Registration Statement
As filed with the Securities and Exchange Commission on November 29, 2001
Registration No. 33-73038
===================================================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
-----------------------------------
TAUBMAN CENTERS, INC.
(Exact name of registrant as specified in its Article)
Michigan 38-2033632
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
200 East Long Lake Road
Bloomfield Hills, Michigan 48303
(248) 258-6800
(Address, including zip code, and telephone number, including area code, of registrant's principal executive
offices)
-----------------------------------
Lisa A. Payne Copy to:
Taubman Centers, Inc. Marjorie Harris Loeb, Esq.
200 East Long Lake Road Miro Weiner & Kramer
Suite 300, P.O. Box 200 38500 Woodward Avenue, Suite 100
Bloomfield Hills, Michigan 48303-0200 Bloomfield Hills, Michigan 48304-0908
(248) 258-6800 (248) 646-2400
(Address, including zip code, and telephone number, including
area code, of agent for service)
-----------------------------------
Approximate date of commencement of proposed sale to the public: From time to time after this
registration statement becomes effective.
If the only securities being registered on this form are being offered pursuant to dividend or interest
reinvestment plans, please check the following box. [_]
If any of the securities being registered on this form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under
the Securities Act, please check the following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check
the following box and list the Securities Act registration statement number of the earlier effective registration
statement for the same offering. [X] Registration No. 33-73038
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following
box. [_]
Registration Statement No. 33-73038
Rule 424(b)(3)
10,000,000 Shares
Taubman Centers, Inc.
Common Stock
-----------------------------------
This prospectus relates to the sale by certain of the Company's Shareholders, the Selling Shareholders,
of up to 10,000,000 shares of the Company's common stock from time to time. The Company will not receive any
proceeds from the sale of these shares. Our shares of common stock are traded on the New York Stock Exchange
under the symbol "TCO." On November 28, 2001 the closing price of the common stock on the New York Stock
Exchange was $14.70 per share.
The Company is the managing general partner of The Taubman Realty Group Limited Partnership, also
referred to in this prospectus as TRG. The Company has made a continuous, irrevocable offer to certain holders
of partnership units in TRG, to exchange their partnership units in TRG for shares of the Company's common
stock. Although as of this date none of the holders of partnership units in TRG has indicated an intent to
exchange their partnership units in TRG for shares of the Company's common stock, the Company is required to
register the shares that would be received as a result of any exchange for resale under the Securities Act of
1933. TRG will bear all costs of registering the shares.
The Selling Shareholders may offer and sell the common stock at prevailing market prices or in privately
negotiated transactions. The Selling Shareholders will be responsible for any commissions or discounts due to
brokers or dealers. The amount of those commissions or discounts will be negotiated before the sales. Brokers
or dealers participating in any sale of common stock offered by the Selling Shareholders may act either as
principals or agents, may use block trades to position and resell the shares and may be deemed "underwriters"
under the Securities Act of 1933.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "GENERAL RISKS OF THE COMPANY" AND
"ENVIRONMENTAL MATTERS" IN OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 AND
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. IT IS ILLEGAL TO
TELL YOU OTHERWISE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS
OFFERING. IT IS ILLEGAL TO TELL YOU OTHERWISE.
The date of this prospectus is November 29, 2001
TABLE OF CONTENTS
Where You Can Find More Information.................................................................................2
Incorporation Of Certain Documents By Reference.....................................................................2
Forward-Looking Statements..........................................................................................2
The Company.........................................................................................................4
Recent Developments.................................................................................................4
Selling Shareholders................................................................................................5
Certain Provisions Of The Articles Of Incorporation And Bylaws......................................................6
General..........................................................................................................6
Description Of Common Stock......................................................................................7
Staggered Board Of Directors.....................................................................................7
Number of Directors; Removal.....................................................................................8
Preferred Stock..................................................................................................8
Amendment of Articles of Incorporation and Bylaws................................................................8
Ownership Limit..................................................................................................8
Transfer Agent......................................................................................................8
Transfer Restrictions, Restrictions On Ownership....................................................................8
Federal Income Tax Considerations..................................................................................10
Taxation of Taubman Centers, Inc................................................................................10
Failure to Qualify..............................................................................................16
Taxation of Taxable U.S. Shareholders...........................................................................17
Dispositions of Common Stock....................................................................................18
Backup Withholding..............................................................................................18
Taxation of Tax-Exempt Shareholders.............................................................................19
Taxation of Non-U.S. Shareholders...............................................................................19
Tax Aspects of TRG..............................................................................................22
Income Taxation of TRG and Its Partners.........................................................................23
Sale of TRG's Property..........................................................................................24
Other Tax Consequences..........................................................................................24
ERISA Considerations...............................................................................................24
Fiduciary Duties and Prohibited Transactions....................................................................25
Plan Assets.....................................................................................................25
Plan of Distribution...............................................................................................26
Legal Matters......................................................................................................26
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and special reports, proxy statements and other information with the
SEC. You may read and copy any material that the Company has filed with the SEC at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The Company files information electronically with the SEC.
The SEC maintains an Internet site that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of the SEC's Internet site is
http://www.sec.gov. You also may inspect copies of these materials and other information about us at The New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
This prospectus is part of a registration statement filed with the SEC. The prospectus does not contain
all of the information included in the registration statement. The Company has omitted parts of the registration
statement as permitted under the rules and regulations of the SEC. For further information, the Company refers
you to the registration statement, including its exhibits and schedules. Statements contained in this prospectus
about the provisions or contents of any contract, agreement or any other document referred to are not necessarily
complete. For each of these contracts, agreements or documents filed as an exhibit to the registration statement,
we refer you to the actual exhibit for a more complete description of the matters involved.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information the Company files with them, which means
that the Company can disclose important information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and information that the Company files
later with the SEC will automatically update and supersede this information. The Company incorporates by
reference the documents listed below (file number 1-11530) and any future filings we will make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), before the
termination of the offering of the shares made under this prospectus:
1 the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000;
2. the Company's Quarterly Reports on Form 10-Q, for the quarters ended March 31, 2001, June 30, 2001
and September 30, 2001.
3. all other reports filed pursuant to Section 13(a) and 15(d) of the Exchange Act since the end of
the Company's fiscal year ended December 31, 2000; and
4. the description of our Common Stock, contained in our registration statement filed under the Exchange
Act and any amendments or reports filed for the purpose of updating such description.
Upon request, we will provide to you without charge a copy of any of the documents incorporated by
reference in this prospectus, except the exhibits to those documents (unless the exhibits are specifically
incorporated by reference in the documents). You may ask for these copies in writing or orally by contacting
Taubman Centers, Inc., 200 East Long Lake Road, Suite 300, Bloomfield Hills, Michigan 48303-0200, Attention:
Investor Relations, telephone: (248-258-6800). In addition, copies of our SEC filings are accessible through our
web site at http://www.taubman.com.
FORWARD-LOOKING STATEMENTS
Statements in this prospectus and the information incorporated by reference that are not historical
factual statements are "forward-looking statements" within the meaning of section 27A of the Securities Act of
1933 (the "Securities Act") and section 21E of the Exchange Act. These forward-looking statements represent the
Company's expectations or beliefs concerning future events, including the following: statements regarding future
developments and joint ventures, rents and returns, statements regarding the continuation of historical trends
and any statements regarding the sufficiency of the Company's cash balances and cash generated from operating and
financing activities for the Company's future liquidity and capital resource needs. The Company cautions that
although forward-looking statements reflect the Company's good faith beliefs and best judgment based upon current
information, these statements are qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements, including those risks, uncertainties, and factors
detailed from time to time in reports filed with the SEC, and in particular those set forth under the headings
"General Risks of the Company" and "Environmental Matters" in the Company's Annual Report on Form 10-K.
Unless otherwise indicated or unless the context otherwise requires, all references in this prospectus
to "we," "us," "our" or "the Company" means Taubman Centers, Inc. and its subsidiaries.
YOU SHOULD READ THIS PROSPECTUS AND THE DOCUMENTS REFERENCED IN THIS PROSPECTUS CAREFULLY BEFORE INVESTING.
THE COMPANY
We are organized to operate as an equity real estate investment trust or REIT. The Company is the
managing general partner of TRG and owns a 61% partnership interest in TRG. The Company conducts all of its
operations through TRG. TRG is a fully integrated real estate company, which acquires and develops, finances,
operates, manages and leases, regional shopping centers. In addition to acquiring and developing new shopping
centers, TRG acquires and redevelops and/or expands existing centers. The TRG portfolio included 16 centers at
December 31, 2000. Four additional centers opened in 2001. The 20 centers now comprising the TRG portfolio, also
referred to as the Taubman Shopping Centers:
o are strategically located in major metropolitan areas, many in communities that are among the most
affluent in the country, including New York City, Los Angeles, Denver, Detroit, Phoenix, Miami,
Dallas, Tampa and Washington, D.C.;
o range in size between 438,000 and 1.6 million square feet of gross retail space and between 133,000
and over 600,000 square feet of gross retail space excluding that allocated to anchor stores with the
smallest center having approximately 50 stores, and the largest having approximately 200 stores;
o lease approximately 75% of gross retail space excluding that allocated to anchor stores to national
chains, including subsidiaries or divisions of The Limited (The Limited, Limited Express,
Victoria's Secret, and others), The Gap (The Gap, Banana Republic, and others), and Venator
Group, Inc. (Foot Locker, Champ Sports, and others); and
o have historically been among the most productive in the United States(measured by mall tenants'
average per square foot sales) with mall tenants having had average per square foot sales of $479
in 2000, which is substantially greater than the average for all regional shopping centers owned
by public companies.
The most important factor affecting the revenues generated by the centers is leasing to mall tenants
(primarily specialty retailers), which represents approximately 90% of revenues. Anchors account for less than
10% of revenues because many own their stores and, in general, those that lease their stores do so at rates
substantially lower than those in effect for mall tenants.
The Company's portfolio is concentrated in highly productive super-regional shopping centers. Seventeen
of the 20 centers currently comprising the TRG portfolio are super-regional shopping cneters. Of the 16
centers open at December 31, 2000, 14 had annual rent rolls at December 31, 2000 of over $10 million. The
Company believes that this level of productivity is indicative of the centers' strong competitive position and
is, in significant part, attributable to the Company's business strategy and philosophy. The Company believes
that large shopping centers (including regional and especially super-regional shopping centers) are the least
susceptible to direct competition because (among other reasons) anchors and large specialty retail stores do not
find it economically attractive to open additional stores in the immediate vicinity of an existing location for
fear of competing with themselves. In addition to the advantage of size, the Company believes that the centers'
success can be attributed in part to their other physical characteristics, such as design, layout, and amenities.
In addition to the Taubman Shopping Centers, TRG has a 99% beneficial interest in The Taubman Company
Limited Partnership which manages the Taubman Shopping Centers and provides other services to TRG and the
Company. TRG also owns development projects for future regional shopping centers.
The Company's executive offices are maintained by The Taubman Company Limited Partnership at 200 East
Long Lake Road, Suite 300, P.O. Box 200, Bloomfield Hills, Michigan 48303-0200, Telephone: (248) 258-6800.
RECENT DEVELOPMENTS
For a summary of recent developments, please refer to the Company's Quarterly Report on Form 10-Q, for
the quarter ended September 30, 2001, as filed with the SEC.
SELLING SHAREHOLDERS
The Company has made a continuing offer (the "Continuing Offer") to certain partners in TRG (the
"Selling Shareholders") to exchange their units of partnership interest in TRG (the "Units") for shares of the
Company's common stock. All of the shares of common stock being offered under this prospectus are being sold by
the Selling Shareholders. Although as of this date none of the holders of partnership units in TRG has indicated
an intent to exchange their Units for shares of the Company's common stock, the Company is required to register
the shares that would be received as a result of any exchange for resale under the Securities Act. TRG will bear
all costs of registering the shares. The Selling Shareholders will be responsible for any commissions or
discounts due to brokers or dealers. The Company will not receive any proceeds from the sale of the shares being
offered under this prospectus.
This registration does not necessarily mean that the Company will issue any shares of common stock or
that the partners that exchange their Units for common stock subsequently will offer or sell any of their shares.
The following table sets forth information regarding each Selling Shareholder's ownership of our common
stock. The table assumes that each Selling Shareholder is the beneficial owner of only those shares he has a
right to acquire under the Company's Continuing Offer and that each Selling Shareholder sells all shares owned by
him.
Beneficial Ownership Shares Being
Name of Selling Shareholder of Common Stock (1) Sold(1)
Robert S. Taubman, President, Chief Executive Officer and Director (2) 279,898 279,898
William S. Taubman, Executive Vice President and Director (2) 279,898 279,898
Gayle T. Kalisman 5,925 5,925
Richard P. Kughn 1,686,395 1,686,395
The Kughn Real Properties Company 53,792 53,792
Robert C. Larson, retired Director and Vice Chairman (2) 1,360,663 1,360,663
Sidney R. Unobskey 462,193 462,193
Leonard Dobbs 163,724 163,724
Gloria Dobbs 163,724 163,724
The Avner & Gloria Frank Naggar Living Trust 23,663 23,663
Marvin G. Leech 222,376 222,376
Courtney Lord, Senior Vice President and Managing Director, Leasing 435,153 435,153
Margaret Putnam 20,154 20,154
Burkhardt Family Trust 43,330 43,330
Michaela Naggar Bourne 43,773 43,773
Auri Neal Naggar 43,773 43,773
Ron Naggar 43,773 43,773
David Naggar 43,773 43,773
Tamara Naggar 43,773 43,773
Max M. Fisher, Trustee of the Max M. Fisher Revocable Trust 518,890 518,890
Assignees of Partners Not Eligible to Accept the Continuing Offer(3) 3,961,360 3,961,360
--------- ---------
Total 10,000,000 10,000,000
========== ==========
(1) The number of shares is based on the exchange rate under the Company's Continuing Offer of one share of
the Company's common stock for each tendered Unit.
(2) Excludes shares of Common Stock that may be received in exchange for Units of Partnership Interest that
are subject to vested incentive options granted under TRG's 1992 Incentive Option Plan.
(3) Certain partners in TRG who are affiliates of A. Alfred Taubman have been excluded from the Continuing
Offer; however, their assignees may, subject to certain limitations, accept the Continuing Offer. The
Company is not aware of any excluded partner's present intent to dispose of any Units.
Pursuant to the TRG partnership agreement the partners may transfer their Units under certain
circumstances or TRG may issue additional Units to new investors. The Company may amend the Continuing Offer to
include those transferees and new investors with the result that such transferees and new investors would become
Selling Shareholders. We may file one or more supplemental prospectuses pursuant to Rule 424 under the
Securities Act to set forth the required information regarding any additional Selling Shareholders.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
General
The following description is a summary of the material provisions of the Company's Second Amended and
Restated Articles of Incorporation (our "Articles") and the Company's Bylaws (our "Bylaws") as in effect on the
date of this prospectus.
This description does not restate these agreements in their entirety. We urge you to read these
agreements because they, and not this description, define your rights as holders of our securities. We have filed
copies of these agreements as exhibits to or incorporated them by reference into the registration statement that
includes this prospectus.
Our Articles currently authorize the issuance of up to 500 million shares, including 250 million shares
of our common stock. As more fully described below, the Company also has authorized preferred stock and excess
stock. As of November 28, 2001, the outstanding shares of stock of the Company were as follows:
o 50,379,810 shares of Common Stock;
o 8,000,000 shares of 8.30% Series A Cumulative Redeemable Preferred Stock;
o 31,835,066 shares of Series B Non-Participating Convertible Preferred Stock;
o no shares of 9% Series C Cumulative Redeemable Preferred Stock;
o no shares of 9% Series D Cumulative Redeemable Preferred Stock; and
o no shares of Excess Stock.
All of the authorized shares of the 9% Series C Cumulative Redeemable Preferred Stock and of the 9%
Series D Cumulative Redeemable Preferred Stock, 2,000,000 and 250,000, respectively, have been reserved for
issuance to certain holders of preferred equity in TRG upon exercise of their conversion rights. In addition, as
of that date, approximately 6,571,314 shares of our common stock have been reserved for issuance pursuant to the
Company's Continuing Offer.
The authorized shares of our common stock and preferred stock in excess of those presently outstanding
or specifically reserved are available for issuance at such times and for such purposes as our board of directors
may deem advisable without further action by our shareholders, except as may be required by applicable laws or
regulations, including stock exchange rules. These purposes may include stock dividends, stock splits,
retirement of indebtedness, employee benefit programs, corporate business combinations, acquisitions of property
or other corporate purposes. The authorized shares of our excess stock are available for issuance pursuant to
our Articles and as may be necessary to preserve our qualification as a REIT under applicable tax laws. Because
the holders of our common stock do not have preemptive rights, the issuance of common stock, other than on a pro
rata basis to all current shareholders, would reduce the current shareholders' proportionate interests. In any
such event, however, shareholders wishing to maintain their interests may be able to do so through normal market
purchases. Any future issuance of the Company common stock will be subject to the rights of holders of
outstanding shares of its existing series of preferred stock and of any shares of preferred stock we may issue in
the future. See also "Certain Provisions of the Articles of Incorporation and Bylaws--Preferred Stock."
Description Of Common Stock
Subject to any preferential rights granted to any existing or future series of preferred stock, all
shares of common stock have equal right to dividends payable to common shareholders as declared by our board of
directors and in net assets available for distribution to common shareholders on liquidation, dissolution, or
winding up of the Company. Each outstanding share of common stock entitles the holder to one vote on all
matters submitted to a vote of the shareholders. Holders of common stock do not have cumulative voting rights in
the election of directors. All issued and outstanding shares of common stock are, and the common stock offered
under this prospectus will be upon issuance, validly issued, fully paid and nonassessable. As a holder of the
common stock you do not have preference, conversion, exchange or preemptive rights.
In addition to the holders of the common stock, the holders of the Company's Series B Non-Participating
Convertible Preferred Stock (the "Series B Stock") are entitled to one vote per share on all matters submitted to
a vote of the shareholders. The holders of Series B Stock (voting as a separate class) are entitled to nominate
up to four individuals for election as directors of the Company. The number of individuals the holders of Series
B Preferred Stock may nominate in any given year is reduced by the number of directors nominated by such holders
in prior years whose terms are not expiring.
Currently, a majority of the outstanding shares of common stock and Series B Stock (together with the
common stock, the "Voting Stock") is required for a quorum. Any action regarding shareholder approval (other
than the election of directors) will be approved, upon the affirmative vote of holders of two-thirds of the
outstanding shares of Voting Stock. Directors are elected by a plurality of the votes cast.
The Company's 8.30% Series A Cumulative Redeemable Preferred Stock does not entitle its holders to
vote. Although the Company has authorized the issuance of shares of additional series of preferred stock (the 9%
Series C Cumulative Redeemable Preferred Stock and the 9% Series D Cumulative Redeemable Preferred Stock)
pursuant to the exercise of conversion rights granted to certain holders of preferred equity in TRG, at this time
no such shares of preferred stock are outstanding. When issued, such shares of Series C and Series D Preferred
Stock will not entitle their respective holders to vote.
The common stock is listed on the New York Stock Exchange under the ticker symbol "TCO." We will apply
to the New York Stock Exchange (NYSE) to list additional shares to be sold pursuant to any prospectus supplement
and we anticipate that any such additional shares will be listed.
Staggered Board Of Directors
Under the Bylaws, the Company's board of directors is divided into three classes of directors, with each
class constituting approximately one-third of the total number of directors and with the classes serving
staggered three-year terms. Our Articles provide that a majority of the Company's directors must be
"Independent," as defined in the Articles. Generally, a director is Independent if he is neither an officer nor
employee of the Company or its subsidiaries. The classification of the board of directors makes it more
difficult for shareholders to change the composition of the board of directors because only a minority of the
directors are elected at any one time. We believe however, that the longer terms associated with the classified
board of directors help to ensure continuity and stability of the Company's management and policies.
The classification provisions could also have the effect of discouraging a third party from accumulating
a large block of the Company's stock or attempting to obtain control of the Company, even though such an attempt
might be beneficial to the Company and some, or a majority, of its shareholders.
Number of Directors; Removal
Our Articles provide that the number of directors will be fixed by our Bylaws. Our Bylaws currently
provide for the Board of Directors to establish from time to time the size of the Board, however, the size cannot
be reduced except upon the expiration of the term of one or more directors or the death, resignation or removal
of a director. Currently the Board is comprised of 9 directors serving three-year staggered terms.
Directors may be removed only upon the affirmative vote of two-thirds of the outstanding shares of
capital stock entitled to vote.
Preferred Stock
Our Articles authorize the board of directors to establish one or more series of preferred stock and to
determine, with respect to any series of preferred stock, the preferences, rights (including voting and
conversion rights), and other terms of such series. We believe that the ability of the board of directors to
issue one or more series of preferred stock provides the Company with increased flexibility in meeting corporate
needs. The authorized shares of preferred stock, as well as unissued shares of common stock, are available for
issuance without further action by the Company's shareholders, except as may be required by applicable laws or
regulations including stock exchange rules. Although our board of directors has no present intention to do so,
they could issue a series of preferred stock that (because of its terms) could impede a merger, tender offer, or
other transaction that some of the Company's shareholders might believe to be in their best interests or in which
shareholders might receive a premium over the then-prevailing market prices for their shares. In addition,
preferred stock could be issued in order to dilute the percentage voting stock of a significant shareholder or be
issued to a holder expected to vote in accordance with the recommendations of the Company's management with
respect to any shareholder proposal.
Amendment of Articles of Incorporation and Bylaws
We may amend our Articles with the affirmative vote of two-thirds of the outstanding shares of capital
stock entitled to vote. A majority of the board of directors may amend our Bylaws at any time, except as limited
by statute and except for a bylaw that is adopted by the shareholders and that, by its terms, provides that it
can be amended only by the shareholders. The shareholders can amend our Bylaws only upon the affirmative vote of
two-thirds of the outstanding shares of capital stock entitled to vote.
Ownership Limit
The ownership limits included in our Articles may discourage offers to acquire the Company and increase
the difficulty of consummating any such acquisition. See "Transfer Restrictions, Restrictions on Ownership."
TRANSFER AGENT
The transfer agent and registrar for our common stock is Mellon Investor Services, L.L.C.
TRANSFER RESTRICTIONS, RESTRICTIONS ON OWNERSHIP
Because the Company's board of directors believes it is essential for the Company to continue to qualify
as a REIT, our Articles and Bylaws contain restrictions on the ownership and transfer of our capital stock, which
are intended to assist the Company in complying with these requirements.
For the Company to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"),
not more than 50% in value of its outstanding stock may be owned, actually or constructively, by five or fewer
individuals (as defined in the Code to include certain entities) during the last half of a taxable year, and its
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. In addition, rent from Related Party Tenants (as
defined below) is not qualifying income for purposes of the income tests under the Code.
Under the Company's Articles, in general, no shareholder may own more than 8.23% in value of the
Company's capital stock (the "General Ownership Limit"). Certain pension trusts of General Motors Corporation
and its affiliates (the " GM Trusts") may collectively own the greater of 8,731,426 shares of Regular Capital
Stock (which term refers to shares of common stock and preferred stock that are not Excess Stock) and 19.8% in
value of the outstanding capital stock; the AT&T Master Pension Trust (the "AT&T Trust and, together with the GM
Trusts, the "Trusts") may own the greater of 6,059,080 shares of Regular Capital Stock and 13.74% in value of the
outstanding capital stock; and the Trusts may own, in the aggregate, the greater of 14,790,506 shares of Regular
Capital Stock and 33.54% in value of the outstanding Capital Stock (each such variation from the General
Ownership Limit is referred to as an "Existing Holder Limit"). In addition, the board of directors has the
authority to allow a "Look Through Entity" to own up to 9.9% in value of the capital stock (the "Look Through
Entity Limit"). A "Look Through Entity," in general, is an entity (other than a qualified trust under section
401(a) of the Code, an entity that owns 10% or more of the equity of any tenant from which the Company or TRG
receives or accrues rent from real property, or certain tax exempt entities described in our Articles) whose
beneficial owners, rather than the entity, would be treated as owning the Capital Stock owned by such entity.
Our Articles provide that if the transfer of any shares of Regular Capital Stock or a change in the
Company's capital structure would cause any person (the "Purported Transferee") to own Regular Capital Stock in
excess of the General Ownership Limit (which refers to 8.23% in value of the outstanding Capital Stock) or the
Look Through Limit (which refers to 9.9% in value of the outstanding capital stock) or in excess of the
applicable Existing Holder Limit (which is the greater of the fixed number of shares of Regular Capital Stock and
percentage in value of the outstanding capital stock applicable to the relevant Trust, as described above), then
the transfer is void ab initio (the General Ownership Limit, the Look Through Limit, and the Existing Holder
Limit are referred to collectively as the "Ownership Limits"). It is possible, however, that a transfer of
Regular Capital Stock in violation of one of the Ownership Limits could occur without the Company's knowledge.
Accordingly, our Articles provide that if notwithstanding the Ownership Limits, a transfer nevertheless occurs
which causes a person to own in excess of any of the Ownership Limits, the shares in excess of such Ownership
Limit automatically acquire the status of "Excess Stock." Shares that have become Excess Stock continue to be
issued and outstanding shares of common stock or preferred stock, as the case may be.
A Purported Transferee of Excess Stock acquires no rights to those shares. Rather, all rights
associated with the ownership of those shares (with the exception of the right to be reimbursed for the lower of
the original purchase price of those shares or the amount received by the Designated Agent upon sale of the
shares as described below) immediately vest in one or more charitable organizations designated from time to time
by the Company's board of directors (each, a "Designated Charity"). An agent designated from time to time by the
board of directors (each, a "Designated Agent") will act as attorney-in-fact for the Designated Charity to vote
the shares of Excess Stock, to take delivery of the certificates evidencing the shares that have become Excess
Stock and to receive distributions paid to the Purported Transferee with respect to those shares. The
Designated Agent will sell the Excess Stock, and any increase in value of the Excess Stock between the date it
became Excess Stock and the date of sale will inure to the benefit of the Designated Charity.
A Purported Transferee must notify the Company of any transfer resulting in shares converting into
Excess Stock, and provide other information regarding such person's ownership of our capital stock as we
request. In addition, any person holding 5% or more of the Company's capital stock must provide us with
information regarding their ownership.
Under our Articles, only the Designated Agent has the right to vote shares of Excess Stock. However,
our Articles also provide that votes cast with respect to certain irreversible corporate actions (e.g., a merger
or sale of the Company) will not be invalidated if erroneously voted by the Purported Transferee. Our Articles
also provide that a director is deemed to be a director for all purposes, notwithstanding a Purported
Transferee's unauthorized exercise of voting rights with respect to shares of Excess Stock in connection with
such director's election.
The General Ownership Limit will not be automatically removed even if the REIT provisions are changed so
as to no longer contain any ownership concentration limitation or if the concentration limitation is increased.
In addition to preserving the Company's status as a REIT, the effect of the General Ownership Limit is to prevent
any person from acquiring unilateral control of the Company. Any change in the General Ownership Limit would
require an amendment to the Articles. Currently, amendments to the Articles require the affirmative vote of
holders owning not less than two-thirds of the outstanding capital stock entitled to vote.
All certificates evidencing shares of capital stock bear or will bear a legend referring to the
restrictions described above.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain Federal income tax considerations that may be relevant to a
prospective purchaser of common stock, is based on current law, and is not tax advice. This discussion does not
address all aspects of taxation that may be relevant to particular shareholders in light of their personal
investment or tax circumstances or to certain types of shareholders (including insurance companies, financial
institutions or broker-dealers) subject to special treatment under the Federal income tax laws.
This discussion was prepared by Miro Weiner & Kramer, counsel to the Company, and is based on current
provisions of the Code, existing, temporary and currently proposed Treasury Regulations under the Code, the
legislative history of the Code, existing administrative rulings and practices of the IRS and judicial
decisions. Legislative, judicial or administrative changes may affect the accuracy of any statements in this
Prospectus with respect to transactions entered into or contemplated prior to the effective date of such changes.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND SALE OF THE COMMON STOCK AND OF THE COMPANY'S ELECTION TO BE
TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of Taubman Centers, Inc.
General.
We elected to be taxed as a REIT under Sections 856 through 860 of the Code. We believe we have been
organized and have operated in a manner that allows us to qualify for taxation as a REIT under the Code. We
intend to continue to operate in this manner. Nonetheless, our qualification and taxation as a REIT depends upon
our ability to meet (through actual annual operating results, asset diversification, distribution levels and
diversity of stock ownership) the various qualification tests imposed under the Code. Accordingly, there is no
assurance that we have operated or will continue to operate in a manner so as to qualify or remain qualified as a
REIT. See "Failure to Qualify."
The sections of the Code that relate to the qualification and operation as a REIT are highly technical
and complex. The following sets forth the material aspects of the sections of the Code that govern the Federal
income tax treatment of a REIT and its shareholders. This summary is qualified in its entirety by the applicable
Code provisions, relevant rules and regulations promulgated under the Code, and administrative and judicial
interpretations of the Code.
If we qualify for taxation as a REIT, we generally will not be subject to Federal corporate income taxes
on our net income that is currently distributed to our shareholders. This treatment substantially eliminates the
"double taxation" (once at the corporate level when earned and once again at the shareholder level when
distributed) that generally results from investment in a corporation. We will, however, be subject to Federal
income tax as follows:
o First, we will be taxed at regular corporate rates on any undistributed REIT taxable income,
including undistributed net capital gains.
o Second, we may be subject to the "alternative minimum tax" on our items of tax preference under some
circumstances.
o Third, if we have (a) net income from the sale or other disposition of "foreclosure property"
(defined generally as property we acquired through foreclosure or after a default on a loan
secured by the property or a lease of the property) that is held primarily for sale to customers
in the ordinary course of business or (b) other nonqualifying income from foreclosure property,
we will be subject to tax at the highest corporate rate on this income.
o Fourth, we will be subject to a 100% tax on any net income from prohibited transactions (which are,
in general, certain sales or other dispositions of property held primarily for sale to customers in
the ordinary course of business other than foreclosure property).
o Fifth, we will be subject to a 100% tax on an amount equal to (a) the gross income attributable to
the greater of the amount by which we fail the 75% or 95% test multiplied by (b) a fraction
intended to reflect our profitability, if we fail to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), but have maintained our qualification as a REIT because we
satisfied certain other requirements.
o Sixth, we would be subject to a 4% excise tax on the excess of the required distribution over the
amounts actually distributed if we fail to distribute during each calendar year at least the sum
of (a) 85% of our REIT ordinary income for the year, (b) 95% of our REIT capital gain net income
for the year, and (c) any undistributed taxable income from prior periods.
o Seventh, if we acquire any asset (a "Built-In Gain Asset") from a corporation that is or has been a
C corporation (i.e., generally a corporation subject to full corporate-level tax) in a transaction
in which the basis of the Built-In Gain Asset in our hands is determined by reference to the
basis of the asset in the hands of the C corporation, and we subsequently recognize gain on the
disposition of the asset during the ten-year period (the "Recognition Period") beginning on the
date on which we acquired the asset, then we will be subject to tax, pursuant to guidelines
issued by the IRS, at the highest regular corporate tax rate on this gain to the extent of the
Built-In Gain (i.e., the excess of (a) the fair market value of the asset over (b) our adjusted
basis in the asset, determined as of the beginning of the Recognition Period). The results
described in this paragraph assume that we will make an election pursuant to Treasury Regulations
Section 1.337(d)-5T(b)(3).
Requirements for Qualification as a REIT.
The Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to evidence its
beneficial ownership;
(3) that would be taxable as a domestic corporation, but for Sections 856 through 860 of
the Code;
(4) that is not a financial institution or an insurance company within the meaning of
certain provisions of the Code;
(5) that is beneficially owned by 100 or more persons;
(6) of which during the last half of each taxable year not more than 50% in value of its
outstanding stock is owned, actually or constructively, by five or fewer individuals,
as defined in the Code to include the entities set forth in Code section 542(a)(2); and
(7) that meets certain other tests, described below, regarding the nature of its income
and assets and the amount of its distributions.
The Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and
that condition (5) must be met during at least 335 days of a taxable year of twelve months, or during a
proportionate part of a taxable year of less than twelve months. Conditions (5) and (6) do not apply until after
the first taxable year for which an election is made to be taxed as a REIT. For purposes of condition (6),
pension funds and some other tax-exempt entities are treated as individuals, subject to a "look-through"
exception in the case of pension funds.
We believe that we have satisfied each of these conditions. In addition, our Articles provide for
restrictions regarding transfer of our shares of capital stock and our Continuing Offer to certain partners of
TRG to exchange their Units for shares of our common stock includes certain restrictions on who is entitled to
exercise rights under the Continuing Offer. These restrictions are intended to assist us in continuing to
satisfy the share ownership requirements described in (5) and (6) above. These ownership and transfer
restrictions are described above under the heading "Transfer Restrictions, Restrictions on Ownership." These
restrictions, however, may not ensure that we will, in all cases, be able to satisfy the share ownership
requirements described in (5) and (6) above. If we fail to satisfy these share ownership requirements, our
status as a REIT will terminate. If, however, we comply with the rules contained in applicable Treasury
Regulations that require us to ascertain the actual ownership of our shares and we do not know, or would not have
known through the exercise of reasonable diligence, that we failed to meet the requirement described in condition
(6) above, we will be treated as having met this requirement. See "Failure to Qualify" below.
In addition, a corporation may not elect to become a REIT unless its taxable year is the calendar year.
We have and intend to continue to have a calendar taxable year.
In the case of a REIT that is a partner in a partnership or member of a limited liability company that
is taxable as a partnership for Federal income tax purposes, IRS regulations provide that the REIT will be deemed
to own its proportionate share of the assets of the partnership or limited liability company (as the case may
be), and the REIT will be deemed to be entitled to the income of the partnership or limited liability company (as
the case may be) attributable to such share. The character of the assets and gross income of the partnership or
limited liability company (as the case may be) retains the same character in the hands of the REIT for purposes
of Section 856 of the Code, including satisfying the gross income tests and the asset tests. Accordingly, our
proportionate share of the assets, liabilities and items of income of TRG, including TRG's proportionate share of
the assets, liabilities, and items of income of The Taubman Company Limited Partnership (the "Manager") and the
shopping center joint ventures (provided that none of the joint ventures or the various grantor trusts
beneficially owned by TRG (the "TRG Trusts") which serve as TRG's partners, in those shopping centers
wholly-owned by TRG are taxable as corporations for Federal income tax purposes) is treated as our assets,
liabilities and items of income for purposes of applying the requirements described in this prospectus (including
the income and asset tests described below).
We must satisfy two gross income requirements annually to maintain our qualification as a REIT. First,
each taxable year we must derive directly or indirectly at least 75% of our gross income (excluding gross income
from prohibited transactions) from investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from certain types of temporary
investments. Second, each taxable year we must derive at least 95% of our gross income (excluding gross income
from prohibited transactions) from these real property investments, dividends, interest and gain from the sale or
disposition of stock or securities (or from any combination of the foregoing). 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. Nevertheless, an amount received or accrued
generally will not be excluded from the term "interest" solely by reason of being based on a fixed percentage or
percentages of receipts or sales.
Rents we receive will qualify as "rents from real property" in satisfying the gross income requirements
for a REIT described above only if the following conditions are met:
o 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;
o Second, except for rents received from a taxable REIT subsidiary, as discussed below, rents
received from a tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an actual or constructive owner of 10% or more of the REIT,
actually or constructively owns 10% or more of the interests in such tenant (a "Related Party
Tenant");
o 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 personal property will not qualify as "rents from real property;"
o Fourth, if rent is received from a taxable REIT subsidiary with respect to any property, no more
than 10% of the leased pace at the property may be leased to taxable REIT subsidiaries nd Related
Party Tenants, and rents received from such property (except from Related Party Tenants) must be
substantially comparable to rents paid by other tenants of the REIT's property for comparable
space; and
o Fifth, for rents to qualify as "rents from real property," the REIT generally must not operate or
manage the property or furnish or render services to the tenants of the property (subject to a 1%
de minimis exception), other than through an independent contractor from whom the REIT derives no
revenue. The REIT may, however, directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for occupancy only and are not
otherwise considered "rendered to the occupant" of the property.
Substantially all of our income is derived from our partnership interest in TRG. Currently, TRG's real
estate investments give rise to income that enables us to satisfy all of the income tests described above. TRG's
income is largely derived from its interests in the Taubman Shopping Centers. This income generally qualifies as
"rents from real property" for purposes of the 75% and the 95% gross income tests. TRG also derives income from
its partnership interest in the Manager and, to the extent dividends are paid by the Manager's general partner
("Taub-Co"), from TRG's interest in Taub-Co.
We believe that neither TRG nor any of the shopping center owners in which TRG has an interest (the
"Center Owners") charges rent from 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 fixed percentage of receipts or sales, as described above). We
believe that neither TRG nor any of the Center Owners derives rent attributable to personal property leased in
connection with real property that exceeds 15% of the total rents. In addition, although TRG or the Center
Owners may advance money from time to time to tenants for the purpose of financing tenant improvement, they do
not intend to charge interest that will depend in whole or in part on the income or profits of any person.
We do not believe that we derive rent from property rented to a Related Party Tenant; however, the
determination of whether we own 10% or more of any tenant is made after the application of complex attribution
rules under which we will be treated as owning interests in tenants that are owned by its "Ten Percent
Shareholders." In identifying our Ten Percent Shareholders, each individual or entity will be treated as owning
common stock and preferred stock held by related individuals and entities. Accordingly, we cannot be absolutely
certain whether all Related Party Tenants have been or will be identified. Although rent derived from a Related
Party Tenant will not qualify as rents from real property and, therefore, will not be qualifying income under the
75% or 95% gross income tests, we believe that the aggregate amount of such rental income (and any other
nonqualifying income) in any taxable year will not exceed the limits on nonqualifying income under such gross
income tests. See "Failure to Qualify."
We believe that neither TRG nor any of the Center Owners will lease any property to a taxable REIT
subsidiary unless they determine that not more than 10% of the leased space at such property is leased to Related
Party Tenants and our taxable REIT subsidiaries and the rents received from such leases are substantially
comparable to those received from other tenants (except rent from Related Party Tenants) of TRG or the Center
Owners for comparable space.
TRG has entered into an agreement with the Manager, pursuant to which the Manager provides all services
that TRG requires in connection with the operation of the Taubman Shopping Centers. As a result of TRG's
ownership interests in the Manager and Taub-Co, the Manager does not qualify as an independent contractor from
whom the Company derives no income. We believe, however, that no amounts of rent should be excluded from the
definition of rents from real property solely by reason of the failure to use an independent contractor since TRG
will hire an independent contractor to the extent necessary to qualify rental income as rents from real property
under Section 856(d)(1) of the Code.
The Manager receives fees in exchange for the performance of certain management and administrative
services, including fees to be received pursuant to agreements with the Company and TRG. A portion of those fees
will accrue to us because TRG owns a limited partnership interest in the Manager. Our indirect interest in the
management fees generated by the Manager generally may not be qualified income under the 75% or 95% gross income
tests (at least to the extent attributable to properties in which TRG has no interest or to a joint venture
partner's interest in a property). In any event, we believe that the aggregate amount of such fees (and any
other nonqualifying income) in any taxable year has not exceeded and will not exceed the limits on nonqualifying
income under the 75% and 95% gross income tests.
If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may
nevertheless qualify as a REIT for the year if we are entitled to relief under specific provisions of the Code.
Generally, we may avail ourselves of the relief provisions if:
o our failure to meet these tests was due to reasonable cause and not due to willful neglect;
o we attach a schedule of the sources of our income to our Federal income tax return; and
o any incorrect information on the schedule was not due to fraud with intent to evade tax.
It is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these
relief provisions. For example, if we fail to satisfy the gross income tests because nonqualifying income that
we intentionally incur exceeds the limits on nonqualifying income, the IRS could conclude that our failure to
satisfy the tests was not due to reasonable cause. If these relief provisions do not apply to a particular set
of circumstances, we will not qualify as a REIT. As discussed above in "Taxation of Taubman Centers, Inc. --
General," even if these relief provisions apply, and we retain our status as a REIT, a tax would be imposed with
respect to our excess net income. We may not always be able to maintain compliance with the gross income tests
for REIT qualification despite our periodic monitoring of our income.
Prohibited Transaction Income.
Any gain realized by us on the sale of any property held as inventory or other property held primarily
for sale to customers in the ordinary course of business (including our share of any such gain realized by TRG
will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. This prohibited
transaction income may also adversely affect our ability to satisfy the income tests for qualification as a
REIT. 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
surrounding the particular transaction. TRG owns interests in real property that is situated on the periphery of
certain of the Taubman Shopping Centers. Sales of peripheral property will generally be made through a taxable
REIT subsidiary, and gain from such sales will be subject to the corporate income tax, as discussed below under
"The Taxable REIT Subsidiary." TRG intends to hold its properties for investment with a view to long-term
appreciation, and to engage in the business of acquiring, developing and owning properties. However, TRG does
intend to make occasional sales of its properties as are consistent with its investment objectives, and the IRS
may contend that one or more of these sales is subject to the 100% penalty tax.
Asset Tests.
At the close of each quarter of our taxable year, we also must satisfy three tests relating to the
nature and diversification of our assets.
o First, at least 75% of the value of our total assets (including our allocable share of the assets
held by TRG) must be represented by real estate assets, cash, cash items held for one year or less
and government securities. For purposes of this test, real estate assets include stock or debt
instruments that are purchased with the proceeds of a stock offering or a long-term (at least
five years) public debt offering.
o Second, not more than 25% of the value of our total assets may be represented by securities, other
than those securities includable in the 75% asset test.
o Third, not more than 20% of the value of our total assets may be represented by securities of one
or more taxable REIT subsidiaries.
o Fourth, except with respect to a taxable REIT subsidiary or securities includable in the 75% asset
test, the value of any one issuer's securities may not exceed 5% of the value of our total assets
and we may not own more than 10% of any one issuer's outstanding voting securities nor more than
10% of the total value of any one issuer's outstanding securities.
We are deemed to own a proportionate share of all of the assets owned by TRG and the Center Owners in
which TRG is a partner. We believe that more than 75% of the value of TRG's assets qualify as "real estate
assets." An election has been made to treat Taub-Co and each of its subsidiaries as a taxable REIT subsidiary.
Likewise, a taxable REIT subsidiary election has been made or will be made for each corporation owned, directly
or indirectly, by TRG. Further, we believe that the value of our proportionate share of TRG's interest in
taxable REIT subsidiary securities does not exceed 20% of the value of our assets, and we do not expect that it
will exceed 20% in the future.
After initially meeting the asset tests at the close of any quarter, we will not lose our status as a
REIT for failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset
values. If we fail to satisfy the asset tests because we acquire securities or other property during a quarter
(including as a result of our increasing our interest in TRG or if TRG owns non-qualifying assets), we can cure
this failure by disposing of sufficient nonqualifying assets within 30 days after the close of that quarter. We
believe we have maintained and intend to continue to maintain adequate records of the value of our assets to
ensure compliance with the asset tests and to take such other actions within the 30 days after the close of any
quarter as may be required to cure any noncompliance. If we fail to cure noncompliance with the asset tests
within this time period, we would cease to qualify as a REIT.
The Taxable REIT Subsidiary.
The Internal Revenue Code provides that for taxable years beginning after December 31, 2000, a REIT may
own more than 10% of the voting power and value of securities in a taxable REIT subsidiary. A taxable REIT
subsidiary is a corporation that is not a REIT (a) in which the REIT directly or indirectly owns stock, and (b)
as to which an election has been jointly made to treat the corporation as a taxable REIT subsidiary. In
addition, any corporation (other than a REIT or a qualified REIT subsidiary) is a taxable REIT subsidiary if a
taxable REIT subsidiary of a REIT owns directly or indirectly (i) securities having more than 35% of the total
voting power of the outstanding securities of the corporation, or (ii) securities with a value of more than 35%
of the total value of the outstanding securities of the corporation calculated without regard to certain safe
harbor debt. As discussed under "Requirements for REIT Qualification," above, not more than 20% of the fair
market value of a REIT's assets can be composed of securities of taxable REIT subsidiaries, and stock of a
taxable REIT subsidiary is not a qualified asset for purposes of the 75% asset test.
Although the activities and income of a taxable REIT subsidiary are subject to the corporate income tax,
a taxable REIT subsidiary is permitted to engage in activities and render services the income from which, if
earned directly by the REIT, would disqualify the REIT. Additionally, under certain limited conditions, a REIT
may receive income from a taxable REIT subsidiary that will be treated as rent.
The amount of interest on related party debt a taxable REIT subsidiary may deduct is limited. Further,
a 100% excise tax applies to any interest payments by a taxable REIT subsidiary to its affiliated REIT to the
extent the interest rate is set above a commercially reasonable level. A taxable REIT subsidiary is permitted to
deduct interest payments to unrelated parties without restriction.
The Internal Revenue Code allows the Internal Revenue Service to reallocate costs between a REIT and its
taxable REIT subsidiary. Any deductible expenses allocated away from a taxable REIT subsidiary would increase
its tax liability, and the amount of such increase would be subject to interest charges. Further, any amount by
which a REIT understates its deductions and overstates those of its taxable REIT subsidiary will, subject to
certain exceptions, be subject to a 100% excise tax.
Annual Distribution Requirements.
To maintain our qualification as a REIT, we are required to distribute dividends (other than capital
gain dividends) to our shareholders in an amount at least equal to the sum of 90% of our "REIT taxable income"
(computed without regard to the dividends paid deduction and our net capital gain) and 90% of our net income
(after tax), if any, from foreclosure property, minus the excess of the sum of particular items of our noncash
income (i.e., income attributable to leveled stepped rents, original issue discount on purchase money debt, or a
like-kind exchange that is later determined to be taxable) over 5% of our "REIT taxable income" as described
above. In addition, if we dispose of any Built-In Gain Asset during its Recognition Period, we would be
required, pursuant to Treasury Regulations which have not yet been promulgated, to distribute at least 90% of the
Built-In Gain (after tax), if any, recognized on the disposition of such asset.
These distributions must be paid in the taxable year to which they relate, or in the following taxable
year if they are declared before we timely file our tax return for such year and if paid on or before the first
regular dividend payment after such declaration. These distributions are taxable to holders of our capital stock
(other than tax-exempt entities, as discussed below) in the year in which paid. This is so even though these
distributions relate to the prior year for purposes of our 90% distribution requirement. The amount distributed
must not be preferential; i.e., every shareholder of the class of stock to which a distribution is made must be
treated the same as every other shareholder of that class, and no class of stock may be treated otherwise than in
accordance with its dividend rights as a class. To the extent that we do not distribute all of our net capital
gain or distribute at least 90%, but less than 100%, of our "REIT taxable income," as adjusted, we will be
subject to tax on such income at corporate tax rates.
Our REIT taxable income consists substantially of our distributive share of the income of TRG.
Currently, our REIT taxable income is less than the cash flow we receive from TRG, 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 not have sufficient cash or other liquid assets to meet
these distribution requirements due to timing differences between the actual receipt of income and actual payment
of deductible expenses, and the inclusion of income and deduction of expenses in arriving at our taxable income.
If these timing differences occur, to meet the distribution requirements we may need to arrange for short-term,
or possibly long-term, borrowings or need to pay dividends in the form of taxable stock dividends.
We may be able to rectify a failure to meet the distribution requirement for a year by paying
"deficiency dividends" to shareholders in a later year, which may be included in our deduction for dividends paid
for the earlier year. Thus, we may be able to avoid being taxed on amounts distributed as deficiency dividends.
Nonetheless, we will be required to pay interest based upon the amount of any deduction taken for deficiency
dividends.
Furthermore, we would be subject to a 4% excise tax on the excess of the required distribution over the
amounts actually distributed if we should fail to distribute during each calendar year (or in the case of
distributions with declaration and record dates falling in the last three months of the calendar year, by the end
of January immediately following such year) at least the sum of 85% of our REIT ordinary income for such year,
95% of our REIT capital gain income for the year and any undistributed taxable income from prior periods. Any
REIT taxable income and net capital gain on which this excise tax is imposed for any year is treated as an amount
distributed during that year for purposes of calculating such tax.
Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year, and the relief provisions do not
apply, we will be subject to tax (including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. Distributions to shareholders in any year in which we fail to qualify will not be
deductible by us and we will not be required to distribute any amounts to our shareholders. As a result, our
failure to qualify as a REIT would reduce the cash available for distribution by us to our shareholders. In
addition, if we fail to qualify as a REIT, all distributions to shareholders will be taxable as ordinary income
to the extent of our current and accumulated earnings and profits, and subject to limitations of the Code,
corporate distributees may be eligible for the dividends received deduction. Unless 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 during which we lost our qualification. It is not possible to state whether in all
circumstances we would be entitled to this statutory relief.
Taxation of Taxable U.S. Shareholders
As used below, the term "U.S. Shareholder" means a holder of shares of common stock who (for United
States Federal income tax purposes):
o is a citizen or resident of the United States;
o is a corporation, partnership, or other entity created or organized in or under the laws of the
United States or of any state thereof or in the District of Columbia, unless, in the case of an
entity taxed as a partnership, Treasury Regulations provide otherwise;
o is an estate the income of which is subject to United States Federal income taxation regardless of
its source; or
o is a trust whose administration is subject to the primary supervision of a United States court and
which has one or more United States persons who have the authority to control all substantial
decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury Regulations, certain trusts in
existence on August 20, 1996, and treated as United States persons prior to this date that elect to continue to
be treated as United States persons, shall also be considered U.S. Shareholders.
Distributions Generally.
As long as we qualify as a REIT, distributions out of our current or accumulated earnings and profits,
other than capital gain dividends discussed below, will constitute dividends taxable to our taxable U.S.
Shareholders as ordinary income. These distributions will not be eligible for the dividends-received deduction
in the case of U.S. Shareholders that are corporations.
For purposes of determining whether distributions to holders of common stock are out of current or
accumulated earnings and profits, our earnings and profits will be allocated first to the outstanding preferred
stock and then to the common stock. To the extent that we make distributions, other than capital gain dividends
discussed below, in excess of our current and accumulated earnings and profits, these distributions will be
treated first as a tax-free return of capital to each U.S. Shareholder. This treatment will reduce the adjusted
basis which each U.S. Shareholder has in his shares of stock for tax purposes by the amount of the distribution
(but not below zero). Distributions in excess of a U.S. Shareholder's adjusted basis in his shares will be
taxable as capital gains (provided that the shares have been held as a capital asset) and will be taxable as
long-term capital gain if the shares have been held for more than one year. Dividends we declare in October,
November, or December of any year and payable to a Shareholder of record on a specified date in any of these
months shall be treated as both paid by us and received by the shareholder on December 31 of that year, provided
we actually pay the dividend on or before January 31 of the following calendar year.
Shareholders may not include in their own income tax returns any of our net operating losses or capital
losses.
Capital Gain Distributions.
Distributions that we properly designate as capital gain dividends will be taxable to taxable U.S.
Shareholders as gains (to the extent that they do not exceed our actual net capital gain for the taxable year)
from the sale or disposition of a capital asset. Depending on the character of the assets which produced these
gains, and on designations, if any, which we may make, these gains may be taxable to non-corporate U.S.
Shareholders at a 20% or 25% rate. U.S. Shareholders that are corporations may, however, be required to treat up
to 20% of some capital gain dividends as ordinary income.
Retention of Net Long-Term Capital Gains.
We may elect to retain, rather than distribute as a capital gain dividend, our net long-term capital
gains. If we make this election, we would pay tax on our retained net long-term capital gains. In addition, to
the extent we designate, a U.S. Shareholder generally would:
o include its proportionate share of our undistributed long-term capital gains in computing its
long-term capital gains in its return for its taxable year in which the last day of our taxable
year falls (subject to certain limitations as to the amount that is includable);
o be deemed to have paid the capital gains tax imposed on us on the designated amounts included in
the U.S. Shareholder's long-term capital gains;
o receive a credit or refund for the amount of tax deemed paid by it;
o increase the adjusted basis of its common stock by the difference between the amount of includable
gains and the tax deemed to have been paid by it; and
o in the case of a U.S. Shareholder that is a corporation, appropriately adjust its earnings and
profits for the retained capital gains in accordance with Treasury Regulations to be prescribed
by the IRS.
Passive Activity Losses and Investment Interest Limitations.
Distributions we make and gain arising from the sale or exchange by a U.S. Shareholder of our shares
will not be treated as passive activity income. As a result, U.S. Shareholders generally will not be able to
apply any "passive losses" against this income or gain. Distributions we make (to the extent they do not
constitute a return of capital) generally will be treated as investment income for purposes of computing the
investment interest limitation. Gain arising from the sale or other disposition of our shares, however, will not
be treated as investment income in some circumstances.
Dispositions of Common Stock
If you are a U.S. Shareholder and you sell or dispose of your shares of common stock, you will recognize
gain or loss for Federal income tax purposes in an amount equal to the difference between the amount of cash and
the fair market value of any property you receive on the sale or other disposition and your adjusted basis in the
shares for tax purposes. This gain or loss will be capital if you have held the common stock as a capital asset
and will be long-term capital gain or loss if you have held the common stock for more than one year. In general,
if you are a U.S. Shareholder and you recognize loss upon the sale or other disposition of common stock that you
have held for six months or less (after applying holding period rules set forth in the Code), the loss you
recognize will be treated as a long-term capital loss, to the extent you received distributions from us which
were required to be treated as long-term capital gains.
Backup Withholding
We report to our U.S. Shareholders and the IRS the amount of dividends paid during each calendar year,
and the amount of any tax withheld. Under the backup withholding rules, a shareholder may be subject to backup
withholding with respect to dividends paid unless the holder is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise complies with applicable requirements
of the backup withholding rules. The back-up withholding rate is equal to the fourth lowest tax rate applicable
to unmarried individuals. For amounts paid after August 6, 2001, the rate is 30.5%. For amounts paid during
2002 and 2003, the rate is scheduled to drop to 30%. After December 31, 2010, the rates are scheduled to revert
to the pre-August 6, 2001 rate of 31%. A U.S. Shareholder that does not provide us with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Backup withholding is not an
additional tax. Any amount paid as backup withholding will be creditable against the shareholder's income tax
liability. In addition, we may be required to withhold a portion of capital gain distributions to any
shareholders who fail to certify their non-foreign status. See "Taxation of Non-U.S. Shareholders."
Taxation of Tax-Exempt Shareholders
The IRS has ruled that amounts distributed as dividends by a qualified REIT do not constitute unrelated
business taxable income ("UBTI") when received by a tax-exempt entity. Based on that ruling, provided that a
tax-exempt shareholder (except tax-exempt shareholders described below) has not held its shares as "debt financed
property" within the meaning of the Code (generally, shares of common stock, the acquisition of which was
financed through a borrowing by the tax exempt shareholder) and the shares are not otherwise used in a trade or
business, dividend income from us will not be UBTI to a tax-exempt shareholder. Similarly, income from the sale
of shares will not constitute UBTI unless a tax-exempt shareholder has held its shares as "debt financed
property" within the meaning of the Code or has used the shares in its trade or business.
For tax-exempt shareholders which are social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, and qualified group legal services plans exempt from Federal income
taxation under Code Section 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an investment in
our shares will constitute UBTI unless the organization is able to properly deduct amounts set aside or placed in
reserve for certain purposes so as to offset the income generated by its investment in our shares. These
prospective investors should consult their own tax advisors concerning these "set aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a "pension held REIT" shall be
treated as UBTI as to any trust which:
o is described in Section 401(a) of the Code;
o is tax-exempt under Section 501(a) of the Code; and
o holds more than 10% (by value) of the interests in the REIT.
Tax-exempt pension funds that are described in Section 401(a) of the Code are referred to below as "qualified
trusts."
A REIT is a "pension held REIT" if:
o it would not have qualified as a REIT but for the fact that Section 856(h)(3) of the Code provides
that stock owned by qualified trusts shall be treated, for purposes of the "not closely held"
requirement, as owned by the beneficiaries of the trust (rather than by the trust itself); and
o either at least one such qualified trust holds more than 25% (by value) of the interests in the
REIT, or one or more such qualified trusts, each of which owns more than 10% (by value) of the
interests in the REIT, holds in the aggregate more than 50% (by value) of the interests in the
REIT.
The percentage of any REIT dividend treated as UBTI is equal to the ratio of:
o the UBTI earned by the REIT (treating the REIT as if it were a qualified trust and therefore
subject to tax on UBTI) to
o the total gross income of the REIT.
A de minimis exception applies where the percentage is less than 5% for any year. The provisions
requiring qualified trusts to treat a portion of REIT distributions as UBTI will not apply if the REIT is able to
satisfy the "not closely held" requirement without relying upon the "look-through" exception with respect to
qualified trusts.
Taxation of Non-U.S. Shareholders
When we use the term "Non-U.S. Shareholder," we mean a holder of shares of common stock who (for United
States Federal income tax purposes):
o is a nonresident alien individual; or
o is a foreign corporation, foreign partnership or trust.
The rules governing United States Federal income taxation of Non-U.S. Shareholders are complex, and we
are providing only a brief summary of these rules. This summary does not address all aspects of United States
Federal income tax and does not address state, local or foreign tax consequences that may be relevant to a
Non-U.S. Shareholder in light of its particular circumstances. In addition, this discussion is based on current
law, which is subject to change, and assumes that we qualify for taxation as a REIT. If you are a prospective
Non-U.S. Shareholder, you should consult with your own tax advisers to determine the impact of Federal, state,
local and foreign income tax laws on an investment in our common stock, including any reporting requirements.
Distributions.
A distribution to a Non-U.S. Shareholder will be treated as a dividend of ordinary income to the extent
the distribution is made out of our current or accumulated earnings and profits as long as the following are true:
o the distribution is not attributable to gain from the sale or exchange of United States real
property interests; and
o we have not designated the distribution as a capital gains dividend.
Distributions treated as a dividend of ordinary income will generally be subject to withholding of
United States Federal income tax on a gross income basis (that is, without allowance of deductions) at a 30% rate
unless an applicable tax treaty reduces that rate. However, distributions treated as a dividend of ordinary
income will be subject to a Federal income tax on a net basis (that is, after allowance of deductions) when the
dividend is treated as effectively connected with the Non-U.S. Shareholder's conduct of a United States trade or
business and the Non-U.S. Shareholder has filed an IRS Form 4224 with us or, if an income tax treaty applies, as
attributable to a United States permanent establishment of the Non-U.S. Shareholder. In this event, as long as
certain certification and disclosure requirements are met, the dividend will be taxed at graduated rates, in the
same manner as U.S. Shareholders are taxed with respect to such dividends and will generally not be subject to
withholding. Any such dividends received by a Non-U.S. Shareholder that is a corporation may also be subject to
an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax
treaty (the "Branch Profits Tax").
Under current Treasury regulations, dividends paid to an address in a country outside the United States
are generally presumed to be paid to a resident of the country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. A Non-U.S. Shareholder who wishes to
claim the benefit of an applicable treaty rate will be required to satisfy certain certification and other
requirements. Under certain treaties, lower withholding rates generally applicable to dividends do not apply to
dividends from a REIT.
If we make a distribution in excess of our current or accumulated earnings and profits, the distribution
will not be taxable to a Non-U.S. Shareholder to the extent it does not exceed the adjusted basis of the
shareholder's stock. Instead, the distribution will reduce the adjusted basis of the shareholder's stock. If
the distribution does exceed the adjusted basis of a Non-U.S. Shareholder's stock, the distribution will result
in gain from the sale or exchange of the Non-U.S Shareholder's stock. We discuss the tax treatment of this gain
in further detail below. For withholding purposes, we are required to treat all distributions as if made out of
our current or accumulated earnings and profits. However, the IRS will generally refund amounts that are
withheld if it is determined that the distribution was, in fact, in excess of our current or accumulated earnings
and profits.
A distribution to a Non-U.S. Shareholder that we properly designate as a capital gain dividend at the
time of distribution that does not arise from our disposition of a United States real property interest generally
will not be subject to United States Federal income taxation unless any of the following are true:
o investment in the stock is effectively connected with the Non-U.S. Shareholders United States trade
or business, in which case the Non-U.S. Shareholder will be taxed on the gain at the same rates as
U.S. Shareholders (except that a shareholder that is a foreign corporation may also be subject to
the 30% Branch Profits Tax, as discussed above); or
o the Non-U.S. Shareholder is a nonresident alien individual who is present in the United States for
183 days or more during the taxable year and has a "tax home" in the United States, in which case
the non-resident alien individual will be taxed at a rate equal to 30% of the individual's capital
gains.
Pursuant to the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), distributions to a
Non-U.S. Shareholder that are attributable to gain from our sale or exchange of United States real property
interests will cause the Non-U.S. Shareholder to be treated as recognizing this gain as income effectively
connected with a United States trade or business. Non-U.S. Shareholders would generally be taxed at the same
rates as U.S. Shareholders (subject to a special alternative minimum tax in the case of nonresident alien
individuals) on these distributions. Also, a Non-U.S. Shareholder that is a corporation may be subject to a 30%
Branch Profits Tax on this distribution as discussed above. We are required to withhold 35% of any such
distribution. This amount is creditable against the Non-U.S. Shareholder's United States Federal income tax
liability.
Treasury Regulations require a corporation that is a REIT to treat as a dividend the portion of a
distribution that is not designated as a capital gain dividend or return of basis and apply the 30% withholding
tax (subject to any applicable deduction or exemption) to such portion, and to apply the FIRPTA withholding rules
(discussed above) with respect to the portion of the distribution designated by the REIT as capital gain dividend.
We or any nominee (e.g., a broker holding shares in street name) may rely on a certificate of
non-foreign status on Form W-8 or Form W-9 to determine whether withholding is required on gains realized from
the disposition of United States real property interests. A domestic person who holds shares of common stock on
behalf of a Non-U.S. Shareholder will bear the burden of withholding, provided that we have properly designated
the appropriate portion of a distribution as a capital gain dividend.
Sale of Stock.
Unless our common stock constitutes a "United States real property interest" within the meaning of
FIRPTA, a sale or exchange of common stock by a Non-U.S. Shareholder generally will not be subject to United
States Federal income taxation. Our stock will not constitute a "United States real property interest" if we are
a "domestically controlled REIT." A "domestically controlled REIT" is a REIT in which at all times during a
specified testing period Non-U.S. Shareholders held, directly or indirectly, less than 50% in value of the REIT's
shares.
If we are not or cease to be a "domestically-controlled REIT," a Non-U.S. Shareholder's sale or exchange
of shares of common stock would be subject to United States taxation under FIRPTA as a sale of a "United States
real property interest," assuming our common stock is regularly traded (as defined by applicable Treasury
Regulations) on an established securities market (e.g., the New York Stock Exchange), only if the seller owned
(actually or constructively) more than 5% of our common stock during the applicable testing period. If gain on
the sale or exchange of shares of stock were subject to taxation under FIRPTA, the Non-U.S. Shareholder would be
subject to the same United States Federal income tax treatment with respect to the gain as a U.S. Shareholder
(subject to any applicable alternative minimum tax, a special alternate minimum tax, in the case of nonresident
alien individuals and the possible application of the 30% Branch Profits Tax in the case of foreign
corporations), and the purchaser of the stock would be required to withhold and remit to the IRS 10% of the
purchase price.
Notwithstanding the foregoing, if you are a Non-U.S. Shareholder and you recognize gain from the sale or
exchange of shares of our common stock and the gain is not subject to FIRPTA, the gain will be subject to United
States taxation if:
o your investment in the stock is effectively connected with a United States trade or business (or,
if an income treaty applies, is attributable to a United States permanent establishment); or
o you are a nonresident alien individual who is present in the United States for 183 days or more
during the taxable year and you have a "tax home" in the United States. In this case, you will be
subject to a 30% United States withholding tax on the amount of your gain.
Backup Withholding Tax and Information Reporting.
Backup withholding tax generally is a withholding tax imposed on certain payments to persons that fail
to furnish certain information under the United States information reporting requirements, as discussed above
under "Backup Withholding." Non-U.S. Shareholders will not be subject to backup withholding tax and information
reporting for distributions they receive that are treated as:
o dividends subject to the 30% (or lower treaty rate) withholding tax discussed above;
o capital gains dividends; or distributions attributable to gain from our sale or exchange of United
States real property interests.
As a general matter, backup withholding and information reporting will not apply to a payment of the
proceeds of a sale of stock by or through a foreign office of a foreign broker. Information reporting (but not
backup withholding) will apply, however, to a payment of the proceeds of a sale of stock by a foreign office of a
broker that:
o is a United States person;
o derives 50% or more of its gross income for certain periods from the conduct of a trade or business
in the United States; or
o is a "controlled foreign corporation" (generally, a foreign corporation controlled by United States
shareholders) for United States tax purposes.
Information reporting will not apply if the broker has documentary evidence in its records that the
holder is a Non-U.S. Shareholder and certain other conditions are met, or the shareholder otherwise establishes
an exemption. Payment to or through a United States office of a broker of the proceeds of a sale of stock is
subject to both backup withholding and information reporting unless the shareholder certifies under penalties of
perjury that the shareholder is a Non-U.S. Shareholder, or otherwise establishes an exemption. A Non-U.S.
Shareholder may obtain a refund of any amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the IRS.
Tax Aspects of TRG
The following discussion summarizes certain Federal income tax considerations applicable solely to our
investment in TRG. The discussion does not cover state or local tax laws or any Federal tax laws other than
income tax laws.
Classification.
The Company is entitled to include in its income its distributive share of TRG's income and to deduct
its distributive share of TRG's losses only if TRG and each Center Owner is classified for Federal income tax
purposes as a partnership rather than as an association taxable as a corporation, and none of the TRG Trusts are
classified for Federal income tax purposes as associations taxable as corporations.
An entity will be classified as a partnership rather than as a corporation or an association taxable as
a corporation for Federal income tax purposes if the entity is treated as a partnership under Treasury
Regulations, effective January 1, 1997, relating to entity classification (the "Check-the-Box Regulations").
In general, under the Check-the-Box Regulations, an unincorporated entity with at least two members may
elect to be classified either as an association taxable as a corporation or as a partnership. If such an entity
fails to make an election, it generally will be treated as a partnership for Federal income tax purposes. The
Federal income tax classification of an entity that was in existence prior to January 1, 1997, such as TRG and
the Center Owners, will be respected for all periods prior to January 1, 1997 if:
o the entity had a reasonable basis for its claimed classification
o the entity and all members of the entity recognized the Federal income tax consequences of any
changes in the entity's classification within the 60 months prior to January 1, 1997, and
o neither the entity nor any member of the entity was notified in writing by a taxing authority on or
before May 8, 1996 that the classification of the entity was under examination.
TRG and each Center Owner reasonably claimed partnership classification under the Treasury Regulations relating
to entity classification in effect prior to January 1, 1997, and such classification should be respected for
Federal income tax purposes. TRG and the Center Owners intend to continue to be classified as partnerships for
Federal income tax purposes, and none of them will elect to be treated as an association taxable as a corporation
under the Check-the-Box Regulations.
We also believe that none of the TRG Trusts are taxable as a corporation for Federal income tax
purposes. No assurance can be given, however, that the IRS will not challenge the non-corporate status of the
TRG Trusts for Federal income tax purposes. If such challenge were sustained by a court, the TRG Trusts would be
treated as a corporation for Federal income tax purposes, as described below. In addition, our belief is based
on existing law, which is to a great extent the result of administrative and judicial interpretation. We can not
be certain that administrative or judicial changes would not modify these conclusions.
If for any reason, any TRG Trust were taxable as a corporation rather than as a trust for Federal income
tax purposes, we would be unable to satisfy the income and asset requirements for REIT status. See "Federal
Income Tax Considerations -- Requirements for Qualification -- Income Tests" and "Federal Income Tax
Considerations -- Requirements for Qualification -- Asset Tests." In addition, any change in the status of a TRG
Trust for tax purposes might be treated as a taxable event, in which case we might incur a tax liability without
any related cash distribution. If a TRG Trust were taxable as a corporation, items of income and deduction would
not pass through to its beneficiary, which would be treated as a shareholder for tax purposes. Such TRG Trust
would be required to pay income tax at corporate tax rates on its net income, and distributions would constitute
dividends that would not be deductible in computing such TRG Trust's taxable income.
Income Taxation of TRG and Its Partners
Partners, Not TRG, Subject to Tax.
A partnership is not a taxable entity for Federal income tax purposes. Rather, we are required to take
into account our allocable share of TRG's income, gains, losses, deductions, and credits for any taxable year of
TRG ending within or with our taxable year regardless of whether we have received or will receive any
distribution from TRG.
Tax Allocations with Respect to Contributed Properties.
Pursuant to Section 704(c) of the Code, income, gain, loss, and deduction, including depreciation,
attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated for Federal income tax purposes in a manner such that the
contributor is charged with, or benefits from, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or unrealized loss is generally
equal to the difference between the fair market value of the contributed property at the time of contribution and
the adjusted tax basis of such property at the time of contribution. TRG's partnership agreement requires
allocations of income, gain, loss, and deduction attributable to such contributed property to be made in a manner
that is consistent with Section 704(c) of the Code. Any income, gain, loss, or deduction in excess of that
specially allocated to the contributing partners pursuant to Section 704(c) of the Code is allocated to TRG's
partners in accordance with their percentage interests.
Accordingly, depreciation on any property contributed to TRG is allocated to each contributing partner
in a manner designed to reduce the difference between such property's fair market value and its tax basis, using
methods that are intended to be consistent with statutory intent and Treasury Regulations under Section 704(c) of
the Code. On the other hand, depreciation with respect to any property purchased by TRG subsequent to the
admission of the Company in late 1992 will be allocated among the partners in accordance with their respective
percentage interests in TRG.
Sale of TRG's Property
Generally, any gain realized by TRG on the sale of property held by TRG or a Center Owner for more than
one year will be long-term capital gain, except for any portion of such gain that is treated as depreciation or
cost recovery recapture. Under Section 704(c) of the Code and the Treasury Regulations governing the revaluation
of TRG assets and the restatement of its capital accounts to fair market value, any built-in gain attributable to
appreciation in the regional shopping center interests prior to the admission of the Company to TRG in late 1992
must, when recognized, be allocated to the contributing partners. Thus, we will not incur a tax on such
Built-in-Gains because (except as noted in the following sentence) they must be allocated to partners in TRG
other than us. In addition, any Built-in-Gain with respect to properties contributed to TRG subsequent to the
our admission to TRG must be allocated to the contributing partners. As a consequence of our 1% pre-contribution
interests in two of the Taubman Shopping Centers, we will be allocated an equivalent portion of pre-contribution
gain in the event of a disposition of either property. Further, depreciation will be allocated to reduce the
disparity between fair market value and tax basis with respect to appreciated property contributed to TRG or
otherwise held by TRG prior to our admission to TRG. Such allocations will permit us to claim larger
depreciation deductions because we have, except as noted above, contributed solely unappreciated property.
Our share of any gain realized by TRG on the sale of any property held by TRG or a Center Owner as
inventory or other property held primarily for sale to customers in the ordinary course of TRG's or a Center
Owner's trade or business will, however, be treated as income form a prohibited transaction that is subject to a
100% penalty tax. See "Federal Income Tax Considerations -- Taxation of the Company -- Income Tests." Such
prohibited transaction income will also adversely affect our ability to satisfy the income tests for REIT
status. See "Federal Income Tax Considerations -- Requirements For Qualification -- Income Tests" above. Under
existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of
TRG's or a Center Owner's trade or business is a question of fact that depends on all the facts and circumstances
with respect to the particular transaction. TRG and the Center Owners intend to hold the Taubman Shopping
Centers for investment with a view to long-term appreciation, and to engage in the business of acquiring,
developing, owning, and operating the Taubman Shopping Centers, including peripheral land, consistent with TRG's
and the Center Owners' investment objectives. Sales of peripheral property generally will be made through a
taxable REIT subsidiary. See "The Taxable REIT Subsidiary," above.
Other Tax Consequences
We may be subject to state or local taxation in various state or local jurisdictions, including those in
which we transact business and our shareholders may be subject to state or location taxation in various state or
local jurisdictions, including those in which they reside. Our state and local tax treatment may not conform to
the Federal income tax consequences discussed above. In addition, your state and local tax treatment may not
conform to the Federal income tax consequences discussed above. Consequently, you should consult your tax
advisors regarding the effect of state and local tax laws on a disposition of limited partnership units or an
investment in our shares.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the prohibited transaction provisions of Section 4975 of the Code
that may be relevant to prospective investors. This discussion does not purport to deal with all aspects of
ERISA or the Code that may be relevant to particular investors in light of their particular circumstances.
A PROSPECTIVE INVESTOR THAT IS AN EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA, A TAX QUALIFIED RETIREMENT
PLAN, AN IRA OR A GOVERNMENTAL, CHURCH OR OTHER PLAN THAT IS EXEMPT FROM ERISA IS ADVISED TO CONSULT ITS OWN
LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER APPLICABLE PROVISIONS OF ERISA, THE CODE AND
STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR SALE OF THE COMMON STOCK BY SUCH PLAN OR IRA.
Fiduciary Duties and Prohibited Transactions
A fiduciary of a pension, profit-sharing, retirement, or other employee benefit plan subject to ERISA
(an "ERISA Plan") should consider the fiduciary standards under ERISA in the context of the ERISA Plan's
particular circumstances before authorizing an investment of any portion of the ERISA Plan's assets in the
Company's common stock. In particular, such fiduciary should consider whether:
o the investment satisfies the diversification requirements of Section 404(a)(1)(C) of ERISA;
o the investment is in accordance with the documents and instruments governing the ERISA Plan as
required by Section 404(a)(1)(D) of ERISA;
o the investment is prudent under Section 404(a)(1)(B) of ERISA; and
o the investment is solely in the interests of the ERISA Plan participants and beneficiaries and for
the exclusive purpose of providing benefits to the ERISA Plan participants and beneficiaries and
defraying reasonable administrative expenses of the ERISA Plan as required by Section 404(a)(1)(A)
of ERISA.
In addition to the imposition of fiduciary standards, ERISA and Section 4975 of the Code prohibit a wide
range of transactions between an ERISA Plan, an IRA or certain other plans (collectively, a "Plan") and persons
who have certain specified relationships to the Plan ("parties in interest" within the meaning of ERISA and
"disqualified persons" within the meaning of the Code). Thus, a Plan fiduciary or person making an investment
decision for a Plan also should consider whether the acquisition or the continued holding of the Company's common
stock might constitute or give rise to a direct or indirect prohibited transaction.
Plan Assets
The prohibited transaction rules of ERISA and the Code apply to transactions with a Plan and also to
transactions with the "plan assets" of a Plan. The "plan assets" of a Plan include the Plan's interest in an
entity in which the Plan invests and, in certain circumstances, the assets of the entity in which the Plan holds
such interest. The term "plan assets" is not specifically defined in ERISA or the Code, nor has it been
interpreted definitively by the courts in litigation. On November 13, 1986, the United States Department of
Labor, the governmental agency primarily responsible for administering ERISA, adopted a final regulation (the
"DOL Regulation") establishing the standards it will apply in determining whether an equity investment in an
entity will cause the assets of such entity to constitute "plan assets." The DOL Regulation applies for purposes
of both ERISA and Section 4975 of the Code.
Under the DOL Regulation, if a Plan acquires an equity interest in an entity, which equity interest is
not a "publicly-offered security," the Plan's assets generally would include both the equity interest and an
undivided interest in each of the entity's underlying assets unless certain specified exceptions apply. The DOL
Regulation defines a publicly-offered security as a security that is "widely held," "freely transferable," and
either part of a class of securities registered under Section 12(b) or 12(g) of the Exchange Act or sold pursuant
to an effective registration statement under the Securities Act (provided the securities are registered under the
Exchange Act within 120 days after the end of the fiscal year of the issuer during which the offering occurred).
The shares of the Company's common stock offered by this Prospectus are being sold in an offering registered
under the Securities Act and are registered under Section 12(b) of the Exchange Act.
The DOL Regulation provides that a security is "widely held" only if it is part of a class of securities
that is owned by 100 or more investors independent of the issuer and of one another. A class of securities will
not fail to be "widely held," however, solely because the number of independent investors falls below 100
subsequent to the initial public offering as a result of events beyond the issuer's control. We believe that the
Company's common stock is "widely held" for purposes of the DOL Regulation.
The DOL Regulation provides that whether a security is "freely transferable" is a factual question to be
determined on the basis of all the relevant facts and circumstances. The DOL Regulation further provides that
when a security is part of an offering in which the minimum investment is $10,000 or less, as is the case with
this offering, certain restrictions ordinarily will not affect, alone or in combination, the finding that such
securities are freely transferable. We believe that the restrictions imposed under the Articles on the transfer
of the Company's common stock (see "Transfer Restrictions, Restrictions on Ownership) are limited to restrictions
on transfer generally permitted under the DOL Regulation and are not likely to result in the failure of the
common stock to be "freely transferable." The DOL Regulation only establishes a presumption in favor of a
finding of free transferability; therefore, we can not be certain that the Department of Labor and the Treasury
Department would not reach a contrary conclusion with respect to the Common Stock. If any additional transfer
restrictions are imposed on the transfer of the Company's shares of common stock being sold by the Selling
Shareholders, such restrictions will be discussed in the applicable Prospectus Supplement.
We believe that the Company's common stock is considered "widely held" and "freely transferable," and
based on such beliefs, that the common stock will be publicly-offered securities for purposes of the DOL
Regulation and that the Company's assets will not be deemed to be "plan assets" of any Plan that invests in the
common stock.
PLAN OF DISTRIBUTION
The Selling Shareholders may offer and sell the common stock at prevailing market prices or in privately
negotiated transactions. The Selling Shareholders will be responsible for any commissions or discounts due to
brokers or dealers. The amount of those commissions or discounts will be negotiated before the sales. Brokers
or dealers participating in any sale of common stock offered by the Selling Shareholders may act either as
principals or agents, may use block trades to position and resell the shares and may be deemed "underwriters"
under the Securities Act.
LEGAL MATTERS
The legality of the issuance of the shares of our common stock, as well as certain tax matters, have
been passed upon for Taubman Centers, Inc. by Miro Weiner & Kramer (f/k/a Miro Miro & Weiner), 38500 Woodward
Avenue, Suite 100, P.O. Box 908, Bloomfield Hills, Michigan 48304-0908. Jeffrey H. Miro, a senior member of Miro
Weiner & Kramer, is Secretary of the Company.
10,000,000 Shares
Taubman Centers, Inc.
Common Stock
-----------------------------------
You should rely only on the information contained in this prospectus and in the documents that we have
referred you to. We have not authorized anyone to provide you with information different from that contained in
this prospectus. You should not assume that the information contained in this prospectus is correct on any date
after the date on the prospectus, even though this prospectus is delivered or shares are sold pursuant to this
prospectus on a later date.
This prospectus is not an offer to sell or a solicitation of an offer to buy any security other than the
shares of common stock offered. This prospectus is not an offer to sell or a solicitation to buy securities to
any person in any jurisdiction in which it is unlawful to make such an offer or solicitation.
November 29, 2001
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14.
Other Expenses of Issuance and Distribution.1
Registration Fee.............................................................. $ 40,517.24
Legal Fees and Expenses....................................................... 100,000.00 2
Accounting Fees and Expenses.................................................. 100,000.00 2
Miscellaneous................................................................. 25,000.00 2
-----------
Total......................................................................... $ 265,517.24 2
============
---------------------------------------------
1 TRG has borne all costs of registering the securities registered under this
Registration Statement, other than any underwriting discounts or commissions paid by
the Selling Shareholders.
2 Estimated.
Item 15. Indemnification of Directors and Officers.
The Registrant's Articles of Incorporation provide that no director of the Registrant shall be liable to
the Registrant or the shareholders for monetary damages for breach of the director's fiduciary duty. Such
provision does not limit a director's liability to the Registrant or its shareholders resulting from:
(i) a breath of the director's duty of loyalty to the Registrant or its shareholders;
(ii) acts or omissions of the director not in good faith or that involve intentional misconduct or
knowing violation of the law;
(iii) a violation of Section 551(1) of the Michigan Business Corporation Act (relating to unlawful
payments of dividends);
(iv) a transaction from which the director derived an improper personal benefit; or
(v) any act or omission occurring prior to November 20, 1992.
The Registrant's Articles of Incorporation provide for mandatory indemnification by the Registrant of
the directors (including directors of subsidiaries) to the fullest extent permitted or not prohibited by existing
law or to such greater extent as may be permitted or not prohibited under succeeding provisions of law. The
Registrant's Articles of Incorporation provide that the Registrant shall pay the expenses incurred by a director
of the Registrant (including a director of a subsidiary) in defending a civil or criminal action, suit, or
proceeding involving such person's acts or omissions as a director of the Registrant (or of a subsidiary).
The Registrant's Articles of Incorporation authorize the Registrant to indemnify any officer of the
Registrant (or of a subsidiary), if such person acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Registrant or its shareholders and, with respect to a
criminal action or proceeding, if the person had no reasonable cause to believe his or her conduct was unlawful.
Unless ordered by a court, indemnification of an officer shall be made by the Registrant only as authorized in a
specific case upon the determination that indemnification of the officer is proper in the circumstances because
he or she has met the applicable standard of conduct. Such determination shall be made (i) by majority vote of
the directors of the Registrant who are not parties to the action, suit or proceeding, (ii) by independent legal
counsel in a written opinion, or (iii) by the shareholders of the Registrant. The Registrant's Articles of
Incorporation authorize the Registrant to pay the expenses incurred by an officer in defending a civil or
criminal action, suit, or proceeding in advance of the final disposition thereof, upon receipt of an undertaking
by or on behalf of such officer to repay the expenses if it is ultimately determined that the person is not
entitled to be indemnified by the Registrant. Such undertaking shall be by unlimited general obligation of the
person on whose behalf advances are made but need not be secured.
The Registrant has the power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the Registrant or is liable as a director of the Registrant, or is or
was serving, at the request of the Registrant, as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against any liability asserted against him and incurred
by him in any such capacity or arising out of his status as such, regardless of whether the Registrant would have
power to indemnify him against such liability.
The Registrant has purchased a policy of directors' and officers' insurance that insures both the
Registrant and its officers and directors against expenses and liabilities of the type normally insured against
under such policies, including the expenses of the indemnification described above.
Item 16. Exhibits
Exhibit Number
4(a) - Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal year ended June 30, 2000.)
4(b) - Amended and Restated Bylaws (incorporated by reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.)
5 - Opinion of Miro Weiner & Kramer (f/k/a Miro Miro & Weiner), counsel to Registrant, as to
the validity of the shares and certain tax matters.
23(a) - Consent of Deloitte & Touche.
23(b) - Consent of Miro Weiner & Kramer (f/k/a Miro Miro & Weiner) (included in Exhibit 5).
24 - Powers of Attorney
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(A) To include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933 (the "Securities Act"):
(B) To reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities and Exchange Commission (the "SEC")
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a
20 percent change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(C) To include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material change to such information in
the registration statement; provided, however, that the information required to be included in a
post-effective amendment by paragraphs (a)(1)(A) and (a)(1)(B) above may be contained in periodic
reports filed by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), that are incorporated by reference in the registration statement.
(2) that, for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment any of the
securities being registered that remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes, that, for purposes of determining any liability
under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to
directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City
of Bloomfield Hills, State of Michigan, on the 29th day of November, 2001.
TAUBMAN CENTERS, INC.
By: /s/ Robert S. Taubman
--------------------------------------------
Robert S. Taubman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
* Chairman of the Board November 29, 2001
---------------------------------
A. Alfred Taubman
/s/ Robert S. Taubman President, Chief Executive Officer, November 29, 2001
--------------------------------- and Director
Robert S. Taubman
/s/ Lisa A. Payne Executive Vice President, November 29, 2001
--------------------------------- Chief Financial Officer, and Director
Lisa A. Payne
/s/ William S. Taubman Executive Vice President, November 29, 2001
--------------------------------- and Director
William S. Taubman
/s/ Esther R. Blum Senior Vice President, Controller, November 29, 2001
--------------------------------- and Chief Accounting Officer
Esther R. Blum
* Director November 29, 2001
---------------------------------
Graham T. Allison
* Director November 29, 2001
---------------------------------
Allan J. Bloostein
* Director November 29, 2001
---------------------------------
Jerome A. Chazen
* Director November 29, 2001
---------------------------------
S. Parker Gilbert
* Director November 29, 2001
---------------------------------
Peter Karmanos, Jr.
* By: /s/ Lisa A. Payne November 29, 2001
--------------------------------
Lisa A. Payne, Attorney in Fact
EXHIBIT INDEX
-------------
Sequentially
Exhibit Number Numbered
Page Number
4(a) - Amended and Restated Articles of Incorporation (incorporated by reference *
to Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000.)
4(b) - Amended and Restated Bylaws (incorporated by reference to Exhibit 3 to the *
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1998.)
5 - Opinion of Miro Weiner & Kramer (f/k/a Miro Miro & Weiner), counsel to +
Registrant, as to the validity of the shares and certain tax matters.
23(a) - Consent of Deloitte & Touche.
23(b) - Consent of Miro Weiner & Kramer (f/k/a Miro Miro & Weiner) (included in +
Exhibit 5).
24 - Powers of Attorney.
*Incorporated by reference
+Previously filed