AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1998
REGISTRATION NO. 333-42441
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
MID-AMERICA CAPITAL PARTNERS, L.P.
AND
MID-AMERICA FINANCE, INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
DELAWARE 62-1717980
(STATE OR OTHER JURISDICTION OF 52-2074569
INCORPORATION OR ORGANIZATION) (I.R.S.EMPLOYER IDENTIFICATION NOS.)
C/O CT CORPORATION TRUST COMPANY C/O CT CORPORATION TRUST COMPANY
1209 ORANGE STREET 1209 ORANGE STREET
WILMINGTON, DELAWARE 19801 WILMINGTON, DELAWARE 19801
(302) 777-0205 (302) 777-0205
(ADDRESS, INCLUDING ZIP CODE, AND (NAME AND ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF PRINCIPAL INCLUDING AREA CODE, OF AGENT FOR SERVICE)
EXECUTIVE OFFICE)
COPIES TO:
A. CURTIS GREER II, ESQ.
JOHN A. GOOD, ESQ. MALCOLM P. WATTMAN, ESQ.
BAKER, DONELSON, BEARMAN & CALDWELL CADWALADER, WICKERSHAM & TAFT
165 MADISON AVENUE, SUITE 2000 100 MAIDEN LANE
MEMPHIS, TENNESSEE 38103 NEW YORK, NEW YORK 10038
(901) 577-2148 TELEPHONE (212) 504-6000 TELEPHONE
(901) 577-2303 FACSIMILE (212) 504-6666 FACSIMILE
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement. 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. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ----------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ----------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FORM S-11
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
MID-AMERICA MORTGAGE TRUST, 1998-1
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENT)
<TABLE>
<CAPTION>
<S> <C>
NEW YORK APPLIED FOR
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
LASALLE NATIONAL BANK,
C/O LASALLE NATIONAL BANK NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY AS TRUSTEE
135 SOUTH LASALLE STREET, SUITE 1625 135 SOUTH LASALLE STREET, SUITE 1625
CHICAGO, ILLINOIS 60674-4107 CHICAGO, ILLINOIS 60674-4107
ATTENTION: ASSET BACKED SECURITIES ATTENTION: ASSET BACKED SECURITIES TRUST
TRUST SERVICE GROUP -- MID-AMERICA 1998-1
SERVICE GROUP--MID-AMERICA 1998-1 (312) 904-7324
(312) 904-7324 (NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
(ADDRESS, INCLUDING ZIP CODE, AND NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
COPIES TO:
JOHN A. GOOD, ESQ. A. CURTIS GREER II, ESQ.
BAKER, DONELSON, BEARMAN MALCOLM P. WATTMAN, ESQ.
& CALDWELL MARK MICHIGAN, ESQ. CADWALADER, WICKERSHAM &
165 MADISON AVENUE, SUITE LATHAM & WATKINS TAFT
2000 885 THIRD AVENUE 100 MAIDEN LANE
MEMPHIS, TENNESSEE 38103 NEW YORK, NY 10022 NEW YORK, NEW YORK 10038
(901) 577-2148 TELEPHONE (212) 906-1892 TELEPHONE (212) 504-6000 TELEPHONE
(901) 577-2303 FACSIMILE (212) 751-4864 FACSIMILE (212) 504-6666 FACSIMILE
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial Mortgage Pass-Through
Certificates(1).................... $142,000,000 100%(2) $142,000,000 -0-(3)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Commercial Mortgage Pass-Through Certificates will evidence, in the
aggregate, all of the beneficial ownership interests in Mid-America
Mortgage Trust, 1998-1, the only assets of which are the $142,000,000
aggregate principal amount of ____% First Mortgage Bonds, Due 2003 of
Mid-America Capital Partners, L.P.
(2) In no event will the maximum aggregate offering price of all securities
issued pursuant to this Registration Statement exceed $142,000,000.
(3) The amount of $44,250 was paid upon initial filing of the Registration
Statement on Form S-3, File No. 333-42441, to which this Registration
Statement on Form S-11 is a companion filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
MID-AMERICA MORTGAGE TRUST, 1998-1
CROSS REFERENCE SHEET
CROSS-REFERENCE SHEET SHOWING
LOCATION IN THE PROSPECTUS OF INFORMATION REQUIRED
BY PART I OF FORM S-11
<TABLE>
<CAPTION>
FORM S-11 REGISTRATION STATEMENT ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- ------------------------------------------------------------------------ ---------------------------------------------
<S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................................. Inside Front Cover Page of Prospectus;
Additional Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges......................... Prospectus Summary; Risk Factors; Selected
Financial Information
4. Determination of Offering Price.............................. Plan of Distribution
5. Dilution..................................................... Not applicable
6. Selling Security Holders..................................... Not applicable
7. Plan of Distribution......................................... Outside Front Cover Page of Prospectus; Plan
of Distribution
8. Use of Proceeds.............................................. Prospectus Summary; Use of Proceeds
9. Selected Financial Data...................................... Selected Financial Information
10. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
11. General Information as to Registrant......................... Prospectus Summary; The Trust
12. Policy with Respect to Certain Activities.................... The Trust
13. Investment Policies of Registrant............................ The Trust
14. Description of Real Estate................................... Prospectus Summary; Description of the
Mortgaged Properties; Management's
Discussion and Analysis of Financial
Conditions and Results of Operations
15. Operating Data............................................... Prospectus Summary; Description of the
Mortgaged Properties; Description of
Mortgages; Management's Discussion and
Analysis of Financial Conditions and
Results of Operations; Financial Statements
16. Tax Treatment of Registrant and its Security Holders......... Certain Federal Income Tax Considerations;
State, Local and Foreign Taxes; ERISA
Considerations
17. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters..................... Not applicable
18. Description of Registrant's Securities....................... Prospectus Summary; Description of the
Certificates; Description of the Bonds;
Book-Entry Issuance, Clearance and
Settlement
19. Legal Proceedings............................................ Not applicable
20. Security Ownership of Certain Beneficial Owners and
Management................................................. Not applicable
21. Directors and Executive Officers............................. The Trust
22. Executive Compensation....................................... Not applicable
23. Certain Relationships and Related Transactions............... Not applicable
24. Selection, Management and Custody of Registrant's
Investments................................................ Prospectus Summary; The Trust
25. Policies with Respect to Certain Transactions................ The Trust
26. Limitations of Liability..................................... Not applicable
27. Financial Statements and Information......................... Financial Statements
28. Interests of Named Experts and Counsel....................... Not applicable
29. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................. Not applicable
30. Quantitative and Qualitative Disclosures About Market Risk... Not applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED FEBRUARY 10, 1998
PROSPECTUS
$142,000,000
Mid-America Finance, Inc.
As Depositor
Commercial Mortgage Pass-through Certificates, Series 1998-1
Representing Beneficial Ownership in
Mid-America Capital Partners, L.P.
% First Mortgage Bonds, Due 2003
MID-AMERICA MORTGAGE TRUST, 1998-1 (THE "TRUST"), A TRUST CREATED BY
MID-AMERICA FINANCE, INC. (THE "DEPOSITOR"), PURSUANT TO AN AGREEMENT OF TRUST
(THE "TRUST AGREEMENT") BETWEEN THE DEPOSITOR AND LASALLE NATIONAL BANK, AS
TRUSTEE (THE "TRUSTEE"), AT THE DIRECTION OF THE DEPOSITOR WILL ISSUE ITS
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-1 (THE
"CERTIFICATES") IN AN AGGREGATE PRINCIPAL AMOUNT OF U.S. $142,000,000. IT IS A
CONDITION TO THE ISSUANCE OF THE CERTIFICATES THAT THEY BE ASSIGNED A RATING OF
AT LEAST "BAA2" BY MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") AND A RATING
OF AT LEAST "BBB" BY STANDARD & POOR'S RATINGS SERVICES ("S&P").
THE CERTIFICATES WILL EVIDENCE, IN THE AGGREGATE, ALL OF THE BENEFICIAL
OWNERSHIP INTERESTS IN THE TRUST. THE ASSETS OF THE TRUST WILL CONSIST
EXCLUSIVELY OF THE % FIRST MORTGAGE BONDS, DUE 2003 (THE "BONDS") OF
MID-AMERICA CAPITAL PARTNERS, L.P., A DELAWARE LIMITED PARTNERSHIP (THE
"BORROWER"), IN THE AGGREGATE PRINCIPAL AMOUNT OF U.S. $142,000,000. THE
CERTIFICATES WILL BE PAYABLE SOLELY FROM AMOUNTS RECEIVED BY THE TRUSTEE AS
PAYMENTS ON THE BONDS. THE BONDS WILL BE ISSUED PURSUANT TO A RESTATED
SUPPLEMENTAL INDENTURE DATED EFFECTIVE AS OF NOVEMBER 21, 1997 (THE
"INDENTURE") AMONG MID-AMERICA APARTMENTS, L.P., A TENNESSEE LIMITED
PARTNERSHIP ("MAALP"), THE BORROWER AND LASALLE NATIONAL BANK, AS TRUSTEE (THE
"INDENTURE TRUSTEE"). MAALP IS THE SOLE LIMITED PARTNER OF THE BORROWER AND
OWNS A 99% INTEREST THEREIN.
DISTRIBUTIONS OF INTEREST ON THE BONDS WILL BE MADE ON THE FIRST BUSINESS
DAY OF EACH CALENDAR MONTH COMMENCING APRIL 1, 1998. THE BONDS ARE NOT SUBJECT
TO A SINKING FUND AND MAY NOT BE REDEEMED OR PREPAID PRIOR TO MATURITY. UNLESS
AND UNTIL A SECURITY RELEASE (DEFINED BELOW), THE BONDS WILL BE SECURED BY FIRST
PRIORITY MORTGAGE LIENS (THE "MORTGAGE LIENS") ON 26 APARTMENT COMMUNITIES
(THE "MORTGAGED PROPERTIES") LOCATED IN NINE STATES AND WILL BE THE
FULL-RECOURSE OBLIGATIONS OF THE BORROWER; HOWEVER, NO PARTNER OR AFFILIATE OF
THE BORROWER WILL BE LIABLE FOR THE PAYMENT OF INTEREST ON OR PRINCIPAL OF THE
BONDS. THE INDENTURE PROVIDES THAT THE MORTGAGE LIENS WILL BE SUBJECT TO RELEASE
(THE "SECURITY RELEASE") IF AND WHEN EACH OF THE FOLLOWING CONDITIONS, AMONG
OTHERS, OCCURS: (I) THE UNSECURED DEBT OF MAALP, INCLUDING THE BONDS, IS RATED
AT LEAST "BAA3" AND "BBB-" BY MOODY'S AND S&P, RESPECTIVELY, AND (II) MAALP
IS A REPORTING COMPANY UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
(THE "EXCHANGE ACT"), PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT ON FORM
10 (OR ANY SUCCESSOR FORM). THE ABILITY OF MAALP TO PROCURE THE REQUIRED RATINGS
OF ITS UNSECURED DEBT, INCLUDING THE BONDS, IS SUBJECT TO SATISFACTION OF THE
CRITERIA FOR SUCH RATINGS AS MAY BE IMPOSED FROM TIME TO TIME BY MOODY'S AND
S&P. THERE CAN BE NO ASSURANCE THAT MAALP WILL PROCURE THE REQUIRED RATINGS AND
EFFECT A SECURITY RELEASE. AT LEAST 60 DAYS PRIOR TO A PERMITTED MERGER (DEFINED
BELOW) AND SECURITY RELEASE, MAALP WILL DELIVER TO THE CERTIFICATE HOLDERS
NOTICE OF ITS INTENT TO CONSUMMATE THE PERMITTED MERGER AND SECURITY RELEASE,
WHICH NOTICE WILL BE ACCOMPANIED BY MAALP'S PROSPECTUS PURSUANT TO A
POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT OF WHICH SUCH PROSPECTUS
WILL BE A PART PROVIDING CERTIFICATE HOLDERS WITH INFORMATION ABOUT MAALP AND
DESCRIBING THE PERMITTED MERGER AND SECURITY RELEASE. SIMULTANEOUSLY WITH ANY
SECURITY RELEASE, THE INDENTURE TRUSTEE WILL RELEASE THE MORTGAGE LIENS, THE
BORROWER WILL MERGE WITH AND INTO MAALP, WITH MAALP AS THE SURVIVING LIMITED
PARTNERSHIP OF THE MERGER (THE "PERMITTED MERGER"), MAALP WILL ASSUME THE
OBLIGATIONS UNDER THE BONDS, THE TRUST WILL TERMINATE AND THE TRUSTEE WILL
DELIVER THE BONDS TO THE HOLDERS OF THE CERTIFICATES THROUGH THE BOOK-ENTRY
FACILITIES DESCRIBED HEREIN, AS A DISTRIBUTION IN FULL SATISFACTION OF THEIR
BENEFICIAL INTERESTS IN THE TRUST. IF SUCH EVENTS OCCUR, THE BONDS WILL
THEREAFTER BE THE GENERAL UNSECURED OBLIGATIONS OF MAALP RANKING IN PARITY WITH
ALL OTHER UNSECURED DEBT OF MAALP, AND PERSONS PREVIOUSLY HOLDING CERTIFICATES
WILL THEREAFTER HAVE NO CLAIM AGAINST THE MORTGAGED PROPERTIES OR ANY OTHER
PROPERTY OF MAALP EXCEPT AS GENERAL UNSECURED CREDITORS OF MAALP. MAALP IS THE
PRIMARY OPERATING PARTNERSHIP OF MID-AMERICA APARTMENT COMMUNITIES, INC.
("MAAC"), A REAL ESTATE INVESTMENT TRUST WHOSE COMMON STOCK IS TRADED ON THE
NEW YORK STOCK EXCHANGE. MAAC IS THE SOLE GENERAL PARTNER OF MAALP AND OWNS AN
AGGREGATE APPROXIMATELY 84.6% PARTNERSHIP INTEREST THEREIN.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN PURCHASING THE CERTIFICATES
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
EXPECTED SCHEDULED
CERTIFICATE FINAL FINAL
PRINCIPAL PASS-THROUGH RATING DISTRIBUTION DISTRIBUTION
AMOUNT RATE (MOODY'S/S&P) DATE (1) DATE (2)
- -------------- ------------ ------------- ------------- -----------------
<S> <C> <C> <C>
$ 142,000,000 % Baa2/BBB March 1, 2003 September 1, 2005
</TABLE>
- ------------
(See footnotes to table on page 3)
------------------------
The Certificates will be purchased by Morgan Stanley & Co. Incorporated
(the "Underwriter") from the Depositor and will be offered by the Underwriter
from time to time to the public in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. Proceeds to the Depositor
from the sale of the Certificates will be approximately % of the aggregate
principal amount of the Certificates, plus accrued interest, if any, from March
___, 1998, before deducting expenses payable by the Depositor.
The Certificates are offered by the Underwriter subject to prior sale,
when, as and if issued, delivered to and accepted by the Underwriter and subject
to the approval of certain legal matters by Cadwalader, Wickersham & Taft,
counsel to the Underwriter. It is expected that delivery of the Certificates
will be made in book-entry form through the facilities of the Depository Trust
Company, which may include delivery through Cedel Bank, S.A. and the Euroclear
System as participants of the Depository Trust Company on or about March ,
1998 against payment therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
, 1998
<PAGE>
[GRAPHICS AND PICTURES OF PROPERTIES OMITTED]
2
<PAGE>
NOTES TO TABLE ON COVER PAGE
(1) The "Expected Final Distribution Date" with respect to the Certificates
is the "Stated Maturity Date" of the Bonds and is based on the
assumptions that (i) all payments of interest on the Bonds are timely paid;
(ii) the Bonds are not prepaid as a result of acceleration; and (iii) the
payment of the entire unpaid principal of the Bonds is made on the Stated
Maturity Date. However, the actual payments on the Bonds may differ from
these assumptions.
(2) The Scheduled Final Distribution Date is the date two and one-half years
after the Expected Final Distribution Date.
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CERTIFICATES, INCLUDING THE
IMPOSITION OF A PENALTY BID IN CONNECTION WITH THE OFFERING. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
There is currently no secondary market for the Certificates. The
Underwriter currently expects to make a secondary market in the Certificates,
but has no obligation to do so. There can be no assurance that such a market
will develop or, if it does develop, that it will continue. See "Risk
Factors -- Lack of Established Market" and "Plan of Distribution" herein.
The distribution of this Prospectus dated __________, 1998, and the offer
or sale of Certificates may be restricted by law in certain jurisdictions.
Persons into whose possession this Prospectus or any Certificates come must
inform themselves about, and observe, any such restrictions. In particular,
there are restrictions on the distribution of this Prospectus and the offer or
sale of Certificates in the United Kingdom. See "Plan of Distribution."
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Trust or the Depositor. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, the Certificates in any jurisdiction
where, or to any person to whom, it is unlawful to make any such offer or
solicitation. Neither the delivery of this Prospectus nor any offer or sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Borrower since the date hereof.
3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
TABLE OF CONTENTS
PAGE
----
Prospectus Summary................... 7
Risk Factors......................... 20
Description of the Certificates...... 27
Description of the Bonds............. 30
Book-Entry Issuance, Clearance and
Settlement......................... 37
Description of the Mortgaged
Properties......................... 39
Description of the Mortgages......... 44
The Borrower......................... 47
The Depositor........................ 47
The Trust............................ 48
Use of Proceeds...................... 48
Selected Financial Information....... 48
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 51
Management of the Borrower........... 54
Certain Information Regarding MAALP
and MAAC........................... 56
Certain Federal Income Tax
Considerations..................... 61
State, Local and Foreign Taxes....... 67
ERISA Considerations................. 67
Legal Investment..................... 68
Plan of Distribution................. 68
Legal Matters........................ 69
Experts.............................. 69
Ratings of the Certificates.......... 70
Available Information................ 71
Incorporation by Reference........... 71
5
<PAGE>
ORGANIZATIONAL CHART
<TABLE>
<CAPTION>
<S> <C> <C>
Prior to a Permitted Merger After a Permitted Merger
_________________________________________________________ ________________________
_______________________ _______________________
| | | |
_________________| Mid-America | | Mid-America |
| | Apartment Communities | | Apartment Communities,|
| | Inc. ("MAAC") | | Inc. ("MAAC") |
| | NYSE:MAA | | NYSE:MAA |
| |_______________________| |_______________________|
| | | |
| | | 84.5% Partner |
| 100% | 100% | and sole |
| | | General Partner |
| | | |
| | | |
| ____________|_____ __|__________________ _________|_____________
| | | | | | |
| | MAACP, Inc. | | Mid-America | | Mid-America |
| | ("MAACP") | | Apartments, L.P. | | Apartments, L.P. |
| | | | ("MAALP") | | ("MAALP") |
| |__________________| |_____________________| |_______________________|
| | /|\ | /|\ /|\ |
| Consideration | | Communities | | | |
| | | | | | Bonds | Indenture
| \|/ | 1% GP \|/ |99% LP | Proceeds | Trustee
_|_____________ ____|________________|_______|__ |
| |<---------| | __________|____________
| Mid-America | Bonds | Mid-America | | |
| Finance, Inc. |--------->| Capital Partners, L.P. | | |
| ("Depositor") | Proceeds | ("Borrower") | | LaSalle National |
|_______________| |________________________________| | Bank |
| /|\ | | |
Bonds \|/ | Proceeds | Indenture |_______________________|
_________|______ | Trustee
| | ___|______________
| Mid-America | | |
| Mortage Trust, | Trustee | LaSalle National |
| 1998-I |_______________| Bank |
| ("Trust") | | |
|________________| |__________________|
| /|\
Certificates \|/ | Proceeds
_______________|_
| |
| Investors |
|_________________|
</TABLE>
6
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED
HEREIN BY REFERENCE. SEE "RISK FACTORS" FOR A DESCRIPTION OF CERTAIN RISKS AND
OTHER SPECIAL CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE SECURITIES
DISCUSSED HEREIN. SEE THE GLOSSARY BEGINNING ON PAGE G-1 FOR DEFINITIONS OF
TERMS USED IN THIS PROSPECTUS.
<TABLE>
<CAPTION>
<S> <C>
TITLE OF CERTIFICATES........................ Mid-America Mortgage Trust, 1998-1
Commercial Mortgage Pass-Through
Certificates, Series 1998-1 (the
"Certificates").
ISSUER OF CERTIFICATES....................... Mid-America Mortgage Trust, 1998-1
(the "Trust"), a trust created
under the laws of the State of New
York pursuant to an agreement of
trust dated as of February 5, 1998
(as amended and restated from time to
time, the "Trust Agreement")
between Mid-America Finance, Inc. as
the sole depositor and grantor (the
"Depositor"), Mid-America Apartment
Communities, Inc. ("MAAC") and
LaSalle National Bank, as trustee
(together with any successor thereto,
the "Trustee").
DESCRIPTION OF CERTIFICATES.................. The Certificates will evidence, in
the aggregate, all of the beneficial
ownership interests in the Trust
established by the Depositor pursuant
to the Trust Agreement. The only
assets of the Trust will be
$142,000,000 aggregate principal
amount (the "Principal Amount") of
% First Mortgage Bonds, Due 2003
(the "Bonds") of Mid-America
Capital Partners, L.P. (the
"Borrower"). See "Description of
Bonds." The Certificates will be
payable solely from the amounts
received by the Trustee as payments
on the Bonds. See "Description of
the Certificates."
DISTRIBUTIONS ON CERTIFICATES: On the first Business Day of each
month beginning April 1, 1998 (each a
"Distribution Date"), funds
available to the Trustee from the
interest payments made on the Bonds
and, after an event of default under
any mortgage or other document
evidencing the Mortgage Liens
(individually, a "Mortgage" and
collectively, the "Mortgages"),
from payments in respect of the Bonds
or the liquidation of any of the
Mortgaged Properties, will be
distributed to the holders of the
Certificates. A "Business Day" is
any day other than (i) a Saturday or
Sunday or (ii) a day that is either a
legal holiday or a day on which
banking institutions in New York, New
York, the State of Illinois or the
State of Tennessee are authorized or
obligated by law, regulation or
executive order to be closed.
EXPECTED FINAL DISTRIBUTION DATE: The Expected Final Distribution Date
for the Certificates is March 3, 2003
assuming that (i) all payments of
interest under the Bonds are timely
paid; (ii) the Bonds are not prepaid
as a result of acceleration; and
(iii) the payment of the entire
unpaid principal of the Bonds is made
on the Stated Maturity Date.
7
<PAGE>
SCHEDULED FINAL DISTRIBUTION DATE: The Scheduled Final Distribution Date
for the Certificates is September 1,
2005, two and one-half years after
the Expected Final Distribution Date.
If the unpaid principal balance on
the Bonds is paid after the Expected
Final Distribution Date but prior to
the Scheduled Final Distribution
Date, the Certificates are required
to be paid on the next Payment Date.
See "Description of Bonds -- Payment
on the Bonds." The ratings of
Moody's and S&P address the
likelihood of the timely receipt by
Certificate holders of all payments
(other than Default Interest) to
which such holders are entitled by
two different dates: the Scheduled
Final Distribution Date, in the case
of Moody's, and the Expected Final
Distribution Date, in the case of
S&P.
CERTIFICATE RECORD DATE: The record date for the Certificates
with respect to any Distribution Date
will be the close of business on the
Business Day preceding such
Distribution Date (a "Certificate
Record Date").
TITLE OF BONDS............................... Mid-America Capital Partners, L.P.
% First Mortgage Bonds, Due 2003.
DESCRIPTION OF BONDS......................... The Bonds will be issued pursuant to
a restated supplemental indenture
(the "Indenture") dated effective
as of November 21, 1997 by and among
the Borrower, Mid-America Apart-
ments, L.P. ("MAALP") and LaSalle
National Bank, as trustee (the
"Indenture Trustee") and will be
limited to an aggregate amount of
$142,000,000. See "Description of
the Bonds."
INTEREST RATE: The Bonds will bear interest at a
fixed rate of % per annum.
Interest on the Bonds will be
computed on the basis of a 360-day
year consisting of twelve 30-day
months.
TERM AND PREPAYMENT LOCKOUT: The Bonds are non-callable for a
period of 5 years, and the entire
unpaid principal balance of the Bonds
will be due and payable on March 1,
2003 (the "Stated Maturity Date").
There is no sinking fund for the
Bonds and the Bonds are not subject
to redemption, prepayment or
principal amortization except for
acceleration upon the occurrence of
any event of default under the
Indenture.
DEFEASANCE: The Indenture provides for defeasance
of the bonds at any time prior to the
Stated Maturity Date, upon the
compliance by the Borrower with the
following conditions: (i) an
irrevocable deposit with the
Indenture Trustee of cash or U.S.
government securities sufficient to
pay principal and interest when due
on the Bonds to the Stated Maturity
Date, (ii) delivery to the Indenture
Trustee of a certificate from
independent accountants stating that
payments derived from such deposited
cash or securities will be sufficient
to pay principal and interest when
due on the Bonds to the Stated
Maturity Date, (iii) delivery of
certain required opinions of counsel,
(iv) receipt of confirmation from the
Rating Agencies that such defeasance
will not, in and of itself, cause the
withdrawal, downgrade or
requalification of any rating on the
Certificates or, after a Permitted
Merger, the unsecured debt of MAALP,
and (v) absence of an Event of
Default (as defined below)
8
<PAGE>
arising from certain events of
bankruptcy, insolvency or reor-
ganization relating to the Borrower
See "Description of the
Bonds -- Events of Default and
Notice" and "-- Defeasance."
PAYMENT DATES: Interest on the Bonds is payable
monthly in arrears. Interest payments
on the Bonds will be due on the first
Business Day of each month (each a
"Payment Date"), commencing April
1, 1998.
SECURITY: COLLATERAL PRIOR TO PERMITTED MERGER
AND SECURITY RELEASE. Unless and
until a Permitted Merger and Security
Release, the Bonds will be secured by
(i) first priority mortgage liens
(the "Mortgage Liens") on the
Borrower's fee interest in 26
apartment communities located in 9
states, including each of the parcels
of land on which such apartment
communities are situated
(collectively, the "Mortgaged
Properties" and, individually, a
"Mortgaged Property") , (ii) liens
and security interests in all related
assets, including buildings and
improvements thereon, (iii) an
assignment of rents and leases from
the Mortgaged Properties and (iv) the
funds and investments, if any, in
certain Accounts (as defined below)
of the Borrower. Prior to a Permitted
Merger and Security Release, MAACP,
Inc., a special-purpose Delaware
corporation and a wholly owned
subsidiary of MAAC, the general
partner of the Borrower (the
"General Partner"), will have no
personal liability with respect to
the Bonds, and no Bondholder may
claim recourse against the General
Partner or any limited partner
(including MAALP) or officer,
director, shareholder or employee of
the Borrower or the General Partner
for any deficiency or personal
judgment after a foreclosure on the
Mortgaged Properties. The Bonds are
neither obligations of nor guaranteed
by the General Partner, MAALP, MAAC,
the Depositor, the Trustee, the
Indenture Trustee, the Underwriter or
any of their affiliates, or insured
or guaranteed by any governmental
entity or instrumentality or by any
other person or entity.
NO COLLATERAL AFTER PERMITTED MERGER
AND SECURITY RELEASE. If a Permitted
Merger and Security Release occur,
the Bonds will become the general
unsecured obligations of MAALP
ranking in parity with all other
unsecured indebtedness of MAALP, and
persons previously holding
Certificates will thereafter have no
claim against the Mortgaged Proper-
ties, the rents and leases derived
from the Mortgaged Properties or any
other property of MAALP, except as
general unsecured creditors of MAALP.
The Permitted Merger and Security
Release are subject to certain
conditions described below in
"--Permitted Merger; Security
Release and Trust Termination" and
"Description of the
Bonds -- Permitted Merger; Security
Release and Trust Termination," and
there can be no assurance that such
conditions will ever be met or that a
Permitted Merger and Security Release
will occur. See "Risk
Factors--Failure to Satisfy
Conditions to Permitted Merger and
Security Release."
ADDITIONAL INDEBTEDNESS: Prior to a Permitted Merger and
Security Release, the Borrower may
9
<PAGE>
not incur any indebtedness except the
Bonds and trade accounts payable
which are paid-in-full no more than
60 days after such trade accounts
payable are incurred.
From and after a Permitted Merger and
Security Release, MAALP (i) is
prohibited from incurring (a)
indebtedness in excess of 60% of
MAALP's Total Assets (as defined
below) (b) secured indebtedness in
excess of 40% of MAALP's Total Assets
or (c) indebtedness if the
Post-Permitted Merger Debt Service
Coverage Ratio (defined below) for
the four consecutive fiscal quarters
most recently ended prior to the date
on which such additional indebtedness
is to be incurred would be less than
1.50 to 1, on a pro forma basis; and
(ii) is required to maintain total
unencumbered assets of not less than
150% of the aggregate principal
amount of all outstanding unsecured
indebtedness. See "Description of
the Bonds -- Restrictive Covenants."
DEFAULT RATE: Pursuant to the Indenture, if a
Permitted Merger and Security Release
do not occur and the Borrower has not
paid the entire Principal Amount of
the Bonds and all other amounts out-
standing thereunder on or before the
Stated Maturity Date, the Borrower
will be required to pay accrued
interest on the unpaid portion of
such Principal Amount outstanding and
any other amounts payable under the
Bonds from such date until paid at a
default rate of interest (the
"Default Rate") equal to the
greater of (i) the interest rate on
the Bonds plus 2% per annum or (ii)
the 20 Year U.S. Treasury Rate plus
2.8% per annum (the "Default
Interest"). Payments of Default
Interest received by the Trustee will
be paid to the Certificate holders.
RECORD DATE: The Record Date for the Bonds with
respect to any Payment Date will be
the close of business on the Business
Day immediately preceding such
Payment Date (the "Record Date").
PERMITTED MERGER; SECURITY RELEASE; AND TRUST
TERMINATION................................ The Indenture provides that the
Mortgage Liens securing the Bonds
will be subject to release
("Security Release") if and when
each of the following conditions,
among others, occurs: (i) the
unsecured debt of MAALP, including
the Bonds, is rated at least "Baa3"
and "BBB-" by Moody's Investors
Service, Inc. ("Moody's") and
Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies
("S&P"), respectively, and (ii)
MAALP is a reporting company under
the Securities Exchange Act of 1934,
as amended (the "Exchange Act"),
pursuant to an effective registration
statement on Form 10 (or any
successor form). Moody's and S&P are
referred to collectively herein as
the "Rating Agencies."
The ability of MAALP to procure the
required ratings of its unsecured
debt, including the Bonds, is subject
to satisfaction of the criteria for
such ratings as may be imposed from
time to time by Moody's and S&P.
MAALP believes such criteria include
ownership by MAALP directly or
through subsidiaries of substantially
all of the real estate assets
currently owned by MAAC and
satisfaction of certain leverage and
equity ratios.
10
<PAGE>
The rating criteria established by
Moody's and S&P are subject to change
from time to time in the sole
discretion of the Rating Agencies,
and such criteria are outside the
control of MAALP and may not be
satisfied by MAALP prior to repay-
ment of the Bonds in full. There can
be no assurance that MAALP will
procure the required ratings and
effect a Permitted Merger and
Security Release. See "Risk
Factors-- Failure to Satisfy
Conditions to Permitted Merger and
Security Release."
At least 60 days prior to a Permitted
Merger and Security Release, MAALP
will deliver to the Certificate
holders notice of its intent to
consummate the Permitted Merger and
Security Release, which notice will
be accompanied by MAALP's prospectus
pursuant to a post-effective
amendment to the registration
statement of which such prospectus
will be a part providing Certificate
holders with information about MAALP
and describing the Permitted Merger
and Security Release (the "MAALP
Prospectus"). Upon proof of proper
notice and delivery of the MAALP
Prospectus and certification by MAALP
that the conditions to the Permitted
Merger and Security Release have been
met, the Indenture Trustee will
release the Mortgage Liens, the
Borrower will merge with and into
MAALP, with MAALP as the surviving
limited partnership of the merger
(the "Permitted Merger"), and MAALP
will assume the obligations under the
Bonds.
Simultaneously with a Permitted
Merger and Security Release, the
Trust will terminate (a "Trust
Termination"), and the Trustee will
deliver the Bonds to the holders of
the Certificates through the
book-entry facilities described
herein as a distribution in full
satisfaction of their beneficial
interests in the Trust, and the
Global Certificate evidencing the
Certificates will be canceled by the
Trustee and delivered to the
Depositor and will be of no further
force or effect. At such time, the
Bonds will be the general unsecured
obligations of MAALP ranking in
parity with all other unsecured
indebtedness of MAALP, and persons
previously holding Certificates shall
thereafter have no claim against the
Mortgaged Properties, the rents and
leases derived from the Mortgaged
Properties or any other property of
MAALP except as general unsecured
creditors of MAALP.
As of the date of this Prospectus the
Borrower and MAALP have not taken any
action to effect the Permitted Merger
and Security Release.
DENOMINATIONS................................ Bonds and Certificates will be
issuable in registered form, without
interest coupons, in minimum
denominations of $100,000 and
integral multiples of $1,000 in
excess thereof.
CLEARANCE AND SETTLEMENT..................... Holders of Certificates (and, after
the Permitted Merger and Security
Release, Bondholders) will hold their
Certificates (or Bonds) through The
Depository Trust Company ("DTC")
which may include delivery through
Cedel Bank, S.A. ("CEDEL") and The
Euroclear System ("Euroclear") as
participants of the Depository Trust
Company. Transfers within DTC, CEDEL
and Euroclear, as the case may be,
will be in
11
<PAGE>
accordance with the usual rules and
operating procedures of the relevant
system. Transfers between persons
holding directly or indirectly
through DTC, CEDEL or Euroclear will
be effected in DTC through the
relevant depositories of CEDEL and
Euroclear. To facilitate the
foregoing, a single global
certificate (the "Global
Certificate") and a single global
bond (the "Global Bond"), each in
definitive, fully registered form
without interest coupons, will be
registered in the name of a nominee
of DTC and deposited with the Trustee
(in the case of the Global
Certificate) and the Indenture
Trustee (in the case of the Global
Bond) as custodians for DTC. Owners
of beneficial interests in the Global
Certificate (and, after the Permitted
Merger and Security Release, the
Global Bond) will be entitled to
physical delivery of Certificates (or
Bonds, after the Permitted Merger and
Security Release) only under the
limited circumstances described under
"Book-Entry Issuance, Clearance and
Settlement".
<S> <C>
THE TRUST.................................... Mid-America Mortgage Trust, 1998-1, a
trust created under the laws of the
State of New York pursuant to an
agreement of trust dated as of
February 5, 1998, as amended and
restated from time to time, between
the Depositor, MAAC and the Trustee.
THE DEPOSITOR................................ Mid-America Finance, Inc., a special
purpose Delaware corporation. All of
the shares of the Depositor are owned
by MAAC.
THE BORROWER................................. Mid-America Capital Partners, L.P., a
special purpose Delaware limited
partnership. MAALP owns a 99% limited
partnership interest in the Borrower.
The General Partner owns a 1%
interest in and is the sole general
partner of the Borrower. The Borrower
was formed by MAALP and the General
Partner in November 1997. Twenty of
the Mortgaged Properties were
previously owned and operated by
MAALP and contributed to the Borrower
at the time of its formation. These
Mortgaged Properties comprise the
Capital Properties Group and are
considered the predecessor to the
Borrower due to the common control of
these Mortgaged Properties before and
after their contribution to the
Borrower. See "Note 1 to Notes to
Combined Financial Statements" of
Capital Properties Group.
MAAC......................................... Mid-America Apartment Communities
Inc., a Tennessee corporation that
has elected to be taxed as a real
estate investment trust ("REIT")
for federal income tax purposes. MAAC
owns an approximate 84.6% interest in
MAALP and is the sole general partner
of MAALP. MAAC's Common Stock, 9.5%
Series A Cumulative Preferred Stock,
and 8 7/8% Series B Cumulative
Preferred Stock are traded on the New
York Stock Exchange under the symbols
"MAA," "MAA PrA," and "MAA
PrB," respectively. MAAC is the
owner of all of the outstanding
capital stock of both the Depositor
and the General Partner.
MAALP........................................ Mid-America Apartments, L.P., a
Tennessee limited partnership. MAALP
is the primary operating partnership
of MAAC's umbrella partnership REIT
("UPREIT") structure.
12
<PAGE>
MAALP owns a 99% limited partnership
interest in the Borrower. Following a
Permitted Merger and Security
Release, MAALP will be the sole
obligor on the Bonds.
INDENTURE TRUSTEE AND TRUSTEE................ LaSalle National Bank, a national
banking association. The Indenture
Trustee will act as trustee and
paying agent for the benefit of
holders of the Bonds and is the
mortgagee of the Mortgages (or the
beneficiary under the deeds of trust,
as applicable), and the secured
party, assignee or beneficiary under
other security and related documents.
In addition, LaSalle National Bank
will serve as Trustee under the Trust
Agreement for the benefit of holders
of the Certificates.
ADVANCES..................................... Pursuant to the Indenture, prior to a
Permitted Merger and Security Release
the Indenture Trustee may make an
advance on any Payment Date in
respect of any scheduled payment of
interest on the Bonds (an "Interest
Advance") to the extent such payment
has not been paid by the Borrower,
subject to certain limitations more
fully described herein. Interest Ad-
vances are intended to maintain a
regular flow of scheduled payments
and are not intended to guarantee or
ensure against payment defaults on
the Bonds.
Prior to a Permitted Merger and
Security Release, the Indenture
Trustee may make an advance in
respect of any payment of taxes,
insurance premiums or other amounts
required under the Mortgages to be
paid with respect to the Mortgaged
Properties (a "Property Advance")
and an advance in respect of any
payment of the fees of the Indenture
Trustee, the Trustee or any servicer
appointed by the Indenture Trustee (a
"Fees Advance"), in each case to
the extent that the Indenture Trustee
is notified that these payments have
not been paid by the Borrower,
subject to certain limitations more
fully described herein.
Interest Advances, Property Advances,
and Fees Advances are collectively
referred to herein as "Advances"
and each as an "Advance." The
Indenture Trustee will be obligated
to make an Advance only if the
Indenture Trustee believes that the
amount to be advanced, together with
all previous Advances and interest
thereon, will be recoverable from
subsequent payments or collections in
respect of the Mortgaged Properties.
Advances, together with interest
thereon at a rate per annum equal to
the prime rate of the Indenture
Trustee in effect on the date such
Advance is made, compounded monthly
(the "Advance Rate"), will be
reimbursed to the Indenture Trustee
as described herein. The Indenture
prohibits the Permitted Merger and
Security Release if any Advances are
outstanding.
After a Permitted Merger and Security
Release, the Indenture Trustee is not
obligated to make any Advances with
respect to the Bonds.
13
<PAGE>
THE MORTGAGED PROPERTIES..................... The Mortgaged Properties consist of
26 apartment communities containing
5,947 apartment units. The following
table reflects the metropolitan areas
in which the Mortgaged Properties are
located, and the number of apartment
units in each such Mortgaged Property
at September 30, 1997. The Mortgaged
Properties located in DeSoto County,
Mississippi, a suburb of Memphis,
Tennessee, are considered by the Bor-
rower a part of the Memphis,
Tennessee metropolitan area.
</TABLE>
NUMBER
OF
MORTGAGED PROPERTY METROPOLITAN AREA UNITS
- ------------------------------------- --------------------------- ------
Napa Valley.......................... Little Rock, Arkansas 240
Westside Creek I..................... Little Rock, Arkansas 142
Tiffany Oaks......................... Altamonte Springs, Florida 288
Marsh Oaks........................... Atlantic Beach, Florida 120
Lakeside............................. Jacksonville, Florida 416
Belmere.............................. Tampa, Florida 210
Hidden Lake II....................... Atlanta, Georgia 160
High Ridge........................... Athens, Georgia 160
Shenandoah Ridge..................... Augusta, Georgia 272
Southland Station I.................. Warner Robins, Georgia 160
Willow Creek......................... Willow Creek, Georgia 285
Lakepointe........................... Lexington, Kentucky 118
The Village.......................... Lexington, Kentucky 252
Crosswinds........................... Jackson, Mississippi 360
Pear Orchard......................... Jackson, Mississippi 389
Somerset............................. Jackson, Mississippi 144
Hermitage at Beechtree............... Cary, North Carolina 194
Fairways at Royal Oak................ Cincinnati, Ohio 214
Howell Commons....................... Greenville, South Carolina 348
Park Haywood......................... Greenville, South Carolina 208
Park Place........................... Spartanburg, South Carolina 184
Steeplechase......................... Chattanooga, Tennessee 108
Williamsburg Village................. Jackson, Tennessee 148
Kirby Station........................ Memphis, Tennessee 371
Savannah Creek....................... Memphis, Tennessee 204
Sutton Place......................... Memphis, Tennessee 252
------
Total apartment units.................................... 5,947
======
<TABLE>
<CAPTION>
<S> <C>
UNAUDITED FINANCIAL INFORMATION.............. The selected financial information
for the Borrower, the summary
consolidated financial and operating
data for MAAC, and the other property
level information included in this
Prospectus are based on operating
statements and other available
information that, in certain
instances, are unaudited and were
supplied by MAAC, MAALP or their
affiliates. In other instances such
information included in this
Prospectus is based on operating
statements and information that was
supplied by previous owners of
certain Mortgaged Properties. The
accuracy of such information has not
been verified.
TOTAL APPRAISED VALUE In connection with the issuance of
the Bonds, the Borrower has obtained
an appraisal of each Mortgaged
Property (the "Appraisals"). The
Appraisals estimate the value of the
Mortgaged Properties to be
approximately $241 million, in the
aggregate. Neither the Borrower nor
the Depositor makes any
14
<PAGE>
warranty or representation that the
Mortgaged Properties could be sold at
the appraised values. See
"Description of the Mortgaged
Properties -- Appraisal Reports."
INITIAL LOAN-TO-VALUE RATIO The initial loan-to-value ratio for
the Bonds is approximately 59% which
represents a fraction, expressed as a
percentage, the numerator of which is
the $142 million Principal Amount of
the Bonds, and the denominator of
which is $241 million, which is the
aggregate of the appraised values of
the Mortgaged Properties. The
loan-to-value ratio is not
necessarily indicative of the present
or future ability of the Mortgaged
Properties to generate sufficient
cash flow to fund required payments
on the Bonds.
INITIAL DEBT SERVICE COVERAGE RATIO Based upon (i) the aggregate pro
forma "Adjusted Cash Flow"
generated by the Mortgaged Properties
for the nine months ended September
30, 1997 and (ii) the pro forma
scheduled payments due during such
period on the Bonds, assuming their
issuance at the beginning of such
period, the initial debt service
coverage ratio with respect to the
Bonds is approximately 2.11x. See
"Selected Financial Information."
For purposes of the foregoing, the
aggregate "Adjusted Cash Flow" for
the indicated period equals
approximately $16 million, which is
based on (i) all revenue derived from
the Mortgaged Properties for the
indicated period less (ii) all
expenses incurred or accrued in the
operation of the Mortgaged Properties
for the indicated periods, including
a management fee equal to 4% of
revenue and a $200 per apartment unit
capital expenditure reserve per year.
MANAGEMENT OF THE MORTGAGED PROPERTIES.......
Pursuant to a management agreement
between the Borrower and MAALP (the
"Management Agreement"), MAALP is
required to operate and manage the
Mortgaged Properties on a day-to-day
basis. MAALP will be paid a fee under
the Management Agreement equal to 4%
of revenue derived from the Mortgaged
Properties.
ACCOUNTS..................................... Pursuant to the Cash Collateral
Account Security, Pledge and
Assignment Agreement among the
Borrower, the Indenture Trustee and
the Account Bank (the "Cash
Collateral Agreement"), the Borrower
has established, in the name of First
Union Bank (the "Account Bank") for
the benefit of the Indenture Trustee,
as a secured party, a segregated cash
collateral account (the "Operating
Account") with the Account Bank. In
addition, the Borrower has
established (i) individual operating
accounts for the Mortgaged Properties
(the "Property Accounts") and (ii)
in the name of the Account Bank for
the benefit of the Indenture Trustee,
as secured party, three separate cash
collateral accounts, maintained on a
book-entry basis (the "Interest
Escrow Account," the "Mortgage
Escrow Account" and the
"Replacement Reserve Account"),
which may be utilized during a Cash
Management Period. See "Description
of the Bonds -- Priority of Payments;
Cash Management."
The Borrower has irrevocably
instructed the property manager at
each Mortgaged Property to deposit
into the applicable Property Account
(i) all rents due under the Leases;
(ii) all
15
<PAGE>
additional amounts, if any, due and
payable under the Leases; and (iii)
all other revenue derived from the
Mortgaged Properties. All funds in
each Property Account are transferred
to the Operating Account on a daily
basis. Prior to a Cash Management
Period, all money from the Operating
Account will be transferred on a
daily basis by automated clearing
house transfer to such accounts as
the Borrower may direct in accordance
with its standing instructions to the
Account Bank. During a Cash
Management Period which follows an
event described in clause (i) of the
next succeeding paragraph, funds in
the Operating Account will be
transferred to such accounts as the
Borrower may direct on the Business
Day following each Account Funding
Date (as defined below). During a
Cash Management Period which follows
an event described in clause (ii) or
(iii) below, no funds may be
transferred from the Operating
Account except at the direction of
the Indenture Trustee or its agent.
A "Cash Management Period" is a
period during which (i) the Borrower
fails to maintain a Pre-Permitted
Merger Debt Service Coverage Ratio
(as defined below) of at least 1.30
to 1 or (ii) an event of default
occurs and is continuing under the
Bonds, the Indenture or any Security
Document or (iii) any event has
occurred and is continuing which
obligates or permits the Indenture
Trustee to make an Advance. The term
"Pre-Permitted Merger Debt Service
Coverage Ratio" means the ratio of
(a) the excess of all revenue derived
from the Mortgaged Properties for the
four most recent trailing quarters
over all expenses during such period
assuming a management fee of 4% of
revenue and a $200 per apartment unit
capital expenditure reserve per annum
to (b) the amount of debt service on
the Bonds then outstanding (based on
an assumed annual debt service
constant of 9.25% per annum).
Pursuant to the Cash Collateral
Agreement, the Borrower has
instructed the Account Bank to
withdraw from the Operating Account,
during any Cash Management Period, in
the priority listed below and to the
extent such funds are available, by
10:00 a.m. New York on the Business
Day preceding each Payment Date (an
"Account Funding Date"), (i) funds
in an amount equal to one-twelfth of
the annual amount of interest on the
Bonds outstanding at the time less
the amount of funds on deposit in the
Interest Escrow Account and deposit
the same into the Interest Escrow
Account; (ii) funds in an amount
equal to the tax payments and
insurance premiums required to be
paid during the six months following
such Account Funding Date less funds
on deposit in the Mortgage Escrow
Account and deposit the same into the
Mortgage Escrow Account; and (iii)
funds in an amount equal to the
annual amount required to be escrowed
during any Cash Management Period to
fund replacements pursuant to the
Mortgages less the amount on deposit
in the Replacement Reserve Account
and deposit the same into the Replacement
Reserve Account.
PRIORITY OF PAYMENTS......................... The Indenture provides that the
Borrower will deposit each monthly
16
<PAGE>
payment on the Bonds with the
Indenture Trustee by 10:00 a.m. New
York time on each Payment Date for
disbursement to holders of the Bonds.
The Indenture also provides that the
Indenture Trustee will apply all
amounts so received and any other
amount received pursuant to the
Indenture, excluding fees of the
Indenture Trustee which are paid by
the Borrower in a timely manner, but
including, without limitation,
amounts in the Operating Account and
the other Accounts and any payment in
respect of the liquidation of the
Mortgaged Properties, in the
following order:
FIRST: to reimburse the Indenture
Trustee for any unreimbursed
Advances, plus interest thereon at
the Advance Rate;
SECOND: to make payments, if any are
required, from the Accounts as
provided in the Cash Collateral
Agreement;
THIRD: to make payments of interest
on the Bonds in accordance with their
terms;
FOURTH: to make payments of
principal on the Bonds, to the extent
any such payments are due;
FIFTH: to make payments of Default
Interest on the Bonds, to the extent
any such payments are due; and
SIXTH: to pay any other amounts due
and owing under the Indenture.
FEDERAL INCOME TAX CONSIDERATIONS
THE CERTIFICATES............................. The Trust will be treated as a
grantor trust and not as an
association (or publicly traded
partnership) taxable as a corpo-
ration or a taxable mortgage pool
under the Internal Revenue Code of
1986, as amended (the "Code").
Under the grantor trust rules, each
Certificate holder will be treated
for federal income tax purposes as
having purchased an undivided inter-
est in the assets of the Trust to the
extent of the Certificate holder's
proportionate interest in the Trust.
In general, the tax consequences of
an investment in the Certificates
will depend on the rules applicable
to the Bonds and, after foreclosure,
the Mortgaged Properties. The
Certificates will represent an undi-
vided proportionate interest in the
Bonds. See "Certain Federal Income
Tax Considerations."
THE BONDS.................................... The Bonds will be taxable obligations
under the Code and interest paid or
accrued thereon, including original
issue discount, if any, will be
taxable to non-exempt Certificate
holders. Payments on Certificates
held by foreign persons not engaged
in a U.S. trade or business generally
will be exempt from United States
withholding tax, subject to
compliance with applicable
certification procedures. No election
will be made to treat the Borrower,
the Mortgaged Properties, or the
arrangement by which the Bonds are
issued as a "real estate mortgage
investment conduit" ("REMIC") for
federal income tax purposes. Interest
income will accrue on the Bonds as
described in "Certain Federal Income
Tax Considerations" herein.
ERISA CONSIDERATIONS......................... Fiduciaries of employee benefit plans
and certain other retirement plans
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<PAGE>
and arrangements that are subject to
the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), or corresponding
provisions of the Code, including
individual retirement accounts and
annuities, Keogh plans, and
collective investment funds in which
such plans, accounts, annuities, or
arrangements are invested (any of the
foregoing, a "Plan"), persons
acting on behalf of a Plan, or
persons using the assets of a Plan
("Plan Investors") should review
carefully with their legal advisor
whether the purchase or holding of
the Certificates or, upon the
Permitted Merger and Security
Release, the Bonds, could give rise
to a transaction that is prohibited
by ERISA or the Code. See "ERISA
Considerations."
LEGAL INVESTMENT............................. The appropriate characterization of
the Certificates under various legal
investment restrictions, and thus the
ability of investors subject to these
restrictions to purchase the
Certificates, may be subject to
significant interpretive
uncertainties. The Certificates will
not constitute "mortgage related
securities" within the meaning of
the Secondary Mortgage Market En-
hancement Act of 1984, as amended
("SMMEA"). Accordingly, investors
should consult with their own legal
advisors to determine whether and to
what extent the Certificates consti-
tute legal investments for them. See
"Legal Investment."
RATINGS OF CERTIFICATES...................... It is a condition to the issuance of
the Certificates that they be rated
no lower than "Baa2" by Moody's and
rated no lower than "BBB" by S&P. A
credit rating is not a recommendation
to buy, sell or hold securities and
may be subject to downgrade,
withdrawal or requalification at any
time by the assigning rating
organization as a result of changes
in, or the unavailability of,
information. Neither Moody's nor S&P
is rating the likelihood of receipt
or the timing of receipt of Default
Interest by holders of the
Certificates.
The ratings assigned to the
Certificates by each of the Rating
Agencies are based primarily on its
evaluation of the income-producing
ability of the Mortgaged Properties
(including, without limitation, the
ability of the Mortgaged Properties
to produce cash flow) and reflect
only the views of the Rating
Agencies. Future events, such as
events affecting the Mortgaged
Properties or the Borrower, could
have an adverse impact on the rating
of the Certificates. Although it is
the intent of the Depositor to retain
the Rating Agencies to perform annual
monitoring and to provide the Rating
Agencies with certain financial and
other information in connection
therewith, none of the Depositor, the
Indenture Trustee, the Trustee or the
Borrower is under any obligation to
maintain any particular rating, and
the Rating Agencies are under no
obligation whatsoever to continue to
issue any rating. A downgrade,
withdrawal or requalification of a
rating may have an adverse effect on
the market price of the Certificates
but will not constitute an Event of
Default under and as defined in the
Mortgages, the Indenture or the Trust
Agreement.
The ratings of the Rating Agencies
address the likelihood of the timely
receipt by the holders of the
Certificates of all payments (other
than Default Interest) to which such
holders are entitled, including
payment of all principal (and any
other amounts due under the Security
Documents), in the case of
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Moody's, by the Scheduled Final
Distribution Date, and, in the case
of S&P, by the Expected Final
Distribution Date. The ratings take
into consideration the
characteristics of the Certificates
and the structural and legal aspects
thereof. The ratings do not, however,
represent any assessment of the
likelihood or frequency of principal
prepayments on the Bonds or the cor-
responding effect on the yield to
investors.
CHANGE IN RATING FOLLOWING MERGER AND
SECURITY RELEASE........................... The Certificates, as a condition to
issuance, must be rated no lower than
"Baa2" and "BBB" by Moody's and
S&P, respectively; however one of the
conditions to a Permitted Merger and
Security Release is that MAALP's
unsecured debt, including the Bonds,
is rated not less than "Baa3" and
"BBB-" by Moody's and S&P,
respectively, which are lower ratings
than those of the Certificates, as
issued.
USE OF PROCEEDS.............................. The proceeds from the offer and sale
of the Certificates will be utilized
by the Depositor to purchase the
Bonds from the Borrower. The net
proceeds of this offering will be
used by the Borrower to repay certain
indebtedness of the Borrower to
Morgan Stanley Mortgage Capital Inc.
pursuant to the terms of a $140
million promissory note (the "MSMC
Loan"). The proceeds from the MSMC
Loan were used to partially finance
the acquisition of Flournoy
Development Company and certain
related limited partnerships and
other entities by MAAC and MAALP on
November 25, 1997. See "Certain
Information Regarding MAALP and
MAAC -- Overview" and "-- Present
and Anticipated Operating Structure
of the Company." Finally, any
remaining net proceeds of this
offering will be distributed to the
partners of the Borrower and used by
such partners for general corporate
purposes, including acquisitions.
RISK FACTORS................................. There are material risks associated
with an investment in the
Certificates. See "Risk Factors."
</TABLE>
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RISK FACTORS
AN INVESTMENT IN THE CERTIFICATES, AND AFTER A PERMITTED MERGER AND
SECURITY RELEASE, THE BONDS, INVOLVES VARIOUS RISKS, INCLUDING THOSE DESCRIBED
BELOW. THE BORROWER AND THE DEPOSITOR BELIEVE THAT THE RISK FACTORS SET FORTH
BELOW CONSTITUTE ALL OF THE MATERIAL RISKS INVOLVED IN AN INVESTMENT IN THE
CERTIFICATES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISK FACTORS TOGETHER
WITH ALL OF THE INFORMATION SET FORTH IN THIS PROSPECTUS IN DETERMINING WHETHER
TO PURCHASE THE CERTIFICATES. INFORMATION CONTAINED IN THIS PROSPECTUS MAY
CONTAIN FORWARD-LOOKING STATEMENTS, WHICH STATEMENTS CAN BE IDENTIFIED BY THE
USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT,"
"ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER
COMPARABLE TERMINOLOGY. THE FOLLOWING MATTERS AND CERTAIN OTHER FACTORS NOTED
THROUGHOUT THIS PROSPECTUS AND THE EXHIBITS HERETO CONSTITUTE CAUTIONARY
STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO ANY SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT
COULD CAUSE RESULTS FROM OPERATIONS OF THE MORTGAGED PROPERTIES TO DIFFER
MATERIALLY FROM THOSE CONTAINED IN ANY SUCH FORWARD-LOOKING STATEMENTS.
NON-DIVERSIFIED COLLATERAL
Payments of interest and principal on the Bonds and, consequently, the
Certificates, before a Permitted Merger and Security Release are dependent upon
the financial performance of the Mortgaged Properties and at all times are
subject to risks inherent in owning and operating apartments. Adverse
developments in the apartment industry in general or, before a Permitted Merger
and Security Release, in the financial performance of the Mortgaged Properties,
are more likely to have a material adverse effect on payments with respect to
the Certificates than if the collateral for the Bonds consisted of diversified
assets comprised of several property types.
SOURCES OF PAYMENTS ON THE CERTIFICATES
The Certificates, when issued, will represent all of the beneficial
ownership interests in the Trust, the sole asset of which is the Bonds. None of
the Depositor, the Indenture Trustee, the Trustee, MAALP or MAAC will be
obligated to make any payments on the Certificates. Payments on the Certificates
will be derived solely from payments made by the Borrower on the Bonds. Until a
Permitted Merger and Security Release, the Bonds will represent a full-recourse
obligation of the Borrower (but not the General Partner or MAALP) secured by the
Mortgaged Properties. There can be no assurance that, prior to a Permitted
Merger and Security Release, the proceeds from and value of the Mortgaged
Properties will be sufficient to pay the principal of and interest on the Bonds.
After a Permitted Merger and Security Release, the Bonds will be the general
unsecured obligations of MAALP ranking in parity with all other unsecured
indebtedness of MAALP, and persons previously holding Certificates shall
thereafter have no claim against the Mortgaged Properties, the rents and leases
derived from the Mortgaged Properties, or any other property of MAALP, except to
the extent all general unsecured creditors of MAALP have such claims.
SOURCES OF PAYMENTS ON THE BONDS; LIMITED OBLIGATIONS
PRIOR TO A PERMITTED MERGER AND SECURITY RELEASE. Prior to a Permitted
Merger and Security Release, neither the General Partner nor MAALP will have any
liability with respect to the Bonds, and no Bondholder may claim recourse
against the General Partner, MAALP or any limited partner or officer, director,
shareholder or employee of the Borrower, MAALP or the General Partner for any
deficiency or personal judgment after a foreclosure on any Mortgaged Property.
Payments on the Bonds are expected to be derived from payments of rent made by
residents under the Leases. There is and can be no assurance that the net cash
flow from the Mortgaged Properties will be sufficient to pay principal and
interest due on the Bonds. In addition, the liquidation value of the Mortgaged
Properties may be adversely affected by risks generally incident to interests in
real property, as described below under " -- Risks Relating to Real Estate
Investments -- General Risks." The Borrower is a limited partnership organized
for the sole purpose of owning, operating and financing the Mortgaged
Properties. The Borrower will have no assets other than the Mortgaged
Properties, certain contract rights related to, and the revenue derived from the
operation of, the Mortgaged Properties. The Bonds are neither insured nor
guaranteed by the Borrower, the General Partner,
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<PAGE>
the Depositor, MAALP, MAAC, the Trustee, the Indenture Trustee or the
Underwriter or any of their respective affiliates and are not insured or
guaranteed by any governmental entity or instrumentality or by any other person
or entity.
SUBSEQUENT TO PERMITTED MERGER AND SECURITY RELEASE. Upon a Permitted
Merger and Security Release, the Trust will terminate and the Trustee will cause
the Bonds to be delivered to the holders of Certificates through the book-entry
facilities described herein as a distribution in full satisfaction of their
beneficial interests in the Trust. See "Book-Entry, Clearance and Settlement."
At such time, the Bonds will be the general unsecured obligations of MAALP
ranking in parity with all other unsecured debt of MAALP, and persons previously
holding Certificates shall thereafter have no claim against the Mortgaged
Properties, the leases and rents derived from the Mortgaged Properties, or any
other property of MAALP except to the extent all general unsecured creditors of
MAALP have such claims. The Indenture provides that, after a Permitted Merger
and Security Release, MAALP will be subject to the following financial
covenants:
Total Debt: Not to exceed 60% of total assets
(based on undepreciated book value)
Secured Debt: Not to exceed 40% of total assets
Debt Service Coverage Ratio At least 1.50 to 1, on a pro forma
basis for trailing four quarters
Unencumbered Assets: Not less than 150% of unsecured debt
See "Description of the Bonds -- Restrictive Covenants -- Limitation on
Debt From and After Permitted Merger and Security Release," " -- Limitation on
Secured Debt From and After Permitted Merger and Security Release" and
" -- Minimum Unencumbered Assets From and After Permitted Merger and Security
Release." The Rating Agencies may determine that additional covenants or
conditions are required in order to issue the ratings required as conditions to
a Permitted Merger and Security Release. The Indenture provides that if such
additional covenants are requested by the Rating Agencies, MAALP will agree to
such other covenants or conditions. There can be no assurance that MAALP will be
able to meet all of the financial covenants and other covenants and conditions
set forth in the Indenture or required by the Rating Agencies after a Permitted
Merger and Security Release.
FAILURE TO SATISFY CONDITIONS TO PERMITTED MERGER AND SECURITY RELEASE
As a condition to a Permitted Merger and Security Release, the unsecured
debt of MAALP, including the Bonds, must be rated at least "Baa3" and "BBB-"
by Moody's and S&P, respectively, and MAALP must be a reporting company under
the Exchange Act pursuant to an effective registration statement on Form 10 (or
any successor form), among other conditions. The ability of MAALP to procure the
required ratings of its unsecured debt, including the Bonds, is subject to the
satisfaction of the criteria for such ratings as may be imposed from time to
time by Moody's and S&P. MAALP believes such criteria include the ownership by
MAALP directly or through subsidiaries of substantially all of the real estate
assets currently owned by MAAC and the satisfaction of certain leverage and
equity ratios. MAAC presently owns substantial assets, including those acquired
in its merger with Flournoy Development Company in November 1997 (the "FDC
Merger"), which, pursuant to various agreements to which MAAC and MAALP are
parties, cannot be transferred by MAAC to MAALP until November 1999. The rating
criteria established by Moody's and S&P are subject to change from time to time
in the sole discretion of the Rating Agencies, and such criteria are outside the
control of MAALP and may not be satisfied by MAALP prior to repayment of the
Bonds in full. MAALP therefore believes that before November 1999 MAALP cannot,
and there can be no assurance that MAALP will ever procure the required ratings
and effect a Permitted Merger and Security Release.
INABILITY OF CERTIFICATE HOLDERS TO VOTE ON PERMITTED MERGER AND SECURITY
RELEASE
Holders of the Certificates have no voting or other rights with respect to
matters affecting the Borrower, the Depositor or MAALP. Therefore, Certificate
holders will have no right to approve or disapprove a Permitted Merger and
Security Release, which will occur upon satisfaction of all conditions described
herein or set forth in the Indenture.
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<PAGE>
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS. Prior to a Permitted Merger and Security Release, the
Borrower's ability to make payments due on the Bonds and the Trust's ability to
make distributions on the Certificates depend primarily on the Borrower's
ability to generate sufficient cash flow from the Mortgaged Properties, which
will be subject to the risks generally associated with real estate investments,
many of which are beyond the control of the Borrower. These risks include an
oversupply of apartments, a reduction in demand for apartments in the Borrower's
markets, the cost of regulation, changes in tax or housing laws, increasing
interest rate levels, the unavailability of financing, adverse changes in
national economic conditions, adverse changes in local market conditions due to
changes in general or local economic conditions and neighborhood
characteristics, competition in local markets, declines in real estate values,
variations in supply and demand in the market for apartments, declines in
occupancy rates, civil unrest, acts of God, including earthquakes and other
natural disasters (which may result in uninsured losses), acts of war, and
adverse changes in zoning laws. Due to these and other factors, the performance
of real estate historically has been cyclical. There can be no assurance that
the markets in which the Mortgaged Properties are located will be strong at the
Stated Maturity Date of the Bonds. Such factors, including general economic
conditions adversely affecting the availability of mortgage financing, may make
it impossible to sell or refinance the Mortgaged Properties when desired or upon
favorable terms. Also, if any major repair or improvement is required at the
Mortgaged Properties, there can be no assurance that the Borrower will be able
to obtain funds to make such repair or improvement. As with all real estate, if
reconstruction (for example, following fire or other casualty) or any major
repair or improvement is required at the Mortgaged Properties, changes in
governmental controls may be applicable and may materially affect the cost to,
or ability of, the Borrower to effect such reconstruction, major repair or
improvement. After a Permitted Merger and Security Release, MAALP's ability to
make payments on the Bonds will be dependent on MAALP's ability to generate cash
flow from operations of all its properties, which ability may be adversely
affected by the factors described above.
GEOGRAPHIC CONCENTRATION. Several Mortgaged Properties are located in
common geographic regions, with two Mortgaged Properties located in each of the
Little Rock, Arkansas, Lexington, Kentucky, and Greenville, South Carolina
metropolitan areas and three Mortgaged Properties located in each of the
Jackson, Mississippi and Memphis, Tennessee metropolitan areas. Economic
downturns, changes in local law or regulation, and similar localized events
could affect the performance of all the Mortgaged Properties that are located in
a common region.
OPERATING RISKS. The Mortgaged Properties are subject to all operating
risks common to apartment communities in general. Such risks include: (i)
competition from other apartment communities and alternative housing; (ii) new
construction of comparable properties or adverse economic conditions in the
areas in which the Mortgaged Properties are located, either of which might
adversely affect apartment occupancy or rental rates; (iii) increases in
operating costs (including real estate taxes) due to inflation and other
factors, which increases may not necessarily be offset by increased rents; (iv)
inability or unwillingness of residents to pay rent increases; and (v) future
enactment of rent control laws or other laws regulating multifamily housing,
including present and possible future laws relating to access by disabled
persons. The local rental market may limit the extent to which rents may be
increased in response to operating expense increases without decreasing
occupancy rates. The Borrower anticipates increased operating expenses in the
third calendar quarter of each year due to planned increases in apartment unit
turnover during such quarter. The ability of the Borrower, and, after a
Permitted Merger and Security Release, MAALP, to make required payments on the
Bonds and, therefore, the ability of the Trustee to make distributions on the
Certificates, could be adversely affected by any of the above-described events.
POSSIBLE LIABILITY RELATING TO ENVIRONMENTAL MATTERS. Under various
federal, state and local laws, ordinances and regulations, an owner or operator
of real property may become liable for the costs of removal or remediation of
certain hazardous substances released on or in its property. Such laws often
impose such liability without regard to whether the owner or operator knew of,
or was responsible for, the release of such hazardous substances. The presence
of such substances, or the failure to properly remediate
22
<PAGE>
such substances, when released, may adversely affect occupancy of the Mortgaged
Property affected and the owner's ability to sell such real estate or to borrow
using such real estate as collateral. In addition to investigation and clean-up
actions brought by federal, state and local agencies, the presence of hazardous
wastes on a property could result in personal injury or similar claims by
private plaintiffs. The Borrower has not been notified by any governmental
authority of any noncompliance, liability or other claim in connection with any
of its Mortgaged Properties or developments, nor is the Borrower aware of any
other material environmental condition with respect to any of the Mortgaged
Properties.
Each of the Mortgaged Properties has been subjected to a Phase I
environmental site assessment ("ESA") (which does not involve invasive
procedures, such as soil sampling or ground water analysis) by independent
environmental consultants. The ESAs have not revealed any significant
environmental liability that would have a material adverse effect on the
Borrower's ability to make required payments on the Bonds. In every instance,
the Phase I ESA included a record search for leaking underground storage tank
sites and sites included on certain environmental databases. In one instance,
the database search revealed information that led the ESA to recommend a Phase
II ESA (which involves invasive sampling procedures) to determine whether any
contaminants affected the Mortgaged Property. Such Mortgaged Property is
adjacent to a leaking underground storage tank site and the ESA anticipates that
the adjacent contamination will affect the Mortgaged Property. The Borrower has
not performed a Phase II ESA because it believes that, notwithstanding the
results of a Phase II ESA, it would not be responsible or liable for the
remediation or cleanup of any environmental contaimination and that there will
be no material adverse effect on the affected Mortgage Property or the Mortgaged
Properties taken as a whole as a result of environmental contamination. In the
event that environmental contamination has affected or will affect the Mortgaged
Properties, the Borrower believes that other parties would be held primarily
responsible for any response required and that any environmental costs or
liabilities would not be material. There can be no assurance that the Borrower
is correct in concluding either that other parties would bear or be able to bear
primary responsibility, or that the environmental costs or liabilities would not
be material or would not have a material adverse effect on the Borrower's
ability to make required payments on the Bonds.
Certain environmental and common law principles govern the responsibility
for the removal, encapsulation or disturbance of asbestos containing materials
("ACMs") such as ceiling and floor tiles, when these ACMs are in poor
condition or when a property with ACMs is undergoing renovation or demolition.
Such laws could also be used to impose liability upon owners and operators of
real property for the release of ACMs into the air that cause personal injury or
other damage or exceed permissible levels. At all Mortgaged Properties where ACM
has been identified, the ACM is being managed in place pursuant to ACM Operation
and Maintenance plans. The Borrower believes that ACM at all of the Mortgaged
Properties can be managed or removed adequately and without significant expense.
However, there can be no assurance that the Borrower will not be required to
remediate ACM in the future at significant expense, which could have a material
adverse effect on the Borrower's ability to make required payments on the Bonds.
Beyond statute-based environmental liability, there can be common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) relating to hazardous
environmental conditions on a property. Unanticipated or uninsured liabilities
of the Borrower may jeopardize the Borrower's ability to make required payments
on the Bonds.
No assurances can be given that all potential environmental liabilities
have been identified or properly quantified or that no prior owner, operator, or
past or current resident has created an environmental condition not known to the
Borrower. Moreover, no assurances can be given that (i) future laws, ordinances,
or regulations will not impose any material environmental liability or (ii) the
current environmental condition of the Mortgaged Properties will not be affected
by the condition of land or operations in the vicinity of the Mortgaged
Properties (such as the presence of underground storage tanks), or by third
parties unrelated to the Borrower. Federal, state and local environmental
regulatory requirements change often. It is possible that compliance with a new
regulatory requirement could impose significant compliance costs on the
Borrower. Such costs may jeopardize the Borrower's ability to make required
payments on the Bonds.
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<PAGE>
The Indenture provides that the Indenture Trustee will not commence
foreclosure on any of the Mortgaged Properties unless a Phase I ESA (and if
appropriate, a Phase II ESA) is conducted at the expense of the Borrower, and no
material environmental liabilities or potential liabilities are detected
thereby. Only one Mortgaged Property, Willow Creek, did not obtain a recommended
Phase II ESA, and there is a risk that, if a Phase II ESA is not obtained for
such Mortgaged Property, the Indenture Trustee could not foreclose on that
Mortgaged Property. The procedures required by the Indenture may delay or
adversely affect the Indenture Trustee's ability to foreclose on the Mortgaged
Properties. Moreover, any such ESA may not reveal all potential environmental
liabilities to which such Mortgaged Property may be subject. There can be no
assurance that the requirements of the Indenture, even if fully observed, will
in fact insulate the assets of the Trust from liability for environmental
conditions.
COMPLIANCE WITH OTHER LAWS. The Mortgaged Properties must comply with
Title III of the Americans with Disabilities Act (the "ADA") to the extent
that the Mortgaged Properties are "public accommodations" and/or "commercial
facilities" as defined by the ADA. Compliance with the ADA requirements could
require removal of structural barriers to handicapped access in certain public
areas of the Mortgaged Properties, where such removal is readily achievable. The
ADA does not, however, consider residential properties such as apartment
communities to be public accommodations or commercial facilities, except to the
extent portions of such facilities, such as a leasing office, are open to the
public. The Borrower believes that the Mortgaged Properties comply with all
present requirements under the ADA and applicable state laws. Noncompliance with
the ADA could result in imposition of fines or an award of damages to private
litigants.
The Fair Housing Amendments Act of 1988 (the "FHA") requires apartment
communities first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the FHA could result in the imposition of fines
or an award of damages to private litigants. The Borrower believes that the
Mortgaged Properties that are subject to the FHA are in compliance with such
law.
MANAGEMENT; POTENTIAL CONFLICTS OF INTEREST
The net income realized from operations of the Mortgaged Properties may be
affected by management decisions. The day-to-day management of the Mortgaged
Properties is currently performed by MAALP pursuant to the terms of the
Management Agreement. Because MAALP, MAAC and their affiliates own or operate
apartment communities other than the Mortgaged Properties, potential conflicts
of interest exist. In particular, MAALP, MAAC and their affiliates own and
operate, and in the future may own and operate, apartment communities that
compete directly or indirectly with the Mortgaged Properties. While MAALP and
its affiliates are experienced in managing apartment communities, there can be
no assurance that MAALP will be able to manage the Mortgaged Properties
successfully.
APPRAISALS
The Appraisals valued the Mortgaged Properties at $241 million. See "The
Mortgaged Properties -- Appraisal Reports." To the knowledge of the Borrower,
the assumptions on which the Appraisals are based provide, as of the date of
preparation thereof, a reasonable basis for the Appraisals. However, such
assumptions concern the occurrence of a complex series of future events,
including those concerning leasing, occupancy, rental rates, capitalization
rates and expenses of operating the Mortgaged Properties (including, without
limitation, capital expenses) and the tax treatment of various items, all of
which assumptions are subject to various risks and contingencies, including
those set forth herein and many of which are not within the control of the
Borrower. Some of the assumptions inevitably will prove inaccurate, and
unanticipated events and circumstances will occur subsequent to the date of the
Appraisals. Therefore actual results achieved will vary from the Appraisals and
the variations may be material. Appraisals are only estimates of value and
should not be relied upon as measures of realizable value. No assurance is or
can be given as to actual cash flow of the Mortgaged Properties or the actual
value of the Mortgaged Properties during the term of the Bonds or the life of
the Certificates.
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NO PRINCIPAL AMORTIZATION
There will be no scheduled principal amortization of the Bonds prior to the
Stated Maturity Date. The entire principal amount of the Bonds is scheduled to
be paid on the Stated Maturity Date. The Borrower's (or, after a Permitted
Merger and Security Release, MAALP's) ability to pay the Bonds on the Stated
Maturity Date will be subject to its ability to refinance the Bonds or sell the
Mortgaged Properties (or, in MAALP's case, after a Permitted Merger and Security
Release, to sell other assets, generally) at that time. If the Borrower (or,
after a Permitted Merger and Security Release, MAALP) is unable to refinance the
Bonds or sell the Mortgaged Properties or other assets, as the case may be, or
the proceeds from any such sale or refinancing are insufficient to pay the Bonds
in full in a timely manner, the holders of the Certificates or, after a
Permitted Merger and Security Release, holders of the Bonds may not receive full
repayment of the principal amount of the Certificate or Bonds, as the case may
be, on the Expected Final Distribution Date or Stated Maturity Date, as the case
may be.
UNINSURED LOSS; SUFFICIENCY OF INSURANCE
The Borrower, through blanket policies, carries comprehensive general
public liability insurance, fire and extended coverage insurance, business
interruption insurance, worker's compensation insurance, employer's liability
insurance and other insurance (the "Required Insurance Policies") required
under the Indenture, Mortgages and other security documents (collectively, the
"Security Documents") with respect to the Mortgaged Properties with policy
specifications and insured limits customarily carried for similar properties.
There are, however, certain types of losses, generally of a catastrophic nature
(such as from floods, earthquakes and wars), that may be uninsurable and there
is therefore a risk of uninsured or underinsured losses. Should an uninsured or
underinsured loss occur, the Borrower could lose both its capital invested in,
and anticipated profits from, one or more Mortgaged Properties, and the
Borrower's ability to make required interest and principal payments on the Bonds
could be adversely affected. There is a possibility of casualty losses with
respect to the Mortgaged Properties for which insurance proceeds may not be
adequate. Consequently, there can be no assurance that any loss incurred will
not exceed the limits of policies obtained. In addition, inflation, changes in
building codes and ordinances, environmental considerations, and other factors
may make it unfeasible to use insurance proceeds to replace a Mortgaged Property
after such property has been damaged or destroyed.
RATINGS OF THE CERTIFICATES
It is a condition to the issuance of the Certificates that they be assigned
a rating no lower than "Baa2" by Moody's and a rating no lower than "BBB" by
S&P. A credit rating is not a recommendation to buy, sell or hold securities and
may be subject to downgrade, withdrawal or requalification at any time by the
assigning rating organization as a result of changes in, or the unavailability
of, information. Neither Moody's nor S&P is rating the likelihood of receipt or
the timing of receipt by the holders of the Certificates of Default Interest
payable in connection with a default under the Bonds in excess of the regular
interest. Moody's has rated the Certificates through the Scheduled Final
Distribution Date. S&P has rated the Certificates through the Expected Final
Distribution Date.
The ratings assigned to the Certificates by the Rating Agencies are based
solely on the anticipated performance of the Mortgaged Properties. Future events
could have an adverse impact on the ratings of the Certificates. There is no
assurance that any such rating will continue for any period of time or that it
will not be reviewed, revised, suspended or withdrawn entirely as a result of
changes in or unavailability of information by either Rating Agency if, in its
judgment, circumstances so warrant. The ratings do not represent an assessment
of the likelihood or frequency of principal prepayments on the Bonds or the
corresponding effect on the yield to investors. There is no obligation on behalf
of the Depositor or the Trustee to maintain any particular rating. A review,
revision, suspension or withdrawal of a rating may have an adverse effect on the
market price of the Certificates but will not constitute an event of default
under the Security Documents.
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CHANGE IN RATING FOLLOWING PERMITTED MERGER AND SECURITY RELEASE
The Certificates, as a condition to issuance, must be rated no lower than
"Baa2" and "BBB" by Moody's and S&P, respectively; however, one of the
conditions to a Permitted Merger and Security Release is that MAALP's unsecured
debt, including the Bonds, must be rated not less than "Baa3" and "BBB-" by
Moody's and S&P, respectively, which are lower ratings than those of the
Certificates, when issued.
RISKS OF BANKRUPTCY OF THE BORROWER AND GENERAL PARTNER
In the event of the bankruptcy of the Borrower or its General Partner, the
application of certain provisions of the bankruptcy code could have a material
adverse effect on holders of the Bonds and, consequently, holders of the
Certificates. By reason of the "automatic stay" provisions (which could
significantly delay the Indenture Trustee's ability to cause the liquidation of
the Mortgaged Properties) and other provisions of the bankruptcy code, delays in
payments on the Bonds and reductions in the principal balances thereof (each of
which could be significant) could occur. It is also possible that the bankruptcy
trustee or the Borrower as debtor-in-possession could argue, and the bankruptcy
court could agree, that, notwithstanding the existence of a security interest in
the Mortgaged Properties' receivables, the "equities of the case" provision in
the bankruptcy code dictates that the Bondholders' security interest should not
extend post-petition.
The Borrower has agreed to restrict its business to the ownership,
operation and financing of the Mortgaged Properties and those activities related
or incidental to that business. Similarly, the certificate of incorporation of
the General Partner generally limits its permitted activities to serving as the
general partner of the Borrower. The General Partner has two independent
directors. There is and can be no assurance, however, that either the Borrower
or the General Partner will not become bankrupt or insolvent.
The Borrower and its owners have several affiliates, including MAAC and
MAALP. Although the Borrower has been structured so as to limit the possibility
that it will be a debtor in a bankruptcy proceeding other than for reasons
related to the ownership of the Mortgaged Properties, there is and can be no
assurance that, in a bankruptcy of such owners or any of their affiliates, the
Mortgaged Properties will be protected from the creditors of such owners or
affiliates.
FRAUDULENT CONVEYANCE STATUTES
The transfer and pledge of the Mortgaged Properties and the issuance of the
Bonds and Certificates are subject to review under relevant federal and state
fraudulent conveyance statutes ("Fraudulent Conveyance Statutes") in a
bankruptcy case involving, or a lawsuit by creditors of, the Borrower, the
Depositor, the General Partner, MAALP or MAAC. Generally, under Fraudulent
Conveyance Statutes, transfers made or indebtedness incurred by a person will be
subject to avoidance if (i) the transfer was made or the indebtedness incurred
with the intent of hindering, delaying or defrauding creditors or (ii)(a) the
debtor did not receive fair consideration or reasonably equivalent value for
incurring such indebtedness and (b) the debtor (1) was insolvent or rendered
insolvent by the transfer or the incurrence of such indebtedness, (2) had
unreasonably small capital with which to carry on its business and any
transaction or transactions in which it intended to engage or (3) intended to
incur, or believed it would incur, indebtedness beyond its ability to repay such
indebtedness at maturity. The measure of insolvency will vary depending on the
law of the applicable jurisdiction. Generally, however, an entity would be
considered insolvent if the present fair value of its assets is less than (i)
the amount of its liabilities (including contingent liabilities discounted by
the likelihood of the contingency becoming actual) or (ii) the amount that would
be required to pay its probable liabilities on its existing debts as they become
absolute and mature. Fraudulent conveyance related claims against the Mortgaged
Properties may not be covered by title insurance policies.
If the transfer of the Mortgaged Properties by MAALP to the Borrower were
avoided under Fraudulent Conveyance Statutes, the Borrower could be required to
disgorge its ownership interest in the Mortgaged Properties, thereby negatively
impacting the Borrower's ability to make payments of principal and interest on
the Bonds. Moreover, if the pledge of the Mortgaged Properties or the issuance
of the Bonds by the Borrower was avoided under Fraudulent Conveyance Statutes,
the Bonds would no longer be secured by the
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Mortgaged Properties and would constitute merely unsecured claims against the
Borrower, which in bankruptcy are likely to be paid at a significant discount
from their face value.
LACK OF ESTABLISHED MARKET
There is currently no secondary market for the Certificates. The
Underwriter currently expects to make a secondary market in the Certificates,
but has no obligation to do so. There can be no assurance that such a market
will develop or, if it does develop, that it will continue.
DESCRIPTION OF THE CERTIFICATES
CERTAIN STATEMENTS CONTAINED THROUGHOUT THIS PROSPECTUS ARE SUMMARIES OF
CERTAIN PROVISIONS OF THE TRUST AGREEMENT, THE CERTIFICATES, THE MORTGAGES AND
THE BONDS. THE DEPOSITOR BELIEVE THAT THE FOLLOWING DESCRIPTION OF THE
CERTIFICATES INCLUDES ALL OF THE MATERIAL TERMS OF THE CERTIFICATES, BUT SUCH
STATEMENTS DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO SUCH AGREEMENTS AND INSTRUMENTS.
GENERAL
The Certificates will be issued pursuant to the Trust Agreement in an
aggregate principal amount of U.S. $142,000,000. The Certificates represent
beneficial ownership of the assets of the Trust, which consists exclusively of
the Bonds in the aggregate principal amount of $142,000,000. The Bonds will be
issued pursuant to the Indenture and, unless and until the occurrence of a
Permitted Merger and Security Release, will be secured by the Mortgage Liens on
the Mortgaged Properties. The Borrower was organized for the sole purpose of
owning, operating and financing the Mortgaged Properties, incurring the MSMC
Loan and issuing the Bonds which are secured by the Mortgage Liens. See
"Description of the Bonds."
The Indenture provides that the Mortgage Liens securing the Bonds will be
subject to the Security Release upon satisfaction of certain conditions and at
the time described below in "Description of the Bonds -- Permitted Merger and
Security Release." There can be no assurance that the conditions to a Permitted
Merger and Security Release will be satisfied or that a Permitted Merger and
Security Release will ever occur. See "Risk Factors -- Failure to Satisfy
Conditions to Permittted Merger and Security Release. Simultaneously with a
Permitted Merger and Security Release, the Trust will terminate, the Trustee
will deliver the Bonds to the holders of the Certificates through the book-entry
facilities described herein, as a distribution in full satisfaction of their
beneficial interests in the Trust, and the Global Certificate will be canceled
by the Trustee and delivered to the Depositor, and will be of no further force
or effect. At such time, the persons formerly owning beneficial interests in the
Certificates will, by operation of the Trust Termination and with no action
being required on their parts, own beneficial interests in the Bonds. See
"Book-Entry Clearance and Settlement."
STATUS
The Certificates will evidence, in the aggregate, all of the beneficial
ownership interests in the Trust. The Certificates will be payable solely from
payments received by the Trustee with respect to the Bonds and will not
represent obligations of the Borrower, any general or limited partner of the
Borrower or any affiliate thereof or any other person.
FORM, DENOMINATIONS, EXCHANGE, REGISTRATION AND TRANSFER
The Certificates will be issued, maintained and transferred in the
book-entry form only in denominations of $100,000 and integral multiples of
$1,000 in excess thereof. The Certificates will be represented by one Global
Certificate registered in the name of a nominee designated by DTC. No holder of
a Certificate will be entitled to receive a certificate issued in fully
registered, certificated form (a "Definitive Certificate") representing its
interest in the Certificates, except under the limited circumstances described
below under "Book Entry Issuance, Clearance and Settlement -- Definitive
Certificates and Bonds." Unless and until Definitive Certificates are issued in
respect of the Certificates, all transfers of Certificates will be
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cleared and settled through the facilities of DTC, CEDEL and Euroclear. See
"Book-Entry Issuance, Clearance and Settlement."
PAYMENTS ON THE CERTIFICATES
Upon receipt of payments required to be made on the Bonds, the Trustee will
pay such amounts to holders of the Certificates through the facilities of DTC.
The Trustee will make all payments with respect to the Certificates to DTC or
its nominee as the registered owner thereof. None of the Borrower, the
Depositor, MAALP, MAAC, the General Partner, the Trustee or the Indenture
Trustee will have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in
the Global Certificate or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Depositor expects that DTC or its nominee, upon receipt of any payment
in respect of the Global Certificate held by it or its nominee, will immediately
credit the accounts of DTC participants (including Euroclear and CEDEL and their
respective depositories) with payments in amounts proportionate to their
respective beneficial interests in the principal amount of Global Certificate as
shown on the records of DTC or its nominee. The Depositor also expects that
payments by DTC participants (including Euroclear and CEDEL and their respective
depositories) to owners of beneficial interests in Global Certificate held
through such DTC participants will be governed by standing instructions and
customary practices, as is now the case with respect to securities held for the
accounts of customers registered in street names. Such payments will be the
responsibility of the relevant DTC participant.
If a Definitive Certificate is issued in exchange for any portion of the
Global Certificate after the close of business at the office or agency where
such exchange occurs on (i) any Certificate Record Date and before the opening
of business at such office or agency on the related Distribution Date or (ii)
any special record date and before the opening of business at such office or
agency on the related proposed date for payment of Default Interest, such
interest or Default Interest, as the case may be, will not be payable on such
Distribution Date or proposed date for payment of Default Interest, as the case
may be, in respect of such Certificate, but will be payable on such Distribution
Date or proposed date for payment of Default Interest, as the case may be, only
to DTC with respect to the Global Certificate, and the Depositor understands
that DTC will undertake to credit such interest to the account of the person who
was the beneficial owner of such portion of the Global Certificate on such
Record Date or special record date, as the case may be.
So long as the Certificates are held through DTC's book entry system,
distributions of interest and principal (and Default Interest, if any) on the
Certificates will be made, subject to applicable laws and regulations, by wire
transfer from the Trustee to DTC and will be forwarded to investors in
accordance with the payment procedures of DTC and the applicable DTC
participant.
If any Certificate is not held through DTC, distributions of interest (and
Default Interest, if any) on such Certificate will be made, subject to the
applicable laws and regulations, to the person in whose name such Certificate is
registered in the register of the Certificates as of the close of business on
the Certificate Record Date, upon compliance by such holder with reasonable
requirements of the Trustee, by wire transfer to the account designated by such
holder, and otherwise by check mailed to the address of such person. With
respect to the final payment of the Certificates, upon compliance by such holder
with reasonable requirements of the Trustee, such payment will be made by wire
transfer to the account designated by the person in whose name the Certificates
are registered in the register of the Certificates as of such date and otherwise
by check mailed to the address of such person, against surrender of such
Certificate at the corporate trust office of the Trustee in Chicago, Illinois.
Payments on any Certificate will be payable to the person in whose name the
Certificate is registered at the close of business on the Record Date
immediately preceding each Payment Date; provided, however, that payments at
maturity will be payable to the person in whose name the Certificate is
registered at such time.
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EXPECTED FINAL DISTRIBUTION DATE
The Expected Final Distribution Date for the Certificates is March 3, 2003,
which is the Stated Maturity Date of the Bonds. The Expected Final Distribution
Date is based on an assumption that the entire Principal Amount of the Bonds,
together with accrued interest and other amounts owed in respect of the Bonds,
will be paid on the Stated Maturity Date.
SCHEDULED FINAL DISTRIBUTION DATE
The Scheduled Final Distribution Date for the Certificates is September 1,
2005, two and one-half years after the Expected Final Distribution Date. If the
unpaid principal balance on the Bonds is paid after the Expected Final
Distribution Date and prior to the Scheduled Final Distribution Date, the
Certificates are required to be paid on the next Payment Date. See "Description
of the Bonds -- Payment on the Bonds -- Term and Prepayment Lockout." The Trust
Agreement also provides that any amounts received by the Trustee after the
Scheduled Final Distribution Date will be distributed prior to termination of
the Trust. The ratings of Moody's and S&P address the likelihood of the timely
receipt by Certificate holders of all payments (other than Default Interest) to
which such holders are entitled by two different dates: the Scheduled Final
Distribution Date, in the case of Moody's, and the Expected Final Distribution
Date, in the case of S&P.
EXCESS FUNDS
The Trustee is required to hold payments received by it with respect to the
Certificates which are not distributed upon repayment in full of the Bonds in a
segregated non-interest bearing trust account (the "Holdover Account") in the
Trustee's name for the benefit of the holders of such Certificates. All such
monies so held by the Trustee and which remain unclaimed for a period of two
years after the final distribution of such Certificates (or such shorter period
as may be prescribed by applicable law) will be distributed by the Trustee to
the Depositor as provided in the Trust Agreement.
AMENDMENT
The Trust Agreement may be amended from time to time by the Depositor and
the Trustee with the consent of the holders of 66 2/3% of the aggregate
principal amount of Certificates outstanding for the purpose of adding any
provision to or changing in any manner or eliminating any provision of the Trust
Agreement or of modifying in any manner the rights of the holders of the
Certificates; provided, that no such amendment will:
(i) reduce in any manner the amount of, or delay the timing of,
payments received on the Bonds which are required to be distributed with
respect to the Certificates without the consent of each affected
Certificate holder;
(ii) reduce the percentage of the aggregate outstanding principal
amount of Certificates the holders of which are required to consent to any
such amendment, without the consent of the holders of all Certificates then
outstanding; or
(iii) adversely affect the status of the Trust as a grantor trust
under Subpart E, Part I of Subchapter J of the Code.
The Trust Agreement provides that the parties thereto may agree, without
the consent of the holders of the Certificates, to any modification (subject to
certain exceptions) of the Trust Agreement or the Certificates, (i) to add to
the covenants for the benefit of the Trustee or surrender any right or power of
the Depositor, provided that such surrender will not adversely affect the
interests of the holders of the Certificates, (ii) to evidence and provide for
the appointment and acceptance of any successor Trustee or (iii) to cure any
ambiguity or cure or correct any defective or inconsistent provision in the
Trust Agreement or any Certificate provided such action will not adversely
affect the interests of the holders of the Certificates.
The Trustee may not consent to any amendment or modification of the Trust
Agreement which would adversely affect the Trust's status as a grantor trust for
federal income tax purposes.
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In determining whether any change adversely affects the interests of
holders of the Certificates, the Trustee will rely upon written confirmation of
the Rating Agencies that such change will not result in the downgrading,
withdrawal or requalification of the rating on each class of Certificates then
outstanding and affected thereby.
INDEMNIFICATION
The Trust Agreement contains provisions for the indemnification of the
Trustee by the Trust and for relief for it from responsibility in certain
circumstances, including provisions relieving it from instituting proceedings to
enforce payment unless indemnified to its satisfaction.
MERGER, CONSOLIDATION OR ASSUMPTION
The Depositor will not consolidate or merge with any other corporation or
other entity or permit any other corporation or entity to merge into it, or
convey, transfer or lease its properties and assets substantially as an entirety
to any person except as permitted by the Trust Agreement.
NOTICES
The Trustee will cause all notices to the holders of the Certificates to be
mailed by first class mail, postage prepaid return receipt requested to each
holder as its address appears on the security register or alternatively, will
publish notice in a financial newspaper of national circulation once per week
for at least two consecutive weeks.
TRUST TERMINATION
Simultaneously with a Permitted Merger and Security Release, the Trust will
terminate. If a Permitted Merger and Security Release occurs, the Trustee will
deliver the Bonds to holders of the Certificates, without any action on the part
of Certificate holders, by means of the book-entry facilities described herein,
as distribution in full satisfaction of their beneficial interests in the Trust.
The Global Certificate evidencing the Certificates will be canceled at that time
by the Trustee and delivered to the Depositor and will be of no further force
and effect.
DESCRIPTION OF THE BONDS
CERTAIN STATEMENTS CONTAINED THROUGHOUT THIS PROSPECTUS ARE SUMMARIES OF
CERTAIN PROVISIONS OF THE INDENTURE AND THE BONDS. THE BORROWER AND THE
DEPOSITOR BELIEVE THAT THE FOLLOWING DESCRIPTION OF THE BONDS INCLUDES ALL OF
THE MATERIAL TERMS OF THE BONDS, BUT SUCH STATEMENTS DO NOT PURPORT TO BE
COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH AGREEMENTS AND
INSTRUMENTS.
GENERAL
The Bonds are to be issued under the Indenture, which has been filed with
the Securities and Exchange Commission (the "Commission"), is incorporated by
reference herein, and is available for inspection at the corporate trust office
of the Trustee at 135 LaSalle Street, Chicago, Illinois 60674-4107. The
Indenture is subject to, and governed by, the Trust Indenture Act of 1939, as
amended. The statements made hereunder relating to the Indenture and the Bonds
to be issued thereunder are summaries of certain provisions thereof and do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all provisions of the Indenture and the Bonds. All section
references appearing herein are to sections of the Indenture.
The Bonds will be limited to an aggregate principal amount of $142,000,000
and will mature on March 1, 2003. Until a Permitted Merger and Security Release,
the Bonds will be secured by (i) first priority mortgage liens on the Borrower's
fee interest in 26 Mortgaged Properties, including each of the parcels of land
on which the Mortgaged Properties are situated, (ii) liens and security
interests in all related assets, including buildings and improvements thereon,
(iii) an assignment of rents and leases from the Mortgaged Properties, and (iv)
the funds and investments, if any, in certain Accounts. Upon the occurrence of a
Permitted Merger and Security Release, the Bonds will become the general
unsecured obligations of
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MAALP ranking in parity with all other unsecured indebtedness of MAALP, and
Bondholders will have no claim against the Mortgaged Properties or any other
property of MAALP except as general unsecured creditors of MAALP. The Bonds are
neither insured nor guaranteed by the Depositor, the Borrower, the General
Partner, MAALP, MAAC, the Indenture Trustee, the Trustee or the Underwriter or
any of their affiliates, or by any governmental entity or instrumentality or by
any other person or entity.
PERMITTED MERGER AND SECURITY RELEASE
The Indenture provides that a Permitted Merger and Security Release will
occur if and when each of the following conditions, among others, occurs: (i)
the unsecured debt of MAALP, including the Bonds, is rated at least "Baa3" and
"BBB-" by Moody's and S&P, respectively; and (ii) MAALP is a reporting company
under the Exchange Act pursuant to an effective registration statement on Form
10 (or any successor form).
The ability of MAALP to procure the required ratings of its unsecured debt,
including the Bonds, is subject to satisfaction of the criteria for such ratings
as may be imposed from time to time by Moody's and S&P. MAALP believes such
criteria include ownership by MAALP directly or through subsidiaries of
substantially all of the real estate assets currently owned by MAAC and
satisfaction of certain leverage and equity ratios. The rating criteria
established by Moody's and S&P are subject to change from time to time in the
sole discretion of the Rating Agencies, and such criteria are outside the
control of MAALP and may not be satisfied by MAALP prior to repayment of the
Bonds in full. In connection with the FDC Merger, MAAC has agreed not to
transfer certain apartment communities or interests in property-owning
partnerships to MAALP until November 1999. MAAC and MAALP believe that the
inability of MAAC to transfer those assets to MAALP and operate exclusively
through its UPREIT structure will preclude MAALP from obtaining the ratings from
the Rating Agencies necessary to effect a Permitted Merger and Security Release.
Therefore, MAALP believes that before November 1999 MAALP cannot, and there can
be no assurance that MAALP will ever procure the required ratings and effect a
Permitted Merger and Security Release. See "Risk Factors -- Failure to Satisfy
Conditions to Permitted Merger and Security Release."
The Borrower is required to give written notice of an anticipated Permitted
Merger and Security Release to the Certificate holders at least 60 days prior to
the Permitted Merger and Security Release, which notice will be accompanied by
the MAALP Prospectus. Upon proof of proper notice and delivery of the MAALP
Prospectus and satisfaction of certain other conditions, the Indenture Trustee
will release the Mortgage Liens, the Permitted Merger will occur, and MAALP will
assume the obligations under the Bonds. At such time, the Bonds will be the
general unsecured obligations of MAALP ranking in parity with all other
unsecured debt of MAALP. Neither the Permitted Merger nor the Security Release
may occur if Advances are outstanding.
FORM, DENOMINATIONS, EXCHANGE, REGISTRATION AND TRANSFER
The Bonds will be issued, maintained and transferred in book-entry form
only in denominations of $100,000 and integral multiples of $1,000 in excess
thereof. The Bonds will be represented by one Global Bond registered in the name
of a nominee designated by DTC. No holder of a Bond will be entitled to receive
a Bond issued in fully registered, certificated form (a "Definitive Bond")
representing its interest in the Bonds, except under the limited circumstances
described below under "Book Entry Issuance, Clearance and
Settlement -- Definitive Certificates and Bonds." Unless and until Definitive
Bonds are issued in respect of the Bonds, all transfers of Bonds will be cleared
and settled through the facilities of DTC, CEDEL and Euroclear. See "Book-Entry
Issuance, Clearance and Settlement."
PAYMENT ON THE BONDS
PAYMENTS OF INTEREST. The Bonds will bear interest at the rate per annum
set forth on the cover page of this Prospectus, payable monthly on each Payment
Date with respect to interest accrued from the preceding Payment Date (or the
date of original issuance in the case of the first Payment Date) through the day
immediately preceding the Payment Date to Bondholders of record on the related
Record Date. Interest on the Bonds will be computed on the basis of a 360-day
year consisting of twelve 30-day months.
PAYMENTS OF PRINCIPAL. The Bonds will mature and the entire principal
amount of the Bonds will be due and payable on March 1, 2003.
PAYMENTS UPON ISSUANCE OF PHYSICAL CERTIFICATES. If the Bonds are no
longer represented by the Global Bond, payments of interest, at the option of
the Borrower, may be made by check mailed to the
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address of the person entitled thereto. No service charge will be made for any
transfer or exchange of Bonds, but the Borrower may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
TERM AND PREPAYMENT LOCKOUT. The Bonds are non-callable for a period of
five (5) years, and the entire unpaid principal balance of the Bonds will be due
and payable on the Stated Maturity Date. There is no sinking fund for the Bonds,
and the Bonds are not subject to, prepayment or principal amortization except
upon the occurrence of the certain events of default under the Indenture.
PRIORITY OF PAYMENTS; CASH MANAGEMENT
The Borrower has irrevocably instructed the property manager at each
Mortgaged Property to deposit into the applicable Property Account (i) all rents
due under the Leases; (ii) all additional amounts, if any, due and payable under
the Leases; and (iii) all other revenue derived from the Mortgaged Properties.
All funds in each Property Account will be transferred to the Operating Account
on a daily basis.
Prior to a Cash Management Period, all money from the Operating Account
will be transferred by automated clearinghouse transfer to such accounts as the
Borrower may direct on a daily basis in accordance with its standing
instructions to the Account Bank. During a Cash Management Period which follows
an event described in clause (i) of the next succeeding paragraph, funds in the
Operating Account will be transferred to such accounts as the Borrower may
direct on the Business Day following each Account Funding Date. During a Cash
Management Period which follows an event described in clause (ii) or (iii)
below, no funds may be transferred from the Operating Account except at the
direction of the Indenture Trustee or its agent.
A Cash Management Period is a period during which (i) the Borrower fails to
maintain a Pre-Permitted Merger Debt Service Coverage Ratio of at least 1.30 to
1 or (ii) an event of default occurs and is continuing under the Bonds, the
Indenture or any Security Document or (iii) any event has occurred and is
continuing which obligates or permits the Indenture Trustee to make an Advance.
Pursuant to the Cash Collateral Account Agreement, during any Cash
Management Period, the Borrower, has instructed the Account Bank to withdraw
from the Operating Account, in the priority listed below and to the extent
available therein, by 10:00 a.m. New York on each Account Funding Date, (i)
funds in an amount equal to one-twelfth of the annual amount of interest on the
Bonds outstanding at the time less the amount of funds on deposit in the
Interest Escrow Account and deposit the same into the Interest Escrow Account;
(ii) funds in an amount equal to the tax payments and insurance premiums
required to be paid during the six months following such Account Funding Date
less funds on deposit in the Mortgage Escrow Account and deposit the same into
the Mortgage Escrow Account; and (iii) funds in an amount equal to one-half of
the annual amount required to be escrowed during any Cash Management Period to
fund replacements pursuant to each Mortgage less the amount on deposit in the
Replacement Reserve Account and deposit the same into the Replacement Reserve
Account.
The Indenture provides that the Borrower will deposit each monthly payment
on the Bonds with the Indenture Trustee by 10:00 a.m. New York time on the
Payment Date for disbursement to holders of the Bonds. The Indenture also
provides that the Indenture Trustee will apply any amounts so received and any
other amount received pursuant to the Indenture excluding fees of the Indenture
Trustee which are paid by the Borrower in a timely fashion, but including,
without limitation, amounts in the Operating Account and the other Accounts and
payments in respect of the liquidation, if any, of the Mortgaged Properties, in
the following order:
_____FIRST: to reimburse the Indenture Trustee for any unreimbursed
Advances, plus interest thereon at the Advance Rate;
_____SECOND: to make payments, if any are required, from the Accounts as
provided in the Cash Collateral Agreement;
_____THIRD: to make payments of interest on the Bonds in accordance with
their terms;
_____FOURTH: to make payments of principal on the Bonds, to the extent any
such payments are due;
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_____FIFTH: to make payments of Default Interest on the Bonds, to the
extent any such payments are due; and
_____SIX: to pay any other amounts due and owing under the Indenture.
COVENANTS
Pursuant to the Indenture, the Borrower and, after a Permitted Merger and
Security Release, MAALP are subject to the following covenants, as applicable:
MAINTENANCE OF LIENS PRIOR TO PERMITTED MERGER AND SECURITY RELEASE. Prior
to a Permitted Merger and Security Release, the Borrower is required to maintain
and preserve the first priority of the Mortgage Liens and security interests
created by the Security Documents.
LIMITATION ON DEBT PRIOR TO PERMITTED MERGER AND SECURITY RELEASE. Prior
to a Permitted Merger and Security Release, the Borrower is not permitted to
incur or permit to exist any indebtedness, except pursuant to the Bonds or trade
accounts payable which are paid in full no more than 60 days after the date on
which such accounts payable are created.
LIMITATION ON DEBT FROM AND AFTER PERMITTED MERGER AND SECURITY
RELEASE. From and after a Permitted Merger and Security Release, MAALP is
prohibited from incurring any indebtedness (except inter-company indebtedness
that is subordinate to the Bonds) if, immediately after giving effect to the
incurrence of such additional indebtedness, the aggregate principal amount of
all outstanding indebtedness of MAALP and its subsidiaries on a consolidated
basis is greater than 60% of the sum of (i) the cost (original cost plus capital
improvements) of real estate assets of MAALP and its subsidiaries before
depreciation and amortization, determined on a consolidated basis in accordance
with generally accepted accounting principles ("GAAP") and (ii) all other
assets of MAALP and its subsidiaries on a consolidated basis determined in
accordance with GAAP (but excluding intangibles and accounts receivable)
(collectively, "Total Assets").
LIMITATION ON SECURED DEBT FROM AND AFTER PERMITTED MERGER AND SECURITY
RELEASE. From and after a Permitted Merger and Security Release, MAALP is
prohibited from incurring any indebtedness secured by any mortgage, lien,
charge, pledge, encumbrance or security interest of any kind ("Secured Debt")
if, immediately after giving effect to the incurrence of such additional Secured
Debt, the aggregate principal amount of all outstanding Secured Debt is greater
than 40% of MAALP's Total Assets.
MINIMUM UNENCUMBERED ASSETS FROM AND AFTER PERMITTED MERGER AND SECURITY
RELEASE. From and after a Permitted Merger and Security Release, MAALP is
required to maintain Total Assets which are not encumbered by any pledge,
mortgage or other encumbrance ("Total Unencumbered Assets") of not less than
150% of the aggregate principal amount of all outstanding indebtedness which is
not Secured Debt.
DEBT SERVICE COVERAGE PRIOR TO PERMITTED MERGER AND SECURITY RELEASE. If
at any time prior to a Permitted Merger and Security Release, the ratio of (a)
the excess of all revenue derived from the Mortgaged Properties for the four
most recent trailing quarters over all expenses during such period assuming a
management fee of 4% of revenue and a $200 per apartment unit capital
expenditure reserve per year to (b) the amount of debt service on the Bonds then
outstanding (based on an assumed annual debt service constant of 9.25% per
annum) (the "Pre-Permitted Merger Debt Service Coverage Ratio") of the
Borrower is less than 1.30 to 1, the Indenture Trustee will deliver a notice to
the Account Bank (the "Trigger Notice") under the Cash Collateral Agreement.
At such time, funds in the Operating Account will be transferred to the Accounts
and any funds deposited into the Operating Account in the future will be
transferred from the Accounts only in accordance with the Cash Collateral
Agreement. If at any time after such delivery of a Trigger Notice the
Pre-Permitted Merger Debt Service Coverage Ratio is equal to or greater than
1.30 to 1, the Indenture Trustee will promptly deliver notice to the Account
Bank under the Cash Collateral Agreement and the future funding of the Accounts
will cease.
If at any time prior to the Permitted Merger and Security Release, the
Pre-Permitted Merger Debt Service Coverage Ratio of the Borrower is less than
1.15 to 1, the Indenture Trustee may, and upon direction from the holders of 25%
in principal amount of the Bonds, will upon ten days' prior to the
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Borrower and each property manager of the Mortgaged Properties, terminate or
cause the termination of all such property managers and require the Borrower to
retain a different manager or managers satisfactory to the Indenture Trustee or
such holders of the Bonds.
DEBT SERVICE COVERAGE FROM AND AFTER PERMITTED MERGER AND SECURITY
RELEASE. From and after any Permitted Merger and Security Release, MAALP and
its subsidiaries are prohibited from incurring any indebtedness if the
Post-Permitted Merger Debt Service Coverage Ratio (as defined below) for the
four consecutive fiscal quarters most recently ended prior to the date on which
such additional indebtedness is to be incurred has been less than 1.50 to 1, on
a pro forma basis after giving effect to the incurrence of such indebtedness and
to the application of the proceeds therefrom, and calculated on the assumption
that (i) such indebtedness and any other indebtedness incurred by MAALP or its
subsidiaries since the first day of such four-quarter period and the application
of the proceeds therefrom, including to refinance other indebtedness, had
occurred at the beginning of such period; (ii) the repayment or retirement of
any other indebtedness by MAALP or its subsidiaries since the first day of such
four-quarter period had been incurred, repaid or retired at the beginning of
such period (except that, in making such computation, the amount of indebtedness
under any revolving credit facility will be computed based upon the average
daily balance of such indebtedness during such period); (iii) the income earned
on any increase in Total Assets since the end of such four-quarter period,
including, without limitation, by merger, stock purchase or sale, or asset
purchase or sale, such acquisition or disposition or any related repayment of
indebtedness had occurred on the first day of such period with the appropriate
adjustment with respect to such acquisition or disposition being included in
such pro forma calculation. The term "Post-Permitted Merger Debt Service
Coverage Ratio" means the ratio of (i) (a) the amount of consolidated net
income (or loss) of MAALP and its subsidiaries on a consolidated basis for such
period plus (b) amounts which have been deducted for (1) interest or
indebtedness of MAALP and its subsidiaries on a consolidated basis; (2)
provision for taxes based on income; (3) amortization of indebtedness discount;
(4) provisions for gains and losses on properties; (5) depreciation and
amortization; (6) the effect of any noncash charge resulting from a change in
accounting principles; and (7) amortization of deferred charges to (ii) the
amount which is expensed in any 12-month period for interest on indebtedness of
MAALP and its subsidiaries on a consolidated basis.
EVENTS OF DEFAULT AND NOTICE
An "Event of Default" is defined in the Indenture to be (i) a default in
the payment of any interest upon any of the Bonds when due and payable; (ii) a
default in the payment of the principal of or premium, if any, on any of the
Bonds when the same becomes due and payable at the Stated Maturity Date; (iii)
the Borrower consolidates with or merges with or into, or conveys, transfers or
leases all or substantially all its assets to, any person or entity in any
transaction other than a Permitted Merger; (iv) the Borrower fails to observe or
perform certain covenants contained in the Indenture regarding the maintenance
of liens and recording, limitation on debt, limitation on Secured Debt, Total
Unencumbered Assets, debt service coverage, the formation of subsidiaries, and
amendments to the Limited Partnership Agreement; (v) the Borrower fails to
observe or perform any of its covenants set forth in the Bonds or the Indenture
(other than those referred to in clauses (i), (ii), (iii) or (iv) above) and
such default, if subject to being cured, continues for a period of 30 days after
the earlier of knowledge by the Borrower thereof or notice thereof from the
Indenture Trustee to the Borrower; PROVIDED that if such Default is not subject
to being cured within such 30-day period and the Borrower (a) has delivered an
Officers' Certificate to the Indenture Trustee (1) certifying that such Default
is reasonably subject to cure and that the Borrower has commenced such cure and
(2) setting forth those actions the Borrower has taken and will take to pursue
such cure and (b) pursues such cure diligently to completion, then such 30-day
period will be extended for an additional period of 60 days; (vi) following the
Permitted Merger, MAALP defaults under any indebtedness for money borrowed by
MAALP if (a) such default either (1) results from the failure to pay the
principal of any such indebtedness at its stated maturity or (2) relates to an
obligation other than the obligation to pay the principal of such indebtedness
at its stated maturity and results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable (b)
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the principal amount of such indebtedness, together with the principal amount of
any other such indebtedness in default for failure to pay principal at stated
maturity or the maturity of which has been so accelerated, aggregates $1,000,000
or more at any one time outstanding and (c) such indebtedness is not discharged,
or such acceleration is not rescinded or annulled, within 10 Business Days after
written notice as provided in the Indenture; (vii) certain events of bankruptcy,
insolvency or reorganization relating to the Borrower; (viii) an event of
default occurs and is continuing under the Security Documents; (ix) any
representation, warranty or other statement made by or on behalf of the Borrower
set forth in the Indenture or any other Security Document is proved to have been
false or misleading in any material respect as of the date when made; (x) any
judgment of decree for the payment of money in excess of $100,000 not covered by
insurance is rendered against the Borrower and is not discharged and either (a)
an enforcement proceeding has been commenced by any creditor upon such judgment
or decree or (b) there is a period of 60 days following such judgment or decree
during which such judgment or decree is not discharged, waived or execution
thereof stayed; or (xi) the General Partner fails to comply with certain
provisions of its certificate of incorporation.
If an Event of Default (other than an Event of Default described in clause
(vii) of the preceding paragraph) will occur and be continuing, either the
Indenture Trustee, by notice to the Borrower, or the holders of at least 25% in
aggregate principal amount of the Bonds by notice to the Indenture Trustee and
the Borrower may declare the principal of and accrued interest on all of the
Bonds and all other amounts due thereunder to be due and payable; provided, that
upon the occurrence of an Event of Default described in clause (vii) of the
preceding paragraph, the principal or and accrued interest on all of the Bonds
will automatically become due and payable, without presentment, demand or other
requirements of any kind, all of which are waived by the Borrower.
The holders of a majority in aggregate principal amount of the Bonds may
rescind an acceleration and its consequences if (i) the recision would not
conflict with any judgment or decree; (ii) no amount has been paid to the
holders as principal, interest, or premium, if any, on the Bonds as a result of
such acceleration; (iii) all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of acceleration; and (iv) all costs and expenses incurred by the
Indenture Trustee prior to such waiver have been reimbursed to the Indenture
Trustee.
A holder of the Bonds may not pursue any remedy with respect to the
Indenture or the Bonds unless: (i) the holder gives to the Indenture Trustee
written notice stating that an Event of Default is continuing; (ii) the holders
of at least 25% in principal amount of the Bonds make a written request to the
Indenture Trustee to pursue the remedy; (iii) such holder or holders offer to
the Indenture Trustee reasonable security or indemnity against any loss,
liability or expense; (iv) the Indenture Trustee does not comply with the
request within 60 days after the receipt of the request and the offer of
security or indemnity; and (v) the holders of a majority of principal amount of
the Bonds do not give the Indenture Trustee a direction inconsistent with the
request during such 60-day period.
The Borrower is required to furnish to the Indenture Trustee annually a
statement as to the performance by the Borrower of its obligations under the
Indenture and as to any default in such performance.
SERVICER
Upon the occurrence of an Event of Default or any event requiring the
Indenture Trustee to exercise any discretion to give its consent or to act or
refrain from acting under any Mortgage, in any case prior to a Permitted Merger
and Security Release, the Indenture Trustee may, and at the direction of the
holders of 25% or more in aggregate principal amount of the Bonds will, appoint
a servicer at the expense of the Borrower.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
The Indenture permits the Borrower (when authorized pursuant to a
resolution of the General Partner's Board of Directors) and the Indenture
Trustee, at any time and from time to time, to enter into one or more amendments
or supplements to the Indenture, in form satisfactory to the Indenture Trustee
for the following
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purposes: (i) to evidence the succession of another person or entity to the
Borrower pursuant to the terms of the Indenture and the assumption by any such
successor of the covenants of the Borrower contained in the Bonds and the
Indenture; (ii) to add to the covenants of the Borrower for the benefit of the
holders of all or any of the Bonds or to surrender any right or power conferred
upon the Borrower by the Indenture; (iii) to add any additional Events of
Default for the benefit of the holders of all or any of the Bonds; PROVIDED,
HOWEVER, that in respect of any such additional Events of Default such amendment
or supplemental indenture may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the case of
other defaults) or may provide for an immediate enforcement upon such default or
may limit the remedies available to the Indenture Trustee upon such default or
may limit the rights of the holders of a majority in aggregate principal amount
of the Bonds; (iv) to evidence and provide for the acceptance of appointment of
a successor indenture trustee as provided in the Indenture; (v) to cure any
ambiguity, to correct or supplement any provision in the Indenture which may be
defective or inconsistent with any other provision therein, or to make any other
provisions with respect to matters or questions arising under the Indenture
which will not be inconsistent with the provisions of the Indenture, PROVIDED
such provisions will not adversely affect the interests of the holders of the
Bonds in any material respect; or (vi) to supplement any of the provisions of
the Indenture to the extent as will be necessary to permit or facilitate the
defeasance and discharge of the Bonds pursuant to and subject to the terms of
the Indenture, PROVIDED that any such action will not adversely affect the
interests of the holders of the Bonds in any material respect.
The Indenture permits the Borrower and the Indenture Trustee, with the
consent of the holders of not less than a majority in principal amount of the
Bonds (or, prior to a Permitted Merger, with the consent of the Trustee acting
as instructed by holders of not less than a majority in principal amount of the
Certificates), to enter into one or more supplemental indentures for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or modifying in any manner the rights of the holders
of the Bonds, provided that the Indenture Trustee has first received written
confirmation from each Rating Agency that such action will not, in and of
itself, cause the withdrawal, downgrade or qualification of their current rating
of the Certificates or, after a Permitted Merger, the unsecured indebtedness of
MAALP, and except that no such modification or amendment may, without the
consent of the holders of each of the Bonds affected thereby, among other
things, (i) reduce the amount of the Bonds whose holders must consent to an
amendment, supplement or waiver; (ii) reduce the rate of or extend the time for
payment of interest on the Bonds; (iii) reduce the principal of or extend the
fixed maturity of the Bonds; (iv) reduce the premium payable on the Bonds; (v)
make the Bonds payable in money other than that stated in the Bonds; (vi) make
any changes to Section 5.04, Section 5.07 or Section 8.02 of the Indenture;
(vii) waive any default in the payment of principal of or interest on any Bond
or any default depriving the Indenture Trustee or any holder of a lien upon any
of the Mortgaged Properties; or (viii) release any Mortgaged Properties from the
Mortgages Liens, except in accordance with the terms thereof and of the
Indenture.
The holders of a majority in principal amount of the Bonds may on behalf of
the holders of all the Bonds waive compliance by the Borrower with certain
restrictive provisions of the Indenture. The holders of a majority in principal
amount of the Bonds may on behalf of the holders of all the Bonds waive any past
default under the Indenture and its consequences, except (i) a default in the
payment of the principal of or any interest on any Bond; (ii) a default
depriving the Indenture Trustee or any holder of a lien upon any of the
Mortgaged Properties; or (iii) a default in respect of any covenant or provision
which under the Indenture cannot be modified or amended without the consent of
the holder of each Bond affected.
DEFEASANCE
The Indenture provides for defeasance of the Bonds at any time prior to the
Stated Maturity Date, upon the compliance by the Borrower with the following
conditions: (i) an irrevocable deposit with the Indenture Trustee of cash or
U.S. government securities sufficient to pay principal and interest when due on
the Bonds to the Stated Maturity Date, (ii) delivery to the Indenture Trustee of
a certificate from independent accountants stating that payments derived from
such deposited cash or securities will be sufficient to pay
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principal and interest when due on the Bonds to the Stated Maturity Date, (iii)
delivery of certain required opinions of counsel, (iv) receipt of confirmation
from the Rating Agencies that such defeasance will not, in and of itself, cause
the withdrawal, downgrade or requalification of any rating of the Certificates
or, after a Permitted Merger, of the unsecured debt of MAALP, and (v) absence of
an Event of Default arising from certain events of bankruptcy, insolvency or
reorganization relating to the Borrower.
PAYMENTS ON THE BONDS
All payments of principal and interest in respect of the Bonds will be made
by the Borrower in immediately available funds. The Bonds will trade in DTC's
Same-Day Funds Settlement System until maturity or until the Bonds are issued in
certificated form, and secondary market trading activity in the Bonds will
therefore be required by DTC to settle in immediately available funds.
BOOK ENTRY ISSUANCE, CLEARANCE AND SETTLEMENT
Holders of the Certificates (and after a Permitted Merger and Security
Release, holders of the Bonds) may hold their Certificates (or Bonds) directly
through DTC (for United States holders) and CEDEL and Euroclear (for European
holders) if they are participants in such systems ("Participants"), or
indirectly through organizations that are Participants ("Indirect
Participants"). CEDEL and Euroclear will hold omnibus positions on behalf of
CEDEL Participants and Euroclear Participants through customers' securities
accounts in CEDEL's and Euroclear's name on the books of their respective
depositories (collectively, the "Depositories"), which in turn will hold such
positions in customers' securities accounts in the Depositories' names on the
books of DTC. DTC is a limited-purpose trust company organized under the laws of
the State of New York, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its Participants and to
facilitate the clearance and settlement of securities transactions between
Participants through electronic computerized book-entry changes in accounts of
its Participants, thereby eliminating the need for physical movement of
securities certificates. Participants include securities brokers and dealers
(including the Underwriter), banks (including the Trustee and the Indenture
Trustee), trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own DTC. Indirect
access to the DTC system is also available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participant").
Upon the issuance of the Global Certificate and the Global Bond, DTC will
credit, on its book-entry registration and transfer system, the respective
principal amounts of the Certificates represented by such Global Certificate to
the accounts of DTC Participants. The accounts to be credited will be designated
by the Underwriter. The account of the Trustee, as a Participant, will be
credited for the issuance of the Global Bond. Ownership of beneficial interests
in the Global Certificate and the Global Bond will be limited to DTC
Participants or Indirect Participants. Ownership of beneficial interests in the
Global Certificate and the Global Bond will be shown on, and the transfer of
those ownership interests will be effected only through, records maintained by
DTC (with respect to DTC Participants' interests) or such DTC Participants (with
respect to the owners of beneficial interests in the Global Certificate, and,
following the Permitted Merger and Security Release, the Global Bond, who own
such interests through Participants). The laws of some jurisdictions require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such laws may impair the ability to transfer beneficial
interests in the Global Certificate and Global Bond. Transfers between DTC
Participants will occur in accordance with DTC rules. Transfers between CEDEL
Member Organizations and Euroclear Member Organizations will occur in accordance
with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through CEDEL Participants or
Euroclear Participants on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depository; however, such cross-market transactions will require delivery of
to the relevant European
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international clearing system by the counterparty in such system in accordance
with its rules and procedures. If the transaction complies with all relevant
requirements, CEDEL or Euroclear, as the case may be, will then deliver
instructions to the Depository to take action to effect final settlement on its
behalf.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
The holders of Certificates or, following the Permitted Merger and Security
Release, Bonds that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
Certificates or Bonds may do so only through Participants and Indirect
Participants. In addition, holders of Certificates or, following the Permitted
Merger and Security Release, Bonds will receive all distributions of principal
and interest from the Trustee (or Indenture Trustee, following the Permitted
Merger and Security Release) through the Participants, who in turn will receive
them from DTC. Under a book-entry format, holders of Certificates or Bonds may
experience some delay in their receipt of payments since such payments will be
forwarded by the Trustee or Indenture Trustee to Cede & Co., as nominee for DTC.
DTC will forward such payments to its Participants, which thereafter will
forward them to Indirect Participants or beneficial owners of Certificates or
Bonds.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Certificates or Bonds among Participants on whose behalf it acts with respect to
the Certificates or Bonds and to receive and transmit distributions of principal
of, and interest on, the Certificates or Bonds. Participants and Indirect
Participants with which the holders of Certificates or Bonds have accounts with
respect to the Certificates or Bonds similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of the respective
holders of Certificates or Bonds. Accordingly, although the holders of
Certificates or Bonds will not possess the Certificates or Bonds, the Rules
provide a mechanism by which Participants will receive payments on Certificates
or Bonds and will be able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a holder of
Certificates or Bonds to pledge such Certificates or Bonds to persons or
entities that do not participate in the DTC system, or to otherwise act with
respect to such Certificates or Bonds, may be limited due to the lack of
physical possession of such Certificates or Bonds.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its Participants and facilitates the
clearance and settlement of securities transactions between CEDEL Participants
through electronic book-entry changes in accounts of CEDEL, thereby eliminating
the need for physical movement of securities certificates.
Euroclear was created in 1968 to hold securities for Participants of the
Euroclear system and to clear and settle transactions between Euroclear
Participants though simultaneous electronic book-entry delivery against payment.
Although DTC, CEDEL and Euroclear have implemented the foregoing procedures
in order to facilitate transfers of interests in global securities among
Participants of DTC and Participants of Euroclear and CEDEL, they are under no
obligation to perform or to continue to comply with such procedures, and such
procedures may be discontinued at any time. None of the Depositor, the Trustee,
Indenture Trustee, MAAC, MAALP or the Underwriter will have any responsibility
for the performance by DTC, Euroclear or CEDEL or their respective direct or
indirect Participants or of their respective obligations under the rules and
procedures governing their operations. The information herein concerning DTC,
CEDEL and Euroclear
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and their book-entry systems has been obtained from sources believed to be
reliable, but the Depositor takes no responsibility for the accuracy or
completeness thereof.
DEFINITIVE CERTIFICATES AND BONDS
Definitive Certificates (or, following the Permitted Merger and Security
Release, Definitive Bonds), will be delivered to beneficial owners of the
Certificates (and, following the Permitted Merger and Security Release, the
Bonds) (or their nominees) only if (i) DTC is no longer willing or able properly
to discharge its responsibilities as depository with respect to the Certificates
or Bonds, as the case may be, and the Depositor is unable to locate a qualified
successor, (ii) the Trustee, or, following the Permitted Merger and Security
Release, the Indenture Trustee, at its sole option, elects to terminate the
book-entry system through DTC, or (iii) after the occurrence of an event of
default under the Trust Agreement, or, following the Permitted Merger and
Security Release, the Indenture, Certificate holders (or after the Permitted
Merger and Security Release, Bondholders) representing a majority in principal
amount of the Certificates (or Bonds, as the case may be) then outstanding
advise DTC through DTC Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interest of such Certificate holders or Bondholders.
Upon the occurrence of any of the events described in clauses (i) through
(iii) in the immediately preceding paragraph, DTC is required to notify all
affected DTC Participants of the availability through DTC of Definitive
Certificates (or Definitive Bonds, as the case may be). Upon delivery of
Definitive Certificates (or Definitive Bonds, as the case may be), the Trustee
or Indenture Trustee and the registrar will recognize the holders of such
Definitive Certificates (or Definitive Bonds, as the case may be) as holder of
the Certificates or Bonds. Distributions of principal of and interest on the
Definitive Certificates (or Definitive Bonds) will be made by the Trustee (or
Indenture Trustee) directly to holders of Definitive Certificates (or Definitive
Bonds) in accordance with the procedures set forth in the Trust Agreement (or
Indenture). Upon the occurrence of any of the events described in clauses (i)
through (iii) in the immediately preceding paragraph, request for transfer of
Definitive Certificates or Definitive Bonds will be required to be submitted
directly to the registrar in a form acceptable to the registrar (such as the
forms which will appear on the back of the certificate representing a Definitive
Certificate or Definitive Bond), signed by the holder or such holder's legal
representative and accompanied by the Definitive Certificate or Certificates (or
Definitive Bond or Bonds) for which transfer is being requested.
DESCRIPTION OF THE MORTGAGED PROPERTIES
The Mortgaged Properties consist of 26 apartment communities containing an
aggregate of 5,947 apartment units and have an average age of 12 years. The
Mortgaged Properties are primarily located in mid-size markets in the Southeast
and span 19 metropolitan areas across nine states. The Borrower believes that
the Mortgaged Properties are well positioned within their markets and feature an
appealing array of amenities, including swimming pools, washer/dryer
connections, fireplaces, tennis courts and fitness centers. Over the last three
years, average occupancy for the Mortgaged Properties has remained relatively
constant at approximately 95%.
MAAC, MAALP and their respective affiliates (collectively, the "Company")
have focused on owning, operating and acquiring apartment communities in
mid-size southeastern and Texas cities. The Company has implemented a practice
of having trained property managers and service technicians on-site at each of
the Company's apartment communities. The presence of these personnel will
continue at the Mortgaged Properties pursuant to the terms of the Management
Agreement. Moreover, MAALP intends to undertake frequent resident surveys and
focus groups, in order to measure resident satisfaction at the Mortgaged
Properties.
At December 31, 1997 MAAC owns, directly and through wholly owned
subsidiaries and controlled partnerships including MAALP and the Borrower, 115
apartment communities containing 30,468 apartment units in 13 states. MAAC
selected the Mortgaged Properties to be contributed by MAALP to, or acquired
directly by, the Borrower because such Mortgaged Properties (i) had established
operating histories,
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(ii) produced historical cash flow that would be adequate to pay interest on the
Bonds, (iii) had appraised values that resulted in a loan-to-value ratio that,
in the aggregate, supported an investment grade rating and (iv) were free of
previous mortgages and other encumbrances. See MAAC's Annual Report on Form 10-K
for the year ended December 31, 1996, incorporated herein by reference.
THE APPRAISAL REPORTS
The Appraisals estimate the values of the Mortgaged Properties to be
approximately $241 million. The Appraisals do not render any opinion of value of
the Mortgaged Properties subsequent to the valuation dates of the Appraisals.
Cushman & Wakefield, Inc. (the "Appraiser") states in the Appraisals that
the Appraisals were performed in accordance with the Uniform Standards of
Professional Appraisal Practice as promulgated by the Appraisal Standards Board
of the Appraisal Foundation and adopted by the Appraisal Institute and the Code
of Professional Ethics of the Appraisal Institute. An appraisal is an opinion of
value made by experts, subject to the assumptions and limiting conditions
contained therein. The Appraisals are based substantially on estimates,
assumptions and projections of income and expense related to the Mortgaged
Properties and are based on information available as of the date of the
particular Appraisal. However, neither the Borrower nor the Depositor makes any
warranty or representation that the Mortgaged Properties could be sold at the
appraised values.
ENGINEERING REPORTS
Creative Project Management, Inc. ("CPM") prepared evaluation reports for
each of the 26 Mortgaged Properties. These reports, dated in October and
November 1997, reviewed the Mortgaged Properties' structural and architectural
conditions, mechanical, electrical, fire and life safety systems as well as
compliance with the requirements of the ADA. Generally, CPM deemed the Mortgaged
Properties as well designed and constructed and provided with above-average
maintenance.
The reports contain analyses of repairs and improvements to the Mortgaged
Properties which are to be completed within one year, the estimated cost of
which aggregate $636,130.
ENVIRONMENTAL REPORTS
In November 1997, CPM performed Phase I ESAs (which did not include
invasive procedures, such as soil sampling or ground water analysis) on each of
the Mortgaged Properties. The ESAs did not reveal any significant environmental
liability that would have a material adverse effect on the Borrower's ability to
make required payments on the Bonds. In every instance, the Phase I ESA included
a record search for leaking underground storage tank sites and sites included on
certain environmental databases. In one instance, the database search revealed
information that led the ESA to recommend a Phase II ESA (which involves
invasive sampling procedures) to determine whether any contaminants affected the
Mortgaged Property. Such Mortgaged Property is adjacent to a leaking underground
storage tank site and the ESA anticipates that the adjacent contamination will
affect the Mortgaged Property. The Borrower has not performed a Phase II ESA
because it believes that, notwithstanding the results of a Phase II ESA, it
would not be responsible or liable for the remediation or cleanup of any
environmental contamination and that there will be no material adverse effect on
the affected Mortgaged Property or the Mortgaged Properties taken as a whole as
a result of environmental costs or liabilities would not be material. There can
be no assurance that the Borrower is correct in concluding either that other
parties would bear or be able to bear primary responsibility, or that the
environmental costs or liabilities would not be material which could have a
material adverse effect on the Borrower's ability to make required payments on
the Bonds.
The Phase I reports identified the presence of ACMs generally on or in
floor and ceiling coverings in four of Mortgaged Properties. The Borrower has
continuing ACM Operation and Maintenance Plans which include removal of
asbestos-containing materials if they are not in good condition and believes the
identified Mortgaged Properties can be managed pursuant to this plan. CPM
identified no other material environmental hazards on site.
40
<PAGE>
ADDITIONAL MORTGAGED PROPERTY INFORMATION
The following tables set forth selected financial and operating information
for the Mortgaged Properties.
41
<PAGE>
<TABLE>
<CAPTION>
YEAR NUMBER
YEAR MANAGEMENT OF
MORTGAGED PROPERTY METROPOLITAN AREA COMPLETED COMMENCED UNITS 1 BDR 2 BDR 3 BDR
- ------------------------------------- ---------------------------- --------- ---------- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Belmere.............................. Tampa Florida 1984 1994 210 104 106 0
Crosswinds........................... Jackson, Mississippi 1990 1996 360 120 176 64
Fairways at Royal Oak................ Cincinnati, Ohio 1988 1994 214 107 107 0
Hermitage at Beechtree............... Cary, North Carolina 1985 1997(3) 194 60 134 0
Hidden Lake II(2).................... Atlanta, Georgia 1987 1997(3) 160 64 96 0
High Ridge(2)........................ Athens, Georgia 1987 1997(3) 160 32 96 32
Howell Commons....................... Greenville, South Carolina 1988 1997 348 200 148 0
Kirby Station........................ Memphis, Tennessee 1978 1994 371 225 146 0
Lakepointe........................... Lexington, Kentucky 1986 1994 118 96 22 0
Lakeside............................. Jacksonville, Florida 1985 1996 416 272 144 0
Marsh Oaks........................... Atlantic Beach, Florida 1986 1995 120 56 64 0
Napa Valley.......................... Little Rock, Arkansas 1984 1996 240 156 84 0
Park Haywood......................... Greenville, South Carolina 1983 1993 208 96 112 0
Park Place(2)........................ Spartanburg, South Carolina 1987 1997(3) 184 64 96 24
Pear Orchard......................... Jackson, Mississippi 1985 1994 389 228 161 0
Savannah Creek(1).................... Memphis, Tennessee 1989 1996 204 68 112 24
Shenandoah Ridge..................... Augusta, Georgia 1982 1995 272 128 144 0
Somerset............................. Jackson, Mississippi 1981 1995 144 56 88 0
Southland Station I(2)............... Warner Robins, Georgia 1987 1997(3) 160 48 80 32
Steeplechase......................... Chattanooga, Tennessee 1986 1991 108 43 65 0
Sutton Place(1)...................... Memphis, Tennessee 1991 1996 252 84 120 48
Tiffany Oaks......................... Altamonte Springs, Florida 1985 1996 288 224 64 0
Village, The......................... Lexington, Kentucky 1989 1994 252 168 84 0
Westside Creek I..................... Little Rock, Arkansas 1984 1997 142 16 126 0
Williamsburg Village................. Jackson, Tennessee 1987 1994 148 88 48 12
Willow Creek(2)...................... Willow Creek, Georgia 1977 1997(3) 285 113 164 8
------ ----- ----- -----
5,947 2,916 2,787 244
====== ===== ===== =====
<CAPTION>
APPROXIMATE AVERAGE MONTHLY RENT AVERAGE PHYSICAL
RENTABLE AVERAGE PER UNIT AT OCCUPANCY AT
AREA UNIT SIZE --------------------- ---------------------
(SQUARE (SQUARE SEPTEMBER DECEMBER SEPTEMBER DECEMBER APPRAISED
MORTGAGED PROPERTY FEET) FEET) 30, 1997 31, 1996 30, 1997 31, 1996 VALUE
- ------------------------------------- ----------- --------- --------- -------- --------- -------- ----------
Belmere.............................. 202,440 964 $ 602 $592 98.6% 97.1% $10,100,000
Crosswinds........................... 443,200 1,231 $ 605 $588 94.4% 96.7% 17,125,000
Fairways at Royal Oak................ 214,477 1,002 $ 588 $570 98.1% 98.1% 10,200,000
Hermitage at Beechtree............... 169,776 875 $ 645 $624 96.6% 95.0% 9,350,000
Hidden Lake II(2).................... 154,000 963 $ 609 $590 93.2% 97.5% 6,800,000
High Ridge(2)........................ 186,608 1,166 $ 739 $748 85.3% 93.5% 9,200,000
Howell Commons....................... 292,840 841 $ 499 $501 97.7% 87.6% 13,600,000
Kirby Station........................ 310,173 836 $ 556 $531 99.7% 97.0% 16,100,000
Lakepointe........................... 90,614 768 $ 534 $520 94.9% 98.3% 5,000,000
Lakeside............................. 344,192 827 $ 555 $556 95.4% 95.4% 15,650,000
Marsh Oaks........................... 93,280 777 $ 519 $501 94.2% 99.2% 4,400,000
Napa Valley.......................... 183,216 763 $ 541 $542 92.1% 82.9% 9,400,000
Park Haywood......................... 156,776 754 $ 497 $479 92.8% 93.8% 6,700,000
Park Place(2)........................ 195,312 1,061 $ 591 $598 91.3% 92.7% 7,000,000
Pear Orchard......................... 338,400 870 $ 544 $556 95.1% 97.9% 16,365,000
Savannah Creek(1).................... 237,200 1,162 $ 580 $557 100.0% 99.0% 8,800,000
Shenandoah Ridge..................... 222,800 819 $ 440 $434 92.6% 92.3% 7,500,000
Somerset............................. 126,848 881 $ 488 $492 95.8% 98.6% 5,000,000
Southland Station I(2)............... 186,704 1,167 $ 611 $647 91.6% 89.7% 6,740,000
Steeplechase......................... 98,602 913 $ 542 $522 98.1% 96.3% 4,000,000
Sutton Place(1)...................... 267,600 1,062 $ 561 $536 99.2% 98.8% 10,800,000
Tiffany Oaks......................... 234,224 813 $ 559 $554 99.3% 96.0% 11,475,000
Village, The......................... 182,716 725 $ 562 $542 96.4% 96.0% 11,000,000
Westside Creek I..................... 148,030 1,042 $ 628 $603 95.1% 90.0% 5,500,000
Williamsburg Village................. 121,412 820 $ 518 $507 99.3% 97.3% 5,620,000
Willow Creek(2)...................... 246,668 866 $ 460 $455 91.8% 91.0% 7,900,000
----------- --- ----------
5,448,108 916 $241,325,000
=========== === ==========
</TABLE>
APPRAISED
MORTGAGED PROPERTY VALUE/UNIT
- ------------------------------------- ----------
Belmere.............................. $ 48,095
Crosswinds........................... 47,569
Fairways at Royal Oak................ 47,664
Hermitage at Beechtree............... 48,196
Hidden Lake II(2).................... 42,500
High Ridge(2)........................ 57,500
Howell Commons....................... 39,080
Kirby Station........................ 43,396
Lakepointe........................... 42,373
Lakeside............................. 37,620
Marsh Oaks........................... 36,667
Napa Valley.......................... 39,167
Park Haywood......................... 32,212
Park Place(2)........................ 38,043
Pear Orchard......................... 42,069
Savannah Creek(1).................... 43,137
Shenandoah Ridge..................... 27,574
Somerset............................. 34,722
Southland Station I(2)............... 42,125
Steeplechase......................... 37,037
Sutton Place(1)...................... 42,857
Tiffany Oaks......................... 39,844
Village, The......................... 43,651
Westside Creek I..................... 38,732
Williamsburg Village................. 37,973
Willow Creek(2)...................... 27,719
----------
$ 40,579
==========
- ------------
(1) These properties are located in Desoto County, Mississippi, a suburb of
Memphis, Tennessee. The company considers the properties a part of the
Memphis, Tennessee market.
(2) These properties were acquired in connection with the acquisition by the
Company of Flournoy Development Company, a Georgia Corporation ("FDC")
and certain related entities on November 25, 1997.
(3) Subsequent to September 30, 1997.
42
<PAGE>
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED
DECEMBER
NINE MONTHS ENDED SEPTEMBER 30, 1997 31, 1996
--------------------------------------------------------------------------------------------- ----------
NET MANAGEMENT
OPERATING FEE CAPITAL ADJUSTED
MORTGAGED PROPERTY REVENUE(1) EXPENSES(2) INCOME(3) ADJUSTMENT(4) EXPENDITURES(5) CASH FLOW(6) REVENUE(1)
- -------------------- ---------- ----------- ------------ ------------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Belmere............. $1,117,858 $ 411,347 $ 706,511 $ 44,714 $ 31,500 $ 630,297 $1,431,297
Crosswinds.......... 1,897,439 580,672 1,316,767 75,898 54,000 1,186,869 2,497,368
Fairways at Royal
Oak................ 1,096,972 384,651 712,321 43,879 32,100 636,342 1,445,875
Hermitage at
Beechtree.......... 1,079,040 375,525 703,515 43,162 29,100 631,253 1,365,182
Hidden Lake II...... 809,325 326,639 482,686 32,373 24,000 426,313 1,073,673
High Ridge.......... 933,342 355,680 577,662 37,334 24,000 516,328 1,365,157
Howell Commons...... 1,435,340 487,050 948,290 57,414 52,200 838,676 1,984,926
Kirby Station....... 1,843,672 507,773 1,335,899 73,747 55,650 1,206,502 2,348,728
Lakepointe.......... 541,140 193,548 347,592 21,646 17,700 308,246 707,455
Lakeside............ 1,950,821 793,341 1,157,480 78,033 62,400 1,017,047 2,523,881
Marsh Oaks.......... 554,190 207,710 346,480 22,168 18,000 306,312 717,166
Napa Valley......... 1,059,454 405,606 653,848 42,378 36,000 575,470 1,454,936
Park Haywood........ 864,729 358,917 505,812 34,589 31,200 440,023 1,123,514
Park Place.......... 921,298 394,469 526,829 36,852 27,600 462,377 1,250,520
Pear Orchard........ 1,858,815 633,419 1,225,396 74,353 58,350 1,092,693 2,416,192
Savannah Creek...... 1,064,029 336,103 727,926 42,561 30,600 654,765 1,327,045
Shenandoah Ridge.... 1,010,734 447,505 563,229 40,429 40,800 482,000 1,314,522
Somerset............ 610,770 277,167 333,603 24,431 21,600 287,572 824,225
Southland Station
I.................. 820,371 271,009 549,362 32,815 24,000 492,547 1,109,454
Steeplechase........ 493,418 196,168 297,250 19,737 16,200 261,313 626,380
Sutton Place........ 1,253,028 384,296 868,732 50,121 37,800 780,811 1,590,725
Tiffany Oaks........ 1,434,237 513,365 920,872 57,369 43,200 820,303 1,852,892
Village, The........ 1,210,631 425,686 784,945 48,425 37,800 698,720 1,552,802
Westside Creek I.... 744,133 257,207 486,926 29,765 21,300 435,861 984,816
Williamsburg
Village............ 689,330 241,678 447,652 27,573 22,200 397,879 877,292
Willow Creek........ 1,150,208 490,055 660,153 46,008 42,750 571,395 1,406,073
---------- ----------- ------------ ------------- --------------- ------------ ----------
Total........ $28,444,324 $10,256,586 $18,187,738 $1,137,774 $ 892,050 $16,157,914 $37,172,096
========== =========== ============ ============= =============== ============ ==========
<CAPTION>
NET MANAGEMENT
OPERATING FEE CAPITAL ADJUSTED
MORTGAGED PROPERTY EXPENSES(2) INCOME(3) ADJUSTMENT(4) EXPENDITURES(5) CASH FLOW(6)
- -------------------- ----------- ------------ ------------- --------------- ------------
Belmere............. $ 558,026 $ 873,271 $ 57,252 $ 42,000 $ 774,019
Crosswinds.......... 840,172 1,657,196 99,895 72,000 1,485,301
Fairways at Royal
Oak................ 520,900 924,975 57,835 42,800 824,340
Hermitage at
Beechtree.......... 454,093 911,089 54,607 38,800 817,682
Hidden Lake II...... 423,947 649,726 42,947 32,000 574,779
High Ridge.......... 466,802 898,355 54,606 32,000 811,749
Howell Commons...... 678,072 1,306,854 79,397 69,600 1,157,857
Kirby Station....... 649,808 1,698,920 93,949 74,200 1,530,771
Lakepointe.......... 271,236 436,219 28,298 23,600 384,321
Lakeside............ 996,865 1,527,016 100,955 83,200 1,342,861
Marsh Oaks.......... 242,233 474,933 28,687 24,000 422,246
Napa Valley......... 474,702 980,234 58,197 48,000 874,037
Park Haywood........ 408,860 714,654 44,941 41,600 628,113
Park Place.......... 563,068 687,452 50,021 36,800 600,631
Pear Orchard........ 801,268 1,614,924 96,648 77,800 1,440,476
Savannah Creek...... 460,920 866,125 53,082 40,800 772,243
Shenandoah Ridge.... 604,810 709,712 52,581 54,400 602,731
Somerset............ 321,521 502,704 32,969 28,800 440,935
Southland Station
I.................. 359,419 750,035 44,378 32,000 673,657
Steeplechase........ 273,916 352,464 25,055 21,600 305,809
Sutton Place........ 465,826 1,124,899 63,629 50,400 1,010,870
Tiffany Oaks........ 761,932 1,090,960 74,116 57,600 959,244
Village, The........ 527,557 1,025,245 62,112 50,400 912,733
Westside Creek I.... 349,142 635,674 39,393 28,400 567,881
Williamsburg
Village............ 308,493 568,799 35,092 29,600 504,107
Willow Creek........ 693,728 712,345 56,243 57,000 599,102
----------- ------------ ------------- --------------- ------------
Total........ $13,477,315 $23,694,780 $1,486,885 $1,189,400 $21,018,495
=========== ============ ============= =============== ============
</TABLE>
- ------------
(1) Represents the historical unaudited rental and other revenues of the
Mortgaged Properties for the indicated period.
(2) Represents the historical unaudited operating expenses of the Mortgaged
Properties for the indicated period.
(3) Represents revenue in excess of operating expenses.
(4) Represents an assumed management fee adjustment calculated as 4% of the
Mortgaged Property's revenue for the indicated period.
(5) Represents a $200 per apartment unit assumed capital expenditure per year
for the indicated period.
(6) Represents the excess of net operating income over management fee adjustment
and capital expenditures for the indicated period.
43
<PAGE>
DESCRIPTION OF THE MORTGAGES
THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE MORTGAGES NOT
DESCRIBED ELSEWHERE IN THIS PROSPECTUS. THE BORROWER AND THE DEPOSITOR BELIEVE
THAT THE FOLLOWING DESCRIPTION INCLUDES ALL OF THE MATERIAL TERMS OF THE
MORTGAGES, BUT THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MORTGAGES. THE MORTGAGES WILL REMAIN IN PLACE
UNTIL THE OCCURRENCE OF A PERMITTED MERGER AND SECURITY RELEASE. FROM AND AFTER
THE OCCURRENCE OF A PERMITTED MERGER AND SECURITY RELEASE, THE BONDS WILL BE THE
GENERAL UNSECURED OBLIGATIONS OF MAALP RANKING IN PARITY WITH ALL OTHER
UNSECURED DEBT OF MAALP.
GENERAL
The Mortgages create first priority mortgage liens on the Mortgaged
Properties, including the Borrower's fee interest in each of the parcels of real
property on which such Mortgaged Properties are situated, and related assets.
The Mortgages will secure the payment in full of the Bonds and other charges
that may become due and payable under the Indenture.
SECURITY RELEASE
The Indenture provides that the Mortgage Liens will be subject to release
if and when each of the following conditions, among others, occur: (i) the
unsecured indebtedness of MAALP, including the Bonds, is rated at least "Baa3
" and "BBB-" by Moody's and S&P, respectively, and (ii) MAALP is a reporting
company under the Exchange Act, pursuant to an effective registration statement
on Form 10 (or any successor form). The ability of MAALP to procure the required
ratings of its unsecured debt, including the Bonds, is subject to satisfaction
of the criteria for such ratings as may be imposed from time to time by Moody's
and S&P. MAALP believes such criteria include ownership by MAALP directly or
through subsidiaries of substantially all of the real estate assets currently
owned by MAAC and satisfaction of certain leverage and equity ratios. The rating
criteria established by Moody's and S&P are subject to change from time to time
in the sole discretion of the Rating Agencies, and such criteria are outside the
control of MAALP and may not be satisfied by MAALP prior to repayment of the
Bonds in full. In connection with the FDC Merger, MAAC has agreed not to
transfer certain apartment communities or interests in property-owning
partnerships to MAALP until November 1999. MAAC and MAALP believe that the
inability of MAAC to transfer those assets to MAALP and operate exclusively
through its UPREIT structure will preclude MAALP from obtaining the ratings from
the Rating Agencies necessary to effect a Permitted Merger and Security Release.
Therefore, MAALP believes that before November 1999 MAALP cannot, and there can
be no assurance that MAALP will ever procure the required ratings and effect a
Permitted Merger and Security Release. See "Risk Factors_-- Failure to Satisfy
Conditions to Permitted Merger and Security Release."
The Borrower will give written notice to the Trustee which, in turn, will
give notice to the Certificate holders, of an anticipated Permitted Merger and
Security Release at least 60 days prior to any Security Release. Together with
such notice, the Borrower will deliver copies of the MAALP Prospectus to each
beneficial owner of the Certificates. Upon proof of proper notice and delivery
of the MAALP Prospectus and the satisfaction of certain other conditions, the
Indenture Trustee will release the Mortgage Liens, the Permitted Merger will
occur and MAALP will assume the obligations under the Bonds. Neither a Permitted
Merger nor a Security Release may occur if Advances are outstanding.
EFFECT OF SECURITY RELEASE
After a Permitted Merger and Security Release, the Bonds will be the
general unsecured obligations of MAALP ranking in parity with all other
unsecured indebtedness of MAALP, and persons previously holding Certificates
will thereafter have no claim against the Mortgaged Properties or any other
property of MAALP except as general unsecured creditors of MAALP.
REPRESENTATIONS, WARRANTIES, AND COVENANTS
Each Mortgage, or a separate certificate executed by the Borrower, contains
representations and warranties by the Borrower that are customary in
transactions similar to the issuance of the Bonds, including representations as
to the due formation of the Borrower; the authority of the Borrower to enter
into and to perform under the related loan documents; the authority of the
Borrower to conduct its business and its registration or qualification to do
business in the state of its organization and all states where the Mortgaged
Properties are located; the due authorization, execution and delivery of the
loan documents by
44
<PAGE>
the Borrower; the legality, validity and binding effect of the loan documents
and the enforceability thereof against the Borrower; any required consents
necessary to enter into and perform under the loan documents; compliance with
applicable laws (including zoning and environmental laws); the absence of
material defaults by the Borrower under other agreements; the payment of taxes
and other charges against the Mortgaged Properties; the absence of material
litigation; and the maintenance of all necessary permits.
Each Mortgage also contains certain representations, warranties, and
covenants by the Borrower with respect to each Mortgaged Property and other
collateral that are typical in commercial mortgages securing transactions
similar to the issuance of the Bonds, including (i) representations regarding
the Borrower's good title to the Mortgaged Property and (ii) covenants (a) to
maintain good title to the Mortgaged Property, (b) to maintain insurance
required with respect to the Mortgaged Property, (c) to comply in all material
respects with laws, a failure of which would have a material adverse effect on
the Borrower, the Mortgaged Property, or the Indenture Trustee's interest
therein, (d) to allow no liens to be created against the Mortgaged Property and
other collateral other than liens permitted by the Indenture, the Mortgages and
the Bonds (collectively, the "Loan Documents") (subject to contract as set
forth in the Mortgages) (e) except as otherwise permitted in the Mortgage with
respect to a Security Release, to make no sale or assignment of any interest in
the Mortgaged Property to anyone other than the Indenture Trustee, except for
the granting of customary easements and similar rights in the ordinary course of
business, (f) to pay property taxes, assessments, and similar charges against
the Mortgaged Property as they become due, (g) to comply in all material
respects with the terms of the Leases, (h) to rebuild or restore the Mortgaged
Property after a casualty or condemnation (except where the Loan Documents
provide that such repair or restoration is not required), (i) to maintain the
validity and priority of the Indenture Trustee's security interest in the
Mortgaged Property and other collateral, (j) to make no amendment to the Leases
without the prior consent of the Indenture Trustee (except as permitted by the
Loan Documents), and (k) not to be a party to any merger, consolidation, or
reorganization not permitted by the Loan Documents.
LIMITATIONS ON ADDITIONAL INDEBTEDNESS
Under each Mortgage, the Borrower has covenanted not to incur, assume or
guaranty any indebtedness other than (i) the indebtedness represented by the
Bonds and (ii) trade and operational debt incurred in the ordinary course of
business with trade creditors in such amounts as are normal and reasonable under
the circumstances, provided such debt is not evidenced by a note and is not
outstanding for more than sixty days (or such longer period as any such debt
will be contested by the Borrower in good faith (collectively, the "Permitted
Indebtedness").
DISCHARGE OF LIENS
The Borrower has covenanted to discharge by payment or by procurement of an
appropriate surety bond, or otherwise, within 30 days after receiving written
notice of the filing thereof (and in any event before foreclosure is permitted
under law) any lien, encumbrance, or charge upon any Mortgaged Property not
permitted under the terms of the respective Mortgage (subject to certain rights
to contest those liens).
MAINTENANCE, REPAIR AND ALTERATIONS
The Borrower has covenanted in the Mortgages and the Indenture (i) to
maintain the Mortgaged Properties in good order and condition such that the
utility and operation of the Mortgaged Properties will not be affected in any
material adverse respect, subject to ordinary wear and tear and casualty, (ii)
subject to the provisions of the Mortgages regarding casualty and condemnation,
to make or cause to be made all necessary or appropriate repairs, replacements,
and renewals to the Mortgaged Properties, and (iii) not to commit or permit any
waste of the Mortgaged Properties or any part thereof.
The Borrower may make, or permit to be made, material alterations with
respect to a Mortgaged Property only with the consent of the Indenture Trustee.
45
<PAGE>
INSURANCE
The Borrower is required to maintain (or cause to be maintained) until the
earlier to occur of (i) a Permitted Merger or (ii) repayment in full of the
Bonds, insurance with respect to each Mortgaged Property against loss or damage
by fire or such other hazards as may be included in the form of "all risk"
building insurance from time to time available, in amounts sufficient to prevent
the Borrower or the Indenture Trustee from becoming a co-insurer, but in any
case in an amount equal to the replacement cost of the improvements (without
considering depreciation and exclusive of excavations and foundations), which
may be maintained in a blanket policy that insures other properties so long as
there is sufficient coverage to replace the Mortgaged Property. In addition, for
each Mortgaged Property, the Borrower will be required to maintain loss of
income insurance covering losses arising out of damage or destruction by fire
and such other hazards as may be included in the "all risk" building insurance
carried as described above. Such insurance may also be maintained in a blanket
policy that insures other properties so long as there is sufficient coverage to
replace the required cash flow from the Mortgaged Property. The Borrower is also
required to maintain boiler and machinery insurance; comprehensive general
liability insurance; and such other insurance as is generally available on
commercially reasonable terms and is generally required by institutional lenders
on loans secured by similar properties. If any Mortgaged Property is in an area
designated as flood prone or a flood risk area or if flood insurance is required
pursuant to the United States Flood Disaster Protection Act of 1973, as amended
or supplemented or under any subsequent law then in effect, flood insurance with
respect to such Mortgaged Property will be maintained in an amount not less than
the maximum amount available under the Federal Flood Insurance Program. Required
insurance coverage must be provided by insurance carriers having minimum claims
paying ability rating of "Aa" or better by Moody's and "AA" or better by
S&P. Each policy of insurance must name the Indenture Trustee as additional
insureds or as loss payees. In the opinion of management of the Depositor and
the General Partner, the Mortgaged Properties are adequately covered by
insurance.
TITLE INSURANCE
The Borrower has received title insurance loan policies in favor of the
Indenture Trustee for all of the Mortgaged Properties.
CASUALTY AND CONDEMNATION
In the event of any condemnation, the Borrower must continue to make its
payments on the Bonds and the Borrower is required to pay the amount of any
award or proceeds to the Indenture Trustee; provided, however, if there is no
event of default under the Mortgage, the costs of restoration do not exceed 20%
of the value of the improvements, the improvements comply with all building,
zoning and other land use laws and regulations and the restoration can be
completed within one year after such taking and six months prior to the Stated
Maturity Date, then such award will be made available to the Borrower for the
restoration.
FINANCIAL STATEMENTS AND OTHER INFORMATION
The Borrower or, after a Permitted Merger, MAALP is required to deliver to
the Indenture Trustee and the Rating Agencies, not later than 90 days after the
end of each fiscal year, audited financial statements prepared on an accrual
basis in accordance with GAAP for such year and certified by appropriate
officers of the Borrower or MAALP, as the case may be.
In addition, the Borrower or, after a Permitted Merger, MAALP is required
to deliver to the Indenture Trustee and the Rating Agencies (i) not later than
45 days after the end of each fiscal quarter, unaudited financial statements
internally prepared on an accrual basis in accordance with GAAP for such
quarter, together with a certificate of appropriate officers of the Borrower or
MAALP, as the case may be, relating to such financial statements and certifying
as to the existence or nonexistence of an event of default and (ii) not later
than 20 Business Days after the end of each financial quarter, a certificate of
appropriate officers of the Borrower or MAALP, as the case may be, setting forth
the Pre-Permitted Merger Debt Service Coverage Ratio or the Post-Permitted
Merger Debt Service Coverage Ratio, as the case may be. The
46
<PAGE>
Borrower is also required before a Permitted Merger to deliver to the Indenture
Trustee and the Rating Agencies certain additional operating and financial
reports with respect to the Mortgaged Properties.
THE BORROWER
OVERVIEW
The Borrower is a special purpose Delaware limited partnership. The special
purpose for which the Borrower has been formed is to hold, operate, own, manage,
renovate, improve, lease, mortgage and otherwise deal with the Mortgaged
Properties. The General Partner is a special purpose corporation organized under
the laws of the State of Delaware. The special purpose for which the General
Partner has been formed is to own the sole general partnership interest in the
Borrower, act as and exercise all of the authority of the general partner of the
Borrower, and do all acts necessary to satisfy the responsibilities of the
general partner of the Borrower.
The sole limited partner of the Borrower is MAALP, which is a majority
owned subsidiary of MAAC. MAALP is the operating partnership in the UPREIT
structure of MAAC, which is a self-administered and self-managed REIT. Twenty of
the Mortgaged Properties were contributed by MAALP to the Borrower in exchange
for a 99% limited partnership interest in the Borrower, and five of the
Mortgaged Properties were acquired directly by the Borrower utilizing part of
the proceeds from the MSMC Loan. One of the Mortgaged Properties was acquired by
the Borrower as a result of the merger of Hermitage at Beechtree, L.L.C., with
and into the Borrower. The only members of Hermitage at Beechtree, L.L.C. were
MAAC and MAALP. Hermitage at Beechtree, L.L.C. was formed by MAAC and MAALP less
than a month before its merger into the Borrower for the sole purpose of
acquiring the Hermitage at Beechtree apartment community in a manner that would
permit the contemplated transfer of such apartment community without additional
transfer tax. The merger was accounted for using the purchase method of
accounting utilizing the net purchase price paid for that Mortgaged Property.
The General Partner contributed cash of approximately $2,271,000 for a 1%
general partnership interest in the Borrower.
The Borrower's principal executive offices are located at 1209 Orange
Street, Wilmington, Delaware 19801 and its telephone number is (302) 777-0205.
SPECIAL PURPOSE ENTITY COVENANTS
The Agreement of Limited Partnership of the Borrower (the "Partnership
Agreement") contains provisions restricting the Borrower from engaging in any
business other than the ownership, operation and financing of the Mortgaged
Properties and from incurring debt other than the Bonds or as permitted under
the Indenture, which includes certain trade accounts payable. In addition, the
Partnership Agreement contains provisions intended to reduce the likelihood that
the assets and liabilities of the Borrower would be consolidated with those of
any affiliate of the Borrower in the event of a bankruptcy of such affiliate,
including provisions prohibiting the commingling of assets of the Borrower with
the assets of its General Partner and requiring the maintenance of separate
books and records. Such provisions include the requirement that the General
Partner have at least one independent director and that such independent
director approve certain matters, including the filing of any bankruptcy
petition.
THE DEPOSITOR
The Depositor is a special purpose Delaware corporation, incorporated on
December 12, 1997. The business of the Depositor is limited by the terms of its
Certificate of Incorporation to the purchase of the Bonds, creation of the
Trust, causing the issuance by the Trust of the Certificates and the assignment
to the Trustee of the trust assets and activities related thereto. Under the
General Corporation Law of the State of Delaware and the Certificate of
Incorporation of the Depositor, the Certificate of Incorporation may be amended
only with the unanimous approval of the board of directors of the Depositor
including the independent directors of the Depositor and both (i) a majority of
the outstanding stock of the Depositor and (ii) a majority of the outstanding
stock of each class entitled to vote as a class. The Depositor will have only
47
<PAGE>
a single class of stock. The sole stockholder of the Depositor is MAAC, which
will not be liable for the payment of the Certificates.
The Depositor's principal executive offices are located at 1209 Orange
Street, Wilmington, Delaware 19801 and its telephone number is (302) 777-0205.
THE TRUST
The Trust has been created as a grantor trust under the Code. Upon issuance
of the Certificates, the Certificate holders will own 100% of the beneficial
ownership interests in the Trust. The Trust has no executive officers or
directors, and the daily acitivities of the Trust are conducted solely by the
Trustee in accordance with the Trust Agreement. The only rights of the Trustee
with respect to the Trust are those necessary and incidental to the performance
of its duties under the Trust Agreement, including, the right to hold the Bonds,
receive payments thereon, and distribute such payments to the Certificate
holders, and to distribute the corpus of the Trust to its beneficiaries as
provided in the Trust Agreement.
The Trustee has no right or power on behalf of the Trust to (i) sell or
otherwise transfer the Bonds, except to the Certificate holders upon the
termination of the Trust; (ii) borrow any money; (iii) invest or reinvest any
interest or principal payment received on the Bonds; (iii) issue any additional
Certificates (with the exception of replacement certificates) or any securities
senior to the Certificates; (iv) make loans to other persons; (v) invest in the
securities of other issuers; (vi) underwrite securities of other issuers; (vii)
engage in the purchase and sale of investments; (vii) offer securities in
exchange for property (other than the original issuance of the Certificates);
(viii) repurchase or otherwise reacquire the Certificates, except upon the
termination of the Trust in accordance with the Trust Agreement; or (ix) acquire
any additional properties.
The principal trust offices of the Trustee are located at 135 South LaSalle
Street, Chicago, Illinois 60674-4107 and its telephone number is (312) 904-7324.
USE OF PROCEEDS
The proceeds from the offer and sale of the Certificates will be utilized
by the Depositor to purchase the Bonds from the Borrower. The net proceeds of
this offering will be used by the Borrower to repay certain indebtedness of the
Borrower to Morgan Stanley Mortgage Capital Inc. pursuant to the terms of a $140
million short-term promissory note. The proceeds from the MSMC Loan were used to
partially finance the acquisition of Flournoy Development Company and certain
related limited partnerships and other entities by MAAC and MAALP on November
25, 1997. The MSMC Loan is secured by the Mortgaged Properties and certain other
collateral, including the Accounts. The MSMC Loan is payable in full on February
15, 1998, subject to extension at the option of the Borrower, and bears interest
at a floating rate based on the London Interbank Offered Rate. Finally, any
remaining net proceeds of this offering will be distributed to the partners of
the Borrower and used by such partners for general corporate purposes, including
acquisitions.
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information on a pro
forma basis for the Borrower as of and for the nine months ended September 30,
1997 and for the year ended December 31, 1996, and on an historical combined
basis for Capital Properties Group ("CPG"), which is the predecessor of the
Borrower, as of and for each of the years in the five-year period ended December
31, 1996 as of and for the nine months ended September 30, 1997 and 1996
(unaudited). The historical combined operating data of the CPG for the years
ended December 31, 1996, 1995 and 1994 have been derived from the historical
combined financial statements audited by KPMG Peat Marwick LLP, independent
accountants, whose report with respect thereto is included elsewhere in this
Prospectus. The historical combined operating data for the nine months ended
September 30, 1997 and 1996 and the years ended December 31, 1993 and 1992 have
been derived from the unaudited combined financial statements of the CPG. In the
opinion of management, the historical combined operating data for the nine
months ended September 30, 1997 and
48
<PAGE>
1996 and the years ended December 31, 1993 and 1992 include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein.
The pro forma condensed combined balance sheet data as of September 30,
1997 were prepared as if at September 30, 1997: (i) the Borrower had issued the
Bonds; (ii) the Flournoy Reorganization had been consummated ; (iii) MAALP had
contributed 20 of the Mortgaged Properties to the Borrower in exchange for a 99%
limited partnership interest in the Borrower and the contributed Mortgaged
Properties were recorded at MAALP's historic costs; (iv) 5 of the Mortgaged
Properties had been acquired by the Borrower; (v) Hermitage at Beechtree, L.L.C.
had merged with and into the Borrower; (vi) the MSMC Loan had been originated;
(vii) the Mortgaged Properties had all been acquired by CPG prior to January 1,
1996; and (viii) $116 million of the net proceeds of the MSMC Loan had been
distributed to MAALP. The pro forma condensed statement of operations data for
the nine months ended September 30, 1997 and the year ended December 31, 1996
were prepared as if the above-described transactions occurred at the beginning
of the period presented.
The following selected financial information should be read in conjunction
with the discussion set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the unaudited pro forma
condensed financial statements, and all of the financial statements included
elsewhere in this Prospectus. The pro forma financial information is not
necessarily indicative of what the actual financial position and results of
operations of the Borrower would have been as of and for the periods indicated,
nor does it purport to represent the future financial position and results of
operations for future periods.
49
<PAGE>
MID-AMERICA CAPITAL PARTNERS, L.P. (PRO FORMA) AND
CAPITAL PROPERTIES GROUP (HISTORICAL COMBINED)
(IN THOUSANDS EXCEPT PROPERTY DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------- YEAR ENDED DECEMBER 31,
------------------------------------------
PARTNERSHIP PARTNERSHIP
PRO FORMA CPG HISTORICAL PRO FORMA CPG HISTORICAL
------------ -------------------- ------------ ------------------------------------------
1997 1997 1996 1996 1996 1995 1994 1993
------------ --------- --------- ------------ --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Rental........................... $ 28,128 $ 22,233 $ 13,788 $ 36,710 $ 20,056 $ 14,321 $ 4,568 $ 791
Other............................ 364 187 143 581 195 176 185 51
------------ --------- --------- ------------ --------- --------- --------- ---------
Total Revenue................ $ 28,492 22,420 13,931 37,291 20,251 14,497 4,753 842
Expenses:
Property expenses (1)............ 10,311 7,934 5,128 13,553 7,207 5,306 1,688 362
Depreciation and amortization.... 5,946 4,607 2,708 7,398 4,000 2,614 755 125
General and administrative
expenses....................... 1,253 897 557 1,642 810 580 190 34
Interest......................... 7,052 724 1,631 9,403 2,169 2,225 925 226
Amortization of deferred
financing costs................ 450 35 44 600 58 48 37 --
------------ --------- --------- ------------ --------- --------- --------- ---------
Net Income........................... $ 3,480 $ 8,223 $ 3,863 $ 4,695 $ 6,007 $ 3,724 $ 1,158 $ 95
============ ========= ========= ============ ========= ========= ========= =========
Balance Sheet Data:
Real estate owned, at cost....... $226,391 181,040 136,803 -- 158,285 87,240 73,521 6,027
Real estate owned, net........... 214,197 168,846 130,508 -- 150,699 83,653 72,548 5,772
Total assets................. 219,931 169,057 130,967 -- 151,257 84,216 73,499 6,523
Total debt................... 142,000 -- 22,595 -- 16,461 22,830 23,110 4,740
Partners' equity (deficit)....... 77,225 165,848 105,547 -- 131,951 59,978 48,938 1,454
Other Data (at end of period):
Number of Mortgaged Properties... 26 20 16 26 18 12 10 2
Number of apartment units........ 5,947 4,804 3,786 5,947 4,314 2,554 2,290 316
EBITDA (2)........................... 16,928 -- -- 22,096 -- -- -- --
Adjusted EBITDA (3).................. 14,898 -- -- 19,420 -- -- -- --
Cash flows from:
Operations activities............ -- 13,499 8,041 -- 11,421 6,432 3,073 --
Investing activities............. -- (22,755) (49,563) -- (71,045) (13,719) (44,285) --
Financing activities............. -- 9,214 41,470 -- 59,596 7,035 41,392 --
Debt Service Coverage Ratio (4)...... 2.11x -- -- 2.07x -- -- -- --
Adjusted Debt Service Coverage
Ratio (5).......................... 1.51x -- -- 1.48x -- -- -- --
Ratio of Earnings to Fixed
Charges (6)........................ 1.46x 11.83x 3.31x 1.47x 3.70x 2.56x 2.20x 1.42x
</TABLE>
1992
-----------
Statement of Operations Data:
Revenue:
Rental........................... $ 513
Other............................ 31
-----------
Total Revenue................ 544
Expenses:
Property expenses (1)............ 230
Depreciation and amortization.... 98
General and administrative
expenses....................... 22
Interest......................... 172
Amortization of deferred
financing costs................ --
-----------
Net Income........................... $ 22
===========
Balance Sheet Data:
Real estate owned, at cost....... 2,330
Real estate owned, net........... 2,177
Total assets................. 2,593
Total debt................... 2,357
Partners' equity (deficit)....... (47)
Other Data (at end of period):
Number of Mortgaged Properties... 1
Number of apartment units........ 108
EBITDA (2)........................... --
Adjusted EBITDA (3)..................
Cash flows from:
Operations activities............ --
Investing activities............. --
Financing activities............. --
Debt Service Coverage Ratio (4)...... --
Adjusted Debt Service Coverage
Ratio (5).......................... --
Ratio of Earnings to Fixed
Charges (6)........................ 1.13x
- ------------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Capital Expenditures."
(2) Earnings before interest taxes depreciation and amortization ("EBITDA")
represents net income before extraordinary items and minority interest,
computed in accordance with GAAP, adjusted for gains on dispositions of
properties, interest expense, federal income taxes, depreciation and
amortization. EBITDA should not be considered as a substitute for net income
or any other GAAP measurement of performance, as an indication of operating
performance or as an alternative to cash flows from operating, investing and
financing activities as a measure of liquidity. The Borrower believes that
EBITDA is helpful in understanding the Borrower's results of operations in
that such calculation reflects cash flow from operating activities and the
Borrower's ability to support interest payments and general operating
expenses before the impact of certain activities such as changes in other
assets and accounts payable. Because companies have different accounting
policies and different ways of calculating EBITDA, EBITDA presentations may
not be comparable even among companies in the same industry group. Effective
January 1, 1996, CPG implemented a new accounting policy regarding capital
expenditures which included the following changes: 1) increase minimum
dollar amounts to capitalize from $500 to $1,000, 2) capitalize replacement
purchases for major appliances and carpeting of entire apartment units which
had been previously expensed and 3) reduce depreciable lives for certain
assets from 20 years to 10 to 15 years. The effect of this new accounting
policy cannot be readily determined. However the Borrower believes that it
results in increased EBITDA for 1996 as compared to EBITDA for 1996
presented under the previous capital expenditure policy.
(3) For purposes of this computation, adjusted EBITDA consists of EBITDA as
defined in (2) above less a $200 per apartment unit capital expenditure
reserve and 4% management fee per year.
(4) Debt service coverage ratio is computed as a ratio of adjusted EBITDA as
defined in (3) above to interest expense.
(5) Adjusted debt service coverage ratio is defined as adjusted EBITDA as
defined in (3) above divided by adjusted interest. Adjusted interest is
calculated based on an assumed 9.25% annual debt service constant and
$142,000,000 of pro-forma total indebtedness.
(6) Ratio of earnings to fixed charges is computed by dividing net income plus
fixed charges less capitalized interest by fixed charges. Fixed charges
consist of interest expense (including interest costs capitalized and
amortization of deferred financing costs).
50
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following is a discussion of the combined financial condition and
results of operations of CPG for the nine months ended September 30, 1997 and
1996 and for the years ended December 31, 1996, 1995, and 1994. This discussion
should be read in conjunction with the financial statements included in this
Prospectus. These financial statements include all adjustments which are, in the
opinion of management, necessary to reflect a fair statement of the results for
the interim periods presented, and all such adjustments are of a normal
recurring nature.
CAPITAL EXPENDITURES
Following a review of its capital expenditure and depreciation policy,
effective January 1, 1996, CPG implemented a new policy of which the primary
changes are as follows:
(a) Increase minimum dollar amounts to capitalize from $500 to
$1,000;
(b) For stabilized Mortgaged Properties (generally, Mortgaged
Properties owned and operated by CPG for at least one year),
capitalize replacement purchases for major appliances and
carpeting of an entire apartment unit which was previously
expensed; and
(c) Reduce depreciation life for certain assets from 20 years to 10
to 15 years.
CPG believes that the newly adopted accounting policy is preferable because
it is consistent with policies currently being used by the majority of the
largest apartment REITs and provides a better matching of expenses with the
estimated benefit period. CPG's 1995 and 1994 financial statements were not
restated for the effect of the change in accounting policy. The policy has been
implemented prospectively effective January 1, 1996.
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
The total number of apartment units owned at September 30, 1997 was 4,804
in 20 apartment communities, compared to 3,786 in 16 apartment communities at
September 30, 1996. Average monthly rental per apartment unit increased to $546
at September 30, 1997 from $525 at September 30, 1996. Overall occupancy was
96.4% at September 30, 1997 compared to 99.2% at September 30, 1996.
Total revenues for the nine months ended September 30, 1997 increased by
approximately $8,489,000 due primarily to (i) approximately $6,219,000 from the
apartment communities acquired in 1996, (ii) approximately $1,868,000 from the
apartment communities acquired in 1997, and (iii) approximately $402,000 from
the apartment communities owned throughout both periods.
Property operating expenses for the nine months ended September 30, 1997
increased by approximately $2,806,000 due primarily to (i) approximately
$2,074,000 from the apartment communities acquired in 1996, (ii) approximately
$635,000 from the apartment communities acquired in 1997, and (iii)
approximately $97,000 from the apartment communities owned throughout both
periods. Utility costs increased from 4.6% of revenue to 4.2% of revenue for the
nine months ended September 30, 1997 compared to the same period a year earlier,
due primarily to the further installation of approximately 1,795 individual
apartment unit water meters.
Depreciation and amortization expense increased approximately $1,890,000
for the nine months ended September 30, 1997 compared to the same period a year
earlier primarily due to depreciation expense for (i) approximately $1,325,000
from the apartment communities acquired in 1996, (ii) approximately $374,000
from the apartment communities acquired in 1997, and (iii) approximately
$191,000 from the apartment communities owned throughout both periods.
51
<PAGE>
Interest expense decreased approximately $907,000 during the nine months
ended September 30, 1997 compared to the same period a year earlier primarily
due to the repayment of all debt in 1997. The average borrowing cost of CPG's
debt was 8.7% at September 30, 1996.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31, 1995
During the 1996 period, CPG acquired 6 apartment communities. The total
number of apartment units owned at December 31, 1996 was 4,314 in 18 apartment
communities, compared to 2,554 in 12 apartment communities at December 31, 1995.
Average monthly rental per apartment unit increased to $532 at December 31, 1996
from $506 at December 31, 1995. Overall occupancy at December 31, 1996 and 1995
was 95.9% and 96.1%, respectively.
Total revenues for 1996 increased by approximately $5,754,000 due primarily
to (i) approximately $4,820,000 from the 6 apartment communities acquired in
1996, (ii) approximately $465,000 from a full year's operation of the 2
apartment communities acquired in 1995, and (iii) approximately $469,000 from
the apartment communities owned throughout both periods.
Property operating expenses for 1996 increased by approximately $1,901,000
due primarily to (i) approximately $1,674,000 from the 6 apartment communities
acquired in 1996 (ii) approximately $143,000 from a full year's operations of
the 2 apartment communities acquired in 1995, and (iii) approximately $84,000
from the apartment communities owned throughout both periods. As a percentage of
revenue, property operating expenses decreased to 35.6% from 36.6% for the year
ended December 31, 1996 and 1995, respectively. Utility costs decreased from
5.2% of revenue to 4.6% of revenue for the year ended December 31, 1996 compared
to the same period a year earlier, due primarily to the installation of 1,276
individual apartment unit water meters.
Depreciation and amortization expense increased approximately $1,396,000
for the year ended December 31, 1996 compared to the same period a year earlier
primarily due to depreciation expense of (i) approximately $893,000 from the 6
apartment communities acquired in 1996, (ii) approximately $97,000 from the 2
apartment communities acquired in 1995, and (iii) approximately $406,000 from
the apartment communities owned throughout both periods.
Interest expense decreased approximately $56,000 during 1996 due primarily
to the scheduled loan maturity of the Kirby Station debt. CPG increased the
average borrowing cost to 9.4% at December 31, 1996 as compared to 8.7% on
December 31, 1995.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31, 1994
The total number of apartment units owned at December 31, 1995 was 2,554 in
12 apartment communities, compared to 2,290 in 10 apartment communities at
December 31, 1994. Average monthly rental per apartment unit increased to $506
for 1995 from $500 for 1994. Overall occupancy was 96.1% at December 31, 1995
and 1994.
Total revenues for 1995 increased by approximately $9,744,000 due primarily
to (i) approximately $1,076,000 from the 2 apartment communities acquired, (ii)
approximately $8,643,00 from a full year's operation of 10 apartment communities
acquired in 1994, and (iii) approximately $25,000 from the apartment communities
owned throughout both periods.
Property operating expenses increased by approximately $3,618,000 over
1994. The increase primarily resulted from (i) approximately $421,000 of
operating expense from the 2 apartment communities acquired in 1995, (ii)
approximately $2,655,000 for full year's operation of the 10 apartment
communities acquired in 1994, and (iii) approximately $542,000 from the
apartment communities owned throughout both periods. As a percentage of revenue,
property operating expenses increased to 36.6% from 35.5% for the year ended
December 31, 1995 and 1994, respectively. During 1995, approximately $90,000 was
expensed for replacement of appliances and carpets compared to approximately
$44,000 for 1994.
Depreciation and amortization expense increased approximately $1,870,000
for the year ended December 31, 1995 compared to the same period a year earlier
primarily due to depreciation expense for (i)
52
<PAGE>
approximately $210,000 from the 2 apartment communities acquired in 1996, (ii)
approximately $1,622,000 from the 10 apartment communities acquired in 1994, and
(iii) approximately $38,000 for the apartment communities owned throughout both
periods.
Interest expense increased approximately $1,300,000 during 1995 due to
apartment communities acquired during the year. CPG's average borrowing cost was
8.7% at December 31, 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided by operating activities increased by approximately
$5,798,000 for the nine months ended September 30, 1997 from approximately
$8,598,000 for the nine months ended September 30, 1996. The increase in net
cash flow was primarily due to an increase in net income, depreciation and
amortization, and accrued expenses and liabilities. Net cash flow provided by
operating activities increased by approximately $5,219,000 for the year ended
December 31, 1996 from approximately $7,012,000 for the year ended December 31,
1995. The increase in net cash flow was primarily due to an increase in net
income, depreciation and amortization, and accrued expenses and liabilities.
This increase in net cash flow provided by operating activities was offset by an
increase in restricted cash due to an increase in other mortgage escrows and
replacement reserves.
Net cash flow used in investing activities decreased by approximately
$26,808,000 for the nine months ended September 30, 1997 from approximately
$49,563,000 for the nine months ended September 30, 1996. Capital improvements
to existing properties totaled approximately $3,544,000 for the nine months
ended September 30, 1997, compared to approximately $3,182,000 for the same
period in 1996. Of the $3,544,000 in capital improvements approximately
$1,019,000 was for recurring capital expenditures, including carpet and
appliances, approximately $893,000 was for revenue enhancing projects,
approximately $1,590,000 was for acquisition capital with the remaining balance
for other miscellaneous items. Net cash flow used in investing activities
increased by approximately $57,326,000 for the year ended December 31, 1996 from
approximately $13,719,000 for the year ended December 31, 1995. Capital
improvements to existing properties totaled approximately $4,819,000 for the
year ended December 31, 1996, compared to approximately $155,000 for the same
period in 1995. Of the $4,819,000 in capital improvements approximately
$1,514,000 was for recurring capital expenditures, including carpet and
appliances, approximately $941,000 was for revenue enhancing projects,
approximately $2,282,000 was for acquisition capital with the remaining balance
for other miscellaneous spending. For the stabilized apartment units, recurring
capital expenditures averaged $351 per apartment unit. Construction in progress
for new apartment units decreased to approximately $1,588,000 for the year ended
December 31, 1996 due primarily to no new apartment unit construction.
Net cash flow provided by financing activities decreased by approximately
$32,256,000 during the nine months ended September 30, 1997 from approximately
$41,470,000 for the same period in 1996. The principal uses of cash from
financing activities were approximately $16,460,000 for repayment of notes
payable, approximately $6,610,000 for contributions by the partners, and
$19,064,000 for contribution of properties to CPG. Net cash flow used by
financing activities increased by approximately $52,561,000 during the year
ended December 31, 1996 from approximately $7,035,000 for the year ended
December 31, 1995. The principal uses of the cash included approximately
$6,370,000 for the repayment of notes payable, approximately $700,000 for
distributions to the partners, and $65,266,000 for contribution of properties to
CPG.
CPG believes that cash provided by operations is adequate and anticipates
that it will continue to be adequate in both the short and long-term to meet
operating requirements (including recurring capital expenditures at the
Mortgaged Properties).
INSURANCE
In the opinion of management, property and casualty insurance is in place
which provides adequate coverage to provide financial protection against normal
insurable risks such that it believes that any loss
53
<PAGE>
experienced would not have a significant impact on CPG's liquidity, financial
position, or results of operations.
INFLATION
Substantially all of the resident leases at the Mortgaged Properties allow,
at the time of renewal, for adjustments in the rent payable thereunder, and thus
may enable CPG to seek rent increases. The substantial majority of these leases
are for one year or less. The short-term nature of these leases generally serves
to reduce the risk to CPG of the adverse effects of inflation.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations contains certain forward-looking statements. These statements
include the plans and objectives of management for future operations, including
plans and objectives relating to capital expenditures and rehabilitation costs
on the apartment communities. The forward-looking statements included herein are
based on current expectations that involve numerous risks and uncertainties
which are discussed in "Risk Factors" in this Prospectus. Although CPG
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore, there can
be no assurance that the forward-looking statements included in this Prospectus
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by CPG or any other
person that the objectives and plans of CPG will be achieved.
MANAGEMENT OF THE BORROWER
DIRECTORS AND EXECUTIVE OFFICERS
The business affairs of the Borrower will be managed by the General
Partner; provided that the day-to-day operation of the Mortgaged Properties will
be managed by MAALP pursuant to the terms of a Management Agreement between the
Borrower and MAALP. The General Partner's directors and executive officers are
as follows:
<TABLE>
<CAPTION>
POSITION WITH
NAME BORROWER TERM EXPIRES POSITION WITH MAAC
- ------------------------------------- ---------------------- ------------- ------------------------------------
<S> <C>
George E. Cates...................... Director 1998 Chairman of the Board of Directors
and Chief Executive Officer
H. Eric Bolton, Jr................... Director 1998 Director, President and Chief
Operating Officer
Stephen M. Carpenter................. Independent Director 1998(1) None
Howard Eddings, Jr................... Independent Director 1998(1) None
Simon R.C. Wadsworth................. President Director, Executive Vice President
and Chief Financial Officer
</TABLE>
- ------------
(1) The Articles of Incorporation of the General Partner provide that the
General Partner will at all times have at least one "independent director"
which is defined as a director of the General Partner who is not and has not
been at any time during the five (5) years preceding the time of initial
appointment: (a) a stockholder, director, officer, employee, partner,
attorney or counsel of the General Partner, the Borrower, or any affiliate
of either of them; (b) a customer, supplier or other person who derives more
than 10% of its purchases or revenues from its activities with the General
Partner, the Borrower, or any affiliate of either of them; (c) a person or
other entity controlling or under common control with any such stockholder,
partner, customer, supplier or other person; or (d) a member of the
immediate family of any such stockholder, director, officer, employee,
partner, customer, supplier or other person.
54
<PAGE>
The following is a biographical summary of the experience of the directors
and executive officers of the Company:
GEORGE E. CATES. Mr. Cates is the Chief Executive Officer and Chairman of
the Board of Directors of MAAC, positions he has held since MAAC's inception.
Mr. Cates founded The Cates Company in 1977 and served as its president and
chief executive officer until its merger with MAAC in February 1994. Mr. Cates
received a B.S. in industrial engineering from Georgia Tech. From 1970 to 1977,
Mr. Cates was a shareholder and general manager of Walk Jones and Francis Mah,
Inc., architects and engineers. Prior to that, he served in a number of
manufacturing, sales and marketing positions with the Buckeye Cellulose division
of Procter & Gamble. Mr. Cates is past Chairman of the Board of Memphis Light,
Gas and Water Division, past president of the Memphis Apartment Council, past
Vice Chairman of the Memphis and Shelby County Airport Authority and is
currently a trustee of Rhodes College. Mr. Cates is also a director of First
Tennessee National Corporation. Mr. Cates is 60 years old.
H. ERIC BOLTON, JR. Mr. Bolton has been an employee of MAAC since 1994.
Mr. Bolton joined MAAC as its Vice-President of Development and was named Chief
Operating Officer in February 1996. In December 1996, Mr. Bolton was appointed
to serve as President of MAAC and was appointed as a member of the Board of
Directors of MAAC in February 1997. Mr. Bolton has over 10 years of real estate
experience and prior to joining MAAC was Executive Vice President and Chief
Financial Officer of Trammell Crow Realty Advisors. He received a B.B.A. in
accounting from the University of Memphis and an M.B.A. in finance and real
estate from the University of North Texas. Mr. Bolton is 41 years old.
HOWARD EDDINGS, JR. Mr. Eddings is President of the Memphis Leadership
Foundation. From 1991 to 1996, Mr. Eddings served as Vice-President of Field
Ministries for the Memphis Leadership Foundation. Mr. Eddings received a B.A.
degree in Social Work from the University of Memphis. Mr. Eddings is 36 years
old.
STEPHEN M. CARPENTER. Mr. Carpenter is the Principal/founder of New Hope
Christian Academy in Memphis, Tennessee; established June, 1995 and is an
ordained Episcopal minister serving at The Church of the Holy Communion,
Memphis, Tennessee. Prior to Seminary, Mr. Carpenter was a computer programmer
for two years and a Pension Plan Consultant and Administrator for five years.
His formal education includes a B.B.A. from the University of Texas, Austin and
an M.Div. from Princeton Theological Seminary. Mr. Carpenter is 33 years old.
SIMON R. C. WADSWORTH. Mr. Wadsworth is Executive Vice President, Chief
Financial Officer and a director of MAAC. Mr. Wadsworth joined MAAC in March
1994, but acted as a consultant to the Company from the time the Initial
Offering was completed until being named to his current positions. Mr. Wadsworth
is the President and 85% shareholder of TMF, Inc., an industrial equipment
dealership which he acquired in 1981. Mr. Wadsworth spends less than two hours
per week on TMF, Inc. business, which is managed by professional management.
From 1976 to 1980, he was Director of Corporate Development for Holiday Inns,
Inc., and from 1973 to 1976 was Budget Director for Royal Crown Companies. Mr.
Wadsworth received a B.A. with honors from Cambridge University and an M.B.A.
(concentrating in finance and accounting) from the Harvard Graduate School of
Business. Mr. Wadsworth is 50 years old.
EXECUTIVE COMPENSATION
None of the directors or executive officers of the General Partner, with
the exception of Mr. Carpenter and Mr. Eddings, will receive any compensation
for serving in such positions. Mr. Carpenter and Mr. Eddings will each be paid a
stipend of $100 per month for serving as a director of the General Partner.
55
<PAGE>
CERTAIN INFORMATION REGARDING MAALP AND MAAC
OVERVIEW
MAAC is a Memphis, Tennessee-based self-administered and self-managed
UPREIT whose common stock is traded on the New York Stock Exchange under the
symbol "MAA." MAAC is the sole general partner of MAALP and owns an
approximately 84.6% interest in MAALP (MAAC and MAALP being hereinafter referred
to as the "Company" where the context so requires). The Company seeks to
acquire apartment communities appealing to middle and upper income residents
primarily in mid-size cities in the southeastern United States and Texas.
Approximately 72% of the Company's apartment units are located in Tennessee,
Georgia, Florida and Texas markets. The Company's strategic focus is to provide
its residents high quality apartment units in attractive community settings,
characterized by extensive landscaping and attention to aesthetic detail. The
Company utilizes its experience and expertise in maintenance, landscaping,
marketing and management to effectively "reposition" many of the apartment
communities it acquires to raise occupancy levels and per unit average rentals.
The Company's principal executive offices are located at 6584 Poplar Avenue,
Suite 340, Memphis, Tennessee 38138, and its telephone number is (901) 682-6600.
Founded in 1977 by George E. Cates, MAAC's Chairman of the Board of
Directors and Chief Executive Officer, MAAC's predecessor grew from an operator
of a single 252-unit apartment community in Memphis, Tennessee into a
fully-integrated owner and operator of 5,580 apartment units in 22 apartment
communities in four southeastern states immediately prior to the Company's
initial public offering in February 1994 (the "Initial Offering"). At the time
of the Initial Offering, all of the apartment communities were transferred to
MAALP, and MAAC commenced its operations in an UPREIT structure, with MAALP
being solely responsible for the operation, maintenance, landscaping and other
management duties in respect of the apartment communities.
On November 25, 1997, the Company acquired from Flournoy Development
Company ("FDC"), a Columbus, Georgia-based apartment construction, development
and management company, and certain related property partnerships (the
"Property Partnerships"), 32 apartment communities containing an aggregate of
7,691 apartment units located primarily in Georgia, Florida, South Carolina and
Tennessee, by means of the merger of FDC into MAAC (the "FDC Merger") and the
acquisition by MAALP of certain apartment communities and partnership interests
in certain Property Partnerships (collectively, the "Flournoy
Reorganization"). In addition, the Company acquired from FDC the construction
in progress of four new apartment communities and three additions to existing
apartment communities, which, in the aggregate, represents the construction of
950 new apartment units (the "Development Properties"). After consummation of
the Flournoy Reorganization, the Company owned 114 apartment communities
containing 30,726 apartment units in 13 states, a 450% increase over the number
of apartment units owned at the time of the Initial Offering.
PRESENT AND ANTICIPATED OPERATING STRUCTURE OF THE COMPANY
By means of the FDC Merger, MAAC acquired the Development Properties and
partnership interests in 27 Property Partnerships (the "FDC-owned Partnership
Interests"). The remaining assets were acquired in the Flournoy Reorganization
by MAALP. Consequently, immediately after the Flournoy Reorganization both MAAC
and MAALP owned substantial portions of the historical assets of FDC and the
Property Partnerships.
The FDC Merger was structured as a tax-free reorganization under Section
368(a)(1)(A) of the Code. Pursuant to two separate General Counsel Memoranda
issued by the Internal Revenue Service (the "IRS"), the IRS has privately
ruled that a merger will not qualify as a tax-free reorganization under the Code
if a substantial amount of the assets received by the surviving entity in the
merger were transferred to a partnership (as opposed to a controlled
corporation, which transfer is permitted by the Code) immediately after
consummation of the merger. In January 1997, the Department of Treasury issued
proposed regulations that would permit certain post-merger transfers of assets
to partnerships, effectively reversing the prior
56
<PAGE>
IRS position. However, the proposed regulations expressly do not apply to
transactions consummated or subject to definitive agreements prior to the
adoption of final regulations. As of this time, final regulations have not been
adopted. Counsel has advised MAAC that the IRS might successfully assert that
the FDC Merger did not qualify as a tax-free reorganization under the Code if
MAAC were to transfer the Development Properties and the FDC-owned Partnership
Interests to MAALP.
If the FDC Merger were to fail to qualify as a tax-free reorganization
under the Code, MAAC and the former shareholders of FDC would incur substantial
tax liabilities. Therefore, in order to preserve the status of the FDC Merger as
a tax-free reorganization, MAAC has agreed not to transfer the Development
Properties and the FDC-owned Partnership Interests to MAALP for a period of two
years after consummation of the Flournoy Reorganization without the consent of
the former FDC shareholders. Until the Development Properties and FDC-owned
Partnership Interests are transferred from MAAC to MAALP, MAAC will retain
substantial interests in the real estate assets represented by the Development
Properties and the FDC-owned Partnership Interests and will not be able to
operate exclusively through its preferred UPREIT structure. The Company believes
that the inability of MAAC to transfer those assets to MAALP and operate
exclusively through its UPREIT structure will preclude MAALP from obtaining the
ratings from the Rating Agencies necessary to effect a Permitted Merger and
Security Release. At the end of such restricted period, MAAC intends to transfer
all real estate assets then-owned by it, including the Development Properties
and the FDC-owned Partnership Interests, to MAALP and to seek the ratings for
the unsecured debt, including the Bonds, of MAALP from the Rating Agencies
required as a condition to a Permitted Merger and Security Release. The rating
criteria established by the Rating Agencies are subject to change from time to
time in the sole discretion of the Rating Agencies, and such criteria are
outside the control of MAALP and may not be satisfied by MAALP prior to
repayment of the Bonds in full. Accordingly, there can be no assurance that
MAALP will procure the required ratings and effect the Permitted Merger and
Security Release. See "Risk Factors -- Failure to Satisfy Conditions to
Permitted Merger and Security Release."
Accordingly, included or incorporated by reference into this Prospectus are
Consolidated Summary Financial and Operating Data and consolidated financial
statements for MAAC, which include 100% of the assets, liabilities and
operations of MAALP as a consolidated subsidiary of MAAC. The Borrower and
Depositor believe that separate MAALP financial statements are presently not
material to an understanding of an investment in the Certificates and underlying
Bonds and that the included and incorporated MAAC information more accurately
presents the financial condition, results of operations, cash flow and other
operating data that would be considered important by Certificate holders as
prospective holders of the Bonds following a Permitted Merger and Security
Release, at which time the Bonds will be the general, unsecured obligations of
MAALP, than the same information for either MAAC or MAALP would on an
unconsolidated, "standalone" basis. See " -- Summary Consolidated Financial
and Operating Data" and "Incorporation by Reference." At least 60 days prior
to the Permitted Merger and Security Release, MAALP will cause the Trustee to
distribute the MAALP Prospectus which will contain consolidated audited and
unaudited financial information concerning MAALP. The Company believes that at
such time, the Development Properties and FDC-owned Partnership Interests will
have been contributed by MAAC to MAALP and that substantially all of the
Company's assets and operations at such time will be held and conducted by MAALP
and its subsidiaries, including the Borrower.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA FOR THE COMPANY
The following table sets forth summary financial and operating information
on an historical basis for the Company and its predecessor. See " -- Present
and Anticipated Operating Structure" immediately above. The following
information should be read in conjunction with all of the financial statements
and notes thereto included in the Quarterly Report on Form 10-Q for the quarter
and nine-month period ended September 30, 1997, and the Annual Report on Form
10-K for the year ended December 31, 1996, which are incorporated by reference
herein. Also set forth below are summary unaudited pro forma financial,
operating and other data for the Company as of and for the nine months ended
September 30, 1997 and the year ended December 31, 1996 which should be read in
conjunction with the unaudited pro forma
57
<PAGE>
condensed combined financial statements included in the Company's Current Report
on Form 8-K/A, dated September 17, 1997 and filed with the Securities and
Exchange Commission on February 5, 1998 incorporated by reference herein. The
unaudited pro forma balance sheet data at September 30, 1997 have been prepared
as if the following had occurred at September 30, 1997: (i) consummation of the
offering and sale of 1,938,830 shares of MAAC's 8 7/8% Series B Cumulative
Preferred Stock and the application of the net proceeds thereof; (ii)
consummation of the Flournoy Reorganization; (iii) the issuance of $142.0
million in Bonds, the net proceeds of which will be utilized to repay certain
indebtedness of the Company to Morgan Stanley Mortgage Capital, Inc. pursuant to
the terms of the $140.0 million MSMC Loan; (iv) the issuance and sale of
3,499,300 shares of MAAC's Common Stock for an aggregate net purchase price of
$98.2 million and the related use of such proceeds; (v) the acquisition of one
apartment community containing an aggregate of 194 apartment units for an
aggregate cash purchase price of $8.9 million, subsequent to September 30, 1997.
The unaudited pro forma statements of operations data have been prepared as
if, at January 1, 1996, in addition to the transactions described above, the
following had occurred: (i) the acquisition of six Mortgaged Properties in 1996
and of ten Mortgaged Properties in 1997; (ii) the disposition of three Mortgaged
Properties in 1996 for aggregate cash consideration of $24.7 million; (iii) the
issuance and sale in 1996 of 2,000,000 shares of MAAC's 9.5% Series A Cumulative
Preferred Stock for an aggregate net cash price of $47.8 million and the related
use of such proceeds; (iv) the issuance and sale in 1997 of 2,300,000 shares of
MAAC's Common Stock for an aggregate net cash price of $62.5 million and the
related use of such proceeds; and (v) MAAC qualified as a REIT and distributed
all of its taxable income for the periods presented and, therefore, incurred no
income tax.
The unaudited pro forma financial information does not include the effect
of eliminating certain nonrecurring income and expenses or the elimination of
certain general and administrative expenses that were included in the historical
operating information of FDC which the Company does not expect to incur in the
future. Included in the pro forma information for the nine months ended
September 30, 1997 are gains from sales of assets ($132,000), dividend income on
trading securities ($20,000), other income ($38,000), accounting, legal and
other costs incurred in connection with a proposed public offering of FDC common
stock which was abandoned during 1997 ($2,252,000) and general and
administrative expenses which are expected to be eliminated as a result of cost
savings resulting from the Flournoy Reorganization ($587,000). Included in the
pro forma information for the year ended December 31, 1996 are gains from sales
of assets ($3,505,000), dividend income on trading securities ($34,000),
accounting, legal and other costs incurred in connection with a proposed public
offering of FDC common stock which was abandoned during 1997 ($233,000) and
general and administrative expenses which are expected to be eliminated as a
result of cost savings resulting from the Flournoy Reorganization ($904,000).
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Risks Associated with Forward-Looking Statements".
The pro forma financial data are not necessarily indicative of what the
actual financial position or results of operations of the Company would have
been as of the date or for the periods indicated, nor do they purport to
represent the results of operations or financial position for future periods.
This data should be read in conjunction with the historical financial statements
of the Company and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Forms 10-Q and Form 10-K described above and
incorporated into the accompanying Prospectus by reference. In the opinion of
management, the operating data for the periods presented include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein.
58
<PAGE>
MID-AMERICA APARTMENT COMMUNITIES, INC.
SUMMARY FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND PROPERTY DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------------------- ------------------------------------------
(UNAUDITED)
HISTORICAL HISTORICAL
PRO FORMA -------------------- PRO FORMA ------------------------------------------
1997 1997 1996 1996 1996 1995 1994(1) 1993
----------- --------- --------- ----------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (PREDECESSOR)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Property
Rental........................... $ 139,917 $ 95,388 $ 81,527 $ 177,827 $ 110,090 $ 93,509 $ 50,181 $ 25,687
Other............................ 3,102 1,566 1,347 3,951 1,060 1,454 1,026 608
Property management.................. 1,036 -- -- 1,319 -- -- -- --
Development.......................... 614 -- -- 2,046 -- -- -- --
Construction, net.................... 631 -- -- 1,854 -- -- -- --
Miscellaneous........................ 730 -- -- 1,293 732 -- -- --
Total revenue.................... 146,030 96,954 82,874 188,290 111,882 94,963 51,207 26,295
Expenses:
Property Expenses (2)................ 54,148 36,928 31,795 68,860 42,570 37,954 19,484 11,316
General and administrative (3)....... 8,711 4,707 4,621 11,416 6,154 4,851 3,613 1,402
Property management.................. 576 -- -- 715 -- -- -- --
Interest............................. 32,659 20,271 19,502 41,646 25,766 22,684 10,233 7,448
Depreciation and amortization........ 31,542 19,798 16,175 40,077 22,104 17,167 9,099 3,720
Offering expenses.................... 2,252 -- -- 233 -- -- -- --
Other, net (4)....................... (875) -- -- 640 -- -- -- --
Gain on disposition of properties.... 132 -- 1,944 3,505 2,185 -- -- --
Income before minority interest and
extraordinary item................. 17,149 15,250 12,725 28,208 17,473 12,307 8,788 2,409
Net income........................... 14,818 12,678 10,384 24,343 14,260 9,810 6,944 2,542
Preferred dividends.................. 6,788 3,562 -- 9,052 990 -- -- --
Net income available for common
shares............................. 8,030 9,116 10,384 15,291 13,270 9,810 6,944 2,542
Net income per weighted average
common share outstanding........... $ .44 $ .71 $ .95 $ .83 $ 1.21 $ 1.00 $ 1.01 --
Weighted average Common Shares
outstanding........................ 18,447 12,793 10,982 18,447 10,986 9,819 6,534 --
BALANCE SHEET DATA:
Real estate owned, at cost........... $1,191,470 $ 783,545 $ 624,496 -- $ 641,893 $ 578,788 $ 434,460 $ 125,269
Total assets......................... 1,060,342 737,291 600,115 -- 611,199 565,267 439,233 104,439
Total debt........................... 596,974 382,058 347,541 -- 315,239 307,939 232,766 105,594
Minority interest.................... 61,529 45,383 39,623 -- 39,238 41,049 43,709 --
Shareholders' equity (owners'
deficit)........................... 467,417 290,499 196,189 -- 241,384 202,278 152,385 (4,684)
OTHER DATA:
Dividends declared per share......... -- $ 1.07 $ 1.02 -- $ 2.07 $ 2.01 $ 1.71 --
Ratio of total debt to total
capitalization (5)................. 44.9% 42.2% 50.8% -- 41.9% 48.2% 44.1%
Number of properties................. 114 82 72 -- 73 70 54 22
Number of apartment units............ 30,726 22,085 18,992 -- 19,280 18,220 14,333 5,580
EBITDA (6)........................... 82,093 -- -- 107,066 -- -- -- --
Cash flows from:
Operating activities............. -- 36,906 26,142 -- 38,018 34,289 21,590 7,269
Investing activities............. -- (96,588) (52,229) -- (70,436) (39,167) (227,746) (13,643)
Financing activities............. -- 61,411 25,984 -- 33,425 2,944 208,099 7,008
Debt Service Coverage Ratio (7)...... 2.51x -- -- 2.57x -- -- -- --
</TABLE>
1992
---------
OPERATING DATA:
Revenue:
Property
Rental........................... $ 21,756
Other............................ 438
Property management.................. --
Development.......................... --
Construction, net.................... --
Miscellaneous........................ --
Total revenue.................... 22,194
Expenses:
Property Expenses (2)................ 9,682
General and administrative (3)....... 1,112
Property management.................. --
Interest............................. 7,524
Depreciation and amortization........ 3,344
Offering expenses.................... --
Other, net (4)....................... --
Gain on disposition of properties.... --
Income before minority interest and
extraordinary item................. 532
Net income........................... 1,090
Preferred dividends.................. --
Net income available for common
shares............................. 1,090
Net income per weighted average
common share outstanding........... --
Weighted average Common Shares
outstanding........................ --
BALANCE SHEET DATA:
Real estate owned, at cost........... $ 111,686
Total assets......................... 93,252
Total debt........................... 95,036
Minority interest.................... --
Shareholders' equity (owners'
deficit)........................... (4,493)
OTHER DATA:
Dividends declared per share......... --
Ratio of total debt to total
capitalization (5).................
Number of properties................. 19
Number of apartment units............ 5,064
EBITDA (6)........................... --
Cash flows from:
Operating activities............. 4,342
Investing activities............. (8,240)
Financing activities............. 4,637
Debt Service Coverage Ratio (7)...... --
(FOOTNOTES ON FOLLOWING PAGE)
59
<PAGE>
- ------------
(1) Operating data for 1994 includes 34 days of predecessor financial
information and per share data for 1994 is for the period February 4, 1994
through December 31, 1994.
(2) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Capital Expenditures" included in the Quarterly
Report on Form 10-Q for the quarter and nine-month period ended September
30, 1997 and the Annual Report on Form 10-K for the year ended December 31,
1996, which are incorporated herein by reference.
(3) Includes corporate expenses.
(4) Pro forma operating data for the nine-month period ended September 30, 1997
includes a non-recurring tax credit of approximately $875,000.
(5) Total capitalization as of the dates presented is total debt plus the
aggregate market value of the Company's Common Stock, Series A Preferred
Stock, Series B Preferred Stock and units of limited partnership interest
held by persons other than the Company (based upon the market value of the
Company's Common Stock), which are redeemable for shares of Common Stock on
a one-for-one basis, or at the Company's option for cash. The market value
of the Series A Preferred Stock and the Series B Preferred Stock is based
upon $25.00 per share.
(6) Earnings before interest taxes depreciation and amortization ("EBITDA")
represents net income before extraordinary items and minority interest,
computed in accordance with GAAP, adjusted for gains on dispositions of
properties, interest expense, federal income taxes, depreciation and
amortization. EBITDA should not be considered as a substitute for net income
or any other GAAP measurement of performance, as an indication of operating
performance or as an alternative to cash flows from operating, investing and
financing activities as a measure of liquidity. The Borrower believes that
EBITDA is helpful in understanding the Borrower's results of operations in
that such calculation reflects cash flow from operating activities and the
Borrower's ability to support interest payments and general operating
expenses before the impact of certain activities such as changes in other
assets and accounts payable. Because companies have different accounting
policies and different ways of calculating EBITDA, EBITDA presentations may
not be comparable even among companies in the same industry group. Effective
January 1, 1996, CPG implemented a new accounting policy regarding capital
expenditures which included the following changes 1) increase minimum dollar
amounts to capitalize from $500 to $1,000, 2) capitalized replacement
purchases for major appliances and carpeting of entire apartment units which
had been previously expensed and 3) reduce depreciation lives for certain
assets from 20 years to 10 to 15 years. The effect of this new accounting
policy can not be readily determined. However the Borrower believes that it
results in increased EBITDA for 1996 as compared to EBITDA for 1996
presented under the previous capital expenditure policy.
(7) Debt service coverage ratio is computed as a ratio of EBITDA as defined in
(6) above to interest expense.
60
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
CERTIFICATES
GENERAL
The following general discussion summarizes certain of the material federal
income tax aspects of the acquisition, ownership and disposition of the
Certificates. This discussion is a summary for general information only and does
not consider all aspects of federal income taxation that may be relevant to the
purchase, ownership and disposition of the Certificates by a prospective
investor in light of his or her personal circumstances. This discussion also
does not address the federal income tax consequences of ownership of
Certificates not held as capital assets within the meaning of Section 1221 of
the Code, or the federal income tax consequences to investors subject to special
treatment under the federal income tax laws, such as dealers in securities or
foreign currency, tax-exempt entities, banks, financial institutions, thrifts,
insurance companies, persons that hold the Certificates as part of a
"straddle," a "hedge" against currency risk, or a "conversion
transaction," persons that have a "functional currency" other than the U.S.
dollar, and investors in pass-through entities. In addition, the discussion is
generally limited to the tax consequences to initial holders. It also does not
describe any tax consequences arising out of the tax laws of any state, local or
foreign jurisdiction.
This summary is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing are subject to change, possibly on a retroactive basis; accordingly,
any such change could affect the continuing validity of this discussion.
PERSONS CONSIDERING THE PURCHASE OF CERTIFICATES SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE APPLICATION OF FEDERAL INCOME TAX LAWS, AS WELL AS
THE LAWS OF ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION, TO THEIR
PARTICULAR SITUATIONS.
The following discussion is limited to the federal income tax consequences
relevant to a holder of a Certificate that is a U.S. Person, except where
otherwise noted. A "U.S. Person" is (i) a citizen or resident of the United
States, (ii) a corporation or partnership (except to the extent provided in
applicable Treasury regulations) organized under the laws of the United States
or any political subdivision thereof or therein, (iii) an estate, the income of
which is subject to federal income tax regardless of the source, or (iv) a trust
with respect to which a court within the United States is able to exercise
primary supervision over its administration and one or more such U.S. Persons
have the authority to control all of its substantial decisions (and certain
other trusts eligible to elect to be treated as U.S. Persons).
CLASSIFICATION OF INVESTMENT ARRANGEMENT
In the opinion of Baker, Donelson, Bearman & Caldwell, a professional
corporation, which opinion is filed as an exhibit to the registration statement
of which this Prospectus is a part, the Trust will be treated for federal income
tax purposes as a grantor trust and not as an association (or publicly traded
partnership) taxable as a corporation. The Trustee intends to report income,
gain, loss and deduction to the IRS accordingly.
Under the grantor trust rules, each Certificate holder will be treated for
federal income tax purposes as having purchased an undivided interest in the
assets of the Trust to the extent of the Certificate holder's proportionate
interest in the Trust. Similarly, the sale of a Certificate by a Certificate
holder will be considered a sale of the Certificate holder's interest in the
assets of the Trust with respect to that holder. In general, the tax
consequences of an investment in Certificates will depend on the rules
applicable to the Bonds and, after foreclosure, the Mortgaged Properties. The
Certificates will represent an undivided proportionate interest in the Bonds.
A Certificate owned by a "domestic building and loan association" within
the meaning of Code Section 7701(a)(19) will not be considered to represent
"loans . . . secured by an interest in real property which is . . . residential
real property" within the meaning of Code Section 7701(a)(19)(C)(v). In
addition, a Certificate owned by a real estate investment trust will be
considered to represent "real estate assets"
61
<PAGE>
within the meaning of Code Section 856(c)(4)(A), and interest income on such
assets will be considered "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B), in each case to the
extent that the holder's pro rata undivided interest in the Bonds does not
exceed such holder's allocable interest in the fair market value of the
Mortgaged Properties. Furthermore, a Certificate owned by a REMIC may be
considered to represent an "obligation (including any participation or
certificate of beneficial ownership therein) which is principally secured by an
interest in real property" within the meaning of Code Section 860G(a)(3)(A) to
the extent that the Bonds constitutes a "qualified mortgage" within the
meaning of Code Section 860G(a)(3).
INTEREST INCOME
Certificates may be issued with original issue discount ("OID") within
the meaning of Code Section 1273. Rules governing OID are set forth in Sections
1271-1275 of the Code and certain final regulations of the U.S. Department of
the Treasury issued in 1994 (the "Final Regulations"). Although the Code
contains specific provisions governing the calculation of OID on securities,
such as the Certificates, on which principal is required to be prepaid based on
prepayments of the underlying assets, regulations interpreting those provisions
have not yet been issued.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Certificate and its issue price. A Holder of a
Certificate must include such OID in gross income as ordinary income as it
accrues under a method taking into account an economic accrual of the discount.
In general, OID must be included in income in advance of the receipt of the cash
representing that income. The amount of OID on a Certificate will be considered
to be zero if it is less than a DE MINIMIS amount determined under the Code.
The issue price of a Certificate will generally be the initial offering
price at which a substantial amount of the Certificates is sold to the public,
and will be treated by the Depositor as including, in addition, the amount paid
by the Certificate holder for accrued interest that relates to a period prior to
the issue date of such Certificate. Under the Final Regulations, the stated
redemption price at maturity is the sum of all payments on the Certificate other
than any "qualified stated interest" payments. Qualified stated interest is
interest that is unconditionally payable at least annually during the entire
term of the Certificate at either (a) a single fixed rate that appropriately
takes into account the length of the interval between payments or (b) the
current values of (i) a single "qualified floating rate" or (ii) a single
"objective rate" (each a "Single Variable Rate"). A "current value" is the
value of a variable rate on any day that is no earlier than three months prior
to the first day on which that value is in effect and no later than one year
following that day. A qualified floating rate is a rate the variations in which
reasonably can be expected to measure contemporaneous variations in the cost of
newly borrowed funds in the currency in which the Certificate is denominated
(E.G., LIBOR). Such a rate remains qualified even though it is multiplied by a
fixed, positive multiple not exceeding 1.35, increased or decreased by a fixed
rate, or both. Certain combinations of rates constitute a single qualified
floating rate, including (a) interest stated at a fixed rate for an initial
period of less than one year followed by a qualified floating rate, if the value
of the qualified floating rate on the issue date is intended to approximate the
fixed rate, and (b) two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Certificate. A combination of such rates is conclusively presumed to be a single
qualified floating rate if the values of all rates on the issue date are within
.25 percentage points of each other. A variable rate that is subject to an
interest rate cap, floor, "governor" or similar restriction on rate adjustment
may be a qualified floating rate only if such restriction is fixed throughout
the term of the instrument, or is not reasonably expected as of the issue date
to cause the yield on the debt instrument to differ significantly from the
expected yield absent the restriction. An objective rate is a rate, other than a
qualified floating rate, determined by a single formula that is fixed throughout
the term of the Certificate and is based on (i) one or more qualified floating
rates (including a multiple or inverse of a qualified floating rate), (ii) one
or more rates each of which would be a qualified floating rate for a debt
instrument denominated in a foreign currency, (iii) the yield or the changes in
the price of one or more items of "actively traded" personal property, (iv) a
combination of rates described in (i), (ii) or (iii), or (v) other rates
designated by the IRS. Each rate described in (i) through (iv)
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above will not be considered an objective rate, however, if it is reasonably
expected that the average value of the rate during the first half of the
Certificate's term will differ significantly from the average value of the rate
during the final half of its term. A combination of interest stated at a fixed
rate for an initial period of less than one year followed by an objective rate
is treated as a single objective rate if the value of the objective rate on the
issue date is intended to approximate the fixed rate; such a combination of
rates is conclusively presumed to be a single objective rate if the value of the
objective rate on the issue date does not differ from the value of the fixed
rate by more than .25 percentage points.
The holder of a Certificate issued with OID must include in gross income,
for all days during its taxable year on which it holds such Certificate, the sum
of the "daily portions" of such OID. The amount of OID includible in income by
a holder will be computed by allocating to each day during a taxable year a
pro-rata portion of the OID that accrued during the relevant accrual period. The
amount of OID that will accrue during an accrual period (generally the period
between interest payments of compounding dates) is the excess (if any) of the
sum of (a) the present value of all payments remaining to be made on the
Certificate as of the close of the accrual period and (b) the payments during
the accrual period of amounts included in the stated redemption price of the
Certificate, over the "adjusted issue price" of the Certificate at the
beginning of the accrual period. The adjusted issue price of a Certificate is
the sum of its issue price plus prior accruals of OID, reduced by the total
payments made with respect to such Certificate in all prior periods, other than
qualified stated interest payments. Code Section 1272(a)(6) requires the present
value of the remaining payments to be determined on the basis of: (i) the
original yield to maturity of the Certificate (determined on the basis of
compounding at the end of each accrual period and properly adjusted for the
length of the accrual period), and (ii) events which have occurred before the
end of the accrual period.
A subsequent holder of a Certificate will also be required to include OID
in gross income, but such a holder who purchases such Certificate for an amount
that exceeds its adjusted issue price will be entitled (as will an initial
holder who pays more than a Certificate's issue price) to offset such OID by
comparable economic accruals of portions of such excess.
SALE OR EXCHANGE OF CERTIFICATES
Upon the sale or exchange of a Certificate, a holder will recognize gain or
loss equal to the difference between the amount realized on the sale and its
aggregate adjusted basis in its pro rata share of the Bonds. In general, the
aggregate adjusted basis will equal the holder's cost for the Certificate
increased by the amount of any income (other than qualified stated interest)
previously reported with respect to the Certificate and decreased by the amount
of any losses previously reported with respect to the Certificate and the amount
of any distributions (other than qualified stated interest) received thereon.
Except with respect to market discount on the Bonds, and except for certain
financial institutions subject to the provisions of Code Section 582(c), such
gain or loss generally would be capital gain or loss if the Certificate was held
as a capital asset. However, gain on the sale of a Certificate will be treated
as ordinary income (i) if a Certificate is held as part of a "conversion
transaction", as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the holder's net investment in the conversion
transaction at 120% of the appropriate applicable Federal rate (under Code
Section 1274 (d)) in effect at the time the taxpayer entered into the
transaction, minus any amount previously treated as ordinary income with respect
to any prior disposition of property that was held as part of such transaction;
or (ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d) (4) to have net capital gains taxed
as investment income at ordinary income rates.
TAXATION OF FOREIGN INVESTORS
Under present United States Federal income tax law and subject to the
discussions of backup withholding below:
(a) if the Certificates are offered, sold and delivered, and
principal and interest thereon are paid, in accordance with the terms of
the Trust Agreement, payments of principal of and interest on the
Certificates to any holder that is a United States Alien will not be
subject to United States Federal
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withholding tax, provided that in the case of interest, (1) the holder does
not actually or constructively own 10% or more of the capital or profits
interest in the Borrower, (2) the holder is not a controlled foreign
corporation that is related to the Depositor or Borrower through stock
ownership, and (3) either (i) the beneficial owner of the Certificate
certifies to the Trustee or its agent, under penalties of perjury, that it
is not a U.S. Person and provides its name and address, or (ii) a
securities clearing organization, bank or other financial institution that
holds customer's securities in the ordinary course of its trade or business
(a "financial institution") and holds the Certificate on behalf of the
beneficial owner certifies to the Trustee or its agent, under penalties of
perjury, that such statement has been received from the beneficial owner by
it or by a financial institution between it and the beneficial owner and
furnishes the payor with a copy thereof;
(b) a holder of a Certificate who is a United States Alien will not
be subject to United States Federal withholding tax on gain realized on the
sale or exchange of a Certificate; and
(c) a Certificate held by an individual who at the time of death is
not a citizen or resident of the United States will not be subject to
United States Federal estate tax as a result of such individual's death if
the individual does not actually or constructively own (i) 10% or more of
the total combined voting power of all classes of stock of the Depositor
entitled to vote or (ii) 10% or more of the capital or profits interest in
the Borrower, and the income on the Certificate would not have been
effectively connected with the conduct of a trade or business by the
individual in the United States.
Gain recognized by a United States Alien on the disposition of a
Certificate will be subject to United States Federal income tax if (i) such gain
is effectively connected with a trade or business conducted by such person
within the United States (in which case the branch profits tax may also apply if
the person is a foreign corporation) or (ii) in the case of a United States
Alien that is an individual, such person is present in the United States for a
period or periods aggregating 183 days or more in the taxable year of the sale
or exchange and certain other conditions are met.
If a United States Alien is engaged in a trade business within the United
States and interest and premium, if any, on a Certificate is effectively
connected with the conduct of such trade or business, such person may be subject
to United States Federal income tax on such interest and premium at ordinary
Federal income tax rates on a net basis (in which case the branch profits tax
may also apply if the Person is a foreign corporation).
The IRS recently issued final regulations (the "New Regulations") which
would provide alternative methods of satisfying the certification requirement
described in clause (a) (3) above. The New Regulations are effective January 1,
although valid withholding certificates that are held on December 31, 1998,
remain valid until the earlier of December 31, 1999 or the due date of
expiration of the Certificate under the rules as currently in effect. The New
Regulations would require, in the case of Certificates held by a foreign
partnership, that (x) the certification described in clause (a) (3) above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships.
United States Aliens should consult their own tax advisors concerning the
application of the certification requirements in the New Regulations.
BONDS
GENERAL
The following discussion is a summary of the anticipated material federal
income tax considerations relating to the ownership and disposition of the Bonds
after the Permitted Merger and Security Release. The summary is based upon
current provisions of the Code, the Treasury regulations promulgated thereunder,
and existing judicial and administrative rulings and decisions, all of which are
subject to change, prospectively or retroactively.
This summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain categories of investors subject
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to special treatment under the federal income tax laws. This summary focuses
primarily on investors who will hold the Bonds as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code,
although much of the discussion is applicable to other investors as well. The
summary is based on current law and there can be no assurance that the law will
not change or that the IRS will not take a position that would be materially
adverse to investors. Finally, the summary does not purport to address the
anticipated state and local income tax consequences to investors of the
ownership and disposition of the Bonds. Consequently, potential Bondholders are
advised to consult their own tax advisors concerning the federal, state, or
local tax consequences to them of the purchase, holding, and disposition of the
Bonds.
No election will be made to treat the Borrower, the Mortgaged Properties,
or the arrangement by which the Bonds are issued as a REMIC for federal income
tax purposes. There are no regulations, published rulings, or judicial decisions
involving the characterization for federal income tax purposes of securities
with terms substantially the same as the Bonds. In the opinion of Baker,
Donelson, Bearman & Caldwell, which opinion is filed as an exhibit to the
registration statement of which this Prospectus is a part, the Bonds will be
treated as evidence of indebtedness for federal income tax purposes and not as
ownership interests in the Mortgaged Properties. Bondholders should be aware
that (i) Bonds held by a domestic building and loan association should
constitute "loans secured by an interest in real property" within the meaning
of Code Section 7701(a)(19)(C)(v); (ii) Bonds held by a REIT should be treated
as "real estate assets" within the meaning of Code Section 856(c)(5)(A); and
(iii) income derived from the Bonds should be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Code Section 856(c)(3)(B). Bonds held by a
regulated investment company or a REIT will not constitute "government
securities" within the meaning of Code Section 851 (b)(4)(A)(i) or Code Section
856(c)(5)(A).
Payments received by Bondholders on the Bonds generally should be accorded
the same tax treatment under the Code as payments received on other taxable
corporate bonds. Except as described below for Bonds issued with market discount
or premium, interest paid or accrued on a Bond will be treated as ordinary
income to the Bondholder and a principal payment on a Bond will be treated as a
return of capital to the extent that the Bondholder's tax basis in the Bond is
allocable to that payment. In general, interest paid to Bondholders who report
their income on the cash receipts and disbursements method of accounting should
be taxable to them when received. Interest earned by Bondholders who report
their income on the accrual method of accounting will be taxable when accrued,
regardless of when it is actually received. The Indenture Trustee will report
annually to the IRS and to Bondholders of record with respect to interest paid
or accrued on the Bonds.
MARKET DISCOUNT
A subsequent purchaser of a Bond at a discount from its outstanding
principal amount will acquire such Bond with market discount. A Bond will not be
considered to have market discount, however, if the amount of such market
discount is de minimis, i.e., less than the product of (i) 0.25% of the
remaining principal amount of the Bond, multiplied by (ii) the weighted average
maturity ("WAM") of the Bond. The purchaser generally will be required to
recognize the market discount as ordinary income. A purchaser of a Bond with
market discount generally will be required to treat a portion of any gain on a
sale, exchange, redemption, or other disposition of the Bond as ordinary income
to the extent of the accrued, but not previously taxable, market discount. A
purchaser of a Bond with market discount also generally will be required to
include market discount that has accrued, but has not yet been recognized, in
income to the extent of any partial principal payments that are received. Market
discount generally will accrue ratably over the remaining term of the Bond,
unless the Bondholder irrevocably elects to accrue such market discount on the
basis of a constant interest rate.
A Bondholder who has acquired a Bond with market discount generally must
defer interest deductions attributable to any indebtedness incurred or continued
to purchase or carry the Bond to the extent such deductions exceed interest
income on the Bond. The amount of deferred interest expense, however, is limited
to the amount of market discount income that accrues, but that is not recognized
currently. Any such
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deferred interest expense generally is allowed as a deduction not later than the
year in which the related market discount income is recognized. As an
alternative to the inclusion of market discount in income upon disposition of a
Bond, a Bondholder may elect to recognize market discount currently on an
uncapped accrual basis. In that case, the preceding interest expense deferral
rule will not apply. Any such election generally will apply to all market
discount instruments held or acquired by the Bondholder in the taxable year of
election or thereafter.
Treasury regulations implementing the market discount rules have not yet
been issued, and uncertainty exists with respect to many aspects of those rules.
Due to the substantial lack of regulatory guidance with respect to the market
discount rules, it is unclear how those rules will affect any secondary market
that develops for the Bonds. Prospective investors should consult their own tax
advisors regarding the application of the market discount rules to the Bonds.
AMORTIZABLE PREMIUM
A purchaser of a Bond who purchases the Bond at a premium over its stated
principal amount plus accrued interest generally may elect to amortize such
premium ("Section 171 Premium") over the remaining term of the Bond using a
constant yield method that reflects monthly compounding. Pursuant to proposed
Treasury regulations issued on July 1, 1996, Section 171 Premium allocable to an
accrual period will be treated as an offset to interest income on a Bond
allocable to such accrual period at the time the Bondholder takes into account
the interest income under its method of accounting. Any Section 171 Premium
allocable to an accrual period in excess of the interest income on a Bond
allocable to such period will be carried forward to the next accrual period. If
a Bondholder makes an election to amortize Section 171 Premium on a Bond, such
election will apply to all taxable debt instruments (including all Bonds) then
owned and thereafter acquired by the Bondholder. Such election will be
irrevocable without the consent of the Service.
Section 171 Premium does not include any acquisition premium attributable
to the portion of a purchase price for a Bond that exceeds the adjusted issue
price but not the stated principal amount of such Bond. Purchasers who pay a
premium for the Bonds should consult their tax advisors regarding the election
to amortize premium and the method of accrual to be employed.
GAIN OR LOSS ON DISPOSITION
If a Bond is transferred or sold in a taxable transaction, the Bondholder
will recognize gain or loss equal to the difference between the amount realized
on the sale and such Bondholder's adjusted basis in the Bond. The adjusted basis
of a Bond generally will equal the cost of the Bond to the Bondholder, increased
by any market discount previously includible in the Bondholder's gross income
with respect to the Bond, and reduced by the portion of the basis of the Bond
allocable to payments (other than qualified stated interest payments) previously
received by the Bondholder and by any amortized premium. Similarly, a Bondholder
who receives a scheduled principal payment with respect to a Bond will recognize
gain or loss equal to the difference between the amount of the payment and the
portion of his adjusted basis in the Bond that is allocable to such payment.
Except to the extent that the market discount rules apply and except as provided
below, any gain or loss on the sale or other disposition of a Bond generally
will be capital gain or loss. Such gain or loss will be long-term gain or loss
if the Bond is held as a capital asset by the Bondholder for more than 12
months.
If the holder of a Bond is a bank, thrift, or similar institution described
in Section 582 of the Code, any gain or loss on the sale or exchange of the Bond
will be treated as ordinary income or loss. A portion of any gain from the sale
of a Bond that otherwise might be capital gain may be treated as ordinary income
to the extent that such Bond is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in Bonds
or similar property that reduce or eliminate market risk, if substantially all
of the taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate
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"applicable federal rate" (which rate is computed and published monthly by the
Service) at the time the taxpayer entered into the conversion transaction,
subject to appropriate reduction for prior inclusion of interest and other
ordinary income from the transaction.
MISCELLANEOUS TAX ASPECTS
BACKUP WITHHOLDING. A Certificate holder or, after the Permitted Merger
and Security Release, a Bondholder may, under certain circumstances; be subject
to "backup withholding" at the rate of 31% with respect to "reportable
payments," which include interest payments and principal payments to the extent
of accrued, as well as distributions of proceeds from a sale of Bonds. Backup
withholding generally applies if the holder of a Certificate or a Bond, as the
case may be (i) fails to furnish the Indenture Trustee its social security
number or other taxpayer identification number ("TIN"), (ii) furnishes the
Indenture Trustee or the Borrower an incorrect TIN, (iii) fails to report
properly interest, dividends, or other "reportable payments," or (iv) under
certain circumstances, fails to provide the Indenture Trustee, the Borrower, or
such Certificate holder's or Bondholder's, as the case may be, securities broker
with a certified statement, signed under penalty of perjury, that the TIN is its
correct taxpayer identification number and that the Certificate holder or the
Bondholder, as the case may be, is not subject to backup withholding. Backup
withholding will not apply with respect to payments made to certain Certificate
holders or Bondholders, as the case may be, including corporations, certain
tax-exempt recipients (such as exempt organizations), and certain Non-U.S
Holders (as defined below) that comply with the requisite certification
procedures. Certificate holders or Bondholders, as the case may be, should
consult their tax advisors as to the application of backup withholding to
payments received by them with respect to the Certificates and the Bonds.
The Trustee will report to the Certificate holders and the Indenture
Trustee will report to the Bondholders (other than those that are exempt from
the backup withholding rules) and to the IRS within a reasonable time after the
end of each calendar year the amount of any "reportable payments" during such
year and the amount of tax withheld, if any, with respect to payments on the
Certificates or the Bonds, as the case may be.
FOREIGN CERTIFICATE HOLDERS AND BONDHOLDERS. Under the Code, interest
income (including accrued interest recognized on the sale or exchange of a
Certificate or a Bond) paid or accrued with respect to Certificates or Bonds
held by nonresident alien individuals, foreign corporations, foreign
partnerships, or certain foreign estates and trusts ("Non-U.S. Holders"), or
Certificate holders or Bondholders holding on behalf of Non-U.S. Holders,
generally will be treated as "portfolio interest" and therefore will not be
subject to any United States federal income tax, provided that (i) such interest
income is not effectively connected with a trade or business in the United
States of the Non-U.S. Holder and (ii) the Borrower or other person who
otherwise would be required to withhold tax from such payments (the
"Withholding Agent") is provided with an appropriate statement that the
beneficial owner of a Certificate or a Bond is a Non-U.S. Holder. Interest
income paid on Certificates or Bonds to Non-U.S. Holders also will not be
subject to withholding tax if (i) such interest income is effectively connected
with a United States trade or business conducted by the Non-U.S. Holder and (ii)
the Non-U.S. Holder files an IRS Form 4224 with the Withholding Agent. Such
effectively connected interest income, however, generally will be subject to
regular United States federal income tax. In other circumstances, interest
income paid to Non-U.S. Holders may be subject to United States withholding tax
at a rate of 30% (subject to reduction by applicable treaty).
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
CERTIFICATE HOLDERS OR BONDHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS
WITH RESPECT TO MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT
THEIR OWN TAX ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION,
OWNERSHIP, AND DISPOSITION OF THE CERTIFICATES OR THE BONDS.
TAX CONSIDERATIONS AFTER A FORECLOSURE FOR FOREIGN INVESTORS
If the Trustee were to acquire beneficial ownership, on behalf of the
holders, of a Mortgaged Property by foreclosure, deed in lieu of foreclosure or
otherwise, then, to the extent that a United States Alien is treated as owning
an interest in the Foreclosed Property for United States Federal income tax
purposes, such
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United States Alien would be subject to United States Federal withholding tax at
a rate of 30% (subject to reduction by applicable treaties) on its share of the
gross income from the Foreclosed Property (which amount could exceed such United
States Alien's share of the net income from the Foreclosed Property), unless
such United States Alien has in effect an election to be taxed at normal U.S.
tax rates on the net income from all U.S. real property owned by such United
States Alien. In addition, a United States Alien would be subject to tax in the
same manner as a U.S. Person on any gain recognized upon a sale of the
Foreclosed Property. Ten percent of the gross amount realized on the disposition
of the Foreclosed Property that is allocable to a United States Alien is subject
to withholding. The amount thereby withheld is creditable against the actual
amount of the United States Alien's tax liability. An interest in the Foreclosed
Property deemed to be acquired by a United States Alien would be includable in
such individual's estate for U.S. estate tax purposes. In addition, depending
upon the Trust's level of activities, its realization of gain and how long the
Trust held the Foreclosed Property, a United States Alien may be deemed to be
involved in a U.S. trade or business for United States Federal income tax
purposes and be obligated to file United States Federal and state tax returns.
DEDUCTIBILITY OF TRUST'S FEES AND EXPENSES
In computing its Federal income tax liability, a Certificate holder will be
entitled to deduct, consistent with its method of accounting, its share of
reasonable administrative fees, trustee fees and other fees paid or incurred by
the Trust as provided in Section 162 or 212 of the Code and any allowable
amortization deductions with respect to certain other assets of the Trust. If a
Certificate holder is an individual, estate or trust, the deduction for his
share of fees will be a miscellaneous itemized deduction that may be disallowed
in whole or in part.
STATE, LOCAL AND FOREIGN TAXES
Certificate holders should consult their tax advisors with respect to
state, local and foreign tax considerations relevant to an investment in the
Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), establishes fiduciary standards and other responsibilities for
fiduciaries of employee benefit plans subject to Part 4, Subtitle B, Title I of
ERISA ("ERISA Plans"). In addition, unless a statutory or administrative
exemption applies, ERISA and Section 4975 of the Code impose restrictions on
certain transactions (i.e. "prohibited transactions") involving the assets of
an ERISA Plan, a plan described in Section 4975(e)(1) of the Code or a person
treated as holding assets of such plans pursuant to Department of Labor
Regulation, 29 F.R. 2510.3-101 ("Plan Assets Regulation") or applicable law
and certain persons referred to as a "party in interest" under ERISA and a
"disqualified person" under Code Section 4975 with respect to such Plan. A
loan or other extension of credit, the provision of services or a sale or
exchange of property occurring between a Plan and a party in interest or
disqualified person with respect to such Plan might constitute a non-exempt
prohibited transaction.
Pursuant to the Plan Assets Regulation or applicable law, the Bonds and
other assets of the Trust may be treated, for purposes of ERISA and Code Section
4975, as if they were assets of a Plan acquiring a Certificate unless an
exception applies. There can be no assurances that any exception applies in
respect of the Trust. Therefore, absent an exemption from the prohibited
transaction restrictions of ERISA and the Code, the purchase, holding or sale of
Class A Certificates by a Plan, or the operations of the Trust, might result in
a prohibited transaction.
Each investor in the Certificates or the Bonds will be deemed to have
represented that such investor (a) is not, and is not using the assets of, an
ERISA Plan or an employee benefit plan or other retirement plan or arrangement
subject to Section 4975 of the Code, or (b) has determined that the purchase and
holding of Certificates or Bonds, as the case may be, by such investor would not
constitute or result in a non-exempt prohibited transaction under Section 406 of
ERISA or Section 4975 of the Code because the relevant
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conditions for exemptive relief under one or more of the following prohibited
transaction class exemptions have been satisfied: Prohibited Transaction Class
Exemption ("PTCE") 96-23 (relating to transactions effected by in-house asset
managers); PTCE 95-60 (relating to certain transactions involving insurance
company general accounts); PTCE 91-38 (relating to investments by bank
collective investment funds); PTCE 90-1 (relating to investment by insurance
company pooled separate accounts); or PTCE 84-14 (relating to transactions
effected by a "qualified professional asset manager").
Due to the complexity of the rules and penalties under ERISA and the Code
applicable to Plans, potential Plan investors should consult their advisors and
counsel regarding whether the purchase and holding of the Bonds could give rise
to a transaction that is prohibited under ERISA or the Code. Potential investors
also should be aware that ERISA requires that the assets of a Plan be valued at
their fair market value as of the close of the plan year and that the Borrower
does not plan to provide any valuations to Bondholders.
LEGAL INVESTMENT
The Certificates will not constitute "mortgage related securities" for
purposes of the SMMEA. The appropriate characterization of the Certificates
under various legal investment restrictions, and thus the ability of investors
subject to these restrictions to purchase the Certificates, may be subject to
significant interpretive uncertainties.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities"
dated January 28, 1992, as revised April 15, 1994 (the "Policy Statement") of
the Federal Financial Institutions Examination Council. The Policy Statement,
which has been adopted by the Board of Governors of the Federal Reserve System,
the Federal Deposit Insurance Corporation, the Office of the Comptroller of the
Currency and the Office of Thrift Supervision, and by the National Credit Union
Administration (with certain modifications), prohibits depository institutions
from investing in certain "high-risk mortgage securities," except under
limited circumstances, and sets forth certain investment practices deemed to be
unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as they may be deemed unsuitable investments, or may otherwise be
restricted, under such rules, policies or guidelines.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and provisions which may restrict or prohibit
investments in securities which are issued in book-entry form.
No representation is made as to the proper characterization of the
Certificates for legal investment purposes, financial institution regulatory
purposes, or other purposes, or as to the ability of particular investors to
purchase the Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Certificates) may adversely affect the liquidity of the Certificates.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Certificates constitute a legal
investment or are subject to investment, capital or other restrictions.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of an Underwriting Agreement to be
entered into by the Depositor and the Underwriter, the Certificates will be
purchased from the Depositor by the Underwriter upon
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issuance. Distribution of the Certificates will be made by the Underwriter from
time to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the Depositor from the sale of the
Certificates will be approximately % of the initial aggregate Certificate
Principal Amount of the Certificates, plus accrued interest, if any, from the
date of original issuance, before deducting expenses payable by the Depositor.
In connection with the purchase and sale of the Certificates, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting discounts. An affiliate of the Underwriter, Morgan
Stanley Mortgage Capital Inc., has entered into and may, in the future, enter
into other financing arrangements with affiliates of the Borrower.
The Borrower, MAALP and MAAC will agree to indemnify the Underwriter
against, or make contributions to the Underwriter with respect to, certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
In connection with this offering, the Underwriter may purchase and sell the
Certificates in the open market. The Underwriter may also impose a penalty bid,
whereby selling concessions allowed to broker-dealers in respect of the
securities sold in the offering may be reclaimed by the Underwriter if such
Certificates are repurchased by the Underwriter in covering transactions. These
activities may maintain or otherwise affect the market price of the
Certificates, which may be higher than the price that might otherwise prevail in
the open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be affected in the over-the-counter market or
otherwise.
The Prospectus may only be issued or passed on in the United Kingdom to a
person who is of a kind described in Article 11(3) of the Financial Services Act
of 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to
whom this Prospectus may otherwise lawfully be issued or passed on.
The Trust described in this Prospectus may only be promoted (whether by
issuing or passing on of documents as referred to in the foregoing restriction
or otherwise) by an authorized person under Chapter III of the Financial
Services Act of 1986 of the United Kingdom ("FSA") to a person in the United
Kingdom if that person is of a kind described in section 76(2) of the FSA or as
permitted by the Financial Services (Promotion of Unregulated Schemes)
Regulation 1991 (as amended).
LEGAL MATTERS
The validity of the Certificates will be passed upon for the Depositor by
Baker, Donelson, Bearman & Caldwell, Memphis, Tennessee and for the Underwriter
by Cadwalader, Wickersham & Taft, New York, New York.
EXPERTS
The balance sheet of Mid-America Capital Partners, L.P. as of November 24,
1997, the statement of net assets af Mid-America Mortgage Trust, 1998-1 as of
February 9, 1998, Combined Financial Statements and the financial statement
schedule of Capital Properties Group as of December 31, 1996 and 1995 and for
the years ended December 31, 1996, 1995 and 1994, the Combined Historical
Summary of Gross Income and Direct Operating Expenses for Certain Multifamily
Acquisition Properties for the year ended December 31, 1996, the Combined
Historical Summary of Gross Income and Direct Operating Expenses for certain
Multifamily Acquisition Properties for the year ended December 31, 1995 and the
Historical Summary of Gross Income and Direct Operating Expenses (Tiffany Oaks)
for the year ended December 31, 1996 have been included herein in reliance on
the report of KPMG Peat Marwick LLP, independent accountants, given on authority
of said firm as experts in auditing and accounting. The report of KPMG Peat
Marwick LLP covering the December 31, 1996 combined financial statements refers
to the Capital Properties Group's change in its accounting method to capitalize
replacement purchase for major appliances and carpet.
The Consolidated Financial Statements of MAAC incorporated in this
Prospectus by reference to the Annual Report on Form 10-K for the year ended
December 31, 1996, have been so incorporated in reliance on the report of KPMG
Peat Marwick LLP, independent accountants, given on the authority of said firm
as
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experts in auditing and accounting. The report of KPMG Peat Marwick LLP covering
the December 31, 1996 financial statements refers to MAAC's change in accounting
method to capitalize replacement purchases for major appliances and carpet.
The Combined Financial Statements of Flournoy Properties Group as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996 have been incorporated in this Prospectus by reference
to the Form 8-K of Mid-America Apartment Communities, Inc. dated September 17,
1997, as amended, have been so incorporated in reliance on the report of KPMG
Peat Marwick LLP, independent accountants, given on the authority of said firm
as experts in accounting and auditing.
The financial statements of Brown-Flournoy Equity Income Fund Limited
Partnership as of December 31, 1996 and 1995 and for each of the years in the
three-year period ended December 31, 1996 have been included herein in reliance
on the report of KPMG Peat Marwick LLP, independent accountants, given on
authority of said firm as experts in auditing and accounting.
Cushman & Wakefield, Inc. is an independent real estate appraisal firm and
has appraised the fair market value of each of the Mortgaged Properties as of
the respective appraisal dates. The summarized results of such appraisals are
set forth in the information included in this Prospectus under the headings
"Prospectus Summary -- Total Appraised Value," "Risk Factors -- Appraisals,"
"Description of the Morgaged Properties -- The Appraisal Reports" and
"-- Additional Mortgaged Property Information" and have been included in this
Prospectus in reliance upon the authority of Cushman & Wakefield, Inc. as
experts on real estate appraisals.
Creative Project Management, Inc. is an independent environmental
consulting firm and has prepared evaluations of the structural and architectural
conditions, mechanical, electrical, fire and life safety systems as well as
Phase I ESAs for each of the Mortaged Properties. The summarized results of such
evaluations are set forth in the information included in this Prospectus under
the headings "Description of the Mortgaged Properties -- Engineering Report"
and "-- Environmental Report" and have been included in this Prospectus upon
the authority of Creative Project Management, Inc. as experts in preparing and
rendering such evaluations and ESAs.
RATINGS OF THE CERTIFICATES
It is a condition to the issuance of the Certificates that they be rated no
lower than "Baa2" by Moody's and rated no lower than "BBB" by S&P. Moody's
has rated the Certificates through the Scheduled Final Distribution Date. S&P,
however, has rated the Certificates through the Expected Final Distribution
Date. A credit rating is not a recommendation to buy, sell or hold securities
and may be subject to downgrade, withdrawal or qualification at any time by the
assigning rating organization as a result of changes in, or the unavailability
of, information. Neither Moody's nor S&P is rating the likelihood of receipt or
the timing of receipt of Default Interest under the Certificates.
The ratings assigned to the Certificates by each of the Rating Agencies are
based Primarily on its evaluation of the income-producing ability of the
Mortgaged Properties and reflect only the views of the Rating Agencies. Future
events, such as events affecting the Mortgaged Properties or the Borrower could
have an adverse impact on the rating of the Certificates. Although it is the
intent of the Depositor to retain the Rating Agencies to perform annual
monitoring and to provide the Rating Agencies with certain financial and other
information in connection therewith, none of the Depositor, the Trustee, the
Indenture Trustee or the Borrower is under an obligation to maintain any
particular rating, and the Rating Agencies are under no obligation whatsoever to
continue to issue any rating. A downgrade, withdrawal or qualification of a
rating may have an adverse effect on the market price of the Certificates but
will not constitute an event of default under the Indenture, the Bonds or the
Mortgages.
The ratings of the Rating Agencies address the likelihood of the timely
receipt by the holders of the Certificates of all payments (other than Default
Interest) to which such holders are entitled, including payment of all principal
(and any other amounts due under the Security Documents), in the case of
Moody's, by the Scheduled Final Distribution Date and, in the case of S&P, by
the Expected Final Distribution Date. The rating takes into consideration the
characteristics of the Certificates and the structural
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and legal aspects thereof. The ratings do not, however, represent an assessment
of the likelihood or frequency of principal prepayments on the Bonds or the
corresponding effect on the yield to investors.
There can be no assurance that a rating agency other than the Rating
Agencies will not choose to rate the Certificates and publish such rating or
that such other rating agency would assign the Certificates a rating equivalent
to or higher than the ratings assigned by the Rating Agencies. See "Risk
Factors -- Ratings of the Certificates."
AVAILABLE INFORMATION
The Borrower, the Depositor and the Trust have filed with the Commission a
Registration Statement on Form S-3 and Form S-11 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities
offered hereby. This Prospectus, which is a part of the Registration Statement,
does not contain all of the information included in the Registration Statement
and the exhibits and financial statements thereto. For further information with
respect to the Borrower, the Trust, the Certificates and the Bonds, reference is
hereby made to the Registration Statement, including the exhibits and schedules
thereto, which may be examined without charge or copies obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and are also
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Electronic
filings made through the Electronic Data Gathering, Analysis and Retrieval
System are publicly available through the Securities and Exchange Commission's
web site (http://www.sec.gov).
Statements contained in this Prospectus concerning the provisions or
contents of any contract, agreement or other document referred to herein or
therein are not necessarily complete. With respect to each such contract,
agreement or document filed as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description of the matters
involved, and each such statement shall be deemed qualified in its entirety by
such reference to the copy of the applicable document filed with the Commission.
The Borrower intends to deliver to security holders annual reports
containing financial statements with a report thereon by the Borrower's
independent certified public accountants, and quarterly reports containing
unaudited financial information for each of the first three quarters of each
fiscal year.
INCORPORATION BY REFERENCE
All documents filed by the Borrower pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended, prior to the
termination of the offering made pursuant to this Prospectus shall be deemed to
be incorporated by reference into this Prospectus.
The following documents heretofore filed with the Commission by MAAC (File
No. 1-12762), of which the Borrower and the Depositor are "majority-owned
subsidiaries" as defined by Rule 405 promulgated pursuant to the Securities
Act, are incorporated herein by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1996;
(b) Quarterly Reports on Form 10-Q for the periods ended March 31,
1997, June 30, 1997 and September 30, 1997, respectively; and
(c) Current Reports on Form 8-K dated October 7, 1997, September 19,
1997, September 17, 1997, August 19, 1997, June 5, 1997, April 25, 1997,
April 11, 1997, March 19, 1997, and February 21, 1997, as amended by MAAC's
Current Reports on Form 8-K/A, as applicable;
The Borrower will provide, without charge, to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference herein (not including
the exhibits to such documents, unless exhibits are specifically incorporated by
reference in such documents). Requests for such copies should be directed to
Mid-America Capital Partners, L.P., c/o CT Corporation Trust Company, 1209
Orange Street, Wilmington, Delaware, 19081, Attn: Lynn A. Johnson, Secretary,
(302) 777-0205.
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GLOSSARY OF TERMS
"ACMS" -- asbestos containing materials
"ADA" -- the Americans with Disabilities Act
"ACCOUNT" -- ANY OF THE SEGREGATED CASH COLLATERAL ACCOUNTS ESTABLISHED
UNDER THE CASH COLLATERAL AGREEMENT OR THE OPERATING ACCOUNT ESTABLISHED IN THE
NAME OF THE ACCOUNT BANK FOR THE BENEFIT OF THE INDENTURE TRUSTEE, WHICH MAY BE
UTILIZED DURING A CASH MANAGEMENT PERIOD
"ACCOUNT BANK" -- First Union Bank
"ACCOUNT FUNDING DATE" -- the Business Day preceding a Payment Date
during a Cash Management Period
"ADJUSTED CASH FLOW" -- for the indicated period equals approximately $16
million, which is based on (i) all revenue derived from the Mortgaged Properties
for the indicated period less (ii) all expenses incurred or accrued in the
operation of the Mortgaged Properties for the indicated periods, including a
management fee equal to 4% of revenue and a $200 per apartment unit capital
expenditure reserve per annum.
"ADVANCE RATE" -- a rate per annum equal to the prime rate of the
Indenture Trustee in effect on the date such Advance is made, compounded monthly
"ADVANCES" -- Interest Advances, Property Advances and Fees Advances
"APPRAISALS" -- the appraisals of each of the Mortgaged Properties
"APPRAISER" -- Cushman & Wakefield, Inc.
"BONDS" -- the Borrower's $142,000,000 aggregate principal amount of %
First Mortgage Bonds, due 2003
"BORROWER" -- Mid-America Capital Partners, L.P., a Delaware limited
partnership
"BUSINESS DAY" -- any day other than (i) a Saturday or Sunday or (ii) a
day that is either a legal holiday or a day on which banking institutions in New
York, New York, the State of Illinois or the State of Tennessee are authorized
or obligated by law, regulation or executive order to be closed.
"CEDEL" -- Cedel Bank, S.A.
"CPG" -- Capital Properties Group
"CPM" -- Creative Project Management, Inc., a Tennessee corporation
"CASH COLLATERAL AGREEMENT" -- the Cash Collateral Account Security,
Pledge and Assignment Agreement among the Borrower, the Indenture Trustee and
the Account Bank, as the same may be amended from time to time
"CASH MANAGEMENT PERIOD" -- a period during which (i) the Borrower fails
to maintain a Pre-Permitted Merger Debt Service Coverage Ratio of at least 1.30
to 1 or (ii) an event of default occurs and is continuing under the Bonds, the
Indenture or any Security Document or (iii) any event has occurred and is
continuing which obligates or permits the Indenture Trustee to make an Advance.
"CERTIFICATE RECORD DATE" -- the close of business on the Business Day
preceding the applicable Distribution Date
"CERTIFICATES" -- Commercial Mortgage Pass-through Certificates, Series
1998-1 of the Trust
"CODE" -- the Internal Revenue Code of 1986, as amended
"COMMISSION" -- the Securities and Exchange Commission
"COMPANY" -- MAAC and MAALP and their respective subsidiaries
"DTC" -- The Depository Trust Company
G-1
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"DEFAULT RATE" -- a rate of interest equal to the greater of (i) the
interest rate on the Bonds plus 2% per annum or (ii) the 20 Year U.S. Treasury
Rate plus 2.8% per annum.
"DEFAULT INTEREST" -- the amount payable under the Bonds at the Default
Rate
"DEFINITIVE CERTIFICATE" -- a certificate issued in fully registered,
certificated form representing an interest in the Certificates
"DEFINITIVE BOND" -- a bond issued in fully registered, certificated form
representing an interest in the Bonds
"DEPOSITOR" -- Mid-America Finance, Inc., a Delaware corporation
"DEPOSITORIES" -- the respective depositories of CEDEL and Euroclear,
through which such entities will hold omnibus positions on behalf of CEDEL
Participants and Euroclear Participants
"DEVELOPMENT PROPERTIES" -- the construction in progress of four new
apartment communities and five additions to existing apartment communities,
which, in the aggregate, represents the construction of 1,570 new apartment
units acquired by the Company in the Flournoy Reorganization
"DISTRIBUTION DATE" -- the first Business Day of each month beginning
April 1, 1998
"EBITDA" -- earnings before interest taxes depreciation and amortization
"ERISA" -- Employee Retirement Income Security Act of 1974, as amended
"ERISA PLANS" -- employee benefit plans subject to Part 4, Subtitle B,
Title I of ERISA
"ESA" -- environmental site assessment
"EUROCLEAR" -- The Euroclear System
"EXCHANGE ACT" -- the Securities Exchange Act of 1934, as amended
"EXPECTED FINAL DISTRIBUTION DATE" -- March 1, 2003
"FDC" -- Flournoy Development Company
"FDC MERGER" -- the merger of FDC into MAAC
"FDC-OWNED PARTNERSHIP INTERESTS" -- partnership interest in 28 Property
Partnerships acquired by MAAC in the FDC Merger
"FHA" -- Fair Housing Amendments Act of 1988
"FSA" -- the Financial Services Act of 1986 of the United Kingdom
"FEES ADVANCE" -- an advance in respect of any payment of the fees of the
Indenture Trustee, the Trustee or any servicer appointed by the Indenture
Trustee
"FLOURNOY REORGANIZATION" -- the FDC Merger and the acquisition by MAALP
of certain apartment communities and and partnership interests in certain
Property Partnerships
"FRAUDULENT CONVEYANCE STATUTES" -- all relevant federal and state
fraudulent conveyance statutes
"GAAP" -- generally accepted accounting principles
"GENERAL PARTNER" -- MAACP, Inc., a Delaware corporation
"GLOBAL BOND" -- the single global bond in definitive, fully registered
form without interest coupons registered in the name of a nominee of DTC and
deposited with the Indenture Trustee
"GLOBAL CERTIFICATE" -- the single global certificate in definitive,
fully registered form without interest coupons registered in the name of a
nominee of DTC and deposited with the Trustee
"HOLDOVER ACCOUNT" -- a segregated non-interest bearing account into
which the Trustee is required to hold payments received by it with respect to
the Certificates which are not distributed upon repayment in full of the Bonds
"IRS" -- Internal Revenue Service
G-2
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"INDENTURE" -- the Restated Supplemental Indenture dated as of November
21, 1997 among MAALP, the Borrower, and the Indenture Trustee.
"INDENTURE TRUSTEE" -- LaSalle National Bank
"INDIRECT PARTICIPANTS" -- individuals or entities which hold
Certificates through Participants
"INITIAL OFFERING" -- the initial public offering of MAAC's common stock
in February 1994
"INTEREST ADVANCE" -- an advance on any Payment Date in respect of any
scheduled payment of interest on the Bonds
"INTEREST ESCROW ACCOUNT" -- one of three separate segregated cash
collateral accounts established in the name of the Account Bank for the benefit
of the Indenture Trustee, which may be utilized during a Cash Management Period
"LEASES" -- "LOAN DOCUMENTS" -- the Indenture, the Mortgages and the
Bonds
"MAAC" -- Mid-America Apartment Communities, Inc., a Tennessee
corporation
"MAALP" -- Mid-America Apartments, L.P., a Tennessee limited partnership
"MAALP PROSPECTUS" -- MAALP's prospectus pursuant to a post-effective
amendment to the Registration Statement of which this Prospectus is a part,
providing Certificate holders with information about MAALP and describing the
Permitted Merger and Security Release
MSMC LOAN" -- indebtedness of the Borrower to Morgan Stanley Mortgage
Capital, Inc. in the principal amount of $140 million
"MANAGEMENT AGREEMENT" -- the management agreement between the Borrower
and MAALP pursuant to which MAALP is required to operate and manage the
Mortgaged Properties on a day-to-day basis.
"MOODY'S" -- Moody's Investors Service, Inc.
"MORTGAGE" -- any mortgage or other document evidencing the Mortgage
Liens
"MORTGAGE LIENS" -- the first priority mortgage liens on the Mortgaged
Properties
"MORTGAGED PROPERTIES" -- 26 apartment communities subject to the
Mortgage Liens
"NEW REGULATIONS" -- recently issued final regulations which would
provide alternative methods for satisfying certain certification requires with
respect to United States Aliens
"NON-U.S. HOLDERS" -- nonresident alien individuals, foreign
corporations, foreign partnerships or certain foreign estates and trusts
"OPERATING ACCOUNT" -- a segregated cash collateral account established
in the name of the Account Bank for the benefit of the Indenture Trustee
"PTCE" -- Prohibited Transaction Class Exemption
"PARTICIPANTS" -- direct participants in DTC, CEDEL or Euroclear
"PARTNERSHIP" -- Mid-America Capital Partners, L.P., a Delaware limited
partnership
"PARTNERSHIP AGREEMENT" -- the agreement of limited partnership of the
Borrower
"PAYMENT DATE" -- the first Business Day of each month commencing April
1, 1998, on which interest payments on the Bonds will be due
"PLAN" -- employee benefit plans and certain other retirement plans and
arrangements that are subject to ERISA or corresponding provisions of the Code,
including individual retirement accounts and annuities, Keogh plans and
collective investment funds in which such plans, accounts, annuities or
arrangements are invested
"PLAN ASSET REGULATION" -- Department of Labor Regulation, 29 F.R.
2510.3-101
"PLAN INVESTORS" -- persons acting on behalf of a Plan or persons using
the assets of a Plan
G-3
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"PERMITTED INDEBTEDNESS" -- (i) the indebtedness represented by the Bonds
and (ii) trade and operational debt incurred in the ordinary course of business
with trade creditors in such amounts as are normal and reasonable under the
circumstances, provided such debt is not evidenced by a note and is not
outstanding for more than sixty days (or such longer period as any such debt
will be contested by the Borrower in good faith)
"PERMITTED MERGER" -- the merger of the Borrower with and into MAALP
"POLICY STATEMENT" -- the "Supervisory Policy Statement on Securities
Activities" dated January 28, 1992, as revised April 15, 1994 of the Federal
Financial Institutions Examination Council
POST-PERMITTED MERGER DEBT SERVICE COVERAGE RATIO" -- the ratio of (i) (a)
the amount of consolidated net income (or loss) of MAALP and its subsidiaries on
a consolidated basis for such period plus (b) amounts which have been deducted
for (1) interest or indebtedness of MAALP and its subsidiaries on a consolidated
basis; (2) provision for taxes based on income; (3) amortization of indebtedness
discount; (4) provisions for gains and losses on properties; (5) depreciation
and amortization; (6) the effect of any noncash charge resulting from a change
in accounting principles; and (7) amortization of deferred charges to (ii) the
amount which is expensed in any 12-month period for interest on indebtedness of
MAALP and its subsidiaries on a consolidated basis.
"PRE-PERMITTED MERGER DEBT SERVICE COVERAGE RATIO" -- the ratio of (a)
the excess of all revenue derived from the Mortgaged Properties for the four
most recent trailing quarters over all expenses during such period assuming a
management fee of 4% of revenue and a $200 per apartment unit capital
expenditure reserve per year to (b) the amount of debt service on the Bonds then
outstanding (based on an assumed annual debt service constant of 9.25% per
annum)
"PRINCIPAL AMOUNT" -- $142,000,000 aggregate principal amount of %
First Mortgage Bonds, Due 2003
"PROPERTY ACCOUNT" -- individual operating accounts for each of the
Mortgaged Properties
"PROPERTY ADVANCE" -- an advance in respect of any payment of taxes,
insurance premiums or other amounts required under the Mortgages to be paid with
respect to the Mortgaged Properties
"PROPERTY PARTNERSHIPS" -- certain property owning partnerships
associated with FDC
"REIT" -- real estate investment trust
"REMIC" -- real estate mortgage investment conduit
"RATING AGENCIES" -- Moody's and S&P
"RECORD DATE" -- the close of business on the Business Day preceding the
applicable Payment Date
"REPLACEMENT RESERVE ACCOUNT" -- one of three separate segregated cash
collateral accounts established in the name of the Account Bank for the benefit
of the Indenture Trustee, which may be utilized during a Cash Management Period
"REQUIRED INSURANCE POLICIES" -- insurance policies required under the
Indenture, Mortgages and other Security Documents with respect to the Mortgaged
Properties
"RULES" -- the rules, regulation and procedures creating and affecting
DTC and its operations
"S&P" -- Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies
"SMMEA" -- the Secondary Mortgage Market Enhancement Act of 1984, as
amended
"SCHEDULED FINAL DISTRIBUTION DATE" -- September 1, 2005
"SECTION 171 PREMIUM" -- the premium paid for a Bond over its stated
principal amount plus accrued interest
"SECURED DEBT" -- indebtedness secured by any mortgage, lien, charge,
pledge, encumbrance or security interest of any kind
"SECURITIES ACT" -- the Securities Act of 1933, as amended
G-4
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"SECURITY DOCUMENT" -- the Indenture, Mortgages and other security
documents with respect to the Mortgaged Properties
"SECURITY RELEASE" -- the release of the Mortgage Liens
"STATED MATURITY DATE" -- means March 3, 2003, the date on which the
entire unpaid principal balance of the Bonds will be due and payable
"TIN" -- taxpayer identification number
"TOTAL ASSETS" -- the sum of (i) the cost (original cost plus capital
improvements) of real estate assets of MAALP and its subsidiaries before
depreciation and amortization, determined on a consolidated basis in accordance
with GAAP and (ii) all other assets of MAALP and its subsidiaries on a
consolidated basis determined in accordance with GAAP (but excluding intangibles
and accounts receivable)
"TOTAL UNENCUMBERED ASSETS" -- Total Assets which are not encumbered by
any pledge, mortgage or other encumbrance
"TRIGGER NOTICE" -- a notice delivered by the Indenture Trustee to the
Account Bank that the Pre-Permitted Debt Service Coverage Ratio of the Borrower
is less than 1.30 to 1
"TRUST" -- Mid-America Mortgage Trust, 1998-1
"TRUST AGREEMENT" -- the agreement of trust between Depositor and the
Trustee dated as of February 5, 1998, as amended and restated from time to time
"TRUST TERMINATION" -- the termination of the Trust simultaneously with
the occurrence of the Permitted Merger and Security Release
"TRUSTEE" -- LaSalle National Bank
"UPREIT" -- umbrella partnership real estate investment trust
"U.S. PERSON" -- (i) a citizen or resident of the United States, (ii) a
corporation or partnership (except to the extent provided in applicable Treasury
regulations) organized under the laws of the United States or any political
subdivision thereof or therein, (iii) an estate, the income of which is subject
to federal income tax regardless of the source, or (iv) a trust with respect to
which a court within the United States is able to exercise primary supervision
over its administration and one or more such U.S. Persons have the authority to
control all of its substantial decisions (and certain other trusts eligible to
elect to be treated as U.S. Persons)
"WAM" -- weighted average maturity of the Bond
"WITHHOLDING AGENT" -- the Borrower or other person who otherwise would
be required to withhold tax from payments made on the Bonds
G-5
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INDEX TO FINANCIAL STATEMENTS
PAGE
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MID-AMERICA CAPITAL PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED):
Pro Forma Condensed Consolidated
Balance Sheet as of September 30,
1997.............................. F-3
Pro Forma Condensed Consolidated
Statements of Operations for the
nine months ended September 30,
1997 and the year ended December
31, 1996.......................... F-5
BALANCE SHEET:
Report of Independent Auditors..... F-7
Balance Sheet as of November 24,
1997.............................. F-8
Notes to Balance Sheet............. F-9
MID-AMERICA MORTGAGE TRUST, 1998-1
STATEMENT OF NET ASSETS:
Report of Independent Auditors..... F-10
Statement of Net Assets as of
February 9, 1998................... F-11
Note to Statement of Net Assets.... F-12
CAPITAL PROPERTIES GROUP
COMBINED FINANCIAL STATEMENTS:
Report of Independent Auditors..... F-13
Combined Balance Sheets as of
September 30, 1997 (Unaudited) and
December 31, 1996 and 1995........ F-14
Combined Statements of Operations
for the nine months ended
September 30, 1997 and 1996
(Unaudited) and for the years
ended December 31, 1996, 1995 and
1994.............................. F-15
Combined Statements of Partners'
Capital for the nine months ended
September 30, 1997 (Unaudited) and
for the years ended December 31,
1996, 1995 and 1994............... F-16
Combined Statements of Cash Flows
for the nine months ended
September 30, 1997 and 1996
(Unaudited) and for the years
ended December 31, 1996, 1995 and
1994.............................. F-17
Notes to the Combined Financial
Statements........................ F-18
Schedule III:
Real Estate Investments and
Accumulated Depreciation.......... F-24
ACQUISITION PROPERTIES
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP:
Report of Independent Auditors..... F-26
Balance Sheets as of September 30,
1997 (Unaudited) and December 31,
1996 and 1995..................... F-27
Statements of Operations for the
nine months ended September 30,
1997 and 1996 (Unaudited) and for
the years ended December 31, 1996,
1995 and 1994..................... F-28
Statements of Partners' Capital
(Deficit) for the nine months
ended September 30, 1997
(Unaudited) and for the years
ended December 31, 1996, 1995 and
1994.............................. F-29
Statements of Cash Flows for the
nine months ended September 30,
1997 and 1996 (Unaudited) and for
the years ended December 31, 1996,
1995 and 1994..................... F-30
Notes to Financial Statements...... F-31
COMBINED FINANCIAL STATEMENTS FOR
CERTAIN MULTIFAMILY ACQUISITION
PROPERTIES (Certain 1997
acquisitions):
Report of Independent Auditors..... F-35
Combined Historical Summary of
Gross Income and Direct Operating
Expenses for Certain Multifamily
Acquisition Properties for the
period from January 1, 1997 to the
earlier of September 30, 1997 or
date of acquisition (Unaudited)
and for the year ended December
31, 1996.......................... F-36
Notes to Combined Historical
Summary of Gross Income and Direct
Operating Expenses for Certain
Multifamily Acquisition
Properties........................ F-37
F-1
<PAGE>
PAGE
------
COMBINED FINANCIAL STATEMENTS FOR
CERTAIN MULTIFAMILY ACQUISITION
PROPERTIES (Certain 1996
acquisitions):
Report of Independent Auditors..... F-38
Combined Historical Summary of
Gross Income and Direct Operating
Expenses for Certain Multifamily
Acquisition Properties for the
period from January 1, 1996 to the
earlier of December 31, 1996 or
date of acquisition (Unaudited)
and for the year ended December
31, 1995.......................... F-39
Notes to Combined Historical
Summary of Gross Income and Direct
Operating Expenses for Certain
Multifamily Acquisition
Properties........................ F-40
FINANCIAL STATEMENTS FOR MULTIFAMILY
ACQUISITION PROPERTY
(Tiffany Oaks Apartments):
Report of Independent Auditors..... F-41
Historical Summary of Gross Income
and Direct Operating Expenses
(Tiffany Oaks) for the period from
January 1, 1996 to the earlier of
September 30, 1997 or date of
acquisition (Unaudited) and for
the year ended December 31,
1996.............................. F-42
Notes to Historical Summary of
Gross Income and Direct Operating
Expenses.......................... F-43
F-1(a)
<PAGE>
MID-AMERICA CAPITAL PARTNERS, L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma condensed balance sheet is presented as
if at September 30, 1997: (i) MAALP had contributed 20 apartment communities,
and the right to acquire the Reorganization Properties (as defined below) to the
Partnership in exchange for a 99% limited partnership interest in the
Partnership and the contributed properties were recorded at MAALP's historical
cost; (ii) MAACP, Inc. contributed $2.271 million cash in exchange for a 1%
general partnership interest in the Partnership (iii) the Partnership exercised
its right to acquire the Reorganization Properties and repaid notes payable of
approximately $22 million which were secured by the Reorganization Properties.
Additional amounts due in connection with the acquisition of the Reorganization
Properties were paid by MAALP on behalf of the Partnership.; (iv) the merger of
Hermitage at Beechtree, L.L.C. with and into the Partnership is consummated; (v)
the consummation of the Reorganization; (vi) the origination of the MSMC Loan
and the distribution of $116 million of the net proceeds to MAALP; (vii) the
Partnership had issued its $142,000,000 % First Mortgage Bonds Due 2003
(the Bonds); and (viii) the net proceeds from the sale of the Bonds are applied
as set forth in "Use of Proceeds."
The 26 communities contributed to or acquired by the Partnership (the
Mortgaged Properties) consist of (i) 20 properties at September 30, 1997
comprising Capital Partners Group (the CPG Properties); (ii) 5 properties
acquired on November 25, 1997 by the Partnership in connection with the
consummation of the merger of Flournoy Development Company (FDC) with and into
MAAC and the other transactions (collectively, the Reorganization Properties) as
described in the Agreement and Plan of Reorganization dated as of September 15,
1997 (the Plan of Reorganization) between FDC, MAAC and MAALP consisting of 4
properties acquired from Brown-Flournoy Equity Income Fund Limited Partnership
(the Brown-Flournoy Properties) and Willow Creek; and (iii) one property
(Hermitage at Beechtree) which was acquired subsequent to September 30, 1997
through the merger of Hermitage at Beechtree, L.L.C. with and into the
Partnership. It is expected that MAALP and the Partnership will record
properties acquired in connection with the Plan of Reorganization using the
purchase method of accounting.
The unaudited pro forma condensed combined statements of operations for the
nine months ended September 30, 1997 and the year ended December 31, 1996 have
been prepared as if each of the transactions described above and the Recent
Acquisitions (as defined below) had been consummated on January 1, 1996 and
assuming that the Partnership incurred no income tax expense. The Recent
Acquisitions are comprised of (i) the Reorganization Properties; (ii) Hermitage
at Beechtree; (iii) the acquisition in 1996 of 6 of the Communities containing
an aggregate of 1,760 apartment units (the 1996 Completed Acquisitions); and
(iv) the acquisition in 1997 of 3 of the Communities containing an aggregate of
684 apartment units (the 1997 Completed Acquisitions), (the Reorganization
Properties, Hermitage at Beechtree, the 1996 Completed Acquisitions and the 1997
Completed Acquisitions are collectively referred to as the Completed
Acquisitions).
These unaudited pro forma financial statements have been prepared by the
Partnership based on the historical financial statements of CPG, Brown-Flournoy
Equity Income Fund Limited Partnership (Brown-Flournoy), and the financial
statements for certain multifamily acquisition properties, which have been
included elsewhere herein. These unaudited pro forma financial statements should
be read in conjunction with the foregoing historical financial statements,
including the notes thereto. In management's opinion, all adjustments necessary
to reflect the effects of the above have been made. These pro forma combined
financial statements are presented for comparative purposes only and are not
indicative of what the actual financial position or results of operations of the
Partnership would have been had the foregoing transactions occurred on the dates
indicated.
F-2
<PAGE>
MID-AMERICA CAPITAL PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERSHIP
FORMATION MSMC LOAN
CPG PRO FORMA PRO FORMA PARTNERSHIP
HISTORICAL(A) ADJUSTMENTS ADJUSTMENTS(F) OFFERING(G) PRO FORMA
-------------- ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Real estate assets, net.............. $168,846 $ 45,351(B) $ -- $ -- $214,197
Cash................................. 92 (19,933)(C) 22,112 -- 2,271
Restricted cash...................... -- -- 636 -- 636
Deferred financing costs, net........ -- -- 964 1,863(H) 2,827
Other assets......................... 119 (119)(D) -- -- --
-------------- ------------ --------------- ------------ ------------
Total assets.................. $169,057 25,299 23,712 1,863 219,931
============== ============ =============== ============ ============
LIABILITIES:
MSMC Loan payable.................... $-- -- 140,000 (140,000) --
Bonds................................ -- -- -- 142,000 142,000
Accounts payable..................... 427 (427)(D) -- -- --
Accrued expenses and other
liabilities........................ 2,225 (2,225)(D) -- -- --
Security deposits.................... 557 149(B) -- -- 706
-------------- ------------ --------------- ------------ ------------
Total liabilities............. 3,209 (2,503) 140,000 2,000 142,706
-------------- ------------ --------------- ------------ ------------
PARTNERS' CAPITAL
General Partner.................... -- 2,271(E) -- -- 2,271
Limited Partner.................... 165,848 25,531(E) (116,288) (137)(I) 74,954
-------------- ------------ --------------- ------------ ------------
TOTAL PARTNERS' CAPITAL.............. 165,848 27,802 (116,288) (137) 77,225
-------------- ------------ --------------- ------------ ------------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL............................ $169,057 25,299 23,712 1,863 219,931
============== ============ =============== ============ ============
</TABLE>
- ------------
(A) Reflects the unaudited historical combined balance sheet of CPG as of
September 30, 1997.
PARTNERSHIP FORMATION PRO FORMA ADJUSTMENTS:
The following pro forma adjustments reflect transactions occurring in
connection with the Partnership formation and consummation of the
Reorganization. In connection with the Partnership formation (i) MAALP
contributed 20 of the Communities, and the right to acquire the Reorganization
Properties to the Partnership; (ii) Hermitage at Beechtree, L.L.C. was merged
with and into the Partnership (the Hermitage at Beechtree Merger); (iii) the
Partnership assumed security deposit liabilities of the Communities; and (iv)
MAALP received a 99% limited partnership interest in the Partnership. All other
assets and liabilities of the Communities were retained by MAALP.
F-3
<PAGE>
(B) Reflects the acquisition of the Reorganization Properties by the
Partnership ($36,300) and the Hermitage at Beechtree merger ($9,015),
including security deposits assumed in connection with the acquisitions as
follows:
ACQUISITION SECURITY
PROPERTY COST DEPOSITS
- ------------------------------------- ----------- ---------
Brown--Flournoy Properties
Southland Station I............. $ 7,127 $ 17
Park Place...................... 8,117 20
Hidden Lake II.................. 6,804 33
High Ridge...................... 8,126 31
Willow Creek......................... 6,162 48
Hermitage at Beechtree............... 9,015 --
----------- ---------
$45,351 $ 149
=========== =========
(C) Reflects:
MACP, Inc. cash contribution in
exchange for a 1% general partner
interest in the Partnership........ $ 2,271
CPG cash retained by MAALP........... (92)
Repayment of notes payable in
connection with the acquisition of
the Reorganization Properties...... (22,112)
----------
$ (19,933)
==========
(D) Reflects assets and liabilities of CPG retained by MAALP at the formation of
the Partnership.
(E) Reflects increase in capital accounts as a result of the Partnership
formation as follows:
MACP, Inc. cash contribution in
exchange for a 1% general
partnership interest in the
Partnership........................ $ 2,271
==========
Net assets of CPG retained by MAALP
at the formation of the Partnership
consisting of cash ($92), other
assets ($119), accounts payable
($427) and accrued expenses
($2,225)........................... $ 2,441
MAALP cash payments on behalf of the
Partnership in connection with the
acquisition of the Reorganization
Properties......................... 23,090
----------
$ 25,531
==========
MSMC LOAN PRO FORMA ADJUSTMENTS:
(F) The Partnership entered into a $140 million short-term promissory note on
November 25, 1997. The proceeds of the borrowing net of deferred financing
costs ($964), retained restricted cash ($636) and repayment of notes
payable in connection with the acquisition of the Reorganization Properties
($22,112) were distributed to MAALP.
OFFERING PRO FORMA ADJUSTMENTS:
(G) Reflects the Offering assuming the application of proceeds as described in
"Use of Proceeds."
(H) Reflects deferred financing costs incurred in connection with the Offering
($2,313) net of deferred financing costs incurred in connection with the
MSMC Loan which are fully amortized at the date of the Offering ($450).
(I) Reflects the amortization of deferred financing costs incurred in
connection with the MSMC Loan ($450), net of the distribution of a portion
of the Offering proceeds to MAALP of $313.
Subsequent to the formation of the Partnership, an additional $2.271
million was distributed by the Partnership to MAALP. The distribution is not
reflected in the accompanying pro forma balance sheet since it is not directly
attributable to the Offering or the Reorganization.
F-4
<PAGE>
MID-AMERICA CAPITAL PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
COMBINED
CPG COMPLETED PRO FORMA
HISTORICAL(A) ACQUISITIONS(B) ADJUSTMENTS PRO FORMA
------------- --------------- ----------- ---------
<S> <C> <C> <C>
REVENUES:
Rental............................. $22,233 5,895 -- 28,128
Other.............................. 187 177 -- 364
------------- --------------- ----------- ---------
TOTAL REVENUES................ 22,420 6,072 -- 28,492
------------- --------------- ----------- ---------
EXPENSES:
Personnel.......................... 2,283 720 -- 3,003
Building repairs and maintenance,
utilities, landscaping and other
operating........................ 3,526 1,117 -- 4,643
Real estate taxes and insurance.... 2,125 540 -- 2,665
Depreciation and amortization...... 4,607 1,180 159(C) 5,946
General and administrative......... 897 239 117(D) 1,253
Interest........................... 724 1,596 4,732(E) 7,052
Amortization of deferred financing
costs............................ 35 -- 415(F) 450
------------- --------------- ----------- ---------
TOTAL EXPENSES................ 14,197 5,392 5,423 25,012
------------- --------------- ----------- ---------
Net income.............................. $ 8,223 680 (5,423) 3,480
============= =============== =========== =========
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(A) Reflects the unaudited historical combined statement of operations of CPG
for the nine months ended September 30, 1997.
(B) Reflects the unaudited historical operating results from January 1, 1997 to
the earlier of the acquisition date or September 30, 1997 for the 1997
Completed Acquisitions, Hermitage at Beechtree and the Reorganization
Properties.
(C) Represents additional depreciation and amortization resulting from the
purchase of the Reorganization Properties, the 1997 Completed Acquisitions
and Hermitage at Beechtree.
(D) Represents additional management fees paid to MAALP as a result of the
acquisition of the Reorganization Properties, the 1997 completed
Acquisitions and Hermitage at Beechtree equal to 4% of total revenues of
those properties of $243 and fees paid to the Trustee and estimated
additional costs to operate as a separate public company of $113, net of
general and administrative expenses of the Reorganization Properties which
will be eliminated ($239).
(E) Represents interest on the Bonds of $7,052, net of interest which was
eliminated as a result of the repayment of notes payable of CPG and the
Reorganization Properties ($2,320). The Partnership has entered into
forward placement contracts the effect of which was to lock the interest
rate on $140 million of the Bonds at an average interest rate of 6.62%.
Interest on the Bonds is calculated based upon a rate of 6.63% for $80
million, 6.67% for $50 million, 6.43% for $10 million and 6.06% (based upon
current estimates) for $2 million.
(F) Represents amortization of historical deferred financing costs of CPG ($35)
which were eliminated as a result of repaying the CPG notes payable net of
the amortization of deferred financing costs on the Bonds of $450.
F-5
<PAGE>
MID-AMERICA CAPITAL PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
COMBINED
CPG COMPLETED PRO FORMA
HISTORICAL(A) ACQUISITIONS(B) ADJUSTMENTS PRO FORMA
------------- --------------- ----------- ---------
<S> <C> <C> <C>
REVENUES:
Rental............................. $20,056 16,654 -- 36,710
Other.............................. 195 386 -- 581
------------- --------------- ----------- ---------
TOTAL REVENUES................ 20,251 17,040 -- 37,291
------------- --------------- ----------- ---------
EXPENSES:
Personnel.......................... 1,996 1,822 -- 3,818
Building repairs and maintenance,
utilities, landscaping and other
operating........................ 3,269 2,962 -- 6,231
Real estate taxes and insurance.... 1,942 1,562 -- 3,504
Depreciation and amortiztion....... 4,000 1,420 1,978(C) 7,398
General and administrative......... 810 319 513(D) 1,642
Interest........................... 2,169 2,130 5,104(E) 9,403
Amortization of deferred financing
costs............................ 58 -- 542(F) 600
------------- --------------- ----------- ---------
TOTAL EXPENSES................ 14,244 10,215 8,137 32,596
------------- --------------- ----------- ---------
Net income.............................. $ 6,007 6,825 (8,137) 4,695
============= =============== =========== =========
</TABLE>
- ------------
PRO FORMA ADJUSTMENTS:
(A) Reflects the unaudited historical combined statements of operations of CPG
for the year ended December 31, 1996.
(B) Reflects the unaudited historical operating results from January 1, 1996 to
the earlier of the acquisition date or December 31, 1996 for the Completed
Acquisitions, Hermitage at Beechtree and the Reorganization Properties.
(C) Represents additional depreciation and amortization resulting from the
purchase of the Reorganization Properties, the Completed Acquisitions and
Hermitage at Beechtree.
(D) Represents additional management fees paid to MAALP as a result of the
acquisition of the Reorganization Properties, the 1997 Completed
Acquisitions, the 1996 Completed Acquisitions and Hermitage at Beechtree
equal to 4% of total revenues of these properties of $682 and fees paid to
the Trustee and estimated additional costs to operate as a separate public
company of $150, net of general and administrative expenses of the
Reorganization Properties which will be eliminated ($319).
(E) Represents interest on the Bonds of $9,403, net of interest which was
eliminated as a result of the repayment of notes payable of CPG and the
Reorganization Properties ($4,299). The Partnership has entered into
forward placement contracts the effect of which was to lock the interest
rate on $140 million of the Bonds at an average interest rate of 6.62%.
Interest on the Bonds is calculated based upon a rate of 6.63% for $80
million, 6.67% for $50 million, 6.43% for $10 million and 6.06% (based upon
current estimates) for $2 million.
(F) Represents amortization of historical deferred financing costs of CPG
($58), which were eliminated as a result of repaying the CPG notes payable
net of the amortization of deferred financing costs on the Bonds of $600.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Mid-America Capital Partners, L.P.
We have audited the accompanying balance sheet of Mid-America Capital
Partners, L.P. as of November 24, 1997. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Mid-America Capital Partners, L.P.
as of November 24, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
November 24, 1997
F-7
<PAGE>
MID-AMERICA CAPITAL PARTNERS, L.P.
BALANCE SHEET
NOVEMBER 24, 1997 ASSETS
Cash.................................... $ 1,000
=========
PARTNERS' CAPITAL
Commitments and contingencies (note
2).................................... --
PARTNERS' CAPITAL:
General Partner.................... $ 1,000
Limited Partner.................... --
---------
TOTAL PARTNERS' CAPITAL....... $ 1,000
=========
See accompanying notes to balance sheet.
F-8
<PAGE>
MID-AMERICA CAPITAL PARTNERS, L.P.
NOTES TO BALANCE SHEET
NOVEMBER 24, 1997
(1) ORGANIZATION AND BASIS OF FINANCIAL PRESENTATION
Mid-America Capital Partners, L.P. (the Partnership) is a special purpose
Delaware limited partnership. The sole purpose for which the Partnership has
been formed is to own and operate 26 apartment communities (the Mortgaged
Properties) to be contributed to the Partnership by Mid-America Apartments,
L.P., a Tennessee limited partnership (MAALP) or acquired directly by the
Partnership. The sole limited partner of the Partnership is MAALP, which is a
majority owned subsidiary of Mid-America Apartment Communities, Inc. (MAAC).
MAAC is a self-administered and self-managed umbrella partnership real estate
investment trust (REIT). MAAC conducts a substantial portion of its operations
through MAALP and subsidiaries of MAALP.
Distributions to the Partners relating to operations of the Mortgaged
Properties will be based upon net cash flow, as defined in the Partnership
Agreement. Profits, losses and distributions will be allocated to the Partners
in proportion with their ownership.
(2) COMMITMENTS AND CONTINGENCIES
The Partnership, through its ownership in the Mortgaged Properties, will be
party to various legal actions resulting from the operation of the Mortgaged
Properties. Management believes that these actions will not have a materially
adverse effect on the Partnership.
(3) SUBSEQUENT EVENT (UNAUDITED)
Subsequent to November 24, 1997 MAALP is expected to contribute its
interest in 20 of the Mortgaged Properties in exchange for a 99% limited
partnership interest in the Partnership. MAACP, Inc., (the General Partner), a
Tennessee corporation and wholly-owned subsidiary of MAAC, is expected to
contribute cash for a 1% general partnership interest in the Partnership.
Subsequent to November 24, 1997, the Mortgaged Properties were acquired by
the Partnership and were pledged to secure a $140 million loan (the MSMC Loan)
received from Morgan Stanley Mortgage Capital, Inc. A portion of the proceeds
from the MSMC Loan were utilized in connection with the acquisition of certain
of the Mortgaged Properties and the remainder was distributed to MAALP.
The Partnership expects to issue $142 million aggregate principal amount of
% Bonds Due 2003 (the Bonds). The Bonds will be secured by a first priority
deed of trust, security agreement and assignment of rents and leases in respect
of the Mortgaged Properties. The net proceeds from the sale of the Bonds will be
applied to the MSMC Loan, utilized to fund costs of the offering and the
remainder will be distributed to MAALP.
F-9
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Mid-America Mortgage Trust, 1998-1
We have audited the accompanying statement of net assets of Mid-America
Mortgage Trust, 1998-1 as of February 9, 1998. This financial statement is the
responsibility of the Mid-America Mortgage Trust, 1998-1. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of net assets is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of net assets. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the statement of net assets referred to above presents
fairly, in all material respects, the fiancial position of as of February 9,
1998 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
February 9, 1998
F-10
<PAGE>
MID-AMERICA MORTGAGE TRUST, 1998-1
STATEMENT OF NET ASSETS
FEBRUARY 9, 1998
ASSETS
Cash................................. $ 1,000
---------
Net Assets........................... $ 1,000
=========
See accompanying note to statement of net assets.
F-11
<PAGE>
MID-AMERICA MORTGAGE TRUST, 1998-1
NOTE TO STATEMENT OF NET ASSETS
FEBRUARY 9, 1998
(1) ORGANIZATION AND BASIS OF FINANCIAL PRESENTATION
Mid-America Mortgage Trust, 1998-1 (the Trust) is a grantor trust formed to
issue Commercial Mortgage Pass-Through Certificates, Series 1998-1 (the
Certificates). The Certificates will be issued pursuant to an agreement of trust
dated as of February 5, 1998, between Mid-America Finance,
Inc. (the Depositor) and LaSalle National Bank, as trustee. The only assets of
the Trust, other than nominal cash, will be $142,000,000 aggregate principal
amount of Bonds, Due 2003 (the Bonds) of Mid-America Capital Partners, L.P.
(the Partnership). The Certificates will be payable solely from the amounts
received by the Trustee as payments on the Bonds. The sole purpose of the
Partnership is to own and operate 26 apartment communities (the Mortgaged
Properties) that were contributed to the Partnership by Mid-America Apartments,
L.P., a Tennessee limited partnership (MAALP) or acquired directly by the
Partnership.
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Capital Properties Group:
We have audited the accompanying combined balance sheets of Capital
Properties Group as of December 31, 1996 and 1995, and the related combined
statements of operations, partners' capital and cash flows for each of the three
years in the period ended December 31, 1996. In connection with our audits of
the combined financial statements, we also have audited the financial statement
Schedule III, Real Estate Investment and Accumulated Depreciation. These
combined financial statements and the financial statement schedule are the
responsibility of the management of Capital Properties Group. Our responsibility
is to express an opinion on these combined financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Capital
Properties Group at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the combined financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in note 1 to the combined financial statements, Capital
Properties Group changed its accounting method to capitalize replacement
purchases for major appliances and carpet in 1996.
KPMG Peat Marwick LLP
Memphis, Tennessee
November 24, 1997
F-13
<PAGE>
CAPITAL PROPERTIES GROUP
COMBINED BALANCE SHEETS
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
DECEMBER 31,
SEPTEMBER 30, ---------------------
1997 1996 1995
------------- ---------- ---------
(UNAUDITED)
ASSETS
REAL ESTATE ASSETS:
Land............................ $ 16,497 14,569 7,947
Buildings and improvements...... 159,095 140,662 76,382
Furniture, fixtures and
equipment....................... 2,653 2,224 1,232
Construction in progress........ 2,795 830 1,679
------------- ---------- ---------
181,040 158,285 87,240
Less accumulated depreciation... (12,194) (7,586) (3,587)
------------- ---------- ---------
REAL ESTATE ASSETS, NET.... 168,846 150,699 83,653
Cash................................. 92 134 162
Restricted cash...................... -- 278 249
Deferred financing costs, net........ -- 35 93
Other assets......................... 119 111 59
------------- ---------- ---------
Total assets............... $ 169,057 151,257 84,216
============= ========== =========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Notes payable................... $ -- 16,461 22,830
Accounts payable................ 427 587 102
Accrued expenses and other
liabilities................... 2,225 1,709 997
Security deposits............... 557 549 309
------------- ---------- ---------
TOTAL LIABILITIES.......... 3,209 19,306 24,238
------------- ---------- ---------
PARTNERS' CAPITAL.................... 165,848 131,951 59,978
------------- ---------- ---------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL....... $ 169,057 151,257 84,216
============= ========== =========
See accompanying notes to combined financial statements.
F-14
<PAGE>
CAPITAL PROPERTIES GROUP
COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) AND YEARS
ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- -------------------------------
1997 1996 1996 1995 1994
----------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental............................. $22,233 13,788 20,056 14,321 4,568
Other.............................. 187 143 195 176 185
----------- --------- --------- --------- ---------
TOTAL REVENUES................ 22,420 13,931 20,251 14,497 4,753
----------- --------- --------- --------- ---------
EXPENSES:
Personnel.......................... 2,283 1,381 1,996 1,413 426
Building repairs and maintenance... 1,110 662 917 772 213
Real estate taxes and insurance.... 2,125 1,398 1,942 1,408 405
Utilities.......................... 859 670 930 749 233
Landscaping........................ 617 357 502 371 119
Other operating.................... 940 660 920 593 292
Depreciation and amortization...... 4,607 2,708 4,000 2,614 755
General and administrative......... 897 557 810 580 190
Interest........................... 724 1,631 2,169 2,225 925
Amortization of deferred financing
costs............................ 35 44 58 48 37
----------- --------- --------- --------- ---------
TOTAL EXPENSES................ 14,197 10,068 14,244 10,773 3,595
----------- --------- --------- --------- ---------
NET INCOME.................... $ 8,223 3,863 6,007 3,724 1,158
=========== ========= ========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-15
<PAGE>
CAPITAL PROPERTIES GROUP
COMBINED STATEMENTS OF PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
PARTNERS'
CAPITAL
----------
Partners' Capital, December 31, 1993.... $ 1,485
Capital contributions, net......... 46,295
Net income......................... 1,158
----------
Partners' Capital, December 31, 1994.... 48,938
Capital contributions, net......... 7,316
Net income......................... 3,724
----------
Partners' Capital, December 31, 1995.... 59,978
Capital contributions, net......... 65,966
Net income......................... 6,007
----------
Partners' Capital, December 31, 1996.... 131,951
Capital contributions, net......... 25,674
Net income......................... 8,223
----------
Partners' Capital, September 30, 1997
(unaudited)........................... $ 165,848
==========
See accompanying notes to combined financial statements.
F-16
<PAGE>
CAPITAL PROPERTIES GROUP
COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- -------------------------------
1997 1996 1996 1995 1994
---------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 8,223 3,863 6,007 3,724 1,158
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and
amortization............... 4,642 2,752 4,058 2,662 792
Changes in assets and liabilities:
Restricted cash............... 278 16 (29) 21 106
Other assets.................. (8) (7) (52) 68 (104)
Accounts payable.............. (160) 398 485 (79) 174
Accrued expenses and other
liabilities................ 516 817 712 14 697
Security deposits............. 8 202 240 22 250
---------- --------- --------- --------- ---------
NET CASH PROVIDED BY
OPERATING
ACTIVITIES............ 13,499 8,041 11,421 6,432 3,073
---------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of real estate assets.... (19,211) (46,381) (66,226) (12,006) (43,008)
Improvements to properties......... (3,544) (3,182) (4,819) (155) (1,156)
Construction of units in
progress......................... -- -- -- (1,558) (121)
---------- --------- --------- --------- ---------
NET CASH USED IN
INVESTING
ACTIVITIES............ (22,755) (49,563) (71,045) (13,719) (44,285)
---------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes
payable.......................... $ (16,460) (236) (6,370) (281) (4,840)
Deferred financing costs........... -- -- -- -- (63)
Capital contributions, net......... 25,674 41,706 65,966 7,316 46,295
---------- --------- --------- --------- ---------
NET CASH PROVIDED BY
FINANCING
ACTIVITIES............ 9,214 41,470 59,596 7,035 41,392
---------- --------- --------- --------- ---------
NET INCREASE (DECREASE)
IN CASH............... (42) (52) (28) (252) 180
Cash, beginning of period............... 134 162 162 414 234
---------- --------- --------- --------- ---------
Cash, end of period..................... $ 92 110 134 162 414
========== ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -- interest paid.......... $ 658 1,867 2,403 2,188 849
========== ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES -- assumption of
debt related to property
acquisitions.......................... $ -- -- -- -- 23,210
========== ========= ========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-17
<PAGE>
CAPITAL PROPERTIES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying combined financial statements include the accounts of the
apartment communities listed below (the Properties). The Properties are owned by
Mid-America Apartment Communities, Inc. (MAAC) or by Mid-America Apartments,
L.P. (MAALP). MAAC is a Memphis, Tennessee based self-administered and
self-managed real estate investment trust. MAAC's business is conducted
principally through MAALP, its operating partnership.
<TABLE>
<CAPTION>
METROPOLITAN NUMBER OF
AREA OF APARTMENT
NAME PROPERTY UNITS DATE ACQUIRED
- ---------------------------------------- ---------------------- ---------- -------------------
<S> <C> <C> <C>
Napa Valley............................. Little Rock, AR 240 October 17, 1996
Westside Creek I........................ Little Rock, AR 142 March 31, 1997
Tiffany Oaks............................ Altamonte Springs, FL 288 December 17, 1996
Marsh Oaks.............................. Atlantic Beach, FL 120 June 29, 1995
Lakeside................................ Jacksonville, FL 416 March 12, 1996
Belmere................................. Tampa, FL 210 December 14, 1994
Shenandoah Ridge........................ Augusta, GA 272 September 1, 1994
Lakepointe.............................. Lexington, KY 118 September 15, 1994
The Village............................. Lexington, KY 252 September 15, 1994
Crosswinds.............................. Jackson, MS 360 July 25, 1996
Pear Orchard............................ Jackson, MS 389 May 5, 1994
Somerset................................ Jackson, MS 144 January 15, 1995
Fairways at Royal Oak................... Cincinnati, OH 214 December 28, 1994
Howell Commons.......................... Greenville, SC 348 January 15, 1997
Park Haywood............................ Greenville, SC 208 September 20, 1993
Steeplechase............................ Chattanooga, TN 108 February 14, 1991
Williamsburg Village.................... Jackson, TN 148 December 16, 1994
Kirby Station........................... Memphis, TN 371 November 22, 1994
Savannah Creek.......................... Memphis, TN 204 July 25, 1996
Sutton Place............................ Memphis, TN 252 July 25, 1996
----------
4,804
==========
</TABLE>
All of the properties are owned by MAALP, except Lakeside and Marsh Oaks
which are owned by MAAC.
The properties listed above are referred to collectively as the Capital
Properties Group (CPG).
PRINCIPLES OF COMBINATION
The accompanying combined financial statements of CPG have been presented
on a combined basis because of their common ownership and because the Properties
are expected to be contributed to Mid-America Capital Partners, L.P. (the
Partnership), in connection with the Partnership's issuance of Bonds (see note
7).
The accounts of each of the Properties comprising CPG are combined in the
financial statements. All significant inter-entity accounts and transactions
have been eliminated in combination. The combined
F-18
<PAGE>
CAPITAL PROPERTIES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
financial statements include the assets and liabilities, as well as the
operations of CPG, from the date that each Property was acquired by MAALP or
MAAC.
The accompanying combined financial statements include the revenues and
direct operating expenses of the Properties. Certain general and administrative
expenses and other costs which are incurred by MAALP on behalf of CPG are not
included in the financial statements. The Partnership will pay a management fee
(calculated as 4% of revenues) to MAALP for providing these services in the
future. Had the management fee been charged during 1996, 1995 and 1994, net
income would have been reduced by approximately $810, $580 and $190,
respectively. In addition, MAALP incurred debt to fund the acquisition and
improvement of certain of the Properties. The debt and related interest expenses
are not included in the accompanying financial statements.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited financial information for the nine
months ended September 30, 1997 and 1996 had been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although management believes
that the disclosures are adequate to make the information presented not
misleading. In the opinion of management, all adjustments and eliminations,
consisting only of normal recurring adjustments, necessary to present fairly the
combined results of CPG's operations and cash flows for the nine months ended
September 30, 1997 and 1996 have been included. The results of operations for
such interim period is not necessarily indicative of the results for the full
year.
REVENUE RECOGNITION
CPG leases residential apartments under operating leases with terms
generally one year or less. Rental and other revenues are recorded when earned.
RENTAL OPERATIONS
CPG owns and operates apartment units which are leased to tenants on terms
of one year or less, with monthly payments due in advance. In management's
opinion, due to the number of tenants, the type and diversity of submarkets in
which the Properties operate, and the collection terms, there is no
concentration of credit risk.
RESTRICTED CASH
Restricted cash consists of escrow deposits held by lenders for property
taxes, insurance, debt service and replacement reserves. The escrow deposits are
designated for certain operating expense payments.
REAL ESTATE ASSETS AND DEPRECIATION
Real estate assets are carried at the lower of depreciated cost or net
realizable value. Interest, property taxes and other development costs incurred
during construction is capitalized until completion. Repairs and maintenance
costs are expensed as incurred while significant improvements, renovations and
replacements are capitalized. The cost of interior painting, vinyl flooring and
blinds are expensed as incurred.
In conjunction with acquisitions of properties, CPG's policy is to provide
in its acquisition budgets adequate funds to complete any deferred maintenance
items to bring the properties to the required standards, including the cost of
replacement appliances, carpet, interior painting, vinyl flooring and blinds.
These costs are capitalized.
F-19
<PAGE>
CAPITAL PROPERTIES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Following a review of its capital expenditure and depreciation policy,
effective January 1, 1996, CPG implemented a new policy of which the primary
changes are as follows:
(a) Increase minimum dollar amounts to capitalize from $500 to
$1,000;
(b) For stabilized properties (generally, properties owned and
operated for at least one year), capitalize replacement purchases for major
appliances and carpeting of an entire apartment unit which was previously
expensed; and
(c) Reduce depreciation life for certain assets from 20 years to 10
to 15 years.
CPG believes that the newly adopted accounting policy is preferable because
it is consistent with policies currently being used by the majority of the
largest apartment REITs and provides a better matching of expenses with the
estimated benefit period. CPG's 1995 and 1994 financial statements were not
restated for the effect of the change in accounting policy. The policy has been
implemented prospectively effective January 1, 1996. The effect of the change in
depreciable lives was not material to combined net income of CPG.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets which range from 8 to 40 years for land improvements
and buildings and 5 years for furniture, fixtures and equipment. Depreciation of
non-real estate assets was $19, $14 and $5 at December 31, 1996, 1995 and 1994,
respectively.
CPG periodically evaluates its real estate assets for impairment based upon
undiscounted cash flows and measures impairment based on fair value. This
determination is dependent primarily on the CPG's estimates on occupancy, rent
and expense increases, which involves numerous assumptions and judgments as to
future events over a period of many years. At December 31, 1996 CPG does not
hold any assets which meet the impairment criteria.
CPG adopted FAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," effective January 1, 1996. The
new standard did not have a material impact on the combined financial statements
of CPG.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the terms of the related debt
using a method which approximates the interest method.
CAPITAL CONTRIBUTIONS, NET
MAALP provides cash management and vendor remittance services for CPG. Net
cash flows resulting from these services are treated as capital contributions or
distributions. In addition, MAALP provides funding for CPG's property
acquisition and improvement projects and for debt service related to the notes
payable included in the CPG financial statements. The amount of these funded
activities are contributed by MAALP to CPG as capital contributions. Capital
contributions, net for the years ended December 31, 1996, 1995 and 1994,
consisted of funds utilized (provided) by:
1996 1995 1994
---------- --------- ---------
Acquisitions and improvements of
properties........................... $ 71,045 13,719 44,285
Principal payments on notes
payable.............................. 6,370 281 4,840
Intercompany remittances, net........ (12,259) (7,264) (3,020)
---------- --------- ---------
$ 65,156 6,736 46,105
========== ========= =========
F-20
<PAGE>
CAPITAL PROPERTIES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
No provision for federal income taxes has been made in the accompanying
combined financial statements. Each partner is responsible for reporting his
share of taxable income or loss from the real estate investments.
__GENERAL AND ADMINISTRATIVE EXPENSES
The accompanying combined financial statements include an allocation of
general and administrative expenses and other costs incurred by MAALP on behalf
of CPG based upon 4% of total revenues.
USE OF ESTIMATES
Management of the CPG has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) NOTES PAYABLE
Notes payable are secured by real estate assets and consist of the
following:
DECEMBER 31,
--------------------
1996 1995
--------- ---------
Note payable to an insurance company,
interest and principal paid monthly
at 8.75%, monthly interest and
principal payments of $26 with the
balance due June 15, 1997,
collateralized by Lakepoint
Apartments......................... $ 2,562 2,605
Note payable to an insurance company,
interest and principal paid monthly
at 10%, monthly interest and
principal payments of $86 with the
balance due November 1, 1997,
collateralized by Pear Orchard
Apartments......................... 8,643 8,763
Note payable to an insurance company,
interest and principal paid monthly
at 8.75%, monthly interest and
principal payments of $46 with the
balance due June 15, 1997,
collateralized by The Village
Apartments......................... 5,256 5,344
Note payable to an insurance company,
interest and principal paid monthly
at 6.6%, monthly interest and
principal payments of $56 with the
balance due December 1, 1996,
collateralized by Kirby Station
Apartments......................... -- 6,118
--------- ---------
$ 16,461 22,830
========= =========
During the nine months ended September 30, 1997 all notes payable were
repaid.
Certain of the mortgage notes payable require, among other things, escrow
balances for the payments of insurance, taxes, improvements and repairs.
In addition, certain of the Properties are subject to a negative pledge
agreement under MAALP's credit line agreement with a $30,403 outstanding balance
at December 31, 1996. It is anticipated that these restrictions will be removed
prior to the contribution of the Properties to the Partnership.
(3) FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Cash, rental receivable, accounts payable and accrued expenses and other
liabilities and security deposits are carried at amounts which reasonably
approximate their fair value.
F-21
<PAGE>
CAPITAL PROPERTIES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Fixed rate notes payable at December 31, 1996 and 1995 total $16.5 million
and $22.8 million, respectively, and have an estimated fair value of $16.7
million and $23.7 million (excluding prepayment penalties) based upon interest
rates available for the issuance of debt with similar terms and remaining
maturities as of December 31, 1996 and 1995. These notes were subject to
prepayment penalties which would be required to retire these notes prior to
maturity.
The fair value estimates presented herein are based on information
available to management as of December 31, 1996 and 1995. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
(4) COMMITMENTS AND CONTINGENCIES
Neither CPG nor MAALP is presently subject to any material litigation nor,
to their knowledge, is any material litigation threatened against CPG or MAALP,
other than routine litigation arising in the ordinary course of business, some
of which is expected to be covered by liability insurance and none of which is
expected to have a material adverse effect on the combined financial statements
of CPG.
(5) EMPLOYEE BENEFIT PLANS
MAALP employees at the Properties participate in employee benefit plans
sponsored by MAAC. Provided below is a summary of MAAC benefit plans available
to the employees.
401(K) SAVINGS PLAN
The Mid-America Apartment Communities, Inc. 401(k) Savings Plan is a
defined contribution plan that satisfies the requirements of Section 401(a) and
401(k) of the Code. MAAC may, but is not obligated to, make a matching
contribution of $.50 for each $1.00 contributed, up to 6% of the participant's
compensation. During 1996 and 1995, MAALP made contributions to this plan of
approximately $13 and $3, respectively, on behalf of employees at the
Properties. These contributions are not included in the accompanying combined
financial statements. No contributions were made during 1994.
EMPLOYEE STOCK PURCHASE PLAN
The Mid-America Apartment Communities, Inc. Employee Stock Purchase Plan
(the ESPP) provides means for employees at the Properties to purchase common
stock of MAAC. The Board of Directors of MAAC has authorized the issuance of
150,000 shares for the plan. The ESPP is administered by the Compensation
Committee of the Board of Directors of MAAC who may annually grant options to
employees to purchase annually up to an aggregate of 15,000 shares of common
stock at a price equal to 85% of the market price of the common stock. During
1996 and 1995, the ESPP purchased 138 and 54 shares, respectively, with no
purchases made in 1994.
EMPLOYEE STOCK OWNERSHIP PLAN
The Mid-America Apartment Communities, Inc. Employee Stock Ownership Plan
(the ESOP) is a non-contributory stock bonus plan that satisfies the
requirements of Section 401(a) of the Internal Revenue Code. Each employee at
the Properties is eligible to participate in the ESOP after attaining the age of
21 years and completing one year of service with MAAC. Participants' ESOP
accounts will be 100% vested after five years of continuous service, with no
vesting prior to that time. During 1996 and 1995, MAAC contributed approximately
$28 and $14, respectively, to the ESOP which purchased an additional 1,138 and
558 shares, respectively, with no contributions made in 1994. These
contributions are not included in the accompanying financial statements.
F-22
<PAGE>
CAPITAL PROPERTIES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTION PLAN
MAAC has the 1994 Restricted Stock and Stock Option Plan (the Plan) which
provides incentives to attract and retain independent directors, executive
officers and key employees. The Compensation Committee of the Board of Directors
of MAAC is responsible for granting Options and shares of Restricted Stock and
for establishing the exercise price of Options and terms and conditions of
Restricted Stock. During 1996 options were granted to employees at the CPG
properties to acquire 500 shares of MAAC common stock at an exercise price of
$26.50 per share. No options were granted to employees at the CPG properties
during 1995 or 1994. The effect of the 1996 grant is not included in the
accompanying combined financial statements of CPG.
(6) RELATED PARTY TRANSACTIONS
The accompanying combined financial statements include the revenues and
certain direct operating expenses of the Properties. MAALP provides the
Properties management and other services (including employee benefits) at no
charge and also provides funds for the acquisition and improvement of the
Properties. See Note 1.
(7) SUBSEQUENT EVENTS (UNAUDITED)
It is anticipated that the Properties, along with 6 additional properties
to be acquired by the Partnership (collectively the Communities), will either be
contributed to or acquired by the Partnership subsequent to September 30, 1997.
These transactions will result in MAALP having a 99% limited partnership
interest in the Partnership. The Partnership is expected to issue $142 million
of % Bonds Due 2003 (the Bonds) to be secured by a first priority deed of
trust, security agreement and assignment of rents and leases on the Communities.
F-23
<PAGE>
SCHEDULE III
CAPITAL PARTNERS GROUP
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
--------------------- ---------------------
BUILDING BUILDING
METROPOLITAN AND AND
PROPERTY NAME AREA ENCUMBRANCES LAND FIXTURES LAND FIXTURES
- ------------------------------------- ------------------------ ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Belmere.............................. Tampa, FL $-- (2) 851 7,667 -- 706
Crosswinds........................... Jackson, MS -- (2) 1,535 13,826 -- 423
Fairways at Royal Oak................ Cincinnati, OH -- (2) 814 7,335 -- 517
Kirby Station........................ Memphis, TN -- 1,148 10,337 -- 1,499
Lakepointe........................... Lexington, KY 2,562 411 3,699 -- 371
Lakeside............................. Jacksonville, FL -- (2) 1,431 12,883 -- 1,232
Marsh Oaks........................... Atlantic Beach, FL -- (2) 244 2,829 -- 328
Napa Valley.......................... Little Rock, AR -- 960 8,642 -- 198
Park Haywood......................... Greenville, SC -- (2) 325 2,925 35 2,088
Pear Orchard......................... Jackson, MS 8,643 1,352 12,168 -- 599
Savannah Creek....................... Memphis, TN (4) -- (2) 778 7,013 -- 163
Shenandoah Ridge..................... Augusta, GA -- (2) 650 5,850 -- 1,469
Somerset............................. Jackson, MS -- (2) 477 4,294 -- 459
Steeplechase......................... Chattanooga, TN -- (2) 217 1,957 -- 1,024
Sutton Place......................... Memphis, TN (4) -- (2) 894 8,053 -- 259
Tiffany Oaks......................... Altamonte Springs, FL -- 1,024 9,219 -- --
The Village.......................... Lexington, KY 5,256 900 8,097 -- 560
Williamsburg Village................. Jackson, TN -- (2) 523 4,711 -- 316
------------- --------- --------- --------- ---------
Total...................................................... $16,461 14,534 131,505 35 12,211
============= ========= ========= ========= =========
<CAPTION>
GROSS AMOUNT
CARRIED AT
DECEMBER 31, 1996(3)
---------------------
BUILDING
AND ACCUMULATED
PROPERTY NAME LAND FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION
- ------------------------------------- --------- --------- ------- ------------- --------- --------------
Belmere.............................. 851 8,373 9,224 (619) 8,605 1984
Crosswinds........................... 1,535 14,249 15,784 (207) 15,577 1988/1990
Fairways at Royal Oak................ 814 7,852 8,666 (560) 8,106 1988
Kirby Station........................ 1,148 11,836 12,984 (875) 12,109 1978
Lakepointe........................... 411 4,070 4,481 (331) 4,150 1986
Lakeside............................. 1,431 14,115 15,546 (409) 15,197 1985
Marsh Oaks........................... 244 3,157 3,401 (176) 3,225 1986
Napa Valley.......................... 960 8,840 9,800 (51) 9,749 1984
Park Haywood......................... 360 5,013 5,373 (406) 4,967 1983/1995
Pear Orchard......................... 1,352 12,767 14,119 (1,226) 12,893 1985
Savannah Creek....................... 778 7,176 7,954 (105) 7,849 1989
Shenandoah Ridge..................... 650 7,319 7,969 (607) 7,362 1982
Somerset............................. 477 4,753 5,230 (340) 4,890 1981
Steeplechase......................... 217 2,981 3,198 (467) 2,731 1985
Sutton Place......................... 894 8,312 9,206 (122) 9,084 1991
Tiffany Oaks......................... 1,024 9,219 10,243 -- 10,243 1985
The Village.......................... 900 8,657 9,557 (713) 8.844 1989
Williamsburg Village................. 523 5,027 5,550 (372) 5,178 1987
--------- --------- ------- ------------- --------- --------------
Total........................... 14,569 143,716 158,285 (7,586) 150,699
========= ========= ======= ============= =========
</TABLE>
LIFE USED
TO COMPUTE
DEPRECIATION FEDERAL
IN LATEST INCOME
INCOME TAX
PROPERTY NAME STATEMENT(1) BASIS(3)
- ------------------------------------- -------------- ---------
Belmere.............................. 5-40 8,551
Crosswinds........................... 5-40 17,785
Fairways at Royal Oak................ 5-40 8,027
Kirby Station........................ 5-40 12,039
Lakepointe........................... 5-40 4,112
Lakeside............................. 5-40 14,960
Marsh Oaks........................... 5-40 2,718
Napa Valley.......................... 5-40 9,575
Park Haywood......................... 5-40 5,022
Pear Orchard......................... 5-40 12,846
Savannah Creek....................... 5-40 9,009
Shenandoah Ridge..................... 5-40 7,431
Somerset............................. 5-40 4,833
Steeplechase......................... 5-40 1,801
Sutton Place......................... 5-40 9,028
Tiffany Oaks......................... 5-40 9,529
The Village.......................... 5-40 8,793
Williamsburg Village................. 5-40 5,129
Total........................... 151,188
=========
- ------------
(1) Depreciation is on a straight line basis over the estimated useful asset
life which ranges from 8 to 40 years for land improvements and buildings and
5 years for furniture, fixtures and equipment.
(2) Subject to negative pledge pursuant to the agreement in respect of MAALP's
Credit Line agreement with an outstanding balance of $30,403 at December 31,
1996.
(3) The total gross amount of real estate assets for GAAP purposes exceeds the
Federal income tax basis; principally due to purchase accounting adjustments
recorded under generally accepted accounting principles.
(4) These properties are located in Desoto County, MS, a suburb of Memphis, TN.
The Company considers the properties a part of the Memphis, TN market.
F-24
<PAGE>
SCHEDULE III
CAPITAL PROPERTIES GROUP
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
A summary of activity for real estate investments and accumulated
depreciation is as follows:
1996 1995 1994
---------- --------- ---------
Real estate investments:
Balance at beginning of year.... $ 87,240 73,521 6,026
Acquisitions.................... 66,226 12,006 66,218
Improvements.................... 4,819 1,713 1,277
---------- --------- ---------
Balance at end of year..... $ 158,285 87,240 73,521
========== ========= =========
Accumulated depreciation:
Balance at beginning of year.... $ 3,587 973 223
Depreciation.................... 3,999 2,614 750
---------- --------- ---------
Balance at end of year..... $ 7,586 3,587 973
========== ========= =========
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Brown-Flournoy Equity Income
Fund Limited Partnership:
We have audited the accompanying balance sheets of Brown-Flournoy Equity
Income Fund Limited Partnership (the "Fund") as of December 31, 1996 and 1995
and the related statements of operations, partners' capital (deficit) and cash
flows for each of the years in the three-year period ended December 31, 1996.
These financial statements are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brown-Flournoy Equity Income
Fund Limited Partnership as of December 31, l996 and 1995, and the results of
its operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Baltimore, Maryland
January 17, 1997
F-26
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
BALANCE SHEETS
SEPTEMBER 30, 1997 AND
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30 ------------------------------
1997 1996 1995
------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investment in real estate (note 3)...... $ 13,669,416 14,355,212 15,200,825
Cash and cash equivalents (note 4)...... 1,589,425 1,467,365 1,447,679
Other assets:
Accounts receivable................ 36,560 19,744 22,624
Prepaid expenses................... 12,994 70,500 65,417
Loan fees, less accumulated
amortization of $592,748 and
$469,856 at December 31, 1996 and
1995, respectively............... -- 93,761 49,459
------------- -------------- --------------
TOTAL OTHER ASSETS............ 49,554 184,005 137,500
------------- -------------- --------------
TOTAL ASSETS.................. $ 15,308,395 16,006,582 16,786,004
============= ============== ==============
LIABILITIES AND PARTNERS' CAPITAL
(DEFICIT)
Accounts payable and accrued expenses
including $28,941 and $27,523 due to
affiliates at December 31, 1996 and
1995, respectively.................... $ 639,081 417,042 453,493
Tenant security deposits................ 101,476 110,890 130,542
Mortgage loans payable (note 6)......... 20,400,000 20,400,000 20,200,950
------------- -------------- --------------
TOTAL LIABILITIES............. 21,140,557 20,927,932 20,784,985
------------- -------------- --------------
Partners' capital (deficit) -- (note 8):
General Partners................... (271,185) (252,969) (234,522)
Limited Partners:
Class A -- $1,000 stated value
per unit; 27,000 units
outstanding.................... (5,561,077) (4,668,481) (3,764,559)
Class B.......................... 100 100 100
------------- -------------- --------------
TOTAL PARTNERS' CAPITAL
(DEFICIT).................. (5,832,162) (4,921,350) (3,998,981)
------------- -------------- --------------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL
(DEFICIT).................. $ 15,308,395 16,006,582 16,786,004
============= ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------- ----------------------------------------
1997 1996 1996 1995 1994
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental income...................... $ 3,484,337 3,585,281 4,799,909 4,644,851 4,451,569
Interest income.................... 47,655 44,308 61,955 67,677 49,805
Gain on settlement of lawsuit (Note
10).............................. -- -- -- 299,228 --
----------- ------------ ------------ ------------ ------------
3,531,992 3,629,589 4,861,864 5,011,756 4,501,374
----------- ------------ ------------ ------------ ------------
EXPENSES:
Compensation and related
benefits......................... 453,550 380,193 521,603 465,396 423,923
Property taxes..................... 279,020 273,580 336,976 345,327 343,773
Utilities.......................... 213,314 213,089 289,952 255,151 233,250
Property management fee to related
party (note 5)................... 174,217 179,264 239,995 232,242 222,578
Maintenance and repairs............ 223,536 336,579 435,767 505,152 404,083
Advertising........................ 83,483 81,154 105,534 75,793 64,462
Other.............................. 80,159 79,533 106,700 106,308 80,845
Administrative, including amounts
to related party (note 5)........ 72,736 57,828 93,005 85,768 92,422
Interest expense (note 6).......... 1,457,750 1,451,548 1,933,782 1,945,006 1,953,754
Depreciation of property and
equipment (notes 2 and 7)........ 796,185 782,551 1,047,007 1,038,167 1,019,697
Amortization of loan fees (note
2)............................... 195,589 71,030 122,892 74,188 74,188
----------- ------------ ------------ ------------ ------------
4,029,539 3,906,349 5,233,213 5,128,498 4,912,975
----------- ------------ ------------ ------------ ------------
NET LOSS (NOTE 7)............. $ (497,547) (276,760) (371,349) (116,742) (411,601)
=========== ============ ============ ============ ============
NET LOSS PER UNIT OF CLASS A
LIMITED PARTNERSHIP
INTEREST (NOTE 8).......... $ (18.06) (10.05) (13.48) (4.24) (14.94)
=========== ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
AND EACH OF THE YEARS IN THE THREE-YEAR PERIOD
ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CLASS A CLASS B
GENERAL LIMITED LIMITED
PARTNERS PARTNERS PARTNERS TOTAL
------------ ------------ -------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993............ $ (196,405) (1,096,782) 100 (1,293,087)
Net loss................................ (8,232) (403,369) -- (411,601)
Distributions to partners:
Operations......................... (11,020) (540,000) -- (551,020)
Financing proceeds................. -- (800,000) -- (800,000)
------------ ------------ --- ------------
Balance at December 31, 1994............ (215,657) (2,840,151) 100 (3,055,708)
Net loss................................ (2,334) (114,408) -- (116,742)
Distributions to partners............... (16,531) (810,000) -- (826,531)
------------ ------------ --- ------------
Balance at December 31, 1995............ (234,522) (3,764,559) 100 (3,998,981)
Net loss................................ (7,427) (363,922) -- (371,349)
Distributions to partners............... (11,020) (540,000) -- (551,020)
------------ ------------ --- ------------
Balance at December 31, 1996............ (252,969) (4,668,481) 100 (4,921,350)
Net loss................................ (9,951) (487,596) -- (497,547)
Distributions to partners............... (8,265) (405,000) -- (413,265)
------------ ------------ --- ------------
Balance at September 30, 1997........... $ (271,185) (5,561,077) 100 (5,832,162)
============ ============ === ============
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- -------------- -------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................. $ (497,547) (276,760) (371,349) (116,742) (411,601)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation of property and
equipment..................... 796,185 782,551 1,047,007 1,038,167 1,019,697
Amortization of loan fees........ 195,589 71,030 122,892 74,188 74,188
Gain on settlement of lawsuit.... -- -- -- (299,228) --
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable........ (16,816) (639) 2,880 24,334 (18,285)
Decrease (increase) in prepaid
expenses................... 57,506 53,214 (5,083) 1,065 (18,372)
Increase (decrease) in
accounts payable and
accrued expenses........... 222,039 182,671 (36,451) 6,063 (23,668)
(Decrease) increase in tenant
security deposits.......... (9,414) (6,470) (19,652) 6,926 1,815
----------- -------------- -------------- ----------- ------------
NET CASH PROVIDED BY
OPERATING
ACTIVITIES............ 747,542 805,597 740,244 734,773 623,774
----------- -------------- -------------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment in real
estate............................. (110,389) (96,970) (201,394) (88,700) (54,100)
Settlement proceeds................... -- -- -- 16,000 283,228
----------- -------------- -------------- ----------- ------------
NET CASH (USED IN)
PROVIDED BY INVESTING
ACTIVITIES............ (110,389) (96,970) (201,394) (72,700) 229,128
----------- -------------- -------------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in mortgage loans payable.... -- (90,080) (90,080) (125,936) (29,647)
Proceeds from mortgage refinancing.... -- 20,400,000 20,400,000 -- --
Repayment of mortgage loans........... -- (20,110,870) (20,110,870) -- --
Financing costs....................... (101,828) (111,679) (167,194) -- --
Distributions to partners............. (413,265) (413,265) (551,020) (826,531) (1,351,020)
----------- -------------- -------------- ----------- ------------
NET CASH USED IN
FINANCING
ACTIVITIES............ (515,093) (325,894) (519,164) (952,467) (1,380,667)
----------- -------------- -------------- ----------- ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 122,060 382,733 19,686 (290,394) (527,765)
CASH AND CASH EQUIVALENTS:
Beginning of period................... 1,467,365 1,447,679 1,447,679 1,738,073 2,265,838
----------- -------------- -------------- ----------- ------------
End of period......................... $ 1,589,425 1,830,412 1,467,365 1,447,679 1,738,073
=========== ============== ============== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION
Brown-Flournoy Equity Income Fund Limited Partnership (the "Fund") is a
Delaware limited partnership formed on June 25, 1986 to develop and operate four
residential apartment communities in Georgia and South Carolina. The capital
raised from the admission of investors enabled the Fund to acquire the
properties and improvements and complete construction. The properties are:
o Southland Station, a 160-unit apartment community in Warner Robins,
Georgia
o Park Place, a 184-unit apartment community in Spartanburg, South
Carolina
o Hidden Lake -- Phase Two, a 160-unit apartment community in Union
City, Georgia
o High Ridge, a 160-unit apartment community in Athens, Georgia
The General Partners are Brown-Equity Income Properties, Inc., the
Administrative General Partner, and John F. Flournoy, the Development General
Partner. The Class B Limited Partners are John F. Flournoy and Realty Associates
1986 Limited Partnership, an affiliate of the Administrative General Partner.
The Fund will terminate on December 31, 2036, unless sooner terminated under the
provisions of the partnership agreement.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) METHOD OF ACCOUNTING
The accompanying financial statements have been prepared on the accrual
basis of accounting. The Fund reports its operating results for income tax
purposes on the accrual basis. No provision for income taxes is made because any
liability for income taxes is that of the individual partners and not that of
the Fund.
(B) CASH EQUIVALENTS
The Fund considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
(C) DEPRECIATION
Depreciation of property and equipment is computed using the straight-line
method over the useful lives of the property and equipment as follows:
Buildings............................... 25 years
Furniture, fixtures, and equipment...... 10 years
(D) DEFERRED COSTS
Costs associated with marketing of the Class A limited partnership units to
the public were offset against the related partners' capital.
Loan fees incurred to obtain the original mortgage loans were capitalized
and were amortized on a basis that approximates the interest method over the
seven-year loan terms. These fees were fully amortized in 1996. Loan fees
incurred to obtain the new mortgage loans (note 6) have been capitalized and are
being amortized over the one-year loan terms.
(E) USE OF ESTIMATES
Management of the Fund has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenue, and expenses to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
(F) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to
various market data and other valuation considerations. The fair value of
financial instruments approximate their recorded values.
(G) IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, the Fund records impairment
F-31
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
losses on long-lived assets used in operations when events and circumstances
indicate that the individual assets might be impaired, based on fair value, and
the undiscounted cash flows estimated to be generated by those assets are less
than the carrying amounts of those assets. During 1996, no events or
circumstances indicated that the assets of the Fund were impaired. Prior to
1996, the Fund's investment in real estate was carried at the lower of net
realizable value or cost, net of accumulated depreciation, on an individual
property basis.
(H) INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited financial information for the nine
months ended September 30, 1997 and 1996 has been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although management believes
that the disclosures are adequate to make the information presented not
misleading. In the opinion of management, all adjustments and eliminations,
consisting only of normal recurring adjustments, necessary to present fairly the
results of the Fund's operations and cash flows for the nine months ended
September 30, 1997 and 1996, have been included. The results of operations for
such interim periods is not necessarily indicative of the results for the full
year.
(3) INVESTMENT IN REAL ESTATE
Investment in real estate is summarized as follows at December 31:
1996 1995
-------------- ------------
Land.................................... $ 1,205,950 1,205,950
Buildings............................... 20,417,743 20,417,743
Furniture, fixtures, and equipment...... 2,403,666 2,202,272
-------------- ------------
24,027,359 23,825,965
Less accumulated depreciation........... 9,672,147 8,625,140
-------------- ------------
$ 14,355,212 15,200,825
============== ============
(4) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following, stated at cost, which
approximates market value at December 31:
1996 1995
------------ -----------
Cash and money market................ $ 532,655 428,716
Certificates of deposit with interest
rates ranging from 5.00% to 5.60%
in 1996 and 4.25% to 5.90% in
1995............................... 934,710 1,018,963
------------ -----------
$ 1,467,365 1,447,679
============ ===========
Restricted cash represents amount retained from tenant security deposits
and totaled $110,890 and $130,542 at December 31, 1996 and 1995, respectively.
(5) RELATED PARTY TRANSACTIONS
The Administrative General Partner received $52,795, $41,644, and $41,314
in 1996, 1995, and 1994, respectively, for reimbursement of costs associated
with administering the Fund, including clerical services, investor communication
services, and reports and filings to regulatory authorities.
Flournoy Properties, Inc., an affiliate of the Development General Partner,
is the managing agent for the properties and earned management fees of $239,995,
$232,242, and $222,578 representing 5% of the gross monthly operating revenues
from the properties during 1996, 1995, and 1994, respectively.
(6) MORTGAGE LOANS PAYABLE
The Fund's General Partners secured first mortgage loans aggregating $20.8
million on August 30, 1989 which were secured by the land, apartment units, and
all other improvements to the four apartment
F-32
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
properties. These loans were for an original term of seven years with an
interest rate of 9.6%. Interest only was payable monthly through September 1994,
and thereafter monthly payments were based on a 30-year amortization schedule
with a balloon payment due at the end of the seven-year term.
The mortgage loans matured on September 1, 1996. The Fund refinanced these
loans with Columbus Bank and Trust. The terms of the commitment provide for
interest only payments of prime plus 1% in monthly installments and a term of
one year. The new loans totaled $20,400,000 and provided proceeds sufficient to
satisfy the repayment of the old mortgage loans, and all costs of the
refinancing. The Fund is required to pay a commitment fee of one point payable
in advance in quarterly installments. Interest of $1,932,975, $1,945,936, and
$1,953,991 was paid during the years ended December 31, 1996, 1995, and 1994,
respectively.
The Fund extended the maturity date of its mortgage loans with Columbus
Bank and Trust from September 1, 1997 to December 31, 1997. The Fund was not
required to pay a commitment fee related to the extension. The Fund intends to
repay these balances with proceeds from capital transactions.
(7) LOSSES FOR FEDERAL INCOME TAX PURPOSES
The Fund's losses for federal income tax purposes in each of the last three
years ended December 31 differs from the net losses for financial reporting
purposes due to differences in the Fund's computation of tax depreciation and in
1995, different treatment of the additional net settlement proceeds (note 10).
For Federal income tax purposes, real property (other than land) and personal
property, are being depreciated over 27 1/2 and seven years, respectively, using
the Modified Accelerated Cost Recovery System, and the additional net settlement
proceeds (note 10) are being treated as a reduction to the adjusted tax basis of
the Southland Station property. The tax losses for 1996, 1995, and 1994 are as
follows:
1996 1995 1994
------------ ---------- ----------
Losses for financial reporting
purposes........................... $ (371,349) (116,742) (411,601)
Financial reporting depreciation in
excess of tax depreciation......... 247,403 268,686 167,515
Additional net settlement proceeds
(note 10)............................ -- (299,228) --
------------ ---------- ----------
Losses for income tax purposes....... $ (123,946) (147,284) (244,086)
============ ========== ==========
(8) PARTNERS' CAPITAL (DEFICIT)
The partnership agreement provides, among other provisions, for the
following:
(a) The Fund will consist of the General Partners, the Class A
Limited Partners, and the Class B Limited Partners.
(b) Distributions to the Partners relating to operations of the
properties will be based on net cash flow, as defined in the partnership
agreement. Investors will receive 98% of net cash flow and the General
Partners will each receive 1%. Profit and loss from operations will be
allocated in the same proportions. Net loss per Class A Limited Partnership
interest as disclosed on the statements of operations is based upon 27,000
units outstanding.
(c) Net proceeds of sale or operational stage financing of the
properties will be distributed as follows:
o To pay any deferred fees payable to the General Partners and
affiliates.
o To Class A Limited Partners until each Class A Limited Partner
has recovered his original capital contribution in full and
received a cumulative, noncompounded annual return of 7.5% of his
capital contribution to the extent that such return has not been
provided from prior distributions of net cash flow.
o Any remainder will be distributed 80% to the Class A Limited
Partners, 1% to each of the General Partners, 14% to John F.
Flournoy in his capacity as Class B Limited Partner, and 4% to
Realty Associates' 1986 Limited Partnership.
(d) Restrictions exist regarding transferability or disposition of
partnership interests.
F-33
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) DISTRIBUTIONS TO PARTNERS
Distributions of cash to partners during 1996, 1995 and 1994 are summarized
as follows:
1996 1995 1994
---------- --------- -----------
To Class A Limited Partners from:
Operations...................... $ 540,000 540,000 540,000
Settlement proceeds............. -- 270,000 --
Financing proceeds.............. -- -- 800,000
To General Partners from:
Operations...................... 11,020 11,020 11,020
Settlement proceeds............. -- 5,511 --
---------- --------- -----------
$ 551,020 826,531 1,351,020
========== ========= ===========
Each Class A Limited Partner received a distribution of $20 per unit from
operations in 1996, 1995, and 1994; $10 per unit from settlement proceeds in
1995; and approximately $29.63 per unit from financing proceeds in 1994.
(10) SETTLEMENT PROCEEDS
During the fourth quarter of 1994, the Fund settled an outstanding lawsuit
with the manufacturer of defective polybutylene piping which was utilized at the
Southland Station property. The lawsuit sought damages resulting from numerous
plumbing leaks at the property since construction. The settlement included the
cost to replumb the property, as well as additional net settlement proceeds to
the Fund of $299,228. A special distribution of these proceeds was made in the
second quarter of 1995.
(11) SUBSEQUENT EVENT
The Fund has entered into an agreement to sell its four residential
apartment communities to Mid-America Apartments, L.P. for approximately
$9,625,000 in cash. The agreement has not yet been approved by the partners. In
conjunction with the sale, the Fund is to be liquidated and cash will be
distributed to the partners in accordance with the terms of the partnership
agreement.
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Mid-America Capital Partners, L.P.:
We have audited the accompanying combined historical summary of gross
income and direct operating expenses for certain multifamily acquisition
properties (Historical Summary) as described in note 1, for the year ended
December 31, 1996. This Historical Summary is the responsibility of management.
Our responsibility is to express an opinion on this Historical Summary based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the registration statement on Form S-3 of
Mid-America Capital Partners, L.P., and excludes material amounts described in
note 1 to the Historical Summary, that would not be comparable to those
resulting from the proposed future operations of the properties.
In our opinion, the Historical Summary referred to above presents fairly,
in all material respects, the gross income and direct operating expenses
described in note 1 to the Historical Summary for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
November 24, 1997
F-35
<PAGE>
MID-AMERICA CAPITAL PARTNERS, L.P.
COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND
DIRECT OPERATING EXPENSES
FOR CERTAIN MULTIFAMILY ACQUISITION PROPERTIES
YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM JANUARY 1, 1997 TO THE
EARLIER OF SEPTEMBER 30, 1997 OR DATE OF ACQUISITION (UNAUDITED)
(DOLLARS IN THOUSANDS)
1997 1996
----------- ---------
(UNAUDITED)
GROSS INCOME -- total revenue........... $ 1,391 4,335
DIRECT OPERATING EXPENSES:
Operating expenses................. 347 909
Real estate taxes.................. 82 265
Repairs and maintenance............ 109 307
----------- ---------
538 1,481
----------- ---------
GROSS INCOME IN EXCESS OF
DIRECT OPERATING EXPENSES... $ 853 2,854
=========== =========
See accompanying notes to combined historical summary of gross income and direct
operating expenses for certain multifamily acquisition properties.
F-36
<PAGE>
MID-AMERICA CAPITAL PARTNERS, L.P.
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT
OPERATING EXPENSES FOR CERTAIN MULTIFAMILY ACQUISITION PROPERTIES
DECEMBER 31, 1996
(1) ACCOUNTING POLICIES
DESCRIPTION
The accompanying financial statement includes the operations of certain
properties (the Acquisition Properties) owned by parties unaffiliated with
Mid-America Capital Partners, L.P. (the Partnership). The Acquisition Properties
were acquired by Mid America Apartment, L.P. (MAALP) on the dates indicated
below except for Hermitage at Beechtree which was acquired by the Partnership.
MAALP is expected to contribute the Acquisition Properties, along with other
properties owned by MAALP, to the Partnership in exchange for a 99% limited
partnership interest in the Partnership. The Acquisition Properties included in
the financial statement are as follows:
NUMBER OF
LOCATION APARTMENT
NAME OF PROPERTY UNITS DATE ACQUIRED
- ------------------------- ---------------- ---------- -----------------
Howell Commons........... Greenville, SC 348 January 16, 1997
Westside Creek I......... Little Rock, AR 142 March 31, 1997
Hermitage at Beechtree... Cary, NC 194 November 3, 1997
BASIS OF PRESENTATION
The accompanying financial statement is not representative of the actual
operations for the periods presented. Certain expenses have been excluded
because the Partnership does not anticipate that they will be incurred in future
operations of the property. Expenses excluded consist of depreciation and
amortization, management fees and other costs not directly related to the future
operations of the Acquisition Properties. Interest expense has been included in
the Historical Summary to the extent that a bond payable is assumed in
connection with the acquisition of the Acquisition Property. Operating expenses
include payroll, utilities, advertising and other general and administrative
costs. Management is not aware of any material factors relating to these
Acquisition Properties that would cause this financial statement not to be
indicative of future operating results as related to revenue and certain
expenses.
The accompanying combined historical summary of gross income and direct
operating expenses for certain multifamily acquisition properties was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in registration statement on Form S-3 of
Mid-America Capital Partners, L.P. and excludes material amounts that would not
be comparable to those resulting from the proposed future operations of the
properties.
INCOME RECOGNITION
Revenues from rental property are recognized when due from tenants. Leases
are generally for one year or less.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying unaudited financial information includes revenues and
certain expenses of the Acquisition Properties from January 1, 1997 to the
earlier of September 30, 1997 or the date of acquisition by MAALP. The unaudited
information has been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although management believes that the disclosures are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments and eliminations, consisting only of normal
recurring adjustments, necessary to present fairly the historical statement of
revenues and certain expenses for the period have been included. The results of
operations for such interim period are not necessarily indicative of the results
for the full year.
F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Mid-America Capital Partners, L.P.:
We have audited the accompanying combined historical summary of gross
income and direct operating expenses for certain multifamily acquisition
properties (Historical Summary) as described in Note 1, for the year ended
December 31, 1995. This Historical Summary is the responsibility of management.
Our responsibility is to express an opinion on this Historical Summary based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the registration statement on Form S-3 of
Mid-American Capital Partners, L.P., and excludes material amounts described in
Note 1 to the Historical Summary, that would not be comparable to those
resulting from the proposed future operations of the properties.
In our opinion, the Historical Summary referred to above presents fairly,
in all material respects, the gross income and direct operating expenses
described in Note 1 to the Historical Summary for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
November 24, 1997
F-38
<PAGE>
MID-AMERICA CAPITAL PARTNERS, L.P.
COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND
DIRECT OPERATING EXPENSES
FOR CERTAIN MULTIFAMILY ACQUISITION PROPERTIES
YEAR ENDED DECEMBER 31, 1995 AND PERIOD FROM JANUARY 1, 1996 TO THE
EARLIER OF DECEMBER 31, 1996 OR DATE OF ACQUISITION (UNAUDITED)
(DOLLARS IN THOUSANDS)
1996 1995
----------- ---------
(UNAUDITED)
GROSS INCOME -- total revenue........... $ 4,652 9,009
DIRECT OPERATING EXPENSES:
Operating expenses................. 2,608 2,078
Real estate taxes.................. 305 694
Repairs and maintenance............ 144 369
----------- ---------
1,595 3,141
----------- ---------
GROSS INCOME IN EXCESS OF
DIRECT OPERATING EXPENSES... $ 3,057 5,868
=========== =========
See accompanying notes to combined historical summary of gross income and direct
operating expenses for certain multifamily acquisition properties.
F-39
<PAGE>
MID-AMERICA CAPITAL PARTNERS, L.P.
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT
OPERATING EXPENSES FOR CERTAIN MULTIFAMILY ACQUISITION PROPERTIES
DECEMBER 31, 1995
(1) ACCOUNTING POLICIES
DESCRIPTION
The accompanying financial statement includes the operations of certain
properties (the Acquisition Properties) owned by parties unaffiliated with
Mid-America Capital Partners, L.P. (the Partnership). The Acquisition Properties
were acquired by Mid America Apartment, L.P. (MAALP) on the dates indicated
below. MAALP is expected to contribute the Acquisition Properties, along with
other properties owned by MAALP, to the Partnership in exchange for a 99%
limited partnership interest in the Partnership. The Acquisition Properties
included in the financial statement are as follows:
NUMBER OF
LOCATION APARTMENT
NAME OF PROPERTY UNITS DATE ACQUIRED
- ------------------------- ---------------- ---------- -----------------
Lakeside................. Jacksonville, FL 416 March 12, 1996
Savannah Creek........... Memphis, TN 204 July 25, 1996
Sutton Place............. Memphis, TN 252 July 25, 1996
Crosswinds............... Jackson, MS 360 July 25, 1996
Napa Valley.............. Little Rock, AR 240 October 20, 1996
BASIS OF PRESENTATION
The accompanying financial statement is not representative of the actual
operations for the periods presented. Certain expenses have been excluded
because the Partnership does not anticipate that they will be incurred in future
operations of the property. Expenses excluded consist of depreciation and
amortization, management fees and other costs not directly related to the future
operations of the Acquisition Properties. Interest expense has been included in
the Historical Summary to the extent that a note payable is assumed in
connection with the acquisition of the Acquisition Property. Operating expenses
include payroll, utilities, advertising and other general and administrative
costs. Management is not aware of any material factors relating to these
Acquisition Properties that would cause this financial statement not to be
indicative of future operating results as related to revenue and certain
expenses.
The accompanying combined historical summary of gross income and direct
operating expenses for certain multifamily acquisition properties was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in registration statement on Form S-3 of
Mid-America Capital Partners, L.P. and excludes material amounts that would not
be comparable to those resulting from the proposed future operations of the
properties.
INCOME RECOGNITION
Revenues from rental property are recognized when due from tenants. Leases
are generally for one year or less.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying unaudited financial information includes revenues and
certain expenses of the Acquisition Properties from January 1, 1996 to the
earlier of December 31, 1996 or the date of acquisition by MAALP. The unaudited
information has been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although management believes that the disclosures are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments and eliminations, consisting only of normal
recurring adjustments, necessary to present fairly the historical statement of
revenues and certain expenses for the period have been included. The results of
operations for such interim period are not necessarily indicative of the results
for the full year.
F-40
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Mid-America Capital Partners, L.P.:
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses (Historical Summary) of the Acquisition Property
(Tiffany Oaks Apartments), as described in Note 1, for the year ended December
31, 1996. This Historical Summary is the responsibility of the Acquisition
Property's management. Our responsibility is to express an opinion on this
Historical Summary for the Acquisition Property based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary for the Acquisition
Property. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the overall
presentation of the Historical Summary for the Acquisition Property. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary for the Acquisition Property was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the registration statement
on Form S-3 of Mid-America Capital Partners, L.P. and excludes material amounts
described in Note 1 to the Historical Summary, that would not be comparable to
those resulting from the proposed future operations of the properties as
described in Note 1 and is not intended to be a complete presentation of the
Acquisition Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly,
in all material respects, the gross income and direct operating expenses
described in Note 1 to the Historical Summary for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
November 24, 1997
F-41
<PAGE>
MID-AMERICA CAPITAL PARTNERS, L.P.
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
(TIFFANY OAKS APARTMENTS)
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
1996
-----------
(UNAUDITED)
GROSS INCOME -- total revenue........... $ 1,853
DIRECT OPERATING EXPENSES:
Operating expenses................. 547
Real estate taxes.................. 172
Repairs and maintenance............ 43
-----------
762
-----------
GROSS INCOME IN EXCESS OF
DIRECT OPERATING EXPENSES.... $ 1,091
===========
See accompanying notes to Historical Summary of Gross Income and
Direct Operating Expenses for the Acquisition Property.
F-42
<PAGE>
MID-AMERICA CAPITAL PARTNERS, L.P.
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
(TIFFANY OAKS APARTMENTS)
DECEMBER 31, 1996
(1) ACCOUNTING POLICIES
DESCRIPTION
The accompanying financial statement includes the operations of Tiffany
Oaks Apartments (the "Acquisition Property") owned by parties unaffiliated
with Mid-America Capital Partners, L.P. (the Partnership). The Acquisition
Property included in the financial statement, a multifamily residential property
located in Altamonte Springs, Florida, was acquired by Mid-America Apartment,
L.P. (MAALP) on December 18, 1996 and contains 288 apartment units. MAALP is
expected to contribute the Acquisition Property, along with other properties
owned by MAALP, to the Partnership in exchange for a 99% limited partnership
interest in the Partnership.
BASIS OF PRESENTATION
The accompanying financial statement is not representative of the actual
operations for the period presented. Certain expenses have been excluded because
the Partnership does not anticipate that they will be incurred in future
operations of the property. Expenses excluded consist of depreciation and
amortization, management fees, and other costs not directly related to the
future operations of the Acquisition Property. Interest expense has been
included in the Historical Summary to the extent that a note payable is assumed
in connection with the acquisition of the Acquisition Property. Operating
expenses include payroll, utilities, advertising, and other general and
administrative costs. Management is not aware of any material factors relating
to this Acquisition Property that would cause this financial statement not to be
indicative of future operating results as related to revenue and certain
expenses.
The accompanying combined historical summary of gross income and direct
operating expenses for Tiffany Oaks Apartments, (the "Acquisition Property"),
was prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in registration statement on
Form S-3 of Mid-America Capital Partners, L.P. and excludes material amounts
that would not be comparable to those resulting from the proposed future
operations of the properties.
INCOME RECOGNITION
Revenues from rental property are recognized when due from tenants. Leases
are generally for one year or less.
F-43
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM_14.__OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the Certificates registered
hereby.
Registration fee to the SEC............. $ 44,250
Rating Agency Fees...................... 50,000 *
Printing expense........................ 50,000 *
Accounting fees and expenses............ 100,000 *
Legal fees and expenses................. 125,000 *
Trustees Fees........................... 15,000
Miscellaneous expenses.................. 25,000 *
----------
Total................................... $ 409,250
==========
* Estimated
ITEM_15.__INDEMNIFICATION OF DIRECTORS, OFFICERS AND TRUSTEE
The Certificates of Incorporation of the General Partner and the Depositor
obligate the General Partner and the Depositor, respectively, to indemnify and
advance expenses to present and former directors and officers to the maximum
extent permitted by Delaware law. The Delaware General Corporation Law
("DGCL") permits a corporation to indemnify its present and former directors
and officers, among others, against judgments, settlements, penalties, fines or
reasonable expenses incurred with respect to a proceeding to which they may be
made a party by reason of their service in those or other capacities if (i) such
persons conducted themselves in good faith, (ii) they reasonably believed, in
the case of conduct in their official capacities with the corporation, that
their conduct was in the best interests and, in all other cases, that their
conduct was at least not opposed to its best interests and (iii) in the case of
any criminal proceeding, they had no reasonable cause to believe that their
conduct was unlawful.
Any indemnification by the General Partner or the Depositor pursuant to the
provisions of their respective Certificates of Incorporation described above
shall be paid out of the assets of the General Partner or the Depositor, as the
case may be, and shall not be recoverable from the stockholders of such
entities. To the extent that the foregoing indemnification provisions purport to
include indemnification for liabilities arising under the Securities Act of
1933, in the opinion of the Securities and Exchange Commission such
indemnification is contrary to public policy and, therefore, unenforceable. The
General Partner and the Depositor will purchase director and officer liability
insurance for the purpose of providing a source of funds to pay any
indemnification described above.
The DGCL permits the Certificate of Incorporation of a Delaware corporation
to include a provision eliminating or limiting the personal liability of its
directors to the corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director, except that such provision cannot eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
the law or (iii) for unlawful distributions that exceed what could have been
distributed without violating the DGCL or the corporation's charter. The
Certificates of Incorporation of the Depositor and the General Partner,
respectively, contain a provision eliminating the personal liability of its
directors or officers to the General Partner or the Depositor or its
shareholders for money damages to the maximum extent permitted by Delaware law
from time to time.
The Agreement of Trust, as amended and restated, obligates the Depositor
and MAAC, jointly and severally, to indemnify the Trustee for any loss,
liability or expense incurred in connection with or related to the Trustee's
performance of its powers and duties under the Trust Agreement, including in
connection with the Trustee's execution of the Registration Statement and the
preparation and distribution of related documents.
Any indemnification by the Depositor and MAAC of the Trustee pursuant to
the Trust Agreement shall be paid out of the assets of the Depositor and MAAC,
as the case may be, and shall not be recoverable from the stockholders of such
entities. To the extent that the foregoing indemnification provisions purport to
include indemnification for liabilities arising under the Securities Act of
1933, in the opinion of the Securities and Exchange Commission such
indemnification is contrary to public policy and, therefore, unenforceable.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
1.1* -- Underwriting Agreement
3.1** -- Certificate of Limited Partnership of Mid-America Capital Partners, L.P.
3.2** -- Limited Partnership Agreement between MAAC, Inc., as General Partner and
Mid-America Apartments, L.P., a limited partner relating to the formation of
Mid-America Capital Partners, L.P., a Delaware limited partnership
3.3** -- Certificate of Incorporation of MAACP, Inc.
3.4** -- Bylaws of MAACP, Inc.
3.5** -- Certificate of Incorporation of Mid-America Finance, Inc.
3.6 -- Amended and Restated Bylaws of Mid-America Finance, Inc.
4.1** -- Form of Restated Supplemental Indenture among Mid-America Capital Partners, L.P. and
Mid-America Apartments, as issuer and La Salle National Bank, as Trustee
4.2 -- Form of Agreement of Trust between Mid-America Finance, Inc. as depositor, Mid-America Apartment
Communities, Inc. and La Salle National Bank, as Trustee
4.3 -- Form of Certificate (included in Exhibit 4.5)
4.4** -- Form of Bond (included in Exhibit 4.1)
4.5 -- Form of Amended and Restated Agreement of Trust between Mid-America Finance, Inc. as
depositor, Mid-America Apartment Communities, Inc. and LaSalle National Bank, as trustee
5.1** -- Opinion of Baker, Donelson, Bearman & Caldwell, a professional corporation
8.1 -- Opinion of Baker, Donelson, Bearman & Caldwell, a professional corporation, regarding tax
matters
10.1** -- Cash Collateral Account Security, Pledge and Assignment Agreement among Mid-America
Capital Partners, L.P. and Mid-America Apartments, L.P. and First Union Bank, and Morgan
Stanley Mortgage Capital, Inc., and La Salle National Bank dated November 21, 1997
10.2** -- Form of Deed of Trust, Assignment of Leases and Rents and Security Agreement
10.3** -- Form of First Amendment to Cost Collateral Agreement
12.1* -- Statement re: Computation of Ratio of Earnings to Fixed Charges
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of KPMG Peat Marwick LLP
23.3** -- Consent of Baker, Donelson, Bearman & Caldwell, a professional corporation (included in
Exhibit 5.1 and Exhibit 8.1)
23.4 -- Consent of Cushman & Wakefield
23.5 -- Consent of Creative Project Management, Inc.
23.6 -- Consent of KPMG Peat Marwick LLP
24.1** -- Power of Attorney (included on the signature page of the Registration Statement)
25.1* -- Statement of Eligibility and Qualification of Indenture Trustee on Form T-1
27.1 -- Financial Data Schedule--Mid-America Capital Partners, L.P.
27.2 -- Financial Data Schedule--Mid-America Finance, Inc.
27.3 -- Financial Data Schedule--Mid-America Mortgage Trust, 1998-1
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed as an Exhibit to the Company's Registration Statement on
Form S-3, File No. 333-42441, and incorporated by reference herein.
II-2
<PAGE>
ITEM_17.__UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Registrants pursuant to the
foregoing provisions, or otherwise, the Registrants have been advised that in
the opinion of the Securities and Exchange Commission (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 Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of 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.
(b) The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form or prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus 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) The undersigned Registrants hereby undertake to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
(d) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or 15(d) of the Securities
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the Registration Statement, shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bonafide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrants
certify that they have reasonable grounds to believe that they meet all of the
requirements for filing on Form S-3 and have duly caused this Amendment No. 2 to
the Registration Statement to be signed on their behalf by the undersigned,
thereunto duly authorized, in the City of Memphis, State of Tennessee on
February 10, 1998.
MID-AMERICA CAPITAL PARTNERS, L.P.
a Delaware limited partnership (S-3
Registrant)
By: MAACP, Inc.
Its: General Partner
By: /s/ SIMON R.C. WADSWORTH
SIMON R.C. WADSWORTH, PRESIDENT
MID-AMERICA FINANCE, INC.,
a Delaware corporation (S-3
Registrant)
By: /s/ SIMON R.C. WADSWORTH
SIMON R. C. WADSWORTH, PRESIDENT
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ ------------------
<S> <C> <C>
* Director of General Partner and February 10, 1998
GEORGE E. CATES Depositor
* Independent Director of General February 10, 1998
HOWARD EDDINGS, JR. Partner and Depositor
* Director of General Partner and February 10, 1998
H. ERIC BOLTON, JR. Depositor
* President of General Partner and February 10, 1998
SIMON R. C. WALDSWORTH Depositor
* Secretary-Treasurer of General February 10, 1998
LYNN A. JOHNSON Partner and Depositor
* Independent Director of General February 10, 1998
STEPHEN M. CARPENTER Partner and Depositor
*By: /s/ SIMON R. C. WADSWORTH
SIMON R. C. WADSWORTH,
ATTORNEY-IN-FACT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-11 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, State of Illinois on Feburary 10, 1998.
MID-AMERICA MORTGAGE TRUST, 1998-1
a trust existing under the laws of New York
(S-11 Registrant)
By: LaSalle National Bank
not in its individual capacity
but solely as Trustee
By:/s/ MICHAEL EVANS
Name: Michael Evans
Title: Executive Vice President
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
1.1* -- Underwriting Agreement
3.1** -- Certificate of Limited Partnership of Mid-America Capital Partners, L.P.
3.2** -- Limited Partnership Agreement between MAAC, Inc., as General Partner and
Mid-America Apartments, L.P., a limited partner relating to the formation of
Mid-America Capital Partners, L.P., a Delaware limited partnership
3.3** -- Certificate of Incorporation of MAACP, Inc.
3.4** -- Bylaws of MAACP, Inc.
3.5** -- Certificate of Incorporation of Mid-America Finance, Inc.
3.6 -- Amended and Restated Bylaws of Mid-America Finance, Inc.
4.1** -- Form of Restated Supplemental Indenture among Mid-America Capital Partners, L.P. and
Mid-America Apartments, as issuer and La Salle National Bank, as Trustee
4.2 -- Form of Agreement of Trust between Mid-America Finance, Inc. as depositor, Mid-America Apartment
Communities, Inc. and La Salle National Bank, as Trustee
4.3 -- Form of Certificate (included in Exhibit 4.5)
4.4** -- Form of Bond (included in Exhibit 4.1)
4.5 -- Form of Amended and Restated Agreement of Trust between Mid-America Finance, Inc. as
depositor, Mid-America Apartment Communities, Inc. and LaSalle National Bank, as trustee
5.1** -- Opinion of Baker, Donelson, Bearman & Caldwell, a professional corporation
8.1 -- Opinion of Baker, Donelson, Bearman & Caldwell, a professional corporation, regarding tax
matters
10.1** -- Cash Collateral Account Security, Pledge and Assignment Agreement among Mid-America
Capital Partners, L.P. and Mid-America Apartments, L.P. and First Union Bank, and Morgan
Stanley Mortgage Capital, Inc., and La Salle National Bank dated November 21, 1997
10.2** -- Form of Deed of Trust, Assignment of Leases and Rents and Security Agreement
10.3** -- Form of First Amendment to Cost Collateral Agreement
12.1* -- Statement re: Computation of Ratio of Earnings to Fixed Charges
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of KPMG Peat Marwick LLP
23.3** -- Consent of Baker, Donelson, Bearman & Caldwell, a professional corporation (included in
Exhibit 5.1 and Exhibit 8.1)
23.4 -- Consent of Cushman & Wakefield
23.5 -- Consent of Creative Project Management, Inc.
23.6 -- Consent of KPMG Peat Marwick LLP
24.1** -- Power of Attorney (included on the signature page of the Registration Statement)
25.1* -- Statement of Eligibility and Qualification of Indenture Trustee on Form T-1
27.1 -- Financial Data Schedule--Mid-America Capital Partners, L.P.
27.2 -- Financial Data Schedule--Mid-America Finance, Inc.
27.3 -- Financial Data Schedule--Mid-America Mortgage Trust, 1998-1
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed as an Exhibit to the Company's Registration Statement on
Form S-3, File No. 333-42441, and incorporated by reference herein.
<PAGE>
EXHIBIT 3.6
AMENDED AND RESTATED BYLAWS
OF
MID-AMERICA FINANCE, INC.
(a Delaware corporation)
BYLAWS
(EFFECTIVE JANUARY 21, 1998)
ARTICLE I.
OFFICES
SECTION 1.1 REGISTERED OFFICE. The registered office of Mid-America
Finance, Inc.. (hereinafter called the "Corporation") in the State of Delaware
shall be at 1209 Orange Street, City of Wilmington, County of New Castle, 19801,
and the name of the registered agent in charge thereof shall be The Corporation
Trust Company.
SECTION 1.2 OTHER OFFICES. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors (herein-after called the "Board") may from
time to time determine or as the business of the Corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
SECTION 2.1 ANNUAL MEETINGS. Annual meetings of the stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
SECTION 2.2 SPECIAL MEETINGS. A special meeting of the stockholders for
the transaction of any proper business may be called at any time by the Board or
by the President.
SECTION 2.3 PLACE OF MEETINGS. All meetings of the stockholders shall be
held at such places, within or without the State of Delaware, as may from time
to time be designated by the person or persons calling the respective meeting
and specified in the respective notices or waivers of notice thereof.
<PAGE>
SECTION 2.4 NOTICE OF MEETINGS. Except as otherwise required by law,
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of record entitled to vote at such meeting by
delivering a typewritten or printed notice thereof to him personally, or by
depositing such notice in the United States mail, in a postage prepaid envelope,
directed to him at his post office address furnished by him to the Secretary of
the Corporation for such purpose or, if he shall not have furnished to the
Secretary his address for such purpose, then at his post office address last
known to the Secretary, or by transmitting a notice thereof to him at such
address by telegraph, cable, or wireless. Except as otherwise expressly required
by law, no publication of any notice of a meeting of the stockholders shall be
required. Every notice of a meeting of the stockholders shall state the place,
date and hour of the meeting, and, in the case of a special meeting, shall also
state the purpose or purposes for which the meeting is called. Notice of any
meeting of stockholders shall not be required to be given to any stockholder who
shall have waived such notice and such notice shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, except as a
stockholder who shall attend such meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Except as otherwise expressly
required by law, notice of any adjourned meeting of the stockholders need not be
given if the time and place thereof are announced at the meeting at which the
adjournment is taken.
SECTION 2.5 QUORUM. Except in the case of any meeting for the election of
directors summarily ordered as provided by law, the holders of record of a
majority in voting interest of the shares of stock of the Corporation entitled
to be voted thereat, present in person or by proxy, shall constitute a quorum
for the transaction of business at any meeting of the stockholders of the
Corporation or any adjournment thereof. In the absence of a quorum at any
meeting or any adjournment thereof, a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat or, in
the absence therefrom of all the stockholders, any officer entitled to preside
at, or to act as secretary of, such meeting may adjourn such meeting from time
to time. At any such adjourned meeting at which a quorum is present any business
may be transacted which might have been transacted at the meeting as originally
called.
SECTION 2.6 VOTING. (a) Each stockholder shall, at each meeting of the
stockholders, be entitled to vote in person or by proxy each share or fractional
share of the stock of the Corporation having voting rights on the matter in
question and which shall have been held by him and registered in his name on the
books of the Corporation:
(i) on the date fixed pursuant to Section 6.5 of these Bylaws as the
record date for the determination of stockholders entitled to notice of
and to vote at such meeting, or
(ii) if no such record date shall have been so fixed, then (1) at
the close of business on the day next preceding the day on which notice of
the meeting shall be given or (2) if
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notice of the meeting shall be waived, at the close of business on the day
next preceding the day on which the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity shall
be entitled to vote such stock. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the Corporation
he shall have expressly empowered the pledgee to vote thereon, in which case
only the pledgee, or his proxy, may represent such stock and vote thereon. Stock
having voting power standing of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants in common, tenants
by entirety or otherwise, or with respect to which two or more persons have the
same fiduciary relationship, shall be voted in accordance with the provisions of
the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by his proxy appointed by an instrument in writing,
subscribed by such stockholder or by his attorney thereunto authorized and
delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given, a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders all
matters, except as otherwise provided in the Certificate of Incorporation, in
these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon, a quorum being present. The vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and it shall state
the number of shares voted.
SECTION 2.7 LIST OF STOCKHOLDERS. The Secretary of the Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 2.8 JUDGES. If at any meeting of the stockholders a vote by
written ballot shall be taken on any question, the chairman of such meeting may
appoint a judge or judges to act with respect to such
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vote. Each judge so appointed shall first subscribe an oath faithfully to
execute the duties of a judge at such meeting with strict impartiality and
according to the best of his ability. Such judges shall decide upon the
qualification of the voters and shall report the number of shares represented at
the meeting and entitled to vote on such question, shall conduct and accept the
votes, and, when the voting is completed, shall ascertain and report the number
of shares voted respectively for and against the question. Reports of judges
shall be in writing and subscribed and delivered by them to the Secretary of the
Corporation. The judges need not be stockholders of the Corporation, and any
officer of the Corporation may be a judge on any question other than a vote for
or against a proposal in which he shall have a material interest.
SECTION 2.9 ACTION WITHOUT MEETING. Any action required to be taken at any
annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 3.1 GENERAL POWERS. The property, business and affairs of the
Corporation shall be managed by the Board.
SECTION 3.2 NUMBER AND TERM OF OFFICE. The number of directors of the
Corporation which shall constitute the whole Board of Directors shall be such
number as the Board of Directors shall from time to time fix by resolution;
provided, however, that when all the shares of the Corporation are owned
beneficially and of record by either one or two stockholders, the number of
directors may be less than three but not less than the number of stockholders;
and provided, further, that so long as the Corporation's Secured Bridge Notes
and First Mortgage Bonds issued pursuant to the Indenture by and among the
Corporation, its limited partner and LaSalle National Bank (the "Securities")
remain outstanding, the corporation shall have not less than one Independent
Director. An Independent Director shall be a duly appointed member of the Board
of Directors of the Corporation who shall not be and shall not have been at any
time in the five years preceding the time of such appointment: (a) a
stockholder, director, officer, employee, partner, attorney or counsel of the
Corporation or any of its affiliates, (b) a customer, supplier, or other person
who derives more than 10% of its purchases or revenues from its activities with
the Corporation or any of its affiliates, (c) a person or other entity
controlling or under common control with any such stockholder, partner,
customer, supplier or other person, or (d) a member of the immediate family of
any such stockholder, director, officer, employee, partner, customer, supplier
or other person. As used
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herein, the term "control" means the possession, directly or indirectly, of the
power to direct or to cause the direction of the management, policies or
activities of a person or entity, whether through ownership of voting
securities, by contract or otherwise. If the Independent Director resigns, dies
or becomes incapacitated, or such position is otherwise vacant, no action
requiring the unanimous affirmative vote of the board of directors shall be
taken until a successor Independent Director is elected and qualified and
approves such action. In the event of the death, incapacity or resignation of
the Independent Director, or a vacancy for any other reason, a successor
Independent Director shall be appointed by the remaining directors. Directors
need not be stockholders. Each of the directors of the Corporation shall hold
office until his successor shall have been duly elected and shall qualify or
until he shall resign or shall have been removed in the manner hereinafter
provided.
SECTION 3.3 ELECTION OF DIRECTORS. The directors shall be elected annually
by the stockholders of the Corporation and the persons receiving the greatest
number of votes, up to the number of directors to be elected, shall be the
directors.
SECTION 3.4 RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.5 VACANCIES. Except as otherwise provided in the Certificate of
Incorporation, any vacancy in the Board, whether because of death, resignation,
disqualification, an increase in the number of directors, or any other cause,
may be filled by vote of the majority of the remaining directors, although less
than a quorum. Each director so chosen to fill a vacancy shall hold office until
his successor shall have been elected and shall qualify or until he shall resign
or shall have been removed in the manner hereinafter provided.
SECTION 3.6 PLACE OF MEETING, ETC. The Board may hold any of its meetings
at such place or places within or without the State of Delaware as the Board may
from time to time by resolution designate or as shall be designated by the
person or persons calling the meeting or in the notice or a waiver of notice of
any such meeting. Directors may participate in any regular or special meeting of
the Board by means of conference telephone or similar communications equipment
pursuant to which all persons participating in the meeting of the Board can hear
each other, and such participation shall constitute presence in person at such
meeting.
SECTION 3.7 FIRST MEETING. The Board shall meet as soon as practicable
after each annual election of directors and notice of such first meeting shall
not be required.
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SECTION 3.8 REGULAR MEETINGS. Regular meetings of the Board may be held at
such times as the Board shall from time to time by resolution determine. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting shall be held at the same hour and place
on the nest succeeding business day not a legal holiday. Except as provided by
law, notice of regular meetings need not be given.
SECTION 3.9 SPECIAL MEETINGS. Special meetings of the Board shall be held
whenever called by the President or a majority of the authorized number of
directors. Except as otherwise provided by law or by these Bylaws, notice of the
time and place of each such special meeting shall be mailed to each director,
addressed to him at his residence or usual place of business, at least five (5)
days before the day on which the meeting is to be held, or shall be sent to him
at such place by telegraph or cable or be delivered personally not less than
forty-eight (48) hours before the time at which the meeting is to be held.
Except where otherwise required by law or by these Bylaws, notice of the purpose
of a special meeting need not be given. Notice of any meeting of the Board shall
not be required to be given to any director who is present at such meeting,
except a director who shall attend such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
SECTION 3.10 QUORUM AND MANNER OF ACTING. Except as otherwise provided in
these Bylaws or by law, the presence of a majority of the authorized number of
directors shall be required to constitute a quorum for the transaction of
business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given. The
directors shall act only as a Board, and the individual directors shall have no
power as such.
SECTION 3.11 ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
SECTION 3.12 REMOVAL OF DIRECTORS. Subject to the provisions of the
Certificate of Incorporation, any director may be removed at any time, either
with or without cause, by the affirmative vote of the stockholders having a
majority of the voting power of the Corporation given at a special meeting of
the stockholders called for the purpose.
SECTION 3.13 COMPENSATION. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him on account of his attendance at
any meetings of the Board or Committees of the Board. Neither the payment of
such
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compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.
SECTION 3.14 COMMITTEES. The Board may, by resolution passed by a majority
of the whole Board, designate one or more committees, each committee to consist
of one or more of the directors of the Corporation. Any such committee, to the
extent provided in the resolution of the Board and except as otherwise limited
by law, shall have and may exercise all the powers and authority of the Board in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it.
Any such committee shall keep written minutes of its meetings and report the
same to the Board at the next regular meeting of the Board. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or disqualified member.
ARTICLE IV.
OFFICERS
SECTION 4.1 NUMBER. The officers of the Corporation shall be a Chairman, a
President, one or more Vice Presidents (the number thereof and their respective
titles to be determined by the Board), a Secretary and a Treasurer.
SECTION 4.2 ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The officers of
the Corporation, except such officers as may be appointed in accordance with
Section 4.3, shall be elected annually by the Board at the first meeting thereof
held after the election thereof. Each officer shall hold office until his
successor shall have been duly chosen and shall qualify or until his resignation
or removal in the manner hereinafter provided.
SECTION 4.3 ASSISTANTS, AGENTS AND EMPLOYEES, ETC. In addition to the
officers specified in Section 4.1, the Board may appoint other assistants,
agents and employees as it may deem necessary or advisable, including one or
more Assistant Secretaries, and one or more Assistant Treasurers, each of whom
shall hold office for such period, have such authority, and perform such duties
as the Board may from time to time determine. The Board may delegate to any
officer of the Corporation or any committee of the Board the power to appoint,
remove and prescribe the duties of any such assistants, agents or employees.
SECTION 4.4 REMOVAL. Any officer, assistant, agent or employee of the
Corporation may be removed, with or without cause, at any time: (a) in the case
of an officer, assistant, agent or employee appointed by the Board, only by
resolution of the Board; and (b) in the case of an officer, assistant, agent or
employee, by any officer of the Corporation or committee of the Board upon whom
or which such power of removal may be conferred by the Board.
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SECTION 4.5 RESIGNATIONS. Any officer or assistant may resign at any time
by giving written notice of his resignation to the Board or the Secretary of the
Corporation. Any such resigna tion shall take effect at the time specified
therein, or, if the time be not specified, upon receipt thereof by the Board or
the Secretary, as the case may be; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 4.6 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause, may be filled for the
unexpired portion of the term thereof in the manner prescribed in these Bylaws
for regular appointments or elections to such office.
SECTION 4.7 CHAIRMAN. The Chairman shall be the chief executive officer of
the Corporation and, subject to the control of the Board, shall in general
supervise and control all of the business and affairs of the Corporation. He
shall, when present, preside over all meetings of the shareholders and of the
Board. He may sign, with or without the secretary or any other proper officer of
the Corporation thereunto authorized by the Board, certificates for shares of
the Corporation, any deeds, mortgages, bonds, contracts or other instruments
which the Board has authorized to be executed, except in cases where the signing
and execution thereof shall be expressly delegated by the Board or these Bylaws
to some other officer or agent of the Corporation, or shall be required by law
to be otherwise signed or executed; and in general shall perform all duties
incident to the office of Chairman and such other duties as may be prescribed by
the Board from time to time.
SECTION 4.8 THE PRESIDENT. The President of the Corporation shall be the
chief operating officer of the Corporation and shall have, subject to the
control of the Board, general and active supervision and management over the
business of the Corporation and over its several officers, assistants, agents
and employees.
SECTION 4.9 THE VICE PRESIDENTS. Each Vice President shall have such
powers and perform such duties as the Board may from time to time prescribe. At
the request of the President, or in case of the President's absence or inability
to act upon the request of the Board, a Vice President shall perform the duties
of the President and when so acting, shall have all the powers of, and be
subject to all the restrictions upon, the President.
SECTION 4.10 THE SECRETARY. The Secretary shall, if present, record the
proceedings of all meetings of the Board, of the stockholders, and of all
committees of which a secretary shall not have been appointed in one or more
books provided for that purpose; he shall see that all notices are duly given in
accordance with these Bylaws and as required by law; he shall be custodian of
the seal of the Corporation and shall affix and attest the seal to all documents
to be executed on behalf of the Corporation under its seal; and, in general, he
shall perform all the duties incident to the office of Secretary and such other
duties as may from time to time be assigned to him by the Board.
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SECTION 4.11 THE TREASURER. The Treasurer shall have the general care and
custody of the funds and securities of the Corporation, and shall deposit all
such funds in the name of the Corporation in such banks, trust companies or
other depositories as shall be selected by the Board. He shall receive, and give
receipts for, moneys due and payable to the Corporation from any source
whatsoever. He shall exercise general supervision over expenditures and
disbursements made by officers, agents and employees of the Corporation and the
preparation of such records and reports in connection therewith as may be
necessary or desirable. He shall, in general, perform all other duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board.
SECTION 4.12 COMPENSATION. The compensation of the officers of the
Corporation shall be fixed from time to time by the Board. None of such officers
shall be prevented from receiving such compensation by reason of the fact that
he is also a director of the Corporation. Nothing contained herein shall
preclude any officer from serving the Corporation, or any subsidiary corpora
tion, in any other capacity and receiving such compensation by reason of the
fact that he is also a director of the Corporation. Nothing contained herein
shall preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving proper compensation therefor.
ARTICLE V.
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.1 EXECUTION OF CONTRACTS. The Board, except as in these Bylaws
otherwise provided, may authorize any officer or officers, agent or agents, to
enter into any contract or execute any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances; and unless so authorized by the, Board or by these Bylaws, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or in any amount.
SECTION 5.2 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
payment of money, notes or other evidence of indebtedness, issued in the name of
or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board. Each such officer, assistant, agent or attorney shall
give such bond, if any, as the Board may require.
SECTION 5.3 DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board may select, or as may
be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the purpose
of collection for the account of the Corporation, the President, any Vice
President or the Treasurer (or any other officer or officers, assistant or
assistants,
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agent or agents, or attorney or attorneys of the Corporation who shall from time
to time be determined by the Board) may endorse, assign and deliver checks,
drafts and other orders for the payment of money which are payable to the order
of the Corporation.
SECTION 5.4 GENERAL AND SPECIAL BANK ACCOUNTS. The Board may from time to
time authorize the opening and keeping of general and special bank accounts with
such banks, trust companies or other depositories as the Board may select or as
may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
ARTICLE VI.
SHARES AND THEIR TRANSFER
SECTION 6.1 CERTIFICATES FOR STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
Chairman, President or a Vice President, and by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any of or all of the
signatures on the certificates may be a facsimile. In case any officer, transfer
agent or registrar who has signed, or whose facsimile signature has been placed
upon, any such certificate, shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, such certificate may
nevertheless be issued by the Corporation with the same effect as though the
person who signed such certificate, or whose facsimile signature shall have been
placed thereupon, were such officer, transfer agent or registrar at the date of
issue. A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, respectively, and the
respective dates thereof, and in case of cancellation, the respective dates of
cancellation. Every certificate surrendered to the Corporation for exchange or
transfer shall be cancelled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in Section 6.4.
SECTION 6.2 TRANSFERS OF STOCK. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a transfer clerk or a
transfer agent appointed as provided in Section 6.3, and upon surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon. The person in whose name shares of stock stand on the books
of the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation. Whenever any transfer of shares shall be made for collateral
security, and not
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absolutely, such fact shall be so expressed in the entry of transfer if, when
the certificate or certificates shall be presented to the Corporation for
transfer, both the transferor and the transferee request the Corporation to do
so.
SECTION 6.3 REGULATIONS. The Board may make such rules and regulations as
it may deem expedient, not inconsistent with these Bylaws, concerning the issue,
transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
SECTION 6.4 LOST, STOLEN, DESTROYED, AND MUTILATED CERTIFICATES. In any
case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper so to do.
SECTION 6.5 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any other change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If in any case involving the
determination of stockholders for any purpose other than notice of or voting at
a meeting of stockholders or expressing consent to corporate action without a
meeting the Board shall not fix such a record date, the record date for
determining stockholders for such purpose shall be the close of business on the
day on which the Board shall adopt the resolution relating thereto. A
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of such meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.1 ACTION, ETC. OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
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director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
SECTION 7.2 ACTIONS, ETC., BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 7.3 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any indemnification
under Section 7.1 or 7.2 (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 7.1 and 7.2. Such determination shall be made (a) by the Board by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by the stockholders.
SECTION 7.4 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 7.1 or 7.2, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
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SECTION 7.5 PREPAID EXPENSES. Expenses incurred by an officer or director
in defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Corporation as authorized in this Article. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the Board deems appropriate.
SECTION 7.6 OTHER RIGHTS AND REMEDIES. The indemnification provided by
this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 7.7 INSURANCE. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation 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, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article.
SECTION 7.8 CONSTITUENT CORPORATIONS. For the purposes of this Article,
references to "the Corporation" include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation, so
that any person who is or was a director, officer, employee or agent of such a
constituent corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would if he had served the resulting or surviving
corporation in the same capacity.
SECTION 7.9 OTHER ENTERPRISES, FINES, AND SERVING AT CORPORATION'S
REQUEST. For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the
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<PAGE>
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article.
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.1 SEAL. The Board shall provide a corporate seal, which shall be
in the form of a circle and shall bear the name of the Corporation and words and
figures showing that the Corporation was incorporated in the State of Delaware
and the year of incorporation.
SECTION 8.2 WAIVER OF NOTICES. Whenever notice is required to be given by
these Bylaws or the Certificate of Incorporation or by law, the person entitled
to said notice may waive such notice in writing, either before or after the time
stated therein, and such waiver shall be deemed equivalent to notice.
SECTION 8.3 AMENDMENTS. These Bylaws, or any of them, may be altered,
amended or repealed, and new Bylaws may be made, (a) by the Board, by vote of a
majority of the number of directors then in office as directors, acting at any
meeting of the Board, or (b) by the stockholders, at any annual meeting of
stockholders, without previous notice, or at any special meeting of
stockholders, provided that notice of such proposed amendment, modification,
repeal or adoption is given in the notice of special meeting. Any Bylaws made or
altered by the stockholders may be altered or repealed by either the Board or
the stockholders.
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EXHIBIT 4.2
THIS AGREEMENT OF TRUST dated as of February 5, 1998, between MID-
AMERICA FINANCE, INC., a Delaware corporation, as depositor (the "Depositor"),
MID-AMERICA APARTMENT COMMUNITIES, INC., a Tennessee corporation ("MAAC") and
LASALLE NATIONAL BANK, a national banking association, as trustee (the
"Trustee").
W I T N E S S E T H:
WHEREAS, the Depositor and the Trustee desire to create the Mid-America
Mortgage Trust, 1998-1 (the "Trust") for the initial benefit of the Depositor;
and
WHEREAS, the Trust is being created by the Depositor with the knowledge
that simultaneously with the consummation of a public offering (the "Certificate
Offering") of commercial mortgage pass-through certificates (the "Certificates")
representing beneficial ownership of the corpus of the trust and the Depositor's
rights as the grantor of the Trust, the Depositor and the Trustee will enter
into that certain Amended and Restated Agreement of Trust in substantially the
form attached hereto as EXHIBIT A (the "Amended and Restated Trust Agreement").
NOW, THEREFORE, In consideration of the mutual agreements herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
DECLARATION OF TRUST FUND
SECTION 1.01 CREATION AND DECLARATION OF TRUST FUND. The Depositor hereby
establishes the Trust and hereby irrevocably sells, transfers, assigns,
delivers, sets over and otherwise conveys or causes to be conveyed to the
Trustee for the benefit of Depositor, without recourse, the sum of One Thousand
Dollars ($1,000.00) (the "Trust Fund").
SECTION 1.02 ACCEPTANCE BY TRUSTEE. The Trustee hereby acknowledges
receipt of the entire beneficial interest in the Trust Fund and declares that
the Trustee holds and will hold such assets delivered to the Trustee in trust,
and subject to the provisions herein set forth, for the use and benefit of the
Depositor.
SECTION 1.03 REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The
Depositor hereby represents and warrants to the Trustee that:
(a) the Depositor is a special purpose corporation, duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full power and authority to own its property, to carry
<PAGE>
on its business as presently conducted, to enter into and perform its
obligations under this Agreement, and to create the trust pursuant hereto;
(b) the execution, delivery and performance of this Agreement by the
Depositor have been duly authorized by all necessary action on the part of the
Depositor; neither the execution, delivery and performance of this Agreement,
nor the consummation of the transactions herein contemplated, nor the compliance
with the provisions hereof, will conflict with or result in a breach of, or
constitute a default under (i) any or the provisions of any law, governmental
rule, regulation, judgment, decree or order binding on the Depositor or its
properties; (ii) the certificate of incorporation or bylaws of the Depositor; or
(iii) the terms of any indenture or other agreement or instrument to which the
Depositor is a party or by which it is bound; neither the Depositor nor any of
its Affiliates is a party to, bound by, or in breach of or in violation of any
indenture or other agreement or instrument, or subject to or in violation of any
statute, order or regulation of any court, regulatory body, administrative
agency or governmental body having jurisdiction over it, which materially and
adversely affects or to the best knowledge of the Depositor may in the future
materially and adversely affect (A) the ability of the Depositor to perform its
obligations under this Agreement or (B) the business, operations, financial
condition, properties or assets of the Depositor;
(c) the execution, delivery and performance by the Depositor of this
Agreement and the consummation of the transactions contemplated hereby do not
require the consent or approval of, the giving of notice to, the registration
with, or the taking of any other action in respect of, any state, federal or
other governmental authority or agency, except such as has been obtained, given,
effected or taken prior to the date hereof;
(d) this Agreement has been duly executed and delivered by the Depositor
and, assuming due authorization, execution and delivery by the other parties
hereto, constitutes a valid and binding obligation of the Depositor enforceable
against it in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, receivership, moratorium or
other similar laws relating to or affecting the rights of creditors generally,
and by general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law);
(e) there are no actions, suits or proceedings pending or, to the best of
the Depositor's knowledge, threatened or likely to be asserted against or
affecting the Depositor, before or by any court, administrative agency,
arbitrator or governmental body (i) with respect to any of the transactions
contemplated by this Agreement or (ii) with respect to any other matter which in
the judgment of the Depositor may be determined adversely to the Depositor and
will, if determined adversely to the Depositor, materially and adversely affect
it or its business, assets, operations or condition, financial or otherwise, or
materially and adversely affect its ability to perform its obligations under
this Agreement;
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(f) the Depositor is not in default with respect to any order or decree of
any court or any order, regulation or demand of any federal, state, municipal or
governmental agency, which default might have consequences that would materially
and adversely affect the condition (financial or otherwise) or operations of the
Depositor or its properties or might have consequences that would materially and
adversely affect its performance hereunder; and
(g) the Depositor has taken no action to impair or encumber the title to
the Trust Fund or to subject it to any offsets, defenses or counterclaims during
the Depositor's ownership thereof.
The representations and warranties of the Depositor set forth in this
SECTION 1.03 shall be continuing and shall survive the transfer and assignment
of the Trust Fund to the Trustee.
ARTICLE II
DISPOSITION OF TRUST FUND
SECTION 2.01. Upon the earlier to occur of (i) December 31, 1998 or (ii)
the consummation of the Certificate Offering, the Trustee shall deliver to the
Depositor the Trust Fund. In the event the delivery occurs pursuant to clause
(i) above, the Trust shall terminate and shall be of no further force and
effect. In the event the delivery occurs pursuant to clause (ii) above, the
delivery shall not occur until the Trust has acquired ownership of the % First
Mortgage Bonds, Due 2003 of Mid-America Capital Partners, L.P. (the "Bonds") and
shall occur immediately before the Amended and Restated Trust Agreement is
executed.
ARTICLE III
CONCERNING THE TRUSTEE
SECTION 3.01 DUTIES OF TRUSTEE. The Trustee undertakes with respect to the
Trust Fund to perform such duties and only such duties as are specifically set
forth in this Agreement. Specifically, the Trustee shall, on behalf of the
Trust, execute the registration statement (the "Registration Statement")
prepared by the Depositor, and Mid-America Capital Partners, L.P. in connection
with the Certificate Offering. The Depositor shall not be obligated to monitor
or supervise the performance by the Trustee of its duties hereunder. Any
permissive right of the Trustee set forth in this Agreement shall not be
construed as a duty.
SECTION 3.02 CERTAIN MATTERS AFFECTING THE TRUSTEE.
(a) Except as otherwise provided in SECTION 3.01:
(i) the Trustee may request and rely upon and shall be protected
in acting or refraining from acting upon any resolution,
certificate of auditors or any other certificate,
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statement, instrument, opinion, report, notice, request,
consent, order, approval, bond or other paper or document
believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(ii) the Trustee may consult with counsel and any advice or opinion
of counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance with
such advice or opinion of counsel;
(iii) the Trustee shall be under no obligation to exercise any of
the trusts or powers vested in it by this Agreement or to
institute, conduct or defend any litigation hereunder or in
relation hereto at the request, order or direction of the
Depositor, pursuant to the provisions of this Agreement,
unless the Depositor shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses
and liabilities, including reasonable legal fees, which may be
incurred therein or thereby;
(iv) the Trustee shall not be personally liable for any action
reasonably taken, suffered or omitted by it in good faith and
reasonably believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this
Agreement;
(v) the Trustee shall not be bound to ascertain or inquire as to
the performance or observance of any of the terms, conditions,
covenants or agreements herein (except as specifically
required by this Agreement) or to make any investigation into
the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request,
consent, order, approval, bond or other paper or document;
(vi) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or
through agents or attorneys and shall not be liable for the
actions or omissions of any such agents or attorneys selected
with due care or the actions or omissions of the Depositor;
and
(vii) the Trustee shall not be required to expend its own funds or
otherwise incur any financial or other liability in the
performance of any of its duties hereunder if it shall have
reasonable grounds for believing that repayment of such funds
or adequate indemnity against such liability is not assured to
it.
SECTION 3.03
INDEMNIFICATION. (a) No recourse shall be had for any claim
based on any provisions of this Agreement against the Trustee in its individual
capacity, the Trustee shall not have any
4
<PAGE>
personal obligation, liability or duty whatsoever to the Depositor or any other
person with respect to any such claim, and any such claim shall be asserted
solely against the Trust Fund or any indemnitor who shall furnish indemnity as
provided in this Agreement.
(b) Neither the Trustee, by reason of the action or inaction of the
Trustee, nor any of its directors, officers, employees or agents or "control
persons" (within the meaning of the Securities Act of 1933, as amended (the
"Securities Act") or the Exchange Act (defined below)) shall be under any
liability to the Trust Fund for any action taken or for refraining from the
taking of any action in good faith pursuant to this Agreement, or for errors in
judgment. The Trustee and any director, officer, employee or agent or "control
person" (within the meaning of the Securities Act) of the Trustee shall be
indemnified jointly and severally by the Depositor and MAAC and held harmless
against any loss, liability or expense incurred in connection with or related to
the Trustee's performance of its powers and duties under this Agreement,
including in connection with the Trustee's execution of the Registration
Statement. and the preparation and distribution of related documents including
any offering materials in connection with the offering of any securities issued
pursuant to the Amended and Restated Trust Agreement.. The indemnification
provided hereunder shall survive the resignation or removal of the Trustee and
the termination of this Agreement.
(c) The Depositor and MAAC , jointly and severally, will indemnify and
hold harmless the Trustee against any losses, claims, damages or liabilities, to
which the Trustee may become subject under the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), any other securities
laws, or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any breach of any
warranty or covenant of the Depositor herein contained or any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus contained therein, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Trustee for any
legal or other expenses reasonably incurred by the Trustee in connection with
investigating or defending any such loss, claim, damage, liability or action. In
addition to their other obligations under this SECTION 3.03(C), each of the
Depositor and MAAC agree that, as an interim measure during the pendency of any
such claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this SECTION 3.03(C), it will reimburse the Trustee on a monthly
basis for all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Depositor's and MAAC's joint and several
obligation to reimburse the Trustee for such expenses and the possibility that
such payments might later be held to have been improper by a court of competent
jurisdiction. Any such interim reimbursement payments that are not made to the
Trustee within thirty (30) days of a request for reimbursement shall bear
interest at the prime rate (or reference rate or other commercial lending rate
for borrowers of the highest credit standing) published from time to time by The
Wall Street Journal (the "Prime Rate") from the date of such request. This
indemnity agreement shall be in addition to any liabilities that the Depositor
and
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<PAGE>
MAAC may otherwise have hereunder or under any securities laws or otherwise in
connection with the transaction contemplated by this Agreement and the
Registration Statement. Neither the Depositor nor MAAC shall, without the prior
written consent of the Trustee, settle or compromise or consent to the entry of
any judgment in any pending or threatened action or claim or related cause of
action or portion of such cause of action in respect of which indemnification
may be sought hereunder (whether or not the Trustee is a party to such action or
claim), unless such settlement, compromise or consent includes an unconditional
release of the Trustee from all liability arising out of such action or claim
(or related cause of action or portion thereof). The indemnity agreement in this
SECTION 3.03(C) shall extend upon the same terms and conditions to, and shall
inure to the benefit of, each person, if any, who controls the Trustee within
the meaning of the Securities Act or the Exchange Act to the same extent as such
agreement applies to the Trustee.
(d) In order to provide for just and equitable contribution in
circumstances under which the indemnity provided for in this Section 3.03 is for
any reason judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the right of appeal) to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Depositor and MAAC, on the
one hand, and the Trustee, on the other hand, shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
such indemnity incurred by the Depositor and MAAC and the Trustee, as incurred,
(i) in such proportions as is appropriate to reflect the relative benefits
received by the Depositor and MAAC on the one hand and the Trustee on the other
from the offering of the securities pursuant to the Registration Statement, or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Depositor and MAAC, on the one hand, and the Trustee, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Depositor and MAAC on the
one hand and the Trustee on the other in connection with the offering of
securities pursuant to the Registration Statement shall be deemed to be in the
same proportion that the total net proceeds from the offering of such securities
(before deducting expenses) received by the Depositor and the fee received by
the Trustee bear to the aggregate offering price of such such securities.
Relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the Depositor or MAAC,
on the one hand, or by the Trustee, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Depositor, MAAC, and the Trustee agree that it
would not be just and equitable if contributions pursuant to this Section
3.03(d) were determined by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section
3.03(d). The amount paid or payable by a party as a result of the losses,
claims, damages or liabilities referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending such action or
6
<PAGE>
claim. For purposes of this Section 3.03(d), each person, if any, who controls
the Trustee within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Trustee.
SECTION 3.04 TRUSTEE'S FEES AND EXPENSES. The Depositor shall pay or cause
to be paid to the Trustee the Trustee Fee (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express trust)
for all services rendered by the Trustee in the execution of the Trust Fund and
in the exercise and performance of any of the powers and duties hereunder of the
Trustee.
SECTION 3.05 ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The Trustee hereunder
shall not be an Affiliate of the Depositor and shall at all times be a
corporation organized and doing business under the laws of any State, the United
States of America, or the District of Columbia, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus of at
least $100,000,000 (or shall be a member of a bank holding system, the aggregate
combined capital and surplus of which is at least $100,000,000), and shall be
subject to supervision or examination by Federal, State, or District of Columbia
authority and which, in the case of any successor Trustee as evidenced in
writing by each Rating Agency, will not adversely affect the then current rating
of the Offered Certificates. If such corporation publishes reports of condition
at least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, the Trustee shall resign
immediately in the manner and with the effect specified in SECTION 3.06.
SECTION 3.06 RESIGNATION AND REMOVAL OF TRUSTEE.
(a) The Trustee may at any time resign and be discharged from the trusts
hereby created by (i) giving written notice of resignation to the Depositor not
less than 60 days before the date specified in such notice when, subject to
SECTION 3.07, such resignation is to take effect, and (ii) acceptance by a
successor trustee appointed by the Depositor in accordance with SECTION 3.07
meeting the qualifications set forth in SECTION 3.05. If no successor trustee
shall have been so appointed and have accepted appointment within 30 days after
the giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee.
(b) The Depositor, may at any time, upon the payment to the Trustee of all
fees, costs and expenses (including, without limitation, costs and expenses
incurred by the Trustee in connection with its removal and the transfer of its
duties hereunder to a successor Trustee) and indemnification payments then owing
pursuant to this Agreement, remove the Trustee and appoint a successor trustee
by written instrument or instruments, signed by the Depositor, one complete set
of which instrument or instruments shall be set to the Trustee so removed and
one complete set to the successor so appointed.
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(c) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall become
effective upon acceptance of appointment by the successor trustee as provided in
SECTION 3.07.
SECTION 3.07 SUCCESSOR TRUSTEE. Any successor trustee appointed as
provided in SECTION 3.06 shall execute, acknowledge and deliver to the Depositor
and to its predecessor trustee an instrument accepting such appointment
hereunder. Thereupon the resignation or removal of the predecessor trustee shall
become effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as trustee herein. The predecessor trustee shall deliver or cause to be
delivered to the successor trustee any documents and statements held by it
hereunder, and the Depositor and the predecessor trustee shall execute and
deliver such instruments and do such other things as may reasonably be required
for more fully and certainly vesting and confirming in the successor trustee all
such rights, powers, duties, and obligations.
No successor trustee shall accept appointment as provided in this Section
unless at the time of such acceptance such successor trustee shall be eligible
under the provisions of SECTION 3.05.
SECTION 3.08 MERGER OR CONSOLIDATION OF TRUSTEE. Any entity into which the
Trustee may be merged or converted or with which it may be consolidated or any
entity resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any person or entity succeeding to all or
substantially all of the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided that such person or entity shall be
eligible under the provisions of SECTION 3.05, without the execution or filing
of any paper or further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
SECTION 3.09 LIMITATION ON RIGHTS OF THE TRUSTEE. The Trustee shall have
only those rights and powers specifically set forth herein as necessary,
appropriate and incidental to the performance of its duties hereunder,
including, without limitation, the right and power to hold the Trust Fund for
the benefit of the Depositor and to distribute the Trust Fund to the Depositor
as provided in SECTION 2.01 hereof. The Trustee shall have no right or power to
(i) sell or otherwise transfer the Trust Fund, except pursuant to the provisions
of SECTION 2.01, (ii) borrow any money on behalf of or from the Trust, or (iii)
acquire additional property for inclusion in the Trust, with the exception of
the Bonds and any other property specifically identified in the Amended and
Restated Trust Agreement.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.01 AMENDMENT. This Agreement may be amended from time to time by
the mutual agreement of the Depositor and the Trustee.
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SECTION 4.02 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
SECTION 4.03 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HERETO SHALL BE DETERMINED
IN ACCORDANCE WITH SUCH LAWS.
SECTION 4.04 NOTICES. All demands, notices and communications to any party
hereunder shall be in writing and shall be deemed to have been duly given when
delivered to (i) in the case of the Depositor, to Mid-America Finance, Inc.,
Simon R.C. Wadsworth, 6584 Poplar Avenue, Suite 340, Memphis, Tennessee, 38138,
with a copy to John A. Good, Baker, Donelson, Bearman & Caldwell, 165 Madison
Avenue, Suite 2000, Memphis, Tennessee 38103, and (ii) in the case of the
Trustee, to 135 South LaSalle Street, Suite 1625, Chicago, Illinois, 60674-4170,
Attention: Asset-Backed Securities Trust Services; MidAmerica 1998-1; or in each
case such other address as may hereafter be furnished to the other parties
hereto in writing.
SECTION 4.05 SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
SECTION 4.06 REPRODUCTION OF DOCUMENTS. This Agreement and all documents
relating thereto, including, without limitation, (i) consents, waivers and
modifications which may hereafter be executed, (ii) documents received by any
party at the closing, and (iii) financial statements, certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process. The parties agree that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
SECTION 4.07 NO PARTNERSHIP. Nothing herein contained shall be deemed or
construed to create a partnership or joint venture between the parties hereto.
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SECTION 4.08 SUCCESSORS AND ASSIGNS. The rights and obligations of any
party hereto shall not be assigned by such party without the prior written
consent of the other parties hereto. This Agreement shall inure to the benefit
of and be binding upon the Depositor, and the Trustee and their respective
permitted successors and assigns.
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IN WITNESS WHEREOF, the Parties hereto have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the
day and year first above written.
MID-AMERICA FINANCE, INC.
as Depositor
By: /s/Simon R.C. Wadsworth
Name: Simon R.C. Wadsworth
Title: Executive Vice President and CFO
LASALLE NATIONAL BANK
as Trustee
By: /s/ Susan S. Steves
Name: Susan S Steves
Title: Executive Vice President
Mid-America Apartment Communities, Inc., a Tennessee corporation hereby joins in
this Agreement for the purpose of the indemnification obligations contained in
Section 3.03 of this Agreement.
MID-AMERICA APARTMENT COMMUNITIES, INC.
By: /s/ Simon R.C. Wadsworth
Title: Executive Vice President and CFO
11
EXHIBIT 8.1
[BAKER, DONELSON, BEARMAN & CALDWELL LETTERHEAD]
JOHN A. GOOD
DIRECT DIAL: (901) 577-2148
INTERNET ADDRESS: [email protected]
February 9, 1998
Board of Directors of Mid-America Finance, Inc.
6584 Poplar Avenue, Suite 340
Memphis, Tennessee 38138
LaSalle National Bank
135 South LaSalle Street, Suite 1625
Chicago, Illinois 60647-4107
Re: Mid-America Mortgage Trust, 1998-1, Commercial Mortgage
Pass-Through Certificates, Series 1998-1
Ladies and Gentlemen:
We have acted as Special Tax Counsel to Mid-America Capital Partners,
L.P., a Delaware limited partnership (the "Borrower"), Mid-America Finance,
Inc., a Delaware corporation (the "Depositor") and Mid-America Mortgage Trust,
1998-1, a trust formed under the laws of the state of New York (the "Trust"), in
connection with the issuance by the Borrower of its $142,000,000 aggregate
principal amount ___% First Mortgage Bonds, Due 2003 (the "Bonds") to the
Depositor, and the Depositor's deposit of the Bonds into the Trust, and the
issuance by the Trust of its Commercial Mortgage Pass-Through Certificates,
Series 1998- 1 (the "Certificates") in a public offering (the "Offering"). We
have been requested to render our opinion regarding certain tax matters
affecting the Trust, the Bonds and the Certificates.
INFORMATION RELIED ON
In rendering the opinions expressed herein, we have examined such
documents as we have deemed appropriate, including the Agreement of Trust dated
as of February 4, 1998 between the Depositor, Mid- America Apartment
Communities, Inc. and LaSalle National Bank, as trustee (the "Trust Agreement"),
the form of Supplemental, Restated Indenture of Trust dated as of November 21,
1997 among the Borrower,
<PAGE>
Board of Directors of Mid-America Finance, Inc.
February 9, 1998
Page 2
LaSalle National Bank as indenture trustee, and Mid-America Apartments, L.P.
(the "Indenture"), the form of Bond and the form of Certificate included in the
Indenture and the Trust Agreement, respectively, the registration statement on
Form S-3, as amended, and the registration statement on Form S-11, of the
Borrower, Depositor and Trust, respectively, and such other documents and
instruments as we have deemed necessary for purposes of rendering this opinion.
In our examination of documents, we have assumed, with your consent, that all
documents submitted to us as photocopies or telecopies faithfully reproduce the
originals thereof, that such originals are authentic, that all such documents
have been or will be duly executed to the extent required, and that all
statements of fact and representations set forth in such documents are accurate.
In rendering this opinion, we have reviewed the Internal Revenue Code of
1986, as amended (the "Code"), the applicable Treasury regulations under
relevant sections thereof (the "Regulations"), published rulings of the Internal
Revenue Service (the "Service"), private letter rulings of the Service, and such
other authorities as we have deemed necessary and appropriate for rendering this
opinion.
OPINIONS
Based upon the foregoing, it is our opinion that:
(1) The Trust is a "grantor trust" within the meaning of Sections 671
et. seq. of the Code.
(2) The Bonds are evidence of indebtedness and not interests in the
underlying parcels of real property that are pledged as collateral for the Bonds
pursuant to mortgages and deeds of trust.
The opinion expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinions are based solely on the documents
that we have examined and the additional information that we have obtained. Our
opinion cannot be relied upon if any of the facts contained in such documents or
in any such additional information is, or later becomes, inaccurate or if any of
the facts set out in the Representation Letters is, or later becomes,
inaccurate.
Our opinion is limited to the federal income tax matters specifically
covered hereby, and we have not been asked to address, nor have we addressed,
any other federal, state, local, or foreign income, estate, gift, transfer,
sales, use, or other tax consequences that may result from the transactions
contemplated hereby.
<PAGE>
Board of Directors of Mid-America Finance, Inc.
February 9, 1998
Page 3
This opinion is being delivered to the addressees solely in connection
with the Offering. It may not be relied upon for any other purpose or by any
person or entity other than the Depositor, the Trustee, the holders of
Certificates, and the Trust, and may not be made available to any other person
or entity, without our prior written consent.
Very truly yours,
Baker, Donelson, Bearman & Caldwell,
A Professional Corporation
By: /s/ JOHN A. GOOD
John A. Good, Shareholder
M JG 361006.1
785633-025 02/09/98
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
Shareholder and Partners
Flournoy Properties Group:
We consent to incorporation by reference in the joint registration statement on
Form S-3 of Mid-America Capital Partners, L.P. and Mid-America Finance, Inc. and
on Form S-11 of Mid-America Mortgage Trust, 1998-1, of our report dated May 5,
1997, except for note 9, which is as of September 17, 1997, with respect to the
combined balance sheets of Flournoy Properties Group as of December 31, 1996 and
1995, and the related combined statements of operations, partners' and owners'
deficit and cash flows for each of the years in the three-year period ended
December 31, 1996, which report appears in the Form 8-K of Mid-America Apartment
Communities, Inc. dated September 17, 1997, as amended. We also consent to the
reference to our firm under the caption "Experts" in the prospectus.
KPMG Peat Marwick LLP
Atlanta, Georgia
February 9, 1998
EXHIBIT 23.4
Cushman & Wakefield, Inc.
51 West 52nd Street
New York, NY 10019-6178
Tel: (212) 841-7887
Fax: (212) 841-5026
Frank P. Liantonio, MAI, CRE
Executive Managing Director
Valuation Advisory Services
February 5, 1998
We hereby consent to the inclusion in this Amendment No. 2 to the
Registration Statement on Form S-3 of Mid-America Capital Partners, L.P. and
Mid-America Finance, Inc. of the summarization of the Appraisals prepared by our
firm located in "Prospectus Summary -- Total Appraised Value," "Risk
Factors -- Appraisals," "Description of the Mortgaged Properties -- The
Appraisal Reports" and "-- Additional Mortgaged Property Information
(Appraised Value and Appraised Value per Unit)" and to the reference to our
firm under the heading "Experts" in the Prospectus.
Sincerely,
/s/ FRANK P. LIANTONIO
Frank P. Liantonio, MAI, CRE
EXHIBIT 23.5
Creative Project Management Inc.
January 27, 1998
We hereby consent to the inclusion in this Amendment No. 2 to the
Registration Statement on Form S-3 of Mid-America Capital Partners, L.P. and
Mid-America Finance, Inc. of the summarization of the Phase I Environmental Site
Assessments and Engineering Reports prepared by our firm located in
"Description of the Mortgaged Properties -- Engineering Report" and
" -- Environmental Report" and to the reference of our firm under the heading
"Experts" in the Prospectus.
Submitted by:
/s/ CHARLES K. DAILY AIA
Charles K. Daily, AIA
President
CPM Inc.
2746 Colonial Tower Drive - Cordova, TN 38018 - 901.382.6363 - 901.382.4221 Fax
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
The Partners
Brown Flournoy Equity Income Fund Limited Partnership:
We consent to the inclusion of our report dated January 17, 1997, with respect
to the balance sheets of Brown-Flournoy Equity Income Fund Limited Partnership
as of December 31, 1996 and 1995, and the related statements of operations,
partners' capital (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1996 in the joint registration statement on
Form S-3 of Mid-America Capital Partners, L.P. and Mid-American Finance, Inc.
and on Form S-11 of Mid-America Mortgage Trust, 1998-1. We also consent to the
reference to our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Baltimore, Maryland
February 9, 1998
EXHIBIT 26.1
CONSENT OF INDEPENDENT AUDITORS
We consent to incorporation by reference in the joint registration statement on
Form S-3 of Mid-America Capital Partners, L.P. and Mid-America Finance, Inc. and
on Form S-11 of Mid-America Mortgage Trust, 1998-1, of our report dated
February 14, 1997 to the consolidated balance sheets of Mid-America Apartment
Communities, Inc. (the Company) as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996,
which report is incorporated by reference in the 1996 annual report on Form 10-K
of Mid-America Apartment Communities, Inc. and to the inclusion of our report
dated November 24, 1997 to the balance sheet of Mid-America Capital Partners,
L.P. as of November 24, 1997; our report dated February 9, 1998 to the statement
of net assets of Mid-America Mortgage Trust, 1998-1, as of February 9, 1998; our
report dated November 24, 1997 to the combined balance sheets of Capital
Properties Group as of December 31, 1996 and 1995 and the related combined
statements of operations, partners' capital and cash flows for each of the years
in the three-year period ended December 31, 1996; our report dated November 24,
1997 to the combined historical summary of gross income and direct operating
expenses for certain multifamily acquisition properties for the year ended
December 31, 1996; our report dated November 24, 1997 to the combined historical
summary of gross income and direct operating expenses for certain multifamily
acquisition properties for the year ended December 31, 1995; our report dated
November 24, 1997 to the historical summary of gross income and direct operating
expenses of Tiffany Oaks Apartments for the year ended December 31, 1996; and to
the reference to our firm under the heading "Experts" in the Prospectus.
The Company's and Capital Properties Group's reports refer to the change in
their accounting method to capitalize replacement purchases for major appliances
and carpet in 1996.
KPMG Peat Marwick LLP
Memphis, Tennessee
February 9, 1998
