Filed pursuant to Rule 424(b)(7)
File Number 333-131092
A filing fee of $5,845.33, calculated in accordance with Rule 457(c) and
(r) based on the average high and low price for our common stock on the NYSE on
June 14, 2006 ($36.91 per share), is due in connection with the securities
offered from the registration statement (File No. 333-131092) by means of this
Prospectus Supplement. Pursuant to Rule 457(p) under the Securities Act of 1933,
a portion of the unutilized filing fees in the amount of $22,004.80 that we paid
in connection with our prior Registration Statement No. 333-104882 which was
filed on May 1, 2003 offsets the filing fee payable in connection with the
securities offered by means of this Prospectus Supplement.
PROSPECTUS SUPPLEMENT
(To Prospectus Dated January 18, 2006)
1,480,066 Shares
CBL & Associates Properties, Inc.
Common Stock
(Par Value $.01 per Share)
The selling stockholders listed on page S-19 of this Prospectus Supplement
may offer and sell from time to time up to 1,480,066 shares of the common stock
of CBL & Associates Properties, Inc. by using this Prospectus Supplement.
Information about the selling stockholders and the times and manner in which
they may offer and sell shares of our common stock using this Prospectus
Supplement is described under the sections entitled "Selling Stockholders" and
"Plan of Distribution" in this Prospectus Supplement.
This Prospectus Supplement should be read in conjunction with the
Prospectus, and is qualified by reference to the Prospectus, except to the
extent that the information presented or incorporated by reference herein
supersedes the information contained in the Prospectus. This Prospectus
Supplement is not complete without, and may not be delivered or utilized except
in connection with, the Prospectus, including any amendments or supplements
thereto.
We will not receive any of the proceeds from the sale of these shares by
the selling stockholders. We will pay all expenses associated with the
registration of the shares of common stock offered by the selling stockholders
pursuant to this Prospectus Supplement.
Our common stock is listed on the New York Stock Exchange and traded under
the symbol "CBL". The last reported sale price of our common stock on the New
York Stock Exchange on June 12, 2006, was $37.29 per share.
Investing in our common stock involves certain risks. See "Risk Factors"
commencing on page S-7 of this Prospectus Supplement.
----------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus Supplement or the accompanying Prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
----------------------------------------------------------
The date of this Prospectus Supplement is June 14, 2006.
You should rely only on information contained in or incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus. Neither
we nor the selling stockholders have authorized anyone to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information contained or incorporated by reference in this Prospectus Supplement
and the accompanying Prospectus is accurate as of any date other than the date
of the respective documents.
This document is in two parts. The first part is the Prospectus Supplement,
which describes the specific terms of this offering. The second part is the
accompanying Prospectus, which gives more general information, some of which may
not apply to this offering.
----------------------------------------------------------
TABLE OF CONTENTS
Page
Prospectus Supplement ----
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................................... S-3
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION.............................................................. S-4
PROSPECTUS SUMMARY........................................................................................................ S-5
RISK FACTORS.............................................................................................................. S-7
USE OF PROCEEDS........................................................................................................... S-17
SELLING STOCKHOLDERS...................................................................................................... S-18
PLAN OF DISTRIBUTION...................................................................................................... S-19
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS............................................................................ S-21
LEGAL MATTERS............................................................................................................. S-21
EXPERTS................................................................................................................... S-21
INDEMNIFICATION........................................................................................................... S-21
Prospectus
ABOUT THIS PROSPECTUS..................................................................................................... 4
WHERE TO FIND MORE INFORMATION............................................................................................ 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................................... 4
CBL & ASSOCIATES PROPERTIES, INC.......................................................................................... 5
USE OF PROCEEDS........................................................................................................... 5
DESCRIPTION OF CAPITAL STOCK.............................................................................................. 6
DESCRIPTION OF DEPOSITARY SHARES.......................................................................................... 10
DESCRIPTION OF COMMON STOCK WARRANTS...................................................................................... 10
DESCRIPTION OF UNITS...................................................................................................... 10
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS............................................................................ 10
EXPERTS................................................................................................................... 21
LEGAL MATTERS............................................................................................................. 22
----------------------------------------------------------
S-2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC's rules allow us to incorporate by reference information into this
Prospectus Supplement. This means that we can disclose important information to
you by referring you to another document. Any information referred to in this
way is considered part of this Prospectus Supplement from the date we file that
document.
We have filed the documents listed below with the SEC under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and they are incorporated
herein by reference:
(i) Annual Report on Form 10-K for the fiscal year ended December 31, 2005;
(ii) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2006;
(iii) Current Reports on Form 8-K filed on May 24, 2006 and June 14, 2006;
(iv) the description of our common stock contained in our Registration Statement
on Form 8-A dated October 25, 1993;
(v) the description of our series B preferred stock contained in our
Registration Statement on Form 8-A dated June 11, 2002;
(vi) the description of the Depositary Shares, each representing 1/10th of a
share of our series C preferred stock contained in our Registration Statement on
Form 8-A, filed on August 21, 2003; and
(vii) the description of the Depositary Shares, each representing 1/10th of a
share of our series D preferred stock contained in our Registration Statement on
Form 8-A, filed on December 10, 2004.
Any document which we file pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus Supplement and prior to
termination of this offering of securities (other than, in each case, documents
or information deemed to have been furnished and not filed in accordance with
SEC rules) will be deemed to be incorporated by reference into, and to be part
of, this Prospectus Supplement from the date of filing of each such document.
Any statement contained in this Prospectus Supplement or in a document
incorporated or deemed to be incorporated by reference into this Prospectus
Supplement will, to the extent applicable, be deemed to be modified, superseded
or replaced by later statements included in supplements or amendments to this
Prospectus Supplement or in subsequently filed documents which are in, or deemed
to be incorporated by reference in, this Prospectus Supplement.
We will 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 to those documents, unless such exhibits
are specifically incorporated by reference into such documents). Such requests
should be addressed to our Director of Investor Relations, CBL Center, 2030
S-3
Hamilton Place Blvd., Suite 500, Chattanooga, Tennessee 37421-6000 (telephone
number (423) 855-0001).
CAUTIONARY STATEMENTS CONCERNING
FORWARD-LOOKING INFORMATION
This Prospectus Supplement and the accompanying Prospectus, as well as
those documents incorporated by reference herein, may include certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Exchange
Act. Forward-looking statements, which are based on certain assumptions and
describe our future plans, strategies and expectations, are generally
identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "seek," "estimate," "believe," "plan," "intend," "predict,"
"project," or the negative of these words, or other similar words or terms. The
expectations reflected in any forward-looking statements made by us are based on
our estimates, projections, beliefs and assumptions at the time of the
statements and are not guarantees of future performance. We can give no
assurance that these expectations will be attained, and it is possible that
actual results may differ materially from those indicated by any forward-looking
statements due to a variety of risks and uncertainties.
Such risks and uncertainties include, but are not limited to, changes in
economic conditions generally and the real estate market specifically,
legislative/regulatory changes including changes to laws governing the taxation
of real estate investment trusts, which we call "REITs," our capital
requirements and the availability and costs of debt and equity capital, interest
rate fluctuations, competition from other companies and retail formats, supply
and demand for properties in our current and proposed market areas, inability to
consummate acquisition opportunities, accounting principles, policies and
guidelines applicable to REITs, environmental risks, tenant bankruptcies or
store closings, changes in the vacancy rate at our properties, shifts in
customer demands, changes in retail rental rates in our markets, changes in
operating expenses, including employee wages, benefits and training, and the
other matters described under the heading "Risk Factors" below. All of these
factors should be considered in evaluating any forward-looking statements
included or incorporated by reference in this Prospectus Supplement.
Given these uncertainties, prospective purchasers of our common stock are
cautioned not to place undue reliance on these forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements included or incorporated by reference in this Prospectus Supplement,
whether as a result of new information, future events or otherwise. In light of
the factors referred to above, the future events discussed in forward-looking
statements included or incorporated by reference in this Prospectus Supplement
may not occur and actual results, performance or achievements could differ
materially from that anticipated or implied in the forward-looking statements.
S-4
PROSPECTUS SUMMARY
This summary does not contain all of the information that you should consider
before investing in our common stock. You should read the entire Prospectus
Supplement and the accompanying Prospectus carefully, including the matters
discussed under the caption "Risk Factors" and the detailed information and
financial statements included or incorporated by reference in this Prospectus
Supplement. When used in this Prospectus Supplement, the terms "the Company,"
"we," "our" and "us," except as otherwise indicated or as the context otherwise
indicates, refer to CBL & Associates Properties, Inc. and all entities owned or
controlled by us. The term "you" refers to a prospective investor.
Company Overview
We are a self-managed, self-administered, fully integrated real estate
company. We own, operate market, manage, lease, expand, develop, redevelop,
acquire and finance regional malls and community shopping centers. As of March
31, 2006 our shopping center properties were located in 27 states, but primarily
in the southeastern and midwestern United States. We have elected to be taxed as
a REIT for federal income tax purposes.
We conduct substantially all of our business through CBL & Associates
Limited Partnership, our "Operating Partnership." We are the 100% owner of two
qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. CBL
Holdings I, Inc. is the sole general partner of the Operating Partnership. At
March 31, 2006, CBL Holdings I, Inc. owned a 1.6% general partnership interest
and CBL Holdings II, Inc. owned a 53.9% limited partnership interest in the
Operating Partnership, for a combined interest held by us of 55.5%.
As of March 31, 2006, we owned:
|X| interests in a portfolio of operating properties including 77 enclosed
regional malls and two open-air centers (the "Malls"), 30 associated
centers (the "Associated Centers"), seven community centers (the
"Community Centers") and our corporate office building (the "Office
Building");
|X| interests in two mall expansions, one open-air shopping center, two
open-air shopping center expansions, two associated centers and three
community centers that are currently under construction (the
"Construction Properties"), as well as options to acquire certain
shopping center development sites; and
|X| mortgages on eight properties that are secured by first mortgages or
wrap-around mortgages on the underlying real estate and related
improvements (the "Mortgages").
The Malls, Associated Centers, Community Centers, Construction Properties,
Mortgages and Office Building are collectively referred to as the "Properties"
and individually as a "Property."
We conduct our property management and development activities through CBL &
Associates Management, Inc. (the "Management Company") to comply with certain
technical requirements of the Internal Revenue Code of 1986, as amended.
As of March 31, 2006, the Management Company managed all but five of the
Properties. Governor's Square and Governor's Plaza in Clarksville, TN, and
S-5
Kentucky Oaks Mall, in Paducah, KY are all owned by joint ventures and are
managed by a property manager that is affiliated with the third party managing
general partner, which receives a fee for its services. The managing partner of
each of these Properties controls the cash flow distributions, although our
approval is required for certain major decisions. Springdale Center in Mobile,
AL and Wilkes-Barre Township Marketplace in Wilkes-Barre Township, PA, were
managed by a third party that received a fee for its services prior to the sale
of these properties in May 2006.
We were organized on July 13, 1993 as a Delaware corporation to acquire
substantially all of the real estate properties owned by our predecessor
company, CBL & Associates, Inc., and its affiliates. Our principal executive
offices are located at CBL Center, 2030 Hamilton Place Blvd., Suite 500,
Chattanooga, Tennessee 37421-6000, and our telephone number is (423) 855-0001.
Our Web site can be found at www.cblproperties.com. The information contained in
our Web site is not part of this Prospectus Supplement.
The Offering
Common Stock 1,480,066 shares of common stock, which we issued to the
Offered by the selling stockholders in exchange for common units of limited
Selling partnership interest in our Operating Partnership. See
Stockholders "Selling Stockholders" and "Plan of Distribution."
Use of Proceeds We will not receive any proceeds from the sale of shares by
the selling stockholders. See "Use of Proceeds."
Market Infor- New York Stock Exchange (NYSE) Symbol: CBL. On June 12,
mation for the 2006, the last reported sale price of our common stock on
Common Stock the NYSE was $37.29 per share.
Risk Factors Before investing in our common stock, you should carefully
read and consider the information set forth in the "Risk
Factors" section of this Prospectus Supplement, beginning on
page S-7.
Plan of The shares may be offered and sold from time to time in one
Distribution or more transactions, in private or public transactions, on
the NYSE, in the over-the-counter market, in negotiated
transactions or otherwise, at a fixed price or prices that
may be changed, at market prices prevailing at the time of
sale, at negotiated prices, without consideration or by any
other legally available means. Sales may be made directly or
through brokers, dealers, agents or underwriters who may be
compensated for their role in such transactions.
Any or all of the shares may be sold from time to time.
Since each selling stockholder may ultimately sell all, a
portion or none of the shares of common stock offered by
means of this Prospectus Supplement from time to time after
the date hereof, we cannot determine how many shares each
selling stockholder will sell or how many shares each may
retain upon completion of this offering. See "Plan of
Distribution."
S-6
RISK FACTORS
Before you consider investing in our common stock, you should be aware that
there are risks in making this investment. You should carefully consider these
risk factors, together with all of the information included or incorporated by
reference in this Prospectus Supplement, before you decide to invest in our
common stock.
RISKS RELATED TO REAL ESTATE INVESTMENTS
Real property investments are subject to various risks, many of which are beyond
our control, that could cause declines in the operating revenues and/or the
underlying value of one or more of our Properties.
A number of factors may decrease the income generated by a retail shopping
center property, including:
|X| National, regional and local economic climates, which may be
negatively impacted by plant closings, industry slowdowns, adverse
weather conditions, natural disasters, and other factors which tend to
reduce consumer spending on retail goods.
|X| Local real estate conditions, such as an oversupply of, or reduction
in demand for, retail space or retail goods, and the availability and
creditworthiness of current and prospective tenants.
|X| Increased operating costs, such as increases in real property taxes,
utility rates and insurance premiums.
|X| Perceptions by retailers or shoppers of the safety, convenience and
attractiveness of the shopping center.
|X| The willingness and ability of the shopping center's owner to provide
capable management and maintenance services.
|X| The convenience and quality of competing retail properties and other
retailing options, such as the Internet.
In addition, other factors may adversely affect the value of our Properties
without affecting their current revenues, including:
|X| Adverse changes in governmental regulations, such as local zoning and
land use laws, environmental regulations or local tax structures that
could inhibit our ability to proceed with development, expansion, or
renovation activities that otherwise would be beneficial to our
Properties.
|X| Potential environmental or other legal liabilities that reduce the
amount of funds available to us for investment in our Properties.
|X| Any inability to obtain sufficient financing (including both
construction financing and permanent debt), or the inability to obtain
such financing on commercially favorable terms, to fund new
S-7
developments, acquisitions, and property expansions and renovations
which otherwise would benefit our Properties.
|X| An environment of rising interest rates, which could negatively impact
both the value of commercial real estate such as retail shopping
centers and the overall retail climate.
The loss of one or more significant tenants, due to bankruptcies or as a result
of ongoing consolidations in the retail industry, could adversely affect both
the operating revenues and value of our Properties.
Regional malls are typically anchored by well-known department stores and
other significant tenants who generate shopping traffic at the mall. A decision
by an anchor tenant or other significant tenant to cease operations at one or
more Properties could have a material adverse effect on those Properties and, by
extension, on our financial condition and results of operations. The closing of
an anchor or other significant tenant may allow other anchors and/or tenants at
an affected Property to terminate their leases, to seek rent relief and/or cease
operating their stores or otherwise adversely affect occupancy at the Property.
In addition, key tenants at one or more Properties might terminate their leases
as a result of mergers, acquisitions, consolidations, dispositions or
bankruptcies in the retail industry. The bankruptcy and/or closure of one or
more significant tenants, if we are not able to successfully re-tenant the
affected space, could have a material adverse effect on both the operating
revenues and underlying value of the Properties involved.
We may incur significant costs related to compliance with environmental laws,
which could have a material adverse effect on our results of operations, cash
flow and the funds available to us to pay dividends.
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in that real property. These laws often impose liability whether or
not the owner or operator knew of, or was responsible for, the presence of
hazardous or toxic substances. The costs of investigation, removal or
remediation of hazardous or toxic substances may be substantial. In addition,
the presence of hazardous or toxic substances, or the failure to remedy
environmental hazards properly, may adversely affect the owner's or operator's
ability to sell or rent affected real property or to borrow money using affected
real property as collateral.
Persons or entities that arrange for the disposal or treatment of hazardous
or toxic substances may also be liable for the costs of removal or remediation
of hazardous or toxic substances at the disposal or treatment facility, whether
or not that facility is owned or operated by the person or entity arranging for
the disposal or treatment of hazardous or toxic substances. Laws exist that
impose liability for release of asbestos-containing materials into the air, and
third parties may seek recovery from owners or operators of real property for
personal injury associated with exposure to asbestos-containing materials. In
connection with our ownership, operation, management, development and
redevelopment of our Properties, or any other
S-8
Properties we acquire in the future, we may be potentially liable under these
laws and may incur costs in responding to these liabilities, which could have an
adverse effect on our results of operations, cash flow and the funds available
to us to pay dividends.
RISKS RELATED TO OUR BUSINESS AND THE MARKET FOR OUR STOCK
We may elect not to proceed with certain development projects once they have
been undertaken, resulting in charges that could have a material adverse effect
on our results of operations for the period in which the charge is taken.
We intend to pursue development and expansion activities as opportunities
arise. In connection with any development or expansion, we will incur various
risks including the risk that development or expansion opportunities explored by
us may be abandoned and the risk that construction costs of a project may exceed
original estimates, possibly making the project not profitable. Other risks
include the risk that we may not be able to refinance construction loans which
are generally with full recourse to us, the risk that occupancy rates and rents
at a completed project will not meet projections and will be insufficient to
make the project profitable, and the risk that we will not be able to obtain
anchor, mortgage lender and property partner approvals for certain expansion
activities. In the event of an unsuccessful development project, our loss could
exceed our investment in the project.
We have in the past elected not to proceed with certain development
projects and anticipate that we will do so again from time to time in the
future. If we elect not to proceed with a development opportunity, the
development costs ordinarily will be charged against income for the then-current
period. Any such charge could have a material adverse effect on our results of
operations for the period in which the charge is taken.
Competition from other retail formats could adversely affect the revenues
generated by our properties, resulting in a reduction in funds available for
distribution to our stockholders.
There are numerous shopping facilities that compete with our Properties in
attracting retailers to lease space. In addition, retailers at our Properties
face competition for customers from:
|X| Discount shopping centers
|X| Outlet malls
|X| Wholesale clubs
|X| Direct mail
|X| Telemarketing
|X| Television shopping networks
|X| Shopping via the Internet
Each of these competitive factors could adversely affect the amount of
S-9
rents that we are able to collect from our tenants, thereby reducing our
revenues and the funds available for distribution to our stockholders.
Since our shopping center properties are located principally in the Southeastern
and Midwestern United States, our financial position, results of operations and
funds available for distribution to shareholders are subject generally to
economic conditions in these regions.
Our properties are located principally in the southeastern and midwestern
Unites States. Our properties located in the southeastern United States
accounted for approximately 51.7% of our total revenues from all properties for
the three months ended March 31, 2006 and currently include 40 Malls, 20
Associated Centers, five Community Centers and one Office Building. Our
properties located in the midwestern United States accounted for approximately
23.8% of our total revenues from all properties for the three months March 31,
2006 and currently include 20 Malls and three Associated Centers. Our results of
operations and funds available for distribution to shareholders therefore will
be subject generally to economic conditions in the southeastern and midwestern
United States. We will continue to look for opportunities to geographically
diversify our portfolio in order to minimize dependency on any particular
region; however, the expansion of the portfolio through both acquisitions and
developments is contingent on many factors including consumer demand,
competition and economic conditions.
Certain of our shopping center properties are subject to ownership interests
held by third parties, whose interests may conflict with ours and thereby
constrain us from taking actions concerning these properties which otherwise
would be in the best interests of the Company and our stockholders.
As of March 31, 2006, we owned partial interests in eight malls, six
associated centers, three community centers and one office building. We manage
all of these properties except for Governor's Square, Governor's Plaza and
Kentucky Oaks. A property manager affiliated with the managing general partner
performs the property management services for these properties and receives a
fee for its services. The managing partner of each of these three Properties
controls the cash flow distributions, although our approval is required for
certain major decisions. Springdale Center in Mobile, AL and Wilkes-Barre
Township Marketplace in Wilkes-Barre Township, PA, are managed by a third party
that receives a fee for its services. Springdale Center and Wilkes-Barre
Township Marketplace were sold in May 2006.
Where we serve as managing general partner of the partnerships that own our
properties, we 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 we may sell, finance, expand or make other
significant changes in the operations of such properties. To the extent such
approvals or consents are required, we may experience difficulty in, or may be
prevented from, implementing our plans with respect to expansion, development,
financing or other similar transactions with respect to such properties.
With respect to Governor's Square, Governor's Plaza and Kentucky Oaks we do
not have day-to-day operational control or control over certain major decisions,
including the timing and amount of distributions, which could result in
S-10
decisions by the managing general partner that do not fully reflect our
interests. This includes decisions relating to the requirements that we must
satisfy in order to maintain our status as a REIT for tax purposes. However,
decisions relating to sales, expansion and disposition of all or substantially
all of the assets and financings are subject to approval by the Operating
Partnership.
Certain agreements with prior owners of Properties that we have acquired may
inhibit our ability to enter into future sale or refinancing transactions
affecting such Properties, which otherwise would be in the best interests of the
Company and our stockholders.
Certain Properties that we originally acquired from third parties had
unrealized gain attributable to the difference between the fair market value of
such Properties and the third parties' adjusted tax basis in the Properties
immediately prior to their contribution of such Properties to the Operating
Partnership pursuant to our acquisition. For this reason, a taxable sale by us
of any of such Properties, or a significant reduction in the debt encumbering
such Properties, could result in adverse tax consequences to the third parties
who contributed these properties in exchange for interests in the Operating
Partnership. Under the terms of these transactions, we have generally agreed
that we either will not sell or refinance such an acquired Property for a number
of years in any transaction that would trigger adverse tax consequences for the
parties from whom we acquired such Property, or else we will reimburse such
parties for all or a portion of the additional taxes they are required to pay as
a result of the transaction. Accordingly, these agreements may cause us not to
engage in future sale or refinancing transactions affecting such Properties
which otherwise would be in the best interests of the Company and our
stockholders, or may increase the costs to us of engaging in such transactions.
The loss or bankruptcy of a major tenant could negatively affect our financial
position and results of operations.
In the three months ended March 31, 2006, no tenant accounted for 5% or
more of revenues except for The Limited Stores Inc. (including Intimate Brands,
Inc.), which accounted for approximately 5.2% of our total revenues. The loss or
bankruptcy of this key tenant could negatively affect our financial position and
results of operations.
Our financial position, results of operations and funds available for
distribution to shareholders could be adversely affected by any economic
downturn affecting the operating results at our properties in the Nashville,
Tennessee area, which is our single largest market.
Our properties located in Nashville, TN accounted for 5.3% of our revenues
for the three months ended March 31, 2006. No other market accounted for more
than 3.1% of our revenues for the three months ended March 31, 2006. Our
financial position and results of operations will therefore be affected by the
results experienced at properties located in the Nashville, TN area.
Rising interest rates could both increase our borrowing costs, thereby adversely
affecting our cash flow and the amounts available for distributions to our
stockholders, and decrease our stock price, if investors seek higher yields
through other investments.
An environment of rising interest rates could lead holders of our
securities to seek higher yields through other investments, which could
S-11
adversely affect the market price of our stock. One of the factors that may
influence the price of our stock in public markets is the annual distribution
rate we pay as compared with the yields on alternative investments. Numerous
other factors, such as governmental regulatory action and tax laws, could have a
significant impact on the future market price of our stock. In addition,
increases in market interest rates could result in increased borrowing costs for
us, which may adversely affect our cash flow and the amounts available for
distributions to our stockholders.
Recent changes in the U.S. federal income tax treatment of corporate dividends
may make our stock less attractive to investors, thereby lowering our stock
price.
The maximum U.S. federal income tax rate for dividends received by
individual taxpayers recently was reduced generally from 38.6% to 15% (currently
effective from January 1, 2003 through 2010). However, dividends payable by
REITs are generally not eligible for such treatment. Although this legislation
did not have a directly adverse effect on the taxation of REITs or dividends
paid by REITs, the more favorable treatment for non-REIT dividends could cause
individual investors to consider investments in non-REIT corporations as more
attractive relative to an investment in a REIT, which could have an adverse
impact on the market price of our stock.
Certain of our credit facilities, the loss of which could have a material,
adverse impact on our financial condition and results of operations, 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.
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 shares of our common stock owned by such members of
senior management may hold in us). If the failure of one or more of these
conditions resulted in the loss of these credit facilities and we were unable to
obtain suitable replacement financing, such loss could have a material, adverse
impact on our financial position and results of operations.
Our insurance coverage may change in the future, and may not include coverage
for acts of terrorism.
The general liability and property casualty insurance policies on our
Properties currently include loss resulting from acts of terrorism, whether
foreign or domestic. The cost of general liability and property casualty
insurance policies that include coverage for acts of terrorism has risen
significantly post-September 11, 2001. The cost of coverage for acts of
terrorism is currently mitigated by the Terrorism Risk Insurance Act ("TRIA").
If TRIA is not extended beyond its current expiration date of December 31, 2007,
we may incur higher insurance costs and greater difficulty in obtaining
insurance that covers terrorist-related damages. Our tenants may also experience
similar difficulties. We are unable at this time to predict whether we will
S-12
continue our policy coverage as currently structured when our policies are up
for renewal on December 31, 2006.
RISKS RELATED TO FEDERAL INCOME TAX LAWS
If we fail to qualify as a REIT in any taxable year, our funds available for
distribution to stockholders will be reduced.
We intend to continue to operate so as to qualify as a REIT under the
Internal Revenue Code. Although we believe that we are organized and operate in
such a manner, no assurance can be given that we currently qualify and in the
future will continue to qualify as a REIT. Such qualification involves the
application of highly technical and complex Internal Revenue Code provisions for
which there are only limited judicial or administrative interpretations. The
determination of various factual matters and circumstances not entirely within
our control may affect our ability to qualify. 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 or its corresponding federal income tax consequences.
If in any taxable year we were to fail to qualify as a REIT, we would not
be allowed a deduction for distributions to stockholders in computing our
taxable income and we would be subject to federal income tax on our taxable
income at regular corporate rates. Unless entitled to relief under certain
statutory provisions, we 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 our stockholders would be
reduced for each of the years involved. We currently intend to operate in a
manner designed to qualify as a REIT. However, it is possible that future
economic, market, legal, tax or other considerations may cause our board of
directors, with the consent of a majority of our stockholders, to revoke the
REIT election.
Any issuance or transfer of our capital stock to any person in excess of the
applicable limits on ownership necessary to maintain our status as a REIT would
be deemed void ab initio, and those shares would automatically be transferred to
a non-affiliated charitable trust.
To maintain our status as a REIT under the Internal Revenue Code, not more
than 50% in value of our outstanding capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code to include certain entities) during the last half of a taxable year. Our
certificate of incorporation generally prohibits ownership of more than 6% of
the outstanding shares of our capital stock by any single stockholder determined
by vote, value or number of shares (other than Charles Lebovitz, our Chief
Executive Officer, David Jacobs, Richard Jacobs and their affiliates under the
Internal Revenue Code's attribution rules). The affirmative vote of 66 (2)/3% of
our outstanding voting stock is required to amend this provision.
Our board of directors may, subject to certain conditions, waive the
applicable ownership limit upon receipt of a ruling from the IRS or an opinion
S-13
of counsel to the effect that such ownership will not jeopardize our status as a
REIT. Absent any such waiver, however, any issuance or transfer of our capital
stock to any person in excess of the applicable ownership limit or any issuance
or transfer of shares of such stock which would cause us to be beneficially
owned by fewer than 100 persons, will be null and void and the intended
transferee will acquire no rights to the stock. Instead, such issuance or
transfer with respect to that number of shares that would be owned by the
transferee in excess of the ownership limit provision would be deemed void ab
initio and those shares would automatically be transferred to a trust for the
exclusive benefit of a charitable beneficiary to be designated by us, with a
trustee designated by us, but who would not be affiliated with us or with the
prohibited owner. Any acquisition of our capital stock and continued holding or
ownership of our capital stock constitutes, under our certificate of
incorporation, a continuous representation of compliance with the applicable
ownership limit.
In order to maintain our status as a REIT and avoid the imposition of certain
additional taxes under the Internal Revenue Code, we must satisfy minimum
requirements for distributions to shareholders, which may limit the amount of
cash we might otherwise have been able to retain for use in growing our
business.
To maintain our status as a REIT under the Internal Revenue Code, we
generally will be required each year to distribute to our stockholders at least
90% of our taxable income after certain adjustments. However, to the extent that
we do not distribute all of our net capital gain or distribute at least 90% but
less than 100% of our REIT taxable income, as adjusted, we will be subject to
tax on the undistributed amount at ordinary and capital gains corporate tax
rates, as the case may be. In addition, we will be subject to a 4% nondeductible
excise tax on the amount, if any, by which certain distributions paid by us
during each calendar year are less than the sum of 85% of our ordinary income
for such calendar year, 95% of our capital gain net income for the calendar year
and any amount of such income that was not distributed in prior years. In the
case of property acquisitions, including our initial formation, where individual
properties are contributed to our Operating Partnership for Operating
Partnership units, we have assumed the tax basis and depreciation schedules of
the entities' contributing properties. The relatively low tax basis of such
contributed properties may have the effect of increasing the cash amounts we are
required to distribute as dividends, thereby potentially limiting the amount of
cash we might otherwise have been able to retain for use in growing our
business. This low tax basis may also have the effect of reducing or eliminating
the portion of distributions made by us that are treated as a non-taxable return
of capital.
RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE
The ownership limit described above, as well as certain provisions in our
amended and restated certificate of incorporation and bylaws, our stockholder
rights plan, and certain provisions of Delaware law may hinder any attempt to
acquire us.
Certain provisions of Delaware law, as well as of our amended and restated
certificate of incorporation and bylaws, and agreements to which we are a party,
may have the effect of delaying, deferring or preventing a third party from
making an acquisition proposal for us and may inhibit a change in control that
some, or a majority, of our stockholders might believe to be in their best
S-14
interest or that could give our stockholders the opportunity to realize a
premium over the then-prevailing market prices for their shares. These
provisions and agreements may be summarized as follows:
|X| THE OWNERSHIP LIMIT - As described above, to maintain our status as a
REIT under the Internal Revenue Code, not more than 50% in value of
our outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Internal Revenue Code to
include certain entities) during the last half of a taxable year. Our
certificate of incorporation generally prohibits ownership of more
than 6% of the outstanding shares of our capital stock by any single
stockholder determined by value (other than Charles Lebovitz, David
Jacobs, Richard Jacobs and their affiliates under the Internal Revenue
Code's attribution rules). In addition to preserving our status as a
REIT, the ownership limit may have the effect of precluding an
acquisition of control of us without the approval of our board of
directors.
|X| CLASSIFIED BOARD OF DIRECTORS; REMOVAL FOR CAUSE - Our certificate of
incorporation provides for a board of directors divided into three
classes, with one class 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 our board of
directors. In addition, our stockholders can only remove directors for
cause and only by a vote of 75% of the outstanding voting stock.
Collectively, these provisions make it more difficult to change the
composition of our board of directors and may have the effect of
encouraging persons considering unsolicited tender offers or other
unilateral takeover proposals to negotiate with our board of directors
rather than pursue non-negotiated takeover attempts.
|X| ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS - Our 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 our
stockholders. These procedures generally require advance written
notice of any such proposals, containing prescribed information, to be
given to our Secretary at our principal executive offices not less
than 60 days nor more than 90 days prior to the meeting.
|X| VOTE REQUIRED TO AMEND BYLAWS - A vote of 66 (2)/3% of the outstanding
voting stock is necessary to amend our bylaws.
|X| STOCKHOLDER RIGHTS PLAN - We have a stockholder rights plan, which may
delay, deter or prevent a change in control unless the acquirer
negotiates with our board of directors and the board of directors
approves the transaction. The rights plan generally would be triggered
if an entity, group or person acquires (or announces a plan to
acquire) 15% or more of our common stock. If such transaction is not
approved by our board of directors, the effect of the stockholder
S-15
rights plan would be to allow our stockholders to purchase shares of
our common stock, or the common stock or other merger consideration
paid by the acquiring entity, at an effective 50% discount.
|X| DELAWARE ANTI-TAKEOVER STATUTE - We are a Delaware corporation and are
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 a company's outstanding
voting stock) from engaging in a "business combination" (as defined in
Section 203) with us for three years following the date that person
becomes an interested stockholder unless:
(a) before that person became an interested holder, our board of
directors approved the transaction in which the interested holder
became an interested stockholder or approved the business
combination;
(b) upon completion of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the
interested stockholder owns 85% of our voting stock outstanding
at the time the transaction commenced (excluding stock held by
directors who are also officers 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
our board of directors and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least
two-thirds of our 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 us 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 our 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.
Certain ownership interests held by members of our senior management may tend to
create conflicts of interest between such individuals and the interests of the
Company and our Operating Partnership.
|X| RETAINED PROPERTY INTERESTS - Members of our senior management own
interests in certain real estate properties that were retained by them
at the time of our initial public offering. These consist primarily of
outparcels at certain of our properties, which are being offered for
sale through our management company. As a result, these members of our
S-16
senior management have interests that could conflict with the
interests of the Company, our shareholders and the Operating
Partnership with respect to any transaction involving these
properties.
|X| TAX CONSEQUENCES OF THE SALE OR REFINANCING OF CERTAIN PROPERTIES -
Since certain of our properties had unrealized gain attributable to
the difference between the fair market value and adjusted tax basis in
such properties immediately prior to their contribution to the
Operating Partnership, a taxable sale of any such properties, or a
significant reduction in the debt encumbering such properties, could
cause adverse tax consequences to the members of our senior management
who owned interests in our predecessor entities. As a result, members
of our 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 us and the Operating Partnership. Our bylaws
provide that any decision relating to the potential sale of any
property that would result in a disproportionately higher taxable
income for members of our senior management than for us and our
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 our senior
management to pay any income tax liability arising from such sale.
|X| INTERESTS IN OTHER ENTITIES; POLICIES OF THE BOARD OF DIRECTORS -
Certain entities owned in whole or in part by members of our senior
management, including the construction company that built or renovated
most of our properties, may continue to perform services for, or
transact business with, us and the Operating Partnership. Furthermore,
certain property tenants are affiliated with members of our senior
management. Accordingly, although our bylaws provide that any contract
or transaction between us or the Operating Partnership and one or more
of our directors or officers, or between us or the Operating
Partnership and any other entity in which one or more of our directors
or officers are directors or officers or have a financial interest,
must be approved by our disinterested directors or stockholders after
the material facts of the relationship or interest of the contract or
transaction are disclosed or are known to them, these affiliations
could nevertheless create conflicts between the interests of these
members of senior management and the interests of the Company, our
shareholders and the Operating Partnership in relation to any
transactions between us and any of these entities.
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling stockholders
of any of the shares of common stock covered by this Prospectus Supplement.
S-17
SELLING STOCKHOLDERS
We are registering all 1,480,066 shares covered by this Prospectus
Supplement on behalf of the selling stockholders named in the table below and
their respective pledgees, donees, transferees or other successors in interest.
We are registering the shares in order to permit the selling stockholders to
publicly offer these shares for resale from time to time. The selling
stockholders may sell all, some or none of the shares covered by this Prospectus
Supplement. See "Plan of Distribution" below. None of the selling stockholders
has had any material relationship with us within the past three years other than
as a result of the acquisition and ownership of these shares or other securities
of ours.
The table below, which is based on information that we received from the
selling stockholders and/or their counsel, lists the names of each selling
stockholder, the aggregate number of shares of common stock beneficially owned
by each selling stockholder as of June 14, 2006, and the aggregate number of
shares of common stock that each selling stockholder may offer and sell pursuant
to this Prospectus Supplement. Because each selling stockholder may offer all or
a portion of the shares of common stock offered by this Prospectus Supplement at
any time and from time to time after the date hereof, no estimate can be made of
the number of shares that each selling stockholder may retain upon completion of
this offering. However, assuming all of the shares offered by this Prospectus
Supplement are sold by the selling stockholders then, unless otherwise noted
below, after completion of this offering, none of the selling stockholders will
own more than one percent of the shares of common stock outstanding.
Number of Shares
Beneficially Owned
(excluding shares Number of Shares
Name of Selling Stockholder offered hereby) Offered Hereby
---------------------------------------------- -------------------- -----------------
Robert T. Samuels None 399,998
Sheldon Perlick Marital Trust None 400,000
Roger E. Benjamin Revocable Trust dated None 203,216
September 19, 1990
Lois S. Becker Trust dated None 200,000
March 12, 2002
Perlick Holdings, LLC None 220,556
Michael Montlack None 30,000
Brian L. Hicks None 26,296
----------------
Total Shares Offered 1,480,066
================
S-18
PLAN OF DISTRIBUTION
We issued the 1,480,066 shares of common stock covered by this Prospectus
Supplement to the selling stockholders in exchange for common units of limited
partnership interest in our Operating Partnership, pursuant to the terms of the
Operating Partnership's Third Amended and Restated Agreement of Limited
Partnership, as amended. We are registering such shares on behalf of the selling
stockholders pursuant to registration rights agreements between us and the
selling stockholders, dated August 27, 1998.
The shares may be offered and sold by the selling stockholders, or by
purchasers, transferees, donees, pledgees or other successors in interest,
directly or through brokers, dealers, agents or underwriters who may receive
compensation in the form of discounts, commissions or similar selling expenses
paid by the selling stockholders or by a purchaser of the shares on whose behalf
such broker-dealer may act as agent. Sales and transfers of the shares may be
effected from time to time in one or more transactions, in private or public
transactions, on the NYSE, in the over-the-counter market, in negotiated
transactions or otherwise, at a fixed price or prices that may be changed, at
market prices prevailing at the time of sale, at negotiated prices, without
consideration or by any other legally available means. Any or all of the shares
may be sold from time to time by means of:
(a) a block trade, in which a broker or dealer attempts to sell the shares
as agent but may position and resell a portion of the shares as
principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and the subsequent sale
by such broker or dealer for its account pursuant to this Prospectus;
(c) ordinary brokerage transactions (which may include long or short
sales) and transactions in which the broker solicits purchasers;
(d) the writing (sale) of put or call options on the shares;
(e) the pledging of the shares as collateral to secure loans, credit or
other financing arrangements and subsequent foreclosure, the
disposition of the shares by the Lender thereunder; and
(f) any other legally available means.
To the extent required with respect to a particular offer or sale of the
shares, we will file a prospectus supplement pursuant to Section 424(b)(3) of
the Securities Act of 1933, as amended, which will accompany this Prospectus, to
disclose:
(a) the number of shares to be sold;
(b) the purchase price;
(c) the name of any broker, dealer or agent effecting the sale or transfer
and the amount of any applicable discounts, commissions or similar
selling expenses; and
(d) any other relevant information.
S-19
The selling stockholders may transfer the shares by means of gifts,
donations and contributions. Subject to certain limitations under rules
promulgated under the Securities Act, this Prospectus may be used by the
recipients of such gifts, donations and contributions to offer and sell the
shares received by them, directly or through brokers, dealers or agents and in
private or public transactions.
In connection with distributions of the shares or otherwise, the selling
stockholders may enter into hedging transactions with brokers, dealers or other
financial institutions. In connection with such transactions, brokers, dealers
or other financial institutions may engage in short sales of our common stock in
the course of hedging the positions they assume with the selling stockholders.
To the extent permitted by applicable law, the selling stockholders also may
sell the shares short and redeliver the shares to close out such short
positions.
The selling stockholders and any broker-dealers who participate in the
distribution of the shares may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act and any discounts, commissions or similar
selling expenses they receive and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. As a result, we have informed the selling stockholders
that Regulation M, promulgated under the Exchange Act, may apply to sales by the
selling stockholders in the market. The selling stockholders may agree to
indemnify any broker, dealer or agent that participates in transactions
involving the sale of the shares against certain liabilities, including
liabilities arising under the Securities Act.
The aggregate net proceeds to the selling stockholders from the sale of the
shares will be the purchase price of such shares less any discounts, concessions
or commissions. We will not receive any proceeds from the sale of any shares by
the selling stockholders. We will pay all expenses reasonably related to the
registration of the shares for sale by the selling stockholders in connection
with this offering, but we will not pay any expenses incurred by the selling
stockholders in connection with brokerage fees or underwriting commissions, fees
and expenses of attorneys, accountants or other advisors, or income or transfer
taxes.
The selling stockholders are acting independently of us in making decisions
with respect to the timing, price, manner and size of each sale. We have not
engaged any broker, dealer or agent in connection with the sale of the shares,
and there is no assurance that the selling stockholders will sell any or all of
the shares. In connection with the offer and sale of the shares, we have agreed
to make available to the selling stockholders copies of this Prospectus and any
applicable prospectus supplement and have informed the selling stockholders of
the need to deliver copies of this Prospectus and any applicable prospectus
supplement to purchasers prior to any sale to them.
The shares covered by this Prospectus may become qualified for sale under
Section 4(1) of the Securities Act or Rule 144 promulgated thereunder, whereupon
they may be sold pursuant to such provisions rather than pursuant to this
Prospectus.
S-20
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
This section supplements the discussion of tax consequences contained in
the accompanying Prospectus under the caption "Certain U.S. Federal Income Tax
Considerations."
On May 17, 2006, President Bush signed into law the Tax Increase Prevention
and Reconciliation Act of 2005. Among other changes, the new law extends the
Internal Revenue Code's maximum 15% top tax rate for long-term capital gains and
"qualified dividend income" of individuals and other non-corporate taxpayers
through taxable years beginning on or before December 31, 2010.
Please refer to the accompanying Prospectus for a discussion of other
aspects of our qualification and taxation as a REIT and the tax consequences to
you of an investment in the common stock.
LEGAL MATTERS
The validity of the issuance of the shares of common stock covered by this
Prospectus Supplement will be passed upon for us by Shumacker Witt Gaither &
Whitaker, P.C., Chattanooga, Tennessee. Certain members of Shumacker Witt
Gaither & Whitaker, P.C. serve as our assistant secretaries, and certain
attorneys who are shareholders and/or employees of Shumacker Witt Gaither &
Whitaker, P.C. may be deemed to beneficially own (directly or indirectly) an
aggregate of 9,499 shares of the Company's Common Stock and 200 shares of the
Company's 8.75% Series B Cumulative Redeemable Preferred Stock.
EXPERTS
The financial statements, the related financial statement schedules, and
management's report on the effectiveness of internal control over financial
reporting, incorporated in this Prospectus Supplement by reference from CBL &
Associates Properties, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2005, have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their reports which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
INDEMNIFICATION
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 shareholders, (ii) for acts or omissions
S-21
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
proceedings, 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 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 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
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 shareholders to eliminate the rights
they provide.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
S-22
PROSPECTUS
CBL & ASSOCIATES PROPERTIES, INC.
PREFERRED STOCK, COMMON STOCK, DEPOSITARY SHARES,
COMMON STOCK WARRANTS, UNITS
We may from time to time offer in one or more series (i) shares of our preferred
stock, (ii) shares of our common stock, par value $.01 per share, (iii)
fractional interests in shares of our common stock or preferred stock
represented by depositary shares, (iv) warrants to purchase shares of our common
stock, and (v) units of our common stock, preferred stock or warrants, in
amounts, at prices and on terms to be determined at the time or times of
offering. We may offer the preferred stock, depositary shares, common stock,
common stock warrants and units, 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. In addition, this Prospectus may be used to offer any of such
securities for the account of persons other than us.
We will include the specific terms of the offered securities in a prospectus
supplement that will include, as 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 the public offering price; (ii) in the case of common stock,
the public offering price; (iii) in the case of depositary shares, the number of
shares, the whole or fractional preferred stock represented by each such
depositary share and the public offering price; and (iv) in the case of common
stock warrants, the number, duration, offering price, exercise price,
detachability and any public offering price. 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 our status as a real estate investment trust, or REIT, for U.S. federal
income tax purposes.
The applicable prospectus supplement will also contain information, where
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the offered securities covered by
such prospectus supplement. Our common stock is listed on the New York Stock
Exchange under the symbol "CBL." Our 8.75% Series B cumulative redeemable
preferred stock is listed on the New York Stock Exchange under the symbol
"CBLprB." Our Depositary Shares, each representing 1/10th of a share of our
7.75% Series C cumulative redeemable preferred stock, are listed on the New York
Stock Exchange under the symbol "CBLprC." Our Depositary Shares, each
representing 1/10th of a share of our 7.375% Series D cumulative redeemable
preferred stock, are listed on the New York Stock Exchange under the symbol
"CBLprD." Any common stock offered pursuant to a prospectus supplement will be
listed on such exchange, subject to official notice of issuance.
We may offer the offered securities directly, through agents that we will
designate from time to time, 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.
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.
Our securities may not be sold without delivery of the applicable prospectus
supplement describing the method and terms of the offering of such offered
securities.
The date of this Prospectus is January 18, 2006
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS.................................................... 4
WHERE TO FIND MORE INFORMATION........................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 4
CBL & ASSOCIATES PROPERTIES, INC......................................... 5
USE OF PROCEEDS.......................................................... 5
DESCRIPTION OF CAPITAL STOCK............................................. 6
DESCRIPTION OF DEPOSITARY SHARES......................................... 10
DESCRIPTION OF COMMON STOCK WARRANTS..................................... 10
DESCRIPTION OF UNITS..................................................... 10
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS........................... 10
EXPERTS.................................................................. 21
LEGAL MATTERS............................................................ 22
ABOUT THIS PROSPECTUS
All references to "the Company," "we," "our" and us in this prospectus mean CBL
& Associates Properties, Inc. and all entities owned or controlled by us except
where it is made clear that the term means only the parent company. The term
"you" refers to a prospective investor.
WHERE TO FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended, and in accordance with those requirements we file reports
and other information with the SEC. The reports and other information can be
inspected and copied at the public reference facilities maintained by the SEC at
100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Copies of
this material can be obtained by mail from the Public Reference Section of the
SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The SEC
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other materials that are filed through the SEC
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. In addition,
our common stock, Series B preferred stock and the Depositary Shares
representing fractional interests in our Series C and Series D preferred stock
are listed on the New York Stock Exchange and we are required to file reports,
proxy and information statements and other information with the New York Stock
Exchange. These documents can be inspected at the principal office of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed with the SEC a registration statement on Form S-3 covering the
securities offered by this Prospectus. You should be aware that this Prospectus
does not contain all of the information contained or incorporated by reference
in that registration statement and its exhibits and schedules, particular
portions of which have been omitted as permitted by SEC rules. For further
information about our company and our securities, we refer you to the
registration statement and its exhibits and schedules. You can inspect and
obtain the registration statement, including exhibits, schedules, reports and
other information that we have filed with the SEC, as described in the preceding
paragraph. Statements contained in this Prospectus concerning the contents of
any document we refer you to are not necessarily complete and in each instance
we refer you to the applicable document filed with the SEC for more complete
information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC's rules allow us to incorporate by reference information into this
Prospectus. This means that we can disclose important information to you by
referring you to another document. Any information referred to in this way is
considered part of this Prospectus from the date we file that document.
We have filed the documents listed below with the SEC under the Securities
Exchange Act of 1934 and they are incorporated herein by reference:
(i) Annual Report on Form 10-K for the fiscal year ended December 31, 2004, as
amended by Amendment No. 1 thereto on Form 10-K/A filed on December 2, 2005
(excluding the cover page and Items 1, 5, 6, 7, 8 and 15, which have been
updated in the Current Report on Form 8-K dated January 10, 2006);
(ii) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2005;
(iii) Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2005;
4
(iv) Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2005;
(v) Current Reports on Form 8-K filed on each of May 3, 2005, May 11, 2005, May
13, 2005, June 7, 2005, June 21, 2005, July 14, 2005, July 20, 2005, August 10,
2005, September 19, 2005, October 21, 2005, October 28, 2005 (the two separate
Current Reports dated October 24, 2005), November 1, 2005, November 22, 2005,
January 10, 2006 and January 18, 2006;
(vi) the description of our common stock contained in our Registration Statement
on Form 8-A dated October 25, 1993;
(vii) the description of our series B preferred stock contained in our
Registration Statement on Form 8-A dated June 11, 2002;
(viii) the description of the Depositary Shares, each representing 1/10th of a
share of our series C preferred stock contained in our Registration Statement on
Form 8-A, filed on August 21, 2003; and
(ix) the description of the Depositary Shares, each representing 1/10th of a
share of our series D preferred stock contained in our Registration Statement on
Form 8-A, filed on December 10, 2004.
Any document which we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Prospectus and prior to termination of this
offering of securities (other than, in each case, documents or information
deemed to have been furnished and not filed in accordance with SEC rules) will
be deemed to be incorporated by reference into, and to be part of, this
Prospectus from the date of filing of each such document.
Any statement contained in this Prospectus or in a document incorporated or
deemed to be incorporated by reference into this Prospectus will, to the extent
applicable, be deemed to be modified, superseded or replaced by later statements
included in supplements or amendments to this Prospectus or in subsequently
filed documents which are in, or deemed to be incorporated by reference in, this
Prospectus.
We will 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 to those documents, unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be addressed to our Investor Relations Department, CBL Center, 2030
Hamilton Place Blvd., Suite 500, Chattanooga, Tennessee 37421-6000 (telephone
number (423) 855-0001).
CBL & ASSOCIATES PROPERTIES, INC.
We are a self-managed, self-administered, fully integrated real estate company.
We own, operate market, manage, lease, expand, develop, redevelop, acquire and
finance regional malls and community shopping centers. We have elected to be
taxed as a REIT for U.S. federal income tax purposes. We currently own interests
in a portfolio of properties, consisting of enclosed regional malls, associated
centers, each of which is part of a regional shopping mall complex, community
centers, joint venture investments in similar types of properties and income
from mortgages and certain other assets. Our shopping center properties are
located in 26 states, but primarily in the Southeast and Midwest regions of the
United States. We may also own from time to time shopping center properties that
are under development or construction, as well as options to acquire certain
shopping center development sites.
We conduct substantially all of our business through CBL & Associates Limited
Partnership, our "Operating Partnership." We currently own an indirect majority
interest in the Operating Partnership, and one of our wholly owned subsidiaries,
CBL Holdings I, Inc., a Delaware corporation, is its sole general partner. To
comply with certain technical requirements of the Internal Revenue Code of 1986,
as amended, applicable to REITs, our property management and development
activities, sales of peripheral land and maintenance operations are carried out
through a separate management company, CBL & Associates Management, Inc. Our
Operating Partnership owns 100% of the stock of the management company.
In order to maintain our qualification as a REIT for U.S. federal income tax
purposes, we must distribute each year at least 90% of our taxable income,
computed without regard to net capital gains or the dividends-paid deduction.
We were organized on July 13, 1993 as a Delaware corporation to acquire
substantially all of the real estate properties owned by our predecessor
company, CBL & Associates, Inc., and its affiliates. Our principal executive
offices are located at CBL Center, 2030 Hamilton Place Blvd., Suite 500,
Chattanooga, Tennessee 37421-6000, and our telephone number is (423) 855-0001.
Our website can be found at www.cblproperties.com. The information contained in
our website is not part of this Prospectus.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the offered securities as set
forth in the applicable prospectus supplement. We will not receive proceeds from
any sales of securities by persons other than the Company, except as may
otherwise be stated in any applicable prospectus supplement.
5
DESCRIPTION OF CAPITAL STOCK
Under our amended and restated certificate of incorporation, we have authority
to issue 195,000,000 shares of all classes of capital stock, consisting of
180,000,000 shares of common stock and 15,000,000 shares of preferred stock. As
of January 13, 2006, we had 62,542,929 shares of common stock outstanding,
2,000,000 shares of our 8.75% Series B cumulative redeemable preferred stock
outstanding, 460,000 shares of our 7.75% Series C cumulative redeemable
preferred stock outstanding and 700,000 shares of our 7.375% Series D cumulative
redeemable preferred stock outstanding.
Our common stock is listed on the New York Stock Exchange under the symbol
"CBL." Our 8.75% Series B cumulative redeemable preferred stock is listed on the
New York Stock Exchange under the symbol "CBLprB." Our Depositary Shares, each
representing 1/10th of a share of our 7.75% Series C cumulative redeemable
preferred stock, are listed on the New York Stock Exchange under the symbol
"CBLprC." Our Depositary Shares, each representing 1/10th of a share of our
7.375% Series D cumulative redeemable preferred stock, is listed on the New York
Stock Exchange under the symbol "CBLprD."
Pursuant to rights granted to us 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.
Description of Preferred Stock
Subject to the limitations prescribed by our certificate of incorporation, our
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
rights of each series and the qualifications, limitations and restrictions, all
without any further vote or action by our stockholders. 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,
and any conversion rights and voting rights. The preferred stock will, when
issued, be fully paid and non-assessable and, unless otherwise provided in the
preferred stock designations, will have no preemptive rights. Under Delaware
law, holders of our preferred stock generally are not responsible for our debts
or obligations.
The rights, preferences, privileges and restrictions of each series of our
preferred stock will be fixed by the articles supplementary relating to the
series. A prospectus supplement relating to each series will specify the terms
of the preferred stock.
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 our 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 our certificate of incorporation,
the holders of those shares exclusively possess all voting power. Our
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 distributions which may be declared
from time to time by our Board of Directors from funds which are legally
available, and upon liquidation are entitled to receive pro rata all of our
assets available for distribution to those holders. Holders of common stock will
not be entitled to any preemptive rights. Under Delaware law, holders of common
stock generally are not responsible for our debts or obligations.
Restrictions on Transfer
For us to qualify as a REIT under the Internal Revenue Code, not more than 50%
in value of our outstanding capital stock may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Internal Revenue 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 our gross income must be from
particular activities.
To ensure that we remain a qualified REIT, our certificate of incorporation
contains provisions, collectively referred to as the ownership limit provision,
restricting the acquisition of shares of our capital stock. 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 our certificate of incorporation, no person (other than Charles
Lebovitz, members of the Richard Jacobs Group (as defined), members of the David
Jacobs Group (as defined) and their respective affiliates under the applicable
attribution rules of the Internal Revenue Code) may own, or be deemed to own by
virtue of the attribution provisions of the Internal Revenue Code, more than 6%
6
of the value of our outstanding capital stock. The ownership limit provision
further provides that, subject to certain restrictions, Charles Lebovitz and his
respective affiliates (as defined under the applicable attribution rules of the
Internal Revenue Code) may own beneficially or constructively in the aggregate
up to 25.4% of the value of the outstanding shares of our capital stock. The
ownership limit provision further provides that, subject to certain
restrictions, of the group comprised of Richard Jacobs and his respective
affiliates and David Jacobs and his respective affiliates (in each case, as
defined under the applicable attribution rules of the Internal Revenue Code),
any individual person (that is, any person who is treated as an individual for
purposes of Section 542(a)(2) of the Internal Revenue Code) may own beneficially
or constructively in the aggregate up to 13.9% of the value of the outstanding
shares of our capital stock. Also, any two individuals of the group comprised of
Richard Jacobs and his respective affiliates or of the group comprised of David
Jacobs and his respective affiliates may own beneficially or constructively in
the aggregate up to 19.9% of the value of the outstanding shares of our capital
stock. The ownership limit is the percentage limitation on ownership applicable
to any given person pursuant to the ownership limit provision.
Our 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 our status as a REIT. The
ownership limit provision will not apply if our Board of Directors and our
stockholders determine that we will not attempt to continue to qualify as a
REIT.
Any issuance or transfer of capital stock to any person in excess of the
applicable ownership limit or any issuance or transfer of shares of capital
stock which would cause us to be beneficially owned by fewer than 100 persons,
will be null and void and the intended transferee will acquire no rights to the
stock. Any acquisition of our capital stock and continued holding or ownership
of our capital stock constitutes, under our certificate of incorporation, a
continuous representation of compliance with the applicable ownership limit.
In the event of a purported transfer or other event 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 would be
deemed void ab initio and those shares would automatically be transferred to a
trust, the trustee of which we would designate, but who would not be affiliated
with us or the prohibited owner, who would have owned these shares were it not
for the ownership limit provision. The trust would be for the exclusive benefit
of a charitable beneficiary to be designated by us.
The shares held in trust will be issued and outstanding shares of our 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 us with respect to the shares held in trust will
be held by the trustee for the benefit of the designated charitable beneficiary.
The trustee will 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 if the record date for
such dividends or distributions was on or after the date those shares were
transferred to the trust. We can take all measures we deem necessary in order to
recover such amounts.
The trustee will have the exclusive right to designate a permitted transferee to
acquire the shares held in trust without violating the applicable ownership
restrictions for an amount equal to the fair market value (determined at the
time of transfer to this permitted transferee) of those shares. The trustee will
pay to the aforementioned 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 owner, if any, will be distributed to
the charitable beneficiary.
We or our 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 we, or our designee, exercise such right
to purchase such shares-in-trust.
The ownership limit provision will not be automatically removed even if the REIT
provisions of the Internal Revenue 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 our certificate of incorporation,
and such an amendment would require a 66 (2)/3% vote of the outstanding voting
stock. In addition to preserving our status as a REIT, the ownership limit may
have the effect of precluding an acquisition of control of us without the
approval of our 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
Internal Revenue 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 us containing the information specified in our
certificate of incorporation before January 30 of each year. In addition, each
stockholder will upon demand be required to disclose to us in writing such
information with respect to the direct, indirect and constructive ownership of
shares of capital stock as our Board of Directors deems necessary to comply with
the provisions of the Internal Revenue Code applicable to a REIT or to comply
with the requirements of any taxing authority or governmental agency.
7
Limitation of Liability of Directors
Our certificate of incorporation provides that a director will not be personally
liable for monetary damages to us or our stockholders for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to us or our 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 our 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, our 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 our certificate of incorporation described above apply to our
officers only if the respective officer is one of our directors and is acting in
his or her capacity as director, and do not apply to our officers who are not
directors.
Indemnification Agreements
We have entered into indemnification agreements with each of our officers and
directors. The indemnification agreements require, among other things, that we
indemnify our officers and directors to the fullest extent permitted by law, and
advance to our officers and directors all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. We must also indemnify and advance all expenses incurred by officers
and directors who are successful in seeking to enforce their rights under the
indemnification agreements, and cover officers and directors under our
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 our certificate of incorporation and 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 our Board of Directors or by the stockholders to eliminate the rights
it provides.
Other Provisions of Our Certificate of Incorporation and Bylaws
Our 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 our Board of Directors
rather than pursue non-negotiated takeover attempts. These provisions include:
Classified Board of Directors. Our 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 our
Board of Directors. In addition, our stockholders 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 our
Board of Directors. The provisions of our certificate of incorporation relating
to the classification of our 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. Our 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 our
stockholders. These procedures provide that notice of such stockholder proposals
must be timely given in writing to our Secretary prior to the meeting at which
the action is to be taken. Generally, to be timely, notice must be received at
our principal executive offices 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. Our 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 our 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.
Stockholder Rights Plan
Following a two-for-one split of our common stock that was effected in the form
of a stock dividend as of June 15, 2005, each share of our common stock
automatically trades with one half of a right (a "Right"), which will expire at
the close of business on April 29, 2009 (the "Final Expiration Date"), unless
earlier redeemed or exchanged by us as described below. Each whole Right
entitles the holder to purchase from us one ten-thousandth of a share of our
Series 1999 Junior Participating Preferred Stock at a price of $100.00 per
share, (the "Purchase Price"), subject to certain adjustments.
The Rights have certain anti-takeover effects. If the Rights are triggered as
described below, they will cause substantial dilution to any person or group of
affiliated or associated persons that attempts to acquire us on terms not
8
approved by our Board of Directors. The Rights should not interfere with any
merger or other business combination approved by the Board of Directors, since
we may redeem the Rights at $.01 per Right at any time until the close of
business on the tenth day (or such earlier or later date as described below)
after a person or group has obtained beneficial ownership or voting control of
15% or more of our voting shares.
The Rights, unless earlier redeemed or exchanged by us, become exercisable upon
the close of business on the day (the "Distribution Date") which is the earlier
of (i) the tenth day following a public announcement that a person or group of
affiliated or associated persons has acquired beneficial ownership or voting
control of 15% or more of the outstanding shares of common stock (such person or
group, subject to certain exceptions, is treated as an "Acquiring Person" once
they cross such 15% threshold) and (ii) the tenth business day (or such later
date as may be determined by our Board prior to such time as any person or group
of affiliated or associated persons becomes an Acquiring Person) after the date
of the commencement or public announcement of a person's or group's intention to
commence a tender or exchange offer, the consummation of which would result in
the acquisition of beneficial ownership or voting control of 15% or more of our
outstanding shares of common stock. Prior to any such event, the Rights are not
exercisable, are not represented by separate certificates and are not
transferable apart from the common stock. Upon the occurrence of a Distribution
Date, we will not be required to distribute fractional Rights, and instead will
pay cash to any holders who otherwise would have been entitled to receive a
fractional Right.
Our Rights Agreement with SunTrust Bank, our transfer agent and Rights agent,
provides that, in the event a person or group of affiliated persons becomes an
Acquiring Person, each holder of record of a whole Right, other than the
Acquiring Person (whose Rights will thereupon become null and void), will
thereafter have the right to receive, upon payment of the Purchase Price, that
number of shares of common stock having a market value at the time of the
transaction equal to two times the Purchase Price. Rights may not, however, be
exercised for a number of shares that would violate the ownership limits
described above under "Description of Common Stock - Restrictions on Transfer."
In addition, unless the Rights are earlier redeemed or exchanged, in the event
that, after the time that a person or group of affiliated or associated persons
becomes an Acquiring Person, we were to be acquired in a merger or other
business combination (in which any shares are changed into or exchanged for
other securities or assets) or more than 50% of our assets or earning power were
to be sold or transferred in one or a series of related transactions, the Rights
Agreement provides that proper provision will be made so that each holder of
record of a whole Right, other than the Acquiring Person (whose rights will
thereupon become null and void), will from and after such date have the right to
receive, upon payment of the Purchase Price, that number of shares of common
stock of the acquiring company (or such other merger consideration as may have
been issued in the transaction, as applicable) having a market value at the time
of such transaction equal to two times the Purchase Price.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person, our Board of Directors may issue shares of common
stock in exchange for the Rights (other than Rights owned by the Acquiring
Person, which will have become null and void), in whole or part, at an exchange
ratio of one share of common stock per Right (subject to adjustment).
The Rights Agreement also provides that the Company may pay cash in lieu of
issuing fractional shares upon exercise or redemption of the Rights.
At any time on or prior to the earlier of (i) the close of business on the tenth
day after a public announcement that a person or group of affiliated or
associated persons has become an Acquiring Person (or such earlier or later date
as may be authorized by our Board of Directors), or (ii) the Final Expiration
Date, we may redeem the Rights in whole, but not in part, at a price of $.01 per
Right ("Redemption Price"), payable at our election in cash, shares of common
stock or other consideration determined to be appropriate by our Board of
Directors. Under certain circumstances, the decision to redeem the Rights will
require the concurrence of at least two-thirds of our directors. Following the
effective time of any such action by us, the right to exercise the Rights will
terminate and the only right of the holders of the Rights will be to receive the
Redemption Price.
While the Rights are redeemable, we may, except with respect to the Redemption
Price or date of expiration of the Rights, amend the Rights in any manner,
including an amendment to extend the time period in which the Rights may be
redeemed. At any time when the Rights are not redeemable, we may amend the
Rights in any manner that does not materially adversely affect the interests of
holders of the Rights.
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 a
company's outstanding voting stock) from engaging in a "business combination"
(as defined in Section 203) with us for three years following the date that
person becomes an interested stockholder unless (a) before that person became an
interested holder, our Board of Directors approved the transaction in which the
interested holder became an interested stockholder or approved the business
combination, (b) upon completion of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owns 85% of our voting stock outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers and by
employee stock plans that do not provide employees with the right to determine
9
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 our
Board of Directors and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of our 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 us 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 our 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 DEPOSITARY SHARES
We may issue depositary shares, each representing a fraction of a share of our
common stock or preferred stock, as will be specified in the applicable
prospectus supplement. In the event we elect to do so, we will issue to the
public receipts evidencing the depositary shares. The particular terms of the
depositary shares offered by any prospectus supplement will be described in such
prospectus supplement.
DESCRIPTION OF COMMON STOCK WARRANTS
We may issue common stock warrants for the purchase of our common stock. We may
issue our common stock warrants independently or together with any other
securities offered by us in any prospectus supplement, and such common stock
warrants may be attached to or separate from such offered securities. We will
issue each series of common stock warrants under a separate warrant agreement to
be entered into between a warrant agent specified in the prospectus supplement
and us. The warrant agent will act solely as our agent 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 terms of the common stock warrants and the applicable
warrant agreements will be set forth in the applicable prospectus supplement.
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.
DESCRIPTION OF UNITS
We may issue units comprised of one or more of the other securities that may be
offered under this prospectus, in any combination. Each unit will be issued so
that the holder of the unit is also the holder of each security included in the
unit. Thus, the holder of a unit will have the rights and obligations of a
holder of each included security.
An applicable prospectus supplement will describe (i) the material terms of the
units and of the securities comprising the units, including whether and under
what circumstances those securities may be held or transferred separately, (ii)
any material provisions relating to the issuance, payment, settlement, transfer
or exchange of the units or of the securities comprising the units, (iii)
certain U.S. federal income tax considerations applicable to the units and (iv)
any material provisions of the governing unit agreement that differ from those
described above.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain U.S. federal income tax considerations is based
on current law, is for general information only, and is not tax advice. This
summary is based on the Internal Revenue Code, Treasury Regulations,
administrative interpretations and judicial decisions, all as currently in
effect, and all of which are subject to differing interpretations or to change,
possibly with retroactive effect. We have not sought any ruling from the
Internal Revenue Service with respect to the statements made and the conclusions
reached in the following summary, and there can be no assurance that the
Internal Revenue Service will not assert, and that a court will not sustain, a
position contrary to any of the tax consequences described below. This summary
deals only with offered securities held as "capital assets" (within the meaning
of Section 1221 of the Internal Revenue Code) and does not address tax
considerations applicable to an investor's particular circumstances or to
investors that may be subject to special tax rules, including, without
limitation, financial institutions, insurance companies, dealers in securities
or currencies, persons subject to the mark-to-market rules of the Internal
Revenue Code, persons that will hold notes or our common stock as a position in
a hedging transaction, "straddle" or "conversion transaction" for tax purposes,
entities treated as partnerships for U.S. federal income tax purposes, U.S.
holders (as defined below) that have a "functional currency" other than the U.S.
dollar, persons subject to the alternative minimum tax provisions of the
Internal Revenue Code and, except as expressly indicated below, tax-exempt
organizations.
10
In addition, if a partnership (including for this purpose any entity treated as
a partnership for U.S. federal income tax purposes) is a holder of offered
securities, the tax treatment of a partner in the partnership will generally
depend upon the status of the partner and upon the activities of the
partnership. Holders that are partnerships, and partners in such partnerships,
should consult their tax advisors about the U.S. federal income tax consequences
of purchasing, holding and disposing of our offered securities.
Each prospective purchaser of the offered securities is advised to consult his
or her own tax advisor regarding the specific tax consequences to the purchaser
of the purchase, ownership and sale of the offered securities and of our
election to be taxed as a REIT, including the U.S. federal, state, local,
foreign and other tax consequences of the purchase, ownership, sale and election
and of potential changes in applicable tax laws. In particular, foreign
investors should consult their own tax advisors concerning the tax consequences
of an investment in our company, including the possibility of United States
income tax withholding on our distributions.
Taxation of CBL
We have elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code and applicable Treasury Regulations, which set forth the
requirements for qualifying as a REIT, commencing with our taxable year ended
December 31, 1993. We believe that, commencing with our taxable year ended
December 31, 1993, we have been organized and have operated, and are operating,
in such a manner so as to qualify for taxation as a REIT under the Internal
Revenue Code. We intend to continue to operate in such a manner, but we may not
operate in a manner so as to qualify or remain qualified.
The sections of the Internal Revenue Code relating to qualification and
operation as a REIT are highly technical and complex. The following sets forth
the material aspects of the Internal Revenue Code sections that govern the U.S.
federal income tax treatment of a REIT. This summary is qualified in its
entirety by the applicable Internal Revenue Code provisions and Treasury
Regulations, and administrative and judicial interpretations of the applicable
Internal Revenue Code provisions and Treasury Regulations. Morrison & Foerster
LLP has acted as our special tax counsel in connection with our election to be
taxed as a REIT.
In connection with this filing, Morrison & Foerster LLP has rendered an opinion
to us that we have been organized and have operated in conformity with the
requirements for qualification and taxation as a REIT under the Internal Revenue
Code for each of our taxable years beginning with the taxable year ended
December 31, 2002 through our taxable year ended December 31, 2005, and if we
continue to be organized and operated after December 31, 2005 in the same manner
as we have prior to that date, we will continue to qualify as a REIT. Morrison &
Foerster LLP's opinion is based on certain factual representations and
assumptions and methods of operations which are beyond its control and which it
will not monitor on an ongoing basis. In particular, this opinion is based upon
our factual representations concerning our business and properties and certain
factual representations and legal conclusions of Shumacker Witt Gaither &
Whitaker, P.C. Moreover, our qualification and taxation as a REIT depend upon
our ability to meet, through actual annual operating results, certain
distribution levels, a specified diversity of stock ownership, and the various
other qualification tests imposed under the Internal Revenue Code as discussed
below. The annual operating results will not be reviewed by Morrison & Foerster
LLP. Accordingly, the actual results of our operations for any particular
taxable year may not satisfy these requirements. Further, the anticipated income
tax treatment described in this prospectus supplement may be changed, perhaps
retroactively, by legislative, administrative or judicial action at any time.
For as long as we qualify for taxation as a REIT, we generally will not be
subject to U.S. federal corporate income taxes on our income that is currently
distributed to stockholders. The REIT requirements generally allow a REIT to
deduct dividends paid to its stockholders. This treatment substantially
eliminates the "double taxation" (once at the corporate level and again at the
stockholder level) that generally results from investment in a corporation.
If we fail to qualify as a REIT in any year, however, we will be subject to U.S.
federal income tax as if we were an ordinary corporation. In addition, our
stockholders will be taxed in the same manner as stockholders of ordinary
corporations (including, in the case of stockholders that are not corporations,
potentially being eligible for preferential tax rates on dividends received from
us). In that event, we could be subject to potentially significant tax
liabilities, the amount of cash available for distribution to our stockholders
could be reduced and we would not be obligated to make any distributions.
Moreover, we could be disqualified from taxation as a REIT for four taxable
years beginning after the first taxable year for which the loss of REIT status
occurred. For a discussion of the tax consequences of failure to qualify as a
REIT, see "Certain U.S. Federal Income Tax Considerations--Failure to Qualify"
below.
Even if we qualify for taxation as a REIT, we may be subject to U.S. federal
income tax as follows:
First, we will be taxed at regular corporate rates on any undistributed "real
estate investment trust taxable income," including undistributed net capital
gain. However, we can elect to "pass through" any of our taxes paid on our
undistributed net capital gain income to our stockholders on a proportional
basis.
Second, under certain circumstances, we may be subject to the "alternative
minimum tax" on our items of tax preference, if any.
Third, if we have (1) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in the
ordinary course of business or (2) other non-qualifying net income from
foreclosure property, we will be subject to tax at the highest corporate rate on
such income. Foreclosure property means property acquired by reason of a default
on a lease or any indebtedness held by a REIT.
11
Fourth, if we have net income from "prohibited transactions" (which are, in
general, sales or other dispositions of property, held primarily for sale to
customers in the ordinary course of business, generally other than property held
for at least four years that qualify for a statutory safe harbor, foreclosure
property, and property involuntarily converted), such income will be subject to
a 100% penalty tax.
Fifth, if we should fail to satisfy the gross income tests or the asset tests,
and nonetheless maintain our qualification as a REIT because certain other
requirements have been satisfied, we will ordinarily be subject to a penalty tax
relating to such failure, computed as described below. Similarly, if we maintain
our REIT status despite our failure to satisfy one or more requirements for REIT
qualification, other than the gross income tests and asset tests, we must pay a
penalty of $50,000 for each such failure.
Sixth, if we should fail to distribute during each calendar year at least the
sum of (1) 85% of our ordinary income for such year, (2) 95% of our net capital
gain income for such year, and (3) any undistributed taxable income from prior
periods, we will be subject to a 4% excise tax on the excess of such required
distribution over the amounts distributed.
Seventh, if we acquire in the future any asset from a "C" corporation (i.e.,
generally a corporation subject to full corporate-level tax) in a transaction in
which the basis of the asset in our hands is determined by reference to the
basis of the asset (or any other property) in the hands of the C corporation,
and we recognize gain on the disposition of such asset during the 10-year period
beginning on the date on which we acquired such asset, then, to the extent of
any built-in, unrealized gain at the time of acquisition, such gain generally
will be subject to tax at the highest regular corporate rate.
Eighth, if we receive non- arm's length income as a result of services provided
by a taxable REIT subsidiary, defined below, to our tenants, or if we receive
certain other non-arm's-length income from a taxable REIT subsidiary, we can be
subject to a 100%corporate level tax on the amount of the non-arm's-length
income.
Requirements for Qualification
Organizational Requirements
In order to remain qualified as a REIT, we must continue to meet certain
requirements, discussed below, relating to our organization and sources of
income, the nature of our assets, and distributions of income to our
stockholders.
The Internal Revenue 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 Sections 856 through 860 of the Internal Revenue Code, (4)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Internal Revenue 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 has been
owned, directly or indirectly, by five or fewer individuals (as defined in the
Internal Revenue Code) at any time, and (7) that meets certain other tests,
described below, regarding the nature of its income and assets. The Internal
Revenue Code provide that conditions (1) to (4), inclusive, must be met during
the entire taxable year, and that condition (5) must be met during at least 335
days of a taxable year of 12 months, or during a proportionate part of a taxable
year of less than 12 months. For purposes of condition (6), certain tax-exempt
entities are generally treated as individuals. However, a pension trust
generally will not be considered an individual for purposes of condition (6).
Instead, beneficiaries of the pension trust will be treated as holding stock of
a REIT in proportion to their actuarial interests in the trust. If we were to
fail to satisfy condition (6) during a taxable year, that failure would not
result in our disqualification as a REIT under the Internal Revenue Code for
such taxable year as long as (i) we satisfied the stockholder demand statement
requirements described in the succeeding paragraph and (ii) we did not know, or
exercising reasonable diligence would not have known, whether we had failed
condition (6).
We have satisfied the requirements of conditions (1) through (4) and (7), and we
believe that the requirements of conditions (5) and (6) have been and are
currently satisfied. In addition, our certificate of incorporation provides for
restrictions regarding transfer of our shares in order to assist us in
continuing to satisfy the share ownership requirements described in conditions
(5) and (6) above. These transfer restrictions are described under the captions
"Description of Capital Stock--Description of Preferred Stock--Restrictions on
Transfer" and "--Description of Common Stock--Restrictions on Transfer" in the
accompanying prospectus. Moreover, to evidence compliance with these
requirements, we must maintain records which disclose the actual ownership of
our outstanding common stock and preferred stock. In fulfilling our obligations
to maintain records, we must and will demand written statements each year from
the record holders of designated percentages of our stock disclosing the actual
owners of such stock. A list of those persons failing or refusing to comply with
such demand must be maintained as part of our records. A stockholder failing or
refusing to comply with our written demand must submit with its U.S. federal
income tax returns a similar statement disclosing the actual ownership of stock
and certain other information.
Although we believe we have satisfied the stockholder demand statement
requirements described in the preceding paragraph, our failure to satisfy those
requirements will not result in our disqualification as a REIT under the
Internal Revenue Code but may result in the imposition of Internal Revenue
Service penalties against us.
We currently have three "qualified REIT subsidiaries," CBL Holdings I, Inc., CBL
12
Holdings II, Inc. and CBL/North Haven, Inc., and may have additional qualified
REIT subsidiaries in the future. A corporation that is a qualified REIT
subsidiary will not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a qualified REIT
subsidiary will be treated as assets, liabilities, and items of the REIT. Thus,
in applying these requirements, the separate existence of our qualified REIT
subsidiaries will be ignored, and all assets, liabilities, and items of income,
deduction, and credit of these subsidiaries will be treated as our assets,
liabilities and items of income, deduction and credit. A qualified REIT
subsidiary is not subject to U.S. federal income tax and our ownership of the
stock of such a subsidiary will not violate the REIT asset tests.
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, generally based on its pro rata share of capital interest
in the partnership, of the assets of the partnership and will be deemed to be
entitled to the gross income of the partnership attributable to that share. In
addition, the character of the assets and gross income of the partnership will
retain the same character in the hands of a partner qualifying as a REIT for
purposes of the gross income tests and the asset tests described below. Thus,
our proportionate share of the assets, liabilities and items of income of the
Operating Partnership and the property partnerships will be treated as our
assets, liabilities and items of income for purposes of applying the
requirements described in this section, provided that the Operating Partnership
and property partnerships are treated as partnerships for U.S. federal income
tax purposes.
Finally, a corporation may not elect to become a REIT unless its taxable year is
the calendar year. Our taxable year is the calendar year.
Income Tests
In order for us to maintain our qualification as a REIT, there are two gross
income requirements that must be satisfied annually. First, at least 75% of our
gross income, excluding gross income from prohibited transactions, for each
taxable year must consist of defined types of income derived directly or
indirectly from investments relating to real property or mortgages on real
property, including "rents from real property," as described below, and, in
certain circumstances, interest, or from certain types of temporary investments.
Second, at least 95% of our gross income, excluding gross income from prohibited
transactions, for each taxable year must be derived from real property
investments of those kinds, dividends, other types of interest, gain from the
sale or disposition of stock or securities that do not constitute dealer
property, or any combination of the foregoing. Dividends that we receive on our
indirect ownership interest in the management company, as well as interest that
we receive on our loan to the management company and other interest income that
is not secured by real estate, generally will be includable under the 95% test
but not under the 75% test.
Rents received or deemed to be received by us will qualify as "rents from real
property" for purposes of the gross income tests only if several conditions are
met:
First, the amount of rent must not be based, in whole or in part, on the income
or profits of any person. However, an amount received or accrued generally will
not be excluded from the term "rents from real property" solely by reason of
being based on a fixed percentage or percentages of receipts or sales.
Second, rents received from a tenant will not qualify as rents from real
property if the REIT, or a direct or indirect owner of 10% or more of the REIT,
owns, directly or constructively, 10% or more of the tenant, except that rents
received from a taxable REIT subsidiary under certain circumstances qualify as
rents from real property even if we own more than a 10% interest in the
subsidiary.
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to the 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 Internal Revenue Code. Services that
would give rise to unrelated business taxable income if provided by a tax exempt
organization must be provided either by the management company or by an
independent contractor who is adequately compensated and from whom the REIT does
not derive any income; otherwise, all of the rent received from the tenant for
whom the services are provided will fail to qualify as rents from real property
if the services income exceeds a de minimis amount. However, rents will not be
disqualified if a REIT provides de minimis impermissible services. For this
purpose, services provided to tenants of a property are considered de minimis
where income derived from the services rendered equals 1% or less of all income
derived from the property, with the threshold determined on a
property-by-property basis. For purposes of the 1% threshold, the amount treated
as received for any service may not be less than 150% of the direct cost
incurred in furnishing or rendering the service. Also note, however, that
receipts for services furnished, whether or not rendered by an independent
contractor, which are not customarily provided to tenants in properties of a
similar class in the geographic market in which our property is located will in
no event qualify as rents from real property.
Substantially all of our income is derived from our partnership interest in the
Operating Partnership. The Operating Partnership's real estate investments,
including those held through the property partnerships, give rise to income that
enables us to satisfy all of the income tests described above. The Operating
Partnership's income is largely derived from its interests, both direct and
indirect, in the properties, which income, for the most part, qualifies as
"rents from real property" for purposes of the 75% and the 95% gross income
tests. The Operating Partnership also derives dividend income from its interest
in the management company.
13
None of us, the Operating Partnership or any of the property partnerships has a
plan or intention to (1) charge rent for any property that is based in whole or
in part on the income or profits of any person (except by reason of being based
on a percentage of receipts or sales, as described above) other than relatively
minor amounts that do not affect compliance with the above tests; (2) rent any
property to a tenant of which we, or an owner of 10% or more of our stock,
directly or indirectly, own 10% or more, other than under leases with CBL &
Associates, Inc., CBL & Associates Management, Inc. and certain of our
affiliates and officers and certain affiliates of those persons that produce a
relatively minor amount of non-qualifying income and that we believe will not,
either singly or when combined with other non-qualifying income, exceed the
limits on non-qualifying income; (3) derive rent attributable to personal
property leased in connection with property that exceeds 15% of the total rents
other than relatively minor amounts that do not affect compliance with the above
tests; or (4) directly perform any services that would give rise to income
derived from services that give rise to "unrelated business taxable income" as
defined in Section 512(a) of the Internal Revenue Code.
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 the amount depends in whole or in part on the income or profits
of any person. However, an amount received or accrued generally will not be
excluded from the term "interest" solely by reason of being based on a fixed
percentage or percentage of receipts or sales. Although the Operating
Partnership or the property owners may advance money from time to time to
tenants for the purpose of financing tenant improvements, we and the Operating
Partnership do not intend to charge interest in any transaction that will depend
in whole or in part on the income or profits of any person or to make loans that
are not secured by mortgages of real estate in amounts that could jeopardize our
compliance with the 5% and 10% asset tests described below.
Any net income derived from a prohibited transaction is subject to a 100%
penalty tax. We believe that no asset owned by us, the Operating Partnership or
the property partnerships is held for sale to customers, and that the sale of
any property will not be in the ordinary course of our business, or that of the
Operating Partnership or the relevant property partnership. Whether property is
held primarily for sale to customers in the ordinary course of a trade or
business and, therefore, is subject to the 100% penalty tax, depends on the
facts and circumstances in effect from time to time, including those related to
a particular property. We and the Operating Partnership will attempt to comply
with the terms of safe-harbor provisions in the Internal Revenue Code
prescribing when asset sales will not be characterized as prohibited
transactions. We may not always be able to comply with the safe-harbor
provisions of the Internal Revenue Code or avoid owning property that may be
characterized as property held primarily for sale to customers in the ordinary
course of business.
If we fail to satisfy one or both of the 75% or 95% gross income tests for any
taxable year, we may nevertheless qualify as a REIT for that year if we are
entitled to relief under certain provisions of the Internal Revenue Code. These
relief provisions generally will be available if our failure to meet those tests
is due to reasonable cause and not to willful neglect, and we timely comply with
requirements for reporting each item of our income to the Internal Revenue
Service. It is not possible to state whether in all circumstances we would be
entitled to the benefit of these relief provisions. As discussed above in
"--Taxation of CBL," Even if these relief provisions apply, a tax would be
imposed attributable to our nonqualifying income.
Asset Tests
In order for us to maintain our qualification as a REIT, we, at the close of
each quarter of our taxable year, must also satisfy several tests relating to
the nature of our assets. First, at least 75% of the value of our total assets
must be represented by real estate assets. Real estate assets for the purpose of
this asset test include (1) our allocable share of real estate assets held by
partnerships in which we own an interest or held by qualified REIT subsidiaries
and (2) stock or debt instruments held for not more than one year purchased with
the proceeds of our stock offering or long-term (at least five years) debt
offering, cash items and government securities. Second, although the remaining
25% of our assets generally may be invested without restriction, securities in
this class may not exceed either (1) 5% of the value of our total assets as to
any one nongovernment issuer, or (2) 10% of the outstanding voting securities of
any one issuer.
Securities for purposes of the above 5% and 10% asset tests may include debt
securities, including debt issued by a partnership. However, debt of an issuer
will not count as a security for purposes of the 10% value test if the security
qualifies for an exception set forth in the Internal Revenue Code. Beginning in
2005, solely for purposes of the 10% value test, a REIT's interest in the assets
of a partnership will be based upon the REIT's proportionate interest in any
securities issued by the partnership (including, for this purpose, the REIT's
interest as a partner in the partnership and any debt securities issued by the
partnership, but excluding any securities qualifying for the "straight debt" or
other exceptions described above), valuing any debt instrument at its adjusted
issue price.
In addition to the asset tests described above, we are prohibited from owning
more than 10% of the value of the outstanding debt and equity securities of any
subsidiary other than a qualified REIT subsidiary, subject to an exception. The
exception is that we and a non-qualified REIT subsidiary may make a joint
election for the subsidiary to be treated as a "taxable REIT subsidiary." The
securities of a taxable REIT subsidiary are not subject to the 10% value test
and the 10% voting securities test, and also are exempt from the 5% asset test.
However, no more than 20% of the total value of a REIT's assets can be
represented by securities of one or more taxable REIT subsidiaries. The
management company is a taxable REIT subsidiary.
It should be noted that the 20% value limitation must be satisfied at the end of
any quarter in which we increase our interest in the management company. In this
respect, if any partner of the Operating Partnership exercises its option to
exchange interests in the Operating Partnership for shares of common stock (or
we otherwise acquire additional interests in the Operating Partnership), we will
14
thereby increase our proportionate (indirect) ownership interest in the
management company, thus requiring us to recalculate our ability to meet the 20%
test in any quarter in which the exchange option is exercised. Although we plan
to take steps to ensure that we satisfy the 20% value test for any quarter with
respect to which retesting is to occur, these steps may not always be successful
or may require a reduction in the Operating Partnership's overall interest in
the management company.
The rules regarding taxable REIT subsidiaries contain provisions generally
intended to ensure that transactions between a REIT and its taxable REIT
subsidiary occur "at arm's length" and on commercially reasonable terms. These
requirements include a provision that prevents a taxable REIT subsidiary from
deducting interest on direct or indirect indebtedness to its parent REIT if,
under a specified series of tests, the taxable REIT subsidiary is considered to
have an excessive interest expense level or debt-to-equity ratio. In addition, a
100% penalty tax can be imposed on the REIT if its loans to or rental, service
or other agreements with its taxable REIT subsidiary are determined not to be on
arm's length terms. No assurance can be given that our loans to or rental,
service or other agreements with our taxable REIT subsidiaries will be on arm's
length terms. A taxable REIT subsidiary is subject to a corporate level tax on
its net taxable income, as a result of which our earnings derived through a
taxable REIT subsidiary are effectively subject to a corporate level tax
notwithstanding our status as a REIT. To the extent that a taxable REIT
subsidiary pays dividends to us in a particular calendar year, we may designate
a corresponding portion of dividends we pay to our noncorporate stockholders
during that year as "qualified dividend income" eligible to be taxed at reduced
rates to noncorporate recipients. See "--Taxation of U.S. Stockholders."
We believe that we are in compliance with the asset tests. Substantially all of
our investments are in properties that are qualifying real estate assets.
After initially meeting the asset tests at the close of any quarter, we will not
lose our status as a REIT for failure to satisfy the asset tests at the end of a
later quarter solely by reason of changes in asset values. If the failure to
satisfy the asset tests results from an acquisition of securities or other
property during a quarter, the failure can be cured by disposition of sufficient
nonqualifying assets within 30 days after the close of that quarter. We intend
to maintain adequate records of the value of our assets to ensure compliance
with the asset tests and to take such other actions within 30 days after the
close of any quarter as may be required to cure any noncompliance.
Beginning in 2005, if we fail to satisfy the 5% and/or 10% asset tests for a
particular quarter, we will not lose our REIT status if the failure is due to
the ownership of assets the total value of which does not exceed a specified de
minimis threshold, provided that we come into compliance with the asset tests
generally within six months after the last day of the quarter in which we
identify the failure. In addition, beginning in 2005, other failures to satisfy
the asset tests generally will not result in a loss of REIT status if (i)
following our identification of the failure, we file a schedule with a
description of each asset that caused the failure; (ii) the failure was due to
reasonable cause and not to willful neglect; (iii) we come into compliance with
the asset tests generally within six months after the last day of the quarter in
which the failure was identified; and (iv) we pay a tax equal to the greater of
$50,000 or the amount determined by multiplying the highest corporate tax rate
by the net income generated by the prohibited assets for the period beginning on
the first date of the failure and ending on the earlier of the date we dispose
of such assets and the end of the quarter in which we come into compliance with
the asset tests.
Annual Distribution Requirements
In order to remain qualified as a REIT, we are required to distribute dividends,
other than capital gain dividends, to our stockholders each year in an amount
equal to at least (A) the sum of (1) 90% of our REIT taxable income, computed
without regard to the dividends paid deduction and our net capital gain, and (2)
90% of the net income (after-tax), if any, from foreclosure property, minus (B)
the sum of certain items of noncash income. In addition, if we dispose of any
asset with built-in gain during the ten-year period beginning on the date we
acquired the property from a "C" corporation or became a REIT, we will be
required, according to guidance issued by the IRS, to distribute at least 90% of
the after tax built-in gain, if any, recognized on the disposition of the asset
These distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before we timely file our tax return for
the year and if paid on or before the first regular dividend payment after the
declaration, provided such payment is made during the 12-month period following
the close of such taxable year. These distributions are taxable to stockholders
in the year in which paid, even though the distributions relate to our prior
taxable year for purposes of the 90% distribution requirement. To the extent
that we do not distribute all of our net capital gain or distribute at least 90%
but less than 100% of our REIT taxable income, as adjusted, we will be subject
to tax on the undistributed amount at regular corporate tax rates. If we so
choose, we may retain, rather than distribute, our net long-term capital gains
and pay the tax on those gains. In this case, our stockholders would include
their proportionate share of the undistributed long-term capital gains in
income. However, our stockholders would then be deemed to have paid their share
of the tax, which would be credited or refunded to them. In addition, our
stockholders would be able to increase their basis in our shares they hold by
the amount of the undistributed long-term capital gains, less the amount of
capital gains tax we paid, included in the stockholders' long-term capital
gains.
Furthermore, if we should fail to distribute during each calendar year at least
the sum of (1) 85% of our ordinary income for the year, (2) 95% of our net
capital gain income for the year, and (3) any undistributed taxable income from
prior periods, we would be subject to a 4% excise tax on the excess of the
required distribution over the sum of the amounts actually distributed and the
amount of any net capital gains we elected to retain and pay tax on. For these
and other purposes, dividends declared by us in October, November or December of
one taxable year and payable to a stockholder of record on a specific date in
any such month shall be treated as both paid by us and received by the
stockholder during such taxable year, provided that the dividend is actually
15
paid by us by January 31 of the following taxable year. We intend to make timely
distributions sufficient to satisfy all annual distribution requirements.
Our taxable income consists substantially of our distributive share of the
income of the Operating Partnership. We expect that our taxable income will be
less than the cash flow we receive from the Operating Partnership, due to the
allowance of depreciation and other non-cash charges in computing REIT taxable
income. Accordingly, we anticipate that we will generally have sufficient cash
or liquid assets to enable us to satisfy the 90% distribution requirement.
It is possible that, from time to time, we may experience timing differences
between (1) the actual receipt of income and actual payment of deductible
expenses and (2) the inclusion of the income and deduction of the expenses in
arriving at our taxable income. Further, it is possible that, from time to time,
we may be allocated a share of net capital gain attributable to the sale of
depreciated property which exceeds our allocable share of cash attributable to
that sale. In these cases, we may have less cash available for distribution than
is necessary to meet our annual 90% distribution requirement. To meet the 90%
distribution requirement, we may find it appropriate to arrange for short-term
or possibly long-term borrowings or to pay distributions in the form of taxable
stock dividends. Any borrowings for the purpose of making distributions to
stockholders are required to be arranged through the Operating Partnership.
Under certain circumstances, we may be able to rectify a failure to meet the
distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends; however, we will be required to
pay applicable penalties and interest to the IRS based upon the amount of any
deduction taken for deficiency dividends.
Failure to Qualify
Beginning in 2005, if we should fail to satisfy one or more requirements for
REIT qualification, other than the gross income tests and asset tests, we may
retain our REIT qualification if the failures are due to reasonable cause and
not willful neglect, and if we pay a penalty of $50,000 for each such failure.
If we fail to qualify for taxation as a REIT in any taxable year and the relief
provisions do not apply, we will be subject to tax, including any applicable
alternative minimum tax, on our taxable income at regular corporate rates.
Distributions to stockholders in any year in which we fail to qualify will not
be deductible by us nor will they be required to be made. In this event, to the
extent of our current and accumulated earnings and profits, all distributions to
stockholders will be taxable as dividend income. In the case of stockholders
that are not corporations, any such dividends may be taxable at a maximum rate
of 15% during tax years beginning before January 1, 2009. In addition, subject
to certain limitations of the Internal Revenue Code, corporate distributees may
be eligible for the dividends-received deduction and noncorporate distributees
may be eligible to treat the dividends as "qualified dividend income" taxable at
capital gain rates. See "--Taxation of U.S. Stockholders." Unless we are
entitled to relief under specific statutory provisions, we will also be
disqualified from taxation as a REIT for the four taxable years following the
year in which our qualification was lost. It is not possible to state whether we
would be entitled to such statutory relief.
Taxation of U.S. Stockholders
As used in this section, the term "U.S. stockholder" means a holder of our
common or preferred stock that for U.S. federal income tax purposes is (1) a
citizen or resident of the United States, (2) a corporation or other entity
treated as a corporation for U.S. federal income tax purposes that is created or
organized in or under the laws of the United States or of any political
subdivision of the United States, (3) an estate the income of which is subject
to U.S. federal income taxation regardless of its source, or (4) a trust if (a)
a U.S. court is able to exercise primary supervision over the administration of
the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust or (b) it has a valid election in place to be
treated as a U.S. person or otherwise is treated as a U.S. person. For any
taxable year for which we qualify for taxation as a REIT, amounts distributed to
taxable U.S. stockholders will be taxed as follows.
Distributions Generally
Distributions to U.S. stockholders, other than capital gain dividends discussed
below, will constitute dividends to those holders up to the amount of our
current or accumulated earnings and profits and are taxable to the stockholders
as ordinary income. These distributions are not eligible for the
dividends-received deduction for corporations. To the extent that we make
distributions in excess of our current or accumulated earnings and profits, the
distributions will first be treated as a tax-free return of capital, reducing
the tax basis in the U.S. stockholder's shares, and distributions in excess of
the U.S. stockholder's tax basis in its shares are taxable as capital gain
realized from the sale of the shares. Dividends declared by us in October,
November or December of any year payable to a U.S. stockholder of record on a
specified date in any of these months will be treated as both paid by us and
received by the U.S. stockholder on December 31 of the year, provided that we
actually paid the dividend during January of the following calendar year. U.S.
stockholders may not include on their own income tax returns any of our tax
losses.
In general, dividends paid by REITs are not eligible for the 15% tax rate on
"qualified dividend income" and, as a result, our ordinary REIT dividends will
continue to be taxed at the higher ordinary income tax rate. Dividends received
16
by a noncorporate stockholder could be treated as "qualified dividend income,"
however, to the extent we have dividend income from taxable corporations (such
as a taxable REIT subsidiary) and to the extent our dividends are attributable
to income that is subject to tax at the REIT level (for example, if we
distributed less than 100% of our taxable income). In general, to qualify for
the reduced tax rate on qualified dividend income, a stockholder must hold our
stock for more than 60 days during the 121-day period beginning on the date that
is 60 days before the date on which our common stock becomes ex-dividend.
We will be treated as having sufficient earnings and profits to treat as a
dividend any distribution we make up to the amount required to be distributed in
order to avoid imposition of the 4% excise tax discussed in "--Taxation of CBL"
above. As a result, our stockholders may be required to treat certain
distributions that would otherwise result in a tax-free return of capital as
taxable dividends. Moreover, any deficiency dividend will be treated as a
dividend--an ordinary dividend or a capital gain dividend, as the case may
be--regardless of our earnings and profits.
Capital Gain Dividends
Dividends to U.S. stockholders that we properly designate as capital gain
dividends will be treated as long-term capital gain, to the extent they do not
exceed our actual net capital gain, for the taxable year without regard to the
period for which the stockholder has held his stock. Capital gain dividends are
not eligible for the dividends-received deduction for corporations; however,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. Noncorporate taxpayers are generally taxable
at a current maximum tax rate of 15% for long-term capital gain attributable to
sales or exchanges through taxable years beginning before January 1, 2007. A
portion of any capital gain dividends received by noncorporate taxpayers might
be subject to tax at a 25% rate to the extent attributable to gains realized on
the sale of real property that correspond to our "unrecaptured Section 1250
gain."
If we elect to retain capital gains rather than distribute them, a U.S.
stockholder will be deemed to receive a capital gain dividend equal to the
amount of its proportionate share of the retained capital gains. In this case, a
U.S. stockholder will receive certain tax credits and basis adjustments
reflecting the deemed distribution and deemed payment of taxes by the U.S.
stockholder.
Passive Activity Loss and Investment Interest Limitations
Our distributions and gain from the disposition of our common or preferred stock
will not be treated as passive activity income and, therefore, U.S. stockholders
may not be able to apply any passive losses against this income or gain. Our
dividends, to the extent they do not constitute a return of capital, will
generally be treated as investment income for purposes of the investment income
limitation. Net capital gain from the disposition of our common or preferred
stock 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 Our Common or Preferred Stock
A U.S. stockholder will recognize gain or loss on any taxable sale or other
disposition of our common or preferred stock in an amount equal to the
difference between (1) the amount of cash and the fair market value of any
property received on the sale or other disposition and (2) the holder's adjusted
basis in the common or preferred stock. This gain or loss generally will be a
capital gain or loss, and will be long-term capital gain or loss if the holder
held the securities for more than one year. Noncorporate U.S. stockholders are
generally taxable at a current maximum rate of 15% on long-term capital gain.
The Internal Revenue Service has the authority to prescribe, but has not yet
prescribed, regulations that would apply a capital gain tax rate of 25% (which
is generally higher than the long-term capital gain tax rates for noncorporate
U.S. stockholders) to a portion of capital gain realized by a noncorporate U.S.
stockholder on the sale of REIT stock that would correspond to the REIT's
"unrecaptured Section 1250 gain." U.S. stockholders are urged to consult with
their own tax advisors with respect to their capital gain tax liability. A
corporate U.S. stockholder will be subject to tax at a maximum rate of 35% on
capital gain from the sale of our common stock regardless of its holding period
for the stock.
In general, any loss upon a sale or exchange of our common stock by a U.S.
stockholder who has held such stock for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions (actually made or deemed made in accordance with the
discussion above) from us are required to be treated by such U.S. stockholder as
long-term capital gain.
Treatment of Tax-Exempt U.S. Stockholders
Our distributions to and any gain upon a disposition of our common or preferred
stock by a stockholder that is a tax-exempt entity generally should not
constitute unrelated business taxable income, provided that the tax-exempt
entity has not financed the acquisition of our common or preferred stock with
"acquisition indebtedness" within the meaning of the Internal Revenue Code and
that the common or preferred stock is not otherwise used in an unrelated trade
or business of the tax-exempt entity. If we were to be a "pension-held REIT"
(which we do not expect to be the case) and were to meet certain other
requirements, certain pension trusts owning more than 10% of our equity
interests could be required to report a portion of any dividends they receive
from us as unrelated business taxable income. For tax-exempt U.S. stockholders
that are social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
U.S. federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and
(c)(20) of the Internal Revenue Code, respectively, income from an investment in
us will constitute unrelated business taxable income unless the organization
properly sets aside or reserves such amounts for purposes specified in the
17
Internal Revenue Code. These tax-exempt U.S. stockholders should consult their
own tax advisers concerning these "set aside" and reserve requirements.
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, which we refer to collectively as "non-U.S. stockholders," are complex,
and the following discussion is intended only as a summary of these rules.
Special rules may apply to certain non-U.S. stockholders such as "controlled
foreign corporations" and "passive foreign investment companies." Prospective
non-U.S. stockholders should consult with their own tax advisors to determine
the impact of U.S. federal, state and local income tax laws on an investment in
our common or preferred stock, including any reporting requirements.
Ordinary Dividends. The portion of dividends received by non-U.S. stockholders
payable out of our current and accumulated earnings and profits which are not
attributable to capital gains and which are not effectively connected with a
U.S. trade or business of the non-U.S. stockholder will be subject to U.S.
withholding tax at the rate of 30% (unless reduced by an applicable income tax
treaty). In general, non-U.S. stockholders will not be considered engaged in a
U.S. trade or business solely as a result of their ownership of our common or
preferred stock. In cases where the dividend income from a non-U.S.
stockholder's investment in our common or preferred stock is effectively
connected with the non-U.S. stockholder's conduct of a U.S. trade or business
(or, if an income tax treaty applies, is attributable to a U.S. permanent
establishment of the non-U.S. stockholder), the non-U.S. stockholder generally
will be subject to U.S. tax at graduated rates, in the same manner as U.S.
stockholders are taxed with respect to such dividends (and may also be subject
to the 30% branch profits tax in the case of a corporate non-U.S. stockholder).
Non-Dividend Distributions. Unless our stock constitutes a USRPI (as defined
below), distributions by us which are not paid out of our current and
accumulated earnings and profits will not be subject to U.S. income or
withholding tax. If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of our current and
accumulated earnings and profits, the distribution will be subject to
withholding at the rate applicable to dividends. However, the non-U.S.
stockholder may seek a refund of such amounts from the Internal Revenue Service
if it is subsequently determined that such distribution was, in fact, in excess
of our current and accumulated earnings and profits. If our common or preferred
stock constitutes a USRPI, a distribution in excess of current and accumulated
earnings and profits will be subject to 10% withholding tax and may be subject
to additional taxation under FIRPTA (as defined below). However, the 10%
withholding tax will not apply to distributions already subject to the 30%
dividend withholding.
We expect to withhold U.S. income tax at the rate of 30% on the gross amount of
any distributions of ordinary income made to a non-U.S. stockholder unless (1) a
lower treaty rate applies and proper certification is provided or (2) the
non-U.S. stockholder files an Internal Revenue Service Form W-8ECI with us
claiming that the distribution is effectively connected with the non-U.S.
stockholder's conduct of a U.S. trade or business (or, if an income tax treaty
applies, is attributable to a U.S. permanent establishment of the non-U.S.
stockholder). However, the non-U.S. stockholder may seek a refund of such
amounts from the Internal Revenue Service if it is subsequently determined that
such distribution was, in fact, in excess of our current and accumulated
earnings and profits.
Capital Gain Dividends. Under the Foreign Investment in Real Property Tax Act of
1980, or FIRPTA, a distribution made by us to a non-U.S. stockholder, to the
extent attributable to gains ("USRPI Capital Gains") from dispositions of United
States Real Property Interests, or USRPIs, will be considered effectively
connected with a U.S. trade or business of the non-U.S. stockholder and
therefore will be subject to U.S. income tax at the rates applicable to U.S.
stockholders, without regard to whether such distribution is designated as a
capital gain dividend. (The properties owned by the Operating Partnership
generally are USRPIs.) Distributions subject to FIRPTA may also be subject to a
30% branch profits tax in the hands of a corporate non-U.S. stockholder that is
not entitled to treaty exemption. Notwithstanding the preceding, distributions
received on our common or preferred stock, to the extent attributable to USRPI
Capital Gains, will not be treated as gain recognized by the non-U.S.
stockholder from the sale or exchange of a USRPI if (1) our common or preferred
stock is regularly traded on an established securities market located in the
United States and (2) the non-U.S. stockholder did not own more than 5% of such
class of stock at any time during the 1-year period ending on the date of the
distribution. The distribution will instead be treated as an ordinary dividend
to the non-U.S. stockholder, and the tax consequences to the non-U.S.
stockholder will be as described above under "Ordinary Dividends."
Distributions attributable to our capital gains which are not USRPI Capital
Gains generally will not be subject to income taxation, unless (1) investment in
the shares is effectively connected with the non-U.S. stockholder's U.S. trade
or business (or, if an income tax treaty applies, is attributable to a U.S.
permanent establishment of the non-U.S. stockholder), in which case the non-U.S.
stockholder will be subject to the same treatment as U.S. stockholders with
respect to such gain (except that a corporate non-U.S. stockholder may also be
subject to the 30% branch profits tax), or (2) the non-U.S. stockholder is a
non-resident alien individual who is present in the United States for 183 days
or more during the taxable year and certain other conditions are present, in
which case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains.
We generally will be required to withhold and remit to the Internal Revenue
Service 35% of any distributions to non-U.S. stockholders that are designated as
capital gain dividends, or, if greater, 35% of a distribution that could have
been designated as a capital gain dividend. Distributions can be designated as
capital gains to the extent of our net capital gain for the taxable year of the
18
distribution. The amount withheld is creditable against the non-U.S.
stockholder's U.S. federal income tax liability. This withholding will not apply
to any amounts paid to a holder of not more than 5% of our common shares while
such shares are regularly traded on an established securities market. Instead,
those amounts will be treated as described above under "Ordinary Dividends."
If our common or preferred stock does not constitute a USRPI, a sale of our
common or preferred stock by a non-U.S. stockholder generally will not be
subject to U.S. federal income taxation unless (1) investment in the common or
preferred stock is effectively connected with the non-U.S. stockholder's U.S.
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 the gain, (2)
investment in the common or preferred stock is attributable to a permanent
establishment that the non-U.S. stockholder maintains in the United States if
that is required by an applicable income tax treaty as a condition for
subjecting the non-U.S. stockholder to U.S. taxation on a net income basis, in
which case the same treatment would apply to the non-U.S. stockholder as to U.S.
stockholders with respect to the gain or (3) 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 gain.
The offered securities will not constitute a USRPI if we are a domestically
controlled REIT. A domestically controlled REIT is a real estate investment
trust in which at all times during a specified testing period less than 50% in
value of its shares is held directly or indirectly by non-U.S. stockholders. We
believe we are a domestically controlled REIT, and therefore that the sale of
our common or preferred stock will not be subject to taxation under FIRPTA.
However, because we are publicly traded, we may not continue to be a
domestically controlled REIT.
If we did not constitute a domestically controlled REIT, whether a non-U.S.
stockholder's sale of our common or preferred stock would be subject to tax
under FIRPTA as sale of a USRPI would depend on whether the common or preferred
stock is "regularly traded," as defined by applicable Treasury Regulations, on
an established securities market (e.g., the New York Stock Exchange, on which
the common or preferred stock will be listed) and on the size of the selling
stockholder's interest in our company. If the gain on the sale of our common or
preferred stock 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 the
gain, and subject to applicable alternative minimum tax or a special alternative
minimum tax in the case of nonresident alien individuals. In any event, a
purchaser of our common or preferred stock from a non-U.S. stockholder will not
be required under FIRPTA to withhold on the purchase price if the purchased
common or preferred stock is regularly traded on an established securities
market or if we are a domestically controlled REIT. Otherwise, under FIRPTA, the
purchaser of common or preferred stock may be required to withhold 10% of the
purchase price and remit that amount to the IRS.
Information Reporting Requirements and Backup Withholding Tax
U.S. Stockholders
Under certain circumstances, U.S. stockholders may be subject to backup
withholding on payments made with respect to, or on cash proceeds of a sale or
exchange of, our common or preferred stock. Backup withholding generally will
apply if the holder (1) fails to furnish its taxpayer identification number,
which, for an individual, would be his social security number, (2) furnishes an
incorrect taxpayer identification number, (3) is notified by the IRS that it has
failed to report properly payments of interest and dividends or (4) under
certain circumstances fails to certify, under penalty of perjury, that it has
furnished a correct taxpayer identification number and has not been notified by
the IRS that it is subject to backup withholding for failure to report interest
and dividend payments. Backup withholding generally will not apply with respect
to payments made to certain exempt recipients, such as corporations and
tax-exempt organizations. U.S. stockholders should consult their own tax
advisors regarding their qualification for exemption from backup withholding and
the procedure for obtaining this exemption.
Non-U.S. Stockholders
Proceeds from a disposition of our common or preferred stock will not be subject
to information reporting and backup withholding if the beneficial owner of the
common or preferred stock is a non-U.S. stockholder. However, if the proceeds of
a disposition are paid by or through a United States office of a broker, the
payment may be subject to backup withholding or information reporting if the
broker cannot document that the beneficial owner is a non-U.S. person. In order
to document the status of a non-U.S. stockholder, a broker may require the
beneficial owner of the common or preferred stock securities to provide it with
a completed, executed IRS Form W-8BEN, certifying under penalty of perjury to
the beneficial owner's non-U.S. status.
A non-U.S. stockholder should consult its tax advisor regarding application of
withholding and backup withholding in its particular circumstance and the
availability of and procedure for obtaining an exemption from withholding and
backup withholding under current Treasury Regulations.
Refunds
Backup withholding is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a stockholder will be allowed as a
credit against any U.S. federal income tax liability of the stockholder. If
withholding results in an overpayment of taxes, a refund may be obtained,
provided that the required procedures are followed.
19
State and Local Taxation
We and our stockholders may be subject to state or local taxation in various
jurisdictions, including those in which we or they transact business or reside.
The state and local tax treatment of us and our stockholders may not conform to
the U.S. federal income tax consequences discussed above. Consequently,
prospective stockholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in our company.
Tax Aspects of the Operating Partnership
The following discussion summarizes certain U.S. federal income tax
considerations applicable solely to our investment in the Operating Partnership
through CBL Holdings I and CBL Holdings II. The discussion does not cover state
or local tax laws or any U.S. federal tax laws other than income tax laws.
Income Taxation of the Operating Partnership and Its Partners
Partners, Not the Operating Partnership, Subject to Tax. A partnership is not a
taxable entity for U.S. federal income tax purposes. Rather, we will be required
to take into account our allocable share of the Operating Partnership's income,
gains, losses, deductions and credits for any taxable year of the Operating
Partnership ending within or with our taxable year, without regard to whether we
have received or will receive any direct or indirect distribution from the
Operating Partnership.
Operating Partnership Allocations. Although a partnership agreement will
generally determine the allocation of income and losses among partners, these
allocations will be disregarded for tax purposes under Section 704(b) of the
Internal Revenue Code if they do not comply with the provisions of that section
and the Treasury Regulations promulgated under that section.
If an allocation is not recognized for U.S. 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 the 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 Internal
Revenue Code and the Treasury Regulations promulgated under that section.
Tax Allocations with Respect to Contributed Properties. Under Section 704(c) of
the Internal Revenue 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 U.S. federal
income tax purposes in a manner such that the contributor is charged with, or
benefits from, the unrealized gain or unrealized loss that generally is equal to
the difference between the fair market value of the contributed property at the
time of contribution and the adjusted tax basis of the property at that time
(the "book-tax difference"). The partnership agreement for the Operating
Partnership requires allocations of income, gain, loss and deduction
attributable to contributed property to be made by the Operating Partnership in
a manner that is consistent with Section 704(c) of the Internal Revenue Code.
In general, the partners who contributed appreciated assets to the Operating
Partnership will be allocated lower amounts of depreciation deductions for tax
purposes and increased taxable income and gain on sale by the Operating
Partnership of the contributed assets (including some of our properties). This
will tend to eliminate the book-tax difference over time. However, the special
allocation rules under Section 704(c) of the Internal Revenue Code do not always
entirely rectify the book-tax difference on an annual basis or with respect to a
specific taxable transaction, such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Operating Partnership may, as to certain
contributed assets, cause us to be allocated lower depreciation and other
deductions, and possibly greater amounts of taxable income in the event of a
sale of such contributed assets, in excess of the economic or book income
allocated to us as a result of such sale. This may cause us to recognize taxable
income in excess of cash proceeds, which might adversely affect our ability to
comply with the REIT distribution requirements. See "--Requirements for
Qualification - Annual Distribution Requirements." In addition, the application
of Section 704(c) of the Internal Revenue Code to the Operating Partnership is
not entirely clear and may be affected by authority that may be promulgated in
the future.
Basis in Operating Partnership Interest. Our adjusted tax basis in our indirect
partnership interest in the Operating Partnership generally (1) will be equal to
the amount of cash and the basis of any other property that we contribute to the
Operating Partnership, (2) will be increased by (a) our allocable share of the
Operating Partnership's income and (b) our allocable share of certain
indebtedness of the Operating Partnership and of the property partnerships and
(3) will be reduced, but not below zero, by our allocable share of (a) the
Operating Partnership's loss and (b) the amount of cash distributed directly or
indirectly to us, and by constructive distributions resulting from a reduction
in our share of certain indebtedness of the Operating Partnership and of the
property partnerships. With respect to increases in our adjusted tax basis in
our indirect partnership interest in the Operating Partnership resulting from
certain indebtedness of the Operating Partnership, Section 752 of the Internal
Revenue Code and the regulations promulgated under that section 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 the partner bears the
economic risk of loss with respect to the liability. Generally, a partnership's
non-recourse debt is shared proportionately by the partners. However, if a
partner guarantees partnership debt or is personally liable for all or any
portion of the debt, the partner will be deemed to bear the economic risk of
loss for the amount of the debt for which it is personally liable. Thus, the
partner may include that amount in its adjusted tax basis of its interest in the
partnership.
20
By virtue of our status as the sole stockholder of CBL Holdings I, which is the
sole general partner of the Operating Partnership, we will be deemed to bear the
economic risk of loss with respect to indebtedness of the Operating Partnership
that is not nonrecourse debt as defined in the Internal Revenue Code. As a
result, our adjusted tax basis in our indirect partnership interest in the
Operating Partnership may exceed our proportionate share of the total
indebtedness of the Operating Partnership.
If the allocation of our distributive share of the Operating Partnership's loss
would reduce the adjusted tax basis of our partnership interest in the Operating
Partnership below zero, the recognition of the loss will be deferred until the
recognition of the loss would not reduce our adjusted tax basis below zero. To
the extent that the Operating Partnership's distributions, or any decrease in
our share of the nonrecourse indebtedness of the Operating Partnership or of a
property partnership, would reduce our adjusted tax basis below zero, such
distributions and constructive distributions will normally be characterized as
capital gain, and if our partnership interest in the Operating Partnership has
been held for longer than the long-term capital gain holding period (currently,
one year), the distributions and constructive distributions will constitute
long-term capital gain. Each decrease in our share of the nonrecourse
indebtedness of the Operating Partnership or of a property partnership is
considered a constructive cash distribution to us.
Depreciation Deductions Available to the Operating Partnership. The Operating
Partnership was formed in 1993 principally by way of contributions of certain
properties or appreciated interests in property partnerships owning properties.
Accordingly, the Operating Partnership's depreciation deductions attributable to
the properties will be based on the contributing partners' depreciation
schedules and in some cases on new schedules under which the 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.
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 the gain that is treated as depreciation or cost
recovery recapture. Any unrealized gain attributable to the excess of the fair
market value of the properties over their adjusted tax bases at the time of
contribution to the Operating Partnership must, when recognized by the Operating
Partnership, generally be allocated to the limited partners, including CBL &
Associates, Inc., under Section 704(c) of the Internal Revenue Code and Treasury
Regulations promulgated under that section.
In the event of the disposition of any of the properties which have
pre-contribution gain, all income attributable to the undepreciated gain will be
allocated to the limited partners of the Operating Partnership, including to us,
and we generally will be allocated only our share of capital gains attributable
to depreciation deductions we enjoyed and appreciation, if any, occurring since
the acquisition of our interest in the Operating Partnership. Any decision
relating to the potential sale of any property that would result in recognition
of gain of this kind will be made by the independent directors on our Board of
Directors. The Operating Partnership will be required in this case to distribute
to its partners all of the net cash proceeds from the sale up to an amount
reasonably believed necessary to enable the limited partners, including us, to
pay any income tax liability arising from the sale.
Our share of any gain realized by the Operating Partnership on the sale of any
property held by the Operating Partnership or property partnership as inventory
or other property held primarily for sale to customers in the ordinary course of
the Operating Partnership's or property partnership's trade or business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. Under existing law, whether property is inventory or other property
held primarily for sale to customers in the ordinary course of trade or business
is a question of fact that depends on all the facts and circumstances with
respect to the particular transaction. For more information about the penalty
tax, see "--Requirements for Qualification--Income Tests" above. Prohibited
transaction income of this kind will also have an adverse effect upon our
ability to satisfy the gross income tests for REIT status. See "--Requirements
for Qualification--Income Tests" above for more information about these tests.
Under existing law, whether property is held as inventory or primarily for sale
to customers in the ordinary course of a trade or business is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. The Operating Partnership and the property partnerships intend to
hold their properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning and operating the
properties and other shopping centers and to make occasional sales of the
properties, including peripheral land, that are consistent with the Operating
Partnership's and the property partnerships' investment objectives.
EXPERTS
The financial statements, the related financial statement schedules, and
management's report on the effectiveness of internal control over financial
reporting, incorporated in this prospectus by reference from CBL & Associates
Properties, Inc.'s Current Report on Form 8-K filed on January 10, 2006, have
been audited by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their reports which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
The separate statements of certain revenues and certain operating expenses of
Lafayette Associates, L.L.C. (d/b/a The Mall of Acadiana) and Oak Park
Investments, L.P. for the year ended December 31, 2004, incorporated in this
prospectus by reference from CBL & Associates Properties, Inc.'s Current Report
on Form 8-K filed on January 18, 2006, have been audited by Deloitte & Touche
21
LLP, independent auditors, as stated in their reports, which are incorporated
herein by reference, and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of the offered securities and certain legal matters
described under "Certain U.S. Federal Income Tax Considerations" in this
registration statement will be passed upon for us by Morrison & Foerster LLP,
New York, New York. Certain other matters will be passed upon for us by
Shumacker Witt Gaither & Whitaker, P.C., Chattanooga, Tennessee. Certain members
of Shumacker Witt Gaither & Whitaker, P.C. serve as our assistant secretaries.
Any underwriters will be advised about other issues relating to any offering by
their own legal counsel.