal matters with respect to the shares of common stock offered by
this prospectus supplement and the accompanying prospectus and certain legal
matters described under "U.S. Federal Income Tax Considerations" in this
prospectus supplement and "Federal Income Tax Considerations" in the
accompanying prospectus will be passed upon for us by Willkie Farr & Gallagher,
New York, New York, and the validity of the shares of common stock offered
hereby will be passed upon for the underwriter by Sullivan & Cromwell, New York,
New York. Certain other matters will be passed upon for us by Shumacker &
Thompson, P.C., Chattanooga, Tennessee. Certain members of Shumacker & Thompson,
P.C. serve as our assistant secretaries.
EXPERTS
The financial statements and schedules incorporated by reference in this
prospectus supplement and the accompanying prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and in accordance with those requirements we file
reports and other information with the SEC. The reports and other information
can be inspected and copied at the public reference facilities maintained by the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Regional Office of the SEC at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of this
material can be obtained by mail from the Public Reference Section of the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The SEC maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other materials that are
filed through the SEC Electronic Data Gathering, Analysis and Retrieval (EDGAR)
system. In addition, our common stock is listed on the New York Stock Exchange
and we are required to file reports, proxy and information statements and other
information with the New York Stock Exchange. These documents can be inspected
at the principal office of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
S-18
PROSPECTUS
CBL & ASSOCIATES PROPERTIES, INC.
$350,000,000
PREFERRED STOCK,
COMMON STOCK AND COMMON STOCK WARRANTS
CBL & Associates Properties, Inc. (the "Company") may from time to time
offer in one or more series (i) shares of preferred stock, par value $.01 per
share (the "Preferred Stock"), (ii) shares of common stock, par value $.01 per
share (the "Common Stock"), and (iii) warrants to purchase shares of Common
Stock (the "Common Stock Warrants"), with an aggregate public offering price of
up to $350,000,000 in amounts, at prices and on terms to be determined at the
time or times of offering. The Preferred Stock, Common Stock and Common Stock
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 in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable, (i) in the case of Preferred
Stock, the specific series designation, number of shares, title and stated
value, any dividend, liquidation, optional or mandatory redemption, conversion,
voting and other rights, and any initial public offering price; (ii) in the case
of Common Stock, any initial public offering price; and (iii) in the case of
Common Stock Warrants, the number, duration, offering price, exercise price and
detachability. 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, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement. The Common Stock is listed on the New
York Stock Exchange under the symbol "CBL." Any Common Stock offered pursuant to
a Prospectus Supplement will be listed on such exchange, subject to official
notice of issuance.
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 with, between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution."
No Offered Securities may be sold without delivery of the applicable
Prospectus Supplement describing the method and terms of the offering of such
Offered Securities.
------------------------
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.
------------------------
The date of this Prospectus is March 23, 1998
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN
SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder,
covering the Offered Securities being offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to in the Registration Statement
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act").
Periodic reports, proxy and information statements and other information filed
by the Company with the Commission may be inspected at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549 at prescribed rates. The Commission maintains a website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's website is http://www.sec.gov. In addition, the Company's Common
Stock is listed on the New York Stock Exchange and similar information
concerning the Company can be inspected and copied at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference: (i) Annual
Report on Form 10-K for the fiscal year ended December 31, 1996; (ii) Current
Reports on Form 8-K filed on January 15, 1997, February 5, 1997, May 1, 1997,
July 30, 1997, October 29, 1997, January 16, 1998, February 4, 1998, February
13, 1998 and February 18, 1998; (iii) Quarterly Reports on Form 10-Q for the
periods ended on March 31, 1997, June 30, 1997 and September 30, 1997; and
(iv) the description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A dated October 25, 1993.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to
termination of the offering of the Offered Securities shall be deemed to be
incorporated by reference into the Prospectus and to be a part hereof from the
date of filing of each such document (provided, however, that the information
referred to in item 402(a)(8) of Regulation S-K of the Commission shall not be
deemed specifically incorporated by reference herein).
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
upon the written or oral request of any such person, a copy of any or all
documents incorporated by reference herein (other than exhibits thereto, unless
such exhibits are specifically incorporated by reference into such documents).
Such requests should be addressed to the Secretary of the Company, Suite 300,
6148 Lee Highway, Chattanooga, Tennessee 37421-2931 (telephone number (423)
855-0001).
3
THE COMPANY
The Company is a self-managed, self-administered, fully integrated real
estate company which is engaged in the ownership, operation, marketing,
management, leasing, expansion, development, redevelopment, acquisition and
financing of regional malls and community and neighborhood centers. The Company
was incorporated on July 13, 1993 under the laws of the State of Delaware to
acquire an interest in substantially all of the real estate properties owned by
CBL & Associates, Inc. and its affiliates ("CBL") and to provide a public
vehicle for the expansion of CBL's shopping center business. The Company has
elected to be taxed as a REIT for federal income tax purposes commencing with
its taxable year ended December 31, 1993.
The Company operates through its two wholly owned subsidiaries, CBL
Holdings I, Inc., a Delaware corporation ("CBL Holdings I"), and CBL
Holdings II, Inc., a Delaware corporation ("CBL Holdings II"). By transfers
dated April 1, 1997, the Company assigned its interests in CBL & Associates
Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"), to CBL Holdings I and CBL Holdings II, which resulted in CBL
Holdings I becoming the 2.8% sole general partner of the Operating Partnership
and CBL Holdings II becoming a 69% limited partner of the Operating Partnership.
The Company conducts substantially all of its business through the Operating
Partnership. To comply with certain technical requirements of the Internal
Revenue Code of 1986, as amended (the "Code") applicable to REITs, the Operating
Partnership carries out the Company's property management and development
activities through CBL & Associates Management, Inc. (the "Management Company").
The Company owns interests in a portfolio of properties, consisting of 22
enclosed regional malls (the "Malls"), 12 associated centers (the "Associated
Centers"), each of which is part of a regional shopping mall complex, and 81
independent community and neighborhood shopping centers (the "Community
Centers"). Except for five Malls, one Associated Center and two Community
Centers which were acquired from third parties, each of these properties was
developed by CBL or the Company.
Additionally, the Company owns one regional mall, one associated center, one
power center and two neighborhood shopping centers currently under construction
(the "Construction Properties"). The Company also owns options to acquire
certain shopping center development sites (the "Development Properties").
The Company also holds mortgages (the "Mortgages") on community and
neighborhood shopping centers owned by non-CBL affiliates. The Mortgages were
granted in connection with sales by CBL of certain properties previously
developed by CBL. The Company also owns an interest in a three-story office
building in Chattanooga, Tennessee, a portion of which serves as the Company's
headquarters (the "Office Building"). The Malls, Associated Centers, Community
Centers, Construction Properties, Development Properties, Mortgages and Office
Building are collectively referred to herein as the "Properties" and
individually as a "Property."
The Company has also entered into standby purchase agreements with
third-party developers for the construction, development and potential ownership
of three community and neighborhood centers in Georgia and Texas (the
"Co-Development Projects"). The developers have utilized these standby purchase
agreements as additional security for their lenders to fund the construction of
the Co-Development Projects. The standby purchase agreements for each of the
Co-Development Projects require the Company to purchase the related
Co-Development Project upon such Co-Development Project meeting certain
completion requirements and rental levels. In return for its commitment to
purchase a Co-Development Project pursuant to a standby purchase agreement, the
Company receives a fee as well as a participation interest in each
Co-Development Project. In addition to the standby purchase agreements, the
Company has extended secured credit to two of these developers to cover
pre-development costs.
4
The Company and the Operating Partnership generally own a 100% interest in
the Properties. With two exceptions, where the Company and the Operating
Partnership own less than a 100% interest in a Property, the Operating
Partnership is the sole general partner, managing general partner or managing
member of the property partnership or limited liability company which owns such
Property (each, a "Property Partnership"). For one Mall and its Associated
Center, affiliates of the Operating Partnership are non-managing general
partners in the two Property Partnerships owning those Properties.
The Company's principal executive offices are located at Suite 300, 6148 Lee
Highway, Chattanooga, Tennessee, 37421-2931. The Company's telephone number at
its principal executive offices is (423) 855-0001.
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 purposes, which may include the acquisition of malls or community
and neighborhood shopping centers as suitable opportunities arise, the expansion
and improvement of certain properties in the Company's portfolio, payment of
development and construction costs for new centers and the repayment of certain
indebtedness outstanding at such time.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the period from
November 2, 1993 (the date of the Company's initial public offering) to
December 31, 1993, the years ended December 31, 1994, 1995 and 1996 and the
nine-month period ended September 30, 1997 was 2.14, 1.96, 1.69, 2.07 and 1.94,
respectively. Prior to the completion of the Company's initial public offering,
the ratio of earnings to fixed charges of the Company's predecessors for the
period from January 1, 1993 to November 2, 1993 was 1.11.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of pre-tax income before
extraordinary items and fixed charges (excluding capitalized interest),
adjusted, as applicable, for the Company's proportionate share of earnings of
fifty percent-owned affiliates and distributions from less than fifty
percent-owned affiliates. Fixed charges consist of interest expense (including
interest cost capitalized), amortization of debt costs and the portion of rent
expense representing an interest factor. To date, the Company has not issued any
shares of Preferred Stock; therefore, the ratios of earnings to combined fixed
charges and preferred stock dividends are unchanged from the ratios presented in
this section.
Prior to completion of the Company's initial public offering, certain of the
predecessor entities to the Company operated in a highly leveraged manner. As a
result, the computation of the ratio of earnings to fixed charges for such
periods indicates that earnings were inadequate to cover fixed charges by
approximately $1.6, $6.6 and $2.7 million for the years ended December 31, 1992,
1991 and 1990, respectively.
The Company's initial public offering and the other transactions undertaken
concurrently therewith as well as the Company's follow-on offerings have
permitted the Company to significantly deleverage properties, resulting in a
significantly improved ratio of earnings to fixed charges for periods subsequent
to November 3, 1993.
5
RISK FACTORS
When used in this Prospectus, an applicable Prospectus Supplement and in any
document incorporated by reference herein or therein, the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements. Statements looking forward in time are included in
such documents pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties which could cause actual results to differ materially,
including, but not limited to, those set forth below. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances occurring
after the date hereof or to reflect the occurrence of unanticipated events.
Prospective investors should carefully consider the following information in
conjunction with the other information contained in this Prospectus, an
applicable Prospectus Supplement and in any document incorporated by reference
herein or therein, before purchasing Offered Securities.
RISKS OF EXPANSION AND DEVELOPMENT ACTIVITIES
The Company, through the Operating Partnership, intends to pursue
development and expansion activities as opportunities arise. In connection with
any development or expansion, the Company and the Operating Partnership will
incur various risks including the risk that development or expansion
opportunities explored by the Company and the Operating Partnership may be
abandoned; the risk that construction costs of a project may exceed original
estimates, possibly making the project not profitable; the risk that the Company
and the Operating Partnership may not be able to refinance construction loans
which are generally with full recourse to the Company and the Operating
Partnership; the risk that occupancy rates and rents at a completed project will
not meet projections, and will therefore be insufficient to make the project
profitable; and the need for anchor, mortgage lender and property partner
approvals for certain expansion activities. In the event of an unsuccessful
development project, the Company's and the Operating Partnership's loss could
exceed its investment in the project.
The Company has in the past elected not to proceed with certain development
projects and anticipates that it will do so again from time to time in the
future. If the Company elects not to proceed with a development opportunity, the
development costs associated therewith ordinarily will be charged against income
for the then-current period. Any such charge could have a material adverse
effect on the Company's results of operations for the period in which the charge
is taken.
RISKS OF EQUITY REAL ESTATE INVESTMENTS
GENERAL FACTORS AFFECTING INVESTMENTS IN SHOPPING CENTER PROPERTIES; EFFECT
OF ECONOMIC AND REAL ESTATE CONDITIONS
A shopping center's revenues and value may be adversely affected by a number
of factors, including: the national and regional economic climates; local real
estate conditions (such as an oversupply of retail space); perceptions by
retailers or shoppers of the safety, convenience and attractiveness of the
shopping center; and the willingness and ability of the shopping center's owner
to provide capable management and maintenance services. In addition, other
factors may adversely affect a shopping center's value without affecting its
current revenues, including: changes in governmental regulations, zoning or tax
laws; potential environmental or other legal liabilities; availability of
financing; and changes in interest rate levels. There are numerous shopping
facilities that compete with the Properties in attracting retailers to lease
space. In addition, retailers at the Properties face continued competition from
discount shopping centers, outlet malls, wholesale clubs, direct mail,
telemarketing, television shopping networks and, most recently, shopping via the
6
Internet. Competition could adversely affect the Operating Partnership's
revenues and funds available for distribution to partners, which in turn will
affect the Company's revenues and funds available for distribution to
stockholders.
GEOGRAPHIC CONCENTRATION
The Properties are located principally in the southeastern United States in
Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South
Carolina, Tennessee and Virginia. 15 Malls, 11 Associated Centers, 58 Community
Centers and the Office Building are located in these states. The Company's
results of operations and funds available for distribution to stockholders
therefore will be subject generally to economic conditions in the southeastern
United States. As of September 30, 1997, the Properties located in the
southeastern United States accounted for 52% of the Company's total assets, and
provided 71% of the Company's total revenues for the nine months ended September
30, 1997.
THIRD-PARTY INTERESTS IN CERTAIN PROPERTIES
The Operating Partnership owns partial interests in six Malls, five
Associated Centers, one Community Center and the Office Building. The Operating
Partnership or an affiliate of the Company is the managing general partner of
the Property Partnerships that own such Properties, except for the Governor's
Square Mall and its Associated Center, Governor's Plaza, in which affiliates of
the Operating Partnership are non-managing general partners.
Where the Operating Partnership serves as managing general partner of
Property Partnerships, it may have certain fiduciary responsibilities to the
other partners in those partnerships. In certain cases, the approval or consent
of the other partners is required before the Operating Partnership may sell,
finance, expand or make other significant changes in the operations of such
Properties. To the extent such approvals or consents are required, the Operating
Partnership may experience difficulty in, or may be prevented from implementing
its plans with respect to expansion, development, financing or other similar
transactions with respect to such Properties.
With respect to the Governor's Square and Governor's Plaza, the Operating
Partnership does not have day-to-day operational control or control over certain
major decisions, including the timing and amount of distributions and decisions
relating to sales, expansions and financings, which could result in decisions by
the managing general partner that do not fully reflect the interests of the
Company, including decisions relating to the standards that the Company is
required to satisfy in order to maintain its status as a real estate investment
trust for tax purposes.
DEPENDENCE ON SIGNIFICANT PROPERTIES
Hamilton Place and CoolSprings Galleria accounted for approximately 8.6% and
8.0%, respectively, of total revenues of the Company for the nine-month period
ended September 30, 1997. The Company's financial position and results of
operations will therefore be disproportionately affected by the results
experienced at these Properties.
DEPENDENCE ON KEY TENANTS
The Limited Stores Inc. (including Intimate Brands) maintains 77 Mall Stores
and in the nine-month period ended September 30, 1997 accounted for
approximately 10.6% of total revenues of the Company.
Food Lion serves as an anchor tenant in 37 of the Community Centers and in
one Associated Center. In the nine-month period ended September 30, 1997, Food
Lion accounted for approximately 6.3% of total revenues of the Company. Food
Lion is a publicly traded North Carolina-based operator of supermarkets.
7
The loss or bankruptcy of any of these or other key tenants could negatively
affect the Company's financial position and results from operations.
DEPENDENCE ON MANAGEMENT
Certain of the Operating Partnership's lines of credit are conditioned upon
the Operating Partnership continuing to be managed by certain members of its
current senior management and by such members of senior management continuing to
own a significant direct or indirect equity interest in the Operating
Partnership (including any ownership interests such members of senior management
may hold in the Company).
CONFLICTS OF INTEREST
RETAINED PROPERTY INTERESTS
Members of the Company's senior management own interests in certain real
estate properties which were retained by them at the time of the Company's
initial public offering, consisting primarily of (i) outparcels at certain of
the Properties, which are being offered for sale through the Management Company,
and (ii) one anchor store at an Associated Center, which the Company has
fixed-price options to acquire.
TAX CONSEQUENCES OF SALES OF PROPERTIES
Since certain of the Properties had unrealized gain attributable to the
difference between the fair market value and adjusted tax basis in such
Properties prior to their contribution to the Operating Partnership, the sale of
any such Properties will cause adverse tax consequences to the members of the
Company's senior management who owned interests in the Company's predecessor
entities. In addition, a significant reduction in the Properties' debt could
cause adverse tax consequences to such members of senior management. As a
result, members of the Company's senior management might not favor a sale of a
Property or a significant reduction in debt even though such a sale or reduction
could be beneficial to the Company and the Operating Partnership. The Company's
Bylaws (as defined below) provide that any decision relating to the potential
sale of any Property that would result in a disproportionately higher taxable
income for members of the Company's senior management than for the Company and
its stockholders or that would result in a significant reduction in such
Property's debt must be made by a majority of the independent directors of the
Board of Directors. The Operating Partnership is required, in the case of such a
sale, to distribute to its partners, at a minimum, all of the net cash proceeds
from such sale up to an amount reasonably believed necessary to enable members
of the Company's senior management to pay any income tax liability arising from
such sale. See "Federal Income Tax Considerations--Tax Aspects of the Operating
Partnership" below.
8
POLICIES OF BOARD OF DIRECTORS
Certain entities owned in whole or in part by members of the Company's
senior management, including the construction company (in which members of the
Company's senior management own a significant minority interest) which built
most of the Properties, may continue to perform services for, or transact
business with, the Company and the Operating Partnership. In addition, certain
Property tenants are affiliated with members of the Company's senior management.
The Bylaws provide that any contract or transaction between the Company or the
Operating Partnership and one or more directors or officers of the Company, or
between the Company or the Operating Partnership and any other entity in which
one or more of its directors or officers are directors or officers, or have a
financial interest, must be approved by the Company's disinterested directors or
stockholders after the material facts as to the relationship or interest and as
to the contract or transaction are disclosed or are known to them.
FEDERAL TAX CONSEQUENCES
REIT CLASSIFICATION
The Company intends to continue to operate so as to qualify as a REIT under
the Code. Although the Company believes that it is organized and operates in
such a manner, no assurance can be given that the Company has qualified or will
continue to qualify as a REIT. Qualification as a REIT involves the application
of highly technical and complex Code provisions for which there are only limited
judicial or administrative interpretations. The determination of various factual
matters and circumstances not entirely within the Company's control may affect
its ability to qualify as a REIT. In addition, no assurance can be given that
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws with respect to qualification as a
REIT or the federal income tax consequences of such qualification. The Company
is relying on the opinion of Willkie Farr & Gallagher, counsel to the REIT,
regarding various issues affecting the Company's ability to qualify as a REIT.
Such legal opinion, however, is not binding on the Internal Revenue Service
("IRS"). See "Federal Income Tax Considerations."
If in any taxable year the Company were to fail to qualify as a REIT, the
Company would not be allowed a deduction for distributions to stockholders in
computing its taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. Unless entitled to relief under
certain statutory provisions, the Company also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. As a result, the funds available for distribution to the
Company's stockholders would be reduced for each of the years involved. Although
the Company currently intends to operate in a manner designed to qualify as a
REIT, it is possible that future economic, market, legal, tax or other
considerations may cause the Company's Board of Directors, with the consent of a
majority of the Company's stockholders, to revoke the REIT election. See
"Federal Income Tax Considerations."
LIMITS ON OWNERSHIP NECESSARY TO MAINTAIN REIT QUALIFICATION
To maintain the Company's status as a REIT under the Code, not more than 50%
in value of the outstanding capital stock of the Company 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. The Company's
Certificate of Incorporation (as defined below) generally prohibits ownership of
more than 6% of the outstanding shares of capital stock of the Company by any
single stockholder determined by vote, value or number of shares (other than
Charles Lebovitz, James Wolford and their affiliates under the Code's
attribution rules). See "Description of Capital Stock--Description of Common
Stock--Restrictions on Transfer."
9
EFFECT OF DISTRIBUTION REQUIREMENTS
To maintain its status as a REIT under the Code, the Company generally will
be required each year to distribute to its stockholders at least 95% of its
taxable income after certain adjustments. In addition, the Company will be
subject to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it during each calendar year are less than the sum of 85%
of its ordinary income for such calendar year, 95% of its capital gain net
income for the calendar year and any amount of such income that was not
distributed in prior years. See "Federal Income Tax Considerations--
Requirements for Qualification--Annual Distribution Requirements."
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for the costs
of removal or remediation of petroleum, certain hazardous or toxic substances
on, under or in such real estate. Such laws typically impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the presence of such substances. The costs of remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to promptly remediate such substances, may adversely affect the owner's
or operator's ability to sell such real estate or to borrow using such real
estate as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility, regardless
of whether such facility is owned or operated by such person. Certain laws also
impose requirements on conditions and activities that may affect the environment
or the impact of the environment on human health. Failure to comply with such
requirements could result in the imposition of monetary penalties (in addition
to the costs to achieve compliance) and potential liabilities to third parties.
Among other things, certain laws require abatement or removal of friable and
certain non-friable asbestos-containing materials ("ACMs") in the event of
demolition or certain renovations or remodeling. Certain laws regarding ACMs
require building owners and lessees, among other things, to notify and train
certain employees working in areas known or presumed to contain ACMs. Certain
laws also impose liability for release of ACMs into the air and third parties
may seek recovery from owners or operators of real properties for personal
injury or property damage associated with ACMs. In connection with its ownership
and operation of the Properties, the Company, the Operating Partnership or the
relevant Property Partnership, as the case may be, may be potentially liable for
such costs or claims.
All of the Properties (but not properties for which the Company holds an
option to purchase but does not yet own) have been subject to Phase I
environmental assessments or updates of existing Phase I environmental
assessments within approximately the last six years. Such assessments generally
consisted of a visual inspection of the Properties, review of federal and state
environmental databases and certain information regarding historic uses of the
Property and adjacent areas and the preparation and issuance of written reports.
Some of the Properties contain, or contained, underground storage tanks used for
storing petroleum products or wastes typically associated with automobile
service or other operations conducted at the Properties. Certain Properties
contain, or contained, dry-cleaning establishments utilizing solvents. Where
believed to be warranted, samplings of building materials or subsurface
investigations were, or, with respect to one Property, will be, undertaken. At
certain Properties, where warranted by the conditions, the Company has developed
and implemented an operations and maintenance program that establishes operating
procedures with respect to ACMs. The costs associated with the development and
implementation for such programs were not material.
Although there can be no assurances that such environmental liability does
not exist, none of the environmental assessments have identified and the Company
is not aware of any environmental liability with respect to the properties in
which the Company or the Operating Partnership has or
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had an interest (whether as an owner or operator) that the Company believes
would have a material adverse effect on the Company's financial condition,
results of operations or cash flows. Nevertheless, it is possible that the
environmental assessments available to the Company do not reveal all potential
environmental liabilities, that subsequent investigations will identify material
contamination, that adverse environmental conditions have arisen subsequent to
the performance of the environmental assessments, or that there are material
environmental liabilities of which management is unaware. Moreover, no
assurances can be given that (i) future laws, ordinances or regulations will not
impose any material environmental liability or (ii) the current environmental
condition of the Properties has not been or will not be affected by tenants and
occupants of the Properties, by the condition of properties in the vicinity of
the Properties or by third parties unrelated to the Company, the Operating
Partnership or the relevant Property Partnership. The existence of any such
environmental liability could have an adverse effect on the Company's results of
operations, cash flow and the funds available to the Company to pay dividends.
DESCRIPTION OF CAPITAL STOCK
Under the Amended and Restated Certificate of Incorporation of the Company,
as amended on May 8, 1996 (the "Certificate of Incorporation"), the total number
of shares of all classes of capital stock that the Company has authority to
issue is 100,000,000, consisting of 95,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock. As of February 25, 1998, the Company had
outstanding 24,070,802 shares of Common Stock. No shares of Preferred Stock were
outstanding as of such date. The Company's Common Stock is listed on the New
York Stock Exchange under the symbol "CBL."
Pursuant to rights granted to CBL and the other limited partners in the
partnership agreement of the Operating Partnership, each of the limited partners
may, subject to certain conditions, exchange its limited partnership interests
in the Operating Partnership for shares of Common Stock. Assuming the exchange
of all limited partnership interests in the Operating Partnership for Common
Stock, at February 25, 1998 there would have been outstanding approximately
33,546,657 shares of Common Stock.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The following summary description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock do
not purport to be complete and are in all respects subject to and qualified in
their entirety by reference to the applicable provisions of the Certificate of
Incorporation, the Amended and Restated Bylaws of the Company (the "Bylaws") and
any applicable certificate of designations (each, a "Preferred Stock
Designation") and may be modified, supplemented or varied in the Prospectus
Supplement.
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TERMS
Subject to the limitations prescribed by the Certificate of Incorporation,
the Board of Directors is authorized to fix the number of shares constituting
each series of Preferred Stock and to fix the designations, powers, preferences
and the rights of each series and the qualifications, limitations and
restrictions thereof. In particular, the Board of Directors may determine the
number of shares of each series, the dividend rate, if any, the date, if any, on
which dividends will accumulate, the dates, if any, on which dividends will be
payable, the redemption rights, if any, of such series, any sinking fund
provisions, liquidation rights and preferences, any conversion rights and voting
rights. The Preferred Stock will, when issued, be fully paid and nonassessable
and, unless otherwise provided in the Preferred Stock Designations, will have no
preemptive rights. Under Delaware law, holders of Preferred Stock generally are
not responsible for the Company's debts or obligations.
Reference is made to the Prospectus Supplement relating to the shares of
Preferred Stock offered thereby for specific terms, including: (i) the title and
stated value of such Preferred Stock; (ii) the number of shares of such
Preferred Stock offered, the liquidation preference per share and the offering
price of such Preferred Stock; (iii) the dividend rate(s), period(s) and/or
payment date(s) or method(s) of calculation thereof applicable to such Preferred
Stock; (iv) the date from which dividends on such Preferred Stock shall
accumulate, if applicable; (v) the procedures for any auction and remarketing,
if any, for such Preferred Stock; (vi) the provision for a sinking fund, if any,
for such Preferred Stock; (vii) the provision for redemption, if applicable, of
such Preferred Stock; (viii) any listing of such Preferred Stock on any
securities exchange; (ix) the terms and conditions, if applicable, upon which
such Preferred Stock will be convertible into Common Stock of the Company,
including the conversion price (or manner of calculation thereof); (x) any other
specific terms, preferences, rights, limitations or restrictions of such
Preferred Stock; (xi) a discussion of federal income tax considerations
applicable to such Preferred Stock; (xii) the relative ranking and preferences
of such Preferred Stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company; (xiii) any limitations
on issuance of any series of Preferred Stock ranking senior to or on a parity
with such series of Preferred Stock as to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs of the Company; and
(xiv) any limitations on direct or beneficial ownership and restriction on
transfer, in each case as may be appropriate to preserve the status of the
Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of Common
Stock and to all other equity securities ranking junior to such Preferred Stock,
(ii) 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 Stock, and (iii) junior to all equity securities issued by the
Company, the terms of which specifically provide that such equity securities
rank senior to the Preferred Stock. The term "equity securities" does not
include convertible debt securities.
DIVIDENDS
Holders of Preferred Stock of each series will be entitled to receive, when,
as and if declared by the Board of Directors of the Company, out of assets of
the Company legally available for payment, cash dividends at such rates and on
such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of the Company on such record dates as shall be fixed by the
Board of Directors of the Company.
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Dividends on any series of Preferred Stock may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of
Preferred Stock for which dividends are noncumulative, then the holders of such
series of Preferred Stock 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 the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on the Preferred Stock of the Company
of any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of such series of Preferred Stock and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the shares of Preferred Stock of such series
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if such Preferred Stock does not have a cumulative
dividend) and such other series of Preferred Stock 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 Stock of such series which may be
in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Stock or other capital stock ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the Common Stock, or any other
capital stock of the Company ranking junior to or on a parity with the Preferred
Stock of such series as to dividends or upon liquidation, nor shall any Common
Stock, or any other capital stock of the Company ranking junior to or on a
parity with the Preferred Stock of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any such shares) by the Company (except by conversion into or
exchange for capital stock of the Company ranking junior to the Preferred Stock
of such series as to dividends and upon liquidation).
13
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
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 Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock 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
shall not, if such shares of Preferred Stock do not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends on
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no shares of any series of
Preferred Stock shall be redeemed unless all outstanding shares of Preferred
Stock of such series are simultaneously redeemed; provided, however, that the
foregoing shall not prevent the purchase or acquisition of shares of Preferred
Stock of such series to preserve the REIT status of the Company or pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of Preferred Stock of such series, and, unless (x) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends on all
outstanding shares of any series of Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period and (y) if such series of Preferred Stock does not have
a cumulative dividend, full dividends on the Preferred Stock of any series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, the Company shall not purchase or otherwise acquire directly or
indirectly any shares of Preferred Stock of such series (except by conversion
into or exchange for capital stock of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation); provided,
however, that the foregoing shall not prevent the purchase or acquisition of
shares of Preferred Stock of such series to preserve the REIT status of the
Company or pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares of Preferred Stock to be redeemed will
be determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
by such holders (with adjustments to avoid redemption of fractional shares) or
any other equitable method determined by the Company that will not result in the
issuance of any Shares-in-Trust (as defined in the Certificate of
Incorporation).
14
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 Preferred Stock
of any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and
(vi) the date upon which the holder's conversion rights, if any, as to such
shares will terminate. If fewer than all outstanding shares of the Preferred
Stock of any series are to be redeemed, the notice mailed to each such holder
thereof shall also specify the number of shares of Preferred Stock to be
redeemed from each such holder. If notice of redemption of any shares of
Preferred Stock 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
any shares of Preferred Stock so called for redemption, then from and after the
redemption date dividends will cease to accrue on such shares of Preferred
Stock, and all rights of the holders of such shares will terminate, except the
right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any shares of Common Stock, any Shares-in-Trust or any
other class or series of capital stock of the Company ranking junior to the
Preferred Stock in the distribution of assets upon any liquidation, dissolution
or winding up of the Company, the holders of shares of each series of Preferred
Stock shall be entitled to receive out of assets of the Company legally
available for distribution to stockholders liquidating distributions in the
amount of the liquidation preference per share (set forth in the applicable
Prospectus Supplement), plus an amount equal to all dividends accrued and unpaid
thereon (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such shares of Preferred Stock do not have a
cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of shares of Preferred
Stock will have no right or claim to any of the remaining assets of the Company.
In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the available assets of the Company are insufficient
to pay the amount of the liquidating distributions on all outstanding shares of
Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of capital stock of the Company ranking on a parity with such
shares of Preferred Stock in the distribution of assets upon such liquidation,
dissolution or winding up, then the holders of such shares of Preferred Stock
and all other such classes or series of capital stock shall share ratably in any
such distribution of assets in proportion to the full liquidating distributions
to which they would otherwise be respectively entitled. If liquidating
distributions shall have been made in full to all holders of Preferred Stock,
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
Stock upon liquidation, dissolution or winding up, according to their respective
rights and preferences and in each case according to their respective number of
shares. For such purposes, the consolidation or merger of the Company with or
into any other corporation, trust or entity, or the sale, lease or conveyance of
all or substantially all of the property or business of the Company, shall not
be deemed to constitute a liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of shares of Preferred Stock will not have any voting rights, except
as set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
15
Whenever dividends on any shares of Preferred Stock shall be in arrears for
six consecutive quarterly periods, the holders of such shares of Preferred Stock
(voting separately as a class with all other series of Preferred Stock upon
which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional directors of the Company at
the next annual meeting of stockholders and at each subsequent meeting until
(i) if such series of Preferred Stock has a cumulative dividend, all dividends
accumulated on such series of Preferred Stock for the past dividend periods and
the then current dividend period shall have been fully paid or declared and a
sum sufficient for the payment thereof set aside for payment or (ii) if such
series of Preferred Stock does not have a cumulative dividend, four consecutive
quarterly dividends shall have been fully paid or declared and a sum sufficient
for the payment thereof set aside for payment. In such case, the entire Board of
Directors of the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of two-thirds of the shares of each
series of Preferred Stock outstanding at the time, given in person or by proxy,
either in writing or at a meeting (such series voting separately as a class),
(i) authorize or create, or increase the authorized or issued amount of, any
class or series of capital stock ranking prior to such series of Preferred Stock
with respect to the payment of dividends or the distribution of assets upon,
liquidation, dissolution or winding up or reclassify any authorized capital
stock of the Company into any such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares or (ii) amend, alter or repeal the provisions of the Certificate of
Incorporation or Preferred Stock Designation for such series of Preferred Stock,
whether by merger, consolidation or otherwise (an "Event"), so as to materially
and adversely affect any right, preference, privilege or voting power of such
series of Preferred Stock or the holders thereof; provided, however, with
respect to the occurrence of any of the Events set forth in (ii) above, so long
as the Preferred Stock remains outstanding with the terms thereof materially
unchanged, taking into account that upon the occurrence of an Event, the Company
may not be the surviving entity, the occurrence of such Event shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting power of holders of Preferred Stock and provided further that (A) any
increase in amount of the authorized Preferred Stock or the creation or issuance
of any other series of Preferred Stock or (B) any increase in the number of
authorized shares of such series or any other series of Preferred Stock in each
case ranking on a parity with or junior to the Preferred Stock of such series
with respect to the payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock 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 any series of Preferred Stock
is convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the Preferred Stock is 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 the Preferred Stock
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Preferred
Stock.
16
RESTRICTIONS ON TRANSFER
As discussed below under "Description of Common Stock--Restrictions on
Transfer," 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
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of any taxable year. Each series of
Preferred Stock will be subject to the Ownership Limit Provision of the
Certificate of Incorporation described below in "Description of Common Stock."
TRANSFER AGENT AND REGISTRAR
The transfer agent for each series of Preferred Stock will be described in
the related Prospectus Supplement.
DELAWARE ANTI-TAKEOVER STATUTE
See "Description of Common Stock--Delaware Anti-Takeover Statute" below.
DESCRIPTION OF COMMON STOCK
The following summary description of the Common Stock sets forth certain
general terms and provisions of the Common Stock to which any Prospectus
Supplement may relate. The statements below describing the Common Stock do not
purport to be complete and are in all respects subject to and qualified in their
entirety by reference to the Company's Certificate of Incorporation and Bylaws.
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors, and, except
as otherwise required by law or as provided in the Certificate of Incorporation,
the holders of such shares exclusively possess all voting power. The Certificate
of Incorporation does not provide for cumulative voting in the election of
directors.
Subject to any preferential rights of any outstanding series of Preferred
Stock, the holders of Common Stock are entitled to such distributions as may be
declared from time to time by the Board of Directors from funds legally
available therefor, and upon liquidation are entitled to receive pro rata all
assets of the Company available for distribution to such holders. Holders of
Common Stock shall not be entitled to any preemptive rights. Under Delaware law,
holders of Common Stock generally are not responsible for the Company's debts or
obligations.
RESTRICTIONS ON TRANSFER
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 any taxable year. In addition, 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 percentages of the Company's gross income must be from particular
activities.
To ensure that the Company remains a qualified REIT, the Certificate of
Incorporation contains provisions restricting the acquisition of shares of the
Company's capital stock (the "Ownership Limit Provision"). The affirmative vote
of 66 2/3% of the outstanding voting stock is required to amend this provision.
The Ownership Limit Provision provides that, subject to certain exceptions
specified in the Certificate of Incorporation, no person (other than Charles
Lebovitz, James Wolford and their respective affiliates under the applicable
attribution rules of the Code) may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 6% of the value of the
17
outstanding capital stock of the Company. The Ownership Limit Provision further
provides that, subject to certain restrictions, Charles Lebovitz and his
respective affiliates and James Wolford and his respective affiliates (in each
case, as defined under the applicable attribution rules of the Code) may own
beneficially or constructively in the aggregate up to 23% and 8%, respectively,
of the value of the outstanding shares of capital stock of the Company. The
percentage limitation on ownership applicable to any given person pursuant to
the Ownership Limit Provision is herein referred to as the "Ownership Limit."
The Board of Directors may, subject to certain conditions, waive the
applicable Ownership Limit upon receipt of a ruling from the IRS or an opinion
of counsel to the effect that such ownership will not jeopardize the Company's
status as a REIT. The Ownership Limit Provision will not apply if the Board of
Directors and the stockholders of the Company determine that the Company will
not attempt to continue to qualify as a REIT.
If shares of capital stock in excess of the applicable Ownership Limit, or
shares of capital stock which would cause the Company to be beneficially owned
by fewer than 100 persons, are issued or transferred to any person, such
issuance or transfer shall be null and void and the intended transferee will
acquire no rights to the stock. Any acquisition of capital stock of the Company
and continued holding or ownership of capital stock of the Company constitutes,
under the Certificate of Incorporation, a continuous representation of
compliance with the applicable Ownership Limit.
In the event of a purported transfer or other event (the "Prohibited
Transfer") that would, if effective, result in the ownership of shares of
capital stock in violation of the Ownership Limit Provision, such transfer with
respect to that number of shares that would be owned by the transferee in excess
of the Ownership Limit Provision (the "Prohibited Owner") would be deemed void
ab initio and such shares would automatically be transferred to a trust, the
trustee of which would be designated by the Company, but not affiliated with the
Company or the Prohibited Owner (the "Trustee"). The trust would be for the
exclusive benefit of a charitable beneficiary (the "Beneficiary") to be
designated by the Company.
The shares held in such trust will be issued and outstanding shares of the
Company's capital stock, entitled to the same rights and privileges as all other
issued and outstanding shares of capital stock of the same class and series. All
dividends and other distributions paid by the Company with respect to the shares
held in trust will be held by the Trustee for the benefit of the Beneficiary.
The Trustee will be deemed to have the power to vote all shares held in trust
from and after the date the shares are deemed to be transferred into trust. The
Prohibited Owner will be required to repay any dividends or other distributions
received by it which are attributable to the shares held in trust and the record
date for such dividends or distributions was on or after the date such shares
were transferred to the trust. The Company can take all measures it deems
necessary in order to recover such amounts.
The Trustee will have the exclusive right to designate a person to acquire
the shares held in trust without violating the applicable ownership restrictions
(a "Permitted Transferee") for an amount equal to the fair market value
(determined at the time of transfer to the Permitted Transferee) of such shares.
The Trustee will pay to the Prohibited Owner the lesser of: (a) the value of the
shares at the time they were transferred to the trust and (b) the price received
by the Trustee from the sale of such shares to the Permitted Transferee. The
excess of (x) the sale proceeds from the transfer to the Permitted Transferee
over (y) the amount paid to the Prohibited Owners, if any, will be distributed
to the Beneficiary.
The Company or its designee will have the right to purchase any Shares-in-
Trust, within a limited period of time, at a price per share equal to the lesser
of (i) the price per share in the transaction that created such Shares- in-Trust
and (ii) the market price per share on the date the Company, or its designee,
exercises such right to purchase such Shares-in-Trust.
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The Ownership Limit Provision will not be automatically removed even if the
real estate investment trust provisions of the Code are changed so as to no
longer contain any ownership concentration limitation or if the ownership
concentration limitation is increased. Except as otherwise described above, any
change in the Ownership Limit would require an amendment to the Certificate of
Incorporation, and such an amendment would require a 66 2/3% vote of the
outstanding voting stock. In addition to preserving the Company's status as a
REIT, the Ownership Limit may have the effect of precluding an acquisition of
control of the Company without the approval of the Board of Directors.
All certificates representing shares of any class of stock will bear a
legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage as may be required by the
Treasury Regulations) of the value of the outstanding shares of capital stock
must file an affidavit with the Company containing the information specified in
the Certificate of Incorporation before January 30 of each year. In addition,
each stockholder 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 of capital stock as the Board of Directors deems necessary
to comply with the provisions of the Code applicable to a REIT or to comply with
the requirements of any taxing authority or governmental agency.
LIMITATION OF LIABILITY OF DIRECTORS
The Certificate of Incorporation provides that a director will not be
personally liable for monetary damages to the Company or its stockholders for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit.
While the Certificate of Incorporation provides directors with protection
from awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Certificate of Incorporation will have no
effect on the availability of equitable remedies such as an injunction or
rescission based on a director's breach of his or her duty of care. The
provisions of the Certificate of Incorporation described above apply to an
officer of the Company only if he or she is a director of the Company and is
acting in his or her capacity as director, and do not apply to officers of the
Company who are not directors.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of the
Company's officers and directors. The indemnification agreements require, among
other things, that the Company indemnify its officers and directors to the
fullest extent permitted by law, and advance to the officers and directors all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company must also indemnify and advance
all expenses incurred by officers and directors seeking to enforce their rights
under the indemnification agreements, and cover officers and directors under the
Company's directors' and officers' liability insurance, provided that such
insurance is commercially available at reasonable expense. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by provisions in the Certificate of Incorporation and the Bylaws, it
provides greater assurance to directors and officers that indemnification will
be available, because, as a contract, it cannot be modified unilaterally in the
future by the Board of Directors or by the stockholders to eliminate the rights
it provides.
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OTHER PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Certificate of Incorporation and Bylaws include a number of provisions
that may have the effect of encouraging persons considering unsolicited tender
offers or other unilateral takeover proposals to negotiate with the Board of
Directors rather than pursue non-negotiated takeover attempts. These provisions
include:
CLASSIFIED BOARD OF DIRECTORS. The Certificate of Incorporation provides
for a Board of Directors divided into three classes, with one class to be
elected each year to serve for a three-year term. As a result, at least two
annual meetings of stockholders may be required for the stockholders to change a
majority of the Board of Directors. In addition, the stockholders of the Company
can only remove directors for cause and only by a vote of 75% of the outstanding
voting stock. The classification of directors and the inability of stockholders
to remove directors without cause make it more difficult to change the
composition of the Board of Directors. The provisions of the Certificate of
Incorporation relating to the classification of the Board of Directors may only
be amended by a 66 2/3% vote of the outstanding voting stock and the provision
relating to the removal for cause may only be amended by a 75% vote of the
outstanding voting stock.
ADVANCE NOTICE REQUIREMENTS. The Bylaws establish advance notice procedures
with regard to stockholder proposals relating to the nomination of candidates
for election as directors or new business to be brought before meetings of
stockholders of the Company. These procedures provide that notice of such
stockholder proposals must be timely given in writing to the Secretary of the
Company prior to the meeting at which the action is to be taken. Generally, to
be timely, notice must be received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting. The
notice must contain certain information specified in the Bylaws.
WRITTEN CONSENT OF STOCKHOLDERS. The Certificate of Incorporation requires
all stockholder actions to be taken by a vote of the stockholders at an annual
or special meeting and does not permit action by stockholder consent. These
provisions of the Certificate of Incorporation may be amended only by a vote of
80% of the outstanding voting stock.
BYLAW AMENDMENTS. A vote of 66 2/3% of the outstanding voting stock is
necessary to amend the Bylaws.
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DELAWARE ANTI-TAKEOVER STATUTE
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the Company's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with the Company for three years
following the date that person becomes an interested stockholder unless
(a) before that person became an interested holder, the Company's Board of
Directors approved the transaction in which the interested holder became an
interested stockholder or approved the business combination, (b) upon completion
of the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owns 85% of the Company's
voting stock outstanding at the time the transaction commenced (excluding stock
held by directors who are also officers of the Company and by employee stock
plans that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer), or (c) following the transaction in which that person became an
interested stockholder, the business combination is approved by the Company's
Board of Directors and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the Company's
outstanding voting stock not owned by the interested stockholder.
Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the Company and a
person who was not an interested stockholder during the previous three years or
who became an interested stockholder with the approval of a majority of the
Company's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors who were directors before any person
became an interested stockholder in the previous three years or who were
recommended for election or elected to succeed such directors by a majority of
directors then in office.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock 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
Stock 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 Prospectus Supplement (the "Warrant Agent"). The Warrant Agent
will act solely as an agent of the Company in connection with the Common Stock
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 Stock
Warrants. The following sets forth certain general terms and provisions of the
Common Stock Warrants offered hereby. Further terms of the Common Stock 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
Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (i) the title of such Common Stock
Warrants; (ii) the aggregate number of such Common Stock Warrants; (iii) the
price or prices at which such Common Stock Warrants will be issued; (iv) the
number of shares of Common Stock purchasable upon exercise of such Common Stock
Warrants; (v) the designation and terms of the other Offered Securities with
which such Common Stock Warrants are issued and the number of such Common Stock
Warrants issued with each such Offered Security; (vi) the date, if any, on and
after which such Common Stock Warrants and related shares of Common Stock will
be separately transferable; (vii) the price at which each share of Common Stock
purchasable upon exercise of such Common Stock Warrants may be purchased;
21
(viii) the date on which the right to exercise such Common Stock Warrants shall
commence and the date on which such right shall expire; (ix) the minimum or
maximum amount of such Common Stock Warrants which may be exercised at any one
time; (x) information with respect to book-entry procedures, if any; (xi) a
discussion of certain federal income tax considerations; and (xii) any other
terms of such Common Stock Warrants, including terms, procedures and limitations
relating to the exchange and exercise of such Common Stock Warrants.
Reference is made to the section captioned "Description of Capital
Stock--Description of Common Stock" for a general description of the shares of
Common Stock to be acquired upon the exercise of the Common Stock Warrants,
including a description of certain restrictions on the ownership of Common
Stock.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations relating
to the Company is based on current law, is for general information only, and is
not tax advice. The tax treatment of a holder of any of the Offered Securities
will vary depending upon the terms of the specific Offered Securities acquired
by such holder, as well as the holder's particular situation, and this
discussion does not attempt to address all aspects of federal income tax
considerations that may be relevant to holders of the Offered Securities in
light of their personal investment or tax circumstances, or to certain types of
stockholders (including insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States), except to the extent discussed
herein. Certain federal income tax considerations relevant to holders of the
Offered Securities will be provided in the applicable Prospectus Supplement
relating thereto. No assurance can be given that legislative, judicial or
administrative changes will not affect the accuracy of any statement in this
Prospectus with respect to transactions entered into or contemplated prior to
the effective date of such changes.
EACH PROSPECTIVE PURCHASER OF THE OFFERED SECURITIES IS ADVISED TO CONSULT
THE APPLICABLE PROSPECTUS SUPPLEMENT, AS WELL AS HIS OWN TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO SUCH PURCHASER OF THE PURCHASE, OWNERSHIP AND
SALE OF THE OFFERED SECURITIES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A
REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF
SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS. IN PARTICULAR, FOREIGN INVESTORS SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF AN INVESTMENT IN THE COMPANY,
INCLUDING THE POSSIBILITY OF UNITED STATES INCOME TAX WITHHOLDING ON COMPANY
DISTRIBUTIONS.
TAXATION OF THE COMPANY AS A REIT
The Company has elected to be taxed as a REIT under Sections 856 through 860
of the Code and applicable Treasury Regulations, which set forth the
requirements for qualifying as a REIT (the "REIT Requirements" or "REIT
Provisions"), commencing with its taxable year ending December 31, 1993. The
Company believes that, commencing with its taxable year ending December 31,
1993, it has been organized and is operating in such a manner so as to qualify
for taxation as a REIT under the Code. The Company intends to continue to
operate in such a manner, but no assurance can be given that it has operated or
that it will operate in a manner so as to qualify or remain qualified.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material aspects
of the Code sections that govern the federal income tax treatment of a REIT.
This summary is qualified in its entirety by the applicable
22
Code provisions and Treasury Regulations, and administrative and judicial
interpretations thereof. Willkie Farr & Gallagher has acted as special tax
counsel to the Company in connection with the Company's election to be taxed as
a REIT.
In the opinion of Willkie Farr & Gallagher, commencing with the Company's
taxable year ending December 31, 1993, the Company was organized and has been
operated in conformity with the requirements for qualification as a REIT, and
its proposed method of operation will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code. Willkie
Farr & Gallagher's opinion is based on certain factual representations and
assumptions and methods of operations which are beyond its control and which it
will not monitor on an ongoing basis. Such factual assumptions and
representations are set forth below in this discussion of "Federal Income Tax
Considerations." In particular, this opinion is based upon the factual
representations of the Company concerning its business and properties and of
Shumacker & Thompson, P.C. as to certain factual representations and legal
conclusions. Moreover, such qualification and taxation as a REIT depend upon the
Company's ability to meet, through actual annual operating results, certain
distribution levels, a specified diversity of stock ownership, and the various
other qualification tests imposed under the Code as discussed below. The annual
operating results will not be reviewed by Willkie Farr & Gallagher. Accordingly,
no assurance can be given that the actual results of the Company's operation for
any particular taxable year will satisfy such requirements. Further, the
anticipated income tax treatment described in this Prospectus may be changed,
perhaps retroactively, by legislative, administrative or judicial action at any
time. For a discussion of the tax consequences of failure to qualify as a REIT,
see "Federal Income Tax Considerations to the Company--Failure to Qualify"
below.
For as long as the Company qualifies for taxation as a REIT, it generally
will not be subject to federal corporate income taxes on its income that is
currently distributed to stockholders. The REIT Provisions generally allow a
REIT to deduct dividends paid to its stockholders. This treatment substantially
eliminates the "double taxation" (once at the corporate level and again at the
shareholder level) that generally results from investment in a corporation.
Even if the Company qualifies for taxation as a REIT, it may be subject to
federal income tax as follows:
First, the Company will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference, if any.
Third, if the Company has (i) net income from the sale or other disposition
of "foreclosure property" (generally, property acquired by reason of a default
on a lease or an indebtedness held by a REIT) that is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying net
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income.
Fourth, if the Company has net income from "prohibited transactions" (which
are, in general, certain sales or other dispositions of property, held primarily
for sale to customers in the ordinary course of business other than sales of
foreclosure property and sales that qualify for a statutory safe harbor), such
income will be subject to a 100% tax.
Fifth, if the Company should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), and has nonetheless maintained
its qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on net income attributable to the greater of the
amount by which the Company fails the 75% or 95% test, multiplied by a fraction
intended to reflect the Company's profitability.
23
Sixth, if the Company should fail to distribute with respect to each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed.
Seventh, if the Company acquires in the future any asset from a "C"
corporation (i.e., generally a corporation subject to full corporate-level tax)
in a carryover basis transaction (or if the Company held assets beginning on the
first day of the first taxable year for which it qualified as a REIT) and the
Company subsequently recognizes gain on the disposition of such asset during the
10-year period (the "Recognition Period") beginning on the date on which the
asset was acquired by the Company (or the Company first qualified as a REIT),
then the excess of (a) the fair market value of the asset as of the beginning of
the applicable Recognition Period, over (b) the Company's adjusted basis in such
asset as of the beginning of such Recognition Period will be subject to tax at
the highest regular corporate rate, pursuant to guidance issued by the IRS (the
"Built- in Gain Rules") and assuming that the Company makes an election pursuant
to Notice 88-19 as it currently intends to do.
REQUIREMENTS FOR QUALIFICATION
ORGANIZATIONAL REQUIREMENTS
In order to remain qualified as a REIT, the Company must continue to meet
certain requirements, discussed below, relating to its organization, sources of
income, nature of assets, and distributions of income to stockholders.
The Code defines a REIT as a corporation, trust or association (1) that is
managed by one or more trustees or directors, (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest, (3) that would be taxable as a domestic corporation but for
the REIT Requirements, (4) that is neither a financial institution nor an
insurance company subject certain provisions of the Code, (5) the beneficial
ownership of which is held by 100 or more persons, (6) during the last half of
each taxable year not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals, and (7) that
meets certain other tests, described below, regarding the nature of its income
and assets. The REIT Provisions state 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. For purposes of
condition (6), certain tax-exempt entities are generally treated as individuals.
However, a pension trust generally will not be considered an individual for
purposes of condition (6). Instead, beneficiaries of the pension trust will be
treated as holding stock of a REIT in proportion to their actuarial interests in
the trust.
The Company has satisfied the requirements of conditions (1) through
(4) and (7), and the Company believes that the requirements of conditions
(5) and (6) have been and are currently satisfied. In addition, the Certificate
of Incorporation provides for restrictions regarding transfer of its shares in
order to assist the Company in continuing to satisfy the share ownership
requirements described in conditions (5) and (6) above. Such transfer
restrictions are described herein under the captions "Description of Capital
Stock--Description of Preferred Stock--Restrictions on Transfer" and
"--Description of Common Stock--Restrictions on Transfer."
The Company currently has three "qualified REIT subsidiaries," CBL Holdings
I, CBL Holdings II and CBL/North Haven, Inc., and may have additional such
subsidiaries in the future. Code Section 856(i) provides that a corporation that
is a "qualified REIT subsidiary" (defined in the Code as a corporation wholly
owned by a REIT) shall not be treated as a separate corporation, and all
24
assets, liabilities, and items of income, deduction, and credit of a qualified
REIT subsidiary shall be treated as assets, liabilities, and such items (as the
case may be) of the REIT. Thus, in applying the requirements described herein,
the Company's "qualified REIT subsidiaries" will be ignored, and all assets,
liabilities, and items of income, deduction, and credit of such subsidiaries
will be treated as assets, liabilities and items of the Company.
In the case of a REIT that is a direct or indirect partner in a partnership,
Treasury Regulations provide that the REIT will be deemed to own its
proportionate share of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership shall
remain the same character in the hands of the REIT for purposes of the REIT
Requirements, including satisfying the gross income tests and the asset tests,
described below. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Operating Partnership and the Property
Partnerships will be treated as assets, liabilities and items of income of the
Company for purposes of applying the requirements described herein, provided
that the Operating Partnership and Property Partnerships are treated as
partnerships for federal income tax purposes.
Finally, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. The Company's taxable year is the calendar year.
INCOME TESTS
For the Company to maintain its qualification as a REIT, there are two gross
income requirements (the "gross income tests") that must be satisfied annually.
First, at least 75% of the Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must consist of defined types of
income derived directly or indirectly from investments relating to real property
or mortgages on real property (including "rents from real property," as
described below, and, in certain circumstances, interest) or from certain types
of temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, other types of
interest, gain from the sale or disposition of stock or securities that do not
constitute dealer property, or from any combination of the foregoing. Dividends
that the Company receives on its indirect ownership interest in the Management
Company, as well as interest that it receives on its loan to the Management
Company and other interest income that is not secured by real estate, generally
will be includable under the 95% test but not under the 75% test.
Rents received or deemed to be received by the Company will qualify as
"rents from real property" for purposes of the gross income tests only if
several conditions are met:
First, the amount of rent must not be based, in whole or in part, on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "rents from real property" solely
by reason of being based on a fixed percentage or percentages of receipts or
sales.
Second, the Code provides that rents received from a tenant will not qualify
as "rents from real property" in satisfying the gross income tests if the REIT,
or a direct or indirect owner of 10% or more of the REIT, owns, directly or
constructively, 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property."
Fourth, a REIT may provide services to its tenants and the income will
qualify as "rents from real property" if the services are of a type that a tax
exempt organization can provide to its tenants
25
without causing its rental income to be unrelated business taxable income under
the Code. Services that would give rise to unrelated business taxable income if
provided by a tax exempt organization ("Prohibited UBTI Service Income") must be
provided by an "independent contractor" who is adequately compensated and from
whom the REIT does not derive any income; otherwise, all of the rent received
from the tenant for whom such services are provided will fail to qualify as
"rents from real property" if the services income exceeds a DE MINIMIS amount.
Note, however, that receipts for services furnished (whether or not rendered by
an independent contractor) which are not customarily provided to tenants in
properties of a similar class in the geographic market in which the Company's
property is located will in no event qualify as "rents from real property."
Substantially all of the Company's income is derived from its partnership
interest in the Operating Partnership. The Operating Partnership's real estate
investments, including those held through the Property Partnerships, give rise
to income that enables the Company to satisfy all of the income tests described
above. The Operating Partnership's income is largely derived from its interests,
both direct and indirect, in the Properties, which income, for the most part,
qualifies as "rents from real property" for purposes of the 75% and the 95%
gross income tests. The Operating Partnership also derives income from its
interest in the Management Company.
Neither the Company or the Operating Partnership nor any of the Property
Partnerships currently pursuant to existing leases (nor will any of them in the
future in connection with new leases) (i) charges rent for any property that is
based in whole or in part on the income or profits of any person (except by
reason of being based on a percentage of receipts or sales, as described above)
other than relatively minor amounts which do not affect compliance with the
above tests; (ii) rents any property to a Related Party Tenant (other than
pursuant to leases with CBL, certain affiliates and officers of the Company and
certain affiliates of those persons which produce a relatively minor amount of
non-qualifying income and which the Company believes will not, either singly or
when combined with other non-qualifying income, exceed the limits on
non-qualifying income); (iii) derives rent attributable to personal property
leased in connection with property that exceeds 15% of the total rents other
than relatively minor amounts which do not affect compliance with the above
tests; or (iv) directly performs any services that would give rise to income
derived from services that give rise to "unrelated business taxable income" as
defined in Section 512(a) of the Code, and none of them will in the future enter
into new leases that would, either singly or in the aggregate, result in
disqualification of the Company as a REIT under the Code.
As a result of the Operating Partnership's ownership interest in the
Management Company, the Management Company does not qualify as an independent
contractor from which the Company derives no income. The Company believes,
however, that the Company's income will either qualify as "rents from real
property" under the REIT Provisions or that amounts excluded in any taxable year
will not include amounts that could otherwise qualify through the use of an
independent contractor. Accordingly, the Company believes that it is not
necessary for the Management Company to qualify as an independent contractor.
The Operating Partnership will hire independent contractors to the extent
necessary to qualify rental income as "rents from real property" under the REIT
Provisions.
The Company has obtained from the IRS a ruling that direct performance of
the services and the undertaking of the activities described above by the
Management Company with respect to the properties owned by the Company and by
the Property Partnerships in which the Company has a direct or indirect
interest, and the Management Company's other services to third parties, will not
cause the amounts received directly or through the Property Partnerships by the
Company from the rental of properties of the Company and of the Property
Partnerships to be treated as something other than rents from real property for
purposes of the Code.
26
The Management Company receives fees in exchange for the performance of
certain management and administrative services. Such fees will not accrue to the
Company, but the Company will derive dividends and interest, which qualify under
the 95% test. The Company believes that the aggregate amount of any
nonqualifying income in any taxable year will not exceed the limits on
nonqualifying income under the 75% and 95% gross income tests.
For purposes of the gross income tests, the term "interest" generally does
not include any amount received or accrued (directly or indirectly) if the
determination of such amount depends in whole or in part 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 percentage of receipts or sales. Although the Operating
Partnership or the Property owners may advance money from time to time to
tenants for the purpose of financing tenant improvements, the Company and the
Operating Partnership do not intend to charge interest in any transaction that
will depend in whole or in part on the income or profits of any person or to
make loans that are not secured by mortgages or real estate in amounts that
could jeopardize its compliance with the 5% asset test described below.
Any net income derived from a prohibited transaction is subject to a 100%
tax. The Company believes that no asset owned by the Operating Partnership, the
Property Partnerships or the Company is held for sale to customers and that the
sale of any Property and associated property will not be in the ordinary course
of business of the Operating Partnership, the relevant Property Partnership or
the Company. Whether property is held "primarily for sale to customers in the
ordinary course of a trade or business" and, therefore, is subject to the 100%
tax, depends on the facts and circumstances in effect from time to time,
including those related to a particular property. The Company and the Operating
Partnership will attempt to comply with the terms of safe-harbor provisions in
the Code prescribing when asset sales will not be characterized as prohibited
transactions. Complete assurance cannot be given, however, that the Company can
comply with the safe-harbor provisions of the Code or avoid owning property that
may be characterized as property held "primarily for sale to customers in the
ordinary course of business."
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if the Company's failure to meet such
tests is due to reasonable cause and not willful neglect, the Company attaches a
schedule of its sources of income to its return, and any incorrect information
on the schedule was not due to fraud with intent to evade tax. It is not
possible to state whether in all circumstances the Company would be entitled to
the benefit of these relief provisions. As discussed above in "--Taxation of the
Company as a REIT," even if these relief provisions apply, a tax would be
imposed with respect to the excess net income.
27
ASSET TESTS
For the Company to maintain its qualification as a REIT, the Company, at the
close of each quarter of its taxable year, must also satisfy three tests
relating to the nature of its assets. First, at least 75% of the value of the
Company's total assets must be represented by real estate assets (including
(i) its allocable share of real estate assets held by partnerships in which the
Company owns an interest or held by qualified REIT subsidiaries and (ii) stock
or debt instruments held for not more than one year purchased with the proceeds
of a stock offering or long-term (at least five years) debt offering of the
Company), cash items and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed 5% of
the value of the Company's total assets, and the Company may not own more than
10% of any one issuer's outstanding voting securities. The 5% value limitation
must be satisfied not only on the date that the Company (directly or through the
Operating Partnership) acquires securities of the Management Company, but also
at the end of any quarter in which the Company so increases its interest in the
Management Company. In this respect, if any partner of the Operating Partnership
exercises its option to exchange interests in the Operating Partnership for
shares of Common Stock, the Company will thereby increase its proportionate
(indirect) ownership interest in the Management Company, thus requiring the
Company to recalculate its ability to meet the 5% test in any quarter in which
such exchange option is exercised. Although the Company plans to take steps to
ensure that it satisfies the 5% value test for any quarter with respect to which
retesting is to occur, there can be no assurance that such steps will always be
successful or will not require a reduction in the Operating Partnership's
overall interest in the Management Company.
As set forth above, the ownership of more than 10% of the voting securities
of any one issuer by the Company is prohibited by the asset tests. However, as
described in "--Requirements for Qualification--Organizational Requirements," if
the Company's subsidiary is a qualified REIT subsidiary it will not be treated
as a separate corporation for federal income tax purposes. Thus, the Company's
ownership of the stock of a "qualified REIT subsidiary" will not cause the
Company to fail the asset tests.
The Company believes that it is in compliance with the asset tests.
Substantially all of the Company's investments are in the Properties, which
represent qualifying real estate assets. The Company's proportionate share of
the Operating Partnership's ownership of 100% of the Management Company's
nonvoting preferred stock and 5% of the Management Company's voting common stock
is also within the permissible range. That interest does not exceed a 10% voting
interest, and the Company believes that the value of those shares is
substantially less than the permitted 5%. No independent appraisals will be
obtained to support the Company's estimate of value, however, and Willkie
Farr & Gallagher, in issuing its opinion on the Company's qualification as a
REIT, is relying on the Company's representation as to the limited value of the
stock interest in the Management Company.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its 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 the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company intends to maintain adequate records of the value of
its assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to cure
any noncompliance.
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ANNUAL DISTRIBUTION REQUIREMENTS
The Company, in order to remain qualified as a REIT, is required to
distribute dividends (other than capital gain dividends) to its stockholders in
an amount at least equal to (A) the sum of (i) 95% of its "real estate
investment trust taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of noncash income. In addition, if the Company disposes of any asset
during its Recognition Period, the Company will be required, pursuant to
guidance issued by the IRS, to distribute at least 95% of the Built-in Gain
(after tax), if any, recognized on the disposition of such asset. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration.
To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95%, but less than 100% of its "real estate
investment trust taxable income," as adjusted, it will be subject to tax on the
undistributed amount at ordinary and capital gains corporate tax rates.
Pursuant to recently enacted legislation and if the Company so elects, the
Company may retain, rather than distribute, its net long-term capital gains and
pay the tax on such gains. In such a case, the stockholders would include their
proportionate share of the undistributed long-term capital gains in income.
However, the stockholders would then be deemed to have paid their share of the
tax, which would be credited or refunded to them. In addition, the stockholders
would be able to increase the basis of their shares in the Company by the amount
of the undistributed long-term capital gains (less the amount of capital gains
tax paid by the Company) included in the stockholder's long-term capital gains.
Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. The Company intends to make timely distributions
sufficient to satisfy all annual distribution requirements.
The Company's taxable income consists substantially of the Company's
distributive share of the income of the Operating Partnership. It is expected
that the Company's taxable income will be less than the cash flow it receives
from the Operating Partnership, due to the allowance of depreciation and other
non-cash charges in computing REIT taxable income. Accordingly, the Company
anticipates that it will generally have sufficient cash or liquid assets to
enable it to satisfy the 95% distribution requirement.
It is possible that, from time to time, the Company may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of such
expenses in arriving at the Company's taxable income. Further, it is possible
that, from time to time, the Company may be allocated a share of net capital
gain attributable to the sale of depreciated property which exceeds its
allocable share of cash attributable to that sale. In such case, the Company may
have less cash available for distribution than is necessary to meet its annual
95% distribution requirement. To meet the 95% distribution requirement, the
Company may find it appropriate to arrange for short-term (or possibly
long-term) borrowings or to pay distributions in the form of taxable stock
dividends. Any such borrowings for the purpose of making distributions to
stockholders are required to be arranged through the Operating Partnership.
29
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay interest to the IRS based upon the amount of any
deduction taken for deficiency dividends.
Pursuant to applicable Treasury Regulations, the Company must maintain
certain records and request certain information from its stockholders designed
to disclose the actual ownership of its stock. The Company has complied with
such requirements.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to stockholders will be taxable as
ordinary income, 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, the Company will also be
disqualified from taxation as a REIT for the four taxable years following the
year in which qualification was lost. It is not possible to state whether in all
circumstances the Company would be entitled to such statutory relief.
TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of Offered
Securities that (for United States federal income tax purposes) is (i) a citizen
or resident of the United States, (ii) a corporation, partnership, or other
entity created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate the income of which is subject to
United States federal income taxation regardless of its source, or (iv) a trust
if a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. For any taxable
year for which the Company qualifies for taxation as a real estate investment
trust, amounts distributed to taxable U.S. Stockholders will be taxed as
follows.
DISTRIBUTIONS GENERALLY
Distributions to U.S. Stockholders, other than capital gain dividends
discussed below, will constitute dividends to such holders up to the amount of
the Company's current or accumulated earnings and profits and are taxable to
such stockholders as ordinary income. Such distributions are not eligible for
the dividends-received deduction for corporations. To the extent that the
Company makes distributions in excess of its current or accumulated earnings and
profits, such distributions will first be treated as a tax-free return of
capital, reducing the tax basis in the U.S. Stockholder's shares, and
distributions in excess of the U.S. Stockholder's tax basis in its Offered
Securities are taxable as gain realized from the sale of such Shares. Dividends
declared by the Company in October, November or December of any year payable to
a U.S. Stockholder of record on a specified date in any such month shall be
treated as both paid by the Company and received by the U.S. Stockholder on
December 31 of such year, provided that the dividend is actually paid by the
Company during January of the following calendar year. U.S. Stockholders may not
include on their own income tax returns any tax losses of the Company.
30
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed in
"--Taxation of the Company as a REIT" above. As a result, stockholders may be
required to treat certain distributions that would otherwise result in a
tax-free return of capital as taxable dividends. Moreover, any "deficiency
dividend" will be treated as a "dividend" (an ordinary dividend or a capital
gain dividend, as the case may be), regardless of the Company's earnings and
profits.
CAPITAL GAIN DIVIDENDS
Dividends to U.S. Stockholders that are properly designated by the Company
as capital gain dividends will be treated as long-term capital gain (to the
extent they do not exceed the Company's actual net capital gain) for the taxable
year without regard to the period for which the shareholder has held his stock.
Capital gain dividends are not eligible for the dividends-received deduction for
corporations; however, corporate stockholders may be required to treat up to 20%
of certain capital gain dividends as ordinary income. Individuals are generally
subject to differing rates of tax on various transactions giving rise to capital
gains or losses. In general, the long-term capital gains rate is 28% on gains
from the sale or exchange of capital assets held for more than one year but not
more than 18 months. The rate on capital gains is reduced to 20% on capital gain
from the sale or exchange of assets held for more than 18 months. However, the
rate is 25% on capital gain from the sale or exchange of certain depreciable
real estate eligible for the 20% rate up to the amount of depreciation
deductions taken with respect to the real estate. Subject to certain limitations
concerning the classification of the Company's long-term capital gains, the
Company may designate a capital gain dividend as a 28% rate distribution, a 25%
rate distribution or a 20% rate distribution. If the Company elects to retain
capital gains rather than distribute them, a U.S. Stockholder will be deemed to
receive a capital gain dividend equal to the amount of such retained capital
gains. Such gains are subject to apportionment among the three rate groups set
forth above. In such a case, a U.S. Stockholder will receive certain tax credits
and basis adjustments reflecting the deemed distribution and deemed payment of
taxes by the U.S. Stockholder.
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS
Distributions from the Company and gain from the disposition of Offered
Securities will not be treated as passive activity income and, therefore, U.S.
Stockholders may not be able to apply any "passive losses" against such income.
Dividends from the Company (to the extent they do not constitute a return of
capital) will generally be treated as investment income for purposes of the
investment income limitation. Net capital gain from the disposition of Offered
Securities and capital gains generally will be eliminated from investment income
unless the taxpayer elects to have the gain taxed at ordinary income rates.
CERTAIN DISPOSITIONS OF OFFERED SECURITIES
A U.S. Stockholder will recognize gain or loss on the sale or exchange of
Offered Securities to the extent of the difference between the amount realized
on such sale or exchange and the holder's tax basis in such securities. Such
gain or loss generally will constitute long-term capital gain or loss if the
holder held such securities for more than one year. In the case of an individual
U.S. Stockholder, long-term capital gains will be subject to a maximum tax rate
of 28%. If held for more than 18 months, the maximum rate is 20%. Losses
incurred on the sale or exchange of Offered Securities held for six months or
less will be deemed long-term capital loss to the extent of any capital gain
dividends received by the U.S. Stockholder with respect to such securities.
31
TREATMENT OF TAX-EXEMPT STOCKHOLDERS
The IRS has ruled that amounts distributed by the Company to a tax-exempt
employees' pension trust do not constitute "unrelated business taxable income"
("UBTI"). Based upon this ruling and the analysis therein, distributions by the
Company to a shareholder that is a tax-exempt entity generally should not
constitute UBTI, provided that the tax-exempt entity has not financed the
acquisition of its Offered Securities with "acquisition indebtedness" within the
meaning of the Code and that the Offered Securities are not otherwise used in an
unrelated trade or business of the tax-exempt entity. Revenue rulings, however,
are interpretive in nature and subject to revocation or modification by the IRS.
In addition, certain pension trusts owning more than 10% of a REIT may be
required to report a portion of any dividends they receive from the Company as
unrelated business taxable income.
SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS
The rules governing United States income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships and foreign trusts and
estates (collectively, "Non-U.S. Stockholders") are complex, and the following
discussion is intended only as a summary of such rules. Prospective Non-U.S.
Stockholders should consult with their own tax advisors to determine the impact
of federal, state and local income tax laws on an investment in the Company,
including any reporting requirements.
In general, a Non-U.S. Stockholder will be subject to regular United States
income tax with respect to its investment in the Company if such investment is
"effectively connected" with the Non-U.S. Stockholder's conduct of a trade or
business in the United States. A corporate Non-U.S. Stockholder that receives
income that is (or is treated as) effectively connected with a U.S. trade or
business may also be subject to the branch profits tax under Section 884 of the
Code, which is payable in addition to regular United States corporate income
tax.
The following discussion will apply to Non-U.S. Stockholders whose
investment in the Company is not effectively connected, as discussed above.
A distribution by the Company that is not attributable to gain from the sale
or exchange by the Company of a United States real property interest and that is
not designated by the Company as a capital gain dividend will be treated as an
ordinary income dividend to the extent that it is made out of current or
accumulated earnings and profits. Generally, unless the dividend is effectively
connected with the Non-U.S. Stockholder's conduct of a United States trade or
business, such a dividend will be subject to a United States withholding tax
equal to 30% of the gross amount of the dividend unless such withholding is
reduced by an applicable tax treaty. A distribution of cash in excess of the
Company's earnings and profits will be treated first as a nontaxable return of
capital that will reduce a Non-U.S. Stockholder's basis in its shares (but not
below zero) and then as gain from the disposition of such shares, the tax
treatment of which is described under the rules discussed below with respect to
disposition of shares. A distribution in excess of the Company's earnings and
profits will be subject to 30% dividend withholding if at the time of the
distribution it cannot be determined whether the distribution will be in an
amount in excess of the Company's current and accumulated earnings and profits.
If it is subsequently determined that such distribution is, in fact, in excess
of current and accumulated earnings and profits, the Non-U.S. Stockholder may
seek a refund from the IRS. The Company expects to withhold United States income
tax at the rate of 30% on the gross amount of any such distributions made to a
Non-U.S. Stockholder unless (i) a lower tax treaty rate applies and the required
form evidencing eligibility for that reduced rate is filed with the Company or
(ii) the Non-U.S. Stockholder files IRS Form 4224 with the Company claiming that
the distribution is "effectively connected" income.
32
For any year in which the Company qualifies as a real estate investment
trust, distributions by the Company that are attributable to gain from the sale
or exchange of a United States real property interest will be taxed to a
Non-U.S. Stockholder in accordance with the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a
non-U.S. Stockholder as if such distributions were gains "effectively connected"
with a United States trade or business. Accordingly, a Non-U.S. Stockholder will
be taxed at the normal capital gain rates applicable to a U.S. Stockholder
(subject to any applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals). Distributions subject
to FIRPTA may also be subject to a 30% branch profits tax in the hands of a
foreign corporate shareholder that is not entitled to treaty exemption. The
Company will be required to withhold from distributions to Non-U.S.
Stockholders, and remit to the IRS, 35% of the amount of any distribution that
could be designated as capital gain dividends. This amount is creditable against
the Non-U.S. Stockholder's tax liability. It should be noted that the 35%
withholding tax rate on capital gain dividends is higher than the maximum rate
(which may be 20%, 25% or 28% on capital gains of individuals depending on all
the facts and circumstances) on long-term capital gains of individuals. Capital
gain dividends not attributable to gain on the sale or exchange of United States
real property interests are not subject to United States taxation if there is no
requirement of withholding.
Tax treaties may reduce the Company's withholding obligations. If the amount
of tax withheld by the Company with respect to a distribution to a Non-U.S.
Stockholder exceeds the shareholder's United States liability with respect to
such distribution, the Non-U.S. Stockholder may file for a refund of such excess
from the IRS. It should be noted that the 35% withholding tax rate on capital
gain dividends corresponds to the current maximum income tax rate applicable to
corporations but is higher than the 28% maximum rate on capital gains of
individuals.
If the Offered Securities fail to constitute a "United States real property
interest" within the meaning of FIRPTA, a sale of the Offered Securities by a
Non-U.S. Stockholder generally will not be subject to United States taxation
unless (i) investment in the Offered Securities is effectively connected with
the Non-U.S. Stockholder's United States trade or business, in which case, as
discussed above, the Non-U.S. Stockholder would be subject to the same treatment
as U.S. Stockholders on such gain or (ii) the Non-U.S. Stockholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and who has a "tax home" in the United States,
in which case the nonresident alien individual will be subject to a 30% tax on
the individual's capital gains. The Offered Securities will not constitute a
United States real property interest if the Company is a "domestically
controlled REIT." A domestically controlled REIT is a real estate investment
trust in which at all times during a specified testing period less than 50% in
value of its shares is held directly or indirectly by Non-U.S. Stockholders. It
is currently anticipated that the Company will be a domestically controlled
REIT, and therefore that the sale of Offered Securities will not be subject to
taxation under FIRPTA. However, because the Offered Securities will be publicly
traded, no assurance can be given that the Company will continue to be a
domestically controlled REIT.
If the Company did not constitute a domestically controlled REIT, whether a
Non-U.S. Stockholder's sale of Offered Securities would be subject to tax under
FIRPTA as sale of a United States real property interest would depend on whether
the Offered Securities were "regularly traded" (as defined by applicable
Treasury Regulations) on an established securities market (e.g., the New York
Stock Exchange, on which the Offered Securities will be listed) and on the size
of the selling shareholder's interest in the Company. If the gain on the sale of
the Company's Offered Securities were subject to taxation under FIRPTA, the
Non-U.S. Stockholder would be subject to the same treatment as a U.S.
Stockholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals). In any event, a purchaser of Offered Securities from a Non-U.S.
Stockholder will not be required under
33
FIRPTA to withhold on the purchase price if the purchased Offered Securities are
"regularly traded" on an established securities market or if the Company is a
domestically controlled REIT. Otherwise, under FIRPTA, the purchaser of Offered
Securities may be required to withhold 10% of the purchase price and remit such
amount to the IRS.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
U.S. STOCKHOLDERS
Under certain circumstances, U.S. Stockholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or on cash
proceeds of a sale or exchange of, Offered Securities. Backup withholding will
apply only if the holder (i) fails to furnish its taxpayer identification number
("TIN") (which, for an individual, would be his Social Security number), (ii)
furnishes an incorrect TIN, (iii) is notified by the IRS that it has failed to
report properly payments of interest and dividends or (iv) under certain
circumstances, fails to certify, under penalty of perjury, that it has furnished
a correct TIN and has not been notified by the IRS that it is subject to backup
withholding for failure to report interest and dividend payments. Backup
withholding will not apply with respect to payments made to certain exempt
recipients, such as corporations and tax-exempt organizations. U.S. Stockholders
should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption.
NON-U.S. STOCKHOLDERS
If the proceeds of a disposition of Offered Securities are paid by or
through a United States office of a broker, the payment is subject to
information reporting and to backup withholding unless the disposing Non-U.S.
Shareholder certifies as to its name, address and non-United States status or
otherwise establishes an exemption. Generally, United States information
reporting and backup withholding will not apply to a payment of disposition
proceeds if the disposition is effected outside the United States through a
non-United States office of a non-United States broker. United States
information reporting requirements (but not backup withholding) will apply,
however, to a payment of proceeds of a disposition effected outside the United
States if (i) the disposition is effected through an office outside the United
States of a broker that is either (a) a United States person, (b) a foreign
person that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States or (c) a "controlled foreign
corporation" for United States federal income tax purposes, and (ii) the broker
fails to maintain documentary evidence that the shareholder is a Non-U.S.
Shareholder and that certain conditions are met or that the Non-U.S. Shareholder
otherwise is entitled to an exemption.
Recently released Final Treasury Regulations (not yet in effect) would
provide alternative methods for satisfying certain certification requirements.
These regulations generally will be effective with respect to payments made
after December 31, 1998 and Non-U.S. Stockholders are urged to consult with
their own tax advisors with respect to the application of these regulations.
REFUNDS
Backup withholding is not an additional tax. Rather, the amount of any
backup withholding with respect to a payment to a shareholder will be allowed as
a credit against any United States federal income tax liability of such
shareholder. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the United
States.
STATE AND LOCAL TAXATION
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and
34
local tax treatment of the Company and its stockholders may not conform to the
federal income tax consequences discussed above. Consequently, prospective
stockholders should consult their own tax advisors regarding the effect of state
and local tax laws on an investment in the Company.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable solely to the Company's investment in the Operating
Partnership (through CBL Holdings I and CBL Holdings II) and represents the view
of Willkie Farr & Gallagher. The discussion does not cover state or local tax
laws or any federal tax laws other than income tax laws.
CLASSIFICATION AS A PARTNERSHIP
The Company will be entitled to include in its income its indirect
distributive share of the Operating Partnership's income and to deduct its
indirect distributive share of the Operating Partnership's losses (including the
Operating Partnership's share of income or losses of the Property Partnerships)
only if the Operating Partnership and the Property Partnerships are classified
for federal income tax purposes as partnerships rather than as associations
taxable as corporations.
Neither the Operating Partnership nor any Property Partnership has
requested, nor do they intend to request, a ruling from the IRS that any of them
will be treated as a partnership for federal income tax purposes. Instead,
Willkie Farr & Gallagher has delivered its opinion that, based on the
provisions of the Partnership Agreement, certain factual assumptions, and
certain representations described in the opinion, the Operating Partnership and,
additionally, each Property Partnership will be treated as partnerships for
federal income tax purposes and not as "publicly traded partnerships." Unlike a
tax ruling, an opinion of counsel is not binding on the IRS, and no assurance
can be given that the IRS will not challenge the status of the Operating
Partnership or of a Property Partnership as a partnership for federal income tax
purposes. If such challenge were sustained by a court, the Operating Partnership
or the relevant Property Partnership would be treated as a corporation for
federal income tax purposes, as described below. In addition, the opinion of
Willkie Farr & Gallagher is based on existing law, which is to a great extent
the result of administrative and judicial interpretation. No assurance can be
given that administrative or judicial changes would not modify the conclusions
expressed in the opinion.
If for any reason the Operating Partnership were taxable as a corporation
rather than as a partnership for federal income tax purposes, the Company would
not be able to satisfy the income and asset requirements for real estate
investment trust status. If a Property Partnership were taxable as a
corporation, the Company would not be able to satisfy the asset requirements for
real estate investment trust status and might not satisfy the income
requirements. See "--Requirements for Qualification--Income Tests" and
"--Requirements for Qualification--Asset Tests." In addition, any change in the
Operating Partnership's status or that of a Property Partnership for tax
purposes might be treated as a taxable event, in which case the Company might
incur a tax liability without any related cash distribution. See "--Requirements
for Qualification--Annual Distribution Requirements." Further, if the Operating
Partnership or a Property Partnership were treated as a corporation for tax
purposes, items of income and deduction of the Operating Partnership or those of
an affected Property Partnership would not pass through to its partners, and its
partners would be treated as stockholders for tax purposes. The Operating
Partnership or the affected Property Partnership would be required to pay income
tax at corporate tax rates on its net income, and distributions to its partners
would constitute dividends that would not be deductible in computing the
Operating Partnership's taxable income.
35
INCOME TAXATION OF THE OPERATING PARTNERSHIP AND ITS PARTNERS
PARTNERS, NOT THE OPERATING PARTNERSHIP, SUBJECT TO TAX. A partnership is
not a taxable entity for federal income tax purposes. Rather, the Company will
be required to take into account its allocable share of the Operating
Partnership's income, gains, losses, deductions and credits for any taxable year
of the Operating Partnership ending within or with the taxable year of the
Company, without regard to whether the Company has received or will receive any
direct or indirect distribution from the Operating Partnership.
OPERATING PARTNERSHIP ALLOCATIONS. Although a partnership agreement will
generally determine the allocation of income and losses among partners, such
allocations will be disregarded for tax purposes under Section 704(b) of the
Code if they do not comply with the provisions of that Section and the Treasury
Regulations promulgated thereunder.
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Operating Partnership's allocations of
taxable income and loss, and those of the Property Partnerships, are intended to
comply with the requirements of Section 704(b) of the Code and the Treasury
Regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated for federal income tax purposes in
a manner such that the contributor is charged with, or benefits from, the
unrealized gain or unrealized loss that is generally equal to the difference
between the fair market value of the contributed property at the time of
contribution and the adjusted tax basis of such property at that time. The
Partnership Agreement requires allocations of income, gain, loss and deduction
attributable to contributed property to be made by the Operating Partnership in
a manner that is consistent with Section 704(c) of the Code. The allocation
methods proposed to be applied by the Operating Partnership are described below.
BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's adjusted tax basis
in its indirect partnership interest in the Operating Partnership generally
(i) will be equal to the amount of cash and the basis of any other property
contributed to the Operating Partnership by the Company, (ii) will be increased
by (a) its allocable share of the Operating Partnership's income and (b) its
allocable share of certain indebtedness of the Operating Partnership and of the
Property Partnerships and (iii) will be reduced, but not below zero by the
Company's allocable share of (a) the Operating Partnership's loss and (b) the
amount of cash distributed directly or indirectly to the Company, and by
constructive distributions resulting from a reduction in the Company's share of
certain indebtedness of the Operating Partnership and of the Property
Partnerships. With respect to increases in the Company's adjusted tax basis in
its indirect partnership interest in the Operating Partnership resulting from
certain indebtedness of the Operating Partnership, Section 752 of the Code and
the regulations promulgated thereunder provide that a partner may include its
share of partnership liabilities in its adjusted tax basis of its interest in
the partnership to the extent said partner bears the "economic risk of loss"
with respect to the liability. Generally, a partnership's non-recourse debt is
shared pro rata by the partners. However, if a partner guarantees partnership
debt or is personally liable for all or any portion of such debt, such partner
will be deemed to bear the economic risk of loss for the amount of such debt for
which it is personally liable. Thus, such partner may include such amount in its
adjusted tax basis of its interest in the partnership.
The Company, by virtue of its status as the sole stockholder of CBL Holdings
I, the sole general partner of the Operating Partnership, will be deemed to bear
the economic risk of loss with
36
respect to indebtedness of the Operating Partnership that is not nonrecourse
debt as defined in the Code. As a result, the Company's adjusted tax basis in
its indirect partnership interest in the Operating Partnership may exceed its
pro rata share of the total indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss would reduce the adjusted tax basis of the Company's
partnership interest in the Operating Partnership below zero, the recognition of
such loss will be deferred until such time as the recognition of such loss would
not reduce the Company's adjusted tax basis below zero. To the extent that the
Operating Partnership's distributions, or any decrease in the Company's share of
the nonrecourse indebtedness of the Operating Partnership or of a Property
Partnership (each such decrease being considered a constructive cash
distribution to the partners), would reduce the Company's adjusted tax basis
below zero, such distributions and constructive distributions will normally be
characterized as capital gain, and if the Company's partnership interest in the
Operating Partnership has been held for longer than the long-term capital gain
holding period (currently, one year), the distributions and constructive
distributions will constitute long-term capital gains subject to tax (in the
case of individuals) at a maximum 28% rate. If held for more than 18 months, the
maximum rate would be 20%.
DEPRECIATION DEDUCTIONS AVAILABLE TO THE OPERATING PARTNERSHIP. The
Operating Partnership was formed in 1993 principally by way of contributions of
certain of the Properties or appreciated interests in Property Partnerships
owning such Properties. Accordingly, the Operating Partnership's depreciation
deductions attributable to the Properties will be based on the contributing
partners' depreciation schedules and in some cases on new schedules pursuant to
which such Property will be depreciated on depreciation schedules of up to
40 years, using, initially, the adjusted basis of the contributed assets in the
hands of the contributing partners. The Operating Partnership has estimated that
the aggregate, adjusted basis of its assets was approximately $430 million as of
the date of the Formation.
SECTION 704(C) ALLOCATIONS. Section 704(c) of the Code requires that
depreciation as well as gain and loss be allocated in a manner so as to take
into account the variation between the fair market value and tax basis of the
property contributed by a partner to a partnership. See "--Operating Partnership
Allocations." Applicable Treasury Regulations provide a choice of several
methods of taking such differences between value and tax basis into account. The
Operating Partnership will apply the "traditional method," without special or
curative allocations, giving effect to the ceiling rule.
SALE OF THE OPERATING PARTNERSHIP'S PROPERTY
Generally, any gain realized by the Operating Partnership on the sale of
property held by the Operating Partnership or a Property Partnership or on the
sale of a partnership interest in a Property Partnership will be capital gain,
except for any portion of such gain that is treated as depreciation or cost
recovery recapture. Any unrealized gain attributable to the excess of the fair
market value of the Properties over their adjusted tax bases at the time of
contribution to the Operating Partnership ("Pre-Contribution Gain") must, when
recognized by the Operating Partnership, generally be allocated to the limited
partners (including CBL) under Section 704(c) of the Code and Treasury
Regulations promulgated thereunder.
In the event of the disposition of any of the Properties which have Pre-
Contribution Gain, all income attributable to such undepreciated Pre-
Contribution Gain will be allocated to the limited partners of the Operating
Partnership (including CBL), and the Company generally will be allocated only
its share of capital gains attributable to depreciation deductions it enjoyed
and appreciation, if any, occurring since the acquisition of its interest in the
Operating Partnership. Any decision relating
37
to the potential sale of any Property that would result in recognition of
Pre-Contribution Gain will be made by the independent directors of the Board of
Directors. The Operating Partnership will be required in such case to distribute
to its partners all of the net cash proceeds from such sale up to an amount
reasonably believed necessary to enable the limited partners (including CBL) to
pay any income tax liability arising from such sale.
The Company's share of any gain realized by the Operating Partnership on the
sale of any property held by the Operating Partnership or Property Partnership
as inventory or other property held primarily for sale to customers in the
ordinary course of the Operating Partnership's or Property Partnership's trade
or business will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. See "--Requirements for Qualification--Income
Tests" above. Such prohibited transaction income will also have an adverse
effect upon the Company's ability to satisfy the gross income tests for real
estate investment trust status. See "--Requirements for Qualification--Income
Tests" above. Under existing law, whether property is held as inventory or
primarily for sale to customers in the ordinary course of a trade or business is
a question of fact that depends on all the facts and circumstances with respect
to the particular transaction. The Operating Partnership and the Property
Partnerships intend to hold the Properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning and operating the Properties (and other shopping centers) and to make
such occasional sales of the Properties, including peripheral land, as are
consistent with the Operating Partnership's and the Property Partnerships'
investment objectives.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities through underwriters or dealers,
directly to one or more purchasers, through agents or through a combination of
any such methods of sale. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
The distribution of the Offered Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices.
In connection with the sale of the Offered Securities, underwriters or
agents may receive compensation from the Company or from purchasers of the
Offered Securities, for whom they may act as agents, in the form of discounts,
concessions or commissions. Underwriters may sell the Offered Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents. Underwriters, dealers and
agents that participate in the distribution of the Offered Securities may be
deemed to be underwriters under the Securities Act, and any discounts or
commissions they receive from the Company and any profit on the sale of the
Offered Securities they realize may be deemed to be underwriting discounts and
commissions under the Securities Act.
Unless otherwise specified in the related Prospectus Supplement, each series
of Offered Securities will be a new issue with no established trading market,
other than the Common Stock which is listed on the New York Stock Exchange. Any
Common Stock sold pursuant to a Prospectus Supplement will be listed on such
exchange, subject to official notice of issuance. The Company may elect to list
any series of Preferred Stock or Common Stock Warrants on an exchange, but is
not obligated to do so. It is possible that one or more underwriters may make a
market in a series of Offered Securities, but will not be obligated to do so and
may discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of the trading market for the Offered
Securities.
38
Under agreements into which the Company may enter, underwriters, dealers and
agents who participate in the distribution of the Offered Securities may be
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, or be tenants of, the Company or the Operating Partnership in the
ordinary course of business.
In order to comply with the securities laws of certain states, if
applicable, the Offered Securities will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the Offered Securities may not be sold unless they have been registered
or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
EXPERTS
The audited financial statements and schedule thereto incorporated by
reference in this Prospectus or elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are incorporated herein in
reliance upon the authority of said firm as experts in giving said reports.
LEGAL MATTERS
Certain legal matters with respect to the Offered Securities will be passed
upon for the Company by Willkie Farr & Gallagher, New York, New York, and the
validity of the Offered Securities will be passed upon for any underwriters,
dealers or agents by Sullivan & Cromwell, New York, New York. Certain other
matters will be passed upon for the Company by Shumacker & Thompson, P.C.,
Chattanooga, Tennessee. Certain members of Shumacker & Thompson, P.C. are
assistant secretaries of the Company.
39
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
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TABLE OF CONTENTS
Prospectus Supplement
Page
----
Cautionary Statement Concerning
Forward-Looking Information........ ii
CBL & Associates Properties, Inc..... S-1
Use of Proceeds...................... S-1
U.S. Federal Income Tax
Considerations..................... S-1
Underwriting......................... S-17
Validity of the Common Stock......... S-18
Experts.............................. S-18
Available Information................ S-18
Prospectus
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 3
The Company.......................... 4
Use of Proceeds...................... 5
Ratios of Earnings to Fixed
Charges............................ 5
Risk Factors......................... 6
Description of Capital Stock......... 11
Description of Common Stock
Warrants........................... 21
Federal Income Tax Considerations.... 22
Plan of Distribution................. 38
Experts.............................. 39
Legal Matters........................ 39
2,915,452 Shares
CBL & Associates Properties, Inc.
Common Stock
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[LOGO]
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GOLDMAN, SACHS & CO.
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