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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1998
REGISTRATION NO. 333-47041
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CBL & ASSOCIATES PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 62-1545718
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
SUITE 300
6148 LEE HIGHWAY
CHATTANOOGA, TENNESSEE 37421-2931
(423) 855-0001
(ADDRESS, INCLUDING ZIP CODE; AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
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CHARLES B. LEBOVITZ
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
SUITE 300
6148 LEE HIGHWAY
CHATTANOOGA, TENNESSEE 37421-2931
(423) 855-0001
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
YAACOV M. GROSS, ESQ. JEFFERY V. CURRY, ESQ.
WILLKIE FARR & GALLAGHER SHUMACKER & THOMPSON, P.C.
ONE CITICORP CENTER SUITE 103
153 EAST 53RD STREET 6148 LEE HIGHWAY
NEW YORK, NEW YORK 10022 CHATTANOOGA, TENNESSEE 37421
(212) 821-8225 (423) 855-1814
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement as determined
by market conditions and other factors.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT, THE COMBINED PROSPECTUS
INCLUDED IN THIS REGISTRATION STATEMENT ALSO RELATES TO EQUITY SECURITIES
COVERED BY CBL & ASSOCIATES PROPERTIES, INC.'S REGISTRATION STATEMENT ON FORM
S-3 (FILE NO. 33-92218).
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 23, 1998
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.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is , 1998
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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.
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
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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).
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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.
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
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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.
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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 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.
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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.
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).
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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.
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."
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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."
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.
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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 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.
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
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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).
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
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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).
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
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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.
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
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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.
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
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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
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
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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.
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.
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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.
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.
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
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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; (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.
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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 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,
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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.
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.
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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 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
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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 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.
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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.
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.
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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.
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
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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.
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
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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.
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
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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.
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.
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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.
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
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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 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.
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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 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
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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.
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.
32
<PAGE>
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 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 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.
33
<PAGE>
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.
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.
34
<PAGE>
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.
35
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated fees and expenses payable by
the Company in connection with the issuance and distribution of the Offered
Securities being registered:
<TABLE>
<S> <C>
SEC Registration Fee of the Company............................. $ 92,703
Printing and Duplicating Expenses............................... 35,000
Legal Fees and Expenses......................................... 300,000
Accounting Fees and Expenses.................................... 100,000
Blue Sky Fees and Expenses...................................... 7,000
Miscellaneous................................................... 100,000
--------
Total....................................................... $635,125
========
</TABLE>
ITEM 15. INDEMNIFICATION OF THE GENERAL PARTNER, DIRECTORS AND OFFICERS
The Company is a Delaware corporation. In its Certificate of Incorporation,
the Company has adopted the provisions of Section 102(b)(7) of the Delaware
General Corporation Law (the "Delaware Law"), which enables a corporation in
its original certificate of incorporation or an amendment thereto to eliminate
or limit the personal liability of a director for monetary damages for breach
of the director's fiduciary duty, except (i) for any breach of the director's
duty of loyalty to the corporation 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 Law
(providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from
which a director derived an improper personal benefit.
The Company has also adopted indemnification provisions pursuant to Section
145 of the Delaware Law, which provides that a corporation may indemnify any
persons, including officers and directors, who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of the fact
that such person was an officer, director, employee or agent of the
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests and, with
respect to criminal proceedings, had no reasonable cause to believe that his
conduct was unlawful. A Delaware corporation may indemnify officers or
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against expenses (including attorneys' fees) that such officer
or director actually and reasonably incurred.
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 permissible 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 is also required
to indemnify and advance all expenses incurred by officers and directors
seeking to enforce their rights under the indemnification agreements, and to
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 indemnification agreements offer
substantially the same scope of coverage
II-1
<PAGE>
afforded by provisions in the Certificate of Incorporation and the Bylaws,
they provide greater assurance to directors and officers that indemnification
will be available, because as a contract, they cannot be modified unilaterally
in the future by the Board of Directors or by the stockholders to eliminate
the rights they provide.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1 Form of Underwriting Agreement*
4.1 Amended and Restated Certificate of Incorporation of the Company**
4.2 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of the Company***
4.3 Amended and Restated Bylaws of the Company**
4.4 Form of Certificate of Designation of Preferred Stock*
4.5 Form of Common Stock Warrant Agreement*
5 Opinion of Willkie Farr & Gallagher
8 Opinion of Willkie Farr & Gallagher as to tax matters
12.1 Computation of Ratios of Earning to Fixed Charges of the
Company****
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Willkie Farr & Gallagher (included in Exhibits 5 and 8)
24 Powers of Attorney****
</TABLE>
- --------
* To be filed by post-effective amendment or by a Current Report on Form 8-K
pursuant to the Securities Exchange Act of 1934, as appropriate.
** Incorporated by reference to Exhibit 3(a) to Post-Effective Amendment No. 1
to the Company's Registration Statement on Form S-11 (No. 33-67372), as
filed with the Commission on January 27, 1994.
*** Incorporated by reference to Exhibit B to the Company's Definitive
Schedule 14A, dated April 1, 1996.
**** Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in this registration statement;
provided, however, that subparagraphs (1)(i) and (1)(ii) above do not apply
if the Registration Statement is on Form S-3, and the information required
to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by
the registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereto duly authorized in the City
of Chattanooga, State of Tennessee, on March 23, 1998.
CBL & Associates Properties, Inc.,
a Delaware Corporation
/s/ Charles B. Lebovitz
By: _________________________________
Name: Charles B. Lebovitz
Title:Chairman of the Board,
President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Charles B. Lebovitz Chairman of the Board, March 23, 1998
____________________________________ President and Chief
Charles B. Lebovitz Executive Officer
* Director, Executive Vice March 23, 1998
____________________________________ President, Chief Financial
John N. Foy Officer and Secretary
(Principal Financial
Officer and Principal
Accounting Officer)
* Director, Executive Vice March 23, 1998
____________________________________ President
Stephen D. Lebovitz
* Director March 23, 1998
____________________________________
Claude M. Ballard
* Director
____________________________________ March 23, 1998
William J. Poorvu
* Director
____________________________________ March 23, 1998
Leo Fields
* Director
____________________________________ March 23, 1998
Winston W. Walker
</TABLE>
/s/ Charles B. Lebovitz
*By: _____________________
Charles B. Lebovitz
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
1 Form of Underwriting Agreement*
4.1 Amended and Restated Certificate of Incorporation of the
Company**
4.2 Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Company***
4.3 Amended and Restated Bylaws of the Company**
4.4 Form of Certificate of Designations of Preferred Stock*
4.5 Form of Common Stock Warrant Agreement*
5 Opinion of Willkie Farr & Gallagher
8 Opinion of Willkie Farr & Gallagher as to tax matters
12.1 Computation of Ratios of Earning to Fixed Charges of the
Company****
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Willkie Farr & Gallagher (included in Exhibits 5
and 8)
24 Powers of Attorney ****
</TABLE>
- --------
* To be filed by post-effective amendment or by a Current Report on Form 8-K
pursuant to the Securities Exchange Act of 1934, as appropriate.
** Incorporated by reference to Exhibit 3(a) to Post-Effective Amendment No.
1 to the Company's Registration Statement on Form S-11 (No. 33-67372), as
filed with the Commission on January 27, 1994.
*** Incorporated by reference to Exhibit B to the Company's Definitive
Schedule 14A, dated April 1, 1996.
**** Previously filed.
<PAGE>
EXHIBIT 5
---------
[Willkie Farr & Gallagher Letterhead]
March 23, 1998
CBL & Associates Properties, Inc.
One Park Place
6148 Lee Highway
Chattanooga, Tennessee 37421-2931
Ladies and Gentlemen:
We have acted as special counsel to CBL & Associates Properties, Inc., a
Delaware corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-3, Registration No. 333-47041 (the
"Registration Statement") of the Company filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the offer and sale from time to time pursuant to
Rule 415 under the Securities Act of one or more of the following securities for
an aggregate initial offering price not to exceed $350,000,000 on terms to be
determined at the time or times of offering: (i) shares of the Company's
preferred stock, par value of $.01 per share (the "Preferred Stock"), (ii)
shares of the Company's common stock, par value of $.01 per share (the "Common
Stock"), and (iii) warrants to purchase shares of the Company's Common Stock
(the "Warrants," and collectively with the Preferred Stock and the Common Stock,
the "Securities").
In this connection, we have reviewed (1) the Amended and Restated Certificate of
Incorporation, the Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Company and the Amended and Restated Bylaws
of the Company, (2) certain resolutions adopted or to be adopted by the Board of
Directors of the Company, (3) the Registration Statement and (4) such other
documents, records and papers as we have deemed necessary or appropriate in
order to give the opinions set forth herein. We have, with your consent, relied
as to factual matters on certificates or other documents furnished by the
Company or its officers and directors and by governmental authorities and upon
such other documents and data as we have deemed appropriate. We have assumed
the authenticity
<PAGE>
of all documents submitted to us as originals and the conformity to original
documents of all documents submitted to us as copies.
We have also assumed that (i) the Registration Statement and any amendments
thereto (including post-effective amendments) will have become effective under
the Securities Act and comply with all applicable laws; (ii) the Registration
Statement will be effective and will comply with all applicable laws at the time
the Securities are offered or issued as contemplated by the Registration
Statement (if such offering or issuance requires the delivery of a prospectus
under the Securities Act or pursuant to any other law); (iii) a Prospectus
Supplement will have been prepared and filed with the Commission describing the
Securities offered thereby and will comply with all applicable laws; (iv) all
Securities will be issued and sold in compliance with applicable federal and
state securities laws and in the manner stated in the Registration Statement and
the appropriate Prospectus Supplement; (v) a definitive purchase, underwriting
or similar agreement with respect to any Securities offered or issued will have
been duly authorized and validly executed and delivered by the Company and the
other parties thereto; and (vi) any shares of Common Stock issuable upon
exercise of any Warrant or upon conversion of any convertible Preferred Stock or
Debt Securities being offered or issued will be duly authorized, created and
reserved for issuance upon such exercise or conversion.
We are not members of the Bar of any jurisdiction other than the State of New
York. We express no opinion as to any laws other than the laws of the State of
New York, the General Corporation Law of the State of Delaware and the federal
laws of the United States of America.
Based upon and subject to the foregoing assumptions, exceptions and
qualifications, we are of the opinion that:
1. With respect to shares of Preferred Stock, when both (A) the Board of
Directors of the Company or, to the extent permitted by Section 141(c) of the
General Corporation Law of the State of Delaware, a duly constituted and acting
committee thereof (such Board of Directors or committee being hereinafter
referred to as the "Board"), has taken all necessary action to approve the
issuance and terms of the Preferred Stock, the terms of the offering thereof and
related matters and, including the adoption of a Certificate of Designation
relating to such Preferred Stock (the "Certificate") and the filing of the
Certificate with the Secretary of State of the State of Delaware and
<PAGE>
(B) certificates representing the shares of Preferred Stock have been duly
executed, countersigned, registered and delivered in accordance with the
applicable definitive purchase, underwriting or similar agreement approved by
the Board upon payment of the consideration therefor (not less than the par
value of the Preferred Stock) provided for therein, the shares of Preferred
Stock will be validly issued, fully paid and nonassessable.
2. With respect to shares of Common Stock, when both (A) the Board has taken
all necessary action to approve the issuance and the terms of the offering
thereof and related matters and (B) certificates representing the shares of
Common Stock have been duly executed, countersigned, registered and delivered
either (i) in accordance with the applicable definitive purchase, underwriting
or similar agreement approved by the Board upon payment of the consideration
therefor (not less than the par value of the Common Stock) provided for therein
or (ii) upon exercise of any Warrant in accordance with the terms of the
applicable warrant agreement (the "Warrant Agreement") as approved by the Board,
including, without limitation, payment of the consideration specified in such
warrant agreement (not less than the par value of the Common Stock), or upon
conversion of any convertible Preferred Stock in accordance with the terms of
the applicable Certificate as approved by the Board for the consideration
approved by the Board (not less than the par value of the Common Stock), the
shares of Common Stock will be validly issued, fully paid and nonassessable.
3. With respect to the Warrants, when (A) the Board has taken all necessary
action to approve the creation, issuance and terms of the offering thereof and
related matters, (B) the Warrant Agreement relating to the Warrants has been
duly authorized and validly executed and delivered by the Company and the
warrant agent appointed by the Company and (C) the Warrants or certificates
representing the Warrants have been duly executed, countersigned, registered and
delivered in accordance with the appropriate Warrant Agreement and the
applicable definitive purchase, underwriting or similar agreement approved by
the Board upon payment of the consideration therefor provided for therein, the
Warrants will be valid and legally binding obligations of the Company
enforceable against the Company in accordance with their terms, except as
enforcement thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws
<PAGE>
relating to fraudulent transfers), reorganization or similar laws relating to
enforcement of creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
We consent to the use of this opinion as Exhibit 5 to the Registration Statement
and to the reference to our firm in the Prospectus that is part of the
Registration Statement. In giving such consent, we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act.
Very truly yours,
/s/ Willkie Farr & Gallagher
---------------------------
<PAGE>
EXHIBIT 8
---------
[Willkie Farr & Gallagher Letterhead]
March 23, 1998
CBL & Associates Properties, Inc.
One Park Place
6148 Lee Highway
Chattanooga, TN 37421-2931
Ladies and Gentlemen:
You have requested our opinion as special tax counsel to CBL & Associates
Properties, Inc. (the "Company") concerning certain of the federal income tax
consequences in connection with the registration statement on Form S-3, No.333-
47041, filed with the securities and Exchange Commission, (which registration
statement is hereinafter referred to as the "Registration Statement"). This
opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters as set forth in the
discussion of "Federal Income Tax Considerations" in the Registration Statement
and upon the factual representations of the Company concerning its business and
properties as set forth in the Registration Statement. In addition, this opinion
is based on the particular representations made to us by the Company in a letter
dated March 23, 1998, and on the particular representations made to us by
Shumacker & Thompson, P.C., general counsel to the Company, in a letter dated
March 23, 1998. Both such letters are attached hereto as exhibits. To the extent
that we have examined and relied upon original documents or copies thereof in
rendering the opinions expressed below, we have assumed (i) the authenticity of
all documents submitted to us as originals, (ii) the conformity to authentic
original documents of all documents submitted to us as copies, and (iii) the
genuineness of all signatures.
Based on such facts, assumptions and representations and our review of the
Registration Statement, the exhibits thereto, and such other documents and
information as we believed appropriate, and subject to the qualifications stated
in the next paragraph below, as of the date hereof, we are of the opinion that,
for federal income tax purposes under current law, (1) commencing with the
Company's taxable year ending December 31, 1993, the Company was organized and
has operated in conformity with the requirements for qualification as a real
estate investment trust under the Internal Revenue Code of 1986, as amended (the
"Code"), and the methods of operation of the Company, CBL & Associates Limited
Partnership (the "Operating Partnership") and the
<PAGE>
property Partnerships, as described in the Registration Statement and in the
Registration Statement on Form S-11, No. 33-67372, originally filed with the
Securities and Exchange Commission on August 12, 1993, as subsequently amended
(the "S-11 Registration"), and as represented by the Company will permit the
Company to continue so to qualify for its current and subsequent taxable years,
(2) each of the Operating Partnership and the Property Partnerships, as
described in the Registration Statement and in the S-11 Registration, will be
classified as a partnership and not as (a) an association taxable as a
corporation or (b) a "publicly traded partnership" within the meaning of Section
7704(b) of the Code, (3) the description of federal income tax matters and
consequences described under "Federal Income Tax Considerations" in the
Registration Statement is an accurate general summary in all material aspects of
the information described therein, and (4) the conversion rights associated with
interests in the Operating Partnership will not cause the Company to fail the
diversity of ownership test of Section 856(a)(6) of the Code.
These opinions are given as of the date hereof and are based on various
statutory provisions, regulations promulgated thereunder and interpretations
thereof by the Internal Revenue Service and the courts having jurisdiction over
such matters, all of which are subject to change either prospectively or
retroactively. Further, any variation or difference in the facts from those set
forth in the Registration Statement or representation letters referred to above
may affect the conclusions stated herein. Moreover, the Company's qualification
and taxation as a real estate investment trust depend upon the Company's ability
to meet -- through actual annual operating and other results -- requirements
under the Code, among other things, regarding distribution levels, the gross
income and asset tests, and diversity of stock ownership. As Willkie Farr &
Gallagher will not review annually whether the Company has fulfilled those
requirements, no assurance can be given that the actual results of the Company's
operation and other activities for any one or more taxable years will satisfy
the tests necessary to qualify as or be taxed as a real estate investment trust
under the Code.
No opinion is expressed as to any matter not discussed herein.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as an
Exhibit to the Registration Statement and, specifically, to the use of our name
under the caption "Federal Income Tax Considerations," and, generally, to the
other references to this firm in the Registration Statement and the prospectus
included therein.
2
<PAGE>
Very truly yours,
/s/ WILLKIE FARR & GALLAGHER
Attachments:(1) CBL & Associates Properties, Inc. letter dated March 23,
1998 to Willkie Farr & Gallagher
(2) Shumacker & Thompson, P.C. letter dated March 23, 1998 to
Willkie Farr & Gallagher
3
<PAGE>
[CBL & ASSOCIATES PROPERTIES, INC. LETTERHEAD]
March 23, 1998
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4677
Ladies and Gentlemen:
CBL & Associates Properties, Inc. (the "Company"), a Delaware corporation,
CBL & Associates Limited Partnership (the "Operating Partnership") and the
underwriters have requested your opinion with respect to certain federal income
tax consequences in connection with the registration statement on Form S-3, No.
333-47041, filed with the Securities and Exchange Commission on February 27,
1998 (which registration statement is hereinafter referred to as the
"Registration Statement"). Capitalized terms used herein and not otherwise
defined have the meanings set forth in the Registration Statement.
In connection with your opinion, the Company makes the following
representations to you in its own capacity and its capacity as the parent
corporation of CBL Holdings I, Inc., the General Partner of the Operating
Partnership.
1. From their respective dates of formation, the Company and each of its
wholly-owned subsidiaries, CBL Holdings I, Inc., a Delaware corporation ("CBL
Holdings I"), CBL Holdings II, Inc., a Delaware corporation ("CBL Holdings II"),
and CBL/North Haven Inc., a Connecticut corporation ("CBL/North Haven"), have
operated and will continue to operate in accordance with Delaware and/or
Connecticut law, their respective Certificates of Incorporation and their
respective by-laws.
2. From each respective date of formation, (i) the Operating Partnership has
operated, and will continue to operate, in accordance with Delaware law and the
Partnership Agreement, and (ii) each of the Property Partnerships has operated,
and will continue to operate, in accordance with its respective partnership
agreement and law applicable thereto.
3. The Company did duly and timely make the election specified in Section
856(c)(1) of the Internal Revenue Code of 1986, as amended (the "Code") to be a
real estate investment trust under the Code with respect to its taxable year
ending December 31, 1993, and adopted a calendar year accounting period.
4. The Company is managed by its directors, and beneficial ownership in the
Company is evidenced by transferable shares.
<PAGE>
5. The Company expects, and the Company will take all measures within its
control to ensure, that at no time during the last half of any taxable year
beginning after the 1993 calendar year will more than 50 percent in value of the
Company's outstanding shares be owned, directly or indirectly, by or for five or
fewer individuals for purposes of Section 856(a)(6). This expectation was true
for all calendar years beginning after the 1993 calendar year.
6. The Company expects, and the Company will take all measures within its
control to ensure, that at all times beginning after the 1993 calendar year, the
beneficial ownership of the Company will be held by 100 or more persons. This
expectation was true for all calendar years beginning after the 1993 calendar
year.
7. The projections and analyses prepared by the Company and its sponsors and
advisers and presented to you with respect to the Company's qualification under
the income and asset tests set forth in Section 856 of the Code represent the
Company's best estimate of the gross income derived by the Operating Partnership
and the assets held by the Operating Partnership for the 1997 tax year.
8. The Company expects, and the Company will take all measures within its
control to ensure, that at least 95 percent of the gross income derived by the
Company (including through CBL Holdings I and CBL Holdings II) in any taxable
year will consist of: (i) rents from real property derived by the Operating
Partnership from rental of the Properties or properties acquired in the future,
including rents attributable to personal property as described in representation
(17) below and including charges for services customarily furnished or rendered
in connection with the rental of real property, whether or not such charges are
separately stated, but excluding for such purposes rents received from related
parties as defined in Section 856(d)(2)(B) of the Code; (ii) interest on
unsecured obligations and interest on obligations secured by mortgages on real
property or on interests in real property; (iii) any gain realized on the sale
of all or a portion of the Properties or properties acquired in the future; (iv)
amounts held by the Operation Partnership in bank accounts or reserves; (v)
interest and dividends from CBL & Associates Management, Inc. (the "Management
Company"); and (vi) amounts described in Section 856(c)(2)(D)through (H) of the
Code. The expectation described herein was satisfied during the period
beginning October 26, 1993 and ending on the date hereof.
9. The Company expects, and the Company will take all measures within its
control to ensure, that at least 75 percent of the gross income derived by the
Company (including through CBL Holdings I and CBL Holdings II) in any taxable
year will consist of: (i) amounts derived by the Operating Partnership from
rental of the Properties or properties acquired in the future, including rents
attributable to personal property as described in representation (17) below and
including charges for services
2
<PAGE>
customarily furnished or rendered in connection with the rental of real
property, whether or not such charges are separately stated, but excluding for
such purposes rents received from related parties as defined in Section
856(d)(2)(B) of the Code; (ii) interest on obligations secured by mortgages on
real property or on interests in real property; (iii) any gain realized on the
sale of all or a portion of the Properties or properties acquired in the future;
and (iv) amounts described in Section 856(c)(3)(D) through (H) of the Code. The
expectation described herein was satisfied during the period beginning October
26, 1993 and ending on the date hereof.
10. The Company expects, and it will take all measures within its control to
ensure, that no amount received or accrued, directly or indirectly, by the
Company as interest is dependent in whole or in part on the income or profits
derived by any person, except amounts based on a fixed percentage or percentages
of receipts or sales and amounts received from a debtor which derives
substantially all of its gross income with respect to such property from
subleasing attributable to qualified rentals. The expectation described herein
was satisfied during the period beginning October 26, 1993 and ending on the
date hereof.
11. The Company expects, and it will take all measures within its control to
ensure, that no amount received or accrued, directly or indirectly, by the
Company as interest on obligations secured by mortgages on real property are or
will be dependent in whole or in part on the income or profits derived by any
person (including amounts received or accrued by the debtor the determination of
which depends in whole or in part on the income or profits of any person),
except amounts based on a fixed percentage or percentages of receipts or sales
and amounts received from a debtor which derives substantially all of its gross
income with respect to such property from subleasing attributable to qualified
rentals. The expectation described herein was satisfied during the period
beginning October 26, 1993 and ending on the date hereof.
12. The Company currently derives, expects to derive and will take all
measures within its control to ensure that it derives amounts with respect to
interest on obligations secured by mortgages on real property only where the
loan value of the real property is equal to or exceeds the amount of the loan,
so that the entire amount of interest earned is apportioned to the real
property. This representation was satisfied during the period beginning October
26, 1993 and ending on the date hereof.
13. As of the close of the third taxable year following the taxable year in
which the Company acquires any foreclosure property (as defined in the Code), or
within such period as the Company may obtain by extension, the Company will sell
such foreclosure property or will take such actions as are necessary to ensure
that income derived or accrued from such foreclosure property will qualify for
the REIT income and asset tests.
3
<PAGE>
Specifically, the Company will not: (i) enter into any lease which will result
in the receipt or accrual by the Company of any income that will not qualify
under the gross income tests; (ii) cause construction to take place on such
property unless such construction involves completion of a building or
improvement where more than 10 percent of the construction of such building or
improvement was completed before default became imminent; and (iii) within 90
days of acquisition of such property, use such property in a trade or business
conducted by the Company, other than through an independent contractor from whom
the Company derives no income. For the period beginning October 26, 1993 and
ending on the date hereof, the Company did not acquire, hold or sell any
foreclosure property.
14. Prior to January 1, 1998, the Company took all measures within its
control to ensure, that in any taxable year less than 30 percent of the gross
income of the Company will be derived from the sale or other disposition of:
(i) stock or securities held for less than one year; (ii) property in a
transaction which is a prohibited transaction, as defined in the Code; and (iii)
real property (including interests in mortgages on real property) held for less
than four years other than property compulsorily or involuntarily converted
within the meaning of Section 1033 of the Code and property which is foreclosure
property within the definition of Section 856(e) of the Code. This
representation was satisfied during the period beginning October 26, 1993 and
ending on December 31, 1997.
15. No amounts received or accrued, directly or indirectly, by the Company or
the Operating Partnership with respect to any real or personal property have
been, are, or will be, dependent in whole or in part on the income or profits
derived by any person from such property within the meaning of Section 856(e)(2)
of the Code, except for percentage rentals permitted under Sections 856(d)(2)(A)
and 856(d)(6) of the Code and those amounts described in the "income tests"
results provided to you by the Company in the enclosures to a letter from the
Company dated March 23, 1998.
16. The Company has no knowledge of any amounts received or accrued by the
Company or the Operating Partnership as rent or otherwise pursuant to any lease
or other arrangement with respect to any real or personal property which are
derived from a tenant which receives or accrues, directly or indirectly, from
subtenants any amount the determination of which depends in whole or in part on
the income or profits derived by any person from such property within the
meaning of Section 856(d)(4) of the Code, except for qualified rentals permitted
under Section 856(d)(6).
17. With the exception of those amounts described in the "income tests"
results provided to you by the Company in the enclosures to a letter from the
Company dated March 23, 1998, any amounts received by the Company or the
Operating Partnership that are
4
<PAGE>
attributable to personal property leased under or in connection with a lease of
the Company's real property have not exceeded, do not and will not exceed 15
percent of the total rent for any taxable year attributable to both the real and
personal property leased under or in connection with such leases, within the
meaning of Section 856(d)(1)(C) of the Code. Any amounts received by the Company
or the Operating Partnership attributable to personal property that is leased
with real property have been, are currently and will continue to be an
incidental amount of the total rents received or accrued with respect to such
real property determined at the time the personal property is placed in service,
within the meaning of Section 512(b)(3) of the Code. All kiosks are owned
outright by the respective tenants. Amounts derived from the rental of certain
pushcarts have been described in the "income tests" results provided to you by
the Company in the enclosures to a letter from the Company dated March 23, 1998.
18. All of the activities and services that the Company, the Operating
Partnership, the Property Partnerships or the Management Company engage in or
intend to engage in are those that are ordinary, necessary and usual to the
operation and management of the Company's, Operating Partnership's and the
Property Partnerships' rental properties. These activities and services include
only those customarily furnished or rendered in connection with the rental of
real property in the geographic areas in which the Company, Operating
Partnership and Property Partnerships rent property, including those properties
acquired by the Company, Operating Partnership and Property Partnerships in the
future. Services that constitute personal services rendered to particular
tenants are provided, and will be provided in the future, other than by the
Management Company and by third party independent contractors, as defined in
Section 856(d)(3) of the Code, from whom the Company does not derive or receive
any income within the meaning of Section 856(d)(2)(C) of the Code.
Specifically, no activity or service is performed by or on behalf of the
Company, the Operating Partnership, any Property Partnership or the Management
Company other than those that to our knowledge as of the date hereof, are of the
type customarily furnished or rendered in connection with the rental of real
property in the geographic areas in which the Company, Operating Partnership and
Property Partnerships rent property.
19. With the exception of certain amounts derived from current leases with
tenants that have been described in the "income tests" results provided to you
by the Company in the enclosures to a letter from the Company dated March 23,
1998, the Company will not receive or accrue, directly or indirectly, any amount
from a "Related Party Tenant," defined as follows: (i) if a corporation, one in
which the Company owns stock possessing 10 percent or more of the total combined
voting power of all voting classes or 10 percent or more of the total number of
shares, or (ii) if not a corporation, a person in which the Company owns an
interest of 10 percent or more in the assets or net profits. For
5
<PAGE>
purposes of this representation, ownership will be determined by taking into
account the attribution rules of Section 318 of the Code (as modified by Section
856(d)(5) of the Code).
20. The Company expects, and the Company will take all measures within its
control to ensure, that at least 75 percent of the total value of the assets of
the Operating Partnership will at all times consist of real estate assets within
the meaning of Section 856(c)(5) of the Code, cash and cash items (including
receivables) and government securities, and not more than 25 percent of the
value of its assets will be represented by securities (other than government
securities). The expectation described herein was satisfied during the period
beginning October 26, 1993 and ending on the date hereof.
21. The Company hereby represents that the value of the stock in the
Management Company held by the Operating Partnership is not greater than
$5,000,000 as of the date hereof. Thus, the Company believes that the value of
its proportionate share of the Operating Partnership's ownership of 100 percent
of the Management Company's nonvoting preferred stock and five percent of the
Management Company's voting common stock will be substantially less than the
permitted five percent of the value of the Company's total assets.
22. The Operating Partnership has been and will be operated in accordance
with the terms and provisions of the Operating Partnership Agreement. Further,
each of the Property Partnerships has been and will be operated in accordance
with the terms and provisions of its Property Partnership Agreement. The
Operating Partnership Agreement and the Property Partnership Agreements have
been duly executed and the Certificates of Limited Partnership of the Operating
Partnership and the Property Partnerships and all amendments thereto have been
duly executed and filed. None of the above-described Partnerships has more than
500 limited partners directly (or indirectly through partnerships, grantor
trusts, or S corporations which are limited partners in such Partnerships) and
not more than 10 percent of the total interests, capital or profits of any such
Partnership has been or will be transferred in any taxable year by such limited
partners (other than in private transfers as defined in Proposed Treasury
Regulation Section 1.7704-1(d)).
23. The Operating Partnership has not owned as of the date hereof and will
hereafter take all measures within its control not to own securities in any one
issuer, including the Management Company, having an aggregate value in excess of
five percent of the value of the total assets of the Operating Partnership as
determined in accordance with Treas. Regs. (S) 1.856-2(d)(2).
24. The Company owns all of the outstanding stock of each of CBL Holdings I,
CBL Holdings II and CBL/North Haven and has owned all such stock of CBL Holdings
I, CBL Holdings II and CBL/North Haven since they were incorporated. Other than
shares of the
6
<PAGE>
Management Company held through the Operating Partnership, the Company does not
presently own shares in any other corporation, either directly, through a
partnership or through some other arrangement. In addition, CBL Holdings I, CBL
Holdings II and CBL/North Haven do not own stock in any other corporation,
either directly, through a partnership or through some other arrangement. The
Company, CBL Holdings I, CBL Holdings II and CBL/North Haven have never, either
collectively or individually, owned more than ten percent (10%) of the voting
securities of another corporation and have never had more than five percent (5%)
of their combined aggregate assets invested in shares of another corporation.
25. The Operating Partnership does not and will not own any securities of the
Management Company other than as described in the Registration Statement and
will not own securities in any other issuer representing in excess of 10 percent
of the outstanding voting securities of such issuer. In particular, the
Operating Partnership's ownership of 100 percent of the Management Company's
nonvoting preferred stock and five percent of the Management Company's voting
common stock will not exceed a 10 percent voting interest.
26. The Operating Partnership will at all times hold the Properties (and all
other assets of the Operating Partnership) for investment purposes and not as
(i) stock in trade or other property of a kind which would properly be
includible in inventory if on hand at the close of the taxable year, or (ii)
property held primarily for sale to customers in the ordinary course of the
trade or business of the Operating Partnership.
27. The Company's real estate activities that involve property being held for
sale in the ordinary course of business so as to qualify as a "prohibited
transaction" pursuant to Section 857(b)(6) of the Code will be conducted solely
through the Management Company.
28. The Company expects, and the Company will take all measures within its
control, to make timely distributions sufficient to satisfy the annual
distribution requirements of Sections 857 and 4981 of the Code. The expectation
described herein was satisfied during the period beginning October 26, 1993 and
ending on the date hereof.
29. The Company will exercise ordinary business care and prudence in
attempting to comply with the 75 percent and 95 percent tests at the time of
each transaction entered into by the Company.
30. The Company will continue to revalue its assets at the end of each
quarter in which stock or other property is acquired and will eliminate within
30 days after the end of such quarter any discrepancy between the Code
7
<PAGE>
requirements and the value of its investments attributable in whole or in part
to an acquisition during such quarter.
31. The Company will mail to its shareholders by January 30 of each year
demands for written statements from its shareholders of record relating to the
previous taxable year and disclosing the actual owners of Company shares in the
following circumstances: (i) if the Company has between 201 and 2,000
shareholders of record of its shares on any dividend record date, demands shall
be made from each record holder of one percent or more of its stock; and (ii) if
the Company has more than 2,000 shareholders of record on any dividend record
date, demands shall be made from each record holder of five percent or more of
its shares. Such written statements will be mailed certified, return receipt
requested, in the U.S. mail; copies of such statements and U.S. postal receipts
showing the mailing date will be kept available for inspection in the internal
revenue district in which the Company is required to file its tax return, will
be maintained permanently, and will show the maximum number of shares actually
or constructively owned by each of the actual owners of any of its shares at any
time during the last half of the Company's taxable year.
Further, the written statements will inform the shareholder that if it
fails to supply the Company with the required information, it will be under a
duty to submit at the time its tax return is filed information relating to the
actual owner of REIT shares as follows: (i) in the case of any person holding
shares of stock in any REIT who is not the actual owner of such stock, the name
and address of each actual owner, the number of shares owned by each actual
owner at any time during such person's taxable year, and the amount of dividends
belonging to each actual owner; or (ii) in the case of an actual owner of shares
of stock in any REIT, (a) the name and address of each such REIT, the number of
shares actually owned by it at any and all times during its taxable year, and
the amount of dividends from each such REIT received during such shareholder's
taxable year, (b) if shares of any REIT were acquired or disposed of during such
person's taxable year, the name and address of the REIT, the number of shares
acquired or disposed of, the dates of acquisition or disposition, and the names
and addresses of the persons from whom such shares were acquired or to whom they
were transferred, (c) if any shares of REIT stock are also owned by any member
of such person's family or by any of its partners, the name and address of the
REIT, the name and address of such family member or partner and the number of
shares owned by each such family member or partner at any and all times during
such person's taxable year, and (d) the name and address of any corporation,
partnership, association, or trust in which such person had a beneficial
interest of 10 percent or more at any time during its taxable year.
8
<PAGE>
The Company mailed these shareholder demand letters relating to taxable
years 1995, 1996 and 1997 by January 30 of each respective subsequent year.
The Company has maintained, as required by Treasury Regulations, a
permanent record of all persons failing or refusing to comply in whole or in
part with the Company's demand for the statements relating to actual ownership.
32. Representations herein as to the Properties will also be true with
respect to properties acquired by the Operating Partnership after the date
hereof.
Sincerely yours,
CBL & ASSOCIATES PROPERTIES, INC.
By: /s/ Charles B. Lebovitz
---------------------------------
Title: President
------------------------------
9
<PAGE>
[SHUMACKER & THOMPSON LETTERHEAD]
March 23, 1998
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4677
Re: CBL REIT -- Shelf Registration
Due Diligence Opinion Letter
----------------------------
Ladies and Gentlemen:
CBL & Associates Properties, Inc. (the "Company"), a Delaware corporation,
CBL & Associates Limited Partnership (the "Operating Partnership") and the
Underwriters have requested the opinion of Willkie Farr & Gallagher ("WF&G")
with respect to certain federal income tax consequences in connection with the
registration statement on Form S-3, No. 333-47041, filed with the Securities and
Exchange Commission on February 27, 1998 (which registration statement is
hereinafter referred to as the "Registration Statement"). Capitalized terms
used herein and not otherwise defined have the meanings set forth in the
Registration Statement.
In connection with WF&G's opinion, which we understand will rely in part
upon this letter, Shumacker & Thompson, P.C. ("S&T"), general counsel to the
Company and the Operating Partnership, makes the following statements to you,
which are true as of the date hereof.
1. As part of the joint efforts of S&T and WF&G relating to certain due
diligence with respect to the formation of the Company and its initial and
continued qualification as a real estate investment trust ("REIT") under Code
Section 856 et seq., S&T and WF&G jointly created a REIT Sensitive Lease Review
-- ----
Form (a copy of which is attached hereto as Exhibit "A" and made a part hereof,
the "Lease Review Form"). S&T has reviewed substantially all of the leases that
to its knowledge are executed as to projects, any portion of which through
partnership interest transfers or transfer of assets, have become a part of the
Operating Partnership, including all leases and lease amendments entered into on
or after October 27, 1993 by the Company. These reviews have been done with
strict reference to the Lease Review Form and any material deviations in said
leases from the standard lease form for the particular project have been noted
on the Lease Review Form for the particular lease in question. As the lease
reviews have been completed on each respective project, S&T has summarized its
findings in a Project
<PAGE>
Report Form. As of the date hereof, S&T has delivered to WF&G a Project Report
Form (attached hereto as Exhibit "B") on each project involving new leases,
lease amendments or modifications in any of the Company's projects since October
27, 1993. WF&G has reviewed the Project Report forms that S&T has provided. As
of the date hereof, S&T has responded to all inquiries it has received by WF&G
as to the Lease Review Forms and Project Report Forms.
2. All subleases and lease assignments entered into on or after October 27,
1993 by the Company have been identified to you and the amounts involved under
the pertinent leases correctly described to you.
3. All leases entered into on or after October 27, 1993 by the Company with
persons whose ownership of the tenant may be attributed to the Company have been
identified to you and the amounts involved under the pertinent leases correctly
described to you.
4. All kiosks are owned outright by the respective tenants.
5. All pushcarts have been identified to you and the amounts involved under the
pertinent leases correctly described to you.
6. No separately stated fees for parking by tenants or customers of the tenants
are charged at any project.
7. With the exception of those amounts described in the "income tests" results
provided to you by the Company in the enclosures to a letter from the Company
dated March 13, 1998 all waivers requested by WF&G in connection with certain
percentage rent clauses have been obtained and are valid and binding amendments
of such leases.
8. The Company has had since October 27, 1993 no interest in stock or
securities in other issuers or ownership interests in more than incidental
personal property, other than partnership interests in partnerships owning real
estate.
9. In our opinion, and based upon our review of the documents provided by the
Company evidencing the purchase money debt obligations owed by third parties,
known as the "Mortgages" (as defined in the Registration Statement), which are
held by the Company and its subsidiaries in respect of the Properties and which
are, according to the Company's accounting office as of the date hereof, in the
approximately outstanding aggregate principal amount of $7,900,000, are properly
treated as debt obligations for federal income tax purposes, and they are fully
secured by enforceable mortgage on the real property comprising the projects
encumbered thereby.
10. All written materials furnished by us to you as part of our review of the
leases and other matters relating to the income,
2
<PAGE>
assets and operations of the properties in which the Company has an interest are
true, accurate and compete and do not omit any information material to such
review.
Sincerely yours,
/s/ SHUMACKER & THOMPSON, P.C.
-------------------------------
SHUMACKER & THOMPSON, P.C.
By: Jeffery V. Curry, Esq.
-----------------------
Title: Director
--------------------
3
<PAGE>
EXHIBIT "A"
REIT SENSITIVE
LEASE CLASSIFICATION REVIEW
CBL Property #____________ Standard Form (Mall) _____
Standard Form (Strip) _____
Date of Lease Review ___/___/__
1. Lessee: ______________________________________________________
(State relationship to Lessor, if any:____________________)
2. Premises:_____________________________________________________
3. Use: _________________________________________________________
4. Effective date and term: _____________________________________
5. Is personal property leased in connection with the real estate?
________ yes ________ no
If yes, please describe the associated personal property and provide
adjusted tax basis of the personal property and of the related real
---
estate.
6. Has lease been amended in a manner that affects the amount of the rental
payments?
________ yes ________ no
If yes, please staple the relevant amendment(s) to this form.
7. Please check the items below that are used to determine the amount of
rental payments under the lease:
_______ fixed amount
_______ an amount based upon common area maintenance expenses,
property taxes, or insurance costs
_______ an amount based upon a percentage of the Lessee's gross sales
or receipts with respect to the property (please staple to
this form the provision(s) of the lease setting forth the
percentage -- including the definitions of any relevant
defined terms, such as "Gross Sales" and "Sales Base")
<PAGE>
_______ an amount based upon any other factors (please staple to this
form the provision(s) setting forth those factors)
8. Services/Facilities Provided to Lessee:
A. Services that are permissible and require no further description
----------------------------------------------------------------
(check applicable items):
------------------------
<TABLE>
<S> <C> <C> <C>
___ Security for common areas ___ Heating
___ Air conditioning ___ Lighting
___ Electricity ___ Gas
___ Maintenance of common areas - ___ Water
repairs, cleaning, painting, ___ Sewer
etc. ___ Landscaping
___ Janitorial services within ___ Pest control
common area ___ Fire protection
___ Background music in common areas systems
___ Repair and maintenance of appliance ___ Trash removal
accompanying leased premises ___ Snow removal
___ Supervisory services (in connection
with tenant alterations, landlord
improvements, future project
development)
</TABLE>
B. Services that may be problematic and should be described (check
---------------------------------------------------------------
applicable items and attach additional pages, if necessary):
-----------------------------------------------------------
<TABLE>
<S> <C>
___ Security within tenant areas
___ Janitorial services within tenant areas
___ Parking: ______ attendants; ______ reserved spaces;
______ separate charge; ______ shuttle bus;
______ third party operator (if so, attach copy of
contract)
___ Telephone service, receptionist, answering service or concierge (describe
the manner in which provided)
___ Laundry facilities (describe the manner in which provided)
___ Incidental storage space (describe below)
___ Aid to merchants' association* (specify form of aid)
___ Marketing fund activity**
___ Pool, tennis court, basketball court, playground or other recreational
facilities (list below any charges imposed for the use of such facilities,
the persons permitted to use the facilities (describe generally; do not
list by name; and describe any related services))
___ Building trades work (carpentry, plumbing, electrical, painting)
___ Tenant interior work
___ Exit inspections
</TABLE>
<PAGE>
C. List any other services provided, which are not described in items A
--------------------------------------------------------------------
or B above:
----------
9. If the lease expressly provides that a service is to be provided to the
lessee through a third party, please set forth below the service, the name
of the third party and whether the service is to be separately billed:
10. Describe any subleases, licenses and concession agreements made by the
owner's primary tenant.
- ------------------------
* Some lessors of shopping centers require tenants to join a "merchants'
association" which is comprised of and operated by such tenants. Such
associations generally establish rules and regulations with respect to use
of the shopping center and promote special shopping center-wide activities.
Lessors (and this may not be specified in the lease) sometimes provide such
associations with office facilities and support staff services.
** In lieu of a merchants' association, some shopping center lessors require
(in the lease) that tenants pay amounts to a marketing fund. The resources
of the marketing fund are then used to market and promote the shopping
center.
<PAGE>
EXHIBIT "B"
PROJECT REPORT FORM
REIT SENSITIVE LEASE CLASSIFICATION
Date of Review --/--/--
CBL #____
1. PROJECT NAME:
2. TOTAL RENT PAID FOR 1997:
3. NUMBER OF TENANTS:
4. NUMBER OF TENANTS' LEASES REVIEWED:
5. PROBLEMATIC SERVICES PROVIDED TO TENANTS [Describe each, identify Tenant]:
6. PROBLEMATIC NON-STANDARD % RENT CLAUSES [Describe each, identify Tenant,
state approximate amount paid under % rent clause for 1997]:
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated February 4, 1997
included in CBL & Associates Properties, Inc.'s Form 10-K for the year ended
December 31, 1996, our report dated December 12, 1996 included in CBL &
Associates Properties, Inc.'s Form 8-K/A dated January 15, 1997, our report
dated December 10, 1997 included in CBL & Associates Properties, Inc.'s Form
8-K/A dated February 18, 1998, and to all references to our Firm included in
this registration statement.
/s/ Arthur Andersen LLP
Chattanooga, Tennessee
March 18, 1998
